UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended NOVEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 0-7574
WAUSAU-MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
WISCONSIN 39-0690900
(State of incorporation) (I.R.S. Employer Identification
Number)
1244 KRONENWETTER DRIVE
MOSINEE, WI 54455
(Address of principal executive office)
Registrant's telephone number, including area code: 715/693-4470
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ________
The number of common shares outstanding at November 30, 1997 was 36,519,972.*
*As a result of the merger with Mosinee Paper Corporation effective
December 17, 1997, approximately 57,801,767 shares were outstanding on such
date.
<PAGE>
WAUSAU-MOSINEE PAPER CORPORATION
AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of 1
Income Three Months Ended
November 30, 1997 (unaudited) and
November 30, 1996 (unaudited)
Condensed Consolidated Balance 2
Sheets November 30, 1997 (unaudited)
and August 31, 1997 (derived from audited
financial statements)
Condensed Consolidated Statements 3
of Cash Flows Three Months
Ended November 30, 1997 (unaudited) and
November 30, 1996 (unaudited)
Notes to Condensed Consolidated 4 - 5
Financial Statements
Item 2. Management's Discussion and 6 - 9
Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10 - 11
-i-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Wausau-Mosinee Paper Corporation and Subsidiaries
<CAPTION>
For the Three Months
(Dollars in thousands, except per share data - unaudited) Ended November 30
1997 1996
<S> <C> <C>
Net Sales $ 158,987 $ 139,639
Cost of products sold 131,755 113,299
GROSS PROFIT 27,232 26,340
Selling, administrative and
research expenses 8,267 8,016
OPERATING PROFIT 18,965 18,324
Interest income 16 89
Interest expense (1,118) (585)
Other income 15 36
EARNINGS BEFORE INCOME TAXES 17,878 17,864
Provision for income taxes 6,700 6,750
NET EARNINGS $ 11,178 $ 11,114
NET EARNINGS PER COMMON SHARE $ .31 $ .30
WEIGHTED AVERAGE NUMBER OF SHARES 36,516,000 36,513,000
</TABLE>
1
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
Wausau-Mosinee Paper Corporation and Subsidiaries
<CAPTION>
(Dollars in thousands) November 30 August 31
1997* 1997*
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,947 $ 5,297
Accounts and notes receivable 42,911 50,296
Inventories 83,477 84,112
Other current assets 10,913 9,714
Total current assets 145,248 149,419
Property, plant and equipment 384,705 386,466
Other assets 19,728 19,730
TOTAL ASSETS $549,681 $555,615
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 6,228 $ 6,290
Accounts payable 31,533 29,890
Accrued and other liabilities 20,171 24,406
Accrued income taxes 5,534 1,719
Total current liabilities 63,466 62,305
LONG-TERM LIABILITIES
Long-term debt 63,060 83,510
Deferred income taxes 51,190 49,301
Other liabilities 57,233 56,945
Total long-term liabilities 171,483 189,756
Total shareholders' equity 314,732 303,554
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $549,681 $555,615
<FN>
* The consolidated balance sheet at November 30, 1997 is unaudited. The
August 31, 1997 consolidated balance sheet is derived from audited financial
statements.
</TABLE>
2
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Wausau-Mosinee Paper Corporation and Subsidiaries
<CAPTION>
(Dollars in thousands - unaudited) For the Three Months
Ended November 30
1997 1996
<S> <C> <C>
Operating Activities:
Net earnings $ 11,178 $ 11,114
Noncash items:
Provision for depreciation, depletion
and amortization 7,458 6,354
Deferred income taxes 1,889 2,056
Changes in operating assets and liabilities:
Receivables 7,385 1,907
Inventories 635 (10,615)
Other assets (1,204) 230
Accounts payable and other liabilities 558 7,855
Accrued income taxes 3,815 901
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,714 19,802
Investing Activities:
Capital expenditures (6,695) (10,234)
Proceeds from property, plant and
equipment disposals 5
Net cash distributed from funds
restricted for capital additions 2,552
NET CASH USED IN INVESTING ACTIVITIES (6,690) (7,682)
Financing Activities:
Net repayments under
revolving credit facility (20,004) (10,500)
Repayments of long-term debt (88) (84)
Dividends paid (2,282) (2,008)
NET CASH USED IN FINANCING ACTIVITIES (22,374) (12,592)
Net increase (decrease) in cash and cash
equivalents 2,650 (472)
Cash and cash equivalents at beginning of
year 5,297 2,372
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 7,947 $ 1,900
Supplemental Information:
Interest paid (net of amount capitalized) $ 1,169 $ 627
Income taxes paid 995 3,814
</TABLE>
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The accompanying unaudited condensed financial statements include
all adjustments, which are all normal and recurring in nature
and, in the opinion of management, present fairly the results for
the interim periods presented. Refer to the Notes to Financial
Statements which appear in the 1997 Annual Report on Form 10-K
for the company's accounting policies which are pertinent to
these statements.
