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, 1998
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. ( )
The aggregate market value of March 9, 1999 of the voting stock held by
nonaffiliates of the registrant was approximately $1.25 billion, based upon
the NYSE closing price on March 9, 1999 and an estimate that 61.2% of the
stock is owned by nonaffiliates.
On March 9, 1999 there were 90,480,444 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 26, 1999.
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. Pulp and paper operations involve the manufacture and
sale of coated 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
third party sales.
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
office scrap paper.
In October, 1997, the Company acquired Repap Wisconsin, Inc. and Repap Sales
Corporation. The operations are now known as Inter Lake Papers, a
Consolidated Papers company. Inter Lake Papers manufactures groundwood and
groundwood-free coated papers for the printing and publishing industries.
The Company's principal product is coated and supercalendered printing papers
for the printing and publishing industries. The Company is North America's
leading manufacturer of these papers. In addition, the Company manufactures
coated specialty papers, paperboard, paperboard products, corrugated products,
and kraft and recycled pulp.
The percent of coated and supercalendered printing paper sales to total sales
was 80.0% (1994), 83.9% (1995), 83.7% (1996), 85.4% (1997) and 87.6% (1998).
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>
1994 52% 48%
1995 56% 44%
1996 56% 44%
1997 53% 47%
1998 54% 46%
The Company competes in the coated and supercalendered printing paper market
and the coated specialty paper market (1) by providing paper of high quality
incorporating special properties desired by its customers, (2) by pricing its
products competitively, and (3) by emphasizing service to customers by prompt
attention to orders, timely 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 printing 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 and supercalendered 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 printing papers in North America, having shipped
1,941,671 tons of coated and supercalendered printing papers in 1998, which
represents approximately 20% of the U.S. market for this product. Sales to
Unisource and xpedx, paper merchants, as a percent of net sales, amounted to
14% and 10%, respectively in 1998. The Company's principal U.S. competitors
are Bowater Incorporated; Champion International Corporation; Crown Vantage
Inc.; International Paper Company; Madison Paper Industries; Mead Corporation;
the Northwest Paper Division of Potlatch Corporation; S.D. Warren, a
subsidiary of Sappi Ltd.; UPM-Kymmene; and Westvaco Corporation.
The Company's energy sources during 1998 were:
<S> <C>
Coal 29.0%
Process Waste 37.9%
Natural Gas 15.3%
Electricity 17.3%
Petroleum products .5%
The Company experienced no shortages of energy in 1998. The Company currently
purchases 73% 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 27% of its coal requirement is purchased on
annual contracts. Coal is currently in ample supply, and we anticipate no
supply problems in 1999.
The Company is in the third year of a six-year agreement for the firm
transportation of approximately 68% of its total natural gas supply.
Approximately 32% of the Company's natural gas consumption is in the
interruptible category, which means it is subject to reduction whenever cold
weather or other events decrease the amount of pipeline space 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 1999.
The Company is integrated through ownership of forest lands and through its
own pulp-producing facilities. The harvest during 1998 from Company lands
produced 9.5% 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 1998 and expects that its regular suppliers will be able to
furnish it with an adequate supply of pulpwood and wood chips for 1999
operations.
The Company also purchases market pulp on a regular basis and purchased 37.8%
of the total pulp consumed by the Company's paper mills during 1998. 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 74% of its
anticipated requirements for 1999. Market pulp is currently in ample supply,
and the Company anticipates no supply problems in 1999.
The principal raw materials consumed in the manufacture of kraft pulp include
pulpwood, methanol, 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, post consumer recycled 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 1998, the Company was able to procure adequate supplies of
all principal raw materials and 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 in
1999.
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 $7.3 million in 1998, $6.8 million in 1997, and
$6.5 million in 1996 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. New wastewater treatment solids dewatering equipment was
approved in 1998 for the Water Quality Center (WQC) and is scheduled to be
installed during 1999. The cost of this upgrade is $745,000. The WQC treats
process wastewater from Biron, Kraft and Wisconsin Rapids divisions.
Wastewater permit renewal applications were completed and submitted to the
Wisconsin Department of Natural Resources (WDNR) during 1997. During 1998,
wastewater permits were reissued for Inter Lake Papers (ILP) and Niagara
divisions. Some of ILP's permit limits and monitoring requirements were
judged unreasonable and were adjudicated. The Company anticipates resolution
of the ILP permit issues without the need for a hearing. The WQC's permit was
extended to June 30, 1999. The Water Renewal Center's (WRC) permit
application is being reviewed by the WDNR and is expected to be reissued
during 1999. The renewed wastewater permit requirements are not expected to
cause material changes in the Company's business or affect its competitive
position.
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 WDNR. The WDNR is required to issue all
major source air operating permits by April 1999. 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.
In September 1998, the Environmental Protection Agency (EPA) finalized
regulations addressing the formation and transport of ozone across state
boundaries in the eastern half of the United States. These regulations
require 22 states (including Wisconsin) to reduce emissions of nitrogen
oxides, a precursor to ozone formation. Depending on WDNR's implementation
plan, due in 1999, the Company may incur significant capital and operating
costs to reduce nitrogen oxide emissions from its power and recovery boilers.
If utilities serving The Company's operations are required to reduce nitrogen
oxides, the Company may incur additional costs for purchased energy.
On June 20, 1996, the 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 continues operation of its ConsoGro (Water Quality Center wastewater
treatment solids) and NiAGro (Niagara Division wastewater treatment solids)
agricultural landspreading programs. 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 WRC during 1997. The planned construction activities at WQC and
WRC landfills were completed during 1998. Future landfill construction will
be completed as required to support the Company's operations. The Company has
adequate landfill capacity at this time to meet projected needs. At this
time, the Company is unable to predict the effect of future landfill or
groundwater regulations.
The Company's Hazardous Materials policies continue to ensure timely and full
compliance with all regulations applicable to the purchase, transportation and
disposal of hazardous materials. The Company complies with the Department of
Transportation rules regarding training of all employees who handle and
transport hazardous materials.
The Clean Air Act Amendments of 1990 and the Clean Water Act Effluent
Guidelines Limitations will have a significant financial impact on the paper
industry. The U.S. Environmental Agency (EPA) adopted rules in 1998 to reduce
the industry's discharge of air and water pollutants, and has proposed
additional rules to further reduce industry emissions of air pollutants. The
air and water regulations adopted in 1998 are applicable to the Company's
bleached Kraft pulp mill. The additional proposed regulations addressing air
pollutants from bleached Kraft pulp mill recovery boilers, lime kilns and
smelt dissolving tanks are expected to be final in April 1999 with compliance
required within 3 years. These final and proposed regulations are commonly
referred to as the "Cluster Rules". The Company's review of the Cluster Rules
indicates that additional capital expenditures of approximately $8 million for
process and equipment changes will be required in the next three years to
achieve compliance. The Company has completed a multiphase program to
eliminate the use of elemental chlorine in the pulp-bleaching process.
Phase I of the chlorine-elimination 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-elimination
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.
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 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-elimination program uses high-consistency ozone 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 in the first stage of bleaching. All equipment for Phase
III has been installed and began operation in early 1997. All required air
permits were obtained for the phased chlorine elimination program prior to
implementation. Our new ECF bleach process has resulted in significant
environmental improvements.
Due to the Company's proactive environmental planning and expenditures, we are
well prepared to meet the requirements of new EPA air and wastewater "Cluster
Rules". As a result of the recently completed chlorine-elimination program,
the Company is already in compliance with many of the requirements of the
Cluster Rules.
The Company has formed a Cluster Rules implementation team to define
requirements and determine the most cost-effective options for compliance.
Compliance with the Cluster Rules requirements is not expected to cause
material changes in the Company's business or affect its competitive position.
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.
The Company's environmental staff performs annual internal multimedia
environmental audits to assure compliance with environmental laws and
regulations.
The Company continues to follow closely sediment remediation activities under
way on various watershed systems, including the Fox River and Wisconsin River.
On the Fox River, state and federal agencies have focused on study and
remediation of sediments containing polychlorinated biphenols (PCBs), which are
believed to have been discharged by companies which manufactured or recycled
carbonless papers in the 1960s and early 1970s. Neither the Company's former
Appleton Division, closed in 1982, nor the Inter Lake Papers facility, acquired
in 1997, was involved in a carbonless paper manufacture or recycling. However,
it is likely that the existing potentially responsible parties on the Fox River
will seek contributions from the Company and others if litigation is initiated.
On the Wisconsin River, the Wisconsin Department of Natural Resources has
prepared a comprehensive management plan (CMP) addressing a variety of
environmental issues relating to the Petenwell and Castle Rock flowages,
including sediment contamination and water quality. These flowages are
artificial impoundments created by dams downstream of the Company's operations.
The CMP calls for further environmental studies of the flowages, but contains
no mandatory timetables or overall funding mechanism for any remedial actions,
which ultimately may be required.
The Company continues to be involved in groundwater monitoring associated with
lagoon closure requirements at Niagara Division. Lagoon closure activities
were completed in 1997. A Consent Order with the Michigan Department Of
Environmental Quality (MDEQ) required that the Company define the vertical and
horizontal extent of groundwater contamination. The approved remedial action
plan includes continued groundwater monitoring and deed restrictions limiting
groundwater use. Active groundwater remediation requirements are not
expected.
The Cluster Rules and the ozone transport regulations are being challenged in
various lawsuits brought by industry, environmental groups and other
interested parties. The outcome of this litigation may significantly affect
the Company's analysis of potential regulatory costs.
The Company cannot predict the potential economic impact of future
environmental regulations or laws. The global warming issue could result in
mandated reductions of greenhouse gases that would have a negative economic
impact on energy intensive industries including pulp and paper.
At the end of 1998 the Company employed approximately 7,261 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 71 1971 Chairman of the Board
Gorton M. Evans 60 1997 President and Chief Executive Officer
William P. Orcutt 70 1995 Senior Vice President
Richard J. Kenney 58 1997 Senior Vice President, Finance
Ronald E. Swanson 49 1997 Senior Vice President
John T. Hurley 64 1997 Senior Vice President, Sales and
Marketing
James E. Shewchuk 62 1999 Senior Vice President, Administration
David A. Krommenacker 56 1997 Vice President, Packaging Operations
John B. Steele 54 1997 Vice President, Free Sheet Operations
Roger L. Wangen 57 1997 Vice President, Groundwood Operations
Carl H. Wartman 46 1996 Secretary and General Counsel
David P. Nimtz 45 1997 Controller
John D. Steinberg 63 1990 Treasurer
All executive officers of the Company are elected annually by the Board of
Directors. William P. Orcutt will retire on March 31, 1999. John D.
Steinberg will retire on April 30, 1999.
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 1998, operated thirteen manufacturing plants in
nine 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 13 4 - Wisconsin Rapids, WI)
1 - Biron, WI )
1 - Whiting, WI ) 10,505,337 1,175
1 - Stevens Point, WI )
1 - Adams, WI )
1 - Niagara, WI )
2 - Duluth, MN )
1 - Kimberly, WI )
1 - Appleton, WI )
Equipment in operation at the close of 1998 included 22 paper machines, two
continuous kraft-pulp digesters, two recycled pulp mills, one paperboard
machine, one corrugating machine, and electrical production facilities with a
nameplate rated capacity of 258,562 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 that 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 treats the effluent of two paper mills.
Available capacity utilization during 1998 was 94.4% for coated papers and
100% for supercalendered papers. Production facilities are considered to be
well maintained and adequate for their purpose.
The Company owns 331,802 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,
1998 is 6,094.
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
1998
<S> <C> <C> <C> <C> <C>
High $ 32.56 $ 35.06 $ 29.50 27.50 $ 35.06
Low 25.12 26.63 24.13 21.75 21.75
Close 32.00 27.25 25.13 27.50 27.50
Cash dividend .21 .22 .22 .22 .87
1997
High $ 26.50 $ 28.56 $ 30.28 $ 29.56 $ 30.28
Low 23.56 25.31 27.13 24.56 23.56
Close 26.06 27.00 27.75 26.69 26.69
Cash dividend .21 .21 .21 .21 .84
Per share data prior to May, 1998, have been restated to reflect the two-for-
one stock split of May, 1998.
Item 6. SELECTED FINANCIAL DATA.
FIVE-YEAR COMPARISON OF SELECTED
FINANCIAL DATA
FOR THE YEARS 1994 THROUGH 1998
(Dollars in thousands, except per share data)
Year Net Income Cash
Ended Per Total Long-Term Dividends
Dec. 31 Net Sales Amount Share-Diluted Assets Debt Per Share
<S> <C> <C> <C> <C> <C> <C>
1998 $ 1,989,315 $ 102,357 $ 1.13 $ 3,627,486 $ 1,054,564 $ .87
1997 1,679,311 118,044 1.31 3,347,510 868,665 .84
1996 1,545,091 179,285 2.00 2,532,242 272,467 .84
1995 1,579,061 229,230 2.57 1,933,061 267,000 .72
1994 1,027,551 86,734 .98 1,499,511 68,000 .64
Per share amounts have been restated to reflect the two-for-one stock split of
May, 1998.
1998 amounts reflect a $4.6 million after taxes extraordinary loss on debt
extinguishment.
1997 amounts reflect the acquisition, effective October 1, 1997, of Inter Lake
Papers, Inc. formerly Repap USA, Inc.
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.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Financial Condition and Results of Operations
Acquisition.
Effective October 1, 1997, the company completed the acquisition of Repap USA,
Inc., the holding company for Repap Wisconsin, Inc. and Repap Sales
Corporation, in Kimberly, Wisconsin. The company renamed these operations
Inter Lake Papers, Inc., Inter Lake Wisconsin, Inc. and Inter Lake Sales
Corp., respectively. The operating results of the acquired companies
subsequent to the acquisition date are included in the Consolidated Statements
of Income. Details of the acquisition are included in Note 2 of the Notes to
Consolidated Financial Statements.
Sales and Cost of Sales.
Net sales increased to a record $2.0 billion in 1998, compared with 1997 net
sales of $1.7 billion and 1996 net sales of $1.5 billion. Record shipments of
2,176,612 tons were an increase of 15% over the previous record year of 1997,
which was a 21% increase over 1996. Gross margin as a percent of sales was
17.1%, compared with 17.5% in 1997 and 23.9% in 1996. The lower 1998 margin
was due primarily to periodic downtime related to the increase in lower-priced
imports and less-than-optimal product mix. In 1998, much of the increased
domestic demand was absorbed by imports from foreign producers taking
advantage of low labor rates, low raw material costs, lower currency exchange
rates and trade protectionism. Lower-priced imports were up 23% in 1998
compared with the previous year. For 1997, margins were lower than in 1996
due to lower selling prices and less-than-optimal product mix.
Plant Operations.
Shipments of coated and supercalendered printing papers increased in 1998 by
18%. Groundwood-free coated shipments (primarily Wisconsin Rapids and
Converting divisions and Inter Lake Papers) increased 35% in 1998 due to the
October 1, 1997, acquisition of Inter Lake Papers and continued productivity
improvements on all paper machines. This compares with a 13% increase in 1997
due to near-capacity operations and productivity improvements. During 1998,
the Wisconsin Rapids Division operated at 95% of available capacity, compared
with 100% in 1997 and 89% in 1996. The industry average capacity utilization
for groundwood-free grades was 93% in 1998, 93% in 1997 and 86% in 1996. On
average, selling prices decreased 1% in 1998, following a decrease of 5% in
1997 and a 7% decrease in 1996. The Converting Division, which converts
heavier-weight groundwood-free coated rolls into sheets, operated at 97% of
available capacity, compared with 99% in 1997 and 95% in 1996.
Groundwood coated shipments (Biron, Wisconsin River and Niagara divisions and
Inter Lake Papers) increased 16% in 1998, following a 17% increase in 1997.
The facilities operated at 98% of available capacity, compared with 97% in
1997 and 85% in 1996. The U.S. industry average utilization for groundwood
grades was 96% in 1998, 93% in 1997 and 87% in 1996. During 1998, selling
prices improved 8%, following declines of 13% in 1997 and 29% in 1996.
Inter Lake Papers, Inc. manufactures a combination of groundwood-free and
groundwood coated papers. This facility operated at 88% of available capacity
during 1998, compared with 100% of available capacity during the fourth
quarter of 1997.
