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 June 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: 333-59541
GREAT LAKES ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 76-0576974
(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 ACQUISITION CORPORATION
FORM 10-Q June 30, 2000
CONTENTS
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1999 and June 30, 2000 . . . . . . . . . . . . . . 3
Consolidated Statements of Operations -
For the six months ended June 30, 1999 and 2000 . . . . . . . . 4
Consolidated Statements of Operations -
For the three months ended June 30, 1999 and 2000 . . . . . . . 5
Consolidated Statement of Stockholders' Equity -
For the six months ended June 30, 2000. . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows -
For the six months ended June 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 Acquisition Corporation
and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
<CAPTION>
December 31, June 30,
1999 2000
--------- ---------
(Audited) (Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,102 $ 7,948
Marketable securities - 544
Accounts receivable-net of allowance for doubtful
accounts of $600 in 1999 and 2000 32,738 38,347
Inventories 35,920 39,456
Prepaid expenses and other current assets 5,233 4,279
--------- ---------
Total current assets 80,993 90,574
Property, plant and equipment, net 202,874 196,691
Goodwill 171,747 169,510
Capitalized financing costs 17,117 15,853
Other assets 3,543 2,469
--------- ---------
Total assets $476,274 $475,097
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 12,544 $ 17,995
Accrued expenses 12,768 13,267
Income taxes payable 1,984 1,128
Current portion of long-term debt 12,434 13,522
--------- ---------
Total current liabilities 39,730 45,912
Long-term debt, less current portion 302,558 295,257
Other long-term liabilities 6,804 6,847
Deferred taxes 55,359 53,253
Stockholders' equity:
Common Stock, par value $0.01 per share;
authorized 92,000 shares, issued and
outstanding 65,950 shares 1 1
Additional paid-in capital 65,949 65,949
Retained earnings 5,873 7,878
--------- ---------
Total stockholders' equity 71,823 73,828
--------- ---------
Total liabilities and stockholders' equity $476,274 $475,097
========= =========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 4
<TABLE>
Great Lakes Acquisition Corporation
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Six Months Ended June 30,
1999 2000
--------- ---------
(In thousands)
<S> <C> <C>
Net sales $ 122,366 $ 121,861
Cost of goods sold 90,961 91,441
--------- ---------
Gross profit 31,405 30,420
Selling, general and administrative expenses 9,711 9,303
--------- ---------
Operating income 21,694 21,117
Other income (expense):
Interest, net (17,187) (16,705)
Other, net 697 656
--------- ---------
(16,490) (16,049)
Income before income taxes 5,204 5,068
Income taxes 2,290 3,063
--------- ---------
Net income $ 2,914 $ 2,005
========= =========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 5
<TABLE>
Great Lakes Acquisition Corporation
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended June 30,
1999 2000
--------- ---------
(In thousands)
<S> <C> <C>
Net sales $ 62,003 $ 63,717
Cost of goods sold 46,437 47,614
--------- ---------
Gross profit 15,566 16,103
Selling, general and administrative expenses 4,906 4,780
--------- ---------
Operating income 10,660 11,323
Other income (expense):
Interest, net (8,572) (8,397)
Other, net 410 439
--------- ---------
(8,162) (7,958)
Income before income taxes 2,498 3,365
Income taxes 1,162 2,021
--------- ---------
Net income $ 1,336 $ 1,344
========= =========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 6
<TABLE>
Great Lakes Acquisition Corporation
and Subsidiaries
Consolidated Statement of Stockholders' Equity
(Unaudited)
<CAPTION>
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
---------- ---------- ---------- ----------
(In thousands)
<S > <C> <C> <C> <C>
Balance at December 31, 1999 $ 1 $ 65,949 $ 5,873 $ 71,823
Net income - - 2,005 2,005
---------- ---------- ---------- ----------
Balance at June 30, 2000 $ 1 $ 65,949 $ 7,878 $ 73,828
========== ========== ========== ==========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 7
<TABLE>
Great Lakes Acquisition Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended June 30,
1999 2000
--------- ---------
(In thousands)
<S> <C> <C>
Operating activities
Net income $ 2,914 $ 2,005
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,472 11,836
Deferred taxes (1,525) (2,106)
