FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MAY 31, 1994
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: 0-7574
WAUSAU PAPER MILLS COMPANY
(Exact name of registrant as specified in charter)
WISCONSIN 39-0690900
(State of incorporation) (I.R.S. Employer Identification Number)
ONE CLARK'S ISLAND
P.O. BOX 1408
WAUSAU, WISCONSIN 54402-1408
(Address of principal executive office)
Registrant's telephone number, including area code: 715-845-5266
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 report), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No _______
-------
The number of common shares outstanding at June 30, 1994 was
26,873,956
<PAGE>
WAUSAU PAPER MILLS COMPANY
AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of 1
Income Three and Nine Months Ended
May 31, 1994 (unaudited) and
May 31, 1993 (unaudited)
Condensed Consolidated Balance 2
Sheets May 31, 1994 (unaudited)
and August 31, 1993 (derived from audited
financial statements)
Condensed Consolidated Statements 3
of Cash Flows Nine Months
Ended May 31, 1994 (unaudited) and
May 31, 1993 (unaudited)
Notes to Condensed Consolidated 4 - 5
Financial Statements
Item 2. Management's Discussion and 6 - 9
Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
CONSOLIDATED STATEMENTS OF INCOME
Wausau Paper Mills Company and Subsidiaries
<CAPTION>
(Dollars in thousands,
except per share data - unaudited) For the Three Months For the Nine Months
Ended May 31 Ended May 31
1994 1993 1994 1993
-------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $108,709 $100,268 $315,149 $282,331
Cost of products sold 82,296 74,935 240,015 220,085
-------------------------------------------------------
GROSS PROFIT 26,413 25,333 75,134 62,246
Selling, administrative
and research expenses 5,665 6,527 20,586 17,652
-------------------------------------------------------
OPERATING PROFIT 20,748 18,806 54,548 44,594
Interest income 21 4 55 24
Interest expense (443) (321) (1,499) (712)
Other income (expense) (10) (61) (113) 21
-------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 20,316 18,428 52,991 43,927
Provision for income taxes 7,800 6,845 20,300 16,232
-------------------------------------------------------
EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 12,516 11,583 32,691 27,695
CUMULATIVE EFFECT OF ACCOUNTING CHANGES:
Postretirement benefits (15,750)
(net of income taxes)
Income taxes 1,000
-------------------------------------------------------
NET EARNINGS $ 12,516 $ 11,583 $ 33,691 $ 11,945
======================================================
EARNINGS PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGES $ .46 $ .43 $ 1.21 $ 1.03
Cumulative effect of account changes .04 (.59)
-------------------------------------------------------
NET EARNINGS PER COMMON SHARE $ .46 $ .43 $ 1.25 $ .44
=======================================================
WEIGHTED AVERAGE NUMBER OF SHARES 26,930,478 26,951,134 26,952,554 26,946,109
=======================================================
</TABLE>
<PAGE>
<TABLE>
- - --------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Wausau Paper Mills Company and Subsidiaries
- - --------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in thousands) May 31 August 31
-------------------------------------------
1994* 1993*
-------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,635 $ 2,624
Accounts and notes receivable 32,370 30,937
Inventories 60,310 59,659
Other current assets 5,974 5,701
-------------------------------------------
Total current assets 101,289 98,921
-------------------------------------------
Property, plant and equipment 238,327 221,839
Other assets 8,652 8,823
-------------------------------------------
TOTAL ASSETS $348,268 $329,583
===========================================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 509 $ 504
Accounts payable 17,821 18,833
Accrued and other liabilities 22,808 20,543
Accrued income taxes 818 2,034
-------------------------------------------
Total current liabilities 41,956 41,914
-------------------------------------------
LONG-TERM LIABILITIES
Long-term debt 30,351 42,712
Deferred income taxes 31,288 28,220
Other liabilities 35,462 33,598
-------------------------------------------
Total long-term liabilities 97,101 104,530
-------------------------------------------
Total shareholders' equity 209,211 183,139
-------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $348,268 $329,583
===========================================
<FN>
* The consolidated balance sheet at May 31, 1994 is unaudited. The August 31, 1993
consolidated balance sheet is derived from audited financial statements.
