UNITED STATES
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 September 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: 1,970,244 as of September 30,
1999.
BADGER PAPER MILLS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Interim Statement of Income
Three Months and Nine Months Ended
September 30, 1999 and 1998 3
Condensed Consolidated Balance Sheet
September 30, 1999 and December 31, 1998 4
Condensed Consolidated Statement of Cash Flow
Nine Months Ended September 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 8-K 13
SIGNATURES 14
2
BADGER PAPER MILLS, INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands, except per share data)
For Three Months Ended For Nine Months Ended
September 30 September 30
------------------------------------ -----------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Net Sales $17,413 $16,121 $49,407 $51,844
Cost of Sales 16,873 14,207 44,855 46,353
---------------- ---------------- --------------- ----------------
Gross Margin 540 1,914 4,552 5,491
Selling and Administrative Expenses 1,126 1,151 3,617 3,397
---------------- ---------------- --------------- ----------------
Operating Income (Loss) (586) 763 935 2,094
Interest Expense (259) (283) (795) (898)
Interest Income 12 59 69 184
Other Income (Expense) 42 81 122 321
Non Recurring Life Insurance Proceeds - - 391 -
Non Recurring Gain on Lodge Sale - - - 611
Non Recurring Executive Termination Expense - - - (286)
---------------- ---------------- --------------- ----------------
Income (Loss) Before Income Taxes (791) 620 722 2,026
Income Tax Expense (Benefit) (268) 212 246 689
---------------- ---------------- --------------- ----------------
Net Income (Loss) $(523) $408 $476 $1,337
---------------- ---------------- --------------- ----------------
Net Earnings Per Share - Basic $(0.27) $0.21 $0.24 $0.68
Net Earnings Per Share - Diluted $(0.27) $0.24
Average Shares Outstanding - Basic 1,968,100 1,955,994 1,964,479 1,953,323
Average Shares Outstanding - Diluted 1,968,100 1,964,479
Cash Dividends - - -
Dividends Per Share - - - -
See Notes to Consolidated Financial Statements.
3
BADGER PAPER MILLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands)
September 30 December 31,
1999 1998
---------------- --------------
ASSETS:
Current Assets:
Cash & Cash Equivalents $803 $2,229
Certificates of Deposit 500 996
Marketable Securities 143 1,361
Accounts Receivable, Net 6,158 5,262
Deferred Income Taxes 1,170 1,220
Inventories 7,427 6,201
Refundable Income Taxes 27 27
Other Current Assets 592 558
---------------- --------------
Total Current Assets 16,820 17,854
Property, Plant, Equipment & Timberlands 66,984 65,089
Less: Allowance for Depreciation & Depletion (39,936) (37,798)
---------------- --------------
Total Property, Plant, Equipment & Timberlands, Net 27,048 27,291
Trade Credits 624 696
Other Assets 1,783 2,158
---------------- --------------
TOTAL ASSETS $46,275 $47,999
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current Portion of Long-Term Debt $2,497 $3,068
Accounts Payable 4,968 3,913
Accrued Liabilities 3,427 3,357
Income Taxes Payable - 170
---------------- --------------
Total Current Liabilities 10,892 10,508
Deferred Income Taxes 1,649 1,700
Long-Term Debt 13,825 16,126
Other Liabilities 1,106 1,408
---------------- --------------
TOTAL LIABILITIES 27,472 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 205 200
Retained Earnings 17,774 17,296
Less Treasury Shares at Cost:
189,756 Shares at 9/30/99 and 199,278 Shares at 12/31/98 (1,876) (1,939)
---------------- --------------
TOTAL STOCKHOLDERS' EQUITY 18,803 18,257
---------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $46,275 $47,999
================ ==============
See Notes to Consolidated Financial Statements
4
BADGER PAPER MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
For Nine Months Ended
September 30
----------------------------------
1999 1998
--------------- -------------
Cash Flows from Operating Activities:
Net Income $476 $1,337
Adjustments to Reconcile to Net Cash
Provided By (Used in) Operating Activities:
Depreciation 2,138 2,098
Director's Fees Paid in Stock 70 34
Deferred Income Taxes (1) -
Gain on Sale of Lodge - (611)
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable, Net (896) (572)
(Increase) Decrease in Inventories (1,226) (903)
Increase (Decrease) in Accounts Payable 1,055 33
Increase (Decrease) in Accrued Liabilities 70 (672)
Income Taxes Refundable (Payable) (170) 626
(Increase) Decrease in Other (280) 191
--------------- --------------
Net Cash Provided by (Used in) Operating Activities 1,236 1,561
--------------- --------------
Cash Flows From Investing Activities:
Additions to Property, Plant and Equipment, Net (1,895) (1,739)
