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, 2002
[ ] 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 1-13923
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. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No ___
As of June 28, 2002, the aggregate market value of the common stock
shares held by non-affiliates was approximately $566,198,400. For purposes of
this calculation, the registrant has assumed its directors and executive
officers are affiliates. As of February 20, 2003, 51,536,891 shares of common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PROXY STATEMENT FOR USE IN CONNECTION WITH 2003 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...............................................13
Item 4. Submission of Matters to a Vote of Security Holders.............13
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters........................................14
Item 6. Selected Financial Data.........................................15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................16
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.......27
Item 8. Financial Statements and Supplementary Data.....................28
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures.......................58
PART III
Item 10. Directors and Executive Officers of the Registrant..............59
Item 11. Executive Compensation..........................................59
Item 12. Security Ownership of Certain Beneficial Owners and Management..59
Item 13. Certain Relationships and Related Transactions..................60
Item 14. Controls and Procedures.........................................60
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K...................................................61
PART I
ITEM 1. BUSINESS.
GENERAL
Wausau-Mosinee Paper Corporation (the "Company") manufactures, converts, and
sells paper and paper products within three principal operating groups: the
Printing & Writing Group, the Specialty Paper Group and the Towel & Tissue
Group. Its principal office is located in Mosinee, Wisconsin. At December 31,
2002, the Company had approximately 3,200 employees at ten operating facilities
located in six states.
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 as described below.
PRINTING & WRITING GROUP
The Printing & Writing Group produces and converts two lines of paper products
in five facilities. At facilities in Appleton and Brokaw, Wisconsin and
Groveton, New Hampshire, the Group manufactures and converts a broad line of
premium printing, writing and imaging papers in various weights, colors, sizes
and finishes. Over 60% of the fine printing and writing papers produced are
colored papers. Distribution warehouses are maintained in Appleton and Brokaw,
Wisconsin; Groveton, New Hampshire; Dallas, Texas and Los Angeles, California.
Under the Wausau Papers (reg-trade-mark) label, products are marketed under a
variety of brands, including Astrobrights (reg-trade-mark),
Astropaque (trademark), Royal and Professional Series (reg-trade-mark) products.
These papers are used for printed documents such as annual reports, resumes,
invitations, and greeting cards. Over 70% of Wausau Papers' products are sold
in sheet form to paper distributors, who sell to commercial printers, in-plant
print shops, quick printers, and copy centers. Products are also sold to
office supply stores to reach small- and home-office customers and to
converters that serve the greeting card and announcement industry. The Group's
fine printing and writing sales are estimated to be less than 3% of the total
uncoated free-sheet market.
Competition in printing and writing grades comes from specialty divisions of
major integrated paper companies as well as smaller, privately held
non-integrated companies. The Company estimates that the number of principal
competitors in the printing and writing grade papers portion of uncoated
free-sheet
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market is approximately 14. Competitors include International Paper
Corporation, Domtar, Inc., and Fraser Paper, Inc.
The Mosinee Converted Products facilities operating in Columbus, Wisconsin, and
Jackson, Mississippi, produce moisture barrier laminated roll wrap used to
protect rolls of paper during storage and shipment, and related specialty
finishing and packaging products such as custom coating, laminating and
converting. These products are sold to manufacturers and converters who serve
multiple industries including paper, industrial packaging and corrugated
containers. On March 5, 2003, the Company announced the acquisition of the
assets and customer base of Laminated Papers, Inc. Mosinee Converted Products'
moisture barrier laminated roll wrap sales were estimated to be approximately
40% of the North American roll wrap market prior to the acquisition.
Primary competition in roll wrap comes from approximately 6 other wax and poly
laminators and includes Cascades, Inc., Ludlow Coated Products, and Deluxe
Paper Products, Inc.
SPECIALTY PAPER GROUP
The Specialty Paper Group's three facilities produce a wide variety of
technical specialty papers. The technical specialty papers markets are diverse
and highly fragmented. The Group's market position varies by product, but it
is a leading producer of liner papers used for "peel-and-stick" pressure
sensitive labels and the largest producer of unsaturated paper masking tape
base.
The Rhinelander mill located in Rhinelander, Wisconsin, and the Otis mill
located in Jay, Maine, together are one of the nation's largest manufacturers
of supercalendered backing papers that are used as a base from which
"peel-and-stick" pressure sensitive labels are dispensed. These highly
engineered backing papers are designed for high-speed labeling machines, which
apply labels on consumer products such as shampoo and deodorant. These
facilities also manufacture specialty papers for a broad range of food,
medical, and industrial applications, including grease-resistant protective
barrier paper for pet food and microwave popcorn, and lightweight paper for
sterilized medical packaging. These products are sold directly to
manufacturers and converters, mainly in the U.S., that serve a host of
industries including consumer products, food service, pet food and medical
packaging.
Primary competition for super calendered backing papers comes from
approximately 7 paper producing companies including International Paper
Corporation, Fraser Paper, Inc., and UPM Kymmene Corp.
The Mosinee mill in Mosinee, Wisconsin, is North America's largest producer of
unsaturated paper masking tape base used in the production of masking tape and
manufactures a wide range of highly engineered paper products. These products
include interleaver paper used in steel processing and to protect polished
steel after production, coating and laminating base papers used in composite
can labeling and liner applications and high-performance industrial papers
chemically treated for wet strength, flame retardancy, anti-static, corrosion,
or grease resistance for various industries such as automotive, metal, housing,
and food processing. These products are sold directly to manufacturers and
converters, mainly in the U.S.
Competition in several grades of paper made from the Mosinee mill's natural
kraft pulp comes from approximately 9 other fully-integrated, large paper
companies including International Paper Corporation, Longview Fibre
Corporation, and Port Townsend Paper Corporation. Competition in grades of
paper made from market pulp comes from approximately 6 specialty paper
producers including Mead Westvaco Corporation, Ivex Corporation, and
International Paper Corporation.
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TOWEL & TISSUE GROUP
The Towel & Tissue Group produces a broad 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.
Under the Bay West name, towel and tissue products made primarily from recycled
material are marketed under a number of brands including
DublSoft (reg-trade-mark), EcoSoft (trademark) and Dubl-Tough (reg-trade-mark).
These products include washroom roll and folded towels, tissue products, a
variety of towel, tissue, and soap dispensers, windshield folded towels,
industrial wipers, dairy towels, household roll towels, and other premium towel
and tissue products that are sold to paper and sanitary supply distributors in
North America that serve restaurants, theme parks, hospitals, hotels, office
buildings, factories, and other commercial and industrial locations. The
Group's towel and tissue mill is located in Middletown, Ohio and its converting
facility and main distribution warehouse is located in Harrodsburg, Kentucky.
In addition, the Company maintains a distribution warehouse in Los Angeles,
California.
Competition comes from major integrated paper companies and smaller converters
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 SCA Hygiene
Products.
EXPORT SALES
In addition to the three operating groups, Wausau-Mosinee International, Inc.,
a wholly-owned subsidiary of the Company, is the commissioned sales agent for
the export sales of the Company. Wausau-Mosinee International, Inc. has
elected to be treated as a foreign sales corporation for federal income tax
purposes. Through 2001, the Company obtained certain U.S. income tax benefits
from the operation of the foreign sales corporation. In response to a World
Trade Organization ("WTO") Appellate Body decision that the tax treatment
accorded such corporations constituted a prohibited export subsidy, the United
States enacted legislation to repeal the foreign sales corporation tax
provisions, subject to transition rules which expired on December 31, 2001, and
enacted replacement legislation in the form of the Extraterritorial Income
Exclusion ("ETI") Act of 2000. The status of the ETI regime after 2002 is
unclear. The European Union objected to this new legislation, and in January
2002, the Appellate Body of the WTO held that the United States had failed to
withdraw the prohibited export subsidy. The United States is currently
reviewing this issue. The Company cannot predict what impact, if any, this
issue will have on the Company's future earnings pending final resolution,
although foreign sales represent less than 7% of the Company's net sales.
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 are the only Company facilities with pulping operations. These pulp mills
provide a percentage of the fiber needs to our Wisconsin paper operations as
follows: Mosinee, 60%; Brokaw 50%; and Rhinelander, 13%.
Wood fiber required for operation of the Company's pulp mills is purchased on
the open market in the form of pulpwood and chips from independent contractors.
In addition, approximately 7.5% of the timber consumed in pulping operations is
produced from Company-owned timberlands. Open-market pulpwood is purchased
from approximately 200 independent loggers at market prices under contracts
that typically provide for the delivery of a specified amount of wood and are
entered into on a quarterly basis. Open-market chips are also purchased from
independent sawmills. The balance of the Company's pulp
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needs at Mosinee and Brokaw and all of the pulp used at the Company's other
facilities (an aggregate of nearly 400,000 metric tons annually) 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 the
Printing & Writing Group's recycled products. Recycled fiber is in adequate
supply and readily obtainable.
The Towel & Tissue Group fulfills substantially all of its de-inked fiber needs
from 100% post-consumer waste which is readily available from domestic
suppliers. Approximately 160,000 standard tons of wastepaper is consumed
annually. In addition, approximately 30% of the Towel & Tissue Group's parent
roll supply needs are purchased from outside sources at current market prices.
Various chemicals are used in the pulping and papermaking processes. These
industrial chemicals are available from a number of suppliers and are purchased
at current market prices.
ENERGY
The Company's paper mills require large amounts of electrical and steam energy
which are adequately supplied by public utilities or generated at Company
operated facilities. The Company generates approximately 30% of its electrical
power needs from spent pulping liquor, fuel oil, coal, wood chips, fibercake,
natural gas and hydropower. Natural gas delivery contracts typically cover
deliveries for one to two years and prices vary monthly based on published
indices. The Company may also purchase, from time to time, natural gas
contracts with fixed prices for a certain portion of the Company's
requirements. Coal and coal transportation is generally purchased under
multi-year agreements at fixed prices. Fuel oil is not a significant energy
source and is purchased under spot contracts at spot prices as needed. Spent
pulping liquor, wood chips and fibercake are byproducts of mill operations.
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 was
completed and operational in November, 2001.
Under the terms of a natural gas transportation agreement with the Portland
Natural Gas Transmission System, the Company is committed to the transportation
of a fixed volume of natural gas until November, 2019. The contract is only
for the transportation of natural gas from the Company's natural gas suppliers
to the Company's mill in New Hampshire. The Company is not required to buy or
sell minimum gas volumes under the agreement. The Company is required to pay a
minimum transportation fee of approximately $1.0 million annually per the
agreement; however, the Company's natural gas requirements exceed the level
required to be transported.
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PATENTS AND TRADEMARKS
The Company develops and files trademarks and patents, as appropriate.
Trademarks include Wausau Papers (reg-trade-mark), AstroBrights
(reg-trade-mark), Astropaque (trademark), Exact (reg-trade-mark), Bay West
(reg-trade-mark), Ecosoft (trademark), DublSoft (reg-trade-mark), and
Wave 'n Dry (reg-trade-mark), among others. The Company's patents cover
various paper towel dispensers and metering or other mechanisms for towel
dispensers and cabinets and certain silicone release papers. 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.
On September 20, 2002, Bay West Paper Corporation, a wholly-owned subsidiary of
the Company, filed a complaint against Georgia-Pacific Corporation in the U. S.
District Court for the Eastern District of Kentucky. The complaint alleges
that Georgia-Pacific's enMotion towel dispenser infringes on a patent used in
the Bay West Wave `N Dry (reg-trade-mark) dispenser and seeks an injunction that
will prohibit Georgia-Pacific from using the infringing device in any of its
cabinets and monetary damages that result from the infringement. On November
5, 2002, Georgia-Pacific filed an answer to the complaint denying liability on
various grounds, including the invalidity of the Company's patent.
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 first quarter, in comparison to the rest of the year, primarily due to
reduced business activity for many customers following the year-end holiday
season.
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
A substantial portion of the Company's accounts receivable is with customers in
various paper converting, paper merchant or distribution businesses. No single
customer accounted for 10% or more of the consolidated net sales during 2002.
BACKLOG
Company-wide order backlogs increased to 33,458 tons representing $35.3 million
in sales as of December 31, 2002. This compares to 27,500 tons, or $30.5
million in sales as of December 31, 2001 and 22,000 tons, or $27.5 million in
sales at December 31, 2000. The 2002 order backlog improvement over 2001 does
not necessarily indicate strengthening business conditions as a significant
portion 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, 2002 is expected to be shipped during fiscal
2003.
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RESEARCH AND DEVELOPMENT
Research and development projects for the last three fiscal years primarily
involved development of new release liners for the Specialty Paper Group's line
of "peel-and-stick" liner papers and the development of new color and writing
grades at the Printing & Writing Group. Expenditures for product development
in the last three fiscal years were:
(dollars in thousands)
Specialty Paper Printing & Writing
Year Total Group Group
2002 $ 2,145 $ 1,816 $ 329
2001 4,058 3,538 520
2000 3,968 3,446 522
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 $3.9 million in 2003. These
projects include a screw press at the Towel & Tissue Group's Middletown mill
($2.7 million) and monitoring equipment at the Specialty Paper Group's Mosinee
mill ($0.5 million).
Compliance with the EPA's permitting process involves the consolidation of all
Company air discharge permits and is expected to involve an additional $0.5
million in capital expenditures. This cost is expected to be incurred in 2003
or 2004.
The Company believes that capital expenditures associated with compliance with
environmental regulations will not have a material adverse effect on its
competitive position, consolidated financial condition, liquidity, or earnings.
The Company is not involved in any proceedings under the Comprehensive
Environmental Response, Compensation and Liability Act. In 1986, the Wisconsin
Department of Natural Resources ("DNR") notified a subsidiary of the Company
that under Wisconsin environmental laws it may be a potentially responsible
party ("PRP") for the Gorski landfill in Mosinee, Wisconsin, and nominated the
landfill to the Environmental Protection Agency's ("EPA") National Priorities
List. The DNR had identified elevated concentrations of chlorinated volatile
organic compounds in three private water supply wells located in close
proximity to the landfill. The DNR has identified 10 PRPs. No action was
taken by either the DNR or the EPA until June 2000, when the DNR requested
certain parties who had disposed of waste at the site to form an ad hoc group
to cooperatively investigate the environmental contamination at the site. In
October 2001, the Company entered into an agreement with two other parties to
fund a study of the landfill to determine possible remediation strategies. The
DNR evaluated the proposed study and recommended modifications to the proposed
study in August 2002. The ad hoc group responded to
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the DNR recommendations in November 2002. The Company estimates that the costs
of remediation of the entire site for all parties will be approximately $3
million, based upon the remediation method the Company's consultants believe to
be the most likely to be used. This estimate is preliminary. Actual costs of
remediation of the site could be materially different, the investigative study
has not been completed and no timetable for the actual remediation work has yet
been developed. The Company's share of the cost of such remediation cannot be
determined wit certainty at this time, but based on the estimated costs at
year-end and the number and nature of other potential responsible parties, the
Company is of the opinion that such costs will not have a material adverse
effect on the operations, financial condition, or liquidity of the Company.
