10-K/A 1 e10ka0212gla2.txt GLAC 10-K/A NO.2 FOR 12/31/02 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 2 to FORM 10-K/A ANNUAL REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2002 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, NY 10176 (Address of principal executive office) (Zip Code) (212) 370-5770 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: 13 1/8% Senior Discount Debentures due 2009 (Title of Class) Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the regis- trant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] There is no public market for registrant's common stock. As of March 26 2003, the registrant had outstanding 65,950 shares of its Common Stock. DOCUMENTS INCORPORATED BY REFERENCE None 1 of 31 Explanatory Note This Amendment No. 2 to our Annual Report on Form 10-K for the year ended December 31, 2002 is being filed to update the Independent Auditors' Report filed pursuant to Item 8 at page F-2 of our Annual Report on Form 10-K filed on March 28, 2003 to correct a typographical error. The Amendment No. 2 supercedes the amendment to our Form 10-K filed on March 31, 2003 that provided the revised Independent Auditors' Report, but did not set forth the complete text of Item 8 as required by SEC regulations. The remainder of the Form 10-K filed on March 28, 2003 remains unchanged. 2 of 31 Item 8. Financial Statements and Supplementary Data The following consolidated financial statements of the Company and its subsidiaries, together with the independent auditors' reports thereon, are filed as part of this report: Consolidated Financial Statements: Independent Auditors' Report Consolidated Balance Sheets as of December 31, 2001 and 2002 Consolidated Statements of Operations for the years ended December 31, 2000, 2001 and 2002 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 2001 and 2002 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002 Notes to the Consolidated Financial Statements 3 of 31 Great Lakes Acquisition Corp. and Subsidiaries Consolidated Financial Statements Years ended December 31, 2000, 2001 and 2002 Contents Independent Auditors' Report.............................................F-2 Consolidated Balance Sheets - December 31, 2001 and 2002...............................................F-3 Consolidated Statements of Operations - For the years ended December 31, 2000, 2001 and 2002.....................F-5 Consolidated Statements of Stockholders' Equity - For the years ended December 31, 2000, 2001 and 2002.....................F-6 Consolidated Statements of Cash Flows - For the years ended December 31, 2000, 2001 and 2002.....................F-7 Notes to the Consolidated Financial Statements...........................F-8 F-1 / 4 of 31 Independent Auditors' Report The Board of Directors Great Lakes Acquisition Corp. We have audited the accompanying consolidated balance sheets of Great Lakes Acquisition Corp. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. Our audit also included the financial statement schedule listed in the Index as Item 15(a)(2) for the three years ended December 31, 2002. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Great Lakes Acquisition Corp. and subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 1 and Note 7 to the consolidated financial statements, in 2002, the Company changed its method of accounting for goodwill amortization to conform to Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." DELOITTE & TOUCHE LLP Parsippany, New Jersey March 26, 2003 F-2 / 5 of 31 Great Lakes Acquisition Corp. and Subsidiaries Consolidated Balance Sheets
(In thousands, except share and per share data) December 31, 2001 2002 ---------- ---------- ASSETS Current Assets Cash and cash equivalents $ 12,186 $ 23,443 Restricted cash 10,414 27 Accounts receivable, net of allowance for doubtful accounts of $600 in 2001 and 2002 27,452 46,555 Inventories 46,614 55,233 Prepaid expenses and other current assets 3,767 6,164 ---------- ---------- Total Current Assets 100,433 131,422 Property, plant and equipment-net 177,467 184,262 Goodwill 162,799 162,799 Capitalized financing costs, net of accumulated amortization of $8,968 and $11,750 in 2001 and 2002 11,138 9,575 Other assets 1,971 2,933 ---------- ---------- Total Assets $ 453,808 $ 490,991 ========== ========== See accompanying notes.
F-3 / 6 of 31 Great Lakes Acquisition Corp. and Subsidiaries Consolidated Balance Sheets
(In thousands, except share and per share data) December 31, 2001 2002 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 12,818 $ 26,803 Accrued expenses 18,835 8,999 Income taxes payable 809 5,703 Current portion of long-term debt 19,578 23,700 ---------- ---------- Total Current Liabilities 52,040 65,205 Long-term debt, less current portion 263,135 283,685 Other long-term liabilities 9,764 13,293 Deferred taxes 46,195 43,480 Stockholders' Equity Common stock, par value $0.01 per share; authorized, 92,000 shares, issued and outstanding, 65,950 shares in 2001 and 2002 1 1 Additional paid-in capital 65,949 65,949 Retained earnings 18,112 22,798 Accumulated other comprehensive loss Minimum pension liability adjustment, net of tax benefit $748 and $1,841 in 2001 and 2002 (1,388) (3,420) ---------- ---------- Total Stockholders' Equity 82,674 85,328 ---------- ---------- Total Liabilities and Stockholders' Equity $ 453,808 $ 490,991 ========== ========== See accompanying notes.
