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, 1999
Commission File No. 0-1051
CONSOLIDATED PAPERS, INC.
(A Wisconsin Corporation)
IRS Employer Identification No. 39-0223100
Wisconsin Rapids, Wisconsin 54495-8050
Telephone No. 715-422-3111
_______________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, Par Value $1.00 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
_______________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (X)
The aggregate market value of January 31, 2000 of the voting stock held by
nonaffiliates of the registrant was approximately $1.54 billion, based upon
the NYSE closing price on January 31, 2000 and an estimate that 61.4% of the
stock is owned by nonaffiliates.
On January 31, 2000 there were 90,852,385 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 on or prior to June 30, 2000.
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 and paperboard 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. Effective December 31, 1997, Niagara of Wisconsin Paper
Corporation became a division of the Company.
In October, 1997, the Company acquired Repap Wisconsin, Inc. and Repap Sales
Corporation. The operations are now known as Inter Lake Papers, a division of
the Company. Inter Lake Papers manufactures groundwood and groundwood-free
coated papers for the printing and publishing industries.
In May, 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 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, and kraft and
recycled pulp.
The percent of coated and supercalendered printing paper sales to total sales
was 83.9% (1995), 83.7% (1996), 85.4% (1997), 87.6% (1998), and 87.5% (1999).
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 AND SUPERCALENDERED PRINTING PAPER SALES IN TONS
<CAPTION>
Direct
Publisher Merchant
Accounts And Other
Year % %
<S> <C> <C>
1995 56% 44%
1996 56% 44%
1997 53% 47%
1998 54% 46%
1999 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.
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
1,907,069 tons of coated and supercalendered printing papers in 1999, which
represents approximately 19% 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 11%, respectively in 1999. 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.
Energy
The Company's energy sources during 1999 were:
<S> <C>
Coal 26.9%
Process Waste 41.4%
Natural Gas 14.7%
Electricity 16.7%
Petroleum products .3%
The Company currently purchases 74% of its coal requirement under two
contracts, one for low-sulfur western U.S. coal, which expires December 31,
2002, and the other for Kentucky coal, which expires December 31, 2001. The
remaining 26% of its coal requirement is purchased on annual contracts. Coal
is currently in ample supply, and we anticipate no supply problems in 2000.
The Company is in the fourth year of a six-year agreement for the firm
transportation of approximately 64% of its total natural gas supply.
Approximately 36% 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 2000.
Raw Materials
The Company is integrated through ownership of forest lands and through its
own pulp-producing facilities. The harvest during 1999 from Company lands
produced 11.8% 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 1999 and expects that its regular suppliers will be able to
furnish it with an adequate supply of pulpwood and wood chips for 2000
operations.
The Company also purchases market pulp on a regular basis and purchased 34.4%
of the total pulp consumed by the Company's paper mills during 1999. The
remainder of the pulp requirement is produced internally. 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 68% of its anticipated
requirements for 2000. Market pulp is currently in critically short supply;
however, the Company expects to acquire sufficient pulp to operate its mills
at planned rates in 2000.
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, talc, 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 1999, 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
2000.
Research and Development
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 $7.5 million in 1999, $7.3 million in 1998, and
$6.8 million in 1997 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,
environmental projects, and sponsored research.
Legal and Environmental
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
and maintain wastewater treatment facilities in preparation for production
increases and future regulations. New wastewater treatment solids dewatering
equipment for the Water Quality Center (WQC) was purchased in 1999 and is
scheduled to be installed during 2000. The cost of this upgrade is $745,000.
The WQC treats process wastewater from Biron, Kraft and Wisconsin Rapids
divisions. A new mill effluent pipeline was installed at Inter Lake Papers
Division at a cost of $1 million. 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 ILP permit issues without the need for a hearing. The
Water Renewal Center (WRC) permit is expected to be reissued in the first
quarter of 2000. The WRC treats process wastewaters from Stevens Point and
Wisconsin River divisions. The WQC permit was extended until April 15, 2001.
The renewed wastewater permit requirements are not expected to cause material
changes in the Company's business or impact its competitive position.
The Company continues to operate according to its storm-water discharge
permits. The storm-water permits include a pollution prevention plan, best
management practices and may require storm-water sampling and testing and
pollution control. 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 continues review and issuance
of major source air operating permits. Our facilities are allowed to continue
to operate under their existing permits until the new operating permits are
issued. We are amending our permit applications as necessary to address process
changes or when new emissions information becomes available. To date, Lake
Superior Paper Industries (LSPI), Superior Recycled Fiber Industries (SRFI),
Wisconsin River Division, WRC, and Paperboard Products Division were issued
operating permits. The WDNR is currently reviewing operating permit
applications for Niagara Division, ILP and Stevens Point Division. 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. States must submit an implementation plan to the
EPA within one year and achieve final compliance by May 2003. Court rulings
have granted an indefinite stay on the submittals of the implementation plans
addressing nitrogen oxide (NOx) emission reductions and have invalidated the
EPA's new 8-hour ozone and the fine particulate matter (PM2.5) ambient air
quality standards. Depending on the court's decision and WDNR's implementation
plan, 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 required applicable facilities to develop,
submit and register a risk management plan by June 21, 1999. The Company
submitted the required risk-management plans for all of its applicable
facilities in accordance with the June 21, 1999 deadline. On August 5, 1999,
President Clinton signed into law the Chemical Safety Information, Site
Security and Fuels Regulatory Relief Act. This act establishes new provisions
for reporting and disseminating information contained in the risk management
plans. The Company is in compliance with this act.
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. Waste residue from LSPI/SRFI is utilized as daily cover for
landfills, resulting in significant cost savings. The Company completes
landfill site life evaluations annually to assure adequate lead time for
permitting and constructing required new sites. The planned construction
activities at WQC and WRC landfills were completed during 1999. 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 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. 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 (Maximum
Achievable Control Technology (MACT I)) and water regulations (Effluent
Guidelines) are applicable to the Company's bleached Kraft pulp mill's
pulping, bleaching, and wastewater operations. Additional proposed regulations
addressing air pollutants (MACT II) from Kraft pulp mill recovery boilers,
lime kilns and smelt dissolving tanks are expected to be reproposed in early
2000 and finalized in December 2000 with compliance required within 3 years.
These final and proposed regulations are commonly referred to as the "Cluster
Rules." The Company's review of MACT I and the Effluent Guidelines indicates
that additional capital expenditures of approximately $2.6 million will be
required to assure compliance by April 2001. Due to the Company's proactive
environmental planning and expenditures, we are well prepared to meet the
requirements of MACT I and the Effluent Guidelines. As a result of the
recently completed chlorine-elimination program, the Company is already in
compliance with many of the requirements of MACT I and the Effluent
Guidelines.
The Company has formed a Cluster Rules implementation team to define
requirements and determine the most cost-effective options for compliance.
Compliance with MACT I and the Effluent Guidelines requirements is not
expected to cause material changes in the Company's business or affect its
competitive position.
The Company cannot predict the potential economic impact of MACT II. When
MACT II is reproposed and finalized, the Company will define requirements and
determine the most cost-effective option for compliance.
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. In 1999, the Company
committed to aligning the environmental management system (EMS) with the
ISO 14001 international standard. The goal of aligning the Company's EMS with
ISO 14001 is to add value in terms of internal efficiencies, reduced
liabilities, increased customer confidence and progress toward continuous
environmental improvement.
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
underway on various watershed systems, including the Fox River and Wisconsin
River 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.
EPA's industrial boiler MACT rule will be applicable to the Company's power
boilers. EPA is considering subcategorizing boilers into three types,
including: gas fired, liquid fired and solid fuel fired. Current schedule is
a proposal in late 2000, final rule in late 2001 and compliance three years
later. EPA's industrial boiler MACT rules could require significant capital
expenditures for our coal-wood fired boilers. The Company has created a
corporate energy work group and steering committee to define options that
cost-effectively address long-term energy and environmental requirements. At
this time, the Company cannot predict the potential economic impact of EPA's
industrial boiler MACT rule.
The EPA has proposed regulations defining how total maximum daily (wastewater)
loads (TMDL) will be established for every water body that is not meeting
water quality standards. These proposed regulations could significantly impact
our manufacturing and forestry activities. At this time, the Company cannot
predict the potential economic impact of EPA's TMDL rule.
In May 1999, the EPA Office of Enforcement and Compliance, inspected the
Company's Kraft Division. This review is part of a nationwide New Source
Review (NSR) and Prevention of Significant Deterioration (PSD) air compliance
audit program. This nationwide initiative is currently focusing on three
industries including forest products, electric utilities and petroleum
refineries. The review of the Company's Kraft Division is one of many
involving the paper industry. Based on EPA guidance and practice, there are a
number of potential actions which may occur as a result of the inspection.
These may include no action, the issuance of a notice of violation (NOV) or
legal action seeking monetary fines and/or requiring significant capital
expenditures for the installation of additional control equipment. In response
to EPA actions, the Company has a range of options that may include legal
challenge.
In June 1999, Niagara Division received a notice of violation (NOV) from the
WDNR. The NOV alleges that the pressurized groundwood facility was constructed
and operated without state and federal air permits. This facility was
constructed and started operation in 1990 under a prior owner. The WDNR
advised the prior owner that the pressurized groundwood facility was exempt
from air permit requirements. However, new methanol air emission data now
indicates that air permits are required. The Company is working with the WDNR
to obtain the necessary permits and resolve the NOV.
As these inspection/enforcement activities proceed, the Company will work with
the regulatory agencies in an effort to resolve issues. At this time, the
Company cannot predict the potential economic impact of EPA's NSR/PSD
enforcement initiative nor the WDNR NOV for Niagara Division. Refer to the
MD&A for additional discussion of the enforcement activities.
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.
Employees
At the end of 1999 the Company employed approximately 6,792 people,
essentially all of whom were full-time employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
Current
Position
Name Age Since Current Position
<S> <C> <C> <C>
George W. Mead 72 1971 Chairman of the Board
Gorton M. Evans 61 1997 President and Chief Executive Officer
Richard J. Kenney 59 1997 Senior Vice President, Finance
Ronald E. Swanson 50 1997 Senior Vice President
John T. Hurley 65 1997 Senior Vice President, Sales and
Marketing
James E. Shewchuk 63 1999 Senior Vice President, Administration
David A. Krommenacker 57 1997 Vice President, Packaging Operations
John B. Steele 55 1997 Vice President, Free Sheet Operations
Roger L. Wangen 58 1997 Vice President, Groundwood Operations
Carl H. Wartman 47 1996 Secretary and General Counsel
David P. Nimtz 46 1997 Controller
Donna G. Stephens 51 1999 Treasurer
All executive officers of the Company are elected annually by the Board of
Directors. John T. Hurley retired on December 31, 1999.
All of the executive officers of the Company, except Donna G. Stephens, have
served in executive or managerial positions in the Company for the past five
years. Mrs. Stephens joined the Company's finance department in 1998 to
succeed John D. Steinberg, Treasurer, who retired April 30, 1999. In 1999, she
was elected Treasurer. Prior to her association with the Company, Mrs.
Stephens served as Vice President and Treasurer at Deluxe Corporation,
Shoreview, Minnesota.
Item 2. PROPERTIES.
The Company, at the close of 1999, operated twelve manufacturing plants in
eight 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 12 4 - Wisconsin Rapids, WI)
1 - Biron, WI )
1 - Whiting, WI ) 10,135,115 1,143
1 - Stevens Point, WI )
1 - Niagara, WI )
2 - Duluth, MN )
1 - Kimberly, WI )
1 - Appleton, WI )
Equipment in operation at the close of 1999 included 20 paper machines, two
continuous kraft-pulp digesters, two recycled pulp mills, one paperboard
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 1999 was 90.8% for coated papers and
100% for supercalendered papers. Production facilities are considered to be
well maintained and adequate for their purpose.
The Company owns 334,885 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,
1999 is 5,669.
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
1999
<S> <C> <C> <C> <C> <C>
High $ 27.13 $ 32.88 $ 31.13 $ 32.44 $ 32.88
Low 20.06 23.50 25.56 26.00 20.06
Close 23.50 26.75 26.88 31.81 31.81
Cash dividend .22 .22 .22 .22 .88
1998
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
Per share amounts have been restated in 1998 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 1995 THROUGH 1999
(Dollars in thousands, except per share data)
Net Income
Year Per Cash
Ended Share- Total Long-Term Dividends
Dec. 31 Net Sales Amount Diluted Assets Obligations Per Share
<S> <C> <C> <C> <C> <C> <C>
1999 $ 1,838,795 $ 66,076 $ .73 $ 3,526,173 $ 1,269,804 $ .88
1998 1,989,315 102,357 1.13 3,627,486 1,520,177 .87
1997 1,679,311 118,044 1.31 3,347,510 1,324,986 .84
1996 1,545,091 179,285 2.00 2,532,242 734,551 .84
1995 1,579,061 229,230 2.57 1,933,061 197,000 .72
Per share amounts have been restated in 1998 and prior years 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 and beyond amounts reflect the acquisition, effective October 1997, of
Inter Lake Papers, Inc. formally Repap USA, Inc.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Financial Condition and Results of Operations
Acquisition.
Effective October 1997, the company completed the acquisition of Repap USA,
Inc., the holding company for Repap Wisconsin, Inc. and Repap Sales
Corporation, in Kimberly, Wis. 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 dates are included in the Consolidated Statements of Income.
Details of the acquisition are included in Note 2 of the Notes to Consolidated
Financial Statements.
Asset Impairment and Sale of Assets.
In April 1999, the company retired a paper machine production line at its
Niagara Division due to market conditions and production inefficiencies
compared with other production lines. The company recorded a $4.5 million
pretax write-off of these assets in 1999.
In May 1999, the company sold the assets of its Castle Rock Container Company,
a manufacturer of corrugated products, to St. Laurent Packaging Corp. The
sale proceeds approximated net book value.
