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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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)
200 West Front Street WISCONSIN
P.O. Box 149 (State of incorporation)
Peshtigo, Wisconsin 54157-0149 39-0143840
(Address of principal executive office) (I.R.S. Employer Identification Number)
Registrant's telephone number, including area code: (715) 582-4551
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Nominal or Par Value
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 reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
As of March 2, 2001, 1,988,417 shares of common stock were outstanding, and the
aggregate market value of the common stock (based upon the closing sale price of
the shares on the Nasdaq SmallCap Market) held by non-affiliates was
approximately $4,618,183. Determination of stock ownership by affiliates was
made solely for the purpose of responding to this requirement, and registrant is
not bound by this determination for any other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement for its 2001 Annual Meeting of Shareholders to be
filed with the Commission under Regulation 14A is herein incorporated by
reference into Part III of this Form 10-K to the extent indicated in Part III
hereof.
1
Statement Regarding Forward-Looking Information
This Form 10-K, each of the Company's annual report to shareholders, Forms 8-K
and 10-Q, proxy statements, and any other written or oral statement made by or
on behalf of the Company subsequent to the filing of this Form 10-K may include
one or more "forward-looking statements" within the meaning of Sections 27A of
the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934 as
enacted in the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). In making forward-looking statements within the meaning of the Reform
Act, the Company undertakes no obligation to publicly update or revise any such
statement.
Forward-looking statements of the Company are based on information available to
the Company as of the date of such statements and reflect the Company's
expectations as of such date, but are subject to risks and uncertainties that
may cause actual results to vary materially. In addition to specific factors,
which may be described in connection with any of the Company's forward-looking
statements, factors which could cause actual results to differ materially
include, but are not necessarily limited to the following:
o Increased competition from either domestic or foreign paper producers or
providers of alternatives to the Company's products, including increases
in competitive production capacity, resulting in sales declines from
reduced shipment volume and/or lower net selling prices in order to
maintain shipment volume.
o Changes in the price of pulp, the Company's main raw material. All of the
Company's pulp needs are purchased on the open market and price changes
for pulp have a significant impact on the Company's costs. Pulp price
changes can occur due to changes in worldwide consumption levels of pulp,
pulp capacity additions, expansions or curtailments affecting the supply
of pulp, inventory building or depletion at pulp consumer levels which
affect short-term demand, and pulp producer cost changes related to wood
availability, environmental issues and other variables.
o Interruptions in the supply of, or changes in the price the Company pays
for, the electricity and natural gas that the Company uses in the
manufacture, printing and converting of its paper products.
o Changes in demand for the Company's products due to overall economic
activity affecting the rate of consumption of the Company's paper
products, growth rates of the end markets for the Company's products,
technological or consumer preference changes and acceptance of the
Company's products by the markets served by the Company.
o Unforeseen operational problems at any of the Company's facilities causing
significant lost production and/or cost issues.
o Changes in laws or regulations which affect the Company.
2
Five-Year Comparison of Selected Financial Data
Year ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Earnings (in thousands):
Net sales $73,346 $67,024 $65,727 $70,427 $76,276
Cost of sales 70,937 60,336 58,505 67,600 72,411
Gross profit 2,409 6,688 7,222 2,827 3,865
Selling and administrative expenses 4,829 4,825 4,331 4,085 4,136
Restructuring provision - - - 850 7,430
Pulp mill impairment charge - - - 783 -
Profit (loss) from operations (2,420) 1,863 2,891 (2,891) (7,701)
Other income (expense) (287) 617 946 650 4,842
Interest expense 1,250 1,064 1,196 1,354 894
Unrealized holding gain or (loss)
on trading securities - - - - 307
Earnings (loss) before income taxes (3,957) 1,416 2,641 (3,595) (3,446)
Income tax expense (benefit) (891) 279 897 (1,153) (1,234)
Net earnings (loss) (3,066) 1,137 1,744 (2,442) (2,212)
Common stock:
Number of shareholders of record 392 434 470 515 518
Weighted average shares outstanding 1,981,716 1,966,111 1,955,772 1,947,128 1,944,699
Earnings (loss) per share $(1.55) $.58 $0.89 $(1.25) $(1.14)
Cash dividends declared per share - - - - $ 0.22
Book value per share $8.32 $9.91 $9.33 $ 8.42 $ 9.68
Financial position (in thousands):
Working capital $(9,950) $8,259 $7,346 $7,196 $9,923
Capital expenditures 2,265 2,815 3,004 4,686 6,856
Total assets 43,357 46,894 47,999 48,356 51,952
Long-term debt 1,310 15,705 16,126 20,394 18,617
Shareholders' equity 16,482 19,484 18,257 16,444 18,832
3
PART I
Item 1. Business
Badger Paper Mills, Inc. ("Badger" or the "Company") was incorporated under the
laws of the State of Wisconsin in 1929. It has been producing paper for over 72
years. Badger operates in two industry segments: the production of paper
products segment, and the printing and converting segment.
Products and Distribution
Badger's ISO 9001 certified paper mill, consisting of two paper machines, is
located in Peshtigo, Wisconsin. Converting facilities contiguous to the
papermaking facilities include punching equipment, sheeters, trimmers, sealers,
perforators, rewinders, waxers, paper drilling and die-cutting equipment.
Badger's flexographic printing and converting operation is located in Oconto
Falls, Wisconsin.
Products produced on Badger's Fourdrinier machine represented 77% of the paper
products manufactured by the Company in 2000, and contributed more than 60% of
2000 revenue. Fine paper grades are produced utilizing fiber purchased on the
open market, including pre- and post-consumer recycled fibers. These paper
grades include multi-purpose business papers, offset, opaque, endleaf, ledger,
reply card, watermarked, water-oil-grease resistant papers (WOGR), electrostatic
copier, text and cover, and technical and specialty papers. Badger offers a wide
range of colored papers and specializes in color matching. Badger sells a
portion of these products under certain trademarks and trade names, including
Ta-Non-Ka(R), Copyrite(R), ENVIROGRAPHIC(R), Northern Brights(R), Artopaque(R),
Marks of Distinction(R) and DuraEdge(R). These products are sold through paper
merchants, brokers and value-added converters who in turn sell to other
value-adding entities or direct to the consumer.
The Company's Yankee machine produced 23% of the paper products manufactured by
Badger in 2000, representing 25% of 2000 revenue. These products consist of
converted plain or printed waxed papers, laminating grades, machine-glazed,
colors, specialty-coated base papers, twisting papers and various other
specialty papers. These products are sold nationally and internationally to
manufacturers, consumers and converters by Badger's own sales personnel and
commissioned brokers.
Consumers of Badger's paper products can be found in population centers
throughout North America.
The Company's Oconto Falls, Wisconsin facility has a printing and converting
operation that compliments Badger's packaging paper products. This facility
processes various substrates of film and paper and enhances the capabilities of
the Peshtigo packaging paper operations, resulting in opportunities to expand
business growth for both. The facility also has rewinding and polyethylene bag
making equipment. Oconto Falls contributed 15% of the Company's consolidated
revenues in 2000.
4
Competition
Badger's manufactured paper products are highly sensitive to competition from
numerous sources, including other paper products and products of other
composition. Product quality, price, volume and service are all competitive
factors. Badger's production of fine papers from the Fourdrinier paper machine
represents less than 1% of the production capacity in the United States for
these products. Competition for these papers comes primarily from large mills in
North America and imports from other countries. Competition for flexible
packaging and specialty papers produced from the Yankee paper machine comes from
other specialty mills; some of the mills are similarly constituted as Badger,
others have greater capacity. Many of our larger competitors have greater
financial, technical, marketing and public relation resources, larger client
bases and greater brand or name recognition than Badger. Backlogs are maintained
by offering quality products, prompt service and technical assistance, including
a research and development program to develop new products to meet customer
product design specifications.
Raw Materials; Inventories
Badger's principal raw material used for papermaking operations is purchased
pulp. Badger utilizes a variety of fibers to meet the formulation requirements
of the papers it produces. Pre-consumer and post-consumer recycled pulp,
northern and southern softwood and hardwood pulps, and hard white rolls make up
the total fiber requirements. Badger purchases all its fiber requirements on the
open market.
Other raw materials are purchased directly from manufacturers and distributors.
Badger has at least two sources of supply for major items. Shortages of
purchased pulp or certain chemicals (including petrochemicals) could have an
adverse effect on Badger's ability to manufacture its products, and could
adversely affect product mix.
The printing and converting operations' primary raw materials are paper,
nonwoven, polyethylene and printing inks. They are purchased directly from
manufacturers, including paper purchases from the Peshtigo mill.
