SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997.
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities
Exchange Act of 1934
For the transition period from ____________________ to
__________________
FLORIDA COAST PAPER COMPANY, L.L.C. 333-8023
FLORIDA COAST PAPER FINANCE CORP. 333-8023-01
(Exact names of registrants (Commission file number)
as specified in their charters)
Delaware 59-3379704
Delaware 59-3379707
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
600 U.S. Highway 98, Port St. Joe, FL 32456
(Address of principal executive offices)(Zip code)
Registrant's telephone number: (904) 227-1171
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
As of November 12, 1997, there were 63,167 units of
Florida Coast Paper Company, L.L.C.'s Common Member
Interest outstanding and 1,000 shares of Common Stock
of Florida Coast Paper Finance Corp. outstanding.
FLORIDA COAST PAPER COMPANY, L.L.C.
FLORIDA COAST FINANCE CORP.
1997 QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
Part I - Financial Information
Page
Item 1.
Financial Statements (Unaudited)
Balance Sheets as of September 30, 1997 and
December 31, 1996 2
Statement of Operations for the three months ended
September 30, 1997 and 1996 3
Statement of Operations for the nine months ended
September 30, 1997 and the four months ended
September 30, 1996 and Statement of Operations of
St. Joe Forest Products Company _ Linerboard Mill
Operations(the "Predecessor") for the five months
ended May 30, 1996 4
Statement of Cash Flows for the three months ended
September 30, 1997 and 1996 5
Statement of Cash Flows for the nine months ended
September 30, 1997 and the four months ended
September 30, 1996 and the Predecessor's Statement
of Cash Flows for the five months ended
May 30, 1996 6
Notes to Financial Statements 7
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 6.
Exhibits and Reports on Form 8-K 11
Signatures
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FLORIDA COAST PAPER COMPANY, L.L.C.
BALANCE SHEET
(dollars in thousands)
September 30,December 31,
Assets 1997 1996
Current assets:
Cash and cash equivalents $ 709 $ 8,621
Accounts receivable from
Joint Venture Partners 6,664 8,643
Other receivables 185 567
Inventories 10,470 13,185
Other 210 681
Total current assets 18,238 31,697
Property, plant and equipment,
net of accumulated depreciation 178,852 184,946
Deferred debt issuance costs 7,225 7,825
Other noncurrent assets 832 997
Total assets $ 205,147 $ 225,465
Liabilities and members' equity
Current liabilities:
Accounts payable $6,075 $10,222
Accrued liabilities 7,212 8,567
Accrued interest 7,013 1,753
Total current liabilities 20,300 20,542
Long-term debt:
Senior long-term debt 165,000 165,000
Subordinated debt 11,900 10,791
Subordinated credit facility -- --
Other noncurrent liabilities 2,947 3,076
Commitments and contingencies
Total liabilities 200,147 199,409
Members' equity
Contributed capital 63,167 40,000
Accumulated deficit (58,167) (13,944)
Total members' equity 5,000 26,056
Total liabilities and members' equity$ 205,147$ 225,465
*Unaudited; subject to year-end audit
The accompanying notes are an integral part of these
financial statements.
FLORIDA COAST PAPER COMPANY, L.L.C.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
(dollars in thousands)
Three MonthsThree Months
ended ended
September 30,September 30,
1997 1996
(Fl Coast) (Fl Coast)
Net sales $ 918 $ 43,496
Cost of sales 15,228 43,393
General, selling &
administrative expense 247 464
Operating loss (14,557) (361)
Interest income 14 149
Interest expense (6,022) (5,742)
Other income, net -- 277
Other expense, net (6,008) (5,316)
Loss before income taxes (20,565) (5,677)
Income tax benefit -- 312
Net loss $(20,565) $ (5,365)
Accumulated deficit, beginning of period(37,602)(2,138)
Net loss (20,565) (5,365)
Accumulated deficit, end of period$(58,167) $(7,503)
The accompanying notes are an integral part of these
financial statements.
