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, 1998
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: 0-7574
WAUSAU-MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
WISCONSIN 39-0690900
(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 July 31, 1998, was
57,386,825.
WAUSAU-MOSINEE PAPER CORPORATION
AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Three Months and Six Months
Ended June 30, 1998 (unaudited) and
June 30, 1997 (unaudited) 1
Condensed Consolidated Balance
Sheets, June 30, 1998 (unaudited)
and December 31, 1997 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows, Six Months
Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited) 3
Notes to Condensed Consolidated
Financial Statements 4
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 19
-i-
PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30, June 30,
($ in thousands, except 1998 1997 1998 1997
share data - unaudited)
Net sales $243,636 $234,481 $481,296 $446,373
Cost of sales 194,949 182,433 386,300 345,719
Gross profit 48,687 52,048 94,996 100,654
Operating expenses:
Selling 6,438 6,734 13,071 13,010
Administrative 7,240 9,022 20,594 17,411
Restructuring 0 0 37,700 0
Total operating expenses 13,678 15,756 71,365 30,421
Operating profit 35,009 36,292 23,631 70,233
Interest expense ( 1,824) (2,217) (3,870) (3,856)
Other 169 78 305 242
Earnings before income taxes 33,354 34,153 20,066 66,619
Provision for income taxes 12,550 12,817 7,500 25,328
Net earnings $20,804 $21,336 $12,566 $41,291
Net earnings
per share - Basic $0.36 $0.37 $0.22 $0.71
Net earnings
per share - Diluted $0.36 $0.37 $0.22 $0.71
-1-
CONSOLIDATED BALANCE SHEETS WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
($ in thousands*) June 30, December 31,
ASSETS 1998 1997
Current Assets
Cash and cash equivalents $ 1,957 $ 2,584
Receivables, net 81,089 69,674
Refundable income taxes 0 2,799
Inventories 133,012 143,610
Deferred income taxes 19,586 15,152
Other current assets 2,574 1,110
Total current assets 238,218 234,929
Property, plant and equipment - net 613,490 604,930
Other assets 29,000 32,205
TOTAL ASSETS $ 880,708 $ 872,064
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 6,100 $ 6,207
Accounts payable 50,171 53,181
Accrued and other liabilities 81,331 48,888
Total current liabilities 137,602 108,276
Long-Term Liabilities
Long-term debt 117,403 140,500
Deferred income taxes 90,931 92,947
Other long-term liabilities 82,712 88,926
Total long-term liabilities 291,046 322,373
Commitments and contingencies --- ---
Preferred stock of subsidiary 1,255 1,255
Shareholders' equity 450,805 440,160
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 880,708 $ 872,064
<FN>
*The consolidated balance sheet at June 30, 1998 is unaudited. The
December 31, 1997 consolidated balance sheet is derived from audited
financial statements.
-2-
CONSOLIDATED STATEMENTS OF CASH FLOWS
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
Six Months Ended
June 30,
($ in thousands - unaudited) 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 12,566 $ 41,291
Provision for depreciation, depletion
and amortization 24,325 22,516
Recognition of deferred revenue (20) (20)
Provision for losses on accounts receivable 29 75
Gain on property, plant
and equipment disposals (111) (129)
Deferred income taxes (6,450) 5,797
Changes in operating assets and liabilities:
Accounts receivable (11,444) (15,410)
Inventories 10,598 (6,209)
Other assets 1,437 (2,065)
Accounts payable and other liabilities 24,065 (3,440)
Accrued income taxes 7,222 669
NET CASH PROVIDED BY OPERATING ACTIVITIES 62,217 43,075
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (32,199) (30,492)
Acquisition of companies 0 (61,382)
Proceeds from property, plant and
equipment disposals 165 153
Cash distributed from IRB trust fund 0 1,297
NET CASH USED IN INVESTING ACTIVITIES (32,034) (90,424)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under
credit agreements (23,204) 68,307
Dividends paid (7,678) (8,723)
Proceeds from stock options exercised 842 32
Payments for purchase of company stock (770) (10,927)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (30,810) 48,689
Net increase (decrease) in cash and cash
equivalents (627) 1,340
Cash and cash equivalents at beginning of year 2,584 482
Cash and cash equivalents at end of period $ 1,957 $ 1,822
Supplemental Cash Flow Information:
Interest paid - net of amount capitalized $ 3,984 $ 2,928
Income taxes paid $ 6,728 $18,862
-3-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The accompanying condensed 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. In all regards, the
financial statements have been presented in accordance with
generally accepted accounting principles. Refer to notes to
the financial statements which appear in the Annual Report on
Form 10-K for the year ended December 31, 1997, for the
company's accounting policies which are pertinent to these
statements.
Note 2. On December 17, 1997, Wausau Paper Mills Company ("Wausau")
completed a merger with Mosinee Paper Corporation ("Mosinee")
in which Mosinee became a wholly-owned subsidiary of Wausau.
Simultaneous with the consummation of the merger, Wausau
changed its name to Wausau-Mosinee Paper Corporation ("the
company"). Wausau issued 1.4 shares of common stock for each
share of Mosinee outstanding common stock. A total of
21,281,795 shares of the company's common stock were issued as
a result of the merger (after adjustment for fractional shares).
