FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended August 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
WAUSAU PAPER MILLS COMPANY
(Exact name of registrant as specified in charter)
One Clark's Island WISCONSIN
P.O. Box 1408 (State of incorporation)
Wausau, Wisconsin 54402-1408 39-0690900
(Address of principal executive office) (I.R.S. Employer
Identification Number)
Registrant's telephone number, including area code: 715-845-5266
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of each class)
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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
---
As of November 1, 1995, the aggregate market value of the common stock shares
held by non-affiliates was approximately $496,864,000.
The number of common shares outstanding at November 1, 1995 was 29,465,842.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated November 9, 1995; Pages 2 to 3*, 5 to 13*, 16*(Part III)
* to the extent noted herein
<PAGE>
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business ............................................ 1
Item 2. Properties .......................................... 5
Item 3. Legal Proceedings ................................... 6
Item 4. Submission of Matters to a Vote of Security Holders . 6
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters ................................. 6
Item 6. Selected Financial Data ............................. 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 8
Item 8. Financial Statements and Supplementary Data ......... 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures ............... 34
PART III
Item 10. Directors and Executive Officers of the Registrant . 35
Item 11. Executive Compensation ............................. 35
Item 12. Security Ownership of Certain Beneficial Owners and
Management ......................................... 35
Item 13. Certain Relationships and Related Transactions ..... 35
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ................................ 36
Schedule II - Valuation and Qualifying Accounts ....... 37
<PAGE>
PART I
ITEM 1. BUSINESS.
NATURE OF THE BUSINESS
The company, incorporated under the laws of the State of Wisconsin in 1899,
manufactures and sells paper. The company is organized into a small corporate
staff consisting of principal executive officers and two operating divisions:
the Printing and Writing Division consisting of a paper and pulp mill in
Brokaw, Wisconsin and Wausau Papers of New Hampshire, Inc., a wholly-owned
subsidiary which operates a paper mill in Groveton, New Hampshire; and the
Rhinelander Division which consists of Rhinelander Paper Company, Inc., a
wholly-owned subsidiary operating a paper mill in Rhinelander, Wisconsin. The
company's executive offices are located in Wausau, Wisconsin.
The company's export sales are administered through Wausau Papers
International, Inc., a wholly-owned subsidiary which acts as a foreign sales
corporation (FSC).
Unless stated otherwise, the terms "company" and "Wausau Papers" mean the
company and its subsidiaries.
SEGMENT INFORMATION
Paper manufacturing is the company's only line of business.
PRINTING AND WRITING DIVISION
The Printing and Writing Division manufactures fine printing, writing and
specialty papers at the Brokaw, Wisconsin and Groveton, New Hampshire mills.
The division's product lines include recycled products made with 20% of the
total fiber content from post-consumer waste. These papers are sold to paper
distributors and converters throughout the United States and Canada. Typical
end uses for these fine papers include printed advertising, corporate external
reports, office papers and converted products such as announcements and
greeting card envelopes.
The Printing and Writing Division was formed in 1993 by combining the
operations of the company's Brokaw Division and the manufacturing facilities
at Groveton, New Hampshire. The Groveton facilities were purchased from James
River Corporation on April 1, 1993, by the company's wholly-owned subsidiary,
Wausau Papers of New Hampshire, Inc.
RHINELANDER DIVISION
The Rhinelander Division, located in Rhinelander, Wisconsin, manufactures
lightweight, dense, technical specialty papers which are sold directly to
converters and end users throughout the United States. International markets
for Rhinelander's products include Canada, the Pacific Rim, Europe, Mexico,
Central and South America. Typical end uses for these papers are pressure
sensitive products, silicone coated products, medical packaging, food
packaging and multiple laminated products. Small volumes of yeast and
lignosulfonates are also manufactured. These products are sold for use as
food additives, pet food ingredients and for other end uses.
<PAGE>
EXPORT SALES
Wausau Papers International, Inc. has been the commissioned sales agent for
the export sales of the company since September 1, 1992. Wausau Papers
International, Inc. has elected to be treated as a FSC for federal income tax
purposes.
RAW MATERIALS
Pulp is the basic raw material for paper production. Approximately 60% of the
pulp consumed by the Brokaw mill is manufactured internally from aspen, which
is in abundant supply. The remaining 40% of required pulp at Brokaw and all
of the required pulp at the Rhinelander and Groveton mills is purchased from
pulp mills throughout the United States and Canada. Although pulp prices
increased approximately 70% in 1995 due to strong demand, purchased pulp is in
adequate supply and readily obtained from both domestic and foreign sources.
Recycled, de-inked fiber with a high content of post-consumer waste is also
purchased from domestic suppliers as part of the fiber requirements for the
Printing and Writing Division's recycled products. Recycled fiber is also in
adequate supply and readily obtained.
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.
ENERGY
The company's paper mills require large amounts of electrical energy and steam
which are adequately supplied by public utilities or generated at company
operated facilities. The Brokaw mill operates a power plant which provides
all of the mill's steam requirements. The power plant is fueled by natural
gas, which is in adequate supply, with fuel oil being an alternate energy
source. The Brokaw mill purchases 100% of its electrical requirements from a
public utility company. The Groveton mill operates a power plant which
provides 100% of the mill's steam requirements and a portion of its electrical
needs. The primary fuels burned at Groveton are wood chips and fuel oil. The
Rhinelander Division maintains a coal burning plant capable of generating the
mill's steam needs and nearly half of its electrical needs. The Groveton and
Rhinelander mills purchase nearly 85% and 60% of their electrical needs,
respectively, from public utility companies. The fuels used at each mill are
all available on a contract basis at prevailing market prices.
On July 21, 1995, Rhinelander Paper Company and Wisconsin Public Service
Corporation (WPS) issued a joint press release announcing cancellation of
plans to build the Rhinelander Energy Center cogeneration power plant in the
City of Rhinelander. The two companies were unable to agree upon several
fundamental issues arising during the regulatory approval process. As stated
in the joint announcement, "following an in-depth financial analysis and a
lengthy negotiation process, Rhinelander Paper Company decided it was not
feasible to continue and decided to terminate the negotiations." The company
has purchased a 200,000 pound per hour natural gas and oil-fired boiler which
is scheduled for installation in December 1995 as part of a paper production
capacity expansion. Rhinelander's existing coal-fired boilers together with
the new gas and oil-fired boiler are expected to meet the mill's energy
requirements for the next several years. The company is developing a plan for
meeting the long range energy needs of the Rhinelander mill.
<PAGE>
PATENTS AND TRADEMARKS
The company develops and files trademarks and patents, as appropriate. 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 second fiscal quarter, in comparison to the rest of the year, primarily
due to downtime typically taken by its customers during the holiday season.
WORKING CAPITAL
As is customary in the paper industry, the company carries adequate amounts of
raw materials and finished goods inventory to facilitate the manufacture and
rapid delivery of paper products to its customers.
MAJOR CUSTOMERS
Avery Dennison Corporation accounted for 12.0% of consolidated net sales in
fiscal 1995. The loss of this customer could have an initial material adverse
effect; however, the company believes that satisfactory alternative marketing
arrangements could be made.
BACKLOG
Order backlog of the company's products at August 31, 1995 amounted to
approximately $24,981,000, or approximately 2 weeks of operation. This is 16%
lower on a tonnage basis than the backlog of orders of approximately
$25,672,000 or nearly 3 weeks of operation at August 31, 1994. The backlog
decrease is due to reduced demand for the company's technical specialty
grades. Customer demand improved somewhat at the end of fiscal 1995, which
the company expects to continue in fiscal 1996.
Backlog totals are not a true indicator of the strength of the company's
business activity. A significant and growing 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 August 31, 1995 backlog
is expected to be shipped during fiscal 1996.
COMPETITIVE CONDITIONS
The company competes in different markets within the paper industry. Each of
its two divisions serves distinct market niches. The Printing and Writing
Division produces fine printing and writing papers, of which over 60% are
colored papers. Fine printing and writing sales are estimated to be less than
3% of the total market. The division's competitors range from small to large
paper manufacturers and represent many different product lines. The division
distributes its products primarily through paper wholesalers. The Rhinelander
Division produces technical specialty papers and is a leader in its markets.
Rhinelander's market position varies by product segment and, thus, competition
also includes small to large paper manufacturers. Rhinelander sells its
products directly to converters and end users. The various markets for the
products of the company are highly competitive, with competition based on
service, quality and price.
<PAGE>
RESEARCH AND DEVELOPMENT
Expenditures for product development were approximately $1,219,000 in 1995,
$1,158,000 in 1994, and $957,000 in 1993.
ENVIRONMENT
Wausau Papers, like its competitors in the paper industry, is subject to
increasingly stringent environmental regulations. The company has made
substantial capital investments and operating expenditures in order to
construct, maintain and operate the facilities necessary to maintain
compliance with environmental regulations. The company is currently
rebuilding and expanding the wastewater treatment plant for the Brokaw mill
and expects to complete the project in fiscal 1997 at a total cost of $14.5
million. The company estimates that its capital expenditures for other
environmental purposes will be less than $5 million per year in fiscal 1996
and 1997.
The company has not been identified as a potentially responsible party at any
site designated for remedial action under the federal Superfund law. The
company is required to monitor conditions relative to its past waste disposal
activities and may be required to take remedial action if conditions are
discovered which warrant such action.
The United States Environment Protection Agency (EPA) has proposed air and
water pollution reduction standards which could require significant
expenditures by the pulp and paper industry. The final rules are expected to
be promulgated within the next calendar year and to require compliance three
years after promulgation. One major aspect of the proposed new regulations is
extremely stringent standards for the discharge of chlorinated organics that
are produced as byproducts of pulp bleaching processes that use elemental
chlorine or chlorine compounds. The company maintains pulp bleaching
operations only at its Brokaw mill. 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.
