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, 2000
[ ] 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 22, 2001, the aggregate market value of the common stock
shares held by non-affiliates was approximately $563,490,491.
The number of common shares outstanding at February 22, 2001 was
51,388,891.
DOCUMENTS INCORPORATED BY REFERENCE
PROXY STATEMENT FOR USE IN CONNECTION WITH 2001 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 ... 21
Item 8. Financial Statements and Supplementary Data ................. 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures ....................... 47
PART III
Item 10. Directors and Executive Officers of the Registrant .......... 48
Item 11. Executive Compensation ...................................... 48
Item 12. Security Ownership of Certain Beneficial Owners and
Management ................................................. 48
Item 13. Certain Relationships and Related Transactions .............. 48
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K ................................................... 49
-ii-
PART I
ITEM 1. BUSINESS.
GENERAL
The Company manufactures, converts, and sells paper. Its principal office is
located in Mosinee, Wisconsin. At December 31, 2000, the Company had
approximately 3,200 employees at ten 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").
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 13 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 ten operating facilities are organized into the three operating
groups described below.
SPECIALTY PAPER GROUP
The Specialty Paper Group's facilities produce a wide variety of technical
specialty papers. The Group is a leader in many of its markets, although
market position varies by product.
The Company closed 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 a buyer for the Sorg business. With the closing, the Company no
longer operates in the decorative laminate and deep color tissue markets of
the industry.
The Rhinelander mill located in Rhinelander, Wisconsin, and Otis mill located
in Jay, Maine, together are one of the nation's largest manufacturers of
supercalendered backing papers for pressure sensitive labeling applications.
These facilities also manufacture specialty papers for a broad range of food,
medical, and industrial applications, including protective barrier paper for
-1-
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 creped 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, 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.
PRINTING & WRITING GROUP
The Printing & Writing Group produces and converts two lines of paper products
in five facilities.
Under the Wausau Papers<reg-trade-mark> brand, 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> brand include a wide range of virgin and recycled
-2-
printing and writing papers, two-thirds of which are colored papers, including
Astrobrights<reg-trade-mark>, a national brand for over 25 years. 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, Fraser Paper, Inc., SAPPI, and smaller privately
held non-integrated companies.
On January 3, 2000, the Company sold the Printing & Writing Group's Specialty
Products business, although it retained the Appleton, Wisconsin, converting
facility. The Appleton facility supports the finishing and distribution
needs of the Printing & Writing Group to minimize the outsourcing of
converting requirements for the Brokaw and Groveton mills. This facility
utilizes contract converting volume to fill 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 operated 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, Fortifiber, Inc., Ludlow,
Cascades, Inc. and Deluxe Paper Products, 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.
-3-
Towel and tissue products made from recycled material and marketed under the
Bay West EcoSoft<trademark> brand 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 other premium towel
and tissue products.
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 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 425,000
tons) is purchased on the open market, principally from pulp mills throughout
the United States and Canada. 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.
-4-
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 22% of its
electrical power needs from spent pulping liquor, fuel oil, coal, wood chips,
fibercake, natural gas and hydropower. The Company generally purchases
natural gas, coal, and fuel oil on a contract basis at prevailing market
prices. Spent pulping liquor, 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 prices of natural gas to be delivered at
future dates. The Company continues to explore alternative power sources as
an ongoing business process and has entered into an operating lease for a co-
generation electrical power facility for its Groveton mill. The leased
facility is expected to be completed by November, 2001.
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<reg-trade-mark>,
AstroBrights<reg-trade-mark>, Ecosoft<trademark>, Bay West<reg-trade-mark>,
Dublsoft<reg-trade-mark>, and Wave 'N Dry<reg-trade-mark>, 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 8.3% of consolidated net sales during
2000. 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.
-5-
BACKLOG
The Company's order backlog at December 31, 2000 approximated 22,000 tons, or
2 weeks of operation. The backlog at December 31, 1999 was approximately
34,000 tons. 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,
2000 is expected to be shipped during fiscal 2001.
RESEARCH AND DEVELOPMENT
Expenditures for product development were approximately $3,968,000 in 2000,
$2,293,000 in 1999, and $2,577,000 in 1998.
ENVIRONMENT
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.
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 $2.3 million in 2001.
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.
In response to these regulations, the Company opted to adopt Total Chlorine
Free (TCF) technology for the pulp bleaching operations at the Brokaw mill.
The TCF system became fully operational in November 2000.
The Mosinee mill will be required to burn additional noncondensable gases and
treat foul condensates to comply with the Cluster Rules. The required changes
must be satisfied by April 15, 2001. 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 2001
or 2002.
-6-
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.
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
On May 15, 2000, the Company closed The Sorg Paper Company mill in Middletown,
Ohio resulting in the termination of 160 hourly and salaried employees. At
December 31, 2000, all employees had been terminated from The Sorg Paper
Company and severance benefits had been or are being paid
The Company had approximately 3,200 employees at the end of 2000. Most hourly
mill employees are covered under collective bargaining agreements. Three new
labor agreements with the Paper, Allied-Industrial, Chemical & Energy Workers
International Union were negotiated in 2000. The Otis mill signed a four year
agreement and the Mosinee mill signed a five year agreement in 2000. The
Rhinelander mill's union employees ratified a new agreement in February, 2001.
Labor agreements will expire in other facilities in 2001, 2002 and 2003. 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 19, 2001:
SAN W. ORR, JR., 59
Chairman of the Board of the Company and Advisor, Estate of A. P. Woodson and
Family; Chief Executive Officer of the Company (2000; 1994-1995); formerly
Chairman of the Board (1987-1997) and a director (1972-1997) of Mosinee Paper
Corporation; also a director of Marshall & Ilsley Corporation.
RICHARD L. RADT, 69
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.
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THOMAS J. HOWATT, 51
President and CEO of the Company since August, 2000. Previously, Senior Vice
President, Printing & Writing Group (1997-2000), 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.
STUART R. CARLSON, 54
Executive Vice President, Administration since October, 2000. Previously,
Senior Vice President, Specialty Paper Group (1997-2000), 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).
GARY P. PETERSON, 52
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 LLP (1981-1991).
JOHN J. SCHIEVELBEIN,
Senior Vice President, Printing & Writing Group since October, 2000.
Previously, Vice President and General Manager of Converted Products (1990 -
2000) and Manager of Market Development, Mosinee Pulp and Paper Division (1986
- 1990).
ALBERT K. DAVIS, 53
Senior Vice President, Specialty Paper Group since October, 2000.
Previously, Vice President of Operations & Site Manager (1998 - 2000), Vice
President of Operations (1966-1998), Vice President of Engineering (1990 -
1996), Rhinelander Paper Company, Inc.
DAVID L. CANAVERA, 51
Senior Vice President, Towel & Tissue Group. Previously, Vice President,
Towel & Tissue (1996-1997) of Mosinee Paper Corporation, and Vice President
and General Manager (1994-1996) and Vice President - Resident Manager (1991-
1994), Bay West Paper, Harrodsburg.
DENNIS M. URBANEK, 56
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).
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 Reform Act.
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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 industry 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:
<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>Changes in energy prices or availability.
-9-
<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 2000
FACILITY PRODUCT MACHINES CAPACITY*(TONS) ACTUAL (TONS)
Specialty Paper
GROUP
Rhinelander Paper 4 165,000 152,400
Otis Paper 2 67,000 57,700
Mosinee Paper 4 114,000 112,100
Pulp 96,000 95,500
Printing & Writing
GROUP
Wausau Papers Paper 4 177,000 170,000
(Brokaw) Pulp 100,000 93,000
Wausau Papers Paper 2 115,000 115,000
(Groveton)
Wausau Papers
(Appleton) Converting N/A 29,000 15,500
Mosinee Laminated/
Converted Coated Papers N/A 145,000 57,000
Products
Towel&Tissue
GROUP
Bay West
(Middletown, Towel 1(towel) 70,000 60,000
Ohio) Tissue 1(tissue) 35,000 33,400
Deink Pulp 110,000 93,400
(Harrodsburg, Converted Towel
Kentucky) & Tissue N/A 168,000 129,300
<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 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 121,000 acres of timberland.
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ITEM 3. LEGAL PROCEEDINGS.
During 2000, the Company's subsidiary, Bay West Paper Corporation ("Bay
West"), along with the other defendants, settled antitrust claims of private
direct purchasers of commercial sanitary paper products in actions
consolidated in the U. S. District Court for the Northern District of Florida
and claims in California by indirect purchasers of sanitary commercial paper
products under state antitrust law. Each settlement was made without any
admission of liability. The Company took a one-time pre-tax charge of $2.0
million in the second quarter of 2000 to cover the cost of the settlements and
other expenses related to the antitrust litigation. An action in Tennessee by
indirect purchasers is still pending. In the opinion of management, Bay West
has not violated any antitrust laws and the costs of disposition of the
Tennessee claim will not be material.