The merger qualified as a tax-free exchange and was accounted
for as a pooling of interests. Accordingly, all prior period
financial statements presented have been restated to include
the financial position, results of operations, and cash flows
for Wausau and Mosinee combined. Prior to the merger, Wausau's
fiscal year-end was August 31 and Mosinee's was December 31.
Subsequent to the merger, the company adopted a calendar
year-end.
Note 3. In connection with the merger, the company has implemented a
plan to reduce its work force by over 8%. An after-tax expense
of $23.4 million ($37.7 million pretax) or $0.40 per share was
recorded in the first quarter 1998 to cover the cost of this
work force reduction initiative as well as smaller amounts
for other merger related costs.
Note 4. Selling, administrative and research expenses include expenses
for stock-based incentive plans calculated by using the average
price of the company's stock at the close of the reporting
period as if all grants under such plans had been exercised on
that day. For the three months ended June 30, 1998, these
plans resulted in after-tax income of $877,000 or $0.02 per
share, compared to an after-tax expense of $263,000 or less
than $0.01 per share for the same period last year.
Year-to-date, 1998, these plans resulted in after-tax expense
of $1,267,000 or $0.02 per share, compared to after-tax
expense of $2,000 for the same period of 1997.
Note 5. Accounts receivable consisted of the following:
($ in thousands) June 30, December 31,
1998 1997
Customer Accounts $82,815 $74,482
Misc. Notes and Accounts Receivable 6,153 931
88,968 78,413
Less: Allowances for Discounts,
Doubtful Accounts and Pending Credits 7,879 8,739
Receivables, Net $81,089 $69,674
-4-
Note 6. The various components of inventories were as follows:
($ in thousands) June 30, December 31,
1998 1997
Raw Materials and Supplies $ 76,879 $ 87,504
Finished Goods and Work in Process 75,070 76,260
Subtotal 151,949 163,764
Less: LIFO Reserve (18,937) (20,154)
Net inventories $133,012 $ 143,610
Note 7. The accumulated depreciation on fixed assets was $408,482,000
as of June 30, 1998, and $385,679,000 as of December 31, 1997.
Note 8. Earnings per share gives effect to applicable preferred stock
dividends. The Sorg Paper Company preferred stock dividends
in arrears for the six months ended June 30, 1998 and 1997
were $34,518.
Earnings per share amounts prior to 1998 have been restated
as required to comply with Statement of Financial Accounting
Standards No. 128, Earnings Per Share.
Note 9. A summary of long-term debt excluding current maturities is as
follows:
($ in thousands) June 30, December 31,
1998 1997
Bonds, Mortgages and Similar Debt $ 117,403 $ 140,449
Capitalized Leases 0 51
Total Long-Term Debt $ 117,403 $ 140,500
Note 10. Dividends declared per share were as follows:
Three Months Ending Six Months Ending
June 30, June 30, June 30, June 30,
1998* 1997 1998* 1997
$.14 $0.0625 $.14 $.125
<FN>
*Due to the change in fiscal year from an August 31 year-end to
a December 31 year-end, no dividend was declared in the first quarter
of 1998, and two quarterly dividends were declared in the second quarter
of 1998.
Note 11. Certain legal proceedings are described under Part II, Item
1 of this report.
-5-
Note 12. Interim Segment Information:
The company will adopt Statement of Financial Accounting Standards No.
131 "Disclosures about Segments of an Enterprise and Related
Information" for the year ended December 31, 1998, as required. The
company has elected to disclose certain interim period segment
information beginning with the 1998 second quarter report.
Wausau-Mosinee Paper Corporation is organized into three operating groups
and a corporate staff. The Specialty Papers Group produces specialty
papers at its manufacturing facilities in Rhinelander, Wisconsin;
Mosinee, Wisconsin; Jay, Maine; and Middletown, Ohio. The Printing and
Writing Group produces a broad line of premium printing and writing
grades at manufacturing facilities in Brokaw, Wisconsin and Groveton,
New Hampshire. The Printing and Writing Group also includes two
converting facilities which produce wax-laminated roll wrap and related
specialty finishing and packaging products and a converting facility
which produces school papers. The Towel and Tissue Group manufactures
a complete line of towel, tissue, soap and dispensing systems for
the "away-from-home" market. The Towel and Tissue Group operates a paper
mill in Middletown, Ohio and a converting facility in Harrodsburg,
Kentucky.
Sales, operating profit, and asset information by segment is as follows:
(In thousands-unaudited) June 30, December 31,
1998 1997
Segment Assets
Specialty Paper $ 356,466 $ 366,489
Printing & Writing 309,650 304,102
Towel & Tissue 171,648 166,146
Corporate & Unallocated* 42,944 35,327
$ 880,708 $ 872,064
<FN>
* Segment assets do not include intersegment accounts receivable, cash,
deferred tax assets and certain other assets which are not identifiable
with industry segments.