FLORIDA COAST PAPER COMPANY, L.L.C.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
(dollars in thousands)
Nine MonthsFour MonthsFive Months
ended ended ended
September 30,September 30,May 30,
1997 1996 1996
(Florida Coast)(Florida Coast)(Pred
ecessor)
Net sales $ 43,774 $ 57,775 $ 67,670
Cost of sales 69,249 57,871 68,979
General, selling &
administrative expense 1,351 723 1,409
Operating loss (26,826) (819) (2,718)
Interest income 253 173 --
Interest expense (17,722) (7,698) --
Other income, net 72 404 152
Other expense, net (17,397) (7,121) 152
Loss before income taxes(44,223) (7,940) (2,566)
Income tax benefit -- 437 951
Net loss $ (44,223) $ (7,503) $ (1,615)
Accumulated deficit,
beginning of period (13,944) --
Net loss (44,223) (7,503)
Accumulated deficit,
end of period $(58,167) (7,503)
The accompanying notes are an integral part of these
financial statements.
FLORIDA COAST PAPER COMPANY, L.L.C.
STATEMENT OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Three MonthsThree Months
ended ended
September 30,September 30,
1997 1996
(Fl Coast) (Fl Coast)
Cash flows from operating activities:
Net loss $ (20,565) $ (5,365)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 3,426 3,343
Other non-cash items 902 516
Changes in current assets and liabilities:
Receivables (993) 1,623
Inventories (1,583) 1,260
Other current assets 25 (694)
Accounts payable 4,035 (4,795)
Accrued liabilities 2,542 1,811
Accrued interest 5,260 5,225
Changes in other assets and liab (942) --
Net cash provided (used) by
operating activities (7,893) 2,924
Cash flows from financing activities:
Borrowings 8,700 --
Payments made on debt (13,199) (500)
Capital contribution from
Joint Venture Partners 13,433 --
Payment of debt issuance costs -- (840)
Net cash provided (used) by
financing activities 8,934 (1,340)
Cash flows from investing activities:
Capital expenditures (999) (2,219)
Payments made for business acquired -- --
Net cash used in investing activities(999) (2,219)
Net cash flows:
Net increase (decrease) in
cash and cash equivalents 42 (635)
Cash and cash equivalents,
beginning of period 667 8,625
Cash and cash equivalents,
end of period $709 $7,990
The accompanying notes are an integral part of these
financial statements
FLORIDA COAST PAPER COMPANY, L.L.C.
STATEMENT OF CASH FLOWS
(Unaudited)
Nine MonthsFour MonthsFive Months
ended ended ended
September 30,September 30,May 30,
1997 1996 1996
(Florida Coast)(FlCoast)(Predecessor)
Cash flows from operating activities:
Net loss $(44,223) $(7,503) $(1,615)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 10,194 4,457 10,335
Other non-cash items 2,359 685 (198)
Changes in current assets and liabilities:
Receivables 7,992 (6,879) 3,324
Inventories 2,715 778 630
Other current assets 471 (901) (304)
Accounts payable (4,147) 1,454 402
Amounts due to Joint
Venture Partners -- 150 --
Accrued liabilities (1,355) 4,490 820
Accrued interest 5,260 7,012 --
Changes in other assets
and liabilities (922) -- --
Net cash provided (used) by
operating activities (21,656) 3,743 13,394
Cash flows from financing activities:
Borrowings 17,300 175,500 --
Payments made on debt (17,300) (500) --
Capital contribution from
Joint Venture Partners 17,534 40,000 --
Payment of debt issuance costs-- (8,250) --
Change in intercompany accounts-- -- (9,234)
Net cash provided (used) by
financing activities 17,534 206,750 (9,234)
Cash flows from investing activities:
Capital expenditures (3,790) (2,219) (4,160)
Payments made for
business acquired -- (200,284) --
Net cash used in
investing activities (3,790) (202,503) (4,160)
Net cash flows:
Net increase (decrease) in cash
and cash equivalents (7,912) 7,990 --
Cash and cash equivalents,
beginning of period 8,621 -- --
Cash and cash equivalents
, end of period $ 709 $ 7,990 $ --
The accompanying notes are an integral part of these
financial statements.
