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, 2001 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 No.)
551 Fifth Avenue, Suite 3600, New York, NY 10176
(Address of principal executive office) (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 27, 2002, the registrant had outstanding 1,000 shares of
its Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
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GREAT LAKES CARBON CORPORATION
Annual Report on Form 10-K for the Year Ended December 31, 2001
Table of Contents
Page
PART I
Item 1. Business.........................................................3
Item 2. Properties.......................................................6
Item 3. Legal Proceedings................................................7
Item 4. Submission of Matters to Vote of Security Holders................7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..............................................7
Item 6. Selected Financial Data..........................................8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......14
Item 8. Financial Statements and Supplementary Data......................15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...........................15
PART III
Item 10. Directors and Executive Officers of the Registrant...............16
Item 11. Executive Compensation...........................................17
Item 12. Security Ownership of Certain Beneficial Owners and Management...20
Item 13. Certain Relationships and Related Transactions...................20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..22
Index to Financial Statements.............................................F-1
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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 74% of the Company's
total 2001 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.
On May 22, 1998 Great Lakes Acquisition Corp. ("GLAC")., a corporation
formed by American Industrial Capital Fund II, L.P. ("AIP"), a private
investment fund, for the transaction acquired all of the issued and outstanding
capital stock of the Company .
On March 27, 2002, the Company purchased a calcining facility located
in Baton Rouge, LA (the "Baton Rouge Plant") from Alcoa, Inc. ("Alcoa") for $43
million, subject to a purchase price adjustment based upon a $23 million
working capital guarantee. The transaction was financed by two $10 million
promissory notes bearing interest at 5% per annum payable to Alcoa in November
2002 and May 2003, incremental term loan borrowings under the Company's
existing syndicated senior secured credit facility of $12 million and cash on-
hand of $11 million.
The addition of the Baton Rouge Plant, which can produce up to 700,000
tons per year of CPC, will increase the Company's total operating capacity to
2.3 million tons from 1.6 million tons. The Company also operates 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.
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. After six years of consecutive growth,
aluminum production decreased in 2001 due to shutdowns of smelting capacity,
principally in the Pacific Northwest, in response to power costs and the world
economic slowdown. Despite this, demand for CPC remained relatively firm and
the Company operated at near effective capacity in 2001.
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While there are at present no viable substitutes for CPC in carbon
anodes, in June 2000, Alcoa confirmed a financial analyst report that it was
working on the development of an inert anode, which would eliminate the use of
CPC 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 several
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 was no assurance that the inert anode they are
developing would be successful in commercial operation.
Although 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 this alternative 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 western
world petroleum refining capacity is based domestically, the United States has
a majority of western world 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
2001, the Company purchased approximately 50.6% of its RPC requirements from
three petroleum refiners.
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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 2001, approximately 35% of the Company's net sales were to U.S.-
based customers and approximately 65% were to customers in international
markets. Approximately 60.4% of the Company's 2001 net sales were made to five
customers with Alcoa and Aluminium Bahrain accounting for 26.7% and 14.8% of
the total, 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. Historically, GLC was one of five major domestic calciners of anode
grade CPC. Two calciners, GLC and Calciner Industries, Inc., are independent.
The other calciners were BP Amoco (formerly Atlantic Richfield Co. or Arco),
whose petroleum refining operations provide its raw material supply, Venture
Coke Company (Venco), which is 50% owned by Conoco, Inc. and Alcoa (formerly
Reynolds Metals Co.), which used some of its CPC for internal consumption.
On March 27, 2002, GLC purchased Aloca's Baton Rouge Plant which represented
approximately 75% of the latter's domestic calcining capacity.
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Employees
As of December 31, 2001, the Company employed 253 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.
With the acquisition of the Baton Rouge Plant effective March 27, 2002,
the total number of persons employed by the Company increased to 313, including
an additional 45 hourly employees covered by an interim collective bargaining
agreement with the United Steelworkers of America, expiring on September 30,
2002.
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 $1.3 million on capital expenditures related to pollution control
facilities in 2001 and anticipates spending approximately $1.8 million and $2.0
million 2002 and 2003, respectively.
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, results of operations or
cash flows 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 subsequently purchased the heat recovery assets at scrap value
and while it maintains the option of restarting the facility, should another
interested third party be found, there are no plans to do so at the present.
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.
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The La Plata, Argentina facility operated by Copetro has two kilns with
the capacity to produce 440,000 tons per year of CPC. 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 Baton Rouge facility has four kilns that have the capacity to
produce 700,000 tons per year of CPC. Situated on 55 acres of owned property,
the facility has the capability to receive and ship material by truck or rail
with ready access to barge and ocean-going vessel transportation.
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, 2001.
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 2001, 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.
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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, 2000 and 2001 and for the
predecessor company as of and for the year ended December 31, 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
Dec.31 May 21 Dec.31 Year Ended December 31,
1997 1998 1998 1999 2000 2001
--------- --------- ---------- --------- --------- ---------
Statement of
operations data
- ------------------
Net sales $231,911 $ 90,849 $ 146,003 $234,544 $245,249 $248,504
Gross Profit 59,521 23,681 39,255 62,751 60,883 54,588
Operating income 41,011 10,611 27,974 42,500 41,031 35,895
Other expense 6,336 2,248 19,505 28,423 27,114 28,255
Income before
income tax and
extraordinary item 34,675 8,363 8,469 14,077 13,917 7,640
Income tax expense 12,691 2,839 5,714 6,387 6,473 2,988
Extraordinary (loss)
gain, net of tax - (7,113) - 322 3,804 3,717
--------- --------- ---------- --------- --------- ---------
Net income (loss) $ 21,984 $ (1,589) $ 2,755 $ 8,012 $ 11,248 $ 8,369
========= ========= ========== ========= ========= =========
Adjusted EBITDA(1)
- -------------------
Operating income $ 41,011 $ 10,611 $ 27,974 $ 42,500 $ 41,031 $ 35,895
Depreciation and
amortization 9,955 3,443 12,013 20,410 21,708 21,973
AIP fees & expenses - - 1,185 2,305 2,568 2,179
Prior ownership:
Fees and expenses 1,436 8,831 22 - - -
Other related
agreements 6,780 318 - - - -
--------- --------- ---------- --------- --------- ---------
Total adjusted
EBITDA $ 59,182 $ 23,203 $ 41,194 $ 65,215 $ 65,307 $ 60,047
========= ========= ========== ========= ========= =========
Balance sheet data
- ------------------
Total assets $174,911 $182,342 $ 490,753 $478,225 $473,573 $482,147
Total debt $ 84,014 $ 88,781 $ 298,617 $282,607 $263,138 $264,084
Statement of
cash flow data
- -----------------------
Cash provided/(used) by
Operating
Activities...... $ 31,261 $ 12,738 $ 10,681 $ 20,337 $ 30,619 $ 7,882
Investing
Activities...... $(21,391) $ (9,058) $(285,949) $ (8,284) $ (8,905) $(11,333)
Financing
Activities...... $ 9,629 $ 4,767 $ 281,895 $(15,354) $(17,577) $ 4,398
(1) Adjusted EBITDA represents operating income before depreciation,
amortization, fees and expenses payable to the Company's prior ownership group
under agreements which where terminated at the Company's acquisition by AIP on
May 22, 1998 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 by management 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.
