SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K and ANNUAL REPORT
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________
to ________________
Commission File No. 0-795
BADGER PAPER MILLS, INC.
(Exact name of registrant as specified in its charter)
200 West Front Street WISCONSIN
P.O. Box 149 (State of incorporation)
Peshtigo, Wisconsin 54157-0149 39-0143840
(Address of principal executive (I.R.S. Employer Identification
office) Number)
Registrant's telephone number, including area code: 715-582-4551
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Nominal or Par Value
Indicate by checkmark 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 by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
As of February 26, 1996, 1,945,130 shares of common stock were
outstanding, and the aggregate market value of the common stock (based
upon the closing sale price of the shares quoted by dealers to each other
in the Over-The-Counter Market) held by non-affiliates was approximately
$28,204,000. Determination of stock ownership by affiliates was made
solely for the purpose of responding to this requirement, and registrant
is not bound by this determination for any other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement for its 1996 Annual Meeting of Shareholders
to be filed with the Commission under Regulation 14A is herein
incorporated by reference into Part III of this Form 10-K to the extent
indicated in Part III hereof.
<PAGE>
SELECTED FINANCIAL DATA
Five-year comparison of selected financial data
Years ended December 31,
1995 1994 1993 1992 1991
Earnings (in
thousands)
Net sales $92,648 $73,674 $76,567 $72,152 $69,084
Cost of sales 83,890 72,949 74,272 76,009 58,919
Gross profit
(loss) 8,758 725 2,295 (3,857) 10,165
Selling and
administrative
expenses 3,852 3,872 4,715 5,451 4,325
Early retirement
expense 504 - - - -
Restructuring
provision - - 3,850 - -
Profit (loss)
from operations 4,402 (3,147) (6,270) (9,308) 5,840
Other income 414 1,068 796 1,056 933
Interest expense 1,035 1,315 975 1,078 509
Unrealized
holding gain or
loss on trading
securities 549 (846) - - -
Earnings (loss)
before income
taxes and
cumulative
effect of
change in
accounting
principle 4,060 (4,240) (6,449) (9,330) 6,264
Cumulative
effect of
change in
accounting
principle - - - (649) -
Income tax
expense
(benefit) 1,312 (1,713) (2,388) (3,724) 2,050
Net earnings
(loss) 2,748 (2,527) (4,061) (6,255) 4,214
Common stock:
Number of
shareholders 568 613 633 632 651
Weighted average
shares
outstanding 1,945,997 1,957,163 1,957,176 1,959,467 1,977,538
Earnings (loss)
per share $1.41 ($1.29) ($2.07) ($3.19) $2.13
Cash dividends
declared per
share $0.10 - $0.20 $0.80 $0.66
Book value per
share $11.04 $9.77 $11.06 $13.34 $17.38
Financial position
(in thousands):
Working capital $10,459 ($1,276) $836 $ 4,310 $14,219
Capital
expenditures 2,705 1,654 1,808 11,078 6,653
Total assets 52,578 54,382 59,046 75,972 58,073
Long-term debt 17,236 10,651 10,762 18,870 6,975
Shareholders'
equity 21,443 19,120 21,650 26,097 34,226
PART I
Item 1. Business
Badger Paper Mills, Inc. (the Company) was incorporated under the laws of
the State of Wisconsin in 1929. It has been producing sulphite pulp and
paper for over 65 years. The industry segment in which the Company
operates is in the production of paper products. The Company operates
Plas-Techs, Inc., (Plas-Techs) a wholly-owned subsidiary in Oconto Falls,
Wisconsin.
Products and Distribution
The Company operates an integrated sulphite pulp mill and a paper mill,
consisting of two paper machines located in Peshtigo, Wisconsin.
Converting facilities contiguous to the papermaking facilities include
sheeting, trimming, sealing, packaging, perforating, printing presses,
rewinders, waxers, paper drilling and die-cutting equipment. The Company
also has a printing and converting operation in Oconto Falls, Wisconsin.
In 1995, the pulp mill produced 35,198 tons of bleached sulphite, of which
the Peshtigo mill consumed 78 per cent; and the remaining 22 per cent was
sold on the open market.
The fine paper division of the Company represented 77 per cent of the
paper produced by the Company in 1995, and more than 64 per cent of the
Company's 1995 revenue. This portion of the Company's business consists
of papers manufactured on the Fourdrinier paper machine in Peshtigo. Fine
paper grades are produced utilizing virgin pulp from the Company's pulp
mill and purchased on the open market, and/or pre and post consumer
recycled fibers. These paper grades include bond, mimeograph,
duplicating, electrostatic copier, text and cover, and technical and
specialty papers. The Company sells a portion of these products under
certain trademarks and trade names, including Ta-Non-Ka/R/, Copyrite/R/,
BPM, ENVIROGRAPHIC/R/, and Northern Brights/TM/. These products are sold
primarily through paper merchants and brokers who in turn sell to other
value-adding entities or direct to the consumer. A portion of the product
is sold directly to third party value-added converters. Although consumers
of the Company's fine paper products are located primarily throughout the
Midwest, purchasers of the Company's products can be found in principal
cities from coast to coast in North America.
The MG specialty and packaging papers division represented 30 per cent of
the Company's 1995 revenue, and 23 per cent of the paper manufactured by
the Company's two paper machines in 1995. In addition, paper is purchased
from other manufacturers to supplement the Company's production capacity
in order to increase utilization of the converting facilities. These
products, which include papers manufactured on the Company's Yankee paper
machine, consist of converted plain or printed waxed papers, laminating
grades, machine-glazed, colors and various other specialty papers. These
products are sold to manufacturers, consumers and converters throughout
the Eastern and Central United States by commissioned brokers and by the
Company's own sales personnel.
In August, 1994, the Company sold its SHARPrint/TM/ computer paper product
line, which included converting equipment, finished goods inventory and
certain intangibles including the trademark, "SHARPrint/TM/."
The Company's subsidiary, Plas-Techs, Inc., a printing and converting
facility, compliments the Company's customer base. Plas-Techs is capable
of processing various substrates of film and paper, enhancing the
capabilities and flexibility of both the Company's printing paper
operations and its flexible packaging paper operations, resulting in an
expanded business growth for both. This facility also has rewinding and
poly bagmaking equipment.
In December, 1993, the Company disposed of its Dayton Division. The
division was originally purchased in 1992 for the purpose of augmenting
innovated free-sheet production capacity and providing the Company with
the ability to offer a greater variety of value-added products to the
marketplace. Weak overall market activity and lack of support for
additional capacity in the market segment served by this division prompted
the sale of this facility.
Competition
The paper products manufactured are highly sensitive to competition from
numerous sources, including other paper products and products of other
composition. Price, volume, service and product quality influence
competition.
The Company's production of fine papers from the Fourdrinier paper machine
represents less than one percent of the production capacity in the United
States. Competition for these papers comes from other specialty mills in
North America and imports from other countries. Competition for MG
specialty and packaging papers produced from the Yankee paper machine
comes from other specialty mills; some of the mills are similarly
constituted as the Company, while others have greater capacity. Backlogs
are maintained by offering quality products, prompt service, technical
assistance, and a research and development program, making new products
available to meet customer product design specifications.
Inventories; raw materials
The principal raw material used in pulp production is poplar pulpwood.
This is purchased directly from pulpwood producers within 150 miles of the
mill. Sulphite pulp manufactured from the pulpwood provided approximately
40 per cent of the fiber requirements for the paper machines in 1995. The
purchase of hardwood and softwood kraft pulp, along with pre-consumer and
post-consumer recycled fibers, makes up the balance of the fiber
requirements.
Other raw materials are purchased directly from the manufacturers. The
Company has at least two sources of supply for major items. Shortages of
purchased pulp, pulpwood and certain chemicals (including petrochemicals)
would have an adverse effect on product and/or product mix. Although the
price of purchased fiber has increased substantially in 1995, the increase
was not accompanied by shortages.
In-process and finished goods inventory at the end of 1995 was equivalent
to approximately 35 days of production on the paper machines.
