FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MAY 31, 1995
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 number: 0-7574
WAUSAU PAPER MILLS COMPANY
(Exact name of registrant as specified in charter)
WISCONSIN 39-0690900
(State of incorporation) (I.R.S. Employer Identification
Number)
ONE CLARK'S ISLAND
P.O. BOX 1408
WAUSAU, WISCONSIN 54402-1408
(Address of principal executive office)
Registrant's telephone number, including area code: 715-845-5266
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 report), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
The number of common shares outstanding at June 30, 1995 was
29,458,906.
WAUSAU PAPER MILLS COMPANY
AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of 1
Income Three and Nine Months Ended
May 31, 1995 (unaudited) and
May 31, 1994 (unaudited)
Condensed Consolidated Balance 2
Sheets May 31, 1995 (unaudited)
and August 31, 1994 (derived from
audited financial statements)
Condensed Consolidated Statements 3
of Cash Flows Nine Months
Ended May 31, 1995 (unaudited) and
May 31, 1994 (unaudited)
Notes to Condensed Consolidated 4 - 5
Financial Statements
Item 2. Management's Discussion and 6 - 9
Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
CONSOLIDATED STATEMENTS OF INCOME
Wausau Paper Mills Company and Subsidiaries
(Dollars in thousands,
except per share data - unaudited) For the Three Months For the Nine Months
Ended May 31 Ended May 31
1995 1994 1995 1994
NET SALES $135,560 $108,709 $380,942 $315,149
Cost of products sold 113,973 82,296 320,163 240,015
-------------------------------------------------
GROSS PROFIT 21,587 26,413 60,779 75,134
Selling, administrative
and research expenses 6,900 5,665 19,765 20,586
-------------------------------------------------
OPERATING PROFIT 14,687 20,748 41,014 54,548
Interest income 21 21 170 55
Interest expense (333) (443) (1,158) (1,499)
Other expense (230) (10) (318) (113)
-------------------------------------------------
EARNINGS BEFORE INCOME TAXES 14,145 20,316 39,708 52,991
Provision for income taxes 5,400 7,800 15,250 20,300
-------------------------------------------------
EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 8,745 12,516 24,458 32,691
Cumulative Effect of Accounting Change:
Income taxes 1,000
-------------------------------------------------
NET EARNINGS $ 8,745 $ 12,516 $ 24,458 $ 33,691
=================================================
EARNINGS PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE $ .30 $ .42 $ .83 $ 1.10
Cumulative effect of accounting
change .04
-------------------------------------------------
NET EARNINGS PER COMMON SHARE $ .30 $ .42 $ .83 $ 1.14
=================================================
WEIGHTED AVERAGE NUMBER OF SHARES 29,459,000 29,623,000 29,465,000 29,647,000
=================================================
CONSOLIDATED BALANCE SHEETS
Wausau Paper Mills Company and Subsidiaries
(Dollars in thousands) May 31 August 31
1995* 1994*
-------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,322 $ 3,214
Accounts and notes receivable 41,454 35,109
Inventories 71,292 60,222
Other current assets 8,727 7,389
-------------------------------
Total current assets 122,795 105,934
-------------------------------
Property, plant and equipment 272,255 247,072
Other assets 8,547 8,383
-------------------------------
TOTAL ASSETS $ 403,597 $ 361,389
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,401 $ 462
Accounts payable 28,118 25,325
Accrued and other liabilities 24,479 20,077
Accrued income taxes 192
-------------------------------
Total current liabilities 55,998 46,056
-------------------------------
LONG-TERM LIABILITIES
Long-term debt 41,092 30,270
Deferred income taxes 35,703 31,945
Other liabilities 39,670 38,300
-------------------------------
Total long-term liabilities 116,465 100,515
-------------------------------
Total shareholders' equity 231,134 214,818
-------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 403,597 $ 361,389
===============================
<FN>
* The consolidated balance sheet at May 31, 1995 is unaudited. The August 31, 1994
consolidated balance sheet is derived from audited financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Wausau Paper Mills Company and Subsidiaries
For the Nine Months
(Dollars in thousands - unaudited) Ended May 31
1995 1994
----------------------------
Operating Activities:
Net earnings $ 24,458 $ 33,691
Cumulative effect of accounting change (1,000)
Noncash items:
Provision for depreciation, depletion
and amortization 14,738 13,120
Deferred income taxes 3,758 4,062
Changes in operating assets and liabilities:
Receivables (6,345) (1,433)
Inventories (11,070) (651)
Other assets (1,502) 116
