UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] 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 0-7475
WAUSAU-MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
1244 KRONENWETTER DRIVE WISCONSIN
MOSINEE, WISCONSIN 54455 (State of incorporation)
(Address of principal executive office) 39-0690900
(I.R.S. Employer Identification
Number)
Registrant's telephone number, including area code: 715-693-4470
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
COMMON STOCK, NO PAR VALUE NEW YORK STOCK
EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 ___
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 the 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.
As of February 26, 1999, the aggregate market value of the common
stock shares held by non-affiliates was approximately $774,695,015.
The number of common shares outstanding at February 26, 1999 was
53,165,639.
DOCUMENTS INCORPORATED BY REFERENCE
PROXY STATEMENT FOR USE IN CONNECTION WITH 1999 ANNUAL MEETING OF
SHAREHOLDERS
(TO THE EXTENT NOTED HEREIN): PART III
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business .................................................. 1
Item 2. Properties ............................................... 12
Item 3. Legal Proceedings ........................................ 13
Item 4. Submission of Matters to a Vote of Security Holders ...... 13
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters ................................... 14
Item 6. Selected Financial Data .................................. 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................... 16
Item 7A. Quantitative and Qualitative Disclosure About Market Risk. 25
Item 8. Financial Statements and Supplementary Data ...............26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures .................... 57
PART III
Item 10. Directors and Executive Officers of the Registrant ....... 58
Item 11. Executive Compensation ................................... 58
Item 12. Security Ownership of Certain Beneficial Owners and
Management ............................................... 58
Item 13. Certain Relationships and Related Transactions ........... 58
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K .............................................. 59
-ii-
PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
The Company was incorporated in Wisconsin on June 1, 1899, under the
name of Wausau Paper Mills Company ("Wausau"). On December 17, 1997,
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 (hereinafter referred to as the
"Company").
The Company manufactures, converts, and sells paper. The Company's
principal office is located in Mosinee, Wisconsin. At December 31,
1998, the Company had approximately 3,400 employees at eleven
facilities located in six states.
On December 17, 1997, the Company adopted a fiscal year-end reporting
period of December 31. This change from the Company's August 31 fiscal
year-end was effective on December 31, 1997. The merger with Mosinee
was accounted for as a pooling-of-interests and as a result, the
financial statements for the two companies have been restated as
indicated in the footnotes which accompany the financial statements.
See Notes 1 and 2 of "Notes to Consolidated Financial Statements."
This report contains certain of management's expectations and other
forward-looking information regarding the Company. While the Company
believes that these forward-looking statements are based on reasonable
assumptions, all such statements involve risks and uncertainties that
could cause actual results to differ materially from those contemplated
in this report. The assumptions, risks and uncertainties relating to
the forward-looking statements in this report include those described
in this Form 10-K under the caption "Cautionary Statement Regarding
Forward-looking Statements" and, from time-to-time, in the Company's
other filings with the Securities and Exchange Commission.
FINANCIAL INFORMATION ABOUT SEGMENTS
Information relating to the Company's sales, a measure of operating
profit or loss, and total assets by segment is set forth in Note 16 of
"Notes to Consolidated Financial Statements."
NARRATIVE DESCRIPTION OF BUSINESS
The Company competes in different markets within the paper industry.
Each of its operating groups serves distinct market niches. The
various markets for the products of the Company are highly competitive,
with competition based on service, quality and price.
The Company's eleven operating facilities are organized into the three
operating groups described below.
-1-
SPECIALTY PAPER GROUP
The Specialty Paper Group combines the Company's Mosinee, Sorg,
Rhinelander, and Otis facilities to produce a wide variety of technical
specialty papers. The Group is a leader in many of its markets,
although market position varies by product.
The Rhinelander and Otis mills together are one of the nation's largest
manufacturers of supercalendered backing papers for pressure sensitive
labeling applications. These facilities, located at Rhinelander,
Wisconsin, and Jay, Maine, also manufacture specialty paper for a broad
range of food, medical, and industrial applications, including
protective barrier papers for pet food and microwave popcorn, and
lightweight paper for sterilized medical packaging. Products, markets
and distribution methods and principal competitors for the Rhinelander
and Otis mills can be summarized as follows:
PRINCIPAL PRODUCTS
Pressure-sensitive backing, silicone-coated release papers, grease-
resistant packaging, food service papers, sterilizable medical
packaging, and electrographic and translucent papers.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
Sold directly to converters, mainly in the U.S., for the following
industries: pressure-sensitive labeling, convenience food, food
service, pet food, medical packaging, and specialized converters.
PRINCIPAL COMPETITION
Competition comes from large integrated companies such as
International Paper, Fraser Papers, UPM-Kymmene, EB Eddy, Crown
Vantage, and SAPPI, Ltd.
The Mosinee mill in Mosinee, Wisconsin, is one of the nation's largest
producers of masking tape base and manufactures a wide range of highly
engineered paper products. These include high-performance industrial
papers chemically treated for wet strength, flame retardancy,
anti-static, corrosion or grease resistance for various industries,
such as automotive, housing, and food processing. Products, markets
and distribution methods and principal competitors for the Mosinee mill
can be summarized as follows:
PRINCIPAL PRODUCTS
Industrial crepe, masking, gumming, foil laminating,
flame-resistant, specialty metal interleaver, cable wrap, creped
tape backing, electrical insulation, pressure-sensitive backing,
water base and film coating, ink-jet printing, packaging,
saturating, and grease-resistant papers.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
Sold directly to manufacturers and converters, mainly in the U.S.,
in the following industries: housing, steel, aluminum and other
metal, masking tape and masking paper, electrical cable, wire and
components, automotive, general converters, composite can
packaging, filter, and specialty coating.
PRINCIPAL COMPETITION
Competition in several grades of paper made from the Mosinee mill's
natural kraft pulp comes from other fully-integrated, large paper
companies such as Thilmany Paper, Longview Fibre Company, and
Gilman Paper Company. Competition in grades of paper made from
market pulp comes from several non-integrated specialty paper mills
such as Little Rapids Paper Company, as well as large integrated
paper companies such as Crown Vantage.
-2-
The Sorg mill produces additional specialty grades of paper, including
decorative laminate papers, deep color tissue used in napkin and
tablecloth stock, and colored school construction paper. Products,
markets and distribution methods and principal competitors for the
Sorg mill in Middletown, Ohio, can be summarized as follows:
PRINCIPAL PRODUCTS
Deep-color and white tissue (facial quality, napkin, and
tablecloth), filter paper (vacuum bag and food cooking), decorative
laminates (print base, solid color core, alpha overlay, and
barrier), report, construction, photo background, perforating tape,
flame-resistant, blotting, soapboard/soapwrap, and saturating
papers.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
Sold directly to manufacturers and converters with limited
marketing through paper brokers and distributors mainly in the
U.S., in the following industries: housing, consumer product
packaging, home appliances, filters, printing, advertising and
promotion commercial goods, soapboard and soapwrap, saturators,
specialized industrial converters.
PRINCIPAL COMPETITION
Competition is from both non-integrated specialty mills and larger
integrated paper companies. Competitors in Sorg's major paper
grades of decorative, soapboard, saturating base and vacuum bag
include Crown Vantage, Mead Paper, Munksjo, Kimberly Clark, Dexter,
Fletcher, Monadnock, Riverside Paper Corp., Little Rapids Paper
Company, and French Paper.
PRINTING & WRITING GROUP
The Printing & Writing Group produces three lines of paper products in
five facilities.
Under the "Wausau Papers" trademark, the Group manufactures a broad
line of premium printing and writing papers, imaging papers, colored
offset papers and board grades at its mills in Brokaw, Wisconsin, and
Groveton, New Hampshire. Over 60% of the fine printing and writing
papers produced are colored papers. The Group's fine printing and
writing sales are estimated to be less than 3% of the total market.
Papers sold under the Wausau Papers label include a wide range of
virgin and recycled printing and writing papers, two-thirds of which
are colored papers, including Astrobrights<reg-trade-mark>, a 25-year
old national brand. Products, markets and distribution methods and
principal competitors for Wausau Papers can be summarized as follows:
PRINCIPAL PRODUCTS
Text and cover, index, tag and bristol, imaging, premium offset,
and envelope papers.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
More than 80% of the sales of printing and writing papers are sold
in sheet form to paper distributors which serve commercial
printers, in-plant print shops, quick printers, copy centers, and
retail office supply and home office outlets. The Group also
markets to converters that serve the greeting card and announcement
industry.
-3-
PRINCIPAL COMPETITION
Competition in printing and writing grades comes from specialty
divisions of major integrated paper companies such as International
Paper, Georgia Pacific, Champion International, Fraser Papers,
SAPPI, and smaller privately held non-integrated companies.
The Printing & Writing Group's Specialty Products facility
manufactures and sells school supply papers, craft, and retail
products. Converting facilities are operated in Appleton, Wisconsin.
Products, markets and distribution methods and principal competitors
for Wausau-Mosinee Specialty Products can be summarized as follows:
PRINCIPAL PRODUCTS
Construction, drawing, tablet, dual surface kraft, and craft
papers, tagboard, retail packaging, and flame retardant papers.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
School, arts, and craft products are sold in sheet and roll form to
stocking distributors which serve the 16,000 school districts
throughout the United States and various retail markets.
PRINCIPAL COMPETITION
Competition is primarily from privately held companies such as
school paper manufacturer Riverside Paper Corporation, several
national paper converters such as Pacon, Roselle, Bemis Jason, and
American Converting, and regional converters with niche product
lines.
The Mosinee Converted Products facilities produce wax-laminated roll
wrap and related specialty finishing and packaging products such as
custom coating, laminating and converting wrap. Converting facilities
are operating in Columbus, Wisconsin, and Jackson, Mississippi.
Products, markets and distribution methods and principal competitors
for Mosinee Converted Products are as follows:
PRINCIPAL PRODUCTS
Roll and skid wrap, roll headers, can body stock, cold seal
packaging, and fabric softener, impregnated, medium, non-woven,
and coated papers.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
Sold direct to manufacturers and converters in the U.S. in the
following markets: paper industry, industrial packaging, corrugated
containers, consumer products, and composite can manufacturers.
PRINCIPAL COMPETITION
Competition in roll wrap comes from the other wax and poly
laminators and includes Laminated Papers, Sonoco Products, Bonar
Packaging, Ltd., Fortifiber, Inc., Ludlow, Simplex, and Fiberlam,
Inc.
TOWEL & TISSUE GROUP
The Towel & Tissue Group produces a complete line of towel and tissue
products which are marketed along with soap and dispensing system
products for the industrial and commercial "away-from-home" market.
Although the Group has grown significantly, it is one of the smaller
competitors in this market.
-4-
Towel and tissue products made from recycled material and marketed
under Bay West's EcoSoft<trademark> brand name are used in the
washrooms of theme parks, hospitals, hotels, office buildings,
factories, schools, and restaurants nationwide. The Group's towel and
tissue mill is located in Middletown, Ohio and its converting facility
is located in Harrodsburg, Kentucky. Products, markets and
distribution methods and principal competitors for the Towel & Tissue
Group can be summarized as follows:
PRINCIPAL PRODUCTS
Washroom roll towels, washroom folded towels, soaps, a variety of
towel, tissue, and soap dispensers, windshield folded towels,
industrial wipes, tissue products, dairy towels, and household roll
towels.
PRINCIPAL MARKETS & DISTRIBUTION METHODS
Sold almost exclusively through sanitary maintenance suppliers and
paper distributors in the U.S. and several foreign countries for
use in the following markets: industrial and commercial washroom,
educational institutions, and the healthcare, dairy, and automotive
service industries.
PRINCIPAL COMPETITION
Competition comes from major integrated paper companies which
service consumer and food service markets as well as the industrial
and institutional markets concentrated on by Bay West. Major
competitors include Fort James Corporation, Georgia Pacific,
Kimberly Clark, and Wisconsin Tissue Mills.
EXPORT SALES
In addition to the three operating groups, Wausau-Mosinee
International, Inc. is the commissioned sales agent for the export
sales of the Company. Wausau-Mosinee International, Inc. has elected
to be treated as a FSC for federal income tax purposes. During 1998
the Company terminated its regional sales office presence in Singapore.
RAW MATERIALS
Pulp is the basic raw material for paper production. The Mosinee and
Brokaw mills produce approximately 85% and 50%, respectively, of their
own pulp needs. Timber required for operation of the Company's pulp
mills is readily available. The balance of the Company's pulp needs
(approximately 450,000 tons) is purchased on the open market,
principally from pulp mills throughout the United States and Canada.
From time to time, the Company may purchase pulp futures contracts as a
hedge against significant future increases in the market price of pulp.
Recycled, de-inked fiber with a high content of post-consumer waste is
purchased from domestic suppliers as part of the fiber requirements for
Printing & Writing's recycled products. Recycled fiber is in adequate
supply and readily obtainable.
The Towel & Tissue Group produces principally all of its de-inked fiber
needs from 100% post-consumer waste which is readily available from
domestic suppliers.
Various chemicals are used in the pulping and papermaking processes.
These industrial chemicals are all available from a number of suppliers
and are purchased at current market prices.
-5-
ENERGY
The Company's paper mills require large amounts of electrical and steam
energy which are adequately supplied by public utilities or generated
at Company operated facilities. The Company generates approximately
25% of its electrical power needs from steam, fuel oil, coal, wood
chips, fibercake, and natural gas powered generating facilities. The
Company generally purchases natural gas, coal, and fuel oil on a
contract basis at prevailing market prices. Wood chips and fibercake
are byproducts of mill operations. Some natural gas and fuel oil
purchase contracts may provide for variable prices or contain caps on
prices of natural gas to be delivered at future dates. In addition,
the Company continues to explore alternative power sources as an
ongoing business process.
In July 1996, the Company signed a natural gas transportation agreement
with the Portland Natural Gas Transmission System (PNGTS). Under the
terms of the long-term agreement, PNGTS has constructed necessary gas
supply and delivery equipment to the Groveton, New Hampshire mill
thereby assuring natural gas delivery at market rates. The Company is
progressing on schedule to begin transportation of natural gas to the
Groveton mill in the third quarter of 1999. Capital improvements,
which are estimated to cost approximately $1.5 million, will be made to
the Groveton mill's power plant to permit natural gas use. A reduction
in the mill's energy costs is expected from the use of natural gas as
an energy source instead of fuel oil.
