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, 1996
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 11, 1997 of the voting stock held by
nonaffiliates of the registrant was approximately $1.43 billion, based upon
the NYSE closing price on March 11, 1997 and an estimate that 60.6% of the
stock is owned by nonaffiliates.
On March 11, 1997 there were 44,779,946 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 28, 1997.
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 80.7% (1992),
79.8% (1993), 80.0% (1994), 76.7% (1995) and 72.4% (1996).
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>
1992 61% 39%
1993 56% 44%
1994 52% 48%
1995 52% 48%
1996 49% 51%
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 1,111,931 tons of
coated printing papers in 1996, which represents approximately 17% of the U.S.
market for this product. Sales to Unisource, a paper merchant, as a percent
of net sales, amounted to 13% in 1996. The Company's principal U.S.
competitors are Blandin Paper Company, a subsidiary of Fletcher Challenge
Canada Ltd.; 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; S.D. Warren, a subsidiary of Sappi Ltd.;
Westvaco Corporation; and Madison Paper Industries.
The Company's energy sources during 1996 were:
<S> <C>
Coal 28.0%
Process Waste 42.1%
Natural Gas 12.6%
Electricity 16.9%
Petroleum products .4%
The Company experienced no shortages of energy in 1996. The Company currently
purchases 85% 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 15% of its coal requirement is purchased on
annual contracts. Coal is currently in ample supply, and we anticipate no
supply problems in 1997.
The Company is in the first year of a six-year agreement for the firm
transportation of approximately 57% of its total natural gas supply.
Approximately 43% 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 1997.
The Company is integrated through ownership of forest lands and through its
own pulp-producing facilities. The harvest during 1996 from Company lands
produced 10% of the wood used in the Company's pulp mills. Wood used in the
Company's pulp mills from non-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 1996 and expects that its regular suppliers will be able to
furnish it with an adequate supply of pulpwood and wood chips for 1997
operations.
The Company also purchases market pulp on a regular basis and purchased 24.1%
of the total pulp consumed by the Company's paper mills during 1996. 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 1997. Market pulp is currently in ample supply,
and the Company anticipates no supply problems in 1997.
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 1996, 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. 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 $6.5 million in 1996, $5.8 million in 1995, and
$5.9 million in 1994 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.
The Company remains in compliance with all conditions and limitations of its
wastewater permits. The Company continues to invest capital funds to upgrade
wastewater treatment facilities in preparation for production increases and
future regulations. During 1996, the Company expanded the Water Renewal
Center at a cost of $7 million, in anticipation of the startup of a new paper
machine at Stevens Point Division. The expansion included a primary clarifier,
aeration basin, secondary clarifier, sludge dewatering press, parshall flume
and effluent sampling station.
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 is in the process of implementing 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.
Clean Air Act operating permit applications for all of the Company's major
sources have been submitted to the Wisconsin Department of Natural Resources
(WDNR). The WDNR is required to issue all major source air operating permits
by April 1998. Our facilities are allowed to continue to operate under
existing permits until the new air operating permits are issued. The air
operating permit requirements are not expected to cause material changes in
the Company's business or affect its competitive position.
On June 20, 1996, the Environmental Protection Agency (EPA) published the
final accidental release prevention rules. The risk management rules require
applicable facilities to develop, submit and register a risk management plan
by June 21, 1999. The Company is developing cost-effective plans to comply.
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 ConsoGro (Water Quality
Center (WQC) wastewater treatment biosolids) agricultural landspreading
program in 1993. The ConsoGro program began operation on November 1, 1993.
The Company's Niagara facility initiated its NiAGro (wastewater treatment
biosolids) agricultural landspreading program on May 3, 1996. The ConsoGro
and NiAGro programs reduce dependence on landfills and benefit the local
agricultural community and environment. The Company continues to distribute
lime sludge from its kraft pulp mill as an agricultural liming agent and for
use to neutralize wastewater. The Company completes landfill site life
evaluations annually to assure adequate lead time for permitting and
constructing required new sites. The Company obtained all approvals and
permits to expand landfill capacity at the WQC and Niagara during 1996.
Niagara's new landfill was completed during the year at a cost of $2.3
million. Clearing and base grading of WQC's landfill expansion will begin in
1997 with construction scheduled as needed. Construction of a fourth landfill
cell at our Water Renewal Center is also scheduled for 1997. At this time,
the Company is unable to predict the effect of future landfill or groundwater
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 was 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 assured 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. In late 1996, the Company eliminated elemental chlorine from
its kraft pulp by using chlorine dioxide in the first stage of bleaching.
Phase III of our chlorine-reduction program has eliminated the use of chlorine
dioxide in the first stage of the hardwood pulp-bleaching process. Our new
ECF pulp-bleaching process utilizes chlorine dioxide on softwood and high-
consistency ozone on hardwood to replace chlorine dioxide in the first stage
of bleaching. All equipment for Phase III has been installed and began
operation in early 1997. 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 (TCF) bleaching if required by future regulation or
the marketplace.
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 are directed at protecting the
environment through both pollution control and 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 1996 to assure
compliance with environmental laws and regulations.
