FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission file number: 0-1732
MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
WISCONSIN
1244 KRONENWETTER DRIVE (State of incorporation)
MOSINEE, WISCONSIN 54455-9099 39-0486870
(Address of principal (I.R.S. Employer
executive office) Identification Number)
Registrant's telephone number, including area code: 715-693-4470
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $2.50 PAR VALUE
(Title of each class)
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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
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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 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
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As of March 21, 1995, the aggregate market value of the shares of
common stock held by non-affiliates was approximately
$191,519,076.
The number of common shares outstanding at March 1, 1995 was
7,148,443.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy statement dated March 17, 1995; Pages 3 to 10*, 16*
(Part III)
*To the extent noted herein
TABLE OF CONTENTS
Page
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . 7
Item 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . 9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 9
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . 9
Item 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . 10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION . . . . . . . . . 11
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . 20
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . 45
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. 46
Item 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . 46
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . 46
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . 46
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . 47
PART I
ITEM 1. BUSINESS.
NATURE OF THE BUSINESS
Mosinee Paper Corporation was incorporated in Wisconsin in 1910.
The company and its subsidiaries (collectively, the "company")
operate in the pulp and paper industry. The company's Pulp and
Paper Division ("Pulp and Paper") produces and sells specialty
papers and its Mosinee Converted Products Division ("Converted
Products") produces and sells wax laminated and converted papers.
Bay West Paper Corporation ("Bay West") produces, converts and
sells towel and tissue paper products and The Sorg Paper Company
("Sorg Paper"), produces and sells specialty papers. Additional
wholly-owned subsidiaries are: Mosinee Paper International Inc.,
which administers export sales for the company and acts as a
foreign sales corporation (FSC); and Mosinee Holdings, Inc., which
operates a power plant in Middletown, Ohio to provide steam and
electricity to Sorg Paper and Bay West's towel and tissue paper
mill located there.
SEGMENT INFORMATION
The manufacture and sale of paper is the company's only line of
business.
PRINCIPAL PRODUCTS AND SERVICES
The principal product groups of the company are specialty papers,
laminated and converted papers and towel and tissue products.
SPECIALTY PAPERS
Specialty paper products are produced and sold by Pulp and Paper
and Sorg Paper. Principal products of Pulp and Paper include
industrial crepe, masking, gumming, converting and wax laminating,
foil laminating, flame resistant, interleaver, cable wrap,
electrical insulation, pressure sensitive backing, toweling, water
base and film coating and packaging papers. Sorg Paper produces
decorative laminate, deep-color and facial tissue, filter,
construction, parchtex, saturating, soapboard and soapwrap and
latex label papers. All products of the company's specialty paper
operations are sold to other manufactures or converters for
further processing and ultimate sale to end users. These
manufacturers and converters are in many industries including
housing, steel, aluminum and other metal producers, automotive,
consumer packaging, food processing, home appliance, consumer
goods and printing.
TOWEL AND TISSUE PRODUCTS
The towel and tissue products produced and sold by Bay West are
primarily for the commercial and institutional wash room products
markets that include recreation, health care, food service,
manufacturing, education, automotive and dairy. The products
include roll and folded towels, tissue products, soaps, windshield
towels, dairy towels, household roll towels and glass cleaner. Bay
West products are sold through independent distributors to end
users both domestically and internationally.
CONVERTED PRODUCTS
Wax-laminated and converted papers produced by Converted Products
include roll, ream and skid wrap paper, can body stock,
impregnated paper and coated papers. These products are sold to
manufacturers and converters in the paper, can and corrugated
container industries.
EXPORT SALES
Mosinee Paper International, Inc. acts as a commissioned sales
agent for the export sales of the company and has elected to be
treated as a foreign sales corporation, or FSC, for federal income
tax purposes. During 1994, export sales of the company's products
amounted to nearly $26 million.
RAW MATERIALS
For paper making operations, fiber represents approximately half
of the cost of paper. The company satisfies its fiber requirements
using virgin fiber from pulpwood and chips, purchased bleached
pulp and both pre- and post-consumer waste or recyclable papers.
The types of paper being made and their intended uses determine
the type or quality of the fiber used.
During 1994, Pulp and Paper required 36,000 tons, or 29% of total
fiber requirements, of bleached pulp which it purchased on the
open market. The balance, representing unbleached pulp, was
produced at its kraft pulp mill. Sorg Paper is a non-integrated
paper manufacturer and must purchase all required fiber on the
open market. During the year it used 37,000 tons of bleached pulp,
or 99% of its fiber requirements. Pulp prices have risen
dramatically from an average $400/ton at the start of 1994 to
slightly over $700/ton in March, 1995. The balance of purchased
fiber represented waste papers, generally pre-consumer, available
from printers and other paper converters.
Bay West produces all its fiber requirements from its deink and
direct entry systems. The fiber source for these systems is low
grade recyclable waste papers. During the year demand for most
grades of waste papers increased as new deinking facilities were
started in the industry. Increased export of waste papers also
increased demand. Bay West was able to purchase its requirements
although spot shortages did occur. The cost of waste papers used
by Bay West rose dramatically in response to the demand pressures
in the market. As an example, the price of file stock (which is
post-consumer waste paper) rose from a beginning of the year cost
of $90/ton to $235/ton at year-end. It continued to rise to
$280/ton by March, 1995. News (#8) waste paper is the most
plentiful and rose from $38/ton in 1994 to the March, 1995 level
of $210/ton. Bay West consumed over 137,000 tons of pre- and
post-consumer waste papers during the year.
Wood for Pulp and Paper's pulp mill is produced at its Mosinee
Industrial Forest in northwestern Wisconsin and purchased from
private landowners, public forests, and from other forest product
manufacturers. During 1994, Pulp and Paper consumed 29,000 cords
of pulpwood, or 20% of its total wood requirements, from its own
forests. The balance was available on the open market. During
1994 the demand on pulpwood and woodchips increased resulting in
both lower availability and higher costs. Costs rose from
$63/cord to $67/cord. While some other paper mills experienced
shortages of supply, Mosinee's Pulp and Paper Division did not and
also was not subject to price volatility that exceed the range
mentioned above. The availability of wood has improved in 1995
and prices are expected to remain stable for the year.
Converted Products utilizes linerboard and various waxes to
produce its laminated papers. Linerboard, purchased from large
paper mills in the United States, was subject to high demand in
1994 that continued on into 1995. As a result, linerboard
producers raised prices significantly during the year, resulting
in an increase of $81/ton to $423/ton by the end of 1994. Since
year-end, additional price increases totaling $100-$110/ton have
been implemented or announced. The increased demand also
tightened availability reaching a peak in February of 1995, with
slight easing since then. Converted Products has been able to
procure adequate supplies and temporarily supplemented supplies
with inventory reduction which is now in the gradual process of
being restored.
All other chemicals, dyes and sundry raw materials have remained
readily available with no anticipated shortages seen during 1995.
The company has recovered a portion of raw material cost increases
through higher selling prices for its own products. See
"Competitive Conditions".
ENERGY
The company's paper mills require large amounts of steam and
electricity for production. Both Pulp and Paper and the Sorg
Paper/Bay West Middletown, Ohio complex have their own steam and
electricity generating facilities. Additionally, Pulp and Paper
operates a hydro-electric generating facility that produces a
portion of its electricity requirements. Both facilities have the
capability to purchase electricity from area utilities. The
primary fuel used at the Middletown complex is coal while Pulp and
Paper utilizes a mixture of coal, bark and sludge and also
operates a recovery boiler that recovers inorganic chemicals from
its pulping process.
PATENTS AND TRADEMARKS
The company obtains and files trademarks and patents as
appropriate for newly developed products. The company does not own
or hold material licenses, franchises or concessions.
SEASONAL NATURE OF BUSINESS
None of the products manufactured and sold by the company are
seasonal in nature. Bay West unit shipments, however, are
moderately higher during the summer and early fall months.
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.
MAJOR CUSTOMERS
No single customer accounted for 10% or more of consolidated net
sales during 1994.
BACKLOG
The sales backlog in dollars climbed to over $21 million, up $6
million from the level at 1993 year-end. The backlog was nearly
$16 million at specialty paper operations. Backlogs at converting
facilities, where customer orders are serviced from inventories,
generally represent orders being prepared for shipment. Backlogs
at all operations existing at year-end are expected to be shipped
during 1995.
COMPETITIVE CONDITIONS
Competition in the paper industry in general has been strong as
capacity in excess of demand for many grades of paper has
heightened pricing pressure. The tissue portion of the industry
saw previous years' capacity additions being absorbed by higher
demand resulting from the strong economy that existed through the
year and into 1995.
Specialty paper operations at Sorg Paper and Pulp and Paper
compete in many different niche markets. The highly technical
nature of specialty paper limits competition since not all paper
mills can produce the required papers. The competition is
generally based more upon quality and service to the customer than
price. However, as quality and service are improving at most paper
manufacturers and becoming expected attributes of the product,
price competition has begun to intensify among competitors in
specialty grades. The less technical specialty grades of paper
encounter more price competition since more paper mills have the
capability to produce them. Additionally, as demand for commodity
grade papers declines, producers of these commodity grades
temporarily may venture into the less technical specialty grades
to maintain production volumes, thereby increasing price
competition. Mosinee's specialty paper operations were partially
successful in raising selling prices to recover the rapid rise in
purchased pulp cost. Additional purchased pulp cost increases
during 1995 are expected to be recovered through higher selling
prices.
Competition in the commercial and institutional tissue markets,
which includes toweling, is among several large paper companies.
Bay West, although growing, is one of the smaller competitors in
this market. The improved economy and less announced capacity
increases provided reductions to the severe price competition
among tissue producers during 1994. With most competitors in this
market feeling the effect of the high waste paper costs, the
recovery of most of such increases has been possible, beginning
primarily in the later part of 1994 and continuing into 1995.
Wax-laminated and converted products compete with several similar
sized producers. Competition is primarily focused on price.
Additionally, wax-laminated roll wrap, for paper products sold in
roll form by paper mills, competes with polywrap as an alternative
roll wrap material.
