FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File No. 0-1051
Consolidated Papers, Inc.
(A Wisconsin Corporation)
IRS Employer Identification No. 39-0223100
Wisconsin Rapids, Wisconsin 54495-8050
Telephone No. 715-422-3111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, Par Value $1.00 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (X)
The aggregate market value of March 5, 1996 of the voting stock held by
nonaffiliates of the registrant was approximately $1.44 billion, based upon
the NYSE closing price on March 5, 1996 and an estimate that 60.5% of the
stock is owned by nonaffiliates.
On March 5, 1996 there were 44,646,828 shares of common stock outstanding.
Information required by Items 10, 11, and 12 of Form 10-K is incorporated by
reference (except as specifically excepted in the Proxy Statement) into
Part III hereof from the registrant's Proxy Statement to Shareholders for the
Annual Meeting of Shareholders to be held April 22, 1996.
PART I
Item 1. BUSINESS.
Consolidated Papers, Inc. was incorporated in Wisconsin in 1894. The company
and its subsidiaries (collectively, the "Company") operate primarily in the
pulp and paper industry. Operations in pulp and paper involve the manufacture
and sale of enamel printing paper (also known as coated printing paper) and
supercalendered printing paper for the printed communications industry, coated
specialty papers used largely in the packaging and labeling of food and
consumer products, and the manufacture of pulp and recycled pulp for use in
the manufacture of these papers. The Company also manufactures paperboard,
paperboard products and corrugated products. Integrated in the business are
electrical power operations, which have nominal sales to others.
Effective July 1, 1995, the Company acquired Niagara of Wisconsin Paper
Corporation, Niagara, Wisconsin, a manufacturer of coated groundwood
publication papers; Lake Superior Paper Industries, Duluth, Minnesota, a
manufacturer of supercalendered paper; and Superior Recycled Fiber Industries,
Duluth, Minnesota, a producer of high-quality recycled pulp from post-consumer
wastepaper.
The Company's principal product is coated printing papers. The Company is
North America's largest manufacturer of these papers and a leading
manufacturer of supercalendered printing papers for the printing and
publishing industries. In addition, the Company is the largest manufacturer
of lightweight coated specialty papers in the United States.
The percent of coated printing paper sales to total sales was 81.5% (1991),
80.7% (1992), 79.8% (1993), 80.0% (1994), and 84.0% (1995).
Coated and supercalendered printing papers are sold directly to magazine and
catalog publishers and through paper merchants to publishers and commercial
printers. Distribution of other paper products is by means of direct sales to
quantity users.
<TABLE>
DISTRIBUTION OF COATED PRINTING PAPER SALES IN TONS
<CAPTION>
Direct
Publisher Merchant
Accounts And Other
Year % %
<S> <C> <C>
1991 62% 38%
1992 61% 39%
1993 56% 44%
1994 52% 48%
1995 52% 48%
The Company competes in the coated printing paper market, supercalendered
printing paper market, and coated specialty paper market (1) by providing
paper of high quality incorporating special qualities desired by its
customers, (2) by pricing its products competitively, and (3) by emphasizing
service to customers in the form of prompt attention to orders, prompt and
reliable delivery of products to customers, and technical assistance to
printers that use the Company's products.
Few paper manufacturers have unique qualities in coated papers or coated
specialty papers, or unique machines or secret processes that give them a
strong competitive advantage over other paper manufacturers. Because of this,
price competition is a more important marketing factor during periods of
excess supply of, or low demand for, this product. These two factors often
occur at once.
The Company competes in the coated printing paper market with other paper
companies, some of which are substantially larger, more diversified, and with
greater financial resources. However, the Company is the largest manufacturer
of coated printing papers in North America, having shipped 1,160,163 tons of
coated printing papers in 1995, which represents approximately 16% of the U.S.
market for this product. Sales to Unisource, a paper merchant, as a percent
of net sales, amounted to 12.4% in 1995. The Company's principal U.S.
competitors are Blandin Paper Company, a subsidiary of Fletcher Challenge
Canada Ltd.; Boise Cascade Corporation; Bowater Incorporated; Champion
International Corporation; Crown Vantage Inc.; International Paper Company;
Mead Corporation; Repap Wisconsin Inc., an affiliate of Repap Enterprises
Corporation Inc.; the Northwest Paper Division of Potlatch Corporation; the
S.D. Warren Division of Sappi Ltd.; Westvaco Corporation; and Madison Paper
Industries.
The Company's energy sources during 1995 were:
<S> <C>
Coal 24.5%
Process Waste 42.0%
Natural Gas 15.8%
Electricity 17.4%
Petroleum products .3%
The Company experienced no shortages of energy in 1995. The Company currently
purchases 84% of its coal requirement under two contracts, one for low-sulfur
western U.S. coal, and the other for Kentucky coal, both of which expire
December 31, 1999. The remaining 16% of its coal requirement is purchased on
annual contracts. Coal is currently in ample supply, and we anticipate no
supply problems in 1996.
The Company is in the third year of a five-year agreement for the firm
transportation of approximately 55% of its total natural gas supply.
Approximately 45% of the Company's natural gas consumption is in the
interruptible category, which means it is subject to reduction in supply
whenever cold weather or other events decrease the amount of pipeline gas
available. When such reductions occur, production is maintained by
substituting fuel oil or propane, of which the Company has an adequate supply.
Natural gas is currently in good supply and minimal interruption is expected
in 1996.
The Company is integrated through ownership of forest lands and through its
own pulp-producing facilities. The harvest during 1995 from Company lands was
the equivalent of 10% of the wood used in the Company's pulp mills. Wood used
in the Company's pulp mills from outside Company land came from independent
producers who obtain their wood products from public and private lands, and
from sawmill residues. The Company was able to acquire an adequate supply of
pulpwood and wood chips during 1995 and expects that its regular suppliers
will be able to furnish it with an adequate supply of pulpwood and wood chips
for 1996 operations.
The Company also purchases market pulp on a regular basis and purchased 26.6%
of the total pulp consumed by the Company's paper mills during 1995. This
includes pulp consumed at Niagara of Wisconsin Paper Corporation and Lake
Superior Paper Industries for the second half of 1995. The Company has been
able to acquire sufficient pulp to operate its mills at planned rates to date
and has contracts and other arrangements for 100% of its anticipated
requirements for 1996. Market pulp is currently in ample supply, and the
Company anticipates no supply problems in 1996.
The principal raw materials consumed in the manufacture of kraft pulp include
pulpwood, chlorine dioxide, caustic soda, oxygen, hydrogen peroxide, sulfuric
acid, sodium chlorate, and lime. The principal raw materials consumed in the
manufacture of coated papers include kraft pulp, groundwood pulp,
thermomechanical pulp, starch, soya protein, clay, calcium carbonate, latex,
and titanium dioxide pigment.
The Company has multiple sources for all principal raw materials consumed and
purchases most raw materials from domestic sources. The majority of the
purchased kraft pulp is imported from Canada, along with small quantities of
wood chips. During 1995, the Company was able to procure adequate supplies of
all principal raw materials and thus experienced no interruptions of
production due to materials shortages. Most raw materials remain in good
supply, while sodium chlorate and hydrogen peroxide are in tight supply. The
Company expects no interruptions of production due to materials shortages.
The Company has various patents but does not believe its business is dependent
on any one patent or group of patents.
The Company spent an estimated $5.8 million in 1995, $5.9 million in 1994, and
$5.7 million in 1993 on research and development. These funds were devoted to
the development of improved processes and new process control systems, the
development of new products and the improvement of existing products, and
environmental projects.
The Company is committed to complying with all state and federal environmental
regulations.
Our wastewater permits were renewed on September 30, 1994. The renewed
permits contain some favorable provisions including reduced dioxin monitoring
and elimination of the aluminum, copper, and zinc limits in Water Quality
Center's (WQC) permit. During 1995, certain concerns the Company had with
other provisions of the renewed permits for its central Wisconsin operations
were favorably resolved with the Wisconsin Department of Natural Resources
(WDNR), thus avoiding the need for an adjudicatory hearing. The Niagara of
Wisconsin (NOW) wastewater permit has been challenged due to unreasonable term
and fish flavor impairment study requirements. The Company is actively
attempting to resolve NOW's permit issues with the WDNR, thus avoiding the
need for a hearing. We remain in compliance with all conditions and
limitations of our renewed wastewater permits. The Environmental Protection
Agency (EPA) issued final water quality guidance for the Great Lakes system on
March 23, 1995. This guidance, called the Great Lakes Initiative, establishes
a mechanism for dealing with toxic pollutants which is to be followed by all
the Great Lakes states. The affected states have until March 1997 to adopt
the provisions of the Great Lakes Initiative. The final guidance document
allows the states much more flexibility than in the original guidance
document. Therefore, the impacts on our operations will depend to some extent
on decisions made by each state. The Company continues to carefully follow
state developments in order to assess the impact of this new regulatory
program. The Great Lakes Initiative has been legally challenged by the paper
industry and other impacted parties. The Company does not expect that
compliance with its renewed wastewater permits will cause material changes in
its business or affect its competitive position. The Company is unable to
predict the effect of future amendments to the Clean Water Act or
implementation of the Great Lakes Initiative, which may require additional
wastewater treatment. The Company continues to invest capital funds to
upgrade wastewater treatment facilities in preparation for production
increases and future regulations.
