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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996.
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
<TABLE>
<S> <C>
FLORIDA COAST PAPER COMPANY, L.L.C. 333-8023
FLORIDA COAST PAPER FINANCE CORP. 333-8023-01
(Exact names of registrants as specified in their charters) (Commission file number)
DELAWARE 59-3379704
DELAWARE 59-3379707
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(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.)
600 U.S. HIGHWAY 98, PORT ST. JOE, FL 32456
- -------------------------------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER: (904) 227-1171
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE.
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, and (2) 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 Regulations S-K is not contained herein, and will not be contained, to the
best of the 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/
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PART I
ITEM 1. BUSINESS
THE COMPANY
Florida Coast Paper Company, L.L.C. (the "Company" or "Florida Coast") was
formed for the purpose of purchasing 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").
On November 1, 1995, SJPC, SJFP, St. Joe Container Company ("SJCC"), Four M
and Florida Coast entered into an Asset Purchase Agreement, as amended (the
"Acquisition Agreement"), pursuant to which, on May 30, 1996, Florida Coast
acquired certain assets of the Mill for a purchase price of $185.0 million
for the fixed assets, plus approximately $11.4 million for working capital.
The funds required to consummate the purchase of the Mill and pay related
transaction costs consisted of (1) $165.0 million from the proceeds of the
issuance of 12 3/4% Series A First Mortgage Notes due 2003 (the "Old Notes"),
(2) $40.0 million of equity contributed by Florida Coast Paper Holding Co.,
L.L.C. and its subsidiary, and (3) a $10.0 million subordinated note of
Florida Coast issued to SJFP pursuant to the Acquisition Agreement (the
"Seller Note"). The Mill is engaged in the manufacture of mottled white and
unbleached kraft linerboard.
Florida Coast Paper Finance Corp. ("Finance Corp.") is a wholly owned
subsidiary of Florida Coast that was incorporated for the purpose of serving
as co-issuer of the Old Notes in order to facilitate the offering of the Old
Notes and Florida Coast's exchange of its Old Notes for its registered 12
3/4% Series B First Mortgage Notes due 2003 (the "Notes"). 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.
Pursuant to an Output Purchase Agreement (the "Output Purchase Agreement")
entered into on May 30, 1996, 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, under the
section entitled "Price Watch: Paper and Paperboard," 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. Furthermore, in addition to an initial
investment of $40.0 million in the Company, the Joint Venture Partners have
severally agreed to provide the Company with a $20.0 million subordinated
line of credit for general corporate purposes (the "Subordinated Credit
Facility").
In addition to the Output Purchase Agreement and the Subordinated Credit
Facility, on May 30, 1996, the Company entered into a Wood Fiber Supply
Agreement (the "Fiber Agreement") with St. Joseph Land and Development
Company ("St. Joe Land"), a subsidiary of SJFP, pursuant to which St. Joe
Land will supply a specified quantity of pulpwood and wood chips to the
Company. In addition, the Company entered into a procurement agreement (the
"Stone Procurement Agreement") with Stone pursuant to which Stone will use
its best efforts to procure additional wood fiber on behalf of the Company.
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THE MILL
The Company's operations consist solely of the Mill which is located on
approximately 124 acres of land in Port St. Joe, Florida. The Mill produces two
types of linerboard, mottled white and unbleached kraft. The Mill's operations
consist of a wood yard, a pulping system, paper machines, and related utility,
storage and transportation facilities. The Mill cuts and chips wood, processes
the chipped wood into pulp and then converts the pulp into linerboard by
processing the pulp through paper machines.
The Mill has two paper machines which are capable of producing approximately
500,000 tons of linerboard annually in a variety of grades and basis weights.
Since 1990, approximately $147.8 million has been spent for the maintenance
and modernization of the Mill's plant, equipment and machinery and for
environmental compliance. In 1996 and 1995, the Mill produced approximately
427,515 and 441,229 tons of linerboard, respectively, operating at
approximately 85.5% and 88.2% of capacity, respectively, during such periods.
The Mill's production in 1996 was approximately 40% mottled white linerboard,
and 60% unbleached kraft linerboard.
PRODUCTS
As noted above the Mill produces two types of linerboard, mottled white (a
premium priced product) and unbleached kraft. Linerboard mill shipments in
1996 were as follows:
PERCENTAGE OF
PRODUCT TONS SHIPPED SHIPMENTS
------- ------------ ---------
Mottled White............................ 171,619 40
Unbleached Kraft......................... 260,712 60
-------------- -----------
Total................................ 432,331 100%
-------------- -----------
MARKETS AND CUSTOMERS
Pursuant to the Output Purchase Agreement, Stone and Four M have each agreed
to purchase 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, under the section entitled "Price Watch:
Paper and Paperboard," 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.
Such capital expenditures are deemed to be $10 million annually.
Pursuant to the terms of the Output Purchase Agreement, prices for the
Company's linerboard products, which will be based on public market prices,
will depend primarily upon general levels of supply and demand for such
products. The general levels of supply and demand for such products in turn
depend upon general levels of industry capacity, economic activity and the
demand for products that are packaged and shipped in corrugated containers
made from linerboard. Linerboard producers compete for sales with producers
of packages made from plastic or other materials. The demand for foreign
sales of linerboard is influenced by prices and by changes in the capacity of
foreign businesses to manufacture such products.
DISTRIBUTION
The Company is located adjacent to U.S. Highway 98 and near the Apalachicola
Northern Railroad, a 90-mile shortline railroad owned by SJPC, both of which
provide ready access for transporting linerboard to the Company's customers.
SUPPLY REQUIREMENTS
The Mill primarily uses pulpwood, wood chips and recycled fiber in the
manufacture of linerboard. Pursuant to the Fiber Agreement, St. Joe Land will
supply pulpwood and wood chips to the Company, and is expected to meet
approximately 87% of its wood fiber needs during the first year of the term of
2
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the Agreement, declining to approximately one-half of its current needs by the
fourth year of the term, based on prices published in TIMBER MART SOUTH, an
industry publication, subject to adjustment for changes in market conditions.
The Company believes that such prices are no less favorable to the Company than
those obtainable in the open market. As St. Joe Land reduces the volume of fiber
being supplied to the Company, the Company anticipates purchasing its raw
materials from various sawmills, chipmills, contract loggers and dealers
throughout a 75-100 mile area surrounding the Mill. Stone will manage the wood
procurement effort and will procure, on a best efforts basis, additional wood
fiber on behalf of the Company at prices and on terms similar to wood fiber
purchases for Stone's paper mill located in Panama City, Florida.
Approximately 15% of the Mill's pulp requirements were met through the use of
recycled fiber in 1996. Recycled fiber is purchased from corrugated container
plants, supermarket chains and paper stock companies. Prices for recycled fiber
are sensitive to demand fluctuations. The Company believes that the demand for
recycled fiber will increase and expects that the cost of purchasing such fiber
will also increase as a result of this increased demand and market conditions.
The Mill contains an Old Corrugated Container ("OCC") facility that can process
up to approximately 28% of the total fiber needs of the Company.
The Company believes that an adequate supply of fiber will be available to the
Company at competitive prices. The availability of fiber, and its cost, may be
subject to substantial variation, depending upon economic and competitive
factors. The supply of pulpwood and wood chips, in particular, is dependent upon
political, environmental and conservation considerations.
ENERGY REQUIREMENTS
The Mill produces energy primarily from a chemical recovery boiler and a new
combination bark/gas fueled boiler. The Mill's boilers use biomass fuel (scrub
wood, bark and timber wastes) and black liquor solids (a by-product of the wood
pulping process) to meet a substantial percentage of its energy requirements.
The Mill has achieved lower energy costs by using increasing amounts of non-
fossil fuel as energy sources. Pursuant to the Fiber Agreement, the Company
must purchase biomass from St. Joe Land during the first year of such Fiber
Agreement and at the Company's option each year thereafter upon prior written
notification to St. Joe Land at prices no less favorable to the Company than
would be offered to unrelated third parties.