In-process and finished goods inventory at the end of 2000 was equivalent to
approximately 41 days of production, compared to 44 days in 1999.
Energy
Badger is a large consumer of electricity and natural gas. Electrical
requirements are purchased from local public utilities, and natural gas is
purchased from various sources in the United States and Canada. Two dual-fueled
boilers capable of burning natural gas or fuel oil, and one natural gas boiler
supply the Peshtigo facility's heating and manufacturing requirements.
Management believes current sources of natural gas, fuel oil and electricity are
adequate to meet Badger's needs, although temporary interruptions of electrical
service were experienced in the summer of 2000 due to regional shortages of
electricity during peak demand periods. Badger could experience similar
interruptions in the future. The rapid acceleration of natural gas prices in
2000 has forced the Company to use fuel oil in its boilers when the BTU cost is
more economical than natural gas.
Patents
Badger owns certain patents and licenses used in connection with its business,
none of which are individually considered material to its business.
5
Research and Development
Badger maintains a dedicated technical staff to research and develop new
products, although outside consultants are utilized from time to time. The
technical staff also refines and improves existing products in response to
customer requirements and market demands. The amounts spent on product research
and development activities were $762,000 in 2000, $2,089,000 in 1999, and
$2,971,000 in 1998.
Backlog
As of December 31, 2000, Badger's backlog of orders was approximately
$1,678,000, as compared to $2,106,000 and $2,566,000 at December 31, 1999 and
1998, respectively. The backlogs for 2000 and 1999 were reduced from prior years
because soft market conditions that existed at the end of each of these years
allowed customers to reduce inventories and order closer to their actual needs.
In 2000, the soft market conditions were primarily in the Company's fine paper
grades.
Customers
In 2000, 1999 and 1998, no customers represented over 10% of Badger's net sales.
Environmental Matters
In 2000, the Wisconsin Department of Natural Resources ("WDNR") approved the
Title V Air Operating Permit at Badger's Peshtigo, Wisconsin facility. Badger
expects that it will fully comply with the requirements of this permit.
Effluent flow from Badger's Peshtigo operations is directed into a joint
municipal wastewater treatment plant, which Badger operates under contract with
the City of Peshtigo, Wisconsin. Management believes this water treatment plant
continues to meet or exceed all currently applicable environmental requirements.
In 2000, Badger was issued a renewal of its wastewater discharge permit for the
wastewater treatment facility.
The final closure report of the Company's former landfill, known as the Harbor
Road Landfill, was submitted to and approved by the WDNR in January, 2000. As
part of the closure agreement, the Company is required to provide proof of
responsibility for any future remediation efforts if environmental problems are
detected at this site. This amount increases over a five-year period from
$53,000 as of July 31, 1999 to $297,000 as of July 31, 2003. The Company met
this requirement as of December 31, 2000 with an irrevocable letter of credit
granted to the benefit of WDNR in the amount of $107,000.
Management believes the Oconto Falls, Wisconsin facility currently complies with
its air operating permit.
Badger believes it has in force all of the necessary environmental permits from
federal, state and local authorities, and does not anticipate any problem with
reissuance of any permits.
6
Employees
As of December 31, 2000, the Company had 293 employees. Of the 240 employees at
the Peshtigo facility, 177 were covered by six-year collective bargaining
contracts running through May 2001. The Oconto Falls facility employed 53
personnel, none of whom were covered by a collective bargaining contract.
Item 2. Properties
The Company's approximately 3,750 square foot headquarters and approximately
88,500 square foot paper manufacturing facility are located in Peshtigo,
Wisconsin. The Company's approximately 40,000 square foot printing and
converting facility is located in Oconto Falls, Wisconsin. The Company considers
its facilities to be adequate and in good repair.
Item 3. Legal Proceedings
The Company has no pending material legal proceedings.
Item 4. Submission of matters to a vote of security holders
No matters were submitted to a vote of security holders in the fourth quarter of
2000.
PART II
Item 5. Market for the registrant's common stock and related security holder
matters.
Badger common shares are traded on the Nasdaq SmallCap Market under the symbol
BPMI. There were 392 registered shareholders of record as of March 2, 2001.
Stock price and dividend information is found on page 36 of this report.
Item 6. Selected financial data
Information regarding selected financial data of the Company is presented on
page 3 of this report.
Item 7. Management's discussion and analysis of financial condition and results
of operations
Results of Operations
Overview
The paper products segment had a slight increase in shipping volume and selling
prices in 2000; however, market pressures prevented the Company from increasing
its sales prices sufficiently to fully recover the costs associated with
increased pulp and natural gas prices. Pulp prices peaked in July 2000 at a
level 23% above December 31, 1999 levels. Natural gas prices began escalating in
June 2000 and peaked at a level 143% above the price at December 31, 1999. This
resulted in a minimal gross margin for the year ended December 31, 2000.
7
The printing and converting segment achieved record sales and earnings in 2000.
Sales for this division continued to grow with its tissue wrap business, as well
as entrance into new substrate markets. Improved operating efficiencies on the
printing presses have contributed significantly to gross profit, but the profits
in this segment were not large enough to overcome the losses experienced in the
paper products segment.
2000 vs. 1999
Net Sales
Consolidated net sales for 2000 increased $6,322,000, or 9%, to $73,346,000 from
$67,024,000 reported in 1999.
Paper products' net sales were up 7% despite weak market conditions. Fine paper
grades experienced a slight decrease in shipping volume, but had a 7% increase
in average selling price, primarily the result of the continuing shift of
product mix from lower margin commodity products to higher margin specialty
products. Packaging grades experienced strong shipping volumes with an 11%
volume increase as compared to the prior year. Selling prices remained
relatively flat with a 1% increase.
Net sales were adversely affected by bad debt write-offs of $305,000, of which
$249,000 was the result of a significant customer filing for protection from its
creditors under Chapter 11 of the Bankruptcy Code. Freight expenses increased
17%, or $374,000, despite shipping volume increases of only 2%. This was
primarily due to serving a broader marketing area than in the past, increased
diesel fuel prices and an increase in absorbed freight expenses. Claims on our
paper products increased 50%, or $255,000, during 2000. This was primarily
associated with hole problems in the production of our fine paper grades in the
early part of the year. The Company has since installed a state-of-the-art sheet
inspection system on the paper machine to resolve this quality issue.
Specialty paper products were approximately 57% of gross sales dollars in 2000,
as compared to 53% in 1999.
Printing and converting net sales were up 7%, primarily in the printed tissue
wrap business, which increased over last year. The new, nonwoven printing
business began in October and contributed 19% of the gross sales in the fourth
quarter.
Cost of Sales
Consolidated cost of sales for 2000 of $70,937,000 increased $10,601,000, or 18%
over the $60,336,000 reported in 1999.
The paper products segment experienced significant cost increases in pulp and
natural gas costs. Paper production for 2000 amounted to 60,912 tons, a decrease
of 545 tons from 1999. The weak market conditions throughout the industry forced
scheduled downtime on the paper machines of 23% of the available production
time. Production efficiency on the paper machines was comparable to last year. A
reduction of finished paper and raw material inventories to improve cash flow
resulted in a $555,000 unfavorable LIFO reserve adjustment.
During 2000, market prices for pulp, the primary raw material in the Company's
paper manufacturing, continued to escalate. Pulp prices peaked in July 2000 and
by the end of the year began to fall off. Paper
8
production in 2000 was down less than 1% from 1999 levels, while the cost of
pulp increased approximately $9,000,000 (49%) over 1999 costs.
Natural gas prices also increased the costs of paper production with prices
rising to a high of $.59 per therm in October 2000. This represented a 143%
increase from the $.24 per therm paid in December 1999. In 2000, gas prices
increased $1,200,000 (60%) above 1999 levels.
The printing and converting operations improved operating efficiencies through
longer production runs, reduced waste and reduced change time between production
runs.
Gross Profit
Consolidated gross profit margins decreased to 3% of net sales for 2000,
compared to the 10% realized in 1999.
The paper products segment's gross profit margin fell to less than 1% of net
sales as compared to 8% in 1999. Market pressures have prevented the Company
from increasing selling prices sufficiently to fully recover all costs
associated with increased pulp and natural gas prices. The Company continues its
efforts to transition its business from selling traditional lower margin
commodity products toward higher margin specialty products.
The printing and converting segment's gross profit margin increased to 20% of
net sales in 2000, compared to 17% reported in 1999. This is a result of product
mix as well as improved production efficiencies.
