UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-7475
WAUSAU-MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
1244 KRONENWETTER DRIVE WISCONSIN
MOSINEE, WISCONSIN 54455 (State of incorporation)
(Address of principal executive office) 39-0690900
(I.R.S. Employer
Identification Number)
Registrant's telephone number, including area code: 715-693-4470
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark 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 February 24, 2000, the aggregate market value of the common
stock shares held by non-affiliates was approximately $561,205,432.
The number of common shares outstanding at February 4, 2000 was
51,416,691.
DOCUMENTS INCORPORATED BY REFERENCE
PROXY STATEMENT FOR USE IN CONNECTION WITH 2000 ANNUAL MEETING OF
SHAREHOLDERS
(TO THE EXTENT NOTED HEREIN): PART III
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 22
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 49
PART III
Item 10. Directors and Executive Officers of the Registrant 50
Item 11. Executive Compensation 50
Item 12. Security Ownership of Certain Beneficial Owners and
Management 50
Item 13. Certain Relationships and Related Transactions 50
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 51
-ii-
PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
The Company manufactures, converts, and sells paper. Its principal
office is located in Mosinee, Wisconsin. At December 31, 1999, the
Company had approximately 3,400 employees at eleven facilities located
in six states.
The Company was incorporated in Wisconsin on June 1, 1899, under the
name of Wausau Paper Mills Company ("Wausau"). On December 17, 1997,
Wausau completed a merger with Mosinee Paper Corporation ("Mosinee") in
which Mosinee became a wholly-owned subsidiary of Wausau. Simultaneous with
the consummation of the merger, Wausau changed its name to
Wausau-Mosinee Paper Corporation (hereinafter referred to as the
"Company").
On December 17, 1997, the Company adopted a fiscal year-end reporting
period of December 31. This change from the Company's August 31 fiscal
year-end was effective on December 31, 1997. The merger with Mosinee
was accounted for as a pooling-of-interests and as a result, the
financial statements for the two companies have been restated as
indicated in the footnotes which accompany the financial statements.
See Notes 1 and 2 of "Notes to Consolidated Financial Statements."
This report contains certain of management's expectations and other
forward-looking information regarding the Company. See the subheading
"Cautionary Statement Regarding Forward-looking Statements" in this
Item 1.
FINANCIAL INFORMATION ABOUT SEGMENTS
Information relating to the Company's sales, a measure of operating
profit or loss, and total assets by segment is set forth in Note 16 of
"Notes to Consolidated Financial Statements."
NARRATIVE DESCRIPTION OF BUSINESS
The Company competes in different markets within the paper industry.
Each of its operating groups serves distinct market niches. The
various markets for the products of the Company are highly competitive,
with competition based on service, quality and price.
The Company's eleven operating facilities are organized into the three
operating groups described below.
SPECIALTY PAPER GROUP
During 1999, the Specialty Paper Group consisted of the Company's
Mosinee, Sorg, Rhinelander, and Otis facilities to produce a wide
variety of technical specialty papers. The Group is a leader in many
of its markets, although market position varies by product.
On March 15, 2000, the Company announced its intention to close the
Sorg Paper Company mill in Middletown, Ohio on May 15, 2000. Sorg
operated at a loss in 1999 and the Company was unsuccessful in finding
-1-
a buyer for the Sorg business. With the closing, the Company will no
longer operate in the decorative laminate and deep color tissue markets
of the industry. The Rhinelander and Otis mills together are one of the
nation's largest manufacturers of supercalendered backing papers for
pressure sensitive labeling applications. These facilities, located at
Rhinelander, Wisconsin, and Jay, Maine, also manufacture specialty
paper for a broad range of food, medical, and industrial applications,
including protective barrier papers for pet food and microwave popcorn,
and lightweight paper for sterilized medical packaging. Products,
markets and distribution methods and principal competitors for the
Rhinelander and Otis mills can be summarized as follows:
PRINCIPAL PRODUCTS
Pressure-sensitive backing, silicone-coated release papers,
grease-resistant packaging, food service papers, sterilizable medical
packaging, electrographic and translucent papers, industrial crepe and
crepe tape backing.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
Sold directly to converters, mainly in the U.S., for the following
industries: pressure-sensitive labeling, convenience food, food
service, pet food, medical packaging, and specialized converters.
PRINCIPAL COMPETITION
Competition comes from large integrated companies such as International
Paper Corporation, Fraser Paper, Inc., UPM-Kymmene, EB Eddy, Crown
Vantage Corporation, and SAPPI, Ltd.
The Mosinee mill in Mosinee, Wisconsin, is one of the nation's largest
producers of masking tape base and manufactures a wide range of highly
engineered paper products. These include high-performance industrial
papers chemically treated for wet strength, flame retardancy,
anti-static, corrosion, or grease resistance for various industries,
such as automotive, housing, and food processing. Products, markets
and distribution methods and principal competitors for the Mosinee mill
can be summarized as follows:
PRINCIPAL PRODUCTS
Industrial crepe, masking, gumming, foil laminating, flame-resistant,
specialty metal interleaver, cable wrap, creped tape backing,
electrical insulation, pressure-sensitive backing, water base and film
coating, ink-jet printing, packaging, saturating, and grease-resistant
papers.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
Sold directly to manufacturers and converters, mainly in the U.S., in
the following industries: housing, steel, aluminum and other metal,
masking tape and masking paper, electrical cable, wire and components,
automotive, general converters, composite can packaging, filter, and
specialty coating.
PRINCIPAL COMPETITION
Competition in several grades of paper made from the Mosinee mill's
natural kraft pulp comes from other fully-integrated, large paper
companies such as Thilmany Paper, Longview Fibre Corporation, and
Gilman Paper Company. Competition in grades of paper made from market
pulp comes from several non-integrated specialty paper mills such as
Little Rapids Paper Company, as well as large integrated paper
companies such as Crown Vantage Corporation.
The Sorg mill produced additional specialty grades of paper, including
decorative laminate papers, deep color tissue used in napkin and
tablecloth stock, and colored school construction paper. Products,
-2-
markets and distribution methods and principal competitors for the Sorg
mill during 1999 can be summarized as follows:
PRINCIPAL PRODUCTS
Deep-color and white tissue (facial quality, napkin, and tablecloth),
filter paper (vacuum bag and food cooking), decorative laminates (print
base, solid color core, alpha overlay, and barrier), report,
construction, photo background, perforating tape, flame-resistant,
blotting, soapboard/soapwrap, and saturating papers.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
Sold directly to manufacturers and converters with limited marketing
through paper brokers and distributors mainly in the U.S., in the
following industries: housing, consumer product packaging, home
appliances, filters, printing, advertising and promotion commercial
goods, soapboard and soapwrap, saturators, specialized industrial
converters.
PRINCIPAL COMPETITION
Both non-integrated specialty mills and larger integrated paper
companies compete with Sorg products. Competitors in Sorg's major
paper grades of decorative, soapboard, saturating base and vacuum bag
include Crown Vantage Corporation, Mead Corporation, Munksjo, Kimberly
Clark Corporation, Dexter, Fletcher, Monadnock Paper Mills, Riverside
Paper Corp., Little Rapids Paper Company, and French Paper Company.
PRINTING & WRITING GROUP
The Printing & Writing Group produces and converts two lines of paper
products in five facilities.
Under the "Wausau Papers" trademark, the Group manufactures a broad
line of premium printing and writing papers, imaging papers, colored
offset papers and board grades at its mills in Brokaw, Wisconsin, and
Groveton, New Hampshire. Over 60% of the fine printing and writing
papers produced are colored papers. The Group's fine printing and
writing sales are estimated to be less than 3% of the total market.
Papers sold under the Wausau Papers<reg-trade-mark> label include a
wide range of virgin and recycled printing and writing papers,
two-thirds of which are colored papers, including Astrobrights
<reg-trade-mark>, a 25-year old national brand. Products, markets
and distribution methods and principal competitors for the Wausau
Papers<reg-trade-mark> brand can be summarized as follows:
PRINCIPAL PRODUCTS
Text and cover, index, tag and bristol, imaging, premium offset,
envelope and retail papers.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
More than 80% of the sales of printing and writing papers are sold in
sheet form to paper distributors which serve commercial printers,
in-plant print shops, quick printers, copy centers, and retail office
supply and home office outlets. The Group also markets to converters
that serve the greeting card and announcement industry.
PRINCIPAL COMPETITION
Competition in printing and writing grades comes from specialty
divisions of major integrated paper companies such as International
Paper Corporation, Georgia-Pacific Corporation, Champion Paper
Corporation, Fraser Paper, Inc., SAPPI, and smaller privately held
non-integrated companies.
-3-
On January 3, 2000, the Company sold the Printing & Writing Group's
Specialty Products business, although it retained the Appleton,
Wisconsin, converting facility. During 1999, the Specialty Products
facility manufactured school supply papers, craft, and retail products.
Products were sold in sheet and roll form to stocking distributors
which serve the 16,000 school districts throughout the United States
and various retail markets. The Appleton facility will be reconfigured
to more specifically support the finishing and distribution needs of
the Printing & Writing Group to minimize the outsourcing of
converting requirements for the Brokaw and Groveton mills. The Group
will continue to book contract converting volume to utilize any
remaining capacity.
The Mosinee Converted Products facilities produce wax-laminated roll
wrap and related specialty finishing and packaging products such as
custom coating, laminating and converting wrap. Converting facilities
are operating in Columbus, Wisconsin, and Jackson, Mississippi.
Products, markets and distribution methods and principal competitors
for Mosinee Converted Products are as follows:
PRINCIPAL PRODUCTS
Roll and skid wrap, roll headers, can body stock, cold seal packaging,
and fabric softener, impregnated, medium, non-woven, and coated papers.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
Sold direct to manufacturers and converters in the U.S. in the
following markets: paper industry, industrial packaging, corrugated
containers, consumer products, and composite can manufacturers.
PRINCIPAL COMPETITION
Competition in roll wrap comes from the other wax and poly laminators
and includes Laminated Papers, Sonoco Products, Bonar Packaging, Ltd.,
Fortifiber, Inc., Ludlow, Simplex, and Fiberlam, Inc.
TOWEL & TISSUE GROUP
The Towel & Tissue Group produces a complete line of towel and tissue
products which are marketed along with soap and dispensing system
products for the industrial and commercial "away-from-home" market.
Although the Group has grown significantly, it is one of the smaller
competitors in this market.
Towel and tissue products made from recycled material and marketed
under Bay West's EcoSoft<trademark> brand name are used in the
washrooms of theme parks, hospitals, hotels, office buildings,
factories, schools, and restaurants nationwide. The Group's towel and
tissue mill is located in Middletown, Ohio and its converting facility
is located in Harrodsburg, Kentucky. Products, markets and
distribution methods and principal competitors for the Towel & Tissue
Group can be summarized as follows:
PRINCIPAL PRODUCTS
Washroom roll towels, washroom folded towels, soaps, a variety of towel,
tissue, and soap dispensers, windshield folded towels, industrial
wipes, tissue products, dairy towels, household roll towels, and
premium towel and tissue.
-4-
PRINCIPAL MARKETS & DISTRIBUTION METHODS
Sold almost exclusively through sanitary maintenance suppliers and
paper distributors in the U.S. and several foreign countries for use in
the following markets: industrial and commercial washroom, educational
institutions, health care, dairy, automotive service, and food
processing industries.
PRINCIPAL COMPETITION
Competition comes from major integrated paper companies which service
consumer and food service markets as well as the industrial and
institutional markets concentrated on by Bay West. Major competitors
include Fort James Corporation, Georgia-Pacific Corporation, Kimberly
Clark Corporation, and American Tissue.
EXPORT SALES
In addition to the three operating groups, Wausau-Mosinee
International, Inc. is the commissioned sales agent for the export
sales of the Company. Wausau-Mosinee International, Inc. has elected
to be treated as a FSC for federal income tax purposes.
RAW MATERIALS
Pulp is the basic raw material for paper production and represents
approximately one-half of the cost of making paper. The Mosinee and
Brokaw mills produce approximately 85% and 50%, respectively, of their
own pulp needs. Timber required for operation of the Company's pulp
mills is readily available. The balance of the Company's pulp needs
(approximately 450,000 tons) is purchased on the open market,
principally from pulp mills throughout the United States and Canada.
During 1999, the average cost of pulp rose approximately $150 per ton.
Pulp prices rose during the first quarter of 2000, and are expected to
increase further during 2000. Pulp was readily available in 1999 and
is expected to continue to be readily available in 2000. The Company
has purchased, and may, from time to time in the future, purchase pulp
futures contracts as a hedge against significant future increases in
the market price of pulp.
Recycled, de-inked fiber with a high content of post-consumer waste is
purchased from domestic suppliers as part of the fiber requirements for
Printing & Writing's recycled products. Recycled fiber is in adequate
supply and readily obtainable.
The Towel & Tissue Group produces substantially all of its de-inked
fiber needs from 100% post-consumer waste which is readily available
from domestic suppliers.
Various chemicals are used in the pulping and papermaking processes.
These industrial chemicals are all available from a number of suppliers
and are purchased at current market prices.
ENERGY
The Company's paper mills require large amounts of electrical and steam
energy which are adequately supplied by public utilities or generated
at Company operated facilities. The Company generates approximately
25% of its electrical power needs from steam, fuel oil, coal, wood
chips, fibercake, and natural gas powered generating facilities. The
Company generally purchases natural gas, coal, and fuel oil on a
contract basis at prevailing market prices. Wood chips and fibercake
are byproducts of mill operations. Some natural gas and fuel oil
purchase contracts may provide for variable prices or contain caps on
-5-
prices of natural gas to be delivered at future dates. In addition,
the Company continues to explore alternative power sources as an
ongoing business process.
