SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997.
or
__ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________________ to
__________________
FLORIDA COAST PAPER COMPANY, L.L.C. 333-8023
FLORIDA COAST PAPER FINANCE CORP. 333-8023-01
(Exact names of registrants as (Commission file number)
specified in their charters)
Delaware 59-3379704
Delaware 59-3379707
(State or other jurisdiction of (I.R.S.employer
incorporation or organization) identification no.)
600 U.S. Highway 98, Port St. Joe, FL 32456
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (904) 227-1171
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
As of May 9, 1997, there were 40,000 units of Florida
Coast Paper Company, L.L.C.'s Common Member Interest
outstanding and 1,000 shares of Common Stock of Florida
Coast Paper Finance Corp. outstanding.
FLORIDA COAST PAPER COMPANY, L.L.C.
FLORIDA COAST FINANCE CORP.
1997 QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1997
TABLE OF CONTENTS
Part I - Financial Information
Page
Item 1.Financial Statements (Unaudited)
Balance Sheets as of March 31, 1997 and December 31, 1996 2
Statement of Operations for the three months ended March 31,
1997 and Statement of Operations of St. Joe Forest Products
Company --Linerboard Mill Operations (the "Predecessor") for
the three months ended March 31, 1996 3
Statement of Cash Flows for the three months ended March 31,
1997 and the Predecessor's Statement of Cash Flows for the
three months ended March 31, 1996 4
Notes to Financial Statements 5
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
Exhibits and Reports on Form 8-K 10
Signatures
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FLORIDA COAST PAPER COMPANY, L.L.C.
BALANCE SHEET
(dollars in thousands)
March 31,December 31
1997 1996
Assets
Current assets:
Cash and cash equivalents $13,857 $8,621
Accounts receivable from Joint
Venture Partners 2,810 8,643
Other receivables 661 567
Inventories 9,973 13,185
Other 403 681
Total current assets 27,704 31,697
Property, plant and equipment,
net of accumulated depreciation 183,389 184,946
Deferred debt issuance costs 7,632 7,825
Other noncurrent assets 1,250 997
Total assets $219,975 $225,465
Liabilities and members' equity
Current liabilities:
Accounts payable $10,333 $10,222
Accrued liabilities 4,302 8,567
Accrued interest 7,013 1,753
Total current liabilities 21,648 20,542
Long-term debt:
Senior long-term debt 165,000 165,000
Subordinated debt 11,149 10,791
Other noncurrent liabilities 3,325 3,076
Commitments and contingencies (Note 6)
Total liabilities 201,122 199,409
Members' equity
Contributed capital 40,000 40,000
Accumulated deficit (21,147) (13,944)
Total members' equity 18,853 26,056
Total liabilities and members' equity$219,975 $225,465
*Unaudited; subject to year-end audit
The accompanying notes are an integral part of these financial
statements.
FLORIDA COAST PAPER COMPANY, L.L.C.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
(dollars in thousands)
Three months ended March 31,
1997 1996
(Florida Coast)(Predecessor)
Net sales $42,074 $49,759
Cost of sales 43,251 45,106
General, selling & administrative expense 438 766
Operating profit (loss) (1,615) 3,887
Interest income 162 --
Interest expense (5,811) --
Other income, net 61 122
Other expense, net (5,588) 122
Income (loss) before income taxes (7,203) 4,009
Provision for income taxes - 1,486
Net income (loss) $(7,203) $2,523
Accumulated deficit, beginning of period$(13,944)
Net loss (7,203)
Accumulated deficit, end of period $(21,147)
The accompanying notes are an integral part of these financial
statements.
FLORIDA COAST PAPER COMPANY, L.L.C.
STATEMENT OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Three months ended March 31,
1997 1996
(Florida Coast)(Predecessor)
Cash flows from operating activities:
Net income (loss) $(7,203) $2,523
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 3,530 6,241
Other non-cash items 800 (100)
Changes in current assets and liabilities:
Receivables 5,739 (1,380)
Inventories 3,212 (1,003)
Other current assets 278 72
Accounts payable 111 (4,418)
Accrued liabilities (4,265) 251
Accrued interest 5,260 --
Other assets (253) --
Net cash provided by operating activities7,209 2,186
Cash flows from financing activities:
Change in intercompany accounts -- 300
Net cash provided by financing activities -- 300
Cash flows from investing activities:
Capital expenditures (1,973) (2,486)
Net cash used in investing activities (1,973) (2,486)
Net cash flows:
Net increase in cash and cash equivalents5,236 --
Cash and cash equivalents:
Beginning of period 8,621 --
End of period $13,857 $ --
The accompanying notes are an integral part of these financial
statements.
