GENTEK INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
Note 1 – Basis of Presentation
The
accompanying unaudited consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating results for the six months ended
June 30, 2009 are not indicative of the results that may be expected for the
year ending December 31, 2009. These
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008.
On
July 9, 2009, the Company completed the sale of its fluid transfer business in
Weaverville, North Carolina. On
November 14, 2008, the Company completed the sale of its wire and cable
manufacturing business in Mineral Wells, Texas. Accordingly, these businesses have been classified as
discontinued operations.
The
Company has evaluated subsequent events through the time of filing these
financial statements with the Securities and Exchange Commission on August 7,
2009.
Note 2 – Summary of Significant Accounting Policies
In
September 2006, the FASB issued Statement of Financial Accounting Standards, or
SFAS No. 157, Fair Value Measurements, (“SFAS 157”), to define fair value,
establish a framework for measuring fair value in accordance with generally
accepted accounting principles and expand disclosures about fair value
measurements. SFAS 157 requires
quantitative disclosures using a tabular format in all periods (interim and
annual) and qualitative disclosures about the valuation techniques used to
measure fair value in all annual periods.
Certain provisions of SFAS 157 were effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. In February
2008, the FASB deferred the implementation of SFAS 157 for all non-financial
assets and non-financial liabilities, except those recognized or disclosed at
fair value in the financial statements on a recurring basis (at least
annually). The implementation of SFAS 157 for financial assets and financial
liabilities, effective January 1, 2008, did not have a material impact on our
consolidated financial position and results of operations. The Company adopted SFAS 157 provisions for
non-financial assets and non-financial liabilities in the first quarter of
2009. There was no material impact to
the Company’s consolidated financial position and results of operations.
In
December 2007, the FASB issued SFAS No. 160,
Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No. 51
(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 is effective for
fiscal years beginning on or after December 15, 2008. Earlier adoption is
prohibited. There was no material
impact on the Company’s results of operations or financial condition as a
result of adopting this statement in the first quarter of 2009.
-5-
GENTEK INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(unaudited)
In
March 2008, the FASB issued SFAS No. 161,
Disclosures
About Derivative Instruments and Hedging Activities – an amendment of FASB
Statement No. 133
(“SFAS 161”).
SFAS 161 expands quarterly disclosure requirements in SFAS No. 133 about
an entity’s derivative instruments and hedging activities. SFAS 161 is effective for fiscal years
beginning after November 15, 2008. The
Company adopted SFAS 161 in the first quarter of 2009 (see Note 11).
In
April 2008, the FASB issued FSP FAS 142-3,
Determination
of the Useful Life of Intangible Assets
(“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible Assets
(“SFAS 142”). The intent of FSP FAS
142-3 is to improve the consistency between the useful life of a recognized intangible
asset under SFAS 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS 141(R) and other applicable accounting
literature. FSP FAS 142-3 is effective
for financial statements issued for fiscal years beginning after December 15,
2008. There was no material impact on
the Company’s results of operations or financial condition as a result of
adopting this statement in the first quarter of 2009.
On
February 29, 2008, the Company completed the sale of its antiperspirant actives
product line to Summit Research Labs, Inc. for $18,000. As part of this transaction, the Company
continued to operate the antiperspirant actives manufacturing unit through
September 30, 2008, under a transition services contract. This business continues to be classified as
continuing operations. The Company
recorded a loss on disposition of long-term assets as a result of this sale in
the amount of $1,930 during the first quarter of 2008.
Note 3 – Comprehensive Income
Total
comprehensive income is comprised of net income, pension and postretirement
liability adjustments, foreign currency translation adjustments and the change
in unrealized gains and losses on derivative financial instruments. Total
comprehensive income for the three months ended June 30, 2009 and 2008 was
$22,227 and $10,684, respectively. Total comprehensive income for the six
months ended June 30, 2009 and 2008 was $34,314 and $4,174, respectively.
Note 4 – Earnings Per Share
The
computation of basic earnings per share is based on the weighted average number
of common shares outstanding including participating securities outstanding, as
discussed below, during the period. The computation of diluted earnings per
share assumes the foregoing and, in addition, the exercise of all warrants and
stock options, using the treasury stock method.
On
January 1, 2009, the Company adopted FSP EITF No. 03-6-1,
Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities
, which requires the Company to include all unvested stock awards
which contain non-forfeitable rights to dividends or dividend equivalents,
whether paid or unpaid, in the number of shares outstanding in our basic and
diluted EPS calculations. As a result, all outstanding restricted stock awards
have been included in our calculation of basic and diluted EPS for the current
and prior period. FSP EITF No. 03-6-1 also requires additional disclosure of
EPS for common stock and unvested share-based payment awards, separately
-6-
GENTEK INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(unaudited)
disclosing distributed and
undistributed earnings. However, the Company has only undistributed earnings in
the current and prior period.
The
shares outstanding used for basic and diluted earnings per common share are
reconciled as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
10,174,707
|
|
|
10,344,320
|
|
|
10,161,916
|
|
|
10,370,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
10,174,707
|
|
|
10,344,320
|
|
|
10,161,916
|
|
|
10,370,765
|
|
|
Warrants
|
|
|
—
|
|
|
827,085
|
|
|
—
|
|
|
760,799
|
|
|
Options
|
|
|
60,359
|
|
|
86,774
|
|
|
51,775
|
|
|
83,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,235,066
|
|
|
11,258,179
|
|
|
10,213,691
|
|
|
11,215,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended June 30, 2009 and 2008, potentially dilutive securities
totaling 1,165,823 and 280,596, respectively, were not included in the
computation of diluted earnings per common share due to their antidilutive
effect. For the six months ended June 30, 2009 and 2008, potentially dilutive
securities totaling 1,169,946 and 243,032, respectively, were not included in
the computation of diluted earnings per common share due to their antidilutive
effect.
