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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 March 31, 2003
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 May 1, 2003 was 3,028,996.
The number of shares of Class B Common Stock outstanding at May 1, 2003 was
700,639.
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THE GENERAL CHEMICAL GROUP INC.
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 2003
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months
Ended March 31, 2002 and 2003............................... 1
Consolidated Balance Sheets - December 31, 2002 and
March 31, 2003.............................................. 2
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2002 and 2003............................... 3
Notes to Consolidated Financial Statements..................... 4-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 8-9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk...................................... 10
Item 4. Controls and Procedures................................... 10
PART II. OTHER INFORMATION:
Item 3. Defaults Upon Senior Securities........................... 10-11
Item 6. Exhibits and Reports on Form 8-K.......................... 11
SIGNATURES ....................................................... 12
CERTIFICATIONS.................................................... 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
March 31,
------------------
2002 2003
------- --------
Net revenues............................................... $57,377 $67,406
Cost of revenues........................................... 49,120 63,326
Selling, general and administrative expense................ 3,952 5,147
------- -------
Operating profit (loss).................................... 4,305 (1,067)
Interest expense........................................... 3,584 3,674
Interest income............................................ 122 24
Other expense (income), net................................ 81 (249)
------- -------
Income (loss) before income taxes and minority interest.... 762 (4,468)
Minority interest.......................................... 2,543 1,675
------- -------
Loss before income taxes................................... (1,781) (6,143)
Income tax provision....................................... 6 5
------- -------
Net loss................................................ $(1,787) $(6,148)
======= =======
Loss per common share:
Basic................................................... $ (0.46) $ (1.64)
======= =======
Diluted................................................. $ (0.46) $ (1.64)
======= =======
See the accompanying notes to consolidated financial statements.
1
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, March 31,
------------ -----------
2002 2003
------------ -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 13,078 $ 13,649
Receivables, net...................................................... 49,392 43,946
Inventories........................................................... 28,248 23,369
Other current assets.................................................. 5,881 6,727
--------- ---------
Total current assets............................................... 96,599 87,691
Property, plant and equipment, net....................................... 91,062 92,149
Other assets 16,518 19,090
--------- ---------
Total assets....................................................... $ 204,179 $ 198,930
========= =========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable...................................................... $ 22,680 $ 21,079
Accrued liabilities................................................... 29,266 28,534
Current portion of long-term debt..................................... -- 47,565
--------- ---------
Total current liabilities.......................................... 51,946 97,178
Long-term debt 144,394 100,000
Other liabilities........................................................ 86,522 88,706
--------- ---------
Total liabilities.................................................. 282,862 285,884
--------- ---------
Minority interest........................................................ 33,147 34,082
--------- ---------
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: 3,382,543 and 3,208,379 shares at
December 31, 2002 and March 31, 2003, respectively................. 34 32
Class B Common Stock, $.01 par value; authorized
4,000,000 shares, issued and outstanding: 700,639 shares
at December 31, 2002 and March 31, 2003, respectively.............. 7 7
Capital deficit....................................................... (94,748) (94,746)
Accumulated other comprehensive loss.................................. (9,443) (12,501)
Retained earnings..................................................... 25,572 19,424
Treasury stock, at cost: 179,383 shares at
December 31, 2002 and March 31, 2003, respectively................. (33,252) (33,252)
--------- ---------
Total equity (deficit)................................................ (111,830) (121,036)
--------- ---------
Total liabilities and equity (deficit)............................. $ 204,179 $ 198,930
========= =========
See the accompanying notes to consolidated financial statements.
2
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended
March 31,
------------------
2002 2003
------- -------
Cash flows from operating activities:
Net loss.............................................................. $(1,787) $(6,148)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization...................................... 3,314 2,778
Decrease in receivables............................................ 4,723 5,961
(Increase) decrease in inventories................................. (4,843) 5,470
Decrease in accounts payable....................................... (56) (2,042)
Increase (decrease) in accrued liabilities......................... 1,306 (1,097)
Decrease (increase) in other liabilities and assets, net........... 1,751 (2,404)
Increase in minority interest...................................... 2,154 935
------- -------
Net cash provided by operating activities....................... 6,562 3,453
------- -------
Cash flows from investing activities:
Capital expenditures.................................................. (2,401) (2,882)
------- -------
Net cash used for investing activities.......................... (2,401) (2,882)
------- -------
Increase in cash and cash equivalents.................................... 4,161 571
Cash and cash equivalents at beginning of period......................... 16,045 13,078
------- -------
Cash and cash equivalents at end of period............................... $20,206 13,649
======= =======
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest........................................................... $ 623 $ 765
Taxes ............................................................. $(1,219) $ --
See the accompanying notes to consolidated financial statements.
