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
JUNE 30, 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 June 30, 1996
and June 30,1997 3
Condensed Consolidated Statements of Operations for the
Three Months Ended June 30, 1996, March 31, 1997, and
June 30, 1997, and the Six Months ended June 30, 1996 and
June 30, 1997 4
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1996 and June 30, 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)
December 31, June 30,
1996 1997
(Unaudited)
----------------------
Assets
- ----------------------------------------
Current assets:
Cash $42 $16
Accounts receivable 46,051 50,747
Inventories 77,545 60,542
Other current assets 1,155 1,258
----------------------
Total current assets 124,793 112,563
Net property, plant, and equipment 468,518 461,988
Deferred charges and other assets 53,266 16,849
----------------------
$646,577 $591,400
======================
Liabilities and shareholders' equity
- ----------------------------------------
Current liabilities:
Accounts payable $50,336 $34,933
Accrued liabilities 21,417 20,836
----------------------
Total current liabilities 71,753 55,769
Long-term debt 377,000 377,000
Revolving credit line 37,609 31,829
Deferred income taxes 21,889 10,648
Accrued postretirement benefit liability 12,509 13,571
Redeemable Preferred Stock, Class I 6,405 6,691
Common and other shareholders' equity
Preferred Stock 112,684 112,684
Common Stock 33,126 33,126
Accumulated deficit (26,398) (49,918)
----------------------
Total common and other shareholders' equity 119,412 95,892
----------------------
$646,577 $591,400
======================
<FN>
See accompanying notes to condensed consolidated financial statements
Repap Wisconsin Inc.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
1996 1997 1997 1996 1997
------------------------------ --------------------
Net sales $103,963 $105,399 $114,665 $193,267 $220,064
Cost of sales excluding depreciation 84,950 86,478 90,039 157,291 176,517
Loss on forward purchase contracts 0 0 34,812 0 34,812
Depreciation and amortization 5,953 5,793 5,927 11,376 11,720
Selling, general, and administrative 5,603 5,742 5,405 11,161 11,147
------------------------------ --------------------
Operating profit (loss) 7,457 7,386 (21,518) 13,439 (14,132)
Other income(expense)
Interest expense, net (9,892) (9,903) (9,900) (19,995) (19,803)
Amortization of financing costs (423) (423) (423) (846) (846)
Other,net 98 98 5 169 103
------------------------------ --------------------
Loss before income taxes (2,760) (2,842) (31,836) (7,233) (34,678)
Credit for income taxes (561) (851) (10,593) (1,813) (11,444)
------------------------------ --------------------
Net loss ($2,199) ($1,991) ($21,243) ($5,420) ($23,234)
============================== ====================
EBITDA(1) $13,937 $13,710 ($15,060)(2) $25,662 ($1,350)(2)
Shipments(000 tons) 109 129 138 193 267
<FN>
(1) EBITDA = Operating profit plus depreciation and amortization and the non-cash portion
of the charge for post-retirement benefits costs(FASB 106).
(2) Three and Six Months Ended June 30, 1997 EBITDA includes a $34.8 million write off of forward
purchase pulp contracts with Skeena Cellulose, Inc. and Repap's Atholville pulp mill, both of
which have discontinued pulp production.
See accompanying notes to condensed consolidated financial statements
Repap Wisconsin Inc.
Condensed Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
Six Months Ended
June 30, June 30,
1996 1997
----------------------
Operating activities
- ------------------------------------------------------------
Net loss ($5,420) ($23,234)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 12,222 12,566
Deferred income taxes (1,813) (11,241)
Non-cash portion of postretirement benefit cost 847 1,062
Loss on forward purchase contracts 0 34,812
----------------------
Net cash provided before changes in operating assets and 5,836 13,965
liabilities
Changes in operating assets and liabilities (14,478) (3,370)
----------------------
Net cash generated(used) by operating activities (8,642) 10,595
----------------------
Investing activities
- ------------------------------------------------------------
Additions to property, plant and equipment (4,774) (4,609)
Additions to deferred charges (452) (232)
----------------------
Net cash used in investing activities (5,226) (4,841)
----------------------
Financing activities
- ------------------------------------------------------------
Net borrowings under revolving credit line 14,286 (5,780)
Repayments of long-term debt (26) 0
Deferred financing costs (379) 0
----------------------
Net cash provided(used) by financing activities 13,881 (5,780)
----------------------
Net increase(decrease) in cash 13 (26)
Cash at beginning of period 11 42
----------------------
Cash at end of period $24 $16
======================
<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:
December 31, June 30,
1996 1997
($000) ($000)
Finished goods $34,826 $29,969
Work In process 5,416 5,303
Raw materials/supplies 37,303 25,270
------- -------
$77,545 $60,542
======= =======
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. Settlement in full in the amount of
$525,000 was made with the EPA in June.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's second quarter 1997 net sales totaled $114.7
million compared with net sales of $104.0 million reported
for the second quarter of 1996. The increase in net sales of
$10.7 million was due to a 26 percent increase in shipments,
which was partially offset by lower paper prices. Net sales
for the second quarter of 1997 were up from the $105.4
million reported in the first quarter of 1997, reflecting a 7
percent increase in shipments as well as higher paper prices.