Note 5 – Additional Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2009
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
27,433
|
|
$
|
27,477
|
|
|
Work in process
|
|
|
3,394
|
|
|
3,781
|
|
|
Finished products
|
|
|
9,395
|
|
|
10,627
|
|
|
Supplies and containers
|
|
|
1,164
|
|
|
1,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,386
|
|
$
|
43,056
|
|
|
|
|
|
|
|
|
|
|
-7-
GENTEK INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2009
|
|
December 31,
2008
|
|
Weighted
Average Life
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
Patents and technology – gross
|
|
$
|
821
|
|
$
|
821
|
|
|
7
years
|
|
|
Accumulated amortization
|
|
|
(95
|
)
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and technology – net
|
|
|
726
|
|
|
788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related – gross
|
|
|
7,000
|
|
|
7,000
|
|
|
6
years
|
|
|
Accumulated amortization
|
|
|
(6,610
|
)
|
|
(6,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related – net
|
|
|
390
|
|
|
972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements – gross
|
|
|
6,505
|
|
|
6,505
|
|
|
5
years
|
|
|
Accumulated amortization
|
|
|
(3,916
|
)
|
|
(3,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements – net
|
|
|
2,589
|
|
|
3,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks – indefinite life
|
|
|
3,000
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,705
|
|
$
|
8,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the three months ended June 30, 2009 and 2008, the Company recognized $688 and
$1,644 of amortization expense, respectively. During the six months ended June
30, 2009 and 2008, the Company recognized $1,377 and $3,311 of amortization
expense, respectively.
Note 6 – Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
|
|
June 30,
2009
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
– floating rates
|
|
|
2010
|
|
$
|
—
|
|
$
|
—
|
|
|
First lien term loans –
floating rates
|
|
|
2011
|
|
|
211,745
|
|
|
212,846
|
|
|
Other debt – various rates
|
|
|
2009-2012
|
|
|
255
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
212,000
|
|
|
213,388
|
|
|
Less: current portion
|
|
|
|
|
|
54,309
|
|
|
2,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net long-term debt
|
|
|
|
|
$
|
157,691
|
|
$
|
210,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of June 30, 2009, the weighted-average interest rate in effect for the first
lien term loans was 3.0 percent.
Note 7 – Stock Incentive Plans
During
the first six months of 2009, the Company granted the following awards:
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Exercise Price/Grant-Date Value
|
|
|
|
|
|
|
|
Stock options
|
|
|
87,268
|
|
$
|
19.57
|
|
|
Restricted stock
|
|
|
93,322
|
|
|
19.64
|
|
-8-
GENTEK
INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(unaudited)
The
fair value of each option grant was estimated using the Black-Scholes option
pricing model that uses the assumptions noted in the following table.
|
|
|
|
|
|
|
Dividend yield
|
|
|
—
|
|
|
Expected volatility
|
|
|
44
|
%
|
|
Risk-free interest rate
|
|
|
1.61
|
%
|
|
Expected holding period
(in years)
|
|
|
4
|
|
|
Weighted average fair
value
|
|
$
|
7.11
|
|
Compensation
cost recorded for stock-based compensation under the long-term incentive plan
was $2,192 and $990 for the three months ended June 30, 2009 and 2008,
respectively, and $3,255 and $1,990 for the six months ended June 30, 2009 and
2008, respectively. During the second quarter of 2009, the Company modified
certain restricted stock awards that resulted in a change to their
classification from equity awards to liability awards, resulting in a
reclassification of $1,692 from equity to current and long-term liabilities.
As
of June 30, 2009, there was $3,084 of total unrecognized compensation cost that
is expected to be recognized over a weighted average period of 2.6 years. The
remaining unrecognized compensation cost for performance based restricted stock
may vary each reporting period based on changes in the expected achievement of
performance measures.
Note 8 – Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valve actuation systems
|
|
$
|
13,622
|
|
$
|
35,554
|
|
$
|
30,794
|
|
$
|
71,980
|
|
|
Performance chemicals
|
|
|
113,162
|
|
|
115,919
|
|
|
219,494
|
|
|
219,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
126,784
|
|
$
|
151,473
|
|
$
|
250,288
|
|
$
|
291,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valve actuation systems
|
|
$
|
(2,842
|
)
|
$
|
(1,558
|
)
|
$
|
(6,456
|
)
|
$
|
(1,808
|
)
|
|
Performance chemicals
|
|
|
37,410
|
|
|
15,855
|
|
|
66,449
|
|
|
23,579
|
|
|
Corporate
|
|
|
(1,077
|
)
|
|
(991
|
)
|
|
(2,097
|
)
|
|
(2,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
33,491
|
|
|
13,306
|
|
|
57,896
|
|
|
19,687
|
|
|
Interest expense
|
|
|
3,532
|
|
|
4,030
|
|
|
7,092
|
|
|
8,413
|
|
|
Other expense (income), net
|
|
|
(345
|
)
|
|
(288
|
)
|
|
(209
|
)
|
|
(599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from continuing operations before income
taxes
|
|
$
|
30,304
|
|
$
|
9,564
|
|
$
|
51,013
|
|
$
|
11,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-9-
GENTEK
INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valve actuation systems
|
|
$
|
2,635
|
|
$
|
2,036
|
|
$
|
6,379
|
|
$
|
4,551
|
|
|
Performance chemicals
|
|
|
1,771
|
|
|
8,162
|
|
|
7,554
|
|
|
21,321
|
|
|
Corporate
|
|
|
57
|
|
|
44
|
|
|
57
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
4,463
|
|
$
|
10,242
|
|
$
|
13,990
|
|
$
|
26,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valve actuation systems
|
|
$
|
1,875
|
|
$
|
3,179
|
|
$
|
3,773
|
|
$
|
6,551
|
|
|
Performance chemicals
|
|
|
5,178
|
|
|
4,640
|
|
|
10,205
|
|
|
9,314
|
|
|
Corporate
|
|
|
376
|
|
|
398
|
|
|
741
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
7,429
|
|
$
|
8,217
|
|
$
|
14,719
|
|
$
|
16,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2009
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
Identifiable Assets
|
|
|
|
|
|
|
|
|
Valve actuation systems
|
|
$
|
72,876
|
|
$
|
80,874
|
|
|
Performance chemicals
|
|
|
278,847
|
|
|
306,795
|
|
|
Corporate
|
|
|
83,948
|
|
|
34,823
|
|
|
Assets held for sale
|
|
|
2,822
|
|
|
2,820
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
438,493
|
|
$
|
425,312
|
|
|
|
|
|
|
|
|
|
|
Note 9 – Restructuring and Impairment Charges
During
the second quarter of 2008, the Company initiated a workforce reduction
affecting valve actuation systems employees. During the third quarter of 2008,
the Company initiated actions to close a production facility included in the
performance chemicals segment. These restructuring actions have been completed.
