UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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: 1,978,374 as of March 31, 2000.
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Interim Statements of Income
Three Months Ended March 31, 2000 and 1999................... 3
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999......................... 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999................... 5
Notes to Consolidated Financial Statements................... 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8-9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.................................................. 10
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K............................. 10
SIGNATURES
2
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME
(UNAUDITED)
- --------------------------------------------------------------------------------
(Dollars in thousands,
except per share data)
For Three Months Ended March 31
-----------------------------------
2000 1999
--------------- --------------
Net Sales $ 18,384 $ 15,326
Cost of Sales 16,730 13,425
------------- ---------------
Gross Margin 1,654 1,901
Selling and Administrative Expenses 1,285 1,128
------------- ---------------
369
Operating Income 773
Interest Expense (281) (272)
Interest Income 11 36
Other Income 36 30
------------- ---------------
Income Before Income Taxes 135 567
Income Tax Expense 46 193
------------- ---------------
Net Income $ 89 $ 374
------------- ---------------
Net Earnings Per Share - Basic $ 0.04 $ 0.19
Net Earnings Per Share - Diluted $ 0.04 $ 0.19
Average Shares Outstanding - Basic 1,975,570 1,961,736
Average Shares Outstanding - Diluted 1,975,570 1,961,736
Cash Dividends $ - $ -
Dividends Per Share $ - $ -
See Notes to Consolidated Financial Statements.
3
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands)
March 31, December 31,
2000 1999
--------------- -------------
ASSETS:
Current Assets:
Cash & Cash Equivalents $ 676 $ 669
Certificates of Deposit 400 500
Marketable Securities 128 137
Accounts Receivable, Net 7,651 6,080
Deferred Income Taxes 1,160 1,160
Inventories 8,611 7,819
Refundable Income Taxes 520 220
Other Current Assets 664 606
--------------- -------------
Total Current Assets 19,810 17,191
Property, Plant, Equipment &
Timberlands 68,216 67,856
Less: Allowance for Depreciation &
Depletion (41,351) (40,616)
--------------- -------------
Total Property, Plant, Equipment &
Timberlands, Net 26,865 27,240
Trade Credits 547 609
Other Assets 1,731 1,854
--------------- -------------
TOTAL ASSETS $ 48,953 $ 46,894
--------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current Portion of Long-Term Debt $ 1,044 $ 1,060
Accounts Payable 6,153 4,746
Accrued Liabilities 2,730 3,126
ncome Taxes Payable
I 346 -
--------------- -------------
Total Current Liabilities 10,273 8,932
Deferred Income Taxes 1,840 1,840
Long-Term Debt 16,365 15,705
Other Liabilities 880 933
--------------- -------------
TOTAL LIABILITIES 29,358 27,410
--------------- -------------
Stockholders' Equity:
Common Stock, No Par Value 2,700 2,700
4,000,000 Shares Authorized
2,160,000 Shares Issued
Additional Paid-in Capital 196 201
Retained Earnings 18,521 18,432
Less Treasury Shares at Cost: (1,822) (1,849)
181,626 Shares at 3/31/00 and
185,832 Shares at 12/31/99
--------------- -------------
TOTAL STOCKHOLDERS' EQUITY 19,595 19,484
--------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 48,953 $ 46,894
--------------- -------------
See Notes to Consolidated Financial Statements.