Three Months Six Months
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
Net Sales External Customers
Specialty Papers $ 107,538 $ 102,103 $ 220,488 $ 196,385
Printing & Writing 96,387 99,225 189,110 186,852
Towel & Tissue 39,711 33,153 71,698 63,136
$ 243,636 $ 234,481 $ 481,296 $ 446,373
Net Sales - Intersegment
Specialty Papers $ 3,929 $ 2,649 $ 7,667 $ 3,926
Printing & Writing 372 134 770 344
Towel & Tissue 20 45 64 70
$ 4,321 $ 2,828 $ 8,501 $ 4,340
-6-
Three Months Six Months
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
Operating Profit
Specialty Papers $ 15,743 $ 15,083 $ 29,539 $ 30,442
Printing & Writing 12,768 16,471 26,014 31,208
Towel & Tissue 7,709 8,398 14,231 15,676
Total Reportable Segment
Operating Profit 36,220 39,952 69,784 77,326
Corporate & Eliminations (1,211) (3,660) (8,453) (7,093)
Restructuring Charge (37,700)
Interest Expense (1,824) (2,217) (3,870) (3,856)
Other Income/Expense 169 78 305 242
Earnings Before
Income Taxes $ 33,354 $ 34,153 $ 20,066 $ 66,619
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS*
On December 17, 1997, Wausau Paper Mills Company ("Wausau") completed
a merger with Mosinee Paper Corporation ("Mosinee") in which Mosinee
became a wholly-owned subsidiary of Wausau. Simultaneous with the
consummation of the merger, Wausau changed its name to Wausau-Mosinee
Paper Corporation (the "company"). The merger qualified as a tax-free
exchange and was accounted for as a pooling of interests. Prior to the
merger, Wausau's fiscal year-end was August 31 and Mosinee's was December
31. Subsequent to the merger, the company adopted a calendar year-end.
The company's 1997 financial statements have been recast to a
twelve-month period ending December 31, 1997. All financial statements
presented, Management's Discussion and Analysis of Financial Condition
and Results of Operations, and all other sections of this report on Form
10-Q are presented for the combined operations of Wausau and Mosinee as
if the merger had occurred at the beginning of the 1997 period presented.
RESULTS OF OPERATIONS
Net Sales
Net sales for the three months ended June 30, 1998, for the company
were a second quarter record $243.6 million, up 3.9% over sales in the
same 1997 period. Shipments for the period were also a record for the
second quarter at 212,900 tons, an increase of 4.1% over second quarter
1997 shipments. Selling prices for many of the company's product lines
declined from both year ago levels and from the first quarter of 1998.
A change in overall company-wide mix to more towel and tissue volume and
less printing and writing shipments kept average revenue per ton
realization essentially unchanged from year ago levels despite the
pricing pressures on many of the company's products. For the first six
months of 1998, net sales totalled $481.3 million, up 7.8% from the first
half of 1997. Year-to-date shipments were 418,900 tons, 10.2% higher
than shipments for the same 1997 period. 1998 shipments and sales
benefited from the addition of B & J Supply and Otis Specialty Products,
which were acquired in April and May of 1997, respectively.
Second quarter 1998 net sales for the Printing and Writing Group were
$96.4 million, down 2.9% from the same 1997 period. Shipments also
declined compared to a year ago as market pricing for commodity type
products was very low and the company chose to pursue minimal commodity
business. Competitive pressures caused lower selling prices compared to
a year ago for most of the printing and writing product lines. Printing
and Writing sales for the first six months were $189.1 million, 1.2%
higher than sales for the first half of 1997, due principally to
acquiring B & J Supply on April 1, 1997.
Net sales for the Specialty Paper Group for the three months ended
June 30, 1998 were a second quarter record of $107.5 million, an
increase of 5.3% over second quarter 1997 sales performance. Specialty
Paper shipments were 8.4% higher than a year ago but selling prices were
lower due to competitive pricing in the pressure sensitive products and
weaker market conditions for decorative laminate grades. For the first
six months of 1998, Specialty Paper Group sales were $220.5 million, up
12.3% over the same period a year ago on shipment volume improvement of
17.0%. Specialty Paper Group sales and shipment 1998 comparisons were
aided by the acquisition of Otis Specialty Papers in mid-May of 1997.
* Matters discussed in this report with respect to the company's
expectations are forward-looking statements that involve risks and
uncertainties. Reference Part II, Item 5. - Cautionary Statement
Regarding Forward-Looking Information.
-8-
Net sales for the Towel and Tissue Group for the quarter ended June 30,
1998 were $39.7 million, an improvement of 19.8% over second quarter,
1997 sales. Shipments increased 22.4% for the period but competitive
conditions in the "away from home" towel and tissue markets caused
average selling prices to decline from year ago levels. Towel and Tissue
Group sales for the first six months of 1998 were $71.7 million, up 13.6%
over the same period in 1997. Shipments improved 17.3% compared to the
first half of 1997.
Order backlog at June 30, 1998 was 8% lower than at June 30, 1997 due to
weak business conditions in the Printing and Writing and several of the
Special Paper markets. Towel and Tissue Group backlogs were higher,
reflecting the volume growth experienced in the past year. The company
believes backlog totals do not indicate entirely the strength of its
business, given that a substantial percentage of orders are shipped out
of inventory promptly upon order receipt.
Gross Profit
Gross profit for the three months ended June 30, 1998 was $48.7 million
or 20.0% of net sales, compared to gross profit for the same period of
1997 of $52.0 million or 22.2% of net sales. The decline in gross
profit margin from 1997 is due primarily to lower selling prices for
the company's products due to competitive market pressures. Pulp,
pulpwood and wastepaper raw material prices were also slightly higher
than a year ago. Prices for pulp edged higher in June but the company
expects pulp prices to ease in the third quarter due to slowing
world-wide demand for pulp. Lower raw material costs from the pulp price
declines are expected to help offset continued pricing pressures for the
company's paper products.
