FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number 0-1051
CONSOLIDATED PAPERS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-0223100
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Wisconsin Rapids, Wisconsin 54495
(Address of principal executive offices)
(Zip Code)
715 422-3111
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock par value $1.00 outstanding July 31, 1999
90,713,441 shares
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
As of
June 30 June 30 December 31
1999 1998 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 3,254 $ 12,008 $ 3,230
Receivables (net of reserves of
$6,750 as of June 30, 1999,
$6,649 as of June 30, 1998,
and $6,504 as of December 31,
1998) 145,751 156,265 147,307
Inventories
Finished stock 83,347 85,712 78,928
Unfinished stock 7,454 13,221 10,449
Raw materials and supplies 98,501 118,201 99,743
Total inventories 189,302 217,134 189,120
Prepaid expenses 35,280 38,698 48,550
Total current assets 373,587 424,105 388,207
Investments and other assets 60,323 59,184 59,319
Restricted cash related to leases 428,086 434,567 438,429
Goodwill 135,695 143,550 140,211
Plant and Equipment
Buildings, machinery and equipment 3,517,787 3,335,733 3,524,361
Less: Accumulated depreciation 1,110,726 969,774 1,048,409
2,407,061 2,365,959 2,475,952
Land and timberlands 41,321 40,227 40,831
Capital additions in process 135,300 183,128 84,537
Total plant and equipment 2,583,682 2,589,314 2,601,320
$ 3,581,373 $ 3,650,720 $ 3,627,486
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable $ 92,564 $ 100,117 $ 88,651
Other 144,678 136,883 134,310
Total current liabilities 237,242 237,000 222,961
Long-term debt 993,000 1,085,394 1,054,564
Capital lease obligations 453,714 463,468 465,613
Deferred income taxes 358,821 318,041 349,573
Postretirement benefits 157,272 159,667 148,508
Other noncurrent liabilities 33,857 30,562 31,416
Shareholders' Investment
Preferred stock, authorized and
unissued 15,000,000 shares - - -
Common stock, shares issued
90,988,094 as of June 30,
1999, 90,567,654 as of
June 30,1998, and 90,713,876
as of December 31, 1998 90,988 90,568 90,714
Capital in excess of par value 67,030 56,970 61,657
Accumulated other comprehensive
income (2,797) (2,574) (2,705)
Treasury stock, at cost, 304,025
shares as of June 30, 1999,
265,702 shares as of June 30,
1998, and 409,426 shares as of
December 31, 1998 (7,093) (7,046) (9,906)
Reinvested earnings 1,199,339 1,218,670 1,215,091
Total shareholders' investment 1,347,467 1,356,588 1,354,851
$ 3,581,373 $ 3,650,720 $ 3,627,486
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA - UNAUDITED)
Three months ended Six months ended
June 30 March 31 June 30
1999 1998 1999 1999 1998
<S> <C> <C> <C> <C> <C>
Net sales $ 435,119 $ 508,437 $ 459,233 $ 894,352 $ 1,025,446
Cost of goods
sold 378,780 414,392 398,056 776,836 827,274
Gross profit 56,339 94,045 61,177 117,516 198,172
Selling, general
and administra-
tive expenses 26,487 25,625 25,155 51,642 48,732
Income from
operations 29,852 68,420 36,022 65,874 149,440
Interest expense (20,022) (24,286) (21,051) (41,073) (48,330)
Interest income 5,423 7,646 6,045 11,468 15,279
Miscellaneous, net 1,547 1,058 2,268 3,815 1,521
Total other
income
(expense), net (13,052) (15,582) (12,738) (25,790) (31,530)
Income before
provision for
income taxes 16,800 52,838 23,284 40,084 117,910
Provision for
income taxes 6,720 21,135 9,314 16,034 47,164
Net income before
extraordinary
item 10,080 31,703 13,970 24,050 70,746
Loss on debt
extinguishment - (4,603) - - (4,603)
Net income $ 10,080 $ 27,100 $ 13,970 $ 24,050 $ 66,143
Net income per share
before extra-
ordinary item
-basic $ 0.12 $ 0.36 $ 0.15 $ 0.27 $ 0.79
Net income per share
before extra-
ordinary item
-diluted $ 0.12 $ 0.36 $ 0.15 $ 0.27 $ 0.79
Net income per share
-basic $ 0.12 $ 0.30 $ 0.15 $ 0.27 $ 0.73
Net income per share
-diluted $ 0.12 $ 0.30 $ 0.15 $ 0.27 $ 0.73
Average number of
common shares
outstanding 90,648,913 90,248,024 90,422,797 90,536,479 90,044,336
CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS
(DOLLARS IN THOUSANDS - UNAUDITED)
Three months ended Six months ended
June 30 March 31 June 30
1999 1998 1999 1999 1998
<S> <C> <C> <C> <C> <C>
Balance beginning
of period $ 1,209,164 $ 1,211,417 $ 1,215,091 $ 1,215,091 $ 1,191,237
Add: Net income 10,080 27,100 13,970 24,050 66,143
Deduct: Cash
dividends (19,905) (19,847) (19,897) (39,802) (38,710)
Balance end of
period $ 1,199,339 $ 1,218,670 $ 1,209,164 $ 1,199,339 $ 1,218,670
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS - UNAUDITED)
Six months ended
June 30
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 24,050 $ 66,143
Depreciation and depletion 95,010 89,571
