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, 1996
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.
X
Yes ________ No ________
The number of common shares outstanding at June 30, 1996 was 36,882,028.
<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, 1996 (unaudited) and
May 31, 1995 (unaudited)
Condensed Consolidated Balance 2
Sheets May 31, 1996 (unaudited)
and August 31, 1995 (derived from audited
financial statements)
Condensed Consolidated Statements 3
of Cash Flows Nine Months
Ended May 31, 1996 (unaudited) and
May 31, 1995 (unaudited)
Notes to Condensed Consolidated 4 - 5
Financial Statements
Item 2. Management's Discussion and 6 - 8
Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Wausau Paper Mills Company and Subsidiaries
(Dollars in thousands, except For the Three Months For the Nine Months
per share data - unaudited) Ended May 31 Ended May 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $139,446 $135,560 $409,940 $380,942
Cost of products sold 108,398 113,973 340,659 320,163
GROSS PROFIT 31,048 21,587 69,281 60,779
Selling, administrative and
research expenses 7,267 6,900 21,755 19,765
OPERATING PROFIT 23,781 14,687 47,526 41,014
Interest income 114 21 483 170
Interest expense (799) (333) (2,082) (1,158)
Other expense (202) (230) (311) (318)
EARNINGS BEFORE INCOME TAXES 22,894 14,145 45,616 39,708
Provision for income taxes 8,800 5,400 17,500 15,250
NET EARNINGS $ 14,094 $ 8,745 $ 28,116 $ 24,458
NET EARNINGS PER COMMON SHARE $ .38 $ .23 $ .76 $ .66
WEIGHTED AVERAGE NUMBER OF SHARES 36,867,000 36,823,000 36,843,000 36,830,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Wausau Paper Mills Company and Subsidiaries
(Dollars in thousands) May 31 August 31
1996* 1995*
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,421 $ 2,347
Accounts and notes receivable 42,974 42,429
Inventories 71,987 67,474
Other current assets 7,702 7,767
Total current assets 124,084 120,017
Property, plant and equipment 322,688 292,191
Other assets 13,932 22,478
TOTAL ASSETS $460,704 $434,686
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 6,289 $ 6,425
Accounts payable 21,742 24,426
Accrued and other liabilities 28,094 20,641
Accrued income taxes 1,341 1,259
Total current liabilities 57,466 52,751
LONG-TERM LIABILITIES
Long-term debt 61,472 68,623
Deferred income taxes 41,301 36,799
Other liabilities 41,348 39,824
Total long-term liabilities 144,121 145,246
Total shareholders' equity 259,117 236,689
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $460,704 $434,686
<FN>
* The consolidated balance sheet at May 31, 1996 is unaudited. The August 31,
1995 consolidated balance sheet is derived from audited financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Wausau Paper Mills Company and Subsidiaries
(Dollars in thousands - unaudited) For the Nine Months
Ended May 31
1996 1995
<S> <C> <C>
Operating Activities:
Net earnings $ 28,116 $ 24,458
Noncash items:
Provision for depreciation, depletion
and amortization 17,167 14,738
Deferred income taxes 4,502 3,758
Changes in operating assets
and liabilities:
Receivables (545) (6,345)
Inventories (4,513) (11,070)
Other assets 87 (1,502)
Accounts payable and other liabilities 6,900 7,445
Accrued income taxes 82 (192)
NET CASH PROVIDED BY OPERATING ACTIVITIES 51,796 31,290
Investing Activities:
Capital expenditures (50,797) (39,121)
Proceeds from property, plant and
equipment disposals 61 682
Net cash distributed from funds
restricted for capital additions 8,506
NET CASH USED IN INVESTING ACTIVITIES (42,230) (38,439)
Financing Activities:
Net Borrowings (repayments) under
revolving credit facility (1,500) 14,092
Repayments of long-term debt (3,380) (331)
Dividends paid (5,909) (5,318)
Proceeds from stock option exercises 297 2,036
Payments for purchase of treasury stock (5,222)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (10,492) 5,257
Net decrease in cash and cash equivalents (926) (1,892)
Cash and cash equivalents at beginning
of year 2,347 3,214
CASH AND CASH EQUIVALENTS AT END
OF QUARTER $ 1,421 $ 1,322
Supplemental Information:
Interest paid (net of amount capitalized) $ 2,025 $ 1,158
Income taxes paid 12,956 12,365
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The accompanying unaudited condensed financial statements include all
adjustments, which are all normal and recurring in nature and, in the
opinion of management, present fairly the results for the interim
periods presented. Refer to the Notes to Financial Statements which
appear in the 1995 Annual Report for the company's accounting policies
which are pertinent to these statements.
