UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
R
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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: 1,967,028 as of August 6, 1999.
BADGER PAPER MILLS, INC. AND SUBSIDIARY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Interim Statement of Income
Three Months and Six Months Ended June 30, 1999 and 1998 3
Condensed Consolidated Balance Sheet
June 30, 1999 and December 31, 1998 4
Condensed Consolidated Statement of Cash Flow
Six Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8K 13
SIGNATURES 14
2
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
For Three Months For Six Months
Ended June 30 Ended June 30
-------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- ---------------- ----------------- -----------------
Net Sales $ 16,668 $ 17,462 $ 31,994 $ 35,722
Cost of Sales 14,557 15,720 27,982 32,146
--------------- ---------------- ----------------- -----------------
Gross Margin 2,111 1,742 4,012 3,576
Selling and Administrative Expenses 1,363 1,040 2,491 2,246
--------------- ---------------- ----------------- -----------------
Operating Income 748 702 1,521 1,330
Interest Expense (264) (305) (536) (617)
Interest Income 21 65 57 125
Other Income 50 87 80 243
Non Recurring Life Insurance Proceeds 391 - 391 -
Non Recurring Gain on Lodge Sale - 611 - 611
Non Recurring Executive Termination Expense - (286) - (286)
--------------- ---------------- ----------------- -----------------
Income Before Income Taxes 946 874 1,513 1,406
Income Tax Expense 321 297 514 477
--------------- ---------------- ----------------- -----------------
Net Income $ 625 $ 577 $ 999 $ 929
=============== ================ ================= =================
Net Earnings Per Share - Basic $ 0.32 $ 0.29 $ 0.51 $ 0.48
Net Earnings Per Share - Diluted $ 0.32 $ 0.51
Average Shares Outstanding - Basic 1,964,852 1,955,994 1,962,927 1,953,323
Average Shares Outstanding - Diluted 1,964,852 1,962,927
- - -
Cash Dividends - - - -
See Notes to Consolidated Financial Statements.
3
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) June 30 December 31,
1999 1998
---------------------- -----------------------
Current Assets:
Cash & Cash Equivalents $ 1,932 $ 2,229
Certificates of Deposit 500 996
Marketable Securities 148 1,361
Accounts Receivable, Net 6,000 5,262
Deferred Income Taxes 1,170 1,220
Inventories 8,243 6,201
Refundable Income Taxes 27 27
Other Current Assets 625 558
---------------------- ------------------------
Total Current Assets 18,645 17,854
Property, Plant, Equipment & Timberlands 65,985 65,089
Less: Allowance for Depreciation & Depletion (39,223) (37,798)
---------------------- ------------------------
Total Property, Plant, Equipment & Timberlands, Net 26,762 27,291
Trade Credits 657 696
Other Assets 1,872 2,158
---------------------- ------------------------
TOTAL ASSETS $47,936 $47,999
====================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current Portion of Long-Term Debt $ 2,783 $ 3,068
Accounts Payable 5,122 3,913
Accrued Liabilities 3,317 3,357
Income Taxes Payable 245 170
---------------------- ------------------------
Total Current Liabilities 11,467 10,508
Deferred Income Taxes 1,649 1,700
Long-Term Debt 14,356 16,126
Other Liabilities 1,162 1,408
---------------------- ------------------------
TOTAL LIABILITIES 28,634 29,742
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 203 200
Retained Earnings 18,296 17,296
Less Treasury Shares at Cost:
201,618 Shares at 6/30/99 and 199,278 Shares at 12/31/98 (1,897) (1,939)
TOTAL STOCKHOLDERS' EQUITY 19,302 18,257
---------------------- ------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $47,936 $47,999
====================== ========================
See Notes to Consolidated Financial Statements
4
BADGER PAPER MILLS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands)
For Six Months
Ended June 30
----------------------------------
1999 1998
--------------- ----------------
Cash Flows from Operating Activities:
Net Income $ 999 $ 929
Adjustments to Reconcile to Net Cash
Provided By Operating Activities:
Depreciation 1,425 1,399
Director's Fees Paid in Stock 46 33
Deferred Income Taxes (1) -
Gain on Sale of Lodge - (611)
Changes in Assets and Liabilities:
Increase in Accounts Receivable, Net (738) (774)
(Increase) Decrease in Inventories (2,042) 329
Decrease in Accounts Payable 1,209 (262)
Decrease in Accrued Liabilities (40) (873)
Refundable (Payable) Income Taxes (75) 442
Increase in Other (229) (81)