Energy
The Company is a large user of electricity and natural gas. An on-site
2,000 kilowatt electrical co-generation system has the capability of
producing approximately 15 per cent of the Company's current electrical
requirements. The balance of the Company's electrical requirements are
purchased from local public or municipal cooperative utilities. The
Company's heat requirements come from two dual-fueled boilers capable of
burning natural gas or fuel oil, and one natural gas boiler. Natural gas
is purchased from various sources in the United States and Canada. The
sources of natural gas, fuel oil and electricity are adequate to meet the
needs of the Company.
Patents
The Company owns certain patents and licenses used in connection with its
business, none of which are individually considered material to its
business.
Research and development
A technical staff researches and develops new products. Expertise of
outside consultants is also utilized from time to time. The amounts spent
on product research and development activities were $300,000 in 1995,
$200,000 in 1994, and $226,000 in 1993. The expenditures were focused
primarily in Peshtigo on research and development of new products for
flexible packaging and specialty printing papers.
Backlog
As of December 31, 1995, the Company's backlog of orders was approximately
$2,900,000, as compared to $10,500,000 and $3,200,000 at December 31, 1994
and 1993 respectively. Rising prices at the end of 1994 fueled the
backlog, as customers anticipated further price increases. Conversly, as
prices were falling rapidly at the end of 1995, customers delayed order
commitments.
Customers
Sales to Alco Standard Corporation represented over 10 percent of the
Company's net sales, or $10,732,000 in 1995. In 1994 and 1993, there were
no customers which represented over 10 percent of the Company's net sales.
Environmental matters
Environmental regulations relating to air emissions, water discharges, and
solid waste disposal continue to have a significant effect on the Company.
The Environmental Protection Agency has indicated that they intend to have
promulgated the "cluster rules" for the Company's category, "Paper Grade
Sulphite", before Labor Day, 1996. Once these rules have been finalized,
a compliance time line of three years will become effective, and the
Company will be able to assess total impact on its operation.
Management believes the new "Proposed" regulations that will affect
ammonia-based sulphite pulping facilities have been modified from their
original form. It is expected that the modified proposed regulations will
require the Company to change its bleaching sequence to eliminate
elemental chlorine. This requirement could mean the installation of
another primary delignification process such as chlorine dioxide or
oxygen. Over the years, the Company has gathered data on the
acceptability of alternative methods of bleaching. If these indications
are true, the use of chlorine dioxide becomes a very good possibility for
modification to the first stage of bleaching. The Company, however, will
still be faced with the replacement of the sodium hypochlorite which is
used in our third bleaching stage. This replacement is dictated by the
chloroform emissions regulations that are in effect. Modifications to
this system could allow for the use of hydrogen peroxide.
The Wisconsin Department of Natural Resources (WDNR) has not acted on the
Title V Air Operating Permit application that was submitted in 1994. The
Company will continue to evaluate changes and modifications based on the
emissions factors as they are developed for the sulphite industry, and
submit additional information to the WDNR as appropriate. The Company
anticipates that sometime during 1996, the Department will start to review
the applications for the Title V Air Operating permit. The Company
discontinued use of the paper mill settling basins for effluent treatment
in 1995. All effluents from paper manufacturing operations are now
combined with the pulp mill's discharge and directed to the Joint
Industrial Municipal Wastewater Treatment (JWWTP) facility jointly owned
with the City of Peshtigo, Wisconsin, and operated by the Company. The
additional loading to the JWWTP required the rebuilding of the underwater
mechanisms and the installation of a baffle system in each of the three
final clarifiers. These changes, along with the installation of a
settling polymer system, allowed the system to handle the increased
loading and still meet the effluent limits for the facility.
Federal and state regulations require that a treatment facility have
sufficient biological sludge storage for 180 days for storage of sludge
when the ground is frozen and land spreading operations are suspended.
The Company has negotiated an alternative approach to sludge storage with
the City of Oconto, Wisconsin. The City of Oconto has installed extra
sludge handling and storage capacity at its municipal disposal facility.
The Company signed an agreement with the City of Oconto for the winter of
1995-1996 to provide sludge storage for the Company. This program is in
lieu of installing the required 180 day storage equipment at the JWWTP
facility.
With the combination of the paper mill and pulp mill effluents now being
directed to the JWWTP, it was necessary to submit a closure plan for the
paper mill lagoon system to the WDNR. On December 8, 1995, the WDNR
approved the plan submitted by the Company. This closure will be
completed by December 31, 1996. In regard to the Harbor Road solid waste
disposal site, the Company is waiting for the WDNR to approve the closure
plan for this facility. The site has been rough graded and is now ready
for application of the final venting layer and cover. With the closure of
the paper mill lagoon system during the summer of 1996, the sludge will be
removed from the last basin and will be combined with bark from the pulp
mill to form the compost for the final cover. The WDNR is aware of the
conditions at the solid waste disposal site, and it is anticipated that
they will respond to our final closure plan in 1996.
The Storm Water Pollution Prevention Plan for the Company was submitted
to and accepted by the WDNR. During 1996, the Company will establish
procedures and train employees in the implementation of this requirement.
The Company does not anticipate any problems in complying with this
regulation.
Management is currently evaluating all practical options with respect to
compliance with applicable environmental regulations at the Company's
sulphite pulping facilty.
Plas-Techs
On October 31, 1995, Plas-Techs received an Air Pollution Control
operating permit. The type of permit that was received is a Synthetic
Minor Non-Part 70 which will allow Plas-Techs to grow and expand
production within the limits established in the operating permit. This
operating permit expires on October 31, the year 2000, and Plas-Techs does
not anticipate any problems meeting all of the requirements as established
in the permit.
Employees
As of December 31, 1995, the Company had 439 employees, of which 353 were
covered by six-year collective bargaining contracts effective June 1,
1995.
Item 2. Properties
The Company considers its manufacturing and converting facilities to be in
good repair and suitable for the purpose intended.
In 1995, capital improvements included the installation of new combustion
controls for the dual-fired boilers. The wastewater treatment facility
had an upgrade to the disinfection/dechlorination system, as well as a
rebuild of the clarifiers underwater mechanisms, and installation of a
baffle system.
Other capital outlays were used to maintain or improve the current
manufacturing processes.
The Company owns 15,600 acres of timber and pulpwood lands, where
harvesting practices provide improved wildlife habitat and watershed
protection. The majority of the lands are accessible to the general
public for sporting and recreational facilities. Part of these
timberlands are no longer compatible with the Company's current fiber
requirements. They now provide less than 1 percent of the Company's
annual wood requirements since the Company converted its pulp mill to 100
percent poplar for its pulpwood source. In September, 1995, the Company
offered to sell 14,000 acres of timberland, representing 85 percent of the
total land holdings and is currently negotiating the sale of such
timberland with various parties whose bids for portions of such timberland
have been accepted by the Company. The sale of the timberland is expected
to be consummated prior to May 1, 1996.
The Company's headquarters and principal facilities are located in
Peshtigo, Wisconsin. Its subsidiary, Plas-Techs, Inc., is located in
Oconto Falls, Wisconsin.
Item 3. Legal Proceedings
The Company has no pending legal proceedings which are of material
importance.
Item 4. Submission of matters to a vote of security holders
No such matters were submitted to a vote of security holders in the fourth
quarter, 1995.
PART II
Item 5. Market for the registrant's common stock and related security
holder matters
Badger Paper Mills, Inc. common shares are traded on the NASDAQ market
under the symbol BPMI. Shareholders of record as of February 26, 1996,
total 562. Stock price and dividend information is found on page 34 of
this report, which is incorporated herein by reference.
Item 6. Selected financial data
Information regarding selected financial data of the Company is presented
on page 2 of this report.
Item 7. Management's discussion and analysis of financial condition and
results of operations
Results of Operations
The year 1995 may be best described as a strong starter but a slow
finisher. The fine paper division of our business saw its markets rise
and fall in 1995. The demand for product remained strong through the
first three quarters, at which time customers started to adjust
inventories which slowed orders. The corresponding softening in prices
reinforced the customers' decision to reduce inventory levels.