Lake Superior Paper Industries, which makes supercalendered groundwood papers,
operated at 100% of available capacity in 1998, compared with 99% in 1997 and
84% in 1996. Shipments in 1998 decreased 15% primarily due to the downtime
associated with the machine rebuild in February 1998. This compares with a 4%
increase in 1997. Selling prices improved 8% in 1998, compared with declines
of 17% in 1997 and 33% in 1996.
The Stevens Point Division's coated specialty paper shipments increased 11% in
1998, compared with an increase of 13% in 1997 and a decline of 3% in 1996.
The mill's newest paper machine, No. 35, which increased the division's annual
capacity from 116,000 tons to 180,000 tons, began operation during the first
quarter of 1997 and exceeded management's expectations for quality and
productivity. Due to the added capacity and weakened markets, the division
operated at 80% of available capacity for 1998, compared with 84% in 1997 and
99% in 1996. Selling prices decreased 4% in 1998, following declines of 9% in
1997 and 8% in 1996.
Superior Recycled Fiber Industries operated at 89% of available capacity in
1998, compared with 89% in 1997 and 85% in 1996. Reduced demand for recycled
pulps resulted in continued selling price reductions of 9% in 1998, compared
with a decline of 11% in 1997.
Paperboard products shipments decreased 6%, and corrugated products shipments
decreased 11% in 1998. 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. In
October, Consolidated announced that Castle Rock Container Company,
manufacturer of corrugated products, is being offered for sale in keeping with
the company's strategic commitment to focus on its core business. A potential
buyer has not been named.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased $18 million in 1998 to
$102 million, compared with increases of $5 million in 1997 and $12 million in
1996. The 1998 increase resulted from general inflation increases and a full
year of selling, general and administrative expenses for the October 1, 1997,
acquisition of Inter Lake Papers.
Other Income and Income Taxes.
Other income (expense) was ($60 million) in 1998, ($19 million) in 1997 and
($2 million) in 1996. The increases in net other expense in 1998 and 1997 are
due primarily to increases in interest expense related to higher debt
associated with the October 1997 acquisition of Inter Lake Papers and
additional borrowings used for the early buyout of an operating lease at Lake
Superior Paper Industries.
Effective tax rates were 40.0%, 38.0% and 38.0% in 1998, 1997 and 1996,
respectively. The higher rate in 1998 is due primarily to nondeductible
goodwill.
Liquidity and Capital Resources.
Current Account Changes.
The October 1997 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 1998 decreased by $14
million, compared with an increase of $35 million in 1997, of which $32
million represents Inter Lake Papers, Inc., and a decrease of $14 million in
1996. The 1998 decrease was principally due to lower sales volume during the
fourth quarter. The days' sales outstanding has not materially changed, and
the company believes its collection period is well within the industry's
standards. Inventories decreased $16 million compared with 1997, primarily
due to lower raw material prices. Finished goods decreased $3 million, raw
materials decreased $12 million and stores supplies decreased $1 million,
compared with increases of $37 million for finished goods, $12 million for raw
materials and $18 million for stores supplies in 1997, all primarily due to
the Inter Lake Papers acquisition.
Prepaid expenses increased $22 million, primarily due to an increase in
prepaid income taxes of $16 million, compared with a decrease of $20 million
in 1997, primarily due to the Lake Superior Paper Industries lease buyout,
which resulted in the reclassification of a $19 million prepaid lease expense
to plant and equipment.
Accounts payable decreased $4 million in 1998 due to timings of payments,
compared with an increase of $19 million in 1997 due to Inter Lake Papers.
Payroll and employee benefits increased $12 million, due primarily to a $6
million increase in accrued employee retirement benefits in 1998 compared with
an increase of $16 million in 1997 due to Inter Lake Papers.
The year-end ratio of current assets to current liabilities was 1.7:1 in 1998,
compared with 1.9:1 in 1997 and 2.0:1 in 1996.
Capital Commitments and Spending.
At the end of 1998, authorized but uncompleted capital projects totaled $154
million. A 1999 capital approval budget of $166 million is in place. This
$166 million, plus the $154 million carry-over from 1998, less anticipated
carry-over of $120 million at the end of 1999, is expected to result in
planned capital spending of $200 million in 1999, compared with expenditures
of $349 million in 1998, $236 million in 1997 and $288 million in 1996. The
major 1998 expenditures included $149 million for a lease buyout of a paper
machine at Lake Superior Paper Industries, $44 million for a paper machine
rebuild project at the Biron Division, $11 million for a hot-soft
supercalender addition at the Stevens Point Division, $10 million for a 1998
paper machine rebuild project at Lake Superior Paper Industries, $16 million
for new supercalenders at the Niagara Division, and $11 million for a
groundwood project at the Niagara Division. The 1999 capital approval budget
for $166 million consists of $128 million for necessary replacement and
quality projects, $34 million for high-return projects, and $4 million for
environmental-control projects. Included in the 1999 approval budget is $46
million for new projects for the Inter Lake Papers operation.
Long-Term Debt.
The company's borrowings at December 31, 1998, were $1.055 billion, an
increase of $186 million, following increases of $596 million and $5 million
in 1997 and 1996, respectively. The increase during 1998 resulted primarily
from the completion of the exercise of the early purchase option to buy out
the operating lease on machinery and equipment at Lake Superior Paper
Industries. In 1998, the company paid $149 million in cash and assumed $120
million in debt to buy out the remaining four owner-participants. The first
of five owner-participants was bought out in December 1997 by paying $39
million in cash and assuming $30 million in debt. The debt assumed in this
transaction, a $144 million face value term loan, was redeemed in 1998 and the
company recorded an extraordinary loss of $5 million, after taxes. This
consisted primarily of a prepayment penalty and costs associated with the
early redemption, net of the remaining debt premium (see Note 3). The
redemption of this 12.08% debt was financed with proceeds from $160 million
private placement notes, which were issued in 1998 with interest rates between
6.93% and 7.30%.
The company's borrowings increased $596 million in 1997. The increase
primarily resulted from the Inter Lake Papers acquisition for $258 million in
cash and the assumption of $419 million of debt, of which $356 million of the
face value was refinanced in December 1997. The financing for the acquisition
(including the December 1997 refinancing) was provided from proceeds of a
private placement of $277 million of Senior Notes and proceeds under a new
$750 million revolving credit facility. Also in 1997, the company completed
the sale and leaseback of its No. 35 paper machine at the Stevens Point
Division. The proceeds of $136 million were used to pay down the revolving
credit facility.
As of December 31, 1998, the company has $299 million available for further
use under its $699 million revolving credit facility. The company also has
unused lines of credit of approximately $229 million. Such amounts, together
with cash flow from future operations, are expected to be more than sufficient
to fund projected capital commitments.
Interest expense incurred totaled almost $98 million in 1998, with $96 million
charged against income and $2 million capitalized as part of the cost of
related capital projects.
As discussed in Note 4 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 $484 million at December 31, 1998. Because deposits of $457
million at December 31, 1998, 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.
Market Risk.
In the ordinary course of business, Consolidated Papers, Inc. is exposed to
market risk, primarily interest rate and currency exchange rate risks. These
exposures relate to changes in interest rates on outstanding debt and to the
sale of products to foreign customers. The company currently uses interest
rate swap agreements to limit its exposure on a small portion of its long-term
debt. The company neither holds nor issues financial instruments for trading
purposes.
Interest Rate and Debt Sensitivity Analysis.
For fixed-rate debt, interest rate changes affect the fair market value but do
not impact earnings or cash flows. Conversely, for floating-rate debt,
interest rate changes generally do not affect the fair market value but do
impact future earnings and cash flows, assuming other factors are constant.
At December 31, 1998, the company's floating-rate debt approximates fair
market value. A hypothetical 10% change in the company's weighted average
borrowing rate would cause a $2 million change in earnings. The fair value of
the company's long-term fixed-rate debt was estimated to be $561 million at
December 31, 1998, and exceeded the carrying value by $18 million. Market risk
of $33 million is estimated as the potential change in fair value resulting
from a hypothetical 10% change in the company's weighted average long-term
borrowing rate at December 31, 1998.
Foreign Exchange Rate Risk.
The company's earnings are also affected by fluctuations in the value of the
U.S. dollar as compared with foreign currencies, predominately the Canadian
dollar, as a result of the sales of its products in foreign markets. The
company does not currently enter into any contracts in an attempt to hedge
foreign currency risk. The result of a uniform 10% change in the value of the
U.S. dollar relative to the currencies in which the company's sales are
denominated would have resulted in a change in earnings of $4 million. In
addition to the direct effects of changes in exchange rates, which are
reflected in a changed U.S. dollar value of the resulting sales, changes in
exchange rates also affect the volume of sales or the foreign currency sales
price as competitors' products become more or less attractive. The company's
sensitivity analysis of the effects of changes in foreign currency exchange
rates does not factor in this potential change in sales levels.
Environmental Matters.
The paper industry is subject to extensive environmental regulations, many of
which require significant capital and operational expenditures.
The Clean Air Act Amendments of 1990 and the Clean Water Act Effluent
Guidelines Limitations will have a significant financial impact on the paper
industry. The U.S. Environmental Protection Agency (EPA) adopted rules in
1998 to reduce the industry's discharge of air and water pollutants and has
proposed additional rules to further reduce industry emissions of hazardous
air pollutants. The additional proposed regulations addressing air pollutants
are subject to further change prior to final promulgation, now expected in
April 1999. These final and proposed regulations are commonly referred to as
the "Cluster Rule." The company's review of the Cluster Rule indicates that
capital expenditures of approximately $8 million for process and equipment
changes will be required in the next three years to achieve compliance.
In September 1998, the EPA finalized regulations addressing the formation and
transport of ozone across state boundaries in the eastern half of the United
States. The regulations require 22 states (including Wisconsin) to reduce
emissions of nitrogen oxides, a precursor to ozone formation. Depending upon
Wisconsin's implementation plan, due in 1999, the company may incur
significant capital costs to install additional controls on its power and
recovery boilers.
Both the Cluster Rule and the ozone transport regulations are being challenged
in various lawsuits brought by industry, environmental groups and other
interested parties. The outcome of this litigation may significantly affect
the company's analysis of potential regulatory costs.
Other statutory and regulatory environmental initiatives now under
consideration could have a material impact on the pulp and paper industry.
These initiatives include mandated reductions in greenhouse gases by energy-
intensive industries and efforts to further reduce access to fiber sources.
The company continues to closely follow sediment remediation activities under
way on various watershed systems, including the Fox River and Wisconsin River.
On the Fox River, state and federal agencies have focused on study and
remediation of sediments containing polychlorinated biphenyls (PCBs), which
are believed to have been discharged by companies that manufactured or
recycled carbonless papers in the 1960s and early 1970s. Neither the
company's former Appleton Division, closed in 1982, nor the Inter Lake Papers
facility, acquired in 1997, was involved in carbonless paper manufacture or
recycling. However, it is likely that the existing potentially responsible
parties on the Fox River will seek contributions from the company and others
if litigation is initiated. On the Wisconsin River, the Wisconsin Department
of Natural Resources has prepared a comprehensive management plan (CMP) that
addresses a variety of environmental issues relating to the Petenwell and
Castle Rock flowages, including sediment contamination and water quality.
These flowages are artificial impoundments created by dams downstream of the
company's operations. The CMP calls for further environmental studies of the
flowages, but contains no mandatory timetables or overall funding mechanism
for any remediation activities that may ultimately be required.
Management believes that the resolution of existing environmental matters will
not have a material impact on the company's results of operations.
Year 2000.
General. The company's Year 2000 efforts are continuing, with completion of
the final stages of its internal compliance project scheduled for August 1999.
The company has defined two major areas for its internal efforts: business
applications and process applications (all other hardware and software
systems). The company has defined a nine-step process toward Year 2000
compliance: (1) planning and awareness; (2) inventory; (3) triage (assess
risks and prioritize efforts); (4) detailed assessment (identify where
failures may occur, determine solutions and plans to repair or replace); (5)
resolution (repair, retire or replace noncompliant systems, create bridges to
other systems and perform unit testing); (6) test planning; (7) test
execution; (8) deployment of compliant systems; and (9) fallout (remove
bridges and patches, recertify standards). In both business and process
applications, planning and awareness, inventory, triage, and detailed
assessment are substantially complete. Work continues in the remaining areas.
The company's overall Year 2000 project was 70% complete at the end of 1998.
In addition to its internal efforts, the company's Year 2000 team is also
focusing on external factors that may affect the company, including the
compliancy status of suppliers and customers. The external effort includes
the development of contingency plans to address identified risks.
Business Applications. This area includes in-house developed applications,
purchased software systems and all hardware required for business application.
Assessment in this area is substantially complete, and the Year 2000 team is
now developing and executing remediation plans for noncompliant purchased
software and hardware devices. Business applications are on schedule for
completion of system testing and deployment by August 1999.
Process Applications. This area includes the company's manufacturing
operations, where many items such as machine drives, scanners and process
control devices include date-dependent features. Assessment of these devices
has generally been completed, although some vendors have been slow to respond
to the company's inquiries. Remediation and testing of process applications,
which must be coordinated with scheduled mill downtime, are planned for
completion in August 1999.
Costs. The total cost associated with the hardware and software modifications
required by the Year 2000 problem is not expected to be material to the
company's financial position. The company presently estimates that it will
spend approximately $27 million on its overall Year 2000 project. This
includes $20 million for remediation and replacement of noncompliant systems,
$1 million for outside consultant costs, and $6 million for internal labor
costs. The amount expected to be spent on remediation and replacement
includes previously budgeted items totaling $8 million, where these
expenditures have been accelerated to meet Year 2000 requirements. Of the
overall $27 million cost, approximately $14 million had been spent at the end
of 1998.
External Factors - Customers and Suppliers. The company has surveyed its
customers and suppliers in an effort to determine and assess those parties'
Year 2000 compliance status. These groups have been prioritized based on
their relative importance to the company's operations. The company is
focusing its efforts with suppliers on those parties whose failure to be Year
2000 compliant could significantly affect the company's ability to do
business. Prioritization also includes an analysis of alternative sources of
raw materials or production equipment. The company is also engaged in an
ongoing dialogue with major customers. Most key customers and suppliers appear
to be making good progress toward Year 2000 compliance. The company's efforts
to determine its suppliers' and customers' Year 2000 status will continue
throughout 1999 as it monitors the progress of those parties' ongoing Year
2000 efforts.
Contingency Plans. The company believes that its internal compliance efforts
will prevent any material disruption of the company's business and process
applications caused by the Year 2000 problem. Current external efforts are
identifying certain potential risks, such as shutdown of key customers or
suppliers, breakdowns in transportation systems, or failures of the electrical
grid or the company's wide area network. Contingency plans are being
developed to address these problems where possible. The company is in the
early stages of developing contingency plans with respect to suppliers. These
plans will involve identification of alternative supply sources and may
consider increased inventories of raw materials and finished product.
Identification of alternative supply sources may prove difficult in some
areas, particularly with respect to existing assets that require repair,
upgrade or replacement parts from the original vendor. The company expects to
increase its focus on contingency planning in the first quarter of 1999.
Should problems arise that disrupt key suppliers' operations or prevent
customers from purchasing or using the company's products, the company would
likely take manufacturing downtime and other steps designed to minimize costs.
At this time, the company cannot predict the likelihood of a significant
disruption of its customers' or suppliers' businesses or of the economy as a
whole, either of which could have a material adverse impact on the company.
However, these potential problems are similar to those generally faced by
other manufacturers.
