UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
[ ] 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 1-13923
WAUSAU-MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
100 PAPER PLACE WISCONSIN
MOSINEE, WISCONSIN 54455 (State of incorporation)
(Address of principal executive office) 39-0690900
(I.R.S. Employer Identification
Number)
Registrant's telephone number, including area code: 715-693-4470
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check 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 ___
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 the 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 ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No ___
As of June 30, 2004, the aggregate market value of the common stock
shares held by non-affiliates was approximately $810,356,815. For purposes of
this calculation, the registrant has assumed its directors and executive
officers are affiliates. As of February 18, 2005, 51,695,251 shares of common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PROXY STATEMENT FOR USE IN CONNECTION WITH 2005 ANNUAL MEETING OF SHAREHOLDERS
(TO THE EXTENT NOTED HEREIN): PART III
TABLE OF CONTENTS
Page
PART I
Item 1. Business............................................................1
Item 2. Properties.........................................................12
Item 3. Legal Proceedings..................................................14
Item 4. Submission of Matters to a Vote of Security Holders................14
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities.......15
Item 6. Selected Financial Data............................................16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................17
Item 7A. Quantitative and Qualitative Disclosure About Market Risk..........30
Item 8. Financial Statements and Supplementary Data........................31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures.....................64
Item 9A. Controls and Procedures............................................64
Item 9B. Other Information..................................................64
PART III
Item 10. Directors and Executive Officers of the Registrant.................65
Item 11. Executive Compensation.............................................66
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters..........................67
Item 13. Certain Relationships and Related Transactions.....................68
Item 14. Principal Accountant Fees and Services.............................68
PART IV
Item 15. Exhibits and Financial Statement Schedules.........................69
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PART I
ITEM 1. BUSINESS
GENERAL
Wausau-Mosinee Paper Corporation (the "Company") manufactures, converts, and
sells paper and paper products within three principal operating groups:
Specialty Products, Printing & Writing and Towel & Tissue. Its principal
office is located in Mosinee, Wisconsin. At December 31, 2004, the Company had
approximately 3,200 employees at eleven operating facilities located in seven
states.
During 2004, the Company introduced the Wausau Paper trademark as part of a
unified branding initiative. All three of the Company's business segments
currently market their products under the Wausau Paper label.
This report contains certain of management's expectations and other forward-
looking information regarding the Company. See the subcaption "Cautionary
Statement Regarding Forward-Looking Statements" in this Item 1.
FINANCIAL INFORMATION ABOUT SEGMENTS
Information relating to the Company's sales, a measure of operating profit or
loss, and total assets by segment is set forth in Note 12 of the Notes to
Consolidated Financial Statements.
NARRATIVE DESCRIPTION OF BUSINESS
The Company competes in different markets within the paper industry. Each of
its business segments serves distinct market niches. The various markets for
the products of the Company are highly competitive, with competition based on
service, quality, and price.
The Company's eleven operating facilities are organized into the three business
segments as described below.
SPECIALTY PRODUCTS
Specialty Products produces a wide variety of technical specialty papers at
three facilities located in Rhinelander, Wisconsin; Mosinee, Wisconsin; and
Jay, Maine. The markets for technical specialty papers are diverse and highly
fragmented. Specialty Products' market position varies by product, but it is a
leading producer of supercalendered backing papers used as a base from which
"peel-and-stick" pressure sensitive labels are dispensed. These backing papers
are designed for high-speed labeling machines, which apply labels on consumer
products such as shampoo and deodorant. Specialty Products is also North
America's largest producer of unsaturated masking tape base paper used in the
production of masking tape. Other products include a broad range of food,
medical, and industrial papers used in a variety of applications including
grease-resistant protective barrier paper for pet food and microwave popcorn,
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lightweight paper for sterilized medical packaging, interleaver paper used in
steel processing and to protect polished steel after production, and coating
and laminating base papers used in composite can labeling.
Specialty Products' papers are sold to manufacturers and converters, primarily
in the United States, that serve a host of industries including consumer
products, food service, pet food, medical packaging, and manufacturing. Under
the Wausau Paper(trademark) label products are marketed under a variety of
brands including FLEXCAL(reg-trade-mark), ExperTec(trademark),
DuraTec(trademark), ProTec(trademark), ProGard(trademark), ProRedi(trademark),
and ProPly(trademark).
Primary competition for Specialty Products comes from approximately 12 paper
producing companies including International Paper Corporation, Longview Fibre
Corporation, and Fraser Paper, Inc.
PRINTING & WRITING
Printing & Writing produces and converts two lines of paper products in six
facilities. At facilities in Appleton and Brokaw, Wisconsin; Groveton, New
Hampshire; and Brainerd, Minnesota, the Group manufactures and converts a broad
line of premium uncoated printing, writing, and imaging papers in various
weights, colors, sizes, and finishes. Approximately 50% of the fine printing
and writing papers produced are colored papers. Distribution warehouses are
currently maintained in Appleton and Brokaw, Wisconsin; Groveton, New
Hampshire; Dallas, Texas; and Los Angeles, California.
Under the Wausau Paper{trademark} label, products are marketed under a variety
of brands, including Astrobrights{reg-trade-mark}, Astropaque{reg-trade-mark},
Royal, and Professional Series{reg-trade-mark} products. These papers are used
for printed and photocopied documents such as annual reports, brochures,
announcements, and greeting cards. Over 80% of Printing & Writing's products
are sold in sheet form to paper distributors, who sell to commercial printers,
in-plant print shops, quick printers, and copy centers and to office supply
stores to reach small- and home-office customers. Products are also sold in
roll form to converters that serve the greeting card, envelope, and
announcement industry. The segment's fine printing and writing sales are
estimated to be less than 3% of the total uncoated free-sheet market.
Competition in printing and writing grades comes from specialty divisions of
major integrated paper companies as well as smaller, privately held non-
integrated companies. The Company estimates that the number of principal
competitors in the printing and writing grade papers portion of uncoated free-
sheet market is approximately 14. Competitors include International Paper
Corporation, Domtar, Inc., and Weyerhaeuser Company.
Printing & Writing also operates converting facilities in Columbus, Wisconsin,
and Jackson, Mississippi, which produce moisture-barrier laminated roll wrap
used to protect rolls of paper during storage and shipment, and related
specialty finishing and packaging products such as custom coating, laminating
and converting. These products are sold to manufacturers and converters who
serve multiple industries including paper, industrial packaging, and corrugated
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containers. Mosinee Converted Products' moisture barrier laminated roll wrap
sales is estimated to be approximately 50% of the North American roll wrap
market.
Primary competition in roll wrap comes from approximately 4 other wax and poly
laminators and includes Cascades/Sonoco, Inc. and Ludlow Coated Products.
TOWEL & TISSUE
Towel & Tissue produces a broad line of paper towel and tissue products which
are marketed along with soap and dispensing system products for the industrial
and commercial "away-from-home" market.
Under the Wausau Paper(trademark) name, Bay West(reg-trade-mark) towel and
tissue products, made primarily from recycled material, are marketed under a
number of brands including DublSoft(reg-trade-mark), EcoSoft(trademark),
OptiCore(trademark), Revolution(trademark), and Dubl-Tough(reg-trade-mark).
These products include washroom roll and folded towels, tissue products, a
variety of towel, tissue, and soap dispensers, windshield folded towels,
industrial wipers, dairy towels, household roll towels, and other premium towel
and tissue products. Products are sold to paper and sanitary supply
distributors in North America that serve factories and other commercial and
industrial locations, health service facilities, office buildings, restaurants,
theme parks, airports, and hotels. Towel & Tissue's paper mill is located in
Middletown, Ohio and its converting facility and main distribution warehouse
are located in Harrodsburg, Kentucky. In addition, the Company currently
maintains a distribution warehouse in Los Angeles, California.
Competition comes from major integrated paper companies and smaller converters
which service consumer and food service markets as well as the industrial and
institutional markets concentrated on by Bay West. Major competitors include
Georgia-Pacific Corporation, Kimberly Clark Corporation, and SCA Hygiene
Products.
EXPORT SALES
Currently, foreign sales represent approximately 8 percent of the Company's net
sales. In January 2002, the Appellate Body of the World Trade Organization
held that the United States extraterritorial income exclusion ("ETI") was a
prohibited export subsidy similar to the foreign sales corporation. The United
States enacted legislation in October 2004 which addressed the European Union's
objections regarding the ETI regime. The American Jobs Act of 2004 included
the repeal of ETI and provided a deduction with respect to income of certain
United States manufacturing activity in 2005. ETI regime repeal becomes fully
effective in 2007. For transactions prior to 2005, the Company will retain 100
percent of their ETI benefits. For transactions in 2005 and 2006, the ETI
benefit will be available, but at a reduced rate of the prior benefit of 80
percent and 60 percent, respectively. The Company is currently evaluating the
financial impact of the repeal of ETI and the implementation of the qualified
production activities deduction.
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RAW MATERIALS
Pulp is the basic raw material for paper production and represents
approximately one-half of the cost of making paper. The Mosinee and Brokaw
mills are the only Company facilities with pulping operations. These pulp
mills provide a percentage of the fiber needs to our Wisconsin paper operations
as follows: Mosinee, 56%; Brokaw 51%; and Rhinelander, 7%.
Wood fiber required for operation of the Company's pulp mills is purchased on
the open market in the form of pulpwood and chips from independent contractors.
In addition, approximately 8% of the timber consumed in pulping operations is
produced from Company-owned timberlands. Open-market pulpwood is purchased
from approximately 200 independent loggers at market prices under contracts
that typically provide for the delivery of a specified amount of wood and are
entered into on a quarterly basis. Open-market chips are also purchased from
independent sawmills. The balance of the Company's pulp needs at Mosinee and
Brokaw and all of the pulp used at the Company's other facilities (an aggregate
of nearly 400,000 air-dried metric tons annually) is purchased on the open
market, principally from pulp mills throughout the United States and Canada.
The Company has purchased, and may, from time to time in the future, purchase
pulp futures contracts as a hedge against significant future increases in the
market price of pulp.
Recycled, de-inked fiber with a high content of post-consumer waste is
purchased from domestic suppliers as part of the fiber requirements for
Printing & Writing's recycled products. Recycled fiber is in adequate supply
and readily obtainable.
Towel & Tissue fulfills substantially all of its de-inked fiber needs from 100%
recycled wastepaper which is readily available from domestic suppliers.
Approximately 150,000 standard tons of wastepaper is consumed annually. In
addition, approximately 35% of Towel & Tissue's parent roll supply needs are
purchased from outside sources at current market prices.
Various chemicals are used in the pulping and papermaking processes. These
industrial chemicals are available from a number of suppliers and are purchased
at current market prices.
ENERGY
The Company's paper mills require large amounts of electrical and steam energy
which are adequately supplied by public utilities or generated at Company
operated facilities. The Company generates approximately 35% of its electrical
power needs from spent pulping liquor, fuel oil, coal, wood chips, fibercake,
natural gas, and hydropower. Spent pulping liquor, wood chips, and fibercake
are byproducts of mill operations. The Company continues to explore
alternative power sources as an ongoing business process and is party to an
operating lease for a co-generation electrical power facility for its Groveton
mill.
The Company contracts for the supply and delivery of natural gas at some of its
facilities. Under these contracts, the Company is committed to the
transportation of a fixed volume of natural gas from the Company's natural gas
suppliers to the Company's facilities. The Company is not required to buy or
sell minimum gas volumes under the agreement but is required to pay a
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minimum transportation fee for the contracted period. Contracts expire at
various times between 2005 and 2019. At December 31, 2004, the Company also
has commitments for the purchase of machine clothing from various suppliers and
volume commitments for the supply of fuel oil, natural gas, coal, and certain
raw materials. These obligations expire in 2005. The Company may also
purchase, from time to time, natural gas contracts with fixed prices for a
certain portion of the Company's requirements.
PATENTS AND TRADEMARKS
The Company develops and files trademarks and patents, as appropriate.
Trademarks include Wausau Paper(trademark), FLEXCAL(reg-trade-mark),
ExperTec(trademark), DuraTec(trademark), ProTec(trademark), ProGard(trademark),
ProRedi(trademark), Astrobrights(reg-trade-mark), Astropaque(reg-trade-mark),
Exact(reg-trade-mark), Bay West(reg-trade-mark), EcoSoft(trademark),
DublSoft(reg-trade-mark), OptiCore(trademark), Revolution(trademark), and Wave
'N Dry(reg-trade-mark), among others. The Company's patents cover various
paper towel dispensers and metering or other mechanisms for towel dispensers
and cabinets and certain silicone release papers. The Company considers its
trademarks and patents, in the aggregate, to be material to its business,
although the Company believes the loss of any one such mark or patent right
would not have a material adverse effect on its business. The Company does not
own or hold material licenses, franchises or concessions.
SEASONAL NATURE OF BUSINESS
The markets for some of the grades of paper produced by the Company tend to be
somewhat seasonal. However, the marketing seasons for these grades are not
necessarily the same. Overall, the Company generally experiences lower sales
in the first quarter, in comparison to the rest of the year, primarily due to
reduced business activity for many customers following the year-end holiday
season.
WORKING CAPITAL
As is customary in the paper industry, the Company carries adequate amounts of
raw materials and finished goods inventory to facilitate the manufacture and
rapid delivery of paper products to its customers.
MAJOR CUSTOMERS
A substantial portion of the Company's business is with customers in various
paper converting, paper merchant, or distribution businesses. No single
customer accounted for 10% or more of the consolidated net sales during 2004.
BACKLOG
Consolidated order backlogs increased to approximately 35,100 tons representing
$42.0 million in sales as of December 31, 2004. This compares to 31,600 tons,
or $33.4 million in sales as of December 31, 2003, and 33,500 tons, or $35.3
million in sales at December 31, 2002. Improvements in customer order backlog
were evident in all three business segments as of December 31, 2004 compared to
December 31, 2003. Specialty Products' backlog tons were
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22,800 tons at December 31, 2004 compared to 21,700 tons at December 31,
2003. Printing & Writing's backlog tons improved to 9,900 tons at December 31,
2004 from 8,600 tons at December 31, 2003. In the Towel & Tissue business
segment, backlog tons were 2,400 tons at December 31, 2004 and 1,300 tons at
December 31, 2003. The change in customer backlog at December 31, 2004
compared to December 31, 2003 does not necessarily indicate a change in
business conditions, as a large portion of orders is shipped directly from
inventory upon receipt and do not impact backlog numbers. The entire backlog
at December 31, 2004 is expected to be shipped during fiscal 2005.
RESEARCH AND DEVELOPMENT
Research and development projects for the last three fiscal years primarily
involved development of new release liners for Specialty Products' line of
"peel-and-stick" liner papers, food-packaging/ food-service papers and the
development of new color and writing grades at Printing & Writing.
Expenditures for product development were $1,858,000 in 2004, $2,155,000 in
2003, and $2,145,000 in 2002.
ENVIRONMENT
The Company is subject to extensive regulation by various federal, state,
provincial, and local agencies concerning compliance with environmental control
statutes and regulations. These regulations impose limitations, including
effluent and emission limitations, on the discharge of materials into the
environment, as well as require the Company to obtain and operate in compliance
with conditions of permits and other governmental authorizations. Future
regulations could materially increase the Company's capital requirements and
certain operating expenses in future years.
The Company has a strong commitment to protecting the environment. Like its
competitors in the paper industry, the Company faces increasing capital
investments and operating costs to comply with expanding and more stringent
environmental regulations. The Company estimates that its capital expenditures
for environmental purposes will approximate $2.4 million in 2005.
The Company believes that capital expenditures associated with compliance with
environmental regulations will not have a material adverse effect on its
competitive position, consolidated financial condition, liquidity, or earnings.
The Company is not involved in any proceedings under the Comprehensive
Environmental Response, Compensation and Liability Act. In 1986, the Wisconsin
Department of Natural Resources ("DNR") notified a subsidiary of the Company
that under Wisconsin environmental laws it may be a potentially responsible
party ("PRP") for the Gorski landfill in Mosinee, Wisconsin, and nominated the
landfill to the Environmental Protection Agency's ("EPA") National Priorities
List. The DNR had identified elevated concentrations of chlorinated volatile
organic compounds in three private water supply wells located in close
proximity to the landfill. The DNR has identified 10 PRPs. No action was
taken by either the DNR or the EPA until June 2000, when the DNR requested
certain parties who had disposed of waste at the site to form an ad hoc group
to cooperatively investigate the environmental contamination at the site. In
October 2001, the Company entered into an agreement with three other parties to
fund a study of
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the landfill to determine possible remediation strategies. The Company worked
with the DNR on the development of the study and work plan which was initiated
in early 2003. A report based upon the study was submitted to the DNR in 2004.
The DNR has not provided a response to the study submission. The Company
estimates that the costs of remediation of the entire site for all parties will
be approximately $3 million, based upon the remediation method the Company's
consultants believe to be the most likely to be used. This estimate is
preliminary. Actual costs of remediation of the site could be materially
different since no timetable or decision on the actual remediation work has yet
been developed. The Company's share of the cost of such remediation cannot be
determined with certainty at this time, but based on the estimated costs at
year-end and the number and nature of other potentially responsible parties,
the Company is of the opinion that such costs will not have a material adverse
effect on the operations, financial condition, or liquidity of the Company.
