UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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: 333-59545
GREAT LAKES CARBON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3637043
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
551 Fifth Avenue, Suite 3600, New York, New York 10176
(Address of principal executive office) (Zip Code)
(212) 370-5770
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
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 [ ].
<PAGE> 2
<TABLE>
GREAT LAKES CARBON CORPORATION
FORM 10-Q September 30, 2000
CONTENTS
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1999 and September 30, 2000 . . . . . . . . . . . .3
Consolidated Statements of Operations -
For the nine months ended September 30, 1999 and 2000. . . . . .4
Consolidated Statements of Operations -
For the three months ended September 30, 1999 and 2000 . . . . .5
Consolidated Statement of Stockholders' Equity -
For the nine months ended September 30, 2000 . . . . . . . . . .6
Consolidated Statements of Cash Flows -
For the nine months ended September 30, 1999 and 2000. . . . . .7
Notes to Consolidated Financial Statements. . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 12
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Great Lakes Carbon Corporation
and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
<CAPTION>
December 31, September 30,
1999 2000
--------- ---------
(Audited) (Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,102 $ 16,228
Marketable securities - 501
Accounts receivable-net of allowance for doubtful
accounts of $600 in 1999 and 2000 32,738 38,085
Inventories 35,920 37,538
Prepaid expenses and other current assets 4,613 4,428
--------- ---------
Total current assets 80,373 96,780
Property, plant and equipment, net 202,874 193,885
Goodwill 171,747 168,391
Capitalized financing costs 15,189 13,447
Other assets 8,042 7,135
--------- ---------
Total assets $478,225 $479,638
========= =========
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 12,544 $ 14,750
Accrued expenses 12,768 19,259
Income taxes payable 1,984 1,256
Current portion of long-term debt 12,434 16,955
--------- ---------
Total current liabilities 39,730 52,220
Long-term debt, less current portion 270,173 254,612
Other long-term liabilities 6,804 7,271
Deferred taxes 56,936 54,977
Due to parent 1,435 1,607
Stockholder's equity:
Common Stock, par value $0.01 per share;
1,000 shares authorized and outstanding - -
Additional paid-in capital 92,380 93,000
Retained earnings 10,767 15,951
--------- ---------
Total stockholder's equity 103,147 108,951
--------- ---------
Total liabilities and stockholder's equity $478,225 $479,638
========= =========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 4
<TABLE>
Great Lakes Carbon Corporation
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
1999 2000
--------- ---------
(In thousands)
<S> <C> <C>
Net sales $ 176,180 $ 183,213
Cost of goods sold 130,277 137,183
--------- ---------
Gross profit 45,903 46,030
Selling, general and administrative expenses 14,630 14,469
--------- ---------
Operating income 31,273 31,561
Other income (expense):
Interest, net (22,193) (21,209)
Other, net 949 812
--------- ---------
(21,244) (20,397)
Income before income taxes 10,029 11,164
Income taxes 4,157 5,980
--------- ---------
Net income $ 5,872 $ 5,184
========= =========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 5
<TABLE>
Great Lakes Carbon Corporation
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended September 30,
1999 2000
--------- ---------
(In thousands)
<S> <C> <C>
Net sales $ 53,814 $ 61,352
Cost of goods sold 39,316 45,742
--------- ---------
Gross profit 14,498 15,610
Selling, general and administrative expenses 4,919 5,166
--------- ---------
Operating income 9,579 10,444
Other income (expense):
Interest, net (7,263) (7,040)
Other, net 252 156
--------- ---------
(7,011) (6,884)
Income before income taxes 2,568 3,560
Income taxes 1,152 2,107
--------- ---------
Net income $ 1,416 $ 1,453
========= =========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 6
<TABLE>
Great Lakes Carbon Corporation
and Subsidiaries
Consolidated Statement of Stockholder's Equity
(Unaudited)
<CAPTION>
Additional Total
Common Paid-In Retained Stockholder's
Stock Capital Earnings Equity
---------- ---------- ---------- ----------
(In thousands)
<S > <C> <C> <C> <C>
Balance at December 31, 1999 $ - $ 92,380 $ 10,767 $103,147