F-4 / 7 of 31 Great Lakes Acquisition Corp. and Subsidiaries Consolidated Statements of Operations
Year Ended December 31, 2000 2001 2002 ---------- ---------- ---------- (In thousands) Net Sales $ 263,601 $ 270,554 $ 307,567 Cost of Goods Sold 202,718 215,966 252,952 ---------- ---------- ---------- Gross Profit 60,883 54,588 54,615 Selling, general and administrative expenses 19,852 18,693 11,803 ---------- ---------- ---------- Operating Income 41,031 35,895 42,812 ---------- ---------- ---------- Other income (expense): Interest, net (33,380) (30,644) (32,982) Other, net 1,048 (3,433) 2,057 ---------- ---------- ---------- (32,332) (34,077) (30,925) Income Before Income Taxes and Extraordinary Item 8,699 1,818 11,887 Income taxes 4,790 1,009 7,201 ---------- ---------- ---------- Income before extraordinary item 3,909 809 4,686 Extraordinary gain on early extinguishment of debt, net of tax expense of $2,048 and $2,073 for the years ended December 31, 2000 and 2001 3,804 3,717 - ---------- ---------- ---------- Net income $ 7,713 $ 4,526 $ 4,686 ========== ========== ========== See accompanying notes.
F-5 / 8 of 31 Great Lakes Acquisition Corp. and Subsidiaries Consolidated Statements of Stockholders' Equity
Accumulated Other Total Add'l Compre- Stock- Common Paid-in Retained hensive holders' Stock Capital Earnings Loss Equity --------- --------- --------- --------- --------- (In thousands) Balance at December 31, 1999 $ 1 $ 65,949 $ 5,873 $ - $ 71,823 Net income - - 7,713 - 7,713 --------- --------- --------- --------- --------- Balance at December 31, 2000 1 65,949 13,586 - 79,536 Net income - - 4,526 - 4,526 Minimum pension liability adjustment - - - (1,388) (1,388) --------- Comprehensive income 3,138 --------- --------- --------- --------- --------- Balance at December 31, 2001 1 65,949 18,112 (1,388) 82,674 Net income - - 4,686 - 4,686 Minimum pension liability adjustment - - - (2,032) (2,032) --------- Comprehensive income 2,654 --------- --------- --------- --------- --------- Balance at December 31, 2002 $ 1 $ 65,949 $ 22,798 $ (3,420) $ 85,328 ========= ========= ========= ========= ========= See accompanying notes.
F-6 / 9 of 31 Great Lakes Acquisition Corp. and Subsidiaries Consolidated Statements of Cash Flows
Year Ended December 31, 2000 2001 2002 ---------- ---------- ---------- (In thousands) Operating activities Net income $ 7,713 $ 4,526 $ 4,686 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 24,235 24,401 21,631 Accretions of long-term debt 4,336 15,577 25,246 Deferred taxes (3,887) (4,529) (1,622) Gain on disposal of fixed asset (30) - (2,734) Extraordinary gain on extinguishment of debt (3,804) (3,717) - Changes in operating assets and liabilities: Restricted cash - (10,414) 10,387 Accounts receivable (860) 6,146 (19,103) Inventories (217) (10,477) 7,058 Prepaid expenses and other current assets 659 807 (2,397) Accounts payable and accrued expenses 4,240 2,101 180 Income taxes payable (1,861) (3,435) 4,894 Other, net 1,293 247 (987) ---------- ---------- ---------- Net cash provided by operating activities 31,817 21,233 47,239 ---------- ---------- ---------- Investing activities Capital expenditures (4,297) (4,183) (5,484) Proceeds from disposal of fixed asset 42 - 3,001 Acquisition of Baton Rouge plant - - (11,708) ---------- ---------- ---------- Net cash used by investing activities (4,255) (4,183) (14,191) ---------- ---------- ---------- Financing Activities Repayment of long-term debt (23,560) (23,921) (36,356) Additions to long-term debt 135 7,818 15,782 Capitalized financing costs - - (1,217) ---------- ---------- ---------- Net cash (used) provided by financing activities (23,425) (16,103) (21,791) ---------- ---------- ---------- Increase in cash and cash equivalents 4,137 947 11,257 Cash and cash equivalents at beginning of period 7,102 11,239 12,186 ---------- ---------- ---------- Cash and cash equivalents at end of period $ 11,239 $ 12,186 $ 23,443 ========== ========== ========== 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 year ended December 31, 2002. See accompanying notes.
