FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________.
Commission File: 333-90829
MIDDLE AMERICAN TISSUE INC.
(Exact name of registrant as specified in its charter)
Delaware 52-2181338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 Engineers Road, Hauppauge, New York 11788
(Address of principal executive office) (zip code)
(631) 435-9000
(Registrant's Telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)
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
capital stock as of June 30, 2000: 176 shares of common stock, no par value.
<PAGE>
INDEX
MIDDLE AMERICAN TISSUE INC.
PART I: Financial Information
Item 1. Financial Statements
o Condensed Consolidated Balance Sheets - June 30, 2000 and September
30, 1999.
o Condensed Consolidated Statements of Operations - Three Months Ended
June 30, 2000 and June 30, 1999.
o Condensed Consolidated Statements of Operations - Nine Months Ended
June 30, 2000 and June 30, 1999.
o Condensed Consolidated Statements of Cash Flows - Nine Months Ended
June 30, 2000 and June 30, 1999.
o Notes to Condensed Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
PART II: Other Information
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports
o Exhibit 27 - Financial Data Schedule
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Middle American Tissue Inc.
Condensed Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,267 $ 1,806
Accounts receivable,
Net of allowance for doubtful accounts of $1,047 and $613, 71,064 52,555
respectively
Inventories 142,907 94,664
Equipment held for sale 749 7,825
Prepaid expenses and other current assets 7,833 3,866
-------- --------
Total Current Assets 223,820 160,716
Property plant & equipment, net 233,543 212,530
Due from related parties 23,744 23,054
Deferred costs, net 10,518 10,408
Other assets 3,590 155
-------- --------
Total Assets $495,215 $406,863
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Revolving credit facility $117,412 $ 50,054
Current portion of long term debt and capital lease obligations 1,360 1,206
Accounts payable and accrued expenses 65,475 63,550
-------- --------
Total Current Liabilities 184,247 114,810
Senior secured discount notes payable 19,707 17,073
Senior secured notes payable 159,959 159,562
Long term debt and capital lease obligations 24,399 22,247
Other long term liabilities 12,175 11,490
Common stock warrants 3,781 3,781
Stockholder's equity:
Common stock 1,605 1,605
Additional paid in capital 37,675 37,675
Retained earnings 51,667 38,620
-------- --------
Total Stockholder's Equity 90,947 77,900
-------- --------
Total Liabilities and Stockholder's Equity $495,215 $406,863
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
Middle American Tissue Inc.
Condensed Consolidated Statements of Operations
(In Thousands)
For the Three Months Ended June 30,
----------------------------------
2000 1999
-------- --------
(Unaudited) (Unaudited)
Net Revenues $126,831 $ 63,683
Cost of Sales 101,858 48,626
-------- --------
Gross Profit 24,973 15,057
Selling, General and
Administrative Expenses 13,814 7,323
-------- --------
Operating Profit 11,159 7,734
Interest Expense 8,885 3,909
-------- --------
Net Income $ 2,274 $ 3,825
======== ========
See notes to condensed consolidated financial statements.
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Middle American Tissue Inc.
Condensed Consolidated Statements of Operations
(In Thousands)
For the Nine Months Ended June 30,
----------------------------------
2000 1999
-------- --------
(Unaudited) (Unaudited)
Net Revenues $358,193 $184,387
Cost of Sales 280,789 143,284
-------- --------
Gross Profit 77,404 41,103
Selling, General and
Administrative Expenses 39,488 21,966
-------- --------
Operating Profit 37,916 19,137
Interest Expense 24,869 10,890
-------- --------
Net Income $ 13,047 $ 8,247
======== ========
See notes to condensed consolidated financial statements.