Note 10 of the Notes to Consolidated Financial Statement discusses the
company's policies with respect to the accrual of remediation costs. Estimates
of costs for future remediation are necessarily imprecise due to, among other
things, the identification of presently unknown remediation sites and the
allocation of costs among potentially responsible parties. The company
believes that its share of the costs of cleanup for its current remediation
site will not have a material adverse impact on its consolidated financial
position. As is the case with most manufacturing and many other entities,
there can be no assurance that the Company will not be named as a PRP at
additional sites in the future or that the costs associated with such
additional sites would not be material.
EMPLOYEES
The Company had approximately 3,200 employees at the end of 2002. Most hourly
mill employees are covered under collective bargaining agreements. One new
five-year labor agreement with the Paper, Allied-Industrial, Chemical & Energy
Workers International Union at the Printing & Writing Group's Groveton mill was
negotiated in 2002. Labor agreements will expire in other facilities in 2003,
2004, 2005 and 2006. The Company expects that new multi-year contracts will be
negotiated at competitive rates. The Company maintains good labor relations in
all facilities.
EXECUTIVE OFFICERS OF THE COMPANY
The following information relates to executive officers of the Company as of
March 17, 2003. Unless otherwise specified, current positions listed for an
executive officer have been held for a minimum of five years.
SAN W. ORR, JR., 61
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, 71
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, 53
President and Chief Executive Officer 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, Wausau Papers of New
Hampshire (1993-1994), Vice President Operations, Brokaw Division
(1990-1993), and prior thereto, Vice President, Administration, Brokaw
Division.
STUART R. CARLSON, 56
Executive Vice President, Administration since August, 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).
SCOTT P. DOESCHER, 43
Senior Vice President, Finance, Secretary and Treasurer since May 2001.
Previously, Vice President, Finance, Printing & Writing Group
(1998-2001), Director of Finance, Printing & Writing Division (1992-1998)
and Corporate Director Financial Analysis and Internal Audit and
Assistant Secretary/Treasurer (1988-1992).
JOHN J. SCHIEVELBEIN, 60
Senior Vice President, Printing & Writing Group since October, 2000.
Previously, Vice President and General Manager of Mosinee Converted
Products (1990-2000) and Manager of Market Development, Mosinee Pulp and
Paper Division (1986-1990).
ALBERT K. DAVIS, 55
Senior Vice President, Specialty Paper Group since October, 2000.
Previously, Vice President of Operations & Site Manager (1998 - 2000),
Vice President of Operations (1996-1998), Vice President of Engineering
(1990 - 1996), Rhinelander Paper Company, Inc.
DAVID L. CANAVERA, 53
Senior Vice President, Towel & Tissue Group since December, 1997.
Previously, Senior Vice President, Towel & Tissue (1996-1997) of Mosinee
Paper Corporation, and Vice President and General Manager (1994-1996) and
Vice President Resident Manager (1991-1994), Bay West Paper,
Harrodsburg.
DENNIS M. URBANEK, 58
Senior Vice President, Engineering and Environmental Services since
December, 1997. 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).
AVAILABLE INFORMATION
Information regarding the Company's annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and any amendments to these
reports, will be made available, free of charge, at the Company's website at
www.wausaumosinee.com, as soon as reasonably practicable after the Company
electronically files such reports with or furnishes them to the Securities and
Exchange Commission.
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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.
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:
o Increased competition from either domestic or foreign paper
producers or providers of alternatives to the Company's products,
and general over capacity in the paper industry, resulting in sales
declines from reduced shipment volume and /or lower net selling
prices in order to maintain shipment volume. The Company competes
in three segments of the paper industry. The company has several
competitors in most of its market segments, many of which are
larger and have greater capital and marketing resources than the
Company. Changes within the paper industry, including the
consolidations of producers of products which compete with the
Company and consolidation within the distribution channels for
Company products, have and may continue to occur and may adversely
affect the Company's financial performance.
o The failure to develop new products to attain the Company's
overall goal of generating at least 25% of revenue from products
introduced within the previous three years could adversely affect
the overall demand for Company products. In addition, 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, and technological or consumer preference changes, may
significantly reduce revenues and income.
o 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
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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.
o Increases in energy prices or difficulty in obtaining adequate
supplies of needed fuels or sources of power.
o Unforeseen or recurring operational problems at any of the
Company's facilities causing significant lost production and/or
cost increases.
o 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.
o 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, and decrease the amount of funds available for
investment in other areas of operation. In addition, the costs of
remediation of known environmental sites, as described in Note 10
of the Notes to Consolidated Financial Statements, may exceed
current estimates and there may be additional sites not now known
to the Company that may require significant remediation expenses in
the future.
o Unforseen liabilities arising from litigation, particularly
liabilities which may arise from claims under environmental laws
which may impose liability for the release of hazardous materials
whether or not the Company had knowledge of or was responsible for
such release.
NOTICE REGARDING DISPENSING OF CONSENT OF ARTHUR ANDERSEN LLP WITH RESPECT TO
COMPANY'S REGISTRATION STATEMENTS
Arthur Andersen LLP issued an opinion on the Company's audited financial
statements for the year ended December 31, 2001, and performed other services
as the Company's principal accountant between its appointment on October 19,
2001, and its dismissal on June 18, 2002. Representatives of Arthur Andersen
LLP are not available to consent to the incorporation by reference of their
report contained in this Annual Report into the Company's registration
statements on Form S-8, and the Company has dispensed with the requirement to
file their consent in reliance upon Rule 437a of the Securities Act of 1933.
Because Arthur Andersen LLP has not consented to the incorporation by reference
of their report into these registration statements, purchasers of stock under
these registration statements will not be able to recover against Arthur
Andersen LLP under Section 11 of the Securities Act of 1933 for any untrue
statements of a material fact contained in the financial statements audited by
Arthur Andersen LLP that are incorporated by reference into these registration
statements or any omissions of material fact required to be stated therein.
-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 2002
Facility Product Machines Capacity*(tons) Actual(tons)
Printing & Writing
Group
Brokaw, WI Paper 4 177,000 175,000
(Wausau Papers) Pulp 99,000 95,000
Groveton, NH Paper 2 115,000 111,000
(Wausau Papers)
Appleton, WI
(Wausau Papers) Converting N/A 35,000 26,000
Columbus, WI and Laminated/
Jackson, MS Coated Papers N/A 150,000 64,000
(Mosinee Converted
Products)
Specialty Paper
Group
Rhinelander, WI Paper 4 148,000 135,000
Otis, ME Paper 2 73,000 72,000
Mosinee, WI Paper 4 119,000 115,000
Pulp 96,000 77,000
Towel&Tissue
Group
Middletown, OH Towel & Tissue 2 110,000 107,000
Deink Pulp 110,000 103,000
Harrodsburg, KY Converted Towel
& Tissue N/A 190,000 143,000
<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.
-11-
The Company also maintains warehouse distribution facilities in order to
provide prompt delivery of its products. The facilities are:
Owned or
Group Location Square Feet Lease (Expiration Date)
Printing & Writing Appleton, WI 36,000 Owned
Groups
Brokaw, WI 174,000 Owned
Dallas, TX 85,000* Leased (April, 2003)
Groveton, NH 80,000 Owned
Los Angeles, CA 65,000* Leased (November, 2003)
Towel & Los Angles, CA 40,000* Leased (November, 2003)
Tissue Group
Harrodsburg, KY 441,000 Owned
<FN>
* guaranteed space
The Specialty Paper and Towel & Tissue Groups also lease limited space in
various warehouses to facilitate deliveries to customers.
The Company owns approximately 120,000 acres of timberland in the state of
Wisconsin. The growing stock inventory on Company timberlands is an estimated
13.9 million board feet of saw timber and an estimated 784,000 cords of
pulpwood.
-12-
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a potentially responsible party with respect to a
Mosinee, Wisconsin landfill. See " -- Environment" in Item 1 of this report.
The Company is a plaintiff in a patent infringement lawsuit. See " -- Patents
and Trademarks" in Item 1 of this report.
The Company strives to maintain compliance with applicable environmental
discharge regulations at all times. However, from time to time, the Company's
operating facilities may exceed permitted levels of materials into the
environment or inadvertently discharge other materials. Such discharges may be
caused by equipment malfunction, prevailing environmental conditions, or other
factors. It is the policy of the Company to report any violation of
environmental regulations to the appropriate environmental authority as soon as
it becomes aware of such an occurrence and to work with such authorities to
take appropriate remediatory or corrective actions.
The Company may 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 described in this Item 3,
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 2002.
-13-
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 20, 2003, (the "Record
Date") there were approximately 3,300 holders of record of the Company's common
stock. The Company estimates that as of the Record Date there were
approximately 6,700 additional beneficial owners whose shares were held in
street name or in other fiduciary capacities. As of the Record Date, there
were 51,536,891 shares of common stock outstanding.
The following table sets forth the range of high and low sales price
information of the Company's common stock and the dividends declared on the
common stock, for the calendar quarters indicated.
Market Price Cash Dividend
Calendar Quarter High Low Declared
2002
First Quarter $12.97 $10.50 *
Second Quarter $14.00 $11.20 $.17
Third Quarter $12.09 $9.00 $.085
Fourth Quarter $11.81 $8.14 $.085
2001
First Quarter $13.00 $9.94 *
Second Quarter $14.00 $11.52 $.17
Third Quarter $13.58 $7.85 $.085
Fourth Quarter $12.16 $9.65 $.085
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
<FN>
*Two dividends of $.085 per share were declared in the second quarter in
2002, 2001 and 2000.
Information required by Item 201(d) of SEC Regulation S-K is set forth under
Item 12, Part III of this report.
-14-
ITEM 6. SELECTED FINANCIAL DATA
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
For the year ended December 31,
(all dollar amounts in thousands,
except per share data) 2002 2001 2000* 1999 1998
FINANCIAL RESULTS
Net sales $ 948,698 $ 943,729 $ 990,924 $ 982,735 $ 982,467
Depreciation, depletion, and amortization 60,624 60,948 58,860 55,012 52,207
Operating profit 47,422 28,279 17,785 79,311 72,925
Interest expense 10,845 14,416 15,713 11,823 7,683
Earnings before provision for income taxes 36,618 14,143 2,325 68,017 65,801
Net earnings 23,068 8,913 1,465 42,417 40,801
Cash dividends paid 17,520 17,498 17,207 16,233 15,494
Cash flows from operating activities 76,269 103,866 80,254 89,334 117,859
PER SHARE
Net earnings - basic and diluted $ 0.45 $ 0.17 $ 0.03 $ 0.81 $ 0.73
Cash dividends declared 0.34 0.34 0.34 0.32 0.28
Stockholders' equity 6.91 7.09 7.33 7.53 7.12
Average number of shares outstanding 51,532,000 51,466,000 51,354,000 52,265,000 55,708,000
Price range (low and high closing) $8.26-13.80 $8.82-14.00 $7.63-14.63 $10.94-18.25 $12.25-24.06
FINANCIAL CONDITION
Working capital $ 118,398 $ 101,724 $ 138,605 $ 140,822 $ 81,406
Total assets 873,757 892,008 954,494 941,872 904,367
Long-term debt 162,763 192,264 250,465 220,476 127,000
Stockholders' equity 355,948 364,855 376,112 393,760 396,586
Capital expenditures 19,201 29,791 86,896 80,619 77,023
RATIOS
Percent net earnings to sales 2.4% 1.0% 0.1% 4.3% 4.2%
Percent net earnings to average
stockholders' equity 6.4% 2.6% 0.4% 10.7% 9.8%
Ratio of current assets to
current liabilities 2.0 to 1 1.8 to 1 2.1 to 1 2.2 to 1 1.8 to 1
Percent of long-term debt to
total capital 31.4% 34.5% 40.0% 35.9% 24.3%
<FN>
* In 2000, includes after-tax expense of $14.0 million ($22.3 million pretax)
or $0.27 per share for restructuring expense related to the closure of the
Sorg Paper Company.
-15-
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This report contains certain of management's expectations and other
forward-looking information regarding the Company pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. While the
Company believes that these forward-looking statements are based on reasonable
assumptions, such statements are not guarantees of future performance, and all
such statements involve risk and uncertainties that could cause actual results
to differ materially from those contemplated in this report. The assumptions,
risks, and uncertainties relating to the forward-looking statements in this
report include general economic and business conditions, changes in the prices
of raw materials or energy, competitive pricing in the markets served by the
Company as a result of economic conditions, overcapacity in the industry and
the demand for paper products, manufacturing problems at Company facilities and
various other risks and assumptions. These and other assumptions, risks, and
uncertainties are described under the caption "Cautionary Statement Regarding
Forward-Looking Information" in Item 1 of this Annual Report on Form 10-K for
the year ended December 31, 2002, and from time to time, in the Company's other
filings with the Securities and Exchange Commission. The Company assumes no
obligation to update or supplement forward-looking statements that become
untrue because of subsequent events.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States which require the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements and
revenues and expenses during the periods reported. Actual results could differ
from those estimates. The Company believes the following are the accounting
policies which could have the most significant effect on the Company's reported
results and require subjective or complex judgments by management.
SALES RETURNS AND ALLOWANCES
The Company maintains reserves for expected returns and allowances based on
return practices and historical experience. Reserves for returns and allowances
may need to be adjusted if actual sales returns differ from estimates.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company records allowances for doubtful accounts based upon
customer-specific analysis and general matters such as current assessment of
past-due balances. Additional allowances for doubtful accounts may be required
if there is an increase in past-due balances or for customer-specific
circumstances, such as financial difficulty. During 2002, the Company wrote off
previously recorded allowances and related customer receivables for
approximately $2.5 million upon determination that these balances were
uncollectible. The allowance for doubtful accounts was $2.4 million and $4.7
million at December 31, 2002, and 2001, respectively.