The Company faces potential liability for penalties for failure to file
notices of reportable events and for certain excise taxes with regard to
temporary liquidity shortfalls in connection with voluntary supplemental early
retirement program benefits paid from two qualified plans maintained by
subsidiaries. The Company's failure to notify the Pension Benefit Guaranty
Corporation ("PBGC") of the reportable events on a timely basis could result
in the imposition of a maximum penalty of approximately $1.6 million. The
Company also faces the possible liability for excise taxes of approximately
$1.5 million in connection with the temporary liquidity shortfall. The PBGC
and the Internal Revenue Service each have discretion to waive all or part of
the penalties or tax. The Company is seeking a waiver of all penalties and
taxes and intends to seek reimbursement of any amounts it is required to pay.
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 2000.
-12-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the New York Stock Exchange under the
symbol "WMO".
As of the record date of the annual meeting, February 22, 2001, (the "Record
Date") there were approximately 3,700 holders of record of the Company's
common stock. The Company estimates that as of the Record Date there were
approximately 7,400 additional beneficial owners whose shares were held in
street name or in other fiduciary capacities. As of the Record Date, there
were 51,388,891 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.
Closing
Market Price Cash Dividend
CALENDAR QUARTER HIGH LOW DECLARED
2000
First Quarter $14.63 $9.50 *
Second Quarter $13.25 $8.50 $.17
Third Quarter $10.19 $7.75 $.085
Fourth Quarter $12.13 $7.56 $.085
1999
First Quarter $18.00 $13.94 *
Second Quarter $18.44 $12.63 $.16
Third Quarter $18.00 $11.94 $.08
Fourth Quarter $14.19 $10.63 $.08
<FN>
*Two dividends were declared in the second quarter.
-13-
Item 6. SELECTED FINANCIAL DATA.
Wausau-Mosinee Paper Corporation and Subsidiaries
SELECTED FINANCIAL DATA
(all dollar amounts in thousands, except per share data)
5-Year For the years ended For the year ended
Compound December 31, August 31,
Growth Rate 2000 1999 1998 1997* 1996* 1995*
----------- --------- -------- -------- -------- -------- ---------
FINANCIAL RESULTS
Net sales ................... 3.0% $952,130 $944,629 $946,127 $933,127 $857,159 $821,313
Depreciation, depletion
amortization ............. 10.0% 58,860 55,012 2,207 47,259 41,204 36,573
Operating profit ............(25.3%) 19,224 79,646 72,145 120,828 119,049 82,460
Interest expense ............ 15.2% 5,713 11,823 7,683 8,103 7,198 7,754
Earnings before provision
for income taxes .......... 56.8% 1,138 68,017 65,801 113,589 111,778 75,961
Earnings before cumulative
effect of accounting change
& restructuring/merger
expense, net of tax .......(20.6%) 14,664 42,417 67,339 78,601 68,128 46,436
Earnings before interest,
taxes, depreciation,
depletion & amortization ..( 8.8%) 75,711 134,852 125,691 168,951 160,180 120,288
Net earnings ................(56.6%) 718 42,417 40,801 65,398 68,128 46,436
Cash dividends paid ........ 11.6% 17,207 16,233 15,494 13,134 11,162 9,922
Cash flows from operating
activities ............... 0.5% 80,254 89,334 117,859 99,724 136,376 78,414
PER SHARE
Earnings before cumulative
effect of accounting change
& restructuring/merger
expense, net of tax ...... (18.2%) $0.29 $0.81 $1.21 $1.36 $1.16 0.79
Net earnings-basic ......... (58.3%) 0.01 0.81 0.73 1.13 1.16 0.79
Cash dividends declared .... 11.2% 0.34 0.32 0.28 0.25 0.22 0.20
Stockholders' equity ....... 5.0% 7.33 7.53 7.12 7.61 6.61 5.74
Average number of shares
outstanding .............. __ 51,354,000 52,265,000 55,708,000 57,811,000 58,829,000 58,843,000
Price range (low and
high closing) ............ __ 7.63-14.63 10.94-18.44 12.25-24.06 17.55- 25.38 16.50-24.13 16.20-20.00
Wausau-Mosinee Paper Corporation and Subsidiaries
SELECTED FINANCIAL DATA (cont)
(all dollar amounts in thousands, except per share data)
5-Year For the years ended For the year ended
Compound December 31, August 31,
Growth Rate 2000 1999 1998 1997* 1996* 1995*
----------- --------- -------- -------- -------- -------- --------
FINANCIAL CONDITION
Working capital ............ 8.1% $138,605 $40,822 $81,406 $126,653 $87,536 $ 93,916
Total assets ............... 6.0% 948,431 936,462 900,149 872,064 52,057 707,631
Long-term debt ............. 11.1% 250,465 220,476 127,000 140,500 101,451 147,930
Stockholders' equity ....... 2.2% 76,548 393,760 396,586 440,160 388,608 337,881
Capital expenditures ....... 1.4% 86,896 80,619 77,023 66,062 82,489 81,220
RATIOS
Percent earnings before
cumulative effect of
accounting change &
restructuring/merger
expense to sales ......... __ 1.5% 4.5% 7.1% 8.4% 7.9% 5.7%
Percent net earnings
to sales ................. __ 0.1% 4.5% 4.3% 7.0% 7.9% 5.7%
Percent earnings before
cumulative effect of
accounting change &
restructuring/merger
expense to average
stockholders' equity .... __ 3.8% 10.7% 16.1% 18.9% 18.8% 14.5%
Percent net earnings to
average stockholders'
equity ................. __ 0.2% 10.7% 9.8% 15.8% 18.8% 14.5%
Ratio of current assets
to current liabilities .. __ 2.2 to 1 2.3 to 1 1.5 to 1 2.2 to 1 1.8 to 1 2.0 to 1
Percent of long-term
debt to total capital ... __ 39.9% 35.9% 24.3% 24.2% 20.7% 30.5%
<FN>
Note:
As a result of a change in fiscal year from August 31 to December 31 and
merger of Wausau Paper Mills Company ("Wausau") and Mosinee Paper Corporation
("Mosinee") in December 1997 which was accounted for as a pooling of
interests, the financial information has been restated to retroactively
combine Mosinee's financial statements as if the merger had occurred at the
beginning of the earliest period presented.
-14-
Item 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATIONS REVIEW
NET SALES
(all dollar amounts in thousands)
2000 1999 1998
-------- -------- --------
Net sales ...................... $952,130 $944,629 $946,127
Percent increase ............... 1% - 1%
While net sales were comparable for the three years presented, actual tonnage
shipped varied from year to year. Total tons shipped in 2000 were 798,000, a
decrease of 46,000 tons from the record shipments in 1999 of 844,000 tons. The
closure of the Sorg Paper Company and the sale of the school papers business
accounted for 42,000 tons of the decline year-over-year. The balance of the
decrease was attributable to reductions in both the Printing & Writing Group
and Specialty Paper Group shipments partially offset by gains in Towel &
Tissue Group shipment volume. Total shipments in 1998 were 832,000 tons.
Selling prices for products began to increase late in 1999 and continued to
increase until the fall of 2000, when the economic slowdown led to selling
price pressure and a decline in pricing near year-end. This selling price
trend followed price declines for 1998 and most of 1999. Selling price
increases were due to the Company's attempt to offset rising raw material cost
increases and favorable market conditions early in the year.
Shipments in 2000 were 336,000 tons compared to 361,000 tons in 1999 for the
Printing & Writing Group. The sale of the school paper business accounted for
22,000 tons of the decline, with the balance attributable to difficult market
conditions experienced in the second half of 2000. Total shipments in 1998
were 352,000 tons. Consumer products business grew by more than 25% for both
2000 and 1999. Total consumer product tons shipped in 2000 were 29,500 tons
and are projected to have double digit growth in 2001. Selling prices for the
full year were modestly higher than in 1999 as a result of price improvements
on select grades early in the year. This comparison became less favorable late
in the year as business conditions became more competitive and prices declined
by 1% from the third quarter 2000 prices. During 2001 the focus will be on
increasing premium paper sales through normal distribution channels as well as
retail business growth. Distribution facilities established in Los Angeles
(1999) and Dallas (2000) will help to facilitate this growth.
Specialty Paper Group shipments declined to 332,000 tons in 2000 compared to
359,000 tons in 1999. The closure of the Sorg Paper Company represented 20,000
tons of this decline, with the balance attributable to reduced shipments
because of product mix changes and difficult market conditions late in the
year. Total shipments were 368,000 tons in 1998.
Selling prices began to increase in late 1999 and continued to increase in
most of 2000, owing in part to early year price initiatives and pulp pass-
through agreements in select markets. Prices started to decline in select
grades late in the year due to competitive market conditions. Selling prices
had declined in 1998 and early in 1999. The Specialty Paper Group will again
focus on overall product mix improvement in 2001. In addition, there will be
an intense focus on product development and market expansion for the new High
Performance Liner (HPL) Project, which introduced trial product rolls late in
the fourth quarter of 2000.
-15-
The Towel & Tissue Group continued its record volume growth again in 2000.