Selling, Administration and Other Expenses
Selling and administrative expenses were comparable for the years 2000 and 1999.
Other income and expenses for 2000 included the $440,000 write-off of trade
credits that the Company was not able to fully utilize.
In the second quarter of 1999, Badger Paper received $622,000 of life insurance
proceeds upon the death of a former president of the Company in March 1999. The
proceeds included $231,000 of cash surrender value carried as other assets on
our balance sheet and $391,000 of non-recurring income.
1999 vs. 1998
Net Sales
Net sales for 1999 increased $1,297,000, or 2%, to $67,024,000 from $65,727,000
in 1998.
Paper products' net sales were flat as weak market conditions continued during
1999. Paper products' volume was down 3%, while selling prices remained
relatively flat. Printing and converting net sales increased 70% over 1998 due
to growth in the printing business in 1999.
Specialty products were approximately 53% of gross sales dollars in both 1999
and 1998.
9
Cost of Sales
Cost of sales for 1999 of $60,336,000 increased $1,831,000, or 3%, over the
$58,505,000 reported in 1998.
During the second quarter of 1999, market prices for pulp, the primary raw
material in the Company's paper manufacturing, began to escalate. This trend
continued throughout the remainder of the year, with average year-end 1999
prices increasing 37% over the average price of pulp at the end of 1998. This
pulp increase contributed over $2,800,000 to the cost of sales for paper
manufacturing in 1999.
Production rates on the Fourdrinier paper machine were down 9% in 1999 compared
to 1998 because of first quarter mechanical problems and difficulties associated
with the installation of a new process control computer in July 1999. The Yankee
paper machine and all converting operations had improved production rates over
1998.
The printing and converting operations at Oconto Falls improved operating rates
through longer production runs, reduced change time between production runs,
improved waste rates and the elimination of mechanical problems previously
experienced on the Chadwick press.
Gross Profit
Gross profit margins decreased to 10% of net sales for 1999, compared to 11% in
1998. The overall decrease was due to a 22% gross margin drop in our paper
products segment caused by our inability to pass rapidly escalating pulp prices
through to our customers because of soft market conditions.
The printing and converting segments' gross profit margin increased 29% due to
improved operating efficiencies.
Selling and Administration
Selling and administration expenses of $4,825,000 in 1999 increased $494,000
over the $4,331,000 reported in 1998.
The increase resulted primarily from expenses associated with the reorganization
of sales staffing in the paper products segment to provide for a product
development function within the sales department, and an addition to the sales
staff. Non-capitalizable expenses associated with upgrading computers and
software in addressing Year 2000 concerns were included in administration
expenses.
Other Income and Expense
In the second quarter of 1999, Badger Paper received $622,000 of life insurance
proceeds upon the death of a former president of the Company in March 1999. The
proceeds included $231,000 of cash surrender value carried as other assets on
our balance sheet, and $391,000 of non-recurring income.
In the second quarter of 1998, the Company recorded a non-recurring capital gain
of $611,000 on the sale of the Company's offsite training facility.
Non-recurring executive termination expenses of $286,000 associated with a
former president and vice president were also booked in the second quarter of
1998.
Other income (expense) for 1998 included $308,000 of realized gains on trade
credit contracts. In 1999, no gain or loss was realized on trade credit
contracts.
10
Income Taxes
The Company's effective tax rate was 19.8% for 1999, compared to 34% for the
same period in 1998. The decreased effective rate was due to the non-taxability
of the life insurance proceeds we received in 1999, and the utilization of net
operating loss and tax credit carryovers in connection with the merger of our
former Badger Paper Mills Flexible Packaging Division, Inc. subsidiary into the
Company.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures
Capital expenditures during 2000 were $2,265,000, compared to $2,815,000 for the
same period in 1999. Major projects in 2000 for the paper products segment
included the speed-up of the Yankee paper machine, installation of a
state-of-the-art sheet inspection system on the Fourdrinier paper machine,
installation of a precision folio size sheeter, and drive replacements on the
Fourdrinier paper machine. Major projects at the printing and converting segment
included a slitter/rewinder and press department improvements. No major projects
are planned for either of the Company's segments in 2001.
Capital Resources
As of December 31, 2000, the Company's capital resources for funding ongoing
operations included $980,000 of cash and marketable securities and borrowing
under the Company's $12,000,000 revolving credit facility. Borrowing under this
facility totaled $11,500,000 as of December 31, 2000. Pursuant to the terms of
the revolving credit facility, the Company is making quarterly payments of
$140,000 and made an annual payment of $100,000 on February 1, 2001 on its
Industrial Development Revenue Bonds ("IDRBs").
At December 31, 2000, $11,500,000 was outstanding under the revolving credit
facility, an $800,000 increase from the balance outstanding at December 31,
1999. The increase was used to meet working capital needs. There also was
$3,590,000 outstanding on the IDRBs, a $960,000 reduction from the $4,550,000
balance at December 31, 1999.
The revolving credit facility contains certain covenants that require the
company to maintain a specified fixed charge ratio, debt leverage ratio, minimum
Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA"), minimum net worth and to not exceed specified limitations on capital
expenditures. As of December 31, 2000, the Company was not in compliance with
the required minimum tangible net worth or minimum EBITDA covenants. The Company
requested and received a waiver of these covenants through December 31, 2000.
Even though operating performance showed signs of improvement, the Company was
not in compliance with the minimum EBITDA and tangible net worth covenants
during January and February 2001. While management has been successful in
obtaining waivers of these financial covenants from its lender in the past,
there are no assurances that the Company will be successful in obtaining
covenant waivers in the future.
The continuing failure to comply with these financial covenants could result in
a default under the existing revolving credit facility and acceleration of the
maturity of the amount borrowed under this facility, as well as the amounts
borrowed under the IDRBs, creating a material adverse effect upon the Company's
liquidity. The Company does not have the financial resources available to repay
the total amounts due under its revolving credit facility and the IDRBs without
a refinancing.
11
Since November 2000, the Company has been exploring the refinancing of its
existing credit facility with other lenders.
Further details are presented in Notes B and G to the Company's Consolidated
Financial Statements.
In May 2000, the Company and the City of Peshtigo refinanced the Urban
Development Action Grant ("UDAG"), which was scheduled to mature in April 2000.
The refinanced terms of the $1,500,000 UDAG provide for a ten-year amortization
with interest at 5%. Principal payments during the year 2000 were $83,000.
Except as qualified by the information regarding certain covenants under the
revolving credit facility set forth above, the Company believes that cash
provided by operations and the revolving credit facility are sufficient to meet
current and anticipated working capital needs, as well as fund the Company's
planned capital expenditures.
Cash Flows
Cash provided from operations was $2,233,000 in 2000 and $1,329,000 in 1999. The
increase in cash was created through reduced inventory levels and increases in
the age of trade payables. Net cash used in investing activities was $1,679,000
in 2000, compared to $460,000 in 1999. Life insurance proceeds of $622,000 upon
the death of a former president and proceeds from the sale of marketable
securities provided an additional source of funds in 1999 that were not
available in 2000. Cash used for financing activities was $243,000 and
$2,429,000 respectively for 2000 and 1999. The decrease was primarily the result
of principal payments on the Company's IDRBs required to be made pursuant to the
terms of our revolving credit facility. The required payments were $400,000 in
2000 and $2,380,000 in 1999.
Item 7a. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk from changes in interest on its debt. The
revolving credit facility provides for borrowings up to $12 million and extends
to November 2003. An annual commitment fee of 1/2% is payable for unused
amounts. Interest on borrowings is at various rates equal to the Prime rate
(totaling 9.5% at December 31, 2000) and the LIBOR rate plus 3.25% (totaling
9.91% at December 31, 2000).
Certain of the Company's IDRBs require varying quarterly principal installments
of $140,000 plus interest quarterly through October 1, 2006, with payment of the
remaining balance due December 1, 2006, and the Company's revolving credit
facility requires it to make additional principal payments on its IDRBs. These
required payments included principal payments of $1,885,000 made in March 1999,
$495,000 made in June 1999 and $400,000 made in July 2000. The remaining
payments on the IDRB required to be made under the revolving credit facility
represent a principal installment of $100,000 due February 1, 2001. Interest on
the IDRBs is payable at floating rates determined by remarketing agents (4.95%
at December 31, 2000).
A majority of the Company's debt is at variable interest rates, and a
hypothetical 1% change in interest rates would cause an estimated $165,000
increase in annual interest expense.
The Company does not use financial instruments for trading purposes and is not a
party to any leveraged derivatives.