The Company is also pursuing insurance coverage of its remediation costs
following a 2003 Wisconsin Supreme Court decision in an unrelated case that
remediation claims may amount to damages for purposes of general liability
insurance.
Note 9 of the Notes to Consolidated Financial Statements discusses the
Company's policies with respect to the accrual of remediation costs. Estimates
of costs for future remediation are necessarily imprecise due to, among other
things, the identification of presently unknown remediation sites and the
allocation of costs among potentially responsible parties. The Company
believes that its share of the costs of cleanup for its current remediation
site will not have a material adverse impact on its consolidated financial
position. As is the case with most manufacturing and many other entities,
there can be no assurance that the Company will not be named as a PRP at
additional sites in the future or that the costs associated with such
additional sites would not be material.
EMPLOYEES
The Company had approximately 3,200 employees at the end of 2004. Most hourly
mill employees are covered under collective bargaining agreements. One new
five-year labor agreement with the Paper, Allied-Industrial, Chemical & Energy
Workers International Union at Specialty Products' Jay, Maine facility was
negotiated in 2004. Labor agreements will expire in other facilities in 2005,
2006, 2007, and 2008. The Company expects that new multi-year contracts will
be negotiated at competitive rates. The Company maintains good labor relations
at all facilities.
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EXECUTIVE OFFICERS OF THE COMPANY
The following information relates to executive officers of the Company as of
March 15, 2005. Unless otherwise specified, current positions listed for an
executive officer have been held for a minimum of five years.
SAN W. ORR, JR., 63
Chairman of the Board of the Company and Advisor, Estates of A. P.
Woodson and family; Chief Executive Officer of the Company (2000; 1994-
1995; 1989-1990); formerly Chairman of the Board (1987-1997) and a
Director (1972-1997) of Mosinee Paper Corporation; also a Director of
Marshall & Ilsley Corporation.
THOMAS J. HOWATT, 55
President and Chief Executive Officer of the Company since August, 2000.
Previously, Senior Vice President, Printing & Writing (1997-2000), Vice
President and General Manager, Printing & Writing Division (1994-1997),
Vice President and General Manager, Wausau Papers of New Hampshire (1993-
1994), Vice President Operations, Brokaw Division (1990-1993), and prior
thereto, Vice President, Administration, Brokaw Division.
STUART R. CARLSON, 58
Executive Vice President, Administration since October, 2000.
Previously, Senior Vice President, Specialty Paper Group (1997-2000), and
Senior Vice President -Administration (1993-1996), and Vice President
Human Resources (1991-1993) of Mosinee Paper Corporation. Also Director
of Human Resources, Georgia Pacific, Inc. (1990-1991) and Corporate
Director of Industrial Relations, Great Northern Nekoosa Corporation
(1989-1990).
ALBERT K. DAVIS, 57
Senior Vice President, Specialty Products since October, 2000.
Previously, Vice President of Operations (1996 - 2000), Vice President of
Engineering (1990 - 1996), and Director of Engineering (1983-1990),
Rhinelander Paper Company, Inc.
THOMAS W. CRAVEN, 51
Senior Vice President, Printing & Writing since October, 2004.
Previously, Vice President-Operations Wausau Papers (2003-2004), Vice
President-Operations Brokaw Mill (1999-2003), and Vice President-
Operations (1997-1999), Director of Operations (1995-1997), and Director
of Purchasing (1993-1995), Groveton Mill.
PETE R. CHIERICOZZI, 61
Senior Vice President, Towel & Tissue since September, 2003. Previously,
Consultant, Self-employed (2002), Vice President, Sales and Marketing,
SCA Tissue (2001), Executive Vice President, Sales and Marketing,
Georgia-Pacific Tissue (2000), Executive Vice-President, Wisconsin Tissue
(Division of Chesapeake Corporation) (1999).
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SCOTT P. DOESCHER, 45
Senior Vice President, Finance, Secretary and Treasurer since May, 2001.
Previously, Vice President, Finance, Printing & Writing Group (1998-
2001), Director of Finance, Printing & Writing Division (1992-1998) and
Corporate Director Financial Analysis and Internal Audit and Assistant
Secretary/Treasurer (1988-1992).
DENNIS M. URBANEK, 60
Senior Vice President, Engineering and Environmental Services since 1998.
Previously, Vice President, Engineering and Environmental Services (1996-
1997) of Mosinee Paper Corporation, Vice President and General Manager of
Mosinee's Pulp & Paper Division (1992-1996), and Vice President and
General Manager, Sorg Paper Company (1990-1992).
AVAILABLE INFORMATION
Information regarding the Company's annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and any amendments to these
reports, are available, free of charge, in the Company's website by going to
"Investor Information- SEC Filings" at www.wausaupaper.com, as soon as
reasonably practicable after the Company electronically files such reports with
or furnishes them to the Securities and Exchange Commission.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). In
addition, certain statements in future filings by the Company with the
Securities and Exchange Commission, reports to shareholders, press releases,
and other oral and written statements made by or with the approval of the
Company which are not statements of historical fact will constitute forward-
looking statements within the meaning of the Reform Act.
Forward-looking statements of the Company may be identified by, among other
things, expressions of the Company's or Company officers' beliefs or
expectations that certain events may occur or are anticipated, and projections
or statements of expectations with respect to (i) various aspects of the
Company's business (including, but not limited to, net income, the availability
or price of raw materials, and customer demand for Company products), (ii) the
Company's plans or intentions, (iii) the Company's stock performance, (iv) the
industry within which the Company operates, (v) the economy, and (vi) any other
expressions of similar import or covering other matters relating to the
Company, its business, and its operations. 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 are not guarantees of performance. 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. Many of the factors that will
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determine these results are beyond the Company's ability to control or
predict. Shareholders and others are cautioned not to put undue reliance on
any forward-looking statements.
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:
(circle)Increased competition from either domestic or foreign paper
producers or providers of alternatives to the Company's products,
and general over capacity in the paper industry, resulting in sales
declines from reduced shipment volume and/or lower net selling
prices in order to maintain shipment volume. The Company competes
in three segments of the paper industry. The Company has several
competitors in most of its market segments, many of which are
larger and have greater capital and marketing resources than the
Company. Changes within the paper industry, including the
consolidations of producers of products which compete with the
Company and consolidation within the distribution channels for
Company products, have and may continue to occur and may adversely
affect the Company's financial performance.
(circle)The failure to develop new products to attain the Company's
overall goal of generating at least 25% of revenue from products
introduced within the previous three years could adversely affect
the overall demand for Company products. In addition, changes in
customer demand for the Company's products due to overall economic
activity affecting the rate of consumption of the Company's
products, growth rates of the end markets for the Company's
products, and technological or consumer preference changes, may
significantly reduce revenues and income.
(circle)Changes in the price of raw materials, in particular market pulp,
purchased parent rolls, and wastepaper. Raw materials comprise
approximately 50% of the Company's cost of sales, with market pulp,
purchased parent rolls, and wastepaper accounting for more than
one-half of this total. Raw material prices will change based on
supply and demand on a worldwide spectrum. Pulp price changes can
occur due to worldwide consumption levels of pulp, pulp capacity
additions, expansions or curtailments of the supply of pulp,
inventory building or depletion at pulp consumer levels which
affect short-term demand, and pulp producer cost changes related to
wood availability, environmental issues, or other variables.
(circle)Changes in energy prices or difficulty in obtaining adequate
supplies of needed fuels or sources of power.
(circle)Unforeseen or recurring operational problems at any of the
Company's facilities causing significant lost production and/or
cost increases.
(circle)Significant changes to the Company's strategic plans such as a
major acquisition or expansion, the disposition of assets or
product lines, the failure to successfully
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execute major capital projects or other strategic plans, or the
inability to successfully integrate an acquisition.
(circle)Changes in laws or regulations which affect the Company. The
paper industry is subject to stringent environmental laws and
regulations and any changes required to comply with such laws or
regulations may increase the Company's capital expenditures and
operating costs, and decrease the amount of funds available for
investment in other areas of operation. In addition, the costs of
remediation of known environmental sites, as described in Note 9 of
the Notes to Consolidated Financial Statements, may exceed current
estimates and there may be additional sites not now known to the
Company that may require significant remediation expenses in the
future.
(circle)Unforeseen liabilities arising from current or prospective
litigation, including liabilities which may arise from claims under
environmental laws which may impose liability for the release of
hazardous materials whether or not the Company had knowledge of or
was responsible for such release.
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ITEM 2. PROPERTIES
The Company's headquarters are located in Mosinee, Wisconsin. Executive
officers and corporate staff who perform corporate accounting, financial, and
human resource services are located in the corporate headquarters, as are
certain business segment personnel. The Company's operating facilities consist
of the following:
Number of
Paper Practical 2004
Facility Product Machines Capacity*(tons) Actual(tons)
Printing & Writing
Brokaw, WI Paper 4 177,000 168,000
Pulp 99,000 81,000
Groveton, NH Paper 2 117,000 115,000
Brainerd, MN Paper 2 170,000 7,000
Appleton, WI
Converting N/A 45,000 24,000
Columbus, WI and Laminated/
Jackson, MS Coated Papers N/A 150,000 73,000
Specialty Products
Rhinelander, WI Paper 4 150,000 148,000
Otis, ME Paper 2 73,000 69,000
Mosinee, WI Paper 4 119,000 116,000
Pulp 96,000 76,000
Towel & Tissue
Middletown, OH Towel & Tissue 2 110,000 106,000
Deink Pulp 110,000 103,000
Harrodsburg, KY Converted Towel
& Tissue N/A 190,000 153,000
* "Practical capacity" is the amount of finished product a mill can produce
with existing papermaking equipment, grade mix and workforce and usually
approximates maximum, or theoretical, capacity. At the Company's converting
operations it reflects the approximate maximum amount of product that can be
made on existing equipment, but would require additional days and/or shifts of
operation to achieve.
-12-
The Company currently maintains warehouse distribution facilities in order to
provide prompt delivery of its products. The facilities are:
Owned or
Segment Location Square Feet Leased (Expiration Date)
Printing & Writing Appleton, WI 36,000 Owned
Brokaw, WI 174,000 Owned
Dallas, TX 85,000* Leased (July 2005)
Groveton, NH 80,000 Owned
Los Angeles, CA 85,000* Leased (December 2005)(dagger)
Towel & Los Angles, CA 45,000* Leased (December 2005)(dagger)
Tissue
Harrodsburg, KY 460,000 Owned
* guaranteed space
(dagger)Aggregate of approximately 130,000 square feet under one agreement which will expire in December 2005.
Specialty Products and Towel & Tissue also lease limited space in various
warehouses to facilitate deliveries to specific customers.
The Company owns approximately 120,000 acres of timberland in the state of
Wisconsin. The growing stock inventory on Company timberlands is an estimated
8,869 thousand board feet of saw timber and an estimated 570,000 cords of
pulpwood.
-13-
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a potentially responsible party with respect to a
Mosinee, Wisconsin landfill. See "Environment" in Item 1 of this report.
The Company strives to maintain compliance with applicable environmental
discharge regulations at all times. However, from time to time, the Company's
operating facilities may exceed permitted levels of materials into the
environment or inadvertently discharge other materials. Such discharges may be
caused by equipment malfunction, prevailing environmental conditions, or other
factors. It is the policy of the Company to report any violation of
environmental regulations to the appropriate environmental authority as soon as
it becomes aware of such an occurrence and to work with such authorities to
take appropriate remediatory or corrective actions.
The Company may be involved from time to time in various other legal and
administrative proceedings or subject to various claims in the normal course of
its business. Although the ultimate disposition of legal proceedings cannot be
predicted with certainty, in the opinion of management, the ultimate
disposition of any threatened or pending matters described in this Item 3,
either individually or on a combined basis, will not have a material adverse
effect on the consolidated financial condition, liquidity, or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter
of 2004.
-14-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's common stock is traded on the New York Stock Exchange under the
symbol "WPP".
As of the record date of the annual meeting, February 18, 2005, (the "Record
Date") there were approximately 2,900 holders of record of the Company's common
stock. The Company estimates that as of the Record Date there were
approximately 6,200 additional beneficial owners whose shares were held in
street name or in other fiduciary capacities. As of the Record Date, there
were 51,695,251 shares of common stock outstanding.
The following table sets forth the range of high and low sales price
information of the Company's common stock and the dividends declared on the
common stock, for the calendar quarters indicated.
Market Price Cash Dividend
Calendar Quarter High Low Declared
2004
First Quarter $14.11 $12.20 *
Second Quarter $17.44 $13.19 $.17
Third Quarter $17.40 $14.54 $.085
Fourth Quarter $19.12 $15.15 $.085
2003
First Quarter $12.08 $ 9.30 *
Second Quarter $12.23 $10.20 $.17
Third Quarter $13.40 $11.03 $.085
Fourth Quarter $13.85 $11.75 $.085
2002
First Quarter $12.97 $10.50 *
Second Quarter $14.00 $11.20 $.17
Third Quarter $12.09 $ 9.00 $.085
Fourth Quarter $11.81 $ 8.14 $.085
*Two dividends of $.085 per share were declared in the second quarter in
2004, 2003 and 2002.
Information required by Item 201(d) of SEC Regulation S-K is set forth under
Item 12, Part III of this report.
-15-
ITEM 6. SELECTED FINANCIAL DATA
WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA
(all amounts in thousands,
except per share data) For The Year Ended December 31,
2004 2003** 2002 2001 2000*
FINANCIAL RESULTS
Net sales $1,040,717 $971,444 $948,698 $943,729 $990,924
Depreciation, depletion, and amortization 59,965 60,823 60,624 60,948 58,860
Operating profit 41,724 35,278 47,422 28,279 17,785
Interest expense 10,285 10,188 10,845 14,416 15,713
Earnings before provision for income taxes 32,378 25,180 36,618 14,143 2,325
Net earnings 20,393 15,863 23,068 8,913 1,465
Cash dividends paid 17,560 17,527 17,520 17,498 17,207
Cash flows from operating activities 70,737 63,105 76,269 103,866 80,254
PER SHARE
Net earnings - basic and diluted $0.39 $0.31 $0.45 $0.17 $0.03
Cash dividends declared 0.34 0.34 0.34 0.34 0.34
Stockholders' equity 6.91 6.80 6.91 7.09 7.33
Basic average number of shares outstanding 51,662 51,549 51,532 51,466 51,354
Price range (low and high closing) $12.33-19.12 $9.45-13.58 $8.26-13.80 $8.82-14.00 $7.63-14.63
FINANCIAL CONDITION
Working capital $139,542 $136,414 $118,398 $101,724 $138,605
Total assets 882,234 858,100 873,757 892,008 954,494
Long-term debt 161,833 162,174 162,763 192,264 250,465
Stockholders' equity 357,092 350,316 355,948 364,855 376,112
Capital expenditures 29,565 24,261 19,201 29,791 86,896
RATIOS
Percent net earnings to sales 2.0% 1.6% 2.4% 1.0% 0.1%
Percent net earnings to average stockholders'
Equity 5.8% 4.5% 6.4% 2.6% 0.4%
Ratio of current assets to current liabilities 1.9 TO 1 2.2 to 1 2.0 to 1 1.8 to 1 2.1 to 1
Percent of long-term debt to total capitalization 31.2% 31.6% 31.4% 34.5% 40.0%
*In 2000, includes after-tax expense of $14.0 million ($22.3 million pretax) or $0.27 per share for
restructuring expense related to the closure of the Sorg Paper Company.
**In 2003, includes after-tax income of $2.6 million ($4.2 million pretax) or $0.05 per share for a fee for
licensing certain patent dispenser technologies as a result of a settlement of all claims of the parties in a
patent litigation case.
-16-
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This report contains certain of management's expectations and other forward-
looking information regarding the Company pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. While the
Company believes that these forward-looking statements are based on reasonable
assumptions, such statements are not guarantees of future performance, and 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 general economic and business conditions, changes in the prices
of raw materials or energy, competitive pricing in the markets served by the
Company as a result of economic conditions, overcapacity in the industry and
the demand for paper products, manufacturing problems at Company facilities,
and various other risks and assumptions. These and other assumptions, risks,
and uncertainties are described under the caption "Cautionary Statement
Regarding Forward-Looking Statements" in Item 1 of Wausau-Mosinee Paper
Corporation's Annual Report on Form 10-K for the year ended December 31, 2004,
and from time to time, in the Company's other filings with the Securities and
Exchange Commission. The Company assumes no obligation to update or supplement
forward-looking statements that become untrue because of subsequent events.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States which require the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements and
revenues and expenses during the periods reported. Actual results could differ
from those estimates. The Company believes the following are the accounting
policies which could have the most significant effect on the Company's reported
results and require subjective or complex judgments by management.
