FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 0-1732
MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
WISCONSIN 39-0486870
(State of incorporation) (I.R.S Employer Identification
Number)
1244 KRONENWETTER DRIVE
MOSINEE, WISCONSIN 54455-9099
(Address of principal executive office)
Registrant's telephone number, including area code: 715-693-4470
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such report), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
The number of common shares outstanding at June 30, 1995 was
7,862,740.
MOSINEE PAPER CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1995
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Three Months Ended
June 30, 1995 (unaudited) and
June 30, 1994 (unaudited) 1
Condensed Consolidated Balance
Sheets June 30, 1995 (unaudited)
and December 31, 1994 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows Three Months
Ended June 30, 1995 (unaudited)
and June 30, 1994 (unaudited) 3
Notes to Condensed Consolidated
Financial Statements 4
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 5
PART II. OTHER INFORMATION
Item 3. Defaults in Senior Securities 9
Item 4. Submission of Matters to a 9
Vote of Security Holders
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except 1995 1994 1995 1994
share data - unaudited) ---- ---- ---- ----
Net sales $74,672 $64,784 $147,250 $126,779
Cost of sales 63,038 52,172 122,417 103,178
------ ------ ------- -------
Gross profit on sales 11,634 12,612 24,833 23,601
------ ------ ------- -------
Operating expenses:
Selling and advertising 2,496 2,499 4,988 4,718
Administrative 2,839 4,228 7,180 7,771
------ ------ ------- -------
Total operating expenses 5,335 6,727 12,168 12,489
------ ------ ------- -------
Income from operations 6,299 5,885 12,665 11,112
Other income (expense):
Interest expense (1,575) (1,112) (3,104) (2,063)
Other 82 76 943 20
------ ------ ------- ------
Income before income taxes and
cumulative effect adjustment 4,806 4,849 10,504 9,069
Provision for income taxes 1,920 1,970 4,213 3,670
------ ------ ------- ------
Income before cumulative effect
of a change in accounting
principles $2,886 2,879 6,291 5,399
Cumulative effect of a change
in accounting principles
(net of income taxes) --- --- --- (750)
------ ------ ------- ------
Net income $2,886 $2,879 $6,291 $4,649
====== ====== ======= ======
Income per share before
cumulative effect of a change
in accounting principles $0.36 $0.36 $0.80 $0.68
Cumulative effect of a change
in accounting principles
(net of income taxes) --- --- --- (0.09)
----- ----- ----- -----
Net income per share $0.36 $0.36 $0.80 $0.59
===== ===== ===== =====
Weighted average common
shares outstanding 7,863,096 7,863,287 7,863,096 7,863,287
========= ========= ========= =========
<FN>
See accompanying notes to consolidated financial statements
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
($ thousands) 1995* 1994*
---- ----
ASSETS
Cash and cash equivalent $ 232 $ 1,555
Receivables, net 26,950 26,207
Inventories 36,882 30,600
Deferred income taxes 3,999 3,999
Other current assets 625 686
------- -------
Total current assets 68,688 63,047
------- -------
Property, plant and equipment, net 344,631 337,801
Less: accumulated depreciation 150,163 143,780
------- -------
Net depreciation value 194,468 194,201
------- -------
Other assets 8,576 8,015
------- -------
TOTAL ASSETS $271,732 $265,083
======= =======
LIABILITIES
Accounts payable $ 22,835 $ 19,523
Accrued and other liabilities 14,640 16,259
Accrued income taxes 732 953
------- -------
Total current liabilities 38,207 36,735
Long-term debt 91,333 91,383
Deferred income taxes 22,002 21,633
Postretirement benefits 14,720 14,427
Other noncurrent liabilities 10,502 10,799
------- -------
Total liabilities 176,764 174,977
------- -------
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 - no par value,
authorized - 30,000,000 shares,
11,433,205 shares issued 44,827 25,984
Additional paid-in capital 13,851 13,851
Retained earnings 52,737 66,704
------- -------
Subtotals 111,415 106,539
Treasury stock (17,702) (17,688)
------- -------
Total stockholders' equity 93,713 88,851
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $271,732 $265,083
======= =======
<FN>
*The consolidated balance sheet at June 30, 1995 is unaudited. The December 31, 1994
consolidated balance sheet is derived from audited financial statements.
