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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 001-14789
GENTEK INC.
(Exact name of Registrant as specified in its charter)
Delaware 02-0505547
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
90 East Halsey Road
Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip Code)
(Formerly Liberty Lane, Hampton, New Hampshire)
Registrant's telephone number, including area code: (973) 515-3221
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently completed second
fiscal quarter: $2,398,981.
Applicable to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [_]
The number of outstanding shares of the Registrant's Common Stock as of
March 15, 2004 was 10,000,000.
Documents Incorporated by Reference:
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 12, 2004, to be filed within 120 days
after the close of the Registrant's fiscal year, are incorporated by reference
into Part III of this Annual Report on Form 10-K.
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PART I
Item 1. Business.
Overview
GenTek Inc. (the "Company" or "GenTek") is a holding company whose
subsidiaries manufacture industrial components, performance chemicals and
communications products. GenTek's subsidiaries operate through three primary
business segments: manufacturing, performance products and communications. The
manufacturing segment provides a broad range of engineered components and
services to three principal markets: automotive, appliance and electronic, and
industrial. The performance products segment provides a broad range of
value-added chemical products and services to four principal markets:
environmental services, pharmaceutical and personal care, technology and
chemical processing. The communications segment is a global provider of
products, systems and services to the global markets for telecommunications and
data networking equipment and services, and in particular, the public telecom
and private enterprise network markets. Our products are frequently highly
engineered and are important components of, or provide critical attributes to,
our customers' end products or operations. The Company operates over 75
manufacturing and production facilities located primarily in the U.S., Canada,
and Mexico with additional facilities in Australia, China, Germany, Great
Britain, and India. GenTek has no independent operations and, therefore, is
dependent upon cash flow from its subsidiaries to meet its obligations.
Recent Development
On March 25, 2004, the Company announced that it signed a definitive
agreement to sell its KRONE communications business to ADC Telecommunications,
Inc. (ADC). Under the terms of the agreement, the Company will receive total
consideration of approximately $350 million, consisting of $291 million in cash
and the assumption by ADC of approximately $59 million of pension and
employee-related liabilities. The transaction is expected to close within 90
days of the announcement and is subject to customary conditions including
regulatory and other approvals.
Emergence From Chapter 11 Reorganization
On October 11, 2002, GenTek and 31 of its direct and indirect subsidiaries,
including its Noma Company subsidiary (collectively, the "Debtors") filed
voluntary petitions for reorganization relief under Chapter 11 of the United
States Bankruptcy Code. GenTek filed for relief under Chapter 11 as a result of
our inability to obtain an amendment to our senior credit facility. The
protection afforded by Chapter 11 allowed us and the other Debtors to continue
to serve our customers and preserve the value of our businesses, while we
reorganized and worked to develop and implement a strategic plan to deleverage
our balance sheet and create an improved long-term capital structure.
The Plan was confirmed on October 7, 2003 and became effective in
accordance with its terms on November 10, 2003. The Plan provided for the
treatment of all pre-petition claims and liabilities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Reorganization under Chapter 11 of the US Bankruptcy Code" for a further
discussion of the Plan.
The consolidated financial statements have been prepared in accordance with
Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," and on a going concern basis, which
contemplates continuity of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. Liabilities and obligations
whose
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treatment and satisfaction were dependent on the outcome of the Chapter 11 cases
have been segregated and classified as liabilities subject to compromise in the
consolidated balance sheets. In connection with its emergence from bankruptcy on
November 10, 2003, the Company has adopted fresh-start reporting in accordance
with SOP 90-7. Accordingly, the Company's post-emergence financial statements
("Successor") will not be comparable with its pre-emergence financial statements
("Predecessor").
Products and Services by Segment
The following table sets forth the Company's sales by segment:
Years Ended December 31,
-----------------------------
2003(1) 2002 2001
-------- -------- --------
(In millions)
Manufacturing.................................. $ 425.9 $ 477.1 $ 478.5
Performance Products........................... 335.9 357.4 360.9
Communications................................. 337.3 294.0 405.0
-------- -------- --------
$1,099.1 $1,128.5 $1,244.4
======== ======== ========
- ----------
(1) This data is a non GAAP financial measure within the meaning of Regulation G
promulgated by the Securities and Exchange Commission. Included in Item 7.
Reconciliation of Non-GAAP Financial Measures is a reconciliation of statement
of operations data for the full year 2003 to the Predecessor Company and
Successor Company statements of operations for the periods ended November 10,
2003 and December 31, 2003, respectively. Management believes that this
information is the most relevant and useful formation for making comparisons to
the period ended December 31, 2002.
Manufacturing Segment
The manufacturing segment provides a broad range of engineered components
and services to three principal markets: automotive, appliance and electronic,
and industrial. The Company's products for these markets are described below:
Automotive. For the automotive market, the Company provides:
o precision-engineered components for valve-train systems, including
stamped and machined rocker and roller-rocker arms, cam follower
rollers, cam follower roller axles, antifriction bearings, mechanical
roller tappets and other hardened/machined components;
o electronic wire and cable assemblies, such as wire harnesses, ignition
cables, molded parts, electro-mechanical assemblies, engine block
heaters, battery blankets and various electrical switches, used in the
manufacture of automobiles, light and heavy duty trucks and personal
recreation vehicles such as snowmobiles and personal water crafts;
o computer-aided and mechanical vehicle and component testing services
for the transportation industry; and
o fluid transport and handling equipment for automotive service
applications.
The Company's precision-engineered stamped and machined engine components
for valve-train systems improve engine efficiency by reducing engine friction
and component mass. These components are used both in traditional overhead valve
and in the increasingly popular single and double overhead cam engines which
power cars, light trucks and sport utility vehicles. Over the last several
years, the Company has benefited from the design transition of overhead valve
engines to overhead cam engines providing a strong position with which to
participate in the industry's latest efforts to improve fuel
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efficiency and power. Increased design use of additional valves per cylinder to
improve fuel/air throughput have resulted in volume growth on specific engine
applications.
The Company's wire and cable assembly products include a variety of
automotive electronic components for use in OEM production and the aftermarket.
The Company is a leading Tier-2 supplier of products such as wire harnesses,
ignition cables, engine block heaters, battery blankets and various electrical
and electro-mechanical switches and assemblies.
Through its automotive testing offerings, the Company provides mechanical
testing services and computer-aided design, engineering and simulation services
for automotive structural and mechanical systems to OEMs and Tier 1 suppliers.
The Company provides a wide range of testing services for automotive components
and systems from single sub-systems, such as chassis, suspension, seats and
seating assemblies, to entire vehicles. The Company's engineering and simulation
services provide customers with finite element modeling, kinematics, and crash
and variation simulation analyses, and allow its customers to test their
automotive products for durability, stress, noise, vibration and environmental
considerations.
Automotive manufacturers generally award business to their suppliers by
individual engine line or model, often for multiple-model years. The loss of any
individual engine line or model contract would not be material to the Company.
However, an economic downturn in the automotive industry as a whole or other
events (e.g., labor disruptions) resulting in significantly reduced operations
of any of DaimlerChrysler, Ford or General Motors could have a material adverse
impact on the results of the Company's manufacturing segment. None of these
customers accounted for 10 percent or more of the Company's revenues in 2003.
Appliance and Electronic. The Company produces custom-designed power cord
systems and wire and cable assemblies for a broad range of appliances and
electronic products including:
o household appliances, such as refrigerators, freezers, dishwashers,
washing machines, ovens, ranges and vacuum cleaners;
o electronic office equipment, including copiers and printers; and
o various electronic products, such as medical equipment, ATM machines
and gaming machines.
The Company's specialized wiring expertise and high quality wire and cable
assemblies are generally provided to larger OEM customers. A highly competitive
environment has required the Company's customers to improve their productivity
by outsourcing to lower cost suppliers. The Company operates manufacturing
facilities in both Canada and Mexico, and also sources certain finished products
from lower cost third party manufacturers in Asia. In addition, as part of our
continuing efforts to improve our competitive cost position, we expect to
establish our own wire and cable assemblies production facility in Asia within
the next twelve months.
The Company also owns a 50 percent interest in PrettlNoma Systems GmbH, a
joint venture that produces modular control panel systems for consumer appliance
manufacturers. PrettlNoma Systems is based in Neuruppin, Germany and, in
addition, operates facilities in the United States, Mexico, Poland and Turkey.
Industrial. For the industrial market, the Company manufactures:
o custom-designed wire harness and power cord systems for power tools,
motors, pumps and
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other industrial products; and
o wire and cable for industrial markets, the commercial and residential
construction industries and for a wide variety of end market uses by
OEMs.
The Company produces a broad product line of single and multi conductor
wire and cable, wire harnesses and power cord systems. The Company's wire
jacketing expertise includes the use of polyvinyl chloride (PVC), rubber,
thermoplastic elastomer (TPE) and cross-link compounds.
Performance Products Segment
The Company's performance products segment provides a broad range of
value-added products and services to four principal markets: environmental
services, pharmaceutical and personal care, technology and chemical processing.
The Company's products and services for these markets are described below.
Environmental Services. With a network of 35 water treatment chemical
plants located throughout the United States and Canada, the Company is the
largest North American producer of aluminum sulfate, or "alum", which is used as
a coagulant in potable water and waste water treatment applications, and a
leading supplier of ferric sulfate and other specialty flocculents
(polymer-based materials used for settling and/or separating solids from
liquids). The Company's water treatment products and services are designed to
address the important environmental issues confronting its customers. These
value-added products and services provide cleaner drinking water, restore
algae-infested lakes, reduce damaging phosphorus runoff from agricultural
operations, and significantly reduce pollution from industrial waste water.
In the environmental market, the Company also provides sulfuric acid
regeneration services to the refining and chemical industries, and pollution
abatement and sulfur recovery services to selected refinery customers.
Refineries use sulfuric acid as a catalyst in the production of alkylate, a
gasoline blending component with favorable performance and environmental
properties. The alkylation process contaminates and dilutes the sulfuric acid,
thereby creating the need to dispose of or regenerate the contaminated acid. The
Company transports the contaminated acid back to the Company's facilities for
recycling and redelivers the fresh, recycled acid back to customers. This
"closed loop" process offers customers significant savings versus alternative
disposal methods and also benefits the environment by significantly reducing
refineries' waste streams. Similar regeneration services are provided to
manufacturers of ion exchange resins and silicone polymers.