Amortization of goodwill and intangibles 4,731 5,046
Debt premium amortization ( 992) ( 6,963)
Deferred income taxes 9,248 11,100
Earnings of affiliates ( 1,881) ( 2,476)
(Increase) decrease in current assets,
other than cash and cash equivalents 6,395 ( 19,671)
Increase (decrease) in current
liabilities, other than current
maturities of long-term debt 13,272 24,705
Increase (decrease) in postretirement
benefits 8,764 7,197
Increase (decrease) in other noncurrent
liabilities 2,441 (2,589)
Net cash provided by operating activities 161,038 172,063
Cash Flows from Investing Activities
Capital expenditures (93,066) (252,687)
Proceeds from sale of assets 25,483 -
Other ( 1,517) 3,452
Net cash (used in) investing activities (69,100) (249,235)
Cash Flows from Financing Activities
Cash dividends (39,802) ( 38,710)
Proceeds from long-term debt - 160,000
Repayment of long-term debt (20,572) (143,831)
Net borrowings under lines of credit
and revolvers (40,000) 87,100
Other 8,460 11,452
Net cash provided by (used in)
financing activities (91,914) 76,011
Net increase (decrease) in cash and cash
equivalents 24 ( 1,161)
Cash and cash equivalents - beginning of
period 3,230 13,169
Cash and cash equivalents - end of period $ 3,254 $ 12,008
Cash paid during the period for:
Interest $ 38,566 $ 39,559
Income taxes 3,210 36,354
NOTES TO FINANCIAL STATEMENTS
1. Reference is made to the Notes to Financial Statements that appear in the
1998 Annual Report on Form 10-K. The basic principles of those notes are
pertinent to these statements.
2. 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. This purchase resulted in an increase in fixed
assets in 1998 of $269.7 million.
3. In the second quarter 1998, the company recognized a $4.6 million, after
tax, or 6 cents per share - basic, 6 cents per share - diluted,
extraordinary loss. The extraordinary loss was the result of the early
redemption of the company's $143.8 million, face value, term loan assumed as
part of the operating lease buyout on production equipment at Lake Superior
Paper Industries (see Note 2). 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 income tax benefits of $3.1
million. The redemption of the 12.08% debt was financed with proceeds from
senior secured notes with interest rates between 6.93% and 7.30%.
4. During the second quarter 1999, the company retired a paper machine
production line at its Niagara Division. The machine was retired as a
result of market conditions and production inefficiencies compared with
other production lines. The sales and resulting operating profit generated
from the previous operations of these assets have been moved to other
available capacity, and the company is continuing to investigate alternative
uses of the machine. Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of," requires that an impairment loss be recorded if
the expected future cash flows of an asset are less than the carrying
amount. Because estimated future cash flows are currently unknown, the
company has not yet determined if the book value of approximately $3 million
has been impaired.
5. On May 28, 1999, the company sold the assets of Castle Rock Container
Company, a division of Consolidated Papers, Inc. and manufacturer of
corrugated products, to St. Laurent Packaging Corp. The sale proceeds
approximated net book value.
6. Summarized financial information concerning the company's reportable
segments is shown in the following table:
Printing Corporate
(Dollars in thousands) Papers Other Items Total
<S> <C> <C> <C> <C>
Three months ended
June 30, 1999
Revenues 378,402 67,807 (11,090) 435,119
Segment profit (loss) 50,355 5,984 (39,539) 16,800
Three months ended
June 30, 1998
Revenues 445,875 73,779 (11,217) 508,437
Segment profit (loss) 87,134 6,911 (41,207) 52,838
Six months ended
June 30, 1999
Revenues 777,493 138,485 (21,626) 894,352
Segment profit (loss) 103,010 14,506 (77,432) 40,084
Six months ended
June 30, 1998
Revenues 900,939 145,455 (20,948) 1,025,446
Segment profit (loss) 185,039 13,133 (80,262) 117,910
* * * * *
The financial information is unaudited. It reflects all adjustments that are,
in the opinion of management, necessary to a fair statement of the results.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales and Cost of Sales
Net sales for the second quarter were $435 million, a decrease of $73 million
or 14% compared to one year ago. The first six months' net sales of
$894 million represented a $131 million or 13% decrease compared with the same
period in 1998. Second quarter shipments were 505,000 tons, down 8%, and
first six months' shipments were 1,029,000 tons, down 7%, when compared with
similar periods in 1998.
