UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934: FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 33-70476
REPAP WISCONSIN, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1247669
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
433 North Main Street
Kimberly, Wisconsin 54136
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(414)788-3511
Indicate by check mark 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 reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
REPAP WISCONSIN, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1996,
December 31,1996, and March 31, 1997 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1996, December 31, 1996, and
March 31, 1997 4
Condensed Consolidated Statements of Cash Flow for the
Three Months Ended March 31, 1996, December 31, 1996, and
March 31, 1997 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
Repap Wisconsin Inc.
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31, March 31,
1996 1996 1997
(Unaudited) (Unaudited)
------------------------------------
Assets
Current assets:
Cash $21 $42 $22
Accounts receivable 29,989 46,051 54,175
Inventories 93,421 77,545 73,278
Other current assets 36,659 1,155 964
------------------------------------
Total current assets 160,090 124,793 128,439
Net property, plant, and equipment 472,385 468,518 466,011
Deferred charges and other assets 19,615 53,266 52,238
------------------------------------
652,090 646,577 646,688
====================================
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt 7 0 0
Accounts payable 34,074 50,336 39,520
Accrued liabilities 17,800 21,417 18,423
------------------------------------
Total current liabilities 51,881 71,753 57,943
Long-term debt 377,000 377,000 377,000
Revolving credit line 59,122 37,609 53,639
Deferred income taxes 22,849 21,889 21,241
Accrued postretirement benefit liability 12,077 12,509 13,040
Redeemable Preferred Stock, Class I 5,971 6,405 6,547
Common and other shareholders' equity
Preferred Stock 112,684 112,684 112,684
Common Stock 33,126 33,126 33,126
Accumulated deficit (22,620) (26,398) (28,532)
------------------------------------
Total common and other shareholders' equity 123,190 119,412 117,278
------------------------------------
$652,090 $646,577 $646,688
====================================
<FN>
See accompanying notes to condensed consolidated financial statements
Repap Wisconsin Inc.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Ended
------------------------------------
March 31, December 31, March 31,
1996 1996 1997
------------------------------------
Net sales $89,304 $109,374 $105,399
Cost of sales excluding depreciation and amortization 72,341 91,984 86,478
Depreciation and amortization 5,423 5,762 5,793
Selling, general, and administrative expenses 5,558 5,630 5,742
------------------------------------
Operating profit 5,982 5,998 7,386
Other income(expense)
Interest expense, net (10,103) (9,077) (9,903)
Amortization of financing costs (423) (423) (423)
Other,net 71 5,017 98
------------------------------------
Income(loss) before income taxes (4,473) 1,515 (2,842)
Provision for income taxes (1,252) 276 (851)
------------------------------------
Net income(loss) ($3,221) $1,239 ($1,991)
====================================
EBITDA(1) $11,725 $11,138 $13,710
Shipments(000 tons) 84 132 129
<FN>
(1) EBITDA = Operating profit plus depreciation and amortization and the non-cash
portion of the charge for post-retirement benefits costs(FASB 106).
See accompanying notes to condensed consolidated financial statements
Repap Wisconsin Inc.
Condensed Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
Three Months Ended
------------------------------------
March 31, December 31, March 31,
1996 1996 1997
------------------------------------
Operating activities
Net income(loss) ($3,221) $1,239 ($1,991)
Adjustments to reconcile net income(loss) to net cash used
by operating activities:
Depreciation and amortization 5,846 6,185 6,216
Deferred income taxes (1,252) 276 (648)
Non-cash portion of postretirement benefit cost 320 (622) 531
------------------------------------
Net cash provided before changes in operating assets and 1,693 7,078 4,108
liabilities
Changes in operating assets and liabilities (20,852) 11,254 (17,099)
------------------------------------
Net cash generated(used) by operating activities (19,159) 18,332 (12,991)
------------------------------------
Investing activities
Additions to property, plant and equipment (3,026) (7,304) (2,970)
Additions to deferred charges (357) (86) (89)
------------------------------------
Net cash used in investing activities (3,383) (7,390) (3,059)
------------------------------------
Financing activities
Net borrowings under revolving credit facilities 22,933 (10,959) 16,030
Repayments of long-term debt (19) 0 0
Deferred financing costs (362) 0 0
------------------------------------
Net cash provided(used) by financing activities 22,552 (10,959) 16,030
------------------------------------
Net increase(decrease) in cash 10 (17) (20)
Cash at beginning of period 11 59 42
------------------------------------
Cash at end of period $21 $42 $22
====================================
<FN>
See accompanying notes to condensed consolidated financial statements
Repap Wisconsin, Inc.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial reporting. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for the fiscal year
end financial statements. In the opinion of management, all
adjustments of a normal recurring nature considered necessary
for a fair presentation have been included. For further
information, refer to the financial statements and footnotes
thereto included in the Company's Form 10-K filed with the
Securities and Exchange Commission.