On December 17, 1997, the merger transaction in which Mosinee
Paper Corporation ("Mosinee") became a wholly-owned subsidiary
of the company (the "Merger") was completed. The Merger was
accounted for as a pooling of interests. The accompanying
unaudited condensed financial statements do not include the
results of operations for Mosinee for the period reported.
On December 17, 1997, the company also changed its fiscal year
reporting period to a calendar year-end.
Note 2: Selling, administrative and research expenses include stock
appreciation rights and stock option discount expense of $36,000
or less than $.01 per share for the quarter ended November 30,
1997 and $584,000 or $.01 per share for the quarter ended
November 30, 1996.
<TABLE>
Note 3: Accounts receivable consisted of the following:
<CAPTION>
NOVEMBER 30, 1997 AUGUST 31, 1997
<S> <C> <C>
Customer Accounts $47,346,000 $52,779,000
Misc. Notes and Accounts
Receivable 2,132,000 3,392,000
$49,478,000 $56,171,000
Less: Allowance for Discounts,
Doubtful Accounts and Pending
Credits 6,567,000 5,875,000
Net Receivables $42,911,000 $50,296,000
</TABLE>
<TABLE>
Note 4: The various components of inventories were as follows:
<CAPTION>
NOVEMBER 30, 1997 AUGUST 31, 1997
<S> <C> <C>
Raw Materials and Supplies $50,814,000 $49,594,000
Work in Process
and Finished Goods 45,563,000 47,418,000
$96,377,000 $97,012,000
Less: LIFO Reserve 12,900,000 12,900,000
Net Inventories $83,477,000 $84,112,000
</TABLE>
4
<PAGE>
Note 5: The accumulated depreciation on fixed assets was $196,236,000 as of
November 30, 1997 and $188,969,000 as of August 31, 1997.
<TABLE>
Note 6: A summary of long-term debt is as follows:
<CAPTION>
NOVEMBER 30, 1997 AUGUST 31, 1997
<S> <C> <C>
Bonds, Mortgages and
Similar Debt $63,000,000 $83,425,000
Capitalized Leases 60,000 85,000
Total Long Term Debt $63,060,000 $83,510,000
</TABLE>
<TABLE>
Note 7: Dividends per share were as follows:
<CAPTION>
THREE MONTHS ENDING
NOVEMBER 30, 1997 NOVEMBER 30, 1996
<S> <C>
$.00* $.00*
<FN>
* The company's Board of Directors meeting schedule did not
result in the declaration of a cash dividend in the three
months ended November 30, 1997 or 1996.
</TABLE>
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations*:
* Management's discussion and analysis of financial condition and results
of operations does not reflect any effect the December 17, 1997 merger
with Mosinee Paper Corporation had or may have on the company's
operations or its capital resources and liquidity. This discussion and
analysis may contain forward-looking statements (see Item 5).
Result of Operations
Net Sales
For the three months ended November 30, 1997, net sales were a first
quarter record $159.0 million, an increase of 13.9% over last year's
first quarter net sales of $139.6 million. Selling prices for the
company's products declined from a year ago due to competitive
pressures on several products in the company's printing and writing and
technical specialty grades. Shipments of 129,700 were also a first
quarter record and were 17.6% ahead of a year ago. First quarter
revenues and shipments benefited from the addition of the Otis mill,
which was acquired on May 12, 1997.
Shipments at the company's Printing and Writing Division were a first
quarter record and were 6.4% ahead of last year's first quarter shipment
level. Order backlog was high at the end of the quarter, as compared to
normal historical levels, but was slightly lower than a year ago when
backlogs were also very strong.
Shipments of the company's technical specialty products were an all-time
record, as a result of the addition of the Otis mill, exceeding last year
by 39.5%. Shipments decreased 4.5% at the Rhinelander mill in the first
quarter, compared to a year ago, primarily due to some weakness in
pressure sensitive shipments, which were down 5.0%. Order backlog at the
Technical Specialty Division was higher than a year ago as a result of
the addition of the Otis mill. Rhinelander's order backlog at the end of
the quarter was lower than a year ago due to weak demand for its pressure
sensitive grades. This weakness resulted in extending Rhinelander's
normal planned December maintenance shutdown by three days. No additional
downtime at the Rhinelander mill is expected in the foreseeable future.
Order backlogs at the Otis mill are also weaker than normal.
Gross Profit
Fiscal 1998 first quarter gross profit was $27.2 million or 17.1% of net
sales, compared to last year's first quarter gross profit of $26.3
million or 18.9% of net sales. Gross profit margin declined from the
previous year due primarily to competitive pressures on prices for the
company's paper products and higher pulp costs. Pulp prices have risen by
approximately $50 per metric ton since last spring, however, the pulp
price increase appears to be short-lived as world markets are weakening
and the company expects more favorable fiber costs in the near term.
