UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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 CORP.
(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 [ ].
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X].
As of May 12 2003, the registrant had outstanding 65,950 shares of its
Common Stock (par value $0.01 per share), for which there is no established
public trading market.
1
GREAT LAKES ACQUISITION CORP.
FORM 10-Q March 31, 2003
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 2002 and March 31, 2003. . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations -
For the three months ended March 31, 2002 and 2003. . . . . . . 4
Condensed Consolidated Statements of Stockholders' Equity -
For the three months ended March 31, 2003 . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows -
For the three months ended March 31, 2002 and 2003. . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . .12
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . .15
Item 4. Procedures and Controls. . . . . . . . . . . . . . . . . . . . 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . 15
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . 15
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 15
2
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, March 31
2002 2003
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 23,443 $ 41,424
Restricted cash 27 27
Accounts receivable-net of allowance for doubtful
accounts of $600 in 2002 and 2003 46,555 37,378
Inventories 55,233 52,844
Prepaid expenses and other current assets 6,164 6,431
-------- --------
Total current assets 131,422 138,104
Property, plant and equipment, net 184,262 179,944
Goodwill 162,799 162,799
Capitalized financing costs, net of accumulated
amortization of $11,750 and $12,449 in 2002
and 2003 9,575 8,876
Other assets 2,933 4,668
-------- --------
Total assets $490,991 $494,391
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 26,803 $ 24,008
Accrued expenses 8,999 9,163
Income taxes payable 5,703 6,808
Current portion of long-term debt 23,700 24,493
-------- --------
Total current liabilities 65,205 64,472
Long-term debt, less current portion 283,685 287,204
Other long-term liabilities 13,293 13,628
Deferred taxes 43,480 42,710
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 22,798 23,847
Accumulated other comprehensive loss (3,420) (3,420)
-------- --------
Total stockholders' equity 85,328 86,377
-------- --------
Total liabilities and stockholders' equity $490,991 $494,391
======== ========
See accompanying notes.
3
Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
2002 2003
--------- ---------
(In thousands)
Net sales $ 55,346 $ 77,776
Cost of goods sold 44,983 64,275
--------- ---------
Gross profit 10,363 13,501
Selling, general and administrative expenses 2,944 3,258
--------- ---------
Operating income 7,419 10,243
Other income (expense):
Interest, net (7,604) (8,534)
Other, net 5,546 (633)
--------- ---------
(2,058) (9,167)
Income before income taxes 5,361 1,076
Income taxes 3,210 27
--------- ---------
Net income $ 2,151 $ 1,049
========= =========
See accompanying notes.
4
Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
Accumulated
Other Total
Add'l Compre- Stock-
Common Paid-in Retained hensive holders'
Stock Capital Earnings Loss Equity
--------- --------- --------- --------- ---------
(In thousands)
Balance-December 31, 2002 $ 1 $ 65,949 $ 22,798 $ (3,420) $ 85,328
Net income - - 1,049 - 1,049
--------- --------- --------- --------- ---------
Balance-March 31, 2003 $ 1 $ 65,949 $ 23,847 $ (3,420) $ 86,377
========= ========= ========= ========= =========
See accompanying notes.
5
Great Lakes Acquisition Corp.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
2002 2003
--------- ---------
(In thousands)
Operating activities
Net income $ 2,151 $ 1,049
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,101 5,671
Accretions of long-term debt 6,043 6,783
Deferred taxes (382) (770)
Gain on disposal of fixed asset (2,733) (81)
Changes in operating assets and liabilities:
Restricted cash 10,414 -
Accounts receivable 978 9,177
Inventories (1,109) 2,389
Prepaid expenses and other current assets (10,331) (267)
Accounts payable and accrued expenses (11,030) (2,631)
Income taxes payable 2,264 1,105
Other, net (356) (1,507)
-------- --------
Net cash provided by operating activities 1,010 20,918
-------- --------
Investing activities
Capital expenditures (766) (641)
Proceeds from disposal of fixed assets 3,000 175
Acquisition of Baton Rouge plant (12,387) -
-------- --------
Net cash used in investing activities (10,153) (466)
-------- --------
Financing activities
Repayment of long-term debt (2,766) (3,531)
Additions to long-term debt 12,682 1,060
Capitalized financing costs (742) -
-------- --------
Net cash provided (used) by financing activities 9,174 (2,471)
-------- --------
Increase in cash and cash equivalents 31 17,981
Cash and cash equivalents at beginning of period 12,186 23,443
-------- --------
Cash and cash equivalents at end of period $ 12,217 $ 41,424
======== ========
Supplemental disclosure of non-cash investing and financing activities:
In connection with the acquisition of the Baton Rouge Plant, the Company
issued notes payable in an aggregate principal amount of $20,000,000 on
March 27, 2002 which are not reflected in investing or financing activities
for the three months ended March 31, 2002.
