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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended August 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
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WAUSAU PAPER MILLS COMPANY
(Exact name of registrant as specified in charter)
One Clark's Island WISCONSIN
P.O. Box 1408 (State of incorporation)
Wausau, Wisconsin 54402-1408 39-0690900
(Address of principal executive office) (I.R.S. Employer
Identification Number)
Registrant's telephone number, including area code: 715-845-5266
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of each class)
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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 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]
As of October 20, 1994, the aggregate market value of the common stock shares
held by non-affiliates was approximately $431,662,000.
The number of common shares outstanding at October 20, 1994 was 26,735,530.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated November 9, 1994; Pages 2 to 11 (Part III)
TABLE OF CONTENTS
Page
PART I
Item 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . 7
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . 8
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . 8
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . 8
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . 9
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . 10
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT
OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . 18
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES. . . . . . . . . 42
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT. . . . . . . . . . . . . . . . . . . . . . 42
Item 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . 42
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . 42
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . 42
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . 43
Schedule V - Property, plant and equipment . . . . . 45
Schedule VI - Accumulated depreciation of property,
plant and equipment. . . . . . . . . . . . . . . . 46
Schedule VIII - Valuation and qualifying accounts. . 47
Schedule X - Supplementary income statement
information. . . . . . . . . . . . . . . . . . . . 47
PART I
ITEM 1. BUSINESS.
NATURE OF THE BUSINESS
The company, incorporated under the laws of the State of Wisconsin in 1899,
manufactures and sells paper. The company is presently organized into a small
corporate staff consisting of principal executive officers and two operating
divisions: the Printing and Writing Division consisting of a paper and pulp
mill in Brokaw, Wisconsin and Wausau Papers of New Hampshire, Inc., a wholly-
owned subsidiary which operates a paper mill in Groveton, New Hampshire; and
the Rhinelander Division which consists of Rhinelander Paper Company, Inc., a
wholly-owned subsidiary operating a paper mill in Rhinelander, Wisconsin. The
company's executive offices are located in Wausau, Wisconsin.
Export sales of the company are administered through Wausau Papers
International, Inc., a wholly-owned subsidiary which acts as a foreign sales
corporation (FSC). Wausau Papers Export Corporation, a wholly-owned
subsidiary, acted as a domestic international sales corporation (DISC) until
September 1, 1992.
Unless stated otherwise, the terms "company" and "Wausau Papers" mean the
company and its subsidiaries.
SEGMENT INFORMATION
Paper manufacturing is the company's only line of business.
PRINTING AND WRITING DIVISION
The Printing and Writing Division manufactures fine printing, writing and
specialty papers at the Brokaw, Wisconsin and Groveton, New Hampshire mills.
The division's product lines include recycled products made from 50% recycled
fibers, with 10-20% of the total fiber content from post-consumer waste.
These papers are sold to paper distributors and converters throughout the
United States and Canada. Typical end uses for these fine papers include
printed advertising, corporate external reports, office papers and converted
products including such items as announcements and greeting card envelopes.
The Printing and Writing Division was created in 1993 by combining the
operations of the company's Brokaw division and the manufacturing facilities
at Groveton, New Hampshire. The Groveton facilities were purchased from the
James River Corporation on April 1, 1993, by the company's newly formed
wholly-owned subsidiary, Wausau Papers of New Hampshire, Inc. This purchase
expanded the company's annual printing and writing paper capacity by over
90,000 tons.
RHINELANDER DIVISION
The Rhinelander Division, located in Rhinelander, Wisconsin, manufactures
lightweight, dense, technical specialty papers which are sold directly to
converters and end users. Typical end uses are pressure-sensitive products,
medical packaging, food packaging
and multiple laminated products. Small volumes of yeast and lignosulfonates
are also manufactured. These products are sold for use as food additives, pet
food ingredients and for other end uses.
EXPORT SALES
Since September 1, 1992, Wausau Papers International, Inc. has acted as the
commissioned sales agent for the export sales of the company. Wausau Papers
International, Inc. has elected to be treated as a FSC for federal income tax
purposes.
Wausau Papers Export Corporation formerly acted as a commissioned sales agent
for the export sales of the company through August 31, 1992. Wausau Papers
Export Corporation has elected to be treated as a DISC for federal income tax
purposes.
RAW MATERIALS
The basic raw material for paper is pulp. Approximately 55% of the pulp
consumed by the Brokaw mill is manufactured internally from aspen, which is in
abundant supply. The remaining 45% of required pulp at Brokaw and 100% of the
required pulp at the Rhinelander and Groveton mills is purchased from pulp
mills throughout the United States and Canada. Although prices for purchased
pulp began to increase in fiscal 1994 as market demand for pulp increased,
purchased pulp is in adequate supply and readily obtained from both domestic
and foreign sources.
Recycled, de-inked fiber with a high content of post-consumer waste is also
purchased from domestic suppliers as part of the fiber requirements for the
Printing and Writing Division's recycled products. Recycled fiber is also in
adequate supply and readily obtained.
Various chemicals are also used in the pulping and papermaking processes.
These industrial chemicals are all available from a number of suppliers and
are purchased at current market prices.
ENERGY
The company's paper mills require large amounts of electrical energy and steam
which are adequately supplied by public utilities or generated at company
operated facilities. During fiscal 1994, the natural gas supply to Brokaw,
which fuels the power plant that provides the mill with all its steam
requirements, was available for all operating days, with the exception of a
one week period in January where gas was curtailed due to severe cold weather.
During this period, the mill fueled its power plant with oil, resulting in
minimal disruption to the mill. The Brokaw mill purchases 100% of its
electrical requirements from a public utility company. The Groveton mill
operates a power plant which provides 100% of the mill's steam requirements
and a portion of its electrical needs. The primary fuels burned at Groveton
are wood chips and fuel oil. The Rhinelander Division maintains a coal
burning plant capable of generating the mill's steam needs and nearly half of
its electrical needs. The Groveton and Rhinelander mills purchase
approximately 80% and 55% of their electrical needs, respectively, from public
utility companies.
The fuels used at each mill are all available on a contract basis at
prevailing market prices.
In August 1993, Rhinelander Paper Company, Inc. and Wisconsin Public Service
Corporation (WPS) entered into a contract under which WPS would own, operate
and fund a high-efficiency cogeneration power plant and Rhinelander would
become the plant's exclusive steam customer for a minimum of 35 years.
Construction of the 116-mega watt plant requires approval by the Wisconsin
Public Service Commission (the "Commission"). WPS submitted its application
in October 1993. The Commission subsequently requested competing proposals
from other electrical generation developers and utilities for satisfying the
projected demand for additional electrical energy in the state. A decision on
project selection, the first phase in the approval process, is expected from
the Commission in November 1994. If the proposed WPS Rhinelander plant is
selected in the first phase of the process and receives approval to construct
and operate in the second phase, it is anticipated that the project would be
completed and that steam would be available to the company's Rhinelander mill
in 1998. The power plant is expected to reduce energy costs for Rhinelander
while eliminating the paper mill's need to maintain and replace boiler
equipment in the future.
PATENTS AND TRADEMARKS
The company develops and files trademarks and patents, as appropriate. 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 second fiscal quarter, in comparison to the rest of the year, primarily
due to downtime typically taken by converters and customers during the 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
Avery Dennison Corporation accounted for 12.3% of fiscal 1994 consolidated net
sales. The loss of this customer could have an initial material adverse
effect; however, the company believes that satisfactory alternative marketing
arrangements could be made.
BACKLOG
Order backlog of the company's products amounted to approximately $25,672,000,
representing nearly 3 weeks of operation as of
August 31, 1994. This total is 15.1% higher than the backlog of orders of
approximately $22,307,000 or nearly 3 weeks of operation at August 31, 1993.
