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, 1997
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, 1997 was 15,201,715.
<PAGE>
MOSINEE PAPER CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Three Months and Six Months
Ended June 30, 1997 (unaudited) and
June 30, 1996 (unaudited) 1
Condensed Consolidated Balance
Sheets, June 30, 1997 (unaudited)
and December 31, 1996 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows, Six Months
Ended June 30, 1997 (unaudited)
and June 30, 1996 (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 1997 1996 1997 1996
share data - unaudited)
<S> <C> <C> <C> <C>
Net sales $85,294 $79,193 $163,511 $155,369
Cost of sales 63,447 56,667 120,469 114,681
Gross profit on sales 21,847 22,526 43,042 40,688
Operating expenses:
Selling 3,168 2,813 6,192 5,347
Administrative 4,143 5,701 8,555 12,325
Total operating expenses 7,311 8,514 14,747 17,672
Income from operations 14,536 14,012 28,295 23,016
Other income (expense):
Interest expense (1,051) (1,155) (1,926) (2,456)
Other 21 ( 38) 137 71
Income before income taxes 13,506 12,819 26,506 20,631
Provision for income taxes 5,200 5,200 10,350 8,330
Net income $8,306 $7,619 $16,156 $12,301
Net income per share $0.55 $0.48 $1.06 $0.78
Weighted average common
shares outstanding 15,201,866 15,724,596 15,221,154 15,724,596
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
($ thousands * ) June 30, December 31,
1997 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,676 $ 3,150
Receivables 28,820 23,407
Inventories 49,039 41,254
Deferred income taxes 7,225 7,225
Other 572 311
Total current assets 88,332 75,347
Property, plant and equipment 388,484 370,085
Less: accumulated depreciation 178,717 170,610
Net depreciated value 209,767 199,475
Other assets 10,905 10,207
TOTAL ASSETS $309,004 $285,029
LIABILITIES
Accounts payable $ 18,787 $ 18,262
Accrued and other liabilities 22,941 27,316
Accrued income taxes 2,211 2,420
Total current liabilities 43,939 47,998
Long-term debt 68,839 48,332
Deferred income taxes 37,635 35,538
Postretirement benefits 16,614 16,125
Other noncurrent liabilities 12,637 11,884
Total liabilities 179,664 159,877
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, 15,201,715 shares issued 58,678 58,678
Retained earnings 98,878 83,763
Subtotals 157,556 142,441
Treasury stock at cost (29,471) (18,544)
Total stockholders' equity 128,085 123,897
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $309,004 $285,029
<FN>
*The consolidated balance sheet at June 30, 1997 is unaudited. The
December 31, 1996 consolidated balance sheet is derived from audited financial
statements.
</TABLE>
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Six Months Ended
June 30,
($ thousands - unaudited) 1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,156 $ 12,301
Provision for depreciation, depletion
and amortization 9,241 8,566
Recognition of deferred revenue ( 20) ( 20)
Provision for losses on accounts
receivable 75 180
Gain on property, plant and equipment
disposals ( 129) ( 72)
Deferred income taxes 2,097 5,250
Changes in operating assets and
liabilities:
Accounts receivable ( 2,786) ( 1,663)
Inventories ( 5,016) ( 3,922)
Other assets ( 1,945) ( 1,793)
Accounts payable and other liabilities ( 2,641) 1,592
Accrued income taxes ( 209) 71
Net cash provided by operating activities 14,823 20,490
Cash flows from investing activities:
Capital expenditures ( 14,876) ( 10,719)
Acquisition of B & J Supply ( 6,235) ---
Proceeds from property, plant and
equipment disposals 139 96
Net cash used in investing activities ( 20,972) ( 10,623)
Cash flows from financing activities:
Borrowings (payments) under credit
agreements 18,478 ( 8,939)
Dividends paid ( 1,876) ( 1,546)
Payments for purchase of company stock ( 10,927) ( 20)
Net cash provided by (used in) financing
activities 5,675 ( 10,505)
Net decrease in cash and cash equivalents ( 474) ( 638)
Cash and cash equivalents at beginning of
year 3,150 2,416
Cash and cash equivalents at end of period $ 2,676 $ 1,778
Supplemental Cash Flow Information:
Interest paid - net of amount capitalized $ 1,877 $ 2,681
Income taxes paid 8,462 3,009
</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,
1997 1996
<S> <C> <C>
Raw material $19,583 $18,154
Finished goods and work in process 26,542 20,764
Supplies 9,529 8,944
Subtotal 55,654 47,862
Less: LIFO reserve 6,615 6,608
Net inventories $49,039 $41,254
</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, 1997 and
1996 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, 1997, these plans resulted in an after-tax expense of $382,000, or
$0.03 per share, compared to the second quarter of 1996 which produced
an after-tax expense of $679,000, or $0.04 per share. For the six
months ended June 30, 1997, these plans resulted in an after-tax
expense of $189,000 or $0.01 per share, compared to an after-tax
expense of $1,957,000 or $0.12 per share for the same period of 1996.
