FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _________________
Commission file number: 0-7574
WAUSAU-MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
WISCONSIN 39-0690900
(State of incorporation) (I.R.S Employer Identification Number)
1244 KRONENWETTER DRIVE
MOSINEE, WISCONSIN 54455-9099
(Address of principal executive office)
Registrant's telephone number, including area code: 715-693-4470
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file
such report), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
The number of common shares outstanding at July 31, 1999 was 52,339,013.
<PAGE>
WAUSAU-MOSINEE PAPER CORPORATION
AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Three Months and Six Months Ended
June 30, 1999 (unaudited) and
June 30, 1998 (unaudited) 1
Condensed Consolidated Balance
Sheets, June 30, 1999 (unaudited)
and December 31, 1998 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows, Six Months
Ended June 30, 1999 (unaudited)
and June 30, 1998 (unaudited) 3
Notes to Condensed Consolidated
Financial Statements 3-6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15-17
(i)
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
Wausau-Mosinee Paper Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
($ thousands, except per share data -
unaudited) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET SALES $ 234,257 $ 243,636 $ 460,698 $ 481,296
Cost of products sold 197,098 194,949 384,876 386,300
GROSS PROFIT 37,159 48,687 75,822 94,996
Selling and administrative expenses 19,510 13,678 33,042 33,665
Restructuring expense 0 0 0 37,700
OPERATING PROFIT 17,649 35,009 42,780 23,631
Interest expense (2,572) (1,824) (5,090) (3,870)
Other 550 169 541 305
EARNINGS BEFORE INCOME TAXES 15,627 33,354 38,231 20,066
Provision for income taxes 5,900 12,550 14,400 7,500
NET EARNINGS $ 9,727 $ 20,804 $ 23,831 $ 12,566
NET EARNINGS PER SHARE BASIC $ 0.19 $ 0.36 $ 0.45 $ 0.22
NET EARNINGS PER SHARE DILUTED $ 0.19 $ 0.36 $ 0.45 $ 0.22
Weighted average shares
outstanding-basic 52,281,972 58,090,674 52,732,581 58,058,386
Weighted average shares
outstanding-diluted 52,357,312 58,216,658 52,877,053 58,184,370
</TABLE>
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<PAGE>
<TABLE>
Wausau-Mosinee Paper Corporation
CONSOLIDATED BALANCE SHEETS
<CAPTION>
($ thousands*) JUNE 30, December 31,
1999 1998
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,216 $ 2,495
Receivables, net 85,614 66,956
Refundable income taxes 3,282
Inventories 149,278 150,217
Deferred income taxes 17,519 18,344
Other current assets 2,232 832
Total current assets 255,859 242,126
Property, plant and equipment, net 640,358 625,065
Other assets 35,725 32,958
TOTAL ASSETS $ 931,942 $ 900,149
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 80,752 $ 45,466
Current maturities of long-term debt 6,197 6,051
Accounts payable 60,210 58,419
Accrued and other liabilities 53,678 50,784
Total current liabilities 200,837 160,720
Long-term debt 124,375 127,000
Deferred income taxes 91,397 94,911
Postretirement benefits 63,090 60,558
Pension 39,623 39,235
Other liabilities 21,349 21,139
Total liabilities 540,671 503,563
Stockholders' equity 391,271 396,586
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 931,942 $ 900,149
<FN>
*The consolidated balance sheet at June 30, 1999 is unaudited. The
December 31, 1998 consolidated balance sheet is derived from audited
financial statements.
</TABLE>
-2-
<PAGE>
<TABLE>
Wausau-Mosinee Paper Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
June 30,
($ thousands - unaudited) 1999 1998
<S> <C> <C>
Net cash provided by operating activities $ 34,210 $ 62,217
Capital expenditures (40,311) (32,199)
Borrowings (payments) under credit
agreements 32,431 (23,204)
Dividends paid (7,937) (7,678)
Purchase of company stock (20,904) (770)
Proceeds on sale of property, plant and
equipment 729 165
Other investing and financing activities 503 842
Net decrease in cash $ (1,279) $ (627)
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The accompanying condensed financial statements, in the opinion
of management, reflect all adjustments which are normal and
recurring in nature and which are necessary for a fair statement
of the results for the periods presented. Some adjustments
involve estimates which may require revision in subsequent
interim periods or at year-end. In all regards, the financial
statements have been presented in accordance with generally
accepted accounting principles. Refer to notes to the financial
statements which appear in the Annual Report on Form 10-K for
the year ended December 31, 1998, for the company's accounting
policies which are pertinent to these statements.
