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, 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)
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 March 24, 1998, 1,951,855 shares of common stock were outstanding,
and the aggregate market value of the common stock (based upon the closing
sale price of the shares on the Nasdaq National Market) held by non-
affiliates was approximately $16,223,000. 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 1998 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>
<TABLE>
Five-Year Comparison of Selected Financial Data
<CAPTION>
Years ended December 31
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Earnings (in thousands)
Net sales $70,427 $76,276 $92,648 $73,674 $76,567
Cost of sales 67,600 72,411 83,890 72,949 74,272
Gross profit 2,827 3,865 8,758 725 2,295
Selling and administrative
expenses 4,085 4,136 3,852 3,872 4,715
Restructuring provision 850 7,430 504 - 3,850
Pulp mill impairment charge 783 - - - -
Profit (loss) from operations (2,891) (7,701) 4,402 (3,147) (6,270)
Other income 650 4,842 414 1,068 796
Interest expense 1,354 894 1,305 1,315 975
Unrealized holding gain or
(loss) on trading
securities - 307 549 (846) -
Earnings (loss) before income
taxes (3,595) (3,446) 4,060 (4,240) (6,449)
Income tax expense (benefit) (1,153) (1,234) 1,312 (1,713) (2,388)
Net earnings (loss) (2,442) (2,212) 2,748 (2,527) (4,061)
Common stock:
Number of shareholders 515 518 568 613 633
Weighted average shares
outstanding 1,947,128 1,944,699 1,953,868 1,957,163 1,957,176
Earnings (loss) per share $(1.25) $(1.14) $1.41 $(1.29) $(2.07)
Cash dividends declared per
share $ - $ 0.22 $0.10 $ - $ 0.20
Book value per share $ 8.42 $ 9.68 $11.04 $ 9.77 $11.06
Financial position (in thousands)
Working capital $8,192 $9,923 $10,459 $(1,276) $836
Capital expenditures 4,686 6,856 2,705 1,654 1,808
Total assets 48,356 51,952 52,578 54,382 59,046
Long-term debt 20,394 18,617 17,236 10,651 10,762
Shareholders' equity 16,444 18,832 21,443 19,120 21,650
</TABLE>
<PAGE>
Special Note Regarding Forward-Looking Statements
Certain matters discussed herein are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company
"believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are forward-looking statements. Such forward-looking statements
are subject to certain risks and uncertainties which are described in
close proximity to such statements and which could cause actual results to
differ materially from those currently anticipated. Readers are urged to
consider these factors carefully in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such forward-
looking statements. The forward-looking statements made herein are only
made as of the date of this report and the Company undertakes no
obligation to update such forward-looking statements to reflect subsequent
events or circumstances.
PART I
Item 1. Business
Badger Paper Mills, Inc. ("Badger" or the "Company") was incorporated
under the laws of the State of Wisconsin in 1929. It has been producing
paper for over 68 years. The industry segment in which Badger operates is
in the production of paper products.
Products and Distribution
Badger operates an ISO 9001 certified paper mill, consisting of two paper
machines located in Peshtigo, Wisconsin. Converting facilities contiguous
to the papermaking facilities include punching equipment, sheeters,
trimmers, sealers, perforator, rewinders, waxers, paper drilling and die-
cutting equipment. Badger also has a flexographic printing and converting
operation at Plas-Techs, Inc., a wholly-owned subsidiary in Oconto Falls,
Wisconsin.
The fine paper products produced by Badger's Fourdrinier machine represent
79 percent of the paper products produced by the Company in 1997, and
contributed more than 67 percent of the Company's 1997 revenue. Fine
paper grades are produced utilizing fiber purchased on the open market,
including pre and post consumer recycled fibers. These paper grades
include multi-purpose business papers, offset, opaque, endleaf, ledger,
reply card, watermarked, water-oil-grease resistant papers (WOGR),
electrostatic copier, text and cover, and technical and specialty papers.
Badger offers a wide range of colored papers and specializes in color
matching. Badger sells a portion of these products under certain
trademarks and trade names, including Ta-Non-Ka/R/, Copyrite/R/,
ENVIROGRAPHIC/R/, Northern Brights/R/, Artopaque/TM/ and Marks of
Distinction/TM/. These products are sold through paper merchants, brokers
and value-added converters who in turn sell to other value-adding entities
or direct to the consumer. Consumers of Badger's fine paper products are
located primarily in the Midwest, although consumers of the Company's fine
paper products can be found in principal cities throughout North America.
The flexible packaging products produced by Badger's Yankee machine
represented 33 percent of Badger's 1997 revenue, and 21 percent of the
paper products manufactured by Badger in 1997. In addition to the paper
produced on the Yankee machine, paper is purchased from other
manufacturers to supplement Badger's production capacity in order to
increase utilization of Badger's converting facilities. Badger's flexible
packaging paper products include converted plain or printed waxed papers,
laminating grades, machine-glazed, colors, specialty-coated base papers,
twisting papers and various other specialty papers. These products are
sold nationally and internationally to manufacturers, consumers and
converters by Badger's own sales personnel and commissioned brokers.
Plas-Techs operates a printing and converting facility that compliments
Badger's flexible packaging paper products to better serve Badger's
customer base. Plas-Techs is capable of processing various substrates of
film and paper, enhancing the capabilities and flexibility of both
Badger's fine paper operations and its flexible packaging paper
operations, resulting in opportunities to expand business growth for both.
The Plas-Techs facility also has rewinding and polyethylene bag making
equipment.
Competition
Badger's manufactured paper products are highly sensitive to competition
from numerous sources, including other paper products and products of
other composition. Product quality, price, volume and service influence
competition.
Badger's fine paper 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
flexible packaging and specialty papers produced from the Yankee paper
machine comes from other specialty mills; some of the mills are similarly
constituted as Badger, others have greater capacity. Backlogs are
maintained by offering quality products, prompt service and technical
assistance, including a research and development program to develop new
products to meet customer product design specification.
Inventories; Raw Materials
Badger's principal raw material used for its papermaking operations is
purchased pulp. Badger utilizes a variety of fibers to meet the
formulation requirements of the papers it produces. Pre-consumer and
post-consumer recycled pulp, northern and southern softwood and hardwood
pulps, and hard white rolls make up the total fiber requirements. Since
the closure of Badger's sulphite mill in May, 1996, Badger has purchased
its fiber requirements on the open market at costs the Company believes
are less than the cost of producing such fiber.
Other raw materials are purchased directly from manufacturers. Badger has
at least two sources of supply for major items. Shortages of purchased
pulp or certain chemicals (including petrochemicals) could have an adverse
effect on Badger's ability to manufacture its products, and could
adversely affect product mix.