The company is unable to predict with certainty the amount of capital
expenditures and operating costs that it will incur in the future in order to
comply with the proposed new EPA rules and other environmental regulations but
it believes that such costs will not have a material adverse effect on its
financial position or results of operations.
EMPLOYEES
The company had 1,722 employees at August 31, 1995. The company has
collective bargaining contracts with the United Paperworkers International
Union covering approximately 1,335 employees. These contracts expire in
December 1995, May 1996 and March 1997 at the Rhinelander, Brokaw and Groveton
mills, respectively. The company considers its relationship with its
employees to be excellent. Eligible employees participate in retirement plans
and group life, disability and medical insurance programs.
EXECUTIVE OFFICERS
The executive officers of the company as of October 1, 1995, their ages, their
positions and offices with the company and their principal occupations during
the past five years are as follows:
<PAGE>
SAN W. ORR, JR., 54
Chairman of the Board of Directors since December 1989 and, since July 1994,
Chief Executive Officer, and Director since April 1970; also, Attorney,
Estates of A.P. Woodson and Family; also, a director of Mosinee Paper
Corporation, MDU Resources Group, Inc and Marshall & Ilsley Corporation.
DANIEL D. KING, 48
Director, President and Chief Operating Officer since July 1994; Senior Vice
President, Printing and Writing Division, December 1993 to July 1994; Vice
President and General Manager, Brokaw Division, September 1990 to December
1993.
LARRY A. BAKER, 56
Senior Vice President, Administration since December 1990; prior thereto,
Vice President, Administration.
STEVEN A. SCHMIDT, 41
Vice President, Finance, Secretary and Treasurer since June 1, 1993;
Corporate Controller, August 1992 to June 1993; prior thereto, Plant
Controller, Georgia Pacific Corporation, formerly Nekoosa Papers, Inc.,
March 1989 to August 1992.
MELVIN L. DAVIDSON, 59
Vice President and General Manager, Rhinelander Division since August 1987;
prior thereto, Vice President Marketing and Sales, Rhinelander Division.
THOMAS J. HOWATT, 46
Vice President and General Manager, Printing and Writing Division since
December 1994; Vice President and General Manager, Groveton, April 1, 1993
to December 1994; Vice President Operations, Brokaw Division, September 1990
to April 1993; prior thereto, Vice President, Administration, Brokaw
Division.
All executive officers of the company are elected annually by the Board of
Directors.
ITEM 2. PROPERTIES.
The company's executive offices are located in Wausau, Wisconsin on property
leased to the company under a lease which expires on December 31, 2005. There
are renewal options for another 25 years.
The company's Brokaw, Wisconsin mill operated at 2% below capacity during
fiscal 1995 as a result of capital improvement related outages, producing
approximately 450 tons of finished paper per day. The mill facility provides
approximately 60% of its pulp requirements from its own hardwood sulphite pulp
mill. Brokaw mill facilities are situated on approximately 270 acres of land,
all owned by the company.
The Groveton, New Hampshire mill operated at 96% of capacity in fiscal 1995,
producing approximately 276 tons of finished paper per day. At capacity, the
Groveton mill can produce over 100,000 tons of finished paper annually. The
<PAGE> company's facilities occupy 124 acres of land all owned by the company's
wholly-owned subsidiary, Wausau Papers of New Hampshire, Inc.
The company's mill in Rhinelander, Wisconsin operated at 95% of capacity in
fiscal 1995, producing an average of 385 tons of finished paper per day. Some
extended downtime was taken on the four paper machines during the third and
fourth quarters of fiscal 1995 due to market weakness in its product lines.
Its facilities, which include a yeast and lignosulfonate processing plant
capable of producing 21,000 pounds of torula yeast per day, occupy 72 acres of
land, all owned by Rhinelander Paper Company, Inc.
The company owns approximately 43,500 acres of timberland in Wisconsin. The
company believes the market value of these lands exceeds the August 31, 1995
book value of $1,494,000.
ITEM 3. LEGAL PROCEEDINGS.
Legal proceedings are discussed in Note 11 to the Consolidated Financial
Statements on page 32 of this report.
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 fiscal 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The company's common stock trades on The Nasdaq Stock Market under the symbol
WSAU. The number of shareholders of record as of October 10, 1995 was 2,033.
The company believes that there are approximately 4,467 additional beneficial
owners whose shares are held in street name accounts or in other fiduciary
capacities. The total estimated number of shareholders as of October 10,
1995, is 6,500. Information related to high and low closing prices and
dividends is explained in detail in Item 8, Financial Statements and
Supplementary Data, and appears on page 33 of this report. Dividend
restrictions under certain loan covenants are explained in Note 4 to the
Consolidated Financial Statements which is found on page 23 of this report.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
<CAPTION>
(all dollar amounts in thousands, except per share data)
Years ended August 31,
1995 1994 1993 1992 1991
FINANCIAL RESULTS
<S> <C> <C> <C> <C>
Net sales $515,743 $426,504 $381,816 $370,935 $350,361
Depreciation, depletion &
amortization 19,940 17,635 15,445 13,760 13,344
Operating profit 52,754 69,990 62,910 62,414 50,190
Interest expense 1,688 1,958 1,272 1,126 3,927
Earnings before provision for
income taxes 50,851 68,052 61,771 61,309 47,025
Earnings before cumulative
effect of accounting change 31,251 42,052 38,371 40,009 30,475
Net earnings 31,251 43,052 22,621 40,009 30,475
Average number of shares
outstanding 29,464,000 29,621,000 29,642,000 29,624,000 29,621,000
Cash dividends declared 7,385 6,487 5,686 5,152 4,565
Cash dividends paid 7,156 6,291 5,559 5,000 4,473
Capital expenditures 66,104 43,800 51,297 31,777 24,931
Tons of paper shipped 399,300 355,100 310,600 296,600 278,800
FINANCIAL CONDITION
Working capital $67,266 $ 59,878 $ 57,007 $ 34,338 $ 19,661
Long-term debt 68,623 30,270 42,712 22,695 30,727
Shareholders' equity 236,689 214,818 183,139 165,989 130,034
Total assets 434,686 361,389 329,583 266,592 240,306
PER SHARE
Earnings before cumulative
effect of accounting change $ 1.06 $ 1.42 $ 1.29 $ 1.35 $ 1.03
Net earnings 1.06 1.45 .76 1.35 1.03
Cash dividends declared .250 .218 .191 .174 .155
Shareholders' equity 8.03 7.25 6.18 5.60 4.39
Price range (low and high
closing) 20.25-25.00 20.23-30.91 16.24-26.94 15.35-29.28 6.14-16.75
RATIOS/RETURNS
Return on sales before
cumulative effect of
accounting change 6.1% 9.9% 10.0% 10.8% 8.7%
Net return on sales 6.1% 10.1% 5.9% 10.8% 8.7%
Return on average
shareholders' equity
before cumulative effect
of accounting change 13.8% 21.2% 21.0% 27.0% 26.0%
Net return on average
shareholders' equity 13.8% 21.6% 13.0% 27.0% 26.0%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(all dollar amounts in thousands, Years ended August 31,
except per share data) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Current assets to current
liabilities 2.3 to 1 2.3 to 1 2.4 to 1 1.9 to 1 1.5 to 1
% of long-term debt to total
capital 18.0% 9.6% 14.8% 9.9% 15.6%
Tons of paper shipped per
employee 231 210 206 225 216
EMPLOYMENT
Average number of employees 1,727 1,692 1,510 1,319 1,293
</TABLE>
All shares and per share data have been restated to reflect the 10% stock
dividend in 1995, the four-for-three stock splits in 1994 and 1993, the
two-for-one stock split in 1992, and the five-for-four stock split-up,
effected in the form of a dividend, in 1991. This summary should be read
in conjunction with the consolidated financial statements which follow.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
OVERVIEW
The company achieved record sales and shipments in fiscal 1995, while earnings
were lower compared to the prior year. Net sales were $515.7 million in
fiscal 1995, up 21% from 1994. Shipments of 399,300 tons were ahead of last
year's level by 12%. Fiscal 1995 net earnings declined 26% to $31.3 million
compared to fiscal 1994 earnings, before an accounting change, due to higher
pulp costs and a slowdown in demand for the company's technical specialty
products.
The pulp and paper industry experienced continued strong demand throughout
most of fiscal 1995. Favorable market conditions and successful marketing of
the company's printing and writing grades supported full operations at the
Groveton mill since October 1994. Strong demand for the company's technical
specialty grades during the first half of fiscal 1995 was followed by a
slowdown in demand during the second half of the year, requiring the company
to take extended downtime at its Rhinelander mill.
Strong world-wide demand for paper caused continued strong demand for pulp in
fiscal 1995. Market pulp prices increased approximately 70% on average in
1995 over the prior year. The company was able to implement several paper
price increases during the year; however, market pressures prevented the
company from recovering all of the increased pulp costs through higher paper
prices. Higher paper prices, increased volume, production improvements and
cost reduction efforts were not of sufficient magnitude to totally offset the
negative effect of higher pulp costs on earnings.
NET SALES
Net sales for fiscal 1995 were a record $515.7 million, up 20.9% over fiscal
1994 net sales of $426.5 million. Fiscal 1993 net sales were $381.8 million.
Shipments were a record 399,300 tons in 1995, an increase of 12.4% over the
355,100 tons shipped in 1994. Shipments were 310,600 tons in 1993. The
shipment growth experienced in fiscal 1995 was mainly due to successfully
marketing the production capacity of the Groveton, New Hampshire mill.
