SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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F O R M 1 0 - Q
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 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: As of September 30, 1995,
1,952,330.
Indicate total number of pages contained in document filed: 13.
BADGER PAPER MILLS, INC.
INDEX
Pages
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FINANCIAL INFORMATION
Consolidated Condensed Interim Statements of Operations and
Retained Earnings - Quarter and Nine Months Ended
September 30, 1995 and 1994 3
Consolidated Condensed Balance Sheets - September 30, 1995 and
December 31, 1994 4
Consolidated Condensed Statements of Cash Flows - Nine Months
Ended September 30, 1995 and 1994 5
Notes to Consolidated Condensed Financial Statements 6-7
MANAGEMENT DISCUSSION AND ANALYSIS 8-10
OTHER INFORMATION 10
SIGNATURES 11
-Page 2-
BADGER PAPER MILLS, INC. AND SUBSIDIARY CONSOLIDATED
CONDENSED INTERIM STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1995 1994 1995 1994
------------ ------------ ------------ ------------
Net Sales $24,373,793 $19,750,737 $70,899,426 $54,520,731
Cost of Sales 21,640,901 19,478,325 64,076,523 53,059,841
----------- ----------- ----------- -----------
Gross Margin 2,732,892 272,412 6,822,903 1,460,890
Selling and
Administrative Expenses 984,097 906,505 2,900,719 2,706,718
----------- ----------- ----------- -----------
Operating Income (Loss) 1,748,795 (634,093) 3,922,184 (1,245,828)
Other Income, Net 115,924 541,250 740,013 413,987
Interest Expense (301,840) (403,939) (1,029,508) (1,119,555)
----------- ----------- ----------- -----------
Income (Loss) Before
Income Taxes 1,562,879 (496,782) 3,632,689 (1,951,396)
Income Tax Expense
(Benefit) 531,360 (147,121) 1,235,128 (1,055,421)
----------- ----------- ----------- -----------
Net Income (Loss) 1,031,519 (349,661) 2,397,561 (895,975)
----------- ----------- ----------- -----------
Retained Earnings,
Beginning of Period 19,448,120 20,062,775 18,082,078 20,609,089
Cash Dividends 97,615 - 97,615 -
----------- ----------- ----------- -----------
Retained Earnings,
End of Period $20,382,024 $19,713,114 $20,382,024 $19,713,114
=========== =========== =========== ===========
Net Earnings (Loss)
Per Share $0.53 ($0.18) $1.23 ($0.46)
Dividends Per Share $0.05 - $0.05 -
Average Shares Outstanding 1,953,997 1,957,330 1,956,230 1,957,330
See Notes to Financial Statements
-Page 3-
BADGER PAPER MILLS, INC. & SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- -------------
ASSETS:
Current Assets:
Cash & Cash Equivalents $ 506,779 $ 1,375,057
Marketable Securities 3,433,033 3,397,184
Accounts Receivable - Net 8,508,911 6,770,635
Deferred Income Taxes 1,175,908 1,175,908
Inventories 7,174,248 6,318,834
Refundable Income Taxes 299,348 299,348
Other Current Assets 78,562 192,255
------------ ------------
Total Current Assets 21,176,789 19,529,221
Property, Plant, Equipment &
Timberlands 75,925,675 73,853,230
Less Allowance for Depreciation &
Depletion (45,423,658) (42,959,533)
------------ ------------
Total Property, Plant, Equipment &
Timberlands 30,502,017 30,893,697
Other Assets 2,096,884 1,985,210
Restricted Funds from Industrial
Revenue Bonds 172,795 1,973,595
------------ ------------
TOTAL ASSETS $ 53,948,485 $ 54,381,723
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving Credit Notes Payable $ - $ 12,000,000
Current Portion of Long-Term Debt 111,232 111,232
Accounts Payable 5,985,035 5,110,671
Accrued Liabilities 4,522,967 3,582,795
------------ ------------
Total Current Liabilities 10,619,234 20,804,698
Deferred Income Taxes 2,218,240 2,218,240
Long Term Debt 18,000,959 10,650,714
Other Liabilities 1,759,652 1,587,992
------------ ------------
Total Liabilities 32,598,085 35,261,644
STOCKHOLDERS' EQUITY
Common stock, no par value:
4,000,000 shares authorized
2,160,000 shares issued 2,700,000 2,700,000
Additional paid-in capital 167,682 166,119
Retained Earnings 20,382,024 18,082,078
Less treasury shares at cost:
207,670 - 9/30/95; 203,170 - 12/31/94 (1,899,306) (1,828,118)
------------ ------------
Total Stockholders' Equity 21,350,400 19,120,079
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 53,948,485 $ 54,381,723
============ ============
See Notes to Financial Statements
-Page 4-
BADGER PAPER MILLS, INC. AND SUBSIDIARY CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
-------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 2,397,561 ($ 895,975)
Adjustments to Reconcile to Net Cash
provided by (used in)
Operating Activities:
Depreciation 2,464,596 2,623,212
Deferred Income Taxes - (448,120)
Net Proceeds from (Purchases)
Sales of Marketable Securities 333,711 305,000
Unrealized (Gain) Loss on
Marketable Securities (369,560) 632,320
(Increase) in Accounts
Receivables, Net (1,738,276) (1,369,507)
(Increase) Decrease in Inventories (855,414) 703,164
Increase in Accounts Payable
and Accrued Liabilities 1,814,536 46,118
Decrease (Increase) Other 173,679 (291,062)
----------- -----------
Net Cash Provided by
Operating Activities 4,220,833 1,305,150
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant and
