SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
_________________________
Date of Report (date of earliest event reported): DECEMBER 17, 1997
WAUSAU-MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 0-7475 39-0690900
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) Number)
ONE CLARK'S ISLAND
P.O. BOX 1408
WAUSAU, WI 54402-1408
(Address of principal executive offices, including Zip Code)
(715) 845-5266
Registrant's telephone number, including area code
WAUSAU PAPER MILLS COMPANY
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 17, 1997, the merger between Wausau Paper Mills Company
("Wausau") and Mosinee Paper Corporation ("Mosinee") pursuant to which
Mosinee became a wholly-owned subsidiary of Wausau (the "Merger") was
completed. In connection with the Merger, Wausau's corporate name was
changed to Wausau-Mosinee Paper Corporation ("Wausau-Mosinee" or the
"Registrant").
Pursuant to the Merger, the 15,201,721 shares of Mosinee common stock
outstanding were converted at an exchange ratio of 1.4 into 21,282,409
shares of Wausau-Mosinee common stock (before adjustment for fractional
shares).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Mosinee consolidated balance sheets as of December 31, 1996, and
December 31, 1995, and the related consolidated statements of
stockholders' equity, income and cash flows for each of the years in
the three-year period ended December 31, 1996, and as of September 30,
1997 and 1996 and for the nine months then ended are filed herewith.
(B) PRO FORMA FINANCIAL INFORMATION.
It is not practical for Wausau-Mosinee to provide at this time
the pro forma financial information for Wausau-Mosinee required by
this item. Such financial statements are expected to be filed in a
Form 8-K no later than February 13, 1998.
(C) EXHIBITS.
2.1 Agreement and Plan of Merger, dated as of August 24, 1997,
by and among Wausau, WPM Holdings, Inc., and Mosinee
(incorporated by reference to Item 7(c), Exhibit 99.1 to the
Registrant's Registration Statement on Form 8-K dated August
24, 1997).
4.1 Restated Articles of Incorporation of Wausau-Mosinee Paper
Corporation, as amended effective December 17, 1997
(incorporated by reference to Item 8, Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8 dated
December 17, 1997).
4.2 Restated Bylaws of Wausau-Mosinee Paper Corporation, as
amended effective December 17, 1997 (incorporated by
reference to Item 8, Exhibit 4.2 to the Registrant's
Registration Statement on Form S-8 dated December 17, 1997).
-2-
23.1 Consent of Wipfli Ullrich Bertelson LLP.
99.1 Mosinee Paper Corporation audited consolidated financial
statements as of December 31, 1996, and December 31, 1995,
and for each of the years in the three-year period ended
December 31, 1996.
<PAGE>
99.2 Mosinee Paper Corporation unaudited condensed consolidated
financial statements as of September 30, 1997, and September
30, 1996, and for the nine months then ended.
ITEM 8. CHANGE IN FISCAL YEAR
On December 17, 1997, the Board of Directors of the Registrant voted
to change the fiscal year of the Registrant from a fiscal year ending on
August 31 to a fiscal year ending on December 31. The report covering the
transition period will be filed on Form 10-Q.
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WAUSAU-MOSINEE PAPER CORPORATION
Date: December 18, 1997 By: GARY P. PETERSON
Gary P. Peterson
Senior Vice President-Finance,
Secretary and Treasurer
-4-
<PAGE>
EXHIBIT INDEX
TO
FORM 8-K
OF
WAUSAU-MOSINEE PAPER CORPORATION
DATED DECEMBER 17, 1997
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. <section>232.102(d))
23.1 Consent of Wipfli Ullrich Bertelson LLP.
99.1 Mosinee Paper Corporation audited consolidated financial statements
as of December 31, 1996, and December 31, 1995, and for each of the
years in the three-year period ended December 31, 1996.
99.2 Mosinee Paper Corporation unaudited condensed consolidated financial
statements as of September 30, 1997, and September 30, 1996, and for
the nine months then ended.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 8-K, into Wausau-
Mosinee Paper Corporation's previously filed Registration Statement File
Nos. 33-44922, 33-42445, and 33-42447 on Form S-8, including all post-
effective amendments thereto.
WIPFLI ULLRICH BERTELSON LLP
Wipfli Ullrich Bertelson LLP
December 18, 1997
Wausau, Wisconsin
EXHIBIT 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Mosinee Paper Corporation
Mosinee, Wisconsin
We have audited the accompanying consolidated balance sheets of Mosinee
Paper Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of stockholders' equity, income and
cash flows for each of the years in the three year period ended December
31, 1996 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
Mosinee Paper Corporation and subsidiaries at December 31, 1996 and 1995,
and the results of their operations and cash flows for each of the years
in the three year period ended December 31, 1996, and the supporting
schedule presents fairly the information required to be set forth therein,
all in conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the
company changed its method of accounting for postemployment benefits in
1994.
We hereby consent to the incorporation by reference of this report in the
Registration Statements on Form S-8 filed with the Securities and Exchange
Commission by Mosinee Paper Corporation on October 20, 1995.