RESEARCH AND DEVELOPMENT
The company is involved in research and development activities at
all locations. Generally, research at specialty paper operations
occurs in both the laboratory and actual paper machines in the
form of trial runs. Research at converting facilities is limited
to development, often in conjunction with suppliers, on new
laminating compounds. Tissue operations perform trial run research
in both deinking and paper production to improve product
capability and quality. Additionally, research is conducted to
improve existing, and develop the next generation of, product
dispensers. The amounts spent on research activities are not
material in relation to total operating expenses.
ENVIRONMENT
The paper industry is subject to stringent environmental laws and
regulations which govern the discharge of materials into the air
and ground and surface waters. Environmental regulations have
become more restrictive in the past and additional changes can be
anticipated in the future. The company is committed to full
compliance with all rules designed to protect the environment and
compliance with current rules is not expected to have a material
adverse effect on the company's earnings or competitive position.
There are no proposed regulatory changes of which the company is
now aware which are expected to have a material effect on the
business or financial condition of the company, but it can be
anticipated that future environmental regulations will likely
increase the company's capital expenditures and operating costs.
Additional information concerning the company's status as a
potentially responsible party ("PRP") and other environmental
matters can be found in the first paragraph of Note 12 of the
Notes to Consolidated Financial Statements, page 41. As noted
therein, the company is of the opinion that any costs associated
with its status as a PRP will not have a material adverse effect
on the business and financial condition of the company.
EMPLOYEES
The company had 1,295 employees at the end of 1994. Hourly
employees at the company's paper making operations are covered
under collective bargaining agreements. During 1993 negotiations
were conducted which led to a four-year agreement at Sorg Paper
signed in 1994. During 1994 the company negotiated with the Union
Bargaining Committee at Bay West's Middletown, Ohio mill and
signed a five-year labor agreement. The company considers its
relationship with its employees to be excellent. Eligible
employees participate in retirement plans and group life,
disability and medical insurance programs.
EXECUTIVE OFFICERS OF THE COMPANY
The following information relates to Executive Officers of the
Company as of March 24, 1995:
SAN W. ORR, JR., 53
Chairman of the Board since 1987
Director since 1972
Also Attorney, Estates of A.P. Woodson & Family and
Chairman of the Board and Chief Executive Officer
of Wausau Paper Mills
Previously, Vice Chairman of the Board (1978-1987)
RICHARD L. RADT, 63
Vice Chairman of the Board since August, 1993
Director since 1988
Previously, President and Chief Executive Officer (1988-1993)
and President and Chief Executive Officer of Wausau Paper
Mills Company (1977-1987)
DANIEL R. OLVEY, 46
President and Chief Executive Officer since August, 1993,
Director since August, 1993
Previously, Executive Vice President and Chief Operating
Officer (1992-1993), Group Vice President-Specialty Paper
(1991-1992), Vice President-Finance; Secretary and Treasurer
(1989-1991); Vice President Finance, Secretary and Treasurer,
Wausau Paper Mills Company (1983-1989)
GARY P. PETERSON, 46
Sr. Vice President-Finance, Secretary and Treasurer since
August, 1993
Previously, Vice President-Finance (1991-1993); partner,
Wipfli Ullrich Bertelson CPAs (1981-1991)
STUART R. CARLSON, 48
Sr. Vice President-Administration since August, 1993
Previously, Vice President-Human Resources (1991-1993);
Director of Human Resources, Georgia Pacific, Inc.
(1990-1991) and Corporate Director of Industrial Relations,
Great Northern Nekoosa Corporation (1989-1990)
ITEM 2. PROPERTIES.
The company's corporate headquarters are located in Mosinee,
Wisconsin. The building, which is owned by the company, was
constructed in 1985, and consists of approximately 38,000 square
feet. Executive officers and a corporate staff of approximately
16 persons who perform corporate accounting and financial, human
resource and MIS services are located in the corporate
headquarters.
The following paragraphs provide information on the location and
general character of the company's facilities, including their
productive capacity and extent of utilization.
PULP AND PAPER
LOCATION AND CAPACITY
Mosinee, WI
Number of employees: 535
Practical 1994 Operating
Product Capacity* (tons) Actual (tons) Rate
------- ---------------- ------------- ---------
Paper 109,500 108,000 99%
Pulp 86,000 86,000 100%
SORG PAPER
LOCATION AND CAPACITY
Middletown, OH
Number of employees: 196
Practical 1994 Operating
Product Capacity* (tons) Actual (tons) Rate
------- ---------------- ------------- ---------
Paper 32,200 30,900 96%
BAY WEST
LOCATION AND CAPACITY
Towel and Tissue Paper Mill
Middletown, OH
Number of employees: 168
Practical 1994 Operating
Product Capacity* (tons) Actual (tons) Rate
------- ---------------- ------------- ---------
Towel 60,000 53,000 88%
Tissue 32,000 30,000 94%
Deink Pulp 105,000 86,000 82%
LOCATION AND CAPACITY
Harrodsburg, KY
Number of employees: 335
Practical 1994 Operating
Product Capacity* (tons) Actual (tons) Rate
------- ---------------- ------------- ---------
Converted
Towel & Tissue 104,000 77,000 74%
CONVERTED PRODUCTS
LOCATION AND CAPACITY
Columbus, WI
Number of employees: 45
Jackson, MS
Number of employees: 20
Practical 1994 Operating
Product Capacity* (tons) Actual (tons) Rate
------- ---------------- ------------- ---------
Laminated
Papers 114,000 40,000 35%
MOSINEE INDUSTRIAL FOREST
LOCATION AND CAPACITY
Solon Springs, WI
1994 production: 31,520 cords
1994 acreage: 87,145 acres
*"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.
ITEM 3. LEGAL PROCEEDINGS.
The company, along with other paper companies, is part of a civil
investigation by the U.S. Department of Justice to determine
whether any violation of U.S. antitrust laws has occurred in the
commercial and industrial market for sanitary paper products. The
company believes it has not violated any antitrust laws.
In the ordinary course of conducting business, the company also
becomes involved in environmental issues, investigations,
administrative proceedings and litigation. While any proceeding
or litigation has an element of uncertainty, the company believes
that the outcome of any pending or threatened claim or lawsuit
will not have a material adverse effect on the business and
financial condition of the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders in
the fourth quarter.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The company's common stock is traded on the Nasdaq National
Market System under the symbol MOSI. The number of shareholders
of record as of March 1, 1995 was 1,841. In addition, the company
has received identification of 1,356 non-objecting beneficial
owners who own stock in "street name" or who are institutional
owners. The company also believes that it has approximately 1,322
beneficial owners who either did not reply or who object to being
disclosed. The total estimated number of shareholders as of
March 24, 1995 is 4,519. Information related to high and low
closing prices and dividends is set forth in Note 16 of Notes to
Consolidated Financial Statements, page 44. A description of
certain dividend restrictions under the company's credit agreement
is set forth in Note 7 of the Notes to Consolidated Financial
Statements, page 34.
ITEM 6. SELECTED FINANCIAL DATA.
($ thousands except share data)
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Net Sales $266,707 $244,821 $225,512 $197,424 $210,382
Cost of sales 217,502 201,317 195,034 166,312 167,303
Gross profit 49,205 43,504 30,478 31,112 43,079
Operating expenses(1) 23,234 25,147 23,287 26,819 23,853
Income from operations(1) 25,971 18,357 7,191 4,293 19,226
Interest expense 5,010 5,667 7,685 2,215 1
Other income (expense)(3) 580 4,697 553 (59) 399
Income before income taxes 21,541 17,387 59 2,019 19,624
Income taxes 8,500 7,750 22 1,117 7,654
Net income (loss)(2) (4) 12,291 9,637 (8,500) 902 11,970
Net cash provided by
operating activities 25,926 26,936 16,201 9,722 15,405
Working capital 26,312 21,295 13,413 15,967 24,342
Capital additions 20,377 12,663 14,314 113,546 25,876
Depreciation, amortization
and depletion 15,684 15,017 15,839 10,859 8,661
Total assets 265,083 252,061 247,702 249,485 151,506
Long-term debt 91,383 96,260 100,000 110,085 13,847
Stockholders' equity 88,851 79,133 72,070 80,942 81,692
Total capitalization 180,234 175,393 172,070 191,027 95,539
Common stock:
Net income (loss) per
share(2) (4) 1.71 1.34 (1.21) .12 1.70
Book value per share 12.43 11.07 10.08 11.45 11.65
Dividends declared
per share .36 .36 .36 .36 .32
Weighted average shares
outstanding 7,148,443 7,148,443 7,109,325 7,050,598 7,017,839
Number of stockholders
at year-end 4,626 4,488 4,804 4,520 4,824
<FN>
(1) Includes restructuring and relocation expenses of $1.4 million in 1991.
(2) 1992 reflects the cumulative effect of a change in accounting principle of $8.5
million expense for the adoption of SFAS No. 106.
(3) 1993 other income reflects $5.5 million for a patent infringement suit award.
(4) 1994 reflects the cumulative effect of a change in accounting principle of $750
thousand expense for adoption of SFAS No. 112.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
OPERATIONS REVIEW
NET SALES
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($ thousands) 1994 1993 1992
------------- ---- ---- ----
Net sales $266,707 $244,821 $225,512
Percent increase 9% 9% -
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Sales increased $22 million, or 9%, over the prior year. All
business units experienced increased sales revenue and volume of
product sold. In the aggregate, tons sold increased to 255,000
tons, over 7%, or 17,000 tons, over the prior year. The majority
of gain, in tons sold, was registered at Bay West, accounting for
over 80% of the total increase. Foreign sales also experienced an
increase to nearly $26 million and now account for nearly 10% of
total net sales. Exports of towel and tissue products increased to
$13 million and specialty paper product sales, which also
registered increases over the prior year, contributed the other
$13 million.
During the year, the strong economy increased demand in most areas
of the paper industry and absorbed prior years' excess capacity.
This helped to restore margins that had eroded over the past
several years and to recover raw material price increases which
occurred with unprecedented frequency during much of the year.
