FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 1995
Commission file number 0-1051
CONSOLIDATED PAPERS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin
(State or other jurisdiction of incorporation or organization)
39-0223100
(I.R.S. Employer Identification No.)
Wisconsin Rapids, Wisconsin 54495
(Address of principal executive offices)
(Zip Code)
715 422-3111
(Registrant's telephone number, including area code)
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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock par value $1.00 outstanding October 27, 1995 44,579,910 shares
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<CAPTION>
As Of
September 30 September 30
1995 1994 December 31
(Unaudited) (Unaudited) 1994
ASSETS
<S> <C> <C> <C>
Current Assets
Cash & cash equivalents $ 3,705 $ 3,142 $ 8,155
Receivables (net of reserves of
$5,479 as of September 30, 1995,
$3,912 as of September 30, 1994
and $4,066 as of December 31,
1994) 176,103 101,238 88,462
Inventories
Finished stock 32,304 26,933 24,356
Unfinished stock 8,296 3,630 4,722
Raw materials and supplies 94,208 65,533 58,935
Total inventories 134,808 96,096 88,013
Prepaid expenses 26,650 15,895 14,698
Total current assets 341,266 216,371 199,328
Investments and other assets 88,453 61,606 60,209
Goodwill 72,860 - -
Plant and Equipment
Buildings, machinery and equipment 2,118,932 1,877,823 1,907,952
Less: Accumulated depreciation 815,369 736,814 753,263
1,303,563 1,141,009 1,154,689
Land and timberlands 33,128 28,839 29,384
Capital additions in process 107,801 59,744 55,901
Total plant and equipment 1,444,492 1,229,592 1,239,974
$ 1,947,071 $ 1,507,569 $ 1,499,511
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
<S> <C> <C> <C>
Current maturities of long-term debt $ 50,000 $ 50,000 $ 50,000
Accounts payable 89,580 45,609 47,436
Other 90,511 77,062 59,514
Total current liabilities 230,091 172,671 156,950
Long-term debt 264,000 89,000 68,000
Deferred income taxes 208,743 175,666 181,778
Postretirement benefits 122,151 104,979 109,558
Other noncurrent liabilities 21,683 5,153 7,338
Shareholders' Investment
Preferred stock, authorized and
unissued 15,000,000 shares - - -
Common stock, shares issued
44,572,832 as of September 30, 1995,
44,174,477 as of September 30, 1994
and 44,199,736 as of December 31,
1994 44,573 44,174 44,200
Capital in excess of par value 70,141 54,713 56,082
Cumulative translation adjustment (2,054) (2,061) (2,113)
Unrealized net loss on investment
securities - ( 791) ( 879)
Reinvested earnings 987,743 864,065 878,597
Total shareholders' investment 1,100,403 960,100 975,887
$ 1,947,071 $ 1,507,569 $ 1,499,511
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA - UNAUDITED)
Three Months Ended Nine Months Ended
September 30 June 30 September 30
1995 1994 1995 1995 1994
<S> <C> <C> <C> <C> <C>
Net sales $ 480,861 $ 272,903 $ 336,646 $ 1,126,411 $ 738,949
Cost of goods sold 350,185 226,098 239,869 817,487 602,091
Gross profit 130,676 46,805 96,777 308,924 136,858
Selling, general and
administrative expenses 16,968 15,518 16,708 49,679 46,923
Income from operations 113,708 31,287 80,069 259,245 89,935
Interest expense ( 5,046) ( 1,451) ( 1,056) ( 7,561) ( 3,862)
Interest income 139 30 31 518 87
Miscellaneous, net 851 2,049 883 4,117 9,101
Total other income
(expense), net ( 4,056) 628 ( 142) ( 2,926) 5,326
Income before provision for
income taxes 109,652 31,915 79,927 256,319 95,261
Provision for income taxes 42,659 12,451 31,365 100,159 37,196
Net income $ 66,993 $ 19,464 $ 48,562 $ 156,160 $ 58,065
Net income per share $ 1.51 $ .44 $ 1.09 $ 3.52 $ 1.32
Average number of
common shares outstanding 44,510,734 44,129,287 44,333,585 44,359,596 44,079,647
CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS
(DOLLARS IN THOUSANDS - UNAUDITED)
Three Months Ended Nine Months Ended
September 30 June 30 September 30
1995 1994 1995 1995 1994
<S> <C> <C> <C> <C> <C>
Balance beginning of period $ 937,213 $ 858,721 $ 905,046 $ 878,597 $ 848,311
Add: Net income 66,993 19,464 48,562 156,160 58,065
Deduct: Cash dividends (16,463) (14,120) (16,395) (47,014) (42,311)