Sales and Cost of Sales.
Net sales were $1.8 billion in 1999, compared with record net sales in 1998 of
$2.0 billion and 1997 net sales of $1.7 billion. Shipments of 2,122,000 tons
in 1999 were a decrease of 3% from 1998. Shipments in 1998 were a record,
representing a 15% increase over 1997. Gross margin as a percent of sales was
14.5% in 1999, compared with 17.1% in 1998 and 17.5% in 1997. The lower 1999
margin was due primarily to lower selling prices and periodic market-related
downtime. Gross margin declined in 1998 compared to 1997 due to periodic
market-related downtime. The increased domestic demand in 1998 was absorbed by
imports at lower prices from foreign producers taking advantage of low labor
rates and raw material costs, lower currency exchange rates and trade
protectionism. Import sales were up 4% in 1999 compared to 1998, following a
23% increase in 1998 compared to 1997.
Plant Operations.
Shipments of printing papers decreased in 1999 by 2%, following an increase of
18% in 1998. In 1999, the increase in shipments of groundwood coated and
supercalendered groundwood papers was more than offset by a decrease in
shipments of groundwood-free papers. The major reason for the increase in
shipments in 1998 was the impact of the acquisition of Inter Lake Papers,
which manufactures a combination of groundwood-free and groundwood coated
papers.
Groundwood-free coated shipments (primarily Wisconsin Rapids and Converting
divisions and Inter Lake Papers) decreased 9% in 1999 due to market-related
downtime and the company's rationalization and integration of Inter Lake
Papers products and customer base. Shipments in 1998 increased 35% due to the
October 1997 acquisition of Inter Lake Papers and continued productivity
improvements on all paper machines. During 1999, the divisions operated at
88% of available capacity, compared with 93% in 1998 and 91% in 1997. On
average, selling prices of groundwood-free papers decreased 3% in 1999,
following decreases of 1% in 1998 and 5% in 1997.
Groundwood coated shipments (Biron, Wisconsin River and Niagara divisions and
Inter Lake Papers) increased 2% in 1999, following a 16% increase in 1998.
The divisions operated at 91% of available capacity, compared with 95% in 1998
and 96% in 1997. During 1999, selling prices declined 8%, following an
improvement of 8% in 1998 and a decline of 13% in 1997.
Shipments of Lake Superior Paper Industries supercalendered groundwood papers
increased 6% in 1999, compared to a 15% decrease in 1998. The 1999 increase
and 1998 decrease in shipments were primarily due to downtime associated with
the machine rebuild in February 1998. Lake Superior Paper Industries operated
at 100% of available capacity in both 1999 and 1998, compared with 99% in
1997. Selling prices declined 2% in 1999, compared with an increase of 8% in
1998 and a decline of 17% in 1997.
The Stevens Point Division's specialty paper shipments held steady in 1999
compared to 1998, following an increase of 11% in 1998 compared to 1997. In
March 1997, the division's newest paper machine, No. 35, started up, which
increased the division's annual capacity from 116,000 tons to 180,000 tons.
The division operated at 78% of available capacity for 1999, compared with 80%
in 1998 and 84% in 1997. Selling prices increased 4% in 1999, following
declines of 4% in 1998 and 9% in 1997.
Superior Recycled Fiber Industries, as a result of reduced demand for recycled
pulp, operated at 82% of available capacity in 1999, compared with 89% in both
1998 and 1997. Selling price reductions of 5% in 1999 compared with a decline
of 9% in 1998.
Shipments of paperboard products increased 9% in 1999, following a decrease of
6% in 1998. Shipments of corrugated products decreased 60% in 1999,
reflecting the May 1999 sale of Castle Rock Container Company.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses were $102 million in both 1999
and 1998, following an increase of $18 million in 1998 compared to 1997. The
increase from 1997 to 1998 reflected a full year of expenses in 1998 for the
Inter Lake operations acquired in October 1997.
Other Income (Expense) and Income Taxes.
Other income (expense) was ($54 million) in 1999, ($60 million) in 1998 and
($19 million) in 1997. The improvement in net other expense in 1999 was due,
primarily, to less interest expense on a lower average amount of debt
outstanding during the year. The increase in net other expense in 1998 was
due primarily to interest expense related to additional 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 income tax rates were 40.0%, 40.0% and 38.0% in 1999, 1998 and 1997,
respectively. The rate increased in 1998 due, primarily, to nondeductible
goodwill resulting from the acquisition of Inter Lake Papers.
Liquidity and Capital Resources
Current Account Changes.
The year-end working capital ratio (current assets to current liabilities) was
1.1 at the end of 1999, compared with 1.7 in 1998 and 1.9 in 1997. The
reduction in the working capital ratio reflects both the company's initiative
to improve working capital management and the recognition of previously
classified long-term debt as a current liability at December 31, 1999.
Accounts receivable decreased by $20 million in 1999 and by $14 million in
1998. The 1999 decrease reflects improvement in the company's collection
procedures and a reduction in receivables of $3 million from the sale of
Castle Rock Container Company. The decrease in 1998 was principally due to
lower sales volume during the fourth quarter of 1998 compared to 1997. The
company believes its collection period is well within the industry's
standards.
Inventories decreased $20 million in 1999, including decreases of $11 million
in finished goods and $10 million in raw materials and an increase of
$1 million in stores supplies. The inventory reduction resulted from the
implementation of supply-chain management principles, the sale of $6 million
of Castle Rock Container Company inventory and lower conversion costs. During
1998, inventories were reduced by $16 million, as finished goods, raw
materials and stores supplies decreased $3 million, $12 million and
$1 million, respectively.
Prepaid expenses decreased $16 million in 1999, following an increase of
$22 million in 1998. The 1999 decrease and the 1998 increase were primarily
due to corresponding changes in prepaid income taxes and the current portion of
the deposits associated with the sale and leaseback transactions (see
Note 5 of the Notes to Consolidated Financial Statements).
The current portion of long-term debt was $85 million at December 31, 1999.
There were no current maturities at December 31, 1998 or 1997.
Accounts payable increased $15 million in 1999 as the company improved its
working capital management policies. This compares with a decrease of
$4 million in 1998 due to timings of payments.
Capital Commitments and Spending.
At the end of 1999, authorized but uncompleted capital projects totaled
$139 million. A capital approval budget of $106 million is in place for 2000.
The $106 million budget, plus the $139 million carry-over from 1999, less an
anticipated carry-over of $90 million at the end of 2000, will result in
planned capital spending of $155 million in 2000. The 2000 capital approval
budget of $106 million consists of $64 million for essential quality and
replacement projects, $37 million for high-return projects, and $5 million for
environmental-control projects.
Capital expenditures were $159 million in 1999, $349 million in 1998 and
$236 million in 1997. Major capital expenditures in 1999 included $35 million
for the completion of a paper machine rebuild at the Biron Division,
$5 million for cutter and sheeter improvements at the Converting Division,
$5 million for a new roll wrapper at Inter Lake Papers and $4 million for a
paper machine rebuild, also at Inter Lake Papers. The higher level of capital
expenditures in 1998 included $149 million for the buyout of an operating lease
at Lake Superior Paper.
Long-term Debt.
The company's borrowings (current and long-term) at December 31, 1999, were
$887 million, a decrease of $167 million, following increases of $186 million
and $596 million in 1998 and 1997, respectively. The decrease in 1999
reflects reduced financing for capital expenditures in 1999. At December 31,
1999, the $887 million of debt included $85 million classified as a current
liability. There was no debt classified as a current liability at either
December 31, 1998 or 1997.
The increase in debt 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 of 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 of 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. The loss consisted primarily
of a prepayment penalty and costs associated with the early redemption, net of
the remaining debt premium (see Note 4 of the Notes to Consolidated Financial
Statements). The redemption of this 12.08% debt was financed with proceeds
from $160 million private placement notes that were issued in 1998 with
interest rates between 6.93% and 7.30%.
As of December 31, 1999, the company had $510 million available for use under
its $700 million revolving credit facility. The company also had $210 million
available from lines of credit of $325 million. In 1999, the company entered
into a $100 million unrated commercial paper program. At December 31, 1999,
commercial paper issued totaled $55 million. These financing arrangements,
together with cash flow from future operations, are expected to be more than
sufficient to fund projected capital commitments.
Total interest expense was $82 million in 1999, compared to $96 million in
1998 and $50 million in 1997. Interest capitalized as part of the cost of
related capital projects was $0.1 million, $1.6 million and $3.1 million in
1999, 1998 and 1997, respectively.
As discussed in Note 5 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 $478 million at December 31, 1999. Because deposits of
$456 million at December 31, 1999, 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
interest rate risk, currency exchange rate risk and purchase price risk. These
exposures relate to fluctuations in interest rates on outstanding debt, sales
of products to foreign customers and changes in prices on purchases of
commodities. 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. The fair value of the company's long-term
fixed-rate debt was estimated to be $488 million at December 31, 1999. The
fair value was less than the carrying value by about $34 million, reflecting
the fact that the company's fixed long-term borrowing rates are lower than
rates currently available in the market. At December 31, 1999, 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.
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 remain constant. At December 31, 1999, the company's
floating-rate debt approximates fair market value. A hypothetical 10% change
in the company's weighted average borrowing rate for floating-rate debt would
cause a $1.3 million change in after-tax earnings.
Foreign Exchange Rate Risk.
The company's earnings are also affected by fluctuations in the value of the
U.S. dollar as compared to 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 after-tax earnings of
$3.4 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. 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 [Maximum
Achievable Control Technology (MACT I)] and water regulations (Effluent
Guidelines) are applicable to the company's kraft pulp mill's pulping,
bleaching and wastewater operations. Additional proposed regulations
addressing air pollutants (MACT II) from kraft pulp mill recovery boilers,
lime kilns and smelt dissolving tanks are expected to be reproposed in early
2000 and final in December 2000, with compliance required within three years.
These final and proposed regulations are commonly referred to as the 'Cluster
Rules.' As a result of the recently completed chlorine-elimination program,
the company is already in compliance with many of the requirements of MACT I
and the Effluent Guidelines. Additional capital expenditures of approximately
$2.6 million will be required to assure full compliance with these regulations
by April 2001. The company cannot predict the potential economic impact of
MACT II at this time.
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. Wisconsin's
implementation plan was due in 1999, but court rulings have resulted in an
indefinite stay on submittals of state implementation plans. Depending on the
final resolution of this litigation and Wisconsin's implementation plan, the
company may incur significant capital costs to install additional controls on
its power and recovery boilers.
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; additional regulations governing industrial boilers;
total maximum daily load (TMDL) standards for water bodies which do not meet
water quality standards; 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.
The EPA has increasingly focused its enforcement efforts on conducting
nationwide audits of compliance with New Source Review/Prevention of
Significant Deterioration ("PSD") rules under the Clean Air Act, particularly
in the paper, utility and petroleum refining industries. 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 spanned a 23-year period and
focused on whether the mill obtained proper permits under PSD rules governing
expansion and other capital projects during the period. The company complied
with the request and provided voluminous information to the EPA. The company
also cooperated with the EPA's subsequent on-site inspection of the facility.
Based on preliminary indications from the EPA, the company believes the EPA
will likely issue a Notice of Violation (NOV) relating to the kraft mill but
does not know what actions or activities may be alleged to be in violation of
the Clean Air Act.
In general, if an NOV is issued, the EPA will provide the company with the
opportunity to discuss the allegations and settle the claim. 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.
In June 1999, the Wisconsin Department of Natural Resources (DNR) issued a
Notice of Violation applicable to the pressurized groundwood (PGW) 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. Recent data indicates that volatile organic compounds
are emitted from PGW mills. This was not known at the time of construction of
Niagara's facility.
The company has submitted an after-the-fact permit application for the PGW
mill. The permit has not yet been issued. Costs to the company in respect of
this NOV are likely to depend on the DNR's determination of whether control
equipment for the PGW facility would be cost effective. If control equipment
is found to be cost effective, the company would incur costs of purchase,
installation, operation and maintenance. It is also possible the EPA will
choose to issue its own NOV and seek civil penalties. The alleged violations
took place prior to the company's acquisition of the Niagara operations and,
if necessary, indemnification for a portion of the costs or penalties may be
available under the company's agreement with the prior owner.
Management believes that the resolution of existing environmental matters will
not have a material impact on the company's results of operations or financial
position.
Employee Matters.
During 1999, the company executed six-year contracts with the Paper, Allied-
Industrial Chemical and Energy Workers' International Union, which represents
approximately 2,800 employees at the company's central Wisconsin locations
(Wisconsin Rapids, Whiting, Stevens Point and Biron), and the Office &
Professional Employees International Union, which represents approximately
270 employees at those locations. In 2000, a six-year labor contract between
the company and the International Brotherhood of Electrical Workers (IBEW) was
ratified. The IBEW represents about 250 employees at the company's central
Wisconsin locations. Negotiations continue with two unions representing craft
employees at the central Wisconsin locations. Five-year contracts with the
craft unions expired April 30, 1999. Key issues in the negotiations include
changes to health care and pension benefits.
Year 2000 Compliance.
The company's business systems and process applications made an uneventful
1999-2000 transition. No material disruptions occurred, and manufacturing
continued without interruption during the rollover.
The company expects spending will total approximately $18 million on its
overall Year 2000 project. This included approximately $7 million of
previously budgeted items that were accelerated to meet Year 2000
requirements. The Year 2000 team was able to reduce costs from earlier
estimates by identifying workarounds and by negotiating with vendors for
coverage of costs under pre-existing service contracts and warranties.