The Company has received general tier 1 storm-water discharge permits for its
applicable operations. The permits include a pollution-prevention plan and
best-management practices, and may require storm-water sampling and testing,
and pollution control. The Company has defined storm-water permit
requirements and schedules, and will implement a cost-effective strategy to
comply. The storm-water permit requirements are not expected to cause
material changes in the Company's business or affect its competitive position.
The Company continues to implement plans to assure continued compliance with
WDNR's hazardous air emissions regulations.
The Federal Clean Air Act Amendments of 1990 and the Clean Water Act Effluent
Guidelines are expected to have a significant financial impact on the paper
industry. The EPA proposed rules to reduce the discharge of water pollutants
and emissions of hazardous air pollutants from the paper industry on
December 17, 1993. These proposed regulations are commonly referred to as the
"Cluster Rule." The Company's preliminary review of the proposed Cluster Rule
indicates that capital expenditures of $60 million to $95 million for process
and equipment changes may be required three years after the Cluster Rule is
final. Additional annual operating costs of $20 million to $25 million may be
required to comply with the Cluster Rule. The industry's national trade
association is working with Company representatives to carefully review these
significant regulations. Detailed comments were filed seeking relief as
appropriate. The proposed Cluster Rule is subject to change prior to final
promulgation, which is currently scheduled for no earlier than June 1996.
Therefore, our capital and operating cost estimates are also subject to change
and will be updated as required by the final Cluster Rule. Because the
Company's principal competitors will also be subject to similar regulatory
requirements, the Company does not expect that compliance with the Cluster
Rule will affect its competitive position.
The Company remains in compliance with the monitoring and reporting
requirements of state groundwater regulations applicable to its active and
inactive landfills. The Company continues to explore solid waste reduction
and recycling alternatives to decrease costs and reliance on landfills. The
Company obtained regulatory approval to restart its ConsGr (WQC wastewater
treatment biosolids) agricultural landspreading program in 1993. The ConsGr
program began operation on November 1, 1993. The ConsGr program reduces our
dependence on landfills, and benefits the local agricultural community and
environment. The Company is currently evaluating the technical and economic
feasibility of agricultural landspreading at Niagara of Wisconsin. The
Company continues to distribute lime sludge from its kraft pulp mill as a
liming agent and for use in asphalt mixtures. The Company completes landfill
site life evaluations annually to assure adequate lead time for permitting and
constructing required new sites. The Company continues to make progress in
obtaining all approvals and permits to expand landfill capacity at the Water
Quality Center and Niagara of Wisconsin. At this time, the Company is unable
to predict the effect of future landfill, groundwater or sediment remediation
regulations.
The Company's Hazardous Materials Committee continues to ensure timely and
full compliance with all regulations applicable to the purchase,
transportation and disposal of hazardous materials. The committee also
ensures compliance with the Department of Transportation rules regarding
training of all employees who handle and transport hazardous materials.
The unintended generation of dioxin is a global concern and a challenge for
the paper industry. The industry's use of elemental chlorine in the pulp-
bleaching process has been linked to the formation of trace amounts of
dioxins, furans, chloroform and other chlorinated organics. The Company has
developed a multiphase program to reduce the use of elemental chlorine in the
pulp-bleaching process. Phase I of the chlorine-reduction program was
completed in 1992 and included improved hardwood brownstock washing, increased
substitution of chlorine dioxide in the first stage of pulp bleaching and use
of hydrogen peroxide and oxygen in the caustic-extraction stage. Phase II of
the chlorine-reduction program was completed in 1993 and included the addition
of softwood oxygen delignification and associated brownstock washing. The
Company has been using oxygen delignification on hardwood since 1986. Phase I
produced nondetectable levels of dioxin (2,3,7,8-TCDD) in our treated
wastewater effluent and assures compliance with permit limits. Phase II was
optimized during 1994 with emphasis on further reducing elemental chlorine.
Phase II has resulted in nondetectable levels of dioxin (2,3,7,8-TCDD) in pulp
and wastewater treatment plant sludge and also has significantly reduced the
formation of other chlorinated organics, including chloroform. Phase II also
resulted in the elimination of elemental chlorine in the bleaching of softwood
pulp, achieving the commonly referred to status of elemental chlorine-free
(ECF). In March 1994, the Company announced further chlorine-reduction plans.
Phase III of our chlorine-reduction program will eliminate the use of
elemental chlorine in the hardwood pulp-bleaching process by the end of 1996.
Our new ECF pulp-bleaching process utilizes chlorine dioxide on softwood and
will utilize high-consistency ozone on hardwood to replace elemental chlorine
in the first stage of bleaching. All major equipment for Phase III has been
ordered and is expected to be delivered during the first quarter of 1996.
Phase III start-up is currently scheduled for late 1996. We will define
technology options, implementation schedules and budgets to meet future
regulatory requirements and market demand. The Company continues to evaluate
the technical and economical feasibility of nonchlorine bleaching if required
by future regulation or the marketplace.
The Company continues to comply with its voluntary commitment to the Food and
Drug Administration to reduce dioxin (2,3,7,8-TCDD) in bleached wood pulp used
to manufacture food packaging to two parts per trillion or less.
The Company has complied with all conditions of a 1993 consent decree that
settled a lawsuit for violation of particulate emission limits applicable to
Kraft Division's lime kiln. The Company submitted the last consent decree
compliance report and has requested termination.
During 1993, the Company settled a lawsuit brought by the United States
seeking recovery of cleanup expenses incurred at a Superfund site in Harrison,
Wisconsin. It is possible that the Company will be named as a potentially
responsible party with respect to several other sites (probably in Wisconsin),
including the Marina Cliffs Barrel Dump site near Milwaukee. The Company
recently responded to an information request from the EPA regarding the Marina
Cliffs site. The Company has not been advised of any formal action regarding
other sites to date.
The state of Wisconsin has undertaken sediment remediation studies on various
watershed systems, including the Wisconsin River and the Fox River. Also, the
United States Department of the Interior has notified several companies of its
intent to pursue natural resource damage claims with respect to the Fox River.
Substantially all of the Company's central Wisconsin manufacturing operations
use water from and discharge treated effluent into the Wisconsin River. The
studies with respect to the Wisconsin River system are in the early stages.
The Company does not know whether remedial actions will be undertaken with
respect to the Wisconsin River, but expects to be involved in ongoing studies
of the Wisconsin River system and in any sediment remediation activities on
this system. The Company's Appleton Division, closed in 1982, was on the Fox
River. To date, the Company has not been involved in any discussions
concerning the Fox River.
The Company remains in compliance with all provisions of emergency planning
community right-to-know legislation and federal and state underground storage
tank regulations. Environmental activities not only are directed at
protecting the environment through pollution control, but also through
pollution prevention. The Company actively participates in the Wisconsin
Paper Council's innovative pollution prevention partnership with the WDNR.
The Company continues to look for cost-effective pollution prevention
opportunities.
Internal multimedia environmental audits were completed during 1995 to assure
compliance with environmental laws and regulations.
The Company estimates current environmental operating costs to be
$23.8 million annually, including depreciation of $6.1 million. In 1995, the
Company spent $24.0 million on capitalized environmental improvements and will
spend another $34.9 million in 1996, not including any possible costs for
complying with the Cluster Rule. The Company anticipates that compliance with
regulations to be promulgated to implement the Clean Air Act Amendments of
1990 will require significant capital expenditures over the next five years
and will significantly increase operating costs at the Company's Kraft
Division. These costs are described in more detail in Part II, Item 7,
Management's Discussion and Analysis of Liquidity and Capital Resources -
Environmental Matters. The Company attempts to recover some of its
environmental expenses through increased prices of its products.
At the end of 1995 the Company employed approximately 5,930 people,
essentially all of whom were full-time employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
Officer
Name Age Since Positions
<S> <C> <C> <C>
George W. Mead 68 1971 Chairman of the Board
Patrick F. Brennan 64 1988 President and
Chief Executive Officer
William P. Orcutt 67 1977 Senior Vice President
James R. Kolinski 57 1993 Vice President, Manufacturing
Ronald E. Swanson 46 1995 Vice President, Manufacturing
David A. Krommenacker 53 1994 Vice President
Gorton M. Evans, Jr. 57 1989 Vice President
John T. Hurley 61 1995 Vice President, Marketing
Richard J. Kenney 55 1989 Vice President, Finance
Carl H. Wartman 43 1990 Secretary and Corporate Attorney
James E. Shewchuk 59 1989 Controller
John D. Steinberg 60 1990 Treasurer
All executive officers of the Company are elected annually by the Board of
Directors.
All of the executive officers of the Company have served in executive or
managerial positions in the Company for the past five years.
Item 2. PROPERTIES.
The Company, at the close of 1995, operated eleven manufacturing plants in
seven municipalities. The following table describes the Company's facilities.
No. Sq. Ft.