Total shipments were 130,000 tons in 2000, an increase of 5% over 1999
shipments of 124,000 tons. Total tons shipped in 1998 were 112,000. Higher
margin emphasis products growth was a focus for 2000 and these products
experienced double-digit gains in 2000. Selling prices increased in late 1999
and continued to increase throughout most of 2000, with a modest decline late
in the fourth quarter. Selling prices had declined in 1998 and most of 1999.
The Towel & Tissue Group will focus on emphasis product growth in 2001.
Selling price increases have been announced in early 2001 for the Printing &
Writing and Towel & Tissue Groups. Competitive market pressures will
ultimately determine the success of these announced increases.
Order backlogs had declined to 22,000 tons for all operating groups as of
December 31, 2000. This compares to 34,000 tons at the end of 1999. While
order backlog totals do not necessarily indicate the business strength,
because a substantial portion of orders are shipped directly from inventory
upon receipt, they are somewhat indicative of the economic slowdown
experienced in the last half of 2000.
GROSS PROFIT ON SALES
(all dollar amounts in thousands)
2000 1999 1998
-------- -------- --------
Gross profit on sales ............ $104,519 $139,098 $175,051
Percent decrease ................. (25%) (21%) (12%)
Gross profit margin .............. 11% 15% 19%
Gross profit margins have decreased for all years presented. The decline in
margins was principally due to competitive market pressures that lowered
selling prices in 1998 and most of 1999. Although selling prices improved in
late 1999 and 2000, rapidly escalating raw material and energy costs more than
offset the selling price gains.
Market prices for pulp rose significantly in 1999 and most of 2000 compared to
market price declines in 1998. Pulp prices stabilized in the fourth quarter of
2000 and began to reflect modest declines. While list prices remained
unchanged, product discounts were realized late in 2000. Current market
projections indicate a decline in pulp prices for the first half of 2001. The
Company purchases approximately 425,000 tons of pulp annually.
Wastepaper prices, the primary raw material used in the Towel & Tissue Group
were relatively stable early in 2000 and began to decline in the last half of
the year. Wastepaper prices doubled in 1999 and also increased in 1998. The
Company purchases approximately 150,000 tons of wastepaper annually. On an
annual basis, the net impact of pulp and wastepaper prices increased the
Company's raw material costs by $50 million and $75 million for 2000 and 1999,
respectively.
Energy costs had remained relatively static throughout 1998, 1999, and the
first half of 2000. In the second half of 2000, costs began to increase
rapidly. Overall, energy costs increased by more than $10 million in 2000
compared to 1999.
The Printing & Writing Group's mills operated near capacity for the last three
years, with the Groveton mill completing its fourth consecutive year of record
production. While the Brokaw pulp mill negatively impacted operations in 1998
and 1999, it ended 2000 with production near design levels and posted a record
year of production in 2000. Finished goods inventory levels began to increase
in late 2000 due to the economic slowdown. Programs are in place to
effectively manage and avoid carrying excessive inventory quantities.
-16-
The Specialty Paper Group operated near capacity for all 1999 and 1998. In
2000 all three facilities within the Group took market-related downtime to
balance supply and demand. Finished goods inventory levels increased
throughout the year and additional market-related downtime may be necessary if
economic conditions do not improve in 2001. In addition, the Sorg Paper
Company facility was closed May 15, 2000. All raw material and finished goods
inventories of Sorg had been liquidated by year-end.
The Towel & Tissue Group's production levels increased in proportion with its
sales growth for all years presented. Finished goods levels declined by 19% in
2000 and had increased in concert with sales growth in 1999 and 1998. The
state-of-the-art converting facility continued to gain production efficiencies
in all three years.
LABOR
New labor agreements with the Paper, Allied-Industrial, Chemical & Energy
Workers International Union were successfully negotiated in 2000. The Otis
mill signed a four year agreement and the Mosinee mill negotiated a five year
agreement. The agreements contained wage increases similar to other paper
companies. The Rhinelander mill's labor agreement expired on December 31,
2000. Union employees ratified a new agreement in 2001. Labor agreements will
expire in other facilities in 2001, 2002 and 2003.
The Company maintains good labor relations in all facilities.
OPERATING EXPENSES
(all dollar amounts in thousands)
2000 1999 1998
-------- -------- --------
Selling and administrative .......... $63,580 $59,452 $ 60,103
Percent increase/(decrease) ......... 7% (1%) (8%)
Restructuring and merger ............ 21,715 - 42,803
Total operating expense ............. 85,295 59,452 102,906
Percent increase/(decrease) ......... 43% (42%) 31%
As a percent of net sales ........... 9% 6% 11%
Selling and administrative expenses were impacted by stock incentive programs
charges or credits, which were determined by the Company's stock price change.
During 2000 the charge for these programs was $1.2 million, compared to
credits of $3.9 million and $1.8 million for 1999 and 1998, respectively.
In addition, the selling and administrative costs for 2000 were impacted for a
charge of $2.6 million due to the resignation of the Company's President and
CEO. Offsetting the aforementioned impacts and general inflationary costs
recognized in 2000 compared to 1999 and 1998 were benefits from improved
discretionary spending and the closure of the Sorg Paper Company.
The Company recorded a pre-tax restructuring charge of $25 million in the
first quarter of 2000 in the Specialty Paper Group segment to cover shutdown
and asset disposition costs associated with the closure of The Sorg Paper
Company mill in Middletown, Ohio. In the fourth quarter of 2000, the estimate
was revised resulting in a $2.7 million income adjustment. The restructuring
charge included $2.5 million in hourly and salaried severance cost and a
benefit of $1.6 million for pension, post-retirement and other items. The
asset disposition charge includes $21.4 million in related asset write-downs
and disposition costs. At December 31, 2000, all employees have been
terminated and severance payouts had been or are being paid.
During 1998, the Company recorded $42.8 million in merger and restructuring
costs associated with the merger with Mosinee Paper Corporation.
-17-
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.
OTHER INCOME AND EXPENSE
(all dollar amounts in thousands)
2000 1999 1998
-------- ------- --------
Interest expense ............... $15,713 $11,823 $7,683
Percent increase/(decrease) .... 33% 54% (5%)
Other .......................... (2,373) 194 1,339
Interest expense increased in 2000 and 1999 due principally to increased debt
levels and increasing borrowing rates. Interest expense was lower in 1998
because of significantly lower average debt levels during the year and lower
borrowing rates. Approximately 80% of the Company's current outstanding debt
is borrowed at short-term rates. Recent rate reductions by the Federal Reserve
are expected to reduce borrowing costs in 2001 compared to 2000. Capitalized
interest totaled $1.1, $.6, and $.7 million in 2000, 1999, and 1998,
respectively. Fluctuations in capitalized interest are primarily dependent on
varying levels of capital expenditures qualifying under the capitalized
interest criteria.
Other income and expense includes anti-trust settlement charges of $2 million
in 2000 and interest income of $.1, $.2, and $.4 million in 2000, 1999, and
1998, respectively. The other annual variations are primarily due to
fluctuations in the gain or loss on asset sales and disposals.
INCOME TAXES
(all dollar amounts in thousands)
2000 1999 1998
------ ------ -------
Income tax provision ............. $420 $25,600 $25,000
Percent increase/(decrease) ...... (98%) 2% (48%)
Effective tax rate ............... 36.9% 37.6% 38.0%
The effective tax rates for the years presented are indicative of the
Company's normalized tax rate. The effective tax rate for 2001 is expected to
approximate 37%.
-18-
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW AND CAPITAL EXPENDITURES
(all dollar amounts in thousands)
2000 1999 1998
------- ------- --------
Cash provided by operating activities .. $80,254 $89,334 $117,859
Percent increase/(decrease) ............ (10%) (24%) 18%
Working capital ........................ 138,605 140,822 81,406
Percent increase/(decrease) ............ (2%) 73% (36%)
Current ratio .......................... 2.2:1 2.3:1 1.5:1
Cash flow from operations decreased in 2000 compared to 1999 principally due
to decreased cash flow earnings from operations. Reduced investments in
receivables and inventories favorably offset the earnings shortfall.
Capital expenditures totaled $86.9 million in 2000, compared to $80.6 million
in 1999 and $77 million in 1998.
During 2000, the Printing & Writing Group expended $4.2 million of a $6.8
million project to achieve compliance with the 1998 Clean Air Act Cluster
Rules. At the Groveton mill, the company spent $5.5 million to complete a
central stock preparation area and a paper machine drying project, both of
which were begun in 1999.
In 2000, the Specialty Paper Group completed a project that will provide new
manufacturing capabilities and improve sales mix at its Rhinelander mill.
Total 2000 expenditures related to this project were $38 million. The Mosinee
mill spent $12.3 million of a $14.4 million project during the year to comply
with the 1998 Clean Air Act Cluster Rules.
The Towel & Tissue Group spent $2.1 million on new toweling lines that were in
progress at year-end. Completion of these lines in 2001 to keep pace with
sales volume increases, will cost an additional $7.7 million.
The Company has implemented programs for 2001 that restrict capital spending
to a level not to exceed the forecasted expense for depreciation, depletion
and amortization of $60 million. The Company believes the borrowings under its
credit agreements and its earnings for 2001 will be sufficient to meet its
cash flow needs for capital, working capital and investing activities in 2001.