Under the terms of a long-term agreement with the Portland Natural Gas
Transmission System the Company is committed to the purchase of a fixed
volume of natural gas for its Groveton, New Hampshire mill until
November, 2019.
PATENTS AND TRADEMARKS
The Company develops and files trademarks and patents, as appropriate.
Trademarks include Wausau Papers, AstroBright, Ecosoft, Bay West,
Dublsoft, and Wave 'N Dry, among others. The Company considers its
trademarks and patents, in the aggregate, to be material to its
business, although the Company believes the loss of any one such mark
or patent right would not have a material adverse effect on its
business. The Company does not own or hold material licenses,
franchises or concessions.
SEASONAL NATURE OF BUSINESS
The markets for some of the grades of paper produced by the Company
tend to be somewhat seasonal. However, the marketing seasons for these
grades are not necessarily the same. Overall, the Company generally
experiences lower sales in the fourth quarter, in comparison to the
rest of the year, primarily due to downtime typically taken by its
converting customers during the holiday season and a general slowing of
business activity for many industrial users of Company products at that
time of year.
WORKING CAPITAL
As is customary in the paper industry, the Company carries adequate
amounts of raw materials and finished goods inventory to facilitate the
manufacture and rapid delivery of paper products to its customers. The
Company will occasionally carry higher than normal quantities of pulp
in anticipation of rising pulp prices.
MAJOR CUSTOMERS
One customer accounted for approximately 9.7% of consolidated net sales
during 1999. The loss of this customer would have an adverse
effect on the Company's business, but the Company believes such effect
would be of relatively short duration.
BACKLOG
The Company's order backlog at December 31, 1999 approximated 34,000
tons, or 2 weeks of operation. The backlog on such date was 13% higher
than December 31, 1998. Backlog totals do not accurately represent the
strength of the Company's business activity as a significant volume of
orders are shipped out of inventory promptly upon order receipt. This
portion of the business is not reflected in the Company's backlog
totals. The entire backlog at December 31, 1999 is expected to be
shipped during fiscal 2000.
RESEARCH AND DEVELOPMENT
Expenditures for product development were approximately $2,293,000 in
1999, $2,577,000 in 1998, and $1,577,000 in 1997.
-6-
ENVIRONMENT
The Company has a strong commitment to protecting the environment.
Like its competitors in the paper industry, the Company faces
increasing capital investments and operating costs to comply with
expanding and more stringent environmental regulations. The Company
estimates that its capital expenditures for environmental purposes will
approximate $21-$23 million in 2000.
The United States Environmental Protection Agency (EPA) has promulgated
rules under the Clean Water Act and the Clean Air Act which impose new
air and water quality standards for pulp and paper mills (the "Cluster
Rules"). The definitive Cluster Rules, promulgated in April 1998,
require compliance by April 15, 2001. Another set of requirements in
the Cluster Rules must be implemented by April 15, 2006.
In response to these regulations, the Company has opted to adopt Total
Chlorine Free (TCF) technology for the pulp bleaching operations at the
Brokaw mill. This TCF technology must be in place and functioning by
April 15, 2001. In 1988, the Company installed an oxygen
delignification system which eliminated the use of elemental chlorine;
however, chlorine compounds are used in other stages of the bleaching
process at the Brokaw mill. Compliance with a TCF requirement for the
Brokaw mill will require an estimated capital expenditure of $7 million.
The Mosinee facility will be required to burn additional noncondensable
gases and treat foul condensates to comply with the Cluster Rules. The
majority of the required changes must be satisfied by April 15, 2001,
while compliance with the balance of these new requirements must be
attained by April 15, 2006. The estimated capital expenditures to
comply with the Cluster Rules and, at the same time provide, other
production efficiencies at the Mosinee facility is $14 million. The
capital expenditures for complying with the Cluster Rules will be
incurred in 1999, 2000, and 2001. Company-wide capital expenditures
initiated to comply with the Cluster Rules are estimated to be in the
range of $20-$22 million.
Compliance with the EPA's permitting process involves the consolidation
of all Company air discharge permits and is expected to involve an
additional $1 million in capital expenditures. This cost is expected
to be incurred in 2000 or 2001. The Wisconsin Paper Council and
certain Wisconsin utilities successfully challenged the inclusion of
Wisconsin in the EPA's initiative to reduce boiler emissions. The
Wisconsin Department of Natural Resources ("DNR") response to this
decision has not yet been announced. If the DNR were to require
similar boiler emission reductions as those proposed under the EPA's
proposal, the capital expenditures required for the Rhinelander and
Mosinee facilities would approximate $3 million.
In 1986, the Company's Mosinee Paper Corporation subsidiary was
informed by the DNR that a landfill, for which Mosinee may be a
potentially responsible party, had been nominated by the DNR for
inclusion by the EPA on the National Priorities List ("NPL")
established under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"). Although the EPA did not
place the landfill on the NPL and no other action has been taken by the
DNR or the EPA, the Company and DNR continued to explore ways to
initiate an investigation outside of the CERCLA Superfund program over
a period of several years. In March, 2000, the DNR indicated, after a
lapse of several years, that it was again going to review the status of
this landfill and the potential liability of the Company. The Company
cannot predict what the cost of investigation and cleanup will be, what
share, if any, of such costs will be borne by the Company, or the
extent to which, if any, the Company may have insurance coverage for
such potential liability. Based on its previous analysis of this
matter, the Company does not believe that any associated potential
costs would have a material adverse effect on the business and
financial condition of the Company.
-7-
The Company believes that capital expenditures associated with
compliance with the Cluster Rules and other environmental regulations
will not have a material adverse effect on its competitive position,
consolidated financial condition, liquidity, or results of operation.
EMPLOYEES
In 1998, the Company announced a workforce reduction program that
resulted in the elimination of 400 positions through the end of 1999,
almost all of which were accomplished through early retirement
incentives.
The Company had approximately 3,400 employees at the end of 1999. The
closing of the Sorg mill in May, 2000, will reduce the number of
employees by 200. Most hourly mill employees are covered under
collective bargaining agreements. One new labor agreement between Bay
West-Middletown and P.A.C.E. Local 112 was negotiated in 1999. Three
labor agreements expire in 2000 and an additional agreement in 2001.
The Company expects that new multi-year contracts will be negotiated at
competitive rates. The Company considers its relationship with its
employees to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The following information relates to executive officers of the Company
as of March 17, 2000:
SAN W. ORR, JR., 58
Chairman of the Board (since 1989) and Chief Executive Officer of the
Company, CEO (1994-1995), President and CEO (1989-1990), and a director
since 1970. Also Advisor, Estate of A. P. Woodson & Family, and a
director of MDU Resources Group, Inc. and Marshall & Ilsley
Corporation. Previously, Chairman of the Board (1987-1997) and
director (1972-1997) of Mosinee Paper Corporation.
RICHARD L. RADT, 68
Vice Chairman of the Board of the Company. Previously, Chairman
(1987-1988), and President and Chief Executive Officer and a director
(1977-1987) of the Company. Also Vice Chairman (1993-1997), and
President and Chief Executive Officer (1988-1993) of Mosinee
Paper Corporation.
GARY P. PETERSON, 51
Senior Vice President, Finance, Secretary and Treasurer. Previously,
Senior Vice President, Finance, Secretary and Treasurer (1993-1997) and
Vice President Finance (1991-1993) of Mosinee Paper Corporation and
partner, Wipfli Ullrich Bertelson CPAs (1981-1991).
STUART R. CARLSON, 53
Senior Vice President, Specialty Paper Group. Previously, Senior Vice
President, Specialty Paper (1996-1997), and Senior Vice President -
Administration (1993-1996), and Vice President Human Resources
(1991-1993) of Mosinee Paper Corporation. Also Director of Human
Resources, Georgia Pacific, Inc (1990-1991) and Corporate Director of
Industrial Relations, Great Northern Nekoosa Corporation (1989-1990).
THOMAS J. HOWATT, 50
Senior Vice President, Printing & Writing Group. Previously, Vice
President and General Manager, Printing & Writing Division (1994-1997),
Vice President and General Manager, Groveton (1993-1994), Vice
President Operations, Brokaw Division (1990-1993), and prior thereto,
Vice President, Administration, Brokaw Division.
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DAVID L. CANAVERA, 50
Senior Vice President, Towel & Tissue Group. Previously, Senior Vice
President, Towel & Tissue (1996-1997) of Mosinee Paper Corporation, and
Vice President and General Manager (1994-1996) and Vice President
- Resident Manager (1993-1994), Bay West Paper.
DENNIS M. URBANEK, 55
Senior Vice President, Engineering and Environmental Services.
Previously, Vice President, Engineering and Environmental Services
(1996-1997) of Mosinee Paper Corporation, Vice President and General
Manager of Mosinee's Pulp & Paper Division (1992-1996), and Vice
President and General Manager, Sorg Paper Company (1990-1992).
MICHAEL L. MCDONALD, 51
Senior Vice President, Administration since February, 1999.
Previously, Vice President, Human Resources for the Company and Mosinee
Paper Corporation (1997 to 1999) and General Manager/Vice President
Human Resources, Mead Corporation Publishing Division.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). In addition, certain statements in future filings by the
Company with the Securities and Exchange Commission, reports to
shareholders, press releases, and other oral and written statements
made by or with the approval of the Company which are not statements of
historical fact will constitute forward-looking statements within the
meaning of the Act.
Forward-looking statements of the Company may be identified by, among
other things, expressions of the Company's or Company officers' beliefs
or expectations that certain events may occur or are anticipated, and
projections or statements of expectations with respect to (i) various
aspects of the Company's business (including, but not limited to, net
income, the availability or price of raw materials, and customer demand
for Company products), (ii) the Company's plans or intentions, (iii)
the Company's stock performance, (iv) the industries within which the
Company operates, (v) the economy, and (vi) any other expressions of
similar import or covering other matters relating to the Company, its
business, and its operations. 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 are not guarantees of performance.
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.
Many of the factors that will determine these results are beyond the
Company's ability to control or predict. Shareholders and others are
cautioned not to put undue reliance on any forward-looking statements.
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
limited to, the following:
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<circle> 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.
<circle> Changes in customer demand for the Company's products due to
overall economic activity affecting the rate of consumption of
the Company's products, growth rates of the end markets for
the Company's products, technological or consumer preference
changes, or acceptance of the Company's products by the
markets served by the Company.
<circle> Changes in the price of raw materials, in particular, pulp,
wastepaper and linerboard. A substantial portion of the
Company's raw materials, including approximately two-thirds of
the Company's pulp needs, are purchased on the open market and
price changes could have a significant impact on the Company's
costs. Fiber represents a substantial portion of the cost of
making paper and significant price increases for fiber could
materially affect the Company's financial condition. Raw
material prices will change based on supply and demand on a
worldwide spectrum. Pulp price changes can occur due to
worldwide consumption levels of pulp, pulp capacity additions,
expansions or curtailments of 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, or other variables.
<circle> Unforseen or recurring operational problems at any of the
Company's facilities causing significant lost production
and/or cost increases.
<circle> Significant changes to the Company's strategic plans such as a
major acquisition or expansion, the disposition of assets or
product lines, the failure to successfully execute major
capital projects or other strategic plans, or the inability to
successfully integrate an acquisition.
<circle> Changes in laws or regulations which affect the Company. The
paper industry is subject to stringent environmental laws and
regulations and any changes required to comply with such laws
or regulations may increase the Company's capital expenditures
and operating costs.
-10-
ITEM 2. PROPERTIES.
The Company's headquarters are located in Mosinee, Wisconsin.
Executive officers and corporate staff who perform corporate
accounting, financial and human resource services are located in the
corporate headquarters, as are certain operating group personnel.
The Company's operating facilities consist of the following:
Number of
Paper Practical 1999
FACILITY PRODUCT MACHINES CAPACITY*(TONS) ACTUAL (TONS)
Specialty Paper
GROUP
Rhinelander Paper 4 165,000 159,000
Otis Paper 2 72,000 60,000
Mosinee Paper 4 114,000 110,500
Pulp 95,000 91,000
Sorg Paper 3 42,000 42,000
Printing & Writing
GROUP
Wausau Papers Paper 4 177,000 170,000
(Brokaw) Pulp 98,000 83,000
Wausau Papers Paper 2 112,000 112,000
(Groveton)
Wausau Papers
(Appleton) Converting N/A 29,000 22,500
Mosinee Laminated/
Converted Coated Papers N/A 145,000 57,000
Products
Towel&Tissue
GROUP
Bay West
(Middletown, Towel 1(towel) 70,000 62,500
Ohio) Tissue 1(tissue) 35,000 33,300
Deink Pulp 110,000 95,600
(Harrodsburg, Converted Towel
Kentucky) & Tissue N/A 168,000 126,800
<FN>
* "Practical capacity" is the amount of product a mill can produce with
existing equipment and workforce and usually approximates maximum,
or theoretical, capacity. At the Company's converting operations it
-11-
reflects the approximate maximum amount of product that can be made
on existing equipment, but would require additional days and/or
shifts of operation to achieve.
The Company owns approximately 123,000 acres of timberland.