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 future 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; (5) decisions by the company to make a
significant acquisition or a significant increase in production capacity; and
(6) unanticipated costs or problems associated with Year 2000 compliance.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
Consolidated Balance Sheets Consolidated Papers, Inc. and Subsidiaries
As of December 31
(Dollars in thousands) 1998 1997 1996
Current Assets
<S> <C> <C> <C>
Cash and cash equivalents $ 3,230 $ 13,169 $ 12,928
Accounts and notes receivable,
net of reserves of $6,504 in 1998,
$6,374 in 1997 and $5,313 in 1996 147,307 160,874 126,103
Inventories
Finished and partly finished
products 89,377 92,245 55,474
Raw materials 39,616 51,726 39,428
Stores supplies 60,127 6l,075 43,052
189,120 205,046 137,954
Prepaid expenses 48,550 26,506 46,912
Total current assets 388,207 405,595 323,897
Investments and Other Assets
Investments in affiliates, at cost
plus equity in undistributed
earnings 39,668 37,188 34,784
Restricted cash related to leases 438,429 427,026 423,618
Other assets 19,651 23,877 42,553
Goodwill 140,211 148,049 59,034
637,959 636,140 559,989
Plant and Equipment
Buildings 323,969 281,988 236,004
Machinery and equipment 3,200,392 2,647,374 1,962,835
3,524,361 2,929,362 2,198,839
Less-accumulated depreciation 1,048,409 883,265 775,080
2,475,952 2,046,097 1,423,759
Land 14,069 13,383 11,447
Timber and timberlands, net of
depletion 26,762 26,391 25,150
Capital additions in process 84,537 219,904 188,000
2,601,320 2,305,775 1,648,356
$ 3,627,486 $ 3,347,510 $ 2,532,242
Current Liabilities
Accounts payable $ 88,651 $ 92,330 $ 73,147
Payroll and employee benefits 78,083 65,628 49,661
Income taxes 367 2,844 -
Property taxes 11,661 11,082 10,016
Other current liabilities 44,199 37,477 30,932
Total current liabilities 222,961 209,361 163,756
Noncurrent Liabilities and
Deferred Credits
Long-term debt 1,054,564 868,665 272,467
Capital lease obligations 465,613 456,321 462,084
Deferred income taxes 349,573 309,875 251,955
Postretirement benefits 148,508 152,470 98,614
Other noncurrent liabilities 31,416 33,151 13,544
2,049,674 1,820,482 1,098,664
Shareholders' Investment
Preferred stock, authorized and
unissued 15,000,000 shares - - -
Common stock, authorized 200,000,000
shares, par value $1.00 per share;
issued 90,713,876 shares in 1998,
90,009,898 shares in 1997 and
89,536,722 shares in 1996 90,714 90,010 89,537
Capital in excess of par value 61,657 46,400 36,049
Accumulated other comprehensive income (2,705) (2,610) (2,290)
Treasury stock, at cost, 409,426 shares
in 1998, 278,816 shares in 1997
and 79,800 shares in 1996 (9,906) (7,370) (2,020)
Reinvested earnings 1,215,091 1,191,237 1,148,546
Total shareholders' investment 1,354,851 1,317,667 1,269,822
$ 3,627,486 $ 3,347,510 $ 2,532,242
Consolidated Statements of Shareholders' Investment
Accumu-
Capital lated
in Other Compre-
Excess Compre- Treas- hen-
(Dollars in Common of Par hensive ury Reinvested sive
thousands) Stock Value Income Stock Earnings Total Income
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December
31, 1995 $89,248 $29,701 $(2,369) $(2,100) $1,044,317 $1,158,797
Net income - - - - 179,285 179,285 $179,285
Cash
dividends - - - - (75,056) (75,056) -
Exercise of
stock
options 289 6,103 - - - 6,392 -
Tax benefit
related
to stock
options - 240 - - - 240 -
Cumulative
transla-
tion ad-
justment - - 79 - - 79 79
Comprehen-
sive
income $179,364
Treasury
stock
purchase - - - (1,687) - (1,687)
Issuance of
treasury
stock - 5 - 1,767 - 1,772
Balance,
December
31, 1996 $89,537 $36,049 $(2,290) $(2,020) $1,148,546 $1,269,822
Net income - - - - 118,044 118,044 $118,044
Cash
dividends - - - - (75,353) (75,353) -
Exercise of
stock
options 473 9,447 - - - 9,920 -
Tax benefit
related
to stock
options - 962 - - - 962 -
Cumulative
transla-
tion ad-
justment - - ( 320) - - ( 320) (320)
Comprehen-
sive
income $117,724
Treasury
stock
purchase - - - (7,646) - ( 7,646)
Issuance of
treasury
stock - (58) - 2,296 - 2,238
Balance,
December
31, 1997 $90,010 $46,400 $(2,610) $(7,370) $1,191,237 $1,317,667
Net income - - - - 102,357 102,357 $102,357
Cash
dividends - - - - (78,503) (78,503) -
Exercise of
stock
options 704 13,506 - - - 14,210 -
Tax benefit
related
to stock
options - 1,703 - - - 1,703 -
Cumulative
transla-
tion ad-
justment - - ( 95) - - ( 95) (95)
Comprehen-
sive
income $102,262
Treasury
stock
purchase - - - (5,007) - ( 5,007)
Issuance of
treasury
stock - 48 - 2,471 - 2,519
Balance,
December
31, 1998 $90,714 $61,657 $(2,705) $(9,906) $1,215,091 $1,354,851
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) 1998 1997 1996
Cash Flows from Operating Activities
<S> <C> <C> <C>
Net income $ 102,357 $ 118,044 $ 179,285
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and depletion 171,156 121,587 100,220
Amortization of goodwill and
intangibles 10,182 7,013 7,600
Debt premium amortization ( 7,090) - -
Undepreciated cost of plant and
equipment retirements 2,577 6,957 7,694
Earnings of affiliates ( 4,755) ( 4,557) ( 3,341)
Deferred income taxes 35,162 25,428 19,866
(Increase) decrease in accounts
receivable 13,567 11,331 13,969
(Increase) decrease in inventories 15,926 ( 2,508) ( 5,511)
(Increase) decrease in prepaid
expenses ( 17,508) 11,801 1,135
Increase (decrease) in accounts
payable ( 3,679) ( 14,930) 869
Increase (decrease) in current
liabilities, other than current
maturities of long-term debt
and accounts payable 17,279 1,653 ( 8,352)
Increase (decrease) in postretirement
benefits ( 3,962) ( 901) 4,912
Increase (decrease) in other
noncurrent liabilities ( 1,735) ( 6,926) 3,201
Net cash provided by operating activities 329,477 273,992 321,547
Cash Flows from Investing Activities
Capital expenditures (348,856) (236,198) (287,893)
Acquisitions, net of cash - (250,690) -
Proceeds from sale and leaseback - 135,600 422,398
Noncurrent investments - - (393,229)
Other 1,952 130 7,605
Net cash (used in) investing activities (346,904) (351,158) (251,119)
Cash Flows from Financing Activities
Cash dividends ( 78,503) ( 75,353) ( 75,056)
Proceeds from long-term debt 160,000 282,000 23,467
Repayment of long-term debt (143,831) (405,103) -
Net borrowings under lines of credit
and revolvers 56,397 270,389 ( 18,000)
Common stock issued (net) 13,425 5,474 6,717
Net cash provided by (used in)
financing activities 7,488 77,407 ( 62,872)
Net increase (decrease) in cash and
cash equivalents ( 9,939) 241 7,556
Cash and cash equivalents - beginning
of year 13,169 12,928 5,372
Cash and cash equivalents - end of year $ 3,230 $ 13,169 $ 12,928
Cash paid during the year for:
Interest $ 29,333 $ 17,281 $ 7,330
Income taxes 32,007 93,184 103,234
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, 1998, 1997 and 1996
1. Summary of Accounting Policies.
Principles of Consolidation - The consolidated financial statements
include the accounts of Consolidated Papers, Inc. and 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.
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.
Accounting Standards - The Financial Accounting Standards Board (FASB)
recently issued Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," which establishes standards for
the reporting of the components of comprehensive income, SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which requires certain information about operating segments to be
reported on a basis consistent with internal decision making, and SFAS
No. 132, "Employer's Disclosures about Pensions and Other Postretirement
Benefits," which standardizes the disclosure requirements for pensions
and other postretirement benefits. Required disclosures have been made
and prior years' information has been reclassified for the impact of
adopting SFAS Nos. 130, 131 and 132 in 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that every derivative
instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. In March
1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which revises the
accounting for software development costs and will require the
capitalization of certain costs that the company has historically
expensed. The company is currently analyzing the impacts of these
statements, which are required to be adopted in 2000 and 1999,
respectively, and does not expect either statement to have a material
impact on the company's financial position, results of operations or cash
flows.
Cash and Cash Equivalents - For financial statement purposes, 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 50% in 1998, 45% in 1997 and 57% in
1996) 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, 1998, 1997 and 1996, by $18.2 million, $21.5 million and
$21.3 million, 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 to 20 years. Amortization of
goodwill resulting from business acquisitions was $9.1 million, $5.6
million and $4.1 million in 1998, 1997 and 1996, respectively. At
December 31, 1998, accumulated amortization of goodwill was $21.3
million. 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 five 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 1998, 1997 and 1996 was $1.6 million, $3.1
million and $7.5 million, 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.
Research and Development - Research and development costs are charged to
expense as incurred. Research and development expenses in 1998, 1997 and
1996 were approximately $7.3 million, $6.8 million and $6.5 million,
respectively.
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 $24 million, $30
million and $12 million at December 31, 1998, 1997 and 1996,
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 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. The
company accrues closure costs and discounted amounts for long-term care
costs for its landfills over their estimated useful lives. As of
December 31, 1998, the company had accrued $5.9 million of the
anticipated $7.1 million for such costs.
Income Taxes - Deferred income taxes have been provided for temporary
differences arising from differences in bases of assets and liabilities
for tax and financial reporting purposes. Deferred income taxes are
recorded on temporary differences at the tax rate expected to be in
effect when the temporary differences reverse.
Net Income per Share - Effective January 1, 1997, the company adopted the
requirements of SFAS No. 128, "Earnings per Share," and, accordingly,
basic earnings per share is calculated based on the weighted average
number of common shares outstanding during the year, while diluted
earnings per share is calculated based on the dilutive effect of
potential common shares. All prior period amounts have been restated for
comparable purposes.
Basic and diluted earnings per share are reconciled as follows:
For the years ended
December 31
1997 1996
(In thousands, except per share data) (Unaudited) (Unaudited)
<S> <C> <C>
Net sales $1,953,449 $1,820,659
Net income 150,538 244,267
Net income per share - basic 3.37 5.50
This pro forma information reflects all adjustments that are, in the
opinion of management, necessary to a fair statement of the results.
3. Long-term Debt and Lines of Credit. A summary of long-term debt as of
December 31 is as follows:
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Term loan from a financial
institution, unsecured,
with interest at 7.05%,
due June 30, 2000 $ 30,000 $ 30,000 $ 30,000
Term loan from a financial
institution, unsecured,
with interest at 7.40%,
due June 30, 2005 55,000 55,000 55,000
Term loan from a financial
institution, secured by equipment,
with interest at 9.94%,
repurchased in September 1997 - - 23,467
Term loan from a financial
institution, secured by equipment,
with interest at 12.08%, due
January 1, 2007, repurchased in
May and June 1998 - 30,241 -
Senior Notes with interest
at 6.71% to 7.14%, due October 31,
2004, to October 31, 2017 277,000 277,000 -
Senior Notes with interest at 6.93%
to 7.30%, due May 8, 2009,
to May 8,2023 160,000 - -
Industrial Revenue Bonds with
interest at 4.20% at December
31, 1998, reset weekly,
due July 1, 2012 5,000 5,000 -
First Priority Senior Secured Notes
of Inter Lake Papers, Inc. with
9.25% interest, $19,473 face
amount and due February 1, 2002 20,369 20,620 -
Second Priority Senior Secured Notes
of Inter Lake Papers, Inc. with
9.875% interest, $1,099 face
amount and due May 1, 2006 1,195 1,204 -
Revolving credit agreements with
financial institutions, unsecured,
with a weighted average interest
rate of 5.35% and 5.91%, respectively 400,000 440,000 -
Line of credit agreements with
financial institutions, unsecured,
with a weighted average interest
rate of 6.08%, 6.91% and 5.96%,
respectively 106,000 9,600 164,000
Total long-term debt $1,054,564 $ 868,665 $ 272,467
The company has a $699 million unsecured revolving credit agreement with
15 participating financial institutions with an expiration date of
September 26, 2002. This agreement has a competitive bid loan option
with varying rates of interest. The company pays the banks a facility fee
under this agreement.
The company has $335 million in unsecured lines of credit with seven
financial institutions. There are no commitment fees for these lines of
credit. 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.
The company recorded an extraordinary loss of $4.6 million after taxes as
a result of the early redemption of a $143.8 million face value term
loan. This term loan was assumed as part of the operating lease buyout on
production equipment at Lake Superior Paper Industries, which occurred
partly in 1997 and was completed in January 1998 (see Note 4). The loss
consisted primarily of a prepayment penalty and costs associated with the
early redemption, net of the write-off of the remaining debt premium and
net of tax benefits of $3.1 million. The redemption of the 12.08% debt
was financed with proceeds from the $160 million private placement notes
with interest rates between 6.93% and 7.30%.
As of December 31, 1998, the maturities of long-term debt are as follows:
<S> <C> <C>
(In thousands) 1999 $ -
2000 30,000
2001 -
2002 420,369
2003 -
Thereafter 604,195
4. Leases. The company sold certain assets for $136 million in December
1997. The assets were leased back from the purchaser over a period of 16
years. The lease is being accounted for as an operating lease, and the
resulting gain of $17 million is being amortized over the life of the
lease. The lease requires the company to pay customary operating and
repair expenses and to observe certain operating restrictions and
covenants. The lease contains renewal options at lease termination and
purchase options at amounts approximating fair market value in 2005, 2010
and at lease termination.
The company also 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, 1998, the company recorded assets for the
deposits from the sale proceeds of $457 million and liabilities for the
lease obligations of $484 million. $18.6 million of both the deposits
and lease obligations are recorded as current. The net amount of capital
lease assets at December 31, 1998, is $261 million.
The company also leases certain manufacturing facilities, office space,
and machinery and equipment under various operating lease agreements,
which have remaining lease terms of two to five years. Rent expense
under all operating leases was approximately $11.0 million, $33.8 million
and $35.3 million for 1998, 1997 and 1996, respectively.
In January 1998, the company completed the exercise of its early purchase
option to buy out an operating lease on production equipment at Lake
Superior Paper Industries by paying $149.3 million in cash and assuming
$120.4 million in debt. The company had previously purchased a portion of
the equipment in December 1997 by paying $38.9 million in cash and
assuming $30.2 million in debt. The total transaction resulted in an
increase in fixed assets of $338.8 million.
Future scheduled minimum lease payments under capital and noncancelable
operating leases as of December 31, 1998, are as follows:
(In thousands) Operating Leases Capital Leases
<S> <C> <C>
1999 $ 13,533 $ 23,242
2000 11,506 26,969
2001 10,947 28,334
2002 9,900 29,769
2003 7,559 31,276
Thereafter 65,556 857,084
Total minimum lease payments $ 119,001 996,674
Imputed interest (512,478)
Present value of capitalized lease payments 484,196
Less current portion
(included in other current liabilities) 18,583
Long-term capitalized lease obligations $ 465,613
5. Fair Values of Financial Instruments. The carrying amounts and fair
values of the company's financial instruments at December 31 were as
follows:
1998 1997 1996
Carrying Fair Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value Amount Value
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents $ 3,230 $ 3,230 $ 13,169 $ 13,169 $ 12,928 $ 12,928
Restricted cash
related to leases 457,012 457,012 439,675 439,675 423,618 423,618
Long-term debt,
including current
maturities 1,054,564 1,072,071 868,665 875,534 272,467 275,222
The following methods and assumptions were used by the company in
estimating fair values for financial instruments:
Cash, cash equivalents and restricted cash - 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.
6. Risk Management. The company periodically uses interest rate lock and
swap agreements to manage its exposure to interest rate changes.
Payments or receipts for fluctuations in interest rates under these
agreements are recorded as adjustments to interest expense and were not
material in any period. At December 31, 1998, the company had
outstanding interest rate swap agreements with a notional principal
amount of $50 million that convert floating-rate debt to fixed-rate debt.
The company neither holds nor issues financial instruments for trading
purposes.
7. Employee Pension and Other Benefit Plans. The company and its
subsidiaries sponsor 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.
The company also provides certain noncontributory 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.
The postretirement benefits for both active and retired employees of
Inter Lake Papers, Inc. were continued after the acquisition. The amounts
herein reflect the assumption of these additional liabilities and costs.
