SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 March 31, 1998,
1,951,855.
BADGER PAPER MILLS, INC.
INDEX
Pages
FINANCIAL INFORMATION
Consolidated Interim Statements of
Operations and Retained Earnings -
Three Months Ended March 31, 1998 and 1997 3
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-7
MANAGEMENT'S DISCUSSION AND ANALYSIS 7-8
OTHER INFORMATION
Submission of Matters to a
Vote of Security Holders 9
Exhibits and Reports on Form 8-K 9
SIGNATURES 10
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
(UNAUDITED)
(dollars in thousands, except per share amounts)
Three Months Ended
March 31, March 31,
1998 1997
Net Sales $18,261 $16,213
Cost of Sales 16,426 16,275
------- -------
Gross Margin (Loss) 1,835 (62)
Selling and Administrative Expenses 1,206 1,052
------- -------
Operating Income (Loss) 629 (1,114)
Other Income, Net 213 102
Interest Expense (310) (293)
------- -------
Income (Loss) Before Income Taxes 532 (1,305)
Income Tax Expense (Benefit) 180 (444)
------- -------
Net Income (Loss) 352 (861)
------- -------
Retained Earnings, Beginning of Period 15,552 17,994
Cash Dividends - -
------- -------
Retained Earnings, End of Period $15,904 $17,133
======= =======
Net Income (Loss) Per Share $0.18 $(0.44)
Dividends Per Share - -
Average Shares Outstanding 1,951,855 1,945,130
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands)
March 31, December 31,
1998 1997
ASSETS:
Current Assets:
Cash & Cash Equivalents $ 481 $ 1,302
Certificates of Deposit 1,582 1,382
Marketable Securities 1,249 1,318
Accounts Receivable - Net 6,341 5,120
Deferred Income Taxes 1,291 1,291
Inventories 5,408 4,844
Refundable Income Taxes 385 385
Trade Credits 898 996
Other Current Assets 294 298
------- -------
Total Current Assets 17,929 16,936
------- -------
Property, Plant, Equipment & Timberlands 65,466 66,329
Less Allowance for Depreciation
& Depletion (36,572) (37,042)
------- -------
Total Property, Plant, Equipment
& Timberlands, Net 28,894 29,287
Other Assets 2,049 2,133
------- -------
TOTAL ASSETS $48,872 $48,356
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current Portion of Long-Term Debt $ 123 $ 123
Accounts Payable 5,252 7,313
Accrued Liabilities 4,070 4,308
------- -------
Total Current Liabilities 9,445 8,744
Deferred Income Taxes 1,185 1,185
Long-Term Debt 19,880 20,394
Other Liabilities 1,566 1,589
------- -------
Total Liabilities 32,076 31,912
------- -------
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 190 190
Retained Earnings 15,904 15,552
Less treasury shares at cost:
208,145 - 3/31/98 and 12/31/97 (1,998) (1,998)
------- -------
Total Stockholders' Equity 16,796 16,444
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $48,872 $48,356
======= =======
See Notes to Consolidated Financial Statements
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
Three Months Ended
March 31, March 31,
1998 1997
Cash Flows from Operating Activities:
Net Loss $ 352 $ (861)
Adjustments to Reconcile to Net Cash
Provided by (Used in) Operating Activities:
Depreciation 699 733
Changes in Assets and Liabilities:
Increase in Accounts Receivables, Net (1,221) (633)
Increase in Inventories (564) (851)
Increase (Decrease) in Accounts Payable
and Accrued Liabilities 701 (1,354)
Decrease Other 163 1,036
------ -------
Net Cash Provided by (Used in)
Operating Activities 130 (1,930)
------ -------
Cash Flows From Investing Activities:
Additions to Property, Plant and Equipment, Net (306) (2,234)
Acquisition of Certificates of Deposit (200) -
Purchases of Marketable Securities (63) -
Proceeds from Sales of Marketable Securities 132 500
------ -------
Net Cash Used In Investing Activities (437) (1,734)
------ -------
Cash Flows from Financing Activities:
Payments on Long-Term Debt (14) (13)
(Decrease) Increase in Revolving
Credit Borrowings (500) 2,400
------ -------
Net Cash (Used in) Provided by
Financing Activities (514) 2,387
------ -------
Net (Decrease) in Cash and Cash Equivalents (821) (1,277)
Cash and Cash Equivalents:
Beginning of Period 1,302 4,078
------ -------
End of Period $ 481 $ 2,801
====== =======
See Notes to 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 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. Certain reclassifications have been made to the 1997
financial statements to conform to the 1998 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 three months ended March 31, 1998, resulting from the
Company's operating profits during such period. For the three months
ended March 31, 1997, the Company provided for a 34% tax benefit,
resulting from the Company's operating losses.
