UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-59541
GREAT LAKES ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 76-0576974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
551 Fifth Avenue, Suite 3600, New York, New York 10176
(Address of principal executive office) (Zip Code)
(212) 370-5770
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ].
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GREAT LAKES ACQUISITION CORPORATION
FORM 10-Q June 30, 2001
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 2000 and June 30, 2001 . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations -
For the six months ended June 30, 2000 and 2001 . . . . . . . . 4
For the three months ended June 30, 2000 and 2001 . . . . . . . 5
Condensed Consolidated Statements of Stockholders' Equity -
For the six months ended June 30, 2001. . . . . . . . . . . . . 6
Condensed Consolidated Statements of Cash Flows -
For the six months ended June 30, 2000 and 2001 . . . . . . . . 7
Notes to Condensed Consolidated Financial Statements. . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . .12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 16
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . 16
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . 16
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 16
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
December 31, June 30,
2000 2001
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 11,239 $ 10,905
Accounts receivable-net of allowance for doubtful
accounts of $600 in 2000 and 2001 33,598 37,067
Inventories 36,137 40,561
Prepaid expenses and other current assets 4,574 5,068
-------- --------
Total current assets 85,548 93,601
Property, plant and equipment, net 190,354 183,649
Goodwill, net of accumulated amortization
of $11,682 in 2000 and $13,919 in 2001 167,273 165,036
Capitalized financing costs 13,948 12,482
Other assets 1,918 1,699
-------- --------
Total assets $459,041 $456,467
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 18,024 $ 18,958
Accrued expenses 11,528 10,308
Income taxes payable 2,171 1,141
Current portion of long-term debt 15,390 19,086
-------- --------
Total current liabilities 47,113 49,493
Long-term debt, less current portion 274,019 261,822
Other long-term liabilities 6,901 7,056
Deferred taxes 51,472 52,364
Stockholders' equity:
Common Stock, par value $0.01 per share;
authorized 92,000 shares, issued and
outstanding 65,950 shares 1 1
Additional paid-in capital 65,949 65,949
Retained earnings 13,586 19,782
-------- --------
Total stockholders' equity 79,536 85,732
-------- --------
Total liabilities and stockholders' equity $459,041 $456,467
======== ========
<FN>
See accompanying notes.
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Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Six Months Ended June 30,
2000 2001
--------- ---------
(In thousands)
Net sales $ 121,861 $ 129,130
Cost of goods sold 91,441 100,376
--------- ---------
Gross profit 30,420 28,754
Selling, general and administrative expenses 9,303 9,612
--------- ---------
Operating income 21,117 19,142
Other income (expense):
Interest, net (16,705) (15,143)
Other, net 656 985
--------- ---------
(16,049) (14,158)
Income before income taxes and
extraordinary item 5,068 4,984
Income taxes 3,063 2,638
--------- ---------
Income before extraordinary item 2,005 2,346
Extraordinary gain on early extinguishment
of debt, net of tax expense of $2,073 - 3,850
--------- ---------
Net income $ 2,005 $ 6,196
========= =========
<FN>
See accompanying notes.
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Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30,
2000 2001
--------- ---------
(In thousands)
Net sales $ 63,717 $ 63,368
Cost of goods sold 47,614 49,015
--------- ---------
Gross profit 16,103 14,353
Selling, general and administrative expenses 4,780 5,052
--------- ---------
Operating income 11,323 9,301
Other income (expense):
Interest, net (8,397) (7,546)
Other, net 439 737
--------- ---------
(7,958) (6,809)
Income before income taxes 3,365 2,492
Income taxes 2,021 1,264
--------- ---------
Net income $ 1,344 $ 1,228
========= =========
<FN>
See accompanying notes.
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Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
--------- --------- -------- ---------
(In thousands)
Balance at December 31, 2000 $ 1 $ 65,949 $ 13,586 $ 79,536
Net income - - 6,196 6,196
--------- --------- --------- ---------
Balance at June 30, 2001 $ 1 $ 65,949 $ 19,782 $ 85,732
========= ========= ========= =========
<FN>
See accompanying notes.