SALES RETURNS AND ALLOWANCES
The Company maintains reserves for expected returns and allowances based on
return practices and historical experience. Reserves for returns and
allowances may need to be adjusted if actual sales returns differ from
estimates.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company records allowances for doubtful accounts based upon customer-
specific analysis and general matters such as current assessment of past-due
balances. Additional allowances for doubtful accounts may be required if there
is an increase in past-due balances or for customer-specific circumstances,
such as financial difficulty. The allowance for doubtful accounts was $1.8
million and $1.9 million at December 31, 2004 and 2003, respectively.
-17-
EXCESS AND OBSOLETE INVENTORY
The Company records allowances for excess and obsolete inventory based on
historical and estimated future demand and market conditions. Additional
inventory allowances may be required if future demand or market conditions are
less favorable than the Company has estimated.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of the carrying amount of long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. The Company uses judgment
when applying the impairment rules to determine when an impairment test is
necessary. Factors the Company considers which could trigger an impairment
review include significant underperformance relative to historical or
forecasted operating results, a significant decrease in the market value of an
asset, a significant change in the extent or manner in which an asset is used,
and significant negative or industry trends.
Impairment losses are measured as the amount by which the carrying value of an
asset exceeds its estimated fair value. The Company is required to make
estimates of its future cash flows related to the asset subject to review.
These estimates require assumptions about demand for the Company's products,
future market conditions, and technological developments. Other assumptions
include determining the discount rate and future growth rates.
INCOME TAXES
The Company's estimate of income taxes payable, deferred income taxes, and the
effective tax rate is based on an analysis of many factors including
interpretations of Federal, state, and foreign income tax laws, the difference
between tax and financial reporting basis of assets and liabilities, estimates
of amounts currently due or owed, and current accounting standards. We review
and update our estimates on a quarterly basis as facts and circumstances change
and actual results are known. In addition, Federal and state taxing
authorities periodically review the Company's estimates and interpretations of
income tax laws. Adjustments to the effective income tax rate and recorded
assets and liabilities may occur in future periods if actual results differ
significantly form original estimates and interpretations.
PENSION BENEFITS
Defined benefit pension costs and obligations are actuarially determined and
are affected by assumptions including discount rate, the expected rate of
return on plan assets, and assumed annual rate of compensation increase for
plan employees, among other factors. Changes in discount rate and differences
from actual results for each assumption will affect the amount of pension
expense recognized in future periods. Additional information regarding pension
benefits is available in "Note 5 - Pension and Other Post-retirement Benefit
Plans" in the Notes to Consolidated Financial Statements.
-18-
OTHER POST-RETIREMENT BENEFITS
The costs and obligations for post-retirement benefits other than pension are
also actuarially determined and are affected by assumptions including the
discount rate and expected future increase in per capita costs of covered post-
retirement health care benefits. Changes in the discount rate and differences
between actual and assumed per capita health care costs may affect the recorded
amount of the expense in future periods. Additional information regarding
post-retirement benefits is available in "Note 5 - Pension and Other Post-
retirement Benefit Plans" in the Notes to Consolidated Financial Statements.
LITIGATION, CLAIMS, AND CONTINGENCIES
The Company is subject to extensive regulations by various federal, state,
provincial, and local agencies concerning compliance with environmental control
statutes and regulations. These regulations impose limitations, including
effluent and emission limitations, on the discharge of materials into the
environment, as well as require the Company to obtain and operate in compliance
with conditions of permits and other governmental authorizations. Future
regulations could materially increase the Company's capital requirements and
certain operating expenses in future years.
The Company records environmental liabilities based on estimates for known
environmental remediation exposures utilizing information received from third-
party experts and the Company's past experience with these matters. At third-
party sites where more than one potentially responsible party has been
identified, the Company records a liability for its estimated allocable share
of costs related to its involvement with the site as well as an estimated
allocable share of costs related to the involvement of insolvent or
unidentified parties. Environmental liability estimates may be affected by
changing determinations of what constitutes an environmental exposure or
acceptable level of cleanup. To the extent that remediation procedures change
or the financial condition of other potentially responsible parties is
adversely affected, the estimate of the Company's environmental liabilities may
change.
FUTURE ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ( "FASB") issued
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-
Based Payment" ("SFAS 123R"), which will be effective for the Company on July
1, 2005. SFAS 123R requires all share-based payments to employees, including
grants of employee stock options, to be recognized as an operating expense in
the statement of operations based on the grant-date fair value of the award.
The new standard may be adopted using either the modified prospective
transition method or the modified retrospective method. The Company is
currently evaluating our share-based employee compensation programs, the
potential impact of this statement on the consolidated financial position and
results of operations, and the alternative adoption methods.
In November 2004, the FASB issued SFAS 151, "Inventory Costs-an amendment of
ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151, which is effective for the
Company beginning January 1, 2006, requires that abnormal amounts of idle
facility expense, freight, handling costs, and
-19-
wasted material (spoilage) be recognized as current-period charges. In
addition, SFAS 151 requires that allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of the production
facilities. The adoption of SFAS 151 is not expected to have a material impact
on the Company's consolidated financial statements.
OPERATIONS REVIEW
OVERVIEW
Market conditions improved somewhat in 2004 following generally sluggish demand
in 2003. Following four consecutive years of decline, demand for uncoated
freesheet papers increased slightly in 2004. Specialty Products and Towel &
Tissue demand improved modestly in both 2004 and 2003. Average net selling
prices increased in each of the Company's three business segments in 2004 as
compared to 2003, with the most significant improvements occurring in Specialty
Products and Towel & Tissue. Although production capacity utilization
generally improved across the paper industry in 2004 and paper prices
increased, excess capacity has kept market conditions competitive. Fiber and
energy costs increased significantly in both 2004 and 2003, offsetting much of
the benefit of higher average selling prices. Despite only modest improvement
in market conditions and significantly higher raw material and energy costs in
both 2004 and 2003, the Company made progress with several initiatives intended
to help the Company improve its return on capital employed toward a targeted 13
percent. These initiatives include activities intended to reduce the Company's
costs, increase production efficiencies and improve the Company's product mix.
In 2004, the Company targeted cost reductions equal to 2% of 2003 cost of
sales, or approximately $17 million, equalizing for production volume and mix
differences and fiber and energy price variations. The Company exceeded this
goal for the year. A similar cost reduction goal was achieved in 2003. The
Company increased productivity by 2% in 2004 with five of the Company's six
paper mills posting improvement, excluding the Company's newly acquired
Brainerd, Minnesota, facility. In 2003, productivity increased 1%. Revenues
from products developed in the previous three years exceeded our corporate goal
of 25% in both 2004 and 2003. New product introductions have helped the
Company increase its sales of higher-margin premium products, displacing lower-
margin fill grades. The Company's ability to achieve its targeted return on
capital employed is influenced by these and other internal initiatives as well
as external factors including general economic conditions, the price of raw
materials and energy, and changes in market demand and pricing of paper
products.
NET SALES
(all dollar amounts in thousands) 2004 2003 2002
Net sales $1,040,717 $971,444 $948,698
Percent increase 7% 2% 1%
Net sales for the year ended December 31, 2004, were $1,040.7 million compared
to net sales of $971.4 million for the year ended December 31, 2003. Total
shipments increased 2% in 2004 to 863,055 tons from the 844,740 tons shipped in
2003. Net sales in 2002 were $948.7 million, and total tons shipped were
831,808 tons.
-20-
Shipments increased each of the last two years in all three of the Company's
business segments as the Company's paper mills operated essentially at full
capacity. Average net selling price improved 5%, or $49 million, in 2004 as
compared to 2003 with selling price increases accounting for more than half of
the improvement. Actual product selling prices improved approximately 3% in
2004, increasing net sales approximately $29 million, while sales mix
enhancements improved average selling price by 2% or net sales by $20 million.
Compared to 2002, 2003 average net selling price increased 1%, improving net
sales by $9 million. Sales mix enhancements improved 2003 average net selling
price by approximately 1% and net sales by $8 million.
Discussion of market conditions and trends is included in the segment summaries
that follow. If published market data is available, it is referenced in the
discussion. Certain markets within which the Company competes are small and
highly fragmented. Where industry data is not available, the Company's
analysis is based on more subjective market indicators, such as order patterns
for Company products and discussion with customers regarding overall industry
volumes.
Specialty Products recorded net sales of $410.2 million on total shipments of
348,887 tons for the year ended December 31, 2004, compared with net sales of
$362.9 million on shipments of 334,183 tons in 2003. Net sales and shipments
in 2002 were $349.0 million and 331,564 tons, respectively. Average net
selling price increased 9% in 2004 as compared to 2003, improving net sales by
approximately $32 million. Actual selling price gains increased average net
selling price by 7% and net sales by $24 million while sales mix enhancements
increased average net selling price by 2% and net sales by $8 million.
Improved market conditions enabled Specialty Products to increase selling
prices on many of its papers in 2004. Average selling price improved nearly 4%
in 2003 compared with 2002, increasing net sales by $13 million. Actual
selling price increases and sales mix enhancement each accounted for half of
the overall improvement. Market demand improved in Specialty Products' largest
product category, pressure-sensitive backing papers, increasing an estimated 4%
in 2004 and 2% in 2003. Demand in Specialty Products' second largest product
category, food-packaging/food-service papers, increased an estimated 4% in both
2004 and 2003. Demand for other industrial and consumer papers, most notably
masking tape base stock, improved over the comparable two-year period.
Shipments of Specialty Products' pressure-sensitive backing papers increased 6%
and 4% in 2004 and 2003, respectively, while food-packaging/food-service
shipments improved 15% in 2004 and 17% in 2003. Shipments of lower-price fill
products such as tablet writing papers declined 40% in 2004 and 13% in 2003.
Specialty Products continued its focused product development efforts in 2004
with revenues from products developed in the previous three years exceeding the
corporate goal of 25%. Despite recent growth in demand, markets remain
competitive with conditions essentially unchanged in early 2005.
Printing & Writing net sales were $404.9 million in 2004 on shipments of
362,265 tons compared with 2003 net sales of $395.8 million and shipments of
359,712 tons. In 2002, net sales were $391.2 million on shipments of 353,488
tons. Net sales and shipments were favorably impacted in 2004 by the fourth-
quarter acquisition and start-up of the Brainerd, Minnesota, paper mill.
Please refer to "Note 8 - Acquisitions" in the Notes to Consolidated Financial
Statements. The Brainerd mill contains two paper machines and finishing
equipment capable of producing
-21-
approximately 170,000 tons per year of uncoated freesheet paper, increasing
Printing & Writing's uncoated freesheet production capacity by more than half.
Brainerd's largest paper machine, at 90,000 tons per year, was started in the
fourth quarter. No timetable has been established for the start-up of
Brainerd's second paper machine. Average net selling price improved 2%,
increasing net sales by $6 million as compared to 2003. Product mix
enhancements improved average net selling price 2%, or net sales by $8 million,
while actual product selling prices declined less than 1%, impacting net sales
by $2 million. Mix improvement was driven largely by an increase in
shipments of higher-priced premium printing and writing papers and a reduction
in shipments of lower-priced paper mill packaging products. Average net
selling price declined approximately 1% in 2003 as compared to 2002, reducing
net sales by $3 million. Actual product selling prices were essentially
unchanged in 2003 with mix differences accounting for the entire decline in
average selling price. Mix differences in 2003 were largely the result of
higher paper mill packaging shipments following the first quarter acquisition
of the production assets and customer base of Laminated Papers, Inc. Demand
for uncoated freesheet papers, the broad market category within which Printing
& Writing participates, increased 1% in 2004 following four consecutive years
of decline, including a 1% decline in 2003. Demand in the text and cover
segment of the uncoated freesheet market declined less than 1% in 2004
following a 9% decline in 2003. Despite the continued difficult market
conditions, shipments of the Company's premium printing and writing papers,
including text and cover, increased 11% in 2004 and 4% in 2003. Paper mill
packaging shipments, comprised primarily of moisture-barrier laminated roll
wrap product, declined 7% in 2004 following a 23% increase in 2003. The
latter-year reduction in paper mill packaging shipments reflects inconsistent
industry demand, continued rationalization of the customer base acquired from
Laminated Papers, Inc. in 2003, and competitive market conditions. Shipments
through Printing & Writing's retail distribution channel such as office supply
stores and other retailers increased 24% in both 2004 and 2003. At the same
time, shipments through Printing & Writing's largest distribution channel,
traditional paper merchants, declined 1% in 2004 and 7% in 2003, reflecting
market demand differences and a shift in paper distribution patterns in favor
of retailers. Product pricing has remained very competitive despite the modest
uncoated freesheet demand improvement experienced in 2004 and the industry-wide
capacity rationalization that has occurred in recent years. As 2005 began,
market demand remained soft and product pricing competitive.
Towel & Tissue 2004 net sales were $225.7 million and shipments were 151,903
tons compared to 2003 net sales of $212.7 million and shipments of 150,845
tons. In 2002, net sales were $208.5 million on shipments of 146,756 tons.
Average net selling price increased 5% in 2004 as compared to 2003, favorably
impacting net sales by $12 million. More than half of the increase was the
result of selling price gains. Product selling prices increased approximately
3% in 2004, increasing net sales by more than $6 million while sales mix
enhancements and product changes improved average selling price by 2% and net
sales by $5 million. Average net selling price declined less than 1% in 2003.
Actual selling prices declined nearly 3% in 2003, impacting net sales by $6
million while sales mix enhancements and product changes improved average
selling price by 2% and net sales by more than $4 million. The "away-from-
home" segment of the Towel & Tissue market grew nearly 2% in each 2004 and
2003. Shipments of Towel & Tissue's higher-priced value-added products
increased 11% in 2004 and 6% in 2003, while shipments of lower-priced standard
products declined 2% in 2004 after increasing 1% in 2003. Industry
-22-
supply of purchased parent rolls, accounting for approximately 35% of Towel &
Tissue's total parent roll supply, tightened somewhat in 2004. Improved
Production capacity utilization rates in the industry were the primary reason
for the tighter parent roll supply. Parent roll supply improved late in 2004
with adequate supplies expected to be available to support sales plans in 2005.
As 2005 began, several "away-from-home" towel and tissue competitors announced
product selling price increases of 5% to 10% as market demand continued to
expand at a moderate rate.
GROSS PROFIT ON SALES
(all dollar amounts in thousands) 2004 2003 2002
Gross profit on sales $117,541 $102,897 $112,384
Gross profit margin 11% 11% 12%
Gross profit margin increased to $117.5 million, or 11.3% of net sales in 2004
compared with $102.9 million, or 10.6% of net sales in 2003. Gross profit
margin in 2002 was $112.4 million, or 11.8% of net sales. An increased average
selling price, operational efficiency gains and cost reductions offset
increased fiber, natural gas and transportation costs, resulting in somewhat
improved 2004 margins. After holding essentially unchanged in the first and
second quarters of 2004, at 10.6% and 10.7%, respectively, gross margins
increased to 12.4% and 11.5% in the third and fourth quarters due, in part, to
improved market conditions and seasonal demand variations. Compared to 2002,
2003 gross profit margins decreased as sales mix gains, operations efficiency
improvements and cost reductions only partially offset higher fiber and natural
gas costs.
Raw materials comprise approximately 50% of the Company's total cost of sales
with market pulp and wastepaper accounting for approximately one-half of this
total. Labor and fringes are approximately 20% of the Company's total cost of
sales while utilities account for approximately 10%. Other operating expenses,
including outbound freight, depreciation and maintenance comprise the remaining
20% of the Company's cost of sales.
Market pulp prices, after holding steady the first half of 2002, increased in
the third quarter before stabilizing in the fourth quarter. Market pulp prices
increased once again in the second quarter of 2003 with prices holding
relatively steady the second half of the year. The average price of market
pulp increased through the first three quarters of 2004 before declining in the
fourth quarter. Wastepaper prices increased early in 2002 with prices then
holding steady before declining in the second quarter of 2003. Wastepaper
prices generally increased in the fourth quarter of 2003 through the third
quarter of 2004 with prices once again declining in the fourth quarter. In
2004, the Company consumed approximately 400,000 air-dried metric tons of
market pulp. The Company also consumed approximately 150,000 standard tons of
wastepaper. The average consumption price of market pulp, the primary raw
material used in the production of paper, increased approximately $40 per air-
dried metric ton, or $16 million, in 2004 as compared to 2003. The average
price of market pulp increased $51 per air-dried metric ton, or $21 million, in
2003 compared to 2002. The average price of wastepaper, used in the production
of towel and tissue products, increased $19 per standard ton, or $3 million, in
2004 as compared to 2003 after holding even in 2003 as compared to 2002.
Prices for linerboard, used in the production of
-23-
moisture-barrier laminated roll wrap, and pulpwood, used at two company-owned
pulp mills, each increased more than $1 million in 2004 as compared to 2003.
Natural gas prices held relatively stable through the first three quarters in
2002 before trending higher late in the year. Prices continued their upward
trend early in 2003, peaking in March, before generally declining through the
balance of 2003. Average prices held steady through the first half of 2004,
before trending higher in the third and fourth quarters. The average price of
natural gas increased approximately 9%, or $3 million, in 2004 as compared to
2003 after increasing 69%, or $15 million in 2003 compared with the prior year.