</TABLE>
<PAGE>
<TABLE>
- - --------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Wausau Paper Mills Company and Subsidiaries
- - --------------------------------------------------------------------------------------------
<CAPTION>
For the Nine Months
(Dollars in thousands - unaudited) Ended May 31
---------------------------------
1994 1993
---------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 33,691 $ 11,945
---------------------------------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for depreciation, depletion
and amortization 13,120 11,589
Provision for postretirement benefits other
than pensions 1,300 26,147
Deferred income taxes 3,062 (6,426)
Changes in operating assets and liabilities:
Receivables (1,433) (1,925)
Inventories (651) (13,395)
Other assets 116 (211)
Accounts payable and other liabilities 2,550 6,000
Accrued income taxes (1,216) 117
---------------------------------
Total adjustments 16,848 21,896
---------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 50,539 33,841
---------------------------------
Cash Flows From Investing Activities:
Capital expenditures (31,359) (44,211)
Proceeds from property, plant and
equipment disposals 596 31
---------------------------------
NET CASH USED IN INVESTING ACTIVITIES (30,763) (44,180)
---------------------------------
Cash Flows From Financing Activities:
Borrowings (repayments) under revolving credit facility (12,000) 16,000
Repayment of long-term debt (355) (99)
Dividends paid (4,679) (4,144)
Payment for purchase of treasury stock (2,731)
Proceeds from sale of treasury stock 33
---------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (19,765) 11,790
---------------------------------
Net increase in cash and cash equivalents 11 1,451
Cash and cash equivalents at beginning of year 2,624 1,984
---------------------------------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 2,635 $ 3,435
=================================
Supplemental Information:
Interest paid (net of amount capitalized) $ (1,491) $ (630)
Income taxes paid (17,454) (13,292)
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The accompanying unaudited financial statements include all
adjustments, which are all normal and recurring in nature
except as referenced in Note 2, and, in the opinion of
management, present fairly the condensed results for the
interim periods presented. Refer to the Notes to Financial
Statements which appear in the Annual Report on Form 10-K
for the year ended August 31, 1993 for the Company's
accounting policies which are pertinent to these
statements.
Note 2: The Company adopted Statement of Financial Accounting
Standard (SFAS) 109, "Accounting for Income Taxes" in the
quarter ended November 30, 1993. Results for the periods
ended May 31, 1993 reflect the retroactive adoption of SFAS
106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions".
Note 3: Selling, administrative and research expenses include stock
appreciation rights (SARs) and stock option income of
$1,015,000 or $.02 per share for the quarter ended May 31,
1994 and expense of $88,000 or less than $.01 per share for
the quarter ended May 31, 1993. For the nine months ended
May 31, 1994, SARs and stock option income was $183,000 or
less than $.01 per share, compared to expense of $1,256,000
or $.03 per share for the 1993 period.
Note 4: All shares and per share data have been restated to reflect
the four-for three stock split to shareholders of record as
of December 27, 1993.
<TABLE>
Note 5: Accounts receivable consisted of the following:
<CAPTION>
MAY 31, 1994 AUGUST 31, 1993
------------ ---------------
<S> <C> <C>
Customer Accounts $34,745,000 $32,528,000
Misc. Notes and Accounts
Receivable 1,522,000 2,075,000
---------- ----------
$36,267,000 $34,603,000
Less: Allowance for
Discounts, Doubtful
Accounts and Pending Credits 3,897,000 3,666,000
--------- ---------
Net Receivables $32,370,000 $30,937,000
----------- -----------
</TABLE>
<PAGE>
<TABLE>
Note 6: The various components of inventories were as follows:
<CAPTION>
MAY, 31, 1994 AUGUST 31, 1993
------------- ---------------
<S> <C> <C>
Raw Materials and Supplies $31,683,000 $31,690,000
Work in Process
and Finished Goods 38,377,000 34,933,000
---------- ----------
$70,060,000 $66,623,000
Less: LIFO Reserve 9,750,000 6,964,000
--------- ---------
Net Inventories $60,310,000 $59,659,000
----------- -----------
</TABLE>
Note 7: The accumulated depreciation on fixed assets was
$128,747,000 as of May 31, 1994 and $117,308,000 as of
August 31, 1993.