--------------- ----------------
Net Cash Provided by Operating Activities 554 531
--------------- ----------------
Cash Flows From Investing Activities:
Additions to Property, Plant and Equipment, Net (896) (1,061)
Net Acquisition of Certificates of Deposit 496 70
Purchase of Marketable Securities - (263)
Proceeds from Sales of Marketable Securities 1,213 226
Proceeds from Refund of Prepaid Leased Assets - 1,572
Proceeds from Sales of Lodge - 725
Proceeds from Life Insurance Policy 391 -
--------------- ----------------
Net Cash Provided by Investing Activities 1,204 1,269
--------------- ----------------
Cash Flows from Financing Activities:
Payments on Long-Term Debt (1,955) (28)
Decrease in Revolving Credit Borrowings (100) (2,100)
--------------- ----------------
Net Cash Used in Financing Activities (2,055) (2,128)
--------------- ----------------
Net (Decrease) Increase in Cash and Cash Equivalents (297) (328)
Cash and Cash Equivalents:
Beginning of Period 2,229 1,302
--------------- ----------------
End of Period $1,932 $ 974
=============== ================
See Notes to Consolidated Financial Statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying condensed financial statements, in the opinion of
management, include all adjustments which are normal and recurring in
nature and are necessary for a fair statement of results for each
period shown. Some adjustments involve estimates, which may require
revision in subsequent interim periods or at year-end. In all regards,
the financial statements have been presented in accordance with
generally accepted accounting principles. The accounting policies which
are pertinent to these statements are described in the financial
statement notes in the Company's Form 10K and Annual Report for the
year ended December 31, 1998.
Note 2. Income Taxes
The provision for income tax expense has been computed by applying an
estimated annual effective tax rate. This rate was 34% for the three
and six months periods ended June 30, 1999 and 1998.
Note 3. Earnings per Share
Basic earnings per share amounts are computed based on the weighted
average number of shares outstanding during each period. Diluted per
share amounts equals net earnings divided by common shares outstanding
after giving effect to dilutive stock options granted under the stock
option plan approved by shareholders at the May 11, 1999 annual meeting
of shareholders. The stock options deemed outstanding beginning in the
second quarter of 1999 had an immaterial effect on the weighted average
number of shares outstanding and therefore basic and diluted per share
amounts are the same.
Note 4. Stock Option Plan
Badger Paper Mills, Inc. has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock issued to Employees (APB 25)
and related interpretations in accounting for its stock option plan.
Under APB 25, because the exercise price of the stock options equals
the market price of the underlying stock on the date of grant, no
compensation expense is recorded. Badger Paper is subject to the
disclosure rules of SFAS 123, Accounting for Stock Based Compensation.
Management has determined that the impact of SFAS 123 on net income and
stockholders' equity was not material as of and for the quarter ended
June 30, 1999.
Note 5. Inventories
The major components of inventories were as follows:
(In thousands of dollars) June 30, December 31,
1999 1998
--------------------------
Raw Materials $ 3,345 $ 2,586
Finished Goods and Work in Process 8,999 7,565
------- -------
Subtotal 12,344 10,151
Less: LIFO Reserve (4,101) (3,950)
------- -------
Total Inventories $ 8,243 $ 6,201
======= =======
6
Note 6. 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 prcise 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,
however, that the outcomes will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
Note 7. Operating Segments
Badger Paper adopted SFAS 131 (Disclosures about Segments of an
Enterprise and Related Information) in 1998. Prior years' information
has been restated to present segment information for the Company's two
business segments, paper products and printing and converting. The
paper products segment produces a variety of paper products including
fine paper, business paper, colored paper, waxed paper, specialty
coated base papers and twisting papers. The printing and converting
segment prints and converts flexible packaging materials for the paper
products segment as well as films and non-woven materials from other
customers.