January 30, 1997 WIPFLI ULLRICH BERTELSON LLP
Wausau, Wisconsin
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
($ thousands) As of
December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,150 $ 2,416
Receivables, net 23,407 26,533
Inventories 41,254 33,641
Deferred income taxes 7,225 4,799
Other current assets 311 364
Total current assets 75,347 67,753
Property, plant and equipment, net 199,475 196,565
Other assets 10,207 8,627
TOTAL ASSETS $285,029 $272,945
LIABILITIES
Current Liabilities:
Accounts payable $ 18,262 $ 20,583
Accrued and other liabilities 27,316 19,389
Accrued income taxes 2,420 1,131
Total current liabilities 47,998 41,103
Long-term debt 48,332 79,307
Deferred income taxes 35,538 24,646
Postretirement benefits 16,125 15,001
Other noncurrent liabilities 11,884 10,441
Total liabilities 159,877 170,498
Commitments and contingencies -- --
Preferred stock of subsidiary 1,255 1,255
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value,
authorized 1,000,000 shares, none issued
Common stock - No par value
- 30,000,000 shares authorized 58,678 58,678
Retained earnings 83,763 60,216
Subtotals 142,441 118,894
Treasury stock at cost (18,544) (17,702)
Total stockholders' equity 123,897 101,192
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $285,029 $272,945
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
($ thousands except COMMON STOCK Additional Common
Total
share data) Stock
Stock-
Shares Paid-In Retained Treasury Stock Shares
holder's
Issued Amount Capital Earnings Shares Amount
Outstanding Equity
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Balances December 31, 1993 10,393,823 $25,984 $13,851 $56,986 (3,245,380) ($17,688) 7,148,443 $79,133
Net income, 1994 12,291 12,291
Cash dividends declared on
Mosinee common stock (2,573) (2,573)
Balances December 31, 1994 10,393,823 25,984 13,851 66,704 (3,245,380) (17,688) 7,148,443 88,851
Net income, 1995 15,185 15,185
Cash dividends declared on
Mosinee common stock (2,830) (2,830)
Elimination of par value 13,851 (13,851)
10% Stock dividend 1,039,382 18,843 (18,843) (325,085) (14) 714,297 ( 14)
Balances December 31, 1995 11,433,205 58,678 0 60,216 (3,570,465) (17,702) 7,862,740 101,192
Net income, 1996 26,899 26,899
Cash dividends declared on
Mosinee common stock (3,352) (3,352)
Four-for-three stock split 3,811,068 (1,190,156) 2,620,912
Purchases of treasury (29,971) (842) (29,971) (842)
shares
BALANCES DECEMBER 31, 1996 15,244,273 $58,678 $0 $83,763 (4,790,592) ($18,544)10,453,681 $123,897
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
($ thousands except share For the Years
data) Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Net sales $314,490 $305,570 $266,707
Cost of sales 230,485 249,077 217,502
Gross profit on sales 84,005 56,493 49,205
Operating expenses:
Selling 11,157 10,383 9,857
Administrative 23,322 16,404 13,377
Total operating expenses 34,479 26,787 23,234
Income from operations 49,526 29,706 25,971
Other income (expense):
Interest expense (4,412) (6,066) (5,010)
Other ( 165) 1,470 580
Income before income taxes and
cumulative effect adjustment 44,949 25,110 21,541
Provision for income taxes 18,050 9,925 8,500
Income before cumulative effect
of a change in accounting
principle 26,899 15,185 13,041
Cumulative effect of a change in
accounting principle (net of
income taxes) - - (750)
Net income $26,899 $15,185 $12,291
Income per share before cumulative
effect of a change in accounting
principle $ 2.56 $ 1.44 $ 1.24
Cumulative effect of a change in
accounting principle
(net of income taxes) - - ( 0.08)
Net income per share $ 2.56 $ 1.44 $ 1.16
Weighted average common
shares outstanding 10,479,805 10,483,014 10,483,014
<FN>
All share data has been restated for the 1996 four-for-three stock split and
the 1995 10% stock dividend.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years
Ended December 31,
($ thousands) 1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $26,899 $15,185 $12,291
Provision for depreciation, depletion
and amortization 18,064 16,633 15,684
Recognition of deferred revenue (40) (40) (40)
Provision for losses on accounts receivable 257 443 901
Loss (gain) on property, plant and equipment
disposals 223 (1,417) (462)
Deferred income taxes 8,466 2,213 3,094
Changes in operating assets and liabilities:
Accounts receivable 2,869 ( 769) (5,647)
Inventories (7,613) (3,041) ( 144)
Other assets (3,831) (1,907) (3,339)
Accounts payable and other liabilities 9,835 3,424 3,060
Accrued income taxes 1,289 178 528
Net cash provided by operating activities 56,418 30,902 25,926
Cash flows from investing activities:
Capital expenditures (21,100) (16,741) (19,088)
Proceeds from property, plant and
equipment disposals 457 1,556 647
Net cash used in investing activities (20,643) (15,185) ( 18,441)
Cash flows from financing activities:
Net payments under credit agreements (30,975) (12,076) ( 4,878)
Dividends paid ( 3,224) ( 2,766) ( 2,573)
Payments for purchase of treasury stock ( 842) ( 14) --
Net cash used in financing activities (35,041) (14,856) ( 7,451)
Net increase in cash and cash equivalents 734 861 34
Cash and cash equivalents at beginning of year 2,416 1,555 1,521
Cash and cash equivalents at end of year $ 3,150 $ 2,416 $ 1,555
Supplemental Cash Flow Information:
Interest paid - net of amount capitalized $ 4,710 $ 6,034 $ 4,575
Income taxes paid 8,296 6,734 4,877
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of Mosinee Paper Corporation and its subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.