Significant downtime by the industry failed to correct the oversupply at
the mill level, which continued to erode prices through year end.
Significant inroads were made in securing specialty color business that is
less sensitive to market fluctuations. The development of the seven-point
reply copy grade was a significant portion of the new product production
that showed excellent efficiency and runnability in the marketplace. The
Company entered into an agreement to do additional customer roll sheeting
for improved utilization of converting equipment as product mix was
controlled to manufacture more rolls. This agreement was successfully
processed through 1995 and continues into 1996.
The sale of all paper product inventory from the Company's former Dayton
division was completed through a trade credit arrangement in the fourth
quarter of 1995. Revenue recognition from this sale will be recognized as
trade credits are used over the next three years.
Similar to the fine paper division, demand for value-added packaging and
specialty papers produced by the Company's Yankee paper machine remained
strong for the first three quarters of 1995, but weakened in the fourth
quarter and into 1996. The MG specialty and packaging papers division
kept pace with the rising costs of raw materials by instituting positive
price adjustments for flexible packaging papers.
The Company's printing, waxing and specialty converting remains the
backbone to the MG specialty and packaging papers division. Threatened by
various substrates being offered to the packaging industry, the Company's
ability to use its strong technical expertise to design custom-made
products allows it to be competitive in the marketplace. Th Company is
continually developing new applications and products that can fill limited
product losses experienced each year.
Because of interest from current and prospective customers, the Company's
Board of Directors approved plans for the Peshtigo operations to pursue
ISO certification. ISO certification is looked upon in the industry as a
major asset. This certification effort assures customers that the Company
is committed to offer quality products to a global market well into the
next century. Badger's quality policy is Badger Paper Mills, Inc. will
continually meet our customer's needs in a responsible manner.
The Company's wholly-owned subsidiary, Plas-Techs, Inc., doubled the
physical size of its existing facility. Construction of the project began
during the first quarter, 1995, and was completed late in the second
quarter, 1995. Plas-Techs, Inc. business has continually increased in
excess of 30 percent annually since acquisition, and had outgrown its
original physical dimensions. Additional equipment to support production
demands was installed, existing equipment was relocated to provide for
improved throughput, and off-site inventory was relocated to the facility.
1995 vs. 1994
Net sales for 1995 of $92,648,000 compared to $73,674,000 reported a year
earlier, a 26 percent increase. The volume of shipments decreased by 6
percent while the strong market conditions fueled a 34 percent increase in
average selling price. The cut size paper market was extremely strong
through the first three quarters of 1995, but slowed in the fourth
quarter. During 1995, the sale to unaffiliated customers of wet lap
sulphite pulp produced in the pulp mill increased by $3,607,000 to
$4,734,000 in 1995 from $1,127,000 in 1994. This was a result of both
increased pricing and increased shipments.
Cost of sales of $83,890,000 for 1995 increased 15 percent from
$72,949,000 for 1994. Production from operations remained constant from
1995 to 1994. Fiber pricing continued its upward trend with strong demand
through the first half of 1995. Pulp prices have risen more than 140
percent over a period of sixteen months. The additional cost relating to
pulp was in excess of $13,000,000.
Gross margins for 1995 of $8,758,000 compare to $725,000 a year earlier,
and reflect the positive impact of rising paper prices to offset the
increased pulp prices.
Selling and administrative expenses totaled $3,852,000 and $3,872,000 for
1995 and 1994, respectively.
Changes instituted in our manufacturing and converting facilities have
resulted in increasing operating efficiencies and reducing production
costs. The operating results include a charge in the amount of $504,000
taken as a result of the expense incurred from the voluntary early
retirement incentive package offered to hourly workers in the first
quarter, 1995. This program allowed the Company to reduce the
overstaffing brought about by changes implemented in the manufacturing
process during 1994.
The Company recognized an unrealized holding gain on trading securities of
$549,000 in 1995 compared to an $846,000 unrealized holding loss in 1994.
Because the Company's investment securities are accounted for as a trading
account, unrealized gains and losses are included in the Company's
statement of operations in accordance with FASB No. 115.
Interest expense for 1995 decreased $10,000 to $1,305,000 from $1,315,000
reported in 1994. The reduction in short-term borrowings in 1995 was
offset by rising interest rates. The Company's subsidiary, Plas-Techs,
Inc., contributed approximately 3.2 percent to the consolidated revenue of
the Company and was profitable for 1995.
The Company's effective tax rate was 32.3 percent in 1995 compared to a
tax benefit of 40.4 percent in 1994. The 1994 tax benefit results from
operating losses and exceeds the statutory rates due to research and
development credits, and tax-exempt interest. Offsetting the 1994 tax
benefits were state income taxes and other tax-affected items.
1994 vs. 1993
The comparisons between 1994 and 1993 are substantially affected by the
closure of the Company's Dayton Division. On August 3, 1993, the Company
announced that it would close its facility in Dayton, Ohio, and that a
conditional agreement had been signed to sell the assets of the Dayton
Division to an acquisition arm of Crosse Pointe Paper Corporation, St.
Paul, Minnesota. In the second quarter, 1993, the Company took a pre-tax
restructuring charge of $3,400,000 to reflect the estimated loss on the
sale of the Dayton Division based on an anticipated October 4, 1993,
closing. A delay in the closing until December 30, 1993, resulted in
additional costs incurred of $450,000, which amount was added to the
restructuring provision. The restructuring charge totaled $3,850,000, and
related primarily to operating losses at the Dayton Division prior to the
actual disposal date and a write down of certain inventories to net
realizable value, offset by the gain on the sale of the property, plant
and equipment. The reserve for restructuring of $59,000 at December 31,
1994, was adequate to meet the remaining commitments related to the Dayton
Division.
Net sales for 1994 of $73,674,000 compared to $76,567,000 reported in
1993, a 4 percent decrease. The Dayton Division contributed $4,670,000 to
net sales in 1993. Volume of shipments from operations other than Dayton
decreased 3 percent while product mix and positive pricing adjustments
improved average selling price by 4 percent compared to a year earlier.
Weak demand in the domestic uncoated free sheet market reversed during the
third quarter of 1994; however, the Company's order commitments hindered
its ability to affect price increases intended to offset raw material
costs and reflect the demand. Uncoated free sheet inventories increased
into the third quarter of 1994 as production exceeded sales. Increased
order activity for uncoated free sheet papers beginning in the third
quarter of 1994 increased volume of shipments for the balance of the year,
resulting in a 63 percent reduction of work in process and finished goods
inventory to $3,286,000 at December 31, 1994 from $5,222,000 a year
earlier. During 1994, the Company increased the sale of wet lap sulphite
pulp produced in the pulp mill. Rising prices and increased demand for
pulp fibers provided the opportunity for the Company to market its
sulphite pulp. Shipments of sulphite pulp during 1994 were in excess of
its internal needs in the papermaking process.
Cost of sales of $72,949,000 for 1994 decreased 2 percent from $74,272,000
for 1993. Dayton Division contributed $5,591,700 to cost of sales for the
1993 period. Production from operations other than Dayton in 1994
decreased 3 percent from a year earlier due to lower net productivity.
Increased cost of pulpwood, purchased fiber and chemicals used in the pulp
and paper processes, and increased operating and maintenance expenses
incurred, adversely affected cost of sales. A 10% reduction in the cost
of energy partially offset the other increases in cost. The cost of the
Company's largest raw material ingredient, purchased fiber, increased 90
percent between December, 1993 and December, 1994, and continued to
increase into 1995. The Company was unable to fully recover the rapidly
escalating cost of this major raw material ingredient.
Gross margins for 1994 of $725,000 compare to $2,295,000 a year earlier,
and reflect the negative impact of rising purchased fiber costs.