The company's Printing and Writing Division operated at capacity during
the first quarter of fiscal 1998, with paper mill production slightly
higher than a year ago. Printing and writing paper inventories decreased
as a result of strong demand.
6
<PAGE>
First quarter paper mill production at the Technical Specialty Division
increased 48.6%, compared to a year ago, mainly as a result of the added
production from the Otis mill, which was acquired on May 12, 1997. Paper
production at Rhinelander increased slightly over the same fiscal 1997
period. Rhinelander's silicone coaters operated at approximately 96% of
available machine time during the first quarter, compared to 83% a year
ago. Paper inventory levels at November 30, 1997 at the Technical
Specialty Division were higher than a year ago, primarily due to the
addition of the Otis mill and weaker demand for pressure sensitive
products at the Rhinelander mill.
Selling, Administrative and Research Expenses
Selling, administrative and research expenses were $8.3 million in the
first quarter of fiscal 1998, compared to $8.0 million last year. Stock
appreciation rights and stock option discount expense was less than
$.1 million for the three month period ended November 30, 1997, compared
to $.6 million for the same period a year ago. Higher costs in the fiscal
1998 period, excluding stock appreciation rights and stock option
discount expense, are primarily the result of the addition of the Otis
mill which was acquired on May 12, 1997.
Interest Income and Expense
Interest income was less than $.1 million in the first quarter of fiscal
1998, compared to $.1 million for the same period a year ago. For the
three months ended November 30, 1997, interest expense was $1.1 million,
compared to $.6 million for the first quarter of fiscal 1997. Interest
expense, excluding capitalized interest, was higher in the first quarter
of fiscal 1998, compared to a year ago, as a result of the May 12, 1997
acquisition of Otis Specialty Papers for $55.1 million, which was
entirely debt financed. There was no capitalized interest in the first
quarter of fiscal 1998, compared to $.1 million last year.
Income Taxes
The income tax provision in the first quarter of fiscal 1998 was $6.7
million for an effective tax rate of 37.5%. The effective tax rate in
the first quarter of fiscal 1997 was 37.8%.
Net Earnings
Net earnings for the three months ended November 30, 1997 were a first
quarter record $11.2 million or $.31 per share, compared to $11.1 million
or $.30 per share for the same period a year ago. The fiscal 1997 first
quarter net earnings were negatively impacted by $.04 per share due to
curtailed pulp production and increased maintenance costs associated with
repairs to two digesters at the Brokaw mill.
7
<PAGE>
Cash Provided by Operations
For the three months ended November 30, 1997, cash provided by operations
was $31.7 million, compared to $19.8 million for the first quarter of
fiscal 1997. The increase in cash provided by operations in the first
quarter of fiscal 1998 is primarily the result of a reduction in
inventories and accounts receivable in the current quarter, compared to a
large increase in inventories in the first quarter of 1997.
Capital Expenditures
Capital expenditures totaled $6.7 million in the first quarter of fiscal
1998, compared to $10.2 million for the same period last year.
In the first quarter of fiscal 1998, state-of-the-art web inspection
equipment was installed on No. 7 and No. 9 paper machines at the
Rhinelander mill. Cleaning equipment was also installed on a rewinder at
Rhinelander with a second rewinder similarly equipped in December 1997.
Installation of these devices has enabled the company's Rhinelander mill
to make further advances in the quality of its pressure sensitive
products. Work is underway on the $8 million capacity expansion project
for the Groveton mill, which will increase that mill's papermaking
capacity by 5%, and the $9 million pulp mill digester and process upgrade
project at the Brokaw pulp mill, which will increase pulp production by
15%.
Total capital expenditures are projected to be less than $50 million in
fiscal 1998.
Financing
Long-term debt decreased $20.5 million in the first quarter of fiscal
1998 to $63.1 million as a result of strong earnings, reduced working
capital and lower capital expenditure requirements. Long-term debt at
November 30, 1997 consisted of $12 million in notes to Prudential
Insurance Company of America and its subsidiaries, at a fixed rate of
6.03% and $19 million in variable rate development bonds with an interest
rate of 4.15% at the end of the quarter. In addition, the company had
$32 million outstanding under its revolving credit facility, with
effective interest rates ranging from 5.87% to 6.13% at November 30,
1997. There was no commercial paper outstanding at the end of the
quarter.
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 acquisition.
