FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 0-1732
MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
WISCONSIN 39-0486870
(State of incorporation) (I.R.S Employer Identification
Number)
1244 KRONENWETTER DRIVE
MOSINEE, WISCONSIN 54455-9099
(Address of principal executive office)
Registrant's telephone number, including area code: 715-693-4470
Indicate by check mark 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
----- -----
The number of common shares outstanding at June 30, 1994 was
7,148,443.
MOSINEE PAPER CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1994
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Six Months Ended
June 30, 1994 (unaudited) and
June 30, 1993 (unaudited) 1
Condensed Consolidated Balance
Sheets June 30, 1994 (unaudited)
and December 31, 1993 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows Six Months
Ended June 30, 1994 (unaudited)
and June 30, 1993 (unaudited) 3
Notes to Condensed Consolidated
Financial Statements 4-5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 5-9
PART II. OTHER INFORMATION
Item 3. Defaults in Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except 1994 1993 1994 1993
share data - unaudited) ---- ---- ---- ----
Net sales $64,784 $60,463 $126,779 $117,516
Cost of sales 52,172 50,341 103,178 98,153
------ ------ ------- -------
Gross profit on sales 12,612 10,122 23,601 19,363
------ ------ ------ ------
Operating expenses:
Selling and advertising 2,499 2,211 4,718 4,454
Administrative 4,228 4,045 7,771 7,027
----- ----- ----- -----
Total operating expenses 6,727 6,256 12,489 11,481
----- ----- ------ ------
Income from operations 5,885 3,866 11,112 7,882
Other income (expense):
Patent infringement award --- --- --- 5,529
Interest income 1 1 2 17
Interest expense (1,112) (1,751) (2,063) (3,329)
Other 75 140 18 (184)
----- ----- ----- ------
Income before income taxes and
cumulative effect adjustment 4,849 2,256 9,069 9,915
Provision for income taxes 1,970 902 3,670 3,966
Income before cumulative effect
of a change in accounting
principles $2,879 1,354 5,399 5,949
Cumulative effect of a change in
accounting principles (net of
income taxes) --- --- (750) ---
----- ----- ------ -----
Net income $2,879 $1,354 $4,649 $5,949
====== ====== ====== ======
Income per share before cumulative
effect of a change in accounting
principles $ 0.40 $ 0.19 $ 0.75 $ 0.83
Cumulative effect of a change in
accounting principles
(net of income taxes) --- --- (0.10) ---
------ ------ ------- ------
Net income per share $ 0.40 $ 0.19 $ 0.65 $ 0.83
====== ====== ====== ======
Weighted average common
shares outstanding 7,148,443 7,148,443 7,148,443 7,148,443
========= ========= ========= =========
<FN>
See accompanying notes to consolidated financial statements
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ thousands) June 30, December 31,
1994* 1993*
---- ----
ASSETS
Cash and cash equivalent $ 851 $ 1,521
Receivables, net 24,223 21,461
Inventories 33,179 30,456
Deferred income taxes 3,541 3,541
Other current assets 545 728
------- -------
Total current assets 62,339 57,707
------- -------
Property, plant and equipment, net 326,376 318,318
Less: accumulated depreciation 136,676 130,064
------- -------
Net depreciation value 189,700 188,254
------- -------
Other assets 6,492 6,100
------- -------
TOTAL ASSETS $258,531 $252,061
======== ========
LIABILITIES
Accounts payable $ 18,032 $ 17,481
Accrued and other liabilities 18,024 18,506
Accrued income taxes 925 425
-------- --------
Total current liabilities 36,981 36,412
Long-term debt 96,557 96,260
Other deferred expenses 41,242 39,001
-------- --------
Total liabilities 174,780 171,673
-------- --------
Commitments and contingencies -- --
Preferred stock of subsidiary 1,255 1,255
-------- --------
STOCKHOLDERS' EQUITY
Common stock and paid-in capital 39,835 39,835
Retained earnings 60,349 56,986
Treasury stock (17,688) (17,688)
-------- --------
Total stockholders' equity 82,496 79,133
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $258,531 $252,061
======== ========
<FN>
*The consolidated balance sheet at June 30, 1994 is unaudited. The December 31, 1993
consolidated balance sheet is derived from audited financial statements.
