FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________ to _________________
Commission file number: 0-7574
WAUSAU-MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
WISCONSIN 39-0690900
(State of incorporation) (I.R.S Employer Identification Number)
1244 KRONENWETTER DRIVE
MOSINEE, WISCONSIN 54455-9099
(Address of principal executive office)
Registrant's telephone number, including area code: 715-693-4470
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The number of common shares outstanding at October 31, 1999 was
51,416,691.
WAUSAU-MOSINEE PAPER CORPORATION
AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Three Months and Nine Months Ended
September 30, 1999 (unaudited) and
September 30, 1998 (unaudited) 1
Consolidated Balance
Sheets, September 30, 1999 (unaudited)
and December 31, 1998 (derived from
audited financial statements) 2
Consolidated Statements
of Cash Flows, Nine Months
Ended September 30, 1999 (unaudited)
and September 30, 1998 (unaudited) 3
Notes to Consolidated
Financial Statements 3-6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-13
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 15-17
(i)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Wausau-Mosinee Paper Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
($ thousands, except per share
data - unaudited) 1999 1998 1999 1998
NET SALES $ 245,825 $ 241,603 $ 706,523 $ 722,899
Cost of products sold 212,128 199,340 597,004 585,640
GROSS PROFIT 33,697 42,263 109,519 137,259
Selling and administrative expenses 11,158 8,810 44,200 42,475
Restructuring expense 0 0 0 37,700
OPERATING PROFIT 22,539 33,453 65,319 57,084
Interest expense (3,224) (1,738) (8,314) (5,608)
Other (439) (54) 102 251
EARNINGS BEFORE INCOME TAXES 18,876 31,661 57,107 51,727
Provision for income taxes 7,090 12,050 21,490 19,550
NET EARNINGS $ 11,786 $ 19,611 $ 35,617 $ 32,177
NET EARNINGS PER SHARE BASIC $ 0.23 $ 0.34 $ 0.68 $ 0.56
NET EARNINGS PER SHARE DILUTED $ 0.22 $ 0.34 $ 0.66 $ 0.56
Weighted average shares
outstanding-basic 52,185,355 56,952,824 52,548,312 57,555,637
Weighted average shares
outstanding-diluted 52,312,163 57,002,649 52,686,959 57,700,987
-1-
Wausau-Mosinee Paper Corporation
CONSOLIDATED BALANCE SHEETS
($ thousands*) SEPTEMBER 30, December 31,
1999 1998
Assets
Current assets:
Cash and cash equivalents $ 2,540 $ 2,495
Receivables, net 90,476 66,956
Refundable income taxes 0 3,282
Inventories 147,026 150,217
Deferred income taxes 17,519 18,344
Other current assets 1,826 832
Total current assets 259,387 242,126
Property, plant and equipment, net 647,557 625,065
Other assets 32,020 32,958
TOTAL ASSETS $ 938,964 $ 900,149
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 0 $ 45,466
Current maturities of long-term debt 199 6,051
Accounts payable 61,145 58,419
Accrued and other liabilities 49,071 50,784
Total current liabilities 110,415 160,720
Long-term debt 227,663 127,000
Deferred income taxes 94,397 94,911
Postretirement benefits 58,181 60,558
Pension 41,135 39,235
Other liabilities 13,165 21,139
Total liabilities 544,956 503,563
Stockholders' equity 394,008 396,586
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 938,964 $ 900,149
<FN>
*The consolidated balance sheet at September 30, 1999 is unaudited. The
December 31, 1998 consolidated balance sheet is derived from audited
financial statements.