USE OF ESTIMATES IN PREPARATION OF CONSOLIDATED STATEMENTS - The preparation
of the accompanying financial statements in conformity with generally accepted
accounting principles requires the use of certain estimates and assumptions
that directly affect the results of reported assets, liabilities, revenue and
expenses. Actual results may differ from these estimates.
CASH EQUIVALENTS - The company considers all highly liquid debt instruments
with an original maturity of three months or less to be cash equivalents.
INVENTORIES - Substantially all inventories are stated at the lower of cost,
determined on the last-in, first-out method (LIFO), or market. Inventories not
on the LIFO method, primarily supply items, are stated at cost (principally
average cost) or market, whichever is lower. Allocation of the LIFO reserve
among the components of inventories is impractical.
PROPERTY, PLANT AND EQUIPMENT - Depreciable property is stated at cost less
accumulated depreciation. Land, water power rights, and construction in
progress are stated at cost and timberlands are stated at net depleted value.
Facilities financed by leases, which are essentially equivalent to installment
purchases, are recorded as assets and the related obligation as a long-term
liability.
When property units are retired, or otherwise disposed of, the applicable cost
and accumulated depreciation thereon are removed from the accounts. The
resulting gain or loss, if any, is reflected in income.
Depreciation is computed on the straight-line method for financial statement
purposes over 20 to 45 years for buildings and 3 to 20 years for machinery and
equipment. Depletion on timberlands is computed on the unit-of-production
method. Depreciation expense includes amortization on capitalized leases.
Maintenance and repair costs are charged to expense when incurred.
Improvements which extend the useful lives of the assets are added to the
plant and equipment accounts.
REVENUE RECOGNITION - Revenue is recognized upon shipment of goods and
transfer of title to the customer. Concentrations of credit risk with respect
to trade accounts receivable are generally diversified due to the large number
of entities comprising the company's customer base and their dispersion across
many different industries and geographies.
TAXES - Deferred tax assets and liabilities are determined based on the
estimated future tax effects of the 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. The principal sources giving rise to such
differences are identified in Note 10.
PER SHARE DATA - Income per share is computed by dividing net income less Sorg
Paper preferred stock dividends by the weighted average number of shares of
common stock outstanding.
<PAGE>
2 - SEGMENT INFORMATION
The company operates predominantly in the paper and allied products industry.
The company formed Mosinee Paper International, Inc., a wholly-owned
subsidiary located and domiciled in the U.S. Virgin Islands, to administer the
export sales made by the company.
3 - CHANGE IN ACCOUNTING POLICY
On January 1, 1994, the company adopted Statement of Financial Accounting
Standards (SFAS) No. 112 "Employers' Accounting for Postemployment Benefits"
which requires the company to accrue for the estimated cost of benefits
provided by an employer to former or inactive employees after employment but
before retirement. Previously, the cost of these benefits were expensed as
they were incurred. The cumulative effect of $750,000 is shown net of income
taxes of $400,000 and represents the entire liability for such benefits earned
through 1993.
<PAGE>
<TABLE>
4 - SUPPLEMENTAL BALANCE SHEET INFORMATION
<CAPTION>
Supplemental information on certain balance sheet items consist of the
following:
($ thousands) December 31,
1996 1995
<S> <C> <C>
Receivables
Trade $25,446 $ 28,498
Other 857 848
26,303 29,346
Less: allowances (2,896) (2,813)
$23,407 $ 26,533
Inventories
Raw materials $18,154 $ 15,827
Finished goods and work in
process 20,764 20,693
Supplies 8,944 8,896
47,862 45,416
Less: LIFO Reserve ( 6,608) (11,775)
$41,254 $ 33,641
Property, plant and equipment
Buildings $ 41,316 $ 35,984
Machinery and equipment 314,517 308,944
Totals 355,833 344,928
Less: accumulated depreciation (170,610) (157,555)
Net depreciated value 185,223 187,373
Land 2,162 2,162
Timber and timberlands, net of
depletion 3,388 3,184
Water power rights 129 129
Construction in progress 8,573 3,717
$199,475 $196,565
Accrued and other liabilities
Payrolls $ 4,415 $ 3,336
Vacation pay 4,761 4,442
Taxes, other than income 2,177 2,324
Employee retirement plans 2,597 1,350
Cash dividends declared 836 708
Insurance 1,649 1,067
Stock appreciation plans 4,730 3,833
Interest 274 643
Other 5,877 1,686
$ 27,316 $ 19,389
</TABLE>
5 - LEASES
The company has no significant capital lease liabilities. The company has
various operating leases for machinery and equipment, automobiles, office
equipment and warehouse space.
<PAGE>
<TABLE>
<CAPTION>
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more
consisted of the following at December 31, 1996:
($ thousands) Operating Leases
<S> <C>
1997 $ 946
1998 765
1999 616
2000 355
2001 107
Total minimum lease payments $2,789
</TABLE>
Rent expense for all operating leases of plant and equipment was
$2,245,000 in 1996, $2,563,000 in 1995 and $2,834,000 in 1994.