Selling and administrative expenses total $3,872,000 and $4,715,000 for
1994 and 1993, respectively. The decrease in 1994 when compared to a year
earlier is primarily attributable to the exclusion of the Dayton Division
expenses after June 1, 1993. The Dayton Division contributed $633,000 to
selling and administrative expenses in 1993.
Operating losses for the year improved to $3,147,000 from a year earlier
loss of $6,270,000. However, the 1993 operating loss included the Dayton
Division restructuring costs in the amount of $3,850,000.
Other income and expense includes interest income of $425,000 for 1994
compared to $517,000 reported a year earlier. The decrease in interest
income is due to lower availability of funds invested during 1994 compared
to a year earlier.
Interest expense for 1994 increased $340,000 to $1,315,000 from $975,000
reported in 1993. The escalation in interest rates adversely affected the
cost of borrowing, particularly on the Company's outstanding line of
credit, as well as on the outstanding debt related to the Company's
industrial development revenue bonds. On January 1, 1994, the Company
adopted Financial Accounting Standards Board Statement No. 115, Accounting
for Certain Investments in Debt and Equity Securities (FASB No. 115). The
Company recognized an unrealized holding loss on trading securities of
$846,000 for 1994 in accordance with FASB No. 115. At December 31, 1993,
the cost of these trading securities approximated market value.
Miscellaneous income for 1994 of $643,000 compares to $279,000 a year
earlier. The 1994 amount includes the value received in excess of book
value on the disposition of the SHARPrint/TM/ portion of the business.
The Company's effective tax benefit was 40.4 percent in 1994 compared to
37.0 percent in 1993. The 1994 tax benefit results from operating losses
and exceeds the statutory rates due to operating losses, research and
development credit, and tax-exempt interest. Offsetting the 1994 tax
benefits were state income taxes and other tax-affected items.
The Company's subsidiary, Plas-Techs, Inc., located in Oconto Falls,
Wisconsin, contributed approximately 3.5 percent to the consolidated
revenue of the Company and was profitable for 1994.
Liquidity and Capital Resources
Capital Expenditures
Capital expenditures were $2,705,000 in 1995 compared to $1,654,000 for
1994 and $1,808,000 for 1993. Depreciation and depletion in 1995 totaled
$3,224,000, and compares to $3,323,000 and $3,723,000 reported in 1994 and
1993, respectively.
During 1995, capital expenditures included installation of new combustion
controls for the dual-fired boilers. The waste water treatment facility
disinfection/dechlorination system was upgraded, as well as a rebuild of
the clarifiers underwater mechanisms, and installation of a baffle system.
Plas-Techs doubled its existing physical facility with a building addition
to accommodate increased business activity and its new duplex rewinder
that was installed.
The capital projects for 1996 are expected to approximate $6,670,000. The
Company's 1996 projects are directed toward the upgrading and improvement
of existing manufacturing and converting facilities, and will include
approximately $500,000 to maintain the integrity and reliability of the
Company's electrical system. The Company has begun the process of
acquiring a metering size press for the Fourdrinier machine, which will
expand the capabilities of such machine with respect to specialty-coated
lightweight papers. The new size press will allow coating to be applied
onto one or both sides of the sheet simultaneously, giving the Company
capabilities to infiltrate new markets. The total cost of this project is
estimated to be approximately $3,800,000 over the next two years.
Capital Resources
During 1995, the Company renegotiated a revolving credit agreement,
reducing the credit line from $14,250,000 to $13,000,000, and reducing or
eliminating certain financial covenants. The renegotiated agreement
expires April 30, 1998. The agreement requires the Company to meet
certain covenants, including the maintenance of tangible net worth of not
less than $19,000,000 from the date of the agreement through November,
1995, and then not less than $20,000,000 from December, 1995 through
November, 1996. Tangible net worth shall then be maintained at not less
than $21,500,000 from December, 1996 through November, 1997, and from
December 1997 thereafter shall not be less than $23,000,000. In addition,
the Company must maintain a current ratio of not less than 1.90:1.
Certain other covenants limit dividend and certain other restricted
payments to amounts which do not result in a default and, after giving
effect to any such payments, the aggregate amount of such payments
commencing January 1, 1995 and thereafter cannot exceed 33 percent of the
net income so accumulated from January 1, 1995. At December 31, 1995, the
Company was in compliance with the renegotiated agreement.
At December 31, 1995, $8,000,000 was outstanding under the revolving
credit agreement referenced above, a $4,000,000 reduction from the amount
of such borrowings at December 31, 1994. On May 1, 1995, the Company
redeemed $1,300,000 of the $4,000,000 aggregate principal amount of
outstanding City of Oconto Falls, Wisconsin Variable Rate Demand Limited
Obligate Industrial Revenue Funding Bonds Series 1992 (Plas-Techs, Inc.
Project). The Company utilized surplus bond proceeds not needed to pay or
reimburse project costs to reduce an equal amount of outstanding bonds.
The remaining portion of the Restricted Fund from Industrial Revenue Bonds
was used to reimburse qualified project costs.
In September, 1995, the Company issued notice of a proposed timberland
sale of approximately 85 percent of the timberlands owned by the Company.
The Company had determined that the timberlands no longer were compatible
with the fiber requirements of the Company's pulpmaking facility. Bids
were accepted through December 29, 1995, and on February 29, 1996,
successful bidders were notified. The Company expects the sales
transaction to be completed prior to May 1, 1996. The after-tax gain on
sale of the timberlands is estimated at $2.00 per share on currently
outstanding shares of the Company's common stock.
Cash Flows
Cash provided from operations was $6,586,000 in 1995 and $3,235,000 in
1994. The improved cash flow is attributable to the increased income
generated, and $1,174,000 of net proceeds from sales of marketable
securities. Cash used in investing activities was $1,290,000 in 1995,
compared to $817,000 in 1994, as a result of the increased capital
additions during the year, offset by the utilization of the restricted
funds from Industrial Development Revenue Bonds.
Cash used in financing activities in 1995 was $5,836,000 compared to
$2,108,000 in 1994. The 1995 amount included reduction in the amounts
under the revolving credit agreements in the amount of $4,000,000, and the
payment of $1,411,000 in long-term debt.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors
Badger Paper Mills, Inc.
Peshtigo, Wisconsin
We have audited the accompanying consolidated balance sheets of Badger
Paper Mills, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Badger
Paper Mills, Inc. and Subsidiary as of December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities in 1994.
COOPERS & LYBRAND, L.L.P.
