<PAGE>
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, 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 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.
1
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BEAR ISLAND PAPER COMPANY, L.L.C.
INDEX
Page(s)
Part I. Financial Information
Item 1 Financial Statements
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 6
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BEAR ISLAND PAPER COMPANY, L.L.C.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
---------------- -----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments $ 1,716,760 $ 981,199
Accounts receivable, net 12,345,441 12,360,817
Inventories 12,528,596 12,975,282
Other current assets 588,104 379,435
---------------- -----------------
Total current assets 27,178,901 26,696,733
Property, plant and equipment 204,289,566 202,487,949
Less accumulated depreciation 29,758,023 21,428,569
---------------- -----------------
Net property, plant and equipment 174,531,543 181,059,380
---------------- -----------------
Deferred financing costs, net 6,327,656 6,830,894
---------------- -----------------
Total assets $ 208,038,100 $ 214,587,007
================ =================
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Current portion of long-term debt 827,954 830,566
Accounts payable and accrued liabilities 8,428,425 9,372,565
Accrued interest payable 3,595,560 1,044,362
---------------- -----------------
Total current liabilities 12,851,939 11,247,493
Long-term debt 133,808,276 137,460,524
---------------- -----------------
Total liabilities 146,660,215 148,708,017
---------------- -----------------
Member's equity:
Contributed capital 79,581,074 77,553,705
Retained earnings (accumulated deficit) (18,203,189) (11,674,715)
---------------- -----------------
Total member's equity 61,377,885 65,878,990
---------------- -----------------
Total liabilities and member's equity $ 208,038,100 $ 214,587,007
================ =================
</TABLE>
See accompanying notes to the condensed financial statements.
1
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BEAR ISLAND PAPER COMPANY, L.L.C.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $ 28,259,755 $ 26,009,215 $ 82,267,893 $ 78,461,104
Cost of sales 23,157,209 24,536,072 73,358,028 70,541,018
--------------- ---------------- ---------------- ----------------
Gross profit 5,102,546 1,473,143 8,909,865 7,920,086
Selling, general and administrative expenses:
Management fees to Brant-Allen (282,598) (780,276) (1,350,048) (2,353,833)
Other (16,845) (28,523) (91,616) (303,328)
--------------- ---------------- ---------------- ----------------
Income from operations 4,803,103 664,344 7,468,201 5,262,925
Other income (deductions):
Interest expense (3,594,957) (4,501,105) (10,671,742) (13,532,428)
Other income (expense) 115,547 20,204 189,112 397,197
--------------- ---------------- ---------------- ----------------
Net income (loss) $ 1,323,693 $ (3,816,557) $ (3,014,429) $ (7,872,306)
=============== ================ ================ ================
</TABLE>
See accompanying notes to the condensed financial statements.
2
<PAGE>
BEAR ISLAND PAPER COMPANY, L.L.C.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-----------------------------------
2000 1999
<S> <C> <C>
Operating activities:
Net income (loss) $ (3,014,429) $ (7,872,306)
Adjustments to reconcile net (loss)
to net cash provided by
operating activities:
Depreciation and depletion 8,329,454 8,015,311
Amortization of deferred financing
costs 503,238 627,977
Loss/(Gain) on disposal/write-down of
property, plant and equipment 160,400 (261,706)
Changes in current assets and liabilities:
Accounts receivable 15,376 1,338,691
Inventory 446,686 1,226,859
Other current assets (208,669) (121,839)
Accounts payable and accrued
liabilities (416,771) 642,958
Accrued interest payable 2,551,198 2,434,220
---------------- ----------------
Cash provided by operating
activities 8,366,483 6,030,165
---------------- ----------------
Investment activities:
Purchases of property, plant and
equipment (1,962,017) (2,178,944)
Proceeds from disposal of property, plant
and equipment -- 596,706
---------------- ----------------
Net cash used in investing
activities (1,962,017) (1,582,238)
---------------- ----------------
Financing activities:
Proceeds from issuance of long-term
debt 4,000,000 5,000,000
Principal payments on long-term debt (7,654,860) (17,765,658)
Tax distribution to parent (3,514,045) (3,564,902)
Contributions to capital from parent 1,500,000 11,200,000
---------------- ----------------
Net cash used in financing
activities (5,668,905) (5,130,560)
---------------- ----------------
Net increase (decrease) in cash 735,561 (682,633)
Cash and short-term investments, beginning
of period 981,199 2,130,787
----------------- -----------------
Cash and short-term
investments, end of
period $ 1,716,760 $ 1,448,154
================ ================
Noncash financing activities:
Contributions from Brant-Allen $ 527,369 $ 1,569,224
================ ================
</TABLE>
See accompanying notes to the condensed financial statements.