Changes in operating assets and liabilities:
Marketable securities - (544)
Accounts receivable (11,337) (5,609)
Inventories (1,320) (3,536)
Prepaid expenses and other current assets 2,406 954
Income taxes payable 2,916 (856)
Accounts payable and accrued expenses (457) 5,950
Other, net 1,938 903
--------- ---------
Net cash provided by operating activities 7,007 8,997
Investing activities
Capital expenditures (2,227) (1,938)
--------- ---------
Net cash used in investing activities (2,227) (1,938)
Financing activities
Repayment of long-term debt (5,202) (8,342)
Additions to long-term debt 3,366 2,129
--------- ---------
Net cash used in financing activities (1,836) (6,213)
--------- ---------
Increase in cash and cash equivalents 2,944 846
Cash and cash equivalents at beginning of period 10,403 7,102
--------- ---------
Cash and cash equivalents at end of period $ 13,347 $ 7,948
========= =========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 8
Great Lakes Acquisition Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2000
(Unaudited)
1. Organization and Basis of Presentation
Great Lakes Acquisition Corp. (the "Company") was incorporated under the laws
of Delaware on March 31, 1998. The Company is a 98.56% owned subsidiary of
American Industrial Capital Fund II, L.P. ("AIP"). On May 18, 1998, the
Company canceled its previously issued shares of common stock and issued 65,000
shares of its common stock for approximately $65 million. Additionally, the
Company issued 330 shares of common stock for $330,000 and 620 shares of common
stock for $620,000 on May 22, 1998 and December 14, 1999, respectively.
On May 22, 1998, the Company acquired all of the issued and outstanding stock
of Great Lakes Carbon Corporation ("GLC") in a transaction accounted for as a
purchase (the "Acquisition"). Accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based on estimates of the
respective fair values at the Acquisition date.
The Company had no substantive operations prior to May 22, 1998.
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. 333-59541.
2. Acquisition
The acquisition of GLC described above and related transaction costs were
funded by a cash contribution from AIP, and affiliates of, and certain other
individuals associated with AIP of $65,330,000; net proceeds of $27,050,072
from the sale by the Company of 13 1/8% Senior Discount Debentures; proceeds of
$175,000,000 from the sale by GLC of 10 1/4% Senior Subordinated Notes;
borrowings by GLC of $111,000,000 pursuant to a new credit facility; and
approximately $52,000,000 of available cash at GLC. 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.
<PAGE> 9
Great Lakes Acquisition Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
June 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, June 30,
1999 2000
--------- ---------
(In thousands)
Raw materials $ 20,286 $ 24,249
Finished goods 9,334 8,516
Supplies and spare parts 6,300 6,691
--------- ---------
$ 35,920 $ 39,456
========= =========
5. Accrued Expenses
Accrued expenses included interest payable of $2,764,000 and $3,337,000 and
employee profit sharing payable of $2,202,000 and $1,044,000 at December 31,
1999 and June 30, 2000, respectively.
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Through its wholly-owned operating subsidiary, GLC, 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.
Results of Operations
Three Months Ended June 30, 2000 Versus Three Months Ended June 30, 1999.
The Company's net sales for the quarter ended June 30, 2000 increased
2.8% to $63.7 million from $62.0 million in the comparable 1999 period. Net
sales of anode grade CPC decreased 3.4% to $47.9 million and net sales of
industrial grade CPC increased 3.9% to $11.2 million. In addition, net sales
for the quarter included RPC trading transactions totaling $4.0 million on
volume of 100,245 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 5.4% decline in the average per ton selling price partially offset by a 2.1%
increase in sales volume to 329,575 tons. The decline in selling prices was
attributable to the lingering effects of weak aluminum prices during 1999 and
the presence of excess CPC in the market. The volume increase (6,856 tons) was
a function of routine period to period scheduling fluctuations.
The increase in industrial grade CPC net sales was the result of a
10.2% increase in sales volume to 89,394 tons partially offset by a 5.8%
decrease in selling price. Higher volume sales at lower prices into the recarb
and chemical markets were the primary contributing factors.