Note 2: Selling, administrative and research expenses include stock
appreciation rights (SARs) and stock option income of $79,000 or less
than $.01 per share for the quarter ended May 31, 1996 and income of
$74,000 or less than $.01 per share for the quarter ended May 31, 1995.
For the nine months ended May 31, SARs and stock option expense was
$749,000 or $.01 per share for 1996 compared to income of $251,000 or
less than $.01 per share for 1995.
Note 3: All shares and per share data have been restated to reflect the 5-for-
4 stock split in January 1996.
<TABLE>
Note 4: Accounts receivable consisted of the following:
<CAPTION>
MAY 31, 1996 AUGUST 31, 1995
<S> <C> <C>
Customer Accounts $46,708,000 $46,055,000
Misc. Notes and Accounts
Receivable 1,028,000 1,454,000
$47,736,000 $47,509,000
Less: Allowance for Discounts,
Doubtful Accounts and Pending
Credits 4,762,000 5,080,000
Net Receivables $42,974,000 $42,429,000
</TABLE>
<TABLE>
NOTE 5: THE VARIOUS COMPONENTS OF INVENTORIES WERE AS FOLLOWS:
<CAPTION>
MAY 31, 1996 AUGUST 31, 1995
<S> <C> <C>
Raw Materials and Supplies $40,810,000 $47,423,000
Work in Process
and Finished Goods 40,617,000 45,521,000
$81,427,000 $92,944,000
Less: LIFO Reserve 9,440,000 25,470,000
Net Inventories $71,987,000 $67,474,000
</TABLE>
<PAGE>
NOTE 6: THE ACCUMULATED DEPRECIATION ON FIXED ASSETS WAS $166,940,000 AS OF
MAY 31, 1996 AND $150,736,000 AS OF AUGUST 31, 1995.
<TABLE>
NOTE 7: A SUMMARY OF LONG-TERM DEBT IS AS FOLLOWS:
<CAPTION>
MAY 31, 1996 AUGUST 31, 1995
<S> <C> <C>
Bonds, Mortgages and
Similar Debt $61,216,000 $68,331,000
Capitalized Leases 256,000 292,000
Total Long-Term Debt $61,472,000 $68,623,000
</TABLE>
<TABLE>
NOTE 8: DIVIDENDS PER SHARE WERE AS FOLLOWS:
<CAPTION>
THREE MONTHS ENDING NINE MONTHS ENDING
MAY 31, 1996 May 31, 1995 May 31, 1996 May 31, 1995 $.055
<C> <C> <C> <C>
$.055 $.050* $.165 $.150*
</TABLE>
The company's Board of Directors schedule resulted in the declaration
of cash dividends of $.055 and $.050 per share in the three months
ended May 31, 1996 and May 31, 1995, respectively.
* Per share dividends have been restated to reflect the 5-for-4 stock
split in January 1996.
<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
May 31, 1996. Net sales were a third quarter record $139,446,000 and
were 2.9% above the prior year net sales of $135,560,000. Shipments were
an all-time record 106,900 tons, up 3.5% from a year ago. For the nine
months ended May 31, 1996, net sales and shipments were also at record
levels. For the first nine months of fiscal 1996, net sales were
$409,940,000 or 7.6% ahead of last year's net sales of $380,942,000.