Milwaukee, Wisconsin
February 5, 1996
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(dollars in thousands)
ASSETS 1995 1994
Current assets:
Cash and cash equivalents $ 835 $ 1,375
Marketable securities 3,138 3,397
Accounts receivable, net 6,955 6,771
Deferred income taxes 1,059 1,176
Inventories 7,314 6,319
Refundable income taxes 173 299
Prepaid expenses and other 560 192
------ ------
Total current assets 20,034 19,529
Property, plant, equipment and
timberland, net 30,340 30,894
Restricted funds from Industrial
Development Revenue Bonds 34 1,974
Other assets 2,170 1,985
------ -------
Total assets $52,578 $54,382
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit notes payable $ -- $12,000
Current portion of long-term debt 115 111
Accounts payable 5,823 5,111
Accrued liabilities 3,637 3,583
------- -------
Total current liabilities 9,575 20,805
Long-term debt 17,236 10,651
Deferred income taxes 2,604 2,218
Other liabilities 1,720 1,588
Contingencies (Note 10)
Shareholders' equity:
Common stock, no par value; 4,000,000
shares authorized, 2,160,000 shares
issued 2,700 2,700
Additional paid-in capital 168 168
Retained earnings 20,633 18,080
Treasury stock, at cost, 217,670 and
203,170 shares in 1995 and 1994,
respectively (2,058) (1,828)
------ ------
Total shareholders' equity 21,443 19,120
------- -------
Total liabilities and shareholders'
equity $52,578 $54,382
====== ======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years December 31, 1995, 1994 and 1993
(dollars in thousands, except per share data)
1995 1994 1993
Net sales $92,648 $73,674 $76,567
Cost of sales 83,890 72,949 74,272
------- ------- -------
Gross margin 8,758 725 2,295
Selling and administrative
expenses 3,852 3,872 4,715
Early retirement expense 504 -- --
Restructuring provision -- -- 3,850
------- ------- -------
Operating Income (loss) 4,402 (3,147) (6,270)
------- ------- -------
Other income (expense):
Interest and dividend
income 375 425 517
Interest expense (1,305) (1,315) (975)
Unrealized holding gain
(loss) on trading
securities 549 (846) --
Miscellaneous, net 39 643 279
------- ------- -------
(342) (1,093) (179)
------- ------- -------
Income (loss) before income
taxes 4,060 (4,240) (6,449)
Provision (benefit) for
income taxes 1,312 (1,713) (2,388)
------- ------- -------
Net income (loss) $ 2,748 $(2,527) $(4,061)
====== ======= ======
Net earnings (loss) per
share $1.41 $(1.29) $(2.07)
===== ===== =====
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
1995 1994 1993
Common stock:
Balance, December 31 $ 2,700 $ 2,700 $ 2,700
------ ------ ------
Additional paid-in capital
Balance, December 31 168 168 168
------ ------ ------
Retained earnings:
Balance, January 1 18,080 20,607 25,060
Net income (loss) 2,748 (2,527) (4,061)
Cash dividends of $.10 and
$.20 in 1995 and 1993,
respectively (195) -- (392)
------ ------ ------
Balance, December 31 20,633 18,080 20,607
------ ------ ------
Treasury stock:
Balance, January 1 (1,828) (1,825) (1,831)
Acquired during the year
(15,000 and 500 shares in
1995 and 1994,
respectively) (233) (3) --
Issued during the year (500
and 1,000 shares in 1995
and 1993, respectively) 3 -- 6
------- ------- -------
Balance, December 31 (2,058) (1,828) (1,825)
------- ------- -------
Shareholders' equity:
Balance, December 31 $21,443 $19,120 $21,650
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
1995 1994 1993
Cash flows from operating
activities
Net income (loss) $2,748 $(2,527) $(4,061)
Adjustments to reconcile to net
cash provided by operating
activities:
Depreciation and depletion 3,224 3,323 3,723
Deferred income taxes 503 (1,537) (1,334)
Net proceeds from sales of
marketable securities,
trading 1,174 320 --
Unrealized holding (gain) loss
on marketable securities,
trading (549) 846 --
Realized loss (gain) on sale
of marketable securities 159 -- (190)
Gain on sale of property,
plant and equipment -- (460) (505)
Changes in assets and
liabilities:
Accounts receivable, net (184) (663) (655)
Inventories (995) 2,514 3,505
Accounts payable and accrued
liabilities 801 1,269 (845)
Refundable income taxes 126 557 1,960
Other (421) (407) 313
------ ------ ------
Net cash provided by operating
activities 6,586 3,235 1,911
------ ------ ------
Cash flows from investing
activities:
Additions to property, plant and
equipment (2,705) (1,654) (1,808)
Proceeds from sale of property,
plant and equipment (related to
Dayton Division in 1993) -- 750 4,000
Purchases of marketable
securities (870) -- (4,024)
Proceeds from sale of marketable
securities 345 -- 5,910
Restricted funds from Industrial
Development Revenue Bond 1,940 87 4,579
------ ------ -------
Net cash (used in) provided by
investing activities (1,290) (817) 8,657
------ ------ -------
Cash flows from financing
activities:
Payments on long-term debt (1,411) (108) (8,105)
Payments on revolving notes
payable (4,000) (2,000) (2,250)
Dividends paid (195) -- (392)
Acquisition of treasury stock, net (230) -- --
------ ------ -------
Net cash used in financing
activities (5,836) (2,108) (10,747)
------ ------ -------
Net (decrease) increase in cash and
cash equivalents (540) 310 (179)
Cash and cash equivalents:
Beginning of year 1,375 1,065 1,244
------ ------ -------
End of year $ 835 $1,375 $ 1,065
===== ===== ======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Principles:
Badger Paper Mills, Inc. and Subsidiary (the Company) operates in one
industry segment which is the production of paper products. The
following is a summary of significant accounting policies.
a. Consolidation Principles: The consolidated financial statements
include the accounts of Badger Paper Mills, Inc. and its
wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
b. Concentration of Credit Risk: Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of cash and cash equivalents and trade accounts
receivable. The Company places its cash and cash equivalents with
high quality financial institutions. The Company provides credit
in the normal course of business to its customers. These customers
are located in the Midwestern region of the United States. The
Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses and generally does
not require collateral to support the accounts receivable balances.
c. Estimates: Preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
d. Cash Equivalents: For financial reporting purposes, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
e. Marketable Securities: In 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company has
classified the majority of its investments as a trading portfolio
at December 31, 1995 and 1994. The portfolio consists of debt and
equity securities. This statement requires that trading portfolio
marketable securities be reported at fair value, with unrealized
gains and losses included in earnings. The remaining investments
are classified as available for sale. This statement requires that
available for sale portfolio marketable securities be reported at
fair value, with unrealized gains and losses included as a
component of equity.
f. Receivables: Accounts receivable are stated net of an allowance for
discounts and doubtful accounts of $190,000 and $286,000 at
December 31, 1995 and 1994, respectively.
g. Inventories: Substantially all inventories are valued at the lower
of cost or market with cost being determined on the last-in,
first-out (LIFO) basis.
h. Property, Plant, Equipment and Timberland: These assets are stated
at cost, less depreciation and depletion. Depreciation of plant
and equipment is provided on the straight-line basis over the
estimated useful lives of the assets, and depletion on timberland
is determined on the cost method.
i. Income Taxes: Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases
of assets and liabilities and their financial reporting amounts at
each year-end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to
be realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and
liabilities.
j. Revenue Recognition: Revenue is recognized by the Company when
goods are shipped.
k. Research and Product Development Costs: Research and product
development costs related to potential new products and
applications are expensed when incurred. These costs totaled
$300,000, $200,000 and $226,000, for 1995, 1994 and 1993,
respectively, and are included in cost of sales.
l. Net Earnings Per Share: Net earnings per share are computed based
on the weighted average number of shares of common stock
outstanding during the year (1,953,868 shares, 1,957,163 shares and
1,957,176 shares in 1995, 1994 and 1993, respectively).
m. Restructuring: During 1993, the Company recorded a restructuring
charge of $3,850,000 which related to the disposition of its Dayton
division. The restructuring charge related primarily to operating
losses the plant incurred prior to the actual disposal date, and
the writedown of certain inventories to net realizable value,
offset by the gain on the sale of property, plant and equipment.
n. Early Retirement: During 1995, the Company recorded a charge of
$504,000 in connection with a voluntary early retirement incentive
package offered to certain employees.
o. Reclassifications: Certain reclassifications have been made to the
1994 and 1993 financial statements to conform to the 1995
presentation.
2. Inventories:
The major classes of inventories at December 31, 1995 and 1994 are as
follows (in thousands):
1995 1994
Raw materials $3,483 $3,033
Work-in-process 3,831 3,286
----- -----
$7,314 $6,319
===== =====
The current cost of inventories valued on the LIFO cost method
approximated $12,709,000 and $11,799,000 at December 31, 1995 and 1994,
respectively. It is not practical to separate finished stock and
work-in-process inventories.
3. Property, Plant, Equipment, and Timberland:
The major classes of property, plant, equipment and timberland at
December 31, 1995 and 1994 are as follows (in thousands):
1995 1994
Land $ 117 $ 117
Buildings 7,440 6,970
Machinery, equipment and
railroad siding 67,925 66,081
Timberland 533 533
Construction-in-progress 480 152
------ ------
76,495 73,853
Accumulated depreciation
and depletion 46,155 42,959
------ ------
$30,340 $30,894
====== ======
At December 31, 1995 and 1994, $21,810,000 and $21,201,000,
respectively, of fully depreciated assets were still in use.