See accompanying notes.
6
Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Unaudited)
1. Organization and Basis of Presentation
Great Lakes Acquisition Corp. (the "Company") through its wholly-owned
operating subsidiary, Great Lakes Carbon Corporation ("GLC"), is the largest
producer of calcined petroleum coke ("CPC") supplying customers principally in
the aluminum industry. It is 98.56% owned by American Industrial Capital Fund
II, L.P. ("AIP").
Certain prior year amounts have been reclassified to conform to current year
presentation.
The accompanying unaudited condensed 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
accounting principles generally accepted in the United States of America. 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
Accounting for Asset Retirement Obligations
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations" effective January 2003. SFAS No. 143 establishes
accounting standards for the recognition and measurement of a liability for
asset retirement obligations and associated asset retirement costs. The
adoption of this Statement did not 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 issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" which is effective for fiscal years beginning
after December 15, 2001. 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 Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. The adoption of SFAS
No. 144 did not have a material impact on the Company's financial statements.
7
Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Unaudited)
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains
and Losses from Extinguishment of Debt," and an amendment of that Statement,
FASB Statement No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund
Requirements." This Statement also rescinds FASB Statement No. 44, "Accounting
for Intangible Assets of Motor Carriers." This Statement also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings or describe their applicability under changed conditions.
SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The
Company adopted this Statement effective January 1, 2003, and will classify
gains and losses on extinguishment of debt previously treated as extraordinary
items to other income or expense.
Accounting for Costs Associated with Exit or Disposal Activities
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No.
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. This statement also
established that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002.
Accounting for Derivative Instruments and Hedging Activities
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which amends and clarifies the
accounting and reporting requirements for derivatives instruments (including
derivatives embedded in other contracts) and hedging activities under SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
Company does not anticipate that the adoption of this statement, which is
generally effective for contracts entered into or modified after June 30, 2003,
will have a material impact on its financial statements.
3. Stock-Based Compensation
SFAS No. 123, as modified by SFAS No. 148, 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 SFAS No. 123.
Three Months Ended
March 31,
2002 2003
--------- ---------
(In thousands)
Net earnings:
As reported $ 2,151 $ 1,049
Fair value method stock-based
compensation expense 18 1
--------- ---------
Pro forma $ 2,133 $ 1,048
========= =========
8
Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Unaudited)
4. Acquisition
On March 27, 2002, the Company purchased a calcining facility located in Baton
Rouge, LA (the "Baton Rouge Plant") from Alcoa, Inc. ("Alcoa") for $31.7
million, net of a purchase price adjustment. 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 and incremental term loan borrowings under
the Company's existing syndicated senior secured credit facility of $12 million.
The addition of the Baton Rouge Plant, which can produce up to 700,000 tons per
year of CPC, increased the Company's total operating capacity to 2.3 million
tons from 1.6 million tons.
Results for the Baton Rouge Plant were included in the statement of operations
commencing on April 1, 2002. The purchase price, net of the working capital
adjustment, was allocated based on the fair values of the assets acquired and
liabilities assumed as follows:
(In thousands)
Inventories $ 15,677
Property, plant and equipment 20,000
Accounts payable (3,024)
Accrued expenses (945)
--------------
$ 31,708
==============
No goodwill was established in connection with this acquisition since the fair
value of the assets acquired exceeded the purchase price.
The unaudited pro forma information set forth below, developed as though the
acquisition had been completed as of the beginning of 2002, reflects
adjustments to interest expense (for borrowings required to finance the
acquisition and certain changes to the terms of existing debt arrangements),
depreciation and amortization expense (set to reflect the new accounting base
of the assets recorded) and income tax effect based upon the Company's
historical effective rates.