<PAGE>
Demand for the company's printing and writing grades was strong in fiscal
1995, supporting the October 1994 start-up and continued operation of the
second paper machine at the Groveton mill. Shipments at the Printing and
Writing Division increased 23.2% in fiscal 1995 over prior year results.
Continued growth of the company's printing and writing products is expected in
fiscal 1996. The company's Rhinelander Division experienced strong demand for
its technical specialty products during the first half of fiscal 1995,
followed by softer customer demand across all of its product lines during the
second half of the year. Downtime was taken on all paper machines at the
Rhinelander mill in the last four months of the fiscal year as a result of the
market weakness and the need to reduce paper inventories. Shipments of
Rhinelander's products were down 3.8% in fiscal 1995 compared to the previous
year. Shipments of pressure sensitive products, its largest product segment,
were down 6.1% over 1994 results. Some improvement in demand was experienced
at the end of fiscal 1995 which the company expects to continue in fiscal
1996.
Order backlog at August 31, 1995 was $25.0 million, compared to order backlogs
of $25.7 million and $22.3 million at August 31, 1994 and 1993, respectively.
The order backlog at August 31, 1995, on a tonnage basis, is 16% lower than at
the end of fiscal 1994 and 5% below the order backlog at the end of fiscal
1993. Order backlog at the end of fiscal 1995 is lower than a year ago due to
the reduced demand for the company's technical specialty grades. Backlog
totals are not an accurate indicator of the company's business strength,
however, as a significant and growing volume of orders are shipped out of
inventory promptly upon order receipt.
GROSS PROFIT
Gross profit decreased to 15.7% of net sales for fiscal 1995 compared to 22.8%
for the previous year. The gross profit margin was 23.3% in fiscal 1993. The
reduced gross profit margin in fiscal 1995 compared to the previous year is
due primarily to higher prices for purchased pulp, the main raw material in
manufacturing paper, and downtime taken on the paper machines at the
Rhinelander mill during the third and fourth quarters of fiscal 1995, due to
market softness in its product lines.
In fiscal 1995, market prices for pulp continued their upward spiral, which
began in January 1994. Market pulp prices increased approximately 70% on
average in fiscal 1995. The average list price of northern bleached softwood
kraft, a commonly used benchmark pulp grade, increased 55% in 1995, following
a 4% decline in 1994 and a 5% decrease in 1993. Price discounting from list
was experienced in 1995, but to a much lesser extent than in 1994 and 1993.
The company implemented several paper price increases during fiscal 1995,
however, market pressures prevented the company from completely offsetting the
pulp cost increases through higher selling prices. Despite increased paper
prices, improved productivity from paper and pulp mill operations and cost
reduction efforts, including Total Quality Process generated improvements, the
company was not able to offset the effect of increased pulp costs.
In October 1995, further pulp price increases took effect, but in varying
amounts across pulp grades, as demand for pulp may be leveling off due to an
overall slowing in the paper industry. As of October 27, 1995, the company
had not announced any further price increases for its paper products in
response to the October pulp price increase. Although pulp and paper price
increases may not coincide and, historically, paper price increases have
generally lagged behind pulp price increases, management continues to expect,
in the longer term, to return to historical per ton margins and renewed profit
growth momentum.
<PAGE>
Production of the company's printing and writing grades increased 22.5% in
fiscal 1995 over the previous year as the Groveton mill had full production on
both of its paper machines since October 1994 as compared to operating one
machine for all of fiscal 1994. The Brokaw mill operated at 2% below capacity
in fiscal 1995 as a result of capital improvement related outages while the
Groveton mill operated at 96% of capacity. Production for the Printing and
Writing Division in 1994 was 12.7% higher than in 1993.
The Rhinelander mill operated at 83% of capacity in the fourth quarter of
fiscal 1995 and 95% for the year. Some extended downtime was taken on all
paper machines due to market softness in the second half of fiscal 1995.
Production in 1995 was flat compared to the prior year as productivity gains
from capital improvements offset the negative impact of the extended machine
downtime. Rhinelander's production in 1994 was 5.1% higher than 1993 results.
Maintenance and repair costs increased $.6 million to $30.2 million in 1995
from $29.6 million in 1994. The increase is primarily attributable to the
operation of the second paper machine at the Groveton mill. Maintenance and
repair costs were $28.8 million in 1993.
LABOR
The company is currently in the final year of a four-year labor agreement with
the United Paperworkers International Union at the Rhinelander Division. The
agreement expires in December 1995. The company is also in the final year of
a five-year labor agreement with the United Paperworkers International Union
at the Brokaw mill. This agreement expires in May 1996. The company is
currently in the third year of a four-year labor agreement with the United
Paperworkers International Union at the Groveton mill. The agreement, which
expires in March 1997, includes a general wage increase of 2.0% in 1996 and
increases in employee benefits as part of the agreement.
The company considers its relationship with its employees to be excellent and
is of the opinion that it will be able to successfully negotiate new labor
agreements at the Rhinelander and Brokaw mills in fiscal 1996.
SELLING, ADMINISTRATIVE AND RESEARCH EXPENSES
Fiscal 1995 selling, administrative and research expenses were $28.0 million,
compared to $27.3 million in fiscal 1994 and $26.0 million in fiscal 1993.
Increased marketing costs associated with new product offerings and full
operations at the Printing and Writing Division, along with higher expense for
stock appreciation rights, dividend equivalents and stock option expenses
accounted for the increase in fiscal 1995 over the prior year. Stock
appreciation rights, dividend equivalents and stock option expense was $.1
million in 1995, compared to income of $.3 million in 1994 and expense of $1.9
million in 1993.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME
Interest income was $.2 million in fiscal 1995, compared to $.1 million in
fiscal 1994 and less than $.1 million in fiscal 1993. Interest expense in
fiscal 1995 totalled $1.7 million, compared to $2.0 million in 1994 and $1.3
million in 1993. Lower interest expense in fiscal 1995 is due to higher
capitalized interest compared to the prior year. Capitalized interest was $.7
million in fiscal 1995, $.2 million in 1994, and was $.1 million in 1993. The
increase in capitalized interest in fiscal 1995 was due to several major
capital projects in process, including the capacity expansion project at the
Rhinelander mill, installation of a fiber handling and processing system at
<PAGE> the Brokaw mill and upgrades to the wastewater treatment plant at both
Wisconsin mills. Other income and expense was $.5 million expense in 1995,
compared to $.1 million expense in 1994 and $.1 million income in 1993.
Capital asset disposal losses are the primary reasons for the increase in
other expense in fiscal 1995.
INCOME TAXES
The fiscal 1995 income tax provision was $19.6 million, for an effective tax
rate of 38.5%. The effective tax rates for fiscal years 1994 and 1993 were
38.2% and 37.9%, respectively.
In fiscal 1994, the company adopted Statement of Accounting Standard (SFAS)
No. 109 "Accounting for Income Taxes." The adoption was reflected as a one-
time cumulative reduction in the net deferred tax liability resulting in a
$1.0 million increase in fiscal 1994 net earnings.
NET EARNINGS
Net earnings in fiscal 1995 were $31.3 million, compared to fiscal 1994
earnings of $42.1 million before the cumulative effect of an accounting
change. Fiscal 1993 earnings were $38.4 million before the cumulative effect
of an accounting change. After including the impact of accounting changes,
net earnings were $43.1 million in fiscal 1994 and were $22.6 million in
fiscal 1993.
In fiscal 1994, the company adopted Statement of Accounting Standard (SFAS)
No. 109 "Accounting for Income Taxes." This change in accounting resulted in
a one-time cumulative benefit of $1.0 million in fiscal 1994. In fiscal 1993,
the company adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," resulting in a one-time cumulative reduction to
net earnings of $15.8 million.
CAPITAL RESOURCES AND LIQUIDITY
LONG-TERM DEBT
Long-term debt increased $38.3 million in fiscal 1995 to $68.6 million at
August 31, 1995. This compares with long-term debt of $30.3 million and $42.7
million at August 31, 1994 and 1993, respectively. The increase in long-term
debt in fiscal 1995 was due mainly to reduced cash flow from operations and
increased capital spending. The decrease in long-term debt in fiscal 1994 was
due primarily to improved cash flow from operations. Long-term debt as a
percent of capital increased to 18.0% in 1995, compared to 9.6% in 1994 and
14.8% in 1993.
In August 1995, the company obtained $19.0 million in additional financing
from the issuance of variable rate demand sewage and solid waste revenue bonds
by a local governmental unit. This additional borrowing will be used to fund
the 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. Proceeds relating to the bond issuance are held in a trust fund
until they are drawn upon by the company as spending occurs on these projects.
At August 31, 1995, the industrial development bond trust fund totalled $14.7
million.
Long-term debt at August 31, 1995 consisted primarily of $30.0 million in
senior promissory notes (less current portion), $14.2 million outstanding
under the company's revolving credit facility, $8.3 million in commercial
<PAGE>
paper and $19.0 million in industrial development bonds. This compares with
borrowings of $30.0 million in senior promissory notes at August 31, 1994.
CASH PROVIDED BY OPERATIONS
Cash provided by operations in fiscal 1995 was $47.5 million or 26.6% below
1994 results of $64.7 million. Cash provided by operations in fiscal 1993 was
$34.4 million. The lower operating cash flow in fiscal 1995 compared to the
prior year was due to higher unit production costs and increased working
capital needs. Lower unit production costs in fiscal 1994 and lower working
capital requirements associated with the Groveton mill accounted for the
improved operating cash flow in 1994 over the previous year.