12
Item 8. Financial statements and supplementary data
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Badger Paper Mills, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Badger Paper
Mills, Inc. and Subsidiary (a Wisconsin corporation) as of December 31, 2000 and
1999 and the related consolidated statements of operations, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of Badger Paper
Mills, Inc. and Subsidiary as of December 31, 2000 and 1999 and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has experienced significant increases in raw
material and energy costs that it has not been able to fully pass along to its
customers, resulting in a significant loss for 2000. This had an adverse effect
on various financial ratios, creating defaults under loan agreements. The
Company has received waivers from the lenders relating to these defaults through
the year ended December 31, 2000. However, the Company is in default of these
financial ratios in 2001. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plan in regards
to these matters is described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Appleton, Wisconsin
January 26, 2001 (Except for
Note P, as to which the date is
March 1, 2001, and Notes B and G,
as to which the date is
March 7, 2001)
13
Badger Paper Mills, Inc. And Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(dollars in thousands)
ASSETS 2000 1999
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 980 $ 669
Certificates of deposit 100 500
Marketable securities - 137
Accounts receivable, net 6,608 6,080
Inventories 6,519 7,819
Refundable income taxes 300 220
Deferred income taxes - 1,160
Prepaid expenses and other 571 606
-------- --------
Total current assets 15,078 17,191
PROPERTY, PLANT AND EQUIPMENT, NET 26,417 27,240
OTHER ASSETS
Trade credits - 609
Other 1,862 1,854
-------- --------
1,862 2,463
-------- --------
Total assets $43,357 $46,894
======== ========
LIABILITIES
CURRENT LIABILITIES
Current portion of long-term debt $15,212 $1,060
Accounts payable 6,859 4,746
Accrued liabilities 2,957 3,126
-------- --------
Total current liabilities 25,028 8,932
LONG-TERM DEBT 1,310 15,705
DEFERRED INCOME TAXES - 1,840
OTHER LIABILITIES 537 933
- -
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, no par value; 4,000,000
shares authorized, 2,160,000
shares issued 2,700 2,700
Additional paid in capital 170 201
Retained earnings 15,367 18,433
Treasury stock, at cost, 171,583 and
185,832 shares in 2000 and 1999,
respectively (1,755) (1,850)
-------- --------
Total shareholders' equity 16,482 19,484
-------- --------
Total liabilities and shareholders' equity $43,357 $46,894
======== ========
The accompanying notes are an integral part of these statements.
14
Badger Paper Mills, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
For Years Ended December 31, 2000, 1999 and 1998
(dollars in thousands, except per share data)
2000 1999 1998
---- ---- ----
Net sales $73,346 $67,024 $65,727
Cost of sales 70,937 60,336 58,505
-------- -------- --------
Gross profit 2,409 6,688 7,222
Selling and administrative expenses 4,829 4,825 4,331
-------- -------- --------
Operating income (loss) (2,420) 1,863 2,891
Other income (expense):
Interest and dividend income 44 85 237
Interest expense (1,250) (1,064) (1,196)
Executive termination costs - - (286)
Gain from life insurance proceeds - 391 -
Gain (loss) on disposal of property, plant
and equipment
(22) - 632
Loss on write-off of trade credits (440) - -
Miscellaneous, net 131 141 363
-------- -------- --------
(1,537) (447) (250)
-------- -------- --------
Income (loss) before income taxes (3,957) 1,416 2,641
Provision (benefit) for income taxes (891) 279 897
-------- -------- --------
Net income (loss) $(3,066) $1,137 $1,744
======== ======== ========
Net earnings (loss) per share (basic and diluted)
diluted $(1.55) $0.58 $0.89
======== ======== ========
The accompanying notes are an integral part of these statements.
15
Badger Paper Mills, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For Years ended December 31, 2000, 1999 and 1998
(dollars in thousands)
2000 1999 1998
---- ---- ----
Common stock
Balance, December 31 $ 2,700 $ 2,700 $ 2,700
Additional paid-in capital
Balance, January 1 201 200 190
Treasury stock issued
(31) 1 10
Balance, December 31 170 201 200
Retained earnings
Balance, January 1 18,433 17,296 15,552
Net income (loss) (3,066) 1,137 1,744
Balance, December 31 15,367 18,433 17,296
Treasury stock
Balance, January 1 (1,850) (1,939) (1,998)
Shares issued (14,249, 13,446 and 8,867 shares
in 2000, 1999 and 1998, respectively) 95 89 59
Balance, December 31 (1,755) (1,850) (1,939)
Shareholders' equity
Balance, December 31 $16,482 $19,484 $18,257
The accompanying notes are an integral part of these consolidated financial
statements.
16
Badger Paper Mills, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years ended December 31, 2000, 1999 and 1998
(dollars in thousands)
2000 1999 1998
Cash flows from operating activities:
Net income (loss) $(3,066) $1,137 $1,744
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation 3,005 2,853 2,752
Directors' fees paid in stock 64 90 69
Deferred income taxes (680) 200 586
Realized loss on sale of marketable securities 12 - 48
Gain from life insurance benefits - (391) -
(Gain) loss on disposal of property, plant and equipment 22 - (632)
Loss on write-off of trade credits 440 - -
Changes in assets and liabilities
Accounts receivable, net (528) (818) (142)
Inventories 1,300 (1,618) (1,357)
Accounts payable and accrued liabilities 1,944 602 (1,351)
Income taxes refundable (payable) (80) (363) 528
Other (200) (363) (166)
--------- -------- --------
Net cash provided by operating activities 2,233 1,329 2,079
Cash flows from investing activities:
Additions to property, plant, and equipment (2,265) (2,815) (3,004)
Proceeds from sale of property, plant and equipment 61 13 2,880
Net sales of certificates of deposit 400 496 386
Life insurance proceeds - 622 -
Purchases of marketable securities - (36) (1,927)
Proceeds from sale of marketable securities 125 1,260 1,836
--------- -------- --------
Net cash provided by (used in) investing activities (1,679) (460) 171
Cash flows from financing activities:
Payments on long-term debt (1,043) (4,029) (2,323)
Increase in revolving notes payable 800 1,600 1,000
--------- -------- --------
Net cash used in financing activities (243) (2,429) (1,323)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 311 (1,560) 927
Cash and cash equivalents:
Beginning of year 669 2,229 1,302
--------- -------- --------
End of year $ 980 $ 669 $2,229
========= ======== ========
The accompanying notes are an integral part of these statements.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Badger Paper Mills, Inc. and Subsidiary ("Company") manufactures paper and paper
products and provides converting and printing services to customers throughout
North America. In August of 1999, the wholly owned subsidiary involved in
printing and converting was merged into Badger Paper Mills, Inc. In February
1998, Peshtigo Power, LLC ("Peshtigo") was incorporated to produce steam for
Badger Paper Mills, Inc. Peshtigo is wholly owned by the Company.
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows.
1. Consolidation Principles
The consolidated financial statements include the accounts of Badger Paper
Mills, Inc. and its wholly owned Subsidiary. All significant intercompany
accounts and transactions have been eliminated.
2. Operating Segments
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and
Related Information". SFAS 131 requires public companies to use a "management
approach" to defining and reporting the activities of operating segments. The
management approach defines operating segments along the lines used by
management to assess performance and make operating and capital decisions.
3. Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and trade
accounts receivable. The Company places its cash and cash equivalents with high
quality financial institutions. The Company provides credit in the normal course
of business to its customers. These customers are located throughout North
America. The Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses and generally does not require
collateral to support the accounts receivable balances.
4. Financial Instruments
For cash and certificates of deposit, the carrying amount approximates fair
value because of the short maturity of these instruments. For long-term debt,
the carrying amount approximates fair value based on comparison with current
rates offered to the Company for debt with similar remaining maturities.
5. Estimates
Preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at
the date of
18
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
6. Cash Equivalents and Certificates of Deposit
For financial reporting purposes, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
7. Marketable Securities
The investment portfolio at December 31, 1999, which consisted of taxable United
States Agency Bonds, was classified as available for sale. The difference
between cost and fair value was insignificant. The specific identification
method is used to compute realized gains and losses.
8. Receivables
Accounts receivable are stated net of an allowance for sales returns, cash
discounts and doubtful accounts.
9. Inventories
Substantially all inventories are valued at the lower of cost or market with
cost being determined on the last-in, first-out ("LIFO") basis.
10. Property, Plant and Equipment
These assets are stated at cost, less depreciation. Depreciation of plant and
equipment is provided on the straight-line basis over the estimated useful lives
of the assets. Land improvements useful lives are 15 years. Buildings useful
lives range from 30 to 33 years and machinery and equipment from three to 17
years. Accelerated depreciation is used for income tax purposes.
