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 June 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, 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 July 26, 1996
44,695,014 shares
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<CAPTION>
As Of
June 30 June 30
1996 1995 December 31
(Unaudited) (Unaudited) 1995
ASSETS
<S> <C> <C> <C>
Current Assets
Cash & cash equivalents $ 13,709 $ 3,324 $ 5,372
Receivables (net of reserves of
$5,063 as of June 30, 1996,
$4,409 as of June 30, 1995
and $4,628 as of December 31,
1995) 140,311 106,092 140,072
Inventories
Finished stock 37,711 33,266 42,844
Unfinished stock 5,086 5,570 6,807
Raw materials and supplies 73,241 71,700 82,792
Total inventories 116,038 110,536 132,443
Prepaid expenses 32,834 16,515 36,930
Total current assets 302,892 236,467 314,817
Investments and other assets 74,520 341,771 76,466
Restricted cash related to lease 220,631 - -
Goodwill 61,220 - 73,401
Plant and Equipment
Buildings, machinery and equipment 2,138,254 1,935,407 2,160,907
Less: Accumulated depreciation 815,201 793,762 830,764
1,323,053 1,141,645 1,330,143
Land and timberlands 34,342 29,952 33,996
Capital additions in process 187,666 90,885 104,238
Total plant and equipment 1,545,061 1,262,482 1,468,377
$ 2,204,324 $ 1,840,720 $ 1,933,061
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<S> <C> <C> <C>
Current Liabilities
Current maturities of
long-term debt $ 70,000 $ 50,000 $ 70,000
Accounts payable 70,418 61,255 72,278
Other 105,802 63,379 98,961
Total current liabilities 246,220 174,634 241,239
Long-term debt 117,000 300,000 197,000
Capital lease obligation 249,522 - -
Deferred income taxes 242,164 203,382 221,560
Postretirement benefits 99,444 111,452 93,702
Other noncurrent liabilities 23,115 7,996 20,763
Shareholders' Investment
Preferred stock, authorized and
unissued 15,000,000 shares - -
-
Common stock: shares issued,
44,698,917 as of June 30,
1996, 44,398,552 as of
June 30, 1995 and 44,623,881
as of December 31, 1995 44,699 44,399 44,624
Capital in excess of par value 77,507 63,728 74,325
Cumulative translation adjustment (3,622) (2,084) (2,369)
Treasury stock, at cost, 5,900
shares as of June 30, 1996, and
38,000 shares as of December 31,
1995 ( 334) - (2,100)
Reinvested earnings 1,108,609 937,213 1,044,317
Total shareholders' investment 1,226,859 1,043,256 1,158,797
$ 2,204,324 $ 1,840,720 $ 1,933,061
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA - UNAUDITED)
Three Months Ended Six Months Ended
June 30 March 31 June 30
1996 1995 1996 1996 1995
<S> <C> <C> <C> <C> <C>
Net sales $ 376,085 $ 336,646 $ 424,139 $ 800,224 $ 645,550
Cost of goods sold 273,455 239,869 318,282 591,737 467,302
Gross profit 102,630 96,777 105,857 208,487 178,248
Selling, general and
administrative
expenses 19,544 16,708 17,739 37,283 32,711
Income from
operations 83,086 80,069 88,118 171,204 145,537
Interest expense (3,555) ( 1,056) ( 2,480) ( 6,035) ( 2,515)
Interest income 1,787 31 110 1,897 379
Miscellaneous, net 620 883 1,584 2,204 3,266
Total other income
(expense), net (1,148) ( 142) ( 786) ( 1,934) 1,130
Income before
provision for
income taxes 81,938 79,927 87,332 169,270 146,667
Provision for
income taxes 32,876 31,365 34,597 67,473 57,500
Net Income $ 49,062 $ 48,562 $ 52,735 $ 101,797 $ 89,167
Net Income Per Share $ 1.10 $ 1.09 $ 1.18 $ 2.28 $ 2.01
Average number of
common shares
outstanding 44,673,641 44,333,585 44,620,673 44,647,157 44,282,774
CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS
(DOLLARS IN THOUSANDS - UNAUDITED)
Three Months Ended Six Months Ended
June 30 March 31 June 30
1996 1995 1996 1996 1995
<S> <C> <C> <C> <C> <C>
Balance beginning
of period $ 1,078,305 $ 905,046 $ 1,044,317 $ 1,044,317 $ 878,597
Add: Net income 49,062 48,562 52,735 101,797 89,167
Deduct: Cash
dividends (18,758) (16,395) (18,747) (37,505) (30,551)
Balance end
of period $ 1,108,609 $ 937,213 $ 1,078,305 $ 1,108,609 $ 937,213
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS - UNAUDITED)
Six Months Ended
June 30
1996 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 101,797 $ 89,167
Depreciation and depletion 52,835 45,269
Amortization of intangibles 3,939 -
Deferred income taxes 30,919 21,604
Earnings of affiliates ( 2,168) ( 2,140)
(Increase) decrease in current assets,
other than cash and cash equivalents 20,262 ( 41,970)
Increase (decrease) in current