Net income for the second quarter 1999 was $10 million, or 12 cents per share,
a decrease of 68% compared with $32 million, or 36 cents per share before an
extraordinary charge of $5 million after taxes, in 1998. The decreases in
sales, shipments and net income were due primarily to low selling prices and
reduced operating rates caused by global overcapacity and a continued high
level of imports.
The machines that produce groundwood-free coated printing papers at Wisconsin
Rapids Division and Inter Lake Papers operated at 82% of available capacity
for the second quarter and 86% of available capacity for the first six months
of 1999, compared with 85% for the second quarter and 93% for the first six
months of 1998. The Converting Division, which converts heavier-weight
groundwood-free rolls into sheets, operated at 95% of available capacity in
the second quarter of 1999 and at 96% of available capacity for the first six
months of 1999, compared with 91% for the second quarter and 96% for the first
six months in 1998.
The facilities that produce lightweight coated groundwood papers at Inter Lake
Papers and the Biron, Wisconsin River and Niagara divisions operated at 84% of
available capacity for the second quarter and 89% of available capacity for
the first six months of 1999, compared with 98% for the second quarter and 99%
for the first six months of 1998. The company's smallest coated groundwood
paper machine, No. 61 at the Wisconsin River Division, was idle during all of
1999. On April 23, 1999, the company retired the No. 41 machine at its
Niagara division. The company is currently evaluating alternative uses of
this machine. Lake Superior Paper Industries, which manufactures
supercalendered printing papers, operated at 100% of available capacity in the
second quarter and the first six months of 1999 and 1998.
The coated specialty paper division at Stevens Point operated at 74% of
available capacity in the second quarter and 76% of available capacity for the
first six months 1999, compared with 91% in the second quarter and 85% in the
first six months of 1998.
Shipments of recycled fiber made from postconsumer office wastepaper increased
slightly in the second quarter compared with the second quarter, 1998 but
decreased for the first six months of 1999 as compared to the same period one
year ago. Operations at this facility were 83% of available capacity during
the second quarter of 1999 and 82% of available capacity for the first six
months of 1999, compared with 91% during the second quarter of 1998 and 88%
for the first six months of 1998. Shipments of paperboard products increased
for the second quarter and for the first six months as compared to 1998.
Shipments of corrugated products declined 25% compared to the first six months
of 1998 due to the May 28, 1999 sale of this facility to St. Laurent Packaging
Corp.
Gross profit margins as a percent of net sales decreased to 12.9% and 13.1%
for the second quarter and first six months of 1999, compared with 18.5% and
19.3% for similar periods in 1998. The decrease in gross profit margins was
due primarily to lower selling prices and reduced operating rates.
Selling, general and administrative expenses as a percent of net sales were
6.1% and 5.8% for the second quarter and first six months of 1999,
respectively, compared with 5.0% and 4.8% for similar periods in 1998.
Other income (expense) improved $3 million in the second quarter 1999 compared
to 1998 and improved $6 million for the first six months 1999 as compared with
similar periods in 1998. This improvement was due mainly to lower interest
rates and decreased debt.
The effective tax rate was 40.0% in both 1999 and 1998.
Liquidity and Capital Resources
On June 30, 1999, the ratio of current assets to current liabilities was
1.6:1, compared with 1.8:1 at June 30, 1998. During the second quarter,
working capital decreased by $30 million. Cash and cash equivalents decreased
by $4 million and receivables decreased by $16 million due to lower sales.
Inventories decreased $4 million. Prepaid expenses decreased $6 million due
mainly to a decrease in the current portion of restricted deposits to fund the
company's capital lease obligations. Accounts payable and other current
liabilities remained constant compared to March 31, 1999.
The company's long-term debt decreased $59 million during the second quarter
and $62 million during the first six months 1999. The first half year
decrease is due in part to the use of proceeds from the sale of the company's
corrugated container facility to pay down debt. The resulting long-term
funded debt to capital ratio on June 30, 1999, was 42%, compared with 44% on
both December 31, 1998 and June 30, 1998.
Capital expenditures in the second quarter 1999 totaled $37 million compared
with $52 million during the same period in 1998. The major second quarter
1999 expenditures included $8 million for the paper machine rebuild at Biron
Division, $1 million for cutter and sheeter modifications at Converting
Division and $1 million for a winder rebuild at Lake Superior Paper
Industries. The company expects to spend a total of $185 million during 1999
for capital additions.
