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 September 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 September 30, 2001
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 2000 and September 30, 2001. . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations -
For the nine months ended September 30, 2000 and 2001 . . . . . 4
For the three months ended September 30, 2000 and 2001 . . . . 5
Condensed Consolidated Statements of Stockholders' Equity -
For the nine months ended September 30, 2001. . . . . . . . . . 6
Condensed Consolidated Statements of Cash Flows -
For the nine months ended September 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, September 30,
2000 2001
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 11,239 $ 13,120
Accounts receivable-net of allowance for doubtful
accounts of $600 in 2000 and 2001 33,598 37,609
Inventories 36,137 41,219
Prepaid expenses and other current assets 4,574 5,673
-------- --------
Total current assets 85,548 97,621
Property, plant and equipment, net 190,354 180,361
Goodwill, net of accumulated amortization
of $11,682 in 2000 and $15,038 in 2001 167,273 163,917
Capitalized financing costs 13,948 11,877
Other assets 1,918 1,592
-------- --------
Total assets $459,041 $455,368
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 18,024 $ 15,346
Accrued expenses 11,528 11,277
Income taxes payable 2,171 1,907
Current portion of long-term debt 15,390 21,223
-------- --------
Total current liabilities 47,113 49,753
Long-term debt, less current portion 274,019 261,854
Other long-term liabilities 6,901 7,216
Deferred taxes 51,472 50,813
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 $455,368
======== ========
<FN>
See accompanying notes.
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Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Nine Months Ended September 30,
2000 2001
--------- ---------
(In thousands)
Net sales $ 183,213 $ 192,129
Cost of goods sold 137,183 150,640
--------- ---------
Gross profit 46,030 41,489
Selling, general and administrative expenses 14,469 14,456
--------- ---------
Operating income 31,561 27,033
Other income (expense):
Interest, net (25,064) (22,828)
Other, net 812 1,259
--------- ---------
(24,252) (21,569)
Income before income taxes and
extraordinary item 7,309 5,464
Income taxes 4,746 3,118
--------- ---------
Income before extraordinary item 2,563 2,346
Extraordinary gain on early extinguishment
of debt, net of tax expense of $2,073 - 3,850
--------- ---------
Net income $ 2,563 $ 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 September 30,
2000 2001
--------- ---------
(In thousands)
Net sales $ 61,352 $ 62,999
Cost of goods sold 45,742 50,264
--------- ---------
Gross profit 15,610 12,735
Selling, general and administrative expenses 5,166 4,844
--------- ---------
Operating income 10,444 7,891
Other income (expense):
Interest, net (8,359) (7,685)
Other, net 156 274
--------- ---------
(8,203) (7,411)
Income before income taxes 2,241 480
Income taxes 1,683 480
--------- ---------
Net income $ 558 $ -
========= =========
<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 September 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)
Nine Months Ended September 30,
2000 2001
-------- --------
(In thousands)
Operating activities
Net income $ 2,563 $ 6,196
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 17,773 18,334
Deferred taxes (3,009) (548)
Extraordinary gain on extinguishment of debt (3,850)
Changes in operating assets and liabilities:
Accounts receivable (5,347) (4,011)
Inventories (1,618) (5,082)
Prepaid expenses and other current assets 304 (1,099)
Income taxes payable (728) (2,448)
Accounts payable and accrued expenses 8,697 (2,929)
Other, net 1,499 321
-------- --------
Net cash provided by operating activities 20,134 4,884
Investing activities
Capital expenditures (3,211) (2,841)
-------- --------
Net cash used in investing activities (3,211) (2,841)
Financing activities
Repayment of long-term debt (11,040) (18,376)
Additions to long-term debt 3,243 18,214
-------- --------
Net cash used in financing activities (7,797) (162)
Increase in cash and cash equivalents 9,126 1,881
Cash and cash equivalents at beginning of period 7,102 11,239
-------- --------
Cash and cash equivalents at end of period $ 16,228 $ 13,120
======== ========
<FN>
See accompanying notes.
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Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 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
Business Combinations
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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.
8 of 17
Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2001
(Unaudited)
Accounting for Asset Retirement Obligations
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". 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". 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.