11. Trade Credits
Trade credits represent credits issued by an international barter firm in
exchange for surplus inventory. Trade credits are recorded at the lower of cost
or market of the inventory exchanged. The Company regularly reviews trade
credits if events or circumstances indicate that the trade credits are impaired.
In the fourth quarter of 2000, $440,000 of trade credits were written off
through an impairment charge, as the trade credits no longer have value in
negotiations with key suppliers. The write-off of trade credits represented a
net loss per share of $0.22 both on a basic and diluted basis for 2000. The
write-off related to the paper products segment.
12. Environmental Expenditures
Accruals for remediation costs are recorded when it is probable that a liability
has been incurred and the amount of the costs can be reasonable estimated.
13. Income Taxes
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets and liabilities to
19
the amount expected to be realized. Income tax expense is the tax payable for
the period and the change during the period in deferred tax assets and
liabilities.
14. Stock Options
The Company has elected to follow Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees" and related interpretations
in accounting for its stock options. Under APB 25, because the exercise price of
the stock options exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recorded. The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Compensation expense is recorded using the front loaded method.
15. Revenue Recognition
Revenue is recognized by the Company when goods are shipped.
16. Shipping and Handling Costs
The Company records shipping and handling costs as net sales on the statement of
operations. There were $2,544,000, $2,176,000 and $1,771,000 of shipping and
handling costs for the years ended December 31, 2000, 1999 and 1998,
respectively.
17. Research and Product Development Costs
Research and product development costs related to potential new products and
applications are expensed when incurred. These costs totaled $762,000,
$2,089,000 and $2,971,000 for 2000, 1999 and 1998, respectively, and are
included in cost of sales.
18. Net Earnings (Loss) Per Share
Net earnings (loss) per share are computed based on the weighted average number
of shares of common stock outstanding during the year (1,981,716 shares,
1,966,111 shares and 1,955,772 shares in 2000, 1999 and 1998, respectively). In
2000 and 1999, for purposes of computing diluted net earnings per share, the
115,000 stock options granted in 1999 under the stock option plan were
considered antidilutive because their exercise prices were greater than the
average market price of the common shares.
19. Prospective Accounting Pronouncements
The Company believes the adoption of new accounting pronouncements will not have
a significant impact on results of operations or financial position.
NOTE B - GOING CONCERN
The Company experienced a net loss during the year ended December 31, 2000 of
$3,066,000, resulting largely from significant increases in the cost of raw
materials and energy that it was not able to fully pass along to its customers.
This loss prevented the Company from meeting some of the financial covenants, as
required in its revolving credit agreement and Industrial Development Revenue
Bonds (IDRBs). During the year, the financial covenants were amended, (See Note
G) to concentrate more on the minimum Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) level of the Company. On March 7, 2001,
waivers for violations of covenants were obtained from the lending institutions
through the year ended December 31, 2000. However, the Company is in default
under the minimum EBITDA covenant, which
20
involves a trailing one year calculation, and the minimum tangible net worth
covenants for both January and February 2001. As such, the debt associated with
these agreements has been classified as short-term in the accompanying financial
statements. These matters raise substantial doubt about the Company's ability to
continue as a going concern.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon the continued operations of the Company, which in turn
is dependent upon the Company's ability to maintain its present financing or
obtain alternative debt financing, and succeed in its future operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue operating.
Management has taken a number of actions related to the Company's situation. The
Company has engaged outside consultants to assist it in its search for
alternative financing sources to meet its working capital requirements. A review
of operations has been completed and an operational plan developed and recently
implemented that is expected to optimize efficiencies and better match demand
for product through management of paper machine downtime. Integral to this plan,
flexibility has been enhanced in the manufacturing operation and, as of March 1,
2001, certain concessions have been received from all Company employees relating
to future wage increases, vacations and benefits. The Company continues to make
inroads in selling specialty grades of paper, to protect itself from cycles
within the paper industry and to improve its profitability. Management has
placed emphasis on selling products, which utilize the Company's diverse
manufacturing and converting capabilities.
NOTE C - RECEIVABLE ALLOWANCES
The receivable allowances at December 31, 2000 and 1999 are as follows (in
thousands):
2000 1999
-------- -------
Sales returns and allowances $102 $205
Cash discounts 34 43
Doubtful accounts 14 48
---- ----
$150 $296
=== ===
21
NOTE D - INVENTORIES
The major classes of inventories, valued on the LIFO cost method, at December
31, 2000 and 1999 are as follows (in thousands):
2000 1999
-------- -------
Raw Materials $1,291 $1,559
Work-in-process and finished stock 5,228 6,260
----- -----
$6,519 $7,819
===== =====
The first-in, first-out ("FIFO") cost of raw materials, work-in-process and
finished stock inventories approximated $11,208,000 and $11,890,000 at December
31, 2000 and 1999, respectively. It is not practical to separate finished stock
and work-in-process inventories. The LIFO cost method had the effect of
increasing net loss by $618,000 ($(0.31) per share) in 2000. The impact of the
LIFO cost method on net income for 1999 and 1998 was not significant.
NOTE E - PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment at December 31 are as follows
(in thousands):
2000 1999
-------- -------
Machinery and equipment $60,605 $58,392
Buildings 9,104 8,698
Land 199 199
Construction-in-progress - equipment 13 567
--------- --------
69,921 67,856
Accumulated depreciation 43,504 40,616
--------- --------
$26,417 $27,240
========= ========
At December 31, 2000 and 1999, $18,289,000 and $17,302,000, respectively, of
fully depreciated assets were still in use. During 1998, the Company sold its
training facility for $725,000 resulting in a gain of $611,000.
NOTE F - ACCRUED LIABILITIES
Accrued liabilities at December 31, 2000 and 1999 are as follows (in thousands):
2000 1999
-------- -------
Compensation and related taxes $1,646 $1,530
Profit sharing 505 522
Other 806 1,074
------ ------
$2,957 $3,126
====== ======
22
NOTE G - LONG-TERM DEBT
Long-term debt at December 31, 2000 and 1999 consists of the following (in
thousands):
2000 1999
-------- -------
Revolving Credit Agreement $11,500 $10,700
Industrial Development Revenue
Bonds ("IDRBs") 3,590 4,550
Urban Development Action Grant ("UDAG") 1,432 1,515
------- -------
16,522 16,765
Current portion 15,212 1,060
------ -------
$ 1,310 $15,705
====== =======
The Company's revolving credit agreement provides for borrowings up to $12
million and extends to November 2003. A commitment fee of 1/2% is payable for
unused amounts. Interest on borrowings is at various rates equal to the LIBOR
rate plus 3.25% (totaling 9.91% at December 31, 2000). Borrowings are
collateralized by cash and cash equivalents, certificates of deposit, marketable
securities, accounts receivable, inventory and certain property, plant and
equipment. In 2000 and 1999, the Company issued an irrevocable letter of credit
under the revolving credit facility to the Wisconsin Department of Natural
Resources ("WDNR") for approximately $107,000 and $53,000, respectively (note
N).
The IDRBs require varying quarterly installments of $140,000 plus interest
quarterly through October 1, 2006, with payment of the remaining balance due
December 1, 2006. Principal installments of $65,000 and $35,000 are due February
1, 2001 and July 1, 2001, respectively. These installments are in addition to
the quarterly installments. Interest on the IDRBs is payable at floating rates
determined by remarketing agents (4.95% at December 31, 2000). The IDRBs are
collateralized by bank letters of credit expiring in 2003. The Company pays
annual fees at 1.25% of the amount available under the letters of credit.
At December 31, 2000, the revolving credit facility and certain IDRBs required,
among other items, the Company to maintain a fixed charge coverage ratio of 1.00
for periods from June 30, 2001 through September 29, 2001 and 1.15 for periods
thereafter; a debt leverage ratio of 4.00 from June 30, 2001 through September
29, 2001 and 3.75 for periods thereafter; and a minimum tangible net worth, as
outlined in the agreements. The Company has a requirement to maintain minimum
levels, as outlined in the agreements, of EBITDA, calculated on a monthly basis
cumulatively for the period July 1, 2000 to June 30, 2001. Capital expenditures
are limited to $2,700,000 in 2001 and periods thereafter. The Company was not in
compliance with the minimal level of EBITDA and tangible net worth at December
31, 2000. On March 7, 2001, the Company received waivers related to this
noncompliance at December 31, 2000. However, the Company is in default under the
minimum EBITDA covenant, which involves a trailing one-year calculation, and the
minimum tangible net worth covenants for both January and February 2001.