Summarized information on the company's postretirement plans is as
follows:
Pension Benefits Other Benefits
12/31/98 12/31/97 12/31/96 12/31/98 12/31/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Change
in benefit
obligation
Benefit
obligation
at
begin-
ning of
year $ 480,029 $ 444,637 $ 437,927 $ 221,325 $ 157,705 $ 149,905
Service
cost 16,769 13,760 13,867 5,792 4,619 4,194
Interest
cost 33,117 31,247 29,730 15,039 11,736 10,636
Amendments 2,648 - - - - -
Acquisi-
tion - - - - 54,610 -
Net
actuar-
ial
loss/
(gain) 21,592 13,172 (15,769) 5,313 ( 399) 96
Benefits
paid (24,571) (22,787) (21,118) (9,221) (6,946) $ (7,126)
Benefit
obliga-
tion
at end
of year 529,584 480,029 444,637 238,248 221,325 157,705
Change in
plan
assets
Fair
value
of plan
assets
at be-
ginning
of year 615,648 514,314 468,312 52,637 39,463 33,141
Actual
return on
plan
assets 41,815 123,937 62,877 741 9,076 4,549
Employer
contri-
butions 200 184 4,244 12,902 11,044 8,899
Benefits
paid (24,571) (22,787) (21,118) (9,221) (6,946) (7,126)
Fair
value
of plan
assets
at end
of year 633,092 615,648 514,315 57,059 52,637 39,463
Net amount
recognized
Funded
status 103,508 135,619 69,677 (181,189) (168,688) (118,242)
Unrecog-
nized
prior
service
cost 19,151 19,072 21,640 ( 16,657) ( 18,051) ( 19,445)
Unrecog-
nized
tran-
sition
(asset) ( 14,188) ( 17,027) ( 19,866) - - -
Unrecog-
nized
net
actu-
arial
loss/
(gain) (121,526) (148,938) ( 80,334) 30,166 21,830 28,509
(Accrued)
benefit
cost $ (13,055) $ (11,274) $( 8,883) $(167,680) $(164,909) $(109,178)
Amounts
recog-
nized
in the
statement
of fin-
ancial
position
consist
of:
Prepaid
benefit
cost 22,605 17,415 14,342 - - -
Accrued
benefit
lia-
bility (35,660) (28,689) (23,225) (167,680) (164,909) $(109,178)
Net
amount
recog-
nized $ (13,055) $ (11,274) $( 8,883) $(167,680) $(164,909) $(109,178)
Weighted-
average
assump-
tions at
end of
year Dis-
count rate 6.75% 7.00% 7.25% 6.75% 7.00% 7.25%
Expected
return
on
plan
assets 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
Rate of
compen-
sation
increase 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
For measurement purposes, the health care cost trend rates are as
follows:
For participants who retired before January 1, 1995, an 8% annual rate of
increase in the per capita cost of covered health care benefits was
assumed for 1998. The rate was assumed to decrease gradually to 5% for
2001 and remain at that level thereafter.
For participants who retired after January 1, 1995, a 5.25% annual rate
of increase in the per capita cost of covered health care benefits was
assumed for 1998. The rate was assumed to decrease gradually to 4% for
2001 and remain at that level thereafter.
Pension Benefits Other Benefits
12/31/98 12/31/97 12/31/96 12/31/98 12/31/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Components
of net
periodic
benefit
cost
Service
cost $ 16,769 $ 13,760 $ 13,867 $ 5,792 $ 4,619 $ 4,194
Interest
cost 33,117 31,247 29,730 15,039 11,736 10,636
Expected
return
on
plan
assets (46,855) (41,990) (34,013) (4,446) (3,490) (2,819)
Amortiza-
tion of
prior
service
cost 2,568 2,568 2,568 (1,394) (1,394) (1,394)
Amortiza-
tion of
transi-
tion
(asset) (2,839) (2,839) (2,839) - - -
Recognized
net actu-
arial
loss/
(gain) ( 779) ( 172) 49 682 702 1,387
Net peri-
odic
benefit
cost $ 1,981 $ 2,574 $ 9,362 $ 15,673 $ 12,173 $ 12,004
The net actuarial loss/(gain) in excess of a 10% corridor, the prior
service cost and the transition (asset) are being amortized over the
average remaining service period of active participants at the date
established on a straight-line basis.
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $8.6 million, $4.1 million and
$0, respectively, as of December 31, 1998, and $8.5 million, $3.9 million
and $0, respectively, as of December 31, 1997.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A 1% change in assumed health
care cost trend rates would have the following effects:
1% Increase 1% Decrease
(In thousands)
Effect on total of service and interest
cost components $3,747 ($2,948)
Effect on postretirement benefit
obligation 32,069 (25,914)
8. 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. In April 1998, the company
adopted a similar plan, the 1998 Incentive Compensation Plan. This plan
provides for the granting of options, stock appreciation rights, stock or
cash awards to directors, officers and all other nonunion employees. The
company accounts for these plans under Accounting Principles Board
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, basic earnings per share would have been reduced
by $.01, $.02 and $.01 for the years ended December 31, 1998, 1997 and
1996, 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 plans reserved 10 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 2,302,480 options outstanding at December 31, 1998, 966,682 have
exercise prices between $17.56 and $23.38, with a weighted average
exercise price of $20.28 and a weighted average remaining contractual
life of 3.41 years. 965,104 of these options are exercisable with a
weighted average exercise price of $20.28. The remaining 1,335,798
options have exercise prices between $24.06 and $32.97, with a weighted
average exercise price of $26.92 and a weighted average remaining
contractual life of 8.17 years. 424,323 of these options are exercisable
with a weighted average exercise price of $26.13.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1998, 1997 and 1996, respectively:
risk-free interest rates of 4.95%, 5.79% and 6.38%; expected dividend
yields of 3.20%, 3.15% and 3.42%; expected lives of 10, 10, and 10 years;
and expected volatility of 26.05%, 27.75% and 29.50% for 1998 options,
19.25% and 18.81% for 1997 options and 16.41% and 16.57% for 1996
options.
An analysis of the stock option plans at December 31, 1998, 1997 and 1996
follows:
Weighted Weighted Weighted
Average Average Average
1998 Exercise 1997 Exercise 1996 Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 2,411,328 $ 22 2,331,104 $ 21 2,078,556 $ 19
Granted 534,728 29 475,258 24 417,400 27
Exercised (617,664) 19 (338,358) 19 (150,168) 18
Expired or
canceled ( 25,912) 27 ( 56,676) 24 ( 14,684) 24
Outstanding at
end of year 2,302,480 24 2,411,328 22 2,331,104 21
Exercisable at
end of year 1,389,427 22 1,611,150 20 1,650,978 19
Weighted
average fair
value of
options
granted $ 8.09 $ 6.30 $ 5.96
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, 1998, none of the shares had been
issued.
9. Income Taxes.
The provision for income taxes includes the following components:
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 29,383 $ 39,040 $ 76,312
State 3,695 7,882 13,707
Total current 33,078 46,922 90,019
Deferred:
Federal 33,311 23,591 17,408
State 1,851 1,837 2,458
Total deferred 35,162 25,428 19,866
Total provision $ 68,240 $ 72,350 $ 109,885
The following summarizes the major differences between the U.S. statutory
tax rates and the company's effective tax rates:
1998 1997 1996
Statutory federal tax rates 35.0% 35.0% 35.0%
State income taxes 2.7 3.3 4.0
Other items _2.3 (.3) (1.0)
Effective tax rates 40.0% 38.0% 38.0%
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) 1998 1997 1996
<S> <C> <C> <C>
Deferred tax assets:
Postretirement benefits $ 66,524 $ 65,395 $ 43,331
Accrued vacation 12,866 10,029 9,118
Net operating loss carryforward 51,191 50,322 -
AMT credit 3,546 1,403 -
Tax credit carryforward 11,757 7,875 1,487
Capital loss carryforward 8,974 8,449 -
Valuation allowance ( 10,504) ( 7,907) -
Other 20,321 23,184 18,820
Total deferred tax assets __164,675 158,750 72,756
Deferred tax liabilities:
Plant and equipment (476,184) (432,265) (288,152)
Equity method investments ( 10,140) ( 10,576) ( 8,711)
Other ( 11,778) ( 13,428) ( 15,182)
Total deferred tax liabilities (498,102) (456,269) (312,045)
Net deferred tax liability $(333,427) $(297,519) $(239,289)
The consolidated balance sheets reflect current deferred income taxes of
$16.2 million, $12.4 million and $12.7 million in prepaid expenses and a
long-term deferred income tax liability of $349.6 million, $309.9 million
and $252.0 million at December 31, 1998, 1997 and 1996, respectively.
As of December 31, 1998, the company had tax carryforwards of
approximately $75.5 million, which expire from 1999 through 2013. Due to
the uncertainty of the realization of certain tax carryforwards, the
company has established a valuation allowance against these carryforwards
in the amount of $10.5 million.
10. Other Commitments. 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 $7.3 million of outstanding Steam Utility Revenue Bonds as of
December 31, 1998, which mature at various times through April 1, 2002,
and certain other costs, principally capital expenditures. The company
paid $2.8 million in 1998, 1997 and 1996, to service these bonds. Annual
payments for the principal and interest portion of these bonds are
expected to be $2.8 million in 1999 through 2001, with a final payment of
$.7 million in 2002.
As of December 31, 1998, the company had capital expenditure commitments
outstanding of approximately $153.8 million.
11. Segment Information. The company's principal business is the manufacture
of paper and paper-related products. Consolidated Papers, Inc. is a
leading manufacturer of coated and supercalendered printing papers. The
company is also the nation's leading manufacturer of coated specialty
papers used in consumer product packaging and labeling. Other products
and services include recycled pulp made from printed, preconsumer and
postconsumer scrap paper, paperboard, paperboard products, corrugated
products and hospitality and lodging services provided at a company-owned
hotel.
The company's headquarters and major operating facilities are all located
in the United States. Some forestlands and a small wood chip production
facility are located in Canada. These Canadian operations account for
$.6 million of consolidated total assets.
The principal markets for the company's products are in the United
States. Export sales, primarily to Canada, amounted to $88.2 million in
1998, $65.8 million in 1997 and $37.4 million in 1996.
Sales to one customer amounted to 13.6%, 14.3% and 13.0% of consolidated
net sales in 1998, 1997 and 1996, respectively. Sales to another
customer amounted to 10.1% and 10.2% of net sales in 1998 and 1997.
The company is managed along product lines including coated and
supercalendered printing papers, coated specialty papers, paperboard
products, and corrugated products. Several operating divisions producing
groundwood-free, groundwood and supercalendered printing papers have been
aggregated into the coated and supercalendered printing papers reportable
segment because these operating segments are similar in economic
characteristics, products, production processes, type of customer and
distribution methods. The coated specialty papers, paperboard products
and corrugated products operating segments do not meet the quantitative
thresholds for a reportable segment and thus are included in the "Other"
category.
The coated and supercalendered printing papers reportable segment derives
revenues from the sale of printing papers used by commercial printers and
publishers for magazines, annual reports, advertising brochures,
catalogs, coupons and newspaper inserts. The "Other" category includes
the sales of coated specialty papers (used for flexible packaging,
pressure-sensitive labels and technical papers), recycled pulp,
paperboard products and corrugated products, as well as revenues from the
company-owned hotel.
Segment sales include intersegment sales valued at arm's-length transfer
prices. Segment operating profit is revenue less direct and allocable
operating expenses. Segment identifiable assets are those which are
directly used in or identified to segment operations. Corporate items
include nonoperating overhead, selling, general and administrative
expense, research and development expenditures, interest expense, inter-
segment eliminations, and other income and deductions items. Corporate
assets are principally cash and cash equivalents, certain nontrade
receivables, prepaid items, equity method investments, and certain
nonoperating fixed assets.
Financial information by business segment follows:
Printing Corporate
(In thousands) Papers Other Items Total
<S> <C> <C> <C> <C>
1998
Revenues $1,751,226 $ 281,690 $ ( 43,601) $1,989,315
Segment profit (loss) 323,475 16,575 (161,781) 178,269
Total assets 2,754,789 325,538 547,159 3,627,486
Capital expenditures 315,459 29,663 3,734 348,856
Depreciation and
amortization 160,514 18,168 ( 4,434) 174,248
1997
Revenues $1,440,005 $ 284,820 $ ( 45,514) $1,679,311
Segment profit (loss) 264,710 28,578 (102,894) 190,394
Total assets 2,514,870 313,684 518,956 3,347,510
Capital expenditures 181,582 50,338 4,278 236,198
Depreciation and
amortization 105,063 21,248 2,289 128,600
1996
Revenues $1,296,536 $ 277,122 $ ( 28,567) $1,545,091
Segment profit (loss) 325,654 44,133 ( 80,617) 289,170
Total assets 1,575,482 401,015 555,745 2,532,242
Capital expenditures 175,501 108,550 3,842 287,893
Depreciation and
amortization 87,808 17,867 2,145 107,820
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for 1998 and
1997:
(Dollars in
thousands, except First Second Third Fourth
per share data) Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
1998
Net sales $ 517,009 $ 508,437 $ 491,580 $ 472,289 $ 1,989,315
Gross profit 104,127 94,045 69,584 72,294 340,050
Net income after
extraordinary item 39,043 27,100 17,179 19,035 102,357
Net income per share
after extraordinary
item - diluted .43 .30 .19 .21 1.13
1997
Net sales $ 379,841 $ 392,975 $ 396,795 $ 509,700 $ 1,679,311
Gross profit 64,445 70,748 60,287 97,808 293,288
Net income 28,056 30,376 23,776 35,836 118,044
Net income per share -
diluted .31 .34 .26 .40 1.31
Per share amounts restated to reflect the two-for-one stock split of May, 1998.
1998 amounts reflect a $4.6 million after taxes extraordinary loss on debt
extinguishment.
1997 amounts reflect the acquisition, effective October 1, 1997, of Inter Lake
Papers, Inc. formally Repap USA.
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,
1998, 1997 and 1996, and the related consolidated statements of income,
shareholders' investment and cash flows (see Pages 15, 16, 17, and 18) for
each of the years in the three-year period ended December 31, 1998. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
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, 1998, 1997 and
1996, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1998, 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 14, 1999.
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 26, 1999
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 26, 1999 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 26, 1999 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, 1996, 1997 and
1998.
Consolidated Statements of Income for the Years Ended December 31,
1996, 1997 and 1998.
Consolidated Statements of Shareholders' Investment for the Years
Ended December 31, 1996, 1997 and 1998.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998.
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 report 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. 333-73375.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 24, 1999.
(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 electronically
herewith.)
4.a. $750,000,000 Credit Agreement among the Registrant and Wachovia
Bank of Georgia, N.A. (Filed as Exhibit 4.a. to Registrant's
Current Report on Form 8-K (Date of Report September 30, 1997) and
incorporated herein by reference.)
4.b. $277,000,000 Note Purchase Agreement dated October 15, 1997
between the Registrant and the purchasers listed therein (together
with a list briefly identifying the contents of all omitted
exhibits and schedules thereto). (Filed as Exhibit 4.b. to Form
10-K for the fiscal year ended December 31, 1997 and incorporated
herein by reference.) The Registrant agrees to provide copies of
such exhibits and schedules to the Commission upon request.
The Registrant has additional long-term debt that does not exceed
10 percent of its total assets. The Registrant agrees to provide
copies of agreements covering such indebtedness to the Commission
on request.
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 as Exhibit
10.i. to Form 10-K for the fiscal year ended December 31, 1996 and
incorporated herein by reference.)
10.j. 1997 Compensation Award Program description. (Filed as Exhibit
10.j. to Form 10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference.)
10.k. Consolidated Papers, Inc. 1998 Incentive Compensation Plan.
(Filed with the Registrant's proxy statement dated March 17, 1998
and incorporated by reference.)
10.l. 1998 Compensation Award Program description. (Filed
electronically herewith.)
10.m. Agreement for Severance Pay and Benefits dated January 1, 1999
between Consolidated Papers, Inc. and Donna Stephens. (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, 1998 (to be filed
within 180 days after the Plan's year-end).
