UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
Commission file Number 33-70476
REPAP WISCONSIN, INC.
(Exact name of registrant as specified in its charter.)
WISCONSIN 39-1247669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
433 North Main Street, Kimberly, Wisconsin 54136
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(414) 788-3511
Indicate by check mark 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 [ ]
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PART I. - FINANCIAL INFORMATION
REPAP WISCONSIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 1995 AND 1996, AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 (Unaudited)
(Amounts in thousands)
<CAPTION>
3 Months Ended 6 Months Ended
June 30, March 31, June 30, June 30,
----------------------------------- --------
1995 1996 1996 1995 1996
----- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C>
Net sales $129,004 $89,304 $103,963 $255,249 $193,267
Cost of sales excluding depreciation
and amortization 99,299 72,341 84,950 195,499 157,291
Depreciation and amortization 5,833 5,423 5,953 11,397 11,376
Selling, general and administrative
expenses 6,662 5,558 5,603 12,708 11,161
--------- ------- ------ --------- -------
Operating profit 17,210 5,982 7,457 35,645 13,439
Other income(expense):
Interest expense, net (9,705) (10,103) (9,892) (19,564) (19,995)
Amortization of financing costs (420) (423) (423) (840) (846)
Other, net 302 71 98 342 169
Income(loss) before income taxes
and extraordinary item 7,387 (4,473) (2,760) 15,583 (7,233)
Provision for income taxes 2,807 (1,252) (561) 5,921 (1,813)
Income(loss) before extraordinary item 4,580 (3,221) (2,199) 9,662 (5,420)
Extraordinary item, net of tax - - - 232 -
------ --------- --------- -------- ---------
Net income(loss) 4,580 ($3,221) ($2,199) $9,894 ($5,420)
EBITDA(1) $24,093 $11,725 $13,937 $49,142 $25,662
Shipments(000 tons) 121 84 109 245 193
(1)EBITDA=Operating profit plus depreciation and amortization and the non-cash portion of the
charge for post-retirement benefits costs(FASB 106).
<FN>
See accompanying notes to condensed consolidated financial statements
</TABLE>
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<TABLE>
REPAP WISCONSIN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
<CAPTION>
December 31, June 30,
1995 1996
--------------- -----------
<S> <C> <C>
Assets
Current assets:
Cash $11 $24
Accounts receivable 40,127 46,368
Inventories 84,589 85,448
Other current assets 36,684 36,175
---------- ---------
Total current assets 161,411 168,015
Net property, plant and equipment 474,378 468,585
Deferred charges and other assets 19,723 18,899
----------- -----------
TOTAL ASSETS $655,512 $655,499
</TABLE>
<TABLE>
<CAPTION>
Liabilities and shareholders' equity
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $26 $ -
Accounts payable 49,397 43,776
Accrued liabilities 24,459 22,394
---------- --------
Total current liabilities 73,882 66,170
Long-term debt 377,000 377,000
Revolving credit line 36,189 50,475
Deferred income taxes 24,301 22,288
Accrued postretirement benefit liability 11,757 12,603
Redeemable Preferred Stock, Class I 5,828 6,115
Common and other shareholders' equity:
Preferred Stock 112,684 112,684
Common Stock 33,126 33,126
Accumulated deficit (19,255) (24,962)
-------- ----------
Total shareholders' equity 126,555 120,848
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY) $655,512 $655,499
<FN>
See accompanying notes to condensed consolidated financial statements
</TABLE>
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<TABLE>
REPAP WISCONSIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(Unaudited)
(Amounts in thousands)
<CAPTION>
6 Months Ended
June 30,
1995 1996
<S> <C> <C>
Operating activities
Net income(loss) $9,894 ($5,420)
Adjustments to reconcile net income(loss) to net
cash used by operating activities:
Depreciation and amortization 12,237 12,222
Deferred income taxes 6,064 (1,813)
Non-cash portion of postretirement benefit 2,100 847
Extraordinary item, gross (375) -
Net cash provided before changes in operating assets and li 29,920 5,836
Changes in operating assets and liabilities (25,175) (14,478)
--------- ----------
Net cash provided by(used in) operating activities 4,745 (8,642)
--------- ----------
Investing activities
Additions to property, plant and equipment (7,046) (4,774)
Additions to deferred charges (404) (452)
Net cash used in investing activities (7,450) (5,226)
Financing activities
Net borrowings under revolving credit facilities 5,398 14,286
Repayments of long-term debt (2,677) (26)
Deferred financing costs (28) (379)
------- --------
Net cash provided by financing activities 2,693 13,881
------- --------
Net increase in cash (12) 13
Cash at beginning of period 25 11
------- --------
Cash at end of period $13 $24
<FN>
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
REPAP WISCONSIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial reporting.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for the fiscal year
end financial statements. In the opinion of management, all adjustments
of a normal recurring nature considered necessary for a fair presentation
have been included. For further information, refer to the financial
statements and footnotes thereto included in the Company's Form 10-K
filed with the Securities and Exchange Commission.