Three Months Ended
March 31,
2002 2003
--------- ---------
(In thousands)
Net sales $ 81,093 $ 77,776
Income before income taxes 4,946 1,076
Net income 1,984 1,049
The pro forma information, as presented here, is not indicative of the results
that would have been obtained had the transaction occurred on January 1, 2002,
nor should it be considered indicative of future results. It gives effect only
to the adjustments noted above, and does not reflect management's estimate of
potential cost savings or other benefits arising from the acquisition.
9
Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Unaudited)
5. Inventories
Inventories are as follows:
December 31, March 31,
2002 2003
---------- ----------
(In thousands)
Raw materials $ 34,195 $ 27,311
Finished goods 13,965 17,919
Supplies and spare parts 7,073 7,614
---------- ----------
$ 55,233 $ 52,844
========== ==========
6. Long-Term Debt
At March 31, 2003, approximately 61% of the outstanding 13 1/8% Senior Discount
Debentures had been purchased by GLC with the intention of holding them to
maturity. The Company's obligation with respect to the Debentures is shown net
of the amount held by GLC.
7. 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.
10
Great Lakes Acquisition Corp.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(Unaudited)
- -----------------------------------------------------------------------------
Quarter ended March 31, 2002
- -----------------------------------------------------------------------------
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- ----------
(In thousands)
Net sales $ 40,610 $ 9,617 $ 4,579 $ 540 $ 55,346
Cost of goods sold 34,023 7,880 3,881 (801) 44,983
---------- ---------- ---------- --------- ----------
Segment Profit $ 6,587 $ 1,737 $ 698 $ 1,341 10,363
========== ========== ========== =========
Selling, general and
administrative expenses 2,944
Interest expense, net 7,604
Other income (expense) 5,546
----------
Income before income taxes $ 5,361
==========
- -----------------------------------------------------------------------------
Quarter ended March 31, 2003
- -----------------------------------------------------------------------------
Anode Industrial
Grade Grade RPC
CPC CPC Trading Other Total
---------- ---------- ---------- --------- ----------
(In thousands)
Net sales $ 64,206 $ 13,020 $ 538 $ 12 $ 77,776
Cost of goods sold 52,282 10,415 181 1,397 64,275
---------- ---------- ---------- --------- ----------
Segment Profit $ 11,924 $ 2,605 $ 357 $ (1,385) 13,501
========== ========== ========== =========
Selling, general and
administrative expenses 3,258
Interest expense, net 8,534
Other income (expense) (633)
----------
Income before income taxes $ 1,076
==========
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
This Form 10-Q contains certain forward-looking statements, including,
without limitation, statements concerning the Company's future financial
position, business strategy, budgets, projected costs and plans and objectives
of management for future operations. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements generally can be identified by
the use of forward-looking terminology such as may, will, expect, intend,
estimate, anticipate, believe, should, plans or continue, or the negative
thereof or variations thereon or similar terminology. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. These forward-looking statements are subject to a number of risks
and uncertainties, including, the factors discussed in the Company's filings
with the Securities and Exchange Commission. Actual results could differ
materially from these forward-looking statements.
Through its wholly-owned operating subsidiary, Great Lakes Carbon
Corporation ("GLC"), the Company is the world's largest producer of calcined
petroleum coke ("CPC"). The Company produces anode grade CPC, which is the
principal raw material used in the production of carbon anodes used in primary
aluminum production, and industrial grade CPC, which is used in a variety of
specialty metals and materials applications. CPC is produced from raw
petroleum coke ("RPC") utilizing a high temperature, rotary kiln process
developed by the Company in the 1930's. RPC is a by-product of the petroleum
refining process and constitutes the largest single component of the Company's
cost of goods sold. The Company's principal source of revenues and profits are
sales of anode grade CPC to the aluminum industry. Historically, the Company's
profitability has been primarily a function of its CPC sales volumes, CPC
pricing and the cost of RPC.
Results of Operations
Three Months Ended March 31, 2003 vs. Three Months Ended March 31, 2002
The Company's net sales for the quarter ended March 31, 2003 increased
40.6% to $77.8 million from $55.3 million in the comparable 2002 period. Net
sales of anode grade CPC increased 58.1% to $64.2 million, net sales of
industrial grade CPC increased 35.4% to $13.0 million and net sales of RPC
decreased 88.3% to $0.5 million.
