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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999 Commission File Number 33-98522
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 Number)
551 Fifth Avenue, New York, New York 10176
(Address of principal executive offices) (Zip Code)
(212) 370-5770
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
10 1/4% Senior Subordinated Notes due 2008
(Title of Class)
Indicate by check mark whether the registrant (i) 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 regis-
trant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
There is no public market for registrant's common stock.
As of March 17, 2000, the registrant had outstanding 1,000 shares of
its Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
GREAT LAKES CARBON CORPORATION
Annual Report on Form 10-K for the Year Ended December 31, 2000
Table of Contents
Page
PART I
Item 1. Business.........................................................1
Item 2. Properties.......................................................5
Item 3. Legal Proceedings................................................5
Item 4. Submission of Matters to Vote of Security Holders................5
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..............................................6
Item 6. Selected Financial Data..........................................6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......13
Item 8. Financial Statements and Supplementary Data......................13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...........................13
PART III
Item 10. Directors and Executive Officers of the Registrant...............14
Item 11. Executive Compensation...........................................15
Item 12. Security Ownership of Certain Beneficial Owners and Management...19
Item 13. Certain Relationships and Related Transactions...................20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..21
Index to Financial Statements.............................................F-1
PART I
Item 1. Business
Introduction
Great Lakes Carbon Corporation (the "Company" or "GLC") is the largest
producer of calcined petroleum coke ("CPC") in the world. Anode grade CPC is
the principal raw material used in the production of carbon anodes for use in
aluminum smelting. Anode grade CPC sales represented 75% of the Company's
total 2000 sales. The Company also sells industrial grade CPC for use in the
production of titanium dioxide, as a carbon additive in the manufacture of
steel and foundry products and for use in other specialty materials and
chemicals markets. The Company produces CPC from raw petroleum coke ("RPC"), a
by-product of petroleum refining, utilizing a high-temperature, rotary-kiln
process developed by the Company in the 1930's.
The Company operates rotary kilns having a total capacity of 1.6
million tons at plant sites in Port Arthur, Texas; Enid, Oklahoma; and through
a wholly-owned subsidiary, Copetro S. A. ("Copetro"), at the port of La Plata,
Argentina.
On May 22, 1998, American Industrial Partners (AIP), a private
investment fund, acquired all of the issued and outstanding capital stock of
the Company, through Great Lakes Acquisition Corp. ("GLAC") a corporation
formed by AIP. In connection with the transaction, the Company redeemed all of
its then outstanding 10% Senior Secured Notes due 2006 in an aggregate
principal amount of $65.0 million plus a tender premium of $9.1 million (not
including accrued interest) through a public tender offer consummated
concurrently with the Acquisition.
The acquisition was financed by, (i) an equity contribution by
AIP and affiliates of, and certain other individuals associated with AIP of $65
million and $330,000, respectively, to GLAC in exchange for common equity of
GLAC, (ii) a contribution by GLAC of $92.4 million (the sum of $65.3 million of
the AIP equity contribution and the proceeds from the issuance and sale by GLAC
of 13 1/8% Senior Discount Debentures) to the equity of the Company, (iii)
borrowings by the Company pursuant to a syndicated senior secured agreement in
an aggregate principal amount of $111.0 million (the "Term Loans") and (iv) the
sale by the Company of $175.0 million aggregate principal amount of 10 1/4%
Senior Subordinated Notes due 2008 (the "Notes").
Description of Principal Markets
Anode Grade CPC
Carbon anodes, which are manufactured utilizing anode grade CPC, are
used by every primary aluminum smelter in the world as a key component in
aluminum smelting pot lines. Carbon anodes act as conductors of electricity
and as a source of carbon in the electrolytic cell that reduces alumina into
aluminum metal. In this electrochemical aluminum smelting process, the carbon
anodes, and hence the CPC, are consumed. Carbon anode manufacturers,
predominantly captive operations of aluminum smelting companies, purchase anode
grade CPC, mix it with pitch binders, press the mixture into blocks and then
bake the mixture to form a finished, hardened carbon anode. The quality of the
anode grade CPC, in terms of both its physical and chemical properties, has an
effect on carbon anode life, which is an important economic factor in aluminum
production, and on the amount of impurities in the finished aluminum metal.
Anode grade CPC is approximately 97% pure carbon; however, anode grade CPC does
vary based on the content of sulfur and other trace elements in the finished
product as well as on its physical properties. GLC produces a full range of
anode grade CPC, which is typically sold in bulk shipments, tailored to the
specific needs of its aluminum company customers.
Worldwide demand for anode grade CPC is directly tied to the global
production of primary aluminum. For the sixth year in a row, aluminum
production increased primarily due to the expansion of existing smelting
capacity. As a result of the continued strong demand for CPC, the Company
operated at near effective capacity in 2000.
In June 2000, Alcoa, Inc. ("Alcoa") confirmed a financial analyst
report that it is working on the development of an inert anode, which would
replace the use of carbon anodes in aluminum smelting. Alcoa stated that
significant operating and capital investment savings could be obtained with
inert anodes together with certain environmental benefits in the form of the
reduction and elimination of certain emissions.
Inert anode development has been pursued for decades by various
organizations, including the U.S. Department of Energy ("DOE"). Although
various compositions of inert anodes have been explored, as late as 1999 the
DOE concluded that no fully acceptable inert materials had yet been revealed.
In subsequent statements Alcoa has indicated that although their research to
date has been encouraging, there is no assurance that the inert anode they are
developing will be successful in commercial operation. While the research
being conducted by Alcoa (and possibly others) is to a large extent
confidential, the Company believes that there are many technical barriers to be
overcome before inert anode technology becomes commercially viable.
Industrial Grade CPC
CPC is also used in a number of other (non-aluminum) applications,
which the Company refers to as industrial grade CPC. These include sales of
CPC for use in the production of titanium dioxide, as a recarburizer, i.e.,
carbon additive, in the manufacture of steel and foundry products and for use
in other specialty materials and chemicals markets.
Titanium dioxide is a widely used brilliant white pigment, the primary
applications for which are in paints, plastics and paper. Industrial grade CPC
is used as an energy and carbon source in the production of titanium dioxide
from titanium-bearing ores using the chloride process and is also used as a
recarburizer in the production of steel and foundry products and as a carbon
source in certain chemical processes.
Industrial grade CPC is generally similar to anode grade CPC in its
physical characteristics, but typically has higher chemical impurities. In
addition, industrial grade CPC is usually further processed to meet sizing
specifications and packaged for sale to end users in smaller quantities than is
anode grade CPC.
Raw Materials and Suppliers
CPC is sold in a world market. However, calcining and transportation
economics dictate that producers of CPC are most efficiently located near
petroleum refining operations, which are the source of RPC, the raw material
used to produce CPC. RPC is a by-product of the oil refining process,
constituting the solid fraction remaining after the refinery has essentially
removed all of the liquid petroleum products from the crude oil. Many, but not
all, oil refineries produce RPC. Sales of RPC do not constitute a material
portion of oil refiners' revenues. Because a substantial portion of worldwide
petroleum refining capacity is based domestically, the United States has a
majority of worldwide CPC production capacity. CPC quality, which is extremely
important to aluminum smelters, is highly dependent upon the quality of the RPC
utilized in the calcining process. The RPC produced by different oil
refineries covers a range of physical and chemical properties depending upon
both the types of crude oils being refined and the specific process being
employed by the refinery. Only a portion of the RPC produced by the world's
oil refineries is of suitable quality for producing anode grade or industrial
grade CPC, with anode grade requirements being generally more stringent than
industrial grade requirements. If the RPC produced by a refinery is not of
sufficient quality for calcining, it is typically sold for its fuel value at a
substantially lower price.
The Company purchases a range of RPC from a number of domestic and
international oil refineries with the objective of blending these cokes to meet
the specific quality requirements of its customers at the lowest raw material
cost. RPC is typically purchased by the Company under contracts with a term of
one or more years, although the Company does make some spot purchases. In 2000
the Company purchased approximately 54% of its RPC requirements from three
petroleum refiners.
Manufacturing Process
The calcining process essentially drives off moisture, impurities and
volatile matter from the RPC at high temperatures, to produce a purer form of
carbon in the resulting CPC. Both anode and industrial grade CPC are
manufactured by the Company to specific customer specifications. The Company
purchases RPC from a number of sources and has the capability to blend these
raw cokes specifically to meet a customer's required chemical and physical
properties. After blending, the raw coke is fed into the higher end of a
rotating kiln, which is up to 12 feet in diameter and up to 220 feet long. The
coke in the kiln is tumbled by rotation and moves down-kiln counter current to
the heat produced by burning natural gas or oil at the lower, firing end of the
kiln. Kiln temperatures range from 2200 to 2500 degrees Fahrenheit.
Typically, coke is retained in the kiln for approximately one hour, with the
resident time and heating rates critical to the production of the proper
quality CPC. The moisture, impurities and volatile matter in the coke are
driven off in the kiln. As the coke is discharged from the kiln, it drops into
a cooling chamber, where it is quenched with water, treated with dedusting
agents and carried by conveyor to silos to be kept in covered storage until
shipped to customers by truck, rail, barge or ocean-going vessel. In the
case of certain industrial grade products, the CPC is also crushed and screened
to meet proper sizing requirements.
Marketing
The Company sells its CPC to end users through its direct sales staff
and exclusive sales representatives. Substantially all sales are shipped
directly to end-users. GLC's domestic sales activity is handled by the
Company's direct sales staff. Internationally, GLC's direct sales staff is
supplemented by exclusive sales representatives.
The Company typically sells anode grade CPC under contracts with terms
of one or more years, although a small percentage is sold on a spot basis. CPC
is shipped by the Company in bulk quantities to its customers via truck, rail,
barge or ocean-going vessel. Industrial grade CPC is generally sold to
customers under annual contracts or on a purchase order basis and is shipped in
smaller quantities in bulk or packaged to meet customer requirements.
In 2000 approximately 37% of the Company's net sales were to U.S.-based
customers and approximately 63% were to customers in international markets.
Approximately 59.8% of the Company's 2000 net sales were made to five customers
with Alcoa and Aluminium Bahrain accounting for 25.8% and 14.5% of the
Company's net sales, respectively.
Competition
The Company is the largest producer of CPC in the world and competes
with domestic and foreign calciners in a worldwide market with respect to both
anode and industrial grade CPC sales. Marketing of CPC to both anode and
industrial grade customers is based primarily on price and quality.
Worldwide demand for anode grade CPC is tied directly to the global production
of primary aluminum. Sales of industrial grade CPC are dependent on the
particular demands of the titanium dioxide, steel and foundry, and certain
chemical markets. GLC is one of five major domestic calciners of anode grade
CPC. Two calciners, GLC and Calciner Industries, Inc., are independent. The
other calciners are Atlantic Richfield Co. (ARCO), whose petroleum refining
operations provide its raw material supply, Alcoa (formally Reynolds Metals
Co), which uses some of its CPC for internal consumption, and Venture Coke
Company (Venco), which is 50% owned by Conoco, Inc.