Balance end of period $ 987,743 $ 864,065 $ 937,213 $ 987,743 $ 864,065
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS - UNAUDITED)
Nine Months Ended
September 30
1995 1994
<S> <C> <C>
Cash Flows From Operating Activities:
Cash Flows From Operating Activities:
Net income $ 156,160 $ 58,065
Depreciation and depletion 69,998 63,955
Amortization of intangibles 2,127 -
Deferred income taxes 32,311 17,218
Earnings of affiliates ( 3,220) ( 2,010)
(Increase) decrease in current assets,
other than cash and cash equivalents ( 50,079) (33,762)
Increase (decrease) in current
liabilities, other than current
maturities of long-term debt 22,467 26,986
Increase (decrease) in postretirement
benefits ( 3,541) 6,203
Increase (decrease) in other noncurrent
liabilities 2,237 1,043
Net cash provided by operating activities 228,460 137,698
Cash Flows From Investing Activities:
Capital expenditures (118,639) (70,292)
Acquisition, net of cash (225,510) -
(Increase) decrease in investments and
other assets ( 316) 1,821
Net cash (used in) investing activities (344,465) (68,471)
Cash Flows From Financing Activities:
Cash dividends ( 47,014) (42,311)
Increase (decrease) in long-term debt 144,137 (32,000)
Other 14,432 6,103
Net cash provided by (used in) financing
activities 111,555 (68,208)
Net increase (decrease) in cash and cash
equivalents ( 4,450) 1,019
Cash and cash equivalents -
beginning of period 8,155 2,123
Cash and cash equivalents - end of period $ 3,705 $ 3,142
Cash paid during the year for:
Interest $ 7,235 $ 4,538
Income taxes 71,319 15,328
<FN>
Notes to Financial Statements:
1. Reference is made to the Notes to Financial Statements which appear in the 1994
Annual Report on Form 10-K. The basic principles of those notes are pertinent to
these statements.
2. Results for the second quarter 1994 reflect an increase in other income of $5.5
million, $3.3 million after-tax, or 8 cents per share, for a nonrecurring patent
infringement settlement.
3. Effective July 1, 1995, the company acquired Niagara of Wisconsin Paper
Corporation, Lake Superior Paper Industries and Superior Recycled Fiber Industries
for approximately $235 million in cash and extinguished $52 million of debt. The
company entered into new debt agreements totaling $335 million and borrowed $279
million. This acquisition was accounted for as a purchase and, accordingly, the
assets and liabilities have been stated at their fair values. Goodwill, which will
be amortized over fifteen years, represents the excess of the purchase price over
the fair value of the assets acquired and liabilities assumed. The purchase price
allocation is subject to change as management continues to refine the estimated
fair value of the acquired assets and assumed liabilities. Results of operations
of the acquired companies are included in the consolidated financial statements
subsequent to the acquisition.
The unaudited consolidated pro forma results of operations for the periods ended
September 30, 1995 and 1994 assume the acquisition occurred as of January 1, 1994.
The pro forma information is provided for information purposes only. It is based
on historical information and, therefore, is not necessarily indicative of either
the results that would have occurred had the acquisition been made as of that date
nor of future results (dollars in thousands except per share data):
Nine Months Ended
September 30
1995 1994
<S> <C> <C>
Net sales $ 1,368,009 $ 991,581
Net income 169,963 46,723
Net income per share 3.83 1.06
* * * * *
The financial information furnished is unaudited. It reflects all adjustments that
are, in the opinion of management, necessary to a fair statement of the results.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Effective July 1, 1995, the company completed the acquisition of Niagara of
Wisconsin Paper Corporation, located in Niagara, Wisconsin, together with Lake
Superior Paper Industries and Superior Recycled Fiber Industries, both located
in Duluth, Minnesota. This acquisition was accounted for as a purchase and
the assets and liabilities which have been stated at their fair value will
affect the comparison to prior periods.
