Back to GetFilings.com
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 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)
90 East Halsey Road
Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip Code)
(Formerly Liberty Lane, Hampton, New Hampshire)
Registrant's telephone number, including area code: (973) 515-3221
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently completed second
fiscal quarter: $2,398,981.
Applicable to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [_]
The number of outstanding shares of the Registrant's Common Stock as of
March 15, 2004 was 10,000,000.
Documents Incorporated by Reference:
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 12, 2004, to be filed within 120 days
after the close of the Registrant's fiscal year, are incorporated by reference
into Part III of this Annual Report on Form 10-K.
================================================================================
PART I
Item 1. Business.
Overview
GenTek Inc. (the "Company" or "GenTek") is a holding company whose
subsidiaries manufacture industrial components, performance chemicals and
communications products. GenTek's subsidiaries operate through three primary
business segments: manufacturing, performance products and communications. The
manufacturing segment provides a broad range of engineered components and
services to three principal markets: automotive, appliance and electronic, and
industrial. The performance products segment provides a broad range of
value-added chemical products and services to four principal markets:
environmental services, pharmaceutical and personal care, technology and
chemical processing. The communications segment is a global provider of
products, systems and services to the global markets for telecommunications and
data networking equipment and services, and in particular, the public telecom
and private enterprise network markets. Our products are frequently highly
engineered and are important components of, or provide critical attributes to,
our customers' end products or operations. The Company operates over 75
manufacturing and production facilities located primarily in the U.S., Canada,
and Mexico with additional facilities in Australia, China, Germany, Great
Britain, and India. GenTek has no independent operations and, therefore, is
dependent upon cash flow from its subsidiaries to meet its obligations.
Recent Development
On March 25, 2004, the Company announced that it signed a definitive
agreement to sell its KRONE communications business to ADC Telecommunications,
Inc. (ADC). Under the terms of the agreement, the Company will receive total
consideration of approximately $350 million, consisting of $291 million in cash
and the assumption by ADC of approximately $59 million of pension and
employee-related liabilities. The transaction is expected to close within 90
days of the announcement and is subject to customary conditions including
regulatory and other approvals.
Emergence From Chapter 11 Reorganization
On October 11, 2002, GenTek and 31 of its direct and indirect subsidiaries,
including its Noma Company subsidiary (collectively, the "Debtors") filed
voluntary petitions for reorganization relief under Chapter 11 of the United
States Bankruptcy Code. GenTek filed for relief under Chapter 11 as a result of
our inability to obtain an amendment to our senior credit facility. The
protection afforded by Chapter 11 allowed us and the other Debtors to continue
to serve our customers and preserve the value of our businesses, while we
reorganized and worked to develop and implement a strategic plan to deleverage
our balance sheet and create an improved long-term capital structure.
The Plan was confirmed on October 7, 2003 and became effective in
accordance with its terms on November 10, 2003. The Plan provided for the
treatment of all pre-petition claims and liabilities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Reorganization under Chapter 11 of the US Bankruptcy Code" for a further
discussion of the Plan.
The consolidated financial statements have been prepared in accordance with
Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," and on a going concern basis, which
contemplates continuity of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. Liabilities and obligations
whose
-1-
treatment and satisfaction were dependent on the outcome of the Chapter 11 cases
have been segregated and classified as liabilities subject to compromise in the
consolidated balance sheets. In connection with its emergence from bankruptcy on
November 10, 2003, the Company has adopted fresh-start reporting in accordance
with SOP 90-7. Accordingly, the Company's post-emergence financial statements
("Successor") will not be comparable with its pre-emergence financial statements
("Predecessor").
Products and Services by Segment
The following table sets forth the Company's sales by segment:
Years Ended December 31,
-----------------------------
2003(1) 2002 2001
-------- -------- --------
(In millions)
Manufacturing.................................. $ 425.9 $ 477.1 $ 478.5
Performance Products........................... 335.9 357.4 360.9
Communications................................. 337.3 294.0 405.0
-------- -------- --------
$1,099.1 $1,128.5 $1,244.4
======== ======== ========
- ----------
(1) This data is a non GAAP financial measure within the meaning of Regulation G
promulgated by the Securities and Exchange Commission. Included in Item 7.
Reconciliation of Non-GAAP Financial Measures is a reconciliation of statement
of operations data for the full year 2003 to the Predecessor Company and
Successor Company statements of operations for the periods ended November 10,
2003 and December 31, 2003, respectively. Management believes that this
information is the most relevant and useful formation for making comparisons to
the period ended December 31, 2002.
Manufacturing Segment
The manufacturing segment provides a broad range of engineered components
and services to three principal markets: automotive, appliance and electronic,
and industrial. The Company's products for these markets are described below:
Automotive. For the automotive market, the Company provides:
o precision-engineered components for valve-train systems, including
stamped and machined rocker and roller-rocker arms, cam follower
rollers, cam follower roller axles, antifriction bearings, mechanical
roller tappets and other hardened/machined components;
o electronic wire and cable assemblies, such as wire harnesses, ignition
cables, molded parts, electro-mechanical assemblies, engine block
heaters, battery blankets and various electrical switches, used in the
manufacture of automobiles, light and heavy duty trucks and personal
recreation vehicles such as snowmobiles and personal water crafts;
o computer-aided and mechanical vehicle and component testing services
for the transportation industry; and
o fluid transport and handling equipment for automotive service
applications.
The Company's precision-engineered stamped and machined engine components
for valve-train systems improve engine efficiency by reducing engine friction
and component mass. These components are used both in traditional overhead valve
and in the increasingly popular single and double overhead cam engines which
power cars, light trucks and sport utility vehicles. Over the last several
years, the Company has benefited from the design transition of overhead valve
engines to overhead cam engines providing a strong position with which to
participate in the industry's latest efforts to improve fuel
-2-
efficiency and power. Increased design use of additional valves per cylinder to
improve fuel/air throughput have resulted in volume growth on specific engine
applications.
The Company's wire and cable assembly products include a variety of
automotive electronic components for use in OEM production and the aftermarket.
The Company is a leading Tier-2 supplier of products such as wire harnesses,
ignition cables, engine block heaters, battery blankets and various electrical
and electro-mechanical switches and assemblies.
Through its automotive testing offerings, the Company provides mechanical
testing services and computer-aided design, engineering and simulation services
for automotive structural and mechanical systems to OEMs and Tier 1 suppliers.
The Company provides a wide range of testing services for automotive components
and systems from single sub-systems, such as chassis, suspension, seats and
seating assemblies, to entire vehicles. The Company's engineering and simulation
services provide customers with finite element modeling, kinematics, and crash
and variation simulation analyses, and allow its customers to test their
automotive products for durability, stress, noise, vibration and environmental
considerations.
Automotive manufacturers generally award business to their suppliers by
individual engine line or model, often for multiple-model years. The loss of any
individual engine line or model contract would not be material to the Company.
However, an economic downturn in the automotive industry as a whole or other
events (e.g., labor disruptions) resulting in significantly reduced operations
of any of DaimlerChrysler, Ford or General Motors could have a material adverse
impact on the results of the Company's manufacturing segment. None of these
customers accounted for 10 percent or more of the Company's revenues in 2003.
Appliance and Electronic. The Company produces custom-designed power cord
systems and wire and cable assemblies for a broad range of appliances and
electronic products including:
o household appliances, such as refrigerators, freezers, dishwashers,
washing machines, ovens, ranges and vacuum cleaners;
o electronic office equipment, including copiers and printers; and
o various electronic products, such as medical equipment, ATM machines
and gaming machines.
The Company's specialized wiring expertise and high quality wire and cable
assemblies are generally provided to larger OEM customers. A highly competitive
environment has required the Company's customers to improve their productivity
by outsourcing to lower cost suppliers. The Company operates manufacturing
facilities in both Canada and Mexico, and also sources certain finished products
from lower cost third party manufacturers in Asia. In addition, as part of our
continuing efforts to improve our competitive cost position, we expect to
establish our own wire and cable assemblies production facility in Asia within
the next twelve months.
The Company also owns a 50 percent interest in PrettlNoma Systems GmbH, a
joint venture that produces modular control panel systems for consumer appliance
manufacturers. PrettlNoma Systems is based in Neuruppin, Germany and, in
addition, operates facilities in the United States, Mexico, Poland and Turkey.
Industrial. For the industrial market, the Company manufactures:
o custom-designed wire harness and power cord systems for power tools,
motors, pumps and
-3-
other industrial products; and
o wire and cable for industrial markets, the commercial and residential
construction industries and for a wide variety of end market uses by
OEMs.
The Company produces a broad product line of single and multi conductor
wire and cable, wire harnesses and power cord systems. The Company's wire
jacketing expertise includes the use of polyvinyl chloride (PVC), rubber,
thermoplastic elastomer (TPE) and cross-link compounds.
Performance Products Segment
The Company's performance products segment provides a broad range of
value-added products and services to four principal markets: environmental
services, pharmaceutical and personal care, technology and chemical processing.
The Company's products and services for these markets are described below.
Environmental Services. With a network of 35 water treatment chemical
plants located throughout the United States and Canada, the Company is the
largest North American producer of aluminum sulfate, or "alum", which is used as
a coagulant in potable water and waste water treatment applications, and a
leading supplier of ferric sulfate and other specialty flocculents
(polymer-based materials used for settling and/or separating solids from
liquids). The Company's water treatment products and services are designed to
address the important environmental issues confronting its customers. These
value-added products and services provide cleaner drinking water, restore
algae-infested lakes, reduce damaging phosphorus runoff from agricultural
operations, and significantly reduce pollution from industrial waste water.
In the environmental market, the Company also provides sulfuric acid
regeneration services to the refining and chemical industries, and pollution
abatement and sulfur recovery services to selected refinery customers.
Refineries use sulfuric acid as a catalyst in the production of alkylate, a
gasoline blending component with favorable performance and environmental
properties. The alkylation process contaminates and dilutes the sulfuric acid,
thereby creating the need to dispose of or regenerate the contaminated acid. The
Company transports the contaminated acid back to the Company's facilities for
recycling and redelivers the fresh, recycled acid back to customers. This
"closed loop" process offers customers significant savings versus alternative
disposal methods and also benefits the environment by significantly reducing
refineries' waste streams. Similar regeneration services are provided to
manufacturers of ion exchange resins and silicone polymers.
Pharmaceutical and Personal Care. The Company is a leading supplier of the
active chemical ingredients used in the manufacture of antiperspirants, and also
supplies active ingredients used in prescription pharmaceuticals, nutritional
supplements, nutraceuticals, veterinary health products and other personal care
products. Our customer base includes many of the world's leading personal care
companies, and we are favorably positioned with both North American and European
sourcing capabilities.
Technology. The Company provides ultrahigh-purity electronic chemicals for
the semiconductor and disk drive industries. The Company's electronic chemicals
include ultrahigh-purity acids, caustics, solvents, etchants and formulated
photo ancillaries for use in the manufacture of semiconductor processing chips
and computer disk drives.
-4-
Chemical Processing. The Company manufactures a broad range of products
that serve as chemical intermediates in the production of such everyday products
as newspapers, tires, paints, dyes and carpets. The Company's products include:
o alum and polymer-based enhanced coagulants used in paper manufacturing
to impart water resistance;
o sodium nitrite, of which the Company is one of only two North American
producers, primarily used as a reactant in the manufacture of dyes,
pigments and rubber processing chemicals;
o potassium fluoride and fluoborate derivatives sold into the metal
treatment, agrochemical, surfactant and analytical reagent markets;
and
o sulfuric acid, which is used in the manufacture of titanium pigments,
fertilizers, synthetic fibers, steel, petroleum and paper, as well as
many other products.
Communications Segment
The communications segment is a global provider of products, systems and
services for local and wide area data and communications networks. These
products and services use and build on the throughput-enhancing technology that
the Company has developed. The Company's offerings include throughput-optimized
copper and fiber-optic cabling and connectivity products for both public and
private enterprise networks, as well as design, installation and maintenance
services for wide-area wireline and wireless networks.
The Company competes in the global markets for telecommunications and data
networking equipment and services, particularly the public telecom (or access)
and private enterprise (or premise) segments of these markets. The public
telecommunications network is comprised of the long-haul network (long distance
copper and fiber cables), the metro area (city wide) network, and the access
portion of the network. The Company competes primarily in this access portion
which consists of the telecommunications central office, remote terminals and
the local loop also known as the "last mile." The local loop links the
enterprise customer's home or office to the metro area and the long-haul
portions of the public network. The enterprise segment of the market consists of
the voice, data and video networks located within the customer's (or end-user's)
premises.
The communications segment's customers include Fortune 1000 companies,
incumbent local exchange carriers (ILECs), competitive local exchange carriers
(CLECs), internet service providers (ISPs), managed service providers (MSPs),
data networking equipment distributors, government institutions, public
utilities and academic institutions.
For further information on geographic and segment data, see "Note 16 -
Geographic and Industry Segment Information" in the Notes to the Consolidated
Financial Statements.
Competition
Competition in the manufacturing segment's markets is based upon a number
of factors including design and engineering capabilities, quality, price and the
ability to meet customer delivery requirements. In the automotive market, the
Company competes with, among others, Eaton, INA, Ingersoll-Rand, Molex, Timken,
Yazaki and captive OEMs. In the appliance and electronic and industrial markets,
the Company competes with Belden, General Cable, International Wire, Nexans and
Viasystems, among others.
-5-
Although the Company's performance products segment generally has
significant market share positions in the product areas in which it competes,
most of its end markets are highly competitive. In the pharmaceuticals and
personal care market, the Company's major competitors include Giulini, Summit
and Westwood. The Company's competitors in the environmental market include the
refineries that perform their own sulfuric acid regeneration, as well as DuPont,
Marsulex, Peak, PVS and Rhodia, which also have sulfuric acid regeneration
facilities that are generally located near their major customers. In addition,
the Company competes with Geo Specialty Chemicals, U.S. Aluminates and other
regional players in the water treatment market. Competitors in the technology
market include Air Products and Tyco/Mallinckrodt-Baker. Competitors in the
chemical processing market include BASF, Calabrian, Rhodia, Solvay S.A. and U.S.
Salt.
Competition in the markets served by the communications segment is based on
a number of factors, including but not limited to: product features, quality,
performance and reliability; product-line breadth and end-to-end systems
capabilities; global distribution and customer support capabilities; customer
service and technical support; relationships with customers, distributors and
system integrators; product interoperability and the ability to support emerging
protocols; brand recognition and price. Further, the ability to achieve and
maintain successful performance is dependent on our ability to develop products
that meet the ever-changing requirements of data and voice communications
technology. Due to the breadth of the Company's products and services, it
competes against different competitors in different product and service areas,
with the majority of its competitors focusing on only particular segments of the
total market in which the Company competes.
In the cabling and connectivity systems market, the primary competitors
capable of supplying entire solutions are Cable Design Technologies,
CommScope/Systimax, Nexans and Tyco/AMP. Additionally, competitors that supply
only the cabling portion of a complete structured cabling solution include
Belden, General Cable and Optical Cable Corporation. Connectivity competitors
include ADC Telecommunications, Hubbell, Huber & Suhner, Molex, Ortronics,
Reichle & De-Massari and 3M/Quante.
Suppliers; Availability of Raw Materials
The Company purchases a variety of raw materials for its businesses. The
primary raw materials used by the manufacturing segment are copper and steel.
The Company's performance products segment's competitive cost position is, in
part, attributable to its control of certain raw materials that serve as the
feedstocks for many of its products. Consequently, major raw material purchases
are limited primarily to sulfuric acid where it is uneconomical for the Company
to supply itself due to distribution costs, soda ash (for the manufacture of
sodium nitrites), bauxite and hydrate (for the manufacture of alum), zirconium
based products (for the manufacture of antiperspirant active ingredients) and
sulfur (for the manufacture of sulfuric acid). The Company's primary raw
materials in its communications segment are copper, steel and plastic.
We purchase raw materials from a number of suppliers and, in most cases,
believe that alternative sources are available to fulfill our needs. A number
of the raw materials we purchase are subject to cyclical price movements. Over
the past twelve months, commodity prices, in general, have trended upward. In
particular, recent tightening of supply in the steel market has put upward
pressure on steel prices, while copper prices have also risen substantially in
the last several months. The Company continues its efforts to ensure it has
sufficient access to required raw materials at competitive prices and to pass
along raw material price increases where possible.
Sales and Distribution
-6-
The Company's manufacturing segment has approximately 50 sales, marketing
and customer service personnel. Generally, the Company markets its products
directly to its customers, but in certain industrial markets a distribution
network is used. The manufacturing segment's technical and engineering staff is
an integral part of the segment's sales and distribution effort. Since many of
the Company's products are precision-engineered and custom-designed to customer
specifications, the Company's sales force and engineers work closely with its
customers in designing, producing, testing and improving its products.
In the Company's performance products segment, the Company employs
approximately 104 sales, marketing, distribution and customer service personnel.
The sales force is divided into several specialized groups which focus on
specific products, end-users and geographic regions. This targeted approach
provides the Company with insight into emerging industry trends and creates
opportunities for product development.
The Company's communications segment has over 350 sales, marketing and
customer service personnel in 25 countries around the world. The Company's
products are sold directly to key account customers, often pursuant to
multi-year agreements, and via its international third-party sales and
distribution network for smaller accounts.
Seasonality; Backlogs
The businesses of the manufacturing and communications segments are
generally not seasonal. Within the performance products segment, the
environmental services business has higher volumes in the second and third
quarters of the year, owing to (i) higher spring and summer demand for sulfuric
acid regeneration services from gasoline refinery customers to meet peak summer
driving season demand and (ii) higher spring and summer demand from water
treatment chemical customers to manage seasonally high and low water conditions.
The other markets that the performance products segment serves are generally not
seasonal. Due to the nature of the Company's businesses, there are no
significant backlogs.
Environmental Matters
The Company's various manufacturing operations, which have been conducted
at a number of facilities for many years, are subject to numerous laws and
regulations relating to the protection of human health and the environment in
the U.S., Canada, Australia, China, Germany, Great Britain, India, Mexico and
other countries. The Company believes that it is in substantial compliance with
such laws and regulations. However, as a result of its operations, the Company
is involved from time to time in administrative and judicial proceedings and
inquiries relating to environmental matters. Based on information available at
this time with respect to potential liability involving these facilities, the
Company believes that any such liability will not have a material adverse effect
on its financial condition, cash flows or results of operations. However,
modifications of existing laws and regulations or the adoption of new laws and
regulations in the future, particularly with respect to environmental and safety
standards, could require the Company to make expenditures which may be material
or otherwise adversely impact the Company's operations.
The Company maintains a program to manage its facilities' compliance with
environmental laws and regulations. Expenditures for 2003 approximated $17
million (of which approximately $4 million represented capital expenditures and
approximately $13 million related to ongoing operations and the management and
remediation of potential environmental contamination from prior operations).
Expenditures for 2002 approximated $17 million (of which approximately $3
million represented capital expenditures and approximately $14 million related
to ongoing operations and the management and
-7-
remediation of potential environmental contamination from prior operations). The
Company expects expenditures similar to 2003 levels in 2004. In addition, if
environmental laws and regulations affecting the Company's operations become
more stringent, costs for environmental compliance may increase above historical
levels.
The Comprehensive Environmental Response Compensation and Liability Act of
1980 ("CERCLA") and similar statutes, have been construed as imposing joint and
several liability, under certain circumstances, on present and former owners and
operators of contaminated sites, and transporters and generators of hazardous
substances, regardless of fault. The Company's facilities have been operated for
many years by the Company or its prior owners and operators, and adverse
environmental conditions of which the Company is not aware may exist.
Modifications of existing laws and regulations and discovery of additional or
unknown environmental contamination at any of the Company's current or former
facilities could have a material adverse effect on the Company's financial
condition, cash flows and/or results of operations. In addition, the Company has
received written notice from the Environmental Protection Administration that it
has been identified as a "potentially responsible party" under CERCLA at one
third-party site. The Company does not believe that its liability, if any, for
this site will be material to its results of operations, cash flows or financial
condition.
At any time, the Company may be involved in proceedings with various
regulatory authorities which could require the Company to pay various fines and
penalties due to violations of environmental laws and regulations at its sites,
remediate contamination at some of these sites, comply with applicable standards
or other requirements, or incur capital expenditures to modify certain pollution
control equipment or processes at its sites. Again, although the amount of any
liability that could arise with respect to these matters cannot be accurately
predicted, the Company believes that the ultimate resolution of these matters
will have no material adverse effect on its results of operations, cash flows or
financial condition.
Avtex Site at Front Royal, Virginia. On March 22, 1990, the Environmental
Protection Agency (the "EPA") issued to the Company a Notice of Potential
Liability pursuant to Section 107(a) of CERCLA with respect to a site located in
Front Royal, Virginia, owned at the time by Avtex Fibers Front Royal, Inc.,
which has filed for bankruptcy. A sulfuric acid plant adjacent to the main Avtex
site was previously owned and operated by the Company. On September 30, 1998,
the EPA issued an administrative order under Section 106 of CERCLA, which
requires The General Chemical Group Inc. (whose obligations the Company assumed
in connection with the spinoff), AlliedSignal Inc. (now Honeywell) and Avtex to
undertake certain removal actions at the acid plant. On October 19, 1998, the
Company delivered to the EPA written notice of its intention to comply with that
order, subject to numerous defenses. The requirements of the order include
preparation of a study to determine the extent of any contamination at the acid
plant site. The Company has provided for the estimated costs of $1.8 million for
these activities in its accrual for environmental liabilities relating to the
order. The Company is working cooperatively with the EPA with respect to
compliance with the order and believes that such compliance will not have a
material effect on its results of operations or financial condition.
Delaware Valley Facility. On September 7, 2000, the U.S. Environmental
Protection Agency issued to the Company an Initial Administrative Order (an
"IAO") pursuant to Section 3008(h) of the Resource Conservation and Recovery Act
("RCRA"), which requires that the Company conduct an environmental investigation
of certain portions of the Company's Delaware Valley facility (the "Facility")
and, if necessary, propose and implement corrective measures to address any
historical environmental contamination at the Facility. The Company is working
cooperatively with the EPA and Honeywell Inc. (formerly AlliedSignal Inc.),
prior owner of the Facility and current owner of a plant adjacent to the
Facility, to implement the actions required under the IAO. The requirements of
the IAO
-8-
will be performed over the course of the next several years. The Company closed
the South Plant operations of its Delaware Valley facility on November 10, 2003.
This closure will result in an expansion of the investigation to be performed
under the IAO. Depending on the results of that additional investigation,
additional remedial activity may be required. The Company has provided for the
estimated costs of $5.6 million for compliance with the IAO in its accrual for
environmental liabilities. As such, the Company believes that compliance with
the IAO will not have a material effect on its results of operations or
financial condition.
Claims against the Debtors for certain environmental liabilities arising
prior to the Filing were addressed in the Chapter 11 cases. In general, monetary
claims by private (non-governmental) parties relating to remedial actions at
off-site locations used for disposal prior to the Filing and penalties resulting
from violations of applicable environmental law before that time were treated as
general unsecured claims. The Debtors are obligated to comply with applicable
environmental law in the conduct of their business, including any potential
obligation to conduct investigations and implement remedial actions at
facilities the Company owns or operates, and we are required to pay such
expenses in full.
Employees/Labor Relations
At December 31, 2003, the Company had approximately 6,100 employees, of
whom approximately 2,100 were full-time salaried employees, approximately 1,200
were full-time hourly employees (represented by 11 different unions) and
approximately 2,800 were hourly employees working in nonunion facilities.
Approximately 500 of the Company's 2,100 salaried employees are based in
Germany. German-based employees are members of unions and are subject to
industry-wide and other collective bargaining agreements.
The Company's union contracts have durations which vary from two to four
years. The Company's relationships with its different unions are generally good.
Executive Officers and Key Employees
Set forth below is information with respect to each of the Company's
executive officers and/or key employees.
Richard R. Russell, 61, President and Chief Executive Officer and a
Director since April 1999. From 1996 until April 1999, he served as the
President and Chief Executive Officer and a Director of The General Chemical
Group Inc. Mr. Russell has also been the President and Chief Executive Officer
of GenTek Holding Corporation (formerly General Chemical Corporation) since
1986.
Matthew R. Friel, 37, Vice President and Chief Financial Officer since
September 2001. Mr. Friel also served as Treasurer from September 2001 to
October 2003. From September 1997 to September 2002, Mr. Friel served as
Managing Director of Latona Associates Inc. ("Latona Associates"). Latona
Associates has provided GenTek with certain administrative functions and
corporate support services since 1995.
Mark J. Connor, 37, Vice President - Corporate Development and Investor
Relations since November 2003. From October 2000 to November 2003, Mr. Connor
served as Assistant Treasurer. From 1998 through October 2000, Mr. Connor served
as Assistant Treasurer of The Warnaco Group, Inc.
-9-
Ronald A. Lowy, 48, President and Chief Operating Officer of the Krone
Group since January 2001. Mr. Lowy served as Vice President and General Manager
- - Automotive and Industrial Products of Prestolite Wire Corporation from January
2000 to December 2000, and Vice President and General Manager - Automotive
Products of Prestolite Wire Corporation from 1995 to 2000.
Kevin J. O'Connor, 53, Vice President and Controller since April 1999. From
March 1996 until April 1999, he served as the Controller of The General Chemical
Group Inc. Mr. O'Connor has also served as Controller of GenTek Holding
Corporation (formerly General Chemical Corporation) since 1986.
Ramanlal L. Patel, 58, President of the Manufacturing segment since
December 2001. Mr. Patel has also served as President and Chief Executive
Officer of Noma Company since January 2001. From 1997 to December 2000, he was
Chief Executive Officer of Pram Filtration Corporation.
Charles W. Shaver, 45, Vice President and General Manager for Performance
Products since November 2001. Mr. Shaver served as Vice President and General
Manager for Performance Products for Arch Chemicals, Inc. from 1999 to November
2001. From September 1996 to 1999 he served as Vice President of Operations and
Chief Operating Officer for MMT, Inc.
Scott Sillars, 48, Vice President and Treasurer since October 2003. Mr.
Sillars served as Acting Treasurer from 2002 to October 2003 . From 1998 through
2002, Mr. Sillars served as an Independent Consultant in general management and
corporate finance.
Matthew M. Walsh, 37, Vice President and Operations Controller since
December 2000. Mr. Walsh served as Vice President and Treasurer from January
2000 through December 2000. Mr. Walsh served as Group Controller-Performance
Products of General Chemical Corporation from October 1997 to December 1999.
Corporate Governance and Internet Address
We emphasize the importance of professional business conduct and ethics
through our corporate governance initiatives. Our board of directors has adopted
a code of business conduct and ethics that applies to all employees, directors
and officers, including the Company's principal executive officer, principal
financial officer and principal accounting officer. Our board of directors
consists of a majority of independent directors.
Our internet address is www.gentek-global.com. We make available, free of
charge through a link on our site, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to such
reports, if any, as filed with the SEC as soon as reasonably practicable after
such filing. Our site also contains our code of business conduct and ethics and
the charters of the audit committee, corporate governance and nominating
committee and compensation committee of our board of directors. Our principal
executive offices are located at 90 East Halsey Road, Parsippany, New Jersey
07054, and our telephone number is (973) 515-3221.
Risk Factors
The following is a discussion of certain factors that currently impact or
may impact our business, operating results and/or financial condition. An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below before deciding to invest in our
common stock. In assessing these risks, you should also refer to the other
information in this Annual Report on
-10-
Form 10-K, including our financial statements and the related notes. Various
statements in this Annual Report on Form 10-K, including some of the following
risk factors, constitute forward-looking statements.
Risks Related to Our Company
We recently emerged from a Chapter 11 Bankruptcy Reorganization and have a
history of losses.
We sought protection under Chapter 11 of the Bankruptcy Code in October
2002. We incurred net losses of approximately $360 million during the fiscal
year ended December 31, 2002. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." On November 10, 2003 (which we
refer to herein as the "Effective Date"), we emerged from Chapter 11 protection
pursuant to the Plan, under which our equity ownership and capital structure
changed and our board of directors was replaced. Our return to profitability is
not assured and we cannot assure you that we will grow or achieve profitability
in the near future, or at all.
Our business is capital intensive. We cannot assure you that we will have
sufficient liquidity to fund our working capital and capital expenditures and to
meet our obligations under existing debt instruments.
Our business is capital intensive and we cannot be certain that we will
achieve sufficient cash flow in the future. Failure to maintain profitability
and generate sufficient cash flow could diminish our ability to sustain
operations, meet financial covenants, obtain additional required funds and make
required payments on any indebtedness we have incurred or may incur. If we do
not comply with the covenants in our credit agreements or otherwise default
under them, we may not have access to borrowings under our $125 million
revolving credit facility which we and substantially all of our domestic
subsidiaries, and our Canadian subsidiary Noma Company entered into on the
Effective Date (the "Revolving Credit Facility") or the funds necessary to pay
all amounts that could become due.
Although we believe that our current levels of cash and cash equivalents,
along with available borrowings on our Revolving Credit Facility, will be
sufficient for our cash requirements during the next twelve months, it is
possible that these sources of cash will be insufficient, resulting in our
having to raise additional funds for liquidity. There can be no assurance we
will have access to new funding if the need arises.
The industries in which we operate are highly competitive. This competition may
prevent us from raising prices at the same pace as our costs increase, making it
difficult for us to maintain existing business and win new business.
We face significant competition in each of our businesses. Certain of our
competitors have large market shares and substantially greater financial and
technical resources than we do. We may be required to reduce prices if our
competitors reduce prices, or as a result of any other downward pressure on
prices for our products and services, which could have an adverse effect on us.
In each of our business segments, we operate in competitive markets. Our
manufacturing segment competes with numerous international and North American
companies, including various captive operations of automotive original equipment
manufacturers (OEMs) and Tier 1 suppliers to automotive manufacturers.
Competition in the manufacturing segment's markets is based on a number of
factors, including design and engineering capabilities, price, quality and the
ability to meet customer delivery requirements. Due to the level of competition,
our customers have regularly requested price
-11-
decreases and maintaining or raising prices has been difficult over the past
several years and will likely continue to be so in the near future. Most of the
markets in which our performance products segment does business are highly
competitive, with competitors typically segregated by end market. Competition in
the performance products segment's markets is based on a number of factors,
including price, freight economics, product quality and technical support. Due
to the level of competition faced by our performance products segment, our
customers have regularly requested price decreases and maintaining or raising
prices has been difficult over the past several years and will likely continue
to be so in the near future. Our communications segment also operates in highly
competitive markets, with many of our competitors being large, technologically
sophisticated companies. Competition in our communications segment is based on a
number of factors, including technological advancements, price, product line
breadth, technical support and service and product quality.
If we are unable to compete successfully, our financial condition and
results of operations could be adversely affected.
Our current amount of leverage could adversely affect our financial health and
diminish shareholder value.
We have a significant amount of leverage, which could have negative
consequences, including:
o it may become more difficult for us to satisfy our obligations with
respect to all of our indebtedness;
o we may be more vulnerable to a downturn in the industries in which we
operate or a downturn in the economy in general;
o we may be limited in our flexibility to plan for, or react to, changes
in our businesses and the industries in which we operate;
o we may be placed at a competitive disadvantage compared to our
competitors that have less debt;
o we may determine it to be necessary to dispose of certain assets or
one or more of our businesses to reduce our debt; and
o our ability to borrow additional funds may be limited.