CAPITAL EXPENDITURES
Fiscal 1995 capital expenditures totalled $66.1 million, compared to $43.8
million in 1994 and $51.3 million in 1993. Capital expenditures in fiscal
1993 include the purchase of manufacturing facilities in Groveton, New
Hampshire for $20.2 million.
Rhinelander's new $12 million silicone coater commenced operation in the third
quarter of fiscal 1995. This solventless coater has the capacity to produce
15,000 tons of coated release papers for the pressure sensitive label industry
as well as other end users. A $46 million expansion project was approved for
the Rhinelander mill in December 1994 to increase its pressure sensitive
papermaking capacity. Work is proceeding on this project, which will include
a new state-of-the-art supercalender, a duplex rewinder and a major rebuild of
No. 7 paper machine. The project will add nearly 38,000 tons of annual
pressure sensitive backing paper capacity while improving quality. In
connection with mix changes, the mill's total annual capacity is expected to
increase by over 26,000 tons. This project is expected to be completed in
early calendar 1996. Other major projects in process at the Rhinelander mill
include an upgrade to the mill's wastewater treatment plant and modifications
to enable the mill to handle, wrap and ship larger diameter rolls.
Several major projects were completed at the Brokaw mill in fiscal 1995
including installation of a new gas-fired boiler and feedwater system, a
rebuild to No. 3 paper machine and improvements to No. 2 paper machine to
increase productivity and enhance product quality. Work continues on a $16.4
million fiber handling and processing project. This project includes a
building expansion, additional pulping capacity and a new fiber handling
system to process more recycled post consumer fiber. This project is expected
to be completed in the third quarter of fiscal 1996. In addition, work is
underway to upgrade the mill's wastewater treatment plant at a cost of over
$14 million.
A softwood kraft refining system was installed at the Groveton mill in fiscal
1995 to improve long fiber refining capabilities, improve sheet formation and
reduce fiber costs. Work is underway to add a shrink wrap packaging line and
install a new centralized starch kitchen.
At the end of fiscal 1995, the company was committed to spend approximately
$62 million to complete capital projects currently under construction.
Capital commitments at the end of 1994 and 1993 were $30 million and $32
million, respectively. The majority of the committed spending going into
fiscal 1996 will be on the Rhinelander expansion project, the fiber handling
and processing project at the Brokaw mill and upgrades to the wastewater
treatment plant at both of these mills.
<PAGE>
Capital expenditures are expected to increase in fiscal 1996 primarily due to
spending on these projects currently in process. The company expects capital
expenditures to be in excess of $150 million over the next three years,
including approximately $70 million in fiscal 1996.
FINANCING
The company maintains a revolving credit facility agreement with two banks to
provide loans up to $35 million. The credit facility will permit the company
to borrow $35 million through August 1, 1997, at which time, or earlier at the
company's option, the agreement converts to a four-year term loan, requiring
equal annual payments of principal. Interest rates on these borrowings are
based on bank offered rates, the prime lending rate, certificate of deposit
rate, treasury rate, or a eurodollar rate. The credit agreement provides the
back-up line of credit necessary for the issuance of commercial paper. The
company's commercial paper placement agreement, with one of its two major
banks, provides for the issuance of up to $40 million of unsecured debt
obligations. The company had $8.3 million in commercial paper outstanding at
year end. On August 31, 1995, a combined total of $12.5 million was available
for borrowing under the company's credit and commercial paper placement
agreements. In a separate agreement, the banks participating in the revolving
credit facility have provided a $30 million uncommitted line of credit to the
company. The company also has available a $2 million short-term line of
credit. There was no borrowing against these lines at August 31, 1995.
In June 1993, the company borrowed $30 million through the issuance of notes
to Prudential Insurance Company of America and its subsidiaries. The loan was
in the form of senior unsecured term notes bearing a fixed interest rate of
6.03%. Principal is payable in ten equal semi-annual installments beginning
in December 1995, with the final payment due in June 2000. Proceeds from the
notes were used to reduce borrowings from the revolving credit facility.
In August 1995, the company obtained $19 million in industrial development
bond financing to fund the 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. The bonds, which were issued by a local
governmental unit, mature on July 1, 2023 and have a floating interest rate
commensurate with short-term municipal bond rates on similar issues. The
interest rate can be converted to a fixed rate at the option of the company.
Principal is due upon maturity or earlier at the company's option. Proceeds
relating to the bond issuance are held in a trust fund until they are drawn
upon by the company as spending occurs on these projects. As of August 31,
1995, the company utilized $4.3 million from the bond proceeds.
Cash provided by operations, industrial development bond proceeds and the
revolving credit facility are expected to meet working capital needs and
dividend requirements, as well as fund the company's stock repurchase program
and planned capital expenditure requirements. The company believes additional
financing is readily available, should it be needed, to fund a major expansion
or acquisition.
COMMON STOCK REPURCHASE
On June 30, 1994, the Board of Directors authorized the repurchase of up to
1,485,000 shares of the company's common stock, from time-to-time in the open
market or through privately negotiated transactions at prevailing market
prices. In fiscal 1995, the company repurchased 247,150 shares at market
prices ranging from $20.688 per share to $21.364 per share. In fiscal 1994,
<PAGE>
the company repurchased 99,000 shares at market prices ranging from $21.705
per share to $22.386 per share. Shares and per share data have been restated
to reflect the January 1995 10% stock dividend.
DIVIDENDS
In fiscal 1995, the Board of Directors declared cash dividends of $.25 per
share, a 14.6% increase over the $.218 per share declared in fiscal 1994.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WIPFLI ULLRICH BERTELSON
Certified Public Accountants
To the Shareholders and Board of Directors
Wausau Paper Mills Company
Wausau, Wisconsin
We have audited the accompanying consolidated balance sheets of Wausau Paper
Mills Company and Subsidiaries as of August 31, 1995 and 1994, and the related
consolidated statements of income, cash flows and shareholders' equity for
each of the years in the three-year period ended August 31, 1995 and the
supporting schedule listed in the accompanying index to financial statements.
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
Paper Mills Company and Subsidiaries at August 31, 1995 and 1994, and the
results of their operations and cash flows for each of the years in the three-
year period ended August 31, 1995, and the supporting schedule presents fairly
the information required to be set forth therein, all in conformity with
generally accepted accounting principles.
As discussed in Note 8 and Note 7 of the Notes to Consolidated Financial
Statements, the company changed its method of accounting for income taxes in
1994 and its method of accounting for postretirement benefits other than
pensions in 1993.
We hereby consent to the incorporation by reference of this report in the
Registration Statements on Form S-8 and amendments thereto filed with the
Securities and Exchange Commission by Wausau Paper Mills Company on August 25,
1995, January 3, 1992 and January 27, 1988.
WIPFLI ULLRICH BERTELSON
WIPFLI ULLRICH BERTELSON
September 19, 1995
Wausau, Wisconsin
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Wausau Paper Mills Company is responsible for the integrity
and objectivity of the financial data contained in the financial statements
and supporting schedule. The financial statements and supporting schedule
have been prepared in conformity with generally accepted accounting principles
appropriate under the circumstances and, where necessary, reflect informed
judgments and estimates of the effects of certain events and transactions
based on currently available information at the date the financial statements
were prepared.
The company's management depends on the company's system of internal
accounting controls to assure itself of the reliability of the financial
statements. The internal control system is designed to provide reasonable
assurance, at appropriate cost, that assets are safeguarded and transactions
are executed in accordance with management's authorizations and recorded
properly to permit the preparation of financial statements in accordance with
generally accepted accounting principles. Periodic reviews are made of
internal controls by management and corrective action is taken if needed.
The Board of Directors reviews and monitors financial statements through its
audit committee. The audit committee meets with the independent public
accountants and management to review internal accounting controls, auditing
and financial reporting matters.
The independent public accountants are engaged to provide an objective and
independent review of the company's financial statements in accordance with
generally accepted auditing standards and to express an opinion thereon. The
report of the company's independent public accountants is included in this
annual report.
SAN W. ORR, JR. DANIEL D. KING
SAN W. ORR, JR. DANIEL D. KING
Chairman of the Board of Directors President and Chief Operating
and Chief Executive Officer Officer
STEVEN A. SCHMIDT
STEVEN A. SCHMIDT
Vice President Finance,
Secretary and Treasurer
<PAGE>
INDEX TO FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
Consolidated Statements of Income for the years ended
August 31, 1995, 1994 and 1993 .................................17
Consolidated Balance Sheets as of August 31, 1995
and 1994 .......................................................18
Consolidated Statements of Shareholders' Equity for
the years ended August 31, 1995, 1994 and 1993 .................20
Consolidated Statements of Cash Flows for the years
ended August 31, 1995, 1994 and 1993 ...........................21
Notes to Consolidated Financial Statements .........................22
Schedule for the years ended August 31, 1995, 1994 and 1993
Schedule II - Valuation and Qualifying Accounts ................36
All other schedules called for under 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.
<PAGE>
<TABLE>
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(all dollar amounts in thousands, For the years ended August 31,
except per share data) 1995 1994 1993
<S> <C> <C> <C>
Net Sales $515,743 $426,504 $381,816
Cost of products sold 434,995 329,191 292,879
Gross Profit 80,748 97,313 88,937
Selling, administrative and research
expenses 27,994 27,323 26,027
Operating Profit 52,754 69,990 62,910
Interest expense ( 1,688) ( 1,958) ( 1,272)
Interest income 239 111 38
Other income and expense - net ( 454) ( 91) 95
Earnings Before Income Taxes and
Cumulative Effect of Changes in Accounting
Principles 50,851 68,052 61,771
Provision for income taxes 19,600 26,000 23,400
Earnings Before Cumulative Effect of
Changes in Accounting Principles 31,251 42,052 38,371
Cumulative effect of changes in accounting
principles
Postretirement benefits (net of income
taxes) ( 15,750)
Income taxes 1,000
Net Earnings $ 31,251 $ 43,052 $ 22,621
Earnings Per Share Before Cumulative
Effect of Changes in Accounting
Principles $ 1.06 $ 1.42 $ 1.29
Cumulative effect of changes in
accounting principles
Postretirement benefits (net of
income taxes) ( 0.53)
Income taxes 0.03
Net Earnings Per Common Share $ 1.06 $ 1.45 $ 0.76
<FN>
See accompanying notes to consolidated financial statements.
