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 September 30, 1997
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 September 30,
1997, 1,950,945.
Indicate total number of pages contained in document filed: 10.
BADGER PAPER MILLS, INC.
INDEX
Pages
FINANCIAL INFORMATION
Condensed Consolidated Interim Statements of
Operations and Retained Earnings -
Quarter and Nine Months Ended
September 30, 1997 and 1996 3
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated
Financial Statements 6-7
MANAGEMENT DISCUSSION AND ANALYSIS 7-8
OTHER INFORMATION 9
SIGNATURES 10
ITEM 1. FINANCIAL STATEMENTS.
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
Net Sales $19,002 $19,458 $53,034 $58,690
Cost of Sales 17,589 18,020 50,321 54,753
------- ------- ------- -------
Gross Margin 1,413 1,438 2,713 3,937
Selling and Administrative Expenses 1,006 957 3,075 2,923
Pulp Mill Closure Costs - - - 7,430
------- ------- ------- -------
Operating Income (Loss) 407 481 (362) (6,416)
Other Income, Net 213 93 440 123
Gain on Sale of Timberlands - 253 - 4,873
Interest Expense (358) (177) (1,000) (703)
------- ------- ------- -------
Income (Loss) Before Income Taxes 262 650 (922) (2,123)
Income Tax Expense (Benefit) 89 221 (314) (722)
------- ------- ------- -------
Net Earning (Loss) 173 429 (608) (1,401)
------- ------- ------- -------
Retained Earnings, Beginning of Period 17,213 18,610 17,994 20,635
Cash Dividends - (116) - (311)
------- ------- ------- -------
Retained Earnings, End of Period $17,386 $18,923 $17,386 $18,923
======= ======= ======= =======
Net Earnings (Loss) Per Share $0.09 $0.22 ($0.31) ($0.72)
Dividends Per Share - $0.06 - $0.16
Average Shares Outstanding 1,947,268 1,945,130 1,945,892 1,944,570
See Notes to Condensed Consolidated Financial Statements
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands)
September 30, December 30,
ASSETS:
Current Assets:
Cash and Cash Equivalents $2,914 $4,079
Marketable Securities 1,298 1,800
Accounts Receivable, Net 5,834 4,556
Deferred Income Taxes 981 981
Inventories 5,839 6,837
Refundable Income Taxes 394 1,466
Other Current Assets 1,447 1,194
------- -------
Total Current Assets 18,707 20,913
Property, Plant, Equipment and Timberlands 65,522 62,563
Less Allowance for Depreciation and (36,581) (35,158)
------- -------
Total Property, Plant, Equipment and 28,941 27,405
Property, Plant, Equipment Held for Sales, 730 1,410
Other Assets 2,324 2,224
------- -------
TOTAL ASSETS $50,702 $51,952
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current Portion of Long-Term Debt $119 $119
Accounts Payable 4,407 7,409
Accrued Liabilities 2,639 3,462
------- -------
Total Current Liabilities 7,165 10,990
Deferred Income Taxes 1,621 1,621
Long-Term Debt 21,911 18,617
Other Liabilities 1,734 1,892
------- -------
Total Liabilities 32,431 33,120
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 187 178
Retained Earnings 17,386 17,994
Less treasury shares at cost:
209,055 - 9/30/97; 214,870 -
12/31/96 (2,002) (2,040)
------- -------
Total Stockholders' Equity 18,271 18,832
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $50,702 $51,952
======= =======
See Notes to Condensed Consolidated Financial Statements
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
Nine Months Ended
Sept. 30, Sept. 30,
1997 1996
Cash Flows from Operating Activities:
Net Loss ($608) ($1,401)
Adjustments to Reconcile to Net Cash
Provided by (Used in) Operating Activities:
Depreciation 2,180 2,194
Net Proceeds from Sales of Marketable 491 1,565
Unrealized Loss (Gain) on Marketable 10 (305)
Gain on Sale of Timberlands - (4,873)
Increase in Accounts Receivables, Net (1,278) -
Decrease (Increase) in Refundable Income 1,072 (1,007)
Decrease (Increase) in Inventories 998 (752)
(Increase) Decrease in Accounts Payable and (3,825) 74
Decrease (Increase) Other (463) 618
-------- -------
Net Cash Used in Operating Activities (1,423) (3,887)
-------- -------
Cash Flows from Investing Activities:
(Additions to) Retirements from Property, (3,708) 4,104
Proceeds from Sale of Fixed Assets Held for 672 -
Proceeds from Sale of Timberlands - 5,051
Decrease in Restricted Funds from Industrial - 34
-------- -------
Net Cash (Used in) Provided by Investing (3,036) 9,189
-------- -------
Cash Flows from Financing Activities:
Increase to (Payments on) Long-Term Debt 3,294 (2,603)
Dividends Paid - (311)
-------- -------
Net Cash Provided by (Used in) Financing 3,294 (2,914)
-------- -------
Net (Decrease) Increase in Cash and Cash (1,165) 2,388
Cash and Cash Equivalents:
Beginning of Period 4,079 835
-------- -------
End of Period $2,914 $3,223
======== =======
See Notes to Condensed Consolidated 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, include all adjustments necessary for a fair statement of results
for each period shown. These adjustments are 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. These financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's latest annual report. Certain
reclassifications have been made to the 1996 financial statements to
conform to the 1997 presentation.