Employees
As of December 31, 2000 the Company employed 255 persons. The Company
is a party to collective bargaining agreements at two of its three facilities,
covering approximately one-third of its employees. A new collective bargaining
agreement with the International Association of Machinists and Aerospace
Workers, which covers hourly employees at the Enid, Oklahoma facility, expires
in 2004. Certain employees at the La Plata, Argentina facility of Copetro are
covered by an annual labor contract which basic terms are governed by Argentine
federal labor legislation. The Port Arthur plant is operated with a non-union
workforce.
Patents, Trademarks
None of the Company's business is dependent upon any patents or other
intellectual property.
Environmental Matters
The Company's facilities and operations are subject to various federal,
state and local and foreign governmental laws and regulations with respect to
the protection of the environment, including regulations relating to air and
water quality. The Company believes that it possesses all of the permits
required for the conduct of its operations and that it is currently in material
compliance with all relevant environmental regulations. The Company spent
approximately $1.1 million on capital expenditures related to pollution control
facilities in 2000 and anticipates spending approximately $1.5 million in both
2001 and 2002.
The Clean Air Act was amended in 1990. While the Company believes that
its facilities meet current regulatory standards applicable to air emissions,
some of its facilities may be required to comply with new standards for air
emissions to be adopted by the United States Environmental Protection Agency
and state environmental agencies over the next several years. At this time,
the Company cannot estimate when new standards will be imposed or what control
technologies or changes in processes the Company may be required to install or
undertake. Based on information currently available to it, the Company
believes that attaining compliance with such regulations will not have a
material adverse effect on the financial position or results of operations of
the Company.
Item 2. Properties
The Port Arthur facility has four kilns that have the capacity to
produce 700,000 tons per year of CPC. Port Arthur is also the site of the
Company's primary laboratory and testing facility. Port Arthur has substantial
CPC storage capacity and the capability to receive and ship product by truck,
rail, barge or ocean-going vessel. The 115-acre Port Arthur property is leased
by the Company under a long-term lease, which was originally executed in the
1930's and the most recent renewal of which expires at the start of 2010.
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, Texas plant site terminated.
The Company is currently in discussions with another third party interested in
estarting 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 and $2.2 million for the years 1999 and 2000, respectively.
The Enid facility has three kilns that have the capacity to produce
500,000 tons per year of CPC. The Enid plant has the capability to receive and
ship material by truck or rail and is located on 320 acres of property that is
owned by the Company.
The La Plata, Argentina facility operated by Copetro has two kilns with
the capacity to produce 440,000 tons per year of CPC. The Copetro capacity was
doubled when a second 220,000-ton kiln was built in 1998. The plant is located
on 30 acres of land at the port of La Plata. The plant has the capability to
receive RPC by rail or truck and to ship CPC by truck or ocean-going vessel.
The Company's principal business office is located at 4 Greenspoint
Plaza, Suite 2200, 16945 Northchase Drive, Houston, Texas 77060 under a lease
expiring in January 2006.
The Company's executive office is located in leased space at 551 Fifth
Avenue, Suite 3600, New York, New York 10176.
Item 3. Legal Proceedings
The Company is a party to legal proceedings that are in various stages
of resolution. Management, after discussion with legal counsel, is of the
opinion that the ultimate resolution of these matters will not have a material
adverse effect on the results of operations or financial position of the
Company.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted for vote of security holders of the Company
during the three months ended December 31, 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) There is no established market in which the Company's Common Stock,
par value $0.01 per share (the "Common Stock"), is publicly traded, because all
of such Common Stock is privately held.
(b) As of the date of this annual report, GLAC is the holder of all of
the Company's common stock.
(c) During 2000 no cash dividends were declared by the Board of
Directors. Any future determination as to the payment of dividends will depend
upon the Company's financial condition, results of operations, capital
requirements and such other factors as the Board of Directors deems relevant.
The Company's debt instruments limit the conditions under which the Company may
pay a cash dividend on its outstanding Common Stock.
Item 6. Selected Financial Data
The following table sets forth selected financial data of the Company
from May 22, 1998 to December 31, 1998 and for the period then ended and as of
and for the years ended December 31, 1999 and 2000 and for the predecessor
company as of and for the years ended December 31, 1996 and 1997, and from
January 1, 1998 to May 21, 1998 and for the period then ended. The financial
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7 and the consolidated financial statements of the Company and the related
notes thereto included elsewhere herein.
Period Period
Jan. 1 May 22
Year Ended to to Year Ended
December 31, May 21 Dec.31 December 31,
1996 1997 1998 1998 1999 2000
--------- --------- --------- --------- --------- ---------
Statement of
Operations Data:
- ------------------
Net sales $242,744 $231,911 $ 90,849 $146,003 $234,544 $245,249
Gross Profit 66,373 59,521 23,681 39,255 62,751 60,883
Operating income 51,052 41,011 10,611 27,974 42,500 41,031
Other expense 8,345 6,336 2,248 19,505 28,423 27,114
Income before
income tax and
extraordinary item 42,707 34,675 8,363 8,469 14,077 13,917
Income tax expense 15,148 12,691 2,839 5,714 6,387 6,473
Extraordinary (loss)
gain, net of tax - - (7,113) - 322 3,804
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 27,559 $ 21,984 $ (1,589) $ 2,755 $ 8,012 $ 11,248
========= ========= ========= ========= ========= =========
Adjusted EBITDA(1):
- -------------------
Operating income $ 51,052 $ 41,011 $ 10,611 $ 27,974 $ 42,500 $ 41,031
Depreciation and
amortization 9,295 9,955 3,443 12,013 20,410 21,708
AIP fees & expenses - - - 1,185 2,305 2,568
HII Payments
terminated at
Acquisition:
Fees and
expenses 1,696 1,436 8,831 22 - -
Other related
agreements 4,520 6,780 318 - - -
-------- --------- --------- --------- --------- ---------
Total adjusted
EBITDA $ 66,563 $ 59,182 $ 23,203 $ 41,194 $ 65,215 $ 65,307
========= ========= ========= ========= ========= =========
Balance sheet data
- ------------------
Total assets $148,905 $174,911 $182,342 $490,753 $478,225 $473,573
Total debt $ 72,885 $ 84,014 $ 88,781 $298,617 $282,607 $263,138
(1) Adjusted EBITDA represents operating income before depreciation,
amortization, HII fees and payments pursuant to employment and consulting
agreements, which were terminated upon consummation of the Acquisition and
on-going AIP fees and expenses. Adjusted EBITDA should not be considered a
substitute for net income, cash flow from operating activities or other cash
flow statement data prepared in accordance with generally accepted accounting
principles or as an alternative to net income as an indicator of operating
performance or cash flows as a measure of liquidity. Adjusted EBITDA is
presented here only to provide additional information with respect to the
Company's ability to satisfy debt service. While Adjusted EBITDA is frequently
used as a measure of operations and the ability to meet debt service
requirements, it is not necessarily comparable to other similarly titled
captions of other companies due to potential inconsistencies in the method of
calculation.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
This Form 10-K 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 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 RPC utilizing a high temperature, rotary kiln process. RPC is
a by-product of 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.
Basis of Presentation
The Company was acquired by GLAC on May 22, 1998. The following
discussion provides an assessment of the consolidated results of operations
and liquidity and capital resources for the Company and the Predecessor.
Unless otherwise indicated, 1998 historical results represent the combined
operating results of the Predecessor from January 1, 1998 to May 21, 1998 and
the Company from the date of the Acquisition through December 31, 1998.
As further discussed in Note 1 to the Consolidated Financial Statements
the Acquisition was accounted for as a purchase. Accordingly, the operating
results for the periods subsequent to May 21, 1998 reflect the results of
operations of the Company subsequent to the Acquisition and include the impact
of adjustments required under the purchase method of accounting.
Results of Operations
Year Ended December 31, 2000 Versus Year Ended December 31, 1999
The Company's net sales for the year ended December 31, 2000 increased
4.6% to $245.2 million from $234.5 million in 1999. Net sales of anode grade
CPC decreased 3.7% to $183.6 million while net sales of industrial grade CPC
increased 20.5% to $48.4 million. In addition, as a result of the Company's
RPC marketing activities, initiated on a very limited scale in the second-half
of 1999, net sales for 2000 included RPC trading revenue of $11.2 million on
volume of 269,382 tons, up from $1.3 million and 65,596 tons in the prior year.
The decrease in anode grade CPC net sales was primarily the result of a
4.1% decrease in average selling prices slightly offset by a 0.4% increase in
sales volume to 1,251,640 tons. The decline in selling prices was attributable
to the lingering effects of weak aluminum prices earlier in the year 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
25.5% increase in sales volume to 385,014 tons, which was partially offset by a
4.0% 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 price
decline.
Gross profit for the year decreased by 3.0% to $60.9 million from
$62.8 million in the prior year. The decrease in gross profit was due to an
increase in cost of goods sold partially offset by the increase in sales
discussed above. The increase in cost of goods sold was the result of higher
sales volume offset partially by lower average per ton costs, principally for
raw materials. Additional Acquisition-related depreciation in 2000 compared to
1999 amounted to $1.4 million and represented approximately 75% of the decline
in gross profit.
Operating income decreased by 3.5% to $41.0 million from $42.5 million
in 1999. The decline in operating income was to due the decrease in gross
profit discussed above offset in part by a 2.0% decrease in selling, general
and administrative expenses. The decrease in selling, general and
administrative expenses was primarily the result of lower professional fees and
employee compensation and benefits partially offset by higher sales commissions
and management fees.
Income before income taxes decreased 1.1% to $13.9 million from $14.1
million in 1999. The decrease was primarily attributable to the decline in
operating income discussed above offset by a $1.2 million decrease in net
interest expense principally due to the effects of continued debt reduction.
The Company's effective tax rate remained essentially unchanged year-
to-year as it increased slightly to 46.5%from 45.4% in 1999.
An extraordinary gain related to repurchases of debt of approximately
$3,804,000 (net of income tax expense of $2,048,000) was recognized in 2000.
As a result of the factors discussed above, net income for the year
ended December 31, 2000 increased 40.4% to $11.2 million from $8.0 million in
1999.
Adjusted EBITDA remained essentially unchanged relative to last year,
increasing 0.1% to $65.3 million in 2000 from $65.2 million in 1999, as
increases to add-back adjustments for depreciation/amortization and AIP
management fee expenses of $1.3 million and $0.4 million, respectively, more
that offset the decrease in operating income discussed above.
Year Ended December 31, 1999 Versus Year Ended December 31, 1998
The Company's net sales for the year ended December 31, 1999 decreased
1.0% to $234.5 million from $236.9 million in 1998. Net sales of anode grade
CPC decreased 4.3% to $190.6 million while net sales of industrial grade CPC
increased 12.1% to $40.2 million.
The decrease in anode grade CPC net sales was primarily the result of a
6.8% decrease in average selling prices partially offset by a 2.7% increase in
sales volume to 1,246,616 tons. This decline in average selling price is
attributable to the effects of weak aluminum prices earlier in the year and the
presence of excess CPC in the market. The increase in sales volume of anode
grade CPC, as well as industrial grade CPC referred to below, reflects the
startup of a second kiln expansion at La Plata, Argentina.
The increase in industrial grade CPC net sales was the result of a
22.1% increase in sales volume to 306,696 tons, which was partially offset by
an 8.1% decrease in selling price. The increase in sales volume was due mainly
greater shipments into the relatively lower priced titanium dioxide market in
1999.
