UNITED STATES 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, 1999.
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 Number: 0-16289
Repap Enterprises Inc.
(Exact name of registrant as specified in its charter)
Canada 98-0178526
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
300 Atlantic Street, Suite 200 Stamford, CT 06901
(Address of principal executive offices) (City, State Zip Code)
(203) 964-6160
(Registrant's telephone number, including area code)
___________________________________________________
(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.
[ X ] Yes [ ] No
743,460,637 shares of the registrant's Common Stock, no par value,
were outstanding as of the close of business on March 31, 1999.
REPAP ENTERPRISES INC.
INDEX
EXCHANGE RATES
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Interim Balance Sheet
Condensed Consolidated Interim Statements of Operations
Condensed Consolidated Interim Statements of Cash Flows
Condensed Notes to Consolidated Interim 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. 2 Changes in Securities and Use of Proceeds
Item. 3 Defaults Upon Senior Securities
Item. 4 Submission of Matters to a Vote of Security Holders
Item. 5 Other Information
Item. 6 Exhibits and Reports on Form 8-K
SIGNATURES
EXCHANGE RATES
Repap Enterprises Inc. ("Repap Enterprises" or the "Company") publishes
its consolidated financial statements in Canadian dollars. In this
quarterly report, unless otherwise specified or the context otherwise
requires, all dollar amounts are expressed in Canadian dollars ("$",
"C$", "dollars", or "Cdn. dollars").
The following table sets forth the exchange rates of the Canadian
dollar to the U.S. dollar for the period ended and as at December
31, 1998 and for the three months ended and as at March 31, 1999
and 1998 (such rates, which are expressed in dollars, being the
noon buying rates in New York City for cable transfer in U.S.
dollars as certified for customs purposes by the Federal Reserve
Bank of New York). On May 11, 1999, US$1.00 equaled C$1.4538.
Three Months Year Ended
Ended March 31, December 31,
1999 1998 1998
(C$ per US$)
High 1.4873 1.4075 1.4658
Low 1.5302 1.4637 1.5770
Average (1) 1.5120 1.4304 1.4641
At End of Period (2) 1.5092 1.4219 1.5263
- --------------------
(1) The average of the daily buying rates during the applicable
period.
(2) Noon buying rate on last banking day.
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements.
REPAP ENTERPRISES INC.
Incorporated under the laws of Canada
CONDENSED CONSOLIDATED INTERIM BALANCE SHEET (see Note 1)
(unaudited as at March 31, 1999)
(dollars in millions)
As at As at
March December
31, 1999 31, 1998
--------- ---------
ASSETS
Current assets
Cash and short term deposits $ 9.9 $ 9.4
Accounts receivable 64.7 69.4
Inventories 71.1 66.5
--------- ---------
145.7 145.3
--------- ---------
Fixed assets, net 971.8 980.0
Investments 16.2 16.2
Other assets 164.5 187.4
--------- ---------
$1,298.2 $1,328.9
========= =========
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 125.7 $ 117.8
Current portion of long-term debt and
repayable grants 7.4 7.6
Revolving credit facility 67.5 77.6
-------- --------
200.6 203.0
-------- --------
Long-term debt 1,069.9 1,084.6
Repayable grants and other liabilities 18.1 21.0
-------- --------
1,088.0 1,105.6
-------- --------
CAPITAL SOURCES
Investment tax credits 107.2 108.3
Grants-non-repayable 22.5 22.8
-------- --------
129.7 131.1
-------- --------
SHAREHOLDERS' DEFICIENCY
Preferred shares 16.0 16.0
Common shares 640.6 640.6
Deficit (792.0) (782.7)
Other paid-in capital 15.3 15.3
-------- --------
(120.1) (110.8)
-------- --------
$1,298.2 $1,328.9
======== ========
See accompanying notes
REPAP ENTERPRISES INC.