PATENTS AND TRADEMARKS
The Company develops and files trademarks and patents, as appropriate.
Trademarks include AstroBright<reg-trade-mark>, Ecosoft
<reg-trade-mark>, Bay West<reg-trade-mark>, Dublsoft<reg-trade-mark>,
and Wave 'N Dry<reg-trade-mark>, among others. The Company considers
its trademarks and patents, in the aggregate, to be material to its
business, although the Company believes the loss of any one such mark
or patent right would not have a material adverse effect on its
business. The Company does not own or hold material licenses,
franchises or concessions.
SEASONAL NATURE OF BUSINESS
The markets for some of the grades of paper produced by the Company
tend to be somewhat seasonal. However, the marketing seasons for these
grades are not necessarily the same. Overall, the Company generally
experiences lower sales in the fourth quarter, in comparison to the
rest of the year, primarily due to downtime typically taken by its
converting customers during the holiday season and a general slowing of
business activity for many industrial users of Company products at that
time of year.
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. The
Company will occasionally carry higher than normal quantities of pulp
in anticipation of rising pulp prices.
MAJOR CUSTOMERS
Two customers accounted for approximately 9.5% and 8.0%, respectively,
of consolidated net sales during 1998. The loss of either of these
customers would have a material adverse effect on the Company's
business, but the Company believes such effect would be of relatively
short duration.
-6-
BACKLOG
The Company's order backlog at December 31, 1998 approximated 30,000
tons, or 2 weeks of operation. The backlog on such date was 10% less
than December 31, 1997.
Backlog totals do not accurately represent the strength of the
Company's business activity as a significant volume of orders are
shipped out of inventory promptly upon order receipt. This portion of
the business is not reflected in the Company's backlog totals. The
entire backlog at December 31, 1998 is expected to be shipped during
fiscal 1999.
RESEARCH AND DEVELOPMENT
Expenditures for product development were approximately $3,309,000 in
1998, $1,577,000 in 1997 and $1,381,000 in 1996.
ENVIRONMENT
The Company has a strong commitment to protecting the environment.
Like its competitors in the paper industry, the Company faces
increasing capital investments and operating costs to comply with
expanding and more stringent environmental regulations. For example,
$2.8 million was spent on an electrostatic precipitator for the #5
boiler at the Mosinee mill in 1998 and $14 million to rebuild and
expand the wastewater treatment plant at the Brokaw mill in 1997. The
Company estimates that its capital expenditures for environmental
purposes will approximate $3.5 million in 1999.
The United States Environmental Protection Agency (EPA) has promulgated
rules under the Clean Water Act and the Clean Air Act which impose new
air and water quality standards for pulp and paper mills (the "Cluster
Rules"). The definitive Cluster Rules, promulgated in April 1998,
require compliance by April 15, 2001. Another set of requirements in
the Cluster Rules must be implemented by April 15, 2006.
In response to these regulations, the Company has opted to adopt Total
Chlorine Free (TCF) technology for the pulp bleaching operations at the
Brokaw mill. This TCF technology must be in place and functioning by
April 15, 2001. In 1988, the Company installed an oxygen
delignification system which eliminated the use of elemental chlorine;
however, chlorine compounds are used in other stages of the bleaching
process at the Brokaw mill. Compliance with a TCF requirement for the
Brokaw mill will require an estimated capital expenditure of $8 to $12
million.
The Mosinee facility will be required to burn additional noncondensable
gases and treat foul condensates to comply with the Cluster
Rules. The majority of the required changes must be satisfied by April
15, 2001, while compliance with the balance of these new requirements
must be attained by April 15, 2006. The estimated capital expenditure
to comply with the Cluster Rules at the Mosinee facility is $8 million.
The costs for complying with the Cluster Rules will be spread over
1999, 2000, and 2001. Company-wide capital expenditures are estimated
to be in the range of $16-$20 million.
Compliance with the EPA's permitting process involves the consolidation
of all Company air discharge permits and is expected to involve an
additional $1 million in capital expenditures. This cost is expected
to be incurred in 1999 or 2000. Boiler upgrades in 2002 at the
Rhinelander and Mosinee facilities, required to comply with new
environmental rules, are expected to result in capital expenditures of
approximately $3 million, although the Wisconsin Paper
-7-
Council and certain Wisconsin utilities have challenged the
implementation of the new rules.
The Company believes that capital expenditures associated with
compliance with the Cluster Rules and other environmental regulations
will not have a material adverse effect on its competitive position,
consolidated financial condition, liquidity, or results of operation.
EMPLOYEES
On March 19, 1998, the Company announced and began implementation of a
workforce reduction program which was expected to reduce Company-wide
employment by over 8% from then current levels. Approximately 300
positions had been eliminated through December 31, 1998, almost all of
which were accomplished through early retirement incentives along with
voluntary separation arrangements. The Company anticipates an
additional reduction of 100 positions in connection with the program
during 1999.
The Company had approximately 3,400 employees at the end of 1998. Most
hourly mill employees are covered under collective bargaining
agreements. There were no new labor agreements negotiated during 1998.
Current labor agreements expire in 1999 through 2001 at the various
mill sites. The Company expects that new multi-year contracts will be
negotiated at prevailing industry rates. The Company considers its
relationship with its employees to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The following information relates to executive officers of the Company
as of March 19, 1999:
SAN W. ORR, JR. , 57
Chairman of the Board of the Company since 1989, Chief Executive
Officer (1994-1995), and a director since 1970. Also Advisor,
Estate of A. P. Woodson & Family, and a director of MDU Resources
Group, Inc. and Marshall & Ilsley Corporation. Previously,
Chairman of the Board (1987-1997) and director (1972-1997) of
Mosinee Paper Corporation.
RICHARD L. RADT, 67
Vice Chairman of the Board of the Company. Previously, Chairman
(1987-1988), and President and Chief Executive Officer and a
director (1977-1987) of the Company. Also Vice Chairman
(1993-1997), and President and Chief Executive Officer (1988-1993)
of Mosinee Paper Corporation.
DANIEL R. OLVEY, 50
President and Chief Executive Officer of the Company since
December, 1997. Previously, Vice President Finance, Secretary and
Treasurer (1985-1989). President and Chief Executive Officer and a
director of Mosinee Paper Corporation (1993-1997), Vice President
and Secretary and Treasurer (1989-1991), Group Vice President
(1991), and Executive Vice President and Chief Operating Officer
(1992) of Mosinee Paper Corporation.
GARY P. PETERSON, 50
Senior Vice President, Finance, Secretary and Treasurer since
December, 1997. Previously, Senior Vice President, Finance,
Secretary and Treasurer (1993-1997) and Vice President Finance
(1991-1993) of Mosinee Paper Corporation and partner, Wipfli
Ullrich Bertelson CPAs (1981-1991).
-8-
STUART R. CARLSON, 52
Senior Vice President, Specialty Paper Group. Previously, Senior
Vice President, Specialty Paper (1996-1997), and Senior Vice
President - Administration (1993-1996), and Vice President Human
Resources (1991-1993) of Mosinee Paper Corporation. Also Director
of Human Resources, Georgia Pacific, Inc (1990-1991) and Corporate
Director of Industrial Relations, Great Northern Nekoosa
Corporation (1989-1990).
THOMAS J. HOWATT, 49
Senior Vice President, Printing & Writing Group. Previously, Vice
President and General Manager, Printing & Writing Division
(1994-1997), Vice President and General Manager, Groveton
(1993-1994), Vice President Operations, Brokaw Division
(1990-1993), and prior thereto, Vice President, Administration,
Brokaw Division.
DAVID L. CANAVERA, 49
Senior Vice President, Towel & Tissue Group. Previously, Senior
Vice President, Towel & Tissue (1996-1997) of Mosinee Paper
Corporation, and Vice President and General Manager (1994-1996) and
Vice President - Resident Manager (1993-1994), Bay West Paper.
DENNIS M. URBANEK, 54
Senior Vice President, Engineering and Environmental Services.
Previously, Vice President, Engineering and Environmental Services
(1996-1997) of Mosinee Paper Corporation, Vice President and
General Manager of Mosinee's Pulp & Paper Division (1992-1996), and
Vice President and General Manager, Sorg Paper Company (1990-1992).
MICHAEL L. MCDONALD, 50
Senior Vice President, Administration since February, 1999.
Previously, Vice President, Human Resources for the Company and
Mosinee Paper Corporation (1997 to 1999) and General Manager/Vice
President Human Resources, Mead Corporation Publishing Division.
YEAR 2000
The Company has implemented a Year 2000 plan designed to address
potential Year 2000 problems. The financial impact of making the
required system modifications and replacements to remedy Year 2000
issues prior to December 31, 1999, has not been and is not expected to
be material to the Company's consolidated financial condition,
liquidity, or results of operations. The Company expects its Year 2000
issues to be satisfactorily addressed on a timely basis. However, due
to the interdependent nature of computer systems, there can be no
assurance that the systems of other entities on which the Company's
systems rely will also be timely converted or that any such failure to
convert by another entity would not have an adverse effect on the
Company's systems. See Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Year 2000."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K, 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-K 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").
-9-
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 and others 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.
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:
<circle> 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.
<circle> Changes in customer demand for the Company's products due
to overall economic activity affecting the rate of
consumption of the Company's products, growth rates of the
end markets for the Company's products, technological or
consumer preference changes, or acceptance of the
Company's products by the markets served by the Company.
<circle> Changes in the price of raw materials, in particular,
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.
<circle> Unforseen operational problems at any of the Company's
facilities causing significant lost production and/or
cost increases.
-10-
<circle> Significant changes to the Company's strategic plans such
as a major acquisition or expansion, the failure to
successfully execute major capital projects, or other
strategic plans or to successfully integrate an
acquisition.
<circle> Unforseen business interruptions or operational failures
as a result of unanticipated Year 2000 readiness problems
encountered by the Company, its vendors, or customers.
<circle> 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.
-11-
ITEM 2. PROPERTIES.
The Company's headquarters are located in Mosinee, Wisconsin.
Executive officers and corporate staff who perform corporate
accounting, financial and human resource services are located in the
corporate headquarters, as are certain operating group personnel.
The Company's operating facilities consist of the following:
Number of
Paper Practical 1998
FACILITY PRODUCT MACHINES CAPACITY*(TONS) ACTUAL (TONS)
Specialty Paper
Group
Rhinelander Paper 4 165,000 155,000
Otis Paper 2 72,000 64,000
Mosinee Paper 4 114,000 109,000
Pulp 95,000 93,800
Sorg Paper 3 40,000 37,300
Printing &
Writing Group
Wausau Papers Paper 4 177,000 174,000
(Brokaw) Pulp 94,000 85,000
Wausau Papers Paper 2 111,000 107,000
(Groveton)
Wausau-Mosinee
Specialty Paper N/A 47,000 23,000
Mosinee Laminated/
Converted Coated Papers N/A 145,000 55,000
Products
Towel&Tissue
Group
Bay West
(Middletown, Towel 1(towel) 70,000 57,000
Ohio) Tissue 1(tissue) 35,000 33,000
Deink Pulp 110,000 92,000
(Harrodsburg,Converted Towel
Kentucky) & Tissue N/A 168,000 121,000
<FN>
* "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
-12-
product that can be made on existing equipment, but would
require additional days and/or shifts of operation to achieve.
The company owns approximately 123,000 acres of timberland.
ITEM 3. LEGAL PROCEEDINGS.
In 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 lawsuit alleges a conspiracy to fix prices of
commercial sanitary paper products starting at least as early as 1993.
Since the filing of this lawsuit, numerous class action suits have been
filed by private direct purchasers of commercial sanitary paper
products in various federal district courts throughout the country and
additional federal lawsuits have been filed by the Attorneys General of
the States of Kansas, Maryland, New York, and West Virginia. All of
these federal cases have been certified as class actions and
consolidated in a multi-district litigation proceeding in the United
States District Court for the Northern District of Florida in
Gainesville. Certain indirect purchasers of sanitary commercial paper
products have also filed class action lawsuits in various state courts
alleging a conspiracy to fix prices under state antitrust laws. No
class has been certified in the state actions. All of these actions
are in early stages. In the opinion of management, the Company has not
violated any antitrust laws. The Company is vigorously defending these
claims.
The Company is also involved from time to time in various other legal
and administrative proceedings or subject to various claims in the
normal course of its business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the consolidated financial condition, liquidity, or results
of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of shareholders during the fourth
quarter of 1998.
-13-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Since March 26, 1998, the Company's common stock has been traded on the
New York Stock Exchange under the symbol "WMO". Prior to March 26,
1998, the Company's common stock was traded on the Nasdaq National
Market under the symbol "WSAU."
As of the record date of the annual meeting February 26, 1999, (the
"Record Date") there were approximately 3,200 holders of record of the
Company's common stock. The Company estimates that as of the Record
Date there were approximately 9,300 additional beneficial owners whose
shares were held in street name or in other fiduciary capacities. As
of the Record Date, there were 53,165,639 shares of common stock
outstanding.
The following table sets forth the range of high and low closing price
information of the Company's common stock and the dividends declared on
the common stock, for the calendar quarters indicated. The information
in the table has been adjusted to reflect retroactively all applicable
stock dividends and stock splits.
Market Price<dagger> Cash Dividend
CALENDAR QUARTER HIGH LOW DECLARED
1997
First Quarter $20.50 $17.88 $.0625
Second Quarter $19.75 $17.55 $.0625
Third Quarter $25.38 $18.75 $.0625
Fourth Quarter $24.38 $19.69 $.0625
1998
First Quarter $24.00 $18.88 --*
Second Quarter $24.13 $20.13 $.14*
Third Quarter $22.75 $12.13 $.07
Fourth Quarter $18.50 $12.25 $.07
<FN>
*Due to the change in fiscal years from an August 31 year-end to a
December 31 year-end, no dividend was declared in the first
quarter of 1998. Two dividends were declared in the second
quarter.