<TABLE>
Note 8: A summary of long-term debt is as follows:
<CAPTION>
MAY 31, 1994 AUGUST 31, 1993
------------ ---------------
<S> <C> <C>
Bonds, Mortgages and Similar $30,000,000 $42,000,000
Debt
Capitalized Leases 351,000 712,000
------- -------
Total Long Term Debt $30,351,000 $42,712,000
----------- -----------
</TABLE>
<TABLE>
Note 9: Dividends per share were as follows:
<CAPTION>
THREE MONTHS ENDING NINE MONTHS ENDING
------------------- ------------------
MAY 31, 1994 MAY 31, 1993 MAY 31, 1994 MAY 31, 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C>
$.06* $.0525** $.18* $.1575**
<FN>
* The Company's Board of Directors meeting schedule resulted in the
declaration of cash dividends of $.06 and $.0525 per share in the
three months ended May 31, 1994 and May 31, 1993, respectively.
** Per share dividends have been restated to reflect the four-for-
three stock split to shareholders of record as of December 27,
1993.
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Results of Operations
Net Sales
Record third quarter net sales and shipments were recorded for the
three months ended May 31, 1994. For the quarter, net sales were
$108,709,000, up 8.4% from net sales of $100,268,000 reported for
last year. Third quarter shipments of 89,900 tons exceeded last
year's level by 10.2%. For the nine months ended May 31, 1994, net
sales and shipments were also at record levels. Net sales of
$315,149,000 on shipments of 262,400 tons for the first three
quarters of fiscal 1994 were up 11.6% and 15.1%, respectively,
compared to the same period a year ago.
Shipments of the Company's printing and writing grades, manufactured
at the Brokaw and Groveton mills, exceeded last year's third quarter
shipments by 13.2%. The third quarter of fiscal 1993 included two
months of shipments from the Groveton mill, which was purchased on
April 1, 1993. Shipments for the first three quarters of fiscal
1994 were 20.8% higher compared to the same period a year ago. The
Company has experienced strong volume gains in printing and writing
papers, particularly in Groveton's new markets. There was not
sufficient market strength, however, to start up the second of the
two paper machines at Groveton. Order backlogs for the Printing and
Writing Division were up slightly for the quarter and were higher
than backlogs a year ago as a result of increased marketing
opportunities associated with the addition of the Groveton mill.
Third quarter, 1994 shipments at Rhinelander were 6.0% higher than
the same period a year ago. Demand during the quarter was strong.
Order backlogs continued strong throughout the third quarter. Year-
to-date shipments were up 7.5% over the first nine months of fiscal
1993, with pressure sensitive shipments up 8.2% over the prior year.
No. 9 paper machine at Rhinelander was down eight days in late June
for the installation of capital improvements which are expected to
add 7,000 tons annually to that machine's capacity. The Company
does not expect the outage to materially impact sales in the fourth
fiscal quarter.
Gross Profit
Gross profit for the third quarter of fiscal 1994 was $26,413,000 or
24.3% of net sales. For last year's third quarter, gross profit was
$25,333,000 or 25.3% of net sales. The lower gross profit margin
compared to the prior year was the result of higher raw material
costs and lower selling prices. These factors were significantly
offset by higher production levels and cost reduction efforts.
