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 NOVEMBER 30, 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 December 31,
1994 was 26,799,679.
Note: The number of shares outstanding at December 31, 1994 are
before the effect of the 10% stock dividend payable
January 17, 1995 to shareholders of record as of January 4,
1995.
<PAGE>
WAUSAU PAPER MILLS COMPANY
AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of 1
Income Three Months Ended
November 30, 1994 (unaudited) and
November 30, 1993 (unaudited)
Condensed Consolidated Balance 2
Sheets November 30, 1994 (unaudited)
and August 31, 1994 (derived from
audited financial statements)
Condensed Consolidated Statements 3
of Cash Flows Three Months
Ended November 30, 1994 (unaudited)
and November 30, 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 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 For the Three Months
per share data - unaudited) Ended November 30
1994 1993
-------------------------------
<S> <C> <C>
NET SALES $ 126,267 $108,731
Cost of products sold 105,169 82,840
---------------------------
GROSS PROFIT 21,098 25,891
Selling, administrative and
research expenses 6,727 7,426
---------------------------
OPERATING PROFIT 14,371 18,465
Interest income 60 8
Interest expense (436) (553)
Other income (expense) (48) 41
---------------------------
EARNINGS BEFORE INCOME TAXES 13,947 17,961
Provision for income taxes 5,350 6,900
---------------------------
EARNINGS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 8,597 11,061
Cumulative Effect of Accounting Change:
Income taxes 1,000
---------------------------
NET EARNINGS $ 8,597 $ 12,061
===========================
EARNINGS PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ .32 $ .41
Cumulative effect of accounting change .04
---------------------------
NET EARNINGS PER COMMON SHARE $ .32 $ .45
===========================
WEIGHTED AVERAGE NUMBER OF SHARES 26,784,000 26,959,000
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
Wausau Paper Mills Company and Subsidiaries
<CAPTION>
(Dollars in thousands) November 30 August 31
1994* 1994*
---------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,590 $ 3,214
Accounts and notes receivable 38,121 35,109
Inventories 57,676 60,222
Other current assets 7,176 7,389
-------------------------
Total current assets 113,563 105,934
-------------------------
Property, plant and equipment 249,873 247,072
Other assets 8,383 8,383
-------------------------
TOTAL ASSETS $ 371,819 $ 361,389
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 467 $ 462
Accounts payable 26,581 25,325
Accrued and other liabilities 18,700 20,077
Accrued income taxes 3,062 192
-------------------------
Total current liabilities 48,810 46,056
-------------------------
LONG-TERM LIABILITIES
Long-term debt 30,146 30,270
Deferred income taxes 32,723 31,945
Other liabilities 38,787 38,300
-------------------------
Total long-term liabilities 101,656 100,515
-------------------------
Total shareholders' equity 221,353 214,818
-------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $371,819 $361,389
=========================
<FN>
* The consolidated balance sheet at November 30, 1994 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 Three Months
Ended November 30
1994 1993
---------------------------
<S> <C> <C>
Operating Activities:
Net earnings $ 8,597 $12,061
Cumulative effect of accounting change (1,000)
Noncash items:
Provision for depreciation, depletion
and amortization 4,750 4,553
Deferred income taxes 778 1,312
Changes in operating assets and liabilities:
Receivables (3,012) (347)
Inventories 2,546 1,316
Other assets 213 302
Accounts payable and other liabilities 3,413 (251)
Accrued income taxes 2,870 3,599
----------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,155 21,545
----------------------------
Investing Activities:
Capital expenditures (8,626) (10,535)
Proceeds from property, plant and
equipment disposals 231 28
----------------------------
NET CASH USED IN INVESTING ACTIVITIES (8,395) (10,507)
----------------------------
Financing Activities:
Repayments under revolving credit facility (10,500)
Repayments of long-term debt (119) (126)
Dividends paid (1,611) (1,416)
Proceeds from stock option exercises 2,036
Payments for purchase of treasury stock (4,690)
----------------------------
NET CASH USED IN FINANCING ACTIVITIES (4,384) (12,042)
----------------------------
Net increase (decrease) in cash and cash equivalents 7,376 (1,004)
Cash and cash equivalents at beginning of year 3,214 2,624
----------------------------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 10,590 $ 1,620
============================
Supplemental Information:
Interest paid (net of amount capitalized) $ 463 $ 526
Income taxes paid 1,120 1,986
</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 and stock option income of
$101,000 or less than $.01 per share for the quarter ended
November 30, 1994 and expense of $267,000 or $.01 per
share for the quarter ended November 30, 1993.
Note 4: All shares and per share data have been restated to
reflect the four-for-three stock split which
occurred in January 1994.
