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, 2001
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 [ ].
2
GREAT LAKES ACQUISITION CORPORATION
FORM 10-Q March 31, 2001
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 2000 and March 31, 2001. . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations -
For the three months ended March 31, 2000 and 2001. . . . . . . 4
Condensed Consolidated Statements of Stockholders' Equity -
For the three months ended March 31, 2001 . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows -
For the three months ended March 31, 2000 and 2001. . . . . . . 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
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31, March 31,
2000 2001
-------- --------
(Audited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 11,239 $ 13,077
Accounts receivable-net of allowance for doubtful
accounts of $600 in 2000 and 2001 33,598 36,485
Inventories 36,137 34,932
Prepaid expenses and other current assets 4,574 5,318
-------- --------
Total current assets 85,548 89,812
Property, plant and equipment, net 190,354 186,653
Goodwill, net of accumulated amortization
of $11,682 in 2000 and $12,800 in 2001 167,273 166,154
Capitalized financing costs 13,948 13,087
Other assets 1,918 1,809
-------- --------
Total assets $459,041 $457,515
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 18,024 $ 16,471
Accrued expenses 11,528 16,387
Income taxes payable 2,171 1,990
Current portion of long-term debt 15,390 16,380
-------- --------
Total current liabilities 47,113 51,228
Long-term debt, less current portion 274,019 261,819
Other long-term liabilities 6,901 6,988
Deferred taxes 51,472 52,976
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 13,586 18,554
-------- --------
Total stockholders' equity 79,536 84,504
-------- --------
Total liabilities and stockholders' equity $459,041 $457,515
======== ========
<FN>
See accompanying notes.
4
Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
2000 2001
--------- ---------
(In thousands)
Net sales $ 58,144 $ 65,762
Cost of goods sold 43,827 51,361
--------- ---------
Gross profit 14,317 14,401
Selling, general and administrative expenses 4,523 4,560
--------- ---------
Operating income 9,794 9,841
Other income (expense):
Interest, net (8,308) (7,597)
Other, net 217 248
--------- ---------
(8,091) (7,349)
Income before income taxes and
extraordinary item 1,703 2,492
Income taxes 1,042 1,374
--------- ---------
Income before extraordinary item 661 1,118
Extraordinary gain on early extinguishment
of debt, net of tax expense of $2,073 - 3,850
--------- ---------
Net income $ 661 $ 4,968
========= =========
<FN>
See accompanying notes.
5
Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
--------- --------- -------- ---------
(In thousands)
Balance at December 31, 2000 $ 1 $ 65,949 $ 13,586 $ 79,536
Net income - - 4,968 4,968
--------- --------- --------- ---------
Balance at March 31, 2001 $ 1 $ 65,949 $ 18,554 $ 84,504
========= ========= ========= =========
<FN>
See accompanying notes.
6
Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
2000 2001
-------- --------
(In thousands)
Operating activities
Net income $ 661 $ 4,968
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,915 6,114
Deferred taxes (1,222) 1,504
Changes in operating assets and liabilities:
Accounts receivable 6,938 (2,887)
Inventories (3,161) 1,205
Prepaid expenses and other current assets 414 (744)
Income taxes payable 1,212 (181)
Accounts payable and accrued expenses 3,041 3,306
Other, net 712 338
-------- --------
Net cash provided by operating activities 14,510 13,623
Investing activities
Capital expenditures (667) (575)
-------- --------
Net cash used in investing activities (667) (575)
Financing activities
Repayment of long-term debt (5,357) (12,044)
Additions to long-term debt 1,044 834
-------- --------
Net cash used in financing activities (4,313) (11,210)
Increase in cash and cash equivalents 9,530 1,838
Cash and cash equivalents at beginning of period 7,102 11,239
-------- --------
Cash and cash equivalents at end of period $ 16,632 $ 13,077
======== ========
<FN>
See accompanying notes.
7
Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2001
(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.
Certain prior year amounts have been reclassified to conform to current year
presentation.
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.
8
Great Lakes Acquisition Corporation
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2001
(Unaudited)
3. Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Investments and Hedging Activities".
The Company adopted the new Statement effective January 1, 2001. Statement
No. 133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments imbedded in
other contracts and for hedging activities. Under the Statement, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The adoption of Statement No. 133 did not have a
significant effect on the Company's financial position, results of operations
or cash flows.
4. Inventories
Inventories are as follows:
December 31, March 31,
2000 2001
--------- ---------
(In thousands)
Raw materials $ 19,473 $ 19,531
Finished goods 10,047 8,315
Supplies and spare parts 6,617 7,086
--------- ---------
$ 36,137 $ 34,932
========= =========
5. Accrued Expenses
Accrued expenses included interest payable and employee profit sharing payable
of $2,546,000 and $2,055,000 and $7,616,000 and $630,000 at December 31, 2000
and March 31, 2001, respectively.