6 - RETIREMENT PLANS
PENSIONS
Substantially all employees of the company are covered under various
pension plans. The defined benefit pension plan benefits are based on the
participants' years of service and either compensation earned over certain
final years of employment or fixed benefit amounts for each year of
service. The plans are funded in accordance with federal laws and
regulations.
<TABLE>
The net pension costs for all defined benefit pension plans consist of the
following components:
<CAPTION>
($ thousands) 1996 1995 1994
<S> <C> <C> <C>
Service cost $ 950 $ 775 $ 801
Interest cost 2,177 1,985 1,747
Actual return on assets (4,441) (2,241) ( 315)
Net amortization and
deferral 2,142 ( 146) (1,976)
Net pension cost $ 828 $ 373 $ 257
</TABLE>
<PAGE>
<TABLE>
In 1995, various underfunded defined benefit pension plans of the company
were merged with an overfunded defined benefit pension plan. The following
sets forth the funded status of the company's defined benefit pension
plans and the amounts reflected in the accompanying consolidated balance
sheets:
<CAPTION>
DECEMBER 31,
($ thousands) 1996 1995
PLANS WITH PLANS WITH PLANS WITH PLANS WITH
ASSETS EXCEEDING ASSETS ASSETS EXCEEDING ASSETS
ACCUMULATED LESS THAN ACCUMULATED LESS THAN
BENEFIT ACCUMULATED BENEFIT ACCUMULATED
OBLIGATION BENEFIT OBLIGATION BENEFIT
OBLIGATION OBLIGATION
<S> <C> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF
BENEFIT OBLIGATIONS AT
SEPTEMBER 30
VESTED BENEFIT OBLIGATION ($21,325) ($964) ($20,587) ($ 766)
ACCUMULATED BENEFIT OBLIGATION ($24,619) ($1,829) ($24,204) ($ 1,359)
PROJECTED BENEFIT OBLIGATION ($27,599) ($2,516) ($27,145) ($ 1,686)
FAIR VALUE OF PLAN ASSETS AT
SEPTEMBER 30 28,551 -- 25,505 --
PROJECTED BENEFIT OBLIGATION
(IN EXCESS OF) LESS THAN
PLAN ASSETS AT SEPTEMBER 30 952 ( 2,516) ( 1,640) ( 1,686)
UNRECOGNIZED NET LOSS (GAIN) ( 2,980) 757 ( 436) 273
UNRECOGNIZED PRIOR SERVICE COST 560 472 632 514
UNRECOGNIZED INITIAL NET
OBLIGATION (ASSET) ( 1,121) 93 ( 1,280) 105
UNRECOGNIZED ACQUISITION TAX
BENEFIT 557 -- 641 --
CASH CONTRIBUTIONS TO PLANS
SUBSEQUENT TO SEPTEMBER 30 -- 12 -- 12
ADJUSTMENT REQUIRED TO RECOGNIZE
MINIMUM LIABILITY -- ( 647) -- ( 577)
CONSOLIDATED BALANCE SHEETS AT
DECEMBER 31 ($ 2,032) ($ 1,829) ($ 2,083) ($ 1,359)
</TABLE>
The projected benefit obligations at September 30, were determined using
an assumed discount rate of 7.75% and 7.5% for 1996 and 1995,
respectively, and assumed compensation increases of 5% in 1996 and 1995.
The assumed long-term rate of return on plan assets was 9%. Plan assets
consist principally of fixed income and equity securities and includes
Mosinee Paper Corporation common stock of $3,459,000 and $2,253,000 in
1996 and 1995, respectively.
The company's defined contribution pension plans, covering various
salaried employees, provide for company contributions based on various
formulas. The cost of such plans totaled $3,669,000 in 1996, $2,279,000 in
1995, and $2,100,000 in 1994.
The company has deferred compensation or supplemental retirement
agreements with certain present and past key officers, directors and
employees. The principal cost of such plans is being or has been accrued
over the period of active employment to the full eligibility date. Certain
payments, insignificant in amount, are charged to expense when paid. Costs
charged to operations under such agreements approximated $157,000,
$155,000, and $161,000 for 1996, 1995, and 1994, respectively.
<PAGE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the company provides certain
health care and nominal term life insurance benefits for retired
employees. Substantially all of the company's employees may become
eligible for those benefits if they reach normal retirement age while
working for the company.
Cost-sharing provisions, benefits and eligibility for various employee
groups vary by location and union agreements. Generally, eligibility is
attained after reaching age 55 or 62 with minimum service requirements.
Upon reaching age 65, the benefits become coordinated with Medicare. The
plans are unfunded and the company funds the benefit costs on a current
basis.
<TABLE>
The net postretirement benefit costs consists of the following components:
<CAPTION>
($ thousands) 1996 1995 1994
<S> <C> <C> <C>
Service cost $ 658 $ 474 $ 467
Interest cost 1,443 1,195 1,046
Net amortization and deferral 169 5 72
Net postretirement benefit cost $2,270 $1,674 $1,585
</TABLE>
<TABLE>
The following table sets forth the accumulated postretirement benefit
obligation (APBO) of the plans as reported in the accompanying
consolidated balance sheets:
<CAPTION>
December 31,
($ thousands) 1996 1995
<S> <C> <C>
Retirees and dependents ($8,812) ($8,985)
Fully eligible active participants ( 2,217) ( 1,964)
Other active participants ( 8,272) ( 7,350)
Total APBO (19,301) (18,299)
Unrecognized net loss 3,176 3,298
Accrued postretirement benefit cost ($16,125) ($15,001)
</TABLE>
The 1996 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 used was 7.75%. For 1995, the obligation was calculated
using a health care cost trend rate of 10%, declining by 1% annually for
five years to an ultimate rate of 5%. The weighted average discount rate
was 7.5%.