The backlog increase is primarily due to increased demand for the company's
printing and writing and technical specialty grades.
Backlog totals have become a less accurate indicator of the strength of the
company's business activity. A significant volume of orders at both divisions
are shipped out of inventory promptly upon receipt of the order. This portion
of the business is not reflected in the backlog totals. The entire August 31,
1994 backlog is expected to be shipped during fiscal 1995.
COMPETITIVE CONDITIONS
The company competes in different markets within the paper industry. Each
division serves distinct market niches. The Printing and Writing Division
produces fine printing and writing papers, of which approximately 70% are
colored papers. Fine printing and writing sales are estimated to be less than
3% of the total market. The division's competitors range from small to large
paper manufacturers and represent many different product lines. The division
distributes its products primarily through paper wholesalers. Rhinelander
produces technical specialty papers and is a leader in its markets.
Rhinelander's market position varies by product segment and, thus, competition
also includes small to large paper manufacturers. Rhinelander sells its
products directly to converters and end users. The various markets for the
products of the company are highly competitive, with competition based on
service, quality and price.
RESEARCH AND DEVELOPMENT
Expenditures for product development were approximately $1,158,000 in 1994,
$957,000 in 1993 and $868,000 in 1992.
ENVIRONMENT
Wausau Papers, like its competitors in the paper industry, is subject to
increasingly stringent environmental regulations. The company has made
substantial capital investments and operating expenditures in order to
construct, maintain and operate the facilities necessary to maintain
compliance with environmental regulations. The company intends to spend $14.5
million over fiscal years 1995, 1996 and 1997 to rebuild, modernize and expand
the wastewater treatment plant for the Brokaw mill. The company estimates
that its capital expenditures for other environmental purposes will be
approximately $5 million in each of these fiscal years.
The company has not been identified as a potentially responsible party at any
site designated for remedial action under the federal Superfund law. The
company is required to monitor conditions relative to its past waste disposal
activities and may be required to take remedial action if conditions are
discovered which warrant such action.
The United States Environmental Protection Agency (EPA) has proposed
regulations which could require significant expenditures by the pulp and paper
industry. The final rules are expected to
be issued in 1995 and to require compliance in 1998. One major aspect of the
proposed new rules is extremely stringent standards for the discharge of
chlorinated organics that are produced as byproducts of pulp bleaching
processes that use elemental chlorine or chlorine compounds. The company
maintains pulp bleaching operations only at its Brokaw mill. In 1988 the
company installed an oxygen delignification system which eliminated the use of
elemental chlorine; however, chlorine compounds are used in other stages of
the bleaching process. The company is unable to predict with certainty the
amount of capital expenditures and operating costs that it will incur in the
future in order to comply with the proposed new EPA rules and other
environmental regulations but it believes that such costs will not have a
material adverse effect on its financial position or results of operations.
EMPLOYEES
The company had 1,695 employees at August 31, 1994. The company has
collective bargaining contracts with the United Paperworkers International
Union covering approximately 1,314 employees. These contracts expire in
December 1995, May 1996 and March 1997 at the Rhinelander, Brokaw and Groveton
mills, respectively. The company considers its relationship with its
employees to be excellent. Eligible employees participate in retirement plans
and group life, disability and medical insurance programs.
The executive officers of the company as of October 1, 1994, their ages, their
positions and offices with the company and their principal occupations during
the past five years are as follows:
SAN W. ORR, JR., 53
-------------------
Chairman of the Board of Directors since December 1989, Chief
Executive Officer since July 1994, and Director since
April 1970; also, Attorney, Estates of A.P. Woodson and
Family; also, a director of Mosinee Paper Corporation and MDU
Resources Group, Inc.
DANIEL D. KING, 47
------------------
Director, President and Chief Operating Officer since July
1994; Senior Vice President, Printing and Writing Division,
December 1993 to July 1994; Vice President and General
Manager, Brokaw, September 1990 to December 1993; Vice
President, Sales, Nekoosa Papers, Inc., February 1988 to June
1990.
LARRY A. BAKER, 55
------------------
Senior Vice President, Administration since December 1990;
prior thereto, Vice President, Administration.
STEVEN A. SCHMIDT, 40
---------------------
Vice President, Finance, Secretary and Treasurer since
June 1, 1993; Corporate Controller, August 1992 to June 1993;
prior thereto, Plant Controller, Georgia Pacific Corporation,
formerly Nekoosa Papers, Inc., March 1989 to August 1992.
MELVIN L. DAVIDSON, 58
----------------------
Vice President and General Manager, Rhinelander Division
since August 1987; prior thereto, Vice President Marketing
and Sales, Rhinelander Division.
THOMAS J. HOWATT, 45
--------------------
Vice President and General Manager, Groveton since April 1,
1993; Vice President Operations, Brokaw Division, September
1990 to April 1993; prior thereto, Vice President,
Administration, Brokaw Division.
All executive officers of the company are elected annually by
the Board of Directors.
ITEM 2. PROPERTIES.
The company's executive offices are located in Wausau, Wisconsin on property
leased to the company under a lease which expires on December 31, 2005. There
are renewal options for another 25 years.
The company's Brokaw, Wisconsin mill operated at capacity during fiscal 1994,
producing approximately 465 tons of finished paper per day. The mill facility
provides approximately 55% of its pulp requirements from its own hardwood
sulphite pulp mill. Brokaw mill facilities are situated on approximately 270
acres of land, all owned by the company.
The company's manufacturing facility in Groveton, New Hampshire was acquired
from James River Corporation on April 1, 1993. The mill operated at 55% of
capacity in fiscal 1994, producing approximately 140 tons of finished paper
per day. At capacity, the Groveton mill can produce over 90,000 tons of
finished paper per year. The company's facilities occupy 124 acres of land
all owned by the company's wholly-owned subsidiary, Wausau Papers of New
Hampshire, Inc.
Rhinelander's paper mill in Rhinelander, Wisconsin operated at 99% of capacity
in fiscal 1994, producing an average of 384 tons of finished paper per day.
Its facilities, which include a yeast and lignosulfonate processing plant
capable of producing 21,000 pounds of torula yeast per day, occupy 72 acres of
land, all owned by Rhinelander Paper Company, Inc.
The company owns approximately 43,500 acres of timberland in Wisconsin. The
company believes the market value of these lands exceeds the August 31, 1994
book value of $1,541,000.
ITEM 3. LEGAL PROCEEDINGS.
Legal proceedings are discussed in Note 12 to the Consolidated Financial
Statements on page 56 of this report.
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 fiscal 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The company's common stock is traded on the Nasdaq National Market System
under the symbol WSAU. The number of shareholders of record as of October 10,
1994 was 1,941. The company believes that there are approximately 4,259
additional beneficial owners whose shares are held in street name accounts or
in other fiduciary capacities. The total estimated number of shareholders as
of October 10, 1994, is 6,200. Information related to high and low closing
prices and dividends is explained in detail in Item 8, Financial Statements
and Supplementary Data, and appears on page 41 of this report. Dividend
restrictions under certain loan covenants are explained in Note 4 to the
Consolidated Financial Statements which is found on page 28 of this report.
ITEM 6. SELECTED FINANCIAL DATA.