5. Prior year per share data has been restated for a 3 for 2 stock split
paid on May 15, 1997.
6. Refer to notes to the financial statements which appear in the 1996
annual report 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
Strong sales and continued strong operating margins produced record
quarterly earnings of $0.55 per share. This represents the thirteenth
consecutive quarter where earnings improved over the prior year's
respective quarter. Record quarterly sales of $85,294 increased 8% over
the $79,193 reported last year. This increase in sales was due to an
additional $5 million generated by B & J Supply, which was acquired by the
company on April 1, 1997, and volume increases of $7 million which were
offset by over $6 million in selling price reductions. Sales for the
specialty paper operations of the company for the second quarter,
excluding B & J Supply, increased almost $2 million from the amount
reported for the same period last year due to volume increases of nearly
$5 million offset by $3 million due to lower selling prices. Sales for
towel and tissue products declined $1 million for the quarter, with $2
million of increased volume offset by $3 million in price reductions. For
the first half of 1997, sales of $163,511 increased 5% over the $155,369
reported for the same period last year. This increase was attributed
principally to the $5 million in sales generated by B & J Supply and $12
million in volume increases at both the specialty papers operations and
the towel and tissue operations offset by $10 million in price reductions.
Cost of sales for the second quarter of $63,447 increased 12% from the
$56,667 reported for the second quarter of 1996. As a percent of net
sales, cost of sales increased to 74% from the year earlier level of 72% .
The operations of B & J Supply accounted for half of this increase due to
lower profit margins. The other half of the increase is due to selling
price reductions at the company's other locations. For the six months
year-to- date, cost of sales of $120,469 increased 5% over the $114,681
reported for the same period last year. This increase was attributable to
the factors discussed previously.
Gross profit, reflecting the above, decreased 3% to $21,847 for the second
quarter from the $22,526 reported for the same period last year. Gross
profit as a percent of sales for the quarter decreased to 26% from the 28%
for the second quarter last year. On a year-to-date basis, gross profit
of $43,042 increased 6% from the $40,688 reported last year. The gross
profit margin for 1997 is 26%, the same as last year's level.
[FN]
* This discussion and analysis contains forward-looking statements. See
"Cautionary Statement" set forth in Item 5.
Operating expenses for the second quarter of $7,311 decreased $1,203, or
14%, from the $8,514 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, declined $1,036, or 23% over
last year. For the second quarter of 1997, a rise in stock prices
increased the expense for incentive compensation programs resulting in an
expense of $621 compared to the second quarter of 1996 when higher stock
prices for the company's stock increased the liability $1,143. For the
six months year-to-date, incentive compensation based on the company's
stock price resulted in an expense of $310 compared to an expense of
<PAGE>
$3,282 last year. For both the quarter and six month period this year,
general inflationary increases in operating expenses, along with increases
in basic employee compensation and retirement expense, were offset by a
reduction in costs for bonus programs and general cost reduction programs
in other areas.
Reflecting the above, income from operations for the second quarter of
$14,536 increased $524, or 4% from the year earlier level of $14,012.
Year-to-date income from operations of $28,295 increased 23% over the
$23,016 reported for the same period last year. Excluding the effects of
the incentive compensation programs based on the company's stock price,
income from operations for the second quarter 1997 would have been
$15,157, or about the same as the year earlier level of $15,155. Year-to-
date levels would have been $28,605 and $26,298 for 1997 and 1996,
respectively.
Interest expense decreased 9% for the quarter and 22% year-to-date
reflecting the decrease in the average principal balance of outstanding
long-term debt while interest rates remained about the same when comparing
the second quarter and year-to-date of 1997 to the same periods of 1996.
Other income and expense of $137 and $71 for the first six months of 1997
and 1996, respectively, is primarily due to gains on disposals of assets.