At the end of 1996 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 69 1971 Chairman of the Board
Gorton M. Evans 58 1989 President and
Chief Executive Officer
William P. Orcutt 68 1977 Senior Vice President
James R. Kolinski 58 1993 Vice President, Manufacturing
Ronald E. Swanson 47 1995 Vice President, Manufacturing
David A. Krommenacker 54 1994 Vice President
John T. Hurley 62 1995 Vice President, Marketing
Richard J. Kenney 56 1989 Vice President, Finance
Carl H. Wartman 44 1990 Secretary and General Counsel
James E. Shewchuk 60 1989 Controller
John D. Steinberg 61 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 1996, 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> <S> <C> <C> <C>
Paper and pulp 11 4 - Wisconsin Rapids, WI)
1 - Biron, WI )
1 - Whiting, WI ) 8,359,663 1,061
1 - Stevens Point, WI )
1 - Adams, WI )
1 - Niagara, WI )
2 - Duluth, MN )
Equipment in operation at the close of 1996 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 475-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 1996 was 86.2% for coated papers and
84.1% for supercalendered papers. Production facilities are considered to be
well maintained and adequate for their purpose.
The Company owns 330,728 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,
1996 is 6,735.
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
1996
<S> <C> <C> <C> <C> <C>
High $ 57.75 $ 57.88 $ 54.88 $ 52.75 $ 57.88
Low 50.00 49.75 49.13 48.25 48.25
Close 56.25 52.00 52.00 49.13 49.13
Cash dividend .42 .42 .42 .42 1.68
1995
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
Item 6. SELECTED FINANCIAL DATA.
FIVE-YEAR COMPARISON OF SELECTED
FINANCIAL DATA
FOR THE YEARS 1992 THROUGH 1996
(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>
1996 $ 1,545,091 $ 179,285 $ 4.01 $ 2,532,242 $ 272,467 $ 1.68
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
1996 amounts reflect a lower 1996 tax rate, resulting in a benefit of 12 cents
per share, all recorded in the fourth quqarter.
1995 amounts reflect acquisition, effective July 1, 1995, of Niagara of
Wisconsin Paper Corporation, Lake Superior Paper Industries and Superior
Recycled Fiber Industries.
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
for the adoption of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions" and Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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 were $1.5 billion in 1996, compared with the 1995 record year of
$1.6 billion and the 1994 net sales of $1.0 billion. Record shipments of
1,553,000 tons were an increase of 4% over the previous record year of 1995.
Gross margin as a percent of sales was 23.9% in 1996, compared with 28.6% in
1995 and 19.5% in 1994. The lower 1996 margin was due to lower selling
prices, coupled with less-than-full running conditions only partially offset
by lower pulp costs and better productivity.
Plant Operations.
Groundwood-free coated shipments (primarily Wisconsin Rapids and Converting
divisions) decreased slightly (about 3%) due to less-than-capacity operations
mostly offset by continued productivity improvements on all machines. During
1996, the Wisconsin Rapids Division, excluding the No. 11 paper machine,
operated at 81% of available capacity, compared with 97% in 1995 and 91% in
1994. The industry average capacity utilization was 86% for groundwood-free
grades in 1996, 92% in 1995 and 91% in 1994. The Wisconsin Rapids Division's
smallest machine (No. 11) did not operate in 1996. The machine was idled in
1992 and has since only operated during the period of March 1995 through
November 1995. On average, selling prices decreased 4% in 1996, following
increases in late 1994 and early 1995. The Converting Division, which
converts heavier-weight groundwood-free coated rolls into sheets, operated at
95% of available capacity, compared with 89% in 1995 and 92% in 1994.
Although Niagara Division shipments are included for the full year of 1996,
groundwood coated shipments (Biron, Wisconsin River and Niagara) declined 5%
due to less-than-capacity operations at all divisions. The divisions operated
at only 85% of available capacity in 1996. Biron and Wisconsin River
divisions operated at 100% of available capacity in 1995 and 94% in 1994,
while Niagara operated at 97% during the second half of 1995. The U.S.
industry average capacity utilization was 87% for groundwood grades in 1996,
94% in 1995 and 93% in 1994. During 1996, selling prices declined 29%,
following an increase of 35% in 1995 and a decline of 6% in 1994.
Lake Superior Paper Industries (supercalendered groundwood paper) operated at
84% of available capacity in 1996, compared with 100% during 1995. Weak
markets during 1996 resulted in selling prices declining to late 1994 levels,
reversing the 40% increase in 1995.
The Stevens Point Division's coated specialty paper shipments declined 3% in
1996 compared with 1995. This followed a decline in shipments for 1995 of 1%
and an 11% increase for the record year 1994. Operations were at 99% of
available capacity for 1996, compared with 97% in 1995 and 100% in 1994.
Selling prices decreased 8%, reversing price increases of 8% implemented
during the first half of 1995.
Paperboard products shipments increased 5% and corrugated products shipments
increased 3% in 1996. The paperboard products and corrugated products
businesses both operated in highly competitive markets and continued their
marketing emphasis on producing high-value-added specialty products.
Superior Recycled Fiber Industries operated at 85% of available capacity in
1996, compared with 100% in 1995. Cost reductions for scrap paper during the
fourth quarter of 1995 continued in 1996, resulting in selling-price
reductions for recycled pulp during 1996.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased $12 million in 1996 to
$79 million, compared with increases of $4 million in 1995 and $1 million in
1994. The larger-than-normal 1996 increase reflects a full year's costs for
the July 1995 acquisition.
Other Income and Income Taxes.
Other income (expense) was ($2 million) in 1996 and ($4 million) in 1995, an
improvement of $2 million, compared with a decrease of $10 million in 1995 and
an improvement of $9 million in 1994. Included in the interest expense and
interest income for 1996 is $9 million and $11 million, respectively,
resulting from the sale and leaseback of two paper machines. Details are
included in Note 6 of the Notes to Consolidated Financial Statements.