Note 2. In connection with the merger of Wausau Paper Mills Company
(Wausau) and Mosinee Paper Corporation (Mosinee) on December 17,
1997, the company implemented a plan to reduce its work force by
over 8%. An after-tax expense of $23.4 million ($37.7 million
pretax) or $0.40 per share was recorded in the three month
period ended March 31, 1998 to cover the cost of this work force
reduction initiative as well as smaller amounts for other merger
related costs.
-3-
Note 3. Net income includes expenses, or credits, for stock-based
incentive plans calculated by using the average price of the
company's stock at the close of the reporting period as if all
plans had been exercised on that day. For the three months
ended June 30, 1999, these plans resulted in after-tax expense
of $1,781,000 or $0.03 per share, compared to after-tax income
<PAGE>
of $877,000 or $0.02 per share for the same period last year.
Year-to-date, 1999, these plans resulted in after-tax expense of
$346,000 or $.01 per share compared to after-tax expense of
$1,267,000 or $.02 per share for the same period last year.
<TABLE>
Note 4. Accounts receivable consisted of the following:
<CAPTION>
($ thousands) June 30, December 31,
1999 1998
<S> <C> <C>
Customer Accounts $92,257 $73,950
Misc. Notes and Accounts Receivable 3,095 3,068
95,352 77,018
Less: Allowances for Discounts,
Doubtful Accounts and Pending Credits 9,738 10,062
Receivables, Net $85,614 $66,956
</TABLE>
<TABLE>
Note 5. The various components of inventories were as follows:
<CAPTION>
($ thousands) June 30, December 31,
1999 1998
<S> <C> <C>
Raw Materials and Supplies $ 81,459 $ 86,994
Finished Goods and Work in Process 80,164 75,906
Subtotal 161,623 162,900
Less: LIFO Reserve ( 12,345) ( 12,683)
Net inventories $149,278 $150,217
</TABLE>
Note 6. The accumulated depreciation on fixed assets was $452,199,000 as
of June 30, 1999 and $427,954,000 as of December 31, 1998. The
provision for depreciation, amortization and depletion for the
six months ended June 30, 1999 and June 30, 1998 was $24,793,000
and $24,189,000, respectively.
Note 7. Certain legal proceedings are described under Part II, Item 1 of
this report.
Note 8. Interim Segment Information
FACTORS USED TO IDENTIFY REPORTABLE SEGMENTS
The Company's operations are classified into three principal
reportable segments, the Specialty Paper Group, the Printing &
Writing Group and the Towel & Tissue Group, each providing
different products. Separate management of each segment is
-4-
required because each business unit is subject to different
marketing, production and technology strategies.
PRODUCTS FROM WHICH REVENUE IS DERIVED
The Specialty Paper Group produces specialty papers at its
manufacturing facilities in Rhinelander, Wisconsin; Mosinee,
Wisconsin; Jay, Maine; and Middletown, Ohio. The Printing &
Writing Group produces a broad line of premium printing and
writing grades at manufacturing facilities in Brokaw, Wisconsin
<PAGE> and Groveton, New Hampshire. The Printing & Writing Group also
includes two converting facilities which produce wax-laminated roll
wrap and related specialty finishing and packaging products and a
converting facility which produces school papers. The Towel &
Tissue Group markets a complete line of towel, tissue, soap and
dispensing systems for the "away-from-home" market. The Towel &
Tissue Group operates a paper mill in Middletown, Ohio and a
converting facility in Harrodsburg, Kentucky.