C. EARNINGS PER SHARE
Earnings per share of common stock are based on the weighted average
number of shares of common stock outstanding.
D. INVENTORIES
The major classes of inventories are as follows (in thousands):
March 31, December 31,
1998 1997
Raw materials $1,274 $1,281
Work in process and finished stock 4,134 3,563
------ ------
$5,408 $4,844
====== ======
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 continuous 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, 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
The Company reported net sales of $18,261,000 for the first quarter ended
March 31, 1998, or 12.6% higher than the $16,213,000 reported for the same
period in 1997. Total pounds of paper shipped for the first quarter of
1998 increased 14.4% compared to the same period in 1997 and the average
selling price of the paper sold decreased approximately 1.7%.
Cost of sales increased $151,000 or 0.9% to $16,426,000 for the first
quarter of 1998 compared to $16,275,000 for the same period a year
earlier. The increased costs associated with producing 8.3% more paper in
the first quarter of 1998 were partially offset by cost reductions due to
a restructuring of our business. The restructuring resulted in the
reduction of the Company's workforce by approximately 71 employees.
Selling and administrative expenses increased $154,000 or 14.6% to
$1,206,000 for the first quarter of 1998 compared to $1,052,000 reported
for the same period in 1997. The increase in the first quarter of 1998
was due to primarily to costs associated with market development.
Other income increased $111,000 or 108.8% to $213,000 for the first
quarter 1998 compared to $102,000 for the first quarter of 1997. The
increase is the result of realized gains associated with trade credits.
Liquidity and Capital Resources
As of March 31, 1998, the Company's capital resources for funding ongoing
operations and capital expenditures included $3,312,000 of cash and
marketable securities and a $12,000,000 Revolving Credit Facility running
through April 30, 1999. As of March 31, 1998, borrowings under the
Revolving Credit Facility totaled $10,900,000. The Revolving Credit
Facility was amended on March 9, 1998, to modify certain financial
covenants. The Company believes it has adequate capital resources to meet
its near-term capital and operating needs.
The restructuring discussed in Note L of the Notes to Consolidated
Financial Statements contained in the Company's Form 10-K for the period
ending December 31, 1997, was essentially completed during the first
quarter of 1998.
The Company is selling its offsite training facility for $725,000. This
transaction will be completed in the second quarter of 1998, and is
consistent with the Company's stated strategy of reducing costs and
redeploying its assets into strategic investments. The Company intends to
consolidate its training at its Peshtigo headquarters upon the sale of the
offsite training facility.
Cash provided by operating activities totaled $130,000 for the first
quarter of 1998 and compares to cash used in operations of $1,930,000 for
the same period in 1997. The major factors contributing to the $2,060,000
improvement in cash from operating activities are the improved net income
in the first quarter of 1998 and the improved sales volumes, increased
accounts payable, and accrued liabilities. Net cash used in investing
activities decreased $1,297,000 primarily due to reduced capital
spending. The $514,000 of cash used in financing activities was primarily
due to a payment on the Revolving Credit Facility.
Capital expenditures during the first quarter 1998 were $501,000, compared
to $2,460,000 for the same period in 1997. An air water spray unit on the
number one paper machine was installed and became operational during the
first quarter. The spray unit will provide additional on-line moisture to
the sheet. An eight-color flexographic printing press installed at the
Company's subsidiary, Plas-Techs, Inc. started production in late April
1998. A major portion of the first quarter 1997 capital expenditures were
associated with the new stock preparation addition.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) On Tuesday, March 10, 1998, at 10:00 a.m., a special meeting of
shareholders of Badger Paper Mills, Inc. was held at the Best
Western Riverfront, 1821 Riverside Avenue, Marinette, Wisconsin
54143.
(b) Shareholders voted against a shareholder proposal to approve the
restoration of voting power pursuant to Section 180.1150 of the
Wisconsin Business Corporation Law. The vote tallied 913,123
shares "Against" and 355,968 shares "For", with 2,072 shares
abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial data schedule
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K in the first
quarter of 1998.
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: May 13, 1998 By /s/ L. Harvey Buek
L. Harvey Buek
Interim President
(Chief Executive Officer)
By /s/ George J. Zimmerman
George J. Zimmerman
Controller
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule