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, 1997
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 17, 1997
44,914,233 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
1997 1996 December 31
(Unaudited) (Unaudited) 1996
ASSETS
<S> <C> <C> <C>
Current Assets
Cash & cash equivalents $ 6,874 $ 21,551 $ 12,928
Receivables (net of reserves of
$5,885 as of September 30, 1997,
$5,274 as of September 30, 1996,
and $5,313 as of December 31,
1996) 123,321 132,979 126,103
Inventories
Finished stock 46,617 36,101 48,375
Unfinished stock 7,504 8,341 7,099
Raw materials and supplies 93,192 70,539 82,480
Total inventories 147,313 114,981 137,954
Prepaid expenses 44,690 38,157 46,912
Total current assets 322,198 307,668 323,897
Investments and other assets 304,938 74,114 77,337
Restricted cash related to leases 419,164 385,411 423,618
Goodwill 55,754 60,127 59,034
Plant and Equipment
Buildings, machinery and equipment 2,401,685 2,137,583 2,198,839
Less: Accumulated depreciation 857,768 751,189 775,080
1,543,917 1,386,394 1,423,759
Land and timberlands 37,616 36,371 36,597
Capital additions in process 126,043 194,626 188,000
Total plant and equipment 1,707,576 1,617,391 1,648,356
$ 2,809,630 $ 2,444,711 $ 2,532,242
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<S> <C> <C> <C>
Current Liabilities
Current maturities of
long-term debt $ - $ 71,414 $ -
Accounts payable 71,653 71,313 73,147
Other 103,620 114,402 90,609
Total current liabilities 175,273 257,129 163,756
Long-term debt 484,000 157,053 272,467
Capital lease obligations 447,392 418,627 462,084
Deferred income taxes 276,138 249,365 251,955
Postretirement benefits 105,923 94,228 98,614
Other noncurrent liabilities 16,287 19,808 13,544
Shareholders' Investment
Preferred stock, authorized and
unissued 15,000,000 shares - - -
Common stock, shares issued
44,974,798 as of September 30, 1997,
44,730,400 as of September 30, 1996,
and 44,768,361 as of December 31,
1996 44,975 44,730 44,768
Capital in excess of par value 89,100 78,941 80,818
Cumulative translation adjustment (2,534) (3,604) (2,290)
Treasury stock, at cost, 24,408
shares as of September 30, 1997,
32,800 shares as of September 30,
1996, and 39,900 shares as of
December 31, 1996 (1,190) (1,670) (2,020)
Reinvested earnings 1,174,266 1,130,104 1,148,546
Total shareholders' investment 1,304,617 1,248,501 1,269,822
$ 2,809,630 $ 2,444,711 $ 2,532,242
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
1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C>
Net sales $ 396,795 $ 380,833 $ 392,975 $ 1,169,611 $ 1,181,057
Cost of goods sold 336,508 295,973 322,227 974,131 887,710
Gross profit 60,287 84,860 70,748 195,480 293,347
Selling, general
and
administrative
expenses 20,456 18,638 20,700 60,275 55,921
Income from
operations 39,831 66,222 50,048 135,205 237,426
Interest expense (10,288) ( 3,204) ( 8,934) (27,050) ( 9,239)
Interest income 6,886 3,380 6,325 19,361 5,277
Miscellaneous, net 1,919 551 1,555 5,078 2,755
Total other
income
(expense), net ( 1,483) 727 ( 1,054) ( 2,611) ( 1,207)
Income before
provision for
income taxes 38,348 66,949 48,994 132,594 236,219
Provision for
income taxes 14,572 26,681 18,618 50,386 94,154
Net income $ 23,776 $ 40,268 $ 30,376 $ 82,208 $ 142,065
Net income per
share $ 0.52 $ 0.90 $ 0.68 $ 1.83 $ 3.18
Average number of
common shares
outstanding 44,916,182 44,682,039 44,824,677 44,831,155 44,661,658
CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS
(DOLLARS IN THOUSANDS - UNAUDITED)
Three Months Ended Nine Months Ended
September 30 June 30 September 30
1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C>
Balance beginning
of period $ 1,169,348 $ 1,108,609 $ 1,157,814 $ 1,148,546 $ 1,044,317
Add: Net income 23,776 40,268 30,376 82,208 142,065
Deduct: Cash
dividends (18,858) (18,773) (18,842) (56,488) (56,278)
Balance end of
period $ 1,174,266 $ 1,130,104 $ 1,169,348 $ 1,174,266 $ 1,130,104
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS - UNAUDITED)
Nine Months Ended
September 30
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 82,208 $ 142,065
Depreciation and depletion 89,445 79,761
Amortization of intangibles 4,400 5,920
Deferred income taxes 24,183 27,295
Earnings of affiliates ( 3,614) ( 3,252)
(Increase) decrease in current assets,
other than cash and cash equivalents ( 4,355) 12,830
Increase (decrease) in current
liabilities, other than current
maturities of long-term debt 11,517 14,476
Increase (decrease) in postretirement
benefits 7,309 526
Increase (decrease) in other noncurrent
liabilities 2,743 ( 955)
Net cash provided by operating activities 213,836 278,666
Cash Flows From Investing Activities:
Capital expenditures (148,665) (228,775)
Proceeds from sale and leaseback - 422,398
Noncurrent investments - (393,229)
Other (235,589) 26,778
Net cash (used in) investing activities (384,254) (172,828)
Cash Flows From Financing Activities:
Cash dividends ( 56,488) ( 56,278)
Increase (decrease) in long-term debt 211,533 ( 38,533)
Other 9,319 5,152
Net cash provided by (used in) financing
activities 164,364 ( 89,659)
Net increase (decrease) in cash and cash
equivalents ( 6,054) 16,179
Cash and cash equivalents -
beginning of period 12,928 5,372
Cash and cash equivalents - end of
period $ 6,874 $ 21,551
Cash paid during the year for:
Interest $ 20,497 $ 13,367
Income taxes 20,971 74,301
<FN>
Notes to Financial Statements:
1. Reference is made to the Notes to Financial Statements that appear in the
1996 Annual Report on Form 10-K. The basic principles of those notes are pertinent
to these statements.