With higher demands for paper, the mix of product sold was
improved by replacing papers that provide minimal profit in favor
of higher margin products. In summary, strong volume increases
added nearly $20 million and a more optimal product mix added $4
million of additional sales. These increases were partially
offset by unfavorable pricing effects of over $1.5 million.
During 1993, sales increased $19 million, or 9%, over the prior
year. Strong price competition in all areas resulting from reduced
demand and capacity additions led to reduced selling prices. Tons
shipped increased to 238,000 tons, an improvement of over 10%.
Strong volume gains, particularly at Bay West which accounted for
41% of the increased tons shipped, added $33 million in sales.
Unfavorable selling prices of over $9 million and less optimal mix
of products of $4 million offset some of the benefit of additional
volume.
Sales increased in 1992 on sales volume which rose to 216,000
tons, or 18% over the prior year. Bay West accounted for 42% of
the change. Pricing for all operations was difficult during 1992
reflecting the general economic slowness that persisted throughout
the year. Highly competitive pricing continued during the year in
the tissue area of our business as it had during 1991. Capacity
increases in excess of existing demand caused serious price
discounting among all tissue producers. Strong volume increases
added approximately $36 million in sales and was partially offset
by unfavorable pricing effects of over $8 million.
GROSS PROFIT ON SALES
------------------------------------------------------------------
($ thousands) 1994 1993 1992
------------- ---- ---- ----
Gross profit on sales $49,205 $43,504 $30,478
Percent increase 13% 43% -
Gross profit margin 18% 18% 14%
------------------------------------------------------------------
Gross profit of over $49 million rose 13% over the $44 million
reported last year. Gross profit margin remained at 18%. Increased
raw material costs that could not always be timely recovered by
higher selling prices reduced gross profit margins at all
locations. Bay West however, reduced costs substantially, more
than overcoming the unfavorable effect of lower selling prices.
Increased productivity at Bay West's facilities and higher volumes
brought cost structures more in line with expectations. In 1994,
production of towel and tissue paper at the Bay West mill
increased 9%, or 7 thousand tons, helping to absorb fixed
production costs. Higher volumes and an improved mix of product
sold at all other units contributed to the increase in gross
profit. Aggressive cost reduction programs at all operations also
aided in offsetting lower selling prices. Increase in the raw
material prices for purchased pulp, waste paper and linerboard
occurred at an unprecedented rate during the year.
Fiber represents approximately half of the cost of paper. The
company satisfies its fiber requirements using virgin fiber from
pulpwood and chips, purchased bleached pulp and both pre- and
post-consumer waste or recyclable papers. The types of paper being
made and their intended uses determine the type and quality of the
fiber used. During the year the Pulp and Paper Division purchased
36,000 tons of bleached pulp, or 29% of its fiber needs, which
were purchased on the open market. The balance, representing
unbleached pulp, was produced at its kraft pulp mill. The pulpwood
used to produce pulp consumed 29,000 cords from Mosinee's
Industrial Forest, or 20% of wood requirements. The balance was
available from the open market. Sorg Paper is a non-integrated
paper manufacturer and must purchase all required fiber on the
open market. During the year it used 37,000 tons of virgin fiber,
or 99% of its total fiber requirements. The balance of purchased
fiber represented waste papers, generally pre-consumer wastes from
printers or paper converters. Bay West's towel and tissue mill
produces all its pulp requirements from its deink or direct entry
systems. The fiber requirements for these systems is low grade
recyclable waste papers that have been subject to sharp increases
in cost resulting from strong demand from new deinking facilities,
increased exports and higher industry operating rates. Bay West
consumed over 137,000 tons of waste paper during the year.
During 1993, gross profit of nearly $44 million rose 43% over the
$30 million reported in the prior year and gross profit margin
improved to 18%. The improvement in gross profit primarily
resulted from productivity improvements at the Bay West towel and
tissue mill during the year. Gross profit also increased at all
other operating units during the year. Strong volume increases
combined with aggressive cost reduction programs offset lower
selling prices at all units. Raw material prices remained stable
until near the end of the year when price increases were
announced.
During 1992, gross profit of $30 million declined slightly from
the $31 million reported in the prior year and gross profit margin
declined to 14% from the 1991 level of 16%. Gross profit margins
declined at all operating units. The unfavorable gross profit and
gross profit margin comparisons primarily resulted from weak
selling prices. The Bay West towel and tissue mill experienced
excessive operating costs during its first full year of operation.
Higher deink pulp cost from low yields and high raw material cost
also unfavorably effected gross profit.
Gross profit at specialty paper operations remained nearly
constant as additional sales volume, a better product mix, higher
efficiencies and cost reduction programs offset temporary pulp
price increases and lower selling prices.
OPERATING EXPENSES
------------------------------------------------------------------
($ thousands) 1994 1993 1992
------------- ---- ---- ----
Selling and advertising $ 9,857 $ 9,221 $10,052
Percent increase/(decrease) 7% (8%) -
Administrative 13,377 15,926 13,235
Percent increase/(decrease) (16%) 20% -
Total operating expenses 23,234 25,147 23,287
Percent increase/(decrease) (8%) 8% -
As a percent of net sales 9% 10% 10%
------------------------------------------------------------------
Operating expenses declined nearly $2 million, or 8%, from the
prior year level of $25 million. As a percent of net sales,
operating expenses declined to 9% reflecting the higher dollar
amount of sales and lower costs.
Selling and advertising expenses increased $0.6 million from the
prior year. Increased selling incentive compensation and higher
advertising and promotional expenses, primarily at Bay West offset
reductions in other costs. General inflation increased salaries
and wages and contributed to the increase in selling expenses.
Administrative expenses declined $2.5 million, or 16%, from the
year earlier level. Included in administrative expenses are
charges or credits for the company's Stock Appreciation Rights
Plans (SAR) further described in Note 11 to the financial
statements. During 1994, the market price of the company's stock
declined, resulting in a credit of $1 million compared to a charge
of $1.7 million in 1993, due to increased market price. Adjusting
total administrative expenses for these affects, result in
$14.3 million in 1994 compared to $14.3 million reported in the
prior year, or no increase. Salaried employment reductions offset
general inflationary increases. Higher profitability increased the
company's contribution to its 401-k plans, a part of the
retirement benefit package offered to employees. Cost reduction
program savings offset other inflation oriented increases in
normal administrative expenses.
During 1993, The costs associated with some promotion programs
were classified as reductions of selling prices and accounted for
the majority of the change in the selling and advertising expenses
in comparison to 1992. This reduction was partially offset by
nominal inflation cost increases, primarily in salaries and
related benefits at all operating units.
The nearly $3 million increase in 1993 for administrative expenses
was generally attributable to the SAR plan. The SAR programs
resulted in a charge of $1.7 million due to a 22% increase in the
stock price in 1993 compared to a $1 million credit to expense in
1992 when the company's stock price had fallen at year-end. Cost
reduction programs helped to offset modest inflationary increases
in salary and benefit expenses incurred at all operating units.
Selling and advertising expenses of $10 million in 1992 reflected
the major promotion and advertising programs at Bay West and Sorg.
Administrative expenses of $13 million reflected a $1 million
credit from SAR programs which partially offset inflationary
increases in most other costs.
INCOME FROM OPERATIONS
------------------------------------------------------------------
($ thousands) 1994 1993 1992
------------- ---- ---- ----
Income from operations $25,971 $18,357 $7,191
Percent increase 41% 155% -
------------------------------------------------------------------
Record income from operations climbed to nearly $26 million, 41%
ahead of last year's $18 million. As a percent of net sales,
income from operations improved to nearly 10%, the highest level
reached since 1983. Strong sales volumes and some needed relief
in pricing, necessitated by increased raw material costs, combined
with aggressive cost reduction programs in all facets of the
business led to the record level.
During 1993, selling prices for paper, particularly in the tissue
market, remained below the prior year which had also been
adversely affected by depressed prices. Lower operating costs and
higher sales volumes at all facilities, especially the Bay West
towel and tissue mill during the year, more than offset the lower
selling prices and resulted in the strong improvement.
During 1992, high operating costs at the Bay West towel and tissue
mill along with the depressed tissue selling prices offset
progress at other facilities and accounted for the modest
improvement over 1991.
OTHER INCOME AND EXPENSES
------------------------------------------------------------------
($ thousands) 1994 1993 1992
------------- ---- ---- ----
Interest income $82 $17 $146
Percent increase/(decrease) 382% (88%) -
Interest expense 5,010 5,667 7,685
Percent decrease (12%) (26%) -
Patent infringement award - 5,529 -
------------------------------------------------------------------
Interest income was received on various state and federal income
tax refunds from prior periods and a minimal amount from overnight
investments of excess cash. Interest expense on commercial paper
and other long-term debt totaled $5 million in 1994 compared to
$5.7 million incurred in 1993 before immaterial amounts of
capitalized interest were deducted in each year. During 1992,
interest expense reached $7.7 million on short-term debt,
commercial paper and long-term bank notes.
The average debt level for 1994 of $95 million compared favorably
to $99 million during the prior year. This reduction, combined
with the expiration of the interest rate protection agreement,
accounts for the decrease in interest expense.
In early 1993, the U.S. Court of Appeals for the Federal Circuit
upheld the District Court judgement awarded the company. The
District Court found that James River Corporation had infringed
upon certain washroom towel cabinet roll transfer mechanisms
patented by Bay West Paper Corporation, a subsidiary of the
company. The company received $5.5 million, including interest,
which is included in income before taxes.
The $7.7 million in interest expense recorded in 1992 resulted
from the high debt level following completion of the expansion
program and higher interest rates in effect.
INCOME TAXES
------------------------------------------------------------------
($ thousands) 1994 1993 1992
------------- ---- ---- ----
Income tax provision $8,500 $7,750 $22
Percent increase 10% N/A -
Effective tax rate 39.5% 44.6% 37.3%
------------------------------------------------------------------
The income tax provision varies with reported income and federal,
state and local tax rates. The 1994 provision for income taxes
increased due to continued improvement in earnings. The tax
provision of $8.5 million in 1994 results in an effective tax rate
of 39.5%.