3. Inventories
Inventories are as follows:
December 31, September 30,
2000 2001
--------- ---------
(In thousands)
Raw materials $ 19,473 $ 25,157
Finished goods 10,047 8,529
Supplies and spare parts 6,617 7,533
--------- ---------
$ 36,137 $ 41,219
========= =========
4. Accrued Expenses
Accrued expenses included interest payable and employee profit sharing payable
of $2,546,000 and $2,055,000 and $508,000 and $1,427,000 at December 31, 2000
and September 30, 2001, respectively.
5. Long-Term Debt
At September 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
September 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 worldwide 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 worldwide 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.
- -----------------------------------------------------------------------------
Nine Months ended September 30, 2000
- -----------------------------------------------------------------------------
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- ----------
(In thousands)
Net sales $ 138,076 $ 35,334 $ 8,256 $ 1,547 $ 183,213
Cost of goods sold 100,654 24,751 7,085 4,693 137,183
---------- ---------- ---------- --------- ----------
Segment Profit $ 37,422 $ 10,583 $ 1,171 $ (3,146) 46,030
========== ========== ========== =========
Selling, general and
administrative expenses (14,469)
Interest expense, net (25,064)
Other income (expense) 812
----------
Income before income taxes $ 7,309
==========
- -----------------------------------------------------------------------------
Nine Months ended September 30, 2001
- -----------------------------------------------------------------------------
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- ----------
(In thousands)
Net sales $ 140,381 $ 38,250 $ 11,866 $ 1,632 $ 192,129
Cost of goods sold 106,867 28,192 10,473 5,108 150,640
---------- ---------- ---------- --------- ----------
Segment Profit $ 33,514 $ 10,058 $ 1,393 $ (3,476) 41,489
========== ========== ========== =========
Selling, general and
administrative expenses (14,456)
Interest expense, net (22,828)
Other income (expense) 1,259
----------
Income before income taxes
and extraordinary item $ 5,464
==========
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Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2001
(Unaudited)
- -----------------------------------------------------------------------------
Quarter ended September 30, 2000
- -----------------------------------------------------------------------------
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- ----------
(In thousands)
Net sales $ 45,424 $ 13,593 $ 1,848 $ 487 $ 61,352
Cost of goods sold 33,219 9,623 1,378 1,522 45,742
---------- ---------- ---------- --------- ----------
Segment Profit $ 12,205 $ 3,970 $ 470 $ (1,035) 15,610
========== ========== ========== =========
Selling, general and
administrative expenses (5,166)
Interest expense, net (8,359)
Other income (expense) 156
----------
Income before income taxes $ 2,241
==========
- -----------------------------------------------------------------------------
Quarter ended September 30, 2001
- -----------------------------------------------------------------------------
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- ----------
(In thousands)
Net sales $ 46,740 $ 12,840 $ 3,049 $ 370 $ 62,999
Cost of goods sold 36,374 9,717 2,470 1,703 50,264
---------- ---------- ---------- --------- ----------
Segment Profit $ 10,366 $ 3,123 $ 579 $ (1,333) 12,735
========== ========== ========== =========
Selling, general and
administrative expenses (4,844)
Interest expense, net (7,685)
Other income (expense) 274
----------
Income before income taxes $ 480
==========
7. Extraordinary Item
The nine-month period ended September 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 September 30, 2001 vs. Three Months Ended September 30, 2000
The Company's net sales for the quarter ended September 30, 2001
increased 2.7% to $63.0 million from $61.4 million in the comparable 2000
period. Net sales of anode grade CPC increased 2.9% to $46.7 million, net
sales of industrial grade CPC decreased 5.5% to $12.8 million and net sales of
RPC increased 65.0% to $3.0 million.
The increase in anode grade CPC net sales was primarily the result
of a 6.1% increase in average per ton selling prices partially offset by a
3.0% decrease in sales volume to 302,014 tons. The increase in selling prices
was attributable to market recognition of increased CPC supply costs discussed
below. The decrease in sales volume was mostly a function of routine
period-to-period scheduling fluctuations.
The decrease in industrial grade CPC net sales was the result of a
9.7% decrease in sales volume to 98,654 tons offset slightly by a 4.6% increase
in average per ton selling prices. Lower shipments to chemical and recarb
customers out-paced improved pricing across most product lines.