liabilities, other than current
maturities of long-term debt 4,981 17,684
Increase (decrease) in postretirement
benefits 5,742 1,894
Increase (decrease) in other noncurrent
liabilities ( 850) 658
Net cash provided by operating activities 217,457 132,166
Cash Flows from Investing Activities:
Capital expenditures (129,519) ( 67,777)
Proceeds from sale and leaseback 252,724 -
Noncurrent investments (223,555) -
(Increase) decrease in investments and
other assets 3,710 (278,514)
Net cash (used in) investing activities ( 96,640) (346,291)
Cash Flows from Financing Activities:
Cash dividends ( 37,505) ( 30,551)
Increase (decrease) in long-term debt ( 80,000) 232,000
Other 5,025 7,845
Net cash provided by (used in) financing
activities (112,480) 209,294
Net increase (decrease) in cash and cash
equivalents 8,337 ( 4,831)
Cash and cash equivalents - beginning of period 5,372 8,155
Cash and cash equivalents - end of period $ 13,709 $ 3,324
Cash paid during the year for:
Interest $ 6,709 $ 2,385
Income taxes 52,051 36,293
<FN>
Notes to Financial Statements:
1. Reference is made to the Notes to Financial Statements that 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 for approximately $227 million in cash and extinguished $52
million of debt. The company entered into new debt agreements totaling $335
million and borrowed $279 million. The debt proceeds have been recorded in
investments and other assets as of June 30, 1995. This acquisition was
accounted for as a purchase and, accordingly, assets and liabilities have
been stated at their fair values. The purchase price allocation has been
finalized as of June 30, 1996. Results of the 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 June 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:
Six Months Ended
June 30, 1995
(Unaudited)
(Dollars in thousands, except per share data)
Net sales $ 887,148
Net income 104,383
Net income per share 2.36
3. In May 1996, the company sold certain assets for $253 million and agreed to
lease the assets back from the purchaser over a period of 30 years. Under
the agreement, the company will maintain a deposit, initially in the amount
of $223 million, which together with interest earned is expected to be
sufficient to fund the company's lease obligation, including the repurchase
of the assets. As of June 30, 1996, $12 million of the capital lease
obligation and the deposit are recorded as current. This transaction is
being accounted for as a financing arrangement and the resulting gain has
been deferred and will be depreciated, along with the asset, 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 June 30, 1996 the ratio of current assets to current liabilities was 1.2:1
compared with 1.4:1 at June 30, 1995. During the second quarter working capital
increased by $28 million. Cash and cash equivalents increased by $10 million,
accounts receivable increased by $8 million and prepaid expenses, due to final
adjustments associated with the July 1995 acquisition, increased by $5 million.
Accounts payable increased by $2 million and other current liabilities
decreased by $8 million primarily due to a decrease in income taxes payable at
June 30, 1996 compared to March 31, 1996.
The company's debt paydown was $15 million during the quarter and the resulting
balance sheet long-term funded debt to capital ratio was 11% at June 30, 1996
compared to 22% at June 30, 1995 and 10% at March 31, 1996.
The company also has operating leases for machinery and equipment which commit
the company to annual lease payments of approximately $45 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.
In May 1996, the company sold certain assets for $253 million and agreed to
lease the assets back from the purchasers over a period of 30 years. Under the
agreement, the company will maintain a deposit, initially in the amount of $223
million, which together with interest earned is expected to be sufficient to
fund the company's lease obligation, including the repurchase of the assets. As
of June 30, 1996 $12 million of the capital lease obligation and the deposit
are recorded as current. The company's financing agreements have been modified
to permit the lease transactions. This transaction is being accounted for as a
financing arrangement and the resulting gain has been deferred and will be
depreciated, along with the asset, over a 15 year period.