On September 30, 1995 the ratio of current assets to current liabilities
increased to 1.5 compared with 1.3 at September 30, 1994 and during the third
quarter, working capital increased by $49 million. Accounts receivable
increased by $75 million and inventories increased $39 million during the
quarter while accounts payable and other current liabilities increased by $57
million.
Capital expenditures in the third quarter of 1995 totaled $51 million compared
with $28 million in the third quarter of 1994. Major third quarter 1995
expenditures included $18 million expended on the $166 million paper machine
at the Stevens Point Division, $3 million expended on the $33 million chlorine
reduction project at the Kraft Division, and $3 million expended in
preparation for an upcoming paper machine rebuild at Biron Division.
In October 1994, the Board of Directors approved a $116 million capital
approval budget for 1995. In February 1995, the Board of Directors also
approved a $166 million paper machine project for the Stevens Point Division.
At the time of acquisition described above, the three acquired operations
required $13 million to complete scheduled capital projects. In July, 1995,
the Consolidated Board of Directors approved an additional $13 million for
projects to be initiated in the second half of 1995. The 1995 capital
approval budget therefore now totals $308 million, with projected spending of
$171 million during 1995. The expected 1995 spending includes $45 million for
the new No. 35 paper machine project and $17 million at the acquired sites.
The company borrowed $279 million to fund the acquisition which together with
assumed debt resulted in new debt agreements totaling $335 million. Funded
debt decreased $36 million during the third quarter to $314 million. A
combination of internally generated funds and external financing assures
adequate capital to fund existing and projected projects. Fixed rate debt
continues at $85 million, and the remaining funded debt was at floating rates
through various bank lines of credit including two committed lines totaling
$250 million.
Substantially all of the machinery and equipment at Lake Superior Paper
Industries and certain assets at Niagara of Wisconsin Paper Corporation are
leased to the operating subsidiaries. The company has options under these
leases to repurchase the interests of the owner participants at set prices at
various times during the lease and again at conclusion of the lease for the
then fair market value of the equipment. If the company repurchases the
interests of the equity participants, the company would be required to assume
related debt secured by the leased equipment. Under the Lake Superior Paper
Industries lease, the company has the option at the end of 1997 to buy out the
equity participants for $164 million and assume related debt of $158 million.
The company expects that adequate financing will be available if these
interests are repurchased.
At its October 1995 meeting, the board of directors approved a $149 million
1996 capital approval budget. The 1996 capital approval budget includes $122
million for necessary replacement and quality projects, $22 million for high-
return projects, and $5 million for environmental control projects.
OPERATING RESULTS
THIRD QUARTER AND FIRST NINE MONTHS, 1995-1994 COMPARISONS
The operating results of the acquired companies are included in the income
statement subsequent to the acquisition date, July 1, 1995. Net sales
increased to record levels for the third quarter and first nine months of
1995. Third quarter net sales increased $208 million or 76% and nine months'
net sales increased $387 million or 52% compared with similar periods in 1994.
The acquisition in the third quarter of 1995 together with the strengthened
market for both free-sheet papers and coated groundwood printing papers were
the main reasons for the increases. Current demand allowed the company to
increase prices during the quarter approximately 7% for lightweight coated
papers and 5% for free-sheet web papers. Free-sheet sheets did not get a
price increase. Another price increase of approximately 6% for lightweight
coated papers and supercalendered papers was announced for October 1, 1995.
Record net income for the third quarter 1995 of $67 million or $1.51 per share
was an increase of 244% compared with $19 million or $.44 per share for the
comparable period in 1994. The primary reasons for the after-tax increase
were: higher selling prices and mix from pre-acquisition operations, $46
million; and favorable results from the newly acquired companies; partially
offset by higher material costs, mostly pulp, $13 million.