In-process and finished goods inventory at the end of 1997 was equivalent
to approximately 36 days of production on Badger's paper machines.
Energy
Badger is a large user of electricity and natural gas. Prior to 1997,
Badger utilized an on-site 2,000 kilowatt electrical co-generation system.
However, as a result of Badger's restructuring during 1996 and 1997,
productive steam requirements declined to a point where it has become more
cost effective to purchase its entire electrical requirements. Therefore,
the co-generation equipment was removed from operation during the fourth
quarter of 1997. Badger's current electrical requirements are purchased
from local public or municipal cooperative utilities. Badger'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. Management believes
current sources of natural gas, fuel oil and electricity are adequate to
meet Badger's needs.
Patents
Badger owns certain patents and licenses used in connection with its
business, none of which are individually considered material to its
business.
Research and Development
Badger's technical staff researches and develops new products. Badger
also utilizes the expertise of outside consultants from time to time. The
amounts spent on product research and development activities were
$5,287,00 in 1997, $862,000 in 1996, and $300,000 in 1995. The
significant increase in research and development expenditures in 1997 was
directed to new product introductions and the development of specialty
products designed to meet the needs of customers and the industry.
Backlog
As of December 31, 1997, Badger's backlog of orders was approximately
$3,550,000, as compared to $875,000 and $2,900,000 at December 31, 1996
and 1995 respectively. Soft market conditions that existed at the end of
each of these years allowed our customers to order closer to their actual
needs.
Customers
In 1997, no customers represented over 10 percent of Badger's net sales.
Sales to Alco Standard Corporation were $12,030,000, or 15.8 percent of
Badger's net sales, and $10,732,000, or 11.6 percent in 1996 and 1995,
respectively.
Environmental Matters
In August, 1997, the Wisconsin Department of Natural Resources (WDNR) met
with Badger to discuss finalization of the Title V Air Operating Permit at
Badger's Peshtigo, Wisconsin facility. The WDNR is in the process of
producing an initial draft of the permit. The closure of Badger's pulp
mill in May, 1996 eliminated the largest portion of Badger's emissions and
simplified the permitting process. Badger will be required to monitor and
quantify designated emissions, and compliance with such requirements is
not expected to be cumbersome. Badger does not expect exceedances of any
such proposed limits. All effluent flow is directed into the Joint
Municipal Waste Water Treatment Plant which Badger operates under contract
with the City of Peshtigo.
Negotiations continue with the WDNR regarding the final closure cover for
Badger's Harbor Road Landfill. Badger and the WDNR have discussed various
proposals, and expect final resolution to the closure proposal during
1998. The costs related to such closure are expected to be within the
amount accrued for such closure.
Badger's wholly-owned subsidiary, Plas-Techs, Inc., in Oconto Falls,
Wisconsin, currently complies with its air operating permit.
Badger has in force all of the necessary environmental operating permits
with the State of Wisconsin and does not anticipate any problem with the
reissuance of any permits.
Employees
As of December 31, 1997, the Company had 363 employees, of which 249 were
covered by six-year collective bargaining contracts run through May, 2001.
Item 2. Properties
The Company considers its manufacturing facilities to be in good repair
and suitable for the purpose intended.
The Company's approximately 3,750 square foot headquarters and
approximately 88,500 square foot paper manufacturing facility are located
in Peshtigo, Wisconsin. Plas-Techs' approximately 40,000 square foot
facility is located in Oconto Falls, Wisconsin.
Item 3. Legal Proceedings
The Company has no pending material legal proceedings.
Item 4. Submission of matters to a vote of security holders
No matters were submitted to a vote of security holders in the fourth
quarter of 1997.
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 National
Market under the symbol BPMI. There were 494 shareholders of record as of
March 24, 1998. Stock price and dividend information is found on page 30
of this report.
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
Result of Operations
The Company started up its new stock preparation facilities in January
1997. The new facilities enhance the diversity of paper grades offered by
Badger and allow the Company to execute grade changes more efficiently.
Additionally, the Company's two paper machines now have their own water,
stock and waste recovery systems. This flexibility allows the paper
machines to completely separate their systems, with no opportunity for
cross contamination. For example, one paper machine can run deep colors
while the other manufactures the Company's brightest, whitest grades.
Product development efforts during 1997 were extensive. Over 230
opportunities were explored in the effort to bring new specialty products
to Badger. Of these, 16, including the Northern Brights/R/ line and
souffle papers, were being commercially produced by the end of the year.
The Company expects to continue to invest in product development in 1998
in order to continue the transition of the Company's grade mix to products
that fit niche markets.
Process improvements were evident throughout 1997. A saveall for the
Yankee machine reduced solids discharged to the sewer, and enhancements in
chemical control systems resulted in additional product improvements. A
new ABB fully-automated computer to control the process on the Yankee
machine was installed mid-year, and upgrades on the Yankee machine coater
resulted in improved machine runability and higher quality surfaces.
1997 vs. 1996
Net sales for 1997 of $70,427,000 compared to $76,276,000 reported a year
earlier, or an 8 percent decrease. Weak market conditions have existed in
the industry since the third quarter of 1995. This has resulted in a
decline of 4 percent in the volume of shipments, 10 percent higher
production downtime and a decrease in average selling price of 5 percent
for 1997 when compared to a year earlier.
Cost of sales for 1997 decreased 7 percent to $67,600,000 from $72,411,000
for 1996. Production from operations decreased 5 percent in 1997 when
compared to a year earlier due to machine downtime scheduled because of
soft market conditions. The cost of purchased fiber, the most costly
component used in the production of paper, remained relatively stable
throughout 1997 and equaled the cost incurred during 1996. Energy,
operating and maintenance supplies, and environmental expenses decreased
19 percent from a year earlier due to the closure of Badger's pulp mill in
May 1996, and lower energy costs and cost reduction initiatives realized
during 1997. Costs were impacted in 1997 by $5,287,000 of research and
product development costs compared with $862,000 for 1996. The increased
spending related to development of new manufacturing techniques, new
products and new applications that management believes are necessary to
implement the Company's strategy to transition from a producer of
commodity products and reposition itself in the marketplace as a specialty
products manufacturer.
Gross margins for 1997 of $2,827,000 compared to $3,865,000 a year
earlier, reflecting impact of the soft market conditions which existed
throughout the year. Selling and administrative expenses totaled
$4,085,000 and $4,136,000 in 1997 and 1996, respectively.