The 1993 provision for income taxes reflected increased earnings
and increased federal tax rates. The tax provision of nearly $8
million in 1993 results in an effective tax rate of 44.6%. This
rate reflects the enactment of Revenue Reconciliation Act of 1993,
which increased the marginal corporate tax rate, requiring a
charge to earnings of nearly $1 million to recognize the
adjustment of current and deferred taxes.
During 1992, the effective tax rate of 37.3% closely reflected the
statutory rates in effect for the year. Also, in 1992, the
adoption of the Statement of Financial Accounting Standards No.
109 (SFAS No. 109), Accounting for Income Taxes, allowed the
recognition of deferred tax assets, subject to a valuation
allowance, for the tax benefit of state income tax loss
carryforwards. The ability to recognize a portion of this asset
minimizes the impact of the company not being able to offset
consolidated income with subsidiary losses, compared to the 1991
effective tax rate.
NET INCOME
------------------------------------------------------------------
($ thousands) 1994 1993 1992
------------- ---- ---- ----
Net income/(loss) $12,291 $9,637 ($8,500)
Percent increase 28% N/A -
Net income/(loss) per share 1.71 1.34 (1.21)
Percent increase 28% N/A -
------------------------------------------------------------------
Reflecting the above, record net income of $12.3 million, or $1.71
per share, rose $2.7 million over the prior year level of $9.6
million, or $1.34 per share.
Statement of Financial Accounting Standards (SFAS) No. 112,
Employers' Accounting for Postemployment Benefits, requires that
employers accrue a liability for compensation for future absences
of former or inactive employees and their beneficiaries and
covered dependents. SFAS No. 112 was adopted January 1, 1994, the
required adoption date, by recognizing a cumulative effect expense
of $750,000, net of income taxes of $400,000. The company does
not anticipate routine accrual expenses, but, will record expenses
in accordance with SFAS No. 112 when events occur that require
such accrual.
Net income for 1993 of $9.6 million, or $1.34 per share, increased
over the prior year's loss of $8.5 million, or $1.21 per share.
Strong sales volumes and lowered operating costs at all
operations, especially Bay West, combined to offset lower selling
prices and produce stronger earnings.
Net income for 1992 was adversely affected by the adoption of
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other than Pensions. This
adoption required the company to charge income with the cost of
such benefits earned through December 31, 1991 by current
employees and retirees. The charge to record the entire liability
at January 1, 1992 was $13.3 million which generated a deferred
tax benefit of $4.8 million resulting in a net cumulative effect
of $8.5 million, or $1.20 per share.
LIQUIDITY AND CAPITAL RESOURCES
CASH PROVIDED BY OPERATING ACTIVITIES AND WORKING CAPITAL
------------------------------------------------------------------
($ thousands) 1994 1993 1992
------------- ---- ---- ----
Cash provided by operating
activities $25,926 $26,936 $16,201
Percent increase/(decrease) (4%) 66% -
Working capital 26,312 21,295 13,413
Percent increase 24% 59% -
Current ratio 1.7:1 1.6:1 1.3:1
------------------------------------------------------------------
Net cash provided by operating activities decreased slightly to
nearly $26 million, just below last year's record level. Improved
sales of $22 million combined with improved productivity and cost
reduction efforts led to an improved gross profit of $6 million
providing additional cash from operations. Adjusting net income
for non-cash items, cash available in 1994 reached $33 million
compared to $30 million last year. The $3 million increase was
accounted for by $3.6 million in higher accounts receivable
relative to the increase experienced during 1993. Strong control
over inventory growth resulted in $1.7 million less of an increase
compared to the prior year when higher inventory was needed to
facilitate the increased volume of business. During 1993 the
company received additional cash of $2 million from income tax
refunds whereas in 1994 no material amounts were received. The
net effect of these items lowered cash from operations by $1
million when compared to last year's record level.
Gross trade receivables of the company increased over $5 million,
or 24% over the prior year. Accounts receivable allowances
increased by $0.6 million in 1994 principally to provide for
potential losses on Mexican accounts resulting from devaluation of
the Mexican peso.
The company invested $19 million, below the planned level, in
plant and equipment additions in 1994. The major projects
included the spending of $5.2 million on Pulp and Paper's recovery
boiler rebuild and upgrade, and $2.3 million on their automated
roll wrap system. Bay West's mill in Ohio installed new flotation
cells during the year spending $2.3 million. The balance of
capital spending was limited to replacement of equipment required
in normal operations. The strong cash flow and control of capital
projects allowed for sufficient cash to reduce the outstanding
debt by nearly $5 million and return $2.6 million in cash
dividends to shareholders. The effect of all operating, investing
and financing activities for 1994 was to maintain cash and cash
equivalents of $1.5 million at the end of the year.
Working capital increased 24% to $26 million from the $21 million
reported last year, mainly due to an increase of $5 million in
receivables due to increased sales volume which was partially
offset by increases in accounts payable and other liabilities.
The current ratio, current assets divided by current liabilities,
increased to 1.7:1 from the 1.6:1 reported last year.
DEBT AND EQUITY
------------------------------------------------------------------
($ thousands) 1994 1993 1992
------------- ---- ---- ----
Long-term debt $ 91,383 $ 96,260 $100,000
Stockholders' equity 88,851 79,133 72,020
Total capitalization 180,234 175,393 172,020
Debt/capitalization ratio 51% 55% 58%
------------------------------------------------------------------
While the company's financing arrangements do not require
scheduled repayments of its long-term debt, the company repaid $5
million of the long-term debt outstanding during the year. The
reduction in long-term debt to $91 million, however, did not meet
the planned debt level. Higher raw material costs not recovered
in increased selling prices held cash generation below planned
levels. The ratio of long-term debt to total capitalization of
51% improved from the prior year reflecting an increase in
stockholders' equity due to stronger earnings and a lower level of
debt.
Early in the year, the company refinanced a portion of its
existing debt by entering into a $20 million unsecured five-year
loan with a fixed rate of 7.83%. Its unsecured credit facility of
$110 million was reduced to $90 million near the end of the year.
The company currently utilizes $50 million of this credit
agreement to support its participation in the commercial paper
markets. At year-end, approximately $46 million of commercial
paper was outstanding and classified as long-term debt.
Management believes that with prior years' major expansions
running close to designed levels, proper staffing now in place and
a continued strong economy that allows for selling price
improvements, cash flow from operations will adequately allow for
partial repayments of existing debt and allow for planned capital
expenditures for property and equipment of $18 million next year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Management's Responsibility For Financial Reporting. . . . . . 21
Report of Independent Accountants. . . . . . . . . . . . . . . 22
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Stockholders' Equity. . . . . . . . 24
Consolidated Statements of Income. . . . . . . . . . . . . . . 25
Consolidated Statements of Cash Flows. . . . . . . . . . . . . 26
Notes to Consolidated Financial Statements . . . . . . . . . . 27
Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Mosinee Paper Corporation is responsible for the
integrity and objectivity of the consolidated financial
statements. Such financial statements were prepared in conformity
with generally accepted accounting principles. Some of the amounts
included in these financial statements are estimates based upon
management's best judgement of current conditions and
circumstances. Management is also responsible for preparing other
financial information included in this annual report.
The company's management depends on the company's system of
internal accounting controls to assure itself of the reliability
of the financial statements. The internal control system is
designed to provide reasonable assurance, at appropriate cost,
that assets are safeguarded and transactions are executed in
accordance with management's authorizations and recorded properly
to permit the preparation of financial statements in accordance
with generally accepted accounting principles. Periodic reviews of
internal controls are made by management and the internal audit
function and corrective action is taken if needed.
The Audit Committee of the Board of Directors, consisting of
outside directors, provides oversight of financial reporting. The
company's internal audit function and independent public
accountants meet with the Audit Committee to discuss financial
reporting and internal control issues and have full and free
access to the Audit Committee.
The consolidated financial statements have been audited by the
company's independent auditors and their report is presented
below. The independent auditors are approved each year at the
annual shareholders' meeting based on a recommendation by the
Audit Committee and the Board of Directors.
DANIEL R. OLVEY GARY P. PETERSON
President and Sr. Vice President - Finance
Chief Executive Officer and Secretary and Treasurer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Mosinee Paper Corporation
Mosinee, Wisconsin
We have audited the accompanying consolidated balance sheets of
MOSINEE PAPER CORPORATION and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of stockholders'
equity, income and cash flows for each of the years in the three-
year period ended December 31, 1994 and the supporting schedule
appearing on page 45. These financial statements and supporting
schedules are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial
statements and supporting schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and supporting schedules are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements and supporting schedules. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above appearing on pages 23-44 present fairly, in all material
respects, the financial position of MOSINEE PAPER CORPORATION and
subsidiaries at December 31, 1994 and 1993, and the results of
their operations and cash flows for each of the years in the
three-year period ended December 31, 1994, and the supporting
schedule appearing on page 45 present fairly the information
required to be set forth therein, all in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements,
the company changed its method of accounting for postemployment
benefits in 1994 and its methods of accounting for postretirement
benefits other than pensions and income taxes in 1992.
We hereby consent to the incorporation by reference of this report
in the Registration Statement on Form S-8 filed with the
Securities and Exchange Commission by Mosinee Paper Corporation on
April 19, 1991.
WIPFLI ULLRICH BERTELSON
February 2, 1995 Wipfli Ullrich Bertelson
Wausau, Wisconsin Certified Public Accountants
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ thousands) As of
December 31,
ASSETS 1994 1993
---- ----
Current assets:
Cash and cash equivalents $ 1,555 $ 1,521
Receivables, net 26,207 21,461
Inventories 30,600 30,456
Deferred income taxes 3,999 3,541
Other current assets 686 728
------- -------
Total current assets 63,047 57,707
Property, plant and equipment, net 194,021 188,254
Other assets 8,015 6,100
------- -------
TOTAL ASSETS $265,083 $252,061
======== ========
LIABILITIES
Current Liabilities:
Accounts payable $ 19,523 $ 17,481
Accrued and other liabilities 16,259 18,506
Accrued income taxes 953 425
------- -------
Total current liabilities 36,735 36,412
Long-term debt 91,383 96,260
Deferred income taxes 21,633 18,081
Postretirement benefits 14,427 13,959
Other noncurrent liabilities 10,799 6,961
------- -------
Total liabilities 174,977 171,673
------- -------
Commitments and contingencies -- --
Preferred stock of subsidiary 1,255 1,255
------- -------
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value, authorized
1,000,000 shares, none issued
Common stock - $2.50 par value
- 15,000,000 shares authorized
- 10,393,823 shares issued 25,984 25,984
Additional paid-in capital 13,851 13,851
Retained earnings 66,704 56,986
------- -------
Subtotals 106,539 96,821
Treasury stock at cost (17,688) (17,688)
------- -------
Total stockholders' equity 88,851 79,133
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $265,083 $252,061
======== ========
<FN>
See accompanying notes to consolidated financial statements.