<dagger>All prices through March 25, 1998 represent closing
quotations on the Nasdaq National Market and reflect inter-dealer
prices, without retail markup, mark-down or commission and may not
necessarily represent actual transactions. Prices after March 25,
1998 represent the high and low sales prices on the New York Stock
Exchange.
-14-
ITEM 6. SELECTED FINANCIAL DATA.
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
For the years ended
DECEMBER 31, FOR THE YEARS ENDED AUGUST 31,
1998 1997 1996 1995 1994
FINANCIAL RESULTS
Net sales $ 946,127 $ 933,127 $ 857,159 $ 821,313 $ 693,211
Depreciation, depletion & amortization 49,825 47,259 41,204 36,573 33,319
Operating profit 72,145 120,828 119,049 82,460 95,961
Interest expense 7,683 8,103 7,198 7,754 6,968
Earnings before provision for income taxes 65,801 113,589 111,778 75,961 89,593
Earnings before cumulative effect of
accounting change and
restructuring/merger expense 67,339 78,601 68,128 46,436 55,093
Net earnings 40,801 65,398 68,128 46,436 55,343
Average number of shares outstanding 55,708,000 57,811,000 8,829,000 58,843,000 59,040,000
Cash dividends paid 15,494 13,134 11,162 9,922 8,864
Capital expenditures 77,023 66,062 82,489 81,220 61,144
FINANCIAL CONDITION
Working capital $ 81,406 $ 126,653 $ 87,536 $ 93,916 $ 86,190
Long-term debt 127,000 140,500 101,451 147,930 121,653
Stockholders' equity 396,586 440,160 388,608 337,881 303,669
Total assets 900,149 872,064 752,057 707,631 626,472
PER SHARE
Earnings before cumulative effect of
accounting change and
restructuring/merger expense $1.21 $1.36 $1.16 $0.79 $ 0.93
Net earnings-basic 0.73 1.13 1.16 0.79 0.94
Cash dividends declared 0.28 0.25 0.22 0.20 0.174
Stockholders' equity 7.12 7.61 6.61 5.74 5.14
Price range (low and high closing) 12.25-24.06 17.55-25.38 16.50-24.13 16.20-20.00 16.18-24.73
RATIOS/RETURNS
Return on sales before cumulative effect of
accounting change and
restructuring/merger expense 7.1% 8.4% 7.9% 5.7% 7.9%
Net return on sales 4.3% 7.0% 7.9% 5.7% 8.0%
Return on average stockholders' equity before
cumulative effect of accounting change
and restructuring/merger expense 16.1% 18.9% 18.8% 14.5% 19.5%
Net return on average stockholders' equity 9.8% 15.8% 18.8% 14.5% 19.6%
Current assets to current liabilities 1.5 2.2 1.8 2.0 2.0
% of long-term debt to total capital 24.3% 24.2% 20.7% 30.5% 28.6%
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OPERATIONS REVIEW
NET SALES
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Net sales $946,127 $933,127 $857,159
Percent increase 1% 9% 4%
For the twelve months ended December 31, 1998, net sales were a record
$946.1 million, $13 million over 1997 net sales of $933.1 million.
Total shipments of the Company's three operating groups (Printing &
Writing, Specialty Paper, Towel & Tissue) were also a record 831,800
tons in 1998, an increase of 4.2% from the 798,500 tons shipped in
1997. Shipments were 679,100 tons in 1996. Revenue and shipment
growth in 1998 and 1997 was aided by the acquisitions of B&J Supply
and Otis Specialty Papers. Selling prices for the Company's products
declined in both 1998 and 1997 due to competitive pressures on several
products in the Company's printing and writing, specialty, and towel
and tissue grades.
Shipments at the Printing & Writing Group were similar for 1998 and
1997. B&J Supply and the Converted Products facilities recorded
increases in 1998 while the paper manufacturing facilities decreased
approximately 4%. A major portion of this decrease was a decision not
to participate in certain commodity grades due to poor selling prices.
Premium paper sales increased and enhanced overall product mix,
although, downward pressure on paper prices resulted in lower
sales dollars for the group. Overall group shipments were 13.8% higher
in 1997 compared to 1996. All operating facilities within the Group
recorded gains in 1997 over 1996. Continued mix improvement and volume
gains will be a focus for 1999.
Shipments were a record at the Specialty Paper Group for 1998. Total
tonnage of 367,700 increased 7% over 1997 tonnage of 344,600. The major
portion of the increase was attributable to the Otis facility, which
was acquired in May of 1997. Volume in 1997 was 23% greater than 1996
with the major portion of that increase also attributable to the Otis
acquisition. Competitive market pressures in both 1998 and 1997
resulted in lower selling prices on a year-over-year comparison. The
Specialty Paper Group experienced softening in demand in both 1998 and
1997, which resulted in limited downtime for both years. The focus for
1999 will be to improve product mix in particular for the Sorg and Otis
facilities where machine capabilities were or will be enhanced.
The Towel & Tissue Group continued its record volume growth in 1998.
Volume has increased 13%, 14%, and 14% for the last three years on a
year-over-year comparison. This volume growth has principally been
accomplished by increasing distributors and adding converting lines.
Average pricing declined 5% in 1998 over the prior year's average while
1997 was slightly below 1996.
-16-
Order backlog at the end of 1998 approximated 30,000 tons for all
operating groups and was 10% less than in 1997. In 1997 backlogs had
increased 6% over 1996 principally due to acquisitions. Order backlog
totals do not necessarily indicate the business strength entirely since
a substantial percentage of orders are shipped directly from inventory
upon receipt.
GROSS PROFIT ON SALES
(ALL DOLLAR AMOUNTS IN THOUSANDS 1998 1997 1996
Gross profit on sales $175,051 $199,663 $183,291
Percent increase/(decrease) (12%) 9% 34%
Gross profit margin 19% 21% 21%
Gross profit decreased to $175.1 million or 19% of net sales in 1998
compared to a 1997 gross profit of $199.7 million or 21% of net sales.
Gross profit was $183.3 million in 1996 or 21% of net sales. The
negative impact of reduced selling prices principally caused the margin
decline in 1998. While selling prices declined in 1997, gross margins
remained similar to 1996 due to offsetting lower raw material costs.
Market prices for pulp, the primary raw material used in manufacturing
paper, declined during 1998. In 1998, the average list price of
northern bleached softwood kraft, a frequently-used benchmark pulp
grade, decreased 20% from the 1997 level compared to an 18% and 8%
decrease in 1997 and 1996, respectively.
Wastepaper prices, the primary raw material used in the production of
toweling and tissue, increased 6% in 1998 over 1997 average prices and
had increased 10% in a comparison of 1997 to 1996.
The Printing & Writing Group's mills operated near capacity in 1998 and
total tons produced were similar for both 1998 and 1997. Paper
production increased 5% in 1997 and 3% in 1996 over the previous year.
Increases were principally attributable to capital and operational
improvements. Other facilities within the group reported year-over
-year increases for all years presented. Inventory levels increased
13% in 1998 due in part to stocking a new West Coast warehouse facility
in late 1998.
The Specialty Paper Group mills operated near capacity for all years
presented. Softening demand and poor market conditions resulted in
nominal downtime in both 1998 and 1997 at the Otis and Rhinelander
facilities. Overall production declined 5% in 1998 compared to 1997
principally due to product mix. This product mix was offset somewhat
due to the acquisition of the Otis facility. Production levels
increased both for 1997 and 1996 on a previous year comparison.
Product mix, capital improvements, and the Otis acquisition all were
factors contributing to the increases. Inventory levels declined
approximately 10% in 1998.
Converting production at the Towel & Tissue group increased similarly
to its sales volume growth for all years presented. Inventory levels
approximated 7,000 tons at the end of 1998 and increased 1,200 tons
over 1997.
-17-
LABOR
A new five-year labor agreement with the United Paperworkers
International Union at the Groveton mill was successfully negotiated in
1997. The new agreement became effective April 1, 1997 and included a
general wage increase of 3.5% in 1997, 3.0% in both 1998 and 1999, 3.5%
in 2000 and 3.0% in 2001. A new four-year labor agreement was also
successfully negotiated in 1997 with the United Paperworkers
International Union at Sorg. The new agreement, which became effective
November 1, 1997, includes a general wage increase of 2.5% in 1997,
3.0% in both 1998 and 1999 and 2.5% in 2000. Labor agreements in other
facilities expire in 1999, 2000 and 2001.
The Company maintains good labor relations in all facilities.
OPERATING EXPENSES
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Selling and administrative $ 60,103 $ 65,332 $ 64,242
Percent increase/(decrease) (8%) 2% 17%
Restructuring and merger 42,803 13,503 0
Total operating expense 102,906 78,835 64,242
Percent increase 31% 23% 17%
As a percent of net sales 11% 8% 7%
Selling, administrative and research expenses, excluding the merger and
restructuring expenses discussed below were $60.1 million in 1998,
compared to $65.3 million in 1997 and $64.2 million in 1996. During
1998, decreases in the Company's stock price resulted in a net $1.5
million credit for stock appreciation rights, dividend equivalent and
stock option discount expense, compared to charges in 1997 and 1996 of
$2.1 million and $5.0 million, respectively. General inflationary costs
offset by fluctuations in incentive compensation and retirement plan
costs along with the acquisitions of the Otis and B&J facilities
accounted for a majority of the other changes.
In connection with the merger with Mosinee Paper Corporation (Mosinee),
the Company incurred pre-tax expenses related to the merger of $13.5
million, which were charged to operations in 1997. The costs include
professional fees and other transaction costs for executing the merger
as well as the costs of the severance benefits paid to the former CEO
of the Company. The merger costs on an after-tax basis were $13.2
million or $.23 per share. Restructuring and further merger costs were
recorded in 1998 of $42.8 million. Approximately 95% of these costs
were associated with the Company's early retirement incentives along
with voluntary separation arrangements, involuntary severance
agreements, and training costs for the Company's 1998 workforce
reduction program. The balance of the restructuring costs were for
legal, consulting, and other miscellaneous costs. The after-tax charge
was $26.5 million or $.48 per share for 1998.
-18-
OTHER INCOME AND EXPENSE
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Interest expense $7,683 $8,103 $7,198
Percent increase/(decrease) (5%) 13% (7%)
Other 1,339 864 (73)
Interest expense amounted to $7.7 million in 1998, compared to $8.1
million in 1997 and $7.2 million in 1996. Interest expense was lower in
1998 principally due to lower interest rates and lower average debt
levels. Interest expense in 1997 increased over 1996 due primarily to
higher debt levels associated with the acquisitions of the Otis and B&J
Supply facilities. Capitalized interest totaled $.7 million, $.5
million and $1.1 million in 1998, 1997 and 1996, respectively.
Fluctuations in capitalized interest are primarily dependent on varying
levels of capital expenditures qualifying for capitalized interest
criteria.
Other income includes interest income of $.4 million, $.1 million and
$.6 million in 1998, 1997 and 1996, respectively. The difference in
other income and expense is primarily due to fluctuations in the gain
or loss on asset sales and disposals.
INCOME TAXES
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Income tax provision $25,000 $48,191 $43,650
Percent increase/(decrease) (48%) 10% 48%
Effective tax rate 38.0% 42.4% 39.1%
The tax provision in 1998 was $25.0 million, for an effective tax rate
of 38%. The effective tax rates for 1997 and 1996 were 42.4% and
39.1%, respectively. The increase in the 1997 tax rate was due
principally to the $13.5 million charge for merger-related expenses,
most of which was not tax deductible.
-19-
NET EARNINGS
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Net earnings $40,801 $65,398 $68,128
Percent increase/(decrease) (38%) (4%) 47%
Net earnings per share basic 0.73 1.13 1.16
Percent increase/(decrease) (35%) (3%) 47%
For the year ended December 31, 1998, net earnings were $40.8 million
or $.73 per share compared to $65.4 million or $1.13 per share in 1997.
Net earnings were $68.1 million or $1.16 per share in 1996. Net
earnings for both 1998 and 1997 included restructuring and merger-
related pre-tax expense charges of $42.8 million and $13.5 million,
respectively. Excluding these charges, net earnings in 1998 were $67.3
million or $1.21 per share compared to $78.6 million or $1.36 per share
in 1997.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW AND CAPITAL EXPENDITURES
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Cash provided by
operating activities $117,859 $99,724 $136,376
Percent increase/(decrease) 18% (27%) 74%
Working capital 81,406 126,653 87,536
Percent increase/(decrease) (36%) 45% (7%)
Current ratio 1.5:1 2.2:1 1.8:1
Cash provided by operations was $117.9 million in 1998, an increase of
18% from 1997 operating cash flow of $99.7 million. Cash provided by
operations was $136.4 million in 1996. The increase in 1998 was
primarily due to a decrease in receivables, reduced changes for
investments in inventories and other assets, along with increases in
accounts payable and other liabilities, all offset by reduced net
earnings. The reduction in cash flow for 1997, compared to 1996, was
due mainly to an increase in working capital needs associated with
higher accounts receivable and a smaller increase in accounts payable
and other liabilities.
Capital expenditures were $77.0 million in 1998, compared to $66.1
million in 1997 and $82.5 million in 1996. The 17% increase in capital
spending in 1998 was due to general upgrades of pulp mills and paper
machines resulting from business expansion opportunities following the
merger with Mosinee.
-20-
In 1998, the Printing & Writing Group completed several projects at the
Groveton mill totaling $6.2 million. The projects consisted of paper
machine upgrades and a stock blending system which provides better
efficiency, faster and continuous furnish, less broke and a reduction
in usage of higher cost fiber. The Brokaw mill spent $6.1 million in
1998 on an $8.8 million pulp mill distributive control system to
improve pulp quality and reduce operating costs. The Specialty Paper
Group completed several major projects in its pulp and paper mills,
including spending $2.1 million for rebuilds of the #1 paper machines
at the Mosinee and Sorg mills, $2.1 million for a wet lap machine and
$2.8 million on a boiler precipitator at the Mosinee mill. The Otis
mill spent $5.4 million on a $25 million rebuild to its two paper
machines. The Towel & Tissue Group completed a building expansion
project totaling $6 million to increase operating plant and warehouse
space by 268,000 square feet, $2.6 million on additional towel and
tissue converting lines and $5.7 million to rebuild the #1 paper
machine for added toweling production capacity to keep pace with
increasing sales volume.