FLORIDA COAST PAPER COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- Nature of operations
On May 30, 1996, Florida Coast Paper Company, L.L.C.
(the "Company" or "Florida Coast") purchased a
paperboard mill (the "Mill") from St. Joe Forest
Products Company ("SJFP"), a wholly owned subsidiary of
St. Joe Paper Company ("SJPC"). Florida Coast is a
joint venture between Stone Container Corporation
("Stone") and Four M Corporation ("Four M") (together,
the "Joint Venture Partners"). The purchase was
accounted for under the purchase method. Accordingly,
the purchase price was allocated to the net assets
acquired based on estimated fair values as supported by
various company analyses some of which are still
pending. Prior to May 30, 1996 the Mill was owned and
operated by SJFP. The results of operations and cash
flows of SJFPLinerboard Mill Operations (the
"Predecessor") for the three months ended March 31,
1996 have been presented for comparative purposes.
Florida Coast Paper Finance Corp. ("Finance Corp.") is
a wholly owned subsidiary of Florida Coast. Finance
Corp. does not have any revenues or expenses,
therefore, separate financial statements of Finance
Corp. have not been included in the financial
statements included herein.
Note 2 -- Basis of Presentation
Pursuant to the rules and regulations of the Securities
and Exchange Commission, the financial statements,
footnote disclosures and other information normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed. The financial statements, footnote
disclosures and other information included herein
should be read in conjunction with the financial
statements and the notes thereto included in Florida
Coast's latest Annual Report on Form 10-K.
The accompanying unaudited financial statements contain
all normal recurring adjustments necessary to fairly
present Florida Coast's financial position as of
March 31, 1997 and the results of operations and cash
flows for the three months ended March 31, 1997 and
SJFPLinerboard Mill Operations results of operations
and cash flows for the three months ended March 31, 1996.
Results for interim periods are not necessarily
indicative of results for the entire year.
Note 3 -- Subsequent event
On April 5, 1997, the Company curtailed production at
the Mill until market conditions warrant a resumption
of linerboard production. Stone and Four M, the Joint
Venture Partners, have committed to fund the Company's
cash operating costs, cash interest expense and
maintenance capital expenditures during the shutdown.
The Company also has a $20 million Subordinated Credit
Facility provided by its Joint Venture Partners.
Note 4 -- Inventories
Inventories are summarized as follows:
(dollars in thousands)
March 31,December 31,
1997 1996
Raw materials $1,498 $3,616
Supplies 8,380 8,337
Finished goods and work in process 95 1,232
Total inventories $9,973 $13,185
Note 5 -- Related party transactions
Florida Coast
Pursuant to an Output Purchase Agreement, each of the
Joint Venture Partners has agreed to purchase from the
Company one half of the Mill's entire linerboard
production at a price that is $25 per ton below the
price of such product published in Pulp & Paper Week,
an industry trade publication, subject to a minimum
purchase price, which minimum purchase price is
intended to generate sufficient funds to cover cash
operating costs, cash interest expense and maintenance
capital expenditures. During the quarter ended March
31, 1997, the Joint Venture Partners were charged an
additional $2.1 million as a result of the minimum
purchase price provisions of the Output Purchase
Agreement. This amount is included in Net Sales to
Joint Venture Partners in the Statement of Operations.
Furthermore, in addition to an initial investment of
$40 million in the Company, the Joint Venture Partners
have severally agreed to provide the Company with a $20
million Subordinated Credit Facility.
At March 31, 1997, the Company had receivables from
the Joint Venture Partners of approximately $2.8
million.
The Company has entered into a procurement agreement
with Stone pursuant to which Stone will procure wood
fiber, at market values, on behalf of the Company.
St. Joe Forest Products Linerboard Mill Operations
Prior to May 30, 1996, the Mill was owned and operated
by SJPC. The information for the three months ended
March 31, 1996 is presented for comparative purposes.
The intercompany transactions described below may or
may not be indicative of what such transactions would
have been had SJFPLinerboard Mill Operations operated
either as an unaffiliated entity or in affiliation with
another entity.
An allocation of costs of overhead of SJPC is included
in selling, general and administrative expenses. SJPC
provided services in treasury, taxes, benefits
administration and legal support and other financial
systems and support. The Mill was billed approximately
$240 thousand for the three months ended March 31,
1996.