The effect of a 1% increase in the health care cost trend rate would
increase the APBO by $2,174,000 or 11.3% and $2,039,000 or 11.1%, at
December 31, 1996 and 1995, respectively. The effect of this change would
increase the aggregate of the service cost and interest cost by $326,000
or 15.5% in 1996, $251,000 or 15.0% in 1995 and $262,000 or 16.5% in 1994.
<PAGE>
<TABLE>
7 - LONG-TERM DEBT
<CAPTION>
Long-term debt consists of the following:
($ thousands) December 31,
1996 1995
<S> <C> <C>
Commercial paper $ 13,332 $ 34,307
Revolving credit agreement 15,000 25,000
Long-term note 20,000 20,000
Total 48,332 79,307
Less: current maturities - -
Long-term debt $ 48,332 $ 79,307
</TABLE>
The company has a commercial paper placement agreement to issue up to $50
million of unsecured debt obligations. The weighted average interest rate
on commercial paper outstanding at December 31, 1996 was 5.7% and 6.0% at
December 31, 1995. The amounts have been classified as long-term as the
company intends, and has the ability, to refinance the obligations under
the revolving credit agreement.
A five year credit agreement with one bank as agent and certain financial
institutions as lenders was established April 16, 1993 to issue up to $130
million of unsecured borrowing less the amount of commercial paper
outstanding. There are no payments required until March 31, 1998, at
which time, all outstanding amounts become due. Under the agreement, the
company may reduce the commitment amount prior to March 31, 1998 without
penalty. As of December 31, 1996, the commitment amount has been reduced
to $65 million. The weighted average interest rate at December 31, 1996
was 5.8% and at December 31, 1995 was 6.0%. The agreement provides for
various restrictive covenants, which includes maintaining minimum net
worth, interest coverage and debt to equity ratios and limits dividend and
other restricted payments to approximately $41 million.
The credit agreement provides for commitment and facility fees during the
revolving loan period. Commitment fees are 0.1875% per annum of the
unused portions of the commitment, payable quarterly. Facility fees are
0.125% per annum of the total commitment, payable quarterly.
The company entered into an unsecured five year fixed rate debt
arrangement for $20 million on September 30, 1994 with one financial
institution to secure an interest rate of 7.83%. Interest is paid monthly
and the principal is not due until September 1999. The arrangement
provides for various restrictive covenants, which includes maintaining a
minimum net worth, interest coverage and debt to capital ratios.
The difference between the book value and the fair market value of long-
term debt is not material.
<TABLE>
The aggregate annual maturities of long-term debt in future years is shown
below:
<CAPTION>
($ THOUSANDS) 1997 1998 1999
<S> <C> <C>
- $28,332 $20,000
</TABLE>
<PAGE>
The annual maturities on the revolving credit agreement included in the
above schedule are based on the amount outstanding at December 31, 1996.
Annual maturities will be affected by future borrowing under the
agreement.
<TABLE>
8 - INTEREST EXPENSE AND CAPITALIZED INTEREST
<CAPTION>
($ THOUSANDS)
Total Net
Interest Capitalized Interest
December 31, Expense Interest Expense
<S> <C> <C> <C>
1996 $4,601 $189 $4,412
1995 6,247 181 6,066
1994 5,143 133 5,010
</TABLE>
9 - PREFERRED SHARE PURCHASE RIGHTS PLAN
On July 10, 1996, pursuant to the Rights Agreement dated July 1, 1996, the
company paid a dividend of one preferred share purchase right (a "Right")
for each outstanding share of the company's common stock. The Rights
replace the rights granted to shareholders in 1986 which expired July
1996.
In general, the Rights will not become exercisable until 10 days after a
public announcement that a person has acquired 15% of the common stock or
10 business days after a person has announced a tender or exchange offer
in which 15% or more of the common stock would be acquired. A "person"
for purposes of the Rights, includes a group of affiliated or associated
persons.
Each Right provides that, when exercisable, the holder may purchase .01
share of Mosinee series A Junior Participating Preferred Stock ("Preferred
Stock") at a price of $100. Each .01 share of Preferred Stock is entitled
to a dividend equal to the dividend paid on a share of common stock (with
a minimum of $.05 per quarter) and will have one vote. In the event that
the company is liquidated, each .01 share of Preferred Stock would be
entitled to a minimum liquidation preference of $1 and would otherwise
receive the liquidation payment of a share of stock. In the event of a
merger or other exchange involving the common stock, the holder of a share
of Preferred Stock would receive the same amount as that received by the
holder of a share of common stock.
Once a person has acquired at least 15% of the common stock, a holder may
exercise the Rights and receive, in lieu of Preferred Stock, common stock
having a value equal to 200% of the exercise price of each Right. If a
person has acquired at least 15% of the common stock and the company is
acquired in a merger or similar transaction or 50% of its assets are
acquired, the holder may exercise the Rights and receive, in lieu of
Preferred Stock, common stock from the acquiring company which has a value
of twice the exercise price of the Rights.