The Board of Directors approved a number of major capital improvements
in 1998, on which spending will continue into 1999. A $25 million
rebuild to the Otis mill's two paper machines was approved. This
project will expand the production capacity of the machines and add
significant new manufacturing capabilities to give the Specialty Paper
Group an improved sales mix. Nearly $6 million was approved for the
Towel & Tissue Group to add converting lines for expanding sales
volume. Other major capital improvement projects approved by the Board
of Directors, include $3.6 million for a woodroom modernization and
$3.7 million for a boiler precipitator at the Mosinee mill, $8.8
million for an upgrade to the dry end of the paper machines at the
Brokaw mill, to include winder, reels, repulper and automated guided
vehicles for roll movement, and nearly $4 million at the Groveton mill
for general upgrades and conversions. At the end of 1998, the Company
was committed to spend $70 million to complete these capital projects
and others currently under construction.
DEBT AND EQUITY
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Short-term debt $ 51,517 $ 6,207 $ 6,340
Long-term debt 127,000 140,500 101,451
Total debt 178,517 146,707 107,791
Stockholders' equity 396,586 440,160 388,608
Total capitalization 523,586 580,660 490,059
Long-term debt/capitalization ratio 24% 24% 21%
During 1998, the Company obtained two separate lines of credit which
provided an additional $80 million of available funds to assist in the
authorized repurchase of Company stock. At December 31, 1998, $39
million was outstanding on these lines of credit.
The Company maintains a revolving credit facility with four banks of
$105 million. The agreement extends through March 29, 2001 at which
time, or earlier at the Company's option, the agreement converts to a
one-year term
-21-
loan. The Company also maintains a commercial paper placement
agreement, with one of its four major banks, which provides for the
issuance of up to $40 million of unsecured debt obligations. The
commercial paper placement agreement requires unused credit
availability under the Company's revolving credit agreement equal to
the amount of outstanding commercial paper. On December 31, 1998, the
Company had a combined total of $13.5 million available for borrowing
under its revolving credit and commercial paper placement agreements.
In August 1995, the Company obtained $19 million in industrial
development bond financing to fund an upgrade of the Brokaw mill
wastewater treatment plant, the construction of a new landfill and
several other projects which qualify for this type of financing. Bond
proceeds were fully disbursed as of January 1997.
In September 1994, Mosinee entered into an unsecured five-year debt
arrangement with one of its banks for $20 million at a fixed rate of
7.83%. This debt arrangement was maintained subsequent to the Mosinee
merger. Principal is due in September 1999.
In June 1993, the Company borrowed $30 million through the issuance of
notes to Prudential Insurance Company of America and its subsidiaries.
Proceeds from the notes were used to reduce borrowings from the
revolving credit facility.
On August 31, 1998, the Company's Board of Directors authorized the
repurchase of 5,650,000 shares of the Company's common stock. The
repurchases may be made from time to time in the open market or through
privately negotiated transactions.
The Company repurchased 4,285,900 shares of its common stock in 1998
under the completed 1994 authorization and the 1998 authorization at
market prices ranging from $12.125 to $18.00. The Company did not
repurchase any shares of the Company's stock in 1997. Prior to merging
with the Company, Mosinee repurchased 478,807 shares of its common
stock in 1997. Based on the terms of the merger, 1.4 shares of the
Company's common stock were exchanged for each Mosinee share. The
stock repurchases were the equivalent of 670,330 shares of the
Company's common stock in 1997. As of the merger date of December 17,
1997, all Mosinee treasury stock was retired.
During 1998, the Board of Directors declared cash dividends of $.28 per
share, an increase of 12% from the $.25 per share cash dividend
declared in 1997.
The cash provided by operations, the revolving credit facility and the
available lines of credit are expected to meet capital needs and
dividend requirements. The Company plans to refinance the outstanding
debt obligations to secure longer term financing in 1999.
YEAR 2000
Year 2000 issues apply to the Company's computerized manufacturing
process controllers, environmental systems, order processing, inventory
management, the shipment of finished goods, and internal financial and
other information systems. Year 2000 issues also apply to the
Company's suppliers and customers. For purposes of this discussion,
the terms "Year 2000 issues" or "Year 2000 problems", or terms of
similar import, refer to the potential failure of
-22-
computer applications as a result of the failure of a program or
hardware to properly recognize the year 2000 and to properly handle
dates beyond the year 1999. The term "Year 2000 readiness", or terms
of similar import, mean that the particular equipment or processes
referred to have been modified or replaced and the Company believes
that such modified or replaced equipment or processes will operate as
designed after 1999 without Year 2000 problems.
READINESS
The Company has developed a Year 2000 Plan intended to (1) upgrade its
information technology hardware and software and all software and
embedded technology applications in its equipment and facilities to be
Year 2000 ready, (2) assess the Year 2000 readiness of suppliers and
customers, and (3) develop contingency plans, if practical, for
critical systems and processes.
The Company has completed an inventory of mission critical information
systems, process equipment, and manufacturing facilities. The Company
continues to evaluate and test equipment, environmental controls, and
other core functions. Assessment and testing is expected to be
completed by May, 1999. The Company believes that the most critical
information systems, primarily the sales order processing, inventory,
and shipping systems, are already Year 2000 ready or, if not, that such
systems have been given first priority to be made Year 2000 ready and
will be ready by September, 1999. The Company's enterprise resource
planning system ("ERP") is intended to bring the remainder of the
Company's information systems to Year 2000 readiness by September,
1999. The broader, non-Year 2000 aspects of the ERP system will be
fully implemented in 2001.
COSTS
The costs of achieving Year 2000 readiness have not been material to
date and are not expected to be material. The cost of remediation for
key papermaking process controls and equipment is expected to be less
than $2 million. Internal costs for Year 2000 readiness are not being
tracked, but principally relate to payroll costs of Company personnel.
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, those issues were considered in determining the overall
timetable for its implementation.
RISKS
The Company expects no material adverse effect on its consolidated
financial condition, liquidity or results of operations (collectively,
its "business") 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.
The Company's assessment of possible Year 2000 related problems
depends, to some extent, on the assurances and guidance provided it by
the suppliers of the technology as to its Year 2000 readiness. In
addition, 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
-23-
concerning the effect of Year 2000 issues 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 expects that Year 2000 problems which cause customers to be
unable to place orders would have a material adverse impact on its
business only if the problem was widespread and long-lived. The
Company has a broad customer base, which would likely alleviate the
adverse effects of isolated customer Year 2000 problems.
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 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.
Interruption of raw material supply due to supplier problems caused by
Year 2000 issues are not expected to be material as the Company stocks
raw materials to protect against supply problems and alternative
sources of supply exist to meet the Company's raw material needs.
Similarly, although the Company faces potential disruptions in its
operations from Year 2000 problems as a result of the failure of the
power grid, telecommunications, or other abilities, it is not aware
that any material disruption in these infrastructures is reasonably
likely to occur and the number and widespread location of its
facilities is likely to minimize the impact of any disruption.
CONTINGENCY PLAN
The Company has evaluated various contingencies that may arise as a
result of Year 2000 issues. The Company anticipates that disruptions
in production, sales, the supply of raw materials, loss of customer
orders, and other foreseeable effects of the Year 2000 issues can be
addressed following normal business alternatives. The Company will
continue to analyze and develop contingency plans where possible and
not cost prohibitive.
-24-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The company does not have a material market risk associated with
interest rate risk, foreign currency exchange risk, or commodity price
risk. The company does not hold or engage in transactions involving
derivative financial instruments. The company conducts U.S. dollar
denominated export transactions or immediately exchanges all foreign
currency attributable to export sales for U.S. dollars.
The company maintains certain derivative commodity instruments as
hedges for anticipated transactions. Such instruments do not have a
material market risk and no such derivative commodity instrument is
held for trading. At December 31, 1998, these instruments consisted of
various futures contracts for the purchase of natural gas and fuel oil.
From time to time, the company may also purchase pulp futures contracts
as a hedge against pulp price increases. See Notes 1 and 14 of "Notes
to Consolidated Financial Statements" for additional information
relating to the company's derivative commodity instruments.
-25-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Wausau-Mosinee Paper Corporation
Mosinee, Wisconsin
We have audited the accompanying consolidated balance sheets of Wausau-
Mosinee Paper Corporation and Subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, cash flows and
stockholders' equity for the years ended December 31, 1998 and 1997 and
August 31, 1996, and the supporting schedule of valuation and
qualifying accounts. These financial statements and supporting
schedule are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements
and supporting schedule 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 schedule 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 schedule.
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
present fairly, in all material respects, the financial position of
Wausau-Mosinee Paper Corporation and Subsidiaries at December 31, 1998
and 1997, and the results of its operations and cash flows for the
years ended December 31, 1998 and 1997 and August 31, 1996, and the
supporting schedule presents fairly the information required to be set
forth therein, all in conformity with generally accepted accounting
principles.
January 29, 1999
Wausau, Wisconsin WIPFLI ULLRICH BERTELSON LLP
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WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 2,495 $ 2,584
Receivables, net 66,956 69,674
Refundable income taxes 3,282 2,799
Inventories 150,217 143,610
Deferred income taxes 18,344 15,152
Other current assets 832 1,110
Total current assets 242,126 234,929
Property, plant and equipment, net 625,065 604,930
Other assets 32,958 32,205
TOTAL ASSETS $ 900,149 $ 872,064
LIABILITIES
Current liabilities:
Notes payable to banks $ 45,466 $ -
Current maturities of long-term debt 6,051 6,207
Accounts payable 58,419 53,181
Accrued and other liabilities 50,784 48,888
Total current liabilities 160,720 108,276
Long-term debt 127,000 140,500
Deferred income taxes 94,911 92,947
Postretirement benefits 60,558 52,161
Pension 39,235 22,900
Other noncurrent liabilities 21,139 13,865
Total liabilities 503,563 430,649
Commitments and contingencies - -
Preferred stock of subsidiary - 1,255
STOCKHOLDERS' EQUITY
Preferred stock (75,000 shares authorized)
no par value - -
Common stock (100,000,000 shares authorized)
no par value 170,686 168,553
Retained earnings 315,711 290,541
Subtotals 486,397 459,094
Treasury stock at cost ( 85,136) ( 17,667)
Minimum pension liability (net of
deferred taxes) ( 4,675) ( 1,267)
Total stockholders' equity 396,586 440,160
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 900,149 $ 872,064
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
For the years ended For the year ended
December 31, August 31,
1998 1997 1996
Net sales $946,127 $933,127 $857,159
Cost of products sold 771,076 733,464 673,868
Gross profit 175,051 199,663 183,291
Operating expenses:
Selling and administrative 60,103 65,332 64,242
Restructuring and merger expense 42,803 13,503 -
Operating profit 72,145 120,828 119,049
Other income (expense):
Interest expense ( 7,683) ( 8,103) ( 7,198)
Interest income 403 95 562
Other 936 769 ( 635)
Earnings before income taxes 65,801 113,589 111,778
Provision for income taxes 25,000 48,191 43,650
Net earnings $ 40,801 $ 65,398 $ 68,128
Net earnings per share basic $ .73 $ 1.13 $ 1.16
Net earning per share diluted $ .73 $ 1.13 $ 1.16
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-28-
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended For the year ended
December 31, August 31,
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Cash flows from operating activities:
Net earnings $ 40,801 $ 65,398 $ 68,128
Provision for depreciation, depletion
and amortization 49,825 47,259 41,204
Recognition of deferred revenue (40) (40) (40)
Provision for losses (recoveries) on
accounts receivable 1,227 (282) 257
Loss (gain) on property, plant and
equipment disposals (782) (333) 1,482
Deferred income taxes (1,028) 12,458 14,652
Changes in operating assets and liabilities:
Receivables 1,491 (7,563) 7,081
Inventories (6,607) (10,114) (10,582)
Other assets (4,577) (11,129) (9,474)
Accounts payable and other liabilities 38,032 9,425 20,728
Accrued and refundable income taxes (483) (5,355) 2,940
Net cash provided by operating activities 117,859 99,724 136,376
Cash flows from investing activities:
Capital expenditures (77,023) (66,062) (82,489)
Acquisition of Otis Specialty Papers - (55,147) -
Acquisition of B&J Supply - (6,235) -
Proceeds from property, plant and
equipment disposals 9,550 693 542
Net cash used from funds
restricted for capital additions - 1,297 10,888
Net cash used in investing activities (67,473) (125,454) (71,059)
Cash flows from financing activities:
Net borrowings of short-term notes 25,466 - -
Net borrowings (repayments) under credit
agreements 12,551 58,117 (39,975)
Payment under capital lease obligation (207) (345) (500)
Repayment of long-term notes (6,000) (6,000) (6,000)
Dividends paid (15,494) (13,134) (11,162)
Payment for preferred stock of subsidiary (320)
Proceeds from stock option exercises 1,741 120 297
Payments for purchase of treasury stock (68,212) (10,927) (7,218)
Net cash provided by (used in) financing
activities (50,475) 27,831 (64,558)
Net increase (decrease) in cash and cash
equivalents (89) 2,101 759
Cash and cash equivalents at beginning
of year 2,584 483 4,763
Cash and cash equivalents at end of year $ 2,495 $ 2,584 $ 5,522
Supplemental cash flow information:
Interest paid - net of amount capitalized $ 7,629 $ 7,902 $ 7,503
Income taxes paid 26,511 41,882 26,126
<FN>
Noncash investing and financing activities: A capital lease obligation
of $498 in 1996 was incurred when the Company entered into a lease for
new equipment. In connection with the acquisition of B&J Supply during
1997, the Company assumed $2,000 of debt.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-29-
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Accumulated
Other
Comprehensive
- Common Stock - - Treasury Stock - Income - Common
Minimum Stock- Total
Shares Retained Pension Shares Stockholders'
ISSUED AMOUNT EARNINGS SHARES AMOUNT LIABILITY OUTSTANDING EQUITY
Balances August 31, 1995 47,078,810 $197,462 $170,561 ( 6,607,087) ($29,354) ($ 788) 40,471,723 $337,881
Comprehensive earnings, 1996
Net earnings 68,128 68,128
Minimum pension liability
(net of $397 deferred tax) 595 595
Comprehensive
earnings,1996 68,723
Cash dividends declared (11,456) (11,456)
Five-for-four stock split 7,768,080 (402,343) 7,365,737
Four-for-three stock split 5,335,495 (1,666,218) 3,669,277
Purchases of treasury stock (411,458) (7,218) (411,458) (7,218)
Stock options exercised (10) 52,404 307 52,404 297
Tax benefit related to stock
options 351 351
Stock option discount
(net of deferred taxes) 30 30
Balances August 31, 1996 60,182,385 197,833 227,233 (9,034,702) (36,265) (193) 51,147,683 388,608
Net earnings for the four
months ended
December 31, 1996 - Wausau 13,820 13,820
Cash dividends declared (2,282) (2,282)
Stock option discount
(net of deferred taxes) 37 37
Balances December 31, 1996 60,182,385 197,870 238,771 (9,034,702) (36,265) (193) 51,147,683 400,183
Comprehensive earnings, 1997
Net earnings 65,398 65,398
Minimum pension liability
(net of $716 deferred tax) (1,074) (1,074)
Comprehensive earnings, 1997 64,324
Cash dividends declared (13,628) (13,628)
Three-for-two stock split 10,670,992 (3,353,416) 7,317,576
Purchases of treasury stock (670,330) (10,927) (670,330) (10,927)
Retire treasury stock (10,730,573) (29,471) 10,730,573 29,471
Fractional shares resulting
from merger paid in cash (606) (606)
Stock options exercised 66 7,444 54 7,444 120
Tax benefit related to
stock options 15 15
Stock option discount
(net of deferred taxes) 73 73
Balances December 31, 1997 60,122,198 168,553 290,541 (2,320,431) (17,667) (1,267) 57,801,767 440,160
Comprehensive earnings, 1998
Net earnings 40,801 40,801
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (cont)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Accumulated
Other
Comprehensive
- Common Stock - - Treasury Stock - Income - Common
Minimum Stock- Total
Shares Retained Pension Shares Stockholders'
ISSUED AMOUNT EARNINGS SHARES AMOUNT LIABILITY OUTSTANDING EQUITY
Minimum pension liability
(net of $2,047 deferred tax) (3,408) (3,408)
Comprehensive earnings, 1998 37,393
Cash dividends declared (15,631) (15,631)
Retirement of preferred
stock of subsidiary 935 935
Purchases of treasury stock (4,285,900) (68,200) (4,285,900) (68,200)
Stock options exercised 998 97,972 743 97,972 1,741
Tax benefit related to stock
options 200 200
Fractional shares added to
treasury (614) (12) (614) (12)
Balances December 31, 1998 60,122,198 $170,686 $315,711 (6,508,973) $85,136) ($4,675) 53,613,225 $396,586
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-30-
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant
intercompany transactions, balances and profits have been eliminated in
consolidation. The consolidated statements give retroactive effect to
the merger with Mosinee Paper Corporation ("Mosinee").
