SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE EXCHANGE ACT OF 1934
Commission file number: 333-42201
BEAR ISLAND PAPER COMPANY, L.L.C.
(Exact name of registrant as specified in its charter)
Virginia 06-0980835
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
10026 Old Ridge Road
Ashland, VA
(Address of Principal Executive Offices)
23005
(Zip Code)
(804) 227-3394
(Registrant's telephone number, including area code)
Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report: Not Applicable
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 and
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Not Applicable.
<PAGE>
BEAR ISLAND PAPER COMPANY, L.L.C.
INDEX
Page(s)
Part I. Financial Information
Item 1
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Cash Flows 3
Notes to Condensed Financial Statements 4
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BEAR ISLAND PAPER COMPANY, L.L.C.
CONDENSED BALANCE SHEETS
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
---------------- -----------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and short-term investments $ 2,612,642 $ 1,353,049
Accounts receivable 14,030,510 14,133,335
Inventories 13,494,078 14,213,313
Other current assets 560,606 147,911
---------------- -----------------
Total current assets 30,697,836 29,847,608
Property, plant and equipment 200,416,897 195,084,008
Less accumulated depreciation 8,394,623 822,264
---------------- -----------------
Net property, plant and equipment 192,022,274 194,261,744
---------------- -----------------
Deferred financing costs 8,385,995 8,375,199
---------------- -----------------
Total assets $ 231,106,105 $ 232,484,551
================ =================
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Current portion of long-term debt 953,958 880,304
Accounts payable and accrued liabilities 9,935,942 9,446,785
Accrued interest payable 3,780,884 1,344,915
---------------- -----------------
Total current liabilities 14,670,784 11,672,004
Long-term debt 183,775,000 195,555,000
---------------- -----------------
Total liabilities 198,445,784 207,227,004
---------------- -----------------
Member's equity:
Contributed capital 27,536,910 25,469,737
Retained earnings (accumulated deficit) 5,123,411 (212,190)
---------------- -----------------
Total member's equity 32,660,321 25,257,547
---------------- -----------------
Total liabilities and member's equity $ 231,106,105 $ 232,484,551
================ =================
See accompanying notes to the condensed financial statements.
</TABLE>
1
<PAGE>
<TABLE>
BEAR ISLAND PAPER COMPANY, L.L.C.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Company Predecessor Company Predecessor
--------------- ---------------- ---------------- ----------------
Three months ended September 30, Nine months ended September 30,
----------------------------------- -----------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 31,025,905 $ 29,482,270 $ 92,530,816 $ 85,372,576
Cost of sales 23,721,041 26,023,300 69,667,290 77,224,807
--------------- ---------------- ---------------- ----------------
Gross profit 7,304,864 3,458,970 22,863,526 8,147,769
Selling, general and administrative expenses:
Management fees to Brant-Allen (930,777) (884,468) (2,775,924) (2,561,177)
Other (72,811) (284,414) (623,503) (668,182)
--------------- ---------------- ---------------- ----------------
Income from operations 6,301,276 2,290,088 19,464,099 4,918,410
Other income (deductions):
Interest expense (4,571,376) (1,167,188) (14,285,596) (3,592,344)
Other income 65,863 160,551 157,098 477,657
--------------- ---------------- ---------------- ----------------
Net income $ 1,795,763 $ 1,283,451 $ 5,335,601 $ 1,803,723
=============== ================ ================ ================
See accompanying notes to the condensed financial statements.