ENVIRONMENTAL MATTERS
The information relating to environmental compliance is incorporated herein by
reference to Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") included in this report under the
section entitled "Environmental Matters."
EMPLOYEES
As of December 31, 1996, the Mill had approximately 603 employees. Of these
employees, 107 were salaried employees and 496 employees were paid on an hourly
basis.
The hourly employees of the Company are represented by three international
unions: the United Paperworkers International Union--Local 379, the
International Brotherhood of Electrical Workers--Local 875 and the International
Association of Machinist and Aerospace Workers--Local 435. The collective
bargaining agreements with each union expire July 30, 2000.
ITEM 2. PROPERTIES
The Company owns approximately 124 acres of land near Port St. Joe, Florida on
which the Mill is located. As security for the Notes, the Company has granted
the Trustee a mortgage on all of its real property and the improvements thereon.
The Company leased to Four M on a net lease basis a certain building located on
its property for a nominal base rent per year.
3
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ITEM 3. LEGAL PROCEEDINGS
From time to time, St. Joe has been subject to legal proceedings and other
claims arising in the ordinary course of business of the Mill. The Company
believes that it is not presently a party to any litigation, the outcome of
which could reasonably be expected to have a material adverse effect on its
financial condition or results of operations. The Company maintains insurance
coverage against claims in an amount that it believes to be adequate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
4
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
SSJ Corporation, a wholly owned subsidiary of Stone, and Box USA Paper
Corporation, a wholly owned subsidiary of Four M, each own a 50% interest in
this limited liability company.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the audited financial
statements of St. Joe Forest Products Company--Linerboard Mill Operations
("SJFP--Linerboard"), for each of the years in the four- year period ended
December 31, 1995. The audited financial data for SJFP--Linerboard for the
period from January 1, 1996 through May 30, 1996 and for Florida Coast for the
period from May 30, 1996 to December 31, 1996 have been combined for
presentation purposes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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(in thousands) 1996 1995 1994 1993 1992
- -------------------------------------------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net sales................................... $171,035 $239,165 $192,886 $153,005 $167,132
Income (loss) before cumulative effect of
change in accounting principle............. (15,559) 34,468 4,166 (12,043) 4,242
Total assets................................ 225,465 194,448 209,813 210,571 215,910
Long-term debt.............................. 175,791 -- -- -- --
</TABLE>
ITEM 7. 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 St. Joe Forest Products Company--Linerboard Mill
Operations and the Company and the notes thereto included elsewhere in this
report. The results of operations of St. Joe Forest Products Company--Linerboard
Mill Operations for the period from January 1, 1996 to May 30, 1996 and the
results of operations of the Company for the period from May 30, 1996 to
December 31, 1996 have been combined to present the results of operations for
the Mill for the twelve months ended December 31, 1996.
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
and, in 1995 and 1994, the Mill's financial performance significantly improved
as a result of such price increases. Recently, prices for the Mill's products
have declined as a result of increased capacity in the industry and decreased
demand for such products. Consequently, in December 1995 and January 1996, one
of the Mill's paper machines was temporarily shut down for maintenance and to
decrease excess inventory. In order to prevent excessive increases in inventory,
the Mill experienced further downtime of both of its paper machines from
April 7, 1996 through May 6, 1996. In addition, both of the Mill's paper
machines were shut down during July 1996 for annual maintenance. On March 5,
1997, the Company announced that on April 1, 1997, the Company will curtail
production at its Mill for an indefinite period until market conditions warrant
a resumption of linerboard production.
1996 COMPARED WITH 1995
Net sales decreased $68.2 million, or 28.5%, to $171.0 million in 1996 from
$239.2 million in 1995. This decrease was attributable to a 26.9% decrease in
the average selling prices for the Mill's products and to a decrease in sales
volume to approximately 432,331 tons in 1996 from approximately 435,609 tons in
1995.
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Furthermore, there was a shift in the product mix of the Mill. Revenues
attributable to sales of mottled white linerboard decreased in 1996 to 47.0%
of total sales compared to 57.5% of total sales in 1995, due to a decline in
industry demand. The Company shipped 171,619 tons of mottled white
linerboard and 260,712 tons of unbleached kraft linerboard in 1996 as
compared with 224,823 tons and 210,787 tons, respectively, in 1995.
Cost of sales decreased $9.1 million, or 5.0%, to $171.7 million in 1996 from
$180.8 million in 1995. This decline was attributable primarily to the
decrease in sales volume.
The Mill's selling, general and administrative expenses decreased $1.7
million, or 36.2%, to $3.0 million in 1996 from $4.7 million in 1995. This
decrease is primarily due to the cessation of SJPC overhead allocations and
the elimination of the Company's sales force.
1995 COMPARED WITH 1994
Net sales increased $46.3 million, or 24.0%, to $239.2 million in 1995 from
$192.9 million in 1994. This increase was attributable to a 35.8% increase in
the average net selling prices for the Mill's products which was partially
offset by a decrease in sales volume to approximately 435,609 tons in 1995 from
approximately 477,060 tons in 1994. Additionally, there was a shift in the
product mix of the Mill. Revenues attributable to sales of mottled white
linerboard decreased in 1995 to 57.5% of total sales compared to 59.6% of total
sales in 1994 due to a decline in industry demand.
Cost of sales decreased $3.0 million, or 1.6%, to $180.8 million in 1995 from
$183.8 million in 1994. This decline was attributable primarily to an 8.7%
decrease in sales volume. In addition, cost of sales as a percentage of net
sales decreased to 75.6% in 1995 from 95.3% in 1994 primarily due to the 24.0%
increase in net sales despite lower sales volumes. However, cost of goods sold
on a per ton basis increased in 1995 from 1994 primarily due to higher wood
fiber costs.
The Mill's selling, general and administrative expenses increased $1.6 million,
or 51.8%, to $4.7 million in 1995 from $3.1 million in 1994 primarily due to
increased reserves for workman's compensation claims relating to a serious burn
injury.
LIQUIDITY AND CAPITAL RESOURCES
Historically, 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) and, for the
period prior to May 30, 1996, through intercompany advances from SJPC.
The Company's cash provided by operating activities decreased to $15.6 million
in 1996 from $59.2 million in 1995 primarily due to its significantly lower 1996
results of operations. The Company's primary 1996 financing and investing
activities pertained to the purchase of the Mill which it acquired for $196.4
million (including $11.4 million for working capital). The funds required to
consummate the purchase and pay related transaction costs were provided by the
issuance of the Notes ($165 million principal amount), the Seller Note and from
$40 million of equity contributions received from the Joint Venture Partners.
The Company's principal liquidity requirements consist of debt service under the
Notes and funding of capital expenditures.
At December 31, 1996 the Company had outstanding approximately $175.8 million of
indebtedness, consisting of the Notes (due June 1, 2003) and the Seller Note
(due June 1, 2004). 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 which has not been drawn upon. To the extent the Company
borrows funds under this Subordinated Credit Facility, additional interest and
principal payments will be required.
As previously mentioned, on March 5, 1997 the Company announced that on April 1,
1997 the Company will curtail production at its Mill for an indefinite period
until market conditions warrant a resumption of containerboard production. The
Joint Venture Partners have assured the Company that they will continue to honor
their respective obligations and fund the Company's cash operating costs, cash
interest expense and maintenance capital expenditures during the shut-down.
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ENVIRONMENTAL MATTERS
The operations of the Mill are subject to extensive and changing environmental
regulation by federal, state and local authorities. St. Joe has in the past made
significant capital expenditures to comply with water, air and solid and
hazardous waste regulations. The Company expects to make significant
expenditures in the future. The Company's capital expenditures for environmental
control equipment was immaterial in 1996 and the Company has budgeted
approximately $600 thousand for environmental capital expenditures in 1997. In
December 1993, the U.S. Environmental Protection Agency (the "EPA") issued a
proposed rule affecting the pulp and paper industry. These proposed
regulations, informally known as the "cluster rules," would make more stringent
requirements for discharge of wastewaters under the Clean Water Act and would
impose new requirements on air emissions under the Clean Air Act. Pulp and paper
manufacturers have submitted extensive comments to the EPA on the proposed
regulations in support of the position that requirements under the proposed
regulations are unnecessarily complex, burdensome and environmentally
unjustified. Estimates, based on currently proposed regulations, indicate that
the Company could be required to make capital expenditures of approximately $67
million (unaudited) in order to meet the requirements of the regulations,
although it is likely this estimate will decrease upon finalization of the
rules. While it cannot be predicted with certainty, it appears as though the
final cluster rules that are currently expected to be issued in 1997, will be
modified to reduce certain requirements. Assuming that the anticipated reduced
requirements are promulgated as the Company expects, the Company currently
believes it would be required to make capital expenditures of approximately $27
million (unaudited) during the period of 1998 through 2006 in order to meet the
requirements of the anticipated regulations. If the Company determines to
discontinue the production of mottled white linerboard, the Company estimates
the capital spending that may be required to comply with the anticipated
regulations could be $5 million (unaudited) (but could reach as high as $45
million (unaudited) under the currently proposed regulations). The ultimate
financial impact of the regulations on the Company cannot be accurately
estimated at this time but will depend on the nature of the final regulations,
the timing of required implementation and the cost and availability of new
technology. The Company may determine that, under the final regulations, the
costs associated with the production of mottled white linerboard may be
prohibitive and could discontinue its production. Because of the current higher
margins associated with mottled white linerboard, in the event the Company
discontinues the production of mottled white linerboard, its revenues and profit
margins could decrease.
Wastewater from the Mill is handled by the City of Port St. Joe Industrial
Wastewater Treatment Plant ("IWTP") under a permit issued by the City of Port
St. Joe ("CPSJ"). The Company will bear the preponderate costs of operating the
IWTP pursuant to an agreement with the IWTP and other industrial users of the
IWTP. The wastewater is discharged from the IWTP into the Gulf County Canal. The
ability of CPSJ to take wastewater from the Company is dependent upon CPSJ
maintaining its National Pollutant Discharge Elimination System permit. CPSJ is
appealing the recent permit issued by the EPA and is objecting to certain
parameters and conditions of the permit. The Company will cooperate with CPSJ
and believes that an unsuccessful appeal would neither impair IWTP's ability to
accept its wastewater nor substantially affect its costs.
In addition, based on historical exceedances of state ground water quality
standards, the Florida Department of Environmental Protection (the "DEP") has
asked CPSJ to conduct ground water monitoring in the vicinity of the IWTP.
Pursuant to the agreement with the IWTP and other industrial users, the Company
may bear a share of remedial costs, if any, to address the ground water
contamination. At this time, the Company cannot estimate the likelihood of
remediation or any associated costs, or predict if the cost would have a
material adverse affect on the Company's business or financial condition.
The Company has detected contamination of ground water from historical black
liquor spills on the Mill property. Based on the concentrations detected, the
Company believes that no remediation will be required. Any potential
remediation costs for the black liquor ground water contamination are subject to
limited indemnification by the Paper Indemnitors.
Pursuant to the Acquisition Agreement, the Paper Indemnitors (as defined) have
agreed to indemnify the Company for certain environmental matters based on
activities prior to May 30, 1996. There can be no
7
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assurance that this indemnification would be sufficient to reimburse the
Company for all environmental liabilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements required by Item 8, together with the report
thereon of the independent accountants dated March 27, 1997 are set forth on
pages 26 - 35 of this report. St. Joe Forest Products Company--Linerboard Mill
Operations financial statements, together with the report thereon of the
independent accountants dated March 20, 1997 are set forth on pages 16 - 25 of
this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the Company's
executive officers and members of the Company's Management Oversight Committee.
NAME AGE POSITION
- ---- --- ---------
Harold D. Wright 58 Chairman, President and Committee Member
Randolph C. Read 44 Chief Financial Officer and Treasurer
Roger W. Stone 62 Committee Member
Arnold F. Brookstone 67 Committee Member
Dennis Mehiel 54 Committee Member
Chris Mehiel 57 Committee Member
Timothy D. McMillin 53 Committee Member
HAROLD D. WRIGHT has been Senior Vice President and General Manager of Stone's
North American Containerboard, Paper and Pulp division since January 1996. From
1991 to January 1996, he served as Vice President of Stone's U.S. Mill division.
Mr. Wright has held various management positions in the containerboard and paper
industry for more than 30 years.
RANDOLPH C. READ, Senior Vice President and Chief Financial and Planning Officer
of Stone since January, 1996. Previously, Mr. Read was President and Chief
Executive Officer of International Capital Markets Group, Inc. since 1990. Mr.
Read is a director of Stone-Consolidated Corporation, Venepal S.A.C.A., Con Pac,
Inc. and Railcar Specialties, Inc.
ROGER W. STONE has been the Chairman, President and Chief Executive Officer of
Stone since 1979. He is also a Director of McDonald's Corporation, Morton
International, Inc., Stone-Consolidated Corporation, Option Care, Inc. and
Continere Corporation.
ARNOLD F. BROOKSTONE retired from Stone in January 1996; he is now a consultant
to Stone. Mr. Brookstone is a director of Stone-Consolidated Corporation,
Donnelly Corporation, MFRI, Inc., Rembrandt Funds and Continere Corporation.
DENNIS MEHIEL, a co-founder of Four M, has been the Chairman and Chief Executive
Officer of Four M since 1977, except during a leave of absence from April 1,
1994 through July 1995. Mr. Mehiel is also the Chairman of Fonda and the
MannKraft Corporation, a corrugated container manufacturer.
CHRIS MEHIEL, a co-founder of Four M and the brother of Dennis Mehiel, has been
Executive Vice President, Chief Operating Officer and a Director of Four M since
September 1995. Mr. Mehiel was President of Fibre Marketing Group, Inc., a waste
paper recovery business which he co-founded, from 1994 to January 1996. He is
the President of the managing member of Fibre Marketing Group, LLC, the
successor to Fibre Marketing Group, Inc. From 1993 to 1994, Mr. Mehiel served as
President and Chief Operating Officer of MannKraft Corporation. From 1982 to
1992, Mr. Mehiel served as the President and Chief Operating Officer of
Specialty Industries, Inc., a waste paper processing and box manufacturing
company.
TIMOTHY D. MCMILLIN has been a Director of Four M since 1983 and Senior Vice
President and Chief Financial Officer of Four M since September 1995. From
November 1994 to September 1995, he was Chairman of Executive Advisors, Inc., a
consulting firm specializing in financial restructuring. From 1991 to 1994,
Mr. McMillin was an independent strategic and financial consultant. Mr. McMillin
spent over 25 years in the financial services industry and served in various
capacities, including Executive Vice President, at Maryland National Bank, from
1965 to 1990. Mr. McMillin is a Director of EIL Instruments, Inc., a
manufacturer and distributor of testing, measurement and energy control systems.
9
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ITEM 11. EXECUTIVE COMPENSATION
No executive officer of the Company was paid any compensation exceeding $100,000
by the Company during 1996. The Company has no officer holding the title of
Chief Executive Officer. The Company does not at this time contemplate that any
of its executives will be provided with stock options, restricted stock, stock
appreciation rights, phantom stock or similar equity benefits.
ITEM 12. SECURITY OWNERSHIP
Each of Stone, through its wholly owned subsidiary SSJ Corporation, and Four M,
through its wholly owned subsidiary Box USA Paper Corporation, beneficially own
50% of the membership interests of the Company. Each of SSJ Corporation and Box
USA Paper Corporation own 50% of the membership interests of Florida Coast Paper
Holding Co., L.L.C. ("Florida Coast Holding") which, in turn, owns a 99%
membership interest in the Company. Florida Coast Paper Corporation, a wholly
owned subsidiary of Florida Coast Holding, owns a 1% interest in the Company.
The membership interests in the Company have been pledged to Stone as security
for its $30.0 million loan to Florida Coast Holding. Dennis Mehiel currently
owns all the outstanding common stock of Four M. There is no person known to the
Company to be the beneficial owner of more than 10% of Stone's common stock.