The company may redeem the Rights for $.01 per Right before a person
acquires 15% of the common stock. If a person acquires 15%, but has not
yet acquired 50% of the common stock, the company may exchange one share
of common stock for each Right.
<PAGE>
The Rights Agreement contains provisions to permit the Board of Directors
to adjust the percentage of stock to be acquired by a person before the
Rights become exercisable and to adjust, among other things, the exercise
price, the redemption price and/or conversion amounts in the event of
stock splits, stock dividends or other events which affect the number,
classes or rights of the common stock. The Rights will expire on July
10, 2006 unless they are redeemed or exchanged earlier by the company as
described above or are exercised by shareholders. The company has
reserved 100,000 shares of preferred stock.
10 - INCOME TAXES
<TABLE>
PROVISION FOR INCOME TAXES
<CAPTION>
The provision for income taxes is as follows:
($ thousands)
1996 1995 1994
<S> <C> <C> <C>
Current tax expense:
Federal $ 7,171 $6,443 $4,406
State 2,413 1,269 1,000
Total current 9,584 7,712 5,406
Deferred tax expense:
Federal 8,374 1,820 2,880
State 92 393 214
Total deferred 8,466 2,213 3,094
Total provision for
income taxes $18,050 $ 9,925 $ 8,500
</TABLE>
<TABLE>
RECONCILIATION FROM FEDERAL STATUTORY TO EFFECTIVE TAX RATE
<CAPTION>
($ thousands)
1996 1995 1994
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
Federal statutory
rate $15,731 35.0% $8,789 35.0% $7,539 35.0%
State taxes,
net of
federal
benefit 1,628 3.7% 1,080 4.3% 790 3.7%
Other - net 691 1.5% 56 .2% 171 .8%
Consolidated
effective tax $18,050 40.2% $9,925 39.5% $8,500 39.5%
</TABLE>
At the end of 1996, $29,000,000 of unused state operating loss carryovers
existed which may be used to offset future state taxable income in various
amounts through the year 2010. Because separate state tax returns are
filed, the company is not able to offset consolidated income with the
subsidiaries' losses. Under the provisions of SFAS No. 109, the benefits
of state tax losses are recognized as a deferred tax asset, subject to
appropriate valuation allowances. At December 31, 1996, the company has
unused alternative minimum tax credit carryforwards of approximately
$1,627,000 which can be used to offset future regular tax liabilities.
<PAGE>
<TABLE>
DEFERRED INCOME TAXES
<CAPTION>
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the company's assets
and liabilities. The tax effects of major temporary differences that give
rise to the deferred tax assets and liabilities at December 31, are as
follows:
($ thousands)
1996 1995
<S> <C> <C>
Deferred tax assets:
Allowances on accounts receivable $ 1,027 $ 1,062
Accrued compensated absences 1,636 1,478
Stock appreciation rights plans 2,883 2,053
Pensions 856 857
Postretirement benefits 6,235 5,800
Postemployment benefits 371 364
Reserves 2,130 866
State net operating loss carryforward 2,724 3,783
Alternative minimum tax credit carryforward 1,627 8,838
Other 180 27
Gross deferred tax assets 19,669 25,128
Less: valuation allowance ( 1,632) ( 1,672)
Net deferred tax assets 18,037 23,456
Deferred tax liabilities:
Property, plant and equipment ( 44,049) ( 41,478)
Deferred expenses ( 2,301) ( 1,825)
Total gross deferred tax liabilities ( 46,350) ( 43,303)
Net deferred tax liability ($28,313) ($19,847)
</TABLE>
<TABLE>
The total deferred tax liabilities (assets) as presented in the
accompanying balance sheets are as follows:
<CAPTION>
($ thousands) 1996 1995
<S> <C> <C>
Net long-term deferred tax liabilities $35,538 $ 24,646
Gross current deferred tax assets ( 8,857) ( 6,471)
Valuation allowance on deferred tax assets 1,632 1,672
Net current deferred tax assets ( 7,225) ( 4,799)
Net deferred tax liability $28,313 $ 19,847
</TABLE>
A valuation allowance has been recognized for a subsidiary's state tax loss
carryforward as cumulative losses create uncertainty about the realization of
the tax benefits in future years.
11 - STOCK OPTIONS AND APPRECIATION RIGHTS
The company has adopted two Executive Stock Option Plans. The 1994 plan,
which was amended effective December 19,1996, subject to shareholder
approval, provides for the granting of either qualified incentive stock
options (ISO) or non-qualified options. Under the 1994 plan, options to
purchase 300,000 shares of common stock may be issued to key employees and
directors of the company. Options must be granted at an option price
which is not less than fair market value at the time of the grant.
Qualified options can be exercised no later than ten years from the date
of the grant (twenty years from date of grant for non-qualified options).
<PAGE>
The 1985 plan is a non-qualified stock option plan under which options to
purchase 168,597 common shares have been issued to key executive employees
of the company or subsidiaries. The plan provides for the granting of
options at a price which is not less than market value at the time of the
grant. Options can be exercised no sooner than six months or no later than
twenty years from the date of the grant.
Effective January 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 provision of SFAS No.123, which prescribes
the "fair value based method" on the grant date, the results on the
company's net earnings and earnings per share would not have been
materially different from amounts reported in 1996 and 1995.