Additionally, there may be factors beyond our control that could impact our
ability to meet debt service requirements. Assuming that our outstanding debt as
of December 31, 2003 remains in place on similar terms throughout 2004, we would
expect our total debt service requirements to approximate $18-20 million during
2004. Our ability to meet such debt service requirements will depend on our
future performance, which, in turn, will depend on a number of factors,
including conditions in the global markets for our products, the global economy
generally, the behavior of our competitors, the financial condition and sourcing
decisions made by our customers, our future cash funding requirements for
environmental and pension liabilities, the impact of current and future tax
regulations on our cash flows and financial condition, and other factors that
are beyond our control. We can provide no assurance that our businesses will
generate sufficient cash flow from operations or that future borrowings will be
available in amounts sufficient to enable us to pay our indebtedness or to fund
our other liquidity needs. Moreover, we may need to refinance all or a portion
of our indebtedness on or before maturity. We cannot make assurances that we
will be able to refinance any of our indebtedness on commercially reasonable
terms or at all. If we are unable to make scheduled debt payments or comply with
the other provisions of our debt instruments, our various lenders will be
permitted under certain circumstances to accelerate the maturity of the
indebtedness owing to them and exercise other remedies provided for in those
instruments and under applicable law.
-12-
We are subject to restrictive debt covenants pursuant to our indebtedness. These
covenants may restrict our ability to finance our business and, if we do not
comply with the covenants or otherwise default under them, we may not have the
funds necessary to pay all amounts that could become due and the lenders could
foreclose on substantially all of our assets.
As part of our implementation of the Plan, we issued $250 million principal
amount of senior term debt under the terms of a new credit agreement (referred
to herein as the "Senior Term Loan Credit Agreement"). In addition, we entered
into a $125 million Revolving Credit Facility which matures on November 10,
2008. Both facilities are secured by substantially all of our assets.
The Revolving Credit Facility, among other things, significantly restricts
and, in some cases, effectively eliminates our ability and the ability of most
of our subsidiaries to:
o incur additional debt;
o create or incur liens;
o pay dividends or make other equity distributions;
o purchase or redeem share capital;
o make investments;
o sell assets;
o issue or sell share capital of certain subsidiaries;
o engage in transactions with affiliates;
o issue or become liable on a guarantee;
o voluntarily prepay, repurchase or redeem debt;
o create or acquire new subsidiaries; and
o effect a merger or consolidation of, or sell all or substantially all
of our assets.
Similar restrictive covenants are contained in the Senior Term Loan Credit
Agreement. These covenants, which are applicable to us and most of our
subsidiaries, restrict and, in some cases, effectively eliminate, our ability
and the ability of most of our subsidiaries to, among other things:
o incur additional debt;
o create or incur liens;
o enter into a merger or consolidation, or liquidate or dissolve
ourselves or most of our subsidiaries or dispose of all or
substantially all of our or our subsidiaries' assets;
o dispose of property;
o pay dividends or make other equity distributions;
o purchase or redeem share capital;
o make investments; and
o engage in transactions with affiliates.
In addition, under our Revolving Credit Facility, we and our subsidiaries
must comply with certain financial covenants. In the event we were to fail to
meet any of such covenants and were unable to cure such breach or otherwise
renegotiate such covenants, the lenders under those facilities would have
significant rights to seize control of substantially all of our assets. Such a
default, or a breach of any of the other obligations in the Senior Term Loan
Credit Agreement, could also trigger a default under our Revolving Credit
Facility and vice versa. The material financial covenants in our credit
agreements with which we must comply include the compliance with certain fixed
charge coverage ratios on the occurrence of an applicable triggering event. A
triggering event under the Revolving Credit Facility would occur if for any
reason the aggregate availability (as determined under the Revolving Credit
-13-
Facility) of all the borrowers under such facility is less than or equal
to $30 million at any time. A triggering event under the Senior Term Loan
Credit Agreement would occur if for any reason the availability under
the Revolving Credit Facility is less than or equal to $20 million for ninety
consecutive days. In addition, if we wish to prepay debt owing under the Senior
Term Loan Credit Agreement, at the time such prepayment is permitted we would be
required to comply with certain financial covenants.
The covenants in our Revolving Credit Facility, the Senior Term Loan Credit
Agreement and any credit agreement governing future debt may significantly
restrict our future operations. Furthermore, upon the occurrence of any event of
default under the Senior Term Loan Credit Agreement, our Revolving Credit
Facility or the agreements governing any other debt of our subsidiaries, the
lenders could elect to declare all amounts outstanding under such indentures,
credit facilities or agreements, together with accrued interest, to be
immediately due and payable. If those lenders were to accelerate the payment of
those amounts, we cannot assure you that our assets and the assets of our
subsidiaries would be sufficient to repay in full those amounts.
We are also subject to interest rate risk due to our indebtedness at
variable interest rates. Our Revolving Credit Facility and our Senior Term Loan
Credit Agreement bear interest at variable rates based on a base rate or LIBOR
plus an applicable margin. We cannot assure you that shifts in interest rates
will not have a material adverse effect on us.
We may be required to prepay our indebtedness prior to its stated maturity,
which may limit our ability to pursue business opportunities.
Pursuant to the terms of our Revolving Credit Facility and Senior Term Loan
Credit Agreement, in certain instances we are required to prepay this
indebtedness prior to their stated maturity dates, even if we are otherwise in
compliance with the covenants contained in the agreements. Specifically, (i)
certain asset sale proceeds must be used to pay down indebtedness and can
therefore not be reborrowed; and (ii) the Senior Term Loan Credit Agreement
provides that, beginning in 2005, we must apply the majority of any "excess cash
flow" above certain levels that was generated in the prior year to the
prepayment of the senior term debt.
Excess cash flow for any fiscal year of GenTek is determined by the
calculation of the excess, if any, of (a) the sum of consolidated net income for
such fiscal year, non-cash charges deducted in arriving at the consolidated net
income, decreases in consolidated working capital, non-cash loss on the
disposition of property by us and our subsidiaries, and amounts paid in respect
of liabilities that were deducted in arriving at the consolidated net income,
over (b) the sum of non-cash credits included in arriving at the consolidated
net income, cash amounts paid by us and our subsidiaries on account of capital
expenditures and other non-current assets, repayments and prepayments of
indebtedness, increases in consolidated working capital, and the amount of
non-cash gain on the disposition of property by us and our subsidiaries. These
prepayment provisions may limit our ability to utilize this excess cash flow to
pursue business opportunities.
We are a holding company that is dependent upon cash flow from our subsidiaries
to meet our financial obligations; our ability to access that cash flow may be
limited in some circumstances.
We are a holding company with no independent operations or significant
operating assets other than our investments in and advances to our subsidiaries.
We depend upon the receipt of sufficient funds from our subsidiaries through our
centralized cash management system from our domestic subsidiaries and through
dividends, loans or other distributions from our foreign subsidiaries to meet
our financial obligations. In addition, the terms of our and our subsidiaries'
existing indebtedness under the Revolving
-14-
Credit Facility, and the laws of the jurisdictions under which we and our
subsidiaries are organized, limit the payment of dividends, loan repayments
and other distributions by our subsidiaries to us under some circumstances.
In the case of the Revolving Credit Facility, these limitations arise from
the restrictive covenants. Any indebtedness that we or our subsidiaries may
incur in the future may contain similar restrictions. Further, certain
subsidiaries have their own indebtedness for which they are responsible
which may limit their ability to distribute cash to us.
Our Chapter 11 reorganization and uncertainty over our financial condition may
harm our businesses and our brand names.
Any adverse publicity or news coverage regarding our recent Chapter 11
reorganization and financial condition could have an adverse effect on parts of
our business, making it difficult to maintain relationships with existing
customers or obtain new customers. Although we have successfully consummated the
Plan, there is no assurance that any such negative publicity will not adversely
impact our results of operations, businesses or brand names in the future.
In addition, losses experienced by certain of our unsecured creditors may
adversely affect our relationships with our suppliers. If suppliers become
increasingly concerned about our financial condition, they may demand faster
payments or refuse to extend normal trade credit, both of which could adversely
affect our cash flow and our results of operations. We may not be successful in
obtaining alternative suppliers if the need arises and this would adversely
affect our results of operations.
In accordance with our Plan, potential preference rights of actions under
Section 547 of the Bankruptcy Code against non-insider creditors who received
payments within the ninety (90) days prior to our petition date have been
assigned to a Preference Claim Litigation Trust (referred to herein as the
"Trust"). This Trust, subject to certain limitations, is authorized to
prosecute, settle or waive, in its sole discretion, these preference rights.
Although this Trust is separate and distinct from the Company and the Company
will not receive any significant recoveries from the Trust, its activities may
aggravate certain of our suppliers, customers and employees, and could
potentially disrupt the flow of necessary raw materials and services, negatively
impact our sales and increase our costs, and thereby adversely affect our
results of operations.
Material changes in pension and other post-retirement benefit costs may occur in
the future. In addition, investment returns on pension assets may be lower than
assumed, which could result in larger cash funding requirements for our pension
plans, which could have an adverse impact on us.
We maintain several defined benefit pension plans covering certain
employees in Canada, Germany, Ireland and the United States. We record pension
and post retirement benefit costs in amounts developed from actuarial
valuations. Inherent in these valuations are key assumptions including the
discount rate and expected long-term rate of return on plan assets. We believe
that material changes in pension and other post retirement benefit costs may
occur in the future due to changes in these assumptions, differences between
actual experience and the assumptions used, and changes in the benefit plans.
Amounts we pay are also dependent upon interest rates. Due to current interest
rates and investment returns, some of our plans are substantially underfunded
and will require substantial cash contributions over the next several years. We
anticipate that, beginning in 2004, we will be required to make contributions to
our domestic pension plans which will average approximately $16 million per year
for the next five years. Moreover, if investment returns on pension assets are
lower than assumed, we may have substantially larger cash funding requirements
for our pension plans, which may have a material adverse impact on our
liquidity. For a further discussion of our defined benefit pension plans,
-15-
see "Management's Discussion and Analysis - Financial Condition, Liquidity and
Capital Resources" and "Management and Executive Compensation - Pension Plans."
We cannot predict the impact of, or our ability to pursue, any asset or business
disposition or acquisition.
From time to time we consider dispositions and acquisitions of assets or
businesses. We cannot predict the types of dispositions or acquisitions we may
undertake in the future or the financial impact of such actions. For example,
any after-tax cash proceeds that we would receive in connection with any
disposition would be dependent on levels of interest from potential purchasers
and the tax and other structuring elements of such transaction. As a result,
there can be no assurance as to the terms of any such disposition or
acquisition, the level of any disruption to the operations of the Company caused
by such transaction, or the long-term effect of such transaction on our
financial condition.
In addition, subject to certain exceptions, both our Revolving Credit
Facility and Senior Term Loan Credit Agreement restrict our ability to, among
other things, (a) enter into any transaction of merger, amalgamation,
reorganization or consolidation, or to transfer all or any part of our property
or equity interests, or to wind up, liquidate or dissolve or (b) acquire
property in exchange for cash or other property, whether in the form of an
acquisition of stock or other equity interests, debt or other indebtedness or
obligation, or the purchase or acquisition of any other property, loan, advance,
capital contribution or subscription. As a result, potential dispositions or
acquisitions which we may deem to be in our best interest may not be permitted
under these agreements.
We are highly dependent upon skilled employees and a number of key personnel.
Our businesses are highly dependent on skilled employees. A loss of a
significant number of key professionals or skilled employees could have a
material adverse effect on us. While we believe that our future success will
depend in large part on our continued ability to attract and retain highly
skilled and qualified personnel, there can be no assurance that we will be able
to retain and employ such personnel.
While we maintained a retention plan designed to retain certain of our key
employees during the Chapter 11 process, the final retention bonus payment under
the plan was made on December 31, 2003. Future compensation and other benefits
provided to employees will be determined under the direction of our new board of
directors. There can be no assurance that key employees will not seek other
employment following the final retention bonus payment or in response to any
future changes in employee compensation, benefit programs or other employee
matters.
In addition, certain administrative functions and corporate support
services, including pension, tax, insurance and risk management, investor
relations, corporate secretarial services, communications, recruitment and
benefits administration, have historically been provided to us by the management
company Latona Associates Inc. (Latona). After the Effective Date, we entered
into a one-year transition agreement with Latona, which expires in the fourth
quarter of 2004. By the expiration of this agreement, we intend to internally
perform through a combination of existing employees and new hires, or outsource
to other third parties in certain circumstances, the services previously
provided by Latona. As a result, unless otherwise agreed to, we will also no
longer have access to the services of Latona. Successful operation of our
businesses depends on our ability to assume or otherwise provide for these
responsibilities and may result in increased costs to us.
-16-
We may continue to pursue new acquisitions and joint ventures, and any such
transaction could adversely affect our operating results or result in increased
costs or other operating or management problems. We remain subject to the
ongoing risks of successfully integrating and managing the acquisitions and
joint ventures through which we have historically grown our business.
We have historically grown our business through acquisitions and joint
ventures. These transactions expose us to the risk of successfully integrating
those acquisitions. Such integration could impact various areas of our business,
including our workforce, management, production facilities, information systems,
accounting and financial reporting, and customer service. Disruption to any of
these areas of our business could materially harm our financial condition or
results of operations.
We may continue to pursue new acquisitions and joint ventures in the
future, a pursuit which will consume substantial time and resources. The
successful implementation of our operating strategy at current and future
acquisitions and joint ventures may require substantial attention from our
management team, which could divert management attention from our existing
businesses. The businesses we acquire, or the joint ventures we enter into,
may not generate the cash flow and earnings, or yield the other benefits we
anticipated at the time of their acquisition or formation. The risks inherent
in our strategy could have an adverse impact on our results of operation or
financial condition.
In addition, subject to certain exceptions, both our Revolving Credit
Facility and Senior Term Loan Credit Agreement restrict our ability to, among
other things, make investments, including the acquisition of property in
exchange for cash or other property, whether in the form of an acquisition of
stock or other equity interests, debt or other indebtedness or obligation, or
the purchase or acquisition of any other property, loan, advance, capital
contribution or subscription. These restrictions may prevent us from pursuing
new acquisitions and joint ventures which we would otherwise pursue.
We may experience increased costs and production delays if suppliers fail to
deliver materials to us or if prices increase for raw materials and other goods
and services that we purchase from third parties.
We purchase raw materials from a number of domestic and foreign suppliers.
Although we believe that the raw materials we require will be available in
sufficient supply on a competitive basis for the foreseeable future, increases
in the cost of raw materials, including energy and other inputs used to make our
products, could affect future sales volumes, prices and margins for our
products. If a supplier should cease to deliver goods or services to us, we
would probably find other sources, but, this disruption could result in added
cost and manufacturing delays. In addition, political instability, war,
terrorism and other disruptions to international transit routes control could
adversely impact our ability to obtain key raw materials in a timely fashion, or
at all.
Our revenues are dependent on the continued operation of our manufacturing
facilities, and breakdowns or other problems in their operation could adversely
affect our results of operations.
Our revenues are dependent on the continued operation of our various
manufacturing facilities. In particular, the operation of chemical manufacturing
plants involves many risks, including the breakdown, failure or substandard
performance of equipment, natural disasters, power outages, the need to comply
with directives of government agencies, and dependence on the ability of
railroads and other shippers to transport raw materials and finished products in
a timely manner. The occurrence of material operational problems, including but
not limited to these events, at one or more of our facilities could have a
material adverse effect on our results of operations or financial condition.
Certain facilities within each of our business segments account for a
significant share of our profits. Disruption to operations at one of these
facilities could have a material adverse impact on segment financial performance
and our overall
-17-
financial condition. In addition, in certain circumstances we could also be
affected by a disruption or closure of a customer's plant or facility to which
we supply our products.
Our principal businesses are subject to government regulation, including
environmental regulation, and changes in current regulations may adversely
affect us.
Our principal business activities are regulated and supervised by various
governmental bodies. Changes in laws, regulations or governmental policy or the
interpretations of those laws or regulations affecting our activities and those
of our competitors could have a material adverse effect on us.
For example, our various manufacturing operations, which have been
conducted at a number of facilities for many years, are subject to numerous laws
and regulations relating to the protection of human health and the environment
in the U.S., Canada, Australia, China, Germany, Great Britain, India, Mexico and
other countries. We believe that we are in substantial compliance with such laws
and regulations. However, as a result of our operations, from time to time we
are involved in administrative and judicial proceedings and inquiries relating
to environmental matters. Based on information available to us at this time with
respect to potential liability involving these facilities, we believe that any
such liability will not have a material adverse effect on our financial
condition, cash flows or results of operations. However, modifications of
existing laws and regulations or the adoption of new laws and regulations in the
future, particularly with respect to environmental and safety standards, could
require us to make expenditures which may be material or otherwise adversely
impact our operations.
In addition, the Comprehensive Environmental Response Compensation and
Liability Act of 1980 (CERCLA) and similar statutes have been construed as
imposing joint and several liability, under certain circumstances, on present
and former owners and operators of contaminated sites, and transporters and
generators of hazardous substances, regardless of fault. Our facilities have
been operated for many years by us or prior owners and operators, and adverse
environmental conditions of which we are not aware may exist. Modifications of
existing laws and regulations, and the discovery of additional or unknown
environmental contamination at any of our current or former facilities, could
have a material adverse effect on our financial condition, cash flows and/or
results of operations.
The production of chemicals is associated with a variety of hazards which could
create significant liabilities or cause our facilities to suspend their
operations.
Our operations are subject to various hazards incident to the production of
chemicals, including the use, handling, processing, storage and transportation
of certain hazardous materials. These hazards, which include the risk of
explosions, fires and chemical spills or releases, can cause personal injury and
loss of life, severe damage to and destruction of property and equipment,
environmental damage, suspension of operations and potentially subject us to
lawsuits relating to personal injury and property damages. Any such event or
circumstance could have a material adverse effect on our results of operations
or financial condition.
We may not be able to obtain insurance at our historical rates and our insurance
coverage may not cover all claims and losses.
We maintain insurance coverage on our properties, machines, supplies and
other elements integral to our business and against certain third party
litigation, environmental matters and similar events. Due to recent changes in
market conditions in the insurance industry and other factors, we may not be
able to secure insurance at a similar cost to what we have previously paid, if
at all.
-18-
In addition, there are certain types of losses, generally of a catastrophic
nature, such as earthquakes, floods, hurricanes, terrorism or acts of war, that
may be uninsurable or not economically insurable. Inflation, changes in building
codes and ordinances, environmental considerations, and other factors, including
terrorism or acts of war, also might make insurance proceeds insufficient to
repair or replace a property if it is damaged or destroyed. In addition, as a
result of the events of September 11, 2001, insurance companies are limiting
and/or excluding coverage for acts of terrorism in insurance policies. As a
result, we may suffer losses from acts of terrorism that are not covered by
insurance.
Terrorist activities and military and other actions could adversely affect our
business.
Uncertainty surrounding the possibility and scope of terrorist attacks in
the United States and abroad, military action and other socioeconomic and
political events may impact our operations in unpredictable ways, including
possible effects on our business operations, customers, the markets for our
products and the possibility that our chemical production facilities may become
targets, or indirect casualties, of possible terrorist attacks. While our
production facilities are under a heightened level of security, this level of
security may be insufficient to prevent a terrorist attack. The resulting damage
would be difficult to assess, may be severe and could include loss of life and
property damage. Available insurance coverage may not be sufficient to cover all
of the damage incurred or may be prohibitively expensive. In addition, some of
our production and other facilities are located at sites where our neighbors may
be potential targets of terrorist attacks. The resulting collateral damage may
be significant and substantial.
We are subject to risks relating to our foreign operations.
We have significant manufacturing and sales activities outside of the U.S.
and we also export products from the U.S. to various foreign countries. These
international operations and exports to foreign markets make us subject to a
number of risks such as: currency exchange rate fluctuations; foreign economic
conditions; trade barriers; exchange controls; national and regional labor
strikes; political instability; risks of increases in duties; taxes;
governmental royalties; war; and changes in laws and policies governing
operations of foreign-based companies. The occurrence of any one or a
combination of these factors may increase our costs or have other negative
effects on us.
The seasonal nature of the environmental services business could increase our
costs or have other negative effects.
Within our performance products segment, the environmental services
business has higher volumes in the second and third quarters of the year, owing
to higher spring and summer demand for sulfuric acid regeneration services from
gasoline refinery customers to meet peak summer driving season demand and higher
spring and summer demand from water treatment chemical customers to manage
seasonally high and low water conditions. The degree of seasonal peaks and
declines in the volumes of our environmental services business could increase
our costs, negatively impact our manufacturing efficiency, or have other
negative effects on our operations or financial performance.
Efforts to comply with the Sarbanes-Oxley Act will entail significant
expenditure; non-compliance with the Sarbanes-Oxley Act may adversely affect us.
The Sarbanes-Oxley Act of 2002, as well as new rules subsequently
implemented by the Commission, have required, and will require, changes to some
of our accounting and corporate governance practices, including the requirement
that we issue a report on our internal controls as required
-19-
by Section 404 of the Sarbanes-Oxley Act. We expect these new rules and
regulations to continue to increase our accounting, legal and other costs, and
to make some activities more difficult, time consuming and/or costly. In
addition, should we list our common stock on a national securities exchange or
the Nasdaq National Market, we will be subject to additional requirements. In
the event that we are unable to achieve compliance with the Sarbanes-Oxley Act
and related rules, or the rules of any national securities exchange or the
Nasdaq National Market, as applicable should we list our common stock, this may
have a material adverse effect on us.
In addition, we also expect these new rules and regulations to make it more
difficult and more expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced coverage or incur
substantially higher costs to obtain coverage. These new rules and regulations
could also make it more difficult for us to attract and retain qualified members
of our board of directors, particularly to serve on our audit committee, and
qualified executive officers.
We are dependent upon many critical systems and processes, many of which are
dependent upon hardware that is concentrated in a limited number of locations.
If a catastrophe were to occur at one or more of those locations, it could have
a material adverse effect on our business.
Our business is dependent on certain critical systems, which support
various aspects of our operations, from our computer network to our billing and
customer service systems. The hardware supporting a large number of such systems
is housed in a small number of locations. If one or more of these locations were
to be subject to fire, natural disaster, terrorism, power loss, or other
catastrophe, it could have a material adverse effect on our business. While we
believe that we maintain reasonable disaster recovery programs, there can be no
assurance that, despite these efforts, any disaster recovery, security and
service continuity protection measures we have or may take in the future will be
sufficient.
In addition, computer viruses, electronic break-ins or other similar
disruptive problems could also adversely affect our operations. Our insurance
policies may not adequately compensate us for any losses that may occur due to
any failures or interruptions in our computer systems.
Risks Related to Our Common Stock
The market price of our common stock is subject to volatility as well as trends
in our industries.
We recently emerged from Chapter 11 and the current market price of our
common stock may not be indicative of prices that will prevail in the future.
The market price of our common stock could be subject to wide fluctuations in
response to numerous factors, many of which are beyond our control. These
factors include, among other things, actual or anticipated variations in our
operating results and cash flow, the nature and content of our earnings releases
and our competitors' earnings releases, announcements of technological
innovations that impact our products, customers, competitors or markets, changes
in financial estimates by securities analysts, business conditions in our
markets and the general state of the securities markets and the market for
similar stocks, changes in capital markets that affect the perceived
availability of capital to companies in our industries, governmental legislation
or regulation, as well as general economic and market conditions, such as
recessions. In addition, in the short period since the issuance of our common
stock on the Effective Date, the price of our common stock has been somewhat
volatile and remains subject to volatility.
Trends in the industries in which we compete are likely to have a
corresponding impact on the price of our common stock. Specifically, an economic
downturn in the automotive industry as a whole or other events (e.g., labor
disruptions) resulting in significantly reduced operations at any of
-20-
DaimlerChrysler, Ford or General Motors, or at certain of our manufacturing
plants, could have a material adverse impact on the results of our manufacturing
segment. In addition, in the appliance and electronic and industrial markets,
risks include softening of appliance demand, continued price pressure from major
customers and continued competition from lower-cost Asian sources. For our
performance products business, continued weakness in the pulp and paper,
electronics or chemical processing industries could have an adverse effect on
our results of operations. In our communications segment, a loss of key
contracts with current customers and vendors in addition to weakness in economic
conditions in the communications market and competitive pricing driven by
overcapacity could have a material adverse effect on the price of our stock.
Sales of large amounts of our common stock, or the perception that large sales
could occur, may depress our stock price.
On the Effective Date, we issued an aggregate of 10,000,000 shares of our
common stock to former holders of our debt securities and other claimants. These
shares represented all of our outstanding common stock as of the Effective Date
and may be sold at any time, subject to compliance with applicable law,
including the Securities Act, and certain provisions of our certificate of
incorporation, bylaws and the Registration Rights Agreement.
Sales in the public market of large blocks of shares of our common stock
acquired pursuant to the Plan could lower our stock price and impair our ability
to raise funds in future stock offerings.
We may in the future seek to raise funds through equity offerings, or there may
be other events which would have a dilutive effect on our common stock.
In the future we may determine to raise capital through offerings of our
common stock, securities convertible into our common stock, or rights to acquire
such securities or our common stock. In any such case, the result would
ultimately be dilutive to our common stock by increasing the number of shares
outstanding.
In addition, if options or warrants to purchase our common stock are
exercised or other equity interests are granted under our management and
directors incentive plan or under other plans adopted in the future, such equity
interests will also have a dilutive effect on our common stock. Additional
shares of our common stock and additional warrants may be issued pursuant to the
Plan to certain claimants, subject to the resolution of certain claims.
In the event that the holders of California Tort Claims (as defined in the
Plan) prevail on their asserted claims against us and our insurance does not
cover such claims, stock and warrants would be issued to holders of such claims
and dilution of any outstanding shares of our common stock would occur. Although
we believe we have meritorious defenses to the California Tort Claims and, if
our insurance covers this liability, that we have sufficient insurance coverage
to satisfy any liquidated amounts relating to such claims, there can be no
assurance this will be the case.
Under the Plan, holders of California Tort Claims, to the extent they are
determined to hold allowable claims not covered by insurance, will receive
additional shares of our common stock and warrants beyond those reserved for
general unsecured creditors, in an amount that will provide the same percentage
recovery as received by general unsecured creditors.
We cannot predict the effect any such dilution may have on the price of our
common stock.
-21-
We may be unable to list our stock on a national securities exchange or the
Nasdaq National Market.
We are currently traded on the Over the Counter Bulletin Board. We are
currently reviewing the possibility of listing our common stock on a national
securities exchange or the Nasdaq National Market. Despite our efforts, we may
not be able to meet the applicable listing requirements of any national
securities exchange or the Nasdaq National Market and, therefore, our common
stock may not become listed on a national securities exchange or the Nasdaq
National Market. If our stock is not traded through a market system, it may not
be liquid and we may be unable to obtain future equity financing, or use our
common stock as consideration for mergers or other business combinations on
favorable terms or at all.
We do not expect to pay regular dividends on our common stock in the foreseeable
future.
We do not expect to pay regular dividends on our common stock in the
foreseeable future. The payment of any dividends by us in the future will be at
the discretion of our board of directors and will depend upon, among other
things, our future earnings, capital requirements, and general financial
condition. In addition, under Delaware law, unless a corporation has available
surplus or earnings it cannot declare or pay dividends on its capital stock.
Furthermore, the terms of our Revolving Credit Facility impose limitations
on the payment of dividends to us by our subsidiaries and the distribution of
earnings or making of other payments to us by our subsidiaries, which
consequently limits amounts available for us to pay dividends on our common
stock. Additionally, the Revolving Credit Facility and the Senior Term Loan
Credit Agreement directly limit our ability to pay dividends on our common
stock. The terms of any future indebtedness of our subsidiaries may generally
restrict the ability of some of our subsidiaries to distribute earnings or make
other payments to us.
Certain transfer restrictions on our common stock imposed by our charter may
inhibit market activity in our common stock.
Our common stock is subject to certain transfer restrictions imposed by our
charter. These restrictions generally prohibit the following transfers of our
equity securities without the prior written consent of our board of directors,
which consent can be withheld only if our board of directors, in its sole
discretion, determines that the transfer creates a material risk of limiting
certain tax benefits: (i) transfers to a person (including any group of persons
making a coordinated acquisition) who beneficially owns, or would beneficially
own after the transfer, more than 4.75 percent of the total value of our
outstanding equity securities, to the extent that the transfer would increase
such person's beneficial ownership above 4.75 percent of the total value of our
outstanding equity securities and (ii) transfers by a person (or group of
persons having made a coordinated acquisition) who beneficially owns more than
4.75 percent of the total value of our outstanding equity securities. The
restrictions are not applicable to transfers pursuant to a tender offer to
purchase 100 percent of our common stock for cash or marketable securities so
long as such tender offer results in the tender of at least 50 percent of our
common stock then outstanding. The restrictions begin only at such time that 25
percent of the our common stock has been transferred, for tax purposes (which
generally takes into consideration only transfers to or from shareholders who
beneficially own 5 percent of the value of our common stock), and will remain in
effect until the earlier of: (i) the second anniversary of the Effective Date or
(ii) such date as the board of directors determines, in its sole discretion,
that such restrictions are no longer necessary to protect tax benefits. These
transfer restrictions may inhibit market activity in our common stock.
-22-
Some provisions of the agreements governing our indebtedness, certain provisions
of our certificate of incorporation and Delaware law could discourage
acquisition proposals or delay a change in control that would be beneficial to
our stockholders.
We may, under some circumstances involving a change of control, be
obligated to offer to repay substantially all of our outstanding indebtedness,
and repay other indebtedness (including our Revolving Credit Facility and senior
term debt). We cannot assure you that we will have available financial resources
necessary to repay this indebtedness in those circumstances.
If we cannot repay this indebtedness in the event of a change of control,
the failure to do so would constitute an event of default under the agreements
under which that indebtedness was incurred and could result in a cross-default
under other indebtedness. The threat of this default could have the effect of
delaying or preventing transactions involving a change of control of GenTek,
including transactions in which stockholders might otherwise receive a
substantial premium for their shares over then current market prices, and may
limit the ability of our stockholders to approve transactions that they may deem
to be in their best interest.
Certain provisions of our certificate of incorporation, including the
provision restricting transfer of shares in order to assist in the preservation
of certain tax benefits, may have the effect, alone or in combination with each
other or with the existence of authorized but unissued common stock and
preferred stock, of preventing or making more difficult transactions involving a
change of control of GenTek.
Item 2. Properties.
The Company operates over 75 manufacturing and production facilities
located in the United States, Canada, Australia, China, Germany, Great Britain,
India and Mexico. The Company's headquarters are located in Parsippany, New
Jersey.
Set forth below are the locations and uses of the Company's major
properties:
Location Use
- -------- ---
Manufacturing Segment
Southfield, Michigan(1).......................... Offices
Troy, Michigan(1)................................ Production Facility and Offices
Westland, Michigan(1)............................ Production Facility
Weaverville, North Carolina(2)................... Production Facility
Upper Sandusky, Ohio(1).......................... Production Facility
Toledo, Ohio..................................... Production Facility
Defiance, Ohio(2)................................ Production Facility
Perrysburg, Ohio(2).............................. Production Facility and Offices
Mineral Wells, Texas............................. Production Facility
Imuris, Mexico................................... Production Facility
Juarez, Mexico(1)................................ Production Facility
Concord, Ontario(2).............................. Production Facility
Guelph, Ontario(1)............................... Production Facility
Scarborough, Ontario(2).......................... Production Facility
Stouffville, Ontario(2).......................... Production Facility
-23-
Tillsonburg, Ontario(1).......................... Production Facility
Waterdown, Ontario............................... Production Facility
Performance Products Segment
Hollister, California(2)......................... Production Facility and Offices
Pittsburg, California(2)......................... Production Facility
Richmond, California(2).......................... Production Facility
Augusta, Georgia................................. Production Facility
East St. Louis, Illinois......................... Production Facility
Berkeley Heights, New Jersey(2).................. Production Facility, Offices and Warehouse
Newark, New Jersey(2)............................ Production Facility
Solvay, New York(2).............................. Production Facility
Marcus Hook, Pennsylvania(2)..................... Production Facility, Offices and Warehouse
Celina, Texas(2)................................. Production Facility
Midlothian, Texas(2)............................. Production Facility
Anacortes, Washington............................ Production Facility
Thorold, Ontario................................. Production Facility
Valleyfield, Quebec.............................. Production Facility
Communications Segment
Centennial, Colorado(1).......................... Offices
Sidney, Nebraska(2).............................. Production Facility
North Bennington, Vermont(1)..................... Production Facility
Racine, Wisconsin(2)............................. Production Facility and Offices
Sydney, Australia................................ Production Facility and Offices
Cheltenham, England.............................. Production Facility and Offices
Berlin, Germany(1)............................... Production Facility and Offices
Toluca, Mexico(1)................................ Production Facility
Shanghai, People's Republic of China............. Production Facility
Bangalore, India................................. Production Facility
Offices
Hampton, New Hampshire(1)........................ Offices
Parsippany, New Jersey(1)........................ Headquarters
- ----------
(1) Leased.