Badger recorded a charge of $850,000 in 1997 in recognition of the
discontinuance of manufacturing certain products and elimination of
certain converting operations. Badger also recorded a 1997 charge of
$783,000 primarily related to the remaining unsold assets from the May
1996 pulp mill closure.
Plas-Techs contributed approximately 7 percent to the consolidated revenue
of Badger and was profitable for each of the years 1997 and 1996.
Interest expense for 1997 totaled $1,354,000 compared to $894,000 for
1996. The increase in interest expense was attributable to higher average
borrowings under the Company's revolving credit agreement. Badger's
effective tax rate was a 32.1 percent benefit for 1997 compared to a 35.8
percent benefit for the year 1996.
1996 vs. 1995
In 1996, net sales decreased 17.7 percent to $76,276,000 from $92,648,000
during the same period in 1995. The volume of shipments in 1996 remained
relatively constant compared to 1995, but the average selling price
decreased by approximately 18 percent.
Cost of sales of $72,411,000 for 1996 decreased by 14 percent from
$83,890,000 in 1995. this reduction is the result of the decreased costs
associated with the closing of the pulp mill operations in May, 1996, as
well as the reduction in cost of purchased fiber of approximately 20
percent in 1996.
Gross margins for 1996 were $3,865,000, compared to $8,758,000 a year
earlier, primarily due to the decrease in paper prices.
Selling and administrative expenses totaled $4,136,000 and $3,852,000 for
1996 and 1995, respectively.
Badger recognized a $7,430,000 charge against earnings for costs
associated with the closure of the pulp mill in 1996. The critical
factors in the decision to close the pulp mill were the pending
environmental compliance concerns related to operation of the pulp mill,
and the cost savings that could be realized through purchasing the
Company's long-term pulp requirements on the open market more cost
effectively than producing its own pulp. The 1996 charge includes the
write down of pulp mill assets and inventories at $5,294,000, costs
associated with the early retirement or severance of certain workers at
$1,672,000 and provision for other miscellaneous costs of $464,000.
During 1995, Badger recorded a charge of $504,000 in connection with a
voluntary early retirement incentive package offered to certain employees.
Badger also recognized a gain on sale of timberlands in 1996 of
$4,871,000. Badger sold approximately 14,000 acres or 85 percent of its
timberlands.
Badger recognized an unrealized holding gain on trading securities of
$307,000 in 1996 compared to a gain of $549,000 in 1995. Because Badger's
investments are accounted for in a trading account, unrealized gains and
losses are included in Badger's statement of operations in accordance with
FASB No. 115.
Interest expense for 1996 decreased $411,000 to $894,000 from $1,305,000
reported for 1995. The reduced level of credit line borrowings in 1996 was
the major factor in this change.
Plas-Techs contributed approximately 7 percent to the consolidated revenue
of Badger and was profitable for 1996. This compares to 3.2 percent of
Badger's consolidated revenue in 1995.
Badger's effective tax rate was a 35.8 percent benefit in 1996 as compared
to a 32.3 percent effective tax in 1995.
Liquidity and Capital Resources
Capital Expenditures
Capital expenditures for 1997 totaled $4,686,000 compared to $6,856,000 in
1996 and $2,705,000 in 1995. Depreciation and depletion totaled
$2,790,000 in 1997 compared to $2,743,000 and $3,224,000 in 1996 and 1995,
respectively.
Major capital projects during 1997 included the completion of the new
stock preparation facility, which started up in the first quarter of 1997;
installation of an AccuRay 1180 Smart Platform process control system for
the Yankee paper machine, and progress payments on a Chadwick eight-color
61" central impression flexographic press to be installed at Plas-Techs
and expected to be operational in April, 1998.
In 1998, Badger plans to continue investment in upgrading its facilities,
including improvements and upgrades to both paper machines, and
installation of a computerized roll tracking and bar code system. The
Company is also evaluating whether installation of a new steam generating
plant makes economic sense.
Capital Resources
Badger has in place a revolving credit agreement, allowing for a credit
line of $12,000,000 which expires April 30, 1999 (the "Credit Agreement").
The Credit Agreement contains various financial covenants, including a
requirement that tangible net worth be maintained at not less than
$16,100,000 through June 29, 1998; not less than $16,500,000 from June
30, 1998 through December 30, 1998; and, not less than $17,000,000 at
December 31, 1998 and thereafter. Certain other covenants limit dividend
and certain other restricted payments. The Credit Agreement was amended
in August, 1997 and again in March, 1998 in order to modify certain of the
financial covenants contained therein.
During 1997, the Board of Directors of Badger suspended payment of
quarterly dividends on its Common Stock. The Board is determined to
direct the Company's resources toward plant improvements, product
development, and marketing initiatives designed to enhance shareholder
value. At December 31, 1997, $11,400,000 was outstanding under the
revolving credit agreement referenced above, a $1,900,000 increase from
the amount of such borrowings at December 31, 1996.
Cash Flows
Cash provided from operations was $399,000 in 1997 and $5,331,000 in 1996.
The decrease relates primarily to the higher cash provided from operating
activities in 1996, primarily due to the provisions made with respect to
the pulp mill closure, net proceeds from sales on marketable securities, a
decrease in accounts receivable offset by an adjustment for the gain on
disposal of property, plant and equipment and timberlands. The cash used
in investing activities totaled $4,951,000 in 1997 compared to $3,045,000
in 1996.
Cash flows from financing activities in 1997 was $1,775,000 compared to
$958,000 in 1996. The increase is primarily due to increased borrowings
under the revolving credit agreement of $1,900,000 in 1997, and offset by
the 1996 dividends paid in the amount of $427,000.
Item 8. Financial statements and supplementary data
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
Board of Directors and Shareholders
Badger Paper Mills, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Badger
Paper Mills, Inc. (a Wisconsin corporation) and Subsidiary as of December
31, 1997 and the related consolidated statement of operations,
stockholders' equity and cash flows for the year then ended. 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 audit. The consolidated balance sheet of Badger Paper Mills,
Inc. and Subsidiary as of December 31, 1996 and the consolidated
statements of operations, shareholders' equity and cash flows for the
years ended December 31, 1996 and 1995, were audited by other auditors
whose report dated February 4, 1997 expressed an unqualified opinion on
those statements.
We conducted our audit 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 our audit
provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above, present
fairly, in all material respects, the financial position of Badger Paper
Mills, Inc. and Subsidiary as of December 31, 1997 and the consolidated
results of their operations and their consolidated cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Appleton, Wisconsin
February 2, 1998 (except for Note F, as to which the
date is March 3, 1998)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
Badger Paper Mills, Inc.