-16-
EXCESS AND OBSOLETE INVENTORY
The Company records allowances for excess and obsolete inventory based on
historical and estimated future demand and market conditions. Additional
inventory allowances may be required if future demand or market conditions are
less favorable than the Company has estimated.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of the carrying amount of long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. The Company uses judgment when
applying the impairment rules to determine when an impairment test is
necessary. Factors the Company considers which could trigger an impairment
review include significant underperformance relative to historical or
forecasted operating results, a significant decrease in the market value of an
asset, a significant change in the extent or manner in which an asset is used,
and significant negative or industry trends.
Impairment losses are measured as the amount by which the carrying value of an
asset exceeds its estimated fair value. The Company is required to make
estimates of its future cash flows related to the asset subject to review.
These estimates require assumptions about demand for the Company's products,
future market conditions, and technological developments. Other assumptions
include determining the discount rate and future growth rates. The Company did
not have acquired goodwill or intangibles as of December 31, 2002, or 2001.
PENSION BENEFITS
Defined benefit pension costs and obligations are actuarially determined and
are affected by assumptions including discount rate, the expected rate of
return on plan assets, and assumed annual rate of compensation increase for
plan employees, among other factors. Changes in discount rate and differences
from actual results for each assumption will affect the amount of pension
expense recognized in future periods. Additional information regarding pension
benefits is available in "Note 6 - Pension and Other Post-retirement Benefit
Plans" in the Notes to Consolidated Financial Statements.
OTHER POST-RETIREMENT BENEFITS
The costs and obligations for post-retirement benefits other than pension are
also actuarially determined and are affected by assumptions including the
discount rate and expected future increase in per capita costs of covered
post-retirement health-care benefits. Changes in the discount rate and
differences between actual and assumed per capita health-care costs may affect
the recorded amount of the expense in future periods. Additional information
regarding post-retirement benefits is available in "Note 6 - Pension and Other
Post-retirement Benefit Plans" in the Notes to Consolidated Financial
Statements.
LITIGATION, CLAIMS, AND CONTINGENCIES
The Company is subject to extensive regulations 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.
-17-
The Company records environmental liabilities based on estimates for known
environmental remediation exposures utilizing information received from
third-party experts and the Company's past experience with these matters. At
third-party sites where more than one potentially responsible party has been
identified, the Company records a liability for its estimated allocable share
of costs related to its involvement with the site as well as an estimated
allocable share of costs related to the involvement of insolvent or
unidentified parties. Environmental liability estimates may be affected by
changing determinations of what constitutes an environmental exposure or
acceptable level of cleanup. To the extent that remediation procedures change
or the financial condition of other potentially responsible parties is
adversely affected, the estimate of the Company's environmental liabilities may
change.
ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible
Assets," and SFAS No. 143, "Accounting for Asset Retirement Obligations." The
FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," in August 2001. In June 2002, FASB issued SFAS No. 146,
"Accounting for Costs Associated With Exit or Disposal Activities," which
addresses financial accounting and reporting associated with exit or disposal
activities. In November 2002, the FASB issued Interpretation (FIN) No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." On December 31, 2002, the FASB
issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure."
SFAS No. 142 supersedes APB Opinion No. 17, "Intangible Assets." SFAS No. 142
addresses the financial accounting and reporting for acquired goodwill and
other intangible assets. SFAS No. 142 eliminates the amortization for goodwill
and other intangible assets with indefinite lives. Other intangible assets with
a finite life will be amortized over their useful life. Goodwill and other
intangible assets with indefinite useful lives shall be tested for impairment
annually or more frequently if events or changes in circumstances indicate that
the assets may be impaired. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. Since the Company does not have acquired
goodwill or intangibles, the Company's adoption of SFAS No. 142 on January 1,
2002, had no material impact on the consolidated financial statements as of the
date of adoption.
SFAS No. 143 establishes accounting and reporting standards associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The statement requires that if reasonably estimable, the fair value of a
liability for an asset retirement obligation is recognized in the period in
which it is incurred. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS No. 143 is effective
for fiscal years beginning after June 15, 2002. The Company is currently
evaluating the impact of adopting this standard.
SFAS No. 144 addresses the timing and measurement of recognizing an impairment
loss on long-lived assets that may not be recoverable from future operating
cash flow. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001. The Company's adoption of this statement on January 1, 2002, did not
have an impact on its results of operations.
SFAS No. 146 requires that costs associated with an exit or disposal activity
be recognized and measured at fair value in the period in which the liability
is incurred rather than at the date of commitment to an exit or disposal plan.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002. The Company will adopt SFAS No. 146 on January 1,
2003. The Company does not anticipate any impact as a result of adopting SFAS
No. 146.
-18-
FIN No. 45 requires that a guarantor must recognize, at the inception of a
guarantee, a liability for the fair value of the obligation that it has
undertaken in issuing a guarantee. FIN No. 45 also addresses the disclosure
requirements that a guarantor must include in its financial statements for
guarantees issued. The disclosure requirements in this interpretation are
effective for financial statements ending after December 15, 2002. The initial
recognition and measurement provisions of this interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31, 2002.
As of December 31, 2002, the Company did not have any existing guarantees as
defined under FIN No. 45.
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation,"
and provides alternative methods of transition for a voluntary change to the
fair-value-based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require more prominent and more frequent disclosures in financial statements of
the effects of stock-based compensation. SFAS No. 148 is effective for fiscal
years ending after December 15, 2002. The Company has made the required
disclosures within "Note 8 - Stock Options and Appreciation Rights" in the
Notes to Consolidated Financial Statements.
OPERATIONS REVIEW
NET SALES
(all dollar amounts in thousands) 2002 2001 2000
Net sales $948,698 $943,729 $990,924
Percent increase/(decrease) 1% (5%) 1%
Net sales for the year ended December 31, 2002, were $948.7 million compared to
net sales of $943.7 million for the year ended December 31, 2001. Total Company
shipments increased 3% in 2002 to 831,808 tons from the 807,318 tons shipped in
2001. Net sales in 2000 were $990.9 million, and total shipments were 798,076
tons. Consolidated results in 2000 included net sales and shipments from the
Sorg Paper Company of $27.8 million and 20,000 tons, respectively. The Sorg
Paper Company was closed in May 2000. Compared with 2001, 2002 shipments
increased for each of the Company's three business segments. These increases
were largely the result of market share gains as overall market demand
contracted in two of the Company's three business segments. Average net selling
price declined nearly 3% in 2002 compared with 2001 as sales mix enhancement
only partially offset selling price declines. Actual product selling prices
were approximately 5% lower in 2002, affecting net sales by $48 million, while
product mix enhancements improved average selling price and net sales by
approximately 2% and $21 million, respectively. Average selling price declined
more than 5% in 2001 compared with 2000, reducing latter-year net sales by $54
million. Actual product price changes accounted for 40%, or $22 million, of the
decline, with mix deterioration accounting for the remainder of the difference.
Discussion of market conditions and trends is included in the segment summaries
that follow. If published market data is available, it is referenced in the
discussion. Certain markets in which the Company competes are small and highly
fragmented. Where industry data is not available, the Company's analysis is
based on more subjective market indicators, such as order patterns for Company
products and discussion with customers regarding overall industry volumes.
The Printing & Writing Group recorded net sales of $391.2 million on total
shipments of 353,488 tons for the year ended December 31, 2002, compared with
net sales of $392.0 million on shipments of 345,323 tons for the same period in
2001. Net sales in 2000 were $396.0 million on shipments of
-19-
335,681 tons. Average net selling price declined approximately 2% in 2002
compared with 2001. Actual product selling prices declined nearly 4% in 2002,
reducing net sales by $15 million while sales mix improvements increased
average selling price and net sales by approximately 2% and $7 million,
respectively. Average selling price declined 4% in 2001 compared with 2000;
product mix deterioration accounted for most of the decline. Demand for uncoated
free-sheet papers, the broad market category within which the Printing & Writing
Group participates, declined approximately 1% in 2002 following an 8% decline in
2001. Demand decreased by an even greater amount in text, cover, and other
premium papers segments of the uncoated free-sheet market. Despite the market
decline, Printing & Writing's core product shipments increased in 2002,
improving overall volume and displacing some of the lower-priced commodity-
offset products sold in 2001. Retail product shipments, sold to office supply
stores and other retailers, increased 27% in 2002 following an increase of 8%
in 2001. During 2001, lower-priced commodity shipments replaced higher-priced
core Printing & Writing grades sold in 2000, resulting in mix deterioration and
most of the decline in average selling price experienced in 2001. Despite the
industry-wide capacity rationalization that has occurred over the past three
years, market conditions and product pricing have remained very competitive.
Market conditions for Printing & Writing Group products remained weak as 2003
began.
Specialty Paper Group net sales were $349.0 million in 2002 on shipments of
331,564 tons compared with 2001 net sales of $354.2 million and shipments of
322,518 tons. Net sales and shipments in 2000 were $409.0 million and 331,998
tons, respectively. Results in 2000 include net sales of $27.8 million and
shipments of 20,000 tons from the Sorg Paper Company, closed in May 2000.
Average net selling price declined approximately 5% in 2002 compared with 2001
as product mix improvements partially offset product selling price declines.
Actual product selling prices decreased more than 7% in 2002, reducing net
sales by $28 million compared with 2001, while mix improvements increased
average selling price by 2% and net sales by $8 million. Average selling price
declined approximately 9% in 2001 from 2000 with actual product price declines
accounting for more than half of the decrease. Market demand for the Specialty
Paper Group's creped tape backing papers remained sluggish in 2002 following a
decline of more than 30% in 2001. Demand in other market categories was
characterized by continued weakness. The overall soft demand was driven by
continued weak economic conditions and reduced activity in the industrial
sector. In addition, the Specialty Paper Group lost position in the pressure
sensitive backing paper, or release liner market, in 2000 and early 2001. With
the introduction and volume ramp-up of a new High Performance Liner (HPL)
product, some of the lost market share was recovered. Shipments of this highly
engineered release liner, which provides superior performance characteristics
over traditional products, more than doubled in 2002 from 20,000 tons in 2001.
The product was introduced in late 2000. By year-end 2002, the annualized
run-rate for HPL products was essentially at capacity. The introduction of HPL
and other new products improved Specialty Paper's overall shipments and product
mix in 2002; 47% of net sales were generated by products introduced in the
previous three years compared with 39% in 2001 and 28% in 2000. Noncore product
shipments, including writing grades such as Tablet and Offset, declined 24% in
2002 after increasing significantly in 2001. Noncore products typically carry a
lower average selling price than traditional core products. As 2003 began,
market conditions were largely unchanged, with difficult economic conditions
creating sluggish demand.
The Towel & Tissue Group posted 2002 net sales of $208.5 million and shipments
of 146,756 tons compared with 2001 net sales and shipments of $197.5 million
and 139,477 tons, respectively. Net sales in 2000 were $186.0 million on
shipments of 130,397 tons. Average net selling price improved slightly in 2002
from 2001. Actual product selling prices declined more than 2% in 2002,
impacting net sales by approximately $5 million while mix enhancement and
product changes increased average selling price by nearly 3% and net sales by
$6 million. The "away-from-home" segment of the towel and tissue market grew by
nearly 3% in 2002 following a contraction of approximately 2% in 2001.
-20-
Towel & Tissue Group shipments have consistently increased at a rate greater
than that of the towel and tissue market. Although market conditions remained
competitive as 2003 began, the Towel & Tissue Group implemented a minor product
price increase in mid-January.
GROSS PROFIT ON SALES
(all dollar amounts in thousands) 2002 2001 2000
Gross profit on sales $112,384 $96,141 $104,003
Gross profit margin 12% 10% 11%
Gross profit margin increased in 2002 to $112.4 million, or 11.8% of net sales,
from $96.1 million, or 10.2% of net sales, in 2001. Gross profit margin in 2000
was $104.0 million, or 10.5%. The increased 2002 margin is due, in part, to
reduced costs for market pulp and natural gas as well as cost reduction and
efficiency improvements benefiting the most recent period.
Market pulp and wastepaper prices began declining late in 2000 and continued to
decrease throughout 2001. After holding relatively stable during the first half
of 2002, market pulp prices began to climb in the third quarter before
stabilizing in the fourth quarter. Wastepaper prices began to increase early in
2002 with prices stabilizing over the second half of the year. The average
price of market pulp, the basic raw material used in the manufacture of paper,
declined approximately $32 per air-dried metric ton, or $13 million, in 2002
compared with 2001, after decreasing approximately $150 per air-dried metric
ton, or $53 million, in 2001 compared to 2000. The Company currently consumes
approximately 400,000 air-dried metric tons of market pulp annually. The
average price of wastepaper, used in the production of towel and tissue
products, increased approximately $24 per standard ton, or $4 million, in 2002
compared with 2001 after decreasing $47 per standard ton, or $6 million, in
2001 compared with 2000. The Company currently consumes approximately 160,000
standard tons of wastepaper annually.
Natural gas prices began rising in the second half of 2000 and peaked in
January 2001 at more than $10 per decatherm before generally declining over the
course of 2001. Pricing remained relatively stable for the first three quarters
of 2002 but trended higher late in the year. The average price of natural gas
declined 27%, or $9 million, in 2002 as compared to 2001 while the average
price increased 13%, or more than $3 million, in 2001 compared to 2000. The
Company consumes approximately 6 million decatherms of natural gas annually
with the ability to substitute fuel oil for a portion of this draw should
economics dictate.
Labor and benefit expenses increased in 2002 compared with 2001 while certain
other major cost elements, including depreciation and maintenance expense,
decreased due to reduced capital spending and cost-reduction efforts. Gross
profit in 2000 included a $0.6 million expense related to a restructuring
charge for the closure of the Sorg Paper Company. For additional information on
the closure of the Sorg Paper Company, please refer to the discussion contained
in "Operating Expenses" and in "Note 2 - Restructuring" in the Notes to
Consolidated Financial Statements. The Company recorded environmental-related
expenses of $0.4 million, $1.8 million, and $0.6 million in 2002, 2001, and
2000, respectively. The higher expense in 2001 was related primarily to one
landfill site identified for remediation as discussed in "Note 10 - Commitments
and Contingencies" in the Notes to Consolidated Financial Statements. Gross
profit margin, which held between 11.2% and 12.0% for the first three quarters
of 2002, improved to 13.0% in the fourth quarter due to improved product mix
and reduced operating expenses driven by cost-reduction initiatives.