During 1999 the Company entered into an arrangement with Repsol/YPF,
the largest oil refiner in Argentina, and its major RPC supplier, whereby the
Company purchased and resold 65,596 tons of RPC production into international
fuel grade markets. Sales of $1.3 million were generated with respect to these
transactions.
The Company's 1999 gross profit remained essentially unchanged compared
to 1998, decreasing only 0.3% to $62.8 million from $62.9 million in the prior
year. The decrease in gross profit was due to the decline in sales discussed
above partially offset by a reduction in cost of goods sold. The reduction in
cost of goods sold was the result of a decrease in average per ton costs,
principally due to lower raw material costs, offset in large part by higher
sales volume. The additional Acquisition-related depreciation in 1999 compared
to 1998 amounted to $2.1 million and represented 97.3% of the net change in
cost of goods sold.
Operating income increased by 10.1% to $42.5 million from $38.6 million
in 1998. The improvement in operating income was due a 16.8% decrease in
selling, general and administrative expenses partially offset by the decrease
in gross profit discussed above. The decrease in selling, general and
administrative expenses was primarily the result of the absence in 1999 of
payments made in the prior year for certain non-recurring fees and expenses
under agreements that were terminated upon consummation of the Acquisition,
partially offset by increased amortization expense, related mainly to goodwill
established when the Company was acquired, and higher sales commission and
management fee expenses.
Income before income taxes decreased 16.4% to $14.1 million in 1999
from $16.8 million in 1998. The decrease was primarily attributable to a $7.2
million increase in net interest expense offset by the improvement in operating
income discussed above. The increase in net interest expense was due mainly to
the greater amount of debt incurred by the Company in order to finance the
Acquisition.
The Company's effective tax rate in 1999 decreased to 45.4% from 50.8%
in 1998 as the tax effects of income from foreign operations present last year
was only partially offset by higher amounts of non-deductible amortization of
goodwill in 1999.
An extraordinary gain on early extinguishment of debt of approximately
$322,000 (net of income tax expense of $173,000) was recognized in 1999. This
gain relates to the purchase by the Company of $6.9 million of aggregate face
value 13 1/8% Senior Discount Debenture Notes issued by GLAC for approximately
$4.0 million. As a result of the factors discussed above, net income for the
year ended December 31, 1999 increased 587% to $8.0 million from $2.8 million
in 1998.
Adjusted EBITDA increased by 1.3% to $65.2 million in 1999 from $64.4
million in 1998 as a result of the improvement in operating income set forth
above and increases (decreases) to add-back adjustments of $5.0 million for
depreciation/amortization, $(9.2) million related to certain non-recurring fees
and expenses under agreements that were terminated upon consummation of the
Acquisition and $1.1 million for AIP management fees and expenses.
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 transactions are
entirely U.S. dollar denominated, 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.
For purposes of evaluating its cash flow, the Company uses a measure,
which it refers to as adjusted net income (or adjusted results) to classify the
income component of cash flow from operating activities. Adjusted net income
(or adjusted results) represents net income (or results) before depreciation,
amortization, deferred taxes and other non-cash items reflected as reconciling
adjustments in the statement of cash flows.
Net cash flow provided by operating activities were $36.5 million,
$20.8 million and $23.4 million in 2000, 1999, and 1998, respectively. The
$15.6 million increase in 2000 was due primarily to a decrease in working
capital requirements of $14.2 million coupled with a $3.3 million improvement
in adjusted net income, the earnings components of which are discussed above.
The $2.6 million decrease in 1999 was mainly the result of an increase in
working capital requirements of $12.8 million partially offset by an $9.8
million improvement in adjusted net income, the earnings components of which
are discussed above.
Capital expenditures were $4.3 million for both 2000 and 1999 and $17.0
million for 1998. The $12.7 million decrease in 1999 was due primarily to
amounts spent to complete the Argentine expansion and the erection of a new
ship loader at Port Arthur in the prior year.
The expansion of the Argentine facility was completed during the second
quarter of 1998. The Company financed the expansion through a local Argentine
line of credit that had a maximum availability of $20.0 million, of which a
total of $15.9 million ($4.0 million in 1998) was ultimately borrowed.
Also included in investing activities in 2000 and 1999 is the purchase
by the Company of 13 1/8% Senior Discount Debenture Notes issued by GLAC which
the Company intends to hold to maturity.
Investing activities in 1998 includes $278.0 million representing the
consideration paid to the former stockholders (net of cash used) on the date
the Company was acquired on May 22, 1998.
Financing activities in 2000 reflects $19.6 million of long-term debt
repayments, including $7.1 million of voluntary prepayments.
Financing activities in 1999 reflects $16.0 million of debt repayments,
including $6.0 million ($10.0 million if the purchase by the Company of GLAC
13 1/8% notes is considered) of voluntary prepayments. Financing activities in
1998 reflect the receipt by the Company of the proceeds of $175.0 million from
the sale of the Notes, borrowings of $111.0 million in Terms Loans and a cash
contribution from GLAC of $92.4 million (including $27.1 million of net
proceeds from the sale by GLAC of $30.1 million of Debentures) that were used
by the Company to fund the stock purchase and related transaction costs of
approximately $23 million (of which approximately $21 million were capitalized
as deferred financing costs). As a condition to the transaction, the Company
also repurchased all of its then outstanding 10% Senior Secured Notes in an
aggregate principal amount of $65.0 million plus a tender premium of $9.1
million (not including accrued interest) through a public tender offer
consummated concurrently with the Acquisition. In addition, the Company repaid
$13.9 million of long-term debt, including a $12.0 million prepayment of the
Term Loans, in the period subsequent to the Acquisition.
The Notes are unsecured general obligations of the Company and,
although not currently guaranteed, will require essentially all future domestic
subsidiaries of the Company, if any, to be guarantors of the debt. Interest on
the Notes is payable semiannually each year on May 15 and November 15. The
Notes will mature on May 15, 2008 and are subject to early redemption as set
forth under the terms of the indenture. For interest payments due through
May 15, 2003, the Company may, at its option, make up to four semiannual
payments through the issuance of additional notes in an amount equal to the
interest that would be payable if the rate per annum of the Notes were equal to
11 3/4%.
The Company is a party to a credit agreement that includes Term Loans
comprised of three single tranche loans in an original amount of $50.0 million,
$31.0 million and $30.0 million maturing on May 31, 2004, 2005 and 2006,
respectively, and a Revolving Credit Facility in effect until May 31, 2003
which provides for borrowings of up to $25.0 million (with a $10 million sub-
limit for letters of credit). The credit agreement is secured by substantially
all the assets of the Company and requires that the Company satisfy certain
financial ratios. At March 9, 2001 there were no borrowings under the
Revolving Credit Facility and approximately $1.9 million of letters of credit
were outstanding.
The Company expects to meet its liquidity needs, including debt
service, through cash from operations and its revolving credit 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 10.25% Senior Subordinated Notes or the 13.125% Senior
Discount Debentures issued by GLAC.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Investments and Hedging Activities". The
Company will adopt 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 Company does not believe the adoption of
Statement No. 133 will have a significant effect on its financial position,
results of operations or cash flows.
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements", was issued by the Securities and Exchange Commission staff in
December 1999. The Company has determined that it is in compliance with the
revenue recognition provisions and criteria set forth in SAB No. 101 and that
no modifications are necessary to the Company's current revenue recognition
policies and procedures.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company has significant amounts outstanding under its credit
agreement that bear interest at variable rates. As a result, the Company's
interest expense is sensitive to changes in the general level of interest
rates. The Company may, from time to time, enter into interest rate swap
arrangements to manage its interest cost and mitigate its exposure to
fluctuating interest rates. There were no such arrangements outstanding at
December 31, 2000 or during the year then ended.
13
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the Company and its
subsidiaries, together with the reports of independent auditors thereon, are
filed as part of this report:
Consolidated Financial Statements:
Reports of Independent Auditors
Consolidated Balance Sheets as of December 31, 1999 and 2000
Consolidated Statements of Operations for the period January 1, 1998
to May 21, 1998 (predecessor), the period May 22, 1998 to December 31,
1998, and the years ended December 31, 1999 and 2000 (Company)
Consolidated Statements of Stockholder's Equity for the period
January 1, 1998 to May 21, 1998 (predecessor), the period May 22, 1998
to December 31, 1998 and the years ended December 31, 1999 and 2000
(Company)
Consolidated Statements of Cash Flows for the period January 1, 1998 to
May 21, 1998 (predecessor), the period May 22, 1998 to December 31,
1998, and the years ended December 31, 1999 and 2000 (Company)
Notes to the Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
14
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the name, age as of March 9, 2001 and
position of the persons serving as directors or executive officers of the
Company:
- ------------------------------------------------------------------------------
Name Age Position
- ----------------- --- ---------------------------------------------------
James D. McKenzie 56 President and Chief Executive Officer, Director
A. Frank Baca 57 Senior Vice President, Operations and Administration
Robert C. Dickie 52 Vice President, Sales
Craig L. Beilharz 46 Vice President, Raw Materials
Theodore C. Rogers 66 Non-Executive Chairman of the Board, Director
W. Richard Bingham 65 Director
Kim A. Marvin 39 Director
Alfred E. Barry 45 Director
- ------------------------------------------------------------------------------
Each of the Company's directors and executive officers are elected
annually and holds office until his or her successor is elected and qualified.
Mr. McKenzie has served as President and Chief Executive Officer of the
Company since June 1995. He served as Executive Vice President of the Company
and President of the Calcined Petroleum Coke business of the Company and its
predecessor company ("Old GLC") from 1989 to June 1995. From 1971 to 1989, he
held a number of positions with Old GLC, including Vice President, General
Counsel.
Mr. Baca has been Senior Vice President, Operations and Administration
of the Company since September 1995 and was Vice President, Operations from
1991 to August 1995. Since joining Old GLC in 1967, he has held a number of
operating positions, including Plant Manager of the Port Arthur, Texas
calcining facility.
Mr. Dickie has been Vice President, Sales of the Company since
September 1995 and was Director of Sales from 1992 to August 1995. He held the
position of Plant Manager of Enid, Oklahoma calcining facility for Old GLC from
1989 to 1992. Prior to joining Old GLC in 1989, he spent 15 years with Alumax,
holding various positions in aluminum smelting operations.
Mr. Beilharz has been Vice President, Raw Materials of the Company
since April 2000 and was Vice President, Commercial Development of the Company
from February 1999 to March 2000. From March 1997 until rejoining the Company
in 1999 he served as General Manager, Supply and Trading for Koch Carbon, Inc.
Prior to that, he was Manager, Sales and Raw Materials for the Company from
1992 to March 1997. From 1973 to 1992, he held a number of positions in
quality control with Old GLC, including Chemist of the Enid, Oklahoma calcining
facility.
Mr. Rogers has served as the Non-Executive Chairman of the Board and
Director of the Company since May 1998. He is the Chairman of the Board, a
Director and the Secretary of American Industrial Partners Corporation. He
co-founded AIP Management Co. and has been a director and an officer of AIP
Management Co. since 1989. Mr. Rogers is also a director of Bucyrus
15
international, Inc., Derby International, RBX Corporation, Stanadyne Automotive
Corp., Steel Heddle Group, Inc., Sunshine Materials, Inc. and Sweetheart
Holdings, Inc.