(2) Mortgaged as security under the Company's senior debt facilities.
Item 3. Legal Proceedings.
The Company is involved in claims, litigation, administrative proceedings
and investigations of various types, including the Sunoco Employee litigation
discussed below, and certain environmental proceedings previously discussed.
Although the amount of any liability that could arise with respect to these
actions cannot be accurately predicted, the opinion of management based upon
currently-available information is that any such liability not covered by
insurance will have no material adverse effect on the Company's results of
operations, cash flows or financial condition. See "Item 1. Business -
Environmental Matters" above.
-24-
As previously discussed, on October 11, 2002, GenTek and 31 of its direct
and indirect subsidiaries, including its 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 continue to be jointly administered as
Case No. 02-12986 (MFW). As a result of the Debtors' commencement of the Chapter
11 cases, an automatic stay was imposed against the commencement or continuation
of legal proceedings against the Debtors outside of the Bankruptcy Court. As of
the Effective Date, the automatic stay was replaced or supplemented by the
discharge injunction imposed by the Plan. Claimants against the Debtors were
entitled to assert their claims in the Chapter 11 cases by filing a proof of
claim, to which the Debtors were entitled to object and seek a determination
from the Bankruptcy Court as to the allowability of the claim. The objection
process is continuing. Claimants who desired to liquidate their claims in legal
proceedings outside of the Bankruptcy Court will be required to obtain relief
from the automatic stay by order of the Bankruptcy Court. With the occurrence of
the Effective Date, any liquidation of claims outside the Bankruptcy Court will
be permitted only if the Bankruptcy Court agrees on motion to modify the
discharge injunction. In such event, the discharge injunction will remain in
effect with respect to the collection of liquidated claim amounts. As a general
rule, all claims against the Debtors that seek a recovery from assets of the
Debtors' estates were addressed in the Chapter 11 cases and were or will be paid
or otherwise provided for pursuant to the terms of the Plan or, where
applicable, orders of the Bankruptcy Court. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Emergence
Reorganization under Chapter 11 of the US Bankruptcy Code" for a further
discussion of the treatment of claims.
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 General Chemical Corporation alleging that sulfur dioxide and sulfur
trioxide releases from the Company's Delaware Valley facility caused various
respiratory, pulmonary and other injuries. Unspecified damages in excess of
$50,000 for each plaintiff were sought. Active discovery has taken place and the
cases were initially set for trial in March 2003.
In addition, on September 24, 1999 the same attorneys that filed the April
1998 individual actions 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 Plant. The complaint alleges that
releases of sulfur dioxide and sulfur trioxide caused injuries to the
plaintiffs, and sought, among other things, to establish a medical monitoring
fund for plaintiffs. In May 2002, the trial court denied plaintiffs' motion to
certify the case to proceed as a class action. Plaintiffs filed an appeal of
that decision.
Both the individual actions and the class action proceedings were stayed as
a result of the Company's Filing. The bankruptcy court lifted the automatic stay
for the limited purpose of allowing the parties to consummate a settlement
agreement that has been reached to resolve the individual and class action
lawsuits. Pursuant to the settlement, the Company and its insurer will pay a
total of $2,095,000 ($1.3 million of which will be paid by the Company's
insurer) following final approval of the settlement by the trial court. The
settlement received preliminary approval by the trial court and notice was sent
to the class members. Class members had until January 23, 2004 to opt out of the
settlement (however, such deadline has been extended); approximately 26 people
have submitted opt out requests, but approximately 4 reconsidered and opted-in
before the extended deadline. The settlement was finally approved by the court
and will become final after the exhaustion of all appellate and termination
rights, at which time payment will be made.
-25-
Richmond Litigation. Lawyers claiming to represent more than 47,000 persons have
filed approximately 24 lawsuits in several counties in California state court
(Alameda, Contra Costa, San Francisco superior courts), making claims against
General Chemical Corporation and, in some cases, 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. The first case was filed in 2001
and all subsequent cases were filed from March through July 2002. On May 1,
2002, a class action lawsuit arising out of the same facts was also filed. Some
of the complaints also allege damages arising out of a separate alleged release
of sulfur trioxide from the Richmond facility on November 29, 2001. 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. The Company filed a petition for
coordination to consolidate all of the state court cases before a single judge,
which was tentatively granted, but the Company filed its bankruptcy petition
before the final order was entered. The state court cases were stayed as a
result of the Filing.
Approximately 73,000 proofs of claim were submitted in the bankruptcy
proceedings on behalf of the Richmond claimants, seeking damages for the May 1,
2001 and/or November 29, 2001 releases. A preliminary review of the claimant
list indicates that the claimants include most of the plaintiffs in the state
court cases, plus several thousand duplicates and some additional claimants. In
addition, one class proof of claim was submitted. A motion for class
certification was filed but the motion was later withdrawn. The Company filed a
motion to lift the automatic stay and discharge injunction to allow liquidation
of the claims to proceed in California State Court. That motion was granted upon
stipulation of the parties, and the action is proceeding in California State
Court.
Any recovery by the plaintiffs in these lawsuits will be limited as
provided in the Plan. Pursuant to the terms of the Plan, GenTek could be
required to issue new shares of common stock and Tranche A, B and C Warrants in
accordance with the terms of the Plan to the extent insurance is not available
to cover any allowed amount of such claim.
Other Claims. The Company is subject to various other claims and legal
actions that arise in the ordinary course of business. Claims and legal actions
against the Debtors that existed as of the date of the Filing are subject to the
automatic stay and/or discharge injunction, and recoveries sought thereon from
assets of the Debtors were dealt with in the Chapter 11 cases pursuant to the
terms of the Plan or, where applicable, orders of the Bankruptcy Court.
Item 4. Submission of Matters to a Vote of Security Holders.
No items were submitted to a vote of security holders of the Company,
through the solicitation of proxies or otherwise, during the fourth quarter of
fiscal 2003.
-26-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information
On November 10, 2003, both classes of our previously existing common stock
were cancelled in connection with our emergence from Chapter 11 protection, and
we issued new common stock. Therefore, our existing common stock has been quoted
on the Over the Counter Bulletin Board (OTCBB) under the symbol "GETI" since
November 2003. As a result, the market for our common stock is new and not well
developed. Over the counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
The following table sets forth, for the period indicated, the high and low
sale prices in dollars as quoted on the OTCBB for our existing common stock.
2003: High Low
------ ------
November 11, 2003 through December 31, 2003... $37.00 $34.75
As of March 15, 2004 there were 39 stockholders of record of the Company's
common stock.
The Company's previously existing common stock was traded on the Over The
Counter Bulletin Board under the symbol "GNKIQ" until November 10, 2003. There
was no established public trading market for the Company's previously existing
Class B Common Stock. The table below shows the high and low recorded sales
prices of the Company's previously existing common stock, for each quarterly
period within the last two years.
2003 High Low
- ---- ------ ------
First Quarter................................................. $0.022 $0.010
Second Quarter................................................ $0.036 $0.008
Third Quarter................................................. $0.008 $0.003
October 1 through November 10, 2003........................... $0.007 $0.003
2002
- ----
First Quarter................................................. $1.970 $0.300
Second Quarter................................................ $0.470 $0.150
Third Quarter................................................. $0.230 $0.080
Fourth Quarter................................................ $0.095 $0.015
Dividends
No dividends were paid in 2003 or 2002. We currently intend to retain our
earnings for use in the operation and expansion of our business and for debt
service and, therefore, we do not anticipate paying regular cash dividends in
the foreseeable future. Additionally, the Revolving Credit Facility and Senior
Term Loan Credit Agreement directly limit the ability of the Company to pay cash
dividends.
-27-
Equity Compensation Plan Information
The following table gives information about our existing Common Stock that
may be issued upon the exercise of options, warrants and rights under our 2003
Management and Directors Incentive Plan as of December 31, 2003.
- ----------------------------------------------------------------------------------------------------
Equity Compensation Plan Information
- ----------------------------------------------------------------------------------------------------
Number of Securities
remaining available for
future issuance under
Number of Securities to Weighted average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan Category (a) (b) (c)
- ----------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security 0 0
holders
- ----------------------------------------------------------------------------------------------------
Equity compensation plans 0(1) 1,000,000
not approved by security
holders
- ----------------------------------------------------------------------------------------------------
Total 0 1,000,000
- ----------------------------------------------------------------------------------------------------
- ----------
(1) Available for issuance under the 2003 Management and Directors Incentive
Plan. This plan was approved by the bankruptcy court and became effective on
November 10, 2003 concurrent with the effective date of the Plan of
Reorganization. As of December 31, 2003, no awards had been granted under the
plan.
2003 Management and Directors Incentive Plan
Pursuant to the Company's 2003 Management and Directors Incentive Plan,
employees and directors of the Company and its subsidiaries may be granted stock
options, restricted stock, stock appreciation rights, restricted stock,
performance share awards, dividend equivalent rights or any other stock-based
awards. The compensation committee of the Board has the authority to select
participants and determine grants of awards. The maximum number of shares with
respect to which any awards may be granted during a calendar year to any
participant is 100,000. Upon a "change in control" of the company, unless
otherwise determined by the compensation committee, each outstanding award shall
automatically become fully exercisable. The Board may, at any time, amend or
discontinue the plan and the compensation committee may, at any time, amend or
cancel any outstanding award or provide substitute awards in accordance with the
plan, provided that such action does not adversely affect the participant. The
term of the Plan is 10 years.
Item 6. Selected Financial Data.
Certain of GenTek's businesses were formerly part of the businesses of The
General Chemical Group Inc. (GCG). On April 30, 1999, GCG separated the GenTek
business from GCG's soda ash and calcium chloride industrial chemicals business
through a spin-off, by transferring the GenTek business to GenTek, and
distributing the common stock of GenTek to GCG's shareholders. Since the
spin-off, GenTek has been a separate, stand-alone company which operates through
its subsidiaries.
-28-
The following selected consolidated financial data of the Company have been
derived from and should be read in conjunction with the Company's Consolidated
Financial Statements. In connection with its emergence from bankruptcy on
November 10, 2003, the Company has adopted fresh-start reporting in accordance
with SOP 90-7. Accordingly, the Company's post-emergence financial statements
("Successor") will not be comparable with its pre-emergence financial statements
("Predecessor").
Successor
Company Predecessor Company
------------ --------------------------------------------------------------------------
Period Ended Period Ended Years Ended December 31,
December 31, November 10, ---------------------------------------------------------
2003 2003 2002 2001 2000 1999
------------ ------------ ---------- ---------- ---------- ----------
(In thousands, except per share data)
Statement of Operations Data:
Net revenues ..................... $ 142,195 $ 956,895 $1,128,533 $1,244,420 $1,414,187 $1,032,925
Restructuring and impairment
charges........................ 1,047 28,824 78,238 187,417 -- --
Operating profit (loss) .......... 5,323 26,069 (25,071) (172,746)(1) 159,291(2) 115,087(3)
Interest expense ................. 2,685 1,637 60,135 74,980 74,948 45,979
Income (loss) from continuing
operations (4)................. 1,092 494,392(5) (199,524)(5) (170,844)(1) 50,241(2) 35,033(3)
Income from discontinued
operations..................... -- -- -- -- -- 1,006
Net income (loss) (4)(6) ......... $ 1,092 $ 494,392(5) $ (360,649)(5) $ (170,844)(1) $ 50,241(2) $ 31,100(3)
Per Share:
Income (loss) from continuing
operations--basic (4) ......... $ 0.11 $ 19.34(5) $ (7.82)(5) $ (6.72)(1) $ 2.04(2) $ 1.67(3)
Income (loss) from continuing
operations--diluted (4) ....... 0.11 19.34(5) (7.82)(5) (6.72)(1) 1.99(2) 1.64(3)
Net income (loss)--
basic (4)(6) .................. 0.11 19.34(5) (14.13)(5) (6.72)(1) 2.04(2) 1.48(3)
Net income (loss)--
diluted (4)(6) ................ 0.11 19.34(5) (14.13)(5) (6.72)(1) 1.99(2) 1.45(3)
Dividends (7) .................... -- -- -- 0.15 0.20 0.20
Other Data:
Capital expenditures ............. $ 10,552 $ 30,564 $ 52,440 $ 77,778 $ 81,298 $ 47,323
Depreciation and amortization .... 6,703 37,397 47,903 68,317 68,973 54,222
Balance Sheet Data
(at end of period):
Cash and cash equivalents ........ $ 60,121 $ 133,030 $ 9,205 $ 4,459 $ 20,687
Total assets ..................... 1,066,809 956,985 1,164,843 1,350,722 1,254,866
Long-term debt (including current
portion)....................... 263,814 939,529 832,426 818,812 724,115
Total equity (deficit) ........... 278,787 (510,321) (142,337) 47,658 56,403
- ----------
(1) Includes charges of $60.0 million ($36.3 million after tax or $1.43 per
share), principally related to provisions for obsolete and exce ss
inventory and loss provisions for accounts receivable.
(2) Includes a charge of $5.8 million ($3.5 million after tax or $0.14 per
share) for purchased in-process research and development.
(3) Includes a charge of $6.2 million ($3.7 million after tax or $0.17 per
share) primarily related to the spinoff.
(4) Includes a decrease to the deferred tax asset valuation allowance of $142.7
million ($14.27 per share) in 2003, an increase to the deferred tax asset
valuation allowance of $142.8 million ($5.59 per share) in 2002 to record a
valuation allowance for the Company's net domestic deferred tax assets and,
in 2000, a charge of $2.8 million ($0.11 per share) to revalue certain
deferred tax assets in Germany.
(5) Includes reorganization items of $411.8 million ($16.11 per share) of
income for the period ended November 10, 2003 and $11.6 million ($0.46 per
share) of expense in 2002.
(6) Includes the cumulative effect of a change in accounting principle of
$161.1 million ($6.31 per share) in 2002 and extraordinary losses net of
tax of $4.9 million ($0.23 per share), related to the early retirement of
certain indebtedness in 1999.
(7) During the fourth quarter of 2001, the Company suspended the payment of
quarterly dividends.
-29-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following section should be read in conjunction with the consolidated
financial statements and the notes indicated elsewhere in this Annual Report.
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Certain
statements, other than statements of historical facts, included in this Annual
Report may constitute forward-looking statements. Forward-looking statements are
generally identifiable by use of forward-looking terminology such as "may,"
"will," "should," "potential," "intend," "expect," "endeavor," "seek,"
"anticipate," "estimate," "overestimate," "underestimate," "believe," "could,"
"project," "predict," "continue" or other similar words or expressions. The
Company has based these forward-looking statements on its current expectations
and projections about future events. Although the Company believes that its
assumptions made in connection with the forward-looking statements are
reasonable, there can be no assurances that these assumptions and expectations
will prove to have been correct. Important factors that could cause actual
results to differ from these expectations are disclosed in this Annual Report
and include various risks, uncertainties and assumptions. Such factors include,
but are not limited to, those set forth in the section of this annual report
captioned "Business Risk Factors".
Management's Discussion and Analysis of Financial Condition and Results of
operations contains non GAAP financial measures within the meaning of Regulation
G promulgated by the Securities and Exchange Commission. Included in Item 7.
Reconciliation of Non-GAAP Financial Measures is a reconciliation statement of
operations data for the full year 2003 to the Predecessor Company and Successor
Company statements of operations for the periods ended November 10, 2003 and
December 31, 2003, respectively. Management believes that this information is
the most relevant and useful formation for making comparisons to the period
ended December 31, 2002. References to the full year 2003 throughout this
Discussion refer to the above mentioned information.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this Annual Report might not occur.
Recent Development
On March 25, 2004, the Company announced that it signed a definitive
agreement to sell its KRONE communications business to ADC Telecommunications,
Inc. (ADC). Under the terms of the agreement, the Company will receive total
consideration of approximately $350 million, consisting of $291 million in cash
and the assumption by ADC of approximately $59 million of pension and
employee-related liabilities. The transaction is expected to close within 90
days of the announcement and is subject to customary conditions including
regulatory and other approvals.
Reorganization under Chapter 11 of the U.S. Bankruptcy Code
On October 11, 2002, GenTek and 31 of its direct and indirect subsidiaries,
including its 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 were jointly administered as Case No. 02-12986 (MFW).
-30-
As a result of the Filing, an automatic stay was imposed against efforts by
claimants to collect amounts due or to proceed against property of the Debtors.
During the Chapter 11 case, the Debtors operated 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. As such, they were permitted to engage in ordinary course
of business transactions without prior approval of the Bankruptcy Court.
Transactions outside of the ordinary course of business, including certain sales
of assets and certain requests for additional financings, were subject to
approval by the Bankruptcy Court.
On December 10, 2002, Noma Company sought and obtained from the Ontario
Superior Court of Justice, Canada (the "Ontario Court"), an initial order
pursuant to section 18.6 of the Companies' Creditors Arrangement Act, R.S.C.
1985, c. C-36, as amended (CCAA), recognizing the Filing and granting Noma
Company, among other things, a stay against claims, proceedings and the exercise
of any contractual rights against it or its property in Canada, and recognizing
various orders granted by 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 pre-petition senior credit facility. The
protection afforded by Chapter 11 allowed the Debtors to continue to serve their
customers and preserve the value of their businesses, while they reorganized and
worked to develop and implement a strategic plan to deleverage the Company's
balance sheet and create an improved long-term capital structure.
As a result of the Filing, pending pre-petition litigation and claims
against the Debtors were stayed automatically in accordance with Section 362 of
the Bankruptcy Code and no party was able to take any action to seek payment on
its pre-petition claims or to proceed against property of the Debtors' estates
except pursuant to further order of the Bankruptcy Court. The Filing resulted in
an immediate acceleration of the Company's senior credit facility and 11% Senior
Subordinated Notes, subject to the automatic stay.
During the Chapter 11 process, the Company's available cash and continued
cash flow from operations were adequate to fund ongoing operations and meet
obligations to customers, vendors and employees in the ordinary course of
business. Further, in order to augment its financial flexibility during the
Chapter 11 process, in March 2003, the Company entered into a
debtor-in-possession credit facility with certain members of its pre-petition
bank syndicate. This facility enabled the Company to issue up to $50 million of
letters of credit, including approximately $30 million of letters of credit
issued under the pre-petition credit facility, to support the Company and its
subsidiaries' undertakings (other than ordinary trade credit) and provided the
Company's Noma Company subsidiary with a $10 million revolving credit facility
for working capital and other general corporate purposes of Noma Company. The
facility expired on the Effective Date and was replaced by the Revolving Credit
Facility.
As a general rule, all of the Debtors' contracts and leases continued in
effect in accordance with their terms notwithstanding the Filing, unless
otherwise ordered by the Bankruptcy Court. The Bankruptcy Code provided the
Debtors with the opportunity to reject any executory contracts or unexpired
leases that were burdensome or assume any contracts or leases that were
favorable or otherwise necessary to their business operations. In the event of a
rejection of an executory contract or unexpired lease by the Debtors, the
affected parties were provided a period of time within which to file rejection
damage claims, which were considered to be pre-petition general unsecured
claims. As a condition to assumption of an executory contract or unexpired
lease, the Debtors were required to cure defaults under such agreements,
including, without limitation, payment of any amounts due and owing.
-31-
Certain executory contracts and unexpired leases were rejected by the Debtors
during the course of the bankruptcy proceedings.
On June 30, 2003, the Debtors filed with the Court their first proposed
joint plan of reorganization, together with the related disclosure statement.
Subsequently, on August 21, 2003, the Debtors filed with the Court their second
proposed joint plan of reorganization (the "Second Proposed Plan of
Reorganization"), together with the related disclosure statement (the "Second
Proposed Disclosure Statement"). A hearing to consider the adequacy of the
Second Proposed Disclosure Statement was held on August 25, 2003. At the
hearing, the Debtors announced additional revisions to the Second Proposed Plan
of Reorganization (as modified, the "Plan of Reorganization") and the Second
Proposed Disclosure Statement (as modified, the "Disclosure Statement") and
agreed to work with certain parties in interest to resolve remaining issues as
to the adequacy of the Disclosure Statement. Upon certification of counsel as to
the resolution of such issues, the Court, on August 27, 2003, entered an order
approving the Disclosure Statement, as revised, and authorizing the Company to
begin soliciting votes with respect to the Plan of Reorganization, as revised,
from those of its creditors who were entitled to vote. On August 28, 2003, the
Debtors filed a revised version of the Plan of Reorganization (the "Final Plan
of Reorganization") and a revised version of the Disclosure Statement, each
reflecting the additional revisions announced at the hearing on August 25, 2003
and those subsequently made in resolution of the remaining issues.
The solicitation process commenced on September 3, 2003, when the Debtors
mailed the solicitation packages, and concluded on September 30, 2003. The Final
Plan of Reorganization was accepted by all but one of the voting classes. On
October 3, 2003, the Debtors filed a first modification to the Final Plan of
Reorganization (the "Modification"). The confirmation hearing was subsequently
held on October 7, 2003, and the Bankruptcy Court on that date entered an order
confirming the Final Plan of Reorganization, as modified on October 3, 2003 (the
Final Plan of Reorganization as so modified and confirmed, the "Confirmed
Plan"). The Confirmed Plan became effective in accordance with its terms on
November 10, 2003.
The Confirmed Plan provides that, in full satisfaction of their allowable
claims: (i) the holders of existing secured claims under the Company's
pre-petition credit facility (excluding the tranche in which Noma Company is a
borrower to the extent such holders were secured by Noma) initially received
approximately 81 percent of the common stock of the reorganized Company (the
"Reorganized Company"), $60 million in cash (reduced by certain payments) and
$216.5 million principal amount of senior term notes issued by the Reorganized
Company; (ii) holders of existing secured claims under the term loan facility to
Noma Company under the Company's pre-petition credit facility received
approximately 13 percent of the common stock of the Reorganized Company and
$33.5 million principal amount of senior term notes issued by the Reorganized
Company; (iii) holders of general unsecured claims and trade vendor claims who
elected to receive equity in the Reorganized Company on account of their claims
received a pro rata distribution of up to approximately 2 percent, in the
aggregate, of the common stock of the Reorganized Company and warrants to
purchase additional shares of the common stock of the Reorganized Company; (iv)
holders of general unsecured claims and trade vendor claims that elected not to
receive equity of the Reorganized Company received an amount in cash equal to
the lesser of (A) 6 percent of each such holder's allowed claim or (B) each such
holder's pro rata share of $5 million; (v) holders of unsecured claims relating
to the Company's existing bonds received approximately 4 percent of the common
stock of the Reorganized Company and warrants to purchase additional shares of
the common stock of the Reorganized Company; (vi) upon the liquidation of their
disputed claims, holders of California Tort Claims (as defined in the Confirmed
Plan), to the extent they are determined to hold allowable claims, will receive
the same treatment of any uninsured portion of their
-32-
claims (excluding any portion of such claims attributable to noncompensatory
damages) as they would have received had such claims been classified as general
unsecured claims (except that such holders will not be entitled to elect cash
instead of equity); (vii) upon the ratification and consummation of a proposed
settlement, holders of Pennsylvania Tort Claims (as defined in the Confirmed
Plan) will receive, through their class representative, an aggregate
distribution of $120,000 in cash, a note in the principal amount of $675,000,
and a payment from the Debtors' insurer (although the settlement is expected to
be ratified and consummated, if the settlement fails, the holders of the
Pennsylvania Tort Claims will be treated like California Tort Claims upon
liquidation of the Claims); and (viii) holders of claims described in
subsections (i), (iii), (iv), (v) and (vi) above will be entitled to receive a
portion of any amounts recovered by a preference claim litigation trust created
pursuant to the Confirmed Plan. In addition to the foregoing, the Confirmed Plan
provides that administrative expense claims, priority claims, convenience
claims, a secured claim of the Company against Noma Company in the amount of
approximately $5.7 million and certain other secured claims, are to be paid in
full. Furthermore, the Confirmed Plan provides for the cancellation of all then
outstanding shares of common stock of the Company without any distribution to be
made to the holders of such shares.
The Confirmed Plan also provides for, among other things, the amendment of
our charter and bylaws, the replacement of our board of directors, the
implementation of a new equity incentive plan for our directors, officers and
employees, the establishment of a preference litigation trust to pursue
preference claims on behalf of certain claimants, the disposition of certain
executory contracts and unexpired leases, and certain releases, exculpation and
indemnification protections for certain parties in interest.
Pursuant to the Bankruptcy Code, schedules were filed by the Debtors with
the Bankruptcy Court setting forth the assets and liabilities of the Debtors as
of the date of Filing. A bar date of April 14, 2003 was set for the filing of
proofs of claim against the Debtors. Differences between amounts recorded by the
Debtors and claims filed by creditors have been investigated and will be
resolved as part of the proceedings in the Chapter 11 cases. That process is
continuing after the Effective Date. Accordingly, the ultimate number and
allowed amount of such claims are not presently known but the recovery terms of
each such allowed claim is set forth in the Confirmed Plan.
The consolidated financial statements have been prepared in accordance with
Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," and on a going concern basis, which
contemplates continuity of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. Liabilities and obligations
whose treatment and satisfaction were dependent on the outcome of the Chapter 11
cases have been segregated and classified as liabilities subject to compromise
in the consolidated balance sheets. In connection with its emergence from
bankruptcy on November 10, 2003, the Company has adopted fresh-start reporting
in accordance with SOP 90-7. Accordingly, the Company's post-emergence financial
statements ("Successor") will not be comparable with its pre-emergence financial
statements ("Predecessor").
Overview
We are a holding company whose subsidiaries manufacture industrial
components, performance chemicals and communications products. We operate
through three primary business segments: manufacturing, performance products and
communications. Our products are frequently highly engineered and are important
components of, or provide critical attributes to, our customers' end products or
operations. We operate over 75 manufacturing and production facilities located
primarily in
-33-
the U.S., Canada and Mexico with additional facilities in Australia, China,
Germany, Great Britain, and India. GenTek has no independent operations and,
therefore, is dependent upon cash flow from its subsidiaries to meet its
obligations.
Manufacturing
The manufacturing segment provides a broad range of engineered components
and services to three principal markets: automotive, appliance and electronic,
and industrial. During the last two years the Company's sales and operating
profits have been adversely impacted by our major customers' efforts to reduce
their costs. Pricing pressure by the "Big Three" (Ford, Chrysler and General
Motors) North American auto manufacturers and Tier 1 suppliers has resulted in
lower selling prices and lower volumes as our major customers have resourced
business to competitors in the Far East or to their own in house facilities.
Sales to the automotive market, which account for approximately 60 percent of
the manufacturing segment's revenue, have declined approximately 15 percent over
the last two years, due in large part to the pricing and resourcing issues
discussed above. Sales and operating profit related to the appliance and
electronics market have also been negatively impacted by similar pricing
pressures and lower volumes. Sales to the appliance and electronics market,
which account for approximately 20 percent of the manufacturing segment's
revenues, have declined by approximately 29 percent over the last two years. The
Company anticipates that sales in the automotive and appliance and electronics
markets will decline further in 2004 versus 2003, as stable overall industry
production levels are offset by additional resourcing of certain volumes by
certain of our customers to competitors in the Far East. In response to these
competitive pressures from offshore suppliers in the automotive and appliance
and electronics markets, the manufacturing segment has taken aggressive action
to improve its cost position. We have closed certain facilities, reduced
headcount and other operating expenses, and outsourced production of certain
less complex products to lower cost, third party manufacturers in Asia. In
addition, as part of our continuing efforts to improve our competitive cost
position, we expect to establish our own wire and cable assemblies production
facility in Asia within the next twelve months. Sales to the industrial market,
which account for approximately 20 percent of the manufacturing segment's
revenues, have increased 16 percent over the two year period. The Company
expects that sales in this market will remain essentially unchanged in 2004.
Due to our dependence on the North American automotive market, production
levels of the automotive OEMs, especially the Big 3, influence the manufacturing
segment's sales and profitability. The North American automobile and light truck
"build rate" is one commonly used indicator of such production levels. More
specifically, though, the production levels of the individual engine programs
that we supply impact our sales and profitability in the automotive market. Our
revenues in this market are also influenced, to a lesser degree, by the North
American "class 8" heavy truck build rate. In the appliance and electronic
market, shipments of household appliances are one indicator of overall industry
production levels.
Profitability in our manufacturing segment can be influenced by a number of
factors, including: production levels at our individual manufacturing
facilities, as well as the volume and consistency of production levels at our
customers' manufacturing facilities; demands from our customers to reduce the
prices of our products; the prices we pay for key raw materials such as steel;
and transportation costs.
Performance Products
The performance products segment provides a broad range of value-added
chemical products and services to four principal markets: environmental
services, pharmaceutical and personal care, technology
-34-
and chemical processing. Sales to the environmental services and chemical
processing markets, which account for approximately 65 percent of the
performance products segment's revenues, have declined approximately 7 percent
over the last two years. This decrease is principally due to the Company's
decision to exit its process additives product line through the formation of its
joint venture with Esseco S.p.A. and lower sales volume and unfavorable sales
mix in the sulfuric acid regeneration and water chemical product lines. The
Company anticipates that sales to the environmental services and chemical
processing markets will decline by approximately 15 percent in 2004 as a result
of the full year impact of the Esseco joint venture and the Company's decision
to close operations at the South Plant of its Delaware Valley Works. Over the
past two years, sales of the affected products at the South Plant averaged
approximately $50 million annually. Over the next several years, we expect the
operating margins and cash flow of our environmental services businesses to
improve as a result of these restructuring actions. Sales to the pharmaceutical
and personal care market, which account for approximately 20 percent of the
performance products segment's revenue, declined by approximately 12 percent
over the last two years, the majority of which decline occurred in 2003 as a
result of the Company's sale of its antacid product line. The Company
anticipates sales to this market in the year 2004 will approximate the year 2003
level. Sales to the technology market, which account for approximately 10
percent of the performance products segment's revenues, have declined by
approximately 5 percent during the two year period. The Company anticipates that
sales into this market will grow by approximately 10 percent in 2004 due mainly
to the emerging recovery in the North American microelectronics industry. The
profitability of our performance products segment has also been negatively
impacted in recent years by cyclically high raw material prices. While we
believe that some of this price pressure will subside in future periods, we
cannot be certain of the timing or magnitude of any such price decreases.
In the environmental services market, our revenues are derived principally
from the sale of sulfuric acid regeneration services to large oil refineries on
the West Coast of the United States and from the sale of water treatment
chemicals to municipalities. In the chemical processing market, our revenues are
principally derived from the sale of water treatment chemicals, sulfuric acid
and sodium nitrite which are used in the manufacture of paper, dyes, pigments,
fertilizers as well as many other products. In the pharmaceutical and personal
care market, GenTek's revenues and profitability are driven by sales of active
ingredients to manufacturers of antiperspirants, with such manufacturers'
production levels influenced by antiperspirant market share trends and new
product introductions. Our sales in the technology market are influenced by
North American production levels of semiconductor devices.
Profitability in our performance products segment can be influenced by a
number of factors, including: competitive market conditions; production levels
at our individual manufacturing facilities; energy costs, including the prices
of natural gas and electricity; the prices we pay for our key raw materials,
including sulfur, bauxite, hydrate and zirconium-based products; and
transportation costs.