Manufac- Production, Plant
turing Plant Office, Sites
Industry Plants Locations Whse. Space (Acres)
<S> <C> <C> <C> <C>
Paper and pulp 11 4 - Wisconsin Rapids, WI)
1 - Biron, WI )
1 - Whiting, WI ) 7,953,158 1,061
1 - Stevens Point, WI )
1 - Adams, WI )
1 - Niagara, WI )
2 - Duluth, MN )
Equipment in operation at the close of 1995 included 19 paper machines, two
continuous kraft-pulp digesters, one recycled pulp mill, one paperboard
machine, one corrugating machine, and electrical production facilities with a
nameplate rated capacity of 222,043 KW (with actual capacity at any time
subject to boiler capacity and river flow availability for electrical
production).
The Water Quality Center in Wisconsin Rapids is a pollution-abatement facility
on a 417-acre site which treats the mill effluent of two paper mills and one
pulp mill.
The Water Renewal Center near Stevens Point is a pollution-abatement facility
on a 192-acre site that currently treats the effluent of two paper mills.
Available capacity utilization during 1995 was 98.7% for coated papers and
100% for supercalendered papers. Production facilities are considered to be
well maintained and adequate for their purpose.
The Company owns 316,538 acres of timberlands in the United States and 356,927
acres in Canada. A forest-management plan prescribes allowable cuts on all
timberlands with the objective of maximum return from this resource while
keeping harvests in balance with growth.
Item 3. LEGAL PROCEEDINGS.
There were no pending legal proceedings other than ordinary litigation of a
nonmaterial nature incidental to the business of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Form 10-K.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The number of record holders of the Company's common stock as of December 31,
1995 is 6,850.
The Company's common stock is traded on the New York Stock Exchange. The
Company's symbol is CDP.
COMMON STOCK MARKET PRICE AND CASH DIVIDENDS
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
1995
<S> <C> <C> <C> <C> <C>
High $ 50.38 $ 57.63 $ 64.88 $ 65.38 $ 65.38
Low 44.88 47.63 54.50 53.00 44.88
Close 49.75 57.63 55.88 56.13 56.13
Cash dividend .32 .37 .37 .37 1.43
1994
High $ 49.00 $ 44.25 $ 52.38 $ 52.00 $ 52.38
Low 41.00 36.25 42.25 41.88 36.25
Close 41.50 43.75 51.75 45.00 45.00
Cash dividend .32 .32 .32 .32 1.28
Item 6. SELECTED FINANCIAL DATA.
FIVE-YEAR COMPARISON OF SELECTED
FINANCIAL DATA
FOR THE YEARS 1991 THROUGH 1995
(Dollars in thousands, except per share data)
Year Net Income Cash
Ended Per Total Long-Term Dividends
Dec. 31 Net Sales Amount Share Assets Debt Per Share
<S> <C> <C> <C> <C> <C> <C>
1995 $ 1,579,061 $ 229,230* $ 5.16* $ 1,933,061 $ 197,000 $ 1.43
1994 1,027,551 86,734** 1.97** 1,499,511 68,000 1.28
1993 947,336 64,195 1.46 1,467,067 121,000 1.28
1992 904,232 12,359*** .28*** 1,486,967 171,000 1.28
1991 871,864 91,445 2.10 1,410,707 178,000 1.28
* 1995 amounts reflect acquisitions effective July 1, 1995 of Niagara of
Wisconsin Paper Corporation, Lake Superior Paper Industries and Superior
Recycled Fiber Industries.
** The 1994 amounts reflect the change in estimated useful lives of
machinery and equipment used in the pulp and papermaking process to a
20-year period versus the former 16-year period.
*** 1992 amounts reflect the cumulative effect of changes in accounting
principles.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Effective July 1, 1995, the Company completed the acquisition of Niagara of
Wisconsin Paper Corporation in Niagara, Wisconsin, and Lake Superior Paper
Industries and Superior Recycled Fiber Industries, both in Duluth, Minnesota.
The operating results of the acquired companies subsequent to the acquisition
date are included in the Consolidated Statements of Income. Details for the
funding of the acquisition are included in Note 2 of the Notes to Consolidated
Financial Statements.
Sales and Cost of Sales.
Net sales increased 54% in 1995 to a record $1.6 billion, compared with
$1.0 billion in 1994 and $0.9 billion in 1993. Record shipments of 1,492,000
tons were an increase of 30% over the previous record year of 1994. The
acquisition accounted for 78% of the increase in shipments. Gross margin as a
percent of sales was 28.6% in 1995, compared with 19.5% in 1994 and 18.5% in
1993. The higher 1995 margin was due to higher selling prices and, to a
lesser degree, greater unit volume to absorb fixed costs, partially offset by
higher pulp costs.
Plant Operations.
Groundwood-free coated shipments (primarily Wisconsin Rapids Division)
increased due to improved demand that was met by the No. 16 machine's
continued productivity improvements. During 1995, the division, excluding the
No. 11 paper machine, operated at 97% of available capacity, compared with 91%
in 1994 and 87% in 1993. The U.S. industry average capacity utilization was
92% for groundwood-free grades in 1995, 91% in 1994 and 90% in 1993. The
division's smallest machine (No. 11), which was idled in 1992 and did not
operate in 1993 or 1994, resumed operations in March 1995 and was again placed
on standby status in November 1995. During the fourth quarter, reduced demand
resulted in downtime on other machines at the division. Selling prices
increased 3% to 5% in the third quarter 1994, approximately 11% in December
1994, and 5% to 6% late in the first quarter 1995. A weakened market in the
fourth quarter 1995 resulted in some selective price concessions.
Coated groundwood shipments (Biron, Wisconsin River and Niagara of Wisconsin)
increased due to the mid-year Niagara acquisition, which ran at capacity
except for five days in late December when it was down due to lack of orders.
The Biron and Wisconsin River divisions operated at 100% of available capacity
in 1995, compared with 94% in 1994 and 88% in 1993. The U.S. industry average
capacity utilization was 94% for groundwood grades in 1995 and 93% in 1994 and
1993. On average, selling prices for groundwood grades increased 35% in 1995,
following a decline of 6% in 1994 and a 4% increase in 1993.
Lake Superior Paper Industries (supercalendered groundwood paper) operated at
100% of available capacity during 1995. Strong market demand allowed price
increases totaling approximately 40% during 1995.
Stevens Point Division's coated specialty paper shipments declined 1% from the
record year 1994. This followed increases of 11% and 24% in 1994 and 1993,
respectively. Operations were at 97% of available capacity for 1995, compared
with 100% in 1994 and 99% in 1993. The division's productivity increases
almost made up for the less than capacity operations. Strong markets during
the first half of 1995 allowed for selling price increases of 4% in January
and 4% in May. Softer demand in the last half of 1995 resulted in some
selling price concessions, poorer product mix, and 11 days of downtime due to
lack of orders.
Corrugated products shipments increased 1%, while paperboard products
shipments held steady in 1995. Paperboard Products Division is striving to
fill the sales void left by the loss of its spiral-can business in 1994.
Superior Recycled Fiber Industries operated at 100% of available capacity
during 1995. Reductions in scrap paper costs resulted in selling price
reductions for recycled pulp during the fourth quarter 1995.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased $4 million in 1995 to
$67 million, compared with a $1 million increase in both years 1994 and 1993.
The larger-than-normal 1995 increase is traced to the fold-in of the
appropriate acquisition selling, general and administrative expenses.
Other Income and Income Taxes.
Other income (expense) was ($4 million)in 1995 and $6 million in 1994, a
decrease of $10 million, compared with increases of $9 million and $2 million
in 1994 and 1993, respectively. The decrease includes a $5.5 million
favorable 1994 settlement of a nonrecurring patent infringement suit and from
higher interest expense. Interest expense was $11 million in 1995, compared
with $5 million in 1994 and $8 million in 1993. The increased interest
expense reflects higher debt associated with the July 1995 acquisition.
Effective tax rates were 39.8%, 39.2% and 41.8% in 1995, 1994 and 1993,
respectively. In 1993, the Company adjusted its deferred income tax balances
and current income taxes to reflect the increased federal income tax rate from
34% to 35%. The higher federal tax rate increased deferred tax liabilities at
January 1, 1993, by $3.6 million and the tax provision for 1993 by $1.1
million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES
Current Account Changes.
The July 1995 acquisition was accounted for as a purchase and the assets and
liabilities, which have been stated at their fair value, affect the
comparison to prior periods. Accounts receivable increased by $52 million,
compared with an increase of $27 million in 1994 and a decrease of $11 million
in 1993. The 1995 increase was principally due to increased sales in the
second half due to the acquisition. The days' sales outstanding has not
materially changed since 1987 and the Company believes its collection period
is well within the industry's standards. Inventories were up $44 million
compared with 1994 of which $29 million is due to the acquisition. Finished
goods inventory increased $21 million as a result of weakened markets in the
fourth quarter of 1995 and acquisition related of $8 million. Raw materials
increased $21 million and accounts payable increased by $25 million for 1995,
due to acquisition additions of $21 million and $26 million, respectively.
The year-end ratio of current assets to current liabilities was 1.3:1 in 1995
and 1994 and 1.2:1 in 1993.
Capital Commitments and Spending.
