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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2003
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________ to _________________
Commission file number: 1-13923
WAUSAU-MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
WISCONSIN 39-0690900
(State of incorporation) (I.R.S. Employer Identification
Number)
1244 KRONENWETTER DRIVE
MOSINEE, WISCONSIN 54455-9099
(Address of principal executive office)
Registrant's telephone number, including area code: 715-693-4470
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No ____
The number of common shares outstanding at October 31, 2003 was 51,554,891.
WAUSAU-MOSINEE PAPER CORPORATION
AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Condensed Consolidated Statements of
Operations, Three Months and Nine Months Ended
September 30, 2003 (unaudited) and
September 30, 2002 (unaudited) 1
Condensed Consolidated Balance
Sheets, September 30, 2003 (unaudited)
and December 31, 2002 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows, Nine Months
Ended September 30, 2003 (unaudited)
and September 30, 2002 (unaudited) 3
Notes to Condensed Consolidated
Financial Statements (unaudited) 3-8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Wausau-Mosinee Paper Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands, except per share data) 2003 2002 2003 2002
NET SALES $ 249,529 $ 251,149 $ 732,188 $ 714,897
Cost of products sold 221,090 223,003 657,774 632,952
GROSS PROFIT 28,439 28,146 74,414 81,945
Selling and administrative expenses 16,426 13,466 50,089 47,241
OPERATING PROFIT 12,013 14,680 24,325 34,704
Interest expense (2,537) (2,679) (7,608) (8,215)
Other income 18 31 19 17
EARNINGS BEFORE INCOME TAXES 9,494 12,032 16,736 26,506
Provision for income taxes 3,513 4,455 6,192 9,805
NET EARNINGS $ 5,981 $ 7,577 $ 10,544 $ 16,701
NET EARNINGS PER SHARE-BASIC $ 0.12 $ 0.15 $ 0.20 $ 0.32
NET EARNINGS PER SHARE-DILUTED $ 0.12 $ 0.15 $ 0.20 $ 0.32
Weighted average shares outstanding-basic 51,552,250 51,536,891 51,546,462 51,529,695
Weighted average shares outstanding-diluted 51,664,539 51,597,637 51,639,898 51,655,471
See Notes to Condensed Consolidated Financial Statements.
1
Wausau-Mosinee Paper Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) SEPTEMBER 30, December 31,
2003 2002
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 12,905 $ 23,383
Receivables, net 89,261 70,806
Refundable income taxes 5,357 10,264
Inventories 121,256 119,033
Deferred income taxes 11,589 12,812
Other current assets 3,465 4,100
Total current assets 243,833 240,398
Property, plant and equipment, net 575,483 597,979
Other assets 39,558 35,380
TOTAL ASSETS $858,874 $873,757
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 111 $ 0
Accounts payable 60,678 63,422
Accrued and other liabilities 52,272 58,578
Total current liabilities 113,061 122,000
Long-term debt 162,374 162,763
Deferred income taxes 114,747 111,377
Postretirement benefits 54,424 52,534
Pension 37,311 51,142
Other noncurrent liabilities 19,020 17,993
Total liabilities 500,937 517,809
Stockholders' equity 357,937 355,948
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $858,874 $873,757
See Notes to Condensed Consolidated Financial Statements.
2
Wausau-Mosinee Paper Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
(Dollars in thousands) 2003 2002
Net cash provided by operating activities $27,864 $49,021
Cash used in investing activities:
Capital expenditures (16,794) (15,573)
Acquisition of business ( 8,511) 0
Proceeds on sale of property, plant and equipment 11 185
(25,294) (15,388)
Cash used in financing activities:
Net payments under credit agreements 0 (16,025)
Payments under capital lease obligation (71) 0
Dividends paid (13,144) (13,140)
Proceeds from stock-option exercise 167 325
(13,048) (28,840)
Net increase (decrease) in cash and cash equivalents (10,478) 4,793
Cash and cash equivalents, beginning of period 23,383 12,010
Cash and cash equivalents, end of period $12,905 $16,803
Noncash investing and financing activities: A capital lease obligation of $336
was recorded in the second quarter of 2003 when the Company entered into a
lease for new equipment.
See Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. The condensed consolidated financial statements include the results of
Wausau-Mosinee Paper Corporation and our consolidated subsidiaries.
All significant intercompany transactions have been eliminated. The
accompanying condensed financial statements, in the opinion of
management, reflect all adjustments, which are normal, and recurring in
nature and which are necessary for a fair statement of the results for
the periods presented. Results for the interim period are not
necessarily indicative of future results. In all regards, the
financial statements have been presented in accordance with accounting
principles generally accepted in the United States of America. Refer
to notes to the financial statements, which appear in the Annual Report
on Form 10-K for the year ended December 31, 2002, for the Company's
accounting policies, which are pertinent to these statements.
3
Note 2. During the second quarter of 2003, the Company's Towel & Tissue Group,
reached a settlement of all claims of the parties in a patent
litigation matter. As a result of the settlement, the Company
recognized $4.2 million in pre-tax income (reduction of cost of sales)
as a fee for licensing certain patented dispenser technologies.
Note 3. 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 has been allocated using the fair
values of the acquired receivables, inventory, machinery and equipment,
and identifiable intangible assets. No goodwill was recorded as a
result of this acquisition. The pro forma disclosures required under
Statement of Financial Accounting Standard (SFAS) No. 141 "Business
Combinations" have not been presented, as the impact of this
acquisition does not materially impact the results of operations.
Note 4. SFAS No. 143, "Accounting for Asset Retirement Obligations,"
establishes accounting and reporting standards associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. The Company adopted SFAS No. 143 on January 1,
2003. There was no significant impact on the financial statements as
a result of the adoption.
Note 5. Net earnings include provisions, or credits, for stock incentive plans
calculated by using the average price of the Company's stock at the
close of each calendar quarter as if all grants under such plans had
been exercised on that day. For the three months ended September 30,
2003, the provision for incentive plans was $577,000. For the three
months ended September 30, 2002, the credit for incentive plans was
$1,384,000. For the nine months ended September 30, 2003 and 2002, a
provision of $991,000 and a credit of $1,168,000, respectively, were
recognized as stock incentive plan expense/income.
As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company continues to measure compensation cost for
stock-option plans using the "intrinsic value based method" prescribed
under APB No. 25, "Accounting for Stock Issued to Employees."
4
Pro forma net earnings and earnings per share had the Company elected to
adopt the fair-value based method" of SFAS No. 123 are as follows:
(Dollars in thousands, except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
Net earnings, as reported $ 5,981 $ 7,577 $ 10,544 $ 16,701
Add: Total stock-based employee
compensation expense (credit)
under APB No. 25, net of
related tax effects 364 (872) 625 (736)
Deduct: Total stock-based
compensation expense (credit)
determined under fair-value
based method for all awards,
net of related tax effects 417 (766) 744 (565)
Proforma $ 5,928 $ 7,471 $ 10,425 $ 16,530
Earnings per share - basic:
As reported $ 0.12 $ 0.15 $ 0.20 $ 0.32
Pro forma $ 0.11 $ 0.14 $ 0.20 $ 0.32
Earnings per share - diluted:
As reported $ 0.12 $ 0.15 $ 0.20 $ 0.32
Pro forma $ 0.11 $ 0.14 $ 0.20 $ 0.32
5
Note 6. Basic and diluted earnings per share are recognized as follows:
(Dollars in thousands, except per share data)
Three Months Nine Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
Net earnings $ 5,981 $ 7,577 $ 10,544 $ 16,701
Basic weighted average common
shares outstanding 51,552,250 51,536,891 51,546,462 51,529,695
Dilutive securities:
Stock options 112,289 60,746 93,436 125,776
Dilutive weighted average common
shares outstanding 51,664,539 51,597,637 51,639,898 51,655,471
Net earnings per share-basic $ 0.12 $ 0.15 $ 0.20 $ 0.32
Net earnings per share-diluted $ 0.12 $ 0.15 $ 0.20 $ 0.32
For the three months ended September 30, 2003, options for 842,255
shares were excluded from the diluted EPS calculation because the
options were antidilutive. For the three months ended September 30,
2002, options for 764,255 shares were excluded from the diluted EPS
calculation because the options were antidilutive. For the nine months
ended September 30, 2003 and 2002, 826,922 shares and 666,454 shares,
respectively, were excluded from the diluted EPS calculation because the
options were antidilutive.