Communications
The communications segment is a provider of products, systems and services
to the global markets for telecommunications and data networking equipment and
services, and in particular, the public telecom and private enterprise network
markets. Beginning in 2001, the telecommunications market experienced a
significant downturn. This trend continued during 2002 and 2003. This downturn
reflected the general economic slowdown as well as deferred capital spending and
reduced equipment purchases by many of our customers. As a result, our revenues
and operating performance have been adversely affected during this period. Our
revenues declined by 17 percent over the last two years. Operating income for
2003 was $2 million as compared to an operating loss of $119 million for 2001.
-35-
This increase is principally due to a $78 million restructuring and impairment
charge; a $20 million provision for obsolete inventory; and a $20 million loss
provision for accounts receivable all recorded during 2001. In response to these
market conditions the Company has continued to reduce its operating expenses
through restructuring actions. These actions resulted in restructuring and asset
impairment charges of $78 million and $5 million during 2002 and 2003,
respectively. Excluding the impact of a $2 million loss provision for accounts
receivable recorded in 2001, the Company has reduced its selling, general and
administrative expense by 27 percent from the year 2001 levels. During the
prolonged downturn the Company has continued to focus on reducing its cost
structure and expects to achieve sustained profitability during 2004.
Results of Operations
The following table sets forth certain line items from our Consolidated
Statements of Operations for the three years ended December 31, 2003, 2002 and
2001 and the corresponding percentage of net revenues for the relevant periods
presented as a percentage of revenue for the periods indicated. As previously
discussed, the Company emerged from Chapter 11 and adopted fresh start
accounting on November 10, 2003. As a result of the application of fresh start
accounting, the Successor Company's financial statements are not comparable with
the Predecessor Company's financial statements.
Years Ended December 31,
------------------------------------------------
2003 2002 2001
-------------- -------------- --------------
Net revenues .................................. $1,099.1 100% $1,128.5 100% $1,244.4 100%
Cost of sales ................................. 868.7 79 899.2 80 993.9 80
Selling, general and administrative expense ... 169.1 15 176.2 16 235.8 19
Restructuring and impairment charges .......... 29.9 3 78.2 7 187.4 15
-------- --- -------- --- -------- ---
Operating profit (loss) .................... 31.4 3 (25.1) (3) (172.7) (14)
Interest expense .............................. 4.3 -- 60.1 5 75.0 6
Interest income ............................... 1.2 -- 2.1 -- 1.2 --
Reorganization items .......................... (411.8) (37) 11.6 1 -- --
Other (income), net ........................... (4.0) -- (1.8) -- (0.8) --
Income tax provision (benefit) ................ (51.4) (5) 106.6 9 (74.9) (6)
-------- --- -------- --- -------- ---
Income (loss) before cumulative effect
of a change in accounting principle ..... $ 495.5 45% $ (199.5) (18)% $ (170.8) (14)%
2003 Compared with 2002
Net revenues were $1,099 million for the year 2003 compared with $1,129
million for the prior year. This decrease was due to lower sales in the
manufacturing and performance products segments, partially offset by higher
sales in the communications segment. Lower volumes with certain major customers
as a result of lower North American automotive build rates accounted for
approximately $26 million of the decrease in the manufacturing segment. In
addition, manufacturing segment revenues were negatively impacted by
approximately $26 million as a result of certain customers resourcing business
away from the Company to competitors in the Far East or to their own production
facilities. The decrease in revenues in the performance products segment is
principally due to lower sales in the pharmaceutical and personal care market,
the technology market, and water chemical product lines of $9 million, $5
million, and $4 million, respectively. The sale of the Company's antacid product
line accounted for $7 million of the decrease in the pharmaceutical and personal
care market with the remainder of the decrease being principally related to
lower price reflecting competitive pressures in the
-36-
Company's antiperspirant actives product line. Increased revenues in the
communications segment were almost entirely related to the impact of exchange
rate fluctuations (namely the Euro and Australian dollar) on the translation of
the segment's reportable revenues.
Gross profit of $230 million for the year 2003 was comparable to the prior
year level, with higher gross profit in the communications segment of $19
million being partially offset by lower gross profit in the manufacturing and
performance products segments of $13 million and $5 million, respectively.
Approximately $11 million of the increase in gross profit in the communications
segment can be attributed to the impact of the aforementioned exchange rate
fluctuations on the segment's reported gross profit. In addition, gross profit
in the communications segment was favorably impacted by the effects of the
Company's recent cost reduction program. Partially offsetting these increases
was the sale of finished goods inventory carried at fair value rather than
manufactured cost as a result of fresh start accounting, which negatively
impacted gross profit by $2 million. The decrease in gross profit in the
performance products segment can be attributed to higher energy and raw material
pricing totaling $5 million, and the unfavorable impact of the previously
mentioned decreases in sales and unfavorable pricing in antiperspirant actives
of $8 million and $2 million, respectively. Additionally, the aforementioned
sale of finished goods inventory carried at fair value negatively impacted gross
profit by $1 million. These decreases were partially offset by higher spending
during the first six months of 2002 related to the extensive repair of two
boilers and other production equipment and a loss of production at one of the
Company's facilities totaling $8 million. The above mentioned lower sales volume
in the manufacturing segment accounted for approximately $7 million of the
decrease in gross profit in this segment. In addition, gross profit in the
manufacturing segment was negatively impacted by $8 million of unfavorable
pricing, $3 million of manufacturing inefficiencies in the company's industrial
wire and cable business and $1 million due to the aforementioned sale of
finished goods inventory carried at fair value, partially offset by the
favorable impact of the Company's cost reduction program.
Selling, general and administrative expense was $169 million for the year
2003 as compared with $176 million for 2002. This decrease is attributable to
lower spending of $16 million across all segments, partially offset by the
unfavorable impact of exchange rate fluctuations of $9 million on the
communication's segment reported expenses.
Restructuring and impairment charges were $30 million for 2003 as compared
with $78 million for 2002. During 2003, the Company announced a plan to wind
down and close operations at the South Plant of the Delaware Valley Works which
is included in the performance products segment. Accordingly, the Company
assessed the long-lived assets at this facility for impairment. Based on the
results of this assessment, the Company recorded a non-cash impairment charge of
$25 million to reduce the carrying value of the fixed assets at this facility to
estimated fair value, which was determined based upon a number of factors,
including an independent appraisal.
The Company's restructuring actions during 2003 consist principally of
exiting a facility and a workforce reduction in its communications segment and
two plant closures in its performance products segment. During 2003, the Company
recorded restructuring charges of $5 million principally related to employee
termination costs. The Company expects to substantially complete implementation
of its 2003 restructuring actions by the second quarter of 2004. The reduction
in costs from the closure of the South Plant of the Delaware Valley Works will
be offset approximately by the resulting reduction in revenues and related gross
profit. Over the past three years, sales of the affected products averaged
approximately $50 million annually. GenTek expects restructuring actions other
than those related to the South Plant will result in an estimated annual
reduction in employee and facility related expense and cash flows of
approximately $4 million. The Company began to realize these reductions in the
fourth quarter of fiscal
-37-
year 2003. The Company will continue to review its operations, and may record
additional restructuring charges to tailor its cost structure to current
economic conditions.
Operating income was $31 million for 2003 as compared with an operating
loss of $25 million for the prior year. This improvement was principally due to
the above-mentioned decrease in restructuring and impairment charges and lower
selling, general and administrative expense.
Interest expense for the year 2003 was $56 million lower than the prior
year level. This decrease was due to the fact that no interest expense was
recorded during 2003 on the Company's pre-petition senior credit facility and
11% Senior Subordinated Notes. The Company made adequate protection payments to
its senior creditors prior to its emergence from bankruptcy which have been
treated for accounting purposes as reductions in principal. As such, the 2003
results include no interest expense in those facilities for the period from
January 1, 2003 through November 10, 2003. Interest expense for the Company's
new Senior Term Loan Credit Agreement and its new Revolving Credit Facility was
$2 million for the period from emergence on November 10, 2003 through December
31, 2003.
Reorganization items for the year 2003 totaled $412 million of income as
compared to $12 million of expense for 2002. Reorganization items for 2003
include income from the discharge of indebtedness of $381 million and fresh
start accounting adjustments of $104 million, partially offset by expenses
associated with the Company's reorganization under Chapter 11 of $73 million.
Expenses associated with the Company's reorganization include professional fees,
employee retention costs, and write off of unamortized debt issuance costs.
Income tax benefit for the year 2003 was $51 million versus income tax
expense for 2002 of $107 million. 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 concluded that it was more likely
than not that it would not be able to realize its domestic net deferred tax
assets. Accordingly, during 2002 the Company recorded an increase to its
valuation allowance of $143 million effectively reducing the carrying value of
its domestic net deferred tax assets to zero. On November 10, 2003, the Company
emerged from Chapter 11 and recorded income of $381 million related to the
discharge of indebtedness. The Company recorded tax expense of $74 million on
this income, which represents a non-cash charge related to a reduction in the
value of the Company's tax basis in its assets as required by the Internal
Revenue Code which will effectively increase the Company's taxable income over
the next several years. As a result of this discharge of indebtedness the
Company will have significantly lower interest expense in future periods, and
based upon projections of the Company's future domestic taxable income, the
Company concluded that it is more likely than not it now will be able to realize
its domestic net deferred tax assets. Accordingly, during the fourth quarter of
2003 the Company recorded a decrease in its valuation allowance of $138 million
effectively restoring the carrying value of its domestic net deferred tax asset.
2002 Compared with 2001
Net revenues were $1,129 million for the year 2002 compared with $1,244
million for 2001. This decrease was principally due to a decrease in sales of
$111 million in the communications segment as a result of lower volumes and
pricing pressures, principally driven by a weakness in demand for the Company's
public and private network products and services in the North American market of
$51
-38-
million and in the European market of $56 million. Sales in the performance
products segment decreased $4 million due to lower sales in the environmental
services and chemical processing markets of $8 million, partially offset by
higher sales in the pharmaceutical and personal care market of $3 million and
the technology market of $3 million. Sales in the manufacturing segment
decreased $1 million as the result of lower sales in the appliance and
electronic market of $11 million and the automotive services market of $12
million, partially offset by higher sales in the industrial market of $13
million and the automotive market of $9 million.
Gross profit of $229 million in 2002 was $21 million below the prior year
level. This decrease was principally due to lower gross profit in the
communications segment reflecting the aforementioned sales decreases and pricing
pressures and costs associated with the expedited repair of two boilers and
other production equipment and a loss of production at one of the Company's
performance products facilities of $8 million, partially offset by a $31 million
charge to cost of sales recorded during 2001 primarily due to obsolete and
excess inventory, discontinued products and fixed asset write-offs, and
decreased goodwill amortization and depreciation expense of $20 million.
Selling, general and administrative expense was $176 million for 2002 as
compared with $236 million for 2001. This decrease is the result of a $29
million charge the Company recorded in 2001 principally due to a loss provision
for accounts receivable and lower expenses of $35 million 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. The loss provision for accounts receivable was principally related to
customers who filed for bankruptcy or whose financial condition indicated that
payment was doubtful.
During 2002, the Company initiated a restructuring program to reduce its
workforce in its communications segment, and recorded charges of approximately
$13 million primarily related to employee termination costs. In 2001, we
recorded charges of $37 million for the 2001 restructuring program.
The Company experienced significant declines in its communications
businesses resulting in operating losses for several business units in 2002.
During 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 of 2002, the Company recorded non-cash
impairment charges totaling $22 million primarily related to fixed assets at two
manufacturing facilities in the communications segment. In the third quarter of
2002, the Company recorded non-cash impairment charges totaling $42 million
primarily related to fixed assets in the Company's connectivity products
business in the communications segment. The charges were due to unfavorable
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.
Operating loss for 2002 was $25 million as compared to an operating loss of
$173 million in 2001. The operating loss for 2001 includes restructuring,
impairment and other charges totaling $247 million related to asset impairments,
severance, plant closures, discontinuation of certain product lines and
receivable and inventory write downs. The operating loss for 2002 includes
restructuring and impairment charges totaling $78 million, lower depreciation
expense as a result of asset impairment charges recorded in 2001 and lower
amortization expense due to an accounting change related to SFAS No. 142.
Excluding these factors, operating income for 2002 decreased $44 million versus
the prior year principally due to the lower sales volume in the communications
segment, unfavorable performance in
-39-
the performance products segment due to costs associated with the expedited
repair of two boilers and other production equipment and a loss of production at
one of the Company's facilities, partially offset by favorable performance in
the manufacturing segment reflecting a more stable automotive production
environment and the impact of the Company's restructuring program implemented in
2001, partially offset by lower prices.
Interest expense was $60 million for the year 2002 as compared to $75
million for the prior year. This decrease was principally due to no interest
expense being recorded on the Company's pre-petition senior credit facility and
11% Senior Subordinated Notes subsequent to the Company's Chapter 11 filing on
October 11, 2002 and lower interest rates during the first nine months of 2002,
partially offset by higher average debt balances during the first nine months of
2002 as compared to 2001. The Company made adequate protection payments to its
senior creditors while in bankruptcy, which were treated for accounting purposes
as reductions in principle.
The Company recorded income tax expense of $107 million for the year 2002.
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 concluded during the second quarter of 2002 that it was more likely than
not that it would not be able to realize its domestic net deferred tax assets.
Accordingly, during 2002 the Company recorded an increase to its valuation
allowance of $143 million effectively reducing the carrying value of its
domestic net deferred tax assets to zero.
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".
Results of Operations by Segment
2003 Compared with 2002
Years Ended
December 31,
-------------------
2003 2002 Change
-------- -------- ------
(In millions)
Net Revenues:
Manufacturing .................. $ 425.9 $ 477.1 $(51.2)
Performance Products ........... 335.9 357.4 (21.5)
Communications ................. 337.3 294.0 43.3
-------- -------- ------
Total ....................... $1,099.1 $1,128.5 $(29.4)
======== ======== ======
Operating Profit (Loss):
Manufacturing .................. $ 37.1 $ 44.8 $ (7.7)
Performance Products ........... 0.7 28.6 (27.9)
Communications ................. 2.2 (89.5) 91.7
Elimination/Other Corporate .... (8.6) (9.0) 0.4
-------- -------- ------
Total ....................... $ 31.4 $ (25.1) $ 56.5
======== ======== ======
Manufacturing Segment
-40-
Net revenues for the manufacturing segment were $426 million for the year
2003 as compared to $477 million for 2002. Lower volumes with certain major
customers as a result of lower North American automotive build rates accounted
for approximately $26 million of this decrease. In addition, net revenues were
negatively impacted by approximately $26 million as a result of certain
customers resourcing business away from the Company to competitors in the Far
East or to their own in house production facilities. Gross profit for 2003 was
$75 million as compared to $88 million for 2002. The above mentioned lower sales
volume accounted for approximately $7 million of this decrease. In addition,
gross profits were negatively impacted by $8 million of unfavorable price, $3
million of manufacturing inefficiencies in the Company's industrial wire and
cable business and $1 million due to the aforementioned sale of finished goods
inventory carried at fair value partially offset by the favorable impact of the
Company's cost reduction program. Selling, general and administrative expense
was $38 million for 2003 compared with $43 million for 2002, principally due to
lower spending and the termination of a pre-petition employee retention program.
Operating income for 2003 was $37 million as compared with $45 million for 2002,
principally due to the above mentioned decreases in gross profit, partially
offset by the lower selling, general and administrative expenses.
Performance Products Segment
Net revenues for the performance products segment were $336 million for the
year 2003 as compared to $357 million for 2002. This decrease was principally
due to lower sales in the pharmaceutical and personal care market, technology
market and water chemical product line of $9 million, $5 million and $4 million,
respectively. The sale of the Company's antacid product line accounted for $7
million of the decrease in the pharmaceutical and personal care market with the
remainder of the decrease being principally related to lower price reflecting
competitive pressures in the Company's antiperspirant actives product line. The
decrease in the technology market was driven by the depressed semiconductor
industry. Lower sales in the water chemical product line was principally due to
lower volume and sales mix. Gross profit for 2003 was $61 million as compared
with $66 million for 2002. This decrease was principally due to increases in the
prices of energy and key raw materials, the impact of the above mentioned sales
decreases and unfavorable pricing in antiperspirant actives of $5 million, $8
million and $2 million, respectively. Additionally, the aforementioned sale of
finished goods inventory carried at fair value negatively impacted gross profit
by $1 million. These decreases were partially offset by higher spending during
the first six months of 2002 related to the extensive repair of two boilers and
other production equipment and a loss of production at one of the Company's
facilities totaling $8 million. Selling, general and administrative expenses
were $34 million for 2003 as compared with $38 million for 2002. Restructuring
and impairment charges for 2003 were $26 million as compared with no
restructuring and impairment charges for the year 2002. During the first quarter
of 2003, the Company announced a plan to wind down and close operations at the
South Plant of Delaware Valley Works. Accordingly, the Company assessed the
long-lived assets at this facility for impairment. Based on the results of this
assessment, the Company recorded a non-cash impairment charge of $25 million to
reduce the carrying value of the fixed assets at this facility to the estimated
fair value, which was determined based upon a number of factors, including an
independent appraisal. The Company's restructuring actions during 2003 consisted
of two plant closures. During 2003, the Company recorded restructuring charges
of $1 million principally related to employee termination costs. The Company
expects to substantially complete implementation of its restructuring actions by
the second quarter of 2004. The reduction in costs from the closure of the South
Plant of the Delaware Valley Works will be offset approximately by the resulting
reduction in revenues and related gross margin. Over the past three years, sales
of the affected products averaged approximately $50 million annually. Operating
income for 2003 was $1 million as compared with $29 million for 2002. This
decrease was principally due to the
-41-
above mentioned restructuring and impairment charges and lower gross profit
partially offset by the lower selling, general and administrative expense.
Communications Segment
Net revenues for the communications segment were $337 million for the year
2003 as compared with $294 million for 2002. The aforementioned impact of
exchange rate fluctuations on the segment's reported revenues accounted for
approximately $41 million of this increase. Gross profit for 2003 was $95
million as compared with $75 million for 2002. Approximately $11 million, or 50
percent, of this increase was due to the aforementioned impact of exchange rate
fluctuations on the segment's reported gross margin. The Company's restructuring
program also favorably impacted gross profit for 2003, particularly in the
Company's United States and German operations. Partially offsetting these
increases was the aforementioned sale of finished goods inventory carried at
fair value, which negatively impacted gross profit by $2 million. Selling,
general and administrative expense was $87 million for 2003 which was
comparable to the prior year level. The impact of exchange rate fluctuations
on the segment's reported selling, general and administrative expense resulted
in an increase on such expense of $9 million. This increase was substantially
offset by lower spending of $7 million reflecting the impact of the Company's
cost reduction program. Restructuring and impairment charges for 2003 were
$5 million as compared to $78 million for the comparable prior year period.
The Company's restructuring actions during 2003 consisted of exiting a facility
and a workforce reduction. The above mentioned charge of $5 million was
principally related to employee termination costs. Operating income for 2003
was $2 million as compared with a $90 million operating loss for the prior year
period. This increase is principally due to the above mentioned decrease in
restructuring and impairment charges and the higher gross profit.
2002 Compared with 2001
Years Ended December 31,
------------------------
2002 2001 Change
-------- -------- -------
(In millions)
Net Revenues:
Manufacturing................. $ 477.1 $ 478.5 $ (1.4)
Performance Products.......... 357.4 360.9 (3.5)
Communications................ 294.0 405.0 (111.0)
-------- -------- -------
Total...................... $1,128.5 $1,244.4 $(115.9)
======== ======== =======
Operating Profit (Loss):
Manufacturing................. $ 44.8 $ (10.8) $ 55.6
Performance Products.......... 28.6 (30.4) 59.0
Communications................ (89.5) (119.1) 29.6
Elimination/Other Corporate... (9.0) (12.4) 3.4
-------- -------- -------
Total...................... $ (25.1) $ (172.7) $ 147.6
======== ======== =======
Manufacturing Segment
Net revenues for the manufacturing segment for the year 2002 were $477
million as compared to $478 million for the prior year. This decrease was the
result of lower sales in the appliance and electronic market of $11 million and
the automotive services market of $12 million, partially offset by higher sales
in the industrial market of $13 million and the automotive market of $9 million.
Gross profit for the year 2002 was $88 million as compared to $74 million for
2001. This increase was principally due to a $6 million charge to cost of sales
recorded during 2001 primarily due to obsolete and excess
-42-
inventory and fixed asset write-offs, a decrease in depreciation and
amortization expense of $6 million, the impact of the Company's restructuring
programs implemented in 2001 and a more stable automotive production
environment, partially offset by lower prices. Selling, general and
administrative expense was $43 million for 2002 as compared to $45 million for
2001. This decrease was principally due to a loss provision for accounts
receivable of $3 million recorded during 2001. Operating income for 2002 was $45
million as compared to an operating loss for 2001 of $11 million. This increase
was principally due to restructuring and impairment charges recorded in 2001 of
$40 million and the above mentioned higher gross margin and lower selling,
general and administrative expenses.
Performance Products Segment
Net revenues for the performance products segment were $357 million for the
year 2002 compared to $361 million for 2001. This decrease was due to lower
sales in the environmental services and chemical processing markets of $8
million, partially offset by higher sales in the pharmaceutical and personal
care market of $3 million and the technology market of $3 million. Gross profit
of $66 million was $6 million below the prior year level of $72 million. This
decrease was principally due to the expedited repair of two boilers and other
production equipment and a loss of production at one of the performance products
facilities of $8 million, the impact of the lower sales levels of $2 million and
higher pension and insurance costs of $3 million, partially offset by a $5
million charge to cost of sales recorded during 2001 primarily due to obsolete
and excess inventory and a decrease in depreciation and amortization expense of
$6 million. Selling, general and administrative expense was $38 million for 2002
as compared with $39 million for 2001. Operating income for 2002 was $29 million
as compared to an operating loss of $30 for 2001. This increase was principally
due to restructuring and impairment charges recorded in 2001 of $64 million,
partially offset by the above mentioned decrease in gross profit.
Communications Segment
Net revenues for the communications segment for the year 2002 were $294
million compared with $405 million for the prior year. This decrease was a
result of lower volumes and pricing pressures, principally driven by weakness in
demand for the Company's public and private network products and services in the
North American market of $51 million and the European market of $56 million.
Gross profit for the year 2002 was $75 million as compared to $105 million for
the prior year. This decrease reflects the impact of the lower sales levels and
pricing pressures partially offset by a $20 million charge to cost of sales
recorded during 2001 primarily due to obsolete and excess inventory,
discontinued products and fixed asset write-offs and a decrease in depreciation
and amortization expense of $8 million. Selling, general and administrative
expense was $87 million for the year 2002 as compared to $145 million for 2001.
This decrease was principally due to a loss provision for accounts receivable of
$24 million recorded during 2001, and the impact of the Company's restructuring
programs, which included the closure of two non-core research and development
facilities in 2001.
During 2002, the Company initiated a restructuring program to reduce its
workforce in its communications segment, and recorded charges of approximately
$13 million primarily related to employee termination costs. The Company had
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 of
2002, the Company recorded non-cash impairment charges totaling $22 million
primarily related to fixed assets at two manufacturing facilities in the
communications segment. In the
-43-
third quarter of 2002, the Company recorded non-cash impairment charges totaling
$42 million primarily related to fixed assets in the Company's connectivity
products business in the communications segment. The charges were due to
unfavorable 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. The total restructuring and
impairment charges recorded in 2002 were $78 million, which was comparable with
the prior year level. The operating loss for 2002 was $90 million as compared to
an operating loss for 2001 of $119 million. This improvement was principally due
to the above mentioned decreases in selling, general and administrative expense,
partially offset by the lower gross profit.
Financial Condition, Liquidity and Capital Resources
Cash and cash equivalents were $60 million at December 31, 2003 compared
with $133 million at December 31, 2002. The decrease in cash was the result of
the net repayment of $103 million of long-term debt, capital expenditures of $41
million, reorganization expenditures of $18 million, partially offset by cash
provided by operations of $81 million. The repayment of long-term debt includes
a payment to pre-petition secured lenders on the Effective Date, made pursuant
to the Plan, as well as adequate protection payments.
The Company had working capital of $172 million at December 31, 2003 as
compared with working capital of $256 million at December 31, 2002. This
decrease in working capital principally reflects lower cash and lower accounts
receivable balances and higher accrued liabilities partially offset by higher
deferred taxes.
Cash payments for employee termination costs and facility exit costs
totaled $20 million in 2003, $12 million in 2002, and $10 million in 2001.
Management expects that cash outlays related to these actions will be
substantially completed by the end of the 2004. Management intends to fund
these cash outlays from existing cash balances and cash flow generated by
operations.
At December 31, 2003, the Company's domestic pension plans were underfunded
(based on certain assumptions used by the Company which are subject to change)
by approximately $102 million. As a result, the Company anticipates that it will
be required to make contributions to its domestic pension plans over the next
five years which will be significantly higher than contribution levels over the
last few years. The expected average annual required cash contribution over the
next five years is $16 million. In an effort to reduce certain administrative
costs associated with the domestic pension plans, the Company has elected to
make in 2004 cash contributions to its domestic pension plans that are in excess
of required contribution amounts. During the first three months of 2004, the
Company contributed $17 million to its domestic pension plan trusts and expects
to contribute approximately an additional $4 million during the remainder of
2004. Under current assumptions, such accelerated funding in 2004 will
substantially reduce the amount of any cash contributions the Company is
required to make during 2005. In addition, effective April 1, 2004, a new
defined contribution plan covering domestic salaried and certain hourly
employees will be established to replace the existing defined benefit plans.
Benefit accruals in these defined benefit plans are being frozen effective April
1, 2004, and this action will result in a curtailment gain currently estimated
to be approximately $15-18 million which will be recorded during the first
quarter of 2004.
-44-
On November 10, 2003, GenTek, substantially all of GenTek's domestic
subsidiaries, and Noma Company (collectively, "the Borrowers") entered into a
$125 million previously defined Revolving Credit Facility which matures on
November 10, 2008. The facility includes a letter of credit sub-limit of $60
million. The facility is secured by a first priority lien on substantially all
of the assets of the Borrowers and 65 percent of the stock of first-tier foreign
subsidiaries. The facility bears interest at variable rates based on a base rate
or LIBOR plus an applicable margin. The current margins are 1.5 percent for base
rate borrowings and 2.5 percent for LIBOR borrowings. The margins are subject to
periodic adjustment based upon the financial performance of the Company.
In addition, on November 10, 2003, pursuant to the Plan, the Company issued
$250 million under the Senior Term Loan Credit Agreement which matures on
November 10, 2008. The debt is guaranteed by substantially all of the Company's
direct and indirect domestic subsidiaries, and is secured by second-priority
liens on substantially all of the assets of the Company and its direct and
indirect domestic subsidiaries and 65 percent of the stock of first-tier foreign
subsidiaries. The debt bears interest at variable rates based on LIBOR plus 4.5
percent, subject to a LIBOR floor of 1.5 percent.
The above debt facilities contain debt covenants which impose certain
restrictions on the Company's ability to, among other things, incur additional
debt, pay dividends, make investments or sell assets. Additionally, certain
asset sale proceeds must be used to repay indebtedness and, beginning in 2005,
the Senior Term Loan Credit Agreement provides that the majority of any "excess
cash flow" generated in the prior year be used to prepay the senior term debt.
The Company has not entered into any off-balance sheet financing
arrangements.
Capital expenditures are expected to be approximately $50-55 million in
2004.
Management believes that the Company's cash flow from operations and
availability under its revolving credit facility will be sufficient to cover
future debt service requirements, capital expenditures, and working capital
requirements during 2004.
Contractual Obligations
Payments Due by Period
------------------------------------------------------
(In thousands)
Less than After
1 Year 1-3 Years 4-5 Years 5 Years Total
--------- --------- --------- ------- --------
Long-term debt.................. $12,552 $ 979 $250,050 $ 233 $263,814
Operating leases................ 9,039 11,222 7,102 833 28,196
Purchase obligations............ 26,514 30,113 8,010 4,275 68,912
------- ------- -------- ------ --------
Total contractual obligations... $48,105 $42,314 $265,162 $5,341 $360,922
======= ======= ======== ====== ========
Environmental Matters
The Company's various manufacturing operations, which have been conducted
at a number of facilities for many years, are subject to numerous laws and
regulations relating to the protection of human health and the environment in
the U.S., Canada, Australia, China, Germany, Great Britain, India, Mexico and
other countries. The Company believes that it is in substantial compliance with
such laws and regulations. However, as a result of its operations, the Company
is involved from time to time in administrative and judicial proceedings and
inquiries relating to environmental matters. Based on information available at
this time with respect to potential liability involving these facilities, the
Company believes that any such liability will not have a material adverse effect
on its financial condition, cash flows or results of operations. However,
modifications of existing laws and regulations or the
-45-
adoption of new laws and regulations in the future, particularly with respect to
environmental and safety standards, could require the Company to make
expenditures which may be material or otherwise adversely impact the Company's
operations. See also Item 1. "Business - Environmental Matters."
The Company's accruals for environmental liabilities are recorded based on
current interpretation of environmental laws and regulations when it is probable
that a liability has been incurred and the amount of such liability can be
reasonably estimated. At December 31, 2003, accruals for environmental matters
were $30 million. The Company maintains a comprehensive insurance program,
including customary comprehensive general liability insurance for bodily injury
and property damage caused by various activities and occurrences and significant
excess coverage to insure against catastrophic occurrences. However, the Company
generally does not maintain insurance other than as described above for
potential liabilities related specifically to remediation of existing
environmental contamination or future environmental contamination, if any.
The Company maintains a program to manage its facilities' compliance with
environmental laws and regulations. Expenditures for 2003 approximated $17
million (of which approximately $4 million represented capital expenditures and
approximately $13 million related to ongoing operations and the management and
remediation of potential environmental contamination from prior operations).
Expenditures for 2002 approximated $17 million (of which approximately $3
million represented capital expenditures and approximately $14 million related
to ongoing operations and the management and remediation of potential
environmental contamination from prior operations). The Company expects
expenditures similar to 2003 levels in 2004. In addition, if environmental laws
and regulations affecting the Company's operations become more stringent, costs
for environmental compliance may increase above historical levels.
Claims against the Debtors for environmental liabilities arising prior to
the Filing were addressed in the Chapter 11 cases. In general, monetary claims
by private (non-governmental) parties relating to remedial actions at off-site
locations used for disposal prior to the Filing and penalties resulting from
violations of applicable environmental law before that time will be treated as
general unsecured claims. The Debtors are obligated to comply with applicable
environmental law in the conduct of their business, including any potential
obligation to conduct investigations and implement remedial actions at
facilities the Company owns or operates, and thus will be required to pay such
expenses in full.
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.
-46-
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. The Company adopted this standard on January 1,
2003. There was no effect upon adoption on the Company's 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 adopted this standard on January
1, 2003. There was no effect upon adoption on the Company's consolidated
financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and a rescission of FASB Interpretation No. 34," which expands on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. It also clarifies that
a guarantor is required to recognize, at inception of a guarantee, a liability
for the fair value of the obligation undertaken. The initial recognition and
measurement provisions were applicable to guarantees issued or modified after
December 31, 2002. The disclosure requirements were effective for financial
statements of interim and annual periods ending after December 15, 2002. The
adoption of this statement did not have a material impact on the Company's
consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123",
which requires expanded disclosure regarding stock-based compensation in the
Summary of Significant Accounting Policies. The Company has adopted the
disclosure requirements of this standard, and has included the expanded
disclosure in Note 2.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities ("VIE"s)" ("FIN 46"). This interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
addresses when a company should include in its financial statements the assets
and liabilities of unconsolidated VIEs. FIN 46 was effective for VIEs created or
acquired after January 31, 2003. The Company is not party to any arrangements
with VIEs and thus the adoption of this statement did not have a material impact
on the Company's consolidated financial statements. In December 2003, the FASB
completed deliberations of proposed modifications to FIN 46 ("Revised
Interpretations") resulting in multiple effective dates based on the nature as
well as the creation date of the VIE. The adoption of the Revised Interpretation
did not have a material effect on the Company's financial statements.