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Additional Total
($ thousands except share Stock-Shares Common Paid-in Retained Treasury Stock Stockholders'
data) Outstanding Stock Capital Earnings Shares Amount Equity
------------ ------ ---------- -------- ------------------ -------------
Balances December 31, 1991 7,069,343 $25,984 $12,087 $60,990 (3,324,480) ($18,119) $80,942
Net loss, 1992 (8,500) (8,500)
Cash dividends declared on
Mosinee common stock (2,567) (2,567)
Sale of treasury stock 79,100 1,764 79,100 431 2,195
--------- ------- ------- ------- ---------- ------- -------
Balances December 31, 1992 7,148,443 25,984 13,851 49,923 (3,245,380) (17,688) 72,070
Net income, 1993 9,637 9,637
Cash dividends declared on
Mosinee common stock (2,574) (2,574)
--------- ------- ------- ------- ---------- ------- -------
Balances December 31, 1993 7,148,443 25,984 13,851 56,986 (3,245,380) (17,688) 79,133
Net income, 1994 12,291 12,291
Cash dividends declared on
Mosinee common stock (2,573) (2,573)
--------- ------- ------- ------- ---------- ------- -------
Balances December 31, 1994 7,148,443 $25,984 $13,851 $66,704 (3,245,380) ($17,688) $88,851
========= ======= ======= ======= =========== ========= =======
<FN>
See accompanying notes to consolidated financial statements.
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ thousands except share For the Years
data) Ended December 31,
1994 1993 1992
---- ---- ----
Net sales $266,707 $244,821 $225,512
Cost of sales 217,502 201,317 195,034
-------- -------- --------
Gross profit on sales 49,205 43,504 30,478
-------- -------- --------
Operating expenses:
Selling and advertising 9,857 9,221 10,052
Administrative 13,377 15,926 13,235
-------- -------- --------
Total operating expenses 23,234 25,147 23,287
-------- -------- --------
Income from operations 25,971 18,357 7,191
Other income (expense):
Patent infringement award -- 5,529 --
Interest income 82 17 146
Interest expense (5,010) (5,667) (7,685)
Other 498 (849) 407
-------- -------- --------
Income before income taxes and
cumulative effect adjustment 21,541 17,387 59
Provision for income taxes 8,500 7,750 22
-------- -------- --------
Income before cumulative effect
of changes in accounting
principles 13,041 9,637 37
Cumulative effect of changes in
accounting principles (net of
income taxes) (750) -- (8,537)
-------- -------- --------
Net income (loss) $ 12,291 $ 9,637 ($8,500)
======== ======== ========
Income (loss) per share
before cumulative effect of
changes in accounting
principles $ 1.81 $ 1.34 ($ 0.01)
Cumulative effect of changes in
accounting principles
(net of income taxes) (.10) -- ( 1.20)
-------- -------- --------
Net income (loss) per share $ 1.71 $ 1.34 ($ 1.21)
======== ======== ========
Weighted average common
shares outstanding 7,148,443 7,148,443 7,109,325
========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years
Ended December 31,
($ thousands) 1994 1993 1992
---- ---- ----
Cash flows from operating activities:
Net income (loss) $12,291 $ 9,637 ($ 8,500)
Provision for depreciation, depletion
and amortization 15,684 15,017 15,839
Provision for postretirement benefits
other than pensions 1,585 1,550 14,762
Recognition of deferred revenue (40) (40) (40)
Provision for losses on accounts receivable 901 440 247
Gain on property, plant and equipment
disposals (462) (28) (558)
Deferred income taxes 3,094 3,198 (3,312)
Changes in operating assets and liabilities:
Accounts receivable (5,647) (2,058) (3,238)
Refundable income taxes -- 2,005 2,744
Inventories (144) (1,828) (3,919)
Other assets (3,339) (2,977) (2,032)
Accounts payable and other liabilities 1,475 1,712 4,091
Accrued income taxes 528 308 117
------- ------- -------
Net cash provided by operating activities 25,926 26,936 16,201
------- ------- -------
Cash flows from investing activities:
Capital expenditures (19,088) (11,963) (21,508)
Proceeds from property, plant and
equipment disposals 647 190 5,957
------- ------- -------
Net cash used in investing activities (18,441) (11,773) ( 15,551)
------- ------- -------
Cash flows from financing activities:
Net payments under credit agreements (4,878) (11,804) (1,116)
Payment of long-term debt -- (105) (148)
Dividends paid (2,573) (2,574) (2,559)
Proceeds from issuance of company stock -- -- 2,195
------- ------- -------
Net cash used in financing activities (7,451) (14,483) ( 1,628)
------- ------- -------
Net increase (decrease) in cash and
cash equivalents 34 680 (978)
Cash and cash equivalents at beginning of year 1,521 841 1,819
------- ------- -------
Cash and cash equivalents at end of year $ 1,555 $ 1,521 $ 841
======= ======= =======
Supplemental Cash Flow Information:
Interest paid - net of amount capitalized $ 4,575 $ 5,806 $ 7,774
Income taxes paid (refunded) 4,877 2,239 (4,277)
<FN>
See accompanying notes to consolidated financial statements.
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation - The consolidated financial statements
include the accounts of Mosinee Paper Corporation and its
subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash Equivalents - The company considers all highly liquid debt
instruments with an original maturity of three months or less to
be cash equivalents.
Inventories - Substantially all inventories are stated at the
lower of cost, determined on the last-in, first-out method (LIFO),
or market. Inventories not on the LIFO method, primarily supply
items, are stated at cost (principally average cost) or market,
whichever is lower. Allocation of the LIFO reserve among the
components of inventories is impractical.
Property, Plant and Equipment - Depreciable property is stated at
cost less accumulated depreciation. Land, water power rights, and
construction in progress are stated at cost and timberlands are
stated at net depleted value. Facilities financed by leases, which
are essentially equivalent to installment purchases, are recorded
as assets and the related obligation as a long-term liability.
When property units are retired, or otherwise disposed of, the
applicable cost and accumulated depreciation thereon are removed
from the accounts. The resulting gain or loss, if any, is
reflected in income.
Depreciation is computed on the straight-line method for financial
statement purposes over 20 to 45 years for buildings and 3 to 20
years for machinery and equipment. Depletion on timberlands is
computed on the unit-of-production method. Depreciation expense
includes amortization on capitalized leases. Maintenance and
repair costs are charged to expense when incurred. Improvements
which extend the useful lives of the assets are added to the plant
and equipment accounts.
Revenue Recognition - Revenue is recognized upon shipment of goods
and transfer of title to the customer. Concentrations of credit
risk with respect to trade accounts receivable are generally
diversified due to the large number of entities comprising the
company's customer base and their dispersion across many different
industries and geographies.
Taxes - Deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax bases of
assets and liabilities, as measured by the enacted tax rates which
will be in effect when these differences are expected to reverse.
Deferred tax expense is the result of changes in the deferred tax
asset and liability. The principal sources giving rise to such
differences are identified in Note 10. See Note 3 for change in
accounting policy for 1992.
Per Share Data - Income per share is computed by dividing net
income less Sorg Paper preferred stock dividends by the weighted
average number of shares of common stock outstanding.
2 - SEGMENT INFORMATION
The company operates predominantly in the paper and allied
products industry. The company formed Mosinee Paper
International, Inc., a wholly-owned subsidiary located and
domiciled in the U.S. Virgin Islands, to administer the export
sales made by the company.
3 - CHANGES IN ACCOUNTING POLICIES
On January 1, 1994, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 112 "Employers' Accounting for
Postemployment Benefits" which requires the company to accrue for
the estimated cost of benefits provided by an employer to former
or inactive employees after employment but before retirement.
Previously, the cost of these benefits were expensed as they were
incurred. The cumulative effect of $750,000 is shown net of
income taxes of $400,000 and represents the entire liability for
such benefits earned through 1993. The impact of this accounting
change on 1994 operating results is not material.
During 1992, the company adopted the provisions of SFAS No. 106
"Employers' Accounting for Postretirement Benefits Other than
Pensions" and SFAS No. 109 "Accounting for Income Taxes."
In December 1992, the company adopted SFAS No. 106 which requires
the estimated cost of retiree benefit payments, primarily health
and life insurance, to be accrued during the employees' active
service period. Previously, the cost of these benefits was
expensed as incurred. The company elected to immediately
recognize the accumulated liability as of January 1, 1992, which
resulted in a one-time non-cash charge against earnings of
$13,287,000 before taxes and $8,537,000 after taxes, or $1.20 per
share. The effect of this change on 1992 operating results was to
recognize an additional pre-tax expense of $967,000 and after-tax
expense of $585,000, or $.07 per share. Previously reported
quarterly earnings for 1992, as presented in Note 15, have been
restated for the effect of this change as if it had been adopted
on January 1, 1992. Additional information on retirement benefits
can be found in Note 6.
The company also adopted SFAS No. 109 during the first quarter of
1992. The cumulative effect of the accounting change at the time
of adoption and the current year effect on net income was
immaterial as the company had previously been on the liability
method of accounting for deferred taxes.
