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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER 1-13404
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THE GENERAL CHEMICAL GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 02-0423437
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
LIBERTY LANE 03842
HAMPTON, NEW HAMPSHIRE (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 929-2606
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 periods 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 is not contained in the
definitive information statement incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. _______
The aggregate value of the voting stock held by non-affiliates of the
registrant as of March 20, 1997, was approximately $478,643,062.
The number of outstanding shares of the Registrant's Common Stock as of
March 20, 1997 was 8,001,001 shares of Common Stock, $.01 par value per share.
The number of outstanding shares of the Registrant's Class B Common Stock
as of March 20, 1997 was 14,261,467 shares of Class B Common Stock, $.01 par
value per share.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 13, 1997 are incorporated by reference into Part
III.
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PART I
ITEM 1. BUSINESS
GENERAL
The General Chemical Group Inc. (the 'Company'), which has a history dating
back to 1899, is a diversified manufacturing company predominantly engaged in
the production of inorganic chemicals, with manufacturing facilities located in
the United States and Canada. Through its Chemical Segment, the Company is a
leading producer of soda ash in North America, and a major North American
supplier of calcium chloride, sodium and ammonia salts, sulfites, nitrites,
aluminum-based chemical products, printing plates and refinery and chemical
regeneration services to a broad range of industrial and municipal customers.
Through its Manufacturing Segment, the Company manufactures precision and highly
engineered stamped and machined metal products, principally automotive engine
parts.
The Company was organized in 1988 as a Delaware corporation. The Company's
principal operating subsidiaries were transferred in 1986 by AlliedSignal to a
predecessor of the Company, at which time new operating management was
installed. On May 15, 1996, the Company and a principal stockholder (the
'Selling Stockholder') completed an initial public offering (the 'Offering') of
7,925,375 shares of Common Stock at $17.50 per share. Of the shares offered,
2,500,000 were issued and sold by the Company. The net proceeds to the Company
from the Offering, after deducting underwriters' discount and related fees and
expenses, were $40,600,000.
For certain information concerning the Company's revenue, operating profit
and identifiable assets attributable to each of the Company's segments,
geographic areas and the amount of export revenues in the aggregate to which
such revenues were made, see Note 12 of Notes to the Consolidated Financial
Statements.
CHEMICAL SEGMENT
INDUSTRIAL CHEMICALS
Soda ash and calcium chloride comprise the Company's industrial chemical
product lines. The Company is the second largest producer of soda ash in the
U.S. and Canada and is the only producer of both synthetic and natural soda ash
in North America. General Chemical (Soda Ash) Partners ('GCSAP'), the Company's
51 percent-owned partnership, produces natural soda ash by refining mined trona
deposits at its plant in Green River, Wyoming. The Green River basin, where all
but one of the U.S. producers of natural soda ash are located, contains the
largest known economically recoverable trona deposits in the world. Soda ash is
also produced by the Company's Canadian subsidiary, General Chemical Canada Ltd.
('GC Canada') at its plant in Amherstburg, Ontario, by using the synthetic
process. This production process, which is energy and labor intensive, is
considerably more costly than refining natural soda ash. The Amherstburg plant
remains profitable due to its operating efficiency, successful marketing of
calcium chloride, a co-product, and favorable freight rates to major Canadian
soda ash markets. GC Canada is the largest producer of calcium chloride in
Canada.
Soda Ash. The major use of soda ash is in the production of glass bottles
and other glass containers. Soda ash is also used in the manufacture of windows,
mirrors, fiberglass, television tubes, lighting ware, tableware, glassware and
laboratory ware. The chemical industry uses soda ash in the production of sodium
bicarbonate, sodium phosphates, sodium silicates and chrome chemicals. The
detergent industry often uses soda ash as the prime alkali to make phosphates
and silicates for dry detergent applications. Soda ash is also used, to a lesser
extent, by the water treatment industry to control pH levels and by the pulp and
paper industries in the pulping of wood fiber.
Due to the low-cost position of the U.S. natural soda ash producers, the
export market has grown significantly and now accounts for over one-third of
U.S. production. The Company, along with the other five U.S. producers of
natural soda ash, exports soda ash through the American Natural Soda Ash
Corporation ('ANSAC'), an export organization organized in 1984 under the
Webb-Pomerrene Act. ANSAC ships to all parts of the world except Canada and
Western Europe. Each individual member's
allocation of ANSAC volume is based on the member's total nameplate capacity,
with any member's expansion phased in over a multi-year period for allocation
purposes.
Calcium Chloride. Calcium chloride is used predominantly for dust control
and roadbed stabilization on unpaved roads in the summer, and for melting ice on
highways in the winter. Although the summer road market is the dominant end use
in the Canadian market, the winter deicing market and industrial applications
are the major end use markets in the U.S. Industrial applications include
asphalt recycling, water treatment and concrete and drilling mud additives.
DERIVATIVE PRODUCTS AND SERVICES
The Company's derivative products and services product lines include a wide
variety of products such as sulfuric acid, sodium and ammonia salts, sulfites,
aluminum-based chemical products and nitrites that are derived principally from
the production of soda ash and the regeneration of sulfuric acid. These products
are categorized into five major product lines with end markets including
refinery and chemical sulfuric acid regeneration, water treatment, photo
chemicals, pulp and paper, chemical processing, semiconductor devices and
printing.
Refinery and chemical regeneration services. Refineries use sulfuric acid
as an alkylation process catalyst in the production of high-quality, high-octane
and low-vapor-pressure gasoline. The alkylation process contaminates and dilutes
the sulfuric acid catalyst, generating an 85 percent to 90 percent spent
sulfuric acid stream, which is then removed from the refineries via pipeline or
tank truck. The Company thermally decomposes the spent acid to regenerate fresh
sulfuric acid, which is then recycled back to the refinery. A similar service is
provided to the chemical industry for the manufacture of ion exchange resins,
silicone polymers, liquid detergents and surfactants.
Water Treatment. The Company, through its broad geographic network of 28
strategically located plants, is the largest North American producer of aluminum
sulfate ('alum'). Municipalities, which use alum as a flocculant and coagulant
in the treatment of water and waste water, are the predominant customers. Other
products sold to the water treatment market include sodium and ammonia salt and
sulfite products, which are used in dechlorination and to inhibit the corrosion
of steel lines and equipment.
Photo Chemicals. Sodium and ammonia sulfites and bisulfites have major
applications as fixing and developing solutions for conventional film and x-ray
processes. The Company has leading market share positions in these products.
Pulp and Paper. The pulp and paper industry utilizes alum and enhanced
coagulants to impart water resistance ('sizing') to paper and to treat the
substantial quantities of water required in the papermaking process. Paper mills
also use sulfuric acid in the sulfur dioxide pulp bleaching process, in pH
adjustments and in water treatment. Other products used to a lesser extent by
the pulp and paper industry include sodium sulfites, which are used for
digesting fibers in the thermo-mechanical pulping process, reducing bleaching
agents such as chlorine and hydrogen peroxide, and as a raw material for other
bleaching agents.
Chemical Processing. The chemical processing market utilizes a number of
the Company's products. Sodium nitrite is primarily used as a reactant in the
manufacture of various organics (i.e. dyes and pigments and rubber processing
chemicals), in applications as a heat transfer salt in high temperature chemical
reactions and as a cooling tower corrosion inhibitor. Potassium fluoride and
fluoborate derivatives are low-volume, higher priced chemicals used in brazing
fluxes, agricultural chemicals, surfactants and analytical reagants. Sulfuric
acid is used in the manufacture of titanium pigments, fertilizer, synthetic
fibers, steel, alum, paper and many other products.
Semiconductor Devices. The Company supplies high-purity semiconductor
acids, caustics and etchants to customers throughout North America, Western
Europe and the Pacific Rim. These customers manufacture silicon wafers and
convert the wafers to integrated circuits. Fluoborate derivatives are also sold
to this market for use in electroplating.
Printing. The Company, through its indirect wholly-owned subsidiary
Printing Developments, Inc. ('PDI'), manufactures lithographic plates
predominantly for large lithographers that emphasize high-
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quality production in the newspaper insert, commercial, publication and metal
decorating markets. PDI utilizes a unique bimetal plate system that provides
higher resolution, better color reproduction and greater durability than the
polymer system used by most other industry participants. Other products sold to
this market include pressroom chemicals and automatic plate processors.
MANUFACTURING SEGMENT
The Company manufactures automotive engine parts and fluid handling
equipment for original equipment manufacturers and the automotive services
market through its subsidiaries Toledo Technologies, Inc. ('Toledo
Technologies') and Balcrank Products, Inc. ('Balcrank'). Toledo Technologies
manufactures rocker arms, roller rocker arms, roller followers and other stamped
and machined metal products for the automotive industry. Its three primary
customers are Chrysler, Ford and General Motors. Balcrank principally
manufactures fluid handling equipment such as air driven pumps, hose reels,
control handles and accessories, for the automotive services market.
PATENTS, TRADEMARKS AND LICENSES
The Company has certain patents, trademarks and licenses, none of which are
material to the business.
COMPETITION
The Company competes on a variety of factors such as price, freight costs,
service, the availability of up-to-date technology, the ability to meet specific
customer requests rapidly and the quality of the final products. Competitors
include independent chemical manufacturers, integrated companies that supply
their own internal requirements for the Company's products and manufacturers of
automotive engine parts and fluid handling equipment. Products are sold in
highly competitive markets.
CUSTOMERS; SEASONALITY; BACKLOGS
The Company does not have any single customer, or a small number of
customers, the loss of any one or more of which would have a material adverse
effect on the Company. Sales of calcium chloride are concentrated in late spring
and summer. Sales of soda ash to the glass container industry are somewhat
seasonal because sales of beverage containers are stronger in the summer. Due to
the nature of the Company's business, there are no significant backlogs.
ENVIRONMENTAL MATTERS
Regulation. The Company's various inorganic chemical 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. and Canada. 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 proceedings and inquiries, the Company believes that
any such liability will not have a material adverse effect on its financial
position 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, or discovery of
any additional or unknown environmental contamination, if any, could require
capital expenditures which might be material or otherwise impact the Company's
operations. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Environmental Matters.'
Accruals/Insurance. 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. Accruals for environmental
matters were $16.6 million and $16.3 million at December 31, 1995 and 1996,
respectively. The Company maintains a comprehensive insurance program, including
customary comprehensive general liability
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insurance for bodily injury and property damage caused by various activities and
occurrences and significant excess coverage to insure against catastrophic
occurrences. However, it does not maintain any insurance other than as described
above for potential liabilities related specifically to remediation of existing
or future environmental contamination, if any. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Environmental
Matters.'
The Company has an established program to ensure that its facilities comply
with environmental laws and regulations. Expenditures made pursuant to this
program approximated $12.0 million in 1996 (of which approximately $3.9 million
represented capital expenditures and approximately $8.1 million related to
ongoing operations and the management and remediation of hazardous substances).
Expenditures for 1995 approximated $11.4 million (of which approximately $3.5
million represented capital expenditures and approximately $7.9 million related
to ongoing operations and the management and remediation of hazardous
substances). The Company expects similar expenditures in 1997 to be in the range
of $12.0 million to $14.0 million; however, should environmental laws and
regulations affecting the Company's operations become more stringent, the
Company's costs for environmental compliance could increase above such range.
Additionally, the Comprehensive Environmental Response Compensation and
Liability Act of 1980 ('CERCLA'), as amended, and similar state Superfund
statutes have been construed as imposing joint and several liability on present
and former owners and operators of contaminated sites and transporters and
generators of hazardous substances for remediation of contaminated properties
regardless of fault. The Company has received written notice from the
Environmental Protection Agency (the 'EPA') that it has been identified as a
potentially responsible party ('PRP') under CERCLA at three Superfund sites.
With respect to two of these sites, the Company does not believe that its
liability, if any, arising therefrom will be material to its results of
operations or financial condition. With respect to the third site, known as the
Avtex site, which is located in Front Royal, Virginia, the Company has provided
for the estimated costs of certain activities requested by the EPA at the site
in its accrual for environmental liabilities. In addition, Congress continues to
consider the reauthorization of and modifications to CERCLA. Because Congress
has not yet acted with respect to CERCLA, the Company does not have sufficient
information to ascertain the impact any change might have on the Company's
potential liabilities, if any.
Pending Proceedings. At any time, the Company potentially may be involved
in proceedings with various regulatory authorities which could require the
Company to pay fines and penalties relating to violations of environmental laws
and regulations at its sites, or to remediate contamination at some of these
sites, to comply with applicable standards or other requirements, or to incur
capital expenditures to add or change 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, it is the
opinion of management that the ultimate resolution of these matters will have no
material adverse effect on the Company's operations or financial condition. The
following information addresses those matters of which the Company is presently
aware.
On January 30, 1996 the Ontario Ministry of Natural Resources (the
'Ministry') issued an order to the Company to cease solution mining activities
in certain sections of the Amherstburg plant's brine well fields until the
Company completed a review of, among other things, the stability and
interconnectivity of certain of the brine caverns and submitted certain required
records and data. Under the order, as modified by the Ministry in February 1996,
the Company's production was impacted during the first quarter of 1996.
Subsequent to that time, studies were performed and information generated by a
consultant to the Company which demonstrated the stability of the brine wells in
a manner satisfactory to the Ministry, which, during the third quarter of 1996,
granted permission to the Company to recommence solution mining in the majority
of the brine wells covered by the original order. Additionally, in the third and
fourth quarters of 1996, the Ministry granted new licenses to the Company to
drill and commence development of brine wells on the additional brine field
properties acquired as part of the Company's raw material sourcing program. In
this regard, four new brine wells have been established as part of the initial
development phase of additional brine sources for the plant. Although the
Company's production is no longer impacted by a shortage of brine, the Company
continues to work
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with consultants experienced in solution mining to expand and upgrade its
solution mining activity relating to the Amherstburg facility.
