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 FEBRUARY 29, 1996
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.
X
Yes ________ No ________
The number of common shares outstanding at March 31, 1996 was 36,831,579.
WAUSAU PAPER MILLS COMPANY
AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of 1
Income Three and Six Months Ended
February 29, 1996 (unaudited) and
February 28, 1995 (unaudited)
Condensed Consolidated Balance 2
Sheets February 29, 1996 (unaudited)
and August 31, 1995 (derived from audited
financial statements)
Condensed Consolidated Statements 3
of Cash Flows Six Months
Ended February 29, 1996 (unaudited) and
February 28, 1995 (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 4. Submission of Matters to a Vote of Security
Holders 10
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 For the Three Months For the Six Months
per share data - unaudited) Ended February 29, 1996 and February 28, 1995
C>
1996 1995 1996 1995
Net sales $128,590 $119,115 $270,494 $245,382
Cost of products sold 109,985 101,021 232,261 206,190
GROSS PROFIT 18,605 18,094 38,233 39,192
Selling, administrative
and research expenses 7,072 6,138 14,488 12,865
OPERATING PROFIT 11,533 11,956 23,745 26,327
Interest income 159 89 369 149
Interest expense (713) (389) (1,283) (825)
Other expense (62) (40) (109) (88)
EARNINGS BEFORE INCOME TAXES 10,917 11,616 22,722 25,563
Provision for income taxes 4,200 4,500 8,700 9,850
NET EARNINGS $ 6,717 $ 7,116 $ 14,022 $ 15,713
NET EARNINGS PER COMMON SHARE $ .18 $ .20 $ .38 $ .43
WEIGHTED AVERAGE NUMBER OF SHARES 36,832,000 36,842,000 36,831,000 36,834,000
CONSOLIDATED BALANCE SHEETS
Wausau Paper Mills Company and Subsidiaries
(Dollars in thousands) February 29 August 31
1996* 1995*
ASSETS
Current Assets
Cash and cash equivalents $ 1,418 $ 2,347
Accounts and notes receivable 42,019 42,429
Inventories 71,621 67,474
Other current assets 7,547 7,767
Total current assets 122,605 120,017
Property, plant and equipment 310,426 292,191
Other assets 16,792 22,478
TOTAL ASSETS $449,823 $434,686
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 6,362 $ 6,425
Accounts payable 22,517 24,426
Accrued and other liabilities 22,726 20,641
Accrued income taxes 1,652 1,259
Total current liabilities 53,257 52,751
LONG-TERM LIABILITIES
Long-term debt 69,698 68,623
Deferred income taxes 39,300 36,799
Other liabilities 40,871 39,824
Total long-term liabilities 149,869 145,246
Total shareholders' equity 246,697 236,689
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $449,823 $434,686
<FN>
* The consolidated balance sheet at February 29, 1996 is unaudited. The
August 31, 1995 consolidated balance sheet is derived from audited
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Wausau Paper Mills Company and Subsidiaries
For the Six Months
(Dollars in thousands-unaudited) Ended Feb. 29, 1996 and Feb. 28, 1995
1996 1995
Operating Activities:
Net earnings $ 14,022 $ 15,713
Noncash items:
Provision for depreciation, depletion
and amortization 11,069 9,674
Deferred income taxes 2,501 2,174
Changes in operating assets and liabilities:
Receivables 410 (6,870)
Inventories (4,147) (7,288)
Other assets 256 (838)
Accounts payable and other liabilities 1,860 8,446
Accrued income taxes 393 (192)
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,364 20,819
Investing Activities:
Capital expenditures (31,405) (21,591)
Proceeds from property, plant and
equipment disposals 60 247
Net cash distributed from funds
restricted for capital additions 5,650
NET CASH USED IN INVESTING ACTIVITIES (25,695) (21,344)
Financing Activities:
Net borrowings under
revolving credit facility 5,498 5,500
Repayments of long-term debt (3,245) (223)
Dividends paid (3,883) (3,473)
Proceeds from stock option exercises 32 2,036
Payments for purchase of treasury stock (5,222)
NET CASH USED IN FINANCING ACTIVITIES (1,598) (1,382)
Net decrease in cash and cash equivalents (929) (1,907)
Cash and cash equivalents at beginning of year 2,347 3,214
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 1,418 $ 1,307
Supplemental Information:
Interest paid (net of amount capitalized) $ 1,220 $ 833
Income taxes paid 5,840 7,845
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The accompanying unaudited condensed financial statements include all
adjustments, which are all normal and recurring in nature and, in the
opinion of management, present fairly the results for the interim
periods presented. Refer to the Notes to Financial Statements which
appear in the 1995 Annual Report for the company's accounting policies
which are pertinent to these statements.
