UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934: FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-70476
INTER LAKE WISCONSIN, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1247669
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
433 North Main Street
Kimberly, Wisconsin 54136
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (920)788-3511
REPAP WISCONSIN, INC.
(former name or former address, if changed since last report)
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. [X] Yes [ ] No
<PAGE>
INTER LAKE WISCONSIN, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at September 30,
1996 and September 30, 1997 3
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1996, June 30, 1997, and
September 30, 1997, and the Nine Months ended September 30,
1996 and September 30, 1997 4
Condensed Consolidated Statements of Cash Flow for the
Nine Months Ended September 30, 1996 and September 30, 1997 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II.OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
<TABLE>
Inter Lake Wisconsin Inc.
Condensed Consolidated Balance Sheets
(In thousands)
<CAPTION>
December 31, September 30,
1996 1997
(Unaudited)
--------------------------
<S> <C> <C>
Assets
Current assets:
Cash $42 $14
Accounts receivable 46,051 49,988
Inventories 77,545 53,410
Other current assets 1,155 1,179
--------------------------
Total current assets 124,793 104,591
Net property, plant, and equipment 468,518 456,194
Deferred charges and other assets 53,266 13,270
--------------------------
$646,577 $574,055
==========================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $50,336 $35,692
Accrued liabilities 21,417 22,897
--------------------------
Total current liabilities 71,753 58,589
Long-term debt 377,000 377,000
Revolving credit line 37,609 13,671
Deferred income taxes 21,889 10,774
Accrued postretirement benefit liability 12,509 14,116
Redeemable Preferred Stock, Class I 6,405 6,836
Common and other shareholders' equity
Preferred Stock 112,684 112,684
Common Stock 33,126 33,126
Accumulated deficit (26,398) (52,741)
--------------------------
Total common and other shareholders' equity 119,412 93,069
--------------------------
$646,577 $574,055
==========================
<FN>
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Inter Lake Wisconsin Inc.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30 June 30, Sept. 30 Sept. 30 Sept. 30
1996 1997 1997 1996 1997
------------------------------------ ------------------------
<S> <C> <C> <C> <C><C> <C> <C>
Net sales $102,016 $114,665 $120,877 $295,283 $340,941
Cost of sales excluding depreciation 83,888 90,039 94,364 241,179 270,881
Loss on forward purchase contracts 0 34,812 (48) 0 34,764
Depreciation and amortization 5,444 5,927 5,964 16,820 17,684
Selling, general, and administrative 5,420 5,405 6,628 (3) 16,581 17,775 (3)
------------------------------------ ------------------------
Operating profit (loss) 7,264 (21,518) 13,969 20,703 (163)
Other income(expense)
Interest expense, net (9,964) (9,900) (9,172) (29,959) (28,975)
Amortization of financing costs (423) (423) (423) (1,269) (1,269)
Other,net 12 5 (6,926)(4) 181 (6,823)(4)
------------------------------------ ------------------------
Loss before income taxes (3,111) (31,836) (2,552) (10,344) (37,230)
Credit for income taxes (726) (10,593) 126 (2,539) (11,318)
------------------------------------ ------------------------
Net loss ($2,385) ($21,243) ($2,678) ($7,805) ($25,912)
==================================== ========================
EBITDA(1) $13,234 ($15,060) $20,478 (2) $38,896 $19,128 (2)
Shipments(000 tons) 117 138 141 310 409
<FN>
(1) EBITDA = Operating profit plus depreciation and amortization and the non-cash portion
of the charge for post-retirement benefits costs(FASB 106).
(2) Three months ended June 30, 1997 and nine months ended September 30, 1997 EBITDA includes a $34.8 million write off of forward
purchase pulp contracts with Skeena Cellulose, Inc. and Repap's Atholville pulp mill.
(3) Three and nine months ended September 30, 1997 selling, general, and administrative includes $1.5 million in costs associated
with the sale of Repap USA, Inc., the holding company for Inter Lake Wisconsin, Inc., to Consolidated Papers, Inc.
(4) Three and nine months ended September 30, 1997 other expense includes $6.8 million in costs associated with the sale of
Repap USA, Inc., the holding company for Inter Lake Wisconsin, Inc., to Consolidated Papers, Inc.
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Inter Lake Wisconsin Inc.
