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 JUNE 30, 1996
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 June 30, 1996 was 10,483,064.
<PAGE>
MOSINEE PAPER CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1996
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Three Months and Six Months
Ended June 30, 1996 (unaudited) and
June 30, 1995 (unaudited) 1
Condensed Consolidated Balance
Sheets, June 30, 1996 (unaudited)
and December 31, 1995 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows, Six Months
Ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited) 3
Notes to Condensed Consolidated
Financial Statements 4
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 5
PART II. OTHER INFORMATION
Item 3. Defaults in Senior Securities 7
Item 4. Submission of Matters to a 8
Vote of Security Holders
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
($ thousands, except 1996 1995 1996 1995
share data - unaudited)
<S> <C> <C> <C> <C>
Net sales $79,193 $74,672 $155,369 $147,250
Cost of sales 56,667 63,038 114,681 122,417
Gross profit on sales 22,526 11,634 40,688 24,833
Operating expenses:
Selling 2,813 2,496 5,347 4,988
Administrative 5,701 2,839 12,325 7,180
Total operating expenses 8,514 5,335 17,672 12,168
Income from operations 14,012 6,299 23,016 12,665
Other income (expense):
Interest expense (1,155) (1,575) (2,456) (3,104)
Other ( 38) 82 71 943
Income before income taxes 12,819 4,806 20,631 10,504
Provision for income taxes 5,200 1,920 8,330 4,213
Net income $7,619 $2,886 $12,301 $6,291
Net income per share $ 0.73 $ 0.27 $ 1.17 $ 0.60
Weighted average common
shares outstanding 10,483,064 10,483,064 10,483,064 10,483,064
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
($ thousands * ) June 30, December 31,
1996 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,778 $ 2,416
Receivables 28,016 26,533
Inventories 37,562 33,641
Deferred income taxes 3,799 4,799
Other 585 364
Total current assets 71,740 67,753
Property, plant and equipment 362,805 354,120
Less: accumulated depreciation 165,164 157,555
Net depreciated value 197,641 196,565
Other assets 9,313 8,627
TOTAL ASSETS $278,694 $272,945
LIABILITIES
Accounts payable $ 18,023 $ 20,583
Accrued and other liabilities 21,220 19,389
Accrued income taxes 1,202 1,131
Total current liabilities 40,445 41,103
Long-term debt 70,367 79,307
Deferred income taxes 28,896 24,646
Postretirement benefits 15,615 15,001
Other noncurrent liabilities 10,320 10,441
Total liabilities 165,643 170,498
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 58,678
Retained earnings 70,840 60,216
Subtotals 129,518 118,894
Treasury stock at cost (17,722) (17,702)
Total stockholders' equity 111,796 101,192
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $278,694 $272,945
<FN>
*The consolidated balance sheet at June 30, 1996 is unaudited. The
December 31, 1995 consolidated balance sheet is derived from audited
financial statements.
</TABLE>
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Six Months Ended
June 30,
($ thousands - unaudited) 1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,301 $ 6,291
Provision for depreciation, depletion
and amortization 8,566 8,269
Provision for losses on accounts receivable 180 200
Gain on property, plant and equipment
disposals ( 72) ( 946)
Deferred income taxes 5,250 369
Changes in operating assets and liabilities:
Accounts receivable ( 1,663) ( 943)
Inventories ( 3,922) (6,282)
Other assets ( 1,813) (1,365)
Accounts payable and other liabilities 1,592 2,860
Accrued income taxes 71 ( 222)
Net cash provided by operating activities 20,490 8,231
Cash flows from investing activities:
Capital expenditures (10,719) (9,222)
Proceeds from property, plant and
equipment disposals 96 1,022
Net cash used in investing activities (10,623) (8,200)
Cash flows from financing activities:
Payments under credit agreements ( 8,939) ( 49)
Dividends paid ( 1,546) (1,291)
Payments for purchase of company stock ( 20) ( 14)
Net cash used in financing activities (10,505) (1,354)
Net decrease in cash and cash equivalents ( 638) (1,323)
Cash and cash equivalents at beginning of year 2,416 1,555
Cash and cash equivalents at end of period $ 1,778 $ 232
Supplemental Cash Flow Information:
Interest paid - net of amount capitalized $ 2,681 $ 3,214
Income taxes paid 3,009 4,066
</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 in subsequent interim periods or at year-end. In all
regards, the financial statements have been presented in accordance
with generally accepted accounting principles.