(all dollar amounts in thousands,
except per share data) Years ended August 31,
1994 1993 1992 1991 1990
FINANCIAL RESULTS
Net sales $426,504 $381,816 $370,935 $350,361 $339,935
Depreciation, depletion
& amortization 17,635 15,445 13,760 13,344 11,590
Operating profit 69,990 62,910 62,414 50,190 25,552
Interest expense 1,958 1,272 1,126 3,927 3,510
Earnings before provision
for income taxes 68,052 61,771 61,309 47,025 24,170
Earnings (before cumulative
effect of accounting
change) 42,052 38,371 40,009 30,475 15,870
Net earnings 43,052 22,621 40,009 30,475 15,870
Average number of shares
outstanding 26,929,007 26,948,296 26,931,719 26,928,430 26,885,357
Cash dividends declared 6,487 5,686 5,152 4,565 4,193
Cash dividends paid 6,291 5,559 5,000 4,473 3,972
Capital expenditures 43,800 51,297 31,777 24,931 43,892
Tons of paper shipped 355,100 310,600 296,600 278,800 269,500
FINANCIAL CONDITION
Working capital $ 59,878 $ 57,007 $ 34,338 $ 19,661 $ 23,499
Long-term debt 30,270 42,712 22,695 30,727 55,364
Shareholders' equity 214,818 183,139 165,989 130,034 104,382
Total assets 361,389 329,583 266,592 240,306 216,527
PER SHARE
Earnings (before cumulative
effect of accounting
change) $ 1.56 $ 1.42 $ 1.49 $ 1.13 $ .59
Net earnings 1.60 .84 1.49 1.13 .59
Cash dividends declared .240 .210 .191 .170 .156
Shareholders' equity 7.98 6.80 6.16 4.83 3.88
Price range (low and high
closing) 22.25-34.00 17.86-29.63 16.88-32.21 6.75-18.42 7.11-9.96
RATIOS/RETURNS
Return on sales (before
cumulative effect of
accounting change) 9.9% 10.0% 10.8% 8.7% 4.7%
Net return on sales 10.1% 5.9% 10.8% 8.7% 4.7%
Return on average shareholders'
equity (before cumulative effect
of accounting change) 21.2% 21.0% 27.0% 26.0% 16.1%
Net return on average share-
holders' equity 21.6% 13.0% 27.0% 26.0% 16.1%
Current assets to current
liabilities 2.3 to 1 2.4 to 1 1.9 to 1 1.5 to 1 1.8 to 1
% of long-term debt to total
capital 9.6% 14.8% 9.9% 15.6% 29.9%
Tons of paper shipped per employee 210 206 225 216 212
EMPLOYMENT
Average number of employees 1,692 1,510 1,319 1,293 1,271
All shares and per share data have been restated to reflect the
four-for-three stock splits in 1994 and 1993, the two-for-one
stock split in 1992, the five-for-four stock split-up, effected in
the form of a dividend, in 1991 and the 10% stock dividend in
1990. This summary should be read in conjunction with the
consolidated financial statements which follow.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
OVERVIEW
The company achieved record sales, earnings and shipments in
fiscal 1994. Although the U.S. economy showed gradual improvement
during the year, market conditions in the pulp and paper industry
were mixed. While the market for printing and writing grades
showed modest growth in fiscal 1994, the company made significant
progress in expanding its marketing presence in the East Coast and
Canada with the first full year of operation of the Groveton, New
Hampshire mill. Although there was not sufficient market strength
to support the operation of the second of the two paper machines
at Groveton in fiscal 1994, the company's Printing and Writing
Division experienced a 17.7% volume gain over the previous year.
Strong demand at Rhinelander for its technical specialty grades
resulted in a 9.7% volume increase in fiscal 1994 over the
previous year's results.
For much of fiscal 1994, the company experienced rising pulp
prices as market demand for pulp increased. The company announced
several paper price increases during the year, but competitive
pressures prevented price increases on many grades. Price
increases were not sufficient to completely offset the higher pulp
costs. Improved production levels and cost reduction efforts
helped to minimize the impact of the rising pulp costs. As pulp
prices continued to rise in early fiscal 1995, the company
implemented additional selling price increases on most of its
products in September and carried out further price increases on a
portion of its technical specialty product line in October.
NET SALES
Fiscal 1994 net sales were a record $426.5 million, an increase of
11.7% over fiscal 1993 net sales of $381.8 million. Net sales in
fiscal 1992 were $370.9 million. Shipments were a record 355,100
tons, exceeding 1993 shipments of 310,600 tons by 14.3%. Fiscal
1992 shipments were 296,600 tons. The growth in shipments in
fiscal 1994 was primarily the result of successfully marketing
part of the added production capacity of the Groveton, New
Hampshire mill and strong demand at the Rhinelander Division.
Despite very competitive market conditions, demand for the
company's products continued to remain strong in fiscal 1994. At
the Printing and Writing Division, 1994 shipments outpaced the
previous year by 17.7%. However, market conditions did not
support the operation of the second of the two paper machines at
Groveton. Continued growth of the company's printing and writing
products is expected in fiscal 1995. Strong demand for the
Rhinelander Division's technical specialty products resulted in
record shipments in 1994. Shipments of Rhinelander's products
increased 9.7% compared to 1993 results. Shipments of pressure
sensitive products, its largest product segment, were up 11.5%
over 1993 results. Some brief downtime was taken early in the
year as a result of isolated market weakness in certain product
segments.
Order backlog at August 31, 1994 was $25.7 million, an increase of
$3.4 million or 15.1% from the August 31, 1993 backlog of $22.3
million. The order backlog at August 31, 1992 was $20.9 million.
Order backlog at the end of fiscal 1994 is higher than a year ago
primarily due to increased demand for both printing and writing
and technical specialty grades. Backlog totals are not an
accurate indicator of the strength of the company's business as a
significant volume of orders are shipped out of inventory promptly
upon receipt of the order.
GROSS PROFIT
The gross profit margin decreased in fiscal 1994 to 22.8% of net
sales. The gross profit margin was 23.3% in fiscal 1993 and 23.1%
in fiscal 1992. Market pressures in the printing and writing and
technical specialty grades resulted in slightly lower average
selling prices in fiscal 1994 compared to the previous year.
Market pulp prices declined until January 1994. Since January,
the company has experienced steadily rising prices for pulp. For
fiscal 1994, pulp costs, on average, were slightly below the
fiscal 1993 average. The company announced paper price increases
for certain paper grades during this period of rising pulp costs,
however, market pressures prevented implementation of price
increases on several product lines. The company was able to
offset part of the negative effect of rising pulp prices through
some price increases, improved productivity from paper mill and
pulp mill operations and cost reduction efforts, including Total
Quality Process generated improvements.
In early fiscal 1995, the company experienced further pulp price
increases. The company implemented price increases on many of its
paper grades in September and on a portion of its technical
specialty product line in October. Although the rate of each
increase in the prices of pulp and paper may not coincide and
paper price increases will generally lag behind pulp price
increases in the short-term, management believes the company will
have sufficient pricing flexibility with its product lines to help
maintain profit margins on a long-term basis. The prices of most
other raw materials consumed in production have generally
increased at or below the rate of general inflation.
Production of the company's printing and writing grades increased
12.7% over fiscal 1993. This was achieved primarily as a result
of the first full year of operation at the Groveton mill. The
Brokaw mill operated at capacity in 1994, while the Groveton mill
operated at 55% of capacity. Production in 1993 was 14.0% higher
than 1992 results.
The Rhinelander mill operated at 99% of capacity in 1994. Brief
downtime was taken on two of Rhinelander's smaller paper machines
early in the year. Despite this downtime, capital improvements
yielded a production increase of 5.1% compared to 1993 results.
Rhinelander's production in 1993 was 3.2% better than 1992 levels.
Maintenance and repair costs increased to $29.6 million in fiscal
1994 from $28.8 million in 1993 and $26.4 million in 1992. The
increase is mainly attributable to maintenance and repair costs
associated with a full year of operation at the Groveton mill.