Note 5: Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, 1994 AUGUST 31, 1994
<S> <C> <C>
Customer Accounts $41,528,000 $38,247,000
Misc. Notes and Accounts
Receivable 1,742,000 1,506,000
---------- ----------
$43,270,000 $39,753,000
Less: Allowance for
Discounts, Doubtful Accounts
and Pending Credits 5,149,000 4,644,000
---------- ----------
Net Receivables $38,121,000 $35,109,000
---------- ----------
</TABLE>
Note 6: The various components of inventories were as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, 1994 AUGUST 31, 1994
<S> <C> <C>
Raw Materials and Supplies $42,896,000 $36,928,000
Work in Process
and Finished Goods 31,151,000 37,128,000
---------- ----------
$74,047,000 $74,056,000
Less: LIFO Reserve 16,371,000 13,834,000
---------- ----------
Net Inventories $57,676,000 $60,222,000
---------- ----------
</TABLE>
<PAGE>
Note 7: The accumulated depreciation on fixed assets was
$137,789,000 as of November 30, 1994 and $133,178,000 as
of August 31, 1994.
Note 8: A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, 1994 AUGUST 31, 1994
<S> <C> <C>
Bonds, Mortgages and
Similar Debt $30,000,000 $30,000,000
Capitalized Leases 146,000 270,000
---------- ----------
Total Long Term Debt $30,146,000 $30,270,000
---------- ----------
</TABLE>
<TABLE>
Note 9: Dividends per share were as follows:
<CAPTION>
THREE MONTHS ENDING
NOVEMBER 30, 1994 NOVEMBER 30, 1993
<S> <C>
$.00* $.00*
<FN>
* The Company's Board of Directors meeting schedule did
not result in the declaration of a cash dividend in the three
months ended November 30, 1994 or 1993.
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
RESULTS OF OPERATIONS
Net Sales
Record first quarter net sales and shipments were
recorded for the three months ended November 30, 1994.
Net sales were $126,267,000 for the quarter, up 16.1%
from net sales of $108,731,000 reported for prior year's
first quarter. Record shipments of 103,900 tons exceeded
last year's level by 14.6%.
Shipments of the company's printing and writing grades
were strong, exceeding last year's first quarter by
18.1%. Strong customer demand allowed startup of the
second of two paper machines at Groveton, New Hampshire,
in October. Order backlogs for the Printing and Writing
Division were up sharply for the quarter and were higher
than a year ago as a result of stronger customer demand.
Shipments of technical specialty grades at Rhinelander
were 8.8% higher in the first quarter of fiscal 1995
compared to a year ago. Order backlogs at Rhinelander
remained strong for the quarter.
Gross Profit
Gross profit for the first quarter of fiscal 1995 was
$21,098,000 or 16.7% of net sales. Last year's first
quarter gross profit was $25,891,000 or 23.8% of net
sales. The lower gross profit margin in the first
quarter of fiscal 1995 compared to the prior year was the
<PAGE>
result of higher raw material costs, primarily due to
higher pulp prices. Higher pulp prices compared to last
year's first quarter would have reduced fiscal 1995 first
quarter earnings by approximately $.30 per share had not
paper price increases, additional volume and strict
internal cost controls substantially offset the impact of
higher pulp prices on earnings. Though additional pulp
price increases are expected, the company is responding
with further paper price increases. Although the rate of
each increase in the prices of pulp and paper may not
coincide and paper price increases will generally lag
behind pulp price increases in the short-term, management
expects, in the longer term, to restore historical
margins and profit growth momentum.
Production at the Printing and Writing Division exceeded
the first quarter of fiscal 1994 by 14.5%. The higher
production level was the result of running both paper
machines at the Groveton mill since October 1994 as
compared to running only one machine at Groveton during
the first quarter of fiscal 1994. Inventory levels
dropped during the quarter as a result of strong
shipments and downtime taken on one of Brokaw's paper
machines to install capital improvements. The inventory
decline was greater than was experienced in the first
quarter of fiscal 1994.
The Rhinelander mill operated at capacity in the first
quarter of fiscal 1995. Production increased 8.4%
compared to a year ago as a result of capital
improvements which increased Rinelander's productive
capacity. There was little change in Rhinelander's
inventory levels during the quarter, as was the case
during the first quarter of fiscal 1994.
Selling, Administrative and Research Expenses
For the first quarter of fiscal 1995, selling,
administrative and research expenses were $6,727,000
compared to $7,426,000 a year ago. Income of $101,000
from stock appreciation rights (SARs) and stock option
adjustments was recorded for the three months ended
November 30, 1994 compared to an expense of $267,000
recorded for the same period last year. Lower
administrative expenses in this year's first quarter are
due primarily to lower professional fees and incentive
plan costs.
Interest Income and Expense
Interest income of $60,000 and interest expense of
$436,000 were recorded for the three months ended
November 30, 1994. Interest income was $8,000 and
interest expense was $553,000 for the same fiscal 1994
period. Lower interest expense in the first quarter of
fiscal 1995 is the result of lower debt levels compared
with the prior year's first quarter.