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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 of 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.
Critical Accounting Policies
The Company's significant accounting policies are more fully described
in Note 1 to the consolidated financial statements.
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.
The Company recognizes revenue when products are shipped. Sales are
reported net of out-bound freight and sales discounts returns and allowances.
Foreign currency financial statements have been translated into U.S.
dollars in accordance with Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation". SFAS No. 52, as applied to foreign entity financial statements
where the U.S. dollar is determined to be the functional currency, as in the
Company's case, requires that monetary assets and liabilities denominated in
the local or other foreign currency be remeasured to the U.S. dollars at the
exchange rate in affect on the report date. Exchange rate gains and losses
from remeasurement are recognized currently in results.
Inventories are stated at the lower of cost (principally average cost
method) or market.
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 SFAS 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.
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Results of Operations
Year Ended December 31, 2001 Versus Year Ended December 31, 2000
The Company's net sales for the year ended December 31, 2001 increased
1.3% to $248.5 million from $245.2 million in the comparable 2000 period. Net
sales of anode grade CPC decreased 0.4% to $182.9 million, net sales of
industrial grade CPC decreased 2.5% to $47.2 million and net sales of RPC
increased 46.1% to $16.3 million.
The decrease in anode grade CPC net sales was primarily the result of
a 4.4% decrease in sales volume to 1,196,685 tons almost completely offset by a
4.2% increase in average per ton selling prices. The decrease in sales volume
was primarily a function of period-to-period scheduling fluctuations. The
increase in selling prices was attributable to market recognition of increased
CPC supply costs discussed below.
The decrease in industrial grade CPC net sales was the result of an
8.5% decrease in sales volume to 352,424 tons partially offset by a 6.6%
increase in average selling prices. Volume declines in chemical and recarb
accounts out-paced greater shipments to titanium dioxide customers and higher
prices across most product lines.
The increase in RPC net sales was primarily the result of a 64.9%
increase in the average per ton selling price offset partially by a 11.4%
decrease in sales volume to 238,674 tons. The shipment of higher-priced anode
grade RPC, despite lower total volume levels, was the primary reason for the
change.
The Company's gross profit for the year decreased by 10.3% to $54.6
million from $60.9 million in the prior year. The decrease in gross profit
was due to higher cost of goods sold that was only partially offset by the
increase in sales discussed above. The increase in cost of goods sold was due
mainly to higher average per ton raw material costs which were only partially
offset by the decline in volume. Tight anode grade RPC supply, particularly in
the United States Gulf Coast, was the major factor impacting raw material
costs.
Operating income decreased 12.5% to $35.9 million from $41.0 million in
2000. The decrease in operating income was due to the decrease in gross profit
discussed above offset in part by a 5.8% decrease in selling, general and
administrative expenses. The decrease in selling, general and administrative
expenses was primarily the result of lower sales commissions, management fees
and travel and entertainment expenses.
Income before income taxes and extraordinary item decreased 45.1% to
$7.6 million from $13.9 million in 2000. The decrease was attributable to the
decline in operating income discussed above and a $5.0 million charge related
to the settlement of a finders fee claim dating back to the acquistion of the
Company by AIP included in other expenses offset in part by a $3.3 million
decrease in net interest expense. The effects of lower general interest rates
and continued debt reduction, which more than offset the additional interest
expense incurred in connection with the 10 1/4% Senior Subordinated Notes (the
"Notes") payment-in-kind election, were the most significant factors
contributing to the lower net interest expense.
The Company's effective tax rate decreased to 39.1% from 46.5% in 2000
mainly as a result of the impact of exchange rate movements on the taxes
provided at the Company's foreign operations.
An extraordinary gain related to the repurchase of debt of
approximately $3,717,000 (net of income tax expense of $2,073,000) was
recognized during 2001.
As a result of the factors discussed above, net income for the year
ended December 31, 2001 decreased 25.6% to $8.4 million from $11.2 million in
2000.
Adjusted EBITDA for the year decreased by 8.1% to $60.0 million from
$65.3 million in 2000 due to the decrease in operating income discussed above
as add-back adjustments for depreciation/amortization and AIP management fee
expenses remained basically unchanged.
10 of 22
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.
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.
11 of 22
For purposes of evaluating its cash flow, the Company uses a measure,
which it refers to as adjusted net income to classify the income component of
cash flow from operating activities. Adjusted net income represents net income
before depreciation, amortization, deferred taxes and other non-cash items
reflected as reconciling adjustments in the statement of cash flows.
Net cash provided by operating activities was $7.9 million, $30.6
million, and $20.3 million in 2001, 2000 and 1999, respectively. The $22.7
million decrease in 2001 was due mainly to an increase in working capital
requirements of $16.9 million, of which an inventory build of $10.3 million, in
response to anticiapted continued tighness of anode grade RPC supply in the
U.S. Gulf Coast, was the most significant component. The $10.3 million increase
in 2000 was due primarily to a decrease in working capital requirements of
$12.4 million.