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Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
2000 2001
-------- --------
(In thousands)
Operating activities
Net income $ 2,005 $ 6,196
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,836 12,222
Deferred taxes (2,106) 892
Changes in operating assets and liabilities:
Accounts receivable (5,609) (3,469)
Inventories (3,536) (4,424)
Prepaid expenses and other current assets 410 (494)
Income taxes payable (856) (1,030)
Accounts payable and accrued expenses 5,950 (286)
Other, net 903 408
-------- --------
Net cash provided by operating activities 8,997 10,015
Investing activities
Capital expenditures (1,938) (1,848)
-------- --------
Net cash used in investing activities (1,938) (1,848)
Financing activities
Repayment of long-term debt (8,342) (21,010)
Additions to long-term debt 2,129 12,509
-------- --------
Net cash used in financing activities (6,213) (8,501)
Increase in cash and cash equivalents 846 (334)
Cash and cash equivalents at beginning of period 7,102 11,239
-------- --------
Cash and cash equivalents at end of period $ 7,948 $ 10,905
======== ========
<FN>
See accompanying notes.
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Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
1. Organization and Basis of Presentation
Great Lakes Acquisition Corp. (the "Company") was incorporated under the laws
of Delaware on March 31, 1998. The Company is a 98.56% owned subsidiary of
American Industrial Capital Fund II, L.P. ("AIP").
On May 22, 1998, the Company acquired all of the issued and outstanding stock
of Great Lakes Carbon Corporation ("GLC") in a transaction accounted for as a
purchase (the "Acquisition"). Accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based on estimates of the
respective fair values at the Acquisition date. Based upon estimates of fair
value of assets acquired and liabilities assumed, goodwill of approximately
$179,000,000 was established. This amount is being amortized on a straight-
line basis over 40 years.
The Company had no substantive operations prior to May 22, 1998.
Certain prior year amounts have been reclassified to conform to current year
presentation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Article 10 of Regulation S-X and, therefore, do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. The information furnished reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair summary of the results of
operations. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K,
File No. 333-59541.
2. Accounting Pronouncements
Derivative Investments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Investments and Hedging Activities". The Company adopted the
new Statement effective January 1, 2001. SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments imbedded in other contracts and for hedging
activities. Under the Statement, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. The
adoption of SFAS 133 did not have a significant effect on the Company's
financial position, results of operations or cash flows.
Business Combinations
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141 ("SFAS 141"), "Business Combinations". SFAS 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 141 will have a significant impact on its financial
statements.
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Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
Goodwill and Other Intangible Assets
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective
January 2002. SFAS 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 142 also requires the Company to complete
a transtional 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 142 may have on its financial position and results of
operations.
3. Inventories
Inventories are as follows:
December 31, June 30,
2000 2001
--------- ---------
(In thousands)
Raw materials $ 19,473 $ 24,896
Finished goods 10,047 8,632
Supplies and spare parts 6,617 7,033
--------- ---------
$ 36,137 $ 40,561
========= =========
4. Accrued Expenses
Accrued expenses included interest payable and employee profit sharing payable
of $2,546,000 and $2,055,000 and $496,000 and $1,026,000 at December 31, 2000
and June 30, 2001, respectively.
5. Long-Term Debt
At June 30, 2001, approximately 61% of the outstanding 13 1/8% Senior Discount
Debentures had been purchased by GLC with the intention of holding them to
maturity. The Company's obligation with respect to the Debentures is shown net
of the amount held by GLC.
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Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
6. 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.