-47-
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). The
Statement is effective for financial instruments entered into or modified after
May 31, 2003. It applies in the first interim period beginning after June 15,
2003, to entities with financial instruments acquired before May 31, 2003. The
adoption of this statement did not have a material impact on the Company's
consolidated financial statements.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This Statement
retains the disclosure requirements contained in the original FASB Statement No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits",
which it replaces and requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. It does not change
the measurement of recognition of those plans required by FASB Statements No.
87, "Employers' Accounting for Pensions", No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", and No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". The Statement is effective for annual and interim
periods with fiscal years ending after December 15, 2003. The disclosure
provisions of this statement have been adopted for the period ended December 31,
2003.
In January 2004, the FASB issued Staff Position No. FAS 106-1, "Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003" (FSP). The act, signed into law in
December 2003, introduces a prescription drug benefit under Medicare as well as
a federal subsidy, under certain conditions, to sponsors of retiree health care
benefit plans. Presently, authoritative guidance on the accounting for the
subsidy has not been issued. The Company has elected a one-time deferral of the
accounting for the effects of the act, as permitted by the FSP. This deferral
continues to apply until authoritative guidance on the accounting for the
federal subsidy is issued.
Critical Accounting Policies and Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Our significant accounting policies are described in Note
2 to the audited consolidated financial statements. The significant accounting
policies which we believe are the most critical to the understanding of reported
financial results include the following:
Revenue Recognition - GenTek recognizes revenue when pervasive evidence of
an arrangement exists, delivery has occurred, the fee is fixed or determinable,
and collectibility is reasonably assured. Revenue is recognized from product
sales when title and risk of loss has passed to the customer consistent with the
related shipping terms, generally at the time products are shipped. The Company
records a provision for estimated sales returns and other allowances as a
reduction of revenue at the time of revenue recognition. Provisions for sales
returns and other allowances are determined using management's judgments of
required amounts, based upon the Company's historical experience. Actual returns
could differ from these estimates. However, if the total actual level of sales
returns differed from management's estimates by 10 percent, the effect would not
be material.
-48-
Accounts Receivable - GenTek maintains allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to make required
payments. Allowances are based upon historical experience and information
available to management about the creditworthiness, financial condition and
payment history of our customers. If the financial condition of our customers
were to deteriorate, additional allowances may be required. To the extent that
management's estimate of the uncollectible amount of receivables differs from
the amount the Company is ultimately not able to collect by 10 percent, our
results would be impacted by approximately $2 million.
Inventories - GenTek provides estimated inventory allowances for obsolete
and excess inventory based on assumptions about future demand and market
conditions. Allowances are based upon management's judgment of what future
demand will be for its various products, utilizing historical experience of
demand levels, projections of market demand in the future, and information
regarding any projected future changes in the markets the Company competes in.
These estimates of future demand are then compared to existing inventory levels
to determine the amount of any required allowance. If future demand or market
conditions are different than those projected by management, adjustments to
inventory allowances may be required. If actual experience differs from
management's estimates by 10 percent, the required adjustment would affect our
results by approximately $3 million.
Deferred Taxes - GenTek records a valuation allowance to reduce its
deferred tax assets to the amount the Company believes is more likely than not
to be realized based upon historical taxable income, projected future taxable
income and available tax planning strategies. Our estimates of future taxable
income are based upon our current operating forecast, which we believe to be
reasonable. 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 during 2002 and the Company's evaluation of potential
tax-planning strategies, the Company had concluded that it was more likely than
not that it would not be able to realize its domestic net deferred tax assets.
Accordingly, during 2002 the Company recorded an increase to its valuation
allowance of $143 million effectively reducing the carrying value of its
domestic net deferred tax assets to zero. As a result of the Company's emergence
from bankruptcy and the associated discharge of indebtedness, the Company
revised its estimates of future domestic taxable income, based on its new
capital structure. Based on these estimates and the Company's evaluation of
potential tax-planning strategies, the Company concluded that it was more likely
than not that it would be able to realize its domestic deferred tax assets, and
accordingly reversed its remaining valuation allowance for its domestic deferred
tax assets of $143 million in November 2003 in the Predecessor Company financial
statements. 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. However, different
assumptions regarding our current operating forecast could materially effect our
estimates.
Impairment of Goodwill and Other Intangible Assets - GenTek records
impairment losses on goodwill and indefinite lived intangible assets based upon
an annual review of the value of the assets or when events and circumstances
indicate that the asset might be impaired and when the recorded value of the
asset is more than its fair value or other assumptions that underlie our fair
value estimates. Our estimates of fair value are based upon independent
appraisals and our current operating forecast, which we believe to be
reasonable. Significant assumptions that underlie the fair value estimates
include future growth rates, weighted average cost of capital rates and
estimates of market multiples of the reporting unit. However, different
assumptions regarding our current operating forecast could materially affect our
results.
-49-
Impairment of Long-Lived Assets - GenTek records impairment losses on
long-lived assets when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than their carrying amount. In this case, the Company records an
impairment loss equal to the difference between the fair value of the long-lived
assets and their carrying amount. Management's estimates of fair value are based
on discounted cash flow analyses and/or independent appraisals. Significant
assumptions underlying these estimates include future growth rates and weighted
average cost of capital rates. Our estimates of future cash flows are based upon
our current operating forecast, which we believe to be reasonable. However,
different assumptions regarding such cash flows or other assumptions that
underlie our fair value estimates could materially affect our results.
Pension and Other Post Retirement Benefits - GenTek records pension and
other post retirement benefit costs based on amounts developed from actuarial
valuations. Inherent in these valuations are key assumptions provided by the
Company to our actuaries, including the discount rate and expected long-term
rate of return on plan assets. For example, holding all other components of the
calculation constant, a change in the assumed discount rate by 1/4 percent would
change 2003 pension cost by approximately $1 million and the projected pension
benefit obligation by approximately $9 million. A change in the expected
long-term rate of return on plan assets of 1 percent would change 2003 pension
cost by approximately $1 million. Material changes in pension and other post
retirement benefit costs may occur in the future due to changes in these
assumptions, differences between actual experience and the assumptions used and
changes in the benefit plans.
Environmental Liabilities - GenTek has recorded accruals for environmental
liabilities based on current interpretation of environmental laws and
regulations when it is probable that a liability has been incurred and the
amount of such liability can be reasonably estimated. These estimates are
established based upon information available to management to date, including
the nature and extent of any environmental contamination, the available remedial
alternatives, cost estimates obtained from outside consultants for the
implementation of such remedial alternatives, the Company's experience with
similar activities undertaken at similar sites, and the legal and regulatory
framework in the jurisdiction in which the liability arose. Differences between
actual amounts incurred and our estimates or the receipt of new information with
respect to these liabilities could have a material effect on our estimates and
results of operations. In addition, discovery of unknown environmental
contamination, the adoption of new laws or regulations or modifications or
changes in enforcement of existing laws and regulations could require
adjustments to these accruals.
The impact and any associated risks related to these policies on our
business operations is discussed throughout Management's Discussion and Analysis
of Financial Condition and Results of Operations where such policies affect our
reported and expected financial results.
Agreements with Certain Parties Formerly Affiliated with the Company
Prior to the Effective Date, the Company was party to a management
agreement, dated April 30, 1999, by and between Latona Associates Inc.
("Latona") and the Company (referred to herein as the "Original Management
Agreement"). Latona is a management company that has provided the Company with
certain administrative functions and corporate support services. Paul M.
Montrone, our former controlling stockholder and former Chairman of the Board of
the Company, controls Latona. In addition, Paul M. Meister, our former Vice
Chairman of the Board, is a Managing Director of Latona. Messrs. Montrone and
Meister are no longer affiliated with the Company.
-50-
The Original Management Agreement provided for payments to Latona of an
amount of approximately $5 million annually, payable quarterly in advance,
adjusted annually for increases in the U.S. Department of Labor, Bureau of Labor
Statistics, Consumer Price Index. In addition to the annual payment, if the
Company requested Latona to provide advisory services in connection with any
acquisition, business combination or other strategic transaction, in certain
circumstances the Company would pay Latona additional fees comparable to those
received by investment banking firms for such services (subject to the approval
of a majority of the Company's independent directors). In fiscal years 2001,
2002 and 2003, GenTek did not pay Latona any fees in connection with any such
transactions.
While there can be no assurance that the amount of fees paid by the Company
to Latona for services did not exceed the amount that the Company would have had
to pay to obtain similar services from unaffiliated third parties, the Company
believed that the employees of Latona had extensive knowledge concerning its
businesses which would have been impractical for a third party to obtain without
undue cost and disruption to the Company. As a result, the Company did not
compare the fees payable to Latona with fees that might have been charged by
third parties for similar services.
After discussions with certain creditors during the Company's Chapter 11
proceedings, it was determined that the Company would, during the course of the
proceedings, pay 75 percent of the amount due to Latona. GenTek paid Latona 75
percent of the amount due under the agreement with respect to the first eight
months of 2003. The U.S. Trustee and Latona entered into a stipulation under
which Latona waived its right to be paid during the Chapter 11 case and Latona
refunded to the Company all amounts paid to it during the course of the
proceedings. The refunded amounts plus amounts due but not paid were recorded as
a capital contribution for accounting purposes. The waiver was without prejudice
to Latona's right to negotiate a new agreement with the reorganized Company on
terms approved by the Company's new board of directors. The Original Management
Agreement was terminated pursuant to the Plan, effective as of the Effective
Date. Subsequently, GenTek and Latona entered into a new Management Agreement
(referred to herein as the "New Management Agreement") which provides for
payments to Latona of an aggregate amount of $4.95 million for management
support services of which $1.95 million was paid in 2003, expiring on November
14, 2004. The terms of the New Management Agreement also explicitly release
GenTek from its obligation to pay all amounts due to Latona pursuant to the
Original Management Agreement. The New Management Agreement contemplates an
accelerated transition, whereby the Company intends to assume internally or, in
certain circumstances outsource to third parties, the services previously
provided by Latona upon the expiration of the New Management Agreement.
Certain of GenTek's businesses were formerly part of the businesses of The
General Chemical Group Inc. ("GCG"). On April 30, 1999, GCG separated GenTek's
manufacturing and performance products businesses (the "GenTek Business") from
GCG's soda ash and calcium chloride industrial chemicals business through a
spin-off by transferring the GenTek Business to GenTek, and distributing the
common stock of GenTek to GCG's shareholders. Since the spin-off, GenTek has
been a separate, stand-alone company which operates through its subsidiaries. At
the time of the spinoff, the Company entered into various agreements with GCG (a
company controlled by Mr. Montrone), including, without limitation, a separation
agreement, employee benefits agreement, an intellectual property agreement,
sublease agreement and a sale agreement for the Canadian performance products
business. GCG also has supplied soda ash and calcium chloride to GenTek. The
purchases have been made at market price. For the years ended December 31, 2003,
2002, and 2001, product purchases from GCG amounted to $3 million, $3 million
and $4 million, respectively. In connection with the Company's Chapter 11
proceedings, the Company rejected certain of these agreements with GCG in the
fourth quarter of 2003.
-51-
As of the Effective Date, GCG is no longer an affiliate of the Company.
GenTek continues to provide GCG with certain administrative services
pursuant to a transition support agreement entered into in connection with the
spinoff of GenTek from GCG in 1999. For the years ended December 31, 2003, 2002
and 2001, GenTek charged GCG $1 million, $1 million and $1 million,
respectively, related to this agreement. The Company charges GCG on an at cost
basis based on its costs for providing such services, however, the Company has
not made any determination of the fair market value for such services.
On August 25, 2000, the Company acquired the digital communications
business of Prestolite Wire Corporation (referred to herein as "Prestolite")
which was approved by a special committee of disinterested directors of the
Board of Directors of GenTek. Mr. Montrone beneficially owns a controlling
interest in Prestolite, and he and Mr. Meister are on the Board of Prestolite.
As of the Effective Date, Messrs. Montrone and Meister were no longer members of
the Board of Directors of the Company and Prestolite is no longer an affiliate
of the Company. As part of this transaction, Prestolite agreed to pay the
Company to provide various management services to Prestolite's remaining
businesses pursuant to a management agreement dated July 5, 2000 (referred to
herein as the "Prestolite Agreement"). The Company charged Prestolite on an "at
cost" basis based on its costs for providing such services, however, the company
did not make any determination of the fair market value for such services.
Prestolite paid the Company $2, million, $2 million and $3 million in 2003, 2002
and 2001, respectively, in respect of such services. The Prestolite Agreement
was rejected under the Plan, effective as of the Effective Date. As of the
Effective Date, Prestolite is unaffiliated with the Company. The Company has
subsequently entered into a new agreement with Prestolite. In addition, the
Company and Prestolite maintained certain cost sharing arrangements relating to
shared premises and insurance coverage. Payments pursuant to these arrangements
by Prestolite to the Company for the years ended December 31, 2003, 2002 and
2001 were $0.3 million, $0.5 million and $0.3 million, respectively, and
payments by the Company to Prestolite pursuant to these arrangements for the
years ended December 31, 2003, 2002 and 2001 were $0.2 million, $0.1 million and
$0.1 million, respectively.
GenTek and Prestolite continue to buy and sell certain wire and cable
products from each other. Purchases from Prestolite for the years ended December
31, 2003, 2002 and 2001 were $4 million, $11 million and $10 million,
respectively. Sales to Prestolite for the years ended December 31, 2003, 2002
and 2001 were $10 million, $4 million and $3 million, respectively.
-52-
Reconciliation of Non-GAAP Financial Measures 2003
Successor Company Predecessor Company
as Reported as Reported
Period Ended Period Ended
December 31, November 10, Total Company
2003 2003 2003
------------------ -------------------- -------------
Net revenues
Manufacturing................................ $ 52,855 $ 373,002 $ 425,857
Performance Products......................... 39,945 295,980 335,925
Communications............................... 49,395 287,913 337,308
-------- --------- ----------
142,195 956,895 1,099,090
Cost of sales
Manufacturing................................ 44,014 307,339 351,353
Performance Products......................... 30,972 243,967 274,939
Communications............................... 35,589 207,047 242,636
Corporate/Elimination........................ (73) (165) (238)
-------- --------- ----------
110,502 758,188 868,690
Selling, general and administrative expense
Manufacturing................................ 5,190 33,281 38,471
Performance Products......................... 5,172 29,304 34,476
Communications............................... 13,022 74,366 87,388
Corporate/Elimination........................ 1,939 6,863 8,802
-------- --------- ----------
25,323 143,814 169,137
Restructuring and impairment charges
Manufacturing................................ (13) (1,062) (1,075)
Performance Products......................... 293 25,542 25,835
Communications............................... 755 4,344 5,099
Corporate/Elimination........................ 12 -- 12
-------- --------- ----------
1,047 28,824 29,871
Operating profit (loss)
Manufacturing................................ 3,664 33,444 37,108
Performance Products......................... 3,508 (2,833) 675
Communications............................... 29 2,156 2,185
Corporate/Elimination........................ (1,878) (6,698) (8,576)
-------- --------- ----------
5,323 26,069 31,392
Interest expense................................. 2,685 1,637 4,322
Interest income.................................. 198 981 1,179
Reorganization items............................. -- (411,794) (411,794)
Other (income), net.............................. (116) (3,916) (4,032)
-------- --------- ----------
Income (loss) before income taxes............ 2,952 441,123 444,075
Income tax provision (benefit)................... 1,860 (53,269) (51,409)
-------- --------- ----------
Net Income................................ $ 1,092 $ 494,392 $ 495,484
======== ========= ==========
-53-
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company's cash flows and earnings are subject to fluctuations resulting
from changes in interest rates, foreign currency exchange rates and commodity
prices and the Company selectively uses financial instruments to manage these
risks. The Company's objective in managing its exposure to changes in interest
rates, foreign currency exchange rates and commodity prices 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, foreign currency rates and
commodity prices 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 rates, foreign currency exchange
rates and commodity prices. 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, foreign
currency exchange rates or commodity prices would not have a material impact on
the fair values, cash flows or earnings of the Company.
Item 8. Financial Statements and Supplementary Data.
See "Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K."
-54-
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
GENTEK INC.:
We have audited the accompanying consolidated balance sheets of GenTek Inc.
and subsidiaries as of December 31, 2003 (Successor Company balance sheet) and
2002 (Predecessor Company balance sheet), and the related consolidated
statements of operations, changes in equity (deficit) and cash flows for the
period from November 11, 2003 to December 31, 2003 (Successor Company
operations), the period from January 1, 2003 to November 10, 2003, and for each
of the two years in the period ended December 31, 2002 (Predecessor Company
operations). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 1 to the to the financial statements, on October 7,
2003, the Bankruptcy Court entered an order confirming the Plan of
Reorganization which became effective after the close of business on November
10, 2003. Accordingly, the accompanying financial statements have been prepared
in conformity with AICPA Statement of Position 90-7, "Financial Reporting by
Entities In Reorganization Under The Bankruptcy Code," for the Successor Company
as a new entity with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods as described in Note 1.
In our opinion, the Successor Company financial statements present fairly,
in all material respects, the financial position of GenTek Inc. and subsidiaries
as of December 31, 2003, and the results of their operations and their cash
flows for the period from November 11, 2003 to December 31, 2003 in conformity
with accounting principles generally accepted in the United States of America.
Further, in our opinion, the Predecessor Company financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of the Predecessor Company as of December 31, 2002, and the results of
their operations and their cash flows for the period from January 1, 2003 to
November 10, 2003, and for each of the two years in the period ended December
31, 2002, in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 2 to the financial statements, effective January 1,
2002, the Company changed its method of accounting for goodwill and certain
intangible assets to conform to Statement of Financial Accounting Standards No.
142.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 29, 2004
-55-
GENTEK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Successor
Company Predecessor Company
------------ ---------------------------------------
Period Ended Period Ended Years Ended December 31,
December 31, November 10, ------------------------
2003 2003 2002 2001
------------ ------------- ---------- ----------
Net revenues .................................................. $142,195 $ 956,895 $1,128,533 $1,244,420
Cost of sales ................................................. 110,502 758,188 899,177 993,946
Selling, general and administrative expense ................... 25,323 143,814 176,189 235,803
Restructuring and impairment charges .......................... 1,047 28,824 78,238 187,417
-------- --------- ---------- ----------
Operating profit (loss) .................................... 5,323 26,069 (25,071) (172,746)
Interest expense (contractual interest for the period ended
November 10, 2003 and 2002 was $62,133 and $75,418,
respectively) .............................................. 2,685 1,637 60,135 74,980
Interest income ............................................... 198 981 2,104 1,200
Reorganization items .......................................... -- (411,794) 11,631 --
Other (income), net ........................................... (116) (3,916) (1,806) (783)
-------- --------- ---------- ----------
Income (loss) before income taxes and cumulative effect
of a change in accounting principle ..................... 2,952 441,123 (92,927) (245,743)
Income tax provision (benefit) ................................ 1,860 (53,269) 106,597 (74,899)
-------- --------- ---------- ----------
Income (loss) before cumulative effect of a change in
accounting principle .................................... 1,092 494,392 (199,524) (170,844)
Cumulative effect of a change in accounting principle (net of a
tax benefit of $39,760) .................................... -- -- (161,125) --
-------- --------- ---------- ----------
Net income (loss) .................................... $ 1,092 $ 494,392 $ (360,649) $ (170,844)
======== ========= ========== ==========
Earnings (loss) per common share - basic:
Income (loss) before cumulative effect of a change in
accounting principle ................................... $ 0.11 $ 19.34 $ (7.82) $ (6.72)
Cumulative effect of a change in accounting principle ......... -- -- (6.31) --
-------- --------- ---------- ----------
Net income (loss) .................................... $ 0.11 $ 19.34 $ (14.13) $ (6.72)
======== ========= ========== ==========
Earnings (loss) per common share - assuming dilution:
Income (loss) before cumulative effect of a change in
accounting principle ................................... $ 0.11 $ 19.34 $ (7.82) $ (6.72)
Cumulative effect of a change in accounting principle ......... -- -- (6.31) --
-------- --------- ---------- ----------
Net income (loss) .................................... $ 0.11 $ 19.34 $ (14.13) $ (6.72)
======== ========= ========== ==========
See the accompanying notes to the consoliodated financial statements.
-56-
GENTEK INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Successor Predecessor
Company Company
----------------- -----------------
December 31, 2003 December 31, 2002
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 60,121 $ 133,030
Receivables, net ................................................... 163,953 185,825
Inventories ........................................................ 103,018 104,718
Deferred income taxes .............................................. 35,380 3,328
Other current assets ............................................... 21,880 24,027
---------- ----------
Total current assets ............................................ 384,352 450,928
Property, plant and equipment, net .................................... 356,654 308,825
Goodwill .............................................................. 152,485 127,724
Intangible assets ..................................................... 73,207 1,470
Deferred income taxes ................................................. 72,661 42,789
Other assets .......................................................... 27,450 25,249
---------- ----------
Total assets .................................................... $1,066,809 $ 956,985
========== ==========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable ................................................... $ 49,172 $ 50,852
Accrued liabilities ................................................ 150,358 128,714
Current portion of long-term debt .................................. 12,552 15,091
---------- ----------
Total current liabilities ....................................... 212,082 194,657
Long-term debt ........................................................ 251,262 2,452
Pension and postretirement obligations ................................ 216,872 52,145
Liabilities subject to compromise ..................................... -- 1,143,765
Other liabilities ..................................................... 101,776 74,287
---------- ----------
Total liabilities ............................................... 781,992 1,467,306
---------- ----------
Contingently redeemable warrants ...................................... 6,030 --
---------- ----------
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: 21,589,623 shares at December 31, 2002 ................ -- 216
Class B Common Stock, $.01 par value; authorized: 40,000,000
shares; issued and outstanding: 3,896,860 shares at December
31, 2002 ........................................................ -- 39
Common stock, no par value; authorized: 100,000,000 shares;
issued 10,000,000 shares at December 31, 2003 ................... 268,084 --
Warrants ........................................................... 8,361 --
Paid in capital .................................................... -- 3,305
Accumulated other comprehensive income (loss) ...................... 1,250 (31,111)
Retained earnings (Accumulated deficit) ............................ 1,092 (481,525)
Treasury stock, at cost: 150,313 shares at December 31, 2002 ...... -- (1,245)
---------- ----------
Total equity (deficit) .......................................... 278,787 (510,321)
---------- ----------
Total liabilities and equity (deficit) .......................... $1,066,809 $ 956,985
========== ==========
See the accompanying notes to the consolidated financial statements.
-57-
GENTEK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Successor
Company Predecessor Company
------------ ---------------------------------------
Period Ended Period Ended Years Ended December 31,
December 31, November 10, ------------------------
2003 2003 2002 2001
------------ ------------ ------------------------
Cash flows from operating activities:
Net income (loss) ........................................... $ 1,092 $ 494,392 $(360,649) $(170,844)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Cumulative effect of a change in accounting principle .... -- -- 161,125 --
Depreciation and amortization ............................ 6,703 37,397 47,903 68,317
Asset impairment and write-down charges .................. -- 24,862 64,819 161,953
Reorganization items ..................................... -- (411,794) 11,631 --
Net loss on disposition of long-term assets .............. 738 183 122 1,465
Long-term incentive plan costs, net ...................... -- 3 (525) (86)
Decrease in receivables .................................. 21,978 14,807 12,351 37,903
Decrease in inventories .................................. 3,549 6,878 7,292 32,267
(Increase) decrease in deferred tax assets ............... 6,524 (64,781) 119,915 (55,213)
Decrease in accounts payable ............................. (3,074) (5,332) (11,742) (5,984)
Increase (decrease) in accrued liabilities ............... (22,342) (4,588) 1,073 2,509
Decrease in other liabilities and assets, net ............ (16,345) (9,884) (7,224) (3,880)
-------- --------- --------- ---------
Net cash provided by (used for) operating activities .. (1,177) 82,143 46,091 68,407
-------- --------- --------- ---------
Net cash used for reorganization items ......................... -- (18,187) (464) --
-------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures ........................................ (10,552) (30,564) (52,440) (77,778)
Proceeds from sales or disposals of long-term assets ........ 21 217 13,542 11,541
Acquisition of businesses net of cash acquired* ............. -- -- (464) (610)
Other investing activities .................................. (13) (166) -- (4,032)
-------- --------- --------- ---------
Net cash used for investing activities ................ (10,544) (30,513) (39,362) (70,879)
-------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt ................................ -- 4,126 168,153 93,551
Repayment of long-term debt ................................. (7,876) (98,253) (52,310) (81,515)
Debt issuance costs - reorganization ........................ -- (688) -- --
Capital contribution ........................................ -- 2,640 -- --
Payments to acquire treasury stock .......................... -- -- (1) (370)
Exercise of stock options ................................... -- -- -- 209
Dividends ................................................... -- -- -- (3,777)
-------- --------- --------- ---------
Net cash provided by (used for) financing activities .. (7,876) (92,175) 115,842 8,098
-------- --------- --------- ---------
Effect of exchange rate changes on cash ........................ 1,831 3,589 1,718 (880)
-------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents ............... (17,766) (55,143) 123,825 4,746
Cash and cash equivalents at beginning of period ............... 77,887 133,030 9,205 4,459
-------- --------- --------- ---------
Cash and cash equivalents at end of period ..................... $ 60,121 $ 77,887 $ 133,030 $ 9,205
======== ========= ========= =========
Supplemental information:
Cash paid (refunded) for income taxes ....................... $ 1,415 $ 658 $ (14,810) $ 10,743
======== ========= ========= =========
Cash paid for interest ...................................... $ 1,086 $ 1,652 $ 51,541 $ 75,467
======== ========= ========= =========
*Acquisition of businesses net of cash acquired:
Working capital, other than cash ............................ $ -- $ -- $ 59 $ --
Property, plant and equipment ............................... -- -- (364) (610)
Other assets ................................................ -- -- (159) --
-------- --------- --------- ---------
Total cash used to acquire businesses ................. $ -- $ -- $ (464) $ (610)
======== ========= ========= =========
See the accompanying notes to the consolidated financial statements.
-58-
GENTEK INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
For the Three Years Ended December 31, 2003
(In thousands, except per share data)
Class B
Common Common Treasury
Stock Stock Warrants Stock
--------- -------- -------- --------
Predecessor
Balance at December 31, 2000 ......... $204 $48 $-- $ (874)
Components of comprehensive loss:
Net loss ....................... -- -- -- --
Change in net unrealized
loss on securities
(net of tax of $84) ......... -- -- -- --
Minimum pension liability
adjustments (net of
tax of $748) ................ -- -- -- --
Cumulative effect of accounting
change (net of tax
of $1,941) .................. -- -- -- --
Change in net unrealized loss on
derivative instruments (net
of tax of $2,238) ........... -- -- -- --
Foreign currency translation
adjustments (net of
tax of $4,884)............... -- -- -- --
Comprehensive loss ................
Dividends (per share $.15) ........ -- -- -- --
Exercise of stock options ......... 3 -- -- --
Long-term incentive plan grants,
net ............................ -- -- -- --
Purchase of treasury stock ........ -- -- -- (370)
---- --- --- -------
Balance at December 31, 2001 ......... 207 48 -- (1,244)
Components of comprehensive loss:
Net loss ....................... -- -- -- --
Change in net unrealized loss on
securities (net of
tax of $148) ................ -- -- -- --
Minimum pension liability
adjustments.................. -- -- -- --
Change in net unrealized loss on
derivative instruments
(net of tax of $(39)) ....... -- -- -- --
Foreign currency translation
adjustments (net of tax
of $4,322)................... -- -- -- --
Comprehensive loss ................
Conversion of Class B Common
Stock to Common Stock .......... 9 (9) -- --
Long-term incentive plan grants,
net ............................ -- -- -- --
Purchase of treasury stock ........ -- -- -- (1)
---- --- --- -------
Balance at December 31, 2002 ......... 216 39 -- (1,245)
Components of comprehensive
income:
Net income .....................
Minimum pension liability
adjustments ................. -- -- -- --
Accumulated
Other Retained
Comprehensive Earnings
Paid in Income (Accumulated
Capital (Loss) Deficit) Total
------- ------------- ------------ ---------
Predecessor
Balance at December 31, 2000 ......... $ 3,710 $ (9,175) $ 53,745 $ 47,658
Components of comprehensive loss:
Net loss ....................... -- -- (170,844) (170,844)
Change in net unrealized
loss on securities
(net of tax of $84) ......... -- (129) -- (129)
Minimum pension liability
adjustments (net of
tax of $748) ................ -- (1,144) -- (1,144)
Cumulative effect of accounting
change (net of tax
of $1,941) .................. -- (2,966) -- (2,966)
Change in net unrealized loss on
derivative instruments (net
of tax of $2,238) ........... -- (3,421) -- (3,421)
Foreign currency translation
adjustments (net of
tax of $4,884)............... -- (7,467) -- (7,467)
---------
Comprehensive loss ................ (185,971)
Dividends (per share $.15) ........ -- -- (3,777) (3,777)
Exercise of stock options ......... 206 -- -- 209
Long-term incentive plan grants,
net ............................ (86) -- -- (86)
Purchase of treasury stock ........ -- -- -- (370)
------- -------- --------- ---------
Balance at December 31, 2001 ......... 3,830 (24,302) (120,876) (142,337)
Components of comprehensive loss:
Net loss ....................... -- -- (360,649) (360,649)
Change in net unrealized loss on
securities (net of
tax of $148) ................ -- 226 -- 226
Minimum pension liability
adjustments.................. -- (24,346) -- (24,346)
Change in net unrealized loss on
derivative instruments
(net of tax of $(39)) ....... -- 2,544 -- 2,544
Foreign currency translation
adjustments (net of tax
of $4,322)................... -- 14,767 -- 14,767
---------
Comprehensive loss ................ (367,458)
Conversion of Class B Common
Stock to Common Stock .......... -- -- -- --
Long-term incentive plan grants,
net ............................ (525) -- -- (525)
Purchase of treasury stock ........ -- -- -- (1)
------- -------- --------- ---------
Balance at December 31, 2002 ......... 3,305 (31,111) (481,525) (510,321)
Components of comprehensive
income:
Net income ..................... 494,392 494,392
Minimum pension liability
adjustments ................. -- 9,510 -- 9,510
-59-
GENTEK INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
For the Three Years Ended December 31, 2003
(In thousands, except per share data)
Change in net unrealized loss
on derivative instruments
(net of tax of $4,218) ...... -- -- -- --
Foreign currency translation
adjustments (net of tax
of $5,105)................... -- -- -- --
Comprehensive income ..............
Conversion of Class B Common
Stock to Common Stock .......... 14 (14) -- --
Capital contribution .............. -- -- -- --
Long-term incentive plan
grants, net .................... -- -- -- --
Cancellation of Predecessor
Common Stock and Class B
Common Stock ................... (230) (25) -- 1,245
Issuance of Common Stock to
creditors ................... 268,084 -- 8,361 --
Fresh Start Adjustments ........... -- -- -- --
--------- -------- ------ -------
Balance at November 10, 2003 ......... 268,084 -- 8,361 --
Successor
Components of comprehensive
income:
Net income ..................... -- -- -- --
Foreign currency translation
adjustments (net of
tax of $816) ................ -- -- -- --
Comprehensive income ..............