Year 2000 Compliance
General. The company's overall Year 2000 project was 97% complete at the end
of the second quarter of 1999. Completion of the final stages of the
company's internal compliance project is 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 complete. Resolution, test planning and test execution are
substantially complete. 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.
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 complete, and the Year 2000 team is now executing
remediation and test plans for noncompliant purchased software and hardware
devices. Business applications are on schedule for completion of system
testing and deployment in 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. 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. Cost estimates are being refined as technical
assessment, remediation and testing continue and as vendors provide compliance
status information. The company presently estimates that it will spend
approximately $23 million on its overall Year 2000 project. This includes $16
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 $10 million, where these expenditures have been
accelerated to meet Year 2000 requirements. As of June 30, 1999,
approximately $13 million in program costs, including $4 million of internal
labor costs, have been funded from operating cash flows and expensed as
incurred.
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. All divisions and key departments are participating in
contingency planning. This requires identification of 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. 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.
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.
Employee Matters
The company is negotiating with five unions representing employees at the
company's central Wisconsin locations (Wisconsin Rapids, Whiting, Stevens
Point and Biron). Five-year contracts with these unions expired April 30,
1999. However, the company has a history of bargaining beyond contract
expiration dates without a work stoppage. Current negotiations have been
businesslike. Key issues in the negotiations include health care and pension
benefits.
Legal Proceedings
The United States Environmental Protection Agency has increasingly focused its
enforcement efforts on conducting nationwide audits of the paper industry's
compliance with New Source Review/Prevention of Significant Deterioration
("PSD") rules under the Clean Air Act. In April, 1999, the company's kraft
mill received a request for information under Section 114(a) of the Clean Air
Act. The request from the EPA spans a 23-year period and focuses on whether
the mill obtained proper permits under PSD rules governing expansion and other
capital projects during the period. The company is currently complying with
the request and has provided voluminous information to the EPA.
On June 11, 1999, the Wisconsin Department of Natural Resources issued a
Notice of Violation applicable to the pressurized groundwood facility at the
company's Niagara Division. The NOV alleges that Niagara constructed and
operated the groundwood facility without first obtaining required construction
and operating permits. The alleged violations took place prior to the
company's acquisition of the Niagara operation and, if necessary,
indemnification may be available under the company's agreement with the prior
owner. The company and the DNR are discussing the steps necessary to resolve
this matter.
Forward-looking Statements
Certain statements in Management's Discussion and Analysis in this report may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Because these forward-looking
statements include risks and uncertainties, actual results may differ
materially from those expressed in or implied by the statements. A discussion
of these risks and uncertainties may be found in the company's 1998 Annual
Report and its Form 10-K Report for the year ended December 31, 1998, under
the heading "Management's Discussion and Analysis - Forward-looking
Statements."
PART II. OTHER INFORMATION
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Furnish the exhibits required by Item 601 of Regulation S-K.
4.a. First Amendment to Credit Agreement among the Registrant and
Wachovia Bank, N.A. as Agent.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarter ended
June 30, 1999.
Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSOLIDATED PAPERS, INC.
Date August 13, 1999
/s/ Richard J. Kenney
By: Richard J. Kenney, Senior Vice President, Finance
Principal Financial Officer
Date August 13, 1999
/s/ Carl R. Lemke
By: Carl R. Lemke
Assistant Secretary
EXHIBIT 4.a. TO FORM 10-Q
FOR CONSOLIDATED PAPERS, INC.
FOR THE QUARTER ENDED
JUNE 30, 1999
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made as of the
12th day of August, 1999, among CONSOLIDATED PAPERS, INC., a Wisconsin
corporation (the "Borrower"), WACHOVIA BANK, N.A. as Agent (the "Agent") under
the Credit Agreement (as herein defined) and the BANKS party to the Credit
Agreement identified below (the "Banks").
Background:
The Borrower, the Agent, the Co-Agents identified therein and the Banks
have entered into a certain Credit Agreement dated as of September 26, 1997
(the "Credit Agreement").
The Borrower, the Agent and the Banks wish to amend the Credit Agreement
in certain respects, as hereinafter provided.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. Capitalized terms used herein which are not
otherwise defined herein shall have the respective meanings assigned to them
in the Credit Agreement.
SECTION 2. Amendments. The Credit Agreement is hereby amended as
follows:
SECTION 2.1. Amendment to Section 1.01. Section 1.01 of the Credit
Agreement is hereby amended by:
(a) adding thereto the following new definitions which shall read in
their entirety as follows:
"Effective Date" means August 12, 1999.