At the end of 1995, authorized but uncompleted capital commitments totaled
$214 million. A $149 million 1996 capital approval budget for new projects
has been authorized by the board of directors. This $149 million, plus the
$214 million carryover from 1995, less anticipated carryover of $123 million
at the end of 1996, will result in planned capital spending of $240 million in
1996, compared with expenditures of $159 million in 1995, $98 million in 1994
and $83 million in 1993. The major 1995 expenditures included $39 million for
a paper machine addition at the Stevens Point Division, $13 million for a
major rebuild of a paper machine at the Biron Division, $13 million toward the
third stage of a chlorine-reduction program at the Kraft Division, $9 million
for a new finishing winder at the Wisconsin Rapids Division, and $7 million
for projects at the acquired companies. The 1996 authorized $149 million
capital approval budget consists of $122 million for necessary replacement and
quality projects, $22 million for high-return projects, and $5 million for
environmental-control projects. Included in the $149 million approval budget
is $53 million in new projects for the newly acquired companies.
Long-Term Debt.
The Company's borrowings as of year-end were $267 million, an increase of
$149 million, after decreasing $53 million in 1994 and decreasing $50 million
in 1993. The increase is due to the July 1 acquisition. Current external
financing assures adequate capital to fund existing and projected projects and
positive future cash flow will be used to pay down the debt. Interest
incurred totaled almost $12 million in 1995, with $11 million charged against
income and $1 million capitalized as part of the cost of related capital
projects.
Substantially all of the machinery and equipment at Lake Superior Paper
Industries and certain assets at Niagara of Wisconsin Paper Corporation are
under operating leases. The Company has options under these leases to
purchase the interests of the owner participants at set prices at various
times during the leases and again at conclusion of the leases for the then
fair market value of the equipment. If the Company purchases the interests of
the equity participants, the Company would be required to assume related debt
secured by the leased equipment. Under the Lake Superior Paper Industries
leases, the Company has the option at the end of 1997 to buy out the equity
participants for $164 million and assume related debt of $158 million. The
Company expects that adequate financing will be available if these options are
exercised.
Environmental Matters.
The Company has completed two phases of a multiphase chlorine-reduction
program involving equipment and process changes at the Kraft Division that are
designed to ensure full compliance with dioxin wastewater permit limitations
and with Wisconsin regulations requiring best-available chloroform emission
control technology. Phase III, which will eliminate elemental chlorine from
the hardwood pulp-bleaching process, is expected to cost approximately $33
million and is planned for completion in late-1996. Mechanical pulp is
bleached using a totally chlorine-free process.
During 1993, the Company settled a lawsuit brought by the United States
seeking recovery of cleanup expenses incurred at a Superfund site in Harrison,
Wisconsin. It is possible that the Company will be named as a potentially
responsible party with respect to several other sites (probably in Wisconsin),
including the Marina Cliffs Barrel Dump site near Milwaukee. The Company
recently responded to an information request from the EPA regarding the Marina
Cliffs site. The Company has not been advised of any formal action regarding
other sites to date.
The state of Wisconsin has undertaken sediment remediation studies on various
watershed systems, including the Wisconsin River and the Fox River. Also, the
United States Department of the Interior has notified several companies of its
intent to pursue natural resource damage claims with respect to the Fox River.
Substantially all of the Company's central Wisconsin manufacturing operations
use water from and discharge treated effluent into the Wisconsin River. The
studies with respect to the Wisconsin River system are in the early stages.
The Company does not know whether remedial actions will be undertaken with
respect to the Wisconsin River, but expects to be involved in ongoing studies
of the Wisconsin River system and in any sediment remediation activities on
this system. The Company's Appleton Division, closed in 1982, was on the Fox
River. To date, the Company has not been involved in any discussions
concerning the Fox River.
The Clean Air Act Amendments of 1990 and the Clean Water Act Effluent
Guidelines Limitations are expected to have a significant financial impact on
the paper industry. The EPA proposed rules to reduce the discharge of water
pollutants and emissions of hazardous air pollutants from the pulp and paper
industry on December 17, 1993. These proposed regulations are commonly
referred to as the "Cluster Rule." The Company's preliminary review of the
proposed Cluster Rule indicates that capital expenditures of $60 million to
$95 million for process and equipment changes may be required three years
after the Cluster Rule is final. Additional annual operating costs of $20
million to $25 million may be required. The Cluster Rule is subject to change
prior to final promulgation, which is scheduled for no earlier than June 1996.
In March 1995, the EPA issued final water quality guidance for the Great Lakes
system. This guidance, known as the Great Lakes Initiative (GLI), establishes
a mechanism for dealing with toxic pollutants which is to be followed by all
Great Lakes states, and will be applicable to all of the Company's
manufacturing operations. Affected states have until March 1997 to adopt the
provisions of the GLI, which has been challenged in court by the paper
industry and other impacted parties. Compliance with the GLI may require
additional capital expenditures and increase operating costs.
The Company is engaged in lagoon closure activities and groundwater studies at
its Niagara facility. See Note 1 of the Notes to Consolidated Financial
Statements - Environmental Matters.
Management believes that the resolution of existing environmental matters will
not have a material impact on the Company's results of operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
Consolidated Balance Sheets Consolidated Papers, Inc. and Subsidiaries
As of December 31
(Dollars in thousands) 1995 1994 1993
Current Assets
<S> <C> <C> <C>
Cash and cash equivalents $ 5,372 $ 8,155 $ 2,123
Accounts and notes receivable,
net of reserves of $4,628 in 1995,
$4,066 in 1994 and $3,558 in 1993 140,072 88,462 61,321
Inventories
Finished and partly finished
products 49,651 29,078 44,481
Raw materials 47,068 26,380 24,921
Stores supplies 35,724 32,555 30,885
132,443 88,013 100,287
Prepaid expenses 36,930 14,698 17,859
Total Current Assets 314,817 199,328 181,590
Investments and Other Assets
Investments in affiliates, at cost
plus equity in undistributed
earnings 33,800 30,887 29,147
Other assets 42,666 29,322 33,075
Goodwill 73,401 - -
149,867 60,209 62,222
Plant and Equipment
Buildings 207,980 168,952 159,464
Machinery and equipment 1,952,927 1,739,000 1,674,455
2,160,907 1,907,952 1,833,919
Less: Accumulated depreciation 830,764 753,263 680,767
1,330,143 1,154,689 1,153,152
Land and riparian rights 11,106 7,620 7,309
Timber and timberlands, net of
depletion 22,890 21,764 21,006
Capital additions in process 104,238 55,901 41,788
1,468,377 1,239,974 1,223,255
$ 1,933,061 $ 1,499,511 $ 1,467,067
Current Liabilities
Current maturities of long-term debt $ 70,000 $ 50,000 $ 50,000
Accounts payable 72,278 47,436 33,352
Payroll and employee benefits 49,426 38,873 39,351
Income taxes 11,420 126 -
Property taxes 11,797 7,421 8,983
Other current liabilities 26,318 13,094 13,999
Total Current Liabilities 241,239 156,950 145,685
Noncurrent Liabilities and
Deferred Credits
Long-term debt 197,000 68,000 121,000
Deferred income taxes 221,560 181,778 158,448
Postretirement benefits 93,702 109,558 98,776
Other noncurrent liabilities 20,763 7,338 4,110
533,025 366,674 382,334
As of December 31
(Dollars in thousands) 1995 1994 1993
Shareholders' Investment
Preferred stock, authorized and
unissued 15,000,000 shares - - -
Common stock, authorized 93,750,000
shares, par value $1.00 per share;
issued 44,623,881 shares in 1995,
44,199,736 shares in 1994, and
44,014,385 shares in 1993 44,624 44,200 44,014
Capital in excess of par value 74,325 56,082 48,770
Cumulative translation adjustment (2,369) (2,113) (2,047)
Unrealized net loss on investment
securities - ( 879) -
Treasury stock, 38,000 shares, at cost (2,100) - -
Reinvested earnings 1,044,317 878,597 848,311
Total Shareholders' Investment 1,158,797 975,887 939,048
$ 1,933,061 $ 1,499,511 $ 1,467,067
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
Consolidated Statements of Income Consolidated Papers, Inc. and Subsidiaries
(Dollars in thousands, except per For the Years Ended December 31
share data) 1995 1994 1993
Net sales $ 1,579,061 $ 1,027,551 $ 947,336
Cost of goods sold 1,127,286 827,448 772,066
Gross profit 451,775 200,103 175,270
Selling, general and administrative
expenses 67,025 63,479 62,097
Income from operations 384,750 136,624 113,173
Other Income (Expense)
Interest expense (11,711) ( 5,244) ( 8,200)
Interest income 1,947 142 456
Miscellaneous, net 5,759 11,083 4,939
Total ( 4,005) 5,981 ( 2,805)
Income before provision for
income taxes 380,745 142,605 110,368
Provision for Income Taxes
Current 108,035 30,654 24,213
Deferred 43,480 25,217 21,960
Total 151,515 55,871 46,173
Net income $ 229,230 86,734 $ 64,195
Net income per share $ 5.16 $ 1.97 $ 1.46
Average number of common
shares outstanding 44,418,780 44,106,953 43,923,577
Consolidated Statements of Shareholders' Investment
(Dollars in thousands) Unrea-
lized
Capital Net
In Cumu- Loss On
Excess lative Invest-
Of Trans- ment Rein-
Common Par lation Secur- Treasury vested
Stock Value Adm. ities Stock Earnings
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1992 $43,827 $40,943 $(2,004) - $( 495) $ 840,332
Net income - - - - - 64,195
Cash dividends - - - - - (56,216)
Exercise of stock
options 187 7,727 - - - -
Tax benefit related
to stock options - 595 - - - -
Translation - - ( 43) - - -
Treasury stock
canceled - (495) - - 495 -
Balance,
December 31, 1993 $44,014 $48,770 $(2,047) - - $ 848,311
Net income - - - - - 86,734
Cash dividends - - - - - (56,448)
Exercise of stock
options 186 6,972 - - - -
Tax benefit related
to stock options - 340 - - - -
Translation - - ( 66) - - -
Unrealized net loss
on investment
securities - - - $(879) - -
Balance,
December 31, 1994 $44,200 $56,082 $(2,113) $(879) - $ 878,597
Net income - - - - - 229,230
Cash dividends - - - - - (63,510)
Exercise of stock
options 424 16,213 - - - -
Tax benefit related
to stock options - 2,030 - - - -
Translation - - ( 256) - - -
Realized net loss
on investment
securities - - - 879 - -
Treasury stock
purchase - - - - $(2,100) -
Balance,
December 31, 1995 $44,624 $74,325 $(2,369) - $(2,100) $1,044,317
The accompanying notes to consolidated financial statements are an integral
part of these statements.
