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, 1995
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, 1995 was
29,458,906.
<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, 1995 (unaudited) and
February 28, 1994 (unaudited)
Condensed Consolidated Balance 2
Sheets February 28, 1995 (unaudited)
and August 31, 1994 (derived from
audited financial statements)
Condensed Consolidated Statements 3
of Cash Flows Six Months
Ended February 28, 1995 (unaudited)
and February 28, 1994 (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 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
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 119,115 $ 97,709 $245,382 $206,440
Cost of products sold 101,021 74,879 206,190 157,719
----------------------------------------------------------
GROSS PROFIT 18,094 22,830 39,192 48,721
Selling, administrative
and research expenses 6,138 7,495 12,865 14,921
----------------------------------------------------------
OPERATING PROFIT 11,956 15,335 26,327 33,800
Interest income 89 26 149 34
Interest expense (389) (503) (825) (1,056)
Other expense (40) (144) (88) (103)
----------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 11,616 14,714 25,563 32,675
Provision for income taxes 4,500 5,600 9,850 12,500
----------------------------------------------------------
EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 7,116 9,114 15,713 20,175
Cumulative Effect of Accounting
Change:
Income taxes 1,000
----------------------------------------------------------
NET EARNINGS $ 7,116 $ 9,114 $ 15,713 $ 21,175
==========================================================
EARNINGS PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE $ .24 $ .31 $ .53 $ .68
Cumulative effect of
accounting change .03
----------------------------------------------------------
NET EARNINGS PER COMMON SHARE $ .24 $ .31 $ .53 $ .71
==========================================================
WEIGHTED AVERAGE NUMBER OF SHARES 29,474,000 29,665,000 29,468,000 29,659,000
==========================================================
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
Wausau Paper Mills Company and Subsidiaries
<CAPTION>
(Dollars in thousands) February 28 August 31
1995* 1994*
----------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,307 $ 3,214
Accounts and notes receivable 41,979 35,109
Inventories 67,510 60,222
Other current assets 8,155 7,389
----------------------------------------------
Total current assets 118,951 105,934
----------------------------------------------
Property, plant and equipment 258,724 247,072
Other assets 8,450 8,383
----------------------------------------------
TOTAL ASSETS $386,125 $361,389
==============================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,467 $ 462
Accounts payable 31,562 25,325
Accrued and other liabilities 20,956 20,077
Accrued income taxes 192
----------------------------------------------
Total current liabilities 55,985 46,056
----------------------------------------------
LONG-TERM LIABILITIES
Long-term debt 32,542 30,270
Deferred income taxes 34,119 31,945
Other liabilities 39,249 38,300
----------------------------------------------
Total long-term liabilities 105,910 100,515
----------------------------------------------
Total shareholders' equity 224,230 214,818
----------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $386,125 $361,389
==============================================
<FN>
* The consolidated balance sheet at February 28, 1995 is unaudited. The August 31, 1994
consolidated balance sheet is derived from audited financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Wausau Paper Mills Company and Subsidiaries
<CAPTION>
(Dollars in thousands - unaudited) For the Six Months
Ended February 28
- -------------------------------------------------------------------
1995 1994
----------------------
<S> <C> <C>
Operating Activities:
Net earnings $ 15,713 $ 21,175
Cumulative effect of accounting change (1,000)
Noncash items:
Provision for depreciation, depletion
and amortization 9,674 8,652
Deferred income taxes 2,174 2,629
Changes in operating assets and liabilities:
Receivables (6,870) (368)
Inventories (7,288) (2,263)
Other assets (838) (149)
Accounts payable and other liabilities 8,446 3,011
Accrued income taxes (192) (1,844)
---------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,819 29,843
---------------------
Investing Activities:
Capital expenditures (21,591) (19,100)
Proceeds from property, plant and
equipment disposals 247 604
---------------------
NET CASH USED IN INVESTING ACTIVITIES (21,344) (18,496)
---------------------
Financing Activities:
Borrowings (repayments) under revolving
credit facility 5,500 ( 5,500)
Repayments of long-term debt (223) (252)
Dividends paid (3,473) (3,060)
Proceeds from stock option exercises 2,036 32
Payments for purchase of treasury stock (5,222)
---------------------
NET CASH USED IN FINANCING ACTIVITIES (1,382) (8,780)
---------------------
Net increase (decrease) in cash and
cash equivalents (1,907) 2,567
Cash and cash equivalents at beginning
of year 3,214 2,624
---------------------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 1,307 $ 5,191
=====================
Supplemental Information:
Interest paid (net of amount capitalized) $ 833 $ 1,053
Income taxes paid 7,845 11,714
</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 1994 Annual
Report for the company's accounting policies which are
pertinent to these statements.