Capital expenditures, which totalled $4.2 in 2001 and $4.3 million for
both 2000 and 1999, remained relatively constant from year to year.
Investing activities also include purchases (approximately $4.0 million
in each of the years shown) and accretions of the 13 1/8% Senior Discount
Debenture Notes (the "Debentures") issued by GLAC, which the Company intends to
hold to maturity.
Financing activities in 2001 reflect a net increase in long-term debt
of $0.9 million. This is comprised of $13.0 million accretion on the Notes
(due to the Company's exercise of the payment-in-kind election) and certain
short-term working capital borrowings in Argentina of $7.8 million, offset by
$19.9 million of debt repayments.
Financing activities in 2000 reflect a net reduction of long-term debt
of $19.5 million, including $7.1 million of voluntary prepayments.
Financing activities in 1999 reflects a net reduction of long-term debt
of $16.0 million, including $6.0 million of voluntary prepayments.
The Notes were issued by the Company in May 1998 to finance the
acquisition of the Company by AIP. The Notes are unsecured general obligations
of the Company and, although not currently guaranteed, 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%.
Thus far the Company has exercised its pay-in-kind option in connection
with the November 15, 2001 and the May 15, 2002 interest payments. As a
condition to obtaining incremental term loan financing for the Baton Rouge
Plant acquisition under its existing credit agreement, the Company has agreed
to use its two remaining elections and thereby make the November 2002 and
May 2003 interest payments through the issuance of additional notes.
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 27, 2002 there were no borrowings under the
Revolving Credit Facility and approximately $3.4 million of letters of credit
were outstanding.
On March 27, 2002, the Company secured incremental term loans under
each existing tranche in the amount of $9.0 million, $1.5 million and $1.5
million, respectively, in order to finance the acquisition of the Baton Rouge
Plant. The incremental loans amortize and mature in conformity with the
existing term loan tranches to which they were added. At the close of the
Baton Rouge Plant transaction, the amount payable under each such tranche was
$30.8 million, $25.1 million and $24.3 million, respectively. In consideration
for the issuance of the incremental term loans, credit facility interest rate
margins were increased between 1.25% to 1.50%.
At December 31,2001, the Company's total obligation for the repayment
of principal under all its loan and capitalized lease arrangements, the most
signficant of which are discussed above, was $264.0 million. The amortization
12 of 22
schedule of the Company's long-term debt is included in Note 7 to the
consolidated financial statements. In addition, on March 27, 2002, the Company
borrowed a total of $32.0 million for the purchase the Baton Rouge Plant that
is payable during the next five years, with scheduled repayments totaling $13.1
million in 2002, $14.0 million in 2003, $2.7 million in 2004, $1.5 million in
2005 and $0.7 million in 2006.
The Company also has commitments for operating leases discussed in
Note 8 to the consolidated financial statements that require total minimun
lease payments of $11.9 million, of which $7.6 million is due in the five year
period through December 31, 2006.
The Company expects to meet its liquidity needs, including debt
service, through cash from operations, its revolving credit facility and other
financing sources provided in its debt agreements. The Company's ability to
generate cash from operations is highly dependent on revenues and profits from
sales of anode grade CPC to the aluminum industry. Changes in anode grade CPC
selling prices and sales volumes as well as changes in RPC costs can have a
material impact on operating cash flows.
The Company or its affiliates may, from time to time, depending on
liquidity, and market and economic conditions, purchase in open-market
transactions its Notes or the Debentures issued by GLAC.
New Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations".
SFAS No. 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the pooling- of-
interests method. The Company does not believe that the adoption of SFAS
No. 141 will have a significant impact on its financial statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets", which is effective January 2002. SFAS No. 142 requires,
among other things, the discontinuance of goodwill amortization. In addition,
the standard includes provisions for the reclassification of certain existing
recognized intangibles, such as goodwill, reassessment of the useful lives of
existing recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS No. 142
also requires the Company to complete a transitional goodwill impairment test
six months from the date of adoption. The Company is currently assessing, but
has not yet determined, the impact that adoption of SFAS No. 142 may have on
its financial position and results of operations. If effective January 1,
2001, there would have been a reduction of goodwill amortization expense of
approximately $4,474,000 in 2001.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations", which is effective January 2002. SFAS No. 143
establishes accounting standards for the recognition and measurement of a
liability for and asset retirement obligation and associated asset retirement
cost. The adoption of SFAS No. 143 is not expected to have a material impact
on the Company's financial statements.
In August 2001, the FASB SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which is effective January 2003. SFAS
No. 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", and the accounting and reporting provisions of Accounting
Principals Board Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions", for the disposal of a
business (as defined in that Opinion). This statement also amends Account
Research Bulletin No. 51, "Consolidated Financial Statements", to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. While the impact of SFAS No. 144 is still being evaluated, the
Company does not believe that the adoption of this Statement will have a
material impact on its financial statements.
13 of 22
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. To illustrate, a 10% increase or decrease in the rates in effect for
the year ended December 31, 2001 would have resulted in a corresponding
increase or decrease in interest expense for the period of $506,000.
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, 2001 or during the year then ended.
As a result of the continued decline in the Argentine economy and the
decision of the government to default on its foreign debt, all foreign currency
trading was suspended on December 22, 2001. The government subsequently
annouced the devaluation of the Argentine peso, effective January 7, 2002, thus
bringing to an end that currency's ten year one-to-one peg to the U.S. dollar.
Convertibility to the U.S. dollar is now determined on a free-floating basis in
the foreign exchange market.
While some of its local costs are in Argentine pesos, the Company's
Argentine subsidiary, Copetro, essentially purchases all its RPC and sells all
of its CPC in U.S. dollars. As a result, the Company does not foresee any
material impact on the performance of Copetro due to the devaluation. Although
no measures have been imposed to date, there can be no assurance that future
actions of the Argentine government will not have a negative impact the
Company's operations in Argentina.