Incorporated under the laws of Canada
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS (see Note 1)
(unaudited) (dollars in millions)
Three Months Ended
March 31,
1999 1998
------- -------
Revenues from continuing operations $162.7 $163.3
Effects of currency hedging 1.2 1.2
Sales deductions 16.5 15.2
------ ------
Net sales from continuing operations 145.0 146.9
Cost of sales before depreciation and
amortization 99.6 95.0
Selling, administrative and research expenses 7.6 7.9
Depreciation and amortization 17.2 16.1
----- -----
Operating profit 20.6 27.9
Interest expense 28.1 26.5
Miscellaneous (income) expenses 1.2 (0.2)
----- -----
Income (loss) before the undernoted (8.7) 1.6
Provision for income taxes 0.6 0.8
----- -----
Income (loss) from continuing operations (9.3) 0.8
Income from discontinued operations 0.0 18.1
----- -----
Net income (loss) (9.3) 18.9
Provision for accretion of other paid-in capital 0.0 1.6
----- -----
Net income (loss) attributable to common
shareholders $(9.3) $17.3
===== =====
Average common shares outstanding (millions) 743.5 742.5
===== =====
Income (loss) per share:
Continuing operations $(0.01) $0.00
Discontinued operations 0.00 0.02
------- -----
Total $(0.01) $0.02
======= =====
See accompanying notes
REPAP ENTERPRISES INC.
Incorporated under the laws of Canada
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (see Note 1)
(unaudited) (dollars in millions)
Three Months Ended
March 31
1999 1998
-------- --------
Operating activities:
Income (loss) from continuing operations $(9.3) $0.8
Add items not affecting cash:
Depreciation and amortization 17.2 16.1
Effects of currency hedging 1.2 1.2
Other 0.2 (1.7)
------ ------
Cash flow before net changes in non-cash
working capital 9.3 16.4
Non-cash working capital changes 8.1 22.8
------ ------
Cash provided by continuing operations 17.4 39.2
------ ------
Investing activities:
Additions to fixed assets (4.8) (2.7)
Deferred charges and other assets 0.2 2.7
------ ------
Cash used in investing activities (4.6) 0.0
------ ------
Financing activities:
Additions to debt 0.4 5.4
Repayment of debt (3.7) (24.2)
Revolving credit facility, net change (9.1) (16.0)
Other 0.1 0.5
------ ------
Cash used in financing activities (12.3) (34.3)
------ ------
Cash provided by (used in) discontinued operations 0.1 (21.5)
------ ------
Net increase (decrease) in cash 0.6 (16.6)
Cash position at beginning of period 9.3 43.3
------ ------
Cash position at end of period $9.9 $26.7
====== ======
Represented by:
Cash and short-term deposits $9.9 $26.7
====== ======
See accompanying notes
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three months ended March 31, 1999 and 1998
(unaudited)
(dollars in millions)
1. Financial Statement Presentation
These condensed consolidated interim financial statements of Repap
Enterprises Inc. ("Repap Enterprises" or the "Company") have been
prepared by management in accordance with accounting principles
generally accepted in Canada ("Canadian GAAP"). These condensed
consolidated interim financial statements are the responsibility of
management and, in its opinion, include all the adjustments, which are
of a normal recurring nature, necessary to a fair statement of the
results for the interim periods presented.
Reference is made to the Notes to the Consolidated Financial
Statements which appear in the Repap Enterprises 1998 Consolidated
Financial Statements, including Note 1 on "Financial Statement
Presentation". The significant accounting policies disclosed
therein apply to these condensed consolidated interim financial
statements.
As further described in Note 3, the accounting policies
followed by Repap Enterprises differ in certain respects from
those that would have been followed had these condensed
consolidated interim financial statements been prepared in
conformity with the accounting principles generally accepted in
the United States ("US GAAP") and the accounting principles and
practices required by the United States Securities and Exchange
Commission ("SEC").