4. Accrued Liabilities:
Accrued liabilities at December 31, 1995 and 1994 are as follows (in
thousands):
1995 1994
Compensation and related
taxes $2,232 $2,117
Profit sharing 668 679
Other 737 787
----- -----
$3,637 $3,583
===== =====
5. Debt:
Long-term debt at December 31, 1995 and 1994 consists of the following
(in thousands):
1995 1994
Revolving credit agreement $ 8,000 $ -
Industrial Development
Revneue Bonds (IDRBs) 7,617 8,983
Urban Development Action
Grant 1,734 1,779
------- ------
17,351 10,762
Current portion 115 111
------ ------
$17,236 $10,651
====== ======
The Company's revolving credit facility provides for borrowings up to
$13 million and extends to April 30, 1998. A commitment fee of 3/8% is
payable for unused amounts. Interest on borrowings is at the LIBOR rate
plus 1.5% (totaling 7.125% at December 31, 1995). Borrowings are
collateralized by inventory, accounts receivable, marketable securities
and certain property, plant and equipment.
Interest on the IDRBs is payable monthly at floating rates determined by
remarketing agents (5.2% at December 31, 1995) and may be converted to
fixed rates at certain dates in the future, at the Company's option, as
specified in the agreements. The average rate in 1995 for these bonds
was 4.29%.
The IDRBs are collateralized by bank letters of credit expiring in 1998.
The Company pays annual fees at 1% of the amount available under the
letters of credit. As amended in April 1995, the letters of credit
require, among other items, the Company to maintain minimum tangible net
worth of $20,000,000 through November 1996 ($21,500,000 from December
1996 through November 1997 and $23,000,000 thereafter) and a current
ratio of 1.9 to 1.0 or greater. Additionally, dividends and treasury
stock purchases are limited to 33% of the Company's cumulative net
income from January 1, 1995.
The Urban Development Action Grant is due in monthly installments of
$15,437, including interest at an effective rate of approximately 6.5%,
through maturity in April, 2000, at which time a final payment of
$1,499,490 is due. This grant is collateralized by certain machinery
and equipment.
Future maturities of long-term debt as of December 31, 1995, are as
follows (in thousands):
Year ending December 31,
1996 $ 115
1997 119
1998 8,123
1999 128
2000 1,627
Thereafter 7,239
-----
$17,351
======
6. Income Taxes:
The benefit for income taxes consists of the following (in thousands):
1995 1994 1993
Currently payable
(refundable):
Federal $ 800 $ (188) $(1,063)
State 9 12 9
----- ------ -----
809 (176) (1,054)
Deferred:
Federal 503 (1,538) (1,268)
State - 1 (66)
----- ------ ------
503 (1,537) (1,334)
----- ------ ------
$1,312 $(1,713) $(2,388)
===== ====== ======
The significant differences between the effective tax rate and the
statutory federal tax rates for 1995, 1994 and 1993 are as follows:
1995 1994 1993
Statutory Federal tax
rate 34.0% (34.0)% (34.0)%
Tax-exempt interest (1.3) (1.1) (1.1)
State taxes 0.1 0.2 (0.5)
Research & development
credits, net - (6.4) -
Other (0.5) 0.9 (1.4)
---- ---- ----
Effective tax rate 32.3% (40.4)% (37.0)%
==== ==== ====
The components of the deferred tax assets and liabilities as of December
31, 1995 and 1994, are as follows (in thousands):
1995 1994
Deferred tax assets:
Accounts receivable $ 51 $ 86
Inventories 287 62
Accrued expenses 657 919
Deferred compensation 174 193
Postretirement benefits 471 379
Unrealized loss on
securities 110 313
Federal net operating loss
carryforwards - 481
Tax credit carryforward 2,774 2,620
State net operating loss
carryforwards 441 572
State credit carryforwards 1,003 859
Valuation allowance (1,079) (1,094)
----- -----
4,889 5,390
Deferred tax liabilities:
Fixed assets 6,434 6,432
----- -----
Net liability $1,545 $1,042
===== =====
For Federal income tax purposes, the Company has research and
development credit carryovers and alternative minimum tax credit
carryovers of $672,000 and $2,102,000, respectively. For state income
tax purposes, the Company has net operating loss and tax credit
carryovers of $11,136,000 and $1,519,000, respectively. Certain
carryforwards expire at various times over the next 10-15 year period.
For financial reporting purposes, a valuation allowance has been
established to the extent the state carry-forwards may expire unused.
7. Employee Benefits:
The Company has profit sharing plans covering substantially all
employees. Contribution expenses associated with these plans were
$668,000, $679,000 and $654,000 in 1995, 1994 and 1993, respectively.
8. Supplemental Cash Flow Information:
At December 31, 1995, 1994 and 1993, accounts payable included $97,000,
$132,000 and $111,000, respectively, for property and equipment
additions.
Cash paid (received) for interest and income taxes during 1995, 1994 and
1993, was as follows (in thousands):
1995 1994 1993
Interest $1,406 $1,340 $2,059
Income taxes 683 (733) (3,014)
9. Major Customers:
Sales to a customer, which represents over 10% of the Company's net
sales, were $10,732,000 in 1995. In 1994 and 1993, there were no
customers which represented over 10% of the Company's net sales.
10. Contingencies:
The Company operates in an industry which is subject to laws and
regulations at both federal and state levels relating to the protection
of the environment.
The Company is subject to proposed United States Environmental
Protection Agency cluster rules which combine the requirements of the
Clean Air and Water Acts. These proposed rules mandate compliance by
1999 and may substantially alter the operations of the Company's
sulphite pulp mill. Due to the evolving nature of these rules and the
related uncertainty, the Company is currently unable to quantify the
cost of compliance or the cost of alternative operating options.
The Company is responsible for the closure of a solid waste landfill,
estimated to occur in 1997. The Wisconsin Department of Natural
Resources is presently considering the Company's proposed methods and
materials to be used in closing the site. The range of the costs
associated with this closure, depending upon the methods and materials
used, is estimated to be $200,000 to $1,000,000. The Company is
accruing the low end of the range over the remaining estimated life of
the landfill.
In addition, the Company is subject to various claims, the ultimate
outcomes of which management cannot predict. Management believes that
the outcomes will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
<PAGE>
PART III
Item 9. Changes in and disagreements with accountants on accounting
and financial disclosure
No such disagreements have occurred.
Item 10. Directors and executive officers of the registrant
(a) Directors of the registrant
The information required by this item is incorporated by reference from
the information included under the captions, "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934"
set forth in the Company's definitive proxy statement for its 1996
Annual Meeting of Shareholders.
(b) Executive officers of registrant
Period
Served In
Name Age Office This Office
Claude L. Van Hefty 57 President 1-1/3 Year
Previously Vice
President/Lignin
Sales & Fiber
Procurement 1-1/2 Year
Previously Vice
President,
General Manager
Dayton Division 1 Year
Director of
Purchasing 13-1/4 Years
Ralph C. Kinzel 61 Vice President of
Environmental Affairs
and Technical
Services 3-1/4 Years
Previously Manager of
Environmental Affairs
and Technical
Services 12-3/4 Years
Miles L. Kresl, Jr. 56 Vice President/
Administration 2-3/4 Years
Secretary 16-1/4 Years
Treasurer 14-3/4 Years
Steven A. Spangenberg 37 Vice President/
Fine Paper Sales
and Advertising 3-1/4 Years
Previously
General Manager,
Plas-Techs
subsidiary 1-1/2 Years
Previously Director
of Marketing 4-1/4 Years
Mark C. Neumann 36 Vice President/
MG Sales 3/4 Year
Director of Marketing 2-3/4 Years
Sales Representative 7-1/2 Years
Officers are elected to hold office until the next annual meeting
of shareholders following the annual meeting of shareholders or
until their successors are elected and qualified. There is no
arrangement or understanding between any of the above officers or
any other person pursuant to which such officer was selected for
the office held. No family relationship of any kind exists
between the officers.
