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, 2000
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, 2000
91,927,228 shares
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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
2000 1999 1999
(Unaudited) (Unaudited)
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ASSETS
Current Assets
Cash and cash equivalents $ 16,596 $ 3,254 $ 6,201
Receivables (net of reserves of
$5,847 as of June 30, 2000,
$6,750 as of June 30, 1999,
and $6,002 as of December 31,
1999) 164,689 145,751 127,801
Inventories
Finished stock 90,549 83,347 68,972
Unfinished stock 7,495 7,454 8,301
Raw materials and supplies 89,619 98,501 91,348
Total inventories 187,663 189,302 168,621
Prepaid expenses 35,120 35,280 32,905
Total current assets 404,068 373,587 335,528
Investments and other assets 63,885 60,323 61,879
Restricted cash related to leases 422,124 428,086 443,844
Goodwill 126,033 135,695 130,593
Plant and Equipment
Buildings, machinery and equipment 3,671,032 3,517,787 3,632,547
Less: Accumulated depreciation 1,276,545 1,110,726 1,185,061
2,394,487 2,407,061 2,447,486
Land and timberlands 42,203 41,321 42,129
Capital additions in process 84,579 135,300 64,714
Total plant and equipment 2,521,269 2,583,682 2,554,329
$ 3,537,379 $ 3,581,373 $ 3,526,173
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Current portion of long-term debt $ 85,000 $ - $ 85,284
Accounts payable 112,921 92,564 103,564
Other 128,964 144,678 122,412
Total current liabilities 326,885 237,242 311,260
Long-term debt 764,450 993,000 802,000
Capital lease obligations 442,856 453,714 467,804
Deferred income taxes 414,162 358,821 390,991
Postretirement benefits 173,303 157,272 167,118
Other noncurrent liabilities 31,332 33,857 32,870
Shareholders' Investment
Preferred stock, authorized and
unissued 15,000,000 shares - - -
Common stock, shares issued
91,539,166 as of June 30,
2000, 90,988,094 as of
June 30,1999, and 91,140,982
as of December 31, 1999 91,539 90,988 91,141
Capital in excess of par value 80,769 67,030 71,390
Accumulated other comprehensive
income (2,796) (2,797) (2,745)
Treasury stock, at cost, 211,227
shares as of June 30, 2000,
304,025 shares as of June 30,
1999, and 304,025 shares as of
December 31, 1999 (4,739) (7,093) (7,093)
Reinvested earnings 1,219,618 1,199,339 1,201,437
Total shareholders' investment 1,384,391 1,347,467 1,354,130
$ 3,537,379 $ 3,581,373 $ 3,526,173
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
2000 1999 2000 2000 1999
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Net sales $ 506,868 $ 435,119 $ 483,459 $ 990,327 $ 894,352
Cost of goods
sold 411,186 378,780 403,600 814,786 776,836
Gross profit 95,682 56,339 79,859 175,541 117,516
Selling, general
and administra-
tive expenses 27,740 26,487 26,241 53,981 51,642
Income from
operations 67,942 29,852 53,618 121,560 65,874
Interest expense (20,094) (20,022) (20,501) (40,595) (41,073)
Interest income 6,808 5,423 7,024 13,832 11,468
Miscellaneous, net ( 586) 1,547 1,287 701 3,815
Total other
income
(expense), net (13,872) (13,052) (12,190) (26,062) (25,790)
Income before
provision for
income taxes 54,070 16,800 41,428 95,498 40,084
Provision for
income taxes 21,087 6,720 16,157 37,244 16,034
Net income $ 32,983 $ 10,080 $ 25,271 $ 58,254 $ 24,050
Net income per share
-basic $ 0.36 $ 0.12 $ 0.28 $ 0.64 $ 0.27
Net income per share
-diluted $ 0.36 $ 0.12 $ 0.28 $ 0.64 $ 0.27
Average number of
common shares
outstanding 91,240,968 90,648,913 90,909,365 91,075,166 90,536,479
CONSOLIDATED STATEMENTS OF REINVESTED EARNINGS
(DOLLARS IN THOUSANDS - UNAUDITED)
Three months ended Six months ended
June 30 March 31 June 30
2000 1999 2000 2000 1999
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Balance beginning
of period $ 1,206,718 $ 1,209,164 $ 1,201,437 $ 1,201,437 $ 1,215,091
Add: Net income 32,983 10,080 25,271 58,254 24,050
Deduct: Cash
dividends (20,083) (19,905) (19,990) (40,073) (39,802)
Balance end of
period $ 1,219,618 $ 1,199,339 $ 1,206,718 $ 1,219,618 $ 1,199,339
CONSOLIDATED PAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS - UNAUDITED)
Six months ended
June 30
2000 1999
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Cash Flows from Operating Activities
Net income $ 58,254 $ 24,050
Depreciation and depletion 95,346 95,010
Amortization of goodwill and intangibles 4,775 4,731
Debt premium amortization - ( 992)
Deferred income taxes 23,237 9,248
Earnings of affiliates ( 1,484) ( 1,881)
(Increase) decrease in current assets,
other than cash and cash equivalents (58,145) 6,395
Increase (decrease) in current
liabilities, other than current
portion of long-term debt 15,843 13,272
Increase (decrease) in postretirement
benefits 6,185 8,764
Increase (decrease) in other noncurrent
liabilities ( 1,538) 2,441
Net cash provided by operating activities 142,473 161,038
Capital expenditures (62,286) ( 93,066)
Proceeds from sale of assets - 25,483
Other ( 4,016) ( 1,517)
Net cash (used in) investing activities (66,302) ( 69,100)
Cash Flows from Financing Activities
Cash dividends (40,073) ( 39,802)
Repayment of long-term debt (30,000) ( 20,572)
Net repayments under lines of credit,
revolvers and commercial papers ( 7,834) ( 40,000)
Common stock issued (net) 12,131 8,460
Net cash (used in) financing activities (65,776) ( 91,914)
Net increase in cash and cash equivalents 10,395 24
Cash and cash equivalents - beginning of
period 6,201 3,230
Cash and cash equivalents - end of period $ 16,596 $ 3,254
Cash paid during the period for:
Interest $ 38,594 $ 38,566
Income taxes 10,200 3,210
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed financial statements included herein have been prepared by the
company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the company believes that
the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements are
read in conjunction with the financial statements and the notes thereto
included in the company's latest Annual Report on Form 10-K.