Effective tax rates were 38.0%, 39.8% and 39.2% in 1996, 1995 and 1994,
respectively. The decrease in the rate in 1996 is due to refinements in the
allocation of taxable income into lower taxed states and some resolutions of
long-standing tax audits.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES
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 in 1996 decreased by $14 million,
compared with increases of $52 million and $27 million in 1995 and 1994,
respectively. The decrease was principally due to lower selling prices and
volume, a result of the weak paper market. The days' sales outstanding has
not materially changed, and the Company believes its collection period is well
within the industry's standards. Inventories increased $6 million compared
with 1995, with finished goods increasing $6 million due to the Company
maintaining higher inventory levels to be more responsive to customer needs.
Raw materials decreased $8 million, primarily as a result of lower inventory
levels, which were partially offset by a $7 million increase in stores
supplies.
The year-end ratio of current assets to current liabilities was 2.0:1 in 1996
and 1.3:1 in 1995 and 1994, with most of the 1996 increase resulting from no
current maturity of long-term debt at the end of 1996.
Capital Commitments and Spending.
At the end of 1996, authorized but uncompleted capital commitments totaled
$122 million. A 1997 capital approval budget of $180 million is in place.
This $180 million, plus the $122 million carry-over from 1996, less
anticipated carry-over of $102 million at the end of 1997, will result in
planned capital spending of $200 million in 1997, compared with expenditures
of $288 million in 1996, $159 million in 1995 and $98 million in 1994. The
major 1996 expenditures included $100 million for a paper machine addition at
the Stevens Point Division, $10 million for a new finishing winder at the
Biron Division, $20 million toward the third phase of a chlorine-reduction
program at the Kraft Division, and $8 million for a new fiber-handling system
at the Niagara Division. The 1997 capital approval budget for $180 million
consists of $155 million for necessary replacement and quality projects, $21
million for high-return projects, and $4 million for environmental-control
projects. Included in the 1997 approval budget is $73 million for new
projects for the operations acquired in 1995.
Long-term Debt.
The Company's borrowings as of year end were $272 million, an increase of
$5 million, following an increase of $149 million in 1995 and a decrease of
$53 million in 1994. Cash generated was not sufficient to fund the
$288 million 1996 capital spending program, and a $35 million refinancing of a
groundwood mill lease at the Niagara Division (previously an off-balance-sheet
operating lease). Current external financing assures adequate capital to fund
existing and projected projects, and any future positive cash flow will be
used to pay down debt. Interest incurred, excluding interest related to the
sale and leaseback of two paper machines, totaled almost $13 million in 1996,
with $6 million charged against income and $7 million capitalized as part of
the cost of related capital projects.
Substantially all of the machinery and equipment at Lake Superior Paper
Industries 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 the 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 options 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.
As discussed in Note 6 of the Notes to Consolidated Financial Statements, the
Company entered into sale and leaseback transactions for two paper machines
during 1996. These leases are capital in nature, resulting in lease
obligations of $472 million at December 31, 1996. Because deposits of $433
million at December 31, 1996, are believed to be adequate for future lease
payments, the Company will not need to generate or borrow significant
additional funds to make the required lease payments.
Environmental Matters.
The paper industry is subject to extensive environmental regulations, many of
which require significant capital and operational expenditures. The Company
recently completed a multiphase chlorine-reduction program involving equipment
and process changes at the Kraft Division. This program is designed to ensure
compliance with dioxin wastewater permit limitations and with Wisconsin
regulations requiring best-available chloroform emission control technology.
Mechanical pulp is bleached using a totally chlorine-free process.
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 U.S. Environmental Protection Agency (EPA) proposed
rules to reduce the discharge of water pollutants and emissions of hazardous
air pollutants from the pulp and paper industry. These proposed regulations
are commonly referred to as the "Cluster Rule." The Company's review of the
most recently proposed Cluster Rule indicates that additional capital
expenditures of approximately $25 million for process and equipment changes
may be required three years after the Cluster Rule is final. Additional
annual operating costs of approximately $9 million also may be required. The
Cluster Rule is subject to further change prior to final promulgation, which
is now expected in the spring of 1997.
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 increased operating costs.
The Company is a potentially responsible party with respect to several
hazardous waste sites under the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA). While CERCLA provided for joint and
several liability, remediation costs are generally allocated among waste
generators and others involved with the site. The Company has accrued
approximately $1 million for its share of estimated cleanup costs at these
sites. These accruals are reviewed periodically and adjusted when
appropriate.
The state of Wisconsin has undertaken sediment remediation studies on various
watershed systems, including the Wisconsin River and the Fox River. Also, the
U.S. Department of the Interior has notified several companies of its intent
to pursue natural resource damage claims with respect to the Fox River. 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.
Substantially all of the Company's central Wisconsin manufacturing operations
use water from and discharge treated effluent into the Wisconsin River. 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 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.