F-7 / 10 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2002 1. Significant Accounting Policies Organization 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"). The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Foreign Currency Translation Foreign currency financial statements have been translated into U.S. dollars in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation". SFAS No. 52, as applied to foreign entity financial statements where the U.S. dollar is determined to be the functional currency, as in the Company's case, requires that monetary assets and liabilities denominated in the local or other foreign currency be remeasured to the U.S. dollar at the exchange rate in effect on the report date. Exchange rate gains and losses from remeasurement are recognized currently in results. Cash Equivalents Investments with maturities of less than 90 days when purchased are considered the equivalent of cash. Inventories Inventories are stated at the lower of cost (principally average cost method) or market. Property, Plant and Equipment Property, plant and equipment are stated on the basis of cost. Enhancements are capitalized and depreciated over the period benefited. The provision for depreciation is determined by the straight-line method over the estimated useful lives of the related assets. Impairment of Long-Lived Assets Long-lived assets are periodically reviewed for impairment. Impairment losses are recognized if expected future undiscounted cash flows of the related assets are less than their carrying values. F-8 / 11 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) Goodwill Through December 31, 2001, goodwill was amortized using the straight-line method over a 40 year period. On January 1, 2002, the Company implemented SFAS No. 142, "Goodwill and Other Intangible Assets," which ceased the amortization method of accounting for goodwill and requires an impairment-only approach. Accordingly, goodwill is no longer amortized and is tested for impairment at least once annually. Accounting for Asset Retirement Obligations In August 2001, the FASB issued 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. 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 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. 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 will adopt the provisions of this Statement upon its effective date and reclassify gains and losses on extinguishment of debt currently treated as extraordinary items to other income or expense. F-9 / 12 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) 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. The Company does not believe that the adoption of this Statement will have a material impact on its financial statements. Revenue Recognition The Company recognizes revenue pursuant to sales contracts or purchase orders when products are shipped, at which point title and risk of loss typically passes to the customer. Sales are reported net of sales discounts, returns and allowances. Significant Customers The Company had two customers which represented 24.1% and 15.6% of net sales in 2000, 24.5% and 16.7% of net sales in 2001 and one customer that represented 29.2% of net sales in 2002. Stock-Based Compensation 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 and instead will continue to account for stock-based compensation using the intrinsic value method prescribed by Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Compensation expense is recognized for stock options granted below the fair market value of the Company's stock on the date of grant. 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. 2000 2001 2002 ---------- ---------- ---------- (In thousands) Net earnings: As reported $ 7,713 $ 4,526 $ 4,686 Fair value method stock-based compensation expense 67 16 70 ---------- ---------- ---------- Pro forma $ 7,646 $ 4,510 $ 4,616 ========== ========== ========== F-10 / 13 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) The exercise price of these stock options was equal to the fair value of the underlying common stock on the date of grant, which was established by the Company's Board of Directors as the price at which the Company will buy or sell its common stock. The grant date fair value for the stock options was estimated at $177.40 per option and was determined using an option pricing model with the following weighted average assumptions: risk-free interest rate of 6.51%; dividend yield of 0.1%; volatility factor of the expected market price of the Company's common stock of 0.0; and expected option life of 3 years. Option valuation models were developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the value of its employee stock options. Income Taxes The Company follows SFAS No. 109, "Accounting for Income Taxes." Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Reclassifications Certain prior year amounts have been reclassified to conform to current year presentation. 2. 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. F-11 / 14 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) The unaudited pro forma information set forth below, developed as though the acquisition had been completed as of the beginning of each of the years shown, 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. December 31, 2001 2002 ---------- ---------- (In thousands) Net sales $ 359,421 $ 333,314 Income before income taxes and extraordinary item 7,186 11,472 Net income 7,121 4,519 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, 2001 or 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. 