</TABLE>
2
<PAGE>
<TABLE>
BEAR ISLAND PAPER COMPANY, L.L.C.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Company Predecessor
---------------- ----------------
Nine months ended September 30,
-----------------------------------
1998 1997
Operating activities:
<S> <C> <C>
Net income $ 5,335,601 $ 1,803,723
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and depletion 7,572,359 8,303,929
Amortization of deferred financing
costs 514,474 44,433
(Gain) on sale of property, plant
and equipment (134,300)
Changes in current assets and liabilities:
Accounts receivable 102,825 1,994,552
Notes receivable 13,548
Inventory 719,235 83,318
Other current assets (412,695) (276,498)
Accounts payable and accrued
liabilities 2,556,330 (2,717,490)
Accrued interest payable 2,435,969 1,102,344
---------------- ----------------
Cash provided by operating
activities 18,824,098 10,217,559
---------------- ----------------
Investment activities:
Purchases of property, plant and
equipment (5,332,889) (5,724,037)
Proceeds from disposition of property,
plant and equipment 134,300
---------------- ----------------
Net cash used in investing
activities (5,332,889) (5,589,737)
---------------- ----------------
Financing activities:
Principal payments on long-term debt (11,706,346) (4,947,602)
Payment of deferred financing costs (525,270)
---------------- ----------------
Net cash used in financing
activities (12,231,616) (4,947,602)
---------------- ----------------
Net increase (decrease) in cash 1,259,593 (319,780)
Cash and short-term investments, beginning
of period 1,353,049 13,625,322
----------------- -----------------
Cash and short-term
investments, end of
period $ 2,612,642 $ 13,305,542
================ ================
Increase in promissory notes for
equipment acquisition $ 533,680
================
Noncash financing activities:
Contributions from Brant-Allen $ 2,067,173
================
See accompanying notes to the condensed financial statements.
</TABLE>
3
<PAGE>
BEAR ISLAND PAPER COMPANY, L.L.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management, the accompanying condensed financial
statements of Bear Island Paper Company, L.L.C. (the "Company") contain all
adjustments necessary to present fairly, in all material respects, the
Company's financial position as of September 30, 1998 and December 31, 1997
and the Company's condensed results of operations for the three and nine
month periods ended September 30, 1998 and the condensed results of
operations of the predecessor, Bear Island Paper Company, L.P. (the
"Predecessor"), for the three and nine month periods ended September 30,
1997 as well as the condensed cash flows of the Company and Predecessor for
the nine month periods ended September 30, 1998 and 1997, respectively. All
adjustments are of a normal and recurring nature. These condensed financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10K filed on April 30, 1998.
The December 31, 1997 balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
The results of operations for the nine months period ended September 30,
1998 should not be regarded as necessarily indicative of the results that
may be expected for the entire year.
2. Effective December 1, 1997, the Company completed the purchase of the 70%
partnership interest (the "Acquisition") in the Predecessor (the Company
and Predecessor are collectively referred to as the "Companies") previously
owned by subsidiaries of Dow Jones & Company, Inc. ("Dow Jones") and The
Washington Post Company (the "Washington Post"). Immediately before the
Acquisition and certain related financings which were used to facilitate
the funding of the Acquisition, the Predecessor was converted into Bear
Island Mergerco, L.L.C. ("Mergerco") and Mergerco was then merged into the
Company with the Company being the surviving entity. The Company is a
wholly owned subsidiary of Brant-Allen Industries, Inc. ("Brant-Allen"), a
Delaware corporation.
The Company accounted for the Acquisition as a purchase. The allocation of
the purchase price resulted in purchase adjustments being applied to assets
and liabilities acquired. In this connection, since Brant-Allen was an
owner of a 30% interest in the Predecessor prior to the Acquisition,
purchase adjustments were applied to adjust 70% of the basis of the assets
and liabilities acquired to fair value. As a result of the Acquisition and
new basis of accounting, the Company's financial statements for the period
subsequent to the Acquisition are not comparable to the Predecessor's
financial statements for the periods prior to the Acquisition.
4
<PAGE>
BEAR ISLAND PAPER COMPANY, L.L.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
On January 30, 1998, the Company became subject to the information
requirements of the Securities Exchange Act of 1934, as amended, and is
required to file reports and other information with the United States
Securities and Exchange Commission.
3. No provision for income taxes is required in the financial statements since
each member or partner (prior to the Acquisition) is individually liable
for any income tax that may be payable on its share of the Companies'
taxable income.
4. Finished goods and raw materials inventories are valued at the lower of
cost or market, with cost determined on the first-in, first-out ("FIFO")
basis. Stores inventories are valued at the lower of average cost or
market.