Note 2: The company adopted Statement of Financial Accounting
Standard 109, "Accounting for Income Taxes," in the
quarter ended November 30, 1993.
Note 3: Selling, administrative and research expenses include
stock appreciation rights (SARs) and stock option income
of $76,000 or less than $.01 per share for the quarter
ended February 28, 1995 and expense of $565,000 or $.01
per share for the quarter ended February 28, 1994. For
the six months ended February 28, SARs and stock option
income was $177,000 or less than $.01 per share for 1995
and expense of $832,000 or $.02 per share for 1994.
Note 4: All shares and per share data have been restated to
reflect the 10% stock dividend which occurred in January
1995.
<TABLE>
Note 5: Accounts receivable consisted of the following:
<CAPTION>
FEBRUARY 28, 1995 AUGUST 31, 1994
----------------- ---------------
<S> <C> <C>
Customer Accounts $45,241,000 $38,247,000
Misc. Notes and
Accounts Receivable 1,001,000 1,506,000
---------- ----------
$46,242,000 $39,753,000
Less: Allowance for
Discounts, Doubtful
Accounts and Pending
Credits 4,263,000 4,644,000
---------- ----------
Net Receivables $41,979,000 $35,109,000
---------- ----------
</TABLE>
<PAGE><TABLE>
Note 6: The various components of inventories were as follows:
<CAPTION>
FEBRUARY 28, 1995 AUGUST 31, 1994
----------------- ---------------
<S> <C> <C>
Raw Materials and
Supplies $47,006,000 $36,928,000
Work in Process
and Finished Goods 41,737,000 37,128,000
---------- ----------
$88,743,000 $74,056,000
Less: LIFO Reserve 21,233,000 13,834,000
---------- ----------
Net Inventories $67,510,000 $60,222,000
---------- ----------
</TABLE>
Note 7: The accumulated depreciation on fixed assets was
$142,581,000 as of February 28, 1995 and $133,178,000 as
of August 31, 1994.
<TABLE>
Note 8: A summary of long-term debt is as follows:
<CAPTION>
NOVEMBER 30, 1994 AUGUST 31, 1994
----------------- ---------------
<S> <C> <C>
Bonds, Mortgages and
Similar Debt $32,500,000 $30,000,000
Capitalized Leases 42,000 270,000
---------- ----------
Total Long Term Debt $32,542,000 $30,270,000
---------- ----------
</TABLE>
<TABLE>
Note 9: Dividends per share were as follows:
<CAPTION>
THREE MONTHS ENDING SIX MONTHS ENDING
FEBRUARY 28, 1995 FEBRUARY 28, 1994 FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C> <C>
$.1250 $.1091* $.1250 $.1091*
<FN>
* Per share dividends have been restated to reflect the
10% stock dividend which occurred in January 1995.
</TABLE>
The Company's Board of Directors schedule resulted in
the declaration of cash dividends of $.125 and $.1091
per share in the three months ended February 28, 1995
and February 28, 1994, respectively.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Results of Operations
Net Sales
Record net sales and shipments were recorded for the three months
ended February 28, 1995. Net sales for the quarter were
$119,115,000, up 21.9% from last year's second quarter net sales of
$97,709,000. Shipments were a record 95,100 tons, an increase of
16.2% over the prior year. For the first six months of fiscal 1995,
net sales and shipments were also at record levels. Net sales of
$245,382,000 on shipments of 199,000 tons for the first half of
fiscal 1995 were up 18.9% and 15.4%, respectively, compared to the
same period a year ago.
Shipments of the company's printing and writing grades were strong,
exceeding second quarter fiscal 1994 shipments by 31.4%. Both the
Brokaw and Groveton mills ran at capacity during the second quarter.
Only one of the two paper machines at Groveton operated during the
second quarter of fiscal 1994. Order backlogs remained strong for
the quarter and are up sharply from a year ago due to increased
customer demand. Shipments for the first six months of fiscal 1995
were 24.1% higher than a year ago.
Shipments of Rhinelander's technical specialty grades decreased 4.6%
in the second quarter of fiscal 1995 compared to a year ago as some
weakening in demand for certain packaging grades was experienced
during the quarter. Overall, demand softened in the second quarter,
with order backlogs falling below last year's second quarter levels.
Year-to-date shipments are ahead of last year by 2.0%.