<TABLE>
2. Inventories consist of the following:
<CAPTION>
($ thousands) June 30, December 31,
1996 1995
<S> <C> <C>
Raw material $15,708 $15,827
Finished goods and work in process 19,458 20,693
Supplies 9,176 8,896
Subtotal 44,342 45,416
Less: LIFO reserve 6,780 11,775
Net inventories $37,562 $33,641
</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 dividends. Sorg Paper Company preferred stock
dividends in arrears for the six months ended June 30, 1996 and 1995
were $34,518.
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 earned incentive compensation
plans had been exercised on that day. For the three months ended June
30, 1996, these plans resulted in an after-tax expense of $679,000, or
$0.06 per share, compared to the second quarter of 1995 which produced
an after-tax income of $555,000, or $0.04 per share. For the year-
to-date in 1996 these plans resulted in an after-tax expense of
$1,957,000 or $0.19 per share, compared to an after-tax income of
$203,000 or $0.02 per share for the same period of 1995.
5. Prior year per share data has been restated for a 4 for 3 stock split
paid on May 15, 1996.
6. Refer to notes to the financial statements which appear in the 1995
annual report for the company's accounting policies which are
pertinent to these statements.
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
Strong sales, combined with improved operating margins produced an all-
time record for quarterly earnings of $0.73 per share. Record second
quarter sales of $79,193 increased 6% over the $74,672 reported last
<PAGE>
year. This sales increase consisted of over $7 million due to volume
increases offset by over $1 million in price reductions. Sales for the
specialty paper operations at the Pulp and Paper Division and the
company's subsidiary, The Sorg Paper Company, for the second quarter were
down $2 million from the amount reported for the same period last year due
to lower prices, lower volume and an unfavorable product mix. Sales for
the Converted Products Division's laminated and saturated paper products
decreased mainly due to lower volumes. However, sales at Mosinee Paper's
Bay West Paper subsidiary for towel and tissue products showed nearly a $9
million improvement over the same period last year, mainly due to
increased volume. For the first half of 1996, record sales of $155,369
increased 6% over the $147,250 reported for the same period last year.
This was attributed principally to large volume increases at the Bay West
operations of $13 million which were offset by $3 million in volume
reductions at the rest of the company's locations.
Cost of sales for the second quarter of $56,667 decreased 10% from the
$63,038 reported for the second quarter of 1995. As a percent of net
sales, cost of sales decreased to 72% from the year earlier level of 84%
reflecting lower costs for pulp, wastepaper and linerboard as well as
continued emphasis on cost reduction and operating efficiency. For the
six months year-to date, cost of sales of $114,681 decreased 6% from the
$122,417 reported for the same period last year, also caused by the same
factors noted above. Whereas the sale increases were most noticeable at
the Bay West converting operations, the specialty paper operations led the
way with $6 million in cost of sales reductions for the quarter and $7
million for the six months year-to-date.
Gross profit, reflecting the above, increased 94% to $22,526 for the
second quarter from the $11,634 reported for the same period last year.
Gross profit as a percent of sales for the quarter increased to 28%
compared to the 16% for the second quarter last year. On a year-to-date
basis, gross profit of $40, 688 increased 64% from the $24,833 reported
last year. The gross profit margin for 1996 is 26% compared to last
year's level of 17% . This improvement in margins is due principally to
lower raw material costs.
Operating expenses for the second quarter of $8,514 rose $3,179, or 60%,
over the $5,335 reported for the second quarter last year. Selling
expenses increased 13% over the prior year, while administrative
expenses, excluding the effect of expense for incentive compensation
programs based on the market price of the company's stock, rose $794, or
28% over last year. For the second quarter 1996, a rise in stock prices
increased the liability for incentive compensation programs resulting in
an expense of $1,143 compared to the second quarter of 1995 when lower
stock prices for the company's stock deceased the liability by $973. For
the six months year-to-date, incentive compensation based on the
company's stock price is an expense of $3,282 for 1996 compared to income
of $339 last year. For both the quarter and six month period this year,
general inflationary increases in operating expenses, along with employee
compensation and retirement expense increases based on increased company
profitability, were partially offset by cost reduction programs in other
areas.
