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 MARCH 31, 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 March 31, 1997 was 10,134,681.
<PAGE>
MOSINEE PAPER CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Three Months Ended
March 31, 1997 (unaudited) and
March 31, 1996 (unaudited) 1
Condensed Consolidated Balance
Sheets, March 31, 1997 (unaudited)
and December 31, 1996 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows, Three Months
Ended March 31, 1997 (unaudited)
and March 31, 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 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K 8
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended
March 31,
($ thousands except share data -
unaudited) 1997 1996
<S> <C> <C>
Net sales $78,217 $76,176
Cost of sales 57,022 58,014
Gross profit 21,195 18,162
Operating expenses:
Selling 3,024 2,534
Administrative 4,412 6,624
Total operating expenses 7,436 9,158
Income from operations 13,759 9,004
Other income (expense):
Interest expense ( 875) (1,301)
Other 116 109
Income before income taxes 13,000 7,812
Provision for income taxes 5,150 3,130
Net income $7,850 $4,682
Net income per share $ 0.77 $ 0.44
Weighted average common
shares outstanding 10,149,359 10,483,014
</TABLE>
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
($ thousands) March 31, December 31,
1997* 1996*
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 541 $ 3,150
Receivables 24,581 23,407
Inventories 46,302 41,254
Deferred income taxes 7,225 7,225
Other 594 311
Total current assets 79,243 75,347
Property, plant and equipment 376,215 370,085
Less: accumulated depreciation 174,475 170,610
Net depreciated value 201,740 199,475
Other assets 10,465 10,207
TOTAL ASSETS $291,448 $285,029
LIABILITIES
Accounts payable $ 17,336 $ 18,262
Accrued and other liabilities 23,160 27,316
Accrued income taxes 3,732 2,420
Total current liabilities 44,228 47,998
Long-term debt 58,066 48,332
Deferred income taxes 38,585 35,538
Postretirement benefits 16,350 16,125
Other noncurrent liabilities 12,109 11,884
Total liabilities 169,338 159,887
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, 15,244,273 shares issued 58,678 58,678
Retained earnings 91,636 83,763
Subtotals 150,314 142,441
Treasury stock at cost (29,459) (18,544)
Total stockholders' equity 120,855 123,897
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $291,448 $285,029
<FN>
*The consolidated balance sheet at March 31, 1997 is unaudited. The
December 31, 1996 consolidated balance sheet is derived from audited
financial statements.
</TABLE>
<PAGE>
<TABLE>
MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Three Months Ended
March 31,
($ thousands - unaudited) 1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $7,850 $4,682
Provision for depreciation, depletion
and amortization 4,413 4,237
Provision for losses on accounts receivable 53 90
Gain on property, plant and equipment
disposals ( 117) ( 117)
Deferred income taxes 3,047 1,710
Changes in operating assets and liabilities:
Accounts receivable ( 1,227) ( 362)
Inventories ( 5,048) ( 1,940)
Other assets ( 1,032) ( 855)
Accounts payable and other liabilities ( 3,682) ( 2,746)
Accrued income taxes 1,312 1,203
Net cash provided by operating activities 5,569 5,902
Cash flows from investing activities:
Capital expenditures ( 6,307) ( 6,317)
Proceeds from property, plant and
equipment disposals 122 126
Net cash used in investing activities ( 6,185) ( 6,191)
Cash flows from financing activities:
Borrowings (payments) under credit agreements 9,734 ( 1,196)
Dividends paid ( 812) ( 708)
Payments for purchase of company stock ( 10,915) 0
Net cash used in financing activities ( 1,993) ( 1,904)
Net decrease in cash and cash equivalents ( 2,609) ( 2,193)
Cash and cash equivalents at beginning of year 3,150 2,416
Cash and cash equivalents at end of period $ 541 $ 223
Supplemental Cash Flow Information:
Interest paid - net of amount capitalized $ 817 $ 1,510
Income taxes paid 791 217
</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) March 31, December 31,
1997 1996
<S> <C> <C>
Raw material $18,070 $18,154
Finished goods and work in process 25,342 20,764
Supplies 9,434 8,944
Subtotal 52,846 47,862
Less: LIFO reserve 6,544 6,608
Net inventories $46,302 $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 three months ended March 31, 1997 and
1996 were $17,196.
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
March 31, 1997, these plans resulted in an after-tax income of
$188,000, or $0.02 per share, compared to the first quarter of 1996
which produced an after-tax expense of $1,284,000, or $0.12 per
share.
5. Prior year per share data has been restated for the four-for-three
stock split on May 15, 1996.
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
The first quarter net sales of $78,217 increased $2 million, or 3%, over
the $76,176 reported in the first quarter last year. This sales increase
was due to large volume increases for both specialty papers and the towel
and tissue products. These increased volumes added $5.3 million to sales
and a better product mix, resulting from longer backlogs, added $1.6
million to sales. These increases were offset by a $4.9 million reduction
in sales due to price decreases at all locations. These price decreases
principally resulted from passing along lower raw material costs to
customers and competitive price reductions mainly in the towel and tissue
market.
Cost of sales for the first three months of the year of $57,022 decreased
2% from the $58,014 reported for the first quarter last year. Cost of
sales as a percent of net sales was at 73% for the first quarter 1997,
down from the 76% reported for the first quarter last year. Lower raw
material costs for pulp and wastepaper were principally responsible for
the reduction in cost of sales.