4
<PAGE>
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- --------------------------------------------------------------------------------
(Dollars in thousands)
For Three Months
Ended March 31
----------------------
2000 1999
-------- --------
Cash Flows from Operating Activities:
Net Income $ 89 $ 374
Adjustments to Reconcile to Net Cash
Provided by (Used in) Operating Activities:
Depreciation 770 713
Director's Fees Paid in Stock 22 24
Deferred Income Taxes -- (1)
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable, Net (1,571) (1,463)
(Increase) Decrease in Inventories (792) (1,168)
Increase (Decrease) in Accounts Payable 1,407 1,336
Increase (Decrease) in Accrued Liabilities (396) (326)
Income Taxes Refundable (Payable) 46 (26)
(Increase) Decrease in Other 74 (155)
------- -------
Net Cash Provided by (Used in) Operating Activities (351) (692)
------- -------
Cash Flows From Investing Activities:
Additions to Property, Plant and Equipment, Net (395) (426)
Net Acquisition of Certificates of Deposit 100 --
Purchase of Marketable Securities -- --
Proceeds from Sales of Marketable Securities 9 1,212
------- -------
Net Cash (Used in) Provided by Investing Activities (286) 786
------- -------
Cash Flows from Financing Activities:
Increase to (Payments on) Long-Term Debt (256) (1,800)
Increase to (Decrease in) Revolving Credit Borrowings 900 600
------- -------
Net Cash (Used in) Provided by Financing Activities 644 (1,200)
------- -------
Net (Decrease) Increase in Cash and Cash Equivalents 7 (1,106)
Cash and Cash Equivalents:
Beginning of Period 669 2,229
------- -------
End of Period 676 1,123
------- -------
See Notes to Consolidated Financial Statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying condensed financial statements, in the opinion of
management, include all adjustments which are normal and recurring in
nature and are necessary for a fair statement of results for each period
shown. Some adjustments involve estimates, which may require revision in
subsequent interim periods or at year-end. In all regards, the financial
statements have been presented in accordance with generally accepted
accounting principles. Refer to the financial statement notes in the
Company's Form 10-K for the year ended December 31, 1999, for the
accounting policies which are pertinent to these statements.
Note 2. Income Taxes
The provision for income tax expense has been computed by applying an
estimated annual effective tax rate. This rate was 34% for the
three-month periods ended March 31, 2000 and 1999.
Note 3. Earnings per Share
Basic earnings per share amounts are computed based on the weighted
average number of shares outstanding during each period. Diluted per
share amounts equals net earnings divided by common shares outstanding
after giving effect to dilutive stock options granted under the
incentive stock options plan approved at the annual meeting on May 12,
1999. The stock options became outstanding in the second quarter of 1999
and had an immaterial effect on the weighted average number of shares
outstanding and therefore basic and diluted per share amounts are the
same.
Note 4. Stock Option Plan
Badger Paper Mills, Inc. has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock issued to Employees (APB 25),
and related interpretations in accounting for its employee stock option
plan. Under APB 25, because the exercise price of employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recorded. Badger Paper is subject to the
disclosure rules of SFAS 123, Accounting for Stock Based Compensation.
Management has determined that the impact of SFAS 123 on net income and
stockholders' equity was not material as of and for the quarter ended
March 31, 2000.
Note 5. Inventories
The major components of inventories were as follows:
-------------------------------------------------------------------------
(In thousands of dollars) March 31, December 31,
2000 1999
-------------- --------------
Raw Materials $ 3,217 $ 2,551
Finished Goods and Work in Process 9,589 9,339
-------------- --------------
$ 12,806 $ 11,890
Less: LIFO Reserve (4,195) (4,071)
============== ==============
Total Inventories $ 8,611 $ 7,819
============== ==============
6
<PAGE>
Note 6. Operating Segments
Badger Paper adopted SFAS 131 (Disclosures about Segments of an
Enterprise and Related Information) in 1998. The paper products segment
produces a variety of paper products including fine paper, business
paper, colored paper, waxed paper, specialty coated base papers and
twisting papers. The printing and converting segment prints and converts
flexible packaging materials for the paper products segment as well as
films and non-woven materials from other customers.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
PAPER PRODUCTS PRINTING & CONVERTING TOTAL
-------------------------- ----------------------------- ------------------------
For Three Months For Three Months For Three Months
Ended March 31 Ended March 31 Ended March 31
-------------------------- ----------------------------- ------------------------
2000 1999 2000 1999 2000 1999
------------ ------------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 15,811 $ 13,578 $ 2,573 $ 1,748 $ 18,384 $ 15,326
Intersegmental revenues 900 738 308 569 1,208 1,307
Segment income before tax (411) 387 546 180 135 567
Segment assets 44,307 44,180 6,101 5,649 50,408 48,773
</TABLE>
- --------------------------------------------------------------------------------
The following is a reconciliation of segment information to consolidated
information:
------------------------------
For Three Months
Ended March 31
2000 1999
------------- ---------------
Revenues:
Total net sales for segment $ 19,592 $ 16,633
Elimination of intersegment revenues (1,208) (1,307)
------------- ---------------
Total consolidated revenues $ 18,384 $ 15,326
============= ===============
Assets:
Total assets for reporting segments $ 50,408 $ 48,773
Elimination of intersegmental revenues (705) (1,129)
Elimination of intersegmental investments (750) (750)
------------- ---------------
Total consolidated assets $ 48,953 $ 46,894
============= ===============
Total segment income, assets and other significant items are the same as the
consolidated information. All operations of the Company are located in the
United States. Revenues from foreign countries are are immaterial to total
revenues.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Statement Regarding Forward-Looking Information
This Form 10-Q may include one or more "forward-looking statements" within the
meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934 as enacted in the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). In making forward-looking statements within the
meaning of the Reform Act, the Company undertakes no obligation to publicly
update or revise any such statement.