Accordingly, the revolving credit facility and IDRBs amounting to $15,090,000
are classified as short-term in the accompanying balance sheet (note B).
The UDAG debt is due in monthly installments of $15,910, including interest at
an effective rate of approximately 5.0%, through maturity in June 2010. This
grant is collateralized by certain machinery and equipment.
23
NOTE G - LONG-TERM DEBT - Continued
Future maturities of all long-term debt are as follows (in thousands):
Year ended December 31,
2001 $15,212
2002 129
2003 135
2004 142
2005 149
2006 and thereafter 755
---------
$16,522
=========
NOTE H - INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
2000 1999 1998
---- ---- -----
Currently payable (refundable):
Federal $(211) $62 $179
State - 17 132
------ ------ ------
(211) 79 311
Deferred:
Federal (680) 222 336
State - (22) 250
------ ------ ------
(680) 200 586
------ ------ ------
$(891) $279 $897
====== ====== ======
The significant differences between the effective tax rate and the statutory
federal tax rates are as follows:
2000 1999 1998
-------- ------ --------
Statutory Federal tax rate (34.0)% 34.0% 34.0%
Increase in valuation reserve 11.5 - -
Tax-exempt income - life insurance
proceeds - (9.4) -
State tax - (5.7) -
Other - 0.9 -
------ ------ ------
Effective tax rate (22.5)% 19.8% 34.0%
====== ====== ======
24
NOTE H - INCOME TAXES - Continued
The components of the deferred tax assets and liabilities as of December 31 are
as follows (in thousands):
2000 1999
--------- --------
Deferred tax assets:
Accounts receivable $ 60 $ 101
Inventories 64 217
Accrued expenses 572 570
Deferred compensation 47 69
Postretirement benefits 174 222
Tax credit carryforwards 3,155 3,019
Federal net operating loss carryforward 1,394 -
State net operating loss carryforwards 422 315
State credit carryforwards 1,580 1,460
Valuation allowance (2,796) (1,835)
------- ------
4,672 4,138
Deferred tax liabilities:
Fixed assets (4,672) (4,818)
------ ------
Net liability $ - $ (680)
========== =======
For Federal income tax purposes, the Company has net operating loss
carryforwards, research and development credit carryovers and alternative
minimum tax credit carryovers of $4,100,000, $1,315,000 and $1,840,000,
respectively. For state income tax purposes, the Company has net operating loss
and tax credit carryovers of $15,704,000 and $1,580,000, respectively. Certain
carryforwards expire at various times over the next 20 years. For financial
reporting purposes, a valuation allowance has been established to the extent
that federal and state carryforwards, absent future taxable income, will expire
unused. The valuation allowance increased $961,000 due primarily to the
likelihood of realization of the benefits related to the federal and state net
operating loss and tax credit carryforwards.
NOTE I - EMPLOYEE BENEFITS
The Company has defined contribution plans covering substantially all employees.
Contribution expenses associated with these plans were $505,000, $522,000 and
$496,000 in 2000, 1999 and 1998, respectively.
NOTE J - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes was as follows (in thousands):
2000 1999 1998
-------- -------- ------
Interest $1,250 $1,080 $1,235
Income taxes - 438 57
Noncash investing and financing activity:
At December 31, 2000, 1999 and 1998, accounts payable included $12,000, $97,000
and $22,000 respectively, for property and equipment additions.
25
NOTE K - OPERATING SEGMENTS
The Company has two business segments, paper products and printing and
converting services. The paper products segment produces a variety of paper
products including fine paper, business paper, colored paper, waxed paper,
specialty coated base papers and twisting papers. The printing and converting
segment prints and converts flexible packaging materials for the paper products
segment, as well as films and non-woven materials from other customers.
The accounting policies of the segments are the same as those described in Note
A, Summary of Significant Accounting Policies. Intersegment revenue relates to
the transfer of material or provision of services between the two segments. The
Company evaluates the performance of its segments and allocates resources to
them based on net income. There are no jointly used or allocated assets between
the segments.
The following provides information on the Company's segments (in thousands):
Paper Products Printing and Converting Total
-------------- ----------------------- -----
2000 1999 1998 2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
Revenues from
external customers $ 63,102 $ 58,379 $ 60,648 $10,244 $ 8,645 $ 5,079 $73,346 $ 67,024 $ 65,727
Intersegment revenues 2,447 2,858 588 1,269 1,506 1,630 3,716 4,364 2,218
Depreciation 2,773 2,634 2,560 232 219 192 3,005 2,853 2,752
Interest and dividend
income 28 69 214 16 16 23 44 85 237
Interest expense 1,185 997 1,097 65 67 99 1,250 1,064 1,196
Executive termination
costs - - 286 - - - - - 286
Gain from life
insurance proceeds - 391 - - - - - 391 -
Gain (loss) from
disposal of
long-lived assets (19) - 632 (3) - - (22) - 632
Loss on disposal of
trade credits 440 - - - - - 440 - -
Income tax (benefit)
provision (1,332) (69) 862 441 348 35 (891) 279 897
Segment income (loss) (4,229) 448 1,490 1,163 689 254 (3,066) 1,137 1,744
Segment assets 39,815 44,188 43,605 6,349 5,857 5,397 46,161 50,045 49,002
Expenditures for
long-lived assets 2,146 2,490 2,498 119 325 506 2,265 2,815 3,004
26
The following is a reconciliation of segment information to consolidated
information (in thousands):
2000 1999 1998
----------- --------- ----------
Revenues:
Total revenues for reportable segments $77,062 $71,388 $67,945
Elimination of intersegment revenues (3,716) (4,364) (2,218)
------- ------- -------
Total consolidated revenues $73,346 $67,024 $65,727
====== ======= ======
Assets:
Total assets for reportable segments $46,161 $50,045 $49,002
Elimination of intersegment receivables (2,054) (2,401) (253)
Elimination of intersegment investment (750) (750) (750)
------- -------- --------
Total consolidated assets $43,357 $46,894 $47,999
====== ====== ======
Total segment income and other significant items are the same as the
consolidated information.
All operations of the Company are located in the United States. Revenues from
foreign countries are primarily from Canada and Mexico and are immaterial to
total revenues.
NOTE L - DIRECTOR STOCK GRANT PLANS
In 1999 and 1997, in order to attract and retain competent directors to serve as
Directors of the Company, the Company established Director Stock Grant Plans. An
aggregate of 50,000 shares of Common Stock was reserved for issuance. Each
Director of the Company is to receive a grant of Common Stock in partial payment
of his or her director's fee. During 2000, 1999 and 1998, 14,249, 13,446 and
8,867 shares, respectively, were issued from treasury stock, at a value of
$64,000, $90,000 and $69,000, respectively.
NOTE M - STOCK OPTION PLAN
On May 11, 1999, the Company established an incentive stock option plan ("Plan")
as a mechanism to attract and retain its officers and key employees by providing
additional performance incentives and the opportunity to share ownership in the
Company. The Plan allows the Company to grant options for 130,000 common shares.
Options awarded under the Plan vest over a three or five year period and expire
in five to nine years.
In 1999, the Company granted 115,000 options at an average exercise price of
$8.42 per common share. At the date of grant, the market value of the stock was
less than the exercise price of the options. As the plan is accounted for under
APB Opinion 25, no compensation cost has been recognized for the plan. No
options were granted, exercised or forfeited in 2000. As of December 31, 2000
and 1999, 91,000 and 64,000 options were vested, respectively.
Had compensation cost for the plan been determined based on the fair value of
the options at the grant dates consistent with the method prescribed by SFAS
123, the impact on net loss, net loss per share and shareholders' equity for
2000 would not have been significant. The impact on net income and net earnings
per share would have been $774,000 and $0.39 for 1999. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
options-pricing model with the following weighted average assumptions
27
used for grants in 1999: expected volatility of 58%, risk-free interest rates
ranging from 5.5 to 5.8%, and expected lives of 4 to 8 years.
NOTE N - COMMITMENTS AND CONTINGENCIES
Rental Agreements
The Company leases certain equipment under various agreements, classified as
operating leases, expiring through April 2007. Total rent expense amounted to
approximately $734,000, $516,000 and $222,200 for the years ended December 31,
2000, 1999 and 1998, respectively.
