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 FEBRUARY 28, 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 March 31, 1994 was 26,973,956
<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 Six Months Ended
February 28, 1994 (unaudited) and
February 28, 1993 (unaudited)
Condensed Consolidated Balance 2
Sheets February 28, 1994
(unaudited) and August 31, 1993
(derived from audited financial
statements)
Condensed Consolidated Statements 3
of Cash Flows Six Months
Ended February 28, 1994 (unaudited) and
February 28, 1993 (unaudited)
Notes to Condensed Consolidated 4 - 6
Financial Statements
Item 2. Management's Discussion and 6 - 9
Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 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, For the Three Months For the Six
Months
except per share data - unaudited) Ended February 28 Ended
February 28
1994 1993 1994
1993
- --------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 97,709 $ 87,269 $206,440
$182,063
Cost of products sold 74,879 69,342 157,719
145,150
- --------------------------------------------------
GROSS PROFIT 22,830 17,927 48,721
36,913
Selling, administrative
and research expenses 7,495 4,594 14,921
11,125
- --------------------------------------------------
OPERATING PROFIT 15,335 13,333 33,800
25,788
Interest income 26 11 34
20
Interest expense (503) (203) (1,056)
(391)
Other income (expense) (144) 64 (103)
82
- --------------------------------------------------
EARNINGS BEFORE INCOME TAXES 14,714 13,205 32,675
25,499
Provision for income taxes 5,600 4,900 12,500
9,387
EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 9,114 8,305 20,175
16,112
Cumulative Effect of Accounting
Changes:
Postretirement benefits (net of
income taxes)
(15,750)
Income taxes 1,000
- --------------------------------------------------
NET EARNINGS $ 9,114 $ 8,305 $ 21,175 $
362
==================================================
EARNINGS PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF ACCOUNTING
CHANGES $ .34 $ .31 $ .75 $
.60
Cumulative effect of account
changes .04
(.59)
- --------------------------------------------------
NET EARNINGS PER COMMON SHARE $ .34 $ .31 $ .79 $
.01
==================================================
WEIGHTED AVERAGE NUMBER OF SHARES 26,968,955 26,946,207 26,963,775
26,943,555
==================================================
</TABLE>
<PAGE>
<TABLE>
- -------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Wausau Paper Mills Company and Subsidiaries
- -------------------------------------------------------------------
<CAPTION>
(Dollars in thousands) February 28 August 31
- -------------------------------------------------------------------
1994* 1993*
-----------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,191 $ 2,624
Accounts and notes receivable 31,305 30,937
Inventories 61,922 59,659
Other current assets 5,636 5,701
-----------------------------
Total current assets 104,054 98,921
-----------------------------
Property, plant and equipment 230,407 221,839
Other assets 9,203 8,823
TOTAL ASSETS $343,664 $329,583
=============================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 504 $ 504
Accounts payable 17,748 18,833
Accrued and other liabilities 22,021 20,543
Accrued income taxes 190 2,034
-----------------------------
Total current liabilities 40,463 41,914
-----------------------------
LONG-TERM LIABILITIES
Long-term debt 36,960 42,712
Deferred income taxes 30,058 28,220
Other liabilities 34,788 33,598
-----------------------------
Total long-term liabilities 101,806 104,530
-----------------------------
Total shareholders' equity 201,395 183,139
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $343,664 $329,583
=============================
<FN>
* The consolidated balance sheet at February 28, 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 Six
Months
(Dollars in thousands - unaudited) Ended
February 28
- ------------------------------------------------------------------------------
- ------
1994
1993
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 21,175 $
362
- ------------------------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for depreciation, depletion
and amortization 8,652
7,384
Provision for postretirement benefits other
than pensions 973
25,730
Deferred income taxes 1,629
(7,556)
Changes in operating assets and liabilities:
Receivables (368)
975
Inventories (2,263)
(3,146)
Other assets (149)
26
Accounts payable and other liabilities 2,038
(4,793)
Accrued income taxes (1,844)
(1,438)
- ------------------------
Total adjustments 8,668
17,182
- ------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,843
17,544
- ------------------------
Cash Flows From Investing Activities:
Capital expenditures (19,100)
(17,559)
Proceeds from property, plant and
equipment disposals 604
31
- ------------------------
NET CASH USED IN INVESTING ACTIVITIES (18,496)
(17,528)
- ------------------------
Cash Flows From Financing Activities:
Borrowings (repayments) under revolving credit facility (5,500)
4,500
Repayment of long-term debt (252)
(16)
Dividends paid (3,060)
(2,729)
Proceeds from sale of treasury stock 32
22
- ------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,780)
1,777
- ------------------------
Net increase in cash and cash equivalents 2,567
1,793
Cash and cash equivalents at beginning of year 2,624
1,984
- ------------------------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 5,191 $
3,777
========================
Supplemental Information:
Interest paid (net of amount capitalized) $ (1,053) $
(384)
Income taxes paid (11,714)
(9,131)
</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 February 28, 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
expenses of $565,000 or $.01 per share for the quarter
ended February 28, 1994 and income of $705,000 or $.02
per share for the quarter ended February 28, 1993. For
the six months ended February 28, SARs and stock option
expenses were $832,000 or $.02 per share for 1994 and
$1,168,000 or $.03 per share for 1993.