The company's paper mills operated slightly below capacity during
the second quarter of 1998. The Rhinelander and Otis mill scheduled
minor downtime on individual paper machines due to market weakness
while the Groveton mill needed the equivalent of five days mill-wide to
install capital improvements. Paper production was 8% higher than
second quarter, 1997 due to the acquisition of Otis Specialty Papers
in May of last year and strong production gains in towel and tissue
products to support the higher demand. Paper inventory quantities at
June 30, 1998 were 5% lower than a year ago.
Selling and Administrative Expenses
Selling and administrative expenses for the three months ended
June 30, 1998 were $13.7 million compared to expenses of $15.8 million
in the same period in 1997. Adjustments for incentive compensation
programs based on the market price of the company's stock accounted for
$1.8 million of the year over year variance as an income adjustment of
$1.4 million was recorded for the current quarter compared to expense of
$.4 million in the second quarter of 1997. The balance of the expense
reduction is related to overhead cost reductions resulting from the
merger.
For the six months ended June 30, 1998, selling and
administrative expenses, excluding a restructuring charge discussed
below, were $33.7 million compared to expenses of $30.4 million in
the first half of 1997. Expenses for stock incentive programs were $2.1
million in 1998 compared to essentially none for the first six months
of 1997. The balance of the increase is due principally to the
addition of B & J Supply and Otis Specialty Papers in the second quarter
of 1997.
-9-
Restructuring Charge
In March 1998, the company announced and began implementation of
a workforce reduction program, which is expected to reduce
company-wide employment by over 8%. The job reductions will take place
throughout 1998 and 1999 primarily through early retirement incentives
along with voluntary separation arrangements and involuntary severance
programs. Upon completion of the program, and several capital projects,
the company expects to realize $23 million annually in labor cost
savings. As a result, the company recorded a one-time pre-tax
restructuring charge of $37.7 million ($23.4 million after-tax) in the
first quarter of 1998 to cover the cost of the workforce reduction
program as well as other costs related to the merger.
Merger related cost reduction activities are proceeding on plan.
Participation in the voluntary early retirement program initiated by the
company in March is high and as a result, a majority of the intended job
reduction will be accomplished without layoffs. Company-wide cost
savings from the workforce reduction program and other merger related
cost reduction activities are projected to reach $30 million annually,
significantly greater than the $19 million in savings originally
estimated.
Interest Expenses and Other Income/Expense
For the quarter ended June 30, 1998, interest expense was $1.8
million, compared to $2.2 million in the second quarter of 1997. The
decline in interest expense is due to lower average debt levels during
the quarter compared to the prior year. Capitalized interest was
$.1 million in both the second quarter of 1998 and second quarter 1997.
Other income, including interest income, was $.2 million in the current
quarter compared to $.1 million in the second quarter of 1997, with
higher interest income accounting for the difference.
Income Taxes
The income tax provision for the three months ended June 30, 1998 was
$12.6 million for an effective tax rate of 37.6%. This compares to a
tax provision of $12.8 million in the quarter ended June 30, 1997 which
was an effective tax rate of 37.5% for the first six months of 1998, an
income tax provision of $7.5 million was recorded for an effective tax
rate of 37.4%. The tax provision for the first half of 1997 was $25.3
million or 38.0%.
Net Earnings
Net earnings for the quarter ended June 30, 1998 were $20.8 million or
$.36 per share compared to net earnings of $21.3 million or $.37 per
share in the same period in 1997. For the first half of 1998, net
earnings totalled $12.6 million or $.22 per share including an after-tax
restructuring charge of $24.4 million ($37.7 million pre-tax) or $.40
per share. Net earnings for the first six months of 1997 were $41.3
million or $.71 per share.
-10-
CAPITAL RESOURCES AND LIQUIDITY
Cash Provided by Operations
For the six months ended June 30, 1998, cash provided by operations
was $62.2 million, compared to $43.1 million for the same period of
1997. The increase in cash provided by operations is primarily the
result of a reduction in inventory and a smaller increase in accounts
receivable compared to a year ago.
Capital Expenditures
Capital expenditures totaled $32.2 million for the six months ended
June 30, 1998, compared to $30.5 million for the same period last year.
During the first six months of 1998, the Groveton mill upgraded the stock
blending system for better efficiency, faster and continuous furnish,
less broke and a reduction in the usage of higher cost fiber.
Work was completed on several other major capital projects throughout the
company. At the Bay West converting plant, a building and warehouse
expansion project was completed which increases the operating plant and
warehouse space by 268,000 square feet. Also at Bay West, capital
investment continues for additional towel and tissue converting equipment
to keep pace with increasing sales volume. At the Mosinee mill, a wet
lap machine was installed to improve paper machine scheduling and
flexibility. The #1 paper machines at Mosinee, Sorg and Bay West paper
mills are in the process of rebuilds to increase production capacity at
each of the locations.
