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 SEPTEMBER 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 September 30, 1994 was
7,148,443.
MOSINEE PAPER CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1994
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income,
Nine Months Ended September 30, 1994
(unaudited) and September 30, 1993
(unaudited) 1
Consolidated Balance Sheets,
September 30, 1994 (unaudited)
and December 31, 1993 (derived from
audited financial statements) 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1994
(unaudited) and September 30, 1993
(unaudited) 3
Notes to 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 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 Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
(in $ thousands, except
share data - unaudited)
Net sales $67,811 $65,177 $194,590 $182,693
Cost of sales 56,207 52,924 159,385 151,077
------ ------ ------- -------
Gross profit on sales 11,604 12,253 35,205 31,616
------ ------ ------- -------
Operating expenses:
Selling and advertising 2,421 2,329 7,139 6,783
Administrative 3,006 3,390 10,777 10,417
------ ------ ------ ------
Total operating expenses 5,427 5,719 17,916 17,200
------ ------ ------ ------
Income from operations 6,177 6,534 17,289 14,416
Other income (expense):
Patent infringement award --- --- --- 5,529
Interest income 1 3 17
Interest expense (1,311) (1,301) (3,374) ( 4,630)
Other 279 ( 313) 297 ( 497)
------ ------ ----- -------
Income before income taxes and
cumulative effect adjustment 5,146 4,920 14,215 14,835
Provision for income taxes 2,087 2,915 5,757 6,881
------ ------ ------ ------
Income before cumulative
effect of a change in
accounting principle $3,059 2,005 8,458 7,954
Cumulative effect of a change
in accounting principle (net
of income taxes) --- --- ( 750) ---
----- ----- ------ -----
Net income $ 3,059 $ 2,005 $ 7,708 $ 7,954
======= ======= ======= ========
Income per share before
cumulative effect of a change
in accounting principle $ 0.42 $ 0.28 $ 1.17 $ 1.11
Cumulative effect of a change
in accounting principle
(net of income taxes) --- --- (0.10) ---
------ ------ ----- ------
Net income per share $ 0.42 $ 0.28 $ 1.07 $ 1.11
======= ======= ======= ========
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
September 30, December 31,
($ thousands) 1994* 1993*
---- ----
ASSETS
Cash and cash equivalents $ 1,005 $ 1,521
Receivables, net 24,885 21,461
Inventories 32,356 30,456
Deferred income taxes 3,527 3,541
Other current assets 621 728
------- ------
Total current assets 62,394 57,707
------- ------
Property, plant and equipment 330,454 318,318
Less: accumulated depreciation 140,186 130,064
------- -------
Net depreciated value 190,268 188,254
------- -------
Other assets 6,756 6,100
------- -------
TOTAL ASSETS $259,418 $252,061
======== ========
LIABILITIES
Accounts payable $ 16,832 $ 17,481
Accrued and other liabilities 17,258 18,506
Accrued income taxes 1,058 425
------- -------
Total current liabilities 35,148 36,412
Long-term debt 95,570 96,260
Other deferred expenses 41,890 39,001
------- -------
Total liabilities 172,608 171,673
------- -------
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 63,408 56,986
Treasury stock (17,688) (17,688)
------- -------
Total stockholders' equity 85,555 79,133
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $259,418 $252,061
<FN>
*The consolidated balance sheet at September 30, 1994 is
unaudited. The December 31, 1993 consolidated balance sheet is
derived from audited financial statements.
See accompanying notes to consolidated financial statements.
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months Ended
September 30,
($ thousands - unaudited) 1994 1993
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,708 $ 7,954
Provision for depreciation, depletion
and amortization 11,616 11,281
Recognition of deferred revenue ( 30) ( 30)
Provision for losses on accounts receivable 288 249
Gain on property, plant and equipment
disposals ( 296) ( 11)
Deferred income taxes 1,491 3,826
Changes in operating assets and liabilities:
Accounts receivable ( 3,712) ( 2,652)
Inventories ( 1,900) 557
Other assets ( 1,601) ( 2,108)
Accounts payable and other liabilities 151 1,709
Accrued income taxes 634 419
------- -------
Net cash provided by operating activities 14,349 21,194
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,713) ( 6,943)
Proceeds from property, plant and
equipment disposals 469 184
------- -------
Net cash used in investing activities (12,244) ( 6,759)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under credit agreements ( 691) (12,583)
Repayment of long-term debt -- ( 105)
Dividends paid ( 1,930) ( 1,930)
------- -------
Net cash used in financing activities ( 2,621) (14,618)
------- -------
Net decrease in cash and cash equivalents ( 516) ( 183)
Cash and cash equivalents at beginning of year 1,521 841
------- -------
Cash and cash equivalents at end of period $ 1,005 $ 658
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amount capitalized $ 3,423 $ 4,291
Income taxes paid 3,632 631
<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:
September 30, December 31,
1994 1993
---- -----
Raw material $14,608 $12,794
Finished goods and work in process 18,114 16,247
Supplies 8,414 8,124
------ ------
Subtotal 41,136 37,165
Less: LIFO reserve 8,780 6,709
------ ------
Net inventories $32,356 $30,456
======= =======
3. Net income 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 income resulting from
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
nine months ended September 30, 1994, these plans are an
after-tax expense of $332,000, or $0.05 per share, compared
to an after-tax income of $49,000, or less than $0.01 per
share for the same period last year. For the third quarter,
the effect this year is an after-tax income of $77,000, or
$0.01 per share, compared to third quarter last year of an
after-tax income of $61,000 or less than $0.01 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 third quarter,
revenues decreased $174,000, cost of sales decreased $806,000
and selling and administrative expenses increased $632,000.