--------- -------- ------ -------
Balance at December 31, 2003 ......... $ 268,084 $ -- $8,361 $ --
========= ======== ====== =======
Change in net unrealized loss
on derivative instruments
(net of tax of $4,218) ...... -- 3,847 -- 3,847
Foreign currency translation
adjustments (net of tax
of $5,105)................... -- (360) -- (360)
---------
Comprehensive income .............. 507,389
Conversion of Class B Common
Stock to Common Stock .......... -- -- -- --
Capital contribution .............. 4,325 -- -- 4,325
Long-term incentive plan
grants, net .................... 3 -- -- 3
Cancellation of Predecessor
Common Stock and Class B
Common Stock ................... (990) -- -- --
Issuance of Common Stock to
creditors ................... -- -- -- 276,445
Fresh Start Adjustments ........... (6,643) 18,114 (12,867) (1,396)
------- -------- --------- ---------
Balance at November 10, 2003 ......... -- -- -- 276,445
Successor
Components of comprehensive
income:
Net income ..................... -- -- 1,092 1,092
Foreign currency translation
adjustments (net of
tax of $816) ................ -- 1,250 -- 1,250
Comprehensive income .............. 2,342
------- -------- --------- ---------
Balance at December 31,
2003 .............................. $ -- $ 1,250 $ 1,092 $ 278,787
======= ======== ========= =========
See the accompanying notes to the consolidated financial statements.
-60-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Note 1 - Basis of Presentation
GenTek Inc. ("GenTek" or the "Company") was spun off from The General
Chemical Group Inc. ("GCG") on April 30, 1999 (the "Spinoff"). The Spinoff has
been treated as a reverse spinoff for financial statement purposes because a
greater proportion of the former assets and operations of GCG are held by
GenTek.
GenTek's subsidiaries operate through three primary business segments:
manufacturing, performance products and communications. The manufacturing
segment provides a broad range of engineered components and services to three
principal markets: automotive, appliance and electronic, and industrial. The
performance products segment provides a broad range of value-added products and
services to four principal markets: environmental services, pharmaceutical and
personal care, technology and chemical processing. The communications segment is
a global provider of products, systems and services to the global markets for
telecommunications and data networking equipment and services, and in
particular, the public telecom and private enterprise network markets. The
Company operates over 75 manufacturing and production facilities located
primarily in the U.S., Canada, and Mexico with additional facilities in
Australia, China, Germany, Great Britain, and India. GenTek is a holding company
with no independent operations and, therefore, is dependent upon cash flow from
its subsidiaries to meet obligations.
On October 11, 2002, GenTek and 31 of its direct and indirect subsidiaries,
including its 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 were jointly administered as Case No. 02-12986 (MFW).
As a result of the Filing, an automatic stay was imposed against efforts by
claimants to collect amounts due or to proceed against property of the Debtors.
During the Chapter 11 case, the Debtors operated 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. As such, they were permitted to engage in ordinary course
of business transactions without prior approval of the Bankruptcy Court.
Transactions outside of the ordinary course of business, including certain sales
of assets and certain requests for additional financings, were subject to
approval by the Bankruptcy Court.
On December 10, 2002, Noma Company sought and obtained from the Ontario
Superior Court of Justice, Canada (the "Ontario Court"), an initial order
pursuant to section 18.6 of the Companies' Creditors Arrangement Act, R.S.C.
1985, c. C-36, as amended (CCAA), recognizing the Filing and granting Noma
Company, among other things, a stay against claims, proceedings and the exercise
of any contractual rights against it or its property in Canada, and recognizing
various orders granted by 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 pre-petition senior credit facility. The
protection afforded by Chapter 11 allowed the Debtors to continue to serve their
customers and preserve the value of their businesses, while they
-61-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
reorganized and worked to develop and implement a strategic plan to deleverage
the Company's balance sheet and create an improved long-term capital structure.
-62-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
As a result of the Filing, pending pre-petition litigation and claims
against the Debtors were stayed automatically in accordance with Section 362 of
the Bankruptcy Code and no party was able to take any action to seek payment on
its pre-petition claims or to proceed against property of the Debtors' estates
except pursuant to further order of the Bankruptcy Court. The Filing resulted in
an immediate acceleration of the Company's senior credit facility and 11% Senior
Subordinated Notes, subject to the automatic stay.
During the Chapter 11 process, the Company's available cash and continued
cash flow from operations were adequate to fund ongoing operations and meet
obligations to customers, vendors and employees in the ordinary course of
business. Further, in order to augment its financial flexibility during the
Chapter 11 process, in March 2003, the Company entered into a
debtor-in-possession credit facility with certain members of its pre-petition
bank syndicate. This facility enabled the Company to issue up to $50 million of
letters of credit, including approximately $30 million of letters of credit
issued under the pre-petition credit facility, to support the Company and its
subsidiaries' undertakings (other than ordinary trade credit) and provided the
Company's Noma Company subsidiary with a $10 million revolving credit facility
for working capital and other general corporate purposes of Noma Company. The
facility expired on the Effective Date and was replaced by the Revolving Credit
Facility.
As a general rule, all of the Debtors' contracts and leases continued in
effect in accordance with their terms notwithstanding the Filing, unless
otherwise ordered by the Bankruptcy Court. The Bankruptcy Code provided the
Debtors with the opportunity to reject any executory contracts or unexpired
leases that were burdensome or assume any contracts or leases that were
favorable or otherwise necessary to their business operations. In the event of a
rejection of an executory contract or unexpired lease by the Debtors, the
affected parties were provided a period of time within which to file rejection
damage claims, which were considered to be pre-petition general unsecured
claims. As a condition to assumption of an executory contract or unexpired
lease, the Debtors were required to cure defaults under such agreements,
including, without limitation, payment of any amounts due and owing. Certain
executory contracts and unexpired leases were rejected by the Debtors during the
course of the bankruptcy proceedings.
On June 30, 2003, the Debtors filed with the Court their first proposed
joint plan of reorganization, together with the related disclosure statement.
Subsequently, on August 21, 2003, the Debtors filed with the Court their second
proposed joint plan of reorganization (the "Second Proposed Plan of
Reorganization"), together with the related disclosure statement (the "Second
Proposed Disclosure Statement"). A hearing to consider the adequacy of the
Second Proposed Disclosure Statement was held on August 25, 2003. At the
hearing, the Debtors announced additional revisions to the Second Proposed Plan
of Reorganization (as modified, the "Plan of Reorganization") and the Second
Proposed Disclosure Statement (as modified, the "Disclosure Statement") and
agreed to work with certain parties in interest to resolve remaining issues as
to the adequacy of the Disclosure Statement. Upon certification of counsel as to
the resolution of such issues, the Court, on August 27, 2003, entered an order
approving the Disclosure Statement, as revised, and authorizing the Company to
begin soliciting votes with respect to the Plan of Reorganization, as revised,
from those of its creditors who were entitled to vote. On August 28, 2003, the
Debtors filed a revised version of the Plan of Reorganization (the "Final Plan
of Reorganization") and a revised version of the Disclosure Statement, each
reflecting the
-63-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
additional revisions announced at the hearing on August 25, 2003 and those
subsequently made in resolution of the remaining issues.
The solicitation process commenced on September 3, 2003, when the Debtors
mailed the solicitation packages, and concluded on September 30, 2003. The Final
Plan of Reorganization was accepted by all but one of the voting classes. On
October 3, 2003, the Debtors filed a first modification to the Final Plan of
Reorganization (the "Modification"). The confirmation hearing was subsequently
held on October 7, 2003, and the Bankruptcy Court on that date entered an order
confirming the Final Plan of Reorganization, as modified on October 3, 2003 (the
Final Plan of Reorganization as so modified and confirmed, the "Confirmed
Plan"). The Confirmed Plan became effective in accordance with its terms on
November 10, 2003.
The Confirmed Plan provides that, in full satisfaction of their allowable
claims: (i) the holders of existing secured claims under the Company's
pre-petition credit facility (excluding the tranche in which Noma Company is a
borrower to the extent such holders were secured by Noma) initially receive
approximately 81 percent of the common stock of the reorganized Company (the
"Reorganized Company"), $60 million in cash (reduced by certain payments) and
$216.5 million principal amount of senior term notes issued by the Reorganized
Company; (ii) holders of existing secured claims under the term loan facility to
Noma Company under the Company's pre-petition credit facility received
approximately 13 percent of the common stock of the Reorganized Company and
$33.5 million principal amount of senior term notes issued by the Reorganized
Company; (iii) holders of general unsecured claims and trade vendor claims who
elect to receive equity in the Reorganized Company on account of their claims
received a pro rata distribution of up to approximately 2 percent, in the
aggregate, of the common stock of the Reorganized Company and warrants to
purchase additional shares of the common stock of the Reorganized Company; (iv)
holders of general unsecured claims and trade vendor claims that elect not to
receive equity of the Reorganized Company received an amount in cash equal to
the lesser of (A) 6 percent of each such holder's allowed claim or (B) each such
holder's pro rata share of $5 million; (v) holders of unsecured claims relating
to the Company's existing bonds received approximately 4 percent of the common
stock of the Reorganized Company and warrants to purchase additional shares of
the common stock of the Reorganized Company; (vi) upon the liquidation of their
disputed claims, holders of California Tort Claims (as defined in the Confirmed
Plan), to the extent they are determined to hold allowable claims, will receive
the same treatment of any uninsured portion of their claims (excluding any
portion of such claims attributable to noncompensatory damages) as they would
have received had such claims been classified as general unsecured claims
(except that such holders will not be entitled to elect cash instead of equity);
(vii) upon the ratification and consummation of a proposed settlement, holders
of Pennsylvania Tort Claims (as defined in the Confirmed Plan) will receive,
through their class representative, an aggregate distribution of $120,000 in
cash, a note in the principal amount of $675,000, and a payment from the
Debtors' insurer (although the settlement is expected to be ratified and
consummated, if the settlement fails, the holders of the Pennsylvania Tort
Claims will be treated like California Tort Claims upon liquidation of the
Claims); and (viii) holders of claims described in subsections (i), (iii), (iv),
(v) and (vi) above will be entitled to receive a portion of any amounts
recovered by a preference claim litigation trust created pursuant to the
Confirmed Plan. In addition to the foregoing, the Confirmed Plan provides that
administrative expense claims, priority claims, convenience claims, a secured
claim of the Company against Noma Company in the amount of approximately $5.7
million and certain other secured claims, are to be paid in full. Furthermore,
the Confirmed Plan
-64-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
provides for the cancellation of all then outstanding shares
of common stock of the Company without any distribution to be made to the
holders of such shares.
The Confirmed Plan also provides for, among other things, the amendment of
our charter and by-laws, the replacement of our board of directors, the
implementation of a new equity incentive plan for our directors, officers and
employees, the establishment of a preference litigation trust to pursue
preference claims on behalf of certain claimants, the disposition of certain
executory contracts and unexpired leases, and certain releases, exculpation and
indemnification protections for certain parties in interest.
The consolidated financial statements have been prepared in accordance with
Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," and on a going concern basis, which
contemplates continuity of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. Liabilities and obligations
whose treatment and satisfaction were dependent on the outcome of the Chapter 11
cases have been segregated and classified as liabilities subject to compromise
in the consolidated balance sheets. In connection with its emergence from
bankruptcy on November 10, 2003, the Company has adopted fresh-start reporting
in accordance with SOP 90-7. Accordingly, the Company's post-emergence financial
statements ("Successor") are not comparable with its pre-emergence financial
statements ("Predecessor"). All references to the period ended November 10, 2003
refer to the period from January 1, 2003 to November 10, 2003 and all references
to the period ended December 31, 2003 refer to the period November 11, 2003 to
December 31, 2003.
Pursuant to the Bankruptcy Code, schedules were filed by the Debtors with
the Bankruptcy Court setting forth the assets and liabilities of the Debtors as
of the date of Filing. A bar date of April 14, 2003 was set for the filing of
proofs of claim against the Debtors. Differences between amounts recorded by the
Debtors and claims filed by creditors have been investigated and will be
resolved as part of the proceedings in the Chapter 11 cases. That process is
continuing after the Effective Date. Accordingly, the ultimate number and
allowed amount of such claims are not presently known but the recovery terms of
each such allowed claim is set forth in the Confirmed Plan.
Note 2 - Summary of Significant Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The consolidated financial statements include the accounts of the Company
and all of its majority owned subsidiaries. Investments in affiliates in which
ownership is at least 20 percent, but less than a majority voting interest, are
accounted for using the equity method. Investments in less than 20 percent owned
affiliates are accounted for using the cost method. Intercompany balances and
transactions are eliminated in consolidation.
All highly liquid instruments purchased with a maturity of three months or
less are considered to be cash equivalents.
-65-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
Inventories are valued at the lower of cost or market, using the last-in,
first-out ("LIFO") method for certain domestic production inventories and the
first-in, first-out ("FIFO") or average-cost method for all other inventories.
Production inventory costs include material, labor and factory overhead.
Property, plant and equipment are carried at cost and are depreciated
principally using the straight-line method. Estimated lives range from five to
35 years for buildings and leasehold improvements and 3 to 15 years for
machinery and equipment.
Intangible assets that have finite lives are amortized using the
straight-line method, over their estimated useful lives, which range from 4 to
15 years.
The Company reviews long-lived assets for impairment whenever events and
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
comparing the carrying amount of these assets against the estimated undiscounted
future cash flows to be generated by the assets. At the time such evaluations
indicate that the future cash flows are not sufficient to recover the carrying
value of such assets, the carrying values are adjusted to their fair values,
which have been determined on a discounted cash flow basis. Assets to be
disposed of are reported at the lower of their carrying amount or fair value
less costs to sell.
The Company reviews goodwill and indefinite lived intangible assets for
impairment annually and whenever events and circumstances indicate that the
recorded value of the assets might be more than its fair value. Estimated fair
values are determined based upon a number of factors, including independent
appraisals and current operating forecasts.
Accruals for product warranties are estimated based upon historical
warranty experience and are recorded at the time revenue is recognized.
Accruals for environmental liabilities are recorded based on current
interpretations of environmental laws and regulations when it is probable that a
liability has been incurred and the amount of such a liability can be reasonably
estimated.
Accruals for pension and other post-retirement benefit costs utilize a
number of accounting mechanisms that reduce the volatility of reported costs.
Differences between actuarial assumptions and actual plan results are deferred
and are amortized into expense only when the accumulated differences exceed 10
percent of the greater of the projected benefit obligation or the market-related
value of plan assets. If necessary, the excess is amortized over the average
remaining service period of active employees. Additionally, the impact of asset
performance on pension expense is recognized over a five-year phase-in period
though a "market-related" value of assets calculation. Since the market-related
value of assets recognizes investment gains or losses over a five-year period,
the future value of assets will be impacted as previously deferred gains or
losses are recognized.
The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, and
collectibility is reasonably assured. Revenue is recognized from product sales
when title and risk of loss has passed to the customer consistent with the
-66-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
related shipping terms, generally at the time products are shipped. The Company
records a provision for estimated sales returns and other allowances as a
reduction of revenue at the time of revenue recognition.
Compensation cost for stock-based employee compensation plans is recognized
using the intrinsic value method. The following table illustrates the effect on
net income (loss) and earnings (loss) per share if the Company had applied the
fair value based method to recognize stock-based employee compensation.
Successor
Company Predecessor Company
------------ ---------------------------------------
Period Ended Period Ended Years Ended December 31,
December 31, November 10, ------------------------
2003 2003 2002 2001
------------ ------------ --------- ---------
Net income (loss) as reported ................ $1,092 $494,392 $(360,649) $(170,844)
Deduct: Total stock-based employee
compensation income (expense) determined
under fair value based method for all
awards, net of related tax effects ........ -- 1,479 (1,623) (1,737)
------ -------- --------- ---------
Pro forma net income (loss) .................. $1,092 $495,871 $(362,272) $(172,581)
====== ======== ========= =========
Earnings (loss) per share:
Basic - as reported .................... $ .11 $ 19.34 $ (14.13) $ (6.72)
====== ======== ========= =========
Basic - pro forma ...................... $ .11 $ 19.40 $ (14.19) $ (6.79)
====== ======== ========= =========
Diluted - as reported .................. $ .11 $ 19.34 $ (14.13) $ (6.72)
====== ======== ========= =========
Diluted - pro forma .................... $ .11 $ 19.40 $ (14.19) $ (6.79)
====== ======== ========= =========
For purposes of this calculation, the fair value of each option grant was
estimated on the grant date using the Black-Scholes option-pricing model with
the following assumptions (are not applicable for 2003 and 2002 as there were no
grants made):
2001
-----
Dividend yield....................... 2.8%
Expected volatility.................. 87%
Risk-free interest rate.............. 4.0%
Expected holding period (in years)... 6
Weighted average fair value.......... $1.15
Research and development costs are expensed as incurred and are included in
selling, general and administrative expenses. Research and development costs for
the periods ended December 31, 2003, November 10, 2003, December 31, 2002 and
December 31, 2001, were $1,513, $5,115, $7,096, and $12,778, respectively.
Income taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are
-67-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
expected to be recovered or settled. A valuation allowance is recorded to reduce
the carrying amounts of deferred tax assets if it is more likely than not that
such assets will not be realized.
The Company does not hold or issue financial instruments for trading
purposes. The Company uses derivative financial instruments primarily for
purposes of hedging exposures to fluctuations in interest rates, foreign
currency exchange rates and commodity prices. The differential to be paid or
received on interest rate swaps is recognized as an adjustment to interest
expense. Gains and losses on hedges of existing assets or liabilities are
included in the carrying amounts of those assets or liabilities and ultimately
recognized in earnings. Gains and losses related to qualifying hedges of firm
commitments or anticipated transactions are deferred and are recognized in
earnings or as adjustments of carrying amounts when the hedged transaction
occurs.
The components of accumulated other comprehensive loss are as follows:
Successor Company Predecessor Company
----------------- -------------------
December 31, December 31,
2003 2002
----------------- -------------------
Foreign currency translation.................... $1,250 $ (1,778)
Minimum pension liability adjustments........... -- (25,490)
Net unrealized loss on derivative instruments... -- (3,843)
------ --------
Accumulated other comprehensive loss............ $1,250 $(31,111)
====== ========
In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 138, "Accounting for Certain Derivative Financial Instruments and Certain
Hedging Activities - an amendment of FASB Statement No. 133". This statement
amends the accounting and reporting standards of SFAS 133 for certain derivative
instruments and for certain hedging activities. The Company adopted SFAS 133 and
SFAS 138 on January 1, 2001. The effect of the adoption of these pronouncements
was a reduction of approximately $2,966 ($4,907 pre-tax) to accumulated other
comprehensive income attributable to the net liability to be recorded for cash
flow hedges.
In July 2001, the 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
the year ended December 31, 2001:
-68-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
Year Ended
December 31,
2001
------------
Reported net income (loss) ...................................... $(170,844)
Add back: goodwill amortization .............................. 13,519
---------
Adjusted net income (loss) ................................... $(157,325)
=========
Income (loss) per share, basic and assuming diluton:
Reported net income (loss) ................................... $ (6.72)
Add back: goodwill amortization .............................. .53
---------
Adjusted net income (loss) ................................... $ (6.19)
=========
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... -- 12 -- 12
-------- -------- --------- ---------
Balance at December 31, 2002... 21,738 105,986 -- 127,724
Foreign currency translation... -- 236 -- 236
Reorganization adjustments..... (12,657) 37,182 -- 24,525
-------- -------- --------- ---------
Balance at December 31, 2003... $ 9,081 $143,404 $ -- $ 152,485
======== ======== ========= =========
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. The Company adopted this standard on January 1,
2003. There was no effect upon adoption on the Company's 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. The Company adopted this standard on January 1, 2003. There was no
effect upon adoption on the Company's consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and a rescission of FASB Interpretation No. 34," which
-69-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
expands on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. It also
clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions are applicable to guarantees
issued or modified after December 31, 2002 and are not expected to have a
material effect on the Company's financial statements. The disclosure
requirements were effective for financial statements of interim and annual
periods ending after December 15, 2002. The adoption of this statement did not
have a material impact on the Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123," which requires expanded disclosure regarding stock-based compensation in
the Summary of Significant Accounting Policies. The Company has adopted the
disclosure requirements of this standard and has included the expanded
disclosure in Note 2.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities ("VIE"s)" ("FIN 46"). This interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
addresses when a company should include in its financial statements the assets
and liabilities of unconsolidated VIEs. FIN 46 was effective for VIEs created or
acquired after January 31, 2003. The Company is not party to any arrangements
with VIEs and thus the adoption of this statement did not have a material impact
on the Company's consolidated financial statements. In December 2003, the FASB
completed deliberations of proposed modifications to FIN 46 ("Revised
Interpretations") resulting in multiple effective dates based on the nature as
well as the creation date of the VIE. The adoption of the Revised Interpretation
did not have a material effect on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). The
Statement is effective for financial instruments entered into or modified after
May 31, 2003. It applies in the first interim period beginning after June 15,
2003, to entities with financial instruments acquired before May 31, 2003. The
adoption of this statement did not have a material impact on the Company's
consolidated financial statements.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This Statement
retains the disclosure requirements contained in the original FASB Statement No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits",
which it replaces and requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. It does not change
the measurement of recognition of those plans required by FASB Statements No.
87, "Employers' Accounting for Pensions", No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", and No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". The Statement is effective for annual and interim
periods with fiscal years ending after December 15, 2003. The disclosure
-70-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
provisions of this statement have been adopted for the period ended December 31,
2003.
In January 2004, the FASB issued Staff Position No. FAS 106-1, "Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003" (FSP). The act, signed into law in
December 2003, introduces a prescription drug benefit under Medicare as well as
a federal subsidy, under certain conditions, to sponsors of retiree health care
benefit plans. Presently, authoritative guidance on the accounting for the
subsidy has not been issued. The Company has elected a one-time deferral of the
accounting for the effects of the act, as permitted by the FSP. This deferral
continues to apply until authoritative guidance on the accounting for the
federal subsidy is issued.
Certain prior-period amounts have been reclassified to conform with the
current presentation.
Note 3 - Fresh-Start Reporting, Reorganization Items and Liabilities Subject to
Compromise
The Debtors' emergence from bankruptcy proceedings on November 10, 2003
resulted in a new reporting entity and adoption of fresh-start reporting as of
that date in accordance with SOP 90-7. As a result of the adoption of
fresh-start reporting, the Company's post-emergence financial statements are not
comparable with its pre-emergence financial statements. The following table
reflects the implementation of the Confirmed Plan and the adjustments recorded
to the Company's assets and liabilities to reflect the implementation of the
Confirmed Plan and the adjustments of such assets and liabilities to fair value
at November 10, 2003, based upon the Company's reorganization value of $550,000
as included in the Confirmed Plan and as approved by the Bankruptcy Court. The
Company engaged an independent third party appraisal firm (the "BEV Appraiser")
to assist in the determination of the reorganization value of the Company. In
preparing its analysis, the BEV Appraiser received certain publicly available
historical information and financial statements of the Company, reviewed and
discussed with management the Company's overall business plan, including
long-term risks and opportunities, evaluated the Company's projections and the
assumptions underlying the projections, considered the market value of publicly
traded companies that are reasonably comparable to the Company, considered the
purchase price paid in acquisitions of comparable companies and made such other
analyses as the BEV Appraiser deemed necessary or appropriate for the purposes
of the evaluation. The Company determined its reorganization equity value of
$282,000 by subtracting the Company's debt of $268,000 on the Effective Date
from the reorganization value of $550,000.
The Company determined that an independent third party appraisal of its
various business units and long-term tangible and intangible assets was
necessary in order to allocate the reorganization value of the Company to its
various assets and liabilities at November 10, 2003. The Company engaged an
independent third party appraisal firm separate from the BEV Appraiser to assist
in the determination of the fair value of the Company's long-term tangible
assets and identifiable intangible assets (the "Asset Appraiser"). Based upon
the reorganization value of the Company, the Asset Appraiser has provided
preliminary detailed analysis of the fair value of the Company's long-term
tangible and intangible assets. The fresh-start adjustments included in the
table below represent management's preliminary estimate of adjustments necessary
to record assets and liabilities at fair value. Any future adjustments would
primarily be reclasses among the various categories of long term assets. The
Company expects to finalize this allocation in the first fiscal quarter of 2004.
-71-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
Condensed Balance Sheet
Debt Fresh-Start
Predecessor(1) Discharge(2) Adjustments(3) Successor
-------------- ------------ -------------- ----------
Current assets:
Cash and cash equivalents................ $ 128,830 $ (50,943) $ -- $ 77,887
Receivables, net......................... 179,014 -- -- 179,014
Inventories.............................. 99,506 -- 4,919 104,425
Other current assets..................... 26,881 36,532 (107) 63,306
---------- ---------- -------- ----------
Total current assets..................... 434,231 (14,411) 4,812 424,632
Property, plant and equipment, net.......... 282,928 -- 64,944 347,872
Goodwill.................................... 127,959 -- 24,526 152,485
Other assets................................ 74,749 34,853 63,468 173,070
---------- ---------- -------- ----------
Total assets............................. $ 919,867 $ 20,442 $157,750 $1,098,059
========== ========== ======== ==========
Current liabilities:
Accounts payable......................... $ 49,456 $ -- $ -- $ 49,456
Accrued liabilities...................... 163,476 5,120 -- 168,596
Current portion of long-term debt........ 16,050 -- -- 16,050
---------- ---------- -------- ----------
Total current liabilities................ 228,982 5,120 -- 234,102
Long-term debt.............................. 883 250,591 -- 251,474
Liabilities subject to compromise........... 976,084 (976,084) -- --
Other liabilities........................... 271,209 -- 58,798 330,007
---------- ---------- -------- ----------
Total liabilities........................ 1,477,158 (720,373) 58,798 815,583
---------- ---------- -------- ----------
Contingently redeemable warrants............ -- 6,030 -- 6,030
---------- ---------- -------- ----------
Equity (deficit)............................ (557,291) 734,785 98,952 276,446
---------- ---------- -------- ----------
Total liabilities and equity (deficit)... $ 919,867 $ 20,442 $157,750 $1,098,059
========== ========== ======== ==========
(1) Represents the balance sheet of the Company at November 10, 2003, prior to
emergence from bankruptcy.
(2) Reflects the discharge of liabilities subject to compromise in accordance
with the Confirmed Plan. Adjustments include the cash payment primarily to
pre-petition secured creditors of $50,900, the issuance of senior term
debt (see note 10), and the issuance of new equity to former creditors,
including warrants (see note 11). Additionally, other current assets and
other assets reflect the reversal of the valuation allowance previously
recorded against net domestic deferred tax assets (see Note 6).
(3) Reflects adjustments to record assets and liabilities at fair value as of
Effective Date. Significant adjustments include those to record property,
plant, and equipment (see note 9), intangible assets (see note 8) and
pension and postretirement liabilities (see note 7) at fair value.
Additionally, adjustments include those to reflect inventory at fair value
less cost to dispose and the deferred tax effects of the fresh-start
adjustments.
Liabilities subject to compromise in the consolidated balance sheet consist
of the following items at December 31, 2002:
Accounts payable............................................ $ 44,331
Accrued interest payable.................................... 17,795
-72-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
Accrued liabilities......................................... 12,644
Long-term debt.............................................. 921,986
Long-term liabilities....................................... 147,009
----------
$1,143,765
==========
Reorganization items in the consolidated statements of operations consists
of the following:
Periods Ended
---------------------------
November 10, December 31,
2003 2002
------------ ------------
Professional fees.............................. $ 25,625 $ 6,006
Employee costs................................. 20,470 2,528
Interest income................................ (608) (185)
Settlement of pre-petition liabilities......... (1,440) (990)
Write off of unamortized debt issuance costs... 11,730 --
Gain on debt discharge......................... (380,693) --
Fresh-start accounting adjustments............. (104,247) --
Other.......................................... 17,369 4,272
--------- -------
$(411,794) $11,631
========= =======
Note 4 - Special Charges
Restructuring Charges
The Company's restructuring actions during 2003 consist of exiting a
facility and a workforce reduction in its communications segment and two plant
closures in its performance products segment. The Company expects to
substantially complete implementation of these restructuring actions by the
second quarter of 2004. The following tables summarize the Company's expected
costs and accruals for these restructuring actions:
Performance
Products Communications Consolidated
----------- -------------- ------------
Employee Termination Costs
Total costs expected to be incurred....... $ 7,578 $5,083 $12,661
======= ====== =======
Provisions - Restructuring................ $ 985 $5,083 $ 6,068
Provisions - Reorganization items......... 6,000 -- 6,000
Amounts paid.............................. (4,288) (14) (4,302)
------- ------ -------
Balance at December 31, 2003.............. $ 2,697 $5,069 $ 7,766
======= ====== =======
Facility Exit costs
Total costs expected to be incurred....... $ 9,286 $ 22 $ 9,308
======= ====== =======
Provisions - Restructuring................ $ 191 $ 22 $ 213
Provisions - Reorganization items......... 7,949 -- 7,949
Amounts paid.............................. (2,489) (13) (2,502)
------- ------ -------
Balance at December 31, 2003.............. $ 5,651 $ 9 $ 5,660
======== ====== ========
-73-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
The Company's restructuring programs initiated in prior years have been
substantially completed. However, certain costs have payment terms extending
beyond 2003. The following tables summarize the Company's liabilities for
restructuring programs initiated in prior years:
Employee
Termination Facility
Costs Exit Costs
----------- ----------
Balance at December 31, 2001............................... $ 11,621 $ 4,628
Provisions................................................. 13,152 267
Reclassified to liabilities subject to compromise.......... (1,338) (2,196)
Amounts paid............................................... (9,542) (1,547)
-------- -------
Balance at December 31, 2002............................... 13,893 1,152
Reclassification from liabilities subject to compromise.... -- 186
Adjustments................................................ (284) (988)
Amounts paid............................................... (12,555) (350)
-------- -------
Balance at December 31, 2003............................... $ 1,054 $ --
======== =======
During 2001, the Company determined that it would close a facility in the
manufacturing segment, due to notification received from the facilities' largest
customer that it was terminating its contract. Subsequently, the customer has
repeatedly delayed the contract termination date. During this time frame, other
business conditions at this facility along with other related manufacturing
facilities have caused the Company to change its plans for this facility, and
continue to operate it. Accordingly, during 2003 the previously recorded
facility exit costs of $988 were reversed. Adjustments to employee termination
costs of $284 are the result of differences in the estimated costs and the
amount ultimately incurred.
Impairment Charges
During 2003, the Company announced a plan to close a facility in Santiago,
Chile, which is included in the communications segment. Accordingly, the Company
assessed the long-lived assets at this facility for impairment. Based on the
results of this assessment, the Company recorded a non-cash impairment charge of
$201 to reduce the carrying value of the fixed assets at this facility to fair
value, which was determined based on a number of factors, including an
independent appraisal.
On February 28, 2003, the Company announced a plan to wind down and close
operations at its facility in Claymont, Delaware, which is included in the
performance products segment. Accordingly, the Company assessed the long-lived
assets at this facility for impairment. Based on the results of this assessment,
the Company recorded a non-cash impairment charge of $24,661 to reduce the
carrying value of the fixed assets at this facility to fair value, which was
determined based on a number of factors, including an independent appraisal.
The Company 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
-74-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
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 of 2002, 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 of
2002, 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 unfavorable
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.
In the early part of 2001, operating losses were experienced in certain of
the Company's operations. Additionally, forecasts updated at that time indicated
significantly diminished prospects for these operations. As a result of these
circumstances, management determined that the long-lived assets of these
operations should be assessed for impairment. Based on the outcome of this
assessment, the Company recorded a non-cash asset impairment charge of $83,623
in the second quarter of 2001. This charge includes write-downs of fixed assets
of $57,298, goodwill and intangible assets of $23,905 and an investment and
other long-term assets of $2,420. The second-quarter charge primarily related to
nine facilities in the performance products segment totaling $59,185 and certain
intangible assets in the communications segment totaling $21,956. The charge for
eight of the nine performance products facilities was due to unfavorable changes
in the principal markets served by these units. The fair values of the assets of
these facilities were determined based upon a calculation of the present value
of the expected future cash flows to be generated by these facilities. The
charge for one performance products facility resulted from the facility's
principal customer's decision to close its plant. The fair value of the assets
at this facility was based upon a number of factors, including a third-party
appraisal. The impairment charge for the Company's communications segment is
related to certain purchased technologies acquired in 2000 for the purpose of
developing new products and services and expanding existing product offerings,
and was due to the significant downturn in the telecommunications market to be
served by these acquisitions. The Company determined the fair values of the
related goodwill and intangible assets using a calculation of the present value
of the expected future cash flows. During 2001, development of new products and
service offerings based upon these purchased technologies was ultimately
discontinued.