LABOR
The company is currently in the fourth year of a five-year labor
agreement with the United Paperworkers International Union at the
Brokaw mill. The agreement, which expires in May 1996, includes a
general wage increase of 3.5% in 1995. The contract includes
increases in employee benefits and several changes in work rules
to provide greater operating efficiencies.
The company is currently in the second year of a four-year labor
agreement with the United Paperworkers International Union at the
Groveton mill. The agreement, which expires in March 1997,
includes general wage increases of 3.0% in 1995 and 2.0% in 1996.
The contract includes increases in employee benefits as part of
the agreement.
The company is currently in the third year of a four-year labor
agreement with the United Paperworkers International Union at the
Rhinelander division. The agreement, which expires in December
1995, includes a general wage increase of 3.0% in 1995. Increases
in employee benefits each year of the contract and changes in work
rules for improved operating efficiencies are also part of the
agreement.
The company is of the opinion that all three labor agreements
provide competitive labor costs over the contract periods. The
company considers its relationship with its employees to be
excellent.
SELLING, ADMINISTRATIVE AND RESEARCH EXPENSES
Selling, administrative and research expenses in fiscal 1994 were
$27.3 million, compared to $26.0 million in fiscal 1993 and $23.1
million in fiscal 1992. Higher marketing and administrative costs
in fiscal 1994 over the prior year are attributable to a full year
of operation at the Groveton mill, increased marketing costs to
promote new product offerings of printing and writing grades and
higher professional fees. Stock appreciation rights, dividend
equivalents and stock option income was $.3 million in 1994,
compared to expense of $1.9 million in 1993 and $1.2 million in
1992.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME
Interest income was $.1 million in fiscal 1994 and was less than
$.1 million in both fiscal 1993 and fiscal 1992. Interest expense
totaled $2.0 million in fiscal 1994, compared to $1.3 million in
1993 and $1.1 million in 1992. Additional debt from the purchase
of the manufacturing facilities in Groveton, New Hampshire,
accounts for the higher interest expense in fiscal 1994.
Capitalized interest was $.2 million in fiscal 1994 and was $.1
million in 1993 and 1992. Other income and expense was $.1
million expense in 1994, compared to $.1 million income in both
1993 and 1992.
INCOME TAXES
The income tax provision for fiscal 1994 was $26.0 million, for an
effective tax rate of 38.2%. The effective tax rates for fiscal
years 1993 and 1992 were 37.9% and 34.7%, respectively. The
fiscal 1994 and 1993 tax rates were effected by the 1% increase in
federal tax rates which became effective on January 1, 1993. The
1992 tax rate was favorably impacted by research and development
credits and state tax credit carryforwards.
On September 1, 1993, the company adopted Statement of Accounting
Standard (SFAS) No. 109 "Accounting for Income Taxes." The
adoption was reflected as a one-time cumulative reduction in the
net deferred tax liability resulting in a $1.0 million increase in
fiscal 1994 net earnings.
NET EARNINGS
Fiscal 1994 earnings before the cumulative effect of accounting
changes were $42.1 million, compared to fiscal 1993 earnings of
$38.4 million. After including the impact of the accounting
changes, net earnings were $43.1 million in fiscal 1994, compared
to net earnings of $22.6 million for fiscal 1993. Fiscal 1992 net
earnings were $40.0 million.
On September 1, 1993, the company adopted Statement of Accounting
Standard (SFAS) No. 109 "Accounting for Income Taxes." SFAS 109
requires deferred income taxes be determined based on the
estimated future tax effect of differences between the financial
statement and tax bases of assets and liabilities, as measured by
the current enacted tax rates. This change in accounting, while
not affecting cash flow, resulted in a one-time cumulative benefit
of $1.0 million in fiscal 1994. In fiscal 1993, the company
adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," resulting in a one-time cumulative
reduction to net earnings of $15.8 million.
CAPITAL RESOURCES AND LIQUIDITY
LONG-TERM DEBT
Long-term debt decreased $12.4 million in fiscal 1994 as cash
provided by operations was sufficient to fund the 1994 capital
expenditure program, meet working capital and dividend
requirements, reduce debt and repurchase company stock. At August
31, 1994, long-term debt was $30.3 million compared to $42.7
million at August 31, 1993. Long-term debt at August 31, 1992 was
$22.7 million. The increase in long-term debt in fiscal 1993 was
due primarily to the purchase of manufacturing facilities in
Groveton, New Hampshire. Long-term debt as a percent of capital
decreased to 9.6% in 1994, compared to 14.8% in 1993 and 9.9% in
1992.
At August 31, 1994, $30.0 million was outstanding under the senior
promissory notes. This compares with borrowings of $12.0 million
under the credit agreement and $30.0 million in senior promissory
notes at August 31, 1993.
CASH PROVIDED BY OPERATIONS
For fiscal 1994, cash provided by operations was $64.7 million or
88.3% above 1993 results of $34.4 million. Cash provided by
operations in fiscal 1992 was $45.9 million. Operating cash flow
was lower in 1993 than 1994 due to funding the working capital
requirements associated with the addition of the Groveton mill.
Increased shipments, along with lower unit costs in fiscal 1994,
also accounted for part of the improved operating cash flow in
1994 over the previous year. The decline in operating cash flow
in 1993 compared to 1992 was driven mainly by increased working
capital requirements associated with the Groveton mill.
CAPITAL EXPENDITURES
Capital expenditures totaled $43.8 million in fiscal 1994,
compared to $51.3 million in 1993 and $31.8 million in 1992. The
fiscal 1993 expenditures include the purchase of manufacturing
facilities in Groveton, New Hampshire for $20.2 million. At the
Brokaw mill, work is continuing on a new boiler and feedwater
system, with start-up expected by the end of the first quarter of
fiscal 1995. Work was completed on Brokaw's largest paper
machine, which was converted to produce paper using an alkaline
process for increased whiteness and brightness. A machine rebuild
was also completed, increasing production and reliability, with a
second rebuild scheduled for completion in early fiscal 1995. A
new water marking system for No. 4 paper machine was installed to
improve quality and increase production and a new sizing system
was installed to reduce operating costs. At Groveton, a state-of-
the-art color process control system was completed, which reduced
production costs and gave both Groveton paper making machines
color production capabilities equal to the Brokaw mill.
At the Rhinelander Division, a new $14.5 million silicone coater
was approved. The project includes a building expansion and
additional rewinding capacity. The new solventless silicone
coater will be capable of producing 15,000 tons of coated release
papers for the pressure sensitive label industry enabling the mill
to expand its RHI-lease product lines. The new coater is expected
to start-up in the spring of 1995. An upgrade to No. 9 paper
machine at Rhinelander was completed in June 1994, increasing
capacity and improving quality on this machine which produces
backing paper for the pressure sensitive label industry. Also
begun are improvements totaling over $1 million for No. 6 paper
machine, which produces mostly packaging and technical grade
papers, as well as $1.9 million for an upgrade to Rhinelander's
wastewater treatment facility.
As of August 31, 1994, the company was committed to spend
approximately $30 million to complete capital projects under
construction. These projects include the new silicone coater
project, completion of the power distribution system, improvements
to No. 6 paper machine and an upgrade to the wastewater treatment
plant at Rhinelander; completion of the boiler and feedwater
system and the second machine rebuild at Brokaw; and completion of
a machine chest at Groveton. Capital commitments at the end of
1993 and 1992 were $32.0 million and $21.5 million, respectively.