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Six Months Ended
June 30,
($ thousands - unaudited) 1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $6,291 $4,649
Provision for depreciation, depletion
and amortization 8,269 7,669
Recognition of deferred revenue (20) (20)
Provision for losses on accounts receivable 200 187
Gain on property, plant and equipment
disposals (946) (22)
Deferred income taxes 369 881
Changes in operating assets and
liabilities:
Accounts receivable (943) (2,949)
Inventories (6,282) (2,723)
Other assets (1,345) (896)
Accounts payable and other liabilities 2,860 1,151
Accrued income taxes (222) 500
----- -----
Net cash provided by operating activities 8,231 8,427
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,222) (8,204)
Proceeds from property, plant and
equipment disposals 1,022 97
----- -----
Net cash used in investing activities (8,200) (8,107)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under credit
agreements (49) 297
Dividends paid (1,291) (1,287)
Payment for purchase of company stock (14) ---
----- -----
Net cash used in financing activities (1,354) (990)
----- -----
Net decrease in cash and cash equivalents (1,323) (670)
Cash and cash equivalents at beginning
of year 1,555 1,521
----- -----
Cash and cash equivalents at end of period $ 232 $ 851
===== =====
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amount capitalized $3,214 $2,060
Income taxes paid 4,066 2,289
<FN>
See accompanying notes to consolidated financial statements
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial statements in the opinion of
management reflect all adjustments which are normal and
recurring in nature and which are necessary for a fair
statement of the results for the periods presented. Some
adjustments involve estimates which may require revision in
subsequent interim periods or at year-end. Such adjustments
include interim LIFO inventory valuations and the effective
income tax rate for the year. In all regards, the financial
statements have been presented in accordance with generally
accepted accounting principles applied in a consistent
manner.
2. Inventories consist of the following:
June 30, December 31,
1995 1994
---- ----
Raw material $19,178 $14,534
Finished goods and work
in process 21,331 17,574
Supplies 8,774 8,759
------ ------
Subtotal 49,283 40,867
Less: LIFO reserve 12,401 10,267
------ ------
Net inventories $36,882 $30,600
====== ======
3. Earnings per share of common stock is based on the weighted
average number of common shares outstanding and gives effect
to applicable preferred stock dividend requirements.
4. Net income includes expenses, or credits, for incentive
compensation plans. The company calculates this liability
using the average price of Mosinee Paper's stock at the close
of each fiscal quarter as if all incentive compensation plans
had been exercised on that day. For the six months ended
June 30, 1995, these plans resulted in after tax income of
$203,000, or $0.03 per share, compared to an after tax
expense of $409,000, or $0.05 per share for the same period
last year. For the second quarter, the effect this year is
an after tax income of $555,000 or $0.07 per share, compared
to second quarter last year of an after tax expense of
$381,000 or $0.05 per share.
5. The company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 112, "Accounting for
Postemployment Benefits" as of January 1, 1994. The
cumulative effect for the transition obligation was an
after-tax expense of $750,000 or $0.09 per share.
6. Prior year per share data has been restated for the May 18,
1995 10% stock dividend.
7. Refer to notes to financial statements which appear in the
Annual Report on Form 10-K for the year ended December 31,
1994 for the company's accounting policies which are
pertinent to these statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(All $ amounts are in thousands, except per share
amounts)
RESULTS OF OPERATIONS
Record second quarter sales of $74,672 were 15% higher than the
$64,784 reported last year. Higher selling prices, resulting from
the continued escalation of raw material costs during the quarter,
accounted for the improvement over the prior year. Volume gains at
Pulp and Paper and Converted Products partially offset a weaker
mix of products sold, which occurred at all operations. Price
increases effected during the quarter were reasonably successful
as most competitors faced the same pressure of increased cost of
materials. Prices for wastepaper used in towel and tissue products
stabilized in June and have shown some reduction in July with the
possibility of further weakening in August. A price increase for
purchased grades of pulp is expected early in the fourth quarter.
Strong efforts to increase selling prices to offset any further
cost increases will continue to be made. In summary, selling price
improvements amounting to $11 million were somewhat offset by
unfavorable product mix/volume effects of $1 million.
Record sales for the first half of 1995 of $147,250 increased 16%
over the $126,779 reported for the same period last year. The
improvement was primarily due to higher selling prices at all
operating units. Volume increases at Pulp and Paper provided
nearly $5 million of increased sales helping to offset a decline
at Bay West which resulted from the effect of higher selling
prices as some customers less sensitive to quality switched to
lower priced suppliers. In summary, nearly $20 million of the
increase is attributable to higher selling prices while product
mix/volume effects offset each other.
Cost of sales for the second quarter of $63,038 increased 21% over
the $52,172 reported at the same time last year. As a percent of
net sales, cost of sales increased to 84% from the year earlier
level of 81% reflecting the higher costs of pulp, wastepaper and
linerboard. Continued emphasis on cost reduction and improved
operating efficiency has helped to reduce the impact of these
higher costs. As mentioned earlier, wastepaper prices have
stabilized in June and are showing signs of being lower in the
third quarter with some decreases having occurred in July.