Note 2: Selling, administrative and research expenses include stock
appreciation rights (SARs) and stock option expense of $175,000 or
less than $.01 per share for the quarter ended February 29, 1996
and income of $76,000 or less than $.01 per share for the quarter
ended February 28, 1995. For the six months ended February 29, 1996,
SARs and stock option expense was $828,000 or $.01 per share compared
to income of $177,000 or less than $.01 per share for the six months
ended February 28, 1995.
Note 3: All shares and per share data have been restated to reflect the 5-for-
4 stock split in January 1996.
Note 4: Accounts receivable consisted of the following:
FEBRUARY 29, 1996 AUGUST 31, 1995
Customer Accounts $45,590,000 $46,055,000
Misc. Notes and Accounts
Receivable 773,000 1,454,000
$46,363,000 $47,509,000
Less: Allowance for Discounts,
Doubtful Accounts and Pending
Credits 4,344,000 5,080,000
Net Receivables $42,019,000 $42,429,000
NOTE 5: THE VARIOUS COMPONENTS OF INVENTORIES WERE AS FOLLOWS:
FEBRUARY 29, 1996 AUGUST 31, 1995
Raw Materials and Supplies $38,604,000 $47,423,000
Work in Process
and Finished Goods 44,623,000 45,521,000
$83,227,000 $92,944,000
Less: LIFO Reserve 11,606,000 25,470,000
Net Inventories $71,621,000 $67,474,000
NOTE 6: THE ACCUMULATED DEPRECIATION ON FIXED ASSETS WAS $161,351,000 AS OF
FEBRUARY 29, 1996 AND $150,736,000 AS OF AUGUST 31, 1995.
NOTE 7: A SUMMARY OF LONG-TERM DEBT IS AS FOLLOWS:
FEBRUARY 29, 1996 AUGUST 31, 1995
Bonds, Mortgages and
Similar Debt $69,380,000 $68,331,000
Capitalized Leases 318,000 292,000
Total Long Term Debt $69,698,000 $68,623,000
NOTE 8: DIVIDENDS PER SHARE WERE AS FOLLOWS:
THREE MONTHS ENDING SIX MONTHS ENDING
FEBRUARY 29, 1996 FEBRUARY 28, 1995 FEBRUARY 29, 1996 FEBRUARY 28, 1995
$.110 $.100* $.110 $.100*
The company's Board of Directors schedule resulted in the declaration
of cash dividends of $.110 and $.100 per share in the three months
ended February 29, 1996 and February 28, 1995, respectively.
* Per share dividends have been restated to reflect the 5-for-4 stock
split in January 1996.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
RESULTS OF OPERATIONS
Net Sales
Net sales for the quarter ended February 29, 1996 were a second quarter record
$128,590,000, up 8.0% from last year's second quarter sales of $119,115,000.
Shipments totalled 94,700 tons, down .4% from last year's record second
quarter shipment level. For the first six months of fiscal 1996, net sales
were a record $270,494,000, up 10.2% from the prior year while shipments of
198,600 tons were down .2% compared to the first half of fiscal 1995.
Paper market conditions slowed in the company's second quarter and continue to
remain soft, affecting many of the company's customers and, therefore, the
overall demand for its products. Throughout the paper industry there have
been many reports of production downtime due to low order levels. Despite the
market weakness, the company was able to operate at planned capacity in the
second quarter. Should the current weakness in the paper markets continue,
the company may need to schedule some production downtime before the end of
the fiscal year in order to maintain proper inventory levels.
Demand for the company's printing and writing grades was relatively strong for
most of its paper grades sold from stock inventory during the second quarter
of fiscal 1996. However, lower prices for manufacturing business commodity
cut-size and offset papers, due to weak demand, have made it difficult for the
company to obtain orders in this market segment. Although these grades
represent a small portion of the Printing and Writing Division's mix, they
contributed to a 2.2% decrease in the division's second quarter shipments
compared to a year ago. Order backlogs at the end of the second quarter were
down from last year due to weaker demand for certain grades of paper.
