UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended August 31, 1997
[ ] 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 __________
Commission File Number 0-7475
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 the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
As of October 1, 1997, the aggregate market value of the common stock
shares held by non-affiliates was approximately $597,422,000.
The number of common shares outstanding at October 1, 1997 was 36,514,972.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for use in connection
with 1997 annual meeting of shareholders
(to the extent noted herein); Part III
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 40
PART III
Item 10. Directors and Executive Officers of the Registrant 40
Item 11. Executive Compensation 40
Item 12. Security Ownership of Certain Beneficial Owners
and Management 40
Item 13. Certain Relationships and Related Transactions 40
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 41
Schedule II - Valuation and Qualifying Accounts 43
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<PAGE>
PART I
Item 1. BUSINESS.
NATURE OF THE BUSINESS
The company, incorporated in 1899 under the laws of the State of
Wisconsin, 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 Technical Specialty Division, which
consists of Rhinelander Paper Company, Inc., a wholly-owned subsidiary
operating a paper mill in Rhinelander, Wisconsin, and Wausau Papers Otis
Mill, Inc., a wholly-owned subsidiary which operates a paper mill in Jay,
Maine. Unless stated otherwise, the terms "company" and "Wausau Papers"
mean Wausau Paper Mills Company. 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).
On August 24, 1997, Wausau Paper Mills Company, Mosinee Paper Corporation
("Mosinee") and WPM Holdings, Inc., a wholly-owned subsidiary of the
company ("Merger Sub"), entered into an Agreement and Plan of Merger
(the "Merger Agreement") pursuant to which Merger Sub will be merged
with and into Mosinee (the "Merger") with Mosinee being the surviving
corporation. Under the terms of the Merger Agreement, which was
unanimously approved by the Boards of Directors of the company and
Mosinee, each outstanding share of Mosinee common stock will be converted
into the right to receive 1.4 shares of Wausau common stock, with cash
paid in lieu of fractional shares. The Merger, which is subject to
approval by the shareholders of both the company and Mosinee, regulatory
approval and other customary conditions, will be accounted for as a
pooling of interests and is expected to close by the end of calendar
1997.
Mosinee manufactures, converts and sells paper products. Mosinee, one of
the nation's largest producers of masking tape base, manufactures a broad
range of highly engineered paper products. These include high-performance
industrial papers chemically treated for wet strength, flame retardancy,
anti-static, corrosion or grease resistance for various industries, such
as automotive, housing, and food processing, as well as other specialty
grades of paper, including decorative laminate papers, deep color tissue
used in napkin and tablecloth stock and colored school construction paper.
Other major products and processes include wax-laminate roll wrap, custom
coating, laminating and converting. In addition, Mosinee produces
"away-from-home" towel and tissue products from recycled material under
Bay West's EcoSoft(tm) brand which are used in the washrooms of theme
parks, hospitals, hotels, office buildings, factories, schools and
restaurants nationwide. Mosinee had revenues of $314.5 million and net
income of $26.9 million in 1996 and revenues of $163.5 million and net
income of $16.2 million for the six months ended June 30, 1997.
<PAGE>
This report on Form 10-K does not reflect any effect the proposed merger
with Mosinee may have on the company.
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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. The printing and
writing papers are sold to paper distributors and converters throughout
the United States, Canada and Mexico. 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 facility
at Groveton, New Hampshire. The Groveton facility was purchased in April
1993, by the company's wholly-owned subsidiary Wausau Papers of New
Hampshire, Inc.
TECHNICAL SPECIALTY DIVISION
The Technical Specialty Division manufactures lightweight, dense,
technical specialty papers, which are primarily sold directly to
converters and end users throughout the United States. International
markets for the division's products include Canada, the Pacific Rim,
Europe, Mexico and Central and South America. Typical end uses for these
papers are pressure sensitive products, silicone coated products, medical
packaging, food packaging, multiple laminated products, electrographics
and imaging papers. 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.
The Technical Specialty Division was created in 1997 by combining the
operations of the company's Rhinelander Division and the company's mill at
Jay, Maine (the "Otis mill"). The assets and business of the Otis mill
were acquired on May 12, 1997 by the company's newly formed wholly-owned
subsidiary, Wausau Papers Otis Mill, Inc. This purchase expanded the
company's technical specialty manufacturing capacity by 70,000 tons per
year.
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.
On June 9, 1997, the company opened a regional sales office in Singapore.
The Singapore office is used to service existing business in the Far East,
as well as to pursue new business opportunities and relationships for both
the Technical Specialty and Printing and Writing divisions.
<PAGE>
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
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remaining 40% of required pulp at Brokaw and all of the required pulp at
the Rhinelander, Groveton and Otis mills is purchased from pulp mills
throughout the United States and Canada. Market pulp is in adequate
supply and readily obtained from both domestic and foreign sources. The
company may purchase small quantities of its pulp using futures contracts
as a hedge against anticipated pulp price increases.
Recycled, de-inked fiber with a high content of post-consumer waste is
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 and steam
energy which are adequately supplied by public utilities or generated at
company operated facilities. The Brokaw mill operates a power plant which
provides all of its steam requirements. The power plant is fueled by
natural gas, which is in adequate supply, with fuel oil as an alternate
energy source. The Brokaw mill purchases 100% of its electrical
requirements from a public utility company. The Groveton and Otis mills
operate power plants which provide 100% of the mills' steam requirements
and a portion of their electrical needs. The power plants at both the
Groveton and Otis mills operate on fuel oil which is in adequate supply.
The Rhinelander mill maintains a power plant, fueled by coal and natural
gas, capable of generating the mill's steam needs and nearly half of its
electrical needs. The Rhinelander, Groveton and Otis mills purchase
approximately 65%, 70% and 91% of their electrical needs, respectively,
from public utility companies. The company generally purchases natural
gas and fuel oil on a contract basis at prevailing market prices. Some
natural gas and fuel oil purchase contracts may provide for variable
prices or contain caps on prices of natural gas to be delivered at future
dates.
In July 1996, the company signed a natural gas transportation agreement
with the Portland Natural Gas Transmission System (PNGTS). Under the
terms of the long-term agreement, PNGTS will construct necessary gas
supply and delivery equipment to the company's Groveton, New Hampshire
mill thereby assuring natural gas delivery at market rates. The Groveton
mill will be responsible for specified delivery charges under the terms of
the contract. The company is progressing on schedule to begin
transportation of natural gas to the Groveton mill in fiscal 1999. Capital
improvements to the Groveton mill's power plant will be required to take
advantage of this agreement. A reduction in the mill's energy costs is
expected from the use of natural gas as an energy source instead of fuel
oil.
<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
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comparison to the rest of the year, primarily due to downtime typically
taken by its converting customers during the holiday season and a general
slowing of business activity at that time of year.
WORKING CAPITAL
As is customary in the paper industry, the company carries adequate
amounts of raw materials and finished goods inventory to facilitate the
manufacture and rapid delivery of paper products to its customers. The
company will occasionally carry higher than normal quantities of pulp in
anticipation of rising pulp prices.
MAJOR CUSTOMERS
Avery Dennison Corporation and ResourceNet International, a division of
International Paper Company, accounted for 13.9% and 10.9% of consolidated
net sales, respectively, in fiscal 1997. The loss of either customer
would have an initial material adverse effect on the company; however, the
company believes that, in the long-term, satisfactory alternative
marketing arrangements could be made.
BACKLOG
The company's order backlog at August 31, 1997 amounted to $32,969,000, or
over 2 weeks of operation. This is 29% higher on a tonnage basis than the
backlog of orders of $26,749,000 or just over 2 weeks of operation at
August 31, 1996. The backlog increase is due primarily to additional
volume associated with the addition of the Otis mill.
Backlog totals do not accurately represent the strength of the company's
business activity as a significant volume of orders are shipped out of
inventory promptly upon order receipt. This portion of the business is
not reflected in the company's backlog totals. The entire backlog at
August 31, 1997 is expected to be shipped during fiscal 1998.
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
<PAGE>
paper wholesalers. The Technical Specialty Division produces technical
specialty papers and is a leader in its markets. Market position varies
by product segment and, thus, competition also includes small to large
paper manufacturers. The Technical Specialty Division sells most of 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.
RESEARCH AND DEVELOPMENT
Expenditures for product development were approximately $1,503,000 in
1997, $1,381,000 in 1996 and $1,219,000 in 1995.
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ENVIRONMENT
Wausau Papers has a strong commitment to protecting the environment. Like
its competitors in the paper industry, the company faces increasing
capital investments and operating costs to comply with expanding and more
stringent environmental regulations. For example, the $14 million rebuild
and expansion of the wastewater treatment plant at the Brokaw mill was
completed in fiscal 1997. The company estimates that its capital
expenditures for environmental purposes will be less than $2 million in
fiscal 1998.
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 Environmental Protection Agency (EPA) has published
draft rules under the Clean Water Act and the Clean Air Act which would
impose new air and water quality standards for pulp and paper mills (the
"Cluster Rules"). The definitive Cluster Rules, when finally promulgated,
are expected to require compliance within three years after the date of
adoption. Final promulgation of the rules for "paper grade sulfite" mills
(which would include the Brokaw mill) is currently projected for late
1997. One major aspect of the proposed new regulations may require the
company to adopt Total Chlorine Free (TCF) technology for the pulp
bleaching operations at the 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 at the Brokaw mill. Based on the company's preliminary
estimates, if the Cluster Rules were adopted in substantially their
present form, compliance with a TCF requirement for the Brokaw mill would
require a capital expenditure of $3 to $5 million. The company believes
that the costs for compliance with the proposed Cluster Rules and other
environmental regulations will not have a material adverse effect on its
liquidity, operations or consolidated financial condition.
EMPLOYEES
The company had 2,071 employees at August 31, 1997. The company has
collective bargaining contracts with the United Paperworkers International
Union and the National Conference of Firemen and Oiler Service Employees
International Union covering approximately 1,617 employees. These
contracts expire in May 2000, December 2000, May 2001 and March 2002 at
the Otis, Rhinelander, Brokaw and Groveton mills, respectively. The
company considers its relationship with its employees to be excellent.
<PAGE>
Eligible employees participate in retirement plans and group life,
disability and medical insurance programs.
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EXECUTIVE OFFICERS
The executive officers of the company as of October 1, 1997, their ages,
their positions and offices with the company and their principal
occupations during the past five years are as follows:
SAN W. ORR, JR., 56
Chairman of the Board of Directors since December, 1989, Chief
Executive Officer from July, 1994 to December, 1995, and a 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, 50
Director, President and Chief Executive Officer since December, 1995;
Director, President and Chief Operating Officer July, 1994 to
December, 1995; 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, 58
Senior Vice President, Administration since December, 1990; prior
thereto, Vice President, Administration.
STEVEN A. SCHMIDT, 43
Vice President, Finance, Secretary and Treasurer since June, 1993;
Corporate Controller, August, 1992 to June, 1993; prior thereto,
Plant Controller, Georgia Pacific Corporation, formerly Nekoosa
Papers, Inc., March, 1989 to August, 1992.
D. MICHAEL WILSON*, 35
Vice President and General Manager, Technical Specialty Division since
April, 1996; prior thereto, Vice President of Marketing and Sales,
Rexam Release, August, 1993 to April, 1996; General Manager, Laminex,
Inc., April, 1991 to August, 1993.
THOMAS J. HOWATT, 48
Vice President and General Manager, Printing and Writing Division
since December, 1994; Vice President and General Manager, Groveton,
April, 1993 to December, 1994; Vice President Operations, Brokaw
Division, September, 1990 to April, 1993; prior thereto, Vice
President, Administration, Brokaw Division.
* Mr. Wilson resigned from the company effective October 24, 1997.
All executive officers of the company are elected annually by the
Board of Directors.
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<PAGE>
CAUTIONARY STATEMENT
This Form 10-K, each of the company's annual reports to shareholders,
Forms 10-K, 8-K and 10-Q, proxy statements, prospectuses and any other
written or oral statement made by or on behalf of the company subsequent
to the filing of this Form 10-K may include one or more "forward-looking
statements" within the meaning of Sections 27A of the Securities Act of
1933 and 21E of the Securities Exchange Act of 1934 as enacted in the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). In
making forward-looking statements within the meaning of the Reform Act,
the company undertakes no obligation to publicly update or revise any such
statement.
Forward-looking statements of the company are based on information
available to the company as of the date of such statements and reflect the
company's expectations as of such date, but are subject to risks and
uncertainties that may cause actual results to vary materially. In
addition to specific factors which may be described in connection with any
of the company's forward-looking statements, factors which could cause
actual results to differ materially include, but are not limited to the
following:
<bullet> Increased competition from either domestic or foreign paper
producers or providers of alternatives to the company's
products, including increases in competitive production
capacity, resulting in sales declines from reduced shipment
volume and/or lower net selling prices in order to maintain
shipment volume.
<bullet> Changes in demand for the company's products due to overall
economic activity affecting the rate of consumption of the
company's paper products, growth rates of the end markets for
the company's products, technological or consumer preference
changes or acceptance of the products by the markets served by
the company.
<bullet> Changes in the price of pulp, the company's main raw material.
Approximately 80% of the company's pulp needs are purchased on
the open market and price changes for pulp have a significant
impact on the company's costs. Pulp price changes can occur
due to worldwide consumption levels of pulp, pulp capacity
additions, expansions or curtailments affecting the supply of
pulp, inventory building or depletion at pulp consumer levels
which affect short-term demand, and pulp producer cost changes
related to wood availability, environmental issues, or other
variables.
<bullet> Unforeseen operational problems at any of the company's
facilities causing significant lost production and/or
cost issues.
<bullet> Significant changes to the company's strategic plans such
as a major acquisition or expansion, or failure to
successfully execute major capital projects or other
strategic plans.
<bullet> Changes in laws or regulations which affect the company.
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<PAGE>
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 capacity during fiscal
1997, producing approximately 490 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 capacity in fiscal 1997,
producing approximately 290 tons of finished paper per day. The 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 capacity in
fiscal 1997, producing approximately 440 tons of finished paper per day.
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's Otis mill, located in Jay, Maine, was acquired from Rexam
Inc. on May 12, 1997. The mill has operated at capacity since May 12,
1997, producing approximately 200 tons of finished paper per day. The
Otis facility is located on 28 acres of land, all owned by Wausau Papers
Otis Mill, 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, 1997 book value of $1,405,000.
Item 3. LEGAL PROCEEDINGS.
Legal proceedings are discussed in Note 12 to the Consolidated Financial
Statements.
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 1997.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The company's common stock trades on The Nasdaq National Market under the
symbol "WSAU". The number of shareholders of record as of October 1, 1997
was 1,904. The company believes that there are approximately 8,200
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 1, 1997 is 10,104. Information related to high
and low closing prices and dividends is explained in detail in Item 8,
Financial Statements and Supplementary Data. Dividend restrictions under
certain loan covenants are explained in Note 4 to the Consolidated
Financial Statements.
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<PAGE>
<TABLE>
Item 6. SELECTED FINANCIAL DATA.
<CAPTION>
For the years ended August 31,
(all dollar amounts in thousands,
except per share data) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Net sales $570,258 $542,669 $515,743 $426,504 $381,816
Depreciation, depletion &
amortization 26,586 23,140 19,940 17,635 15,445
Operating profit 81,520 69,523 52,754 69,990 62,910
Interest expense 3,520 2,786 1,688 1,958 1,272
Earnings before provision for
income taxes 78,399 66,829 50,851 68,052 61,771
Earnings before cumulative effect
of accounting change 48,899 41,229 31,251 42,052 38,371
Net earnings 48,899 41,229 31,251 43,052 22,621
Average number of shares
outstanding 36,514,000 36,821,000 36,829,000 37,026,000 37,052,000
Cash dividends declared 9,129 8,104 7,385 6,487 5,686
Cash dividends paid 8,855 7,938 7,156 6,291 5,559
Capital expenditures 34,255 63,174 66,104 43,800 51,297
Tons of paper shipped 459,700 409,700 399,300 355,100 310,600
FINANCIAL CONDITION
Working capital $ 87,114 $ 60,187 $ 67,266 $ 59,878 $57,007
Long-term debt 83,510 53,119 68,623 30,270 42,712
Shareholders' equity 303,554 264,711 236,689 214,818 183,139
Total assets 555,615 467,028 434,686 361,389 329,583
PER SHARE
Earnings before cumulative effect
of accounting change $ 1.34 $ 1.12 $ .85 $ 1.14 $ 1.04
Net earnings 1.34 1.12 .85 1.16 .61
Cash dividends declared .250 .220 .200 .174 .153
Shareholders' equity 8.31 7.19 6.43 5.80 4.94
Price range (low and high closing) 17.25-22.38 16.25-24.13 16.20-20.00 16.18-24.73 12.99-21.55
RATIOS/RETURNS
Return on sales before cumulative
effect of accounting change 8.6% 7.6% 6.1% 9.9% 10.0%
Net return on sales 8.6% 7.6% 6.1% 10.1% 5.9%
Return on average shareholders'
equity before cumulative effect
of accounting change 17.2% 16.4% 13.8% 21.2% 21.0%
Net return on average
shareholders' equity 17.2% 16.4% 13.8% 21.6% 13.0%
Current assets to current
liabilities 2.4 to 1 2.0 to 1 2.3 to 1 2.3 to 1 2.4 to 1
% of long-term debt to total
capital 16.9% 13.0% 18.0% 9.6% 14.8%
Tons of paper shipped per employee 243 233 231 210 206
EMPLOYMENT
Average number of employees 1,890 1,756 1,727 1,692 1,510
<FN>
All shares and per share data have been restated to reflect the
five-for-four stock split in 1996, the 10% stock dividend in 1995 and the
four-for-three stock splits in 1994 and 1993. This summary should be read
in conjunction with the consolidated financial statements which follow.
</TABLE>
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<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
OVERVIEW
Wausau Papers posted record shipments, sales and earnings in fiscal 1997.