6. Long-Term Debt
At March 31, 2001, approximately 61% of the outstanding 13 1/8% Senior Discount
Debentures had been purchased by GLC with the intention of holding them to
maturity. The Company's obligation with respect to the Debentures is shown net
of the amount held by GLC.
7. Extraordinary Item
The period ended March 31, 2001 reflects an extraordinary gain related to the
repurchase of the Company's debt of approximately $3,850,000 (net of income tax
expenses of $2,073,000).
9
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.
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, 2001 Versus Three Months Ended March 31, 2000
The Company's net sales for the quarter ended March 31, 2001 increased
13.1% to $65.8 million from $58.1 million in the comparable 2000 period. Net
sales of anode grade CPC increased 3.6% to $46.3 million, net sales of
industrial grade CPC increased 28.5% to $13.5 million and net sales of RPC
increased 113.5% to $5.2 million.
The increase in anode grade CPC net sales was primarily the result
of a 3.3% increase in the average per ton selling price. Sales volume remained
essentially unchanged at 308,512 tons, an increase of 0.2% (or 641 tons) from
last year. The increse in selling prices was attributable to a tightening of
available CPC supplies and stronger aluminum prices.
The increase in industrial grade CPC net sales was the result of a
23.2% increase in sales volume to 102,518 tons augmented by a 4.3% increase in
selling price. Greater shipments of product going into the titanium dioxide
and chemical accounts at higher prices were primarily responsible for the
improvement.
The increase in RPC net sales was primarily the result of a 45.6%
increase in the average per ton selling price coupled with a 46.6% increase in
sales volume to 81,156 tons. The revenue growth was due to greater shipments
of higher priced anode grade RPC in the current year quarter as the Company's
RPC trading operations, initiated in late 1999, became more firmly established
in the market.
The Company's gross profit for the first quarter increased by 0.6% to
$14.4 million from $14.3 million in 2000. The increase in gross profit was
due to the increase in sales discussed above almost completely offset by higher
cost of goods sold. The increase in cost of goods sold was the result of
10
higher sales volume at higher average per ton raw material costs. Tight anode
grade RPC supply, particularly in the United States Gulf coast, was the major
factor impacting raw material costs.
Operating income at $9.8 million was essentially unchanged (increasing
just 0.5%) from the prior year quarter as the improvement in gross profit
discussed above was partially offset by a slight increase in selling, general
and administrative expenses.
Income before income taxes increased 46.3% to $2.5 million from $1.7
million in the comparable 2000 period. The increase was primarily attributable
to a $0.7 million decrease in net interest expense and the improvement in
operating income discussed above. The decrease in net interest expense was
principally due to the effects of continued debt reduction.
The Company's effective tax rate decreased to 55.1% in 2001 from 61.2%
in the corresponding 2000 period primarily as a result of providing for taxes
by means of an annualized rate in the current year. This method alleviates the
distortions caused by applying statutory rates to interim period taxable income
when, as in the Company's case, the corresponding pretax book income includes
relatively large ratable amortizations of non-deductible items, such as
goodwill.
An extraordinary gain related to the repurchase of debt of
approximately $3,850,000 (net of income tax expense of $2,073,000) was
recognized in current year quarter.
As a result of the factors discussed above, net income for the three
months ended March 31, 2001 increased 651.6% to $5.0 million from $0.7 million
in 2000 period.
Adjusted EBITDA for the first quarter increased by 1.7% to $15.8
million from $15.6 million in 2000 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.
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 2001 will be approximately $3.5
million.
The Company expects to meet its liquidity needs, including debt
service, through cash from operations, its revolving credit facility and other
financing sources provided in its debt agreements. 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 4, 2001, no funds had been
drawn down, and approximately $2.9 million in letters of credit were
outstanding under this facility.
Pursuant to the terms of the 10 1/4% Senior Subordinated Notes
Indenture, the Company has given irrevocable notice of its election to make the
November 15, 2001 interest payment through the issuance of additional notes.
The Company or its affiliates may, from time to time, depending on
liquidity and market and economic conditions, purchase in open-market
transactions its 13 1/8% Senior Discount Debentures or the 10 1/4% Senior
Subordinated Notes issued by GLC.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Refer to the Company's annual report on form 10K dated
March 23, 2001.
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, 2001.
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: 5/4/01 /s/James D. McKenzie
James D. McKenzie
President and Chief Executive Officer