Gross Profit
Gross profit for the three months ended February 28, 1995 was
$18,094,000 or 15.2% of net sales. For the second quarter of fiscal
1994, gross profit was $22,830,000 or 23.4% of net sales. The
decline in gross profit margin was due entirely to the significant
rise in the price of market pulp compared to a year ago. In the
second quarter of fiscal 1995, pulp prices continued their upward
trend, which began in January 1994. Pulp producers have implemented
additional price increases which took effect in March, with further
increases announced for June. The company has been actively raising
paper prices, including additional paper price increases for March,
although these increases have not kept pace with pulp costs. Along
with raising selling prices for its paper, the company has offset
part of the impact of increased pulp costs with additional volume,
productivity improvements and tight control over operating costs.
Although the rate of pulp and paper price increases may not coincide
and paper price increases will generally lag behind pulp price
increases, management expects, in the longer term, to return to
historical per ton margins and renewed profit growth momentum.
Production at the Printing and Writing Division during the second
quarter of fiscal 1995 exceeded last year's second quarter by 28.4%.
The increase is due primarily to running both paper machines at
Groveton for the entire quarter compared to running only one of
Groveton's machines a year ago. Inventory levels rose during the
<PAGE>
quarter, but to a lesser extent than in the second quarter of fiscal
1994.
The Rhinelander mill operated at capacity for the quarter, with
production 4.8% higher than a year ago. The production increase is
the result of capital improvements over the past year. Inventory
levels increased at Rhinelander during the second quarter of fiscal
1995 as a result of strong production and some market softening
which occurred for packaging products.
Selling, Administrative and Research Expenses
For the three months ended February 28, 1995, selling,
administrative and research expenses totalled $6,138,000 compared to
$7,495,000 for the same period a year ago. Income of $76,000 from
stock appreciation rights (SARs) and stock option adjustments was
recorded in the second quarter of fiscal 1995 compared to expense of
$565,000 in the last year's second quarter. Cost control measures
and lower incentive plan expenses attributed to the decrease in
spending from last year's second quarter.
For the first half of fiscal 1995, selling, administrative and
research expenses were $12,865,000 compared to $14,921,000 for the
first six months of fiscal 1994. SARs and stock option income of
$177,000 was recorded in the six months ended February 28, 1995
compared with expense of $832,000 for the same fiscal 1994 period.
Lower expenses in 1995 are a result of expense control measures and
lower incentive plan costs.
Interest Income and Expense
Interest income of $89,000 and interest expense of $389,000
were recorded in the three months ended February 28, 1995. For
the same fiscal 1994 period, interest income was $26,000 and
interest expense was $503,000. Lower interest expense in the
second quarter of fiscal 1995 is the result of lower debt levels
and higher capitalized interest compared to the same period a year
ago.
For the first six months of fiscal 1995, interest income was
$149,000 and interest expense was $825,000. For the first half of
fiscal 1994, interest income was $34,000 and interest expense was
$1,056,000. Lower debt levels and higher capitalized interest
account for the lower interest expense in the first half of fiscal
1995.
Income Taxes
The income tax provision was $4,500,000 for the three months ended
February 28, 1995 for an effective tax rate of 38.7%. The effective
tax rate for the same period a year ago was 38.1%. The income tax
provision for the first six months of fiscal 1995 was $9,850,000 for
an effective tax rate of 38.5%, compared to an effective tax rate of
38.3%, before the cumulative effect of an accounting change.
In the first quarter of fiscal 1994, the company adopted Statement
of Financial Accounting Standard 109, "Accounting for Income Taxes".
The adoption was reflected as a one-time cumulative reduction in the
net deferred tax liability, which resulted in a $1,000,000 increase
in net earnings in the first quarter of fiscal 1994.
<PAGE>
Net Earnings
Net earnings for the three months ended February 28, 1995 were
$7,116,000 or $.24 per share. Net earnings were $9,114,000 or $.31
per share for the same period a year ago.
For the six months ended February 28, 1995, net earnings were
$15,713,000 or $.53 per share. For the first six months of fiscal
1994, net earnings were $20,175,000 or $.68 per share before the
cumulative effective of an accounting change. Net earnings were
$21,175,000 or $.71 per share for the first half of fiscal 1994
after the accounting change.
Capital Resources and Liquidity
Cash Provided by Operations
Cash provided by operations in the second quarter of fiscal 1995 was
$664,000 compared to $8,298,000 for last year's second quarter. The
decrease in cash provided by operations was the result of higher
unit costs and increased working capital needs due to higher
inventories and accounts receivable.