Purchased pulp costs rose steadily during the third quarter, with
major pulp producers announcing further price increases for the
fourth fiscal quarter. During the third quarter, the Company
announced paper price increases for certain product lines at both
Rhinelander and at the Printing and Writing Division. An additional
price increase was recently announced for a majority of
Rhinelander's product lines to take effect July 15, 1994. For the
first nine months of fiscal 1994, gross profit was $75,134,000 or
23.8% of net sales. For the nine months ended May 31, 1993, gross
profit was $62,246,000 or 22.0% of net sales.
PAGE
<PAGE>
At the Printing and Writing Division, third quarter production from
the Brokaw and Groveton mills exceeded the third quarter of fiscal
1993 by 14.4%. Last year's third quarter included two months of
production from the Groveton mill which was purchased on April 1,
1993. Third quarter production at Brokaw approximated production in
the third quarter of fiscal 1993. Inventory levels at the Printing
and Writing Division were down slightly for the quarter.
At the Rhinelander Division, production increased 6.8% in the third
quarter compared to a year ago as a result of several capital
improvements which were completed during the past year. Finished
paper inventories rose slightly during the third quarter of fiscal
1994.
Selling, Administrative and Research Expenses
For the three months ended May 31, 1994, selling, administrative and
research expenses were $5,665,000 compared to $6,527,000 for the
same period a year ago. Income of $1,015,000 from stock
appreciation rights (SARs) and stock option adjustments was recorded
in the third quarter of fiscal 1994 compared to an expense of
$88,000 for third quarter of fiscal 1993. The slight increase in
costs in the third quarter of fiscal 1994, excluding SARs and stock
option adjustments, was mainly attributable to higher marketing
costs.
For the first nine months of fiscal 1994, selling, administration
and research expenses were $20,586,000 compared to $17,652,000 for
the same fiscal 1993 period. SARs and stock option income was
$183,000 for the first three quarters of fiscal 1994, compared to an
expense of $1,256,000 for the same period a year ago. Higher
expenses in fiscal 1994 are a result of the addition of the Groveton
mill and increased marketing, professional fees and incentive plan
costs.
Interest Income and Expense
Interest income of $21,000 and interest expense of $443,000 were
recorded for third quarter of fiscal 1994.
For the third quarter of fiscal 1993, interest income was $4,000 and
interest expense was $321,000. Higher interest expense in the third
quarter of fiscal 1994 was the result of additional debt incurred
from the purchase of manufacturing facilities in Groveton, New
Hampshire on April 1, 1993.
For the first nine months of fiscal 1994, interest income was
$55,000 and interest expense was $1,499,000. For the same fiscal
1993 period, interest income was $24,000 and interest expense was
$712,000. Additional debt from the purchase of the Groveton, New
Hampshire, manufacturing facilities accounts for the higher interest
expense in fiscal 1994.
PAGE
<PAGE>
Income Taxes
For the third quarter of fiscal 1994, the income tax provision was
$7,800,000 for an effective tax rate of 38.4%. The effective rate
for last year's third quarter was 37.1%. The income tax provision
for the first nine months of fiscal 1994, before the cumulative
effect of an accounting change, was $20,300,000, for an effective
tax rate of 38.3% compared to an effective rate of 37.0% for the
comparable fiscal 1993 period. The higher tax rate is primarily the
result of a 1% increase in corporate federal tax rates enacted in
August, 1993.
The Company adopted Statement of Financial Accounting Standard
(SFAS) 109, "Accounting for Income Taxes" in the first quarter of
fiscal 1994. This resulted in a one-time $1,000,000 cumulative
reduction in the net deferred tax liability.
Net Earnings
Net earnings for the third quarter of fiscal 1994 were a record
$12,516,000 or $.46 per share. Third quarter fiscal 1993 net
earnings were $11,583,000 or $.43 per share.
For the nine months ended May 31, 1994 net earnings were $32,691,000
or $1.21 per share before the cumulative effect of the SFAS 109
accounting change. Net earnings for the first nine months of fiscal
1993 were $27,695,000 or $1.03 per share before the cumulative
effect of the retroactive adoption of SFAS 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions". After
including the impact of these accounting changes, net earnings for
the nine months ended May 31 were $33,691,000 or $1.25 per share for
fiscal 1994, compared to last year's net earnings of $11,945,000 or
$.44 per share.