Net income - - 5,184 5,184
Capital contribution - 620 - 620
---------- ---------- ---------- ----------
Balance at September 30, 2000 $ - $ 93,000 $ 15,951 $108,951
========== ========== ========== ==========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 7
<TABLE>
Great Lakes Carbon Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
1999 2000
--------- ---------
(In thousands)
<S> <C> <C>
Operating activities
Net income $ 5,872 $ 5,184
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 17,057 17,619
Deferred taxes (1,638) (1,959)
Changes in operating assets and liabilities:
Marketable securities - (501)
Accounts receivable (10,582) (5,347)
Inventories 1,395 (1,618)
Prepaid expenses and other current assets 2,869 185
Income taxes payable 3,174 (728)
Accounts payable and accrued expenses (3,394) 8,697
Other, net 2,093 1,499
--------- ---------
Net cash provided by operating activities 16,846 23,031
Investing activities
Capital expenditures (3,553) (3,211)
Investment in GLAC Debentures - (446)
--------- ---------
Net cash used in investing activities (3,553) (3,657)
Financing activities
Repayment of long-term debt (9,523) (11,040)
Additions to long-term debt 1,235 -
Due to parent 151 172
Capital Contributions - 620
--------- ---------
Net cash used in financing activities (8,138) (10,248)
--------- ---------
Increase in cash and cash equivalents 5,155 9,126
Cash and cash equivalents at beginning of period 10,403 7,102
--------- ---------
Cash and cash equivalents at end of period $ 15,558 $ 16,228
========= =========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 8
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
1. Organization
Great Lakes Carbon Corporation (the "Company") is a producer of calcined
petroleum coke ("CPC") principally for customers in the aluminum industry. The
consolidated financial statements include the accounts of the Company and its
subsidiaries. Significant intercompany accounts have been eliminated in
consolidation.
On May 22, 1998, the Company was acquired by Great Lakes Acquisition Corp.
("GLAC"), a substantially wholly owned subsidiary of American Industrial
Capital Fund II, L.P. ("AIP"), whereby GLAC acquired all of the Company's
outstanding common stock in a transaction accounted for as a purchase (the
"Acquisition"). The Acquisition and related transaction costs were funded by a
cash contribution from GLAC of $92,380,000 (including $27,050,072 from the sale
by GLAC of 13 1/8% Senior Discount Debentures), and proceeds of $175,000,000
from the sale by the Company of 10 1/4% Senior Subordinated Notes and
$111,000,000 pursuant to a new credit facility entered into by the Company.
Based upon estimates of fair value of assets acquired and liabilities assumed,
goodwill of approximately $179,000,000 was established. This amount is being
amortized on a straight-line basis over 40 years.
2. Basis of Presentation
The accompanying financial statements as of September 30, 2000 do not reflect
the principal amount related to the 13 1/8% Senior Discount Debentures sold by
GLAC as the Company has not guaranteed or otherwise pledged its assets as
collateral for the Debentures.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Article 10 of Regulation S-X and, therefore, do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. The information furnished reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair summary of the results of
operations. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K,
File No. 333-59545.
<PAGE> 9
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
September 30, 2000
(Unaudited)
3. Accounting Pronouncement
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in apply generally
accepted accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101 in the fourth quarter of fiscal year
2000. The Company does not anticipate that the adoption of SAB 101 will have a
significant impact on the Company's financial statements.
4. Inventories
Inventories are as follows:
December 31, September 30,
1999 2000
--------- ---------
(In thousands)
Raw materials $ 20,286 $ 21,197
Finished goods 9,334 9,393
Supplies and spare parts 6,300 6,948
--------- ---------
$ 35,920 $ 37,538
========= =========
5. Accrued Expenses
Accrued expenses included interest payable of $2,764,000 and $7,968,000 and
employee profit sharing payable of $2,202,000 and $1,590,000 at December 31,
1999 and September 30, 2000, respectively.