The Company's gross profit for the second quarter increased by 3.4% to
$16.1 million from $15.6 million in 1999. The increase in gross profit was due
to the increase in sales discussed above partially offset by an increase in
cost of goods sold. The higher cost of goods sold was mainly the result of
higher sales volume offset in large measure by decreased average per ton raw
material costs.
Operating income increased by 6.2% to $11.3 million from $10.7 million
in the 1999 period. The improvement in operating income was due to the
increase in gross profit discussed above and a 2.6% decrease in selling,
general and administrative expenses. The decrease in selling, general and
administrative expenses was primarily the result of lower travel, professional
fee and management fee expenses.
Income before income taxes increased 34.7% to $3.4 million from $2.5
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 decrease in net interest expense was due mainly to the effects of
debt reduction.
The Company's effective tax rate increased to 60.1% in 2000 from 46.5%
in the relevant 1999 period primarily as a result of the tax effects of non-
<PAGE> 11
deductible amortization of goodwill in the current year.
As a result of the factors discussed above, net income for the three
months ended June 30, 2000 remained essentially unchanged from the 1999 period
at $1.3 million.
Adjusted EBITDA for the second quarter increased by 4.9% to $17.1
million in 2000 from $16.3 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 and AIP management fee expenses of
$0.17 million and $(0.03)million, respectively.
Six Months Ended June 30, 2000 Versus Six Months Ended June 30, 1999.
The Company's net sales for the six months ended June 30, 2000
decreased 0.4% to $121.9 million from $122.4 million in the comparable 1999
period. Net sales of anode grade CPC decreased 6.0% to $92.7 million and net
sales of industrial grade CPC increased 0.4% to $21.7 million. In addition,
year-to-date net sales included RPC trading transactions totaling $6.4 million
on volume of 155,594 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 6.4% decline in the average per ton selling price partially offset by a 0.4%
increase in sales volume to 637,446 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
(2,835 tons) was a function of routine period to period scheduling
fluctuations.
The increase in industrial grade CPC net sales was the result of a
5.2% increase in sales volume to 172,590 tons which was almost completely
offset by a 4.5% decrease in selling price. Higher volume into the recarb
market was the main reason for the volume increase, while lower selling prices
across most market segments accounted for the price decline.
The Company's gross profit for the six months ended June 30, 2000
decreased by 3.1% to $30.4 million from $31.4 million in 1999. The decrease
in gross profit was due to the decrease in sales discussed above and higher
cost of goods sold. The increase in cost of goods sold was the result of
higher sales volume offset in large measure by a decrease in average per ton
costs principally due to lower raw material prices.
Operating income decreased by 2.7% to $21.1 million from $21.7 million
in 1999. The decrease in operating income was due to the decrease in gross
profit discussed above partially offset by a 4.2% decrease in selling, general
and administrative expenses. The decrease in selling, general and
administrative expenses was primarily the result of lower management fee,
travel and employee compensation expenses.
Income before income taxes decreased 2.6% to $5.1 million from $5.2
million in 1999. The decrease was primarily attributable to the decrease in
operating income discussed above mainly offset by a decrease in net interest
expense. The lower net interest expense was due primarily to the effects of
debt reduction.
The Company's effective tax rate increased to 60.4% in 2000 from 44.0%
in the relevant 1999 period primarily as a result of the tax effects of non-
deductible amortization of goodwill in the current year.
As a result of the factors discussed above, net income for the six
months decreased 31.2% to $2.0 million in 2000 from $2.9 million in 1999.
Adjusted EBITDA for the year-to-date period decreased by 1.4% to $32.7
million in 2000 from $33.1 million in 1999 as a result of the decrease in
operating income discussed above and increases/(decreases) to the add-back
adjustments for depreciation/amortization and AIP management fee expenses of
$0.36 million and $(0.24), respectively.
<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 August 4,
2000, no funds had been drawn down, and approximately $1.1 million in letters
of credit were outstanding under the facility.
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
Changes in Registrant's Certifying Accountants dated May 1, 2000 and
subsequent amendment thereto on Form 8-K/A filed May 9, 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 ACQUISITION CORPORATION
Date: 8/4/00 /s/James D. McKenzie
James D. McKenzie
President and Chief Executive Officer