- -----------------------------------------------------------------------------
Six Months ended June 30, 2000
- -----------------------------------------------------------------------------
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- ----------
(In thousands)
Net sales $ 92,652 $ 21,741 $ 6,408 $ 1,060 $ 121,861
Cost of goods sold (67,435) (15,128) (5,707) (3,171) (91,441)
---------- ---------- ---------- --------- ----------
Segment Profit $ 25,217 $ 6,613 $ 701 $ (2,111) 30,420
========== ========== ========== =========
Selling, general and
administrative expenses (9,303)
Interest expense, net (16,705)
Other income (expense) 656
----------
Income before income taxes $ 5,068
==========
- -----------------------------------------------------------------------------
Six months ended June 30, 2001
- -----------------------------------------------------------------------------
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- ----------
(In thousands)
Net sales $ 93,641 $ 25,410 $ 8,817 $ 1,262 $ 129,130
Cost of goods sold (70,493) (18,475) (8,003) (3,405) (100,376)
---------- ---------- ---------- --------- ----------
Segment Profit $ 23,148 $ 6,935 $ 814 $ (2,143) 28,754
========== ========== ========== =========
Selling, general and
administrative expenses (9,612)
Interest expense, net (15,143)
Other income (expense) 985
----------
Income before income taxes
and extraordinary item $ 4,984
==========
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Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
- -----------------------------------------------------------------------------
Quarter ended June 30, 2000
- -----------------------------------------------------------------------------
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- ----------
(In thousands)
Net sales $ 47,941 $ 11,235 $ 3,957 $ 584 $ 63,717
Cost of goods sold (34,584) (8,323) (3,359) 1,575 (47,614)
---------- ---------- ---------- --------- ----------
Segment Profit $ 13,584 $ 2,912 $ 598 $ (991) 16,103
========== ========== ========== =========
Selling, general and
administrative expenses (4,780)
Interest expense, net (8,397)
Other income (expense) 439
----------
Income before income taxes $ 3,365
==========
- -----------------------------------------------------------------------------
Quarter ended June 30, 2001
- -----------------------------------------------------------------------------
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- ----------
(In thousands)
Net sales $ 47,340 $ 11,909 $ 3,584 $ 535 $ 63,368
Cost of goods sold (35,515) (8,604) (3,221) (1,675) (49,015)
---------- ---------- ---------- --------- ----------
Segment Profit $ 11,825 $ 3,305 $ 363 $ (1,140) 14,353
========== ========== ========== =========
Selling, general and
administrative expenses (5,052)
Interest expense, net (7,546)
Other income (expense) 737
----------
Income before income taxes $ 2,492
==========
7. Extraordinary Item
The period ended June 30, 2001 reflects an extraordinary gain related to the
repurchase of the Company's debt of approximately $3,850,000 (net of income tax
expenses of $2,073,000).
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
This Form 10-Q contains certain forward-looking statements, including,
without limitation, statements concerning the Company's future financial
position, business strategy, budgets, projected costs and plans and objectives
of management for future operations. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements generally can be identified by
the use of forward-looking terminology such as "may," "will," "expect,"
"intend," "estimate," "anticipate," "believe," "should," "plans," or "continue"
or the negative thereof or variations thereon or similar terminology. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. These forward-looking statements are subject to a
number of risks and uncertainties, including, the factors discussed in the
Company's filings with the Securities and Exchange Commission. Actual results
could differ materially from these forward-looking statements.
As used in this document, Adjusted EBITDA represents operating income
before depreciation, amortization and AIP fees and expenses. Adjusted EBITDA
should not be considered a substitute for net income, cash flow from operating
activities or other cash flow statement data prepared in accordance with
generally accepted accounting principles or as an alternative to net income as
an indicator of operating performance or cash flows as a measure of liquidity.
Adjusted EBITDA is presented here only to provide additional information with
respect to the Company's ability to satisfy debt service. While Adjusted
EBITDA is frequently used as a measure of operations and the ability to meet
debt service requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in the
method of calculation.
Through its wholly-owned operating subsidiary, GLC, the Company is the
world's largest producer of calcined petroleum coke ("CPC"). The Company
produces anode grade CPC, which is the principal raw material used in the
production of carbon anodes used in primary aluminum production, and industrial
grade CPC, which is used in a variety of specialty metals and materials
applications. CPC is produced from raw petroleum coke ("RPC") utilizing a high
temperature, rotary kiln process developed by the Company in the 1930's. RPC
is a by-product of the petroleum refining process and constitutes the largest
single component of the Company's cost of goods sold. The Company's principal
source of revenues and profits are sales of anode grade CPC to the aluminum
industry. Historically, the Company's profitability has been primarily a
function of its CPC sales volumes, CPC pricing and the cost of RPC.