Pharmaceutical and Personal Care. The Company is a leading supplier of the
active chemical ingredients used in the manufacture of antiperspirants, and also
supplies active ingredients used in prescription pharmaceuticals, nutritional
supplements, nutraceuticals, veterinary health products and other personal care
products. Our customer base includes many of the world's leading personal care
companies, and we are favorably positioned with both North American and European
sourcing capabilities.
Technology. The Company provides ultrahigh-purity electronic chemicals for
the semiconductor and disk drive industries. The Company's electronic chemicals
include ultrahigh-purity acids, caustics, solvents, etchants and formulated
photo ancillaries for use in the manufacture of semiconductor processing chips
and computer disk drives.
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Chemical Processing. The Company manufactures a broad range of products
that serve as chemical intermediates in the production of such everyday products
as newspapers, tires, paints, dyes and carpets. The Company's products include:
o alum and polymer-based enhanced coagulants used in paper manufacturing
to impart water resistance;
o sodium nitrite, of which the Company is one of only two North American
producers, primarily used as a reactant in the manufacture of dyes,
pigments and rubber processing chemicals;
o potassium fluoride and fluoborate derivatives sold into the metal
treatment, agrochemical, surfactant and analytical reagent markets;
and
o sulfuric acid, which is used in the manufacture of titanium pigments,
fertilizers, synthetic fibers, steel, petroleum and paper, as well as
many other products.
Communications Segment
The communications segment is a global provider of products, systems and
services for local and wide area data and communications networks. These
products and services use and build on the throughput-enhancing technology that
the Company has developed. The Company's offerings include throughput-optimized
copper and fiber-optic cabling and connectivity products for both public and
private enterprise networks, as well as design, installation and maintenance
services for wide-area wireline and wireless networks.
The Company competes in the global markets for telecommunications and data
networking equipment and services, particularly the public telecom (or access)
and private enterprise (or premise) segments of these markets. The public
telecommunications network is comprised of the long-haul network (long distance
copper and fiber cables), the metro area (city wide) network, and the access
portion of the network. The Company competes primarily in this access portion
which consists of the telecommunications central office, remote terminals and
the local loop also known as the "last mile." The local loop links the
enterprise customer's home or office to the metro area and the long-haul
portions of the public network. The enterprise segment of the market consists of
the voice, data and video networks located within the customer's (or end-user's)
premises.
The communications segment's customers include Fortune 1000 companies,
incumbent local exchange carriers (ILECs), competitive local exchange carriers
(CLECs), internet service providers (ISPs), managed service providers (MSPs),
data networking equipment distributors, government institutions, public
utilities and academic institutions.
For further information on geographic and segment data, see "Note 16 -
Geographic and Industry Segment Information" in the Notes to the Consolidated
Financial Statements.
Competition
Competition in the manufacturing segment's markets is based upon a number
of factors including design and engineering capabilities, quality, price and the
ability to meet customer delivery requirements. In the automotive market, the
Company competes with, among others, Eaton, INA, Ingersoll-Rand, Molex, Timken,
Yazaki and captive OEMs. In the appliance and electronic and industrial markets,
the Company competes with Belden, General Cable, International Wire, Nexans and
Viasystems, among others.
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Although the Company's performance products segment generally has
significant market share positions in the product areas in which it competes,
most of its end markets are highly competitive. In the pharmaceuticals and
personal care market, the Company's major competitors include Giulini, Summit
and Westwood. The Company's competitors in the environmental market include the
refineries that perform their own sulfuric acid regeneration, as well as DuPont,
Marsulex, Peak, PVS and Rhodia, which also have sulfuric acid regeneration
facilities that are generally located near their major customers. In addition,
the Company competes with Geo Specialty Chemicals, U.S. Aluminates and other
regional players in the water treatment market. Competitors in the technology
market include Air Products and Tyco/Mallinckrodt-Baker. Competitors in the
chemical processing market include BASF, Calabrian, Rhodia, Solvay S.A. and U.S.
Salt.
Competition in the markets served by the communications segment is based on
a number of factors, including but not limited to: product features, quality,
performance and reliability; product-line breadth and end-to-end systems
capabilities; global distribution and customer support capabilities; customer
service and technical support; relationships with customers, distributors and
system integrators; product interoperability and the ability to support emerging
protocols; brand recognition and price. Further, the ability to achieve and
maintain successful performance is dependent on our ability to develop products
that meet the ever-changing requirements of data and voice communications
technology. Due to the breadth of the Company's products and services, it
competes against different competitors in different product and service areas,
with the majority of its competitors focusing on only particular segments of the
total market in which the Company competes.
In the cabling and connectivity systems market, the primary competitors
capable of supplying entire solutions are Cable Design Technologies,
CommScope/Systimax, Nexans and Tyco/AMP. Additionally, competitors that supply
only the cabling portion of a complete structured cabling solution include
Belden, General Cable and Optical Cable Corporation. Connectivity competitors
include ADC Telecommunications, Hubbell, Huber & Suhner, Molex, Ortronics,
Reichle & De-Massari and 3M/Quante.
Suppliers; Availability of Raw Materials
The Company purchases a variety of raw materials for its businesses. The
primary raw materials used by the manufacturing segment are copper and steel.
The Company's performance products segment's competitive cost position is, in
part, attributable to its control of certain raw materials that serve as the
feedstocks for many of its products. Consequently, major raw material purchases
are limited primarily to sulfuric acid where it is uneconomical for the Company
to supply itself due to distribution costs, soda ash (for the manufacture of
sodium nitrites), bauxite and hydrate (for the manufacture of alum), zirconium
based products (for the manufacture of antiperspirant active ingredients) and
sulfur (for the manufacture of sulfuric acid). The Company's primary raw
materials in its communications segment are copper, steel and plastic.
We purchase raw materials from a number of suppliers and, in most cases,
believe that alternative sources are available to fulfill our needs. A number
of the raw materials we purchase are subject to cyclical price movements. Over
the past twelve months, commodity prices, in general, have trended upward. In
particular, recent tightening of supply in the steel market has put upward
pressure on steel prices, while copper prices have also risen substantially in
the last several months. The Company continues its efforts to ensure it has
sufficient access to required raw materials at competitive prices and to pass
along raw material price increases where possible.
Sales and Distribution
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The Company's manufacturing segment has approximately 50 sales, marketing
and customer service personnel. Generally, the Company markets its products
directly to its customers, but in certain industrial markets a distribution
network is used. The manufacturing segment's technical and engineering staff is
an integral part of the segment's sales and distribution effort. Since many of
the Company's products are precision-engineered and custom-designed to customer
specifications, the Company's sales force and engineers work closely with its
customers in designing, producing, testing and improving its products.
In the Company's performance products segment, the Company employs
approximately 104 sales, marketing, distribution and customer service personnel.
The sales force is divided into several specialized groups which focus on
specific products, end-users and geographic regions. This targeted approach
provides the Company with insight into emerging industry trends and creates
opportunities for product development.
The Company's communications segment has over 350 sales, marketing and
customer service personnel in 25 countries around the world. The Company's
products are sold directly to key account customers, often pursuant to
multi-year agreements, and via its international third-party sales and
distribution network for smaller accounts.
Seasonality; Backlogs
The businesses of the manufacturing and communications segments are
generally not seasonal. Within the performance products segment, the
environmental services business has higher volumes in the second and third
quarters of the year, owing to (i) higher spring and summer demand for sulfuric
acid regeneration services from gasoline refinery customers to meet peak summer
driving season demand and (ii) higher spring and summer demand from water
treatment chemical customers to manage seasonally high and low water conditions.
The other markets that the performance products segment serves are generally not
seasonal. Due to the nature of the Company's businesses, there are no
significant backlogs.
Environmental Matters
The Company's various manufacturing operations, which have been conducted
at a number of facilities for many years, are subject to numerous laws and
regulations relating to the protection of human health and the environment in
the U.S., Canada, Australia, China, Germany, Great Britain, India, Mexico and
other countries. The Company believes that it is in substantial compliance with
such laws and regulations. However, as a result of its operations, the Company
is involved from time to time in administrative and judicial proceedings and
inquiries relating to environmental matters. Based on information available at
this time with respect to potential liability involving these facilities, the
Company believes that any such liability will not have a material adverse effect
on its financial condition, cash flows or results of operations. However,
modifications of existing laws and regulations or the adoption of new laws and
regulations in the future, particularly with respect to environmental and safety
standards, could require the Company to make expenditures which may be material
or otherwise adversely impact the Company's operations.
The Company maintains a program to manage its facilities' compliance with
environmental laws and regulations. Expenditures for 2003 approximated $17
million (of which approximately $4 million represented capital expenditures and
approximately $13 million related to ongoing operations and the management and
remediation of potential environmental contamination from prior operations).
Expenditures for 2002 approximated $17 million (of which approximately $3
million represented capital expenditures and approximately $14 million related
to ongoing operations and the management and
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remediation of potential environmental contamination from prior operations). The
Company expects expenditures similar to 2003 levels in 2004. In addition, if
environmental laws and regulations affecting the Company's operations become
more stringent, costs for environmental compliance may increase above historical
levels.
The Comprehensive Environmental Response Compensation and Liability Act of
1980 ("CERCLA") and similar statutes, have been construed as imposing joint and
several liability, under certain circumstances, on present and former owners and
operators of contaminated sites, and transporters and generators of hazardous
substances, regardless of fault. The Company's facilities have been operated for
many years by the Company or its prior owners and operators, and adverse
environmental conditions of which the Company is not aware may exist.
Modifications of existing laws and regulations and discovery of additional or
unknown environmental contamination at any of the Company's current or former
facilities could have a material adverse effect on the Company's financial
condition, cash flows and/or results of operations. In addition, the Company has
received written notice from the Environmental Protection Administration that it
has been identified as a "potentially responsible party" under CERCLA at one
third-party site. The Company does not believe that its liability, if any, for
this site will be material to its results of operations, cash flows or financial
condition.
At any time, the Company may be involved in proceedings with various
regulatory authorities which could require the Company to pay various fines and
penalties due to violations of environmental laws and regulations at its sites,
remediate contamination at some of these sites, comply with applicable standards
or other requirements, or incur capital expenditures to modify certain pollution
control equipment or processes at its sites. Again, although the amount of any
liability that could arise with respect to these matters cannot be accurately
predicted, the Company believes that the ultimate resolution of these matters
will have no material adverse effect on its results of operations, cash flows or
financial condition.