As 2001 progressed, the Company experienced a significant decline in
certain other businesses resulting in operating losses for these business units.
The Company's revised forecast prepared in the fourth quarter indicated that,
based upon diminished prospects in the markets served by certain operations, the
cash flows 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
fourth quarter of 2001, the Company recorded additional non-cash impairment
charges for long-lived assets totaling $66,410, of which $54,728 related to
fixed assets, $8,795 to goodwill and intangibles and $2,887 to an equity
investment. The charge primarily related to two facilities in the communications
segment totaling $45,753 and two facilities and an equity investment in the
manufacturing segment totaling $20,538. The charge for one facility in the
manufacturing segment relates to notification by its largest customer in the
fourth quarter that the customer was terminating its contract. As a result,
management re-evaluated the forecast for this business and deemed it appropriate
to test the carrying value of long-lived assets for impairment. The charge was
recorded to reduce the carrying value to fair value, as determined using the
present value of expected future cash flows. The charge for the other facilities
was due to unfavorable changes in the
-75-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
principal markets served by these units. The fair values of the assets were
determined based upon a calculation of the present value of the expected future
cash flows.
Selling, General and Administrative Expense
Included in selling, general and administrative expense for the year ended
December 31, 2001 is a $28,646 charge principally related to a loss provision
for accounts receivable for certain customers who have filed for bankruptcy or
whose financial condition and payment history indicate payment is doubtful.
Cost of Sales
Included in cost of sales for the year ended December 31, 2001 is a $31,367
charge principally related to a loss provision for obsolete and excess inventory
due to a significant decline in actual and forecasted revenue for certain of the
Company's product lines as well as the discontinuation of certain of the
Company's product lines.
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 warrants, stock options and restricted units, using the treasury
stock method.
The components of the denominator for basic earnings per common share and
diluted earnings per common share are reconciled as follows:
Successor
Company Predecessor Company
------------ ---------------------------------------
Period Ended Period Ended Years Ended December 31,
December 31, November 10, ------------------------
2003 2003 2002 2001
------------ ------------ ---------- -----------
Basic earnings per common share:
Weighted average common shares
outstanding.................... 10,000,000 25,564,310 25,527,570 25,434,802
---------- ---------- ---------- ----------
Diluted earnings per common share:
Weighted average common shares
outstanding.................... 10,000,000 25,564,310 25,527,570 25,434,802
Options and restricted units...... -- 625 -- --
---------- ---------- ---------- ----------
Total.......................... 10,000,000 25,564,935 25,527,570 25,434,802
========== ========== ========== ==========
Warrants, options and restricted units were not included in the computation
of diluted earnings per common share due to their antidilutive effect. For the
period ended December 31, 2003, there were 2,094,645 warrants outstanding. For
the period ending November 10, 2003 and the years ending December 31, 2002 and
2001 there were 2,659,000, 2,922,813 and 2,027,975 options and restricted units
outstanding.
-76-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
Note 6 - Income Taxes
Income from continuing operations before income taxes is as follows:
Successor
Company Predecessor Company
------------ ---------------------------------------
Period Ended Period Ended Years Ended December 31,
December 31, November 10, ------------------------
2003 2003 2002 2001
------------ ------------ -------- ---------
United States.......... $1,298 $431,701 $(89,931) $(260,549)
Foreign................ 1,654 9,422 (2,996) 14,806
------ -------- -------- ---------
Total............... $2,952 $441,123 $(92,927) $(245,743)
====== ======== ======== =========
The components of the income tax provision (benefit) are as follows:
Successor
Company Predecessor Company
------------ ---------------------------------------
Period Ended Period Ended Years Ended December 31,
December 31, November 10, ------------------------
2003 2003 2002 2001
------------ ------------ -------- --------
United States:
Current............. $ -- $ $ (8,674) $(20,025)
Deferred............ 1,501 (42,403) 104,238 (43,732)
Foreign:
Current............. 750 2,871 5,728 6,968
Deferred............ (489) (5,669) (8,703) (2,120)
State:
Current............. -- 824 1,166 (7,264)
Deferred............ 98 (8,892) 12,842 (8,726)
------ -------- -------- --------
Total............... $1,860 $(53,269) $106,597 $(74,899)
====== ======== ======== ========
A summary of the components of deferred tax assets and liabilities is as
follows:
Successor Company Predecessor Company
----------------- -------------------
December 31, December 31,
2003 2002
------------ ------------
Net operating loss carry forwards...... $ 18,034 $ 30,439
Postretirement benefits................ 75,932 37,030
Nondeductible accruals................. 60,933 71,851
Goodwill............................... 49,271 38,668
Foreign operations..................... 15,759 6,044
Deferred tax on comprehensive income... -- 16,838
Other.................................. 3,872 9,600
-------- --------
Deferred tax assets................. 223,801 210,470
-------- --------
Intangibles............................ 29,262 --
Property, plant and equipment.......... 70,299 20,848
Other.................................. 6,661 --
-------- --------
Deferred tax liabilities............ 106,222 20,848
Valuation allowance.................... 20,785 148,861
-------- --------
Net deferred tax assets............. $ 96,794 $ 40,761
========= ========
-77-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
At December 31, 2003 and 2002, the Company had deferred tax assets of
$15,759 and $6,044 related to foreign tax credits, for which a full valuation
allowance had been provided. Net operating loss carryforwards in the United
States expire 2003 through 2017. Net operating loss carryforwards in Germany do
not expire. 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 concluded that it was more likely than not that it would
not be able to realize its domestic net deferred tax assets. Accordingly, during
2002 the Company recorded an increase to its valuation allowance of $143 million
effectively reducing the carrying value of its domestic net deferred tax assets
to zero. On November 10, 2003, the Company emerged from Chapter 11 and for the
period ended November 10, 2003 recorded income of $381 million related to the
discharge of indebtedness. The Company recorded tax expense for the period ended
November 30, 2003 of $74 million on this income, which represents a non-cash
charge related to a reduction in the value of the Company's tax basis in its
assets as required by the Internal Revenue Code which will effectively increase
the Company's taxable income over the next several years. As a result of this
discharge of indebtedness the Company will have significantly lower interest
expense in future periods, and based upon projections of the Company's future
domestic taxable income, the Company concluded that it is more likely than not
it now will be able to realize its domestic net deferred tax assets.
Accordingly, during the period ended November 10, 2003 the Company recorded a
decrease in its valuation allowance of $138 million effectively restoring the
carrying value of its domestic net deferred tax asset. 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 difference between the Company's effective income tax rate and the
United States statutory rate is reconciled below:
Successor
Company Predecessor Company
------------ ---------------------------------------
Period Ended Period Ended Years Ended December 31,
December 31, November 10, ------------------------
2003 2003 2002 2001
------------ ------------ ----- -----
U.S. federal statutory rate.................. 35.0% 35.0% (35.0)% (35.0)%
State income taxes, net of federal benefit... 3.4 0.2 (4.4) (4.2)
Tax effect of foreign operations............. 23.2 (0.8) 3.5 5.8
Non-deductible goodwill...................... -- -- -- 3.5
Valuation allowance.......................... -- (26.7) 151.7 --
Impact of attribute reduction................ -- (13.4) -- --
-----
Fresh Start adjustment....................... -- (6.1) -- --
-----
Other........................................ 1.4 (0.3) (1.1) (0.6)
---- ----- ----- -----
Total..................................... 63.0% (12.1)% 114.7% (30.5)%
==== ===== ===== =====
-78-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Contiuned)
(Dollars in thousands, except per share data)
In connection with the Spinoff, GenTek entered into a tax sharing agreement
with GCG which requires GenTek to indemnify and hold harmless GCG for
consolidated tax liabilities, without limitation, attributable to periods before
the Spinoff.
Note 7 - Pension Plans and Other Postretirement Benefits
The Company maintains several defined benefit pension plans covering
certain employees in Canada, Germany, Ireland and the United States. A
participating employee's annual postretirement pension benefit is determined by
the employee's credited service and, in most plans, final average annual
earnings with the Company. Vesting requirements are from two to five years. The
Company's funding policy is to annually contribute the statutorily required
minimum amount as actuarially determined.
The Company also sponsors several defined contribution pension plans
covering certain employees in Canada, Hong Kong and the United States. The
Company's contributions are based upon a formula utilizing an employee's
credited service and average annual salary. Vesting requirements are from two to
five years. The Company's cost to provide this benefit was $334, $795, $1,132,
and $1,217 for the periods ended December 31, 2003 and November 10, 2003 and the
years ended December 31, 2002 and 2001, respectively.
The Company also maintains several plans providing postretirement benefits
other than pensions covering certain hourly and salaried employees in Canada and
the United States. The Company funds these benefits on a pay-as-you-go basis.
Accruals for pension and other post-retirement benefit costs utilize a
number of accounting mechanisms that reduce the volatility of reported costs.
Differences between actuarial assumptions and actual plan results are deferred
and are amortized into expense only when the accumulated differences exceed 10
percent of the greater of the projected benefit obligation or the market-related
value of plan assets. If necessary, the excess is amortized over the average
remaining service period of active employees. Additionally, the impact of asset
performance on pension expense is recognized over a five-year phase-in period
though a "market-related" value of assets calculation. Since the market-related
value of assets recognizes investment gains or losses over a five-year period,
the future value of assets will be impacted as previously deferred gains or
losses are recognized.
United States:
Pension Benefits Other Postretirement Benefits
----------------------------------------------- --------------------------------------------
Successor Successor
Company Predecessor Company Company Predecessor Company
------------- -------------------------------- ------------ ------------------------------
Period Period Years Ended Period Period Years Ended
Ended Ended December 31, Ended Ended December 31,
December 31, November 10, ------------------ December 31, November 10, ----------------
2003 2003 2002 2001 2003 2003 2002 2001
------------- ------------ -------- -------- ------------ ------------ ------- -------
Components of net periodic
benefit cost:
Service cost .............. $ 1,262 $ 3,686 $ 4,167 $ 3,825 $235 $1,034 $1,108 $1,016
Interest cost ............. 3,209 9,375 12,138 11,529 691 3,038 3,573 3,170
Expected return on plan
assets ................... (3,052) (8,916) (14,649) (14,075) -- -- -- --
Amortization of net:
Prior service cost ....... -- 249 300 346 -- (652) (782) (739)
(Gain)/loss .............. -- 214 (371) (778) -- (19) 30 (428)
------- ------- -------- -------- ---- ------ ------ ------
Net periodic benefit cost ... $ 1,419 $ 4,608 $ 1,585 $ 847 $926 $3,401 $3,929 $3,019
======= ======= ======== ======== ==== ====== ====== ======
-79-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Contiuned)
(Dollars in thousands, except per share data)
In addition, during 2003 the Company closed two plant facilities which
resulted in curtailment losses recognized of $206 and $2,382 for the pension and
other post-retirement benefit plans, respectively, and contractual termination
benefits of $6,289 for the pension plan. These amounts were recognized as a
component of reorganization items, net.
Other
Pension Benefits Postretirement Benefits
December 31, December 31,
--------------------- -----------------------
2003 2002 2003 2002
--------- --------- -------- --------
Change in benefit obligation:
Benefit obligation at prior measurement date ...... $ 196,034 $ 172,139 $ 58,012 $ 51,440
Service cost ...................................... 4,948 4,167 1,269 1,108
Interest cost ..................................... 12,584 12,138 3,729 3,573
Actuarial loss .................................... 26,281 17,776 10,600 5,871
Benefits paid ..................................... (10,405) (9,947) (4,023) (3,539)
Plan amendments ................................... -- (239) -- (441)
Curtailments ...................................... (1,659) -- 2,729 --
Special termination benefits ...................... 6,289 -- -- --
--------- --------- -------- --------
Benefit obligation at measurement date ............ $ 234,072 $ 196,034 $ 72,316 $ 58,012
========= ========= ======== ========
Change in plan assets:
Fair value of assets at prior measurement date .... $ 123,945 $ 145,162 $ -- $ --
Actual return on plan assets ...................... 17,582 (12,114) -- --
Employer contributions ............................ 1,268 844 4,023 3,539
Benefits paid ..................................... (10,405) (9,947) (4,023) (3,539)
--------- --------- -------- --------
Fair value of assets at measurement date .......... $ 132,390 $ 123,945 $ -- $ --
========= ========= ======== ========
Reconciliation of funded status:
Funded status ..................................... $(101,682) $ (72,089) $(72,316) $(58,012)
Unrecognized net:
Prior service cost ............................. -- 1,619 -- (1,785)
(Gain)/loss .................................... (1,419) 48,191 (350) 5,130
--------- --------- -------- --------
Net amount recognized ............................. $(103,101) $ (22,279) $(72,666) $(54,667)
========= ========= ======== ========
The accumulated benefit obligations for the defined benefit pension plans
were $204,733 and $171,662 at December 31, 2003 and 2002, respectively. All
defined benefit pension plans included above had aggregate benefit obligations
and accumulated benefit obligations in excess of plan assets at December 31,
2003 and 2002.
The weighted-average assumptions used to determine benefit obligations for
the plans were:
-80-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Contiuned)
(Dollars in thousands, except per share data)
2003 2002 2001
---- ----- -----
Discount rate.......................................... 6% 6 1/2% 7 1/4%
Average rate of increase in employee compensation...... 5% 5% 5%
The weighted-average assumptions used to determine net periodic benefit
cost for the plans were:
2003 2002 2001
----- ----- -----
Discount rate.......................................... 6 1/2% 7 1/4% 7 1/2%
Long-term rate of return on assets..................... 8% 9% 9%
Average rate of increase in employee compensation...... 5% 5% 5%
The expected long-term rate of return on assets is developed based upon the
expected future return of asset classes the plans invest in, along with the
expected future mix of investments in the pension trusts. The Company considers
historical returns of the pension assets, independent market forecasts and
management estimates when developing the expected long-term rate of return on
assets.
The health care cost trend rate used in accounting for the medical plans
was 11 percent in 2003 (decreasing to 6 percent in the year 2009 and beyond) and
10 percent in 2002 (decreasing to 6 percent in the year 2007 and beyond). A one
percent increase in the health care trend rate would increase the accumulated
postretirement benefit obligation by $5,845 at year-end 2003 and the net
periodic cost by $503 for the year. A one percent decrease in the health care
trend rate would decrease the accumulated postretirement benefit obligation by
$6,280 at year-end 2003 and the net periodic cost by $539 for the year.
The dates used to measure plan assets and liabilities were October 31, 2003
and 2002 for all plans.
The pension trust's weighted-average asset allocations at October 31, 2003
and 2002 were:
2003 2002
---- ----
Asset Category
- --------------
Debt securities 54% 63%
Equity securities 44% 36%
Real estate 2% 1%
--- ---
100% 100%
=== ===
The Company's investment policy for its pension trusts is to balance risk
and return through a diversified portfolio of fixed income securities, equity
securities and private equity investments. Maturities for fixed income
securities are managed such that sufficient liquidity exists to meet near-term
benefit payment obligations. In 2004, the company expects to contribute
approximately $21 million to its U.S. pension plan trusts.
-81-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Contiuned)
(Dollars in thousands, except per share data)
Foreign:
Pension Benefits Other Postretirement Benefits
---------------------------------------------- -------------------------------------------
Successor Successor
Company Predecessor Company Company Predecessor Company
--------- ---------------------------------- --------- -------------------------------
Period Period Years Ended Period Period Years Ended
Ended Ended December 31, Ended Ended December 31,
December 31, November 10, ------------------ December 31, November 10, ---------------
2003 2003 2002 2001 2003 2003 2002 2001
------------ ------------ -------- -------- ------------- ------------ ------- ------
Components of net periodic
benefit cost:
Service cost ................ $ 102 $ 508 $ 630 $ 590 $ 5 $ 24 $16 $14
Interest cost ............... 598 2,992 2,980 2,774 24 119 74 64
Expected return on plan
assets ................... (123) (614) (705) (786) -- -- -- --
Amortization of net:
Prior service cost ....... -- 6 6 6 -- -- -- --
(Gain)/loss .............. -- 321 141 -- -- 57 7 --
----- ------- ------- ------- --- ---- --- ---
Net periodic benefit cost ... $ 577 $ 3,213 $ 3,052 $ 2,584 $29 $200 $97 $78
===== ======= ======= ======= === ==== === ===
Pension Benefits Other Postretirement Benefits
December 31, December 31,
------------------- -----------------------------
2003 2002 2003 2002
-------- -------- ------- -------
Change in benefit obligation:
Benefit obligation at prior measurement date ..... $ 58,491 $ 49,175 $ 1,818 $ 909
Service cost ..................................... 610 630 29 16
Employee contributions ........................... 40 130 -- --
Interest cost .................................... 3,590 2,980 143 74
Actuarial loss ................................... 947 47 522 853
Foreign currency translation ..................... 11,938 8,277 435 9
Benefits paid .................................... (3,534) (2,748) (60) (43)
-------- -------- ------- -------
Benefit obligation at measurement date ........... $ 72,082 $ 58,491 $ 2,887 $ 1,818
======== ======== ======= =======
Change in plan assets:
Fair value of assets at prior measurement date ... $ 8,328 $ 8,198 $ -- $ --
Actual return on plan assets ..................... 1,239 (1,068) -- --
Employer contributions ........................... 4,397 3,063 60 43
Employee contributions ........................... 40 130 -- --
Foreign currency translation ..................... 1,923 753 -- --
Benefits paid .................................... (3,534) (2,748) (60) (43)
-------- -------- ------- -------
Fair value of assets at measurement date ......... $ 12,393 $ 8,328 $ -- $ --
======== ======== ======= =======
Reconciliation of funded status:
Funded status .................................... $(59,689) $(50,163) $(2,887) $(1,818)
Unrecognized net:
Prior service cost ............................ -- 20 -- --
Loss .......................................... -- 4,687 -- 856
-------- -------- ------- -------
Net amount recognized ............................ $(59,689) $(45,456) $(2,887) $ (962)
======== ======== ======= =======
-82-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share date)
The accumulated benefit obligations for the defined benefit plans were
$71,072 and $57,024 at December 31, 2003 and 2002, respectively. For pension
plans included above with aggregate benefit obligations and accumulated benefit
obligations in excess of plan assets, at December 31, 2003 and 2002, the
projected benefit obligations were $66,912 and $54,557, respectively, the
accumulated benefit obligations were $66,092 and $53,364, respectively, and the
fair values of plan assets for these plans were $6,927 and $4,537, respectively.
The weighted-average assumptions used to determine benefit obligations for
the plans were:
2003 2002 2001
----- ----- ----
Discount rate....................................... 5 3/4% 5 3/4% 6%
Average rate of increase in employee compensation... 3 3/4% 3 3/4% 5%
The weighted-average assumptions used to determine net periodic benefit
cost for the plans were:
2003 2002 2001
----- ----- ----
Discount rate....................................... 5 3/4% 6% 6%
Long-term rate of return on assets.................. 8% 8 1/2% 9%
Average rate of increase in employee compensation... 3 3/4% 5% 5%
The health care cost trend rate used in accounting for the medical plan was
11 percent in 2003 (decreasing to 6 percent in the year 2009 and beyond) and 10
percent in 2002 (decreasing to 5 percent in the year 2010 and beyond). A one
percent increase in the health care trend rate would increase the accumulated
postretirement benefit obligation by $543 at year-end 2003 and the net periodic
cost by $37 for the year. A one percent decrease in the health care trend rate
would decrease the accumulated postretirement benefit obligation by $439 at
year-end 2003 and the net periodic cost by $29 for the year.
The dates used to measure plan assets and liabilities were October 31, 2003
and 2002 for all plans. Pension plan assets are invested primarily in stocks,
bonds, short-term securities and cash equivalents.
Note 8 - Commitments and Contingencies
Future minimum rental payments for operating leases (primarily for
transportation equipment, offices and warehouses) having initial or remaining
noncancellable lease terms in excess of one year as of December 31, 2003 are as
follows:
Years Ending
December 31,
- ------------
2004.......... $ 9,039
2005.......... 6,248
2006.......... 4,974
2007.......... 4,122
2008.......... 2,980
thereafter.... 833
-------
$28,196
=======
-83-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share date)
Rental expense for the periods ended December 31, 2003 and November 10,
2003 and the years ended December 31, 2002 and 2001 was $2,502, $13,879,
$17,982, and $20,355, respectively.
Environmental Matters
Accruals for environmental liabilities are recorded based on current
interpretations of applicable environmental laws and regulations when it is
probable that a liability has been incurred and the amount of such liability can
be reasonably estimated. Estimates are established based upon information
available to management to date, the nature and extent of the environmental
liability, the Company's experience with similar activities undertaken,
estimates obtained from outside consultants and the legal and regulatory
framework in the jurisdiction in which the liability arose. The potential costs
related to environmental matters and their estimated impact on future operations
are difficult to predict due to the uncertainties regarding the extent of any
required remediation, the complexity and interpretation of applicable laws and
regulations, possible modification of existing laws and regulations or the
adoption of new laws or regulations in the future, and the numerous alternative
remediation methods and their related varying costs. The material components of
the Company's environmental accruals include potential costs, as applicable, for
investigation, monitoring, remediation and ongoing maintenance activities at any
affected site. Accrued liabilities for environmental matters do not include
third-party recoveries nor have they been discounted. Activity in the aggregate
accrued liability for environmental matters is summarized as follows:
2003 2002
------- -------
Balance at beginning of period... $27,363 $24,657
Accruals......................... 4,265 4,491
Payments......................... (1,640) (1,933)
Foreign exchange and other....... 269 148
------- -------
Balance at end of period......... $30,257 $27,363
======= =======
Product Warranties
Accruals for product warranties are estimated based upon historical
warranty experience and are recorded at the time revenue is recognized. Activity
in the aggregate product warranty liability is summarized as follows:
2003 2002
------ ------
Balance at beginning of period... $7,113 $6,119
Accruals......................... 675 2,711
Payments......................... (745) (968)
Adjustments and other............ (500) (749)
------ ------
Balance at end of period......... $6,543 $7,113
====== ======
Contingencies
The Company is involved in various claims, litigation, administrative
proceedings and investigations. Although the amount of any ultimate liability
which could arise with respect to these
-84-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share date)
matters cannot be accurately predicted, it is the opinion of management, based
upon currently available information, that any such liability will have no
material adverse effect on the Company's financial condition, results of
operations or cash flows.
Note 9 - Additional Financial Information
Successor Predecessor
Company Company
------------ ------------
December 31, December 31,
2003 2002
------------ ------------
Receivables
Trade.............................................. $168,508 $189,281
Other.............................................. 12,545 18,822
Allowance for doubtful accounts.................... (17,100) (22,278)
-------- --------
$163,953 $185,825
======== ========
Successor Predecessor
Company Company
------------ ------------
December 31, December 31,
2003 2002
------------ ------------
Inventories
Raw materials...................................... $ 38,090 $ 41,003
Work in process.................................... 18,088 16,363
Finished products.................................. 43,774 42,077
Supplies and containers............................ 3,066 5,275
-------- --------
$103,018 $104,718
======== ========
Inventories valued at LIFO amounted to $13,852 and $27,011 at December
31, 2003 and 2002, respectively, which were above and (below) estimated
replacement cost by $1 and $(1,114), respectively. The impact of LIFO
liquidations in 2003, 2002 and 2001 was not significant.
Successor Predecessor
Company Company
------------ ------------
December 31, December 31,
2003 2002
------------ ------------
Property, Plant and Equipment
Land and improvements.............................. $ 63,813 $ 39,437
Machinery and equipment............................ 217,951 525,797
Buildings and leasehold improvements............... 52,476 93,346
Construction in progress........................... 28,242 48,883
-------- --------
362,482 707,463
Less: accumulated depreciation and amortization... 5,828 398,638
-------- --------
$356,654 $308,825
======== ========
-85
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share date)
Successor Company
----------------------
December 31, 2003
----------------------
Accumulated Weighted
Gross Amortization Net Average Life
------- ------------ ------- ------------
Intangible Assets
Patents $12,940 $120 $12,820 13 1/2years
Customer Related 39,000 613 38,387 8 years
------- ---- -------
51,940 733 51,207
Trademarks - indefinite lived 22,000 -- 22,000
------- ---- -------
$73,940 $733 $73,207
======= ==== =======
In conjunction with the adoption of fresh-start accounting (see note 3),
the Company has allocated a portion of the reorganization value to reflect
identifiable assets at estimated fair values. During the period of successor
company operations, the Company recognized $733 of amortization expense. The
estimated amortization expense for each of the next 5 years is $6,200 annually.
At December 31, 2002, the Company has $1,470 of intangible assets comprised
primarily of non-compete agreements, which were being amortized over five years.
Successor Predecessor
Company Company
------------ ------------
December 31, December 31,
2003 2002
------------ ------------
Accrued Liabilities
Wages, salaries and benefits..... $ 34,668 $ 33,740
Pension obligations.............. 19,266 219
Employee termination costs....... 8,819 12,565
Bankruptcy obligations........... 14,944 4,752
Taxes, other than income taxes... 6,678 6,982
Other............................ 65,983 70,456
-------- --------
$150,358 $128,714
======== ========
Note 10 - Long-Term Debt
Successor Predecessor
Company Company
------------ ------------
December 31, December 31,
Maturities 2003 2002
---------- ------------ ------------
Revolving credit facility - floating rates... 2008 $ -- $ --
Senior term notes............................ 2008 250,000 --
Bank term loans - floating rates............. 2003-2007 -- 463,401
Revolving credit facility - floating rate.... 2005 -- 264,718
Senior Subordinated Notes - 11%.............. 2009 -- 193,867
Other debt - floating rate................... 2003-2018 13,814 17,543
-------- --------
Total debt................................ 263,814 939,529
Less: current portion.................... 12,552 15,091
Liabilities subject to compromise......... -- 921,986
-------- --------
Net long-term debt........................ $251,262 $ 2,452
======== ========
-86-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
Aggregate maturities of long term debt are as follows: 2004, $12,552; 2005,
$619; 2006, $360; 2007, $25; 2008, $250,025; thereafter, $233.
On November 10, 2003, GenTek, substantially all of GenTek's domestic
subsidiaries, and Noma Company (collectively, "the Borrowers") entered into a
$125 million Revolving Credit Facility which matures on November 10, 2008. The
facility includes a letter of credit sub-limit of $60 million. The facility is
secured by a first priority lien on substantially all of the assets of the
Borrowers and 65 percent of the stock of first-tier foreign subsidiaries. The
facility bears interest at variable rates based on a base rate or LIBOR plus an
applicable margin. The current margins are 1.5 percent for base rate borrowings
and 2.5 percent for LIBOR borrowings. The margins are subject to periodic
adjustment based upon the financial performance of the Company.
In addition, on November 10, 2003, the Company issued $250 million of
senior term debt under the Senior Term Loan Agreement which matures on November
10, 2008. The debt is guaranteed by substantially all of the Company's direct
and indirect domestic subsidiaries, and is secured by second-priority liens on
substantially all of the assets of the Company and its direct and indirect
domestic subsidiaries and 65 percent of the stock of first-tier foreign
subsidiaries. The debt bears interest at variable rates based on LIBOR plus 4.5
percent, subject to a LIBOR floor of 1.5 percent. The rate in effect at December
31, 2003 was 6.0 percent.
The above debt facilities contain debt covenants which impose certain
restrictions on the Company's ability to, among other things, incur additional
debt, pay dividends, make investments or sell assets. Additionally, certain
asset sale proceeds must be used to repay indebtedness and, beginning in 2005,
the Senior Term Loan Credit Agreement provides that the majority of any "excess
cash flow" generated in the prior year be used to prepay the senior term debt.
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. Outstanding
balances for the pre-petition senior credit facility and the 11% Senior
Subordinated Notes were reclassified to liabilities subject to compromise. On
the Effective Date, this debt was discharged in accordance with the terms of the
Confirmed Plan. See Note 1 for further discussion of the Company's bankruptcy.
The interest rate in effect for the pre-petition revolving credit facility at
December 31, 2002 was 5.8 percent. The weighted average interest rate in effect
for the term loans at December 31, 2002 was 6.3 percent. The facility was
secured by a first priority security interest in all of the capital stock of the
Company's domestic subsidiaries, 65 percent of the capital stock of the
Company's foreign subsidiaries and a security interest in certain real property,
intellectual property and other assets of the Company in the United States and
Canada.
Commitment fees paid for the Company's credit facilities were $54, $92, and
$624 for the period ended November 10, 2003, and the years ended December 31,
2002, and 2001, respectively. The unused letter of credit balance available
under the Company's credit facilities was $24,322 and $330 at December 31, 2003
and 2002, respectively.
-87-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
Note 11 - Capital Stock
On the Effective Date all existing equity securities of the Company were
cancelled and the Company issued 10,000,000 shares of common stock, no par
value. The common stock is subject to certain restrictions on transfer which
generally prohibit the transfer of common stock by a holder who holds or would
hold more than 4.75 percent of the total value of our outstanding equity
securities without the prior written consent of our board of directors. These
restrictions will remain in effect until the earlier of November 10, 2005 or the
date that the board of directors determines that such restrictions are no longer
necessary to protect certain tax benefits.
In addition, the Company issued the following warrants:
Number of shares covered Strike Price Expiration Date
------------------------ ------------ -----------------
Tranche A 1,173,184 $58.50 November 10, 2006
Tranche B 619,095 $64.50 November 10, 2008
Tranche C 302,366 $71.11 November 10, 2010
The terms of the Tranche A warrants contain a contingent redemption
feature, which is triggered by a sale of all or substantially all of the assets
of the communications business. Accordingly, these warrants have been classified
as temporary equity.
The Company's previously issued authorized capital stock consisted of
100,000,000 shares of Common Stock, par value $.01 per share, of which
21,439,310 were outstanding at December 31, 2002, and 40,000,000 shares of Class
B Common Stock, par value $.01 per share, which had ten votes per share, were
subject to significant restrictions on transfer and was convertible at any time
into Common Stock on a share-for-share basis, of which 3,896,860 shares were
outstanding at December 31, 2002. The Common Stock and Class B Common Stock were
substantially identical, except for the disparity in voting power, restriction
on transfer and conversion provisions.
Note 12 - Stock Incentive Plans
On the Effective Date, the Company adopted a new management and directors
incentive plan, under which stock options, restricted stock and other
stock-based awards may be granted to employees, officers, and directors. As of
December 31, 2003, no awards had been made under this plan and there were
1,000,000 shares authorized and available for grant.
All awards issued under prior incentive plans were cancelled on the
effective date. The Company had several long-term incentive plans pursuant to
which stock options and other equity-related incentive awards were granted to
officers, non-employee directors and other key people. Compensation cost
(income) recorded for stock-based compensation under those plans was $(3),
$(525), and $(86), for the period ended November 10, 2003 and the years ended
December 2002, and 2001, respectively.