<TABLE>
The following table summarizes information relating to the company's stock
option plans:
<CAPTION>
(IN DOLLARS OR NUMBER OF SHARES)
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstand-
iny at beginning
of year 220,000 $21.55 117,333 $23.86 99,000 $23.86
Granted 42,267 28.60 102,667 18.91 18,333 23.87
Options outstanding
at end of year 262,267 22.69 220,000 21.55 117,333 23.86
Options exercisable
at end of year 220,000 21.55 117,333 23.86 99,000 23.86
Option price range
at end of year $18.37-35.78 $18.37-27.27 $20.45-27.27
<FN>
All shares and per share data have been adjusted for the 1996 four-for-
three stock split and the 1995 10% stock dividend.
</TABLE>
Two stock appreciation rights plans are maintained by the company. The
1988 Stock Appreciation Rights Plan gives certain officers and key
employees the right to receive cash equal to the sum of the appreciation
in value of the stock and the value of reinvested hypothetical cash
dividends which would have been paid on the stock covered by the grant.
The 1988 Management Incentive Plan gives certain management employees the
right to receive similar cash payments. The stock appreciation rights
granted under the plans may be exercised in whole or in part and are paid
in installments and will vest 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 quoted market value of the shares and the exercise provisions.
The provision (credit) for incentive compensation plans based upon the
company's stock price, principally stock appreciation rights, was
$4,902,000 in 1996, $775,000 in 1995, and ($933,000) in 1994.
<PAGE>
<TABLE>
The following table summarizes the activity relating to the company's
stock appreciation plan:
<CAPTION>
(IN DOLLARS OR NUMBER OF SHARES) 1996 1995 1994
<S> <C> <C> <C>
Rights outstanding at beginning of year 414,579 426,803 439,023
Granted - - 11,000
Exercised (204,846) (12,224) (23,220)
Terminated ( 2,933) - -
Rights outstanding at end
of year 206,800 414,579 426,803
Rights exercisable at end
of year 206,800 407,733 407,733
Price range of outstanding $8.52- $7.50- $7.50-
stock appreciation rights 20.37 20.37 20.37
<FN>
ALL SHARES AND PER SHARE DATA HAVE BEEN ADJUSTED FOR THE 1996 FOUR-FOR-THREE
STOCK SPLIT AND THE 1995 10% STOCK DIVIDEND.
</TABLE>
12 - STOCKHOLDERS' EQUITY
On April 20, 1995, the shareholders of the company approved a resolution which
amended the company's Restated Articles of Incorporation to increase the
number of authorized shares of common stock from 15,000,000 shares, par value
$2.50, to 30,000,000 shares, without par value. The additional paid-in
capital account has been combined with common stock as presented in the
Consolidated Statements of Stockholders' equity.
13 - CONTINGENCIES, LITIGATION, & COMMITMENTS
In 1986, the Wisconsin Department of Natural Resources ("DNR") determined that
a landfill, for which the company may be a potentially responsible party, was
nominated by the DNR for inclusion by the Environmental Protection Agency
("EPA") on the National Priorities List ("NPL"). The EPA has not placed the
landfill on the NPL nor has any other action been taken by the DNR or the EPA.
The company has contributed its allocated portion of the cost of remediation
of a second landfill pursuant to a cost sharing agreement and remediation work
at the site is now complete.
Based on information now available to the company, the company believes that
any additional costs associated with these landfills will not have a material
adverse effect on the company's operations, liquidity or consolidated
financial condition.
The company, along with other paper companies, is part of a civil
investigation begun in 1994 by the U. S. Department of Justice to determine
whether any violation of U. S. antitrust laws has occurred in the commercial
and industrial market for sanitary paper products. The company believes it
has not violated any antitrust laws.
In the ordinary course of conducting business, the company, from time to time,
also becomes involved in other issues, investigations, administrative
proceedings and litigation including matters relating to the environment.
While any proceeding or litigation has an element of uncertainty, the company
believes that the outcome of any pending or threatened claim or lawsuit will
not have a material adverse effect on the operations, liquidity or
consolidated financial condition of the company.
<PAGE>
Through the year 2006, the company is to pay a municipality a minimum annual
usage fee of approximately $150,000 paid on a quarterly basis, to discharge
industrial waste into the municipality's wastewater treatment facility. The
aggregate amount of such required future minimum payments at December 31, 1996
was $1,405,000. In addition, the company is to pay monthly contingent usage
fees to the municipality based on the amount of industrial waste discharged.
Minimum and contingent usage fees incurred totaled $653,000, $666,000 and
$630,000 in 1996, 1995, and 1994, respectively.