Peshtigo, Wisconsin 54157
We have audited the accompanying consolidated balance sheet of Badger
Paper Mills, Inc. and Subsidiary as of December 31, 1996, and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows for each of the two years in the period ended December 31,
1996. 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, 1996, and the
consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 4, 1997
<PAGE>
Badger Paper Mills, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(dollars in thousands)
ASSETS 1997 1996
Current Assets:
Cash and cash equivalents $1,302 $4,079
Certificates of deposit 1,382 -
Marketable securities 1,318 1,800
Accounts receivable, net 5,120 4,556
Inventories 4,844 6,837
Refundable income taxes 385 1,466
Deferred income taxes 1,291 981
Trade credits 996 706
Prepaid expenses and other 298 488
------ ------
Total current assets $16,936 $20,913
Property, plant, equipment and
timberlands, net 29,287 27,405
Property, plant and equipment
held for sale - 1,410
Other assets 2,133 2,224
------- -------
Total assets $48,356 $51,952
======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term debt $123 $119
Accounts payable 4,313 7,409
Accrued liabilities 4,308 3,462
-------- --------
Total current liabilities 8,744 10,990
Long-term debt 20,394 18,617
Deferred income taxes 1,185 1,621
Other liabilities 1,589 1,892
Commitments and contingencies - -
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 190 178
Retained earnings 15,552 17,994
Treasury stock, at cost, 208,145
and 214,870 shares in 1997
and 1996, respectively (1,998) (2,040)
------- -------
Total shareholders'
equity 16,444 18,832
------- -------
Total liabilities and
shareholders' equity $48,356 $51,952
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Badger Paper Mills, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1997, 1996 and 1995
(dollars in thousands, except per share data)
1997 1996 1995
Net sales $70,427 $76,276 $92,648
Cost of sales 67,600 72,411 83,890
------- ------- -------
Gross profit 2,827 3,865 8,758
Selling and administrative expenses 4,085 4,136 3,852
Restructuring provision 850 7,430 504
Pulp mill asset impairment charge 783 - -
------- ------- -------
5,718 11,566 4,356
------- ------- -------
Operating (loss) income (2,891) (7,701) 4,402
Other income (expense):
Interest and dividend income 236 224 375
Interest expense (1,354) (894) (1,305)
Unrealized holding gain (loss) on
trading securities - 307 549
(Loss) gain on disposal of
property, plant, equipment and
timberlands (14) 4,871 -
Miscellaneous, net 428 (253) 39
------- ------- -------
(704) 4,255 (342)
------- ------- -------
(Loss) income before income taxes (3,595) (3,446) 4,060
(Benefit) provision for income taxes (1,153) (1,234) 1,312
------- ------- -------
Net (loss) income $(2,442) $(2,212) $2,748
======= ======= =======
Net (loss) earnings per
share $(1.25) $(1.14) $1.41
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Badger Paper Mills, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
(dollars in thousands)
1997 1996 1995
Common stock
Balance, December 31 $2,700 $2,700 $2,700
------ ------ ------
Additional paid-in capital
Balance, January 1 178 168 168
Treasury stock issued 12 10 -
------- ------- -------
Balance, December 31 190 178 168
Retained earnings
Balance, January 1 17,994 20,633 18,080
Net (loss) income (2,442) (2,212) 2,748
Cash dividends of $.22 and $.10
in 1996 and 1995, respectively - (427) (195)
-------- -------- -------
Balance, December 31 15,552 17,994 20,633
-------- -------- -------
Treasury stock
Balance, January 1 (2,040) (2,058) (1,828)
Shares acquired (920 and 15,000
shares in 1997 and 1995,
respectively)
(8) - (233)
Shares issued (7,645, 2,800 and
500 shares in 1997, 1996 and
1995, respectively 50 18 3
------- -------- --------
Balance, December 31 (1,998) (2,040) (2,058)
------- -------- --------
Shareholders' equity
Balance, December 31 $16,444 $18,832 $21,443
======= ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
Badger Paper Mills, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
(dollars in thousands)
1997 1996 1995
Cash flows from operating activities:
Net (loss) income $(2,442) $(2,212) $2,748
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and depletion 2,790 2,743 3,224
Pulp mill closure provision, net
of cash expenditures - 6,923 -
Pulp mill impairment charge 783 - -
Director's fees paid in stock 60 - -
Deferred income taxes (746) (905) 503
Net proceeds from sales of
marketable securities trading - 2,533 1,174
Unrealized holding (gain) on
marketable securities trading - (307) (549)
Realized (gain) loss on sale of
marketable securities (8) 468 159
Loss (gain) on disposal of
property, plant, equipment and
timberlands 14 (4,871) -
Changes in assets and liabilities
Accounts receivable, net (564) 2,399 (184)
Inventories 1,993 (113) (995)
Accounts payable and accrued
liabilities (2,250) 719 801
Refundable income taxes 1,081 (1,293) 126
Other (312) (753) (421)
------- ------- -------
Net cash provided by operating
activities 399 5,331 6,586
Cash flows from investing activities:
Additions to property, plant,
equipment and timberlands (4,686) (6,856) (2,705)
Proceeds from sale of property, plant,
equipment and timberlands 627 5,133 -
Acquisition of certificates of deposit (1,382) - -
Purchases of marketable securities (1,192) (3,601) (870)
Proceeds from sale of marketable
securities 1,682 2,245 345
Restricted funds from Industrial
Development Revenue Bond - 34 1,940
------- ------- -------
Net cash used in investing
activities (4,951) (3,045) (1,290)
Cash flows from financing activities:
Payments on long-term debt (119) (115) (1,411)
Increase (decrease) in revolving notes
payable 1,900 1,500 (4,000)
Dividends paid - (427) (195)
Acquisition of treasury stock - net (6) - (230)
------- ------- -------
Net cash provided by (used in)
financing activities 1,775 958 (5,836)
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (2,777) 3,244 (540)
Cash and cash equivalents:
Beginning of year 4,079 835 1,375
End of year ------- ------- -------
$1,302 $4,079 $ 835
The accompanying notes are an integral part of these statements.
<PAGE>
Badger Paper Mills, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Badger Paper Mills, Inc. and Subsidiary ("Company") operates in one
industry segment which is the production of paper products.
A summary of the significant accounting policies applied in the
preparation of the accompanying consolidated financial statements follows.
1. 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.
2. 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 predominantly 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.
3. 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.
4. 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.
5. Marketable Securities
The investment portfolio at December 31, 1997 and 1996, which consists
of taxable bonds, is classified as available for sale. The difference
between cost and fair value is insignificant. The specific identification
method is used to compute realized gains and losses. The bonds mature at
various dates as follows: 1 year to 5 years, $794,000; 5 years to 10
years, $438,000; and after 10 years, $86,000.