3. Restricted Cash Funds that are legally restricted as to withdrawal or usage are shown as restricted cash and consisted of $10,414,000 and $27,000 at December 31, 2001 and 2002, respectively. The 2001 balance related to funds set aside under an escrow agreement with AIP to settle a finders fee claim arising from the acquisition of the Company in 1998. On March 22, 2002, a payment in the amount of $10,300,000 was made to settle the claim and the remainder was closed to income. In October 2002, an escrow for the latter sum was established in connection with certain reclamation costs in connection with a waste water settling pond located at a newly purchased Baton Rouge Plant as prescribed by state law. 4. Inventories Inventories consist of the following: December 31, 2001 2002 ---------- ---------- (In thousands) Raw materials $ 24,696 $ 34,195 Finished goods 14,307 13,965 Supplies and spare parts 7,611 7,073 ---------- ---------- $ 46,614 $ 55,233 ========== ========== F-12 / 15 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. Property, Plant and Equipment Property, plant and equipment consists of the following: Range of December 31, Useful Lives 2001 2002 ------------------ ---------- ---------- (In thousands) Land and improvements 3-15 Years $ 2,932 $ 4,353 Buildings 3-40 Years 10,618 11,709 Machinery, equipment and other 3-20 Years 220,867 244,031 Construction in progress 1,442 983 ---------- ---------- 235,859 261,076 Accumulated depreciation (58,392) (76,814) ---------- ---------- $ 177,467 $ 184,262 ========== ========== Depreciation expense was $16,805,000, $17,070,000 and $18,422,000 for the years ended December 31, 2000, 2001 and 2002, respectively. 6. Accrued Expenses Accrued expenses included a finders fee claim payable (arising from the acquisition of the Company in 1998) of $10,414,000 at December 31, 2001 as discussed in Note 3 above. 7. Goodwill In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the Company completed the impairment test of the valuation of goodwill as of December 31, 2002 and based upon the results, there was no impairment. The carrying value of goodwill was $162,799,000 at December 31, 2001 and 2002. Net income results excluding goodwill that is no longer being amortized to selling, general and administrative expense is as follows: 2000 2001 2002 ---------- ---------- ---------- (In thousands) Net income as reported $ 7,713 $ 4,526 $ 4,686 Goodwill amortization 4,474 4,474 - ---------- ---------- ---------- Pro forma net income $ 12,187 $ 9,000 $ 4,686 ========== ========== ========== 8. Long-Term Debt Long-term debt and capital lease obligations consist of the following: December 31, 2001 2002 ---------- ---------- (In thousands) 10.25% Senior Subordinated Notes due May 15, 2008 $ 188,048 $ 210,769 13.125% Senior Discount Debentures due May 15, 2009 18,629 21,154 Term Loan Credit Facility bearing interest at the Company's option at LIBOR (1.4% at December 31, 2002) plus a margin ranging from 2.25% to 3.00% or Prime (4.25% at December 31, 2002) plus a margin ranging from 1.25% to 2.00% (subject to an interest reduction discount ranging from 0% to 0.75% based on the achievement of certain leverage ratios) due in varying amounts quarterly through May, 2006 70,825 65,061 5% Alcoa Seller Note Payable due May 31, 2003 - 10,000 Various pollution control and industrial revenue bonds bearing interest at rates from 6.75% to 7.125% due in varying amounts at various dates through 2002 355 - Capital lease obligations bearing interest at rates ranging from 9.3% to 10% due in varying amounts at various dates through February 2004 132 25 Other 4,724 376 ---------- ---------- 282,713 307,385 Current portion (19,578) (23,700) ---------- ---------- $ 263,135 $ 283,685 ========== ========== F-13 / 16 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) The Senior Subordinated Notes are unsecured general obligations of the Company. At the option of the Company, the Senior Subordinated Notes may be redeemed, in whole or in part, commencing May 15, 2003 at various prices ranging from 105% in 2003 to par in 2006 and beyond. Up to May 15, 2003, the Company may, at its option, make up to four semiannual interest payments through the issuance of additional notes for an amount equal to the amount of interest that would be payable if the interest rate were 11.75%. The Company has elected to exercise its pay-in-kind option with respect to the four consecutive payments ending on 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. The Senior Subordinated Notes indenture imposes, among other things, limitations on certain payments, including dividends. The Senior Discount Debentures are general unsecured obligations of the Company, subordinated in right of payment to essentially all subsidiary liabilities. No cash interest will be payable on the Debentures until November 15, 2003 but the accreted value will increase (representing amortization of original issue discount) to approximately $56,600,000 through May 15, 2003. The Debentures require the Company to make cash interest payments semiannually commencing in November 2003 of approximately $7,432,000 per year and a principal payment of approximately $56,600,000 in May 2009. At the Company's option, the Debentures may be redeemed, in whole or in part, commencing May 15, 2003 at various prices ranging from 106.6% in 2003 to par in 2006 and beyond. The Senior Discount Debentures indenture imposes limitations on certain payments, including dividends. The outstanding common stock of GLC has been pledged as collateral for this obligation. The Company or its affiliates may, from time to time, depending on liquidity, and market and economic conditions, purchase in open-market transactions Senior Discount Debentures or Senior Subordinated Notes. At December 31, 2002, approximately 61% of the outstanding 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. The term loan credit facility is comprised of three single tranche term loans in the amount of $19,099,000, $23,336,000 and $22,626,000 at December 31, 2002 maturing on May 31, 2004, 2005 and 2006, respectively. On March 27, 2002, the Company secured incremental term loans under each of its three existing tranche loans in the amount of $9.0 million, $1.5 million and $1.5 million, respectively, in order to finance the acquisition of the Baton Rouge Plant. The incremental loans amortize and mature in conformity with the terms of the tranches to which they were added. In consideration for the issuance of the incremental term loans, credit facility interest rate margins were increased between 1.25% to 1.50%. The facility also includes a revolving credit agreement in effect until May 31, 2003, which provides for borrowings of up to $25,000,000 (with a $10,000,000 sub-limit for letters of credit). The facility is secured by substantially all the assets of the Company and requires that the Company, among other things, satisfy certain financial ratios. At December 31, 