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 June 30, 1997
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 June 30, 1997,
1,941,130.
Indicate total number of pages contained in document filed: 10.
<PAGE>
BADGER PAPER MILLS, INC.
INDEX
Pages
FINANCIAL INFORMATION
Condensed Consolidated Interim Statements of
Operations and Retained Earnings -
Quarter and Six Months Ended
June 30, 1997 and 1996 3
Condensed Consolidated Balance Sheets - June 30, 1997 and
December 31, 1996 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6-7
MANAGEMENT DISCUSSION AND ANALYSIS 7-8
OTHER INFORMATION
Submission of Matters to a Vote of
Security Holders 9
Exhibits and Reports on Form 8-K 9
SIGNATURES 10
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
Net Sales $17,819 $20,778 $34,033 $39,232
Cost of Sales 16,457 18,434 32,733 36,733
--------- --------- ---------- -------
Gross Margin 1,362 2,344 1,300 2,499
Selling and Administrative
Expenses 1,017 1,037 2,068 1,966
Pulp Mill Closure
Costs - 7,430 - 7,430
--------- --------- ---------- -------
Operating Income
(Loss) 345 (6,123) (768) (6,897)
Other Income, Net 125 - 226 30
Gain on Sale of
Timberlands - 4,620 - 4,620
Interest Expense (349) (267) (642) (526)
Income (Loss) Before
Income Taxes 121 (1,770) (1,184) (2,773)
Income Tax Expense
(Benefit) 41 (602) (403) (943)
--------- --------- --------- -------
Net Earnings (Loss) 80 (1,168) (781) (1,830)
--------- --------- --------- -------
Retained Earnings,
Beginning of Period 17,133 19,869 17,994 20,635
Cash Dividends - (97) - (195)
Unrealized Loss on
Securities Held
for Sale - 6 - -
--------- --------- --------- -------
Retained Earnings,
End of Period $17,213 $18,610 $17,213 $18,610
========= ========= ========= =======
Net Earnings (Loss)
Per Share $0.04 ($0.60) ($0.40) ($0.94)
Dividends Per Share - $0.05 - $0.10
Average Shares
Outstanding 1,945,130 1,945,130 1,945,130 1,944,330
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands)
June 30, 1997 December 31, 1996
ASSETS:
Current Assets:
Cash & Cash Equivalents $3,126 $4,079
Marketable Securities 1,305 1,800
Accounts Receivable - Net 6,281 4,556
Deferred Income Taxes 981 981
Inventories 6,887 6,837
Refundable Income Taxes 394 1,466
Other Current Assets 840 1,194
--------- ---------
Total Current Assets 19,814 20,913
Property, Plant, Equipment & Timberlands 65,921 62,563
Less Allowance for Depreciation
& Depletion (36,570) (35,158)
--------- ---------
Total Property, Plant, Equipment
& Timberlands 29,351 27,405
Property, Plant, Equipment Held
for Sale, Net 574 1,410
Other Assets 2,437 2,224
--------- ---------
TOTAL ASSETS $52,176 $51,952
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current Portion of Long-Term Debt 119 119
Accounts Payable 6,170 7,409
Accrued Liabilities 2,469 3,462
--------- ---------
Total Current Liabilities 8,758 10,990
Deferred Income Taxes 1,621 1,621
Long Term Debt 21,991 18,617
Other Liabilities 1,755 1,892
--------- ---------
Total Liabilities 34,125 33,120
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 178 178
Retained Earnings 17,213 17,994
Less treasury shares at cost:
214,870 - 6/30/97; 214,870 - 12/31/96 (2,040) (2,040)
--------- ---------
Total Stockholders' Equity 18,051 18,832
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $52,176 $51,952
========= =========
See Notes to Condensed Consolidated Financial Statements
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
Six Months Ended
June 30, June 30,
1997 1996
Cash Flows from Operating Activities:
Net Loss ($ 781) ($1,830)
Adjustments to Reconcile to
Net Cash Provided By
(Used In) Operating Activities:
Depreciation 1,466 1,570
Net Proceeds from Sales of
Marketable Securities 490 2,064
Unrealized Loss (Gain) on
Marketable Securities 4 (304)
Gain on Sale of Timberlands - (4,620)
Increase in Accounts Receivables, Net (1,725) (1,005)
Increase in Inventories (50) (740)
Decrease (Increase) in Accounts Payable
and Accrued Liabilities (2,232) 928
Decrease (Increase) Other 1,076 (551)
--------- ---------
Net Cash Used in
Operating Activities (1,752) (4,488)
--------- ---------
Cash Flows From Investing
Activities:
(Additions to) Retirements from
Property, Plant and Equipment, Net (2,575) 5,337