2. Inventories
The components of inventory consist of the following:
December 31, June 30,
1995 1996
($000) ($000)
Finished Goods $38,954 $55,376
Work in process 8,138 9,602
Raw materials/supplies 37,497 20,470
______ _______
$84,589 $85,448
====== ======
3. Guarantee and Commitment
The Company has entered into an agreement with Wisconsin Electric Power
Company (WEPCO) to construct a cogeneration facility adjacent to the
Company's mill which will provide steam for its paper making operations.
The Company is contingently liable for approximately $4.9 million in
engineering costs incurred by WEPCO in the event that the facility is
not completed. The Wisconsin Public Service Commission (PSC) issued
an order denying WEPCO's application and choosing another cogeneration
project to proceed in lieu of WEPCO's. The Company's Petition for
Review seeking reversal of the PSC's decision and requiring the PSC
to process and act upon WEPCO's original application for approval of
the Company's cogeneration project was transferred to the Dane County
Circuit Court. On March 17, 1995, the Dane County Circuit Court
issued its ruling affirming the PSC's decision. The Company appealed
this ruling to the Wisconsin Court of Appeals, which issued a split
decision on May 23, 1996 affirming the PSC's decision. The Company's
petition for review by the Wisconsin Supreme Court was denied on July 29,
1996. The Company is now considering whether to seek reconsideration
of that decision. Notwithstanding the adverse finding of the PSC and
the Dane County Circuit Court, the Company is proceeding with development
of plans for an alternative project which would provide the Company with
an adequate supply of steam at a comparable or lower cost.
4. Environmental Compliance
The Company, in March 1996, had been issued a Notice of
Violation (NOV) from the United States Environmental Protection
Agency (EPA) regarding opacity readings from the second quarter
of 1995 that relate to particulate emissions on two of its
stoker coal fired boilers. Repairs were made in 1995 and the
Company is currently in compliance with the Wisconsin Department
of Natural Resources permit. There was a compliance conference
with the EPA on July 17, 1996 to discuss the Company's plans to
ensure ongoing compliance. The EPA will be receiving additional
information from the Company in order to complete their review
of Repap's commitment to the Boiler House modernization program.
The plan includes the installation and start-up of a new gas
fired boiler in the fourth quarter of 1996 and the subsequent
removal from operation of one of its boilers.
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company's second quarter net sales of $104.0 million were up 16 percent
over net sales of $89.3 million in the first quarter of 1996, primarily
due to a 30 percent increase in shipments, partially offset by lower
coated paper prices. Net sales were down 19 percent as compared with the
$129.0 million in the second quarter of 1995, primarily due to a 10 percent
decrease in shipments along with lower coated paper prices. For the first
six months of 1996, the Company reported net sales of $193.3 million,
down from the $255.2 million reported for the same period of 1995. The
$61.9 million decrease resulted from a 21 percent decrease in shipments
and slightly lower coated paper prices.
Second quarter operating profit totaled $7.5 million, up $1.5 million
from the $6.0 million reported for the first quarter of 1996 due to the
increased net sales. The 10 percent decrease in the cost of sales per
ton, primarily due to lower fiber costs and increased productivity,
were offset by a comparable decrease in the net selling price per ton.
Operating profit was down from the $17.2 million reported for the second
quarter of 1995, as the decreased net sales were only partially offset
by lower fiber costs and the decrease in selling commissions as a
result of the lower net sales.
Operating profit for the first six months of 1996 totaled $13.4 million,
down from the $35.6 million reported for the first six months of 1995.
The decrease resulted primarily from lower net sales along with a slight
increase in the cost of sales per ton, partially offset by lower selling
commissions. The increase in the cost of sales per ton, compared to the
first six months of 1995, was due primarily to 1995 costs being
positively impacted by low cost finished goods inventory on hand at
December 31, 1994, whereas 1996 cost of sales was negatively impacted
by higher cost inventory on hand at December 31, 1995. The cost of
these inventories reflected mainly the fluctuating fiber costs at the
time of manufacture. The 1996 costs were also negatively affected by
costs associated with two weeks of inventory-related downtime taken
over the first six months of 1996. An additional week of
inventory-related downtime was taken in July 1996.