ITEM 3. LEGAL PROCEEDINGS.
In 1997, the Attorney General of the State of Florida filed a civil
complaint in the United States District Court for the Northern District
of Florida against ten manufacturers of commercial sanitary paper
products, including the Company's wholly owned subsidiary, Bay West
Paper Corporation. The lawsuit alleges a conspiracy to fix prices of
commercial sanitary paper products starting at least as early as 1993.
Since the filing of this lawsuit, numerous class action suits have been
filed by private direct purchasers of commercial sanitary paper
products in various federal district courts throughout the country and
additional federal lawsuits have been filed by the Attorneys General of
the States of Kansas, Maryland, New York, and West Virginia. All of
these federal cases have been certified as class actions and
consolidated in a multi-district litigation proceeding in the United
States District Court for the Northern District of Florida in
Gainesville. Certain indirect purchasers of sanitary commercial paper
products have also filed class action lawsuits in various state courts
alleging a conspiracy to fix prices under state antitrust laws. No
class has been certified in the state actions. All of these actions
are in early stages. In the opinion of management, the Company has not
violated any antitrust laws and these cases are without merit. The
Company is vigorously defending these claims.
Although no proceeding has commenced, the Company may be subject to a
claim as a potentially responsible party with respect to a Wisconsin
landfill. See the discussion of this potential claim under the
subheading "-- Environment" in Item 1 of this report.
The Company may also be involved from time to time in various other
legal and administrative proceedings or subject to various claims in
the normal course of its business. Although the ultimate disposition
of legal proceedings cannot be predicted with certainty, in the opinion
of management, the ultimate disposition of any threatened or pending
matters, either individually or on a combined basis, will not have a
material adverse effect on the consolidated financial condition,
liquidity, or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of shareholders during the fourth
quarter of 1999.
-12-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Since March 26, 1998, the Company's common stock has been traded on the
New York Stock Exchange under the symbol "WMO". Prior to March 26,
1998, the Company's common stock was traded on the Nasdaq National
Market under the symbol "WSAU."
As of the record date of the annual meeting, February 24, 2000, (the
"Record Date") there were approximately 3,000 holders of record of the
Company's common stock. The Company estimates that as of the Record
Date there were approximately 8,500 additional beneficial owners whose
shares were held in street name or in other fiduciary capacities. As
of the Record Date, there were 51,416,691 shares of common stock
outstanding.
The following table sets forth the range of high and low closing price
information of the Company's common stock and the dividends declared on
the common stock, for the calendar quarters indicated.
Market Price<dagger> Cash Dividend
CALENDAR QUARTER HIGH LOW DECLARED
1998
First Quarter $24.00 $18.88 --*
Second Quarter $24.13 $20.13 $.14*
Third Quarter $22.75 $12.13 $.07
Fourth Quarter $18.50 $12.25 $.07
1999
First Quarter $18.00 $13.94 $.08
Second Quarter $18.44 $12.63 $.08
Third Quarter $18.00 $11.94 $.08
Fourth Quarter $14.19 $10.63 $.08
<FN>
*Due to the change in fiscal years from an August 31 year-end to a
December 31 year-end, no dividend was declared in the first quarter
of 1998. Two dividends were declared in the second quarter.
<dagger>All prices through March 25, 1998 represent closing
quotations on the Nasdaq National Market and reflect
inter-dealer prices, without retail markup, mark-down or
commission and may not necessarily represent actual
transactions. Prices after March 25, 1998 represent the
high and low sales prices on the New York Stock Exchange.
-13-
ITEM 6. SELECTED FINANCIAL DATA.
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
For the years
FOR THE YEARS ENDED DECEMBER 31, ENDED AUGUST 31,
1999 1998 1997 1996 1995
FINANCIAL RESULTS
Net sales $944,629 $946,127 $933,127 $857,159 $821,313
Depreciation, depletion
& amortization 55,012 52,207 47,259 41,204 36,573
Operating profit 79,646 72,145 120,828 119,049 82,460
Interest expense 11,823 7,683 8,103 7,198 7,754
Earnings before provision
for income taxes 68,017 65,801 113,589 111,778 75,961
Earnings before cumulative effect
of accounting change and
restructuring/merger expense 42,417 67,339 78,601 68,128 46,436
Net earnings 42,417 40,801 65,398 68,128 46,436
Average number of share
outstanding 52,265,000 55,708,000 57,811,000 58,829,000 58,843,000
Cash dividends paid 16,233 15,494 13,134 11,162 9,922
Capital expenditures 80,619 77,023 66,062 82,489 81,220
FINANCIAL CONDITION
Working capital $ 140,822 $ 81,406 $ 126,653 $ 87,536 $ 93,916
Long-term debt 220,476 127,000 140,500 101,451 147,930
Stockholders' equity 393,760 396,586 440,160 388,608 337,881
Total assets 936,462 900,149 872,064 752,057 707,631
PER SHARE
Earnings before cumulative
effect of accounting change
and restructuring/merger
expense $0.81 $1.21 $1.36 $1.16 $0.79
Net earnings-basic 0.81 0.73 1.13 1.16 0.79
Cash dividends declared 0.32 0.28 0.25 0.22 0.20
Stockholders' equity 7.53 7.12 7.61 6.61 5.74
Price range (low and
high closing) 10.94-18.44 12.25-24.06 17.55-25.38 16.50-24.13 16.20-20.00
RATIOS/RETURNS
Return on sales before cumulative
effect of accounting change
and restructuring/merger expense 4.5% 7.1% 8.4% 7.9% 5.7%
Net return on sales 4.5% 4.3% 7.0% 7.9% 5.7%
Return on average stockholders'
equity before cumulative
effect of accounting change and
restructuring/merger
expense 10.7% 16.1% 18.9% 18.8% 14.5%
Net return on average
stockholders' equity 10.7% 9.8% 15.8% 18.8% 14.5%
Current assets to current
liabilities 2.3 1.5 2.2 1.8 2.0
% of long-term debt to total
capital 35.9% 24.3% 24.2% 20.7% 30.5%
-14-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OPERATIONS REVIEW
NET SALES
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Net sales $944,629 $946,127 $933,127
Percent increase - 1% 9%
Although net sales were comparable for the twelve months ended December
31, 1999 and 1998, the tonnage shipped increased in 1999 by 13,000
tons, or 2%, to a new Company record of 844,800 tons. Total shipments
in 1997 were 798,500 tons. Overall, the selling prices for the
Company's products began to increase late in 1999 following selling
price declines in 1997, 1998 and part of 1999. The selling price
declines experienced were due to competitive pressure on several
products in the Company's printing and writing, specialty and towel
and tissue grades.
Shipments for the Printing & Writing Group increased to 361,300 tons
and were 3% higher than 1998 shipments. The growth in premium paper
and roll wrap sales was the major reason for the increase. The total
tons of product shipped in 1998 and 1997 were comparable. Selling
prices began to increase late in 1999 principally to recover rising raw
material costs. For 2000, the focus will be on increasing premium
paper sales. The increase will be sought through normal distribution
channels as well as an expansion of the retail business.
Shipments declined 2% to 359,300 tons for the Specialty Paper Group in
1999. The decrease was due to a change in the overall product mix and
the paper machine rebuild at the Otis facility. The volume shipped in
1998 had increased by 7% over 1997. The main reason for the 1998
volume increase was the acquisition of the Otis facility in May of
1997. Competitive market pressures resulted in lower selling prices on
a year-over-year comparison until late in 1999 when selling prices
began to increase. The increase in selling price was principally the
result of an attempt to recover rapidly escalating raw material costs.
The improvement of overall product mix will again be the focus for the
Specialty Paper Group in the year 2000. A number of opportunities have
been identified to improve product mix, including the high performance
liner (HPL) project which is scheduled to be completed late in the
third quarter of 2000.
The Towel & Tissue Group continued the record volume growth experienced
in the last three years. Volume has increased 11%, 13% and 14%
year-over-year in 1999, 1998 and 1997, respectively. Total shipments
in 1999 were 124,200 tons. The major contributors to the record
increases have been increased distribution and excellent customer
service. Selling prices had declined in all three years until very
late in 1999 when prices increased approximately 3%. Competitive
-15-
market pressures experienced in all operating groups during 1999
resulted in depressed selling prices; however, the paper markets have
seemed to tighten and further price increases are expected as
supply/demand economics improve. Order backlog at the end of 1999
approximated 34,000 tons for all operating groups and was 13% higher
than order backlog at the end of 1998. Backlogs had declined by 10% in
1998 compared to 1997. Order backlog total does not necessarily
indicate the business strength since a substantial percentage of orders
are shipped directly from inventory upon receipt.
GROSS PROFIT ON SALES
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Gross profit on sales $139,098 $175,051 $199,663
Percent increase/(decrease) (21%) (12%) 9%
Gross profit margin 15% 19% 21%
Gross profit margins have decreased for the last two years. This
decline in margins was principally due to competitive market pressures
that lowered selling prices. Margins in 1999 were also negatively
impacted by rapidly escalating raw material costs.
Market prices for pulp, the primary raw material used in manufacturing
paper, rose significantly in 1999. The average list price of northern
bleached softwood kraft, a frequently used benchmark pulp grade, rose
25% in 1999 compared to declines of 20% and 18% for 1998 and 1997,
respectively. The Company purchases approximately 450,000 tons of
pulp annually.
Wastepaper prices, the primary raw material used in the Towel & Tissue
Group doubled in 1999 compared to increases of 6% and 10% for 1998 and
1997, respectively. The Company purchases approximately 145,000 tons
of wastepaper annually. On an annual basis, the 1999 increases in pulp
and wastepaper costs impact the Company's raw material costs by
approximately $75 million.
The Printing & Writing Group's mills operated near capacity for the
last three years. Difficulties in Brokaw's pulp mill negatively
impacted operations and increased costs in 1999 and 1998. Other
facilities within the group experienced year-over-year production
increases for all years presented. Inventory levels remained
relatively constant on a year-over-year basis.
The Specialty Paper Group mills operated near capacity for all years
presented. The reduction in produced tonnage at the Otis facility,
because of its machine rebuild, was offset by gains at the Sorg
facility, which had rebuilt one of its machines in 1998. Overall,
production declined 5% in 1998 compared to 1997 principally due to
product mix. This product mix was partially offset by the Otis
acquisition in May of 1997. Inventory levels increased approximately
10% in 1999 and had fallen a similar amount in 1998. The Towel &
-16-
Tissue Group's production and inventory levels increased ratably with
its sales growth for all years presented.
LABOR
A new four-year labor agreement with the Paper, Allied-Industrial,
Chemical & Energy Workers International Union at the Ohio mill was
successfully negotiated in 1999. The agreement contained wage
increases similar to other paper companies. Labor agreements expire in
other facilities in 2000, 2001 and 2002. The Company maintains good
labor relations in all facilities.
OPERATING EXPENSES
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Selling and administrative $ 59,452 $ 60,103 $ 65,332
Percent increase/(decrease) (1%) (8%) 2%
Restructuring and merger - 42,803 13,503
Total operating expense 59,452 102,906 78,835
Percent increase/(decrease) (42%) 31% 23%
As a percent of sales 6% 11% 8%
Selling and administrative expenses were impacted by stock incentive
programs charges or credits, which were determined by the Company's
stock price change. During 1999 and 1998, decreases in the Company's
stock price resulted in a $3.9 million and $1.8 million credit,
respectively. In 1997, the Company's stock price increased and the
charge for such programs was $2.1 million.
General inflationary costs offset by fluctuations in incentive
compensation and retirement plan costs along with the acquisitions of
the Otis and B&J facilities accounted for a majority of the other
changes. In connection with the merger with Mosinee Paper Corporation
(Mosinee), the Company incurred pre-tax expenses related to the merger
of $13.5 million, which were charged to operations in 1997. The costs
included professional fees and other transaction costs for executing
the merger as well as the costs of the severance benefits paid to the
former CEO of the Company. The merger costs on an after-tax basis were
$13.2 million or $.23 per share. Restructuring and further merger
costs were recorded in 1998 of $42.8 million. Approximately 95% of
these costs were associated with the Company's early retirement
incentives along with voluntary separation arrangements, involuntary
severance agreements, and training costs for the Company's 1998
workforce reduction program. The balance of the restructuring costs
were for legal, consulting, and other miscellaneous costs.
-17-
OTHER INCOME AND EXPENSE
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Interest expense $11,823 $7,683 $8,103
Percent increase/(decrease) 54% (5%) 13%
Other 194 1,339 864
Interest expense increased in 1999 due principally to increased debt
levels associated with stock repurchases along with an increase in
borrowing rates. Interest was lower in 1998 due to lower borrowing
rates and lower average debt levels compared to 1997. Capitalized
interest totaled $.6 , $.7 and $.5 million in 1999, 1998 and 1997,
respectively. Fluctuations in capitalized interest are primarily
dependent on varying levels of capital expenditures qualifying under
the capitalized interest criteria.
Other income includes interest income of $.2, $.4 and $.1 million in
1999, 1998 and 1997, respectively. The difference in other income and
expense is primarily due to fluctuations in the gain or loss on asset
sales and disposals.
INCOME TAXES
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Income tax provision $25,600 $25,000 $48,191
Percent increase/(decrease) 2% (48%) 10%
Effective tax rate 37.6% 38.0% 42.4%
The effective tax rates for 1999 and 1998 of 37.6% and 38.0%,
respectively are indicative of the Company's normalized tax rate. The
effective tax rate for 2000 is expected to be in that range. The tax
rate for 1997 increased principally due to the $13.5 million charge for
merger-related expenses, most of which was not tax deductible.
