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 March 31, 2000
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 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 Operations 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 10
Signatures 11
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BEAR ISLAND PAPER COMPANY, L.L.C.
CONDENSED BALANCE SHEETS
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
---------------- -----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments $ 716,887 $ 981,199
Accounts receivable 13,042,878 12,360,817
Inventories 12,740,281 12,975,282
Other current assets 516,793 379,435
---------------- -----------------
Total current assets 27,016,839 26,696,733
Property, plant and equipment 202,836,101 202,487,949
Less accumulated depreciation (24,250,054) (21,428,569)
---------------- -----------------
Net property, plant and equipment 178,586,047 181,059,380
---------------- -----------------
Deferred financing costs 6,657,004 6,830,894
---------------- -----------------
Total assets $ 212,259,890 $ 214,587,007
================ =================
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Current portion of long-term debt 798,667 830,566
Accounts payable and accrued liabilities 8,644,644 9,372,565
Accrued interest payable 3,543,306 1,044,362
---------------- -----------------
Total current liabilities 12,986,617 11,247,493
Long-term debt 135,285,524 137,460,524
---------------- -----------------
Total liabilities 148,272,141 148,708,017
---------------- -----------------
Member's equity:
Contributed capital 79,581,074 77,553,705
Retained earnings (accumulated deficit) (15,593,325) (11,674,715)
---------------- -----------------
Total member's equity 63,987,749 65,878,990
---------------- -----------------
Total liabilities and member's equity $ 212,259,890 $ 214,587,007
================ =================
See accompanying notes to the condensed financial statements.
</TABLE>
1
<PAGE>
<TABLE>
BEAR ISLAND PAPER COMPANY, L.L.C.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three months ended March 31,
-----------------------------------
2000 1999
<S> <C> <C>
Net sales $ 26,368,436 $ 25,977,791
Cost of sales (25,953,004) (22,024,366)
--------------- ----------------
Gross profit 415,432 3,953,425
Selling, general and administrative expenses:
Management fees to Brant-Allen (791,053) (779,334)
Other (27,208) (79,469)
--------------- ----------------
Income (loss) from operations (402,829) 3,094,622
Other income (deductions):
Interest expense (3,537,360) (4,637,322)
Other income 21,579 44,722
--------------- ----------------
Net income (loss) $ (3,918,610) $ (1,497,978)
=============== ================
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>
Three months ended March 31,
-----------------------------------
2000 1999
<S> <C> <C>
Operating activities:
Net income (loss) $ (3,918,610) $ (1,497,978)
Adjustments to reconcile net income(loss)
to net cash provided by
operating activities:
Depreciation and depletion 2,821,485 2,570,311
Amortization of deferred financing
costs 173,890 259,361
Loss on disposal/write-down of property,
plant and equipment 160,400 52,103
Changes in current assets and liabilities:
Accounts receivable (682,061) 1,400,253
Inventory 235,001 (994,233)
Other current assets (137,358) 467,320
Accounts payable and accrued
liabilities (200,552) (1,105,077)
Accrued interest payable 2,498,944 2,523,165
---------------- ----------------
Cash provided by operating
activities 951,139 3,675,225
---------------- ----------------
Investment activities:
Purchases of property, plant and
equipment (508,552) (898,911)
Proceeds from disposal of property, plant
and equipment 6,904
---------------- ----------------
Net cash used in investing
activities (508,552) (892,007)
---------------- ----------------
Financing activities:
Principal payments on long-term debt (2,206,899) (2,496,087)
Contributions to capital from parent 1,500,000
---------------- ----------------
Net cash used in financing
activities (706,899) (2,496,087)
---------------- ----------------
Net increase (decrease)in cash (264,312) 287,131
Cash and short-term investments, beginning
of period 981,199 2,130,787
----------------- -----------------
Cash and short-term
investments, end of
period $ 716,887 $ 2,417,918
================ ================
Noncash financing activities:
Contributions from Brant-Allen $ 527,369 $ 519,557
================ ================
</TABLE>
See accompanying notes to the condensed financial statements.
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 March 31, 2000 and December 31, 1999 and
the Company's condensed results of operations and cash flows for the
three-month periods ended March 31, 2000 and 1999. 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 1999 Form 10K filed on March 30, 2000. The
December 31, 1999 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 three-month period ended March 31, 2000
should not be regarded as necessarily indicative of the results that may be
expected for the entire year.
2. The Company is a wholly owned subsidiary of Brant-Allen Industries, Inc.
("Brant-Allen"), a Delaware corporation.
A component of selling, general and administrative expenses as shown on the
statements of operations includes aggregate management fees charged by
Brant-Allen. There are restrictions on payment of the management fee.
During the three months ended March 31, 2000 and 1999, the Board of
Directors of Brant-Allen contributed the unpaid accrued portion of the
management fee amounting to $527,369 and $519,557, respectively, to the
Company's capital. This portion of the management fee is limited as to
payment by the Company to Brant-Allen under the restrictive covenants to
the $100 million principal amount of 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 March 31, 2000. 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.