2. Inventories
The components of inventory consist of the following:
March 31, December 31, March 31,
1996 1996 1997
($000) ($000) ($000)
Finished goods $55,412 $34,826 $33,604
Work In process 9,612 5,416 5,320
Raw materials/supplies 28,397 37,303 34,354
------- ------- -------
$93,421 $77,545 $73,278
======= ======= =======
Repap Wisconsin, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
3. Guarantee and Commitment
In 1993, the Company entered into an agreement with Wisconsin
Electric Power Company (WEPCO) to construct a cogeneration
facility adjacent to the Company's mill which would have
provided steam for its paper making operations. In late 1993,
the Wisconsin Public Service Commission (PSC) issued an order
denying WEPCO's application and chose another cogeneration
project to proceed in lieu of WEPCO's. The Company is
contingently liable for approximately $4.9 million in
engineering costs incurred by WEPCO in the event that the
related engineering costs cannot be recovered by WEPCO
through a sale of the equipment or in a comparable project in
the future.
4. Environmental Compliance
The Company was issued two Notice of Violations (NOV) in 1996
from the United States Environmental Protection Agency (EPA)
regarding opacity readings and particulate emissions from
1995 and 1993 respectively. The Company has installed a new
gas fired boiler and retired its oldest boiler, and now meets
all EPA requirements. The Company has met with the EPA and
the Department of Justice and has reached an equitable
settlement with them. The Company has adequately accrued for
the negotiated settlement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's first quarter of 1997 net sales totaled $105.4
million compared with net sales of $89.3 million reported for
the first quarter of 1996, due to a 54% increase in
shipments, which was partially offset by lower paper prices.
Net sales for the first quarter of 1997 were down from the
$109.4 million reported in the fourth quarter of 1996,
resulting from a 2 percent decrease in shipments as well as
slightly lower paper prices.
First quarter of 1997 operating profit was $7.4 million as
compared with the $6.0 million reported for the first quarter
of 1996, as lower fiber prices and improved productivity
offset lower selling prices. The effect of falling
production costs in the first quarter of 1996 was realized in
subsequent quarters to the extent that production from the
first quarter of 1996 was sold in subsequent quarters.
Operating profit was up from the $6.0 million reported for
the fourth quarter of 1996, as greatly improved productivity
offset higher fiber costs and lower selling prices. For the
first quarter of 1997 finished production 1,412 tons per day,
a new quarterly record for the Company. Fiber costs were
lower in the fourth quarter of 1996 as compared to the first
quarter of 1997 due to consumption of pulp received against
the Company's forward purchase pulp contracts and additional
favorable fiber pricing negotiated by the Company during that
quarter. The effect of lower production costs in fourth
quarter of 1996 was realized in first quarter of 1997 to the
extent that production in the fourth quarter of 1996 was sold
in the first quarter of 1997.
For the first quarter of 1997, the Company reported a net
loss of $2.0 million, compared to a net loss of $3.2 million
in the first quarter of 1996. The Company reported net
income of $1.2 million for the fourth quarter of 1996. Net
income in the fourth quarter of 1996 was favorably impacted
by the recognition of approximately $4.9 million of interest
income associated with the Company's forward purchase pulp
contracts.