Exhibits 2, 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 24, 1999
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 24, 1999
George W. Mead, Chairman of the Board,
and Director
/s/Gorton M. Evans Date March 24, 1999
Gorton M. Evans, President and
Chief Executive Officer, and Director
/s/Richard J. Kenney Date March 24, 1999
Richard J. Kenney, Senior Vice President, Finance
(Principal Financial Officer)
/s/David P. Nimtz Date March 24, 1999
David P. Nimtz, Controller
/s/Ruth Baldwin Barker Date March 24, 1999
Ruth Baldwin Barker, Director
/s/Wiley N. Caldwell Date March 24, 1999
Wiley N. Caldwell, Director
Date
James D. Ericson, Director
/s/Sally M. Hands Date March 24, 1999
Sally M. Hands, Director
/s/J. Joseph King Date March 24, 1999
J. Joseph King, Director
/s/Bernard S. Kubale Date March 24, 1999
Bernard S. Kubale, Director
/s/D. Richard Mead, Jr. Date March 24, 1999
D. Richard Mead, Jr., Director
/s/Gilbert D. Mead Date March 24, 1999
Gilbert D. Mead, Director
/s/Lawrence R. Nash Date March 24, 1999
Lawrence R. Nash, Director
Date
Glenn N. Rupp, Director
/s/John S. Shiely Date March 24, 1999
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, 1998, 1997 and 1996 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, 1998 $ 6,374 $ 554 $ 424 $ 6,504
1997 $ 5,313 $ 1,143 $ 82 $ 6,374
1996 $ 4,628 $ 861 $ 176 $ 5,313
EXHIBIT 3.b. TO FORM 10-K FOR
CONSOLIDATED PAPERS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
BYLAWS OF CONSOLIDATED PAPERS, INC.
FEBRUARY 12, 1999
Article I. Offices; Records
1.1. Principal and Business Offices.
The Corporation may have such principal and other business offices,
either within or without the State of Wisconsin, as the Board of
Directors may designate or as the business of the Corporation may
require from time to time.
1.2. Registered Office.
The registered office of the Corporation required by the Wisconsin
Business Corporation Law to be maintained in the State of Wisconsin
may be, but need not be, identical with the principal office in the
State of Wisconsin. The address of the registered office may be
changed from time to time by the Board of Directors or by the
registered agent. The office of the registered agent of the
Corporation shall be identical to the registered office.
Article II. Shareholders
2.1. Annual Meeting.
The Annual Meeting of Shareholders shall be held on the fourth Monday
of April of each year at 2:00 p.m. local time, or at such other time
and date as may be fixed by or under the authority of the Board of
Directors, for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If
the day fixed for the Annual Meeting of Shareholders is a legal
holiday in the State of Wisconsin, the meeting shall be held on the
next succeeding business day.
2.2. Business Conducted at Meetings.
At a meeting of the shareholders, the only business which may be
conducted is business which has been properly brought before the
meeting. To be properly brought before a special meeting, business
must be specified in the notice of the meeting (or any supplement
thereto) given pursuant to Section 2.5 of this Article II. To be
properly brought before the Annual Meeting of Shareholders, the
business must be (i) specified in the notice of the meeting (or any
supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise brought before the meeting by or at the
direction of the Board of Directors, or (iii) properly brought before
the meeting by a shareholder.
(a) Advance Notice by Shareholder. For business to be properly
brought before a meeting by a shareholder, the shareholder must
have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive
office of the Corporation not less than sixty (60) days nor more
than ninety (90) days prior to the meeting; provided, however,
that in the event that less than seventy (70) days' notice or
prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must
be so received not later than the close of business on the tenth
day following the day on which the notice of the date of the
meeting was mailed or public disclosure of the date was made.
(b) Shareholder Nominations to the Board. In the case of the
shareholder nominations for election to the Board of Directors,
the notice shall set forth (i) the name, age, business address
and, if known, residence address of each nominee proposed in the
notice, (ii) the principal occupations or employment of each
nominee for the past five (5) years, (iii) the number of shares
of the Corporation which are beneficially owned by each nominee,
(iv) other directorships held by each nominee, (v) the names of
business entities of which each nominee owns a ten percent (10%)
or more beneficial interest and (vi) all other information with
respect to each nominee required by the Federal proxy rules in
effect at the time the notice is submitted. In addition, the
notice shall be accompanied by a statement, over the signature of
each proposed nominee, that (1) he consents to being a
nominee,(2) if elected he intends to serve as a director, and (3)
confirming the information with respect to him set forth in the
notice.
(c) Other Shareholder Proposals. In the case of shareholder
proposals, the notice shall set forth (i) a brief description of
the business to be brought before the meeting, (ii) the name,
age, business and residence address of the shareholder submitting
the proposal, (iii) the principal occupation or employment of
such shareholder, (iv) the number of shares of the Corporation
which are beneficially owned by such shareholder and (v) any
interest of the shareholder in the business of the Corporation
other than as a shareholder.
(d) Compliance with Procedures. The chairman of the meeting may, if
the facts warrant, determine and declare to the meeting that a
shareholder nomination or proposal was not made in accordance
with the foregoing procedure and the defective nomination or
proposal shall be disregarded.
2.3. Special Meetings.
Special meetings of the shareholders, for any purpose or purposes
unless otherwise prescribed by statute, may be called by the Chairman
of the Board, the President and Chief Executive Officer or the
Secretary at the request of any two members of the Board of Directors
and shall be called by the Chairman of the Board or the President and
Chief Executive Officer upon written demand by holders of shares with
at least 10% of the votes entitled to be cast on any issue proposed to
be considered at the meeting, such written demand describing one or
more purposes for which the special meeting is to be held. The
purpose or purposes of any special meeting shall be described in the
notice required by Section 2.5 of this Article II.
2.4. Place of Meeting.
The Board of Directors may designate any place, either within or
without the State of Wisconsin, as the place of meeting for any annual
or special meeting of the shareholders. If no designation is made,
the place of meeting shall be the principal office of the Corporation
in the City of Wisconsin Rapids, Wisconsin.
2.5. Notice of Meetings.
(a) Written notice stating the place, day, and hour of the meeting
and in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than 10
nor more than 50 days before the date of the meeting (unless a
different time is provided by the Wisconsin Business Corporation
Law), or, in the case of a special meeting called by the holders
of not less than one-tenth of the outstanding shares entitled to
vote at the meeting, not less than 45 days nor more than 50 days
before the date of the meeting, by or at the direction of the
Chairman of the Board, the President and Chief Executive Officer,
the Secretary, or the person calling the meeting to each
shareholder of record entitled to vote at such meeting and to
such other persons as required by the Wisconsin Business
Corporation Law. Service of written notice upon any shareholder
may be delivered by Appropriate Communications Technology (as
defined in Section 3.6 of these Bylaws) at the shareholder's last
known address as it appears on the books and records of the
Company. The certificates of the Chairman of the Board, the
President and Chief Executive Officer or of the Secretary or of
the Transfer Agent of the delivery shall be conclusive as to the
fact of service of notice on the shareholder.
(b) Adjourned Meeting. Except as provided in the next sentence, if
any shareholder meeting is adjourned to a different date, time,
or place, notice need not be given of the new date, time, and
place if the new date, time, and place are announced at the
meeting before adjournment. If a new record date for the
adjourned meeting is or must be fixed, then notice must be given
pursuant to the requirements of paragraph (a) of this
Section 2.5, to those persons who are shareholders as of the new
record date.
(c) Waiver of Notice. A shareholder may waive notice in accordance
with Article VII of these Bylaws.
2.6. Fixing of Record Date.
The Board of Directors may fix in advance a date as the record date
for any determination of shareholders entitled to notice of a
shareholder's meeting, to demand a special meeting, to vote or to take
any other action, such date in any case to be not more than fifty (50)
days and not less than ten (10) days prior to the meeting or action
requiring such determination of shareholders, and may fix the record
date for determining shareholders entitled to a share dividend or
distribution, which date shall be not more than fifty (50) and not
less than ten (10) days prior to the dividend or distribution.
If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at the Annual Meeting of
Shareholders, the close of business on the second Tuesday in the month
of March in each year shall be the record date for the determination
of shareholders.
If no record date is fixed for the determination of shareholders
entitled to demand a shareholder meeting or to notice of or to vote at
a special meeting of shareholders, (a) the close of business on the
date that the first shareholder signs the written demand for a
shareholder meeting, or (b) the close of business on the third
business day before the first notice of the special meeting is mailed
or otherwise delivered to shareholders, as the case may be, shall be
the record date for the determination of shareholders.
Except as provided by the Wisconsin Business Corporation Law for a
court ordered adjournment, a determination of shareholders entitled to
notice and to vote of a meeting of shareholders is effective for any
adjournment of a meeting unless the Board of Directors fixes a new
record date, which it shall do if the meeting is adjourned to a date
more than 120 days after the date fixed for the original meeting.
2.7. Shareholder List.
The officer or agent having charge of the stock transfer books for
shares of the Corporation shall, before each meeting of shareholders,
make a complete record of the shareholders entitled to notice of the
meeting, arranged by class or series of shares, if any, and showing
the address of and the number of shares held by each shareholder.
The shareholder list shall be available for inspection by any
shareholder, beginning two (2) business days after the notice of the
meeting is given for which the list was prepared and continuing to the
date of the meeting, at the Corporation's principal office or at a
place identified in the meeting notice in the city where the meeting
will be held.
A shareholder or his or her agent or attorney may, on written demand,
inspect and, subject to the limitations imposed by the Wisconsin
Business Corporation Law, copy the shareholder list, during regular
business hours and at his or her expense, during the period that it is
available for inspection hereunder. The Corporation shall make the
shareholders' list available at the meeting and any shareholder or his
or her agent or attorney may inspect the list at any time during the
meeting or any adjournment thereof.
The original stock transfer books and nominee certificates on file
with the Corporation (if any) shall be prima facie evidence as to who
are the shareholders entitled to inspect the shareholder list or to
vote at any meeting of shareholders. Failure to comply with the
requirements of this section shall not affect the validity of any
action taken at the meeting.
2.8. Quorum and Voting Requirements.
Shares entitled to vote may take action on a matter at a meeting only
if a quorum of those shares exists with respect to that matter.
Unless otherwise provided in the Articles of Incorporation or in the
Wisconsin Business Corporation Law, a majority of the votes entitled
to be cast on a matter, represented in person or by proxy, shall
constitute a quorum for action on the matter at a meeting of
shareholders. Once a share is represented for any purpose at a
meeting, other than for the purpose of objecting to holding the
meeting or transacting business at the meeting, it is considered
present for purposes of determining whether a quorum exists for the
remainder of the meeting and for any adjournment of that meeting
unless a new record date is or must be set for the meeting. If a
quorum exists, except in the case of the election of directors, action
on the matters shall be approved if the votes cast favoring the action
exceed the votes cast opposing the action, unless the Articles of
Incorporation, these Bylaws or the Wisconsin Business Corporation Law
requires a greater number of affirmative votes. Unless otherwise
provided in the Articles of Incorporation, directors shall be elected
by a plurality of the votes cast by the shares entitled to vote in the
election of directors at a meeting at which a quorum is present.
For purposes of this Section 2.8, "plurality" means that the
individuals with the largest number of votes are elected as directors
up to the maximum number of directors to be chosen at the meeting.
Though less than a quorum of the outstanding votes are represented at
a meeting, a majority of the votes represented at the meeting may
adjourn the meeting from time to time without further notice. At an
adjourned meeting at which a quorum is present or represented, any
business may be transacted which might have been transacted at the
meeting which was adjourned.
2.9. Conduct of Meetings.
The Chairman of the Board or, in his or her absence, the President and
Chief Executive Officer, and, in the President and Chief Executive
Officer's absence, any officer or director chosen by the shareholders
present or represented by proxy shall call the meeting of the
shareholders to order and shall act as chairman of the meeting, and
the Secretary shall act as secretary of all meetings of the
shareholders, but, in the absence of the Secretary, the presiding
officer may appoint any other person to act as secretary of the
meeting.
2.10. Proxies.
At all meetings of shareholders, a shareholder may vote his or her
shares in person or by proxy. A shareholder may appoint a proxy to
vote or otherwise act for the shareholder by signing an appointment
form, either personally or by his or her attorney-in-fact. An
appointment of a proxy is effective when filed with the Secretary or
other officer or agent of the Corporation authorized to tabulate
votes. An appointment is valid for eleven months from the date of its
execution, unless otherwise expressly provided in the appointment
form.
2.11. Voting of Shares.
Each outstanding share shall be entitled to one (1) vote on each
matter submitted to a vote at a meeting of shareholders, except to the
extent that the voting rights of the shares are enlarged, limited or
denied by the Articles of Incorporation or the Wisconsin Business
Corporation Law.
2.12. Acceptance of Instruments.
If the name signed on a vote, consent, waiver or proxy appointment
corresponds to the name of a shareholder, the Corporation may accept
the vote, consent, waiver or proxy appointment and give it effect as
the act of a shareholder. If the name signed on a vote, consent,
waiver or proxy appointment does not correspond to the name of a
shareholder on the Corporation's records, the Corporation may accept
the vote, consent, waiver or proxy appointment and give it effect as
the act of the shareholder if any of the following apply:
(a) The shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity.
(b) The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the
shareholder and, if the corporation requests, evidence of
fiduciary status acceptable to the Corporation is presented with
respect to the vote, consent, waiver or proxy appointment.
(c) The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation requests,
evidence of this status acceptable to the Corporation is
presented with respect to the vote, consent, waiver or proxy
appointment.
(d) The name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the
Corporation requests, evidence acceptable to the Corporation of
the signatory's authority to sign for the shareholder is
presented with respect to the vote, consent, waiver or proxy
appointment.
(e) Two or more persons are the shareholders as co-tenants or
fiduciaries and the name signed purports to be the name of at
least one of the co-owners and the person signing appears to be
acting on behalf of all co-owners.
The Corporation may reject a vote, consent, waiver or proxy
appointment if the Secretary or other officer or agent of the
Corporation who is authorized to tabulate votes, acting in good faith,
has reasonable basis for doubt about the validity of the signature on
it or about the signatory's authority to sign for the shareholder.
Article III. Board of Directors
3.1 General Powers.
All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation shall be managed under
the direction of, its Board of Directors.
3.2. Number, Tenure, Qualifications, Removal and Resignation.
(a) Number, Tenure and Qualifications. The number of directors
constituting the Board of Directors shall be nine (9) or such
other number as is fixed from time to time by a majority vote of
the directors then in office. Each director shall hold office
until the next annual meeting of shareholders and until his or
her successor shall have been elected and, if necessary,
qualified or until there is a decrease in the number of directors
which takes effect at the expiration of his or her term, or until
his or her prior death, resignation or removal. Directors need
not be residents of the State of Wisconsin or shareholders of the
Corporation.
(b) Removal. A director may be removed only by the shareholders and
then only at a special meeting called for the purpose of removing
the director. A director may be removed from office but only for
cause (as defined herein) if the number of votes cast at the
shareholder meeting to remove the director exceeds the number of
votes cast not to remove the director, provided, however, that,
if the Board of Directors, by resolution, shall have recommended
removal of a director, then the shareholders may remove such
director without cause by the vote referred to above. As used
herein, "cause" shall exist only if the director whose removal is
proposed has been convicted of a felony by a court of competent
jurisdiction, where the conviction is no longer subject to direct
appeal, or has been adjudged liable for actions or omissions in
the performance of his or her duty to the Corporation in a matter
which has had a materially adverse effect on the business of the
Corporation, where the adjudication is no longer subject to
appeal.
(c) Resignations. A director may resign at any time by delivering
written notice which complies with the Wisconsin Business
Corporation Law to the Board of Directors, to the Chairman of the
Board, or to the Corporation. A director's resignation is
effective when notice is delivered unless the notice specifies a
later effective date.
3.3. Regular Meetings.
A regular meeting of the Board of Directors shall be held, without
other notice than this Bylaw, immediately after and at the same place
as the Annual Meeting of Shareholders. Regular meetings shall also be
held, without other notice than this Bylaw, on the second Tuesday
after the tenth day of February, July and October at the principal
office of the Corporation in the City of Wisconsin Rapids, Wisconsin
unless the directors are notified ten (10) or more days prior to the
date of the meeting personally or by telephone, or by written notice
delivered by Appropriate Communications Technology (as defined in
Section 3.6 of these By-Laws) at his or her address by the Chairman of
Board, President and Chief Executive Officer or Secretary of a
different place of meeting which may be within or without the State of
Wisconsin.
3.4. Special Meetings.
Special meetings of the Board of Directors may be called by or at the
request of the Chairman of the Board, the President and Chief
Executive Officer or the Secretary at the request of any two (2)
directors. Special meetings of any committee may be called by or at
the request of the foregoing persons or the chairman of the committee.