Future minimum rental payments are as follows (in thousands):
Year ended December 31,
2001 $ 643
2002 609
2003 601
2004 492
2005 277
2006 and thereafter 314
------
$2,936
======
Environmental Matters
In May 1999, the Company entered into an agreement with the WDNR related to the
closure of a solid waste landfill. All costs associated with the initial closure
of this landfill have been completed as of December 31, 1999. As part of the
closure agreement, the Company is required to provide proof of responsibility
for any future remediation efforts if environmental problems are detected at
this site. This amount increases over a five-year period from $53,000 as of July
31, 1999 to $297,000 as of July 31, 2003. The Company has met this requirement
as of December 31, 2000 and 1999 by having an irrevocable letter of credit
granted to the benefit of WDNR in the amount of $107,000 and $53,000,
respectively.
NOTE O -SUMMARIZED QUARTERLY DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31 (in thousands):
Fiscal Quarter
-----------------------------------------------------------------------
First Second Third Fourth Total
----------- --------- ---------- -------- ---------
2000*
------
Net Sales $ 18,384 $ 19,794 $ 17,830 $ 17,338 $ 73,346
Gross profit (loss) 1,654 559 310 (114) 2,409
Net income (loss) 89 (658) (673) (1,824) (3,066)
Basic and diluted earnings
(loss) per share 0.04 (0.33) (0.34) (0.92) (1.55)
28
1999
------
Net sales $ 15,326 $ 16,668 $ 17,413 $ 17,617 $ 67,024
Gross profit 1,901 2,111 540 2,136 6,688
Net income (loss) 374 625 (523) 661 1,137
Basic and diluted earnings
(loss) per share 0.19 0.32 (0.27) 0.34 0.58
*The fourth quarter includes a write-off of trade credits amounting to
approximately $440,000, or a $0.22 net loss per share (note A11), and a LIFO
adjustment amounting to approximately $555,000, or a $0.28 net loss per share.
NOTE P - SUBSEQUENT EVENT - UNION CONCESSIONS
In February 2001, Management presented a plan to Company employees at its
Peshtigo facility (paper products segment) to reduce costs and improve
efficiencies. Inherent in this plan were a contract extension, a wage freeze,
participation in the costs of medical and dental insurance, changes in vacation
policies and various work rules.
On March 1, 2001, the collective bargaining units ratified Management's requests
for concessions. These cost reductions and productivity improvements are
expected to impact the Company's results beginning in the second quarter of
2001.
PART III
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure
No such disagreements have occurred.
Item 10. Directors and executive officers of the registrant
(a) Directors of the registrant
The information required by this item is incorporated by reference from the
information included under the captions, "Election of Directors" and "Other
Matters" set forth in the Company's definitive proxy statement for its 2001
Annual Meeting of Shareholders.
(b) Executive officers of registrant
Period Served
Name Age Office In This Office
Michael J. Bekes 43 Vice President/COO of the Company 5 years
Vice President/COO, Fletcher Paper Co. 1 1/2years
Mill Manager, Fletcher Paper Co. 1/2 year
Manager of Operations, Fletcher Paper Co. 5 1/2years
29
Clifton A. Martin 49 Vice President, Badger Paper Flexible Pkg. 4 3/4years
General Manager, Badger Paper Flexible Packaging 3 3/4years
Sales Representative of the Company 6 1/2years
Mark C. Neumann 41 Vice President/Sales of the Company 5 3/4years
Director of Marketing of the Company 2 3/4years
Sales Representative of the Company 7 1/2years
Officers are elected to hold office until the next annual meeting of the Board
of Directors following the annual meeting of shareholders or until their
successors are elected and qualified. There is no arrangement or understanding
between any of the above officers or any other person pursuant to which such
officer was selected for the office held. No family relationship of any kind
exists between the officers.
ITEM 11. Executive compensation
The information required by this item is incorporated by reference from the
information included under the caption "Executive Compensation" set forth in
the Company's definitive proxy statement for its 2001 Annual Meeting of
Shareholders.
Item 12. Security ownership of certain beneficial owners and management
(a) Security ownership of certain beneficial owners
The information required by this item is incorporated by reference from the
information included under the caption "Stock Ownership of Certain Beneficial
Owners and Management," set forth in the Company's definitive proxy statement
for its 2001 Annual Meeting of Shareholders.
(b) Security ownership of management
The information required by this item is incorporated by reference from the
information included under the captions, "Stock Ownership of Certain Beneficial
Owners and Management" and "Election of Directors", set forth in the Company's
definitive proxy statement for its 2001 Annual Meeting of Shareholders.
Item 13. Certain relationships and related transactions
The information required by this item is incorporated by reference from the
information included under the caption, "Certain Relationships and
Transactions," set forth in the Company's definitive proxy statement for its
2001 Annual Meeting of Shareholders.
30
PART IV
Item 14. Exhibits, financial statement schedules and reports on Form 8-K
(a) (1) List of financial statements:
The following is a list of the financial statements of Badger Paper Mills, Inc.,
together with the report of independent accountants, included in this report:
Pages
Report of Independent Accountants........................................13
Consolidated balance sheets, December 31, 2000 and 1999..................14
Consolidated statements of operations for the years ended
December 31, 2000, 1999 and 1998.......................................15
Consolidated statements of changes in shareholders' equity
for the years ended December 31, 2000, 1999 and 1998...................16
Consolidated statements of cash flows for the years ended
December 31, 2000, 1999 and 1998.......................................17
Notes to financial statements............................................18
(a) (2) List of financial schedules:
The following is a listing of data submitted herewith:
Report of independent accountants on financial statement schedule........34
Schedule for the years ended December 31, 2000,
1999 and 1998 II Valuation and qualifying accounts
and reserves...........................................................35
Financial statement schedules other than that listed above are omitted for the
reason that they are either not applicable, not required, or that equivalent
information has been included in the financial statements, the notes thereto or
elsewhere herein.
(a) (3) Exhibits
Number Registration
(3) (i) Restated Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
(ii) By-laws as amended through August 12, 1999 (Incorporated by reference
to Exhibit 3(ii) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999).
(4) (i) U.S. $12,000,000 Credit Agreement dated January 29, 1999, by and among
the Company, Badger Paper Mills Flexible Packaging Division, Inc.
(formerly known as Plas-Techs, Inc.) and Harris Trust and Savings Bank,
individually and as agent, and the lenders from time to time party
thereto (Incorporated by reference to Exhibit 4(i) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998).
(ii) First Agreement to Amended and Restated Credit Agreement dated as of
August 31, 1999 by and among Badger Paper Mills, Inc., Badger Paper
Mills Flexible Packaging Division, Inc., the Lenders, and Harris Trust
and Savings Bank, as Agent (Incorporated by reference to Exhibit 4(ii)
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
(iii) Second Amendment to Amended and Restated Credit Agreement dated as of
March 9, 2000, by and between Badger Paper Mills, Inc. (individually
and as successor by merger to Badger Paper Mills Flexible Packaging
Division, Inc.), the Lenders, and Harris Trust and Savings Bank, as
Agent (Incorporated by reference to Exhibit 4(iii) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999).
31
(iv) Third Amendment to Amended and Restated Credit Agreement dated as of
September 12, 2000 (but effective as of August 14, 2000), by and
between Badger Paper Mills, Inc. (individually and as successor by
merger to Badger Paper Mills Flexible Packaging Division, Inc.), the
Lenders, and Harris Trust and Savings Bank, as Agent (Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2000).
(10) Material Contracts:**
(i) Supplemental Executive Retirement Plan dated December 18, 1992
(Incorporated by reference to Exhibit 10 (ii) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992).
(ii) Executive Employment Agreement dated March 1, 1995, between the Company
and Claude L. Van Hefty (Incorporated by reference to Exhibit 10(vii)
to the Company's Annual Report on Form 10-K for the year ended December
31, 1994).
(v) Health Insurance Retirement Benefit Agreement dated January 1, 1996
between the Company and Claude L. Van Hefty (Incorporated by reference
to Exhibit 10(v) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996).
(iv) Director Stock Grant Plan dated July 23, 1997 (Incorporated by
reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997).
(v) Employee Resignation and Release Agreement dated as of March 12, 1998
between Badger Paper Mills, Inc. and Claude L. Van Hefty (Incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
(vi) Employee Resignation and Release Agreement dated as of March 12, 1998
between Badger Paper Mills, Inc. and Miles L. Kresl, Jr. (Incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
(vii) Badger Paper Mills, Inc. 1998 Stock Option Plan (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999)
(viii) Form of Badger Paper Mills, Inc. 1998 Stock Option Agreement
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
(ix) Badger Paper Mills, Inc. 1999 Directors Stock Grant Plan (Incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999)
(23) Consent of Independent Public Accountants
(99) Definitive Proxy Statement for 2001 Annual Meeting of Shareholders (to be
filed with the Commission under Regulation 14A and incorporated by
reference herein to the extent indicated in this Form 10-K).