-18-
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW AND CAPITAL EXPENDITURES
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Cash provided by operating $ 89,334 $117,859 $ 99,724
activities
Percent increase/(decrease) (24%) 18% (27%)
Working capital 140,822 81,406 126,653
Percent increase/(decrease) 73% (36%) 45%
Current ratio 2.3:1 1.5:1 2.2:1
Cash flow from operations decreased in 1999 compared to 1998
principally due to decreased cash flow earnings from operations. In
addition, the investment in accounts receivable also increased by $7.1
million in 1999. Changes in working capital principally accounted for
the changes in 1998 and 1997.
Capital expenditures totaled $80.6 million in 1999, compared to $77.0
million in 1998 and $66.1 million in 1997.
During 1999, the Printing & Writing Group completed several projects at
the Groveton mill totaling $2.0 million consisting of paper machine
upgrades and a retrofit of the #1 boiler to convert to natural gas
consumption. The Brokaw mill spent $9.1 million on various projects
including $1.3 million to complete the pulp mill distributive control
system begun in 1998 and $7.2 million of a $8.2 million project to
upgrade the dry end of the machine room for better operating
efficiencies.
The Specialty Paper Group completed several major capital projects in
its pulp and paper mills. At the Mosinee mill, $3.4 million was spent
to complete a woodroom modernization project and $2.7 million for a new
winder on the #4 paper machine. The Otis mill has spent $15.6 million
to expand the production capacity of one of its paper machines and $1.3
million on another paper machine to add significant new manufacturing
capabilities and give the Specialty Paper Group an improved sales mix.
During 1999, the Board of Directors approved a $45 million rebuild
project at the Rhinelander mill on which spending of $4.8 million
occurred in 1999 with the remaining spending to occur in the year 2000.
This project, which is scheduled to be completed by late in the third
quarter of 2000, will enable the Specialty Paper Group to move into new
high growth market niches.
To keep pace with increasing sales volume, the Towel & Tissue Group
spent $4.7 million in 1999 to complete a toweling line and a tissue
converting line and to begin construction of an additional toweling
line.
Other major capital improvement projects, approved by the Board of
Directors in 1999, include $14.4 million to achieve compliance with the
1990 Clean Air Act Cluster Rules at the Mosinee mill, $6.8 million at
-19-
the Brokaw mill for a bleaching system, and $6.0 million for a central
stock prep and fiber optimization project at the Groveton mill.
Capital spending for 2000 should be in the range of $90 to $100
million. The Company believes the borrowings available under its
credit agreements and its earnings for 2000 will be sufficient to meet
its cash flow needs for capital, working capital and investing
activities in 2000.
DEBT AND EQUITY
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Short-term debt $ 230 $ 51,517 $ 6,207
Long-term debt 220,476 127,000 140,500
Total debt 220,706 178,517 146,707
Stockholders' equity 393,760 396,586 440,160
Total capitalization 614,236 523,586 580,660
Long-term debt/capitalization ratio 36% 24% 24%
During 1999, the Company entered into two new arrangements which
substantially changed its debt structure. A private placement of
$138.5 million in senior notes was closed and funded in August. The
notes mature in 8, 10 and 12 years at $35.0 million, $68.5 million and
$35.0 million, respectively. In conjunction with the private
placement, the Company entered into an interest rate swap arrangement
that effectively converted $88.5 million of fixed rate obligations with
a weighted average interest rate of 7.35% to variable rate obligations
with an average effective interest rate of approximately 6.6% at
December 31, 1999. The agreement decreased interest expense by
$.3 million in 1999.
In December 1999, the Company entered into a new revolving credit
facility with four banks for $200 million. The facility has a
364-day component for $50 million and $150 million for five years.
The 364-day component may be converted to a one-year term loan at the
Company's discretion.
The Company also maintains a commercial paper placement agreement, with
one of its four major banks, which provides for the issuance of up to
$40 million of unsecured debt obligations. The commercial paper
placement agreement requires unused credit availability under the
Company's revolving credit agreement equal to the amount of outstanding
commercial paper. On December 31, 1999, the Company had a combined
total of $140.3 million available for borrowing under its revolving
credit and commercial paper placement agreements.
In August 1995, the Company obtained $19 million in industrial
development bond financing to fund an upgrade of the Brokaw mill
wastewater treatment plant, the construction of a new landfill and
several other projects which qualify for this type of financing. Bond
proceeds were fully disbursed as of January 1997. In June 1993, the
-20-
Company borrowed $30 million through the issuance of notes to
Prudential Insurance Company of America and its subsidiaries. As of
December 31, 1999, the outstanding notes amounted to $3.0 million and
mature in June of 2000.
On August 31, 1998, the Company's Board of Directors authorized the
repurchase of 5,650,000 shares of the Company's common stock. The
repurchases may be made from time to time in the open market or through
privately negotiated transactions. During 1999, the Company repurchased
2,206,926 shares at prices ranging from $11.94 to $16.06 per share.
The Company repurchased 4,285,900 shares of its common stock in 1998
under the completed 1994 authorization and the 1998 authorization at
market prices ranging from $12.125 to $18.00. The Company did not
repurchase any shares of the Company's stock in 1997. As of December
31, 1999 there were 217,974 shares available for purchase under the
authority granted in 1998.
During 1999, the Board of Directors declared cash dividends of $.32 per
share, an increase of 14% from the $.28 per share cash dividend
declared in 1998.
YEAR 2000
The Company's program to address year 2000 issues was intended to
prevent major interruptions in its business due to problems related to
the Company's computerized manufacturing, environmental, inventory
management, shipping, financial and other information systems and the
operation of critical third party vendors and customers. As part of
its program, the Company conducted an assessment of its computerized
manufacturing and information systems and its third party vendors and
customers. Some of the year 2000 issues were addressed in connection
with the initial stages of the implementation of the Company's
enterprise resource planning system ("ERP"). The broader, non-year
2000 aspects of the ERP system will be fully implemented after fiscal
2000. The Company did not experience any significant disruption as a
result of year 2000 problems. As of February 28, 2000, neither the
Company nor any of its key vendors or customers have experienced any
material adverse effects related to year 2000 problems. Based on its
experience in the year 2000 transition and its business operations
through such date, the Company does not expect to encounter any year
2000 problems that would have a material adverse effect on the results
of operation, liquidity and financial condition of the Company. The
costs of achieving year 2000 readiness were not material. The cost of
remediation for key papermaking process controls and equipment
approximated $2 million. Internal costs for year 2000 readiness were
not tracked, but principally related to payroll costs of Company
personnel. The implementation of the Company-wide ERP system is
expected to require a capital investment of approximately $7.0 million.
Although the ERP implementation timetable was not accelerated to
address year 2000 issues, those issues were considered in determining
the overall timetable for its implementation.
-21-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company does not have a material market risk associated with
interest rate risk, foreign currency exchange risk, or commodity price
risk. The Company conducts U.S. dollar denominated export transactions
or immediately exchanges all foreign currency attributable to export
sales for U.S. dollars.
On August 31, 1999, the Company closed and funded a private placement
note offering for $138,500,000. The principal amounts, maturities, and
interest rates on the notes are: (1) $35,000,000, 8 years, 7.20%; (2)
$68,500,000, 10 years, 7.31%; and (3) $35,000,000, 12 years, 7.43%.
The Company also entered into an interest rate swap agreement under
which the interest rate paid by the Company with respect to (1)
$58,500,000 of the 10-year notes will be the three month LIBOR rate,
plus .4925% and (2) $30,000,000 of the 12-year notes will be the three
month LIBOR rate, plus .55%. The Company believes that the
interest-rate risk associated with the interest-rate swap agreement is
not material.
The Company maintains certain derivative commodity instruments as
hedges for anticipated transactions. Such instruments do not have a
material market risk and no such derivative commodity instrument is
held for trading. At December 31, 1999, these instruments consisted of
various futures contracts for the purchase of natural gas and fuel oil.
The Company has purchased, and may, from time to time in the future,
purchase pulp futures contracts as a hedge against pulp price
increases. See Notes 1 and 14 of "Notes to Consolidated Financial
Statements" for additional information relating to the Company's
derivative commodity instruments.
-22-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Wausau<circle>Mosinee Paper Corporation
Mosinee, Wisconsin
We have audited the accompanying consolidated balance sheets of
Wausau<circle>Mosinee Paper Corporation and Subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of income,
cash flows and stockholders' equity for each of the years in the
three-year period ended December 31, 1999. 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 generally accepted auditing
standards. 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
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Wausau<circle>Mosinee Paper Corporation and Subsidiaries at December
31, 1999 and 1998, and the results of its operations and cash flows for
each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
WIPFLI ULLRICH BERTELSON LLP
January 26, 2000
Wausau, Wisconsin
-23-
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
ASSETS
Current assets:
Cash and cash equivalents $ 5,397 $ 2,495
Receivables, net 73,977 66,956
Refundable income taxes 1,638 3,282
Inventories 155,822 150,217
Deferred income taxes 14,747 18,344
Other current assets 730 832
Total current assets 252,311 242,126
Property, plant and equipment, net 653,823 625,065
Other assets 30,328 32,958
TOTAL ASSETS $ 936,462 $ 900,149
LIABILITIES
Current liabilities:
Notes payable to banks $ - $ 45,466
Current maturities of long-term debt 230 6,051
Accounts payable 63,876 58,419
Accrued and other liabilities 47,383 50,784
Total current liabilities 111,489 160,720
Long-term debt 220,476 127,000
Deferred income taxes 103,386 94,911
Postretirement benefits 58,885 60,558
Pension 35,019 39,235
Other noncurrent liabilities 13,447 21,139
Total liabilities 542,702 503,563
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Preferred stock (75,000 shares authorized) no par value - -
Common stock (100,000,000 shares authorized) no par value 170,682 170,686
Retained earnings 341,530 315,711
Subtotals 512,212 486,397
Treasury stock at cost (117,428) ( 85,136)
Minimum pension liability (net of deferred taxes) ( 1,024) ( 4,675)
Total stockholders' equity 393,760 396,586
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $936,462 $900,149
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-24-
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
For the years ended
December 31,
1999 1998 1997
Net sales $944,629 $946,127 $933,127
Cost of products sold 805,531 771,076 733,464
Gross profit 139,098 175,051 199,663
Operating expenses:
Selling and administrative 59,542 60,103 65,332
Restructuring and merger expense - 42,803 13,503
Operating profit 79,646 72,145 120,828
Other income (expense):
Interest expense ( 11,823) ( 7,683) ( 8,103)
Interest income 230 403 95
Other ( 36) 936 769
Earnings before income taxes 68,017 65,801 113,589
Provision for income taxes 25,600 25,000 48,191
Net earnings $ 42,417 $ 40,801 $ 65,398
Net earnings per share basic $ 0.81 $ .73 $ 1.13
Net earning per share diluted $ 0.81 $ .73 $ 1.13
-25-
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
December 31,
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Cash flows from operating activities:
Net earnings $ 42,417 $ 40,801 $ 65,398
Provision for depreciation, depletion
and amortization 55,012 52,207 47,259
Recognition of deferred revenue (40) (40) (40)
Provision for losses (recoveries) on
accounts receivable 110 1,227 (282)
Loss (gain) on property, plant and
equipment disposals 334 (782) (333)
Deferred income taxes 12,072 (1,028) 12,458
Changes in operating assets and liabilities:
Receivables (7,131) 1,491 (7,563)
Inventories (5,605) (6,607) (10,114)
Other assets (1,285) (6,959) (11,129)
Accounts payable and other liabilities (8,194) 38,032 9,425
Accrued and refundable income taxes 1,644 (483) (5,355)
Net cash provided by operating activities 89,334 117,859 99,724
Cash flows from investing activities:
Capital expenditures (80,619) (77,023) (66,062)
Acquisition of Otis Specialty Papers - - (55,147)
Acquisition of B&J Supply - - (6,235)
Proceeds from property, plant and
equipment disposals 1,218 9,550 693
Net cash used from funds
restricted for capital additions - - 1,297
Net cash used in investing activities (79,401) (67,473) (125,454)
Cash flows from financing activities:
Net borrowings of short-term notes (45,466) 25,466 -
Net borrowings (repayments) under credit
agreements (45,265) 12,551 58,117
Payment under capital lease obligation (269) (207) (345)
Repayment of long-term notes 132,500 (6,000) (6,000)
Dividends paid (16,233) (15,494) (13,134)
Payment for preferred stock of subsidiary - (320) -
Proceeds from stock option exercises 128 1,741 120
Payments for purchase of treasury stock (32,426) (68,212) (10,927)
Net cash provided by (used in) financing
activities (7,031) (50,475) 27,831
Net increase (decrease) in cash and
cash equivalents 2,902 (89) 2,101
Cash and cash equivalents at beginning of year 2,495 2,584 483
Cash and cash equivalents at end of year $ 5,397 $ 2,495 $ 2,584
Supplemental cash flow information:
Interest paid - net of amount capitalized $ 10,323 $ 7,629 $ 7,902
Income taxes paid $ 11,884 26,511 41,882
-26-
Noncash investing and financing activities: A capital lease obligation
of $689 was incurred in 1999 when the Company entered into a lease for
new equipment. In connection with the acquisition of B&J Supply during
1997, the Company assumed $2,000 of debt.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Accumulated
Other
Comprehensive
- Common Stock - Treasury Stock - Income - Common
Minimum Stock- Total
Shares Retained Pension Shares Stockholders'
ISSUED AMOUNT EARNINGS SHARES AMOUNT LIABILITY OUTSTANDING EQUITY
Balances December 31, 1996 60,182,385 $197,870 $238,771 (9,034,702) ($36,265) ($ 193) 51,147,683 $400,183
Comprehensive earnings, 1997
Net earnings 65,398 65,398
Minimum pension liability
(net of $716 deferred tax) (1,074) (1,074)
Comprehensive earnings, 64,324
1997 Cash dividends declared (13,628) (13,628)
Three-for-two stock split 10,670,992 (3,353,416) 7,317,576
Purchases of treasury stock (670,330) (10,927) (670,330) (10,927)
Retire treasury stock (10,730,573) (29,471) 10,730,573 29,471
Fractional shares resulting
from merger paid in cash (606) (606)
Stock options exercised 66 7,444 54 7,444 120
Tax benefit related to stock
options 15 15
Stock option discount (net of
deferred taxes) 73 73
Balances December 31, 1997 60,122,198 168,553 290,541 (2,320,431) (17,667) (1,267) 57,801,767 440,160
Comprehensive earnings, 1998
Net earnings 40,801 40,801
Minimum pension liability
(net of $2,047 deferred tax) (3,408) (3,408)
Comprehensive earnings, 1998 37,393
Cash dividends declared (15,631) (15,631)
Retirement of preferred
stock of subsidiary 935 935
Purchases of treasury stock (4,285,900) (68,200) (4,285,900) (68,200)
Stock options exercised 998 97,972 743 97,972 1,741
Tax benefit related to stock
options 200 200
Fractional shares added to
treasury 614 (614) (12) (614) (12)
Balances December 31, 1998 60,122,812 170,686 315,711 (6,508,973) (85,136) (4,675) 53,613,839 396,586
Comprehensive earnings, 1999
Net earnings 42,417 42,417
Minimum pension liability
(net of $2,270 deferred tax) 3,651 3,651
Comprehensive earnings, 1999 46,068
Cash dividends declared (16,598) (16,598)
Stock options exercised ( 4) 9,778 134 9,778 130
Purchases of treasury stock (2,206,926) (32,426) (2,206,926) (32,426)
Balances December 31, 1999 60,122,812 $170,682 $341,530 (8,706,121) ($117,428)($ 1,024) 51,416,691 $393,760
-27-
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant
intercompany transactions, balances and profits have been eliminated in
consolidation. The consolidated statements give retroactive effect to
the merger with Mosinee Paper Corporation ("Mosinee").