<PAGE>
<TABLE>
RECONCILIATIONS
The following are reconciliations to corresponding totals in the
accompanying consolidated financial statements:
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
($ in thousands-unaudited) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales external customers
Specialty Paper $ 97,268 $ 107,538 $ 197,510 $ 220,488
Printing & Writing 98,548 96,387 189,784 189,110
Towel & Tissue 38,441 39,711 73,404 71,698
$ 234,257 $ 243,636 $ 460,698 $ 481,296
Net sales intersegment
Specialty Paper $ 3,832 $ 3,929 $ 7,146 $ 7,667
Printing & Writing 570 372 880 770
Towel & Tissue 83 20 98 64
$ 4,485 $ 4,321 $ 8,124 $ 8,501
Operating profit
Specialty Paper $ 5,195 $ 15,743 $ 13,821 $ 29,539
Printing & Writing 11,154 12,768 22,114 26,014
Towel & Tissue 6,335 7,709 11,768 14,231
Total reportable segment
Operating profit 22,684 36,220 47,703 69,784
Corporate & eliminations (5,035) (1,211) (4,923) (8,453)
Restructuring charge 0 0 0 (37,700)
Interest expense (2,572) (1,824) (5,090) (3,870)
Other income/expense 550 169 541 305
Earnings before income taxes $ 15,627 $ 33,354 $ 38,231 $ 20,066
</TABLE>
-5-
<TABLE>
<CAPTION>
($ in thousands-unaudited) June 30, December 31,
1999 1998
<S> <C> <C>
Segment Assets
Specialty Paper $ 386,256 $ 371,986
Printing & Writing 311,059 293,509
Towel & Tissue 181,962 176,303
Corporate & Unallocated* 52,665 58,351
$ 931,942 $ 900,149
<FN>
* Industry segment assets do not include intersegment accounts
receivable, cash, deferred tax assets and certain other assets
which are not identifiable with industry segments.
</TABLE>
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS*
RESULTS OF OPERATIONS
NET SALES
For the three months ended June 30, 1999, net sales for the company were
$234.3 million, a decrease of 4% from the prior year's second quarter
net sales of $243.6 million. The total tons shipped for both quarters
were similar with 213,700 tons shipped in 1999 and 212,800 tons shipped
in 1998. For the first six months of 1999, net sales were $460.7
million compared to $481.3 million in 1998, or a decrease of 4%.
Shipments for both six-month periods were comparable with 419,200 tons
in 1999 compared to 418,600 tons in 1998. The principal factor
contributing to the sales decline experienced in both the second quarter
and year-to-date 1999 periods was continuing competitive selling price
pressure which impacted all operating groups.
Net sales for the Specialty Paper Group were $97.3 million compared to
$107.5 million for the second quarters of 1999 and 1998, respectively.
Total tons shipped were 89,100 and were lower by 4% for the second
quarter of 1999 compared to 1998. Average selling prices were lower in
the second quarter of 1999 compared to 1998 due to continued competitive
conditions, particularly in the pressure sensitive products marketed by
the Rhinelander and Otis mills. In addition, the number of tons shipped
were reduced because of product mix changes and the rebuild of Otis' #11
paper machine . For the first six months of 1999, Specialty Paper Group
sales were $197.5 million, down 10.4% over the same period a year ago.
Shipment volume was 179,900 tons in the first six months of 1999 and was
down 5% in the comparable period in 1998. Competitive conditions were
similar for the six month periods as experienced in the second quarters'
comparison.
Second quarter sales for the Printing & Writing Group were $98.5 million
in 1999 compared to $96.4 million in 1998, an increase of 2%. Shipments
increased 5% to 93,800 tons in the second quarter of 1999 compared to
89,600 tons in the second quarter of 1998. Printing & Writing sales
were $189.8 million for the first six months of 1999, very near the
first six months of 1998 sales of $189.1 million. On a year to date
basis shipments were up 3% over that of 1998. Competitive price
pressures caused lower selling prices compared to a year ago for most
of the Printing & Writing Group's product lines.
Net sales for the Towel & Tissue Group for the quarter ended June 30,
1999 were $38.4 million, down 3% from the second quarter net sales in
1998. Shipments were up 1% over the second quarter's volume in 1998 and
were 31,100 tons in the second quarter of 1999. Competitive conditions
in the "away-from-home" towel and tissue markets caused average selling
prices to decline from year ago levels. Net sales for the Towel &
Tissue Group were $73.4 million for the first six months of 1999
compared to $71.7 million in the same period
<PAGE>
* Matters discussed in this report with respect to the company's
expectations are forward-looking statements that involve risks
and uncertainties. See "Information Concerning Forward-Looking
Statements."