-19-
DEBT AND EQUITY
(all dollar amounts in thousands)
2000 1999 1998
------- ------- -------
Short-term debt ....................... $241 $230 $51,517
Long-term debt ........................ 250,465 220,476 127,000
Total debt ............................ 250,706 220,706 178,517
Stockholders' equity .................. 376,548 393,760 396,586
Total capitalization .................. 627,013 614,236 523,586
Long-term debt/capitalization ratio ... 40% 36% 24%
The Company's debt was restructured in 1999 and remained in place throughout
2000. A private placement of $138.5 million in senior notes was closed and
funded in August 1999. The notes have an original maturity of 8, 10 and 12
years at $35 million, $68.5 million and $35 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 7.26% at
December 31, 2000. The agreement decreased interest expense by $.2 million in
2000.
The Company also entered into a new revolving credit facility in December 1999
with four banks for $200 million. Subsequently, certain covenants in the
agreement were amended. The facility has a 364-day component for $50 million
that expires on March 9, 2001, and $150 million for five years. The Company
intends and believes it has the ability to replace the $50 million facility in
2001.
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, 2000, the
Company had a combined total of $88 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 bonds mature in 2023 and bear interest at short-term rates. The
bonds are supported by a letter of credit that was issued under the revolving
credit facility.
In April 2000, the Company's Board of Directors authorized the repurchase of
2,571,000 shares of the Company's common stock. The new authorization added to
the balance remaining on a 1998 authorization to repurchase 5,650,000 shares
of the Company's common stock. During 2000, the Company repurchased 150,300
shares at prices ranging from $7.75 to $9.31. 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
-20-
prices ranging from $12.125 to $18.00. The repurchases may be made from time
to time in the open market or through privately negotiated transactions. At
December 31, 2000 there are 2,638,674 shares available for purchase under the
existing authorizations.
During 2000, the Board of Directors declared cash dividends of $.34 per share,
an increase of 6% from the $.32 per share cash dividends declared in 1999.
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 issued notes in the amount of $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 is the three month LIBOR rate, plus
.4925% and (2) $30,000,000 of the 12-year notes is the three month LIBOR rate,
plus .55%. On March 19, 2001, the Company terminated its swap agreement with
respect to the 12-year notes. 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, 2000, these instruments consisted of various futures contracts for the
purchase of natural gas. 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 12 of "Notes to Consolidated Financial
Statements" for additional information relating to the Company's derivative
commodity instruments.
-21-
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Wausau-Mosinee Paper Corporation
Mosinee, Wisconsin
We have audited the accompanying consolidated balance sheets of Wausau-Mosinee
Paper Corporation and Subsidiaries as of December 31, 2000 and 1999, 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, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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-
Mosinee Paper Corporation and Subsidiaries at December 31, 2000 and 1999, and
the results of its operations and cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with generally
accepted accounting principles.
WIPFLI ULLRICH BERTELSON LLP
Wipfli Ullrich Bertelson LLP
January 25, 2001
Wausau, Wisconsin
-22-
Wausau-Mosinee Paper Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
As of December 31,
(all dollar amounts in thousands) 2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents .......................... $10,579 $5,397
Receivables, net ................................... 71,119 73,977
Refundable income taxes ............................ 5,470 1,638
Inventories ........................................ 151,349 155,822
Deferred income taxes .............................. 16,463 14,747
Other current assets ............................... 1,432 730
-------- --------
Total current assets ............................ 256,412 252,311
Property, plant and equipment, net .................... 662,204 653,694
Other assets .......................................... 29,815 30,457
-------- --------
TOTAL ASSETS .......................................... $948,431 $936,462
======== ========
Liabilities
Current liabilities:
Current maturities of long-term debt ............... $241 $230
Accounts payable ................................... 67,896 63,876
Accrued and other liabilities ...................... 49,670 47,383
-------- --------
Total current liabilities ....................... 117,807 111,489
Long-term debt ........................................ 250,465 220,476
Deferred income taxes ................................. 106,956 103,386
Postretirement benefits ............................... 53,867 58,885
Pension ............................................... 27,870 35,019
Other noncurrent liabilities .......................... 14,918 13,447
------- -------
Total liabilities .................................. 571,883 542,702
------- -------
Commitments and contingencies ......................... - -
------- -------
Stockholders' Equity
Preferred stock (500,000 shares authorized) no par value - -
Common stock (100,000,000 shares authorized) no par value 171,819 170,682
Retained earnings ..................................... 324,797 341,530
-------- --------
Subtotals .......................................... 496,616 512,212
Treasury stock at cost ................................ (118,595) (117,428)
Minimum pension liability (net of deferred taxes) ..... (1,473) (1,024)
-------- --------
Total stockholders' equity ......................... 376,548 393,760
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $948,431 $936,462
======== ========
See accompanying notes to consolidated financial statements.
-23-
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,
2000 1999 1998
-------- -------- --------
Net sales ................................... $952,130 $944,629 $946,127
-------- -------- --------
Cost of sales ............................... 847,012 805,531 771,076
Restructuring charge - inventory ............ 599 - -
-------- -------- --------
Total cost of sales ...................... 847,611 805,531 771,076
-------- -------- --------
Gross profit ................................ 104,519 139,098 175,051
Operating expenses:
Selling and administrative ............... 63,580 59,452 60,103
Restructuring and merger expense ......... 21,715 - 42,803
-------- -------- --------
Operating profit ............................ 19,224 9,646 72,145
Other income (expense):
Interest expense ......................... (15,713) (11,823) (7,683)
Interest income .......................... 138 230 403
Other .................................... (2,511) (36) 936
-------- -------- --------
Earnings before provision for income taxes... 1,138 68,017 65,801
Provision for income taxes .................. 420 25,600 25,000
-------- -------- --------
Net earnings ................................ $718 $42,417 $40,801
======== ======== ========
Net earnings per share basic ................ $0.01 $0.81 $0.73
======== ======== ========
Net earnings per share diluted .............. $0.01 $0.81 $0.73
======== ======== ========
See accompanying notes to consolidated financial statements.
-24-
Wausau-Mosinee Paper Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all dollar amounts in thousands)
For the years ended
December 31,
2000 1999 1998
Cash flows from operating activities:
Net earnings ............................................ $718 $42,417 $40,801
Provision for depreciation, depletion and amortization .. 58,860 55,012 52,207
Recognition of deferred revenue ......................... (40) (40) (40)
Provision for losses on accounts receivable ............. 396 110 1,227
Loss (gain) on property, plant and equipment disposals .. 622 334 (782)
Compensation expense for stock option grants ............ 1,183 - -
Deferred income taxes ................................... 1,854 12,072 (1,028)
Changes in operating assets and liabilities:
Receivables .......................................... 2,462 (7,131) 1,491
Inventories .......................................... 4,473 (5,605) (6,607)
Other assets ......................................... (2,541) (1,285) (6,959)
Accounts payable and other liabilities ............... 16,099 (8,194) 38,032
Accrued and refundable income taxes .................. (3,832) 1,644 (483)
-------- ------ -------
Net cash provided by operating activities ............... 80,254 89,334 117,859
-------- ------ -------
Cash flows from investing activities:
Capital expenditures .................................... (86,896) (80,619) (77,023)
Proceeds from property, plant and equipment disposals ... 244 1,218 9,550
-------- -------- --------
Net cash used in investing activities ................... (86,652) (79,401) (67,473)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments) of short-term notes ......... - (45,466) 25,466
Net borrowings (repayments) under credit agreements ..... 33,230 (45,265) 12,551
Payments under capital lease obligation ................. (230) (269) (207)
Net borrowings (repayments) of long-term notes .......... (3,000) 132,500 (6,000)
Dividends paid ......................................... (17,207) (16,233) (15,494)
Payment for preferred stock of subsidiary ............... - - (320)
Proceeds from stock option exercises .................... 87 128 1,741
Payments for purchase of treasury stock ................. (1,300) (32,426) (68,212)
-------- -------- --------
Net cash provided by (used in) financing activities ..... 11,580 (7,031) (50,475)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .... 5,182 2,902 (89)
Cash and cash equivalents at beginning of year .......... 5,397 2,495 2,584
Cash and cash equivalents at end of year ................ $10,579 $5,397 $2,495
Supplemental cash flow information:
Interest paid - net of amount capitalized ............... $16,207 $10,323 $7,629
Income taxes paid ....................................... $2,399 $11,884 $26,511
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.
See accompanying notes to consolidated financial statements.
-25-
Wausau-Mosinee Paper Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Other
Comprehensive
Income Total
Common Stock Treasury Stock Minimum Common Stock-
Shares Retained Pension Stock-Shares holders'
Issued Amount Earnings Shares Amount Liability Outstanding Equity
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 614 (614) (12) (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
Comprehensive earnings, 2000:
Net earnings 718 718
Minimum pension liability
(net of $278 deferred tax) (449) (449)
Comprehensive earnings, 2000 269
Cash dividends declared (17,451) (17,451)
Stock options exercised (46) 10,000 133 10,000 87
Stock option expense 1,183 1,183
Purchases of treasury stock (150,300) (1,300) (150,300) (1,300)
60,122,812 $171,819 $324,797 (8,846,421)($118,595)($1,473) 51,276,391 $376,548
See accompanying notes to consolidated financial statements.