In the opinion of management, the aforementioned statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the results for the interim periods. Results for the
six months ended June 30, 2000, are not necessarily indicative of results
that may be expected for the year ending December 31, 2000.
2. 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.
3. On February 22, 2000, Consolidated Papers announced its agreement to be
acquired by Stora Enso Oyj, Helsinki, Finland. Stora Enso is one of the
world's leading forest industry companies. The transaction has been
unanimously approved by the boards of directors of both companies. The
completion of the sale, which is subject to regulatory approval and the
approval of shareholders of both companies, is expected to occur in August
or September 2000.
4. Summarized financial information concerning the company's reportable
segments is shown in the following table:
Printing Corporate
(Dollars in thousands) Papers Other Items Total
Three months ended
June 30, 2000
Revenues $ 445,385 $ 73,742 $ (12,259) $ 506,868
Segment profit (loss) 86,926 8,756 (41,612) 54,070
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
Six months ended
June 30, 2000
Revenues 872,453 142,398 (24,254) 990,327
Segment profit (loss) 161,026 14,514 (80,042) 95,498
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
* * * * *
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 2000 were $507 million, an increase of
$72 million or 16% compared to one year ago. The first six months' net sales
of $990 million represented a $96 million or 11% increase compared with the
same period in 1999. Shipments for the second quarter were a record 563,000
tons, up 12%, and the first six months' shipments were a record 1,116,000
tons, up 8%, when compared with similar periods in 1999.
Net income for the second quarter 2000 was $33 million, or 36 cents per share,
an increase of 227% compared with $10 million, or 12 cents per share in 1999.
The increases in sales, shipments and net income were due primarily to
stronger demand and improved selling prices for printing papers, and a
companywide cost-reduction initiative which began in 1999 and will reduce
business costs by more than $100 million over 2 years. Demand for specialty
papers also continued to strengthen, reaching record levels.
The machines that produce groundwood-free coated printing papers at Wisconsin
Rapids and Inter Lake Papers divisions operated at 88% of available capacity
for the second quarter and 90% of available capacity for the first six months
of 2000, compared with 82% for the second quarter and 86% for the first six
months of 1999. The Converting Division, which converts heavier-weight
groundwood-free rolls into sheets, operated at 70% of available capacity in
the second quarter of 2000 and at 74% of available capacity for the first six
months of 2000, compared with 95% for the second quarter and 96% for the first
six months in 1999.
The facilities that produce lightweight coated groundwood papers at Inter Lake
Papers, Biron, Wisconsin River and Niagara divisions operated at 98% of
available capacity for both the second quarter and for the first six months of
2000, compared with 84% for the second quarter and 89% for the first six
months of 1999.
Lake Superior Paper Industries, which manufactures supercalendered printing
papers, operated at 100% of available capacity for the 13th consecutive
quarter.
The specialty papers division at Stevens Point operated at 96% of available
capacity in the second quarter and 91% of available capacity for the first six
months 2000, compared with 74% in the second quarter and 76% in the first six
months of 1999.
Shipments of recycled fiber made from postconsumer office wastepaper decreased
slightly in the second quarter compared with the second quarter 1999, but
increased for the first six months of 2000 as compared to the same period one
year ago. Operations at this facility were 78% of available capacity during
the second quarter of 2000 and 80% of available capacity for the first six
months of 2000, compared with 83% during the second quarter of 1999 and 82%
for the first six months of 1999. Shipments of paperboard products remained
steady for the second quarter and for the first six months as compared to
1999.