Condensed Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
Sept. 30, Sept. 30,
1996 1997
------------------------
<S> <C> <C>
Operating activities
Net loss ($7,805) ($25,912)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 18,089 18,953
Deferred income taxes (2,539) (11,115)
Non-cash portion of postretirement benefit cost 1,373 1,607
Loss on forward purchase contracts 0 34,764
------------------------
Net cash provided before changes in operating assets and 9,118 18,297
liabilities
Changes in operating assets and liabilities (14,960) 11,388
------------------------
Net cash generated(used) by operating activities (5,842) 29,685
------------------------
Investing activities
Additions to property, plant and equipment (5,527) (5,561)
Additions to deferred charges (540) (214)
------------------------
Net cash used in investing activities (6,067) (5,775)
------------------------
Financing activities
Net borrowings under revolving credit line 12,379 (23,938)
Repayments of long-term debt (26) 0
Deferred financing costs (396) 0
------------------------
Net cash provided(used) by financing activities 11,957 (23,938)
------------------------
Net increase(decrease) in cash 48 (28)
Cash at beginning of period 11 42
------------------------
Cash at end of period $59 $14
========================
<FN>
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
Inter Lake 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 September
31, 30,
1996 1997
($000) ($000)
Finished goods $34,826 $24,721
Work In process 5,416 4,387
Raw materials/supplies 37,303 24,302
$77,545 $53,410
<PAGE>
Inter Lake Wisconsin, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
3. Guarantee and Commitment
In 1993, the Company entered into an agreement with Wisconsin
Electric Power Company (WEPCO) to construct a cogeneration
facility adjacent to the Company's mill which would have
provided steam for its paper making operations. In late 1993,
the Wisconsin Public Service Commission (PSC) issued an order
denying WEPCO's application and chose another cogeneration
project to proceed in lieu of WEPCO's. The Company was
contingently liable for approximately $4.9 million in
engineering costs incurred by WEPCO. The Company settled
this liability with WEPCO in September and paid WEPCO $3.0
million in October in full settlement of the claim.
4. Environmental Compliance
The Company was issued two Notice of Violations (NOV) in 1996
from the United States Environmental Protection Agency (EPA)
regarding opacity readings and particulate emissions from
1995 and 1993 respectively. The Company has installed a new
gas fired boiler and retired its oldest boiler, and now meets
all EPA requirements. Settlement in full in the amount of
$525,000 was made with the EPA in June.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's third quarter 1997 net sales totaled $120.9
million compared with the $102.0 million reported for the
third quarter of 1996. The increase in net sales of $18.9
million was due to a 21 percent increase in shipments,
partially offset by a less favorable product mix. Net sales
for the third quarter of 1997 were up from the $114.7 million
reported in the second quarter of 1997, reflecting higher
selling prices, offset somewhat by a less favorable product
mix.
For the first nine months of 1997, the Company reported net
sales of $340.9 million compared with $295.3 million for the
first nine months of 1996. The increase in net sales of
$45.6 million was due to a 32 percent increase in shipments
which was partially offset by lower paper prices.
The third quarter 1997 operating income of $14.0 million
includes the $1.5 million in change in control payments
associated with the purchase of the Company's parent, Repap
USA, Inc., by Consolidated Papers, Inc. Prior to these
payments, operating income was $15.5 million as compared with
the $7.3 million operating income reported for the third
quarter of 1996. Increased shipments, higher productivity,
and lower production costs offset an increase in fiber costs
and a less favorable sales mix in the third quarter of 1997
compared with the third quarter of 1996. Prior to the change
in control payments and to the loss associated with the
forward purchase contracts in the second quarter of 1997,
operating income was up from the $13.3 million reported for
the second quarter of 1997. As compared to the second
quarter of 1997, the third quarter of 1997 benefited from
higher selling prices, which were partially offset by higher
fiber costs and a less favorable product mix.
An operating loss of $0.2 million was reported for the first
nine months of 1997. Prior to the extraordinary items
mentioned above, operating income was $36.1 million as
compared with the $20.7 million reported for the first nine
months of 1996. Compared to the first nine months of 1996,
the first nine months of 1997 benefited from increased
shipments, lower fiber costs, lower operating costs, and
higher productivity which were partially offset by lower
paper prices and a less favorable product mix.
<PAGE>
Financial Resources
During the first nine months of 1997, cash provided by
operations was $18.3 million. Along with the benefit of a
$11.4 million decrease in net operating assets and
liabilities, the cash was used to fund capital additions of
$5.6 million and a reduction in the balance of the revolving
credit facility of $23.9 million. The Company's revolving
credit facility balance was $13.7 million at September 30,
1997. Further, the balance of the revolving credit facility
was paid in full in October.