There are also certain restrictions on distributions paid to Brant-Allen.
Distributions are allowed for a portion of profits in excess of certain
amounts. In addition, distributions are allowed for amounts necessary to
pay for the tax liabilities of the members resulting from the Company's
operations. During the three months ended March 31, 2000 and 1999, no
amounts were paid to Brant-Allen to pay such tax liabilities.
4
<PAGE>
BEAR ISLAND PAPER COMPANY, L.L.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
3. No provision for income taxes is required in the financial statements since
each member of the parent Company is individually liable for any income tax
that may be payable on its share of the Company's 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:
March 31, 2000 December 31, 1999
--------------- -----------------
Raw materials $ 2,592,131 $ 2,375,910
Stores 8,270,767 8,083,267
Finished goods 1,877,383 2,516,105
--------------- -----------------
$ 12,740,281 $ 12,975,282
=============== =================
5. Long-term debt consisted of:
March 31, 2000 December 31, 1999
---------------- -----------------
10% Senior Secured Notes $ 100,000,000 $ 100,000,000
Term Loan Facility 18,858,276 19,033,276
Revolving Credit Facility 17,000,000 19,000,000
Long-term purchase obligations 225,915 257,814
---------------- -----------------
136,084,191 138,291,090
Less current portion 798,667 830,566
---------------- -----------------
Total long-term debt $ 135,285,524 $ 137,460,524
================ =================
5
<PAGE>
BEAR ISLAND PAPER COMPANY, L.L.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
6. The Company was a party to a wood supply contract with Bear Island
Timberlands Company, L.L.C. ("Timberlands") an affiliate and wholly owned
subsidiary of Brant-Allen, whereby Timberlands guaranteed to supply all of
the Company's log and pulp chip requirements at market prices. During the
three months ended March 31, 2000 all log and pulp chips were purchased
from outside vendors due to the suspension of Timberlands' operations in
1998. The Company has negotiated a number of fiber supply contracts
covering approximately 183,000 cords of chips and roundwood for periods
ranging from three months to one year. During 1999, management liquidated
substantially all Company and Timberlands owned timberlands and as a result
all fiber supplies will be effectuated with independent wood suppliers.
The Company charged Timberlands for certain administrative and other
expenses. These charges approximated $66,000 and $379,000 during the three
months ended March 31, 2000 and 1999, respectively.
The Company's receivables and payables to affiliates and the Company's
sales to an affiliate were as follows:
March 31, 2000 December 31, 1999
---------------- -----------------
Due from Brant-Allen $ 41,942 $ 36,683
Due from Newsprint Sales 325,187 154,914
Due from Dow Jones & Company, Inc. 2,059,142 2,225,542
Due from Timberlands 459,684
Due from F.F. Soucy, Inc. and Partners 29,231 75,071
Due to F.F. Soucy, Inc. 10,326 70,975
Due to Timberlands 42,703
Three Months Ended March 31,
----------------------------------
2000 1999
Net sales to Dow Jones & Company, Inc. $ 4,910,285 $ 5,561,199
Net sales to Dow Jones & Company, Inc. represented approximately 19% and
21% of total sales during the three months ended March 31, 2000 and 1999,
respectively. The remaining sales were to other unaffiliated printing and
publishing enterprises located primarily in the United States.
6
<PAGE>
BEAR ISLAND PAPER COMPANY, L.L.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"),"Accounting for
Derivative Instruments and Hedging Activities." FAS 133 establishes
standards for accounting and disclosure of derivative instruments. This new
standard is effective for fiscal quarters of fiscal years beginning after
June 15, 1999. In June 1999, the FASB issued FAS No. 137, "Accounting for
Derivative and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," postponing FAS 133's effective date to fiscal quarters
of fiscal years beginning after June 15, 2000. The implementation of this
new standard is not expected to have a material effect on the Company's
results of operations or financial position.
8. During 1999, the Company and Timberlands sold substantially all of their
timberland properties. The net proceeds from these sales were utilized to
reduce (i) Timberlands debt and (ii) debt incurred by the Company and
Brant-Allen in connection with Brant-Allen's purchase of the equity
interests in Timberlands and 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 results of operations of the Company during the periods
included in the accompanying condensed statements of operations and the changes
in the Company's financial condition since December 31, 1999.
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
significantly impacts 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 the timing of shipments caused by increases and decreases
in mill inventory levels.
THREE MONTHS ENDED MARCH 31, 2000, COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Net sales increased by $0.4 million, or 1.5%, to $26.4 million in the first
quarter of 2000, from $26.0 million in the first quarter of 1999. This increase
was attributable to a 12.3% increase in sales volumes to approximately 56,600
metric tons ("tonnes") in the first quarter of 2000, from approximately 50,400
tonnes in the first quarter of 1999 and offset by a 9.7% decrease in the average
net selling price of the Company's products. The Company's net selling price for
newsprint decreased to an average of $466 per tonne in the first quarter of 2000
from an average of $516 per tonne in the first quarter of 1999.
