FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 0-1732
MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
WISCONSIN 39-0486870
(State of incorporation) (I.R.S Employer Identification Number)
1244 KRONENWETTER DRIVE
MOSINEE, WISCONSIN 54455-9099
(Address of principal executive office)
Registrant's telephone number, including area code: 715-693-4470
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 report), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of common shares outstanding at September 30, 1995 was 7,862,740.
<PAGE>
MOSINEE PAPER CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Three Months and Nine Months
Ended September 30, 1995 (unaudited)
and September 30, 1994 (unaudited) 1
Condensed Consolidated Balance
Sheets September 30, 1995 (unaudited)
and December 31, 1994 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows Nine Months
Ended September 30, 1995 (unaudited)
and September 30, 1994 (unaudited) 3
Notes to Condensed Consolidated
Financial Statements 4-5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 5-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
<TABLE> PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except 1995 1994 1995 1994
share data - unaudited)
<S> <C> <C> <C> <C>
Net sales $79,423 $67,811 $226,672 194,590
Cost of sales 64,644 56,207 187,061 159,385
Gross profit on sales 14,779 11,604 39,611 35,205
Operating expenses:
Selling and advertising 2,489 2,421 7,477 7,139
Administrative 4,743 3,006 11,923 10,777
Total operating expenses 7,232 5,427 19,400 17,916
Income from operations 7,547 6,177 20,211 17,289
Other income (expense):
Interest expense (1,556) (1,311) (4,660) (3,374)
Other 338 280 1,283 300
Income before income taxes and
cumulative effect adjustment 6,329 5,146 16,834 14,215
Provision for income taxes 2,537 2,087 6,750 5,757
Income before cumulative effect
of a change in accounting
principle 3,792 3,059 10,084 8,458
Cumulative effect of a change in
accounting principle (net of
income taxes) --- --- --- (750)
Net income $3,792 $3,059 $10,084 $7,708
Income per share before cumulative
effect of a change in accounting
principle $ 0.48 $ 0.39 $ 1.28 $ 1.08
Cumulative effect of a change in
accounting principle
(net of income taxes) --- --- --- (0.10)
Net income per share $ 0.48 $ 0.39 $ 1.28 $ 0.98
Weighted average common
shares outstanding 7,862,988 7,863,287 7,862,988 7,863,287
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
($ thousands) September 30, December 31,
1995* 1994
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 792 $ 1,555
Receivables, net 29,072 26,207
Inventories 37,241 30,600
Deferred income taxes 3,999 3,999
Other current assets 334 686
Total current assets 71,438 63,047
Property, plant and equipment, net 348,393 337,801
Less: accumulated depreciation 153,884 143,780
Net depreciated value 194,509 194,021
Other assets 9,085 8,015
TOTAL ASSETS $275,032 $265,083
LIABILITIES
Accounts payable $ 20,469 $ 19,523
Accrued and other liabilities 16,142 16,259
Accrued income taxes 1,307 953
Total current liabilities 37,918 36,735
Long-term debt 90,018 91,383
Deferred income taxes 22,932 21,633
Postretirement benefits 14,818 14,427
Other noncurrent liabilities 10,586 10,799
Total liabilities 176,272 174,977
Commitments and contingencies -- --
Preferred stock of subsidiary 1,255 1,255
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value, authorized
- 1,000,000 shares, none issued
Common stock - no par value, authorized
- 30,000,000 shares, 11,433,205 shares issued 58,678 39,835
Retained earnings 56,529 66,704
Subtotals 115,207 106,539
Treasury stock (17,702) (17,688)
Total stockholders' equity 97,505 88,851
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $275,032 $265,083
<FN>
*The consolidated balance sheet at September 30, 1995 is unaudited. The
December 31, 1994 consolidated balance sheet is derived from audited financial
statements.