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Six Months Ended
June 30,
($ thousands - unaudited) 1994 1993
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,649 $5,949
Provision for depreciation, depletion
and amortization 7,669 7,404
Recognition of deferred revenue (20) (20)
Provision for losses on accounts receivable 187 174
Gain on property, plant and equipment
disposals (22) (34)
Deferred income taxes 881 2,042
Changes in operating assets and liabilities:
Accounts receivable (2,949) 466
Inventories (2,723) (581)
Other assets (896) (1,178)
Accounts payable and other liabilities 1,151 254
Accrued income taxes 500 331
------ ------
Net cash provided by operating activities 8,427 14,807
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,204) (3,619)
Proceeds from property, plant and
equipment disposals 97 35
------ ------
Net cash used in investing activities (8,107) (3,584)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under credit agreements 297 (9,842)
Repayment of long-term debt -- (78)
Dividends paid (1,287) (1,287)
------- -------
Net cash used in financing activities (990) (11,207)
------- --------
Net decrease in cash and cash equivalents (670) 16
Cash and cash equivalents at beginning of year 1,521 841
------ -------
Cash and cash equivalents at end of period $ 851 $ 857
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amount capitalized $2,060 $2,844
Income taxes paid (refunded) 2,289 (412)
<FN>
See accompanying notes to consolidated financial statements
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial statements in the opinion of
management reflect all adjustments which are normal and
recurring in nature and which are necessary for a fair
statement of the results for the periods presented. Some
adjustments involve estimates which may require revision in
subsequent interim periods or at year-end. Such adjustments
include interim LIFO inventory valuations and the effective
income tax rate for the year. In all regards, the financial
statements have been presented in accordance with generally
accepted accounting principles applied in a consistent
manner.
2. Inventories consist of the following:
June 30, December 31,
1994 1993
---- ----
Raw material $13,904 $12,794
Finished goods and work in process 18,211 16,247
Supplies 8,462 8,124
------- -------
Subtotal 40,577 37,165
Less: LIFO reserve 7,398 6,709
------- -------
Net inventories $33,179 $30,456
======= =======
3. Earnings per share of common stock is based on the weighted
average number of common shares outstanding and gives effect
to applicable preferred stock dividend requirements.
4. Net income includes expenses, or credits, for incentive
compensation plans. The company calculates this liability
using the average price of Mosinee Paper's stock at the close
of each fiscal quarter as if all incentive compensation plans
had been exercised on that day. For the six months ended
June 30, 1994, these plans are an after tax expense of
$409,000, or $0.06 per share, compared to an after tax
expense of $34,000, or less than $0.01 per share for the same
period last year. For the second quarter, the effect this
year is an after tax expense of $381,000 or $0.05 per share,
compared to second quarter last year of an after tax expense
of $269,000 or $0.04 per share.
5. The company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 112, "Accounting for
Postemployment Benefits" as of January 1, 1994. The
cumulative effect for the transition obligation was an
after-tax expense of $750,000 or $0.10 per share.
6. On February 8, 1993, the U.S. District Court of Appeals for
the Federal Circuit upheld the District Court's judgment
awarded the company against James River Corporation. The
District Court had held that James River had infringed upon
certain washroom towel cabinet roll transfer mechanisms
patented by the company's Bay West Corporation subsidiary.
The judgment of $5,529,000, including interest was received
and recorded as income in March, 1993.
7. The 1993 Income Statement has been reclassified to conform
with December 31, 1993 presentation. For the second quarter,
revenues increased $129,000, cost of sales decreased $168,000
and selling and administrative expenses increased $297,000.