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>
FEBRUARY 28, 1994 AUGUST 31, 1993
----------------- ---------------
<S> <C> <C>
Customer Accounts $34,462,000 $32,528,000
Misc. Notes and Accounts
Receivable 1,208,000 2,075,000
---------- ----------
$35,670,000 $34,603,000
Less: Allowance for
Discounts, Doubtful
Accounts and Pending Credits 4,365,000 3,666,000
---------- ----------
Net Receivables $31,305,000 $30,937,000
----------- -----------
</TABLE>
<PAGE>
<TABLE>
Note 6: The various components of inventories were as follows:
<CAPTION>
FEBRUARY 28, 1994 AUGUST 31, 1993
----------------- ---------------
<S> <C> <C>
Raw Materials and Supplies $32,702,000 $31,690,000
Work in Process
and Finished Goods 36,132,000 34,933,000
---------- ----------
$68,834,000 $66,623,000
Less: LIFO Reserve 6,912,000 6,964,000
---------- ----------
Net Inventories $61,922,000 $59,659,000
----------- -----------
</TABLE>
Note 7: The accumulated depreciation on fixed assets was
$124,344,000 as of February 28, 1994 and $117,308,000 as
of August 31, 1993.
<TABLE>
Note 8: A summary of long-term debt is as follows:
<CAPTION>
FEBRUARY 28, 1994 AUGUST 31, 1993
----------------- ---------------
<S> <C> <C>
Bonds, Mortgages and
Similar Debt $36,500,000 $42,000,000
Capitalized Leases 460,000 712,000
------- -------
Total Long Term Debt $36,960,000 $42,712,000
----------- -----------
</TABLE>
<TABLE>
Note 9: Dividends per share were as follows:
<CAPTION>
THREE MONTHS ENDING SIX MONTHS ENDING
------------------- -----------------
FEBRUARY 28, 1994 FEBRUARY 28, 1993 FEBRUARY 28, 1994 FEBRUARY 28, 1993
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
$.12* $.1050** $.12* $.1050**
<FN>
* The company's Board of Directors meeting schedule resulted in
the declaration of cash dividends of $.12 and $.1050 per share
in the three months ended February 28, 1994 and February 28,
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 second quarter net sales and shipments were recorded for the
three months ended February 28, 1994. Net sales for the quarter
were $97,709,000, up 12.0% from net sales of $87,269,000 reported
for the second quarter of fiscal 1993. Second quarter shipments of
81,900 tons exceeded last year's level by 15.6%. For the six months
ended February 28, 1994, net sales and shipments were also at record
levels. Net sales of $206,440,000 on shipments of 172,500 tons for
the first half of fiscal 1994 were up 13.4% and 17.9%, 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 second quarter fiscal
1993 shipments by 20.3%. Last year's second quarter did not include
shipments from the Groveton mill, which was purchased on April 1,
1993. Despite severe weather conditions which reduced order
activity, demand for printing and writing products was sufficiently
strong to allow full production on one of the two paper machines at
the Groveton mill along with full production at the Brokaw mill.
Order backlogs for the Printing and Writing Division were down
slightly for the quarter but were higher than backlogs a year ago as
a result of the added marketing opportunities associated with the
addition of the Groveton mill. Shipments for the first six months
of fiscal 1994 were 25.2% higher compared to the same period last
year.