ITEM 11. Executive compensation
The information required by this Item is incorporated by
reference from the information included under the captions
"Executive Compensation", "Report of Compensation Committee on
Annual Executive Management Compensation", and "Compensation
Committee Interlocks and Insider Participation" set forth in the
Company's definitive proxy statement for its 1996 Annual Meeting
of Shareholders.
Item 12. Security ownership of certain beneficial owners and management
(a) Security ownership of certain beneficial owners
The information required by this Item is incorporated by
reference from the information included under the caption, "Stock
Ownership of Certain Beneficial Owners and Management", set forth
in the Company's definitive proxy statement for its 1996 Annual
Meeting of Shareholders.
(b) Security ownership of management
The information required by this Item is incorporated by
reference from the information included under the captions,
"Stock Ownership of Certain Beneficial Owners and Management,"
and "Election of Directors", set forth in the Company's
definitive proxy statement for its 1996 Annual Meeting of
Shareholders.
Item 13. Certain relationships and related transactions
The information required by this Item is incorporated by
reference from the information included under the caption,
"Election of Directors", set forth in the Company's definitive
proxy statement for its 1996 Annual Meeting of Shareholders.
PART IV
Item 14. Exhibits, financial statement schedules and reports on From 8-K
(a) (1) List of financial statements:
The following is a list of the financial statements of Badger Paper
Mills, Inc., together with the report of independent accountants,
included in this report:
Pages
Report of Independent Accountants . . . . . . . . . . . 16
Consolidated Balance Sheets,
December 31, 1995 and 1994 . . . . . . . . . . . . 17
Consolidated Statements of Operations
for the years ended December 31, 1995, 1994
and 1993. . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Statements of Changes in Shareholders'
Equity for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . 19
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 . . . 20
Notes to Financial Statements . . . . . . . . . . . . 21
(a) (2) List of financial schedules:
The following is a listing of data submitted herewith:
Page
Report of Independent Accountants on
Financial Statements Schedules . . . . . . . . . 32
Schedule for the years ended
December 31, 1995, 1994 and 1993:
II Valuation and Qualifying
Accounts and Reserves . . . . . . . . . 33
Financial statement schedules other than that listed above are omitted for
the reason that they are either not applicable, not required, or that
equivalent information has been included in the financial statements, the
notes thereto or elsewhere herein.
(a) (3) Exhibits
(2) Agreement for sale and purchase of assets of Dayton mill of
Badger Paper Mills, Inc. by Dayton Paper Corporation dated
August 3, 1993. (Incorporated by reference to Exhibit 2 to
the Company's report on Form 10-Q for the quarter ended Sep-
tember 30, 1993.)
(3) (i) Articles of Incorporation (Incorporated by reference
to Exhibit 3 to the Company's Annual Report on Form
10-K for the year ended, December 31, 1981)
(ii) By-laws as amended through December 19, 1994
(Incorporated by reference to Exhibit 3(ii) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994)("1994 10-K").
(4) (i) U. S. $18,000,000 Credit Agreement by and among Badger
Paper Mills, Inc., NEW Riverview Holdings, Inc., Plas-
Techs, Inc., and Harris Trust and Savings Bank, indi-
vidually and as agent and PNC Bank, Ohio National
Association dated as of June 30, 1993. (Incorporated
by reference to Exhibit 4 to the Company's report on
Form 10-Q for the quarter ended September 30, 1993).
(ii) Waiver and First Amendment thereto dated as of June
30, 1993 (Incorporated by reference to Exhibit 4(ii)
to the 1994 10-K).
(iii) Second Amendment thereto dated as of March 31, 1994
(Incorporated herein to Exhibit 4(a) to the Company's
Report on Form 10-Q for the quarter ended March 31,
1994).
(iv) Third Amendment thereto dated August 31, 1994
(Incorporated by reference to Exhibit 4(iv) to the
1994 10-K).
(v) Fourth Amendment thereto dated February 17, 1995 (In-
corporated by reference to Exhibit 4(v) to the 1994
10-K).
(vi) Fifth Amendment thereto dated as of April 28, 1995
(Incorporated herein to Exhibit 4 to the Company's
Report on Form 10-Q for the quarter ended June 30,
1995).
(10) Material Contracts:**
(i) Stock Purchase Agreement dated February 1, 1993, be-
tween the Company and Robert Strasburg. (Incorporated
by reference to Exhibit 10(i) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1992) ("1992 10-K").
(ii) Supplemental Executive Retirement Plan dated December
18, 1992. (Incorporated by reference to Exhibit 10
(ii) to the 1992 10-K).
(iii) Employment Agreement dated January 25, 1993, between
the Company and Robert Strasburg. (Incorporated by
reference to Exhibit 10 (iv) to the 1992 10-K).
(iv) Health Insurance Retirement Benefit Agreement dated
July 22, 1992, between the Company and Edwin A. Meyer,
Jr. (Incorporated by reference to Exhibit 10(iv) to
the Company's Report on Form 10-K for the year ended
December 31, 1993) ("1993 10-K").
(v) Health Insurance Retirement Benefit Agreement dated
July 22, 1992, between the Company and Bennie C.
Burish. (Incorporated by reference to Exhibit 10(v) to
the 1993 10-K).
(vi) Key Executive Employment and Severance Agreement dated
August 1, 1994 between the Company and Robert
Strasburg. (Incorporated by reference to Exhibit
10(a) to the Company's Report on Form 10-Q for the
quarter ended September 30, 1994).
(vii) Executive Employment Agreement dated March 1, 1995,
between the Company and Claude L. Van Hefty (Incorpo-
rated by reference to Exhibit 10(vii) to the 1994 10-
K).
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule (EDGAR version only)
(99) Definitive Proxy Statement for 1996 Annual Meeting of Share-
holders (to be filed with the Commission under Regulation 14A
and incorporated by reference herein to the extent indicated
in this Form 10-K)
** Each of the "material contracts" represents a management
compensatory agreement or arrangement.
(b) Reports on Form 8-K:
None.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors
Badger Paper Mills, Inc.
and Subsidiary
Peshtigo, Wisconsin
Our report on the financial statements of Badger Paper Mills, Inc. and
Subsidiary is included on page 16 of this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 30 of this Form
10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND, L.L.P.
Milwaukee, Wisconsin
February 5, 1996.
<PAGE>
Schedule II - Valuation and Qualifying Accounts and Reserves
for the years ended December 31, 1995, 1994 and 1993 (in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Year Expenses Deductions Year
<S> <C> <C> <C> <C>
Deducted in the balance sheet
from the assets to which they
apply:
Allowance for discounts and
doubtful accounts:
Year ended December 31, 1995:
Doubtful accounts $ 233 $ 661 $ 758 (A) $ 136
Discounts 53 1,052 1,051 (B) 54
----- ----- ----- -----
$ 286 $1,713 $1,809 $ 190
===== ===== ===== =====
Year ended December 31, 1994:
Doubtful accounts $ 171 $ 772 $ 710 (A) $ 233
Discounts 38 825 810 (B) 53
----- ----- ------ -----
$ 209 $1,597 $1,520 $ 286
===== ====== ====== =====
Year ended December 31, 1993:
Doubtful accounts $ 194 $ 201 $ 224 (A) $ 171
Discounts 34 927 923 (B) 38
----- ----- ------ -----
$ 228 $1,128 $1,147 $ 209
===== ===== ====== =====
<FN>
(A) Write-off of uncollectible accounts.
(B) Discounts taken and allowed.
Column C(2) has been omitted as the answer would be "None."
</TABLE>
<PAGE>
STOCKHOLDER INFORMATION
Market makers: Stock transfer agent:
Robert W. Baird & Co., Inc. Harris Trust & Savings Bank
Kemper Securities Group, Inc. 111 West Monroe Street
Herzog, Heine, Geduld, Inc. Chicago, Illinois 60690
S. J. Wolfe & Co.
Stock price and dividend information: The following table presents high
and low sales prices of the Company's Common Stock in the indicated
calendar quarters, as reported on the NASDAQ National Market System.