Forward Looking Statements
Certain statements in Management's Discussion and Analysis and elsewhere in
the Company's Annual Report to Shareholders may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Because these forward-looking statements include risks and
uncertainties, actual results may differ materially from those expressed in or
implied by the statements. Factors that could cause actual results to differ
include, among other things: (1) increased competition from either domestic or
foreign paper producers, including increases in competitive capacity through
construction of new mills or conversion of older facilities to produce
competitive products; (2) variations in demand for the Company's products; (3)
changes in the cost or availability of the raw materials used by the Company,
particularly market pulp and wood; (4) costs of compliance with new
environmental laws and regulations; and (5) decisions by the Company to make a
significant acquisition or a significant increase in production capacity.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
Consolidated Balance Sheets Consolidated Papers, Inc. and Subsidiaries
As of December 31
(Dollars in thousands) 1996 1995 1994
Current Assets
<S> <C> <C> <C>
Cash and cash equivalents $ 12,928 $ 5,372 $ 8,155
Accounts and notes receivable,
net of reserves of $5,313 in 1996,
$4,628 in 1995 and $4,066 in 1994 126,103 140,072 88,462
Inventories
Finished and partly finished
products 55,474 49,651 29,078
Raw materials 39,428 47,068 26,380
Stores supplies 43,052 35,724 32,555
137,954 132,443 88,013
Prepaid expenses 46,912 36,930 14,698
Total Current Assets 323,897 314,817 199,328
Investments and Other Assets
Investments in affiliates, at cost
plus equity in undistributed
earnings 34,784 33,800 30,887
Restricted cash related to leases 423,618 - -
Other assets 42,553 42,666 29,322
Goodwill 59,034 73,401 -
559,989 149,867 60,209
Plant and Equipment
Buildings 236,004 207,980 168,952
Machinery and equipment 1,962,835 1,952,927 1,739,000
2,198,839 2,160,907 1,907,952
Less: Accumulated depreciation 775,080 830,764 753,263
1,423,759 1,330,143 1,154,689
Land and riparian rights 11,447 11,106 7,620
Timber and timberlands, net of
depletion 25,150 22,890 21,764
Capital additions in process 188,000 104,238 55,901
1,648,356 1,468,377 1,239,974
$ 2,532,242 $ 1,933,061 $ 1,499,511
Current Liabilities
Current maturities of long-term debt $ - $ 70,000 $ 50,000
Accounts payable 73,147 72,278 47,436
Payroll and employee benefits 49,661 49,426 38,873
Income taxes - 11,420 126
Property taxes 10,016 11,797 7,421
Other current liabilities 30,932 26,318 13,094
Total Current Liabilities 163,756 241,239 156,950
Noncurrent Liabilities and
Deferred Credits
Long-term debt 272,467 197,000 68,000
Capital lease obligations 462,084 - -
Deferred income taxes 251,955 221,560 181,778
Postretirement benefits 98,614 93,702 109,558
Other noncurrent liabilities 13,544 20,763 7,338
1,098,664 533,025 366,674
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 44,768,361 shares in 1996,
44,623,881 shares in 1995 and
44,199,736 shares in 1994 44,768 44,624 44,200
Capital in excess of par value 80,818 74,325 56,082
Cumulative translation adjustment (2,290) (2,369) (2,113)
Unrealized net loss on investment
securities - - ( 879)
Treasury stock, at cost, 39,900 shares
in 1996 and 38,000 shares in 1995 (2,020) (2,100) -
Reinvested earnings 1,148,546 1,044,317 878,597
Total Shareholders' Investment 1,269,822 1,158,797 975,887
$ 2,532,242 $ 1,933,061 $ 1,499,511
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) 1996 1995 1994
Net sales $ 1,545,091 $ 1,579,061 $ 1,027,551
Cost of goods sold 1,175,304 1,127,286 827,448
Gross profit 369,787 451,775 200,103
Selling, general and administrative
expenses 78,527 67,025 63,479
Income from operations 291,260 384,750 136,624
Other Income (Expense)
Interest expense (15,298) (11,711) (5,244)
Interest income 10,999 1,947 142
Miscellaneous, net 2,209 5,759 11,083
Total ( 2,090) ( 4,005) 5,981
Income before provision for
income taxes 289,170 380,745 142,605
Provision for Income Taxes
Current 90,019 108,035 30,654
Deferred 19,866 43,480 25,217
Total 109,885 151,515 55,871
Net income $ 179,285 $ 229,230 $ 86,734
Net income per share $ 4.01 $ 5.16 $ 1.97
Average number of common
shares outstanding 44,674,982 44,418,780 44,106,953
Consolidated Statements of Shareholders' Investment
(Dollars in thousands)
Capital Net
In Cumu- Loss On
Excess lative Invest-
Of Trans- ment Treas-
Common Par lation Secur- ury Reinvested
Stock Value Adj. ities Stock Earnings
<S> <C> <C> <C> <C> <C> <C>
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 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
Net income - - - - - 179,285
Cash dividends - - - - - (75,056)
Exercise of stock
options 144 6,248 - - - -
Tax benefit related
to stock options - 240 - - - -
Translation - - 79 - - -
Treasury stock
purchase - - - - (1,687) -
Issuance of treasury
stock - 5 - - 1,767 -
Balance,
December 31, 1996 $44,768 $80,818 $(2,290) $ - $(2,020) $ 1,148,546
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) 1996 1995 1994
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income $ 179,285 $ 229,230 $ 86,734
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and depletion 100,220 88,072 78,563
Amortization of intangibles 7,600 4,582 -
Undepreciated cost of plant and
equipment retirements 7,694 3,420 2,457
Earnings of affiliates ( 3,341) ( 4,327) ( 3,101)
Deferred income taxes 19,866 43,480 25,217
Noncash litigation settlement - - ( 2,500)
(Increase) decrease in accounts
receivable 13,969 6,526 ( 26,189)
(Increase) decrease in inventories ( 5,511) ( 18,051) 12,274
(Increase) decrease in prepaid
expenses 1,135 ( 9,314) 1,274
Increase (decrease) in accounts
payable 869 ( 9,674) 15,632
Increase (decrease) in current
liabilities, other than current
maturities of long-term debt
and accounts payable ( 8,352) 24,697 ( 2,819)
Increase (decrease) in postretirement
benefits 4,912 ( 31,528) 10,782
Increase (decrease) in other
noncurrent liabilities 3,201 92 3,228
Net Cash Provided by Operating Activities 321,547 327,205 201,552
Cash Flows from Investing Activities:
Capital expenditures (287,893) (158,716) ( 97,739)
Acquisition, net of cash - (225,276) -
Proceeds from sale and leaseback 422,398 - -
Noncurrent investments (393,229) - -
(Increase) decrease in investments and
other assets 7,605 3,810 4,169
Net Cash (Used in) Investing Activities (251,119) (380,182) ( 93,570)
Cash Flows from Financing Activities:
Cash dividends ( 75,056) ( 63,510) ( 56,448)
Proceeds from long-term debt 23,467 85,000 -
Net borrowings under lines of credit ( 18,000) 12,137 ( 53,000)
Common stock issued (net) 6,717 16,567 7,498
Net Cash Provided by (Used in)
Financing Activities ( 62,872) 50,194 (101,950)
Net increase (decrease) in cash and
cash equivalents 7,556 ( 2,783) 6,032
Cash and cash equivalents - beginning
of year 5,372 8,155 2,123
Cash and Cash Equivalents - end of year $ 12,928 $ 5,372 $ 8,155
Cash paid during the year for:
Interest $ 17,281 $ 7,330 $ 7,128
Income taxes 93,184 103,234 27,458
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, 1996, 1995 and 1994
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.