Additionally, equipment related problems occurred during May at
the Towel and Tissue mill in Ohio resulted in a loss of production
and efficiency that effectively added to cost of sales. These
problems were fixed in June awaiting permanent repair with new
equipment to be installed near the end of the year. For the
quarter, cost increases have amounted to $12 million.
Cost of sales for the year-to-date of $122,417 increased 19% from
the year earlier period of $103,178. As a percent of net sales,
cost of sales increased to 83% from the year earlier level of 81%
primarily due to raw material cost increases. The raw material
cost increases discussed above have impacted both first and second
quarters with the second quarter bearing much more of the
increase.
Gross profit for the second quarter, reflecting the above,
decreased 8% to $11,634 from the year earlier level of $12,612.
For the quarter, this amounted to a 16% gross profit margin
compared to the 19% achieved last year during the same period. On
a year-to-date basis, gross profit reached $24,833, 5% ahead of
last year's level of $23,601. Gross profit margin, so far in 1995,
is 17% compared to last year's level of 19%.
Operating expenses of $5,335 for the second quarter and $12,168
for the first half of 1995 declined 21% and 3%, respectively, from
the same periods last year. Selling expenses remained comparable
to last year for the same period. General and administrative
expenses for the second quarter of $2,838 declined 33% from the
$4,228 reported for the same period last year. Excluding the
effect of adjustments to the accrued liability for incentive
compensation programs based on the market price of the company's
stock (SARs) of income of $925 from lower stock prices and
an expense of $641 last year, general and administrative expenses
increased $176, or 5%, over the previous year.
Similarly, on a year-to-date basis general and administrative
expenses of $7,180 declined 8% from the prior year level of
$7,771. After adjusting for SAR related effects of income of $339
for the current year and an expense of $688 during the prior year,
general and administrative expenses of $7,520 increased 6% over
the prior year level. For both the quarter and six month period
this year, general inflationary increases in operating expenses,
both selling and general and administrative, principally employee
compensation incentive compensation programs and employee
training, have been partially offset by cost reduction programs in
other operating categories.
Reflecting the above, income from operations for the second
quarter $6,299 increased 7% above the $5,885 recorded during last
year's second quarter. Year-to-date income from operations of
$12,665 increased 14% over the $11,112 reported for the same
period last year. After adjusting for SAR related effects, income
from operations during the second quarter of the year of $5,375
declined 18% from the prior year of $6,526. Year-to-date income
from operations, similarly adjusted, of $12,335 increased over
last year's level of $11,800.
Interest expense for the second quarter of $1,575 and $3,104 for
the first six months of this year rose $463 and $1,041,
respectively, over the amounts paid for the same period last year.
The increase is wholly attributable to higher interest rates in
effect during the current year. Lower average debt in 1995
partially offset the effect of higher rates. Other income for the
quarter includes gain from the sale of timberlands incompatible
with the company's fiber needs of $152, or $0.01 per share, and
for the first six months of the year of $1,020, or $0.08 per
share.
Accordingly, income before the cumulative effect of a change in
accounting principle and income taxes of $4,806 for the second
quarter were similar to the $4,849 reported for the same period
last year. For the first six months, income before the cumulative
effect of a change in accounting principle and income taxes of
$6,291 improved 17% over the prior year level of $5,399.
The provision for income taxes of $1,920 for the quarter and
$4,213 for the year-to-date are based on an effective tax rate of
40% for both periods. During the prior year an effective tax rate
of 40.6% for the second quarter and 40.5% for the year-to-date
resulted in income tax provisions of $1,970 and $3,670 for the
respective periods.
Income before the cumulative effect of a change in an accounting
principle of $2,886, or $0.36 per share, for the second quarter
equaled the $2,879, or $0.36 per share, reported for the same
period last year. For the first six months, income before the
cumulative effect of a change in an accounting principle of
$6,291, or $0.80 per share, rose over the prior year level of
$5,399, or $0.68 per share.
The company adopted Statement of Financial Accounting Standards
No. 112, "Employers Accounting for Postemployment Benefits"
effective January 1, 1994. The accumulated liability as of
December 31, 1993 for these benefits required an after-tax expense
of $750, or $0.09 per share.
Reflecting the above, net income for the second quarter of $2,886,
or $0.36 per share, was comparable to the $2,879, or $0.36 per
share reported last year at the same time. For the year-to-date,
net income $6,291, or $0.80 per share, improved over the $4,649,
or $0.59 per share reported for the same time period last year. On
a year-to-date basis, adjusting reported income per share for the
effects of SAR based incentive compensation, land sales and
accounting changes, income of $0.70 trails the prior year level of
$0.75.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations for the first six months of the year
of $8,231 declined slightly from the $8,427 reported for the same
period last year. Increased sales levels accounted for the higher
accounts receivable level and represented a $943 use of cash.