On December 17, 1997, Wausau Paper Mills Company ("Wausau") completed a
merger with Mosinee ("the Mosinee merger") in which Mosinee became a
wholly owned subsidiary of Wausau. Simultaneous with the consummation
of the Mosinee merger, Wausau changed its name to Wausau-Mosinee Paper
Corporation ("the Company"). Prior to the merger, Wausau's fiscal
year-end was August 31 and Mosinee's was December 31. Subsequent to the
Mosinee merger, the Company adopted a calendar year-end. As a result of
the change in fiscal year and the merger accounted for as a pooling of
interests, the Company's 1997 financial statements have been recast to
a twelve-month period ending December 31, 1997. The financial
statements have been restated to retroactively combine Mosinee's
financial statements as if the merger had occurred at the beginning of
the earliest period presented.
The consolidated statements of income and cash flows for the year ended
August 31, 1996 reflect the results of operations and cash flows for
Wausau for the year then ended combined with Mosinee for the year ended
December 31, 1996. The consolidated balance sheet as of August 31,
1996 reflects the financial position of Wausau on that date combined
with the financial position of Mosinee as of December 31, 1996. As a
result of Wausau and Mosinee having different fiscal years and the
change in the Company's fiscal year, Wausau's results of operations for
the four-month period ended December 31, 1996, have been excluded from
the reported results of operations and, therefore, have been added to
the Company's retained earnings at January 1, 1997. Wausau had
net sales, expense, and net income of $179,075,000, $165,255,000, and
$13,820,000 for the four-month period ended December 31, 1996.
REVENUE RECOGNITION - Revenue is recognized upon shipment of goods and
transfer of title to the customer. The Company grants credit to
customers in the ordinary course of business. A substantial portion of
the Company's accounts receivable is with customers in various paper
converting industries or the paper merchant business. Concentrations
of credit risk with respect to trade receivables are limited due to the
large number of customers and their geographic dispersion.
USE OF ESTIMATES IN PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS -
The preparation of the accompanying financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses. Actual results may differ
from these estimates.
CASH EQUIVALENTS - The Company defines cash equivalents as highly
liquid, short-term investments with an original maturity of three
months or less.
INVENTORIES - Pulpwood, finished paper products and the majority of raw
materials are valued at the lower of cost, determined on the last-in,
first-out (LIFO) method, or market. All other inventories are valued at
the lower of average cost or market. Allocation of the LIFO reserve
among the components of inventories is impractical.
-31-
PROPERTY, PLANT AND EQUIPMENT - Plant and equipment are stated at cost
and are depreciated over the estimated useful lives of the assets using
the straight-line method for financial statement purposes. Land, water
power rights, and construction in progress are stated at cost. The
cost and related accumulated depreciation of all plant and equipment
retired or otherwise disposed of are removed from the accounts, and any
resulting gains or losses are included in the statements of income.
Buildings are depreciated over a 20 to 45-year period; machinery and
equipment over a 3 to 20-year period. Maintenance and repair costs are
charged to expense as incurred. Renewals and improvements which extend
the useful lives of the assets are added to the plant and equipment
accounts.
Equipment financed by long-term leases, which in effect are installment
purchases, have been recorded as assets and the related obligations as
debt. Depreciation expense includes amortization on capitalized
leases.
Timberlands are stated at net depleted value. Depletion expense is
calculated using the block and unit-of production methods. The block
method groups timberland into logical management areas called "blocks"
for which the cost basis is determinable. The annual depletion is
determined by multiplying the per unit cost basis of the block of
timber by the number of units harvested from the block during the year.
INCOME TAXES - Deferred income taxes have been provided under the
liability method. Deferred tax assets and liabilities are determined
based upon the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities, as
measured by the current enacted tax rates. Deferred tax expense is the
result of changes in the deferred tax asset and liability.
EARNINGS PER SHARE - Basic earnings per common share are based on the
weighted average number of common shares outstanding. Diluted earnings
per common share are based on the weighted average number of common
shares and common stock equivalents (options) outstanding.
FUTURES CONTRACTS - The Company utilizes futures contracts to
periodically hedge the price risk of anticipated purchases of pulp and
other commodity products. Changes in the market value of the futures
contracts are included as part of the acquisition price of pulp and
other commodity products and are realized when the finished paper is
sold and the other commodity products are consumed. Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" will be adopted as of
January 1, 2000. The statement establishes accounting and reporting
standards for derivatives. The effect on the Company is not expected to
be material.
CHANGES IN ACCOUNTING POLICIES - On January 1, 1998, the Company
adopted Statements of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," No. 131, "Disclosures about Segments
of an Enterprise and Related Information," and No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS No.
130 requires companies to report all changes in net assets, such as
minimum pension liability adjustments, as a component of comprehensive
income. SFAS No. 131 requires certain disclosures of the company's
segments including general information, segment profits and assets, and
a reconciliation of segment financial condition and results of
operations to the corresponding company amounts. SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefit
plans.
-32-
NOTE 2. MERGERS AND ACQUISITIONS
On December 17, 1997, the Company completed the Mosinee merger. The
merger qualified as a tax-free exchange and was accounted for as a
pooling of interests. Wausau issued 1.4 shares of common stock for
each share of Mosinee outstanding common stock. A total of 21,281,795
shares (after adjustment for fractional shares) of the Company's common
stock was issued as a result of the merger, and Mosinee's outstanding
stock options were converted into options to purchase approximately
596,000 common shares. In connection with the merger, the Company
incurred $13,503,000 ($13,203,000 after taxes, or $ .23 per common
share) of merger-related costs which were charged to operations during
the year ended December 31, 1997.
The following table presents a reconciliation of net sales and net
earnings previously reported by the Company to those presented in the
accompanying consolidated financial statements.
For the year For the year
ended December 31, ended August 31,
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1997 1996
Net sales:
Wausau $594,913 $542,669
Mosinee 338,214 314,490
Combined $933,127 $857,159
Net earnings:
Wausau $ 40,379 $ 41,229
Mosinee 25,019 26,899
Combined $ 65,398 $ 68,128
On May 12, 1997, the Company acquired the business and assets of Otis
Specialty Papers ("Otis"). The acquisition was accounted for using the
purchase method of accounting. The financial statements reported herein
include the net sales, operating profit and net earnings of Otis from
the date of purchase. The following table presents unaudited pro forma
condensed results of operations for the years ended December 31, 1997
and August 31, 1996, as if the acquisition were completed at the
beginning of the period:
(ALL DOLLAR AMOUNTS 1997 1996
IN THOUSANDS, UNAUDITED)
Net sales $ 965,982 $ 932,715
Operating profit 124,218 121,531
Net earnings 66,673 67,860
Net earnings per share basic $ 1.15 $ 1.15
The unaudited pro forma financial information includes certain
assumptions or adjustments, not material in amount, which the Company
believes are necessary to fairly present such information. Historical
costs representing the seller's corporate allocations, interest expense
and one-time expenses related to the sale of Otis are included in the
pro forma information. The pro forma information does not purport to
represent what the Company's results of
-33-
operations would actually have been if this transaction had occurred at
the beginning of the earliest period presented.
On April 1, 1997, Mosinee acquired the business and assets of B&J
Supply, Inc. ("B&J"), a converter and nationwide supplier of school
papers. The acquisition was accounted for using the purchase method of
accounting. The results of operations of B&J from the date of purchase
have been included in the reported results of operations since the date
of acquisition. Had the purchase been consummated at the beginning of
fiscal 1997, operating results on a pro forma basis would not have been
significantly different.
NOTE 3. RESTRUCTURING
In March 1998, the Company began implementation of a workforce
reduction program. The purpose of the program was to reduce the number
of employees by 400 through early retirement incentives along with
voluntary separation arrangements, involuntary severance programs and
process automation. As a result of the program implementation, the
Company recorded a pre-tax restructuring charge of $37.7 million in the
first quarter of 1998. The charge was based on estimates of the cost
of the workforce reduction program, including special termination
benefits and settlement and curtailment losses related to pension and
postretirement benefit plans. In the fourth quarter of 1998, an
additional pre-tax expense of $5.1 million was recorded to recognize
adjustments to the previous estimates of the early retirement
incentives and to recognize additional expenses associated with
integration costs. Approximately 93% of the benefits under the program
have been paid or have been transferred as obligations of the Company's
retirement plans as of December 31, 1998.
-34-
NOTE 4. SUPPLEMENTAL BALANCE SHEET INFORMATION
December 31,
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
Receivables
Trade $ 73,950 $ 74,482
Other 3,068 3,931
77,018 78,413
Less: allowances ( 10,062) ( 8,739)
$ 66,956 $ 69,674
Inventories
Raw materials $ 58,547 $ 60,832
Work in process and
finished goods 75,906 76,260
Supplies 28,447 26,672
Inventories at cost 162,900 163,764
LIFO reserve ( 12,683) ( 20,154)
$ 150,217 $ 143,610
Property, plant and equipment
Buildings $ 124,855 $ 113,006
Machinery and equipment 882,836 838,932
Totals 1,007,691 951,938
Less: accumulated depreciation ( 427,954) ( 385,679)
Net depreciated value 579,737 566,259
Land 5,382 4,724
Timber and timberlands,
net of depletion 5,166 5,012
Water power rights 129 129
Construction in progress 34,651 28,806
$ 625,065 $ 604,930
Accrued and other liabilities
Payrolls $ 4,721 $ 6,559
Vacation pay 10,861 11,632
Employee retirement plans 6,942 4,619
Taxes other than income 4,978 3,999
Cash dividends declared 3,753 3,616
Stock appreciation rights 6,927 8,939
Other 12,602 9,524
$ 50,784 $ 48,888
NOTE 5. DEBT
The Company's short-term notes payable consist of $20,000,000
outstanding under an unsecured debt arrangement with one financial
institution and $25,466,000 outstanding under two separate revolving
lines of credit.
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The $20,000,000 unsecured debt arrangement was entered into by the
Company on September 30, 1994, at an interest rate of 7.83%. Interest
is paid monthly and the principal is due September 1999. At December
31, 1997, the $20,000,000 was classified as long-term debt.
During 1998, two banks participating in the revolving credit
arrangement with the Company provided separate lines of credit. One
line of credit provides for borrowing up to $20,000,000. Specific rates
and terms of the loans are determined at the time of borrowing, with
maturity not to go beyond September 30, 1999. The line of credit does
not require a compensating balance or a commitment fee. At December
31, 1998, there was $17,000,000 borrowed against this line of credit at
a weighted average interest rate of 5.65%. The second line of credit
provides for borrowing up to $60,000,000 at rates and terms negotiated
at the time of borrowing, with maturity not to go beyond November 22,
1999. The line of credit agreement provides for a commitment fee
during the term of the agreement. The fee is based on a quarterly debt
to EBITDA ratio. Based on the debt to EBITDA ratio at December 31,
1998, the fee is .125% per annum on the unused portion of this line of
credit. At December 31, 1998, there was $22,000,000 borrowed against
this line of credit at a weighted average interest rate of 5.77%. As of
December 31, 1998, of the total borrowings against the lines of credit,
$25,466,000 is classified as short-term and $13,534,000 is classified
as long-term as the Company intends and has the ability to refinance
the obligations under the revolving credit agreement.