For the second quarter of 1996, the Company reported a net loss of $2.2
million, compared to a net loss of $3.2 million for the first quarter of
1996 and net income of $4.6 million for the second quarter of 1995. For
the six month period ending June 30, 1996, the Company reported a net
loss of $5.4 million, compared to net income of $9.9 million reported
for the comparable period of 1995.
Financial Resources
During the first six months of 1996, capital additions of $4.8 million,
deferred charges of $0.8 million and net cash used in operating activities
of $8.6 million were funded principally by net borrowings under the
revolving credit facility of $14.3 million, leaving a revolving credit
facility balance of $50.5 million at June 30, 1996. The June 30th balance
decreased $8.6 million from the March 31, 1996 balance of $59.1 million.
This decrease resulted from funds provided from changes in operating
assets and liabilities of $6.4 million along with an increase in
operating profit before non-cash charges (EBITDA) of $2.2 million in
the second quarter of 1996.
Net cash used in operating activities was $8.6 million for the six month
period ended June 30, 1996 compared with net cash provided by operating
activities of $4.7 million in the comparable period of 1995. Net cash
provided by operating activities before changes in operating assets and
liabilities was $5.8 million and $29.9 million for the six month periods
ending in 1996 and 1995, respectively. The $24.1 million decrease in
1996 was due primarily to lower operating profits. Funds used for
working capital in the first six months of 1996 were related primarily
to an increase in accounts receivable of $6.2 million combined with
a decrease in accounts payable and accrued liabilities of $7.7 million.
For 1996, a revised capital budget has been approved for new projects
in the amount of $6.0 million and compares with expenditures of $12.8
million in 1995. The 1996 revised budget includes expenditures primarily
related to improvements to the Company's papermaking and converting
equipment. Capital expenditures for the first six months of 1996 were
$4.8 million compared to $7.0 million for the same period of 1995.
The Company anticipates entering into approximately $11.0 million of
operating lease agreements in 1996, compared to $15.9 million in 1995.
Other
In 1995, the Company entered into forward purchase contracts with
affiliates for the future delivery of pulp totaling $36.0 million at
prices based on list price at the time of delivery less an appropriate discount
relative to normal fidelity discount.The pulp under these forward purchase
contracts was originally scheduled to be delivered during 1996. Significantly
more pulp will be delivered than originally expected because pulp prices have
declined substantially since contracts were entered into. It is currently
planned that approximately $15 million of the $36 million will be delivered in
the second half of 1996, and the balance will be delivered in 1997. The
planned deliveries in 1996 will provide all of the northern bleached softwood
kraft pulp Repap Wisconsin requires through year-end.
In July, Repap Enterprises Inc., Repap Wisconsin's parent, engaged Dillon,
Read & Co. Inc. of New York and TD Securities Inc. of Toronto as investment
advisors to explore strategic alternatives for Repap to maximize
shareholder value as we move into the more favorable market environment
expected for 1997.
The forest products industry has experienced a depressed pricing and
volume environment in the first half of 1996 as a result of a substantial
inventory adjustment in both the pulp and paper sectors. Coated paper demand
indicators such as magazine ad pages and third class mail volume are
improving and coated paper order backlogs in the third quarter to-date are
above the second quarter average. Lower inventories, combined with anticipated
synchronized global economic growth, are improving market condictions.
<PAGE>
PART II - OTHER INFORMATION
Item #6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
<PAGE>
REPAP WISCONSIN INC.
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,
on August 2, 1996.
Repap Wisconsin, Inc.
Timothy Morgan
Timothy Morgan
Senior Vice President and Controller
(Duly authorized officer and principal financial
and accounting officer)
<TABLE> <S> <C>
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<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<CASH> 24
<SECURITIES> 0
<RECEIVABLES> 46368
<ALLOWANCES> 0
<INVENTORY> 85448
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<PP&E> 168585
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<CURRENT-LIABILITIES> 66170
<BONDS> 427475
<COMMON> 33126
6115
112684
<OTHER-SE> (24962)
<TOTAL-LIABILITY-AND-EQUITY> 655499
<SALES> 193267
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<CGS> 168667
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</TABLE>