Forward-looking statements of the Company are based on information available to
the Company as of the date of such statements and reflect the Company's
expectations as of such date, but are subject to risks and uncertainties that
may cause actual results to vary materially. In addition to specific factors
which may be described in connection with any of the Company's forward-looking
statements, factors which could cause actual results to differ materially
include, but are not limited to the following:
o Increased competition from either domestic or foreign paper producers or
providers of alternatives to the Company's products, including increases in
competitive production capacity, resulting in sales declines from reduced
shipment volume and/or lower net selling prices in order to maintain
shipment volume.
o Changes in demand for the Company's products due to overall economic
activity affecting the rate of consumption of the Company's paper products,
growth rates of the end markets for the Company's products, technological
or consumer preference changes or acceptance of the products by the markets
served by the Company.
o Changes in the price of pulp, the Company's main raw material. All of the
Company's pulp needs are purchased on the open market and price changes for
pulp have a significant impact on the Company's costs. Pulp price changes
can occur due to worldwide consumption levels of pulp, pulp capacity
additions, expansions or curtailments affecting the supply of pulp,
inventory building or depletion at pulp consumer levels which affect
short-term demand, and pulp producer cost changes related to wood
availability, environmental issues, or other variables.
o Unforeseen operational problems at any of the Company's facilities causing
significant lost production and/or cost issues.
o Changes in laws or regulations which affect the Company.
Results of Operations
Net Sales
Net sales for the first quarter ended March 31, 2000 were $18,384,000, up 20%
from the net sales for the same three-month period ended in 1999. Shipping
volumes in the first quarter of 2000 increased 15% from 1999 despite weak market
conditions in the industry, especially the commodity markets. The average
selling price for the first quarter increased slightly at 0.9%.
Net sales for the paper products segment were $15,811,000 for the three months
ended March 31, 2000, which is a $2,233,000 or 16% increase from the same period
in 1999. Shipping volumes for the first quarter increased
8
<PAGE>
15%, over the comparative period in 1999, while the average selling price
remained flat from last year. Market pressures prevented the company from
increasing selling prices to recover costs associated with increased pulp
prices. The net sales of the paper products segment represent 86% of the
consolidated net sales.
Net sales for the printing and converting segment were $2,573,000 for the three
months ended March 31, 2000, which is a $825,000 or 47% improvement over the
same period in 1999. The net sales of the printing and converting segment
represent 14% of the consolidated net sales.
Gross Profit
Gross profit for the first quarter ended March 31, 2000 was $1,654,000 or 9% of
net sales, compared to gross profit for the same period in 1999 of $1,901,000 or
12% of consolidated net sales.
Gross profit for the paper products segment was $1,000,000 for the three months
ended March 31, 2000, a $601,000 decrease over the same period in 1999. The
decrease in gross profit in the first quarter can be attributed to the
escalating pulp and natural gas prices.
Pulp prices have increased more rapidly than market prices of our paper
products. Pulp prices increased 12% in the first quarter of 2000 and 50% in the
last twelve months. We continue our efforts to increase selling prices as the
market permits. Natural gas prices have increased 17% since March 1999 and 32%
since year-end 1999.
The printing and converting segment's gross profit was $653,000 for the three
months ended March 31, 2000, a $353,000 or 117% improvement over the same period
in 1999. The dramatic increase in gross profit is attributed to increased tissue
wrap business and more efficient operations due to longer production runs.
Selling and Administration
Selling and administration expenses were $1,285,000 for the first three months
of 2000 compared to $1,128,000 for the same period of 1999. A majority of the
increased expenses for the paper products segment was salaries and fringe
benefits associated with the reorganization of staffing from manufacturing to
provide for a product development function within the sales department and an
human resource function within the administration department. An addition to the
outside sales staff in June 1999 also increased salaries and fringe benefits.