The persons calling any special meeting of the Board of Directors or
committee may fix any place, either within or without the State of
Wisconsin, as the place for holding any special meeting called by
them, and if no other place is fixed the place of meeting shall be the
principal office of the Corporation in the State of Wisconsin.
3.5. Meetings By Telephone or Other Communication Technology.
(a) Any or all directors may participate in a regular or special
meeting or in a committee meeting of the Board of Directors by,
or conduct the meeting through the use of, telephone or any other
means of communication by which either: (i) all participating
directors may simultaneously hear each other during the meeting
or (ii) all communication during the meeting is immediately
transmitted to each participating director, and each participant
director is able to immediately send messages to all other
participating directors.
(b) If a meeting will be conducted through the use of any means
described in paragraph (a), all participating directors shall be
informed that a meeting is taking place at which official
business may be transacted. A director participating in a
meeting by any means described in paragraph (a) is deemed to be
present in person at the meeting.
3.6. Notice.
Notice of each special meeting of the Board of Directors shall be
given by written notice delivered in person, by telegraph, teletype,
facsimile or other form of wire or wireless communication, or by mail
or private carrier (collectively, "Appropriate Communications
Technology"), to each director at his or her business address or at
such other address as such director shall have designated in writing
filed with the Secretary (the "Address"), in each case not less than
forty-eight (48) hours prior to the meeting. The notice need not
describe the purpose of the meeting of the Board of Directors or the
business to be transacted at such meeting. If mailed, the notice
shall be deemed to be effective when deposited in the United States
mail so addressed, with postage thereon prepaid. If notice is given
by telegram, the notice shall be deemed to be effective when the
telegram is delivered to the telegraph company. If notice is given by
private carrier, the notice shall be deemed to be effective when
delivered to the private carrier.
3.7. Quorum.
Except as otherwise provided by the Wisconsin Business Corporation
Law, the Articles of Incorporation or these Bylaws, a majority of the
number of directors prescribed by resolution (or if no number is
prescribed, the number in office immediately before the meeting
begins), shall constitute a quorum of the Board of Directors. Except
as otherwise provided by the Wisconsin Business Corporation Law, the
Articles of Incorporation or these Bylaws, a majority of the number of
directors appointed to serve on a committee shall constitute a quorum
of the committee. A majority of the directors present (though less
than a quorum) may adjourn any meeting of the Board of Directors or
any committee thereof.
3.8. Manner of Acting.
Except as otherwise provided by the Wisconsin Business Corporation Law
or the Articles of Incorporation or these Bylaws, the affirmative vote
of a majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors or any committee
thereof.
3.9. Conduct of Meetings.
The Chairman of the Board, or in the Chairman's absence, the President
and Chief Executive Officer, and in the President and Chief Executive
Officer's absence, any director chosen by the directors present, shall
call meetings of the Board of Directors to order and shall chair the
meeting. The Secretary of the Corporation shall act as secretary of
all meetings of the Board of Directors, but in the absence of the
Secretary, the presiding officer may appoint any assistant secretary
or any director or other person present to act as secretary of the
meeting. Minutes of any regular or special meeting of the Board of
Directors shall be prepared and distributed to each director.
3.10. Vacancies.
Except as provided below, any vacancy occurring in the Board of
Directors, including a vacancy resulting from an increase in the
number of directors, may be filled by any of the following: (a) the
shareholders; (b) the Board of Directors; or (c) if the directors
remaining in office constitute fewer than a quorum of the Board of
Directors, the directors, by the affirmative vote of a majority of all
directors remaining in office. A vacancy that will occur at a
specific later date, because of a resignation effective at a later
date or otherwise, may be filled before the vacancy occurs, but the
new director may not take office until the vacancy occurs.
3.11. Compensation.
The Board of Directors, irrespective of any personal interest of any
of its members, may establish reasonable compensation of all directors
for services to the Corporation as directors or may delegate such
authority to an appropriate committee.
The Board of Directors also shall have authority to provide for or
delegate authority to an appropriate committee to provide for
reasonable pensions, disability or death benefits, and other benefits
or payments, to directors, officers and employees and to their
estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the
Corporation.
3.12. Presumption of Assent.
A director who is present and is announced as present at a meeting of
the Board of Directors or a committee thereof at which action on any
corporate matter is taken shall be presumed to have assented to the
action taken unless (i) the director objects at the beginning of the
meeting or promptly upon his or her arrival to holding the meeting or
transacting business at the meeting, or (ii) the director's dissent or
abstention from the action taken is entered in the minutes of the
meeting, or (iii) the director delivers his or her written dissent or
abstention to the presiding officer of the meeting before the
adjournment thereof or to the Corporation immediately after the
adjournment of the meeting or (iv) where minutes of a meeting are
prepared that fail to show a director's dissent or abstention, the
director delivers to the Corporation a written notice of that failure
promptly after receiving the minutes. Such right to dissent or
abstain shall not apply to a director who voted in favor of such
action.
3.13. Committees.
(a) Unless the Articles of Incorporation otherwise provide, the Board
of Directors, by resolution adopted by the affirmative vote of a
majority of all the directors then in office, may create one (1)
or more committees, each committee to consist of two (2) or more
directors as members, which to the extent provided in the
resolution as initially adopted, and as thereafter supplemented
or amended by further resolution adopted by a like vote, may
exercise the authority of the Board of Directors, except that no
committee may: (a) authorize distributions; (b) approve or
propose to shareholders action that the Wisconsin Business
Corporation Law requires be approved by shareholders; (c) fill
vacancies on the Board of Directors or any of its committees,
except that the Board of Directors may provide by resolution that
any vacancies on a committee shall be filled by the affirmative
vote of a majority of the remaining committee members; (d) amend
the Articles of Incorporation; (e) adopt, amend or repeal Bylaws;
(f) approve a plan of merger not requiring shareholder approval;
(g) authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the Board of
Directors; or (h) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and
relative rights, preferences and limitations of a class or series
of shares, except within limits prescribed by the Board of
Directors.
The Board of Directors may elect one or more of its members as
alternate members of any committee who may take the place of any
absent member or members at any meeting of such committee, upon
request by the Chairman of the Board, the President and Chief
Executive Officer or upon request by the chairman of the meeting.
Each committee shall fix its own rules (consistent with the
Wisconsin Business Corporation Law, the Articles of Incorporation
and these Bylaws) governing the conduct of its activities and
shall make such reports to the Board of Directors of its
activities as the Board of Directors may request. Unless
otherwise provided by the Board of Directors in creating a
committee, a committee may employ counsel, accountants and other
consultants to assist it in the exercise of authority. The
creation of a committee, delegation of authority to a committee
or action by a committee does not relieve the Board of Directors
or any of its members of any responsibility imposed on the Board
of Directors or its members by law.
Specifically, in addition to other committees established from
time to time by the Board, the Board shall have each of the
following committees: a Compensation Committee, a Retirement and
Benefit Plan Committee, an Audit Committee, a Nominating and
Board Affairs Committee, and a Management Succession Committee.
(As amended February 12, 1999.)
(b) The Compensation Committee. The Compensation Committee shall
have the following responsibilities:
(1) To recommend to the Board of Directors the
compensation of the Chairman of the Board and the
President and Chief Executive Officer, including
direct regular compensation, stock options or other
appropriate incentive plans, and perquisites, if any.
(2) To review all other exempt salaries at the levels
deemed appropriate by the committee and to recommend
to the Board of Directors direct regular compensation,
stock options or other appropriate incentive plans,
and perquisites, if any.
(3) To administer the 1989 Stock Option Plan, the 1998
Management Incentive Plan and any other similar plans
from time to time in effect (the "Plans").
(4) To fulfill the purposes of the Plan, including,
without limitation, through the conditional grant of
options and other benefits under the Plans.
(5) To recommend to the Board of Directors any revisions
or additions to the Plans.
(6) To review and report to the Board of Directors, when
so requested, on any compensation matter. (As amended
February 12, 1999.)
(c) The Retirement and Benefit Plan Committee. The Retirement and
Benefit Plan Committee shall have the following responsibilities:
(1) To set, review, and modify the investment policies or
philosophies for the various retirement and benefit
plan funds. The investment policies shall be a guide
for the Corporation's officers and plans' trustee(s)
in administering and directing the investment of said
funds.
(2) To recommend or approve the hiring of portfolio
managers to implement the investment policies and to
recommend or approve the dismissal of portfolio
managers when it is appropriate to do so.
(3) To review and monitor the investment performance of
the portfolio managers retained by the Corporation to
invest the various funds for the Corporation's
retirement and benefit plans.
(4) To recommend or approve the hiring of the trustee(s)
to maintain and distribute the assets of the various
funds according to the terms of the plans and to
recommend or approve the dismissal of the trustee(s)
when it is appropriate to do so.
(5) To oversee the activities of the Corporation's
officers and the plans' trustees in accumulating,
maintaining, and distributing the funds in accordance
with the terms of the plans, in implementing and
adhering to the guidelines of the investment policies,
and in administering the plans in accordance with the
various applicable laws, including the Employee
Retirement Income Security Act of 1974, as amended.
(6) To report periodically to the Board of Directors on
the status of the various funds for the Corporation's
retirement and benefit plans and to review the
Committee's activities with the Board when so
requested. (As amended April 25, 1994.)
(d) The Audit Committee. The Audit Committee shall have the
following responsibilities:
(1) To review the scope, cost, and results of the
independent audit of the Corporation's books and
records, including the annual financial statements,
through conferences and direct communication with the
independent auditors.
(2) To review the results of the independent audit and the
annual financial statements with management and the
internal auditors.
(3) To review the adequacy of the Corporation's
accounting, financial, and operating controls, and the
recommendations of the independent auditors related
thereto, through conferences and direct communication
with the internal auditors and other responsible
corporate executives.
(4) To recommend annually to the Board of Directors the
selection of the independent auditors.
(5) To approve the appointment or removal of the internal
audit manager.
(6) To consider proposals made by the Corporation's
independent auditors for consulting work other than
normal auditing and to judge whether or not such work
could result in a loss of "independence."
(7) To review and report to the Board of Directors, when
so requested, on any accounting or financial matters.
(e) The Nominating and Board Affairs Committee. The Nominating
Committee and Board Affairs Committee shall have the following
responsibilities:
(1) To review qualifications of candidates for Board of
Directors membership from whatever source received.
(2) To recommend to the Board of Directors candidates to
fill vacancies on the Board which occur between annual
meetings of shareholders.
(3) To recommend to the Board of Directors the slate of
director candidates to be proposed for election by
shareholders at the annual meeting.
(4) To recommend to the Board of Directors criteria
relating to tenure as a director, such as retirement
age, limitations on the number of times a director may
stand for re-election, and the continuation of
directors in an honorary or similar capacity.
(5) To recommend to the Board of Directors the specific
amounts of directors' retainers and meeting fees and
also committee fees for committee chairmen and
members.
(6) To recommend to the Board of Directors the selection
of committee chairmen.
(7) To recommend to the Board of Directors the actual
assignments of individual directors (by name) to Board
committees.
(8) To recommend to the Board of Directors general
criteria regarding the composition of Board
committees, such as size, employee and nonemployee
director membership thereon, and the periodic rotation
of committee assignments.
(9) To recommend to the Board of Directors the types and
functions of Board committees.
(10) To monitor developments in the field of corporate
governance and to make recommendations to the Board of
Directors with respect to adoption, amendment or
repeal of corporate goverance guidelines relating to
the Board of Directors' composition and operation.
(11) To establish procedures for the evaluation of the
performance of the Board of Directors as a whole on a
regular basis and the performance of individual
Directors as circumstances warrant. (As amended
February 12, 1999.)
(f) The Management Succession Committee. The Management Succession
Committee shall have the following responsibilities:
(1) To monitor the development and performance of existing
executive officers.
(2) To review qualifications of and to recommend
candidates for executive offices, both as successors
to existing executive offices and as officers filling
newly created executive offices.
(3) To monitor plans, programs and policies for training
and preparing candidates for executive offices, so as
to ensure that there are persons qualified to succeed
to all executive offices as they become vacant or are
created. (As amended April 25, 1994.)
Article IV. Officers
4.1. Election.
The principal officers shall include a Chairman of the Board, a
President and Chief Executive Officer, one or more Vice Presidents
(the number and designations to be determined by the Board of
Directors), a Controller, a Secretary, a Treasurer and such other
officers, if any, as may be deemed necessary by the Board of
Directors, each of whom shall be elected by the Board of Directors.
The Chairman of the Board shall be chosen from among the Board of
Directors. The Board of Directors may also authorize any duly elected
officer to appoint one or more officers or assistant officers. Any
two or more offices may be held by the same person except the offices
of Chairman of the Board and President and Chief Executive Officer;
Chairman of the Board and Secretary, Chairman of the Board and Vice
President, President and Chief Executive Officer and Secretary and
President and Chief Executive Officer and Vice President.
4.2. Election and Term of Office.
The officers of the Corporation to be elected by the Board of
Directors shall be elected annually by the Board of Directors at the
first meeting of the Board of Directors held after each annual meeting
of the shareholders. If the election of officers is not held at that
meeting, their election shall be held as soon thereafter as is
practicable. Each officer shall hold office until his or her
successor shall have been duly elected or until his or her prior
death, resignation or removal.
4.3. Removal.
The Board of Directors may remove any officer and, unless restricted
by the Board of Directors or these Bylaws, an officer may remove any
officer or assistant officer appointed by that officer, at any time,
with or without cause and notwithstanding the contract rights, if any,
of the officer removed. The appointment of an officer does not of
itself create contract rights.
4.4. Resignation.
An officer may resign at any time by delivering notice to the
Corporation that complies with Wisconsin Business Corporation Law.
The resignation shall be effective when the notice is delivered,
unless the notice specifies a later effective date and the Corporation
accepts the later effective date.
4.5. Vacancies.
A vacancy in any principal office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board of
Directors. If a resignation is effective at a later date, the Board
of Directors may fill the vacancy before the effective date if the
Board of Directors provides that the successor may not take office
until the effective date.
4.6. Chairman of the Board.
The Chairman of the Board shall preside when present at all meetings
of the Board of Directors and the shareholders. He may sign and
execute in the name of the Corporation all bonds, deeds, mortgages,
contracts, notes, checks and other obligations in the ordinary scope
of the business of the Corporation or as may be specifically
authorized by the Board of Directors. The Chairman of the Board shall
report to the Board of Directors and shall from time to time report to
the Board of Directors all matters within his or her knowledge which
the interests of the Corporation may require to be brought to its
notice and shall perform such other duties as may be prescribed by the
Board of Directors from time to time.
4.7. President and Chief Executive Officer.
The President and Chief Executive Officer shall be the chief executive
officer of the Corporation. The President and Chief Executive Officer
shall report to the Board of Directors and shall have general
supervision of the business and affairs of the Corporation and over
all other officers, employees and agents of the Corporation except the
Chairman of the Board, if he or she is an employee, and shall perform
such other duties as may be prescribed by the Board of Directors from
time to time. As chief executive officer, the President and Chief
Executive Officer may delegate such duties as may be deemed advisable
to the other officers of the Corporation. The President and Chief
Executive Officer shall carry into effect all resolutions and orders
of the Board of Directors and shall also have the general
administrative powers and duties usually vested in the office of a
president and chief executive officer of a corporation. In the
absence or disability of the Chairman of the Board, the President and
Chief Executive Officer shall generally have the powers and duties of
the Chairman of the Board. The President and Chief Executive Officer
may sign and execute in the name of the Corporation all bonds, deeds,
mortgages, contracts, notes, checks and other obligations in the
ordinary scope of the business of the Corporation or as may be
specifically authorized by the Board of Directors.
4.8. Vice Presidents.
In the absence of the President and Chief Executive Officer, or in the
event of the President and Chief Executive Officer's death, inability
or refusal to act, or in the event for any reason it shall be
impracticable for the President and Chief Executive Officer to act
personally, the Vice President (or if there be more than one, in the
order designated by the Board of Directors, or in the absence of
designation, in the order of election) shall perform the duties of the
President and Chief Executive Officer, and when so acting shall have
all the powers of and be subject to all of the restrictions on the
President and Chief Executive Officer. Any Vice President may sign,
with the Secretary, certificates for shares of the Corporation; and
shall perform such other duties and have such authority as from time
to time may be delegated or assigned to him or her by the President
and Chief Executive Officer or the Board of Directors. The execution
of any instrument of the Corporation by any Vice President shall be
conclusive evidence, as to third parties, of the Vice President's
authority to act in the stead of the President and Chief Executive
Officer.