Basis of financial statement presentation and going concern
assumption
These condensed consolidated interim financial statements
have been prepared in accordance with generally accepted
accounting principles on a going concern basis which presumes the
realization of assets and discharge of liabilities in the normal
course of business for the foreseeable future. Repap Enterprises'
ability to continue as a going concern is dependent upon its
ability to refinance the revolving credit facility, achieve
profitable operations and generate positive cash flow on a
sustained basis (See Note 1 to the 1998 Consolidated Financial
Statements). The outcome of these matters cannot be predicted at
this time. These condensed consolidated interim financial
statements do not include any adjustments to the amounts and
classifications of assets and liabilities that might be necessary
should Repap Enterprises be unable to continue in business.
2. Inventories
March 31, December 31,
1999 1998
--------- ------------
Raw materials and supplies $49.1 $48.7
Work in process 1.0 1.0
Finished goods 21.0 16.8
--------- -----------
$71.1 $66.5
========= ===========
Raw materials include chemicals, chips and logs used in the
production of pulp, paper and lumber. Work in process and
finished goods include pulp, paper and lumber.
3. Generally Accepted Accounting Principles in the United States
The condensed consolidated interim financial statements have been
prepared in accordance with Canadian GAAP. The following summary sets
out the material adjustments to Repap Enterprises' reported net income
(loss) which would be made in order to conform with U.S. GAAP and the
accounting principles and practices required by the SEC. For information
on the nature of these adjustments, refer to Note 22 of Repap Enterprises'
1998 Consolidated Financial Statements.
Unaudited
Three Months Ended
Statement of Operations components: March 31,
1999 1998
------ -----
Income (loss) from continuing operations before
provision for accretion in paid-in capital in
accordance with Canadian GAAP. $(9.3) $0.8
Earnings adjustments:
Add (deduct):
Reversal of revenue-stream hedge 1.2 1.2
Unrealized gain on translation of long-term debt 20.8 12.4
Interest expense on convertible debentures 0.4 (1.6)
Reversal of amortization of investment tax credits 0.3 0.0
Foreign exchange gain (loss) on currency contracts 1.7 0.0
------ ------
Income (loss) from continuing operations before
effects of change in accounting principle and
discontinued operations in accordance with US GAAP. 15.1 12.8
Income (loss) from discontinued operations in
accordance with US GAAP. 0.0 1.3
Effects of change in accounting principle (1) (5.3) 0.0
------ ------
Net income $9.8 $14.1
====== ======
(1) The AICPA issued Statement of Position 98-5 which requires that the
cost of start-up activities be expensed as incurred. The new method
of accounting for the costs of start-up activities has reduced
start-up costs of $5.3 million previously included in capital assets.
The initial application of this Statement of Position has been
reported as a cumulative effect of a change in accounting principle.
As at As at
March 31, 1999 December 31, 1998
in accordance in accordance
with GAAP in with GAAP in
Canada U.S. Canada U.S.
------ ---- ------ ----
Balance Sheet components:
Other assets $164.5 $ 62.6 $187.4 $ 64.2
Fixed assets, net 971.8 966.5 980.0 980.0
Accounts payable 125.7 126.3 117.8 119.9
Repayable grants and other
liabilities 18.1 54.9 21.0 58.0
Convertible debentures 52.9 67.9 53.1 69.7
Investment tax credits 107.2 139.4 108.3 140.6
Other paid-in capital 15.3 0.0 15.2 0.0
Shareholders'(deficiency) (120.1) (312.2) (110.8) (322.0)
New accounting pronouncements under US GAAP
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement requires
all derivatives to be recorded on the balance sheet at fair value and
provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. The Company is
studying the application of this new statement and has not yet determined
the impact, if any, on its consolidated financial statements. The
adoption of this statement is not expected to change the Company's
business practices. As required, the Company plans to adopt this statement
upon its applicable effective date in fiscal 2000.