Mr. Bingham has served as Director of the Company since May 1998. He
is a Director, the President, the Treasurer and the Assistant Secretary of
American Industrial Partners Corporation. He co-founded AIP Management Co. and
has been a director and an officer of AIP Management Co. since 1989. Mr.
Bingham is also a director of Bucyrus International, Inc., Dearfield
Associates, RBX Corporation, Stanadyne Automotive Corp. and Sweetheart
Holdings, Inc.
Mr. Marvin has served as Director of the Company since May 1998. He
joined the San Francisco office of American Industrial Partners as a Principal
in 1997. From 1994 to 1997, he was an associate in the Mergers & Acquisitions
Department of Goldman Sachs & Co. Mr. Marvin is also a director of Bucyrus
International, Inc.
Mr. Barry has served as Director of the Company since February 1999.
He joined the New York office of American Industrial Partners as a Principal in
1996. From 1991 to 1996, Mr. Barry was a Senior Manager in the manufacturing
practice at Deloitte and Touche Consulting Group.
Directors do not receive compensation for their services as directors.
Item 11. Executive Compensation
The following table sets forth information concerning cash compensation
paid by the Company for the years ended December 31, 2000, 1999 and 1998 to the
Company's Chief Executive Officer and each of the four other most highly
compensated executive officers of the Company.
Long-term
Compensation
Awards
Annual Compensation Securities
------------------- Underlying All Other
Name and Position Year Salary Bonus(1) Options(#) Compensation(2)
- ------------------------ ---- --------- --------- ------------- ---------------
James D. McKenzie 2000 $ 343,750 $ 180,000 - $ 5,250
President and Chief 1999 300,000 223,336 1,200 5,000
Executive Officer 1998 279,170 300,000 - 5,000
A. Frank Baca
Senior Vice President, 2000 187,500 79,313 - 5,250
Operations and Admin. 1999 176,250 99,000 400 5,000
1998 165,000 85,050 - 4,950
Robert C. Dickie 2000 171,252 71,438 - 4,512
Vice President, Sales 1999 158,751 84,002 400 4,309
1998 140,004 70,201 - 4,200
Craig L. Beilharz 2000 155,004 57,656 - 4,525
Vice President, 1999 128,125 - 400 1,207
Raw Materials 1998 - - - -
- -------------------------------------------------------------------------------
(1) Bonuses are reported in the year paid even though earned in the previous
year.
(2) Amounts shown in this column represent Company contributions under the
401(k) savings plan.
- -------------------------------------------------------------------------------
16
Profit-Sharing Plan
The Company's practice has been to maintain a profit-sharing plan that
is established annually. Under the present plan, each eligible employee
receives profit-sharing distributions determined as a percentage of base salary
based on the Company's achievement of profitability targets established each
year by the Board of Directors.
Savings Plans
The Company currently sponsors two Savings Plans for employees: one for
salaried employees and the other for hourly employees covered by the collective
bargaining agreement at the Enid, Oklahoma plant. Each of the Savings Plans is
qualified under section 401(k) of the Internal Revenue Code of 1986, as amended
(the "Code") and provides that employees may make contributions to an account
in the employee's name of up to 15% of base wages. The Company makes
contributions to each such employee account of up to 50% of the employee's
contributions, subject to a cap of 3% of said employee's salary.
Pension Plans
The Company currently maintains three defined benefit retirement plans
for the benefit of its employees; one plan is for hourly employees covered by
the collective bargaining agreement at the Enid, Oklahoma plant, one is for
salaried employees (the "Salaried Plan") and one is a non-qualified
supplemental plan for the benefit of key executives (the "SERP"). Each of the
plans provides eligible employees with certain benefits at retirement based
upon the participant's years of service and, in the case of the Salaried Plan
and the SERP, such employee's average salary, which for purposes of the
foregoing is equal to the average of the highest salary earned in three out of
the previous ten years or the average of all years of service, if less than
three.
17
The following table shows the estimated annual straight-life annuity
benefit payable under the Salaried Plan and the SERP to the executives who
participate in such plans, with the specified remuneration and specified years
of service upon retirement at age 65, after giving effect to adjustments for
Social Security benefits, assuming they continue to be actively employed by the
Company until age 65. For those executives who participant in the SERP, the
benefit payable upon retirement at age 65 is determined based upon their full
salary and years of service. Participation in the SERP is extended to
executives at the sole discretion of the Board of Directors. The benefit
payable upon retirement at age 65 to executive officers who do not participate
in the SERP is determined based upon each such executive's salary (subject to
the limitations imposed by Section 401(a)(17) of the Code, currently $170,000),
and years of service.
Years of
Service Annual
Name at Age 65 Benefit
------------------------ --------- --------
James D. McKenzie 38 $211,034
A. Frank Baca 41 116,682
Robert C. Dickie 24 66,586
Craig L. Beilharz 44 103,015
-----------------------------------------------------
The compensation of participants used to calculate
the retirement benefit consists solely of annual base
salary.
-----------------------------------------------------
Stock Option Plan
On December 13, 1999, the Board of Directors of GLAC adopted the 1999
Management Stock Option Plan (the "Plan") in order to provide equity-based
incentives to certain officers and other key employees of the Company and its
subsidiaries.
The Plan is administered by the President and Chief Executive Officer
of the Company ("CEO"), subject to the review and approval of the Compensation
Committee of the Board of Directors of GLAC or, if one has not been
established, the Board of Directors of GLAC or such other committee as the
Board of Directors of GLAC may designate (any such committee or the Board of
Directors, the "Committee"). The CEO has authority to recommend to the
Committee the employees who shall participate in the Plan and the number of
stock options to be granted to each.
The Plan provides for the grant of stock options to purchase up to an
aggregate of 4,050 shares of the common stock of GLAC at a price of $1,000 per
share with 2,800 shares being initially granted to employees. At the time of
the grant 16.4% of the options became vested with the remaining options
targeted to vest on the last day of plan years 1999 through 2001 at a rate of
27.9% of the aggregate number of shares of common stock subject to the options
per year provided that the Company attains a specified target of Adjusted
EBITDA in each plan year. In the event that the Adjusted EBITDA goal is not
attained in any plan year, the options scheduled to vest at the end of that
plan year will vest on a pro rata basis according to a schedule set forth in
the Plan, provided that if 90% or less of the Adjusted EBITDA goal is achieved,
then no portion of the options shall vest at the end of that plan year. In the
event that the Adjusted EBITDA goal is surpassed in any plan year, the surplus
shall be applied first to offset any Adjusted EBITDA deficit from prior plan
years, and second to accelerate vesting of up to one-quarter of the options
scheduled to vest in 2001 in accordance with a surplus vesting schedule set
forth in the Plan. Notwithstanding the foregoing, all options granted under
the Plan shall vest automatically on April 21, 2007, regardless of the
performance criteria or, in the event of the sale of the Company prior to the
end of the 2001 plan year, immediately prior to such sale.
Granted options may be forfeited or repurchased by GLAC as provided
under the term of the Plan in the event of the participating employee's
termination, and if not previously forfeited or exercised, expire and terminate
no later than ten years after the date of grant or, in the event of the sale of
the Company, upon consummation of such sale.
The table below sets forth for the Company's most highly compensated
executive officers information regarding the grant of options under the Plan
during 1999.
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of
Securities Total Exercise Stock Price
Underlying Options or Base Appreciation for
Granted Granted to Price(2) Expiration Ten Year Option Term
Name Options Employees(1) ($/share) Date 5% 10%
- ------------- ---------- ----------- --------- ---------- ---------- ----------
J.D. McKenzie 1,200 42.9% $1,000.00 12/13/09 $ 754,674 $1,912,491
A.F. Baca 400 14.3% $1,000.00 12/13/09 251,558 637,497
R.C. Dickie 400 14.3% $1,000.00 12/13/09 251,558 637,497
C.L. Beilharz 400 14.3% $1,000.00 12/13/09 251,558 637,497
- -------------------------------------------------------------------------------
(1) A total of 2,800 options were granted to employees under the Plan in 1999.
(2) The exercise price of each option granted was equal to 100% of the fair
value of GLAC's common stock on the date of grant. The fair value was
established by the GLAC's Board of Directors as the price at which GLAC
will buy or sell its common stock.
- -------------------------------------------------------------------------------
No options were granted under the Plan during 2000. The number of
shares of stock underlying options that vested to the benefit of the Company's
most highly compensated executive officers was 1,056 and 406 for 1999 and 2000,
respectively.
The following table sets forth information related to the exercise of
stock options during 2000 and the year-end number and value of unexercised
stock options for the Company's most highly compensated executive officers.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at the End of Options at the End of
Shares Calendar Year 2000 Calendar Year 2000(1)
Acquired ---------- ----------- ---------- -----------
on Value Exercis- Unexercis- Exercis- Unexercis-
Name Exercise Realized able able able able
- ------------- -------- ---------- ---------- ----------- ---------- -----------
J.D. McKenzie - $ - 748 452 $ - $ -
A.F. Baca - - 249 151 - -
R.C. Dickie - - 249 151 - -
C.L. Beilharz - - 216 184 - -
- -------------------------------------------------------------------------------
(1) Substantially all of GLAC's common stock is held by AIP and there is no
established public trading market therefor. At December 31, 2000, the fair
value of the common stock was determined to be $1,000 per share which is
equivalent to the fair value on the date of grant as established by GLAC's
Board of Directors as the price at which GLAC will buy or sell its common
stock.
- -------------------------------------------------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of December 31, 2000
relating to the beneficial ownership of the common stock of the Company by the
directors and named executive officers of the Company, directors and officers
of the Company as a group and each owner of more than 5% of the common stock of
the Company.
Number of
Name Shares Percent
- -------------------------------------------------- --------- -------
GLAC 1,000 100.0%
American Industrial Partners Capital Fund II, L.P. 1,000 100.0%
Theodore C. Rogers (1) 1,000 100.0%
W. Richard Bingham (1) 1,000 100.0%
All directors and officers as a group (8 persons) 1,000 100.0%
- -------------------------------------------------------------------------------
(1) Messrs. Rogers and Bingham share investment and voting power with respect
to the securities owned by AIP, which owns 98.6% of the outstanding shares
of GLAC, which owns all the outstanding shares of the Company Common Stock,
but each disclaims beneficial ownership of any shares of Company Common
Stock
- -------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions
Financial and Management Services
At the close of the Acquisition transactions, AIP was paid a fee of
$5.0 million and reimbursed for out-of-pocket expenses in connection with the
negotiation of the Acquisition transactions and for providing certain
investment banking services to the Company, including the arrangement and
negotiation of the Notes, the credit agreement and the GLAC Debentures, and for
other financial advisory and management consulting services.
AIP provides substantial on-going financial and management services to
the Company utilizing the extensive operating and financial experience of AIP's
principals. AIP receives an annual fee of $1.9 million for providing general
management, financial and other corporate advisory services to the Company,
payable semiannually 45 days after the scheduled interest payment date of the
Notes (and the Debentures when these begin paying cash interest in November
2003), and is reimbursed for out-of-pocket expenses incurred on behalf of the
Company. The fees are paid to AIP pursuant to a management services agreement
among AIP and the Company and are subordinated in right of payment to the Notes
(and the Debentures when these begin paying cash interest in November 2003).
