SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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)
Wisconsin 39-0143840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 West Front Street
Peshtigo, Wisconsin 54157
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (715) 582-4551
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 report(s), and (2) has been
subject to such filing requirements for the past 90 days.
[X] Yes. [_] No.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date: As of April 30, 1996,
1,945,130.
<PAGE>
BADGER PAPER MILLS, INC.
INDEX
Pages
FINANCIAL INFORMATION
Consolidated Interim Statements of
Operations and Retained Earnings -
Three Months Ended March 31, 1996 and 1995 3
Consolidated Balance Sheets -
March 31, 1995 and December 31, 1995 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 5
Notes to Financial Statements 6-7
MANAGEMENT DISCUSSION AND ANALYSIS 8-9
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 9
OTHER INFORMATION 10
SIGNATURES 11
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
March 31, 1996 March 31, 1995
Net Sales $18,453,611 $22,114,107
Cost of Sales 18,298,693 20,925,118
---------- -----------
Gross Margin 154,918 1,188,989
Selling and Administrative 929,241 877,039
---------- ----------
Operating Income (Loss) (774,323) 311,950
Other Income, Net 29,831 428,689
Interest Expense (258,834) (374,757)
---------- ----------
Income (Loss) Before
Income Taxes (1,003,326) 365,882
Income Tax Expense (Benefit) (341,179) 124,470
---------- ----------
Net Income (Loss) (662,147) 241,412
---------- ----------
Retained Earnings, Beginning
of Period 20,634,634 18,082,078
Cash Dividends 97,256 -
Unrealized Gain (Loss) on
Securities Held for Sale (5,888) -
--------- ---------
Retained Earnings, End of
Period $19,869,343 $18,323,490
========== ===========
Net Earning (Loss) Per Share ($0.34) $0.12
Dividends Per Share $0.05 -
Average Shares Outstanding 1,943,730 1,957,080
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1996 1995
ASSETS:
Current Assets:
Cash & Cash Equivalents $ 469,109 $ 835,359
Marketable Securities 3,323,135 3,138,274
Accounts Receivable - Net 7,361,391 6,955,171
Deferred Income Taxes 1,059,140 1,059,140
Inventories 8,194,338 7,313,860
Refundable Income Taxes 549,360 172,860
Other Current Assets 315,813 559,637
---------- ----------
Total Current Assets 21,272,286 20,034,301
Property, Plant, Equipment &
Timberlands 76,921,043 76,496,145
Less Allowance for Depreciation
& Depletion (47,022,236) (46,156,304)
---------- -----------
Total Property, Plant,
Equipment & Timberlands 29,898,807 30,339,841
Other Assets 2,335,635 2,170,438
Restricted Funds from
Industrial Revenue Bonds 34,596 34,154
----------- ----------
TOTAL ASSETS $53,541,324 $52,578,734
=========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current Liabilities:
Revolving Credit Notes Payable $ - $ -
Current Portion of Long-Term
Debt 114,931 114,931
Accounts Payable 5,901,869 5,823,219
Accrued Liabilities 3,259,511 3,636,851
----------- ----------
Total Current Liabilities 9,276,311 9,575,001
Deferred Income Taxes 2,604,194 2,604,194
Long Term Debt 19,224,076 17,235,783
Other Liabilities 1,729,604 1,719,746
----------- -----------
Total Liabilities 32,834,185 31,134,724
STOCKHOLDERS' EQUITY:
Common stock, no par value:
4,000,000 shares authorized
2,160,000 shares issued 2,700,000 2,700,000
Additional paid-in capital 177,834 167,682
Retained Earnings 19,869,343 20,634,634
Less treasury shares at cost:
214,870 - 3/31/96; 217,670 -
12/31/95 (2,040,038) (2,058,306)
---------- ----------
Total Stockholders' Equity 20,707,139 21,444,010
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $53,541,324 $52,578,734
=========== ===========
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31, March 31,
1996 1995
Cash Flows from Operating Activities:
Net Income (Loss) ($662,147) $241,412
Adjustments to Reconcile to Net Cash
provided by (used in)
Operating Activities:
Depreciation 865,932 821,532
Deferred Income Taxes - -
Net Proceeds from (Purchases) Sales
of Marketable Securities (202,615) 60,000
Unrealized Loss (Gain) on
Marketable Securities 11,866 (293,429)
(Increase) in Accounts Receivables,
Net (406,220) (1,110,021)
(Increase) Decrease in Inventories (880,478) 882,073
(Decrease) in Accounts Payable
and Accrued Liabilities (298,690) (820,352)
(Increase) Decrease Other (288,015) 2,510
---------- ---------
Net Cash (Used In)
Operating Activities (1,860,367) (216,275)
---------- ---------
Cash Flows From Investing Activities:
Additions to Property, Plant
and Equipment, Net (424,898) (342,402)
(Increase) Decrease in Restricted
Funds from Industrial Revenue Bonds (442) 37,252
---------- -----------