Consolidated Papers, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31
(Dollars in thousands) 1995 1994 1993
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net Income $ 229,230 $ 86,734 $ 64,195
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and depletion 88,072 78,563 99,560
Amortization of intangibles 4,582 - -
Undepreciated cost of plant and
equipment retirements 3,420 2,457 3,277
Earnings of affiliates ( 4,327) ( 3,101) ( 3,186)
Deferred income taxes 43,480 25,217 21,960
Noncash litigation settlement - ( 2,500) -
(Increase) decrease in accounts
receivable 6,526 ( 26,189) 10,692
(Increase) decrease in inventories (18,051) 12,274 ( 256)
(Increase) decrease in prepaid
expenses ( 9,314) 1,274 ( 4,304)
Increase (decrease) in accounts
payable ( 9,674) 15,632 ( 6,301)
Increase (decrease) in current
liabilities, other than current
maturities of long-term debt
and accounts payable 24,697 ( 2,819) ( 5,845)
Increase (decrease) in postretirement
benefits (31,528) 10,782 ( 799)
Increase (decrease) in other
noncurrent liabilities 92 3,228 1,652
Net Cash Provided by Operating Activities 327,205 201,552 180,645
Cash Flows from Investing Activities:
Capital expenditures (158,716) ( 97,739) ( 82,603)
Acquisition, net of cash (225,276) - -
(Increase) decrease in investments and
other assets 3,810 4,169 ( 177)
Net Cash (Used in) Investing Activities (380,182) ( 93,570) ( 82,780)
Cash Flows from Financing Activities:
Cash dividends ( 63,510) ( 56,448) ( 56,216)
Proceeds from long-term debt 85,000 - -
Net borrowings under lines of credit 12,137 ( 53,000) ( 50,000)
Common stock issued 16,567 7,498 8,509
Net Cash Provided by (Used in)
Financing Activities 50,194 (101,950) ( 97,707)
Net increase (decrease) in cash and
cash equivalents ( 2,783) 6,032 158
Cash and cash equivalents - beginning
of year 8,155 2,123 1,965
Cash and Cash Equivalents - end of year $ 5,372 $ 8,155 $ 2,123
Cash paid during the year for:
Interest $ 7,330 $ 7,128 $ 9,239
Income taxes 103,234 27,458 35,476
The accompanying notes to consolidated financial statements are an integral
part of these statements.
Consolidated Papers, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
1. Summary of Accounting Policies.
Principles of Consolidation - The consolidated financial statements
include the accounts of all subsidiaries. Investments in companies in
which ownership is at least 20%, but less than a majority of the voting
stock, are accounted for using the equity method. The Company operates
in a single segment, which is paper and paper-related products. The
Company grants credit to customers with businesses throughout the United
States and Canada. A substantial portion of the Company's accounts
receivable is with customers in the media and publishing industries. All
receivables arising out of the normal course of business are
uncollateralized. Sales to one customer, as a percent of net sales,
amounted to 12.4% and 13.6% in 1995 and 1994, respectively. No sales to
a single customer exceeded 10% of net sales in 1993.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents - For purposes of the Statements of Cash Flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are carried at cost, which approximates fair market value.
Inventories - Inventories accounted for using the last-in, first-out
(LIFO) cost method (approximately 56% in 1995, 60% in 1994 and 63% in
1993) are stated at amounts that do not exceed market. If the first-in,
first-out (FIFO) method of accounting for inventories had been used by
the Company, inventories would have been higher than that reported at
December 31, 1995, 1994 and 1993, by $30,835,000, $21,890,000 and
$14,098,000, respectively. The remaining inventories are stated at the
lower of cost or market using the FIFO method, except for stores supplies
and certain manufacturing supplies, which are accounted for on a moving
average cost basis.
Goodwill Resulting from Business Acquisitions - Goodwill resulting from
business acquisitions consists of the excess of the acquisition cost over
the fair value of the net assets of the businesses acquired. Goodwill is
amortized on a straight-line basis over 15 years. Accumulated
amortization of goodwill resulting from business acquisitions was
$2.5 million in 1995.
Plant and Equipment - Plant and equipment are recorded at cost and are
depreciated over the estimated useful lives of the assets using
principally the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes. In 1994, the Company
elected to lengthen the estimated useful lives of machinery and equipment
used in the pulp and papermaking process to a 20-year period versus the
former 16-year period. The effect of the change increased 1994 after-tax
income by $14 million, or 32 cents per share.
The Company's policy is to capitalize interest incurred on debt during
the course of major projects that exceed one year in construction.
Interest capitalized in 1995, 1994 and 1993 was $1,153,000, $926,000 and
$699,000, respectively.
Maintenance and repair costs are charged to expense as incurred, and
renewals and improvements that extend the useful life of the assets are
added to the plant and equipment accounts.
Start-up Costs - Start-up costs of new capital projects are charged to
expense as incurred. There were no start-up costs in 1995, 1994 or 1993.
Timber and Timberlands - Timber and timberlands are recorded at cost,
less amortization for cost of timber harvested. Amortization is computed
on the units-of-production method. Timber carrying costs are expensed as
incurred.
Accounts Payable - The Company's banking system provides for the daily
replenishment of major bank accounts for check clearing requirements.
Accordingly, there were negative book cash balances of $14 million,
$12 million, and $8 million at December 31, 1995, 1994 and 1993,
respectively. Such balances result from outstanding checks that had not
yet been paid by the bank and are reflected in accounts payable in the
consolidated balance sheets.
Environmental Matters - The Company accrues for closure and long-term
care costs for its landfills over their estimated useful lives. As of
December 31, 1995, the Company had accrued $3.5 million of the
anticipated $6.3 million for such costs.
The Company began a lagoon closure project at its recently acquired
Niagara of Wisconsin Paper Corporation. The Company estimates the
remaining cost of closure as of December 31, 1995, to be approximately $7
million and has recorded this as a liability. The Company expects lagoon
closure to be substantially completed within two years. The Company is
also required to monitor and, if necessary, remediate groundwater
contamination associated with the lagoons.
Income Taxes - Deferred income taxes have been provided to recognize the
deduction of certain costs for financial reporting purposes on a basis
different from that permitted for income tax purposes.
Net Income per Share - Net income per share is based upon the weighted
average number of shares outstanding during the year.
2. Acquisitions.
Effective July 1, 1995, the Company acquired Niagara of Wisconsin Paper
Corporation, Lake Superior Paper Industries and Superior Recycled Fiber
Industries for approximately $235 million in cash and extinguished
$52 million of debt. The Company entered into new debt agreements
totaling $335 million and borrowed $279 million. This acquisition was
accounted for as a purchase and, accordingly, the assets and liabilities
have been stated at their fair values. The purchase price allocation is
subject to change as management continues to refine the estimated fair
value of the acquired assets and assumed liabilities. In management's
opinion, any future revisions are expected to be immaterial.
The unaudited consolidated pro forma results of operations for the
periods ended December 31, 1995 and 1994 assume the acquisition occurred
as of January 1, 1994. The pro forma information is provided for
information purposes only. It is based on historical information and,
therefore, is not necessarily indicative of either the results that would
have occurred had the acquisition been made as of that date or of future
results.
For The Years Ended
December 31
1995 1994
(Dollars In Thousands, Except Per Share Data)(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ 1,820,659 $ 1,372,642
Net income 243,854 75,176
Net income per share 5.49 1.70
This pro forma information reflects all adjustments that are, in the
opinion of management, necessary to a fair statement of the results.
3. Employee Pension and Other Benefit Plans. The Company and its
subsidiaries sponsor noncontributory pension plans covering substantially
all employees. Retirement benefits are provided based on employees'
years of service and earnings. Normal retirement age is 65, with
provisions for earlier retirement. The Company's funding policy is to
contribute amounts to the plans when deductible for income tax purposes.