The Company, through its cost reduction efforts, has been successful in
improving its energy efficiencies and reducing its natural gas consumption in
recent years. The Company currently consumes approximately 5.5 million
dekatherms annually and has the ability to substitute fuel oil and coal for a
portion of this draw if economics allow. The Company price protects, from
time-to-time, certain volumes of natural gas through fixed-price contracts.
Company policy allows for the price protection of up to 50% of its expected use
on a rolling 12-month basis. At the end of 2004, the Company had approximately
80% of its first quarter requirements protected at a price slightly higher than
the Company's fourth quarter 2004 average. Outbound freight rates, driven
primarily by higher fuel costs, increased approximately $4 million in 2004
after increasing less than $1 million in 2003.
Market pulp list prices, after increasing $30 per air-dried metric ton late in
the fourth quarter of 2004, increased another $30 per air-dried metric ton
early in the first quarter of 2005. While well above historical averages and
remaining quite volatile, natural gas prices trended somewhat lower in early
2005 with market pricing approximately 8% lower than the fourth quarter of
2004.
Labor and fringe costs increased 2.9% in 2004 as compared to 2003 and 3.7% in
2003 as compared to 2002. Health insurance expenses for active employees
increased approximately 21% in 2004 following a 14% increase in 2003. Hourly
pension and post-retirement expenses were a combined 9% higher in 2004 after
increasing 26% in 2003. During 2003 the Company recognized, as a reduction of
cost of sales, $4.2 million as a fee for licensing certain patented dispenser
technologies. Other operating costs, including raw material use and
depreciation, were generally lower in 2004 due, in part, to cost reduction
efforts and capital spending sustained at levels below the Company's rate of
depreciation in recent years.
Specialty Products gross profit margins were 9.3% in 2004, 6.7% in 2003 and
4.4% in 2002. Selling price increases, sales mix enhancements and production
efficiency improvements offset higher market pulp, natural gas and other
manufacturing expenses, resulting in improved 2004 margins. Market pulp and
natural gas prices increased a combined $11 million in 2004 as compared to 2003
after increasing a combined $15 million in 2003 as compared to the prior year.
Gross profit margins improved through the course of 2004 to 11.2% in the fourth
quarter as selling prices increased and market pulp prices declined from third
quarter levels.
Printing & Writing gross profit margins declined to 8.4% in 2004 from 8.8% in
2003 and 13.9% in 2002. Increased fiber and natural gas prices, and losses
associated with the start-up and fourth quarter operation of the Brainerd mill,
offset improved average selling price and cost reductions, resulting in lower
2004 margins. Market pulp, linerboard and aspen pulpwood prices increased a
combined $8 million in 2004 while natural gas prices increased $3 million.
Natural gas and
-24-
market pulp prices increased a combined $20 million in 2003 as compared to
2002. Margins declined late in 2004 due, in part, to losses associated with
the start-up and fourth quarter operation of the Brainerd mill.
Towel & Tissue gross profit margin was 20.5% in 2004, 20.9% in 2003 and 20.4%
in 2002. Gross profit margin in 2003 included, as a reduction of cost of
sales, $4.2 million as a fee for licensing certain patented dispenser
technologies. Selling price increases and sales mix enhancements offset
increased wastepaper and market pulp prices, higher outbound freight costs and
the licensing fee recognized in 2003 which allowed 2004 margins to remain
essentially flat with 2003 levels. Wastepaper and market pulp prices increased
$3 million in 2004 as compared to 2003 while outbound freight costs increased
by more than $2 million over the same period.
Consolidated order backlogs increased to approximately 35,100 tons,
representing $42.0 million in sales as of December 31, 2004. This compares to
approximately 31,600 tons, or $33.4 million in sales as of December 31, 2003,
and approximately 33,500 tons, or $35.3 million in sales at December 31, 2002.
Improvements in customer order backlog were evident in all three business
segments as of December 31, 2004, compared to December 31, 2003. Specialty
Products' backlog tons were 22,800 tons at December 31, 2004, compared to
21,700 tons at December 31, 2003. Printing & Writing's backlog tons improved
to 9,900 tons at December 31, 2004, from 8,600 tons at December 31, 2003. In
the Towel & Tissue business segment, backlog tons were 2,400 tons at December
31, 2004, and 1,300 tons at December 31, 2003. The change in customer backlog
at December 31, 2004, compared to December 31, 2003, does not necessarily
indicate a change in business conditions, as a large portion of orders is
shipped directly from inventory upon receipt and does not impact backlog
numbers. The entire backlog at December 31, 2004, is expected to be shipped
during fiscal 2005.
LABOR
A new five-year labor agreement was entered into on June 1, 2004, with the
Paper, Allied-Industrial, Chemical & Energy Workers International Union at
Specialty Products' Jay, Maine facility. The agreement contains wage increases
of 1.7% effective June 1 of each year of the contract. Labor agreements will
expire at other facilities in 2005, 2006, 2007 and 2008. The Company maintains
good labor relations at all facilities.
OPERATING EXPENSES
(all dollar amounts in thousands) 2004 2003 2002
Selling and administrative $75,817 $67,619 $64,962
Percent increase/(decrease) 12% 4% (4%)
As a percent of net sales 7% 7% 7%
In 2004, 2003 and 2002, selling and administrative expenses were impacted by
stock incentive program charges or credits, which were determined by the
Company's common stock price change. During 2004, the charge for these
programs was $2.8 million compared to a charge of $1.7 million in 2003 and a
credit of $0.2 million in 2002. For additional information on the Company's
stock incentive programs, refer to "Note 7 - Stock Compensation Plans" in the
Notes
-25-
to Consolidated Financial Statements. In addition, selling and administrative
costs included wage, benefit and management incentive expense increases of $4.0
million in 2004 and $0.6 million in 2003. As compared to 2003, 2004 employee
recruiting and relocation expenses were $1.3 million higher, and
consulting/auditing expenses increased by $0.8 million. Costs associated with
the operation of Printing & Writing's Brainerd mill impacted general selling
and administrative expenses in 2004, while consulting and auditing expenses
were driven somewhat higher by outside services related to the Company's
compliance with Section 404 of the Sarbanes-Oxley Act.
OTHER INCOME AND EXPENSE
(all dollar amounts in thousands) 2004 2003 2002
Interest expense $10,285 $10,188 $10,845
Other income(expense), net 939 90 41
Interest expense was similar at $10.3 million and $10.2 million for the years
ending December 31, 2004 and 2003, respectively. Interest expense for the year
ending December 31, 2002, was $10.8 million. Long-term debt levels were $161.8
million, $162.2 million and $162.8 million as of December 31, 2004, 2003 and
2002, respectively.
In 2005, interest expense is expected to be comparable to 2004 as debt levels
are expected to remain similar to the December 31, 2004, balance of $161.8
million. Interest capitalized in 2004, 2003 and 2002 was not significant. The
Company's capitalized interest methodology is outlined in "Note 1 - Description
of the Business and Summary of Significant Accounting Policies" in the Notes to
Consolidated Financial Statements.
Other income and expense includes interest income of $666,000, $65,000, and
$25,000 in 2004, 2003 and 2002, respectively. The increase in interest income
in 2004 was driven primarily by higher average cash and cash equivalent
balances as compared to 2004.
INCOME TAXES
(all dollar amounts in thousands) 2004 2003 2002
Income tax provision $11,985 $9,317 $13,550
Effective tax rate 37% 37% 37%
The effective tax rates for the years presented are indicative of the Company's
normalized tax rate. The effective rate for 2005 is expected to approximate
37%.
On October 22, 2004, the American Jobs Creation Act of 2004 (the "Act") was
signed into law. The Act contains $137 billion in tax cuts over a ten-year
period beginning in 2005, which are mainly for U.S. manufacturing businesses
and multinational companies. The Company has not yet completed its assessment
of how the Act might impact its future results of operations or cash flows.
-26-
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS AND CAPITAL EXPENDITURES
(all dollar amounts in thousands) 2004 2003 2002
Cash provided by operating activities $70,737 $ 63,105 $ 76,269
Percent increase/(decrease) 12% (17%) (27%)
Working capital $139,542 $136,414 $118,398
Percent increase 2% 15% 16%
Current ratio 1.9:1 2.2:1 2.0:1
Capital expenditures $29,565 $ 24,261 $ 19,201
Percent increase/(decrease) 22% 26% (36%)
Cash provided from operating activities increased in 2004 compared to 2003 due,
in part, to increased 2004 earnings and higher accounts payable balances in the
current year. These factors were somewhat offset by greater 2004 increases in
receivables, inventories and other assets. In 2003 compared to 2002, cash
provided from operating activities declined, due to reduced 2003 earnings,
increased receivables and decreased payables. The Company contributed $20.2
million to defined benefit pension plans during 2004, compared with
contributions of $20.8 million and $20.6 million in 2003 and 2002,
respectively. Benefit plans are discussed in "Note 5 - Pension and Other Post-
retirement Benefit Plans" in the Notes to Consolidated Financial Statements.
In 2004, the Company continued its initiative to limit capital spending to
necessary maintenance-related and high-return capital projects. The Company
met its targeted composite internal rate of return of 17% for capital approved
in 2004. Capital expenditures totaled $29.6 million, $24.3 million and $19.2
million in 2004, 2003 and 2002, respectively. In 2005, it is expected that
capital spending will fall in the range of $40 million to $50 million. Several
projects with strong financial returns are expected to increase spending over
2004 levels.
During 2004, capital expenditures for projects with total spending expected to
exceed $1.0 million were $1.4 million in Printing & Writing as part of a
capital project to expand premium papers production and $1.3 million for a
digester replacement at the Brokaw mill , $0.3 million for finishing equipment
at the Groveton mill, and $1.1 million on a paper machine applicator at the
newly acquired Brainerd mill. Please refer to "Note 8 - Acquisitions" in the
Notes to Consolidated Financial Statements. In Towel & Tissue, project
spending included $0.2 million for a screw press project, $1.3 million on
production equipment, and $3.9 million for various converting lines.
The balance of $20.1 million in 2004 capital spending was related to projects
that individually cost less than $1.0 million. These expenditures included
$12.0 million for essential non- or low-return projects, including maintenance-
related capital and approximately $8.1 million on projects expected to provide
a return in excess of the Company's targeted internal rate of return.
During 2003, capital expenditures for projects with total spending expected to
exceed $1.0 million were $3.6 million in Printing & Writing as part of a
capital project to expand premium papers production capabilities at the Brokaw
mill and $0.4 million on a process control system
-27-
computer replacement at the Groveton mill. In Towel & Tissue, $2.6 million was
spent on a screw press project, and $2.2 million was spent for various
converting lines.
The balance of $15.5 million in 2003 capital spending was related to projects
that individually cost less than $1.0 million. These expenditures included
approximately $10.0 million for essential non- or low-return projects,
including maintenance-related capital and approximately $5.5 million on
projects expected to provide a return in excess of the Company's targeted rate.
The Company believes that the available credit under its credit agreements and
its earnings for 2005 will be sufficient to meet its cash flow needs for
capital, working capital, and investing activities in 2005.
DEBT AND EQUITY
(all dollar amounts in thousands) 2004 2003 2002
Short-term debt $ 115 $ 112 $ --
Long-term debt 161,833 162,174 162,763
Total debt 161,948 162,286 162,763
Stockholders' equity 357,092 350,316 355,948
Total capitalization 519,040 512,602 518,711
Long-term debt/capitalization ratio 31% 32% 31%
At December 31, 2004, total debt was $161.9 million which is comparable to the
$162.3 million reported at December 31, 2003.
The total amount of long-term debt outstanding includes a private placement of
$138.5 million in senior notes. The notes mature in 2007, 2009 and 2011 at $35
million, $68.5 million, and $35 million, respectively.
On August 31, 2004, the Company replaced its $150 million unsecured revolving-
credit agreement that was scheduled to expire on December 10, 2004, with a
four-year $100 million unsecured revolving-credit agreement with four
participating banks that expires on August 31, 2008. Under the new facility,
the Company may elect the base for interest from either domestic or offshore
rates. In addition, the facility provides for sublimits of $50 million for the
issuance of standby letters of credit and $10 million for certain short-term
bid loans among the bank group. The Company pays the banks a facility fee
under this agreement based on quarterly debt/capitalization ratios. Total
facility fees paid were $280,000 in 2004 and $266,000 in 2003 and 2002. There
were no borrowings against either agreement at December 31, 2004 and 2003.
On November 2, 2004, the Company entered into a loan agreement with the
Economic Development Authority of the city of Brainerd, Minnesota. Under the
agreement, the Company borrowed $500,000, of which $100,000 is forgivable upon
meeting certain employment criteria at the Company's Brainerd, Minnesota
facility by November 1, 2006. Interest is payable quarterly on the outstanding
balance, less the forgivable portion, at a rate of 2% per annum, beginning
January 1, 2005. The loan expires on November 1, 2011.
-28-
The Company maintains a commercial paper placement agreement with one of its
four major banks, which provides for the issuance of up to $50 million of
unsecured debt obligations. The commercial paper placement agreement requires
unused credit availability under the Company's $100 million revolving-credit
agreement equal to the amount of outstanding commercial paper.
In August 1995, the Company obtained $19 million in industrial development bond
financing to fund an upgrade of the Brokaw mill wastewater treatment plant.
The bonds mature in 2023 and bear interest at short-term rates. The bonds are
supported by a letter of credit that was issued by a bank.
On December 31, 2004, the Company had a total of $100 million available for
borrowing under existing credit facilities.
The Company does not have material market risk associated with interest-rate
risk, foreign currency exchange risk, or commodity-price risk. The Company
conducts U.S. dollar denominated export transactions or immediately exchanges
all foreign currency attributable to export sales for U.S. dollars.
In April 2000, the Company's Board of Directors authorized the repurchase of
2,571,000 shares of the Company's common stock. This authorization added to
the balance remaining on a 1998 authorization to repurchase 5,650,000 shares of
the Company's common stock. There were no repurchases in 2004, 2003 or 2002.
Repurchases may be made from time to time in the open market or through
privately negotiated transactions. At December 31, 2004, there were 2,638,674
shares available for purchase under the existing authorization. During 2004,
2003 and 2002, the Board of Directors declared cash dividends of $0.34 per
share of common stock.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
The following is a summary of the Company's contractual obligations and
payments due by period subsequent to December 31, 2004:
Payments Due by Period
(all dollar amounts in thousands) Total 2005 2006 2007 2008 2009 Thereafter
Long-term debt $158,000 $ - $ 158 $35,065 $ 66 $68,567 $54,144
Interest on debt 56,558 10,898 10,863 10,023 8,243 6,374 10,157
Capital lease 136 115 21 - - - -
Operating leases 9,412 1,947 1,644 1,528 1,523 1,511 1,259
Capital spending commitments 10,004 10,004 - - - - -
Purchase obligations 53,198 25,507 3,764 3,328 3,328 3,047 14,224
Total $287,308 $48,471 $16,450 $49,944 $13,160 $79,499 $79,784
For additional information on debt and interest obligations, please refer to
"Note 3 - Debt" in the Notes to Consolidated Financial Statements. For
additional information on capital and operating leases, please refer to "Note 4
- Lease Commitments" in the Notes to Consolidated Financial Statements.
Commitments for capital spending and additional information with respect to the
purchase obligations are described in "Note 9 - Commitments and Contingencies"
in the Notes
-29-
to Consolidated Financial Statements. The Company also has various employee
benefit plan obligations that are described in "Note 5 - Pension and Other
Post-retirement Benefit Plans."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not have a material market risk associated with interest rate
risk, foreign currency exchange risk, or commodity price risk. The Company
conducts U.S. dollar denominated export transactions or immediately exchanges
all foreign currency attributable to export sales for U.S. dollars. On August
31, 1999, the Company issued notes in the amount of $138.5 million that remain
outstanding at December 31, 2004 and 2003. The principal amounts, maturities,
and interest rates on the notes are: (1) $35 million, 8 years, 7.20%; (2) $68.5
million, 10 years, 7.31%; and (3) $35 million, 12 years, 7.43%. The fair value
of this fixed rate debt was $152.4 million at December 31, 2004, and $153.7
million at December 31, 2003. The potential loss in fair value on such fixed-
rate debt obligations from a hypothetical 10% increase in market interest rates
would not be material to the overall fair value of the debt. The Company
currently has no plans to repurchase its outstanding fixed-rate instruments
and, therefore, fluctuations in market interest rates would not have an effect
on the Company's results of operations or stockholders' equity.
The Company also has $19,000,000 of Industrial Development Bonds due July 1,
2023, at variable rates of interest. The fair value of these obligations
approximated their carrying values at December 31, 2004 and 2003, and would not
have been materially affected by a 10% hypothetical change in market interest
rates.
-30-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Wausau-Mosinee Paper Corporation and its subsidiaries (the
"Company") is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities
Exchange Act of 1934 as a process designed by, or under the supervision of, the
company's principal executive and principal financial officers and effected by
the company's board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:
* Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the company;
* Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
* Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The Company's management assessed the effectiveness of the Company's internal
control over financial reporting as of December 31, 2004. In making this
assessment, the Company's management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.