Accordingly, income before taxes reached $13,506 for the second quarter of
1997 compared to $12,819 for the same period in 1996, an increase of 5%.
Pretax income for six months of 1997 was $26,506, or 28% over the $20,631
reported last year. The provisions for income taxes of $5,200 for the
second quarters of 1997 and 1996 and year-to-date provisions of $10,350
and $8,330, respectively, are based on an effective income tax rates of
approximately 39% for 1997 and 40% for 1996.
Reflecting the above, net income for the second quarter 1997 of $8,306, or
$0.55 per share, improved from the $7,619, or $0.48 per share reported for
the same period last year. For the six months, net income increased 31%
from the $12,301, or $0.78 per share reported last year, to $16,156, or
$1.06 for 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the first six months of 1997 of
$14,823 decreased 28% from the $20,490 provided during the first six
months of 1996, with improved income from operations being offset by lower
tax deferrals, inventory build-ups and an increase in accrued liabilities.
Cash used in investing activities included $14,876 of capital expenditures
and $6,235 for the acquisition of B & J Supply. This was partially offset
by cash received of $139 from the disposal of capital assets. The primary
capital spending during this period was $5,739 for towel and tissue
equipment at the Bay West Paper converting operation. This new equipment
added capacity to keep pace with the sales volume increases at Bay West.
Cash provided by or utilized in financing activities consisted of
borrowings under credit agreements of $18,478 for the six months of 1997
and payments on credit agreements were made totaling $8,939 for the same
period of 1996. Cash dividends were paid to shareholders of $1,876 and
$1,546 for the six months of 1997 and 1996, respectively. Payments
<PAGE>
totaling $10,927 were made in 1997 to purchase company stock. Cash
provided by operations and financing activities less amounts utilized in
investing activities reduced cash by $474 from the year-end level of
$3,150.
As of March 31, 1997, the company maintained a credit agreement with one
bank acting as agent and certain financial institutions as lenders to
issue up to $65,000 of unsecured borrowing less the amount of commercial
paper outstanding. This agreement was amended and restated on April 9,
1997. The restated agreement, which expires April 9, 2002, allows for
unsecured borrowings of $90,000. The company also maintains a loan
agreement with another bank for $20,000, making the current total amount
available for borrowing of $110,000. This additional borrowing capacity
provided funds for the company to acquire the business and assets of B & J
Supply on April 1, 1997. As of June 30, 1997, total debt of $68,839
consisted of $26,839 in commercial paper and $42,000 under the loan
agreements. This leaves approximately $41,000 currently 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.
Long-term debt as a percent of total capitalization increased to 35.0%
from the prior year-end level of 28.1%. Working capital of $44,393
increased $17,044 from the end of 1996 reflecting a significant increase
in 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 2.0:1 at June 30,
1997 from the year end level of 1.6:1.
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, 1997 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 $621,194.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April 17,
1997.
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:
<PAGE>
<TABLE>
<CAPTION>
Matter Shares
Broker
For Withheld Against Abstain Non-Vote
<S> <C> <C> <C> <C> <C>
1. Election of
Directors
(a) Daniel R. Olvey 8,535,428 35,269 - - -
(b) Richard G. Jacobus 8,526,147 44,550 - - -
2. Approve amendments to the
1994 Stock Option Plan 8,128,082 - 292,334 112,212 38,069
3. Approval of appointment
independent auditors for
year ending December 31,
1997 8,529,020 - 17,039 24,638 -
</TABLE>
ITEM 5. OTHER INFORMATION:
ACQUISITION OF B & J SUPPLY
On April 1, 1997, the company acquired the business and assets of B & J
Supply, Inc. of Appleton, Wisconsin, a converter and nationwide supplier of
school papers, with a net asset purchase of $6.2 million and payment of B & J
Supply's existing debt of $2 million.
THREE-FOR-TWO STOCK SPLIT
On April 17, 1997, the company announced a three-for-two stock split payable
May 15, 1997 to shareholders of record as of May 1, 1997. The company also
declared a cash dividend of $0.07 per share payable May 15, 1997 on all post-
stock split shares to shareholders of record as of May 1, 1997.