At the company's Rhinelander Division, second quarter shipments exceeded the
prior year's shipment level by 2.8%. Order backlogs at February 29, 1996 were
up slightly from a year ago due primarily to strong demand for packaging
grades.
Gross Profit
Gross profit for the three months ended February 29, 1996 was $18,605,000 or
14.5% of net sales. Gross profit in the second quarter of fiscal 1995 was
$18,094,000 or 15.2% of net sales.
Weak paper market conditions are also affecting demand for pulp, the company's
main raw material. Although pulp prices fell during the second quarter, pulp
costs, on average, were higher than a year ago. Despite higher selling prices
for its products, the company's gross profit margin in the second quarter was
lower than a year ago due to higher pulp prices and other manufacturing costs.
Management expects that the positive effect of continued lower prices for pulp
will result in improved gross profit margins in the quarters ahead.
Production at the Printing and Writing Division exceeded last year's second
quarter by .9%. Inventory levels rose during the quarter due to market
weakness. Second quarter production at Rhinelander was down 4.3% from the
prior year, due primarily to mix. Inventories at Rhinelander increased
slightly during the quarter.
Selling, Administrative and Research Expenses
Selling, administrative and research expenses were $7,072,000 for the three
months ended February 29, 1996 compared to $6,138,000 in last year's second
quarter. Stock appreciation rights (SARs) and stock option expense of
$175,000 was recorded during the second quarter compared to income of $76,000
recorded in last year's second quarter. The increase in selling,
administrative and research spending compared to last year's second quarter is
primarily the result of higher advertising and incentive plan costs.
For the six months ended February 29, 1996, selling, administration and
research expenses totalled $14,488,000 compared to $12,865,000 for the first
half of fiscal 1995. SARs and stock option expense of $828,000 was incurred
in the first half of fiscal 1996 compared to income of $177,000 for the same
period a year ago. Higher advertising and incentive plan costs are the main
reason for the balance of the increase in spending compared to the previous
year.
Interest Income and Expense
Interest income of $159,000 was recorded in the second quarter of fiscal 1996
compared to $89,000 for the same period a year ago. Interest income totalled
$369,000 and $149,000 for the first six months of fiscal 1996 and fiscal 1995,
respectively. The increase in interest income in the second quarter and first
six months of fiscal 1996 compared to the prior year is due to interest income
on undistributed proceeds from a $19 million industrial development bond
issuance in August 1995.
For the three months ended February 29, 1996, interest expense was $713,000
compared to $389,000 in the second quarter of fiscal 1995. For the first six
months of fiscal 1996, interest expense was $1,283,000 compared to $825,000
for the same period a year ago. Higher interest expense in the second quarter
and first half of fiscal 1996 is due to higher debt levels compared to the
same periods a year ago. Capitalized interest recorded in the second quarter
of fiscal 1996 was $289,000 compared to $108,000 in last year's second
quarter. Capitalized interest was $672,000 and $163,000 for the first six
months of fiscal 1996 and fiscal 1995, respectively. Higher capitalized
interest in the fiscal 1996 periods is due to capital spending on major
projects under construction.
Income Taxes
The income tax provision in the second quarter of fiscal 1996 was $4,200,000
for an effective tax rate of 38.5%. The effective tax rate in last year's
second quarter was 38.7%. The income tax provision for the first six months
of fiscal 1996 was $8,700,000 for an effective tax rate of 38.3% compared to
an effective tax rate of 38.5% for the same fiscal 1995 period.
Net Earnings
Net earnings for the three months ended February 29, 1996 were $6,717,000 or
$.18 per share compared to net earnings of $7,116,000 or $.20 per share for
the three months ended February 28, 1995. Net earnings for the first half of
fiscal 1996 were $14,022,000 or $.38 per share compared to net earnings of
$15,713,000 or $.43 per share for the same period a year ago.
CAPITAL RESOURCES AND LIQUIDITY
Cash Provided by Operations
Cash provided by operations in the second quarter of fiscal 1996 was
$7,894,000 compared to $664,000 for last year's second quarter. For the six
months ended February 29, 1996, cash provided by operations was $26,364,000
compared to $20,819,000 for the first half of fiscal 1995. Cash provided by
operations in the second quarter of fiscal 1996 was significantly higher than
last year's second quarter due to a substantial increase in inventories last
year which did not reoccur in the fiscal 1996 period. The improvement in cash
provided by operations in the first half of fiscal 1996 over the previous year
is due mainly to better collection of accounts receivables and a smaller
increase in inventories.