For the six months year-to-date, revenues increased $174,000,
cost of sales decreased $387,000, and selling and
administrative expenses increased $561,000.
8. Refer to notes to financial statements which appear in the
Annual Report on Form 10-K for the year ended December 31,
1993 for the company's accounting policies which are
pertinent to these statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(All $ amounts are in thousands, except per share
amounts)
RESULTS OF OPERATIONS
Second quarter sales of $64,784 were 7% higher than the $60,463
reported last year. Strong volume gains at Bay West and Converted
Products combined with mix improvements in both specialty paper
operations offset lower prices still prevalent for many of our
products in the competitive paper industry. A price increase for
our towel and tissue products announced late in the quarter has
had reasonable acceptance and has also been implemented by key
competitors in these markets. Price increases for laminated paper
products, such as roll wrap, and many specialty paper products
have also been implemented to recover increasing wood, purchased
bleached pulp, and linerboard raw material costs. Volume gains and
mix improvements were partially offset by selling prices that are
still lower than the prior year. Additional price increases for
most products at all operating units will be sought as raw
material costs continue to rise.
Sales for the first half of 1994 of $126,779 increased nearly 8%
over the $117,516 reported for the same period last year. The
improvement was primarily volume driven with some help from
product mix improvement which was partially offset by unfavorable
pricing of $3,859 in comparison to the first six months of 1993.
Again Bay West accounted for the majority of both volume
improvements and unfavorable pricing. The effect of Bay West's
price increase was only marginally felt at the end of the second
quarter. It is expected to have an increased effect during the
next quarter. For the year-to-date, specialty paper operations,
especially our Sorg subsidiary, accounted for all the product mix
improvements more than offsetting weaker product mixes,
principally at Bay West.
Cost of sales for the second quarter of $52,172 increased 3.6%
over the $50,341 reported at the same time last year. As a percent
of net sales, cost of sales declined to 80.5% from the year
earlier level of 83.3% continuing the improvement from the
first quarter. At the Bay West towel and tissue mill in Ohio,
continued improvement in production and cost reduction programs
combined with benefits from the recently installed deinking
flotation cells accounted for most of the improvement. Higher
costs for wood, waste paper, purchased pulp and linerboard
partially offset some of the improvement from Bay West's mill.
Where possible, alternative materials are being investigated to
lower raw material costs. Currently, in part due to the lower
exchange rate for the U.S. dollar, additional pulp and other raw
material prices increases can be expected in the future.
Year-to-date cost of sales of $103,178 increased 5% over the year
earlier level of $98,153 reflecting the higher volume of product
sold. Significant improvements at the Bay West towel and tissue
mill in Ohio have been achieved during the first six months of
the year. The raw material cost increases discussed above have
also impacted both first and second quarters, with the second
quarter bearing much more of the increase. As a percent of net
sales, cost of sales for the first six months of the year improved
to 81.4% from the year earlier six month level of 83.5%.
Gross profit, reflecting the above, increased nearly 25% to
$12,612 from the year earlier level of $10,122. For the quarter,
this amounted to a 19.5% gross profit margin compared to the 16.7%
achieved last year during the same period. On a year-to-date
basis, gross profit reached $23,601, nearly 22% ahead of last
year's level of $19,363. Gross profit margin, so far in 1994, is
18.6% compared to last year's level of 16.5%.