Based on our assessment, management believes that, as of December 31, 2004, the
Company's internal control over financial reporting is effective based on those
criteria.
The Company's independent registered public accounting firm has issued a report
on our assessment of the Company's internal control over financial reporting.
This report appears on page 32.
-31-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Wausau-Mosinee Paper Corporation
Mosinee, WI
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Wausau-
Mosinee Paper Corporation and subsidiaries (the "Company") maintained effective
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A company's internal control over financial reporting is a process designed by,
or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by
the company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation
of the effectiveness of the internal control over financial reporting to future
-32-
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective
internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements and financial statement schedule as of and for the year ended
December 31, 2004 of the Company and our report dated February 28, 2005
expressed an unqualified opinion on those financial statements and financial
statement schedule.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 28, 2005
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Wausau-Mosinee Paper Corporation
Mosinee, WI
We have audited the accompanying consolidated balance sheets of Wausau-Mosinee
Paper Corporation and subsidiaries (the "Company") as of December 31, 2004 and
2003, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2004. Our audits also included the financial statement schedule included
in Item 8. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Wausau-Mosinee Paper Corporation
and subsidiaries as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004, based on the
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 28, 2005 expressed an unqualified opinion on management's
assessment of the effectiveness of the Company's internal control over
financial reporting and an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 28, 2005
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WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(all dollar amounts in thousands) As of December 31,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents $ 51,914 $ 36,305
Receivables, net 95,731 81,300
Refundable income taxes 48 1,668
Inventories 126,932 115,835
Deferred income taxes 8,592 12,616
Other current assets 4,075 3,694
Total current assets 287,292 251,418
Property, plant, and equipment - net 551,160 565,722
Other assets 43,782 40,960
Total Assets $882,234 $858,100
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 115 $ 112
Accounts payable 74,558 55,368
Accrued and other liabilities 73,077 59,524
Total current liabilities 147,750 115,004
Long-term debt 161,833 162,174
Deferred income taxes 105,885 115,879
Post-retirement benefits 57,303 54,197
Pension 30,996 40,829
Other noncurrent liabilities 21,375 19,701
Total liabilities 525,142 507,784
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Preferred stock, no par value (500,000 shares authorized; no shares issued) - -
Common stock, no par value (100,000,000 shares authorized;
issued 60,122,812 shares in 2004 and 2003) 173,172 173,037
Retained earnings 323,645 320,823
Unearned compensation (84) -
Accumulated other comprehensive loss (26,661) (28,723)
Treasury stock, at cost (8,427,561 and 8,564,921 shares
in 2004 and 2003, respectively) (112,980) (114,821)
Total stockholders' equity 357,092 350,316
Total Liabilities and Stockholders' Equity $882,234 $858,100
See accompanying Notes to Consolidated Financial Statements.
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WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts in thousands,
except per share data) For The Year Ended December 31,
2004 2003 2002
Net sales $1,040,717 $971,444 $948,698
Cost of sales 923,176 868,547 836,314
Gross profit 117,541 102,897 112,384
Selling and administrative 75,817 67,619 64,962
Operating profit 41,724 35,278 47,422
Other income (expense):
Interest expense (10,285) (10,188) (10,845)
Interest income 666 65 25
Other 273 25 16
Earnings before provision for income taxes 32,378 25,180 36,618
Provision for income taxes 11,985 9,317 13,550
Net earnings $20,393 $15,863 $23,068
Net earnings per share - basic $ 0.39 $ 0.31 $ 0.45
Net earnings per share - diluted $ 0.39 $ 0.31 $ 0.45
Weighted average shares outstanding - basic 51,662 51,549 51,532
Weighted average shares outstanding - diluted 51,940 51,663 51,643
Dividends declared per common share $ 0.34 $ 0.34 $ 0.34
See accompanying Notes to Consolidated Financial Statements.
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WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Year Ended December 31,
(all dollar amounts in thousands) 2004 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $20,393 $15,863 $23,068
Provision for depreciation, depletion, and amortization 59,965 60,823 60,624
Provision (credit) for losses on accounts receivable 103 (261) 307
Loss on property, plant, and equipment disposals 3,356 3,234 934
Compensation expense for stock option grants 292 39 37
Deferred income taxes (348) 7,154 16,108
Changes in operating assets and liabilities:
Receivables (13,859) (9,396) (1,688)
Inventories (11,001) 4,548 5,305
Other assets (8,406) (6,198) (9,420)
Accounts payable and other liabilities 15,428 (18,934) (10,211)
Accrued and refundable income taxes 4,814 6,233 (8,795)
Net cash provided by operating activities 70,737 63,105 76,269
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (29,565) (24,261) (19,201)
Acquisitions (9,935) (8,518) -
Proceeds from property, plant, and equipment disposals 45 13 275
Net cash used in investing activities (39,455) (32,766) (18,926)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings/(repayments) under credit agreements 500 - (28,775)
Payments under capital lease obligation (112) (89) -
Dividends paid (17,560) (17,527) (17,520)
Proceeds from stock option exercises 1,499 199 325
Net cash used in financing activities (15,673) (17,417) (45,970)
Net increase in cash and cash equivalents 15,609 12,922 11,373
Cash and cash equivalents at beginning of year 36,305 23,383 12,010
Cash and cash equivalents at end of year $51,914 $36,305 $23,383
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amount capitalized $10,722 $10,647 $11,521
Income taxes paid $9,019 $6,275 $7,124
See accompanying Notes to Consolidated Financial Statements.
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WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Other Com- Total
(all dollar amounts in Common Retained Unearned prehensive Treasury Stockholders'
thousands) Stock Earnings Compensation Income(Loss) Stock Equity
Balances December 31, 2001 $173,114 $316,939 $ 0 $(9,682) $(115,516) $364,855
Comprehensive earnings, 2002:
Net earnings 23,068 23,068
Minimum pension liability
(Net of $9,052 deferred tax) (14,833) (14,833)
Comprehensive earnings, 2002 8,235
Cash dividends declared (17,522) (17,522)
Stock options exercised (88) 413 325
Tax benefit related to stock options 18 18
Stock option compensation 37 37
Balances December 31, 2002 173,081 322,485 0 (24,515) (115,103) 355,948
Comprehensive earnings, 2003:
Net earnings 15,863 15,863
Minimum pension liability
(Net of $2,470 deferred tax) (4,208) (4,208)
Comprehensive earnings, 2003 11,655
Cash dividends declared (17,525) (17,525)
Stock options exercised (83) 282 199
Stock option compensation 39 39
BALANCES DECEMBER 31, 2003 173,037 320,823 0 (28,723) (114,821) 350,316
COMPREHENSIVE EARNINGS, 2004:
NET EARNINGS 20,393 20,393
MINIMUM PENSION LIABILITY
(NET OF $1,210 DEFERRED TAX) 2,062 2,062
COMPREHENSIVE EARNINGS, 2004 22,455
CASH DIVIDENDS DECLARED (17,571) (17,571)
RESTRICTED STOCK GRANT 20 (87) 67 0
RECOGNITION OF RESTRICTED STOCK
COMPENSATION EXPENSE 3 3
STOCK OPTIONS EXERCISED (275) 1,774 1,499
TAX BENEFIT RELATED TO STOCK OPTIONS 101 101
STOCK OPTION COMPENSATION 289 289
BALANCES DECEMBER 31, 2004 $173,172 $323,645 $(84) $(26,661) $(112,980) $357,092
See accompanying Notes to Consolidated Financial Statements.
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WAUSAU-MOSINEE PAPER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Wausau-Mosinee Paper Corporation (the "Company") manufactures, converts, and
sells paper and paper products within three principal segments: Specialty
Products, Printing & Writing, and Towel & Tissue. The majority of the
Company's products are sold within the United States and Canada.
Specialty Products produces a wide variety of technical specialty papers that
include supercalendered backing papers for pressure-sensitive labeling
applications, tape backing, and packaging materials for a broad range of food,
medical, and industrial applications.
Printing & Writing manufactures, converts, and markets a broad line of premium
printing and writing grades. In addition, the business segment includes two
converting facilities that produce laminated roll wrap and related specialty
finishing and packaging products.
Towel & Tissue produces a complete line of towel and tissue products that are
marketed along with soap and dispensing systems for the industrial and
commercial "away-from-home" market.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Wausau-Mosinee
Paper Corporation and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the accompanying financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue, and expenses. Actual results may
differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company defines cash equivalents as highly liquid, short-term investments
with an original maturity of three months or less. Cash and cash equivalents
are stated at cost, which approximates market. At December 31, 2004,
approximately $49.5 million of cash and cash equivalents were on deposit with
one bank.
INVENTORIES
Pulpwood, finished paper products, and approximately 95% of raw materials are
valued at the lower of cost, determined on the last-in, first-out (LIFO)
method, or market. All other inventories are valued at the lower of average
cost or market. Liquidations in individual LIFO
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inventory pools decreased cost of sales by $158,000 and $577,000 for the years
ended December 31, 2004 and 2003, respectively.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and are depreciated over the
estimated useful lives of the assets using the straight-line method for
financial statement purposes. Land and construction in progress are stated at
cost. The cost and related accumulated depreciation of all plant and equipment
retired or otherwise disposed of are removed from the accounts, and any
resulting gains or losses are included in the statements of income.
Buildings are depreciated over a 20- to 45-year period; machinery and equipment
over a three- to 20-year period. Maintenance and repair costs are charged to
expense as incurred. Improvements that extend the useful lives of the assets
are added to the plant and equipment accounts.
The Company's policy is to capitalize interest incurred on debt during the
course of projects that exceed one year in construction and $1 million, or
projects that exceed $10 million. Interest capitalized in 2004, 2003 and 2002
was not significant.
The Company assesses the recoverability of assets to be held and used by
comparing the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured as the amount by which
the carrying amount of the assets exceed the fair value of the assets, based on
a discounted cash flow analysis. No impairment losses were recorded in 2004,
2003 or 2002.
Timber and timberlands are stated at net depleted value. The Company
capitalizes the cost of purchasing timberlands and reforestation costs.
Interest and taxes related to timberlands are expensed as incurred.
Reforestation costs include site preparation, planting, fertilizing, herbicide
application, and thinning. Temporary logging roads are expensed while long-
term logging roads are capitalized and amortized over the estimated useful
lives of the roads, which is generally 15 to 20 years. Depletion is recorded
as timber is harvested and included in inventory until conversion into saleable
product. Depletion is calculated using the block and units-of-production
methods. Under these methods, the capitalized costs of large land tracts are
divided by the estimated volume of timber anticipated to be harvested on each
tract. As the timber is harvested, depletion is either recorded as each block
is harvested or as a percentage of each block is harvested.
INCOME TAXES
Deferred income taxes have been provided under the liability method. Deferred
tax assets and liabilities are determined based upon the estimated future tax
effects of temporary differences between the financial statement and tax bases
of assets and liabilities, as measured by the current enacted tax rates.
Deferred tax expense is the result of changes in the deferred tax asset and
liability.
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STOCK-BASED COMPENSATION PLANS
As permitted under Statement of Financial Accounting Standard (SFAS) No. 123,
the Company continues to measure compensation cost for stock-based compensation
plans using the "intrinsic value based method" prescribed under APB No. 25,
"Accounting for Stock Issued to Employees." See Note 7 for pro forma
information on the impact of the fair-value method of accounting for stock-
based compensation plans.
EARNINGS PER SHARE
The Company presents both basic and diluted net earnings per share (EPS)
amounts. Basic EPS is calculated based on the weighted average number of
common shares outstanding during the respective year, while diluted EPS is
calculated based on the weighted average number of common shares and common
stock equivalents outstanding during the respective year. The difference
between basic and diluted EPS for the Company is solely attributable to stock
compensation plans. See Note 7 for information on stock compensation plans.
The Company uses the treasury-stock method to calculate the impact of
outstanding stock options and restricted stock awards. Stock options for which
the exercise price exceeds the average market price over the period have an
antidilutive effect on EPS and, accordingly, are excluded from the calculation.
For the years ended December 31, 2004, 2003 and 2002, options for 375,071,
801,715, and 734,694 shares, respectively, were excluded from the diluted EPS
calculation for the Company's common stock because the options were
antidilutive.
Basic and diluted earnings per share are reconciled as follows:
(all amounts in thousands, except per share data) 2004 2003 2002
Net earnings $ 20,393 $ 15,863 $ 23,068
Basic weighted average common
shares outstanding 51,662 51,549 51,532
Dilutive securities:
Stock compensation plans 278 114 111
Diluted weighted average common
shares outstanding 51,940 51,663 51,643
Net earnings per share - basic $0.39 $0.31 $0.45
Net earnings per share - diluted $0.39 $0.31 $0.45
REVENUE RECOGNITION
Revenue is recognized, net of estimated discounts, allowances and returns upon
shipment of goods at which time title passes to the customer. Upon shipment,
the customer is obligated to pay the Company and the Company has no remaining
obligation. The Company grants credit to customers in the ordinary course of
business.
Shipping and handling costs billed to customers are included in net sales, and
the related costs are included in cost of sales in the Consolidated Statements
of Operations.
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DERIVATIVES
In the past, the Company has used derivative instruments to mitigate its
exposure to interest rate risk. The Company does not issue such instruments
for trading purposes. At December 31, 2004 and 2003, there were no derivative
instruments outstanding.
OTHER COMPREHENSIVE INCOME (LOSS)
For all periods presented, the accumulated other comprehensive income (loss) is
comprised solely of additional minimum pension liability, net of tax of
$15,658,000 and $16,868,000 at December 31, 2004 and 2003, respectively.
RESEARCH AND DEVELOPMENT EXPENSES
The Company expenses research and development costs as incurred. Expenditures
for product development were $1,858,000 in 2004, $2,155,000 in 2003, and
$2,145,000 in 2002.
NEW ACCOUNTING PRONOUNCEMENT
In June 2004, the Financial Accounting Standards Board ("FASB") issued FSP 106-
2, Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003. The FSP provides guidance on
the accounting for the effects of the Act for employers that sponsor
postretirement health care plans that provide prescription drug benefits. The
FSP also requires those employers to provide certain disclosures regarding the
effect of the federal subsidy provided by the Act. As required, the Company
adopted the provisions of the FSP on July 1, 2004. The impact of the adoption
of the FSP resulted in a reduction in the accumulated post-retirement benefit
obligation of $5.9 million, as reflected in the net actuarial gain, and a $0.5
million reduction in the net periodic benefit cost for the year ended December
31, 2004. See Note 5 for additional information on the Company's post-
retirement health care plans.
FUTURE ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-
Based Payment" ("SFAS 123R"), which will be effective for the Company on July
1, 2005. SFAS 123R requires all share-based payments to employees, including
grants of employee stock options, to be recognized as an operating expense in
the statement of operations based on the grant-date fair value of the award.
The new standard may be adopted using either the modified prospective
transition method or the modified retrospective method. The Company is
currently evaluating our share-based employee compensation programs, the
potential impact of this statement on the consolidated financial position and
results of operations, and the alternative adoption methods.
In November 2004, the FASB issued SFAS 151, "Inventory Costs-an amendment of
ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151, which is effective for the
Company beginning January
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1, 2006, requires that abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) be recognized as current-period
charges. In addition, SFAS 151 requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the
production facilities. The adoption of SFAS 151 is not expected to have a
material impact on the Company's consolidated financial statements.
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NOTE 2 SUPPLEMENTAL BALANCE SHEET INFORMATION
(all dollar amounts in thousands) 2004 2003
Receivables
Trade $ 95,787 $ 82,142
Other 1,778 1,086
97,565 83,228
Less: allowances for doubtful accounts (1,834) (1,928)
$ 95,731 $ 81,300
Inventories
Raw materials $ 38,247 $ 27,282
Work in process and finished goods 89,992 83,757
Supplies 28,731 27,920
Inventories at cost 156,970 138,959
LIFO reserve (30,038) (23,124)
$ 126,932 $ 115,835
Property, plant, and equipment
Buildings $ 138,919 $ 137,604
Machinery and equipment 1,067,129 1,061,342
1,206,048 1,198,946
Less: accumulated depreciation (685,916) (652,990)
Net depreciated value 520,132 545,956
Land 6,438 5,521
Timber and timberlands, net of depletion 5,922 5,818
Construction in progress 18,668 8,427
$ 551,160 $ 565,722
Accrued and other liabilities
Payroll $ 9,322 $ 6,802
Vacation pay 12,548 12,237
Employee retirement plans 5,978 8,866
Rebates 10,316 9,726
Accrued income taxes 10,244 320
Other 24,669 21,573
$ 73,077 $ 59,524
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NOTE 3 DEBT
A summary of long-term debt as of December 31 is as follows:
(all dollar amounts in thousands) 2004 2003
Senior notes with interest from 7.20% to 7.43%,
due between August 31, 2007, and August 31, 2011 $138,500 $138,500
Industrial development bonds due July 1, 2023, with weighted
average interest rate of 1.52% in 2004 and 1.34% in 2003 19,000 19,000
Note payable 500 -
Capitalized leases (see Note 4) 136 249
Subtotal 158,136 157,749
Premium on senior notes 3,812 4,537
Total debt 161,948 162,286
Less: current maturities of long-term debt (see Note 4) (115) (112)
Total long-term debt $161,833 $162,174
The Company has $138.5 million outstanding in unsecured private placement notes
that were closed and funded on August 31, 1999. The principal amounts,
maturities, and interest rates on the notes are (1) $35 million, eight years,
7.20%; (2) $68.5 million, 10 years, 7.31%; and (3) $35 million, 12 years,
7.43%. In connection with the note offering, the Company entered into an
interest-rate swap agreement under which the interest rate paid by the Company
with respect to (1) $58.5 million of the 10-year notes was the three-month
LIBOR rate, plus .4925%, and (2) $30 million of the 12-year notes was the
three-month LIBOR rate, plus .55%. During 2001, the Company terminated its
interest-rate swap arrangement in exchange for cash payments of $6.4 million.