On December 17, 1997, Wausau Paper Mills Company ("Wausau") completed a
merger with Mosinee ("the Mosinee merger") in which Mosinee became a
wholly owned subsidiary of Wausau. Simultaneous with the consummation
of the Mosinee merger, Wausau changed its name to Wausau<circle>Mosinee
Paper Corporation ("the Company"). Prior to the merger, Wausau's
fiscal year-end was August 31 and Mosinee's was December 31. Subsequent
to the Mosinee merger, the Company adopted a calendar year-end. As a
result of the change in fiscal year and the merger accounted for as a
pooling of interests, the Company's 1997 financial statements have been
recast to a twelve-month period ending December 31, 1997.
REVENUE RECOGNITION - Revenue is recognized upon shipment of goods and
transfer of title to the customer. The Company grants credit to
customers in the ordinary course of business. A substantial portion
of the Company's accounts receivable is with customers in various paper
converting industries or the paper merchant business. Concentrations
of credit risk with respect to trade receivables are limited due to the
large number of customers and their geographic dispersion.
USE OF ESTIMATES IN PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS -
The preparation of the accompanying financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses. Actual results may differ
from these estimates.
CASH EQUIVALENTS - The Company defines cash equivalents as highly
liquid, short-term investments with an original maturity of three
months or less.
INVENTORIES - Pulpwood, finished paper products and the majority of raw
materials are valued at the lower of cost, determined on the last-in,
first-out (LIFO) method, or market. All other inventories are valued
at the lower of average cost or market. Allocation of the LIFO reserve
among the components of inventories is impractical.
PROPERTY, PLANT AND EQUIPMENT - Plant and equipment are stated at cost
and are depreciated over the estimated useful lives of the assets using
the straight-line method for financial statement purposes. Land, water
power rights, and construction in progress are stated at cost. The
cost and related accumulated depreciation of all plant and equipment
retired or otherwise disposed of are removed from the accounts, and any
resulting gains or losses are included in the statements of income.
Buildings are depreciated over a 20 to 45-year period; machinery and
equipment over a 3 to 20-year period. Maintenance and repair costs are
charged to expense as incurred. Renewals and improvements which extend
the useful lives of the assets are added to the plant and equipment
accounts.
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Equipment financed by long-term leases, which in effect are installment
purchases, have been recorded as assets and the related obligations as
debt. Depreciation expense includes amortization on capitalized
leases.
Timberlands are stated at net depleted value. Depletion expense is
calculated using the block and unit-of production methods. The block
method groups timberland into logical management areas called "blocks"
for which the cost basis is determinable. The annual depletion is
determined by multiplying the per unit cost basis of the block of
timber by the number of units harvested from the block during the year.
INCOME TAXES - Deferred income taxes have been provided under the
liability method. Deferred tax assets and liabilities are determined
based upon the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities, as
measured by the current enacted tax rates. Deferred tax expense is the
result of changes in the deferred tax asset and liability.
EARNINGS PER SHARE - Basic earnings per common share are based on the
weighted average number of common shares outstanding. Diluted earnings
per common share are based on the weighted average number of common
shares and common stock equivalents (options) outstanding.
FUTURES CONTRACTS - The Company utilizes futures contracts to
periodically hedge the price risk of anticipated purchases of pulp and
other commodity products. Changes in the market value of the futures
contracts are included as part of the acquisition price of pulp and
other commodity products and are realized when the finished paper is
sold and the other commodity products are consumed. Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" will be adopted
by January 1, 2001. The statement establishes accounting and reporting
standards for derivatives. The effect on the Company is not expected
to be material.
CHANGES IN ACCOUNTING POLICIES - On January 1, 1998, the Company
adopted Statements of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," No. 131, "Disclosures about
Segments of an Enterprise and Related Information," and No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits." SFAS No. 130 requires companies to report all changes in
net assets, such as minimum pension liability adjustments, as a
component of comprehensive income. SFAS No. 131 requires certain
disclosures of the company's segments including general information,
segment profits and assets, and a reconciliation of segment financial
condition and results of operations to the corresponding company
amounts. SFAS No. 132 revises employers' disclosures about pension and
other postretirement benefit plans.
NOTE 2. MERGERS AND ACQUISITIONS
On December 17, 1997, the Company completed the Mosinee merger. The
merger qualified as a tax-free exchange and was accounted for as a
pooling of interests. Wausau issued 1.4 shares of common stock for
each share of Mosinee outstanding common stock. A total of 21,281,795
shares (after adjustment for fractional shares) of the Company's common
stock was issued as a result of the merger, and Mosinee's outstanding
stock options were converted into options to purchase approximately
596,000 common shares. In connection with the merger, the Company
incurred $13,503,000 ($13,203,000 after taxes, or $ .23 per common
share) of merger-related costs which were charged to operations during
the year ended December 31, 1997.
-29-
The following table presents a reconciliation of net sales and net
earnings previously reported by the Company to those presented in the
accompanying consolidated financial statements.
(ALL DOLLAR AMOUNTS IN THOUSANDS) For the year
ended December 31,
1997
Net sales:
Wausau $594,913
Mosinee 338,214
Combined $933,127
Net earnings:
Wausau $ 40,379
Mosinee 25,019
Combined $ 65,398
On May 12, 1997, the Company acquired the business and assets of Otis
Specialty Papers ("Otis"). The acquisition was accounted for using the
purchase method of accounting. The financial statements reported
herein include the net sales, operating profit and net earnings of Otis
from the date of purchase. The following table presents unaudited pro
forma condensed results of operations for the year ended December 31,
1997, as if the acquisition were completed at the beginning of the
period:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1997
Net sales $965,982
Operating profit 124,218
Net earnings 66,673
Net earnings per share-basic $ 1.15
The unaudited pro forma financial information includes certain
immaterial assumptions or adjustments which the Company believes are
necessary to fairly present such information. Historical costs
representing the seller's corporate allocations, interest expense and
one-time expenses related to the sale of Otis are included in the pro
forma information. The pro forma information does not purport to
represent what the Company's results of operations would actually have
been if this transaction had occurred at the beginning of the earliest
period presented.
On April 1, 1997, Mosinee acquired the business and assets of B&J
Supply, Inc. ("B&J"), a converter and nationwide supplier of school
papers. The acquisition was accounted for using the purchase method of
accounting. The results of operations of B&J from the date of purchase
have been included in the reported results of operations since the date
of acquisition. Had the purchase been consummated at the beginning of
fiscal 1997, operating results on a pro forma basis would not have been
significantly different.
NOTE 3. RESTRUCTURING
In March 1998, the Company began implementation of a workforce
reduction program. The purpose of the program was to reduce the number
of employees by 400 through early retirement incentives along with
voluntary separation arrangements, involuntary severance programs and
process automation. As a result of the program implementation, the
-30-
Company recorded a pre-tax restructuring charge of $37.7 million in the
first quarter of 1998. The charge was based on estimates of the cost
of the workforce reduction program, including special termination
benefits, settlement and curtailment losses related to pension and
postretirement benefit plans. In the fourth quarter of 1998, an
additional pre-tax expense of $5.1 million was recorded to recognize
adjustments to the previous estimates of the early retirement
incentives and to recognize additional expenses associated with
integration costs.
All of the benefits under the program have been paid or have been
transferred as obligations of the Company's retirement plans as of
December 31, 1999.
NOTE 4. SUPPLEMENTAL BALANCE SHEET INFORMATION
December 31,
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
RECEIVABLES
Trade $ 82,592 $ 73,950
Other 2,670 3,068
Less allowances 85,262 77,018
( 11,285) ( 10,062)
$ 73,977 $ 66,956
INVENTORIES
Raw materials $ 57,682 $ 58,547
Work in progress and finished goods 93,370 75,906
Supplies 29,869 28,447
Inventories at cost 180,921 162,900
LIFO reserve ( 25,099) ( 12,683)
$ 155,822 $ 150,217
PROPERTY, PLANT AND EQUIPMENT
Buildings Machinery and equipment $ 127,075 $ 124,855
Totals 963,631 882,836
1,090,706 1,007,691
Less: accumulated depreciation ( 477,391) ( 427,954)
Net depreciated value 613,315 579,737
Land 5,435 5,382
Timber and timberlands, net depletion 5,071 5,166
Water power rights 129 129
Construction in progress 29,873 34,651
$ 653,823 $ 625,065
ACCRUED AND OTHER LIABILITIES
Payrolls $ 5,134 4,721
Vacation pay 11,336 10,861
Employee retirement plans 8,749 6,942
Taxes and other income 3,124 4,978
Cash dividends declared 4,118 3,753
Stock appreciation rights 3,224 6,927
Other 11,698 12,602
$ 47,383 $ 50,784
-31-
NOTE 5. DEBT
At December 31, 1998 the Company's short-term notes payable consisted
of $20,000,000 outstanding under an unsecured debt arrangement with one
financial institution and $25,466,000 outstanding under two separate
revolving lines of credit.
The $20,000,000 unsecured debt arrangement was entered into by the
Company on September 30, 1994, at an interest rate of 7.83%. Interest
was paid monthly and the principal was paid in September 1999.
During 1998, two banks participating in the revolving credit
arrangement with the Company provided separate lines of credit. One
line of credit provided for borrowing up to $20,000,000. Specific
rates and terms of the loans were determined at the time of borrowing.
At December 31, 1998, there was $17,000,000 borrowed against this line
of credit at a weighted average interest rate of 5.65%. The second
line of credit provided for borrowing up to $60,000,000 at rates and
terms negotiated at the time of borrowing. At December 31, 1998, there
was $22,000,000 borrowed against this line of credit at a weighted
average interest rate of 5.77%. As of December 31, 1998, of the total
borrowings against the lines of credit, $25,466,000 was classified as
short-term and $13,534,000 was classified as long-term as the Company
intended and had the ability to refinance the obligations under the
revolving credit agreement. Both lines of credit were paid in 1999
from proceeds of the senior promissory notes.
The Company's long-term debt, excluding current maturities as of
December 31, consists of the following:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
Senior promissory notes $141,500 $ 3,000
Line of credit - 13,534
Industrial development bonds 19,000 19,000
Revolving credit facility agreements 50,000 75,000
Commercial paper 9,735 16,466
Capitalized leases 241 -
Totals $220,476 $ 127,000
On December 10, 1999, the Company terminated the existing $105 million
unsecured revolving credit agreement and entered into a $200 million
unsecured revolving credit agreement. The facility is with a
four-member bank group and provides an unsecured short-term revolving
credit facility of $50 million and a $150 million multi-year revolving
credit facility, which matures on December 10, 2004. The short-term
facility may be extended to the first anniversary date of the specified
maturity date then in effect for the short-term facility if there are
no events of default under such facility at the time of the extension
request. The Company may elect the base for interest from either
domestic or offshore rates. In addition, the facility provides for
competitive bid rates amongst the bank group. The credit facility
provides for a facility fee based on quarterly funded
debt/capitalization ratios.