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; and (5) decisions by the company to
make a significant acquisition or a significant increase in production
capacity.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
Consolidated Balance Sheets Consolidated Papers, Inc. and Subsidiaries
As of December 31
(Dollars in thousands) 1999 1998 1997
Current Assets
<S> <C> <C> <C>
Cash and cash equivalents $ 6,201 $ 3,230 $ 13,169
Accounts and notes receivable,
net of reserves of $6,002 in 1999,
$6,504 in 1998 and $6,374 in 1997 127,801 147,307 160,874
Inventories
Finished and partly finished
products 77,273 89,377 92,245
Raw materials 29,872 39,616 51,726
Stores supplies 61,476 60,127 61,075
168,621 189,120 205,046
Prepaid expenses 32,905 48,550 26,506
Total current assets 335,528 388,207 405,595
Investments and Other Assets
Investments in affiliates, at cost
plus equity in undistributed
earnings 41,547 39,668 37,188
Restricted cash related to leases 443,844 438,429 427,026
Other assets 20,332 19,651 23,877
Goodwill 130,593 140,211 148,049
636,316 637,959 636,140
Plant and Equipment
Buildings 316,546 323,969 281,988
Machinery and equipment 3,316,001 3,200,392 2,647,374
3,632,547 3,524,361 2,929,362
Less-accumulated depreciation 1,185,061 1,048,409 883,265
2,447,486 2,475,952 2,046,097
Land 14,448 14,069 13,383
Timber and timberlands, net of
depletion 27,681 26,762 26,391
Capital additions in process 64,714 84,537 219,904
2,554,329 2,601,320 2,305,775
$ 3,526,173 $ 3,627,486 $ 3,347,510
Current Liabilities
Current portion of long-term debt $ 85,284 $ - $ -
Accounts payable 103,564 88,651 92,330
Payroll and employee benefits 74,796 78,083 65,628
Income taxes 730 367 2,844
Property taxes 10,679 11,661 11,082
Other current liabilities 36,207 44,199 37,477
Total current liabilities 311,260 222,961 209,361
Noncurrent Liabilities and
Deferred Credits
Long-term debt 802,000 1,054,564 868,665
Capital lease obligations 467,804 465,613 456,321
Deferred income taxes 390,991 349,573 309,875
Postretirement benefits 167,118 148,508 152,470
Other noncurrent liabilities 32,870 31,416 33,151
1,860,783 2,049,674 1,820,482
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 91,140,982 shares in 1999,
90,713,876 shares in 1998 and
90,009,898 shares in 1997 91,141 90,714 90,010
Capital in excess of par value 71,390 61,657 46,400
Accumulated other comprehensive income (2,745) (2,705) (2,610)
Treasury stock, at cost, 304,025 shares
in 1999, 409,426 shares in 1998
and 278,816 shares in 1997 (7,093) (9,906) (7,370)
Reinvested earnings 1,201,437 1,215,091 1,191,237
Total shareholders' investment 1,354,130 1,354,851 1,317,667
$ 3,526,173 $ 3,627,486 $ 3,347,510
Consolidated Statements of Income Consolidated Papers, Inc. and Subsidiaries
(Dollars in thousands, except per For the years ended December 31
share data) 1999 1998 1997
<S> <C> <C> <C>
Net sales $ 1,838,795 $1,989,315 $1,679,311
Cost of goods sold 1,572,637 1,649,265 1,386,023
Gross profit 266,158 340,050 293,288
Selling, general and administrative
expenses 102,374 102,038 83,778
Income from operations 163,784 238,012 209,510
Other Income (Expense)
Interest expense (82,219) (95,918) (49,576)
Interest income 23,192 31,168 27,079
Miscellaneous, net 5,370 5,007 3,381
Total (53,657) (59,743) (19,116)
Income before provision for
income taxes 110,127 178,269 190,394
Provision for Income Taxes
Current 7,226 36,147 46,922
Deferred 36,825 35,162 25,428
Total 44,051 71,309 72,350
Net income before extraordinary item 66,076 106,960 118,044
Loss on debt extinguishment, net of
tax benefit of $3,069 - ( 4,603) -
Net income $ 66,076 $ 102,357 $ 118,044
Net income per share before
extraordinary item - basic $ .73 $ 1.19 $ 1.32
Net income per share before
extraordinary item - diluted $ .73 $ 1.18 $ 1.31
Net income per share - basic $ .73 $ 1.13 $ 1.32
Net income per share - diluted $ .73 $ 1.13 $ 1.31
Average number of common
shares outstanding 90,650,922 90,199,750 89,692,396
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, 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 -
Transla-
tion - - ( 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 -
Transla-
tion - - ( 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
Net income - - - - 66,076 66,076 $ 66,076
Cash
dividends - - - - (79,730) (79,730) -
Exercise of
stock
options 427 8,988 - - - 9,415 -
Tax benefit
related
to stock
options - 659 - - - 659 -
Transla-
tion - - ( 40) - - ( 40) ( 40)
Comprehen-
sive
income $ 66,036
Issuance of
treasury
stock - 86 - 2,813 - 2,899
Balance,
December
31, 1999 $91,141 $71,390 $(2,745) $(7,093) $1,201,437 $1,354,130
Consolidated Papers, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31
(Dollars in thousands) 1999 1998 1997
Cash Flows from Operating Activities
<S> <C> <C> <C>
Net income $ 66,076 $ 102,357 $ 118,044
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and depletion 179,285 171,156 121,587
Amortization of goodwill and
intangibles 10,048 10,182 7,013
Debt premium amortization ( 992) ( 7,090) -
Undepreciated cost of plant and
equipment retirements 10,881 2,577 6,957
Earnings of affiliates ( 3,963) ( 4,755) ( 4,557)
Deferred income taxes 36,825 35,162 25,428
(Increase) decrease in accounts
receivable 16,492 13,567 11,331
(Increase) decrease in inventories 15,265 15,926 ( 2,508)
(Increase) decrease in prepaid
expenses 20,238 ( 17,508) 11,801
Increase (decrease) in accounts
payable 14,913 ( 3,679) ( 14,930)
Increase (decrease) in current
liabilities, other than current
portion of long-term debt
and accounts payable ( 12,057) 17,279 1,653
Increase (decrease) in postretirement
benefits 18,610 ( 3,962) ( 901)
Increase (decrease) in other
noncurrent liabilities 1,454 ( 1,735) ( 6,926)
Net cash provided by operating activities 373,075 329,477 273,992
Cash Flows from Investing Activities
Capital expenditures (158,869) (348,856) (236,198)
Proceeds from sale of assets 24,422 - -
Acquisitions, net of cash - - (250,690)
Proceeds from sale and leaseback - - 135,600
Other ( 2,612) 1,952 130
Net cash (used in) investing activities (137,059) (346,904) (351,158)
Cash Flows from Financing Activities
Cash dividends ( 79,730) ( 78,503) ( 75,353)
Proceeds from long-term debt - 160,000 282,000
Repayment of long-term debt ( 20,572) (143,831) (405,103)
Net borrowings under lines of credit,
revolvers and commercial paper (145,716) 56,397 270,389
Common stock issued (net) 12,973 13,425 5,474
Net cash provided by (used in)
financing activities (233,045) 7,488 77,407
Net increase (decrease) in cash and
cash equivalents 2,971 ( 9,939) 241
Cash and cash equivalents - beginning
of year 3,230 13,169 12,928
Cash and cash equivalents - end of year $ 6,201 $ 3,230 $ 13,169
Cash paid during the year for:
Interest $ 78,451 $ 87,046 $ 29,333
Income taxes 4,957 42,838 32,007
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, 1999, 1998 and 1997
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 - Effective July 1, 1999, the company adopted
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which requires the
prospective capitalization of certain software development costs which
the company had historically expensed. The impact was to capitalize $1.4
million of costs in 1999, which historically would have been expensed.
The Financial Accounting Standards Board (FASB) recently issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." As amended, SFAS No. 133
requires derivative instruments to 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.
The company will adopt the statement in 2001 and does not expect it 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 60% in 1999, 50% in 1998 and 45% in
1997) 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, 1999, 1998 and 1997, by $16.3 million, $18.2 million and
$21.5 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 $9.6 million, $9.1
million and $5.6 million in 1999, 1998 and 1997, respectively. At
December 31, 1999, accumulated amortization of goodwill was $30.9
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 1999, 1998 and 1997 was $0.1 million,
$1.6 million and $3.1 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 1999, 1998 and
1997 were approximately $7.5 million, $7.3 million and $6.8 million,
respectively.
Timber and Timberlands - Timber and timberlands are recorded at cost,
less depletion for cost of timber harvested. Depletion 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 $28 million, $24
million and $30 million at December 31, 1999, 1998 and 1997,
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, 1999, the company had accrued $5.9 million of the
anticipated $7.0 million for such costs. Management believes that
resolution of existing environmental matters will not have a material
impact on the company's results of operations or financial position.
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 - 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.
Basic and diluted earnings per share are reconciled as follows:
For the Years Ended December 31
(In thousands, except per share data) 1999 1998 1997
<S> <C> <C> <C>
Net income before extraordinary
item $ 66,076 $106,960 $118,044
Basic weighted average common
shares outstanding 90,650,922 90,199,750 89,692,396
Effect of exercise of stock
options 314,467 355,996 347,510
Diluted weighted average common
shares outstanding 90,965,389 90,555,746 90,039,906
Net income per share before
extraordinary item - basic $ .73 $ 1.19 $ 1.32
Net income per share before
extraordinary item - diluted $ .73 $ 1.18 $ 1.31
Options to purchase an additional 499,000 shares of common stock were
outstanding during 1999 but were not included in the computation of
earnings per share because the options' exercise price was greater than
the average market price of the common shares.
Stock Split - In April 1998, the board of directors approved a two-for-
one stock split. The split was completed by distributing one additional
share of stock for each share held on the record date of May 8, 1998.
The financial statements, notes and other references to share and per
share data reflect the stock split for all periods presented.
2. Acquisitions. Effective October 1, 1997, the company acquired all of the
outstanding stock of Repap USA, Inc., a holding company for Repap
Wisconsin, Inc. and Repap Sales Corporation, for approximately $258
million in cash and assumed debt of $419 million and other liabilities of
$156 million. The company renamed these operations Inter Lake Papers,
Inc., Inter Lake Wisconsin, Inc. and Inter Lake Sales Corp.,
respectively. This acquisition was accounted for as a purchase and,
accordingly, the assets and liabilities have been stated at their fair
values with the excess of purchase price over assets acquired and
liabilities assumed being recorded as goodwill. Goodwill of $96 million
resulting from the acquisition will be amortized over 20 years. Results
of operations of the acquired company are included in the consolidated
financial statements subsequent to the acquisition.
During 1997 and 1999, the company repurchased $356 million and $21
million, respectively, of the $377 million face value public debt of
Repap Wisconsin, Inc. The difference between the purchase price and fair
value was not material.
The unaudited consolidated pro forma results of operations for the period
ended December 31, 1997, assume the Inter Lake Papers acquisition
occurred as of January 1, 1997. The pro forma information is provided
for information purposes only. It is based on historical information
and, therefore, is not necessarily indicative of either the results that
would have occurred had the acquisition been made as of that date or of
future results.
For the year ended
December 31,
1997
(In thousands, except per share data) (Unaudited)
<S> <C>
Net sales $2,025,628
Net income 62,916
Net income per share - diluted .70
This pro forma information reflects all adjustments that are, in the
opinion of management, necessary to a fair statement of the results.
3. Asset Impairment and Sale of Assets. In April 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. In accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the company recorded a $4.5 million pretax
write-off of these assets.
In May 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.
4. Long-term Debt and Lines of Credit. A summary of long-term debt as of
December 31 is as follows:
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
Term loan from a financial
institution, unsecured,
with interest at 7.20%,
due June 30, 2000 $ 30,000 $ 30,000 $ 30,000
Term loan from a financial
institution, unsecured,
with interest at 7.65%,
due June 30, 2005 55,000 55,000 55,000
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 277,000 277,000 277,000
Senior Notes with interest at 6.93%
to 7.30%, due May 8, 2009
to May 8, 2023 160,000 160,000 -
Industrial Revenue Bonds with
interest at 5.6% at December
31, 1999, reset weekly,
due July 1, 2012 5,000 5,000 5,000
First Priority Senior Secured Notes
of Inter Lake Papers, Inc. with interest
at 9.25%, due February 1, 2002,
repurchased in February 1999 - 20,369 20,620
Second Priority Senior Secured Notes
of Inter Lake Papers, Inc. with interest
at 9.875%, due May 1, 2006,
repurchased in May 1999 - 1,195 1,204
Revolving credit agreements with
financial institutions, unsecured,
with a weighted average interest
rate of 6.68%, 5.35% and 5.91%,
respectively 190,000 400,000 440,000
Commercial Paper with a weighted
average interest rate of 6.28% 55,284 - -
Line of credit agreements with
financial institutions, unsecured,
with a weighted average interest
rate of 6.33%, 6.08% and 6.91%,
respectively 115,000 106,000 9,600
887,284 1,054,564 868,665
Less - current portion 85,284 - -
Total long-term debt $ 802,000 $1,054,564 $ 868,665
The company has a $700 million unsecured revolving credit agreement with
14 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.
In 1999, the company entered into a $100 million unrated commercial paper
program.
The company has $325 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, as amended in 1999, contain restrictions on net
worth and other matters.
In 1998, the company recorded an extraordinary loss of $4.6 million after
taxes as a result of the early redemption of $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 5).