4. Segmented Information
The Company is organized on the basis of its three primary products:
high quality coated groundwood paper products, northern bleached softwood
kraft pulp and construction grade lumber. The Company has three
reportable segments: paper, pulp and lumber. Summarized segmented
information is as follows:
Information about Segment Operating Profit before
Depreciation and Amortization
For the three-months ended Segment
March 31, 1999 Paper Pulp Lumber Totals
----- ---- ------ --------
Net sales before intersegment revenues $127.7 $45.1 $4.3 $177.1
Intersegment revenues 0.0 (30.9) 0.0 (30.9)
----- ---- ----- ------
Net sales 127.7 14.2 4.3 146.2
Operating profit before
depreciation and amortization 35.7 3.0 0.3 39.0
Amortization of capital assets
and goodwill 7.2 3.8 0.2 11.2
For the three-months ended Segment
March 31, 1998 Paper Pulp Lumber Totals
----- ---- ------ --------
Net sales before intersegment revenues $134.3 $39.7 $4.9 $178.9
Intersegment revenues 0.0 (30.8) 0.0 (30.8)
----- ---- ----- -------
Net sales 134.3 8.9 4.9 148.1
Operating profit before
depreciation and amortization 42.2 2.1 0.8 45.1
Amortization of capital assets
and goodwill 7.0 3.7 0.2 10.9
Reconciliation of Reportable Segment Revenues,
Segment Profit or Loss and Segment Assets
For the three-months ended March 31, 1999 1998
------ ------
Net sales $146.2 $148.1
Effects of revenue stream hedging (1.2) (1.2)
------ ------
Consolidated net sales 145.0 146.9
------ ------
Operating profit before depreciation and amortization 39.0 45.1
Effects of revenue stream hedging 1.2 1.2
Depreciation and amortization 17.2 16.1
Interest expense 28.1 26.5
Foreign exchange loss 1.4 1.4
Other expense (revenue) (0.2) (1.7)
------ ------
Loss before taxes (8.7) 1.6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
FINANCIAL REVIEW (IN CANADIAN DOLLARS UNLESS OTHERWISE NOTED)
Results of Operations
Repap Enterprises recorded a net loss of $9.3 million ($0.01 per
share) for the first quarter ended March 31, 1999, compared with a net
income of $17.3 million ($0.02 per share) in the first quarter of 1998.
The first quarter of 1998 included a net gain on discontinued operations
of $18.1 million.
Shipments in the Company's three product lines were as follows:
First Quarter %
1998 1999 Change
Coated paper (000 tons) 112 117 +4.5%
Kraft pulp (000 metric tons) 13 23 +76.9%
Lumber (mmfbm) 12 11 -8.3%
Revenues from operations for the first quarter of 1999 were
$162.7 million, down slightly from revenues of $163.3 million in
the first quarter of 1998 and down 9% from revenues of $178.8
million in the fourth quarter of 1998.
Revenues from coated paper were $142.6 million, down $5.6 million
or 4% from the first quarter of 1998 revenues of $148.2 million
reflecting mainly the impact of lower pricing resulting from weak
paper markets, offset partially by a weaker Canadian dollar and
increased shipments.
Revenues from pulp for the first quarter of 1999 were $15.5 million,
up $5.6 million or 5.7% from the first quarter of 1998 revenues of
$9.9 million reflecting the impact of higher shipments and a weaker
Canadian dollar, offset partly by lower prices.
Revenues from lumber were $4.6 million in the first quarter of 1999,
essentially flat with revenues of $5.2 million in the same period of
1998.
Cost of sales were $99.6 million in the first quarter of 1999
compared to $95.0 million in the first quarter of 1998, an increase
of $4.6 million or 4.8%. The increase in costs is due to the impact
of increased shipments of coated paper and kraft pulp, offset in part
by the benefit of increased productivity and lower costs in the
Company's pulp and paper operations.
Selling, general and administrative expenses decreased by $0.3
million to $7.6 million in the first quarter of 1999 from $7.9 million
in the first quarter of 1998, reflecting mainly the benefits of
downsizing of the corporate office.
Repap Enterprises' operating profit, before depreciation and
amortization, and excluding non-cash hedged foreign exchange adjustments,
("EBITDA") was $39.0 million for the first quarter of 1999 compared to an
operating profit of $45.2 million in the first quarter of 1998 and to an
operating profit of $43.8 million in the fourth quarter of 1998. The
decrease of $6.2 million from the first quarter of 1998 reflects the
impact of lower prices for coated paper and pulp, which was partially
offset by the benefit of increased shipments and lower cost of
manufacturing.