Accounts payable and other liabilities 7,445 3,850
Accrued income taxes (192) (1,216)
----------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,290 50,539
----------------------------
Investing Activities:
Capital expenditures (39,121) (31,359)
Proceeds from property, plant and
equipment disposals 682 596
----------------------------
NET CASH USED IN INVESTING ACTIVITIES (38,439) (30,763)
----------------------------
Financing Activities:
Borrowings (repayments) under revolving
credit facility 14,092 (12,000)
Repayments of long-term debt (331) (355)
Dividends paid (5,318) (4,679)
Proceeds from stock option exercises 2,036 32
Payments for purchase of treasury stock (5,222) (2,763)
----------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 5,257 (19,765)
----------------------------
Net increase (decrease) in cash and cash equivalents (1,892) 11
Cash and cash equivalents at beginning of year 3,214 2,624
----------------------------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 1,322 $ 2,635
============================
Supplemental Information:
Interest paid (net of amount capitalized) $ 1,158 $ 1,491
Income taxes paid 12,365 17,454
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The accompanying unaudited financial statements include
all adjustments, which are all normal and recurring in
nature except as referenced in Note 2, and, in the opinion
of management, present fairly the condensed results for
the interim periods presented. Refer to the Notes to
Financial Statements which appear in the 1994 Annual
Report for the company's accounting policies which are
pertinent to these statements.
Note 2: The company adopted Statement of Financial Accounting
Standard 109, "Accounting for Income Taxes," in the
quarter ended November 30, 1993.
Note 3: Selling, administrative and research expenses include
stock appreciation rights (SARs) and stock option income
of $74,000 or less than $.01 per share for the quarter
ended May 31, 1995 and $1,015,000 or $.02 per share for
the quarter ended May 31, 1994. For the nine months ended
May 31, SARs and stock option income was $251,000 or $.01
per share for 1995 and $183,000 or less than $.01 per
share for 1994.
Note 4: All shares and per share data have been restated to
reflect the 10% stock dividend which occurred in January
1995.
Note 5: Accounts receivable consisted of the following:
MAY 31, 1995 AUGUST 31, 1994
------------ ---------------
Customer Accounts $44,152,000 $38,247,000
Misc. Notes and
Accounts Receivable 1,452,000 1,506,000
---------- ----------
$45,604,000 $39,753,000
Less: Allowance for
Discounts, Doubtful
Accounts and Pending
Credits 4,150,000 4,644,000
---------- ----------
Net Receivables $41,454,000 $35,109,000
========== ==========
Note 6: The various components of inventories were as follows:
MAY 31, 1995 AUGUST 31, 1994
------------ ---------------
Raw Materials and
Supplies $47,568,000 $36,928,000
Work in Process
and Finished Goods 49,024,000 37,128,000
---------- ----------
$96,592,000 $74,056,000
Less: LIFO Reserve 25,300,000 13,834,000
---------- ----------
Net Inventories $71,292,000 $60,222,000
---------- ----------
Note 7: The accumulated depreciation on fixed assets was
$147,428,000 as of May 31, 1995 and $133,178,000 as of
August 31, 1994.
Note 8: A summary of long-term debt is as follows:
MAY 31, 1995 AUGUST 31, 1994
------------ ---------------
Bonds, Mortgages and
Similar Debt $41,092,000 $30,000,000
Capitalized Leases 0 270,000
---------- ----------
Total Long-Term Debt $41,092,000 $30,270,000
---------- ----------
Note 9: Dividends per share were as follows:
THREE MONTHS ENDING NINE MONTHS ENDING
MAY 31, 1995 MAY 31, 1994 MAY 31, 1995 MAY 31, 1994
------------ ------------ ------------ ------------
$.0625 $.0545* $.1875 $.1636*
The company's Board of Directors schedule resulted in the
declaration of a cash dividend of $.0625 and $.0545 per
share in the three months ended May 31, 1995 and May 31,
1994, respectively.
<FN>
* Per share dividends have been restated to reflect the 10%
stock dividend which occurred in January 1995.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Results of Operations
Net Sales
Record net sales were recorded for the three months ended May 31,
1995. Net sales for the quarter were $135,560,000, an increase of
24.7% from net sales of $108,709,000 recorded a year ago. Shipments
were a third quarter record 103,300 tons, up 14.8% from last year.
For the nine months ended May 31, 1995, net sales and shipments were
also at record levels. Net sales for the first nine months of
fiscal 1995 increased 20.9% to $380,942,000 compared to net sales of
$315,149,000 last year. Year-to-date shipments totalled 302,300
tons, an increase of 15.2% over a year ago.