Industry Segment - 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 13.0%, 12.4% and 13.6% in 1996,
1995 and 1994, respectively.
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 57% in 1996, 56% in 1995 and 60% in
1994) 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, 1996, 1995 and 1994, by $21,335,000, $30,835,000, and
$21,890,000, 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 $4.1
million and $2.5 million in 1996 and 1995, respectively. Subsequent to
acquisitions, the Company continues to evaluate whether events and
circumstances have occurred that indicate the remaining estimated useful
life of goodwill may warrant revision or that the remaining balance of
goodwill is not recoverable. Recoverability is determined by comparing
the undiscounted net cash flows of the assets to which the goodwill
applies to the net book value, including goodwill, of those assets.
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. Useful lives for financial
reporting purposes are 20 years for land improvements, 33 years for
buildings and 5 to 20 years for machinery and equipment.
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 1996, 1995 and 1994 was $7,460,000, $1,153,000,
and $926,000, 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 1996, 1995 or 1994.
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 $12 million,
$14 million, and $12 million at December 31, 1996, 1995 and 1994,
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 has elected early adoption of
Statement of Position 96-1, Environmental Remediation Liabilities. The
adoption of this statement did not have a material impact on the
financial statements. The Company recognizes a liability for
environmental remediation costs when it is probable a liability has been
incurred and the amount can be reasonably estimated. The liabilities are
developed based on currently available information and are generally
recognized no later than completion of a remedial feasibility study. An
undiscounted liability of $3.6 million has been recorded for lagoon
closure and groundwater remediation projects at one of the Company's
recently acquired facilities. The Company expects these projects to be
substantially completed within one to two years.
The Company also accrues discounted amounts for closure and long-term
care costs for its landfills over their estimated useful lives. As of
December 31, 1996, the Company had accrued $4.4 million of the
anticipated $7.0 million for such costs.
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 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
(In thousands, except per share data) Unaudited Unaudited
<S> <C> <C>
Net sales $ 1,820,659 $ 1,372,642
Net income 244,267 75,621
Net income per share 5.50 1.71
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
Paper 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)
1996 1995 1994
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 13,867 $ 8,349 $ 9,677
Interest cost on projected benefits 29,730 27,145 23,945
Actual return on plan assets (53,260) (73,448) ( 7,979)
Amortization of net asset at transition ( 2,839) ( 2,608) ( 2,839)
Amortization of unrecognized prior
service cost 2,568 2,429 2,191
Amortization of unrecognized net
loss or (gain) 49 ( 1,698) ( 432)
Deferral of net asset gains or (losses) 19,247 41,666 (22,039)
Net periodic pension cost $ 9,362 $ 1,835 $ 2,524
The funded status of the Company's pension plans as of December 31, 1996,
1995 and 1994, based on October 31, 1996, 1995 and 1994 asset values, is
as follows:
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
Actuarial present value of
benefit obligation:
Vested benefit obligation $(337,952) $(346,334) $(223,675)
Accumulated benefit obligation $(369,731) $(367,140) $(242,041)
Projected benefit obligation $(444,637) $(437,927) $(296,581)
Plan assets at market value 514,314 468,312 414,724
Plan assets in excess of
projected benefit obligation 69,677 30,385 118,143
Unrecognized net asset at transition (19,866) ( 22,705) ( 25,544)
Unrecognized net gain (80,334) ( 35,652) (117,117)
Unrecognized prior service cost 21,640 24,207 23,433
Prepaid (accrued) pension cost $ (8,883) $( 3,765) $( 1,085)
The actuarial assumptions used for determining the present value of the
projected benefit obligation, as measured on December 31, 1996, 1995 and
1994, are as follows:
1996 1995 1994
<S> <C> <C> <C>
Discount rate 7.25% 7.00% 8.50%
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 increase in the discount rate in 1996 resulted in an $11 million
decrease 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 that 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 following tables 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 1996, 1995 and 1994 includes the
following components:
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 4,194 $ 2,323 $ 3,945
Interest cost on accumulated
postretirement benefit obligation 10,636 8,631 9,067
Actual return on plan assets (4,550) (2,387) -
Net amortization and deferral 1,724 (1,597) (92)
Total postretirement benefit cost $ 12,004 $ 6,970 $ 12,920
The plan's funded status at December 31, 1996, 1995 and 1994, is as
follows:
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
Actuarial present value of benefit
obligation:
Retirees $( 76,242) $( 71,278) $( 44,541)
Fully eligible active participants ( 28,197) ( 27,227) ( 15,765)
Other active participants ( 53,266) ( 51,400) ( 43,625)
Accumulated postretirement
benefit obligation $(157,705) $(149,905) $(103,931)
Plan assets at market value 39,463 33,141 -