14 of 22
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:
Independent Auditors' Reports
Consolidated Balance Sheets as of December 31, 2000 and 2001
Consolidated Statements of Operations for the years ended
December 31, 1999, 2000 and 2001
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1999, 2000 and 2001
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001
Notes to the Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
15 of 22
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the name, age as of March 22, 2002 and
position of the persons serving as directors or executive officers of the
Company:
- ------------------------------------------------------------------------------
Name Age Position
- ------------------ ---- ----------------------------------------------------
James D. McKenzie 57 President and Chief Executive Officer, Director
A. Frank Baca 58 Senior Vice President, Operations and Administration
Robert C. Dickie 53 Vice President, Sales
Craig L. Beilharz 47 Vice President, Raw Materials
Theodore C. Rogers 67 Non-Executive Chairman of the Board, Director
W. Richard Bingham 66 Director
Kim A. Marvin 40 Director
Alfred E. Barry 46 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
International, Inc., Derby International, RBX Corporation, Stanadyne Automotive
Corp., 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.
16 of 22
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, 2001, 2000 and 1999 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 2001 $ 375,000 $ 206,250 - $ 5,250
President and Chief 2000 343,750 180,000 - 5,250
Executive Officer 1999 300,000 223,336 1,200 5,000
A. Frank Baca
Senior Vice President, 2001 210,000 84,375 - 5,250
Operations and Admin. 2000 187,500 79,313 - 5,250
1999 176,250 99,000 400 5,000
Robert C. Dickie 2001 190,008 77,063 - 4,513
Vice President, Sales 2000 171,252 71,438 - 4,512
1999 158,751 84,002 400 4,309
Craig L. Beilharz 2001 170,016 69,752 - 5,100
Vice President, 2000 155,004 57,656 - 4,525
Raw Materials 1999 128,125 - 400 1,207
- -------------------------------------------------------------------------------
(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.
- -------------------------------------------------------------------------------
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.
17 of 22
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.
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 are participants 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 $200,000),
and years of service.
Years of
Service Annual
Name at Age 65 Benefit
------------------------ --------- --------
James D. McKenzie 38 $229,096
A. Frank Baca 41 129,377
Robert C. Dickie 24 74,062
Craig L. Beilharz 46 112,728
-----------------------------------------------------
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, as defined, 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.
18 of 22
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% $1000.00 12/13/09 $ 754,674 $1,912,491
A.F. Baca 400 14.3% $1000.00 12/13/09 251,558 637,497
R.C. Dickie 400 14.3% $1000.00 12/13/09 251,558 637,497
C.L. Beilharz 400 14.3% $1000.00 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 2001. 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 2001 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 2001 Calendar Year 2001(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, 2001, 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.
- -------------------------------------------------------------------------------
19 of 22
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of December 31, 2001
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
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).
20 of 22
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
Independent Auditors' Reports.............................................F-2
Consolidated Balance Sheets -
December 31, 2000 and 2001................................................F-4
Consolidated Statements of Operations -
For the years ended December 31, 1999, 2000 and 2001......................F-6
Consolidated Statements of Stockholder's Equity -
For the years ended December 31, 1999, 2000 and 2001......................F-7
Consolidated Statements of Cash Flows -
For the years ended December 31, 1999, 2000 and 2001......................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.
21 of 22
(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.
10.4a Green Anode Coke Sales Agreement between the Company and Conoco
Inc. (Replaces 10.4 filed previously) (Included herewith as
Exhibit 10)
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
22 of 22
Great Lakes Carbon Corporation
and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 2000 and 2001
Contents
Independent Auditors' Reports.............................................F-2
Consolidated Balance Sheets -
December 31, 2000 and 2001................................................F-4
Consolidated Statements of Operations -
For the years ended December 31, 1999, 2000 and 2001......................F-6
Consolidated Statements of Stockholder's Equity -
For the years ended December 31, 1999, 2000 and 2001......................F-7
Consolidated Statements of Cash Flows -
For the years ended December 31, 1999, 2000 and 2001......................F-8
Notes to the Consolidated Financial Statements............................F-9
F-1
Independent Auditors' Report
The Board of Directors
Great Lakes Carbon Corporation
We have audited the accompanying consolidated balance sheets of Great Lakes
Carbon Corporation and subsidiaries as of December 31, 2001 and 2000 and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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, 2001 and 2000, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 27, 2002
F-2
Report of Independent Auditors
The Board of Directors
Great Lakes Carbon Corporation
We have audited the accompanying consolidated statements of operations,
stockholder's equity, and cash flows for the year ended December 31, 1999.
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 provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flow of
Great Lakes Carbon Corporation and subsidiaries for the year ended December 31,
1999 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 Carbon Corporation
and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31,
2000 2001
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 11,239 $ 12,186
Restricted cash - 10,414
Accounts receivable, net of allowance for doubtful
accounts of $600 in 2000 and 2001 33,598 27,452
Inventories 36,137 46,614
Prepaid expenses and other current assets 4,574 3,767
---------- ----------
Total Current Assets 85,548 100,433
Property, Plant and Equipment-Net 190,354 177,467
Goodwill, net of accumulated amortization
of $11,682 and $16,156 in 2000 and 2001 167,273 162,799
Capitalized financing costs 12,867 10,544
Investment in GLAC Debentures 15,613 28,933
Other Assets 1,918 1,971
---------- ----------
Total Assets $ 473,573 $ 482,147
========== ==========
See accompanying notes.
F-4
Great Lakes Carbon Corporation
and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31,
2000 2001
---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 18,024 $ 12,818
Accrued expenses 11,528 18,835
Income taxes payable 2,171 809
Current portion of long-term debt 15,390 19,578
---------- ----------
Total Current Liabilities 47,113 52,040
Long-term debt, less current portion 247,748 244,506
Other long-term liabilities 6,901 9,764
Deferred taxes 53,447 47,408
Due to parent 3,349 7,181
Stockholder's Equity
Common stock, par value $0.01 per share;
1,000 authorized, outstanding - -
Additional paid-in capital 93,000 93,000
Retained earnings 22,015 30,384
Accumulated other comprehensive loss - (2,136)
---------- ----------
Total Stockholder's Equity 115,015 121,248
---------- ----------
Total Liabilities and Stockholder's Equity $ 473,573 $ 482,147
========== ==========
See accompanying notes.