6. Receivables
Accounts receivable are stated net of an allowance for discounts and
doubtful accounts.
7. Trade Credits
Trade credits represent credits granted by an international barter
firm in exchange for surplus inventory. Trade credits are recorded at the
lower of cost or market of the inventory exchanged. Gain is recognized
upon utilization of the trade credits with the Company's suppliers and
vendors.
8. 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.
9. Property, Plant, Equipment and Timberlands
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. Depletion on timberlands
was determined on the cost method.
10. 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.
11. Research and Product Development Costs
Research and product development costs related to potential new
products and applications are expensed when incurred. These costs totaled
$5,287,000, $862,000 and $300,000 for 1997, 1996 and 1995, respectively,
and are included in cost of sales.
12. 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 (1,947,128
shares, 1,944,699 shares and 1,953,868 shares in 1997, 1996 and 1995,
respectively).
13. Revenue Recognition
Revenue is recognized by the Company when goods are shipped.
14. Reclassifications
Certain reclassifications have been made to the 1996 and 1995
consolidated financial statements to conform to the 1997 presentation.
NOTE B - RECEIVABLE ALLOWANCES
The receivable allowances at December 31, 1997 and 1996 are as follows (in
thousands):
1997 1996
Sales returns and allowances $208 $105
Cash discounts 35 38
Doubtful accounts 75 22
--- ---
$318 $165
=== ===
NOTE C - INVENTORIES
The major classes of inventories, valued on the LIFO cost method, at
December 31, 1997 and 1996 are as follows (in thousands):
1997 1996
Raw Materials $1,281 $ 994
Work-in-process and finished stock 3,563 4,122
Pulpwood inventory to be sold - 1,721
----- -----
$4,844 $6,837
===== =====
The FIFO cost of raw materials, work-in-process and finished stock
inventories approximated $9,050,000 and $8,380,000 at December 31, 1997
and 1996, respectively. It is not practical to separate finished stock
and work-in-process inventories.
As a result of the pulp mill closure in 1996, the remaining pulpwood
inventory was recorded at its net realizable value. This inventory was
sold in 1997.
NOTE D - PROPERTY, PLANT, EQUIPMENT AND TIMBERLANDS
The major classes of property, plant, equipment and timberlands at
December 31, are as follows (in thousands):
1997 1996
Land $ 120 $ 120
Buildings 8,268 8,083
Machinery, equipment and railroad siding 56,105 50,802
Timberlands 79 79
Construction-in-progress 1,757 3,478
------ ------
66,329 62,562
Accumulated depreciation and depletion 37,042 35,157
------ ------
$29,287 $27,405
====== ======
At December 31, 1997 and 1996, $17,650,000 and $16,749,000,
respectively, of fully depreciated assets were still in use. At December
31, 1996, the property, plant and equipment held for sale relates to the
closure of the pulp mill and is recorded at the lower of book value or
estimated market value less the costs of disposal. In December, 1997, the
Company evaluated the remaining fixed assets held for resale by comparing
the asset's carrying amount with its fair value less cost to sell. As a
result, the Company recorded an impairment charge of $783,000.
During 1996, the Company sold timberlands for $5,051,000 resulting in
a gain of $4,873,000.
NOTE E - ACCRUED LIABILITIES
Accrued liabilities at December 31, 1997 and 1996 are as follows (in
thousands):
1997 1996
Compensation and related taxes $1,975 $1,965
Profit Sharing 587 723
Restructuring 810 -
Other 936 774
----- -----
$4,308 $3,462
===== =====
NOTE F - LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consists of the following
(in thousands):
1997 1996
Revolving Credit Agreement $11,400 $ 9,500
Industrial Development Revenue
Bonds (IDRBs) 7,483 7,550
Urban Development Action Grant 1,634 1,686
------- ------
20,517 18,736
Current portion 123 119
------ ------
$20,394 $18,617
====== ======
The Company's revolving credit facility provides for borrowings up to
$12 million and extends to April 30, 1999. A commitment fee of 3/8
percent is payable for unused amounts. Interest on borrowings is at the
LIBOR rate plus 1.5 percent (totaling 7.0 percent at December 31, 1997).
Borrowings are collateralized by cash and cash equivalents, certificates
of deposit, marketable securities, inventory, accounts receivable,
marketable securities and certain property, plant and equipment.
Certain of the IDRBs are due in monthly installments of $5,555 plus
interest through maturity in 1999. The remaining IDRBs are due at
maturity in 2006. Interest on the IDRBs is payable monthly at floating
rates determined by remarketing agents (3.9 percent at December 31, 1997)
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
1997 for these bonds was 3.75 percent. The IDRBs are collateralized by
bank letters of credit expiring in 1998. The Company pays annual fees at
1 percent of the amount available under the letters of credit.
As amended on March 9, 1998, the letters of credit and revolving credit
facility require, among other items, the Company to maintain a minimum
tangible net worth of $16,100,000 through June 29, 1998; $16,500,000 from
June 30, 1998 through December 30, 1998, and $17,000,000 at December 31,
1998 and thereafter, a current ratio (excluding the revolving credit loan
balance from current liabilities) of 1.70 to 1.0 or greater. Dividends
and treasury stock purchases are limited to 33 percent of the Company's
cumulative net income from July 1, 1996, and capital expenditures are
limited to $3.1 million in 1998 and $2.5 million in 1999.
The Urban Development Action Grant is due in monthly installments of
$15,437, including interest at an effective rate of approximately 8.0
percent, 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.
The carrying amount of the Company's long-term debt approximates fair
value.