Sales to St. Joe Container Company ("SJCC"), a wholly
owned subsidiary of SJFP, amounted to approximately
$27.2 million representing approximately 56,000 tons
for the three months ended March 31, 1996. Pricing for
these transactions was based on the Pulp & Paper Week
Price Watch: Paper and Paperboard. In addition,
SJFPLinerboard Mill Operations purchased both
linerboard and corrugating medium for SJCC from outside
suppliers. The price paid for this rollstock was
negotiated with each supplier. SJCC was charged for
this rollstock at the prices published in Pulp & Paper
Week.
Purchases of pulpwood and wood chips from St. Joseph
Land and Development Company, a wholly owned subsidiary
of SJFP, amounted to approximately $14.2 million
representing approximately 474,000 tons for the three
months ended March 31, 1996.
The Mill shipped the majority of its product via
Apalachicola Northern Railroad, a subsidiary of SJPC.
Amounts billed for freight amounted to approximately
$.9 million for the three months ended March 31, 1996.
Note 6-- Commitments and contingencies
The Company entered into a Wood Fiber Supply Agreement
(the "Fiber Agreement") with St. Joseph Land and
Development Company ("St. Joe Land") pursuant to which
St. Joe Land will supply a specified quantity of
pulpwood and wood chips to the Company. The Company
and St. Joe Land are currently determining the impact
of the cessation of production on the Fiber Agreement.
The Company may be required to make certain payments
pursuant to the Fiber Agreement during the shutdown
period.
In addition, the Company has assumed certain natural
gas agreements with St. Joe Natural Gas (a company not
related to the seller). St. Joe Natural Gas is asserting
that as part of such agreements, a firm commitment
payment is due monthly notwithstanding the shutdown.
Therefore, the Company may be required to make certain
payments of $175,000 per month during the shutdown
period.
In accordance with the provisions of the WARN Act, in
the event that the shutdown of the Company's operations
exceeds six months, the Company may be required to
provide severance payments to its employees of up to 60
days of pay.
FLORIDA COAST PAPER COMPANY L.L.C.
Item 2. Management's Discussion and Analysis of
Financial Condition And Results of Operations
General
The following discussion and analysis should be read in
conjunction with the financial statements of the
Company and St. Joe Forest Products Company--Linerboard
Mill Operations (the "Predecessor") and the notes
thereto included elsewhere in this report.
The linerboard market is highly cyclical and sensitive
to changes in industry capacity and economic
conditions, which in turn, will impact the selling
prices for the Company's products. Selling prices for
the Mill's products have historically been the primary
determinant of the Mill's financial performance. During
1996 prices for the Mill's products declined and
continue to remain low as a result of excess industry
capacity and weak demand. On April 5, 1997, the
Company curtailed production at the Mill until market
conditions warrant a resumption of linerboard
production.
Results of Operations
Provided below is certain unaudited financial data for
the three months ended March 31, 1997 and 1996:
(dollars in thousands)
Three months ended March 31,
1997 1996
(Florida Coast)(Predecessor)
Net sales $42,074 $49,759
Depreciation expense 3,530 6,241
Interest expense 5,811 --
Income (loss) before income taxes (7,203) 4,009
Net income (loss) (7,203) 2,523
Three Months Ended March 31, 1997 Compared with Three
Months Ended March 31, 1996
Net sales decreased $7.7 million, or 15%, to $42.1
million in 1997 from $49.8 million in 1996. This
decrease was attributable to a 22% and 20% decrease in
the average selling prices for mottled white and kraft
linerboard, respectively, which more than offset an
increase in sales volume to approximately 117,962 tons
in 1997 from approximately 105,956 tons in 1996.
Cost of sales decreased $1.8 million, or 4%, to $43.3
million in 1997 from $45.1 million in 1996. This
decline was attributable primarily to a reduction in
fuel, chemical and repair material costs. The Company
produced 40,105 tons of mottled white linerboard and
76,394 tons of unbleached kraft linerboard in 1997 as
compared with 43,699 tons and 65,357 tons,
respectively, in 1996.
The Mill's selling, general and administrative expenses
decreased $.4 million, or 50%, to $.4 million in 1997
from $.8 million in 1996. This decrease is primarily
due to the cessation of SJPC overhead allocations and
the elimination of the Company's sales force.