The following tables summarize the Company’s costs and accruals for these
restructuring actions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valve
Actuation
Systems
|
|
Performance
Chemicals
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Termination Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative costs incurred
|
|
$
|
1,436
|
|
$
|
691
|
|
$
|
—
|
|
$
|
2,127
|
|
|
Costs anticipated to be incurred in the future
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs expected to be incurred
|
|
$
|
1,436
|
|
$
|
691
|
|
$
|
—
|
|
$
|
2,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balance at December 31, 2008
|
|
$
|
524
|
|
$
|
254
|
|
$
|
—
|
|
$
|
778
|
|
|
Provisions
|
|
|
230
|
|
|
—
|
|
|
—
|
|
|
230
|
|
|
Amounts paid
|
|
|
(557
|
)
|
|
(254
|
)
|
|
—
|
|
|
(811
|
)
|
|
Foreign currency translation
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balance at June 30, 2009
|
|
$
|
209
|
|
$
|
—
|
|
$
|
—
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-10-
GENTEK
INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valve
Actuation
Systems
|
|
Performance
Chemicals
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility Exit Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative costs incurred
|
|
$
|
—
|
|
$
|
610
|
|
$
|
—
|
|
$
|
610
|
|
|
Costs anticipated to be incurred in the future
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs expected to be incurred
|
|
$
|
—
|
|
$
|
610
|
|
$
|
—
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balance at December 31, 2008
|
|
|
—
|
|
|
63
|
|
|
—
|
|
|
63
|
|
|
Provisions
|
|
|
—
|
|
|
107
|
|
|
—
|
|
|
107
|
|
|
Amounts paid
|
|
|
—
|
|
|
(170
|
)
|
|
—
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balance at June 30, 2009
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10 –
Pension and Other Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
209
|
|
$
|
248
|
|
$
|
433
|
|
$
|
498
|
|
|
Interest cost
|
|
|
3,562
|
|
|
3,392
|
|
|
7,094
|
|
|
6,762
|
|
|
Expected return on plan
assets
|
|
|
(3,475
|
)
|
|
(3,820
|
)
|
|
(6,983
|
)
|
|
(7,633
|
)
|
|
Amortization of net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
41
|
|
|
39
|
|
|
82
|
|
|
76
|
|
|
(Gain) loss
|
|
|
92
|
|
|
(16
|
)
|
|
183
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
(income)
|
|
$
|
429
|
|
$
|
(157
|
)
|
$
|
809
|
|
$
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the first six months of 2009, the Company made contributions of $230 to its
pension plan trusts and expects to contribute $626 for the remainder of the
year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
130
|
|
$
|
154
|
|
$
|
259
|
|
$
|
316
|
|
|
Interest cost
|
|
|
530
|
|
|
607
|
|
|
1,057
|
|
|
1,227
|
|
|
Expected return on plan
assets
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service (credit)
|
|
|
(1,213
|
)
|
|
(1,233
|
)
|
|
(2,422
|
)
|
|
(2,448
|
)
|
|
(Gain) loss
|
|
|
(17
|
)
|
|
24
|
|
|
(33
|
)
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit
(income)
|
|
$
|
(570
|
)
|
$
|
(448
|
)
|
$
|
(1,139
|
)
|
$
|
(848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the first quarter of 2009 and 2008, the Company adopted plan amendments that
froze pension plan benefit accruals for hourly employees covered by certain
collective bargaining agreements,
-11-
GENTEK
INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(unaudited)
which resulted in pension
curtailment gains of $7 and $36 for the six months ended June 30, 2009 and
2008, respectively.
During
the second quarter of 2008, the Company implemented plan amendments to one of
its postretirement medical plans which cap the Company’s cost for providing
these benefits. The effect of these changes was a reduction to the accumulated
postretirement benefit obligation of $934 which will be amortized as a
component of net periodic postretirement benefit cost over the average
remaining service period until full eligibility of active plan participants.
Note 11 – Financial Instruments
The
Company utilizes derivative instruments to manage our exposure to interest rate
fluctuations. In April 2005, the Company entered into two five year interest
rate collar agreements in the aggregate notional amount of $185 million, in
order to hedge against the effect that interest rate fluctuations may have on
the Company’s floating rate debt. The interest rate to be paid will be based on
a minimum three-month LIBOR of 4.05 percent on average and a maximum
three-month LIBOR of 5.00 percent. These interest rate collar agreements are
scheduled to mature in 2010.
The Company endeavors to utilize the
best available information in measuring fair value. Financial assets and
liabilities are classified in their entirety based on the lowest level of input
that is significant to the fair value measurement. The Company has valued its
financial liability using a pricing model, with inputs based on an observable
interest rate swap yield curve and as such, the fair value measure is
classified as level 2 in the fair value hierarchy. The following table sets
forth the fair value of the Company’s financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges
|
|
Balance Sheet
Location
|
|
June 30,
2009
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate collar
agreements
|
|
Other
liabilities
|
|
$
|
6,801
|
|
$
|
7,405
|
|
|
|
|
|
|
|
|
|
|
|
|
The
collars are designated as cash flow hedges and therefore the effective portion
of the change in fair value is reported in other comprehensive income (OCI) and
reclassified as an adjustment of interest expense as interest is accrued on the
underlying hedged debt. There was no significant ineffectiveness recognized for
the three months or six months ended June 30, 2009 and 2008. The effective
portion of the gains/(losses) for the company’s financial instruments are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss)
|
|
|
|
|
Amount of Gain (Loss)
|
|
Location of Gain/
|
|
Reclassified From
|
|
|
|
|
Recognized In OCI
|
|
(Loss) Reclassified
|
|
Accumulated OCI into Income
|
|
|
|
|
June 30,
|
|
From Accumulated
|
|
June 30,
|
|
|
|
|
|
|
OCI into
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Income
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate collar
agreements
|
|
$
|
646
|
|
$
|
(392
|
)
|
Interest
Expense
|
|
$
|
(2,456
|
)
|
$
|
(549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company estimates that it will reclassify into earnings during the next 12
months losses of approximately $5,650 from the pretax amount recorded in
accumulated OCI as of June 30, 2009.