FLORIDA COAST PAPER COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 _ Nature of operations
On May 30, 1996, Florida Coast Paper Company, L.L.C.
(the "Company" or "Florida Coast") purchased a
paperboard mill (the "Mill") from St. Joe Forest
Products Company ("SJFP"), a wholly owned subsidiary of
St. Joe Paper Company ("SJPC"). Florida Coast is a
joint venture between Stone Container Corporation
("Stone") and Four M Corporation ("Four M") (together,
the "Joint Venture Partners"). The purchase was
accounted for under the purchase method. Accordingly,
the purchase price was allocated to the net assets
acquired based on estimated fair values. Prior to
May 30, 1996 the Mill was owned and operated by SJFP.
The results of operations and cash flows of
SJFPLinerboard Mill Operations (the "Predecessor") for
the five months ended May 30, 1996 have been presented
for comparative purposes.
Florida Coast Paper Finance Corp. ("Finance Corp.") is
a wholly owned subsidiary of Florida Coast. Finance
Corp. does not have any revenues or expenses,
therefore, separate financial statements of Finance
Corp. have not been included in the financial
statements included herein.
Note 2 _ Basis of Presentation
Pursuant to the rules and regulations of the Securities
and Exchange Commission for Form 10-Q, the financial
statements, footnote disclosures and other information
normally included in financial statements prepared in
accordance with generally accepted accounting
principles have been condensed. These financial
statements, footnote disclosures and other information
should be read in conjunction with the financial
statements and the notes thereto included in Florida
Coast's latest Annual Report on Form 10-K.
In the opinion of the Company, the accompanying
unaudited financial statements contain all normal
recurring adjustments necessary to fairly present
Florida Coast's financial position as of September 30,
1997 and the results of operations and cash flows for
the three and nine months ended September 30, 1997 and
the four months ended September 30, 1996 and
SJFPLinerboard Mill Operations results of operations
and cash flows for the five months ended May 30, 1996.
Results for interim periods are not necessarily
indicative of results for the entire year.
Note 3 _ Facility shutdown
Due to economic conditions in the linerboard industry,
production was suspended at the Mill beginning on April
5, 1997. On July 25,1997, management announced the
Mill would resume production in September 1997. On
September 19, 1997 production was resumed and full
production was achieved by October 4, 1997.
Note 4 _ Inventories
Inventories are summarized as follows:
(dollars in thousands)
September 30,December 31,
1997 1996
Raw materials $2,647 $3,616
Supplies 7,618 8,337
Finished goods and work in process205 1,232
Total inventories $10,470 $13,185
Note 5 _ Related party transactions
Florida Coast
Pursuant to an Output Purchase Agreement, each of the
Joint Venture Partners has agreed to purchase from the
Company one half of the Mill's entire linerboard
production at a price that is $25 per ton below the
price of such product published in Pulp & Paper Week,
an industry trade publication, subject to a minimum
purchase price, which minimum purchase price is
intended to generate sufficient funds to cover cash
operating costs, cash interest expense and maintenance
capital expenditures. During the three and nine months
ended September 30, 1997, the Joint Venture Partners'
obligation under the purchase price provisions of the
Output Purchase Agreement was $19.1 and $25.3 million,
respectively. The $2.1 million paid during the first
quarter is included in Net Sales to Joint Venture
Partners in the Statement of Operations. The second
and third quarter amounts of $4.1 and $19.1 million,
respectively, were declared to be capital
contributions. At September 30, 1997 $5.6 million of
the contributions were classified as Accounts
Receivable from Joint Venture Partners. This amount
was fully collected by November 5, 1997. Furthermore,
the Joint Venture Partners have severally agreed to
provide the Company with a $20 million Subordinated
Credit Facility. Periodic advances totaling $17.3
million were made during the shutdown period. At
September 30, 1997 there were no outstanding borrowings
under the Subordinated Credit Facility.
The Company has entered into a procurement agreement
with Stone pursuant to which Stone will procure wood
fiber, at market values, on behalf of the Company.