By letter dated March 22, 1990 from the EPA, the Company received a Notice
of Potential Liability pursuant to Section 107(a) of CERCLA with respect to a
site located in Front Royal, Virginia (the 'Avtex Site'), owned at the time by
Avtex Fibers, Inc., which has since filed for bankruptcy. A sulfuric acid plant
adjacent to the main Avtex Site was previously owned and operated by the Company
(the 'acid plant'). The letter requested that the Company perform certain
activities at the acid plant including providing site security, preventing
discharges, removing certain specific residue and sludges from two storage
vessels and the transfer line to the main Avtex facility and determining the
extent of contamination at the site, if any. In April 1991, the Company
submitted a draft work plan with respect to the acid plant including each of the
activities requested by the EPA discussed above. The Company has provided for
the estimated costs of $1.6 million for these activities in its accrual for
environmental liabilities. The EPA has not yet responded to this work plan, nor
has it requested that an initial investigation and feasibility study for the
acid plant be performed. As a result, the extent of remediation required, if
any, is unknown. The Company believes that the acid plant is separate and
divisible from the main Avtex Site and, as a result, is not subject to any
liability for costs related thereto. The Company will continue to vigorously
assert this position with the EPA. There has been very limited contact by the
EPA with the Company since 1993, as it appears that the EPA is focused on
remediation activities at the main Avtex site.
EMPLOYEES/LABOR RELATIONS
As of December 31, 1996, the Company had 2,256 employees, 852 of whom were
full-time salaried employees, 1,248 were full-time hourly employees covered
under 25 different union contracts and 156 were hourly employees working in
nonunion facilities.
The Company's 25 union contracts have durations which vary from two to four
years. Since 1986, the Company has been involved in 119 labor negotiations, only
five of which have resulted in work disruptions. During these disruptions,
management has operated the plants and supplied customers without interruption
until the labor disruptions were settled and new contracts were agreed upon. In
this respect, several contacts, including the contracts covering employees at
the Company's North Claymont, Delaware, and Richmond, California, facilities,
will be up for renewal during 1997.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
Set forth below is information with respect to each of the Company's
executive officers and/or key employees.
* Executive Officers of the Company's General Chemical Corporation
('General Chemical') subsidiary.
Richard R. Russell, 53, President, Chief Executive Officer and Director of
the Company, has held such positions since 1994. Mr. Russell is also the
President and Chief Executive Officer and a Director of General Chemical,
positions he has held since 1986.
Ralph M. Passino, 45, Vice President and Chief Financial Officer of the
Company has held such positions since 1994. Mr. Passino is also Chief Financial
Officer and Vice President of Administration of General Chemical, positions he
has held since 1986, and a Director of General Chemical, a position he has held
since 1994.
* DeLyle Bloomquist, 38, Vice President and General Manager-Industrial
Chemicals of General Chemical since 1996. Between 1995 and 1996, Mr. Bloomquist
had been the Director of the Company's Corporate Distribution Department.
Between 1993 and 1995, Mr. Bloomquist served as Controller-Industrial Chemicals.
Between 1991 and 1993, Mr. Bloomquist had been the Manager of Services at the
Company's Green River Soda Ash operations.
* Bodo B. Klink, 59, Vice President Business Development and Services of
General Chemical since 1996. Mr. Klink was Vice President of Marketing between
1993 and 1996. Mr. Klink had been General Manager-Water Treatment Chemicals from
1991 to 1993.
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* James N. Tanis, 52, Vice President and General Manager-Derivative
Products and Services of General Chemical. Mr. Tanis has held this position
since 1987.
* Edward J. Waite, III, 49, Vice President, General Counsel and Secretary
of General Chemical. Mr. Waite has held this position since 1989.
* James A. Wilkinson, 55, Vice President of Manufacturing of General
Chemical. Mr. Wilkinson has held this position since 1986.
ITEM 2. PROPERTIES
In conducting its operations, the Company uses properties having offices,
storage facilities or manufacturing facilities at 87 locations throughout the
United States, Canada and the Philippines. Thirty-five of these properties are
leased while the remainder are owned by the Company. The leased properties are
occupied under rental agreements having terms ranging up to six years and under
month-to-month tenancies. The Company's headquarters is located in Hampton, New
Hampshire.
The locations and uses of certain major properties of the Company are as
follows:
LOCATION USE
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United States....................... * Pittsburg, California Manufacturing Facility
* Richmond, California Manufacturing Facility
* North Claymont, Delaware Manufacturing Facility,
Offices and Warehouse
* East St. Louis, Illinois Manufacturing Facility
** Hampton, New Hampshire Offices
** Parsippany, New Jersey Offices
Solvay, New York Manufacturing Facility
Weaverville, North Carolina Manufacturing Facility,
Offices and Warehouse
Perrysburg, Ohio Manufacturing Facility
and Offices
Toledo, Ohio Manufacturing Facility
* Marcus Hook, Pennsylvania Manufacturing Facility,
Offices and Warehouse
* Anacortes, Washington Manufacturing Facility
Racine, Wisconsin Manufacturing Facility
and Offices
Green River, Wyoming Trona Mine and Manufacturing
Facility
Canada.............................. Amherstburg, Ontario Manufacturing Facility
and Undeveloped Lots
** Mississauga, Ontario Offices
Valleyfield, Quebec Manufacturing Facility
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* Each of the indicated has been mortgaged as security by General Chemical for
the U.S. Revolving Credit Facility and Bank Term Loan.
** Leased.
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The Company's Green River plant has a nameplate capacity of approximately
2.4 million tons of soda ash per year. The plant is owned by GCSAP, a
partnership of which General Chemical is the managing partner and in which
General Chemical has a 51 percent equity interest, The Andover Group, Inc.,
which is a wholly owned subsidiary of ACI International Limited, has a 25
percent equity interest and TOSOH Wyoming, Inc., which is a wholly owned
subsidiary of TOSOH America, Inc., has a 24 percent equity interest. Each
partner is prohibited from transferring its interest in GCSAP or withdrawing
from GCSAP without the prior written consent of the other partners.
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In addition to such restrictions on the transfer of interests in GCSAP,
there are certain restrictions and obligations with respect to the transfer of
either General Chemical's interest in GCSAP or the voting securities of General
Chemical. For further information, see Note 6 of Notes to the Consolidated
Financial Statements.
Reserves. The Company mines trona ore under leases with the United States
government, the State of Wyoming, and the Union Pacific Resources Corporation.
The Company's trona reserves and mines are located in the Green River, Wyoming,
area.
The Company's estimated proven reserves within bed No. 17, which the
Company is currently mining, consist of approximately 92.5 million tons of
extractable ore. At the 1996 operating rate of 2.2 million tons of soda ash per
year (4.1 million tons of trona ore), there is approximately a 23-year supply.
For the three years ended December 31, 1996, annual production of trona ore
averaged approximately 4.0 million tons. In addition, the Company's reserves
contain three other major minable trona beds containing approximately 324
million tons of extractable ore. These beds, which may require significant
capital to access, will provide more than 79 years of added reserves based on
current operating rates.
At the Company's synthetic soda ash plant in Amherstburg, Ontario, Canada,
the Company uses salt and limestone as its raw materials. Based on current
production levels the Company has approximately 30 years of salt reserves.
Limestone reserves owned by the Company total approximately 15 years, with an
option on an additional six years of reserves. However, the Company is not
currently utilizing its limestone reserves and is instead purchasing all of its
limestone requirements under a long-term contract with a major limestone
producer due to the economic benefit of using purchased limestone.
ITEM 3. LEGAL PROCEEDINGS
Richmond Works July 26, 1993 Incident. On July 26, 1993, a pressure relief
device on a railroad tank car containing oleum that was being unloaded at the
Company's Richmond, California, facility ruptured during the unloading process,
causing the release of a significant amount of sulfur trioxide. Approximately
150 lawsuits seeking substantial amounts of damages were filed against the
Company on behalf of in excess of 60,000 claimants in municipal and superior
courts of California (Contra Costa and San Francisco counties) and in federal
court (United States District Court for the Northern District of California).
All state court cases were coordinated before a coordination trial judge (In Re
GCC Richmond Work Cases, JCCP No. 2906) and the federal court cases were stayed
until completion of the state court cases.
After several months of negotiation under the supervision of a settlement
master, the Company and a court-approved plaintiffs' management committee
executed a comprehensive settlement agreement which resolved the claims of
approximately 95 percent of the claimants who filed lawsuits arising out of the
July 26th incident, including the federal court cases. After a final settlement
approval hearing on October 27, 1995, the coordination trial judge approved the
settlement on November 22, 1995.
Pursuant to the terms of the settlement agreement, the Company, with funds
to be provided by its insurers pursuant to the terms of the insurance policies
described below, has agreed to make available a maximum of $180 million to
implement the settlement. Various 'funds' and 'pools' are established by the
settlement agreement to compensate claimants in different subclasses who meet
certain requirements. Of this amount, $24 million has been allocated for
punitive damages, notwithstanding the Company's strong belief that punitive
damages are not warranted. The settlement also makes available $23 million of
this $180 million for the payment of legal fees and litigation costs to class
counsel and the plaintiffs' management committee.
The settlement agreement provides, among other things, that while claimants
may 'opt out' of the compensatory damages portion of the settlement and pursue
their own cases separate and apart from the class settlement mechanism, they
have no right to opt out of the punitive damages portion of the settlement.
Consequently, under the terms of the settlement, no party may seek punitive
damages from the Company outside of those provided by the settlement.
Approximately 2,800 claimants, which constitutes less than 5 percent of the
total number of claimants, have elected to so opt out. Except with
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respect to compensatory damage claims by claimants electing to opt-out, the
settlement fully releases from all claims arising out of the July 26, 1993
incident the Company and all of its related entities, shareholders, directors,
officers and employees, and all other entities who have been or could have been
sued as a result of the July 26th incident, including all those who have sought
or could seek indemnity from the Company.
Notices of appeal of all or portions of the settlement approved by the
court have been filed by five law firms representing approximately 2,750 of the
opt-outs, with 2,700 of these claimants represented by the same law firm.
Virtually all of these claimants have not specified the amount of their claims
in court documents, although the Company believes that their alleged injuries
are no different in nature or extent than those alleged by the settling
claimants. On May 8, 1996, the California Court of Appeals dismissed each of the
appeals that had been filed challenging the trial court's approval of the class
action settlement. The Court of Appeals dismissed the appeal relating to the
trial court's rulings on plaintiffs' attorneys' fees on the ground that the
appealing attorneys lacked standing to appeal. The Court of Appeals also
dismissed each of the other grounds for appeal, ruling that the trial court's
orders and rulings approving the settlement were not presently appealable, if at
all, by the appealing claimants since they had all elected to opt out of the
settlement. The appealing attorneys and some of the appealing claimants filed a
petition for review with the California Supreme Court which, on August 15, 1996,
elected not to review the Court of Appeals' decision.
The settlement includes various terms and conditions designed to protect
the Company in the event that the settlement as approved by the court is
overturned or modified on appeal. If such an overturn or modification occurs,
the Company has the right to terminate the settlement and make no further
settlement payments, and any then unexpended portions of the settlement proceeds
(including, without limitation, the $24 million punitive damage fund) would be
available to address any expenses and liabilities that might arise from any such
an overturn or modification. In addition, in the event that the settlement as
approved by the court is overturned or modified on appeal, the release document
signed by settling claimants contains language which fully releases the Company
from any further claims, either for compensatory or punitive damages, arising
out of the July 26, 1993 incident. The Company has presently obtained releases
from over 94 percent of the settling claimants and believes that it will have
obtained the majority of releases from the remaining settling claimants prior to
any such appeal being ruled on by an appellate court.
It is possible that one or more of the opt-out claimants, once their
opt-out cases are finally litigated through trial, may attempt to refile all or
a portion of the appeals that were dismissed by the California Court of Appeals.
While there can be no assurances regarding how an appellate court might rule in
the event of a refiling of an appeal of the settlement, the Company believes
that the settlement will be upheld on appeal. In the event of a reversal or
modification of the settlement on appeal, with respect to lawsuits by any then
remaining claimants (opt-outs and settling claimants who have not signed
releases) the Company believes that, whether or not it elects to terminate the
settlement in the event it is overturned or modified on appeal, it will have
adequate resources from its available insurance coverage to vigorously defend
these lawsuits through their ultimate conclusion, whether by trial or
settlement. However, in the event the settlement is overturned or modified on
appeal, there can be no assurance that the Company's ultimate liability
resulting from the July 26, 1993 incident would not exceed the available
insurance coverage by an amount which could be material to its financial
condition or results of operations, nor is the Company able to estimate or
predict a range of what such ultimate liability might be, if any.
The Company has insurance coverage relating to this incident which totals
$200 million. The first two layers of coverage total $25 million with a sublimit
of $12 million applicable to the July 26, 1993 incident, and the Company also
has excess insurance policies of $175 million over the first two layers. The
Company reached an agreement with the carrier for the first two layers whereby
the carrier paid the Company $16 million in settlement of all claims the Company
had against that carrier. In the third quarter of 1994, the Company recorded a
$9 million charge to earnings for costs which the Company incurred related to
this matter. The Company's excess insurance policies, which are written by two
Bermuda-based insurers, provide coverage for compensatory as well as punitive
damages. Both insurers have executed agreements with the Company confirming
their respective commitments to fund the
8
settlement as required by their insurance policies with the Company and as
described in the settlement agreement. In addition, these same insurers
currently continue to provide substantially the same insurance coverage to the
Company.
Milwaukee Litigation. In March 1993, an outbreak of cryptosporidia occurred
in the public water supply of the City of Milwaukee. As a result of that
incident, several lawsuits have been filed with the Milwaukee County Circuit
Court against one or more of the City of Milwaukee, its Department of Public
Works, Sara Lee Corporation, E.D. Wesley Co., Peck Foods Corporation, certain
hotels, numerous insurance companies, several municipalities and the Company.
The complaints generally allege, among other things, that the outbreak was
caused when certain defendants other than the Company illegally disposed of
waste into the water supply, and that the City of Milwaukee failed to properly
operate its water treatment plant in a manner that would have prevented the
outbreak. The principal allegations against the Company are that a water
treatment chemical sold to the City of Milwaukee by the Company should have
removed the bacteria and failed to do so and that the Company consulted with the
City concerning the water purification.
One of the suits (Markwiese, et al v. Peck Foods Corporation, et al filed
in 1993) had been certified, prior to the service of a complaint against the
Company, as a class action in favor of all persons who sustained damage as a
result of the wrongful acts of the various defendants. Subsequently, the Company
and the City of Milwaukee challenged, among other things, the class
certification, and the Wisconsin Court of Appeals remanded this matter to the
trial court for a determination of how certain issues impact whether class
certification was appropriate. It is expected that these issues will be argued
later in 1997 before a new trial judge.