-12-
GENTEK
INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands, except per share data)
(unaudited)
Fair Value of Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
212,000
|
|
$
|
197,177
|
|
$
|
213,388
|
|
$
|
172,947
|
|
|
Derivative instruments
|
|
$
|
(6,801
|
)
|
$
|
(6,801
|
)
|
$
|
(7,405
|
)
|
$
|
(7,405
|
)
|
The
fair values of cash and cash equivalents, receivables and payables approximate
their carrying values due to the short-term nature of the instruments. The fair
value of the Company’s long-term debt was based on quoted market prices for
traded debt and discounted cash flow analyses on its nontraded debt.
Note 12 – Income Taxes
The
effective tax rates are lower than the United States statutory rate in 2009
primarily as a result of the reversal of valuation allowances related to
capital loss and net operating loss carryforwards and the reduction in the
amount of unrecognized tax benefits. A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
2,744
|
|
|
Additions based on tax
positions related to the current year
|
|
|
14
|
|
|
Additions for tax
positions of prior years
|
|
|
—
|
|
|
Expiration of statute of
limitations
|
|
|
(1,024
|
)
|
|
Settlements
|
|
|
—
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
$
|
1,734
|
|
|
|
|
|
|
|
The
Company recognizes interest and penalties related to uncertain tax positions as
a component of the provision for income taxes. During the three and six months
ended June 30, 2009, the Company recorded (reversed) $(998) and $(910),
respectively, in interest. The Company had $305 accrued for interest at June
30, 2009.
-13-
GENTEK
INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (concluded)
(Dollars in thousands, except per share data)
(unaudited)
Note 13 – Discontinued Operations
On
November 14, 2008, the Company completed the sale of its wire and cable
manufacturing business in Mineral Wells, Texas to Southwire Company for cash
proceeds of $9,481. In addition, the Company retained working capital of
approximately $1,700. This business was formerly reported as part of the
corporate and other segment, which is no longer a reportable segment.
On
July 9, 2009, the Company completed the sale of its fluid transfer business in
Weaverville, North Carolina to Linter North America for cash proceeds of $875.
The Company retained the property and building, which it will lease to the
purchaser. This business was formerly reported as part of the corporate and
other segment, which is no longer a reportable segment.
The
components of assets held for sale were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2009
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
1,119
|
|
$
|
1,084
|
|
|
Inventories
|
|
|
1,654
|
|
|
1,606
|
|
|
Other current assets
|
|
|
49
|
|
|
20
|
|
|
Property, plant and
equipment
|
|
|
—
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,822
|
|
$
|
2,820
|
|
|
|
|
|
|
|
|
|
|
The
components of liabilities of businesses held for sale were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2009
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
592
|
|
$
|
728
|
|
|
Accrued liabilities
|
|
|
494
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,086
|
|
$
|
1,086
|
|
|
|
|
|
|
|
|
|
|
The
businesses included in discontinued operations had revenues of $2,584 and
$10,402 and pretax income (loss) of $(164) and $58 for the three months ended
June 30, 2009 and 2008, respectively, and revenues of $5,107 and $21,457 and a
pretax income of $(105) and $544 for the six months ended June 30, 2009 and
2008, respectively.
-14-
It
em 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
This Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company’s actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference include those discussed in
the section entitled, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Forward-Looking Statements” contained in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
Overview
On
July 9, 2009, the Company completed the sale of its fluid transfer business in
Weaverville, North Carolina. On November 14, 2008, the Company completed the
sale of its wire and cable manufacturing business in Mineral Wells, Texas.
Accordingly, these businesses have been classified as discontinued operations.
Results of Operations
The
following table sets forth certain line items from our condensed consolidated
statements of operations for the three and six months ended June 30, 2009 and
2008 and the corresponding percentage of net revenues for the relevant periods
presented as a percentage of revenue for the periods indicated.
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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2009
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2008
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2009
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2008
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(Dollars in millions)
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(Dollars in millions)
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Net revenues
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$
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126.8
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100
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%
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$
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151.5
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100
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%
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$
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250.3
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100
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%
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$
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291.8
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100
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%
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Cost of sales
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82.2
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65
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125.8
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83
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168.3
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67
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245.7
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84
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Gross profit
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44.6
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35
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25.7
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17
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82.0
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33
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46.0
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16
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Selling, general and administrative expense
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11.0
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9
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12.1
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8
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23.6
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9
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24.3
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8
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Net (gain) loss on disposition of long-term assets
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0.1
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—
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(0.2
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—
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0.1
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—
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1.6
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1
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Restructuring and impairment charges
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—
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—
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0.5
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—
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0.3
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—
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0.5
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—
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Pension and postretirement liability curtailment (gains)
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—
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—
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—
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—
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(0.0
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—
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(0.0
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—
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Operating profit
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33.5
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26
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13.3
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9
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57.9
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23
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19.7
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7
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Interest expense, net
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3.5
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3
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4.0
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3
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7.0
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3
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8.2
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3
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Other (income) expense, net
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(0.3
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—
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(0.3
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—
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(0.1
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—
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(0.4
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—
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Income tax provision
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8.1
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6
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1.3
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1
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16.7
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7
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2.5
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1
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Income from continuing operations
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22.2
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18
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8.3
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5
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34.3
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14
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9.4
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3
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Income (loss) from discontinued operations
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(0.1
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—
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0.0
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—
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(0.1
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—
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0.3
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—
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Net income
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$
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22.1
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17
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%
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$
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8.3
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5
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%
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$
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34.3
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14
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%
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$
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9.7
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3
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%
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Three Months Ended June 30, 2009 Compared
with Three Months Ended June 30, 2008
Net
revenues were $127 million for the three month period ended June 30, 2009
compared with $151 million for the comparable prior year period. The decrease
in revenue was due to lower sales of $3 million in the performance chemicals
segment and lower sales of $22 million in the valve actuation
-15-
systems
segment. The shortfall in the valve actuation systems segment is due to reduced
demand across the customer base.
Gross
profit was $45 million for the three month period ended June 30, 2009 as
compared with $26 million for the comparable prior year period. This reflects
increased gross profit in the performance chemicals segment of $24 million
partly offset by lower gross profit in the valve actuation systems segment of
$5 million. The increase in the performance chemicals segment gross profit was
driven by increased selling prices, particularly in the water treatment market
coupled with reduced raw material costs. The shortfall in the valve actuation
systems segment was due primarily to reduced sales volumes.
Selling,
general and administrative expense was $11 million for the three month period
ended June 30, 2009 as compared with $12 million for the comparable prior year
period.