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, 1999, the maturities of long-term debt are as follows:
<S> <C> <C>
(In thousands) 2000 $ 85,284
2001 -
2002 190,000
2003 -
2004 81,000
Thereafter 531,000
5. 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, 1999, the company recorded assets for the
deposits from the sale proceeds of $456 million and liabilities for the
lease obligations of $478 million. $12 million of both the deposits and
lease obligations are recorded as current. The net amount of capital
lease assets at December 31, 1999, is $239 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 10 years. Rent expense under
all operating leases was approximately $12.9 million, $11.0 million and
$33.8 million for 1999, 1998 and 1997, 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, 1999, are as follows:
(In thousands) Operating Leases Capital Leases
<S> <C> <C>
2000 $ 13,100 $ 20,519
2001 11,843 27,792
2002 10,578 29,194
2003 8,052 30,667
2004 7,780 32,040
Thereafter 70,230 801,508
Total minimum lease payments $ 121,583 $ 941,720
Imputed interest (462,258)
Present value of capitalized lease payments 479,462
Less current portion
(included in other current liabilities) 11,658
Long-term capitalized lease obligations $ 467,804
6. Fair Values of Financial Instruments. The carrying amounts and fair
values of the company's financial instruments at December 31 were as
follows:
1999 1998 1997
Carrying Fair Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value Amount Value
<S> <C> <C> <C> <C> <C> <C>
Restricted cash
related to
leases $455,502 $455,502 $ 457,012 $ 457,012 $439,675 $439,675
Current portion
of long-term
debt 85,284 86,422 - - - -
Long-term debt 802,000 766,992 1,054,564 1,072,071 868,665 875,534
The following methods and assumptions were used by the company in
estimating fair values:
Cash, cash equivalents, accounts receivable and accounts payable - The
carrying amount approximates fair value due to the relatively short
period to maturity of these instruments.
Restricted cash - The carrying value approximates fair value due to the
nature of these instruments.
Long-term debt (including current portion) - 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.
7. Risk Management. The company periodically uses forward contract
agreements to manage its exposure to market pricing for certain commodity
purchases. Payments or receipts for fluctuations in market pricing under
these agreements are recorded as adjustments to cost of sales and were
not material in any period. The company neither holds nor issues
financial instruments for trading purposes.
8. Employee Pension and Other Benefit Plans. The company and its
subsidiaries sponsor noncontributory pension plans covering substantially
all employees. Retirement benefits are provided based on employees'
years of service and earnings. Normal retirement age is 65, with
provisions for earlier retirement. It is the policy of the company to
fund at least the minimum required amount in accordance with the Employee
Retirement Income Security Act of 1974 (ERISA). This policy generally
includes amortization of unfunded prior service costs in accordance with
minimum ERISA standards.
The company also provides certain contributory and noncontributory
medical, dental and life insurance benefits to qualifying retirees.
Benefits for some of the plans are paid from trusts that hold corporate
and U.S. Treasury debt securities and corporate equities.
The postretirement benefits for both active and retired employees of
Inter Lake Papers, Inc. and related subsidiaries 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 as of
December 31 is as follows:
Pension Benefits Other Benefits
(In thousands) 1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Change
in benefit
obligation
Benefit
obligation
at
begin-
ning of
year $ 529,584 $ 480,029 $ 444,637 $ 238,248 $ 221,325 $ 157,705
Service
cost 19,529 16,769 13,760 6,532 5,792 4,619
Interest
cost 35,359 33,117 31,247 15,583 15,039 11,736
Amendments 7,876 2,648 - (3,966) - -
Acquisition - - - - - 54,610
Net
actuar-
ial
loss/
(gain) (64,191) 21,592 13,172 (35,728) 5,313 (399)
Benefits
paid (26,629) (24,571) (22,787) (11,195) (9,221) (6,946)
Benefit
obliga-
tion
at end
of year $ 501,528 $ 529,584 $ 480,029 $ 209,474 $ 238,248 $ 221,325
Change in
plan
assets
Fair
value
of plan
assets
at be-
ginning
of year $ 633,092 $ 615,648 $ 514,314 $ 57,059 $ 52,637 $ 39,463
Actual
return on
plan
assets 91,812 41,815 123,937 12,013 741 9,076
Employer
contri-
butions 251 200 184 2,911 12,902 11,044
Benefits
paid (26,629) (24,571) (22,787) (11,195) (9,221) (6,946)
Fair
value
of plan
assets
at end
of year $ 698,526 $ 633,092 $ 615,648 $ 60,788 $ 57,059 $ 52,637
Net amount
recognized
Funded
status $ 196,998 $ 103,508 $ 135,619 $(148,686) $(181,189) $(168,688)
Unrecog-
nized
prior
service
cost 24,342 19,151 19,072 ( 19,229) ( 16,657) ( 18,051)
Unrecog-
nized
tran-
sition
(asset) ( 11,349) ( 14,188) ( 17,027) - - -
Unrecog-
nized
net
actu-
arial
loss/
(gain) (223,169) (121,526) (148,938) (13,264) 30,166 21,830
(Accrued)
benefit
cost $ (13,178) $ (13,055) $ (11,274) $(181,179) $(167,680) $(164,909)
Amounts
recog-
nized
in the
statement
of fin-
ancial
position
consist
of
Prepaid
benefit
cost $ 30,614 $ 22,605 $ 17,415 $ - $ - $ -
Accrued
benefit
lia-
bility (43,792) (35,660) (28,689) (181,179) (167,680) (164,909)
Net
amount
recog-
nized $ (13,178) $ (13,055) $ (11,274) $(181,179) $(167,680) $(164,909)
Weighted-
average
assump-
tions at
end of
year
Discount Rate 7.75% 6.75% 7.00% 7.75% 6.75% 7.00%
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%
The increase in discount rate from 6.75% at the end of 1998 to 7.75% at
the end of 1999, accounted for $66.8 million of the net actuarial gain on
the change in benefit obligation in the pension benefits and $30.5
million of the net actuarial gain on the change in benefit obligation in
the other benefits.
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 through 2000. The rate was assumed to decrease 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 through 2000. The rate was assumed to decrease to 4% for 2001 and
remain at that level thereafter.
The net periodic benefit cost as of December 31 is as follows:
Pension Benefits Other Benefits
(In thousands) 1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Components
of net
periodic
benefit
cost
Service
cost $ 19,529 $ 16,769 $ 13,760 $ 6,532 $ 5,792 $ 4,619
Interest
cost 35,359 33,117 31,247 15,583 15,039 11,736
Expected
return
on
plan
assets (52,780) (46,855) (41,990) (4,946) (4,446) (3,490)
Amortiza-
tion of
prior
service
cost 2,688 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) (1,583) ( 779) ( 172) 635 682 702
Net peri-
odic
benefit
cost $ 374 $ 1,981 $ 2,574 $ 16,410 $ 15,673 $ 12,173
The net actuarial loss/(gain) in excess of a 10% corridor, the prior
service cost and the transition (asset) are being amortized on a
straight-line basis over the average remaining service period of active
participants at the date established.
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 $9.5 million, $5.8 million and
$0, respectively, as of December 31, 1999, $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 rate would have the following effects:
(In thousands) 1% Increase 1% Decrease
Effect on total of service and interest
cost components $3,397 ($2,711)
Effect on postretirement benefit
obligation 27,156 (22,189)
9. 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 $.05, $.01 and $.02 for the years ended December 31, 1999, 1998 and
1997, 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 2,550,308 options outstanding at December 31, 1999, 1,321,430 have
exercise prices between $19.44 and $23.38, with a weighted average
exercise price of $21.38 and a weighted average remaining contractual
life of 5.90 years. 703,639 of these options are exercisable with a
weighted average exercise price of $20.79. The remaining 1,228,878
options have exercise prices between $24.06 and $32.97, with a weighted
average exercise price of $26.97 and a weighted average remaining
contractual life of 7.19 years. 801,841 of these options are exercisable
with a weighted average exercise price of $26.58.
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 1999, 1998 and 1997, respectively:
risk-free interest rates of 6.68%, 4.95% and 5.79%; expected dividend
yields of 2.77%, 3.20% and 3.15%; expected lives of 10, 10 and 10 years;
and expected volatility of 105.91% and 30.14% for 1999 options, 26.05%,
27.75% and 29.50% for 1998 options, and 19.25% and 18.81% for 1997
options.
An analysis of the stock option plans at December 31, 1999, 1998 and 1997
follows:
Weighted Weighted Weighted
Average Average Average
1999 Exercise 1998 Exercise 1997 Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 2,302,480 $24 2,411,328 $ 22 2,331,104 $ 21
Granted 641,477 22 534,728 29 475,258 24
Exercised (316,420) 20 (617,664) 19 (338,358) 19
Expired or
canceled ( 77,229) 25 ( 25,912) 27 ( 56,676) 24
Outstanding at
end of year 2,550,308 24 2,302,480 24 2,411,328 22
Exercisable at
end of year 1,505,480 24 1,389,427 22 1,611,150 20
Weighted
average fair
value of
options
granted $ 15.59 $ 8.09 $ 6.30
There are also 15 million shares of Class A Preferred Stock authorized
with a par value of $.01 per share, to be issued at the discretion of the
Board of Directors. As of December 31, 1999, none of the shares had been
issued.
10. Income Taxes.
The provision for income taxes includes the following components:
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
Current:
Federal $ 3,409 $ 29,383 $ 39,040
State 3,817 3,695 7,882
Total current 7,226 33,078 46,922
Deferred:
Federal 37,987 33,311 23,591
State ( 1,162) 1,851 1,837
Total deferred 36,825 35,162 25,428
Total provision $ 44,051 $ 68,240 $ 72,350
The following summarizes the major differences between the U.S. statutory
tax rates and the company's effective tax rates:
1999 1998 1997
Statutory federal tax rates 35.0% 35.0% 35.0%
State income taxes 1.6 2.7 3.3
Other items 3.4 2.3 (.3)
Effective tax rates 40.0% 40.0% 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) 1999 1998 1997
<S> <C> <C> <C>
Deferred tax assets:
Postretirement benefits $ 71,931 $ 66,524 $ 65,395
Accrued vacation 13,696 12,866 10,029
Net operating loss carryforward 41,145 51,191 50,322
AMT credit 4,379 3,546 1,403
Tax credit carryforward 10,706 11,757 7,875
Capital loss carryforward 7,574 8,974 8,449
Valuation allowance ( 7,841) ( 10,504) ( 7,907)
Other 47,280 20,321 23,184
Total deferred tax assets 188,870 __164,675 158,750
Deferred tax liabilities:
Plant and equipment (516,400) (476,184) (432,265)
Equity method investments ( 10,683) ( 10,140) ( 10,576)
Other ( 37,960) ( 11,778) ( 13,428)
Total deferred tax liabilities (565,043) (498,102) (456,269)
Net deferred tax liability $(376,173) $(333,427) $(297,519)
The consolidated balance sheets reflect current deferred income taxes of
$14.8 million, $16.2 million and $12.4 million in prepaid expenses and a
long-term deferred income tax liability of $391.0 million, $349.6 million
and $309.9 million at December 31, 1999, 1998 and 1997, respectively.
As of December 31, 1999, the company had tax carryforwards of
approximately $63.8 million which expire from 2000 through 2013. Due to
the uncertainty of the realization of certain tax carryforwards, the
company has established a valuation allowance against these
carryforwards. This valuation allowance reduced the deferred tax asset
to a net amount that the company believed more likely than not that it
would realize based on the company's estimates of its future earnings and
the expected timing of temporary difference reversals.
11. 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 $5.4 million of outstanding Steam Utility Revenue Bonds as of
December 31, 1999, which mature at various times through April 1, 2002,
and certain other costs through April 1, 2008, principally capital
expenditures. The company paid $2.8 million in 1999, 1998 and 1997, to
service these bonds. Annual payments for the principal and interest
portion of these bonds are expected to be $2.8 million in 2000 and 2001,
with a final payment of $0.7 million in 2002.
As of December 31, 1999, the company had capital expenditure commitments
outstanding of approximately $139 million.
12. 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 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, 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 are located in Canada. These
Canadian operations account for $0.6 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 $91.6 million in
1999, $88.2 million in 1998 and $65.8 million in 1997.
Sales to one customer amounted to 13.6%, 13.6% and 14.3% of consolidated
net sales in 1999, 1998 and 1997, respectively. Sales to another
customer amounted to 11.1%, 10.1% and 10.2% of net sales in 1999, 1998
and 1997, respectively.
The company is managed along product lines including coated and
supercalendered printing papers, specialty papers and paperboard
products. Several operating divisions producing groundwood-free,
groundwood and supercalendered 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 specialty papers and paperboard products operating segments
do not meet the quantitative thresholds for a reportable segment and thus
are included in the "Other" category. The 1997 and 1998 "Other" category
also included corrugated products from the company's Castle Rock
Container Company, which was sold in 1999.
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 specialty papers (used for flexible packaging, pressure-
sensitive labels and technical papers), recycled pulp and paperboard
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>
1999
Revenues $1,615,215 $ 266,237 $( 42,657) $1,838,795
Segment profit (loss) 240,642 25,516 (156,031) 110,127
Total assets 2,665,953 299,447 560,773 3,526,173
Capital expenditures 137,112 13,720 8,037 158,869
Depreciation and
amortization 167,429 18,027 2,885 188,341
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
13. Subsequent Event. On February 22, 2000, the Company and Stora Enso Oyj
executed a definitive agreement for Stora Enso to acquire Consolidated
Papers, Inc. for approximately $4.8 billion. Under the terms of the
agreement, all of the issued and outstanding shares of Consolidated
Papers will be converted, at the election of the holder, into cash or
Stora Enso ADR's (American Depositary Receipts representing an interest
in underlying Series R shares of Stora Enso), or a combination of cash
and ADRs, with a targeted value of $44.00 per Consolidated Papers share.
The transaction has been unanimously approved by the boards of directors
of both companies. The consummation of the sale, which is subject to
regulatory approval and the approval of the shareholders of both
companies, is expected to occur in August 2000.
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for 1999 and
1998:
(Dollars in
thousands, except First Second Third Fourth
per share data) Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
1999
Net sales $ 459,233 $ 435,119 $ 471,431 $ 473,012 $ 1,838,795
Gross profit 61,177 56,339 71,117 77,525 266,158
Net income 13,970 10,080 19,442 22,584 66,076
Net income per share -
diluted .15 .12 .21 .25 .73
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
Per share amounts have been restated in 1998 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.