Net cash provided by operating activities was $29.7 million
for the first nine months of 1997 compared with net cash used
in operating activities of $5.8 million for the first nine
months of 1996. Net cash provided by operating activities
before changes in operating assets and liabilities was $18.3
million and $9.1 million respectively for the nine months
ending September 30, 1997 and September 30, 1996. Funds
generated by working capital in the first nine months of 1997
were related primarily to a decrease in inventories of $24.1
million, offset by an increase in trade accounts receivable
of $11.2 million. The inventory decrease includes a
reduction in raw materials inventory of $13.8 million along
with a reduction in work in process and finished goods
inventory of $10.3 million. 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.
For 1997, a revised capital budget resulting in $9.6 million
of expenditures has been approved, compared with expenditures
of $15.7 million in 1996 (net of operating leases). The
planned 1997 capital expenditures are primarily related to
improvements to the Company's papermaking and converting
equipment, and the final payments on the new boiler. Capital
expenditures for the first nine months of 1997 were $5.6
million as compared to $5.5 million for the first nine months
of 1996.
Other
In 1995, the Company entered into forward purchase contracts
with Skeena Cellulose, Inc. and Repap Enterprises, Inc., for
the future delivery of pulp. At December 31, 1996, the
forward purchase contracts were re-negotiated and the
remaining balances were scheduled to be delivered through
1998. At March 31, 1997 the balances remaining under these
contracts with Skeena and REI were $24.3 million and $10.5
million, respectively. As of June 30, 1997, both facilities
had discontinued pulp production and Skeena was insolvent.
As reopening of the REI facility is uncertain, and in view of
Skeena's insolvency, the balance of the contracts were
written off by the Company in the second quarter of 1997.
<PAGE>
In July 1996, REI engaged investment advisors to explore
strategic alternatives available to REI and its subsidiaries
to maximize shareholder value.
In December of 1996, REI entered into a merger agreement with
Avenor, Inc. which was ultimately rejected by Avenor
shareholders.
On July 9, 1997, REI announced that the company had signed a
letter of intent with Consolidated Papers, Inc., of
Wisconsin, USA, to sell its wholly-owned subsidiary, Repap
USA, Inc., for a total consideration of $674 million,
comprised of $433 million for net debt, $14 million for post-
retirement benefits, and $227 million for equity, subject to
closing adjustments. Repap USA is the holding company for
Inter Lake Wisconsin, Inc., REI's U.S. based coated paper
operation, and Repap Sales Corporation, which provides coated
paper sales and marketing services to Inter Lake Wisconsin.
A definitive agreement between REI and Consolidated regarding
this sale was reached on August 8. The sale closed on
September 30.
As part of the definitive agreement, certain items were to be
settled by Repap and the Company prior to closing. These
items negatively impacted the Company's third quarter results
by $8.3 million and included; settlement with WEPCO and the
write off of in-house costs associated with the WEPCO
cogeneration project, $3.9 million, write off of the
investment the Company held in REI, $2.9 million, and
settlement of change in control agreements in conjunction
with the sale of the Company, $1.5 million.
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None.
b. 8-K Reports Filed for the three months ended September 30, 1997, and
subsequent:
August 1, 1997, Changes in Control - Registrant, Press Release dated
August 1, 1997, issued by Repap Enterprises, Inc.
August 8, 1997, Other Events, Stock Purchase Agreement
between Repap Enterprises , Inc. and Consolidated Papers, Inc.,
dated as of August 8, 1997.
October 1, 1997, Changes in Control - Registrant, Press
Release dated October 1, 1997, issued by Consolidated Papers, Inc.
<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, on November 15, 1997.
Inter Lake Wisconsin, Inc.
/s/ David P. Nimtz
David P. Nimtz
(Duly authorized officer and
principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jul-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 14
<SECURITIES> 0
<RECEIVABLES> 49988
<ALLOWANCES> 0
<INVENTORY> 53410
<CURRENT-ASSETS> 104591
<PP&E> 456194
<DEPRECIATION> 0
<TOTAL-ASSETS> 574055
<CURRENT-LIABILITIES> 58589
<BONDS> 390671
<COMMON> 33126
6836
112684
<OTHER-SE> (52741)
<TOTAL-LIABILITY-AND-EQUITY> 574055
<SALES> 120877
<TOTAL-REVENUES> 120877
<CGS> 106908
<TOTAL-COSTS> 106908
<OTHER-EXPENSES> (6926)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9172
<INCOME-PRETAX> (2552)
<INCOME-TAX> 126
<INCOME-CONTINUING> (2678)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2678)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