Net Cash (Used In) Investing
Activities (425,340) (305,150)
---------- -----------
Cash Flows from Financing Activities:
(Payments) on Long-Term Debt (11,707) (10,810)
Sale of Treasury Stock 28,420 -
Dividends (Paid) (97,256) -
Increase in Revolving Credit
Notes Payable 2,000,000 -
--------- ---------
Net Cash Provided by (Used In)
Financing Activities 1,919,457 (10,810)
--------- ---------
Net (Decrease) in Cash and Cash
Equivalents (366,250) (532,235)
Cash and Cash Equivalents:
Beginning of Period 835,359 1,375,057
--------- ---------
End of Period $ 469,109 $ 842,822
========= =========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. BASIS OF PRESENTATION
The unaudited financial statements have been prepared by Badger Paper
Mills, Inc. (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of the
Company, included all adjustments necessary for a fair statement of
results for each period shown. These adjustments were of a normal
recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such SEC rules and regulations. The Company believes that the disclosures
made are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's latest
annual report.
B. INCOME TAXES
The provision for income tax expense or benefit has been computed by
applying an estimated annual effective tax rate. This rate was a 34%
benefit for the quarter ended March 31, 1996, and a 34% expense for the
quarter ended March 31, 1995.
C. EARNINGS PER SHARE
Earnings per share of common stock are based on the weighted average
number of shares of common stock outstanding.
D. INVENTORIES
The major classes of inventories are as follows (in thousands):
March 31, December 31,
1996 1995
Raw materials $3,082 $3,483
Work in process and
finished stock 5,112 3,831
------ -------
$8,194 $7,314
====== =======
E. DEBT
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 6.8125% at March 31, 1996). Borrowings are collater-
alized by inventory, accounts receivable, marketable securities and
certain property, plant and equipment. Approximately $10,000,000 was
borrowed under its revolving credit facility as of March 31, 1996.
Interest on the Company's outstanding IDRBs is payable monthly at floating
rates determined by remarketing agents (3.45% at March 31, 1996) and may
be converted to fixed rates at certain dates in the future, at the
Company's option, as specified in the agreements. Approximately
$9,200,000 principle amount of IDRBs was outstanding as of March 31, 1996.
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.
F. CONTINGENCIES
The Company operates in an industry which is subject to laws and regula-
tions at both federal and state levels relating to the protection of the
environment. The Company undergoes continued environmental testing and
analysis, and the precise cost of compliance with requirements has not
been determined.
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 or results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Sales for the first quarter, 1996 were $18,453,611 or 16.6% less than the
$22,114,107 reported for the same period in 1995. The volume of paper
shipments decreased by 16.9% as compared to the first quarter of 1995.
After having risen substantially through the first nine months of 1995,
paper pricing continued the discounting that began in the fourth quarter,
1995, throughout the first quarter of 1996. The Company took approximate-
ly 10% downtime in its pulp and papermaking operations as a result of the
weak demand across all grade structures.
In the first quarter, 1996 cost of sales decreased by 12.6% to
$18,298,693, compared to $20,925,118 in 1995. The decreased volume of
shipments plus the decreased costs of purchased fiber were the major
factors affecting cost of sales. Purchased fiber prices began to fall
late in the fourth quarter of 1995 and continued to fall throughout the
first quarter, 1996 but still lagged the drop in paper prices. Also, cost
of sales in the first quarter, 1995 included $504,000 taken as a result of
the expense incurred from the voluntary early retirement incentive package
offered employees.
Selling and administrative expenses increased by 5.9% in the first
quarter, 1996 as compared to 1995, $929,241 in 1996 and $877,039 in 1995.
Other income for 1996 decreased to $29,831 from $428,689 in 1995, primari-
ly due to an unrealized loss in securities of $11,866 in the first
quarter, 1996 as compared to an unrealized gain of $293,429 in 1995, and
interest income decreasing to $52,383 in 1996 from $113,337 in 1995.
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.
On April 15, 1996, after a very comprehensive investigation, the Company
issued a 60-day notice for the closing of its pulp mill.