"364 Day Commitments" means the commitments of the lenders, as in effect
from time to time, under the 364 Day Credit Agreement to make 364 Day Loans to
the Borrower, which 364 Day Commitments under the terms of the 364 Day Credit
Agreement shall be stated to expire (subject to extension for additional
periods of up to 364 days as provided in the 364 Day Credit Agreement) no more
than 364 days from the date such 364 Day Commitments become effective, and
"364 Day Commitment" means any one of such 364 Day Commitments.
"364 Day Credit Agreement" means a credit agreement entered into by the
Borrower with one or more lenders providing for 364 Day Commitments in an
aggregate amount of up to $300,000,000, together with any amendments thereto,
and supplements, restatements and replacements thereof, acceptable to the
Agent and the Banks.
"364 Day Loan" means any loan made to the Borrower under the 364 Day
Credit Agreement and "364 Day Loans" means all of such loans.
(b) amending and restating clause (c) of the definition of "Permitted
Encumbrances" in its entirety to read as follows:
(c) mechanics', workmen's, materialmen's, landlords', carriers' or
other similar Liens arising in the ordinary course of business with respect to
obligations which are not due or, if overdue, either (i) are being contested
in good faith by appropriate proceedings and for which reserves have been
established that in the Borrower's reasonable opinion are adequate or (ii) the
aggregate amount of liabilities (including interest and penalties, if any) of
the Borrower and its Subsidiaries secured by such Liens (other than those
covered by clause (i) of this paragraph) does not at any time exceed
$10,000,000 and no such Lien (other than those covered by clause (i) of this
paragraph) could reasonably be expected to have a Material Adverse Effect;
SECTION 2.2. Amendment to Section 2.06. Section 2.06(a) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
SECTION 2.06. Interest Rates. (a) "Applicable Margin" shall be
determined quarterly based upon the ratio of Consolidated Debt to Consolidated
Total Capitalization (calculated as of the last day of each Fiscal Quarter),
as follows:
Ratio of Consolidated
Debt to Consolidated Facility A Facility B
Total Capitalization Base Rate Loans Euro-Dollar Loans Euro-Dollar Loans
<S> <C> <C> <C>
Greater than or equal
to .55 to 1.00 0% .675% .725%
Greater than or equal
to .45 to 1.00 but
less than .55 to 1.00 0% .575% .625%
Greater than or equal
to .35 to 1.00 but
less than .45 to 1.00 0% .475% .525%
Greater than or equal
to .25 to 1.00 but
less than .35 to 1.00 0% .375% .400%
Less than .25 to 1.00 0% .275% .300%
The Applicable Margin shall be determined effective as of the date which is 60
days after the last day of the Fiscal Quarter as of the end of which the
foregoing ratio is being determined (the "Rate Determination Date"), based on
the quarterly financial statements for such Fiscal Quarter, and the Applicable
Margin so determined shall remain effective from such Rate Determination Date
until the next succeeding Rate Determination Date; provided that (i) for the
period from and including the Effective Date to but excluding the Rate
Determination Date next following September 30, 1999, the Applicable Margin
shall (subject to adjustment pursuant to the next succeeding sentence) be
(A) 0% for Base Rate Loans, (B) .475% for Facility A Loans that are Euro-
Dollar Loans, and (C) .525% for Facility B Loans that are Euro-Dollar Loans,
(ii) in the case of any Applicable Margin determined for the fourth and final
Fiscal Quarter of a Fiscal Year, the Rate Determination Date shall be the date
which is 105 days after the last day of such final Fiscal Quarter and such
Applicable Margin shall be determined based upon the annual audited financial
statements for the Fiscal Year ended on the last day of such final Fiscal
Quarter, and (iii) if on any Rate Determination Date the Borrower shall have
failed to deliver to the Banks the financial statements required to be
delivered pursuant to Section 5.04(a) with respect to the Fiscal Quarter most
recently ended prior to such Rate Determination Date, then for the period
beginning on such Rate Determination Date and ending on the earlier of (A) the
date on which the Borrower shall deliver to the Banks the financial statements
to be delivered pursuant to Section 5.04(a) with respect to such Fiscal
Quarter or any subsequent Fiscal Quarter, or (B) the date on which the
Borrower shall deliver to the Banks annual financial statements required to be
delivered pursuant to Section 5.04(b) with respect to the Fiscal Year which
includes such Fiscal Quarter or any subsequent Fiscal Year, the Applicable
Margin shall be determined as if the ratio of Consolidated Debt to
Consolidated Total Capitalization were more than .55 to 1.00 at all times
during such period. Notwithstanding the foregoing, (a) if (i) prior to the