-2-
Wausau-Mosinee Paper Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
($ thousands - unaudited) 1999 1998
Net cash provided by operating activities $ 54,654 $ 89,477
Capital expenditures (62,748) (54,559)
Borrowings under credit agreements 49,031 821
Dividends paid (12,120) (11,684)
Purchase of company stock (29,953) (32,663)
Proceeds on sale of property, plant
and equipment 738 9,468
Other investing and financing activities 443 1,741
Net increase in cash $ 45 $ 2,601
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The accompanying condensed financial statements, in the opinion
of management, reflect all adjustments which are normal and
recurring in nature and which are necessary for a fair statement
of the results for the periods presented. Some adjustments
involve estimates which may require revision in subsequent
interim periods or at year-end. In all regards, the financial
statements have been presented in accordance with generally
accepted accounting principles. Refer to notes to the financial
statements which appear in the Annual Report on Form 10-K for
the year ended December 31, 1998, for the company's accounting
policies which are pertinent to these statements.
Note 2. In connection with the merger of Wausau Paper Mills Company
(Wausau) and Mosinee Paper Corporation (Mosinee) on December 17,
1997, the company implemented a plan to reduce its work force by
over 8%. An after-tax expense of $23.4 million ($37.7 million
pretax) or $0.40 per share was recorded in the three month
-3-
period ended March 31, 1998 to cover the cost of this work force
reduction initiative as well as smaller amounts for other merger
related costs.
Note 3. Net income includes expenses, or credits, for stock-based
incentive plans calculated by using the average price of the
company's stock at the close of the reporting period as if all
plans had been exercised on that day. For the three months
ended September 30, 1999, these plans resulted in after-tax
income of $2,613,000 or $0.05 per share, compared to after-tax
income of $4,067,000 or $0.07 per share for the same period last
year. Year-to-date, 1999, these plans resulted in after-tax
income of $2,264,000 or $.04 per share compared to after-tax
income of $2,800,000 or $.05 per share for the same period last
year.
Note 4. Accounts receivable consisted of the following:
($ thousands) SEPTEMBER 30, December 31,
1999 1998
Customer Accounts $98,551 $73,950
Misc. Notes and Accounts Receivable 3,030 3,068
Subtotal 101,581 77,018
Less: Allowances for Discounts,
Doubtful Accounts and Pending
Credits 11,105 10,062
Receivables, Net $90,476 $66,956
Note 5. The various components of inventories were as follows:
($ thousands) SEPTEMBER 30, December 31,
1999 1998
Raw Materials and Supplies $ 80,487 $ 86,994
Finished Goods and Work in Process 82,934 75,906
Subtotal 163,421 162,900
Less: LIFO Reserve ( 16,395) ( 12,683)
Net inventories $147,026 $150,217
Note 6. The accumulated depreciation on fixed assets was $464,065,000 as
of September 30, 1999 and $427,954,000 as of December 31, 1998.
The provision for depreciation, amortization and depletion for
the nine months ended September 30, 1999 and September 30, 1998
was $38,829,000 and $37,325,000, respectively.
Note 7. On August 31, 1999, the Company closed and funded a private
placement note offering for $138,500,000. See Item 2,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financing."
Note 8. Certain legal proceedings are described under Part II, Item 1 of
this report.
-4-
Note 9. Interim Segment Information
FACTORS USED TO IDENTIFY REPORTABLE SEGMENTS
The Company's operations are classified into three principal
reportable segments, the Specialty Paper Group, the Printing &
Writing Group and the Towel & Tissue Group, each providing
different products. Separate management of each segment is
required because each business unit is subject to different
marketing, production and technology strategies.
PRODUCTS FROM WHICH REVENUE IS DERIVED
The Specialty Paper Group produces specialty papers at its
manufacturing facilities in Rhinelander, Wisconsin; Mosinee,
Wisconsin; Jay, Maine; and Middletown, Ohio. The Printing &
Writing Group produces a broad line of premium printing and writing
grades at manufacturing facilities in Brokaw, Wisconsin and
Groveton, New Hampshire. The Printing & Writing Group also
includes two converting facilities which produce wax-laminated
roll wrap and related specialty finishing and packaging products
and a converting facility which produces school papers. The Towel
& Tissue Group markets a complete line of towel, tissue, soap and
dispensing systems for the "away-from-home" market. The Towel &
Tissue Group operates a paper mill in Middletown, Ohio and a
converting facility in Harrodsburg, Kentucky.