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Middle American Tissue Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended June
30,
------------------------------
2000 1999
-------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 13,047 $ 8,247
Adjustments:
Depreciation & amortization 18,973 8,830
Bad debt expense 495 450
Forgiveness of interest -- 959
Changes in operating assets & liabilities:
Increase (decrease) in operating assets & liabilities:
Accounts receivable (8,059) (2,299)
Inventories (45,522) (5,231)
Equipment held for sale 7,076 (2,308)
Prepaid expenses and other current assets (3,967) (988)
Other assets (3,539) (60)
Accounts payable and accrued expenses (4,470) (2,722)
-------- --------
Net cash provided by (used in) operating activities: (25,966) 4,878
-------- --------
Cash Flows From Investing Activities:
Capital expenditures (25,502) (12,607)
Purchase of receivables and inventory of
CST/Star Products, Inc. (13,666) --
-------- --------
Net cash used in investing activities (39,168) (12,607)
-------- --------
Cash Flows From Financing Activities:
Net proceeds under revolving credit facility 67,358 8,851
Proceeds from long term debt and capital lease obligations -- 5,419
Payments of long term debt and capital lease obligations (958) (10,496)
Increase in deferred costs (1,115) (304)
Advances and repayments to affiliates, net (690) 3,376
-------- --------
Net cash provided by financing activities 64,595 6,846
-------- --------
Net Decrease in Cash and Cash Equivalents (539) (883)
Cash and Cash Equivalents, Beginning of Period 1,806 1,480
-------- --------
Cash and Cash Equivalents, End of Period $ 1,267 $ 597
======== ========
Interest Paid $ 22,538 $ 9,153
======== ========
Income Taxes Paid $ 102 $ 10
======== ========
Non-cash financing transactions relating to capital leases $ 3,264 $ 4,183
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
MIDDLE AMERICAN TISSUE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. BASIS OF PRESENTATION:
The accompanying condensed consolidated financial statements include the
accounts of Middle American Tissue Inc. and its subsidiaries (collectively, the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for annual financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The results of operations of any interim period are not necessarily
indicative of the results of operations to be expected for the fiscal year.
Reference is made to the consolidated financial statements for the year ended
September 30, 1999, and footnotes thereto, included in the Company's
registration statement on Form S-4 which was declared effective on March 6,
2000.
2. COMPREHENSIVE INCOME:
The Company observes the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires
companies to report all changes in equity during a period, except those
resulting from investments by owners and distributions to owners, for the period
in which they are recognized. Comprehensive income is the total of net income
and all other non-owner changes in equity (or other comprehensive income) such
as unrealized gains or losses on securities classified as available for sale,
foreign currency translation adjustments and minimum pension liability
adjustments. Other comprehensive income must be reported on the face of annual
financial statements or in the case of interim reporting, the footnote approach
may be utilized. For the quarters and nine months ended June 30, 2000 and 1999,
the Company's operations did not give rise to items includible in comprehensive
income which were not already included in net income. Accordingly, the Company's
comprehensive income is the same as its net income for all periods presented.
3. INVENTORIES
Inventories, at cost, consist of the following:
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June 30, 2000 September 30, 1999
------------- ------------------
(Unaudited) (Audited)
Raw materials and supplies $ 72,298 $ 40,295
Work-in-process 259 1,026
Finished goods 70,350 53,343
-------- --------
$142,907 $ 94,664
======== ========
4. ASSET PURCHASE
On May 19, 2000, the Company purchased for approximately $13.7 million
certain accounts receivable and inventories from CST/Star Products, Inc., a
multi-plant printer and converter of forms and other paper office products.
Affiliates of the Company, under common control with the Company, concurrently
purchased certain other assets of CST/Star Products, Inc.
5. RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000 (as amended by SFAS No. 137) and will not
require retroactive restatement of prior period financial statements. The
Company currently does not use derivative instruments or engage in hedging
activities. Accordingly, the Company does not expect that SFAS No. 133 will have
an impact on its consolidated financial statements when adopted.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We are an integrated manufacturer of tissue and uncoated freesheet paper
products, with a comprehensive product line that includes jumbo rolls of tissue
used in the manufacture of finished tissue products, finished tissue products
and uncoated freesheet paper products for printing and publishing applications.