</TABLE>
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Nine Months Ended
September 30,
($ thousands - unaudited) 1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $10,084 $7,708
Provision for depreciation, depletion
and amortization 12,400 11,616
Recognition of deferred revenue (30) (30)
Provision for losses on accounts receivable 288 288
Gain on property, plant and equipment
disposals (1,271) (296)
Deferred income taxes 1,299 1,491
Changes in operating assets and liabilities:
Accounts receivable (3,153) (3,712)
Inventories (6,641) (1,900)
Other assets (1,928) (1,601)
Accounts payable and other liabilities 3,420 151
Accrued income taxes 354 634
Net cash provided by operating activities 14,822 14,349
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,518) (12,713)
Proceeds from property, plant and
equipment disposals 1,371 469
Net cash used in investing activities (12,147) (12,244)
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan payments under credit agreements (1,365) (691)
Dividends paid (2,059) (1,930)
Payment for purchase of company stock (14) ---
Net cash used in financing activities (3,438) (2,621)
Net decrease in cash and cash equivalents (763) (516)
Cash and cash equivalents at beginning of year 1,555 1,521
Cash and cash equivalents at end of period $ 792 $1,005
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amount capitalized $ 4,853 $3,423
Income taxes paid 5,098 3,632
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial statements in the opinion of management
reflect all adjustments which are normal and recurring in nature and
which are necessary for a fair statement of the results for the
periods presented. Some adjustments involve estimates which may
require revision at year-end. Such adjustments include interim LIFO
inventory valuations and the effective income tax rate for the year.
In all regards, the financial statements have been presented in
accordance with generally accepted accounting principles.
<TABLE>
2. Inventories consist of the following:
<CAPTION>
Sept 30, Dec 31,
($ thousands) 1995 1994
<S> <C> <C>
Raw material $19,326 $14,534
Finished goods and work in process 22,201 17,574
Supplies 8,789 8,759
Subtotal 50,316 40,867
Less: LIFO reserve 13,075 10,267
Net inventories $37,241 $30,600
</TABLE>
3. Earnings per share of common stock is based on the weighted average
number of common shares outstanding and gives effect to applicable
preferred stock dividend requirements. Sorg Paper Company preferred
stock dividends in arrears for the nine months ended September 30,
1995 and 1994 were $51,840.
4. Net income includes expenses, or credits, for incentive compensation
plans based upon the company's stock price. The company calculates
this liability using the average price of Mosinee Paper's stock at the
close of each fiscal quarter as if all incentive compensation plans
had been exercised on that day. For the nine months ended
September 30, 1995, these plans resulted in after tax expense of
$380,000, or $0.05 per share, compared to an after tax expense last
year of $332,000, or $0.04 per share. For the third quarter, the
effect this year is an after tax expense of $583,000 or $0.07 per
share, compared to third quarter last year which produced an after tax
income of $77,000 or $0.01 per share.
5. The company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 112, "Accounting for Postemployment
Benefits" as of January 1, 1994. The cumulative effect for the
transition obligation was an after-tax expense of $750,000 or $0.10
per share.
6. Prior year per share data has been restated for the May 18, 1995 10%
stock dividend.
7. Refer to notes to financial statements which appear in the Annual
Report on Form 10-K for the year ended December 31, 1994 for the
company's accounting policies which are pertinent to these statements.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(All $ amounts are in thousands, except per share amounts)
RESULTS OF OPERATIONS
Third quarter sales of $79,423 were 16% higher than the $67,811 reported
last year, establishing a new record for any quarter. It also marks the
sixth consecutive quarter for increased sales. Higher selling prices,
resulting from the continued escalation of raw material costs during the
quarter, accounted for the improvement over the prior year. The volume for
specialty papers was off approximately 5% while converting operations'
volume remained relatively level during the quarter. Mix improvement at
the specialty paper operations partially offset the volume reduction.
Price increases have been announced and realized for certain purchased
grades of pulp in October. Strong efforts to increase selling prices to
offset further cost increases will continue to be made. Purchased waste
paper prices have continued to fall while selling prices have remained
relatively constant.
The year-to-date sales for 1995 of $226,672, also a new record, increased
16% over the $194,590 reported for the same period last year. This
improvement was also primarily due to higher selling prices. Volume
increases in specialty paper operations have been principally offset by
reductions at the converting operations and mix changes.
Cost of sales for the third quarter of $64,644 increased 15% over the
$56,207 reported at the same time last year. As a percent of net sales,
cost of sales decreased to 81% from the year earlier level of 83%
reflecting the declining cost of wastepaper and improved selling prices.
