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 September 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 [ ]
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
REPAP WISCONSIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996, AND FOR THE THREE MONTHS
ENDED JUNE 31, 1996 (Unaudited)
(Amounts in thousands)
<CAPTION>
3 Months Ended 9 Months Ended
September 30, June 30, September 30, September 30,
----------------------------------- --------
1995 1996 1996 1995 1996
----- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C>
Net sales $136,729 $103,963 $102,016 $391,978 $295,283
Cost of sales excluding depreciation
and amortization 104,768 84,950 83,888 300,267 241,179
Depreciation and amortization 5,670 5,953 5,444 17,067 16,820
Selling, general and administrative
expenses 6,765 5,603 5,420 19,473 16,581
--------- ------- ------ --------- -------
Operating profit 19,526 7,457 7,264 55,171 20,703
Other income(expense):
Interest expense, net (9,837) (9,892) (9,964) (29,401) (29,959)
Amortization of financing costs (423) (423) (423) (1,263) (1,269)
Other, net 79 98 12 421 181
Income(loss) before income taxes
and extraordinary item 9,345 (2,760) (3,111) 24,928 (10,344)
Provision for income taxes 3,552 (561) (726) 9,473 (2,539)
Income(loss) before extraordinary item
5,793 (2,199) (2,385) 15,455 (7,805)
Extraordinary item, net of tax - - - 232 -
------ --------- --------- -------- ---------
Net income(loss) 5,793 ($2,199) ($2,385) $15,687 ($7,805)
EBITDA(1) $26,246 $13,937 $13,234 $75,388 $38,896
Shipments(000 tons) 123 109 117 369 310
(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>
<PAGE>
<TABLE>
REPAP WISCONSIN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
<CAPTION>
December 31, September 30,
1995 1996
----------------- -----------
<S> <C> <C>
Assets
Current assets:
Cash $11 $59
Accounts receivable 40,127 52,183
Inventories 84,589 78,801
Other current assets 36,684 30,535
---------- ---------
Total current assets 161,411 161,578
Net property, plant and equipment 474,378 463,843
Deferred charges and other assets 19,723 18,632
----------- -----------
TOTAL ASSETS $655,512 $644,053
</TABLE>
<TABLE>
<CAPTION>
Liabilities and shareholders' equity
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $26 $ -
Accounts payable 49,397 39,834
Accrued liabilities 24,459 19,331
---------- --------
Total current liabilities 73,882 59,165
Long-term debt 377,000 377,000
Revolving credit line 36,189 48,568
Deferred income taxes 24,301 21,613
Accrued postretirement benefit liability 11,757 13,130
Redeemable Preferred Stock, Class I 5,828 6,260
Common and other shareholders' equity:
Preferred Stock 112,684 112,684
Common Stock 33,126 33,126
Accumulated deficit (19,255) (27,493)
--------- ----------
Total shareholders' equity 126,555 118,317
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY) $655,512 $644,053
<FN>
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<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>
9 Months Ended
September 30,
1995 1996
<S> <C> <C>
Operating activities
Net income(loss) $15,687 ($7,805)
Adjustments to reconcile net income(loss) to net
cash used by operating activities:
Depreciation and amortization 18,330 18,089
Deferred income taxes 9,616 (2,539)
Non-cash portion of postretirement benefit 3,150 1,373
Extraordinary item, gross (375) -
Net cash provided before changes in operating assets and li 46,408 9,118
Changes in operating assets and
liabilities (48,833) (14,960)
---------- ----------
Net cash provided by(used in) operating activities (2,425) (5,842)
--------- ----------
Investing activities
Additions to property, plant and equipment (9,242) (5,527)
Additions to deferred charges (467) (540)
Net cash used in investing activities (9,709) (6,067)
Financing activities
Net borrowings under revolving credit facilities 14,867 12,379
Repayments of long-term debt (2,705) (26)
Deferred financing costs (41) (396)
-------- --------
Net cash provided by financing activities 12,121 11,957
------- --------
Net increase in cash (13) 48
Cash at beginning of period 25 11
------- -------
Cash at end of period $12 $59
<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, September 30,
1995 1996
($000) ($000)
Finished Goods $38,954 $46,977
Work in process 8,138 8,066
Raw materials/supplies 37,497 23,758
______ _______
$84,589 $78,801
====== ======
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.
Notwithstanding the adverse finding of the PSC and the Dane County
Circuit Court, the Company is proceeding with development of an
alternative project which will 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 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 of a new gas fired boiler targeted to be
started up in December of 1996 and the subsequent removal from
operation of one of its boilers. The precipitator from the retired
boiler will be used to assure opacity and particulate compliance on
the two stoker coal fired boilers. In September 1996, the EPA issued
another NOV on a stack test with respect to particulate emissions
from 1993. This situation had also been rectified with the Wisconsin
DNR and a return to compliance letter was received from the state
agency. Another compliance conference has been scheduled for
November 20, 1996 to discuss the status and remedy of the NOV's.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's third quarter net sales totaled $102.0 million compared with
net sales of $104.0 million reported for the second quarter of 1996, as the
benefit of a 7 percent increase in shipments partially offset the unfavorable
impact of lower paper prices. Net sales were down from the $136.7 million
reported in the third quarter of 1995, primarily due to lower paper prices
along with a 5 percent decrease in shipments. For the first nine months of
1996, net sales were $295.3 million compared to $392.0 million reported for
the comparable period of 1995.