RECONCILIATIONS
The following are reconciliations to corresponding totals in the
accompanying consolidated financial statements:
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
($ in thousands-unaudited) 1999 1998 1999 1998
Net sales external customers
Specialty Paper $103,549 $102,964 $301,059 $323,452
Printing & Writing 100,091 99,056 289,875 288,166
Towel & Tissue 42,185 39,583 115,589 111,281
$245,825 $241,603 $706,523 $722,899
Net sales intersegment
Specialty Paper $ 1,638 $ 3,665 $ 8,784 $ 11,332
Printing & Writing 1,004 452 1,884 1,222
Towel & Tissue 3 11 101 75
$ 2,645 $ 4,128 $ 10,769 $ 12,629
Operating profit
Specialty Paper $ 1,850 $ 8,934 $ 15,671 $ 37,985
Printing & Writing 11,849 14,056 33,963 40,238
Towel & Tissue 6,421 6,051 18,189 20,097
Total reportable segment
Operating profit 20,120 29,041 67,823 98,320
Corporate & eliminations 2,419 4,412 ( 2,504) ( 3,536)
Restructuring charge 0 0 0 (37,700)
Interest expense ( 3,224) ( 1,738) (8,314) ( 5,608)
Other income/expense ( 439) ( 54) 102 251
Earnings before income taxes $ 18,876 $ 31,661 $ 57,107 $ 51,727
-5-
($ in thousands-unaudited) SEPTEMBER 30, December 31,
1999 1998
Segment Assets
Specialty Paper $391,146 $ 371,986
Printing & Writing 316,099 293,509
Towel & Tissue 186,365 176,303
Corporate & Unallocated* 45,354 58,351
$938,964 $ 900,149
<FN>
* Industry segment assets do not include intersegment accounts
receivable, cash, deferred tax assets and certain other assets
which are not identifiable with industry segments.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS*
RESULTS OF OPERATIONS
NET SALES
For the three months ended September 30, 1999, net sales for the company
were $245.8 million, an increase of 2% from the prior year's third
quarter net sales of $241.6 million. The total tons shipped for the
three months ended September 30, 1999 were 218,000 tons and also
increased 2% over the prior years third quarter. For the first nine
months of 1999, net sales were $706.5 million compared to $722.9 million
in 1998, or a decrease of 2%. Shipments for the nine months ended
September 30, 1999 were 636,000 tons compared to 632,000 tons in the
prior year.
Net sales for the Specialty Paper Group were $103.5 million compared to
$103.0 million for the third quarters of 1999 and 1998, respectively.
Total tons shipped were 91,000 compared to 90,000 for the third quarter
of 1999 compared to 1998. Average selling prices were lower in the third
quarter of 1999 compared to 1998 due to continued competitive conditions,
particularly in the pressure sensitive products marketed by the
Rhinelander and Otis mills. For the first nine months of 1999, Specialty
Paper Group sales were $301.1 million, down 7% over the same period a
year ago. Shipment volume was 271,000 tons in the first nine months of
1999 and was down 3% from the comparable period in 1998. The principal
reason for the reduction in year-to-date shipment volume was the rebuild
of the Otis #11 paper machine during the second quarter of 1999.
Third quarter sales for the Printing & Writing Group were $100.1 million
in 1999 compared to $99.1 million in 1998, an increase of 1%. Shipment
volume was comparable for both quarters and selling prices improved
approximately 1% over the prior year's third quarter. Printing & Writing
sales were $289.9 million for the first nine months of 1999, very near
the first nine months of 1998 sales of $288.2 million. On a year-to-date
basis shipments were up 2% over that of 1998.
Net sales for the Towel & Tissue Group for the quarter ended September
30, 1999 were $42.2 million, an increase of 7% over the third quarter
net sales in 1998. Shipments were up 10% over the third quarter's
volume in 1998 and were 34,000 tons in the third quarter of 1999.