The following provides information on the Company's operating segments
for the three month and six month periods ended June 30, 1999 and 1998:
(Dollars in thousands)
PAPER PRODUCTS PRINTING & CONVERTING TOTAL
-------------------------- ------------------------------ -----------------------------
For Three Months For Three Months For Three Months
Ended June 30 Ended June 30 Ended June 30
-------------------------- ------------------------------ -----------------------------
1999 1998 1999 1998 1999 1998
------------ ------------- -------------- -------------- ------------- --------------
Revenues from external customers $15,356 $16,548 $2,347 $1,654 $17,703 $18,202
Intersegmental revenues 660 197 375 543 1,035 740
Segment income before tax 789 768 157 106 946 874
Segment assets 42,311 41,664 5,625 4,783 47,936 46,447
-------------------------- ------------------------------ -----------------------------
For Six Months For Six Months For Six Months
Ended June 30 Ended June 30 Ended June 30
-------------------------- ------------------------------ -----------------------------
1999 1998 1999 1998 1999 1998
------------ ------------- -------------- -------------- ------------- --------------
Revenues from external customers $29,672 $33,666 $4,664 $3,038 $34,336 $36,704
Intersegmental revenues 1,398 212 944 770 2,342 982
Segment income before tax 1,176 1,183 337 223 1,513 1,406
Segment assets 42,311 41,664 5,625 4,783 47,936 46,447
7
The following is a reconciliation of segment information to
consolidated information:
-------------------------------- ------------------------------
For Three Months For Six Months
Ended June 30 Ended June 30
-------------------------------- ------------------------------
1999 1998 1999 1998
--------------- -------------- -------------- -------------
Revenues:
Total revenues for segment $17,703 $18,202 $34,336 $36,704
Elimination of intersegment revenues (1,035) (740) (2,342) (982)
=============== ============== ============== =============
Total consolidated revenues $16,668 $17,462 $31,994 $35,722
=============== ============== ============== =============
Total segment income, assets and other significant items are the same as
the consolidated information. All operations of the Company are located in
the United States. Revenues from foreign countries are primarily from
Canada and Mexico and are immaterial to total revenues.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Statement Regarding Forward-Looking Information
This Form 10-Q may include one or more "forward-looking statements" within the
meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934 as enacted in the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). In making forward-looking statements within the
meaning of the Reform Act, the Company undertakes no obligation to publicly
update or revise any such statement.
Forward-looking statements of the Company are based on information available to
the Company as of the date of such statements and reflect the Company's
expectations as of such date, but are subject to risks and uncertainties that
may cause actual results to vary materially. In addition to specific factors
which may be described in connection with any of the Company's forward-looking
statements, factors which could cause actual results to differ materially
include, but are not limited to the following:
o Increased competition from either domestic or foreign paper producers
or providers of alternatives to the Company's products, including
increases in competitive production capacity, resulting in sales
declines from reduced shipment volume and/or lower net selling prices
in order to maintain shipment volume.
o Changes in demand for the Company's products due to overall economic
activity affecting the rate of consumption of the Company's paper
products, growth rates of the end markets for the Company's products,
technological or consumer preference changes or acceptance of the
products by the markets served by the Company.
o Changes in the price of pulp, the Company's main raw material. All of
the Company's pulp needs are purchased on the open market and price
changes for pulp have a significant impact on the Company's costs. Pulp
price changes can occur due to worldwide consumption levels of pulp,
pulp capacity additions, expansions or curtailments affecting the
supply of pulp, inventory building or depletion at pulp consumer
8
levels which affect short-term demand, and pulp producer cost changes
related to wood availability, environmental issues, or other variables.
o Unforeseen operational problems at any of the Company's facilities
causing significant lost production and/or cost issues.
o Changes in laws or regulations which affect the Company.
Results of Operations
Net Sales
Net sales for the second quarter ended June 30, 1999 were $16,668,000, down 5%
from the net sales for the same three month period ended in 1998. Shipping
volumes in the second quarter of 1999 declined 9% from 1998 because of the
continued weak market conditions in the industry, especially the commodity
markets. The average selling price for the second quarter increased slightly at
3% despite the volume decreases.
Net sales for the six month period ended June 30, 1999 were $31,994,000, down
10% from the net sales for the same six month period ended in 1998. The
industry's weak market conditions have resulted in a decline of 16% in shipping
volume of our products. The average selling price for the six month period of
1999 increased 9%, despite the volume decreases.