In addition to the Markwiese action, several other lawsuits have since been
filed by the same lead attorneys in the Circuit Court of Milwaukee County
against the same basic group of defendants, including two multi-party actions,
Quandt et al v. Northbrook Property and Casualty Insurance Co. filed in 1994 and
Winiarski et al v. Peck Foods et al filed in 1996, on behalf of a total of 98
plaintiffs. The unspecified damages sought by these various complaints is
alleged to be 'far in excess of $1.0 million dollars' for personal injury,
economic loss, emotional distress, pain and suffering, medical expenses and
punitive damages.
The Company has denied all material allegations of the complaints and will
continue to defend these lawsuits vigorously. The Company further believes that
its available insurance provides adequate coverage in the event of an adverse
result in this matter, and that this matter will not have a material adverse
effect on its financial condition or results of operations.
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 1996.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol 'GCG.' The high and low recorded sales prices of the Company's Common
Stock during fiscal year 1996 are set forth in the table below.
1996
----------------
HIGH LOW
------ ------
2nd Quarter.......................................................................... $20.75 $17.50
3rd Quarter.......................................................................... 20.63 16.75
4th Quarter.......................................................................... 23.63 18.50
As of March 20, 1997, there were 72 stockholders of record of the Company's
Common Stock and 3 stockholders of record of the Company's Class B Common Stock.
DIVIDENDS
The Company has declared quarterly cash dividends of $.05 on each share of
Common Stock and Class B Common Stock for each quarter since May 1996 with the
second quarter cash dividend being prorated from the IPO date to $.025. The
Company expects to continue its policy of paying regular quarterly cash
dividends of $.05. Although management believes that such a dividend is
appropriate, the declaration of dividends is dependent upon the Company's
earnings, financial position and other relevant business conditions. The current
dividend policy will be reviewed by the Company's Board of Directors from time
to time. No dividend will be payable unless permitted by applicable law,
declared by the Board of Directors and adequate funds are available therefor.
During 1996, cash dividends of $.075 per share were paid. For further
information, see the information contained under the caption 'Management's
Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources.'
10
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company has been
derived from and should be read in conjunction with the Company's Consolidated
Financial Statements. The Company's Consolidated Financial Statements for the
three years ended December 31, 1996 have been audited by Deloitte & Touche LLP,
the Company's independent auditors, and are included elsewhere in this report:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS:
Net revenues............................................. $ 544,704 $ 518,718 $ 525,912 $ 550,871 $ 623,659
Cost of sales............................................ 378,205 363,268 361,637 387,255 422,633
Gross profit............................................. 166,499 155,450 164,275 163,616 201,026
Selling, general and administrative expense.............. 57,927 58,330 57,034 56,619 71,810(8)
Richmond incident costs.................................. -- -- 9,000 -- --
Operating profit......................................... 108,572 97,120 98,241 106,997 129,216(8)
Minority interest........................................ 24,314 17,733 16,957 19,458 31,635
Interest income.......................................... 4,131 3,019 2,487 2,937 2,433
Foreign currency transaction (gains) losses.............. 3,585 1,719 4,004 (1,382) (169)
Other (income) expense................................... 504 (651) 63 735 704
Income before interest, income taxes, extraordinary item
and cumulative effect of accounting change............. 84,300 81,338 79,704 91,123 99,479(8)
Interest expense......................................... 42,047 37,917 33,006 26,704 23,748
Income before income taxes, extraordinary item and
cumulative effect of accounting change................. 42,253 43,421 46,698 64,419 75,731(8)
Income tax provision..................................... 18,442 16,185 18,393 43,326(1) 29,123
Income before extraordinary item and cumulative effect of
accounting change...................................... 23,811 27,236 28,305 21,093(1) 46,608(8)
Net income (loss)(2)..................................... $ (17,617)(3) $ 25,151 $ 20,102 $ 21,093(1) $ 46,608(8)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PER SHARE:(4)
Income before extraordinary item and cumulative effect of
accounting change...................................... $ 1.21 $ 1.38 $ 1.43 $ 1.07(1) $ 2.13(8)
Net income (loss)........................................ (.89)(3) 1.27 1.02 1.07(1) 2.13(8)
Dividends................................................ 2.84 .49 .70 1.00 .13
Weighted average number of shares outstanding............ 19,736,842 19,736,842 19,736,842 19,736,842 21,921,133
OTHER DATA:
Capital expenditures..................................... $ 18,141 $ 20,221 $ 28,503 $ 34,093 $ 54,165
Depreciation and amortization(5)......................... 27,916 25,826 25,062 27,095 28,619
BALANCE SHEET DATA (AT END OF PERIOD):
Cash, cash equivalents and short-term investments........ $ 56,199 $ 43,818 $ 28,701 $ 19,025 $ 51,700
Adjusted working capital(6).............................. 10,675 (6,252) 4,471 12,484 23,847
Total assets............................................. 446,861 425,944 433,627 431,325 485,137
Long-term debt(7)........................................ 366,322 306,200 304,750 291,495 234,609
Total equity (deficit)................................... (237,968) (223,051) (216,831) (215,336) (119,753)
- ------------
(1) The Company recorded a nonrecurring charge to income tax expense of $17.1
million ($.87 per share) for all years prior to 1995 related to Internal
Revenue Service (the 'IRS') examinations. See Note 3 of Notes to the
Consolidated Financial Statements.
(2) During 1993 and 1994 the Company recorded extraordinary losses of $2.1
million and $8.2 million, respectively, related to the early retirement of
certain outstanding indebtedness.
(3) The Company implemented Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other than Pensions, on
the immediate recognition basis effective January 1, 1992, which resulted in
an after-tax charge of $41.4 million.
(4) Adjusted for all periods presented to reflect a 202,994.4539 per share stock
dividend effected as of October 17, 1994.
(5) Consolidated depreciation and amortization excluding amortization of
deferred financing costs.
(6) Adjusted working capital consists of total current assets (excluding cash
and short-term investments) less total current liabilities (excluding the
current portion of long-term debt).
(7) Includes the current portion of long-term debt.
(8) Includes a one-time charge of $12.5 million ($7.6 million after tax or $.34
per share) due primarily to awards made under the Restricted Unit Plan,
reflecting the portion earned under prior equity programs.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The General Chemical Group Inc., which has a history dating back to 1899,
is a diversified manufacturing company predominantly engaged in the production
of inorganic chemicals, with manufacturing facilities located in the United
States and Canada. Through its Chemical Segment, the Company is a leading
producer of soda ash in North America, and a major North American supplier of
calcium chloride, sodium and ammonia salts, sulfites, nitrites, aluminum-based
chemical products, printing plates and refinery and chemical regeneration
services to a broad range of industrial and municipal customers. Through its
Manufacturing Segment, the Company manufactures precision and highly engineered
stamped and machined metal products, principally automotive engine parts.
Sales in 1996 rose to a record $623.7 million from $550.9 million in 1995,
a gain of 13 percent, net income increased to $46.6 million, or $2.13 per share,
from $21.1 million, or $1.07 per share, in the prior year. Excluding the effects
of a one-time charge of $7.6 million, or $0.34 per share, primarily related to
the initial public offering in 1996 and a one-time charge of $17.1 million, or
$0.87 per share, relating to taxes in 1995, earnings per share in 1996 improved
27 percent to a record $2.47 compared with $1.94 in 1995.
The higher sales recorded in 1996 were attributable to gains in both
segments. Within the Chemical Segment, the industrial chemical product lines
were led by strong pricing gains in soda ash. The Company's natural soda ash
facility in Green River, Wyoming and the synthetic soda ash facility in
Amherstburg, Ontario, were essentially sold out for the second consecutive year.
During 1997, additional soda ash capacity from the recent expansion at the
Company's Green River, Wyoming, facility, will allow the Company to continue to
take advantage of the growth in exports. Although pricing is expected to be down
in 1997 due to expansions by several producers that took place last year,
industry operating rates are expected to remain high.
The second component of the Chemical Segment, the derivative products and
services product lines, also posted a strong performance in 1996 due to volume
gains in all product lines. The performance was bolstered by the expansion of
the Company's two West Coast sulfuric acid regeneration plants and good growth
in products that serve the water treatment and semiconductor markets.
Rapid growth was achieved during 1996 in the Manufacturing Segment due to
the Company's successful launch of higher-value-added automotive engine
components as well as new business from the Big Three auto manufacturers.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the respective notes thereto included in
Item 8. This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in such statements as a result of the following
risk factors: risks and uncertainties in connection with business conditions in
the markets the Company serves and in the general economy, and the impact of
competitive products and pricing, in particular, the price of soda ash.
12
RESULTS OF OPERATIONS
The following table sets forth certain income statement data for each of
the three years in the period ended December 31, 1996 (dollars in millions).
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996
-------------- -------------- --------------
Net revenues.................................................... $525.9 100% $550.9 100% $623.7 100%
Cost of sales................................................... 361.6 69 387.3 70 422.6 68
------ ---- ------ ---- ------ ---
Gross profit.................................................... 164.3 31 163.6 30 201.1 32
Selling, general and administrative expense..................... 57.0 11 56.6 10 71.8(2) 12
Richmond incident costs......................................... 9.0 2 -- -- -- --
------ ---- ------ ---- ------ ---
Operating profit................................................ 98.3 19 107.0 19 129.2 20
Interest expense................................................ 33.0 6 26.7 5 23.7 4
Interest income................................................. 2.5 -- 2.9 1 2.4 --
Foreign currency transaction (gains)/losses..................... 4.0 1 (1.4) -- (.2) --
Other expense, net.............................................. .1 -- .7 -- .8 --
Minority interest............................................... 17.0 3 19.5 4 31.6 5
------ ---- ------ ---- ------ ---
Income before income taxes and extraordinary item............... 46.7 9 64.4 12 75.7 12
Income tax provision............................................ 18.4 4 43.3(1) 8 29.1 5
------ ---- ------ ---- ------ ---
Income before extraordinary item................................ 28.3 5 21.1 4 46.6 7
Extraordinary item -- loss from extinguishment of debt (net of
tax).......................................................... 8.2 1 -- -- -- --
------ ---- ------ ---- ------ ---
Net income...................................................... $ 20.1 4% $ 21.1 4% $ 46.6 7%
------ ---- ------ ---- ------ ---
------ ---- ------ ---- ------ ---
- ------------
Note: May not add due to rounding.
(1) Includes nonrecurring charge to income tax expense of $17.1 million for all
years prior to 1995 related to IRS examinations. See Note 3 of Notes to the
Consolidated Financial Statements.
(2) Includes a one-time charge of $12.5 million ($7.6 million after-tax or $.34
per share) due primarily to awards made under the Restricted Unit Plan,
reflecting the portion earned under prior equity programs.
1996 COMPARED WITH 1995
Net revenues were $623.7 million for 1996 compared with $550.9 million for
1995, or an increase of 13 percent. Higher Chemical Segment sales were the
result of favorable soda ash pricing and improved volume across all product
lines. Higher Manufacturing Segment sales were the result of volume and product
mix improvements toward higher-value automotive engine parts.
Gross profit increased 23 percent to $201.1 million for 1996 compared with
$163.6 million for 1995. Gross profit as a percentage of sales increased to 32
percent for 1996 versus 30 percent for 1995. Favorable soda ash pricing and
higher volume, offset in part by higher manufacturing expenses, account for the
above-mentioned increase.
Selling, general and administrative expense as a percentage of net revenues
increased from 10 percent to 12 percent for 1996. This increase is due to the
recording of a one-time charge of $12.5 million related primarily to a new
Restricted Unit Plan created by the Company which replaced certain prior equity
programs.
The $3.0 million decrease in interest expense for 1996 compared with 1995
was primarily due to lower outstanding debt balances.
Interest income for 1996 was $2.4 million, which approximated prior-year
levels.
The foreign currency transaction gain for 1996 was $0.2 million compared
with a $1.4 million gain in 1995, principally due to the impact of exchange rate
fluctuations on a $52 million U.S.-denominated loan of the Company's Canadian
subsidiary. The impact of these foreign currency transaction gains on this loan
was noncash.
Other expense for 1996 of $0.8 million was essentially at the prior-year
level.
13
Minority interest for 1996 was $31.6 million compared with $19.5 million
for 1995, reflecting higher earnings due to favorable soda ash pricing of GCSAP.
Net income for 1996 was $46.6 million versus $21.1 million for 1995,
reflecting the foregoing, and the nonrecurring charge to income tax expense
recorded in 1995.
1995 COMPARED WITH 1994
Net revenues were $550.9 million for 1995 compared with $525.9 million for
1994. This increase in net revenues of 5 percent was primarily the result of
higher soda ash sales in the Chemical Segment, reflecting favorable pricing and
higher volumes, and higher Manufacturing Segment sales as the result of volume
and product mix improvements toward higher-value automotive engine parts,
reflecting market share gains at the Big Three automotive manufacturers. Lower
calcium chloride volumes partially offset these increases.
Gross profit decreased slightly to $163.6 million from 1995 compared with
$164.3 million for 1994. Gross profit as a percentage of sales decreased to 30
percent for 1995 versus 31 percent for 1994. Higher manufacturing expenses and a
change in sales mix, partially offset by favorable soda ash pricing, accounted
for this decrease.
Selling, general and administrative expense was 10 percent of net revenues
in 1995 versus 11 percent in 1994 due to the higher sales level and lower
spending.
The $6.3 million decrease in interest expense for 1995 compared with 1994
was primarily due to the early retirement of General Chemical Corporation's
Senior Secured 14% Second Priority Notes in November 1994.
Interest income for 1995 was $2.9 million compared with $2.5 million for
1994. The increase was primarily due to a full year of interest income on notes
receivable in 1995 versus eight months for 1994.
The foreign currency transaction gain for 1995 was $1.4 million compared
with a $4.0 million loss in 1994, principally due to the impact of exchange rate
fluctuations on a $52 million U.S.-denominated loan of the Company's Canadian
subsidiary. The impact of these foreign currency transaction (gains) losses on
this loan was noncash.