Note 7. Accounts receivable consisted of the following:
(Dollars in thousands) SEPTEMBER 30, December 31,
2003 2002
Trade $89,937 $71,655
Other 1,506 1,527
91,443 73,182
Less: Allowances 2,182 2,376
$89,261 $70,806
6
Note 8. The various components of inventories were as follows:
(Dollars in thousands) SEPTEMBER 30, December 31,
2003 2002
Raw Materials $ 34,931 $ 33,989
Finished Goods and Work in Process 83,964 79,200
Supplies 28,135 27,463
Subtotal 147,030 140,652
Less: LIFO Reserve 25,774 21,619
Net inventories $121,256 $119,033
Note 9. The accumulated depreciation on fixed assets was $649,387,000 as of
September 30, 2003, and $613,840,000 as of December 31, 2002. The
provision for depreciation, amortization and depletion for the nine
months ended September 30, 2003 and September 30, 2002 was $45,693,000
and $45,290,000, respectively.
Note 10. Interim Segment Information
FACTORS USED TO IDENTIFY REPORTABLE SEGMENTS
The Company's operations are classified into three principal reportable
segments: the Printing & Writing Group, the Specialty Paper Group, and
the Towel & Tissue Group, 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
The Printing & Writing Group produces a broad line of premium printing
and writing grades at manufacturing facilities in Brokaw, Wisconsin and
Groveton, New Hampshire. The Printing & Writing Group also includes
converting facilities, which produce wax-laminated roll wrap and related
specialty finishing and packaging products, and a converting facility,
which converts printing and writing grades. The Specialty Paper Group
produces specialty papers at its manufacturing facilities in
Rhinelander, Wisconsin; Mosinee, Wisconsin; and Jay, Maine. The Towel &
Tissue Group produces a complete line of towel and tissue products that
are marketed along with soap and dispensing systems for the "away-from-
home" market. The Towel & Tissue Group operates a paper mill in
Middletown, Ohio, and a converting facility in Harrodsburg, Kentucky.
7
RECONCILIATIONS
The following are reconciliations to corresponding totals in the
accompanying consolidated financial statements:
Three Months Nine Months
Ended September 30, Ended September 30,
(Dollars in thousands) 2003 2002 2003 2002
Net sales external customers
Printing & Writing $104,105 $ 103,161 $301,940 $295,258
Specialty Paper 90,191 90,672 272,350 262,348
Towel & Tissue 55,233 57,316 157,898 157,291
$249,529 $ 251,149 $732,188 $714,897
Net sales intersegment
Printing & Writing $ 1,850 $ 1,669 $ 5,323 $ 5,274
Specialty Paper 0 70 0 220
Towel & Tissue 0 0 0 0
$ 1,850 $ 1,739 $ 5,323 $ 5,494
Operating profit (loss)
Printing & Writing $ 5,265 $ 5,951 $ 9,455 $ 23,279
Specialty Paper 2,444 59 4,020 (3,725)
Towel & Tissue 7,619 9,193 20,022 21,011
Total reportable segment
operating profit 15,328 15,203 33,497 40,565
Corporate & eliminations (3,315) (523) (9,172) (5,861)
Interest expense (2,537) (2,679) (7,608) (8,215)
Other income 18 31 19 17
Earnings before income taxes $ 9,494 $ 12,032 $ 16,736 $ 26,506
(Dollars in thousands) SEPTEMBER 30, December 31,
2003 2002
Segment Assets
Printing & Writing $293,497 $284,652
Specialty Paper 343,374 347,380
Towel & Tissue 167,773 170,854
Corporate & Unallocated* 54,230 70,871
$858,874 $873,757
* Segment assets do not include intersegment accounts receivable, cash,
deferred tax assets and certain other assets, which are not
identifiable with segments.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Three Months Nine Months
Ended September 30, Ended September 30,
(Dollars in thousands) 2003 2002 2003 2002
Net sales $249,529 $251,149 $732,188 $714,897
Percent increase/(decrease) (1%) 2% 2% (1%)
For the three months ended September 30, 2003, consolidated net sales for the
Company were $249.5 million compared to $251.1 million for the same three-month
period in 2002, a decrease of 1%. Company-wide shipments in the third quarter
of 2003 were 215,430 tons, a 2% decline from the 220,090 tons shipped in the
third quarter of 2002. Third quarter 2003 average selling price increased
approximately 1%, or nearly $3 million; as compared to the same period in 2002
with product mix enhancements accounting for most of the average selling price
increase.