Continued emphasis on cost reduction and improved operating efficiency has
also helped to reduce the cost of sales.
Cost of sales for the year-to-date of $187,061 increased 17% from the year
earlier period of $159,385. As a percent of net sales, cost of sales
increased to 83% from the year earlier level of 82% primarily due to raw
material cost increases during the year. A weakening of wastepaper costs
in the third quarter has helped to stabilize the year-to-date raw material
costs. Continued reductions or leveling off of certain raw material costs
in the fourth quarter is expected and should help to reduce cost of sales
and improve gross profit margins.
Gross profit for the third quarter, reflecting the above, increased 27% to
$14,779 from the year earlier level of $11,604. For the quarter, this
amounted to a 19% gross profit margin compared to the 17% achieved last
year during the same period. On a year-to-date basis, gross profit reached
$39,611, 13% ahead of last year's level of $35,205. Gross profit margin,
so far in 1995, is 17% compared to last year's level of 18%.
Operating expenses of $7,232 for the third quarter and $19,400 for year-
to-date 1995 increased 33% and 8%, respectively, from the same periods
last year. Selling expenses remained comparable to last year for the same
period. General and administrative expenses for the third quarter of
$4,743 increased 58% from the $3,006 reported for the same period last
year. General and administrative expenses increased $637 over the previous
year after adjusting for the impact of stock incentive (SAR) plan
expenses.
Similarly, on a year-to-date basis general and administrative expenses of
$11,923 increased 11% over the prior year level of $10,777. After
adjusting for SAR related effects of expense of $633 for the current year
and an expense of $553 for the prior year, general and administrative
expenses increased $1,066 or 10% over the prior year level. For both the
quarter and nine month period, this increase has been caused by increases
in employee incentive compensation programs, employee training and general
inflationary increases.
Reflecting the above, income from operations for the third quarter $7,547
increased 22% over the $6,177 recorded during last year's third quarter.
Year-to-date income from operations of $20,211 increased 17% over the
$17,289 reported for the same period last year. After adjusting for SAR
related effects, adding back the SAR expense or deducting the SAR
<PAGE>
income, income from operations during the third quarter of the year of
$8,519 increased 41% over the prior year of $6,049. Year-to-date income
from operations, similarly adjusted, of $20,844 increased over last year's
level of $17,842.
Interest expense for the third quarter of $1,556 and $4,660 for the first
nine months of this year rose $245 and $1,286, respectively, over the
amounts paid for the same period last year. The increase is wholly
attributable to higher interest rates in effect during the current year.
Lower average debt in 1995 partially offset the effect of higher rates.
Other income for the quarter includes gain from the sale of timberlands
incompatible with the company's fiber needs of $146, or $0.01 per share,
and for nine months this year of $1,166, or $0.09 per share.
Accordingly, income before the cumulative effect of a change in accounting
principle and income taxes of $6,329 for the third quarter was 23% ahead
of the $5,146 reported for the same period last year. For the nine months,
income before the cumulative effect of a change in accounting principle
and income taxes of $16,834 improved 18% over the prior year level of $14,215.
The provision for income taxes of $2,537 for the quarter and $6,750 for
the year-to-date are based on an effective tax rate of 40.1% for both
periods. During the prior year an effective tax rate of 40.6% for the
third quarter and 40.5% for the year-to-date resulted in income tax
provisions of $2,087 and $5,757 for the respective periods.
Income before the cumulative effect of a change in an accounting principle
of $3,792, or $0.48 per share, for the third quarter was 24% over the
$3,059, or $0.39 per share, reported for the same period last year. For
the nine months, income before the cumulative effect of a change in an
accounting principle of $10,084, or $1.28 per share, rose over the prior
year level of $8,458, or $1.08 per share.
The company adopted Statement of Financial Accounting Standards No. 112,
"Employers Accounting for Postemployment Benefits" effective January 1,
1994. The accumulated liability as of December 31, 1993 for these benefits
required an after-tax expense of $750, or $0.10 per share.