Net sales for the paper products segment were $15,356,000 for the three months
ending June 30, 1999, which is a $1,191,000 or 7% reduction from the same period
in 1998. Year to date net sales were $29,672,000 in 1999, compared to
$33,666,000 for the same period last year. Shipping volumes for the company's
paper products declined from both second quarter and year to date levels of 1998
by 9% and 16% respectively. Despite the volume decreases, the average selling
prices increased 3% for the second quarter and 5% year to date 1999 over
comparable periods in 1998. The higher selling prices are the result of
increased sales of our higher margin specialty products and decreased sales of
our lower margin commodity products. We are continuing our efforts to sell a
larger portion of the higher margin specialty products, while maintaining our
commodity products business when the margins are acceptable. The net sales of
the paper products segment represent 88% of the consolidated net sales for the
three months and six month periods ended June 30, 1999.
Net sales for the printing and converting segment were $2,347,000 for the three
months ending June 30, 1999, which is a $693,000 or 42% improvement over the
same period in 1998. Year to date net sales improved 54% to $4,664,000 in 1999
compared to $3,038,000 for the same period last year. The dramatic increase in
net sales is a direct result of production associated with the Chadwick printing
press installed in the second quarter of 1998. The net sales of the printing and
converting segment represent 12% of the consolidated net sales for the three
months and six month periods ended June 30, 1999.
Gross Profit
Gross profit for the second quarter ended June 30, 1999 was $2,111,000 or 13% of
net sales, compared to gross profit for the same period in 1998 of $1,742,000 or
10%. Year to date gross profit was $4,012,000 or 13% for 1999 and $3,576,000 or
10% for 1998.
Gross profit for the paper products segment was $1,819,000 for the three months
ending June 30, 1999, a $287,000 or 19% improvement over the same period in
1998. Year to date gross profit increased 9% to $3,420,000 in 1999 from
$3,135,000 for the same period last year. The improvement in gross profit can be
attributed to our strategy of taking downtime versus producing low margin
commodity products and our
9
emphasis on replacing our commodity business with higher margin specialty
products. Even though we reported a reduction in net sales we have substantially
improved our gross margin due to product mix changes toward the specialty
products. Production on the paper machines was down 11% due to weak market
conditions. Pulp prices for the first six months of 1999 were lower than the
same period in 1998, but began to escalate during the second quarter of 1999. As
pulp prices continue to rise, we will be challenged to maintain our current
gross profit level.
Gross profit for the printing and converting segment was $291,000 for the three
months ending June 30, 1999, a $81,000 or 38% improvement over the same period
in 1998. Year to date gross profit increased 34% to $592,000 in 1999 from
$442,000 for the same period last year. The dramatic increase in gross profit
can be attributed to the increased capacity provided by the new Chadwick
printing press.
Selling and Administration
Selling and administration expenses were $2,491,000 for the first six months of
1999 compared to $2,246,000 for the same period of 1998. A majority of the
increased expenses for the paper products segment was the reorganization of
staffing from manufacturing to provide for a product development function within
the sales department and expenses associated with Year 2000 compliance.
Additionally, the printing and converting segment experienced increased salaries
and associated fringe benefits to support the additional capacity provided by
the new Chadwick printing press.
Other Income and Expense
In the second quarter of 1999 Badger Paper received $622,000 of life insurance
proceeds as beneficiary upon the death of a former President on March 23, 1999.
The proceeds include $231,000 of cash surrender value carried as other assets on
our balance sheet and $391,000 of non-recurring income. The funds were used for
debt reduction.
The Company recorded a non-recurring capital gain of $611,000 in the second
quarter of 1998 on the sale of the Company's offsite training facility.
Non-recurring executive termination expenses of $286,000 associated with the
early retirement of the former President and a Vice President was also booked in
the second quarter of 1998.
Other income (expense) for the six-month period ended June 30, 1998 included
$200,000 of realized gains on trade credits contracts that expired in 1998. We
have negotiated new contracts with several vendors and have begun utilizing
trade credits in April 1999.