Finance Corp. is a wholly owned subsidiary of the Company.
FLORIDA COAST MEMBERSHIP INTERESTS
The following table sets forth the membership interests in the Company:
AS OF DECEMBER 31, 1996
---------------------------------
NUMBER OF UNITS OF
COMMON MEMBER PERCENTAGE OF
NAME AND ADDRESS OF MEMBER INTEREST OWNERSHIP
- --------------------------- ------------------ ------------
Florida Coast Paper HoldingCo., L.L.C. (1)... 39,600 99%
600 U.S. Highway 98
Port St. Joe, FL 32456
Florida Coast Paper Corporation.............. 400 1%
600 U.S. Highway 98
Port St. Joe, FL 32456
___________
(1) Each of SSJ Corporation, a wholly owned subsidiary of Stone, and Box
USA Paper Corporation, a wholly owned subsidiary of Four M, own a 50%
interest in this limited liability company.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT
1. FINANCIAL STATEMENTS. The Company's financial statements, for the period
from May 30, 1996 to December 31, 1996, together with the Report of Independent
Accountants are set forth on pages 26--35 of this report. The supplemental
financial information listed and appearing hereafter should be read in
conjunction with the Financial Statements included in this report. The Index to
Financial Statements appears on page 15 of this report.
2. FINANCIAL STATEMENT SCHEDULES. Financial statement schedules not included in
this report have been omitted, either because they are not applicable or because
the required information is shown in the financial statements or notes thereto,
included in this report.
3. EXHIBITS. The exhibits required to be filed by Item 601 of Regulation S-K
are listed under the caption "Exhibits" in Item 14(c).
(B) REPORTS ON FORM 8-K
A Report on Form-8K dated March 5, 1997 was filed under Item 5 - Other Events
and Item 7 - Exhibits.
(C) 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).**
4.3 Registration Rights Agreement, dated as of May 30, 1996, among the Company,
Finance Corp. and Bear Stearns & Co. Inc. (the "Initial Purchaser").**
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.**
11
<PAGE>
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.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: HAROLD D. WRIGHT March 28, 1997
---------------------------------------
Harold D. Wright
Chairman and President
RANDOLPH C. READ March 28, 1997
---------------------------------------
Randolph C. Read
Chief Financial Officer and Treasurer
(Chief Financial Officer and Principal Accounting Officer)
13
<PAGE>
SIGNATURES -- (CONTINUED)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
ARNOLD F. BROOKSTONE March 28, 1997
--------------------------------------
Arnold F. Brookstone
(Committee Member)
TIMOTHY D. MC MILLIN March 28, 1997
---------------------------------------
Timothy D. McMillin
(Committee Member)
CHRIS MEHIEL March 28, 1997
----------------------------------------
Chris Mehiel
(Committee Member)
DENNIS MEHIEL March 28, 1997
-----------------------------------------
Dennis Mehiel
(Committee Member)
ROGER W. STONE March 28, 1997
-----------------------------------------
Roger W. Stone
(Committee Member)
HAROLD D. WRIGHT March 28, 1997
-----------------------------------------
Harold D. Wright
(Committee Member)
14
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
Independent Auditors' Report ...............................................16
Statement of Financial Position as of December 31, 1995.....................17
Statement of Operations for the period from January 1, 1996 to
May 30, 1996 and for the years ended December 31, 1995 and 1994..........18
Statement of Cash Flows for the period from January 1, 1996 to
May 30, 1996 and for the years ended December 31, 1995 and 1994..........19
Statement of Changes in Equity for the period from January 1,1996 to
May 30, 1996 and for the years ended December 31, 1995 and 1994..........20
Notes to Financial Statements...............................................21
FLORIDA COAST PAPER COMPANY, L.L.C.
Independent Auditors' Report................................................26
Balance Sheet as of December 31, 1996.......................................27
Statement of Operations and Changes in Accumulated Deficit for
the period from May 30, 1996 to December 31,1996.........................28
Statement of Cash Flows for the period from May 30, 1996 to
December 31, 1996........................................................29
Notes to Financial Statements...............................................30
FLORIDA COAST PAPER FINANCE CORP.
Finance Corp. is a subsidiary of the Company that was incorporated in Delaware
for the purpose of serving as co-issuer of the Notes in order to facilitate the
offering of the Old Notes and Florida Coast's exchange of its Old Notes for its
registered 12 3/4% Series B First Mortgage Notes due 2003. Finance Corp. does
not have any substantial operations or assets and does not have any revenues;
thus, the separate financial statements of Finance Corp. have not been included
in the financial statements included herein.
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
St. Joe Forest Products Company:
We have audited the accompanying statement of financial position of St. Joe
Forest Products Company--Linerboard Mill Operations as of December 31, 1995, and
the related statements of operations, cash flows and changes in equity for the
period from January 1, 1996 to May 30, 1996 and for each of the years in the
two-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of St. Joe Forest Products
Company--Linerboard Mill Operations as of December 31, 1995, and the results of
its operations and its cash flows for the period from January 1, 1996 to May 30,
1996 and for each of the years in the two-year period ended December 31, 1995,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
JACKSONVILLE, FLORIDA
March 20, 1997
16
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
STATEMENT OF FINANCIAL POSITION
As of December 31, 1995
(dollars in thousands)
ASSETS
Current assets:
Accounts receivable . . . . . . . . . . . . . . . $ 9,249
Inventories, net. . . . . . . . . . . . . . . . . 14,632
Other assets. . . . . . . . . . . . . . . . . . . 1,143
----------
Total current assets . . . . . . . . . . . . . . 25,024
Property, plant and equipment, net. . . . . . . . 169,424
----------
Total assets . . . . . . . . . . . . . . . . . . $ 194,448
==========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . $ 7,746
Accrued liabilities . . . . . . . . . . . . . . . 1,354
Accrued reserves. . . . . . . . . . . . . . . . . 2,056
----------
Total current liabilities. . . . . . . . . . . . 11,156
Accrued reserves. . . . . . . . . . . . . . . . . 2,379
Deferred income taxes . . . . . . . . . . . . . . 33,553
----------
Total liabilities. . . . . . . . . . . . . . . . 47,088
----------
Equity in net assets. . . . . . . . . . . . . . . 147,360
----------
Total liabilities and equities . . . . . . . . . $ 194,448
==========
See accompanying notes to financial statements.