Other expense for 1995 included losses on disposal of assets of $1.0
million. Other expense for 1994 included a pension-curtailment gain of $1.2
million, partially offset by losses on disposal of assets of $1.0 million.
Minority interest for 1995 was $19.5 million compared with $17.0 million
for 1994, reflecting higher earnings of GCSAP.
Net income for 1995 was $21.1 million versus $20.1 million for 1994, due to
the foregoing, a nonrecurring charge to income tax expense in 1995 of $17.1
million and an extraordinary item of $8.2 million in 1994 related to the early
extinguishment of debt.
ACCOUNTING PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ' ('FAS 121'),
which the Company adopted in 1996. This statement requires the Company to review
and adjust the carrying amount of long-lived assets and certain intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of FAS 121 did
not have a material effect on the Company's results of operations or financial
condition.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, 'Accounting for Stock-Based
Compensation' ('FAS 123'), which the Company adopted in 1996. This statement
allows the Company to retain the current method of accounting for employee
stock-based compensation arrangements with certain additional disclosures. The
new standard did not have a material effect on the Company's financial
statements. See Note 10 of the Notes to the Consolidated Financial Statements
for additional information.
14
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $51.7 million at December 31, 1996 compared
with $19.0 million at December 31, 1995. During 1996 the Company generated cash
flow from operating activities of $90.8 million, received proceeds from the
initial public offering of $40.6 million, received $14.0 million from the
repayment of related-party loans, made capital expenditures of $54.2 million and
made net repayments of $56.9 million of long-term debt.
The Company had working capital of $58.2 million at December 31, 1996
compared with $9.6 million at December 31, 1995. The increase in working capital
reflects higher accounts receivable and cash balances, coupled with lower
accrued liabilities.
General Chemical has a revolving credit facility which expires on March 31,
1999 and allows for borrowings up to $130 million, including letters of credit
of up to $30 million.
GC Canada has a revolving credit facility of $15 million (Canadian)
(approximately $11 million U.S.), which expires on June 22, 1998 and is subject
to one-year extensions at GC Canada's request and at the lender's discretion.
This revolving credit facility is secured by the receivables and inventory of GC
Canada and bears interest at a rate equal to a spread over a reference rate
chosen by GC Canada from various options.
While certain of the Company's subsidiaries' debt facilities are
outstanding, the Company's subsidiaries must meet specific financial tests on an
ongoing basis, which are customary for these types of facilities. Except as
provided by applicable corporate law, there are no restrictions on the Company's
ability to pay dividends from retained earnings. However, the payment of cash
dividends by the Company's subsidiaries to the Company are subject to certain
restrictions under the terms of various agreements covering the Company's
subsidiaries' long-term debt. Toledo, PDI and Balcrank are not permitted under
each subsidiary's respective debt agreements to pay cash dividends. Assuming
certain financial covenants are met, General Chemical is permitted to pay cash
dividends of up to 50 percent of the net income (subject to certain adjustments)
of General Chemical for the applicable period. Consequently, the Company's
ability to pay cash dividends on Common Stock may effectively be limited by such
agreements. At December 31, 1996, approximately $51 million was available for
dividend payments in accordance with these covenants.
The Company anticipates that the capital spending level for 1997 will
approximate the prior-year level. Management believes that the Company's cash
flow will be sufficient to cover its future interest expense, capital
expenditures, debt maturities and working capital requirements.
Richmond Works July 26, 1993 Incident. On July 26, 1993, a pressure relief
device on a railroad tank car containing oleum that was being unloaded at the
Company's Richmond, California, facility ruptured during the unloading process,
causing the release of a significant amount of sulfur trioxide. Approximately
150 lawsuits seeking substantial amounts of damages were filed against the
Company on behalf of in excess of 60,000 claimants in municipal and superior
courts of California (Contra Costa and San Francisco counties) and in federal
court (United States District Court for the Northern District of California).
All state court cases were coordinated before a coordination trial judge (In Re
GCC Richmond Works Cases, JCCP No. 2906) and the federal court cases were stayed
until completion of the state court cases.
After several months of negotiation under the supervision of a settlement
master, the Company and a court-approved plaintiffs' management committee
executed a comprehensive settlement agreement which resolved the claims of
approximately 95 percent of the claimants who filed lawsuits arising out of the
July 26th incident, including the federal court cases. After a final settlement
approval hearing on October 27, 1995, the coordination trial judge approved the
settlement on November 22, 1995. Pursuant to the terms of the settlement
agreement, the Company, with funds to be provided by its insurers pursuant to
the terms of the insurance policies described below, has agreed to make
available a maximum of $180 million to implement the settlement. In addition,
the settlement agreement provides, among other things, that while claimants may
'opt out' of the compensatory damages portion of the settlement and pursue their
own cases separate and apart from the class settlement mechanism, they have no
right to opt out of the punitive damages portion of the settlement.
Consequently, under the
15
terms of the settlement, no party may seek punitive damages from the Company
outside of those provided by the settlement.
Notices of appeal of all or portions of the settlement approved by the
court have been filed by five law firms representing approximately 2,750 of the
opt-outs, with 2,700 of these claimants represented by the same law firm.
Virtually all of these claimants have not specified the amount of their claims
in court documents, although the Company believes that their alleged injuries
are no different in nature or extent than those alleged by the settling
claimants. On May 8, 1996, the California Court of Appeals dismissed each of the
appeals that had been filed challenging the trial court's approval of the class
action settlement. The Court of Appeals dismissed the appeal relating to the
trial court's rulings on plaintiffs' attorneys' fees on the ground that the
appealing attorneys lacked standing to appeal. The Court of Appeals also
dismissed each of the other grounds for appeal, ruling that the trial court's
orders and rulings approving the settlement were not presently appealable, if at
all, by the appealing claimants since they had all elected to opt out of the
settlement. The appealing attorneys and some of the appealing claimants filed a
petition for review with the California Supreme Court which, on August 15, 1996,
elected not to review the Court of Appeals' decision.
It is possible that one or more of the opt-out claimants, once their
opt-out cases are finally litigated through trial, may attempt to refile all or
a portion of the appeals that were dismissed by the California Court of Appeals.
While there can be no assurances regarding how an appellate court might rule in
the event of a refiling of an appeal of the settlement, the Company believes
that the settlement will be upheld on appeal. In the event of a reversal or
modification of the settlement on appeal, with respect to lawsuits by any then
remaining claimants (opt-outs and settling claimants who have not signed
releases), the Company believes that, whether or not it elects to terminate the
settlement in the event it is overturned or modified on appeal, it will have
adequate resources from its available insurance coverage to vigorously defend
these lawsuits through their ultimate conclusion, whether by trial or
settlement. However, in the event the settlement is overturned or modified on
appeal, there can be no assurance that the Company's ultimate liability
resulting from the July 26, 1993 incident would not exceed the available
insurance coverage by an amount which could be material to its financial
condition or results of operations, nor is the Company able to estimate or
predict a range of what such ultimate liability might be, if any.
The Company has insurance coverage relating to this incident which totals
$200 million. The first two layers of coverage total $25 million with a sublimit
of $12 million applicable to the July 26, 1993 incident, and the Company also
has excess insurance policies of $175 million over the first two layers. The
Company reached an agreement with the carrier for the first two layers whereby
the carrier paid the Company $16 million in settlement of all claims the Company
had against that carrier. In the third quarter of 1994, the Company recorded a
$9 million charge to earnings for costs which the Company incurred related to
this matter. The Company's excess insurance policies, which are written by two
Bermuda-based insurers, provide coverage for compensatory as well as punitive
damages. Both insurers have executed agreements with the Company confirming
their respective commitments to fund the settlement as required by their
insurance policies with the Company and as described in the settlement
agreement. In addition, these same insurers currently continue to provide
substantially the same insurance coverage to the Company.
ENVIRONMENTAL MATTERS
The Company has an established program to ensure that its facilities comply
with environmental laws and regulations. Expenditures made pursuant to this
program approximated $12.0 million in 1996 (of which approximately $3.9 million
represented capital expenditures and approximately $8.1 million related to
ongoing operations and the management and remediation of hazardous substances).
Expenditures for 1995 approximated $11.4 million (of which approximately $3.5
million represented capital expenditures and approximately $7.9 million related
to ongoing operations and the management and remediation of hazardous
substances). The Company expects similar expenditures in 1997 to be in the range
of $12.0 million to $14.0 million; however, should environmental laws and
regulations affecting the Company's operations become more stringent, the
Company's costs for environmental compliance could increase above such range.
16
Additionally, CERCLA, as amended, and similar state Superfund statutes have
been construed as imposing joint and several liability on present and former
owners and operators of contaminated sites and transporters and generators of
hazardous substances for remediation of contaminated properties regardless of
fault. The Company has received written notice from the EPA that it has been
identified under CERCLA as a PRP at three Superfund sites. With respect to two
of these sites, the Company does not believe that its liability, if any, arising
therefrom will be material to its results of operations or financial condition.
With respect to the third site, known as the Avtex site, which is located in
Front Royal, Virginia, the Company has provided for the estimated costs of
certain activities requested by the EPA at the site in its accrual for
environmental liabilities. See 'Business -- Environmental Matters -- Pending
Proceedings.' In addition, Congress continues to consider the reauthorization of
and modifications to CERCLA. Because Congress has not yet acted with respect to
CERCLA, the Company does not have sufficient information to ascertain the impact
any change might have on the Company's potential liabilities, if any.
INFLATION
Inflation has had a minimal effect on the results of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See 'Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.'
17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
THE GENERAL CHEMICAL GROUP INC.:
We have audited the accompanying consolidated balance sheets of The General
Chemical Group Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, changes in equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
Our audits also included the financial statement schedule in the Index at Item
14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The General Chemical Group Inc.
and subsidiaries at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basis financial statements taken as whole, presents fairly in
all material respects the information set forth herein.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 14, 1997
18
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net revenues................................................................. $525,912 $550,871 $623,659
Cost of sales................................................................ 361,637 387,255 422,633
Selling, general and administrative expense.................................. 57,034 56,619 71,810
Richmond incident costs...................................................... 9,000 -- --
-------- -------- --------
Operating profit............................................................. 98,241 106,997 129,216
Interest expense............................................................. 33,006 26,704 23,748
Interest income.............................................................. 2,487 2,937 2,433
Foreign currency transaction (gains) losses.................................. 4,004 (1,382) (169)
Other expense, net........................................................... 63 735 704
-------- -------- --------
Income before minority interest, income taxes and extraordinary item......... 63,655 83,877 107,366
Minority interest............................................................ 16,957 19,458 31,635
-------- -------- --------
Income before income taxes and extraordinary item............................ 46,698 64,419 75,731
Income tax provision......................................................... 18,393 43,326 29,123
-------- -------- --------
Income before extraordinary item............................................. 28,305 21,093 46,608
Extraordinary item -- loss from extinguishment of debt (net of tax).......... (8,203) -- --
-------- -------- --------
Net income......................................................... $ 20,102 $ 21,093 $ 46,608
-------- -------- --------
-------- -------- --------
Income (loss) per common share:
Income before extraordinary item........................................ $ 1.43 $ 1.07 $ 2.13
Extraordinary item...................................................... (.41) -- --
-------- -------- --------
Net income......................................................... $ 1.02 $ 1.07 $ 2.13
-------- -------- --------
-------- -------- --------
See the accompanying notes to the consolidated financial statements.
19
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
1995 1996
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 19,025 $ 51,700
Receivables, net................................................................. 93,231 102,478
Inventories...................................................................... 41,970 41,429
Deferred income taxes............................................................ 14,041 11,264
Other current assets............................................................. 1,485 2,153
--------- ---------
Total current assets........................................................ 169,752 209,024
Property, plant and equipment, net.................................................... 215,557 239,819
Other assets.......................................................................... 46,016 36,294
--------- ---------
Total assets................................................................ $ 431,325 $ 485,137
--------- ---------
--------- ---------
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................................. $ 50,987 $ 53,772
Accrued liabilities.............................................................. 83,018 74,205
Income taxes payable............................................................. 4,238 5,500
Current portion of long-term debt................................................ 21,892 17,392
--------- ---------
Total current liabilities................................................... 160,135 150,869
Long-term debt........................................................................ 269,603 217,217
Other liabilities..................................................................... 188,645 198,232
--------- ---------
Total liabilities........................................................... 618,383 566,318
--------- ---------
Minority interest..................................................................... 28,278 38,572
--------- ---------
Equity (deficit):
Preferred Stock, $.01 par value; authorized 10,000,000 shares; none issued or
outstanding..................................................................... -- --
Common Stock, $.01 par value; authorized 50,000,000 and 100,000,000 shares;
issued 19,736,842 and 8,009,601 shares at December 31, 1995 and December 31,
1996, respectively.............................................................. 197 80
Class B Common Stock, $.01 par value; authorized 40,000,000 shares; issued and
outstanding: 14,261,467 shares at December 31, 1996............................. -- 143
Capital deficit.................................................................. (237,140) (185,215)
Foreign currency translation adjustments......................................... (1,362) (1,435)
Retained earnings................................................................ 22,969 66,797
Treasury stock, at cost: 6,325 shares at December 31, 1996....................... -- (123)
--------- ---------
Total equity (deficit)...................................................... (215,336) (119,753)
--------- ---------
Total liabilities and equity (deficit)...................................... $ 431,325 $ 485,137
--------- ---------
--------- ---------
See the accompanying notes to the consolidated financial statements.