During the first six months of 1998, the Board of Directors approved $25
million in capital improvements at the company's Otis mill to expand the
production capacity of both paper machines and add significant new
manufacturing capabilities for one of the machines which will give the
Specialty Paper Group improved profitability of their sales mix. This
project is expected to be completed in the first quarter of 1999. The
Board also approved $4 million for a new toweling line at the Bay West
converting plant to be completed in 1999 for added capacity to meet the
expected increases in sales and distribution.
Total capital expenditures are projected to be less than $80 million in
1998, down from the company's original estimates. This decrease is not
the result of changes in capital strategies, but merely reflects
refinement of earlier estimates and timetables.
Financing
Long-term debt decreased $23 million in the six months ended June 30,
1998 to $117.4 million. Long-term debt at June 30, 1998 consisted of $54
million outstanding under the company's revolving credit facility, with
interest rates between 5.9% and 6.0%. In addition, the company had $6
million in notes to Prudential Insurance Company of America and its
subsidiaries, at a fixed rate of 6.03%, a $20 million loan agreement with
a bank, with a fixed rate of 7.83%, and $19 million in variable rate
development bonds, with an interest rate of 3.8% at the end of June.
There was also $18.4 million in commercial paper outstanding at June 30,
1998, at interest rates between 5.70% and 5.738%.
-11-
The company maintains a $105 million revolving credit facility with
four banks. Cash provided by operations and the revolving credit
facility are expected to meet current and anticipated working capital
needs and dividend requirements, as well as fund the company's planned
capital expenditures. The company believes additional financing is
readily available, should it be needed, to fund a major expansion or
acquisition.
Common Stock Repurchase
On June 30, 1994, the company's Board of Directors authorized the
repurchase of up to 1,856,250 shares (adjusted for subsequent stock
dividends or splits) of the company's common stock from time to time in
the open market or through privately negotiated transactions at
prevailing market prices. This authorization was modified by the Board
in December 1997 to the extent required to satisfy stock repurchase
authorization limits applicable as a result of the merger with Mosinee,
which was accounted for as a pooling of interests. As of June 30, 1998,
the company may repurchase approximately 1,150,000 shares under this
modified authorization. The company repurchased 37,700 shares of the
company's common stock during the six month period ended June 30, 1998.
In July, 1998 the company repurchased an additional 474,600 shares.
Dividends
Since the company has changed from a fiscal year ending in August to a
calendar year reporting basis, no dividend declaration was made in the
first quarter. The dividend declared in December 1997, of $.0625 per
share was paid January 15, 1998 to shareholders of record as of
January 5, 1998. At the April 16, 1998 meeting, the Board of Directors
approved a 12% increase in the cash dividend. The quarterly cash
dividend of $.07 per share was paid May 15, 1998 to stockholders of
record as of May 1, 1998. On June 18, 1998 the Board of Directors
declared a quarterly cash dividend of $.07 payable August 17, 1998 to
shareholders of record on August 3, 1998.
-12-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 13, 1997, the Attorney General of the State of Florida filed a
civil complaint in the United States District Court for the Northern
District of Florida against ten manufacturers of commercial sanitary
paper products, including the company's wholly owned subsidiary, Bay
West Paper Corporation. The suit alleges a conspiracy to fix prices of
commercial sanitary paper products starting at least as early as 1993.
Since the filing of this suit, numerous class action suits have been
filed by direct purchasers of commercial sanitary paper products in
various federal district courts throughout the country. All of these
federal cases have been consolidated in a multi-district litigation
proceeding in the United States District Court for the Northern District
of Florida in Gainesville. In addition, class actions have been
commenced by indirect purchasers of sanitary commercial paper products
in various state courts alleging a conspiracy to fix prices under state
anti-trust laws. All of these actions are in their early stages. The
company does not believe that it has violated any antitrust laws and it
is vigorously defending these claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the company was held on June
18, 1998.
The matters voted upon, including the number of votes cast for,
against or withheld, as well as the number of abstentions and broker
non-votes, as to each such matter were as follows:
MATTER SHARES VOTED
Broker
FOR AGAINST WITHHELD ABSTAIN NON-VOTE
1. Election of Class I
Directors
(a) Walter Alexander 51,514,477 N/A 248,734 N/A 0
2. Election of Class II
Directors
(a) Harry R. Baker 51,498,181 N/A 265,030 N/A 0
(b) Richard G. Jacobus 51,513,829 N/A 249,382 N/A 0
(c) Richard L. Radt 51,470,426 N/A 292,785 N/A 0
3. Election of Class III
Directors
(a) Daniel R. Olvey 51,537,194 N/A 226,017 N/A 0
4. Approval of the 1998 48,659,775 1,965,556 N/A 1,137,880 0
Stock Appreciation
Rights Plan
5. Approval of the 51,480,803 63,633 N/A 216,775 0
appointment
of Wipfli Ullrich
Bertelson LLP as
independent auditors for the
year ending December 31, 1998
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ITEM 5. OTHER INFORMATION
YEAR 2000
THE YEAR 2000 PROBLEM
Wausau-Mosinee Paper Corporation, like most companies today, is
heavily dependent upon computer technology to effectively carry out
its day-to-day operations. In addition, the company is dependent on
suppliers and customers who also use computer technology in the
conduct of their business. For purposes of this discussion, the
terms "Year 2000 issues" or "Year 2000 problems", or words of similar
import, refer to the potential for failure of computer applications
as a result of the failure of a program to properly recognize the
year 2000 and to properly handle dates beyond the year 1999. Such
computer applications involve, in the case of the company,
manufacturing process controllers, environmental systems, order
processing, inventory management and the shipment of finished goods,
and internal financial and other information systems, among others.