All per share data has been restated to reflect a 10% stock dividend occurring
in 1995 and four-for-three stock splits occurring in 1994 and 1993.
</TABLE>
<PAGE>
<TABLE>
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(all dollar amounts in thousands)
As of August 31,
1995 1994
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 2,347 $ 3,214
Accounts and notes receivable:
Customers, less allowances of $5,080 in 1995 and
$4,644 in 1994 40,975 33,603
Other 1,454 1,506
Inventories 67,474 60,222
Deferred income taxes 7,204 6,931
Other current assets 563 458
Total current assets 120,017 105,934
Property, Plant and Equipment
Buildings 46,009 42,060
Machinery and equipment 359,930 320,546
405,939 362,606
Less: Accumulated depreciation ( 150,736) ( 133,178)
255,203 229,428
Land 1,657 1,433
Timberlands, net of depletion of
$672 in 1995 and $598 in 1994 1,494 1,541
Capital additions in process 33,837 14,670
Total property, plant and equipment 292,191 247,072
Other Assets
Cash restricted for capital additions 14,732
Deferred charges and other assets 7,746 8,383
Total other assets 22,478 8,383
Total Assets $434,686 $361,389
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(all dollar amounts in thousands) As of August 31,
1995 1994
<S> <C> <C>
Liabilities
Current Liabilities
Current maturities of long-term debt $ 6,425 $ 462
Accounts payable 24,426 25,325
Accrued salaries and wages 7,480 8,960
Accrued and other liabilities 13,161 11,117
Accrued income taxes 1,259 192
Total current liabilities 52,751 46,056
Long-Term Liabilities
Long-term debt 68,623 30,270
Deferred income taxes 36,799 31,945
Postretirement benefits 30,433 28,682
Pension 5,184 6,139
Other liabilities 4,207 3,479
Total long-term liabilities 145,246 100,515
Commitments and contingencies
Shareholders' Equity
Preferred stock: (500,000 shares authorized)
no par value
No shares issued
Common stock: (36,000,000 shares authorized)
no par value
31,072,323 shares issued - 1995
28,248,240 shares issued - 1994 138,784 80,380
Retained earnings 110,345 143,424
249,129 223,804
Less: Treasury stock at cost
(1,608,436 shares in 1995 and
1,390,210 shares in 1994) ( 11,652) ( 7,604)
Net loss not recognized as pension expense
(net of deferred taxes) ( 788) ( 1,382)
Total shareholders' equity 236,689 214,818
Total Liabilities and Shareholders' Equity $434,686 $361,389
</TABLE>
<PAGE>
<TABLE>
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
(all dollar amounts COMMON STOCK TREASURY STOCK COMMON TOTAL
in thousands except RETAINED NET PENSION STOCK-SHARES SHAREHOLDERS'
share data) SHARES ISSUED AMOUNT EARNINGS SHARES AMOUNT ADJUSTMENT OUTSTANDING EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance August 31, 1992 15,890,499 $ 79,330 $ 89,924 (738,395) ($ 3,141) ($ 124) 15,152,104 $165,989
Net earnings, 1993 22,621 22,621
Cash dividends declared ( 5,686) ( 5,686)
Four-for-three stock split 5,296,184 (244,131) 5,052,053
Stock options exercised 107 15,333 54 15,333 161
Change in unrecognized
pension expense (net of
deferred taxes) 54 54
Balance August 31, 1993 21,186,683 79,437 106,859 (967,193) ( 3,087) ( 70) 20,219,490 183,139
Net earnings, 1994 43,052 43,052
Cash dividends declared ( 6,487) ( 6,487)
Four-for-three stock split 7,061,557 ( 319,695) 6,741,862
Purchases of treasury
shares ( 190,000) ( 4,959) ( 190,000) ( 4,959)
Stock options exercised 943 86,678 442 86,678 1,385
Change in unrecognized
pension expense (net of
deferred taxes) ( 1,312) ( 1,312)
Balance August 31, 1994 28,248,240 80,380 143,424 (1,390,210) ( 7,604) ( 1,382) 26,858,030 214,818
Net earnings, 1995 31,251 31,251
Cash dividends declared ( 7,385) ( 7,385)
10% stock dividend 2,824,083 56,945 ( 56,945) ( 144,856) 2,679,227
Purchases of treasury
shares ( 226,500) ( 5,222) ( 226,500) ( 5,222)
Stock options exercised 1,459 153,130 1,174 153,130 2,633
Change in unrecognized
pension expense (net of
deferred taxes) 594 594
Balance August 31, 1995 31,072,323 $138,784 $110,345 (1,608,436) ($ 11,652) ($ 788) 29,463,887 $236,689
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(all dollar amounts in thousands) For the Years Ended August 31,
1995 1994 1993
<S> <C> <C> <C>
Operating Activities:
Net earnings $ 31,251 $ 43,052 $ 22,621
Cumulative effect of accounting changes ( 1,000) 15,750
Noncash items:
Provision for depreciation, depletion and
amortization 19,940 17,635 15,445
Loss on property, plant and equipment disposals 585 231 123
Deferred income taxes 4,581 3,033 2,568
Changes in operating assets and liabilities:
Receivables ( 7,320) ( 4,172) ( 1,929)
Inventories ( 7,252) ( 563) ( 22,463)
Other assets 521 423 ( 907)
Accounts payable and other liabilities 4,139 7,942 3,062
Accrued income taxes 1,067 ( 1,842) 105
Net Cash Provided by Operating Activities 47,512 64,739 34,375
Investing Activities:
Capital expenditures ( 64,479) ( 42,056) ( 51,026)
Proceeds from property, plant and equipment
disposals 115 615 52
Net cash invested in funds restricted for
capital additions ( 14,732)
Net Cash Used in Investing Activities ( 79,096) ( 41,441) ( 50,974)
Financing Activities:
Net borrowings (repayments) under revolving
credit facility 14,200 ( 12,000) ( 7,000)
Net borrowings of commercial paper 8,300
Repayment of long-term debt ( 451) ( 508) ( 363)
Proceeds from issuance of long-term notes 30,000
Proceeds from issuance of long-term bonds 19,000
Dividends paid ( 7,156) ( 6,291) ( 5,559)
Proceeds from stock option exercises 2,046 1,050 161
Payment for purchase of treasury stock ( 5,222) ( 4,959)
Net Cash Provided by (Used in) Financing
Activities 30,717 ( 22,708) 17,239
Net increase (decrease) in cash and cash
equivalents ( 867) 590 640
Cash and cash equivalents at beginning of year 3,214 2,624 1,984
Cash and Cash Equivalents at End of Year $ 2,347 $ 3,214 $ 2,624
Supplemental Cash Flow Information:
Interest paid (net of amount capitalized) $ 1,554 $ 1,903 $ 928
Income taxes paid 13,762 23,598 20,763
<FN>
Noncash investing and financing activities: Capital lease obligations of
$497, $24 and $550 in 1995, 1994 and 1993, respectively, were incurred when
the company entered into leases for new equipment.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - 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.
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.
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.
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. 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 25- to 45-year period; machinery and
equipment over a 4- to 16-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.
Land is stated at cost. Timberlands are at cost less the pro rata cost of
timber harvested since acquisition. Depletion expense is calculated using the
block method.
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. See Note 8 for change in accounting principle in 1994.
EARNINGS PER SHARE - Earnings per common share are based on the weighted
average number of common shares outstanding. Dilution of earnings per common
share due to common stock equivalents (stock options) is negligible and,
accordingly, no dilution has been reported.
<PAGE>
<TABLE>
NOTE 2. INVENTORIES
<CAPTION>
(all dollar amounts in thousands) 1995 1994
<S> <C> <C>
Raw materials $ 30,925 $ 21,508
Supplies 16,498 15,420
Work in process and finished goods 45,521 37,128
Inventories at cost 92,944 74,056
LIFO reserve ( 25,470) ( 13,834)
Net inventories $ 67,474 $ 60,222
</TABLE>
Because various components of the inventories are valued by use of the last-
in, first-out (LIFO) method, it is impracticable to segregate the LIFO reserve
between raw materials and work in process and finished goods.
<TABLE>
NOTE 3. ACCRUED AND OTHER LIABILITIES
<CAPTION>
(all dollar amounts in thousands) 1995 1994
<S> <C> <C>
Employee retirement plans $ 1,583 $ 1,674
Taxes other than income 1,348 1,503
Interest 523 419
Stock appreciation rights 2,720 2,873
Other 6,987 4,648
Totals $ 13,161 $ 11,117
</TABLE>
<TABLE>
NOTE 4. DEBT
<CAPTION>
The company's long-term debt, excluding current maturities as of August 31, is
outlined below:
(all dollar amounts in thousands) 1995 1994
<S> <C> <C>
6.03% Senior promissory notes $ 24,000 $ 30,000
Industrial development bonds 19,000
Revolving credit facility agreement 14,200
Commercial paper 8,300
Fixed asset payables to be financed
with revolving credit agreement 2,831
Capitalized leases 292 270
Totals $ 68,623 $ 30,270
</TABLE>
The company has outstanding $30 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 ten equal semi-annual installments
beginning December 18, 1995, 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 3.85% at
August 31, 1995. The company also pays fees for a bank letter of credit and
remarketing services related to the bonds which it includes in net interest
<PAGE>
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 August 31, 1995, bond proceeds of $14,732,000 were
not disbursed and are reflected as an asset on the balance sheet.