17
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
STATEMENT OF OPERATIONS
For the period from January 1, 1996 to May 30, 1996 and the years ended
December 31, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PERIOD ENDED ---------------------------
MAY 30,1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales. . . . . . . . . . . . . . . . . . . . . . . $ 67,670 $ 239,165 $ 192,886
Cost of sales. . . . . . . . . . . . . . . . . . . . . 68,979 180,788 183,800
Selling, general and administrative expense. . . . . . 1,409 4,672 3,077
------------ ------------ ------------
Operating profit (loss). . . . . . . . . . . . . . . . (2,718) 53,705 6,009
------------ ------------ ------------
Other income:
Interest income. . . . . . . . . . . . . . . . . . . . -- 962 383
Other, net . . . . . . . . . . . . . . . . . . . . . . 152 95 227
------------ ------------ ------------
152 1,057 610
------------ ------------ ------------
Income (loss) before income taxes. . . . . . . . . . . (2,566) 54,762 6,619
Provision for income taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . (753) 20,995 (494)
Deferred. . . . . . . . . . . . . . . . . . . . . . . (198) (701) 2,947
------------ ------------ ------------
Total provision for income taxes . . . . . . . . . . (951) 20,294 2,453
------------ ------------ ------------
Net income (loss). . . . . . . . . . . . . . . . . . $ (1,615) $ 34,468 $ 4,166
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
STATEMENT OF CASH FLOWS
For the period from January 1, 1996 to May 30, 1996 and the years
ended December 31, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PERIOD ENDED -----------------------------
MAY 30,1996 1995 1994
------------- -------------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES;
Net income (loss). . . . . . . . . . . . . . . . . $ (1,615) $ 34,468 $ 4,166
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . 10,335 24,054 23,678
Increase (decrease) in deferred income
taxes . . . . . . . . . . . . . . . . . . (198) (701) 2,947
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . 3,324 3,043 (3,920)
Inventories, net . . . . . . . . . . . . . . . . 630 (2,524) 2,370
Other assets . . . . . . . . . . . . . . . . . . (304) (78) (4)
Accounts payable . . . . . . . . . . . . . . . . 402 (810) 426
Accrued liabilities. . . . . . . . . . . . . . . 820 558 333
Accrued expenses and reserves. . . . . . . . . . -- 1,212 (153)
------------- -------------- --------
Cash provided by operating activities. . . . . . . 13,394 59,222 29,843
------------- -------------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment . . . . (4,160) (22,457) (8,321)
Purchases of held to maturity investments. . . . . -- (8,850) (3,951)
Proceeds from maturity of investments. . . . . . . -- 8,850 3,951
------------- -------------- --------
Cash used in investing activities. . . . . . . . . (4,160) (22,457) (8,321)
------------- -------------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in intercompany accounts. . . . . . . . . . (9,234) (50,326) (8,434)
------------- -------------- --------
Cash used in financing activities. . . . . . . . . (9,234) (50,326) (8,434)
------------- -------------- --------
Net (decrease) increase in cash and cash
equivalents -- (13,561) 13,088
Cash and cash equivalents at
beginning of period -- 13,561 473
------------- -------------- --------
Cash and cash equivalents at end of period . . . . $ -- $ -- $13,561
============= ============== ========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY-LINERBOARD MILL OPERATIONS
STATEMENT OF CHANGES IN EQUITY
For the period from January 1, 1996 to May 30, 1996 and the years
ended December 31, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PERIOD ENDED ---------------------------
MAY 30,1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
Common stock . . . . . . . . . . . . . . . . . . . $ 10 $ 10 $ 10
========== ========= =========
Additional paid in capital . . . . . . . . . . . . $ 75,014 $ 75,014 $ 75,014
========== ========= =========
Retained earnings:
Balance at beginning of year. . . . . . . . . . . $ 158,684 $ 124,216 $ 120,050
Net income (loss) . . . . . . . . . . . . . . . . (1,615) 34,468 4,166
----------- ---------- ---------
Balance at end of year. . . . . . . . . . . . . . $ 157,069 $ 158,684 $ 124,216
=========== ========== =========
Intercompany accounts:
Balance at beginning of year. . . . . . . . . . . $ (86,348) $ (36,022) $ (27,588)
Intercompany (sales) purchases:
St. Joe Container Company. . . . . . . . . . . . (36,834) (126,410) (97,691)
St. Joseph Land and Development Company 16,932 55,225 54,321
Apalachicola Northern Railroad . . . . . . . . . 1,241 4,310 4,489
Costs allocated from St. Joe Paper Company:
Overhead allocation. . . . . . . . . . . . . . . 400 960 960
Current income taxes . . . . . . . . . . . . . . (753) 20,995 (494)
Net cash (transferred) received . . . . . . . . . 9,780 (5,406) 29,981
------------ ----------- ---------
Balance at end of year. . . . . . . . . . . . . . $ (95,582) $ (86,348) $ (36,022)
============ =========== =========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
ST. JOE FOREST PRODUCTS COMPANY--LINERBOARD MILL OPERATIONS
NOTES TO FINANCIAL STATEMENTS
For the period from January 1, 1996 to May 30, 1996 and the years ended
December 31, 1995 and 1994
(Dollars in thousands)
(1) NATURE OF OPERATIONS
St. Joe Forest Products Company (SJFP) is engaged in the manufacture of mottled
white and unbleached kraft linerboard. SJFP operates one production facility
which is located in Port St. Joe, Florida. Sales are primarily to manufacturers
of corrugated containers, both domestic and foreign.
(2) BASIS OF PRESENTATION
The accompanying financial statements include all of the relevant assets,
liabilities, revenues and expenses attributable to the linerboard mill operation
of SJFP. Certain of SJFP's assets and liabilities were sold on May 30, 1996,
pursuant to the asset purchase agreement between St. Joe Paper Company (SJPC),
SJFP, St. Joe Container Company (SJCC), Florida Coast Paper Company, L.L.C. and
Four M Corporation dated November 1, 1995. The financial statements do not
reflect SJFP's wholly owned subsidiaries.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(b) REVENUE RECOGNITION
Revenue from the sale of linerboard is recognized generally on delivery of the
product to the common carrier.
(c) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents include
cash on hand, bank demand accounts, money market accounts, remarketed
certificates of participation and repurchase agreements having original
maturities of three months or less.
21
<PAGE>
(d) INVENTORIES
Inventories are stated at the lower of cost or market. Costs for manufactured
paper products and associated raw materials are determined under the last-in,
first-out (LIFO) method. Costs for substantially all other inventories are
determined under the first-in, first-out (FIFO) or the average cost method. A
reserve for obsolescence is established for materials and supplies having no
activity in the previous seven years.
(e) PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed using both straight-line and accelerated methods over
the useful lives of various assets.
(f) SELF-INSURANCE
Self-insurance reserves are established for automobile liability, workers'
compensation, group health insurance provided to employees and property losses
based on claims filed and claims incurred but not reported, with a maximum per
occurrence of $25 for automobile liability, $600 for workers' compensation, $50
for property loss, other than windstorm, and $250 for damage due to windstorm.
SJFP is insured for insurance costs in excess of these limits.
(g) INCOME TAXES
SJFP's results of operations are included in the consolidated U.S. federal and
Florida income tax returns of SJPC. The tax provisions and deferred tax
liabilities presented have been determined as if SJFP was a stand-alone business
filing separate returns, except to the extent that an operating loss can be
utilized by SJPC, the benefit is allocated to SJFP. Current tax liabilities are
paid to or refunded by SJPC.
SJFP follows the asset and liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes." Under SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(4) INVENTORIES
Inventories as of December 31 consist of:
1995
---------
Manufactured paper products and associated raw materials.........$ 3,886
Materials and supplies........................................... 10,746
---------
$ 14,632
=========
22
<PAGE>
The replacement cost of manufactured paper products and associated raw material
inventories was in excess of LIFO stated cost by approximately $2,750 as of
December 31, 1995. The reserve for obsolescence was approximately $2,100 at
December 31, 1995.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, as of December 31 consist of:
ESTIMATED
1995 USEFUL LIFE
---------- ------------
Land. . . . . . . . . . . . . . . . . . . . . . . $ 200 --
Land improvements . . . . . . . . . . . . . . . . 4,123 20
Buildings . . . . . . . . . . . . . . . . . . . . 11,474 45
Machinery and equipment . . . . . . . . . . . . . 366,225 12-30
Office equipment. . . . . . . . . . . . . . . . . 732 10
Autos and trucks. . . . . . . . . . . . . . . . . 861 3-6
Construction in progress. . . . . . . . . . . . . 1,796 --
------------
385,411
Accumulated depreciation. . . . . . . . . . . . . 215,987
-------------
$ 169,424
=============
(6) INCOME TAXES
Total income tax expense (benefit) for the period from January 1, 1996 to May
30, 1996 and the year ended December 31, 1995 and 1994 was attributable to
income (loss) from continuing operations and was ($951), $20,294, and $2,453,
respectively.
Income tax expense (benefit) attributable to income (loss) from continuing
operations differed from the amount computed by applying the statutory federal
income tax rate to pre-tax income (loss) as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PERIOD ENDED -----------------------
MAY 30,1996 1995 1994
---------------- ----------- ----------
<S> <C> <C> <C>
Tax at the statutory federal rate. . . . . . . . . $ (898) $ 19,167 $ 2,317
State income taxes (net of federal benefit). . . . (53) 1,127 136
--------- ---------- ---------
$ (951) $ 20,294 $ 2,453
========== ========== =========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax liabilities and deferred tax assets at December 31, 1995, are
presented below:
1995
----------
Deferred tax liabilities:
Property, plant and equipment, principally due to differences
in depreciation. . . . . . . . . . . . . . . . . . . . . . . . . $35,197
Deferred tax assets:
Current:
Accrued reserves. . . . . . . . . . . . . . . . . . . . . . . . . 762
Noncurrent:
Accrued reserves. . . . . . . . . . . . . . . . . . . . . . . . . 1,644
--------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . 2,406
--------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . $32,791
=========
23
<PAGE>
Based on the timing of reversal of future taxable amounts and SJFP's history of
reporting taxable income, SJFP believes that the deferred tax assets will be
realized and a valuation allowance is not considered necessary. The current
deferred tax asset of $762 is recorded in other assets as of December 31, 1995.