3
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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, 2000 and December 31, 1999
and the Company's condensed results of operations for the three- and
nine-month periods ended September 30, 2000 and 1999 as well as the
Company's condensed cash flows for the nine-month periods ended September
30, 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 nine-month period ended September 30,
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. Prior to April 1, 2000 there were restrictions on payment of
the management fee. During the nine months ended September 30, 2000 and
prior to April 1, 2000 the Board of Directors of Brant-Allen contributed
unpaid accrued portions of the management fee totaling $527,369 to the
Company's capital. The corresponding management fee and contribution for
the nine-month period ended September 30, 1999 was $1,569,224. This portion
of the management fee was limited as to payment in cash 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 had been reflected as an addition to contributed
capital in the accompanying condensed balance sheet at September 30, 2000.
Effective April 1, 2000, the Company amended this arrangement reducing the
management fee to 1% of net sales from 3% of net sales and eliminating any
restrictions on payment. This had the effect of reducing selling, general
and administrative expenses by $565,000 and $1,118,000 during the quarter
and the nine-months ended September 30, 2000, respectively.
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 nine-months ended September 30, 2000 $3,514,045 was
paid to Brant-Allen to pay such tax liabilities. In the nine-months ended
September 30, 1999 $3,564,902 was paid to Brant-Allen for such tax
liabilities.
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 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:
September 30, 2000 December 31, 1999
------------------ -----------------
Raw materials $ 2,139,977 $ 2,375,910
Stores 7,974,386 8,083,267
Finished goods 2,414,233 2,516,105
--------------- -----------------
$ 12,528,596 $ 12,975,282
=============== =================
5. Long-term debt consisted of:
September 30, 2000 December 31, 1999
------------------ -----------------
Senior Secured Notes $ 100,000,000 $ 100,000,000
Term Loan Facility 18,508,276 19,033,276
Revolving Credit Facility 16,000,000 19,000,000
Long-term purchase obligations 127,954 257,814
---------------- -----------------
134,636,230 138,291,090
Less current portion 827,954 830,566
---------------- -----------------
Total long-term debt $ 133,808,276 $ 137,460,524
================ =================
4
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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
nine months ended September 30, 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 $125,000 and $980,000 during the nine
months ended September 30, 2000 and 1999, respectively.
The Company's receivables and payables and the Company's sales to an
affiliate were as follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Due from Brant-Allen $ 24,837 $ 91,309
Due from Newsprint Sales 537,177 339,545
Due from Dow Jones & Company, Inc. 2,833,196 2,172,968
Due from F.F. Soucy, Inc. and Partners 65,589 10,964
Due from F.F. Soucy, Inc. 26,496 2,497
Due to Timberlands 261,301 11,791
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months ended September 30,
2000 1999 2000 1999
---------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Net sales to Dow Jones & Company, Inc. $ 6,524,047 $ 5,038,687 $ 17,412,824 $ 15,989,005
</TABLE>
Sales to Dow Jones & Company, Inc. represented approximately 23% and 21% of
total sales during the three- and nine- month periods ended September 30,
2000 and 19% and 20% during the three- and nine- month periods ended
September 30, 1999, respectively. The remaining sales were to other
unaffiliated printing and publishing enterprises located primarily in the
eastern United States.
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. 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.
5
<PAGE>
ITEM II.
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 SEPTEMBER 30, 2000, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Net sales increased by $2.3 million, or 8.8%, to $28.3 million in the third
quarter of 2000, from $26.0 million in the third quarter of 1999. This increase
was attributable to a 19.9% increase in the average net selling price of the
Company's products and was offset in part by a 9.2% decrease in sales volumes to
approximately 54,000 metric tons ("tonnes") in the third quarter of 2000, from
approximately 59,500 tonnes in the third quarter of 1999. The Company's net
selling price for newsprint increased to an average of $524 per tonne in the
third quarter of 2000 from an average of $437 per tonne in the third quarter of
1999.
Cost of sales decreased by $1.3 million, or 5.3%, to $23.2 million in the third
quarter of 2000 from $24.5 million in the third quarter of 1999. This decrease
was attributable primarily to a 9.2% decrease in sales volumes as mentioned
above and offset in part by a 4.4% increase in unit manufacturing costs per ton.
The increase in unit manufacturing cost per tonne was a result of an overall net
cost increase in the manufacturing process and an increase in major maintenance
expenditures of $0.4 million during the third quarter of 2000. Cost of sales as
a percentage of net sales decreased to 82.0% in the third quarter of 2000, from
94.2% in the third quarter of 1999, due to a net increase in newsprint selling
prices in the third quarter of 2000 and partially offset by the increase in unit
costs of manufacturing as noted above.