Accumulated postretirement benefit
obligation in excess of
plan assets $(118,242) $(116,764) $(103,931)
Unrecognized net (gain) or loss 28,509 31,530 ( 3,120)
Unrecognized prior service cost (19,445) ( 20,839) ( 13,331)
Accrued postretirement benefit cost $(109,178) $(106,073) $(120,382)
The actuarial assumptions used for determining the accumulated post-
retirement benefit obligations as measured on December 31, 1996, 1995 and
1994, are as follows:
1996 1995 1994
<S> <C> <C> <C>
Discount rate 7.25% 7.00% 8.50%
Expected long-term rate of return
on the market value of plan asset 8.50% 8.50% -
Health care cost trend rates:
- Existing retirees through 2001 8.00% 8.00% 8.00%
thereafter 5.00% 5.00% 5.50%
- Future retirees through 2001 5.25% 5.25% 5.25%
thereafter 4.00% 4.50% 4.50%
The increase in the discount rate in 1996 resulted in a $5 million
decrease 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, 1996, by approximately $20.4 million, and the total of the
service and interest cost components of postretirement benefit cost for
the year then ended by approximately $2.5 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 Company accounts for
these plans under APB Opinion No. 25, under which no compensation cost
has been recognized. Had compensation cost for these plans been
determined consistent with FASB Statement No. 123, earnings per share
would have been reduced by $.02 and $.01 for the years ended December 31,
1996, and 1995, respectively. Because the Statement No. 123 method of
accounting has not been applied to options granted prior to January 1,
1995, the resulting pro forma compensation cost may not be representative
of that to be expected in future years.
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.
Of the 1,165,552 options outstanding at December 31, 1996, 483,288 have
exercise prices between $35.13 and $39.50, with a weighted average
exercise price of $38.58 and a weighted average remaining contractual
life of 7.59 years. Of these options, 452,299 are exercisable with a
weighted average exercise price of $35.92. The remaining 682,264 options
have exercise prices between $39.75 and $55.31, with a weighted average
exercise price of $45.41 and a weighted average remaining contractual
life of 8.79 years. 373,190 of these options are exercisable with a
weighted average exercise price of $41.30.
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, 1996, none of the shares had been
issued.
An analysis of the Stock Option Plan at December 31, 1996, 1995 and 1994
follows:
Weighted Weighted Weighted
Average Average Average
1996 Exercise 1995 Exercise 1994 Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 1,039,278 $ 39 1,214,446 $ 37 1,225,686 $ 37
Granted 208,700 53 183,579 46 121,000 40
Exercised (75,084) 37 (348,780) 37 (125,316) 37
Expired or
canceled ( 7,342) 47 ( 9,967) 42 ( 6,924) 37
Outstanding at
end of year 1,165,552 42 1,039,278 39 1,214,446 37
Exercisable at
end of year 825,489 38 811,287 38 1,116,446 37
Weighted
average fair
value of
options
granted $ 11.91 $ 17.10
5. Long-term Debt and Lines of Credit. A summary of long-term debt as of
December 31 is as follows:
(In thousands) 1996 1995 1994
Term loan from a financial
institution, unsecured,
with interest at 6.95%,
due June 30, 2000 $ 30,000 $ 30,000 $ -
Term loan from a financial
institution, unsecured
with interest at 7.25%,
due June 30, 2005 55,000 55,000 -
Term loan from a financial
institution, secured by equipment,
with interest at 9.94%, due
March 8, 2005 23,467 - -
Line of credit agreements with
financial institutions, unsecured,
with a weighted average interest
rate of 5.96%, 5.96% and 5.99%,
respectively 164,000 182,000 118,000
272,467 267,000 118,000
Less - current maturities - 70,000 50,000
Total long-term debt $ 272,467 $ 197,000 $ 68,000
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, 1996, the portion of debt expected to be repaid in the
subsequent years is as follows:
1997 $ -
1998 $ -
1999 $ 136,000
2000 $ 136,467
6. Leases. The Company sold certain assets for $253 million and $169 million
in May 1996 and September 1996, respectively. The assets were leased back
from the purchaser over a period of 15 years. Under the agreements, the
Company will maintain deposits, initially in the amount of $393 million,
which together with interest earned are expected to be sufficient to fund
the Company's lease obligations including the repurchase of the assets.
These lease agreements contain restrictions on net worth and other
matters.
These transactions are being accounted for as financing arrangements and
the resulting gains are amortized over a 15-year period. At December 31,
1996, the Company recorded assets for the deposits from the sale proceeds
of $433 million and liabilities for the lease obligations of $472
million. $10 million of both the deposits and lease obligations are
recorded as current. The net amount of capital lease assets at December
31, 1996, is $305 million.
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. Rent expense for 1996 and 1995 (six months) was
$29,842,000 and $14,921,000, respectively. The leases also require the
Company to pay customary operating and repair expenses, and to observe
certain operating restrictions and covenants. The leases contain renewal
options 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 midterm 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 $35.3 million
for 1996 and $20.3 million for 1995, of which $19.7 million is six months
of rent for acquired businesses. Rent expense in 1994 was not material.