Operating
profit was $33 million for the three month period ended June 30, 2009 compared
with $13 million for the comparable prior year period. The higher operating
profit is the result of increased gross profit and lower selling, general and
administrative expense in the current year period.
Interest
expense was $4 million for the three month period ended June 30, 2009 which is
comparable to the prior year period.
Income
from discontinued operations in the current and prior year periods reflects the
operations of the company’s discontinued fluid handling business. In addition,
the prior year period reflects the operations of the company’s discontinued
wire and cable manufacturing business.
Six Months Ended
June 30, 2009 Compared with Six Months Ended June 30, 2008
Net
revenues were $250 million for the six month period ended June 30, 2009
compared with $292 million for the comparable prior year period. The shortfall
in revenue was primarily due to lower sales of $41 million in the valve
actuation systems segment. The shortfall in the valve actuation systems segment
is primarily due to reduced demand across the customer base.
Gross
profit was $82 million for the six month period ended June 30, 2009 as compared
with $46 million for the comparable prior year period. This reflects higher
gross profit in the performance chemicals segment of $44 million partly offset
by lower gross profit in the valve actuation systems segment of $8 million. The
increase in the performance chemicals segment gross profit was driven by
increased selling prices, particularly in the water treatment market, coupled
with reduced raw material costs in the chemical processing market. The
shortfall in the valve actuation systems segment was due primarily to reduced
sales volumes.
Selling,
general and administrative expense was $24 million for the six month period
ended June 30, 2009 which was comparable to the prior year period.
Operating
profit was $58 million for the six month period ended June 30, 2009 as compared
with $20 million for the comparable prior year period. The increased operating
profit was primarily the result of higher gross profit and the $2 million loss
on the disposition of long-term assets in the prior year.
Interest
expense was $7 million for the six month period ended June 30, 2009 as compared
with $8 million for the comparable prior year period, primarily as a result of
lower outstanding debt balances.
-16-
Income
from discontinued operations in the current and prior year periods reflects the
operations of the company’s discontinued fluid handling business. In addition,
the prior year period reflects the operations of the company’s discontinued
wire and cable manufacturing business.
Results of Operations
by Segment
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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2009
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2008
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2009
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2008
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(In millions)
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(In millions)
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Net Revenues
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Valve actuation systems
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$
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13.6
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$
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35.6
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$
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30.8
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$
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72.0
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Performance
chemicals
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113.2
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115.9
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219.5
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219.8
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Total
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$
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126.8
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$
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151.5
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$
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250.3
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$
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291.8
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Three
Months Ended
June 30,
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Six Months
Ended
June 30,
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2009
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2008
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2009
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2008
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(In millions)
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(In millions)
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Operating Profit
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Valve actuation systems
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$
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(2.8
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$
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(1.6
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$
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(6.5
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$
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(1.8
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Performance chemicals
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37.4
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15.9
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66.4
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23.6
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Corporate
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(1.1
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(1.0
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(2.1
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(2.1
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Total
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$
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33.5
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$
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13.3
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$
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57.9
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$
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19.7
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Three Months Ended
June 30, 2009 Compared with Three Months Ended June 30, 2008
Valve Actuation Systems Segment
Net
revenues for the valve actuation systems segment were $14 million for the three
month period ended June 30, 2009 as compared to $36 million for the comparable
prior year period. This reduction was the result of reduced demand across the
customer base. Sales to automotive customers were adversely impacted by the
continued downturn in the global auto industry. Sales to Chrysler were down $11
million due to the combined impact of reduced demand and production disruptions
associated with the Chrysler bankruptcy process. Weak sales to automotive
customers were compounded by reduced demand from heavy duty and diesel
customers associated with the economic downturn. Gross profit/loss reflected a
loss of $2 million for the three month period ended June 30, 2009 as compared
to profit of $3 million for the comparable prior year period. The decrease in
gross profit was driven by $6 million from the impact of the reduced sales
volumes partly offset by a $1 million reduction in amortization expense
associated with the write-down of intangible assets recorded in the fourth
quarter of 2008. Selling, general and administrative expense was $1 million for
the three month period ended June 30, 2009 compared to $4 million for the
comparable prior year period. Selling, general and administrative expense
included a $2 million gain resulting from the reversal of a reserve for bad
debt related to the Chrysler bankruptcy filing which was recorded in the first
quarter of 2009. The Company was able to collect all valid open receivables
based on the terms of its agreement with Chrysler as it emerged from
bankruptcy. Operating loss was $3 million for the three month period ended June
30, 2009 compared to an operating loss of $2 million for the comparable prior
year period. The operating results were driven by the reduced sales volumes and
associated margins in the automotive market partly offset by the gain on the
reversal of the Chrysler bad debt reserve.
-17-
Performance Chemicals Segment
Net
revenues for the performance chemicals segment were $113 million for the three
month period ended June 30, 2009 as compared to $116 million for the comparable
prior year period. The reduced sales were the result of lower sales volumes
which more than offset the favorable impact of increased prices. Sales into the
water treatment market increased by $14 million driven by $19 million resulting
from increased selling prices, partly offset by $5 million resulting from
reduced sales volumes, primarily from industrial customers. Revenues in the
chemical processing market were reduced by $10 million due to the combined
impact of lower volumes and reduced pricing resulting from the pass through of
significantly reduced sulfur raw material costs. Reduced revenues of $3 million
in electronic chemicals were driven by reduced sales volumes which more than
offset increased pricing. Segment revenue was further reduced by $4 million
resulting from the sale of the Reheis antiperspirant actives product line which
was formerly included in the pharmaceutical and food additives market. Gross
profit was $47 million for the three month period ended June 30, 2009 as
compared to $23 million for the comparable prior year period. The improved
gross profit is driven primarily by the results in the water treatment market
which benefitted from the combined impact of $19 million from higher prices
implemented over the course of 2008 coupled with $7 million from lower raw
material and production costs resulting from the sharp decline in raw material
costs which occurred in late 2008, partly offset by $2 million from reduced
sales volumes. Improved gross profit of $1 million in chemical processing
resulting from the impact of an operating capacity expansion was directly
offset by lower gross profit in the pharmaceutical and food additives market
driven by reduced sales volumes. Selling, general and administrative expense
was $9 million for the three month period ended June 30, 2009 as compared to $7
million for the comparable prior year period. The increase in selling, general
and administrative expense was the result of higher incentive compensation
costs. Operating profit was $37 million for the three month period ended June
30, 2009 which increased $22 million from the comparable prior period. The
increase in operating profit was due to the strong gross margin performance
partly offset by higher selling, general and administrative expense.