For the year-to-date at September 30, 1993, cost of sales
decreased $1,193,000, and selling and administrative expenses
increased $1,193,000.
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
Third quarter sales of $67,811 were 4% higher than the $65,177
reported last year. Strong volume gains at Bay West combined with
mix improvements in specialty paper operations offset lower prices
still prevalent for many of our products in the competitive paper
industry. Price increases for our towel and tissue products were
announced during and shortly after the end of the quarter. Price
increases for laminated paper products, such as roll wrap, and
many specialty paper products continue to be implemented to
recover increasing pulpwood, purchased bleached pulp, and
linerboard raw material costs wherever possible. Additional price
increases for most products at all operating units will be sought
as raw material costs continue to rise.
Sales for the nine months of 1994 of $194,590 increased nearly 7%
over the $182,693 reported for the same period last year. The
improvement was primarily volume driven with help from product mix
improvement that more than offset unfavorable or flat pricing at
most operating units. Bay West accounted for most of the volume
improvement and unfavorable pricing. The effect of Bay West's
second quarter price increase was moderately favorable during the
third quarter, but, prices still remained below year earlier
levels. Recent price increases are expected to have a favorable
effect in the fourth quarter.
Cost of sales for the third quarter of $56,207 increased 6% over
the $52,924 reported at the same time last year. As a percent of
net sales, cost of sales increased to 83% from the year earlier
level of 81% reflecting the raw material prices increases,
particularly waste papers, linerboard and purchased pulp. It is
estimated that rapidly rising raw material cost reduced income per
share by $0.18 in the third quarter alone. Continued improvement
in production efficiency, cost reduction programs and benefits
from the new deinking flotation cells partially offset the higher
raw material costs at Bay West's towel and tissue mill in Ohio.
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 price increases can be expected in the future and the
company is committed to aggressively pursue selling price
increases to offset these higher costs. Also, during the third
quarter Pulp and Paper's pulp mill was shut down for 23 days due
to the boiler rebuild and modernization. This shutdown resulted in
unabsorbed fixed costs and higher maintenance expenses being
incurred that further reduced net income an estimated $0.08 per
share.
Year-to-date cost of sales of $159,385 increased 5% over the year
earlier level of $151,077 reflecting both higher volume of product
sold and higher raw material costs. The raw material cost
increases discussed above have also impacted the first nine
months, with each quarter experiencing more than the previous
quarter. As a percent of net sales, cost of sales for the first
nine months of the year improved to 81.9% from the year earlier
nine month level of 82.7%.
Gross profit, reflecting the above, decreased 5% to $11,604 from
the year earlier level of $12,253. For the quarter, this amounted
to a 17.1% gross profit margin compared to the 18.8% achieved last
year during the same period. On a year-to-date basis, gross profit
reached $35,205 more than 11% ahead of last year's level of
$31,616. Gross profit margin, so far in 1994, is 18.1% compared to
last year's level of 17.3%.
Operating expenses of $5,427 for the third quarter declined
slightly from the $5,719 reported for the third quarter last year.
Increased selling expenses for employee compensation and higher
promotional costs at Bay West more than offset cost reductions in
other operations. Administrative expenses of $3,006 declined 11%
from $3,390 recorded for the third quarter last year. Cost
reduction programs at all operating units contributed to the
reduced administrative costs. Both periods were benefited by
approximately $150 resulting from reversals of prior accruals for
incentive compensation programs based on the market price of the
company's stock (SARs).