Reflecting the above, net income for the third quarter of $3,792, or $0.48
per share, increased over the $3,059, or $0.39 per share reported last
year at the same time. For the year-to-date, net income $10,084, or $1.28
per share, improved over the $7,708, or $0.98 per share reported for the
same time period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations for the first nine months of the year of
$14,822 increased slightly from the $14,349 reported for the same period
last year. Increased sales levels accounted for the higher accounts
receivable level and represented a $3,153 use of cash. Inventories at
several locations continue to reflect higher levels established in the
first half of the year in anticipation of price increases for raw
materials resulting in a $6,641 use of cash. Partially offsetting these
uses of cash was an increase in accounts payable and other liabilities of
$3,420.
Cash used in investing activities represented $13,518 of capital
expenditures partially offset by $1,371 of proceeds from timberland and
equipment disposals. The primary capital expenditures include an automated
roll wrap system at Pulp and Paper and improvement of wax blending
equipment and a new winder at Converted Products. Cash used in financing
activities resulted from debt repayment of $1,365 and payment of dividends
to shareholders of $2,059.
As a result of operating, investing and financing activities for the first
nine months of the year cash decreased by $763 to $792 at September 30,
1995 from the $1,555 balance at the end of 1994.
<PAGE>
The company maintains a credit agreement with one bank acting as agent and
certain financial institutions as lenders to issue up to $90,000 of
unsecured borrowing less the amount of commercial paper outstanding and
also maintains a loan agreement with another bank for $20,000, making the
total amount available for borrowing of $110,000. As of September 30, 1995
the company had issued and outstanding $45,018 of commercial paper and had
other borrowing under these agreements of $45,000 for a total debt of
$90,018. This leaves approximately $20,000 available to supplement cash
provided from operations for uses in the business which, at the present
time the company believes to be adequate for the operation of the business
and currently anticipated capital expenditures.
Long-term debt of $90,018 declined $1,365 from the prior year end level of
$91,383 reflecting the utilization and generation of cash described above.
As a percent of total capitalization, long-term debt declined to 48% from
the year-end level of 51%. Working capital, reflecting the increase in
inventories and accounts receivable, and accompanied by a an increase in
current liabilities, increased to $33,520 from the year-end level of
$26,312. The current ratio, reflecting this improvement, increased to
1.9:1 from the year-end mark of 1.7:1.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named as a defendant in an action brought on behalf
of the Wisconsin Department of Natural Resources (DNR) in which the DNR
seeks unspecified forfeitures. The DNR alleges that, beginning in August,
1994, the Company exceeded certain permitted air emissions and that the
modification of the Pulp and Paper Division's recovery boiler and smelt
tank increased the amount of emissions of certain pollutants in violation
of the Company's emission permit. The Company has denied liability for
such claims and intends to vigorously defend this action. Under the terms
of a new proposed draft permit issued by the DNR on July 21, 1995, the
operation of the Division's recovery boiler and smelt tank are in
compliance with DNR requirements. Based on the information now available
to the Company with respect to these claims, the Company is of the opinion
that any liability incurred by the Company in connection with this
litigation will not have a material adverse effect on the Company's
operations, liquidity or consolidated financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits required by Item 601 of Regulation S-K
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOSINEE PAPER CORPORATION
November 9, 1995 GARY P. PETERSON
Gary P. Peterson
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 OF MOSINEE PAPER CORPORATION AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 791,880
<SECURITIES> 0
<RECEIVABLES> 31,759,211
<ALLOWANCES> 2,687,695
<INVENTORY> 37,240,898
<CURRENT-ASSETS> 71,437,938
<PP&E> 348,393,251
<DEPRECIATION> 153,884,207
<TOTAL-ASSETS> 275,031,628
<CURRENT-LIABILITIES> 37,917,377
<BONDS> 90,017,546
<COMMON> 58,646,706
0
0
<OTHER-SE> 38,858,611
<TOTAL-LIABILITY-AND-EQUITY> 275,031,628
<SALES> 226,672,388
<TOTAL-REVENUES> 226,672,388
<CGS> 187,060,960
<TOTAL-COSTS> 206,461,317
<OTHER-EXPENSES> (1,282,532)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,659,981
<INCOME-PRETAX> 16,833,622
<INCOME-TAX> 6,750,000
<INCOME-CONTINUING> 10,083,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,083,622
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 0
</TABLE>