Based on funded debt and equity levels at December 31, 1999, the
short-term facility fee was .15% and the multi-year facility fee was
.175%. The weighted average interest rate on borrowings under the
facility at December 31, 1999 was 6.63%.
At December 31, 1998, the Company maintained an unsecured revolving
credit facility of $105 million with four banks. The agreement was
terminated on December 10, 1999 and all outstanding borrowings on that
date were refinanced under the $200 million revolving credit agreement.
At December 31, 1998, the weighted average interest rate on borrowings
under the $105 million facility was 5.58%.
-32-
On August 31, 1999, the Company closed and funded a private placement
note offering for $138,500,000. The principal amounts, maturities, and
interest rates on the notes are: (1) $35,000,000, 8 years, 7.20%; (2)
$68,500,000, 10 years, 7.31%; and (3) $35,000,000, 12 years, 7.43%.
The Company also entered into an interest rate swap agreement under
which the interest rate paid by the Company with respect to (1)
$58,500,000 of the 10-year notes will be the three month LIBOR rate,
plus .4925% and (2) $30,000,000 of the 12-year notes will be the three
month LIBOR rate, plus .55%.
The Company has outstanding $3 million in unsecured senior promissory
notes. Interest is payable quarterly on the outstanding balance at a
rate of 6.03% per annum. Principal is payable in equal semi-annual
installments, with the final payment due June 16, 2000. At December
31, 1999, the amount has been classified as long-term as the Company
intends and has the ability to refinance the obligation under the
revolving credit agreement.
During 1995, the Company borrowed $19 million related to industrial
development bonds issued by a local governmental unit. The variable
rate bonds require quarterly interest payments and had an interest rate
of 5.30% at December 31, 1999 and 4.30% at December 31, 1998. The
Company also pays fees for a bank letter of credit and remarketing
services related to the bonds which it includes in net interest
expense. The interest rate can be converted to a fixed rate, at the
Company's option, after which semi-annual interest payments will be
required. The bonds mature on July 1, 2023.
The senior promissory notes, long-term note and the revolving credit
facility agreements require the Company to comply with certain
covenants, one of which requires the Company maintain minimum net
worth. At December 31, 1999, $91 million of retained earnings was
available for payment of cash dividends without violation of the
minimum net worth covenant related to the senior promissory notes.
The Company maintains a commercial paper placement agreement with a
bank to issue up to $40 million of unsecured debt obligations which
requires unused credit availability under its revolving credit
agreement equal to the amount of outstanding commercial paper. At
December 31, 1999 and December 31, 1998, $9,735,000 and $16,466,000
were outstanding, respectively. The weighted average interest rate on
outstanding commercial paper was 6.2% at December 31, 1999 and 5.6% at
December 31, 1998. At December 31, 1999, the amounts have been
classified as long-term as the Company intends and has the ability to
refinance the obligations under the revolving credit agreement.
The aggregate annual maturities of long-term debt are as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS)
2000 2001 2002 2003 2004 THEREAFTER
$230 $241 - - $62,735 $157,500
Annual maturities will be affected by future borrowings.
NOTE 6. LEASE COMMITMENTS
The Company has various leases for real estate, mobile equipment and
machinery which generally provide for renewal privileges or for
purchase at option prices established in the lease agreements.
Property, plant and equipment includes the following amounts for
capitalized leases:
-33-
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
Machinery and equipment $ 1,815 $ 1,416
Allowance for amortization (1,341) (1,178)
Net value $ 474 $ 238
Lease amortization is included in depreciation expense.
Future minimum payments, by year and in the aggregate, under
capitalized leases and noncancelable operating leases with initial
or remaining terms of one year or more consisted of the following at
December 31, 1999:
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Capital Operating
LEASES LEASES
2000 $ 230 $1,920
2001 241 1,381
2002 - 724
2003 - 430
2004 - 432
Thereafter - 1,569
Total minimum payments $ 471 $6,456
The future minimum payments for capitalized leases are reflected in the
aggregate annual maturities of long-term debt disclosure in Note 5.
Rental expense for all operating leases was as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Rent expense $5,530 $5,346 $5,154
Contingent rentals were not
material.
-34-
NOTE 7. INTEREST EXPENSE AND CAPITALIZED INTEREST
Total Net
Interest Capitalized Interest
(ALL DOLLAR AMOUNTS IN THOUSANDS) EXPENSE INTEREST EXPENSE
1999 $12,418 $595 $ 11,823
1998 8,406 723 7,683
1997 8,595 492 8,103
NOTE 8. RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS
Substantially all employees are covered under retirement plans. The
defined benefit plan covering salaried employees in 1998 was converted
to a cash balance plan additionally covering non-union employees in
1999. This plan is a defined benefits plan that provides benefits
based on pay and company performance; the plans covering hourly
employees provide benefits based on years of service and fixed benefit
amounts for each year of service. The plans are funded in accordance
with federal laws and regulations.
The Company selected measurement dates of plan assets of September 30,
1999 and 1998.
In 1998, the Company offered a voluntary early retirement program to
encourage early retirements among certain salaried and hourly
employees. The program was part of the restructuring plan discussed
in Note 3 to the consolidated financial statements. As a result,
curtailment and settlement charges of $5.9 million and special
termination benefit charges of $23.3 million were recorded as a
component of the restructuring expense recognized in 1998.
The following are reconciliations of the projected benefit obligations
and the value of plan assets for 1999 and 1998:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
Change in benefit obligation
Balance, beginning of year $ 109,806 $ 119,379
Service cost 4,660 4,687
Interest cost 7,221 8,421
Amendments to the plan (245) 938
Actuarial (gain) loss (8,058) 13,276
Benefits paid to participants (8,991) (7,835)
Curtailments - (1,451)
Settlements - (48,170)
Special termination benefits - 20,561
Balance, end of the year $ 104,393 $ 109,806
Change in plan assets
Fair value, beginning of year $ 55,636 $ 109,617
Actual return on plan assets 11,579 ( 3,844)
Company contributions 6,344 5,868
Benefits paid to participants ( 8,991) ( 7,835)
Settlements - ( 48,170)
Cash contributions to plans subsequent
to measurement date 503 -
Fair value, end of year $ 65,073 $ 55,636
-35-
At December 31, 1999 and 1998, the funded status of the plans were as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
Excess of the benefit obligations
over the value of the plan assets ( $39,320) ( $54,170)
Unrecognized net actuarial (gain) loss ( 2,436) 12,626
Unrecognized prior service cost 13,836 15,559
Unamortized tax benefit 304 -
Unrecognized transition asset ( 729) ( 891)
Net amount recognized at end of year ( $28,345) ( $26,876)
For 1999 and 1998, the net amount recognized in the balance sheet was
classified as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
Prepaid benefit cost $ - $ -
Accrued benefit liability ( 42,163) ( 48,334)
Intangible asset 12,171 13,890
Accumulated other comprehensive income 1,647 7,568
Net amount recognized at end of year ( $28,345) ( $26,876)
For 1999 and 1998, the following weighted average interest rates were used to
determine the projected benefit obligation:
1999 1998
Discount rate on the benefit plan 7.5% 7.0%
Rate of expected return on plan assets 9.0% 9.0%
Rate of employee compensation increase 5.0% 5.0%
Plan assets consist principally of publicly traded stocks and fixed
income securities. At December 31, 1998, the plan assets included
Wausau<circle>Mosinee common stock with a market value of $8,918,000.
During 1999 the Company repurchased all shares held by the plan. At
December 31, 1999, there was no Wausau<circle>Mosinee common stock
included in plan assets.
Net periodic pension cost was comprised of the following:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Service cost $ 4,660 $ 4,687 $ 2,950
Interest cost 7,221 8,421 5,435
Expected return on plan assets ( 4,919) ( 7,576) ( 13,120)
Amortization of:
Actuarial loss 345 201 8,408
Prior service cost 1,478 1,570 1,418
Transition asset ( 163) ( 231) ( 236)
Subtotal 8,622 7,072 4,855
Components charged to restructuring expense:
Special termination benefit 20,561
Settlement and curtailment 310
Subtotal 20,871
Total net periodic pension cost $ 8,622 $ 27,943 $ 4,855
-36-
At December 31, 1999 and 1998, aggregate amounts relating to underfunded plans
are as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
Projected benefit obligation $104,393 $109,806
Accumulated benefit obligation 93,150 98,482
Fair value of plan assets 65,073 55,636
The Company also sponsors defined contribution pension plans, several
of whichprovide for Company contributions based on a percentage of
employeecontributions. The cost of such plans totaled $1,060,000 in
1999, $3,066,000 in 1998 and $3,872,000 in 1997.
The Company has deferred compensation or supplemental retirement
agreements with certain present and past key officers, directors, and
employees. The principal cost of such plans is being or has been
accrued over the period of active employment to the full eligibility
date. The annual cost of the deferred compensation and supplemental
retirement agreements is not material.
The Company sponsors unfunded defined benefit postretirement health and
life insurance plans that cover substantially all employees reaching
normal retirement age while working for the Company. Benefits and
eligibility for various employee groups vary by location and union
agreements. Generally, employees are eligible after reaching age 55 or
62 and meeting minimum service requirements. At age 65, the benefits
become coordinated with Medicare. Effective January 1, 1999, the
salaried plan was amended whereby employees not yet 45 years of age are
no longer eligible for postretirement benefits. The amendment resulted
in a curtailment gain in 1999. The Company funds the benefit costs
on a current basis.
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
Change in postretirement benefit
obligation
Balance, beginning of year $ 70,505 $ 59,060
Service cost 1,870 2,049
Interest cost 4,501 4,235
Plan participants' contributions 526 491
Amendments to the plan (706) (2,025)
Actuarial (gain) loss (5,116) 2,035
Benefits paid for participants (4,610) (3,657)
Curtailments (1,874) 5,594
Special termination benefits --- 2,723
Balance, end of the year $ 65,096 $ 70,505
At December 31, 1999 and 1998, the status of the plan was as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
Excess of the benefit obligation over
the value of plan assets ($ 65,096) ($ 70,505)
Unrecognized net actuarial loss 4,361 9,569
Unrecognized prior service cost ( 2,341) ( 1,861)
Accrued benefit cost ($ 63,076) ($ 62,797)
-37-
The following weighted-average rates were used:
1999 1998
Discount rate on the benefit obligation 7.5% 7.0%
For 1999, the assumed health care cost trend rate used in measuring the
accumulated post-retirement benefit obligation was 6%, declining by 1%
annually for one year to an ultimate rate of 5%. For 1998, the assumed
health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 7%, declining by 1% annually for
two years to an ultimate rate of 5%.
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Service cost $ 1,870 $ 2,049 $ 1,746
Interest cost 4,501 4,235 3,627
Amortization of:
Actuarial loss 90 91 117
Prior service cost ( 226) ( 164)
Curtailments and settlements ( 1,874)
Subtotal 4,361 6,211 5,490
Components charged to restructuring
expense:
Special termination benefit 2,723
Curtailments 5,594
Subtotal 8,317
Total net periodic cost $ 4,361 $ 14,528 $ 5,490
Assumed health care cost trend rates significantly impact reported
amounts. The effect of a one-percentage-point change in the assumed
rates would alter the amounts of the benefit obligation and the sum of
the service cost and interest cost components of postretirement benefit
expense as follows for 1999:
ONE-PERCENTAGE-POINT
(ALL DOLLAR AMOUNTS IN THOUSANDS) INCREASE DECREASE
Effect on the postretirement benefit $ 7,503 ($ 6,670)
obligation
Effect on the sum of the service cost
and interest cost components $ 981 ($ 838)
NOTE 9. INCOME TAXES
Deferred tax assets and liabilities are determined based on the
estimated future tax effects of temporary differences between the
financial statement and tax bases of assets and liabilities, as
measured by the current enacted tax rates. Deferred tax expense
(benefit) is the result of changes in the deferred tax asset and
liability.
-38-
The provision for income taxes is comprised of the following:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Current tax expense:
Federal $13,063 $21,880 $33,208
State 1,613 3,492 3,918
Total current 14,676 25,372 37,126
Deferred tax expense (benefit):
Federal 9,762 ( 321) 9,623
State 1,162 ( 51) 1,442
Total deferred 10,924 ( 372) 11,065
Total provision for income taxes $25,600 $25,000 $48,191
A reconciliation between taxes computed at the federal statutory rate
and the Company's effective tax rate follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
Federal statutory tax rate $23,827 35.0% $23,030 35.0% $39,763 35.0%
State taxes (net of federal
tax benefits) 1,804 2.6 2,237 3.4 3,484 3.1
Nondeductible merger expenses - - - 4,446 3.9
Other ( 31) - ( 267) ( .4) 498 0.4
Effective tax $25,600 37.6% $25,000 38.0% $48,191 42.4%
At the end of 1999, $23,000,000 of unused state operating loss
carryovers existed which may be used to offset future state taxable
income in various amounts through the year 2011. Because separate
state tax returns are filed, the Company is not able to offset
consolidated income with the subsidiaries' losses. Under the
provisions of SFAS No. 109, the benefits of state tax losses are
recognized as a deferred tax asset, subject to appropriate valuation
allowances.
