SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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: As of June 30, 1996,
1,945,130.
Indicate total number of pages contained in document filed: 11.
BADGER PAPER MILLS, INC.
INDEX
Pages
FINANCIAL INFORMATION
Consolidated Interim Statements of
Operations and Retained Earnings -
Quarter and Six Months Ended
June 30, 1996 and 1995 3
Consolidated Balance Sheets - June 30, 1996 and
December 31, 1995 4
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1996 and 1995 5
Notes to Financial Statements 6-8
MANAGEMENT DISCUSSION AND ANALYSIS 8-9
OTHER INFORMATION 10
SIGNATURES 11
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED INTERIM STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
Net Sales $20,778 $24,412 $39,232 $46,526
Cost of Sales 18,434 21,511 36,733 42,436
------- ------- ------- -------
Gross Margin 2,344 2,901 2,499 4,090
Selling and
Administrative Expenses 1,037 1,040 1,966 1,917
Pulp Mill Closure Costs 7,430 - 7,430 -
------- ------- ------- -------
Operating Income (Loss) (6,123) 1,861 (6,897) 2,173
Other Income, Net - 195 30 624
Gain on Sale of
Timberlands 4,620 - 4,620 -
Interest Expense (267) (353) (526) (728)
------- ------- ------- -------
Income (Loss) Before
Income Taxes (1,770) 1,703 (2,773) 2,069
Income Tax
Expense (Benefit) (602) 579 (943) 704
------- ------- ------- -------
Net Income (Loss) (1,168) 1,124 (1,830) 1,365
------- ------- ------- -------
Retained Earnings,
Beginning of Period 19,869 18,323 20,635 18,082
Cash Dividends (97) - (195) -
Unrealized Gain (Loss)
on Securities
Held for Sale 6 - - -
------- ------- ------- -------
Retained Earnings,
End of Period $18,610 $19,447 $18,610 $19,447
======= ======= ======= =======
Net Earning (Loss)
Per Share ($0.60) $0.57 ($0.94) $0.70
Dividends Per Share $0.05 - $0.10 -
Average Shares
Outstanding 1,945,130 1,957,330 1,944,330 1,957,187
See Notes to Financial Statements.
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands)
June 30, 1996 December 31, 1995
ASSETS:
Current Assets:
Cash & Cash Equivalents $3,307 $ 835
Marketable Securities 1,378 3,138
Accounts Receivable - Net 7,960 6,955
Deferred Income Taxes 1,059 1,059
Inventories 8,054 7,314
Refundable Income Taxes 1,286 173
Other Current Assets 251 560
------ ------
Total Current Assets 23,295 20,034
Property, Plant, Equipment &
Timberlands 77,150 76,496
Less Allowance for Depreciation
& Depletion (53,877) (46,156)
------- -------
Total Property, Plant, Equipment
& Timberlands 23,273 30,340
Other Assets 2,150 2,170
Restricted Funds from
Industrial Revenue Bonds - 34
------- -------
TOTAL ASSETS $48,718 $52,578
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current Portion of Long-Term Debt 115 115
Accounts Payable 5,581 5,823
Accrued Liabilities 4,807 3,637
------- -------
Total Current Liabilities 10,503 9,575
Deferred Income Taxes 2,604 2,604
Long Term Debt 14,212 17,236
Other Liabilities 1,951 1,720
------- -------
Total Liabilities 29,270 31,135
STOCKHOLDERS' EQUITY:
Common stock, no par value:
4,000,000 shares authorized
2,160,000 shares issued 2,700 2,700
Additional paid-in capital 178 168
Retained Earnings 18,610 20,633
Less treasury shares at cost:
214,870 - 6/30/96; 217,670 - 12/31/95 (2,040) (2,058)
------- -------
Total Stockholders' Equity 19,448 21,443
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $48,718 $52,578
======= =======
See Notes to Financial Statements
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands) Six Months Ended
June 30, June 30,
1996 1995
Cash Flows from Operating Activities:
Net (Loss) Income ($1,830) $1,365
Adjustments to Reconcile to Net Cash
Provided By (Used In) Operating
Activities:
Depreciation 1,570 1,643
Net Proceeds from Sales (Purchases)
of Marketable Securities 2,064 (30)
Unrealized Gain on
Marketable Securities (304) (330)
Gain on Sale of Timberlands (4,620) -
Increase in Accounts Receivables, Net (1,005) (1,747)
(Increase) Decrease in Inventories (740) 367
Decrease in Accounts Payable
and Accrued Liabilities 928 869
(Increase) Decrease Other (551) 173
------- -------
Net Cash (Used in) Provided by
Operating Activities (4,488) 2,310
------- -------
Cash Flows From Investing Activities:
Retirements from (Additions to)
Property, Plant and Equipment, Net 5,337 (1,177)
Proceeds from Sale of Timberlands 4,780 -
Decrease in Restricted Funds from