For the first six months of 1997, the Company reported net
sales of $220.1 million compared with $193.3 million for the
first six months of 1996. The increase in net sales of $26.8
million was due to a 38 percent increase in shipments which
was partially offset by lower paper prices.
A second quarter 1997 operating loss of $21.5 million
reflects the $34.8 million write off of forward purchase
contracts with Skeena Cellulose, Inc. and Repap's Atholville
pulp mill, both of which have discontinued pulp production.
Prior to the loss associated with the forward purchase
contracts, operating income was $13.3 million as compared
with the $7.5 million operating income reported for the
second quarter of 1996. Increased shipments, lower fiber
costs, record high productivity, and lower production costs
offset lower paper prices in the second quarter of 1997
compared with the second quarter of 1996. Prior to the loss
associated with the forward purchase contracts, operating
income was up from the $7.4 million operating income reported
for the first quarter of 1997. As compared to the first
quarter of 1997, the second quarter of 1997 benefited from
increased shipments, higher selling prices, and higher
productivity resulting in lower production costs.
An operating loss of $14.1 million was reported for the first
six months of 1997. Prior to the loss associated with the
forward purchase contracts, operating income was $20.7
million as compared with the $13.4 million operating income
reported for the first six months of 1996. Compared to the
first half of 1996, the first half of 1997 benefited from
increased shipments, lower fiber costs, lower operating
costs, and record high productivity which offset lower paper
prices.
Financial Resources
During the first half of 1997, cash provided by operations
was $14.0 million. The cash was used to fund capital
additions of $4.6 million, an increase in operating assets
and liabilities of $3.4 million, and a reduction in the
balance of the revolving credit facility of $5.8 million.
The Company's revolving credit facility balance was $31.8
million at June 30, 1997.
Net cash provided by operating activities was $10.6 million
for the first half of 1997 compared with net cash used in
operating activities of $8.6 million for the first half of
1996. Net cash provided by operating activities before
changes in operating assets and liabilities was $14.0 million
and $5.8 million respectively for the six months ending June
30, 1997 and June 30, 1996. Funds used for working capital in
the first half of 1997 were related primarily to an increase
in accounts receivable of $4.7 million combined with a
decrease in accounts payable and accrued liabilities of $16.0
million, partially offset by a decrease in inventories in the
amount of $17.0 million. The inventory decrease includes a
reduction in raw materials inventory of $12.0 million along
with a reduction in work in process and finished goods
inventory of $5.0 million. Funds used for working capital in
the first half of 1996 were related to an increase in
accounts receivable of $6.2 million, an increase in inventory
of $0.9 million, combined with a decrease in accounts payable
and accrued liabilities of $7.4 million.
For 1997, a revised capital budget resulting in $9.6 million
of expenditures has been approved, compared with expenditures
of $15.7 million in 1996 (net of operating leases). The
planned 1997 capital expenditures are primarily related to
improvements to the Company's papermaking, converting
equipment, and the final payments on the new boiler. Capital
expenditures for the first half of 1997 were $4.6 million as
compared to $4.8 million for the first half of 1996.
Other
In 1995, the Company entered into forward purchase contracts
with Skeena and REI for the future delivery of pulp. At
December 31, 1996, the forward purchase contracts were re-
negotiated and the remaining balances were scheduled to be
delivered through 1998. At March 31, 1997 the balances
remaining under these contracts with Skeena and REI were
$24.3 million and $10.5 million, respectively. As of June
30, 1997, both facilities had discontinued pulp production.
As reopening of either facility is uncertain, the balance of
the contracts were written off by the Company in the second
quarter of 1997.
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.
On July 9, 1997, REI announced that the company had signed a
letter of intent with Consolidated Papers, Inc., of
Wisconsin, USA, to sell its wholly-owned subsidiary, Repap
USA, Inc., for a total consideration of $674 million,
comprised of $433 million for net debt, $14 million for post-
retirement benefits, and $227 million for equity, subject to
closing adjustments. Repap USA is the holding company for
Repap Wisconsin, Inc., REI's U.S. based coated paper
operation, and Repap Sales Corporation, which provides coated
paper sales and marketing services to Repap Wisconsin. A
definitive agreement between REI and Consolidated regarding
this sale was reached on August 8. The sale is expected to
close on September 30. While the transaction already has the
approval of the companies' board of directors, it is still
subject to the approvals of REI's shareholders and U.S. and
Canadian regulators.
Market Outlook
Coated paper demand continues to improve. The Company's
second quarter 1997 shipments of 138,000 tons is a second
quarter record. Price increases have been realized in
freesheet and groundwood grades, and the outlook continues to
be favorable for the third quarter of 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 June 30, 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 August 15, 1997.
Repap Wisconsin, Inc.
/s/ Timothy Morgan
Timothy Morgan
Senior Vice President and Controller
(Duly authorized officer and
principal financial and accounting officer)