Income Taxes
The income tax provision for the first quarter of fiscal
1995 was $5,350,000 for an effective tax rate of 38.4%.
The effective tax rate for last year's first quarter was
also 38.4%.
<PAGE>
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.
Net Earnings
Net earnings for the three months ended November 30, 1994
were $8,597,000 or $.32 per share. Net earnings were
$11,061,000 or $.41 per share before the cumulative
effect of an accounting change adopted last year. Last
year's first quarter net earnings were $12,061,000 or
$.45 per share after the accounting change.
Cash Provided by Operations
Cash provided by operations in the first quarter of
fiscal 1995 was $20,155,000 compared to $21,545,000 for
the same period a year ago. The decrease in cash
provided by operations was attributable to higher unit
costs which were substantially offset by increased paper
selling prices, additional volume and reduced working
capital requirements.
Capital Expenditures
For the first quarter of fiscal 1995, capital
expenditures were $8,626,000 compared to $10,535,000 for
the same period a year ago.
Construction was completed on a second machine rebuild
and on a new boiler and feedwater system at the Brokaw
mill during the first quarter of fiscal 1995. Work is
continuing on several other major projects including a
new coater at Rhinelander, improvements to No. 2 paper
machine, additional pulping capacity and a new fiber
handling system at Brokaw and upgrades to the wastewater
facilities at the Brokaw and Rhinelander mills.
On December 19, 1994, the Board of Directors approved $46
million for an expansion of the Rhinelander mill's
pressure sensitive papermaking capacity. The project
will include a new state-of-the-art supercalender, a
duplex winder and a major rebuild of No. 7 paper machine.
The project is expected to be completed in early calendar
1996, adding nearly 38,000 tons of annual pressure
sensitive backing paper capacity while improving product
quality and, in connection with mix changes, increasing
the mill's total capacity by over 26,000 tons.
Capital expenditures for fiscal 1995 are projected to be
in excess of $50 million.
Rhinelander Cogeneration Project
In November, 1994, Wisconsin Public Service Corporation
(WPS) announced that the Public Service Commission of
Wisconsin (PSCW) had given approval for WPS to proceed
with the second phase of its plans to construct a high-
efficiency, coal-fired cogeneration plant
<PAGE>
adjacent to the company's Rhinelander paper mill. This
approval was the first part of a two-step PSCW approval
process. The second step will include additional
regulatory approvals and a public hearing in Rhinelander,
Wisconsin, to hear testimony related to the operation of
the plant, which includes the environmental impact
statement on the plant. Construction is expected to
begin immediately upon second-phase approval from the
PSCW. It is anticipated that the plant could commence
commercial operation in 1998. The power plant is
expected to provide low cost energy to the company's
Rhinelander mill, while eliminating the mill's need to
maintain and replace boiler equipment in the future.
Financing
In the three months ended November 30, 1994, long-term
debt decreased $124,000 to $30,146,000. 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 November 30, 1994.
Cash provided by operations, the revolving credit
facility and the Prudential notes are expected to meet
working capital and dividend requirements and fund the
company's stock repurchase program and planned capital
expenditure requirements. Additional financing is
readily available should it be needed as a result of
accelerated capital spending associated with the $46
million expansion at Rhinelander or to fund other future
expansions or acquisitions.
Common Stock Repurchase
On June 30, 1994, the Board of Directors authorized the
repurchase of up to 1,350,000 shares (before 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 first quarter of fiscal 1995, the company
repurchased 201,500 shares of its common stock at market
prices ranging from $23.125 per share to $23.50 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 are payable January
17, 1995 to shareholders of record as of
January 4, 1995. Any fractional shares resulting from
the stock dividend will be paid in cash, based on the
closing price of the stock on the record date.
<PAGE>
PART II - OTHER INFORMATION
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: January 11, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED NOVEMBER 30, 1994 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> 3-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> NOV-30-1994
<CASH> 10,590
<SECURITIES> 0
<RECEIVABLES> 41,528
<ALLOWANCES> 5,149
<INVENTORY> 57,676
<CURRENT-ASSETS> 113,563
<PP&E> 387,662
<DEPRECIATION> 137,789
<TOTAL-ASSETS> 371,819
<CURRENT-LIABILITIES> 48,810
<BONDS> 30,146
<COMMON> 81,871
0
0
<OTHER-SE> 139,482
<TOTAL-LIABILITY-AND-EQUITY> 371,819
<SALES> 126,267
<TOTAL-REVENUES> 126,267
<CGS> 105,169
<TOTAL-COSTS> 105,169
<OTHER-EXPENSES> (12)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 436
<INCOME-PRETAX> 13,947
<INCOME-TAX> 5,350
<INCOME-CONTINUING> 8,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,597
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