Depreciation expense decreased $2.7 million to $3.5
million in 1997 from $6.2 million in 1996 due to
differences between the Company's depreciation method
and estimated fixed asset useful lives as compared with
the policies of the Predecessor company.
The net loss for the 1997 period includes $5.8 million
of interest expense accrued on the Company's debt.
Financial Condition, Liquidity and Capital Resources
Historically, the Mill has met its liquidity
requirements through cash flows from operations
(including the provisions of the Output Purchase
Agreement that provide for a minimum purchase price as
previously described) and, for the period prior to May
30, 1996, through intercompany advances from SJPC.
During the shutdown period, as discussed in Note 3, the
Joint Venture Partners have committed to fund the
Company's cash operating costs, cash interest expense
and maintenance capital expenditures.
The Company's cash provided by operating activities
increased to $7.2 million in the first quarter of 1997
from $2.2 million in corresponding 1996 period, as the
cash flow effects from working capital changes more
than offset the decrease in net earnings. Accounts
receivable decreased $5.7 million from December 31,
1996 primarily as a result of collections from the
Joint Venture Partners. The $3.2 million decrease in
inventories was the result of efforts taken to reduce
inventory in preparation for the Mill shutdown. The
decrease in accrued liabilities is primarily due to a
$4.2 million property tax payment made during the first
quarter. The $5.3 million increase in accrued interest
was attributable to interest incurred during the
quarter on the Company's $165 million 12 3/4% Series B
First Mortgage Notes due June 1, 2003 (the "Notes").
Interest on the Notes is payable semiannually June 1
and December 1.
The Company's principal liquidity requirements consist
of debt service under the Notes and funding of capital
expenditures. At March 31, 1997 the Company had
outstanding approximately $176.1 million of
indebtedness, consisting of the Notes and $11.1 million
of 13 1/4% Subordinated debt due June 1, 2004 (the
"Seller Note"). Pursuant to the terms of the Seller
Note, the Company expects to pay interest in kind on
this Subordinated indebtedness. The Company also has a
$20 million Subordinated Credit Facility provided by
its Joint Venture Partners which is undrawn. To the
extent the Company borrows funds under this
Subordinated Credit Facility, additional interest and
principal payments will be required.
PART II. OTHER INFORMATION
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
2.1 Asset Purchase Agreement, dated as of November 1,
1995, among the Company, St. Joe Forest Products
Company, St. Joe Container Company, St. Joe Paper
Company and Four M Corporation ("Four M").**
3.1 Certificate of Formation of Florida Coast
Paper Company, L.L.C. (the "Company").**
3.2 Certificate of Incorporation of Florida Coast
Paper Finance Corp. ("Finance Corp.").**
3.7 By-laws of Finance Corp.**
4.1 Indenture, dated as of May 30, 1996, between the
Company and Norwest Bank Minnesota, National
Association (the "Trustee").**
4.2 Form of 12_% Series A and Series B First Mortgage
Notes, dated as of May 30, 1996 (incorporated by
reference to Exhibit 4.1).**
10.1 Output Purchase Agreement, dated as of May 30,
1996, among the Company, Four M and Stone
Container Corporation ("Stone").**
10.2 Mortgage Security Agreement, dated as of May 30,
1996, between the Company, and the Trustee.**
10.3 Security Agreement, dated as of May 30, 1996,
between the Company and the Trustee.**
10.4 Subordinated Credit Agreement, dated as of May 30,
1996, among the Company, Four M and Stone.**
10.5 Environmental Indemnity Agreement, dated as of May
30, 1996, between the Company and Four M.**
10.6 Wood Fiber Procurement and Services Agreement,
dated as of May 30, 1996, between the Company and
Four M.**
10.7 Indenture of Lease, dated as of May 30, 1996,
between the Company and Box USA Group, Inc.**
27.1 Financial Data Schedule.*
________________
* Filed herewith.
** Incorporated by reference to the Registration
Statement on Form S-4 of the Company, as amended
(the "Registration Statement"), as filed with the
Securities and Exchange Commission (the "SEC") on
July 12, 1996.
(b) Reports On Form 8-K
A Report on Form 8-K dated March 5, 1997 was filed
under Item 5 - Other Events and Item 7 - Exhibits.
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.
FLORIDA COAST PAPER COMPANY, L.L.C.
FLORIDA COAST FINANCE CORP.
RANDOLPH C. READ
Randolph C. Read
Chief Financial Officer and Treasurer
(Principal Accounting Officer and duly
authorized signatory)
Date: May 9, 1997