Cost of sales increased by $4.0 million, or 18.2%, to $26.0 million in the first
quarter of 2000 from $22.0 million in the first quarter of 1999. This increase
was attributable primarily to a 5.0% increase in unit manufacturing costs per
tonne and by the 12.3% increase in sales volumes mentioned above. The increase
in unit manufacturing cost per tonne was a result of a 16.7% increase in fiber
costs primarily due to increased prices for kraft and ONP. Cost of sales as a
percentage of net sales increased to 98.5% in the first quarter of 2000, from
84.6% in the first quarter of 1999, due to depressed newsprint selling prices in
the first quarter of 2000 and increased unit costs of manufacturing as noted
above.
The Company's selling, general and administrative expenses decreased by $0.1
million, or 11.1%, to $0.8 million in the first quarter of 2000 from $0.9
million in the first quarter of 1999. This decrease was primarily attributable
to a reduction of administrative expenses.
As a result of the above factors, income from operations decreased by $3.5
million to a loss of $0.4 million in the first quarter of 2000 from a profit of
$3.1 million in the first quarter of 1999.
The Company's interest expense decreased $1.1 million, or 24.0%, to $3.5 million
in the first quarter of 2000 compared to $4.6 million in the first quarter of
1999, due to scheduled amortization of the Company's outstanding indebtedness of
$0.7 million and repayments to the Company's Term Loan Facility of $49.3 million
offset by an increase of $4.0 million in the outstanding Revolving Credit
Facility.
As a result of the above factors, the Company reported a net loss of $3.9
million in the first quarter of 2000 compared to net loss of $ 1.5 million in
the first quarter of 1999.
Liquidity and Capital Resources
The Company's principal liquidity requirements have been for working capital,
capital expenditures and debt service under the Company's loan agreements. These
requirements have been met through cash flows from operations and/or loans under
the Company's Revolving Credit Facility. In addition, the Company received a
capital contribution from Brant-Allen in the first quarter of 2000 of $1.5
million.
The Company's cash and short-term investments at March 31, 2000 were $0.7
million, representing a decrease of $0.3 million from $1.0 million at December
31, 1999. Net cash provided by operating activities was $1.0 million for the
first quarter of 2000. Cash used in financing activities in the first quarter of
2000 was $0.7 million compared to $2.5 million in the first quarter 1999 and
cash used in investing activities in the first quarter of 2000 was $0.5 million
compared to $0.9 million in the first quarter of 1999. In total, $2.7 million,
was used to cover: capital expenditures of $0.5 million and a reduction in
long-term debt including purchase obligations of $2.2 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.
In the first quarter of 2000, the Company's cash provided by operating
activities decreased by 73.0% to $1.0 million from $3.7 million in the first
quarter of 1999, primarily due to lower selling prices and higher costs of sales
resulting in a net loss in first quarter 2000 of $3.9 million compared to net
loss of $1.5 million in first quarter 1999.
8
<PAGE>
The Company made capital expenditures of $0.5 million and $0.9 million in the
first quarter of 2000 and the first quarter of 1999, respectively, in connection
with upgrading and maintaining its manufacturing facility. Management
anticipates that the Company's total capital expenditures for the balance of
2000 and 2001 will primarily relate to maintenance of its newsprint facilities
and cost reduction projects, allowing the Company to improve quality and
increase capacity, and, therefore, enhance its competitive position.
At March 31, 2000, the Company had approximately $136.1 million of indebtedness,
consisting of borrowings of $17.0 million under the Revolving Credit Facility,
$18.9 million under the Term Loan Facility, $100 million under the Notes and
approximately $0.2 million in long-term purchase obligations. In addition, $8.0
million was available in unused borrowing capacity under the Revolving Credit
Facility.
Year 2000 Compliance
With the passage of the critical January 1, 2000 and February 29, 2000 dates,
the Company and, to management's knowledge, its suppliers and its customers have
not experienced any significant business disruptions as a result of the Year
2000 date change. The Company will continue to monitor its systems and
communicate with its suppliers for ongoing Year 2000 compliance until it is
reasonably assured that no significant business interruptions are likely to
occur. Based on the actions taken by the Company and its experience to date, the
Company does not believe that its operations will be materially impacted by the
Year 2000 issue.
9
<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.
10
<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)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 717
<SECURITIES> 0
<RECEIVABLES> 13,111
<ALLOWANCES> 68
<INVENTORY> 12,740
<CURRENT-ASSETS> 27,017
<PP&E> 202,836
<DEPRECIATION> 24,250
<TOTAL-ASSETS> 212,260
<CURRENT-LIABILITIES> 12,987
<BONDS> 135,286
0
0
<COMMON> 0
<OTHER-SE> 63,988
<TOTAL-LIABILITY-AND-EQUITY> 212,260
<SALES> 26,368
<TOTAL-REVENUES> 26,368
<CGS> 25,953
<TOTAL-COSTS> 818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,537
<INCOME-PRETAX> (3,919)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,919)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,918)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