READINESS
The company's assessment of the possible consequences of Year 2000
issues on the company's business, results of operations, or financial
condition is not complete, but is continuing in accordance with the
company's Year 2000 compliance plan (the "Year 2000 Plan"). The Year
2000 Plan was substantially revised following the merger with Mosinee
Paper Corporation in connection with the integration of Mosinee's
information systems and the evaluation of Mosinee's Year 2000 status.
The company's Year 2000 Plan includes (1) upgrading its information
technology software and all software and embedded technology
applications in its manufacturing and environmental controls
equipment and systems to become Year 2000 compliant, (2) assessing
the Year 2000 readiness of suppliers and customers, and (3)
developing contingency plans, if practical, for critical systems and
processes. Implementation of the Year 2000 Plan has been undertaken
at the company's various facilities and with respect to various
operating or informational systems in varying degrees to date. The
Year 2000 Plan is expected to be fully implemented at all locations
and with respect to all critical information systems in 1999.
The Company has begun to implement a company-wide enterprise resource
planning system (ERP) purchased from a leading provider of this type
of software. The ERP system is being implemented to improve information
and efficiencies, standardize business practices, and reduce costs
rather than to specifically address Year 2000 problems. The ERP system
will, however, also assist the company in obtaining Year 2000
compliance. Year 2000 issues will also be addressed by reprogramming
existing systems, replacing or upgrading hardware or software packages,
or developing alternative measures eliminating the date as a critical
part of the function. A few noncompliant systems exist for which
alternative solutions are still being evaluated, but these systems are
not critical to the day-to-day operations of the company's business.
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The Year 2000 problem extends beyond the company's own information
and process control systems. Because the company is dependent on its
suppliers and customers to successfully and profitably operate its
business, the Year 2000 Plan includes an assessment process which
seeks to contact those vendors or customers deemed most critical to
the operations and business of the company. To date, the company's
efforts have concentrated on contacting vendors whose products or
services are critical to the manufacturing and operational systems of
the company. This process will continue with respect to all of such
vendors. The initial steps of a selected analysis of the company's
significant customers to determine the possible effect of Year 2000
problems on these customers is expected to begin in the fourth quarter
of 1998 and to be substantially completed in mid-1999. The Year 2000
Plan requires continued analysis throughout 1999 in such areas.
COSTS
A substantial amount of the work done on the Year 2000 Plan to date
has been accomplished with internal staff or as part of projects
implemented for business reasons other than Year 2000 concerns. The
costs of achieving Year 2000 compliance have not been material to
date and are not expected to be material. The implementation of the
company-wide ERP system is expected to require a capital investment
of approximately $5.5 million. Although the ERP implementation
timetable was not accelerated to address Year 2000 issues, Year 2000
issues were considered in determining the overall timetable for the
ERP implementation.
RISKS
The company expects no material adverse effect on its results of
operations, liquidity, or financial condition as a result of problems
encountered in its own business as a result of Year 2000 issues or as
a result of the impact of Year 2000 problems on its customers or vendors.
However, the risks to the company associated with Year 2000 issues are
many. While the company is undertaking its own evaluation and testing
of its information technology and non-information technology systems,
it is, like most companies, dependent to some extent on the assurances
and guidance provided by the suppliers of the technology as to its Year
2000 compliance readiness.
Similarly, the company's Year 2000 Plan provides for an ongoing analysis
of the effect of the Year 2000 problem on the company's suppliers of raw
materials and non-information technology services, as well as the
anticipated effect of Year 2000 issues on its customers and the demand
for its products. The company has limited ability to independently
verify the possible effect of Year 2000 problems on its customers and
vendors. Therefore, the company's assumptions concerning the effect of
Year 2000 issues on its results of operations, liquidity, and financial
condition relies, in part, on its ability to analyze the business and
operations of each of its critical vendors or customers. This process
is, by the nature of the problem, limited to such persons' public
statements, their responses to the company's inquiries, and the
information available to the company from third parties concerning the
industries or particular vendors or customers involved. The company
believes, however, that Year 2000 problems which cause customers to be
unable to place orders would have a material impact only if the problem
was widespread and long-lived. The company believes it is likely that
these problems would be temporary or that alternative processes could be
implemented by the affected customers to prevent the Year 2000 problem
from interrupting business transactions with the company for a long
period of time. The company has a broad customer base which also would
alleviate the adverse effects of isolated customer Year 2000 problems.
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Some risk also exists that despite the company's best efforts, critical
manufacturing systems may malfunction due to Year 2000 problems and
curtail the manufacturing process. The company does not anticipate
such interruptions and it is unlikely that any such curtailment would be
lengthy. With eleven manufacturing facilities, a temporary interruption
at one facility is unlikely to have a material adverse impact on the
company's business or profitability.