Industrial Revenue Bonds 34 1,589
------- --------
Net Cash Provided by
Investing Activities 10,151 412
------- --------
Cash Flows from Financing Activities:
Payments on Long-Term Debt (3,024) (3,822)
Sale of Treasury Stock 28 -
Dividends Paid (195) -
------- -------
Net Cash Used in Financing Activities (3,191) (3,822)
------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents 2,472 (1,100)
Cash and Cash Equivalents:
Beginning of Period 835 1,375
------- -------
End of Period $3,307 $ 275
======= =======
See Notes to Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. BASIS OF PRESENTATION
The unaudited financial statements have been prepared by Badger Paper
Mills, Inc. (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of the
Company, included all adjustments necessary for a fair statement of
results for each period shown. These adjustments were of a normal
recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such SEC rules and regulations. The Company believes that the disclosures
made are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's latest
annual report.
B. INCOME TAXES
The provision for income tax expense or benefit has been computed by
applying an estimated annual effective tax rate. This rate was a 34%
benefit for the quarter and six months ended June 30, 1996, resulting from
the Company's operating losses during such periods. For the quarter and
six months ended June 30, 1995, the Company provided for a 34% expense.
C. EARNINGS PER SHARE
Earnings per share of common stock are based on weighted average
number of shares of common stock outstanding.
D. INVENTORIES
The major classes of inventories are as follows (in thousands):
June 30, December 31,
1996 1995
Raw materials $4,599 $3,483
Work in process and finished stock 3,455 3,831
------ ------
$8,054 $7,314
====== ======
E. DEBT
The Company's revolving credit facility provides for borrowings up to
$13 million. The credit facility was amended in August, 1996, to extend
its expiration to April 30, 1999, and to provide for financial covenants
which are less restrictive than provided in the prior agreement. An
annual commitment fee of 3/8% is payable quarterly for unused amounts
under the credit facility. Interest on borrowings is at the LIBOR rate
plus 1.75% (totaling 7.1875% at June 30, 1996). Borrowings are
collateralized by inventory, accounts receivable, marketable securities
and certain property, plant and equipment. Approximately $5,000,000 was
borrowed under the revolving credit facility as of June 30, 1996.
Interest on the Company's outstanding IDRBs is payable monthly at
floating rates determined by remarketing agents (3.45% at June 30, 1996)
and may be converted to fixed rates at certain dates in the future, at the
Company's option, as specified in the agreements. Approximately
$7,600,000 principle amount of IDRBs was outstanding as of June 30, 1996.
The IDRBs are collateralized by bank letters of credit expiring in
1999. The Company pays annual fees at 1% of the amount available under the
letters of credit. As amended in August, 1996, the letters of credit
require, among other items, the Company to maintain minimum tangible net
worth of $17,300,000 through June 29, 1997 ($18,500,000 from June 30, 1997
through December 30, 1997; $20,000,000 from December 31, 1997 through June
29, 1998; $22,000,000 from June 30, 1998 through December 30, 1998; and,
$24,500,000 December 31, 1998 and thereafter) and a current ratio of 1.9
to 1.0 or greater. Additionally, dividends and treasury stock purchases
are limited to 33% of the Company's cumulative net income from July 1,
1996.
At June 30, 1996, approximately $1,700,000 principle amount was
outstanding under an Urban Development Action Grant. The grant is
repayable in monthly installments of $15,437, including interest at an
effective rate of approximately 6.5%, 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.
F. CONTINGENCIES
The Company operates in an industry which is subject to laws and
regulations at both federal and state levels relating to the protection of
the environment. The Company undergoes continued environmental testing
and analysis, and the precise cost of compliance with environmental
requirements has not been determined.
In addition, from time to time, the Company is subject to various
claims, the ultimate outcomes of which management cannot predict.
