FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 0-1051
CONSOLIDATED PAPERS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-0223100
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Wisconsin Rapids, WI 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 21, 1996
44,700,743 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
1996 1995 December 31
(Unaudited) (Unaudited) 1995
ASSETS
<S> <C> <C> <C>
Current Assets
Cash & cash equivalents $ 21,551 $ 3,705 $ 5,372
Receivables (net of reserves of
$5,274 as of September 30, 1996,
$5,479 as of September 30, 1995
and $4,628 as of December 31,
1995) 132,979 176,103 140,072
Inventories
Finished stock 36,101 32,304 42,844
Unfinished stock 8,341 8,296 6,807
Raw materials and supplies 70,539 94,208 82,792
Total inventories 114,981 134,808 132,443
Prepaid expenses 38,157 26,650 36,930
Total current assets 307,668 341,266 314,817
Investments and other assets 74,114 88,453 76,466
Restricted cash related to leases 385,411 - -
Goodwill 60,127 72,860 73,401
Plant and Equipment
Buildings, machinery and equipment 2,137,583 2,118,932 2,160,907
Less: Accumulated depreciation 751,189 815,369 830,764
1,386,394 1,303,563 1,330,143
Land and timberlands 36,371 33,128 33,996
Capital additions in process 194,626 107,801 104,238
Total plant and equipment 1,617,391 1,444,492 1,468,377
$ 2,444,711 $ 1,947,071 $ 1,933,061
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Current maturities of
long-term debt $ 71,414 $ 50,000 $ 70,000
Accounts payable 71,313 89,580 72,278
Other 114,402 90,511 98,961
Total current liabilities 257,129 230,091 241,239
Long-term debt 157,053 264,000 197,000
Capital lease obligations 418,627 - -
Deferred income taxes 249,365 208,743 221,560
Postretirement benefits 94,228 122,151 93,702
Other noncurrent liabilities 19,808 21,683 20,763
Shareholders' Investment
Preferred stock, authorized and
unissued 15,000,000 shares - - -
Common stock, shares issued
44,730,400 as of September 30, 1996,
44,572,832 as of September 30, 1995
and 44,623,881 as of December 31,
1995 44,730 44,573 44,624
Capital in excess of par value 78,941 70,141 74,325
Cumulative translation adjustment (3,604) (2,054) (2,369)
Treasury stock, at cost, 32,800
shares as of September 30, 1996
and 38,000 shares as of
December 31, 1995 (1,670) - (2,100)
Reinvested earnings 1,130,104 987,743 1,044,317
Total shareholders' investment 1,248,501 1,100,403 1,158,797
$ 2,444,711 $ 1,947,071 $ 1,933,061
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
1996 1995 1996 1996 1995
<S> <C> <C> <C> <C> <C>
Net sales $ 380,833 $ 480,861 $ 376,085 $ 1,181,057 $ 1,126,411
Cost of goods sold 295,973 350,185 273,455 887,710 817,487
Gross profit 84,860 130,676 102,630 293,347 308,924
Selling, general
and
administrative
expenses 18,638 16,968 19,544 55,921 49,679
Income from
operations 66,222 113,708 83,086 237,426 259,245
Interest expense ( 3,204) ( 5,046) ( 3,555) ( 9,239) ( 7,561)
Interest income 3,380 139 1,787 5,277 518
Miscellaneous, net 551 851 620 2,755 4,117
Total other
income
(expense), net 727 ( 4,056) ( 1,148) ( 1,207) ( 2,926)
Income before
provision for
income taxes 66,949 109,652 81,938 236,219 256,319
Provision for
income taxes 26,681 42,659 32,876 94,154 100,159
Net income $ 40,268 $ 66,993 $ 49,062 $ 142,065 $ 156,160
Net income per
share $ 0.90 $ 1.51 $ 1.10 $ 3.18 $ 3.52
Average number of
common shares
outstanding 44,682,039 44,510,734 44,673,641 44,661,658 44,359,596
CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS
(DOLLARS IN THOUSANDS - UNAUDITED)
Three Months Ended Nine Months Ended
September 30 June 30 September 30
1996 1995 1996 1996 1995
Balance beginning
of period $ 1,108,609 $ 937,213 $ 1,078,305 $ 1,044,317 $ 878,597
Add: Net income 40,268 66,993 49,062 142,065 156,160
Deduct: Cash
dividends (18,773) (16,463) (18,758) (56,278) (47,014)
Balance end of
period $ 1,130,104 $ 987,743 $ 1,108,609 $ 1,130,104 $ 987,743
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS - UNAUDITED)
Nine Months Ended
September 30
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 142,065 $ 156,160
Depreciation and depletion 79,761 69,998
Amortization of intangibles 5,920 2,127
Deferred income taxes 27,295 32,311
Earnings of affiliates ( 3,252) ( 3,220)
(Increase) decrease in current assets,
other than cash and cash equivalents 12,830 (50,079)
Increase (decrease) in current
liabilities, other than current
maturities of long-term debt 14,476 22,467
Increase (decrease) in postretirement
benefits 526 ( 3,541)
Increase (decrease) in other noncurrent
liabilities ( 955) 2,237
Net cash provided by operating activities 278,666 228,460
Cash Flows From Investing Activities:
Capital expenditures (228,775) (118,639)
Acquisition, net of cash - (225,510)
Proceeds from sale and leaseback 422,398 -
Noncurrent investments (393,229) -
Other 26,778 ( 316)
Net cash (used in) investing activities (172,828) (344,465)
Cash Flows From Financing Activities:
Cash dividends ( 56,278) ( 47,014)
Increase (decrease) in long-term debt ( 38,533) 144,137
Other 5,152 14,432
Net cash provided by (used in) financing
activities ( 89,659) 111,555
Net increase (decrease) in cash and cash
equivalents 16,179 ( 4,450)
Cash and cash equivalents -
beginning of period 5,372 8,155
Cash and cash equivalents - end of
period $ 21,551 $ 3,705
Cash paid during the year for:
Interest $ 13,367 $ 7,235
Income taxes 74,301 71,319
<FN>
Notes to Financial Statements:
1. Reference is made to the Notes to Financial Statements which appear in the
1995 Annual Report on Form 10-K. The basic principles of those notes are
pertinent to these statements.