Depreciation and amortization increased by $1.1 million to $17.2
million in the first quarter of 1999 from $16.1 million in the
corresponding quarter of 1998. The increase is due primarily to higher
amortization of deferred foreign exchange losses on long-term debt,
resulting from a weaker Canadian dollar.
Interest expense in the first quarter of 1999 was $28.1 million
compared to $26.5 million in the first quarter of 1998, reflecting lower
borrowings at the holding company level, offset in part by the effects of
a weaker Canadian dollar.
Liquidity and Capital Resources
Repap generated $9.3 million in cash from operations in the first
quarter of 1999 compared to a cash generation of $16.4 million in the
same quarter of 1998. Non-cash working capital changes generated cash
of $8.1 million compared with a cash generation of $22.8 million in 1998.
The cash generated from operations after working capital in the quarter
was used primarily to finance capital expenditures of $4.8 million and
to reduce borrowings under the revolving credit facility by $9.1 million.
At March 31, 1999, borrowings under the Repap New Brunswick revolving
credit facility totaled $67.5 million and unutilized availability was
approximately $21.6 million. Repap New Brunswick is a direct wholly
owned subsidiary of the Company. Repap Enterprises also had cash on hand
of $9.9 million at March 31, 1999.
During the second quarter of 1999, the Company has debt servicing
requirements of approximately $48 million, of which $28 million relates
to a semi-annual interest payment on the 10 5/8% Second Priority Senior
Secured Notes. This payment was made on April 15, 1999. The balance of
approximately $20 million relates primarily to a semi-annual interest
payment on the 9% First Priority Senior Secured Notes and to a quarterly
interest payment on the First Priority Floating Rate Senior Secured Loans.
These payments are due in June.
In addition to these debt servicing requirements, the Company also
has a principal maturity of $10 million due May 22, 1999 under the terms
of Repap New Brunswick's revolving credit facility. The Company is
reviewing certain alternatives with the objective of refinancing or
replacing the $10 million facility. The Company can give no assurances
as to whether it will be successful in refinancing or replacing the
facility.
Year 2000 Computer Issue
The Company, as well as its customers and suppliers and the financial
institutions and governmental entities with which it deals (collectively,
"Third Parties"), utilize information systems that will be affected by
the date change to the year 2000. Many of these systems, if not modified
or replaced, will be unable to properly recognize and process
date-sensitive information before, on and after January 1, 2000.
State of Readiness
In 1997, the Company formalized its Year 2000 preparation efforts
by appointing a project team consisting of management, operations and
information systems personnel to assess the impact of the Year 2000
issue on its operations, develop plans to address the issue and implement
compliance. The project team also developed plans to seek information
regarding and to assess the Year 2000 compliance status and remediation
efforts of major Third Parties. Repap's information systems consist of
business information and process control systems. The business
information systems support financial and administrative processes such
as order management and product tracking, maintenance and materials
management, personnel, payroll, accounts payable and accounts receivable.
The process control systems are used primarily in manufacturing
operations; they include information technology systems as well as
embedded technology, such as chips embedded in various machine components.
With respect to the business information systems, the inventorying of
computers and the analysis of compliance have been completed. The
Company has elected to replace non-compliant information systems
for order management and process information history. Although no
assurances can be given, the replacement systems are expected to
be operational by September 1999. The programming and testing of
most other information systems is on target for completion by the
end of May 1999. With respect to the process control systems, Repap
has completed the inventorying of its control systems as well as
remediation to its main control systems. Repap expects to
complete all remaining control systems by June 1999. Repap expects to
complete comprehension testing to confirm its remediation work by
October 1999. This schedule assumes timely assistance by the vendors
of certain systems in the remediation of those systems. The vendors of
those systems that are essential to the Company's operations have
provided or agreed to provide the necessary assistance.