The company set new production records and maintained full operations
during a year of less than robust market conditions. Selling prices for
the company's paper products came under pressure in fiscal 1997 due to
competitive market conditions, resulting in lower average paper prices
compared to the previous year. Despite downward pressure on selling
prices, the company's overall margin improved as a result of lower pulp
costs, mix enhancement, productivity gains from its paper mill operations
and continued focus on cost reduction.
Pulp prices remained relatively stable throughout most of fiscal 1997.
This was a marked contrast to the major pulp cost swings experienced in
recent years. In the fourth quarter of fiscal 1997, pulp prices did rise
slightly due to increased demand for pulp. An additional price increase
has been announced by some suppliers for November 1997, although it is
uncertain whether there is sufficient strength in the pulp market to
support an increase at this time.
Fiscal 1997 was also a year of significant events for Wausau Papers. On
May 12th, the company acquired the business and assets of Otis Specialty
Papers, located in Jay, Maine, from Rexam Inc. for $55.1 million. Wausau
Papers has combined the operations of its Rhinelander and Otis mills to
create its newly formed Technical Specialty Division. The purchase
included two paper machines producing high quality supercalendered kraft
release paper, thermal paper and other technical specialty papers. This
acquisition expanded the company's technical specialty capacity by 70,000
tons per year. Another major event occurred on August 25th when the
company, in a joint news release with Mosinee Paper Corporation, announced
plans to merge the two companies in an all-stock transaction. (For further
information regarding the proposed merger refer to Item 1.) The merged
companies, to be called Wausau-Mosinee Paper Corporation, will create an
even stronger specialty paper producer, with combined revenues of
approximately $1 billion and a strong balance sheet from which to pursue
growth internally and through complementary niche acquisitions. Subject
to the terms of the merger agreement, the company expects the merger will
be completed before the end of calendar year 1997.
Management's discussion and analysis of financial condition and results of
operations does not reflect any effect on the company's operations or its
capital resources and liquidity which may result from the proposed merger
with Mosinee Paper Corporation.
NET SALES
Fiscal 1997 net sales were a record $570.2 million, 5% higher than fiscal
1996 net sales of $542.7 million. Net sales were $515.7 million in fiscal
1995. Shipments were also at a record level 459,700 tons in fiscal 1997,
an increase of 12% from 409,700 tons shipped a year ago. Fiscal 1995
shipments were 399,300 tons. Fiscal 1997 net sales and shipments include
nearly four months of contribution from the May 12, 1997 acquisition of
Otis Specialty Papers.
<PAGE>
At the company's Technical Specialty Division, shipments increased 26% in
fiscal 1997, with the Rhinelander mill realizing 10% growth in its
shipments compared to a year ago. Shipments of the company's pressure
sensitive products were strong despite very competitive market conditions,
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increasing 24% at the Rhinelander mill and 42% division-wide. Fiscal 1997
average paper prices at the Technical Specialty Division were lower than a
year ago, on average, as a result of competitive pressures from both
domestic and foreign paper producers. The Technical Specialty Division has
experienced some market softening in early fiscal 1998, however, continued
growth in its pressure sensitive grades is expected in fiscal 1998.
At the company's Printing and Writing Division, shipments increased 5%,
compared to fiscal 1996 results. Healthy increases in the division's
premium paper sales were realized in fiscal 1997, while reducing its mix
of lower priced commodity grades. Mix enhancement will continue to be a
major focus in fiscal 1998. Despite the mix improvement, downward
pressure on paper prices, as a result of soft market conditions in fiscal
1997, resulted in significantly lower average prices for the company's
printing and writing grades, compared to a year ago.
Order backlog at the end of fiscal 1997 was $33.0 million, compared to
order backlogs of $26.7 million and $25.0 million at August 31, 1996 and
1995, respectively. Order backlog at August 31, 1997, on a tonnage basis,
was 29% higher than a year ago and 55% better than at the end of fiscal
1995. The increase in the company's order backlog at the end of fiscal
1997, compared to the prior year, is due primarily to the additional
volume from the Otis mill which was not in last year's backlog. The
company believes backlog totals do not indicate correctly the entire
strength of its business, given that a high percentage of orders are
shipped out of inventory promptly upon order receipt.
In the fourth quarter of fiscal 1997, the company opened a regional sales
office in Singapore. The Singapore office is used to service existing
business in the Far East, as well as to pursue new business opportunities
for the company's Printing and Writing and Technical Specialty divisions.
GROSS PROFIT
Gross profit increased to $114.0 million or 20.0% of net sales in fiscal
1997, compared to a fiscal 1996 gross profit of $99.3 million or 18.3% of
net sales. Fiscal 1995 gross profit was $80.7 million or 15.7% of net
sales. Gross profit margin improved in fiscal 1997 primarily as a result
of higher sales volume, lower pulp costs, improved mix, productivity gains
from paper mill operations and cost reduction efforts including
improvements generated from the Total Quality Improvement Process.
Market prices for pulp, the company's primary raw material used in
manufacturing paper, were relatively stable throughout most of fiscal
1997. In fiscal 1997, the average list price of northern bleached softwood
kraft, a frequently used benchmark pulp grade, decreased 18% from the
fiscal 1996 average, compared to an 8% decrease in fiscal 1996 and a 55%
increase in fiscal 1995. Pulp prices did increase slightly at the end of
fiscal 1997 and an additional price increase has been announced by some
suppliers for November 1997. Paper industry publications have expressed
some doubt, however, as to whether there is sufficient strength in the
pulp market to support the November price increase.
<PAGE>
The company's paper mills at its Printing and Writing Division operated at
capacity in fiscal 1997. Paper production increased 5% over fiscal 1996
results due to productivity gains from capital and operational
improvements. Paper production increased 3% in fiscal 1996 as a result of
capital improvements and full operations, compared to fiscal 1995 when the
Brokaw and Groveton paper mills operated at 98% and 96% of capacity,
respectively. In November 1996, an operational problem occurred at the
Brokaw pulp mill when, during start-up after a normal planned maintenance
shutdown, cracks developed in two of the mill's four high-pressure cooking
-11-
vessels known as digesters. The digesters were out of operation until
April 1997 for repairs, however, no reduction in paper production was
incurred. The digester incident reduced the company's fiscal 1997 net
earnings by $.06 per share as a result of curtailed pulp production and
increased maintenance costs. Printing and Writing Division paper inventory
levels rose slightly in fiscal 1997, primarily as a result of new product
additions, increased production and less than robust market conditions.
The Rhinelander and Otis mills at the company's Technical Specialty
Division operated at capacity in fiscal 1997. Production increased 12% at
the Rhinelander mill, compared to the previous year, primarily due to
capital improvements and a strong mix of pressure sensitive products.
Including operations from the Otis mill acquired on May 12, 1997,
production at the Technical Specialty Division increased 27%, compared to
fiscal 1996 results. Rhinelander's silicone coaters operated approximately
83% of available machine time in fiscal 1997, compared to 66% a year ago.
Although shipments of silicone-coated products increased 14%, compared to
fiscal 1996, the additional volume was not sufficient to sustain full
operation on the coaters. Paper inventory levels at the Technical
Specialty Division rose in fiscal 1997, primarily due to the addition of
the Otis mill and strong operations at the Rhinelander mill.
Maintenance and repair costs were $35.7 million in fiscal 1997, an
increase of $4.1 million over fiscal 1996 maintenance costs of $31.6
million. Higher maintenance costs in fiscal 1997 are mainly due to the
addition of the Otis mill in May 1997 and costs associated with the
repairs to two pulp mill digesters at the Brokaw mill. Maintenance and
repair costs were $30.2 million in fiscal 1995.
LABOR
A new five-year labor agreement with the United Paperworkers International
Union at the Groveton mill was successfully negotiated in fiscal 1997. The
new agreement became effective April 1, 1997 and includes a general wage
increase of 3.5% in 1997, 3.0% in both 1998 and 1999, 3.5% in 2000 and
3.0% in 2001.
SELLING, ADMINISTRATIVE AND RESEARCH EXPENSES
Fiscal 1997 selling, administrative and research expenses were $32.5
million, compared to $29.8 million in fiscal 1996 and $28.0 million in
fiscal 1995. Higher stock appreciation rights, dividend equivalent and
stock option discount expense and the addition of the Otis mill are the
primary reasons for the increased expenses in fiscal 1997, compared to the
prior year. In fiscal 1997, $1.1 million in expense was recorded for stock
appreciation rights, dividend equivalent and option discount expense,
compared to $.1 million in fiscal 1996 and fiscal 1995.
<PAGE>
Wausau Paper Mills Company, like most companies today, is heavily
dependent upon computer technology to effectively carry out its day to day
operations. Until recently, most purchased and custom designed software
was not year 2000 compliant, meaning, the software wasn't designed to
properly handle dates beyond the year 1999. To ensure its computer
systems will be ready to handle dates of the year 2000 and beyond, the
company is well along in its overall plan to upgrade its software to
become year 2000 compliant. This process is expected to be completed by
the end of 1998. No material costs or effects on operations are expected
from the upgrade process.
-12-
INTEREST INCOME AND EXPENSE
Interest income in fiscal 1997 totaled $.2 million, compared to $.6
million in fiscal 1996 and $.2 million in fiscal 1995. The decrease in
interest income in fiscal 1997 is due to more interest income in 1996 than
in 1997 from a declining balance of undistributed proceeds from a $19
million industrial development bond issuance in August 1995. Bond proceeds
were fully disbursed as of January 1997.
Fiscal 1997 interest expense amounted to $3.5 million, compared to $2.8
million in fiscal 1996 and $1.7 million in fiscal 1995. Interest expense
increased in fiscal 1997 due to higher average debt levels as a result of
the acquisition of Otis Specialty Papers on May 12, 1997, which was
entirely debt financed. Capitalized interest totaled $.2 million in fiscal
1997, $.9 million in fiscal 1996 and $.7 million in fiscal 1995.
Capitalized interest decreased in fiscal 1997 due to several major capital
projects which were at or nearing completion by the end of fiscal 1996,
including a capacity expansion at the Rhinelander mill, installation of a
fiber handling and processing system at the Brokaw mill and upgrades to
the wastewater treatment plant at both Wisconsin mills.
Other income of $.2 million was recorded in fiscal 1997, compared to
expense of $.5 million in fiscal 1996 and fiscal 1995.
INCOME TAXES
The tax provision for fiscal 1997 was $29.5 million, for an effective tax
rate of 37.6%. The effective rates for fiscal years 1996 and 1995 were
38.3% and 38.5%, respectively. The reduction in the fiscal 1997 effective
tax rate, compared to the prior year, is due primarily to state
apportionment changes and a decrease in the ratio of non-deductible items
to income as a result of increased earnings.
NET EARNINGS
Net earnings were a record $48.9 million or $1.34 per share in fiscal
1997, an increase of 19% compared to net earnings of $41.2 million or
$1.12 per share recorded in fiscal 1996. Fiscal 1995 net earnings were
$31.3 million or $.85 per share. Fiscal 1997 net earnings were negatively
impacted by $.06 per share due to several months of curtailed pulp
production and increased maintenance costs associated with repairs to two
digesters at the Brokaw mill.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
LONG-TERM DEBT
Long-term debt increased $30.4 million in fiscal 1997 to $83.5 million at
August 31, 1997. Long-term debt at the end of fiscal 1996 and fiscal 1995
was $53.1 million and $68.6 million, respectively. Long-term debt
increased in fiscal 1997 as a result of the May 12, 1997 acquisition of
Otis Specialty Papers for $55.1 million, which was entirely debt financed.
The decrease in long-term debt in fiscal 1996 was the result of improved
cash flow from operations. Long-term debt as a percent of capital was
16.9% at the end of fiscal 1997, compared to 13.0% in fiscal 1996 and
18.0% in fiscal 1995.
At August 31, 1997, the company had $39.0 million outstanding under its
revolving credit facility. Long-term debt at the end of fiscal 1997 also
included $12.0 million in senior promissory
-13-
notes to Prudential Insurance Company of America and its subsidiaries,
$19.0 million in industrial development bonds and $13.0 million in
commercial paper. Long-term debt at the end of fiscal 1996 consisted
primarily of $19.0 million in industrial development bonds, $18.0 million
in senior promissory notes and $13.5 million outstanding under the
revolving credit facility.
CASH PROVIDED BY OPERATIONS
Cash provided by operations was $67.6 million in fiscal 1997, down 15%
from fiscal 1996 operating cash flow of $80.0 million. Fiscal 1995 cash
provided by operations was $47.5 million. The reduced operating cash flow
in fiscal 1997, compared to the previous year, is due mainly to an
increase in accounts receivable, higher pulp inventories, and increased
paper inventories at the Printing and Writing Division due to new product
additions as well as a combination of strong production and moderate
market conditions. The increase in cash provided by operations in fiscal
1996 was primarily the result of higher selling prices, a reduction in
accounts receivable and smaller increases in inventory, compared to fiscal
1995.
CAPITAL EXPENDITURES
Fiscal 1997 capital expenditures totaled $34.3 million, compared to $63.2
million in fiscal 1996 and $66.1 million in fiscal 1995. Fiscal 1997
capital expenditures exclude $55.1 million for the acquisition of Otis
Specialty Papers on May 12, 1997. The decrease in capital spending in
fiscal 1997, compared to a year ago, is due to a $42 million capacity
expansion at the Rhinelander mill which was implemented in the second and
third quarters of fiscal 1996.
Several major capital improvements were completed in fiscal 1997. A new
saveall and broke metering system was installed at the Groveton mill,
reducing operating costs and improving fiber yield. An upgrade to
Groveton's turbine generator was also completed, lowering the mill's
electrical costs. At the Rhinelander mill, a new rewinder was brought into
service to support the mill's silicone coating operation. At Brokaw, a
$14 million upgrade of its wastewater treatment facility was completed.
<PAGE>
In addition, a $6 million upgrade to the mill's wood processing facility
was finished, resulting in improved wood yield, increased process
efficiencies and reduced operating costs.
The company's Board of Directors approved a number of major capital
improvements in fiscal 1997, spending on which will continue into fiscal
1998. A $9 million pulp mill digester and process upgrade project was
approved for the Brokaw mill. This project will increase pulp production
capacity by approximately 15%, improve pulp quality and reduce operating
costs. The new digester and process upgrade are expected to be completed
in the fourth quarter of fiscal 1998. Over $8 million in capital
improvements at the Groveton mill will be completed over the next two
years to expand the mill's paper production capacity by 5%. The capital
improvements include replacing the electric drive on No. 6 paper machine
and upgrades to the wet end and dryer systems on No. 5 paper machine.
These projects will allow both paper machines to operate at faster speeds
while improving reliability and overall operating efficiency. In addition,
a new fiber blending system will be installed at the Groveton mill to
improve production efficiencies and flexibility while lowering overall
material costs. At the Rhinelander mill, No. 7 and No. 9 paper machines,
along with two rewinders, will be equipped with state-of-the-art web
inspection and cleaning equipment, which will further enhance the quality
of Rhinelander's pressure sensitive products. At the end of fiscal 1997,
the company was committed to spend $34.0 million to complete these capital
projects and others currently under construction.
Capital expenditures are expected to be approximately $150 million over
the next three years,
-14-
including about $50 million in fiscal 1998.
FINANCING
In fiscal 1997, the company amended its revolving credit facility with its
four banks, increasing the credit line from $40 million to $105 million.
The revolving credit line was increased to finance the acquisition of Otis
Specialty Papers in May 1997. The amended agreement extends through March
29, 2001 at which time, or earlier at the company's option, the agreement
converts to a one-year term loan. Interest rates on these borrowings are
based on domestic rate loans, eurodollar loans, adjusted CD rate loans,
offered loans or treasury rate loans. The company also maintains a
commercial paper placement agreement, with one of its four major banks,
which provides for the issuance of up to $40 million of unsecured debt
obligations. The commercial paper placement agreement requires unused
credit availability under the company's revolving credit agreement equal
to the amount of outstanding commercial paper. On August 31, 1997, the
company had a combined total of $53 million available for borrowing under
its revolving credit and commercial paper placement agreements. In a
separate agreement, one of the four banks participating in the revolving
credit facility provides a $5 million uncommitted line of credit to the
company. In addition, the company also has a $2 million short-term line
of credit available. There were no borrowings against these lines at
August 31, 1997.
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 unsecured term notes bearing a fixed interest rate
<PAGE>
of 6.03%. Principal is payable in equal semi-annual installments, with the
final payment due June 16, 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 an upgrade of the Brokaw mill wastewater treatment
plant, the construction of a new landfill and several other projects which
qualify for this type of financing. 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 from the bond issue were held in a trust fund
until they were drawn upon by the company as spending occurred on these
projects. Bond proceeds were fully disbursed as of January 1997.
Cash provided by operations and the revolving credit facility are expected
to meet current and anticipated working capital needs and dividend
requirements, as well as fund the company's planned capital expenditures.
The company believes additional financing is readily available, should it
be needed, to fund a major expansion or another acquisition.
COMMON STOCK REPURCHASE
On June 30, 1994, the company's Board of Directors authorized the
repurchase of up to 1,856,250 shares of the company's common stock from
time to time in the open market or through privately negotiated
transactions at prevailing market prices. The company did not repurchase
any shares of the company's common stock in fiscal 1997. In fiscal 1996,
369,500 shares were repurchased at market prices ranging from $16.750 per
share to $18.125 per share. The company repurchased 308,938 shares in
fiscal 1995 at market prices ranging from $16.550 per share to $17.091 per
share and, in fiscal 1994, 123,750 shares were repurchased at market
prices ranging from $17.364 per share to $17.909 per share. Shares and per
share data have been restated to reflect
-15-
the five-for-four stock split and 10% stock dividend which occurred in
January 1996 and January 1995, respectively.
DIVIDENDS
During fiscal 1997, the company's Board of Directors declared cash
dividends of $.25 per share, an increase of 13.6% from the $.22 per share
cash dividend declared in fiscal 1996.
-16-
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WIPFLI ULLRICH BERTELSON LLP
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, 1997 and 1996, 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, 1997 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, 1997 and 1996, and the
results of its operations and cash flows for each of the years in the
three-year period ended August 31, 1997, and the supporting schedule
presents fairly the information required to be set forth therein, all in
conformity with generally accepted accounting principles.