Six Months Ended
June 30, 2009 Compared with Six Months Ended June 30, 2008
Valve Actuation Systems Segment
Net
revenues for the valve actuation systems segment were $31 million for the six
month period ended June 30, 2009 as compared to $72 million for the comparable prior
year period. This reduction was the result of broad based weakness across the
customer base. Automotive market sales were adversely impacted by the continued
downturn in the global automotive markets. Sales to Chrysler were down $18
million due to the combined impact of reduced customer demand and production
disruptions associated with the Chrysler bankruptcy process. Sales to heavy
duty and diesel customers were down due to reduced demand related to the
economic downturn. Gross profit/loss reflected a loss of $1 million for the six
month period ended June 30, 2009 as compared to profit of $6 million for the
comparable prior year period. The decrease in gross profit was driven by $11
million from reduced sales volumes and $1 million from costs associated with
upcoming product launch and quality initiatives, partly offset by $2 million
from the recovery of expenses associated with a new product launch which was
cancelled by the customer, and a $3 million reduction in depreciation and
amortization expense primarily associated with the write-down of intangible
assets recorded in the fourth quarter of 2008. Selling, general and
administrative expense was $5 million for the six month period ended June 30,
2009 as compared to $8 million for the comparable prior year period. The
reductions in selling, general and administrative expenses resulted primarily
from reduced compensation, travel and discretionary development expenses
associated with cost containment efforts implemented in response to the reduced
customer demand.
-18-
Operating loss
was $6 million for the six month period ended June 30, 2009 compared to an
operating loss of $2 million for the comparable prior year period. The
operating results were driven by the reduced sales volumes and the associated
impact on margins partly offset by the reduced spending in selling, general and
administrative expense.
Performance Chemicals Segment
Net
revenues for the performance chemicals segment were $219 million for the six
month period ended June 30, 2009 versus $220 million in the prior year period.
Increased sales in the water treatment market of $30 million were offset by
reduced sales in the pharmaceutical and food additives market of $13 million,
chemical processing market of $11 million and the technology market of $7
million. Increased revenues in the water treatment market were primarily the
result of higher selling prices resulting from the continued impact of price
increases implemented in the second half of 2008. Reduced sales in the pharmaceutical
and food additives market were primarily the result of the sale of the
antiperspirant product line in 2008. Reduced revenue in the chemical processing
market was the result of the pass through of lower raw material costs. Reduced
sales in the technology market were driven by reduced customer demand resulting
from the economic downturn. Gross profit was $83 million for the six month
period ended June 30, 2009 as compared to $40 million for the comparable prior
year period. The increase in gross profit was due to higher gross profit in the
water treatment market of $41 million and the chemical processing market of $7
million partly offset by reduced gross profit in the pharmaceutical and food
additives market of $3 million and the technology market of $1 million. The
improved gross profit in the water treatment market was the result of higher
selling prices partly offset by $5 million from reduced volumes, primarily to
industrial customers. The improved gross profit in the chemical processing
market was due primarily to lower raw material costs as well as $2 million
generated from the impact of an operating capacity expansion. The reduced gross
profit in the pharmaceutical and food additives market was the result of the
sale of the antiperspirant product line in 2008
.
Selling, general and
administrative expense was $17 million for the six month period ended June 30,
2009 as compared to $14 million for the comparable prior year period. The
increase in selling, general and administrative expense was the result of
higher incentive compensation costs. The prior year period included a $2
million loss on the disposition of the antiperspirant product line. Operating
profit was $66 million for the six month period ended June 30, 2009 which
compared to $24 million for the comparable prior period. The increase in
operating profit was due primarily to the strong gross margin performance.
Financial
Condition, Liquidity and Capital Resources
Cash and
cash equivalents were $60 million at June 30, 2009, compared to $10 million at
December 31, 2008. Significant cash flows during the 2009 period included cash
provided by operating activities of $66 million, capital expenditures of $14
million, and debt payments of $1 million.
The
Company had working capital (current assets minus current liabilities) of $72
million at June 30, 2009 as compared to working capital of $88 million at
December 31, 2008. The decrease is primarily the result of an increase in the
current portion of long term debt, decreases in receivables and deferred tax
assets, partially offset by an increase in cash balances and a decrease in
accounts payable.
The
Company expects to make approximately $22-25 million of capital expenditures
during 2009. Contributions to pension plan trusts are expected to be
approximately $1 million during 2009.
On
August 7, 2007, the Company’s board of directors authorized a stock repurchase
program pursuant to which the Company will purchase in the aggregate up to $30
million of its common stock in open market and negotiated purchases over a
period of three years, dependent upon market conditions.
-19-
This program
does not obligate the Company to acquire any particular amount of common stock
and the program may be suspended at any time at the Company’s discretion.
During the first six months of 2009, the Company did not repurchase any stock.
The Company has approximately $11 million available for repurchases under the
program.
Management
believes that the Company’s cash flow from operations and availability under
its revolving credit facility will be sufficient to cover future debt service
requirements, capital expenditures, and working capital requirements during the
remainder of 2009.
Off-Balance Sheet Arrangements
The
Company has approximately $8 million of standby letters of credit outstanding
as of June 30, 2009.
Recent Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards, or
SFAS No. 157, Fair Value Measurements, (“SFAS 157”), to define fair value,
establish a framework for measuring fair value in accordance with generally
accepted accounting principles and expand disclosures about fair value
measurements. SFAS 157 requires quantitative disclosures using a tabular format
in all periods (interim and annual) and qualitative disclosures about the
valuation techniques used to measure fair value in all annual periods. Certain
provisions of SFAS 157 were effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. In February 2008, the FASB deferred the implementation of SFAS
157 for all non-financial assets and non-financial liabilities, except those
recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The implementation of SFAS 157 for
financial assets and financial liabilities, effective January 1, 2008, did not
have a material impact on our consolidated financial position and results of
operations. The Company adopted SFAS 157 provisions for non-financial assets
and non-financial liabilities in the first quarter of 2009. There was no
material impact to the Company’s consolidated financial position and results of
operations.