-7-
of 1998. Shipments improved to 59,600 tons, an increase of 8% over that
of the first six months of 1998. Reduced volume gains for the second
quarter were principally attributable to the Groups decision to exit
certain commodity bid markets due to very low profit margins.
Order backlog of 43,700 tons at June 30, 1999 was strong in all
operating groups compared to order backlog at June 30, 1998. The
company believes backlog totals do not entirely indicate the strength
of its business, since a substantial percentage of orders are shipped
out of inventory promptly upon receipt.
GROSS PROFIT
Gross profit for the three months ended June 30, 1999 was $37.2 million
or 15.9% of net sales, compared to gross profit for the same period of
1998 of $48.7 million or 20.0% of net sales. The decline in gross
profit margin from 1998 is due primarily to lower selling prices for the
company's products due to continuing competitive market pressures. Pulp
and pulpwood raw material prices were slightly lower than a year ago.
In June, pulp prices edged near prior year June prices and market
indications are for pulp to continue their upward movement. Six month
year to date margins for 1999 declined by 3.2 percentage points as a
result of similar business conditions to the quarterly comparison.
Continuing increases in raw material costs may result in lower gross
profit margins for the Company if the increased costs are not recovered
through higher selling prices.
The Specialty Paper Group's gross profit margin decreased from 18.8% of
net sales in the second quarter of 1998 to 10.4% this year. The margin
decline was principally due to lower selling prices for the Group's
products, in particular, pressure sensitive products. In addition,
production declines were experienced due to product mix as well as the
scheduled downtime for the Otis paper machine rebuild. This lower
production also negatively impacted the second quarter gross profit
margins. For the first six months of 1999 gross profit margins were
11.9% for the Specialty Paper Group, compared to 17.5% in the prior
year's first six months. This decline in margins was principally due
to lower selling prices, partially offset by lower pulp costs.
The Printing & Writing Group's gross profit margin for the second
quarter of 1999 was 17.1% compared to 17.4% for the prior year. For the
first six months of 1999 gross profit margin was 17.4% compared to 18.3%
for 1998. The decline in margin was due principally to lower selling
prices and higher pulp mill operational costs, offset by lower raw
material costs, improved paper production, increased volume and improved
product sales mix.
The gross profit margin for the Towel & Tissue Group was 25.2% for the
second quarter of 1999, a decrease of 6.3% from the prior year's gross
<PAGE>
margin of 26.9%. For the first six months of 1999 the Group's gross
profit margin declined by 10.0% to 25.0% compared to 27.8% in 1998.
Total shipments increased 1% in the second quarter and 8% in the first
six months of 1999 compared to the same periods last year. Volume
increases along with improved production levels favorably impacted gross
profit margins for both the second quarter and the first half of 1999.
However, selling prices declined significantly during both comparative
periods and resulted in overall lower gross profit margins. Wastepaper
-8-
costs were similar for the periods, although prices have recently
increased and further upward movement is indicated.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for the three months ended June 30,
1999 were $19.5 million compared to $13.7 million in the same period in
1998. Adjustments for incentive compensation programs based on the
market price of the company's stock accounted for $4.3 million of the
quarter over quarter variance as an expense of $2.9 million was recorded
for the current quarter compared to an income adjustment of $1.4 million
in the second quarter of 1998. The balance of the increase in expense
is attributable to increased retirement plan costs and general
inflationary trends offset by continued merger savings and reduced bonus
expense.
For the six months ended June 30, 1999, selling and administrative
expenses were $33.0 million compared to $33.7 million in the first half
of 1998. Expenses for stock incentive programs were $0.6 million in
1999 compared to $2.1 million in 1998. Other year to date changes were
similar to those discussed for the quarterly comparison noted above.
CAPITAL RESOURCES AND LIQUIDITY
CASH PROVIDED BY OPERATIONS
For the six months ended June 30, 1999, cash provided by operations was
$34.2 million, compared to $62.2 million for the same period of 1998.
The decrease in operating cash flows was principally due to reduced
current year earnings. In addition, increases in accounts receivable,
changes in inventory levels and a reduction in accounts payable from
year-end balances have resulted in decreased operating cash flows.