We also manufacture woodpulp which we use for the manufacture of uncoated
freesheet and various grades of jumbo rolls of tissue. We entered the uncoated
freesheet paper and woodpulp business on July 9, 1999, through our acquisition
of our integrated pulp and paper mills located in Berlin and Gorham, New
Hampshire, which we refer to as the Berlin-Gorham Mills. Our finished tissue
products are sold in the commercial, or away-from-home, and consumer, or at-home
markets. Our jumbo rolls of tissue are used internally by us for the manufacture
of finished tissue products and are sold to other manufacturers of finished
tissue products. Our uncoated freesheet paper products are sold through
merchants and distributors and
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<PAGE>
to end-use customers. Our woodpulp is used internally by us for the manufacture
of uncoated freesheet paper and certain grades of jumbo rolls of tissue and is
also sold to others. A substantial portion of our net sales is derived from the
manufacture and sale of finished tissue products, jumbo rolls of tissue,
uncoated freesheet paper and woodpulp. We also generate a small portion of our
net sales from the sale of converting equipment for the manufacture of finished
tissue products.
Results of Operations
The following is a summary of our revenues for each business segment for
the quarters indicated (dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Tissue Products $ 75.7 $ 63.4 $198.9 $182.6
Uncoated Freesheet 32.8 --* 102.3 --*
Woodpulp 17.1 --* 48.4 --*
Equipment Sales 1.0 -- 7.9 0.9
Rental Income 0.2 0.3 0.7 0.9
------ ------ ------ ------
Total Revenues $126.8 $ 63.7 $358.2 $184.4
====== ====== ====== ======
</TABLE>
*We had no sales of uncoated freesheet or woodpulp for the quarter and nine
months ended June 30, 1999, because these products are produced at the
Berlin-Gorham Mills, which we purchased on July 9, 1999.
Three Months Ended June 30, 2000 (the "third quarter of fiscal 2000") Compared
To The Three Months Ended June 30, 1999 (the "third quarter of fiscal 1999").
Revenues. Revenues increased approximately $63.1 million, or 99.1%, from
approximately $63.7 million for the third quarter of fiscal 1999 to
approximately $126.8 million for the third quarter of fiscal 2000.
Net sales of tissue products increased approximately $12.3 million, or
19.4%, from approximately $63.4 million for the third quarter of fiscal 1999 to
approximately $75.7 million for the third quarter of fiscal 2000. This increase
was primarily due to increased sales of finished tissue products and higher
average net sales prices per case of sales during the third quarter of fiscal
2000, as compared to the third quarter of fiscal 1999.
Net sales of uncoated freesheet paper products were approximately $32.8
million for the third quarter of fiscal 2000. Net sales of woodpulp were
approximately $17.1 million for the same period. We have no comparable sales
figures for the third quarter of fiscal 1999, as these products are produced at
the Berlin-Gorham Mills, the assets of which we acquired from Crown Paper Co. on
July 9, 1999. However, for comparison purposes only, the sales of uncoated
freesheet paper products and woodpulp for the third quarter of fiscal 1999 for
the Berlin-Gorham Mills, as a business unit of Crown Paper Co., were
approximately $34.6 million and approximately $8.9 million, respectively.
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Net sales of converting equipment were approximately $1.0 million for the
third quarter of fiscal 2000. We had no sales of converting equipment during the
third quarter of fiscal 1999.
Gross Profit. Gross profit increased approximately $9.9 million, or 65.6%,
from approximately $15.1 million for the third quarter of fiscal 1999 to
approximately $25.0 million for the third quarter of fiscal 2000. Gross profit,
as a percentage of net sales, decreased from 23.6% for the third quarter of
fiscal 1999 to 19.7% for the third quarter of fiscal 2000. This decrease in
gross profit, as a percentage of net sales, was the result of increased recycled
fiber and energy costs.