Year-to-date shipments total 305,400 tons, an increase of 1.0% over
last year.
Paper market conditions showed improvement during the third quarter
compared to the second quarter of this year. Demand for the company's
printing and writing grades was strong. Printing and Writing Division
shipments were an all-time record, exceeding last year's record third
quarter shipments by 3.1%. Order backlog at the Printing and Writing
Division at the end of the quarter was higher than a year ago due to
strong demand.
Shipments of Rhinelander's technical specialty grades were up 4.3%
in the third quarter compared to a year ago. Shipments of pressure
sensitive products increased 14.5% compared to last year's weak third
quarter. The current slow rate of growth in the pressure sensitive
industry, compared to historical averages, has limited Rhinelander's
ability to significantly increase its pressure sensitive volume since
the rebuild of No. 7 paper machine. Rhinelander's third quarter
selling prices were higher compared to a year ago, but declined from
the previous quarter due to market pressures from competition and
falling pulp prices. Order backlogs at May 31, 1996 were higher than
a year ago.
Gross Profit
Third quarter gross profit was $31,048,000 or 22.3% of net sales
compared to last year's third quarter gross profit of $21,587,000 or
15.9% of net sales.
Gross profit improved significantly in the third quarter of fiscal 1996
compared to a year ago primarily due to lower pulp costs. Weak worldwide
demand for pulp continued into the third quarter of fiscal 1996, resulting
in falling pulp prices. More recent declines in worldwide pulp producer
inventories have lead to pulp price increases on certain species of pulp
in June and pulp producers announced price increases effective again in
July. It is uncertain whether the announced July pulp price increases
will take effect. Even if those pulp price increases are implemented,
pulp prices would be significantly lower than those in effect in fiscal
1995 and the company's fourth quarter gross profit margin should be
significantly higher than the gross profit margin in the fourth quarter
of fiscal 1995.
Production at the Printing and Writing Division in the third quarter of
fiscal 1996 was at capacity, but was 3% below a year ago. The drop in
production was due primarily to mix changes. Inventory levels dropped
<PAGE>
slightly during the quarter due to strong shipments. The Rhinelander
mill operated at 96% of capacity in the third quarter due to capital
related downtime for the rebuild of No. 7 paper machine. Production at
Rhinelander was down 4% compared to the third quarter last year mainly
due to mix. Inventory levels at Rhinelander remained unchanged during
the quarter.
* This discussion and analysis may contain forward-looking statements.
See Item 5.
Selling, Administrative and Research Expenses
Selling, administrative and research expenses for the three months ended
May 31, 1996 were $7,267,000 compared to $6,900,000 a year ago. Stock
appreciation rights (SARs) and stock option income of $79,000 was
recorded in the third quarter compared to income of $74,000 recorded
last year. Higher marketing and promotional expenses and incentive plan
costs were the cause for the increase in third quarter selling,
administrative and research expenses compared to a year ago.
For the nine months ended May 31, 1996, selling, administrative and
research expenses amounted to $21,755,000 compared to $19,765,000 for
the same period in fiscal 1995. SARs and stock option expense totalled
$749,000 compared to income of $251,000 a year ago. The increase in
selling, administrative and research expenses in fiscal 1996 compared to
the prior year is due to increased marketing and promotional expenses and
incentive plan costs.
Interest Income and Expense
For the quarter ended May 31, 1996, interest income totaled $114,000
compared to $21,000 recorded a year ago. For the nine months ended
May 31, interest income totalled $483,000 and $170,000 in fiscal 1996
and fiscal 1995, respectively. The increase in interest income in
fiscal 1996 compared to the same fiscal 1995 periods is due to interest
income on undistributed proceeds from a $19 million industrial development
bond issuance in August 1995.