The increase in anode grade CPC net sales was primarily the result
of a 59.3% increase in sales volume to 415,439 tons as average per ton selling
prices declined a mere 0.7%. The increase in sales volume was attributable to
the Baton Rouge plant, purchased on March 27, 2002, for which there was no
activity in the prior year quarter, and continued strong demand from aluminum
producers. Baton Rouge shipments accounted for 97.4% and 97.0% of the quarter-
to-quarter increase in sales volume and net sales, respectively.
The increase in industrial grade CPC net sales was the result of a
61.6% increase in sales volume to 103,451 tons partially offset by a 16.2%
decline in average per ton selling prices. Higher shipments, principally to
the domestic titanium dioxide market, more than out-paced a volume decrease in
chemical accounts and lower overall prices.
The decrease in RPC net sales was primarily the result of an 87.9%
decrease in sales volume to 8,032 tons coupled with a 3.1% decline in average
per ton selling prices. Increased internal consumption, mainly as a result of
the acquisition of the Baton Rouge plant, which is a large consumer of the GLC
RPC product, has significantly reduced Company's RPC trading activities. Those
activities, which were originally initiated to take advantage of certain excess
RPC availability in the Company's procurement system, are now in the process of
being phased out.
12
The Company's gross profit for the first quarter increased by 30.3% to
$13.5 million from $10.4 million in 2002. The increase in gross profit was due
to the 40.5% increase in sales discussed above offset by a 42.9% increase in
cost of goods sold. The increase in cost of goods sold was the result of the
higher sales volume and higher average per ton costs. The increase in average
per ton costs was due mainly to continued tight anode grade RPC supply.
Operating income increased 38.1% to $10.2 million from $7.4 million in
the prior year quarter. The increase in operating income was due to the
increase in gross profit discussed above offset by a $0.3 increase in selling,
general and administrative expenses.
Income before income taxes decreased 79.9% to $1.1 million from $5.4
million in the comparable 2002 period. The decline was due to an increase in
other expense partially offset by the improvement in operating income discussed
above. The increase in other expense was due mainly to the absence in the
current year quarter of certain gains (on the sale of lease rights and foreign
currency exchange related to the devaluation of the Argentine peso) included in
other expense in the prior year period and higher interest expense. The
increase in interest expense related to the additional debt (at higher base
rates) incurred in connection with the acquisition of the Baton Rouge plant.
The Company's effective tax rate decreased to 2.5% from 59.9% in the
2002 period mainly as a result of the tax effect of foreign currency losses in
the tax provision for foreign operations.
As a result of the factors discussed above, net income for the quarter
ended March 31 30, 2003 decreased to $1.0 million from $2.2 million in 2002.
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 essentially 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 2003 will be approximately $6.0
million.
Pursuant to the terms of the 10 1/4% Senior Subordinated Notes
Indenture (the "Notes") the Company may, at its option, through May 15, 2003,
make up to four semiannual interest payments through the issuance of additional
notes in an amount equal to the interest that would be payable if the rate per
annum of the Notes were equal to 11 3/4%. The Company has exercised its pay-
in-kind option with respect to payments starting from November 15, 2001 through
May 15, 2003, the last two of which were required as a condition to obtaining
incremental term loan financing for the acquisition of the Baton Rouge plant
under its existing credit agreement.
The Company expects to meet its liquidity needs, including debt
service, through cash from operations and its revolving credit facility. The
revolving credit facility, which currently provides for borrowings of up to
$25.0 million (with a $10.0 million sub-limit for letters of credit), expires
on May 31, 2003. The Company is presently in the process of finalizing an
extension of the facility at approximately one-half the current level. The
reduced credit availability sought by the Company reflects the fact that there
have never been any drawings against the existing facility since it was
established in May 1998. As of May 12, 2003, there were no amounts borrowed,
and approximately $2.9 million in letters of credit were outstanding under this
facility.
The Company or its affiliates may, from time to time, depending on
liquidity and market and economic conditions, purchase in open-market
transactions its 13 1/8% Senior Discount Debentures (the "Debentures") or the
Notes issued by GLC.