2002, there were no borrowings under the revolving credit portion of the facility and outstanding letters of credit were $874,000. The pollution control and industrial development revenue bonds were issued by various state and local governmental authorities. Under agreements with these authorities, the Company has either leased (with nominal value purchase options) or purchased on an installment basis the facilities constructed with the funds financed. F-14 / 17 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) Certain covenants present in the Company's credit agreements make reference to a measure denominated as Adjusted EBITDA. Adjusted EBITDA is defined as operating income before depreciation, amortization and management fees and related expenses. Adjusted EBITDA is not a measure of performance defined by accounting principles generally accepted in the United States of America. The fair market value of the Company's long-term debt obligations approximated $189,000,000 and $228,000,000 at December 31, 2001 and 2002, respectively. Maturities of long-term debt, for the succeeding five years and thereafter are as follows: Long-Term Capital Debt Leases Total ---------- ---------- ---------- (In thousands) 2003 $ 23,677 $ 23 $ 23,700 2004 18,123 2 18,125 2005 22,620 - 22,620 2006 11,017 - 11,017 2007 - - - Thereafter 231,923 - 231,923 ---------- ---------- ---------- $ 307,360 $ 25 $ 307,385 ========== ========== ========== Interest paid amounted to $27,167,000, $14,783,000 and $4,541,000 for the years ended December 31, 2000, 2001 and 2002, respectively. The Company has significant amounts outstanding under its credit agreement that bear interest at variable rates. As a result, the Company's interest expense is sensitive to changes in the general level of interest rates. To illustrate, a 10% increase or decrease in the rates in effect for the year ended December 31, 2002 would have resulted in a corresponding increase or decrease in interest expense for the period of $376,000. 9. Leases The Company leases various production equipment under capital leases, some of which contain renewal options and/or options to purchase. Amortization under capital leases is included in depreciation expense. Future minimum payments as of December 31, 2002, by year and in the aggregate, under capital leases and non-cancelable operating leases with initial or remaining terms of one year or more consist of the following: Capital Operating Leases Leases ---------- ---------- (In thousands) 2003 $ 25 $ 1,779 2004 2 1,706 2005 - 1,649 2006 - 1,398 2007 - 1,293 Thereafter - 3,053 ---------- ---------- Total minimum lease payments 27 $ 10,878 Amounts representing interest ( 2) ========== ---------- Present value of net minimum lease payments $ 25 ========== F-15 / 18 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) Rental expense for all operating leases was $2,006,000, $2,012,000 and $2,037,000 for the years ended December 31, 2000, 2001 and 2002, respectively. 10. Savings and Profit-Sharing Plans The Company sponsors savings plans, which are qualified under section 401(k) of the Internal Revenue Code and provide that participating employees may make contributions of up to 15% of base wages, subject to statutory limitations. The Company makes contributions for the benefit to each such employee equal to 50% of the employee's contributions, up to a maximum of 3% of the employee's salary. Matching contributions under the plans were $192,000, $198,000 and $247,000 for the years ended December 31, 2000, 2001 and 2002, respectively. The Company's practice has been to maintain a profit-sharing plan whereby eligible employees receive profit-sharing distributions determined as a percentage of base salary based on the Company's achievement of profitability targets established annually. Profit-sharing expense was $1,891,000, $1,356,000 and $1,389,000 for the years ended December 31, 2000, 2001 and 2002, respectively. 11. Pension Plans The Company has various defined benefit retirement plans, which cover substantially all employees. Benefits are based upon the number of years of service and the employee's compensation under varying formulas. The funding policy is generally to contribute at least the minimum amount that is acceptable under federal law for tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. As of December 31, 2002, the assets of the plan were invested principally in listed stocks, bonds, money market certificates and cash. The Company also maintains a supplemental defined benefit retirement plan for key executives. This plan is not presently funded nor qualified under Section 401(a) of the Internal Revenue Code. The components of net pension expense for the plans were as follows: 2000 2001 2002 ---------- ---------- ---------- (In thousands) Service cost $ 391 $ 425 $ 537 Interest cost 917 1,061 1,140 Expected return on assets (1,057) (1,140) (1,196) Amortization of prior service cost 17 40 40 Recognized net actuarial loss 3 77 123 ---------- ---------- ---------- Net periodic pension cost $ 271 $ 463 $ 644 ========== ========== ========== F-16 / 19 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) The following tables set forth the change in benefit obligation and plan assets, the funded status and amounts recognized in the Company's balance sheets for the plans: 2001 2002 ---------- ---------- (In thousands) Change in benefit obligation: Benefit obligation at beginning of period $ 13,412 $ 15,820 Service cost 425 537 Interest cost 1,061 1,140 Amendments 229 - Actuarial loss 1,112 876 Benefits paid (419) (465) ---------- ---------- Benefit obligation at end of period $ 15,820 $ 17,908 ========== ========== Change in plan assets: Fair value of plan assets at beginning of period $ 12,612 $ 11,630 Actual return on plan assets (622) (894) Company contribution 142 751 Expenses (83) 127 Benefits paid (419) (465) ---------- ---------- Fair value of plan assets at end of period $ 11,630 $ 11,149 ========== ========== Funded status $ (4,190) $ (6,759) Unrecognized net actuarial loss 4,125 6,840 Unrecognized prior service cost 273 234 ---------- ---------- Net pension asset recognized in the balance sheets $ 208 $ 315 ========== ========== Amount recognized in balance sheet consists of: Prepaid benefit cost (accrued benefit liability) $ (2,202) (5,129) Intangible asset 274 183 Accumulated other comprehensive loss 2,136 5,261 ---------- ---------- Net pension asset recognized in the balance sheets $ 208 $ 315 ========== ========== The expected long-term rate of return on plan assets was 9% for the periods presented. The weighted average discount rate and weighted average rate of increase in future compensation levels used were 7.5% and 4.5% for 2000, 7.25% and 4.25% for 2001 and 6.75% and 3.75% for 2002, respectively. 