date on which the Facility B Commitments are terminated in their entirety and
the Facility B Loans are repaid in full, on any day of any Interest Period
applicable to any Syndicated Loan, the aggregate amount of Loans outstanding
on such day (after giving effect to any Loans being borrowed on such day) is
greater than one-third but less than or equal to two-thirds of the aggregate
amount of the Commitments on such day, or (ii) on or after the date on which
the Facility B Commitments are terminated in their entirety and the Facility B
Loans are repaid in full, on any day of any Interest Period applicable to any
Facility A Syndicated Loan, the sum of the aggregate amount of Facility A
Loans outstanding on such day (after giving effect to any Facility A Loans
being borrowed on such day) plus the aggregate amount of 364 Day Loans
outstanding on such day (after giving effect to any 364 Day Loans being
borrowed on such day) is greater than one-third but less than or equal to two-
thirds of the sum of the aggregate amount of the Facility A Commitments on
such day plus the aggregate amount of the 364 Day Commitments on such day,
then the Applicable Margin for such Syndicated Loan for such day determined
according to the table set forth above (in the case of either clause (i) or
clause (ii) of clause (a) of this sentence) shall be increased by .125%, and
(b) if (i) prior to the date on which the Facility B Commitments are
terminated in their entirety and the Facility B Loans are repaid in full, on
any day of any Interest Period applicable to any Syndicated Loan, the
aggregate amount of Loans outstanding on such day (after giving effect to any
Loans being borrowed on such day) is greater than two-thirds of the aggregate
amount of the Commitments on such day, or (ii) on or after the date on which
the Facility B Commitments are terminated in their entirety and the Facility B
Loans are repaid in full, on any day of any Interest Period applicable to any
Facility A Syndicated Loan, the sum of the aggregate amount of Facility A
Loans outstanding on such day (after giving effect to any Facility A Loans
being borrowed on such day) plus the aggregate amount of 364 Day Loans
outstanding on such day (after giving effect to any 364 Day Loans being
borrowed on such day) is greater than two-thirds of the sum of the aggregate
amount of the Facility A Commitments on such day plus the aggregate amount of
the 364 Day Commitments on such day, then the Applicable Margin for such
Syndicated Loan for such day determined according to the table set forth above
(in the case of either clause (i) or clause (ii) of clause (b) of this
sentence) shall be increased by .250%. Any change in the Applicable Margin on
any Rate Determination Date shall result in a corresponding change, effective
on and as of such Rate Determination Date, in the interest rate applicable to
each Syndicated Loan outstanding on such Rate Determination Date, provided
that (x) for Euro-Dollar Loans, changes in the Applicable Margin (other than
changes pursuant to the immediately preceding sentence) shall only be
effective for Interest Periods commencing on or after such Rate Determination
Date, and (y) no Applicable Margin shall be decreased pursuant to this Section
if a Default is in existence on such Rate Determination Date, but shall be
automatically decreased upon any cure or waiver (given in accordance with
Section 9.05(a)) of such Default.
SECTION 2.3. Amendment to Section 2.07. Section 2.07(a) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
SECTION 2.07. Fees. (a) The Borrower shall pay to the Agent for
the ratable account of each Bank a facility fee equal to the sum of (i) an
amount equal to the product of: (A) the aggregate of the daily average
amounts of such Bank's Facility A Commitment, times (B) a per annum percentage
equal to the Applicable Facility Fee Rate, plus (ii) an amount equal to the
product of: (A) the aggregate of the daily average amounts of such Bank's
Facility B Commitment, times (B) a per annum percentage equal to the
Applicable Facility Fee Rate. Such facility fee shall accrue from and
including the Closing Date to and including the Facility A Termination Date
(in the case of the Facility A Commitments) and the Facility B Termination
Date (in the case of the Facility B Commitments). Facility fees shall be
payable quarterly in arrears on the first Facility Fee Payment Date following
each Facility Fee Determination Date and on the Facility A Termination Date
(in the case of the Facility A Commitments) and the Facility B Termination
Date (in the case of the Facility B Commitments); provided that should the
Facility A Commitments be terminated at any time prior to the Facility A
Termination Date for any reason or the Facility B Commitments be terminated at
any time prior to the Facility B Termination Date for any reason, the entire
accrued and unpaid facility fee shall be paid on the date of such termination.