Future scheduled minimum lease payments under capital and noncancelable
operating leases as of December 31, 1996, are as follows:
(In thousands) Operating Leases Capital Leases
<S> <C> <C>
1997 $ 45,052 $ 18,059
1998 42,117 24,977
1999 38,157 26,242
2000 36,234 27,570
2001 36,209 28,966
Later years 272,090 941,912
Total minimum lease payments $ 469,859 1,067,726
Imputed interest ( 596,056)
Present value of capitalized lease payments 471,670
Less current portion
(included in other current liabilities) 9,586
Long-term capitalized lease obligations $ 462,084
7. Fair Values of Financial Instruments. The carrying amounts and fair
values of the Company's financial instruments at December 31 were as
follows:
1996 1995
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 12,928 $ 12,928 $ 5,372 $ 5,372
Restricted cash related
to leases 423,618 423,618 - -
Long-term debt, including
current maturities 272,467 275,222 267,000 271,136
Capital lease obligations 462,084 462,084 - -
The following methods and assumptions were used by the Company in estimating
fair values for financial instruments:
Cash and cash equivalents - The carrying amount approximates fair value due
to the relatively short period to maturity of these instruments.
Long-term debt - The fair value of the Company's long-term debt is estimated
based on current rates offered to the Company for debt of the same remaining
maturities.
Capital leases - The carrying amount reported in the balance sheets for
capital leases approximates fair value.
8. Income Taxes.
The provision for income taxes includes the following components:
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ 76,312 $ 83,472 $ 28,240
State 13,707 24,563 2,414
Total current 90,019 108,035 30,654
Deferred:
Federal 17,408 43,217 22,284
State 2,458 263 2,933
Total deferred 19,866 43,480 25,217
Total provision $ 109,885 $ 151,515 $ 55,871
The following summarizes the major differences between the U.S. statutory
tax rates and the Company's effective tax rates:
1996 1995 1994
<S> <C> <C> <C>
Statutory federal tax rates 35.0% 35.0% 35.0%
State income taxes 4.0 4.9 3.2
Other items (1.0) (.1) 1.0
Effective tax rates 38.0% 39.8% 39.2%
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) 1996 1995 1994
<S> <C> <C> <C>
Current deferred taxes:
Postretirement benefits $ 4,184 $ 2,050 $ 5,652
Employee benefits - - ( 2,121)
Other 8,482 7,417 3,409
Total current deferred taxes 12,666 9,467 6,940
Noncurrent deferred taxes:
Plant and equipment (304,072) (268,502) (245,911)
Postretirement benefits 39,051 33,350 48,417
AMT credit - 4,728 31,887
Employee benefits - - ( 16,370)
Other 13,066 8,864 199
Total noncurrent deferred taxes (251,955) (221,560) (181,778)
Total deferred taxes $(239,289) $(212,093) $(174,838)
9. Research & Development. Research and development expenses in 1996, 1995
and 1994 were approximately $6.5 million, $5.8 million, and $5.9 million,
respectively.
10. 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 $10,581,000 of outstanding Steam
Utility Revenue Bonds as of December 31, 1996, which mature at various
times through April 1, 2002, and certain other costs, principally capital
expenditures. The Company paid $2,778,000 in 1996 and $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 1997 through 2000, with aggregate payments
of $3,473,000 for the years thereafter.
As of December 31, 1996, the Company had capital expenditure commitments
outstanding of approximately $122 million.
11. 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.
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for 1996 and
1995:
(Dollars in
thousands, except First Second Third Fourth
per share data) Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
1996
Net sales $ 424,139 $ 376,085 $ 380,833 $ 364,034 $ 1,545,091
Gross profit 105,857 102,630 84,860 76,440 369,787
Net income 52,735 49,062 40,268 37,220 179,285
Net income per share 1.18 1.10 .90 .83 4.01
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
Net income per share is based upon the weighted average number of shares
outstanding during the period.
1996 amounts reflect a lower 1996 tax rate, resulting in a benefit of 12 cents
per share, all recorded in the fourth quarter.
1995 amounts reflect aquisition, effective July 1, 1995, of Niagara of
Wisconsin Paper Corporation, Lake Superior Paper Industries and Superior
Recycled Fiber Industries.
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,
1996, 1995 and 1994, and the related consolidated statements of income,
shareholders' investment and cash flows (see Pages 12, 13, 14, and 15) for
each of the years in the three-year period ended December 31, 1996. 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, 1996, 1995 and
1994, and the results of its operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, 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 16, 1997.
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 28, 1997
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 28, 1997 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 28, 1997 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, 1994, 1995 and
1996.
Consolidated Statements of Income for the Years Ended December 31,
1994, 1995 and 1996.
Consolidated Statements of Shareholders' Investment for the Years
Ended December 31, 1994, 1995 and 1996.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996.
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, Registration Statement File No. 33-
64393, and Registration Statement File No. 33-60263.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 20, 1997.
(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)(i) to Form 10-Q for the quarter ended
March 31, 1996 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 as Exhibit
10.h. to Form 10-K for the fiscal year ended December 31, 1995
and incorporated herein by reference.)
10.i. 1996 Compensation Award Program description. (Filed electroni-
cally 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, 1996 (to be filed
within 180 days after the Plan's year-end).
