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 September 30, 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 September 30,
1996, 1,945,130.
Indicate total number of pages contained in document filed: 11.
<PAGE>
BADGER PAPER MILLS, INC.
INDEX
Pages
FINANCIAL INFORMATION
Consolidated Interim Statements of
Operations and Retained Earnings -
Quarter and Nine Months Ended
September 30, 1996 and 1995 3
Consolidated Balance Sheets - September 30, 1996 and
December 31, 1995 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1996 and 1995 5
Notes to Financial Statements 6-8
MANAGEMENT DISCUSSION AND ANALYSIS 8-10
OTHER INFORMATION 10
SIGNATURES 11
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED INTERIM STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
Net Sales $19,458 $24,374 $58,690 $70,899
Cost of Sales 18,020 21,641 54,753 64,077
------ ------ ------ ------
Gross Margin 1,438 2,733 3,937 6,822
Selling and
Administrative
Expenses 957 984 2,923 2,901
Pulp Mill
Closure Costs - - 7,430 -
----- ------ ------ ------
Operating
Income
(Loss) 481 1,749 (6,416) 3,921
Other Income, Net 93 116 123 741
Gain on Sale of
Timberlands 253 - 4,873 -
Interest
Expense (177) (302) (703) (1,030)
------- ------ ------ -------
Income (Loss)
Before Income
Taxes 650 1,563 (2,123) 3,632
Income Tax
Expense
(Benefit) 221 531 (722) 1,235
------ ------ ------ ------
Net Income
(Loss) 429 1,032 (1,401) 2,397
------- ------ ------ -------
Retained
Earnings,
Beginning of
Period 18,610 19,448 20,635 18,082
Cash Dividends 116 98 311 97
------ ------ ------ ------
Retained
Earnings,
End of Period $18,923 $20,382 $18,923 $20,382
====== ====== ====== ======
Net Earnings
(Loss)
Per Share $.22 $.53 ($.72) $1.23
Dividends Per
Share $.06 $.05 $.16 $.05
Average
Shares
Outstanding 1,945,130 1,953,997 1,944,570 1,956,230
See Notes to Financial Statements.
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands)
September 30, December 31,
1996 1995
ASSETS:
Current Assets:
Cash & Cash Equivalents $3,223 $ 835
Marketable Securities 1,878 3,138
Accounts Receivable - Net 6,955 6,955
Deferred Income Taxes 1,059 1,059
Inventories 8,066 7,314
Refundable Income Taxes 1,180 173
Other Current Assets 238 560
------- -------
Total Current Assets 22,599 20,034
Property, Plant, Equipment &
Timberlands 78,041 76,496
Less Allowance for
Depreciation &
Depletion (54,177) (46,156)
------- --------
Total Property, Plant,
Equipment & Timberlands 23,864 30,340
Other Assets 2,144 2,170
Restricted Funds from
Industrial Revenue Bonds - 34
------- -------
TOTAL ASSETS $48,607 $52,578
======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current Liabilities:
Current Portion of Long-Term
Debt $ 115 $ 115
Accounts Payable 6,200 5,823
Accrued Liabilities 3,334 3,637
------- ------
Total Current Liabilities 9,649 9,575
Deferred Income Taxes 2,604 2,604
Long Term Debt 14,633 17,236
Other Liabilities 1,961 1,720
------- -------
Total Liabilities 28,847 31,135
STOCKHOLDERS' EQUITY:
Common stock, no par value:
4,000,000 shares authorized
2,160,000 shares issued 2,700 2,700
Additional paid-in capital 178 168
Retained Earnings 18,922 20,633
------- -------
Less treasury shares at cost:
214,870 - 9/30/96; 217,670 -
12/31/95 (2,040) (2,058)
------- -------
Total Stockholders' Equity 19,760 21,443
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $48,607 $52,578
====== ======
See Notes to Financial Statements
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
Nine Months Ended
September 30, September 30,
1996 1995
Cash Flows from Operating Activities:
Net (Loss) Income $(1,401) $2,397
Adjustments to Reconcile to Net Cash
Provided By (Used In) Operating
Activities:
Depreciation 2,194 2,465
Net Proceeds from Sales of Marketable
Securities 1,565 334
Unrealized Gain on Marketable
Securities (305) (370)
Gain on Sale of Timberlands (4,873) -
(Increase) in Accounts Receivables,
Net - (1,738)
(Increase) in Inventories (752) (855)
Decrease in Accounts Payable and
Accrued Liabilities 74 1,815
(Increase) Decrease Other (417) 174
------- --------
Net Cash (Used in) Provided by
Operating Activities (3,915) 4,222
------- --------
Cash Flows From Investing Activities:
Retirements from (Additions to)