Selling, General and Administrative Expenses. A significant portion of our
selling expenses are freight expenses incurred in shipping our products to our
customers. It is our policy to include freight expenses in this category as a
selling expense. Selling, general and administrative expenses, exclusive of
freight expenses, increased approximately $3.9 million, or 97.5%, from
approximately $4.0 million for the third quarter of fiscal 1999 to approximately
$7.9 million for the third quarter of fiscal 2000. Selling, general and
administrative expenses, excluding freight expenses, were 6.3% of net sales for
the third quarter of fiscal 1999, as compared to 6.2% for the third quarter of
fiscal 2000. This percentage remained approximately the same for both quarters
due to net sales increasing at approximately the same rate as selling, general
and administrative expenses, excluding freight expenses, between the third
quarter of fiscal 1999 and the third quarter of fiscal 2000. Freight expenses
increased approximately $2.6 million, or 78.8%, from approximately $3.3 million
for the third quarter of fiscal 1999 to approximately $5.9 million for the third
quarter of fiscal 2000. This increase was a result of an increase in shipments
of finished tissue products, uncoated freesheet paper products and woodpulp
during this period.
Operating Income. Operating income increased approximately $3.5 million, or
45.4%, from approximately $7.7 million for the third quarter of fiscal 1999 to
approximately $11.2 million for the third quarter of fiscal 2000. Operating
income, as a percentage of net sales, was 8.8% for the third quarter of fiscal
2000, as compared to 12.1% for the third quarter of fiscal 1999. This decrease
was due to the reasons stated above.
Interest Expense. Interest expense increased approximately $5.0 million, or
128.2%, from approximately $3.9 million in the third quarter of fiscal 1999 to
approximately $8.9 million for the third quarter of fiscal 2000. This increase
reflects higher debt levels during the third quarter of fiscal 2000, as compared
to the third quarter of fiscal 1999.
EBITDA. EBITDA is defined as operating income plus depreciation and
amortization. EBITDA increased approximately $6.1 million, or 57.0%, from
approximately $10.7 million for the third quarter of fiscal 1999 to
approximately $16.8 million for the third quarter of fiscal 2000. This increase
in EBITDA was due primarily to the realization of synergies resulting from the
integration of the Berlin-Gorham Mills into our existing operations, favorable
pricing conditions in our finished tissue products business and price increases
in uncoated freesheet paper products, woodpulp and jumbo rolls of tissue.
Information regarding EBITDA is presented because we believe that some investors
use EBITDA as one measure of an issuer's ability to service its debt.
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<PAGE>
EBITDA should not be considered an alternative to, or more meaningful than,
operating income, net income or cash flow as defined by generally accepted
accounting principles, or as an indicator of an issuer's operating performance.
In addition, caution should be used in comparing EBITDA to similarly titled
measures of other companies as the definitions of EBITDA may vary.
Nine Months Ended June 30, 2000 (the "first three quarters of fiscal 2000")
Compared To The Nine Months Ended June 30, 1999 (the "first three quarters of
fiscal 1999").
Revenues. Revenues increased approximately $173.8 million, or 94.3%, from
approximately $184.4 million for the first three quarters of fiscal 1999 to
approximately $358.2 million for the first three quarters of fiscal 2000.
Net sales of tissue products increased approximately $16.3 million, or
8.9%, from approximately $182.6 million for the first three quarters of fiscal
1999 to approximately $198.9 million for the first three quarters of fiscal
2000. This increase was primarily due to increased sales of finished tissue
products and higher average net sales prices per case of sales and increased
sales of jumbo rolls of tissue during the first three quarters of fiscal 2000,
as compared to the first three quarters of fiscal 1999.
Net sales of uncoated freesheet paper products were approximately $102.3
million for the first three quarters of fiscal 2000. Net sales of woodpulp were
approximately $48.4 million for the same period. We have no comparable sales
figures for the first three quarters of fiscal 1999, as these products are
produced at the Berlin-Gorham Mills, the assets of which we acquired from Crown
Paper Co. on July 9, 1999. However, for comparison purposes only, the sales of
uncoated freesheet paper products and woodpulp for the first three quarters of
fiscal 1999 for the Berlin-Gorham Mills, as a business unit of Crown Paper Co.,
were approximately $102.0 million and approximately $28.9 million, respectively.
Net sales of converting equipment increased approximately $7.0 million, or
777.8% from approximately $0.9 million for the first three quarters of fiscal
1999 to approximately $7.9 million for the first three quarters of fiscal 2000.