Third quarter operating profit of $7.3 million was comparable to the $7.5
million reported for the second quarter of 1996, as lower fiber costs and,
to a lessor extent, a decrease in depreciation and amortization essentially
offset lower net sales. The decrease in depreciation and amortization
resulted primarily from the Company's policy of depreciating their
papermaking equipment under the units-of-production method together with
the lower production during the quarter caused by two weeks or 23,000 tons
of inventory-related downtime (compared with one week taken in the second
quarter). Operating profit was down from the $19.5 million reported for
the third quarter of 1995 as lower fiber costs and decreased selling
commissions resulting from lower net sales only partially offset lower net
sales.
Operating profit for the first nine months of 1996 totaled $20.7 million
compared with $55.2 million reported for the first nine months of 1995,
reflecting primarily lower net sales along with the increased costs
related to the one month of inventory-related downtime taken to-date in
1996, partially offset by the lower fiber costs and the corresponding
decrease in selling commissions.
For the third quarter of 1996, the Company reported a net loss of $2.4
million, compared to net income of $5.8 million for the third quarter of
1995 and a net loss of $2.2 million for the second quarter of 1996. For
the nine month period ending September 30, 1996, the Company reported a
net loss of $7.8 million, compared to net income of $15.7 million reported
for the comparable period of 1995.
Financial Resources
During the first nine months of 1996, capital additions of $5.5 million,
deferred charges of $0.9 million and net cash used in operating activities
of $5.8 million were funded principally by net borrowings under the revolving
credit facility of $12.4 million, leaving a revolving credit facility balance
of $48.6 million at September 30, 1996.
Net cash used in operating activities was $5.8 million for the nine month
period ended September 30, 1996 compared with $2.4 million used in the
comparable period of 1995. Net cash provided by operating activities before
changes in operating assets and liabilities was $9.1 million and $46.4
million for the nine month period ending in 1996 and 1995, respectively.
The $37.3 million decrease in 1996 was due primarily to lower operating
profits. Funds used for working capital in the first nine months of 1996
were related primarily to an increase in accounts receivable of $12.1
million combined with a decrease in accounts payable and accrued liabilities
of $14.7 million, partially offset by a decrease in inventories and other
current assets in the amount of $5.8 million and $6.1 million, respectively.
A decrease in fiber inventory was partially offset by an increase in finished
roll inventory in 1996. The decrease in other current assets primarily
reflects pulp received under the forward pulp purchase contracts entered
into in 1995.
For 1996, a revised capital budget totalling $9 million has been approved,
compared with expenditures of $12.8 million in 1995 (net of operating leases).
The 1996 revised budget includes expenditures primarily related to improvements
to the Company's papermaking and converting equipment. Capital expenditures
for the first nine months of 1996 were $5.5 million compared to $9.2 million
for the same period of 1995.
The Company anticipates entering into approximately $9.0 million of operating
lease agreements in 1996, compared to $15.9 million in 1995.
Other
In 1995, the Company entered into forward pulp 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 a discount greater than
the established fidelity discount. Delivery under these forward purchase
contracts was originally scheduled over 1995 and 1996. Deliveries totaling
$6.0 million have been made against these contracts through the third quarter
of 1996.
Of the remaining obligations, a $9.0 million contract is expected to be
settled over the next 12 months while obligations for delivery of the balance
are being renegotiated for delivery over a 5 year term. As part of these
renegotiations, the Company expects to enter into a new five year pulp supply
contract with Repap British Columbia which will establish a price for all
pulp deliveries over this period which will be less than the list price of
market pulp.
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.
<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 November 13, 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>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 52183
<ALLOWANCES> 0
<INVENTORY> 78801
<CURRENT-ASSETS> 161578
<PP&E> 463843
<DEPRECIATION> 0
<TOTAL-ASSETS> 644053
<CURRENT-LIABILITIES> 59165
<BONDS> 425568
<COMMON> 33126
6260
112684
<OTHER-SE> (27493)
<TOTAL-LIABILITY-AND-EQUITY> 644053
<SALES> 295283
<TOTAL-REVENUES> 295283
<CGS> 257999
<TOTAL-COSTS> 257999
<OTHER-EXPENSES> (181)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31228
<INCOME-PRETAX> (10344)
<INCOME-TAX> (2539)
<INCOME-CONTINUING> (7805)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7805)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