Future maturities of all long-term debt are as follows:
Year ended December 31,
1998 $ 123
1999 11,528
2000 1,516
2001 -
2002 -
2003 and Thereafter 7,350
------
$20,517
======
NOTE G - INCOME TAXES
The (benefit) provision for income taxes consists of the following (in
thousands):
1997 1996 1995
Currently (refundable) payable:
Federal $ (438) $ (359) $ 800
State 31 30 9
------- ------ ------
(407) (329) 809
Deferred:
Federal (746) (915) 503
State - 10 -
------- ------ ------
(746) (905) 503
------- ------ ------
$(1,153) $(1,234) $1,312
======= ====== ======
The significant differences between the effective tax rate and the
statutory federal tax rates are as follows:
1997 1996 1995
Statutory Federal tax rate (34.0)% (34.0)% 34.0%
Tax-exempt interest - (0.4) (1.3)
State taxes - 0.8 (0.1)
Other 1.9 (2.2) (0.5)
----- ------ ------
Effective tax rate (32.1)% (35.8)% 32.3%
===== ====== ======
The components of the deferred tax assets and liabilities as of December
31 are as follows (in thousands):
1997 1996
Deferred tax assets:
Accounts receivable $ 108 $ 43
Inventories 436 370
Accrued expenses 763 550
Deferred compensation 118 152
Postretirement benefits 344 585
Unrealized loss on securities - 3
Tax credit carryforward 2,710 2,381
State net operating loss carryforwards 550 466
State credit carryforwards 1,766 1,146
Valuation allowance (2,075) (1,393)
------ ------
4,720 4,303
Deferred tax liabilities:
Fixed assets (4,614) (4,943)
------ ------
Net asset (liability) $ 106 $ (640)
====== ======
For Federal income tax purposes, the Company has research and development
credit carryovers and alternative minimum tax credit carryovers of
$755,000 and $1,955,000, respectively. For state income tax purposes, the
Company has net operating loss and tax credit carryovers of $12,720,000
and $1,766,000, 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 that state
carryforwards, absent future taxable income, will expire unused. The
valuation allowance increased $682,000 based on management's reevaluation
of the likelihood of realization.
NOTE H - EMPLOYEE BENEFITS
The Company has profit sharing plans covering substantially all
employees. Contribution expenses associated with these plans were
$587,000, $723,000 and $668,000 in 1997, 1996 and 1995, respectively.
NOTE I - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes was as follows (in thousands):
1997 1996 1995
Interest $1,345 $876 $1,406
Income taxes 5 937 683
Noncash investing and financing activity:
At December 31, 1997, 1996 and 1995, accounts payable included $134,000,
$732,000 and $97,000, respectively, for property and equipment additions.
NOTE J - MAJOR CUSTOMERS
In 1997, no customers represented over 10 percent of the Company's net
sales. Sales to a customer, which represents over 10 percent of the
Company's net sales, were $12,030,000 and $10,732,000 in 1996 and 1995.
NOTE K DIRECTOR STOCK GRANT PLAN
In 1997, in order to attract and retain competent independent directors
to serve as Directors of the Company, the Company established a Director
Stock Grant Plan. An aggregate of 25,000 shares of Common Stock was
reserved for issuance under the Plan. Each Director who is not an
employee of the Company is to receive a grant of Common Stock in partial
payment of his or her retainer fee. During 1997, 7,345 shares were issued
under the Plan, from treasury stock, at a value of $60,000.
NOTE L - RESTRUCTURING PROVISIONS
In December, 1997 the Company recorded a charge of $850,000 in connection
with a plan to discontinue manufacturing certain products and eliminate
certain converting operations. The charge includes employee termination
benefits ($297,000), write down of equipment ($313,000), write down of
inventory ($152,000), and a provision for other miscellaneous costs
($88,000).
During 1996, the Company recorded a charge of $7,430,000 resulting from
the closure of the pulp mill. The charge includes the write down of pulp
mill assets and inventories ($5,294,000), costs associated with the early
retirement or severance of certain workers ($1,672,000) and provision for
other miscellaneous costs ($464,000).
During 1995, the Company recorded a charge of $504,000 in connection with
a voluntary early retirement incentive package offered to certain
employees.
NOTE M - CONTINGENCIES
The Company is responsible for the closure of a solid waste landfill.
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 $550,000. The
Company has accrued the low end of the range.
<PAGE>
PART III
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure
A current report on Form 8-K dated July 10, 1997, as amended by a Form
8-K/A dated July 10, 1997, was filed to report a change in the Company's
certifying accountant.
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 1998
Annual Meeting of Shareholders.
(b) Executive officers of registrant
Period Served
In This
Name Age Office Office
Michael J. Bekes 40 Vice President/COO 2 years
Vice President/COO, 1 1/2 years
Fletcher Paper Co. 1/2 year
Mill Manager, Fletcher Paper Co. 5 1/2 years
Manager of Operations, Fletcher
Paper Co.
Clifton A. Martin 46 Vice President, General Manager,
Plas-Techs, Inc. 1 3/4 years
General Manager, Plas-Techs, Inc. 3 3/4 years
Sales Representative 6 1/2 years
Mark C. Neumann 38 Vice President/Sales 2 3/4 years
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 1998 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 1998 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 1998 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 1998 Annual
Meeting of Shareholders.
PART IV
Item 14. Exhibits, financial statement schedules and reports on Form 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 reports of independent accountants,
included in this report:
Pages
Reports of Independent Accountants . . . . . . . . . . . . . . . 10-11
Consolidated balance sheets, December 31, 1997 and 1996 . . . . . 12
Consolidated statements of operations for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . 13
Consolidated statements of changes in shareholders' equity
for the years ended December 31, 1997, 1996 and 1995 . . . . . . 14
Consolidated statements of cash flows for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . 15
Notes to financial statements . . . . . . . . . . . . . . . . . . 16
(a) (2) List of financial schedules:
The following is a listing of data submitted herewith:
Reports of independent accountants on financial
statement schedule . . . . . . . . . . . . . . . . . . . . . . 27-28
Schedule for the years ended December 31, 1997, 1996 and 1995:
II Valuation and qualifying accounts and reserves . . . . . . . 29
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
(3) (i) Restated Articles of Incorporation, as amended
(Incorporated by reference to Exhibit 3(i) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
(ii) By-laws as amended through March 13, 1997 (Incorporated
by reference to Exhibit 3(ii) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
(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,
individually 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 Quarterly 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
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
(iii) Second Amendment thereto dated as of March 31, 1994
(Incorporated by reference 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
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
(v) Fourth Amendment thereto dated February 17, 1995
(Incorporated by reference to Exhibit 4(v) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
(vi) Fifth Amendment thereto dated as of April 28, 1995
(Incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1995).
(vii) Sixth Amendment and Waiver dated August 9, 1996
(Incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
(viii) Seventh Amendment and Waiver dated August 6, 1997
(Incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997).
(ix) Eighth Amendment and Waiver dated March 9, 1998.
(10) Material Contracts:*
(i) Supplemental Executive Retirement Plan dated December
18, 1992 (Incorporated by reference to Exhibit 10(ii) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1992).
(ii) Executive Employment Agreement dated March 1, 1995,
between the Company and Claude L. Van Hefty
(Incorporated by reference to Exhibit 10(vii) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
(iii) Health Insurance Retirement Benefit Agreement dated
January 1, 1996 between the Company and Claude L. Van
Hefty (Incorporated by reference to Exhibit 10(v) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
(iv) Director Stock Grant Plan dated July 23, 1997
(Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997).