In early fiscal 1995, the company's Board of Directors approved
over $35 million in capital improvements for the Brokaw mill. In
keeping with the Printing and Writing Division's commitment to
expand its recycled capabilities, $16.4 million was approved for a
secondary fiber system. The project includes a building expansion
and additional pulping capacity and a new fiber handling system to
process increased recycled and post consumer fiber. In addition,
$14.5 million was approved to rebuild, modernize and expand
Brokaw's wastewater treatment facility. The company will also
invest over $4.5 million for improvements to No. 2 paper machine
to increase productivity and enhance product quality.
The company expects capital expenditures to be in excess of $150
million over the next three years.
FINANCING
The company maintains a revolving credit facility agreement with
two banks to provide loans up to $35 million. This credit
facility was reduced at the company's request from $65 million in
November 1993. On July 19, 1994, the company renewed its $35
million revolving credit facility. The credit facility will
permit the company to borrow $35 million through August 1, 1997,
at which time, or earlier at the company's option, the agreement
converts to a four-year term loan, requiring equal annual payments
of principal. Interest rates on these borrowings are based on
bank offered rates, the prime lending rate, certificate of deposit
rate, treasury rate, or a eurodollar rate. The credit agreement
provides the back-up line of credit necessary for the issuance of
commercial paper. The company's commercial paper placement
agreement, with one of its two major banks, provides for the
issuance of up to $40 million of unsecured debt obligations. The
company had no commercial paper outstanding at year end. On
August 31, 1994, a combined total of $35.0 million was available
for borrowing under the company's credit and commercial paper
placement agreements. In a separate agreement, the banks
participating in the revolving credit facility have provided a $30
million uncommitted line of credit to the company. The company
also has available a $2 million short-term line of credit. There
was no borrowing against these lines at August 31, 1994.
In June 1993, the company borrowed $30.0 million through the
issuance of notes to Prudential Insurance Company of America and
its subsidiaries. The loan was in the form of senior unsecured
term notes maturing in three to seven years, bearing a fixed
interest rate of 6.03%. Proceeds from the notes were used to
reduce borrowings from the revolving credit facility.
Cash provided by operations, the revolving credit facility
agreement, and the Prudential notes are expected to fund the
company's planned capital expenditure requirements, except those
that may be required to fund a major expansion or acquisition.
The company is of the opinion that sufficient amounts of capital
resources are available to achieve both short-term and long-term
goals.
COMMON STOCK REPURCHASE
On April 21, 1994, the company purchased, with authorization from
the Board of Directors, 100,000 shares of the company's no par
value common stock from a director in a private transaction at the
average market price on the day of the transaction.
On June 30, 1994, the Board of Directors authorized the repurchase
of up to 1,350,000 shares of the company's common stock from time
to time in the open market or through privately negotiated
transactions at prevailing market prices. As of August 31, 1994,
the company had repurchased 90,000 shares at market prices ranging
from $23.875 per share to $24.625 per share.
DIVIDENDS
During 1994, the Board of Directors declared cash dividends of
$.24 per share, an increase of 14.3% over the $.21 per share
declared in 1993.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WIPFLI ULLRICH BERTELSON
Certified Public Accountants
To the Shareholders and Board of Directors
Wausau Paper Mills Company
Wausau, Wisconsin
We have audited the accompanying consolidated balance sheets of
Wausau Paper Mills Company and Subsidiaries as of August 31, 1994
and 1993, and the related consolidated statements of operations,
cash flows and shareholders' equity for each of the years in the
three-year period ended August 31, 1994 and the supporting
schedules listed in the accompanying index to financial
statements. These financial statements and supporting schedules
are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial
statements and supporting schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and supporting schedules are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements and supporting schedules. 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, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Wausau Paper Mills Company and Subsidiaries at
August 31, 1994 and 1993, and the results of their operations and
cash flows for each of the years in the three-year period ended
August 31, 1994, and the supporting schedules present fairly the
information required to be set forth therein, all in conformity
with generally accepted accounting principles.
As discussed in Note 8 and Note 7 of the Notes to Consolidated
Financial Statements, the company changed its method of accounting
for income taxes in 1994 and its method of accounting for
postretirement benefits other than pensions in 1993.
We hereby consent to the incorporation by reference of this report
in the Registration Statements on Forms S-8 filed with the
Securities and Exchange Commission by Wausau Paper Mills Company
on January 3, 1992 and January 27, 1988.
Wipfli Ullrich Bertelson
WIPFLI ULLRICH BERTELSON
September 20, 1994
Wausau, Wisconsin
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Wausau Paper Mills Company is responsible for
the integrity and objectivity of the financial data contained in
the financial statements. The financial statements have been
prepared in conformity with generally accepted accounting
principles appropriate under the circumstances and, where
necessary, reflect informed judgments and estimates of the effects
of certain events and transactions based on currently available
information at the date the financial statements were prepared.
The company's management depends on the company's system of
internal accounting controls to assure itself of the reliability
of the financial statements. The internal control system is
designed to provide reasonable assurance, at appropriate cost,
that assets are safeguarded and transactions are executed in
accordance with management's authorizations and recorded properly
to permit the preparation of financial statements in accordance
with generally accepted accounting principles. Periodic reviews
are made of internal controls by management and corrective action
is taken if needed.
The Board of Directors reviews and monitors financial statements
through its audit committee. The audit committee meets with the
independent public accountants and management to review internal
accounting controls, auditing and financial reporting matters.
The independent public accountants are engaged to provide an
objective and independent review of the company's financial
statements in accordance with generally accepted auditing
standards and to express an opinion thereon. The report of the
company's independent public accountants is included in this
annual report.
San W. Orr, Jr. Daniel D. King
SAN W. ORR, JR. DANIEL D. KING
Chairman of the Board of Directors President and Chief Operating
and Chief Executive Officer Officer
Steven A. Schmidt
STEVEN A. SCHMIDT
Vice President, Finance,
Secretary and Treasurer
INDEX TO FINANCIAL STATEMENTS COVERED BY REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
Consolidated Statements of Income for years ended
August 31, 1994, 1993 and 1992. . . . . . . . . . . . . 22
Consolidated Balance Sheets as of August 31, 1994
and 1993. . . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Shareholders' Equity for
years ended August 31, 1994, 1993 and 1992. . . . . . . 25
Consolidated Statements of Cash Flows for years ended
August 31, 1994, 1993 and 1992. . . . . . . . . . . . . 26
Notes to Consolidated Financial Statements . . . . . . . . . 27
Schedules for the years ended August 31, 1994, 1993 and 1992
Schedule V - Property, Plant and Equipment. . . . . . . 45
Schedule VI - Accumulated Depreciation of Property,
Plant and Equipment. . . . . . . . . . . . . . . . 46
Schedule VIII - Valuation and Qualifying Accounts . . . 47
Schedule X - Supplementary Income Statement Information 47
All other schedules called for under 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.
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(all dollar amounts in thousands,
except per share data) For the years ended August 31,
1994 1993 1992
Net Sales $426,504 $381,816 $370,935
Cost of products sold 329,191 292,879 285,422
-------- -------- --------
Gross Profit 97,313 88,937 85,513
Selling, administrative and
research expenses 27,323 26,027 23,099
-------- -------- --------
Operating Profit 69,990 62,910 62,414
Interest expense ( 1,958) ( 1,272) ( 1,126)
Debt discount amortization ( 72)
Interest income 111 38 38
Other income and expense - net ( 91) 95 55
-------- -------- --------
Earnings Before Income Taxes and
Cumulative Effect of Changes in
Accounting Principles 68,052 61,771 61,309
Provision for income taxes 26,000 23,400 21,300
-------- -------- --------
Earnings Before Cumulative
Effect of Changes in Accounting
Principles 42,052 38,371 40,009
Cumulative effect of changes in
accounting principles
Postretirement benefits (net
of income taxes) ( 15,750)
Income taxes 1,000
-------- -------- --------
Net Earnings $ 43,052 $ 22,621 $ 40,009
======== ======== ========
Earnings Per Share Before Cumulative
Effect of a Change in Accounting
Principle $ 1.56 $ 1.42 $ 1.49
Cumulative effect of a change in
accounting principles
Postretirement benefits (net
of income taxes) ( 0.58)
Income taxes 0.04
-------- -------- --------
Net Earnings Per Common Share $ 1.60 $ 0.84 $ 1.49
======== ======== ========
See accompanying notes to consolidated financial statements.