3
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2003
(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 Company's recent financial performance has been negatively impacted by
lower soda ash prices, rising energy costs and the weaker economic environment.
The Company is not in compliance with its financial and other covenants
contained in its Credit Agreement as of March 31, 2003. The Company's failure to
meet such debt covenant requirements resulted in the Company's long-term debt
becoming callable by the Company's lenders. The Company has commenced
discussions with its lenders towards restructuring its existing indebtedness. If
these discussions do not result in an acceptable restructuring plan, the Company
will not have sufficient funds to repay its outstanding debt, and would explore
alternative sources of financing. However, there can be no assurance that
alternative sources of financing will be available or on terms which are
favorable to the Company. See Note 6 - Long-Term Debt for further discussion.
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 three
months ended March 31, 2003 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2003. The Company's financial
statements should be read in conjunction with the financial statements and the
notes thereto for the year ended December 31, 2002 included in the Form 10-K.
Note 2 - Comprehensive Loss
Total comprehensive loss is comprised of net loss, foreign currency
translation adjustments and the change in unrealized gains and losses on
derivative instruments. Total comprehensive loss for the three months ended
March 31, 2002 and 2003 was ($1,652) and ($9,206), respectively.
Note 3 - Loss Per Common Share
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", as amended by Statement of Financial Standards No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure",
permits an entity to continue to account for employee stock-based compensation
under APB Opinion No. 25, "Accounting for Stock Issued to Employees", or adopt a
fair value based method of accounting for such compensation. The Company has
elected to continue to account for stock-based compensation under Opinion No.
25. Accordingly no compensation expense has been recognized in connection with
options granted. Had compensation expense for options granted been determined
based on the fair value at the date of grant in accordance with Statement No.
123, the Company's net loss and loss per share would have been as follows:
4
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the three months ended March 31, 2003
(Dollars in thousands)
(unaudited)
Three Months Ended
March 31,
------------------
2002 2003
------- -------
Net loss as reported ......................................... $(1,787) $(6,148)
Deduct: Total stock based employee compensation expense
determined under fair value based methods for all awards,
net of related tax effects ................................ (44) (3)
------- -------
Pro forma net loss ........................................... $(1,831) $(6,151)
======= =======
Earnings per share:
Basic and diluted - as reported .............................. $ (0.46) $ (1.64)
Basic and diluted - pro forma ................................ $ (0.47) $ (1.64)
The computation of basic loss per common share is based on the weighted
average number of common shares and contingently issuable shares outstanding
during the period. The computation of diluted loss per common 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 and diluted loss per common
share are reconciled as follows:
Thee Months Ended
March 31,
---------------------
2002 2003
--------- ---------
Basic loss per common share:
Weighted average common shares outstanding .......... 3,894,080 3,740,724
========= =========
Diluted loss per common share:
Weighted average common shares outstanding .......... 3,894,080 3,740,724
Options and Restricted Units ........................ -- --
--------- ---------
3,894,080 3,740,724
========= =========
At March 31, 2002 and 2003, options to purchase 211,796 shares and 219,536
shares of common stock, respectively, were not included in the computation of
diluted loss 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 March 31, 2003. At March 31, 2002
and 2003, 28,469 and 11,089 restricted units and options were not included in
the calculation of diluted loss per common share because its inclusion would
have resulted in an antidilutive effect.
Note 4 - Additional Financial Information
The components of inventories were as follows:
December 31, March 31,
2002 2003
------------ ---------
Raw materials ....................................... $ 1,172 $ 1,087
Work in process ..................................... 3,134 3,466
Finished products ................................... 16,830 11,473
Supplies and containers ............................. 7,112 7,343
------- -------
$28,248 $23,369
======= =======
5
THE GENERAL CHEMICAL GROUP INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the three months ended March 31, 2003
(Dollars in thousands)
(unaudited)
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 involved the idling of the
Company's synthetic soda ash production capacity in Amherstburg, Ontario,
Canada. The balance of the restructuring reserve at December 31, 2002 was $2.1
million. Spending against this reserve was $0.3 million during the three months
ended March 31, 2003.