20
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- -------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net income.............................................................. $ 20,102 $ 21,093 $ 46,608
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization...................................... 26,700 28,258 29,745
Loss on extinguishment of debt..................................... 13,570 -- --
Net loss on disposition of long-term assets........................ 1,023 950 1,170
Unrealized exchange (gain) loss.................................... 3,101 (1,586) 31
Restricted unit plan costs......................................... -- -- 11,319
(Increase) in receivables.......................................... (13,894) (2,631) (12,126)
(Increase) decrease in inventories................................. 755 (5,406) 525
Increase in accounts payable....................................... 3,922 315 2,814
Increase (decrease) in accrued liabilities......................... (2,371) 4,379 (9,970)
Increase (decrease) in income taxes payable........................ (5,599) (2,866) 1,279
Increase in other liabilities and assets, net...................... 7,297 13,279 9,125
Increase (decrease) in minority interest........................... (2,179) 686 10,294
--------- -------- --------
Net cash provided by operating activities........................ 52,427 56,471 90,814
--------- -------- --------
Cash flows from investing activities:
Capital expenditures.................................................... (28,503) (34,093) (54,165)
Proceeds from sales or disposals of long-term assets.................... 183 577 73
(Loans to) payments from related parties................................ (14,000) -- 14,000
Cash acquired in excess of purchase price of acquisition................ 2,426 -- --
--------- -------- --------
Net cash used for investing activities........................... (39,894) (33,516) (40,092)
--------- -------- --------
Cash flows from financing activities:
Net proceeds from initial public offering............................... -- -- 40,600
Proceeds from long-term debt............................................ 243,964 6,200 20,000
Repayment of long-term debt............................................. (257,214) (19,455) (76,886)
Payments to acquire treasury stock...................................... -- -- (123)
Dividends............................................................... (13,800) (19,650) (1,668)
--------- -------- --------
Net cash used for financing activities........................... (27,050) (32,905) (18,077)
--------- -------- --------
Effect of exchange rate changes on cash...................................... (600) 274 30
--------- -------- --------
Increase (decrease) in cash and cash equivalents............................. (15,117) (9,676) 32,675
Cash and cash equivalents at beginning of period............................. 43,818 28,701 19,025
--------- -------- --------
Cash and cash equivalents at end of period................................... $ 28,701 $ 19,025 $ 51,700
--------- -------- --------
--------- -------- --------
Supplemental information:
Cash paid for income taxes.............................................. $ 23,347 $ 23,827 $ 23,051
--------- -------- --------
--------- -------- --------
Cash paid for interest.................................................. $ 31,307 $ 25,543 $ 22,809
--------- -------- --------
--------- -------- --------
See the accompanying notes to the consolidated financial statements.
21
THE GENERAL CHEMICAL GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
FOREIGN
CLASS B CURRENCY
COMMON COMMON TREASURY CAPITAL TRANSLATION RETAINED
STOCK STOCK STOCK DEFICIT ADJUSTMENTS EARNINGS TOTAL
------ ------ -------- --------- ----------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Balance at December 31, 1993............... $-- $-- $-- $(237,140) $(1,332) $ 15,421 $(223,051)
Net income............................ 20,102 20,102
Dividends (Per Share $.70)............ (13,800) (13,800)
Stock split in the form of dividend... 197 (197) --
Foreign currency translation.......... (82) (82)
------ ------ -------- --------- ----------- -------- ---------
Balance at December 31, 1994............... 197 -- -- (237,140) (1,414) 21,526 (216,831)
Net income............................ 21,093 21,093
Dividends (Per Share $1.00)........... (19,650) (19,650)
Foreign currency translation.......... 52 52
------ ------ -------- --------- ----------- -------- ---------
Balance at December 31, 1995............... 197 -- -- (237,140) (1,362) 22,969 (215,336)
Net income............................ 46,608 46,608
Dividends (Per Share $.125)........... (2,780) (2,780)
Proceeds from initial public
offering............................ 25 40,575 40,600
Conversion of Common Stock to Class B
Common Stock........................ (197) 197 --
Conversion of Class B Common Stock to
Common Stock........................ 54 (54) --
Restricted Unit Plan grants,
cancellations, tax benefits and
other............................... 1 11,350 11,351
Purchase of Treasury stock............ (123) (123)
Foreign currency translation.......... (73) (73)
------ ------ -------- --------- ----------- -------- ---------
Balance at December 31, 1996............... $ 80 $143 $ (123) $(185,215) $(1,435) $ 66,797 $(119,753)
------ ------ -------- --------- ----------- -------- ---------
------ ------ -------- --------- ----------- -------- ---------
See the accompanying notes to the consolidated financial statements.
22
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The General Chemical Group Inc. (the 'Company'), formerly known as NHO,
Inc., is a Delaware corporation formed in 1988. In January 1989, The Company
acquired New Hampshire Oak, Inc. ('New Hampshire Oak'). Through March 31, 1994,
the Company operated primarily through two wholly owned subsidiaries, General
Chemical Corporation ('GCC') and Exeter Oak Inc. ('Exeter'). On April 1, 1994,
Exeter contributed certain assets and liabilities to its subsidiaries: Toledo
Technologies, Inc. ('Toledo'), Balcrank Products, Inc. ('Balcrank'), and
Printing Developments, Inc. ('PDI'). Exeter was then merged into its parent
company, New Hampshire Oak.
The Company is a diversified manufacturing company predominantly engaged in
the production of inorganic chemicals, with manufacturing facilities located in
the United States and Canada. Through its Chemical Segment, the Company is a
leading producer of soda ash in North America, and a major North American
supplier of calcium chloride, sodium and ammonia salts, sulfites, nitrites,
aluminum-based chemical products, printing plates and refinery and chemical
regeneration services to a broad range of industrial and municipal customers.
The Chemical Segment accounted for approximately 86 percent of the Company's
consolidated 1996 net revenues. Through its Manufacturing Segment, the Company
manufactures precision and highly engineered stamped and machined metal
products, principally automotive engine parts as well as fluid-handling
equipment, manual controls and trailer hitches for the automotive market, which
combined accounted for approximately 14 percent of the Company's consolidated
1996 net revenues.
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 of all majority-owned subsidiaries and General Chemical (Soda Ash) Partners
('GCSAP'), of which the Company indirectly owns 51 percent. Minority interests
relate solely to partnerships, primarily GCSAP, in which the Company has a
controlling interest. Intercompany balances and transactions are eliminated in
consolidation.
Inventories are valued at the lower of cost or market, using primarily the
last-in, first-out ('LIFO') method for 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. Mines and machinery and
equipment of GCSAP are depreciated using the units-of-production method. All
other plant and equipment are depreciated principally using the straight-line
method, using estimated lives which range from 3 to 35 years.
The Company recognizes deferred tax assets and liabilities based on
differences between financial statement and tax bases of assets and liabilities
using presently enacted tax rates.
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. Liabilities for environmental matters were $16,628 and $16,319 at
December 31, 1995 and 1996, respectively. These amounts do not include estimated
third-party recoveries nor have they been discounted.
The Company provides for the expected costs to be incurred for the eventual
reclamation of mining properties pursuant to local law. Land reclamation costs
are being accrued for over the estimated remaining life of the reserves
currently under lease.
23
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The Company does not hold or issue financial instruments for trading
purposes. Amounts to be paid or received under interest swap agreements are
recognized as increases or reductions in interest expense in the periods in
which they accrue.
The financial statements of the foreign subsidiaries of the Company have
been translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52.
All highly liquid instruments purchased with a maturity of three months or
less are considered to be cash equivalents.
The capital deficit at December 31, 1993 of $237,140 arose as a result of
dividends and distributions exceeding accumulated earnings and capital
contributions.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, 'Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of' ('FAS 121'), which the
Company adopted in 1996. The Company evaluates the carrying value of its
long-lived assets whenever there is a significant change in the use of an asset
and adjusts the carrying value, if necessary, to reflect the amount recoverable
through future operations. The adoption of FAS 121 had no effect on the
Company's results of operations or financial condition.
The computation of primary earnings per common and common equivalent share
is based on the weighted average number of common shares outstanding during the
period and assumes the exercise of all stock options and restricted units, using
the treasury stock method. Fully diluted earnings per common and common
equivalent share do not differ materially from primary earnings per common and
common equivalent share and are therefore not presented.
Certain prior-period amounts have been reclassified to conform with the
current presentation.
NOTE 2 -- INITIAL PUBLIC OFFERING
On October 17, 1994, the Board of Directors approved an amendment to the
Company's Certificate of Incorporation to effect a 202,994.4539 per share stock
dividend. On May 13, 1996 the stockholders authorized 40,000,000 shares of Class
B Common Stock, $.01 par value, which has ten votes per share, is subject to
significant restrictions on transfer and is convertible at any time into Common
Stock on a share-for-share basis. The Company also increased the amount of
authorized Common Stock to 100,000,000 shares. Upon the filing of the Company's
Amended and Restated Certificate of Incorporation with the Secretary of State of
Delaware on such date, all of the then outstanding 19,736,842 shares of Common
Stock held by the Company's existing stockholders were automatically converted
into a like number of shares of the newly created Class B Common Stock. The
Common Stock and Class B Common Stock are substantially identical, except for
the disparity in voting power, restriction on transfer and conversion
provisions.
On May 15, 1996, the Company and a principal stockholder (the 'Selling
Stockholder') completed an initial public offering (the 'Offering') of 7,925,375
shares of Common Stock at $17.50 per share. Of the shares offered, 2,500,000
were issued and sold by the Company. The net proceeds to the Company from the
Offering, after deducting underwriter's discount and related fees and expenses,
were $40,600.
Contemporaneous with the Offering, the Selling Stockholder converted
5,425,375 shares of Class B Common Stock to 5,425,375 shares of Common Stock,
which were then sold in the Offering. The Company did not receive any of the
proceeds from the sale of such shares by the Selling Stockholder.
24
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3 -- INCOME TAXES
Income before income taxes and extraordinary item is as follows:
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
United States................................................ $32,748 $40,644 $57,282
Foreign...................................................... 13,950 23,775 18,449
------- ------- -------
Total................................................... $46,698 $64,419 $75,731
------- ------- -------
------- ------- -------
The components of the income tax provision are as follows:
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
United States:
Current................................................. $14,377 $28,515 $18,524
Deferred................................................ (2,988) 3,544 38
Foreign:
Current................................................. 7,497 8,867 7,296
Deferred................................................ (2,765) (601) (791)
State:
Current................................................. 2,914 2,127 4,201
Deferred................................................ (642) 874 (145)
------- ------- -------
Total.............................................. $18,393 $43,326 $29,123
------- ------- -------
------- ------- -------
A summary of the components of deferred tax assets and liabilities is as
follows:
DECEMBER 31,
------------------
1995 1996
------- -------
Postretirement benefits................................................. $30,530 $31,151
Nondeductible accruals.................................................. 40,204 41,060
Foreign operations...................................................... 10,384 --
Other................................................................... 1,342 1,001
------- -------
Deferred tax assets................................................ 82,460 73,212
------- -------
Foreign operations...................................................... -- 867
Property, plant and equipment........................................... 30,753 31,832
Pensions................................................................ 7,448 7,437
Inventory............................................................... 3,143 2,951
Other................................................................... 1,897 1,260
------- -------
Deferred tax liabilities........................................... 43,241 44,347
------- -------
Valuation allowance..................................................... 17,516 6,265
------- -------
Net deferred tax asset........................................ $21,703 $22,600
------- -------
------- -------
The Company has deferred tax assets related to foreign tax credits of
$17,516 and $6,265 at December 31, 1995 and 1996, respectively, against which a
full valuation allowance has been recorded. A valuation allowance of $2,133 and
$1,641 was provided during 1994 and 1995, respectively. During 1996, the Company
reversed $11,251 of previously recorded valuation allowances primarily related
to foreign tax credits that expired.
25
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The difference between the effective income tax rate and the United States
statutory rate is reconciled below:
YEARS ENDED DECEMBER 31,
------------------------
1994 1995 1996
---- ---- ----
U.S. federal statutory rate............................................ 35.0% 35.0% 35.0%
State income taxes, net of federal benefit............................. 3.2 3.0 3.5
Tax effect of foreign operations....................................... 2.9 6.7 5.1
Provision for disputed items........................................... -- 26.5 --
Depletion.............................................................. (2.8) (4.6) (5.3)
Other.................................................................. 1.1 0.6 0.2
---- ---- ----
Total........................................................ 39.4% 67.2% 38.5%
---- ---- ----
---- ---- ----
The Internal Revenue Service (the 'IRS') examinations of the Company's
federal income tax returns resulted in the issuance of a deficiency notice
during 1995. The Company has filed an administrative appeal with the IRS
contesting the items denoted in the deficiency notice. Notwithstanding such
appeal, in 1995 the Company recorded a provision for disputed items of $17,100
for all years prior to 1995 in connection with the deficiency notice. Management
believes the amounts provided at December 31, 1996 are adequate.
NOTE 4 -- PENSION PLANS
The Company maintains several defined benefit pension plans covering
substantially all employees. 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
five years in the U.S. and two years in Canada. The Company's funding policy is
to annually contribute the statutorily required minimum amount as actuarially
determined.
The net periodic pension cost for U.S. pension plans included the following
components:
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- -------- --------
Service cost (benefits earned during the year)..................... $ 4,238 $ 3,826 $ 4,748
Interest cost on projected benefit obligation...................... 10,944 12,377 13,125
Actual return on assets............................................ (276) (24,938) (24,655)
Net amortization and deferral...................................... (9,030) 14,775 13,335
------- -------- --------
Net periodic pension cost..................................... $ 5,876 $ 6,040 $ 6,553
------- -------- --------
------- -------- --------
26
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The net periodic pension cost for Canadian pension plans included the
following components:
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
------- ------- -------
Service cost (benefits earned during the year).................. $ 1,245 $ 1,140 $ 1,494
Interest cost on projected benefit obligation................... 3,664 3,527 3,727
Actual return on assets......................................... (1,209) (6,614) (4,662)
Net amortization and deferral................................... (3,399) 2,457 559
------- ------- -------
Net periodic pension cost.................................. $ 301 $ 510 $ 1,118
------- ------- -------
------- ------- -------
The funded status and (accrued) prepaid pension cost for all plans are as
follows:
UNITED STATES CANADA
DECEMBER 31, DECEMBER 31,
---------------------- --------------------
1995 1996 1995 1996
--------- --------- -------- --------
Actuarial present value of benefit obligations:
Vested......................................... $(145,840) $(144,887) $(38,348) $(40,421)
Nonvested...................................... (9,847) (13,235) (194) (205)
--------- --------- -------- --------
Accumulated benefit obligation...................... $(155,687) $(158,122) $(38,542) $(40,626)
--------- --------- -------- --------
--------- --------- -------- --------
Plan assets at fair value........................... $ 145,531 $ 166,661 $ 53,799 $ 60,224
Projected benefit obligation........................ (179,743) (187,760) (48,178) (50,783)
--------- --------- -------- --------
Projected benefit obligation (in excess of) less
than plan assets.................................. (34,212) (21,099) 5,621 9,441
Unrecognized prior service cost..................... 7,738 6,896 1,034 942
Unrecognized net (gain) loss........................ 3,839 (8,712) 12,690 8,761
--------- --------- -------- --------
(Accrued) prepaid pension cost...................... $ (22,635) $ (22,915) $ 19,345 $ 19,144
--------- --------- -------- --------
--------- --------- -------- --------
The Canadian prepaid pension cost is included in other assets on the
balance sheet.