All per share data have been restated to reflect four-for-three stock splits occurring in
1994 and 1993, and a two-for-one stock split occurring in 1992.
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(all dollar amounts in thousands) As of August 31,
1994 1993
Assets
Current Assets
Cash and cash equivalents $ 3,214 $ 2,624
Accounts and notes receivable:
Customers, less allowances of
$4,644 in 1994 and $3,666
in 1993 33,603 28,862
Other 1,506 2,075
Inventories 60,222 59,659
Deferred income taxes 6,931 5,239
Other 458 462
-------- --------
Total current assets 105,934 98,921
-------- --------
Property, Plant and Equipment
Buildings 42,060 38,306
Machinery and equipment 320,546 290,317
-------- --------
362,606 328,623
Less: Accumulated depreciation ( 133,178) ( 117,308)
-------- --------
229,428 211,315
Land 1,433 1,968
Timberlands, net of depletion of
$598 in 1994 and $551 in 1993 1,541 1,490
Capital additions in process 14,670 7,066
-------- --------
Total property, plant and equipment 247,072 221,839
-------- --------
Other Assets
Deferred charges and other assets 8,383 8,823
-------- --------
Total Assets $361,389 $329,583
======== ========
See accompanying notes to consolidated financial statements.
(all dollar amounts in thousands) As of August 31,
1994 1993
Liabilities
Current Liabilities
Current maturities of long-term debt $ 462 $ 504
Accounts payable 25,325 18,833
Accrued salaries and wages 8,960 8,490
Accrued and other liabilities 11,117 12,053
Accrued income taxes 192 2,034
-------- --------
Total current liabilities 46,056 41,914
-------- --------
Long-Term Liabilities
Long-term debt 30,270 42,712
Deferred income taxes 31,945 28,220
Postretirement benefits 28,682 26,590
Pension 6,139 3,940
Other liabilities 3,479 3,068
-------- --------
Total long-term liabilities 100,515 104,530
-------- --------
Commitments and contingencies
Shareholders' Equity
Preferred stock: (500,000 shares
authorized) no par value
No shares issued
Common stock: (36,000,000 shares
authorized) no par value
28,248,240 shares issued - 1994
21,186,683 shares issued - 1993 80,380 79,437
Retained earnings 143,424 106,859
-------- --------
223,804 186,296
Less: Treasury stock at cost
(1,390,210 shares in 1994 and
967,193 shares in 1993) ( 7,604) ( 3,087)
Net loss not recognized as
pension expense (net of deferred
taxes) ( 1,382) ( 70)
-------- --------
Total shareholders' equity 214,818 183,139
-------- --------
Total Liabilities and Shareholders'
Equity $361,389 $329,583
======== ========
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(all dollar amounts Common Stock Additional
in thousands except ------------ Paid-In Retained
share data) Shares Issued Amount Capital Earnings
Balance August 31, 1991 7,945,250 $ 11,123 $ 67,430 $ 55,067
Net earnings, 1992 40,009
Cash dividends declared ( 5,152)
Two-for-one stock split 7,945,249
Elimination of par value 67,430 ( 67,430)
Stock options exercised ( 2)
Stock option discount
(net of deferred taxes) 779
Change in unrecognized
pension expense (net of
deferred taxes) ---------- -------- -------- --------
Balance August 31, 1992 15,890,499 $ 79,330 $ 0 $ 89,924
Net earnings, 1993 22,621
Cash dividends declared ( 5,686)
Four-for-three stock split 5,296,184
Stock options exercised 107
Change in unrecognized
pension expense (net of
deferred taxes) ---------- -------- -------- --------
Balance August 31, 1993 21,186,683 $ 79,437 $ 0 $106,859
Net earnings, 1994 43,052
Cash dividends declared ( 6,487)
Four-for-three stock split 7,061,557
Purchase of treasury shares
Stock options exercised 943
Change in unrecognized
pension expense (net of
deferred taxes) $ $ $
---------- -------- -------- --------
Balance August 31, 1994 28,248,240 $ 80,380 $ 0 $143,424
========== ======== ======== ========
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
(all dollar amounts Treasury Stock Common Total
in thousands except -------------- Net Pension Stock-Shares
Shareholders'
share data) Shares Amount Adjustment Outstanding Equity
Balance August 31, 1991 (371,198) ($ 3,158) ($ 428) 7,574,052 $130,034
Net earnings, 1992 40,009
Cash dividends declared ( 5,152)
Two-for-one stock split (371,197) 7,574,052
Elimination of par value
Stock options exercised 4,000 17 4,000 15
Stock option discount
(net of deferred taxes) 779
Change in unrecognized
pension expense (net of
deferred taxes) 304 304
------- -------- ------- ---------- --------
Balance August 31, 1992 (738,395) ($ 3,141) ($ 124) 15,152,104 $165,989
Net earnings, 1993 22,621
Cash dividends declared ( 5,686)
Four-for-three stock split (244,131) 5,052,053
Stock options exercised 15,333 54 15,333 161
Change in unrecognized
pension expense (net of
deferred taxes 54 54
------- -------- -------- ---------- --------
Balance August 31, 1993 (967,193) ($ 3,087) ($ 70) 20,219,490 $183,139
Net earnings, 1994 43,052
Cash dividends declared ( 6,487)
Four-for-three stock split (319,695) 6,741,862
Purchase of treasury shares (190,000) ( 4,959) ( 190,000) ( 4,959)
Stock options exercised 86,678 442 86,678 1,385
Change in unrecognized
pension expense (net of
deferred taxes) $ ($ 1,312) ($ 1,312)
-------- -------- -------- ---------- --------
Balance August 31, 1994 (1,390,210) ($ 7,604) ($ 1,382) 26,858,030 $214,818
========= ======== ======== ========== =======
See accompanying notes to consolidated financial statements.
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all dollar amounts in thousands) For the Years Ended August 31,
1994 1993 1992
Operating Activities:
Net earnings $ 43,052 $ 22,621 $ 40,009
Cumulative effect of accounting changes ( 1,000) 15,750
Noncash items:
Provision for depreciation, depletion and
amortization 17,635 15,445 13,760
Loss on property, plant and equipment disposals 231 123 364
Deferred income taxes 3,033 2,568 4,704
Changes in operating assets and liabilities:
Receivables ( 4,172) ( 1,929) ( 2,923)
Inventories ( 563) ( 22,463) ( 7,661)
Other assets 423 ( 907) 563
Accounts payable and other liabilities 7,942 3,062 ( 703)
Accrued income taxes ( 1,842) 105 ( 2,216)
------- ------- -------
Net Cash Provided by Operating Activities 64,739 34,375 45,897
------- ------- -------
Investing Activities:
Capital expenditures ( 42,056) ( 51,026) ( 30,165)
Proceeds from property, plant and equipment
disposal 615 52 35
------- ------- -------
Net Cash Used in Investing Activities ( 41,441) ( 50,974) ( 30,130)
------- ------- -------
Financing Activities:
Borrowings (repayments) under revolving credit
facility ( 12,000) ( 7,000) 5,000
Repayment of long-term debt ( 508) ( 363) ( 8,651)
Net proceeds from issuance of long-term notes 30,000
Net repayments of commercial paper ( 8,642)
Dividends paid ( 6,291) ( 5,559) ( 5,000)
Proceeds from stock option exercises 1,050 161 15
Payment for purchase of treasury stock ( 4,959)
------- ------- -------
Net Cash Provided by (Used in) Financing Activities ( 22,708) 17,239 ( 17,278)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 590 640 ( 1,511)
Cash and cash equivalents at beginning of year 2,624 1,984 3,495
------- ------- -------
Cash and Cash Equivalents at End of Year $ 3,214 $ 2,624 $ 1,984
======== ======== ========
Supplemental Cash Flow Information:
Interest paid (net of amount capitalized) $ 1,903 $ 928 $ 1,554
Income taxes paid 23,598 20,763 18,944
Noncash investing and financing activities: Capital lease obligations of $24, $550 and
$80 in 1994, 1993 and 1992, respectively, were incurred when the company entered into
leases for new equipment.