In the fourth quarter of 2002, the Company recorded a pretax restructuring
charge, including related asset writedowns and workforce reductions, of $7.7
million. The restructuring involved the closing of the Company's calcium
chloride production capacity in Manistee, Michigan which resulted in the
writedown of long-lived assets and workforce reductions of approximately 40
hourly and salaried employees. The balance of the restructuring reserve at
December 31, 2002 was $1.1 million. Spending against this reserve was $0.5
million during the three months ended March 31, 2003.
Note 6 - Long-Term Debt
As of March 31, 2003, the Company was not in compliance with certain
financial covenants contained in its Credit Agreement. The occurrence of an
event of default under our Credit Agreement gives our senior lenders the right,
among other things, to declare all amounts outstanding under the Credit
Agreement to be immediately due and payable, together with accrued and unpaid
interest. In addition, our senior lenders have the right to block payments of
any principal or interest obligation related to our Subordinated Notes or the
purchase or redemption of such obligations. In accordance with the Forbearance
and Amendment Agreement described below, we do not intend to make the interest
payment on the Subordinated Notes that was due on May 1, 2003. On May 31, 2003,
the 30 day grace period with respect to payment defaults on the Subordinated
Notes will expire and the failure to make the May 1, 2003 interest payment by
such date would constitute an event of default under the Subordinated Notes,
following which the holders of the Subordinated Notes may accelerate the amounts
due under the related Indenture.
On March 25, 2003, we entered into a Forbearance and Amendment Agreement
with the lenders under our Credit Agreement, pursuant to which such lenders have
agreed not to exercise any remedies for the existing defaults through July 30,
2003 to allow the Company time to pursue a restructuring of its existing
indebtedness. During the forbearance period the Company has agreed to restrict
its ability to incur additional liens, make payments on account of indebtedness
other than indebtedness under the Credit Agreement or currently scheduled
payments, make any direct or indirect payment on or in respect of the
Subordinated Notes, or request Eurodollar loans with an interest period of
longer than two months. In addition, the Company has agreed to permanently
reduce the total commitments available under our Credit Agreement to $70 million
and to reduce the total commitments during the forbearance period to the lesser
of (i) $60 million or (ii) 115% of the projected usage under the Credit
Agreement for such day according to a fixed schedule. We are also required under
the Forbearance and Amendment Agreement to meet certain milestones in the
progress of our restructuring efforts.
The Company intends to negotiate a restructuring of its indebtedness with
its senior lenders and representatives of the holders of the Subordinated Notes
over the next several months. However, there is no assurance that the Company
will be successful in reaching an agreement with its various lenders on a
restructuring plan. If the senior lenders were to accelerate maturity of amounts
due under the Credit Agreement, or if the holders of the Subordinated Notes were
to accelerate the amounts due under the Indenture, the Company would not have
sufficient funds to repay its outstanding debt, and the Company would have to
explore other strategic alternatives, including a sale of assets, obtaining
alternative sources of funding or other restructuring alternatives.
6
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the three months ended March 31, 2003
(Dollars in thousands)
(unaudited)
Note 7 - Related Party Transactions
Management Agreement
The Company is party to a management agreement with Latona Associates Inc.
(which is controlled by a stockholder of the Company) under which the Company
receives corporate supervisory and administrative services and strategic
guidance for a quarterly fee. This management fee was $412 and $421 for the
three months ended March 31, 2002 and 2003, respectively.
Transition Support Agreement
In connection with the spinoff of GenTek, Inc. ("GenTek") 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 three months ended March 31,
2002 and 2003, the Company paid GenTek $344 and $345, respectively, related to
these services and office space.
Other Transactions
GCG supplies soda ash to GenTek. For the three months ended March 31, 2002
and 2003, sales to GenTek amounted to $602 and $634, respectively.