The Company's long-term debt, excluding current maturities as of
December 31, consists of the following:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
Long-term note $ - $ 20,000
Senior promissory notes 3,000 9,000
Line of credit 13,534 -
Industrial development bonds 19,000 19,000
Revolving credit facility agreements 75,000 70,500
Commercial paper 16,466 21,949
Capitalized leases - 51
Totals $127,000 $ 140,500
The Company has outstanding $9 million in unsecured senior promissory
notes. Interest is payable quarterly on the outstanding balance at a
rate of 6.03% per annum. Principal is payable in equal semi-annual
installments, with the final payment due June 16, 2000.
During 1995, the Company borrowed $19 million related to industrial
development bonds issued by a local governmental unit. The variable
rate bonds require quarterly interest payments and had an interest rate
of 4.30% at December 31, 1998 and 4.45% at December 31, 1997. The
Company also pays fees for a bank letter of credit and remarketing
services related to the bonds which it includes in net interest
expense. The interest rate can be converted to a fixed rate, at the
Company's option, after which semi-annual interest payments will be
required. The bonds mature on July 1, 2023. At December 31,
1998 and December 31, 1997, all bond proceeds had been disbursed.
-36-
The Company maintains an unsecured revolving credit facility of $105
million with four banks which continues through March 29, 2001 at which
time, or earlier at the Company's option, the revolving credit converts
to a term loan facility, and the loans then outstanding are payable in
four equal quarterly installments. The Company may elect the base for
interest from either domestic rate loans, eurodollar loans, adjusted CD
rate loans, offered loans or treasury rate loans. The weighted average
interest rate on borrowings under the revolving credit facility was
5.58% and 6.14% at December 31, 1998 and December 31, 1997,
respectively. The credit agreement provides for commitment fees during
the revolving loan period. Fees are based on quarterly funded debt to
equity levels. Based on debt and equity levels at December 31, 1998 and
December 31, 1997, the fees are .1% per annum.
The senior promissory notes, long-term note and the revolving credit
facility agreements require the Company to comply with certain
covenants, one of which requires the Company maintain minimum net
worth. At December 31, 1998, $242 million of retained earnings was
available for payment of cash dividends without violation of the
minimum net worth covenant related to the senior promissory notes.
The Company maintains a commercial paper placement agreement with a
bank to issue up to $40 million of unsecured debt obligations which
requires unused credit availability under its revolving credit
agreement equal to the amount of outstanding commercial paper. At
December 31, 1998 and December 31, 1997, $16,466,000 and $10,485,000
were outstanding, respectively. The weighted average interest rate on
outstanding commercial paper was 5.6% at December 31, 1998 and 6.2% at
December 31, 1997.
One of the Company's wholly owned subsidiaries had a commercial paper
placement agreement to issue up to $50 million of unsecured debt
obligations. At December 31, 1997, $11,464,000 was outstanding. The
weighted average interest rate on commercial paper outstanding at
December 31, 1997 was 6.1%. All commercial paper was retired in June
1998 and this agreement is no longer in effect.
The aggregate annual maturities of long-term debt are as follows:
(ALL DOLLAR AMOUNTS
IN THOUSANDS) 1999 2000 2001 2002 2003 THEREAFTER
$6,051 $3,000 $105,000 $ - $ - $19,000
Annual maturities will be affected by future borrowings.
-37-
NOTE 6. LEASE COMMITMENTS
The Company has various leases for real estate, mobile equipment and
machinery which generally provide for renewal privileges or for
purchase at option prices established in the lease agreements.
Property, plant and equipment includes the following amounts for
capitalized leases:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
Machinery and equipment $1,416 $1,416
Allowance for amortization (1,178) ( 854)
Net value $ 238 $ 562
Lease amortization is included in depreciation expense.
Future minimum payments, by year and in the aggregate, under
capitalized leases and noncancelable operating leases with initial or
remaining terms of one year or more consisted of the following at
December 31, 1998:
Capital Operating
(ALL DOLLAR AMOUNTS IN THOUSANDS) LEASES LEASES
1999 $ 51 $ 1,798
2000 1,600
2001 1,195
2002 697
2003 650
Thereafter 1,739
Total minimum payments $ 51 $ 7,679
The future minimum payments for capitalized leases are reflected in the
aggregate annual maturities of long-term debt disclosure in Note 5.
Rental expense for all operating leases was as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Rent expense $5,346 $5,154 $3,856
Contingent rentals were not material.
-38-
NOTE 7. INTEREST EXPENSE AND CAPITALIZED INTEREST
Total Net
Interest Capitalized Interest
(ALL DOLLAR AMOUNTS IN THOUSANDS) EXPENSE INTEREST EXPENSE
1998 $8,406 $ 723 $7,683
1997 8,595 492 8,103
1996 8,299 1,101 7,198
NOTE 8. RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS
Substantially all employees are covered under retirement plans. The
defined benefit plans covering salaried employees provide benefits
based on final average pay formulas; the plans covering hourly
employees provide benefits based on years of service and fixed benefit
amounts for each year of service. The plans are funded in accordance
with federal laws and regulations.
The Company selected measurement dates of plan assets of September 30,
1998 and 1997.
In 1998, the Company offered a voluntary early retirement program to
encourage early retirements among certain salaried and hourly
employees. The program was part of the restructuring plan discussed in
Note 3 to the consolidated financial statements. As a result,
curtailment and settlement charges of $5.9 million and special
termination benefit charges of $23.3 million were recorded as a
component of the restructuring expense recognized in 1998.
The following are reconciliations of the projected benefit obligations
and the value of plan assets for 1998 and 1997:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
CHANGE IN BENEFIT OBLIGATION
Balance, beginning of year $ 119,379 $ 101,528
Service cost 4,687 4,079
Interest cost 8,421 7,743
Amendments to the plan 938 3,814
Actuarial loss 13,276 8,459
Benefits paid to participants ( 7,835) ( 6,244)
Curtailments ( 1,451) -
Settlements ( 48,170) -
Special termination benefits 20,561 -
Balance, end of the year $ 109,806 $ 119,379
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CHANGE IN PLAN ASSETS
Fair value, beginning of year $ 109,617 $ 87,081
Actual return on plan assets ( 3,844) 21,490
Company contributions 5,868 7,173
Benefits paid to participants ( 7,835) ( 6,197)
Settlements ( 48,170) -
Cash contributions to plans subsequent
to measurement date - 70
Fair value, end of year $ 55,636 $ 109,617
At December 31, 1998 and 1997, the funded status of the plans were as
follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
Excess of the benefit obligation
over the value of the plan assets ($ 54,170) ($ 9,762)
Unrecognized net actuarial (gain) loss 12,626 ( 10,380)
Unrecognized prior service cost 15,559 16,928
Unrecognized transition asset ( 891) ( 1,588)
Net amount recognized at end of year ($ 26,876) ($ 4,802)
For 1998 and 1997, the net amount recognized in the balance sheet was
classified as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
Prepaid benefit cost $ - $ 3,085
Accrued benefit liability ( 48,334) ( 19,686)
Intangible asset 13,890 9,686
Accumulated other comprehensive income 7,568 2,113
Net amount recognized at end of year ($26,876) ($ 4,802)
For 1998 and 1997, the following weighted average interest rates were
used to determine the projected benefit obligation:
1998 1997
Discount rate on the benefit plan 7.0% 7.25-7.50%
Rate of expected return on plan assets 9.0% 8.0-9.0%
Rate of employee compensation increase 5.0% 4.9-5.0%
Plan assets consist principally of publicly traded stocks and fixed
income securities and include Wausau-Mosinee common stock with a market
value of $8,918,000 in 1998 and $10,512,000 in 1997.
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Net periodic pension cost was comprised of the following:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Service cost $ 4,687 $ 2,950 $ 3,295
Interest cost 8,421 5,435 6,443
Expected return on plan assets ( 7,576) (13,120) ( 15,460)
Amortization of:
Actuarial loss 201 8,408 8,585
Prior service cost 1,570 1,418 1,418
Transition asset ( 231) ( 236) ( 236)
Subtotal 7,072 4,855 4,045
Components charged to restructuring
expense:
Special termination benefit 20,561
Settlement and curtailment 310
Subtotal 20,871 _______ _______
Total net periodic pension cost $ 27,943 $ 4,855 $ 4,045
The foregoing net amounts regarding the pension benefit obligation and
the value of plan assets are a combination of both overfunded and
underfunded plans. At December 31, 1998 and 1997, aggregate amounts
relating to underfunded plans are as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
Projected benefit obligation $ 109,806 ($41,040)
Accumulated benefit obligation ( 98,482) ( 39,453)
Fair value of plan assets 55,636 24,557
The Company also sponsors defined contribution pension plans, several
of which provide for Company contributions based on a percentage of
employee contributions. The cost of such plans totaled $3,066,000 in
1998, $3,872,000 in 1997 and $3,983,000 in 1996.
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. The annual cost of the deferred compensation and supplemental
retirement agreements does not represent a material amount.
The Company sponsors unfunded defined benefit postretirement health and
life insurance plans that cover substantially all employees reaching
normal retirement age while working for the Company. Benefits and
eligibility for various employee groups vary by location and union
agreements. Generally, employees are eligible after reaching age 55 or
62 and meeting minimum service requirements. At age 65, the benefits
become coordinated with Medicare. The Company funds the benefit costs
on a current basis.
-41-
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
CHANGE IN POSTRETIREMENT BENEFIT OBLIGATION
Balance, beginning of year $ 59,060 $ 49,294
Service cost 2,049 1,746
Interest cost 4,235 3,627
Plan participants' contributions 491 485
Amendments to the plan ( 2,025) -
Actuarial loss 2,035 7,390
Benefits paid for participants ( 3,657) ( 3,482)
Curtailments 5,594 -
Special termination benefits 2,723 -
Balance, end of year $ 70,505 $ 59,060
At December 31, 1998 and 1997, the funded status of the plans was as
follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
Excess of the benefit obligation over
the value of plan assets ($70,505) ($59,060)
Unrecognized net actuarial loss 9,569 7,625
Unrecognized prior service cost ( 1,861) -
Accrued benefit cost ($62,797) ($51,435)
The following weighted-average rates were used:
1998 1997
Discount rate on the benefit obligation 7.0% 7.25%
For 1998, the assumed health care cost trend rate used in measuring the
accumulated post-retirement benefit obligation was 7%, declining by 1%
annually for two years to an ultimate rate of 5%. For 1997, the assumed
health care cost trend rate used in measuring the accumulated
postretirement benefit obligation ranged from 8% to 9%, declining 1%
annually for three to four years to an ultimate rate of 5%.
-42-
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Service cost $ 2,049 $ 1,746 $ 1,569
Interest cost 4,235 3,627 3,476
Amortization of:
Actuarial loss 91 117 169
Prior service cost ( 164)
Subtotal 6,211 5,490 5,214
Components charged to restructuring
expense:
Special termination benefits 2,723
Curtailments 5,594
Subtotal 8,317
Total net periodic cost $ 14,528 $ 5,490 $ 5,214
Assumed health care cost trend rates significantly impact reported
amounts. The effect of a one-percentage-point change in the assumed
rates would alter the amounts of the benefit obligation and the sum of
the service cost and interest cost components of postretirement benefit
expense as follows for 1998:
ONE-PERCENTAGE-POINT
(ALL DOLLAR AMOUNTS IN THOUSANDS) INCREASE DECREASE
Effect on the postretirement
benefit obligation $ 8,965 ($7,665)
Effect on the sum of the service cost
and interest cost components $ 1,076 ($ 874)
NOTE 9. INCOME TAXES
Deferred tax assets and liabilities are determined based on the
estimated future tax effects of temporary differences between the
financial statement and tax bases of assets and liabilities, as
measured by the current enacted tax rates. Deferred tax expense
(benefit) is the result of changes in the deferred tax asset and
liability.
-43-
The provision for income taxes is comprised of the following:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Current tax expense:
Federal $ 21,880 $ 33,208 $ 24,947
State 3,492 3,918 4,051
Total current 25,372 37,126 28,998
Deferred tax expense (benefit):
Federal ( 321) 9,623 14,042
State ( 51) 1,442 610
Total deferred ( 372) 11,065 14,652
Total provision for income taxes $ 25,000 $ 48,191 $ 43,650
A reconciliation between taxes computed at the federal statutory rate
and the Company's effective tax rate follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Federal statutory tax rate $ 23,030 35.0% $ 39,763 35.0% $ 39,121 35.0%
State taxes (net of federal
tax benefits) 2,237 3.4 3,484 3.1 3,100 2.8
Nondeductible merger expenses 4,446 3.9
Other ( 267) ( .4) 498 0.4 1,429 1.3
Effective tax $ 25,000 38.0% $ 48,191 42.4% $ 43,650 39.1%
At the end of 1998, $18,000,000 of unused state operating loss
carryovers existed which may be used to offset future state taxable
income in various amounts through the year 2010. 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.
-44-
The major temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1998 and 1997 are as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
Deferred tax asset:
Allowances on accounts receivable $ 2,213 $ 1,964
Accrued compensated absences 3,472 3,785
Stock appreciation rights plans 4,467 4,960
Pensions 12,401 1,050
Inventories 2,262 2,401
Postretirement benefits 24,534 20,187
Postemployment benefits 343 337
Other accrued liabilities 2,043 1,239
State net operating loss carryforward 1,902 2,062
Other 1,493 1,423
Gross deferred tax asset 55,130 39,408
Less: valuation allowance ( 1,636) ( 1,619)
Net deferred tax asset 53,494 37,789
Deferred tax liability:
Property, plant and equipment (124,117) ( 112,668)
Other ( 5,944) ( 2,916)
Gross deferred tax liability (130,061) ( 115,584)
Net deferred tax liability ($76,567) ($ 77,795)
The total deferred tax liabilities (assets) as presented in the
accompanying consolidated balance sheets are as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997
Net long-term deferred tax liabilities $ 94,911 $ 92,947
Gross current deferred tax assets ( 19,980) ( 16,771)
Valuation allowance on deferred
tax assets 1,636 1,619
Net current deferred tax assets ( 18,344) ( 15,152)
Net deferred tax liability $ 76,567 $ 77,795
A valuation allowance has been recognized for a subsidiary's state loss
carryforward as cumulative losses create uncertainty about the
realization of the tax benefits in future years.