Avtex Site at Front Royal, Virginia. On March 22, 1990, the Environmental
Protection Agency (the "EPA") issued to the Company a Notice of Potential
Liability pursuant to Section 107(a) of CERCLA with respect to a site located in
Front Royal, Virginia, owned at the time by Avtex Fibers Front Royal, Inc.,
which has filed for bankruptcy. A sulfuric acid plant adjacent to the main Avtex
site was previously owned and operated by the Company. On September 30, 1998,
the EPA issued an administrative order under Section 106 of CERCLA, which
requires The General Chemical Group Inc. (whose obligations the Company assumed
in connection with the spinoff), AlliedSignal Inc. (now Honeywell) and Avtex to
undertake certain removal actions at the acid plant. On October 19, 1998, the
Company delivered to the EPA written notice of its intention to comply with that
order, subject to numerous defenses. The requirements of the order include
preparation of a study to determine the extent of any contamination at the acid
plant site. The Company has provided for the estimated costs of $1.8 million for
these activities in its accrual for environmental liabilities relating to the
order. The Company is working cooperatively with the EPA with respect to
compliance with the order and believes that such compliance will not have a
material effect on its results of operations or financial condition.
Delaware Valley Facility. On September 7, 2000, the U.S. Environmental
Protection Agency issued to the Company an Initial Administrative Order (an
"IAO") pursuant to Section 3008(h) of the Resource Conservation and Recovery Act
("RCRA"), which requires that the Company conduct an environmental investigation
of certain portions of the Company's Delaware Valley facility (the "Facility")
and, if necessary, propose and implement corrective measures to address any
historical environmental contamination at the Facility. The Company is working
cooperatively with the EPA and Honeywell Inc. (formerly AlliedSignal Inc.),
prior owner of the Facility and current owner of a plant adjacent to the
Facility, to implement the actions required under the IAO. The requirements of
the IAO
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will be performed over the course of the next several years. The Company closed
the South Plant operations of its Delaware Valley facility on November 10, 2003.
This closure will result in an expansion of the investigation to be performed
under the IAO. Depending on the results of that additional investigation,
additional remedial activity may be required. The Company has provided for the
estimated costs of $5.6 million for compliance with the IAO in its accrual for
environmental liabilities. As such, the Company believes that compliance with
the IAO will not have a material effect on its results of operations or
financial condition.
Claims against the Debtors for certain environmental liabilities arising
prior to the Filing were addressed in the Chapter 11 cases. In general, monetary
claims by private (non-governmental) parties relating to remedial actions at
off-site locations used for disposal prior to the Filing and penalties resulting
from violations of applicable environmental law before that time were treated as
general unsecured claims. The Debtors are obligated to comply with applicable
environmental law in the conduct of their business, including any potential
obligation to conduct investigations and implement remedial actions at
facilities the Company owns or operates, and we are required to pay such
expenses in full.
Employees/Labor Relations
At December 31, 2003, the Company had approximately 6,100 employees, of
whom approximately 2,100 were full-time salaried employees, approximately 1,200
were full-time hourly employees (represented by 11 different unions) and
approximately 2,800 were hourly employees working in nonunion facilities.
Approximately 500 of the Company's 2,100 salaried employees are based in
Germany. German-based employees are members of unions and are subject to
industry-wide and other collective bargaining agreements.
The Company's union contracts have durations which vary from two to four
years. The Company's relationships with its different unions are generally good.
Executive Officers and Key Employees
Set forth below is information with respect to each of the Company's
executive officers and/or key employees.
Richard R. Russell, 61, President and Chief Executive Officer and a
Director since April 1999. From 1996 until April 1999, he served as the
President and Chief Executive Officer and a Director of The General Chemical
Group Inc. Mr. Russell has also been the President and Chief Executive Officer
of GenTek Holding Corporation (formerly General Chemical Corporation) since
1986.
Matthew R. Friel, 37, Vice President and Chief Financial Officer since
September 2001. Mr. Friel also served as Treasurer from September 2001 to
October 2003. From September 1997 to September 2002, Mr. Friel served as
Managing Director of Latona Associates Inc. ("Latona Associates"). Latona
Associates has provided GenTek with certain administrative functions and
corporate support services since 1995.
Mark J. Connor, 37, Vice President - Corporate Development and Investor
Relations since November 2003. From October 2000 to November 2003, Mr. Connor
served as Assistant Treasurer. From 1998 through October 2000, Mr. Connor served
as Assistant Treasurer of The Warnaco Group, Inc.
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Ronald A. Lowy, 48, President and Chief Operating Officer of the Krone
Group since January 2001. Mr. Lowy served as Vice President and General Manager
- - Automotive and Industrial Products of Prestolite Wire Corporation from January
2000 to December 2000, and Vice President and General Manager - Automotive
Products of Prestolite Wire Corporation from 1995 to 2000.
Kevin J. O'Connor, 53, Vice President and Controller since April 1999. From
March 1996 until April 1999, he served as the Controller of The General Chemical
Group Inc. Mr. O'Connor has also served as Controller of GenTek Holding
Corporation (formerly General Chemical Corporation) since 1986.
Ramanlal L. Patel, 58, President of the Manufacturing segment since
December 2001. Mr. Patel has also served as President and Chief Executive
Officer of Noma Company since January 2001. From 1997 to December 2000, he was
Chief Executive Officer of Pram Filtration Corporation.
Charles W. Shaver, 45, Vice President and General Manager for Performance
Products since November 2001. Mr. Shaver served as Vice President and General
Manager for Performance Products for Arch Chemicals, Inc. from 1999 to November
2001. From September 1996 to 1999 he served as Vice President of Operations and
Chief Operating Officer for MMT, Inc.
Scott Sillars, 48, Vice President and Treasurer since October 2003. Mr.
Sillars served as Acting Treasurer from 2002 to October 2003 . From 1998 through
2002, Mr. Sillars served as an Independent Consultant in general management and
corporate finance.
Matthew M. Walsh, 37, Vice President and Operations Controller since
December 2000. Mr. Walsh served as Vice President and Treasurer from January
2000 through December 2000. Mr. Walsh served as Group Controller-Performance
Products of General Chemical Corporation from October 1997 to December 1999.
Corporate Governance and Internet Address
We emphasize the importance of professional business conduct and ethics
through our corporate governance initiatives. Our board of directors has adopted
a code of business conduct and ethics that applies to all employees, directors
and officers, including the Company's principal executive officer, principal
financial officer and principal accounting officer. Our board of directors
consists of a majority of independent directors.
Our internet address is www.gentek-global.com. We make available, free of
charge through a link on our site, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to such
reports, if any, as filed with the SEC as soon as reasonably practicable after
such filing. Our site also contains our code of business conduct and ethics and
the charters of the audit committee, corporate governance and nominating
committee and compensation committee of our board of directors. Our principal
executive offices are located at 90 East Halsey Road, Parsippany, New Jersey
07054, and our telephone number is (973) 515-3221.
Risk Factors
The following is a discussion of certain factors that currently impact or
may impact our business, operating results and/or financial condition. An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below before deciding to invest in our
common stock. In assessing these risks, you should also refer to the other
information in this Annual Report on
-10-
Form 10-K, including our financial statements and the related notes. Various
statements in this Annual Report on Form 10-K, including some of the following
risk factors, constitute forward-looking statements.
Risks Related to Our Company
We recently emerged from a Chapter 11 Bankruptcy Reorganization and have a
history of losses.
We sought protection under Chapter 11 of the Bankruptcy Code in October
2002. We incurred net losses of approximately $360 million during the fiscal
year ended December 31, 2002. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." On November 10, 2003 (which we
refer to herein as the "Effective Date"), we emerged from Chapter 11 protection
pursuant to the Plan, under which our equity ownership and capital structure
changed and our board of directors was replaced. Our return to profitability is
not assured and we cannot assure you that we will grow or achieve profitability
in the near future, or at all.
Our business is capital intensive. We cannot assure you that we will have
sufficient liquidity to fund our working capital and capital expenditures and to
meet our obligations under existing debt instruments.
Our business is capital intensive and we cannot be certain that we will
achieve sufficient cash flow in the future. Failure to maintain profitability
and generate sufficient cash flow could diminish our ability to sustain
operations, meet financial covenants, obtain additional required funds and make
required payments on any indebtedness we have incurred or may incur. If we do
not comply with the covenants in our credit agreements or otherwise default
under them, we may not have access to borrowings under our $125 million
revolving credit facility which we and substantially all of our domestic
subsidiaries, and our Canadian subsidiary Noma Company entered into on the
Effective Date (the "Revolving Credit Facility") or the funds necessary to pay
all amounts that could become due.
Although we believe that our current levels of cash and cash equivalents,
along with available borrowings on our Revolving Credit Facility, will be
sufficient for our cash requirements during the next twelve months, it is
possible that these sources of cash will be insufficient, resulting in our
having to raise additional funds for liquidity. There can be no assurance we
will have access to new funding if the need arises.
The industries in which we operate are highly competitive. This competition may
prevent us from raising prices at the same pace as our costs increase, making it
difficult for us to maintain existing business and win new business.
We face significant competition in each of our businesses. Certain of our
competitors have large market shares and substantially greater financial and
technical resources than we do. We may be required to reduce prices if our
competitors reduce prices, or as a result of any other downward pressure on
prices for our products and services, which could have an adverse effect on us.
In each of our business segments, we operate in competitive markets. Our
manufacturing segment competes with numerous international and North American
companies, including various captive operations of automotive original equipment
manufacturers (OEMs) and Tier 1 suppliers to automotive manufacturers.
Competition in the manufacturing segment's markets is based on a number of
factors, including design and engineering capabilities, price, quality and the
ability to meet customer delivery requirements. Due to the level of competition,
our customers have regularly requested price
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decreases and maintaining or raising prices has been difficult over the past
several years and will likely continue to be so in the near future. Most of the
markets in which our performance products segment does business are highly
competitive, with competitors typically segregated by end market. Competition in
the performance products segment's markets is based on a number of factors,
including price, freight economics, product quality and technical support. Due
to the level of competition faced by our performance products segment, our
customers have regularly requested price decreases and maintaining or raising
prices has been difficult over the past several years and will likely continue
to be so in the near future. Our communications segment also operates in highly
competitive markets, with many of our competitors being large, technologically
sophisticated companies. Competition in our communications segment is based on a
number of factors, including technological advancements, price, product line
breadth, technical support and service and product quality.