F-5
Great Lakes Carbon Corporation
and Subsidiaries
Consolidated Statements of Operations
Year Ended December 31,
1999 2000 2001
---------- ---------- ----------
(In thousands)
Net Sales $ 234,544 $ 245,249 $ 248,504
Cost of Goods Sold 171,793 184,366 193,916
---------- ---------- ----------
Gross Profit 62,751 60,883 54,588
Selling, general and administrative expenses 20,251 19,852 18,693
---------- ---------- ----------
Operating Income 42,500 41,031 35,895
---------- ---------- ----------
Other income (expense):
Interest, net (29,384) (28,162) (24,822)
Other, net 961 1,048 (3,433)
---------- ---------- ----------
(28,423) (27,114) (28,255)
Income Before Income Taxes
and Extraordinary Item 14,077 13,917 7,640
Income taxes 6,387 6,473 2,988
---------- ---------- ----------
Income before extraordinary item 7,690 7,444 4,652
Extraordinary gain on early extinguishment
of debt, net of tax expense of $173, $2,048
and $2,073 for the years ended December 31,
1999, 2000 and 2001 322 3,804 3,717
---------- ---------- ----------
Net income $ 8,012 $ 11,248 $ 8,369
========== ========== ==========
See accompanying notes.
F-6
Great Lakes Carbon Corporation
and Subsidiaries
Consolidated Statements of Stockholder's Equity
Accumulated
Other Total
Add'l Compre- Stock-
Common Paid-in Retained hensive holder's
Stock Capital Earnings Loss Equity
--------- --------- --------- --------- ---------
(In thousands)
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 - 620 - - 620
--------- --------- --------- --------- ---------
Balance at December 31, 2000 - 93,000 22,015 - 115,015
Net income - - 8,369 - 8,369
Minimum pension liability
adjustment - - - (2,136) (2,136)
---------
Comprehensive income 6,233
--------- --------- --------- --------- ---------
Balance at December 31, 2001 $ - $ 93,000 $ 30,384 $ (2,136) $121,248
========= ========= ========= ========= =========
See accompanying notes.
F-7
Great Lakes Carbon Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended December 31,
1999 2000 2001
---------- ---------- ----------
(In thousands)
Operating activities
Net income $ 8,012 $ 11,248 $ 8,369
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,732 24,030 24,295
Accumulated other comprehensive loss - - (2,136)
Deferred taxes (2,221) (3,612) (5,918)
Extraordinary gain on extinguishment of debt (322) (3,804) (3,717)
Changes in operating assets and liabilities:
Restricted cash - - (10,414)
Accounts receivables (13,777) (860) 6,146
Inventories 1,782 (217) (10,477)
Prepaid expenses and other current assets 4,843 39 807
Accounts payable and accrued expenses (6,870) 4,240 2,101
Income taxes payable 3,078 (1,738) (3,556)
Other, net 3,080 1,293 2,382
---------- ---------- ----------
Net cash provided by operating activities 20,337 30,619 7,882
---------- ---------- ----------
Investing activities
Capital expenditures (4,280) (4,285) (4,183)
Investment in GLAC Debentures (4,004) (4,620) (7,150)
---------- ---------- ----------
Net cash used by investing activities (8,284) (8,905) (11,333)
---------- ---------- ----------
Financing Activities
Repayment of long-term debt (16,010) (19,604) (19,920)
Additions to long-term debt - 135 20,866
Due to (from) parent 656 1,272 3,452
Capital contribution - 620 -
---------- ---------- ----------
Net cash used by financing activities (15,354) (17,577) 4,398
---------- ---------- ----------
Increase (decrease) in cash and cash
equivalents (3,301) 4,137 947
Cash and cash equivalents at
beginning of period 10,403 7,102 11,239
---------- ---------- ----------
Cash and cash equivalents at end of period $ 7,102 $ 11,239 $ 12,186
========== ========== ==========
See accompanying notes.
F-8
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2001
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 Company is a wholly-owned operating subsidiary of Great Lakes Acquisition
Corp. (the "GLAC"), a holding company formed by American Industrial Capital
Fund II, L.P. ("AIP"), a private investment fund, which acquired all of the
issued and outstanding capital stock of the Company on May 22, 1998.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts have been eliminated in
consolidation.
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.
Foreign Currency Translation
Foreign currency financial statements have been translated into U.S. dollars in
accordance with Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation".
SFAS No. 52, as applied to foreign entity financial statements where the U.S.
dollar is determined to be the functional currency, as in the Company's case,
requires that monetary assets and liabilities denominated in the local or other
foreign currency be remeasured to the U.S. dollar at the exchange rate in
affect on the report date. Exchange rate gains and losses from remeasurement
are recognized currently in results.
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
assets acquired when GLAC purchased all the issued and outstanding stock of the
Company on May 22, 1998. Goodwill is being amortized using the straight-line
method over 40 years.
F-9
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 SFAS 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.
Business Combinations
In July 2001, the FASB issued SFAS No. 141, "Business Combinations". SFAS
No. 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company does not believe that the adoption of SFAS No. 141 will have a
significant impact on its financial statements.
Goodwill and Other Intangible Assets
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which is effective January 2002. SFAS No. 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, the standard
includes provisions for the reclassification of certain existing recognized
intangibles, such as goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS No. 142
also requires the Company to complete a transitional goodwill impairment test
six months from the date of adoption. The Company is currently assessing, but
has not yet determined, the impact that adoption of SFAS No. 142 may have on
its financial position and results of operations. If effective January 1,
2001, there would have been a reduction of goodwill amortization expense of
approximately $4,474,000 in 2001.