The amounts received from the swap counterparties at termination approximated
the fair values of the swaps at the respective termination dates. The premium
recorded on debt during the period the swaps were outstanding will continue to
be amortized using the effective interest-rate method over the remaining term
of the respective debt instruments.
On August 31, 2004, the Company replaced its $150 million unsecured revolving-
credit agreement that was scheduled to expire on December 10, 2004 with a four-
year $100 million unsecured revolving-credit agreement with four participating
banks that expires on August 31, 2008. Under the new facility, the Company may
elect the base for interest from either domestic or offshore rates. In
addition, the facility provides for sublimits of $50 million for the issuance
of standby letters of credit and $10 million for certain short-term bid loans
among the bank group. The Company pays the banks a facility fee under this
agreement based on quarterly debt/capitalization ratios. Total facility fees
paid were $280,000 in 2004 and $266,000 in 2003 and 2002. There were no
borrowings against either agreement at December 31, 2004 and 2003.
In addition to general business and reporting covenants customary in financing
agreements of these types, the senior notes and revolving-credit facility
require that the Company comply quarterly with a consolidated debt-to-capital
ratio of less than 60% and 55%, respectively. Both agreements require an
adjustable minimum net worth covenant ($326.5 million and $283.5 million at
December 31, 2004 as defined by the senior note and revolving-credit facility,
respectively). In addition, the revolving-credit facility includes an interest
coverage ratio covenant of 3.5 times. As of December 31, 2004 and 2003, the
Company was in compliance with all required covenants.
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The Company maintains an unrated commercial paper placement agreement with a
bank to issue up to $50 million of unsecured debt obligations. The agreement
requires unused credit availability under the Company's revolving-credit
agreement equal to the amount of outstanding commercial paper. There were no
borrowings under this agreement at December 31, 2004 and 2003.
On November 2, 2004, the Company entered into a loan agreement with the
Economic Development Authority of the city of Brainerd, Minnesota. Under the
agreement, the Company borrowed $500,000, of which $100,000 is forgivable upon
meeting certain employment criteria at the Company's Brainerd, Minnesota
facility by November 1, 2006. Interest is payable quarterly on the outstanding
balance, less the forgivable portion, at a rate of 2% per annum, beginning
January 1, 2005. Quarterly payments of principal and interest commence on
January 1, 2006. The loan is due and payable no later than November 1, 2013.
In August 1995, the Company obtained $19 million in industrial development bond
financing to fund an upgrade of the Brokaw mill wastewater treatment plant.
The bonds mature in 2023 and bear interest at short-term rates. The bonds are
supported by a letter of credit that was issued by a bank.
The aggregate annual maturities of long-term debt, excluding capital leases
(see Note 4), are as follows:
(all dollar amounts in thousands) 2005 2006 2007 2008 2009 THEREAFTER
Annual Maturities - $158 $35,065 $66 $68,567 $54,144
NOTE 4 LEASE COMMITMENTS
The Company has various leases for real estate, mobile equipment, and machinery
that generally provide for renewal privileges or for purchase at option prices
established in the lease agreements. Property, plant and equipment include the
following amount for capitalized leases as of December 31:
(all dollar amounts in thousands) 2004 2003
Machinery and equipment $347 $347
Allowance for amortization (110) (41)
Net value $237 $306
Lease amortization is included in depreciation expense.
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Future minimum payments, by year and in the aggregate, under capitalized leases
and noncancelable operating leases with initial or remaining terms of one year
or more consisted of the following at December 31, 2004:
(all dollar amounts in thousands) Capital Operating
Leases Leases
2005 $115 $ 1,947
2006 21 1,644
2007 - 1,528
2008 - 1,523
2009 - 1,511
Thereafter - 1,259
Total minimum payments $136 $ 9,412
Rental expense for all operating leases was as follows:
(all dollar amounts in thousands) 2004 2003 2002
Rent expense $6,493 $7,934 $9,039
NOTE 5 PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
The Company and its subsidiaries sponsor defined benefit pension plans covering
substantially all employees. Retirement benefits for salaried and nonunion
employees are based on pay and Company performance. Plans covering hourly
employees provide benefits based on years of service and fixed benefit amounts
for each year of service. The defined benefit pension plans are funded in
accordance with federal laws and regulations.
The Company has supplemental retirement agreements with certain present and
past key officers, directors, and employees. The principal cost of such plans
is being or has been accrued over the period of active employment to the full
eligibility date. The supplemental retirement agreements are unfunded.
The Company also provides certain defined benefit post-retirement health and
life insurance plans that cover qualifying retirees. Benefits and eligibility
for various employee groups vary by location and union agreements. The defined
benefit post-retirement plans are unfunded.
The Company selected September 30, 2004 and 2003, as the measurement dates for
plan assets and obligations in 2004 and 2003, respectively.
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The following schedules present changes in, and components of, the Company's
net assets (liabilities) for retirement and other post-retirement benefits:
Other
Post-retirement
Retirement Benefits Benefits
(all dollar amounts in thousands) 2004 2003 2004 2003
Change in benefit obligation:
Benefit obligation at September 30, 2003 and 2002 $159,116 $141,011 $99,888 $82,498
Service cost 6,899 5,517 2,275 2,015
Interest cost 9,828 9,317 5,413 5,424
Amendments 3,637 1,604 (9,368) -
Net actuarial loss (gain) 1,641 10,805 (5,596) 16,269
Participant contributions - - 1,595 1,446
Benefits paid (9,438) (9,138) (7,224) (7,764)
Benefit obligation September 30, 2004 and 2003 $171,683 $159,116 $86,983 $99,888
Change in plan assets:
Fair value at September 30, 2003 and 2002 $100,639 $ 77,337 - $ -
Actual gain 14,046 11,637 - -
Company contributions 19,901 20,803 5,629 6,318
Participant contributions - - 1,595 1,446
Benefits paid (9,438) (9,138) (7,224) (7,764)
Fair value at September 30, 2004 and 2003 $125,148 $100,639 $ - $ -
Net amount recognized:
Funded status $(46,535) $(58,477) $(86,983) $(99,888)
Unrecognized prior service cost (benefit) 16,694 15,132 (8,047) (650)
Unrecognized transition asset - (50) - -
Unrecognized net actuarial loss 45,361 49,565 30,095 39,461
Cash contribution subsequent to measurement date 3,266 2,989 1,932 -
Accrued benefit cost at December 31 $ 18,786 $ 9,159 $(63,003) $(61,077)
Amounts recognized in the Balance Sheet consist of:
Accrued benefit liability $(40,201) $(51,478) $(63,003) $(61,077)
Intangible asset 16,668 15,046 - -
Accumulated other comprehensive income 42,319 45,591 - -
Net amount recognized at December 31 $ 18,786 $ 9,159 $(63,003) $(61,077)
In 2004 and 2003, amendments to retirement benefit plans reflect union
negotiated rate increases. In 2004, other post-retirement benefit plans were
amended to reflect increased contributions by retirees for medical benefits.
The total accumulated benefit obligation for pension plans was $168.4 million
and $155.1 million at December 31, 2004 and 2003, respectively, and exceeded
the plan assets for all of the Company's defined benefit pension plans.
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Pension Benefits
Target Percentage of Plan Assets
Allocations at Measurement Date
(all dollar amounts in thousands) 2004 2003
Asset category
Equity securities 70.0% 78.2% 74.5%
Debt securities 30.0% 21.8% 25.5%
Total 100.0% 100.0% 100.0%
The Company's Benefits Committee, as established by the Board of Directors,
monitors pension assets and the performance of pension investments. The
Benefits Committee is managing toward an asset allocation consisting of
approximately 70% equity securities and 30% debt securities. An external
investment manager is used to assist the Company in establishing its investment
strategies and policies. The Company considers the historical and projected
returns for each asset category and believes that the investment strategy
employed will provide a blended rate of return on pension assets consistent
with current pension valuation assumptions.
Although the Company does not have a minimum funding requirement for defined
benefit pension plans in 2005, it may elect to make contributions of up to
$16.0 million directly to pension plans. The Company also expects to
contribute $4.1 million directly to other post-retirement plans. Net benefit
payments expected to be paid in each of the next five years and in the
aggregate for the five years thereafter are:
Pension Benefits Other Post-retirement Benefits
2005 $ 8,035 $ 4,115
2006 $ 8,474 $ 4,078
2007 $ 9,299 $ 4,205
2008 $ 10,214 $ 4,442
2009 $ 11,038 $ 4,657
2010-2014 $ 65,282 $ 27,728
The components of net periodic benefit costs recognized in the Consolidated
Statements of Income and the weighted average assumptions used in the
calculation of the year-end obligation and net periodic benefit costs are as
follows:
Pension Benefits Other Post-retirement Benefits
(all dollar amounts in thousands) 2004 2003 2002 2004 2003 2002
Components of net periodic benefit cost:
Service cost $6,899 $5,517 $4,916 $2,275 $2,015 $1,779
Interest cost 9,828 9,317 8,727 5,413 5,424 4,366
Expected return on plan assets (10,012) (8,223) (7,453) - - -
Amortization of:
Prior service cost (benefit) 2,075 1,939 1,864 (1,971) (357) (357)
Transition (asset) (50) (189) (164) - - -
Actuarial (gain) loss 1,677 749 64 1,635 899 (23)
Settlement 30 248 - - - -
Net periodic benefit cost $10,447 $9,358 $7,954 $7,352 $7,981 $5,765
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Pension Benefits Other Post-retirement Benefits
2004 2003 2002 2004 2003 2002
Weighted-average assumptions used to
determine benefit obligations at December 31:
Discount rate 5.75% 6.25% 6.75% 5.75% 6.25% 6.75%
Rate of compensation increase 4.25% 4.25% 4.25% N/A n/a n/a
Weighted-average assumptions used to
determine net periodic benefit cost for
year ended December 31:
Discount rate 6.25% 6.75% 7.25% 6.0% 6.75% 7.25%
Expected return on plan assets 8.50% 8.50% 9.0% N/A n/a n/a
Rate of compensation increase 4.25% 4.25% 5.0% N/A n/a n/a
Assumed health care cost trend rates at
at December 31:
Health care cost trend rate assumed N/A n/a n/a 10% 10% 10%
Ultimate trend rate N/A n/a n/a 5% 5% 5%
Year that the rate reaches the ultimate trend rate N/A n/a n/a 2009 2008 2007
In accordance with the adoption of FSP 106-2 as described in Note 1, the
Company remeasured its projected benefit obligation during 2004. As a result,
the discount rate reflected for the net periodic benefit cost is a weighted-
average rate for 2004.
Assumed health care cost trend rates significantly affect reported amounts for
retiree medical benefits. For 2004, the effect of a one-percentage-point
change in the assumed health care cost trend rate would have had the following
effects:
One percentage point
(all dollar amounts in thousands) Increase Decrease
Effect on the post - retirement benefit obligation $10,533 $(9,376)
Effect on the sum of the service and interest cost components 1,131 (983)
The Company also sponsors defined contribution pension plans, several of which
provide for Company contributions based on a percentage of employee
contributions. The cost of such plans totaled $2.7 million in 2004, $2.6
million in 2003, and $2.6 million in 2002.
The Company has deferred-compensation agreements with certain present and past
key officers, directors, and employees. The principal cost of such plans is
being or has been accrued over the period of active employment to the full
eligibility date. The annual cost of the deferred-compensation agreements is
not significant. At December 31, 2004 and 2003, the amounts accrued under the
deferred-compensation agreements are included in other noncurrent liabilities
on the Consolidated Balance Sheets.
NOTE 6 INCOME TAXES
Deferred tax assets and liabilities are determined based on the estimated
future tax effects of temporary differences between the financial statement and
tax bases of assets and liabilities, as measured by the current enacted tax
rates. Deferred tax expense (benefit) is the result of changes in the deferred
tax asset and liability.
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The provision (benefit) for income taxes is comprised of the following:
(all dollar amounts in thousands) 2004 2003 2002
Current tax expense (benefit):
Federal $ 9,898 $ 574 $(4,104)
State 2,435 1,589 1,546
Total current 12,333 2,163 (2,558)
Deferred tax expense (benefit):
Federal (581) 6,447 15,718
State 233 707 390
Total deferred (348) 7,154 16,108
Total provision for income taxes $11,985 $9,317 $13,550
A reconciliation between taxes computed at the federal statutory rate and the
Company's effective tax rate follows:
(all dollar amounts in thousands) 2004 2003 2002
Federal statutory tax rate $11,332 35.0% $8,813 35.0% $12,820 35.0%
State taxes (net of federal tax benefits) 1,684 5.2 1,644 6.5 1,528 4.2
Export sales benefit (690) (2.1) (336) (1.3) (267) (0.7)
Other (341) (1.1) (804) (3.2) (531) (1.5)
Effective tax rate $11,985 37.0% $9,317 37.0% $13,550 37.0%
At the end of 2004, $150.7 million of unused state operating loss and credit
carryovers existed, which may be used to offset future state taxable income in
various amounts through the year 2019. Because separate state tax returns are
filed, the Company is not able to offset consolidated income with the
subsidiaries' losses. Under the provisions of SFAS No. 109, the benefits of
state tax losses are recognized as a deferred tax asset, subject to appropriate
valuation allowances.
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The major temporary differences that give rise to the deferred tax assets and
liabilities at December 31, 2004 and 2003, are as follows:
(all dollar amounts in thousands) 2004 2003
Deferred tax assets:
Accrued compensated absences $ 4,277 $ 4,288
Pensions 3,360 6,813
Post - retirement benefits 25,262 24,441
State net operating loss carry forward 11,237 8,874
Other 13,894 11,910
Gross deferred tax asset 58,030 56,326
Less valuation allowance (8,369) (5,562)
Net deferred tax assets 49,661 50,764
Deferred tax liabilities:
Property, plant, and equipment (137,601) (141,621)
Other (9,353) (12,406)
Gross deferred tax liability (146,954) (154,027)
Net deferred tax liability $(97,293) $(103,263)
The total deferred tax assets (liabilities) as presented in the accompanying
consolidated balance sheets are as follows:
(all dollar amounts in thousands) 2004 2003
Net deferred tax assets $8,592 $12,616
Net long - term deferred tax liabilities (105,885) (115,879)
Net deferred tax liability $(97,293) $(103,263)
A valuation allowance has been recognized for the Company and two of its
subsidiaries' state loss carry forward and future deductible items, as
cumulative losses create uncertainty about the realization of the tax benefits
in future years.
NOTE 7 STOCK COMPENSATION PLANS
STOCK OPTIONS, RESTRICTED STOCK AWARDS AND PERFORMANCE UNITS
On April 22, 2004, the Company's shareholders approved an amendment and
restatement of an existing stock option plan to permit the award of restricted
shares of common stock and performance units in addition to stock options. The
Plan was originally adopted by the shareholders of the Company on April 19,
2001. The Company also maintains various other employee stock option plans
under which options are outstanding. The plans specify purchase price, time,
and method of exercise. As of December 31, 2004, there were 1,525,749 shares
of common stock authorized for future issuance.
Options are granted for terms up to 20 years. The option price is equal to the
fair market value of the Company's common stock at the date of grant for
incentive and non-qualified options. All
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fixed options must be held a minimum of six months before exercise, and
performance-based options vest in relation to defined performance.