-21-
As 2003 began, market pulp and natural gas prices have trended higher. Several
pulp producers have announced list price increases totaling $60 per air-dried
metric ton during the first quarter. Natural gas prices, which began to climb
late in 2002, continued an upward trend with average prices in early 2003
approximately 40% higher than in the fourth quarter of 2002.
Printing & Writing Group gross margin was 13.9% in 2002 compared with 11.9% in
2001 and 10.1% in 2000. Declines in market pulp and natural gas prices more
than offset lower average selling prices in 2002 compared to 2001. Combined
with productivity improvements and cost reductions, these price differences
helped improve gross profit margin in 2002. No market-related downtime was
taken over the three-year period, and paper machine productivity increased 1%
in 2002 compared with 2001. 2002 gross profit margin increased from 12.9% in
the first quarter to 14.8% in the fourth quarter. A late third-quarter paper
price increase, product sales mix improvements, and cost reductions implemented
during the year offset increased market pulp and natural gas prices to generate
the late-year improvement.
Specialty Paper Group gross margin was 4.4% in 2002 compared with 2.5% in 2001
and 6.9% in 2000. Reduced market pulp and natural gas prices combined with
productivity improvements and cost reductions to offset lower average selling
prices and generate the margin improvement from 2001 to 2002. Productivity
increased more than 3% year over year with the most recent market-related
downtime taken during the first six months of 2001. Specialty Paper Group's
broad-based cost-reduction initiative, introduced in the second quarter of
2002, was a key element in improving gross margin from 0.9% in the first
quarter of 2002 to 7.2% in the fourth quarter. Nearly two-thirds of identified
cost reductions were implemented by year-end with the remainder expected to be
implemented by midyear 2003. The Specialty Paper Group recognized $1.3 million
in consulting expense in the second quarter of 2002 for cost reduction and
improvement work performed to assist the Group in reducing operating costs.
Towel & Tissue Group gross profit margin was 20.4% in 2002, 20.5% in 2001, and
18.8% in 2000. A slight improvement in average selling price partially offset
increased waste paper and parent roll prices in 2002 compared with 2001.
Productivity at Towel & Tissue's paper mill increased 6% year over year.
Outside parent rolls, purchased from other towel and tissue producers, account
for approximately 30% of Towel & Tissue Group's paper requirements. Gross
profit margin remained relatively stable throughout the year as average selling
price and sales volume gains offset waste paper and parent roll price
increases.
Order backlogs increased to 33,458 tons representing $35.3 million in sales for
all operating groups as of December 31, 2002. This compares with 27,500 tons
and $30.5 million in sales at the end of 2001, and 22,000 tons and $27.5
million in sales at the end of 2000. The 2002 increase does not necessarily
indicate improved business conditions, as a large portion of orders are shipped
directly from inventory upon receipt and do not affect backlog numbers.
LABOR
A new five-year labor agreement with the Paper, Allied-Industrial, Chemical &
Energy Workers International Union was successfully negotiated at Printing &
Writing Group's Groveton mill in 2002. The agreement contains wage increases
similar to those negotiated at other paper companies. Labor agreements will
expire at other facilities in 2003, 2004, 2005, and 2006.
The Company maintains good labor relations at all facilities.
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OPERATING EXPENSES
(all dollar amounts in thousands) 2002 2001 2000
Selling and administrative $64,962 $67,862 $64,503
Percent increase/(decrease) (4%) 5% 9%
Restructuring - - 21,715
Total operating expense 64,962 67,862 86,218
As a percent of net sales 7% 7% 9%
In 2002 and 2001, selling and administrative expenses were affected by
stock-incentive program charges or credits, which were determined by the
Company's common stock price change. During 2002, the credit for these programs
was $0.2 million compared to a charge in 2001 of $4.2 million. There was no
charge or credit for these plans in 2000 as the beginning and end-of-year stock
prices were similar. Additionally, selling and administrative costs for 2002
were affected by $1.8 million in wage and benefit expense increases, as well as
increases in management-incentive expense. For additional information on the
Company's stock-incentive programs, refer to "Note 8 - Stock Options and
Appreciation Rights" in the Notes to Consolidated Financial Statements. Bad
debt expense totaled $0.3 million in 2002 compared with $1.3 million and $0.4
million in 2001 and 2000, respectively. The year ended December 31, 2000, was
affected by a charge of $2.6 million due to the resignation of the Company's
president and CEO and by a charge of $2.0 million for an antitrust settlement.
In the first quarter of 2000, the Company announced the closure of the Sorg
Paper Company mill in Middletown, Ohio. In connection with this closure, the
Company recorded a pretax restructuring charge of $22.3 million during 2000 in
the Specialty Paper Group segment to cover shutdown and asset disposition
costs. For additional information on the closure of the Sorg Paper Company and
related restructuring charge, please refer to "Note 2 - Restructuring" in the
Notes to Consolidated Financial Statements.
OTHER INCOME AND EXPENSE
(all dollar amounts in thousands) 2002 2001 2000
Interest expense $10,845 $14,416 $15,713
Other income 41 280 253
Interest expense decreased in 2002 compared with 2001 and 2000 due to lower
average debt levels. Long-term debt decreased from $250.5 million in 2000 to
$192.3 million in 2001 and $162.8 million in 2002. The reduction in debt since
2000 was due principally to internal initiatives aimed at limiting capital
spending and reducing inventory levels as a component of working capital.
In exchange for cash payments totaling $6.4 million in 2001, the Company
terminated the outstanding interest-rate swap agreements that had effectively
converted $88.5 million of fixed-rate debt to variable-rate debt. Additional
information on the termination of the interest-rate swap agreements and the
related debt is discussed within "Note 4 - Debt" and "Note 12 - Financial
Instruments" in the Notes to Consolidated Financial Statements.
Interest expense is expected to be slightly lower in 2003 than in 2002 as debt
levels are expected to remain similar to the December 31, 2002, balance of
$162.8 million. Capitalized interest totaled $0.01 million, $0.2 million, and
$1.1 million in 2002, 2001, and 2000, respectively. Fluctuations in capitalized
interest are primarily dependent on varying levels of capital expenditures
qualifying under the criteria established by the Company for capitalized
interest. The Company's capitalized interest
-23-
methodology is outlined in "Note 1 - Description of the Business and Summary of
Significant Accounting Policies" in the Notes to Consolidated Financial
Statements.
Other income and expense includes interest income of $0.03 million, $0.3
million, and $0.1 million in 2002, 2001, and 2000, respectively.
INCOME TAXES
(all dollar amounts in thousands) 2002 2001 2000
Income tax provision $13,550 $5,230 $860
Effective tax rate 37.0% 37.0% 36.9%
The effective tax rates for the years presented are indicative of the Company's
normalized tax rate. The effective rate for 2003 is expected to approximate
37%.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS AND CAPITAL EXPENDITURES
(all dollar amounts in thousands) 2002 2001 2000
Cash provided by operating activities $ 76,269 $103,866 $ 80,254
Percent increase/(decrease) (27%) 29% (10%)
Working capital $118,398 $101,724 $138,605
Percent increase/(decrease) 16% (27%) (2%)
Current ratio 2.0:1 1.8:1 2.1:1
Capital expenditures $ 19,201 $ 29,791 $ 86,896
Percent increase/(decrease) (36%) (66%) 8%
Cash provided from operating activities declined in 2002 compared to 2001, as
reductions in inventory that increased cash flow in 2001 were not as
significant in 2002. In addition, the Company contributed $20.6 million to
defined benefit pension plans during 2002, compared with contributions of $14.7
million and $11.5 million in 2001 and 2000, respectively. Pension benefit plans
are discussed in "Note 6 - Pension and Other Post-retirement Benefit Plans" in
the Notes to Consolidated Financial Statements. Cash flow increased in 2001
compared with 2000 principally due to increased cash flow earnings from
operations, proceeds from the termination of the interest-rate swap agreements,
and proceeds from stock-option exercises.
As a result of the internal initiatives to reduce components of working
capital, such as inventory and receivables, as well as reduced capital spending
and the utilization of prior-year net operating losses, cash and cash
equivalents and refundable income taxes increased in 2002 by $11.4 million and
$9.0 million, respectively, from 2001. These changes accounted for the majority
of the working capital increase experienced in 2002 compared with 2001.
In 2002 and 2001, the Company limited capital spending due to weak economic
conditions and to excess production capacity in the paper industry. As a
result, capital expenditures totaled $19.2 million and $29.8 million in 2002
and 2001, respectively, compared with spending of $86.9 million in 2000. The
reduction in spending compared with 2000 was accomplished by limiting spending
to projects which the Company had identified as providing a return on
investment exceeding the Company's cost of capital, and capital projects
required to maintain current production levels or
-24-
efficiencies. In 2003, it is expected that capital spending will not exceed the
forecasted expense for depreciation, depletion, and amortization.
During 2002, capital expenditures for projects with total spending expected to
exceed $1.0 million included Printing & Writing Group's $0.9 million for a pulp
mill digester replacement at the Brokaw mill, and $1.9 million for process
control equipment at the Groveton mill. In the Towel & Tissue Group, $2.9
million was spent on various converting equipment.
The balance of $13.5 million in 2002 capital spending was related to projects
that individually cost less than $1.0 million. These expenditures include
approximately $10.7 million for essential non or low-return projects, and $2.8
million on projects expected to provide a return on investment that exceeds the
Company's cost of capital.
During 2001, the Printing & Writing Group spent $1.0 million on Cluster Rule
compliance projects and $1.8 million on new converting equipment. The Specialty
Paper Group completed work on the Rhinelander mill's High Performance Liner
(HPL) project, which involved spending of $3.4 million in 2001. The Specialty
Group's Mosinee mill spent $0.9 million on Cluster Rule compliance projects. In
the Towel & Tissue Group, $5.4 million was spent on several new toweling and
tissue lines at the Harrodsburg converting facility, and $0.8 million on a reel
upgrade at the Middletown mill in 2001.
The balance of $16.5 million in 2001 capital spending was related to projects
that individually cost less than $1.0 million. These expenditures consist of
approximately $13.6 million for essential non or low-return projects, $2.3
million for projects expected to provide a return on investment that exceeds
the Company's cost of capital, and $0.6 million for environmental control
projects.
The Company believes that the available credit under its credit agreements and
its earnings for 2003 will be sufficient to meet its cash flow needs for
capital, working capital, and investing activities in 2003.
DEBT AND EQUITY
(all dollar amounts in thousands) 2002 2001 2000
Short-term debt $ - $ - $ 241
Long-term debt 162,763 192,264 250,465
Total debt 162,763 192,264 250,706
Stockholders' equity 355,948 364,855 376,112
Total capitalization 518,711 557,119 626,577
Long-term debt/capitalization ratio 31% 35% 40%
At December 31, 2002, total debt was $162.8 million, a decrease of $29.5
million from the $192.3 million reported at December 31, 2001. Debt had
declined $58.4 million in 2001 compared to 2000. Cash provided by operations
and reduced capital spending levels resulted in the repayment of debt
obligations in both 2002 and 2001. Debt increased in 2000 primarily due to
capital spending levels resulting from the High Performance Liner (HPL) project
at the Rhinelander mill as well as various Cluster Rule compliance projects at
both the Brokaw and Mosinee mills.
A private placement of $138.5 million in senior notes was closed and funded in
August 1999. The notes have an original maturity of eight, 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
to
-25-
variable-rate debt. On March 17, 2001, the Company terminated its interest-rate
swap agreement with respect to $30.0 million of its 7.43% senior notes due
August 31, 2011, in exchange for a cash payment of $2.3 million. On August 10,
2001, the Company terminated its interest-rate swap agreement with respect to
$58.5 million of its 7.31% senior notes due August 31, 2009, in exchange for
receiving a cash payment of $4.1 million. The premium recorded on debt during
the period the swaps were outstanding will continue to be amortized using the
effective interest-rate method over the remaining term of the respective debt
instruments.
The Company does not have 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.
The Company also entered into a revolving-credit facility in December 1999 with
four banks for $200 million. The facility had a 364-day component for $50
million that expired on March 9, 2001, and a $150 million component that
matures in 2004. Upon expiration of the $50 million 364-day component, the
Company entered into a $12.5 million line of credit with one of its four major
banks. The line of credit expires on March 7, 2003.
The Company maintains a commercial paper placement agreement with one of its
four major banks, which provides for the issuance of up to $50 million of
unsecured debt obligations. The commercial paper placement agreement requires
unused credit availability under the Company's $150 million revolving-credit
agreement equal to the amount of outstanding commercial paper.
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 $150 million
revolving-credit facility.
On December 31, 2002, the Company had a combined total of $143.5 million
available for borrowing under existing credit facilities.
The following is a summary of the Company's contractual obligations and
payments due by period subsequent to December 31, 2002:
PAYMENTS DUE BY PERIOD
(all dollar amounts in thousands) Total 2003 2004 2005 2006 2007 Thereafter
Long-term debt $157,500 $ - $ - $ - $ - $35,000 $122,500
Operating leases 16,348 2,308 2,194 2,112 2,102 2,102 5,530
Total $173,848 $2,308 $2,194 $2,112 $2,102 $37,102 $128,030
For additional information on debt obligations, please refer to "Note 4 - Debt"
in the Notes to Consolidated Financial Statements. For additional information
on operating leases, please refer to "Note 5 - Lease Commitments" in the Notes
to Consolidated Financial Statements.
In April 2000, the Company's Board of Directors authorized the repurchase of
2,571,000 shares of the Company's common stock. This 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. There were no
-26-
repurchases in 2002 or 2001. Repurchases may be made from time to time in the
open market or through privately negotiated transactions. At December 31, 2002,
there were 2,638,674 shares available for purchase under the existing
authorization.
During 2002 and 2001, the Board of Directors declared cash dividends of $0.34
per share of common stock.
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 $138.5 million
that remain outstanding at December 31, 2002 and 2001. The principal amounts,
maturities, and interest rates on the notes are: (1) $35 million, 8 years,
7.20%; (2) $68.5 million, 10 years, 7.31%; and (3) $35 million, 12 years,
7.43%. The fair value of this fixed rate debt was $152.9 million at December
31, 2002, and $139.2 million at December 31, 2001. The potential loss in fair
value on such fixed-rate debt obligations from a hypothetical 10% increase in
market interest rates would not be material to the overall fair value of the
debt. The Company currently has no plans to repurchase its outstanding
fixed-rate instruments and, therefore, fluctuations in market interest rates
would not have an effect on the Company's results of operations or
stockholders' equity.