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) List of Financial Statements:
Index to Financial Statements.............................................F-1
Reports of Independent Auditors...........................................F-2
Consolidated Balance Sheets -
December 31, 1999 and 2000................................................F-4
Consolidated Statements of Operations -
For the period January 1, 1998 to May 21, 1998 (predecessor),
the period May 22, 1998 to December 31, 1998 and the years
ended December 31, 1999 and 2000 (Company)................................F-6
Consolidated Statements of Stockholder's Equity -
For the period January 1, 1998 to May 21, 1998 (predecessor),
the period May 22, 1998 to December 31, 1998 and the years
ended December 31, 1999 and 2000 (Company)................................F-7
Consolidated Statements of Cash Flows -
For the period January 1, 1998 to May 21, 1998 (predecessor),
the period May 22, 1998 to December 31, 1998 and the years
ended December 31, 1999 and 2000 (Company)................................F-8
Notes to the Consolidated Financial Statements............................F-9
(a)(2) List of Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions
or are not applicable and, therefore, have been omitted.
(a)(3) List of Exhibits:
Exhibit
Number Description
*3.1 Certificate of Incorporation of the Company, as amended to date.
*3.2 By-Laws of the Company, as amended to date.
*4.1 Indenture, dated as of May 22, 1998, among the Company, the
Subsidiary Guarantors (as defined therein) and State Street Bank
and Trust Company of California, N.A. (formerly First Trust
National Association), as Trustee, relating to the 10 1/4% Series B
Senior Subordinated Notes due 2008 of the Company (the "New Notes")
and the 10 1/4% Series A Senior Subordinated Notes due 2008 of the
Company (the "Old Notes").
*4.2 Form of New Debenture (included in Exhibit 4.1).
*4.3 Registration Rights Agreement, dated as of May 22, 1998, by and
among the Company and Donaldson, Lufkin & Jenrette Securities
Corporation, BT Alex. Brown Incorporated and BancAmerica Robertson
Stephens.
*10.1 Credit Agreement among the Company, GLAC, various banks, Bank of
America NT&SA as co-agent, DLJ Capital Funding, Inc. as
Documentation Agent and Bankers Trust Company, as Syndication Agent
and as Administrative Agent dated as of May 22, 1998.
10.2 Lease Agreement between the Company and Rice-Carden Corporation
(as successor to Kansas City Southern Industries, Inc.), as amended
(Incorporated herein by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1 (File No. 33-98522)).
*10.3 Calcined Coke Supply Agreement between the Company and Aluminum
Company of America.
*10.4 Green Anode Coke Sales Agreement between the Company and Conoco
Inc.
10.5 Petroleum Coke Sales Agreement between Copetro S.A. and YPF S.A.
(Incorporated herein by reference to Exhibit 10.7 to Company's
Registration Statement on Form S-1 (File No. 33-98522)).
*10.6 Amendment No. 1 to the Petroleum Coke Sales Agreement between
Copetro S.A. and YPF S.A.
10.7a Coke Supply Agreement between GLC and Exxon Company, U.S.A.
(Replaces 10.7 filed previously) (Incorporated herein by reference
to Exhibit 10 to the Company's 12/31/99 Annual Report on Form 10-K
(File No. 33-98522)).
*21.1 Subsidiaries of the Company.
24.1 Power of Attorney (included in signature page).
* Incorporated herein by reference to the Company's Registration Statement on
Form S-4 (File No. 333-59545).
(b) Reports on Form 8-K
None
Great Lakes Carbon Corporation
and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1999 and 2000
Contents
Reports of Independent Auditors...........................................F-2
Consolidated Balance Sheets -
December 31, 1999 and 2000................................................F-4
Consolidated Statements of Operations -
For the period January 1, 1998 to May 21, 1998 (predecessor), the period
May 22, 1998 to December 31 1998 and the years ended December 31, 1999
and 2000 (Company)........................................................F-6
Consolidated Statements of Stockholder's Equity -
For the period January 1, 1998 to May 21, 1998 (predecessor), the period
May 22, 1998 to December 31, 1998 and the years ended December 31, 1999
and 2000 (Company)........................................................F-7
Consolidated Statements of Cash Flows -
For the period January 1, 1998 to May 21, 1998 (predecessor), the period
May 22, 1998 to December 31, 1998 and the years ended December 31, 1999
and 2000 (Company)........................................................F-8
Notes to the Consolidated Financial Statements............................F-9
F-1
Report of Independent Auditors
The Board of Directors
Great Lakes Carbonn Corporation
We have audited the accompanying consolidated balance sheet of Great Lakes
Carbon Corporation and subsidiaries as of December 31, 2000, and the related
consolidated statement of operations, stockholder's equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Great Lakes
Carbon Corporation and subsidiaries at December 31, 2000, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 23, 2001
F-2
Report of Independent Auditors
The Board of Directors
Great Lakes Carbonn Corporation
We have audited the accompanying consolidated balance sheet of Great Lakes
Carbon Corporation and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
the period May 22, 1998 to December 31, 1998 and the year ended December 31,
1999. We have also audited the statements of operations, stockholder's equity
and cash flows of the predecessor company for the period January 1, 1998 to
May 21, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Great Lakes
Carbon Corporation and subsidiaries at December 31, 1999, and the consolidated
results of their operations and their cash flows for the period May 22, 1998 to
December 31, 1998 and the year ended December 31, 1999, and those of the
predecessor company for the period January 1, 1998 to May 21, 1998 in
conformity with accounting principles generally accepted in the United States
of America.
ERNST & YOUNG LLP
New York, New York
February 4, 2000
F-3
Great Lakes Carbonn Corporation
and Subsidiaries
Consolidated Balance Sheets
December 31,
1999 2000
----------- ------------
(In thousands, except share data)
ASSETS
Current assets
Cash and cash equivalents $ 7,102 $ 11,239
Accounts receivable, net of allowance
for doubtful accounts of $600 in
1999 and 2000 32,738 33,598
Inventories 35,920 36,137
Prepaid expenses and other current assets 4,613 4,574
-------- --------
Total Current Assets 80,373 85,548
Property, plant and equipment-net 202,874 190,354
Goodwill, net of accumulated amortization
of $7,208 amd $11,682 in 1999 and 2000 171,747 167,273
Capitalized financing costs 15,189 12,867
Other assets 8,042 17,531
-------- --------
$478,225 $473,573
======== ========
See accompanying notes.
F-4
Great Lakes Carbonn Corporation
and Subsidiaries
Consolidated Balance Sheets
December 31,
1999 2000
----------- ------------
(In thousands, except share data)
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable $ 13,864 $ 18,024
Accrued expenses 11,448 11,528
Income taxes payable 1,984 2,171
Current portion of long-term debt 12,434 15,390
-------- --------
Total current liabilities 39,730 47,113
Long-term debt, less current portion 270,173 247,748
Other long-term liabilities 6,804 6,901
Deferred taxes 56,936 53,447
Due to parent 1,435 3,349
Stockholder's Equity
Common stock, par value $0.01 per share;
1,000 authorized, outstanding - -
Additional paid-in capital 92,380 93,000
Retained earnings 10,767 22,015
-------- --------
Total stockholder's equity 103,147 115,015
-------- --------
Total liabilities and stockholder's
equity $478,225 $473,573
======== ========
See accompanying notes.
F-5
Great Lakes Carbonn Corporation
and Subsidiaries
Consolidated Statements of Operations
Predecessor Company
------------ ------------------------------
Period Period
Jan. 1 May 22
to to Year Ended
May 21 Dec. 31 December, 31
1998 1998 1999 2000
---------- ---------- ---------- ----------
(In thousands)
Net sales $ 90,849 $ 146,003 $ 234,544 $ 245,249
Cost of goods sold 67,168 106,748 171,793 184,366
---------- ---------- ---------- ----------
Gross profit 23,681 39,255 62,751 60,883
Selling, general and administrative
expenses 13,070 11,281 20,251 19,852
---------- ---------- ---------- ----------
Operating income 10,611 27,974 42,500 41,031
---------- ---------- ---------- ----------
Other income (expense):
Interest, net (1,776) (20,407) (29,384) (28,162)
Other, net (472) 902 961 1,048
---------- ---------- ---------- ----------
(2,248) (19,505) (28,423) (27,114)
---------- ---------- ---------- ----------
Income before income taxes
and extraordinary item 8,363 8,469 14,077 13,917
Income taxes 2,839 5,714 6,387 6,473
---------- ---------- ---------- ----------
Income before extraordinary item 5,524 2,755 7,690 7,444
Extraordinary (loss) gain on early
extinguishment of debt, net of
tax benefit of $4,001 for the
period January 1 to May 21, 1998
and tax expense of $173 and $2,048
for the years ended December 31,
1999 and 2000 (7,113) - 322 3,804
---------- ---------- ---------- ----------
Net income (loss) $ (1,589) $ 2,755 $ 8,012 $ 11,248
========== ========== ========== ==========
See accompanying notes.
F-6
Great Lakes Carbonn Corporation
and Subsidiaries
Consolidated Statements of Stockholder's Equity
Additional Total
Common Paid-in Retained Stockholder's
Stock Capital Earnings Equity
---------- ---------- ---------- ----------
(In thousands)
Capital contribution
at May 22, 1998 $ - $ 92,380 $ - $ 92,380
Net income for period May 22,
1998 through December 31, 1998 - - 2,755 2,755
---------- ---------- ---------- ----------
Balance at December 31, 1998 - 92,380 2,755 95,135
Net income - - 8,012 8,012
---------- ----------- ---------- ----------
Balance at December 31, 1999 $ - $ 92,380 $ 10,767 $ 103,147
Net income - - 11,248 11,248
Capital contribution
at March 14, 2000 - 620 - 620
---------- ---------- ---------- ----------
Balance at December 31, 2000 $ - $ 93,000 $ 22,015 $ 115,015
========== ========== ========== ==========
Predecessor Company
Balance at December 31, 1997 $ 1 $ 5,509 $ 46,929 $ 52,439
Net loss through May 21, 1998 - - (1,589) (1,589)
---------- ---------- ---------- ----------
Balance at May 21, 1998 $ 1 $ 5,509 $ 45,340 $ 50,850
========== ========== ========== ==========
See accompanying notes.