For the nine months ended September 30, 2003 and 2002, consolidated net sales
were $732.2 million and $714.9 million, respectively, representing a 2%
improvement year-over-year. Year-to-date shipments through September 30, 2003,
improved to 637,600 tons, an increase of 1% over the 629,117 tons reported for
the same year-to-date period of 2002. During the first nine months of 2003,
average selling price improved approximately 1%, with product mix enhancements
accounting for slightly more than half of the increase. Together, product
pricing and product mix changes accounted for approximately $8.2 million of the
consolidated net sales improvement.
Third quarter net sales and shipments for the Printing & Writing Group each
increased 1% as compared to the third quarter of 2002. As a group, net sales
improved to $104.1 million in 2003 from $103.2 million reported for the same
three-month period in 2002. Shipments grew quarter-over-quarter from the
94,439 tons in 2002 to 95,164 tons in 2003. The increase in tons shipped was
driven by a 29% increase in laminated roll-wrap volume and a 22% increase in
consumer product shipments. Partially offsetting these increases were lower
commodity white offset volumes and reduced shipments to paper merchants and
converters. The decline in shipments to paper merchants and converters is due
primarily to a reduction in paper demand of end-use commercial printers.
Compared to the same period last year, third quarter demand for uncoated free-
sheet papers declined approximately 2% with greater declines occurring in the
text and cover segment of the printing papers market. Average net selling
price was principally unchanged quarter-over-quarter. Market conditions
remained weak and pricing competitive as the fourth quarter began.
Printing & Writing Group net sales for the first nine months of 2003 improved
2% to $301.9 million compared to $295.3 million in the first nine months of
2002. The increase in net sales was due primarily to increased shipments year-
over-year with 274,567 tons and 267,920 tons
9
shipped in the first nine months of 2003 and 2002, respectively. As in the
quarter-over-quarter comparison, the volume improvement was driven by an
increase in laminated roll-wrap and consumer product shipments period over
period. Average selling price declined less than 1% year-over-year with both
real selling prices and product mix marginally weaker in the first nine months
of 2003.
Specialty Paper Group net sales were comparable for the three months ended
September 30, 2003 and 2002, at $90.2 million and $90.7 million, respectively.
Shipments declined to 80,988 tons in the third quarter of 2003 compared to
86,269 tons in 2002. The volume decline of approximately 6% was due to a
reduction in shipments of non-core product and was nearly offset by a 5%
improvement in average selling price in the quarter-over-quarter comparison.
Product selling prices increased approximately 3%, with product mix
enhancements accounting for the balance of the average selling price
improvement.
For the first nine months of 2003, Specialty Paper Group net sales were $272.4
million compared to $262.3 million in the same period of 2002, an increase of
4%. Shipment volume was comparable in the year-to-date comparison with 251,314
tons shipped in 2003 and 250,695 tons shipped in 2002. Average selling price
improvement of 4% year-over-year was driven by actual product pricing
improvements of 3% and product mix enhancements of 1%.
Towel & Tissue Group net sales declined 4% to $55.2 million in the third
quarter of 2003, compared with $57.3 million in the same period last year.
Shipment volume remained relatively flat with 39,278 tons shipped in the third
quarter of 2003 compared to 39,382 tons shipped in the third quarter of 2002.