See accompanying notes to consolidated financial statements.
WAUSAU PAPER MILLS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the
accounts of the company and its subsidiaries. All significant
intercompany transactions, balances and profits have been
eliminated in consolidation.
REVENUE RECOGNITION - Revenue is recognized upon shipment of goods
and transfer of title to the customer. The company grants credit
to customers in the ordinary course of business. A substantial
portion of the company's accounts receivable is with customers in
various paper converting industries or the paper merchant
business. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers and
their geographic dispersion.
CASH EQUIVALENTS - The company defines cash equivalents as highly
liquid, short-term investments with an original maturity of three
months or less.
INVENTORIES - Pulpwood, finished paper products and selected 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.
PROPERTY, PLANT AND EQUIPMENT - 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. 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 25- to 45-year period; machinery
and equipment over a 4- to 16-year period. Maintenance and repair
costs are charged to expense as incurred. Renewals and
improvements which extend the useful lives of the assets are added
to the plant and equipment accounts.
Equipment financed by long-term leases, which in effect are
installment purchases, have been recorded as assets and the
related obligations as debt.
Land is stated at cost. Timberlands are at cost less the pro rata
cost of timber harvested since acquisition. Depletion expense is
calculated using the block method.
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
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. See Note 8 for change in
accounting principle in 1994.
EARNINGS PER SHARE - Earnings per common share are based on the
weighted average number of common shares outstanding. Dilution of
earnings per common share due to common stock equivalents (stock
options) is negligible and, accordingly, no dilution has been
reported.
NOTE 2. INVENTORIES
(all dollar amounts in thousands) 1994 1993
Raw materials $ 21,508 $ 16,343
Supplies 15,420 15,347
Work in process and finished goods 37,128 34,933
-------- --------
Inventories at cost 74,056 66,623
LIFO reserve ( 13,834) ( 6,964)
-------- -------
Net inventories $ 60,222 $ 59,659
======== ========
Because various components of the inventories are valued by use of
the last-in, first-out (LIFO) method, it is impracticable to
segregate the LIFO reserve between raw materials, finished goods
and work in process.
NOTE 3. ACCRUED AND OTHER LIABILITIES
(all dollar amounts in thousands) 1994 1993
Employee retirement plans $ 1,674 $ 2,436
Taxes other than income 1,503 1,599
Interest 419 388
Stock appreciation rights 2,873 3,427
Other 4,648 4,203
-------- --------
Totals $ 11,117 $ 12,053
======== ========
NOTE 4. DEBT
The company's long-term debt, excluding current maturities as of
August 31, is outlined below:
(All dollar amounts in thousands) 1994 1993
6.03% Senior promissory notes $ 30,000 $ 30,000
Revolving credit facility agreement 12,000
Capitalized leases 270 712
-------- --------
Totals $ 30,270 $ 42,712
======== ========
The company has outstanding $30 million in unsecured senior
promissory notes. Interest is payable quarterly on the
outstanding balance at a rate of 6.03% per annum. Principal is
payable in ten equal semi-annual installments beginning
December 18, 1995, with the final payment due June 16, 2000.
During 1994, the company amended its revolving credit agreement it
had previously established. The amended agreement grants the
company an unsecured revolving credit facility of $35 million with
two banks which continues through August 1, 1997 at which time, or
earlier at the company's option, the revolving credit converts to
a term loan facility, and the loans then outstanding are payable
in four equal annual installments. There were no borrowings
against this agreement at August 31, 1994. The company may elect
the base for interest from either domestic rate loans, eurodollar
loans, adjusted CD rate loans, offered loans or treasury rate
loans. The weighted-average interest rate on borrowings under the
revolving credit facility was 3.58% at August 31, 1993. The
credit agreement provides for commitment fees during the revolving
loan period. Fees are based on .125% per annum on the unused
portions of the commitment, payable monthly.
The senior promissory notes and the revolving credit facility
agreement require the company to comply with certain covenants,
one of which requires the company maintain minimum net worth. At
August 31, 1994, $63,704,000 of retained earnings was available
for payment of cash dividends without violation of the minimum net
worth covenant related to the senior promissory notes.
The company maintains a commercial paper placement agreement with
a bank to issue up to $40 million of unsecured debt obligations
which requires unused credit availability under its revolving
credit agreement equal to the amount of outstanding commercial
paper.
The difference between the book and the fair market value of the
long-term debt is not material.
The aggregate annual maturities of long-term debt for the next
five years are:
(all dollar amounts There-
in thousands) 1995 1996 1997 1998 1999 after
---- ---- ---- ---- ---- -----
$ 462 $6,270 $6,000 $6,000 $6,000 $6,000
Annual maturities will be affected by future borrowing under the
revolving credit facility agreement.
The banks participating in the revolving credit agreement have
provided separate uncommitted revolving lines of credit to the
company in an aggregate amount of up to $30 million. The specific
terms of any revolving loans borrowed pursuant to these lines of
credit will be negotiated at the time of the borrowing and any
revolving loans so borrowed will be payable on demand. In
addition, the company has a $2 million line of credit with
interest payable at the prime rate. The line does not require a
compensating balance or a commitment fee. There was no borrowing
against these lines at August 31, 1994.
NOTE 5. LEASE COMMITMENTS
The company has various leases for real estate, mobile equipment
and machinery which generally provide for renewal privileges or
for purchase at option prices established in the lease agreements.
Property, plant and equipment includes the following amounts for
capitalized leases:
(all dollar amounts in thousands) 1994 1993
Machinery and equipment $ 2,083 $ 2,059
Allowance for amortization ( 1,168) ( 776)
-------- --------
Net value $ 915 $ 1,283
======== ========
Lease amortization is included in depreciation expense.
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 August 31, 1994:
Capital Operating
(all dollar amounts in thousands) Leases Leases
1995 $ 496 $ 204
1996 279 153
1997 55
1998 33
1999 33
Thereafter 176
------- -------
Total Minimum Payments 775 654
Amounts representing interest ( 43)
------- -------
Present value of net minimum lease payments $ 732 $ 654
======= =======
The future minimum payments for capitalized leases are reflected
in the aggregate annual maturities of long-term debt disclosure in
Note 4.
Rental expense for all operating leases consisted of:
(all dollar amounts in thousands) 1994 1993 1992
Minimum rentals $ 1,334 $ 1,183 $ 1,115
Contingent rentals 213 366 397
------- ------- -------
Totals $ 1,547 $ 1,549 $ 1,512
======= ======= =======
Contingent rentals are based upon usage.
NOTE 6. INTEREST EXPENSE AND CAPITALIZED INTEREST
(all dollar amounts in thousands) Total Net
Interest Capitalized Interest
Expense Interest Expense
1994 $ 2,185 $ 227 $ 1,958
1993 1,350 78 1,272
1992 1,206 80 1,126
NOTE 7. RETIREMENT PLAN
Substantially all employees are covered under retirement plans.