In August 1999, 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 was the three month LIBOR rate, plus
..4925% and (2) $30,000,000 of the 12-year notes was the three month LIBOR rate,
plus .55%. During 2001, the Company terminated its swap agreements with
respect to the 10- and 12-year notes. Additional information on the
termination of the interest rate swap agreement and the related debt is
discussed in Item 8, Notes 4 and 12 of the Notes to Consolidated Financial
Statements.
The Company also has $19,000,000 of Industrial Development Bonds due July 1,
2023, at variable rates of interest outstanding at December 31, 2002 and 2001.
The fair value of these obligations approximated their carrying values at
December 31, 2002 and 2001, and would not have been materially affected by a
10% hypothetical change in market interest rates.
-27-
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Wausau-Mosinee Paper Corporation
We have audited the accompanying consolidated balance sheet of Wausau-Mosinee
Paper Corporation and subsidiaries (the "Company") as of December 31, 2002, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended. Our audit also included the financial statement
schedule for the year ended December 31, 2002 listed in the Index at Item
15(a)2. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit. The financial statements of the Company as of and for the year ended
December 31, 2001, were audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on those financial statements
in their report dated January 25, 2002 (except with respect to matters
discussed in Note 1 of the prior-year financial statements, as to which the
date was June 12, 2002).
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such 2002 consolidated financial statements present fairly, in
all material respects, the financial position of Wausau-Mosinee Paper
Corporation and subsidiaries as of December 31, 2002, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
Also, in our opinion, such 2002 financial statement schedule, when considered
in relation to the basic 2002 consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
January 24, 2003
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THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR
ANDERSEN LLP IN CONNECTION WITH THIS FORM 10-K. SEE ALSO THE NOTICE REGARDING
THE OMISSION OF THE CONSENT OF ARTHUR ANDERSEN LLP IN ITEM 1, BUSINESS, WITH
RESPECT TO CERTAIN REGISTRATION STATEMENTS OF THE COMPANY FILED ON FORM S-8.
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 sheet of Wausau-Mosinee
Paper Corporation and Subsidiaries as of December 31, 2001, and the related
consolidated statements of income, cash flows and stockholders' equity for the
year then ended. These financial statements and supplemental schedule referred
to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
supplemental schedule based on our audit. The financial statements of
Wausau-Mosinee Paper Corporation and Subsidiaries as of December 31, 2000 and
1999, were audited by other auditors whose report dated January 25, 2001,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 2001 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, 2001, and the
results of its operations and cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The supplemental schedule listed in the
index to Item 14 is presented for purposes of complying with Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 25, 2002 (except with respect to the matters discussed in Note 1, as to
which the date is June 12, 2002)
-29-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Wausau-Mosinee Paper Corporation
Mosinee, Wisconsin
We have audited the accompanying consolidated statements of income, cash flows
and stockholders' equity, and supplemental schedule of qualifying accounts of
Wausau-Mosinee Paper Corporation and subsidiaries (the "Company") for the year
ended December 31, 2000. These financial statements and supplemental schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and supplemental schedule based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations, cash flow, and
changes in stockholders' equity of Wausau-Mosinee Paper Corporation and
subsidiaries for the year ended December 31, 2000, and the supplementary
schedule presents fairly the information required to be set forth therein, all
in conformity with accounting principles generally accepted in the United
States.
WIPFLI ULLRICH BERTELSON LLP
Wausau, Wisconsin
January 25, 2001 (except with respect to matters discussed in Note 1 of the
restated 2001 financial statements as to which the date is
June 12, 2002)
-30-
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
(all dollar amounts in thousands) 2002 2001
ASSETS
Current assets:
Cash and cash equivalents $ 23,383 $ 12,010
Receivables, net 70,806 69,425
Refundable income taxes 10,264 1,241
Inventories 119,033 124,338
Deferred income taxes 12,812 14,111
Other current assets 4,100 1,910
Total current assets 240,398 223,035
Property, plant, and equipment - net 597,979 634,928
Other assets 35,380 34,045
Total Assets $873,757 $892,008
LIABILITIES
Current liabilities:
Accounts payable $ 63,422 $ 64,060
Accrued and other liabilities 58,578 57,251
Total current liabilities 122,000 121,311
Long-term debt 162,763 192,264
Deferred income taxes 111,377 105,638
Post-retirement benefits 52,534 54,253
Pension 51,142 37,223
Other noncurrent liabilities 17,993 16,464
Total liabilities 517,809 527,153
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Preferred stock, no par value (500,000 shares authorized; no shares issued) - -
Common stock, no par value (100,000,000 shares authorized;
issued 60,122,812 shares in 2002 and 2001) 173,081 173,114
Retained earnings 322,485 316,939
Subtotals 495,566 490,053
Treasury stock, at cost (8,585,921 and 8,616,721 shares
in 2002 and 2001, respectively) (115,103) (115,516)
Accumulated other comprehensive loss (24,515) (9,682)
Total stockholders' equity 355,948 364,855
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $873,757 $892,008
See accompanying Notes to Consolidated Financial Statements.
-31-
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31,
(all dollar amounts in thousands, except per share data) 2002 2001 2000
Net sales $948,698 $943,729 $990,924
Cost of sales 836,314 847,588 886,322
Restructuring charge - inventory - - 599
Total cost of sales 836,314 847,588 886,921
Gross profit 112,384 96,141 104,003
Operating expenses:
Selling and administrative 64,962 67,862 64,503
Restructuring - - 21,715
Operating profit 47,422 28,279 17,785
Other income (expense):
Interest expense (10,845) (14,416) (15,713)
Interest income 25 262 138
Other 16 18 115
Earnings before provision for income taxes 36,618 14,143 2,325
Provision for income taxes 13,550 5,230 860
Net earnings $ 23,068 $ 8,913 $ 1,465
Net earnings per share - basic $ 0.45 $ 0.17 $ 0.03
Net earnings per share - diluted $ 0.45 $ 0.17 $ 0.03
See accompanying Notes to Consolidated Financial Statements.
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WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31,
(all dollar amounts in thousands) 2002 2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 23,068 $ 8,913 $ 1,465
Provision for depreciation, depletion, and amortization 60,624 60,948 58,860
Provision for losses on accounts receivable 307 1,339 396
Loss on property, plant, and equipment disposals 934 1,145 622
Compensation expense for stock-option grants 37 3,085 -
Deferred income taxes 16,108 598 2,290
Changes in operating assets and liabilities:
Receivables (1,688) 6,418 2,462
Inventories 5,305 27,011 4,473
Other assets (9,420) (10,243) (2,541)
Accounts payable and other liabilities (10,211) 247 16,059
Accrued and refundable income taxes (8,795) 4,405 (3,832)
Net cash provided by operating activities 76,269 103,866 80,254
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (19,201) (29,791) (86,896)
Proceeds from property, plant, and equipment disposals 275 607 244
Net cash used in investing activities (18,926) (29,184) (86,652)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under credit agreements (28,775) (64,190) 33,230
Payments under capital lease obligation - (241) (230)
Net repayments of long-term notes - - (3,000)
Proceeds from termination of interest-rate swap - 6,382 -
Dividends paid (17,520) (17,498) (17,207)
Proceeds from stock-option exercises 325 2,296 87
Payments for purchase of treasury stock - - (1,300)
Net cash (used in) provided by financing activities (45,970) (73,251) 11,580
Net increase in cash and cash equivalents 11,373 1,431 5,182
Cash and cash equivalents at beginning of year 12,010 10,579 5,397
Cash and cash equivalents at end of year $ 23,383 $ 12,010 $ 10,579
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amount capitalized $ 11,521 $ 13,943 $ 16,207
Income taxes paid $ 7,124 $ 977 $ 2,399
See accompanying Notes to Consolidated Financial Statements.
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WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated Common
Common Stock Treasury Stock Other Com- Stock Total
(all dollar amounts in Shares Retained prehensive Shares Stockholders'
thousands, except share data) Issued Amount Earnings Shares Amount (Loss) Outstanding Equity
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 1,465 1,465
Minimum pension liability
(Net of $278 deferred tax) (449) (449)
Comprehensive earnings, 2000 1,016
Cash dividends declared
($0.34 per share) (17,451) (17,451)
Stock options exercised (46) 10,000 133 10,000 87
Purchases of treasury stock (150,300) (1,300) (150,300) (1,300)
Balances December 31, 2000 60,122,812 170,636 325,544 (8,846,421) (118,595) (1,473) 51,276,391 376,112
Comprehensive earnings, 2001:
Net earnings 8,913 8,913
Minimum pension liability
(Net of $4,446 deferred tax) (8,209) (8,209)
Comprehensive earnings, 2001 704
Cash dividends declared
($0.34 per share) (17,518) (17,518)
Stock options exercised (783) 229,700 3,079 229,700 2,296
Tax benefit related to stock
options 176 176
Stock-option expense 3,085 3,085
Balances December 31, 2001 60,122,812 173,114 316,939 (8,616,721) (115,516) (9,682) 51,506,091 364,855
Comprehensive earnings, 2002:
Net earnings 23,068 23,068
Minimum pension liability
(Net of $9,052 deferred tax) (14,833) (14,833)
Comprehensive earnings, 2002 8,235
Cash dividends declared
($0.34 per share) (17,522) (17,522)
Stock options exercised (88) 30,800 413 30,800 325
Tax benefit related to stock
options 18 18
Stock-option expense 37 37
Balances December 31, 2002 60,122,812 $173,081 $322,485 (8,585,921) $(115,103) $(24,515) 51,536,891 $355,948
See accompanying Notes to Consolidated Financial Statements.
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WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Wausau-Mosinee Paper Corporation (the "Company") manufactures, converts, and
sells paper and paper products within three principal segments: the Printing &
Writing Group, the Specialty Paper Group, and the Towel & Tissue Group. The
majority of the Company's products are sold within the United States and
Canada.
The Printing & Writing Group manufactures, converts, and markets a broad line
of premium printing and writing grades. In addition, the Group includes two
converting facilities that produce laminated roll wrap and related specialty
finishing and packaging products.
The Specialty Paper Group produces a wide variety of technical specialty papers
that include supercalendered backing papers for pressure sensitive labeling
applications, tape backing, and packaging materials for a broad range of food,
medical, and industrial applications.
The Towel & Tissue Group produces a complete line of towel and tissue products
that are marketed along with soap and dispensing systems for the industrial and
commercial "away-from-home" market.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Wausau-Mosinee
Paper Corporation and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the accompanying financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets, 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 stated at cost, which approximates market.
INVENTORIES
Pulpwood, finished paper products, and approximately 96% 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.
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PROPERTY, PLANT, AND EQUIPMENT
Property, 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 three- to 20-year period. Maintenance and repair costs are charged to
expense as incurred. Improvements that 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 2002, 2001, and 2000
was $0.01 million, $0.2 million, and $1.1 million, respectively.
The Company assesses the recoverability of assets to be held and used by
comparing the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured as the amount by which
the carrying amount of the assets exceed the fair value of the assets, based on
a discounted cash flow analysis.
Timber and timberlands are stated at net depleted value. The Company
capitalizes the cost of purchasing timberlands and reforestation costs.
Interest and taxes related to timberlands are expensed as incurred.
Reforestation costs include site preparation, planting, fertilizing, herbicide
application, and thinning. Temporary logging roads are expensed while long-term
logging roads are capitalized and amortized over the estimated useful lives of
the roads, which is generally 15 to 20 years. Depletion is recorded as timber
is harvested and included in inventory until conversion into saleable product.
Depletion is calculated using the block and units-of-production methods. Under
these methods, the capitalized costs of large land tracts are divided by the
estimated volume of timber anticipated to be harvested on each tract. As the
timber is harvested, depletion is either recorded as each block is harvested or
as a percentage of each block is harvested.
ACCOUNTS PAYABLE
The Company's banking system provides for the daily replenishment of major bank
accounts as checks are presented for payment. Accordingly, net negative cash
balances resulting from outstanding checks that had not yet been paid by the
bank, in the amount of $6.9 million and $14.5 million as of December 31, 2002,
and 2001, are reflected in 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 temporary 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.
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STOCK OPTIONS
As permitted under Statement of Financial Accounting Standard (SFAS) No. 123,
the Company continues 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." See Note 8 for pro forma information on the impact
of the fair-value method of accounting for stock options.
EARNINGS PER SHARE
The Company presents both basic and diluted net earnings per share (EPS)
amounts. Basic EPS is calculated based on the weighted average number of common
shares outstanding during the respective year, while diluted EPS is calculated
based on the weighted average number of common shares and common stock
equivalents (options) outstanding during the respective year. The difference
between basic and diluted EPS for the Company is solely attributable to stock
options. The Company uses the treasury-stock method to calculate the impact of
outstanding stock options. Stock options for which the exercise price exceeds
the average market price over the period have an antidilutive effect on EPS
and, accordingly, are excluded from the calculation.
For the years ended December 31, 2002, 2001, and 2000, options for 734,694,
778,855, and 1,032,475 shares, respectively, were excluded from the diluted EPS
calculation for Wausau-Mosinee Paper Corporation common stock because the
options were antidilutive.
Basic and diluted earnings per share are reconciled as follows:
(all dollar amounts in thousands, except per share data) 2002 2001 2000
Net earnings $ 23,068 $ 8,913 $ 1,465
Basic weighted average common shares outstanding 51,532,000 51,466,000 51,354,000
Dilutive securities: stock-option plans 111,000 88,000 19,000
Diluted weighted average common shares outstanding 51,643,000 51,554,000 51,373,000
Net earnings per share - basic $ 0.45 $ 0.17 $ 0.03
Net earnings per share - diluted $ 0.45 $ 0.17 $ 0.03
REVENUE RECOGNITION
Revenue is recognized, net of any discounts, upon shipment of goods at which
time title passes to the customer. Upon shipment, the customer is obligated to
pay the Company and the Company has no remaining obligation. The Company grants
credit to customers in the ordinary course of business.
In accordance with Emerging Issues Task Force (EITF) Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs," shipping and handling
costs billed to customers are included in net sales and the related costs are
included in cost of sales in the Consolidated Statements of Income.