Proceeds from Sale of Timberlands - 4,780
Decrease in Restricted Funds from
Industrial Revenue Bonds - 34
--------- ---------
Net Cash (Used In) Provided by
Investing Activities (2,575) 10,151
--------- ---------
Cash Flows from Financing Activities:
Increase to (Payments on) Long-Term Debt 3,374 (3,024)
Sale of Treasury Stock - 28
Dividends Paid - (195)
--------- ---------
Net Cash Provided By (Used in)
Financing Activities 3,374 (3,191)
--------- ---------
Net (Decrease) Increase in Cash
and Cash Equivalents (953) 2,472
Cash and Cash Equivalents:
Beginning of Period 4,079 835
--------- ---------
End of Period $3,126 $3,307
========= =========
See Notes to Condensed Consolidated 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 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. Certain reclassifications have been made to the 1996
financial statements to conform to the 1997 presentation.
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%
expense for the quarter and a 34% benefit for the six months ended June
30, 1997. For the quarter and six months ended June 30, 1996, the Company
provided for a 34% benefit, resulting from the Company's operating losses
during such periods.
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):
June 30, December 31,
1997 1996
Raw materials $1,078 $ 994
Work in process and finished stock 4,684 4,122
Pulpwood Inventory to be sold 1,125 1,721
------- -------
$6,887 $6,837
======= =======
E. 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, 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
Sales for the second quarter, 1997 totaled $17,819,000 compared to
$20,778,000 for the second quarter, 1996 or a 14.2% decrease. Shipments
decreased by 13.1% and average selling price decreased by 1.5% during the
second quarter 1997 compared to the same period of the prior year.
Sales for the six-month period ending June 30, 1997, were $34,033,000
compared to $39,232,000 for the same period a year ago. The decreased
revenue for the first six months of 1997 is reflective of an approximate
7% decrease in both shipments and average selling price compared to the
same period of 1996.
Cost of sales decreased 10.7% and 10.9% respectively for the second
quarter and six months of 1997, compared to the same periods a year
earlier. The reduction in the volume of shipments plus the elimination of
costs associated with the pulp mill, which was closed in the second
quarter of 1996, were the major factors in the decrease.
Selling and administrative expenses decreased 1.9% to $1,017,000 for the
second quarter 1997, from $1,037,000 reported for the same period a year
earlier. Selling and administrative expenses increased 5.2% to $2,068,000
for the first six months of 1997 from $1,966,000 for the first six months
of 1996. The increase in 1997 was in part due to costs associated with
market development.
The Company recorded a second quarter, 1996 charge in the amount of
$7,430,000 resulting from the closure of the pulp mill. The charge
included the write-off of pulp mill fixed assets and inventories, costs
associated with early retirement or severance of certain workers, and a
provision for ongoing maintenance and security costs. The charge for the
discontinued pulp operations was partially offset by a second quarter gain
in the amount of $4,620,000 from the sale of timberlands located in
Northern Wisconsin and the Upper Peninsula of Michigan. These timberlands
were no longer compatible with the Company's fiber requirements. Proceeds
from the sale of the timberlands were used to retire debt. Excluding the
charge related to the discontinued pulp operations and the gain related to
the sale of the timberlands, the Company's second quarter, 1996 net income
was $686,000, or $.35 per share.
The Company committed itself to extensive product restructuring and grade
transition in the first half of 1997. Through new product development, a
number of new grades have been introduced to the Company's specialty paper
markets. These include dye sublimation grades, the complete eleven-color
line of Northern Brights/R/, Badger's own "Marks of Distinction"
watermarked private identity or security papers, and both acid and
alkaline heavy wet strength billboard papers.