Inventories at several locations continue to reflect higher levels
established in anticipation of price increases that occurred
during the second quarter for purchased pulp, linerboard and waste
paper resulting in a $6,282 use of cash. Partially offsetting
these uses of cash was an increase in accounts payable of $2,860.
Cash used in investing activities represented $9,222 of capital
expenditures partially offset by $1,022 of proceeds from
timberland and equipment disposals. The primary capital
expenditures include an automated roll wrap system at Pulp and
Paper and improvement of wax blending equipment and a new winder
at Converted Products. Cash used in financing activities resulted
from debt repayment of $49 and payment of dividends to
shareholders of $1,291.
As a result of operating, investing and financing activities for
the first six months of the year cash decreased by $1,323 to $232
at June 30, 1995 from the $1,555 balance at the end of 1994.
The company maintains a credit agreement with one bank acting as
agent and certain financial institutions as lenders to issue up to
$90,000 of unsecured borrowing less the amount of commercial paper
outstanding and also maintains a loan agreement with another bank
for $20,000, making the total amount available for borrowing of
$110,000. As of June 30, 1995 the company had issued and
outstanding $46,216 of commercial paper and had other borrowing
under these agreements of $45,000 for a total debt of $91,216.
This leaves approximately $19,000 available to supplement cash
provided from operations for uses in the business which, at the
present time the company believes to be adequate for the operation
of the business and currently anticipated capital expenditures.
Long-term debt of $91,333 declined slightly from the prior year
end level of $91,383 reflecting the utilization and generation of
cash described above. As a percent of total capitalization, long-
term debt declined slightly to 49% from the year-end level of 51%.
Working capital, reflecting the increase in inventories and
accounts receivable, and accompanied by a modest increase in
current liabilities, increased to $30,481 from the year-end level
of $26,312. The current ratio, reflecting this improvement,
increased to 1.8:1 from the year-end mark of 1.7:1.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Sorg Paper Company, a subsidiary of the registrant, omitted
the payment of its quarterly cash dividends of $1.38 per share,
payable July 1, 1995 to shareholders of record, on its 5-1/2%
cumulative preferred stock, par value $100. The number of 5-1/2%
cumulative preferred shares outstanding is 12,552 and the amount
of dividends in arrears is $483,122.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on
April 20, 1995.
The matters voted upon, including the number of votes cast
for or withheld, as well as the number of abstentions and broker
non-votes, as to each such matter were as follows:
Matter Shares
Broker
For Withheld Against Abstain Non-Vote
1. Election of
Directors
(a) San W. Orr, Jr. 6,300,376 44,281 N/A N/A 0
(b) Harry R. Baker 6,303,359 41,118 N/A N/A 0
2. Adoption of 1994 5,984,904 N/A 274,189 85,283 281
Executive Stock
Option Plan
3. Amendment of 5,640,616 N/A 631,366 50,908 21,767
Company's restated
articles of
incorporation to
increase authorized
shares to 30,000,000
4. Amendment of 6,134,160 N/A 96,056 92,574 21,867
Company's restated
articles of
incorporation to
change the common
stock to shares
without par value
5. Approval of 6,299,415 N/A 29,954 15,288 0
appointment of
independent auditors
for year ending
December 31, 1995
ITEM 5. OTHER INFORMATION:
On April 20, 1995, the company announced a 10% stock dividend
payable May 18, 1995 to shareholders of record as of May 4, 1995.
The company also declared a cash dividend of $0.09 per share
payable May 18, 1995 on all shares on a post-dividend basis to
shareholders of record as of May 4, 1995.
The description of the Company's common stock set forth on
Exhibit (99)(a) to this Form 10-Q is provided for the purpose of
updating any previous description of the Company's common stock
and reflects the adoption of the amendments to the Company's
Restated Articles of Incorporation at the annual meeting of
shareholders held April 20, 1995 to increase the authorized shares
to 30,000,000 and change the common stock to shares without par
value.
At the annual meeting of shareholders held April 20, 1995,
the shareholders approved an amendment to the company's restated
articles on incorporation which increased the number of authorized
shares of common stock from 15,000,000 to 30,000,000 and changed
the company's authorized common stock from $2.50 par value per
share to shares without par value. The company has no present
plans to issue any of the additional authorized common stock nor
are there any commitments for the issuance of the additional
common stock at this time except in connection with employee stock
option plans currently in effect.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
Page
----
(a) Exhibits required by Item 601 of Regulation S-K.
(3)(i) Articles of Incorporation
Restated Articles of Incorporation, 12
as last amended April 26, 1995
(11) Computation of earnings per share 48
(27) Financial Data Schedule 50
(99) Additional Exhibits
(a) Description of Common Stock 51
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MOSINEE PAPER CORPORATION
August 14, 1995 GARY P. PETERSON
Gary P. Peterson
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)