Interruptions of communication services or power supply due to year
2000 problems can cause the affected location to cease or curtail
production or receipt and shipment of orders. While the company believes
the risk of such curtailment to be small, the company is dependent on the
suppliers of power and communication services that no interruption take
place. Interruption of raw material supply due to supplier problems
caused by Year 2000 issues are unlikely to be material as the company
stocks raw materials to protect against supply problems and alternative
sources of supply exist to obtain the raw materials.
CONTINGENCY PLANS
As part of its Year 2000 Plan, the company continues to identify and
evaluate risks and possible alternatives should various contingencies
arise. The company believes that the most critical information systems,
primarily the sales order processing, inventory and shipping systems are
already Year 2000 compliant or, if not, such systems have been given
first priority to be made year 2000 compliant.
The company will continue to analyze and develop contingency plans where
possible and not cost prohibitive. Certain risks, such as the supply of
raw materials can and will be addressed as other sources of supply are
likely to be available. To a more limited extent, the company may not be
able to develop effective contingency plans. For example, the company
may not be able to develop satisfactory alternatives for communication
services or the supply of power.
SHAREHOLDER PROPOSALS AND DISCRETIONARY VOTING
Pursuant to the company's bylaws, shareholders entitled to vote at
the annual meeting of shareholders to be held in 1999 (the "1999 Annual
Meeting") may bring business before the 1999 Annual Meeting for
consideration only if proper notice of the proposed business has been
provided to the Secretary of the company not earlier than January 15,
1999, and not later than February 14, 1999. Notice of any proposed
nomination of a director from the floor at the 1999 Annual Meeting must
also be provided to the Secretary of the company not earlier than January
15, 1999, and not later than February 14, 1999. The precise
requirements, including the information required to be provided in the
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shareholder notice of business or with respect to a proposed nominee for
director, and the procedures for notice in the event the date of the 1999
Annual Meeting is changed, are set forth in the company's bylaws which
may be obtained from the Secretary of the company.
If any shareholder desires to submit a proposal for inclusion in the
proxy statement to be used in connection with the 1999 Annual Meeting,
the proposal must be in proper form and be received by the company no
later than November 17, 1998.
The proxy solicited by the Board of Directors in connection with the
1999 Annual Meeting will provide that the proxy will confer discretionary
voting authority as to any matter proposed by a shareholder at the 1999
Annual Meeting if the Secretary of the company does not receive notice of
such proposal within the time limits specified for notice of nomination
of directors or the presentation of business by shareholders at the 1999
Annual Meeting; that is, not earlier than January 15, 1999, and not later
than February 14, 1999.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Form 10-Q, each of the company's annual reports to shareholders,
Forms 10-K, 8-K, and 10-Q, proxy statements, prospectuses, and any other
written or oral statement made by or on behalf of the company subsequent
to the filing of this Form 10-Q may include one or more "forward-looking
statements" within the meaning of sections 27A of the Securities Act of
1933 and 21E of the Securities Exchange Act of 1934 as enacted in the
Private Securities Litigation Reform Act of 1995 (the "Reform Act").
Forward-looking statements of the company may be identified by, among
other things, expressions of the company's or company officers'
beliefs or expectations that certain events may occur or are anticipated,
and projections or statements of expectations with respect to (i) any
aspects of the company's business (including, but not limited to, net
income, the availability or price of raw materials, or customer demand
for company products), (ii) the company's plans or intentions, (iii)
the company's stock performance, (iv) the industries within which the
company operates, (v) the economy, and (vi) any other expressions of
similar import or covering other matters relating to the company or its
operations. In making forward-looking statements within the meaning of
the Reform Act, the company undertakes no obligation to publicly update
or revise any such statement.
Forward-looking statements are not guarantees of performance.
Forward-looking statements of the company are based on information
available to the company as of the date of such statements and reflect
the company's expectations as of such date, but are subject to risks and
uncertainties that may cause actual results to vary materially. Many
of the factors that will determine these results are beyond the
company's ability to control or predict. Shareholders are cautioned not
to put undue reliance on any forward-looking statements. For those
statements, the company claims the protection of the safe harbor for
forward-looking statements contained in the Reform Act.
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In addition to specific factors which may be described in connection
with any of the company's forward-looking statements, factors which
could cause actual results to differ materially include, but are not
limited to, the following:
<bullet> Increased competition from either domestic or foreign paper
producers or providers of alternatives to the company's
products, including increases in competitive production
capacity resulting in sales declines from reduced shipment
volume and /or lower net selling prices in order to maintain
shipment volume.
<bullet> Changes in customer demand for the company's products due to
overall economic activity affecting the rate of consumption of
the company's paper products, growth rates of the end markets
for the company's products, technological or consumer
preference changes or acceptance of the products by the
markets served by the company.
<bullet> Changes in the price of raw materials, principally pulp,
wastepaper and linerboard. A substantial portion of the
company's raw materials, including approximately two-thirds
of the company's pulp needs, are purchased on the open market
and price changes could have a significant impact on the
company's costs. Fiber represents a substantial portion of
the cost of making paper and significant price increases for
fiber could materially affect the company's financial
condition. Raw material prices will change based on supply
and demand on a worldwide spectrum. Pulp price changes can
occur due to worldwide consumption levels of pulp, pulp
capacity additions, expansions or curtailments of the supply
of pulp, inventory building or depletion at pulp consumer
levels which affect short-term demand, and pulp producer cost
changes related to wood availability, environmental issues,
or other variables.