Property, Plant and Equipment, Net 4,104 (2,073)
Proceeds from Sale of Timberlands 5,051 -
Decrease in Restricted Funds from
Industrial Revenue Bonds 34 1,801
------- -------
Net Cash Provided by (Used in)
Investing Activities 9,189 (272)
------- -------
Cash Flows from Financing Activities:
Payments on Long-Term Debt (2,603) (4,650)
Sale (Purchase) of Treasury Stock 28 (70)
Dividends Paid (311) (98)
-------- ------
Net Cash Used in Financing Activities (2,886) (4,818)
-------- ------
Net Increase (Decrease) in Cash
and Cash Equivalents 2,388 (868)
Cash and Cash Equivalents:
Beginning of Period 835 1,375
------- ------
End of Period $3,223 $ 507
===== ======
See Notes to Financial Statements.
<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, include all adjustments necessary for a fair statement of results
for each period shown. These adjustments are 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% tax
expense for the third quarter 1996 and a 34% tax benefit for the nine
months ended September 30, 1996, resulting from the Company's operating
gains and losses during such periods. For the quarter and nine months
ended September 30, 1995, the Company provided for a 34% expense.
C. EARNINGS PER SHARE
Earnings per share of common stock are based on weighted average
number of shares of common stock outstanding.
D. INVENTORIES
The major classes of inventories are as follows (in thousands):
September 30, December 31,
1996 1995
Raw materials $4,599 $3,483
Work in process and
finished stock 3,455 3,831
------ -----
$8,054 $7,314
====== =====
E. DEBT
The Company's revolving credit facility provides for borrowings up to
$13 million. The credit facility was amended in August, 1996, to extend
its expiration to April 30, 1999, and to provide for financial covenants
which are less restrictive than provided in the prior agreement. An
annual commitment fee of 3/8% is payable quarterly for unused amounts
under the credit facility. Interest on borrowings is at the LIBOR rate
plus 1.50% (totaling 6.9219% at September 30, 1996). Borrowings are
collateralized by inventory, accounts receivable, marketable securities
and certain property, plant and equipment. Approximately $5,500,000 was
borrowed under the revolving credit facility as of September 30, 1996.
Interest on the Company's outstanding IDRBs is payable monthly at
floating rates determined by remarketing agents (3.90% at September 30,
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
$7,550,000 principle amount of IDRBs was outstanding as of September 30,
1996.
The IDRBs are collateralized by bank letters of credit expiring in 1999.
The Company pays annual fees equal to 1% of the amount available under the
letters of credit. As amended in August, 1996, the letters of credit
require, among other items, the Company to maintain minimum tangible net
worth of $17,300,000 through September 29, 1997 ($18,500,000 from
September 30, 1997 through December 30, 1997; $20,000,000 from December
31, 1997 through September 29, 1998; $22,000,000 from September 30, 1998
through December 30, 1998; and, $24,500,000 December 31, 1998 and
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 July 1, 1996.
At September 30, 1996, approximately $1,700,000 principle amount was
outstanding under an Urban Development Action Grant. The grant is
repayable 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.
F. 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 undergoes continued environmental testing
and analysis, and the precise cost of compliance with environmental
requirements has not been determined.
In addition, from time to time, 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.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
The Company reported sales for the third quarter ended September 30, 1996
of $19,458,000 or 20.2% less than the $24,374,000 reported for the same
period in 1995. Volume of shipments for the third quarter of 1996 were up
2.0% when compared to a year earlier, while the average selling price of
the paper sold decreased approximately 23.8%. Additionally, the Company's
discontinued sulphite operations accounted for over 6% of the Company's
total revenue for the third quarter of 1995.