The "away-from-home" segment of the towel and tissue market grew approximately
2% in the third quarter of 2003 compared with the same period in 2002. Average
selling price declined by more than 3% with actual product selling price
declines of 4% partially offset by mix improvements.
Year-to-date net sales for the Towel & Tissue Group were $157.9 million in 2003
compared to $157.3 million in 2002. Year-to-date shipments increased 1% to
111,719 tons in 2003 versus 110,502 tons shipped in 2002. Average selling
price declined less than 1% as product selling price reductions of 2% were
partially offset by product mix improvements.
Gross Profit
Three Months Nine Months
Ended September 30, Ended September 30,
(Dollars in thousands) 2003 2002 2003 2002
Gross profit on sales $28,439 $28,146 $74,414 $81,945
Gross profit margin 11% 11% 10% 11%
Gross profit for the three months ended September 30, 2003, was $28.4 million
compared to $28.1 million for the three months ended September 30, 2002. Gross
profit margins were comparable to those reported in the same period last year
as increases in energy and fiber prices were offset by improvement in average
selling price, operational efficiency gains and cost-reduction efforts. In
total, natural gas prices increased nearly 70% resulting in additional cost of
$3.3 million in the third quarter of 2003 compared to the third quarter of
2002. Compared to the
10
third quarter of 2002, market pulp prices were higher by $39 per air-dried
metric ton, or approximately $3.9 million, quarter-over-quarter while
wastepaper prices were lower by $23 per standard ton, or approximately $0.8
million.
Year-to-date, gross profit margins declined to $74.4 million, or 10% of net
sales in 2003 compared to $81.9 million, or 11% of net sales in 2002. As in
the quarterly comparison, unfavorable market pulp and energy costs negatively
impacted the gross profit margin year-over-year. Year-over-year, market pulp
prices increased 14% or $17.0 million and natural gas costs increased 84% or
$13.3 million. Offsetting a portion of these unfavorable variances was the
$4.2 million second quarter settlement of litigation involving patented
dispenser technologies, improved average selling prices, cost-reduction efforts
and improved operating efficiencies.
Early in the third quarter, market pulp list prices declined $30 per air-dried
metric ton while natural gas prices continued to decline from peak first
quarter levels but remained above historical averages. At the end of the third
quarter, approximately 40% of the Company's October through December natural
gas requirements were price protected through purchase contracts. The price of
these contracts is comparable to the Company's third quarter average price.
The Printing & Writing Group's gross profit for the third quarter of 2003 was
10% of net sales compared to 11% for the same period last year. On a year-to-
date basis, gross profit declined from 14% in the first nine months of 2002 to
9% in the first nine months of 2003. The decline in gross margins on a quarter-
over-quarter and year-to-date basis is attributable to unfavorable pricing in
both natural gas and market pulp as discussed in the consolidated gross margin
comparisons.
The Specialty Paper Group's average selling price increase, improved operations
and cost-reduction efforts offset the unfavorable impacts of natural gas and
market pulp to report improved year-over-year gross profit margins of 8% in the
third quarter of 2003 compared to 4% in the third quarter of 2002. Similarly,
year-to-date margins improved to 6% from 3% in 2003 and 2002, respectively.
The gross profit margin for the Towel & Tissue Group declined to 20% in the
third quarter of 2003 from 22% in the third quarter of 2002. Reduced average
selling price and higher natural gas costs more than offset lower wastepaper
prices, improved operations, and cost reduction results, to account for the
lower current-year margin. Year-to-date gross margins declined slightly to 20%
of net sales in 2003, from 21% in the same period last year. 2003 results
include a favorable $4.2 million settlement of a patent litigation matter.