Net Income
Net earnings for the three months ended June 30, 1999 were $625,000, which is
$48,000 or an 8% increase over the same period of 1998. Year to date net
earnings was $999,000 compared to $929,000 for the same period last year.
The net income of the paper products segment was $545,000 for the three months
ended June 30, 1999 and represents 87% of the consolidated net income. This
compares to $532,000 net income for the same period in 1998. Net income for the
six-month period ended June 30, 1999 was $826,000 or 83% of consolidated net
income. Prior year net income for the same period was $831,000.
The net income of the printing and converting segment was $80,000 for the three
months ended June 30, 1999 and represents 13% of the consolidated net income.
This compares to $45,000 net income for the same period in 1998. Net income for
the six-month period ended June 30, 1999 was $173,000 or 17% of consolidated net
income. Prior year net income for the same period was $98,000.
10
Capital Resources and Liquidity
Capital Resources
As of June 30, 1999 the Company's capital resources for funding ongoing
operations include $2,580,000 of cash and marketable securities and a refinanced
$12,000,000 revolving credit facility put in place in January 1999. Borrowings
under this facility totaled $10,100,000 as of June 30, 1999. Pursuant to the
terms of the refinanced revolving credit facility, the Company made a special
payment of $1,885,000 on March 1, 1999, is making quarterly payments of $140,000
for the next three years and made an annual payment of $495,000 on July 1, 1999
on the Company's outstanding industrial development revenue bonds.
Cash provided by operations and the revolving credit facility are expected to
meet current and anticipated working capital needs, as well as fund the
company's planned capital expenditures.
Capital Expenditures
Capital expenditures during the first six months of 1999 were $896,000, compared
to $1,061,000 for the same period in 1998. Major projects in 1999 for the paper
products segment include the completion of a ramp and enclosure to our wax plant
warehouse, a rewinder for the wax department and a spare couch roll for the
Yankee paper machine. In early July 1999, the Company completed the installation
of an ABB process control system on the Fourdrinier paper machine. A new motor
control center for the paper mill was approved in the second quarter of 1999 and
it is anticipated the project will be completed by the end of 1999. Projects at
the printing and converting segment included improvements to the Chadwick press.
Cash Flows
Cash provided by operations was $554,000 for the six months ended June 30, 1999
compared to $531,000 for the same period in 1998. Increased inventories for the
six-month period ended June 30, 1999 were the result of a finished goods
stocking program initiated in the first quarter of 1999 and a build-up of
finished goods in anticipation of a one-week maintenance shutdown of the paper
machines on June 27, 1999. Escalating pulp prices, higher priced raw materials
for specialty products and increased inventories has increased accounts
payables. Accrued liabilities in 1998 were reduced for post retirement benefits
because of a reduced workforce due to restructuring in early 1998.
Net cash provided by investing activities was $1,204,000 for the six-month
period ended June 30, 1999, compared to $1,269,000 for the same period in 1998.
A majority of the funds were the proceeds of sales of marketable securities used
to make payments on the Company's industrial development revenue bonds.
Year 2000
Badger Paper Mills has established a Year 2000 Committee assigned the task of
assuring Year 2000 compliance for all information technology (IT) and non -IT
systems. The committee's goal is to achieve Year 2000 compliance by October 1,
1999.
State of Readiness - Information Technology
Our internal information technology staff has been assigned the responsibility
of assuring Year 2000 compliance for the Peshtigo and Oconto Falls facilities
for all information technology systems. This includes the main frame computer,
all personal computers, network servers, telephone system and all related
software. The staff has identified and tested all hardware and software that
must be tested for Year 2000 compliance.
11
The main frame computer in Peshtigo is Year 2000 compliant for its hardware and
operating system. We have completed an estimated 10 to 15 percent of necessary
programming changes to the business systems to become Year 2000 compliant. We
have contracted with outside resources to review, test and complete required
programming changes on our business systems software. It is anticipated that
they will complete the programming changes by October 1, 1999.
The network servers at Peshtigo and Oconto Falls have been replaced, and a
majority of related hardware and software is Year 2000 compliant. We have
completed the upgrade or replacement of all but one of the twelve personal
computers at the Peshtigo facility that originally needed to be upgraded or
replaced due to Year 2000 compliance issues. The PC's at the Oconto Falls
facility are Y2K compliant.