(7) PENSION AND RETIREMENT PLANS
Substantially all of SJFP's employees, along with other SJPC and subsidiaries
eligible employees, participate in SJPC pension plans. During the past four
years, the assets of the SJPC pension plan have exceeded benefit obligations
under such plans, resulting in pension income under SFAS No. 87 "Employers'
Accounting for Pensions." SJPC has an Employee Stock Ownership Plan (ESOP) for
the purpose of purchasing stock of SJPC for the benefit of qualified employees.
Contributions to the ESOP are limited to .5% of compensation of employees
covered under the ESOP. No assets of the SJPC pension plan or the ESOP will be
transferred as a result of the asset purchase agreement. No allocation of
benefit or expense from the pension plans or ESOP has been made to SJFP during
the period from January 1, 1996 to May 30, 1996 and the years ended December 31,
1995 and 1994 due to immateriality.
SJPC also has other defined contribution plans which, in conjunction with the
ESOP, cover substantially all its salaried employees. Contributions are at the
employees' discretion and are matched by SJPC up to certain limits. SJFP's
expense for these defined contribution plans was $79, $131 and $133 in 1996,
1995 and 1994 respectively. Pursuant to the asset purchase agreement, the assets
of the defined contribution plans attributable to transferred SJFP employees may
be paid out immediately to the employee, left in the plans or rolled over into a
qualified plan of the buyer, if such plan exists.
(8) RELATED PARTY TRANSACTIONS
Intercompany due to and due from balances between SJFP and SJPC and its
affiliates have been included in equity. The net intercompany due to SJFP was
$86,348 at December 31, 1995. The intercompany transactions described below may
or may not be indicative of what such transactions would have been had SJFP
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 provides services for SJFP in treasury, taxes,
benefits administration and legal support and other financial systems and
support. SJPC's budgeted overhead was allocated based on a formula which equally
weighted each subsidiary's proportional share of payroll, sales and fixed
assets. This formula is similar to that which is used by many states to
determine the economic activity of an entity and is considered by management to
be a reasonable measure of the use of corporate resources by each subsidiary.
SJFP was billed approximately $400 for the period from January 1, 1996 to May
30, 1996 and approximately $960 annually for such services in 1995 and 1994.
Sales to SJCC, a wholly owned subsidiary of SJFP, amounted to approximately
$36,834, $126,410 and $97,691 representing approximately 78,000, 238,000 and
248,000 tons for the period from January 1, 1996 to May 30,1996 and for the
years ended December 31, 1995 and 1994, respectively. Pricing for these
transactions was based on the PULP & PAPER WEEK Price Watch: Paper and
Paperboard. In addition, SJFP purchases both linerboard and corrugating medium
for SJCC from outside suppliers. The price paid by SJFP 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 $16,932,
$55,225 and $54,321 representing approximately 570,000, 2,033,000 and
2,028,000 tons for the period from January 1, 1996 to May 30, 1996 and for the
years ended December 31, 1995 and 1994, respectively.
24
<PAGE>
SJFP ships the majority of its product via Apalachicola Northern Railroad, a
subsidiary of SJPC. Amounts billed for freight amounted to approximately $1,241,
$4,310 and $4,489 for the period from January 1, 1996 to May 30, 1996 and for
the years ended December 31, 1995 and 1994, respectively.
(9) CONTINGENCIES
SJFP is involved in litigation on a number of matters and is subject to certain
claims which arise in the normal course of business, none of which, in the
opinion of management, is expected to have a material adverse effect on SJFP's
financial position, liquidity, or results of operations.
SJFP has retained certain self-insurance risks with respect to losses for third
party liability, property damage and group health insurance provided to
employees.
SJFP is subject to costs arising out of environmental laws and regulations,
which include obligations to remove or limit the effects on the environment of
the disposal or release of certain wastes or substances at various sites. It is
SJFP's policy to accrue and charge against earnings environmental cleanup costs
when it is probable that a liability has been incurred and an amount is
reasonably estimable. As assessments and cleanups proceed, these accruals are
reviewed and adjusted, if necessary, as additional information becomes
available.
SJFP is currently a party to, or involved in, legal proceedings involving
environmental matters such as alleged discharges into water or soil. It is not
possible to quantify future environmental costs because many issues relate to
actions by third parties or changes in environmental regulation. Environmental
liabilities are paid over an extended period and the timing of such payments
cannot be predicted with any confidence. Based on information presently
available, management believes that the ultimate disposition of currently known
matters will not have a material effect on the financial position, liquidity, or
results of operations of SJFP. Aggregate environmental related accruals were
approximately $1,000 as of December 31, 1995.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Oversight Committee and Members
of Florida Coast Paper Company, L.L.C.
In our opinion, the accompanying balance sheet and the related statements of
operations and changes in accumulated deficit and of cash flows present fairly,
in all material respects, the financial position of Florida Coast Paper Company,
L.L.C. (the Company) at December 31, 1996 and the results of its operations and
its cash flows for the period from May 30, 1996 to December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 9 to the financial statements, all of the Company's
linerboard production is purchased by the Company's owners at prices intended to
generate sufficient funds to cover the Company's cash operating costs, cash
interest expense and maintenance capital expenditures. As discussed in Note 3
to the financial statements, the Company's owners have agreed to continue to
make supporting payments to the Company, despite the planned cessation of
production on April 1, 1997.
PRICE WATERHOUSE LLP
Chicago, Illinois
March 27, 1997
26
<PAGE>
FLORIDA COAST PAPER COMPANY, L.L.C.
BALANCE SHEET
As of December 31, 1996
(dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 8,621
Accounts receivable from Joint Venture Partners . . . . . . . . . 8,643
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . 567
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,185
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681
------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 31,697
------------
Property, plant and equipment, net of accumulated depreciation. . 184,946
Deferred debt issuance costs. . . . . . . . . . . . . . . . . . . 7,825
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . 997
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 225,465
------------
Current liabilities:
Accrued payables. . . . . . . . . . . . . . . . . . . . . . . . . $ 10,222
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 8,567
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . 1,753
-----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 20,542
-----------
Long-term debt:
Senior long-term debt . . . . . . . . . . . . . . . . . . . . . . 165,000
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . 10,791
Other noncurrent liabilities. . . . . . . . . . . . . . . . . . . 3,076
Commitments and contingencies (Note 10) ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 199,409
------------
Members' equity
Contributed capital . . . . . . . . . . . . . . . . . . . . . . . 40,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (13,944)
------------
Total members' equity. . . . . . . . . . . . . . . . . . . . . . 26,056
------------
Total liabilities and members' equity. . . . . . . . . . . . . . . $ 225,465
============
The accompanying notes are an integral part of these statements.
27
<PAGE>
FLORIDA COAST PAPER COMPANY, L.L.C.
STATEMENT OF OPERATIONS AND CHANGES IN ACCUMULATED DEFICIT
For the period from May 30, 1996 to December 31, 1996
(dollars in thousands)
Net sales to Joint Venture Partners. . . . . . . . $ 103,365
Cost of sales. . . . . . . . . . . . . . . . . . . 102,728
General, selling & administrative expense. . . . . 1,545
------------
Operating loss. . . . . . . . . . . . . . . . . . (908)
------------
Interest income. . . . . . . . . . . . . . . . . . 510
Interest expense . . . . . . . . . . . . . . . . . (13,546)
------------
Other expense, net. . . . . . . . . . . . . . . . (13,036)
-----------
Loss before income taxes . . . . . . . . . . . . . (13,944)
Provision for state income taxes . . . . . . . . . --
------------
Net loss . . . . . . . . . . . . . . . . . . . . . (13,944)
Accumulated deficit, beginning of period . . . . . --
------------
Accumulated deficit, end of period . . . . . . . . $ (13,944)
============
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
FLORIDA COAST PAPER COMPANY, L.L.C.