(23) (i) Consent of Current Independent Public Accountant
(ii) Consent of Former Independent Public Accountant
(27) Financial Data Schedule (EDGAR version only)
(99) Definitive Proxy Statement for 1997 Annual Meeting of
Shareholders (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:
(i) No reports on Form 8-K were filed during the fourth
quarter of 1997.
<PAGE>
SIGNATURES
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.
DATE: March 27, 1998
BADGER PAPER MILLS, INC.
/s/ Michael J. Bekes
Michael J. Bekes
Vice President/COO
(Principal Executive Officer)
/s/ George J. Zimmerman
George J. Zimmerman
Controller
(Principal 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/ Mark D. Burish Director March 27, 1998
Mark D. Burish
/s/ James L. Kemerling Director March 27, 1998
James L. Kemerling
/s/ Thomas J. Kuber Director March 27, 1998
Thomas J. Kuber
/s/ John R. Peterson Director March 27, 1998
John R. Peterson
/s/ Ralph D. Searles Director March 27, 1998
Ralph D. Searles
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Shareholders and
Board of Directors
Badger Paper Mills, Inc. and Subsidiary
Peshtigo, Wisconsin
Our report on the 1997 financial statements of Badger Paper Mills, Inc.
and Subsidiary is included on page 10 of this Form 10-K. In connection
with our audit of such financial statements, we have also audited the
related financial statement schedule listed in the index on page 23 of
this Form 10-K. The 1996 and 1995 financial statements and schedules of
Badger Paper Mills, Inc. and Subsidiary were audited by other auditors.
In our opinion, the 1997 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.
/s/ Grant Thornton LLP
Appleton, Wisconsin
February 2, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders 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 11 of this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule, for the years ended December 31, 1996 and
1995, listed in the index 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 to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 4, 1997
<PAGE>
Schedule II - Valuation and Qualifying Accounts and Reserves
for the years ended December 31, 1997, 1996 and 1995 (in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at charged to Balance
beginning costs and at 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, 1997:
Doubtful accounts $127 $791 $635 (A) $283
Discounts 38 814 817 (B) 35
----- ------ ------ ------
$165 $1,605 $1,452 $318
===== ====== ====== ======
Year ended December 31, 1996:
Doubtful accounts $136 $1,249 $1,258 (A) $127
Discounts 54 896 912 (B) 38
------ ------ ------ ------
$190 $2,145 $2,170 $165
====== ====== ====== ======
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
====== ====== ====== ======
(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>
Shareholders' Information
Market makers: Stock transfer agent:
Robert W. Baird & Co., Inc. Harris Trust & Savings Bank
Herzog, Heine, Geduld, Inc. 111 West Monroe Street
Chicago, Illinois 60690
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:
1997 1996
Quarter High Low High Low
First $10.25 $7.75 $16.00 $14.50
Second 9.25 7.25 15.75 13.75
Third 11.25 7.75 14.75 10.75
Fourth 11.00 6.63 12.50 8.00
Quarterly Dividends Per Share:
Dividend rates are established by the Board of Directors. During the
first quarter 1997, the Board suspended payment of quarterly dividends.
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 1997 1996
First $0.00 $0.05
Second $0.00 $0.05
Third $0.00 $0.06
Fourth $0.00 $0.06
Total $0.00 $0.22
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 12, 1998, at 10:00 a.m.
DIRECTORS AND OFFICERS
Board of Directors:
Thomas J. Kuber - Chairman
President
K&K Warehousing
Mark D. Burish
President
Hurley, Burish & Milliken, SC
James L. Kemerling
Consultant
John R. Peterson
Managing Director
Cleary Gull Reiland & McDevitt, Inc.
Ralph D. Searles
President and CEO
Great Northern Corporation
Corporate Officers:
Michael J. Bekes
Vice President and COO
Clifton A. Martin
Vice President, General Manager,
Plas-Techs, Inc.
Mark C. Neumann
Vice President/Sales
<PAGE>
EXHIBIT INDEX
BADGER PAPER MILLS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
(3) (i) Restated Articles of Incorporation, as amended
(Incorporated by reference to Exhibit 3(i) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
(ii) By-laws as amended through March 13, 1997 (Incorporated
by reference to Exhibit 3(ii) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
(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,
individually 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 Quarterly 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
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
(iii) Second Amendment thereto dated as of March 31, 1994
(Incorporated by reference 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
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
(v) Fourth Amendment thereto dated February 17, 1995
(Incorporated by reference to Exhibit 4(v) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
(vi) Fifth Amendment thereto dated as of April 28, 1995
(Incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1995).
(vii) Sixth Amendment and Waiver dated August 9, 1996
(Incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
(viii) Seventh Amendment and Waiver dated August 6, 1997
(Incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997).
(ix) Eighth Amendment and Waiver dated March 9, 1998.
(10) Material Contracts:*
(i) Supplemental Executive Retirement Plan dated December 18,
1992 (Incorporated by reference to Exhibit 10(ii) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992).
(ii) Executive Employment Agreement dated March 1, 1995,
between the Company and Claude L. Van Hefty (Incorporated
by reference to Exhibit 10(vii) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1994).
(iii) Health Insurance Retirement Benefit Agreement dated
January 1, 1996 between the Company and Claude L. Van
Hefty (Incorporated by reference to Exhibit 10(v) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
(iv) Director Stock Grant Plan dated July 23, 1997
(Incorporated by reference to the Company's ?Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997).
(23) (i) Consent of Current Independent Public Accountant
(ii) Consent of Former Independent Public Accountant
(27) Financial Data Schedule (EDGAR version only)
(99) Definitive Proxy Statement for 1997 Annual Meeting of
Shareholders (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.
EXHIBIT 4(ix)
EIGHTH AMENDMENT TO
CREDIT AGREEMENT AND WAIVER
This Eighth Amendment to Credit Agreement dated as of March 9,
1998 among Badger Paper Mills, Inc. ("Badger"), PlasTechs, Inc.
("PlasTechs") (collectively, Badger and PlasTechs are hereinafter
sometimes referred to as "Borrowers" and individually each is sometimes
referred to as a "Borrower') and Harris Trust and Savings Bank, as sole
Lender and as Agent.