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,
1999, 1998 and 1997, and the related consolidated statements of income,
shareholders' investment and cash flows for each of the years in the three-
year period ended December 31, 1999. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion of these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinions.
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, 1999, 1998 and
1997, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1999, 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, 2000
(except with respect to
the matter discussed in
Note 13, as to which the
date is February 22, 2000).
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, will be included in the Proxy
Statement to Shareholders which will be filed with the Securities and Exchange
Commission for the Annual Meeting of Shareholders to be held on or prior to
June 30, 2000 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 will be included in the Proxy Statement to Shareholders which will
be filed with the Securities and Exchange Commission for the Annual Meeting of
Shareholders to be held on or prior to June 30, 2000 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
will be included in the Proxy Statement to Shareholders which will be filed
with the Securities and Exchange Commission for the Annual Meeting of
Shareholders to be held on or prior to June 30, 2000 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, 1997, 1998 and
1999.
Consolidated Statements of Income for the Years Ended December 31,
1997, 1998 and 1999.
Consolidated Statements of Shareholders' Investment for the Years
Ended December 31, 1997, 1998 and 1999.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.
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 22, 2000.
(b) The following exhibits are filed as a part of this Form 10-K Annual
Report:
3.a. Restated Articles of Incorporation of Consolidated Papers, Inc.
(Filed as Exhibit (3)(i) to Form 10-Q for the quarter ended
March 31, 1996 and incorporated herein by reference.)
3.b. Bylaws of Consolidated Papers, Inc. (Filed as Exhibit 3.b. to Form
10-K for the fiscal year ended December 31, 1998 and incorporated
herein by reference.)
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 as Exhibit
10.l. to Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference.)
10.m. 1999 Compensation Award Program description. (Filed electronically
herewith.)
10.n. Change of Control Agreement. (Form of change-of-control agreement
and Amendment No. 1 thereto entered into by the Company and each
of the following officers:
Richard J. Kenney, Senior Vice President, Finance
Ronald E. Swanson, Senior Vice President
James E. Shewchuk, Senior Vice President, Administration
Michael R. Mader, Vice President
David A. Krommenacker, Vice President, Packaging Operations
John B. Steele, Vice President, Free Sheet Operations
Roger L. Wangen, Vice President, Groundwood Operations
Donald J. Wachowiak, Vice President, Manufacturing
Carl H. Wartman, Secretary and General Counsel
David P. Nimtz, Controller
Donna G. Stephens, Treasurer
Paul W. Clancy, Vice President, Marketing
John F. Gillen, Vice President, Publication Sales
Kevin D. Mullen, Vice President, Merchant Sales
Robert F. Leach, Vice President, Information Technology
These agreements are identical.) (Filed electronically herewith.)
10.o. Change of Control Agreement between the Company and Gorton M.
Evans, including Amendment No. 1 thereto. (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, 1999 (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 22, 2000
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 22, 2000
George W. Mead, Chairman of the Board,
and Director
/s/Gorton M. Evans Date March 22, 2000
Gorton M. Evans, President and
Chief Executive Officer, and Director
/s/Richard J. Kenney Date March 22, 2000
Richard J. Kenney, Senior Vice President, Finance
(Principal Financial Officer)
/s/David P. Nimtz Date March 22, 2000
David P. Nimtz, Controller
Date
Ruth Baldwin Barker, Director
/s/Wiley N. Caldwell Date March 22, 2000
Wiley N. Caldwell, Director
/s/James D. Ericson Date March 22, 2000
James D. Ericson, Director
/s/J. Joseph King Date March 22, 2000
J. Joseph King, Director
/s/Bernard S. Kubale Date March 22, 2000
Bernard S. Kubale, Director
/s/D. Richard Mead, Jr. Date March 22, 2000
D. Richard Mead, Jr., Director
/s/Gilbert D. Mead Date March 22, 2000
Gilbert D. Mead, Director
/s/Lawrence R. Nash Date March 22, 2000
Lawrence R. Nash, Director
/s/Glenn N. Rupp Date March 22, 2000
Glenn N. Rupp, Director
/s/Cynthia M. Sargent Date March 22, 2000
Cynthia M. Sargent, Director
/s/John S. Shiely Date March 22, 2000
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, 1999, 1998 and 1997 are summarized as follows:
Charges
For
Purposes
For Which
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, 1999 $ 6,504 $ (270) $ 232 $ 6,002
1998 $ 6,374 $ 554 $ 424 $ 6,504
1997 $ 5,313 $ 1,143 $ 82 $ 6,374
EXHIBIT 10.m. TO FORM 10-K FOR
CONSOLIDATED PAPERS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
June 15, 1999
TO:
The Compensation Award Program is being continued for 1999. The past success
of this program in focusing the efforts of our employees in controlling costs
has been well documented. While past savings have been substantial and allowed
us to continue to compete in today's ever-increasing competitive marketplace,
we believe opportunities still exist for future savings. This program has been
developed to focus employees in looking for those opportunities and allows
them to share in the success of our organization by objectively measuring
performance toward business related goals.
Similar to last year's program, each operating division will be measured on
the same four categories (controllable costs, safety performance, quality
performance and productivity). Each division will measure their performance
against their particular goals. A fifth category is determined by each
division based on their own needs.
Once again, staff departments will have 80% of their CAP award determined by
the average of the operating divisions. The remainder of the CAP award will be
based on the department's performance in completing their specific CAP goals.
The 1999 program outline is attached. Your manager will communicate specific
divisional and departmental goals.
The Compensation Award Program has proven to be successful in the past both
for the company and our employees. I am confident the 1999 program will once
again prove to be beneficial.
/s/Gorton M. Evans
1999 COMPENSATION AWARD PROGRAM
Eligibility.
You will be eligible for a CAP award in 1999 based upon the following
conditions:
1. You must be a management employee from January 1, 1999 through December 31,
1999.
2. You must be eligible to participate in TIP.
Targets.
The 1999 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 1999 CAP award categories and award matrix for each division have been
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.
To recognize staff departments' support of the operating divisions in the
accomplishment of their goals, the first component is based upon 80% of the
average CAP award percentage received by the operating divisions. 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 1999 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 1999 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 1999 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 1999 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.
If you have questions on the above, see your manager or call Chuck Bigelow at
3765.
EXHIBIT 10.n. TO FORM 10-K FOR
CONSOLIDATED PAPERS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT ("Agreement") is entered into effective
October 26, 1999, by and between Consolidated Papers, Inc. (the "Company") and
[Executive] (the "Executive"). Capitalized terms not otherwise defined in
this Agreement shall have the meanings set forth in Schedule A hereto.
In consideration of the mutual promises and agreements herein contained,
and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, both parties intending to be legally bound
hereby, the Company and Executive hereby agree as follows:
1. Term of Agreement. This Agreement shall terminate, except to the
extent that any obligation of the Company hereunder remains unpaid as of such
time, upon the first to occur of (a) the termination of Executive's employment
with the Company or (b) the second anniversary of the date of a Change in
Control of the Company if Executive is employed by the Company upon such
second anniversary.
2. Severance Benefits Upon Termination Following Change in Control.
(a) If a Change in Control of the Company shall have occurred while
Executive is still an employee of the Company, and Executive's employment with
the Company is terminated during the two (2) year period following the date of
such Change in Control by reason of a termination (1) by the Company without
Cause, or (2) by Executive with Good Reason, Executive shall be entitled to
the following severance benefits:
(i) Within thirty (30) business days after the date of
Executive's termination, the Company shall make a lump sum payment to
Executive in an amount equal to the sum of (A) his accrued but unpaid
annual base salary through the date of termination at the greater of the
rate in effect at the time the Change in Control occurred or the rate in
effect when the notice of termination was given, (B) an amount equal to
100% of Executive's Target Bonus multiplied by a fraction, the numerator
of which is the number of days in the fiscal year of the Company to
which such Target Bonus relates during which Executive was employed by
the Company, and the denominator of which is 365, and (C) an amount
equal to any other compensation accrued but unpaid through the date of
termination. Vacation pay (banked, current and accrued) will be paid out
in accordance with Company policy in effect on the date prior to the
Change in Control.
(ii) Within thirty (30) days after the date of Executive's
termination, the Company shall make a lump sum payment to Executive in
an amount equal to two times the sum of (A) Executive's annual base
salary at the greater of the rate in effect at the time the Change in
Control occurred or the rate in effect when the notice of termination
was given, plus (B) Executive's average annual bonus for the three (3)
fiscal years immediately preceding the year of termination (or, if
Executive has been employed for less than three (3) fiscal years,
Executive's average annual bonus for such lesser period). The Executive
may elect, not later than twenty (20) days after the date of Executive's
termination, to receive the amount which would have been paid in the
lump sum in equal annual installments (not to exceed five) payable on
the first business day of the calendar year following the year of
termination and on each of the succeeding anniversaries of that date.
(iii) Any outstanding options to purchase stock of the Company
held by Executive as of the date of termination shall immediately vest
and become exercisable in full.
(iv) Until the earlier of the first anniversary of the date of
termination or the date on which Executive becomes employed by a new
employer, the Company shall pay the reasonable costs of an outplacement
service selected by Executive.
(v) Until the earlier of the second anniversary of the date of
termination or the date on which Executive becomes employed by a new
employer, the Company shall, at its expense, provide Executive and
Executive's family members with medical, dental, vision, life insurance,
and long-term disability benefits at the highest level provided to
Executive and Executive's family members during the period beginning
immediately prior to the Change of Control and ending on the date of
termination, provided, however, that if Executive becomes employed by a
new employer which maintains a major medical plan that either (i) does
not cover Executive and Executive's family members with respect to a
pre-existing condition which was covered under the Company's major
medical plan, or (ii) does not cover Executive and Executive's family
members for a designated waiting period, Executive's coverage under the
Company's major medical plan shall continue (but shall be limited in the
event of noncoverage due to a preexisting condition, to the preexisting
condition itself) until the earlier of the end of the applicable period
of noncoverage under the new employer's plan or the second anniversary
of the date of termination.
(vi) The Company shall pay any amounts previously deferred by
Executive pursuant to any deferred compensation plan or arrangement
maintained by the Company in accordance with the provisions of such plan
and Executive's election thereunder.
(b) If the Executive would reach age 65 during the two (2) year period
following termination, then the cash payment required to be made under
paragraph 2(a)(ii) hereof and the period during which benefits are provided
under paragraph 2(a)(v) hereof shall be reduced by multiplying the payment and
the benefits period by the fraction obtained by dividing the number of whole
months from the date of termination until the date the Executive would reach
age 65 (but not, in any event, less than six (6)) by 24.
(c) For purposes of calculating Executive's benefits under the
Company's pension plan, Executive will be deemed to have an additional two
years of service (provided, however, that in the event subparagraph (b) above
is applicable the additional years of service will be determined by
multiplying two by the fraction determined in subparagraph (b)). The Company
shall provide for the payment of the additional benefits pursuant to a
supplemental pension plan.
(d) The payments and benefits provided for under this Section 2 shall
be in addition to any non-severance compensation and benefits provided for
under any of the Company's employee benefit plans, policies and practices or
under the terms of any other contracts, but in lieu of any severance pay under
any Company employee benefit plan, policy and practice or under the terms of
any other contract including any employment contract. Executive may, however,
waive all rights under this Agreement and accept a payment in lieu thereof
equal to the payment Executive would be entitled to receive under the
Company's severance policy as in effect on the date prior to the Change in
Control.
3. Termination for Cause, Disability, and without Good Reason. No
compensation shall be payable under this Agreement in the event Executive's
employment with the Company is terminated by reason of (1) a termination by
the Company for Cause or for Disability, or (2) a termination by Executive
without Good Reason. For purposes of this Agreement:
(a) Disability. The Company may terminate Executive's employment for
"Disability" if, due to physical or mental illness or incapacity, Executive
shall not have performed his duties with the Company on a substantially
full-time basis for (i) six (6) consecutive months, or (ii) for a total of 180
days in any given period of twelve consecutive months, but only if Executive
shall not have returned to the full-time performance of his duties with the
Company during the thirty (30) day period following the delivery by the
Company of a written notice of termination for Disability.
(b) Cause. The Company may terminate Executive's employment for Cause.
Any purported termination of employment by the Company for Cause shall be
communicated by a written notice of termination to Executive setting forth in
reasonable detail the facts and circumstances claimed to provide a basis for
such termination. The termination of employment of the Executive shall not be
deemed for Cause unless and until there shall have been delivered to the
Executive a copy of the resolution duly adopted by the affirmative vote of not
less than three-fourths of the entire membership of the Board of Directors of
the Company at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity together with counsel to be heard before the Board) finding that
in the good faith opinion of the Board the Executive is guilty of the conduct
constituting Cause and specifying the particulars thereof in detail.
(c) Good Reason. Executive may terminate his employment at any time
during the term of this Agreement, with Good Reason. Executive's continued
employment after the expiration of 120 days from any action that would
otherwise constitute Good Reason shall constitute a waiver of rights with
respect to such action constituting Good Reason under this Agreement.
4. No Obligation To Seek Further Employment; Confidential Information.
(a) Executive shall not be required to seek other employment, nor shall
the amount of any payment provided for under this Agreement be reduced by any
compensation earned by Executive as the result of employment by another
employer after the date of termination. Payments to Executive pursuant to
this Agreement shall constitute the entire obligation of the Company for
severance pay and full settlement of any claim for severance pay under law or
in equity that Executive might otherwise assert against the Company or any of
its employees, officers or directors on account of Executive's termination.
In consideration for the protection and benefits provided for under this
Agreement, Executive hereby agrees to execute a release, substantially in the
form of Exhibit B hereto, of any claims for severance pay under law or in
equity that Executive might otherwise assert as described in the preceding
sentence.