CAPITAL EXPENDITURES
Capital expenditures totaled $40.3 million for the six months ended June
30, 1999, compared to $32.2 million for the same period last year.
During the first six months of 1999, the Specialty Paper Group spent
$2.6 million completing the #1 paper machine capacity increase rebuild
and installing a color monitoring system on the same machine at one mill
and $12.9 million on two machine rebuilds at another mill. These
projects, when completed, should expand the production capacity of both
mills, add new manufacturing capabilities and improve the sales mix.
<PAGE>
The Printing & Writing Group has spent nearly $5 million in the first
six months of 1999 on a pulp mill digester upgrade, a machine dry-end
upgrade and a stock blending system at two of their mills. The Towel
& Tissue Group has spent $2.3 million to add new converting lines in
order to keep up production for the increased demand for the Bay West
"away-from-home" toweling and tissue products.
-9-
In addition to the $40.3 million spent in the first six months of 1999
for capital assets, the company has commitments to spend another $37.9
million this year. Total capital expenditures for 1999 should
approximate $85 million.
At the April 1999 meeting, the Board of Directors approved $45 million
in capital improvements at the Specialty Group's Rhinelander mill, most
of which will be expended in 2000. The improvements will upgrade the
production process for pressure sensitive papers to surpass the
customers' technical requirements and improve their operating
efficiencies, while at the same time improving the company's product
mix. These capital improvements are expected to be fully implemented by
the third quarter of the year 2000.
FINANCING
Total current and long-term debt increased for the six months ended June
30, 1999 to $211.3 million. The increase in total debt from December
1998 is principally due to the authorized repurchase of the Company's
stock during the first six months of 1999 and the increase in accounts
receivable from year end.
Interest expense was $2.6 million in the second quarter of 1999 compared
to $1.8 million in the same period of 1998. The increase in interest
expense is the result of higher funded debt levels in 1999 compared to
1998. The increase as a result of higher debt levels has been partially
offset by reduced borrowing rates and increased capitalized interest.
On July 26, 1999 the Company accepted bids in a private placement note
offering in the amount of $138,500,000. Investor due diligence will
continue during the month of August with closing of the offering and
funding of the notes currently scheduled for August 31, 1999. The
principal amounts, maturities, and interest rates on the notes are: (1)
$35,000,000, 8 years, 7.20%; (2) $68,500,000, 10 years, 7.31%; and (3)
$35,000,000, 12 years, 7.43%. The Company will also enter into an
interest rate swap agreement under which the interest rate paid by the
Company with respect to (1) $58,500,000 of the 10-year notes will be the
three month LIBOR rate, plus .4925% and (2) $30,000,000 of the 12-year
notes will be the three month LIBOR rate, plus .55%. The proceeds from
the notes will be utilized to pay down existing bank facilities and
other maturing obligations.
Cash provided by operations and the Company's borrowing capacity are
expected to meet capital needs and dividends. The Company also plans to
refinance the existing outstanding bank revolving credit agreement prior
to year end.
<PAGE>
COMMON STOCK REPURCHASE
In August, 1998 the Board of Directors authorized the company to
repurchase up to 5,650,000 shares of common stock, subject to adjustment
for future stock splits or dividends. This repurchase authorization
represents approximately ten percent of the shares then outstanding.
Under this authorization, the company repurchased an aggregate of
1,395,826 shares during the six-month period ended June 30, 1999. This
brings the total to 4,560,426 shares purchased under this authorization.
-10-
DIVIDENDS
A dividend declared in December, 1998, of $.07 per share was paid
February 15, 1999. At the April 22, 1999 meeting, the Board of
Directors approved a 14% increase in the cash dividend. The quarterly
cash dividend of $.08 per share was paid on May 17, 1999. On June 1,
1999, the Board of Directors declared a quarterly cash dividend of $.08
payable August 16, 1999 to shareholders of record on August 2, 1999.
YEAR 2000
Year 2000 issues apply to the Company's computerized manufacturing
process controllers, environmental systems, order processing, inventory
management, the shipment of finished goods, and internal financial and
other information systems. Year 2000 issues also apply to the Company's
suppliers and customers. For purposes of this discussion, the terms
"Year 2000 issues" or "Year 2000 problems", or terms of similar import,
refer to the potential failure of computer applications as a result of
the failure of a program or hardware to properly recognize the year 2000
and to properly handle dates beyond the year 1999. The term "Year 2000
readiness", or terms of similar import, mean that the particular
equipment or processes referred to have been modified or replaced
and the Company believes that such modified or replaced equipment or
processes will operate as designed after 1999 without Year 2000
problems.