Competitive conditions in the "away-from-home" towel and tissue markets
caused average selling prices to decline from year ago levels. Net
sales for the Towel & Tissue Group were $115.6 million for the first
nine months of 1999 compared to $111.3 million in the same period
* Matters discussed in this report with respect to the company's
expectations are forward-looking statements that involve risks and
uncertainties. See "Information Concerning Forward-Looking
Statements."
-7-
of 1998. Shipments improved to 92,000 tons, an increase of 9% over that
of the first nine months of 1998.
Order backlog of 47,000 tons at September 30, 1999 was strong in all
operating groups and compared favorably to order backlog at September 30,
1998 of 32,000 tons. However, the company believes backlog totals do not
entirely indicate the strength of its business, since a substantial
percentage of orders are shipped out of inventory promptly upon receipt.
GROSS PROFIT
Gross profit for the three months ended September 30, 1999 was $33.7
million or 13.7% of net sales, compared to gross profit for the same
period of 1998 of $42.3 million or 17.5% of net sales. The decline in
gross profit margin from 1998 is due primarily to lower selling prices
for a significant portion of the company's products due to continuing
competitive market pressures along with escalating raw material and other
manufacturing costs. Nine month year-to-date margins for 1999 declined
by 3.5 percentage points as a result of similar business conditions to
the quarterly comparison. Continuing increases in raw material and other
manufacturing costs may result in lower gross profit margins for the
Company if the increased costs are not recovered through higher selling
prices. Fiber cost increases are expected to continue in the short term.
The Specialty Paper Group's gross profit margin decreased from 12.5% of
net sales in the third quarter of 1998 to 6.8% this year. The margin
decline was principally due to lower selling prices for the Group's
products, in particular, pressure sensitive products. Raw material and
other manufacturing costs also increased during the quarter and
compressed margins. For the first nine months of 1999 gross profit
margins were 10.2% for the Specialty Paper Group, compared to 15.9% in
the prior year's first nine months. This decline in margins was
principally due to lower selling prices.
The Printing & Writing Group's gross profit margin for the third quarter
of 1999 was 16.9% compared to 20.1% for the prior year. For the first
nine months of 1999 gross profit margin was 17.3% compared to 18.9% for
1998. The decline in margin was due principally to lower selling prices
and higher pulp mill operational costs.
The gross profit margin for the Towel & Tissue Group was 22.4% for the
third quarter of 1999, a decrease of 3.0% from the prior year's gross
margin of 23.0%. For the first nine months of 1999 the Group's gross
profit margin declined by 8% to 24.0% compared to 26.0% in 1998. Volume
increases along with improved production levels favorably impacted gross
profit margins for both the quarter and the first nine months of 1999.
However, selling prices declined during both comparative periods and
resulted in overall lower gross profit margins. Wastepaper costs were
higher in the quarterly comparison and also negatively impacted gross
margins.
-8-
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for the three months ended September
30, 1999 were $11.2 million compared to $8.8 million in the same period
in 1998. Adjustments for incentive compensation programs based on the
market price of the company's stock accounted for $2.4 million of the
quarter over quarter variance as income of $4.2 million was recorded for
the current quarter compared to income of $6.6 million in the third
quarter of 1998. The balance of the increase in expense is attributable
to increased retirement plan costs and general inflationary trends
offset by continued merger savings and reduced bonus expense.
For the nine months ended September 30, 1999, selling and administrative
expenses were $44.2 million compared to $42.5 million in the first nine
months of 1998. Adjustments for stock incentive programs resulted in
income of $3.6 million in 1999 compared to income of $4.5 million in
1998. Other year to date changes were similar to those discussed for
the quarterly comparison noted above.
CAPITAL RESOURCES AND LIQUIDITY
CASH PROVIDED BY OPERATIONS
For the nine months ended September 30, 1999, cash provided by operations
was $54.7 million, compared to $89.5 million for the same period of 1998.
The decrease in operating cash flows was principally due to reduced
current year earnings when compared to pre-restructuring earnings for the
first nine months last year. In addition, a $23.5 million increase in
accounts receivable from the year-end balance has resulted in decreased
operating cash flows.