The following table summarizes the status of all outstanding stock options as
of December 31, 2004, 2003, and 2002, and changes during those years:
2004 2003 2002
WEIGHTED Weighted Weighted
AVERAGE Average Average
2004 EXERCISE 2003 Exercise 2002 Exercise
SHARES PRICE Shares Price Shares Price
Outstanding at January 1 2,213,768 $11.88 2,464,768 $11.79 2,057,568 $13.84
Granted 553,108 17.12 140,000 12.29 705,000 11.38
Terminated/canceled (374,784) 12.09 (370,000) 11.57 (267,000) 11.43
Exercised (132,360) 11.33 (21,000) 9.47 (30,800) 10.55
Outstanding at December 31 2,259,732 $13.15 2,213,768 $11.87 2,464,768 $11.79
Exercisable at December 31 1,686,624 $11.88 1,794,768 $11.90 1,733,768 $11.94
Fair value of options granted during the year $5.45 $3.93 $3.46
The preceding table includes performance-based options that vest in relation to
achieving defined performance criteria. The following table summarizes the
status of outstanding performance-based stock options as of December 31, 2004,
2003, and 2002, and changes during those years:
2004 2003 2002
WEIGHTED Weighted Weighted
AVERAGE Average Average
2004 EXERCISE 2003 Exercise 2002 Exercise
SHARES PRICE Shares Price Shares Price
Outstanding at January 1 417,000 $11.247 68,000 $11.30 315,000 $10.71
Granted 378,108 17.40 0 0 675,000 11.39
Terminated/canceled (324,000) 11.39 (345,000) 11.38 (222,000) 10.73
Exercised (15,000) 10.71 (6,000) 10.71 0 0
Outstanding at December 31 456,108 $16.26 417,000 $11.24 768,000 $11.30
Exercisable at December 31 78,000 $10.74 93,000 $10.73 102,000 $10.73
In accordance with APB No. 25, the Company recognizes expense to the extent the
fair market value of the Company's stock exceeds the grant price of the options
as certain performance criteria are met. As a result of not achieving certain
operating profit levels for the years ended December 31, 2004 and 2003, no
compensation expense was recorded. For the year ended December 31, 2002,
$37,000 in compensation expense was recorded for vested options.
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Additional information regarding all grants outstanding and exercisable at
December 31, 2004, is as follows:
Weighted Average
Remaining Weighted Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise Prices Options Life (years) Exercise Price Options Exercise Price
Fixed-option grants:
$ 8.75 - $10.17 857,913 15.07 $9.11 857,913 $9.11
$10.71 - $14.98 382,800 16.36 $12.65 322,800 $12.55
$15.88 - $18.22 502,161 14.14 $16.88 367,161 $16.75
$18.50 - $21.61 60,750 11.27 $19.34 60,750 $19.34
1,803,624 1,608,624
Performance-based option grants:
$10.71 - $11.37 78,000 17.00 $10.74 78,000 $10.74
$17.40 378,108 20.00 $17.40 0 $0
456,108 78,000
On December 17, 2004, 5,000 shares of restricted stock were granted by the
Company. In accordance with the plan, the 5,000 shares were valued at the fair
value of the Company's stock on the date of grant and reflected in equity as a
reduction in treasury stock outstanding. Compensation expense is recognized for
the restricted stock award on a straight-line basis over the vesting period of
the entire award with the balance of unearned compensation reflected in the
equity section of the balance sheet. Under the plan, shares of restricted
stock have voting rights. Cash dividends on the restricted shares are deferred
and held by the Company until satisfaction of the vesting requirements.
On December 19, 2003, the Company granted performance units that vested in
relation to (1) achieving certain operating profit levels in 2004 and (2)
completion of a service requirement. Upon satisfaction of the vesting
requirements, the performance units and a dividend equivalent calculated based
upon shares earned will be paid out in shares of the Company's common stock.
Prior to vesting, shares granted as performance units may not be voted. Prior
to the measurement date, compensation cost is being recognized as expense over
the service period to the extent the fair market value of the Company's stock
exceeds the grant price of the performance units. At the measurement date,
total compensation expense will be fixed and any unrecognized cost will be
expensed over the remaining service period. For the year ended December 31,
2004, $289,000 was recognized as expense for performance units granted in 2003.
On December 17, 2004, the Company granted 45,730 performance units that vest in
relation to (1) achieving certain operating profit levels in 2005 and (2)
completion of a service requirement. No compensation expense was recorded in
2004 with respect to this grant.
STOCK APPRECIATION RIGHTS
The Company maintains various stock appreciation rights plans that entitle
certain management employees to receive cash equal to the sum of the
appreciation in the value of the stock and the hypothetical value of cash
dividends which would have been paid on the stock covered by the grant assuming
reinvestment in Company stock. The stock appreciation rights granted may be
exercised in whole or in such installments and at such times as specified in
the grant. In all instances, the rights lapse if not exercised within 20 years
of the grant date. Additions or
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reductions to compensation expense are recorded in each period based upon the
quoted market value of the shares and the exercise provisions.
The following table summarizes the activity relating to the Company's stock
appreciation rights plans:
2004 2003 2002
Outstanding at January 1 (number of shares) 289,472 307,805 307,805
Terminated (4,875) - -
Exercised (30,800) (18,333) -
Outstanding and exercisable at December 31
(number of shares) 253,797 289,472 307,805
Price range of rights exercised $8.12-$9.33 $6.26 n/a
Price range of outstanding and exercisable rights:
$4.06 - $9.58 243,797 274,597 292,930
$17.16 10,000 14,875 14,875
At December 31, 2004, the weighted average remaining contractual life on
outstanding stock appreciation rights with an exercise price of between $4.06
and $9.58 was 4.8 years, and with an exercise price of $17.16 was 14 years.
DIVIDEND EQUIVALENTS
The Company maintains a Dividend Equivalent Plan. Upon termination of
employment, or at the time of exercise of options granted in tandem with the
dividend equivalents, participants are entitled to receive the cash value of
the grant. The cash value is determined by the sum of the value of cash
dividends that would have been paid on the stock covered by the grant had it
been actual stock and assuming all such hypothetical dividends had been
reinvested in Company stock. Additions or reductions to compensation expense
are recorded in each period based upon the quoted market value of the shares
and the exercise provisions.
The following table summarizes the activity relating to the Company's dividend
equivalent plan:
2004 2003 2002
Outstanding at January 1 (number of shares) 174,114 174,114 174,114
Exercised (19,364) - -
Outstanding and exercisable at December 31
(number of shares) 154,750 174,114 174,114
The provision (credit) for stock appreciation rights and dividend equivalents
were as follows:
(all dollar amounts in thousands) 2004 2003 2002
Stock appreciation rights $1,486 $1,024 $(183)
Dividend equivalents 227 169 46
Total $1,713 $1,193 $(137)
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Pro forma net earnings and net earnings per share had the Company elected to
adopt the "fair-value-based method" of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," are as
follows:
(all dollar amounts in thousands, except per share data) 2004 2003 2002
Net earnings:
As reported $20,393 $15,863 $23,068
Add: Total stock - based employee compensation expense (credit)
under APB No. 25, net of related tax effects 1,748 1,067 (110)
Deduct: Total stock - based employee compensation expense
determined under fair - value - based method for all awards,
net of related tax effects (2,034) (1,242) (137)
Pro forma $20,107 $15,688 $22,821
Net earnings per share - basic:
As reported $0.39 $0.31 $0.45
Pro forma $0.39 $0.30 $0.44
Net earnings per share - diluted:
As reported $0.39 $0.31 $0.45
Pro forma $0.39 $0.30 $0.44
The fair value of each option grant has been estimated on the grant date using
the Black-Scholes option-pricing model based on the following weighted average
assumptions:
2004 2003 2002
Risk - free interest rate 3.71% 3.25% 4.38%
Expected life in years 6 6 6
Price volatility 34.05% 38.97% 38.23%
Dividend yield 1.99% 2.78% 3.83%
NOTE 8 ACQUISITIONS
Effective March 3, 2003, the Company acquired certain assets of a laminated
papers producer for approximately $8.5 million in cash. The acquisition was
accounted for as a purchase business combination and, accordingly, the purchase
price was allocated using the fair values of the acquired receivables,
inventory, machinery and equipment, and identifiable intangible assets. No
additional liabilities or goodwill were recorded as a result of this
acquisition. The pro forma disclosures under SFAS No. 141, "Business
Combinations" have not been presented, as the impact of this acquisition does
not materially impact the results of operations. The acquired assets are
included in the Printing & Writing business segment.
On October 21, 2004, the Company acquired the assets of the Brainerd, Minnesota
paper mill of the Missota Paper Company, LLC, for approximately $9.9 million.
The purchase price was allocated using the fair values of the acquired
property, plant, and equipment. The Company assumed no liabilities of the mill.
No goodwill or other intangible assets resulted from the transaction. The
acquired assets are included in the Printing & Writing business segment.
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NOTE 9 COMMITMENTS AND CONTINGENCIES
LITIGATION AND OTHER CLAIMS
The Company may be involved from time to time in various legal and
administrative proceedings or be subject to various claims in the normal course
of its business. Although the ultimate disposition of legal proceedings cannot
be predicted with certainty, in the opinion of management, the ultimate
disposition of any threatened or pending matters, either individually or on a
combined basis, will not have a material adverse effect on the consolidated
financial condition, liquidity, or results of operations of the Company.
As a result of a settlement of all claims of the parties in a patent litigation
case, the Company recognized $4.2 million of income in 2003 as a fee for
licensing certain patented dispenser technologies.
ENVIRONMENTAL MATTERS
The Company is subject to extensive regulation by various federal, state,
provincial, and local agencies concerning compliance with environmental control
statutes and regulations. These regulations impose limitations, including
effluent and emission limitations, on the discharge of materials into the
environment, as well as require the Company to obtain and operate in compliance
with conditions of permits and other governmental authorizations. Future
regulations could materially increase the Company's capital requirements and
certain operating expenses in future years.
In 1986, the Wisconsin Department of Natural Resources (DNR) notified a
subsidiary of the Company that it may be a potentially responsible party (PRP)
for the Gorski land fill in Mosinee, Wisconsin, and nominated the landfill to
the Environmental Protection Agency's (EPA) National Priorities List. The
environmental contamination consists of elevated concentrations of chlorinated
volatile organic compounds documented in three private water supply wells
located in proximity to the designated landfill. The DNR has identified 10
PRPs. No action was taken by either the DNR or the EPA until June 2000, when
the DNR requested certain parties who had disposed of waste at the site to form
an ad hoc group to cooperatively investigate the environmental contamination at
the site. In October 2001, the Company entered into an agreement with three
other parties to fund a study of the landfill to determine possible remediation
strategies. The Company worked with the DNR on the development of the study
and work plan which was initiated in early 2003. A report based upon the study
was submitted to the DNR in 2004. The DNR has not provided a response to the
study submission. The Company estimates that the costs of remediation of the
entire site for all parties will be approximately $3 million, based on the
remediation method the Company's consultants believe to be the most likely to
be used. This estimate is preliminary. Actual costs of remediation of the
site could be materially different since no timetable or decision on the actual
remediation work has yet been developed. The Company's share of the cost of
such remediation cannot be determined with certainty at this time, but based on
the estimated costs and the number and nature of the other potential
responsible parties, the Company is of the opinion that such costs will not
have a material adverse impact on the operations, financial condition, or
liquidity of the
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Company. The Company is also pursuing insurance coverage of its remediation
costs following a 2003 Wisconsin Supreme Court decision in an unrelated case
that remediation claims may amount to damages for purposes of general liability
insurance.
It is the Company's policy to accrue remediation costs when it is probable that
such costs will be incurred and when a range of loss can be reasonably
estimated. Estimates of loss are developed based on currently available
information including environmental studies performed by third-party experts
and the Company's past experience with these matters. The Company's accrued
environmental liabilities, including all remediation and landfill closure
costs, totaled $6.1 million and $5.9 million at December 31, 2004 and 2003,
respectively. The provision for remediation and landfill costs was not
significant for the years ended December 31, 2004, 2003, and 2002,
respectively. The Company periodically reviews the status of all significant
existing or potential environmental issues and adjusts its accruals as
necessary. The accruals do not reflect any possible future insurance
recoveries. Estimates of costs for future remediation are necessarily
imprecise due to, among other things, the identification of presently unknown
remediation sites and the allocation of costs among potentially responsible
parties. The Company believes that its share of the costs of cleanup for its
current remediation site will not have a material adverse impact on its
consolidated financial position. As is the case with most manufacturing and
many other entities, there can be no assurance that the Company will not be
named as a PRP at additional previously or currently owned sites in the future
or that the costs associated with such additional sites would not be material.
OTHER COMMITMENTS
As of December 31, 2004, the Company was committed to spend approximately $10
million on capital projects, which were in various stages of completion.
The Company contracts for the supply and delivery of natural gas at some of its
facilities. Under these contracts, the Company is committed to the
transportation of a fixed volume of natural gas from the Company's natural gas
suppliers to the Company's facilities. The Company is not required to buy or
sell minimum gas volumes under the agreement but is required to pay a minimum
transportation fee for the contracted period. Contracts expire at various
times between 2005 and 2019. At December 31, 2004, the Company also has
commitments for the purchase of machine clothing from various suppliers and
volume commitments for the supply of fuel oil, natural gas, coal, and certain
raw materials. These obligations expire in 2005.
NOTE 10 PREFERRED SHARE PURCHASE RIGHTS PLAN
The Company maintains a rights plan under which one preferred share purchase
right is issued for each outstanding share of common stock. Each right
entitles its holder to purchase 1 one-thousandth of a share of Series A Junior
Participating Preferred Stock, at an exercise price of $60 per 1 one-thousandth
of a preferred share, subject to adjustment. The rights will become
exercisable only if a person or group (with certain exceptions) acquires
beneficial ownership of 15% or more of the outstanding common stock (an
"Acquiring Person"). Once exercisable, each holder of a right, other than the
Acquiring Person, will thereafter have the right to receive common stock having
a market value of two times the exercise price of the right. Upon the
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occurrence of certain events, each holder of a right, other than an Acquiring
Person, will have the right to receive (in lieu of preferred shares) common
stock of the Company (or a successor Company) that has a market value of two
times the exercise price of the right. Until exercisable, the rights will not
be issued or traded in separate form from the common stock. After any person
or group becomes an Acquiring Person, and prior to the acquisition by the
Acquiring Person of 50% or more of the common stock, the Company may exchange
the rights, other than rights owned by the Acquiring Person, at an exchange
ratio of one share per right (subject to adjustment). At any time prior to any
person or group becoming an Acquiring Person, the Company may redeem the rights
at a price of $0.01 per right. The rights will expire on October 31, 2008.
NOTE 11 FINANCIAL INSTRUMENTS
Financial instruments consisted of the following:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the relatively short period
to maturity for these instruments.
ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE, AND ACCRUED LIABILITIES
The carrying amounts approximate fair value due to the relatively short-term
nature of these instruments.
LONG-TERM DEBT
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. At
December 31, 2004 and 2003, the fair value of the long-term debt exceeded the
carrying value by approximately $13.9 million and $15.2 million, respectively.
INTEREST RATE AGREEMENT
Interest-rate swaps designated in fair value hedge relationships have been used
by the Company in the past to mitigate the risk of reductions in the fair value
of existing fixed-rate long-term notes due to decreases in LIBOR-based interest
rates. Gains and losses on these instruments were reflected in interest
expense in the period in which they occurred, and an offsetting gain or loss is
also reflected in interest expense based on changes in the fair value of the
debt instrument being hedged due to changes in LIBOR-based interest rates.
During 2001, the interest rate agreements were terminated. The amounts
received from the swap counterparties at termination approximated the fair
values of the swaps at the respective termination dates. The premium recorded
on debt during the period the swaps were outstanding will continue to be
amortized using the effective interest rate method over the remaining term of
the respective debt instruments. Debt premium amortization reduced interest
expense by approximately $0.7 million for the years ended December 31, 2004,
2003, and 2002.
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NOTE 12 SEGMENT DATA
FACTORS USED TO IDENTIFY REPORTABLE SEGMENTS
The Company's operations are classified into three principal reportable
segments: Specialty Products, Printing & Writing, and Towel & Tissue, each
providing different products. Separate management of each segment is required
because each business unit is subject to different marketing, production, and
technology strategies.
PRODUCTS FROM WHICH REVENUE IS DERIVED
Specialty Products produces specialty papers at its manufacturing facilities in
Rhinelander, Wisconsin; Mosinee, Wisconsin; and Jay, Maine. Printing & Writing
produces a broad line of premium printing and writing grades at manufacturing
facilities in Brokaw, Wisconsin; Groveton, New Hampshire; and Brainerd,
Minnesota. Printing & Writing also includes two converting facilities that
produce laminated roll wrap and related specialty finishing and packaging
products, and a converting facility that converts printing and writing grades.
Towel & Tissue produces a complete line of towel and tissue products that are
marketed along with soap and dispensing systems for the "away-from-home"
market. Towel & Tissue operates a paper mill in Middletown, Ohio and a
converting facility in Harrodsburg, Kentucky.