State of Readiness - Non-Information Technology
Our internal engineering staff has assigned two employees the responsibility of
assuring Year 2000 compliance for all manufacturing aspects of the Peshtigo and
Oconto Falls facilities for all non-information technology systems. All
manufacturing equipment that have computerized process controllers or any date
sensitive data in computer chips have be reviewed. This includes the paper
machines, converting equipment, boilers, waste treatment facilities, printing
presses, lab equipment, and all related software. The staff has identified all
hardware and software that must be tested for Year 2000 compliance and have
completed the testing on 90% of them.
The most critical manufacturing equipment is the two paper machines and the
boilers. In 1998 we replaced the process computer on the Yankee paper machine
and a new process computer on the Fourdrinier paper machine was installed in
July 1999. Both process computers are Year 2000 compliant. The boilers are
capable of operating on natural gas or fuel oil and are Year 2000 compliant.
The engineering staff has reviewed all programmable logic controllers (PLC's) at
the Peshtigo facility and is upgrading the software or replacing the PLC's as
necessary. We estimate that approximately 95 percent of the PLC's have been
upgraded or replaced and are now Year 2000 compliant. The highest priority is
being assigned to manufacturing equipment that is critical to our operations or
has time sensitive components.
All non-technology systems at the Oconto Falls facility have been tested for
Year 2000 compliance and are considered compliant.
Costs
The costs of achieving Year 2000 compliance have not been material to date and
we do not expect the total costs to be more than $200,000. A majority of the
costs incurred are normal wages and benefits of our IT and engineering staffs.
Additional costs will be incurred for contract programming and system upgrades
and/or replacement. Cost estimates for contract programming of our business
systems have been received and are within the budgeted amount.
Contingency Plan
The Company's contingency plan for Year 2000 compliance problems is in the
process of being completed. A detail outline has been written and a contingency
checklist is being developed. We expect to finalize the contingency plan during
the third quarter 1999.
12
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk from changes in interest on its long-term
debt. Interest rates are disclosed in the Company's annual report on Form 10-K
for the year-ended December 31, 1998, have not materially changed.
Even though a majority of the Company's debt is at variable interest rates, it
is felt the Company's exposure to interest rate fluctuations is immaterial to
the Company.
The Company does not use financial instruments for trading purposes and is not a
party to any leveraged derivatives.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of Badger Paper Mills, Inc.
was held on Tuesday, May 11, 1999, at 10:00 a.m. at the Best
Western Riverfront Inn, 1821 Riverside Avenue, Marinette,
Wisconsin 54143.
(b) Two directors, whose terms expire at the 2002 Annual Meeting,
were elected at the May 11, 1999 Annual Meeting by a vote of
at least 1,458,785 shares "for", and at least 312,847 shares
withheld. The elected directors were Mark D. Burish and James
L. Kemerling. The directors continuing in office are L. Harvey
Buek and Thomas W. Cosgrove, whose terms expire at the Annual
Meeting in 2000, and Thomas J. Kuber and John R. Peterson,
whose terms expire at the Annual Meeting in 2001.
(c) The shareholders voted to approve the Badger Paper Mills, Inc.
1998 Stock Option Plan. The vote tallied was 1,062,856 shares
"for", and 452,968 shares "against" the Plan, with 6,100
shares abstaining.
(d) The shareholders voted against a shareholder proposal
requesting that the Company provide a written report of all
activities conducted by the Board and management with respect
to the consideration of strategic options. The vote tallied
was 434,183 shares "for", and 1,088,294 shares "against" such
proposal, with 22,726 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(10.1) Badger Paper Mills, Inc. 1998 Stock Option Plan
(10.2) Form of Badger Paper Mills, Inc. 1998 Stock Option
Agreement
(27) Financial Data Schedules
(b) Reports on Form 8-K:
None.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
BADGER PAPER MILLS, INC.
(Company)
DATE: August 6, 1999 By /s/Thomas W. Cosgrove
----------------------------------
Thomas W. Cosgrove
President
(Chief Executive Officer)
DATE: August 6, 1999 By /s/George J. Zimmerman
---------------------------------
George J. Zimmerman
Treasurer
(Principal Financial Officer)
14