2. In May, 1996 and September, 1996, the company sold certain assets for $253
million and $169 million, respectively. The company agreed to lease the
assets back from the purchaser over a period of 15 years. Under the
agreements, the company maintains 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. These transactions are being accounted for as financing
arrangements.
3. The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share." This statement
is effective for fiscal years ending after December 15, 1997, and, when
adopted, will require restatement of prior years' earnings per share. If
adopted in the third quarter, 1997, the company's reported earnings per
share would have been unchanged and diluted earnings per share would have
been unchanged for the quarter and $1.82 for the nine months ended
September 30, 1997.
4. Effective October 1, 1997, the company acquired all of the outstanding
stock of Repap USA, Inc., a holding company for Repap Wisconsin, Inc. and
Repap Sales Corporation, for approximately $227 million in cash and assumed
$433 million in net debt and $14 million in postretirement benefits. The
company borrowed $229 million to finance the acquisition and the debt
proceeds have been recorded in Investments and other assets as of September
30, 1997.
* * * * *
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
On September 30, 1997 the ratio of current assets to current liabilities was
1.8:1 compared with 1.2:1 at September 30, 1996. During the third quarter
working capital decreased by $9 million. Cash and cash equivalents decreased
by $10 million and receivables decreased by $8 million, partially offset by an
increase in prepaid expenses of $4 million. Accounts payable and other current
liabilities decreased by $4 million, primarily due to timing of payments.
Effective October 1, 1997, the company acquired all of the outstanding stock of
Repap USA, Inc., a holding company for Repap Wisconsin, Inc. and Repap Sales
Corporation, for approximately $227 million in cash and assumed $433 million in
net debt and $14 million in postretirement benefits. The company borrowed $229
million to finance the acquisition and the debt proceeds have been recorded in
Investments and other assets. As a result, the company's funded debt increased
by $213 million during the third quarter and the resulting balance sheet long-
term funded debt to capital ratio increased to 27% at September 30, 1997
compared to 11% at September 30, 1996 and 17% at June 30, 1997.
The company also has operating leases for machinery and equipment which commit
the company to annual lease payments of approximately $45 million in 1997.
Additional detail regarding the operating leases is included in footnote 6 of
the Notes to Consolidated Financial Statements in the company's 1996 Annual
Report.
The company has given notice of its intent to exercise its option to repurchase
equipment presently subject to operating leases at the company's Lake Superior
Paper Industries facility. This purchase, which will occur at the end of 1997,
will require approximately $164 million and the company will also assume debt
related to the equipment of approximately $158 million.
Capital expenditures in the third quarter of 1997 totaled $50 million compared
with $99 million in the third quarter of 1996. The major third quarter 1997
expenditures included $7 million of a $30 million paper machine modernization
at Lake Superior Paper Industries, $6 million of a $23 million supercalender
project at the company's Niagara, Wisconsin mill and $4 million of a $166
million paper machine addition at Stevens Point Division. In the third quarter
of 1996, the company spent $25 million on this paper machine addition, which
started up in March, 1997. The company expects to spend a total of $200
million during 1997 for capital additions including approximately $30 million
for the new paper machine at Stevens Point Division.
At the end of September 1997, the company closed on a $750 million bank
revolver to finance the Repap acquisition, refinance existing bank debt and
provide funding for general corporate purposes. The facility replaced the
company's $250 million revolving credit agreement established in June, 1995.
OPERATING RESULTS
THIRD QUARTER AND FIRST NINE MONTHS, 1997-1996 COMPARISONS
Third quarter net sales increased $16 million or 4% and first nine months' net
sales decreased $11 million or 1% compared with the similar periods in 1996.
Third quarter shipments were 440,000 tons, up 11%, and first nine months
shipments were 1,317,000 tons, up 15%, when compared with similar periods in
1996. Increased shipments were offset by depressed selling prices compared to
the similar periods in 1996.