During the second quarter of fiscal 1994, shipments at Rhinelander
increased 9.8% compared to the same period a year ago. Overall
demand was strong during the quarter, supporting full production on
all four paper machines. Order backlogs at the end of the quarter
remained strong. Year-to-date shipments were up 8.3% over the first
six months of fiscal 1993.
Gross Profit
Gross profit was $22,830,000 or 23.4% of net sales for the second
quarter of fiscal 1994. For the second quarter of fiscal 1993,
gross profit was $17,927,000 or 20.5% of net sales. The improvement
in gross profit margin was the result of lower raw material costs
and higher production levels, which offset slightly lower selling
prices due to mix changes and price reductions. Purchased pulp
costs rose moderately during the past quarter. Major pulp producers
announced additional price increases for the third fiscal quarter.
If the general trend of the company's business continues to improve,
management expects to raise selling prices in many of its product
lines during the balance of fiscal 1994. Both Rhinelander and the
Printing and Writing Division have announced price increases for the
third fiscal quarter for certain grade lines. For the first six
months of fiscal 1994, gross profit was $48,721,000 or 23.6% of net
sales. For the six months ended February 28, 1993, gross profit was
$36,913,000 or 20.3% of net sales.
<PAGE>
At the Printing and Writing Division, second quarter production from
the Brokaw and Groveton mills exceeded the second quarter of fiscal
1993 by 38.0%. Last year's second quarter did not include the
production capacity from the Groveton mill which was purchased on
April 1, 1993. Brokaw's production alone was up 5% over the prior
year's second quarter. The strong production and reduced order
activity due to severe weather conditions resulted in a higher than
normal inventory increase during the quarter.
At the Rhinelander Division, production increased 9.9% during the
second quarter of fiscal 1994 compared to last year's second quarter
as a result of the completion of several capital improvements over
the past year. Finished paper inventories declined slightly during
the second quarter of fiscal 1994.
Selling, Administrative and Research Expenses
For the quarter ended February 28, 1994, selling, administrative and
research expenses were $7,495,000 compared to $4,594,000 for the
second quarter of fiscal 1993. Expense of $565,000 from stock
appreciation rights and stock option adjustments was recorded in the
second quarter of fiscal 1994 compared to income of $705,000 for the
comparable quarter a year ago. Higher marketing and administrative
costs in the second quarter of fiscal 1994 were primarily
attributable to the addition of the Groveton mill which was acquired
on April 1, 1993. Increased advertising and staffing costs to
promote new product offerings and market the increased capacity of
the Printing and Writing Division also contributed to the increase.
For the first six months of fiscal 1994, selling, administration and
research expenses were $14,921,000 compared to $11,125,000 for the
comparable fiscal 1993 period. Higher expenses in the current year
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 $26,000 and interest expense of $503,000 were
recorded for the three months ended
February 28, 1994. For the second quarter of fiscal 1993, interest
income was $11,000 and interest expense was $203,000. Higher
interest expense in the second quarter of fiscal 1994 is the result
of additional debt incurred from the purchase of manufacturing
facilities in Groveton, New Hampshire on April 1, 1993.
For the first six months of fiscal 1994, interest income was $34,000
and interest expense was $1,056,000. For the same period last year,
interest income was $20,000 and interest expense was $391,000. The
additional debt from the purchase of manufacturing facilities in
Groveton, New Hampshire accounts for the higher interest expense in
fiscal 1994.
Income Taxes
In the second quarter of fiscal 1994, the income tax provision was
$5,600,000 for an effective tax rate of 38.1%. The effective rate
for the second quarter of fiscal 1993 was 37.1%. The income tax
provision for the first six months of fiscal 1994, before the
cumulative effect of an accounting change, was $12,500,000, for an
effective tax rate of 38.3% compared to an effective rate of 36.8%
for the first half of fiscal 1993. The higher tax rate is primarily
the result of a 1% increase in corporate federal tax rates enacted
in August, 1993.
<PAGE>The company adopted Statement of Financial Accounting Standard
(SFAS) 109, "Accounting for Income Taxes" in the quarter ended
November 30, 1993. This resulted in a one-time $1,000,000
cumulative reduction in the net deferred tax liability.
Net Earnings
Record second quarter net earnings of $9,114,000 were recorded for
the three months ended February 28, 1994 or $.34 per share. Second
quarter 1992 net earnings were $8,305,000 or $.31 per share.