If we are unable to compete successfully, our financial condition and
results of operations could be adversely affected.
Our current amount of leverage could adversely affect our financial health and
diminish shareholder value.
We have a significant amount of leverage, which could have negative
consequences, including:
o it may become more difficult for us to satisfy our obligations with
respect to all of our indebtedness;
o we may be more vulnerable to a downturn in the industries in which we
operate or a downturn in the economy in general;
o we may be limited in our flexibility to plan for, or react to, changes
in our businesses and the industries in which we operate;
o we may be placed at a competitive disadvantage compared to our
competitors that have less debt;
o we may determine it to be necessary to dispose of certain assets or
one or more of our businesses to reduce our debt; and
o our ability to borrow additional funds may be limited.
Additionally, there may be factors beyond our control that could impact our
ability to meet debt service requirements. Assuming that our outstanding debt as
of December 31, 2003 remains in place on similar terms throughout 2004, we would
expect our total debt service requirements to approximate $18-20 million during
2004. Our ability to meet such debt service requirements will depend on our
future performance, which, in turn, will depend on a number of factors,
including conditions in the global markets for our products, the global economy
generally, the behavior of our competitors, the financial condition and sourcing
decisions made by our customers, our future cash funding requirements for
environmental and pension liabilities, the impact of current and future tax
regulations on our cash flows and financial condition, and other factors that
are beyond our control. We can provide no assurance that our businesses will
generate sufficient cash flow from operations or that future borrowings will be
available in amounts sufficient to enable us to pay our indebtedness or to fund
our other liquidity needs. Moreover, we may need to refinance all or a portion
of our indebtedness on or before maturity. We cannot make assurances that we
will be able to refinance any of our indebtedness on commercially reasonable
terms or at all. If we are unable to make scheduled debt payments or comply with
the other provisions of our debt instruments, our various lenders will be
permitted under certain circumstances to accelerate the maturity of the
indebtedness owing to them and exercise other remedies provided for in those
instruments and under applicable law.
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We are subject to restrictive debt covenants pursuant to our indebtedness. These
covenants may restrict our ability to finance our business and, if we do not
comply with the covenants or otherwise default under them, we may not have the
funds necessary to pay all amounts that could become due and the lenders could
foreclose on substantially all of our assets.
As part of our implementation of the Plan, we issued $250 million principal
amount of senior term debt under the terms of a new credit agreement (referred
to herein as the "Senior Term Loan Credit Agreement"). In addition, we entered
into a $125 million Revolving Credit Facility which matures on November 10,
2008. Both facilities are secured by substantially all of our assets.
The Revolving Credit Facility, among other things, significantly restricts
and, in some cases, effectively eliminates our ability and the ability of most
of our subsidiaries to:
o incur additional debt;
o create or incur liens;
o pay dividends or make other equity distributions;
o purchase or redeem share capital;
o make investments;
o sell assets;
o issue or sell share capital of certain subsidiaries;
o engage in transactions with affiliates;
o issue or become liable on a guarantee;
o voluntarily prepay, repurchase or redeem debt;
o create or acquire new subsidiaries; and
o effect a merger or consolidation of, or sell all or substantially all
of our assets.
Similar restrictive covenants are contained in the Senior Term Loan Credit
Agreement. These covenants, which are applicable to us and most of our
subsidiaries, restrict and, in some cases, effectively eliminate, our ability
and the ability of most of our subsidiaries to, among other things:
o incur additional debt;
o create or incur liens;
o enter into a merger or consolidation, or liquidate or dissolve
ourselves or most of our subsidiaries or dispose of all or
substantially all of our or our subsidiaries' assets;
o dispose of property;
o pay dividends or make other equity distributions;
o purchase or redeem share capital;
o make investments; and
o engage in transactions with affiliates.
In addition, under our Revolving Credit Facility, we and our subsidiaries
must comply with certain financial covenants. In the event we were to fail to
meet any of such covenants and were unable to cure such breach or otherwise
renegotiate such covenants, the lenders under those facilities would have
significant rights to seize control of substantially all of our assets. Such a
default, or a breach of any of the other obligations in the Senior Term Loan
Credit Agreement, could also trigger a default under our Revolving Credit
Facility and vice versa. The material financial covenants in our credit
agreements with which we must comply include the compliance with certain fixed
charge coverage ratios on the occurrence of an applicable triggering event. A
triggering event under the Revolving Credit Facility would occur if for any
reason the aggregate availability (as determined under the Revolving Credit
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Facility) of all the borrowers under such facility is less than or equal
to $30 million at any time. A triggering event under the Senior Term Loan
Credit Agreement would occur if for any reason the availability under
the Revolving Credit Facility is less than or equal to $20 million for ninety
consecutive days. In addition, if we wish to prepay debt owing under the Senior
Term Loan Credit Agreement, at the time such prepayment is permitted we would be
required to comply with certain financial covenants.
The covenants in our Revolving Credit Facility, the Senior Term Loan Credit
Agreement and any credit agreement governing future debt may significantly
restrict our future operations. Furthermore, upon the occurrence of any event of
default under the Senior Term Loan Credit Agreement, our Revolving Credit
Facility or the agreements governing any other debt of our subsidiaries, the
lenders could elect to declare all amounts outstanding under such indentures,
credit facilities or agreements, together with accrued interest, to be
immediately due and payable. If those lenders were to accelerate the payment of
those amounts, we cannot assure you that our assets and the assets of our
subsidiaries would be sufficient to repay in full those amounts.
We are also subject to interest rate risk due to our indebtedness at
variable interest rates. Our Revolving Credit Facility and our Senior Term Loan
Credit Agreement bear interest at variable rates based on a base rate or LIBOR
plus an applicable margin. We cannot assure you that shifts in interest rates
will not have a material adverse effect on us.
We may be required to prepay our indebtedness prior to its stated maturity,
which may limit our ability to pursue business opportunities.
Pursuant to the terms of our Revolving Credit Facility and Senior Term Loan
Credit Agreement, in certain instances we are required to prepay this
indebtedness prior to their stated maturity dates, even if we are otherwise in
compliance with the covenants contained in the agreements. Specifically, (i)
certain asset sale proceeds must be used to pay down indebtedness and can
therefore not be reborrowed; and (ii) the Senior Term Loan Credit Agreement
provides that, beginning in 2005, we must apply the majority of any "excess cash
flow" above certain levels that was generated in the prior year to the
prepayment of the senior term debt.
Excess cash flow for any fiscal year of GenTek is determined by the
calculation of the excess, if any, of (a) the sum of consolidated net income for
such fiscal year, non-cash charges deducted in arriving at the consolidated net
income, decreases in consolidated working capital, non-cash loss on the
disposition of property by us and our subsidiaries, and amounts paid in respect
of liabilities that were deducted in arriving at the consolidated net income,
over (b) the sum of non-cash credits included in arriving at the consolidated
net income, cash amounts paid by us and our subsidiaries on account of capital
expenditures and other non-current assets, repayments and prepayments of
indebtedness, increases in consolidated working capital, and the amount of
non-cash gain on the disposition of property by us and our subsidiaries. These
prepayment provisions may limit our ability to utilize this excess cash flow to
pursue business opportunities.
We are a holding company that is dependent upon cash flow from our subsidiaries
to meet our financial obligations; our ability to access that cash flow may be
limited in some circumstances.
We are a holding company with no independent operations or significant
operating assets other than our investments in and advances to our subsidiaries.
We depend upon the receipt of sufficient funds from our subsidiaries through our
centralized cash management system from our domestic subsidiaries and through
dividends, loans or other distributions from our foreign subsidiaries to meet
our financial obligations. In addition, the terms of our and our subsidiaries'
existing indebtedness under the Revolving
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Credit Facility, and the laws of the jurisdictions under which we and our
subsidiaries are organized, limit the payment of dividends, loan repayments
and other distributions by our subsidiaries to us under some circumstances.
In the case of the Revolving Credit Facility, these limitations arise from
the restrictive covenants. Any indebtedness that we or our subsidiaries may
incur in the future may contain similar restrictions. Further, certain
subsidiaries have their own indebtedness for which they are responsible
which may limit their ability to distribute cash to us.
Our Chapter 11 reorganization and uncertainty over our financial condition may
harm our businesses and our brand names.
Any adverse publicity or news coverage regarding our recent Chapter 11
reorganization and financial condition could have an adverse effect on parts of
our business, making it difficult to maintain relationships with existing
customers or obtain new customers. Although we have successfully consummated the
Plan, there is no assurance that any such negative publicity will not adversely
impact our results of operations, businesses or brand names in the future.
In addition, losses experienced by certain of our unsecured creditors may
adversely affect our relationships with our suppliers. If suppliers become
increasingly concerned about our financial condition, they may demand faster
payments or refuse to extend normal trade credit, both of which could adversely
affect our cash flow and our results of operations. We may not be successful in
obtaining alternative suppliers if the need arises and this would adversely
affect our results of operations.
In accordance with our Plan, potential preference rights of actions under
Section 547 of the Bankruptcy Code against non-insider creditors who received
payments within the ninety (90) days prior to our petition date have been
assigned to a Preference Claim Litigation Trust (referred to herein as the
"Trust"). This Trust, subject to certain limitations, is authorized to
prosecute, settle or waive, in its sole discretion, these preference rights.
Although this Trust is separate and distinct from the Company and the Company
will not receive any significant recoveries from the Trust, its activities may
aggravate certain of our suppliers, customers and employees, and could
potentially disrupt the flow of necessary raw materials and services, negatively
impact our sales and increase our costs, and thereby adversely affect our
results of operations.
Material changes in pension and other post-retirement benefit costs may occur in
the future. In addition, investment returns on pension assets may be lower than
assumed, which could result in larger cash funding requirements for our pension
plans, which could have an adverse impact on us.
We maintain several defined benefit pension plans covering certain
employees in Canada, Germany, Ireland and the United States. We record pension
and post retirement benefit costs in amounts developed from actuarial
valuations. Inherent in these valuations are key assumptions including the
discount rate and expected long-term rate of return on plan assets. We believe
that material changes in pension and other post retirement benefit costs may
occur in the future due to changes in these assumptions, differences between
actual experience and the assumptions used, and changes in the benefit plans.