**Each of the "material contracts" represents a management compensatory
agreement or arrangement.
(b) Reports on Form 8-K:
(i) No reports on Form 8-K were filed during the fourth quarter of 2000.
32
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.
DATE: March 27, 2001 BADGER PAPER MILLS, INC.
/s/ Harold J. Bergman
-------------------------------
By: Harold J. Bergman
Executive Committee Member
/s/ James L. Kemerling
-------------------------------
By: James L. Kemerling
Executive Committee Member
/s/ William A. Raaths
-------------------------------
By: William A. Raaths
Executive Committee Member
Pursuant to the Requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ Harold J. Bergman, Director Date: March 19, 2001
- --------------------------
Harold J. Bergman
/s/ L. Harvey Buek, Director Date: March 19, 2001
- --------------------------
L. Harvey Buek
/s/ Mark D. Burish, Director Date: March 19, 2001
- --------------------------
Mark D. Burish
/s/ James L. Kemerling, Director Date: March 19, 2001
- --------------------------
James L. Kemerling
/s/ John T. Paprocki, Director Date: March 19, 2001
- --------------------------
John T. Paprocki
/s/ William A. Raaths, Director Date: March 19, 2001
- --------------------------
William A. Raaths
33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Shareholders and
Board of Directors
Badger Paper Mills, Inc.
and Subsidiary
Peshtigo, Wisconsin
Our report on the 2000, 1999 and 1998 financial statements of Badger Paper
Mills, Inc. and Subsidiary is included on page 13 of this Form 10-K. In
connection with our audit of such financial statements, we have also audited the
related financial statement schedule listed in the index on page 31 of this Form
10-K.
In our opinion, the 2000, 1999 and 1998 financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
Appleton, Wisconsin
January 26, 2001 (except for Note P,
as to which the date is March 1, 2001
and Notes B and G, as to which the date
is March 7, 2001)
34
Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended
December 31, 2000, 1999 and 1998 (in thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at charged to Balance
beginning costs and Deduc- at end of
Description of year expenses tions year
Deducted in the balance sheet from
the assets to which they apply:
Allowance for discounts, doubtful
accounts and claims/allowances:
Year ended December 31, 2000:
Doubtful accounts and
claims/allowances $253 $1,054 $1,190 (A) $117
Discounts 43 743 753 (B) 33
----- ------ ------ -----
$296 $1,797 $1,943 $150
===== ====== ====== ====
Year ended December 31, 1999:
Doubtful accounts and
claims/allowances $213 $ 574 $534 (A) $253
Discounts 31 679 667 (B) 43
----- ------ ------ ----
$244 $1,253 $1,201 $296
===== ====== ====== ====
Year ended December 31, 1998:
Doubtful accounts and
claims/allowances $283 $780 $ 850 (A) $213
Discounts 35 661 665 (B) 31
----- ------ ------ ----
$318 $1,441 $1,515 $244
===== ====== ====== ====
(A) Write-off of uncollectable accounts and claims for products
(B) Discounts taken and allowed
Column C(2) has been omitted as the answer would be "None."
35
Shareholders' information
Market makers: Stock transfer agent:
Herzog, Heine, Geduld, Inc. (HRZG) Computershare Investor Services
Spear, Leeds & Kellogg (SLKC) 2 North LaSalle Street
Chicago, Illinois 60602
Stock price and dividend information:
The following table presents high and low sales prices of the Company's Common
Stock in the indicated calendar quarters, as reported by Nasdaq SmallCap Market.
Quarterly Price Ranges of Stock:
2000 1999
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
$6.500 $3.750 $9.000 $6.500
First
$5.375 $4.063 $7.500 $6.375
Second
$4.438 $3.313 $8.625 $6.750
Third
$4.500 $2.000 $8.500 $4.000
Fourth
Quarterly Dividends Per Share:
The Company's line of credit maintains certain covenants, which limit the
Company's ability to pay dividends. See "Management's Discussion and Analysis --
Liquidity and Capital Resources -- Capital Resources."
Annual meeting of shareholders:
The Annual Meeting of Shareholders of Badger Paper Mills, Inc. will be held at
The Best Western Riverfront Inn, 1821 Riverside Avenue, Marinette, Wisconsin, on
Tuesday, May 8, 2001, at 10:00 a.m.
36
DIRECTORS AND OFFICERS
Board of Directors:
Harold J. Bergman
Retired President & CEO
Riverside Paper Corp.
L. Harvey Buek
LHB - O & M Consulting
Mark D. Burish
President
Hurley, Burish & Milliken, SC
James L. Kemerling
President & CEO
Riiser Oil Company, Inc.
John T. Paprocki
Senior Manager
Virchow Krause Valuation LLC
William A. Raaths
President & CEO
Anchor Food Products, Inc..
Corporate Officers:
Executive Committee:
Harold J. Bergman
James L. Kemerling
William A. Raaths
Michael J. Bekes
Vice President and COO
Clifton A. Martin
Vice President
Badger Paper Flexible Packaging Div.
Mark C. Neumann
Vice President/Sales
Mark D. Burish
Secretary
Susan A. Rudolph
Assistant Secretary
37
EXHIBIT INDEX
BADGER PAPER MILLS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
Numbers Description
(3) (i) Restated Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3(i) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
(ii) By-laws as amended through August 12, 1999 (Incorporated by reference
to Exhibit 3(ii) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999).
(4) (i) U.S. $12,000,000 Credit Agreement dated January 29, 1999, by and among
the Company, Badger Paper Mills Flexible Packaging Division, Inc.
(formerly known as Plas-Techs, Inc.) and Harris Trust and Savings Bank,
individually and as agent, and the lenders from time to time party
thereto (Incorporated by reference to Exhibit 4(i) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998).
(ii) First Agreement to Amended and Restated Credit Agreement dated as of
August 31, 1999 by and among Badger Paper Mills, Inc., Badger Paper
Mills Flexible Packaging Division, Inc., the Lenders, and Harris Trust
and Savings Bank, as Agent (Incorporated by reference to Exhibit 4(ii)
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
(iii) Second Amendment to Amended and Restated Credit Agreement dated as of
March 9, 2000, by and between Badger Paper Mills, Inc. (individually
and as successor by merger to Badger Paper Mills Flexible Packaging
Division, Inc.), the Lenders, and Harris Trust and Savings Bank, as
Agent (Incorporated by reference to Exhibit 4(iii) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999).
(vi) Third Amendment to Amended and Restated Credit Agreement dated as of
September 12, 2000 (but effective as of August 14, 2000), by and
between Badger Paper Mills, Inc. (individually and as successor by
merger to Badger Paper Mills Flexible Packaging Division, Inc.), the
Lenders, and Harris Trust and Savings Bank, as Agent (Incorporated by
reference to Exhibit 10-1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2000).
(10) Material Contracts:**
(i) Supplemental Executive Retirement Plan dated December 18, 1992
(Incorporated by reference to Exhibit 10 (ii) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992).
(ii) Executive Employment Agreement dated March 1, 1995, between the Company
and Claude L. Van Hefty (Incorporated by reference to Exhibit 10(vii)
to the Company's Annual Report on Form 10-K for the year ended December
31, 1994).
(iii) Health Insurance Retirement Benefit Agreement dated January 1, 1996
between the Company and Claude L. Van Hefty (Incorporated by reference
to Exhibit 10(v) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996).
(iv) Director Stock Grant Plan dated July 23, 1997 (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
(v) Employee Resignation and Release Agreement dated as of March 12, 1998
between Badger Paper Mills, Inc. and Claude L. Van Hefty (Incorporated
by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998).
(vi) Employee Resignation and Release Agreement dated as of March 12, 1998
between Badger Paper Mills, Inc. and Miles L. Kresl, Jr. (Incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
(vii) Badger Paper Mills, Inc. 1998 Stock Option Plan (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999)
(viii) Form of Badger Paper Mills, Inc. 1998 Stock Option Agreement
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
(ix) Badger Paper Mills, Inc. 1999 Directors Stock Grant Plan (Incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999)
(23) Consent of Independent Public Accountants
(99) Definitive Proxy Statement for 2001 Annual Meeting of Shareholders (to
be filed with the Commission under Regulation 14A and incorporated by
reference herein to the extent indicated in this Form 10-K).
**Each of the "material contracts" represents a management compensatory
agreement or arrangement.