Results of Operations
Three Months Ended June 30, 2001 Versus Three Months Ended June 30, 2000
The Company's net sales for the quarter ended June 30, 2001 decreased
0.5% to $63.4 million from $63.7 million in the comparable 2000 period. Net
sales of anode grade CPC decreased 1.3% to $47.3 million, net sales of
industrial grade CPC increased 6.0% to $11.9 million and net sales of RPC
decreased 9.4% to $3.6 million.
The decrease in anode grade CPC net sales was primarily the result
of a 5.7% decrease in sales volume to 310,920 tons offset in large measure by a
4.7% increase in average per ton selling prices. The decrease in sales volume
was a function of routine period to period scheduling fluctuations. The
increse in selling prices was attributable to continued tightening of available
CPC supplies.
The increase in industrial grade CPC net sales was the result of an
8.8% increase in average per ton selling prices partially offset by a 2.6 %
decrease in sales volume to 87,076 tons. Higher prices across all product
lines coupled with greater shipments to chemical customers out-weighed volume
declines in recarb and titanium dioxide accounts.
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The decrease in RPC net sales was primarily the result of a 40.0%
decrease in sales volume to 60,164 tons largely offset by a 50.9% increase in
the average per ton selling price. Fewer shipments of higher priced anode
grade RPC was the primary reason for the change.
The Company's gross profit for the second quarter decreased by 10.9% to
$14.4 million from $16.1 million in 2000. The decrease in gross profit was
due to the decrease in sales discussed above and higher cost of goods sold.
The increase in cost of goods sold was primarily the result of higher average
per ton raw material costs offset partially by lower sales volume. Tight anode
grade RPC supply, particularly in the United States Gulf coast, was the major
factor impacting raw material costs.
Operating income decreased 17.9% to $9.3 million from $11.3 million in
the prior year quarter. The decrease in operating income was due to the
decrease in gross profit discussed above coupled with a slight increase in
selling, general and administrative expenses. The increase in selling, general
and administrative expenses was primarily the result of higher commission and
management fee expenses.
Income before income taxes decreased 25.9% to $2.5 million from $3.4
million in the comparable 2000 period. The decrease was due to the decrease in
operating income discussed above offset mainly by a decrease in net interest
expense. The lower net interest expense was due primarily to the effects of
continued debt reduction.
The Company's effective tax rate decreased to 50.7% in 2001 from 60.1%
in the corresponding 2000 period primarily as a result of providing for taxes
by means of an annualized rate in the current year. This method alleviates the
distortions caused by applying statutory rates to interim period taxable income
when, as in the Company's case, the corresponding pretax book income includes
relatively large ratable amortizations of non-deductible items, such as
goodwill.
As a result of the factors discussed above, net income for the three
months ended June 30, 2001 decreased 8.6% to $1.2 million from $1.3 million
in 2000 period.
Adjusted EBITDA for the second quarter decreased 9.8% to $15.4 million
from $17.1 million in 2000 due to the decrease in operating income discussed
above and increases to add-back adjustments for depreciation/amortization and
AIP management fee expenses of $0.21 million and $0.13 million, respectively.
Six Months Ended June 30, 2001 Versus Six Months Ended June 30, 2000
The Company's net sales for the six months ended June 30, 2001
increased 6.0% to $129.1 million from $121.9 million in the comparable 2000
period. Net sales of anode grade CPC increased 1.1% to $93.6 million, net
sales of industrial grade CPC increased 16.9% to $25.4 million and net sales of
RPC increased 37.6% to $8.8 million.
The increase in anode grade CPC net sales was primarily the result
of a 4.0% increase in average per ton selling prices partially offset by a 2.8%
decrease in sales volume to 619,432 tons. The increse in selling prices was
attributable to continued tightening of available CPC supplies. The decrease
in sales volume was a function of routine period to period scheduling
fluctuations.
The increase in industrial grade CPC net sales was the result of a
9.9% increase in sales volume to 189,594 tons augmented by a 6.4% increase in
average selling prices. Higher prices across most product lines and greater
shipments to titanium dioxide and chemical customers out-weighed volume
declines in recarb accounts.
The increase in RPC net sales was primarily the result of a 51.5%
increase in the average per ton selling price offset partially by a 9.2%
decrease in sales volume to 141,320 tons. Fewer shipments of higher priced
anode grade RPC was the primary reason for the change.