Operating expenses for the year-to-date of $17,916 increased 4%
over the $17,200 for the same period last year. Selling expenses
of $7,139 increased 5% over the $6,783 reported for the same
period last year. Like the quarter, higher advertising,
promotional and employee related expense, at Bay West account for
the increase. General and administrative expenses for the year-to-
date of $10,777 increased 3.5% over the $10,417 reported for the
same period last year. Excluding the effect of adjustments for
SARs of charges of $558 in the current year and income from
reversals during the prior year of $92, general and administrative
expenses actually declined $272, or 2.6%, during the current year.
General inflationary increases in operating expenses, both selling
and general and administrative, principally employee compensation
related, continue to be more than offset by cost reduction
programs in other operating categories at all operating units.
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 third
quarter and $60 for the first nine months of 1994 representing the
interest charge on the discounted obligation for these benefits.
The third quarter and year-to-date income statements for 1993 have
been reclassified to conform to December 31, 1993, presentation.
The third quarter adjustments decreased revenues by $174 and cost
of sales by $806 and increased operating expenses $632. Year-to-
date adjustments decreased cost of sales by $1,193 and increased
operating expenses by the same amount.
Reflecting the above, income from operations for the third quarter
of $6,177 declined 5% from the $6,534 recorded during last year's
third quarter. Year-to-date income from operations of $17,289
climbed 20% over the $14,416 reported for the same period last
year.
Interest expense for the third quarter of $1,311 and $3,374 for
the first nine months of the year decreased $10 and $1,256 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 third
quarter continued to increase over the prior quarter as interest
rates have risen and debt has remained relatively stable. Other
income last year of $5,529, or $0.46 per share, resulted 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 $5,146 for the third
quarter rising nearly 5% over the $4,920 reported for the same
period last year. For the first nine months, income before the
cumulative effect of a change in accounting principle and income
taxes of $14,215 was slightly below the prior year level of
$14,835.
The provision for income taxes of $2,087 for the quarter and
$5,757 for the year-to-date are based on an effective tax rate of
40.5% for the respective periods. During the third quarter last
year an effective tax rate of 59% resulted from an increase in the
corporate tax rate in the Revenue Reconciliation Act of 1993.
Additional income taxes of $950, or $0.13 per share was recorded
to adjust the liability for current and deferred income taxes.
Year-to-date income tax provisions last year of $6,881 reflecting
this adjustment reached 46.4%.
Income before the cumulative effect of a change in an accounting
principle reached $3,059, or $0.42 per share, for the third
quarter compared to the $2,005, or $0.28 per share, reported for
the same period last year. For the first nine months, income
before the cumulative effect of a change in an accounting
principle of $8,458, or $1.17 per share, improved over the prior
year level of $7,954, or $1.11 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 third quarter of $3,059,
or $0.42 per share, rose over the $2,005, or $0.28 per share,
reported last year at the same time. For the year-to-date, net
income $7,708, or $1.07 per share, was below the $7,954, or $1.11
per share, reported for the same time period last year. Both years
had material adjustments that affected net income. For comparison
purposes, excluding the material transactions of proceeds from the
lawsuit, increased income taxes and the expense for postemployment
benefits would result in net income of $1.17 per share during the
current year compared to $0.78 per share last year at this time.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations for the first nine months of the
year of $14,349 declined from the $21,194 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 $3,712 use of cash. Inventories at several
locations were built up in anticipation of continued purchased
pulp and linerboard price increases requiring a $1,900 additional
use of cash. Partially offsetting these uses of cash were
increases in accrued and deferred income taxes totalling $2,125.
Cash used in investing activities represented $12,713 of capital
expenditures partially offset by proceeds from property and
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. The sale of timberlands containing tree
species not compatible with Pulp and Paper's fiber needs provided
most of the $469 of cash generated from property and equipment
disposals. Cash used in financing activities resulted from debt
repayments of $691 and payment of dividends to shareholders of
$1,930.
As a result of operating, investing and financing activities for
the first nine months of the year, cash decreased to $1,005 at
September 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 September 30, 1994 the company had issued
and outstanding $45,070 of commercial paper, other borrowing under
a credit agreement of $30,500 and $20,000 under a five year note
with a fixed rate of 7.83% for a total debt of $95,570. This
leaves approximately $14,000 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 $95,570 declined $690 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 to 53% from the year-end level of 55%. Working
capital, reflecting the increase in inventories and accounts
receivable, was partially offset by a $1,264 decrease in current
liabilities, rising to $27,246 from the year-end level of $21,295.
The current ratio, reflecting this improvement, increased to 1.8:1
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 dividend of $1.38 per share,
payable October 1, 1994 to shareholders of record on September 15,
1994, 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 $431,408.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
Page
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(a) Exhibits required by Item 601 of
Regulation S-K.
(11) Computation of earnings per share 13
(27) Financial Data Schedule 14
(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
November 8, 1994
GARY P. PETERSON
Gary P. Peterson
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)