In
December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51
(“SFAS
160”). SFAS 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008. Earlier adoption is prohibited. There was no material impact
on the Company’s results of operations or financial condition as a result of
adopting this statement in the first quarter of 2009.
In
March 2008, the FASB issued SFAS No. 161,
Disclosures About Derivative Instruments and Hedging
Activities – an amendment of FASB Statement No. 133
(“SFAS 161”). SFAS
161 expands quarterly disclosure requirements in SFAS No. 133 about an entity’s
derivative instruments and hedging activities. SFAS 161 is effective for fiscal
years beginning after November 15, 2008. The Company adopted SFAS 161 in the
first quarter of 2009.
In
April 2008, the FASB issued FSP FAS 142-3,
Determination of the Useful Life of Intangible Assets
(“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible Assets
(“SFAS 142”). The intent of FSP FAS 142-3 is to improve the consistency between
the useful life of a recognized intangible asset under SFAS 142 and the period
of expected cash flows used to measure the fair value of the asset under SFAS
141(R) and other
-20-
applicable
accounting literature. FSP FAS 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008. There was no
material impact on the Company’s results of operations or financial condition
as a result of adopting this statement in the first quarter of 2009.
I
tem 3. Quantitative and Qualitative Disclosures About Market
Risk.
The
Company’s cash flows and earnings are subject to fluctuations resulting from
changes in interest rates, foreign currency exchange rates and commodity prices
and the Company selectively uses financial instruments to manage these risks.
The Company’s objective in managing its exposure to changes in interest rates,
foreign currency exchange rates and commodity prices is to reduce volatility on
earnings and cash flow associated with such changes. The Company has not
entered, and does not intend to enter, into financial instruments for
speculation or trading purposes.
Interest rate risk
At
June 30, 2009, the Company’s debt financing consisted primarily of amounts
outstanding under the Company’s credit facility. The borrowings outstanding
under the Company’s credit facility are collateralized by substantially all of
the personal property and certain real property of the Company and its domestic
subsidiaries. Borrowings under the Company’s credit facility are sensitive to
changes in interest rates. Given the existing level of borrowings under the
credit facility of $212 million as of June 30, 2009, a one percent change in
the weighted-average interest rate would have an interest impact of
approximately $0.1 million each month.
|
|
|
|
|
|
|
|
|
|
|
Instrument
|
|
Principal
Balance
|
|
Fair Value
|
|
Weighted-Average
Interest Rate at
June 30, 2009
|
|
Scheduled Maturity
|
|
|
|
|
|
|
|
|
|
|
Term loan
|
|
$212 million
|
|
$197 million
|
|
3.0%
|
|
February 28, 2011
|
In
April 2005, the Company entered into two five year interest rate collar
agreements in the aggregate notional amount of $185 million, in order to hedge
against the effect that interest rate fluctuations may have on the Company’s
floating rate debt. The interest rate to be paid will be based on a minimum
three-month LIBOR of 4.05 percent on average and a maximum three-month LIBOR of
5.00 percent. These interest rate collar agreements are scheduled to mature in
2010. The fair value of the agreements was a $7 million liability at June 30,
2009.
Foreign currency exchange rate and commodity
price risks
The
Company measures the market risk related to its holding of financial
instruments based on changes in foreign currency rates and commodity prices
using a sensitivity analysis. The sensitivity analysis measures the potential
loss in fair values, cash flows and earnings based on a hypothetical 10 percent
change in foreign currency exchange rates and commodity prices. Such analysis
indicates that a hypothetical 10 percent change in foreign currency exchange
rates or commodity prices would not have a material impact on the fair values,
cash flows or earnings of the Company.
-21-
I
tem 4. Controls and Procedures.
(a)
Disclosure Controls and Procedures.
The
Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company’s disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) as of June 30, 2009. Based on such evaluation, the
Company’s Chief Executive Officer and Chief Financial Officer have concluded
that, as of June 30, 2009, the Company’s disclosure controls and procedures are
effective at the reasonable assurance level.
(b)
Changes in Internal Control Over Financial Reporting.
There
have not been any changes in the Company’s internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
-22-
P
ART II. OTHER INFORMATION
I
tem
1. Legal Proceedings.
NONE
I
tem
1A. Risk Factors
There
have been no material changes from risk factors as previously disclosed by the
Company in its Annual Report on Form 10-K for the fiscal year ended December
31, 2008.
I
tem
2. Unregistered Sales of Equity Securities and Use of Proceeds.
NONE
I
tem
3. Defaults Upon Senior Securities.
NONE
I
tem
4. Submission of Matters to a Vote of Security Holders.
On
May 14, 2009, the Company held is annual meeting of stockholders at the offices
of Latham and Watkins LLP, 885 Third Avenue, Suite 1000, New York, New York.
Proxies
for the meeting were solicited on behalf of the Board of Directors of the
Company pursuant to Regulation 14A of the General Rules and Regulations of the
Commission. There was no solicitation in opposition to the Board of Directors’
nominees for election as directors as listed in the Proxy Statement. All of the
nominees were elected.
The
stockholders voted, in person or by proxy, on a proposal to ratify the
appointment of Deloitte & Touche LLP as the independent auditors of the
Company for the year ending December 31, 2009.
The
results of the voting are shown below:
|
|
|
|
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker Non-Vote
|
|
|
|
|
|
|
|
|
7,960,027
|
|
12,245
|
|
0
|
|
0
|
The
stockholders also voted, in person or by proxy, on a proposal to elect
directors to serve until the 2010 annual meeting of stockholders or until their
respective successors are elected and duly qualified.
The
results of the voting are shown below:
|
|
|
|
|
|
|
|
|
|
Name
|
|
For
|
|
Against
|
|
Abstain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E.
Redmond, Jr.
|
|
7,284,997
|
|
687,275
|
|
0
|
|
|
John G.
Johnson, Jr.
|
|
7,792,143
|
|
45,885
|
|
134,244
|
|
|
Henry L.
Druker
|
|
7,784,777
|
|
48,419
|
|
139,076
|
|
|
John F.
McGovern
|
|
7,790,480
|
|
47,548
|
|
134,244
|
|
|
Kathleen R.
Flaherty
|
|
7,769,789
|
|
63,407
|
|
139,076
|
|
|
Richard A.