Operating expenses of $6,727 for the second quarter and $12,489
for the first half of 1994 rose over 7% and 9%, respectively, from
the same periods last year. Selling expenses increased primarily
during the second quarter as advertising and promotional programs
were implemented. Most other costs remained comparable to prior
year levels. General and administrative expenses for the second
quarter of $4,228 increased 4.5% over the $4,045 reported for the
same period last year. Excluding the effect of adjustments to the
accrued liability for incentive compensation programs based on the
market price of the company's stock (SARs) of charges of $641 and
$449 for the respective periods, general and administrative
expenses actually declined $9 during the current year. Similarly,
on a year-to-date basis general and administrative expenses of
$7,771 rose 10.6% over the prior year level of $7,027. After
adjusting for SAR related effects of charges of $688 and $57 for
the current and prior year-to-date periods respectively, general
and administrative expenses of $7,083 rose only 1.6% over the
prior year level. General inflationary increases in operating
expenses, both selling and general and administrative, principally
employee compensation related, continue to be offset by cost
reduction programs in other operating categories.
Cost of sales and operating expenses in 1994 include a charge for
postemployment benefits required by the mandatory adoption of
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" of $20 for the second
quarter and $40 for the first six months of 1994 representing the
interest charge on the discounted obligation for these benefits.
The second quarter and year-to-date income statement for 1993 has
been reclassified to conform to December 31, 1993, presentation by
increasing revenues $129 and $174, decreasing cost of sales by
$168 and $387 and decreasing operating expenses $297 and $ 561 for
the respective quarter and year-to-date periods.
Reflecting the above, income from operations for the second
quarter $5,885 increased over 52% above the $3,866 recorded during
last year's second quarter. Year-to-date income from operations of
$11,112 climbed 41% over the $7,882 reported for the same period
last year.
Interest expense for the second quarter of $1,112 and $2,063 for
the first six months of the year decreased $580 and $1,266 over
the amounts reported for the respective periods last year.
Slightly lower interest rates during the early months of the year
and lower debt levels helped to lower interest expense.
Additionally, the expiration in the fourth quarter of 1993 of an
interest rate protection program that raised rates last year when
actual rates dropped below the guaranteed floor rate level
contributed to the improvement. Interest expense during the second
quarter increased over the first quarter as interest rates to
which the debt is subjected have risen with actions by the Federal
Reserve. Other income last year of $5,529, or $0.46 per share,
which was reported in the first quarter of 1993 and is in the
year-to-date amounts for 1993, results from the award of the
company's settlement of a patent infringement lawsuit.
Accordingly, income before the cumulative effect of a change in
accounting principle and income taxes reached $4,849 for the
second quarter rising substantially over the $2,256 reported for
the same period last year. For the first six months, income before
the cumulative effect of a change in accounting principle and
income taxes of $9,069 trailed the prior year level of $9,915.
The provision for income taxes of $1,970 for the quarter and
$3,670 for the year-to-date are based on an effective tax rate of
40.6% and 40.5% for the respective periods. During the prior year
an effective tax rate of 40% for both the second quarter and year-
to-date produced income tax provisions of $902 and $3,966 for the
respective periods.
Income before the cumulative effect of a change in an accounting
principle reached $2,879, or $0.40 per share for the second
quarter compared to the $1,354, or $0.19 per share, reported for
the same period last year. For the first six months, income before
the cumulative effect of a change in an accounting principle of
$5,399, or $0.75 per share, trailed the prior year level of
$5,949, or $0.83 per share.
The company adopted Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits"
effective January 1, 1994. The accumulated liability as of
December 31, 1993 for these benefits required an after-tax expense
of $750, or $0.10 per share.
Reflecting the above, net income for the second quarter of $2,879,
or $0.40 per share, rose significantly over the $1,354, or $0.19
per share reported last year at the same time. For the year-
to-date, net income $4,649, or $0.65 per share, was below the
$5,949, or $0.83 per share reported for the same time period last
year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations for the first six months of the year
of $8,427 declined from the $14,807 reported for the same period
last year. Last year, however, included the receipt of $5,529 from
a patent infringement lawsuit award, which accounts for the most
of the difference between the two periods. Higher sales levels
accounted for the increased accounts receivable level and
represented a $2,949 use of cash. Inventories at several locations
were built up in anticipation of purchased pulp and linerboard
price increases requiring a $2,723 additional use of cash.