4.9. Secretary.
The Secretary shall: (a) keep (or cause to be kept) regular minutes
of all meetings of the shareholders, the Board of Directors and any
committees of the Board of Directors; (b) see that all notices are
duly given in accordance with the provisions of these Bylaws or as
required by law; (c) be custodian of the corporate records and of the
seal of the Corporation and see that the seal of the Corporation is
affixed to all documents which are authorized to be executed on behalf
of the Corporation under its seal; (d) keep or arrange for the keeping
of a register of the post office address of each shareholder which
shall be furnished to the Secretary by such shareholder; (e) sign with
the President and Chief Executive Officer or any Vice President
certificates for shares of the Corporation, the issuance of which
shall have been authorized by resolution of the Board of Directors;
(f) have general charge of the stock transfer books of the
Corporation; and (g) in general perform all duties incident to the
office of Secretary and have such other duties and exercise such
authority as from time to time may be delegated or assigned to him or
her by the President and Chief Executive Officer or by the Board of
Directors.
4.10. Treasurer.
The Treasurer shall: (a) have charge and custody of and be
responsible for all funds and securities of the Corporation; (b)
receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit all moneys in the
name of the Corporation in banks, trust companies or other
depositories selected by the Corporation; and (c) in general perform
all of the duties incident to the office of Treasurer and have such
other duties and exercise such other authority as from time to time
may be delegated or assigned to him or her by the President and Chief
Executive Officer, the Vice President, Finance or the Board of
Directors.
4.11. Controller.
The Controller shall: (a) maintain proper audit control over the
operations of the Corporation and be generally responsible for the
accounting system employed by the Corporation and the accounting
practices adopted by the various departments; (b) direct the budgetary
control, general accounting, cost accounting and statistical
activities of the Corporation; and (c) supervise activities in
connection with credits and collections, taxes and physical
inventories. The Controller shall prepare and furnish such reports
and statements showing the financial condition of the Corporation as
shall be required of him or her by the President and Chief Executive
Officer, the Vice President, Finance or the Board of Directors, and in
general perform all of the duties incident to the office of Controller
and have such other duties and exercise such other authority as from
time to time may be delegated or assigned to him or her by the
President and Chief Executive Officer, the Vice President, Finance or
the Board of Directors.
4.12. Assistants and Acting Officers.
The Board of Directors and the President and Chief Executive Officer
shall have the power to appoint any person to act as assistant to any
officer, or as agent for the Corporation in the officer's stead, or to
perform the duties of the officer whenever for any reason it is
impracticable for the officer to act personally, and the assistant or
acting officer or other agent appointed by the Board of Directors or
President and Chief Executive Officer shall have the power to perform
all the duties of the office to which that person is appointed to be
assistant, or as to which he or she is appointed to act, except as
such power may be otherwise defined or restricted by the Board of
Directors or President and Chief Executive Officer.
4.13. Salaries.
The salaries of the principal officers shall be fixed from time to
time by the Board of Directors or by a duly authorized committee
thereof, and no officer shall be prevented from receiving a salary by
reason of the fact that the officer is also a director of the
Corporation.
Article V. Contracts, Loans, Checks
and Deposits; Special Corporate Acts
5.1. Contracts.
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the Corporation, and such
authorization may be general or confined to specific instances. In
the absence of other designation, all deeds, mortgages and instruments
of assignment or pledge made by the Corporation shall be executed in
the name of the Corporation by the President and Chief Executive
Officer or one of the Vice Presidents and by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer; the
Secretary or an Assistant Secretary, when necessary or required, shall
affix the corporate seal, if any, thereto; and when so executed no
other party to such instrument or any third party shall be required to
make any inquiry into the authority of the signing officer or
officers.
5.2. Loans.
No indebtedness for borrowed money shall be contracted on behalf of
the Corporation and no evidences of indebtedness shall be issued in
its name unless authorized by or under the authority of a resolution
of the Board of Directors. Such authorization may be general or
confined to specific instances.
5.3. Checks, Drafts, etc.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation,
shall be signed by an officer or officers, agent or agents of the
Corporation and in such manner as shall from time to time be
determined by or under the authority of a resolution of the Board of
Directors.
5.4. Deposits.
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks,
trust companies or other depositaries as may be selected by or under
the authority of a resolution of the Board of Directors.
5.5. Voting of Securities Owned by the Corporation.
Subject always to the specific directions of the Board of Directors,
(a) any shares or other securities issued by any other Corporation and
owned or controlled by the Corporation may be voted at any meeting of
security holders of the other corporation by the President and Chief
Executive Officer if he or she be present, or in his or her absence by
any Vice President of this Corporation who may be present, and (b)
whenever, in the judgment of the President and Chief Executive
Officer, or in his or her absence, of any Vice President, it is
desirable for the Corporation to execute a proxy or written consent in
respect to any shares or other securities issued by any other
corporation and owned by this Corporation, the proxy or consent shall
be executed in the name of the Corporation by the President and Chief
Executive Officer or one of the Vice Presidents of the Corporation,
without necessity of any authorization by the Board of Directors,
affixation of corporate seal, if any, or countersignature or
attestation by any other officer.
Article VI. Certificates for Shares; Transfers of Shares
6.1. Certificates for Shares.
Certificates representing shares of the Corporation shall be in such
form, consistent with the Wisconsin Business Corporation Law, as shall
be determined by the Board of Directors. The certificates shall be
signed by the President and Chief Executive Officer or a Vice
President and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for
transfer shall be canceled and no new certificate shall be issued
until the former certificate for a like number of shares shall have
been surrendered and canceled, except as provided in Section 6.6.
6.2. Facsimile Signatures and Seal.
The seal of the Corporation, if any, on any certificates for shares
may be a facsimile. The signature of the President and Chief
Executive Officer or Vice President and the Secretary or Assistant
Secretary upon a certificate may be facsimiles if the certificate is
manually signed on behalf of a transfer agent, or a registrar, other
than the Corporation itself or an employee of the Corporation.
6.3. Signature by Former Officers.
The validity of a share certificate is not affected if a person who
signed the certificate (either manually or in facsimile) no longer
holds office when the certificate is issued.
6.4. Transfer of Shares.
Prior to due presentment of a certificate for shares for registration
of transfer the Corporation may treat the registered owner of such
shares as the person exclusively entitled to vote, to receive
notifications and otherwise to have and exercise all the rights and
power of an owner. Where a certificate for shares is presented to the
Corporation with a request to register for transfer, the Corporation
shall not be liable to the owner or any other person suffering loss as
a result of such registration of transfer if (a) there were on or with
the certificate the necessary endorsements, and (b) the Corporation
had no duty to inquire into adverse claims or has discharged any such
duty. The Corporation may require reasonable assurance that such
endorsements are genuine and effective and compliance with such other
regulations as may be prescribed by or under the authority of the
Board of Directors.
6.5. Restrictions on Transfer.
The face or reverse side of each certificate representing shares shall
bear a conspicuous notation of any restriction upon the transfer of
such shares.
6.6. Lost, Destroyed or Stolen Certificates.
Where the owner claims that certificates for shares have been lost,
destroyed or wrongfully taken, a new certificate shall be issued in
place thereof if the owner (a) so requests before the Corporation has
notice that such shares have been acquired by a bona fide purchaser,
(b) files with the Corporation a sufficient indemnity bond if required
by the Board of Directors or any principal officer, and (c) satisfies
such other reasonable requirements as may be prescribed by or under
the authority of the Board of Directors.
6.7. Consideration for Shares.
The Board of Directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or
benefit to the Corporation, including cash, promissory notes, services
performed, contracts for services to be performed or other securities
of the Corporation. Before the Corporation issues shares, the Board of
Directors shall determine that the consideration received or to be
received for the shares to be issued is adequate. The determination
of the Board of Directors is conclusive insofar as the adequacy of
consideration for the issuance of shares relates to whether the shares
are validly issued, fully paid and nonassessable. The Corporation may
place in escrow shares issued in whole or in part for a contract for
future services or benefits, a promissory note, or other property to
be issued in the future, or make other arrangements to restrict the
transfer of the shares, and may credit distributions in respect of the
shares against their purchase price, until the services are performed,
the benefits or property are received or the promissory note is paid.
If the services are not performed, the benefits or property are not
received or the promissory note is not paid, the Corporation may
cancel, in whole or in part, the shares escrowed or restricted and the
distributions credited.
6.8. Stock Regulations.
The Board of Directors shall have the power and authority to make all
further rules and regulations not inconsistent with law as it may deem
expedient concerning the issue, transfer and registration of shares of
the Corporation.
Article VII. Waiver of Notice
7.1. Shareholder Written Waiver.
A shareholder may waive any notice required by the Wisconsin Business
Corporation Law, the Articles of Incorporation or these Bylaws before
or after the date and time stated in the notice. The waiver shall be
in writing and signed by the shareholder entitled to the notice, shall
contain the same information that would have been required in the
notice under the Wisconsin Business Corporation Law except that the
time and place of meeting need not be stated, and shall be delivered
to the Corporation for inclusion in the corporate records.
7.2. Director Written Waiver.
A director may waive any notice required by the Wisconsin Business
Corporation Law, the Articles of Incorporation or these Bylaws before
or after the date and time stated in the notice. The waiver shall be
in writing, signed by the director entitled to the notice and retained
by the Corporation.
Article VIII. Action Without Meetings
8.1. Director Action Without Meeting.
Unless the Articles of Incorporation provide otherwise, action
required or permitted by the Wisconsin Business Corporation Law to be
taken at a meeting of the Board of Directors or committee meeting may
be taken without a meeting if the action is taken by all members of
the Board or committee. The action shall be evidenced by one or more
written consents describing the action taken, signed by each director
and retained by the Corporation. Action taken hereunder is effective
when the last director signs the consent, unless the consent specifies
a different effective date.
Article IX. Indemnification
9.1. Certain Definitions.
All capitalized terms used in this Article IX not otherwise
hereinafter defined, including specifically Corporation, Director or
Officer, Expenses, Liability, Party and Proceeding (which term for
purposes of this Article IX shall be deemed to include an appeal from
any proceeding), shall have the meanings set forth in Section 180.0850
of the Statute. As used in this Article IX, Statute shall mean
Sections 180.0850 through 180.0859, inclusive, of the Wisconsin
Business Corporation Law, Chapter 180 of the Wisconsin Statutes, as
the same shall then be in effect, including any amendments thereto,
but, in the case of any amendment, only to the extent that the
amendment permits or requires the Corporation to provide broader
indemnification rights than the Statute permitted or required the
Corporation to provide prior to the amendment.
9.2. Right to Indemnification.
Each Director and Officer who is a Party to any Proceeding because he
or she is a Director or an Officer of the Corporation shall be
indemnified by the Corporation to the fullest extent permitted by the
laws of Wisconsin against any and all Liabilities incurred or suffered
by the Director or Officer in connection with any Proceeding.
9.3. Nonduplication.
The Corporation shall not indemnify any Director or Officer for any
amount if the Director or Officer has previously received
indemnification or allowance of Expenses for such amount from any
person including the Corporation in connection with the same
Proceeding; however, the Director or Officer has no duty to look to
any other person for indemnification.
9.4. Procedure for Indemnification.
(a) Any person claiming the right to indemnification under this
Article IX shall submit a written request for indemnification to
the Secretary of the Corporation, setting forth in reasonable
detail the nature of the claim and the Liability incurred.
(b) Unless otherwise provided by the Articles of Incorporation or by
written agreement between the Director or Officer and the
Corporation, the Director or Officer seeking indemnification
under this Article IX shall select one of the following means for
determining his or her right to indemnification hereunder:
(1) By a majority vote of a quorum of the Board of
Directors consisting of directors not at the time
Parties to the same or related Proceedings
("Disinterested Directors"). If a quorum of
Disinterested Directors cannot be obtained, by a
majority vote of a committee duly appointed by the
Board of Directors and consisting solely of two (2) or
more Disinterested Directors. Directors who are
Parties to the same or related Proceedings may
participate in the designation of members of the
committee.
(2) By independent legal counsel selected by a quorum of
the Board of Directors or its committee in the manner
prescribed in Section 9.4(b)(1) of this Article IX or,
if such a quorum or committee is not available, by a
majority vote of the full Board of Directors,
including directors who are Parties to the same or
related Proceedings.
(3) By a panel of three (3) arbitrators consisting of one
arbitrator selected by those directors entitled under
Section 9.4(b)(2) of this Article IX to select
independent legal counsel, one arbitrator selected by
the Director or Officer seeking indemnification and
one arbitrator selected by the two (2) arbitrators
previously selected.
(4) By an affirmative vote of shares represented at a
meeting of shareholders at which a quorum of the
voting group entitled to vote thereon is present.
Shares owned by, or voted under the control of,
persons who are at the time Parties to the same or
related Proceedings, whether as plaintiffs or
defendants or in any other capacity, may not be voted
in making the determination.
(5) By a court pursuant to and in accordance with Section
180.0854 of the Statute.
(6) By any other method provided for in any additional
right to indemnification permitted under Section 9.10
of this Article IX hereof.
(c) In any determination under subsection (b) of this Section 9.4,
the burden of proof is on the Corporation to prove by clear and
convincing evidence that indemnification should not be allowed.
(d) A written determination as to a Director's or Officer's right to
indemnification shall be submitted simultaneously to both the
Corporation and the Director or Officer within sixty (60) days of
the selection of the method of determining the right to
indemnification made under subsection (b) of this Section 9.4.
(e) If it is determined that indemnification is required, the
Corporation shall pay all permitted Liabilities and Expenses (net
of Expenses previously advanced pursuant to Section 9.6 hereof)
within ten (10) days after receipt of the written determination
under subsection (d) of this Section 9.4; provided, that, if it
is determined that a Director or Officer is entitled to
indemnification against Liabilities incurred in connection with
some claims, issues or matters, but not as to other claims,
issues or matters, involved in the subject Proceeding, the
Corporation shall be required to pay (in the manner set forth
above) only the amount of such Liabilities as shall be deemed
appropriate by the determining body in light of all of the
circumstances of such Proceeding. In the event the Director or
Officer is entitled to indemnification hereunder, the Corporation
shall also pay all Expenses incurred by the Director or Officer
in the determination process under subsection (b) of this Section
9.4.
9.5. Insurance.
The Corporation may maintain insurance, at its expense, to protect
itself and any person indemnified under this Article against any
Expense, Liability or loss, whether or not the Corporation would have
the obligation to indemnify the person under Wisconsin law.
9.6. Mandatory Allowance of Expenses Incurred.
Within ten (10) days after receipt of a written request by Director or
Officer who is a Party to a Proceeding (which requests may be
submitted by the Director or Officer from time to time or at any time
during the course of the Proceeding), the Corporation shall pay or
reimburse his or her reasonable Expenses incurred to the date of such
request, if the Director or Officer provides the Corporation with all
of the following:
(a) A written affirmation of his or her good faith belief that he or
she has not breached or failed to perform his or her duties to
the Corporation in the manner described in Section 180.0851(2)(a)
of the Statute; and
(b) A written undertaking to repay the allowance in the event that it
is ultimately determined that indemnification under Section 9.2
of this Article IX is not required and indemnification is not
ordered by a court as provided for under Section 180.0854 of the
Statute.
If the Director of Officer must repay any previously advanced Expenses
pursuant to this Section 9.6, such Director or Officer shall not be
required to pay interest on such amounts.
9.7. Indemnification and Allowance of Expenses of Employees and Others.
The Corporation shall indemnify any employee who is not a Director or
Officer to the extent that he or she has been successful on the merits
or otherwise in defending a Proceeding, for all reasonable Expenses
incurred in the Proceeding, if the employee was a Party because he or
she was an employee of the Corporation. In addition, the Corporation
(to the extent not otherwise provided for in this Section 9.7) may
indemnify against Liabilities and allow reasonable Expenses of an
employee, agent or other person who is not a Director or Officer of
the Corporation to the extent provided by general or specific action
of the Board of Directors or by contract.