Readiness
The Company has developed a Year 2000 Plan intended to (1) upgrade its
information technology hardware and software and all software and
embedded technology applications in its equipment and facilities to be
Year 2000 ready, (2) assess the Year 2000 readiness of suppliers and
customers, and (3) develop contingency plans, if practical, for critical
systems and processes.
The Company has completed an inventory of mission critical information
systems, process equipment, and manufacturing facilities. The Company
continues to evaluate and test equipment, environmental controls, and
other core functions. An assessment of these functions was completed
during of the second quarter with testing to be completed by the end of
the third quarter of 1999. The Company believes that the most critical
information systems, primarily the sales order processing, inventory,
and shipping systems, are already Year 2000 ready or, if not, that such
systems have been given first priority to be made Year 2000 ready and
<PAGE>
will be ready by September, 1999. The Company's enterprise resource
planning system ("ERP") is intended to bring the remainder of the
Company's information systems to Year 2000 readiness by September, 1999.
The broader, non-Year 2000 aspects of the ERP system will be fully
implemented in 2001.
Costs
The costs of achieving Year 2000 readiness have not been material to
date and are not expected to be material. The cost of remediation for key
-11-
papermaking process controls and equipment is expected to be less than
$2 million. Internal costs for Year 2000 readiness are not being
tracked, but principally relate to payroll costs of Company personnel.
The implementation of the Company-wide ERP system is expected to require
a capital investment of approximately $5.5 million. Although the ERP
implementation timetable was not accelerated to address Year 2000
issues, those issues were considered in determining the overall
timetable for its implementation.
Risks
The Company expects no material adverse effect on its consolidated
financial condition, liquidity or results of operations (collectively,
its "business") as a result of problems encountered in its own business
as a result of Year 2000 issues or as a result of the impact of Year
2000 problems on its customers or vendors. However, the risks to the
Company associated with Year 2000 issues are many.
The Company's assessment of possible Year 2000 related problems depends,
to some extent, on the assurances and guidance provided it by the
suppliers of the technology as to its Year 2000 readiness. In addition,
the Company has limited ability to independently verify the possible
effect of Year 2000 problems on its customers and vendors. Therefore,
the Company's assumptions concerning the effect of Year 2000 issues
relies, in part, on its ability to analyze the business and operations
of each of its critical vendors or customers. This process is, by the
nature of the problem, limited to such persons' public statements, their
responses to the Company's inquiries, and the information available to
the Company from third parties concerning the industries or particular
vendors or customers involved.
The Company expects that Year 2000 problems which cause customers to be
unable to place orders would have a material adverse impact on its
business only if the problem was widespread and long-lived. The Company
has a broad customer base, which would likely alleviate the adverse
effects of isolated customer Year 2000 problems.
Some risk also exists that, despite the Company's best efforts, critical
manufacturing systems may malfunction due to Year 2000 problems and
curtail the manufacturing process. The Company does not anticipate such
interruptions and it is unlikely any such curtailment would be lengthy.
With eleven manufacturing facilities, a temporary interruption at one
facility is unlikely to have a material adverse impact on the Company's
business.
<PAGE>
Interruption of raw material supply due to supplier problems caused by
Year 2000 issues are not expected to be material as the Company stocks
raw materials to protect against supply problems and alternative sources
of supply exist to meet the Company's raw material needs. Similarly,
although the Company faces potential disruptions in its operations from
Year 2000 problems as a result of the failure of the power grid,
telecommunications, or other abilities, it is not aware that any
material disruption in these infrastructures is reasonably likely to
occur and the number and widespread location of its facilities is likely
to minimize the impact of any disruption.
-12-
Contingency Plan
The Company has evaluated various contingencies that may arise as a
result of Year 2000 issues. The Company anticipates that disruptions in
production, sales, the supply of raw materials, loss of customer orders,
and other foreseeable effects of the Year 2000 issues can be addressed
following normal business alternatives. The Company will continue to
analyze and develop contingency plans where possible and not cost
prohibitive.
INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
This report contains certain of management's expectations and other
forward-looking information regarding the Company pursuant to the safe-
harbor provisions of the Private Securities Litigation Reform Act of
1995. While the Company believes that these forward-looking statements
are based on reasonable assumptions, such statements are not guarantees
of future performance and all such statements involve risk and
uncertainties that could cause actual results to differ materially from
those contemplated in this report. The assumptions, risks and
uncertainties relating to the forward-looking statements in this report
include general economic and business conditions, changes in the prices
of raw materials, competitive pricing in the markets served by the
Company as a result of economic conditions or overcapacity in the
industry, and possible adverse effects on the Company or the economy
from Year 2000 problems. These and other assumptions, risks and
uncertainties are described under the caption "Cautionary Statement
Regarding Forward-Looking Information" in Item 1 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, and, from time
to time, in the Company's other filings with the Securities and Exchange
Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the information provided in
response to Item 7A of the Company's Form 10-K for the year ended
December 31, 1998.
-13-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1997, the Attorney General of the State of Florida filed a civil
complaint in the United States District Court for the Northern District
of Florida against ten manufacturers of commercial sanitary paper
products, including the Company's wholly owned subsidiary, Bay West
Paper Corporation. The lawsuit alleges a conspiracy to fix prices of
commercial sanitary paper products starting at least as early as 1993.
Since the filing of this lawsuit, numerous class action suits have been
filed by private direct purchasers of commercial sanitary paper products
in various federal district courts throughout the country and additional
federal lawsuits have been filed by the Attorneys General of the States
of Kansas, Maryland, New York, and West Virginia. All of these federal
cases have been certified as class actions and consolidated in a
multi-district litigation proceeding in the United States District Court
for the Northern District of Florida in Gainesville. Certain indirect
purchasers of sanitary commercial paper products have also filed class
action lawsuits in various state courts alleging a conspiracy to fix
prices under state antitrust laws. No class has been certified in the
state actions. All of these actions are in early stages. In the opinion
of management, the Company has not violated any antitrust laws. The
Company is vigorously defending these claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the company was held on April 22,
1999.
The matters voted upon, including the number of votes cast for, against
or withheld, as well as the number of abstentions and broker non-votes,
as to each such matter were as follows:
<TABLE>
MATTER SHARES VOTED
<CAPTION>
Broker
FOR AGAINST WITHHELD ABSTAIN NON-VOTE
<S> <C> <C> <C> <C> <C>
1. Election of Class III
Directors
(a) Daniel R. Olvey 48,446,293 N/A 506,135 N/A 0
(b) Gary W. Freels 48,453,930 N/A 498,498 N/A 0
2. Approval of the 48,778,138 56,711 N/A 117,579 0
appointment of Wipfli
Ullrich Bertelson LLP as
independent auditors for
the year ending December
31, 1999
</TABLE>
-14-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
The following exhibits are filed with the Securities and Exchange
Commission as part of this report:
Exhibit
NUMBER DESCRIPTION
3.1 Restated Articles of Incorporation, as amended October 21, 1998
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K dated October 21, 1998)
3.2 Restated Bylaws, as amended December 17, 1997 (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-8 dated December 17, 1997)
4.1 Rights Agreement, dated as of October 21, 1998, between the
Company and Harris Trust and Savings Bank, including the Form
of Restated Articles of Incorporation as Exhibit A and the Form
of Rights Certificate as Exhibit B (incorporated by reference
to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated October 21, 1998)
4.2 Summary of Rights to Purchase Preferred Shares, Exhibit C to
Rights Agreement filed as Exhibit 4.1 hereto (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form 8-A, filed on October 29, 1998)
10.1 Supplemental Retirement Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.2 Incentive Compensation Plans (Printing & Writing Division and
Technical Specialty Division), as amended September 17, 1997