The company maintains an unsecured revolving credit facility of $35 million
with two banks which continues through August 1, 1997 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 annual
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 6.21% at August 31, 1995. There were
no borrowings against this agreement at August 31, 1994. The credit agreement
provides for commitment fees during the revolving loan period. Fees are based
on .125% per annum on the unused portions of the commitment, payable monthly.
Consistent with the classification of the revolving credit agreement, fixed
asset payables that will be financed through the agreement are classified as
long-term debt.
The senior promissory notes and the revolving credit facility agreement
require the company to comply with certain covenants, one of which requires
the company maintain minimum net worth. At August 31, 1995, $69,950,000 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. The weighted average interest rate on
outstanding commercial paper was 6.20% at August 31, 1995. There were no
amounts outstanding at August 31, 1994.
The difference between the book and the fair market value of the long-term
debt is not material.
<PAGE>
<TABLE>
The aggregate annual maturities of long-term debt for the next five years are:
<CAPTION>
(all dollar amounts THERE-
in thousands) 1996 1997 1998 1999 2000 AFTER
<S> <C> <C> <C> <C> <C>
$ 6,425 $ 6,164 $ 12,461 $ 12,333 $ 12,333 $ 25,332
</TABLE>
Annual maturities will be affected by future borrowings.
The banks participating in the revolving credit agreement have provided
separate uncommitted revolving lines of credit to the company in an aggregate
amount of up to $30 million. The specific terms of any revolving loans
borrowed pursuant to these lines of credit will be negotiated at the time of
the borrowing and any revolving loans so borrowed will be payable on demand.
In addition, the company has a $2 million line of credit with interest payable
at the prime rate. The line does not require a compensating balance or a
commitment fee. There was no borrowing against these lines at August 31,
1995.
NOTE 5. 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:
<PAGE>
<TABLE>
<CAPTION>
(all dollar amounts in thousands)
1995 1994
<S> <C> <C>
Machinery and equipment $ 1,728 $ 2,083
Allowance for amortization ( 744) ( 1,168)
Net value $ 984 $ 915
</TABLE>
Lease amortization is included in depreciation expense.
<TABLE>
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 August 31, 1995:
<CAPTION>
(all dollar amounts in thousands) Capital Operating
LEASES LEASES
<S> <C> <C>
1996 $ 451 $ 165
1997 174 78
1998 131 43
1999 34
2000 33
Thereafter 143
Total Minimum Payments 756 496
Amounts representing interest ( 39)
Present value of net minimum lease payments $ 717 $ 496
</TABLE>
The future minimum payments for capitalized leases are reflected in the
aggregate annual maturities of long-term debt disclosure in Note 4.
<TABLE>
Rental expense for all operating leases consisted of:
<CAPTION>
(all dollar amounts in thousands) 1995 1994 1993
<S> <C> <C> <C>
Minimum rentals $ 1,347 $ 1,334 $ 1,183
Contingent rentals 267 213 366
Totals $ 1,614 $ 1,547 $ 1,549
</TABLE>
Contingent rentals are based upon usage.
<TABLE>
NOTE 6. INTEREST EXPENSE AND CAPITALIZED INTEREST
<CAPTION>
(all dollar amounts in thousands) TOTAL NET
INTEREST CAPITALIZED INTEREST
EXPENSE INTEREST EXPENSE
<S> <C> <C> <C>
1995 $ 2,423 $ 735 $ 1,688
1994 2,185 227 1,958
1993 1,350 78 1,272
</TABLE>
NOTE 7. RETIREMENT PLAN
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 a measurement date of plan assets of May 31, 1995 and
1994.
<TABLE>
The components of net periodic pension cost follow:
<CAPTION>
(all dollar amounts in thousands) 1995 1994 1993
<S> <C> <C> <C>
Service cost $ 2,199 $ 2,020 $ 1,663
Interest cost 3,920 3,791 3,233
Actual return on assets ( 4,365) ( 1,066) ( 3,875)
Net amortization and deferral 1,201 ( 1,843) 1,567
Net pension cost $ 2,955 $ 2,902 $ 2,588
</TABLE>
<PAGE>
<TABLE>
The following table sets forth the benefit obligations and funded status of
the plans at August 31:
<CAPTION>
1995 1994
PLANS WITH ASSETS PLANS WITH ASSETS PLANS WITH ASSETS PLANS WITH ASSETS
EXCEEDING ACCUMU- LESS THAN ACCUMU- EXCEEDING ACCUMU- LESS THAN ACCUMU-
LATED BENEFIT LATED BENEFIT LATED BENEFIT LATED BENEFIT
(ALL DOLLAR AMOUNTS IN THOUSANDS) OBLIGATION OBLIGATION OBLIGATION OBLIGATION
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits ($ 27,027) ($ 17,370) ($ 25,203) ($ 16,367)
Nonvested benefits ( 5,086) ( 3,293) ( 4,465) ( 3,564)
Accumulated benefit obligations ( 32,113) ( 20,663) ( 29,668) ( 19,931)
Additional amounts related to
projected salary increases ( 3,658) ( 528) ( 3,986) ( 434)
Projected benefit obligation ( 35,771) ( 21,191) ( 33,654) ( 20,365)
Plan assets at market value at
May 31 34,785 14,719 33,268 12,890
Plan assets less than projected
benefit obligation ( 986) ( 6,472) ( 386) ( 7,475)
Unrecognized net loss from past
experience and effect of
changes in assumptions 1,368 1,709 1,424 2,704
Prior service costs not yet
recognized 2,898 2,575 3,210 2,817
Unrecognized initial net
obligation (asset) ( 1,511) 573 ( 1,682) 645
Cash contributions to plans
subsequent to May 31 16 80 8
Adjustment to recognize minimum
liability ( 4,450) ( 5,756)
Net pension asset (liability)
recognized in the
consolidated balance sheets $ 1,769 ($ 6,049) $ 2,646 ($ 7,058)
</TABLE>
Projected benefit obligations were determined using an assumed discount rate
of 7.5% and an assumed rate of increases in future compensation levels of
5.0%. The assumed long-term rate of return on plan assets was 8.0%. Plan
assets consist principally of publicly traded stocks and fixed income
securities and include Wausau Paper Mills Company common stock with a market
value of $1,377,000 in 1995 and $1,854,000 in 1994.
The company's defined contribution pension plan provides for company
contributions based on a percentage of employee contributions. The cost of
such plans totaled $232,000 in 1995 and $445,000 in 1994, and $420,000 in
1993.
The company has deferred compensation or supplemental retirement agreements
with certain present and past key officers 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.
<PAGE>
In fiscal 1993, the company adopted the provisions of Statements of Financial
Accounting Standard (SFAS) No. 106 "Employers' Accounting for Postretirement
Benefits Other than Pensions," effective as of September 1, 1992.
SFAS 106 requires the estimated cost of retiree benefit payments, primarily
health and life insurance, to be accrued during the employees' active service
period. Previously, the cost of these benefits was expensed as paid. The
company elected to immediately recognize the accumulated liability as of
September 1, 1992, which resulted in a one-time noncash charge against
earnings of $25,000,000 before taxes and $15,750,000 after taxes, or $.53 per
share (as restated). In addition, the effect of this change on 1993 operating
results was to recognize an additional pre-tax expense of $1,590,000 and
after-tax expense of $987,000, or $.03 per share (as restated).
<TABLE>
Postretirement benefit cost includes the following components:
<CAPTION>
(all dollar amounts in thousands) 1995 1994 1993
<S> <C> <C> <C>
Service cost $ 933 $ 994 $ 750
Interest cost 1,984 2,085 1,875
Net periodic postretirement benefit cost $ 2,917 $ 3,079 $ 2,625
</TABLE>
<TABLE>
The plans' status at August 31, was as follows:
<CAPTION>
(all dollar amounts in thousands) 1995 1994
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees $ 8,934 $ 9,295
Fully eligible active participants 8,952 8,326
Other active participants 10,971 9,853
Accumulated postretirement benefit obligation 28,857 27,474
Unrecognized net gain 1,576 1,208
Accrued postretirement benefit liability $ 30,433 $ 28,682
</TABLE>
For 1995, the assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 11% declining by 1% annually
for six years to an ultimate rate of 5%. The weighted average discount rate
was 7.5%.
For 1994, the assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 12% declining by 1% annually
for seven years to an ultimate rate of 5%. The weighted average discount rate
was 7.5%.
A one-percentage-point increase in the assumed health care cost trend rates
would increase the accumulated postretirement benefit obligation as of
August 31, by approximately $3,779,000 or 13.1% in 1995 and $3,541,000 or
12.9% in 1994. The effect of this change on the aggregate of the service and
interest cost would be an increase of $416,000 or 14.3% in 1995 and $451,000
or 14.6% for 1994.
<PAGE>
NOTE 8. INCOME TAXES
Effective September 1, 1993, the company adopted the liability method of
accounting for income taxes prescribed by Statement of Financial Accounting
Standard (SFAS) No. 109. 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 is the result of changes
in the deferred tax asset and liability. Previously, the company used the
deferral method which provided for deferred income taxes on the basis of
income and expense items reported for financial accounting and tax purposes in
different periods.