-26-
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.
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 - 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 and Cash Equivalents - The Company defines cash equivalents as highly
liquid, short-term investments with an original maturity of three months or
less. Cash and cash equivalents are carried at cost, which approximates fair
market value.
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 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.
The Company's policy is to capitalize interest incurred on debt during the
course of projects that exceed one year in construction and $1 million or
projects that exceed $10 million. Interest capitalized in 2000, 1999 and 1998
was $1.1 million, $0.6 million and $0.7 million, respectively.
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.
Timber and timberlands are stated at net depleted value. Depletion expense is
calculated using the block and units-of-production methods.
-27-
Accounts Payable - The Company's banking system provides for the daily
replenishment of major bank accounts for check-clearing requirements.
Accordingly, there was a negative book cash balance of $3.3 million at
December 31, 2000. This balance resulted from outstanding checks that had not
yet been paid by the bank. The outstanding checks at December 31, 2000 have
been reclassified to accounts payable in the Consolidated Balance Sheets.
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 is calculated based on
the weighted average number of common shares outstanding during the year,
while diluted earnings per common share is calculated based on the weighted
average number of common shares and common stock equivalents (options)
outstanding.
Basic and diluted earnings per share are reconciled as follows:
(all dollar amounts in thousands, except per share data)
For the years ended December 31,
2000 1999 1998
---------- ---------- ----------
Net earnings ........................... $718 $42,417 $40,801
========== ========== ==========
Basic weighted average common
shares outstanding ................... 51,354,000 52,265,000 55,708,000
========== ========== ==========
Diluted weighted average
common shares outstanding ............ 51,373,000 52,365,000 55,875,000
========== ========== ==========
Net earnings per share basic ........... $0.01 $0.81 $0.73
Net earnings per share diluted .......... $0.01 $0.81 $0.73
Options to purchase an additional 1,032,475 shares of common stock were
outstanding during 2000 but were not included in the computation of earnings
per share because the options' exercise price was greater than the average
market price of the common shares.
Derivatives - The Company utilizes interest rate swap agreements to hedge its
exposure to interest rate changes and periodically enters into futures
contracts to hedge the price risk of anticipated purchases of pulp and other
commodity products. Differences between the amounts paid and received under
the interest rate swap agreements are recognized as adjustments to interest
expense. 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," and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities," will be
adopted January 1, 2001. The statements require all derivative instruments to
be recognized on the balance sheet as either assets or liabilities at fair
value. Changes in the fair value of derivatives are recognized in either
current earnings or other comprehensive income in the period of the change.
-28-
Because the Company's hedges are effective, the impact of the Company's
adoption of SFAS No. 133 and 138 will be immaterial to the Company's financial
statements.
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.
Reclassifications - Certain prior-year amounts in the financial statements and
the notes have been reclassified to conform to the 2000 presentation.
NOTE 2. RESTRUCTURING
In March 2000, the Company announced the decision to close the Sorg Paper
Company mill in Middletown, Ohio effective May 15, 2000 and, as a result,
recorded a $25 million pre-tax restructuring charge in the first quarter of
2000. In the fourth quarter of 2000, the estimate was revised resulting in a
$2.7 million pre-tax income adjustment. The closure resulted in the
termination of 160 hourly and salaried employees. In addition to severance
benefits for terminated employees, the restructuring charge included estimated
costs for asset disposal costs, curtailment gains or losses for related
pension and postretirement plans and other closure related costs.
The following is a summary of the restructuring charges accrued and activity
through December 31, 2000, related to the Sorg Paper Company closure:
(all dollar amounts in thousands)
Initial Reserve Payments/ Balance
Charge Adjustments Charges 12/31/2000
------- ----------- ------- ----------
Severance benefits for
terminated employees ........ $4,321 ($1,800) ($2,318) $203
Asset disposal costs .......... 21,622 (215) (19,909) 1,498
Pension and postretirement
benefit plan costs .......... (1,925) (801) 2,726 -
Other ......................... 982 130 (834) 278
------- -------- --------- -------
$25,000 ($2,686) ($20,335) $1,979
------- -------- --------- -------
At December 31, 2000, all employees had been terminated from the Sorg Paper
Company and severance payouts have been or are being paid. In addition, $17.8
million in asset disposal costs was reclassified to property, plant and
equipment to reflect the write-down to fair value of idled assets related to
the closure.
In March 1998, the Company implemented a workforce reduction program and
recorded a pre-tax restructuring charge of $37.7 million in the first quarter
of 1998. The purpose of the program was to reduce the number of employees by
400 through early retirement incentives along with voluntary separation
-29-
agreements and process automation. The charge was based on estimates of the
cost of the workforce reduction, 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 were
paid or transferred as obligations of the Company's retirement plans as of
December 31, 1999.
-30-
NOTE 3. SUPPLEMENTAL BALANCE SHEET INFORMATION
(all dollar amounts in thousands)
2000 1999
------- ------
Receivables
Trade ............................................. $80,432 $82,592
Other ............................................. 2,962 2,670
------- -------
83,394 85,262
Less: allowances .................................. (12,275) (11,285)
------- -------
$71,119 $73,977
======= =======
Inventories
Raw materials ..................................... $49,530 $57,682
Work in process and finished goods ................ 101,831 93,370
Supplies .......................................... 30,479 29,869
-------- --------
Inventories at cost ............................... 181,840 180,921
LIFO reserve ...................................... (30,491) (25,099)
-------- --------
$151,349 $155,822
======== ========
Property, plant and equipment
Buildings ........................................ $130,666 $127,075
Machinery and equipment .......................... 1,009,881 963,631
--------- ---------
1,140,547 1,090,706
Less: accumulated depreciation ................... (510,814) (477,391)
--------- ---------
Net depreciated value ............................ 629,733 613,315
Land ............................................. 5,021 5,435
Timber and timberlands, net of depletion ......... 5,478 5,071
Idle assets ...................................... 98 -
Construction in progress ......................... 21,874 29,873
--------- ---------
$662,204 $653,694
========= =========
Accrued and other liabilities
Payrolls ......................................... $5,844 $5,134
Vacation pay ..................................... 10,669 11,336
Employee retirement plans ........................ 8,844 8,749
Taxes other than income .......................... 3,150 3,124
Cash dividends declared .......................... 4,362 4,118
Stock appreciation rights ........................ 2,194 3,224
Other ............................................ 14,607 11,698
-------- --------
$49,670 $47,383
======== ========
-31-
NOTE 4.DEBT
A summary of long-term debt as of December 31 is as follows:
(all dollar amounts in thousands)
2000 1999
-------- --------
Unsecured:
Senior notes with interest at 6.03%, due June 16, 2000 .. $ - $3,000
Senior notes with interest at 7.20% to 7.43%,
due August 31, 2007 to August 31, 2011 ................. 138,500 138,500
Industrial development bonds due July 1,
2023 with interest at variable rates ................... 19,000 19,000
Revolving credit agreement with financial
institutions, with weighted average interest
rate of 7.27% and 6.63%, respectively .................. 63,000 50,000
Commercial paper with weighted average interest
rate of 7.16% and 6.2%, respectively ................... 29,965 9,735
Capitalized leases ...................................... - 24
-------- --------
Total long-term debt ..................................... $250,465 $220,476
======== ========
The Company has $138,500,000 outstanding in private placement notes that were
closed and funded on August 31, 1999. 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 a $200 million unsecured revolving credit agreement with four
participating banks. The agreement provides an unsecured short-term facility
of $50 million and a $150 million multi-year facility that matures on December
10, 2004. Under the facility, the Company may elect the base for interest from
either domestic or offshore rates. In addition, the facility provides for
competitive bid loan options amongst the bank group. The Company pays the
banks a facility fee under this agreement based on quarterly
debt/capitalization ratios.
The senior notes and the revolving credit facility agreements require the
Company to comply with certain covenants, one of which requires the Company to
maintain minimum net worth. At December 31, 2000, $68.5 million of retained
earnings was available for payment of cash dividends without violation of the
minimum net worth covenant related to the senior notes.
The Company maintains an unrated commercial paper placement agreement with a
bank to issue up to $40 million of unsecured debt obligations which require
unused credit availability under its revolving credit agreement equal to the
amount of outstanding commercial paper. The amounts outstanding at December
31, 2000 and 1999 have been classified as long-term as the Company intends and
has the ability to refinance the obligations under the revolving credit
agreement.
-32-
The aggregate annual maturities of long-term debt are as follows:
(all dollar amounts in thousands)
2001 2002 2003 2004 2005 Thereafter
------- ------- ------- ------- ------- ----------
- - - $92,965 - $157,500
Annual maturities will be affected by future borrowings.