The assumptions used in accounting for the plans in 1994, 1995 and 1996
were
UNITED STATES
----------------------------------------
1994 1995 1996
---------- ---------- ----------
Estimated discount rate.......................................... 8 1/2% 7 1/2% 7 1/2%
Estimated long-term rate of return on assets..................... 9% 9% 9%
Average rate of increase in employee compensation................ 5% 5% 5%
CANADA
------------------------------------
1994 1995 1996
------- ---------- ----------
Estimated discount rate.......................................... 9% 8% 8%
Estimated long-term rate of return on assets..................... 9% 9% 9%
Average rate of increase in employee compensation................ 5 1/4% 5 1/4% 5 1/4%
On January 1, 1994, GCSAP initiated a pension plan covering hourly
employees at GCSAP's manufacturing facility. These employees ceased to be active
participants under the GCC hourly pension plan, resulting in a $1,200
curtailment gain.
The dates used to measure plan assets and liabilities were October 31, 1995
and 1996 for all plans. Plan assets are invested primarily in stocks, bonds,
short-term securities and cash equivalents.
NOTE 5 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company maintains several plans providing postretirement benefits
covering substantially all hourly and the majority of salaried employees. The
Company funds these benefits on a pay-as-you-go basis. The long-term portion of
accrued postretirement benefit cost of $83,470 and $85,442 at December 31, 1995
and 1996, respectively, is included in other liabilities on the balance sheet.
27
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The net periodic postretirement benefit cost included the following
components:
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
Service cost (benefits earned during the year).......................... $ 1,609 $ 1,576 $ 1,765
Interest cost on projected postretirement benefit obligation............ 4,327 4,862 4,451
Net amortization and deferral........................................... (2,005) (2,052) (2,361)
------- ------- -------
Net periodic postretirement benefit cost........................... $ 3,931 $ 4,386 $ 3,855
------- ------- -------
------- ------- -------
The funded status and accrued postretirement benefit obligation are as
follows:
DECEMBER 31,
--------------------
1995 1996
-------- --------
Accumulated postretirement benefit obligation:
Retirees................................................................... $(39,506) $(39,797)
Fully eligible plan participants........................................... (10,978) (12,095)
Other active plan participants............................................. (15,367) (17,001)
-------- --------
Accumulated postretirement benefit obligation................................... (65,851) (68,893)
Plan assets at fair value....................................................... -- --
-------- --------
Accumulated postretirement benefit obligation in excess of plan assets.......... (65,851) (68,893)
Unrecognized net reduction in prior service costs............................... (14,343) (12,708)
Unrecognized net gain........................................................... (5,666) (6,293)
-------- --------
Accrued postretirement benefit obligation....................................... $(85,860) $(87,894)
-------- --------
-------- --------
The assumptions used in accounting for the plans in 1995 were a 12 percent
health care cost trend rate (decreasing to 7 1/2 percent in the year 2000 and
beyond) and a 7 1/2 percent discount rate for the U.S. plans and an 11 percent
health care cost trend rate (decreasing to 7 percent in the year 2000 and
beyond), an 8 percent discount rate and a 5 1/4 percent salary scale for the
Canadian plans.
The assumptions used in accounting for the plans in 1996 were an 11 percent
health care cost trend rate (decreasing to 7 1/2 percent in the year 2000 and
beyond) and a 7 1/2 percent discount rate for the U.S. plans and an 11 percent
health care cost trend rate (decreasing to 7 percent in the year 2000 and
beyond), an 8 percent discount rate and a 5 1/4 percent salary scale for the
Canadian plans. A one percent increase in the health care trend rate would
increase the accumulated postretirement benefit obligation by $6,566 at year end
1996 and the net periodic cost by $606 for the year.
NOTE 6 -- 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, 1996 are as
follows:
YEARS ENDING
DECEMBER 31,
- ------------
1997.................................................................. $12,522
1998.................................................................. 6,019
1999.................................................................. 3,935
2000.................................................................. 1,547
2001.................................................................. 459
-------
$24,482
-------
-------
28
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Rental expense for the years ended December 31, 1994, 1995 and 1996 was
$13,254, $13,531, and $15,414, respectively.
Parent Guaranty and Transfer Agreement. A restated parent guaranty and
transfer agreement between New Hampshire Oak, ACI International Limited and
TOSOH America, Inc. provides that in the event that either New Hampshire Oak,
ACI International Limited or TOSOH America, Inc. (such entities being referred
to as a 'transferring parent' or 'nontransferring parent' as the context
requires) proposes to sell or otherwise transfer or cause to be sold or
transferred the voting securities of GCC, the Andover Group, Inc. or TOSOH
Wyoming, Inc., (the respective subsidiaries constituting the partners of GCSAP)
as the case may be, the nontransferring parents will have the following options:
(1) to purchase the transferring parent's subsidiary's interest in GCSAP at fair
market value; (2) to require the transferring parent to purchase the
nontransferring parents' subsidiaries' interest in GCSAP at fair market value;
(3) to buy the voting securities to be sold by the transferring parent on the
same terms and conditions and at the same price as the transferring parent
proposes to sell or otherwise transfer or cause to be sold or transferred such
voting securities; or (4) to cause the proposed transferee to purchase the
nontransferring parents' subsidiaries' interest in GCSAP for a price reflecting
the price to be paid by the proposed transferee for such voting securities. In
the event that New Hampshire Oak ceases to own at least 51 percent of GCC while
GCC is a partner, GCC shall pay to The Andover Group, Inc. $2,833.
Richmond Works July 26, 1993 Incident. On July 26, 1993 a pressure relief
device on a railroad tank car containing oleum that was being unloaded at the
Company's Richmond, California, facility ruptured during the unloading process,
causing the release of a significant amount of sulfur trioxide. Approximately
150 lawsuits seeking substantial amounts of damages were filed against the
Company on behalf of in excess of 60,000 claimants in municipal and superior
courts of California (Contra Costa and San Francisco Counties) and in federal
court (United States District Court for the Northern District of California).
All state court cases were coordinated before a coordination trial judge (In Re
GCC Richmond Works Cases, JCCP No. 2906) and the federal court cases were stayed
until completion of the state court cases.
After several months of negotiation under the supervision of a settlement
master, the Company and a court-approved plaintiffs' management committee
executed a comprehensive settlement agreement which resolved the claims of
approximately 95 percent of the claimants who filed lawsuits arising out the
July 26th incident, including the federal court cases. After a final settlement
approval hearing on October 27, 1995, the coordination trial judge approved the
settlement on November 22, 1995. Pursuant to the terms of the settlement
agreement, the Company, with funds to be provided by its insurers pursuant to
the terms of its insurance policies, has agreed to make available a maximum of
$180,000 to implement the settlement. In addition, the settlement agreement
provides, among other things, that while claimants may 'opt out' of the
compensatory damages portion of the settlement and pursue their own cases
separate and apart from the class settlement mechanism, they have no right to
opt out of the punitive damages portion of the settlement. Consequently, under
the terms of the settlement, no party may seek punitive damages from the Company
outside of those provided by the settlement.
Notices of appeal of all or portions of the settlement approved by the
court were filed by five law firms representing approximately 2,750 claimants,
with approximately 2,700 of these claimants represented by the same law firm.
Virtually all of these claimants have not specified the amount of their claims
in court documents, although the Company believes that their alleged injuries
are no different in nature or extent than those alleged by the settling
claimants. On May 8, 1996, the California Court of Appeals dismissed each of the
appeals that had been filed challenging the trial court's approval of the class
action settlement. The Court of Appeals dismissed the appeal relating to the
trial court's rulings on plaintiffs' attorney's fees on the ground that the
appealing attorneys lacked standing to appeal. The Court of Appeals also
dismissed each of the other pending appeals, ruling that the trial court's
orders
29
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
and rulings approving the settlement were not presently appealable, if at all,
by the appealing claimants since they had all elected to opt out of the
settlement. The appealing attorneys and some of the appealing claimants then
filed a petition for review with the California Supreme Court which on August
15, 1996 elected not to review the Court of Appeals' decision.
It is possible that one or more of the appealing claimants, once their
opt-out cases are finally litigated through trial, may attempt to refile all or
a portion of the appeals that were dismissed by the Court of Appeals. While
there can be no assurances regarding how an appellate court might rule in the
event of such a refiling, the Company believes that the settlement will be
upheld on appeal. If the settlement is upheld on appeal, the Company believes
that any further liability in excess of the amounts made available under the
settlement agreement will not exceed the available insurance coverage, if at
all, by an amount that could be material to its financial condition or results
of operations. In the event of a reversal or modification of the settlement on
appeal, with respect to lawsuits by any then remaining claimants (opt-outs and
settling claimants who have not signed releases) the Company believes that,
whether or not it elects to terminate the settlement in the event it is reversed
or modified on appeal, it will have adequate resources from its available
insurance coverage to vigorously defend these lawsuits through their ultimate
conclusion, whether by trial or settlement. However, in the event the settlement
is overturned or modified on appeal, there can be no assurance that the
Company's ultimate liability resulting from the July 26, 1993 incident would not
exceed the available insurance coverage by an amount which could be material to
its financial condition or results of operations, nor is the Company able to
estimate or predict a range of what such ultimate liability might be, if any.
The Company has insurance coverage relating to this incident which totals
$200,000. The first two layers of coverage total $25,000 with a sublimit of
$12,000 applicable to the July 26, 1993 incident, and the Company also has
excess insurance policies of $175,000 over the first two layers. The Company
reached an agreement with the carrier for the first two layers whereby the
carrier paid the Company $16,000 in settlement of all claims the Company had
against that carrier. In the third quarter of 1994, the Company recorded a
$9,000 charge to earnings for costs which the Company incurred related to this
matter. The Company's excess insurance policies, which are written by two
Bermuda-based insurers, provide coverage for compensatory as well as punitive
damages. Both insurers have executed agreements with the Company confirming
their respective commitments to fund the settlement as required by their
insurance policies with the Company and as described in the settlement
agreement. In addition, these same insurers currently continue to provide
substantially the same insurance coverage to the Company.
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 were $16,628 and $16,319 at December 31, 1995 and 1996,
respectively. These amounts do not include estimated third-party recoveries nor
have they been discounted.
By letter dated March 22, 1990 from the Environmental Protection Agency
(the 'EPA'), the Company received a Notice of Potential Liability pursuant to
Section 107(a) of the Comprehensive
30
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Environmental Response, Compensation and Liability Act of 1980 ('CERCLA'), as
amended, with respect to a site located in Front Royal, Virginia, owned at the
time by Avtex Fibers, Inc. (the 'Avtex Site'), which has since filed for
bankruptcy. A sulfuric acid plant adjacent to the main Avtex Site was previously
owned and operated by the Company (the 'acid plant'). The letter requested that
the Company perform certain activities at the acid plant including providing the
security, preventing discharges, removing certain specific residue and sludges
from two storage vessels and the transfer line to the main Avtex facility and
determining the extent of contamination at the site, if any. In April 1991, the
Company submitted a draft work plan with respect to the acid plant including
each of the activities requested by the EPA discussed above. The Company has
provided for the estimated costs of $1,600 for these activities in its accrual
for environmental liabilities. The EPA has not yet responded to this work plan,
nor has it requested that an initial investigation and feasibility study for the
acid plant be performed. As a result, the extent of remediation required, if
any, is unknown. The Company believes that the acid plant is separate and
divisible from the main Avtex Site and, as a result, is not subject to any
liability for costs related thereto. The Company will continue to vigorously
assert this position with the EPA. There has been very limited contact by the
EPA with the Company over the past three years, as it appears that the EPA is
focused on remediation activities at the main Avtex Site.
In addition to the matters discussed above, the Company is involved in
other claims, litigation, administrative proceedings and investigations and
remediation relative to environmental matters. Although the amount of any
ultimate liability which could arise with respect to these matters cannot be
accurately predicted, it is the opinion of management, based upon currently
available information and the accruals established, that any such liability will
have no material adverse effect on the Company's financial condition.
NOTE 7 -- RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT
Upon its formation, the Company entered into a management agreement with a
company (the 'Management Company') owned by the then shareholders of the Company
under which the Company received corporate supervisory and administrative
services and strategic guidance for a quarterly fee. The quarterly fee was
$1,475 in 1994. The Company also paid a special fee of $250 in 1994 to the
Management Company for services rendered in connection with restructuring,
financing and tax research. The management agreement was terminated on December
29, 1994. On December 30, 1994 the Company purchased all of the outstanding
common stock of the Management Company for $50, which approximated the net book
value of the Management Company on the purchase date. On January 1, 1995, the
Company entered into a new management agreement with Latona Associates (which is
controlled by a stockholder of the Company) under which the Company receives
corporate supervisory and administrative services and strategic guidance for a
quarterly fee of $1,375 and $1,400 in 1995 and 1996, respectively. In addition,
in connection with any acquisition or business combination with respect to which
Latona Associates advises the Company, the Company has agreed to pay Latona
Associates additional fees comparable with fees received by investment banking
firms for such services. This agreement expires on December 31, 2004.
NOTES RECEIVABLE
On April 25, 1994, Toledo and PDI advanced $5,000 and $9,000, respectively,
to a stockholder of the Company and a former stockholder of the Company in the
form of unsecured promissory notes which had a 7.25 percent annual interest rate
at December 31, 1995. The noncurrent portion of the notes at December 31, 1995
was $11,200 and is included in other assets on the balance sheet. During 1996
the promissory notes were prepaid in full.