Financial Resources
During the first quarter of 1997, capital additions of $3.0
million and a net increase in operating assets and
liabilities of $17.1 million were funded principally by net
borrowings under the revolving credit facility of $16.0
million, leaving a revolving credit facility balance of $53.6
million at March 31, 1997.
Net cash used in operating activities was $13.0 million for
the first quarter of 1997 compared with net cash used in
operating activities of $19.2 million for the first quarter
of 1996. Net cash provided by operating activities before
changes in operating assets and liabilities was $4.1 million
and $1.7 million for the quarter ending March 31, 1997 and
March 31, 1996, respectively. Funds used for working capital
in the first quarter of 1997 were related primarily to an
increase in accounts receivable of $8.1 million combined with
a decrease in accounts payable and accrued liabilities of
$13.8 million, partially offset by a decrease in inventories
in the amount of $4.3 million. The inventory decrease
includes a reduction in raw materials inventory of $2.9
million along with a reduction in work in process and
finished goods inventory of $1.4 million. Funds used for
working capital in the first quarter of 1996 were related to
an increase in inventory of $8.8 million combined with a
decrease in accounts payable and accrued liabilities of $18.9
million, partially offset by a decrease in accounts
receivable of $6.0 million.
Net cash provided by operating activities for the fourth
quarter of 1996 was $18.3 million. Net cash provided by
operating activities before changes in operating assets and
liabilities was $6.7 million for the quarter ending December
31, 1996. Funds provided by working capital for the fourth
quarter of 1996 were related to a net increase in accounts
payable and accrued liabilities of $12.6 million, offset by a
small reduction in accounts receivable.
For 1997, a revised capital budget resulting in $10.8 million
of expenditures has been approved, compared with expenditures
of $15.7 million in 1996 (net of operating leases). The 1997
revised capital budget includes expenditures primarily
related to improvements to the Company's papermaking,
converting equipment, and the final payments on the new
boiler. Capital expenditures for the first quarter of 1997
were $3.0 million as compared $3.0 million for the first
quarter 1996 and $7.3 million for the fourth quarter of 1996.
Capital expenditures for the fourth quarter of 1996 were
impacted by the completion of a new boiler, which was
commissioned in January 1997.
Other
In 1995, the Company entered into forward purchase contracts
with Repap British Columbia (now Skeena Cellulose, Inc.) and
Repap Enterprises Inc.(REI) for the future delivery of pulp.
At March 31, 1997 the balances remaining under these
contracts with Skeena and REI were $24.3 million and $10.5
million, respectively. At December 31, 1996, the forward
purchase contracts were re-negotiated and the remaining
balances are scheduled to be delivered through 1998, however,
realization of such amounts is uncertain pending the
financial condition of Skeena and the future actions of REI.
In July 1996, REI engaged investment advisors to explore
strategic alternatives available to REI and its subsidiaries
to maximize shareholder value.
In December of 1996, REI entered into a merger agreement with
Avenor, Inc. which was ultimately rejected by Avenor
shareholders.
The management of REI is continuing to pursue strategic
alternatives. It is uncertain what the results of this
process will be at the present time.
Market Outlook
Coated paper demand is now strong and prices are improving.
Magazine advertising pages were up close to four percent and
third class mail weight (primarily catalogs) was up over six
percent in the first quarter of 1997 as compared with 1996.
Advertising page growth appears to be strong in the second
quarter and it is anticipated that catalog growth will be
good in advance of a postal rate increase in mid-1998.
Producer and consumer inventories of coated paper appear to
be in balance and overall markets in equilibrium as we move
into the seasonally strong third quarter. Coated groundwood
paper prices have improved in the second quarter following an
April 1, 1997 price increase, and a number of producers have
announced price increases for coated freesheet web grades,
effective June 1, 1997.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None.
b. There were no reports on Form 8-K filed for the three months
ended March 31, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on May 15, 1997.
Repap Wisconsin, Inc.
/s/ Timothy Morgan
Timothy Morgan
Senior Vice President and Controller
(Duly authorized officer and principal
financial and accounting officer)