Amounts we pay are also dependent upon interest rates. Due to current interest
rates and investment returns, some of our plans are substantially underfunded
and will require substantial cash contributions over the next several years. We
anticipate that, beginning in 2004, we will be required to make contributions to
our domestic pension plans which will average approximately $16 million per year
for the next five years. Moreover, if investment returns on pension assets are
lower than assumed, we may have substantially larger cash funding requirements
for our pension plans, which may have a material adverse impact on our
liquidity. For a further discussion of our defined benefit pension plans,
-15-
see "Management's Discussion and Analysis - Financial Condition, Liquidity and
Capital Resources" and "Management and Executive Compensation - Pension Plans."
We cannot predict the impact of, or our ability to pursue, any asset or business
disposition or acquisition.
From time to time we consider dispositions and acquisitions of assets or
businesses. We cannot predict the types of dispositions or acquisitions we may
undertake in the future or the financial impact of such actions. For example,
any after-tax cash proceeds that we would receive in connection with any
disposition would be dependent on levels of interest from potential purchasers
and the tax and other structuring elements of such transaction. As a result,
there can be no assurance as to the terms of any such disposition or
acquisition, the level of any disruption to the operations of the Company caused
by such transaction, or the long-term effect of such transaction on our
financial condition.
In addition, subject to certain exceptions, both our Revolving Credit
Facility and Senior Term Loan Credit Agreement restrict our ability to, among
other things, (a) enter into any transaction of merger, amalgamation,
reorganization or consolidation, or to transfer all or any part of our property
or equity interests, or to wind up, liquidate or dissolve or (b) acquire
property in exchange for cash or other property, whether in the form of an
acquisition of stock or other equity interests, debt or other indebtedness or
obligation, or the purchase or acquisition of any other property, loan, advance,
capital contribution or subscription. As a result, potential dispositions or
acquisitions which we may deem to be in our best interest may not be permitted
under these agreements.
We are highly dependent upon skilled employees and a number of key personnel.
Our businesses are highly dependent on skilled employees. A loss of a
significant number of key professionals or skilled employees could have a
material adverse effect on us. While we believe that our future success will
depend in large part on our continued ability to attract and retain highly
skilled and qualified personnel, there can be no assurance that we will be able
to retain and employ such personnel.
While we maintained a retention plan designed to retain certain of our key
employees during the Chapter 11 process, the final retention bonus payment under
the plan was made on December 31, 2003. Future compensation and other benefits
provided to employees will be determined under the direction of our new board of
directors. There can be no assurance that key employees will not seek other
employment following the final retention bonus payment or in response to any
future changes in employee compensation, benefit programs or other employee
matters.
In addition, certain administrative functions and corporate support
services, including pension, tax, insurance and risk management, investor
relations, corporate secretarial services, communications, recruitment and
benefits administration, have historically been provided to us by the management
company Latona Associates Inc. (Latona). After the Effective Date, we entered
into a one-year transition agreement with Latona, which expires in the fourth
quarter of 2004. By the expiration of this agreement, we intend to internally
perform through a combination of existing employees and new hires, or outsource
to other third parties in certain circumstances, the services previously
provided by Latona. As a result, unless otherwise agreed to, we will also no
longer have access to the services of Latona. Successful operation of our
businesses depends on our ability to assume or otherwise provide for these
responsibilities and may result in increased costs to us.
-16-
We may continue to pursue new acquisitions and joint ventures, and any such
transaction could adversely affect our operating results or result in increased
costs or other operating or management problems. We remain subject to the
ongoing risks of successfully integrating and managing the acquisitions and
joint ventures through which we have historically grown our business.
We have historically grown our business through acquisitions and joint
ventures. These transactions expose us to the risk of successfully integrating
those acquisitions. Such integration could impact various areas of our business,
including our workforce, management, production facilities, information systems,
accounting and financial reporting, and customer service. Disruption to any of
these areas of our business could materially harm our financial condition or
results of operations.
We may continue to pursue new acquisitions and joint ventures in the
future, a pursuit which will consume substantial time and resources. The
successful implementation of our operating strategy at current and future
acquisitions and joint ventures may require substantial attention from our
management team, which could divert management attention from our existing
businesses. The businesses we acquire, or the joint ventures we enter into,
may not generate the cash flow and earnings, or yield the other benefits we
anticipated at the time of their acquisition or formation. The risks inherent
in our strategy could have an adverse impact on our results of operation or
financial condition.
In addition, subject to certain exceptions, both our Revolving Credit
Facility and Senior Term Loan Credit Agreement restrict our ability to, among
other things, make investments, including the acquisition of property in
exchange for cash or other property, whether in the form of an acquisition of
stock or other equity interests, debt or other indebtedness or obligation, or
the purchase or acquisition of any other property, loan, advance, capital
contribution or subscription. These restrictions may prevent us from pursuing
new acquisitions and joint ventures which we would otherwise pursue.
We may experience increased costs and production delays if suppliers fail to
deliver materials to us or if prices increase for raw materials and other goods
and services that we purchase from third parties.
We purchase raw materials from a number of domestic and foreign suppliers.
Although we believe that the raw materials we require will be available in
sufficient supply on a competitive basis for the foreseeable future, increases
in the cost of raw materials, including energy and other inputs used to make our
products, could affect future sales volumes, prices and margins for our
products. If a supplier should cease to deliver goods or services to us, we
would probably find other sources, but, this disruption could result in added
cost and manufacturing delays. In addition, political instability, war,
terrorism and other disruptions to international transit routes control could
adversely impact our ability to obtain key raw materials in a timely fashion, or
at all.
Our revenues are dependent on the continued operation of our manufacturing
facilities, and breakdowns or other problems in their operation could adversely
affect our results of operations.
Our revenues are dependent on the continued operation of our various
manufacturing facilities. In particular, the operation of chemical manufacturing
plants involves many risks, including the breakdown, failure or substandard
performance of equipment, natural disasters, power outages, the need to comply
with directives of government agencies, and dependence on the ability of
railroads and other shippers to transport raw materials and finished products in
a timely manner. The occurrence of material operational problems, including but
not limited to these events, at one or more of our facilities could have a
material adverse effect on our results of operations or financial condition.
Certain facilities within each of our business segments account for a
significant share of our profits. Disruption to operations at one of these
facilities could have a material adverse impact on segment financial performance
and our overall
-17-
financial condition. In addition, in certain circumstances we could also be
affected by a disruption or closure of a customer's plant or facility to which
we supply our products.
Our principal businesses are subject to government regulation, including
environmental regulation, and changes in current regulations may adversely
affect us.
Our principal business activities are regulated and supervised by various
governmental bodies. Changes in laws, regulations or governmental policy or the
interpretations of those laws or regulations affecting our activities and those
of our competitors could have a material adverse effect on us.
For example, our various manufacturing operations, which have been
conducted at a number of facilities for many years, are subject to numerous laws
and regulations relating to the protection of human health and the environment
in the U.S., Canada, Australia, China, Germany, Great Britain, India, Mexico and
other countries. We believe that we are in substantial compliance with such laws
and regulations. However, as a result of our operations, from time to time we
are involved in administrative and judicial proceedings and inquiries relating
to environmental matters. Based on information available to us at this time with
respect to potential liability involving these facilities, we believe that any
such liability will not have a material adverse effect on our financial
condition, cash flows or results of operations. However, modifications of
existing laws and regulations or the adoption of new laws and regulations in the
future, particularly with respect to environmental and safety standards, could
require us to make expenditures which may be material or otherwise adversely
impact our operations.
In addition, the Comprehensive Environmental Response Compensation and
Liability Act of 1980 (CERCLA) and similar statutes have been construed as
imposing joint and several liability, under certain circumstances, on present
and former owners and operators of contaminated sites, and transporters and
generators of hazardous substances, regardless of fault. Our facilities have
been operated for many years by us or prior owners and operators, and adverse
environmental conditions of which we are not aware may exist. Modifications of
existing laws and regulations, and the discovery of additional or unknown
environmental contamination at any of our current or former facilities, could
have a material adverse effect on our financial condition, cash flows and/or
results of operations.
The production of chemicals is associated with a variety of hazards which could
create significant liabilities or cause our facilities to suspend their
operations.
Our operations are subject to various hazards incident to the production of
chemicals, including the use, handling, processing, storage and transportation
of certain hazardous materials. These hazards, which include the risk of
explosions, fires and chemical spills or releases, can cause personal injury and
loss of life, severe damage to and destruction of property and equipment,
environmental damage, suspension of operations and potentially subject us to
lawsuits relating to personal injury and property damages. Any such event or
circumstance could have a material adverse effect on our results of operations
or financial condition.
We may not be able to obtain insurance at our historical rates and our insurance
coverage may not cover all claims and losses.
We maintain insurance coverage on our properties, machines, supplies and
other elements integral to our business and against certain third party
litigation, environmental matters and similar events. Due to recent changes in
market conditions in the insurance industry and other factors, we may not be
able to secure insurance at a similar cost to what we have previously paid, if
at all.
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In addition, there are certain types of losses, generally of a catastrophic
nature, such as earthquakes, floods, hurricanes, terrorism or acts of war, that
may be uninsurable or not economically insurable. Inflation, changes in building
codes and ordinances, environmental considerations, and other factors, including
terrorism or acts of war, also might make insurance proceeds insufficient to
repair or replace a property if it is damaged or destroyed. In addition, as a
result of the events of September 11, 2001, insurance companies are limiting
and/or excluding coverage for acts of terrorism in insurance policies. As a
result, we may suffer losses from acts of terrorism that are not covered by
insurance.
Terrorist activities and military and other actions could adversely affect our
business.
Uncertainty surrounding the possibility and scope of terrorist attacks in
the United States and abroad, military action and other socioeconomic and
political events may impact our operations in unpredictable ways, including
possible effects on our business operations, customers, the markets for our
products and the possibility that our chemical production facilities may become
targets, or indirect casualties, of possible terrorist attacks. While our
production facilities are under a heightened level of security, this level of
security may be insufficient to prevent a terrorist attack. The resulting damage
would be difficult to assess, may be severe and could include loss of life and
property damage. Available insurance coverage may not be sufficient to cover all
of the damage incurred or may be prohibitively expensive. In addition, some of
our production and other facilities are located at sites where our neighbors may
be potential targets of terrorist attacks. The resulting collateral damage may
be significant and substantial.
We are subject to risks relating to our foreign operations.