Liquidity and capital resources
Capital expenditures during the second quarter and the first six months of
1997 amounted to $939,000 and $3,399,000, respectively, compared to
$574,000 and $999,000, respectively, during the same periods in 1996. The
company's $5.5 million capital expenditure plan for 1997 is well underway
with a number of projects completed. The projects in progress include the
installation of a new process control system for the Yankee paper machine,
which will provide control of machine direction and cross direction basis
weight and sheet moisture control. Additionally, an eight-color central
impression flexographic press is expected to be delivered to Plas-Techs
late in the third quarter and is expected to be operational in the fourth
quarter of 1997.
As of June 30, 1997, the Company's capital resources for funding ongoing
operations and capital expenditures included $4,431,000 of cash and
marketable securities, and a $13,000,000 revolving credit facility
extending to April 30, 1999. As of June 30, 1997, borrowings under this
credit facility totaled $12,900,000. The Company believes it has adequate
capital resources to meet its near-term capital and operating needs.
Cash used in operating activities totaled $1,752,000 for the first six
months of 1997, compared to cash used in operating activities for the
first half of 1996 of $4,488,000. Net cash used in investing activities
was $2,575,000 for the first six months of 1997 compared to $10,151,000
provided by investing activities for the same period in 1996. The main
items affecting cash for the first six months of 1996 were the $4,620,000
gain on sale of the main portion of the Company's timberlands and
retirement of the assets associated with the pulp mill of $5,337,000.
Accounting Matters
The Company is required to adopt Statement of Financial Accounting
Standard (SFAS) No. 128, "Earnings Per Share," into its financial
statements in the year ending December 31, 1997. SFAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per
share. The adoption of this statement will result in the presentation by
the Company of basic and, as appropriate, diluted earnings per share, as
defined by the statement, and is not expected to have a material impact on
the earnings per share reported in the financial statements. Upon
adoption of this statement, all prior-period earnings per share amounts
will be restated to conform to the provisions of SFAS No. 128.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) On Tuesday, May 3, 1997, at 10:00 a.m., the Annual Meeting of
Shareholders of Badger Paper Mills, Inc. was held at the Best
Western Riverfront Inn, 1821 Riverside Avenue, Marinette,
Wisconsin 54143.
(b) Two directors, whose terms expire at the 2000 Annual Meeting,
were elected at the May 13, 1997 Annual Meeting. The elected
directors are Claude L. Van Hefty and Ralph D. Searles. The
directors continuing in office were Earl R. St. John, Jr. and
Thomas J. Kuber, whose terms expire at the annual meeting in
1998, and James L. Kemerling, whose term expires at the annual
meeting in 1999.
(c) The shareholders voted against the shareholder proposal to
establish a committee of directors for the purpose of engaging
an investment banking firm and to facilitate and promote a sale
or merger of the Company. The vote tallied was 397,378 shares
"for", 1,270,348 shares "against", and 18,446 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial data schedules
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated July 10, 1997 was filed on
July 16, 1997 to report a change in the Registrant's certifying
accountant, and was subsequently amended by a Current Report on
Form 8-K/A dated July 10, 1997 that was filed on July 18, 1997.
<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: August 12, 1997 By /s/ Claude L. Van Hefty
Claude L. Van Hefty
President
(Chief Executive Officer)
DATE: August 12, 1997 By /s/ Miles L. Kresl, Jr.
Miles L. Kresl, Jr.
Vice President/Administration,
Treasurer & Corporate Secretary
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BADGER PAPER MILLS, INC. AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,126
<SECURITIES> 1,305
<RECEIVABLES> 6,281
<ALLOWANCES> 0
<INVENTORY> 6,887
<CURRENT-ASSETS> 19,814
<PP&E> 65,921
<DEPRECIATION> 36,570
<TOTAL-ASSETS> 52,176
<CURRENT-LIABILITIES> 8,758
<BONDS> 21,991
2,700
0
<COMMON> 0
<OTHER-SE> 178
<TOTAL-LIABILITY-AND-EQUITY> 52,176
<SALES> 34,033
<TOTAL-REVENUES> 34,033
<CGS> 32,733
<TOTAL-COSTS> 34,801
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 642
<INCOME-PRETAX> (1,184)
<INCOME-TAX> (403)
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<NET-INCOME> (781)
<EPS-PRIMARY> (.40)
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</TABLE>