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
November 30, 1997)*
10.3 Corporate Management Incentive Plan, as amended September 18,
1996 (incorporated by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1996)*
10.4 1988 Stock Appreciation Rights Plan, as last amended March 4,
1999 (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)*
-15-
10.5 1988 Management Incentive Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
<PAGE>
10.6 1990 Stock Appreciation Rights Plan, as last amended March 4,
1999 (incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)*
10.7 Deferred Compensation Agreement dated July 1, 1994, as last
amended March 4, 1999 (incorporated by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998)*
10.8 1991 Employee Stock Option Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.9 1991 Dividend Equivalent Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
10.10 Supplemental Retirement Benefit Plan dated January 16, 1992,
as last amended March 4, 1999 (incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)*
10.11 Directors' Deferred Compensation Plan, as last amended March
4, 1999 (incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)*
10.12 Directors Retirement Benefit Policy, as amended April 16, 1998
(incorporated by reference to Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998)*
10.13 Transition Benefit Agreement with former President and CEO
(incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended August 31,
1997)*
10.14 Mosinee Paper Corporation 1985 Executive Stock Option Plan, as
last amended March 4, 1999 (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)*
10.15 Mosinee Paper Corporation 1988 Stock Appreciation Rights Plan,
as last amended March 4, 1999 (incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)*
-16-
10.16 Mosinee Paper Corporation 1996 and 1997 Incentive Compensation
Plans for Corporate Executive Officers (incorporated by
reference to Exhibit 10.16 to the Company's Transition Report
on Form 10-Q for the transition period ended December 31,
1997)*
<PAGE>
10.18 Mosinee Paper Corporation Supplemental Retirement Benefit
Agreement dated November 15, 1991, as last amended March 4,
1999 (incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)*
10.19 Mosinee Paper Corporation 1994 Executive Stock Option Plan, as
last amended March 4, 1999 (incorporated by reference to
Exhibit 10.19 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)*
10.20 Incentive Compensation Plan for Executive Officers (1998)
(incorporated by reference to Exhibit 10.20 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998)*
10.21 1999 Incentive Compensation Plan for Executive Officers
(incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998)*
21.1 Subsidiaries as of June 30, 1999
27.1 Financial Data Schedule (filed electronically only)
* Executive compensation plans or arrangements. All plans are
sponsored or maintained by the Company unless otherwise noted.
(b) Reports on Form 8-K:
None.
-17-
<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 thereunto duly authorized.
WAUSAU-MOSINEE PAPER CORPORATION
August 13, 1999 GARY P. PETERSON
Gary P. Peterson
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
-18-
EXHIBIT INDEX
TO
FORM 10-Q
OF
WAUSAU-MOSINEE PAPER CORPORATION
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. '232.102(d))
EXHIBIT 21.1 SUBSIDIARIES AS OF JUNE 30, 1999
EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
Exhibit 21.1
SUBSIDIARIES OF WAUSAU-MOSINEE PAPER CORPORATION
1. Rhinelander Paper Company, Inc., a Wisconsin corporation
2. Wausau Papers Export Corporation, a Wisconsin corporation
3. Wausau-Mosinee 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. Mosinee Paper Corporation, a Wisconsin corporation
Subsidiaries of Mosinee Paper Corporation:
<PAGE>
(a) The Sorg Paper Company, an Ohio corporation
(i) The Middletown Hydraulic Company, an Ohio corporation
(b) Mosinee Holdings, Inc., a Wisconsin corporation
(c) Bay West Paper Corporation, a Wisconsin corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1999
OF WAUSAU-MOSINEE PAPER CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,216
<SECURITIES> 0
<RECEIVABLES> 95,352
<ALLOWANCES> 9,738
<INVENTORY> 149,278
<CURRENT-ASSETS> 255,859
<PP&E> 1,092,557
<DEPRECIATION> 452,199
<TOTAL-ASSETS> 931,942
<CURRENT-LIABILITIES> 200,837
<BONDS> 124,375
<COMMON> 170,681
0
0
<OTHER-SE> 220,590
<TOTAL-LIABILITY-AND-EQUITY> 931,942
<SALES> 460,698
<TOTAL-REVENUES> 460,698
<CGS> 384,876
<TOTAL-COSTS> 417,918
<OTHER-EXPENSES> 541
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,090
<INCOME-PRETAX> 38,231
<INCOME-TAX> 14,400
<INCOME-CONTINUING> 23,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,831
<EPS-BASIC> 0.45
<EPS-DILUTED> 0.45
</TABLE>