12 of 17
The increase in RPC net sales was primarily the result of a 110.2%
increase in average per ton selling prices offset somewhat by a 21.5% decrease
in sales volume to 34,705 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 third quarter decreased by 18.4% to
$12.7 million from $15.6 million in 2000. The decrease in gross profit was
due to higher cost of goods sold that were only partially offset by the sales
increases discussed above. 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 24.4% to $7.9 million from $10.4 million in
the prior year quarter. The decrease in operating income was due to the
decrease in gross profit discussed above offset by a 6.2% decrease in selling,
general and administrative expenses. The decrease in selling, general and
administrative expenses was primarily the result of lower commission expense.
Income before income taxes decreased 78.6% to $0.5 million from $2.2
million in the comparable 2000 period. The decrease was due to the decrease in
operating income discussed above offset mainly by decreased net interest
expense. The lower net interest expense was due primarily to the effects of
continued debt reduction and lower general interest rates, which more than off-
set the additional interest expense incurred in connection with the 10 1/4%
Senior Subordinated Notes payment-in-kind election.
As a result of the factors discussed above the Company posted no net
income for the three months ended September 30, 2001 compared to $0.6 million
in 2000 period.
Adjusted EBITDA for the third quarter decreased 14.1% to $14.0 million
from $16.3 million in 2000 due to the decrease in operating income discussed
above offset by increases to add-back adjustments for depreciation/amortization
and AIP management fee expenses of $0.25 million.
Nine Months Ended September 30, 2001 vs. Nine Months Ended September 30, 2000
The Company's net sales for the nine months ended September 30, 2001
increased 4.9% to $192.1 million from $183.2 million in the comparable 2000
period. Net sales of anode grade CPC increased 1.7% to $140.4 million, net
sales of industrial grade CPC increased 8.3% to $38.3 million and net sales of
RPC increased 43.7% to $11.9 million.
The increase in anode grade CPC net sales was primarily the result
of a 4.7% increase in average per ton selling prices partially offset by a 2.9%
decrease in sales volume to 921,446 tons. The increase in selling prices was
attributable to market recognition of increased CPC supply costs discussed
below. 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 5.8%
increase in average selling prices augmented by a 2.3% increase in sales volume
to 288,248 tons. Higher prices across most product lines and greater shipments
to titanium dioxide customers out-weighed volume declines in chemical and
recarb accounts.
The increase in RPC net sales was primarily the result of a 63.1%
increase in the average per ton selling price offset partially by a 11.9%
decrease in sales volume to 176,025 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-to-date period decreased by
9.9% to $41.5 million from $46.0 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 14.3% to $27.0 million from $31.6 million in
the prior year period. The decrease in operating income was due to the
decrease in gross profit discussed above as selling, general and administrative
expenses were essentially unchanged.
Income before income taxes and extraordinary item decreased 25.2% to
$5.5 million from $7.3 million in the comparable 2000 period. The decrease was
attributable to the decline in operating income discussed above offset in part
by a decrease other income (expense), the most significant component of which
was a $2.2 million decrease in net interest expense, due primarily to the
effects of continued debt reduction and lower general interest rates, which
more than offset the additional interest expense incurred in connection with
the 10 1/4% Senior Subordinated Notes payment-in-kind election.
The Company's effective tax rate decreased to 57.1% in 2001 from 64.9%
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 nine
months ended September 30, 2001 increased 141.7% to $6.2 million from $2.6
million in 2000.
Adjusted EBITDA for the year-to-date period decreased by 7.6% to $45.2
million from $48.9 million in 2000 due to the decrease in operating income
discussed above and an increase the to add-back adjustment for depreciation/
amortization and AIP management fee expenses of $0.63 million and $0.18
million, respectively.
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 $4.5
million.
The Company expects to meet its liquidity needs, including debt
service, through cash from operations, its revolving credit facility and other
financing sources provided in its debt agreements. The revolving credit
facility provides for borrowings of up to $25.0 million, including a $10.0
million sub-limit for letters of credit. As of November 2, 2001, no funds had
been drawn down, and approximately $1.5 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 and May 15, 2002 interest payments 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 July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". 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". 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.
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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 September 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: 11/02/01 /s/James D. McKenzie
James D. McKenzie
President and Chief Executive Officer
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