The Company is actively considering an offering of its securities (the
"New Securities"). Although the contemplated offering would require the
retirement of substantially all of Notes and the Debentures, given current
market conditions, the Company does not anticipate that the proceeds from such
an offering and related transactions would be sufficient to repay all of the
Notes and the Debentures. The Company believes that in order to complete these
13
transactions it could offer cash and newly issued junior securities of the
Company or its affiliates (the "Junior Securities") in exchange for the Notes,
and Junior Securities in exchange for the Debentures. It is anticipated that,
as part of the transactions, the Company's existing stockholders would receive
Junior Securities in exchange for their equity interests in the Company, and
that the Junior Securities would be exchangeable for New Securities, subject to
certain conditions. If the Company pursues these transactions, the New
Securities and the Junior Securities will not be registered under the
Securities Act of 1933 (the "Act"), and may not be offered or sold in the
United States absent registration under the Act or an applicable exemption from
the registration requirements of the Act. The Company has discussed, and
intends to continue to discuss, possible alternatives with holders of the Notes
and the Debentures before further pursuing the transactions.
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 143,
"Accounting for Asset Retirement Obligations" effective January 2003. SFAS
No. 143 establishes accounting standards for the recognition and measurement of
a liability for asset retirement obligations and associated asset retirement
costs. The adoption of this Statement will not have a material impact on the
Company's financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which is effective for fiscal
years beginning after December 15, 2001. 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.
The adoption of SFAS No. 144 did not have a material impact on the Company's
financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains
and Losses from Extinguishment of Debt," and an amendment of that Statement,
FASB Statement No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund
Requirements." This Statement also rescinds FASB Statement No. 44, "Accounting
for Intangible Assets of Motor Carriers." This Statement also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings or describe their applicability under changed conditions.
SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The
Company adopted this Statement effective January 1, 2003, and will classify
gains and losses on extinguishment of debt previously treated as extraordinary
items to other income or expense.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No.
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. This statement also
established that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002.
14
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-
Based Compensation-Transition and Disclosure." SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," to require disclosure in both interim and annual
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS No.
148 is effective for the year ended December 31, 2002. The Company has elected
not to adopt the fair value method to account for stock-based compensation.
Accordingly, except for modification to certain disclosures, the adoption of
SFAF No. 148 did not have a material impact on the Company's financial
statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities," which amends and
clarifies the accounting and reporting requirements for derivatives instruments
(including derivatives embedded in other contracts) and hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Company does not anticipate that the adoption of this
statement, which is generally effective for contracts entered into or modified
after June 30, 2003, will have a material impact on its financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes in the Company's market risk
factors since December 31, 2002.
Item 4. Procedures and Controls
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Refer to the Company's annual report on Form 10-K dated March 28, 2003.
Item 2. Change in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
Not applicable.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K with the Commission during
the three months ended March 31, 2003.
15
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 Corp.
Date: 5/12/03 By: /s/JAMES D. MCKENZIE
-------------------------------
James D. McKenzie, President
and Chief Executive Officer
16
CERTIFICATION
Each of the undersigned hereby certifies in their capacity as an officer of
Great Lakes Acquisition Corp. (the "Company") that the Quarterly Report of the
Company on Form 10-Q for the period ended March 31, 2003 fully complies with
the requirements of Section 13(a) of the Securities Exchange Act of 1934 and
that the information contained in such report fairly presents, in all material
respects, the financial condition of the Company at the end of such period and
the results of operations of the Company for such period.
Date: 5/12/03 /s/JAMES D. MCKENZIE
-------------------------------
President and Chief Executive
Officer
Date: 5/12/03 /s/ADELA I. ROBLES
-------------------------------
Controller, Assistant Secretary
and Chief Financial Officer
17
CERTIFICATION
I, James D. McKenzie, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Great Lakes
Acquisition Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: 5/12/03 /s/JAMES D. MCKENZIE
-------------------------------
President and Chief Executive
Officer
18
CERTIFICATION
I, Adela I. Robles, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Great Lakes
Acquisition Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: 5/12/03 /s/ADELA I. ROBLES
-------------------------------
Controller, Assistant Secretary
and Chief Financial Officer
19