4 - SUPPLEMENTAL BALANCE SHEET INFORMATION
Supplemental information on certain balance sheet items consist of
the following:
($ thousands)
December 31,
Receivables 1994 1993
---- ----
Trade $ 27,886 $ 22,428
Other 474 612
-------- --------
28,360 23,040
Less: allowances (2,153) (1,579)
-------- --------
$ 26,207 $ 21,461
======== ========
Inventories
Raw materials $ 14,534 $ 12,794
Finished goods and work in
process 17,574 16,247
Supplies 8,759 8,124
-------- --------
40,867 37,165
Less: LIFO Reserve (10,267) (6,709)
-------- --------
$ 30,600 $ 30,456
======== ========
Property, plant and equipment
Buildings $ 35,314 $ 34,438
Machinery and equipment 292,956 275,389
-------- --------
Totals 328,270 309,827
Less: accumulated depreciation (143,780) (130,064)
-------- --------
Net depreciated value 184,490 179,763
Land 2,055 2,010
Timber and timberlands, net of
depletion 3,000 2,793
Water power rights 129 129
Construction in progress 4,347 3,559
-------- --------
$194,021 $188,254
======== ========
Accrued and other liabilities
Payrolls $ 2,116 $ 1,991
Vacation Pay 4,024 3,834
Taxes, other than income 1,941 1,938
Employee retirement plans 1,123 2,032
Cash dividends declared 643 643
Insurance 1,062 1,414
Stock appreciation plans 3,118 4,163
Interest 702 351
Other 1,530 2,140
-------- --------
$ 16,259 $ 18,506
======== ========
5 - LEASES
The company maintains two leases for equipment that are classified
as capital leases. Property, plant and equipment includes the
following amounts for capitalized leases, amortization of which is
included in depreciation expense:
December 31,
($ thousands) 1994 1993
---- ----
Machinery and
equipment $540 $540
Less: accumulated
amortization 148 115
---- ----
Total $392 $425
==== ====
The company has various operating leases for machinery and
equipment, automobiles, office equipment and warehouse space.
Future minimum payments, by year and in the aggregate, under
noncancelable operating leases with initial or remaining terms of
one year or more consisted of the following at December 31, 1994:
Operating
($ thousands) Leases
---------
1995 $1,409
1996 1,192
1997 707
1998 153
1999 118
Thereafter 224
------
Total minimum lease payments $3,803
======
Rent expense for all operating leases of plant and equipment was
$2,834,000 in 1994, $3,081,000 in 1993 and $2,698,000 in 1992.
6 - RETIREMENT PLANS
PENSIONS
Substantially all employees of the company are covered under
various pension plans. The defined benefit pension plan benefits
are based on the participants' years of service and either
compensation earned over certain final years of employment or
fixed benefit amounts for each year of service. The plans are
funded in accordance with federal laws and regulations.
The net pension costs for all defined benefit pension plans
consist of the following components:
($ thousands) 1994 1993 1992
---- ---- ----
Service cost $ 801 $ 642 $ 641
Interest cost 1,747 1,740 1,862
Actual return on assets (315) (2,825) (2,343)
Net amortization and
deferral (1,976) 558 225
------- ------- -------
Net pension cost $ 257 $ 115 $ 385
======= ======= =======
The following sets forth the funded status of the company's
defined benefit pension plans and the amounts reflected in the
accompanying consolidated balance sheets:
December 31,
---------------------------------------------------
($ THOUSANDS) 1994 1993
------------------------ -------------------------
Plans with Plans with Plans with Plans with
Assets Assets Assets Assets
Exceeding Less than Exceeding Less than
Accumulated Accumulated Accumulated Accumulated
Benefit Benefit Benefit Benefit
Obligation Obligation Obligation Obligation
------------------------ -------------------------
Actuarial Present value of benefit
obligations at September 30
Vested benefit obligation ($ 6,881) ($15,302) ($ 6,206) ($14,640)
======= ======= ======= =======
Accumulated benefit obligation ($ 7,443) ($15,656) ($ 7,124) ($14,651)
======= ======= ======= =======
Projected benefit obligation ($ 9,641) ($16,018) ($ 9,547) ($14,678)
Fair value of plan assets at
September 30 15,379 9,010 16,277 9,800
------- ------- ------- -------
Projected benefit obligation (in
excess of) less than plan assets
at September 30 5,738 ( 7,008) 6,730 ( 4,878)
Unrecognized net gain ( 1,979) ( 9) ( 3,271) ( 834)
Unrecognized prior service cost 32 1,231 56 427
Unrecognized initial net
obligation (asset) ( 1,687) 365 ( 1,892) 422
Unrecognized acquisition tax
benefit - 733 - 825
Cash contributions to plans
subsequent to September 30 - 25 - 43
Adjustment required to recognize
minimum liability - ( 1,496) - ( 497)
------- ------- ------- -------
Consolidated balance sheets at
December 31 $ 2,104 ($ 6,159) $ 1,623 ($ 4,492)
======= ======= ======= =======
The projected benefit obligations at September 30, were determined
using an assumed discount rate of 8% and 7.25% for 1994 and 1993,
respectively, and assumed compensation increases of 5% in 1994 and
1993. The assumed long-term rate of return on plan assets was 9%.
Plan assets consist principally of fixed income and equity
securities and includes Mosinee Paper Corporation common stock of
$2,511,000 and $1,905,000 in 1994 and 1993 respectively.
The company's defined contribution pension plans, covering various
salaried employees, provide for company contributions based on
various formulas. The cost of such plans totaled $2,100,000 in
1994, $1,823,000 in 1993, and $1,324,000 in 1992.
The company has deferred compensation or supplemental retirement
agreements with certain present and past key officers, directors
and employees. The principal cost of such plans is being or has
been accrued over the period of active employment to the full
eligibility date. Certain payments, insignificant in amount, are
charged to expense when paid. Costs charged to operations under
such agreements approximated $161,000, $89,000, and $78,000 for
1994, 1993, and 1992, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the company provides
certain health care and nominal term life insurance benefits for
retired employees. Substantially all of the company's employees
may become eligible for those benefits if they reach normal
retirement age while working for the company.
Cost-sharing provisions, benefits and eligibility for various
employee groups vary by location and union agreements. Generally,
eligibility is attained after reaching age 55 or 62 with minimum
service requirements. Upon reaching age 65, the benefits become
coordinated with Medicare. The plans are unfunded and the company
funds the benefit costs on a current basis.
The net postretirement benefit costs consists of the following
components:
($ thousands) 1994 1993 1992
---- ---- ----
Service cost $ 467 $ 457 $ 433
Interest cost 1,046 1,112 1,042
Net amortization and deferral 72 ( 19) -
------ ------ ------
Net postretirement benefit cost $1,585 $1,550 $1,475
====== ====== ======
The following table sets forth the accumulated postretirement
benefit obligation (APBO) of the plans as reported in the
accompanying consolidated balance sheets:
December 31,
($ thousands) 1994 1993
---- ----
Retirees and dependents $ 8,295 $ 8,189
Fully eligible active
participants 1,594 1,837
Other active
participants 5,587 6,429
------- -------
Total APBO 15,476 16,455
Unrecognized net loss ( 1,049) ( 2,496)
------- -------
Accrued postretirement
benefit cost $14,427 $13,959
======= =======
The 1994 assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 11%, declining
by 1% annually for six years to an ultimate rate of 5%. The
weighted average discount rate used was 8%. For 1993, the
obligation was calculated using a health care cost trend rate of
12%, declining by 1% annually for 6 years to an ultimate rate of
6%. The weighted average discount rate was 7.25%.
The effect of a 1% increase in the health care cost trend rate
would increase the APBO by $1,610,000 or 11.1% and $1,714,000 or
10.4%, at December 31, 1994 and 1993, respectively. The effect of
this change would increase the aggregate of the service cost and
interest cost by $262,000 or 16.5% in 1994, and $243,000 or 15.7%
in 1993.
7 - LONG-TERM DEBT
Long-term debt consists of the following:
($ thousands) December 31,
1994 1993
---- ----
Commercial paper $ 46,383 $ 44,260
Revolving credit agreement 25,000 52,000
Long-term note 20,000 -
-------- --------
Total 91,383 96,260
Less: current maturities - -
-------- --------
Long-term debt $ 91,383 $ 96,260
======== ========
The company has a commercial paper placement agreement to issue up
to $50 million of unsecured debt obligations. The weighted average
interest rate on commercial paper outstanding at December 31, 1994
was 6.3% compared to 3.6% at December 31, 1993. The amounts have
been classified as long-term as the company intends, and has the
ability to refinance the obligations under the revolving credit
agreement.
A credit agreement with one bank as agent and certain financial
institutions as lenders was established April 16, 1993 to issue up
to $130 million of unsecured borrowings less the amount of
commercial paper outstanding. This agreement was amended
December 28, 1994 to reduce the issue amount to $90 million. The
term of this agreement is five years requiring no payments until
March 31, 1998, at which time, all outstanding amounts become due.
The company may, however, reduce the commitment amount prior to
that date without penalty. The weighted average interest rate at
December 31, 1994 was 6.3% and at December 31, 1993 was 3.7%. The
agreement provides for various restrictive covenants, which
includes maintaining minimum net worth, interest coverage and debt
to equity ratios and limits dividend and other restricted payments
to approximately $16 million.
The credit agreement provides for commitment and facility fees
during the revolving loan period. Commitment fees are 0.1875% per
annum of the unused portions of the commitment, payable quarterly.
Facility fees are 0.125% per annum of the total commitment,
payable quarterly.
The company entered into an unsecured five-year fixed rate debt
arrangement for $20 million on September 30, 1994 with one
financial institution to secure an interest rate of 7.83%.
Interest is paid monthly but the principal is not due until
September 1999. The arrangement provides for various restrictive
covenants, which includes maintaining a minimum net worth,
interest coverage and debt to capital ratios.
The difference between the book value and the fair market value of
long-term debt is not material.
The company maintained an interest rate protection agreement which
expired November 6, 1993 for the revolving credit agreement. This
agreement provided for interest rate protection on $60 million the
first year, $85 million the second year and $50 million in the
third year. Under terms of the agreement, the company received
compensation when the 90 day LIBOR (London Interbank Offered Rate)
exceeds 9.5% in the first year, 10.5% in the second year and 11%
in the third year. The company paid compensation when LIBOR was
less than 7.5% in the first year, 7% the second year and 6.5% the
third year. Amounts paid or received were recognized as interest
rates deviated beyond the stated amounts and were included in
interest expense.