-39-
The major temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1999 and 1998 are as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
Deferred tax asset:
Allowances on accounts receivable $ 1,986 $ 2,213
Accrued compensated absences 3,636 3,472
Stock appreciation rights plans 1,866 3,552
Pensions 11,436 13,316
Inventories 1,912 2,262
Postretirement benefits 24,437 24,534
Postemployment benefits 331 343
Other accrued liabilities 1,515 2,043
State net operating loss carry forward 1,445 1,902
Other 1,758 1,493
Gross deferred tax asset 50,322 55,130
Less: valuation allowance ( 1,764) ( 1,636)
Net deferred tax assets 48,558 53,494
Deferred tax liability:
Property, plant and equipment ( 131,211) ( 124,117)
Other ( 5,986) ( 5,944)
Gross deferred tax liability ( 137,197) ( 130,061)
Net deferred tax liability ($ 88,639) ($ 76,567)
The total deferred tax liabilities (assets) as presented in the
accompanying consolidated balance sheets are as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998
Net long-term deferred tax liabilities $ 103,386 $ 94,911
Gross current deferred tax assets ( 16,511) ( 19,980)
Valuation allowance on deferred tax assets 1,764 1,636
Net current deferred tax assets ( 14,747) ( 18,344)
Net deferred tax liability $ 88,639 $ 76,567
A valuation allowance has been recognized for a subsidiary's state loss
carry forward and future deductible items as cumulative losses create
uncertainty about the realization of the tax benefits in future
years.
NOTE 10. STOCK OPTIONS AND APPRECIATION RIGHTS
The Company maintains various employee stock option plans. The plans
specify purchase price, time and method of exercise. Payment of the
option price may be made in cash or by tendering an amount of common
stock having a fair market value equal to the option price.
Options are granted for terms up to 20 years, the option price being
equal to the fair market value of the Company's common stock at the
date of grant for incentive and non-qualified options.
-40-
The following table summarizes the activity relating to the Company's
stock option plans:
Stock Options: 1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Options outstanding
at beginning of year 1,052,250 $13.93 1,030,722 $14.19 949,791 $16.33
Granted 335,265 15.55 162,000 17.16 115,500 18.13
Terminated ( 55,362) 17.97 ( 42,500) 23.56 ( 27,125) 17.78
Exercised ( 9,778) 13.13 ( 97,972) 16.50 ( 7,444) 16.19
Options outstanding
at end of year 1,322,375 $14.18 1,052,250 $13.93 1,030,722 $14.19
Options exercisable at
end of year 1,282,375 $14.23 887,250 $13.32 1,027,722 $14.17
The Company has adopted Statement of Financial Accounting Standard
(SFAS) No. 123, "Accounting for Stock-Based Compensation." As
permitted under SFAS No. 123, the company will continue to measure
compensation cost for stock option plans using the "intrinsic value
based method" prescribed under APB No. 25, "Accounting for Stock Issued
to Employees." Accordingly, no compensation cost has been recognized
for the stock option plans. If compensation cost had been determined
consistent with the provisions of SFAS No. 123, which prescribes the
"fair value based method" on the grant date, both basic and diluted
earnings per share would have been $.78, $.73 and $1.12 for the years
ended December 31, 1999, 1998, and 1997, respectively.
The fair value of each option grant has been estimated on the grant
date using the Black-Scholes option pricing model based on the
following weighted-average assumptions:
1999 1998
Risk-free interest rate 4.92% 4.55%
Expected life in years 6 6
Price volatility 30.42% 29.60%
Dividend yield 1.86% 1.63%
The Company maintains various stock appreciation rights plans that
entitle certain management employees the right to receive cash equal
to the sum of the appreciation in the value of the stock and the
hypothetical value of cash dividends which would have been paid on the
stock covered by the grant assuming reinvestment in Company stock. The
stock appreciation rights granted may be exercised in whole or in such
installments and at such times as specified in the grant. In all
instances, the rights lapse if not exercised within 20 years of the
grant date. Compensation expense is recorded with respect to the
rights based upon the quoted market value of the shares and the
exercise provisions.
-41-
The following table summarizes the activity relating to the Company's
stock appreciation rights plans:
Stock Appreciation Rights:
1999 1998 1997
Rights outstanding at beginning of
year (number of shares) 952,991 561,907 598,008
Granted 106,558 415,905 -
Terminated ( 405,905) - -
Exercised ( 28,789) ( 24,821) ( 36,101)
Rights outstanding at end of year
(number of shares) 624,855 952,991 561,907
Rights exercisable at end of year
(number of shares) 624,855 952,991 561,907
Price range of stock appreciation
rights exercised $4.46 $4.46 $4.46-5.64
Price range of outstanding stock
appreciation rights $4.06-17.16 $4.06-19.06 $4.06-19.06
The Company maintains the 1991 Dividend Equivalent Plan. Participants
are entitled to receive cash based on the hypothetical value of cash
dividends which would have been paid on the stock covered by the grant
assuming reinvestment in Company stock.
Dividend Equivalents:
1999 1998 1997
Equivalents outstanding at beginning of
year (number of shares) 257,930 296,778 276,347
Granted - - 70,000
Exercised ( 52,497) ( 38,848) ( 25,569)
Terminated - - ( 24,000)
Equivalents outstanding at end of year
(number of shares) 205,433 257,930 296,778
Equivalents exercisable at end of year
(number of shares) 205,433 257,930 293,778
The provision (credit) for all stock option discounts, dividend
equivalents and stock appreciation rights for the years ended December
31, 1999, 1998 and 1997 was ($3,250,000), ($1,520,000) and $2,140,000,
respectively.
NOTE 11. RESEARCH EXPENSES
Research expenses charged to operations were $2,293,000 in 1999,
$2,577,000 in 1998 and $1,577,000 in 1997.
-42-
NOTE 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTIES
In 1997, the Attorney General of the State of Florida filed a civil
complaint in the United States District Court for the Northern District
of Florida against ten manufacturers of commercial sanitary paper
products, including the Company's wholly owned subsidiary, Bay West
Paper Corporation. The lawsuit alleges a conspiracy to fix prices of
commercial sanitary paper products starting at least as early as 1993.
Since the filing of this lawsuit, numerous class action suits have been
filed by private direct purchasers of commercial sanitary paper
products in various district courts throughout the country and
additional federal lawsuits have been filed by the Attorneys General of
the States of Kansas, Maryland, New York, and West Virginia. All of
these federal cases have been certified as class actions and
consolidated in a multi-district litigation proceeding in the United
States District Court for the Northern District of Florida in
Gainesville. Certain indirect purchasers of sanitary commercial paper
products have also filed class action lawsuits in various state courts
alleging a conspiracy to fix prices under state anti-trust laws. No
class has been certified in the state actions. In the opinion of
management, the Company has not violated any antitrust laws and
these cases are without merit. The Company is vigorously defending
these claims.
The Company may also be involved from time to time in various other
legal and administrative proceedings or be subject to various claims
in the normal course of its business. Although the ultimate
disposition of legal proceedings cannot be predicted with certainty,
in the opinion of management, the ultimate disposition of any
threatened or pending matters, either individually or on a combined
basis, will not have a material adverse effect on the consolidated
financial condition, liquidity, or results of operations of the
Company.
Like its competitors, the Company is subject to extensive regulation by
various federal, state, provincial, and local agencies concerning
compliance with environmental control statutes and regulations. These
regulations impose limitations, including effluent and emission
limitations, on the discharge of materials into the environment, as
well as require the Company to obtain and operate in compliance with
conditions of permits and other governmental authorizations. Future
regulations could materially increase the Company's capital
requirements and certain operating expenses in future years.
In 1997, the U.S. Environmental Protection Agency published
regulations, commonly referred to as the "Cluster Rules," affecting
pulp and paper industry discharges of wastewater and gaseous emissions.
These rules require changes in the pulping and bleaching processes
presently used in some U.S. pulp mills, including some of the Company's
mills. Based on its evaluation of the rules, the Company spent
approximately $1.2 million in 1999 and believes that additional capital
expenditures of approximately $20 million may be required to comply
with the Cluster Rules over 2000 and 2001.
As of December 31, 1999, the Company was committed to spend
approximately $64 million to complete capital projects which were
in various stages of completion.
The Company is a party to a natural gas transportation agreement with
the Portland Natural Gas Transmission System (PNGTS). Under the terms
of the agreement, PNGTS has constructed the necessary gas supply and
delivery equipment to the Company's Groveton, New Hampshire mill. The
Company is committed to the transportation of a fixed volume of natural
gas until November 2019.
During 1999, the Company purchased 500,757 shares of its stock for
$7,901,480 from various retirement plans it maintains. All purchases
were made at the market price of the stock as traded on the New York
Stock Exchange on the date of purchase.
-43-
NOTE 13. PREFERRED SHARE PURCHASE RIGHTS PLAN
On October 21, 1998, the Board of Directors adopted a shareholder
rights plan under which one preferred share purchase right (a "Right")
is issued for each outstanding share of common stock of the Company
(the "Common Shares"). Each Right entitles its holder to purchase from
the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock of the Company, without par value (the
"Preferred Shares"), at a price of $60 per one one-thousandth of a
Preferred Share (the "Purchase Price"), subject to adjustment. The
Rights will become exercisable only in connection with a transaction
in which a person or group (with certain exceptions) acquires
beneficial ownership of 15% or more of the outstanding Common Shares
(an "Acquiring Person"). Once exercisable, each holder of a Right,
other than the Acquiring Person, will thereafter have the right to
receive upon exercise that number of Common Shares having a market
value of two times the exercise price of the Right. If the Company is
acquired in a merger or other business combination transaction
or 50% or more of its consolidated assets or earning power are sold
after the rights become exercisable, each holder of a Right, other
than an Acquiring Person, will thereafter have the right to receive
that number of shares of common stock of the acquiring Company which at
the time of such transaction will have a market value of two times the
exercise price of the Right.
Until a Right is exercisable, the holder will have no rights as a
shareholder of the Company. At any time after any person or group
becomes an Acquiring Person, and prior to the acquisition by such
person or group of 50% or more of the outstanding Common Shares, the
Company may exchange the Rights, other than Rights owned by the
Acquiring Person, in whole or in part, at an exchange ratio of one
Common Share per Right (subject to adjustment). At any time prior to
any person or group becoming an Acquiring Person, the Board of
Directors may redeem the Rights in whole, but not in part, at a
price of $ .01 per Right. The Rights will expire on October 31, 2008
unless the expiration date is extended or unless the Rights are
redeemed or exchanged by the Company prior to expiration.
NOTE 14. FUTURES CONTRACTS
At December 31, 1999, the Company was party to various futures
contracts for the purchase of natural gas. The natural gas contracts
require the Company to purchase 300,000 decatherms of natural gas
during 2000. The delivered price of natural gas varies from $3.085 to
$3.169 per decatherm. At December 31, 1999, the Company's futures
contracts have no carrying value. The fair value of the contracts and
the total deferred gain or loss on the contracts are immaterial at
December 31, 1999.
NOTE 15. FINANCIAL INSTRUMENTS
The fair value of the following financial instruments is not materially
different from the carrying value: cash and cash equivalents, long-term
debt, interest rate agreement, capital leases and futures contracts.
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments:
Cash and cash equivalents - The carrying amount approximates fair value
due to the relatively short period to maturity for these instruments.
Long-term debt - The fair value of the Company's long-term debt is
estimated based on current rates offered to the Company for debt of
the same remaining maturities.
-44-
Interest rate agreement - The Company uses an interest rate swap
agreement to manage its exposure to interest rate changes. The
arrangement is considered a hedge of specific borrowings, and
differences paid and received under the swap arrangement are recognized
as adjustments to interest expense. Under the agreement, the Company
makes payments to a counter-party, that is a major financial
institution, at variable rates and in turn receives payments at fixed
rates. At December 31, 1999, the Company had outstanding $88.5 million
of fixed rate obligations with a weighted average interest rate of
7.35% which were effectively converted to variable rate obligations
with an average effective interest rate of approximately 6.6%. The
agreement decreased interest expense by $.3 million in 1999.
The Company may be exposed to losses in the event of nonperformance of
the counter-party but does not anticipate such nonperformance.
Capital leases - The carrying amount reported in the balance sheets for
capital leases approximates fair value.
Futures contracts - The fair values of the Company's commodity products
futures contracts were estimated using the prices published by NYMEX,
the contract price and the remaining commodity products to be purchased
under the contracts.
NOTE 16. SEGMENT DATA
Factors Used to Identify Reportable Segments
The Company's operations are classified into three principal reportable
segments, the Specialty Paper Group, the Printing & Writing Group and
the Towel & Tissue Group, each providing different products. Separate
management of each segment is required because each business unit is
subject to different marketing, production and technology strategies.
Products from which Revenue is Derived
The Specialty Paper Group produces specialty papers at its
manufacturing facilities in Rhinelander, Wisconsin; Mosinee, Wisconsin;
Jay, Maine; and Middletown, Ohio. The Printing & Writing Group
produces a broad line of premium printing and writing grades at
manufacturing facilities in Brokaw, Wisconsin and Groveton, New
Hampshire. The Printing & Writing Group also includes two converting
facilities which produce wax-laminated roll wrap and related specialty
finishing and packaging products, and a converting facility which
converts printing and writing grades. The Towel & Tissue Group
manufactures a complete line of towel, tissue, soap and dispensing
systems for the "away-from-home" market. The Towel & Tissue Group
operates a paper mill in Middletown, Ohio and a converting facility in
Harrodsburg, Kentucky.