CONCENTRATION OF CREDIT RISK
A substantial portion of the Company's accounts receivable is with customers in
various paper converting, paper merchant, or distribution businesses. No single
customer accounted for 10% or more of total net sales in 2002. Net sales from
one major customer were 10.6% of total net sales in 2001. Receivables from the
same customer as a percent of year-end receivables amounted to 6.1% in 2001.
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DERIVATIVES
The Company adopted the Financial Accounting Standards Board Statement of
Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," on January 1, 2001. SFAS 133 requires that
as of the date of initial adoption, the difference between the fair market
value of derivative instruments recorded on the balance sheet and the previous
carrying amount of those derivatives be reported in net income or other
comprehensive income, as appropriate, as the cumulative effect of a change in
accounting principle in accordance with Accounting Principles Board Opinion 20,
"Accounting Changes." In the past, the Company has used derivative instruments
to mitigate its exposure to interest rate risk. The Company does not issue such
instruments for trading purposes. The adoption of this accounting standard did
not affect net earnings as both interest-rate swaps outstanding at January 1,
2001, were completely effective in hedging the related debt instruments. At
December 31, 2002, and 2001, there are no interest-rate swap agreements
outstanding. See Note 12 for additional information on the interest-rate swap
agreements.
ACCUMULATED COMPREHENSIVE INCOME (LOSS)
For all periods presented, the accumulated comprehensive loss is comprised
solely of additional minimum pension liability, net of tax.
CHANGES IN ACCOUNTING POLICIES
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible
Assets," and SFAS No. 143, "Accounting for Asset Retirement Obligations." The
FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," in August 2001. In June 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated With Exit or Disposal Activities," which
addresses financial accounting and reporting associated with exit or disposal
activities. In November 2002, the FASB issued Interpretation (FIN) No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." On December 31, 2002, the FASB
issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure."
SFAS No. 142 supersedes APB Opinion No. 17, "Intangible Assets." SFAS No. 142
addresses the financial accounting and reporting for acquired goodwill and
other intangible assets. SFAS No. 142 eliminates the amortization for goodwill
and other intangible assets with indefinite lives. Other intangible assets with
a finite life will be amortized over their useful life. Goodwill and other
intangible assets with indefinite useful lives shall be tested for impairment
annually or more frequently if events or changes in circumstances indicate that
the assets may be impaired. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. Since the Company does not have acquired
goodwill or intangibles, the Company's adoption of SFAS No. 142 on January 1,
2002, had no impact on the consolidated financial statements as of the date of
adoption.
SFAS No. 143 establishes accounting and reporting standards associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The statement requires that if reasonably estimable, the fair value of a
liability for an asset retirement obligation is recognized in the period in
which it is incurred. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS No. 143 is effective
for fiscal years beginning after June 15, 2002. The Company is currently
evaluating the impact of adopting this standard.
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SFAS No. 144 addresses the timing and measurement of recognizing an impairment
loss on long-lived assets that may not be recoverable from future operating
cash flow. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001. The Company's adoption of this statement on January 1, 2002, did not
have an impact on its results of operations.
SFAS No. 146 requires that costs associated with an exit or disposal activity
be recognized and measured at fair value in the period in which the liability
is incurred rather than at the date of commitment to an exit or disposal plan.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002. The Company will adopt SFAS No. 146 on January 1,
2003. The Company does not anticipate any impact as a result of adopting SFAS
No. 146.
FIN No. 45 requires that a guarantor must recognize, at the inception of a
guarantee, a liability for the fair value of the obligation that it has
undertaken in issuing a guarantee. FIN No. 45 also addresses the disclosure
requirements that a guarantor must include in its financial statements for
guarantees issued. The disclosure requirements in this interpretation are
effective for financial statements ending after December 15, 2002. The initial
recognition and measurement provisions of this interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31, 2002.
As of December 31, 2002, the Company did not have any existing guarantees as
defined under FIN No. 45.
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation,"
and provides alternative methods of transition for a voluntary change to the
fair-value-based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require more prominent and more frequent disclosures in financial statements of
the effects of stock-based compensation. SFAS No. 148 is effective for fiscal
years ending after December 15, 2002. The Company has made the required
disclosures within Note 8.
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NOTE 2 RESTRUCTURING
In March 2000, the Specialty Paper Group segment announced the decision to
close the Sorg Paper Company mill ("Sorg") in Middletown, Ohio, effective May
15, 2000, and as a result, recorded a $25 million pretax restructuring charge
in the first quarter of 2000. The decision to close the mill and cease
operations was based upon a review of the Sorg operations and the market for
decorative laminate and deep color tissue products that the mill produced. Net
sales of Sorg in 2000 were $27.8 million and operating losses were $0.7
million, excluding the restructuring charge. In the fourth quarter of 2000, the
estimate of the costs to complete the Sorg closure actions was revised downward
from $25.0 million to $22.3 million, resulting in a $2.7 million pretax
adjustment that increased fourth quarter 2000 operating profit. The reduction
in estimated costs to close Sorg related principally to lower-than-expected
termination costs and favorable curtailment gains for pension and
post-retirement plans. 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 related to the
write-down and disposal of the Sorg property, plant and equipment, curtailment
gains or losses for related pension and post-retirement plans, and other
closure related costs. The impairment write-down was based upon the amount by
which the carrying values of the building, machinery, and spare parts exceeded
the fair values of those assets as determined by an independent third-party
appraisal firm. The carrying value of the Sorg assets available for sale is
$98,000 at December 31, 2002, and 2001.
The following is a summary of the restructuring charges accrued and activity
through December 31, 2002, related to the Sorg closure:
Employee Asset Pension and
(all dollar amounts in thousands) Termination Write-Down Post-retirement Other Total
Initial charge, March 31, 2000 $ 4,321 $ 21,622 $( 1,925) $ 982 $ 25,000
Reserve adjustments (1,800) (215) (801) 130 (2,686)
(Payments)/charges (2,318) (19,909) 2,726 (834) (20,335)
Balance at December 31, 2000 203 1,498 - 278 1,979
Payments (101) (938) - (113) (1,152)
Balance at December 31, 2001 102 560 - 165 827
Payments (102) (560) - (165) (827)
Balance at December 31, 2002 $ - $ - $ - $ - $ -
At December 31, 2000, all employees had been terminated from Sorg, and as of
December 31, 2001, severance payouts had been 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. As
of December 31, 2002, the Sorg fixed assets including all buildings, equipment,
and spare parts not usable by the Company's other mills continue to be actively
marketed to interested parties. During 2002, the remaining reserves to market,
sell, and close the facility have been reclassified to other liabilities.
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NOTE 3 SUPPLEMENTAL BALANCE SHEET INFORMATION
(all dollar amounts in thousands) 2002 2001
Receivables $ 71,655 $ 73,349
Trade 1,527 727
Other 73,182 74,076
Less: allowances for doubtful accounts (2,376) (4,651)
$ 70,806 $ 69,425
Inventories
Raw materials $ 33,989 $ 34,349
Work in process and finished goods 79,200 80,343
Supplies 27,463 29,181
Inventories at cost 140,652 143,873
LIFO reserve (21,619) (19,535)
$ 119,033 $ 124,338
Property, plant, and equipment
Buildings $ 136,412 $ 134,979
Machinery and equipment 1,055,507 1,043,694
1,191,919 1,178,673
Less: accumulated depreciation (613,840) (564,108)
Net depreciated value 578,079 614,565
Land 5,307 5,307
Timber and timberlands, net of depletion 5,821 5,620
Idle assets 98 98
Construction in progress 8,674 9,338
$ 597,979 $ 634,928
Accrued and other liabilities
Payroll $ 9,478 $ 7,868
Vacation pay 11,769 11,163
Employee retirement plans 7,023 7,402
Taxes other than income 3,085 3,059
Cash dividends declared 4,384 4,383
Stock appreciation rights 2,484 2,621
Rebates 8,974 7,752
Other 11,381 13,003
$ 58,578 $ 57,251
-41-
NOTE 4 DEBT
The Company has a short-term bank revolving-credit note that provides for the
borrowing of up to $12.5 million. The note terminates on March 7, 2003. As of
December 31, 2002, there were no borrowings against this note.
A summary of long-term debt as of December 31 is as follows:
(all dollar amounts in thousands) 2002 2001
Senior notes with interest from 7.20% to 7.43%, due between
August 31, 2007, and August 31, 2011 $138,500 $138,500
Industrial development bonds due July 1, 2023, with weighted
average interest rate of 1.69% in 2002 19,000 19,000
Revolving-credit agreement with financial institutions, with weighted
average interest rate of 2.51% in 2001 - 25,000
Commercial paper with weighted average interest rate of 2.39% in 2001 - 3,775
Subtotal 157,500 186,275
Premium on senior notes 5,263 5,989
Total long-term debt $162,763 $192,264
The Company has $138.5 million outstanding in unsecured 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 million, eight years,
7.20%; (2) $68.5 million, 10 years, 7.31%; and (3) $35 million, 12 years,
7.43%. At August 31, 1999, the Company entered into an interest-rate swap
agreement under which the interest rate paid by the Company with respect to (1)
$58.5 million of the 10-year notes was the three-month LIBOR rate, plus .4925%,
and (2) $30 million of the 12-year notes was the three-month LIBOR rate, plus
..55%. On March 17, 2001, the Company terminated its interest-rate swap
agreement with respect to its 7.43% senior notes due August 31, 2011, in
exchange for receiving a cash payment of $2.3 million. On August 10, 2001, the
Company terminated its interest-rate swap agreement with respect to its 7.31%
senior notes due August 31, 2009, in exchange for receiving a cash payment of
$4.1 million. The amounts received from the swap counterparties at termination
approximated the fair values of the swaps at the respective termination dates.
The premium recorded on debt during the period the swaps were outstanding will
continue to be amortized using the effective interest-rate method over the
remaining term of the respective debt instruments.
The Company has a $150 million unsecured revolving-credit agreement with four
participating banks 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 among the
bank group. The Company pays the banks a facility fee under this agreement
based on quarterly debt/capitalization ratios. Facility fees paid were
$266,000, $282,000, and $341,000 in 2002, 2001, and 2000, respectively.
In addition to general business and reporting covenants customary in financing
agreements of these types, the senior notes and revolving-credit facility
require that the Company comply quarterly with a consolidated debt-to-capital
ratio of less than 60% and an adjustable minimum net worth covenant as defined
in the agreements. In addition, the revolving-credit facility includes an
interest coverage ratio covenant of 3.5 times. As of December 31, 2002, and
2001, the Company was in compliance with all required covenants.
-42-
The Company maintains an unrated commercial paper placement agreement with a
bank to issue up to $50 million of unsecured debt obligations. The agreement
requires unused credit availability under the Company's revolving-credit
agreement equal to the amount of outstanding commercial paper. The amounts
outstanding as of December 31, 2001, were classified as long-term, as the
Company intended to and had the ability to refinance the obligations under the
revolving-credit agreement.
The aggregate annual maturities of long-term debt are as follows:
(all dollar amounts in thousands) 2003 2004 2005 2006 2007 Thereafter
Annual Maturities - - - - $35,000 $ 122,500
NOTE 5 LEASE COMMITMENTS
The Company has various leases for real estate, mobile equipment, and machinery
that generally provide for renewal privileges or for purchase at option prices
established in the lease agreements.
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more consisted
of the following at December 31, 2002:
Operating
(all dollar amounts in thousands) Leases
2003 $ 2,308
2004 2,194
2005 2,112
2006 2,102
2007 2,102
Thereafter 5,530
Total minimum payments $ 16,348
Rental expense for all operating leases was as follows:
(all dollar amounts in thousands) 2002 2001 2000
Rent expense $9,039 $7,730 $6,107
NOTE 6 PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
The Company and its subsidiaries sponsor defined benefit pension plans covering
substantially all employees. Retirement benefits for salaried and nonunion
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 has 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 supplemental retirement agreements are unfunded.
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The Company also provides certain defined benefit post-retirement 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 post-retirement plans are unfunded.
The following schedules present changes in, and components of, the Company's
net assets (liabilities) for retirement and other post-retirement benefits at
December 31, 2002, and 2001:
Other
Post-retirement
Retirement Benefits Benefits
(all dollar amounts in thousands) 2002 2001 2002 2001
Change in benefit obligation:
Benefit obligation at beginning of year $122,677 $107,861 $ 62,446 $ 57,248
Service cost 4,916 4,177 1,779 1,501
Interest cost 8,727 8,170 4,366 4,287
Amendments 2,541 3,905 - -
Net actuarial loss 9,026 7,054 19,235 4,555
Participant contributions - - 1,412 1,330
Benefits paid (6,876) (8,490) (6,740) (6,475)
Benefit obligation at end of year $141,011 $122,677 $ 82,498 $ 62,446
Change in plan assets:
Fair value at beginning of year $ 71,771 $ 75,826 $ - $ -
Actual loss (8,197) (10,269) - -
Company contributions 9,657 13,318 5,328 5,145
Participant contributions - - 1,412 1,330
Benefits paid (6,876) (8,490) (6,740) (6,475)
Cash contribution subsequent to
measurement date 10,982 1,386 - -
Fair value at end of year $ 77,337 $ 71,771 $ - $ -
Net amount recognized:
Funded status $(63,674) $(50,906) $(82,498) $(62,446)
Unrecognized prior service cost 15,518 14,925 (1,007) (1,364)
Unrecognized transition asset (239) (404) - -
Unrecognized net actuarial loss 43,171 18,560 24,092 4,834
Accrued benefit cost $ (5,224) $(17,825) $(59,413) $(58,976)
Amounts recognized in the Balance Sheet consist of:
Accrued benefit liability $(59,538) $(47,375) $(59,413) $(58,976)
Intangible asset 15,400 14,521 - -
Accumulated other comprehensive income 38,914 15,029 - -
Net amount recognized $ (5,224) $(17,825) $(59,413) $(58,976)
Weighted average assumptions at end of year:
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets 8.50% 9.0% n/a n/a
Rate of compensation increase 4.25% 5.0% n/a n/a
-44-
The Company selected September 30, 2002, and 2001, as the measurement dates for
plan assets and obligations in 2002 and 2001, respectively.