STATEMENT OF CASH FLOWS
For the period from May 30, 1996 to December 31, 1996
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . $ (13,944)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . 7,785
Other non-cash items. . . . . . . . . . . . . . . 1,952
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . (3,403)
Inventories . . . . . . . . . . . . . . . . . . . 1,153
Other current assets. . . . . . . . . . . . . . . (681)
Accounts payable. . . . . . . . . . . . . . . . . 788
Accrued liabilities . . . . . . . . . . . . . . . 7,501
Accrued interest. . . . . . . . . . . . . . . . . 1,753
Other assets. . . . . . . . . . . . . . . . . . . (687)
----------
Net cash provided by operating activities. . . . . 2,217
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings . . . . . . . . . . . . . . . . . . . . 175,500
Debt repayments. . . . . . . . . . . . . . . . . . (500)
Capital contribution from Joint Venture Partners . 40,000
Payment of debt issuance costs . . . . . . . . . . (8,250)
----------
Net cash provided by financing activities. . . . . 206,750
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . (3,932)
Payments made for business acquired. . . . . . . . (196,414)
----------
Net cash used in investing activities. . . . . . . (200,346)
----------
NET CASH FLOWS:
Net increase in cash and cash equivalents. . . . . 8,621
Cash and cash equivalents, beginning of period . . --
----------
Cash and cash equivalents, end of period . . . . . $ 8,621
==========
See Note 4 regarding supplemental cash flow information.
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
FLORIDA COAST PAPER COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 -- NATURE OF OPERATIONS
Florida Coast Paper Company, L.L.C. (the "Company") was formed for the purpose
of purchasing a paperboard mill from St. Joe Forest Products Company ("St. Joe")
located in Port St. Joe, Florida (the "Mill"). The Company is a joint venture
between Stone Container Corporation ("Stone") and Four M Corporation (together,
the "Joint Venture Partners"). The purchase, which occurred on May 30, 1996,
was accounted for under the purchase method. Accordingly, the purchase price
was allocated to the net assets acquired based on estimated fair values as
supported by various company analyses some of which are still pending. The
Mill is engaged in the manufacture of mottled white and unbleached kraft
linerboard. See also Part I Item 1. Business. The Company.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR:
The Company utilizes a December 31 fiscal year end. The accompanying financial
statements are presented as of December 31, 1996 and for the period from May 30,
1996 to December 31, 1996 (the "1996 period").
ESTIMATES:
The financial statements are prepared in conformity with generally accepted
accounting principles that require the use of management estimates. Changes in
such estimates may affect amounts reported in future periods.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents and, therefore,
includes such investments as cash and cash equivalents in the financial
statements.
INVENTORIES:
Inventories are stated at the lower of cost or market. Costs for substantially
all inventories are determined using the average cost method.
Property, plant and equipment:
Property, plant and equipment is stated at cost. Expenditures for maintenance
and repairs are charged to income as incurred. Additions, improvements and major
replacements are capitalized. The cost and accumulated depreciation related to
assets sold or retired are removed from the accounts and any gain or loss is
credited or charged to income.
30
<PAGE>
Depreciation is provided on the straight-line method over the estimated useful
lives of depreciable assets based on the following annual rates:
TYPE OF ASSET: RATES
- -------------- ---------
Machinery and equipment............................. 7% to 33%
Buildings........................................... 4%
Land improvements................................... 7%
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived assets to
be Disposed of", the Company's long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
DEFERRED DEBT ISSUANCE COSTS:
Deferred debt issuance costs are amortized over the expected life of the related
debt using the interest method.
REVENUE RECOGNITION POLICY:
Revenues are recognized during the period in which such product is shipped.
INCOME TAXES:
As a limited liability company, the Company's results of operations are included
in the U.S. federal income tax returns of the Joint Venture Partners. The
Company has provided a valuation allowance for all state net operating loss
carryforwards generated.
INSURANCE RESERVES:
The Company retains portions of anticipated losses related to workers'
compensation and group medical. Liabilities in excess of specified amounts are
the responsibility of the Company's insurance carriers. Reserves have been
provided for the Company's loss retentions, based on experience and management's
best estimate. Changes in actual experience could cause these estimates to
change in the near term.
CONCENTRATION OF CREDIT RISK
A significant portion of the Company's accounts receivable are due from the
Joint Venture Partners. See Note 9 "Related party transactions."
NOTE 3 -- SUBSEQUENT EVENT
On March 5, 1997 the Company announced that on April 1, 1997 it will cease
production at the Mill until market conditions warrant a resumption of
linerboard production. Stone and Four M, the Joint Venture Partners, have
committed to fund the Company's cash operating costs, cash interest expense
and maintenance capital expenditures during the shutdown. The Company also
has a $20 million Subordinated Credit Facility provided by its Joint Venture
Partners.
31
<PAGE>
NOTE 4 -- ADDITIONAL CASH FLOW STATEMENT INFORMATION
(in thousands)
- ------------------------------------------------------ ==========
Cash paid during the 1996 period for: interest..... $ 10,577
===========
income taxes... $ --
==========
NOTE 5 -- INVENTORIES
Inventories as of December 31, 1996 are summarized as follows:
(in thousands) 1996
- --------------------------------------- -----------
Raw materials. . . . . . . . . . . . . $ 3,616
Supplies . . . . . . . . . . . . . 8,337
Finished goods and work in process . . 1,232
-----------
Total inventories. . . . . . . . . . $ 13,185
===========
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1996 is summarized as follows:
(in thousands) 1996
- -------------------------------------------------- --------
Land and land improvements . . . . . . . . . . . . $ 2,815
Buildings. . . . . . . . . . . . . . . . . . . . . 7,564
Machinery and equipment. . . . . . . . . . . . . . 181,177
Construction in progress . . . . . . . . . . . . . 1,175
---------
Total property, plant and equipment . . . . . . . 192,731
Accumulated depreciation . . . . . . . . . . . . . (7,785)
---------
Total property, plant and equipment, net. . . . . $184,946
==========
NOTE 7 -- LONG-TERM DEBT
Long-term debt at December 31, 1996 is summarized as follows:
(in thousands) 1996
- -------------------------------------------------- ----------
Senior debt:
12.75% First Mortgage Notes due June 1, 2003. . . $ 165,000
----------
Subordinated debt:
13.25% Subordinated Seller Note due June 1, 2004. 10,791
Subordinated Credit Facility. . . . . . . . . . . --
----------
Total subordinated debt. . . . . . . . . . . . . . 10,791
----------
Total long-term debt . . . . . . . . . . . . . . . $ 175,791
==========
The First Mortgage Notes (the "Notes") bear interest at a rate of 12.75% per
annum, payable semiannually on June 1 and December 1 of each year, commencing
December 1, 1996. The Company is not required to make any mandatory redemption
or sinking fund payments with respect to the Notes prior to maturity.
32
<PAGE>
Interest on the Subordinated Seller Note (the "Seller Note") is compounded
quarterly and has been added to the principal of the Seller Note rather than
being paid in cash.
In connection with the acquisition of the Mill assets, the Joint Venture
Partners have agreed to provide the Company with a $20 million subordinated line
of credit for general corporate purposes (the "Subordinated Credit Facility").
The Subordinated Credit Facility will expire 90 days after the maturity of the
Notes, and each loan made under the Subordinated Credit Facility bears interest
at a rate equal to LIBOR, plus 3.625% per annum. At December 31, 1996, there
were no borrowings outstanding under the Subordinated Credit Facility.
There are no amounts of long-term debt maturing during the next five years.
The indenture pursuant to which the Notes have been issued contains certain
covenants that, among other things, limit the ability of the Company to incur
additional indebtedness, make distributions, create certain liens, enter into
certain transactions with affiliates, sell assets or enter into certain mergers
and consolidations.