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 April
26, 1996, March 18, 1996, August 25, 1995, January 3, 1992 and January 27,
1988.
Wipfli Ullrich Bertelson LLP
WIPFLI ULLRICH BERTELSON LLP
September 17, 1997
Wausau, Wisconsin
-17-
<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.
Daniel D. King Steven A. Schmidt
DANIEL D. KING STEVEN A. SCHMIDT
President and Chief Executive Vice President Finance,
Officer Secretary and Treasurer
-18-
<PAGE>
INDEX TO FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
Page
Consolidated Statements of Income for the years ended
August 31, 1997, 1996 and 1995 20
Consolidated Balance Sheets as of August 31, 1997 and 1996 21
Consolidated Statements of Shareholders' Equity for
the years ended August 31, 1997, 1996 and 1995 23
Consolidated Statements of Cash Flows for the years
ended August 31, 1997, 1996 and 1995 24
Notes to Consolidated Financial Statements 25
Schedule for the years ended August 31, 1997, 1996 and 1995
Schedule II - Valuation and Qualifying Accounts 43
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.
-19-
<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) 1997 1996 1995
<S> <C> <C> <C>
Net Sales $570,258 $542,669 $515,743
Cost of products sold 456,239 443,383 434,995
Gross Profit 114,019 99,286 80,748
Selling, administrative and research
expenses 32,499 29,763 27,994
Operating Profit 81,520 69,523 52,754
Interest expense ( 3,520) ( 2,786) ( 1,688)
Interest income 172 562 239
Other 227 ( 470) ( 454)
Earnings Before Income Taxes 78,399 66,829 50,851
Provision for income taxes 29,500 25,600 19,600
Net Earnings $ 48,899 $ 41,229 $ 31,251
Net Earnings Per Common Share $ 1.34 $ 1.12 $ 0.85
<FN>
See accompanying notes to consolidated financial statements.
All per share data has been restated to reflect a five-for-four stock
split occurring in 1996 and a 10% stock dividend occurring in 1995.
</TABLE>
-20-
<PAGE>
<TABLE>
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(all dollar amounts in thousands) As of August 31,
1997 1996
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 5,297 $ 2,372
Accounts and notes receivable:
Customers, less allowances of $5,875 in 1997
and $6,004 in 1996 46,904 36,814
Other 3,392 1,403
Inventories 84,112 70,443
Deferred income taxes 8,324 7,688
Other current assets 1,390 520
Total current assets 149,419 119,240
Property, Plant and Equipment
Buildings 67,850 56,461
Machinery and equipment 487,136 420,958
554,986 477,419
Less: Accumulated depreciation (188,969) (164,983)
366,017 312,436
Land 2,285 1,982
Timberlands, net of depletion of
$803 in 1997 and $745 in 1996 1,405 1,430
Capital additions in process 16,759 14,688
Total property, plant and equipment 386,466 330,536
Other Assets
Cash restricted for capital additions 3,844
Deferred charges and other assets 19,730 13,408
Total other assets 19,730 17,252
Total Assets $555,615 $467,028
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
(all dollar amounts in thousands) As of August 31,
1997 1996
<S> <C> <C>
Liabilities
Current Liabilities
Current maturities of long-term debt $ 6,290 $ 6,340
Accounts payable 29,890 26,307
Accrued salaries and wages 10,980 9,197
Accrued and other liabilities 13,426 14,299
Accrued income taxes 1,719 2,910
Total current liabilities 62,305 59,053
Long-Term Liabilities
Long-term debt 83,510 53,119
Deferred income taxes 49,301 43,469
Postretirement benefits 34,319 31,849
Pension 17,413 10,194
Other liabilities 5,213 4,633
Total long-term liabilities 189,756 143,264
Commitments and contingencies
Shareholders' Equity
Preferred stock: (500,000 shares authorized)
no par value
No shares issued
Common stock: (100,000,000 shares authorized)
no par value
38,840,403 shares issued - 1997
38,840,403 shares issued - 1996 139,284 139,155
Retained earnings 183,240 143,470
322,524 282,625
Less: Treasury stock at cost
(2,325,431 shares in 1997 and
2,327,875 shares in 1996) ( 17,703) ( 17,721)
Net loss not recognized as pension expense
(net of deferred taxes) ( 1,267) ( 193)
Total shareholders' equity 303,554 264,711
Total Liabilities and Shareholders' Equity $555,615 $467,028
</TABLE>
-22-
<PAGE>
<TABLE>
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
(all dollar amounts Common Stock Treasury Stock
in thousands) Common Total
Stock- Share-
Shares Retained Net Pension Shares holder's
Issued Amount Earnings Shares Amount Adjustment Outstanding Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 872 153,130 1,174 153,130 2,046
Tax benefit related to
stock options 587 587
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
Net earnings, 1996 41,229 41,229
Cash dividends declared ( 8,104) ( 8,104)
Five-for-four stock
split 7,768,080 ( 402,343) 7,365,737
Purchases of treasury
shares ( 369,500) ( 6,376) ( 369,500) ( 6,376)
Stock options exercised ( 10) 52,404 307 52,404 297
Tax benefit related to
stock options 351 351
Stock option discount
(net of deferred
taxes) 30 30
Change in unrecognized
pension expense (net
of deferred taxes) 595 595
Balance August 31, 1996 38,840,403 $139,155 $143,470 (2,327,875) ( $17,721) ($ 193) 36,512,528 $264,711
Net earnings, 1997 48,899 48,899
Cash dividends declared ( 9,129) ( 9,129)
Stock options exercised 14 2,444 18 2,444 32
Tax benefit related to
stock options 5 5
Stock option discount
(net of deferred
taxes) 110 110
Change in unrecognized
pension expense (net
of deferred taxes) ( 1,074) ( 1,074)
Balance August 31, 1997 38,840,403 $139,284 $183,240 (2,325,431) ($ 17,703) ( $1,267) 36,514,972 $303,554
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
-23-
<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,
1997 1996 1995
<S> <C> <C> <C>
Operating Activities:
Net earnings $ 48,899 $ 41,229 $ 31,251
Noncash items:
Provision for depreciation,
depletion and amortization 26,586 23,140 19,940
Loss on property, plant and
equipment disposals 494 1,259 585
Deferred income taxes 6,630 6,186 4,581
Changes in operating assets and
liabilities:
Receivables ( 3,752) 4,212 ( 7,320)
Inventories ( 9,445) ( 2,969) ( 7,252)
Other assets ( 7,059) ( 5,643) 521
Accounts payable and other
liabilities 6,429 10,893 4,139
Accrued income taxes ( 1,191) 1,651 1,067
Net Cash Provided by Operating
Activities 67,591 79,958 47,512
Investing Activities:
Capital expenditures ( 36,715) ( 61,389) ( 64,479)
Acquisition of Otis Specialty Papers ( 55,147)
Proceeds from property, plant
and equipment disposals 11 85 115
Net cash used from (invested in) funds
restricted for capital additions 3,844 10,888 ( 14,732)
Net Cash Used in Investing Activities ( 88,007) ( 50,416) ( 79,096)
Financing Activities:
Net borrowings (repayments)
revolving credit facility 25,500 ( 700) 14,200
Net borrowings (repayments) of
commercial paper 13,004 ( 8,300) 8,300
Repayment of long-term debt ( 340) ( 500) ( 451)
Repayment of long-term notes ( 6,000) ( 6,000)
Proceeds from issuance of
long-term bonds 19,000
Dividends paid ( 8,855) ( 7,938) ( 7,156)
Proceeds from stock option exercises 32 297 2,046
Payments for purchases of
treasury stock ( 6,376) ( 5,222)
Net Cash Provided by (Used in)
Financing Activities 23,341 ( 29,517) 30,717
Net increase (decrease) in cash
and cash equivalents 2,925 25 ( 867)
Cash and cash equivalents at
beginning of year 2,372 2,347 3,214
Cash and Cash Equivalents at
End of Year $ 5,297 $ 2,372 $ 2,347
Supplemental Cash Flow Information:
Interest paid (net of amount
capitalized) $ 3,485 $ 2,793 $ 1,554
Income taxes paid 24,846 17,830 13,762
<PAGE>
<FN>
Noncash investing and financing activities: Capital lease obligations of
$498 and $497 in 1996 and 1995, respectively, were incurred when the
company entered into leases for new equipment.
See accompanying notes to consolidated financial statements.
</TABLE>
-24-
<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.
USE OF ESTIMATES IN PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS -
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses. Actual results may
differ from these estimates.
CASH EQUIVALENTS - The company defines cash equivalents as highly liquid,
short-term investments with an original maturity of three months or less.
INVENTORIES - Pulpwood, finished paper products and the majority of raw
materials are valued at the lower of cost, determined on the last-in,
first-out (LIFO) method, or market. All other inventories are valued at
the lower of average cost or market.
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 consolidated statements of income.
Buildings are depreciated over a 25- to 45-year period; machinery and
equipment over a 4- to 20-year period. Maintenance and repair costs are
charged to expense as incurred. Renewals and improvements which extend
the useful lives of the assets are added to the plant and equipment
accounts.
Equipment financed by long-term leases, which in effect are installment
purchases, have been recorded as assets and the related obligations as
debt.
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, which groups timberland into logical management areas
called "blocks" for which the cost basis is determinable. The annual
depletion is determined by multiplying the per unit cost basis of the
block of timber by the number of units harvested from the block during the
year.
<PAGE>
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
-25-
differences between the financial statement and tax bases of assets and
liabilities, as measured by the current enacted tax rates. Deferred tax
expense is the result of changes in the deferred tax asset and liability.
EARNINGS PER SHARE - 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.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share." This statement
is effective for periods ending after December 15, 1997. If SFAS No. 128
had been adopted during 1997, the company's reported basic earnings per
share and diluted earnings per share would have been unchanged at $1.34
per share.
FUTURES CONTRACTS - The company utilizes futures contracts to hedge the
price risk of anticipated purchases of pulp and natural gas. Because the
pulp futures markets are very new and liquidity may be limited, the
company has not hedged substantial quantities of pulp. Changes in the
market value of the futures contracts are included as part of the
acquisition price of pulp and natural gas and are realized when the
finished paper is sold and the natural gas is consumed.
<TABLE>
NOTE 2. INVENTORIES
<CAPTION>
(all dollar amounts in thousands) 1997 1996
<S> <C> <C>
Raw materials $ 32,983 $ 24,273
Supplies 16,611 16,549
Work in process and finished goods 47,418 41,630
Inventories at cost 97,012 82,452
LIFO reserve ( 12,900) ( 12,009)
Net inventories $ 84,112 $ 70,443
</TABLE>
<PAGE>
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) 1997 1996
<S> <C> <C>
Employee retirement plans $ 1,868 $ 2,142
Taxes other than income 1,149 1,633
Interest 491 483
Stock appreciation rights 3,314 2,408
Other 6,604 7,633
Total $13,426 $14,299
</TABLE>
-26-
<TABLE>
NOTE 4. DEBT
The company's long-term debt, excluding current maturities as of August
31, is outlined below:
<CAPTION>
(all dollar amounts in thousands) 1997 1996
<S> <C> <C>
6.03% Senior promissory notes $12,000 $18,000
Industrial development bonds 19,000 19,000
Revolving credit facility agreement 39,000 13,500
Commercial paper 13,004
Fixed asset payables to be financed
with revolving credit agreement 421 2,244
Capitalized leases 85 375
Totals $83,510 $53,119
</TABLE>
The company has outstanding $18 million in unsecured senior promissory
notes. Interest is payable quarterly on the outstanding balance at a rate
of 6.03% per annum. Principal is payable in equal semi-annual
installments, with the final payment due June 16, 2000.
During 1995, the company borrowed $19 million related to industrial
development bonds issued by a local governmental unit. The variable rate
bonds require quarterly interest payments and had an interest rate of
3.65% at August 31, 1997. The company also pays fees for a bank letter of
credit and remarketing services related to the bonds which it includes in
net interest expense. The interest rate can be converted to a fixed rate,
at the company's option, after which semi-annual interest payments will be
required. The bonds mature on July 1, 2023. At August 31, 1997, all bond
proceeds had been disbursed.
The company maintains an unsecured revolving credit facility of $105
million with four banks which continues through March 29, 2001 at which
time, or earlier at the company's option, the revolving credit converts to
a term loan facility, and the loans then outstanding are payable in four
equal quarterly installments. The company may elect the base for interest
from either domestic rate loans, eurodollar loans, adjusted CD rate loans,
<PAGE>
offered loans or treasury rate loans. The weighted average interest rate
on borrowings under the revolving credit facility was 5.87% and 5.62% at
August 31, 1997 and 1996, respectively. The credit agreement provides for
commitment fees during the revolving loan period. Fees are based on
quarterly funded debt to equity levels. Based on debt and equity levels
at August 31, 1997, the fees are .1% per annum.
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, 1997,
$91,750,000 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. At August 31, 1997,
$13,004,000 was outstanding. There were no amounts outstanding at August
31, 1996. The weighted average interest rate on outstanding commercial
paper was 5.86% at August 31, 1997.
-27-
<TABLE>
<CAPTION>
The aggregate annual maturities of long-term debt are as follows:
<S> <C> <C> <C> <C> <C> <C>
(all dollar amounts
in thousands) 1998 1999 2000 2001 2002 Thereafter
$6,290 $6,085 $6,000 $13,106 $39,319 $19,000
</TABLE>
Annual maturities will be affected by future borrowings.
A bank participating in the revolving credit agreement has provided a
separate uncommitted revolving line of credit to the company in the amount
of up to $5 million. The specific terms of any revolving loans borrowed
pursuant to this line 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, 1997.
<PAGE>
<TABLE>
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:
<CAPTION>
(all dollar amounts in thousands) 1997 1996
<S> <C> <C>
Machinery and equipment $ 1,416 $ 1,416
Allowance for amortization ( 729) ( 354)
Net value $ 687 $ 1,062
</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, 1997:
<CAPTION>
Capital Operating
(all dollar amounts in thousands) Leases Leases
<S> <C> <C>
1998 $ 301 $ 226
1999 86 170
2000 93
2001 33
2002 33
Thereafter 77
Total minimum payments 387 632
Amounts representing interest ( 12)
Present value of net minimum lease payments $ 375 $ 632
</TABLE>
<TABLE>
The future minimum payments for capitalized leases are reflected in the
aggregate annual maturities of long-term debt disclosure in Note 4.
-28-
Rental expense for all operating leases consists of:
<CAPTION>
(all dollar amounts in thousands) 1997 1996 1995
<S> <C> <C> <C>
Minimum rentals $ 1,428 $ 1,323 $ 1,347
Contingent rentals 532 288 267
Totals $ 1,960 $ 1,611 $ 1,614
</TABLE>
Contingent rentals are based upon usage.
<PAGE>
<TABLE>
NOTE 6. INTEREST EXPENSE AND CAPITALIZED INTEREST
<CAPTION>
Total Net
Interest Capitalized Interest
(all dollar amounts in thousands) Expense Interest Expense
<S> <C> <C> <C>
1997 $ 3,768 $ 248 $ 3,520
1996 3,698 912 2,786
1995 2,423 735 1,688
</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 measurement dates of plan assets of May 31, 1997 and
1996.
<TABLE>
The components of net periodic pension cost follow:
<CAPTION>
(all dollar amounts in thousands) 1997 1996 1995
<S> <C> <C> <C>
Service cost $ 2,790 $ 2,345 $ 2,199
Interest cost 5,097 4,266 3,920
Actual return on assets ( 7,808) ( 11,019) ( 4,365)
Net amortization and deferral 4,654 7,625 1,201
Net pension cost $ 4,733 $ 3,217 $ 2,955
</TABLE>
-29-
<PAGE>
<TABLE>
The following table sets forth the benefit obligations and funded status
of the plans at August 31:
<CAPTION>
1997 1996
Plans Plans Plans Plans
With Assets With Assets With Assets With Assets
Exceeding Less Than Exceeding Less Than
Accumulated Accumulated Accumulated Accumulated
Benefit Benefit Benefit Benefit
Obligation Obligation Obligation Obligation
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits ($12,228) ($52,978) ($29,548) ($25,550)
Nonvested benefits ( 2,813) ( 10,817) ( 5,402) ( 3,867)
Accumulated benefit obligations ( 15,041) ( 63,795) ( 34,950) ( 29,417)
Additional amounts related to
projected salary increases ( 4,599) ( 518) ( 4,379) ( 421)
Projected benefit obligation ( 19,640) ( 64,313) ( 39,329) ( 29,838)
Plan assets at market value at
May 31 19,475 47,987 41,214 18,007
Plan assets in excess of (less
than) projected benefit
obligation ( 165) ( 16,326) 1,885 ( 11,831)
Unrecognized net loss (gain) ( 1,289) 1,310 ( 4,831) 732
Unrecognized prior service costs 673 14,691 5,235 8,524
Unrecognized initial net
obligation (asset) ( 1,051) 311 ( 1,339) 500
Cash contributions to plans
subsequent to May 31 397 1,251 109
Adjustment to recognize minimum
liability ( 17,045) ( 9,335)
Net pension asset (liability)
recognized in the consolidated
balance sheets ($ 1,435) ($15,808) $ 1,059 ($11,410)
</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 $1,440,300 in 1997 and $1,632,000 in 1996.
For plans where the accumulated benefit obligation exceeds the fair value
of plan assets, a minimum pension liability has been established to
recognize the plans' underfunding, with an offsetting intangible asset
and reduction to stockholders equity, net of deferred taxes.
The company also sponsors defined contribution pension plans, several of
which provide for company contributions based on a percentage of employee
contributions. The cost of such plans totaled $452,000 in 1997, $314,000
in 1996 and $232,000 in 1995.
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>
The company sponsors unfunded defined benefit postretirement health and
life insurance plans that cover substantially all employees reaching
normal retirement age while working for the company. Benefits and
eligibility for various employee groups vary by location and union
agreements. Generally, employees are eligible after reaching age 55 or 62
and meeting minimum service requirements. At age 65, the benefits become
coordinated with Medicare. The company funds the benefit costs on a
current basis.