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. The restructuring plan is 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:
Pension Benefits Other Benefits
(all dollar amounts in thousands) 2002 2001 2000 2002 2001 2000
Components of net periodic
benefit cost:
Service cost $ 4,916 $ 4,177 $ 4,376 $1,779 $1,501 $ 1,329
Interest cost 8,727 8,170 7,569 4,366 4,287 3,989
Expected return on plan assets (7,453) (6,469) (5,488) - - -
Amortization of:
Prior service cost 1,864 1,670 1,535 (357) (357) (508)
Transition (asset) (164) (162) (162) - - -
Actuarial loss 64 (57) 46 (23) (187) (338)
Subtotal 7,954 7,329 7,876 5,765 5,244 4,472
Components charged to
restructuring expense:
Settlement and curtailment - - 346 - - (3,076)
Net periodic benefit cost $ 7,954 $ 7,329 $ 8,222 $5,765 $5,244 $ 1,396
For purposes of determining the obligation for post-retirement medical benefits
in 2002, the Company has assumed a health-care cost trend rate of 10%,
declining to an ultimate rate of 5% by 2007, to measure the accumulated
post-retirement benefit. For 2001, the assumed health-care cost trend rate used
in measuring the accumulated post-retirement benefit was 9%, declining by 1%
annually for four years to an ultimate rate of 5%.
Assumed health-care cost trend rates significantly affect reported amounts for
retiree medical benefits. For 2002, the effect of a one-percentage-point change
in the assumed health-care cost trend rate would have had the following
effects:
One percentage point
(all dollar amounts in thousands) Increase Decrease
Effect on the post-retirement
benefit obligation $9,924 $(8,835)
Effect on the sum of the service cost and
interest cost components 908 (789)
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 $2,605,000 in 2002, $2,219,000 in
2001, and $1,981,000 in 2000.
The Company has deferred-compensation 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 agreements is
not significant.
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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 (benefit) for income taxes is comprised of the following:
(all dollar amounts in thousands) 2002 2001 2000
Current tax expense (benefit):
Federal $(4,104) $3,308 $ -
State 1,546 1,328 1,042
Total current (2,558) 4,636 1,042
Deferred tax expense (benefit):
Federal 15,718 1,342 827
State 390 (748) (1,009)
Total deferred 16,108 594 (182)
Total provision for income taxes $13,550 $5,230 $ 860
A reconciliation between taxes computed at the federal statutory rate and the
Company's effective tax rate follows:
(all dollar amounts in thousands) 2002 2001 2000
Federal statutory tax rate $12,820 35.0% $4,935 35.0% $814 35.0%
State taxes (net of federal tax benefits) 1,528 4.2 295 2.0 46 1.9
Other (798) (2.2) - - - -
Effective tax $13,550 37.0% $5,230 37.0% $860 36.9%
At the end of 2002, $103,557,851 of unused state operating loss and credit
carryovers existed, which may be used to offset future state taxable income in
various amounts through the year 2017. 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.
-46-
The major temporary differences that give rise to the deferred tax assets and
liabilities at December 31, 2002, and 2001, are as follows:
(all dollar amounts in thousands) 2002 2001
Deferred tax assets:
Allowances on accounts receivable $ 979 $ 2,741
Accrued compensated absences 4,092 3,975
Stock appreciation rights plans 113 1,022
Stock options 1,328 1,314
Pensions 11,756 8,923
Inventories 2,087 3,143
Post-retirement benefits 23,772 23,589
Restructuring reserve 5,202 5,209
Post-employment benefits 274 274
Other accrued liabilities 7,532 8,091
State net operating loss carry forward 6,651 6,151
Other 384 512
Gross deferred tax asset 64,170 64,944
Less valuation allowance (3,259) (3,713)
Net deferred tax assets 60,911 61,231
Deferred tax liabilities:
Property, plant, and equipment (148,017) (143,283)
Other (11,459) (9,475)
Gross deferred tax liability (159,476) (152,758)
Net deferred tax liability $(98,565) $(91,527)
The total deferred tax assets (liabilities) as presented in the accompanying
consolidated balance sheets are as follows:
(all dollar amounts in thousands) 2002 2001
Net deferred tax assets $ 12,812 $ 14,111
Net long-term deferred tax liabilities (111,377) (105,638)
Net deferred tax liability $(98,565) $(91,527)
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.
Options are granted for terms up to 20 years; the option price is equal to the
fair market value of the Company's common stock at the date of grant for
incentive and nonqualified options. All fixed-options must be held a minimum of
six months before exercise, and performance-based options vest in relation to
achieving operating profit levels.
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On April 19, 2001, the Company's shareholders approved the 2000 Stock-Option
Plan. As a result, 1,046,013 options issued prior to April 19, 2001, were
approved. Of the total 1,046,013 shares, 783,513 shares related to grants of
fixed options and 262,500 shares related to grants of performance-based options
that subsequently lapsed. Upon shareholder approval, expense was recorded for
these options to the extent that the fair market value of the Company's stock
exceeded the price of the option on the date of shareholder approval. For the
year ended December 31, 2001, the provision for stock options outstanding was
$3,085,000.
In December 2001, the Company issued 315,000 performance-based options that
vested in relation to achieving certain operating profit levels in 2002. As of
December 31, 2002, 213,000 of these options have lapsed. No compensation
expense had been recorded for these options in 2001. In 2002, $37,000 of
expense was recognized pertaining to 102,000 options to the extent the fair
market value of the Company's stock exceeded the grant price of the options as
certain performance criteria were met. In December 2002, the Company issued
666,000 performance-based options that vest in relation to achieving certain
operating profit levels in 2003 and 2004. No compensation expense was recorded
for these options in 2002.
As of December 31, 2002, there are 1,555,066 stock options reserved for
issuance in the Company's stock-option plans.
The following table summarizes the activity relating to the Company's
stock-option plans:
2002 2001 2000
Weighted Weighted Weighted
Average Average Average
2002 Exercise 2001 Exercise 2000 Exercise
Shares Price Shares Price Shares Price
Options outstanding at
beginning of year 2,057,568 $13.84 1,312,375 $14.19 1,322,375 $14.18
Granted 705,000 11.39 1,228,513 9.58 53,000 9.72
Terminated (267,000) 11.44 (253,620) 16.00 (53,000) 17.16
Exercised (30,800) 10.55 (229,700) 10.00 (10,000) 8.75
Options outstanding at end of year 2,464,768 $11.79 2,057,568 $13.84 1,312,375 $14.19
Options exercisable at end of year 1,773,768 $11.95 1,722,568 $13.86 1,312,375 $14.19
The weighted-average fair value of options granted in 2002 was $3.46.
Additional information regarding the fixed-option grants outstanding and
exercisable at December 31, 2002, is as follows:
Weighted Average
Remaining
Range of Outstanding Contractual Weighted Average Exercisable Weighted Average
Exercise Prices Options Life (years) Exercise Price Options Exercise Price
$ 8.75 - $13.13 1,307,517 16.79 $10.00 1,282,517 $ 9.98
$15.88 - $21.61 491,251 14.18 $17.08 491,251 $17.08
1,798,768 1,773,768
The exercise price for the 666,000 performance-based options outstanding at
December 31, 2002, is $11.39.
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Pro forma net earnings and earnings per share had the Company elected to adopt
the "fair-value-based method" of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," are as follows:
(all dollar amounts in thousands, except per share data) 2002 2001 2000
Net earnings:
As reported $23,068 $8,913 $1,465
Add: Total stock-based employee compensation expense (credit) under
APB No. 25, net of related tax effects (110) 2,622 1
Deduct: Total stock-based employee compensation expense determined
under fair-value-based method for all awards, net of related tax effects (137) (3,139) (159)
Pro forma $22,821 $8,396 $1,307
Earnings per share - basic:
As reported $ 0.45 $ 0.17 $ 0.03
Pro forma $ 0.44 $ 0.16 $ 0.03
Earnings per share - diluted:
As reported $ 0.45 $ 0.17 $ 0.03
Pro forma $ 0.44 $ 0.16 $ 0.03
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:
2002 2001 2000
Risk-free interest rate 4.38% 5.84% 6.26%
Expected life in years 6 6 6
Price volatility 38.23% 36.41% 45.12%
Dividend yield 3.83% 3.58% 3.49%
STOCK APPRECIATION RIGHTS
The Company maintains various stock appreciation rights plans that entitle
certain management employees 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. Additions or reductions to compensation expense are recorded
in each period based upon the quoted market value of the shares and the
exercise provisions.
-49-
The following table summarizes the activity relating to the Company's stock
appreciation rights plans:
2002 2001 2000
Rights outstanding at
beginning of year (number of shares) 307,805 470,855 624,855
Granted - - -
Terminated - (101,683) -
Exercised - (61,367) (154,000)
Rights outstanding and exercisable at
end of year (number of shares) 307,805 307,805 470,855
Price range of rights exercised n/a $5.88-9.42 $6.49-9.70
Price range of outstanding and exercisable rights:
$4.06 - $9.70 292,930 292,930 354,297
$15.88 - $17.16 14,875 14,875 116,558
At December 31, 2002, the weighted average remaining contractual life on
outstanding stock appreciation rights with an exercise price of between $4.06
and $9.70 was 7.6 years, and with an exercise price of between $15.88 and
$17.16 was 16.0 years.
DIVIDEND EQUIVALENTS
The Company maintains a Dividend Equivalent Plan. Upon termination of
employment, or at the time of exercise of options granted in tandem with the
dividend equivalents, participants are entitled to receive the cash value of
the grant. The cash value is determined by the sum of the value of cash
dividends that would have been paid on the stock covered by the grant had it
been actual stock and assuming all such hypothetical dividends had been
reinvested in Company stock. Additions or reductions to compensation expense
are recorded in each period based upon the quoted market value of the shares
and the exercise provisions.
The following table summarizes the activity relating to the Company's dividend
equivalent plan:
2002 2001 2000
Equivalents outstanding at beginning
of year (number of shares) 174,114 205,433 205,433
Exercised - (31,319) -
Equivalents outstanding and exercisable
at end of year (number of shares) 174,114 174,114 205,433
The provision (credit) for stock appreciation rights and dividend equivalents
were as follows:
(all dollar amounts in thousands) 2002 2001 2000
Stock appreciation rights ($183) $744 $19
Dividend equivalents 46 97 63
Total ($137) $841 $82
NOTE 9. RESEARCH AND DEVELOPMENT EXPENSES
Expenditures for product development were $2,145,000 in 2002, $4,058,000 in
2001, and $3,968,000 in 2000. The Company expenses research and development
costs as incurred.
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NOTE 10. COMMITMENTS AND CONTINGENCIES
LITIGATION AND OTHER CLAIMS
The Company may be involved from time to time in various 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 (PRP)
for the Gorski landfill in Mosinee, Wisconsin, and nominated the landfill to
the Environmental Protection Agency's (EPA) National Priorities List. The
environmental contamination consists of elevated concentrations of chlorinated
volatile organic compounds documented in three private water supply wells
located in proximity to the designated landfill. While the Company believes it
did not contribute to the identified contamination, the laws are designed to
require any party that utilized the landfill to contribute toward the cleanup.
The DNR has identified 10 PRPs. No action was taken by either the DNR or the
EPA until June 2000, when the DNR requested certain parties who had disposed of
waste at the site to form an ad hoc group to cooperatively investigate the
environmental contamination at the site. In October 2001, the Company entered
into an agreement with two other parties to form an ad hoc group to fund a
study of the landfill and determine possible remediation strategies. The DNR
evaluated the proposed study and recommended modifications to the proposed
study in August 2002. The ad hoc group responded to the DNR recommendations in
November 2002. The Company estimates that the costs of remediation of the
entire site for all parties will be approximately $3 million, based on the
remediation method the Company's consultants believe to be the most likely to
be used. This estimate is preliminary. Actual costs of remediation of the site
could be materially different, the investigative study has not been completed,
and no timetable for the actual remediation work has yet been developed. The
Company's share of the cost of such remediation cannot be determined with
certainty at this time, but based on the estimated costs and the number and
nature of the other potential responsible parties, the Company is of the
opinion that such costs will not have a material adverse impact on the
operations, financial condition, or liquidity of the Company.
It is the Company's policy to accrue remediation costs when it is probable that
such costs will be incurred and when a range of loss can be reasonably
estimated. Estimates of loss are developed based on currently available
information including environmental studies performed by third-party experts
and the Company's past experience with these matters. The Company's accrued
environmental liabilities, including all remediation and landfill closure
costs, totaled $5.6 million and $5.7 million at December 31, 2002, and 2001,
respectively. The provision for environmental matters was $0.4 million, $1.8
million, and $0.6 million for the years ended December 31, 2002, 2001, and
2000,
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respectively. In 2001, the total environmental liabilities increased primarily
due to a landfill site being identified for remediation. The Company
periodically reviews the status of all significant existing or potential
environmental issues and adjusts its accruals as necessary. The accruals do not
reflect any possible future insurance recoveries. Estimates of costs for future
remediation are necessarily imprecise due to, among other things, the
identification of presently unknown remediation sites and the allocation of
costs among potentially responsible parties. The Company believes that its
share of the costs of cleanup for its current remediation site will not have a
material adverse impact on its consolidated financial position. As is the case
with most manufacturing and many other entities, there can be no assurance that
the Company will not be named as a PRP at additional previously or currently
owned sites in the future or that the costs associated with such additional
sites would not be material.
The U.S. Environmental Protection Agency has published regulations, commonly
referred to as the Cluster Rules, affecting pulp and paper industry discharges
of wastewater and gaseous emissions. These rules require changes in the pulping
and bleaching processes presently used in some U.S. pulp mills, including some
of the Company's mills. Based on its evaluation of the rules, the Company spent
approximately $1.9 million in 2001 to comply with the Cluster Rules. No
additional capital spending is expected related to these regulations.
OTHER COMMITMENTS
As of December 31, 2002, the Company was committed to spend approximately $4.2
million on 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. The contract is only for the transportation of natural gas from the
Company's natural gas suppliers to the Company's mill in New Hampshire. The
Company is not required to buy or sell minimum gas volumes under the agreement.
The Company is required to pay a minimum transportation fee of approximately
$1.0 million annually per the agreement; however, the Company's natural gas
requirements exceed the level required to be transported.