NOTE 5. 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:
(all dollar amounts in thousands) 2000 1999
------ ------
Machinery and equipment ............................ $1,815 $1,815
Allowance for amortization ......................... (1,571) (1,341)
------ ------
Net value ......................................... $244 $474
------ ------
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, 2000:
(all dollar amounts in thousands)
Capital Operating
Leases Leases
------ -------
2001 ............................................... $241 $1,624
2002 ............................................... - 971
2003 ............................................... - 445
2004 ............................................... - 447
2005 ............................................... - 447
Thereafter ......................................... - 1,147
------ ------
Total minimum payments ............................. $241 $5,081
====== ======
Rental expense for all operating leases was as follows:
(all dollar amounts in thousands)
2000 1999 1998
------ ------ ------
Rent expense .................................. $6,107 $5,530 $5,346
Contingent rentals were not material.
-33-
NOTE 6. RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company and its subsidiaries sponsor defined benefit pension plans
covering substantially all employees. Retirement benefits for salaried and
non-union employees are based on pay and company performance. Plans covering
hourly employees provide benefits based on years of service and fixed benefit
amounts for each year of service. The defined benefit pension plans are funded
in accordance with federal laws and regulations.
The Company also provides certain defined benefit postretirement health and
life insurance plans that cover qualifying retirees. Benefits and eligibility
for various employee groups vary by location and union agreements. The defined
benefit postretirement plans are unfunded.
-34-
The following schedules present changes in, and components of, the Company's
net assets (liabilities) for retirement and other postretirement benefits at
December 31, 2000 and 1999:
(all dollar amounts in thousands)
Retirement Benefits Other Benefits
2000 1999 2000 1999
-------- -------- ------- -------
Change in benefit obligation
Benefit obligation at beginning of year ...... $104,393 $109,806 $65,096 $70,505
Service cost ................................. 4,376 4,660 1,329 1,870
Interest cost ................................ 7,569 7,221 3,989 4,501
Amendments ................................... 906 (245) (1,615) (706)
Net actuarial loss ........................... (367) (8,058) (4,454) (5,116)
Participant contributions .................... - - 977 526
Benefits paid ................................ (8,709) (8,991) (6,395) (4,610)
Curtailments.................................. (307) - (1,679) (1,874)
--------- -------- ------- -------
Benefit obligation at end of year ............ $107,861 $104,393 $57,248 $65,096
======== ======== ======= =======
Change in plan assets
Fair value at beginning of year ............. $65,073 $55,636 $ - $ -
Actual return ............................... 7,927 11,579 - -
Company contributions ....................... 9,261 6,344 5,418 4,084
Participant contributions ................... - - 977 526
Benefits paid ............................... (8,709) (8,991) (6,395) (4,610)
Cash contribution subsequent to
measurement date .......................... 2,274 505 - -
-------- -------- -------- --------
Fair value at end of year ................... $75,826 $65,073 $ - $ -
======== ======== ======== ========
Net amount recognized
Funded status ............................... ($32,035) ($39,320) ($57,248) ($65,096)
Unrecognized prior service cost ............. 12,775 14,140 (1,721) (2,341)
Unrecognized transition asset ............... (566) (729) - -
Unrecognized net actuarial gain ............. (5,290) (2,436) (85) 4,361
-------- -------- --------- ---------
Accrued benefit cost ........................ ($25,116) ($28,345) ($59,054) ($63,076)
======== ======== ======== =========
Amounts recognized in the Balance Sheet consist of
Prepaid benefit cost ......................... $ - $ - $ - $ -
Accrued benefit liability .................... (38,585) (42,163) (59,054) (63,076)
Intangible asset ............................. 11,095 12,171 - -
Accumulated other comprehensive income ....... 2,374 1,647 - -
--------- --------- ---------- --------
Net amount recognized ........................ ($25,116) ($28,345) ($59,054) ($63,076)
========= ========= ========= =========
Weighted average assumptions at end of year
Discount rate ................................. 7.75% 7.5% 7.75% 7.5%
Expected return on plan assets ................ 9.0% 9.0% n/a n/a
Rate of compensation increase ................. 5.0% 5.0% n/a n/a
The Company selected September 30, 2000 and 1999 as the measurement dates for
plan assets in 2000 and 1999, respectively.
-35-
At December 31, 2000 and 1999, the aggregate amounts relating to underfunded
plans are as follows:
(all dollar amounts in thousands)
2000 1999
---------- ----------
Projected benefit obligation ............... $107,861 $104,393
Accumulated benefit obligation ............. 104,511 93,150
Fair value of plan assets .................. 75,825 65,073
In 2000, curtailment and settlement income of $2.7 million was attributable to
the closure of the Sorg Paper Company and was recognized as a component of
restructuring expense. In 1998, curtailment and settlement charges of $5.9
million and special termination benefit charges of $23.3 million were related
to a voluntary early retirement program among certain salaried and hourly
employees were recorded as a component of restructuring expense. Both
restructuring plans are discussed in Note 2 to the consolidated financial
statements. The components of net periodic benefit costs recognized in the
Consolidated Statements of Income were as follows:
(all dollar amounts in thousands)
Pension Benefits Other Benefits
2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ ------
Components of net periodic
benefit cost
Service cost ............ $4,376 $4,660 $4,687 $1,329 $1,870 $2,049
Interest cost ........... 7,569 7,221 8,421 3,989 4,501 4,235
Expected return on
plan assets ............ (5,488) (4,919) (7,576) - - -
Amortization of:
Prior service cost ...... 1,535 1,478 1,570 (508) (226) (164)
Transition (asset) ...... (162) (163) (231) - - -
Actuarial loss .......... 46 345 01 (338) 90 91
Curtailments and
settlements ........... - - - - (1,874) -
------- ----- ------ ------ ------- -------
Subtotal ................ 7,876 8,622 7,072 4,472 4,361 6,211
------- ----- ------ ------ ------- -------
Components charged to
restructuring expense:
Special termination
benefit .............. - - 20,561 - - 2,723
Settlement and
curtailment .......... 346 - 310 (3,076) - 5,594
------- ----- ------ ------ ------- -------
Subtotal ................. 346 - 20,871 (3,076) - 8,317
------- ----- ------ ------ ------- -------
Net periodic benefit cost $8,222 $8,622 $27,943 $1,396 $4,361 $14,528
======= ====== ======= ====== ====== ========
For purposes of determining the obligation for postretirement medical benefits
in 2000, the Company has assumed a health care cost trend rate of 10%,
declining by 1% annually for five years to an ultimate rate of 5%. For 1999,
the assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit was 6%, declining by 1% for one year to an ultimate
rate of 5%.
Assumed health care cost trend rates significantly impact reported amounts for
retiree medical benefits. For 2000, the effect of a one-percentage point
change in the assumed health care cost trend rate would have had the following
effects:
(all dollar amounts in thousands)
One-percentage point
Increase Decrease
---------- ---------
Effect on the postretirement benefit obligation .... $6,710 ($5,986)
Effect on the sum of the service cost
and interest cost components ..................... $ 747 ($ 651)
-36-
The Company also sponsors defined contribution pension plans, several of which
provide for Company contributions based on a percentage of employee
contributions. The cost of such plans totaled $850,000 in 2000, $1,060,000 in
1999 and $3,066,000 in 1998.
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.
NOTE 7. 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.
The provision for income taxes is comprised of the following:
(all dollar amounts in thousands)
2000 1999 1998
------- ------- -------
Current tax expense:
Federal ................................ $ - $13,063 $21,880
State .................................. 1,042 1,613 3,492
------- ------- --------
Total current ............................ 1,042 14,676 25,372
------- ------- --------
Deferred tax expense (benefit):
Federal ................................ 387 9,762 (321)
State .................................. (1,009) 1,162 (51)
------- ------- --------
Total deferred ........................... (622) 10,924 (372)
------- ------- --------
Total provision for income taxes ......... $420 $25,600 $25,000
====== ======= =======
A reconciliation between taxes computed at the federal statutory rate and the
Company's effective tax rate follows:
(all dollar amounts in thousands)
2000 1999 1998
------------ -------------- --------------
Federal statutory tax rate .... $398 35.0% $23,827 35.0% $23,030 35.0%
State taxes (net of federal
tax benefits) ............... 22 1.9 1,804 2.6 2,237 3.4
Other ......................... - - (31) - (267) (.4)
Effective tax ................. $420 36.9% $25,600 37.6% $25,000 38.0%
At the end of 2000, $40,000,000 of unused state operating loss carryovers
existed which may be used to offset future state taxable income in various
amounts through the year 2015. 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.