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
This Form 10-Q contains certain forward-looking statements, including,
without limitation, statements concerning the Company's future financial
position, business strategy, budgets, projected costs and plans and objectives
of management for future operations. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements generally can be identified by
the use of forward-looking terminology such as "may," "will," "expect,"
"intend," "estimate," "anticipate," "believe," "should," "plans," or "continue"
or the negative thereof or variations thereon or similar terminology. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. These forward-looking statements are subject to a
number of risks and uncertainties, including, the factors discussed in the
Company's filings with the Securities and Exchange Commission. Actual results
could differ materially from these forward-looking statements.
The Company is the world's largest producer of calcined petroleum coke
("CPC"). The Company produces anode grade CPC, which is the principal raw
material used in the production of carbon anodes used in primary aluminum
production, and industrial grade CPC, which is used in a variety of specialty
metals and materials applications. CPC is produced from raw petroleum coke
("RPC") utilizing a high temperature, rotary kiln process developed by the
Company in the 1930's. RPC is a by-product of the petroleum refining process
and constitutes the largest single component of the Company's cost of goods
sold. The Company's principal source of revenues and profits are sales of
anode grade CPC to the aluminum industry. Historically, the Company's
profitability has been primarily a function of its CPC sales volumes, CPC
pricing and the cost of RPC.
Effective October 20, 2000, an agreement covering the receipt of
revenue from the delivery of flue gas to a waste heat recovery facility
owned and operated by a third party at the Company's Port Arthur, TX plant
site terminated. The Company is currently in discussions with third parties
interested in restarting the facility. The revenue realized by the Company
in connection with this activity, which was treated as a reduction to cost of
goods sold, was $1.8 million for the year 1999 and $1.6 million for the nine
months ended September 30, 2000.
Results of Operations
Three Months Ended September 30, 2000 Versus Three Months Ended September 30,
1999.
The Company's net sales for the quarter ended September 30, 2000
increased 14.0% to $61.4 million from $53.8 million in the comparable 1999
period. Net sales of anode grade CPC increased 0.7% to $45.4 million and net
sales of industrial grade CPC increased 69.5% to $13.6 million. In addition,
net sales for the quarter included RPC trading transactions totaling $1.8
million on volume of 44,211 tons for which there was no comparable activity in
the prior year period.
The increase in anode grade CPC net sales was primarily the result
of a 4.3% increase in sales volume to 311,476 tons partially offset by a 3.5%
decline in the average per ton selling price. The volume increase was a
function of routine period to period scheduling fluctuations. The decline in
selling prices was attributable to the lingering effects of weak aluminum
prices coupled with the presence of excess CPC in the market.
The increase in industrial grade CPC net sales was the result of a
76.9% increase in sales volume to 109,222 tons offset slightly by a 4.2%
decrease in selling price. Higher shipments, primarily to titanium dioxide
and chemical accounts, drove the volume increase, while lower prices for
product going into recarb and chemical markets accounted for the decline in
average selling prices.
The Company's gross profit for the third quarter increased by 7.7% to
$15.6 million from $14.5 million in 1999. The increase in gross profit was
due to the increase in sales discussed above partially offset by higher cost of
goods sold. The increase in cost of goods sold was the result of higher sales
volume partially offset primarily by lower average per ton raw material costs.
Operating income increased by 9.0% to $10.4 million from $9.6 million
in the 1999 period. The improvement in operating income was due to the
increase in gross profit discussed above offset in part by a 5.0% increase in
selling, general and administrative expenses. The increase in selling, general
and administrative expenses was mainly the result of higher sales commission
expense.
Income before income taxes increased 38.6% to $3.6 million from $2.6
million in the comparable 1999 period. The increase was primarily attributable
to the improvement in operating income discussed above and lower net interest
expense. The lower net interest expense was due primarily due to the effects
of continued debt reduction.
The Company's effective tax rate increased to 59.2% in 2000 from 44.9%
in the corresponding 1999 period primarily as a result of the effect of ratably
<PAGE> 11
amortizing permanently non-deductible tax items, such as goodwill, on pre-tax
book income in the current year.
As a result of the factors discussed above, net income for the three
months ended September 30, 2000 increased 2.6% to $1.5 million from $1.4
million in 1999 period.
Adjusted EBITDA for the third quarter increased by 7.2% to $16.3
million in 2000 from $15.2 million in 1999 as a result of the increase in
operating income discussed above and an increase to the add-back adjustment
for depreciation/amortization of $0.2 million.