-30-
<TABLE>
Postretirement benefit cost includes the following components:
<CAPTION>
(all dollar amounts in thousands) 1997 1996 1995
<S> <C> <C> <C>
Service cost $ 1,018 $ 911 $ 933
Interest cost 2,173 2,033 1,984
Net periodic postretirement benefit cost $ 3,191 $ 2,944 $ 2,917
</TABLE>
<TABLE>
The plans' status at August 31, were as follows:
<CAPTION>
(all dollar amounts in thousands) 1997 1996
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees $ 10,591 $ 10,188
Fully eligible active participants 10,024 8,236
Other active participants 15,692 10,982
Accumulated postretirement benefit obligation 36,307 29,406
Unrecognized net gain (loss) (1,988) 2,443
Accrued postretirement benefit liability $ 34,319 $ 31,849
</TABLE>
For 1997, the assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 8% declining by 1%
annually for three years to an ultimate rate of 5%. The weighted average
discount rate was 7.5%.
For 1996, the assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 9% declining by 1%
annually for four 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 $4,977,000 or 13.7% in 1997 and $3,801,000
or 12.9% in 1996. The effect of this change on the aggregate of the
service and interest cost would be an increase of $498,000 or 15.6% in
1997 and $441,000 or 15.0% in 1996.
NOTE 8. INCOME TAXES
Deferred tax assets and liabilities are determined based on the estimated
future tax effects of temporary differences between the financial
statement and tax bases of assets and liabilities, as measured by the
<PAGE>
current enacted tax rates. Deferred tax expense is the result of changes
in the deferred tax asset and liability.
-31-
<TABLE>
The provision for income taxes is comprised of the following:
<CAPTION>
(all dollar amounts in thousands) 1997 1996 1995
<S> <S> <S> <S>
Currently payable
Federal $ 20,768 $ 17,776 $ 13,487
State 2,102 1,638 1,532
22,870 19,414 15,019
Deferred
Federal 6,021 5,668 4,197
State 609 518 384
6,630 6,186 4,581
Totals $ 29,500 $ 25,600 $ 19,600
</TABLE>
<TABLE>
A reconciliation between taxes computed at the federal statutory rate and
the company's effective tax rate follows:
<CAPTION>
(all dollar amounts in thousands) 1997 1996 1995
<S> <C> <C> <C>
Federal statutory tax rate $ 27,440 35.0% $ 23,390 35.0% $ 17,798 35.0%
State taxes (net of federal
tax benefits) 1,922 2.4 1,472 2.2 1,324 2.6
Other 138 .2 738 1.1 478 .9
Effective tax $ 29,500 37.6% $ 25,600 38.3% $ 19,600 38.5%
</TABLE>
-32-
<PAGE>
<TABLE>
The major temporary differences that give rise to the deferred tax assets
and liabilities at August 31, 1997 and 1996 are as follows:
<CAPTION>
(all dollar amounts in thousands) 1997 1996
<S> <C> <C>
Deferred tax asset:
Allowances on accounts receivable $ 1,242 $ 865
Accrued compensated absences 1,940 1,772
Stock appreciation rights plans 1,328 982
Inventories 2,226 2,105
Postretirement benefits 13,292 12,627
Other 1,587 1,963
Gross deferred tax asset 21,615 20,314
Deferred tax liability:
Property, plant and equipment ( 62,163) ( 54,823)
Other ( 429) ( 1,272)
Gross deferred tax liability ( 62,592) ( 56,095)
Net deferred tax liability ($ 40,977) ($ 35,781)
</TABLE>
<TABLE>
The total deferred tax liabilities (assets) as presented in the
accompanying consolidated balance sheets are as follows:
<CAPTION>
(all dollar amounts in thousands) 1997 1996
<S> <C> <C>
Net long-term deferred tax liabilities $ 49,301 $ 43,469
Net current deferred tax assets ( 8,324) ( 7,688)
Net deferred tax liability $ 40,977 $ 35,781
</TABLE>
<PAGE>
NOTE 9. STOCK OPTIONS AND APPRECIATION RIGHTS
The company maintains the 1991 Employee Stock Option Plan. The plan
specifies purchase price, time and method of exercise. Payment of the
option price may be made in cash or by tendering an amount of common stock
having a fair market value equal to the option price.
Options are granted for terms up to 20 years, the option price being equal
to the fair market value of the company's common stock at the date of
grant for incentive and non-qualified options.
During 1997, 67,000 options were granted under the plan to be earned in
the current year based upon the satisfaction of operating goals set forth
in the agreement. A total of 43,000 options were earned based upon actual
operating results. During 1996, 64,375 options were earned based upon the
satisfaction of operating goals set forth in the agreement. A total of
46,062 options granted in 1995 terminated when operating goals were not
met.
-33-
<TABLE>
The following table summarizes the activity relating to the company's
stock option plans:
<CAPTION>
1997 1996 1995
Stock Options: Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 399,030 $17.99 308,792 $15.43 439,426 $16.19
Granted 67,000 17.69 143,125 18.95 132,687 19.18
Terminated (27,125) 17.78 ( 53,390) 17.01
Exercised ( 2,444) 13.13 ( 52,887) 5.61 (209,931) 9.75
Options outstanding at
end of year 436,461 17.99 399,030 17.99 308,792 15.43
Options exercisable at
end of year 432,336 17.99 384,905 17.88 280,832 15.22
<FN>
All shares and option prices have been restated to reflect the
five-for-four stock split occurring in 1996 and the 10% stock dividend
occurring in 1995.
</TABLE>
Effective September 1, 1996, the company has adopted Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." As permitted under SFAS No. 123, the company will continue
to measure compensation cost for stock option plans using the "intrinsic
value based method" prescribed under APB No. 25, "Accounting for Stock
Issued to Employees." Accordingly, no compensation cost has been
recognized for the stock option plans. If compensation cost had been
determined consistent with the provisions of SFAS No. 123, which
prescribes the "fair value based method" on the grant date, earnings per
share would have been reduced by $.01 and $.02 for the years ended
August 31, 1997 and 1996, respectively.
<PAGE>
<TABLE>
The weighted-average grant-date exercise prices and weighted-average fair
values for options granted are as follows:
<CAPTION>
1997 1996
<S> <C> <C>
Exercise price equals market price
Exercise price ---- $18.50
Fair Value ---- 7.21
Exercise price less than market price
Exercise price $17.69 $19.36
Fair value 8.67 8.14
</TABLE>
<TABLE>
The fair value of each option grant has been estimated on the grant date
using the Black-Scholes option pricing model based on the following
weighted-average assumptions:
<CAPTION>
1997 1996
<S> <C> <C>
Risk-free interest rate 6.27% 5.97%
Expected life in years 5 5
Price volatility 32.1% 31.5%
Dividend yield * 0 0
<FN>
* Dividend yield is assumed to be zero because dividend equivalents
were granted in tandem with the options granted. As such,
dividends do not reduce the economic value of the options.
</TABLE>
-34-
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.
<TABLE>
The following table summarizes the activity relating to the company's
stock appreciation rights plans:
<CAPTION>
STOCK APPRECIATION RIGHTS:
1997 1996 1995
<S> <C> <C> <C>
Rights outstanding at beginning of
year (number of shares) 163,728 179,555 184,555
Exercised ( 15,827) ( 5,000)
Rights outstanding at end of year
(number of shares) 163,728 163,728 179,555
Rights exercisable at end of year
(number of shares) 163,728 163,728 179,555
Price range of stock appreciation
rights exercised $ 4.46 $ 5.88
Price range of outstanding
stock appreciation rights $4.46-6.26 $4.46-6.26 $4.46-6.26
<PAGE>
<FN>
All shares and price ranges have been restated to reflect the
five-for-four stock split occurring in 1996 and the 10% stock dividend
occurring in 1995.
</TABLE>
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 1997, 67,000 dividend equivalents
were granted under the plan to be earned in the current year based upon
the satisfaction of operating goals set forth in the agreement. A total
of 43,000 dividend equivalents were earned based upon actual operating
results. During 1996, 64,375 dividend equivalents were earned 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.
-35-
<TABLE>
<CAPTION>
DIVIDEND EQUIVALENTS: 1997 1996 1995
<S> <C> <C> <C>
Equivalents outstanding at beginning of
year (number of shares) 276,347 142,999 142,999
Granted 67,000 143,125 46,063
Exercised ( 5,569) ( 9,777)
Terminated ( 24,000) ( 46,063)
Equivalents outstanding at end of year
(number of shares) 313,778 276,347 142,999
Equivalents exercisable at end of year
(number of shares) 313,778 276,347 142,999
<FN>
All shares have been restated to reflect the five-for-four stock split
occurring in 1996 and the 10% stock dividend occurring in 1995.
</TABLE>
The pre-tax impact on earnings of all stock option discounts, dividend
equivalents and stock appreciation rights for the years ended August 31,
1997, 1996 and 1995 was expense of $1,092,000, $78,000 and $79,000,
respectively.
NOTE 10. ACQUISITION OF OTIS SPECIALTY PAPERS
On May 12, 1997, the company acquired the business and assets of Otis
Specialty Papers ("Otis"). The acquisition was accounted for using the
purchase method of accounting. The financial statements reported herein
include the net sales, operating profit and net earnings of Otis from the
date of purchase. The following table presents unaudited pro forma
condensed results of operations for the years ended August 31, 1997 and
1996 as if the acquisition were completed at the beginning of the period:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1997 1996
<S> <C> <C>
Net Sales $631,766 $618,225
Operating Profit 87,124 72,005
Net Earnings 51,005 40,961
Net Earnings per Common Share $ 1.40 $ 1.11
</TABLE>
<PAGE>
The unaudited pro forma financial information includes certain assumptions
or adjustments, not material in amount, which the company believes are
necessary to fairly present such information. Historical costs
representing the seller's corporate allocations, interest expense and
one-time expenses related to the sale of Otis are included in the pro
forma information. The pro forma information does not purport to
represent what the company's results of operations would actually have
been if this transaction had occurred at the beginning of the earliest
period presented.
NOTE 11. RESEARCH EXPENSES
Research expenses charged to operations were $1,503,000 in 1997,
$1,381,000 in 1996 and $1,219,000 in 1995.
-36-
NOTE 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
On August 24, 1997, Wausau Paper Mills Company, Mosinee Paper Corporation
("Mosinee") and WPM Holdings, Inc., a wholly-owned subsidiary of the
company ("Merger Sub"), entered into an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which Merger Sub will be merged with and
into Mosinee (the "Merger") with Mosinee being the surviving corporation.
Under the terms of the Merger Agreement, which was unanimously approved by
the Boards of Directors of the company and Mosinee, each outstanding share
of Mosinee common stock will be converted into the right to receive 1.4
shares of Wausau common stock, with cash paid in lieu of fractional
shares. The Merger, which is subject to approval by the shareholders of
both the company and Mosinee, regulatory approval and other customary
conditions, will be accounted for as a pooling of interests and is
expected to close by the end of calendar 1997.
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, 1997, the company was committed to spend approximately
$34.0 million to complete capital projects which were in various stages of
completion.
On November 9, 1996, the company's pulp mill in Brokaw, Wisconsin
experienced damage to two of its four high-pressure cooking vessels known
as digesters. The digesters were out of production for approximately five
months resulting in a significant loss of pulp production and extensive
repair work. Insurance was in effect to cover property damage and
business interruption costs. Approximately $3.5 million in pre-tax
expense was recorded in fiscal 1997 for the potential uninsured operating
expenses, including insurance deductibles. The company is in discussions
with its insurers as to insurance proceeds to which the company believes
it is entitled. Insurance proceeds under the company's property damage
claim will be recorded upon receipt or final settlement of the claim.
Insurance proceeds under the business interruption claim may exceed the
insurance recovery receivable recorded in fiscal 1997. Additional
proceeds from the business interruption claim will be included in income
when received but are not expected to be material in amount.
<PAGE>
In July 1996, the company signed a natural gas transportation agreement
with the Portland Natural Gas Transmission System (PNGTS). Under the
terms of the agreement, PNGTS will construct necessary gas supply and
delivery equipment to the company's Groveton, New Hampshire mill. The
company is committed to the transportation of a fixed volume of natural
gas over the 20-year agreement. Capital improvements to the Groveton
mill's power plant will be required to take advantage of this agreement.
Transportation of natural gas to the Groveton mill is scheduled to begin
in fiscal 1999.
NOTE 13. FUTURES CONTRACTS
At August 31, 1997, the company was party to various futures contracts for
the purchase of pulp and natural gas. The pulp contracts require the
company to purchase 2,424 tons of pulp during fiscal 1998. The price of
the pulp varies from $531 to $557 per ton. The natural gas contracts
require the company to purchase 1,150,000 decatherms of natural gas during
fiscal 1998. The delivered price of 700,000 decatherms varies from $2.77
to $3.00 per decatherm. The remaining 450,000 decatherms are to be
purchased at the lower of the contract cap price of $3.42 per decatherm or
market. At August 31, 1997, the company's futures contracts have no
carrying
-37-
value. The fair value of the contracts and the total deferred
gain on the contracts are immaterial at August 31, 1997.
NOTE 14. MAJOR CUSTOMERS
One customer accounted for 13.9% of net sales aggregating $79,462,000,
12.7% of net sales aggregating $68,797,000 and 12.0% of net sales
aggregating $61,732,000 in 1997, 1996 and 1995, respectively. Another
customer accounted for 10.9% of net sales aggregating $62,416,000 and
11.5% of net sales aggregating $62,563,000 in 1997 and 1996, respectively.
NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of the following financial instruments is not materially
different from the carrying value: cash and cash equivalents, long-term
debt, capital leases and futures contracts.
The following methods and assumptions were used by the company in
estimating fair values of financial instruments:
Cash and cash equivalents - The carrying amount approximates fair value
due to the relatively short period to maturity for these instruments.
Long-term debt - The fair value of the company's long-term debt is
estimated based on current rates offered to the company for debt of the
same remaining maturities.
Capital leases - The carrying amount reported in the balance sheets for
capital leases approximates fair value.
Futures contracts - The fair values of the company's pulp and natural gas
futures contracts were estimated using the prices published by Lynch
<PAGE>
Futures Inc. and NYMEX, respectively, the contract price and the remaining
pulp and natural gas to be purchased under the contracts.
-38-
<TABLE>
<CAPTION>
QUARTERLY DATA (UNAUDITED)
(all dollar amounts in thousands,
except per share data) 1997 1996
Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $161,099 $143,555 $125,965 $139,639 $132,729 $139,446 $128,590 $141,904
Gross Profit 32,547 31,736 23,396 26,340 30,005 31,048 18,605 19,628
Operating Profit 22,846 23,785 16,565 18,324 21,997 23,781 11,533 12,212
Net earnings 13,466 14,451 9,868 11,114 13,113 14,094 6,717 7,305
Per share $0.37 $0.40 $0.27 $0.30 $0.36 $0.38 $0.18 $0.20
Per Share basis:
Cash dividends* $ 0.0625 $0.0625 $ 0.125 $ 0.055 $ 0.055 $0.11
Common stock price
(closing)**
High $ 22.38 $ 20.50 $ 21.38 $ 20.38 $ 22.75 $ 24.13 $ 23.50 $ 22.70
Low $ 18.50 $ 17.25 $ 17.88 $ 17.50 $ 16.25 $ 20.50 $ 20.00 $ 18.60
<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 National 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 five-for-four stock
split occurring in 1996.
-39-
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to directors of the company is incorporated into this
Form 10-K by this reference to the material set forth in the table under
"INFORMATION RELATING TO THE WAUSAU ANNUAL MEETING-Election of Directors"
in the company's proxy statement relating to the 1997 annual meeting of
shareholders ("1997 Proxy Statement"). Information relating to the
identification of executive officers of the company is found in Part I of
this Form 10-K. Information relating to compliance with Section 16(a) of
the Securities Exchange Act of 1934 is incorporated by this reference to
the material set forth under "INFORMATION RELATING TO THE WAUSAU ANNUAL
MEETING-Section 16(a) Beneficial Ownership Reporting Compliance" in
the 1997 Proxy Statement.
Item 11. EXECUTIVE COMPENSATION.
Information relating to director compensation is incorporated into this
Form 10-K by this reference to the material set forth in the 1997 Proxy
Statement under "INFORMATION RELATING TO THE WAUSAU ANNUAL
MEETING-Director Compensation." Information relating to the compensation
of executive officers is incorporated into this Form 10-K by this
reference to (1) the material set forth under "INFORMATION RELATING TO THE
WAUSAU ANNUAL MEETING-Compensation of Executive Officers", ending with the
material set forth under "INFORMATION RELATING TO THE WAUSAU ANNUAL
MEETING-Pension Plan and Other Benefits", and (2) the material set forth
under "INFORMATION RELATING TO THE WAUSAU ANNUAL MEETING-Committee
Interlocks and Insider Participation", in the 1997 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to security ownership of certain beneficial owners
and management is incorporated into this Form 10-K by this reference to
the material set forth in the 1997 Proxy Statement under "INFORMATION
RELATING TO THE WAUSAU ANNUAL MEETING-Beneficial Ownership of Wausau
Common Shares."
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
-40-
<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 in
Part II, Item 8.
(b) Reports on Form 8-K.
Form 8-K dated August 24, 1997 relating to the merger of the
Registrant. See Item 1.
(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.