MEASUREMENT OF SEGMENT PROFIT AND ASSETS
The Company evaluates performance and allocates resources based on operating
profit or loss. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
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RECONCILIATIONS
The following are reconciliations to corresponding totals in the accompanying
consolidated financial statements:
(all dollar amounts in thousands) 2004 2003 2002
Net sales external customers:
Specialty Products $ 410,206 $362,935 $348,990
Printing & Writing 404,859 395,836 391,240
Towel & Tissue 225,652 212,673 208,468
$1,040,717 $971,444 $948,698
Operating profit:
Specialty Products $ 18,434 $ 6,586 $ (1,811)
Printing & Writing 10,038 12,880 31,600
Towel & Tissue 29,148 28,691 27,411
Corporate and eliminations (15,896) (12,879) (9,778)
$ 41,724 $ 35,278 $ 47,422
Segment assets:
Specialty Products $ 324,408 $334,079
Printing & Writing 299,694 283,711
Towel & Tissue 171,080 165,199
Corporate and unallocated 87,052 75,111
$ 882,234 $858,100
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OTHER SIGNIFICANT ITEMS
Depreciation, Expenditures
(all dollar amounts in thousands) Depletion, andfor Long - Lived
Amortization Assets
2004
SPECIALTY PRODUCTS $23,917 $ 7,265
PRINTING & WRITING 16,682 14,141
TOWEL & TISSUE 18,177 7,128
CORPORATE AND UNALLOCATED 1,189 1,031
$59,965 $29,565
2003
Specialty Products $24,613 $ 5,025
Printing & Writing 17,211 10,743
Towel & Tissue 18,218 7,574
Corporate and unallocated 781 919
$60,823 $24,261
2002
Specialty Products $25,084 $ 3,551
Printing & Writing 16,545 8,751
Towel & Tissue 18,077 5,897
Corporate and unallocated 918 1,002
$60,624 $19,201
COMPANY GEOGRAPHIC DATA
The Company has no long-lived assets outside the United States. Net sales to
customers within the United States and other countries, of which the majority
relates to Canadian customers, are as follows:
(all dollar amounts in thousands) 2004 2003 2002
United States $954,684 $895,776 $884,213
All foreign countries 86,033 75,668 64,485
$1,040,717 $971,444 $948,698
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QUARTERLY FINANCIAL DATA (UNAUDITED)
(all dollar amounts in thousands, First Second Third Fourth
except per share data) Quarter Quarter* Quarter Quarter Annual
2004
NET SALES $251,815 $264,109 $262,428 $262,365 $1,040,717
GROSS PROFIT 26,698 28,136 32,445 30,262 117,541
OPERATING PROFIT 7,814 8,382 15,287 10,241 41,724
NET EARNINGS 3,452 3,737 8,108 5,096 20,393
NET EARNINGS PER SHARE BASIC AND DILUTED $0.07 $0.07 $0.16 $0.10 $0.39
2003
Net sales $239,826 $242,833 $249,529 $239,256 $971,444
Gross profit 20,879 25,096 28,439 28,483 102,897
Operating profit 4,635 7,677 12,013 10,953 35,278
Net earnings 1,335 3,228 5,981 5,319 15,863
Net earnings per share basic and diluted $0.03 $0.06 $0.12 $0.10 $0.31
2002
Net sales $225,928 $237,820 $251,149 $233,801 $948,698
Gross profit 25,328 28,471 28,146 30,439 112,384
Operating profit 8,256 11,768 14,680 12,718 47,422
Net earnings 3,428 5,696 7,577 6,367 23,068
Net earnings per share basic and diluted $0.07 $0.11 $0.15 $0.12 $0.45
* In 2003, includes after-tax income of $2.6 million ($4.2 million pretax) or
$0.05 per share related to the settlement of a patent litigation case.
MARKET PRICES FOR COMMON SHARES (UNAUDITED)
2004 2003 2002
CASH Cash Cash
DIVIDENDS Dividends Dividends
PRICE PRICE PAID PER Price Price Paid Per Price Price Paid Per
Quarter HIGH LOW SHARE High Low Share High Low Share
1st $14.11 $12.20 $0.085 $12.08 $9.30 $0.085 $12.97 $10.50 $0.085
2nd 17.44 13.19 0.085 12.23 10.20 0.085 14.00 11.20 0.085
3rd 17.40 14.54 0.085 13.40 11.03 0.085 12.09 9.00 0.085
4th 19.12 15.15 0.085 13.85 11.75 0.085 11.81 8.14 0.085
All prices represent the high and the low sales prices for the common stock as
reported on the New York Stock Exchange.
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Schedule II - Valuation and Qualifying Accounts
Allowance for
Doubtful Accounts
Balance December 31, 2001 $ 4,651
Charges to cost and expense 342
Deductions (2,617)
Balance December 31, 2002 2,376
Charges to cost and expense (276)
Deductions ( 172)
Balance December 31, 2003 1,928
Charges to cost and expense 92
Deductions (186)
Balance December 31, 2004 $ 1,834
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this Form 10-K, management, under the
supervision, and with the participation, of the Company's President and Chief
Executive Officer and the Chief Financial Officer, evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures
as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based
upon, and as of the date of such evaluation, the President and Chief Executive
Officer and the Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective in all material respects.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management's report on the Company's internal control over financial reporting
and material changes in such internal control, and the attestation report of
the Company's independent registered public accounting firm on management's
assessment of the Company's internal control are set forth in Item 8, pages 31
and 32. There have been no changes in the Company's internal control over
financial reporting or in other factors which could materially affect such
internal control subsequent to the date the Company carried out its evaluation.
ITEM 9B. OTHER INFORMATION
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
Information relating to directors of the Company is incorporated into this Form
10-K by this reference to the disclosure in the Company's proxy statement
relating to the 2005 annual meeting of shareholders (the "2005 Proxy
Statement") under the subcaption "Proposal No. 1 - Election of Directors -
Election of Directors."
Information relating to the executive officers of the Company is found in Part
I of this Form 10-K.
Information required under Rule 405 of Regulation S-K is incorporated into this
Form 10-K by this reference to the disclosure in the 2005 Proxy Statement under
the subcaption "Stock Ownership - Section 16(a) Beneficial Ownership Reporting
Compliance."
CODE OF ETHICS
The Company has adopted a Code of Business Conduct and Ethics for all
directors, officers, and employees and a Code of Compliance and Reporting
Requirements for Chief Executive Officer and Senior Financial Officers which
covers the Company's Chief Executive Officer, Chief Financial Officer,
Controller, Manager of Corporate Accounting, and Manager of Internal Audit.
Each of these codes is available at "About Wausau Paper - Corporate Governance"
on the Company's website (www.wausaupaper.com). Shareholders may also obtain a
free copy by writing to the address set forth under the following subcaption.
In the event the Company amends or waives any provision of the Code of
Compliance and Reporting Requirements for Chief Executive Officer and Senior
Financial Officers applicable to its principal executive officers, principal
financial officers, or controller, the Company intends to disclose such
amendment or waiver at the website address where the code may also be found.
CORPORATE GOVERNANCE GUIDELINES AND COMMITTEE CHARTERS
The Company has adopted Corporate Governance guidelines and charters for its
Audit, Compensation, and Corporate Governance Committees. These guidelines and
charters are available at "About Wausau Paper - Corporate Governance" on the
Company's website (www.wausaupaper.com). Shareholders may also request a free
copy of these documents by writing to:
Corporate Secretary
Wausau Paper
100 Paper Place
Mosinee, WI 54455-9099
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AUDIT COMMITTEE
The Board of Directors has appointed an Audit Committee in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The members of the Audit Committee satisfy the NYSE and SEC
rules for independence applicable to audit committees of listed companies. Mr.
Freels (Chairman), Mr. Alexander, Mr. Baur, and Mr. Kuester serve on the Audit
Committee.
FINANCIAL EXPERT
The Board of Directors has determined that Gary W. Freels is an audit committee
financial expert. Mr. Freels is an independent director under NYSE listing
standards. Mr. Freels has 25 years of experience in commercial banking and,
for the last 9 years, has managed the investment portfolios of the private
foundation he serves as chief executive officer. He has also served on the
Audit Committee of the Company since 1996, and as its chairman since April,
2004.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Information relating to director compensation is incorporated into this Form
10-K by this reference to the disclosure in the 2005 Proxy Statement under the
subcaption "Proposal No. 1 - Election of Directors - Compensation of
Directors."
EXECUTIVE OFFICER COMPENSATION
Information relating to the compensation of executive officers is incorporated
into this Form 10-K by this reference to (1) the disclosure in the 2005 Proxy
Statement beginning under the caption "Executive Compensation," through the
disclosure ending under the subcaption, "- Retirement Benefits," and (2)
the disclosure in the 2005 Proxy Statement under the subcaption "- Report of
the Compensation Committee - Committee Interlocks and Insider Participation."
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information concerning (1) any person or group known to Wausau-Mosinee Paper
Corporation to be the beneficial owner of more than 5% of its voting stock, and
(2) ownership of its equity securities by management is incorporated by
reference to the material under the heading "Stock Ownership" in the Proxy
Statement.
The following table provides information with respect to compensation plans
under which the Company's common stock is authorized for future issuance:
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remainingavailable for
outstanding options, options, warrants and future issuanceunder
warrants and rights (1)(2) rights (1) (2) (3) equitycompensation plans
(excluding securities
reflected in column(a))(1)(2)
(a) (b) (c)
Equity compensation plans
approved by security
holders 2,170,525 $12.26 1,525,749
Equity compensation plans
not approved by security
holders 0 N/A 0
Total 2,170,525 $12.26 1,525,749
(1) Shares indicated relate to common stock issuable upon exercise of
options awarded under the 1991 Emplyee Stock Option Plan and upon
exercise of options or the vesting of performance units awarded under
the 2000 Stock Incentive Plan.
(2) Table excludes options with respect to 165,200 shares granted under
stock option plans of Mosinee Paper Corporation as of December 17,
1997 (the date of the merger between Wausau Paper Mills Company and
Mosinee Paper Corporation) at a weighted-average exercise price of
$11.96. No additional options will be granted from the stock-option
plans of Mosinee Paper Corporation.
(3) The exercise price calculation is based only on outstanding options to
purchase 2,094,532 shares. Shares issuable pursuant to performance
units have no exercise price.
BENEFICIAL OWNERSHIP
Information relating to security ownership of certain beneficial owners and
management is incorporated into this Form 10-K by this reference to the
disclosure in the 2005 Proxy Statement beginning under the caption "Stock
Ownership - Stock Ownership of Directors, Executive Officers, and 5%
Shareholders" and ending at the subcaption "- Section 16(a) Beneficial
Ownership Reporting Compliance."
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions with
directors and officers is incorporated into this Form 10-K by this reference to
the disclosure in the 2005 Proxy Statement under the subcaption "Proposal No. 1
- Election of Directors - Determination of Independence of Directors."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information relating to the fees and services of the Company's principal
accountant is incorporated into this Form 10-K by this reference to the
disclosure in the 2005 Proxy Statement under the subcaption "Report of the
Audit Committee and Related Matters - Independent Auditor and Fees," and "Audit
Committee Pre-Approval Policies."
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report
(1) The following consolidated financial statements of the Company and the
Reports of our Independent Registered Public Accounting Firm thereon are
filed as part of this report:
(i) Consolidated Balance Sheets as of December 31, 2004 and 2003
(ii) Consolidated Statements of Operations for the years ended December
31, 2004, 2003, and 2002
(iii) Consolidated Statements of Cash Flows for the years ended December
31, 2004, 2003, and 2002
(iv) Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2004, 2003, and 2002
(v) Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
The following financial statement schedule is filed as part of this
report:
(i) Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 2004, 2003, and 2002 (page 64)
All other schedules prescribed by Regulation S-X are not submitted
because they are not applicable or not required, or because the required
information is included in the Consolidated Financial Statements and
Notes thereto.
(3) Exhibits
The following exhibits required by Item 601 of Regulation S-K are filed
as part of this report:
Exhibit
Number Description
3.1 Restated Articles of Incorporation, as amended October 21, 1998
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form 8-A dated October 21, 1998)
3.2 Restated Bylaws, as amended December 17, 1997 (incorporated by
reference to Exhibit 4.2 to the Company's Registration Statement on
Form S-8 dated December 17, 1997, Commission File No. 33-42445)
4.1 Rights Agreement, dated as of October 21, 1998, including the Form
of Restated Articles of Incorporation as Exhibit A and the Form of
Rights Certificate as Exhibit B (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form 8-A
dated October 21, 1998)
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4.2 First Amendment dated August 22, 2000 to Rights Agreement dated
October 21, 1998 (incorporated by reference to Exhibit 4.1 (a) to
Amendment No. 1 to the Company's Registration Statement on Form 8-
A, filed on December 19, 2000)
4.3 Summary of Rights to Purchase Preferred Shares, Exhibit C to Rights
Agreement filed as Exhibit 4.1 thereto (incorporated by reference
to Exhibit 4.2 to the Company's Registration Statement on Form 8-A,
filed on October 29, 1998)
4.4 $138,500,000 Note Purchase Agreement dated August 31, 1999
(incorporated by reference to Exhibit 4.3 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999)
4.5 Credit Agreement dated August 31, 2004 among the Company and Bank
of America, N.A., M&I Marshall & Ilsley Bank, Harris Trust and
Savings Bank, and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2004)
4.6 $12,500,000.00 364-day Credit Facility Between the Company and
Marshall & Ilsley Bank Dated March 8, 2002 (incorporated by
reference to Exhibit 4.6 to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 2001)
10.1 Supplemental Retirement Plan, as last amended October 19, 2000
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2001)*
10.2 1988 Stock Appreciation Rights Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998)*
10.3 1990 Stock Appreciation Rights Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998)*
10.4 Deferred Compensation Agreement dated July 1, 1994, as last amended
March 4, 1999 (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998)*
10.5 1991 Employee Stock Option Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998)*
10.6 1991 Dividend Equivalent Plan, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998)*
10.7 Supplemental Retirement Benefit Plan dated January 16, 1992, as
last amended March 4, 1999 (incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998)*
10.8 Directors' Deferred Compensation Plan, as last amended March 4,
1999 (incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998)*
10.9 Directors Retirement Benefit Policy, as amended December 12, 2002*
10.10 Mosinee Paper Corporation 1985 Executive Stock Option Plan, as last
amended March 4, 1999 (incorporated by reference to Exhibit 10.14
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998)*
10.11 Mosinee Paper Corporation 1988 Stock Appreciation Rights Plan, as
last amended March 4, 1999 (incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998)*
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10.12 Mosinee Paper Corporation Supplemental Retirement Benefit Agreement
dated November 15, 1991, as last amended March 4, 1999
(incorporated by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998)*
10.13 Mosinee Paper Corporation 1994 Stock Option Plan, as last amended
March 4, 1999 (incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001)*
10.14 2003 Incentive Compensation Plan for Executive Officers
(incorporated by reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2002)*
10.15 2004 Incentive Compensation Plan for Executive Officers*
10.16 2000 Stock Incentive Plan (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2004)*
10.17 Executive Deferred Compensation Plan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2003)*
10.18 2005 Incentive Compensation Plan for Executive Officers
(incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated December 17, 2004)*
10.19 2005 Directors Deferred Compensation Plan
10.20 2005 Executive Deferred Compensation Plan
10.21 Standard Form of Restricted Stock Agreement (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form
8-K dated December 17, 2004)*
10.22 Standard Form of Performance Unit Grant Agreement (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2004)*
10.23 Standard Form of Non-Qualified Performance Stock Option Agreement
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2004)*
10.24 Standard Form of Non-Qualified Stock Option Agreement (incorporated
by reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2004)*
10.25 Standard Form of Non-Qualified Stock Option Agreement for Directors
(incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2004)*
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
31.1 Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act
of 2002
31.2 Certification of CFO pursuant to Section 302 of Sarbanes-Oxley Act
of 2002
32.1 Certification of CEO and CFO furnished pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
* Executive compensation plans or arrangements. All plans are sponsored
or maintained by the Company unless otherwise noted.
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(b) Exhibits
See Item 15(a)(3).
(c) Financial Schedules
See Item 15(a)(2).
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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.
WAUSAU-MOSINEE PAPER
CORPORATION
March 15, 2005 SCOTT P. DOESCHER
Scott P. Doescher
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant and as
Principal Financial and Accounting
Officer)
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Pursuant to the requirement 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.
March 15, 2005
THOMAS J. HOWATT SAN W. ORR, JR.
Thomas J. Howatt San W. Orr, Jr.
President and Chief Executive Officer Chairman of the Board
(Principal Executive Officer)
WALTER ALEXANDER ANDREW N. BAUR
Walter Alexander Andrew N. Baur
Director Director
GARY W. FREELS DENNIS J. KUESTER
Gary W. Freels Dennis J. Kuester
Director Director
DAVID B. SMITH, JR.
David B. Smith, Jr.
Director
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EXHIBIT INDEX*
TO
FORM 10-K
OF
WAUSAU-MOSINEE PAPER CORPORATION
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
PURSUANT TO SECTION 102(D) OF REGULATION S-T
(17 C.F.R. Section 232.102(D))
Exhibit 10.9 Directors Retirement Benefit Policy, as amended December 12,
2002
Exhibit 10.19 2005 Directors Deferred Compensation Plan
Exhibit 10.20 2005 Executive Deferred Compensation Plan
Exhibit 21.1 Subsidiaries of the Company
Exhibit 23.1 Consent of Deloitte & Touche LLP
Exhibit 31.1 Certification of CEO pursuant to Section 302 of Sarbanes-Oxley
Act of 2002
Exhibit 31.2 Certification of CFO pursuant to Section 302 of Sarbanes-Oxley
Act of 2002
Exhibit 32.1 Certification of CEO and CFO pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
* Exhibits required by Item 601 of Regulation S-K which have previously been
filed and are incorporated herein by reference are set forth in Part IV, Item
15 of Form 10-K to which this Exhibit Index relates.