CAPITAL EXPENDITURES
Capital expenditures totaled $62.7 million for the nine months ended
September 30, 1999, compared to $54.6 million for the same period last
year.
During the first nine months of 1999, the Specialty Paper Group spent
$2.9 million completing the #1 paper machine upgrades, $2.4 million for a
woodroom modernization, $2.1 million for a wet lap machine and $3.6
million for a boiler precipitator at one of its mills and $16.7 million
on two machine rebuilds at another mill. These projects, when completed,
should expand the production capacity of both mills, add new
manufacturing capabilities and improve the sales mix. The Printing &
Writing Group has spent nearly $8 million in the first nine months of
1999 on a pulp mill digester upgrade, a machine dry-end upgrade, a stock
blending system, and a boiler conversion at two of its mills. The Towel
& Tissue Group has spent $4.4 million to add new converting lines in
order to keep up production for the increased demand for the Bay West
"away-from-home" toweling and tissue products.
In addition to the $62.7 million spent in the first nine months of 1999
for capital assets, the company has commitments to spend another $15.5
million this year. Total capital expenditures for 1999 should
approximate $85 million.
-9-
At the April 1999 meeting, the Board of Directors approved $45 million in
capital improvements at the Specialty Paper Group's Rhinelander mill,
most of which will be expended in 2000. The improvements will upgrade
the production process for pressure sensitive papers to surpass the
customers' technical requirements and improve their operating
efficiencies, while at the same time improving the company's product mix.
These capital improvements are expected to be fully implemented by the
third quarter of the year 2000.
FINANCING
Total current and long-term debt increased for the nine months ended
September 30, 1999 to $227.9 million. The increase in total debt from
December 1998 is principally due to the authorized repurchase of the
Company's stock during the first nine months of 1999 and the increase in
working capital needs from year end.
Interest expense was $3.2 million in the third quarter of 1999 compared
to $1.7 million in the same period of 1998. The increase in interest
expense is the result of higher funded debt levels in 1999 compared to
1998. The increase as a result of higher debt levels has been partially
offset by reduced borrowing rates and increased capitalized interest.
On August 31, 1999, the Company closed and funded a private placement
note offering for $138,500,000. The principal amounts, maturities, and
interest rates on the notes are: (1) $35,000,000, 8 years, 7.20%; (2)
$68,500,000, 10 years, 7.31%; and (3) $35,000,000, 12 years, 7.43%. The
Company also entered into an interest rate swap agreement under which the
interest rate paid by the Company with respect to (1) $58,500,000 of the
10-year notes will be the three month LIBOR rate, plus .4925% and (2)
$30,000,000 of the 12-year notes will be the three month LIBOR rate, plus
.55%. The proceeds from the notes were utilized to pay down existing
bank facilities and other maturing obligations.
Cash provided by operations and the Company's borrowing capacity are
expected to meet capital needs and dividends. The Company also plans to
refinance the existing outstanding bank revolving credit agreement prior
to year end.
COMMON STOCK REPURCHASE
In August, 1998 the Board of Directors authorized the company to
repurchase up to 5,650,000 shares of common stock, subject to adjustment
for future stock splits or dividends. This repurchase authorization
represents approximately ten percent of the shares then outstanding.
Under this authorization, the company repurchased an aggregate of
2,006,926 shares during the nine-month period ended September 30, 1999.
An additional 200,000 shares were purchased subsequent to September 30,
bringing the total to 5,432,026 shares purchased under this
authorization.
-10-
DIVIDENDS
A quarterly cash dividend of $.07 per share was paid February 15 and
cash dividends of $.08 per share were paid on May 17, 1999 and August 16,
1999. On October 21, 1999, the Board of Directors declared a quarterly
cash dividend of $.08 payable November 15, 1999 to shareholders of
record on November 1, 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 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 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. An assessment of these functions was completed
during the second quarter with testing having been now completed in its
entirety. The Company believes that the most critical information
systems, primarily the sales order processing, inventory, and shipping
systems, are now Year 2000 ready. The Company's enterprise resource
planning system ("ERP") which was intended to bring the remainder of the
Company's information systems to Year 2000 readiness is now complete.