This policy generally includes amortization of unfunded prior service
costs over a 10-year period.
Both the bargaining and nonbargaining employees of Niagara of Wisconsin
Corporation were included in Consolidated's pension plans under the terms
of the purchase agreement. The amounts below reflect the assumption of
these additional liabilities. The employees of Lake Superior Paper
Industries continued under their defined contribution plan, which is not
included.
The Company's net periodic pension cost includes the following
components:
(In Thousands)
1995 1994 1993
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 8,349 $ 9,677 $ 8,045
Interest cost on projected benefits 27,145 23,945 22,702
Actual return on plan assets (73,448) ( 7,979) (58,568)
Amortization of net asset at transition ( 2,608) ( 2,839) ( 2,839)
Amortization of unrecognized prior
service cost 2,429 2,191 2,180
Amortization of unrecognized net gain ( 1,698) ( 432) ( 821)
Deferral of net asset gains or (losses) 41,666 (22,039) 30,763
Net periodic pension cost $ 1,835 $ 2,524 $ 1,462
The funded status of the Company's pension plans as of December 31, 1995,
1994 and 1993, based on October 31, 1995, 1994 and 1993 asset values, is
as follows:
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Actuarial present value of
benefit obligation:
Vested benefit obligation $ (346,334) $(223,675) $(247,690)
Accumulated benefit obligation $ (367,140) $(242,041) $(267,903)
Projected benefit obligation $ (437,927) $(296,581) $(334,030)
Plan assets at market value 468,312 414,724 420,702
Plan assets in excess of
projected benefit obligation 30,385 118,143 86,672
Unrecognized net asset at transition ( 22,705) ( 25,544) ( 28,383)
Unrecognized net gain ( 35,652) (117,117) ( 80,026)
Unrecognized prior service cost 24,207 23,433 23,118
Prepaid (accrued) pension cost $( 3,765) $( 1,085) $ 1,381
The actuarial assumptions used for determining the present value of the
projected benefit obligation, as measured on December 31, 1995, 1994 and
1993, are as follows:
1995 1994 1993
<S> <C> <C> <C>
Discount rate 7.00% 8.50% 7.25%
Expected long-term rate of
return on the market
value of plan assets 8.50% 8.50% 8.50%
Future compensation growth rate 5.00% 5.00% 5.00%
The decrease in the discount rate in 1995 resulted in a $45.3 million
increase in the accumulated benefit obligation. Plan assets are
comprised primarily of corporate and U.S. Treasury debt securities and
corporate equities.
Other Postretirement Benefits - The Company provides certain medical,
dental and life insurance benefits to qualifying retirees. These
benefits are paid from a trust which holds corporate and U.S. Treasury
debt securities and corporate equities. In 1995, the Company amended the
trust to restrict the trust's assets to the payment of postretirement
benefits. This amendment allowed the Company to reflect these assets as
plan assets in the tables below and net them against the long-term
liability on the balance sheet. Prior to 1995, these assets were
reflected as other long-term assets.
The postretirement benefits for both active and retired employees of
Niagara of Wisconsin Paper Corporation and Lake Superior Paper Industries
were continued after the acquisitions. The amounts below reflect the
assumption of these additional liabilities and costs from July 1, 1995.
Postretirement benefit cost for 1995, 1994 and 1993 includes the
following components:
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 2,323 $ 3,945 $ 3,580
Interest cost on accumulated
postretirement benefit obligation 8,631 9,067 9,234
Actual return on plan assets (2,387) - -
Net amortization and deferral (1,597) (92) -
Total postretirement benefit cost $ 6,970 $ 12,920 $ 12,814
The plan's funded status at December 31, 1995, 1994 and 1993, was as
follows:
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Actuarial present value of benefit
obligation:
Retirees $( 71,278) $( 44,541) $( 57,117)
Fully eligible active participants ( 27,227) ( 15,765) ( 20,265)
Other active participants ( 51,400) ( 43,625) ( 55,792)
Accumulated postretirement
benefit obligation $(149,905) $(103,931) $(133,174)
Plan assets at market value 33,141 - -
Accumulated postretirement benefit
obligation in excess of
plan assets $(116,764) $(103,931) $(133,174)
Unrecognized net (gain) or loss 31,530 ( 3,120) 20,199
Unrecognized prior service cost ( 20,839) ( 13,331) -
Accrued postretirement benefit cost $(106,073) $(120,382) $(112,975)
The actuarial assumptions used for determining the accumulated post-
retirement benefit obligations as measured on December 31, 1995, 1994 and
1993, are as follows:
1995 1994 1993
<S> <C> <C> <C>
Discount rate 7.00% 8.50% 7.25%
Expected long-term rate of return
on the market value of plan asset 8.50% - -
Health care cost trend rates:
- Existing retirees through 2001 8.00% 8.00% 8.00%
thereafter 5.00% 5.50% 5.50%
- Future retirees through 2001 5.25% 5.25% -
thereafter 4.50% 4.50% -
The decrease in the discount rate in 1995 resulted in a $20.8 million
increase in the accumulated benefit obligation. A one-percentage-point
increase in the assumed postretirement benefit cost trend rates would
increase the accumulated postretirement benefit obligation as of
December 31, 1995, by approximately $20 million, and the total of the
service and interest cost components of postretirement benefit cost for
the year then ended by approximately $1.6 million.
4. Shareholders' Investment. In April 1989, the shareholders approved a
Stock Option Plan providing for granting of options to directors,
officers and all other nonunion employees. The plan reserved 2.5 million
shares of common stock to be issued at prices equal to 100% of the fair
market value of the shares on the date the option is granted. Options
are exercisable not earlier than six months and not later than 10 years
after the date of the grant. An analysis of the options outstanding and
exercisable follows:
1995 1994 1993
<S> <C> <C> <C>
Options outstanding,
beginning of year 1,214,768 1,220,420 1,361,552
Granted -
$38.88 - $49.69
per share 183,579 123,000 13,000
Exercised -
$35.13 - $45.50
per share (349,414) (124,752) (133,160)
Expired or canceled ( 4,059) ( 3,900) ( 20,972)
Options outstanding,
end of year 1,044,874 1,214,768 1,220,420
Range of option
prices per share $35.13-$49.69 $35.13-$48.13 $35.13-$48.13
Options available
for grant at
December 31 714,009 893,529 1,012,629
There are also 15 million shares of Class A Preferred Stock authorized
with a par value of $.01 per share, to be issued at the discretion of the
board of directors. As of December 31, 1995, none of the shares had been
issued.
5. Long-term Debt and Lines of Credit. A summary of long-term debt as of
December 31 is as follows:
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Term loan from a financial
institution, unsecured,
with interest at 6.95%,
due June 30, 2000 $ 30,000 $ - $ -
Term loan from a financial
institution, unsecured
with interest at 7.25%,
due June 30, 2005 55,000 - -
Line of credit agreements with
financial institutions, unsecured,
with a weighted average interest
rate of 5.96%, 5.99%, and 3.37%,
respectively 182,000 118,000 137,000
Revolving credit agreements
with financial institutions,
unsecured, with a weighted
average interest rate of 3.38% - - 34,000
267,000 118,000 171,000
Less - current maturities 70,000 50,000 50,000
Total long-term debt $ 197,000 $ 68,000 $ 121,000
The Company has $495 million in unsecured lines of credit with eight
financial institutions. There are commitment fees on $250 million of
these lines. Amounts due under these lines of credit have been
classified as long-term debt because the Company has the intent and the
unused facilities to refinance the loans on a long-term basis.
The debt agreements contain restrictions on net worth and other matters.
As of December 31, 1995, the portion of debt expected to be repaid in the
subsequent years is as follows:
<S> <C>
1996 $ 70,000
1997 $ 80,000
1998 $ 32,000
1999 -
2000 $ 30,000
Thereafter $ 55,000
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and maturities, the fair value of the term loans
is $89 million.
6. Income Taxes.
The provision for income taxes includes the following components:
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $ 83,472 $ 28,240 $ 23,223
State 24,563 2,414 990
Total current 108,035 30,654 24,213
Deferred:
Federal 43,217 22,284 18,181
State 263 2,933 3,779
Total deferred 43,480 25,217 21,960
Total provision $151,515 $ 55,871 $ 46,173
The following summarizes the major differences between the U.S. statutory
tax rates and the Company's effective tax rates:
1995 1994 1993
<S> <C> <C> <C>
Statutory federal tax rates 35.0% 35.0% 35.0%
State income taxes 4.9 3.2 4.1
Federal rate increase - - 3.3
Other items (.1) 1.0 (.6)
Effective tax rates 39.8% 39.2% 41.8%
Deferred taxes are determined based on the estimated future tax effects
of differences between the financial statement and tax bases of assets
and liabilities given the provisions of the enacted tax laws. The net
deferred tax liability is comprised of the following:
(In Thousands) 1995 1994 1993
<S> <C> <C> <C>
Current deferred taxes:
Postretirement benefits $ 2,050 $ 5,652 $ 5,652
Employee benefits - ( 2,121) ( 2,121)
Other 7,417 3,409 3,452
Total current deferred taxes 9,467 6,940 6,983
Noncurrent deferred taxes:
Plant and equipment (268,502) (245,911) (215,188)
Postretirement benefits 33,350 48,417 43,301
AMT credit 4,728 31,887 27,517
Employee benefits - ( 16,370) ( 13,159)
Other 8,864 199 ( 919)
Total noncurrent deferred taxes (221,560) (181,778) (158,448)
Total deferred taxes $(212,093) $(174,838) $(151,465)
During 1994 and 1993, the Company was in an alternative minimum tax
paying position. As of December 31, 1995, the excess of tax paid over
the amount of regular tax that would have been paid was approximately
$4.7 million. This amount may be used to reduce regular tax in future
years.