Net Acquisition of Certificates of Deposit 496 386
Purchase of Marketable Securities - (440)
Proceeds from Sales of Marketable Securities 1,218 -
Proceeds from Refund of Prepaid Leased Assets - 1,572
Proceeds from Sales of Lodge - 725
Proceeds from Life Insurance Proceeds 391 -
--------------- --------------
Net Cash (Used in) Provided by Investing Activities 210 504
--------------- --------------
Cash Flows from Financing Activities:
Increase to (Payments on) Long-Term Debt (2,772) (109)
Increase to (Decrease in) Revolving Credit Borrowings (100) (2,200)
--------------- --------------
Net Cash (Used in) Provided by Financing Activities (2,872) (2,309)
--------------- --------------
Net (Decrease) Increase in Cash and Cash Equivalents (1,426) (244)
Cash and Cash Equivalents:
Beginning of Period 2,229 1,302
--------------- --------------
End of Period $803 $1,058
=============== ==============
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 or benefit for income taxes has been computed by applying an
estimated annual effective tax rate. This rate was 34% for the three and
nine months periods ended September 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 third
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 September 30, 1999.
Note 5. Inventories
The major components of inventories were as follows:
September 30, December 31,
(In thousands of dollars) 1999 1998
- --------------------------------------------------------------------------------
Raw Materials $ 2,997 $ 2,586
Finished Goods and Work in Process 8,531 7,565
--------- ---------
Subtotal 11,528 10,151
Less: LIFO Reserve (4,101) (3,950)
--------- ---------
Total Inventories $ 7,427 $ 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 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, 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 nine-month periods ended September 30:
(Dollars in thousands)
PRINTING &
PAPER PRODUCTS CONVERTING TOTAL
For Three Months For Three Months For Three Months
Ended September 30 Ended September 30 Ended September 30
--------------------------------- --------------------------- ----------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Revenues from external
customers $15,771 $14,792 $2,618 $1,871 $18,389 $16,663
Intersegmental revenues 657 182 319 360 976 542
Segment income before tax (1,074) 484 283 136 (791) 620
Segment assets 40,366 42,093 5,909 5,171 46,275 47,264
For Nine Months For Nine Months For Nine Months
Ended September 30 Ended September 30 Ended September 30
--------------------------------- --------------------------- ----------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Revenues from external
customers $45,443 $48,458 $7,281 $4,908 $52,724 $53,366
Intersegmental revenues 2,054 392 1,263 1,130 3,317 1,522
Segment income before tax 102 1,666 620 360 722 2,026
Segment assets 40,366 42,093 5,909 5,171 46,275 47,264
The following is a reconciliation of segment information to consolidated information:
For Three Months For Nine Months
Ended September 30 Ended September 30
----------------------------------- ---------------------------
1999 1998 1999 1998
Revenues:
Total revenues for segment $18,389 $16,663 $52,724 $53,366
Elimination of intersegment revenues (976) (542) (3,317) (1,522)
------------ ---------------- ----------- --------------
Total consolidated revenues $17,413 $16,121 $49,407 $51,844
7
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 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.
8
Results of Operations
Net Sales
Net sales for the third quarter ended September 30, 1999 were $17,413,000, up 8%
from the net sales for the same three-month period ended in 1998. Shipping
volumes in the third quarter of 1999 increased 9% from the same period in 1998
despite weak market conditions in the industry, especially in the commodity
markets. The average selling price for the third quarter decreased slightly at
2% from the same period in 1998.
Net sales for the nine-month period ended September 30, 1999 were $49,407,000,
down 5% from the net sales for the same nine-month period ended in 1998. The
industry's weak market conditions have resulted in a decline of 9% in shipping
volume of our products. The average selling price for the nine-month period of
1999 increased 3% over the same period in 1998.
Net sales for the paper products segment were $15,771,000 for the three months
ending September 30, 1999, which is a $979,000 or 7% increase from the same
period in 1998. Shipping volumes for the third quarter increased 9%, over the
comparative period in 1998, while the average selling price decreased 2% from
last year. This is because of a higher volume of lower priced commodity products
shipped during the third quarter of 1999.