Common Stock Repurchase
On June 30, 1994, the company's Board of Directors authorized the
repurchase of up to 1,856,250 shares (adjusted for subsequent stock
dividends or splits) of the company's common stock from time to time in
the open market or through privately negotiated transactions at
prevailing market prices. This authorization was reduced by the Board in
December 1997 to the extent required to satisfy stock repurchase
authorization limits applicable as a result of the recent merger,
<PAGE>
accounted for as a pooling of interests, with Mosinee Paper Corporation.
As of the date of this report, the company estimates that it may
reacquire approximately one million shares under this modified
authorization. The company did not repurchase any shares of company's
common stock during the quarter ended November 30, 1997.
8
Dividends
The Board of Directors declared a cash dividend of $.0625 per share
payable on Thursday, January 15, 1998 to shareholders of record
(including former Mosinee Paper Corporation shareholders) as of Monday,
January 5, 1998. Since Wausau-Mosinee Paper Corporation has changed from
a fiscal year ending in August to a calendar year reporting basis, no
action was initiated by the Board to increase the cash dividend. Future
annual meetings will be held in April and the Board of Directors will
consider appropriate dividend policy at that time. Future quarterly
dividends are expected to be paid in the months of May, August, November
and February.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION:
MERGER
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."
CHANGE IN FISCAL YEAR
On December 17, 1997, the Board of Directors of the company voted to
change the fiscal year of the company from a fiscal year ending on
August 31 to a fiscal year ending on December 31.
CAUTIONARY STATEMENT
This quarterly report contains certain of management's expectations
and other forward-looking information regarding the company. While the
company believes that these forward-looking statements are based on
reasonable assumptions, all such statements involve risk and
uncertainties that could cause actual results to differ materially from
those contemplated in this report. The assumptions, risks and
uncertainties relating to the forward-looking statements in this report
include those described under the caption "Cautionary Statements
Regarding Forward-looking Information" in the company's Form 10-K for the
year ended August 31, 1997 and, from time to time, in the company's other
filings with the Securities and Exchange Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits required by Item 601 of Regulation S-K.
The following exhibits are filed with the Securities and Exchange
Commission as part of this report.
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 Restated Articles of Incorporation, as amended
December 17, 1997 .................................... 4.1{2}
3.2 Restated Bylaws, as amended December 17, 1997 ........ 4.2{2}
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){3}
10
<PAGE>
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){3}
10.4 1988 Stock Appreciation Rights Plan, as amended
April 17, 1991* .....................................10(d){3}
10.5 1988 Management Incentive Plan, as amended
April 17, 1991* .....................................10(e){3}
10.6 1990 Stock Appreciation Rights Plan, as amended
April 17, 1991* .....................................10(f){3}
10.7 Deferred Compensation Agreement dated March 2, 1990,
as amended July 1, 1994* ............................10(h){4}
10.8 1991 Employee Stock Option Plan* ....................10.8{5}
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 .................................................10.13{5}
27.1 Financial Data Schedule
29.1 Subsidiaries as of August 31, 1997 ..................29.1{5}
*Executive compensation plans or arrangements.
<dagger> 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) Registration Statement on Form S-8 dated December 17, 1997.
(3) Annual report on Form 10-K for the fiscal year ended
August 31, 1996.
(4) Annual report on Form 10-K for the fiscal year ended
August 31, 1994.
(5) Annual report on Form 10-K for the fiscal year ended
August 31, 1997.
(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.
<PAGE>
(8) Annual report on Form 10-K for the fiscal year ended
August 31, 1993.
11
<PAGE>
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WAUSAU-MOSINEE PAPER CORPORATION
Registrant
By: GARY P. PETERSON
Gary P. Peterson
Senior Vice President Finance,
Secretary and Treasurer
(Principal Financial Officer)
Date: January 12, 1998
12
<PAGE>
EXHIBIT INDEX
TO
FORM 10-Q
OF
WAUSAU-MOSINEE PAPER CORPORATION
FOR THE PERIOD ENDED NOVEMBER 30, 1997
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. <section>232.102(d))
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED NOVEMBER 30, 1997 OF WAUSAU-MOSINEE PAPER CORPORATION AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 7,947
<SECURITIES> 0
<RECEIVABLES> 49,478
<ALLOWANCES> 6,567
<INVENTORY> 83,477
<CURRENT-ASSETS> 145,248
<PP&E> 580,940
<DEPRECIATION> 196,236
<TOTAL-ASSETS> 549,681
<CURRENT-LIABILITIES> 63,466
<BONDS> 63,060
<COMMON> 139,284
0
0
<OTHER-SE> 175,448
<TOTAL-LIABILITY-AND-EQUITY> 549,681
<SALES> 158,987
<TOTAL-REVENUES> 158,987
<CGS> 131,755
<TOTAL-COSTS> 131,755
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,118
<INCOME-PRETAX> 17,878
<INCOME-TAX> 6,700
<INCOME-CONTINUING> 11,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,178
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