The aggregate annual maturities of long-term debt in future years
is shown below:
($ thousands) 1995 1996 1997 1998 1999 Thereafter
-----------------------------------------------------------------
- - - $71,383 $20,000 -
-----------------------------------------------------------------
The annual maturities on the revolving credit agreement included
in the above schedule are based on the amount outstanding at
December 31, 1994. Annual maturities will be affected by future
borrowings under the agreement.
8 - INTEREST EXPENSE AND CAPITALIZED INTEREST
($ thousands)
Total Net
Year Ended Interest Capitalized Interest
December 31, Expense Interest Expense
------------ -------- ----------- --------
1994 $5,143 $133 $5,010
1993 5,704 37 5,667
1992 7,806 121 7,685
9 - PREFERRED SHARE PURCHASE RIGHTS PLAN
Under the Rights Agreement dated June 26, 1986, amended February 21, 1991,
each share of the company's common stock entitles its holder to one
nonvoting preferred share purchase right ("Right"). Rights become
exercisable 10 days after a person or group acquires 20% or more of the
company's outstanding common stock (an "Acquiring Person"). The Board may
reduce this threshold amount to 10%. The Right will entitle the holder to
purchase from the company .01 share of Series A Junior Participating
Preferred Stock at a price of $60. If the company is acquired in a merger
or other business combination, the holder may exercise the Right and
receive common stock of the acquiring company having a market value equal
to two times the exercise price of the Right. If a person becomes an
"Acquiring Person" the holder may exercise the Right and receive common
stock of the company having a market value equal to two times the exercise
price of the Right. Rights are subject to redemption by the company for
$.05 per Right until a person or group becomes an Acquiring Person. After
a person or group becomes an Acquiring Person, but before the Acquiring
Person acquires 50% of the company's common stock, the company may
exchange one share of common stock for each Right. Rights expire on July
10, 1996. The company has reserved 100,000 shares of Series A Junior
Participating Preferred Stock.
10 - INCOME TAXES
PROVISION FOR INCOME TAXES
The provision for income taxes is as follows:
($ thousands)
1994 1993 1992
---- ---- ----
Current tax expense
(credit):
Federal $4,406 $3,880 ($2,016)
State 1,000 672 600
------ ------ ------
Total current 5,406 4,552 ( 1,416)
------ ------ ------
Deferred tax expense
(credit):
Federal 2,880 3,412 2,034
State 214 ( 214) ( 596)
------ ------ ------
Total deferred 3,094 3,198 1,438
------ ------ ------
Total provision for
income taxes $8,500 $7,750 $ 22
====== ====== ======
RECONCILIATION FROM FEDERAL STATUTORY TO EFFECTIVE TAX RATE
($ thousands)
1994 1993 1992
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Federal statutory
rate $7,539 35.0% $6,085 35.0% $ 20 34.0%
State taxes,
net of
federal
benefit 790 3.7% 852 4.9% 2 3.3%
Adjustment to
deferred taxes
for enacted
changes in tax
rates - - 800 4.6% - -
Other - net 171 .8% 13 .1% - -
------ ----- ------ ----- ------ -----
Consolidated
effective tax $8,500 39.5% $7,750 44.6% $ 22 37.3%
====== ===== ====== ===== ====== =====
At the end of 1994, $41,500,000 of unused state operating loss
carryovers existed which may be used to offset future state
taxable income in various amounts through the year 2009. 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. At December 31, 1994, the company has
unused alternative minimum tax credit carryforward of
approximately $7,853,000 which can be used to offset future
regular tax liabilities.
DEFERRED INCOME TAXES
The significant components of deferred income tax
expense are as follows:
($ thousands) 1994 1993 1992
Deferred tax expense
(exclusive of the effect
of other component
listed below) $3,094 $2,398 $1,438
Adjustment to deferred
tax assets and liabilities
for enacted changes in
tax laws and rates - 800 -
------ ------ ------
Total deferred tax expense $3,094 $3,198 $1,438
====== ====== ======
Deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the
company's assets and liabilities. The tax effects of major
temporary differences that give rise to the deferred tax assets
and liabilities at December 31, are as follows:
($ thousands)
Deferred tax assets: 1994 1993
---- ----
Allowances on accounts receivable $ 857 $ 638
Accrued compensated absences 1,312 1,251
Stock appreciation rights plans 1,628 2,007
Pensions 841 832
Postretirement benefits 5,586 5,397
Postemployment benefits 483 -
Reserves 958 1,020
State net operating loss carryforward 3,369 3,160
Alternative minimum tax credit carryforward 7,853 7,271
Other 167 245
------- -------
Gross deferred tax assets 23,054 21,821
Less: valuation allowance ( 1,146) ( 1,081)
------- -------
Net deferred tax assets 21,908 20,740
------- -------
Deferred tax liabilities:
Property, plant and equipment ( 38,153) ( 34,080)
Deferred expenses ( 1,389) ( 1,200)
------- -------
Total gross deferred tax liabilities ( 39,542) ( 35,280)
------- -------
Net deferred tax liability ($17,634) ($14,540)
======= =======
The total deferred tax liabilities (assets) as presented in the
accompanying balance sheets are as follows:
($ thousands)
1994 1993
Net long-term deferred tax
liabilities $21,633 $ 18,081
------- --------
Gross current deferred tax
assets ( 5,145) ( 4,622)
Valuation allowance on
deferred tax assets 1,146 1,081
------- --------
Net current deferred tax
assets ( 3,999) ( 3,541)
------- --------
Net deferred tax liability $17,634 $ 14,540
======= ========
A valuation allowance has been recognized for a subsidiary's state
tax loss carryforward as cumulative losses create uncertainty
about the realization of the tax benefits in future years.
11 - STOCK OPTIONS AND APPRECIATION RIGHTS
The company has adopted two Executive Stock Option Plans.
The 1994 plan, which needs shareholder approval at the April 1995
annual meeting, provides for the granting of either qualified
incentive stock options (ISO) or non-qualified options. Under the
1994 plan, options to purchase 100,000 shares of common stock may
be issued to key employees of the company. Options must be
granted at an option price which is not less than fair market
value at the time of the grant. Qualified options can be
exercised no sooner than six months or no later than ten years
from the date of the grant (twenty years from date of grant for
non-qualified options).
The 1985 plan is a non-qualified stock option plan under which
options to purchase 135,000 common shares have been issued to key
executive employees of the company or subsidiaries. The plan
provides for the granting of options at a price which is not less
than market value at the time of the grant. Options can be
exercised no sooner than six months or no later than twenty years
from the date of the grant. No accounting recognition is given
until the stock options are exercised.
Two stock appreciation rights plans are maintained by the company.
The 1988 Stock Appreciation Rights Plan gives certain officers and
key employees the right to receive cash equal to the sum of the
appreciation in value of the stock and the value of reinvested
hypothetical cash dividends which would have been paid on the
stock covered by the grant. The 1988 Management Incentive Plan
gives certain management employees the right to receive similar
cash payments. The stock appreciation rights granted under the
plans may be exercised in whole or in installments and will vest
at such times as specified in the grant. In all instances, the
rights lapse if not exercised within 20 years of the grant date.
Compensation expense is recorded with respect to the rights, based
upon quoted market value of the shares and the exercise
provisions. The provision (credit) for incentive compensation
plans based upon the company's stock price, principally stock
appreciation rights, was ($933,000) in 1994, $1,668,000 in 1993,
and ($1,155,000) in 1992.
The following table summarizes the activity relating to the
company's stock option and stock appreciation plans:
(In dollars or number of shares) 1994 1993 1992
---- ---- ----
Stock options:
Options outstanding at
beginning of year 67,500 - -
Granted 12,500 *** 67,500 -
------- ------- -------
Options outstanding at
end of year 80,000 *** 67,500 -
======= ======= =======
Options exercisable at
end of year 67,500 - -
======= ======= =======
Price of outstanding $30.00- $30.00- -
options 40.00 40.00
Stock appreciation rights:
Rights outstanding at 299,334 328,834 314,667
beginning of year
Granted 7,500 5,500 51,500
Exercised (15,832) (29,000) (32,333)
Terminated - ( 6,000) ( 5,000)
------- ------- -------
Rights outstanding at end
of year 291,002 * 299,334 328,834
======= ======= =======
Rights exercisable at end
of year 278,000 ** 278,000 285,500
======= ======= =======
Price range of outstanding $11.00- $11.00- $11.00-
stock appreciation rights 29.88 29.88 29.88
======= ======= =======
<FN>
* 278,000 and 13,002 rights have been granted and remain
outstanding under the 1988 Stock Appreciation Rights Plan and
the 1988 Management Incentive Plan, respectively.
** Issued under the 1988 Stock Appreciation Rights Plan.
*** 8,000 shares granted subject to shareholder approval of the
1994 Executive Stock Option Plan.
12 - CONTINGENCIES, LITIGATION, COMMITMENTS, AND RELATED
TRANSACTIONS
The company has been informed by the Wisconsin Department of
Natural Resources ("DNR") that a landfill, for which the company
may be a potentially responsible party, was nominated by the DNR
for inclusion by the Environmental Protection Agency ("EPA") on
the National Priorities List ("NPL"). The EPA has not placed the
landfill on the NPL nor has any other action been taken by the DNR
or the EPA. The company has contributed its allocated portion of
the cost of remediation of a second landfill pursuant to a cost
sharing agreement. The company cannot predict what, if any,
additional costs will be borne by the company. Based on the
information available, the company does not believe that any
additional cost associated with these landfills will have a
material adverse effect on the business and financial condition of
the company.
The company, along with other paper companies, is part of a civil
investigation by the U. S. Department of Justice to determine
whether any violation of U. S. antitrust laws has occurred in the
commercial and industrial market for sanitary paper products. The
company believes it has not violated any antitrust laws.
In the ordinary course of conducting business, the company also
becomes involved in other environmental issues, investigations,
administrative proceedings and litigation. While any proceeding
or litigation has an element of uncertainty, the company believes
that the outcome of any pending or threatened claim or lawsuit
will not have a material adverse effect on the business and
financial condition of the company.