-37-
The major temporary differences that give rise to the deferred tax assets and
liabilities at December 31, 2000 and 1999 are as follows:
(all dollar amounts in thousands)
2000 1999
-------- -------
Deferred tax asset:
Allowances on accounts receivable .............. $2,279 $1,986
Accrued compensated absences ................... 3,530 3,636
Stock appreciation rights plans ................ 1,935 1,866
Stock options .................................. 572 -
Pensions ....................................... 9,958 11,436
Inventories .................................... 2,863 1,912
Postretirement benefits ........................ 22,814 24,437
Restructuring reserve .......................... 7,584 -
Postemployment benefits ........................ 301 331
Other accrued liabilities ...................... 1,367 1,515
State net operating loss carry forward ......... 3,782 1,445
Other .......................................... 1,485 1,758
-------- --------
Gross deferred tax asset ....................... 58,470 50,322
Less: valuation allowance ...................... (2,569) (1,764)
-------- --------
Net deferred tax assets ........................ 55,901 48,558
-------- --------
Deferred tax liability:
Property, plant and equipment .................. (138,098) (131,211)
Other .......................................... (8,296) (5,986)
-------- --------
Gross deferred tax liability.................... (146,394) (137,197)
-------- --------
Net deferred tax liability ..................... ($90,493) ($88,639)
======== =========
The total deferred tax liabilities (assets) as presented in the accompanying
consolidated balance sheets are as follows:
(all dollar amounts in thousands)
2000 1999
-------- --------
Net long-term deferred tax liabilities ......... $106,956 $103,386
-------- --------
Gross current deferred tax assets .............. (19,032) (16,511)
Valuation allowance on deferred tax assets ..... 2,569 1,764
-------- --------
Net current deferred tax assets ................ (16,463) (14,747)
-------- --------
Net deferred tax liability ..................... $90,493 $88,639
======== ========
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 8. 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.
-38-
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.
The following table summarizes the activity relating to the Company's stock
option plans:
STOCK OPTIONS:
--- 2000 --- --- 1999 --- --- 1998 ---
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ------ --------- ------ --------- ------
Options outstanding at
beginning of year ... 1,322,375 $14.18 1,052,250 $13.93 1,030,722 $14.19
Granted .............. 53,000 9.72 335,265 15.55 162,000 17.16
Terminated ........... (53,000) 17.16 (55,362) 17.97 (42,500) 23.56
Exercised ............ (10,000) 8.75 (9,778) 13.13 (97,972) 16.5
--------- ------ --------- ------ --------- ------
Options outstanding
at end of year ..... 1,312,375 $14.19 1,322,375 $14.18 1,052,250 $13.93
========= ========= =========
Options exercisable at
end of year ........ 1,312,375 $14.19 1,282,375 $14.23 887,250 $13.32
========= ========= =========
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 $.01, $.78 and $.73 for the years ended
December 31, 2000, 1999, and 1998, 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:
2000 1999
------ ------
Risk-free interest rate ................... 6.26% 4.92%
Expected life in years ................... 6 6
Price volatility .......................... 45.12% 30.42%
Dividend yield ............................ 3.49% 1.86%
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.
-39-
The following table summarizes the activity relating to the Company's stock
appreciation rights plans:
Stock Appreciation Rights:
2000 1999 1998
----------- ---------- ----------
Rights outstanding at beginning of year
(number of shares) .................. 624,855 952,991 561,907
Granted ............................... - 106,558 415,905
Terminated ............................ - (405,905) -
Exercised ............................. (154,000) (28,789) (24,821)
----------- ---------- ----------
Rights outstanding at end of year
(number of shares) ................... 470,855 624,855 952,991
=========== ========== ===========
Rights exercisable at end of year
(number of shares) .................. 470,855 624,855 952,991
=========== ========== ===========
Price range of stock appreciation
rights exercised .................... $6.49-9.70 $4.46 $4.46
=========== ========== ===========
Price range of outstanding stock
appreciation rights ................ $4.06-17.16 $4.06-17.16 $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:
2000 1999 1998
------- --------- --------
Equivalents outstanding at beginning
of year (number of shares) ................ 205,433 257,930 296,778
------- --------- --------
Exercised ................................... - ( 52,497) ( 38,848
------- --------- --------
Equivalents outstanding at end of year
(number of shares) ........................ 205,433 205,433 257,930
======= ======= =======
Equivalents exercisable at end of year
(number of shares) ........................ 205,433 205,433 257,930
======= ======= =======
On June 22, 2000, the Board of Directors approved the 2000 Stock Option Plan.
During 2000, there were 1,046,013 shares granted under the plan; however, the
plan is subject to approval by the Company's shareholders. As a result,
expense has been recorded to the extent that the fair market value of the
Company's stock on December, 31, 2000, exceeds the price of the option on the
date of grant.
The provision (credit) for all stock options outstanding, dividend equivalents
and stock appreciation rights for the years ended December 31, 2000, 1999 and
1998 was $1,266,000, ($3,250,000) and ($1,520,000), respectively.
NOTE 9. RESEARCH EXPENSES
Research expenses charged to operations were $3,968,000 in 2000, $2,293,000 in
1999 and $2,577,000 in 1998.
-40-
NOTE 10. COMMITMENTS, CONTINGENCIES AND RELATED PARTIES
Litigation. During 2000, the Company's subsidiary, Bay West Paper Corporation
("Bay West"), along with other defendants, settled antitrust claims of private
direct purchasers of commercial sanitary paper products in actions
consolidated in the U. S. District Court for the Northern District of Florida
and claims in California by indirect purchasers of sanitary commercial paper
products under state antitrust law. Each settlement was made without any
admission of liability. The Company took a one-time pre-tax charge of $2.0
million in the second quarter of 2000 to cover the anticipated cost of these
and other settlements and other expenses related to the antitrust litigation.
An action in Tennessee by indirect purchasers is still pending. In the opinion
of management, Bay West has not violated any antitrust laws and the costs of
disposition of the Tennessee claim will not be material.
The Company faces potential liability for penalties for failure to file
notices of reportable events and for certain excise taxes with regard to
temporary liquidity shortfalls in connection with voluntary supplemental early
retirement program benefits paid from two qualified plans maintained by
subsidiaries. The Company's failure to notify the Pension Benefit Guaranty
Corporation ("PBGC") of the reportable events on a timely basis could result
in the imposition of a maximum penalty of approximately $1.6 million. The
Company also faces the possible liability for excise taxes of approximately
$1.5 million in connection with the temporary liquidity shortfall. The PBGC
and the Internal Revenue Service each have discretion to waive all or part of
the penalties or tax. The Company is seeking a waiver of all penalties and
taxes and intends to seek reimbursement of any amounts it is required to pay.
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.
Environmental Matters. 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 1986, the Wisconsin Department of Natural Resources ("DNR") notified a
subsidiary of the Company that it may be a potentially responsible party for a
landfill and nominated the landfill on the Environmental Protection Agency's
("EPA") National Priorities List. No action was taken by either the DNR or
the EPA. The DNR has again indicated that it is reviewing the landfill and the
status of the Company's subsidiary as a potentially responsible party, but the
Company cannot estimate what, if any, claim for liability may result from such
investigation.
In 1998, 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,
-41-
the Company spent approximately $16.5 million in 2000 and believes that
additional capital expenditures of approximately $2.3 million will be required
to comply with the Cluster Rules in 2001.
Other Commitments. As of December 31, 2000, the Company was committed to spend
approximately $18.4 million to complete capital projects which were in various
stages of completion.
The Company's Groveton, New Hampshire mill is committed to the transportation
of a fixed volume of natural gas until November 2019 under a natural gas
transportation agreement with the Portland Natural Gas Transmission System
Company.
NOTE 11. PREFERRED SHARE PURCHASE RIGHTS PLAN
The Company maintains a rights plan under which one preferred share purchase
right is issued for each outstanding share of common stock. Each right
entitles its holder to purchase one one-thousandth of a share of Series A
Junior Participating Preferred Stock, at an exercise price of $60 per one one-
thousandth of a preferred share, subject to adjustment. The rights will become
exercisable only if a person or group (with certain exceptions) acquires
beneficial ownership of 15% or more of the outstanding common stock (an
"Acquiring Person"). Once exercisable, each holder of a right, other than the
Acquiring Person, will thereafter have the right to receive common stock
having a market value of two times the exercise price of the right. Upon the
occurrence of certain events, each holder of a right, other than an Acquiring
Person, will have the right to receive (in lieu of preferred shares) common
stock of the Company (or a successor company) that has a market value of two
times the exercise price of the right. Until exercisable, the rights will not
be issued or traded in separate form from the common stock. After any person
or group becomes an Acquiring Person, and prior to the acquisition by the
Acquiring Person of 50% or more of the common stock, the Company may exchange
the rights, other than rights owned by the Acquiring Person, at an exchange
ratio of one share per right (subject to adjustment). At any time prior to
any person or group becoming an Acquiring Person, the Company may redeem the
rights at a price of $.01 per right. The rights will expire on October 31,
2008.
NOTE 12. FINANCIAL INSTRUMENTS
Financial instruments consisted of the following:
Cash and Cash Equivalents - The carrying amount approximates fair value due to
the relatively short period to maturity for these instruments.
Futures Contracts - At December 31, 2000, the Company was party to various
futures contracts for the purchase of natural gas. The natural gas contracts
require the Company to purchase 107,600 decatherms of natural gas during 2001.
The delivered price of natural gas varies from $5.31 to $6.53 per decatherm.
At December 31, 2000, 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, 2000.
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.
-42-
Interest Rate Agreement - The Company uses interest rate swap agreements to
manage its exposure to interest rate changes. The arrangements are considered
hedges of specific borrowings. Under the agreements, 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,
2000 and 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 7.26% in 2000 and 6.6% in 1999. The agreement
decreased interest expense by $230,000 and $320,000 in 2000 and 1999,
respectively.