Included in shareholders' investment is a $2 million tax benefit related
to the exercise of stock options during 1995.
7. Research & Development. Research and development expenses in 1995, 1994
and 1993 were approximately $5.8 million, $5.9 million, and $5.7 million,
respectively.
8. Commitments. Lease Commitments - The Company leases substantially all
its production equipment at one of its locations acquired on July 1,
1995, under 25-year operating leases expiring in 2012. Annual rent
expense, computed on a level basis is approximately $29,842,000
($14,921,000 for six months).
The leases also require the Company to pay customary operating and repair
expenses, and to observe certain operating restrictions and covenants.
The lease contains a renewal option at fair market value upon lease
termination and purchase options at amounts approximating fair market
value in 1997 and at lease termination.
Subsequent to the mid-term buyout option effective January 1, 1998, the
Company will indemnify the lessors against future possible loss of income
tax attributes and credits related to the leases. Taxing authority
challenges to the lessors' characterization of certain items relating to
the leased assets could result in the Company incurring additional lease
costs, which would be charged to lease expense over the remaining term of
the lease.
The Company also leases certain manufacturing facilities, office space
and machinery and equipment under various operating lease agreements
which have remaining lease terms of four to ten years at another location
also acquired as of July 1, 1995.
Rent expense under all operating leases was approximately $20.3 million
for 1995 of which $19.7 million is six months of rent for acquired
businesses. Rent expense in 1994 and 1993 was not material.
Future minimum lease payments under these noncancelable operating leases
as of December 31, 1995, are as follows:
(In Thousands)
<S> <C>
1996 $ 49,776
1997 48,392
1998 45,449
1999 42,213
2000 41,043
Later years 334,534
Total minimum lease payments $ 561,407
Other Commitments - Under an agreement assumed as part of the
acquisition, the Company has agreed to purchase paper mill process steam
from the City of Duluth Steam District No. 2 Cooperative Association at a
unit cost to be determined based upon operating, maintenance and capital
costs of the steam plant. In addition, the Company pays an amount equal
to the principal and interest requirements on $11,930,000 of outstanding
Steam Utility Revenue Bonds as of December 31, 1995, which mature at
various times through April 1, 2002, and certain other costs, principally
capital expenditures. The Company paid $1,389,000 for the six months
ended December 31, 1995, to service these bonds. Annual payments for the
principal and interest portion of these bonds are expected to be
$2,778,000 in 1996 through 2000, with aggregate payments of $3,473,000
for the years thereafter.
As of December 31, 1995, the Company had capital expenditure purchase
commitments outstanding of approximately $122 million.
9. Litigation Settlement. During 1994, the Company settled a patent
infringement suit resulting in an increase in other income of
$5.5 million, $3.3 million after tax, or $.08 per share.
10. Accounting Standards. The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation." The Company
has adopted these statements effective January 1, 1996. The Company
elected to adopt only the disclosure requirements of SFAS No. 123. The
adoption of SFAS No. 121 is not expected to have a material impact on the
financial statements.
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for 1995 and
1994:
(Dollars in
thousands, except First Second Third Fourth
per share data) Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
1995
Net sales $ 308,904 $ 336,646 $ 480,861 $ 452,650 $ 1,579,061
Gross profit 81,471 96,777 130,676 142,851 451,775
Net income 40,605 48,562 66,993 73,070 229,230
Net income per share .92 1.09 1.51 1.64 5.16
1994
Net sales $ 232,191 $ 233,855 $ 272,903 $ 288,602 $ 1,027,551
Gross profit 40,681 49,372 46,805 63,245 200,103
Net income 15,290 23,311 19,464 28,669 86,734
Net income per share .35 .53 .44 .65 1.97
Net income per share is based upon the weighted average number of shares
outstanding during the period.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of
Consolidated Papers, Inc.:
We have audited the accompanying consolidated balance sheets of Consolidated
Papers, Inc. (a Wisconsin corporation) and subsidiaries as of December 31,
1995, 1994 and 1993, and the related consolidated statements of income,
shareholders' investment and cash flows (see Pages 14-17) for each of the
years in the three-year period ended December 31, 1995. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion of these
financial statements and 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 are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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
Consolidated Papers, Inc. and subsidiaries as of December 31, 1995, 1994 and
1993, and the results of its operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in
the index at item 14 is the responsibility of the Company's management and is
presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 19, 1996.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with the independent public
accountants (Arthur Andersen LLP) on accounting and financial disclosure.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The identification of directors and all persons nominated to become directors,
as required by Item 10 of this Form 10-K, is included in the Proxy Statement
to Shareholders which has been filed with the Securities and Exchange
Commission for the Annual Meeting of Shareholders to be held April 22, 1996
and is incorporated herein by reference.
The identification of executive officers of the registrant, as required by
Item 10 of this Form 10-K, is included in Item 1 of Part I of this Form 10-K
Annual Report.
Item 11. EXECUTIVE COMPENSATION.
The information regarding executive compensation required by Item 11 of this
Form 10-K is included in the Proxy Statement to Shareholders which has been
filed with the Securities and Exchange Commission for the Annual Meeting of
Shareholders to be held April 22, 1996 and is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information about security ownership required by Item 12 of this Form 10-K
is included in the Proxy Statement to Shareholders which has been filed with
the Securities and Exchange Commission for the Annual Meeting of Shareholders
to be held April 22, 1996 and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There were no relationships or transactions since the beginning of the last
fiscal year of the nature required to be reported under Item 13 of this
Form 10-K.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Form 10-K Annual
Report:
1. Financial Statements.
Included in Item 8 of Part II of this Form 10-K are the following
financial statements, related notes thereto, and auditor's report:
Consolidated Balance Sheets As Of December 31, 1993, 1994 and
1995.
Consolidated Statements of Income for the Years Ended
December 31, 1993, 1994 and 1995.
Consolidated Statements of Shareholders' Investment for the
Years Ended December 31, 1993, 1994 and 1995.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1994 and 1995.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants (Arthur Andersen LLP).
2. Financial Statement Schedules.
The following schedule is filed as part of this Form 10-K and should
be read in conjunction with the financial statements:
Schedule II - Valuation and Qualifying Accounts
The following schedules are omitted as not applicable or not
required under rules of Regulation S-X: I, III, IV, and V.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into Consolidated Papers, Inc.'s
previously filed Registration Statement File No. 2-87423, Registration
Statement File No. 33-28786, Registration Statement File No. 33-37838,
Registration Statement File No. 33-60263, and Registration Statement File
No. 33-64393.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 14, 1996.
(b) The following exhibits are filed as a part of this Form 10-K Annual
Report:
3.a. Restated Articles of Incorporation of Consolidated Papers, Inc.
(Filed as Exhibit 3.a. to Form 10-Q for the quarter ended
March 31, 1989 and incorporated herein by reference.)
3.b. Bylaws of Consolidated Papers, Inc. (Filed as Exhibit 3.b. to Form
10-Q for the quarter ended March 31, 1994 and incorporated herein
by reference.)
9. Mead Voting Trust Agreement dated December 20, 1986. (Filed as
Exhibit 9 to Form 10-K for the fiscal year ended December 31, 1986
and incorporated herein by reference.)
10.a. Consolidated Papers, Inc. 1989 Stock Option Plan. (Filed as
Exhibit 10.a. to Form 10-Q for the quarter ended March 31, 1994
and incorporated herein by reference.)
10.b. Consolidated Employees' Tax-saver & Investment Plan. (Filed as
Exhibit 10.b. to Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference.)
10.c. Consolidated Employees' Stock Ownership Plan. (Filed as Exhibit
10.c. to Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.)
10.d. Consolidated Salaried Employees' Retirement Plan. (Filed as
Exhibit 10.d. to Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference.)
10.e. 1992 Compensation Award Program description. (Filed as Exhibit
10.e. to Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.)
10.f. 1993 Compensation Award Program description. (Filed as Exhibit
10.f. to Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.)
10.g. 1994 Compensation Award Program description. (Filed as Exhibit
10.g. to Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference.)
10.h. 1995 Compensation Award Program description. (Filed electronically
herewith.)
21. Subsidiaries of the Registrant. (Filed electronically herewith.)
27. Financial Data Schedule. (Filed electronically herewith.)
99. Form 11-K Annual Report of the Consolidated Employees' Tax-saver &
Investment Plan for the year ended December 31, 1995 (to be filed
within 180 days after the Plan's year-end).
Exhibits 2, 4, 11, 12, 13, 16, 18, 22, 23, 24, and 28 are omitted as not
applicable or not required under rules of Regulation S-K.