Capital Resources and Liquidity
Cash Provided by Operations
Cash provided by operations in the third quarter of fiscal 1994 was
$20,696,000 compared to $16,297,000 during the third quarter of
fiscal 1993. The increased operating cash flow is primarily due to
higher sales for the quarter compared to a year ago. For the nine
months ended May 31, 1994, cash provided by operations was
$50,539,000 compared to $33,841,000 for the same fiscal 1993 period.
Increased shipments along with lower unit costs in fiscal 1994 and
increased inventories associated with the addition of the Groveton
mill in 1993 account for the year-to-date improvement in operating
cash flow over the previous year.
PAGE
<PAGE>
Capital Expenditures
For the three months ended May 31, 1994, capital expenditures were
$12,259,000 compared to $26,652,000 for the same period last year.
Capital spending in the third quarter of fiscal 1993 includes $20.2
million for the purchase of manufacturing facilities in Groveton,
New Hampshire. For the nine months ended May 31, 1994, capital
expenditures totalled $31,359,000 compared to $44,211,000 for the
same fiscal 1993 period.
During the third quarter of fiscal 1994, one of two planned paper
machine rebuilds at Brokaw for fiscal 1994 was completed. Work
continues on several major projects, including the new boiler and
feedwater system and the second machine rebuild at Brokaw, the new
silicone coater and No. 9 paper machine rebuild at Rhinelander and
the color measurement system at Groveton.
Capital expenditures at existing facilities are projected to be $46
million for fiscal 1994.
Common Stock Repurchase
On April 21, 1994, the Company purchased, with authorization from
the Board of Directors, 100,000 shares of the company's no par value
common stock from a Director in a private transaction at the market
price.
On June 30, 1994, the company announced that its Board of Directors
had authorized the repurchase of up to 1,350,000 shares of the
company's common stock from time to time in the open market or
through privately negotiated transactions at prevailing market
prices.
Financing
Long-term debt decreased $6,609,000 in the third quarter to
$30,351,000 at May 31, 1994. The Company's debt is primarily notes
to Prudential Insurance Company of America and its subsidiaries
which were issued in June, 1993 at a fixed rate of 6.03%. There was
no revolving credit agreement debt or commercial paper outstanding
at May 31, 1994.
On June 15, 1994, the Company's Board of Directors approved the
renewal of its $35 million revolving credit facility agreement with
its two banks, which is scheduled to expire August 1, 1994. The
Company expects to sign the agreement prior to August 1, 1994. The
terms and conditions of the new agreement are essentially the same
as the existing revolving credit facility. In a separate agreement,
the same banks will provide a $30 million uncommitted line of credit
to the Company.
PAGE
<PAGE>
Cash provided by operations, the private placement notes with
Prudential, commercial paper and the revolving credit agreement are
expected to fund the Company's capital expenditure requirements and
stock repurchase program for fiscal 1994. The Company believes that
sufficient amounts of capital resources are available to achieve
both short-term and long-term goals.
Dividends
On May 27, 1994, the Board of Directors declared a quarterly cash
dividend of $.06 per share payable
July 1, 1994 to shareholders of record on June 17, 1994.
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
On June 30, 1994, the Company's Board of Directors authorized the
Company to repurchase up to 1,350,000 shares or 5% of its Common
Stock from time to time in the open market or through privately
negotiated transactions at prevailing market prices. As of that
date, the Company had 26,873,956 shares of Common Stock outstanding.
Item 6. Exhibits and Reports on Form 8-K:
(a) None
(b) Reports on form 8-K: None
S I G N A T U R E
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.
WAUSAU PAPER MILLS COMPANY
Registrant
By: STEVEN A. SCHMIDT
Steven A. Schmidt
Vice President Finance, Secretary and Treasurer
(Principal Financial Officer)
Date: July 12, 1994