Sales for the nine-month period ending September 30, 1996 were $58,690,000
or 17.2% less than the $70,899,000 reported for the same period a year
earlier. Volume of shipments during the first nine months of 1996 was down
approximately 3% when compared to a year earlier, while the average
selling price decreased approximately 17%. Paper demand did not follow the
overall rise in the domestic economy, and competitive pricing caused first
and second quarter sales gains to be eliminated due to price discounting.
Cost of sales decreased 17% and 15% respectively for the third quarter and
first nine months of 1996 compared to the same periods a year earlier.
Third quarter 1996 results were favorably impacted by the elimination of
the high cost sulphite pulp produced by the Company's discontinued
sulphite operations, which was replaced at a lower cost by pulp purchased
in the open market.
During the third quarter of 1996, the Company completed the sale of the
remaining parcels of timberland held for sale since September 1995, and
recognized a third quarter gain of $253,000. Since January 1, 1996, the
Company has sold approximately 14,000 acres of timberland at an aggregate
sale price of $5,051,000 resulting in a gain of $4,873,000.
Gross margins decreased to $1,438,000 and $3,937,000 for the three months
and first nine months of 1996 compared to $2,733,000 and $6,822,000 for
the same periods a year earlier.
Other income of $93,000 and $123,000 for the third quarter and first nine
months of 1996 compares to $116,000 and $741,000 for the same periods in
1995. The Company recognized a loss in securities of $161,000 for the
first nine months of 1996 as compared to an unrealized gain of $370,000
for the same period 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 in Other Income.
Liquidity and capital resources
Capital expenditures during the third quarter and nine months, 1996
amounted to $1,211,000 and $2,194,000, as compared to $895,000 and
$2,073,000 during the same periods in 1995. Capital expenditures were
maintained at levels to sustain manufacturing operations.
The Company continued the construction of a $7.5 million stock prep
facility in the third quarter, which is expected to be completed late in
the fourth quarter, 1996. The completion of this project will allow for
improved formulation and processing of wet end stock fibers. It will also
allow the Company to expand its specialty manufacturing capabilities by
segregating the white water and stock recovery systems of the Company's
two paper machines.
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 undergoes continued environmental testing
and analysis, and the precise cost of compliance with environmental
regulations has not been determined for the Company's operations.
As of September 30, 1996, the Company's capital resources for funding
ongoing operations and capital expenditures includes $5,101,000 of cash
and marketable securities, and a $13,000,000 revolving credit facility, of
which $5,500,000 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 $3,915,000 for the first nine
months of 1996, compared to cash provided by operating activities totaling
$4,222,000 for the first nine months of 1995. Net cash provided by
investing activities was $9,189,000 for the first nine months of 1996
compared to $272,000 used in investing activities for the same period in
1995. The major items affecting cash included the $4,873,000 gain on sale
of the timberlands, and the retirement of the assets associated with the
Pulp Mill closure of $6,204,000, partially offset by net additions to
property, plant and equipment of $2,100,000.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial data schedule
<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: November 14, 1996 By /s/ Claude L. Van Hefty
Claude L. Van Hefty
President
(Chief Executive Officer)
DATE: November 14, 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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,223
<SECURITIES> 1,878
<RECEIVABLES> 6,955
<ALLOWANCES> 0
<INVENTORY> 8,066
<CURRENT-ASSETS> 22,599
<PP&E> 78,041
<DEPRECIATION> 54,177
<TOTAL-ASSETS> 48,607
<CURRENT-LIABILITIES> 9,649
<BONDS> 14,633
0
0
<COMMON> 2,700
<OTHER-SE> 179
<TOTAL-LIABILITY-AND-EQUITY> 48,607
<SALES> 58,690
<TOTAL-REVENUES> 58,690
<CGS> 54,753
<TOTAL-COSTS> 57,676
<OTHER-EXPENSES> 7,430<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 703
<INCOME-PRETAX> (2,123)
<INCOME-TAX> (722)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,401)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> 0
<FN>
<F1>Pulp mill closure charge.
</FN>
</TABLE>