Inventories consisted of:
September 30, December 31,
--------------- ----------------
1998 1997
Raw materials $ 3,829,237 $ 4,085,044
Stores 8,936,217 9,105,893
Finished goods 728,624 1,022,376
--------------- ----------------
$ 13,494,078 $ 14,213,313
=============== ================
5. Long-term debt consisted of:
September 30, December 31,
---------------- -----------------
1998 1997
Senior Secured Notes $ 100,000,000 $ 100,000,000
Term Loan Facility 69,475,000 70,000,000
*Revolving Credit Facility 15,000,000 26,000,000
Long-term purchase obligations 253,958 435,304
---------------- -----------------
184,728,958 196,435,304
Less current portion 953,958 880,304
---------------- -----------------
Total long-term debt $ 183,775,000 $ 195,555,000
================ =================
*Available credit line on September 30, 1998 approximately $31.3 million
5
<PAGE>
BEAR ISLAND PAPER COMPANY, L.L.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
6. A component of selling, general and administrative expenses as shown on the
statements of income includes aggregate management fees charged by
Brant-Allen.
During the nine months ended September 30, 1998 the board of directors of
the Company's parent, Brant-Allen, contributed the unpaid accrued portion
of the management fee totaling $2,067,173 through September 30, 1998 to the
Company's capital. This portion of the management fee is limited as to
payment in cash by the Company to Brant-Allen under the indenture governing
the Company: $100 million principal amount 10% Senior Secured Notes due
2007 (the "Notes"). The contribution of this accrued liability has been
reflected as an addition to contributed capital in the accompanying
condensed balance sheet at September 30, 1998. Brant-Allen's board also
agreed that until further action is taken by the board, future accrued fees
(which are not payable in cash because of the Notes' restrictive covenants)
should be contributed to the Company's capital.
The Predecessor was a party to a wood supply contract with Bear Island
Timberlands Company, L.P. ("Timberlands"), an affiliate, whereby
Timberlands had guaranteed to supply all of the Predecessor's log and pulp
chip requirements at prices negotiated annually. Concurrent with the
Acquisition, the Company modified certain terms of the wood supply contract
with Bear Island Timberlands Company L.L.C. ("BITCO"), the successor to
Timberlands and a wholly-owned subsidiary of Brant-Allen. Purchases under
the wood supply contract approximated $991,500 and $2,137,000 for the three
and nine month periods ended September 30, 1998, and $4,210,000 and
$10,982,000 for the three and nine month periods ended September 30, 1997,
respectively.
The Predecessor recognized costs of approximately $613,000 and $1,641,000
for recycling procurement fees paid to Timberlands during the three and
nine month periods ended September 30, 1997, respectfully, which are
included in cost of sales in the accompanying condensed financial
statements.
The Companies charged BITCO and Timberlands for certain administrative and
other expenses. These charges approximated $175,000 and $560,000 during the
three and nine month periods ended September 30, 1998 and $350,000 and
$1,068,000 during the three and nine month periods ended September 30,
1997, respectively.
The Company's receivables and payables and the Companies' sales to partners
and affiliates were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
---------------- ----------------
1998 1997
<S> <C> <C>
Due from Brant-Allen $ 35,468 $ 1,193,315
Due from Dow Jones 2,442,719 1,930,538
Due from BITCO 19,088 42,029
Due to F. F. Soucy, Inc., a wholly owned subsidiary of
Brant-Allen 85,632 109,901
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
Net sales to Dow Jones $ 6,804,271 $ 6,506,925 $ 19,992,012 $ 18,632,950
Net sales to The Washington Post * 5,950,125 * 19,542,872
</TABLE>
Sales to Dow Jones represented approximately 22% of total sales during the
three and nine month periods ended September 30, 1998 and 1997. Sales to
The Washington Post represented approximately 20% and 23% of total sales
during the three and nine month periods ended September 30, 1997. The
remaining sales were to other unaffiliated printing and publishing
enterprises located primarily in the eastern United States.
*Effective December 1, 1997 no longer a partner or affiliate.
6
<PAGE>
BEAR ISLAND PAPER COMPANY, L.L.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. The Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
("SFAS No. 131") in June 1997, which became effective for fiscal years
beginning after December 31, 1997. SFAS No. 131 establishes standards for
reporting information about operating segments, including related
disclosures about products and services, geographic areas, and major
customers. Interim reporting disclosures are not required in the first year
of adoption and are therefore not provided. At the time of adoption of SFAS
No. 131, this standard is not expected to have a material impact on the
financial position or results of operations of the Company since the
Company operates as one segment.