For the six months ended February 28, 1995, cash provided by
operations was $20,819,000 compared to $29,843,000 for the first
half of fiscal 1994. The decrease in cash provided by operations
was due to higher unit costs and increased working capital needs.
Capital Expenditures
Capital expenditures were $12,965,000 during the second quarter of
fiscal 1995, compared to $8,565,000 for the same period last year.
For the first six months of fiscal 1995, capital expenditures
totalled $21,591,000 compared to $19,100,000 a year ago.
Installation is nearing completion on the new silicone coater at
Rhinelander, which is expected to be operational in the third
quarter of this fiscal year. Work is also proceeding on other
major projects including the $46 million expansion project at
Rhinelander, which includes a new state-of-the-art supercalender,
a duplex winder and a major rebuild of No. 7 paper machine. Other
major projects include additional pulping capacity and a new fiber
handling system at Brokaw and upgrades to the Brokaw and Rhinelander
wastewater treatment facilities.
Fiscal 1995 capital expenditures are projected to be approximately
$60 million.
Financing
Long-term debt increased $2,396,000 to $32,542,000 in the three
months ended February 28, 1995. 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 $4,500,000 in revolving credit
agreement borrowings at February 28, 1995 ranged from 6.41% to
6.56%. At February 28, 1995, the company also had $1,000,000
outstanding in commercial paper at an effective rate of 6.40%.
<PAGE>
Cash provided by operations and the revolving credit facility are
expected to meet working capital needs and dividend requirements as
well as fund the company's stock repurchase program and planned
capital expenditure requirements. Should it be needed, additional
financing is readily available to fund the accelerated spending
associated with the $46 million expansion project at Rhinelander or
other future expansions or acquisitions.
Common Stock Repurchase
On June 30, 1994, the Board of Directors authorized the repurchase
of up to 1,485,000 shares (after the effect of the January 1995
stock dividend) of the company's common stock from time to time in
the open market or through privately negotiated transactions at
prevailing market prices.
During the second quarter of fiscal 1995, the company repurchased
25,500 shares (after the effect of the January 1995 stock dividend)
of its common stock at market prices ranging from $20.6875 per share
to $21.3636 per share.
Dividends
On December 19, 1994, the Board of Directors declared a 10% stock
dividend and a 14.6% increase in the quarterly cash dividend, from
$.06 to $.0625 per share on a new share basis. Both the cash
dividend and the additional shares from the stock dividend
were paid on January 17, 1995 to shareholders of record as of
January 4, 1995. Any fractional shares resulting from the stock
dividend were paid in cash on January 17, 1995, based on the
closing price of the stock on the record date.
The Board of Directors, at the February 15, 1995 meeting, declared
a quarterly cash dividend of $.0625 per share payable April 3, 1995
to shareholders of record on March 13, 1995.
<PAGE>
PART II - OTHER INFORMATION
<TABLE>
Item 4. Submission of Matters to a Vote of Security Holders:
The annual meeting of shareholders of the Company was held on
December 19, 1994.
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
------ ------
<S> <C> <C> <C> <C> <C>
1. Election of Class I Directors For Against Withheld Abstain Broker
Non-Vote
(a) San W. Orr, Jr. 23,271,504 N/A 227,031 N/A 0
(b) David B. Smith, Jr. 23,281,004 N/A 217,531 N/A 0
Broker
2. Approval of appointment of For Against Withheld Abstain Non-Vote
independent auditors for
year ending August 31, 1995 23,413,802 11,556 N/A 73,177 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 13, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED FEBRUARY 28, 1995 OF WAUSAU PAPER MILLS COMPANY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> FEB-28-1995
<CASH> 1,307
<SECURITIES> 0
<RECEIVABLES> 45,241
<ALLOWANCES> 4,263
<INVENTORY> 67,510
<CURRENT-ASSETS> 118,951
<PP&E> 401,305
<DEPRECIATION> 142,581
<TOTAL-ASSETS> 386,125
<CURRENT-LIABILITIES> 55,985
<BONDS> 32,542
<COMMON> 138,811
0
0
<OTHER-SE> 85,419
<TOTAL-LIABILITY-AND-EQUITY> 386,125
<SALES> 245,382
<TOTAL-REVENUES> 245,382
<CGS> 206,190
<TOTAL-COSTS> 206,190
<OTHER-EXPENSES> (61)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 825
<INCOME-PRETAX> 25,563
<INCOME-TAX> 9,850
<INCOME-CONTINUING> 15,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,713
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