31
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8 -- ADDITIONAL FINANCIAL INFORMATION
The following are summaries of selected balance sheet items:
RECEIVABLES
DECEMBER 31,
-------------------
1995 1996
------- --------
Trade.................................................................. $92,281 $104,108
Other.................................................................. 6,624 3,737
Allowance for doubtful accounts........................................ (5,674) (5,367)
------- --------
$93,231 $102,478
------- --------
------- --------
INVENTORIES
DECEMBER 31,
------------------
1995 1996
------- -------
Raw materials........................................................... $10,447 $11,022
Work in process......................................................... 4,602 4,900
Finished products....................................................... 19,061 17,403
Supplies and containers................................................. 7,860 8,104
------- -------
$41,970 $41,429
------- -------
------- -------
Inventories valued at LIFO amounted to $21,485 and $20,153 at December 31,
1995 and 1996, respectively, which were below estimated replacement cost by
$3,437 and $3,088, respectively. The impact of LIFO liquidations in 1994, 1995
and 1996 was not significant.
PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31,
----------------------
1995 1996
--------- ---------
Land and improvements.............................................. $ 23,223 $ 27,299
Machinery and equipment............................................ 274,930 315,544
Buildings and leasehold improvements............................... 41,660 42,968
Construction in progress........................................... 13,541 17,597
Mines and quarries................................................. 12,964 13,539
--------- ---------
366,318 416,947
Less accumulated depreciation and amortization..................... (150,761) (177,128)
--------- ---------
$ 215,557 $ 239,819
--------- ---------
--------- ---------
ACCRUED LIABILITIES
DECEMBER 31,
------------------
1995 1996
------- -------
Wages, salaries and benefits............................................ $23,359 $22,235
Richmond incident....................................................... 10,823 --
Interest................................................................ 6,146 5,752
Taxes, other than income taxes.......................................... 10,652 13,060
Other................................................................... 32,038 33,158
------- -------
$83,018 $74,205
------- -------
------- -------
32
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9 -- LONG-TERM DEBT
Long-term debt consisted of the following:
DECEMBER 31,
--------------------
MATURITIES 1995 1996
---------- -------- --------
GCC Debt:
Bank Term Loan -- floating rate.............................. 1996-2001 $100,000 $ 82,609
Senior Subordinated Notes -- 9.25%........................... 2003 100,000 100,000
Canada Senior Notes -- 9.09%................................. 1999 52,000 52,000
U.S. Revolving Credit Facility -- floating rate.............. 1999 21,000 --
Toledo Debt:
Toledo Bank Term Loan -- floating rate....................... 1996-1998 8,250 --
Toledo Revolving Credit Facility -- floating rate............ 1998 3,300 --
PDI Debt:
PDI Bank Term Loan -- floating rate.......................... 1996-1998 6,945 --
-------- --------
Total Debt................................................... 291,495 234,609
-------- --------
Less: Current Portion........................................ (21,892) (17,392)
-------- --------
Net Long-Term Debt........................................... $269,603 $217,217
-------- --------
-------- --------
Aggregate maturities of long-term debt for each of the years in the five
year period ending December 31, 2001 are $17,392, $17,392, $69,392, $17,392 and
$13,041, respectively.
The U.S. Revolving Credit Facility allows General Chemical to borrow up to
$130,000, including letters of credit of up to $30,000, through March 31, 1999.
The unused letter of credit balance was $21,066 and $21,033 at December 31, 1995
and 1996, respectively. This facility bears interest at a rate equal to a spread
over a reference rate chosen by the Company from various options. The rate in
effect at December 31, 1995 was 6.8 percent. At December 31, 1996 there were no
outstanding borrowings under this facility.
General Chemical Canada Limited has a $15,000 (Canadian Dollar) Revolving
Credit Facility maturing June 22, 1998, subject to one-year extensions at the
lender's discretion. This facility bears interest at a rate equal to a spread
over a reference rate chosen by General Chemical Canada Limited from various
options. At December 31, 1995 and 1996, there were no outstanding borrowings
under this facility.
Commitment fees paid for the abovementioned facilities were $354, $350 and
$414 for 1994, 1995 and 1996, respectively.
The Bank Term Loan bears interest at a rate equal to a spread over a
reference rate chosen by GCC from various options. The rate in effect at
December 31, 1995 and 1996, including effects of interest rate swap hedge
agreements (see Note 11), was 7.4 percent each year.
The U.S. Revolving Credit Facility and the Bank Term Loan are secured by
(1) substantially all of the assets of GCC, (2) 65 percent of the capital stock
of General Chemical Canada Holding Inc., (3) GCC's 51 percent general
partnership interest in GCSAP, and (4) all of the stock of the other direct and
indirect subsidiaries of GCC.
During 1994, GCC recorded an extraordinary loss of $8,203 (net of a tax
benefit of $5,367) related to the retirement of certain indebtedness.
The Toledo and PDI term loans bear interest at a rate equal to a spread
over a reference rate chosen by the respective companies from various options.
The rate in effect for the Toledo term loan was 8.2 percent at December 31,
1995. The rate in effect for the PDI term loan was 7.7 percent at December 31,
1995. During 1996, both term loans were prepaid in full.
33
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Toledo has a $5,000 (reduced from $7,500 on February 13, 1996) revolving
credit facility, including letters of credit up to $2,000, available through
December 31, 1998. The unused letter of credit balance was $1,724 at each of
December 31, 1995 and 1996. The revolving credit facility bears interest at a
rate equal to a spread over a reference rate chosen by Toledo from various
options. The rate in effect was 8.3 percent at December 31, 1995. There were no
borrowings at December 31, 1996. Commitment fees paid were $8 and $14 for 1995
and 1996, respectively.
PDI has a $3,000 revolving credit facility, including letters of credit of
up to $1,500, available through December 31, 1998. No amounts were outstanding
under the revolving credit facility at each of December 31, 1995 and 1996. The
unused letter of credit balance was $1,209 at each of December 31, 1995 and
1996. The revolving credit facility bears interest at a rate equal to a spread
over a reference rate chosen by PDI from various options. Commitment fees paid
were $10 and $15 for 1995 and 1996, respectively.
The Toledo and PDI term loans and revolving credit facilities are secured
by all inventory, equipment, fixtures, receivables and trademarks of the
respective companies and by pledges of their respective capital stock.
Balcrank has a $1,000 revolving loan facility which expires April 30, 1997.
No amounts were outstanding under this facility at December 31, 1995 and 1996.
At December 31, 1995 and 1996, Balcrank had unused letters of credit of $145
under the $500 letter of credit portion of this facility. Balcrank's credit
facility is secured by substantially all the assets of Balcrank. Borrowings
under the credit agreement bear interest at a rate equal to a spread over a
reference rate chosen by Balcrank from various options. Commitment fees paid
were $2 and $3 for 1995 and 1996, respectively.
While certain of the Company's subsidiaries' debt facilities are
outstanding, the Company's subsidiaries must meet specific financial tests on an
ongoing basis, which are customary for these types of facilities. Except as
provided by applicable corporate law, there are no restrictions on the Company's
ability to pay dividends from retained earnings. However, the payment of cash
dividends by the Company's subsidiaries to the Company are subject to certain
restrictions under the terms of various agreements covering the Company's
subsidiaries' long-term debt. Toledo, PDI and Balcrank are not permitted under
each subsidiary's respective debt agreements to pay cash dividends. Assuming
certain financial covenants are met, General Chemical is permitted to pay cash
dividends of up to 50 percent of the net income (subject to certain adjustments)
of General Chemical for the applicable period. Consequently, the Company's
ability to pay cash dividends on Common Stock may effectively be limited by such
agreements. At December 31, 1996, approximately $51,000 was available for
dividend payments in accordance with these covenants.
NOTE 10 -- STOCK OPTION PLAN AND RESTRICTED UNIT PLAN
During 1996, the Company adopted the 1996 Stock Option and Incentive Plan
which provides for the issuance of up to 2,200,000 shares of Common Stock under
the plan. The plan authorizes the granting of incentive and nonqualified stock
options, stock appreciation rights, restricted and unrestricted stock and
performance share awards to executives, directors and other key persons. Any
incentive stock options granted under the plan must have an exercise price at
least equal to the market value of the shares on the day the option is granted
and a maximum term of 10 years.
During the second quarter of 1996, the Company granted options to purchase
1,080,000 shares of Common Stock at the initial public offering price of $17.50
per share which vest and are exercisable on dates ranging from May 1997 through
May 2006. During the fourth quarter of 1996, the Company granted options to
purchase 201,000 shares of Common Stock at $18.50 per share which vest and
become exercisable on dates ranging from November 1997 through November 1999.
34
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
AVERAGE OPTION
SHARES PRICE PER SHARE
---------- ---------------
Options Outstanding at December 31, 1995........................ -- $--
Options Granted............................................ 1,281,000 17.66
Options Exercised.......................................... -- --
Options Forfeited.......................................... 10,000 17.50
----------
Options Outstanding at December 31,1996......................... 1,271,000 $ 17.66
---------- -------
---------- -------
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 'Accounting for Stock-Based Compensation'
('FAS 123'). Had compensation cost for this plan been determined under FAS 123,
the Company's net income would have been reduced to $45,623 with income per
common share of $2.08. 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 used: dividend yield of 1.0
percent; expected volatility of 27 percent; weighted average risk free interest
rate of 6.42 percent; and, weighted average expected lives of 7 years. All
options granted to date under the stock option plan have an exercise price equal
to the market price of the Company's stock on the grant date.
The Company adopted a Restricted Unit Plan that authorized the issuance of
850,000 units, with each unit representing one share of Common Stock to be
issued to the participant upon the occurrence of certain conditions ('vesting')
unless the participant elects to defer receipt thereof. All awards are subject
to a five year vesting schedule under which a portion of each participant's
award vests annually over a five year period. Dividend equivalents on
outstanding units accrue to the benefit of the participants and are paid at the
time dividends are paid to Common Stock shareholders. These units were awarded
during the second quarter of 1996 in replacement of the rights earned by
participants beginning in 1989 under the Phantom Equity Plan and certain other
prior equity programs of the Company which were then terminated. The Company
recorded a charge to income of $10,530 with a contra credit to capital deficit,
representing the amounts earned under the prior equity programs.
NOTE 11 -- FINANCIAL INSTRUMENTS
INTEREST RATE SWAP AGREEMENTS
The Company periodically enters into interest rate swap agreements to
effectively convert all or a portion of its floating-rate debt to fixed-rate
debt in order to reduce the Company's risk to movements in interest rates. 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. The swap agreements in effect were as follows:
INTEREST RATE
NOTIONAL --------------------
DECEMBER 31, AMOUNT MATURITIES RECEIVE(1) PAY(2)
- ----------- -------- ---------- ---------- ------
1995............................................ $ 75,000 1998-1999 5.9% 6.8%
1996............................................ $ 75,000 1998-1999 5.5% 6.8%
- ------------
(1) Three-month LIBOR.
(2) Represents the weighted average rate.
35
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
In addition to the swap agreements described above, the Company has entered
into a forward swap agreement, which will begin in 1998 and mature in 2002,
which has a notional amount of $30,000 and a fixed payment rate of 6.6 percent.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Long-term debt......................................... $291,495 $295,495 $234,609 $238,967
Unrealized loss on interest rate swap agreements....... $ -- $ (3,600) $ -- $ (1,200)
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 publicly traded notes and discounted cash flow analyses on its
nontraded debt. The fair value of the Company's interest rate swap agreements is
the estimated amount the Company would have to pay or receive to terminate the
swap agreements based upon quoted market prices as provided by financial
institutions which are counterparties to the swap agreements.
NOTE 12 -- GEOGRAPHIC AND INDUSTRY SEGMENT INFORMATION
Geographic area information is summarized as follows:
UNITED STATES(1) FOREIGN(2) ELIMINATIONS(3) TOTAL
---------------- ---------- --------------- --------
Net revenues:
1994.................................... $446,289 $ 118,920 $ (39,297) $525,912
1995.................................... 467,347 122,659 (39,135) 550,871
1996.................................... 544,029 128,345 (48,715) 623,659
Operating profit:
1994.................................... $ 72,746 $ 25,495 $ -- $ 98,241
1995.................................... 80,390 26,607 -- 106,997
1996.................................... 106,548 22,668 -- 129,216
Identifiable assets at December 31:
1994.................................... $338,729 $ 94,898 $ -- $433,627
1995.................................... 331,237 100,088 -- 431,325
1996.................................... 384,352 100,785 -- 485,137
-----------------
(1) Includes export sales amounting to $47,726, $59,320 and $71,413 for the
years ended December 31, 1994, 1995 and 1996, respectively.
(2) Principally of General Chemical Canada Holding Inc., a wholly owned
subsidiary of GCC.
(3) Sales between geographic areas are recorded at prices comparable to market
prices charged to third party customers and are eliminated in consolidation.
36
THE GENERAL CHEMICAL GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
(DOLLARS IN THOUSANDS)
Industry segment information is summarized as follows:
CHEMICALS MANUFACTURING CORPORATE TOTAL
--------- ------------- --------- --------
Net revenues:
1994........................................... $ 464,452 $61,460 $ -- $525,912
1995........................................... 480,926 69,945 -- 550,871
1996........................................... 534,434 89,225 -- 623,659
Operating profit:
1994........................................... $ 98,950 $ 4,737 $(5,446) $ 98,241
1995........................................... 105,186 4,337 (2,526) 106,997
1996........................................... 123,695 12,472 (6,951) 129,216
Identifiable assets at December 31:
1994........................................... $ 378,958 $45,112 $ 9,557 $433,627
1995........................................... 377,014 49,833 4,478 431,325
1996........................................... 424,864 55,151 5,122 485,137
Capital expenditures:
1994........................................... $ 20,873 $ 7,630 $ -- $ 28,503
1995........................................... 29,099 4,994 -- 34,093
1996........................................... 52,546 1,619 -- 54,165
Depreciation and amortization:
1994........................................... $ 25,074 $ 1,479 $ 147 $ 26,700
1995........................................... 26,188 2,020 50 28,258
1996........................................... 26,978 2,767 -- 29,745
NOTE 13 -- UNAUDITED QUARTERLY INFORMATION
1995
----------------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- --------
Net revenues..................................... $128,661 $143,062 $142,457 $136,691 $550,871
Gross profit..................................... 35,811 44,819 45,187 37,799 163,616
Net income (loss)................................ 7,890 12,764 12,626 (12,187)(1) 21,093
Net income (loss) per common share............... .40 .65 .64 (.62) 1.07
1996
----------------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- --------
Net revenues..................................... $144,571 $160,130 $161,967 $156,991 $623,659
Gross profit..................................... 41,511 53,067 51,730 54,718 201,026
Net income....................................... 9,316 7,042(2) 14,634 15,616 46,608
Net income per common share...................... .47 .33 .63 .67 2.13
Note: Earnings per share calculations are based on the weighted average number
of shares outstanding during each of the quarters. The sum of the four
quarters may not equal the full year computation due to rounding.