-45-
NOTE 10. STOCK OPTIONS AND APPRECIATION RIGHTS
The Company maintains the 1991 Employee Stock Option Plan. The plan
specifies purchase price, time and method of exercise. Payment of the
option price may be made in cash or by tendering an amount of common
stock having a fair market value equal to the option price.
Options are granted for terms up to 20 years, the option price being
equal to the fair market value of the Company's common stock at the
date of grant for incentive and non-qualified options.
The following table summarizes the activity relating to the Company's
stock option plans:
STOCK OPTIONS: --- 1998 --- --- 1997 --- --- 1996 ---
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
SHARES PRICE SHARES PRICE SHARES PRICE
Options outstanding at
beginning of year 1,030,722 $14.19 949,791 $16.33 770,792 $14.79
Granted 162,000 17.16 115,500 18.13 231,886 19.00
Terminated ( 42,500) 23.56 ( 27,125) 17.78
Exercised ( 97,972) 16.50 ( 7,444) 16.19 ( 52,887) 5.61
Options outstanding at
end of year 1,052,250 $13.93 1,030,722 $14.19 949,791 $16.33
Options exercisable at
end of year 887,250 $13.32 1,027,722 $14.17 846,905 $15.97
All shares and option prices have been restated to reflect the five-for
-four stock split occurring in 1996.
The Company has adopted Statement of Financial Accounting Standard
(SFAS) No. 123, "Accounting for Stock-Based Compensation." As permitted
under SFAS No. 123, the company will continue to measure compensation
cost for stock option plans using the "intrinsic value based method"
prescribed under APB No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost has been recognized for
the stock option plans. If compensation cost had been determined
consistent with the provisions of SFAS No. 123, which prescribes the
"fair value based method" on the grant date, both basic and diluted
earnings per share would have been $.73, $1.12 and $1.14 for the years
ended December 31, 1998 and 1997 and August 31, 1996, respectively.
The weighted-average grant-date exercise prices and weighted-average
fair values for options granted are as follows:
1998 1997
Exercise price equals market price
Exercise price $17.16 $18.73
Fair value 5.41 7.91
Exercise price less than market price
Exercise price - $17.69
Fair value - 8.67
-46-
The fair value of each option grant has been estimated on the grant
date using the Black-Scholes option pricing model based on the
following weighted-average assumptions:
1998 1997
Risk-free interest rate 4.55% 6.48%
Expected life in years 6 5-10
Price volatility 29.6% 24.5%
Dividend yield* 1.63 0
<FN>
* In 1997 the dividend yield is assumed to be zero because dividend
equivalents were granted in tandem with the options granted. As
such, dividends do not reduce the economic value of the options.
The 1988 Management Incentive Plan entitles certain management
employees the right to receive cash equal to the sum of the
appreciation in value of the stock and the hypothetical value of cash
dividends which would have been paid on the stock covered by the grant
assuming reinvestment in Company stock. The stock appreciation rights
granted may be exercised in whole or in such installments and 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 the quoted
market value of the shares and the exercise provisions.
The following table summarizes the activity relating to the Company's
stock appreciation rights plans:
STOCK APPRECIATION RIGHTS:
1998 1997 1996
Rights outstanding at beginning of year
(number of shares) 561,907 598,008 1,050,171
Granted 415,905
Terminated ( 6,159)
Exercised ( 24,821) ( 36,101) ( 446,004)
Rights outstanding at end of year
(number of shares) 952,991 561,907 598,008
Rights exercisable at end of year
(number of shares) 952,991 561,907 598,008
Price range of stock appreciation
rights exercised $4.46 $4.46-5.64 $ 4.46-9.70
Price range of outstanding
stock appreciation rights $4.06-19.06 $4.06-19.06 $ 4.45-9.70
All shares and price ranges have been restated to reflect the
five-for-four stock split occurring in 1996.
The Company maintains the 1991 Dividend Equivalent Plan. Participants
are entitled to receive cash based on the hypothetical value of cash
dividends which would have been paid on the stock covered by the
grant assuming reinvestment in Company stock.
-47-
DIVIDEND EQUIVALENTS:
1998 1997 1996
Equivalents outstanding at beginning
of year (number of shares) 296,778 276,347 142,999
Granted 70,000 143,125
Exercised ( 38,848) ( 25,569) ( 9,777)
Terminated ( 24,000)
Equivalents outstanding at end of year
(number of shares) 257,930 296,778 276,347
Equivalents exercisable at end of year
(number of shares) 257,930 293,778 276,347
All shares have been restated to reflect the five-for-four stock split
occurring in 1996.
The provision (credit) for all stock option discounts, dividend
equivalents and stock appreciation rights for the years ended December
31, 1998 and 1997 and August 31, 1996 was ($1,520,000), $2,140,000 and
$4,980,000, respectively.
NOTE 11. RESEARCH EXPENSES
Research expenses charged to operations were $3,309,000 in 1998,
$1,577,000 in 1997 and $1,381,000 in 1996.
NOTE 12. COMMITMENTS AND CONTINGENCIES
In 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 lawsuit alleges a conspiracy to fix prices
of commercial sanitary paper products starting at least as early as
1993. Since the filing of this lawsuit, numerous class action suits
have been filed by private direct purchasers of commercial sanitary
paper products in various federal district courts throughout the
country and additional federal lawsuits have been filed by the
Attorneys General of the States of Kansas, Maryland, New York, and
West Virginia. All of these federal cases have been certified as class
actions and consolidated in a multi-district litigation proceeding in
the United States District Court for the Northern District of Florida
in Gainesville. Certain indirect purchasers of sanitary commercial
paper products have also filed class action lawsuits in various state
courts alleging a conspiracy to fix prices under state antitrust laws.
No class has been certified in the state actions. All of these actions
are in early stages. In the opinion of management, the Company has not
violated any antitrust laws. The Company is vigorously defending these
claims. The Company is also involved from time to time in various
other legal and administrative proceedings or subject to various claims
in the normal course of its business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the consolidated financial condition, liquidity, or results
of operations of the Company.
As of December 31, 1998, the Company was committed to spend
approximately $70 million to complete capital projects which were
in various stages of completion.
-48-
The Company is a party to a natural gas transportation agreement with
the Portland Natural Gas Transmission System (PNGTS). Under the terms
of the agreement, PNGTS has constructed the necessary gas supply and
delivery equipment to the Company's Groveton, New Hampshire mill. The
Company is committed to the transportation of a fixed volume of natural
gas over a 20-year period which begins on the date transportation of
natural gas commences under the agreement. Capital improvements to the
Groveton mill's power plant, which the Company estimates will cost
approximately $1.5 million, will be required to take advantage of this
agreement. Transportation of natural gas to the Groveton mill is
expected to begin in the third quarter of 1999.
NOTE 13. PREFERRED SHARE PURCHASE RIGHTS PLAN
On October 21, 1998, the Board of Directors declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share
of common stock of the Company (the "Common Shares"). Each Right
entitles the registered holder to purchase from the Company one
one-thousandth of a share of Series A Junior Participating Preferred
Stock of the Company, without par value (the "Preferred Shares"), at a
price of $60 per one one-thousandth of a Preferred Share (the
"Purchase Price"), subject to adjustment. In the event that any person
or group (with certain exceptions) acquires beneficial ownership of 15%
or more of the outstanding Common Shares (an "Acquiring Person"), each
holder of a Right, other than the Acquiring Person, will thereafter
have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right. If
the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power
are sold after a person or group has become an Acquiring Person, each
holder of a Right, other than an Acquiring Person, will thereafter have
the right to receive that number of shares of common stock of the
acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right.
The Rights are not exercisable until the Distribution Date. Until a
Right is exercised, the holder thereof, as such, will have no rights as
a shareholder of the Company. The "Distribution date" is the earlier of
(i) 10 days following a public announcement that a person or group has
become an Acquiring Person; or (ii) 10 business days (or such later
date as may be determined by action of the Board of Directors)
following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer which would result in any person
becoming an Acquiring Person. The Rights will expire on October 31,
2008 unless the expiration date is extended or unless the Rights are
redeemed or exchanged by the Company prior to expiration.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution in the event of stock
dividends, stock splits, reclassifications, or certain distributions with
respect to the Preferred Shares. The number of outstanding Rights and
the number of one one-thousandths of a Preferred Share issuable upon
exercise of each Right are also subject to adjustment if, prior to the
Distribution Date, there is a stock split, a stock dividend in Common
Shares, or a subdivision or consolidation of the Common Shares.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $10 per share, but will be
entitled to an aggregate dividend of 1000 times the dividend declared
-49-
per Common Share. In the event of liquidation, the holders of the
Preferred Shares will be entitled to a minimum preferential liquidation
payment of $1000 per share, but will be entitled to an aggregate
payment of 1000 times the payment made per Common Share. Each
Preferred Share will have 1000 votes, voting together with the Common
Shares. Finally, in the event of any merger, consolidation or other
transaction in which Common Shares are exchanged, each Preferred Share
will be entitled to receive 1000 times the amount received per Common
Share. The value of the one one-thousandth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the
value of one Common Share.
At any time after any person or group becomes an Acquiring Person, and
prior to the acquisition by such person or group of 50% or more of the
outstanding Common Shares, the Board of Directors may exchange the
Rights, other than Rights owned by the Acquiring Person, in whole or in
part, at an exchange ratio of one Common Share, or one one-thousandth
of a Preferred Share (subject to adjustment). At any time prior to any
person or group becoming an Acquiring Person, the Board of Directors
may redeem the Rights in whole, but not in part, at a price of $ .01
per Right.
The terms of the Rights may be amended by the Board of Directors
without the consent of the holders of the Rights, including an
amendment to lower certain thresholds described above to not less than
the greater of (i) the sum of .001% and the largest percentage of the
outstanding Common Shares then known to the Company to be beneficially
owned by any person or group affiliated or associated persons (with
certain exceptions) and (ii) 10%, except that from and after such time
as any person or group becomes an Acquiring Person no such amendment
may adversely affect the interests of the holders of the Rights.
NOTE 14. FUTURES CONTRACTS
At December 31, 1998, the Company was party to various futures
contracts for the purchase of natural gas and fuel oil. The natural gas
contracts require the Company to purchase 575,000 decatherms of natural
gas during 1999. The delivered price of natural gas varies from $2.73
to $3.42 per decatherm. The fuel oil contracts require the Company to
purchase 146,000 barrels of oil during 1999. The delivered price of oil
varies from $13.95 to $17.19 per barrel. At December 31, 1998, the
Company's futures contracts have no carrying value. The fair value of
the contracts and the total deferred gain or loss on the contracts are
immaterial at December 31, 1998.
NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of the following financial instruments is not materially
different from the carrying value: cash and cash equivalents, long-term
debt, capital leases and futures contracts.
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments:
Cash and cash equivalents - The carrying amount approximates fair value
due to the relatively short period to maturity for these instruments.
Long-term debt - The fair value of the Company's long-term debt is
estimated based on current rates offered to the Company for debt of the
same remaining maturities.
Capital leases - The carrying amount reported in the balance sheets for
capital leases approximates fair value.
-50-
Futures contracts - The fair values of the Company's commodity products
futures contracts were estimated using the prices published by NYMEX,
the contract price and the remaining commodity products to be purchased
under the contracts.
NOTE 16. SEGMENT DATA
FACTORS USED TO IDENTIFY REPORTABLE SEGMENTS
The Company's operations are classified into three principal reportable
segments, the Specialty Paper Group, the Printing & Writing Group and
the Towel & Tissue Group, each providing different products. Separate
management of each segment is required because each business unit is
subject to different marketing, production and technology strategies.
PRODUCTS FROM WHICH REVENUE IS DERIVED
The Specialty Paper Group produces specialty papers at its
manufacturing facilities in Rhinelander, Wisconsin; Mosinee, Wisconsin;
Jay, Maine; and Middletown, Ohio. The Printing & Writing Group produces
a broad line of premium printing and writing grades at manufacturing
facilities in Brokaw, Wisconsin and Groveton, New Hampshire. The
Printing & 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 & Tissue Group manufactures a complete line of
towel, tissue, soap and dispensing systems for the "away-from-home"
market. The Towel & Tissue Group operates a paper mill in Middletown,
Ohio and a converting facility in Harrodsburg, Kentucky.
MEASUREMENT OF SEGMENT PROFIT AND ASSETS
The Company evaluates performance and allocates resources based on
operating profit or loss. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
-51-
RECONCILIATIONS
The following are reconciliations to corresponding totals in the
accompanying consolidated financial statements.