Statement of Financial Accounting Standards No. 132 ("SFAS No. 132"),
"Employers' Disclosures about Pensions and Other Postretirement Benefits,"
was issued by the Financial Accounting Standards Board in February 1998,
which is effective for all years beginning after December 31, 1997. This
statement revises employers' disclosures about pension and other
postretirement benefit plans. Implementation of SFAS No. 132 is not
expected to significantly change the Company's current disclosures when
adopted in the fourth quarter of 1998.
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued
by the Financial Accounting Standards Board in June 1998, which is
effective for all fiscal quarters of all fiscal years beginning after June
15, 1999. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. At the time of adoption of
SFAS No. 133, this standard is not expected to have a material impact on
the financial position or results of operations of the Company.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors affecting the Company's results of operations and the
Predecessor during the periods included in the accompanying condensed statements
of income and the changes in the Company's financial condition since December
31, 1997. Some of the information presented in the following discussion,
including certain disclosures made related to the Year 2000, constitutes
forward-looking comments within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes its expectations are based on
reasonable assumptions within the bounds of knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include, without limitation, the timing of orders
received from customers, the gain or loss of significant customers, competition
from other manufacturers, a significant rise in interest rates, changes in
demand for the Company's products, results of testing systems for year 2000
compliance and costs to remediate non-Year 2000 complaint systems, disruption of
business caused by failure of vendors, suppliers, or customers to be Year 2000
compliant, non-Year 2000 complaint equipment, or the loss of electrical power
due to non-Year 2000 complaint energy providers. In addition, increases in the
cost of the product, changes in the market in general and significant changes in
new product introduction could result in actual results varying from
expectations.
General
The Company manufactures and is dependent on one product, newsprint,
which is used in general printing and the newspaper publishing industry and for
advertising circulars. Accordingly, demand for newsprint fluctuates with the
economy, newspaper circulation and purchases of advertising lineage which may
significantly impact the Company's selling price of newsprint and, therefore,
its revenues and profitability. In addition, variation in the balance between
supply and demand as a result of global capacity additions have an increasing
impact on both selling prices and inventory levels in the North American
markets. Capacity is typically added in large blocks because of the scale of new
newsprint machines.
As a result, the newsprint market is highly cyclical, depending on
changes in global supply, demand and inventory levels. These factors
significantly impact the Company's sales volume and newsprint prices and,
therefore, the Company's revenues and profitability. Given the commodity nature
of newsprint, the Company, like other suppliers to this market, has little
influence over the timing and extent of price changes. Sales are recognized at
the time of shipment from the Company's mill. However, significant fluctuations
in revenue can and do occur as a result of changes in market conditions.
In December, 1997, the Company purchased the 70% Limited Partnership
interests of the Predecessor owned equally by subsidiaries of The Washington
Post Company, Inc. and Dow Jones & Company, Inc. (the "Acquisition"). Funding
for the Acquisition was provided through the issuance of $100 million principal
amount of 10% Senior Secured Notes due 2007 (the "Notes") and $120 million
principal amount of bank debt (the "Bank Credit Facilities") comprised of a $70
million principal amount Term Loan Facility and a $50 million Revolving Credit
Facility. Following the Acquisition 100% of the Company was owned by Brant-Allen
Industries, Inc. ("Brant-Allen"), the original general partner of the
Predecessor.
During the nine months ended September 30, 1998 the board of directors
of the Company's parent, Brant-Allen, contributed the unpaid accrued portion of
the management fee totaling $2,067,173 through September 30, 1998 to the
Company's capital. This portion of the management fee is limited as to payment
in cash by the Company to Brant-Allen under the indenture governing the Notes.
The contribution of this accrued liability has been reflected as an addition to
contributed capital in the accompanying condensed balance sheet at September 30,
1998. Brant-Allen's board also agreed that until further action is taken by the
board, future accrued fees (which are not payable in cash because of the Notes'
restrictive covenants) should be contributed to the Company's capital.