We have significant manufacturing and sales activities outside of the U.S.
and we also export products from the U.S. to various foreign countries. These
international operations and exports to foreign markets make us subject to a
number of risks such as: currency exchange rate fluctuations; foreign economic
conditions; trade barriers; exchange controls; national and regional labor
strikes; political instability; risks of increases in duties; taxes;
governmental royalties; war; and changes in laws and policies governing
operations of foreign-based companies. The occurrence of any one or a
combination of these factors may increase our costs or have other negative
effects on us.
The seasonal nature of the environmental services business could increase our
costs or have other negative effects.
Within our performance products segment, the environmental services
business has higher volumes in the second and third quarters of the year, owing
to higher spring and summer demand for sulfuric acid regeneration services from
gasoline refinery customers to meet peak summer driving season demand and higher
spring and summer demand from water treatment chemical customers to manage
seasonally high and low water conditions. The degree of seasonal peaks and
declines in the volumes of our environmental services business could increase
our costs, negatively impact our manufacturing efficiency, or have other
negative effects on our operations or financial performance.
Efforts to comply with the Sarbanes-Oxley Act will entail significant
expenditure; non-compliance with the Sarbanes-Oxley Act may adversely affect us.
The Sarbanes-Oxley Act of 2002, as well as new rules subsequently
implemented by the Commission, have required, and will require, changes to some
of our accounting and corporate governance practices, including the requirement
that we issue a report on our internal controls as required
-19-
by Section 404 of the Sarbanes-Oxley Act. We expect these new rules and
regulations to continue to increase our accounting, legal and other costs, and
to make some activities more difficult, time consuming and/or costly. In
addition, should we list our common stock on a national securities exchange or
the Nasdaq National Market, we will be subject to additional requirements. In
the event that we are unable to achieve compliance with the Sarbanes-Oxley Act
and related rules, or the rules of any national securities exchange or the
Nasdaq National Market, as applicable should we list our common stock, this may
have a material adverse effect on us.
In addition, we also expect these new rules and regulations to make it more
difficult and more expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced coverage or incur
substantially higher costs to obtain coverage. These new rules and regulations
could also make it more difficult for us to attract and retain qualified members
of our board of directors, particularly to serve on our audit committee, and
qualified executive officers.
We are dependent upon many critical systems and processes, many of which are
dependent upon hardware that is concentrated in a limited number of locations.
If a catastrophe were to occur at one or more of those locations, it could have
a material adverse effect on our business.
Our business is dependent on certain critical systems, which support
various aspects of our operations, from our computer network to our billing and
customer service systems. The hardware supporting a large number of such systems
is housed in a small number of locations. If one or more of these locations were
to be subject to fire, natural disaster, terrorism, power loss, or other
catastrophe, it could have a material adverse effect on our business. While we
believe that we maintain reasonable disaster recovery programs, there can be no
assurance that, despite these efforts, any disaster recovery, security and
service continuity protection measures we have or may take in the future will be
sufficient.
In addition, computer viruses, electronic break-ins or other similar
disruptive problems could also adversely affect our operations. Our insurance
policies may not adequately compensate us for any losses that may occur due to
any failures or interruptions in our computer systems.
Risks Related to Our Common Stock
The market price of our common stock is subject to volatility as well as trends
in our industries.
We recently emerged from Chapter 11 and the current market price of our
common stock may not be indicative of prices that will prevail in the future.
The market price of our common stock could be subject to wide fluctuations in
response to numerous factors, many of which are beyond our control. These
factors include, among other things, actual or anticipated variations in our
operating results and cash flow, the nature and content of our earnings releases
and our competitors' earnings releases, announcements of technological
innovations that impact our products, customers, competitors or markets, changes
in financial estimates by securities analysts, business conditions in our
markets and the general state of the securities markets and the market for
similar stocks, changes in capital markets that affect the perceived
availability of capital to companies in our industries, governmental legislation
or regulation, as well as general economic and market conditions, such as
recessions. In addition, in the short period since the issuance of our common
stock on the Effective Date, the price of our common stock has been somewhat
volatile and remains subject to volatility.
Trends in the industries in which we compete are likely to have a
corresponding impact on the price of our common stock. Specifically, an economic
downturn in the automotive industry as a whole or other events (e.g., labor
disruptions) resulting in significantly reduced operations at any of
-20-
DaimlerChrysler, Ford or General Motors, or at certain of our manufacturing
plants, could have a material adverse impact on the results of our manufacturing
segment. In addition, in the appliance and electronic and industrial markets,
risks include softening of appliance demand, continued price pressure from major
customers and continued competition from lower-cost Asian sources. For our
performance products business, continued weakness in the pulp and paper,
electronics or chemical processing industries could have an adverse effect on
our results of operations. In our communications segment, a loss of key
contracts with current customers and vendors in addition to weakness in economic
conditions in the communications market and competitive pricing driven by
overcapacity could have a material adverse effect on the price of our stock.
Sales of large amounts of our common stock, or the perception that large sales
could occur, may depress our stock price.
On the Effective Date, we issued an aggregate of 10,000,000 shares of our
common stock to former holders of our debt securities and other claimants. These
shares represented all of our outstanding common stock as of the Effective Date
and may be sold at any time, subject to compliance with applicable law,
including the Securities Act, and certain provisions of our certificate of
incorporation, bylaws and the Registration Rights Agreement.
Sales in the public market of large blocks of shares of our common stock
acquired pursuant to the Plan could lower our stock price and impair our ability
to raise funds in future stock offerings.
We may in the future seek to raise funds through equity offerings, or there may
be other events which would have a dilutive effect on our common stock.
In the future we may determine to raise capital through offerings of our
common stock, securities convertible into our common stock, or rights to acquire
such securities or our common stock. In any such case, the result would
ultimately be dilutive to our common stock by increasing the number of shares
outstanding.
In addition, if options or warrants to purchase our common stock are
exercised or other equity interests are granted under our management and
directors incentive plan or under other plans adopted in the future, such equity
interests will also have a dilutive effect on our common stock. Additional
shares of our common stock and additional warrants may be issued pursuant to the
Plan to certain claimants, subject to the resolution of certain claims.
In the event that the holders of California Tort Claims (as defined in the
Plan) prevail on their asserted claims against us and our insurance does not
cover such claims, stock and warrants would be issued to holders of such claims
and dilution of any outstanding shares of our common stock would occur. Although
we believe we have meritorious defenses to the California Tort Claims and, if
our insurance covers this liability, that we have sufficient insurance coverage
to satisfy any liquidated amounts relating to such claims, there can be no
assurance this will be the case.
Under the Plan, holders of California Tort Claims, to the extent they are
determined to hold allowable claims not covered by insurance, will receive
additional shares of our common stock and warrants beyond those reserved for
general unsecured creditors, in an amount that will provide the same percentage
recovery as received by general unsecured creditors.
We cannot predict the effect any such dilution may have on the price of our
common stock.
-21-
We may be unable to list our stock on a national securities exchange or the
Nasdaq National Market.
We are currently traded on the Over the Counter Bulletin Board. We are
currently reviewing the possibility of listing our common stock on a national
securities exchange or the Nasdaq National Market. Despite our efforts, we may
not be able to meet the applicable listing requirements of any national
securities exchange or the Nasdaq National Market and, therefore, our common
stock may not become listed on a national securities exchange or the Nasdaq
National Market. If our stock is not traded through a market system, it may not
be liquid and we may be unable to obtain future equity financing, or use our
common stock as consideration for mergers or other business combinations on
favorable terms or at all.
We do not expect to pay regular dividends on our common stock in the foreseeable
future.
We do not expect to pay regular dividends on our common stock in the
foreseeable future. The payment of any dividends by us in the future will be at
the discretion of our board of directors and will depend upon, among other
things, our future earnings, capital requirements, and general financial
condition. In addition, under Delaware law, unless a corporation has available
surplus or earnings it cannot declare or pay dividends on its capital stock.
Furthermore, the terms of our Revolving Credit Facility impose limitations
on the payment of dividends to us by our subsidiaries and the distribution of
earnings or making of other payments to us by our subsidiaries, which
consequently limits amounts available for us to pay dividends on our common
stock. Additionally, the Revolving Credit Facility and the Senior Term Loan
Credit Agreement directly limit our ability to pay dividends on our common
stock. The terms of any future indebtedness of our subsidiaries may generally
restrict the ability of some of our subsidiaries to distribute earnings or make
other payments to us.
Certain transfer restrictions on our common stock imposed by our charter may
inhibit market activity in our common stock.
Our common stock is subject to certain transfer restrictions imposed by our
charter. These restrictions generally prohibit the following transfers of our
equity securities without the prior written consent of our board of directors,
which consent can be withheld only if our board of directors, in its sole
discretion, determines that the transfer creates a material risk of limiting
certain tax benefits: (i) transfers to a person (including any group of persons
making a coordinated acquisition) who beneficially owns, or would beneficially
own after the transfer, more than 4.75 percent of the total value of our
outstanding equity securities, to the extent that the transfer would increase
such person's beneficial ownership above 4.75 percent of the total value of our
outstanding equity securities and (ii) transfers by a person (or group of
persons having made a coordinated acquisition) who beneficially owns more than
4.75 percent of the total value of our outstanding equity securities. The
restrictions are not applicable to transfers pursuant to a tender offer to
purchase 100 percent of our common stock for cash or marketable securities so
long as such tender offer results in the tender of at least 50 percent of our
common stock then outstanding. The restrictions begin only at such time that 25
percent of the our common stock has been transferred, for tax purposes (which
generally takes into consideration only transfers to or from shareholders who
beneficially own 5 percent of the value of our common stock), and will remain in
effect until the earlier of: (i) the second anniversary of the Effective Date or
(ii) such date as the board of directors determines, in its sole discretion,
that such restrictions are no longer necessary to protect tax benefits. These
transfer restrictions may inhibit market activity in our common stock.
-22-
Some provisions of the agreements governing our indebtedness, certain provisions
of our certificate of incorporation and Delaware law could discourage
acquisition proposals or delay a change in control that would be beneficial to
our stockholders.
We may, under some circumstances involving a change of control, be
obligated to offer to repay substantially all of our outstanding indebtedness,
and repay other indebtedness (including our Revolving Credit Facility and senior
term debt). We cannot assure you that we will have available financial resources
necessary to repay this indebtedness in those circumstances.