Note 8 - Geographic Information
Income (Loss) before
Total Revenues Income Taxes
March 31, March 31,
----------------- -----------------------
2002 2003 2002 2003
------- ------- ------- -------
United States .................... $51,527 $55,807 $ 237 (3,225)
Foreign .......................... 14,788 20,991 (2,018) (2,918)
Elimination ...................... (8,938) (9,392) -- --
------- ------- ------- -------
$57,377 $67,406 $(1,781) $(6,143)
======= ======= ======= =======
Note 9 - Segment Information
Industry segment information is summarized as follows:
Three Months Ended
March 31,
------------------
2002 2003
------- --------
Net revenues:
Soda Ash ............................................... $50,438 $52,985
Calcium Chloride ....................................... 6,939 14,421
------- -------
$57,377 $67,406
======= =======
Income (loss) before income taxes:
Soda Ash ............................................... $ 3,292 $ 2,250
Calcium Chloride ....................................... (1,486) (3,530)
------- -------
Subtotal ............................................ 1,806 (1,280)
Eliminations and other corporate expenses .............. (3,587) (4,863)
------- -------
$(1,781) $(6,143)
======= =======
7
THE GENERAL CHEMICAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
For the three months ended March 31, 2003
(Dollars in thousands)
(unaudited)
Income (loss) before income taxes for eliminations and other corporate
expenses includes financial reorganization plan expenses of $1,394 recorded in
the first quarter of 2003.
Three Months Ended
March 31,
------------------
2002 2003
------- ------
Capital Expenditures:
Soda Ash ............................................... $1,236 $1,522
Calcium Chloride ....................................... 1,141 1,340
Elimination and other corporate expenses ............... 24 20
------ ------
$2,401 $2,882
====== ======
Depreciation & Amortization:
Soda Ash ............................................... $2,688 $2,292
Calcium Chloride ....................................... 406 271
Elimination and other corporate expenses ............... 220 215
------ ------
$3,314 $2,778
====== ======
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Financial Condition
March 31, 2003 Compared with December 31, 2002
Cash and cash equivalents were $13.6 million at March 31, 2003 compared
with $13.1 million at December 31, 2002. During the first three months of 2003,
the Company generated cash flow from operating activities of $3.5 million, and
used cash of $2.9 million for capital expenditures.
The Company had working capital of $(9.5) million at March 31, 2003 as
compared with $44.7 million at December 31, 2002. This decrease in working
capital principally reflects the reclassification of amounts due under the
credit agreement to current, lower receivables and inventories partially offset
by lower accounts payable and accrued liabilities and higher other current
assets.
As of March 31, 2003, the Company was not in compliance with the financial
and other covenants contained in the Credit Agreement, which constitutes an
event of default under the Credit Agreement. The Company's failure to meet such
covenant requirements, absent the Forbearance and Amendment Agreement, would
have resulted in the Credit Agreement becoming callable by the lenders. In
addition, in accordance with the Forbearance and Amendment Agreement we are not
permitted to make payments on our Subordinated Notes, and failure to pay within
the grace period for the next payment date would constitute an event of default
causing the Subordinated Notes to be callable as well.
The Company has commenced discussions with its lenders towards amending its
Credit Agreement and restructuring its obligations under the Subordinated Notes.
If these discussions do not result in an acceptable amendment or restructuring
of our existing indebtedness, or if our expectations regarding any of the other
factors enumerated above are not realized, the Company may be required to reduce
capital expenditures, sell additional assets, restructure all or a portion of
our existing debt or obtain alternative sources of financing. However, there can
be no assurance that alternative sources of financing will be available or at
terms which are favorable to the Company. To the extent that the relevant debt
covenants are not amended or the respective debt is accelerated or not otherwise
8
restructured or refinanced prior to the issuance of the Company's quarterly
report on Form 10-Q for the quarter ending June 30, 2003, a significant portion
of the Company's debt will be classified as a current liability.
The Company is significantly leveraged and, absent the restructuring, will
not have the operating cash flow to service its long-term debt. At March 31,
2003, outstanding indebtedness consisted of $100 million of Subordinated Notes,
$47.6 million outstanding under the Credit Agreement and $2.3 million of letters
of credit. 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 Subordinated Notes Indenture and Credit Agreement 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.