(b) Following the date of termination, Executive shall not disclose to
any person, or use to the significant disadvantage of the Company or any of
its affiliates, any Confidential Information; provided that nothing contained
in this Section 4(b) shall prevent Executive from being employed by a
competitor of the Company or utilizing Executive's general skills, experience,
and knowledge, including those developed while employed by the Company.
5. Successors. The Company will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company, to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
or assignment had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor or assign to its
business and/or assets as aforesaid which executes and delivers the agreement
provided for in this Section 5 or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law, or otherwise.
This Agreement shall inure to the benefit of and be enforceable by Executive's
personal and legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If Executive should die while any
amounts are still payable to him hereunder, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to Executive's estate.
6. Tax Limitations. Notwithstanding any other provision of this
Agreement, the "aggregate present value" of all "payments in the nature of
compensation to (or for the benefit of)" the Executive hereunder together with
any other payments or benefits the Executive is entitled to receive by reason
of a Change in Control of the Company which are "contingent" upon a change set
forth in Section 280G(b)(2)(A)(i) of the Internal Revenue Code of 1986, as
amended, shall not exceed 2.99 times the Executive's "base amount" as the
foregoing quoted terms and phrases are defined or used in Section 280G of the
Code; provided, however, that in the event the foregoing limitation applies,
any reduction in payments will in no event affect the computation of payments
hereunder which do not constitute "excess parachute payments" within the
meaning of Section 280G(b) of the Code. To comply with this provision, the
Company and the Executive may agree to reduce the amount permitted to be paid
pursuant to this paragraph or other payments and compensation which may be
made subject to the provisions of Section 280G of the Code.
7. Miscellaneous.
(a) Amendments, Waivers. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing signed by Executive and the Company. Except as
otherwise provided in Section 3(c) hereof, no waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
(b) Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(c) Confidentiality. Executive agrees that unless Executive is
otherwise required by law to disclose this Agreement, Executive will keep the
existence and terms of this Agreement completely confidential, and will not
discuss the terms, amount, or existence of this Agreement with anyone other
than Executive's spouse, attorneys or tax advisors, provided that these
individuals also keep the existence, terms, and amount of this Agreement
completely confidential.
(d) Fees and Expenses. Company shall pay all reasonable legal fees and
related expenses (including the reasonable costs of experts, evidence and
counsel), when and as incurred by Executive, as a result of contesting or
disputing any termination of employment of Executive following a Change in
Control, or enforcing the terms of this Agreement whether or not such contest
or dispute is resolved in Executive's favor but only if Executive was seeking
in good faith to obtain or enforce any right or benefit provided by this
Agreement or by any other plan or arrangement maintained by the Company under
which Executive is or may be entitled to receive benefits.
(e) Survival of Obligations. The obligations of Company under Section
2 hereof shall survive the expiration of the term of this Agreement.
(f) Governing Law. The laws of Wisconsin shall be controlling in all
matters relating to this Agreement.
(g) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, understandings
and arrangements, oral or written, between the parties hereto with respect to
the subject matter hereof. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement
and this Agreement shall supersede any and all prior agreements,
understandings or negotiations with respect to the subject matter hereof.
(h) Non-Exclusivity of Rights. Except as explicitly modified by Section
2(d) of this Agreement, nothing in this Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by Company and for which Executive
may qualify, nor shall anything herein limit or reduce such rights as
Executive may have under any other agreements with Company. Amounts which are
vested benefits or which Executive is otherwise entitled to receive under any
plan or program of Company shall be payable in accordance with such plan or
program.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
EXECUTIVE:
/s/ Executive
[Executive's Name]
CONSOLIDATED PAPERS, INC.
By /s/ Gorton M. Evans
Name: Gorton M. Evans
Title: President and CEO
EXHIBIT A
DEFINITIONS
"Cause" shall mean Executive's:
(i) fraud, misappropriation, embezzlement or other act of
material misconduct against the Company or any of its affiliates
thereof;
(ii) substantial and willful failure to render services to the
Company, provided that (A) a demand for performance of services has been
delivered to the Executive by the Board of Directors of the Company at
least 30 days prior to termination identifying the manner in which such
Board of Directors believes that the Executive has failed to perform and
(B) the Executive has thereafter failed to remedy such failure to
perform within thirty (30) days after delivery of such demand for
performance;
(iii) willful and knowing violation of any rules or regulations
of any governmental or regulatory body material to the business of the
Company; or
(iv) conviction of or plea of nolo contendere to a felony.
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done or omitted to be done by the Executive in bad
faith or without reasonable belief that the Executive's action or omission was
in the best interests of the Company. Any act or failure to act based upon
authority given pursuant to a resolution duly adopted by the Board of
Directors of the Company or based upon the advice of counsel for the Company
shall be conclusively presumed to be done or omitted to be done in good faith
and in the best interests of the Company.
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% or more of the combined voting power of the Company's securities
then outstanding solely as a result of being a participant in 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
the Company representing at least twenty (20) percent of the combined
voting power of the Company's then outstanding securities, or
(ii) a majority of the individuals comprising the Company's Board
of Directors are not Continuing Directors, or
(iii) the Company is involved in any merger, consolidation, share
exchange or any other transaction if, after the consummation thereof,
the holders of the voting securities of the Company 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 the Company 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.
A "Continuing Director" means an individual who was a member of the Board of
Directors of the Company 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.
"Confidential Information" means any non-public information relating to
the business plans, marketing plans, customers or employees of the Company or
any of its subsidiaries or affiliates other than information the disclosure of
which cannot reasonably be expected to adversely affect the business of the
Company or its subsidiaries or affiliates.
"Good Reason" shall mean any of the following which occurs subsequent to
a Change in Control of the Company without Executive's prior consent:
(i) any material adverse change in Executive's authorities,
duties, responsibilities (including reporting responsibilities) or any
removal of Executive from, or failure to reappoint or reelect him to any
office of the Company;
(ii) a reduction in or failure to pay any portion of Executive's
annual base salary as in effect on the date of the Change in Control or
as the same may be increased from time to time thereafter;
(iii) the failure by Company to provide Executive with
compensation and benefits (including, without limitation, incentive,
bonus and other compensation plans and any vacation, medical,
hospitalization, life insurance, dental, vision or disability benefit
plan), or cash compensation in lieu thereof, which are, in the
aggregate, no less favorable than those provided by Company to Executive
immediately prior to the occurrence of the Change in Control, other than
an isolated, immaterial, and inadvertent failure not taken in bad faith
and which are remedied by the Company promptly after receipt of a
reasonable written notice thereof given by Executive;
(iv) any material breach by Company of any provision of this
Agreement;
(v) Executive being required to relocate to a principal place of
employment more than fifty (50) miles from his current place of
employment; or
(vi) the failure of Company to obtain a satisfactory agreement
from any successor or assign of Company to assume and agree to perform
this Agreement, as required in Section 5 hereof.
"Target Bonus" shall mean the bonus Executive could have earned under
the Company's bonus program for senior management for the fiscal year of the
Company in which his termination occurs if the goals established in connection
with such bonus program had been achieved at the "target" level and the
Executive earned the maximum potential bonus attributable to individual
performance.
EXHIBIT B
GENERAL RELEASE AGREEMENT
This General Release Agreement ("Agreement") is made by and
between Consolidated Papers, Inc. (the "Company"), and
___________________________ ("Executive") on the ____ day of __________:
WHEREAS, Executive and the Company are parties to a Change in
Control Agreement (the "CIC Agreement") dated _________, 1999; and
WHEREAS, in consideration for the protection and benefits provided
for under the CIC Agreement, Executive agreed to execute this release of any
claims that Executive might otherwise assert against the Company or any of its
employees, officers or directors on account of Executive's termination of
employment.
NOW, THEREFORE, the Company and the Executive hereby agree as
follows:
1. Executive's employment in all positions and offices of the
Company shall terminate as of ________________ ("Separation
Date").
2. Without limiting the scope of the releases contained in
paragraph 5 below, Executive releases and discharges the
Company from any claim for, and waives any further claim for,
any bonus or other compensation in any form from the Company
(including without limitation any base compensation,
incentive compensation, discretionary incentive compensation,
deferred compensation, severance compensation or any other
form of compensation), except as provided in the CIC
Agreement.
3. Executive agrees that he will do nothing to impede a smooth
transition to employees or other individuals designated by
the Company of his responsibilities and shall provide the
details concerning the projects and assignments in which he
is and was involved. Executive will not disrupt the morale
or productive working relationships of the employees,
customers, vendors, and independent contractors of the
Company.
4. Executive represents that he has delivered to the Company all
property of the Company and its customers, vendors, and
independent contractors, including without limitation all
credit cards, books, records, computer programs, keys,
equipment, files or like materials in his possession or
control and all copies thereof. The ownership and right of
control of all reports, records, programs, data bases,
processes and supporting documents prepared by, for or on
behalf of Executive in connection with the performance of
Executive's duties during his employment are vested
exclusively in the Company and remain the exclusive property
of the Company.
5. For good and valuable consideration (including, but not
limited to, the payments made under the CIC Agreement), the
receipt and sufficiency of which is hereby acknowledged:
a. Executive hereby releases and forever discharges the
Company and any parent, subsidiary, affiliate or other
entity related to the Company, as well as its or their
predecessors, successors and assigns, shareholders,
directors, officers, agents, representatives, servants,
and employees, past, present and future, individually and
collectively ("Released Parties"), from any and all
claims, demands, causes of action or liabilities, that
Executive ever had, or now has, or that his heirs,
executors or administrators hereafter can, shall or may
have upon or by reason of any matter, cause or thing
whatsoever, whether known or unknown, arising out of or
in any way connected with his employment and/or
separation from the Company. Without limiting the
generality of the foregoing and to the extent permitted
by law, this release applies to any right that Executive
has or may have to commence or maintain a charge or
action or to recover pursuant to such a charge
(regardless of the identity of the individual or entity
commencing or maintaining such charge or action) alleging
discrimination under any federal, state or local statute
(whether before a court or an administrative agency),
including without limitation, the Age Discrimination in
Employment Act of 1967, Title VII of the Civil Rights Act
of 1964, the Civil Rights Act of 1991, the Americans with
Disabilities Act, the Family and Medical Leave Act, and
the Employee Retirement Income Security Act of 1974, and
any right that Executive has or may have to commence or
maintain a claim or action alleging wrongful termination,
breach of contract, commission of tort, or any
combination thereof, whether based in law or in equity.
Executive agrees not to make, assert or maintain any
charge, claim, demand or action that would be covered by
this release.
b. Executive understands that by releasing employment
discrimination claims against the Released Parties, he
also forever releases and discharges any right he may
have to file or recover in a lawsuit he may bring himself
on the same claims and also any right he may have to any
relief that he might otherwise be entitled to as a result
of any proceedings instituted by the Equal Employment
Opportunity Commission or any other comparable
enforcement authority.
c. This release shall run to and be for the benefit of the
Released Parties. This release shall run to and be
binding upon Executive and his heirs and assigns.
d. To the maximum extent permitted by law, Executive
covenants not to sue or to institute or cause to be
instituted any action in any federal, state or local
agency or court against the Company regarding the matters
covered by the release contained in this paragraph.
e. This release and covenant not to sue shall not apply to
(i) those continuing obligations, if any, of the Company
under this Agreement; (ii) any vested benefits provided
under any retirement plan, 401(k), profit sharing plan
and related ERISA excess plans, welfare benefit plans or
other plans or arrangements to which Executive would
otherwise be entitled pursuant to the terms of such plans
or arrangements; (iii) any rights the undersigned may
have solely as a security holder of any Released Party;
and (iv) any rights to indemnification the undersigned
may have under applicable law, the by-laws or certificate
of incorporation of any Released Party, or as an insured
under any D&O or liability insurance policy now,
hereafter or previously in force.
6. Executive agrees that neither this Agreement nor performance
hereunder constitutes an admission by the Company of any
violation of any federal, state or local law, regulation,
common law, of any breach of any contract or any other
wrongdoing of any type.
7. This Agreement and the CIC Agreement constitutes the entire
agreement between the parties. No modification of this
Agreement or further modification of the CIC Agreement shall
be valid unless signed by the party against whom such
modification is sought to be enforced.
8. Executive acknowledges that this Agreement includes a waiver
of any rights and claims arising under the Age Discrimination
in Employment Act. Executive understands he is not waiving
rights or claims that may arise after the date this Agreement
is executed. Employee acknowledges that the consideration he
is receiving in exchange for his waiver of the rights and
claims specified herein exceeds anything of value to which he
already is entitled. Executive acknowledges that he was
advised in writing on __________ __, ____, to consult with an
attorney prior to executing this Agreement. Executive
acknowledges that he has entered into this Agreement
knowingly and voluntarily with full understanding of its
terms and after having had the opportunity to seek and
receive advice and counsel from his personal and/or legal
counsel. Executive acknowledges that he was given a period
of at least twenty-one (21) days within which to consider
this Agreement and was so advised in writing on
__________ __, ____. Executive understands that he may
revoke this Agreement during the seven (7) days following the
execution of this Agreement and that the Agreement shall not
become effective or enforceable until that seven (7) day
revocation period has expired.
9. The provisions of this Agreement shall be construed in
accordance with the internal laws, but not the laws of
conflicts, applicable to agreements made in Wisconsin.
IN WITNESS WHEREOF, the parties have executed this General Release
Agreement on the date first written above.
CONSOLIDATED PAPERS, INC.
By: __________________________
Its _____________________
_____________________________
Executive
AMENDMENT TO CHANGE IN CONTROL AGREEMENT
WHEREAS, Consolidated Papers, Inc. (the "Company") and [Executive] (the
"Executive") entered into a Change In Control Agreement effective October 26,
1999 (the "Agreement"); and
WHEREAS, the parties now desire to amend the Agreement.
NOW, THEREFORE, the parties agree that the Agreement is hereby amended
as follows:
1. Paragraph 2(a)(iii) of the Agreement dealing with the immediate
vesting of outstanding options to purchase stock of the Company is hereby
amended to read as follows:
(iii) Any outstanding options to purchase stock of the
Company held by Executive as of the date of a Change in Control
transaction shall immediately vest and become exercisable in full.