The Company's gross profit for the year-to-date period decreased by
5.5% to $28.8 million from $30.4 million in 2000. 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 slightly
offset by the volume decline. Tight anode grade RPC supply, particularly in
the United States Gulf coast, was the major factor impacting raw material
costs.
13 of 17
Operating income decreased 9.4% to $19.1 million from $21.1 million in
the prior year period. The decrease in operating income was due to the
decrease in gross profit discussed above coupled by a slight increase in
selling, general and administrative expenses. The increase in selling, general
and administrative expenses was primarily the result of higher employee
compensation, commission and management fee expenses.
Income before income taxes and extraordinary item decreased 1.7% to
$4.9 million from $5.1 million in the comparable 2000 period. The decrease was
attributable to the decline in operating income discussed above offset almost
completely by a decrease other income (expense), the most significant component
of which was a $1.6 million decrease in net interest expense, due primarily to
the effects of continued debt reduction.
The Company's effective tax rate decreased to 52.9% in 2001 from 60.4%
in the corresponding 2000 period primarily as a result of providing for taxes
by means of an annualized rate in the current year. This method alleviates the
distortions caused by applying statutory rates to interim period taxable income
when, as in the Company's case, the corresponding pretax book income includes
relatively large ratable amortizations of non-deductible items, such as
goodwill.
An extraordinary gain related to the repurchase of debt of
approximately $3,850,000 (net of income tax expense of $2,073,000) was
recognized in current year period.
As a result of the factors discussed above, net income for the six
months ended June 30, 2001 increased 209.0% to $6.2 million from $2.0 million
in 2000.
Adjusted EBITDA for the year-to-date period decreased by 4.3% to $31.3
million from $32.8 million in 2000 due to the decrease in operating income
discussed above and an increase the to add-back adjustment for depreciation/
amortization of $0.43 million.
Liquidity and Capital Resources
The Company's liquidity requirements are primarily for debt service,
capital expenditures and general working capital needs. The timing of
inventory receipts and product shipments, all of which are entirely U.S.
dollar-denominated transactions, can have a substantial impact on the Company's
working capital requirements. Capital investments generally relate to facility
maintenance and projects to improve plant throughput and product quality. It
is anticipated that capital investments for 2001 will be approximately $4.0
million.
The Company expects to meet its liquidity needs, including debt
service, through cash from operations, its revolving credit facility and other
financing sources provided in its debt agreements. The revolving credit
facility provides for borrowings of up to $25.0 million, including a $10.0
million sub-limit for letters of credit. As of August 3, 2001, no funds had
been drawn down, and approximately $3.0 million in letters of credit were
outstanding under this facility.
Pursuant to the terms of the 10 1/4% Senior Subordinated Notes
Indenture, the Company gave irrevocable notice of its election to make the
November 15, 2001 interest payment through the issuance of additional notes.
Any determination regarding future elections (applicable to interest payments
through May 2003) will depend upon the Company's financial condition, potential
business opportunities and such other factors as the Board of Directors may
deem relevant.
The Company or its affiliates may, from time to time, depending on
liquidity and market and economic conditions, purchase in open-market
transactions its 13 1/8% Senior Discount Debentures or the 10 1/4% Senior
Subordinated Notes issued by GLC.
14 of 17
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Investments and Hedging Activities". The Company adopted the
new Statement effective January 1, 2001. SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments imbedded in other contracts and for hedging
activities. Under the Statement, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. The
adoption of SFAS 133 did not have a significant effect on the Company's
financial position, results of operations or cash flows.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141 ("SFAS 141"), "Business Combinations". SFAS 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 141 will have a significant impact on its
financial statements.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which
is effective January 2002. SFAS 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 142 also requires the Company
to complete a transtional 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 142 may have on its financial position and results
of operations.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Refer to the Company's annual report on form 10K dated
March 23, 2001.
Item 2. Change in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
Not applicable.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K with the Commission during
the three months ended June 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREAT LAKES ACQUISITION CORPORATION
Date: 8/3/01 /s/James D. McKenzie
James D. McKenzie
President and Chief Executive Officer
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