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, 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, 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 31, 1997
44,897,490 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
1997 1996 December 31
(Unaudited) (Unaudited) 1996
ASSETS
<S> <C> <C> <C>
Cash & cash equivalents $ 16,638 $ 13,709 $ 12,928
Receivables (net of reserves of
$5,767 as of June 30, 1997,
$5,063 as of June 30, 1996,
and $5,313 as of December 31,
1996) 130,709 140,311 126,103
Inventories
Finished stock 49,425 37,711 48,375
Unfinished stock 9,133 5,086 7,099
Raw materials and supplies 88,469 73,241 82,480
Total inventories 147,027 116,038 137,954
Prepaid expenses 40,647 32,834 46,912
Total current assets 335,021 302,892 323,897
Investments and other assets 75,336 74,520 77,337
Restricted cash related to leases 423,474 220,631 423,618
Goodwill 56,847 61,220 59,034
Plant and Equipment
Buildings, machinery and equipment 2,313,866 2,138,254 2,198,839
Less: Accumulated depreciation 828,288 815,201 775,080
1,485,578 1,323,053 1,423,759
Land and timberlands 37,185 34,342 36,597
Capital additions in process 164,885 187,666 188,000
Total plant and equipment 1,687,648 1,545,061 1,648,356
$ 2,578,326 $ 2,204,324 $ 2,532,242
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<S> <C> <C> <C>
Current Liabilities
Current maturities of
long-term debt $ - $ 70,000 $ -
Accounts payable 77,561 70,418 73,147
Other 101,474 105,802 90,609
Total current liabilities 179,035 246,220 163,756
Long-term debt 270,553 117,000 272,467
Capital lease obligations 453,266 249,522 462,084
Deferred income taxes 260,383 242,164 251,955
Postretirement benefits 103,475 99,444 98,614
Other noncurrent liabilities 15,078 23,115 13,544
Shareholders' Investment
Preferred stock, authorized and
unissued 15,000,000 shares - - -
Common stock, shares issued
44,886,691 as of June 30,
1997, 44,698,917 as of
June 30, 1996 and 44,768,361
as of December 31, 1996 44,887 44,699 44,768
Capital in excess of par value 85,604 77,507 80,818
Cumulative translation adjustment (2,113) (3,622) (2,290)
Treasury stock, at cost, 24,408
shares as of June 30, 1997,
5,900 shares as of June 30,
1996, and 39,900 shares as of
December 31, 1996 (1,190) ( 334) (2,020)
Reinvested earnings 1,169,348 1,108,609 1,148,546
Total shareholders' investment 1,296,536 1,226,859 1,269,822
$ 2,578,326 $ 2,204,324 $ 2,532,242
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
1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C>
Net sales $ 392,975 $ 376,085 $ 379,841 $ 772,816 $ 800,224
Cost of goods sold 322,227 273,455 315,396 637,623 591,737
Gross profit 70,748 102,630 64,445 135,193 208,487
Selling, general
and administrative
expenses 20,700 19,544 19,119 39,819 37,283
Income from
operations 50,048 83,086 45,326 95,374 171,204
Interest expense (8,934) (3,555) (7,828) (16,762) (6,035)
Interest income 6,325 1,787 6,150 12,475 1,897
Miscellaneous, net 1,555 620 1,604 3,159 2,204
Total other income
(expense), net (1,054) (1,148) (74) (1,128) (1,934)
Income before
provision for
income taxes 48,994 81,938 45,252 94,246 169,270
Provision for
income taxes 18,618 32,876 17,196 35,814 67,473
Net Income $ 30,376 $ 49,062 $ 28,056 $ 58,432 $ 101,797
Net Income Per Share $ 0.68 $ 1.10 $ 0.63 $ 1.31 $ 2.28
Average number of
common shares
outstanding 44,824,677 44,673,641 44,750,789 44,787,937 44,647,157
CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS
(DOLLARS IN THOUSANDS - UNAUDITED)
Three Months Ended Six Months Ended
June 30 March 31 June 30
1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C>
Balance beginning
of period $ 1,157,814 $ 1,078,305 $ 1,148,546 $ 1,148,546 $ 1,044,317
Add: Net income 30,376 49,062 28,056 58,432 101,797
Deduct: Cash
dividends (18,842) (18,758) (18,788) (37,630) (37,505)
Balance end of
period $ 1,169,348 $ 1,108,609 $ 1,157,814 $ 1,169,348 $ 1,108,609
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS - UNAUDITED)
Six Months Ended
June 30