Interest expense of $799,000 was incurred in the third quarter of fiscal
1996 compared to $333,000 last year. For the first six months of fiscal
1996, interest expense totalled $2,082,000 compared to $1,158,000 a year
ago. Increased interest expense in the third quarter and first nine
months of fiscal 1996 is the result of higher debt levels compared to
the same fiscal 1995 periods. Capitalized interest totalled $790,000 for
the nine months ended May 31, 1996 compared to $422,000 for the same
fiscal 1995 period.
Income Taxes
For the quarter ended May 31, 1996, the income tax provision was
$8,800,000 for an effective tax rate of 38.4% compared to an effective
tax rate of 38.2% a year ago. For the nine months ended May 31, 1996,
the income tax provision was $17,500,000 for an effective tax rate of
38.4%. The effective tax rate was also 38.4% through the first nine
months of fiscal 1995.
<PAGE>
Net Earnings
Net earnings for the quarter ended May 31, 1996 were the highest quarterly
earnings ever at $14,094,000 or $.38 per share. Net earnings were 61.2%
higher than the prior year's third quarter net earnings of $8,745,000
or $.23 per share. For the first nine months of fiscal 1996, net
earnings were $28,116,000 or $.76 per share, up 15.0% compared to net
earnings of $24,458,000 or $.66 per share for the same fiscal 1995
period.
CAPITAL RESOURCES AND LIQUIDITY
Cash Provided by Operations
Cash provided by operations for the three months ended May 31, 1996 was
$25,432,000 compared to $10,471,000 a year ago. For the first nine
months of fiscal 1996, cash provided by operations was $51,796,000
compared to $31,290,000 for the same fiscal 1995 period. The third
quarter's cash provided by operations was substantially higher than a
year ago due mainly to lower unit production costs compared to last year
and an increase in accrued and other liabilities. The increase in cash
provided by operations in the first nine months of fiscal 1996 compared
to the prior year is due primarily to higher selling prices and smaller
increases in inventories and accounts receivable.
Capital Expenditures
For the quarter ended May 31, 1996, capital expenditures totalled
$19,392,000 compared to $17,530,000 for the same fiscal 1995 period.
Capital expenditures for the first nine months of fiscal 1996 were
$50,797,000 compared to $39,121,000 a year ago.
In the third quarter, the $16 million fiber handling and processing
project at the Brokaw mill was completed, allowing the mill to use more
recycled post-consumer fiber. At the Groveton mill, work was completed
on the installation of a shrink wrap packaging line to reduce converting
operating costs on the company's retail product offerings.
Fiscal 1996 projected capital expenditures have been revised to
approximately $65 million. The company's estimate was reduced by
$5 million as a result of underruns on completed projects and timing of
spending on capital projects in process.
Financing
The company's long-term debt decreased $8,226,000 in the third quarter of
fiscal 1996 to $61,472,000 due to strong earnings and operating cash flow.
At May 31, 1996, debt included $27 million in notes to Prudential
Insurance Company of America and its subsidiaries at a fixed rate of
6.03% and revolving credit agreement borrowings of $21 million at
effective interest rates ranging from 5.63% to 5.69%. There was no
commercial paper outstanding at the end of the quarter. In addition, the
company had $19 million in variable rate development bonds with an
interest rate of 3.80% at May 31, 1996. At the end of the quarter, there
was $6,226,000 in undistributed proceeds from the industrial development
bond issue.
Cash provided by operations, industrial development bond proceeds and the
revolving credit facility are expected to meet working capital needs and
<PAGE>
dividend requirements, as well as fund the company's planned capital
expenditures. The company believes additional financing is readily
available, should it be needed, to fund a major expansion or acquisition.
Common Stock Repurchase
On June 30, 1994, the Board of Directors authorized the repurchase of up
to 1,856,250 shares (adjusted for the effect of subsequent stock
dividends or splits) of the company's common stock from time to time in
the open market or through privately negotiated transactions at prevailing
market prices. There have been no repurchases of company stock during
the first nine months of fiscal 1996.