<bullet> Unforseen operational problems at any of the company's
facilities causing significant lost production and/or
cost increases.
<bullet> Significant changes to the company's strategic plans
such as a major acquisition or expansion, or failure to
successfully execute major capital projects or other
strategic plans or to successfully integrate an
acquisition.
<bullet> Unforseen business interruptions or operational failures as a
result of unanticipated Year 2000 compliance problems
encountered by the company, its vendors, or customers.
<bullet> Changes in laws or regulations which affect the company. The
paper industry is subject to stringent environmental laws and
regulations and any changes required to comply with such laws
or regulations may increase the company's capital expenditures
and operating costs.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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:
Incorporated
EXHIBIT <dagger>
3.1 Restated Articles of Incorporation, as amended
December 17, 1997 .....................4.1{(2)}
3.2 Restated Bylaws, as amended December 17, 1997 4.2{(2)}
4.1 Articles and Bylaws (see Exhibits 3.1 and 3.2)
10.1 Wausau-Mosinee Supplemental Retirement Plan
as amended April 16, 1998 ...........10.1{(11)}
10.2 Incentive Compensation Plans, as amended
September 17, 1997 (Printing and Writing Division
and Technical Specialty Division)* ..10.2{(3)}
10.3 Corporate Management Incentive Plan, as amended
September 18, 1996* .................10(c){(4)}
10.4 1988 Stock Appreciation Rights Plan, as amended
April 17, 1991* .....................10(d){(4)}
10.5 1988 Management Incentive Plan, as amended
April 17, 1991* .....................10(e){(4)}
10.6 1990 Stock Appreciation Rights Plan, as amended
April 17, 1991* .....................10(f){(4)}
10.7 Deferred Compensation Agreement dated March 2, 1990,
as amended July 1, 1994* ............10(h){(5)}
10.8 1991 Employee Stock Option Plan* .....10.8{(6)}
10.9 1991 Dividend Equivalent Plan* ......10(i){(7)}
10.10 Supplemental Retirement Benefit Plan dated
January 16, 1992, as amended November 13, 1995* ..10{(8)}
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10.11 Directors' Deferred Compensation Plan, as amended
February 19, 1998* .................10.11{(11)}
10.12 Directors Retirement Benefit Policy, as amended
April 16, 1998* ....................10.12{(11)}
10.13 Transition Benefit Agreement with President and
CEO* ...............................10.13{(6)}
10.14 Mosinee Paper Corporation 1985 Executive Stock Option
Plan, as amended August 24, 1997* ..10.14{(10)}
10.15 Mosinee Paper Corporation 1988 Stock
Appreciation Rights Plan, as amended 4/18/91* 10.15{(10)}
10.16 Mosinee Paper Corporation 1996 and 1997
Incentive Compensation Plan for Corporate
Executive Officers* ................10.16{(10)}
10.17 Mosinee Paper Corporation Supplemental
Retirement Benefit Plan dated October 17, 1991,
as amended August 24, 1997* ........10.17{(10)}
10.18 Mosinee Paper Corporation Supplemental
Retirement Benefit Agreement
dated November 15, 1991* ...........10.18{(10)}
10.19 Mosinee Paper Corporation
1994 Executive Stock Option Plan,
as amended August 24, 1997* ........10.19{(10)}
10.20 Incentive Compensation Plan
for Executive Officers (1998) * ....10.20{(11)}
27.1 Financial Data Schedule
27.2 Financial Data Schedule (restated)
99.1 Subsidiaries as of December 31, 1997 99.1{(10)}
*Executive compensation plans or arrangements.
<dagger> Where exhibit has been previously filed and incorporated herein
by reference, exhibit numbers set forth herein correspond
to the exhibit number of such exhibit in the following reports
of the registrant (Commission File No. 0-7574) filed with the
Securities and Exchange Commission.
(1) Current report on Form 8-K dated August 24, 1997.
(2) Registration Statement on Form S-8 dated December 17, 1997.
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(3) Quarterly report Form 10-Q for the quarterly period ended November
30, 1997.
(4) Annual report on Form 10-K for the fiscal year ended August 31,
1996.
(5) Annual report on Form 10-K for the fiscal year ended August 31,
1994.
(6) Annual report on Form 10-K for the fiscal year ended August 31,
1997.
(7) Quarterly report on Form 10-Q for the quarterly period ended
November 30, 1996.
(8) Quarterly report on Form 10-Q for the quarterly period ended
November 30, 1995.
(9) Annual report on Form 10-K for the fiscal year ended August 31,
1993.
(10) Transition report on Form 10-Q for the transition period ended
December 31, 1997.
(11) Quarterly report on Form 10-Q for the quarterly period ended March
31, 1998.
(b)Reports on Form 8-K:
None
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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.
WAUSAU-MOSINEE PAPER
CORPORATION
August 13, 1998 GARY P. PETERSON
Gary P. Peterson
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant
and as Principal Financial
Officer)
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EXHIBIT INDEX
TO
FORM 10-Q
OF
WAUSAU-MOSINEE PAPER CORPORATION
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. <section>232.102(d))
EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
EXHIBIT 27.2 FINANCIAL DATA SCHEDULE (RESTATED)
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