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 1 one-thousandth of a share of Series A Junior
Participating Preferred Stock, at an exercise price of $60 per 1 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
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Acquiring Person, the Company may redeem the rights at a price of $0.01 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.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
The carrying amounts approximate fair value due to the relatively short-term
nature of these instruments.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on current
rates offered to the Company for debt of the same remaining maturities. At
December 31, 2002, and 2001, the fair value of the long-term debt exceeded the
carrying value by approximately $14.4 million and $0.7 million, respectively.
INTEREST RATE AGREEMENT
Interest-rate swaps designated in fair value hedge relationships have been used
by the Company in the past to mitigate the risk of reductions in the fair value
of existing fixed-rate long-term notes due to decreases in LIBOR-based interest
rates. Gains and losses on these instruments were reflected in interest expense
in the period in which they occurred, and an offsetting gain or loss is also
reflected in interest expense based on changes in the fair value of the debt
instrument being hedged due to changes in LIBOR-based interest rates. During
2001, the interest rate agreements were terminated. The amounts received from
the swap counterparties at termination approximated the fair values of the
swaps at the respective termination dates. Accordingly, the amount of the swap
asset recorded has been eliminated from the balance sheet at the termination
date. The premium recorded on debt during the period the swaps were outstanding
will continue to be amortized using the effective interest rate method over the
remaining term of the respective debt instruments. Debt premium amortization
reduced interest expense by $726,000 and $367,000 for the years ended December
31, 2002, and 2001, respectively. The agreement decreased interest expense by
$589,000 and $230,000 in 2001 and 2000, respectively.
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NOTE 13. SEGMENT DATA
FACTORS USED TO IDENTIFY REPORTABLE SEGMENTS
The Company's operations are classified into three principal reportable
segments: the Printing & Writing Group, the Specialty Paper 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 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 that produce laminated roll wrap and related specialty finishing and
packaging products, and a converting facility that converts printing and
writing grades. The Specialty Paper Group produces specialty papers at its
manufacturing facilities in Rhinelander, Wisconsin; Mosinee, Wisconsin; and
Jay, Maine. The Towel & Tissue Group produces a complete line of towel and
tissue products that are marketed along with 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.
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RECONCILIATIONS
The following are reconciliations to corresponding totals in the accompanying
consolidated financial statements:
(all dollar amounts in thousands) 2002 2001 2000
Net sales external customers:
Printing & Writing $391,240 $392,026 $395,992
Specialty Paper 348,990 354,181 408,979
Towel & Tissue 208,468 197,522 185,953
$948,698 $943,729 $990,924
Net sales intersegment:
Printing & Writing $ 7,024 $ 8,687 $ 8,003
Specialty Paper 232 462 1,708
Towel & Tissue - - 21
$ 7,256 $ 9,149 $ 9,732
Operating profit:
Printing & Writing $ 31,600 $ 25,750 $ 19,911
Specialty Paper (1,811) (9,417) 10,625
Specialty Paper - restructuring expense - - (22,314)
Total Specialty Paper (1,811) (9,417) (11,689)
Towel & Tissue 27,411 25,294 19,630
Total reportable segment
operating profit: 57,200 41,627 27,852
Corporate and eliminations (9,778) (13,348) (10,067)
Interest expense (10,845) (14,416) (15,713)
Other income (expense) 41 280 253
Earnings before income taxes $ 36,618 $ 14,143 $ 2,325
Segment assets:
Printing & Writing $284,652 $294,241
Specialty Paper 347,380 368,595
Towel & Tissue 170,854 177,708
Corporate and unallocated 70,871 51,464
$873,757 $892,008
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OTHER SIGNIFICANT ITEMS
Depreciation, Expenditures
Interest Depletion, and for Long-Lived
(all dollar amounts in thousands) Income Amortization Assets
2002
Printing & Writing $ - $16,545 $ 8,751
Specialty Paper - 25,084 3,551
Towel & Tissue - 18,077 5,897
Corporate and unallocated 25 918 1,002
$ 25 $60,624 $ 19,201
2001
Printing & Writing $ - $16,972 $ 9,308
Specialty Paper 15 25,277 8,615
Towel & Tissue - 17,214 10,902
Corporate and unallocated 247 1,485 966
$ 262 $60,948 $ 29,791
2000
Printing & Writing $ 15 $16,546 $ 18,273
Specialty Paper 3 24,037 59,937
Towel & Tissue - 16,405 5,793
Corporate and unallocated 120 1,872 2,893
$138 $58,860 $ 86,896
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) 2002 2001 2000
United States $884,213 $884,088 $918,468
All foreign countries 64,485 59,641 72,456
$948,698 $943,729 $990,924
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QUARTERLY FINANCIAL DATA (UNAUDITED)
(all dollar amounts in thousands, First Second Third Fourth
except per share data) Quarter* Quarter Quarter Quarter** Annual
2002
Net sales $225,928 $237,820 $251,149 $233,801 $948,698
Gross profit 25,328 28,471 28,146 30,439 112,384
Operating profit 8,256 11,768 14,680 12,718 47,422
Net earnings 3,428 5,696 7,577 6,367 23,068
Net earnings per share basic and diluted $ 0.07 $ 0.11 $ 0.15 $ 0.12 $ 0.45
2001
Net sales $234,145 $240,637 $245,106 $223,841 $943,729
Gross profit 15,942 23,856 29,931 26,412 96,141
Operating profit (loss) (1,730) 4,678 14,824 10,507 28,279
Net earnings (loss) (3,768) 682 7,250 4,749 8,913
Net earnings (loss) per
share basic and diluted $ (0.07) $ 0.01 $ 0.14 $ 0.09 $ 0.17
2000
Net sales $253,736 $254,980 $250,650 $231,558 $990,924
Gross profit 28,266 31,855 25,435 18,447 104,003
Operating profit (loss) (15,953) 16,096 11,483 6,159 17,785
Net earnings (loss) (12,921) 7,798 4,746 1,842 1,465
Net earnings (loss) per
share basic and diluted $ (0.25) $ 0.15 $ 0.09 $ 0.04 $ 0.03
<FN>
* In 2000, includes an after-tax expense of $16.3 million ($25.0 million
pretax) or $0.32 per share for restructuring expenses relating to the
closure of the Sorg Paper Company.
** In 2000, includes an after-tax income of $2.3 million ($2.7 million pretax)
or $0.04 per share for a change in restructuring expense estimate relating
to the closure of the Sorg Paper Company.
MARKET PRICES FOR COMMON SHARES (UNAUDITED)
2002 2001 2000
Cash Cash Cash
Dividends Dividends Dividends
Paid Paid Paid
Price Price Per Price Price Per Price Price Per
Quarter High Low Share High Low Share High Low Share
1st $12.97 $10.50 $0.085 $13.00 $ 9.94 $0.085 $14.63 $9.50 $0.080
2nd 14.00 11.20 0.085 14.00 11.52 0.085 13.25 8.50 0.085
3rd 12.09 9.00 0.085 13.58 7.85 0.085 10.19 7.75 0.085
4th 11.81 8.14 0.085 12.16 9.65 0.085 12.13 7.56 0.085
All prices represent the high and the low sales prices for the common stock as
reported on the New York Stock Exchange.
-57-
Schedule II - Valuation and Qualifying Accounts
Allowance for
Doubtful
Accounts
Balance December 31, 1999 $ 3,570
Charges to cost and expense 630
Deductions (363)
Balance December 31, 2000 3,837
Charges to cost and expense 1,397
Deductions (583)
Balance December 31, 2001 4,651
Charges to cost and expense 342
Deductions (2,617)
Balance December 31, 2002 $ 2,376
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
On June 18, 2002, Deloitte & Touche LLP was appointed as independent auditor
for the 2002 fiscal year. Information required by Item 304 of Regulation S-K
is incorporated by reference to the Company's Form 8-K dated June 18, 2002.
On October 19, 2001, Arthur Andersen LLP was appointed as independent auditor
for the 2001 fiscal year. Information required by Item 304 of Regulations S-K
is incorporated by reference to the Company's Form 8-K dated October 19, 2001.
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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 disclosure in the Company's proxy statement
relating to the 2003 annual meeting of shareholders (the "2003 Proxy
Statement") beginning under the subcaption "Proposal Requiring Your Vote -
Election of Directors" and ending at the subcaption "Committees of the Board of
Directors." 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 disclosure in the 2003 Proxy Statement under the subcaption
"Stock Ownership - Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to director compensation is incorporated into this Form
10-K by this reference to the disclosure in the 2003 Proxy Statement under the
subcaption "Compensation of Directors." Information relating to the
compensation of executive officers is incorporated into this Form 10-K by this
reference to (1) the disclosure in the 2003 Proxy Statement beginning under the
caption "Executive Compensation," through the disclosure ending under the
subcaption, "Retirement Benefits," and (2) the disclosure in the 2003 Proxy
Statement under the subcaption " Report of the Compensation Committee -
Committee Interlocks and Insider Participation."
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
disclosure in the 2003 Proxy Statement beginning under the subcaption "Stock
Ownership of Directors, Executive Officers, and 5% Shareholders" and ending at
the subcaption "Section 16(a) Beneficial Ownership Reporting Compliance."
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The following table sets forth, as of December 31, 2002, information with
respect to compensation plans under which the Company's common stock is
authorized for issuance:
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights(1) rights(1) equity compensation plans
(excluding securities
reflected in column (a))(1)
(a) (b) (c)
<s> <c> <c>
Equity compensation plans
approved by security
holders 2,212,208(2) $ 11.78 1,555,066
Equity compensation plans
not approved by security
holders 0 N/A 0
Total 2,212,208 $ 11.78 1,555,066
<FN>
(1)Securities include only options under the Company's stock-option
plans.
(2)Excludes options with respect to 252,560 shares granted under stock
option plans of Mosinee Paper Corporation as of December 17, 1997 (the
date of the merger between Wausau Paper Mills Company and Mosinee
Paper Corporation) at a weighted-average exercise price of $11.87. No
additional options have been granted from the stock-option plans then
in effect for Mosinee Paper Corporation.
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 disclosure in the 2003 Proxy Statement under the subcaption "Determination
of Independence of Directors."
ITEM 14. CONTROLS AND PROCEDURES.
During the 90-day period prior to the filing date of this Form 10-K,
management, under the supervision, and with the participation, of the Company's
President and Chief Executive Officer and the Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-14 under the Securities
Exchange Act of 1934. Based upon, and as of the date of such evaluation, the
President and Chief Executive Officer and the Chief Financial Officer concluded
that the Company's disclosure controls and procedures were effective in all
material respects. There have been no significant changes in the Company's
internal controls or in other factors which could significantly affect internal
controls subsequent to the date the Company carried out its evaluation, nor
were there any significant deficiencies or material weaknesses identified which
required any corrective action to be taken.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report.
(1) The following consolidated financial statements of the Company and the
Independent Auditors' Report and Reports of Independent Public
Accountants thereon are filed as part of this report:
(i) Consolidated Balance Sheets as of December 31, 2002 and 2001
(ii) Consolidated Statements of Income for the years ended December 31,
2002, 2001, and 2000
(iii) Consolidated Statements of Cash Flows for the years ended December
31, 2002, 2001, and 2000
(iv) Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2002, 2001, and 2000
(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, 2002, 2001, and 2000 (page 58)
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, Commission File No. 33-42445)
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 thereto (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)
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4.5 Revolving Credit Agreement dated December 10, 1999 among the
Company 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 (incorporated by
reference to Exhibit 4.5 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000)
4.6 $12,500,000.00 364-day Credit Facility Between the Company and
Marshall & Ilsley Bank Dated March 8, 2002 (incorporated by
reference to Exhibit 4.6 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2001)
10.1 Supplemental Retirement Plan, as last amended October 19, 2000
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on form 10-Q for the quarterly period ended March
31, 2001)*
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 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)*
10.4 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)*
10.5 1991 Employee Stock Option Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998)*
10.6 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)*
10.7 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)*
10.8 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)*
10.9 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)*
10.10 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)*
10.11 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)*
10.12 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)*
10.13 Mosinee Paper Corporation 1994 Stock Option Plan, as last amended
March 4, 1999 (incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001)
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10.14 2002 Incentive Compensation Plan for Executive Officers
(incorporated by reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2001)*
10.15 2003 Incentive Compensation Plan for Executive Officers*
10.16 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)*
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 Deloitte & Touche LLP
(Consent of Arthur Andersen LLP omitted pursuant to Rule 437a under
the Securities Act of 1933, as amended)
23.2 Consent of Wipfli Ullrich Bertelson LLP
99.1 Certification under Section 906 of Sarbanes-Oxley Act of 2002
* Executive compensation plans or arrangements. All plans are
sponsored or maintained by the Company unless otherwise noted.
(b) Reports on Form 8-K:
Form 8-K Dated October 16, 2002. The Company filed a current report on
Form 8-K on October 16, 2002, reporting earnings and net sales information for
the quarter ended September 30, 2002 under Item 5 and additional related
information under Item 9, Regulation FD Disclosure.
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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 17, 2003 SCOTT P. DOESCHER
Scott P. Doescher
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 17, 2003
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 Director
DENNIS J. KUESTER DAVID B. SMITH, JR.
Dennis J. Kuester David B. Smith, Jr.
Director Director
GARY W. FREELS HARRY R. BAKER
Gary W. Freels Harry R. Baker
Director Director
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CERTIFICATIONS
I, Thomas J. Howatt, certify that:
1. I have reviewed this annual report on Form 10-K of Wausau-Mosinee
Paper Corporation (the "registrant");
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 17, 2003 THOMAS J. HOWATT
Thomas J. Howatt
President and Chief Executive Officer
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CERTIFICATIONS
I, Scott P. Doescher, certify that:
1. I have reviewed this annual report on Form 10-K of Wausau-Mosinee
Paper Corporation (the "registrant");
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 17, 2003 SCOTT P. DOESCHER
Scott P. Doescher
Senior Vice President, Finance
(Principal Financial Officer)
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EXHIBIT INDEX*
TO
FORM 10-K
OF
WAUSAU-MOSINEE PAPER CORPORATION
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
PURSUANT TO SECTION 102(D) OF REGULATION S-T
(17 C.F.R. section 232.102(D))
Exhibit 10.15 2003 Incentive Compensation Plans for Executive Officers
Exhibit 23.1 Consent of Deloitte & Touche LLP
Exhibit 23.2 Consent of Wipfli Ullrich Bertelson LLP
Exhibit 99.1 Certifications under Section 906 of Sarbanes-Oxley Act of 2002
* 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
15 of Form 10-K to which this Exhibit Index relates.
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