(c) Individual financial statements of 50% or less owned companies included
in the consolidated financial statements on the equity basis of
accounting are not filed because those companies do not, in aggregate,
constitute significant subsidiaries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CONSOLIDATED PAPERS, INC.
Registrant
/s/ Patrick F. Brennan March 14, 1996
Patrick F. Brennan, President and Date
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ George W. Mead Date March 14, 1996
George W. Mead, Chairman of the Board,
and Director
/s/ Patrick F. Brennan Date March 14, 1996
Patrick F. Brennan, President and
Chief Executive Officer, and Director
/s/ Richard J. Kenney Date March 14, 1996
Richard J. Kenney, Vice President, Finance
(Principal Financial Officer)
/s/ James E. Shewchuk Date March 14, 1996
James E. Shewchuk, Controller
/s/ Ruth Baldwin Barker Date March 14, 1996
Ruth Baldwin Barker, Director
/s/ Wiley N. Caldwell Date March 14, 1996
Wiley N. Caldwell, Director
/s/ Sally M. Hands Date March 14, 1996
Sally M. Hands, Director
/s/ Bernard S. Kubale Date March 14, 1996
Bernard S. Kubale, Director
/s/ D. Richard Mead, Jr. Date March 14, 1996
D. Richard Mead, Jr., Director
/s/ Gilbert D. Mead Date March 14, 1996
Gilbert D. Mead, Director
/s/ Lawrence R. Nash Date March 14, 1996
Lawrence R. Nash, Director
/s/ Glenn N. Rupp Date March 14, 1996
Glenn N. Rupp, Director
/s/ John S. Shiely Date March 14, 1996
John S. Shiely, Director
Schedule II - Valuation and Qualifying Accounts (Dollars in Thousands).
Changes in the reserves other than accumulated depreciation for the years
ended December 31, 1995, 1994 and 1993 are summarized as follows:
Charges
For
Purposes
For Which
Additions Reserve
Beginning Charged Was Ending
Balance To Income Created Balance
<S> <C> <C> <C> <C>
Reserves deducted from
assets in consolidated
balance sheet -
Reserve for doubtful
accounts - year ended
December 31, 1995 $ 4,066 $ 1,625 $ 1,063 $ 4,628
1994 $ 3,558 $ 535 $ 27 $ 4,066
1993 $ 3,300 $ 508 $ 250 $ 3,558
EXHIBIT 10.h. TO FORM 10-K FOR
CONSOLIDATED PAPERS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995
March 23, 1995
Since its beginning, the Compensation Award Program (CAP) has been a success
for both Consolidated and its employees. In 1994 alone we realized in excess
of $8 million in savings. I am, therefore, pleased to inform you that the
program has been approved for 1995. The modifications which were made to the
program for 1994 were very successful and we have, therefore, continued them
for 1995. The attached pages detail the 1995 CAP plan.
With the improvement in our business, 1995 is a year with much promise and I
believe that opportunities will become available to reduce costs, improve
efficiencies and improve the level of service we provide. By continuing to
work together, we can take advantage of these opportunities.
/s/ Patrick F. Brennan
1995 COMPENSATION AWARD PROGRAM
Eligibility
In order to be eligible for a CAP award in 1995, you must meet the following
conditions:
1. You must be a management employee from January 1, 1995 through December 31,
1995.
2. You must be eligible to participate in TIP.
3. You must receive a merit increase during 1995.
In addition to the above, the following conditions must also be met:
1. Consolidated must achieve a minimum of $4 million in net costs improvements
as outlined below.
2. If you are employed in an operating division, it must have favorable
results for the sum of controllable cost improvements and inventory
changes.
3. If you are employed in a staff department, it must achieve significant
progress toward meeting its goals which focus on providing improved
service.
Targets
The 1995 Compensation Award Program will once again be measured primarily on
controllable costs and inventory changes. The calculations will be based on
the following:
a. Controllable Costs - The total of controllable manufacturing cost
improvements over the 1995 Profit Plan; plus,
b. Inventory Changes - As of December 31, 1994, the measurable inventory
(excluding finished goods) was $82.1 million. Our goal is to reduce this
average inventory. The estimated cost of carrying inventory is 20%,
therefore, any reduction or increase in this average inventory will receive
a 20% credit or charge to the CAP goal. For example, if the average
inventory decreases $5 million, 20% of that or $1 million, will be credited
to the CAP goal. Similarly, if the average inventory increases $5 million,
there will be an unfavorable charge of $1 million to the CAP goal.
If the sum of the net cost improvements in controllable costs and 20% of net
inventory change is at least $4 million in 1995, we will achieve the minimum
goal required for a CAP award. If greater savings are achieved, employees
will be eligible for a larger CAP award. The maximum CAP award will be made
if savings of $8 million are achieved.
Corporate staff departments are expected to support the operating divisions in
reaching their goals. In addition, each staff department is to develop its
specific CAP goals. Each employee is expected to have one or more individual
CAP goals which they will be evaluated against. If it is more appropriate,
they may also participate as a team member working toward a CAP goal.
Staff departments should focus on such items as improving the quality of
services provided, reducing costs, improving systems, eliminating unnecessary
or inefficient procedures/programs. By focusing on eliminating
inefficiencies, redundancies, duplications, etc. we can reduce costs and
impact earnings.
Award
If the minimum target is achieved, the CAP award will be a contribution of
company stock into your Tax-Saver & Investment Plan (TIP) account. If you do
not have a TIP account, one will be established for you with this company
contribution. This method of payment has many advantages to employees.
- - Since it is a company contribution, you will not pay the FICA/Medicare tax,
7.65%, on the award.
- - State and federal income taxes on the award are deferred until you withdraw
the TIP funds.
- - Earnings on the award are also deferred from federal and state income tax
until the TIP funds are withdrawn.
- - It provides you with increased retirement savings.
The amount of the award will be calculated on your pay and based upon the
following schedule.
Target CAP Award1
<S> <C>
$4 million 1% of 1995 normal earnings2
$5 million 1.25% of 1995 normal earnings2
$6 million 1.50% of 1995 normal earnings2
$7 million 1.75% of 1995 normal earnings2
$8 million 2.00% of 1995 normal earnings2
Summary
We must continue to emphasize that product quality and employee safety are top
priorities. Emphasis on doing it right the first time in order to reduce
broke, job lot, complaints, returns and allowances will result in favorable
cost variances and improve our earnings. Similarly, a safe work place also
translates into favorable cost variances and improves our company's earnings.
Focus should also continue on reducing controllable costs and improving
inventory turnover. Controllable costs which you may have influence over may
include such items as payroll, maintenance and repairs, outside services,
expense work orders, waste, emergency material usage, etc.
Staff departments should develop specific goals which are tangible and
measurable which can help to improve our bottom line.
Staff departments goals for 1995 should be submitted to Mr. Brennan by
April 21st. Status reports must then be submitted to the staff quality
council at the end of each subsequent quarter. The staff quality council will
then evaluate each corporate staff department performance against their goals.
If you have any questions on the above, see your manager or call Chuck Bigelow
at 3765.
1Consolidated Papers, Inc. common stock equivalent to the value as noted.
2This will exclude certain payments (special project pay, vacation taken as
cash, etc.)
EXHIBIT 21 TO FORM 10-K FOR
CONSOLIDATED PAPERS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995
SUBSIDIARIES OF THE REGISTRANT
Consolidated Papers, Inc. was incorporated under the laws of the State of
Wisconsin and owns or controls the following corporations by means of owning
the indicated percents of their voting securities:
Percent
Voting
Securities
Owned By State Or
Consolidated Province Of
Papers, Inc. Subsidiary Incorporation
<S> <C> <C>
100% Consolidated Water Power Company Wisconsin
100% Newaygo Forest Products Limited Ontario
100% Consolidated Papers Foreign Sales
Corporation U.S. Virgin Islands
100% Niagara of Wisconsin Paper Corporation Wisconsin
100% LSPI Duluth Corp. Minnesota
100% LSPI Paper Corporation Minnesota
100% LSPI Fiber Co. Minnesota
100% Superior Recycled Fiber Corporation Minnesota
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the December 31, 1995 consolidated balance sheet and the
consolidated statements of income, shareholders' equity and cash
flows for the twelve-month period ended 12/31/95 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,372
<SECURITIES> 0
<RECEIVABLES> 144,700
<ALLOWANCES> 4,628
<INVENTORY> 132,443
<CURRENT-ASSETS> 314,817
<PP&E> 2,299,141
<DEPRECIATION> 830,764
<TOTAL-ASSETS> 1,933,061
<CURRENT-LIABILITIES> 241,239
<BONDS> 197,000
<COMMON> 44,624
0
0
<OTHER-SE> 1,158,797
<TOTAL-LIABILITY-AND-EQUITY> 1,933,061
<SALES> 1,579,061
<TOTAL-REVENUES> 1,579,061
<CGS> 1,127,286
<TOTAL-COSTS> 1,127,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,711
<INCOME-PRETAX> 380,745
<INCOME-TAX> 151,515
<INCOME-CONTINUING> 229,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229,230
<EPS-PRIMARY> 5.16
<EPS-DILUTED> 5.16
</TABLE>