Capital Expenditures
Capital expenditures totalled $14,089,000 during the second quarter of fiscal
1996 compared to $12,965,000 for the same period last year. In the first half
of fiscal 1996, capital expenditures were $31,405,000 compared to $21,591,000
a year ago.
At Rhinelander, the second phase of its expansion project was completed in
March 1996 with the successful rebuild and startup of No. 7 paper machine.
The rebuild included a pre-metering size press and improved drying
capabilities to upgrade the papermaking process and increase capacity. At the
Brokaw mill, the $16.4 million fiber handling and processing project is
nearing completion as well which will allow the mill to use more recycled
post-consumer fiber.
Capital expenditures in fiscal 1996 are projected to be approximately $70
million.
Financing
Long-term debt increased $7,130,000 in the second quarter of fiscal 1996 to
$69,698,000 due to capital spending requirements. Long-term debt includes
$27.0 million in notes to Prudential Insurance Company of America and its
subsidiaries at a fixed rate of 6.03% and revolving credit agreement
borrowings of $11.5 million at effective interest rates ranging from 5.51% to
5.90% at February 29, 1996. The company also had $16,498,000 in commercial
paper outstanding at the end of the quarter with effective interest rates of
5.52% to 5.83%. In addition, the company had $19.0 million in variable rate
industrial development bonds with an interest rate of 3.45% at February 29,
1996. Undistributed proceeds from the industrial development bond issuance
totalled $9,081,000 at the end of the second quarter.
On March 29, 1996, the company amended its revolving credit facility. The
amended agreement increases the revolving credit line from $35 million to $65
million and extends through March 29, 2001, at which time, or earlier at the
company's option, the agreement converts to a one-year term loan. Terms and
conditions of the amended credit facility remained essentially unchanged.
Cash provided by operations, industrial development bond proceeds and the
revolving credit facility are expected to meet working capital needs and
dividend requirements, as well as fund the company's planned capital
expenditures. The company believes additional financing is readily available,
should it be needed, to fund a major expansion or acquisition.
Common Stock Repurchase
On June 30, 1994, the Board of Directors authorized the repurchase of up to
1,856,250 shares (adjusted for the effect of the January 1996 stock split) of
the company's common stock from time to time in the open market or through
privately negotiated transactions at prevailing market prices. There have
been no repurchases of company stock during the first six months of fiscal
1996.
Dividends
On December 18, 1995, the Board of Directors declared a 5-for-4 stock split
and a 10% increase in the quarterly cash dividend, from $.05 to $.055 per
share on a new share basis. Both the cash dividend and the additional shares
from the stock split were paid on January 17, 1996 to shareholders of record
as of January 2, 1996. Any fractional shares resulting from the stock split
were paid in cash on January 17, 1996, based on the closing price of the
stock on the record date.
The Board of Directors, at the February 21, 1996 meeting, declared a quarterly
cash dividend of $.055 per share payable April 1, 1996 to shareholders of
record on March 11, 1996.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The annual meeting of shareholders of the company was held on December 18,
1995.
The matters voted upon, including the number of votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes, as to
each such matter were as follows:
MATTER SHARES
Broker
1. Election of Class II Directors For Against Withheld Abstain Non-Vote
(a) Daniel D. King 26,071,960 N/A 141,783 N/A 0
(a) Harry R. Baker 26,066,006 N/A 147,737 N/A 0
Broker
2. Approval to increase the For Against Withheld Abstain Non-Vote
authorized common stock to
100,000,000 shares. 23,079,256 3,048,620 N/A 85,867 0
Broker
3. Approval of appointment of For Against Withheld Abstain Non-Vote
independent auditors for year
ending August 31, 1996 26,151,227 32,398 N/A 30,118 0
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits required by Item 601 of Regulation S-K
(3) Restated articles of incorporation, as amended effective December 21,
1995
(27) Financial Data Schedule
(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: April 12, 1996
EXHIBIT INDEX
PURSUANT TO SECTION 232.102(D), REGULATION S-T
1. Exhibit (3) Restated articles of incorporation as
amended effective December 21, 1995
2. Exhibit (27) Financial Data Schedule