Management believes that the outcomes will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Sales for the second quarter, 1996 totaled $20,778,000 compared to
$24,412,000 for the second quarter, 1995 or a 14.9% decrease. Shipments
increased by 5.6% and average selling price decreased by 22.4% during this
time frame. Paper prices continued the downward trend which started in
the fourth quarter, 1995.
Sales for the six-month period ending June 30, 1996, were $39,232,000
compared to $46,526,000 for the same period a year ago. The decreased
revenue for the first six months of 1996 is reflective of an approximate
5% decrease in shipments and a 13% decrease in average selling price.
Cost of sales decreased 14% and 13% respectively for the second quarter
and six months of 1996, compared to the same periods a year earlier. The
decreased volume of shipments plus the decreased costs of purchased fiber
were the primary factors affecting cost of sales.
Selling and administrative expenses have remained relatively constant for
the second quarter and first half of 1996 as compared to the second
quarter and first half of 1995, $1,037,000 and $1,966,000 for 1996 and
$1,040,000 and $1,917,000 for 1995.
The Company recorded a second quarter, 1996 charge in the amount of
$7,430,000 resulting from the closure of the Company's pulp mill. The
charge includes the write-off of pulp mill fixed assets and inventories,
costs associated with early retirement or severance of certain workers,
and a provision for ongoing maintenance and security costs. The charge
for the discontinued pulp operations was partially offset by a second
quarter gain in the amount of $4,620,000 from the sale of timberlands
located in Northern Wisconsin and the Upper Peninsula of Michigan that
were no longer compatible with the Company's fiber requirements. Proceeds
from the sale of the timberlands were used to retire debt. Excluding the
charge related to the discontinued pulp operations and the gain related to
the sale of the timberlands, the Company's second quarter, 1996 net income
was $686,000, or $.35 per share.
Liquidity and capital resources
Capital expenditures during the second quarter and six months, 1996
amounted to $574,000 and $999,000, as compared to $835,000 and $1,177,000
during the same periods in 1995. Capital expenditures were maintained at
levels to sustain manufacturing operations.
In the second quarter of 1996, the Company started the construction of a
$7.5 million stock preparation facility that is expected to be completed
late in the fourth quarter of 1996. The completion of this project will
allow for improved formulation and processing of wet end stock fibers. It
will also allow the Company to expand its specialty manufacturing
capabilities by the segregation of the Company's two paper machines white
water and stock recovery systems.
The Company operates in an industry which is subject to laws and
regulations at both federal and state levels relating to the protection of
the environment. The Company undergoes continued environmental testing
and analysis, and the precise cost of compliance with environmental
regulations has not been determined for the Company's operations.
As of June 30, 1996, the Company's capital resources for funding ongoing
operations and capital expenditures includes $4,685,000 of cash and
marketable securities, and a $13,000,000 revolving credit facility, of
which $5,000,000 is currently used. The Company believes it has adequate
capital resources to meet its near-term capital and operating needs.
Cash used in operating activities totaled $4,488,000 for the first six
months of 1996, compared to cash provided by operating activities for the
first half of 1995 of $2,310,000. Net cash provided by investing
activities was $10,151,000 for the first six months of 1996 compared to
$412,000 for the same period in 1995. The main items affecting cash were
the $4,620,000 gain on sale of the major portion of the Company's
timberlands and retirement of $5,337,000 of assets associated with the
pulp mill.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(4) Sixth Amendment and Waiver dated August 9, 1996 to the
Credit Agreement dated June 30, 1993, between Badger Paper
Mills, Inc., Plas-Techs, Inc., and Harris Trust & Savings
Bank.
(27) Financial data schedules
SIGNATURE
Pursuant to the requirements 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.
BADGER PAPER MILLS, INC.
(Registrant)
DATE: August 13, 1996 By /s/ Claude L. Van Hefty
Claude L. Van Hefty
President (Chief
Executive Officer)
DATE: August 13, 1996 By /s/ Miles L. Kresl, Jr.
Miles L. Kresl, Jr.
Vice President/Administration,
Corporate Secretary, &
Treasurer (Principal Financial
Officer)
EXHIBIT INDEX
Exhibit No. Description
(4) Sixth Amendment and Waiver dated August 9, 1996 to the
Credit Agreement dated June 30, 1993, between Badger Paper
Mills, Inc., Plas-Techs, Inc., and Harris Trust & Savings
Bank.
(27) Financial Data Schedule