Accounting for Asset Retirement Obligations
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective January 2002. SFAS No. 143 establishes
accounting standards for the recognition and measurement of a liability for and
asset retirement obligation and associated asset retirement cost. The adoption
of SFAS No. 143 is not expected to have a material impact on the Company's
financial statements.
Accounting for the Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which is effective January 2003. SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
and the accounting and reporting provisions of Accounting Principals Board
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", for the disposal of a business
(as defined in that Opinion). This statement also amends Account Research
Bulletin No. 51, "Consolidated Financial Statements", to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. While the impact of SFAS No. 144 is still being evaluated, the
Company does not believe that the adoption of this Statement will have a
material impact on its financial statements.
F-10
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Significant Customers
The Company had two customers which represented 31.2% and 16.7% of net sales
in 1999, 25.8% and 14.5% of net sales in 2000 and 26.7% and 14.8% of net sales
in 2001.
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.
Income Taxes
The Company follows SFAS No. 109, "Accounting for Income Taxes." Under the
asset and liability method of SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. Restricted Cash
Funds that are legally restricted as to withdrawal or usage are shown as
restricted cash. At December 31, 2001, $10,414,000 were set aside under an
escrow agreement with AIP to settle a finders fee claim arising from the
acquisition of the Company in 1998. On March 22, the claim was settled and
paid for approximately the amount provided.
3. Inventories
Inventories consist of the following:
December 31,
2000 2001
---------- ----------
(In thousands)
Raw materials $ 19,473 $ 24,696
Finished goods 10,047 14,307
Supplies and spare parts 6,617 7,611
---------- ----------
$ 36,137 $ 46,614
========== ==========
F-11
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
2000 2001
---------- ----------
(In thousands)
Land and improvements $ 2,932 $ 2,932
Buildings 10,334 10,618
Machinery, equipment and other 217,945 220,867
Construction in progress 465 1,442
---------- ----------
231,676 235,859
Accumulated depreciation (41,322) (58,392)
---------- ----------
$ 190,354 $ 177,467
========== ==========
Depreciation expense was $15,507,000, $16,805,000 and $17,070,000 for the years
ended December 31, 1999, 2000 and 2001, respectively.
5. Investment in GLAC Debentures
The Company purchased several lots of the 13 1/8% Senior Discount Debenture
Notes issued by GLAC at a discount in open market transactions. The accreted
value of the notes, which the Company intends to hold to maturity, was
$15,613,000 and $28,933,000 and represented approximately 37% and 61% of the
total issue oustanding at December 31, 2000 and 2001, respectively.
6. Accrued Expenses
Accrued expenses included interest payable and employee profit sharing payable
of $2,546,000 and $2,055,000 at December 31, 2000 and $177,000 and $1,390,000
at December 31, 2001, respectively, and a finders fee claim payable (arising
from the acquisition of the Company in 1998) of $10,414,000 at December 31,
2001.
7. Long-Term Debt
Long-term debt and capital lease obligations consist of the following:
December 31,
2000 2001
---------- ----------
(In thousands)
10.25% Senior Subordinated Notes due May 15, 2008 $ 175,000 $ 188,048
Term Loan Credit Facility bearing interest at the
Company's option at LIBOR (1.9% at December 31,
2001) plus a margin ranging from 2.25% to 3.00%
or Prime (4.75% at December 31, 2001) 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 79,720 70,825
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 1,572 355
Facility expansion credit line bearing interest at
LIBOR plus 4% (5.9% at December 31, 2001) due in
semiannual installments through September 2001 4,755 -
Capital lease obligations bearing interest at rates
ranging from 9.3% to 10% due in varying amounts at
various dates through February 2004 649 132
Other 1,397 4,724
---------- ----------
263,138 264,084
Current portion (15,390) (19,578)
---------- ----------
$ 247,748 $ 244,506
========== ==========
F-12
Great Lakes Carbon 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.
Pursuant to the terms of the Senior Subordinated Notes the Company has
exercised its pay-in-kind option in connection with the November 15, 2001 and
the May 15, 2002 interest payments. As a condition to obtaining incremental
term loan financing for an acquisition discussed further in Note 19 below, the
Company has agreed to use its two remaining elections and will make the November
2002 and May 2003 interest payments through the issuance of additional notes.
The Company or its affiliates may, from time to time, depending on liquidity,
and market and economic conditions, purchase in open-market transactions GLAC
13 1/8% Senior Discount Debentures or its Senior Subordinated Notes.
The term loan credit facility is comprised of three single tranche term loans
in the amount of $24,302,000, $23,644,000 and $22,879,000 at December 31, 2001
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, 2001, 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.
F-13
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 was secured by the
property, plant and equipment of Copetro, including the assets constructed with
the funds financed. The agreement required that Copetro satisfy certain
financial ratios and imposed limitations on the payment of dividends. On
October 1, 2001, the Company paid the last installment to settle the obligation
in full.
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. Adjusted EBITDA is not a measure of performance defined by
accounting priciples generally accepted in the United States of America.
The fair market value of the Company's long-term debt obligations approximated
$177,000,000 and $187,000,000 at December 31, 2000 and 2001, respectively.
Maturities of long-term debt, for the succeeding five years and thereafter are
as follows:
Long-Term Capital
Debt Leases Total
---------- ---------- ----------
(In thousands)
2002 $ 19,495 $ 83 $ 19,578
2003 9,795 43 9,838
2004 15,399 6 15,405
2005 20,998 - 20,998
2006 10,217 - 10,217
Thereafter 188,048 - 188,048
---------- ---------- ----------
$ 263,952 $ 132 $ 264,084
========== ========== ==========
Interest paid amounted to $27,353,000, $27,167,000 and $14,783,000 for the
years ended December 31, 1999, 2000 and 2001, respectively.
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. To illustrate,
a 10% increase or decrease in the rates in effect for the year ended
December 31, 2001 would have resulted in a corresponding increase or decrease
in interest expense for the period of $506,000.
F-14
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. 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.