F-7
Great Lakes Carbonn Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
Predecessor Company
------------ ------------------------------
Period Period
Jan. 1 May 22
to to Year Ended
May 21 Dec. 31 December 31,
1998 1998 1999 2000
---------- ---------- ---------- ----------
(In thousands)
Operating activities
Net (loss) income $ (1,589) $ 2,755 $ 8,012 $ 11,248
Adjustments to reconcile net
(loss)income to net cash
provided by operating
activities:
Depreciation and amortization 3,546 13,428 22,732 24,030
Deferred taxes - 546 (2,228) (3,489)
Changes in operating assets
and liabilities:
Accounts receivables 6,886 4,061 (13,777) (860)
Inventories (1,938) (3,309) 1,782 (217)
Other current assets (1,193) (3,914) 4,843 529
Income taxes payable (4,765) 1,695 3,258 187
Accounts payable and
accrued expenses 9,164 (4,640) (6,870) 4,240
Other, net 2,627 59 3,080 803
---------- ---------- ---------- ----------
Net cash provided by
operating activities 12,738 10,681 20,832 36,471
---------- ---------- ---------- ----------
Investing activities
Capital expenditures (9,058) (7,910) (4,280) (4,285)
Investment in GLAC Debentures - - (4,499) (11,114)
Acquisition of GLC net of
of cash acquired - (278,039) - -
---------- ---------- ---------- ----------
Net cash used by
investing activities (9,058) (285,949) (8,779) (15,399)
---------- ---------- ---------- ----------
Financing activities
Repayment of long-term debt (161) (78,946) (16,010) (19,604)
Additions to long-term debt 4,928 288,782 - 135
Due to (from) parent - 779 656 1,914
Deferred financing costs - (21,100) - -
Capital contribution - 92,380 - 620
---------- ---------- ---------- ----------
Net cash provided (used) by
financing activities 4,767 281,895 (15,354) (16,935)
---------- ---------- ---------- ----------
Increase (decrease) in cash 8,447 6,627 (3,301) 4,137
Cash and cash equivalents at
beginning of period 43,596 3,776 10,403 7,102
---------- ---------- ---------- ----------
Cash and cash equivalents
at end of period $ 52,043 $ 10,403 $ 7,102 $ 11,239
========== ========== ========== ==========
See accompanying notes.
F-8
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000
1. Significant Accounting Policies
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.
In addition, as a condition to the transaction, the Company repurchased its
then outstanding 10% Senior Secured Notes, through a public tender offer for
total consideration of $74,106,500 (excluding accrued interest).
Net shareholder's equity upon consummation of the above transactions was
$92,380,000, and based upon estimates of fair value of assets acquired and
liabilities assumed, goodwill of approximately $179,000,000 was established.
Basis of Presentation
The accompanying financial statements as of December 31, 1999 and 2000 and for
the period from May 22, 1998 to December 31, 1998 reflect the consolidated
financial position, results of operations, and cash flow of the Company
subsequent to the Acquisition and include adjustments required under the
purchase method of accounting. The principal amount related to the 13 1/8%
Senior Discount Debentures sold by GLAC has not been reflected in the Company's
financial statements as the Company has not guaranteed or otherwise pledged its
assets as collateral for the Debentures. The accompanying predecessor
financial statements for the period prior to the date of Acquisition is
presented under the Company's historical basis of accounting and does not
reflect any adjustments that would be required as a result of the Acquisition
by GLAC.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts and disclosures reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
F-9
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Cash Equivalents
Investments with maturities of less than 90 days when purchased are considered
the equivalent of cash.
Inventories
Inventories are stated at the lower of cost (principally average cost method)
or market.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost. Enhancements
are capitalized and depreciated over the period benefited. The provision for
depreciation is determined by the straight-line method over the estimated
useful lives of the related assets.
Goodwill
Goodwill represents the excess of purchase price over the fair value of the net
tangible assets acquired in the Acquisition. Goodwill is being amortized using
the straight-line method over 40 years.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
business circumstances indicate that the carrying value of the assets may not
be recoverable in accordance with Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of". Impairment losses are recognized if expected future undiscounted
cash flows of the related assets are less than their carrying values.
Derivative Investments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Investments and Hedging Activities". The
Company will adopt 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 Company does not believe the adoption of
Statement No. 133 will have a significant effect on its financial position,
results of operations or cash flows.
F-10
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Revenue Recognition in Financial Statements
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements", was issued by the Securities and Exchange Commission staff in
December 1999. The Company has determined that it is in compliance with the
revenue recognition provisions and criteria set forth in SAB No. 101 and that
no modifications are necessary to the Company's current revenue recognition
policies and procedures.
Significant Customers
The Company had two customers which represented 33.3% and 17.3% of net sales in
the period from January 1, 1998 to May 21, 1998; three customers which
represented 27.3%, 14.2% and 10.8% of net sales in the period from May 22, 1998
to December 31, 1998; and two customers which represented 31.2% and 16.7% of
net sales in 1999 and 25.8% and 14.5% of net sales in 2000.
Revenue Recognition
The Company recognizes revenue when products are shipped. Sales are reported
net of out-bound freight and sales discounts returns and allowances.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principals Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"). Compensation expense is recognized
for stock options granted below the fair market value of the Company's stock on
the date of grant.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
F-11
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Inventories
Inventories consist of the following:
December 31,
1999 2000
--------------------
(In thousands)
Raw materials $ 20,286 $ 19,473
Finished goods 9,334 10,047
Supplies and spare parts 6,300 6,617
--------------------
$ 35,920 $ 36,137
====================
3. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
1999 2000
---------------------
(In thousands)
Land and improvements $ 2,575 $ 2,932
Buildings 10,236 10,334
Machinery, equipment and other 214,325 217,945
Construction in progress 373 465
---------------------
227,509 231,676
Accumulated depreciation (24,635) (41,322)
---------------------
$ 202,874 $ 190,354
=====================
Depreciation expense was $3,419,000 for the period from January 1, 1998 to
May 21, 1998, $8,979,000 for the period from May 22, 1998 to December 31, 1998,
and $15,507,000 and $16,805,000 for the years ended December 31, 1999 and 2000,
respectively.
F-12
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Accrued Expenses
Accrued expenses included interest payable and employee profit sharing payable
of $2,764,000 and $2,202,000 and $2,546,000 and $2,055,000 at December 31,
1999 and 2000, respectively.
5. Long-Term Debt
Long-term debt and capital lease obligations consist of the following:
December 31,
1999 2000
---------------------
(In thousands)
10.25% Senior Subordinated Notes due May 15, 2008 $175,000 $175,000
Term Loan Credit Facility bearing interest at the
Company's option at LIBOR (6.5% at December 31,
2000) plus a margin ranging from 2.25% to 3.00%
or Prime (9.5% at December 31, 2000) plus a margin
ranging from 1.25% to 2.00% (subject to an interest
reduction discount ranging from 0% to 0.75% based
on the achievement of certain leverage ratios) due
in varying amounts quarterly through May, 2006 89,450 79,720
Various pollution control and industrial revenue bonds
bearing interest at rates from 6.75% to 7.125% due
in varying amounts at various dates through 2002 2,663 1,572
Facility expansion credit line bearing interest of
LIBOR plus 4% (10.5% at December 31, 2000) due in
semiannual installments through September 2001 12,680 4,755
Capital lease obligation, bearing interest of 9.3% 961 559
Other 1,853 1,532
---------------------
282,607 263,138
Current portion (12,434) (15,390)
---------------------
$270,173 $274,748
=====================
F-13
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Senior Subordinated Notes are unsecured general obligations of the Company.
At the option of the Company, the Senior Subordinated Notes may be redeemed,
in whole or in part, commencing May 15, 2003 at various prices ranging from
105% in 2003 to par in 2006 and beyond. At any time prior to May 15, 2001,
the Company may redeem up to 35% of the Senior Subordinated Notes at a price of
110.25% with the net cash proceeds of one or more equity offerings, provided
that at least $100.0 million in principal remain outstanding. Up to May 15,
2003, the Company may, at its option, make up to four semiannual interest
payments through the issuance of additional notes for an amount equal to the
amount of interest that would be payable if the interest rate were 11.75%.
The Senior Subordinated Notes indenture imposes, among other things,
limitations on certain payments, including dividends.
The Company or its affiliates may, from time to time, depending on liquidity,
and market and economic conditions, purchase in open-market transactions
Senior Subordinated Notes or 13 1/8% Senior Discount Debentures issued by GLAC.
The term loan credit facility is comprised of three single tranche term loans
in the amount of $32,412,000, $24,043,000 and $23,265,000 at December 31, 2000
maturing on May 31, 2004, 2005 and 2006, respectively. The facility also
includes a revolving credit agreement in effect until May 31, 2003, which
provides for borrowings of up to $25,000,000 (with a $10,000,000 sub-limit for
letters of credit). The facility is secured by substantially all the assets of
the Company and requires that the Company, among other things, satisfy certain
financial ratios. At December 31, 2000 there were no borrowings under the
revolving credit portion of the facility and outstanding letters of credit were
$1,099,000.
The pollution control and industrial development revenue bonds were issued by
various state and local governmental authorities. Under agreements with these
authorities, the Company has either leased (with nominal value purchase
options) or purchased on an installment basis the facilities constructed with
the funds financed. The Company has the option of redeeming the bonds in whole
or in part at par at any time.
The facility expansion credit line was established in connection with a major
facility expansion at the Company's La Plata, Argentina plant operated by its
wholly-owned subsidiary, Copetro S.A. (Copetro). The loan is secured by the
property, plant and equipment of Copetro, including the assets constructed with
the funds financed. The agreement requires that Copetro satisfy certain
financial ratios and imposes limitations on the payment of dividends.
Certain covenants present in the Company's credit agreements make reference to
a measure denominated as Adjusted EBITDA. Adjusted EBITDA is defined as
operating income before depreciation, amortization and management fees and
related expenses.
F-14
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The fair market value of the Company's long-term debt obligations approximated
$274,000,000 and $177,000,000 at December 31, 1999 and 2000, respectively.
Maturities of long-term debt, for the succeeding five years and thereafter are
as follows:
Long-Term Capital
Debt Leases Total
-------------------------------
(In thousands)
2001 $ 14,903 $ 487 $ 15,390
2002 11,312 162 11,474
2003 10,605 45 10,650
2004 16,724 - 16,724
2005 22,805 - 22,805
Thereafter 186,095 - 186,095
-------------------------------
$262,444 $ 694 $263,138
===============================
Interest paid amounted to $3,705,000 for the period from January 1, 1998 to
May 21, 1998, $18,258,000 for the period from May 22, 1998 to December 31,
1998, and $27,353,000 and $27,167,000 for the years ended December 31, 1999 and
2000, respectively.
The Company capitalized interest on construction in progress of $562,000 for
the period from January 1, 1998 to May 21, 1998 and $329,000 for the period
from May 22, 1998 to December 31, 1998.
6. Leases
The Company leases various production equipment under capital leases, some of
which contain renewal options and/or options to purchase. Amortization under
capital leases is included in depreciation expense.
F-15
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Future minimum payments as of December 31, 2000, by year and in the aggregate,
under capital leases and non-cancelable operating leases with initial or
remaining terms of one year or more consist of the following:
Capital Operating
Leases Leases
--------------------
(In thousands)
2001 $ 660 $ 1,675
2002 199 1,638
2003 45 1,599
2004 - 1,526
2005 - 1,493
Thereafter - 5,933
--------------------
Total minimum lease payments 904 $13,864
Amounts representing interest (210) ========
------
Present value of net minimum lease payments $ 694
======
Rental expense for all operating leases was $1,062,000 for the period from
January 1, 1998 to May 21, 1998, $1,709,000 for the period from May 22, 1998 to
December 31, 1998, and $2,012,000 and $2,006,000 for the years ended December
31, 1999 and 2000, respectively.
7. Savings and Profit-Sharing Plans
The Company sponsors savings plans, which are qualified under section 401(k) of
the Internal Revenue Code and provide that participating employees may make
contributions of up to 15% of base wages, subject to statutory limitations.