Dividends
On May 30, 1996, the Board of Directors declared a quarterly cash
dividend of $.055 per share payable July 1, 1996 to shareholders of
record on Friday, June 14, 1996.
<PAGE>
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
Cautionary Statement
This Form 10-Q, each of the company's annual reports to shareholders,
Forms 10-K, 8-K and 10-Q, proxy statements, prospectuses, and any other
written or oral statement made by or on behalf of the company subsequent
to the filing of this Form 10-Q may include one or more "forward-looking
statements" within the meaning of sections 27A of the Securities Act of
1933 and 21E of the Securities Exchange Act of 1934 as enacted in the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). In
making forward-looking statements within the meaning of the Reform Act,
the company undertakes no obligation to publicly update or revise any
such statement.
Forward-looking statements of the company are based on information
available to the company as of the date of such statements and reflect
the company's expectations as of such date, but are subject to risks
and uncertainties that may cause actual results to vary materially. In
addition to specific factors which may be described in connection with
any of the company's forward-looking statements, factors which could
cause actual results to differ materially include but are not limited to
the following:
<bullet> Increased competition from either domestic or foreign paper
producers or providers of alternatives to the company's
products, including increases in competitive production
capacity, resulting in sales declines from reduced shipment
volume and/or lower net selling prices in order to maintain
shipment volume.
<bullet> Changes in demand for the company's products due to overall
economic activity affecting the rate of consumption of the
company's paper products, growth rates of the end markets for
the company's products, technological or consumer preference
changes or acceptance of the products by the markets served by
the company.
<bullet> Changes in the price of pulp, the company's main raw material.
Over 75% of the company's pulp needs are purchased on the open
market and price changes for pulp have a significant impact on
the company's costs. Pulp price changes can occur due to
worldwide consumption levels of pulp, pulp capacity additions,
expansions or curtailments affecting the supply of pulp,
inventory building or depletion at pulp consumer levels which
affect short-term demand, and pulp producer cost changes related
to wood availability, environmental issues, or other variables.
<bullet> Unforeseen operational problems at any of the company's
facilities causing significant lost production and/or cost
issues.
<bullet> Significant changes to the company's strategic plans such as a
major acquisition or expansion, or failure to successfully
execute major capital projects or other strategic plans.
<bullet> Changes in laws or regulations which affect the company.
<PAGE>
Labor
The company negotiated a five year labor agreement, effective June 1,
1996 with the United Paperworkers International Union at the Brokaw mill.
The agreement, which expires May 31, 2000, includes a general wage
increase of 3.0% in each of the five years covered by the labor
agreement. The contract includes changes in work rules to provide
greater operating efficiencies and increases in employee benefits. The
company is of the opinion that this labor agreement will provide
competitive labor costs over the contract period.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits required by Item 601 of Regulation S-K
(27) Financial Data Schedule
(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: July 12, 1996
<PAGE>
EXHIBIT INDEX
PURSUANT TO SECTION 232.102(D), REGULATION S-T
1. Exhibit (27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED MAY 31, 1996 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> 9-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> MAY-31-1996
<CASH> 1,421
<SECURITIES> 0
<RECEIVABLES> 47,736
<ALLOWANCES> 4,762
<INVENTORY> 71,987
<CURRENT-ASSETS> 124,084
<PP&E> 489,628
<DEPRECIATION> 166,940
<TOTAL-ASSETS> 460,704
<CURRENT-LIABILITIES> 57,466
<BONDS> 61,472
<COMMON> 138,886
0
0
<OTHER-SE> 120,231
<TOTAL-LIABILITY-AND-EQUITY> 259,117
<SALES> 409,940
<TOTAL-REVENUES> 409,940
<CGS> 340,659
<TOTAL-COSTS> 340,659
<OTHER-EXPENSES> (172)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,082
<INCOME-PRETAX> 45,616
<INCOME-TAX> 17,500
<INCOME-CONTINUING> 28,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,116
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