Rubin
|
|
7,927,051
|
|
45,221
|
|
0
|
|
-23-
I
tem
5. Other Information.
NONE
I
tem
6. Exhibits.
|
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
Third
Amended and Restated Certificate of Incorporation of GenTek Inc., effective
as of May 9, 2006 (incorporated by reference to the Registrant’s Form 10-Q,
dated June 30, 2006, as filed with the Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
3.2
|
|
|
Second
Amended and Restated By-Laws of GenTek Inc., effective as of August 7, 2007
(incorporated by reference to the Registrant’s Form 8-K, dated August 7,
2007, as filed with the Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
4.1
|
|
|
GenTek Inc.
Tranche C Warrant Agreement, dated as of November 10, 2003 (incorporated by
reference to the Registrant’s Form 8-A to amend its Form 10, dated November 10,
2003, as filed with the Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
10.1
|
|
|
GenTek Inc.
Amended and Restated 2003 Management and Directors Incentive Plan
(incorporated by reference to the Registrant’s proxy statement dated April
17, 2007, as filed with the Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
10.2
|
|
|
Form of
Indemnification Agreement (incorporated by reference to the Registrant’s Form
10-K dated December 31, 2003, as filed with the Securities and Exchange
Commission).
|
|
|
|
|
|
|
|
|
10.3
|
|
|
GenTek
Performance Plan (incorporated by reference to the Exhibit 10.3 to the
Registrant’s Amendment No. 2 to Form 10, dated April 8, 1999, as filed with
the Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
10.4
|
|
|
Form of
Director Restricted Stock Agreement (incorporated by reference to the
Registrant’s Form 10-Q dated June 30, 2004, as filed with the Securities and
Exchange Commission).
|
|
|
|
|
|
|
|
|
10.5
|
|
|
Form of
Performance Contingent Restricted Stock Agreement (incorporated by reference
to the Registrant’s Form 10-Q dated June 30, 2007, as filed with the
Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
10.6
|
|
|
Form of
Restricted Stock Agreement (incorporated by reference to the Registrant’s
Form 10-Q dated June 30, 2004, as filed with the Securities and Exchange
Commission).
|
|
|
|
|
|
|
|
|
10.7
|
|
|
Form of
Stock Option Agreement (incorporated by reference to the Registrant’s Form
10-Q dated June 30, 2004, as filed with the Securities and Exchange
Commission).
|
|
|
|
|
|
|
|
|
10.8
|
|
|
Master
Settlement Agreement, dated April 30, 2004, among GenTek Holding Corporation,
General Chemical LLC, and Honeywell International Inc. (incorporated
|
-24-
|
|
|
|
|
|
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|
|
|
by reference
to the Registrant’s Form 10-Q dated September 30, 2004, as filed with the
Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
10.9
|
|
|
First Lien
Credit and Guaranty Agreement among GenTek, Inc., GenTek Holding LLC, as
borrower, the other guarantors party thereto, the lenders party thereto from
time to time, Goldman Sachs Credit Partners L.P., as joint lead arranger,
General Electric Capital Corporation, as co-administrative agent, and Bank of
America, N.A., as co-administrative agent and collateral agent, dated
February 28, 2005 (incorporated by reference to the Registrant’s Form 10-K
dated December 31, 2004, as filed with the Securities and Exchange
Commission).
|
|
|
|
|
|
|
|
|
10.10
|
|
|
First
Amendment to First Lien Credit and Guaranty Agreement and Pledge and Security
Agreement dated April 26, 2006 (incorporated by reference to the Registrant’s
Form 8-K dated April 26, 2006, as filed with the Securities and Exchange
Commission).
|
|
|
|
|
|
|
|
|
10.11
|
|
|
Second
Amendment to First Lien Credit and Guaranty Agreement dated July 14, 2006
(incorporated by reference to the Registrant’s Form 10-Q dated June 30, 2006,
as filed with the Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
10.12
|
|
|
Third
Amendment to First Lien Credit and Guaranty Agreement and waiver dated March
19, 2007 (incorporated by reference to the Registrant’s Form 10-K dated
December 31, 2006, as filed with the Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
10.13
|
|
|
Employment
Agreement with William E. Redmond, Jr., dated May 23, 2005 (incorporated by
reference to the Registrant’s Form 10-Q dated September 30, 2005, as filed
with the Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
10.14
|
|
|
Amendment to
Employment Agreement with William E. Redmond, Jr. dated December 29, 2008
(incorporated by reference to Exhibit 10.14 to the Registrant’s Form 10-K for
the year ended December 31, 2008, as filed with the Securities and Exchange
Commission).
|
|
|
|
|
|
|
|
|
10.15
|
|
|
GenTek Inc Executive
Severance Plan (incorporated by reference to Exhibit 10.15 to the
Registrant’s Form 10-K for the year ended December 31, 2008, as filed with
the Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
10.16
|
|
|
Letter
Agreement with James Imbriaco, dated July 27, 2006 (incorporated by reference
to the Registrant’s Form 8-K dated August 4, 2006, as filed with the
Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
10.17
|
|
|
GenTek Inc.
Directors Deferred Compensation Program (incorporated by reference to the
Registrant’s Form 10-Q dated September 30, 2007, as filed with the Securities
and Exchange Commission).
|
|
|
|
|
|
|
|
|
10.18
|
|
|
Letter
Agreement with Robert Novo, dated December 31, 2008 (incorporated by
reference to Exhibit 10.21 to the Registrant’s Form 10-K for the year ended
December 31, 2008, as filed with the Securities and Exchange Commission).
|
|
|
|
|
|
|
|
|
31.1
|
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
-25-
|
|
|
|
|
|
|
|
31.2
|
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
32
|
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002.
|
-26-
S
IGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned there
unto duly authorized.
|
|
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|
|
|
|
|
|
|
|
GENTEK INC.
|
|
|
|
|
|
|
|
|
|
|
|
Registrant
|
|
|
|
|
|
|
|
Date
|
August 7,
2009
|
|
/s/
|
William E.
Redmond, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
William E. Redmond, Jr.
|
|
|
|
|
|
President
and Chief Executive Officer and Director
|
|
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
Date
|
August 7,
2009
|
|
/s/
|
Thomas B.
Testa
|
|
|
|
|
|
|
|
|
|
|
|
Thomas B. Testa
|
|
|
|
|
|
Vice
President and Chief Financial Officer
|
|
|
|
|
|
(Principal
Financial and Accounting Officer)
|
-27-
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