Incorporated
Exhibit <dagger>
2.1 Agreement and Plan of Merger dated August 24, 1997
among Registrant, Mosinee Paper Corporation and
WPM Holdings, Inc. 99.1(1)
3.1 Articles of Incorporation, as amended December 21,
1995 3(2)
3.2 Bylaws, as restated July 17, 1992 3(b)(3)
4.1 Articles and Bylaws (see Exhibits 3.1 and 3.2)
10.1 Executive Officers' Deferred Compensation
Retirement Plan, as amended September 18, 1996* 10(a)(4)
10.2 Incentive Compensation Plans, as amended
September 17, 1997 (Printing and Writing Division
and Technical Specialty Division)*
10.3 Corporate Management Incentive Plan, as amended
September 18, 1996* 10(c)(4)
10.4 1988 Stock Appreciation Rights Plan, as amended
April 17, 1991* 10(d)(4)
10.5 1988 Management Incentive Plan, as amended
April 17, 1991* 10(e)(4)
10.6 1990 Stock Appreciation Rights Plan, as amended
April 17, 1991* 10(f)(4)
10.7 Deferred Compensation Agreement dated March 2,
1990, as amended July 1, 1994* 10(h)(5)
10.8 1991 Employee Stock Option Plan*
-41-
<PAGE>
10.9 1991 Dividend Equivalent Plan* 10(i)(6)
10.10 Supplemental Retirement Benefit Plan dated
January 16, 1992, as amended November 13, 1995* 10(7)
10.11 Directors' Deferred Compensation Plan* 10(k)(6)
10.12 Director Retirement Benefit Policy* 10(o)(8)
10.13 Transition Benefit Agreement with President and
CEO
27.1 Financial Data Schedule
29.1 Subsidiaries as of August 31, 1997
*All exhibits represent executive compensation plans and arrangements.
<bullet> Where exhibit has been previously filed and incorporated
herein by reference, exhibit numbers set forth herein
correspond to the exhibit number of such exhibit in the
following reports of the registrant (Commission File No.
0-7574) filed with the Securities and Exchange Commission.
(1) Current report on Form 8-K dated August 24, 1997.
(2) Quarterly report on Form 10-Q for the quarterly period ended
February 29, 1996.
(3) Annual report on Form 10-K for the fiscal year ended August 31, 1992.
(4) Annual report on Form 10-K for the fiscal year ended August 31, 1996.
(5) Annual report on Form 10-K for the fiscal year ended August 31, 1994.
(6) Quarterly report on Form 10-Q for the quarterly period ended
November 30, 1996.
(7) Quarterly report on Form 10-Q for the quarterly period ended
November 30, 1995.
(8) Annual report on Form 10-K for the fiscal year ended August 31, 1993.
-42-
<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, 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
Charges to costs and expenses 17,599 48 8,003 9,548
Deductions ( 16,675) ( 100) ( 8,042) ( 8,533)
Balance August 31, 1996 $ 6,004 $ 1,421 $ 601 $ 3,982
Charges to costs and expenses 18,372 215 8,139 10,018
Deductions ( 18,501) ( 77) ( 8,052) ( 10,372)
Balance August 31, 1997 $ 5,875 $ 1,559 $ 688 $ 3,628
</TABLE>
-43-
<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 31, 1997
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 31, 1997 October 31, 1997
Chairman of the Board Director
/s/ DANIEL D. KING /s/ GARY W. FREELS
Daniel D. King Gary W. Freels
October 31, 1997 October 31, 1997
President and Chief Director
Executive Officer
(Principal Executive Officer)
Director
/s/ HARRY R. BAKER
Harry R. Baker
October 31, 1997
Director
-44-
<PAGE>
EXHIBIT INDEX<dagger>
TO
FORM 10-K
OF
WAUSAU PAPER MILLS COMPANY
FOR THE PERIOD ENDED AUGUST 31, 1997
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. <section>232.102(d))
EXHIBIT 10 - MATERIAL CONTRACTS*
10.2 Incentive Compensation Plans, as amended
September 17, 1997 (Printing and Writing Division
and Technical Specialty Division)
10.8 1991 Employee Stock Option Plan
10.13 Transition Benefit Agreement with President and CEO
*All exhibits represent executive compensation plans and
arrangements.
EXHIBIT 21.1 - SUBSIDIARIES OF THE REGISTRANT
Subsidiaries of the Registrant as of August 31, 1997
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
<dagger>Exhibits required by Item 601 of Regulation S-K
which have been previously filed and are incorporated by
reference are set forth in Part IV, Item 14(c) of the Form
10-K to which this Exhibit Index relates.
-45-
EXHIBIT 10.2
WAUSAU PAPER MILLS COMPANY
PRINTING AND WRITING DIVISION
INCENTIVE COMPENSATION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE OF THE PLAN
1.1 AMENDMENT OF THE PLAN. Wausau Paper Mills Company hereby amends,
restates and renames the Printing and Writing Paper Division Incentive
Compensation Plan effective for Fiscal Years beginning on and after
September 1, 1995.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to reward
participating employees for efforts to increase the financial performance
of the Printing and Writing Division.
SECTION 2. DEFINITIONS
2.1 DEFINITIONS. Whenever used in the Plan, the following terms
shall have the respective meanings set forth below, unless otherwise
expressly provided herein, and when the defined meaning is intended, the
term is capitalized:
(a) "ACHIEVED PERFORMANCE LEVEL" for a Fiscal Year
shall mean that percentage (rounded to the nearest .01%)
obtained by dividing actual ROA for the Fiscal Year by the
Target Performance Level for the year.
(b) "ADJUSTED OPERATING INCOME" means, with respect to each
Fiscal Year, the Printing and Writing Division's income before
adjustment for (1) income tax, (2) accrued or paid bonuses, (3)
interest income or expense, (4) commissions paid to a domestic
international sales corporation or foreign sales corporation which is
a subsidiary of the Company or any other subsidiary of the Company,
(5) gains and losses on the sale of operating assets, common stock or
other securities, (6) income realized from LIFO decrements (7)
allocation for corporate administration and (8) any other material,
nonrecurring events of an unusual nature. "Adjusted Operating Income"
shall be determined in accordance with generally accepted accounting
principles.
(c) "ATTACHMENT A" means the schedule appended hereto and
designated "Attachment A" or any amended schedule designated by the
Executive Committee as "Attachment A" for the Plan for any Fiscal
Year; provided however, that any such designation for a Fiscal Year
shall occur on or before the date on which the Executive Committee
sets the Target Performance Level for such Fiscal Year. Once amended,
any
-1-
<PAGE>
schedule designated as "Attachment A" shall remain in effect until
further amended by specific resolution of the Executive Committee.
(d) "AVERAGE CONTROLLABLE OPERATING ASSETS" means, with respect
to each Fiscal Year, the average of the amounts of Total Controllable
Operating Assets as of the last day of each calendar month of such
Fiscal Year.
(e) "COMPANY" shall mean Wausau Paper Mills Company.
(f) "FISCAL YEAR" means the twelve-month period beginning
September 1 and ending August 31 or such other period as may be
designated by the Company as its fiscal year reporting period.
(g) "PARTICIPANT" means each person who is eligible to
participate in the Plan and to receive an award of incentive
compensation as a result of being a Participant during a portion of a
Fiscal Year as determined in accordance with section 3.
(h) "PLAN" means the Wausau Paper Mills Company Printing and
Writing Division Incentive Compensation Plan as set forth herein.
(i) "PRESIDENT" means the President of the Company.
(j) "PRINTING AND WRITING DIVISION" means the Printing and
Writing Division of the Company which consists of the Company's Brokaw
Division and its wholly owned subsidiary, Wausau Papers of New
Hampshire, Inc., a Delaware corporation.
(k) "ROA" means, with respect to each Fiscal Year of the
Company, the Company's return on Average Controllable Operating Assets
expressed as the percentage determined by dividing Adjusted Operating
Income by Average Controllable Operating Assets.
(l) "SALARY" means, with respect to each Participant, his
annual rate of basic compensation as of the last day of the Fiscal
Year immediately preceding the Fiscal Year for which a determination
pursuant to section 5.2 is made; provided, however; that in the event
a Participant had no annual rate of basic compensation as of the last
day of such preceding Fiscal Year, "Salary" shall mean the annual rate
of the Participant's basic compensation as of the last day of the
Fiscal Year for which a determination is being made pursuant to
section 5.2. For purposes of this section 2.1(l), "basic
compensation" shall exclude (1) bonuses, (2)
-2-
overtime pay, (3) payments under any deferred compensation or other
plan and (4) all other forms of non-cash compensation, including, but
not limited to income imputed with respect to group life insurance,
use of Company-owned automobiles and all other forms of imputed
income.
(m) "TARGET PERFORMANCE LEVEL" means, for each Fiscal Year, the
ROA for the year which is established by the Executive Committee as
the base ROA target against which ROA performance is to be compared
(and by which the Achieved Performance Level shall be computed) in
order to determine the existence or amount of incentive awards to be
paid to Participants.
<PAGE>
(n) "THRESHOLD PERFORMANCE LEVEL" means such percentage of ROA
as may, from time to time and at any time, be established by the
Executive Committee pursuant to section 4.
(o) "TOTAL CONTROLLABLE OPERATING ASSETS" means the amount of
total assets of the Printing and Writing Division exclusive of the sum
of (1) cash and cash equivalents and other assets held for investment,
including common stock or other investment securities, (2)
construction in progress, (3) loans to Rhinelander Paper Company, Inc.
or any other subsidiary of the Company, and (4) deferred tax assets.
The amount of total assets of the Printing and Writing Division shall
be determined in accordance with generally accepted accounting
principles.
SECTION 3. PARTICIPATION
3.1 ELIGIBILITY.
(a) Each Fiscal Year the President of the Company
shall designate (1) by name, those employees at the Printing
and Writing Division who shall be eligible to participate in
the Plan for such Fiscal Year, (2) by position, those
positions at the Printing and Writing Division which shall
entitle the holders thereof to be eligible to participate in
the Plan for such Fiscal Year and (3) by name or position,
those other employees of the Company who shall be eligible
to receive an individual Presidential Pool Incentive
Compensation Award pursuant to section 5.3 and who shall be
"Participants" only with respect to such Presidential Pool
participation. Such designations may be made by position or
by individual name as the President deems appropriate and,
in the case of employees described in clauses (1) and (2) of
the preceding sentence, shall specify whether the
-3-
Participant is eligible to receive an incentive award
pursuant to section 5.2 or section 5.3 or both of such
sections. Participation shall begin as of the date
specified by the President and may be for less than a full
Fiscal Year.
(b) Each employee or position designated by the President as
being eligible to receive an incentive award pursuant to section 5.2
shall also be assigned to a Group Participation Level by the President
from among the following groups:
<TABLE>
<CAPTION>
Group ROA
Participation Incentive Award
LEVEL (% OF SALARY)
<S> <C>
A 15.00%
B 33.33%
C 66.67%
D 100.00%
</TABLE>
<PAGE>
If a Participant is assigned to a different Group Participation Level
during a Fiscal Year, the Participant's incentive award under section
5.2 shall be determined by proration of the Participant's Group
Participation Levels for the Fiscal Year.
3.2 DURATION OF PARTICIPATION.
(a) Selection by the President to participate in the
Plan for a Fiscal Year shall not give any individual or
position designated the right to continue as a Participant
in any subsequent Fiscal Year. The President has complete
discretion to and shall each Fiscal Year designate, by
individuals or positions, such persons as in his discretion
shall be appropriate to further the interests of the Company
and serve the purposes for which this Plan has been
established.
(b) Participation with respect to a Fiscal Year shall terminate
upon the first to occur of the Participant's (1) termination of
employment or (2) transfer to a position not then eligible to
participate in the Plan, but the former Participant will be entitled
to receive a prorated incentive award if the provisions of section
5.2(d) are satisfied.
-4-
SECTION 4. DETERMINATION OF INCENTIVE COMPENSATION
4.1 DETERMINATION OF TARGET PERFORMANCE LEVEL. On or before October
1st of each Fiscal Year, the Executive Committee shall establish the
Target Performance Level for such Fiscal Year.
4.2 DETERMINATION OF THRESHOLD PERFORMANCE LEVEL. On or before
October 1st of each Fiscal Year, the Executive Committee shall establish
the Threshold Performance Level for such Fiscal Year.
SECTION 5. INCENTIVE AWARDS
5.1 FISCAL YEAR PERFORMANCE. Each Fiscal Year, as soon as reasonably
possible following the availability to the Executive Committee of the
Company's audited financial statements for the Fiscal Year, the Executive
Committee shall determine the ROA and the Achieved Performance Level for
the Fiscal Year.
5.2 DETERMINATION OF ROE INCENTIVE AWARD. Each Participant shall be
entitled to receive a ROA Incentive Award in an amount equal to the
product of (a) the Participant's Salary, as determined prior to any award
under this Plan, multiplied by (b) the percentage in Column (4) of
Attachment A which is set forth opposite the percentage in Column (2) of
Attachment A which corresponds to the Achieved Performance Level for such
Fiscal Year, multiplied by (c) the percentage specified in section 3.1(b)
for the Group Participation Level to which the Participant has been
assigned; provided, however, that:
(a) No ROA Incentive Award shall be payable in any Fiscal Year in
which ROA does not equal or exceed the Threshold Performance
Level.
<PAGE>
(b) If the Achieved Performance Level for the Fiscal Year is not
expressed as a whole integer (and therefore not specifically set
forth in Column (2) of Attachment A), the applicable percentage
of base salary used to determine a Participant's ROA Incentive
Award shall be determined by interpolation (rounded up to the
next highest .01%), based on the percentages set forth in Column
(4) of Attachment A, of the percentage which would correspond to
the Achieved Performance Level set forth in Column (2) if Column
(4) specified Achieved Performance Levels at each .01% between
80% and 120%.
(c) A Participant who (1) was a Participant on the last day of Fiscal
Year, but was not eligible to participate for the entire Fiscal
Year or (2) transfers to a position
-5-
in the Company or any subsidiary thereof and is thereafter not
eligible to participate in the Plan or (3) incurs a termination
of employment on or before the last day of the Fiscal Year
because of (A) normal, early or late retirement (or prior to
becoming eligible for a disability retirement benefit) under the
terms of any pension plan maintained by the Company or any
subsidiary thereof as part of a trust qualified under section
401(a) of the Internal Revenue Code of 1986, as amended, or (B)
death shall be entitled to receive a prorated ROA Incentive
Award for such Fiscal Year based on the number of complete
calendar months in the Fiscal Year in which such Participant or
former Participant participated in the Plan during such Fiscal
Year.
5.3 DISCRETIONARY INDIVIDUAL PARTICIPANT INCENTIVE COMPENSATION
AWARDS - "PRESIDENTIAL POOL". Each Fiscal Year, an amount which is not in
excess of 5% of the aggregate amount of individual ROA Incentive Awards
for the Fiscal Year awarded pursuant to section 5.2 (the "Presidential
Pool") may be awarded to one or more Participants who are selected in the
sole discretion of the President to receive an incentive award pursuant to
this section 5.3. The Participants who shall be entitled to receive such
awards, if any, and the basis upon which such awards shall be determined
shall be the sole and exclusive province of the President. If less than
the amount provided for as the Presidential Pool in this section 5.3 is
awarded with respect to a Fiscal Year, any amount not awarded to
Participants shall lapse and shall not be paid under any other provision
of this Plan.
5.4 PAYMENT OF AWARDS. Payment of incentive awards shall be made by
the Company to the Participant as soon as administratively feasible
following the determination of the amount of such awards. Any payment due
a Participant at or after the time of his death shall be made by the
Company to the personal representative of the Participant's estate.
SECTION 6. ADMINISTRATION
6.1 PLAN ADMINISTRATOR. The President shall act as the plan
administrator of the Plan and shall have sole and complete authority to
interpret and implement the provisions of the Plan, including, but not
limited to, the sole and final discretion as to matters of eligibility to
participate, matters relating to the eligibility to receive any incentive
<PAGE>
awards, the determination of Achieved Performance Level, Adjusted
Operating Income, Average Controllable Operating Assets, ROA, Salary,
Target Performance Level, Total Controllable Operating Assets and the
determination of the Presidential Pool. The President may designate one
or
-6-
more employees or other agents to assist him in administering the Plan.
SECTION 7. AMENDMENTS AND TERMINATION
7.1 AMENDMENTS AND TERMINATION. The Executive Committee or the Board
of Directors of the Company may, from time to time and at any time, amend
or terminate the Plan; provided, however, that such amendment or
termination may not result in the forfeiture of any incentive award earned
with respect to any Fiscal Year preceding the Fiscal Year in which such
amendment or termination is adopted. Any amendment or termination may be
made effective with respect to any Fiscal Year in which such action is
adopted.
SECTION 8. EMPLOYMENT RIGHTS
8.1 EMPLOYMENT RIGHTS. Nothing contained in the Plan shall be
construed as conferring a right upon any employee to be continued in the
employment of the Company or to remain as a Participant in the Plan after
amendment or termination of the Plan.
SECTION 9. APPLICABLE LAW
9.1 APPLICABLE LAW. The Plan shall be construed, administered and
governed in all respects under and by the laws of the State of Wisconsin.
IN WITNESS WHEREOF, this Plan, as amended effective as of
September 17, 1997, has been executed by and for the Company by its
duly authorized officer.
WAUSAU PAPER MILLS COMPANY
By: DANIEL D. KING
Daniel D. King
President and Chief Executive
Officer
-7-
<PAGE>
WAUSAU PAPER MILLS COMPANY
TECHNICAL SPECIALTY DIVISION
INCENTIVE COMPENSATION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE OF THE PLAN
1.1 AMENDMENT OF THE PLAN. Wausau Paper Mills Company (the
"Company") and Rhinelander Paper Company, Inc. hereby amend, restate and
rename the Rhinelander Paper Company, Inc. Incentive Compensation Plan
effective for Fiscal Years beginning on and after September 1, 1997.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to reward
participating employees for efforts to increase the financial performance
of the Company's Technical Specialty Division (the "Division").
SECTION 2. DEFINITIONS
2.1 DEFINITIONS. Whenever used in the Plan, the following terms
shall have the respective meanings set forth below, unless otherwise
expressly provided herein, and when the defined meaning is intended, the
term is capitalized:
(a)"ACHIEVED PERFORMANCE LEVEL" for a Fiscal Year shall
mean that percentage (rounded to the nearest .01%) obtained
by dividing actual ROA for the Fiscal Year by the Target
Performance Level for the year.