Net income for the third quarter, 1997 of $23.8 million or $.52 per share was a
decrease compared with $40.3 million or $.90 per share for 1996. Quarter to
quarter reductions in selling prices were the primary reason for the reduced
earnings. Planned annual paper machine maintenance, unusual lightning - related
downtime, and associated start-up difficulties that resulted in reduced
productivity and less-than-favorable product mix, contributing to the reduction
in after-tax earnings.
The groundwood-free coated paper mill, Wisconsin Rapids Division, excluding its
No. 11 paper machine which remains in standby status, operated at 100% of
capacity for the third quarter and the first nine months 1997 compared with 89%
of capacity for the third quarter and 86% of capacity for the first nine months
of 1996. The Converting Division, which converts heavier weight groundwood-free
rolls into sheets, increased shipments for the third quarter by 12% and
operated at 100% of capacity compared with 95% in the same period 1996. The
Converting Division operated at 99% of capacity for the first nine months of
1997 compared to 93% for the comparable period in 1996. The lightweight coated
groundwood mills, Biron, Wisconsin River, and Niagara divisions on a combined
basis, operated at 100% of capacity for the third quarter and 96% of capacity
for the first three quarters of 1997 compared with 88% of capacity for the
third quarter of 1996 and 84% for the first three quarters of 1996. The two
smallest groundwood coated paper machines, Nos. 41 and 61, were idle during the
first quarter of 1997. No. 41 paper machine resumed operations on April 16,
1997 and No. 61 resumed operations on July 7, 1997 and since restart have been
running at 100% of capacity. The coated specialty paper division (Stevens
Point) operated at 75% of capacity in the third quarter and 89% of capacity for
the first nine months 1997 compared with 100% of capacity in the third quarter
and 98% for the first nine months of 1996. The new No. 35 specialty paper
machine started up on March 21, 1997. Lake Superior Paper Industries, which
manufactures supercalendered printing papers, operated at 100% of capacity in
the third quarter and 99% for the first nine months 1997 compared with 80% of
capacity in the third quarter and 83% of capacity in the first nine months
1996. Shipments of recycled fiber produced from post-consumer office waste
paper were down during the quarter due to soft demand. Shipments of corrugated
products were up and shipments of paperboard products were down slightly
compared with third quarter 1996.
Gross profit margins as a percent of net sales decreased to 15.2% and 16.7% for
the third quarter and first nine months of 1997 compared with 22.3% and 24.8%
for the similar periods in 1996. Reduced selling prices were the primary
reason for the decrease in gross profit margin. Planned annual paper mill
maintenance, unusual lightning - related downtime, and associated start-up
difficulties that resulted in reduced productivity and less-than-favorable
product mix, contributing to the decrease in gross profit margins.
Selling, general and administrative expenses as a percent of net sales were
5.2% and 5.2% for the third quarter and first nine months of 1997,
respectively, compared with 4.9% and 4.7% for the similar periods in 1996.
Selling, general and administrative expenses are typically considered to be
fixed costs.
Other income (expense) declined during the third quarter and first nine months
1997 compared with the similar periods in 1996 primarily due to increased
interest expense.
The effective tax rate was 38.0% for the third quarter and first nine months
1997 compared with 39.9% for the comparable periods in 1996.
Certain statements in Management's Discussion and Analysis in this report may
constitute forward-looking statements within the meaning of the Private
Securities Legislation Reform Act of 1995. Because these forward-looking
statements include risks and uncertainties, actual results may differ
materially from those expressed in or implied by the statements. A discussion
of these risks and uncertainties may be found in the company's 1996 annual
report and its Form 10-K report for the year ended December 31, 1996 under the
heading "Management Discussion and Analysis - Liquidity and Capital Resources -
Forward Looking Statements".
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.
A report on Form 8-K dated September 30, 1997 was filed on October 15,
1997 to report the acquisition of Repap USA, Inc., a wholly owned
subsidiary of Repap Enterprises, Inc. Repap USA is the holding company
for Repap Wisconsin, Inc. and Repap Sales Corporation.
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 7, 1997
/s/ Richard J. Kenney
By: Richard J. Kenney, Senior Vice President, Finance
Principal Financial Officer
Date November 7, 1997
/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 September 30, 1997 consolidated balance sheet and the consolidated
statements of income, reinvested earnings and cash flows for the nine-month
period ended 9/30/97 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-30-1997
<CASH> 6,874
<SECURITIES> 0
<RECEIVABLES> 129,206
<ALLOWANCES> 5,885
<INVENTORY> 147,313
<CURRENT-ASSETS> 322,198
<PP&E> 2,565,344
<DEPRECIATION> 857,768
<TOTAL-ASSETS> 2,809,630
<CURRENT-LIABILITIES> 175,273
<BONDS> 484,000
<COMMON> 44,975
0
0
<OTHER-SE> 1,259,642
<TOTAL-LIABILITY-AND-EQUITY> 2,809,630
<SALES> 1,169,611
<TOTAL-REVENUES> 1,169,611
<CGS> 974,131
<TOTAL-COSTS> 974,131
<OTHER-EXPENSES> 24,439
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,050
<INCOME-PRETAX> 132,594
<INCOME-TAX> 50,386
<INCOME-CONTINUING> 82,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,208
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
</TABLE>