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
Net sales external customers
Specialty Paper $ 423,473 $ 415,893 $ 363,748
Printing & Writing 376,131 380,479 365,936
Towel & Tissue 146,523 136,755 127,475
$ 946,127 $ 933,127 $ 857,159
Net sales intersegment
Specialty Paper $ 13,737 $ 10,448 $ 4,680
Printing & Writing 1,595 1,078 1,341
Towel & Tissue 89 120 528
$ 15,421 $ 11,646 $ 6,549
Operating profit
Specialty Paper $ 47,261 $ 56,942 $ 46,886
Printing & Writing 53,613 60,972 54,754
Towel & Tissue 24,018 33,706 33,269
Total reportable segment
operating profit 124,892 151,620 134,909
Corporate and eliminations ( 9,944) ( 17,289) ( 15,860)
Restructuring/merger expense ( 42,803) ( 13,503)
Interest expense ( 7,683) ( 8,103) ( 7,198)
Other income/(expense) 1,339 864 ( 73)
Earnings before income taxes $ 65,801 $ 113,589 $ 111,778
Segment assets
Specialty Paper $ 371,986 $ 366,489
Printing & Writing 293,509 304,102
Towel & Tissue 176,303 166,146
Corporate & unallocated 58,351 35,327
$ 900,149 $ 872,064
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OTHER SIGNIFICANT ITEMS
Depreciation Expenditures
Interest and for Long-Lived
(ALL DOLLAR AMOUNTS IN THOUSANDS) INCOME AMORTIZATION ASSETS
1998
Specialty Paper $ 166 $ 21,629 $ 25,713
Printing & Writing __ 15,549 22,972
Towel & Tissue __ 10,992 17,700
Corporate & unallocated 237 1,655 10,638
$ 403 $ 49,825 $ 77,023
1997
Specialty Paper $ 56 $ 19,712 $ 28,926
Printing & Writing - 15,156 21,086
Towel & Tissue - 11,730 15,156
Corporate & unallocated 39 661 894
$ 95 $ 47,259 $ 66,062
1996
Specialty Paper $ 10 $ 15,606 $ 33,910
Printing & Writing - 13,778 35,560
Towel & Tissue - 10,814 12,403
Corporate & unallocated 552 1,006 616
$ 562 $ 41,204 $ 82,489
COMPANY GEOGRAPHIC DATA
The Company has no long-lived assets outside the United States. Net
sales to customers within the United States and other countries are as
follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS) 1998 1997 1996
United States $887,267 $873,633 $808,067
All foreign countries 58,860 59,494 49,092
$946,127 $933,127 $857,159
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QUARTERLY FINANCIAL DATA (UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
First Second Third Fourth
QTR.* QTR. QTR. QTR.** ANNUAL
1998
Net sales $ 237,660 $ 243,636 $ 241,603 $ 223,228 $ 946,127
Gross profit 46,309 48,687 42,263 37,792 175,051
Operating profit (loss) ( 11,378) 35,009 33,453 15,061 72,145
Net earnings (loss) ( 8,238) 20,804 19,611 8,624 40,801
Net earnings (loss) per
share basic ($ 0.14) $ 0.36 $ 0.34 $ 0.16 $ 0.73
1997
Net sales $ 211,892 $ 234,481 $ 248,578 $ 238,176 $ 933,127
Gross profit 48,606 52,048 54,347 44,662 199,663
Operating profit 33,941 36,292 33,563 17,032 120,828
Net earnings 19,955 21,336 19,723 4,384 65,398
Net earnings per share
basic $ 0.34 $ 0.37 $ 0.34 $ 0.08 $ 1.13
1996
Net sales $ 218,080 $ 207,783 $ 221,207 $ 210,089 $ 857,159
Gross profit 37,790 41,131 54,045 50,325 183,291
Operating profit 21,370 25,545 38,664 33,470 119,049
Net earnings 11,987 14,336 22,373 19,432 68,128
Net earnings per share
basic $ 0.20 $ 0.25 $ 0.38 $ 0.33 $ 1.16
<FN>
1998 and 1997 figures are based on the years ending December 31, 1996
figures are for the year ending August 31, 1996.
* In 1998, includes an after-tax expense of $23.4 million ($37.7
million pre-tax) or $.40 per share for restructuring expenses
relating to a workforce reduction program and other merger-related
costs.
** In 1998, includes an after-tax expense of $3.2 million ($5.1
million pre-tax) or $.06 per share for restructuring expenses
relating to a workforce reduction program and other merger-related
costs and in 1997, includes an after-tax expense of $13.2 million
($13.5 million pre-tax) or $.23 per share for merger-related
expenses.
-54-
MARKET PRICES FOR COMMON SHARES (UNAUDITED)
1998 1997 1996
Prices Prices Prices
QTR. HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
1st $24.00 $18.88 $ - * $20.50 $17.88 $0.0625 $23.50 $20.80 $0.055
2nd 24.13 20.13 0.14* 19.75 17.55 0.0625 24.13 19.75 0.055
3rd 22.75 12.13 0.07 25.38 18.75 0.0625 20.50 16.50 0.055
4th 18.50 12.25 0.07 24.38 19.69 0.0625 21.38 18.50 0.0625
<FN>
* Due to a change in fiscal years from an August 31 year-end to a December
31 year-end, no dividend was declared in the first quarter of 1998, and
two quarterly dividends were declared in the second quarter.
All prices through March 25, 1998, represent the high and the low
closing prices reported on the Nasdaq National Market System and
reflect inter-dealer prices, without mark-up, mark-down or commission
and may not necessarily represent actual transactions. Prices after
March 25, 1998, represent the high and the low sales prices for the
common stock as reported on the New York Stock Exchange.
-55-
Schedule II - Valuation and Qualifying Accounts
($ thousands)
RECEIVABLE ALLOWANCES OTHER ALLOWANCES
Allowance
Allow for Allowance for
Doubtful for Pending Merger Restructure
TOTAL ACCOUNTS DISCOUNTS CREDITS ALLOWANCE ALLOWANCE
Balance August 31, 1995 $ 7,893 $ 2,923 $ 2,003 $ 2,967 $ 0 $ 0
Charges to cost and
expense 24,017 320 14,149 9,548 0 0
Deductions (23,010) (103) (14,374) (8,533) 0 0
Balance August 31, 1996 $ 8,900 $ 3,140 $ 1,778 $ 3,982 $ 0 $ 0
Charges to cost and
expense 28,221 765 9,462 17,994 13,503 0
Deductions (28,382) (984) (10,469) (16,929) (12,737) 0
Balance December 31, 1997 $ 8,739 $ 2,921 $ 771 $ 5,047 $ 766 $ 0
Charges to cost and
expense 21,180 1,296 8,391 11,493 0 42,803
Deductions (19,857) (97) (8,433) (11,327) (766) (39,651)
Balance December 31, 1998 $ 10,062 $ 4,120 $ 729 $ 5,213 $ 0 $ 3,152
-56-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
None.
-57-
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 materials set forth in the
table on pages 4 and 5 under the caption "Election of Directors" in the
Company's proxy statement relating to the 1999 annual meeting of
shareholders (the "1999 Proxy Statement"). Information relating to the
identification of executive officers of the Company is found in Part I
of this Form 10-K. Information required under Rule 405 of Regulation
S-K is incorporated into this Form 10-K by this reference to the
material set forth under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 9 of the 1999 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to director compensation is incorporated into this
Form 10-K by this reference to the material set forth in the 1999 Proxy
Statement under the caption "Committees and Compensation of Board of
Directors - Director Compensation," on pages 6 and 7. 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 "Compensation of Executive Officers," page 9 through the
material set forth under the subcaption, "Pension Plan and Other
Benefits" in the 1999 Proxy Statement and (2) the material set forth
under the caption "Committee Interlocks and Insider Participation," on
page 16 of the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information relating to security ownership of certain beneficial owners
and management is incorporated into this Form 10-K by this reference to
the material under the caption "Beneficial Ownership of Common Stock,"
pages 7, 8 and 9 of the 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) Documents filed as part of this report.
(1) The following financial statements are filed as part of this
report:
(i) Consolidated Balance Sheets as of December 31, 1998 and 1997
(ii) Consolidated Statements of Income for the years ended
December 31, 1998 and 1997, and August 31, 1996
(iii) Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997, and August 31, 1996
(iv) Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997, and August 31, 1996
(v) Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
The following financial statement schedule is filed as part of this
report:
(i) Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1998 and 1997, and August 31, 1996
(page 56)
All other schedules prescribed by Regulation S-X are not submitted
because they are not applicable or not required, or because the
required information is included in the Consolidated Financial
Statements and Notes thereto.
-59-
(3) Exhibits
The following exhibits required by Item 601 of Regulation S-K are
filed as part of this report:
Exhibit
NUMBER DESCRIPTION
3.1 Restated Articles of Incorporation, as amended October 21,
1998 (incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K dated October 21, 1998)
3.2 Restated Bylaws, as amended December 17, 1997 (incorporated
by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-8 dated December 17, 1997)
4.1 Rights Agreement, dated as of October 21, 1998, between the
Company and Harris Trust and Savings Bank, including the Form
of Restated Articles of Incorporation as Exhibit A and the
Form of Rights Certificate as Exhibit B (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated October 21, 1998)
4.2 Summary of Rights to Purchase Preferred Shares, Exhibit C to
Rights Agreement filed as Exhibit 4.1 hereto (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form 8-A, filed on October 29, 1998)
10.1 Supplemental Retirement Plan as amended April 16, 1998,
as amended March 4, 1999
10.2 Incentive Compensation Plans (Printing and Writing Division
and Technical Specialty Division), as amended September 17,
1997 (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended November 30, 1997)*
10.3 Corporate Management Incentive Plan, as amended September 18,
1996 (incorporated by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1996)*
10.4 1988 Stock Appreciation Rights Plan, as last amended March 4,
1999*
10.5 1988 Management Incentive Plan, as last amended March 4,
1999*
10.6 1990 Stock Appreciation Rights Plan, as last amended March 4,
1999*
10.7 Deferred Compensation Agreement dated July 1, 1994, as last
amended March 4, 1999*
10.8 1991 Employee Stock Option Plan, as last amended March 4,
1999*
10.9 1991 Dividend Equivalent Plan, as last amended March 4, 1999*
-60-
10.10 Supplemental Retirement Benefit Plan dated January 16, 1992,
as last amended March 4, 1999*
10.11 Directors' Deferred Compensation Plan, as last amended March
4, 1999*
10.12 Directors Retirement Benefit Policy, as amended April 16,
1998 (incorporated by reference to Exhibit 10.12 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998)*
10.13 Transition Benefit Agreement with former President and CEO
(incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended August
31, 1997)*
10.14 Mosinee Paper Corporation 1985 Executive Stock Option Plan,
as last amended March 4, 1999*
10.15 Mosinee Paper Corporation 1988 Stock Appreciation Rights
Plan, as last amended March 4, 1999*
10.16 Mosinee Paper Corporation 1996 and 1997 Incentive
Compensation Plans for Corporate Executive Officers
(incorporated by reference to Exhibit 10.16 to the Company's
Transition Report on Form 10-Q for the transition period
ended December 31, 1997)*
10.18 Mosinee Paper Corporation Supplemental Retirement Benefit
Agreement dated November 15, 1991, as last amended March 4,
1999
10.19 Mosinee Paper Corporation 1994 Executive Stock Option Plan,
as last amended March 4, 1999*
10.20 Incentive Compensation Plan for Executive Officers (1998)
(incorporated by reference to Exhibit 10.20 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998)*
10.21 1999 Incentive Compensation Plan for Executive Officers*
21.1 Subsidiaries as of December 31, 1998
23.1 Consent of Wipfli Ullrich Bertelson LLP
27.1 Financial Data Schedule
*Executive compensation plans or arrangements. All plans are
sponsored or maintained by the Company unless otherwise
noted.
-61-
(b) Reports on Form 8-K:
The Company filed one Form 8-K during the fourth quarter of
1998.
In a Current Report on Form 8-K dated October 21, 1998, the
Company announced the declaration of a dividend of one
preferred share purchase right (a "Right") for each
outstanding share of common stock, and summarized the terms
and conditions of the Rights. No financial statements were
filed in connection with the Report.
-62-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 29, 1999 GARY P. PETERSON
Gary P. Peterson
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
-63-
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.
March 29, 1999
SAN W. ORR, JR. RICHARD L. RADT
San W. Orr, Jr. Richard L. Radt
Chairman of the Board Vice Chairman of the Board
DANIEL R. OLVEY HARRY R. BAKER
Daniel R. Olvey Harry R. Baker
President and CEO Director
(Principal Executive Officer)
RICHARD G. JACOBUS WALTER ALEXANDER
Richard G. Jacobus Walter Alexander
Director Director
GARY W. FREELS DAVID B. SMITH, JR.
Gary W. Freels David B. Smith, Jr.
Director Director
-64-
EXHIBIT INDEX<dagger>
TO
FORM 10-K
OF
WAUSAU-MOSINEE PAPER CORPORATION
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. <section>232.102(d))
EXHIBIT 10.1 SUPPLEMENTAL RETIREMENT PLAN AS AMENDED APRIL 16, 1998,
AS AMENDED MARCH 4, 1999
EXHIBIT 10.4 1988 STOCK APPRECIATION RIGHTS PLAN, AS LAST AMENDED MARCH
4, 1999*
EXHIBIT 10.5 1988 MANAGEMENT INCENTIVE PLAN, AS LAST AMENDED MARCH 4,
1999*
EXHIBIT 10.6 1990 STOCK APPRECIATION RIGHTS PLAN, AS LAST AMENDED MARCH
4, 1999*
EXHIBIT 10.7 DEFERRED COMPENSATION AGREEMENT DATED JULY 1, 1994, AS
LAST AMENDED MARCH 4, 1999*
EXHIBIT 10.8 1991 EMPLOYEE STOCK OPTION PLAN AS LAST AMENDED MARCH 4,
1999*
EXHIBIT 10.9 1991 DIVIDEND EQUIVALENT PLAN AS LAST AMENDED MARCH 4,
1999*
EXHIBIT 10.10 SUPPLEMENTAL RETIREMENT BENEFIT PLAN DATED JANUARY 16,
1992, AS LAST AMENDED MARCH 4, 1999*
EXHIBIT 10.11 DIRECTORS' DEFERRED COMPENSATION PLAN, AS LAST AMENDED
MARCH 4, 1999*
EXHIBIT 10.14 MOSINEE PAPER CORPORATION 1985 EXECUTIVE STOCK OPTION
PLAN, AS LAST AMENDED MARCH 4, 1999*
EXHIBIT 10.15 MOSINEE PAPER CORPORATION 1988 STOCK APPRECIATION RIGHTS
PLAN, AS LAST AMENDED MARCH 4, 1999*
EXHIBIT 10.18 MOSINEE PAPER CORPORATION SUPPLEMENTAL RETIREMENT BENEFIT
AGREEMENT DATED NOVEMBER 15, 1991, AS LAST AMENDED MARCH
4, 1999
EXHIBIT 10.19 MOSINEE PAPER CORPORATION 1994 EXECUTIVE STOCK OPTION
PLAN, AS LAST AMENDED MARCH 4, 1999*
EXHIBIT 10.21 1999 INCENTIVE COMPENSATION PLAN FOR EXECUTIVE OFFICERS*
EXHIBIT 21.1 SUBSIDIARIES AS OF DECEMBER 31, 1998
EXHIBIT 23.1 CONSENT OF WIPFLI ULLRICH BERTELSON LLP
EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
<dagger> Exhibits required by Item 601 of Regulation S-K which have
previously been filed and are incorporated herein by reference are
set forth in Part IV, Item 14 of Form 10-K to which this Exhibit
Index relates.
*Executive compensation plans or arrangements. All plans are
sponsored or maintained by the Company unless otherwise noted.
-65-