The company elected to recognize the cumulative effect of the change as of
September 1, 1993, totaling $1,000,000, as a credit to income in 1994. The
effect of the change in method did not have a material effect in 1994.
<TABLE>
The provision for income taxes is comprised of the following:
<CAPTION>
(all dollar amounts
in thousands) 1995 1994 1993
<S> <C> <C> <C>
Currently payable
Federal $ 13,487 $ 20,245 $ 18,821
State 1,532 2,722 1,820
15,019 22,967 20,641
Deferred
Federal 4,197 2,688 1,571
State 384 345 1,188
4,581 3,033 2,759
Totals $ 19,600 $ 26,000 $ 23,400
</TABLE>
<TABLE>
A reconciliation between taxes computed at the federal statutory rate and the
consolidated effective tax rate follows:
<CAPTION>
(all dollar amounts in thousands) 1995 1994 1993
<S> <C> <C> <C>
Federal statutory tax rate $ 17,798 35% $ 23,818 35% $ 21,416 35%
State taxes net of federal
tax benefits 1,324 3% 1,994 3% 1,179 2%
Other 478 1% 188 805 1%
Consolidated effective tax $ 19,600 39% $ 26,000 38% $ 23,400 38%
</TABLE>
<PAGE>
<TABLE>
The major temporary differences that give rise to the deferred tax assets and
liabilities at August 31, 1995 and 1994 are as follows:
<CAPTION>
(all dollar amounts in thousands) 1995 1994
<S> <C> <C>
Deferred tax asset:
Allowances on accounts receivable $ 977 $ 787
Accrued compensated absences 1,666 1,689
Stock appreciation rights plans 1,101 1,149
Inventories 1,387 1,630
Postretirement benefits 12,086 11,454
Other 1,880 1,338
Gross deferred tax asset 19,097 18,047
Deferred tax liability:
Property, plant and equipment ( 47,666) ( 41,875)
Other ( 1,026) ( 1,186)
Gross deferred tax liability ( 48,692) ( 43,061)
Net deferred tax liability ($ 29,595) ($ 25,014)
</TABLE>
<TABLE>
The total deferred tax liabilities (assets) as presented in the accompanying
balance sheets are as follows:
<CAPTION>
(all dollar amounts in thousands) 1995 1994
<S> <C> <C>
Net long-term deferred tax liabilities $ 36,799 $ 31,945
Net current deferred tax assets ( 7,204) ( 6,931)
Net deferred tax liability $ 29,595 $ 25,014
</TABLE>
<TABLE>
For the year ended August 31, 1993, the components of deferred tax expense are
as follows:
<CAPTION>
(all dollar amounts in thousands) 1993
<S> <C>
Excess of tax over book depreciation $ 4,571
Bad debt allowance ( 12)
Accrued expenses ( 1,946)
Other - Net 146
Totals $ 2,759
</TABLE>
NOTE 9. STOCK OPTIONS AND APPRECIATION RIGHTS
The company maintains the 1981 and 1991 Employee Stock Option Plans. Each
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 under
the 1981 plan and for incentive options granted under the 1991 plan. The
option price for non-qualified options under the 1991 plan may not be less
<PAGE>
than 50% of the fair market value of the company's common stock at the date of
grant.
During 1995, 36,850 options were granted under the 1991 Employee Stock Option
Plan to be earned based upon the satisfaction of operating goals set forth in
the agreement. The options terminated when 1995 operating goals were not met.
During 1992, options were granted under the 1991 Employee Stock Option Plan.
The options were to be earned over a three-year period based upon the
satisfaction of operating goals set forth in the agreement. A total of 97,783
and 72,358 options terminated in 1994 and 1993, respectively, when operating
goals were not met.
<TABLE>
The following table summarizes the activity relating to the company's stock
option plans:
<CAPTION>
STOCK OPTIONS: 1995 1994 1993
<S> <C> <C> <C>
Options outstanding at beginning of the year
(number of shares) 351,541 539,818 524,665
Granted 106,150 7,823 124,666
Terminated ( 42,712) ( 97,783) ( 84,092)
Exercised ( 167,945) ( 98,317) ( 25,421)
Options outstanding at end of year (number of shares) 247,034* 351,541 539,818
Options exercisable at end of year (number of shares) 224,666** 326,608 372,131
Price range of options exercised $1.88-12.50 $1.88-12.50 $1.88-16.42
Price range of outstanding options $4.19-30.00 $1.88-22.67 $1.88-22.67
<FN>
*214,497 and 32,537 options granted and remain outstanding under the 1991
Employee Stock Option Plan and the 1981 Employee Stock Option Plan,
respectively.
**192,129 and 32,537 options granted and are exercisable under the 1991
Employee Stock Option Plan and the 1981 Employee Stock Option Plan,
respectively.
All shares and option prices have been restated to reflect the 10% stock
dividend occurring in 1995 and the four-for-three stock splits occurring in
1994 and 1993.
</TABLE>
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.
<PAGE>
<TABLE>
The following table summarizes the activity relating to the company's stock
appreciation rights plans:
<CAPTION>
STOCK APPRECIATION RIGHTS:
1995 1994 1993
<S> <C> <C> <C>
Rights outstanding at beginning of the year
(number of shares) 147,644 158,644 243,808
Exercised ( 4,000) ( 11,000) (85,164)
Rights outstanding at end of
year (number of shares) 143,644 147,644 158,644
Rights exercisable at end of
year (number of shares) 143,644 147,644 129,311
Price range of stock appreciation
rights exercised $ 7.35 $ 5.58 $5.58-7.05
Price range of outstanding
stock appreciation rights $5.58-7.83 $5.58-7.83 $5.58-7.83
</TABLE>
All shares and price ranges have been restated to reflect the 10% stock
dividend occurring in 1995 and the four-for-three stock splits occurring in
1994 and 1993.
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. During 1995, 36,850 dividend equivalents were
granted under the plan. The dividend equivalents are earned in the current
year based upon the satisfaction of operating goals set forth in the
agreement. All dividend equivalents granted in 1995 terminated when operating
goals were not met.
During 1992, 196,534 dividend equivalents were granted under the plan. The
dividend equivalents granted in 1992 and 26,400 of the dividend equivalents
granted in 1993 were to be earned over a three-year period based upon the
satisfaction of operating goals set forth in the agreement. A total of 89,956
and 72,358 dividend equivalents terminated in 1994 and 1993, respectively,
when operating goals were not met.
<TABLE>
<CAPTION>
DIVIDEND EQUIVALENTS: 1995 1994 1993
<S> <C> <C> <C>
Equivalents outstanding at beginning of the year
(number of shares) 114,399 448,799 440,978
Granted 36,850 99,734
Exercised ( 244,444) ( 7,821)
Terminated ( 36,850) ( 89,956) ( 84,092)
Equivalents outstanding at end of year
(number of shares) 114,399 114,399 448,799
Equivalents exercisable at end of year
(number of shares) 114,399 114,399 317,778
</TABLE>
All shares have been restated to reflect the 10% stock dividend occurring in
1995 and the four-for-three stock splits occurring in 1994 and 1993.
The pre-tax impact on earnings of all stock options, dividend equivalents and
stock appreciation rights for the years ended August 31, 1995, 1994 and 1993
<PAGE> was expense of $79,000, income of $283,000 and expense of $1,934,000,
respectively.
NOTE 10. RESEARCH EXPENSES
Research expenses charged to operations were $1,219,000 in 1995, $1,158,000 in
1994 and $957,000 in 1993.
NOTE 11. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
The company is involved in various legal proceedings in the normal course of
business. It is the opinion of management that any judgment or settlement
resulting from pending or threatened litigation would not have a material
adverse effect on the financial position or on the operations of the company.
As of August 31, 1995, the company was committed to spend approximately $62
million to complete capital projects which were in various stages of
completion.
In 1993, Rhinelander Paper Company, Inc., a subsidiary of the company, signed
an agreement with Wisconsin Public Service Corporation (WPS) under which
Rhinelander Paper would become the exclusive steam customer of a high-
efficiency cogeneration power plant to be constructed, owned and operated by
WPS. The arrangement for ownership and operation by WPS was altered during
the regulatory approval process, making it necessary to negotiate a new
agreement between WPS and Rhinelander Paper if the project were to proceed.
The two companies were unable to agree upon several fundamental issues and
after lengthy negotiations, Rhinelander Paper Company decided it was not
feasible to continue and terminated further negotiations. WPS and Rhinelander
Paper issued a joint press release on July 21, 1995, announcing the
cancellation of plans to build the cogeneration power plant.
During fiscal 1994, the company purchased 100,000 shares of the company's no-
par value common stock from a director in a private transaction at $27.625 per
share, the average market price on the day of the transaction.
NOTE 12. MAJOR CUSTOMERS
One customer accounted for 12.0% of net sales aggregating $61,732,000, 12.3%
of net sales aggregating $52,313,000, and 11.2% of net sales aggregating
$42,812,000 in 1995, 1994 and 1993, respectively.