2. Effective July 1, 1995, the company acquired Niagara of Wisconsin Paper
Corporation, Lake Superior Paper Industries and Superior Recycled Fiber
Industries. Results of operations of the acquired companies are included
in the consolidated financial statements subsequent to the acquisition.
The following unaudited consolidated pro forma results of operations for
the period ended September 30, 1995 assume the acquisition occurred as of
January 1, 1995. This 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:
Nine Months Ended
September 30, 1995
Net sales $ 1,376,020
Net income 171,052
Net income per share 3.86
3. The company sold certain assets for $253 million and $169 million in May,
1996 and September, 1996, respectively. The assets were leased back from
the purchasers over a period of 30 years. Under the agreements, the company
will maintain deposits, initially in the amount of $393 million, which
together with interest earned, are expected to be sufficient to fund the
company's lease obligations, including the repurchase of the assets. As of
September 30, 1996, $12 million of the capital lease obligations and the
deposits are recorded as current. These transactions are being accounted
for as financing arrangements, and the resulting gains are amortized over a
15-year period.
* * * * *
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 acquired 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, 1996 the ratio of current assets to current liabilities was
1.2:1 compared with 1.5:1 at September 30, 1995. During the third quarter
working capital decreased by $6 million. Cash and cash equivalents and prepaid
expenses increased by $8 million and $5 million, respectively, while accounts
receivable decreased by $7 million, primarily due to lower sales volume.
Accounts payable increased by $1 million and other current liabilities
increased by $9 million primarily due to an increase in salaries and wages and
income taxes payable at September 30, 1996 compared to June 30, 1996.
The company's debt increased by $41 million during the quarter due primarily to
the $35 million buyout of an operating lease at the Niagara of Wisconsin mill.
The resulting balance sheet long-term funded debt to capital ratio was 11% at
September 30, 1996 compared to 19% at September 30, 1995 and 11% at June 30,
1996.
The company also has operating leases for machinery and equipment which commit
the company to annual lease payments of approximately $41 million. Additional
detail regarding the operating leases is included in footnote 8 of the Notes to
Consolidated Financial Statements in the company's 1995 Annual Report.
The company sold certain assets for $253 million and $169 million in May 1996
and September 1996, respectively. The assets were leased back from the
purchasers over a period of 30 years. Under the agreements, the company will
maintain deposits, initially in the amount of $393 million, which, together
with interest earned, are expected to be sufficient to fund the company's lease
obligations, including the repurchase of the assets. As of September 30, 1996
$12 million of both the capital lease obligation and of the deposit are
recorded as current. This transaction is being accounted for as a financing
arrangement, and the resulting gain will be amortized over a 15-year period.
Capital expenditures in the third quarter of 1996 totaled $99 million compared
with $51 million in the third quarter of 1995. The major third quarter 1996
expenditures included $25 million for a $166 million paper machine addition at
Stevens Point Division, $7 million for a $35 million chlorine reduction project
at Kraft Division and $35 million for the buyout of a pressurized groundwood
mill lease at the Niagara of Wisconsin mill in Niagara, Wisconsin. The company
expects to spend a total of $275 million during 1996 for capital additions.
At its October 1996 meeting, the board of directors approved a $180 million
1997 capital approval budget. The 1997 capital budget includes $155 million
for necessary replacement and quality projects, $21 million for high-return
projects and $4 million for environmental control projects.
OPERATING RESULTS
THIRD QUARTER AND FIRST NINE MONTHS, 1996-1995 COMPARISONS
Third quarter net sales decreased $100 million or 21% and nine months' net
sales held steady compared with similar periods in 1995. The third quarter net
sales decrease is due to the slowdown in demand for coated papers that began in
the fourth quarter of 1995 and continued during the first nine months of 1996.