(b) "ADJUSTED OPERATING INCOME" means, with respect to each
Fiscal Year, the Division's income before adjustment for (1) income
tax, (2) accrued or paid bonuses, (3) interest income or expense, (4)
commissions paid to a domestic international sales corporation or
foreign sales corporation which is a subsidiary of the Company or any
other subsidiary of the Company, (5) gains and losses on the sale of
operating assets, common stock or other securities, (6) income
realized from LIFO decrements (7) allocation for corporate
administration and (8) any other material, nonrecurring events of an
unusual nature, but excluding income (as determined before the
adjustments described in clauses (1) through (8) of this paragraph)
which is attributable to the Lake States Division of Rhinelander Paper
Company, Inc. (the "Lakes States Division"). "Adjusted Operating
Income" shall be determined in accordance with generally accepted
accounting principles.
-1-
(c) "ATTACHMENT A" means the schedule appended hereto and
designated "Attachment A" or any amended schedule designated by the
Executive Committee as "Attachment A" for the Plan for any Fiscal
Year; provided however, that any such designation for a Fiscal Year
shall occur on or before the date on which the Executive Committee
sets the Target Performance Level for such Fiscal Year. Once amended,
any schedule designated as "Attachment A" shall remain in effect until
further amended by specific resolution of the Executive Committee.
(d) "AVERAGE CONTROLLABLE OPERATING ASSETS" means, with respect
to each Fiscal Year, the average of the amounts of Total Controllable
Operating Assets as of the last day of each calendar month of such
Fiscal Year.
<PAGE>
(e) "COMPANY" shall mean Wausau Paper Mills Company
(f) "FISCAL YEAR" means the twelve-month period beginning
September 1 and ending August 31 or such other period as may be
designated by the Company as its fiscal year reporting period.
(g) "PARTICIPANT" means each person who is eligible to
participate in the Plan and to receive an award of incentive
compensation as a result of being a Participant during a portion of a
Fiscal Year as determined in accordance with section 3.
(h) "PLAN" means the Technical Specialty Division Incentive
Compensation Plan as set forth herein.
(i) "PRESIDENT" means the President of the Company.
(j) "ROA" means, with respect to each Fiscal Year of the
Company, the Division's return on Average Controllable Operating
Assets expressed as the percentage determined by dividing Adjusted
Operating Income by Average Controllable Operating Assets.
(k) "SALARY" means, with respect to each Participant, his annual
rate of basic compensation as of the last day of the Fiscal Year
immediately preceding the Fiscal Year for which a determination
pursuant to section 5.2 is made; provided, however; that in the event
a Participant had no annual rate of basic compensation as of the last
day of such preceding Fiscal Year, "Salary" shall mean the annual rate
of the Participant's basic compensation as of the last day of the
Fiscal Year for which a determination is being made pursuant to
section 5.2. For purposes of this section 2.1(k), "basic
compensation" shall exclude (1) bonuses, (2)
-2-
overtime pay, (3) payments under any deferred compensation or other
plan and (4) all other forms of non-cash compensation, including, but
not limited to income imputed with respect to group life insurance,
use of Company or Division-owned automobiles and all other forms of
imputed income.
(l) "TARGET PERFORMANCE LEVEL" means, for each Fiscal Year, the
ROA for the year which is established by the Executive Committee as
the base ROA target against which ROA performance is to be compared
(and by which the Achieved Performance Level shall be computed) in
order to determine the existence or amount of incentive awards to be
paid to Participants.
(m) "TECHNICAL SPECIALTY DIVISION" means the Technical
Specialty Division of the Company which consists of Rhinelander Paper
Company, Inc. and Wausau Papers Otis Mill, Inc., each a wholly-owned
subsidiary of the Company.
(n) "THRESHOLD PERFORMANCE LEVEL" means such percentage of ROA
as may, from time to time and at any time, be established by the
Executive Committee pursuant to section 4.
(o) "TOTAL CONTROLLABLE OPERATING ASSETS" means the amount of
total assets of the Division exclusive of the sum of (1) cash and cash
equivalents and other assets held for investment, including common
<PAGE>
stock or other investment securities, (2) construction in progress,
(3) loans to the Company or any subsidiary of the Company which is not
part of the Division by a company in the Division, (4) deferred tax
assets and (5), to the extent not already excluded by clauses (1)
through (4) of this paragraph, any other assets employed by the Lake
States Division. The amount of total assets of the Division shall be
determined in accordance with generally accepted accounting
principles.
SECTION 3. PARTICIPATION
3.1 ELIGIBILITY.
(a) Each Fiscal Year the President shall designate (1) by name,
those employees at the Division who shall be eligible to participate
in the Plan for such Fiscal Year, (2) by position, those positions
at the Division which shall entitle the holders thereof to be
eligible to participate in the Plan for such Fiscal Year and (3) by
name or position, those other employees of the Wausau Paper Mills
Company or
-3-
the Division who shall be eligible to receive an
individual Presidential Pool Incentive Compensation Award pursuant
to section 5.3 and who shall be "Participants" only with respect to
such Presidential Pool participation. Such designations may be made
by position or by individual name as the President deems appropriate
and, in the case of employees described in clauses (1) and (2) of
the preceding sentence, shall specify whether the Participant is
eligible to receive an incentive award pursuant to section 5.2 or
section 5.3 or both of such sections. Participation shall begin as
of the date specified by the President and may for less than a full
Fiscal Year.
(b) Each employee or position designated by the President as
being eligible to receive an incentive award pursuant to section 5.2
shall also be assigned to a Group Participation Level by the President
from among the following groups:
<TABLE>
<CAPTION>
Group Maximum
Participation Incentive Award
LEVEL (% OF SALARY)
<S> <C>
A 33.33%
B 66.67%
C 100.00%
</TABLE>
provided, however, that in the event the President designates a new
Group Participation Level of a Participant during a Fiscal Year, the
Participant's incentive award under section 5.2 shall be determined by
proration of the Participant's Group Participation Levels for the
Fiscal Year.
<PAGE>
3.2 DURATION OF PARTICIPATION.
(a) Selection by the President to participate in the Plan for a
Fiscal Year shall not give any individual or position designated the
right to continue as a Participant in any subsequent Fiscal Year.
The President has complete discretion to and shall each Fiscal Year
designate, by individuals or positions, such persons as in his
discretion shall be appropriate to further the interests of the
Company and serve the purposes for which this Plan has been
established.
(b) Participation with respect to a Fiscal Year shall terminate
upon the first to occur of the Participant's (1) termination of
employment or (2) transfer to a position not then eligible to
participate in the Plan, but the former
-4-
Participant will be entitled to receive a prorated incentive award
if the provisions of section 5.2(d) are satisfied.
SECTION 4. DETERMINATION OF INCENTIVE COMPENSATION
4.1 DETERMINATION OF TARGET PERFORMANCE LEVEL. On or before October
1st of each Fiscal Year, the Executive Committee shall establish the
Target Performance Level for such Fiscal Year.
4.2 DETERMINATION OF THRESHOLD PERFORMANCE LEVEL. On or before
October 1st of each Fiscal Year, the Executive Committee shall establish
the Threshold Performance Level for such Fiscal Year.
SECTION 5. INCENTIVE AWARDS
5.1 FISCAL YEAR PERFORMANCE. Each Fiscal Year, as soon as reasonably
possible following the availability to the Executive Committee of the
Company's audited financial statements for the Fiscal Year, the Executive
Committee shall determine the ROA and the Achieved Performance Level for
the Fiscal Year.
5.2 DETERMINATION OF ROE INCENTIVE AWARD. Each Participant shall be
entitled to receive a ROA Incentive Award in an amount equal to the
product of (a) the Participant's Salary, as determined prior to any award
under this Plan, multiplied by (b) the percentage in Column (4) of
Attachment A which is set forth opposite the percentage in Column (2) of
Attachment A which corresponds to the Achieved Performance Level for such
Fiscal Year, multiplied by (c) the percentage specified in section 3.1(b)
for the Group Participation Level to which the Participant has been
assigned; provided, however, that:
(a) No ROA Incentive Award shall be payable in any Fiscal Year in
which ROA does not equal or exceed the Threshold Performance
Level.
(b) If the Achieved Performance Level for the Fiscal Year is not
expressed as a whole integer (and therefore not specifically set
forth in Column (2) of Attachment A), the applicable percentage
<PAGE>
of base salary used to determine a Participant's ROA Incentive
Award shall be determined by interpolation (rounded up to the
next highest .01%), based on the percentages set forth in Column
(4) of Attachment A, of the percentage which would correspond to
the Achieved Performance Level set forth in Column (2) if Column
(4) specified Achieved Performance Levels at each .01% between
80% and 120%.
-5-
(c) A Participant who (1) was a Participant on the last day of Fiscal
Year, but was not eligible to participate for the entire Fiscal
Year or (2) transfers to a position in the Company or any
subsidiary thereof and is thereafter not eligible to participate
in the Plan or (3) incurs a termination of employment on or
before the last day of the Fiscal Year because of (A) normal,
early or late retirement (or prior to becoming eligible for a
disability retirement benefit) under the terms of any pension
plan maintained by the Company or any subsidiary thereof as part
of a trust qualified under section 401(a) of the Internal Revenue
Code of 1986, as amended, or (B) death shall be entitled to
receive a prorated ROA Incentive Award for such Fiscal Year based
on the number of complete calendar months in the Fiscal Year in
which such Participant or former Participant participated in the
Plan during such Fiscal Year.
5.3 DISCRETIONARY INDIVIDUAL PARTICIPANT INCENTIVE COMPENSATION
AWARDS - "PRESIDENTIAL POOL". Each Fiscal Year, an amount which is not in
excess of 5% of the aggregate amount of individual ROA Incentive Awards
for the Fiscal Year awarded pursuant to section 5.2 (the "Presidential
Pool") may be awarded to one or more Participants who are selected in the
sole discretion of the President to receive an incentive award pursuant to
this section 5.3. The Participants who shall be entitled to receive such
awards, if any, and the basis upon which such awards shall be determined
shall be the sole and exclusive province of the President. If less than
the amount provided for as the Presidential Pool in this section 5.3 is
awarded with respect to a Fiscal Year, any amount not awarded to
Participants shall lapse and shall not be paid under any other provision
of this Plan.
5.4 PAYMENT OF AWARDS. Payment of incentive awards shall be made to
each Participant by the respective employer of such Participant as soon as
administratively feasible following the determination of the amount of
such awards. Any payment due a Participant at or after the time of his
death shall be made to the personal representative of the Participant's
estate.
SECTION 6. ADMINISTRATION
6.1 PLAN ADMINISTRATOR. The President shall act as the plan
administrator of the Plan and shall have sole and complete authority to
interpret and implement the provisions of the Plan, including, but not
limited to, the sole and final discretion as to matters of eligibility to
participate, matters relating to the eligibility to receive any incentive
awards, the determination of Achieved Performance Level, Adjusted
Operating Income, Average
-6-
<PAGE>
Controllable Operating Assets, ROA, Salary, Target Performance Level,
Total Controllable Operating Assets and the determination of the
Presidential Pool. The President may designate one or more employees or
other agents to assist him in administering the Plan.
SECTION 7. AMENDMENTS AND TERMINATION
7.1 AMENDMENTS AND TERMINATION. The Executive Committee or the Board
of Directors of the Company may, from time to time and at any time, amend
or terminate the Plan; provided, however, that such amendment or
termination may not result in the forfeiture of any incentive award earned
with respect to any Fiscal Year preceding the Fiscal Year in which such
amendment or termination is adopted. Any amendment or termination may be
made effective with respect to any Fiscal Year in which such action is
adopted.
SECTION 8. EMPLOYMENT RIGHTS
8.1 EMPLOYMENT RIGHTS. Nothing contained in the Plan shall be
construed as conferring a right upon any employee to be continued in the
employment of the Company or any subsidiary thereof or to remain as a
Participant in the Plan after amendment or termination of the Plan.
SECTION 9. APPLICABLE LAW
9.1 APPLICABLE LAW. The Plan shall be construed, administered and
governed in all respects under and by the laws of the State of Wisconsin.
IN WITNESS WHEREOF, this Plan, as amended, restated and renamed as of
September 1, 1997, has been executed as of the 17th
-7-
day of September, 1997, by and for the Company and Rhinelander Paper
Company, Inc., by their respective duly authorized officers.
WAUSAU PAPER MILLS COMPANY
By: DANIEL D. KING
Daniel D. King
President
RHINELANDER PAPER COMPANY, INC.
By: DANIEL D. KING
Daniel D. King
President
-8-
EXHIBIT 10.8
WAUSAU PAPER MILLS COMPANY
1991 EMPLOYEE STOCK OPTION PLAN
Wausau Paper Mills Company, a Wisconsin corporation (the "Company"),
hereby adopts the Wausau Paper Mills Company 1991 Employee Stock Option
Plan (the "Plan"), as set forth herein.
Section 1. PURPOSE. The Plan has been adopted for the purpose of
recognizing and rewarding the job performance of key employees of the
Company and to enable the Company to attract and retain superior
management-level employees by increasing the personal interest of all such
employees in the growth and success of the Company. It is the express
intent of the Company that, subject to Section 6(g) hereof, all options
granted hereunder designated "Incentive Stock Options" shall meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any successor section or sections. It is the
further intent of the Company that options granted hereunder designated
"Non-Qualified Stock Options" shall not meet the requirements of Section
422 of the Code.
Section 2. NUMBER OF SHARES AVAILABLE FOR OPTIONS. The aggregate
number of shares of common stock, no par value, of the Company (the
"Shares") which may be issued under options granted pursuant to the Plan
shall be 250,000.
Section 3. ADMINISTRATION OF THE PLAN.
Section 3.1 GENERAL. The Plan shall be administered by a committee
(the "Committee") consisting of at least two members designated by the
Board of Directors of the Company from among those of its members who are
not officers or employees of the
-1-
Company or a parent or subsidiary of the Company and who otherwise
satisfy the definition of a "Non-Employee Director" in Rule 16b-3(b)(3)
promulgated under Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act") and the definition of an "Outside Director" in the
regulations under Section 162(m) of the Code. In the absence of specific
rules to the contrary, action by the Committee shall require the consent
of a majority of the members of the Committee, expressed either orally at
a meeting of the Committee or in writing in the absence of a meeting.
Section 3.2 AUTHORITY OF COMMITTEE. The Committee shall have full
and complete authority to grant options to such eligible employees on such
terms, which need not be the same as to all Optionees, as will, in its
discretion and subject only to the specific limitations elsewhere
contained in the Plan, carry out the purpose of the Plan. The Committee
shall also have full and complete authority to interpret the Plan and
adopt rules governing the administration of the Plan. The Committee's
decision on any matter with respect to the Plan shall be final.
<PAGE>
Section 3.3 INDEMNIFICATION OF COMMITTEE. To the extent permitted by
applicable law, the members of the Committee and each of them shall be
indemnified and saved harmless by the Company from any liability or claim
of liability which may arise from the administration of the Plan if the
acts giving rise to such liability or claim of liability were taken in
good faith and without negligence.
-2-
Section 4. ELIGIBLE EMPLOYEES.
Section 4.1 DEFINITION OF ELIGIBLE EMPLOYEES. Subject to the
limitations of Section 4.2, key employees of the Company and its
subsidiary corporations shall be eligible to participate in the Plan. For
purposes of the Plan, the term "key employee" shall include all employees
of all participating employers employed in management, administrative or
professional capacities.
Section 4.2 LIMITATIONS ON ELIGIBILITY. No person who is serving as
a member of the Committee shall be eligible to receive an option;
provided, however, that options outstanding prior to an Optionee's
becoming a member of the Committee shall remain in effect.
Section 5. GRANTING OF OPTIONS. Subject to the limitations of
Section 4.2, options to purchase Shares shall be granted to such key
employees who are eligible to participate in the Plan as the Committee
may, from time to time and at any time, select. Membership in a class of
eligible key employees shall not, without specific Committee action,
entitle a key employee to receive an option to purchase Shares. Eligible
key employees selected by the Committee shall be referred to herein as
"Optionees."
Section 6. TERMS AND CONDITIONS OF THE OPTIONS.
Section 6.1 WRITTEN INSTRUMENT. Each option to purchase Shares
granted under the Plan shall be evidenced by a written option agreement
signed on behalf of the Company and the optionee which sets forth the name
of the Optionee, the date granted, the
-3-
price at which the Shares subject to the option may be purchased (the
"option price"), whether the option is an Incentive Stock Option or a
Non-Qualified Stock Option, the number of Shares subject to the option
and such other terms and conditions consistent with the Plan as
determined by the Committee. The Committee may at the time of grant or
at any time thereafter impose such additional terms and conditions on the
exercise of such option as it deems necessary or desirable for compliance
with Section 16 of the Exchange Act and the regulations promulgated
thereunder. Such option agreement shall incorporate by reference all
terms, conditions and limitations set forth in the Plan.
Section 6.2 TERMS AND CONDITIONS OF THE OPTIONS. In addition to any
other limitations, terms and conditions specified in the Plan, each option
granted hereunder shall, as to each Optionee, satisfy the following
requirements:
(a) DATE OF GRANT. Options must be granted on or before June
18, 2001.
<PAGE>
(b) EXPIRATION. No Incentive Stock Option shall be exercisable
after the expiration of ten years from the date such option is
granted. No Non-Qualified Stock Option shall be exercisable after the
expiration of twenty years from the date such option is granted.
(c) PRICE. The option price as to any Share subject to an
Incentive Stock Option or Non-Qualified Stock Option will be not less
than one hundred percent of the fair market value of the Share on the
date the option is granted.
-4-
For purposes of the Plan, the fair market value of a Share means:
(i) The mean between the high and the low prices at which the Shares
were traded if the Shares were then listed for trading on a
national or regional securities exchange or were then traded on a
bona fide over-the-counter market; or
(ii) If the Shares were not traded on an exchange or a bona fide over-
the-counter market, a value determined by an appraiser selected
by the Committee.
In the event that the date on which the fair market value of a Share
is to be determined is a date on which there is no trading of the
Shares on a national or regional securities exchange or on the over-
the-counter market, such fair market value shall be determined by
referring to the next preceding business day on which trading occurs.