Capital expenditures in the second quarter of 1996 totaled $74 million compared
with $40 million in the second quarter of 1995. The major second quarter 1996
expenditures included $33 million for a $166 million paper machine addition at
Stevens Point Division, $6 million for a $35 million chlorine reduction project
at Kraft Division and $4 million for a paper machine rebuild at Biron Division.
The company expects to spend a total of $240 million during 1996 for capital
additions.
OPERATING RESULTS SECOND QUARTER AND FIRST HALF YEAR
1996-1995 COMPARISON
Second quarter net sales increased $39 million or 12% and first half year net
sales increased $155 million or 24% compared with similar periods in 1995. The
net sales increase due to the July, 1995 acquisition was partially offset by
the slowdown in demand for coated papers that began in the fourth quarter of
1995 and continued during the first half of 1996.
Net income for the second quarter 1996 of $49.1 million or $1.10 per share was
a slight increase compared with $48.6 million or $1.09 per share for the
comparable period in 1995. The primary reasons for the after-tax increase were:
lower pulp costs, $7 million; higher selling price and mix, $4 million; mostly
offset by reduced operations, $10 million.
An unaudited pro forma of consolidated results of operations for the second
quarter period ended June 30, 1995 is provided for information purposes only.
The pro forma 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.
Due to the slowdown in demand for coated papers, the company operated at less
than full capacity during the first half year resulting in approximately 80,000
fewer tons in both the first and second quarters than the maximum available of
salable production. The groundwood-free coated paper mill, Wisconsin Rapids
Division, excluding its No. 11 paper machine, operated at 82% of capacity for
the second quarter and 84% for the first half year 1996 compared with 100% for
similar periods in 1995. The Converting Division, which converts heavier weight
groundwood-free rolls into sheets increased shipments for the second quarter by
13% and operated at 92% of capacity compared with 86% in the same period in
1995. The lightweight groundwood mills, Biron and Wisconsin River divisions, on
a combined basis, operated at 82% of capacity for the second quarter and 86%
for the first two quarters 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 company's newly acquired operations, Niagara of
Wisconsin Paper Corporation, Lake Superior Paper Industries and Superior
Recycled Fiber Industries operated at 74%, 77% and 83% of capacity,
respectively, during the second quarter of 1996 and 69%, 84% and 78% for the
first half year 1996. The coated specialty paper division (Stevens Point)
operated at 98% of capacity in both the second quarter and first half year 1996
compared with 100% 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 27.3% and 26.1% for the
second quarter and first half year of 1996 compared with 28.7% and 27.6% for
similar periods in 1995. The acquisition and lower pulp costs were more than
offset by the impact of less than full capacity operations, thus, the decrease
in gross profit margins.
Selling, general and administrative expenses as a percent of net sales were
5.2% and 4.7% for the second quarter and first six months of 1996,
respectively, compared with 5.0% and 5.1% for similar periods in 1995.
Increases in 1996 are due primarily to the additional costs associated with the
integration of the July 1996 acquisition. Selling, general and administrative
expenses are typically considered to be fixed costs.
Both interest expense and income increased in the quarter to quarter
comparison, primarily from the May 1996 sale and lease back accounting.
Overall, other income (expense) held steady during the quarter as compared with
the second quarter 1995.
The effective tax rate was 40.1% and 39.7% for the second quarter and first
half year 1996, respectively, compared with 39.2% for both of 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 June 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 August 13, 1996
/s/ Richard J. Kenney
By: Richard J. Kenney, Vice President, Finance
Principal Financial Officer
Date August 13, 1996
/s/ Carl R. Lemke
By: Carl R. Lemke
Assistant Secretary
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the June 30, 1996 consolidated balance sheet and the consolidated
statements of income, reinvested earnings and cash flows for the six-month
period ended 06/30/96 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> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 13,709
<SECURITIES> 0
<RECEIVABLES> 145,374
<ALLOWANCES> 5,063
<INVENTORY> 116,038
<CURRENT-ASSETS> 302,892
<PP&E> 2,360,262
<DEPRECIATION> 815,201
<TOTAL-ASSETS> 2,204,324
<CURRENT-LIABILITIES> 246,220
<BONDS> 117,000
<COMMON> 44,699
0
0
<OTHER-SE> 1,182,160
<TOTAL-LIABILITY-AND-EQUITY> 1,226,859
<SALES> 800,224
<TOTAL-REVENUES> 800,224
<CGS> 591,737
<TOTAL-COSTS> 591,737
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,035
<INCOME-PRETAX> 169,270
<INCOME-TAX> 67,473
<INCOME-CONTINUING> 101,797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,797
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.28
</TABLE>