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 58,432 $ 101,797
Depreciation and depletion 59,039 52,835
Amortization of intangibles 2,970 3,939
Deferred income taxes 8,428 30,919
Earnings of affiliates ( 2,692) ( 2,168)
(Increase) decrease in current assets,
other than cash and cash equivalents ( 7,414) 20,262
Increase (decrease) in current
liabilities, other than current
maturities of long-term debt 15,279 4,981
Increase (decrease) in postretirement
benefits 4,861 5,742
Increase (decrease) in other noncurrent
liabilities 1,534 ( 850)
Net cash provided by operating activities 140,437 217,457
Cash Flows from Investing Activities:
Capital expenditures ( 98,331) (129,519)
Proceeds from sale and leaseback - 252,724
Noncurrent investments - (223,555)
Other ( 4,587) 3,710
Net cash (used in) investing activities (102,918) ( 96,640)
Cash Flows from Financing Activities:
Cash dividends ( 37,630) ( 37,505)
Increase (decrease) in long-term debt ( 1,914) ( 80,000)
Other 5,735 5,025
Net cash (used in) financing activities ( 33,809) (112,480)
Net increase (decrease) in cash and cash
equivalents 3,710 8,337
Cash and cash equivalents - beginning of
period 12,928 5,372
Cash and cash equivalents - end of period $ 16,638 $ 13,709
Cash paid during the year for:
Interest $ 13,495 $ 6,709
Income taxes 14,153 52,051
<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, 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 maintains 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. This transaction is being accounted for as a financing
arrangement.
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 second 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 1.30 for the six months ended June 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 June 30, 1997, the ratio of current assets to current liabilities was 1.9:1
compared with 1.2:1 at June 30, 1996. During the second quarter working capital
increased by $11 million. Cash and cash equivalents decreased by $6 million.
Receivables increased by $10 million primarily due to increased sales volume.
Inventories increased by $3 million. Prepaid expenses increased by $6 million,
primarily due to transactions associated with operating and cross-border
leases. Accounts payable and other current liabilities increased by $5 million,
primarily due to a increase in production volume.
The company's debt increased by $3 million during the second quarter and the
resulting balance sheet long-term funded debt to capital ratio was 17% at
June 30, 1997 compared to 9% at June 30, 1996 and 17% at March 31, 1997.
The company also has operating leases for machinery and equipment which commit
the company to annual lease payments of approximately $30 million. 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.
Capital expenditures in the second quarter of 1997 totaled $47 million compared
with $74 million in the second quarter of 1996. The major second quarter 1997
expenditures included $10 million for a $166 million paper machine addition at
Stevens Point Division, $6 million for a $30 million paper machine rebuild at
Lake Superior Paper and $3 million for a warehouse addition at Kraft Division.
The Company expects to spend a total of $200 million during 1997 for capital
additions including approximately $30 million for the new No. 35 paper machine
at Stevens Point Division.
The company currently plans 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.
The company has also agreed to acquire the Wisconsin coated paper operations of
Repap Enterprises, Inc. for approximately $227 million, plus related debt of
$433 million. This transaction, which is subject to regulatory approval and
other conditions, is presently expected to close late in the third quarter of
l997.
The company is negotiating with potential lenders in order to arrange financing
for the lease buyout and the Repap acquisition. The company expects that
financing for these transactions and for other capital needs will be readily
available.