Measurement of Segment Profit and Assets
The Company evaluates performance and allocates resources based on
operating profit or loss. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
-45-
Reconciliations
The following are reconciliations to corresponding totals in the
accompanying consolidated financial statements.
1999 1998 1997
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Net sales external customers
Specialty Paper $405,251 $423,473 $415,893
Printing & Writing 383,907 376,131 380,479
Towel & Tissue 155,471 146,523 136,755
$944,629 $946,127 $933,127
Net sales intersegment
Specialty Paper $ 9,190 $ 13,737 $ 10,448
Printing & Writing 3,343 1,595 1,078
Towel & Tissue 126 89 120
$ 12,659 $ 15,421 $ 11,646
Operating profit
Specialty Paper $ 21,532 $ 47,261 $ 56,942
Printing & Writing 40,658 53,613 60,972
Towel & Tissue 22,381 24,018 33,706
Total reportable segment
operating profit 84,571 124,892 151,620
Corporate and eliminations ( 4,925) ( 9,944) ( 17,289)
Restructuring/merger expense - ( 42,803) ( 13,503)
Interest expense ( 11,823) ( 7,683) ( 8,103)
Other income 194 1,339 864
Earnings before income taxes $ 68,017 $ 65,801 $113,589
Segment assets
Specialty Paper $396,624 $371,986
Printing & Writing 309,507 293,509
Towel & Tissue 183,103 176,303
Corporate & unallocated 47,228 58,351
$936,462 $900,149
-46-
Other Significant Items
Interest Income Depreciation, Expenditures
Depletion and for Long-Lived
(ALL DOLLAR AMOUNTS IN THOUSANDS) Amortization Assets
1999
Specialty Paper $ 8 $ 22,978 $ 47,234
Printing & Writing 66 15,757 23,023
Towel & Tissue - 14,848 9,652
Corporate & unallocated 156 1,429 710
$ 230 $ 55,012 $ 80,619
1998
Specialty Paper $ 166 $ 21,629 $ 25,713
Printing & Writing - 15,549 22,972
Towel & Tissue - 13,374 17,700
Corporate & unallocated 237 1,655 10,638
$ 403 $ 52,207 $ 77,023
1997
Specialty Paper $ 56 $ 19,712 $ 28,926
Printing & Writing - 15,156 21,086
Towel & Tissue - 11,730 15,156
Corporate & unallocated 39 661 894
$ 95 $ 47,259 $ 66,062
Company Geographic Data
The Company has no long-lived assets outside the United States. Net
sales to customers within the United States and other countries are as
follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1999 1998 1997
United States $882,108 $887,267 $873,633
All foreign countries 62,521 58,860 59,494
$944,629 $946,127 $933,127
-47-
Quarterly Financial Data (Unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
First Second Third Fourth
Qtr.* Qtr. Qtr. Qtr.** Annual
1999
Net sales $ 226,441 $ 234,257 $ 245,825 $ 238,106 $ 944,629
Gross profit 38,663 37,159 33,697 29,579 139,098
Operating profit 25,131 17,649 22,539 14,327 79,646
Net earnings 14,104 9,727 11,786 6,800 42,417
Net earnings per share basic $ 0.27 $ 0.19 $ 0.23 $ 0.13 $ 0.81
1998
Net sales $ 237,660 $ 243,636 $ 241,603 $ 223,228 $ 946,127
Gross profit 46,309 48,687 42,263 37,792 175,051
Operating profit (loss) ( 11,378) 35,009 33,453 15,061 72,145
Net earnings (loss) ( 8,238) 20,804 19,611 8,624 40,801
Net earnings (loss) per
share basic ( $0.14) $ 0.36 $ 0.34 $ 0.16 $ 0.73
1997
Net sales $ 211,892 $ 234,481 $ 248,578 $ 238,176 $ 933,127
Gross profit 48,606 52,048 54,347 44,662 199,663
Operating profit 33,941 36,292 33,563 17,032 120,828
Net earnings 19,955 21,336 19,723 4,384 65,398
Net earnings per share basic $ 0.34 $ 0.37 $ 0.34 $ 0.08 $ 1.13
<FN>
* In 1998, includes an after-tax expense of $23.4 million ($37.7
million pre-tax) or $.40 per share for restructuring expenses
relating to a workforce reduction program and other merger-related
costs.
**In 1998, includes an after-tax expense of $3.2 million ($5.1 million
pre-tax) or $.06 per share for restructuring expenses relating to a
workforce reduction program and other merger-related costs in 1997,
includes an after-tax expense of $13.2 million ($13.5 million
pre-tax) or $.23 per share for merger-related expenses.
-48-
Market Prices for Common Shares (Unaudited)
1999 1998 1997
Prices Prices Prices
Qtr. High Low Dividends High Low Dividends High Low Dividends
1st $18.00 $13.94 $0.08 $24.00 $18.88 $ - * $20.50 17.88 $0.0625
2nd 18.44 12.63 0.08 24.13 20.13 0.14* 19.75 17.55 0.0625
3rd 18.00 11.94 0.08 22.75 12.13 0.07 25.38 18.75 0.0625
4th 14.19 10.63 0.08 18.50 12.25 0.07 24.38 19.69 0.0625
<FN>
*Due to a change in fiscal years from an August 31 year-end to a
December 31 year-end, no dividend was declared in the first quarter
of 1998, and two quarterly dividends were declared in the second
quarter.
All prices through March 25, 1998, represent the high and the low
closing prices reported on the Nasdaq National Market System and
reflect inter-dealer prices, without mark-up, mark-down or commission
and may not necessarily represent actual transactions. Prices after
March 25, 1998, represent the high and the low sales prices for the
common stock as reported on the New York Stock Exchange.
Schedule II - Valuation and Qualifying Accounts
($ thousands)
Receivable Allowances Other Allowances
Allowance
Allow for Allowance for
Doubtful for Pending Merger Restructure
TOTAL ACCOUNTS DISCOUNTS CREDITS ALLOWANCE ALLOWANCE
Balance December 31, 1996 $10,473 $3,395 $ 688 $ 6,390 $ 0 $ 0
Charges to cost and
expense 23,935 568 8,920 14,447 13,503 0
Deductions (25,669) (1,042) (8,837) (15,790) (12,737) 0
Balance December 31, 1997 $8,739 $2,921 $ 771 $ 5,047 $ 766 $ 0
Charges to cost and
expense 21,180 1,296 8,391 11,493 0 42,803
Deductions (19,857) (97) (8,433) (11,327) (766) (39,651)
Balance December 31, 1998 $10,062 $4,120 $ 729 $ 5,213 $ 0 $ 3,152
Charges to cost and
expense 15,912 183 8,980 6,749 0 0
Deductions (14,689) (733) (8,829) (5,127) 0 (3,152)
Balance December 31, 1999 $ 11,285 $3,570 $ 880 $ 6,835 $ 0 $ 0
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
None.
-49-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to directors of the Company is incorporated into
this Form 10-K by this reference to the materials set forth in the
table on pages 3 and 4 under the caption "Election of Directors" in
the Company's proxy statement relating to the 2000 annual meeting of
shareholders (the "2000 Proxy Statement"). Information relating to the
identification of executive officers of the Company is found in Part I
of this Form 10-K. Information required under Rule 405 of Regulation
S-K is incorporated into this Form 10-K by this reference to the
material set forth under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 8 of the 2000 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to director compensation is incorporated into this
Form 10-K by this reference to the material set forth in the 2000 Proxy
Statement under the caption "Committees and Compensation of Board of
Directors - Director Compensation," on pages 5 and 6. Information
relating to the compensation of executive officers is incorporated into
this Form 10-K by this reference to (1) the material set forth under
the caption "Compensation of Executive Officers," page 8, through the
material set forth under the subcaption, "Pension Plan and Other
Benefits," pages 11 and 12 in the 2000 Proxy Statement and (2) the
material set forth under the caption "Committee Interlocks and Insider
Participation," on page 15 of the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information relating to security ownership of certain beneficial owners
and management is incorporated into this Form 10-K by this reference to
the material under the caption "Beneficial Ownership of Common Stock,"
pages 6, 7 and 8 of the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
-50-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) Documents filed as part of this report.
(1) The following financial statements are filed as part of this
report:
(i)Consolidated Balance Sheets as of December 31, 1999 and 1998
(ii)Consolidated Statements of Income for the years ended December
31, 1999, 1998, and 1997
(iii)Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997
(iv)Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998, and 1997
(v)Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
The following financial statement schedule is filed as part of this
report:
(i)Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1999 1998, and 1997 (page 49)
All other schedules prescribed by Regulation S-X are not submitted
because they are not applicable or not required, or because the
required information is included in the Consolidated Financial
Statements and Notes thereto.
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(3) Exhibits
The following exhibits required by Item 601 of Regulation S-K are filed
as part of this report:
Exhibit
NUMBER DESCRIPTION
3.1 Restated Articles of Incorporation, as amended October 21, 1998
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K dated October 21, 1998)
3.2 Restated Bylaws, as amended December 17, 1997 (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-8 dated December 17, 1997)
4.1 Rights Agreement, dated as of October 21, 1998, between the
Company and Harris Trust and Savings Bank, including the Form
of Restated Articles of Incorporation as Exhibit A and the Form
of Rights Certificate as Exhibit B (incorporated by reference
to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated October 21, 1998)
4.2 Summary of Rights to Purchase Preferred Shares, Exhibit C to
Rights Agreement filed as Exhibit 4.1 hereto (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form 8-A, filed on October 29, 1998)
4.3 $138,500,000 Note Purchase Agreement dated August 31, 1999
(incorporated by reference to Exhibit 4.3 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999)
4.4 $200,000,000 Revolving Credit Agreement dated December 10, 1999
among Registrant and Bank of America, N.A., Bank One, NA, M&I
Marshall & Ilsley Bank, and Harris Trust and Savings Bank
10.1 Supplemental Retirement Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.2 1988 Stock Appreciation Rights Plan, as last amended March 4,
1999 (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998)*
10.3 1988 Management Incentive Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.4 1990 Stock Appreciation Rights Plan, as last amended March 4,
1999 (incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)*
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10.5 Deferred Compensation Agreement dated July 1, 1994, as last
amended March 4, 1999 (incorporated by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998)*
10.6 1991 Employee Stock Option Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.7 1991 Dividend Equivalent Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.8 Supplemental Retirement Benefit Plan dated January 16, 1992, as
last amended March 4, 1999 (incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)*
10.9 Directors' Deferred Compensation Plan, as last amended March 4,
1999 (incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)*
10.10 Directors Retirement Benefit Policy, as amended April 16, 1998
(incorporated by reference to Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998)*
10.11 Mosinee Paper Corporation 1985 Executive Stock Option Plan, as
last amended March 4, 1999 (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)*
10.12 Mosinee Paper Corporation 1988 Stock Appreciation Rights Plan,
as last amended March 4, 1999 (incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)*
10.13 Mosinee Paper Corporation Supplemental Retirement Benefit
Agreement dated November 15, 1991, as last amended March 4,
1999 (incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998)*
10.14 Mosinee Paper Corporation 1994 Executive Stock Option Plan, as
last amended March 4, 1999 (incorporated by reference to
Exhibit 10.19 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)*
10.15 Incentive Compensation Plan for Executive Officers (1998)
(incorporated by reference to Exhibit 10.20 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998)*
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10.16 1999 Incentive Compensation Plan for Executive Officers
(incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.17 2000 Incentive Compensation Plan for Executive Officers
21.1 Subsidiaries (incorporated by reference to Exhibit 21.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)
23.1 Consent of Wipfli Ullrich Bertelson LLP
27.1 Financial Data Schedule (filed electronically only)
*Executive compensation plans or arrangements. All plans
are sponsored or maintained by the Company unless otherwise
noted.
(b) Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
WAUSAU-MOSINEE PAPER
CORPORATION
March 30, 2000 GARY P. PETERSON
Gary P. Peterson
Senior Vice President-
Finance, Secretary and
Treasurer
(On behalf of the Registrant
and as Principal Financial
Officer)
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Pursuant to the requirement 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.
March 30, 2000
SAN W. ORR, JR. RICHARD L. RADT
San W. Orr, Jr. Richard L. Radt
Chairman of the Board and CEO Vice Chairman of the Board
(Principal Executive Officer)
RICHARD G. JACOBUS WALTER ALEXANDER
Richard G. Jacobus Walter Alexander
Director Director
GARY W. FREELS DAVID B. SMITH, JR.
Gary W. Freels David B. Smith, Jr.
Director Director
HARRY R. BAKER
Harry R. Baker
Director
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EXHIBIT INDEX<dagger>
to
FORM 10-K
of
WAUSAU-MOSINEE PAPER CORPORATION
for the fiscal year ended December 31, 1999
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. <section>232.102(d))
Exhibit 4.4 $200,000,000 Revolving Credit Agreement dated December
10, 1999 among Registrant and Bank of America, N.A.,
Bank One, NA, M&I Marshall & Ilsley Bank, and Harris
Trust and Savings Bank
Exhibit 10.17* 2000 Incentive Compensation Plan for Executive Officers
Exhibit 23.1 Consent of Wipfli Ullrich Bertelson LLP
Exhibit 27.1 Financial Data Schedule
<dagger> Exhibits required by Item 601 of Regulation S-K which have
previously been filed and are incorporated herein by reference
are set forth in Part IV, Item 14 of Form 10-K to which this
Exhibit Index relates.
*Executive compensation plans or arrangements. All plans are sponsored
or maintained by the Company unless otherwise noted.
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