The Notes are secured by a first mortgage on all real property and improvements
comprising the Company and a first priority security interest in substantially
all of the equipment of the Company and certain other assets (but excluding,
among other things, inventories and accounts receivable).
The Seller Note contains certain covenants none of which are more restrictive
than those contained in the indenture.
The fair value of the Company's debt, based on the quoted market price at
December 31, 1996 was $190,641.
NOTE 8 -- PENSIONS
The Company has noncontributory pension plans for the benefit of all salaried
and hourly employees. The funding policy for the plans is to annually
contribute the statutory required minimum. The salaried pension plan provides
benefits based on a formula that takes into account each participant's final
average earnings. The hourly pension plan provides benefits under a flat
benefit formula. The salaried and hourly pension plans provide reduced benefits
for early retirement.
Net pension expense for the combined pension plans for the 1996 period includes
the following components:
(in thousands) 1996
- ------------------------------------------------------ ------
Service cost -- benefits earned during the period..... $ 442
Interest cost on projected benefit obligations........ 75
------
Net pension expense................................... $ 517
======
33
<PAGE>
The following table sets forth the funded status of the Company's pension plans
and the amounts recorded in the Balance Sheet:
(in thousands) DECEMBER 31, 1996
- ------------------------------------------------- -----------------
Actuarial present value of benefit obligations:
Vested benefits . . . . . . . . . . . . . . . . . $ (1,835)
Non-vested benefits . . . . . . . . . . . . . . . (391)
-----------
Accumulated benefit obligation . . . . . . . . . . (2,226)
Effect of increase in compensation levels. . . . . (70)
------------
Projected benefit obligation for service
rendered through December 31, 1996 (2,296)
Plan assets at fair value. . . . . . . . . . . . . 50
------------
Excess of projected benefit obligation over plan assets (2,246)
Unrecognized net actuarial loss. . . . . . . . . . 170
------------
Net accrual. . . . . . . . . . . . . . . . . . . . $ (2,076)
============
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligations at December 31, 1996 was 7.5
percent. The rate of increase in future compensation levels used in determining
the actuarial present value of the projected benefit obligations was 5.0
percent. The expected long-term rate of return on assets was 8.5 percent.
NOTE 9 -- RELATED PARTY TRANSACTIONS
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 1996 period, the Joint Venture
Partner's were charged an additional $8.34 million as a result of the minimum
purchase price provisions of the Output Purchase Agreement. This amount is
included in Net Sales to Joint Venture Partners in the Statement of Operations.
Furthermore, in addition to an initial investment of $40 million in the Company,
the Joint Venture Partners have severally agreed to provide the Company with a
$20 million Subordinated Credit Facility. See Note 7 "Long-term debt."
At December 31, 1996, the Company had receivables from the Joint Venture
Partners of approximately $8.6 million.
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.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company entered into a Wood Fiber Supply Agreement (the "Fiber Agreement")
with St. Joseph Land and Development Company ("St. Joe Land") pursuant to which
St. Joe Land will supply a specified quantity of pulpwood and wood chips to the
Company. The Company and St. Joe Land are currently determining the impact of
the cessation of production on the Fiber Agreement. See Note 3. The Company
may be required to make payments pursuant to the Fiber Agreement during the
shutdown period.
In accordance with the provisions of the WARN Act, in the event that the
shutdown of the Company's operations exceeds six months, the Company may be
required to provide severance payments to its employees of up to 60 days of
pay. (See Note 3)
Pursuant to the Acquisition Agreement, St. Joe Forest Products Company, St. Joe
Paper Company and St. Joe Container Company have agreed to indemnify the Company
for certain environmental matters based on activities prior to May 30, 1996.
However, there can be no assurance that this indemnification will be sufficient
to reimburse the Company for all environmental liabilities.
The Company is subject to costs arising out of environmental laws and
regulations that include obligations to remove or limit the effects on the
environment of the disposal or release of certain wastes or substances at
various sites. It is the Company's policy to accrue and charge against earnings
environmental cleanup costs when it is probable that a liability has been
incurred and an amount is reasonably estimable. As assessments and cleanups
proceed, these accruals are reviewed and adjusted, if necessary, as additional
information becomes available. St. Joe previously made significant capital
expenditures to comply with water, air and solid and hazardous waste
regulations. The Company expects to make significant expenditures in the future.
The Company's environmental capital expenditures were immaterial in 1996 and are
expected to approximate $600 thousand in 1997.
In December 1993, the U.S. Environmental Protection Agency (the "EPA") issued a
proposed rule affecting the pulp and paper industry. These proposed
regulations, informally known as the "cluster rules," would make more stringent
requirements for discharge of wastewaters under the Clean Water Act and would
impose new requirements on air emissions under the Clean Air Act. Pulp and paper
34
<PAGE>
manufacturers have submitted extensive comments to the EPA on the proposed
regulations in support of the position that requirements under the proposed
regulations are unnecessarily complex, burdensome and environmentally
unjustified. Estimates, based on currently proposed regulations, indicate that
the Company could be required to make capital expenditures of approximately $67
million (unaudited) in order to meet the requirements of the regulations,
although it is likely this estimate will decrease upon finalization of the
rules. While it cannot be predicted with certainty, it appears as though the
final cluster rules that are currently expected to be issued in 1997, will be
modified to reduce certain requirements. Assuming that the anticipated reduced
requirements are promulgated as the Company expects, the Company currently
believes it would be required to make capital expenditures of approximately $27
million (unaudited) during the period of 1998 through 2006 in order to meet the
requirements of the anticipated regulations. If the Company determines to
discontinue the production of mottled white linerboard, the Company estimates
the capital spending that may be required to comply with the anticipated
regulations could be $5 million (unaudited) (but could reach as high as $45
million (unaudited) under the currently proposed regulations). The ultimate
financial impact of the regulations on the Company cannot be accurately
estimated at this time but will depend on the nature of the final regulations,
the timing of required implementation and the cost and availability of new
technology. The Company may determine that, under the final regulations, the
costs associated with the production of mottled white linerboard may be
prohibitive and could discontinue its production. Because of the current higher
margins associated with mottled white linerboard, in the event the Company
discontinues the production of mottled white linerboard, its revenues and profit
margins could decrease.
The Company may be subject to legal proceedings involving environmental matters
such as alleged discharges into water or soil. Based on information presently
available, management believes that the ultimate disposition of such matters
would not have a material effect on the financial position, results of
operations or liquidity of the Company.
Additionally, the Company is involved in certain litigation primarily arising in
the normal course of business. In the opinion of management, the Company's
liability under any pending litigation would not materially affect its financial
condition, results of operations or liquidity.
NOTE 11 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes quarterly financial data for 1996:
(dollars in thousands)
- ----------------------
1996 SECOND(1) THIRD FOURTH
- ---------------------- -------- ------- ---------
Net sales............. $ 14,279 $43,496 $ 45,590
Cost of sales......... 14,478 43,393 44,857
Net income (loss)..... (2,138) (5,365) (6,441)
(1) Includes one month of Florida Coast's results.
35
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information from Florida Coast Paper Company,
L.L.C./Florida Coast Paper Finance Corp.'s December 31, 1996 Consolidated
Balance Sheet and Consolidated Operations and Accumulated Deficit and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001018221
<NAME> FLORIDA COAST PAPER CO LLC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8621
<SECURITIES> 0
<RECEIVABLES> 9210
<ALLOWANCES> 0
<INVENTORY> 13185
<CURRENT-ASSETS> 31697
<PP&E> 192731
<DEPRECIATION> 7785
<TOTAL-ASSETS> 225465
<CURRENT-LIABILITIES> 20542
<BONDS> 175791
0
0
<COMMON> 0
<OTHER-SE> 26056
<TOTAL-LIABILITY-AND-EQUITY> 225465
<SALES> 103365
<TOTAL-REVENUES> 103365
<CGS> 102728
<TOTAL-COSTS> 104273
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13036
<INCOME-PRETAX> (13944)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13944)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13944)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