The Company's selling, general and administrative expenses decreased by $0.5
million, or 62.5%, to $0.3 million in the third quarter of 2000 from $0.8
million in the third quarter of 1999. This decrease was attributable to the 200
basis points reduction in the management fee to Brant-Allen. Effective April 1,
2000 the management fee to Brant-Allen for administrative services was reduced
from 3% to 1%.
As a result of the above factors, income from operations increased by $4.1
million to $4.8 million in the third quarter of 2000 from $0.7 million in the
third quarter of 1999.
The Company's interest expense decreased $0.9 million, or 20.0%, to $3.6 million
in the third quarter of 2000 compared to $4.5 million in the third quarter of
1999, due to scheduled amortization of the Company's outstanding indebtedness,
accelerated repayments on the Company's Term Loan Facility as a result of the
liquidation of timberlands and lower outstanding balances on the Company's
Revolving Credit Facility.
As a result of the above factors, the Company reported net income of $1.3
million in the third quarter of 2000 compared to a net loss of $3.8 million in
the third quarter of 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1999
Net sales increased by $3.8 million, or 4.8%, to $82.3 million in the first nine
months of 2000, from $78.5 million in the first nine months of 1999. This
increase was attributable to a 6.0% increase in the average net selling price of
the Company's products, offset by a 0.7% decrease in sales volumes to
approximately 166,000 tonnes in the first nine months of 2000, from
approximately 167,100 tonnes in the first nine months of 1999. The Company's net
selling price for newsprint increased to an average of $496 per tonne in the
first nine months of 2000 from an average of $468 per tonne in the first nine
months of 1999.
Cost of sales increased by $2.9 million, or 4.1%, to $73.4 million in the first
nine months of 2000 from $70.5 million in the first nine months of 1999. This
increase was attributable primarily to a 4.7% increase in unit manufacturing
costs per tonne, offset in part by the 0.6% decrease in sales volumes, mentioned
above. The increase in unit manufacturing cost per tonne was a result of a 7.2%
increase in fiber costs primarily due to increased prices for old newspaper
("ONP") and an increase in major maintenance expenditures of $0.4 million during
the third quarter of 2000. Cost of sales as a percentage of net sales decreased
to 89.2% in the first nine months of 2000, from 89.8% in the first nine months
of 1999, due to the net increase in newsprint selling prices in the first nine
months of 2000 and partially offset by the increase in unit costs of
manufacturing as noted above.
6
<PAGE>
The Company's selling, general and administrative expenses decreased by $1.3
million, or 48.2%, to $1.4 million in the first nine months of 2000 from $2.7
million in the first nine months of 1999. This decrease was attributable to the
200 basis points reduction in the management fee to Brant-Allen for the period
April 1, 2000 through September 30, 2000. Effective April 1, 2000 the management
fee to Brant-Allen for administrative services was reduced from 3% to 1%.
As a result of the above factors, income from operations increased by $2.2
million to $7.5 million in the first nine months of 2000 from $5.3 million in
the first nine months of 1999.
The Company's interest expense decreased $2.8 million, or 20.7%, to $10.7
million in the first nine months of 2000 compared to $13.5 million in the first
nine months of 1999, due to scheduled amortization of the Company's outstanding
indebtedness, accelerated repayments on the Company's Term Loan Facility as a
result of the liquidation of timberlands and lower outstanding balances on the
Company's Revolving Credit Facility.
As a result of the above factors, the Company reported a net loss of $3.0
million in the first nine months of 2000 compared to net loss of $7.9 million in
the first nine months 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
$1.5 million capital contribution from Brant-Allen in the first nine months of
2000.
The Company's cash and short-term investments at September 30, 2000 were $1.7
million, representing an increase of $0.7 million from $1.0 million at December
31, 1999. Net cash provided by operating activities was $8.4 million for the
first nine months ended September 30, 2000.
Cash used in financing activities was $5.7 million and cash used in investing
activities was $2.0 million for the nine months ended September 30, 2000. In
total, $9.2 million was used to cover capital expenditures of $2.0 million, tax
distributions of $3.5 million and a net reduction in long-term debt including
purchase obligations of $3.7 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.
In the first nine months of 2000, the Company's cash provided by operating
activities increased by 40.0% to $8.4 million from $6.0 million in the first
nine months of 1999, primarily due to increased selling prices and partially
offset by higher costs of sales resulting in a net loss in first nine months
2000 of $3.0 million compared to net loss of $7.9 million in the first nine
months of 1999.
The Company made capital expenditures of $2.0 million and $2.2 million in the
first nine months of 2000 and the first nine months 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.
At September 30, 2000, the Company had approximately $133.8 million of long-term
indebtedness, consisting of borrowings of $16.0 million under the Revolving
Credit Facility, $18.5 million under the Term Loan Facility, $100 million under
the Notes and approximately $0.1 million in long term purchase obligations. In
addition, $9.0 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.
7
<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.
8
<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)
9