Reflecting the above, income from operations for the second quarter of
$14,012 increased $7,713, or 122% from the year earlier level of $6,299.
Year-to-date income from operations of $23,016 increased 82% over the
$12,665 reported for the same period last year. Excluding the effects of
the incentive compensation based on the company's stock price, income
<PAGE>
from operations for the second quarter 1996 would have risen to $15,155,
or 185% over the year earlier level of $5,326. Year-to-date levels would
have been $26,298 and $12,326 for 1996 and 1995 respectively.
Interest expense decreased 26% for the quarter and year-to-date reflecting
the decrease in the average principal balance of outstanding long-term
debt and a slight reduction in interest rates that were in effect when
comparing the second quarter and year-to-date of 1996 to the same periods
of 1995. Other income and expense included $167 and $1,020 for the first
six months of 1996 and 1995, respectively, from the gain from the sales of
timberland incompatible with the company's fiber needs, and only minor
gains from timber sales for the second quarter of both years.
Accordingly, income before taxes reached $12,819 for the second quarter of
1996 compared to $4,806 during the same period in 1995, an increase of
167%. Pretax income for six months of 1996 was $20,631, or 96% over the
$10,504 reported last year. The provisions for income taxes of $5,200 and
$1,920, for the second quarters of 1996 and 1995 respectively, and year-
to-date provisions of $8,330 and $4,213 are based on an effective income
tax rate of approximately 40%.
Reflecting the above, net income for the second quarter 1996 of $7,619, or
$0.73 per share, improved immensely from the $2,886, or $0.27 per share
reported for the same period last year. For the six months, net income
nearly doubled from the $6,291, or $0.60 per share reported last year, to
$12,601, or $1.17 for 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the first six months of 1996 of
$20,490 increased 149% from $8,231 provided during the first six months of
1995, with improved income from operations and tax deferrals providing
most of the additional cash. Cash used in investing activities included
$10,719 of capital expenditures which was partially offset by cash
received of $96 from timberland sales. The primary capital spending
during this period was $5,056 for towel and tissue equipment and a
warehouse addition at the Bay West Paper converting operation. This new
equipment and building addition added capacity to keep pace with the sales
volume increases at Bay West.
Cash utilized in financing activities consisted of payments of credit
agreements totalling $8,939 and payment of cash dividends to shareholders
of $1,546. Cash provided from operations less amounts utilized in
financing and investing activities reduced cash by $638 from the year-end
level of $2,416.
The company maintains a credit agreement with one bank acting as agent and
certain financial institutions as lenders to issue up to $80,000 of
unsecured borrowing less the amount of commercial paper outstanding. This
agreement has been reduced $10,000 from the $90,000 reported at year-end.
The company also maintains a loan agreement with another bank for $20,000,
making the total amount available for borrowing of $100,000. As of June
30, 1996 the company had issued and outstanding $25,367 of commercial
paper and had other borrowings under the agreements of $45,000 for a total
debt of $70,367. This leaves approximately $30,000 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 planned capital expenditures.
<PAGE>
Long-term debt as a percent of total capitalization declined to 38.6% from
the prior year-end level of 43.9%. Working capital of $31,295 increased
$4,645 from the end of 1995 reflecting increased accounts receivable due
to the increased sales volume and increased inventories due to the
stocking of low cost pulp and waste paper. The current ratio, reflecting
this increase, improved to 1.77:1 at June 30, 1996 from the year end level
of 1.65:1.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Sorg Paper Company, a subsidiary of the registrant, omitted the
payment of its quarterly cash dividends of $1.38 per share, payable
July 1, 1996 to shareholders of record, on its 5-1/2% cumulative preferred
stock, par value $100. The number of 5-1/2% cumulative preferred shares
outstanding is 12,552 and the amount of dividends in arrears is $552,158.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April 18,
1996.