12. Postretirement Obligations The Company provides certain health care and life insurance benefits to all full time employees who satisfy certain eligibility requirements and reach retirement age while employed by the Company. The Company does not fund these benefits and accrues for the related cost generally over the employees' service period. F-17 / 20 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) The components of net periodic postretirement benefit cost ("NPPBC") were as follows: 2000 2001 2002 ---------- ---------- ---------- (In thousands) Service cost $ 270 336 $ 401 Interest cost 319 385 404 ---------- ---------- ---------- NPPBC $ 589 $ 721 $ 805 ========== ========== ========== The following tables set forth the change in benefit obligation and plan assets, the funded status and amounts recognized in the Company's balance sheets: 2001 2002 ---------- ---------- (In thousands) Change in benefit obligation: Benefit obligation at beginning of period $ 4,794 $ 5,954 Service cost 336 401 Interest cost 385 404 Actuarial loss 603 1,258 Benefits paid (164) (170) ---------- ---------- Benefit obligation at end of period $ 5,954 $ 7,847 ========== ========== Change in plan assets: Fair value of plan assets at beginning of period $ - $ - Company contribution 164 170 Benefits paid (164) (170) ---------- ---------- Fair value of plan assets at end of period $ - $ - ========== ========== Funded status $ (5,954) $ (7,847) Unrecognized net actuarial loss 668 1,927 ---------- ---------- Postretirement liability recognized in the balance sheets $ (5,286) $ (5,920) ========== ========== The health care cost trend used in determining the accumulated postretirement benefit obligation ("APBO") was 12.5% grading down to 5.0% by 2008. That assumption may have a significant effect on the amounts reported. To illustrate, increasing the assumed trend by 1% for all years would increase the aggregate service and interest component of NPPBC for the year ended December 31, 2002 by $138,000 (or 17.2%) and the APBO for the year then ended by $1,175,000 (or 15.0%). Conversely, decreasing the assumed trend by 1% for all years would decrease the aggregate service and interest component of NPPBC for the year ended December 31, 2002 by $125,000 (or 15.5%) and the APBO for the year then ended by $972,000 (or 12.4%). Assumptions used to develop NPPBC and the actuarial present value APBO included the weighted average rate of increase in future compensation levels and the weighted average discount rate of 5% and 7.5% for 2000, 5% and 7.25% for 2001 and 5% and 6.75% for 2002, respectively. F-18 / 21 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) 13. Stockholders' Equity In December 1999, certain members of management of the Company purchased 620 shares of the Company's common stock for $620,000, which increased the number of issued and outstanding common shares to 65,950. On December 13,1999, the Board of Directors adopted the 1999 Management Stock Option Plan (the "1999 Option Plan") which provides for the grant of stock options to purchase up to an aggregate of 4,050 shares of the common stock of the Company at a price of $1,000 per share with 2,800 shares being initially granted to employees. At the time of the grant, 16.4% of the options became vested with the remaining options targeted to vest on the last day of plan years 1999 through 2001 at a rate of 27.9% of the aggregate number of shares of common stock subject to the options per year, provided that the Company attains specified targets of Adjusted EBITDA, as defined. If the Adjusted EBITDA goal is not attained in any plan year, the options scheduled to vest in that year will vest on a pro rata basis as prescribed in the 1999 Option Plan, except that unless more than 90% of the Adjusted EBITDA goal is achieved, no portion of the options shall vest for the year. Conversely, the 1999 Option Plan provides for make-up vesting and accelerated vesting (of up to 25% of the options scheduled to vest in 2001), in that order, in the event that the Adjusted EBITDA goal is surpassed in any plan year. In addition, the Plan was amended effective December 11, 2002 to provide for the immediate accelerated vesting of an additional 618 options. Notwithstanding the foregoing, all options granted under the 1999 Option Plan vest automatically on April 21, 2007, regardless of performance criteria and expire on the earlier of the tenth anniversary of the date of grant or the sale of the Company. The following table sets forth the activity and outstanding balances of options exercisable for shares of common stock under the 1999 Option Plan: Available Options For Future Outstanding Grants ---------- ---------- At plan inception on December 13, 1999 - 4,050 Granted on December 13, 1999 ($1,000 per share) 2,800 (2,800) ---------- ---------- Balance at December 31, 1999 2,800 1,250 Options granted - - ---------- ---------- Balance at December 31, 2000 2,800 1,250 Options granted - - ---------- ---------- Balance at December 31, 2001 2,800 1,250 Options granted - - ---------- ---------- Balance at December 31, 2002 2,800 1,250 ========== ========== At December 31, 2002, the number of options outstanding that were vested totaled 2,330 at an exercise price of $1,000 per share with a weighted average remaining contractual life of 7 years. Information regarding the method used by the Company to account for stock-based compensation and expense reported is duscussed further in Note 1. F-19 / 22 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) 14. Other Income (Expense) Other income (expense) consists of the following: 2000 2001 2002 ---------- ---------- ---------- (In thousands) 1998 acquisition fee settlement $ - $ (5,000) $ 114 Gain on sale of lease right/assets - - 