Information with respect to all stock options is summarized below:
-88-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
2003 2002 2001
-------------------------- -------------------- --------------------
Weighted Weighted
Weighted Average Average
Average Exercise Exercise
Shares Exercise Price Shares Price Shares Price
--------- -------------- --------- -------- --------- --------
Outstanding at
beginning of year...... 2,841,000 $11.66 3,004,000 $11.60 3,100,700 $12.32
Options granted........... -- -- -- -- 313,000 2.62
Options exercised......... -- -- -- -- 21,900 9.43
Options cancelled......... 2,841,000 11.66 163,000 10.56 387,800 10.26
--------- --------- ---------
Outstanding at end
of year................ -- $ -- 2,841,000 $11.66 3,004,000 $11.60
========= ========= =========
Exercisable at end
of year................ -- $ -- 1,950,200 $12.45 1,387,400 $13.26
Note 13 - Financial Instruments
Investments
All marketable equity securities are classified as available-for-sale, with
net unrealized gains and losses shown as a component of accumulated other
comprehensive income (loss). At December 31, 2003 and 2002, there were no
marketable equity securities held by the Company. Realized gains and losses are
determined on the average cost method. Sales of investments were as follows:
Years Ended December 31,
------------------------
2003 2002 2001
---- ---- ------
Proceeds............................................. $-- $561 $4,582
Gross realized gains................................. -- -- $1,123
Gross realized losses................................ -- $386 $ 564
Swap Agreements
The Company periodically enters into interest rate swap agreements to
effectively convert a portion of its floating-rate to fixed-rate debt in order
to reduce the Company's exposure to movements in interest rates and achieve a
desired proportion of variable versus fixed-rate debt. Such agreements involve
the exchange of fixed and floating interest rate payments over the life of the
agreement without the exchange of the underlying principal amounts. Accordingly,
the impact of fluctuations in interest rates on these interest rate swap
agreements is fully offset by the opposite impact on the related debt. Swap
agreements are only entered into with strong creditworthy counterparties. All
swap agreements in effect in 2001 and 2002 had been designated as cash flow
hedges, and all were 100 percent effective. As a result, there is no impact to
earnings due to hedge ineffectiveness. As a result of the Filing, the Company
discontinued hedge accounting for its interest rate swaps since it was no longer
probable that the forecasted variable interest payments would occur.
Additionally, a charge of $4,272 was recorded in reorganization items, which
represents amounts which would have been reclassified from accumulated other
comprehensive income amounts to the statement of operations had interest
payments been made during the estimated period of time the Company will be
reorganizing under Chapter 11. The Company's Swap agreements were terminated in
conjunction with our emergence from Chapter 11. There were no Swaps outstanding
as of December 31, 2003.
-89-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
Fair Value of Financial Instruments
Successor Company Predecessor Company
------------------- -------------------
December 31, 2003 December 31, 2002
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Long-term debt....................... $263,814 $263,814 $939,529 $442,657
The fair values of cash and cash equivalents, receivables and payables
approximate their carrying values due to the short-term nature of the
instruments. The fair value of the Company's long-term debt was based on quoted
market prices for traded debt and discounted cash flow analyses on its nontraded
debt.
Note 14 - Geographic and Industry Segment Information
GenTek operates through three primary business segments: manufacturing,
performance products and communications. The business segments were determined
based on several factors including products and services provided and markets
served. Each segment is managed separately. The manufacturing segment provides a
broad range of engineered components and services to the automotive, appliance
and electronic and industrial markets. The performance products segment
manufactures a broad range of products and services to four principal markets:
environmental services, pharmaceutical and personal care, chemical processing
and technology. The communications segment is a global provider of products,
systems and services, including copper and fiber-optic cabling and connection
products, for local and wide area data and communications networks. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
Industry segment information is summarized as follows:
Net Revenues Operating Profit (Loss)
-------------------------------------------------- -----------------------------------------------
Successor Successor
Company Predecessor Company Company Predecessor Company
------------ ------------------------------------ ------------ ---------------------------------
Period Period Years Ended Period Period Years Ended
Ended Ended December 31, Ended Ended December 31,
December 31, November 10, ---------------------- December 10, November 10, -------------------
2003 2003 2002 2001 2003 2003 2002 2001
------------ ------------ ---------- ---------- ------------ ------------ -------- ---------
Manufacturing............ $ 52,855 $ 373,002 $ 477,113 $ 478,488 $ 3,664 $ 33,444 $ 44,807 $ (10,831)
Performance Products..... 39,945 295,980 357,427 360,927 3,508 (2,833) 28,657 (30,444)
Communications........... 49,395 287,913 293,993 405,005 29 2,156 (89,519) (119,108)
-------- --------- ---------- ---------- ------- --------- -------- ---------
Total segments........ 142,195 956,895 1,128,533 1,244,420 7,201 32,767 (16,055) (160,383)
Eliminations and other
corporate expenses.... -- -- -- -- (1,878) (6,698) (9,016) (12,363)
-------- --------- ---------- ---------- ------- --------- -------- ---------
Consolidated............. $142,195 $ 956,895 $1,128,533 $1,244,420 $ 5,323 $ 26,069 (25,071) (172,746)
======== ========= ========== ========== ======= =========
Interest expense......... 2,685 1,637 60,135 74,980
Other (income),
expense net........... (314) (416,691) 7,721 (1,983)
------- --------- -------- ---------
Consolidated income
(loss) before income
taxes and cumulative
effect of a change in
accounting principle.. $ 2,952 $ 441,123 $(92,927) $(245,743)
======= ========= ======== =========
-90-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
Capital Expenditures Depreciation and Amortization
-------------------------------------------- --------------------------------------------
Successor Successor
Company Predecessor Company Company Predecessor Company
------------ ------------------------------ ------------ ------------------------------
Period Period Years Ended Period Period Years Ended
Ended Ended December 31, Ended Ended December 31,
December 31, November 10, ---------------- December 10, November 10, ----------------
2003 2003 2002 2001 2003 2003 2002 2001
------------ ------------ ------- ------- ------------ ------------ ------- -------
Manufacturing........... $ 2,319 $ 6,449 $15,855 $12,383 $3,005 $14,783 $16,891 $23,043
Performance Products.... 5,517 18,516 23,808 20,510 1,167 10,134 15,236 21,199
Communications.......... 2,716 5,592 12,777 44,841 2,442 12,466 15,528 24,071
Corporate............... -- 7 -- 44 89 14 248 4
------- ------- ------- ------- ------ ------- ------- -------
Consolidated............ $10,552 $30,564 $52,440 $77,778 $6,703 $37,397 $47,903 $68,317
======= ======= ======= ======= ====== ======= ======= =======
Identifiable Assets
---------------------------
Successor Predecessor
Company Company
------------ ------------
December 31, December 31,
2003 2003
------------ ------------
Manufacturing (1).............................. $ 418,152 $369,415
Performance Products........................... 277,690 249,326
Communications................................. 279,871 258,595
Corporate...................................... 91,096 79,649
---------- --------
Consolidated................................... $1,066,809 $956,985
========== ========
- ----------
(1) Includes equity method investments of $19,112 and $18,274, respectively.
Geographic area information is summarized as follows:
External Revenues(1) Long-Lived Assets(2)
------------------------------------------------------ ---------------------------
Successor Successor Predecessor
Company Predecessor Company Company Company
------------ --------------------------------------- ------------ ------------
Period Ended Period Ended Years Ended December 31,
December November ------------------------ December 31, December 31,
31, 2003 10, 2003 2002 2001 2003 2002
------------ ------------ ---------- ---------- ------------ ------------
United States............ $ 86,470 $581,896 $ 743,020 $ 811,788 $369,513 $276,705
Canada................... 16,304 109,714 123,483 99,647 188,925 112,881
Other Foreign............ 39,421 265,285 262,030 332,985 51,358 73,682
-------- -------- ---------- ---------- -------- --------
Consolidated............. $142,195 $956,895 $1,128,533 $1,244,420 $609,796 $463,268
======== ======== ========== ========== ======== ========
- ----------
(1) Revenues are attributed to geographic areas based on the locations of
customers.
(2) Represents all non-current assets except deferred tax assets and financial
instruments.
Note 15 - Related Party Transactions
Management Agreement
-91-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
The Company was party to a management agreement with Latona Associates
Inc., which is controlled by a former stockholder of the Company, under which
the Company received corporate supervisory and administrative services and
strategic guidance. Latona waived its right to be paid during the Chapter 11
proceedings. All amounts due to Latona for this period, totaling $4,325, were
recorded as a capital contribution. The Company was charged $5,017 and $4,864,
for the years 2002 and 2001, respectively. The original management agreement was
terminated on the Effective Date. Subsequently, the Company and Latona entered
into a new management support services agreement with a one-year term. Pursuant
to this agreement, the Company was charged $1,950 during the period ending
December 31, 2003.
Other Transactions
GenTek provides GCG with certain administrative services pursuant to a
transition support agreement entered into in connection with the Spinoff. For
the periods ended December 31, 2003 and November 10, 2003 and the years ended
December 31, 2002, and 2001, GenTek charged GCG $273, $1,173, $1,383, and
$1,355, respectively, related to this agreement. GCG supplies soda ash and
calcium chloride to GenTek. For the periods ended December 31, 2003 and November
10, 2003 and the years ended December 31, 2002, and 2001, purchases from GCG
amounted to $458, $2,252, $2,794, and $4,036, respectively.
GenTek provides Prestolite Wire Corporation ("Prestolite"), a company
controlled by a former stockholder of the Company, with corporate and
administrative services, pursuant to a management agreement. For the periods
ended December 31, 2003 and November 10, 2003 and the years ended December 31,
2002 and 2001, GenTek charged Prestolite $313, $1,568, $2,078 and $2,529,
respectively. GenTek and Prestolite buy and sell certain wire and cable products
from each other. Purchases from Prestolite for the periods ended December 31,
2003 and November 10, 2003 and the years ended December 31, 2002 and 2001 were
$497, $3,355, $11,021 and $9,805, respectively. Sales to Prestolite for the
periods ended December 31, 2003 and November 10, 2003 and the years ended
December 31, 2002 and 2001 were $2,149, $7,559, $3,761 and $2,613, respectively.
In addition, the Company permits Prestolite to utilize a portion of its Nogales,
Arizona warehouse, for which Prestolite currently pays the Company a portion of
the cost of leasing and operating the facility. Payments from Prestolite for the
periods ended December 31, 2003 and November 10, 2003 and the years ended
December 31, 2002 and 2001 were $40, $197, $228 and $165, respectively. Certain
of Prestolite's insurance is written under the Company's policies. Prestolite
pays its ratable share of the Company's premium for this insurance. Payments
from Prestolite for the period ended November 10, 2003 and the years ended
December 31, 2002 and 2001 were $16, $268 and $111, respectively. Prestolite
permits one of the Company's subsidiaries to share its Southfield, Michigan
corporate location. The Company pays Prestolite 25 percent of the cost of
leasing and operating the Southfield premises. Payments by the Company for the
periods ended December 31, 2003 and November 10, 2003 and the years ended
December 31, 2002 and 2001 were $26, $127, $113 and $76, respectively.
Note 16 - Subsequent Events
On March 25, 2004, the Company signed a definitive agreement to sell its
Krone communications business for $291 million in cash. The transaction is
expected to close during the second quarter and is subject to customary
conditions including regulatory and other approvals. The
-92-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands, except per share data)
business sold will be classified as discontinued operations during the first
quarter of 2004. The carrying amount as of December 31, 2003 of the major
classes of assets and liabilities included in the transaction are as follows:
Current assets.................. $114,163
Property, plant and equipment... 72,073
Other assets.................... 59,261
Current liabilities............. 69,057
Non-current liabilities......... 94,445
If and when this transaction is completed, the Company expects to record a
material gain, although the amount of this gain cannot currently be precisely
determined.
Note 17 - Unaudited Quarterly Information
Successor
Predecessor Company Company
-------------------------------------------------- ---------
Period Period
2003 Ended Ended
------------------------------------ November December
First Second Third 10, 2003 31, 2003
-------- -------- -------- -------- ---------
Net revenues................. $264,636 $281,236 $276,141 $134,882 $142,195
Gross profit................. 46,795 56,208 62,392 33,312 31,693
Net income (loss)............ (28,909)(1) (9,794)(2) (4,781)(3) 537,876(4) 1,092(5)
======== ======== ======== ======== ========
Earnings (loss) per common
share - basic:
Net income (loss)............ $ (1.13) $ (0.38) $ (0.19) $ 21.04 $ 0.11
======== ======== ======== ======== ========
Earnings (loss) per common
share - diluted:
Net income (loss)............ $ (1.13) $ (0.38) $ (0.19) $ 21.04 $ 0.11
======== ======== ======== ======== ========
- ----------
(1) Includes reorganization charges of $8,958 and asset impairment charges of
$24,661.
(2) Includes reorganization charges of $24,832.
(3) Includes reorganization charges of $20,652 and restructuring and asset
impairment charges of $3,109.
(4) Includes reorganization gain of $466,236, restructuring charges of $1,054,
and the reversal of valuation allowance related to net domestic deferred
tax assets of $72,232.
(5) Includes restructuring charges of $1,047.
-93-
GENTEK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
(Dollars in thousands, except per share data)
Predecessor Company
----------------------------------------------------
2002
----------------------------------------------------
First Second Third Fourth
--------- --------- -------- --------
Net revenues.................................. $ 276,937 $ 302,729 $279,458 $269,409
Gross profit.................................. 55,308 63,415 58,510 52,123
Income (loss) before cumulative effect
of a change in accounting principle........ (3,148) (146,213) (57,832) 7,669
Net income (loss)............................. (164,273)(1) (146,213)(2) (57,832)(3) 7,669(4)
========= ========= ======== ========
Earnings (loss) per common share - basic:
Income (loss) before cumulative effect
of a change in accounting principle........ $ (0.12) $ (5.73) $ (2.26) $ 0.30
========= ========= ======== ========
Net income (loss)............................. $ (6.45) $ (5.73) $ (2.26) $ 0.30
========= ========= ======== ========
Earnings (loss) per common share - diluted:
Income (loss) before cumulative effect
of a change in accounting principle........ $ (0.12) $ (5.73) $ (2.26) $ 0.30
========= ========= ======== ========
Net income (loss)............................. $ (6.45) $ (5.73) $ (2.26) $ 0.30
========= ========= ======== ========
- ----------
(1) Includes the cumulative effect of a change in accounting principle of
$161,125 or $6.33 per share.
(2) Includes restructuring and impairment charges of $23,618.
(3) Includes restructuring and impairment charges of $49,722.
(4) Includes restructuring charges of $4,898
-94-
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 9A. - Controls and Procedures
(a) Disclosure Controls and Procedures. The Company's management, with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this report. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective at the reasonable assurance level in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
(b) Internal Control Over Financial Reporting. There have not been any
changes in the Company's internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors. For information relating to the Company's Directors, see the
information under the caption "Election of Directors" in the Company's
definitive 2003 Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, within 120 days after the fiscal year ended December 31, 2003 (the
"Proxy Statement"), which is hereby incorporated by reference.
Executive Officers. For information relating to the Company's executive
officers, see the information contained under the caption "Executive Officers
and Key Employees" in Part I of this report.
Compliance with Section 16(a) of the Exchange Act. For information relating
to the compliance of the directors and officers of the Company, as well as any
holder of ten percent or more of any registered class of the equity securities
of the Company with Section 16(a) of the Exchange Act, see the information under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement, which is hereby incorporated by reference.
Item 11. Executive Compensation.
Executive Compensation. For information relating to the compensation of the
Company's executives, see the information under the caption "Executive
Compensation" in the Company's Proxy Statement, which is hereby incorporated by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners. For information relating
to the beneficial ownership of more than five percent of the Company's Common
Stock, see the information under the
-95-
caption "Security Ownership of Management and Certain Beneficial Owners" in the
Company's Proxy Statement, which is hereby incorporated by reference.
Security Ownership of Management. For information relating to the
beneficial ownership of the Company's Common Stock by Management, see the
information under the caption "Security Ownership of Management and Certain
Beneficial Owners" in the Company's Proxy Statement, which is hereby
incorporated by reference.
Securities Authorized for Issuance Under Equity Compensation Plans. For
certain information relating to equity compensation plans, see the information
under the caption "Equity Compensation Plan Information" in the Company's Proxy
Statement, which is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
Certain Relationships and Related Transactions. For information relating to
certain relationships and related transactions of the Company, see the
information under the caption "Certain Relationships and Related Transactions"
in the Company's Proxy Statement, which is hereby incorporated by reference.
Item 14. Principal Accountant Fees and Services
Principal Accountant Fees and Services. For information relating to the
principal accountant fees and services, see the information under the caption
"Principal Accountant Fees and Services" in the Company's Proxy Statement, which
is hereby incorporated by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements
See Item 8, beginning on page 54.
Financial Statement Schedules
See Index to Financial Statement Schedule on page 101.
(b) Reports on Form 8-K filed by the registrant during its fiscal quarter ended
December 31, 2003:
Current report on Form 8-K, filed with the SEC on October 21, 2003,
reporting Item 3 "Bankruptcy or Receivership" relating to the confirmation
of the Company's plan of reorganization by the Bankruptcy Court.
Current report on Form 8-K, filed with the SEC on November 12, 2003
reporting Item 9 "Regulation FD Disclosure" relating to the Company's
emergence from bankruptcy.
-96-
(c) List of Exhibits
Exhibit No. Description
- ----------- -----------
2.1 Joint Plan of Reorganization Under Chapter 11, Title 11, United
States Code of GenTek Inc., et al., and Noma Company, Debtors,
dated August 28, 2003, as filed with the United States Bankruptcy
Court for the District of Delaware on August 28, 2003
(incorporated by reference to Exhibit 2.1 of the Registrant's Form
8-K, filed with the Commission on October 21, 2003).
2.2 First Modification to Joint Plan of Reorganization Under Chapter
11, Title 11, United States Code of GenTek Inc., et al., and Noma
Company, Debtors, dated October 3, 2003 as filed with the United
States Bankruptcy Court for the District of Delaware on October 3,
2003 (incorporated by reference to Exhibit 2.2 of the Registrant's
Form 8-K, filed with the Commission on October 21, 2003).
2.3 Order confirming Joint Plan of Reorganization Under Chapter 11,
Title 11, United States Code of GenTek Inc., et al., and Noma
Company, Debtors, as Modified, as entered by the United States
Bankruptcy Court for the District of Delaware on October 7, 2003
(incorporated by reference to Exhibit 2.3 of the Registrant's Form
8-K, filed with the Commission on October 21, 2003).
3.1 Second Amended and Restated Certificate of Incorporation of GenTek
Inc., effective as of November 7, 2003 (incorporated by reference
to the Registrant's Form 8-A to amend its Form 10, dated November
10, 2003, as filed with the Securities and Exchange Commission).
3.2 Amended and Restated By-Laws of GenTek Inc., effective as of
November 10, 2003 (incorporated by reference to the Registrant's
Form 8-A to amend its Form 10, dated November 10, 2003, as filed
with the Securities and Exchange Commission).
4.1 GenTek Inc. Tranche A Warrant Agreement, dated as of November 10,
2003 (incorporated by reference to the Registrant's Form 8-A to
amend its Form 10, dated November 10, 2003, as filed with the
Securities and Exchange Commission).
4.2 GenTek Inc. Tranche B Warrant Agreement, dated as of November 10,
2003 (incorporated by reference to the Registrant's Form 8-A to
amend its Form 10, dated November 10, 2003, as filed with the
Securities and Exchange Commission).
4.3 GenTek Inc. Tranche C Warrant Agreement, dated as of November 10,
2003 (incorporated by reference to the Registrant's Form 8-A to
amend its Form 10, dated November 10, 2003, as filed with the
Securities and Exchange Commission).
10.1 Form of Registration Rights Agreement by and among the Company and
the holders named therein dated as of November 10, 2003
(incorporated by reference to the Registrant's Form 8-A to amend
its Form 10, dated November 10, 2003, as filed with the Securities
and Exchange Commission).
10.2 Credit Agreement among GenTek Inc., Noma Company and the domestic
subsidiaries of GenTek Inc. from time to time party hereto and
Bank of America, N.A. as the Agent, and
-97-
Banc of America Securities LLC as sole Syndication Agent, Book
Runner and Lead Arranger, dated as of November 10, 2003
(incorporated by reference to the Registrant's Form 10-Q dated
September 30, 2003, as filed with the Securities and Exchange
Commission).
10.3 Security Agreement among GenTek Inc. and certain of its
subsidiaries and Bank of America, N.A. in its capacity as agent
for the financial institutions from time to time party to the
Credit Agreement, dated as of November 10, 2003 (incorporated by
reference to the Registrant's Form 10-Q dated September 30, 2003,
as filed with the Securities and Exchange Commission).
10.4 Pledge Agreement among GenTek Inc. and certain of its subsidiaries
and Bank of America, N.A. in its capacity as agent for the
financial institutions from time to time party to the Credit
Agreement, dated as of November 10, 2003 (incorporated by
reference to the Registrant's Form 10-Q dated September 30, 2003,
as filed with the Securities and Exchange Commission).
10.5 Intercreditor Agreement among Bank of America, N.A., as Senior
Agent, BNY Asset Solutions LLC, as Junior Agent, GenTek Inc. and
each subsidiary of GenTek party hereto, dated as of November 10,
2003 (incorporated by reference to the Registrant's Form 10-Q
dated September 30, 2003, as filed with the Securities and
Exchange Commission).
10.6 Senior Term Loan and Guarantee Agreement among GenTek Inc., as
Borrower, The Subsidiaries of GenTek Inc. Parties Hereto, as
Guarantors, The Several Lenders from Time to Time Parties Hereto,
and BNY Asset Solutions LLC, as Administrative Agent, dated as of
November 10, 2003 (incorporated by reference to the Registrant's
Form 10-Q dated September 30, 2003, as filed with the Securities
and Exchange Commission).
10.7 Security Agreement among GenTek Inc. and certain of its
subsidiaries and BNY Asset Solutions LLC in its capacity as
administrative agent for the financial institutions from time to
time party to the Loan Agreement, dated as of November 10, 2003
(incorporated by reference to the Registrant's Form 10-Q dated
September 30, 2003, as filed with the Securities and Exchange
Commission).
10.8 Pledge Agreement among GenTek Inc. and certain of its subsidiaries
and BNY Asset Solutions LLC in its capacity as administrative
agent for the financial institutions from time to time party to
the Loan Agreement, dated as of November 10, 2003 (incorporated by
reference to the Registrant's Form 10-Q dated September 30, 2003,
as filed with the Securities and Exchange Commission).
10.9 GenTek Inc. 2003 Management and Directors Incentive Plan
(incorporated by reference to the Registrant's Form 10-Q dated
September 30, 2003, as filed with the Securities and Exchange
Commission).
10.10 GenTek Key Employee Retention Plan (incorporated by reference to
Exhibit 10.14 to the Registrant's Form 10-K/A dated April 30,
2003, as filed with the Securities and Exchange Commission).
10.11 Form of Indemnification Agreement.
-98-
10.12 GenTek Performance Plan (incorporated by reference to the Exhibit
10.3 to the Registrant's Amendment No. 2 to Form 10, dated April
8, 1999, as filed with the Securities and Exchange Commission).
10.13 Tax Sharing Agreement between GenTek Inc. and the General Chemical
Group Inc. (incorporated by reference to the Exhibit 10.6 to the
Registrant's Amendment No. 2 to Form 10, dated April 8, 1999, as
filed with the Securities and Exchange Commission).
21.1 Subsidiaries of the Registrant.
31.1 GenTek Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 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.
-99-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 30th day of
March, 2004.
GENTEK INC.
By: /s/ RICHARD R. RUSSELL
------------------------------------
Name: Richard R. Russell
Title: President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Principal executive officer:
/s/ RICHARD R. RUSSELL President and Chief Executive Officer March 30, 2004
- -----------------------------------
(Richard R. Russell)
Principal financial and
accounting officer:
/s/ MATTHEW R. FRIEL Vice President and Chief Financial Officer March 30, 2004
- -----------------------------------
(Matthew R. Friel)
Directors:
/s/ JOHN G. JOHNSON, JR. Chairman and Director March 30, 2004
- -----------------------------------
John G. Johnson, Jr.
/s/ DUGALD K. CAMPBELL Director March 30, 2004
- -----------------------------------
Dugald K. Campbell
/s/ HENRY L. DRUKER Director March 30, 2004
- -----------------------------------
Henry L. Druker
/s/ KATHLEEN R. FLAHERTY Director March 30, 2004
- -----------------------------------
Kathleen R. Flaherty
/s/ BRUCE D. MARTIN Director March 30, 2004
- -----------------------------------
Bruce D. Martin
/s/ JOHN F. MCGOVERN Director March 30, 2004
- -----------------------------------
John F. McGovern
/s/ WILLIAM E. REDMOND, JR. Director March 30, 2004
- -----------------------------------
William E. Redmond, Jr.
/s/ RICHARD R. RUSSELL Director March 30, 2004
- -----------------------------------
Richard R. Russell
-100-
GENTEK INC.
INDEX TO FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts ______________________ 102
Schedules required by Article 12 of Regulation S-X, other than those listed
above, are omitted because of the absence of the conditions under which they are
required or because the required information is included in the consolidated
financial statements or notes thereto.
-101-
GENTEK INC.
Valuation and Qualifying Accounts
Balance at Additions
Beginning of Charged Deductions Balance at
Period To Income From Reserves Other* End of Period
------------ --------- -------------- ------ -------------
(In thousands)
Year ended December 31, 2003
Allowance for doubtful accounts....... $22,278 $ 5,450 $(10,226) $(402) $17,100
Year ended December 31, 2002
Allowance for doubtful accounts....... $32,062 $ 4,249 $(14,519) $ 486 $22,278
Year ended December 31, 2001
Allowance for doubtful accounts....... $ 8,350 $26,498 $ (2,536) $(250) $32,062
* Primarily foreign exchange
-102-
EXHIBIT INDEX
Exhibit Page
No. Number
- ------- ------
2.1 Joint Plan of Reorganization Under Chapter 11, Title 11, United States
Code of GenTek Inc., et al., and Noma Company, Debtors, dated August
28, 2003, as filed with the United States Bankruptcy Court for the
District of Delaware on August 28, 2003 (incorporated by reference to
Exhibit 2.1 of the Registrant's Form 8-K, filed with the Commission on
October 21, 2003) ....................................................
2.2 First Modification to Joint Plan of Reorganization Under Chapter 11,
Title 11, United States Code of GenTek Inc., et al., and Noma Company,
Debtors, dated October 3, 2003 as filed with the United States
Bankruptcy Court for the District of Delaware on October 3, 2003
(incorporated by reference to Exhibit 2.2 of the Registrant's Form
8-K, filed with the Commission on October 21, 2003)...................
2.3 Order confirming Joint Plan of Reorganization Under Chapter 11, Title
11, United States Code of GenTek Inc., et al., and Noma Company,
Debtors, as Modified, as entered by the United States Bankruptcy Court
for the District of Delaware on October 7, 2003 (incorporated by
reference to Exhibit 2.3 of the Registrant's Form 8-K, filed with the
Commission on October 21, 2003).......................................
3.1 Second Amended and Restated Certificate of Incorporation of GenTek
Inc., effective as of November 7, 2003 (incorporated by reference to
the Registrant's Form 8-A to amend its Form 10, dated November 10,
2003, as filed with the Securities and Exchange Commission)...........
3.2 Amended and Restated By-Laws of GenTek Inc., effective as of November
10, 2003 (incorporated by reference to the Registrant's Form 8-A to
amend its Form 10, dated November 10, 2003, as filed with the
Securities and Exchange Commission)...................................
4.1 GenTek Inc. Tranche A Warrant Agreement, dated as of November 10, 2003
(incorporated by reference to the Registrant's Form 8-A to amend its
Form 10, dated November 10, 2003, as filed with the Securities and
Exchange Commission) .................................................
4.2 GenTek Inc. Tranche B Warrant Agreement, dated as of November 10, 2003
(incorporated by reference to the Registrant's Form 8-A to amend its
Form 10, dated November 10, 2003, as filed with the Securities and
Exchange Commission) .................................................
4.3 GenTek Inc. Tranche C Warrant Agreement, dated as of November 10, 2003
(incorporated by reference to the Registrant's Form 8-A to amend its
Form 10, dated November 10, 2003, as filed with the Securities and
Exchange Commission) .................................................
10.1 Form of Registration Rights Agreement by and among the Company and the
holders named therein dated as of November 10, 2003 (incorporated by
reference to the .....................................................
-103-
Registrant's Form 8-A to amend its Form 10, dated November 10, 2003,
as filed with the Securities and Exchange Commission).................
10.2 Credit Agreement among GenTek Inc., Noma Company and the domestic
subsidiaries of GenTek Inc. from time to time party hereto and Bank of
America, N.A. as the Agent, and Banc of America Securities LLC as sole
Syndication Agent, Book Runner and Lead Arranger, dated as of November
10, 2003 (incorporated by reference to the Registrant's Form 10-Q
dated September 30, 2003, as filed with the Securities and Exchange
Commission)...........................................................
10.3 Security Agreement among GenTek Inc. and certain of its subsidiaries
and Bank of America, N.A. in its capacity as agent for the financial
institutions from time to time party to the Credit Agreement, dated as
of November 10, 2003 (incorporated by reference to the Registrant's
Form 10-Q dated September 30, 2003, as filed with the Securities and
Exchange Commission)..................................................
10.4 Pledge Agreement among GenTek Inc. and certain of its subsidiaries and
Bank of America, N.A. in its capacity as agent for the financial
institutions from time to time party to the Credit Agreement, dated as
of November 10, 2003 (incorporated by reference to the Registrant's
Form 10-Q dated September 30, 2003, as filed with the Securities and
Exchange Commission)..................................................
10.5 Intercreditor Agreement among Bank of America, N.A., as Senior Agent,
BNY Asset Solutions LLC, as Junior Agent, GenTek Inc. and each
subsidiary of GenTek party hereto, dated as of November 10, 2003
(incorporated by reference to the Registrant's Form 10-Q dated
September 30, 2003, as filed with the Securities and Exchange
Commission) ..........................................................
10.6 Senior Term Loan and Guarantee Agreement among GenTek Inc., as
Borrower, The Subsidiaries of GenTek Inc. Parties Hereto, as
Guarantors, The Several Lenders from Time to Time Parties Hereto, and
BNY Asset Solutions LLC, as Administrative Agent, dated as of November
10, 2003 (incorporated by reference to the Registrant's Form 10-Q
dated September 30, 2003, as filed with the Securities and Exchange
Commission)...........................................................
10.7 Security Agreement among GenTek Inc. and certain of its subsidiaries
and BNY Asset Solutions LLC in its capacity as administrative agent
for the financial institutions from time to time party to the Loan
Agreement, dated as of November 10, 2003 (incorporated by reference to
the Registrant's Form 10-Q dated September 30, 2003, as filed with the
Securities and Exchange Commission)...................................
10.8 Pledge Agreement among GenTek Inc. and certain of its subsidiaries and
BNY Asset Solutions LLC in its capacity as administrative agent for
the financial institutions from time to time party to the Loan
Agreement, dated as of November 10, 2003 (incorporated by reference to
the Registrant's Form 10-Q dated September 30, 2003, as filed with the
Securities and Exchange Commission)...................................
-104-
10.9 GenTek Inc. 2003 Management and Directors Incentive Plan (incorporated
by reference to the Registrant's Form 10-Q dated September 30, 2003, as
filed with the Securities and Exchange Commission)....................
10.10 GenTek Key Employee Retention Plan (incorporated by reference to
Exhibit 10.14 to the Registrant's Form 10-K/A dated April 30, 2003, as
filed with the Securities and Exchange Commission)....................
10.11 Form of Indemnification Agreement.....................................
10.12 GenTek Performance Plan (incorporated by reference to the Exhibit 10.3
to the Registrant's Amendment No. 2 to Form 10, dated April 8, 1999, as
filed with the Securities and Exchange Commission)....................
10.13 Tax Sharing Agreement between GenTek Inc. and the General Chemical
Group Inc. (incorporated by reference to the Exhibit 10.6 to the
Registrant's Amendment No. 2 to Form 10, dated April 8, 1999, as filed
with the Securities and Exchange Commission) .........................
21.2 Subsidiaries of the Registrant........................................
31.1 GenTek Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) as adopted pursuant to Section 302 the
Sarbanes-Oxley Act of 2002............................................
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of
Sarbanes-Oxley Act of 2002............................................
32 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.....................................
-105-
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as...................................'SS'