Equipment, Net (2,072,916) (878,641)
Decrease in Restricted Funds from
Industrial Revenue Bonds 1,800,800 6,112
----------- -----------
Net Cash (Used in) Investing Activities (272,116) (872,529)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Long Term Debt (1,399,755) (97,219)
Purchase of Treasury Stock (69,625) -
Dividends Paid (97,615) -
Payments on Revolving
Credit Notes Payable (3,250,000) (1,000,000)
----------- -----------
Net Cash (Used In)
Financing Activities (4,816,995) (1,097,219)
----------- -----------
Net (Decrease) in Cash and
Cash Equivalents (868,278) (664,598)
Cash and Cash Equivalents:
Beginning of Period 1,375,057 1,065,215
----------- -----------
End of Period $ 506,779 $ 400,617
=========== ===========
See Notes to Financial Statements
-Page 5-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
A. BASIS OF PRESENTATION
---------------------
The unaudited financial statements have been prepared by Badger Paper
Mills, Inc. (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of the Company,
include all adjustments necessary for a fair statement of results for each
period shown. These adjustments were of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The Company
believes that the disclosures made are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's latest annual report.
B. INCOME TAXES
------------
The provision for income tax expense or benefit has been computed by
applying an estimated annual effective tax rate. This rate was a 34% expense for
the quarter and nine months ended September 30, 1995. The Company provided for a
30% benefit in the third quarter of 1994 and 37% benefit for the first nine
months of 1994 resulting from the Company's operating losses. A research and
development income tax benefit of $341,000 was recognized during the second
quarter of 1994.
C. EARNINGS PER SHARE
------------------
Earnings per share of common stock are computed by dividing net earnings by
the weighted average number of shares of common stock outstanding.
D. INVENTORIES
-----------
The major classes of inventories are as follows (in thousands):
September 30, December 31,
1995 1994
------------- ------------
Raw materials $4,038 $3,033
Work in process and finished stock 3,136 3,286
------ ------
$7,174 $6,319
====== ======
-Page 6-
E. DEBT
----
The Company is a party to an amended revolving credit agreement with its
financing institutions in the amount of $13,000,000, in effect through April 30,
1995. This amended agreement provides for covenants which are somewhat less
restrictive than the predecessor agreement. The amended agreement also provides
that the notes bear interest at tier-based LIBOR rates which total 7.625% at
September 30, 1995, requires the Company to maintain consolidated tangible net
worth of at least the $19,000,000, provided however that tangible net worth
shall not be increased or reduced by any unrealized appreciation or depreciation
on the Company's marketable securities, a current ratio of at least 1.9:1, and
maintain a leverage ratio of no more than 1.9:1. The agreement further states
that the Company shall not expend or be obligated for capital expenditures for
the period January 1, 1995 through December 31, 1995, in excess of $4,000,000.
Capital projects for this period are projected to fall well within these
limitations. The Company may also provide for dividend and other restrictive
payments so long as these payments do not exceed 33% of the cumulative
consolidated net income commencing January 1, 1995, and so long as no default or
event of default exists. At September 30, 1995, $8,750,000 was borrowed by the
Company against the line.
F. 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 requirements has not been determined.
In addition, the Company is subject to various claims, the ultimate
outcomes of which management cannot predict. Management believes that the
outcomes will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
-Page 7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The Company reported record sales for the third quarter and first nine
months of 1995. Sales for the third quarter ended September 30, 1995, were
$24,373,793 or 23.4% over the $19,750,737 reported for the same period in 1994.
Volume of shipments during the third quarter of 1995 were down approximately 15%
when compared to a year earlier, while the average selling price of the paper
sold increased approximately 45%. Sulphite pulp shipment volume, as well as
prices, was substantially higher during the third quarter of 1995 compared to
the same period a year ago. Sulphite pulp sales represented over 6% of the
Company's total revenue for the third quarter of 1995.
Sales for the nine-month period ended September 30, 1995, were $70,899,426
or 30% over the $54,520,731 reported for the same period a year earlier. Volume
of shipments during the first nine months of 1995 was down approximately 5% when
compared to a year earlier, while the average selling price increased
approximately 36%. Total paper production was static during 1994 and 1995, while
higher third quarter 1994 shipments lowered product inventories.