(d) TRANSFERABILITY.
(i) No Incentive Stock Option shall be transferable by the Optionee
otherwise than by will or the laws of descent and distribution
nor can it be exercised by anyone other than the Optionee during
the Optionee's lifetime.
(ii) The Committee may, in its discretion, authorize all or a portion
of any options to be granted to an Optionee or which were granted
to any Optionee on or before December 16, 1996 to permit transfer
by the Optionee to (A) the spouse, children or grandchildren of
the Optionee ("Immediate Family"), (B) a trust for the
-5-
exclusive benefit of the Optionee or the Optionee's Immediate
Family, (C) a partnership in which the Optionee or the
Optionee's Immediate Family are the only partners, or (D) to a
former spouse of the Optionee pursuant to a domestic relations
order within the meaning of Rule 16a-12 promulgated under
Section 16 of the Exchange Act; provided, however, that (X)
there may be not consideration for any such transfer, (Y) the
written option agreement required by Section 6.1, or any
amendment thereof approved by the Committee, must expressly
provide for transferability of the option evidenced in such
agreement in a manner consistent with this Section 6.2(d), and
(Z) once transferred pursuant to the preceding provisions of
this Section 6.2(d)(ii), no subsequent transfer of any options
shall be permitted except a transfer by will or the laws of
<PAGE>
descent and distribution. In authorizing all or any portion of
an option to be transferred, the Committee may impose any
conditions on exercise, prescribe a holding period for the
Shares acquired upon such exercise and/or impose any other
conditions or limitations it deems desirable or necessary in
order to carry out the purposes and requirements of the Plan.
Following transfer, the terms and conditions of the plan and the
written option agreement relating to such option shall continue
to be applicable in all respects to the Optionee making such
transfer and each
-6-
transferred option shall continue to be subject to the same terms
and conditions as were applicable immediately prior to transfer
as if such option had not been transferred, including, but not
limited to, the terms and conditions with respect to the lapse
and termination of such option. For purposes of Section 7, the
transferee of an option shall be deemed an "Optionee". Neither
the Company, the Committee or any Optionee shall have any
obligation to inform any transferee of the termination or lapse
of any option for any reason. Notwithstanding any other
provision of the plan, (YY) following the termination of
employment of an Optionee, a transferred Non-Qualified Option
shall be exercisable by the transferee only to the extent, and
for the periods specified in Section 6(e) as if such option had
not been transferred and (ZZ) no Non-Qualified Stock Option
granted prior to November 1, 1996 may be transferred until such
option has been held by the Optionee for a period of not less
than six months after the date on which such option was granted.
(e) EMPLOYMENT. No option shall be exercisable unless the
Optionee shall have been employed by the Company (or any present or
-7-
future parent or subsidiary of the Company) during the period
beginning on the date the option is granted and ending on a date
ninety days before the date of exercise; provided, however, that in
the event an Optionee dies while in the employ of the Company (or any
present or future parent or subsidiary of the Company) or within
ninety days after such employment had terminated, the employment
period requirement described above (the "90-day limit") shall be
deemed to have been satisfied; and, provided further, that the
Committee may permit the exercise of a Non-Qualified Stock Option
without regard to "90-day limit" if (i) the optionee (or the
optionee's personal representative or estate in the event of the
optionee's death) is, in the sole discretion of the Committee,
directly or indirectly prevented from exercising such option by reason
of the application of federal securities laws within the 90-day limit
or the Company or its shareholders would be adversely affected by
reason of the application of federal securities laws to an exercise of
such option within such 90-day limit and (ii) the optionee was not, at
the time of his termination of employment, a person with respect to
whom payment of compensation by the Company is then subject to (or
would be, but for an exemption from) the provisions of Section 162(m)
of the Code.
<PAGE>
(f) MINIMUM HOLDING PERIOD. No option granted prior to
November 1, 1996 may be exercised before the date which is six months
after the date on which such option was granted. Each option shall
contain such additional or other restriction or restrictions with
respect to the stated percentage of Shares covered by such option as
to which such option may be exercised as the Committee may deem
desirable
-8-
or necessary in order to carry out the purposes and requirements
of the Plan.
(g) ADDITIONAL RESTRICTIONS RELATING TO INCENTIVE STOCK OPTIONS.
To the extent that the aggregate fair market value (determined as of
the time the option is granted) of the Shares for which Incentive
Stock Options are exercisable for the first time by an individual
during any calendar year (under this Plan or any other plan of the
Company or any of its subsidiaries) exceeds $100,000 (or such other
individual limit as may be in effect under the Code on the date of
grant), such options shall not be Incentive Stock Options. No
Incentive Stock Option shall be granted to an employee who, at the
time such option is granted, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company within the
meaning of Section 422(b)(6) of the Code unless: (i) at the time the
option is granted, the option price is at least one hundred ten
percent of the fair market value of the Shares subject to the option,
and (ii) such option by its terms is not exercisable after the
expiration of five years from the date such option is granted.
(h) LIMITATION ON OPTION GRANTS. No Optionee may be granted
options under Section 5 of the Plan in any fiscal year with respect to
more than 50,000 Shares.
-9-
Section 7. EXERCISE AND PAYMENT OF OPTION PRICE.
Section 7.1 EXERCISE OF OPTIONS. Options shall be exercised as to
all or a portion of the Shares by written notice to the Company setting
forth the exact number of Shares as to which the option is being exercised
and including with such notice payment of the option price (plus required
tax withholding). The date of exercise shall be the date such written
notice and payment have been delivered to the Secretary of the Company
either in person or by depositing said notice and payment in the United
States mail, postage pre-paid and addressed to such officer at the
Company's home office. Notwithstanding the fact that an option has been
transferred pursuant to Section 6.2(d)(ii), the grantee of such option
shall remain liable for any required tax withholding.
Section 7.2 PAYMENT FOR SHARES. Payment of the option price (plus
required tax withholding) may be made by (a) tendering cash (in the form
of a check or otherwise) in such amount, or (b) tendering Shares with a
fair market value on the date of exercise equal to such amount, or (c)
delivering a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the sale or
loan proceeds equal to such amount. Notwithstanding the fact that an
option has been transferred pursuant to Section 6.2(d)(ii), the grantee of
such option shall remain liable for any required tax withholding.
<PAGE>
Section 8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. If any option
is exercised in whole or in part subsequent to any
-10-
stock dividend, stock split, recapitalization, reorganization, merger or
other change in the corporate structure of the Company as a result of
which (a) shares of any class or classes of the Company shall be issued
in respect of the Shares or (b) the Shares shall be changed into the same
or a different number of shares of the same or another class or classes
of the Company or another corporation, the Optionee so exercising the
option shall receive, for the aggregate option price payable upon such
exercise, the aggregate number and class or classes of shares equal to
the number and class or classes of shares such Optionee would have had
on the date of actual exercise if the Optionee had purchased on the date
the option was granted the Shares as to which the option is so exercised
and the Shares so purchased had not been disposed of as of the date of
such actual exercise, taking into consideration such stock dividend,
stock split, recapitalization, reorganization, merger or other change in
the corporate structure of the Company.
Section 9. TERMINATION OR LAPSE OF OPTIONS. Each option shall
terminate or lapse upon the first to occur of (a) the expiration date set
forth in the applicable Stock Option Agreement, (b) the applicable date
set forth in Section 6.2(b), or (c) the date which is the day next
following the last day such option could be exercised by the Optionee
under Section 6.2(e); provided, however, that in the event of an
Optionee's death while in the employ of the Company or a parent or
subsidiary of the Company or, if the Optionee is no longer so employed, in
the event of the Optionee's death on or before the last day such
-11-
option could be exercised by the Optionee under Section 6.2(e), an option
may be exercised, to the extent exercisable by the Optionee immediately
prior to his death, in whole or in part by the Optionee's estate or his
designee by will, or, if applicable, the transferee of such option
pursuant to Section 6.2(d)(ii), but only if the date of exercise is on or
before the first to occur of (i) the expiration date set forth in the
applicable Stock Option Agreement, (ii) the applicable date set forth in
Section 6.2(b), or (iii) the date which is twelve months after the date
of the Optionee's death.
Section 10. AMENDMENT AND TERMINATION OF PLAN.
Section 10.1 AMENDMENT OF PLAN. The Board of Directors of the
Company may amend the Plan from time to time and at any time; provided,
however, that no amendment shall adversely affect any option which has
been granted prior to the amendment and no amendment with respect to the
maximum number of Shares which may be issued pursuant to options or the
class of eligible employees, or which constitutes a change in the material
terms of the Plan (within the meaning of section 162(m) of the Code) shall
be effective unless approved by a majority of the shares entitled to vote
at a meeting of shareholders.
Section 10.2 TERMINATION OF PLAN. The Plan shall terminate on the
first to occur of (a) June 18, 2001 or (b) the date specified by the Board
of Directors of the Company as the effective date of Plan termination;
<PAGE>
provided, however, that the termination of the Plan shall not limit or
otherwise affect any options outstanding on the date of termination.
-12-
Section 11. EFFECTIVE DATE. The Effective Date of the Plan shall be
June 19, 1991, the date of approval by the Board of Directors of the
Company; provided, however, that neither the Plan nor grants made under
the Plan shall be effective unless the adoption of the Plan is approved at
the annual meeting of the Company's shareholders next following such date
by the majority of the shares entitled to vote at such meeting.
Section 12. INVESTMENT INTENT. Shares acquired pursuant to the
exercise of an option, if not registered by the Company under the
Securities Act of 1933 (the "Act"), will be "restricted" stock which will
not be freely transferable by the holder after exercise of the option.
Each participating employee and assignee in interest of the employee
accordingly represents, as a condition of participation in the Plan, that
Shares which are unregistered under the Act are being acquired for the
Optionee's (or his assignee's) own account for investment only and not
with a view to offer for sale or for sale in connection with the
distribution or transfer thereof.
Section 13. AVAILABILITY OF INFORMATION. The Company shall furnish
each Optionee with (a) a copy of the Plan and the Company's most recent
annual report to its shareholders at the time the option agreement
provided for in Section 6.1 is executed by the Optionee and (b) a copy of
each subsequent annual report, on or about the same date as such report
shall be made available to shareholders of the Company. The Company will
furnish, upon written request addressed to the Secretary of the Company,
but at no charge to the Optionee or any duly authorized representative
-13-
of the Optionee, copies of all reports filed by the Company with the
Securities and Exchange Commission or the commissioner of securities of
any state, including, but not limited to, the Company's annual reports on
Form 10-K, its quarterly reports on Form 10-Q, and its proxy statements.
Section 14. CONDITIONS OF EMPLOYMENT. Participation in or
eligibility for participation in the Plan shall not confer upon any
employee the right to be continued as an employee of the Company or any
present or future parent or subsidiary of the Company and the Company and
its participating subsidiaries hereby expressly reserve the right to
terminate the employment of any employee, with or without cause, as if the
Plan and any options granted pursuant to it were not in effect.
IN WITNESS WHEREOF, the Company has caused the Plan, as amended
September 15, 1997, to be executed by its duly authorized officers as of
the 15th day of September, 1997.
WAUSAU PAPER MILLS COMPANY
By: DANIEL D. KING
Daniel D. King, President
and Chief Executive Officer
<PAGE>
ATTEST:
By: STEVEN A. SCHMIDT
Steven A. Schmidt,
Vice President, Finance,
Secretary and Treasurer
-14-
EXHIBIT 10.13
GENERAL RELEASE AND WAIVER AGREEMENT
This General Release and Waiver Agreement (Agreement) is entered into
this 25th day of October, 1997, between Daniel D. King (hereinafter
defined as King) and Wausau Paper Mills Company, including, but not
limited to, its present and future divisions, operations, parents,
subsidiaries, affiliates, predecessors, successors, assigns, employee
benefit plans, employee benefit plan administrators, employee benefit plan
sponsors, directors, officers, trustees, agents, employees or
representatives (collectively defined as Wausau Paper). The Parties have
entered into this Agreement to fully and finally settle any differences
between them that have arisen or might arise from King's employment
relationship and/or conclusion of that employment relationship, without
either party incurring further expense. The Parties have agreed to the
following terms and conditions:
1. It is understood and agreed upon by the Parties that King will
resign his employment and officer status and all positions with Wausau
Paper, effective February 15, 1998, and the sole purpose for Wausau Paper
entering into this Agreement is to confer certain transitional benefits to
King and to avoid any potential for time-consuming and costly litigation
in defending Wausau Paper's position that no unlawful acts occurred
related to King's employment or the conclusion of that employment. It is
further understood and agreed that neither the negotiations or signing of
this Agreement, nor any actions taken in fulfillment of the
representations contained herein, shall constitute an admission, in any
fashion, by Wausau Paper that it has acted wrongfully or unlawfully toward
King or any other person, and the parties recognize that King resigned,
effective February 15, 1998, for legitimate reasons. Wausau Paper
disclaims any liability to, or wrongful or unlawful conduct against King,
and King disclaims any liability to, or wrongful or unlawful conduct
against Wausau Paper.
2. In consideration for the promises set forth in this Agreement,
Wausau Paper will provide King with the following:
A. King will remain employed as provided in Paragraph 3A with
Wausau Paper through February 15, 1998. King shall be paid his current
annualized base salary of $290,000 on a bi-weekly basis through November
30, 1997. Each payment shall be in the amount of $11,153.85 (Eleven
Thousand One-Hundred Fifty-Three and 85/100th Dollars), less applicable
taxes and deductions withheld. Commencing December 1, 1997 and through
February 15, 1998, King shall be paid an annualized base salary of
$490,000, and it will be paid bi-weekly. Each payment shall be paid in
the amount of $18,846.15 (Eighteen Thousand Eight Hundred Forty-Six and
15/100th Dollars), less applicable taxes and deductions withheld. In
addition, through February 15, 1998, Wausau Paper will continue to provide
King and his spouse with his current active employee benefit package
(including 401(k) participation), as it may be amended from time to time
or any successor plan, and pursuant to the terms of the Plan documents.
<PAGE>
Commencing February 16, 1998, and ending on November 30, 1998 (the
"Benefit Period"), King shall be paid severance pay in the total amount of
$395,769.25, and it shall be
-1-
paid in equal installments, less applicable taxes and deductions
withheld, and consistent with Wausau Paper's normal and customary
payroll practices and periods. During the Benefit Period,
Wausau Paper will continue to provide King with health, dental and life
insurance benefits consistent with the plan(s) he is under at the time of
his termination and as those plans may be amended from time to time or
under any successor plan, and pursuant to the terms of the Plan documents.
Commencing November 30, 1997, Wausau Paper will provide King with
individual executive level assistance outplacement services with
Challenger, Gray, & Christman until King secures employment as a senior
executive. These payments and benefits shall be made pursuant to
Subparagraphs 2B, 3C and 3H of this Agreement. No monies or benefits
other than those specifically set forth in this Agreement will be paid or
provided to King.
B. King is fully vested in Wausau Paper's qualified retirement
plan and shall be eligible for a lump sum or payment of benefits beginning
at age 55 in accordance with the terms of the qualified retirement Plan
documents. On or about December 1, 1997, King shall be eligible for a
lump sum payout of $766,134.38, less applicable taxes and deductions
withheld, pursuant to the Wausau Paper's Executive Officer Supplemental
Retirement Plan in accordance with the terms of the Supplemental
Retirement Plan documents. This payment and benefit shall be made on or
after December 1, 1997 but no later than December 15, 1997 and pursuant to
Subparagraphs 3(C) and 3(H) of this Agreement. Life, health and dental
insurance benefit coverage set forth in Subparagraph 2A of this Agreement
shall cease upon King's obtaining any employment in the capacity of a
senior executive.
C. Wausau Paper agrees that King has the full consent of the
Option Committee to exercise stock options by delivering other stock of
Wausau Paper at the purchase price pursuant to the terms of his option
agreements should he choose to do so. For purposes of exercising his
stock options, King shall have until May 15, 1998 in accordance with the
terms of his options. King preserves all existing rights to exercise his
stock options, stock appreciation rights, and dividend equivalent rights
consistent with the terms of those Plan document(s), except as otherwise
provided in this Paragraph.
3. In consideration for the terms and conditions set forth in this
Agreement, King and Wausau Paper further agree to the following:
A. King agrees that he will resign as a director of Wausau
Paper as of the effective date of the merger of Mosinee Paper Corporation
and WPM Holdings, Inc., or, if later, February 15, 1998. King agrees that
he will serve as President and Chief Executive Officer of Wausau Paper
through November 30, 1997 and as Vice Chairman of Wausau Paper through
February 15, 1998 and will resign his employment and officer status as
well as any other positions with Wausau Paper, effective February 15,
1998. Upon execution of this Agreement, King will sign and tender Exhibit
A to Wausau Paper.
-2-
<PAGE>
B. King agrees that his separation from employment with Wausau
Paper is complete and permanent; that he will not be reemployed by Wausau
Paper, and that he will not knowingly apply for, or otherwise seek,
employment with Wausau Paper at any time.
C. King understands and agrees that he has twenty-one (21) days
during which he can decide whether or not to enter into this Agreement and
during which time he may consult with an attorney regarding all aspects of
this Agreement, and agrees to the extent he desires, he will and/or has
availed himself of that right. Should King sign this Agreement before the
end of this twenty-one (21) day period, he represents that he has done so
voluntarily and without influence by Wausau Paper. King also understands
that he has seven (7) days following the signing of this Agreement to
revoke his agreement to its provisions. Any such revocation must be made
by delivering a written notice of revocation to Larry A. Baker, Senior
Vice President of Administration, Wausau Paper, Corporate Headquarters,
One Clark's Island, P.O. Box 1408, Wausau, WI 54402-1408. For the
revocation to be effective, it must be received by Wausau Paper on or
before the seventh (7th) calendar day after King executes this Agreement.
Absent any such revocation, at the conclusion of the seven (7) day period,
this Agreement shall become effective and enforceable, and the
consideration set forth in Paragraph 2 of this Agreement shall be provided
to King at the latter of the expiration of the seven (7) day revocation
period or as otherwise provided herein.