The lightweight groundwood mills, Biron and Wisconsin River divisions, on a
combined basis, operated at 100% of capacity for the third quarter and first
nine months in both years 1995 and 1994. The groundwood-free coated paper
mill, Wisconsin Rapids Division, excluding its No. 11 paper machine, also
operated at 100% of capacity for the third quarter and first nine months of
1995 compared with 95.1% and 87.4% in 1994, respectively. The No. 11 machine
resumed operations in mid-March 1995 after being put on stand-by at the time
of the March, 1992 startup of the company's No. 16 paper machine. The
Converting Division, which converts heavier-weight groundwood-free rolls into
sheets increased productivity and maintained shipment levels while operating
at 88% of capacity in the third quarter 1995 compared with 97.7% in the same
period in 1994. The company's coated specialty paper division (Stevens Point)
increased shipments by 5% in the third quarter and operated at 96.9% of
capacity compared to 100% for the third quarter in 1994. Shipments of
paperboard products decreased 5% and corrugated containers decreased 5% for
the third quarter 1995 compared with the same period in 1994. The three newly
acquired operations ran at 100% of capacity for the third quarter 1995.
Gross margins as a percent of net sales increased to 27.2% and 27.4% for the
third quarter and first nine months of 1995 compared with 17.2% and 18.5% for
similar periods in 1994. Higher selling prices, the favorable acquisition
impact, and increased volumes, partially offset by higher material costs
(mostly pulp), accounted for the improved gross profit margins.
Selling, general and administrative expenses as a percent of net sales
decreased to 3.5% and 4.4% for the third quarter and first nine months of
1995, respectively, compared with 5.7% and 6.3% for similar periods in 1994.
Selling, general and administrative expenses are typically fixed costs at
Consolidated Papers, Inc.
Other income (expense) net increased by $5 million in the third quarter 1995
compared with same period in 1994 primarily due to higher interest expense to
fund the acquisition. The year-to-date result decreased in 1995 by $8 million
when compared to 1994 due to a $5.5 million favorable second quarter 1994
settlement of a nonrecurring patent infringement suit and higher interest
expense in 1995.
The effective tax rate was 39.2% for both periods in 1995 compared with 39.0%
in 1994.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Furnish the exhibits required by Item 601 of Regulation S-K.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
Amendment No. 1 to Form 8-K dated June 30, 1995 was filed on Form
8-K/A on September 13, 1995 to report certain financial
information related to the acquisition of Niagara of Wisconsin
Paper Corporation, Lake Superior Paper Industries and Superior
Recycled Fiber Industries.
Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.
SIGNATURES
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.
CONSOLIDATED PAPERS,INC.
Date November 13, 1995 By /s/ Richard J. Kenney
Richard J. Kenney, Vice President, Finance
Principal Financial Officer
Date November 13, 1995 By /s/ Carl R. Lemke
Carl R. Lemke, Assistant Secretary
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the September 30,1995 consolidated balance sheet and the
consolidated statements of income, reinvested earnings and cash
flows for the nine-month period ended 9/30/95 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> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,705
<SECURITIES> 0
<RECEIVABLES> 181,582
<ALLOWANCES> 5,479
<INVENTORY> 134,808
<CURRENT-ASSETS> 341,266
<PP&E> 2,259,861
<DEPRECIATION> 815,369
<TOTAL-ASSETS> 1,947,071
<CURRENT-LIABILITIES> 230,091
<BONDS> 264,000
<COMMON> 44,573
0
0
<OTHER-SE> 987,743
<TOTAL-LIABILITY-AND-EQUITY> 1,947,071
<SALES> 1,126,411
<TOTAL-REVENUES> 1,126,411
<CGS> 817,487
<TOTAL-COSTS> 817,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,561
<INCOME-PRETAX> 256,319
<INCOME-TAX> 100,159
<INCOME-CONTINUING> 156,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156,160
<EPS-PRIMARY> 3.52
<EPS-DILUTED> 3.52
</TABLE>