Quarterly Price Ranges of Stock:
1995 1994
Quarter High Low High Low
First $15.25 $ 9.25 $15.25 $11.00
Second 15.75 14.00 14.00 11.38
Third 16.25 14.44 12.50 11.00
Fourth 16.75 15.00 11.75 8.50
Quarterly Dividends Per Share: Dividend rates are established by the
Board of Directors. The Company's line of credit maintains certain
covenants which control the payment of dividends. See "Management's
Discussion and Analysis -- Liquidity and Capital Resources -- Capital
Resources."
Quarter 1995 1994
First $ - $ -
Second - -
Third .05 -
Fourth .05 -
---- ----
Total $.10 $ -
==== ====
Annual meeting of shareholders:
The annual meeting of shareholders of Badger Paper Mills, Inc. will be
held at The Best Western Riverfront Inn, 1821 Riverside Avenue, Marinette,
Wisconsin, on Tuesday, May 14, 1996, at 10:00 a.m.
<PAGE>
DIRECTORS AND OFFICERS
Board of directors: Corporate officers:
Edwin A. Meyer, Jr. Claude L. Van Hefty
Chairman of the Board President/COO/CEO
Badger Paper Mills, Inc.
Ralph C. Kinzel
Bennie C. Burish Vice President of
Retired, Former President Environmental and
Former Chief Operating Technical Service
Officer
Badger Paper Mills, Inc. Miles L. Kresl, Jr.
Vice President/
Thomas J. Kuber Administration,
President, Treasurer and
K&K Warehousing; Corporate Secretary
CEO, Great Lakes Pulp &
Fibre, Inc.
Mark C. Neumann
Earl R. St. John, Jr. Vice President/
Owner and President MG Sales
Earl St. John Forest
Products, Inc. Steven A. Spangenberg
St. John Trucking, Inc. Vice President/Fine
Paper Sales and
Ralph D. Searles Advertising
President and CEO,
Great Northern Corp.
Claude L. Van Hefty
President/COO/CEO
Badger Paper Mills, Inc.
Pursuant to the requirements of Section 13 or 15(d) 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.
BADGER PAPER MILLS, INC.
/s/ Claude L. Van Hefty
Claude L. Van Hefty, President
(Chief Executive Officer)
/s/ Miles L. Kresl, Jr.
Miles L. Kresl, Jr.
Vice President/Administration
Corporate Secretary, Treasurer
(Principal Financial Officer)
/s/ George J. Zimmerman
DATE: March 29, 1996 George J. Zimmerman
Controller
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/s/ Edwin A. Meyer, Jr.
Edwin A. Meyer, Jr.
Chairman of the Board
Date: March 29, 1996
/s/ Bennie C. Burish
Bennie C. Burish
Director
Date: March 29, 1996
/s/ Thomas J. Kuber
Thomas J. Kuber
Director
Date: March 29, 1996
/s/ Earl R. St. John, Jr.
Earl R. St. John, Jr.
Director
Date: March 29, 1996
/s/ Ralph D. Searles
Ralph D. Searles
Director
Date: March 29, 1996
/s/ Claude L. Van Hefty
Claude L. Van Hefty
Director
Date: March 29, 1996
<PAGE>
EXHIBIT INDEX
BADGER PAPER MILLS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Exhibit No. Description
(2) Agreement for sale and purchase of assets of Dayton mill of
Badger Paper Mills, Inc. by Dayton Paper Corporation dated August
3, 1993. (Incorporated by reference to Exhibit 2 to the
Company's report on Form 10-Q for the quarter ended September 30,
1993.)
(3) (i) Articles of Incorporation (Incorporated by reference to
Exhibit 3 to the Company's Annual Report on Form 10-K for
the year ended, December 31, 1981)
(ii) By-laws as amended through December 19, 1994 (Incorporated
by reference to Exhibit 3(ii) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1994)("1994 10-K").
(4) (i) U. S. $18,000,000 Credit Agreement by and among Badger
Paper Mills, Inc., NEW Riverview Holdings, Inc., Plas-
Techs, Inc., and Harris Trust and Savings Bank, indi-
vidually and as agent and PNC Bank, Ohio National
Association dated as of June 30, 1993. (Incorporated by
reference to Exhibit 4 to the Company's report on Form 10-
Q for the quarter ended September 30, 1993).
(ii) Waiver and First Amendment thereto dated as of June 30,
1993 (Incorporated by reference to Exhibit 4(ii) to the
1994 10-K).
(iii) Second Amendment thereto dated as of March 31, 1994 (In-
corporated herein to Exhibit 4(a) to the Company's Report
on Form 10-Q for the quarter ended March 31, 1994).
(iv) Third Amendment thereto dated August 31, 1994 (Incorpo-
rated by reference to Exhibit 4(iv) to the 1994 10-K).
(v) Fourth Amendment thereto dated February 17, 1995 (In-
corporated by reference to Exhibit 4(v) to the 1994 10-K).
(vi) Fifth Amendment thereto dated as of April 28, 1995
(Incorporated herein to Exhibit 4 to the Company's Report
on Form 10-Q for the quarter ended June 30, 1995).
(10) Material Contracts:**
(i) Stock Purchase Agreement dated February 1, 1993, between
the Company and Robert Strasburg. (Incorporated by
reference to Exhibit 10(i) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992) ("1992
10-K").
(ii) Supplemental Executive Retirement Plan dated December 18,
1992. (Incorporated by reference to Exhibit 10 (ii) to
the 1992 10-K).
(iii) Employment Agreement dated January 25, 1993, between the
Company and Robert Strasburg. (Incorporated by reference
to Exhibit 10 (iv) to the 1992 10-K).
(iv) Health Insurance Retirement Benefit Agreement dated July
22, 1992, between the Company and Edwin A. Meyer, Jr.
(Incorporated by reference to Exhibit 10(iv) to the
Company's Report on Form 10-K for the year ended December
31, 1993) ("1993 10-K").
(v) Health Insurance Retirement Benefit Agreement dated July
22, 1992, between the Company and Bennie C. Burish.
(Incorporated by reference to Exhibit 10(v) to the 1993
10-K).
(vi) Key Executive Employment and Severance Agreement dated
August 1, 1994 between the Company and Robert Strasburg.
(Incorporated by reference to Exhibit 10(a) to the
Company's Report on Form 10-Q for the quarter ended
September 30, 1994).
(vii) Executive Employment Agreement dated March 1, 1995,
between the Company and Claude L. Van Hefty (Incorporated
by reference to Exhibit 10(vii) to the 1994 10-K).
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule (EDGAR version only)
(99) Definitive Proxy Statement for 1996 Annual Meeting of Share-
holders (to be filed with the Commission under Regulation 14A and
incorporated by reference herein to the extent indicated in this
Form 10-K)
** Each of the "material contracts" represents a management
compensatory agreement or arrangement.
Consent of Independent Accountants
We consent to the incorporation by reference in the registration
statements of Badger Paper Mills, Inc. and Subsidiary on Form S-8 (File
Nos. 333-01671 and 333-1673) of our reports dated February 5, 1996, on our
audits of the consolidated financial statements and financial statement
schedule of Badger Paper Mills, Inc. and Subsidiary as of December 31,
1995 and 1994, which report is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE INTO BADGER PAPER
MILLS, INC.'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 835
<SECURITIES> 3,138
<RECEIVABLES> 6,955
<ALLOWANCES> 0
<INVENTORY> 7,314
<CURRENT-ASSETS> 20,034
<PP&E> 76,495
<DEPRECIATION> 46,155
<TOTAL-ASSETS> 52,578
<CURRENT-LIABILITIES> 9,575
<BONDS> 9,351
0
0
<COMMON> 2,700
<OTHER-SE> 18,743
<TOTAL-LIABILITY-AND-EQUITY> 52,578
<SALES> 92,648
<TOTAL-REVENUES> 0
<CGS> 83,890
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,305
<INCOME-PRETAX> 4,060
<INCOME-TAX> 1,312
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,748
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 0
</TABLE>