9.8. Securities Law Claims.
Pursuant to the public policy of the State of Wisconsin, the
Corporation shall provide for indemnification against Liabilities and
allowance of Expenses and may insure for any Liability incurred in
connection with a Proceeding involving a federal or state statute,
rule or regulation regulating the offer, sale or purchase of
securities, brokers or dealers or investment companies or investment
advisors to the extent otherwise required or permitted under this
Article IX.
9.9. Severability.
If any provision of this Article IX shall be deemed invalid or
inoperative or if a court determines that any provision contravenes
public policy, this Article shall be construed so that the remaining
provisions shall remain in full force and effect, and any provisions
which are invalid or inoperative or which contravene public policy
shall be deemed, without further action to be modified, amended and/or
limited, but only to the extent necessary to render them valid and
enforceable; it being understood that it is the Corporation's
intention to provide the Directors and Officers with the broadest
possible protection against personal liability allowable under the
Statute.
9.10. Non-Exclusivity.
The rights of any person to indemnification under this Article IX
shall not limit or be deemed exclusive of any other rights to
indemnification which may be provided in accordance with Section
180.0858 of the Statute.
9.11. Contractual Nature of Article IX.
This Article IX shall be deemed to be a contract between the
Corporation and each Director, Officer and employee of the Corporation
and any repeal or other limitation of this Article IX or of the
Statute or any other applicable law shall not limit any rights of
indemnification existing or arising out of events, acts or omissions
occurring prior to the repeal or limitation, including, without
limitation, the right to indemnification against Liability or
allowance of Expenses for Proceedings commenced after the repeal or
limitation with regard to acts, omissions or events arising prior to
the repeal or limitation.
ARTICLE X. Seal
The corporate seal of the Corporation shall be a circular impression having on
the margin of the outer circle thereof "CONSOLIDATED PAPERS, INC." and on the
margin of the inner circle in small print "CORPORATE" and "WISCONSIN RAPIDS,
WI" and in the center of this impression the word "SEAL".
Article XI. Amendments
11.1. By Shareholders.
These Bylaws may be amended or repealed and new Bylaws may be adopted
by the shareholders at any annual or special meeting of the
shareholders at which a quorum is in attendance.
11.2. By Directors.
Except as otherwise provided in the Wisconsin Business Corporation Law
or the Articles of Incorporation, these Bylaws may also be amended or
repealed and new Bylaws may be adopted by the Board of Directors by
the affirmative vote of a majority of the directors fixed by or in
accordance with these bylaws; provided, however, that the shareholders
in adopting, amending or repealing a particular bylaw may provide
therein that the Board of Directors may not amend, repeal or readopt
the bylaw or set specific voting requirements for the Board of
Directors to amend, repeal or readopt the bylaw.
11.3 Implied Amendments.
Any action taken or authorized by the shareholders or by the Board of
Directors, which would be inconsistent with the Bylaws then in effect
but is taken or authorized by a vote that would be sufficient to amend
the Bylaws so that the Bylaws would be consistent with the action,
shall be given the same effect as through the Bylaws had been
temporarily amended or suspended so far, but only so far, as is
necessary to permit the specific action so taken or authorized.
EXHIBIT 10.l. TO FORM 10-K FOR
CONSOLIDATED PAPERS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
May 14, 1998
TO:
The Compensation Award Program (CAP) has been continued for 1998. This
program has proven to be very successful for both Consolidated Papers and its
employees. One of the reasons why it has been successful is that we have
modified it several times in order to meet the changing needs of the Company.
This year we have made some additional modifications which will improve the
program. Each operating division will be measured on the same four categories
(controllable costs, safety performance, quality performance and productivity)
with their divisional goals based upon their own performance. The fifth
category is determined by each division based upon their need.
Staff departments will now have 80% of their CAP award determined by the
average of the operating divisions rather than the 60% used in 1997. We
believe this will further motivate the staff departments to assist the
operating divisions in accomplishing their goals.
The 1998 program outline is attached. Specific divisional goals will be
communicated by your manager.
We apologize for the delay in reporting the 1997 CAP award. The calculations
for last year are currently being finalized. The number of shares of
Consolidated stock that each employee receives will be based upon the share
price on December 31, 1997 ($53.375) and will be adjusted for the dividends on
March 6th ($.42 per share) and May 22nd ($.44 per share). The CAP award will
be made after the May 22nd dividend.
I am confident that the 1998 Compensation Award Program will once again prove
to be beneficial for both the Company and our employees.
/s/Gorton M. Evans
1998 COMPENSATION AWARD PROGRAM
ELIGIBILITY
You will be eligible for a CAP award in 1998 based upon the following
conditions:
1. You must be a management employee from January 1, 1998 through December 31,
1998.
2. You must be eligible to participate in TIP.
3. You must receive a merit increase during 1998.
4. 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 1998 Compensation Award Program is once again designed to have different
goals for operating divisions and staff departments. This enables the company
to more appropriately reward employees in each area of the company for their
results.
Operating Divisions - A matrix is designed for each operating division with
five performance categories. (See example on next page.) Each operating
division will be measured on four categories (controllable costs, safety,
quality and productivity) and one additional category chosen by each division.
Each of the five categories has a maximum potential award of 1% for a total
potential award of 5%.
The controllable costs category is based upon total favorable savings for the
entire Company (excluding ILP) and will result in an award of 1% of normal
earnings if a $25 million savings level is achieved. The other categories in
the divisional matrices are custom designed for each division and are based
upon that division's past performance.
The 1998 CAP award categories and award matrix for each division will be
communicated by their division management.
Staff Departments - Staff departments also have the potential to receive a CAP
award of up to 5%. This award will once again be made up of two components.
Since staff departments support the operating divisions in the accomplishment
of their goals, the first component is based upon the average CAP award
percentage received by the operating divisions. This year, however, in order
to recognize the importance of that support, it is being increased to 80% of
the CAP award of the operating divisions from the 60% in 1997. The maximum
award potential for this component is 4% (80% of 5%).
The second component of the CAP award for staff departments will have a
maximum potential award of up to 1% of normal earnings and will be based upon
CAP goals. Each staff department will develop and submit CAP goals as done in
past years. The CAP results will be evaluated by each vice president based
upon the following criteria:
CAP Goal Results CAP Goal Award
<S> <C> <C>
Outstanding 100% of 1% = 1%
Overly Exceeds goal 80% of 1% = .8%
Exceeds goal 60% of 1% = .6%
Meets goal 40% of 1% = .4%
Almost Meets goal 20% of 1% = .2%
The recommendation will again be submitted to Mr. Evans for approval.
AWARD
As a management employee of Consolidated Papers, Inc., you will be eligible to
receive a maximum award of 5% of your 1998 normal earnings as 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.
Example - Operating Division
Max.
Award 1 2 3 4 5
Performance Category % 0% 20% 40% 60% 80% 100%
<S> <C> <C> <C> <C> <C> <C> <C>
Controllable Costs (millions $)
(Total favorable for
corporation) 1% <5 >5 >10 >15 >20 >25
Safety Performance
(OSHA, TCIR) 1% >.35 <.35 <.30 <.25 <.20 <.15
Quality Performance
(Complaints/1000 tons) 1% >.68 <.68 <.62 <.56 <.50 <.44
Productivity
(Tons above standard) 1% <7 >7 >12 >17 >22 >27
Environmental Performance
(Weighted spills) 1% >4 <4 <3 <2 <1 <0
Maximum
Award % of
Category Results $ Award Award1
<S> <C> <C> <C> <C>
Controllable Costs $ 12 M 1% 40% .4%
Safety Performance .18 1% 80% .8%
Quality Performance .54 1% 60% .6%
Productivity 14 1% 40% .4%
Environmental
Performance 1 1% 80% .8%
Total CAP Award 3.0% of 1998 normal earnings2
Example - Staff Department
Average Operating Division
CAP Award - 3.0% x 80% = 2.4%
Department CAP Goal Results
Meets Goal - 1.0% x 40% = .4%
Total CAP Award1 - 2.8% of 1998 normal earnings2
1Consolidated Papers, Inc. common stock equivalent to the value as noted.
2This will exclude certain payments (special project pay, vacation taken as
cash, etc.)
SUMMARY
The Compensation Award Program for 1998 continues to focus on controllable
costs as well as emphasizing safety, quality and productivity among other
criteria.
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 department goals for 1998 are to be submitted to Mr. Evans by June 11th.
Status reports must then be submitted to the staff quality council at the end
of each subsequent quarter.
If you have questions on the above, see your manager or call Chuck Bigelow at
3765.
EXHIBIT 10.m. TO FORM 10-K FOR
CONSOLIDATED PAPERS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
AGREEMENT FOR SEVERANCE PAY AND BENEFITS
This Agreement for Severance Pay and Benefits ("Agreement"), effective the 1st
day of January, 1999, is entered into by and between Consolidated Papers, Inc.
("Employer"), and Donna Stephens ("Employee"), on behalf of herself and her
heirs and assigns:
WHEREAS, Employer desires to provide Employee certain assurances regarding the
compensation to be received by Employee if Employee's employment relationship
ends within a certain period of time as a result of a Change of Control (as
defined below) in consideration for the Employee's performance of the
undertaking expressed in this Agreement;
NOW, THEREFORE, IT IS HEREBY AGREED by and between Employer and Employee as
follows:
1. Employer agrees that, if Employee meets the Eligibility Criteria (as
defined in paragraph 2) during the Term of this Agreement (as defined
below), Employer shall:
a. After the Effective Date (as defined in the release to be signed by
Employee pursuant to paragraph 2(b)), begin payment to Employee of one
(1) year of Employee's base salary, payable in equal monthly
installments, less withholding required by law ("Separation Pay
Period"); and
b. Provide Employee with health, life and dental benefits during the
Separation Pay Period provided to salaried employees generally.
(collectively "Separation Pay and Benefits").
2. To be eligible for the benefits listed above, Employee must:
a. Remain employed until either (i) Employer eliminates Employee's position
following a Change of Control or offers employee the same or a similar
position following a Change of Control that the Employee elects not to
accept because it would require relocation or (ii) Employer terminates
Employee's employment other than for cause (as defined below) during the
Term of this Agreement;
b. Sign a release satisfactory to Employer substantially in the form
attached hereto as Exhibit A (subject to appropriate modification to
reflect developments in the law and/or statutory changes during the Term
of this Agreement);
c. Return to Employer all of its property; and
d. Comply with Employee's obligations under the Conflict of Interest
Representation, and the Employee Confidential Information and Invention
Agreement ("Employment Agreements").
The foregoing requirements are hereafter referred to as the "Eligibility
Criteria." Employee will be ineligible for the Separation Pay and Benefits if
Employee voluntarily terminates her employment or Employer terminates
Employee's employment for cause prior to the expiration of the Term of
Agreement or the occurrence of the Eligibility Criteria. For purposes of this
Agreement, the term "cause" shall mean either (i) Employee's consistent
unexcused failure to perform the essential duties of her position or (ii)
Employee's misconduct as that term is used in Wisconsin Statutes Section
108.04(5). If Employee accepts another position with Employer, Employee will
remain eligible for the Separation Pay and Benefits.
3. For purposes of this Agreement, a "Change in Control" shall be deemed to
have occurred on the first date on which either:
( i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) but excluding (a) the Mead Voting Trust established
pursuant to the agreement dated December 20, 1986, (b) the Mead
descendants as defined in the Mead Voting Trust or any group of them,
(c) any voting trustee of the Mead Voting Trust acting in his or her
capacity as such, or (d) a person who would be deemed to be an owner
of 20% of more of the combined voting power of Consolidated Papers,
Inc.'s securities then outstanding solely as a result of being a
participant of the Mead Voting Trust, is or becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly of securities of Consolidated Papers, Inc. representing at
least 20 percent of the combined voting power of Consolidated Papers,
Inc.'s then outstanding securities, or
( ii) a majority of the individuals comprising Consolidated Papers, Inc.'s
Board of Directors are not Continuing Directors, or
(iii) Consolidated Papers, Inc. is involved in any merger, consolidation,
share exchange or any other transaction if, after the consummation
thereof, the holders of the voting securities of Consolidated Papers,
Inc. immediately prior thereto do not own at least a majority of the
combined voting power of the surviving or resulting corporation, or
( iv) all or substantially all of the assets of Consolidated Papers, Inc.
are sold or otherwise transferred, or
( v) a change occurs of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A, promulgated
under the Exchange Act, or any other successor disclosure item, or
( vi) a chief executive officer of Consolidated Papers Inc. is appointed
who, prior to such appointment, has never been an employee of
Consolidated Papers, Inc.
A "Continuing Director means an individual who was a member of the Board of
Directors of the Corporation immediately prior to the transaction or
election or other event which resulted in a change of control or who was
designated (before his initial election or appointment as a director) as a
Continuing Director by a majority of the whole Board of Directors but only
if the majority of the whole Board of Directors then consisted of
Continuing Directors or, if a majority of the whole Board of Directors
shall not then consist of Continuing Directors, by a majority of the then
Continuing Directors.
4. Employee agrees that (except in connection with tax reporting, or pursuant
to legal process or any legal action to enforce the terms of this
Agreement) she shall keep confidential, to the full extent permitted by
law, the terms of this Agreement, all performance hereunder and the
negotiations leading to this Agreement.
5. This Agreement shall not alter the "at-will" nature of the employment
relationship, including without limitation Employer's right to establish
and monitor Employee's achievement of performance goals.
6. The terms of this Agreement shall be from the date first written above
through June 30, 2001 ("Term").
7. This instrument and the Employment Agreements comprise the entire agreement
between the parties. This supersedes and replaces during the term hereof
any existing or newly adopted severance plan for the employees of Employer.
8. If any provision, section, subsection or any other portion of this
Agreement or the Employment Agreements shall be determined by any court of
competent jurisdiction to be invalid, illegal or unenforceable in whole or
in part, and such determination shall become final, such provision or
portion shall be deemed to be severed or limited, but only to the extent
required to render the remaining provisions and portions of this Agreement
and the Employment Agreements enforceable. This Agreement or the
Employment Agreements as thus amended shall be enforced so as to give
effect of the intention of the parties insofar as that is possible. In
addition, the parties hereby expressly empower a court of competent
jurisdiction to modify any term or provision of this Agreement or the
Employment Agreements to the extent necessary to comply with existing law
and to enforce this Agreement and the employment Agreements as modified.
9. This Agreement shall be construed in accordance with the laws of the State
of Wisconsin.
IN WITNESS WHEREOF, the parties have executed this Agreement for Severance Pay
and Benefits on the date first written above.
CONSOLIDATED PAPERS, INC. EMPLOYEE
By: /s/ James E. Shewchuk /s/Donna Stephens
James E. Shewchuk Donna Stephens
Its: Senior Vice President, Administration
EXHIBIT 21 TO FORM 10-K FOR
CONSOLIDATED PAPERS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
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% LSPI Paper Corporation Minnesota
100% Superior Recycled Fiber Corporation Minnesota
100% Consolidated Papers International
Leasing, L.L.C. Delaware
100% CONDEPCO, Inc. Delaware
100% Inter Lake Papers, Inc. Wisconsin
100% Inter Lake Wisconsin, Inc. Wisconsin
100% Inter Lake Sales Corporation New York
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1998 consolidated balance sheet and the consolidated statements
of income, shareholders' equity and cash flows for the twelve-month period
ended 12/31/98 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,230
<SECURITIES> 0
<RECEIVABLES> 153,811
<ALLOWANCES> 6,504
<INVENTORY> 189,120
<CURRENT-ASSETS> 388,207
<PP&E> 3,649,729
<DEPRECIATION> 1,048,409
<TOTAL-ASSETS> 3,627,486
<CURRENT-LIABILITIES> 222,961
<BONDS> 1,054,564
<COMMON> 90,714
0
0
<OTHER-SE> 1,354,851
<TOTAL-LIABILITY-AND-EQUITY> 3,627,486
<SALES> 1,989,315
<TOTAL-REVENUES> 1,989,315
<CGS> 1,649,265
<TOTAL-COSTS> 1,649,265
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,918
<INCOME-PRETAX> 178,269
<INCOME-TAX> 68,240
<INCOME-CONTINUING> 106,960
<DISCONTINUED> 0
<EXTRAORDINARY> (4,603)
<CHANGES> 0
<NET-INCOME> 102,357
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
</TABLE>
