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 March 31, 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 March 31, 2000
CONTENTS
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1999 and March 31, 2000. . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations -
For the three months ended March 31, 1999 and 2000. . . . . . . 4
Condensed Consolidated Statements of Stockholders' Equity -
For the three months ended March 31, 2000 . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows -
For the three months ended March 31, 1999 and 2000. . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 11
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Great Lakes Acquisition Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
<CAPTION>
December 31, March 31,
1999 2000
--------- ---------
(Audited) (Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,102 $ 16,632
Marketable securities - 571
Accounts receivable-net of allowance for doubtful
accounts of $600 in 1999 and 2000 32,738 25,800
Inventories 35,920 39,081
Prepaid expenses and other current assets 5,233 4,248
--------- ---------
Total current assets 80,993 86,332
Property, plant and equipment, net 202,874 199,483
Goodwill 171,747 170,628
Capitalized financing costs 17,117 16,485
Other assets 3,543 2,743
--------- ---------
Total assets $476,274 $475,671
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 12,544 $ 10,605
Accrued expenses 12,768 17,748
Income taxes payable 1,984 3,196
Current portion of long-term debt 12,434 12,981
--------- ---------
Total current liabilities 39,730 44,530
Long-term debt, less current portion 302,558 297,698
Other long-term liabilities 6,804 6,822
Deferred taxes 55,359 54,137
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 6,534
--------- ---------
Total stockholders' equity 71,823 72,484
Total liabilities and stockholders' equity $476,274 $475,671
========= =========
<FN>
See accompanying notes.
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<TABLE>
Great Lakes Acquisition Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended March 31,
1999 2000
--------- ---------
(In thousands)
<S> <C> <C>
Net sales $ 60,363 $ 58,144
Cost of goods sold 44,524 43,827
--------- ---------
Gross profit 15,839 14,317
Selling, general and administrative expenses 4,805 4,523
--------- ---------
Operating income 11,034 9,794
Other income (expense):
Interest, net (8,615) (8,308)
Other, net 287 217
--------- ---------
(8,328) (8,091)
Income before income taxes 2,706 1,703
Income taxes 1,128 1,042
--------- ---------
Net income $ 1,578 $ 661
========= =========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 5
<TABLE>
Great Lakes Acquisition Corporation
Condensed 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 - - 661 661
---------- ---------- ---------- ----------
Balance at March 31, 2000 $ 1 $ 65,949 $ 6,534 $ 72,484
========== ========== ========== ==========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 6
<TABLE>
Great Lakes Acquisition Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended March 31,
1999 2000
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(In thousands)
<S> <C> <C>
Operating activities
Net income $ 1,578 $ 661
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,725 5,915
Deferred taxes (780) (1,222)
Changes in operating assets and liabilities:
Marketable securities - (571)
Accounts receivable (2,533) 6,938
Inventories (2,387) (3,161)
Prepaid expenses and other current assets (44) 985
Income taxes payable 3,118 1,212
Accounts payable and accrued expenses 737 3,041
Other, net 497 712
--------- ---------
Net cash provided by operating activities 5,911 14,510
Investing activities
Capital expenditures (967) (667)
--------- ---------
Net cash used in investing activities (967) (667)
Financing activities
Repayment of long-term debt (2,039) (5,357)
Additions to long-term debt 2,282 1,044
--------- ---------
Net cash provided by (used in) financing
activities 243 (4,313)
Increase in cash and cash equivalents 5,187 9,530
Cash and cash equivalents at beginning of period 10,403 7,102
--------- ---------
Cash and cash equivalents at end of period $ 15,590 $ 16,632
========= =========
<FN>
See accompanying notes.
</TABLE>
<PAGE> 7
Great Lakes Acquisition Corporation
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 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 accompanying financial statements as of March 31, 2000 reflect the
consolidated financial position, results of operations, and cash flows of the
Company subsequent to the date of Acquisition. 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> 8
Great Lakes Acquisition Corporation
and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
March 31, 2000
(Unaudited)
3. Inventories
Inventories are as follows:
December 31, March 31,
1999 2000
--------- ---------
(In thousands)
Raw materials $ 20,286 $ 20,587
Finished goods 9,334 11,996
Supplies and spare parts 6,300 6,498
--------- ---------
$ 35,920 $ 39,081
========= =========
4. Accrued Expenses
Accrued expenses included interest payable of $2,764,000 and $7,485,000 and
employee profit sharing payable of $2,202,000 and 524,000 at December 31, 1999
and March 31, 2000, respectively.