Gross Profit. Gross profit increased approximately $36.3 million, or 88.3%,
from approximately $41.1 million for the first three quarters of fiscal 1999 to
approximately $77.4 million for the first three quarters of fiscal 2000. Gross
profit, as a percentage of net sales, decreased from 22.3% for the first three
quarters of fiscal 1999 to 21.6% for the first three quarters of fiscal 2000.
This decrease in gross profit, as a percentage of net sales, was a result of
increased recycled fiber and energy costs.
Selling, General and Administrative Expenses. A significant portion of our
selling expenses are freight expenses incurred in shipping our products to our
customers. It is our policy to include freight expenses in this category as a
selling expense. Selling, general and administrative expenses, exclusive of
freight expenses, increased approximately $10.4 million, or 84.6%, from
approximately $12.3 million for the first three quarters of fiscal 1999 to
approximately $22.7 million for the first three quarters of fiscal 2000.
Selling, general and administrative expenses,
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excluding freight expenses, were 6.7% of net sales for the first three quarters
of fiscal 1999, as compared to 6.3% for the first three quarters of fiscal 2000.
This percentage decrease was due to net sales increasing at a faster rate than
selling, general and administrative expenses, excluding freight expenses,
between the first three quarters of fiscal 2000 and the first three quarters of
fiscal 1999. Freight expenses increased approximately $7.2 million, or 75.0%,
from approximately $9.6 million for the first three quarters of fiscal 1999 to
approximately $16.8 million for the first three quarters of fiscal 2000. This
increase was a result of an increase in shipments of finished tissue products,
uncoated freesheet paper products and woodpulp during this period.
Operating Income. Operating income increased approximately $18.8 million,
or 98.4%, from approximately $19.1 million for the first three quarters of
fiscal 1999 to approximately $37.9 million for the first three quarters of
fiscal 2000. Operating income, as a percentage of net sales, was 10.6% for the
first three quarters of fiscal 2000, as compared to 10.4% for the first three
quarters of fiscal 1999. This increase was due to the reasons stated above.
Interest Expense. Interest expense increased approximately $14.0 million,
or 128.4%, from approximately $10.9 million in the first three quarters of
fiscal 1999 to approximately $24.9 million for the first three quarters of
fiscal 2000. This increase reflects higher debt levels during the first three
quarters of fiscal 2000, as compared to the first three quarters of fiscal 1999.
EBITDA. EBITDA is defined as operating income plus depreciation and
amortization. EBITDA increased approximately $26.0 million, or 92.2%, from
approximately $28.2 million for the first three quarters of fiscal 1999 to
approximately $54.2 million for the first three quarters of fiscal 2000. This
increase in EBITDA was due primarily to higher sales levels, the realization of
synergies resulting from the integration of the Berlin-Gorham Mills into our
existing operations, favorable pricing conditions in our finished tissue
products business and price increases in uncoated freesheet paper products,
woodpulp and jumbo rolls of tissue. Information regarding EBITDA is presented
because we believe that some investors use EBITDA as one measure of an issuer's
ability to service its debt. EBITDA should not be considered an alternative to,
or more meaningful than, operating income, net income or cash flow as defined by
generally accepted accounting principles, or as an indicator of an issuer's
operating performance. In addition, caution should be used in comparing EBITDA
to similarly titled measures of other companies as the definitions of EBITDA may
vary.
Liquidity and Capital Resources
Net cash used in operations in the first three quarters of fiscal 2000 was
approximately $26.0 million, as compared to net cash provided by operations in
the first three quarters of fiscal 1999 of approximately $4.9 million. There was
a substantial increase in net income for the first three quarters of fiscal
2000, as compared to the first three quarters of fiscal 1999, which was
partially offset by increases in inventories and accounts receivables during the
first three quarters of fiscal 2000, as compared to the first three quarters of
fiscal 1999, due to our purchase of the Berlin-Gorham Mills and increases in
sales levels during fiscal 2000. Cash used for capital expenditures in the first
three quarters of fiscal 2000 was approximately $25.5 million, as compared to
approximately $12.6 million for the first three quarters of fiscal 1999. In
addition, we purchased accounts receivable and inventories from CST/Star
Products, Inc. for approximately $13.7 million.