Consolidated order backlogs declined to approximately 33,400 tons at September
30, 2003, from approximately 40,900 tons at September 30, 2002. Backlog tons
at September 30, 2003, represent $37.8 million in sales compared to $43.6
million in sales at September 30, 2002. Declines in customer backlog were
evident in the Specialty Paper Group, while the Printing & Writing and Towel &
Tissue Groups improved slightly. The Printing & Writing Group backlog tons
improved from 9,400 tons as of September 30, 2002, to 10,800 tons at September
30, 2003. Specialty Paper Group backlog tons declined to 20,100 tons at the
end of the third quarter of
11
2003 compared to 29,900 tons at the end of the third quarter of 2002. The
Towel & Tissue Group experienced an increase in backlogs with 2,500 tons and
1,600 tons reported at the end of the third quarter of 2003 and 2002,
respectively. The change in customer order backlogs does not necessarily
indicate business conditions as a large portion of orders are shipped directly
from inventory upon receipt and do not impact backlog numbers.
Selling and Administrative Expenses
Three Months Nine Months
Ended September 30, Ended September 30,
(Dollars in thousands) 2003 2002 2003 2002
Selling and administrative expense $16,426 $13,466 $50,089 $47,241
Percent increase/(decrease) 22% (11%) 6% (9%)
As a percent of net sales 7% 5% 7% 7%
Selling and administrative expenses in the third quarter of 2003 were $16.4
million compared to $13.5 million in the same period of 2002. Incentive
compensation programs based on the market price of the Company's stock resulted
in a provision of $0.6 million for the three months ended September 30, 2003
compared to a credit of $1.4 million for the three months ended September 30,
2002. Consulting services also increased in the current-year quarter, as
compared with the same period last year.
For the nine months ended September 30, 2003, selling and administrative
expenses were $50.1 million compared to $47.2 million in the first nine months
of 2002. Expense recognized for stock-incentive based programs was $1.0
million in 2003 compared to a credit of $1.2 million in 2002. As in the
quarter-over-quarter comparison, consulting services increased on a year-over-
year basis.
Other Income and Expense
Three Months Nine Months
Ended September 30, Ended September 30,
(Dollars in thousands) 2003 2002 2003 2002
Interest expense $2,537 $2,679 $7,608 $8,215
Other income 18 31 19 17
Interest expense was $2.5 million in the second quarter of 2003 compared to
$2.7 million in the second quarter of 2002. The decrease quarter-over-quarter
was attributable to lower average debt levels partially offset by a slightly
higher effective interest rate. Long-term debt was $162.4 million and $175.7
million at September 30, 2003 and 2002, respectively. Long-term debt at
December 31, 2002, was $162.8 million. Interest expense is expected to remain
slightly lower in 2003 than in 2002 due to reduced borrowings against the
Company's credit facilities.
12
Income Taxes
Three Months Nine Months
Ended September 30, Ended September 30,
(Dollars in thousands) 2003 2002 2003 2002
Provision for income taxes $3,513 $4,455 $6,192 $9,805
Effective tax rate 37% 37% 37% 37%
The effective tax rates for the periods presented are indicative of the
Company's normalized tax rate. The effective rate for 2003 is expected to
remain at 37%.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Capital Expenditures
Nine Months Ended September 30,
(Dollars in thousands) 2003 2002
Cash provided by operating activities $27,864 $49,021
Capital expenditures 16,794 15,573
For the nine months ended September 30, 2003, cash provided by operating
activities was $27.9 million compared to cash provided by operations for the
nine months ended September 30, 2002, of $49.0 million. The reduction in cash
flows provided by operating activities quarter-over-quarter is attributable to
lower current-year earnings, increased pension contributions in 2003 and year-
to-year changes in inventories.
In 2003, due to weak economic conditions and to excess production capacity in
the paper industry, the Company has continued efforts initiated in 2001 to
limit capital spending without sacrificing the maintenance of its facilities
and operating assets. The Company has established an objective to achieve a
weighted-average internal rate of return of 17% on capital projects approved in
2003 and has achieved this objective for projects approved through the first
nine months of the year. Capital spending for the first nine months of 2003 was
$16.8 million compared to $15.6 million during the first nine months of 2002.
Capital spending over the remainder of 2003 is expected to increase somewhat as
compared to the first three quarters of 2003 due to capital projects slated for
installation during the fourth quarter. Total capital spending in 2003 is
expected to be less than $28 million, or less than one-half the Company's rate
of depreciation, depletion, and amortization.