Cost of sales increased 11% and 21% respectively for the third quarter and
first nine months of 1995 compared to the same periods a year earlier. Higher
cost of purchased fiber is the single most important factor affecting cost of
sales. While purchased pulp prices have risen more than 145% over the past 21
months, the world pulp market appears to be settling into a new stable and
balanced position. Northern bleached softwood kraft prices have increased
another $75 per ton effective October 1, 1995, while other pulp producers are
dropping back from the peaks reached earlier in 1995. The Company is protected
in part because it is able to utilize its sulphite pulp manufactured in its
integrated pulp and paper manufacturing facilities. Changes instituted during
the year in the manufacturing and converting facilities have lowered production
costs and increased operating efficiencies. While these changes have been
effective, additional improvements, necessary to meet the Company's expectations
of production capacity and efficiency, are presently being planned or are under
study.
Gross margins increased to $2,732,892 and $6,822,903 for the three months
and first nine months of 1995 compared to $272,412 and $1,460,890 reported for
the same periods a year earlier. The value of the Company's sulphite pulp mill,
which supplies 50% of the paper production fiber demand, continues to favorably
contribute to the operating margins.
Selling and administrative expenses of $984,097 and $2,900,719 for the
third quarter and first nine months of 1995 compare to $906,505 and
-Page 8-
$2,706,718 for the same periods a year earlier. As a percent of sales for the
third quarter and first nine months of 1995, selling and administrative expenses
of 4.0% and 4.1% compare to 4.6% and 5.0% for the third quarter and first nine
months of 1994, representing a decrease of 13.0% and 18.0% respectively.
Other income of $115,924 and $740,013 for the third quarter and first nine
months of 1995 compares to $541,250 and $413,987 for the same periods a year
earlier. The recognition in the third quarter, 1994, of value received in
excess of book value of $460,206 from the sale of the Company's SHARPrint(R)
business, which included equipment and intangibles, was the primary factor
affecting other income in the third quarter, 1994. The Company recognized
unrealized gain in securities of $369,560 for the first nine months of 1995
compared to unrealized loss of $632,320 for the same period in 1994. Because
the Company's investment securities are accounted for as a trading account,
unrealized gains and losses are included in the Company's statement of
operations in Other Income. The reduction in interest expense for the three
months and first nine months of 1995 compared to the same periods a year earlier
is a result of lower interest rates and reduced outstanding levels of debt.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures of $895,442 and $2,072,916 for the third quarter and
first nine months of 1995 compare to $314,260 and $1,172,495 for the same
periods a year earlier. The Company continues to investigate capital projects
which are intended to improve quality and production.
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.
While the Company is currently in compliance with such laws and regulations, the
costs associated to comply with future enactments of environmental regulations
cannot be presently projected.
The Company's primary capital resources are for funding ongoing
operations and capital expenditures. As of September 30, 1995, these resources
include marketable securities of $3,433,033, $172,795 in restricted funds from
industrial revenue bonds, and a $13,000,000 revolving credit agreement expiring
April 30, 1998, of which $8,750,000 is currently used. The Company believes it
has adequate capital resources to meet its near-term capital and operating
needs.
-Page 9-
Primarily, as a result of the Company's net income, cash provided by
operating activities totaled $4,220,833 for the first nine months of 1995 and
compares to cash provided by operating activities of $1,305,150 for the first
nine months of 1994. However, cash and cash equivalents decreased as a result of
cash used in financing activities (primarily as a result of payments of
corporate debt).
Working capital of $10,557,555 increased $11,833,032 from December 31,
1994. Several components of working capital contributed to the increase. A
reclassification of revolving credit rates payable of $8,750,000 at September
30, 1995 to long-term debt (see Note E to Financial Statements), an increase in
inventories of $855,414, and an increase in accounts receivable of $1,738,276
were major factors which increased working capital. Offsetting the increase
included a decrease in cash of $868,278 and an increase in accounts payable and
accrued liabilities of $1,814,536.
During the first nine months of 1995, $3,250,000 of revolving credit notes
payable were repaid, reducing the outstanding balance to $8,750,000 at September
30, 1995. In addition, $1,399,755 of the Company's long-term debt was repaid
during the first nine months of 1995. The Company paid a cash dividend in the
amount of $.05 per share on September 8, 1995. This is the first cash dividend
since the Company suspended dividends in the second quarter, 1993. The Company
paid dividends within the limits of the covenants provided in its borrowing
agreements.
The Company has determined that a portion of its timberland holdings are
inconsistent with its current fiber needs. The Company is currently considering
sale of these lands. No final decision has been made.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
(27) Financial data schedules
-Page 10-
SIGNATURE
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.
BADGER PAPER MILLS, INC.
(Registrant)
DATE: November 13, 1995 By_________________________________
Claude L. Van Hefty
President
(Chief Executive Officer)
DATE: November 13, 1995 By_________________________________
Miles L. Kresl, Jr.
Vice President/Administration,
Corporate Secretary, & Treasurer
(Principal Financial Officer)
-Page 11-