The Year 2000 issue also will impact the information systems of Third
Parties. The Company, through meetings in some cases and written
requests in others, is in the process of seeking to ascertain and assess
the progress of major Third Parties in identifying and addressing
problems with respect to the Year 2000 issue. Many of these Third
Parties have indicated that they expect to successfully address the
issue in a timely fashion. Some others, however, have not yet provided
information regarding their state of readiness or have provided responses
deemed unsatisfactory by the Company. Repap will continue to seek
and to assess information regarding Year 2000 compliance by major
Third Parties.
Estimated Cost of Remediation
Repap currently estimates total expenditures of approximately $6
million, of which approximately $1.6 million has been expended as of
March 31, 1999, to make the required Year 2000 modifications and
replacements to its own systems. All of these costs are being funded
through internal cash flow or vendor financing. The estimated total cost
does not include any expenditures that may be incurred in connection with
the implementation of contingency plans, discussed below.
The Risks to the Company of not being Year 2000 Compliant
The Company currently believes that it will be able to modify or
replace its own affected systems in a timely fashion so as to minimize
detrimental effects on its operations, subject to timely assistance by
the vendors of certain process control systems. Repap has received
written assurances regarding Year 2000 compliance from some, but not all,
Third Parties with respect to their own systems and is not in a position
to reliably predict whether Third Parties will experience remediation
problems. If the Company or major Third Parties fail to successfully
address the Year 2000 issue, there could be a material adverse impact on
the business and results of operations of the Company. For example,
while the Company self-generates approximately 31% of its electrical
power requirements, it purchases the balance from outside sources. If
the electrical power grid is disrupted as the result of Year 2000 systems
failures, the Company might have to curtail production until the grid
is restored. If the Company or a major Third Party fails to
successfully address these issues the Company may have to take steps
that could adversely and temporarily impact its ability to produce product,
process orders and deliver finished products to customers on a timely
basis. In the event of Year 2000 disruptions in the operations of the
Company's customers, the Company may experience increased levels
of inventories and receivables.
Contingency Plans
To date, the Company's Year 2000 efforts have been devoted primarily
to the readiness program described above. Repap has not yet developed
contingency plans to address and mitigate the potential risks associated
with the most reasonably likely worst-case scenario. Repap expects to
have such plans in place by September 1999. Such plans may include,
among other things, seeking alternative sources of supply, stockpiling
raw materials and increasing inventory levels. Repap's Year 2000 program
is an ongoing process. Estimates of remediation costs and completion
dates as well as projections of the possible effects of any non-
compliance are subject to change.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk.
Currency
The profitability level of Repap's Canadian operations is sensitive
to fluctuations in foreign exchange rates as most of their revenues are
derived in US dollars. A US$0.01 variation in exchange rates affects
Repap's cash flow by approximately $3.8 million. The competitiveness of
Repap's operations in world markets depends on the relative strength
of the currency in the countries of competitive producers. Repap
actively hedges its future revenue streams to protect against foreign
exchange exposure with the use of forward contracts of varying terms
not normally exceeding one year. The objective of the hedging program
is to manage the risk of adverse cash flow due to fluctuations in
foreign currencies against the Canadian dollar. The percentage of
transaction exposure hedged is generally between 20 percent and 80
percent, after taking into account the amounts of US dollars required
under Repap's revenue-stream hedging practices.
At March 31, 1999, approximately 97% of Repap's consolidated
borrowings of approximately Cdn.$1.2 billion were in US dollars.
Repap is naturally hedged against the exchange risk associated with
holding US dollar debt. Since most of Repap's products are sold in US
dollars, it is highly likely that future US dollar revenue streams will
be more than enough to accommodate any US dollar principal repayment as
it falls due. Repap has chosen to issue primarily US dollar denominated
debt because of this nature hedge and to take advantage of interest rates
available on US dollar denominated debt which have, at times, been
significantly less than corresponding rates on Canadian dollar-denominated
debt.
Accordingly, effective July 1, 1992, Repap designated future US
dollar revenue streams as effective hedges against currency risks related
to US dollar debt borrowings. Designation of revenues as a hedge results
in exchange gains and losses on debt being deferred without amortization
until repayment. At maturity, any exchange adjustment is included with
revenues, recognizing that Repap has realized equal and offsetting
exchange adjustments in the period the debt is repaid.