For 2003, capital expenditures for projects with total spending expected to
exceed $1.0 million were $2.9 million in the Printing & Writing Group 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 computer replacement
at the Groveton mill. In the Towel & Tissue Group, $2.0 million was spent on a
screw press project and $1.8 million was spent for various converting lines.
The balance of spending for the first nine months of 2003 was related to
projects that individually are expected to cost less than $1.0 million. These
expenditures included approximately $6.6 million for essential non-or low-
return projects, and approximately $3.1
13
million on projects expected to provide a return on investment that exceeds the
Company's cost of capital.
Through the end of the third quarter of 2002, capital expenditures for projects
with total spending expected to exceed $1.0 million were $0.8 million for a
pulp mill digester replacement and $0.8 million for a paper machine process
control system replacement at the Printing & Writing Group's Brokaw and
Groveton mills, respectively. At the Towel & Tissue Group, $2.7 million was
spent on various converting lines. The balance of the spending in the first
nine months of 2002 was on projects individually under $1.0 million.
Effective March 3, 2003, the Company acquired certain assets of a laminated
papers producer for approximately $8.5 million in cash. The acquisition is
being accounted for as a purchase business combination and, accordingly, the
purchase price has been allocated using the fair values of the acquired
receivables, inventory, machinery and equipment, and identifiable intangible
assets. No goodwill was recorded as a result of this acquisition.
Debt and Equity
SEPTEMBER 30, December 31,
(Dollars in thousands) 2003 2002
Total debt, including current maturities $162,485 $162,763
Stockholders' equity 357,937 355,948
Total capitalization 520,422 518,711
Long-term debt/capitalization ratio 31% 31%
As of September 30, 2003, there was no significant change in total debt as
compared to December 31, 2002.
On September 30, 2003, the Company had approximately $131.0 million available
borrowing capacity from existing bank facilities. The Company's borrowing
capacity and cash provided by operations are expected to meet capital and
dividend requirements.
Dividends
On June 20, 2003, the Board of Directors declared a quarterly cash dividend of
$0.085 per common share. The dividend was paid on August 15, 2003, to
shareholders of record on August 1, 2003. On October 19, 2003, the Board of
Director's declared a cash dividend in the amount of $0.085 per share. The
dividend is payable on November 17, 2003, to shareholders of record on November
3, 2003.
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
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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
Information" in Item 1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 2002, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the information provided in response to
Item 7A of the Company's Form 10-K for the year ended December 31, 2002
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, 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
pursuant to Rule 13a-15 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. There have
been no significant changes in the Company's internal controls or in other
factors which could significantly affect internal controls subsequent to the
date the Company carried out its evaluation, nor were there any significant
deficiencies or material weaknesses identified which required any corrective
action to be taken.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
During the third quarter of 2003, the Company agreed to a settlement of its
complaint against Alwin Manufacturing Co., Inc. alleging infringement on a
patent used in the Bay West WAVE `N DRY{reg-trade-mark} dispenser and agreed to
the dismissal of related claims against Kimberly-Clark Corporation. The terms
of the settlement were not material to the Company's results of operations for
the third quarter and are not expected to be material with respect to future
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
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 pursuant to Section 906 of Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K:
Form 8-K dated July 22, 2003. The Company filed a current report on Form 8-
K on July 22, 2003, reporting earnings and net sales information for the
quarter ended June 30, 2003, under Item 5 and additional related information
under Items 9 and 12.
Form 8-K dated September 5, 2003. The Company filed a current report on
Form 8-K on September 5, 2003, to announce the appointment of Pete R.
Chiericozzi as Senior Vice President, Towel & Tissue Division.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WAUSAU-MOSINEE PAPER CORPORATION
November 13, 2003 SCOTT P. DOESCHER
Scott P. Doescher
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
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EXHIBIT INDEX
TO
FORM 10-Q
OF
WAUSAU-MOSINEE PAPER CORPORATION
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. Section 232.102(d))
The following exhibits are filed as part of this report:
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 pursuant to Section 906 of Sarbanes-Oxley
Act of 2002
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