The matters voted upon, including the number of votes cast for or
withheld, as well as the number of abstentions and broker non-votes, as to
each such matter were as follows:
<TABLE>
<CAPTION>
Matter Shares
Broker
For Withheld Against Abstain Non-Vote
<S> <C> <C> <C> <C> <C>
1. Election of
Directors
(a) Richard L. Radt 6,771,807 81,310 N/A N/A 0
(b) Walter Alexander 6,792,508 60,609 N/A N/A 0
2. Approval of 6,830,426 N/A 13,966 8,725 0
appointment of
independent auditors
for year ending
December 31, 1996
</TABLE>
ITEM 5. OTHER INFORMATION:
FOUR-FOR-THREE STOCK SPLIT
On April 18, 1996, the company announced a four-for-three stock split
payable May 15, 1996 to shareholders of record as of May 1, 1996. The
company also declared a cash dividend of $0.08 per share payable May 15,
1996 on all shares on a post-stock split basis to shareholders of record
as of May 1, 1996.
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Form 10-Q, each of the company's annual reports to shareholders,
Forms 10-K, 8-K, and 10-Q, proxy statements, prospectuses, and any other
written or oral statement made by or on behalf of the company subsequent
to the filing of this Form 10-Q may include one or more "forward-looking
statements" within the meaning of sections 27A of the Securities Act of
1933 and 21E of the Securities Exchange Act of 1934 as enacted in the
Private Securities Litigation Reform Act of 1995 (the "Reform Act").
Expressions of the company's or company officers' beliefs or expectations
that certain events may occur or are anticipated, projections and
statements of expectations with respect to any aspect of the company's
business (including, but not limited to, net income, the availability or
price of raw materials, or customer demand for company products), the
company's stock performance, the industries within which the company
operates or the economy, and any other expressions of similar import,
identify such forward-looking statements of the company. In making
forward-looking statements within the meaning of the Reform Act, the
company undertakes no obligation to publicly update or revise any such
statement.
Forward-looking statements of the company are based on information
available to the company as of the date of such statements and reflect
the company's expectations as of such date, but are subject to risks and
uncertainties that may cause actual results to vary materially. In
addition to specific factors which may be described in connection with
any of the company's forward-looking statements, factors which could
cause actual results to differ materially include but are not limited
to the following:
<bullet> Increased competition from either domestic or foreign paper
producers or providers of alternatives to the company's
products, including increases in competitive production
capacity, resulting in sales declines from reduced shipment
volume and/or lower net selling prices in order to maintain
shipment volume.
<bullet> Changes in customer demand for the company's products due to
overall economic activity affecting the rate of consumption of
the company's paper products, growth rates of the end markets
for the company's products, technological or consumer preference
changes or acceptance of the products by the markets served by
the company.
<bullet> Changes in the price of raw materials, principally pulp, waste-
paper and linerboard. A substantial portion of the company's
raw materials are purchased on the open market and price changes
could have a significant impact on the company's costs. In
particular, fiber represents approximately half the cost of
making paper and significant price increases for fiber could
materially affect the company's financial condition. Raw
material prices will change based on supply and demand on
a worldwide spectrum. Wood costs can also be impacted by
availability, environmental issues or other variables.
<bullet> Unforeseen operational problems at any of the company's
facilities causing significant lost production and/or cost
issues.
<PAGE>
<bullet> Significant changes to the company's strategic plans such as a
major acquisition or expansion, or failure to successfully
execute major capital projects or other strategic plans.
<bullet> Changes in laws or regulations which affect the company. The
paper industry is subject to stringent environmental laws and
regulations and as such any required changes may increase the
company's capital expenditures and operating costs.
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
August 12, 1996 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 SIX MONTHS
ENDED JUNE 30, 1996 OF MOSINEE PAPER CORPORATION AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,778,346
<SECURITIES> 0
<RECEIVABLES> 31,286,701
<ALLOWANCES> 3,270,838
<INVENTORY> 37,562,444
<CURRENT-ASSETS> 71,740,214
<PP&E> 362,805,369
<DEPRECIATION> 165,164,520
<TOTAL-ASSETS> 278,693,815
<CURRENT-LIABILITIES> 40,444,913
<BONDS> 70,367,485
<COMMON> 58,678,056
0
0
<OTHER-SE> 70,839,839
<TOTAL-LIABILITY-AND-EQUITY> 278,693,815
<SALES> 155,369,357
<TOTAL-REVENUES> 155,369,357
<CGS> 114,680,657
<TOTAL-COSTS> 132,352,897
<OTHER-EXPENSES> (71,436)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,456,168
<INCOME-PRETAX> 20,631,428
<INCOME-TAX> 8,330,000
<INCOME-CONTINUING> 12,301,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,301,428
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 0
</TABLE>