Future minimum payments as of December 31, 2001, 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)
2002 $ 91 $ 1,657
2003 46 1,621
2004 6 1,552
2005 - 1,513
2006 - 1,272
Thereafter - 4,324
---------- ----------
Total minimum lease payments 143 $ 11,939
Amounts representing interest (11) ==========
----------
Present value of net minimum lease payments $ 132
==========
Rental expense for all operating leases was $2,012,000, $2,006,000 and
$2,012,000 for the years ended December 31, 1999, 2000 and 2001, respectively.
9. 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 $187,000, $192,000 and
$198,000 for the years ended December 31, 1999, 2000 and 2001, 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 $2,096,000 and
$1,891,000 and $1,356,000 for the years ended December 31, 1999, 2000 and 2001,
respectively.
10. 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, 2001, the assets of
the plan were invested principally in listed stocks, bonds, money market
certificates and cash.
F-15
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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:
1999 2000 2001
---------- ---------- ----------
(In thousands)
Service cost $ 624 $ 391 $ 425
Interest cost 797 917 1,061
Expected return on assets (968) (1,057) (1,140)
Amortization of prior service cost - 17 40
Recognized net actuarial loss 36 3 77
---------- ---------- ----------
Net periodic pension cost $ 489 $ 271 $ 463
========== ========== ==========
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:
2000 2001
---------- ----------
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of period $ 11,616 $ 13,412
Service cost 391 425
Interest cost 917 1,061
Amendments 102 229
Actuarial loss 757 1,112
Benefits paid (371) (419)
---------- ----------
Benefit obligation at end of period $ 13,412 $ 15,820
========== ==========
Change in plan assets:
Fair value of plan assets at beginning of period $ 12,381 $ 12,612
Actual return on plan assets 174 (622)
Company contribution 458 142
Expenses (30) (83)
Benefits paid (371) (419)
---------- ----------
Fair value of plan assets at end of period $ 12,612 $ 11,630
========== ==========
Funded status $ (800) $ (4,190)
Unrecognized net actuarial loss 1,244 4,125
Unrecognized prior service cost 84 273
---------- ----------
Net pension asset recognized in the balance sheets $ 528 $ 208
========== ==========
Amount recognized in balance sheet consists of:
Prepaid benefit cost (accrued benefit liability) $ 528 (2,202)
Intangible asset - 274
Accumulated other comprehensive loss - 2,136
---------- ----------
Net pension asset recognized in the balance sheets $ 528 $ 208
========== ==========
F-16
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 8% and 5% for 1999 and 7.5%
and 4.5% for 2000, and 7.25% and 4.25% for 2001, respectively.
11. 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.
The components of net periodic postretirement benefit cost ("NPPBC") were as
follows:
1999 2000 2001
---------- ---------- ----------
(In thousands)
Service cost $ 327 $ 270 $ 336
Interest cost 286 319 385
---------- ---------- ----------
NPPBC $ 613 $ 589 $ 721
========== ========== ==========
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:
2000 2001
---------- ----------
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of period $ 4,178 $ 4,794
Service cost 270 336
Interest cost 319 385
Actuarial loss 172 603
Benefits paid (145) (164)
---------- ----------
Benefit obligation at end of period $ 4,794 $ 5,954
========== ==========
Change in plan assets:
Fair value of plan assets at beginning of period $ - $ -
Company contribution 145 164
Benefits paid (145) (164)
---------- ----------
Fair value of plan assets at end of period $ - $ -
========== ==========
Funded status $ (4,794) $ (5,954)
Unrecognized net actuarial loss 65 668
---------- ----------
Postretirement liability recognized
in the balance sheets $ (4,729) $ (5,286)
========== ==========
F-17
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The health care cost trend used in determining the accumulated postretirement
benefit obligation ("APBO") was 6.71% 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, 2001 by $101,000 (or 14.0%) and the APBO for the year then ended by $846,000
(or 14.2%). 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, 2001 by $125,000 (or 17.3%) and the APBO for the year then
ended by $704,000 (or 11.8%).
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 8% for 1999 and 5% and 7.5% for 2000
and 5% and 7.25% for 2001, respectively.
12. 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 targets of Adjusted EBITDA, as defined. 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.
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
Options granted - -
---------- ----------
Balance at December 31, 2001 2,800 1,250
========== ==========
F-18
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
At December 31, 2001, 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 8 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.
1999 2000 2001
---------- ---------- ----------
(In thousands)
Net earnings:
As reported $ 8,012 $ 11,248 $ 8,369
Pro forma $ 7,878 $ 11,181 $ 8,353
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: 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.
13. Other Income (Expense)
Other income (expense) consists of the following:
1999 2000 2001
---------- ---------- ----------
(In thousands)
1998 acquisition fee settlement $ - $ - $ (5,000)
Export tax refund 1,261 1,112 1,286
Foreign exchange gain - - 461
Other (300) (64) (180)
---------- ---------- ----------
$ 961 $ 1,048 $ (3,433)
========== ========== ==========
F-19
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Income Taxes
Components of the Company's deferred tax liabilities and assets are as follows:
2000 2001
---------- ----------
(In thousands)
Deferred tax liabilities:
Book over tax depreciable basis $ 54,923 $ 50,973
Other - net 3,576 3,584
---------- ----------
Total deferred tax liabilities 58,499 54,557
---------- ----------
Deferred tax assets:
Accrued liabilities 2,742 5,424
Valuation allowance (475) (475)
Other - net 2,785 2,200
---------- ----------
Total deferred tax assets 5,052 7,149
---------- ----------
Net deferred tax liability $ 53,447 $ 47,408
========== ==========
The differences between tax expense computed at the statutory federal income
tax rate and actual tax expense are as follows:
1999 2000 2001
---------- ---------- ----------
(In thousands)
Tax expense at statutory rates applied
to pretax earnings $ 4,927 $ 4,874 $ 2,674
State income tax, net of federal tax effects 28 9 3
Tax exempt earnings (332) (327) (289)
Effects of foreign operations (171) 233 (1,483)
Amortization of goodwill 1,566 1,566 1,566
Change in valuation allowance - 475 -
Other 369 (357) 517
---------- ---------- ----------
$ 6,387 $ 6,473 $ 2,988
========== ========== ==========
Income taxes consist of the following:
1999 2000 2001
---------- ---------- ----------
(In thousands)
Current:
Federal $ 3,281 $ 4,731 $ 3,778
State 604 323 366
Foreign 4,730 4,907 4,883
---------- ---------- ----------
8,615 9,961 9,027
---------- ---------- ----------
Deferred:
Federal (1,405) (2,787) (4,197)
State (561) (309) (361)
Foreign (262) (392) (1,481)
---------- ---------- ----------
(2,228) (3,488) (6,039)
---------- ---------- ----------
Total $ 6,387 $ 6,473 $ 2,988
========== ========== ==========
F-20
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Income taxes paid were approximately $4,851,000, $10,551,000 and $8,557,000
for the years ended December 31, 1999, 2000 and 2001, respectively.