D. King specifically warrants and represents that he has not
filed, nor will he file at any time hereafter, any claims, charges,
complaints, suits, or other actions against Wausau Paper with any Federal,
State, or Local agency or court other then claims, charges, complaints,
suits, or other actions to enforce the terms of this Agreement or which
accrue after the signing of this Agreement. King also expressly agrees
that he will withdraw with prejudice, or request the withdrawal with
prejudice, and/or dismissal with prejudice, or cause to be dismissed with
prejudice, any and all claims, charges, complaints, suits, or other
actions pending against Wausau Paper in any Federal, State, or Local,
agency or Court to the extent he has the power to do so, other than
claims, charges, complaints, suits or other actions that survive the
signing of this Agreement. King further agrees that should any claims,
charges, complaints, suits, or other actions have been filed or filed
hereafter on his behalf covering any of the claims released hereunder by
any Federal, State, or Local agency, that he will withdraw with prejudice,
or cause to be withdrawn with prejudice, and/or dismiss with prejudice, or
request the dismissal with prejudice any such claims, charges, complaints,
suits, or other actions filed against Wausau Paper to the extent he has
power to do so.
E(1). King agrees that by the signing of this Agreement, and his
acceptance of the benefits set forth in Paragraph 2 of this Agreement, he
irrevocably and unconditionally releases forever, with prejudice, Wausau
Paper from all damages, actions, lawsuits or claims King may have, whether
based on contract, tort, statute, or common law, arising from his
employment with Wausau Paper and/or the conclusion of that employment.
This includes a release of any rights or claims King may have under the
Age Discrimination in Employment Act of 1967, as amended, which prohibits
age discrimination in employment; Title VII of the Civil
-3-
<PAGE>
Rights Act of 1964, as amended, which prohibits discrimination in
employment based upon race, color, religion, national origin or sex; the
Americans with Disabilities Act; the Wisconsin Fair Employment Act, or
any other charges, complaints, claims, liabilities, obligations,
promises, agreements, controversies, damages, actions, suits, rights,
demands, losses, debts and/or expenses (including attorneys' fees and
costs actually incurred) of any nature, known or unknown, suspected or
unsuspected which King may have under any other federal, state or local
law. King also acknowledges and agrees that the payments and benefits
extended to him under the terms of this Agreement are in addition to
anything of value to which he is already entitled. This also includes a
release by King of any other known or unknown claims in contract, tort,
or common law, including, but not limited to, actions for libel, slander,
defamation, small claims, or wrongful discharge accruing through the date
of his signing this Agreement. THIS MEANS THAT KING IS GIVING UP ANY AND
ALL RIGHTS HE MAY HAVE TO SUE WAUSAU PAPER RELATED TO, IN ANY WAY, HIS
EMPLOYMENT WITH WAUSAU PAPER AND/OR THE CONCLUSION OF THAT EMPLOYMENT.
This waiver does not apply to claims or rights, including but not limited
to, those under the Age Discrimination in Employment Act of 1967, that
may accrue after this Agreement is executed, claims under the Wisconsin
Workers Compensation Act or claims to enforce the terms of this
Agreement. The Parties agree that King retains all existing
indemnification rights relating to his service as an employee, officer
and director of Wausau Paper, including any rights or claims he may have
under applicable insurance policies covering Directors or Officers
involving a claim by a third party. Wausau Paper and King have the right
to enforce this Agreement solely by way of lawsuit filed in either the
Circuit Court for Marathon County, State of Wisconsin, or the United
States District Court for the Western District of Wisconsin, pursuant
to the terms set forth in Paragraph 5 of this Agreement, and the only
cause of action that will remain will be to enforce the terms of this
Agreement, any claims accruing after the date of King's signing of this
Agreement, or any claims arising under the Wisconsin Worker's
Compensation Act.
E(2). The Board of Directors and Officers of Wausau Paper
warrants and represents that they have no knowledge, at the time of the
signing of this Agreement, that King has participated or engaged in any
type of misconduct, malfeasance, violation of Wausau Paper's policies or
illegal acts. King warrants and represents to Wausau Paper that he has
not participated or engaged in any type of misconduct, malfeasance,
violation of Wausau Paper's policies or illegal acts. In reliance on
these warranties and representations by King, Wausau Paper agrees to, by
the signing of this Agreement and its acceptance of King's resignations,
representations, covenants, releases, and waivers provided by King
hereunder, irrevocably and unconditionally releases forever, with
prejudice, King from all damages, actions, lawsuits or claims Wausau Paper
may have, whether based on contract, tort, statute, or common law, arising
from his employment with Wausau Paper and/or the conclusion of that
employment, or from his service as an Officer and Director of Wausau
Paper. This includes, but is not limited to, a release of any rights or
claims Wausau Paper may have under applicable law, or any other charges,
complaints, claims, liabilities, obligations, promises, agreements,
controversies, damages, actions, suits, rights, demands, losses, debts
and/or expenses (including attorneys' fees and costs actually incurred) of
any nature, known or unknown, suspected or unsuspected which Wausau Papers
may have under any federal, state or local law. This release also
includes a
-4-
<PAGE>
release by Wausau Paper of any other known or unknown claims in contract,
tort or common law, including, but not limited to, actions for
libel, slander, defamation or small claims accruing through the date of
its signing of this Agreement. Wausau Paper is giving up any and all
rights it may have to sue King related to, in any way, his employment with
Wausau Paper and/or the conclusion of that employment, or his service as
an Officer or Director of Wausau Paper. This waiver does not apply to
claims or rights that accrue after the date Wausau Paper signs this
Agreement or claims to enforce the terms of this Agreement brought by
Wausau Paper.
F. Wausau Paper agrees that it will not intentionally disparage
King, and King agrees that he will not intentionally disparage Wausau
Paper or any of its officers, directors, trustees, agents and/or
employees, with anyone who is presently doing business with or employed by
Wausau Paper, or with anyone that could reasonably be expected to do
business with or be employed by Wausau Paper.
G. King agrees to direct all reference checks and business-
related communications to Larry Baker, Senior Vice President of
Administration of Wausau Paper, or his successor. Wausau Paper agrees to
provide King with an executed original of a mutually acceptable letter of
reference in the form attached to this Agreement as Exhibit B, and Wausau
Paper agrees to respond to any reference requests only by providing a
letter having the contents of Exhibit B.
H. King acknowledges and agrees that the severance pay and
benefits set forth in Paragraph 2 of this Agreement are subject to offset,
termination, cancellation or recoupment in the event that he takes any
action or engages in any conduct which a court of competent jurisdiction
holds to be a violation of subparagraphs 3J and 3K of this Agreement.
However, King retains his right to contest any such action by Wausau Paper
consistent with Paragraph 3(E) of this Agreement. Before Wausau Paper
takes action to offset, terminate, cancel or recoup any of the severance
pay or benefits set forth in Paragraph 2 of this Agreement, it will
provide King with a fourteen (14) day written notice so that the parties
can attempt to reach a mutually satisfactory solution. With respect to
any other alleged violations of this Agreement, Wausau Paper shall be
limited to recovering only its actual damages suffered, as determined by a
court of competent jurisdiction, as a result of the violation, as well as
any other damages or remedy provided in any other paragraph of this
Agreement or by law.
I. KING REPRESENTS AND AGREES THAT PRIOR TO THE EXECUTION OF
THIS AGREEMENT HE HAS BEEN FULLY ADVISED TO CONSULT WITH AN ATTORNEY TO
DISCUSS ALL ASPECTS OF THIS AGREEMENT. KING FURTHER REPRESENTS AND AGREES
THAT, TO THE EXTENT HE DESIRES, HE HAS AVAILED HIMSELF OF THAT RIGHT.
KING FURTHER REPRESENTS AND AGREES THAT HE HAS EXECUTED THIS AGREEMENT
WITH FULL KNOWLEDGE OF THE RIGHTS WAIVED HEREUNDER, AND THAT THIS
AGREEMENT CONSTITUTES A FULL AND FINAL SETTLEMENT OF ALL MATTERS BETWEEN
WAUSAU PAPER AND KING, INCLUDING, BUT NOT LIMITED TO, ATTORNEYS FEES AND
COSTS, AND
-5-
THAT NO OTHER MONIES ARE DUE AND OWING TO HIM OTHER THAN THOSE SET FORTH
IN THIS AGREEMENT. KING FURTHER REPRESENTS AND AGREES THAT HE
HAS READ CAREFULLY AND FULLY UNDERSTANDS ALL OF THE PROVISIONS OF THIS
AGREEMENT AND THAT HE HAS KNOWINGLY AND VOLUNTARILY ENTERED INTO THIS
AGREEMENT.
<PAGE>
J. King agrees that he shall not disclose to any person, copy,
retain, or use for his own benefit or the benefit of any other person, any
secret or confidential information, formulae, designs, drawings, programs,
specifications, processes, apparatus, research or other trade secrets
without prior written consent of Wausau Paper. King agrees that he shall
not disclose confidential information about Wausau Paper, its products,
financial status, or other similar information. The Parties further agree
that, unless otherwise required by law, they shall keep confidential the
settlement of this matter and this Agreement, including its terms, amounts
and conditions. The Parties agree that they will not reveal any
information concerning this Agreement, or information contained therein,
to anyone except King's spouse, prospective employers, the Officers and
Directors of Wausau Paper, tax advisors or accountants, legal counsel,
and/or those individuals at Wausau Paper who would have a need to know for
purposes of implementing or administering the terms of this Agreement,
provided that any such recipient agrees to keep the information
confidential.
K. King agrees that during his employment with Wausau Paper
and:
(a)(i) Through November 30, 1999, he shall not directly or
indirectly (so as to order or control the activities that
King is prohibited from doing directly) be employed or
render any types of services, whether as an employee,
officer, agent, representative, consultant, independent
contractor, or in any other capacity, by or on behalf of any
persons, entities, their parents, subsidiaries, divisions,
affiliates, operations or successors, related to the
manufacture and/or sale of technical specialty paper
products of the same type produced by the Rhinelander and
Otis Millis to the following Wausau Paper customers:
Fasson Roll Division MACtac
Brown Bridge Technicote, Inc.
Kanzaki Specialty Paper Wausau Coated Products
(ii) Through November 30, 1998, directly or indirectly (so as to
order or control the activities that King is prohibited from
doing directly) be employed or render any types of services,
whether as an employee, officer, agent, representative,
consultant, independent contractor, or in any other
capacity, by or on behalf of any persons, entities, their
parents, subsidiaries, divisions, affiliates, operations or
successors, related to the
-6-
manufacture and/or sale of uncoated printing and writing
paper products to the following Wausau Paper competitors:
International Paper board, imaging, offset, opaque, text &
cover
Georgia Pacific board, imaging, offset, opaque, text &
cover
Noranda (Fraser) board, imaging, offset, opaque, test &
cover
Rolland board, imaging, offset, opaque
SAPPI board, imaging, offset
<PAGE>
Boise Cascade board, imaging, offset
Domtar offset, opaque
Neenah Paper, a
subsidiary of
Kimberly Clark text & cover
Fox River text & cover
Gilbert Paper, a
subsidiary of
Mead text & cover
Crown Vantage text & cover
Mohawk text & cover
Monadnock text & cover
French text & cover
Board - index, vellum bristol, tag
Imaging - multipurpose colors
Offset - offset colors
Opaque - white opaque
(iii) Nothing in this Subparagraph shall prevent King from
working with or for any merchant distributor, whether
independent or mill-owned, of any customer or competitor
identified in this Paragraph, subject to the same
limitations contained in Subparagraph (c) of this Paragraph.
(b) Through November 30, 1998, hire, seek to employ or induce
any employee of Wausau Paper to leave employment with Wausau
Paper;
(c) Through November 30, 1999, request, solicit or advise any of
the Wausau Paper customers listed in Subparagraph 3K(a)(i)
or serviced by a merchant distributor, with whom King is
working with or for, to withdraw, curtail, cease or cancel
business with Wausau Paper. Nothing in this Subparagraph 3K
of this Agreement shall be construed as limiting King's
right to accept employment with the entities listed in
Subparagraph 3K(a)(i) of this Agreement, subject to the
limitations set forth in this Subparagraph 3K(c).
-7-
For the purposes of this Subparagraph 3K of this Agreement, King
acknowledges and the Parties agree that the entities listed in
Subparagraphs 3K(a)(i) and (h) of this Agreement are customers or
competitors of Wausau Paper. The Parties agree that the covenant not to
compete contained in Subparagraph 3K of this Agreement shall be the only
covenant not to compete governing King, and it is intended to supersede
any restrictive covenant inconsistent with the foregoing. The Parties
further agree that if King becomes employed by a competitor not listed in
Subparagraph 3(K)(ii) and that unlisted competitor is subsequently
purchased, acquired, merged or ownership is otherwise transferred to a
listed competitor, it shall not be a violation of this Agreement for King
to remain employed in the same capacity he held prior to the transaction;
however, King is still required to comply with all of his obligations
under this Agreement.
4. The consideration extended by Wausau Paper to King is contingent
upon his voluntarily and knowingly entering into this Agreement and is
not, in any manner, indicative of a continuing employment relationship
with Wausau Paper beyond February 15, 1998.
<PAGE>
5. The parties agree and understand this Agreement was entered into
in the State of Wisconsin and that any claims or actions relating to this
Agreement shall be brought in the State of Wisconsin. The parties further
agree that Wisconsin law shall. apply to any dispute arising under this
Agreement.
6. King shall perform such duties as he deems reasonably necessary
and appropriate to carry out his duties as President and Chief Executive
Officer and, between December 1, 1997 and February 15, 1998, King will
assist Wausau Paper in an orderly transition and will not intentionally
engage in any action that would tend to disrupt or interfere with Wausau
Paper's business. Wausau Paper agrees to allow King a reasonable amount
of time to interview while he still is employed with Wausau Paper.
7. Following reasonable notice, and recognizing that King may be
employed elsewhere after February 15, 1998:
(i) King agrees to reasonably cooperate with regard to any matter
which King may have relevant information as a result of his
employment with Wausau Paper, and
(ii) King shall provide such reasonable cooperation from the date of
execution of this Agreement until termination of salary
continuation payments under Subparagraph 2A of this Agreement,
after which time Wausau Paper shall compensate King at the rate
of $200.00 (Two Hundred and No/100 Dollars) per hour for time
spent by King in providing his reasonable cooperation upon the
request of Wausau Paper.
(iii) Reasonable expenses incurred by King while reasonably
cooperating with Wausau Papers shall be promptly reimbursed by
Wausau Paper.
-8-
8. Each party will indemnify and hold harmless the other party from
and against all losses, costs, fees, (including, but not limited to,
reasonable attorney fees) and damages incurred by each party as a result
of any breach of this Agreement by the other party, as determined by a
court of law.
9. This Agreement sets forth the entire agreement between the
Parties as of the date of its execution and fully supersedes any and all
prior discussions, letters, agreements or understandings between the
Parties, except the Wausau Paper Mills Company Patent and Secrecy
Agreement dated June 20, 1983, Wausau Paper Mills Company Employee Conduct
Agreement dated March 4, 1985, and the Wausau Paper Mills Company
Corporate Compliance Manual and Code of Conduct, dated December 20, 1993.
10. The provisions of this Agreement are severable, and if any part
of the Agreement is to be found unenforceable, the other Paragraphs of
this Agreement shall remain valid and fully
enforceable.
WAUSAU PAPER MILLS COMPANY
Dated: OCTOBER 28, 1997 By: LARRY A. BAKER
Larry A. Baker
Senior Vice-President, Administration
<PAGE>
I HAVE READ AND UNDERSTAND THE ABOVE AND
KNOWINGLY AND VOLUNTARILY ENTER INTO THIS
GENERAL RELEASE AND WAIVER AGREEMENT
DANIEL D. KING
Dated: OCTOBER 25, 1997 By: DANIEL D. KING
-9-
<PAGE>
EXHIBIT A
[Date]
Board of Directors
Wausau Paper Mills Company
P.0. Box 1408
Wausau, WI 54402-1408
Re: RESIGNATION OF EMPLOYMENT AND ALL POSITIONS
Dear Board of Directors:
I hereby resign as a director of Wausau Paper Mills Company as of the
effective date of the merger of Mosinee Paper Corporation and WPM
Holdings, Inc., or, if later, February 15, 1998. Effective as of
November 30, 1997, I hereby resign as President and Chief Executive
Officer and effective February 15, 1998, I hereby resign as an officer
and employee of Wausau Paper Mills Company and any other positions I
hold with the Company, any of its affiliated entities, and any of their
employee benefit plans. Therefore, my employment with Wausau Paper
Mills Company will terminate, in all respects, on February 15, 1998.
Very truly yours,
Daniel D. King
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
(EACH OF WHICH IS WHOLLY OWNED BY THE REGISTRANT)
1. Rhinelander Paper Company, Inc., a Wisconsin corporation
2. Wausau Papers Export Corporation, a Wisconsin corporation
3. Wausau Papers International, Inc., a U.S. Virgin Islands corporation
4. Wausau Papers of New Hampshire, Inc., a Delaware corporation
5. Wausau Papers Otis Mill Inc., a Delaware corporation
6. WPM Holdings, Inc., a Wisconsin corporation
-1-
<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, 1997 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-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 5,297
<SECURITIES> 0
<RECEIVABLES> 52,779
<ALLOWANCES> 5,875
<INVENTORY> 84,112
<CURRENT-ASSETS> 149,419
<PP&E> 575,435
<DEPRECIATION> 188,969
<TOTAL-ASSETS> 555,615
<CURRENT-LIABILITIES> 62,305
<BONDS> 83,510
<COMMON> 139,284
0
0
<OTHER-SE> 164,270
<TOTAL-LIABILITY-AND-EQUITY> 555,615
<SALES> 570,258
<TOTAL-REVENUES> 570,258
<CGS> 456,239
<TOTAL-COSTS> 456,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,520
<INCOME-PRETAX> 78,399
<INCOME-TAX> 29,500
<INCOME-CONTINUING> 48,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,899
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
</TABLE>