The broader, non-Year 2000 aspects of the ERP system will be fully
implemented in 2001 and beyond.
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 $7.0 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.
-11-
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 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.
-12-
INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
This report contains certain of management's expectations and other
forward-looking information regarding the Company pursuant to the safe-
harbor provisions of the Private Securities Litigation Reform Act of
1995. While the Company believes that these forward-looking statements
are based on reasonable assumptions, such statements are not guarantees
of future performance and all such statements involve risk 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 general economic and business conditions, changes in the prices
of raw materials, competitive pricing in the markets served by the
Company as a result of economic conditions or overcapacity in the
industry, and possible adverse effects on the Company or the economy
from Year 2000 problems. These and other assumptions, risks and
uncertainties are described under the caption "Cautionary Statement
Regarding Forward-Looking Information" in Item 1 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, and, from time
to time, in the Company's other filings with the Securities and Exchange
Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 conducts U.S. dollar denominated export transactions or
immediately exchanges all foreign currency attributable to export sales
for U.S. dollars.
On July 26, 1999, the Company entered into an interest rate swap
agreement with respect to an aggregate of $88,500,000 in principal amount
of the notes issued pursuant to its $138,500,000 Note Purchase Agreement
dated August 31, 1999 (the "Notes"). The Notes bear interest at fixed
rates over 8, 10, and 12 year terms. The purpose of the interest rate
swap agreement is to reduce the Company's exposure to long-term rates
under the Notes by converting a portion of the interest to short-term
rates. The Company's rate risk under the agreement is based on the
3-month LIBOR rate.
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. These instruments have consisted, from time to time, of various
futures contracts for the purchase of natural gas and fuel oil. The
Company continues to consider the purchase of 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.
-13-
PART II. OTHER INFORMATION
ITEM 1. 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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
The following exhibits are filed with the Securities and Exchange
Commission as part of this report:
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)
4.3 $138,500,000 Note Purchase Agreement dated August 31, 1999
10.1 Supplemental Retirement Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.2 Incentive Compensation Plans (Printing & 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)*
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10.4 1988 Stock Appreciation Rights Plan, as last amended March 4,
1999 (incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.5 1988 Management Incentive Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.6 1990 Stock Appreciation Rights Plan, as last amended March 4,
1999 (incorporated by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.7 Deferred Compensation Agreement dated July 1, 1994, as last
amended March 4, 1999 (incorporated by reference to Exhibit 10.7
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998)*
10.8 1991 Employee Stock Option Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.9 1991 Dividend Equivalent Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.10 Supplemental Retirement Benefit Plan dated January 16, 1992, as
last amended March 4, 1999 (incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)*
10.11 Directors' Deferred Compensation Plan, as last amended March 4,
1999 (incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)*
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 (incorporated by reference to Exhibit
10.14 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998)*
10.15 Mosinee Paper Corporation 1988 Stock Appreciation Rights Plan,
as last amended March 4, 1999 (incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K for
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the fiscal year ended December 31, 1998)*
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 (incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)*
10.19 Mosinee Paper Corporation 1994 Executive Stock Option Plan, as
last amended March 4, 1999 (incorporated by reference to
Exhibit 10.19 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)*
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
(incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
21.1 Subsidiaries as of September 30, 1999
27.1 Financial Data Schedule (filed electronically only)
* Executive compensation plans or arrangements. All plans are
sponsored or maintained by the Company unless otherwise noted.
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WAUSAU-MOSINEE PAPER CORPORATION
November 12, 1999 GARY P. PETERSON
Gary P. Peterson
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
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EXHIBIT INDEX
TO
FORM 10-Q
OF
WAUSAU-MOSINEE PAPER CORPORATION
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. <section> 232.102(d))
EXHIBIT 4.3 $138,000,000 NOTE PURCHASE AGREEMENT DATED AUGUST 31, 1999
EXHIBIT 27.1 FINANCIAL DATA SCHEDULE