St. Joe Forest Products Linerboard Mill Operations
Prior to May 30, 1996, the Mill was owned and operated
by SJPC. The information for the five months ended May
30, 1996 is presented for comparative purposes. The
intercompany transactions described below may or may
not be indicative of what such transactions would have
been had SJFPLinerboard Mill Operations operated either
as an unaffiliated entity or in affiliation with
another entity.
An allocation of costs of overhead of SJPC is included
in selling, general and administrative expenses. SJPC
provided services in treasury, taxes, benefits
administration and legal support and other financial
systems and support for which the Mill was billed
approximately $400 thousand.
Sales to St. Joe Container Company ("SJCC"), a wholly
owned subsidiary of SJFP, amounted to approximately
$36.8 million representing approximately 78,000 tons
for the five months ended May 30, 1996. Pricing for
these transactions was based on the Pulp & Paper Week
Price Watch: Paper and Paperboard. In addition,
SJFPLinerboard Mill Operations purchased both
linerboard and corrugating medium for SJCC from outside
suppliers. The price paid for this rollstock was
negotiated with each supplier. SJCC was charged for
this rollstock at the prices published in Pulp & Paper
Week.
Purchases of pulpwood and wood chips from St. Joseph
Land and Development Company, a wholly owned subsidiary
of SJFP, amounted to approximately $16.9 million
representing approximately 570,000 tons for the five
months ended May 30, 1996.
The Mill shipped the majority of its product via
Apalachicola Northern Railroad, a subsidiary of SJPC.
Amounts billed for freight amounted to approximately
$1.2 million for the five months ended May 30, 1996.
FLORIDA COAST PAPER COMPANY L.L.C.
Item 2. Management's Discussion and Analysis of
Financial Condition And Results of Operations
General
The following discussion and analysis should be read in
conjunction with the financial statements of the
Company and St. Joe Forest Products Company_Linerboard
Mill Operations (the "Predecessor") and the notes
thereto included elsewhere in this report.
The linerboard market is highly cyclical and sensitive
to changes in industry capacity and economic
conditions, which in turn, will impact the selling
prices for the Company's products. Selling prices for
the Mill's products have historically been the primary
determinant of the Mill's financial performance. During
1996 prices for the Mill's products declined and
continue to remain low as a result of excess industry
capacity and weak demand. On April 5, 1997, the
Company curtailed production at the Mill until market
conditions warranted a resumption of linerboard
production. Production was resumed September 19, 1997
and full production resumed October 4, 1997.
Results of Operations
Provided below is certain unaudited financial data for
the three and nine months ended September 30, 1997 and
1996:
(dollars in thousands)
Three Months EndedNine Months Ended
September 30, September 30,
1997 1996 1997 1996
Net sales 918 43,496 43,774 125,445
Depreciation expense 3,426 3,343 10,194 14,792
Interest expense 6,022 5,742 17,722 7,698
Loss before
income taxes 20,565 5,677 44,223 10,506
Net loss 20,565 5,365 44,223 9,118
The decrease in sales from the prior year periods is
due to the cessation of production for substantially
all of the 1997 second and third quarters. Sales for
the nine month period were also negatively impacted by
a decrease in average selling prices for linerboard.
The depreciation expense decrease for the nine month
period is due to the differences between the Company's
depreciation method and estimated fixed asset useful
lives as compared with the Predecessor company.
The net loss for the three and nine months ended
September 30, 1997 includes interest expense of $6.0
million and $17.7 million, respectively. The increase
in interest expense for the nine months of 1997 over
the prior year is due to the Company's debt being
outstanding for only four months at September 30, 1996.
The increase over the comparable prior year quarter is
due to interest expense incurred on average outstanding
borrowings under the Subordinated Credit Facility.
Financial Condition, Liquidity and Capital Resources
The Mill has met its liquidity requirements through
cash flows from operations (including the provisions
of the Output Purchase Agreement that provide for a
minimum purchase price as previously described), from
borrowings under its Subordinated Credit Facility and,
for the period prior to May 30, 1996, through
intercompany advances from SJPC.