Both unit volume and selling prices were negatively impacted. The nine months'
results for 1996 are not comparable with last year's nine months because of the
July 1, 1995 acquisition.
Unaudited pro forma consolidated results of operations for the third quarter
period ended September 30, 1995 are provided for information purposes only. The
pro forma statement assumes the acquisition occurred on January 1, 1995 and is
shown in the footnotes to the financial statements. 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 or of
future results.
Net income for the third quarter 1996 of $40.3 million or $.90 per share
decreased compared with $67.0 million or $1.51 per share for the comparable
period in 1995. The primary reasons for the after-tax decrease were: lower
selling price and mix, $29 million; reduced operations, $11 million; partially
offset by lower purchased pulp costs, $8 million.
Due to the slowdown in demand for coated papers, the company operated at less
than full capacity during the first nine months resulting in approximately
80,000 fewer tons in both the first and second quarters, and 60,000 fewer tons
in the third quarter, than the maximum available of salable production. The
groundwood-free coated paper mill, Wisconsin Rapids Division, excluding its
No. 11 paper machine, operated at 89% of capacity for the third quarter and 86%
for the first nine months 1996 compared with 100% for similar periods in 1995.
The Converting Division, which converts heavier weight groundwood-free rolls
into sheets, slightly increased shipments for the third quarter and operated at
95% of capacity compared with 88% in the same period in 1995. The lightweight
groundwood mills, Biron, Wisconsin River and Niagara divisions, on a combined
basis, operated at 88% of capacity for the third quarter and 84% for the first
nine months of 1996, compared with 100% in the comparable periods of 1995.
During the first quarter 1996 the company's largest lightweight coated
groundwood paper machine was also off line for 18 days for a quality-related
rebuild. The supercalendered paper mill, Lake Superior Paper Industries,
operated at 80% of capacity during the third quarter for 1996 and 83% for the
first nine months of 1996 compared to 100% during comparable periods in 1995.
Superior Recycled Fiber Industries, the recycled pulp mill, operated at 83% of
capacity during the third quarter of 1996 and 80% for the first nine months of
1996 compared to 100% during similar periods in 1995. The coated specialty
paper division (Stevens Point) operated at 100% of capacity in the third
quarter and 98% in the first nine months of 1996 compared with 96% and 99% in
the similar periods of 1995. Shipments of corrugated products and paperboard
products were stable compared with 1995.
Gross margins as a percent of net sales decreased to 22.2% and 24.8% for the
third quarter and first nine months of 1996 compared with 27.2% and 27.4% for
similar periods in 1995. The combination of greater unit sales from the July 1,
1995 acquisition and lower pulp costs were more than offset by lower selling
prices and the impact of less than full capacity operations.
Selling, general and administrative expenses as a percent of net sales were
4.9% and 4.7% for the third quarter and first nine months of 1996,
respectively, compared with 3.5% and 4.4% for similar periods in 1995.
Increases in 1996 are due primarily to lower net sales and the additional costs
associated with the integration of the July 1995 acquisition. Selling, general
and administrative expenses are typically considered to be fixed costs.
Interest expense decreased and interest income increased in the quarter-to-
quarter comparison, primarily from the May and September 1996 sale and lease-
back accounting. Overall, other income (expense) increased by $5 million during
the quarter as compared with the third quarter 1995.
The effective tax rate was 39.9% for both the third quarter and first nine
months of 1996, respectively, compared with 38.9% and 39.1% for the comparable
periods in 1995.
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.
There were no reports filed on Form 8-K during the quarter ended
September 30, 1996
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 8, 1996 By /s/ Richard J. Kenney
Richard J. Kenney, Vice President, Finance
Principal Financial Officer
Date November 8, 1996 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 30,1996 consolidated balance sheet and the consolidated statements
of income, reinvested earnings and cash flows for the nine-month period ended
9/30/96 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,551
<SECURITIES> 0
<RECEIVABLES> 138,253
<ALLOWANCES> 5,274
<INVENTORY> 114,981
<CURRENT-ASSETS> 307,668
<PP&E> 2,368,580
<DEPRECIATION> 751,189
<TOTAL-ASSETS> 2,444,711
<CURRENT-LIABILITIES> 257,129
<BONDS> 157,053
<COMMON> 44,730
0
0
<OTHER-SE> 1,203,771
<TOTAL-LIABILITY-AND-EQUITY> 2,444,711
<SALES> 1,181,057
<TOTAL-REVENUES> 1,181,057
<CGS> 887,710
<TOTAL-COSTS> 887,710
<OTHER-EXPENSES> 8,032
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,239
<INCOME-PRETAX> 236,219
<INCOME-TAX> 94,154
<INCOME-CONTINUING> 142,065
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142,065
<EPS-PRIMARY> 3.18
<EPS-DILUTED> 3.18
</TABLE>