For more than 20 years, Badger has closely monitored the costs and
benefits of the continued operation of the pulp mill. These evaluations
began before the evaporation plant and joint waste water treatment
facility with the City of Peshtigo were built. The viability of the pulp
mill was reviewed in detail again when the Company encountered regulations
affecting sulphur dioxide emissions. At that time, the Company installed
the digester scrubbing system, which brought the plant within
environmental compliance standards. Over the years, Badger has always
considered the costs of operating the pulp mill in conjunction with the
benefits to the Company, employees, shareholders and community in
Peshtigo. Increased demands for recycled fiber content in the paper
grades produced have lowered the demand for the Company's sulphite pulp.
This factor has substantially increased the unit costs of the Company's
pulp due to lower production. Management believes the Company's pulp mill
is the smallest volume producer still operating in the United States.
Compliance with increasingly strict Environmental Protection Agency and
Wisconsin Department of Natural Resources (WDNR) environmental regulations
has considerably increased the cost of operating the pulp mill through the
years. The Company has received a Notice of Violation from the WDNR
relating to particulate discharge from the evaporation plant stack which
would necessitate significant costs to correct. Proposed reductions in
sulphur dioxide limits would require re-engineering and the installing a
scrubber system on the Company's evaporation plant stack. In the
Company's bleach plant, the current bleaching system would require
significant modifications to eliminate the usage of elemental chlorine.
Finally, compliance with the proposed "cluster rules" of the Clean Air and
Clean Water Act would require large cash outlays. Even if the Company
spent the capital to implement all these changes, it would still be left
with an aging, small facility, requiring substantial capital investment to
achieve effective operation.
This change, as well as the right sizing of the Company, is expected to
result in its elimination of approximately 95 hourly and salaried posi-
tions, or approximately 20% of the Company's total work force by the end
of 1996.
Liquidity and capital resources
Capital expenditures during the first quarter, 1996 amounted to $425,000
as compared to $342,000 in the first quarter of 1995. Capital expendi-
tures were maintained at levels to sustain manufacturing operations.
The Company has announced a $7.5 million expansion of its facilities for
the addition of stock prep area adjacent to the paper machines. This
expansion will allow for increased utilization of purchased materials as
well as improved raw stock operations in the production flow. This
project is expected to be completed late in 1996.
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 cost of complying with such regulations was one
factor in the Company's decision to close its pulp mill. The Company
undergoes continued environmental testing and analysis, and the precise
cost of compliance with environmental regulations has not been determined
for the Company's remaining operations.
As of March 31, 1996, the Company's capital resources for funding ongoing
operations and capital expenditures included $3,323,000 in marketable
securities and a $13,000,000 revolving credit facility scheduled to expire
in 1998, of which $10,000,000 is currently used. The Company believes it
has adequate capital resources to meet its near-term capital and operating
needs.
Cash used in operating activities totaled $1,860,000 for the first quarter
of 1996, compared to cash used in operating activities of $216,000 for the
first quarter of 1995. The major factors contributing to the increase in
1996 include a $880,000 increase in inventories, a $298,000 decrease in
accounts payable and accrued liabilities, and a $406,000 increase in
accounts receivable.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial data schedules
<PAGE>
SIGNATURE
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.
BADGER PAPER MILLS, INC.
(Registrant)
DATE: May 15, 1996 By /s/ Claude L. Van Hefty
Claude L. Van Hefty
President (Chief
Executive Officer)
DATE: May 15, 1996 By /s/ Miles L. Kresl, Jr.
Miles L. Kresl, Jr.
Vice President/Administration,
Corporate Secretary, &
Treasurer (Principal
Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BADGER PAPER MILLS, INC. AS OF AND
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 469,109
<SECURITIES> 3,323,135
<RECEIVABLES> 7,361,391
<ALLOWANCES> 0
<INVENTORY> 8,194,338
<CURRENT-ASSETS> 21,272,286
<PP&E> 76,921,043
<DEPRECIATION> 47,022,236
<TOTAL-ASSETS> 53,541,324
<CURRENT-LIABILITIES> 9,276,311
<BONDS> 19,224,076
0
0
<COMMON> 2,700,000
<OTHER-SE> 177,834
<TOTAL-LIABILITY-AND-EQUITY> 53,541,324
<SALES> 18,453,611
<TOTAL-REVENUES> 18,453,611
<CGS> 18,298,693
<TOTAL-COSTS> 19,227,934
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258,834
<INCOME-PRETAX> (1,003,326)
<INCOME-TAX> (341,179)
<INCOME-CONTINUING> (662,147)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (662,147)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> 0
</TABLE>