Nine Months Ended September 30, 2000 Versus Nine Months Ended September 30,
1999.
The Company's net sales for the nine months ended September 30, 2000
increased 4.0% to $183.2 million from $176.2 million in the comparable 1999
period. Net sales of anode grade CPC decreased 3.9% to $138.1 million and net
sales of industrial grade CPC increased 19.1% to $35.3 million. In addition,
year-to-date net sales included RPC trading transactions totaling $8.3 million
on volume of 199,805 tons compared to a total of $0.9 million on 44,515 tons
posted in the prior year period.
The decrease in anode grade CPC net sales was primarily the result of
a 5.5% decline in the average per ton selling price partially offset by a 1.7%
increase in sales volume to 948,922 tons. The decline in the average per ton
selling price was attributable to the lingering effects of weak aluminum prices
during 1999 and the presence of excess CPC in the market. The volume increase
was a function of routine period to period scheduling fluctuations.
The increase in industrial grade CPC net sales was the result of a
24.8% increase in sales volume to 281,812 tons which was partially offset by a
4.5% decrease in selling price. Higher shipments across all market segments
contributed to the volume increase, while lower pricing of recarb and chemical
accounts was the principal reason for the decline in average selling prices.
The Company's gross profit for the nine months ended September 30, 2000
increased by 0.3% to $46.0 million from $45.9 million in 1999. The increase
in gross profit was due to the increase in sales discussed above largely offset
by higher cost of goods sold. The increase in cost of goods sold was the
result of higher sales volume largely offset primarily by lower average per ton
raw material costs.
Operating income increased by 0.9% to $31.6 million from $31.3 million
in 1999. The increase in operating income was due to and a 1.1% decrease in
selling, general and administrative expenses and the increase in gross profit
discussed above. The decrease in selling, general and administrative expenses
was primarily the result of lower management fees and travel expense partially
offset by higher sales commissions.
Income before income taxes increased 11.3% to $11.2 million from $10.0
million in 1999. The increase was primarily attributable to lower net interest
expense and the increase in operating income discussed above. The lower net
interest expense was due primarily due to the effects of continued debt
reduction.
The Company's effective tax rate increased to 53.6% in 2000 from 41.4%
in the corresponding 1999 period primarily as a result of the effect of ratably
amortizing permanently non-deductible tax items, such as goodwill, on pre-tax
book income in the current year.
As a result of the factors discussed above, net income for the nine
months decreased 11.7% to $5.2 million in 2000 from $5.9 million in 1999.
Adjusted EBITDA for the year-to-date period increased by 1.3% to $48.9
million in 2000 from $48.3 million in 1999 as a result of the increase in
operating income discussed above and increases/(decreases) to the add-back
adjustments for depreciation/amortization of 0.6 million and AIP management fee
expenses of $(0.2) million.
<PAGE> 12
Liquidity and Capital Resources
The Company's liquidity requirements are primarily for debt service,
capital expenditures and general working capital needs. The timing of
inventory receipts and product shipments, all of which are entirely U.S.
dollar-denominated transactions, can have a substantial impact on the Company's
working capital requirements. Capital investments generally relate to facility
maintenance and projects to improve plant throughput and product quality. It
is anticipated that capital investments for 2000 will be approximately $5.0
million.
The Company expects to meet its liquidity needs, including debt
service, through cash from operations and its revolving credit facility. The
revolving credit facility provides for borrowings of up to $25.0 million,
including a $10.0 million sub-limit for letters of credit. As of November 3,
2000, no funds had been drawn down, and approximately $1.1 million in letters of
credit were outstanding under this facility.
The Company or its affiliates may, from time to time, depending on
liquidity and market and economic conditions, purchase in open-market
transactions its 10 1/4% Senior Subordinated Notes or the 13 1/8% Senior
Discount Debentures issued by GLAC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Refer to the Company's annual report on form 10K dated
March 30, 2000.
Item 2. Change in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
Not applicable.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K with the Commission during
the three months ended September 30, 2000.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREAT LAKES CARBON CORPORATION
Date: 11/3/00 /s/James D. McKenzie
James D. McKenzie
President and Chief Executive Officer