The printing and converting segments administration expenses for the first
quarter 2000 were at the same level as the equivalent quarter in 1999.
Other Income and Expense
Other expense for the three-month period ended March 31, 2000 was $234,000
compared to $206,000 for the same period last year. A majority of the expense is
interest on long-term debt.
Net Income
Net earnings for the three months ended March 31, 2000 was a profit of $89,000,
which is a $285,000 decrease from the $374,000 profit for the same period in
1999. The net loss of the paper products segment was $271,000 for the three
months ended March 31, 2000 compared to $255,000 net income for the same period
in 1999. The net income of the printing and converting segment was $360,000 for
the three months ended March 31, 1999, compared to $119,000 net income for the
same period in 1999
Capital Resources and Liquidity
As of March 31, 2000, the Company's capital resources for funding ongoing
operations included $1,204,000 of cash and marketable securities and its
$12,000,000 revolving credit facility. Borrowing under this facility totaled
$11,500,000 as of March 31, 2000. Pursuant to the terms of the revolving credit
facility the Company is making quarterly payments of $140,000 and will make an
annual payment of $400,000 on July 1, 2000 on its Industrial Development Revenue
Bonds.
9
<PAGE>
In February 2000, the City of Peshtigo agreed to refinance a $1,500,000 Urban
Development Action Grant ("UDAG"), which was scheduled to mature in April 2000.
The terms of the refinancing provide for a ten-year amortization schedule with
an interest rate at 5 percent.
Cash provided by operations and the revolving credit facility are expected to
meet current and anticipated working capital needs, as well as fund the
Company's planned capital expenditures.
Capital Expenditures
Capital expenditures during the first three months of 2000 were $395,000,
compared to $426,000 for the same period in 1999. Major projects for 2000 for
the paper products segment include the speed-up of the Yankee paper machine, a
hole detector on the Fourdrinier paper machine, a precision folio size sheeter
and drive replacements on the Fourdrinier paper machine. Major projects at the
printing and converting segment are a slitter/rewinder and press department
improvements.
Cash Flows
Cash used in operations was $351,000 for the three months ended March 31, 2000,
which compares to $692,000 for the same period in 1999. The material drivers for
the change in cash used in operations were reduced net earnings in the first
quarter 2000, slower growth in inventories in the first quarter 2000 and a
reduction in post retirement liabilities in the first quarter 1999.
Additionally, rapidly escalating pulp prices have increased accounts payables
over last year's levels.
Net cash used in investing activities was $286,000 for the three-month period
ended March 31, 2000 compared to $786,000 net cash provided by investing
activities in 1999. A majority of the funds provided by investing activities in
1999 was from the proceeds of the sale of marketable securities used to make
payments on the Company's Industrial Development Revenue Bonds.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk from changes in interest on its long-term
debt. Interest rates are disclosed in the Company's annual report on Form 10-K
for the year-ended December 31, 1999, have not materially changed.
Although a majority of the Company's debt is at variable interest rates,
management believes the Company's exposure to interest rate fluctuations is
immaterial to its consolidated financial statements.
The Company does not use financial instruments for trading purposes and is not a
party to any leveraged derivatives.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Number Description
(27) Financial Data Schedules
(b) Reports on Form 8-K:
None.
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
BADGER PAPER MILLS, INC.
DATE: May 15, 2000 By: /s/ Thomas W. Cosgrove
Thomas W. Cosgrove
President & CEO
(Chief Executive Officer)
DATE: May 15, 2000 By: /s/ George J. Zimmerman
George J. Zimmerman
Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF BADGER PAPER MILLS, INC. AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 676
<SECURITIES> 400
<RECEIVABLES> 7651
<ALLOWANCES> 0
<INVENTORY> 8611
<CURRENT-ASSETS> 19810
<PP&E> 68216
<DEPRECIATION> 41351
<TOTAL-ASSETS> 48953
<CURRENT-LIABILITIES> 10273
<BONDS> 0
0
0
<COMMON> 2700
<OTHER-SE> 196
<TOTAL-LIABILITY-AND-EQUITY> 48953
<SALES> 18384
<TOTAL-REVENUES> 18384
<CGS> 16730
<TOTAL-COSTS> 18015
<OTHER-EXPENSES> 47
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 281
<INCOME-PRETAX> 135
<INCOME-TAX> 46
<INCOME-CONTINUING> 89
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