Exhibits 2, 4, 11, 12, 13, 16, 18, 22, 23, and 24 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/Gorton M. Evans March 20, 1997
Gorton M. Evans, 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 20, 1997
George W. Mead, Chairman of the Board,
and Director
/s/Gorton M. Evans Date March 20, 1997
Gorton M. Evans, President and
Chief Executive Officer, and Director
/s/Richard J. Kenney Date March 20, 1997
Richard J. Kenney, Vice President, Finance
(Principal Financial Officer)
/s/James E. Shewchuk Date March 20, 1997
James E. Shewchuk, Controller
/s/Ruth Baldwin Barker Date March 20, 1997
Ruth Baldwin Barker, Director
/s/Patrick F. Brennan Date March 20, 1997
Patrick F. Brennan, Director
/s/Wiley N. Caldwell Date March 20, 1997
Wiley N. Caldwell, Director
Date
James D. Ericson, Director
/s/Sally M. Hands Date March 20, 1997
Sally M. Hands, Director
/s/J. Joseph King Date March 20, 1997
J. Joseph King, Director
/s/Bernard S. Kubale Date March 20, 1997
Bernard S. Kubale, Director
/s/D. Richard Mead, Jr. Date March 20, 1997
D. Richard Mead, Jr., Director
/s/Gilbert D. Mead Date March 20, 1997
Gilbert D. Mead, Director
/s/Lawrence R. Nash Date March 20, 1997
Lawrence R. Nash, Director
Date
Glenn N. Rupp, Director
/s/John S. Shiely Date March 20, 1997
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, 1996, 1995 and 1994 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, 1996 $ 4,628 $ 861 $ 176 $ 5,313
1995 $ 4,066 $ 1,625 $ 1,063 $ 4,628
1994 $ 3,558 $ 535 $ 27 $ 4,066
EXHIBIT 10.i. TO FORM 10-K FOR
CONSOLIDATED PAPERS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996
April 4, 1996
Since the Compensation Award Program (CAP) began in 1992, it has proven to be
very successful. We have worked together to generate savings of over $28
million, and management employees have received $4 million in CAP awards.
As a result of the continued success of this program, I am pleased to announce
an improvement to the program for 1996. The maximum possible award has
increased 50% from 2% of normal earnings to 3% of normal earnings. This
additional CAP potential will allow you to have a larger award as even greater
CAP savings are realized.
Another change in the program is that the minimum level of CAP savings
required for an award has been increased from $4 million to $5 million. This
is a result of including Niagara of Wisconsin in the CAP program.
Specific details for 1996 are attached, and I am sure you will agree that the
changes are exciting.
I look forward to working with you in order to achieve an even greater level
of success with CAP.
/s/ Patrick F. Brennan
1996 COMPENSATION AWARD PROGRAM
Eligibility
You will be eligible for a CAP award in 1996 based upon the following
conditions:
1. You must be a management employee from January 1, 1996 through
December 31, 1996.
2. You must be eligible to participate in TIP.
3. You must receive a merit increase during 1996.
4. Consolidated must achieve a minimum of $5 million in net costs improvements
as outlined below.
5. If you are employed in an operating division, the division must have
favorable results for the sum of controllable cost improvements and
inventory changes.
6. If you are employed in a staff department, you must have a CAP goal and
make significant progress toward meeting that goal. This goal can be
either an individual goal or a team goal. Staff Budget Managers will be
asked to approve each eligible employee in their department for a CAP award
based upon their achievement toward their individual or team CAP goal.
Targets
The 1996 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 1996 Profit Plan; plus,
b. Inventory Changes - As of December 31, 1995, the measurable inventory
(excluding finished goods) was $88.8 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 $5 million in 1996, 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 $15 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 required 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. (See number 6 above.)
Award
If the minimum target is achieved, the CAP award will once again 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>
$5 million 1.00% of 1996 normal earnings2
$6 million 1.20% of 1996 normal earnings2
$7 million 1.40% of 1996 normal earnings2
$8 million 1.60% of 1996 normal earnings2
$9 million 1.80% of 1996 normal earnings2
$10 million 2.00% of 1996 normal earnings2
$11 million 2.20% of 1996 normal earnings2
$12 million 2.40% of 1996 normal earnings2
$13 million 2.60% of 1996 normal earnings2
$14 million 2.80% of 1996 normal earnings2
$15 million 3.00% of 1996 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 will develop specific goals that are tangible and measurable
which can help to improve our bottom line.
Staff departments goals for 1996 should be submitted to Mr. Brennan by
April 30th. Status reports must then be submitted to the staff quality
council at the end of each subsequent quarter.
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, 1996
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
100% Consolidated Papers International
Leasing, L.L.C. Delaware
100% CONDEPCO, Inc. Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1996 consolidated balance sheet and the consolidated statements
of income, shareholders' equity and cash flows for the twelve-month period
ended 12/31/96 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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,928
<SECURITIES> 0
<RECEIVABLES> 131,416
<ALLOWANCES> 5,313
<INVENTORY> 137,954
<CURRENT-ASSETS> 323,897
<PP&E> 2,423,436
<DEPRECIATION> 775,080
<TOTAL-ASSETS> 2,532,242
<CURRENT-LIABILITIES> 163,756
<BONDS> 272,467
<COMMON> 44,768
0
0
<OTHER-SE> 1,269,822
<TOTAL-LIABILITY-AND-EQUITY> 2,532,242
<SALES> 1,545,091
<TOTAL-REVENUES> 1,545,091
<CGS> 1,175,304
<TOTAL-COSTS> 1,175,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,298
<INCOME-PRETAX> 289,170
<INCOME-TAX> 109,885
<INCOME-CONTINUING> 179,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,285
<EPS-PRIMARY> 4.01
<EPS-DILUTED> 4.01
</TABLE>