Gross profit margins as a percent of net sales increased to 18.9% and 17.7%
for the second quarter and first six months of 2000, compared with 12.9% and
13.1% for similar periods in 1999. The increase in gross profit margins was
due primarily to improved demand, higher selling prices and the companywide
cost-reduction initiative.
Selling, general and administrative expenses as a percent of net sales were
5.5% for both the second quarter and first six months of 2000, compared with
6.1% and 5.8% for similar periods in 1999.
The effective tax rate was 39.0% in 2000, compared with 40.0% in 1999.
Liquidity and Capital Resources
On June 30, 2000, the ratio of current assets to current liabilities was
1.2:1, compared with 1.1:1 at March 31, 2000, and 1.6:1 at June 30, 1999.
During the second quarter, working capital increased by $45 million. Cash and
cash equivalents increased by $7 million. Receivables increased by $27
million due to increased shipments at the end of the quarter. Inventories
increased by $4 million. The current portion of long-term debt, accounts
payable and other current liabilities remained constant compared to March 31,
2000.
The company's long-term debt decreased $8 million during the second quarter
and $38 million during the first six months 2000. The first half year
decrease reflects continued earnings improvement and judicious capital
spending. The resulting long-term funded debt to capital ratio on June 30,
2000, was 36%, compared with 37% on December 31, 1999 and 42% on June 30,
1999.
Capital expenditures in the second quarter 2000 totaled $32 million compared
with $37 million during the same period in 1999. The major second quarter
2000 expenditures included $6 million for a paper machine rebuild at Inter
Lake Papers Division, $4 million for a paper machine rebuild at Wisconsin
Rapids Division, and $2 million for an order management project. The company
expects to spend a total of $130 million during 2000 for capital additions.
Employee Matters
In July 2000, Consolidated Papers, Inc. announced, as part of the two-year
more than $100 million cost-savings initiative aimed at making the company
more competitive in the global paper industry, a reduction in workforce
program. This program, which will reduce the workforce by approximately 10%,
or 700 employees, consists of both a voluntary, enhanced retirement package
and an involuntary reduction in staff. The restructuring charge to be booked
in conjunction with this program cannot yet be estimated due to the voluntary
component of the workforce reduction.
During the second quarter, the company executed a six-year contract with one
union representing approximately 270 craft employees at the central Wisconsin
locations. This agreement expires April 30, 2005.
The company is negotiating with unions representing employees at the Niagara,
Wisconsin mill. A five-year contract expired January 31, 2000 for production
and maintenance employees and a five-year contract expired May 14, 2000 for
clerical employees.
Legal Proceedings
On March 24, 2000, the company received a Notice of Violation and a Finding of
Violation from the United Stated Environmental Protection Agency ("EPA").
Generally, the Notice of Violation alleges that the company failed to obtain
permits and install appropriate air pollution control equipment under the
Federal Clean Air Act's Prevention of Significant Deterioration (PSD) program.
More specifically, EPA alleges that PSD permits should have been obtained by
the company in connection with a digester expansion project that was begun in
1983 (which EPA labeled the "First Expansion Project") and with a pulp mill
expansion project that was undertaken in the latter half of the 1980s into the
early 1990s (which EPA labeled the "Modernization Project"). EPA further
alleges that these projects triggered the need for the company to have
installed best available control technology (BACT) on two recovery boilers and
two power boilers. The Finding of Violation alleges that changes made to the
two recovery boilers in 1989 and 1990 as part of the "Modernization Project"
required emissions from these boilers to meet the New Source Performance
Standards ("NSPS") developed under the Federal Clean Air Act. EPA further
alleges that stack testing of the two recovery boilers in 1995 showed the
emissions from the recovery boilers exceeded NSPS emission limits and that the
company failed to monitor and record emissions as required by the NSPS
regulations. The company is meeting with the EPA to discuss the factual
background of the allegations, as well as the EPA's legal basis for the
allegations. The matter has been referred to the Department of Justice. On
July 26, 2000, the EPA presented a settlement demand of $7.85 million to the
company.
The company may seek to settle this claim in advance (or in the course) of
litigation. Any settlement will need to satisfy the EPA's Clean Air Act
penalty policy. This policy requires settlements to be based on the payment
of a penalty that recovers the "economic savings" and addresses the "gravity"
of the alleged violation. Any settlement would also require the facility to
be in compliance or to agree to a compliance schedule.
The company has the right to contest any allegations of the EPA in court. Any
case against the company that arises out of this matter would be filed in the
United States District Court for the Western District of Wisconsin.
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 1999 Annual
Report and its Form 10-K Report of the year ended December 31, 1999, 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.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
A report on Form 8-K dated July 12, 2000 was filed on July 12, 2000 to
report the Press Release announcing 2000 second quarter earnings.
A report on Form 8-K dated July 19, 2000 was filed on July 20, 2000 to
report the Press Release announcing workforce reductions.
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 11, 2000
/s/ Richard J. Kenney
By: Richard J. Kenney, Senior Vice President, Finance
Principal Financial Officer
Date August 11, 2000
/s/ Carl R. Lemke
By: Carl R. Lemke
Assistant Secretary
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