U.S. income taxes have not been provided on the undistributed earnings of
Copetro ($36,265,000 as of December 31, 2001) 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 (loss) before income taxes and extraordinary item attributable to
domestic operations (which included results from export sales) was
$1,479,000, $997,000 and $(5,429,000) for the years ended December 31,
1999, 2000 and 2001, respectively.
15. 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-21
Great Lakes Carbon 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
==========
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- ---------- ----------
(In thousands)
---------2001----------
Net sales $ 182,922 $ 47,207 $ 16,298 $ 2,077 $ 248,504
Cost of goods sold (137,458) (34,906) (14,812) (6,740) (193,916)
---------- ---------- ---------- ---------- ----------
Segment Profit $ 45,464 $ 12,301 $ 1,486 $ (4,663) 54,588
========== ========== ========== ==========
Selling, general and
administrative expenses (18,693)
Interest expense, net (24,822)
Other income (expense) (3,433)
----------
Income before income taxes $ 7,640
==========
F-22
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Operations by Geographic Area
The following is a summary of the Company's operations by geographic area:
Year Ended December 31,
1999 2000 2001
---------- ---------- ----------
(In thousands)
Net Sales
United States $ 168,815 $ 183,905 $ 195,421
Foreign 65,729 61,344 53,083
---------- ---------- ----------
$ 234,544 $ 245,249 $ 248,504
========== ========== ==========
Operating income
United States $ 29,414 $ 28,705 $ 24,657
Foreign 13,086 12,326 11,238
---------- ---------- ----------
$ 42,500 $ 41,031 $ 35,895
========== ========== ==========
Assets
United States $ 393,713 $ 393,445 $ 411,714
Foreign 84,512 80,128 70,433
---------- ---------- ----------
$ 478,225 $ 473,573 $ 482,147
========== ========== ==========
F-23
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Exports from U.S. operations were approximately $83,525,000, $93,892,000 and
$110,201,000 the years ended December 31, 1999, 2000 and 2001, respectively.
Export sales to Western Europe as a percentage of United States net sales were
29.4%, 27.9% and 24.5% for the years ended December 31, 1999, 2000 and 2001,
respectively. Export sales to the Mideast as a percentage of United States net
sales were 17.6% for the year ended December 31, 2001. The Company's foreign
operations are conducted principally in South America.
17. Quarterly Financial Data (unaudited)
The following is a summary of Company's quarterly results of operations:
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
2001 Quarterly Data
3/31 6/30 9/30 12/31
---------- ---------- ---------- ----------
(In thousands)
Net sales $ 65,762 $ 63,368 $ 62,999 $ 56,375
Gross profit 14,401 14,353 12,735 13,099
Operating income 9,841 9,301 7,891 8,862
Other expense 5,965 5,349 5,946 10,995
Income before income tax and
extraordinary expense 3,876 3,952 1,945 (2,133)
Income tax expense (benefit) 1,823 1,737 877 (1,449)
Extraordinary gain, net of tax 3,850 - - (133)
Net income 5,903 2,215 1,068 (817)
Adjusted EBITDA (1) 15,839 15,421 13,958 14,829
(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.
18. Extraordinary Item
Extraordinary gains related to the repurchase of the Company's debt of
approximately $322,000, $3,804,000 and $3,717,000 (net of income tax expenses
of $173,000, $2,048,000 and $2,073,000) were recognized in 1999, 2000 and 2001,
respectively.
19. 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-24
Great Lakes Carbon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
20. Subsequent Event
On March 27, 2002, the Company purchased a calcining facility located in Baton
Rouge, LA (the "Baton Rouge Plant") from Alcoa, Inc. ("Alcoa") for $43,000,000,
subject to a purchase price adjustment based upon a $23,000,000 million working
capital guarantee. The transaction was financed by two $10,000,000 promissory
notes bearing interest at 5% per annum payable to Alcoa in November 2002 and
May 2003, incremental term loan borrowings under the Company's existing term
loan credit facility of $12,000,000 and cash of $11,000,000.
The Baton Rouge Plant has four kilns that have the capacity to produce 700,000
tons per year of CPC. Situated on 55 acres of owned property, the facility has
the capability to receive and ship material by truck or rail and ready access
to barge or ocean-going vessel transportation which allow it to source and
market product on a global basis.
F-25
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 27th
day of March 2002.
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 27, 2002
James D. McKenzie (Principal Executive Officer)
* Senior Vice President, March 27, 2002
- --------------------- Operations and Administration
A. Frank Baca
* Vice President, Sales March 27, 2002
- ---------------------
Robert C. Dickie
* Vice President, Raw Materials March 27, 2002
- ---------------------
Craig L. Beilharz
* Non-Executive Chairman of March 27, 2002
- --------------------- the Board, Director
Theodore C. Rogers
* Director March 27, 2002
- ---------------------
W. Richard Bingham
* Director March 27, 2002
- ---------------------
Kim A. Marvin
* Director March 27, 2002
- ---------------------
Alfred E. Barry
By: /s/JAMES D. MCKENZIE
- --------------------------
James D. McKenzie
Attorney-in-Fact