THREE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Net sales increased by $1.5 million, or 5.2%, to $31.0 million in the
third quarter of 1998, from $29.5 million in the third quarter of 1997. This
increase was attributable to a 5.5% increase in the average net selling price of
the Company's products. Sales volumes remained constant at approximately 56,300
tons.
Cost of sales decreased by $2.3 million, or 8.8% to $23.7 million in
the third quarter of 1998 from $26.0 million in the third quarter of 1997. This
decrease was attributable primarily to an 8.7% decrease in unit manufacturing
costs per ton. The decrease in unit manufacturing cost per ton was a result of a
8
<PAGE>
27.5% decrease in fiber costs primarily due to a 37.4% decrease in the price of
wood in the third quarter of 1998 to reflect the pricing of wood fiber on a
market basis that is being used after consummation of the Acquisition from a
non-arms length fixed price basis including upcharges in the third quarter of
1997 that was used prior to the Acquisition. Cost of sales as a percentage of
net sales decreased to 76.4% in the third quarter of 1998, from 88.3% in the
third quarter of 1997, due to depressed newsprint selling prices in the third
quarter of 1997 and reduced unit costs of manufacturing as noted above.
Selling, general and administrative expenses decreased by $0.2 million,
or 14.4%, to $1.0 million in the third quarter of 1998 from $1.2 million in the
third quarter of 1997. This decrease was primarily attributable to a decrease in
certain general expenses.
As a result of the above factors, income from operations increased by
$4.0 million to $6.3 million in the third quarter of 1998 from $2.3 million in
the third quarter of 1997.
Interest expense increased by $3.4 million to $4.6 million in the third
quarter of 1998 from $1.2 million in the third quarter of 1997, due to the
increase in the Company's indebtedness as a result of the Transaction.
As a result of the above factors, the Company's net income increased by
$0.5 million to $1.8 million in the third quarter of 1998 from $ 1.3 million in
the third quarter of 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Net sales increased by $7.1 million, or 8.4%, to $92.5 million in the
first nine months of 1998, from $85.4 million in the first nine months of 1997.
This increase was attributable to a 9.6 % increase in the average net selling
price of the Company's products and was offset, in part, by a 1.1% decrease in
sales volumes to approximately 167,400 tons in the first nine months of 1998
from approximately 169,300 tons in the first nine months of 1997.
Cost of sales decreased by $7.5 million, or 9.8 %, to $69.7 million in
the first nine months of 1998 from $77.2 million in the first nine months of
1997. This decrease was attributable primarily to an 8.8% decrease in unit
manufacturing costs per ton and a 1.1% decrease in sales volumes. The decrease
in unit manufacturing cost per ton was a result of a 24.3% decrease in fiber
costs primarily due to a 32.5% decrease in the cost of wood in the first nine
months of 1998 to reflect the pricing of wood fiber on a market basis that is
being used after consummation of the Acquisition from a non arms length fixed
price basis including upcharges in the first nine months of 1997 that was used
prior to the Acquisition. Cost of sales as a percentage of net sales decreased
to 75.3% in the first nine months of 1998, from 90.5% in the first nine months
of 1997, due to depressed newsprint selling prices in the first nine months of
1997 and reduced unit costs of manufacturing in 1998 as described above.
Selling, general and administrative expenses increased by $0.2 million,
or 5.3 %, to $3.4 million in the first nine months of 1998 from $3.2 million in
the first nine months of 1997. This increase was primarily attributable to an
increase in the management fee paid by the Company to Brant-Allen that resulted
from higher net sales, the additional administrative and regulatory expenses
incurred as a result of the Company's issuance of the Notes, offset by a
decrease in certain general expenses.
As a result of the above factors, income from operations increased by
$14.5 million to $19.4 million in the first nine months of 1998 from $4.9
million in the first nine months of 1997.
Interest expense increased by $10.7 million to $14.3 million in the
first nine months of 1998 from $3.6 million in the first nine months of 1997,
due to the increase in the Company's indebtedness as a result of the
Acquisition.