Through the year 2006, the company is to pay a municipality a
minimum annual usage fee of approximately $150,000 paid on a
quarterly basis, to discharge industrial waste into the
municipality's wastewater treatment facility. The aggregate
amount of such required future minimum payments at December 31,
1994 was $1,687,000. In addition, the company is to pay monthly
contingent usage fees to the municipality based on the amount of
industrial waste discharged. Minimum and contingent usage fees
incurred totaled $630,000, $611,000 and $531,000 in 1994, 1993,
and 1992 respectively.
During 1992, the company sold 79,100 shares of its treasury stock
for $2,195,000 to various pension plans it maintains. The sale
price per share was determined using the trading price at the time
of the sale as reflected on Nasdaq.
13 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
In 1992, the company exchanged two airplanes with a total book
value of $5,028,000 for an airplane with an estimated value of
$5,200,000. The new equipment is recorded at $5,028,000, which
represents the book value of the items traded.
14 - PATENT INFRINGEMENT AWARD
On February 8, 1993, the U.S. Court of Appeals for the Federal
Circuit upheld the District Court judgement awarded Mosinee Paper
against James River Corporation. The District Court found that
James River had infringed upon certain washroom towel cabinet roll
transfer mechanisms patented by the Bay West Paper Corporation, a
subsidiary. Mosinee Paper's judgement of approximately $5.5
million, including interest, is included in the 1993 statement of
income.
15 - QUARTERLY INFORMATION (UNAUDITED)
(In thousands except share First Second Third Fourth
data) Qtr. Qtr. Qtr. Qtr. Annual
----- ------ ----- ------ ------
1994
----
Net sales $61,995 $64,784 $67,811 $72,117 $266,707
Gross profit 10,989 12,612 11,604 14,000 49,205
Income before
cumulative effect of a
change in accounting
principle 2,520 2,879 3,059 4,583 13,041
Cumulative effect of a
change in accounting
principle (net of
income taxes) ( 750) - - - ( 750)
Net income 1,770 2,879 3,059 4,583 12,291
Income per share:
Before cumulative effect
of a change in
accounting principle .35 .40 .42 .64 1.81
Cumulative effect of a
change in accounting
principle (net of
income taxes) ( .10) - - - ( .10)
Net income per share .25 .40 .42 .64 1.71
1993
----
Net sales (1) $57,008 $60,334 $65,351 $62,128 $244,821
Gross profit 8,977 9,825 11,621 13,081 43,504
Net income 4,595 1,354 2,005 1,683 9,637
Net Income per share .64 .19 .28 .23 1.34
1992 (2)
----
Net sales $52,301 $57,551 $59,895 $55,765 $225,512
Gross profit 8,052 7,765 7,233 7,428 30,478
Income (loss) before
cumulative effect of
changes in accounting
principles (625) 730 (13) (55) 37
Cumulative effect of
changes in accounting
principles (net of
income taxes) (8,537) - - - (8,537)
Net income (loss) (9,162) 730 (13) (55) (8,500)
Income (loss) per share:
Before cumulative effect
of changes in
accounting principles (.09) .10 (.01) (.01) (.01)
Cumulative effect of
changes in accounting
principles (net of
income taxes) (1.20) - - - (1.20)
Net income (loss) per share (1.29) .10 (.01) (.01) (1.21)
<FN>
(1) First quarter net sales are different from the first quarter
report to shareholders due to the elimination of intercompany
sales.
(2) Gross profits, net income (loss) and related per share
amounts have been restated as required by SFAS No. 106
"Employers' Accounting for Postretirement Benefits Other Than
Pensions".
16 - MARKET PRICES FOR COMMON SHARES (UNAUDITED)
The Company's common shares are traded on the Nasdaq National
Market System under the Nasdaq symbol, MOSI. Price ranges and
dividends paid per share were as follows:
(In dollars)
1994 1993 1992
---- ---- ----
Prices Divi- Prices Divi- Prices Divi-
Qtr. High Low dends High Low dends High Low dends
---- --- ----- ---- --- ----- ---- --- -----
1st $36.00 $29.25 $.09 $26.50 $21.50 $.09 $37.13 $28.00 $.09
2nd 32.25 28.25 .09 27.00 21.50 .09 33.75 27.00 .09
3rd 32.75 29.00 .09 26.00 21.75 .09 29.50 24.25 .09
4th 31.25 24.75 .09 30.25 22.75 .09 26.25 20.25 .09
Prices reflect high and low closing price quotations on the Nasdaq
National Market System and do not reflect mark-ups, mark-downs or
commissions and may not represent actual transactions.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
($ THOUSANDS)
Allowance
for Allowance for Other
Doubtful Sales Returns Restructuring
Total Accounts and Discounts Costs
----- -------- ------------- -----
Balances at December 31, 1991 $ 970 $ 380 $ 590 $ 246
Charges to costs and expenses 3,270 464 2,806
Deductions (3,234) (329) (2,905) (246)
------ ------ ------ ------
Balances at December 31, 1992 $1,006 $ 515 $ 491 $ 0
Charges to costs and expenses 5,426 440 4,986
Deductions (4,853) (602) (4,251)
------ ------ ------ ------
Balances at December 31, 1993 $1,579 $ 353 $1,226 $ 0
Charges to costs and expenses 4,945 901 4,044
Deductions (4,371) ( 10) (4,361)
------ ------ ------ ------
Balances at December 31, 1994 $2,153 $1,244 $ 909 $ 0
====== ====== ====== ======
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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 material set forth
under the caption "Election of Directors", pages 3 and 4, in the
company's proxy statement dated March 17, 1995 (the "1995 Proxy
Statement"). Information relating to executive officers of the
company is set forth in Part I, page 6.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to director compensation is incorporated into
this Form 10-K by this reference to the material set forth under
the subcaption "Director Compensation", pages 4 and 5, in the 1995
Proxy Statement. Information relating to the compensation of
executive officers is incorporated into this Form 10-K by this
reference to (1) the material set forth under the caption
"Executive Officer Compensation", pages 8 through 10 and (2) the
material set forth under the subcaption "Compensation Committee
Interlocks and Insider Participation", page 15, in the 1995 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information relating to security ownership of certain beneficial
owners is incorporated into this Form 10-K by this reference to
the material set forth under the caption "Beneficial Ownership of
Common Stock", page 6, through the material immediately preceding
final two paragraphs, page 7, in the 1995 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
Filed as part of this report and required by Item 14(d),
are set forth on pages 22 to 49 herein.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the company during
the fourth quarter of fiscal 1994.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.
The following exhibits are filed with the Securities and
Exchange Commission as part of this report.
EXHIBIT 3 - ARTICLES OF INCORPORATION AND BYLAWS
(a) Restated Articles of
Incorporation, as amended. . . . . . . . . . 12-53(1)
(b) Restated Bylaws, as last
amended April 16, 1992 . . . . . . . . . . . 54-89(1)
EXHIBIT 4 - INSTRUMENTS DEFINING THE RIGHTS OF SECURITY
HOLDERS
(a) Preferred Share Rights Agreement
dated June 26, 1986 as amended . . . . . . . 54-147(4)
(b) Restated Articles of Incorporation
and Restated Bylaws (see Exhibit 3(a) and (b))
EXHIBIT 10 - MATERIAL CONTRACTS
*(a) Deferred Compensation Plan for Directors
as amended and restated June 17, 1993. . . . 148-164(4)
*(b) 1985 Executive Stock Option
Plan dated June 27, 1985 . . . . . . . . . . 83-95(5)
*(c) Mosinee Paper Corporation 1988 Stock
Appreciation Rights Plan, as amended
4/18/91. . . . . . . . . . . . . . . . . . . 41-50(2)
*(d) 1993 and 1994 Incentive Compensation
Plan for Corporate Executive Officers. . . . 165-169(4)
*(e) Supplemental Retirement Benefit
Plan dated October 17, 1991. . . . . . . . . 63-71(2)
*(f) Supplemental Retirement Benefit Agreement
dated November 15, 1991. . . . . . . . . . . 72-76(2)
*(g) 1994 Executive Stock Option Plan . . . . . . 50
*(h) Mosinee Supplemental Retirement Plan . . . . 68
* Denotes Executive Compensation Plans and Arrangements.
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS. . 84
EXHIBIT 22 - SUBSIDIARIES OF REGISTRANT . . . . . 167(1)
Page numbers set forth herein correspond to the page numbers
using the sequential numbering system, where such exhibit can
be found in the following Annual Reports on Form 10-K:
(1) Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992; Commission File Number
0-1732.
(2) Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991; Commission File Number
0-1732.
(3) Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990; Commission File Number
0-1732.
(4) Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993; Commission File Number
0-1732.
(5) Exhibit 4(e) Form S-8 filed on April 19, 1991.
The above exhibits are available upon request in writing from
the Secretary, Mosinee Paper Corporation, 1244 Kronenwetter
Drive, Mosinee, Wisconsin 54455-9099.
SIGNATURES
Pursuant to the requirements of Section 13 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
Date March 27, 1995 GARY P. PETERSON
------------------------------------
Gary P. Peterson
Senior Vice-President,
Finance, Secretary and
Treasurer
(Principal Financial Officer)
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.
SAN W. ORR, JR. RICHARD L. RADT
------------------------------ -------------------------------
San W. Orr, Jr. Richard L. Radt
Chairman of the Board Vice Chairman of the Board
March 27, 1995 March 27, 1995
DANIEL R. OLVEY STANLEY F. STAPLES, JR.
------------------------------ -------------------------------
Daniel R. Olvey Stanley F. Staples, Jr.
President and CEO Director
(Principal Executive Officer) March 27, 1995
March 27, 1995
RICHARD G. JACOBUS WALTER ALEXANDER
------------------------------ -------------------------------
Richard G. Jacobus Walter Alexander
Director Director
March 27, 1995 March 27, 1995
DONALD E. JANIS
------------------------------
Donald E. Janis
Corporate Controller
March 27, 1995
(Principal Accounting Officer)