Gross profit, reflecting the above, increased 17% to $21,195 for the first
quarter from the $18,162 reported for the same period last year. Gross
profit, as a percent of sales for the first quarter this year, increased
to 27% compared to 24% for the first quarter last year.
Operating expenses for the first quarter of $7,436 decreased 19% from the
$9,158 reported at this time last year. Selling expenses increased 19%
over the prior year due to an increased sales force at the Bay West
operations, while administrative expenses, excluding the effect of income
or expense for incentive compensation programs based on the market price
of the company's stock, rose $239, or 5% over last year, mainly due to
general inflationary increases in administrative expenses. A rise in
stock prices last year increased the liability for incentive compensation
programs resulting in an expense of $2,139. Lower stock prices at the end
of the first quarter this year reflected income of $312 for the incentive
compensation programs.
Reflecting the above, income from operations for the first quarter of
$13,759 increased $4,755, or 53% from the year earlier level of $9,004.
Interest expense of $875, decreased $426 from the year earlier amount of
$1,301 due to a $24.5 million reduction in the average principal balance
outstanding of long-term debt and only a slight increase in interest rates
that were in effect when comparing the first quarter of 1997 to the first
quarter of 1996. Other income and expense included $116 and $103 of gain
on land sales for the first quarter of 1997 and 1996, respectively.
Accordingly, income before taxes reached $13,000 for the first quarter
this year compared to $7,812 during the same period last year, a 66%
increase. The provisions for income taxes of $5,150 and $3,130, for the
first quarters of 1997 and 1996 respectively, are based on an effective
income tax rate of approximately 40%.
[FN]
* This discussion and analysis contains forward-looking statements. See
"Cautionary Statement" set forth in Item 5.
<PAGE>
Reflecting the above, net income for the first quarter 1997 of $7,850, or
$0.77 per share, increased from the $4,682, or $0.44 per share reported
for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the first quarter this year of
$5,569 decreased slightly from the $5,902 provided during the first three
months of 1996. The increase in net income was offset by the build up of
inventories when comparing the two periods. Cash used in investing
activities included $6,307 of capital expenditures for the first quarter
1997 ($6,317 for the same period last year) and was partially offset by
cash received of $122 from timberland sales ($126 last year). The primary
capital spending during the quarter was $4,000 for towel and tissue
equipment at the Bay West Paper operation. This new equipment adds
capacity to keep pace with the sales volume increases at Bay West.
Cash utilized in financing activities consisted of needed credit agreement
borrowings totalling $9,734 to support payments for the purchase of
company stock of $10,915 and payment of cash dividends to shareholders of
$812. Cash provided from operations less amounts utilized in financing and
investing activities reduced cash by $2,609 from the year-end level of
$3,150 to the March 31, 1997 balance of $541.
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, Inc. on April 1, 1997 (see Item 5, page 7) and to continue to
purchase company stock in various open market transactions as previously
approved by the Board of Directors. As of March 31, 1997 the company had
issued and outstanding $23,066 of commercial paper and had other
borrowings under the agreements of $35,000 for a total debt of $58,066.
This leaves approximately $52,000 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 32.5%
from the prior year-end level of 28.1%, but declined 10.0% from the 42.5%
reported at the end of the first quarter last year. Working capital of
$35,015 increased $7,666 from the end of 1996 reflecting a significant
increase in inventories and a decrease in accrued liabilities. The current
ratio, reflecting this increase, improved to 1.79:1 at the end of the
first quarter from the year end level of 1.57:1.
<PAGE>
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 $1.37 per share, payable
April 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 $603,873.
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.
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 shares post-stock split basis 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.
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)
<PAGE>
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
(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
<PAGE>
(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
May 8, 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<dagger>
TO
FORM 10-Q
OF
MOSINEE PAPER CORPORATION
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. <section>232.102(d))
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
<dagger>Exhibits required by Item 601 of Regulation S-K which have been
previously filed and are incorporated by reference are set forth in Part
IV, Item 14(c) of the Form 10-Q to which this Exhibit Index relates.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31,
1997 OF MOSINEE PAPER CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 541,334
<SECURITIES> 0
<RECEIVABLES> 27,751,424
<ALLOWANCES> 3,170,967
<INVENTORY> 46,302,418
<CURRENT-ASSETS> 79,242,655
<PP&E> 376,215,167
<DEPRECIATION> 174,474,692
<TOTAL-ASSETS> 291,448,126
<CURRENT-LIABILITIES> 44,227,691
<BONDS> 58,065,725
<COMMON> 58,678,056
0
0
<OTHER-SE> 91,635,858
<TOTAL-LIABILITY-AND-EQUITY> 291,448,126
<SALES> 78,216,522
<TOTAL-REVENUES> 78,216,522
<CGS> 57,021,710
<TOTAL-COSTS> 64,458,201
<OTHER-EXPENSES> (115,910)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 874,543
<INCOME-PRETAX> 12,999,688
<INCOME-TAX> 5,150,000
<INCOME-CONTINUING> 7,849,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,849,688
<EPS-PRIMARY> .77
<EPS-DILUTED> 0
</TABLE>