<PAGE>
<TABLE>
QUARTERLY DATA (UNAUDITED)
<CAPTION>
(all dollar amounts 1995 1994
in thousands, except
per share data) FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $134,801 $135,560 $119,115 $126,267 $111,355 $108,709 $ 97,709 $108,731
Gross profit 19,969 21,587 18,094 21,098 22,179 26,413 22,830 25,891
Operating profit 11,740 14,687 11,956 14,371 15,442 20,748 15,335 18,465
Earnings before
cumulative effect of
accounting changes 6,793 8,745 7,116 8,597 9,361 12,516 9,114 11,061
Per share $0.23 $0.30 $0.24 $0.29 $0.32 $0.42 $0.31 $0.37
Net earnings 6,793 8,745 7,116 8,597 9,361 12,516 9,114 12,061
Per share $0.23 $0.30 $0.24 $0.29 $0.32 $0.42 $0.31 $0.40
Per share basis:
Cash dividends* $0.0625 $0.0625 $0.1250 $0.0545 $0.0545 $0.109
Common Stock price
(closing)**
High $ 23.75 $ 23.75 $ 24.50 $ 25.00 $ 24.09 $ 30.91 $ 29.66 $ 27.62
Low $ 21.00 $ 21.00 $ 20.25 $ 20.68 $ 20.23 $ 23.18 $ 25.40 $ 25.05
<FN>
*Dividends reported as of declaration date. During each year presented, two
quarterly dividends were declared in the second quarter.
**Such prices reflect the high and low "closing" price quotation on The Nasdaq
Stock Market and do not reflect markups, markdowns or commissions and may not
necessarily reflect actual transactions.
</TABLE>
The estimated effective tax rate utilized for the first three quarters of each
fiscal year was different than the final annual effective rate and the
adjustment of income taxes was all reflected in the quarter ended August 31 of
each fiscal year.
All per share data has been restated to reflect the 10% stock dividend
occurring in 1995 and the four-for-three stock split occurring in 1994.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to directors is incorporated into this Form 10-K by
reference to the table on page 5 of the registrant's Proxy Statement dated
November 9, 1995 (1995 Proxy Statement). Information relating to executive
officers is found in Part I of this Form 10-K, page 4.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to director compensation is incorporated into this Form
10-K by reference to the registrant's 1995 Proxy Statement under the
subcaption "Director Compensation", page 6. Information relating to the
compensation of executive officers is incorporated into this Form 10-K by this
reference to (1) the material set forth beginning under the caption
"Compensation of Executive Officers" and ending with the material set forth
under the subcaption "Supplemental Plans", pages 8 through 13 and (2) the
material set forth under the subcaption "Committee Interlocks and Insider
Participation", page 16, in the 1995 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 reference to the material
set forth in the registrant's 1995 Proxy Statement beginning under the caption
"Beneficial Ownership of Shares", page 2, through the material immediately
preceding the final paragraph under such caption, page 3.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial statements and financial statement schedules, filed as part of
this report and required by Item 14(d), are set forth on page 14 herein.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the company during the fourth quarter
of fiscal 1995.
(c) Exhibits required by Item 601 of Regulation S-K.
The following exhibits are filed with the Securities and Exchange Commission
as part of this report.
Exhibit 3 - Articles of Incorporation and Bylaws
a. Articles of Incorporation, as amended 12/18/91 ................33-45(2)
b. Bylaws, as restated 7/17/92 ...................................46-81(2)
Exhibit 4 - Instruments Defining the Rights of Security Holders
a. Articles and Bylaws (see Exhibit 3)
Exhibit 10 - Material Contracts*
a. Executive Officers' Deferred Compensation Retirement Plan,
as amended 5/20/93.............................................40-54(1)
b. Incentive Compensation Plans, as amended 10/23/92 and
10/28/93 (Printing and Writing Division and Rhinelander
Paper Company, Inc.)...........................................55-62(1)
c. Corporate Management Incentive Plan, as amended 8/19/87 .......63-69(1)
d. 1988 Stock Appreciation Rights Plan, as amended 4/17/91 .....106-114(3)
e. 1988 Management Incentive Plan, as amended 4/17/91 ..........115-123(3)
f. 1990 Stock Appreciation Rights Plan, as amended 4/17/91 .....124-132(3)
g. Deferred Compensation Agreement dated March 2, 1990,
as amended July 1, 1994........................................51-56(4)
h. 1991 Employee Stock Option Plan .............................133-146(3)
i. 1991 Dividend Equivalent Plan ...............................147-155(3)
j. Supplemental Retirement Benefit Plan dated January 16, 1992 ...90-97(2)
k. Directors' Deferred Compensation Plan .........................71-86(1)
l. Director Retirement Benefit Policy ............................87-88(1)
*All exhibits represent executive compensation plans and arrangements.
Exhibit 22 - Subsidiaries .............................................89(1)
Exhibit 27 - Financial Data Schedule
Page numbers set forth herein correspond to the page numbers using the
sequential numbering system, where such exhibit can be found in the following
Annual Reports on Form 10-K:
(1) Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993; Commission File Number 0-7574.
(2) Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1992; Commission File Number 0-7574.
(3) Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1991; Commission File Number 0-7574.
(4) Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994; Commission File Number 0-7574.
The above exhibits are available upon request in writing from the Secretary,
Wausau Paper Mills Company, P.O. Box 1408, Wausau, Wisconsin 54402-1408.
<PAGE>
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Allowance Allowance
for Allowance for
(all dollar amounts in Doubtful for Pending
thousands) TOTAL ACCOUNTS DISCOUNTS CREDITS
<S> <C> <C> <C> <C>
Balance August 31, 1992 $ 3,507 $ 1,158 $ 425 $ 1,924
Charges to costs and expenses 12,319 49 5,388 6,882
Deductions ( 12,160) ( 7) ( 5,380) ( 6,773)
Balance August 31, 1993 $ 3,666 $ 1,200 $ 433 $ 2,033
Charges to costs and expenses 15,644 18 6,189 9,437
(Deductions) recoveries ( 14,666) 117 ( 6,105) ( 8,678)
Balance August 31, 1994 $ 4,644 $ 1,335 $ 517 $ 2,792
Charges to costs and expenses 17,099 141 7,781 9,177
Deductions ( 16,663) ( 3) ( 7,658) ( 9,002)
Balance August 31, 1995 $ 5,080 $ 1,473 $ 640 $ 2,967
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WAUSAU PAPER MILLS COMPANY
/S/ STEVEN A. SCHMIDT
Steven A. Schmidt
Vice President Finance,
Secretary and Treasurer
(Principal Accounting and
Financial Officer)
Date: October 27, 1995
Pursuant to the requirements 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.
/S/ SAN W. ORR, JR. /S/ DAVID B. SMITH, JR.
San W. Orr, Jr. David B. Smith, Jr.
October 27, 1995 October 27, 1995
Chairman of the Board and Director
Chief Executive Officer
(Principal Executive Officer)
/S/ DANIEL D. KING /S/ STANLEY F. STAPLES, JR.
Daniel D. King Stanley F. Staples, Jr.
October 27, 1995 October 27, 1995
President and Chief Operating Director
Officer
Director
/S/ HARRY R. BAKER
Harry R. Baker
October 27, 1995
Director
<PAGE>
EXHIBIT INDEX
Pursuant to Item 102(d) of Regulation S-T
(17 C.F.R. <section>232.102(d)
Exhibit 3 - Articles of Incorporation and Bylaws
a. Articles of Incorporation, as amended 12/18/91 .............33-45(2)
b. Bylaws, as restated 7/17/92 ................................46-81(2)
Exhibit 4 - Instruments Defining the Rights of Security Holders
a. Articles and Bylaws (see Exhibit 3)
Exhibit 10 - Material Contracts*
a. Executive Officers' Deferred Compensation Retirement
Plan, as amended 5/20/93 ...................................40-54(1)
b. Incentive Compensation Plans, as amended 10/23/92 and
10/28/93 (Printing and Writing Division and Rhinelander
Paper Company, Inc.) .......................................55-62(1)
c. Corporate Management Incentive Plan, as amended 8/19/87 ....63-69(1)
d. 1988 Stock Appreciation Rights Plan, as amended 4/17/91 ..106-114(3)
e. 1988 Management Incentive Plan, as amended 4/17/91 .......115-123(3)
f. 1990 Stock Appreciation Rights Plan, as amended 4/17/91 ..124-132(3)
g. Deferred Compensation Agreement dated March 2, 1990,
as amended July 1, 1994 ....................................51-56(4)
h. 1991 Employee Stock Option Plan ..........................133-146(3)
i. 1991 Dividend Equivalent Plan ............................147-155(3)
j. Supplemental Retirement Benefit Plan dated January 16,
1992........................................................90-97(2)
k. Directors' Deferred Compensation Plan ......................71-86(1)
l. Director Retirement Benefit Policy .........................87-88(1)
*All exhibits represent executive compensation plans and arrangements.
Exhibit 22 - Subsidiaries .............................................89(1)
Exhibit 27 - Financial Data Schedule .....................................39
Page numbers set forth herein correspond to the page numbers using the
sequential numbering system, where such exhibit can be found in the following
Annual Reports on Form 10-K:
(1) Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993; Commission File Number 0-7574.
(2) Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1992; Commission File Number 0-7574.
(3) Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1991; Commission File Number 0-7574.
(4) Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994; Commission File Number 0-7574.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR
ENDED AUGUST 31, 1995 OF WAUSAU PAPER MILLS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<CASH> 2,347
<SECURITIES> 0
<RECEIVABLES> 46,055
<ALLOWANCES> 5,080
<INVENTORY> 67,474
<CURRENT-ASSETS> 120,017
<PP&E> 442,927
<DEPRECIATION> 150,736
<TOTAL-ASSETS> 434,686
<CURRENT-LIABILITIES> 52,751
<BONDS> 68,623
<COMMON> 138,784
0
0
<OTHER-SE> 97,905
<TOTAL-LIABILITY-AND-EQUITY> 434,686
<SALES> 515,743
<TOTAL-REVENUES> 515,743
<CGS> 434,995
<TOTAL-COSTS> 434,995
<OTHER-EXPENSES> 215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,688
<INCOME-PRETAX> 50,851
<INCOME-TAX> 19,600
<INCOME-CONTINUING> 31,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,251
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
</TABLE>