The "Applicable Facility Fee Rate" shall be determined quarterly based upon
the ratio of Consolidated Debt to Consolidated Total Capitalization
(calculated as of the last day of each Fiscal Quarter) as follows:
Ratio of Consolidated Applicable Facility Applicable Facility
Debt to Consolidated Fee Rate for Fee Rate for
Total Capitalization Facility A Commitments Facility B Commitments
<S> <C> <C>
Greater than or equal
to .55 to 1.00 .200% .150%
Greater than or equal
to .45 to 1.00 but
less than .55 to 1.00 .175% .125%
Greater than or equal
to .35 to 1.00 but
less than .45 to 1.00 .150% .100%
Greater than or equal
to .25 to 1.00 but
less than .35 to 1.00 .125% .100%
Less than .25 to 1.00 .100% .075%
The Applicable Facility Fee Rate shall be determined effective as of the date
which is 60 days after the last day of the Fiscal Quarter as of the end of
which the foregoing ratio is being determined (the "Facility Fee Determination
Date"), based on the quarterly financial statements for such Fiscal Quarter,
and the Applicable Facility Fee Rate so determined shall remain effective from
such Facility Fee Determination Date until the next succeeding Facility Fee
Determination Date; provided that (i) for the period from and including the
Effective Date to but excluding the Facility Fee Determination Date next
following September 30, 1999, the Applicable Facility Fee Rate for Facility A
Commitments shall be .150% and the Applicable Facility Fee Rate for Facility B
Commitments shall be .100%; (ii) in the case of any Applicable Facility Fee
Rate determined for the fourth and final Fiscal Quarter of a Fiscal Year, the
Facility Fee Determination Date shall be the date which is 105 days after the
last day of such final Fiscal Quarter and such Applicable Facility Fee Rate
shall be determined based upon the annual audited financial statements for the
Fiscal Year ended on the last day of such final Fiscal Quarter, and (iii) if
on any Facility Fee Determination Date the Borrower shall have failed to
deliver to the Banks the financial statements required to be delivered
pursuant to Section 5.04(a) with respect to the Fiscal Quarter most recently
ended prior to such Facility Fee Determination Date, then for the period
beginning on such Facility Fee Determination Date and ending on the earlier of
(A) the date on which the Borrower shall deliver to the Banks the financial
statements to be delivered pursuant to Section 5.04(a) with respect to such
Fiscal Quarter or any subsequent Fiscal Quarter, and (B) the date on which the
Borrower shall deliver to the Banks annual financial statements required to be
delivered pursuant to Section 5.04(b) with respect to the Fiscal Year which
includes such Fiscal Quarter or any subsequent Fiscal Year, the Applicable
Facility Fee Rate shall be determined as if the ratio of Consolidated Debt to
Consolidated Total Capitalization were more than .55 to 1.00 at all times
during such period. No applicable Facility Fee Rate shall be decreased
pursuant to this Section 2.07 if a Default is in existence on such Facility
Fee Determination Date, but shall be automatically decreased upon any cure or
waiver (given in accordance with Section 9.05(a)) of such Default.
SECTION 2.4. Amendment to Section 5.09. Section 5.09 of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
SECTION 5.09. Fixed Charges Coverage. At the end of each Fiscal
Quarter, commencing with the Fiscal Quarter ending September 30, 1997, the
ratio of Income Available for Fixed Charges for the immediately preceding 4
Fiscal Quarters then ended to Consolidated Fixed Charges for the immediately
preceding 4 Fiscal Quarters then ended, shall not be less than the ratio set
forth below opposite the applicable Fiscal Quarter:
Fiscal Quarter Ending Applicable Ratio
<S> <C>
On or before June 29, 1999 2.50 to 1.00
On or after June 30, 1999 and
on or before September 29, 2000 1.80 to 1.00
On or after September 30, 2000 and
on or before March 30, 2001 2.00 to 1.00
On or after March 31, 2001 2.50 to 1.00
SECTION 3. No Other Amendment. Except for the amendments set forth
above, the text of the Credit Agreement shall remain unchanged and in full
force and effect. This Amendment is not intended to effect, nor shall it be
construed as, a novation. The Credit Agreement and this Amendment shall be
construed together as a single instrument and any reference to the "Agreement"
or any other defined term for the Credit Agreement in the Credit Agreement,
the Notes or any certificate, instrument or other document delivered pursuant
thereto shall mean the Credit Agreement as amended hereby and as it may be
amended, supplemented or otherwise modified hereafter.