Revenues in the first quarter of 1999 were reduced by $1.2 million
as a result of the application of this accounting method. As at
December 31, 1998, approximately $42.2 million of hedged currency
exchange losses remained on the balance sheet, and are expected to reduce
revenues by the following non-cash currency exchange adjustments:
Revenue reduction resulting from
non-cash currency adjustments:
Year (millions of dollars)
---- ---------------------
1999 $ 5.7
2000 22.4
Thereafter 15.3
-----
Total $43.4
In April 1995, Repap and Repap New Brunswick refinanced the
majority of their US dollar long-term debt with US dollar denominated
senior secured notes issued by Repap New Brunswick. The revenue streams
which had been identified as an effective hedge in connection with
scheduled US dollar principal repayments on the old debt continue;
however, to constitute an effective hedge against accumulated exchange
losses at the time of refinancing, as it remains highly likely that such
revenue streams will be earned as anticipated in the relevant future
periods.
Under generally accepted accounting principals in the United States
("US GAAP"), any change in currency fluctuations is immediately
recognized in income. The total amount of the above-mentioned non-cash
currency adjustments to future revenues has already been charged to
income under US GAAP. Accordingly, any reduction in revenues and income
of future years resulting from these currency adjustments under Canadian
GAAP will be added back in the reconciliation of revenues and income
under US GAAP. (See Note 22 to the Company's Consolidated Financial
Statements).
Interest Rates
The Company's variable-rate debt from continuing operations,
totalling $0.3 billion, is subject to fluctuations in Canadian, US and
LIBOR lending rates. A 1% change in interest rates affects Repap's cash
flow by approximately $2.6 million.
Environmental Concerns and Regulations
The forest products industry is subject to evolving environmental
legislation, regulations and standards from various levels of governments
which impose effluent and emission standards and other requirements on
Repap's operations. Future capital investments may be required to meet
legislation, regulations and standards as they evolve. In addition to
regulatory pressure, market pressures may influence product evolution.
Repap's ability to continue to address changing market needs could require
additional capital investments as well as additional investments in
product and process development.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No material legal proceedings have been initiated during the first
quarter of 1999.
Item 2. Changes in Securities and Use of Proceeds.
No material changes to the constituent instruments defining
the rights of the holders of any class of registered securities
have occurred during the first quarter of fiscal 1999.
Item 3. Defaults Upon Senior Securities.
No material defaults upon senior securities have occurred
during the first quarter of fiscal 1999.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders
during the first quarter of fiscal 1999.
Item 5. Other Information.
N/A
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
No. Description
11.1 Statement re Computation of per Share Earnings
27 Financial Data Schedule
b) Reports on Form 8-K.
No current Report on Form 8-K was filed by the Company during
first quarter of fiscal 1999.
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.
REPAP ENTERPRISES INC.
Registrant
Date: May 14, 1999 /s/ Michelle A. Cormier
Michelle A. Cormier
Vice President, Finance
EXHIBIT INDEX
Exh. 11.1 Statement Re: Computation of per Share EarningsExh.
27 Financial Data Schedule
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(dollars in millions of Canadian dollars)
(shares in millions)
First Quarter
ended March 31,
1999 1998
------ ------
BASIC
Average shares outstanding 743.5 742.5
Income (loss) from continuing operations (9.3) (0.8)
Net Income (loss) attributable to common shareholders 0.0 17.3
Basic earnings (loss) from continuing operations
per share (0.01) 0.00
Basic earnings (loss) per share (0.01) 0.02
DILUTED (1)
Average shares outstanding 743.5 742.5
Stock options granted 69.7 63.2
Assumed conversion of convertible debentures 0.0 0.0
- -----------------------------------------
(1) Diluted earnings per share are not computed as the effect of
the conversions of convertible debentures and the exercise of
stock options are antidilutive. The convertible debentures
are convertible at US$0.35 per common share.
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This schedule contains summary financial information extracted from the
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