CAUTIONARY STATEMENT
This quarterly report includes certain of management's expectations and other
forward-looking information regarding the company. While the company
believes that these forward-looking statements are based on reasonable
assumptions, all such statements involve risk and uncertainties that could
cause actual results to differ materially from those contemplated in this
report. The assumptions, risks and uncertainties relating to the forward-
looking statements in this report include those described under the caption
"Cautionary Statement Regarding Forward-looking Information" in the company's
Form 10-K for the year ended December 31, 1996 and, from time to time, in the
company's other filings with the Securities and Exchange Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits required by Item 601 of Regulation S-K
The following exhibits are filed with the Securities and Exchange
Commission as part of this report. Exhibits incorporated by reference
indicated by footnote reference to incorporated filing.
<PAGE>
INCORPORATED
EXHIBIT<dagger>
EXHIBIT 3 - ARTICLES OF INCORPORATION AND BYLAWS
(i) Restated Articles of Incorporation,
as last amended April 26, 1995 ...................... 3(i)(1)
(ii) Restated Bylaws, as last amended
April 16, 1992 ...................................... 3(b)(2)
EXHIBIT 4 - INSTRUMENTS DEFINING THE RIGHTS OF
SECURITY HOLDERS
(a) Preferred Share Rights Agreement dated
as of July 1, 1996 .................................. 1(3)
(b) Restated Articles of Incorporation and
Restated Bylaws (see Exhibit 3(a) and (b))
EXHIBIT 10 - MATERIAL CONTRACTS
*(a) Deferred Compensation Plan for Directors
as amended October 17, 1996 ........................ 10(a)(4)
*(b) 1985 Executive Stock Option
Plan dated June 27, 1985 ........................... 10(b)(4)
*(c) Mosinee Paper Corporation 1988 Stock
Appreciation Rights Plan, as amended 4/18/91 ....... 10(c)(5)
*(d) 1996 and 1997 Incentive Compensation
Plan for Corporate Executive Officers .............. 10(d)(6)
*(e) Supplemental Retirement Benefit
Plan dated October 17, 1991 ........................ 10(e)(5)
*(f) Supplemental Retirement Benefit Agreement
dated November 15, 1991 ............................ 10(f)(5)
*(g) 1994 Executive Stock Option Plan ................... 10(g)(6)
*(h) Mosinee Supplemental Retirement Plan ............... 10(h)(7)
EXHIBIT 21 - SUBSIDIARIES OF REGISTRANT ................. 22(8)
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
* Denotes Executive Compensation Plans and Arrangements.
<dagger>Where exhibit has been previously filed and is incorporated
herein by reference, exhibit numbers set forth herein correspond to
the exhibit number where such exhibit can be found in the following
reports of the registrant (Commission File No. 0-1732) filed with
the Securities and Exchange Commission:
(1) Registrant's quarterly report on Form 10-Q for the period ended
June 30, 1996
(2) Registrant's annual report on Form 10-K for the fiscal year
ended December 31, 1992
<PAGE>
(3) Form 8-A filed on July 2, 1996
(4) Registrant's quarterly report on Form 10-Q for the period ended
September 30, 1996
(5) Registrant's annual report on Form 10-K for the fiscal year
ended December 31, 1995
(6) Registrant's annual report on Form 10-K for the fiscal year
ended December 31, 1996
(7) Registrant's annual report on Form 10-K for the fiscal year
ended December 31, 1993
(8) Registrant's annual report on Form 10-K for the fiscal year
ended December 31, 1992
(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 11, 1997 GARY P. PETERSON
Gary P. Peterson
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
TO
FORM 10-Q
OF
MOSINEE PAPER CORPORATION
FOR THE PERIOD ENDED JUNE 30, 1997
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. <section>232.102(d))
<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, 1997
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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,675,606
<SECURITIES> 0
<RECEIVABLES> 31,223,634
<ALLOWANCES> 2,404,147
<INVENTORY> 49,039,090
<CURRENT-ASSETS> 88,331,581
<PP&E> 388,484,556
<DEPRECIATION> 178,717,249
<TOTAL-ASSETS> 309,003,979
<CURRENT-LIABILITIES> 43,938,476
<BONDS> 68,839,360
<COMMON> 58,678,056
0
0
<OTHER-SE> 98,878,258
<TOTAL-LIABILITY-AND-EQUITY> 309,003,979
<SALES> 163,510,688
<TOTAL-REVENUES> 163,510,688
<CGS> 120,469,188
<TOTAL-COSTS> 135,216,116
<OTHER-EXPENSES> (137,472)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,926,145
<INCOME-PRETAX> 26,506,211
<INCOME-TAX> 10350,000
<INCOME-CONTINUING> 16,156,211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,156,211
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 0
</TABLE>