- ------------
(1) The Company recorded a nonrecurring charge to income tax expense of $17.1
million for all years prior to 1995 in the fourth quarter of 1995 related to
IRS examinations. See Note 3 of the Notes to the Consolidated Financial
Statements.
(2) In the second quarter of 1996, the Company recorded a one-time pre tax
charge of $12.5 million ($7.6 million after-tax or $.35 per share) due
primarily to awards made under the Restricted Unit Plan, reflecting the
portion earned under prior equity programs.
37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors. For information relating to the Company's Directors, see the
information contained under the caption 'Election of Directors-Board of Director
Nominees' in the Company's definitive 1997 Proxy Statement (the 'Proxy
Statement'), which information 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 Company's compliance with Section 16(a) of the Exchange Act, see the
information contained under the caption 'Section 16(a) Beneficial Ownership
Reporting Compliance' in the Company's Proxy Statement, which information 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 contained under the caption
'Compensation of Executive Offices and Key Employees' and 'Election of
Directors -- Compensation of Directors' in the Company's Proxy Statement, which
information 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 and Class B Common Stock, see the information contained under the caption
'Principal Stockholders' in the Company's Proxy Statement, which information is
hereby incorporated by reference.
Security Ownership of Management. For information relating to the
beneficial ownership of the Company's Common Stock and Class B Common Stock by
Management, see the information contained under the caption 'Management
Stockholders' in the Company's Proxy Statement, which information 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 contained under the caption 'Certain Relationships and Transactions'
in the Company's Proxy Statement, which information is hereby incorporated by
reference.
38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.]
EXHIBIT
NO. DESCRIPTION
-- -----------
3.1 -- Amended and Restated Certificate of Incorporation of the Company
**3.2 -- Amended and Restated By-Laws of the Company
**4.1 -- Specimen Certificate for shares of Common Stock, $.01 par value, of the Company
**10.1 -- Agreement dated as of March 15, 1996 between Paul M. Montrone and the Company
**10.2 -- Amended and Restated Management Agreement effective as of January 1, 1995 between the Company and
Latona Associates, Inc.
`D'10.4 -- Restated Environmental Matters Agreement among Allied-Signal, Henley, The Wheelabrator Group Inc., New
Hampshire Oak, Inc., and Fisher Scientific Group Inc., dated as of February 26, 1986, as amended and
restated as of July 28, 1989
`D'10.5 -- Second Amended and Restated Partnership Agreement of GCSAP dated June 30, 1992, among General Chemical,
The Andover Group, Inc., and TOSOH Wyoming, Inc.
`D'10.6 -- Amended and Restated Parent Guaranty and Transfer Agreement dated June 30, 1992, among New Hampshire
Oak, Inc., ACI International Limited and TOSOH America, Inc.
**10.7 -- The General Chemical Group Inc. Deferred Compensation Plan for Non-Employee Directors
**10.8 -- The General Chemical Group Inc. Retirement Plan for Non-Employee Directors
**10.9 -- The General Chemical Group Inc. Restricted Unit Plan for Non-Employee Directors
**10.10 -- The General Chemical Group Inc. 1996 Stock Option and Incentive Plan
**10.11 -- The General Chemical Group Inc. Performance Plan
**10.12 -- The General Chemical Group Inc. Restricted Unit Plan
`D'`D'10.13 -- First Amendment to General Chemical Corporation Equity Program, effective as of October 1, 1993.
**10.14 -- General Chemical Group Dividend Award Program, as amended December 15, 1995, effective as of October 1,
1993
**10.15 -- General Chemical Corporation Supplemental Savings and Retirement Plan
`D'10.16 -- Indenture dated as of August 15, 1993 between General Chemical and Continental Bank, National
Association, as trustee, with respect to the Senior Subordinated Notes
**10.17 -- Credit Agreement dated as of April 22, 1994 between Toledo Technologies and Wells Fargo Bank ('Wells')
as agent, with respect to revolving and term loan facilities ('Toledo Agreement')
**10.18 -- First Amendment to Toledo Agreement dated as of August 15, 1995
**10.19 -- Credit Agreement dated as of April 22, 1994 between PDI and Wells as agent, with respect to revolving
and term loan facilities ('PDI Agreement')
**10.20 -- First Amendment to PDI Agreement dated as of March 27, 1995
**10.21 -- Credit Agreement dated as of April 22, 1994 between Balcrank and Wells, as agent, with respect to a
revolving credit facility ('Balcrank Agreement')
**10.22 -- Note Agreement dated as of April 1, 1992, among GC Canada and certain noteholders, with respect to the
9.09% Senior Notes due 1999 in aggregate principal amount of $52 million
`D'10.23 -- Credit Agreement dated as of June 22, 1992, between GC Canada and The Toronto-Dominion Bank, with
respect to a $15 million revolving credit facility (the 'Canada Revolver')
**10.24 -- First Amendment to Canada Revolver
**10.25 -- Amended and Restated Credit Agreement dated as of September 15, 1993 among General Chemical and
Chemical Bank, as Administrative Agent and NationsBank of North Carolina, as Co-Agent, with respect to
a $130 million revolving credit facility (the 'US Revolver')
**10.26 -- First Amendment to the US Revolver dated as of December 11, 1995
**10.27 -- Term Loan Agreement dated as of August 4, 1994 among General Chemical and Chemical Bank, as
Administrative Agent, and NationsBank of North Carolina, as Co-Agent, with respect to a $100 million
term loan
**10.28 -- Settlement Agreement relating to July 26, 1993 Richmond incident litigation
10.29 -- Stockholder Agreement among the Company, the GRAT, Paul M. Montrone and Sandra G. Montrone, dated as of
April 15, 1996
39
EXHIBIT
NO. DESCRIPTION
-- -----------
10.30 -- Stockholder Agreement between the Company and Stonor, dated as of May 15, 1996
11 -- Statement regarding computation of per share earnings
**21 -- Subsidiaries of the Company
23.1 -- Consent of Deloitte & Touche LLP, Independent Accountants
27 -- Financial Data Schedule
- ------------
** Incorporated by reference to the relevant exhibit to the Company's
Registration Statement filed with the Securities and Exchange Commission
(the 'SEC') on May 3, 1996, File No. 33-83766.
`D' Incorporated by reference to the relevant exhibit to General Chemical
Corporation's Registration Statement filed with the SEC on August 11,
1993, File No. 33-64824.
`D'`D' Incorporated by reference to the relevant exhibit to General Chemical
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 filed with the SEC.
FINANCIAL STATEMENTS
See Item 8, beginning on page 18.
FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statement Schedule on page 43.
REPORTS ON FORM 8-K
No report on Form 8-K has been filed by the Company during the last quarter
of the period covered by this report.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Parsippany, State
of New Jersey on the 15th day of March 1997.
THE GENERAL CHEMICAL GROUP INC.
By: /s/ RALPH M. PASSINO
...........................................
RALPH M. PASSINO
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
March 15, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- ------------------------------------------ -------------------------------------------- -------------------
/s/ PAUL M. MONTRONE Chairman of the Board and Director March 15, 1997
.........................................
(PAUL M. MONTRONE)
/s/ RICHARD R. RUSSELL President, Chief Executive Officer March 15, 1997
......................................... (Principal Executive Officer) and Director
(RICHARD R. RUSSELL)
/s/ RALPH M. PASSINO Vice President and Chief Financial Officer March 15, 1997
......................................... (Principal Financial and
(RALPH M. PASSINO) Accounting Officer)
/s/ PHILIP E. BEEKMAN Director March 15, 1997
.........................................
(PHILIP E. BEEKMAN)
/s/ GERALD J. LEWIS Director March 15, 1997
.........................................
(GERALD J. LEWIS)
/s/ PAUL M. MEISTER Director March 15, 1997
.........................................
(PAUL M. MEISTER)
/s/ SCOTT M. SPERLING Director March 15, 1997
.........................................
(SCOTT M. SPERLING)
/s/ IRA STEPANIAN Director March 15, 1997
.........................................
(IRA STEPANIAN)
41
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as ................................... `D'
THE GENERAL CHEMICAL GROUP INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts..............................44
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.
42
SCHEDULE II
THE GENERAL CHEMICAL GROUP INC.
VALUATION AND QUALIFYING ACCOUNTS
TRANSLATION
BALANCE AT ADDITIONS DEDUCTIONS ADJUSTMENT BALANCE AT
BEGINNING CHARGED TO FROM DURING END OF
OF PERIOD INCOME RESERVES PERIOD PERIOD
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Year ended December 31, 1994
Allowance for doubtful accounts................. $5,918 $383 $ (296) $(45) $5,960
Year ended December 31, 1995
Allowance for doubtful accounts................. $5,960 $298 $ (564) $(20) $5,674
Year ended December 31, 1996
Allowance for doubtful accounts................. $5,674 $174 $ (481) $-- $5,367
43
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
--- ----------- -----
3.1 -- Amended and Restated Certificate of Incorporation of the Company................................
**3.2 -- Amended and Restated By-Laws of the Company.....................................................
**4.1 -- Specimen Certificate for shares of Common Stock, $.01 par value, of the Company.................
**10.1 -- Agreement dated as of March 15, 1996 between Paul M. Montrone and the Company...................
**10.2 -- Amended and Restated Management Agreement effective as of January 1, 1995 between the Company
and Latona Associates, Inc......................................................................
`D'10.4 -- Restated Environmental Matters Agreement among Allied-Signal, Henley, The Wheelabrator Group
Inc., New Hampshire Oak, Inc., and Fisher Scientific Group Inc., dated as of February 26, 1986,
as amended and restated as of July 28, 1989.....................................................
`D'10.5 -- Second Amended and Restated Partnership Agreement of GCSAP dated June 30, 1992, among General
Chemical, The Andover Group, Inc., and TOSOH Wyoming, Inc.......................................
`D'10.6 -- Amended and Restated Parent Guaranty and Transfer Agreement dated June 30, 1992, among New
Hampshire Oak, Inc., ACI International Limited and TOSOH America, Inc...........................
**10.7 -- The General Chemical Group Inc. Deferred Compensation Plan for Non-Employee Directors...........
**10.8 -- The General Chemical Group Inc. Retirement Plan for Non-Employee Directors......................
**10.9 -- The General Chemical Group Inc. Restricted Unit Plan for Non-Employee Directors.................
**10.10 -- The General Chemical Group Inc. 1996 Stock Option and Incentive Plan............................
**10.11 -- The General Chemical Group Inc. Performance Plan................................................
**10.12 -- The General Chemical Group Inc. Restricted Unit Plan............................................
`D'`D'10.13 -- First Amendment to General Chemical Corporation Equity Program, effective as of October 1,
1993............................................................................................
**10.14 -- General Chemical Group Dividend Award Program, as amended December 15, 1995, effective as of
October 1, 1993.................................................................................
**10.15 -- General Chemical Corporation Supplemental Savings and Retirement Plan...........................
`D'10.16 -- Indenture dated as of August 15, 1993 between General Chemical and Continental Bank, National
Association, as trustee, with respect to the Senior Subordinated Notes..........................
**10.17 -- Credit Agreement dated as of April 22, 1994 between Toledo Technologies and Wells Fargo Bank
('Wells') as agent, with respect to revolving and term loan facilities ('Toledo Agreement').....
**10.18 -- First Amendment to Toledo Agreement dated as of August 15, 1995.................................
**10.19 -- Credit Agreement dated as of April 22, 1994 between PDI and Wells as agent, with respect to
revolving and term loan facilities ('PDI Agreement')............................................
**10.20 -- First Amendment to PDI Agreement dated as of March 27, 1995.....................................
**10.21 -- Credit Agreement dated as of April 22, 1994 between Balcrank and Wells, as agent, with respect
to a revolving credit facility ('Balcrank Agreement')...........................................
**10.22 -- Note Agreement dated as of April 1, 1992, among GC Canada and certain noteholders, with respect
to the 9.09% Senior Notes due 1999 in aggregate principal amount of $52 million.................
`D'10.23 -- Credit Agreement dated as of June 22, 1992, between GC Canada and The Toronto-Dominion Bank,
with respect to a $15 million revolving credit facility (the 'Canada Revolver').................
**10.24 -- First Amendment to Canada Revolver..............................................................
**10.25 -- Amended and Restated Credit Agreement dated as of September 15, 1993 among General Chemical and
Chemical Bank, as Administrative Agent and NationsBank of North Carolina, as Co-Agent, with
respect to a $130 million revolving credit facility (the 'US Revolver').........................
**10.26 -- First Amendment to the US Revolver dated as of December 11, 1995................................
**10.27 -- Term Loan Agreement dated as of August 4, 1994 among General Chemical and Chemical Bank, as
Administrative Agent, and NationsBank of North Carolina, as Co-Agent, with respect to a $100
million term loan...............................................................................
**10.28 -- Settlement Agreement relating to July 26, 1993 Richmond incident litigation.....................
44
EXHIBIT
NO. DESCRIPTION PAGE
--- ----------- -----
10.29 -- Stockholder Agreement among the Company, the GRAT, Paul M. Montrone and Sandra Montrone, dated
April 15, 1996..................................................................................
10.30 -- Stockholder Agreement between the Company and Stonor, dated May 15, 1996........................
11 -- Statement regarding computation of per share earnings...........................................
**21 -- Subsidiaries of the Company.....................................................................
23.1 -- Consent of Deloitte & Touche LLP, Independent Accountants.......................................
27 -- Financial Data Schedule.........................................................................
- ------------
** Incorporated by reference to the relevant exhibit to the Company's
Registration Statement filed with the Securities and Exchange Commission
(the 'SEC') on May 3, 1996, File No. 33-83766.
`D' Incorporated by reference to the relevant exhibit to General Chemical
Corporation's Registration Statement filed with the SEC on August 11,
1993, File No. 33-64824.
`D'`D' Incorporated by reference to the relevant exhibit to General Chemical
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 filed with the Securities and Exchange Commission.
45