In addition, pursuant to the Forbearance and Amendment Agreement, the
Company agreed to restrict its ability to incur additional liens, make payments
on account of indebtedness other than indebtedness under the Credit Agreement or
currently scheduled payments, make any direct or indirect payment on or in
respect of the Subordinated Notes, or request Eurodollar loans with an interest
period of longer than two months.
Results of Operations
March 31, 2003 Compared with March 31, 2002
Net revenues for the three month period ended March 31, 2003 increased
$10.0 million to $67.4 million from $57.4 million in the comparable prior year
period. Net revenues were positively effected by higher calcium chloride volumes
due to colder winter weather and a stronger Canadian dollar, partially offset by
lower domestic soda ash prices.
Gross profit for the three month period ended March 31, 2003 decreased $4.2
million to $4.1 million from $8.3 million in the comparable prior year period.
Gross profit as a percentage of net revenues for the three month period ended
March 31, 2003 decreased to 6.1 percent from 14.4 percent for the same period in
2002. These decreases were primarily due to higher energy costs, lower domestic
soda ash prices, and higher calcium chloride feedstock costs, partially offset
by higher calcium chloride volumes.
Selling, general and administrative expense as a percentage of net revenues
for the three month period ended March 31, 2003 was 7.6 percent as compared to
6.9 percent in 2002. This increase was primarily due to costs incurred during
negotiations with our various lenders on a financial reorganization plan.
Interest expense for the three month period ended March 31, 2003 increased
$0.1 million to $3.7 million, from $3.6 million in the comparable prior year
period.
Minority interest for the three month period ended March 31, 2003 decreased
$0.8 million to $1.7 million, from $2.5 million in the comparable prior year
period. The decrease reflects lower earnings at General Chemical (Soda Ash)
Partners primarily due to lower domestic soda ash prices and higher energy
costs.
Net loss was $6.1 million for the three month period ended March 31, 2003,
versus $1.8 million for the comparable period in 2002, for the foregoing
reasons.
9
Item 3. Qualitative and Quantitative 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.
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 Credit Agreement
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. The Company has recorded the change in
fair value of this interest rate swap as a component of comprehensive income.
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 3. Defaults Upon Senior Securities
As of March 31, 2003, the Company was not in compliance with the financial
and other covenants contained in the Credit Agreement, which constitutes an
event of default under the Credit Agreement. The Company's failure to meet such
covenant requirements resulted in the Credit Agreement becoming callable by the
lenders. In addition, in accordance with the Forbearance and Amendment Agreement
we are not permitted to make payments on our Subordinated Notes, and failure to
pay within the grace period for the next payment date would constitute an event
of default causing the Subordinated Notes to be callable as well. As a result of
the Company's failure to be in compliance with its financial and other covenants
under the Credit Agreement, counterparties to the Company's interest rate swap
agreement have the right to require the Company to cash settle this agreement by
paying fair value to the counterparties.
10
The Company has commenced discussions with its lenders towards amending its
Credit Agreement and restructuring its obligations under the Subordinated Notes.
If these discussions do not result in an acceptable amendment or restructuring
of our existing indebtedness, or if our expectations regarding any of the other
factors enumerated above are not realized, the Company may be required to reduce
capital expenditures, sell additional assets, restructure all or a portion of
our existing debt or obtain alternative sources of financing. However, there can
be no assurance that alternative sources of financing will be available or at
terms which are favorable to the Company. To the extent that the relevant debt
covenants are not amended or the respective debt is accelerated or not otherwise
restructured or refinanced prior to the issuance of the Company's quarterly
report on Form 10-Q for the quarter ending June 30, 2003, a significant portion
of the Company's debt will be classified as a current liability.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Change-in-Control Agreement
10.2 Long Term Incentive Program
(b) No reports were filed on Form 8-K.
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 May 15, 2003 /s/ John M. Kehoe, Jr.
----------------------------------------------
John M. Kehoe, Jr.
President and Chief Executive Officer
(Principal Executive Officer) and Director
Date May 15, 2003 /s/ David S. Graziosi
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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: May 15, 2003
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: May 15, 2003
By: /s/ John M. Kehoe, Jr.
---------------------------------------------
Name: John M. Kehoe, Jr.
Title: President and Chief Executive Officer
14
STATEMENT OF DIFFERENCES
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The section symbol shall be expressed as................................ 'SS'