The Company makes contributions for the benefit to each such employee equal to
50% of the employee's contributions, up to a maximum of 3% of the employee's
salary. Matching contributions under the plans were $73,000 for the period
from January 1, 1998 to May 21, 1998, $104,000 for the period from May 22, 1998
to December 31, 1998, and $187,000 and $192,000 for the years ended December
31, 1999 and 2000, respectively.
The Company's practice has been to maintain a profit-sharing plan whereby
eligible employees receive profit-sharing distributions determined as a
percentage of base salary based on the Company's achievement of profitability
targets established annually. Profit-sharing expense was $464,000 for the
period from January 1, 1998 to May 21, 1998, $1,940,000 for the period from May
22, 1998 to December 31, 1998, and $2,096,000 and $1,891,000 for the years
ended December 31, 1999 and 2000, respectively.
F-16
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Pension Plans
The Company has various defined benefit retirement plans, which cover
substantially all employees. Benefits are based upon the number of years of
service and the employee's compensation under varying formulas. The funding
policy is generally to contribute at least the minimum amount that is
acceptable under federal law for tax purposes. Contributions are intended to
provide not only for benefits attributed to service to date, but also for those
expected to be earned in the future. As of December 31, 2000, the assets of
the plan were invested principally in listed stocks, bonds, money market
certificates and cash.
The Company also maintains a supplemental defined benefit retirement plan for
key executives. This plan is not presently funded nor qualified under Section
401(a) of the Internal Revenue Code.
The components of net pension expense for the plans were as follows:
Period Period
Jan. 1 May 22
to to
May 21 Dec. 31
1998 1998 1999 2000
------- ------- ------- -------
(In thousands)
Service cost $ 232 $ 351 $ 624 $ 391
Interest cost 265 397 797 917
Expected return on assets (294) (526) (968) (1,057)
Amortization of prior service cost 4 - - 17
Recognized net actuarial loss - - 36 3
------- ------- ------- -------
Net periodic pension cost $ 207 $ 222 $ 489 $ 271
======= ======= ======= =======
F-17
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following tables set forth the change in benefit obligation and plan
assets, the funded status and amounts recognized in the Company's balance
sheets for the plans:
1999 2000
--------- --------
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of period $ 11,264 $ 11,616
Service cost 624 391
Interest cost 797 917
Amendments - 102
Actuarial (gain)/loss (767) 757
Benefits paid (302) (371)
--------- ---------
Benefit obligation at end of period $ 11,616 $ 13,412
========= =========
Change in plan assets:
Fair value of plan assets at beginning of period $ 11,096 $ 12,381
Actual return on plan assets 1,403 174
Company contribution 184 458
Expenses - (30)
Benefits paid (302) (371)
--------- ---------
Fair value of plan assets at end of period $ 12,381 $ 12,612
========= =========
Funded status $ 765 $ (800)
Unrecognized net actuarial (gain)/loss (423) 1,244
Unrecognized prior service cost - 84
--------- ---------
Net pension asset recognized in the balance sheets $ 342 $ 528
========= =========
The expected long-term rate of return on plan assets was 9% for the periods
presented. The weighted average discount rate and weighted average rate of
increase in future compensation levels used were 7.25% and 4.25% for the period
from January 1, 1998 to May 21, 1998, 7% and 4% for the period from May 22,
1998 to December 31, 1998, 8% and 5% for 1999 and 7.5% and 4.5% for 2000,
respectively.
9. Postretirement Obligations
The Company provides certain health care and life insurance benefits to all
full time employees who satisfy certain eligibility requirements and reach
retirement age while employed by the Company. The Company does not fund these
benefits and accrues for the related cost generally over the employees' service
period.
F-18
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The components of net periodic postretirement benefit cost ("NPPBC") were as
follows:
Period Period
Jan. 1 May 22
to to
May 21 Dec. 31
1998 1998 1999 2000
------- ------- ------- -------
(In thousands)
Service cost $ 106 $ 148 $ 327 $ 270
Interest cost 106 153 286 319
Amortization of net obligation/(asset) 28 - - -
------- ------- ------- -------
NPPBC $ 240 301 $ 613 $ 589
======= ======= ======= =======
The following tables set forth the change in benefit obligation and plan
assets, the funded status and amounts recognized in the Company's balance
sheets:
1999 2000
--------- --------
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of period $ 4,158 $ 4,178
Service cost 327 270
Interest cost 286 319
Actuarial (gain)/loss (488) 172
Benefits paid (105) (145)
--------- ---------
Benefit obligation at end of period $ 4,178 $ 4,794
========= =========
Change in plan assets:
Fair value of plan assets at beginning of period $ - $ -
Actual return on plan assets - -
Company contribution 105 145
Benefits paid (105) (145)
--------- ---------
Fair value of plan assets at end of period $ - $ -
========= =========
Funded status $(4,178) $ (4,794)
Unrecognized net actuarial (gain)/loss (107) 65
Unrecognized prior service cost - -
--------- ---------
Postretirement liability recognized in balance
sheets $ (4,285) $ (4,729)
========= =========
F-19
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The health care cost trend used in determining the accumulated postretirement
benefit obligation ("APBO") was 7.29% grading down to 5.0% in five years. That
assumption may have a significant effect on the amounts reported. To
illustrate, increasing the assumed trend by 1% for all years would increase the
aggregate service and interest component of NPPBC for the year ended December
31, 2000 by $96,000 (or 16.3%) and the APBO for the year then ended by $658,000
(or 13.7%). Conversely, decreasing the assumed trend by 1% for all years would
decrease the aggregate service and interest component of NPPBC for the year
ended December 31, 2000 by $79,000 (or 13.4%) and the APBO for the year then
ended by $551,000 (or 11.5%).
Assumptions used to develop NPPBC and the actuarial present value APBO included
the weighted average rate of increase in future compensation levels and the
weighted average discount rate of 5% and 7.5% for the period from January 1,
1998 to May 21, 1998, 5% and 7% for the period from May 22, 1998 to December
31, 1998, 5% and 8% for 1999 and 5% and 7.5% for 2000, respectively.
10. Stockholder's Equity
On December 13,1999, the Board of Directors of GLAC adopted the 1999 Management
Stock Option Plan (the "1999 Option Plan") which provides for the grant of
stock options to purchase up to an aggregate of 4,050 shares of the common
stock of GLAC a price of $1,000 per share with 2,800 shares being initially
granted to employees. At the time of the grant, 16.4% of the options became
vested with the remaining options targeted to vest on the last day of plan
years 1999 through 2001 at a rate of 27.9% of the aggregate number of shares of
common stock subject to the options per year, provided that the Company attains
specified Adjusted EBITDA targets. If the Adjusted EBITDA goal is not attained
in any plan year, the options scheduled to vest in that year will vest on a pro
rata basis as prescribed in the 1999 Option Plan, except that unless more than
90% of the Adjusted EBITDA goal is achieved, no portion of the options shall
vest for the year. Conversely, the 1999 Option Plan provides of make-up vesting
and accelerated vesting (of up to 25% of the options scheduled to vest in
2001), in that order, in the event that the Adjusted EBITDA goal is surpassed
in any plan year. Notwithstanding the foregoing, all options granted under the
1999 Option Plan vest automatically on April 21, 2007, regardless of
performance criteria, or upon of the sale of the Company should the sale occur
prior to the end of 2001, and expire on the earlier of the tenth anniversary of
the date of grant or the sale of the Company.
F-20
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following table sets forth the activity and outstanding balances of options
exercisable for shares of common stock under the 1999 Option Plan:
Available
Options For Future
Outstanding Grants
------------ ------------
At plan inception on December 13, 1999 - 4,050
Granted on December 13, 1999 ($1,000 per share) 2,800 (2,800)
------------ ------------
Balance at December 31, 1999 2,800 1,250
Options granted - -
------------ ------------
Balance at December 31, 2000 2,800 1,250
============ ============
At December 31, 2000, the number of options outstanding that were vested
totaled 1,712 at an exercise price of $1,000 per share with a weighted average
remaining contractual life of 9 years.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation,"
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, no compensation expense is
recognized if the exercise price of the Company's employee stock options equals
or exceeds the market price of the underlying stock on the date of grant.
Statement No. 123 requires disclosure by the Company of the pro forma effect on
net income if it continues to account for stock options under the provisions of
APB 25. The Company used the minimum value method to develop the pro forma
information set forth below which has been determined as if the Company had
accounted for its stock options under the fair value method of Statement
No. 123.
Period Period
Jan. 1 May 22
to to
May 21 Dec. 31
1998 1998 1999 2000
---------- ---------- ---------- ----------
(In thousands)
Net earnings (loss):
As reported $ (1,589) $ 2,755 $ 8,012 $ 11,248
Pro forma $ (1,589) $ 2,755 $ 7,878 $ 11,181
F-21
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The exercise price of these stock options was equal to the fair value of the
underlying common stock on the date of grant, which was established by the
Board of Directors of GLAC as the price at which GLAC will buy or sell its
common stock. The grant date fair value for the stock options was estimated at
$177.40 per option and was determined using an option pricing model with the
following weighted average assumptions for 1999 and 2000: risk-free interest
rate of 6.51%; dividend yield of 0.1%; volatility factor of the expected market
price of the Company's common stock of 0.0; and expected option life of 3
years.
Option valuation models were developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable single
measure of the value of its employee stock options.
11. Other Income (Expense)
Other income (expense) consists of the following:
Period Period
Jan. 1 May 22
to to
May 21 Dec. 31
1998 1998 1999 2000
------- ------- ------- -------
(In thousands)
Export tax refund $ 77 $ 660 $1,261 $ 1,112
Other (549) 242 (300) (64)
------- ------- ------- -------
$ (472) $ 902 $ 961 $ 1,048
======= ======= ======= =======
F-12
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Income Taxes
Components of the Company's deferred tax liabilities and assets are as follows:
1999 2000
---------------------
(In thousands)
Deferred tax liabilities:
Book over tax depreciable basis $56,427 $54,923
Other - net 5,075 3,576
---------------------
Total deferred tax liabilities 61,502 58,499
---------------------
Deferred tax assets:
Accrued liabilities 2,466 2,742
Valuation allowance - (475)
Other - net 2,100 2,785
---------------------
Total deferred tax assets 4,566 5,052
---------------------
Net deferred tax liability $56,936 $53,447
=====================
The differences between tax expense computed at the statutory federal income
tax rate and actual tax expense are as follows:
Period Period
Jan. 1 May 22
to to
May 21 Dec. 31
1998 1998 1999 2000
------- ------- ------- -------
(In thousands)
Tax expense at statutory rates applied
to pretax earnings $ 2,927 $ 2,964 $ 4,927 $ 4,874
State income tax, net of federal tax effects (131) 86 28 9
Tax exempt earnings (20) (315) (332) (327)
Effects of foreign operations (135) 1,764 (171) 233
Amortization of goodwill - 957 1,566 1,566
Change in valuation allowance - - - 475
Other 198 258 369 (357)
------- ------- ------- -------
$ 2,839 $ 5,714 $ 6,387 $ 6,473
======= ======= ======= =======
F-24
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Income taxes consist of the following:
Period Period
Jan. 1 May 22
to to
May 21 Dec. 31
1998 1998 1999 2000
------- ------- ------- -------
(In thousands)
Current:
Federal $ 1,801 $ 3,611 $ 3,281 $ 4,732
State (202) (634) 604 323
Foreign 1,240 2,191 4,730 4,907
------- ------- ------- -------
2,839 5,168 8,615 9,962
------- ------- ------- -------
Deferred:
Federal - (275) (1,405) (2,788)
State - 766 (561) (309)
Foreign - 55 (262) (392)
------- ------- ------- -------
- 546 (2,228) (3,489)
------- ------- ------- -------
Total $ 2,839 $ 5,714 $ 6,387 $ 6,473
======= ======= ======= =======
Income taxes paid were approximately $4,994,000, $2,081,000, and $4,851,000 and
$10,551,000 for the period from January 1, 1998 to May 21, 1998, the period
from May 22, 1998 to December 31, 1998, and the years ended December 31, 1999
and 2000, respectively.