As a result of the above factors, the Company's net income increased by
$3.5 million to $5.3 million in the first nine months of 1998 from $ 1.8 million
in the first nine months of 1997.
9
<PAGE>
Liquidity and Capital Resources
Historically, the Company's principal liquidity requirements have been
for working capital, capital expenditures and debt service. These requirements
have been met through cash flows from operations and/or loans and equity
contributions from either Brant-Allen or the Company's former limited partners,
subsidiaries of Dow Jones and The Washington Post. Following the Acquisition,
the Company's principal liquidity requirements are expected to be principally
for working capital, debt service under the Bank Credit Facilities and the Notes
and the funding of capital expenditures.
The Company's cash and short-term investments at September 30, 1998
were $2.6 million, representing an increase of $1.2 million from $1.4 million at
December 31, 1997. Cash flows from operating activities during the nine months
ended September 30, 1998 were used to cover capital expenditures of $5.3 million
in connection with upgrading and maintaining it's manufacturing facility and to
reduce long-term debt by $11.7 million. The Company anticipates that cash
provided from operations in the future, combined with borrowings under the
Revolving Credit Facility will be sufficient to pay its operating expenses,
satisfy debt-service obligations and fund capital expenditures.
Management anticipates that the Company's total capital expenditures
for the balance of 1998 and 1999 will primarily relate to maintenance of its
newsprint facilities and cost reduction projects, allowing the Company to
improve quality and, therefore, enhance its competitive position.
At September 30, 1998, the Company had approximately $184.7 million of
indebtedness, consisting of borrowings of $15 million under the Revolving Credit
Facility, $69.5 million under the Term Loan Facility, $100 million under the
Notes and approximately $0.2 million in long-term purchase obligations. In
addition, $31.3 million was available in unused borrowing capacity under the
Revolving Credit Facility.
Year 2000 Compliance
The Company has made a review of its information technology and
non-information technology systems and is in the process of modifying, upgrading
or replacing its computer software applications and systems to accommodate the
"Year 2000" dating changes necessary to permit correct recording of year dates
for 2000 and later years.
The Company does not, at the present time, have sufficient information
to estimate the cost through completion of modifying all of the required
systems, however, the Company does not anticipate that the cost of its Year 2000
compliance program will be material to its financial condition or results of
operations.
The Company believes that it will be able to achieve compliance by the
end of 1999, and does not currently anticipate any material disruption in its
operations as the result of any failure by the Company to be in compliance.
During 1999, the Company plans to develop a contingency plan should it fail to
implement all necessary "Year 2000" program changes prior to December 31, 1999.
The Company does not currently have information concerning the
compliance status of its non-affiliated suppliers and customers. With the
exception of electrical energy which the Company has not determined its
supplier's Year 2000 compliance, no vendor's non-compliance would have a
material effect on the Company's operations. The most reasonably likely worst
case scenario is that the Company will operate non-compliant applications on a
manual basis until, complaint applications can be installed of modified. These
costs could have a material adverse effect on the Company's financial condition
and results of operations.
10
<PAGE>
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27, Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
11
<PAGE>
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, there unto duly authorized.
BEAR ISLAND PAPER COMPANY, L.L.C.
By: /s/ Peter M. Brant
----------------------------
Peter M. Brant
President, Chairman of the Board and
Chief Executive Officer
By: /s/ Edward D. Sherrick
----------------------------
Edward D. Sherrick
Vice President of Finance
(Principal Financial Officer and
Chief Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,613
<SECURITIES> 0
<RECEIVABLES> 14,104
<ALLOWANCES> 73
<INVENTORY> 13,494
<CURRENT-ASSETS> 30,698
<PP&E> 200,417
<DEPRECIATION> 8,395
<TOTAL-ASSETS> 231,106
<CURRENT-LIABILITIES> 14,671
<BONDS> 183,775
0
0
<COMMON> 0
<OTHER-SE> 32,660
<TOTAL-LIABILITY-AND-EQUITY> 231,106
<SALES> 92,531
<TOTAL-REVENUES> 92,688
<CGS> 69,667
<TOTAL-COSTS> 3,399
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,286
<INCOME-PRETAX> 5,336
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,336
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,336
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