EXHIBIT 99.2
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
($ thousands, except 1997 1996 1997 1996
share data - unaudited)
<S> <C> <C> <C> <C>
Net sales $89,782 $81,761 $253,293 $237,130
Cost of sales 67,073 58,764 187,542 173,445
Gross profit on sales 22,709 22,997 65,751 63,685
Operating expenses:
Selling 3,052 3,140 9,244 8,487
Administrative 7,711 4,974 16,266 17,299
Total operating expenses 10,763 8,114 25,510 25,786
Income from operations 11,946 14,883 40,241 37,899
Other income (expense):
Interest expense ( 989) (1,056) (2,915) (3,512)
Other 182 72 319 143
Income before income taxes 11,139 13,899 37,645 34,530
Provision for income taxes 4,175 5,620 14,525 13,950
Net income $6,964 $8,279 $23,120 $20,580
Net income per share $0.46 $0.53 $1.52 $1.31
Weighted average common
shares outstanding 15,201,721 15,724,596 15,214,603 15,724,596
</TABLE>
-1-
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
($ thousands * ) September 30, December 31,
1997 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 350 $ 3,150
Receivables, net 31,457 23,407
Inventories 47,236 41,254
Deferred income taxes 8,275 7,225
Other 312 311
Total current assets 87,630 75,347
Property, plant and equipment 398,983 370,085
Less: accumulated depreciation 182,859 170,610
Net depreciated value 216,124 199,475
Other assets 13,021 10,207
TOTAL ASSETS $316,775 $285,029
LIABILITIES
Accounts payable $ 19,926 $ 18,262
Accrued and other liabilities 25,988 27,316
Accrued income taxes 1,569 2,420
Total current liabilities 47,483 47,998
Long-term debt 64,864 48,332
Deferred income taxes 38,685 35,538
Postretirement benefits 16,906 16,125
Other noncurrent liabilities 13,596 11,884
Total liabilities 181,534 159,877
Commitments and contingencies --- ---
Preferred stock of subsidiary 1,255 1,255
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value, authorized
- 1,000,000 shares, none issued
Common stock - no par value, authorized
30,000,000 shares 58,678 58,678
Retained earnings 104,779 83,763
Subtotals 163,457 142,441
Treasury stock at cost (29,471) (18,544)
Total stockholders' equity 133,986 123,897
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $316,775 $285,029
<FN>
*The consolidated balance sheet at September 30, 1997 is unaudited. The
December 31, 1996 consolidated balance sheet is derived from audited financial
statements.
</TABLE>
-2-
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
September 30,
($ thousands - unaudited) 1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,120 $ 20,580
Provision for depreciation, depletion
and amortization 14,177 13,014
Recognition of deferred revenue ( 30) ( 30)
Provision for losses on accounts receivable 24 224
Gain on property, plant and equipment
disposals ( 296) ( 136)
Deferred income taxes 2,097 7,350
Changes in operating assets and liabilities:
Receivables ( 5,372) ( 510)
Inventories ( 3,213) ( 5,410)
Other assets ( 4,497) ( 2,621)
Accounts payable and other liabilities 2,361 4,015
Accrued income taxes ( 851) 839
Net cash provided by operating activities 27,520 37,315
Cash flows from investing activities:
Capital expenditures ( 25,170) ( 16,564)
Acquisition of B & J Supply ( 6,235)
Proceeds from property, plant and
equipment disposals 450 311
Net cash used in investing activities ( 30,955) ( 16,253)
Cash flows from financing activities:
Borrowings (payments) under credit agreements 14,503 ( 19,058)
Dividends paid ( 2,941) ( 2,385)
Payments for purchase of company stock ( 10,927) ( 20)
Net cash provided by (used in) financing
activities 635 ( 21,463)
Net decrease in cash and cash equivalents ( 2,800) ( 401)
Cash and cash equivalents at beginning of year 3,150 2,416
Cash and cash equivalents at end of period $ 350 $ 2,015
Supplemental Cash Flow Information:
Interest paid - net of amount capitalized $ 2,867 $ 3,784
Income taxes paid 13,279 5,762
</TABLE>
-3-
<PAGE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial statements, in the opinion of management,
reflect all adjustments which are normal and recurring in nature and
which are necessary for a fair statement of the results for the
periods presented. Some adjustments involve estimates which may
require revision in subsequent interim periods or at year-end. In all
regards, the financial statements have been presented in accordance
with generally accepted accounting principles.
<TABLE>
2. Inventories consist of the following:
<CAPTION>
($ thousands) Sept. 30, Dec. 31,
1997 1996
<S> <C> <C>
Raw material $19,991 $18,154
Finished goods and work in process 24,637 20,764
Supplies 9,873 8,944
Subtotal 54,501 47,862
Less: LIFO reserve 7,265 6,608
Net inventories $47,236 $41,254
</TABLE>
3. Earnings per share of common stock is based on the weighted average
number of common shares outstanding and gives effect to applicable
preferred stock dividends. Sorg Paper Company preferred stock
dividends in arrears for the nine months ended September 30, 1997 and
1996 were $51,840.
4. Net income includes expenses for incentive compensation plans based
upon the company's stock price. The company calculates this liability
using the average price of Mosinee Paper's stock at the close of each
fiscal quarter as if all earned incentive compensation plans had been
exercised on that day. For the three months ended September 30, 1997,
these plans resulted in an after-tax expense of $2,416,000 or $0.16
per share, compared to the third quarter of 1996 which produced an
after-tax expense of $183,000 or $0.01 per share. For the year-to-
date in 1997 these plans resulted in an after-tax expense of
$2,564,000 or $0.17 per share, compared to an after-tax expense of
$2,139,000 or $0.14 per share for the same period of 1996.
5. Prior year per share data has been restated for a 3 for 2 stock split
on May 15, 1997.
6. Certain legal proceedings are described under Part II, Item 1 of this
report.
-4-
7. Refer to notes to the financial statements which appear in the 1996
annual report for the company's accounting policies which are
pertinent to these statements.