W I T N E S S E T H :
WHEREAS, the Borrowers and the Lenders have heretofore executed
and delivered that certain Credit Agreement dated as of June 30, 1993 (as
amended through the Seventh Amendment thereto, the "Credit Agreement");
and
WHEREAS, the Borrowers have requested that the Lenders make
certain amendments to the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration the receipt
of which is hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be and hereby is amended as follows:
1. Section 7.7 of the Credit Agreement is hereby amended in
its entirety to read as follows:
Section 7.7. Consolidated Tangible Net Worth. Badger
will, as of the last day of each fiscal month of
Badger ending during each of the periods specified
below maintain Consolidated Tangible Net Worth at not
less than:
CONSOLIDATED TANGIBLE
NET WORTH SHALL NOT
FROM AND INCLUDING TO AND INCLUDING BE LESS THAN
March 1, 1998 June 29, 1998 $16,100,000
June 30, 1998 December 30, 1998 $16,500,000
December 31, 1998 Thereafter $17,000,000
2. Section 7.13 of the Credit Agreement is hereby amended in
its entirety to read as follows:
Section 7.13. Capital Expenditures. Badger will not,
nor will it permit any Subsidiary to, expend or become
obligated for Capital Expenditures in an aggregate
amount in excess of the following:
Fiscal Year 1998 $3,100,000
Fiscal Year 1999 $2,500,000
3. Section 10 of the Credit Agreement is hereby amended by
amending the definition of "Consolidated Current Assets" and "Consolidated
Current Liabilities" in its entirety to read as follows:
"Consolidated Current Assets" and "Consolidated Current
Liabilities" means such assets and liabilities of Badger
and its Consolidated Subsidiaries (on a consolidated basis
after eliminating all offsetting debits and credits among
Badger and all of its Consolidated Subsidiaries) as shall
be determined, in accordance with generally accepted
accounting principles, to constitute current assets and
current liabilities, respectively; provided that the
principal amount of the Loans shall not be deemed to be a
current liability.
4. Upon the effectiveness of this Amendment, the aggregate
Commitments of the Lenders shall be reduced to $12,000,000.
5. Badger has indicated that for the periods ending December
31, 1997, January 31, 1998 and February 28, 1998 it was not in compliance
with Section 7.7 of the Credit Agreement. The Bank hereby waives such
non-compliances by the Borrowers with Section 7.7 of the Credit Agreement
for each such period.
6. Each Borrower represents and warrants to the Lenders that
(a) each of the representations and warranties set forth in Section 5 of
the Credit Agreement are true and correct on and as of the date of this
Amendment as if made on and as of the date of this Amendment and as if
each reference therein to the Credit Agreement referred to the Credit
Agreement, as amended hereby; (b) no Event of Default has occurred or is
continuing; and (c) without limiting the effect of the foregoing, each
Borrower's execution, delivery and performance of this Amendment have been
duly authorized, and this Amendment has been executed and delivered by a
duly authorized officer of each Borrower.
Each Borrower has heretofore executed and delivered to the Agent
certain security agreements and mortgages and each Borrower hereby agrees
that notwithstanding the execution and delivery of this Amendment, such
security agreements and mortgages shall be and remain in full force and
effect and that any rights and remedies of the Agent thereunder,
obligations of such Borrower thereunder and any liens and security
interests created or provided for thereunder shall be and remain in full
force and effect and shall not be affected, impaired or discharged
thereby. Nothing herein contained shall in any manner affect or impair
the priority of the liens and security interests created and provided for
by the Collateral Document as to the indebtedness which would be secured
thereby prior to giving effect to this Amendment.
The effectiveness of this Eighth Amendment is subject to the
satisfaction of all of the following conditions precedent: (a) the
Borrowers and the Lenders shall have executed this Eighth Amendment, (b)
the Lenders shall have received copies executed or certified (as may be
appropriate) of all legal documents or proceedings taken in connection
with the execution and delivery hereof and the other instruments and
documents contemplated hereby, (c) all legal matters incident to the
execution and delivery hereof and of the instruments and documents
contemplated hereby shall be satisfactory to the Lenders and its counsel,
and (d) the receipt by the Agent of a non-refundable amendment fee of
$50,000.
This Amendment maybe executed in any number of counterparts and
by different parties hereto on separate counterpart signature pages, each
of which when so executed shall be an original but all of which shall
constitute one and the same instrument. Except as specifically amended,
modified and waived hereby, all of the terms and conditions of the Credit
Agreement in any document shall be deemed to be references to the Credit
Agreement, as amended hereby. All capitalized terms used herein without
definition shall have the same meaning herein as they have in the Credit
Agreement.
This Amendment shall be construed and governed by and in
accordance with the internal laws of the State of Illinois.
Dated as of the date first above written.
BADGER PAPER MILLS, INC.
By /s/ Miles L. Kresl
Its Vice President-Administration, Treasurer
& Corporate Secretary
PLASTECHS, INC.
By /s/ Miles L. Kresl
Its Secretary & Treasurer
HARRIS TRUST AND SAVINGS BANK, in its
individual capacity as a Lender and as Agent
By /s/
Its Vice President
EXHIBIT 23 (i)
Consent of Independent Accountant
We have issued our reports dated February 10, 1998, accompanying the
consolidated financial statements and schedule incorporated by reference
in the Annual Report of Badger Paper Mills, Inc. and Subsidiary on Form
10-K for the year ended December 31, 1997. We hereby consent to the
incorporation by reference of said reports in the Registration Statements
of Badger Paper Mills, Inc. and Subsidiary on Forms S-8 (File No. 333-
01671, effective March 13, 1996 and File No. 333-01673, effective March
13, 1996).
/s/ GRANT THORNTON, L.L.P.
Appleton, Wisconsin
March 27, 1998
EXHIBIT 23(ii)
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 333-01673) of our reports dated February 4, 1997, on
our audits of the consolidated financial statements and financial
statement schedule of Badger Paper Mills, Inc. and Subsidiary as of
December 31, 1996, and for each of the two years in the period ended
December 31, 1996, which reports are included in this Annual Report on
Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BADGER PAPER MILLS, INC. 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,684
<SECURITIES> 1,318
<RECEIVABLES> 5,120
<ALLOWANCES> 0
<INVENTORY> 6,837
<CURRENT-ASSETS> 16,936
<PP&E> 66,327
<DEPRECIATION> 37,042
<TOTAL-ASSETS> 48,356
<CURRENT-LIABILITIES> 8,744
<BONDS> 20,394
2,700
0
<COMMON> 0
<OTHER-SE> 190
<TOTAL-LIABILITY-AND-EQUITY> 48,356
<SALES> 70,427
<TOTAL-REVENUES> 70,427
<CGS> 67,600
<TOTAL-COSTS> 71,685
<OTHER-EXPENSES> 1,633<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,354
<INCOME-PRETAX> (3,593)
<INCOME-TAX> (1,153)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,442)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> 0
<FN>
<F1>Restructuring provision, Pulp Mill closure charge.
</FN>
</TABLE>