OPERATING RESULTS SECOND QUARTER AND FIRST HALF YEAR
1997-1996 COMPARISON
Second quarter net sales increased $17 million or 4% and first six months net
sales decreased $27 million or 3% compared with similar periods in 1996. Second
quarter shipments were 447,000 tons, up 22%, and first six months shipments
were 878,000 tons, up 17%, 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 second quarter 1997 of $30.4 million or $.68 per share which
was a decrease compared with $49.2 million or $1.10 per share for 1996. Lower
selling prices and an unfavorable product mix were the primary reasons for 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 second quarter and the first six months 1997 compared with 82%
of capacity for the second quarter and 84% of capacity for the first six months
of 1996. The Converting Division, which converts heavier weight groundwood-free
rolls into sheets, increased shipments for the second quarter by 20% and
operated at 100% of capacity compared with 92% in the same period in 1996. The
Converting Division operated at 98% of capacity for the first six months of
1997 compared to 92% for the comparable period in 1996. The lightweight coated
groundwood mills, Biron, Wisconsin River, and Niagara divisions, on a combined
basis, operated at 96% of capacity for the second quarter and 94% of capacity
for the first two quarters of 1997, compared with 82% of capacity for the
second quarter of 1996 and 86% for the first two 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. The coated specialty paper
division (Stevens Point) operated at 92% of capacity in the second quarter and
96% of capacity for the first six months 1996 compared with 98% of capacity in
both the second quarter and first six months 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 second quarter and 98% for the first six months 1997 compared
with 77% of capacity in the second quarter and 84% of capacity in the first six
months 1996. Shipments of paperboard products were stable compared with year
1996 while corrugated products increased by 15% compared to 1996.
Gross profit margins as a percent of net sales decreased to 18.0% and 17.5% for
the second quarter and first six months of 1997 compared with 27.3% and 26.1%
for the similar periods in 1996. Depressed selling prices and an unfavorable
product mix were the primary reasons for the decrease in gross profit margins.
Selling, general and administrative expenses as a percent of net sales were
5.3% and 5.2% for the second quarter and first six months of 1997,
respectively, compared with 5.2% and 4.7% for the similiar periods in 1996.
Selling, general and administrative expenses are typically considered to be
fixed costs.
Other income (expense) held steady during the quarter and first half year 1997
as compared with the similar periods in 1996.
The effective tax rate was 38.0% for the second quarter and first half year
1997 compared with 40.1% and 39.9% for the comparable periods in 1996.
Certain statements in management's discussion and analysis and elsewhere in
this report may constitute forward-looking statements within the meaning of the
Private Securities Litigation 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.
There were no reports filed on Form 8-K during the quarter ended June 30,
1997.
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 12, 1997
/s/ Richard J. Kenney
By: Richard J. Kenney, Senior Vice President, Finance
Principal Financial Officer
Date August 12, 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 June 30, 1997 consolidated balance sheet and the consolidated
statements of income, reinvested earnings and cash flows for the six-month
period ended 06/30/97 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-30-1997
<CASH> 16,638
<SECURITIES> 0
<RECEIVABLES> 136,476
<ALLOWANCES> 5,767
<INVENTORY> 147,027
<CURRENT-ASSETS> 335,021
<PP&E> 2,515,936
<DEPRECIATION> 828,288
<TOTAL-ASSETS> 2,578,326
<CURRENT-LIABILITIES> 179,035
<BONDS> 270,553
<COMMON> 44,887
0
0
<OTHER-SE> 1,251,649
<TOTAL-LIABILITY-AND-EQUITY> 2,578,326
<SALES> 772,816
<TOTAL-REVENUES> 772,816
<CGS> 637,623
<TOTAL-COSTS> 637,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,762
<INCOME-PRETAX> 94,246
<INCOME-TAX> 35,814
<INCOME-CONTINUING> 58,432
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,432
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.31
</TABLE>