Shipments of the company's printing and writing grades, manufactured
at the Brokaw and Groveton mills, were an all-time quarterly record,
exceeding last year's third quarter shipments by 27.7%. Both the
Brokaw and Groveton mills had full operations during the quarter.
Only one of two paper machines at Groveton operated during last
year's third quarter. The Printing and Writing Division's order
backlog remained strong through the quarter and is up sharply from
a year ago due to increased customer demand.
Shipments of Rhinelander's technical specialty grades were down 4.6%
for the third quarter of fiscal 1995 compared to a year ago. Market
weakness was experienced across all product lines due primarily to
softer customer demand. This resulted in curtailed production
schedules on two of Rhinelander's four paper machines during the
quarter. Order backlogs dropped during the quarter and are down
from a year ago. Rhinelander's summer 1995 mill-wide maintenance
outage, which is normally three days, was extended to nine days as
a result of soft customer demand and the need to reduce paper
inventories. Some additional downtime may be necessary depending
upon market conditions.
Gross Profit
Fiscal 1995 third quarter gross profit was $21,587,000 or 15.9% of
net sales. Gross profit was $26,413,000 or 24.3% of net sales for
the same period a year ago. The lower gross profit margin in the
third quarter of fiscal 1995 was due primarily to the escalating
cost of market pulp, the company's main raw material. Pulp prices,
which have been increasing since early calendar 1994, increased
again in the third quarter of fiscal 1995 and an additional increase
has taken effect in June. The company implemented further selling
price increases on most of its product lines during the third
quarter and announced further increases in June. However, selling
price increases along with tight control over other operating costs
have not been sufficient to offset the increase in pulp costs.
Although pulp and paper price increases may not coincide and,
historically, paper price increases have generally lagged behind
pulp price increases, management continues to expect, in the longer
term, to return to historical per ton margins and renewed profit
growth momentum.
Third quarter production in 1995 at the Printing and Writing
Division exceeded last year's third quarter by 33%. There were full
operations on both paper machines at Groveton in the third quarter
of 1995, compared to running only one of the Groveton machines a
year ago. Production in the third quarter of fiscal 1995 also
benefitted in comparison to last year by having Brokaw's scheduled
maintenance shutdown in June as opposed to May. Inventory levels
rose slightly during the quarter compared to a small decrease in the
third quarter of fiscal 1994.
The Rhinelander mill operated at 96% of capacity in the third
quarter of 1995 as market softness resulted in curtailed production
schedules on two of Rhinelander's four paper machines. Despite
operating below capacity, production was 4% higher than last year's
third quarter as a result of recent capital improvements and product
mix. Inventory levels rose during the third quarter of fiscal 1995
from the combined effect of strong production and weak customer
demand. Extended downtime is being taken on all four machines in
the current quarter of fiscal 1995 to reduce paper inventories.
Selling, Administrative and Research Expenses
Selling, administrative and research expenses for the three months
ended May 31, 1995 were $6,900,000 compared to $5,665,000 for the
same fiscal 1994 period. Income of $74,000 was recorded in the
third quarter of fiscal 1995 for stock appreciation rights (SARs)
and stock option adjustments compared to income of $1,015,000 for
the comparable quarter a year ago.
For the first nine months of fiscal 1995, selling, administrative
and research expenses were $19,765,000 compared to $20,586,000 for
the same period a year ago. SARs and stock option income was
$251,000 through the first nine months of fiscal 1995 compared to
income of $183,000 last year. Cost control measures and lower
incentive plan expenses are the primary reasons for lower selling,
administrative and research costs in 1995.
Interest Income and Expense
Interest income of $21,000 and interest expense of $333,000 were
incurred in the third quarter of fiscal 1995. For last year's third
quarter, interest income was $21,000 and interest expense was
$443,000. Lower interest expense in the third quarter of fiscal
1995 is the result of higher capitalized interest compared to a year
ago. For the three months ended May 31, 1995 other expense was
$230,000 compared to $10,000 last year. Asset disposal losses
associated with the construction of a new fiber handling and
processing system at Brokaw were the primary reasons for the
increase in other expense in the third quarter of fiscal 1995.
For the nine months ended May 31, interest income was $170,000 and
interest expense was $1,158,000 in 1995 compared to interest income
of $55,000 and interest expense of $1,499,000 in 1994. Higher
capitalized interest accounts for the decrease in interest expense
in 1995.