For the nine months ended September 30, 1997 the
Company had negative operating cash flow of $21.7
million primarily as a result of the significant loss
incurred. During the shutdown period the Company's
liquidity needs were funded by the Joint Venture
Partners through periodic advances under the
Subordinated Credit Facility (approximately $17.3
million, all of which has been repaid) and from the
minimum purchase price provisions of the Output
Purchase Agreement.
The Company's principal liquidity requirements consist
of debt service and funding of capital expenditures.
At September 30, 1997 the Company had outstanding
approximately $176.9 million of indebtedness,
consisting of $165 million 12 3/4% Series B First
Mortgage Notes due June 1, 2004 (the "Notes") and $11.9
million of 13 1/4% Subordinated debt due June 1, 2004
(the "Seller Note"). Pursuant to the terms of the
Seller Note, the Company expects to pay interest in
kind on this Subordinated indebtedness. The Company
also has a $20 million Subordinated Credit Facility
provided by its Joint Venture Partners under which
there were no outstanding borrowings as of September
30, 1997.
Pursuant to the Output Purchase Agreement, the Company
must use its best efforts to operate the Mill at an
annual production rate not less than the average
capacity utilization rate of domestic linerboard
producers. Due to the six month shutdown of the Mill,
the required production rate will not be achieved
for 1997. The indenture under which the Notes were
issued (the "Mortgage Note Indenture"), provides that a
default under the Output Purchase Agreement constitutes
an event of default under the Mortgage Note Indenture.
If any event of default occurs and is continuing, the
Trustee or the holders of at least 25% in principal
amount of the outstanding Notes may declare all the
Notes to be due and payable immediately. The default,
if any, will be measured at the time the industry data
for 1997 is available. Therefore, even though it is
anticipated that the required production
levels will not be achieved, no event of default can
occur until such time.
PART II. OTHER INFORMATION
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
2.1 Asset Purchase Agreement, dated as of November 1,
1995, among the Company, St. Joe Forest Products
Company, St. Joe Container Company, St. Joe Paper
Company and Four M Corporation ("Four M").**
3.1 Certificate of Formation of Florida Coast
Paper Company, L.L.C. (the "Company").**
3.2 Certificate of Incorporation of Florida Coast
Paper Finance Corp. ("Finance Corp.").**
3.7 By-laws of Finance Corp.**
4.1 Indenture, dated as of May 30, 1996, between the
Company and Norwest Bank Minnesota, National
Association (the "Trustee").**
4.2 Form of 12 3/4% Series A and Series B First Mortgage
Notes, dated as of May 30, 1996 (incorporated by
reference to Exhibit 4.1).**
10.1 Output Purchase Agreement, dated as of May 30,
1996, among the Company, Four M and Stone
Container Corporation ("Stone").**
10.2 Mortgage Security Agreement, dated as of May 30,
1996, between the Company, and the Trustee.**
10.3 Security Agreement, dated as of May 30, 1996,
between the Company and the Trustee.**
10.4 Subordinated Credit Agreement, dated as of May 30,
1996, among the Company, Four M and Stone.**
10.5 Environmental Indemnity Agreement, dated as of May
30, 1996, between the Company and Four M.**
10.6 Wood Fiber Procurement and Services Agreement,
dated as of May 30, 1996, between the Company and
Four M.**
10.7 Indenture of Lease, dated as of May 30, 1996,
between the Company and Box USA Group, Inc.**
27.1 Financial Data Schedule.*
________________
* Filed herewith.
** Incorporated by reference to the Registration
Statement on Form S-4 of the Company, as amended
(the "Registration Statement"), as filed with the
Securities and Exchange Commission (the "SEC") on
July 12, 1996.
(b) Reports On Form 8-K
None
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.
FLORIDA COAST PAPER COMPANY,L.L.C.
FLORIDA COAST FINANCE CORP.
RANDOLPH C. READ
Randolph C. Read
Chief Financial Officer and
Treasurer
(Principal Accounting Officer
and duly authorized signatory)
Date: November 12, 1997
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<LEGEND>
This schedule contains summary information extracted from Florida Coast Paper
Company, L.L.C.'s September 30, 1997 Balance Sheet and Statement of Operations
and Accumulated Deficit and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
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