If we cannot repay this indebtedness in the event of a change of control,
the failure to do so would constitute an event of default under the agreements
under which that indebtedness was incurred and could result in a cross-default
under other indebtedness. The threat of this default could have the effect of
delaying or preventing transactions involving a change of control of GenTek,
including transactions in which stockholders might otherwise receive a
substantial premium for their shares over then current market prices, and may
limit the ability of our stockholders to approve transactions that they may deem
to be in their best interest.
Certain provisions of our certificate of incorporation, including the
provision restricting transfer of shares in order to assist in the preservation
of certain tax benefits, may have the effect, alone or in combination with each
other or with the existence of authorized but unissued common stock and
preferred stock, of preventing or making more difficult transactions involving a
change of control of GenTek.
Item 2. Properties.
The Company operates over 75 manufacturing and production facilities
located in the United States, Canada, Australia, China, Germany, Great Britain,
India and Mexico. The Company's headquarters are located in Parsippany, New
Jersey.
Set forth below are the locations and uses of the Company's major
properties:
Location Use
- -------- ---
Manufacturing Segment
Southfield, Michigan(1).......................... Offices
Troy, Michigan(1)................................ Production Facility and Offices
Westland, Michigan(1)............................ Production Facility
Weaverville, North Carolina(2)................... Production Facility
Upper Sandusky, Ohio(1).......................... Production Facility
Toledo, Ohio..................................... Production Facility
Defiance, Ohio(2)................................ Production Facility
Perrysburg, Ohio(2).............................. Production Facility and Offices
Mineral Wells, Texas............................. Production Facility
Imuris, Mexico................................... Production Facility
Juarez, Mexico(1)................................ Production Facility
Concord, Ontario(2).............................. Production Facility
Guelph, Ontario(1)............................... Production Facility
Scarborough, Ontario(2).......................... Production Facility
Stouffville, Ontario(2).......................... Production Facility
-23-
Tillsonburg, Ontario(1).......................... Production Facility
Waterdown, Ontario............................... Production Facility
Performance Products Segment
Hollister, California(2)......................... Production Facility and Offices
Pittsburg, California(2)......................... Production Facility
Richmond, California(2).......................... Production Facility
Augusta, Georgia................................. Production Facility
East St. Louis, Illinois......................... Production Facility
Berkeley Heights, New Jersey(2).................. Production Facility, Offices and Warehouse
Newark, New Jersey(2)............................ Production Facility
Solvay, New York(2).............................. Production Facility
Marcus Hook, Pennsylvania(2)..................... Production Facility, Offices and Warehouse
Celina, Texas(2)................................. Production Facility
Midlothian, Texas(2)............................. Production Facility
Anacortes, Washington............................ Production Facility
Thorold, Ontario................................. Production Facility
Valleyfield, Quebec.............................. Production Facility
Communications Segment
Centennial, Colorado(1).......................... Offices
Sidney, Nebraska(2).............................. Production Facility
North Bennington, Vermont(1)..................... Production Facility
Racine, Wisconsin(2)............................. Production Facility and Offices
Sydney, Australia................................ Production Facility and Offices
Cheltenham, England.............................. Production Facility and Offices
Berlin, Germany(1)............................... Production Facility and Offices
Toluca, Mexico(1)................................ Production Facility
Shanghai, People's Republic of China............. Production Facility
Bangalore, India................................. Production Facility
Offices
Hampton, New Hampshire(1)........................ Offices
Parsippany, New Jersey(1)........................ Headquarters
- ----------
(1) Leased.
(2) Mortgaged as security under the Company's senior debt facilities.
Item 3. Legal Proceedings.
The Company is involved in claims, litigation, administrative proceedings
and investigations of various types, including the Sunoco Employee litigation
discussed below, and certain environmental proceedings previously discussed.
Although the amount of any liability that could arise with respect to these
actions cannot be accurately predicted, the opinion of management based upon
currently-available information is that any such liability not covered by
insurance will have no material adverse effect on the Company's results of
operations, cash flows or financial condition. See "Item 1. Business -
Environmental Matters" above.
-24-
As previously discussed, on October 11, 2002, GenTek and 31 of its direct
and indirect subsidiaries, including its Noma Company subsidiary (collectively,
the "Debtors") filed voluntary petitions for reorganization relief (the
"Filing") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). The Debtors' cases continue to be jointly administered as
Case No. 02-12986 (MFW). As a result of the Debtors' commencement of the Chapter
11 cases, an automatic stay was imposed against the commencement or continuation
of legal proceedings against the Debtors outside of the Bankruptcy Court. As of
the Effective Date, the automatic stay was replaced or supplemented by the
discharge injunction imposed by the Plan. Claimants against the Debtors were
entitled to assert their claims in the Chapter 11 cases by filing a proof of
claim, to which the Debtors were entitled to object and seek a determination
from the Bankruptcy Court as to the allowability of the claim. The objection
process is continuing. Claimants who desired to liquidate their claims in legal
proceedings outside of the Bankruptcy Court will be required to obtain relief
from the automatic stay by order of the Bankruptcy Court. With the occurrence of
the Effective Date, any liquidation of claims outside the Bankruptcy Court will
be permitted only if the Bankruptcy Court agrees on motion to modify the
discharge injunction. In such event, the discharge injunction will remain in
effect with respect to the collection of liquidated claim amounts. As a general
rule, all claims against the Debtors that seek a recovery from assets of the
Debtors' estates were addressed in the Chapter 11 cases and were or will be paid
or otherwise provided for pursuant to the terms of the Plan or, where
applicable, orders of the Bankruptcy Court. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Emergence
Reorganization under Chapter 11 of the US Bankruptcy Code" for a further
discussion of the treatment of claims.
Sunoco Employee Litigation. In April 1998, approximately 40 employees (and
their respective spouses) of the Sunoco refinery in Marcus Hook, Pennsylvania,
filed lawsuits in the Court of Common Pleas, Delaware County, Pennsylvania,
against General Chemical Corporation alleging that sulfur dioxide and sulfur
trioxide releases from the Company's Delaware Valley facility caused various
respiratory, pulmonary and other injuries. Unspecified damages in excess of
$50,000 for each plaintiff were sought. Active discovery has taken place and the
cases were initially set for trial in March 2003.
In addition, on September 24, 1999 the same attorneys that filed the April
1998 individual actions also filed a purported class action complaint against
the Company, titled Whisnant vs. General Chemical Corporation, (in the Court of
Common Pleas, Delaware County, Pennsylvania), on behalf of more than 1,000
current and former employees of the Sunoco Plant. The complaint alleges that
releases of sulfur dioxide and sulfur trioxide caused injuries to the
plaintiffs, and sought, among other things, to establish a medical monitoring
fund for plaintiffs. In May 2002, the trial court denied plaintiffs' motion to
certify the case to proceed as a class action. Plaintiffs filed an appeal of
that decision.
Both the individual actions and the class action proceedings were stayed as
a result of the Company's Filing. The bankruptcy court lifted the automatic stay
for the limited purpose of allowing the parties to consummate a settlement
agreement that has been reached to resolve the individual and class action
lawsuits. Pursuant to the settlement, the Company and its insurer will pay a
total of $2,095,000 ($1.3 million of which will be paid by the Company's
insurer) following final approval of the settlement by the trial court. The
settlement received preliminary approval by the trial court and notice was sent
to the class members. Class members had until January 23, 2004 to opt out of the
settlement (however, such deadline has been extended); approximately 26 people
have submitted opt out requests, but approximately 4 reconsidered and opted-in
before the extended deadline. The settlement was finally approved by the court
and will become final after the exhaustion of all appellate and termination
rights, at which time payment will be made.
-25-
Richmond Litigation. Lawyers claiming to represent more than 47,000 persons have
filed approximately 24 lawsuits in several counties in California state court
(Alameda, Contra Costa, San Francisco superior courts), making claims against
General Chemical Corporation and, in some cases, a third party arising out of a
May 1, 2001 release of sulfur dioxide and sulfur trioxide from the Company's
Richmond, California sulfuric acid facility. The first case was filed in 2001
and all subsequent cases were filed from March through July 2002. On May 1,
2002, a class action lawsuit arising out of the same facts was also filed. Some
of the complaints also allege damages arising out of a separate alleged release
of sulfur trioxide from the Richmond facility on November 29, 2001. The lawsuits
claim various damages for alleged injuries, including, without limitation,
claims for personal injury, emotional distress, medical monitoring, nuisance,
loss of consortium and punitive damages. The Company filed a petition for
coordination to consolidate all of the state court cases before a single judge,
which was tentatively granted, but the Company filed its bankruptcy petition
before the final order was entered. The state court cases were stayed as a
result of the Filing.
Approximately 73,000 proofs of claim were submitted in the bankruptcy
proceedings on behalf of the Richmond claimants, seeking damages for the May 1,
2001 and/or November 29, 2001 releases. A preliminary review of the claimant
list indicates that the claimants include most of the plaintiffs in the state
court cases, plus several thousand duplicates and some additional claimants. In
addition, one class proof of claim was submitted. A motion for class
certification was filed but the motion was later withdrawn. The Company filed a
motion to lift the automatic stay and discharge injunction to allow liquidation
of the claims to proceed in California State Court. That motion was granted upon
stipulation of the parties, and the action is proceeding in California State
Court.
Any recovery by the plaintiffs in these lawsuits will be limited as
provided in the Plan. Pursuant to the terms of the Plan, GenTek could be
required to issue new shares of common stock and Tranche A, B and C Warrants in
accordance with the terms of the Plan to the extent insurance is not available
to cover any allowed amount of such claim.
Other Claims. The Company is subject to various other claims and legal
actions that arise in the ordinary course of business. Claims and legal actions
against the Debtors that existed as of the date of the Filing are subject to the
automatic stay and/or discharge injunction, and recoveries sought thereon from
assets of the Debtors were dealt with in the Chapter 11 cases pursuant to the
terms of the Plan or, where applicable, orders of the Bankruptcy Court.
Item 4. Submission of Matters to a Vote of Security Holders.
No items were submitted to a vote of security holders of the Company,
through the solicitation of proxies or otherwise, during the fourth quarter of
fiscal 2003.
-26-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information
On November 10, 2003, both classes of our previously existing common stock
were cancelled in connection with our emergence from Chapter 11 protection, and
we issued new common stock. Therefore, our existing common stock has been quoted
on the Over the Counter Bulletin Board (OTCBB) under the symbol "GETI" since
November 2003. As a result, the market for our common stock is new and not well
developed. Over the counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
The following table sets forth, for the period indicated, the high and low
sale prices in dollars as quoted on the OTCBB for our existing common stock.