Year to date net sales for the paper products segment were $45,443,000 in 1999,
compared to $48,458,000 for the same period last year. Shipping volumes for the
Company's paper products decreased 9% from 1998, while average selling prices
increased 3%. The higher selling prices resulted from our efforts to displace
commodity products with higher margin specialty products. The net sales of the
paper products segment represent 86% of our consolidated net sales.
Net sales for the printing and converting segment were $2,618,000 for the three
months ending September 30, 1999, which is a $747,000 or 40% improvement over
the same period in 1998. Year to date net sales improved 48% to $7,281,000 in
1999 compared to $4,908.000 for the same period last year. The increase in net
sales is a direct result of the new tissue wrap business printed on the Chadwick
printing press installed in the second quarter of 1998. The net sales of the
printing and converting segment represent 14% of the consolidated net sales.
Gross Profit
Gross profit for the third quarter ended September 30, 1999 was $540,000 or 3%
of net sales, compared to gross profit for the same period in 1998 of $1,914,000
or 12% of net sales. Year to date gross profit was $4,552,000 or 9% of net sales
for year to date 1999, and $5,491,000 or 11% of net sales for the same period in
1998.
Gross profit for the paper products segment was $125,000 for the three months
ended September 30, 1999, a $1,547,000 decrease over the same period in 1998.
Year to date gross profit decreased 26% to $3,546,000 in 1999 from $4,807,000
for the same period last year. The decrease in gross profit in the third quarter
can be attributed to our Peshtigo operations, which were adversely impacted by
unprecedented electrical curtailments in July, fine tuning problems with a new
process control system on the Company's Fourdrinier paper machine and pulp
prices escalating more rapidly than market prices for our paper products.
The Peshtigo mill has an interruptible electrical contract where we can have our
electricity curtailed by the utility company. In July we were shutdown 92 hours
due to extreme temperatures, this resulted in lost production of approximately
767 tons of paper.
9
In early July, we installed an ABB process control system on the Fourdrinier
paper machine. The fine tuning of the system during the third quarter resulted
in lower operating speeds and increased off quality production due to problems
encountered with the paper machine drives and the color system.
During 1999, pulp prices have escalated more rapidly than the market prices of
our paper products. Pulp prices increased 8% in the third quarter of 1999 and
24% year to date. We continue our efforts to increase selling prices as the
market permits.
The printing and converting segment's gross profit was $415,000 for the three
months ended September 30, 1999, a $173,000 or 72% improvement over the same
period in 1998. Gross profit for the nine months ended September 30,1999,
increased 48% to $1,006,000 from $683,000 for the same period last year. The
increase in gross profit is attributed to the increased capacity provided by our
new Chadwick printing press and more efficient operations due to longer
production runs.
Selling and Administration
Selling and administration expenses were $3,617,000 for the first nine months of
1999 compared to $3,397,000 for the same period of 1998. A majority of the
increased expenses for the paper products segment was caused by the
reorganization of staffing from manufacturing to provide for a product
development function within the sales department and an addition to the outside
sales staff.
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 the beneficiary upon the death of a former President in March 1999.
The proceeds included $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.
In the second quarter of 1998, the Company recorded a non-recurring capital gain
of $611,000 on the sale of the Company's offsite training facility.
Non-recurring executive termination expenses of $286,000 associated with a
former President and Vice President were also booked in the second quarter of
1998.
Other income (expense) for the nine-month period ended September 30, 1998
included $252,000 of realized gains on trade credit contracts that expired in
1998. We have negotiated new contracts with several vendors and have begun using
trade credits in April 1999.
Net Income
Net earnings for the three months ended September 30, 1999 was a $523,000 loss,
compared to a $408,000 profit for the same period in 1998. Year to date net
earnings were $476,000 compared to $1,337,000 for the same period last year.
The net loss of the paper products segment was $709,000 for the three months
ended September 30, 1999, compared to $319,000 of net income for the same period
in 1998. Net income for the nine-month period ended September 30, 1999 was
$67,000 or 30% of consolidated net income for this period. Net income for the
same period in 1998 was $1,100,000.
The net income of the printing and converting segment was $187,000 for the three
months ended September 30, 1999, compared to $89,000 of net income for the same
period in 1998. Net income for the
10
nine-month period ended September 30, 1999 was $409,000 or 70% of consolidated
net income for this period. Net income for the same period in 1998 was $237,000.