For the six months ended February 28, 1994 net earnings were
$20,175,000 or $.75 per share before the cumulative effect of the
SFAS 109 accounting change. Net earnings for the first six months
of fiscal 1993 were $16,112,000 or $.60 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 six months ended February 28 were $21,175,000
or $.79 per share for fiscal 1994, compared to $362,000 or $.01 per
share for fiscal 1993.
CAPITAL RESOURCES AND LIQUIDITY
Cash Provided by Operations
Cash provided by operations in the second quarter of fiscal 1994 was
$8,298,000 compared to $4,194,000 for the same period in fiscal
1993. The improvement in operating cash flow is primarily the
result of increased sales, reduced unit costs and a smaller increase
in working capital due to higher accounts payable and other accrued
liabilities. For the six months ended February 28, 1994, cash
provided by operations was $29,843,000 compared to $17,544,000 for
the same period a year ago. Higher shipments and lower unit costs
in fiscal 1994 and a greater increase in working capital in fiscal
1993 account for the improvement in operating cash flow.
Capital Expenditures
Capital expenditures were $8,565,000 during the second quarter of
fiscal 1994 compared to $9,303,000 for the same period last year.
For the six months ended February 28, 1994, capital expenditures
totalled $19,100,000 compared to $17,559,000 during the first six
months of fiscal 1993.
Capital expenditure estimates for fiscal 1994 have been revised to
approximately $46 million from over $50 million previously. The
rate of capital spending is expected to increase in the second half
of fiscal 1994 as work proceeds on several major capital projects
including the new coater at Rhinelander, two machine rebuilds and a
new boiler and feedwater system at the Brokaw mill and a color
system at the Groveton mill.
Rhinelander Cogeneration Project
In August, 1993, the Company signed a contract with Wisconsin Public
Service Corporation (WPS) under which WPS would own, operate and
fund a new high-efficiency power plant and sell steam to the
Company's Rhinelander mill. Construction of the plant requires
approval the by Wisconsin Public Service Commission (the
"Commission").
<PAGE>
The Commission has requested proposals from electrical generation
developers and utilities for satisfying the projected demand for
additional electrical energy in the state. These proposals for
alternative electrical generation projects will compete with the
proposed WPS Rhinelander plant for Commission approval. If the
proposed WPS Rhinelander plan receives regulatory approval, it is
anticipated that the project would be completed and that steam would
be available to the Company's Rhinelander mill in fiscal 1998.
Financing
Long-term debt increased $4.9 million in the second quarter to
$36,960,000 at February 28, 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%. Effective interest rates on credit agreement borrowings at
February 28, 1994 ranged from 3.51% to 3.77%. On February 28, 1994,
the company also had $1,500,000 outstanding in commercial paper at
an effective rate of 3.46%.
Cash provided by operations, the private placement notes with
Prudential, commercial paper and the revolving credit agreement are
expected to fund the company's planned capital expenditure
requirements 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 December 13, 1993, the Board of Directors declared a four-for-
three stock split issued January 7, 1994 to shareholders of record
as of December 27, 1993. Any fractional shares resulting from the
stock split were paid in cash, based on the closing price of the
stock on the record date. Also on December 13, 1993, the Board of
Directors declared a cash dividend of $.06 per share on the shares
outstanding after effecting the four-for-three stock split. The
cash dividend was also paid January 7, 1994 to shareholders of
record on December 27, 1993.
The Board of Directors at the February 16, 1994 meeting declared a
quarterly cash dividend of $.06 per share payable April 1, 1994 to
shareholders of record on March 11, 1994.
<PAGE> PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The annual meeting of shareholders of the Company was held on
December 13, 1993.
<TABLE>
The matters voted upon, including the number of votes cast for,
again or withheld, as well as the number of abstentions and broker
non-votes, as to each such matter were as follows:
<CAPTION>
MATTER SHARES
Broker
For Against Withheld Abstain
Non-Vote
<S> <C> <C> <C> <C>
<C>
1. Election of Director
(a) Stanley F. Staples, Jr. 18,156,509 N/A 156,563 N/A
0
---------- --- ------- ---
- -
2. Approval of appointment of
independent auditors for year
ending August 31, 1994 18,248,941 13,810 N/A 50,321
0
---------- ------ --- ------
- -
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) None
(b) Reports on form 8-K: None
<PAGE>
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: April 12, 1994