2003: High Low
------ ------
November 11, 2003 through December 31, 2003... $37.00 $34.75
As of March 15, 2004 there were 39 stockholders of record of the Company's
common stock.
The Company's previously existing common stock was traded on the Over The
Counter Bulletin Board under the symbol "GNKIQ" until November 10, 2003. There
was no established public trading market for the Company's previously existing
Class B Common Stock. The table below shows the high and low recorded sales
prices of the Company's previously existing common stock, for each quarterly
period within the last two years.
2003 High Low
- ---- ------ ------
First Quarter................................................. $0.022 $0.010
Second Quarter................................................ $0.036 $0.008
Third Quarter................................................. $0.008 $0.003
October 1 through November 10, 2003........................... $0.007 $0.003
2002
- ----
First Quarter................................................. $1.970 $0.300
Second Quarter................................................ $0.470 $0.150
Third Quarter................................................. $0.230 $0.080
Fourth Quarter................................................ $0.095 $0.015
Dividends
No dividends were paid in 2003 or 2002. We currently intend to retain our
earnings for use in the operation and expansion of our business and for debt
service and, therefore, we do not anticipate paying regular cash dividends in
the foreseeable future. Additionally, the Revolving Credit Facility and Senior
Term Loan Credit Agreement directly limit the ability of the Company to pay cash
dividends.
-27-
Equity Compensation Plan Information
The following table gives information about our existing Common Stock that
may be issued upon the exercise of options, warrants and rights under our 2003
Management and Directors Incentive Plan as of December 31, 2003.
- ----------------------------------------------------------------------------------------------------
Equity Compensation Plan Information
- ----------------------------------------------------------------------------------------------------
Number of Securities
remaining available for
future issuance under
Number of Securities to Weighted average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan Category (a) (b) (c)
- ----------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security 0 0
holders
- ----------------------------------------------------------------------------------------------------
Equity compensation plans 0(1) 1,000,000
not approved by security
holders
- ----------------------------------------------------------------------------------------------------
Total 0 1,000,000
- ----------------------------------------------------------------------------------------------------
- ----------
(1) Available for issuance under the 2003 Management and Directors Incentive
Plan. This plan was approved by the bankruptcy court and became effective on
November 10, 2003 concurrent with the effective date of the Plan of
Reorganization. As of December 31, 2003, no awards had been granted under the
plan.
2003 Management and Directors Incentive Plan
Pursuant to the Company's 2003 Management and Directors Incentive Plan,
employees and directors of the Company and its subsidiaries may be granted stock
options, restricted stock, stock appreciation rights, restricted stock,
performance share awards, dividend equivalent rights or any other stock-based
awards. The compensation committee of the Board has the authority to select
participants and determine grants of awards. The maximum number of shares with
respect to which any awards may be granted during a calendar year to any
participant is 100,000. Upon a "change in control" of the company, unless
otherwise determined by the compensation committee, each outstanding award shall
automatically become fully exercisable. The Board may, at any time, amend or
discontinue the plan and the compensation committee may, at any time, amend or
cancel any outstanding award or provide substitute awards in accordance with the
plan, provided that such action does not adversely affect the participant. The
term of the Plan is 10 years.
Item 6. Selected Financial Data.
Certain of GenTek's businesses were formerly part of the businesses of The
General Chemical Group Inc. (GCG). On April 30, 1999, GCG separated the GenTek
business from GCG's soda ash and calcium chloride industrial chemicals business
through a spin-off, by transferring the GenTek business to GenTek, and
distributing the common stock of GenTek to GCG's shareholders. Since the
spin-off, GenTek has been a separate, stand-alone company which operates through
its subsidiaries.
-28-
The following selected consolidated financial data of the Company have been
derived from and should be read in conjunction with the Company's Consolidated
Financial Statements. In connection with its emergence from bankruptcy on
November 10, 2003, the Company has adopted fresh-start reporting in accordance
with SOP 90-7. Accordingly, the Company's post-emergence financial statements
("Successor") will not be comparable with its pre-emergence financial statements
("Predecessor").
Successor
Company Predecessor Company
------------ --------------------------------------------------------------------------
Period Ended Period Ended Years Ended December 31,
December 31, November 10, ---------------------------------------------------------
2003 2003 2002 2001 2000 1999
------------ ------------ ---------- ---------- ---------- ----------
(In thousands, except per share data)
Statement of Operations Data:
Net revenues ..................... $ 142,195 $ 956,895 $1,128,533 $1,244,420 $1,414,187 $1,032,925
Restructuring and impairment
charges........................ 1,047 28,824 78,238 187,417 -- --
Operating profit (loss) .......... 5,323 26,069 (25,071) (172,746)(1) 159,291(2) 115,087(3)
Interest expense ................. 2,685 1,637 60,135 74,980 74,948 45,979
Income (loss) from continuing
operations (4)................. 1,092 494,392(5) (199,524)(5) (170,844)(1) 50,241(2) 35,033(3)
Income from discontinued
operations..................... -- -- -- -- -- 1,006
Net income (loss) (4)(6) ......... $ 1,092 $ 494,392(5) $ (360,649)(5) $ (170,844)(1) $ 50,241(2) $ 31,100(3)
Per Share:
Income (loss) from continuing
operations--basic (4) ......... $ 0.11 $ 19.34(5) $ (7.82)(5) $ (6.72)(1) $ 2.04(2) $ 1.67(3)
Income (loss) from continuing
operations--diluted (4) ....... 0.11 19.34(5) (7.82)(5) (6.72)(1) 1.99(2) 1.64(3)
Net income (loss)--
basic (4)(6) .................. 0.11 19.34(5) (14.13)(5) (6.72)(1) 2.04(2) 1.48(3)
Net income (loss)--
diluted (4)(6) ................ 0.11 19.34(5) (14.13)(5) (6.72)(1) 1.99(2) 1.45(3)
Dividends (7) .................... -- -- -- 0.15 0.20 0.20
Other Data:
Capital expenditures ............. $ 10,552 $ 30,564 $ 52,440 $ 77,778 $ 81,298 $ 47,323
Depreciation and amortization .... 6,703 37,397 47,903 68,317 68,973 54,222
Balance Sheet Data
(at end of period):
Cash and cash equivalents ........ $ 60,121 $ 133,030 $ 9,205 $ 4,459 $ 20,687
Total assets ..................... 1,066,809 956,985 1,164,843 1,350,722 1,254,866
Long-term debt (including current
portion)....................... 263,814 939,529 832,426 818,812 724,115
Total equity (deficit) ........... 278,787 (510,321) (142,337) 47,658 56,403
- ----------
(1) Includes charges of $60.0 million ($36.3 million after tax or $1.43 per
share), principally related to provisions for obsolete and exce ss
inventory and loss provisions for accounts receivable.
(2) Includes a charge of $5.8 million ($3.5 million after tax or $0.14 per
share) for purchased in-process research and development.
(3) Includes a charge of $6.2 million ($3.7 million after tax or $0.17 per
share) primarily related to the spinoff.
(4) Includes a decrease to the deferred tax asset valuation allowance of $142.7
million ($14.27 per share) in 2003, an increase to the deferred tax asset
valuation allowance of $142.8 million ($5.59 per share) in 2002 to record a
valuation allowance for the Company's net domestic deferred tax assets and,
in 2000, a charge of $2.8 million ($0.11 per share) to revalue certain
deferred tax assets in Germany.
(5) Includes reorganization items of $411.8 million ($16.11 per share) of
income for the period ended November 10, 2003 and $11.6 million ($0.46 per
share) of expense in 2002.
(6) Includes the cumulative effect of a change in accounting principle of
$161.1 million ($6.31 per share) in 2002 and extraordinary losses net of
tax of $4.9 million ($0.23 per share), related to the early retirement of
certain indebtedness in 1999.
(7) During the fourth quarter of 2001, the Company suspended the payment of
quarterly dividends.
-29-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following section should be read in conjunction with the consolidated
financial statements and the notes indicated elsewhere in this Annual Report.
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Certain
statements, other than statements of historical facts, included in this Annual
Report may constitute forward-looking statements. Forward-looking statements are
generally identifiable by use of forward-looking terminology such as "may,"
"will," "should," "potential," "intend," "expect," "endeavor," "seek,"
"anticipate," "estimate," "overestimate," "underestimate," "believe," "could,"
"project," "predict," "continue" or other similar words or expressions. The
Company has based these forward-looking statements on its current expectations
and projections about future events. Although the Company believes that its
assumptions made in connection with the forward-looking statements are
reasonable, there can be no assurances that these assumptions and expectations
will prove to have been correct. Important factors that could cause actual
results to differ from these expectations are disclosed in this Annual Report
and include various risks, uncertainties and assumptions. Such factors include,
but are not limited to, those set forth in the section of this annual report
captioned "Business Risk Factors".
Management's Discussion and Analysis of Financial Condition and Results of
operations contains non GAAP financial measures within the meaning of Regulation
G promulgated by the Securities and Exchange Commission. Included in Item 7.
Reconciliation of Non-GAAP Financial Measures is a reconciliation statement of
operations data for the full year 2003 to the Predecessor Company and Successor
Company statements of operations for the periods ended November 10, 2003 and
December 31, 2003, respectively. Management believes that this information is
the most relevant and useful formation for making comparisons to the period
ended December 31, 2002. References to the full year 2003 throughout this
Discussion refer to the above mentioned information.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this Annual Report might not occur.
Recent Development
On March 25, 2004, the Company announced that it signed a definitive
agreement to sell its KRONE communications business to ADC Telecommunications,
Inc. (ADC). Under the terms of the agreement, the Company will receive total
consideration of approximately $350 million, consisting of $291 million in cash
and the assumption by ADC of approximately $59 million of pension and
employee-related liabilities. The transaction is expected to close within 90
days of the announcement and is subject to customary conditions including
regulatory and other approvals.
Reorganization under Chapter 11 of the U.S. Bankruptcy Code
On October 11, 2002, GenTek and 31 of its direct and indirect subsidiaries,
including its Noma Company subsidiary (collectively, the "Debtors"), filed
voluntary petitions for reorganization relief (the "Filing") under Chapter 11 of
the United States Bankruptcy Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The
Debtors' cases were jointly administered as Case No. 02-12986 (MFW).
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As a result of the Filing, an automatic stay was imposed against efforts by
claimants to collect amounts due or to proceed against property of the Debt