U.S. income taxes have not been provided on the undistributed earnings of
Copetro ($34,723,000 as of December 31, 2000) because such earnings are
expected to be reinvested. Upon distribution of those earnings, the Company
would be subject to U.S. income taxes (subject to an adjustment for foreign tax
credits and withholding taxes, if any).
Income before income taxes and extraordinary item attributable to domestic
operations (which included results from export sales) was $4,606,000 for the
period from January 1, 1998 to May 21, 1998, $2604,000 for the period from
May 22, 1998 to December 31, 1998, $1,479,000 for the year ended December 31,
1999 and $997,000 for the year ended December 31, 2000.
F-25
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Financial Information Relating to Segments
The Company has three reportable business segments.
Anode Grade CPC-is produced and marketed directly to primary aluminum
smelters world-wide for use as the principal raw material in the production
of carbon anodes, a key component in the aluminum smelting process.
Industrial Grade CPC-is produced and marketed for use in a variety of non-
aluminum, industrial applications, including as a raw material in the
production of titanium dioxide, as a recarburizer (carbon additive) in the
manufacture of steel and foundry products and for use in other specialty
materials and chemicals markets.
RPC Trading-involves the world-wide marketing of raw petroleum coke ("RPC")
for use as the raw material in the production of CPC and as a fuel source in
a variety of other industrial applications.
The production and distribution of CPC, which is the focus of the first two
units, is accomplished utilizing the same process, plant facilities and
operating assets. The RPC trading business, as conducted by the Company,
generally involves the use of such assets on a limited basis. Accordingly,
the Company does not segregate, or otherwise account for, the assets by
segments.
F-25
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- ----------
(In thousands)
--Period from Jan. 1
to May, 1998--
Net sales $ 76,330 $ 13,862 $ - $ 657 $ 90,849
Cost of goods sold (55,840) (10,429) - (899) (67,168)
---------- ---------- --------- ---------- ----------
Segment profit $ 20,490 $ 3,433 $ - $ (242) 23,681
========== ========== ========= ==========
Selling, general and
administrative expenses (13,070)
Interest expense, net (1,776)
Other income (expense) (472)
----------
Income before income taxes $ 8,363
==========
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- -----------
(In thousands)
- --Period from May 22
to Dec. 31, 1998--
Net sales $ 122,813 $ 21,959 $ - $ 1,231 $ 146,003
Cost of goods sold (86,861) (15,897) - (3,990) (106,748)
---------- ---------- --------- ---------- ----------
Segment profit $ 35,952 $ 6,062 $ - $ (2,759) 39,255
========== ========== ========= ==========
Selling, general and
administrative expenses (11,281)
Interest expense, net (20,407)
Other income (expense) 902
-----------
Income before income taxes $ 8,469
===========
F-26
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- -----------
(In thousands)
---------1999--------
Net sales $ 190,648 $ 40,167 $ 1,303 $ 2,426 $ 234,544
Cost of goods sold (138,002) (26,501) (1,136) (6,154) (171,793)
---------- ---------- --------- ---------- ----------
Segment profit $ 52,646 $ 13,666 $ 167 $ (3,728) 62,751
========== ========== =========
Selling, general and
administrative expenses (20,251)
Interest expense, net (29,384)
Other income (expense) 961
-----------
Income before income taxes $ 14,077
===========
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- -----------
(In thousands)
---------2000---------
Net sales $ 183,576 $ 48,395 $ 11,155 $ 2,123 $ 245,249
Cost of goods sold (133,919) (34,053) (9,295) (7,099) (184,366)
--------- ---------- --------- ---------- -----------
Segment profit $ 49,657 $ 14,342 $ 1,860 $ (4,976) 60,883
========= ========== ========= ==========
Selling, general and
administrative expenses (19,852)
Interest expense, net (28,162)
Other income (expense) 1,048
----------
Income before income taxes $ 13,917
==========
F-27
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Operations by Geographic Area
The following is a summary of the Company's operations by geographic area:
Period Period
Jan. 1 May 22
to to
May 21 Dec. 31 Year Ended Dec. 31,
1998 1998 1999 2000
---------- ---------- ---------- ----------
(In thousands)
Net Sales
United States $ 75,823 $ 116,011 $ 168,815 $ 183,905
Foreign 15,026 29,992 65,729 61,344
---------- ---------- ---------- ---------
$ 90,849 $ 146,003 $ 234,544 $ 245,249
========== ========== ========== ==========
Operating income
United States $ 7,098 $ 22,466 $ 29,414 $ 28,705
Foreign 3,513 5,508 13,086 12,326
---------- ---------- ---------- ----------
$ 10,611 $ 27,974 $ 42,500 $ 41,031
========== ========== ========== ==========
Adjusted EBITDA (1)
United States $ 19,078 $ 33,295 $ 47,826 $ 48,617
Foreign 4,125 7,899 17,389 16,690
---------- ---------- ---------- ----------
$ 23,203 $ 41,194 $ 65,215 $ 65,307
========== ========== ========== ==========
Assets
United States $ 138,011 $ 408,502 $ 393,713 $ 393,445
Foreign 44,331 82,251 84,512 80,128
---------- ---------- ---------- ----------
$ 182,342 $ 490,753 $ 478,225 $ 473,573
========== ========== ========== ==========
(1) Adjusted EBITDA should not be considered a substitute for net income,
cash flow from operating activities or other cash flow statement data
prepared in accordance with generally accepted accounting principles or as
an alternative to net income as an indicator of operating performance or
cash flows as a measure of liquidity. Adjusted EBITDA is presented here
only to provide additional information with respect to the Company's ability
to satisfy debt service. While Adjusted EBITDA is frequently used as a
measure of operations and the ability to meet debt service requirements, it
is not necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation.
F-28
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Exports from U.S. operations were approximately $43,260,000, $68,291,000, and
$83,525,000 and $93,892,000 for the period from January 1, 1998 to May 21,
1998, the period from May 22, 1998 to December 31, 1998 and for the years ended
December 31, 1999 and 2000, respectively. Export sales to Western Europe as a
percentage of United States net sales were 26.4%, 27.1% and 29.4% and 27.9% for
the period from January 1, 1998 to May 21, 1998, the period from May 22, 1998
to December 31, 1998 and the years ended December 31, 1999 and 2000,
respectively. Export sales to Africa as a percentage of United States net
sales were 22.6% and 17.9% for the period from January 1, 1998 to May 21, 1998
and the period from May 22, 1998 to December 31, 1998, respectively. The
Company's foreign operations are conducted principally in South America.
15. Quarterly Financial Data (unaudited)
The following is a summary of Company's quarterly results of operations:
1999 Quarterly Data
3/31 6/30 9/30 12/31
---------- ---------- ---------- ----------
(In thousands)
Net sales $ 60,363 $ 62,003 $ 53,814 $ 58,364
Gross profit 15,839 15,566 14,498 16,848
Operating income 11,034 10,660 9,579 11,227
Other expense 7,228 7,005 7,011 7,179
Income before income tax and
extraordinary item 3,806 3,655 2,568 4,048
Income tax expense 1,480 1,525 1,152 2,230
Extraordinary gain, net of tax - - - 322
Net income 2,326 2,130 1,416 2,140
Adjusted EBITDA (1) 16,836 16,298 15,163 16,918
2000 Quarterly Data
3/31 6/30 9/30 12/31
---------- ---------- ---------- ----------
(In thousands)
Net sales $ 58,144 $ 63,717 $ 61,352 $ 62,036
Gross profit 14,317 16,103 15,610 14,853
Operating income 9,794 11,323 10,444 9,470
Other expense 6,849 6,664 6,884 6,717
Income before income tax and
extraordinary expense 2,945 4,659 3,560 2,753
Income tax expense 1,439 2,434 2,107 493
Extraordinary gain, net of tax - - - 3,804
Net income 1,506 2,225 1,453 6,064
Adjusted EBITDA (1) 15,575 17,104 16,257 16,371
(1) Adjusted EBITDA should not be considered a substitute for net income,
cash flow from operating activities or other cash flow statement data
prepared in accordance with generally accepted accounting principles or as
an alternative to net income as an indicator of operating performance or
cash flows as a measure of liquidity. Adjusted EBITDA is presented here
only to provide additional information with respect to the Company's ability
to satisfy debt service. While Adjusted EBITDA is frequently used as a
measure of operations and the ability to meet debt service requirements, it
is not necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation.
F-29
Great Lakes Carbonn Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Extraordinary Item
In connection with the repurchase of the 10% Senior Secured Notes described in
Note 1, an extraordinary loss on early extinguishment of debt of approximately
$7,113,000, net of taxes of approximately $4,001,000, has been reflected in the
predecessor Statement of Operations for the period from January 1, 1998 to May
21, 1998.
Extraordinary gains related to the repurchase of the Company's debt of
approximately $322,000 and $3,804,000 (net of income tax expenses of $173,000
and $2,048,000) were recognized in 1999 and 2000, respectively.
17. Litigation and Contingencies
The Company is a party to several proceedings, which are in various stages of
resolution. Management of the Company, after discussion with legal counsel, is
of the opinion that the ultimate resolution of these matters will not have a
material effect upon the financial condition of the Company.
F-30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to be
signed on its behalf by the undersigned thereunto duly authorized on the 9th
day of March 2001.
Great Lakes Carbon Corporation
By: /s/JAMES D. MCKENZIE
---------------------
James D. McKenzie, President
and Chief Executive Officer
Power of Attorney
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/JAMES D. MCKENZIE President, Chief Executive
- --------------------- Officer and Director March 9, 2001
James D. McKenzie (Principal Executive Officer)
* Senior Vice President, March 9, 2001
- --------------------- Operations and Administration
A. Frank Baca
* Vice President, Sales March 9, 2001
- ---------------------
Robert C. Dickie
* Vice President, Raw Materials March 9, 2001
- ---------------------
Craig L. Beilharz
* Non-Executive Chairman of March 9, 2001
- --------------------- the Board, Director
Theodore C. Rogers
* Director March 9, 2001
- ---------------------
W. Richard Bingham
* Director March 9, 2001
- ---------------------
Kim A. Marvin
* Director March 9, 2001
- ---------------------
Alfred E. Barry
By: /s/JAMES D. MCKENZIE
- --------------------------
James D. McKenzie
Attorney-in-Fact