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All of the above necessitated the need for borrowings of approximately $67.4
million under our revolving credit facility in the first three quarters of
fiscal 2000.
At June 30, 2000, our total consolidated debt was approximately $322.8
million, as compared to $250.1 million at September 30, 1999.
We believe, based on current levels of operations, anticipated internal
growth, price increases, anticipated capital expenditures, and cash flow from
operations, together with other available sources of funds, including the
availability of borrowings under our revolving credit facility, that liquidity
will be adequate for the foreseeable future to make required payments of
interest on indebtedness, to fund anticipated capital expenditures, and for
working capital requirements. The ability to meet debt service obligations and
reduce total debt will be dependent, however, upon our future performance,
which, in turn, will be subject to general economic conditions and to financial,
business and other factors, including factors beyond our control. A portion of
the debt bears interest at floating rates and the current effective interest
rate on this debt is approximately 8.93%. Therefore, our financial condition is,
and will continue to be, affected by changes in prevailing interest rates.
Inflation and Cyclicality
Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the
foreseeable future to have, a material impact on our results of operations.
The markets for tissue and uncoated freesheet paper products are
characterized by periods of supply and demand imbalance, with supply being added
in large blocks and demand fluctuating with changes in industry capacity,
economic conditions, including the overall level of domestic economic activity,
and competitive conditions, including, in the case of our uncoated freesheet
paper products, intensified competition from overseas producers responding to
favorable exchange rate fluctuations and/or unfavorable overseas market
conditions. All of such conditions are beyond our control.
Seasonality
Historically, our net sales have been somewhat stronger during our third
and fourth fiscal quarters, due to increased seasonal usage by consumers in the
at-home tissue products market and inventory and usage patterns in the
away-from-home finished tissue products market.
Forward Looking Statements
Except for historical information and discussions contained in this Form
10Q, statements contained in this Form 10-Q may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Any such forward looking statements involve a number of known and
unknown risks, uncertainties and other factors which may cause actual results,
performance or achievements of the Company to differ materially from any future
results, performance or achievements, expressed or implied in such forward
looking statements.
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The words "believe," "demonstrate," "intend," "expect," "estimate,"
"anticipate," "likely," and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on those
forward-looking statements, which speak only as of the date the statement was
made.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, which include changes in U.S.
interest rates and commodity prices. During fiscal year 1999, we restructured
our debt, through a private sale of our senior secured notes, so that it is
predominantly fixed-rate. Our revolving credit facility permits us to elect to
pay interest on borrowings at a spread above the LIBOR rate or at the bank's
prime lending rate. A significant rise in either of these rates could adversely
affect our results of operations, depending upon the level of borrowings under
our revolving credit facility at the time of any rate changes. We do not
currently utilize derivative financial instruments to hedge against changes in
interest rates or commodity prices. Additionally, substantially all of our
transactions are denominated in U.S. dollars.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, we are subject to a number of legal proceedings and
other claims arising in the ordinary course of our business which we do not
believe will have, individually or in the aggregate, a material adverse effect
on our financial condition or results of operations.
Item 5. OTHER INFORMATION
On May 3, 2000 some of our subsidiaries and a group of Lenders, for which
LaSalle Bank National Associations acts as agent, entered into an amended and
restated revolving credit and security agreement, or the Amended Credit
Facility, which increased the existing credit facility from $100 million to $145
million. The Amended Credit Facility provides for the making of revolving credit
loans to, and the issuance of letters of credit on behalf of, one or more of our
subsidiaries in a total amount at any one time outstanding (as to all borrowers)
of up to $145 million, subject to sublimits based on specific percentages of
inventory and accounts receivable deemed eligible by the lenders. Borrowings
under the Amended Credit Facility may be prepaid without penalty.
Item 6. EXHIBITS AND REPORTS
Exhibit 27 - Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIDDLE AMERICAN TISSUE INC.
(registrant)
August 15, 2000 By /s/ Edward I. Stein
---------------------------------
Edward I. Stein
(On behalf of Registrant and as
Chief Accounting Officer)