The Company may be exposed to losses in the event of nonperformance of the
counter-party but does not anticipate such nonperformance.
At December 31, 2000, the fair value of the long-term debt and interest rate
swap agreement exceeded the carrying value by approximately $9.1 million and
approximately $6.1 million, respectively. At December 31, 1999, the fair value
was not materially different from the carrying value.
NOTE 13. 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 and Jay, Maine. 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.
-43-
RECONCILIATIONS
The following are reconciliations to corresponding totals in the accompanying
consolidated financial statements.
(all dollar amounts in thousands)
2000 1999 1998
-------- --------- ---------
Net sales external customers
Specialty Paper ......................... $401,157 $405,251 $423,473
Printing & Writing ...................... 377,470 383,907 376,131
Towel & Tissue .......................... 173,503 155,471 146,523
-------- -------- --------
$952,130 $944,629 $946,127
======== ======== ========
Net sales intersegment
Specialty Paper ......................... $1,708 $9,190 $13,737
Printing & Writing ...................... 7,967 3,343 1,595
Towel & Tissue .......................... 21 126 89
-------- -------- --------
$9,696 $12,659 $15,421
======== ======== ========
Operating profit
Specialty Paper ......................... $10,942 $21,532 $47,261
Specialty Paper - restructuring expense (22,314) - -
-------- -------- --------
Total Specialty Paper ................. (11,372) 21,532 47,261
Printing & Writing .................... 20,109 40,658 53,613
Towel & Tissue ........................ 21,631 22,381 24,018
-------- -------- --------
Total reportable segment
operating profit ....................... 30,368 84,571 124,892
Corporate and eliminations.............. (11,144) (4,925) (9,944)
Restructuring/merger expense ........... - - (42,803)
Interest expense........................... (15,713) (11,823) (7,683)
Other income (expense) .................. (2,373) 194 1,339
-------- -------- --------
Earnings before income taxes .......... $1,138 $68,017 $65,801
======== ======== ========
Segment assets
Specialty Paper ......................... $401,227 $396,624
Printing & Writing ...................... 310,006 309,507
Towel & Tissue .......................... 180,857 183,103
Corporate & unallocated ................ 56,341 47,228
$948,431 $936,462
-44-
OTHER SIGNIFICANT ITEMS
(all dollar amounts in thousands)
Depreciation, Expenditures
Interest Depletion and for Long-Lived
Income Amortization Assets
-------- ------------ --------------
2000
Specialty Paper ................... $ 3 $24,037 $59,937
Printing & Writing ................ 15 16,546 18,273
Towel & Tissue .................... - 16,405 5,793
Corporate & unallocated ........... 120 1,872 2,893
---- ------- -------
$138 $58,860 $86,896
==== ======= =======
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
==== ======= =======
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)
2000 1999 1998
-------- -------- --------
United States .................... $882,545 $882,108 $887,267
All foreign countries ............ 69,585 62,521 58,860
-------- -------- --------
$952,130 $944,629 $946,127
======== ======== ========
-45-
QUARTERLY FINANCIAL DATA (UNAUDITED)
(all dollar amounts in thousands, except per share data)
First Second Third Fourth
Qtr.* Qtr. Qtr. Qtr.** Annual
-------- -------- -------- -------- --------
2000
Net sales .................. $243,606 $245,214 $240,685 $222,625 $952,130
Gross profit ............... 28,242 31,885 25,837 18,555 104,519
Operating profit (loss) .... (15,977) 18,232 11,885 5,084 19,224
Net earnings (loss) ........ (12,921) 7,798 4,746 1,095 718
Net earnings (loss) per
share basic .............. ($0.25) $0.15 $0.09 $0.02 $0.01
1999
Net sales .................. $226,44 $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
<FN>
* In 2000, includes an after-tax expense of $16.3 million ($25.0 million pre-
tax) or $0.32 per share for restructuring expenses relating to the closure of
the Sorg Paper Company. 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 2000, includes an after-tax income of $2.3 million ($2.7 million pre-
tax) or $0.04 per share for a change in restructuring expense estimate
relating to the closure of the Sorg Paper Company. 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.
-46-
MARKET PRICES FOR COMMON SHARES (UNAUDITED)
--2000-- --1999-- --1998--
Cash Cash Cash
Dividends Dividends Dividends
Prices Paid Prices Paid Prices Paid
QTR. HIGH LOW PER SHARE HIGH LOW PER SHARE HIGH LOW PER SHARE
1st $14.63 $9.50 $0.08 $18.00 $13.94 $0.07 $24.00 $18.88 $0.0625
2nd 13.25 8.50 0.085 18.44 12.63 0.08 24.13 20.13 0.07
3rd 10.19 7.75 0.085 18.00 11.94 0.08 22.75 12.13 0.07
4th 12.13 7.56 0.085 14.19 10.63 0.08 18.50 12.25 0.07
All prices through March 25, 1998, represent the high and the low closing
prices reported on the Nasdaq National Market System and reflect inter-dealer
prices, without mark-up, mark-down or commission and may not necessarily
represent actual transactions. Prices after March 25, 1998, represent the high
and the low sales prices for the common stock as reported on the New York
Stock Exchange.
Schedule II - Valuation and Qualifying Accounts
($ thousands)
RECEIVABLE ALLOWANCES OTHER ALLOWANCES
Allow for Allowance Allowance
Doubtful for for Pending Merger Restructure
TOTAL ACCOUNTS DISCOUNTS CREDITS ALLOWANCE ALLOWANCE
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
Charges to cost and
expense 26,400 630 7,585 18,185 0 22,314
Deductions (25,410) (363) (7,690) (17,357) 0 (20,335)
Balance December 31, 2000 $ 12,275 $ 3,837 $ 775 $ 7,663 $ 0 $ 1,979
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
-47-
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 under the caption
"Proposal No. 1 - Election of Directors" in the Company's proxy statement
relating to the 2001 annual meeting of shareholders (the "2001 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" in the 2001 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 2001 Proxy Statement
under the caption "Director Compensation." 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," through the material set forth under the subcaption,
"Retirement Benefits," in the 2001 Proxy Statement and (2) the material set
forth under the subcaption "Committee Interlocks and Insider Participation,"
in the 2001 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 set forth under the caption "Beneficial Ownership of Common Stock,"
in the 2001 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships and related transactions with
directors and officers is incorporated into this Form 10-K by this reference
to the material set forth under the caption "Certain Relationships and Related
Transactions" in the 2001 Proxy Statement.
-48-
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, 2000 and 1999
(ii) Consolidated Statements of Income for the years ended December 31,
2000, 1999, and 1998
(iii) Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998
(iv) Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999, and 1998
(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, 2000, 1999, and 1998 (page 47)
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.
(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
Registration Statement on Form 8-A 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)
-49-
4.1 Rights Agreement, dated as of October 21, 1998, 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 Registration Statement
on Form 8-A dated October 21, 1998)
4.2 First Amendment dated August 22, 2000 to Rights Agreement dated
October 21, 1998 (incorporated by reference to Exhibit 4.1 (a) to
Amendment No. 1 to the Company's Registration Statement on Form
8-A, filed on December 19, 2000)
4.3 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)
4.4 $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)
4.5 $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, as amended April 14, 2000, December 8, 2000 and January
23, 2001
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)*
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)*
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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 2000 Incentive Compensation Plan for Executive Officers
(incorporated by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1999)*
10.16 2001 Incentive Compensation Plan for Executive Officers
10.17 Former President and CEO Severance Agreement (incorporated by
reference to Exhibit 10.22 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2000)
10.18 2000 Stock Option Plan (incorporated by reference to Exhibit
10.19 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2001)
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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
*Executive compensation plans or arrangements. All plans are sponsored or
maintained by the Company unless otherwise noted.
(b)Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of fiscal 2000.
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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 26, 2001 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 26, 2001
THOMAS J. HOWATT RICHARD L. RADT
Thomas J. Howatt Richard L. Radt
President and Chief Executive Officer Vice Chairman of the Board
(Principal Executive Officer)
SAN W. ORR, JR WALTER ALEXANDER
San W. Orr, Jr. Walter Alexander
Chairman of the Board and CEO Director
RICHARD G. JACOBUS DAVID B. SMITH, JR.
Richard G. Jacobus David B. Smith, Jr.
Director Director
GARY W. FREELS HARRY R. BAKER
Gary W. Freels Harry R. Baker
Director Director
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EXHIBIT INDEX<dagger>
TO
FORM 10-K
OF
WAUSAU-MOSINEE PAPER CORPORATION
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
PURSUANT TO SECTION 102(D) OF REGULATION S-T
(17 C.F.R. <section>232.102(D))
Exhibit 4.5 $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, as
amended April 14, 2000, December 8, 2000 and January 23, 2001
Exhibit 10.16 2001 Incentive Compensation Plan for Executive Officers
Exhibit 23.1 Consent of Wipfli Ullrich Bertelson LLP
<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.
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