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% tax
expense for the third quarter 1997 and a 34% tax benefit for the nine
months ended September 30, 1997, resulting from the Company's operating
gains and losses during such periods. For the quarter and nine months
ended September 30, 1996, the Company provided for a 34% expense, and a
34% tax benefit, respectively.
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):
Sept. 30, 1997 Dec. 31, 1996
Raw materials $910 $994
Work in process and finished stock 4,080 4,122
Pulpwood inventory to be sold 849 1,721
------- --------
$5,839 $6,837
======= ========
E. 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, the Company is subject to various claims arising in the
ordinary course of its business, the ultimate outcomes of which management
cannot predict. Management believes, however, that the outcome of these
claims 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
The Company reported net sales of $19,002,000 for the third quarter ended
September 30, 1997, or 2.3% less than the $19,458,000 reported for the
same period in 1996. Volume of shipments for the third quarter of 1997
remained constant compared to the same period in 1996, while the average
selling price of the paper sold decreased approximately 2.4%.
Net sales for the nine-month period ending September 30, 1997 were
$53,034,000, or 9.6% less than the $58,690,000 reported for the same
period a year earlier. Volume of shipments during the first nine months of
1997 was down approximately 4.7% when compared to the same period in 1996,
while the average selling price decreased approximately 5.7%.
Cost of sales decreased 2.4% and 8.1% respectively for the third quarter
and first nine months of 1997 compared to the same periods a year earlier.
The nine-month change is partially due to the elimination of costs
associated with the pulp mill, which was closed in the second quarter of
1996.
Selling and administrative expenses increased 5.1% to $1,006,000 for the
third quarter of 1997 from $957,000 reported for the same period in 1996.
Selling and administrative expenses increased 5.2% to $3,075,000 for the
first nine months of 1997 from $2,923,000 for the first nine months of
1996. The increase in both the third quarter and the first nine months of
1997 was due to the costs associated with market development.
Other income increased 129.0% to $213,000 for the third quarter of 1997,
compared to $93,000 for the third quarter of 1996. For the first nine
months of 1997, other income has increased to $440,000 from $123,000, or
257.7%. The increase is primarily the result of realized gains associated
with trade credits of approximately $105,000 in the third quarter of 1997
and $176,000 for the first nine months of 1997. The Company recognized a
loss in securities of $161,000 for the first nine months of 1996.
Liquidity and capital resources
Capital expenditures during the third quarter and nine months of 1997
amounted to $646,000 and $3,227,000, respectively, compared to $1,211,000
and $2,194,000, respectively, during the same periods in 1996. Capital
expenditures were maintained at levels to sustain manufacturing
operations. The Company's $5.5 million capital expenditure plan for 1997
is nearly complete. The new process control system for the Yankee paper
machine at the Peshtigo facility, which provides control of machine and
cross direction basis weights and sheet moisture, is completed and
operational. Delivery of the eight-color flexographic printing press,
which is to be installed at the Company's subsidiary, Plas-Techs, Inc., is
expected to occur during the first quarter of 1998 and be operational in
the second quarter of 1998.
As of September 30, 1997, the Company's capital resources for funding
ongoing operations and capital expenditures included $4,212,000 of cash
and marketable securities, and a $13,000,000 revolving credit facility
running through April 30, 1999. As of September 30, 1997, borrowings
under this credit facility totaled $12,900,000. The Company's revolving
credit facility was amended in August, 1997 to modify certain financial
covenants. The Company believes it has adequate capital resources to
meet its near-term capital and operating needs.
Cash used in operating activities totaled $1,423,000 for the first nine
months of 1997, compared to the cash used in operating activities for the
first nine months of 1996 of $3,887,000. Net cash used in investing
activities was $3,036,000 for the first nine months of 1997 compared to
$9,189,000 provided by investing activities for the same period in 1996.
Accounting Matters
The Company is required to adopt Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share," into its financial
statements for the year ending December 31, 1997. SFAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per
share. The adoption of this statement will result in the presentation by
the Company of basic and, as appropriate, diluted earnings per share, as
defined by the statement, and is not expected to have a material impact on
the earnings per share reported in the financial statements. Upon
adoption of this statement, all prior period earnings per share amounts
will be restated to conform to the provisions of SFAS No. 128.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(4) Seventh Amendment and Waiver dated August 6, 1997 to the
Credit Agreement dated June 30, 1993 between Badger Paper
Mills, Inc., Plas-Techs, Inc., and Harris Trust & Savings
Bank.
(10) Director Stock Grant Plan dated July 23, 1997
(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: November 12, 1997 By /s/ Claude L. Van Hefty
Claude L. Van Hefty
President
(Chief Executive Officer)
DATE: November 12, 1997 By /s/ Miles L. Kresl, Jr.
Miles L. Kresl, Jr.
Vice President/Administration,
Corporate Secretary, & Treasurer
(Principal Financial Officer)