Partially offsetting these uses of cash was an increase in
accounts payable of $1,151 resulting from the higher purchasing
levels.
Cash used in investing activities represented $8,204 of capital
expenditures partially offset by proceeds from equipment
disposals. The capital spending was primarily at Bay West's towel
and tissue mill for the new deink flotation cells and at Pulp and
Paper for a new calendar stack for one machine and boiler
improvements. Cash used in financing activities resulted from
minimal borrowing of $297 and payment of dividends to shareholders
of $1,287.
As a result of operating, investing and financing activities for
the first six months of the year cash decreased by $670 to $851 at
June 30, 1994 from the $1,521 balance at the end of 1993.
The company maintains a credit agreement with one bank acting as
agent and certain financial institutions as lenders to issue up to
$110,000 of unsecured borrowing less the amount of commercial
paper outstanding. As of June 30, 1994 the company had issued and
outstanding $46,557 of commercial paper and had other borrowing
under the agreement of $50,000 for a total debt of $96,557. This
leaves approximately $13,000 available to supplement cash provided
from operations for uses in the business which, at the present
time the company believes to be adequate for the operation of the
business and currently anticipated capital expenditures.
Long-term debt of $96,557 rose $297 from the prior year end level
of $96,260 reflecting the utilization and generation of cash
described above. As a percent of total capitalization, long-term
debt declined slightly to 54% from the year-end level of 55%.
Working capital, reflecting the increase in inventories and
accounts receivable, and accompanied by only a slight increase in
current liabilities, increased to $25,358 from the year-end level
of $21,295. The current ratio, reflecting this improvement,
increased to 1.7:1 from the year-end mark of 1.6:1.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Sorg Paper Company, a subsidiary of the registrant, omitted
the payment of its quarterly cash dividends of $1.38 per share,
payable July 1, 1994 to shareholders of record, on its 5-1/2%
cumulative preferred stock, par value $100. The number of 5-1/2%
cumulative preferred shares outstanding is 12,552 and the amount
of dividends in arrears is $414,086.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on
April 21, 1994.
The matters voted upon, including the number of votes cast for,
withheld, as well as the number of abstentions and broker non-
votes, as to each such matter were as follows:
Matter Shares
Broker
For Withheld Abstain Non-Vote
1. Election of
Directors
(a) Richard G. Jacobus 6,030,588 21,021 0 0
(b) Daniel R. Olvey 6,031,952 19,657 0 0
2. Approval of
appointment of
independent auditors
for year ending
December 31, 1994 6,024,007 19,861 7,741 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
Page
----
(a) Exhibits required by Item 601 of Regulation S-K.
(11) Computation of earnings per share 13
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MOSINEE PAPER CORPORATION
August 11, 1994 GARY P. PETERSON
Gary P. Peterson
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
Exhibit
11
MOSINEE PAPER CORPORATION
MOSINEE, WISCONSIN
COMPUTATION OF PER SHARE EARNINGS
EXHIBIT
11
MOSINEE PAPER CORPORATION
Statement of Computation of Per Share Net Income
For the Periods Ended June 30, 1994 and 1993
1994 1993
---- ----
Net Income $4,649,251 $5,949,120
Less: The Sorg Paper Company
Preferred Stock Dividends 34,518 34,518
--------- ---------
Net Income Available to Mosinee
Paper Corporation Common Stock $4,614,733 $5,914,602
========== ==========
Weighted Average Shares of Mosinee
Paper Corporation Common Stock
Outstanding During the Year 7,148,443 7,148,443
========== ==========
Net Income Per Share* $ 0.6456 $ 0.8274
========== ==========
Net Income Per Share Rounded
to Nearest Cent $ 0.65 $ 0.83
========== ==========
<FN>
*Net Income per Share = Net Income Available to Mosinee paper Corporation Common Stock
--------------------------------------------------------------
Weighted Average Shares of Mosinee Paper Corporation Common
Stock Outstanding