Income Taxes
The fiscal 1995 third quarter income tax provision was $5,400,000
for an effective tax rate of 38.2%. The effective tax rate in last
year's third quarter was 38.4%. The income tax provision through
the first nine months of fiscal 1995 was 38.4% compared to an
effective tax rate of 38.3% in 1994, before the cumulative effect of
an accounting change.
In the first quarter of fiscal 1994, the company adopted Statement
of Financial Accounting Standard 109, "Accounting for Income Taxes".
The adoption was reflected as a one-time cumulative reduction in the
net deferred tax liability, which resulted in a $1,000,000 increase
in net earnings in the first quarter of fiscal 1994.
Net Earnings
Net Earnings were $8,745,000 or $.30 per share for the three months
ended May 31, 1995. Net earnings were $12,516,000 or $.42 per share
for the same period a year ago. For the nine months ended May 31,
net earnings were $24,458,000 or $.83 per share in 1995 and
$32,691,000 or $1.10 per share in 1994, before the cumulative effect
of an accounting change. Net earnings were $33,691,000 or $1.14 per
share for the first nine months of fiscal 1994 after the effect of
an accounting change.
Capital Resources and Liquidity
Cash Provided by Operations
Third quarter cash provided by operations was $10,471,000 in 1995
compared to $20,696,000 in 1994. Higher unit production costs and
an increase in inventory in this year's third quarter lead to the
decrease in cash provided by operations compared to a year ago.
For the nine months ended May 31, cash provided by operations was
$31,290,000 in 1995 compared to $50,539,000 for the same fiscal 1994
period. The decrease in cash provided by operations in fiscal 1995
is due to higher unit production costs and increased working capital
needs.
Capital Expenditures
Third quarter fiscal 1995 capital expenditures were $17,530,000
compared to $12,259,000 a year ago. Capital expenditures total
$39,121,000 for the first nine months of 1995 versus $31,359,000 in
1994.
Rhinelander's new silicone coater commenced operations during the
third quarter of fiscal 1995. Construction is proceeding on
schedule with the capacity expansion project at Rhinelander and with
the fiber handling and processing system at Brokaw, as well as with
upgrades to the wastewater treatment plant at both Wisconsin mills.
The rate of capital spending is expected to increase in the fourth
quarter of fiscal 1995 as extensive construction activity continues
at Brokaw and Rhinelander during the summer. Capital expenditures
are projected to be over $60 million in fiscal 1995.
Financing
Long-term debt increased $8,550,000 to $41,092,000 during the third
quarter of fiscal 1995. Long-term debt is primarily notes to
Prudential Insurance Company of America and its subsidiaries, which
were issued in June 1993 at a fixed rate of 6.03%. At May 31, 1995,
the company also had $9,500,000 in revolving credit agreement
borrowings at effective interest rates ranging from 6.35% to 6.43%.
Commercial paper outstanding was $4,592,000 at May 31, 1995, with
effective interest rates of 6.28% to 6.41%.
The company is currently in the process of obtaining $19 million in
industrial development bond financing to fund the upgrade of the
wastewater treatment plant at Brokaw, the construction of a new
landfill and several other projects which qualify for this type of
financing. The industrial development bonds would be issued by the
Village of Brokaw, with a floating rate expected to be comparable to
short-term municipal bond rates on similar issues. The company
expects the financing arrangement to be completed in the fourth
quarter of fiscal 1995.
Cash provided by operations and the revolving credit facility are
expected to meet working capital needs and dividend requirements, as
well as fund the company's stock repurchase program and planned
capital expenditure requirements. The company believes additional
financing is readily available, should it be needed, to fund
accelerated spending associated with the $46 million expansion
project at Rhinelander or other future expansions or acquisitions.
Common Stock Repurchase
On June 30, 1994, the Board of Directors authorized the repurchase
of up to 1,485,000 shares (after the effect of the January 1995
stock dividend) of the company's common stock from time to time in
the open market or through privately negotiated transactions at
prevailing market prices.
There were no repurchases of company stock during the third quarter
of fiscal 1995.
Dividends
On May 30, 1995, the Board of Directors declared a quarterly cash
dividend of $.0625 per share payable
July 3, 1995 to shareholders of record on June 16, 1995.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) None
(b) Reports on form 8-K: None
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
WAUSAU PAPER MILLS COMPANY
Registrant
By: STEVEN A. SCHMIDT
Steven A. Schmidt
Vice President Finance, Secretary and Treasurer
(Principal Financial Officer)
Date: July 12, 1995