2,734 Export tax refund 1,112 1,286 685 Export duties - - (1,127) Foreign exchange gain - 461 653 Other (64) (180) (1,002) ---------- ---------- ---------- $ 1,048 $ (3,433) $ 2,057 ========== ========== ========== 15. Income Taxes Components of the Company's deferred tax liabilities and assets are as follows: 2001 2002 ---------- ---------- (In thousands) Deferred tax liabilities: Book over tax depreciable basis $ 50,973 $ 50,080 Other - net 3,584 3,386 ---------- ---------- Total deferred tax liabilities 54,557 53,466 ---------- ---------- Deferred tax assets: Accrued liabilities 7,701 6,361 Valuation allowance (475) (1,166) Minimum pension liability adjustment 748 1,841 Other - net 388 2,950 ---------- ---------- Total deferred tax assets 8,362 9,986 ---------- ---------- Net deferred tax liability $ 46,195 $ 43,480 ========== ========== The differences between tax expense computed at the statutory federal income tax rate and actual tax expense are as follows: 2000 2001 2002 ---------- ---------- ---------- (In thousands) Tax expense at statutory rates applied to pretax earnings $ 3,045 $ 636 $ 4,161 State income tax, net of federal tax effects 9 3 (17) Tax exempt earnings (326) (289) (529) Effects of foreign operations 233 (1,483) 3,105 Amortization of goodwill 1,566 1,566 - Change in valuation allowance 475 - 691 Other (212) 576 (210) ---------- ---------- ---------- Income tax expense $ 4,790 $ 1,009 $ 7,201 ========== ========== ========== F-20 / 23 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) Income taxes consist of the following: 2000 2001 2002 ---------- ---------- ---------- (In thousands) Current: Federal $ 3,447 $ 289 $ 324 State 323 366 77 Foreign 4,907 4,883 8,422 ---------- ---------- ---------- 8,677 5,538 8,823 ---------- ---------- ---------- Deferred: Federal (3,186) (2,687) (582) State (309) (361) (103) Foreign (392) (1,481) (937) ---------- ---------- ---------- (3,887) (4,529) (1,622) ---------- ---------- ---------- Total $ 4,790 $ 1,009 $ 7,201 ========== ========== ========== Income taxes paid were approximately $10,551,000, $8,557,000 and $4,051,000 for the years ended December 31, 2000, 2001 and 2002, respectively. U.S. income taxes have not been provided on the undistributed earnings of Copetro S.A. ($34,437,000 as of December 31, 2002) because such earnings are expected to be reinvested. Upon distribution of those earnings, the Company would be subject to U.S. income taxes (subject to an adjustment for foreign tax credits and withholding taxes, if any). Loss before income taxes and extraordinary item attributable to domestic operations (which included results from export sales) was $4,221,000, $11,251,000 and nil for the years ended December 31, 2000, 2001 and 2002, respectively. 16. Financial Information Relating to Segments The Company has three reportable business segments. Anode Grade CPC-is produced and marketed directly to primary aluminum smelters world-wide for use as the principal raw material in the production of carbon anodes, a key component in the aluminum smelting process. Industrial Grade CPC-is produced and marketed for use in a variety of non- aluminum, industrial applications, including as a raw material in the production of titanium dioxide, as a recarburizer (carbon additive) in the manufacture of steel and foundry products and for use in other specialty materials and chemicals markets. RPC Trading-involves the world-wide marketing of raw petroleum coke ("RPC") for use as the raw material in the production of CPC and as a fuel source in a variety of other industrial applications. The production and distribution of CPC, which is the focus of the first two units, is accomplished utilizing the same process, plant facilities and operating assets. The RPC trading business, as conducted by the Company, generally involves the use of such assets on a limited basis. Accordingly, the Company does not segregate, or otherwise account for, the assets by segments. F-21 / 24 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) Anode Industrial Grade Grade RPC CPC CPC Trading Other Total ---------- ---------- ---------- ---------- ---------- (In thousands) ---------2000---------- Net sales $ 194,066 $ 55,224 $ 11,792 $ 2,519 $ 263,601 Cost of goods sold (144,409) (40,882) (9,932) (7,495) (202,718) ---------- ---------- ---------- ---------- ---------- Segment Profit $ 49,657 $ 14,342 $ 1,860 $ (4,976) 60,883 ========== ========== ========== ========== Selling, general and administrative expenses (19,852) Interest expense, net (33,380) Other income (expense) 1,048 ---------- Income before income taxes and extraordinary item $ 8,699 ========== Anode Industrial Grade Grade RPC CPC CPC Trading Other Total ---------- ---------- ---------- ---------- ---------- (In thousands) ---------2001---------- Net sales $ 194,464 $ 54,024 $ 19,786 $ 2,280 $ 270,554 Cost of goods sold (149,000) (41,723) (18,300) (6,943) (215,966) ---------- ---------- ---------- ---------- ---------- Segment Profit $ 45,464 $ 12,301 $ 1,486 $ (4,663) 54,588 ========== ========== ========== ========== Selling, general and administrative expenses (18,693) Interest expense, net (30,644) Other income (expense) (3,433) ---------- Income before income taxes and extraordinary item $ 1,818 ========== Anode Industrial Grade Grade RPC CPC CPC Trading Other Total ---------- ---------- ---------- ---------- ---------- (In thousands) ---------2002---------- Net sales $ 253,085 $ 44,605 $ 8,817 $ 1,060 $ 307,567 Cost of goods sold (207,494) (34,350) (5,115) (5,993) (252,952) ---------- ---------- ---------- ---------- ---------- Segment Profit $ 45,591 $ 10,255 $ 3,702 $ (4,933) 54,615 ========== ========== ========== ========== Selling, general and administrative expenses (11,803) Interest expense, net (32,982) Other income (expense) 2,057 ---------- Income before income taxes $ 11,887 ========== F-22 / 25 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) 17. Operations by Geographic Area The following is a summary of the Company's operations by geographic area: Year Ended December 31, 2000 2001 2002 ---------- ---------- ---------- (In thousands) Net Sales United States $ 192,580 $ 208,224 $ 268,110 Foreign 71,021 62,330 39,457 ---------- ---------- ---------- $ 263,601 $ 270,554 $ 307,567 ========== ========== ========== Operating income United States $ 28,705 $ 24,657 $ 30,880 Foreign 12,326 11,238 11,932 ---------- ---------- ---------- $ 41,031 $ 35,895 $ 42,812 ========== ========== ========== Assets United States $ 378,913 $ 383,375 $ 420,574 Foreign 80,128 70,433 70,417 ---------- ---------- ---------- $ 459,041 $ 453,808 $ 490,991 ========== ========== ========== Exports from U.S. operations were approximately $97,023,000, $117,334,000 and $151,798,000 for the years ended December 31, 2000, 2001 and 2002, respectively. Export sales to Western Europe as a percentage of United States net sales were 26.7%, 23.0% and 25.4% for the years ended December 31, 2000, 2001 and 2002, respectively. Export sales to the Mideast as a percentage of United States net sales were 18.9% for the year ended December 31, 2001. Export sales to North America (exclusive of the U.S.) as a percentage of United States net sales were 12.9% for the year ended December 31, 2002. The Company's foreign operations are conducted principally in South America. F-23 / 26 of 31 Great Lakes Acquisition Corp. and Subsidiaries Notes to Consolidated Financial Statements (continued) 18. Quarterly Financial Data (unaudited) The following is a summary of Company's quarterly results of operations: 2001 Quarterly Data 3/31 6/30 9/30 12/31 ---------- ---------- ---------- ---------- (In thousands) Net sales $ 72,042 $ 69,517 $ 68,194 $ 60,801 Gross profit 14,401 14,353 12,735 13,099 Operating income 9,841 9,301 7,891 8,862 Other expense 7,349 6,809 7,411 12,508 Income before income tax and extraordinary expense 2,492 2,492 480 (3,646) Income tax expense (benefit) 1,374 1,264 480 (2,109) Extraordinary gain, net of tax 3,850 - - (133) Net income 4,968 1,228 - (1,670) Adjusted EBITDA (1) 15,839 15,421 13,958 14,829 2002 Quarterly Data 3/31 6/30 9/30 12/31 ---------- ---------- ---------- ---------- (In thousands) Net sales $ 55,346 $ 83,220 $ 87,178 $ 81,823 Gross profit 10,363 13,141 17,623 13,488 Operating income 7,419 10,432 14,551 10,410 Other expense 2,058 6,856 11,801 10,210 Income before income tax and extraordinary expense 5,361 3,576 2,750 200 Income tax expense (benefit) 3,210 2,510 1,443 (38) Net income 2,151 1,066 1,307 162 Adjusted EBITDA (1) 12,484 15,832 19,862 15,517 (1) Adjusted EBITDA should not be considered a substitute for net income, cash flow from operating activities or other cash flow statement data prepared in accordance with generally accepted accounting principles or as an alternative to net income as an indicator of operating performance or cash flows as a measure of liquidity. Adjusted EBITDA is presented here only to provide additional information with respect to the Company's ability to satisfy debt service. While Adjusted EBITDA is frequently used as a measure of operations and the ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. 19. Extraordinary Item Extraordinary gains related to the repurchase of the Company's debt of approximately $3,804,000 and $3,717,000 (net of income tax expenses of $2,048,000 and $2,073,000) were recognized in 2000 and 2001, respectively. 20. Litigation and Contingencies The Company is a party to several proceedings, which are in various stages of resolution. Management of the Company, after discussion with legal counsel, is of the opinion that the ultimate resolution of these matters will not have a material effect upon the financial condition of the Company. F-24 / 27 of 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 2 to its annual report to be signed on its behalf by the undersigned thereunto duly authorized on the 3rd day of April 2003. Great Lakes Acquisition Corp. By: /s/JAMES D. MCKENZIE ----------------------------- James D. McKenzie, President and Chief Executive Officer 28 of 31 CERTIFICATION Each of the undersigned hereby certifies in their capacity as an officer of Great Lakes Acquisition Corp. (the "Company") that Amendment No. 2 to the Annual Report of the Company on Form 10-K for the year ended December 31, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such amendment fairly presents, in all material respects, the financial condition of the Company at December 31, 2002 and 2001 and the results of operations of the Company for the three years then ended. Date: 4/3/03 /s/JAMES D. MCKENZIE ------------------------------- President and Chief Executive Officer Date: 4/3/03 /s/ADELA I. ROBLES ------------------------------- Controller, Assistant Secretary and Chief Financial Officer 29 of 31 CERTIFICATION I, James D. McKenzie, certify that: 1. I have reviewed this amendment to the annual report on Form 10-K of Great Lakes Acquisition Corp. (and as so amended, the "annual report"); 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The registrant's other certifying officer(s) 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 annual 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 annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effective- ness of the disclosure controls and procedures based on our evalua- tion as of the Evaluation Date; 5. The registrant's other certifying officer(s) 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 officer(s) and I have indicated in this annual 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: 4/3/03 /s/JAMES D. MCKENZIE ------------------------------- President and Chief Executive Officer 30 of 31 CERTIFICATION I, Adela I. Robles, certify that: 1. I have reviewed this amendment to the annual report on Form 10-K of Great Lakes Acquisition Corp. (and as so amended, the "annual report"); 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The registrant's other certifying officer(s) 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 annual 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 annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effective- ness of the disclosure controls and procedures based on our evalua- tion as of the Evaluation Date; 5. The registrant's other certifying officer(s) 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 officer(s) and I have indicated in this annual 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: 4/3/03 /s/ADELA I. ROBLES ------------------------------- Controller, Assistant Secretary and Chief Financial Officer 31 of 31