SECTION 4. Representations and Warranties. The Borrower hereby
represents and warrants in favor of the Agent and the Banks as follows:
(a) No Default or Event of Default under the Credit Agreement has
occurred and is continuing on the date hereof;
(b) The Borrower has the corporate power and authority to enter into
this Amendment and to do all acts and things as are required or contemplated
hereunder to be done, observed and performed by it;
(c) This Amendment has been duly authorized, validly executed and
delivered by one or more authorized officers of the Borrower and each of this
Amendment and the Credit Agreement, as amended hereby constitutes the legal,
valid and binding obligation of the Borrower enforceable against it in
accordance with its terms; provided, that the enforceability of each of this
Amendment and the Credit Agreement as amended hereby is subject to general
principles of equity and to bankruptcy, insolvency and similar laws affecting
the enforcement of creditors' rights generally; and
(d) The execution and delivery of this Amendment and the Borrower's
performance hereunder and under the Credit Agreement as amended hereby do not
and will not require the consent or approval of any regulatory authority or
governmental authority or agency having jurisdiction over the Borrower other
than those which have already been obtained or given, nor be in contravention
of or in conflict with the Articles of Incorporation or Bylaws of the
Borrower, or the provision of any statute, or any judgment, order or
indenture, instrument, agreement or undertaking, to which the Borrower is a
party or by which its assets or properties are or may become bound.
SECTION 5. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of
which, taken together, shall constitute one and the same agreement.
SECTION 6. Governing Law. This Amendment shall be deemed to be made
pursuant to the laws of the State of Georgia with respect to agreements made
and to be performed wholly in the State of Georgia and shall be construed,
interpreted, performed and enforced in accordance therewith.
SECTION 7. Effective Date. This Amendment shall become effective
as of August 12, 1999 but only upon satisfaction of the following conditions
precedent:
(a) receipt by the Agent from the Borrower and at least those Banks
together constituting the Required Banks of either a duly executed signature
page from a counterpart of this Amendment or a facsimile transmission of a
duly executed signature page from a counterpart of this Amendment, signed by
such party;
(b) receipt by the Agent for the ratable account of each Bank of the
fee provided for in Section 8 of this Amendment;
(c) receipt by the Agent for its own account of the fees provided for
in the letter agreement dated July 22, 1999 between the Borrower, Wachovia
Securities, Inc. and the Agent; and
(d) receipt by the Agent of all documents which the Agent may
reasonably request relating to the corporate authority of the Borrower for and
the validity of this Amendment, all in form and substance satisfactory to the
Agent, including without limitation a certificate of incumbency of the
Borrower, signed by the Secretary or an Assistant Secretary of the Borrower,
and a certified copy of the action taken by the Board of Directors of the
Borrower authorizing the Borrower's execution, delivery and performance of
this Amendment.
SECTION 8. Amendment Fee. On the date first set forth above, the
Borrower shall pay to the Agent for the ratable account of each Bank an
amendment fee equal to the product of the total amount of such Bank's
Commitments (irrespective of usage) as of such date multiplied by .05%,
together with an additional fee for the ratable account of each Bank that has
indicated its agreement to the terms of this Amendment in a writing executed
and delivered to the Agent on or before 5:00 p.m., Atlanta, Georgia time, on
August 5, 1999, equal to the product of the total amount of such Bank's
Commitments (irrespective of usage) as of such date multiplied by .05%.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed under seal by their respective authorized officers as of the day and
year first above written.
CONSOLIDATED PAPERS, INC.
By: /s/Richard J. Kenney (SEAL)
Title: Senior Vice President, Finance
WACHOVIA BANK, N.A., as Agent and as a Bank
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
BANK OF MONTREAL
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
THE CHASE MANHATTAN BANK
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
CIBC INC.
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
DEUTSCHE BANK AG, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
BANK OF AMERICA, N.A., (formerly Nations Bank,
N.A. and formerly Bank of America National
Trust and Savings Association)
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
MARSHALL & ILSLEY BANK
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
ROYAL BANK OF CANADA
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
TORONTO DOMINION (TEXAS), INC.
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
THE BANK OF NEW YORK
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
FIRST UNION NATIONAL BANK
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
FIRSTAR BANK MILWAUKEE, N.A.
By: /s/Authorized Officer (SEAL)
Title: Authorized Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
June 30, 1999 consolidated balance sheet and the consolidated statements of
income, reinvested earnings and cash flows for the six-month period ended
06/30/99 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 3,254
<SECURITIES> 0
<RECEIVABLES> 152,501
<ALLOWANCES> 6,750
<INVENTORY> 189,302
<CURRENT-ASSETS> 373,587
<PP&E> 3,694,408
<DEPRECIATION> 1,110,726
<TOTAL-ASSETS> 3,581,373
<CURRENT-LIABILITIES> 237,242
<BONDS> 993,000
<COMMON> 90,988
0
0
<OTHER-SE> 1,256,479
<TOTAL-LIABILITY-AND-EQUITY> 3,581,373
<SALES> 894,352
<TOTAL-REVENUES> 894,352
<CGS> 776,836
<TOTAL-COSTS> 776,836
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,073
<INCOME-PRETAX> 40,084
<INCOME-TAX> 16,034
<INCOME-CONTINUING> 24,050
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,050
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.27
</TABLE>