Capital Resources and Liquidity
As Of September 30, 1999, the Company's capital resources for funding ongoing
operations included $1,446,000 of cash and marketable securities and a
refinanced $12,000,000 revolving credit facility entered into in January 1999.
Borrowing under this facility totaled $10,100,000 as of September 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 on the revolving credit
facility, and is required to make quarterly payments of $140,000 for the next
three years on the revolving credit facility, and made an annual payment of
$495,000 on July 1, 1999 on the Industrial Development Revenue Bonds
Cash provided by operations and the revolving credit facility is expected to
meet current and anticipated working capital needs, as well as fund planned
capital expenditures.
Capital Expenditures
Capital expenditures during the first nine months of 1999 were $1,895,000,
compared to $1,739,000 for the same period in 1998. Major projects in 1999 for
the paper products segment included 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. The Company also 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 and it is anticipated the project
will be completed in 1999. Major projects at the printing and converting segment
involved improvements to the Chadwick press.
Cash Flows
Cash provided by operations was $1,236,000 for the nine months ended September
30, 1999, compared to $1,561,000 of cash provided for the same period in 1998.
Increased inventories for the nine month period ended September 30, 1999 were
the result of a finished goods stocking program initiated in 1999 and a build-up
of finished goods in anticipation of a nine day maintenance shutdown of the
paper machines in November 1999. Escalating pulp prices, higher priced raw
materials for specialty products and increased inventories has increased
accounts payable. Accrued liabilities in 1998 were reduced for post retirement
benefits because of a reduced workforce due to restructuring in early 1998. 1999
cash flows also include the net effect of the life insurance proceeds received
as beneficiary upon the death of a former President.
Net cash provided by investing activities was $210,000 for the nine-month period
ended September 30, 1999, compared to $504,000 for the same period in 1998. A
majority of the funds in 1999 was from the proceeds of the sale 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 (Y2K) compliance for all information technology (IT) and
non-IT systems. The committee's goal is to be Y2K compliant by December 1, 1999.
11
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 Y2K compliance.
The main frame computer in Peshtigo is Year 2000 compliant for its hardware and
operating system. We have completed 85 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. We believe they will complete the programming
changes before December 1, 1999.
The network servers at Peshtigo and Oconto Falls have been replaced and all
related hardware and software are Year 2000 compliant. We have completed the
upgrade or replacements of all personal computers at the Peshtigo facility. The
PCs 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 been reviewed. This includes the paper
machines, converting equipment, boilers, waste treatment facilities, printing
presses, lab equipment, and all related software. The staff has identified and
tested all hardware and software that must be tested for Y2K compliance.
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 Y2K compliant. The boilers are capable of
operating on natural gas or fuel oil and are Y2K compliant.
The engineering staff has reviewed all programmable logic controllers (PLCs) at
the Peshtigo facility and has upgraded all software or PLCs as necessary.
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 is 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 we feel the above total cost estimate is
adequate.
Contingency Plan
The Company's contingency plan 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 by December 15, 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.
Although 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
consolidated statements.
The Company does not use financial instruments for trading purposes and is not a
party to any leveraged derivatives.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Number Description
------ -----------
(10.1) First Amendment to Amended and Restated Credit Agreement,
dated as of August 31, 1999, by and among Badger Paper
Mills, Inc., Badger Paper Mills Flexible Packaging Division,
Inc., the Lenders and Harris Trust and Savings Bank, as
Agent.
(10.2) Badger Paper Mills, Inc. 1999 Directors Stock Grant Plan
(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: November 12, 1999 /s/ Thomas W. Cosgrove
------------------------
Thomas W. Cosgrove
President & CEO
(Chief Executive Officer
DATE: November 12, 1999 /s/ George J. Zimmerman
------------------------
George J. Zimmerman
Treasurer
(Principal Financial Officer)
14
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
(10.1) First Amendment to Amended and Restated Credit Agreement, dated
as of August 31, 1999, by and among Badger Paper Mills, Inc.,
Badger Paper Mills Flexible Packaging Division, Inc., the Lenders
and Harris Trust and Savings Bank, as Agent.
(10.2) Badger Paper Mills, Inc. 1999 Directors Stock Grant Plan
(27) Financial Data Schedules
15