<PAGE> 9
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 March 31, 2000 Versus Three Months Ended March 31, 1999.
The Company's net sales for the quarter ended March 31, 2000 decreased
3.7% to $58.1 million from $60.4 million in the comparable 1999 period. Net
sales of anode grade CPC decreased 8.7% to $44.7 million and net sales of
industrial grade CPC decreased 3.0% to $10.5 million. In addition, net sales
for the quarter included RPC trading transactions totaling $2.5 million on
volume of 55,349 tons for which there was no comparable activity in the prior
year period.
The decrease in anode grade CPC net sales was primarily the result of a
7.5% decline in the average per ton selling price attributable to the lingering
effects of weak aluminum prices during 1999 and the presence of excess CPC in
the market. Sales volume remained essentially unchanged at 307,871 tons, a
decrease of 1.3% (or 4,021 tons) from last year.
The decrease in industrial grade CPC net sales was the result of a 3.2%
decrease in selling price as sales volume remained essentially unchanged at
83,196 tons, a decrease of 0.2% (or 156 tons) from last year. The decrease in
selling price was due mainly to lower prices for sales into the titanium
dioxide and chemical markets.
The Company's gross profit for the first quarter decreased by 9.6% to
$14.3 million from $15.8 million in 1999. The decrease in gross profit was due
to the decrease in sales discussed above partially offset by a decrease in cost
of goods sold. The lower cost of goods sold was mainly the result of a
decrease in average per ton raw material costs offset in large measure by
higher sales volume.
Operating income decreased by 11.2% to $9.8 million from $11.0 million
in the 1999 period. The decline in operating income was due to the decrease in
gross profit discussed above offset by a 5.9% decrease in selling, general and
administrative expenses. The decrease in selling, general and administrative
expenses was primarily the result of lower management fee expense.
Income before income taxes decreased 37.1% to $1.7 million from $2.7
million in the comparable 1999 period. The decrease was primarily attributable
to the decline in operating income discussed above partially offset by lower
net interest expense. The decrease in net interest expense was due mainly to
normal debt reduction.
The Company's effective tax rate increased to 61.2% in the 2000 period
from 41.7% in the 1999 period primarily as a result of the tax effects of non-
deductible amortization of goodwill in the current period. As a result of the
factors discussed above, net income for the three months ended March 31, 2000
decreased 58.1% to $0.7 million from $1.6 million in the 1999 period.
Adjusted EBITDA for the first quarter decreased by 7.5% to $15.6
million in 2000 from $16.8 million in 1999 for the reasons set forth above.
<PAGE> 10
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 $4.5
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 May 8, 2000,
no funds had been drawn down, and approximately $2.7 million in letters of
credit were outstanding under the facility.
<PAGE> 11
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 March 31, 2000.
<PAGE> 12
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: 5/8/00 /s/James D. McKenzie
James D. McKenzie
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 16,632
<SECURITIES> 571
<RECEIVABLES> 26,800
<ALLOWANCES> 1,000
<INVENTORY> 39,081
<CURRENT-ASSETS> 86,332
<PP&E> 228,177
<DEPRECIATION> 28,694
<TOTAL-ASSETS> 475,671
<CURRENT-LIABILITIES> 44,530
<BONDS> 297,698
0
0
<COMMON> 1
<OTHER-SE> 72,483
<TOTAL-LIABILITY-AND-EQUITY> 475,671
<SALES> 58,144
<TOTAL-REVENUES> 58,144
<CGS> 43,827
<TOTAL-COSTS> 43,827
<OTHER-EXPENSES> 84
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,308
<INCOME-PRETAX> 1,703
<INCOME-TAX> 1,042
<INCOME-CONTINUING> 661
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 661
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