However, if, in the opinion of the accounting firm whose opinion
with respect to pooling-of-interests accounting is required as a
condition to the consummation of a Change in Control transaction
intended to qualify for pooling-of-interests accounting treatment,
the acceleration of the vesting and exercisability of the
outstanding options would preclude such transaction from so
qualifying, the Compensation Committee of the Board of Directors
of the Company acting prior to the Change in Control unilaterally
may require that options be treated in connection with such
transaction and thereafter in a way that does not preclude such
transaction from so qualifying and that the Compensation Committee
deems to be fair to the Executive (including, but not limited to,
eliminating any acceleration of vesting and exercisability and
requiring the conversion of such options to options of the
corporation acquiring control of the Company or its assets in such
transaction or the settlement of such options in shares of such
corporation).
2. Paragraph 6 of the Agreement dealing with tax matters is hereby
amended to read as follows:
6. Tax Limitations. Notwithstanding any other provision of
this Agreement, the "aggregate present value" of all "payments in
the nature of compensation to (or for the benefit of)" the
Executive hereunder together with any other payments or benefits
the Executive is entitled to receive by reason of a Change in
Control of the Company which are "contingent" upon a change set
forth in Section 280G(b)(2)(A)(i) of the Internal Revenue Code of
1986, as amended, shall not exceed 2.99 times the Executive' "ase
amount"as the foregoing quoted terms and phrases are defined or
used in Section 280G of the Code; provided, however, that in the
event the foregoing limitation applies, any reduction in payments
will in no event affect the computation of payments hereunder which
do not constitute "parachute payments" within the meaning of
Section 280G(b)(2) of the Code. To comply with this provision, the
Company and the Executive may agree to reduce the amount permitted
to be paid pursuant to this paragraph or other payments and
compensation which may be made subject to the provisions of Section
280G of the Code. Notwithstanding the foregoing, the payments
shall not be reduced if the Executive determines and advises the
Company that the net after-tax benefit to the Executive resulting
from the receipt of all payments (without any reduction) exceeds
the net after-tax benefit to the Executive resulting from the
receipt of the payments (after reduction).
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed the ________ day of February 2000.
EXECUTIVE:
/s/ Executive
CONSOLIDATED PAPERS, INC.
By /s/ Gorton M. Evans
Name: Gorton M. Evans
Title: President & CEO
EXHIBIT 10.o. TO FORM 10-K FOR
CONSOLIDATED PAPERS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT ("Agreement") is entered into effective
October 26, 1999, by and between Consolidated Papers, Inc. (the "Company") and
Gorton M. Evans (the "Executive"). Capitalized terms not otherwise defined in
this Agreement shall have the meanings set forth in Schedule A hereto.
In consideration of the mutual promises and agreements herein contained,
and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, both parties intending to be legally bound
hereby, the Company and Executive hereby agree as follows:
1. Term of Agreement. This Agreement shall terminate, except to the
extent that any obligation of the Company hereunder remains unpaid as of such
time, upon the first to occur of (a) the termination of Executive's employment
with the Company or (b) the second anniversary of the date of a Change in
Control of the Company if Executive is employed by the Company upon such
second anniversary.
2. Severance Benefits Upon Termination Following Change in Control.
(a) If a Change in Control of the Company shall have occurred while
Executive is still an employee of the Company, and Executive's employment with
the Company is terminated during the two (2) year period following the date of
such Change in Control by reason of a termination (1) by the Company without
Cause, or (2) by Executive with Good Reason, Executive shall be entitled to
the following severance benefits:
(i) Within thirty (30) business days after the date of
Executive's termination, the Company shall make a lump sum payment to
Executive in an amount equal to the sum of (A) his accrued but unpaid
annual base salary through the date of termination at the greater of the
rate in effect at the time the Change in Control occurred or the rate in
effect when the notice of termination was given, (B) an amount equal to
100% of Executive's Target Bonus multiplied by a fraction, the numerator
of which is the number of days in the fiscal year of the Company to
which such Target Bonus relates during which Executive was employed by
the Company, and the denominator of which is 365, and (C) an amount
equal to any other compensation accrued but unpaid through the date of
termination. Vacation pay (banked, current and accrued) will be paid out
in accordance with Company policy in effect on the date prior to the
Change in Control.
(ii) Within thirty (30) days after the date of Executive's
termination, the Company shall make a lump sum payment to Executive in
an amount equal to three times the sum of (A) Executive's annual base
salary at the greater of the rate in effect at the time the Change in
Control occurred or the rate in effect when the notice of termination
was given, plus (B) Executive's average annual bonus for the three (3)
fiscal years immediately preceding the year of termination (or, if
Executive has been employed for less than three (3) fiscal years,
Executive's average annual bonus for such lesser period). The Executive
may elect, not later than twenty (20) days after the date of Executive's
termination, to receive the amount which would have been paid in the
lump sum in equal annual installments (not to exceed five) payable on
the first business day of the calendar year following the year of
termination and on each of the succeeding anniversaries of that date.
(iii) Any outstanding options to purchase stock of the Company
held by Executive as of the date of termination shall immediately vest
and become exercisable in full.
(iv) Until the earlier of the first anniversary of the date of
termination or the date on which Executive becomes employed by a new
employer, the Company shall pay the reasonable costs of an outplacement
service selected by Executive.
(v) Until the earlier of the third anniversary of the date of
termination or the date on which Executive becomes employed by a new
employer, the Company shall, at its expense, provide Executive and
Executive's family members with medical, dental, vision, life insurance,
and long-term disability benefits at the highest level provided to
Executive and Executive's family members during the period beginning
immediately prior to the Change of Control and ending on the date of
termination, provided, however, that if Executive becomes employed by a
new employer which maintains a major medical plan that either (i) does
not cover Executive and Executive's family members with respect to a
pre-existing condition which was covered under the Company's major
medical plan, or (ii) does not cover Executive and Executive's family
members for a designated waiting period, Executive's coverage under the
Company's major medical plan shall continue (but shall be limited in the
event of noncoverage due to a preexisting condition, to the preexisting
condition itself) until the earlier of the end of the applicable period
of noncoverage under the new employer's plan or the third anniversary of
the date of termination.
(vi) The Company shall pay any amounts previously deferred by
Executive pursuant to any deferred compensation plan or arrangement
maintained by the Company in accordance with the provisions of such plan
and Executive's election thereunder.
(b) If the Executive would reach age 65 during the three (3) year
period following termination, then the cash payment required to be made under
paragraph 2(a)(ii) hereof and the period during which benefits are provided
under paragraph 2(a)(v) hereof shall be reduced by multiplying the payment and
the benefits period by the fraction obtained by dividing the number of whole
months from the date of termination until the date the Executive would reach
age 65 (but not, in any event, less than six (6)) by 36.
(c) For purposes of calculating Executive's benefits under the
Company's pension plan, Executive will be deemed to have an additional three
years of service (provided, however, that in the event subparagraph (b) above
is applicable the additional years of service will be determined by
multiplying three by the fraction determined in subparagraph (b)). The
Company shall provide for the payment of the additional benefits pursuant to a
supplemental pension plan.
(d) The payments and benefits provided for under this Section 2 shall
be in addition to any non-severance compensation and benefits provided for
under any of the Company's employee benefit plans, policies and practices or
under the terms of any other contracts, but in lieu of any severance pay under
any Company employee benefit plan, policy and practice or under the terms of
any other contract including any employment contract. Executive may, however,
waive all rights under this Agreement and accept a payment in lieu thereof
equal to the payment Executive would be entitled to receive under the
Company's severance policy as in effect on the date prior to the Change in
Control.
3. Termination for Cause, Disability, and without Good Reason. No
compensation shall be payable under this Agreement in the event Executive's
employment with the Company is terminated by reason of (1) a termination by
the Company for Cause or for Disability, or (2) a termination by Executive
without Good Reason. For purposes of this Agreement:
(a) Disability. The Company may terminate Executive's employment for
"Disability" if, due to physical or mental illness or incapacity, Executive
shall not have performed his duties with the Company on a substantially
full-time basis for (i) six (6) consecutive months, or (ii) for a total of 180
days in any given period of twelve consecutive months, but only if Executive
shall not have returned to the full-time performance of his duties with the
Company during the thirty (30) day period following the delivery by the
Company of a written notice of termination for Disability.
(b) Cause. The Company may terminate Executive's employment for Cause.
Any purported termination of employment by the Company for Cause shall be
communicated by a written notice of termination to Executive setting forth in
reasonable detail the facts and circumstances claimed to provide a basis for
such termination. The termination of employment of the Executive shall not be
deemed for Cause unless and until there shall have been delivered to the
Executive a copy of the resolution duly adopted by the affirmative vote of not
less than three-fourths of the entire membership of the Board of Directors of
the Company at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity together with counsel to be heard before the Board) finding that
in the good faith opinion of the Board the Executive is guilty of the conduct
constituting Cause and specifying the particulars thereof in detail.
(c) Good Reason. Executive may terminate his employment at any time
during the term of this Agreement, with Good Reason. Executive's continued
employment after the expiration of 120 days from any action that would
otherwise constitute Good Reason shall constitute a waiver of rights with
respect to such action constituting Good Reason under this Agreement.
4. No Obligation To Seek Further Employment; Confidential Information.
(a) Executive shall not be required to seek other employment, nor shall
the amount of any payment provided for under this Agreement be reduced by any
compensation earned by Executive as the result of employment by another
employer after the date of termination. Payments to Executive pursuant to
this Agreement shall constitute the entire obligation of the Company for
severance pay and full settlement of any claim for severance pay under law or
in equity that Executive might otherwise assert against the Company or any of
its employees, officers or directors on account of Executive's termination.
In consideration for the protection and benefits provided for under this
Agreement, Executive hereby agrees to execute a release, substantially in the
form of Exhibit B hereto, of any claims for severance pay under law or in
equity that Executive might otherwise assert as described in the preceding
sentence.
(b) Following the date of termination, Executive shall not disclose to
any person, or use to the significant disadvantage of the Company or any of
its affiliates, any Confidential Information; provided that nothing contained
in this Section 4(b) shall prevent Executive from being employed by a
competitor of the Company or utilizing Executive's general skills, experience,
and knowledge, including those developed while employed by the Company.
5. Successors. The Company will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company, to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
or assignment had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor or assign to its
business and/or assets as aforesaid which executes and delivers the agreement
provided for in this Section 5 or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law, or otherwise.
This Agreement shall inure to the benefit of and be enforceable by Executive's
personal and legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If Executive should die while any
amounts are still payable to him hereunder, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to Executive's estate.
6. Tax Limitations. Notwithstanding any other provision of this
Agreement, the "aggregate present value" of all "payments in the nature of
compensation to (or for the benefit of)" the Executive hereunder together with
any other payments or benefits the Executive is entitled to receive by reason
of a Change in Control of the Company which are "contingent" upon a change set
forth in Section 280G(b)(2)(A)(i) of the Internal Revenue Code of 1986, as
amended, shall not exceed 2.99 times the Executive's "base amount" as the
foregoing quoted terms and phrases are defined or used in Section 280G of the
Code; provided, however, that in the event the foregoing limitation applies,
any reduction in payments will in no event affect the computation of payments
hereunder which do not constitute "excess parachute payments" within the
meaning of Section 280G(b) of the Code. To comply with this provision, the
Company and the Executive may agree to reduce the amount permitted to be paid
pursuant to this paragraph or other payments and compensation which may be
made subject to the provisions of Section 280G of the Code.
7. Miscellaneous.
(a) Amendments, Waivers. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing signed by Executive and the Company. Except as
otherwise provided in Section 3(c) hereof, no waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
(b) Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(c) Confidentiality. Executive agrees that unless Executive is
otherwise required by law to disclose this Agreement, Executive will keep the
existence and terms of this Agreement completely confidential, and will not
discuss the terms, amount, or existence of this Agreement with anyone other
than Executive's spouse, attorneys or tax advisors, provided that these
individuals also keep the existence, terms, and amount of this Agreement
completely confidential.
(d) Fees and Expenses. Company shall pay all reasonable legal fees and
related expenses (including the reasonable costs of experts, evidence and
counsel), when and as incurred by Executive, as a result of contesting or
disputing any termination of employment of Executive following a Change in
Control, or enforcing the terms of this Agreement whether or not such contest
or dispute is resolved in Executive's favor but only if Executive was seeking
in good faith to obtain or enforce any right or benefit provided by this
Agreement or by any other plan or arrangement maintained by the Company under
which Executive is or may be entitled to receive benefits.
(e) Survival of Obligations. The obligations of Company under Section
2 hereof shall survive the expiration of the term of this Agreement.
(f) Governing Law. The laws of Wisconsin shall be controlling in all
matters relating to this Agreement.
(g) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, understandings
and arrangements, oral or written, between the parties hereto with respect to
the subject matter hereof. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement
and this Agreement shall supersede any and all prior agreements,
understandings or negotiations with respect to the subject matter hereof.
(h) Non-Exclusivity of Rights. Except as explicitly modified by Section
2(d) of this Agreement, nothing in this Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by Company and for which Executive
may qualify, nor shall anything herein limit or reduce such rights as
Executive may have under any other agreements with Company. Amounts which are
vested benefits or which Executive is otherwise entitled to receive under any
plan or program of Company shall be payable in accordance with such plan or
program.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
EXECUTIVE:
/s/ Gorton M. Evans
Gorton M. Evans
CONSOLIDATED PAPERS, INC.
By /s/ John S. Shiely
Name: John S. Shiely
Title: Chairman, Compensation Committee
EXHIBIT A
DEFINITIONS
"Cause" shall mean Executive's:
(i) fraud, misappropriation, embezzlement or other act of
material misconduct against the Company or any of its affiliates
thereof;
(ii) substantial and willful failure to render services to the
Company, provided that (A) a demand for performance of services has been
delivered to the Executive by the Board of Directors of the Company at
least 30 days prior to termination identifying the manner in which such
Board of Directors believes that the Executive has failed to perform and
(B) the Executive has thereafter failed to remedy such failure to
perform within thirty (30) days after delivery of such demand for
performance;
(iii) willful and knowing violation of any rules or regulations
of any governmental or regulatory body material to the business of the
Company; or
(iv) conviction of or plea of nolo contendere to a felony.
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done or omitted to be done by the Executive in bad
faith or without reasonable belief that the Executive's action or omission was
in the best interests of the Company. Any act or failure to act based upon
authority given pursuant to a resolution duly adopted by the Board of
Directors of the Company or based upon the advice of counsel for the Company
shall be conclusively presumed to be done or omitted to be done in good faith
and in the best interests of the Company.
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% or more of the combined voting power of the Company's securities
then outstanding solely as a result of being a participant in 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
the Company representing at least twenty (20) percent of the combined
voting power of the Company's then outstanding securities, or
(ii) a majority of the individuals comprising the Company's Board
of Directors are not Continuing Directors, or
(iii) the Company is involved in any merger, consolidation, share
exchange or any other transaction if, after the consummation thereof,
the holders of the voting securities of the Company 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 the Company 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.
A "Continuing Director" means an individual who was a member of the Board of
Directors of the Company 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.
"Confidential Information" means any non-public information relating to
the business plans, marketing plans, customers or employees of the Company or
any of its subsidiaries or affiliates other than information the disclosure of
which cannot reasonably be expected to adversely affect the business of the
Company or its subsidiaries or affiliates.
"Good Reason" shall mean any of the following which occurs subsequent to
a Change in Control of the Company without Executive's prior consent:
(i) any material adverse change in Executive's authorities,
duties, responsibilities (including reporting responsibilities) or any
removal of Executive from, or failure to reappoint or reelect him to any
office of the Company;
(ii) a reduction in or failure to pay any portion of Executive's
annual base salary as in effect on the date of the Change in Control or
as the same may be increased from time to time thereafter;
(iii) the failure by Company to provide Executive with
compensation and benefits (including, without limitation, incentive,
bonus and other compensation plans and any vacation, medical,
hospitalization, life insurance, dental, vision or disability benefit
plan), or cash compensation in lieu thereof, which are, in the
aggregate, no less favorable than those provided by Company to Executive
immediately prior to the occurrence of the Change in Control, other than
an isolated, immaterial, and inadvertent failure not taken in bad faith
and which are remedied by the Company promptly after receipt of a
reasonable written notice thereof given by Executive;
(iv) any material breach by Company of any provision of this
Agreement;
(v) Executive being required to relocate to a principal place of
employment more than fifty (50) miles from his current place of
employment; or
(vi) the failure of Company to obtain a satisfactory agreement
from any successor or assign of Company to assume and agree to perform
this Agreement, as required in Section 5 hereof.
"Target Bonus" shall mean the bonus Executive could have earned under
the Company's bonus program for senior management for the fiscal year of the
Company in which his termination occurs if the goals established in connection
with such bonus program had been achieved at the "target" level and the
Executive earned the maximum potential bonus attributable to individual
performance.
EXHIBIT B
GENERAL RELEASE AGREEMENT
This General Release Agreement ("Agreement") is made by and
between Consolidated Papers, Inc. (the "Company"), and
___________________________ ("Executive") on the ____ day of __________:
WHEREAS, Executive and the Company are parties to a Change in
Control Agreement (the "CIC Agreement") dated _________, 1999; and
WHEREAS, in consideration for the protection and benefits provided
for under the CIC Agreement, Executive agreed to execute this release of any
claims that Executive might otherwise assert against the Company or any of its
employees, officers or directors on account of Executive's termination of
employment.
NOW, THEREFORE, the Company and the Executive hereby agree as
follows:
1. Executive's employment in all positions and offices of the
Company shall terminate as of ________________ ("Separation
Date").
2. Without limiting the scope of the releases contained in
paragraph 5 below, Executive releases and discharges the
Company from any claim for, and waives any further claim for,
any bonus or other compensation in any form from the Company
(including without limitation any base compensation,
incentive compensation, discretionary incentive compensation,
deferred compensation, severance compensation or any other
form of compensation), except as provided in the CIC
Agreement.
3. Executive agrees that he will do nothing to impede a smooth
transition to employees or other individuals designated by
the Company of his responsibilities and shall provide the
details concerning the projects and assignments in which he
is and was involved. Executive will not disrupt the morale
or productive working relationships of the employees,
customers, vendors, and independent contractors of the
Company.
4. Executive represents that he has delivered to the Company all
property of the Company and its customers, vendors, and
independent contractors, including without limitation all
credit cards, books, records, computer programs, keys,
equipment, files or like materials in his possession or
control and all copies thereof. The ownership and right of
control of all reports, records, programs, data bases,
processes and supporting documents prepared by, for or on
behalf of Executive in connection with the performance of
Executive's duties during his employment are vested
exclusively in the Company and remain the exclusive property
of the Company.
5. For good and valuable consideration (including, but not
limited to, the payments made under the CIC Agreement), the
receipt and sufficiency of which is hereby acknowledged:
a. Executive hereby releases and forever discharges the
Company and any parent, subsidiary, affiliate or other
entity related to the Company, as well as its or their
predecessors, successors and assigns, shareholders,
directors, officers, agents, representatives, servants,
and employees, past, present and future, individually and
collectively ("Released Parties"), from any and all
claims, demands, causes of action or liabilities, that
Executive ever had, or now has, or that his heirs,
executors or administrators hereafter can, shall or may
have upon or by reason of any matter, cause or thing
whatsoever, whether known or unknown, arising out of or
in any way connected with his employment and/or
separation from the Company. Without limiting the
generality of the foregoing and to the extent permitted
by law, this release applies to any right that Executive
has or may have to commence or maintain a charge or
action or to recover pursuant to such a charge
(regardless of the identity of the individual or entity
commencing or maintaining such charge or action) alleging
discrimination under any federal, state or local statute
(whether before a court or an administrative agency),
including without limitation, the Age Discrimination in
Employment Act of 1967, Title VII of the Civil Rights Act
of 1964, the Civil Rights Act of 1991, the Americans with
Disabilities Act, the Family and Medical Leave Act, and
the Employee Retirement Income Security Act of 1974, and
any right that Executive has or may have to commence or
maintain a claim or action alleging wrongful termination,
breach of contract, commission of tort, or any
combination thereof, whether based in law or in equity.
Executive agrees not to make, assert or maintain any
charge, claim, demand or action that would be covered by
this release.
b. Executive understands that by releasing employment
discrimination claims against the Released Parties, he
also forever releases and discharges any right he may
have to file or recover in a lawsuit he may bring himself
on the same claims and also any right he may have to any
relief that he might otherwise be entitled to as a result
of any proceedings instituted by the Equal Employment
Opportunity Commission or any other comparable
enforcement authority.
c. This release shall run to and be for the benefit of the
Released Parties. This release shall run to and be
binding upon Executive and his heirs and assigns.
d. To the maximum extent permitted by law, Executive
covenants not to sue or to institute or cause to be
instituted any action in any federal, state or local
agency or court against the Company regarding the matters
covered by the release contained in this paragraph.
e. This release and covenant not to sue shall not apply to
(i) those continuing obligations, if any, of the Company
under this Agreement; (ii) any vested benefits provided
under any retirement plan, 401(k), profit sharing plan
and related ERISA excess plans, welfare benefit plans or
other plans or arrangements to which Executive would
otherwise be entitled pursuant to the terms of such plans
or arrangements; (iii) any rights the undersigned may
have solely as a security holder of any Released Party;
and (iv) any rights to indemnification the undersigned
may have under applicable law, the by-laws or certificate
of incorporation of any Released Party, or as an insured
under any D&O or liability insurance policy now,
hereafter or previously in force.
6. Executive agrees that neither this Agreement nor performance
hereunder constitutes an admission by the Company of any
violation of any federal, state or local law, regulation,
common law, of any breach of any contract or any other
wrongdoing of any type.
7. This Agreement and the CIC Agreement constitutes the entire
agreement between the parties. No modification of this
Agreement or further modification of the CIC Agreement shall
be valid unless signed by the party against whom such
modification is sought to be enforced.
8. Executive acknowledges that this Agreement includes a waiver
of any rights and claims arising under the Age Discrimination
in Employment Act. Executive understands he is not waiving
rights or claims that may arise after the date this Agreement
is executed. Employee acknowledges that the consideration he
is receiving in exchange for his waiver of the rights and
claims specified herein exceeds anything of value to which he
already is entitled. Executive acknowledges that he was
advised in writing on __________ __, ____, to consult with an
attorney prior to executing this Agreement. Executive
acknowledges that he has entered into this Agreement
knowingly and voluntarily with full understanding of its
terms and after having had the opportunity to seek and
receive advice and counsel from his personal and/or legal
counsel. Executive acknowledges that he was given a period
of at least twenty-one (21) days within which to consider
this Agreement and was so advised in writing on
__________ __, ____. Executive understands that he may
revoke this Agreement during the seven (7) days following the
execution of this Agreement and that the Agreement shall not
become effective or enforceable until that seven (7) day
revocation period has expired.
9. The provisions of this Agreement shall be construed in
accordance with the internal laws, but not the laws of
conflicts, applicable to agreements made in Wisconsin.
IN WITNESS WHEREOF, the parties have executed this General Release
Agreement on the date first written above.
CONSOLIDATED PAPERS, INC.
By: __________________________
Its _____________________
_____________________________
Executive
AMENDMENT TO CHANGE IN CONTROL AGREEMENT
WHEREAS, Consolidated Papers, Inc. (the "Company") and Gorton M. Evans
(the "Executive") entered into a Change In Control Agreement effective October
26, 1999 (the "Agreement"); and
WHEREAS, the parties now desire to amend the Agreement.
NOW, THEREFORE, the parties agree that the Agreement is hereby amended
as follows:
1. Paragraph 2(a)(iii) of the Agreement dealing with the immediate
vesting of outstanding options to purchase stock of the Company is hereby
amended to read as follows:
(iii) Any outstanding options to purchase stock of the
Company held by Executive as of the date of a Change in Control
transaction shall immediately vest and become exercisable in full.
However, if, in the opinion of the accounting firm whose opinion
with respect to pooling-of-interests accounting is required as a
condition to the consummation of a Change in Control transaction
intended to qualify for pooling-of-interests accounting treatment,
the acceleration of the vesting and exercisability of the
outstanding options would preclude such transaction from so
qualifying, the Compensation Committee of the Board of Directors
of the Company acting prior to the Change in Control unilaterally
may require that options be treated in connection with such
transaction and thereafter in a way that does not preclude such
transaction from so qualifying and that the Compensation Committee
deems to be fair to the Executive (including, but not limited to,
eliminating any acceleration of vesting and exercisability and
requiring the conversion of such options to options of the
corporation acquiring control of the Company or its assets in such
transaction or the settlement of such options in shares of such
corporation).
2. Paragraph 6 of the Agreement dealing with tax matters is hereby
amended to read as follows:
6. Tax Limitations. Notwithstanding any other provision of
this Agreement, the "aggregate present value" of all "payments in
the nature of compensation to (or for the benefit of)" the
Executive hereunder together with any other payments or benefits
the Executive is entitled to receive by reason of a Change in
Control of the Company which are "contingent" upon a change set
forth in Section 280G(b)(2)(A)(i) of the Internal Revenue Code of
1986, as amended, shall not exceed 2.99 times the Executive's "base
amount" as the foregoing quoted terms and phrases are defined or
used in Section 280G of the Code; provided, however, that in the
event the foregoing limitation applies, any reduction in payments
will in no event affect the computation of payments hereunder which
do not constitute "parachute payments" within the meaning of
Section 280G(b)(2) of the Code. To comply with this provision, the
Company and the Executive may agree to reduce the amount permitted
to be paid pursuant to this paragraph or other payments and
compensation which may be made subject to the provisions of Section
280G of the Code. Notwithstanding the foregoing, the payments
shall not be reduced if the Executive determines and advises the
Company that the net after-tax benefit to the Executive resulting
from the receipt of all payments (without any reduction) exceeds
the net after-tax benefit to the Executive resulting from the
receipt of the payments (after reduction).
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed the ________ day of February 2000.
EXECUTIVE:
/s/ Gorton M. Evans
CONSOLIDATED PAPERS, INC.
By /s/ John S. Shiely
Name: John S. Shiely
Title: Chairman, Compensation Committee
EXHIBIT 21 TO FORM 10-K FOR
CONSOLIDATED PAPERS, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
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% Consolidated Papers (Canada), Inc. Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1999 consolidated balance sheet and the consolidated statements
of income, shareholders' equity and cash flows for the twelve-month period
ended 12/31/99 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,201
<SECURITIES> 0
<RECEIVABLES> 133,803
<ALLOWANCES> 6,002
<INVENTORY> 168,621
<CURRENT-ASSETS> 335,528
<PP&E> 3,739,390
<DEPRECIATION> 1,185,061
<TOTAL-ASSETS> 3,526,173
<CURRENT-LIABILITIES> 311,260
<BONDS> 802,000
<COMMON> 91,141
0
0
<OTHER-SE> 1,354,130
<TOTAL-LIABILITY-AND-EQUITY> 3,526,173
<SALES> 1,838,795
<TOTAL-REVENUES> 1,838,795
<CGS> 1,572,637
<TOTAL-COSTS> 1,572,637
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,219
<INCOME-PRETAX> 110,127
<INCOME-TAX> 44,051
<INCOME-CONTINUING> 66,076
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,076
<EPS-BASIC> .73
<EPS-DILUTED> .73
</TABLE>