The defined benefit plans covering salaried employees provide
benefits based on final average pay formulas; the plans covering
hourly employees provide benefits based on years of service and
fixed benefit amounts for each year of service. The plans are
funded in accordance with federal laws and regulations.
The company selected a measurement date of plan assets of May 31,
1994 and 1993.
The components of net periodic pension cost follow:
(all dollar amounts in thousands) 1994 1993 1992
Service cost $ 2,020 $ 1,663 $ 1,279
Interest cost 3,791 3,233 2,656
Actual return on assets ( 1,066) ( 3,875) ( 4,568)
Net amortization and deferral ( 1,843) 1,567 2,558
------- ------- -------
Net pension cost $ 2,902 $ 2,588 $ 1,925
======= ======= =======
The following table sets forth the benefit obligations and funded
status of the plans at August 31:
1994 1993
Plan With Plan With Plan With Plan With
Assets Ex- Assets Less Assets Ex- Assets Less
ceeding Than Accumu- ceeding Than Accumu-
Accumulated lated Accumulated lated
(all dollar amounts in Benefit Benefit Benefit Benefit
thousands) Obligation Obligation Obligation Obligation
Actuarial present value of
benefit obligations:
Vested benefits ($ 25,203) ($ 16,367) ($ 22,897) ($ 12,544)
Nonvested benefits ( 4,465) ( 3,564) ( 4,737) ( 3,816)
-------- -------- -------- --------
Accumulated benefit obligations ( 29,668) ( 19,931) ( 27,634) ( 16,360)
Additional amounts related to
projected salary increases ( 3,986) ( 434) ( 3,602) ( 278)
-------- -------- -------- --------
Projected benefit obligation ( 33,654) ( 20,365) ( 31,236) ( 16,638)
Plan assets at market value at
May 31 33,268 12,890 32,841 12,207
-------- -------- -------- --------
Plan assets in excess of (less
than) projected benefit
obligation ( 386) ( 7,475) 1,605 ( 4,431)
Unrecognized net loss (gain)
from past experience and
effect of changes in
assumptions 1,424 2,704 ( 1,316) 115
Prior service costs not yet
recognized 3,210 2,817 3,482 2,986
Unrecognized initial net
obligation (asset) ( 1,682) 645 ( 1,854) 717
Cash contributions to plans
subsequent to May 31 80 8 158
Adjustment to recognize minimum
liability ( 5,756) ( 3,556)
--------- -------- -------- --------
Net pension asset (liability)
recognized in the consolidated
balance sheets $ 2,646 ($ 7,058) $ 2,075 ($ 4,169)
========= ======== ======== ========
Projected benefit obligations were determined using an assumed
discount rate of 7.5% and 8.0% and assumed rates of increases in
future compensation levels of 5.0% and 5.5% in 1994 and 1993,
respectively. The assumed long-term rate of return on plan assets
was 8.0%. Plan assets consist principally of publicly traded
stocks and fixed income securities.
The company's defined contribution pension plan provides for
company contributions based on a percentage of employee
contributions. The cost of such plans totaled $445,000 in 1994,
$420,000 in 1993 and $637,000 in 1992.
The company has deferred compensation or supplemental retirement
agreements with certain present and past key officers 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
and supplemental retirement agreements does not represent a
material amount.
In the fourth quarter of fiscal 1993, the company adopted the
provisions of Statements of Financial Accounting Standard (SFAS)
No. 106 "Employers' Accounting for Postretirement Benefits Other
than Pensions," effective as of September 1, 1992.
SFAS 106 requires the estimated cost of retiree benefit payments,
primarily health and life insurance, to be accrued during the
employees' active service period. Previously, the cost of these
benefits was expensed as paid. The company elected to immediately
recognize the accumulated liability as of September 1, 1992, which
resulted in a one-time noncash charge against earnings of
$25,000,000 before taxes and $15,750,000 after taxes, or $.58 per
share (as restated). In addition, the effect of this change on
1993 operating results was to recognize an additional pretax
expense of $1,590,000 and after-tax expense of $987,000, or $.04
per share (as restated). Previously reported quarterly earnings
for 1993 have been restated for the effect of this change, as if
it had been adopted on September 1, 1992, as presented on page 41.
Postretirement benefit cost includes the following components:
(all dollar amounts in thousands) 1994 1993
Service cost $ 994 $ 750
Interest cost 2,085 1,875
-------- --------
Net periodic postretirement benefit cost $ 3,079 $ 2,625
======== ========
The plan's status at August 31, was as follows:
(all dollar amounts in thousands) 1994 1993
Actuarial present value of benefit
obligation:
Retirees $ 9,295 $ 7,699
Fully eligible active participants 8,326 8,490
Other active participants 9,853 10,401
-------- --------
Accumulated postretirement benefit
obligation 27,474 26,590
Unrecognized net gain 1,208
-------- --------
Accrued postretirement benefit liability $ 28,682 $ 26,590
======== ========
For 1994, the assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation was
12% declining by 1% annually for seven years to an ultimate rate
of 5%. The weighted average discount rate was 7.5%.
For 1993, the assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation was
13.0% declining by 1.0% annually for seven years to an ultimate
rate of 6.0%. The weighted average discount rate used was 8.0%.
A one-percentage-point increase in the assumed health care cost
trend rates would increase the accumulated postretirement benefit
obligation as of August 31, by approximately $3,541,000 or 12.9%
in 1994 and $3,358,000, or 12.6% in 1993. The effect of this
change on the aggregate of the service and interest cost would be
an increase of $451,000 or 14.6% in 1994 and $593,000, or 22.6%
for 1993.
FUTURE ACCOUNTING CHANGE: Statement of Financial Accounting
Standard (SFAS) No. 112, "Employers' Accounting for Postemployment
Benefits," effective September 1, 1994, is not expected to have a
material impact on the company's financial position or results of
operations.
NOTE 8. INCOME TAXES
Effective September 1, 1993, the company adopted the liability
method of accounting for income taxes prescribed by Statement of
Financial Accounting Standard (SFAS) No. 109. 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 is the result of
changes in the deferred tax assets and liability. Previously, the
company used the deferral method which provided for deferred
income taxes on the basis of income and expense items reported
for financial accounting and tax purposes in different periods.
The company elected to recognize the cumulative effect of the
change as of September 1, 1993, totaling $1,000,000, as a credit
to income in the current year. The effect of the change in method
did not have a material effect in 1994.
The provision for income taxes is comprised of the following:
(all dollar amounts in thousands) 1994 1993 1992
Currently payable
Federal $ 20,245 $ 18,821 $ 15,338
State 2,722 1,820 1,013
-------- -------- --------
22,967 20,641 16,351
-------- -------- --------
Deferred
Federal 2,688 1,571 4,161
State 345 1,188 788
-------- -------- --------
3,033 2,759 4,949
-------- -------- --------
Totals $ 26,000 $ 23,400 $ 21,300
======== ======== ========
A reconciliation between taxes computed at the federal statutory
rate and the consolidated effective tax rate follows:
(all dollar amounts in thousands) 1994 1993 1992
Federal statutory tax rate $ 23,818 35% $ 21,416 35% $ 20,845 34%
State taxes net of federal
tax benefits 1,994 3% 1,179 2% 1,189 2%
Other 188 805 1% ( 734) ( 1%)
-------- --- -------- --- -------- ---
Consolidated effective tax $ 26,000 38% $ 23,400 38% $ 21,300 35%
======== === ======== === ======== ===
Deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the
company's assets and liabilities. The major temporary differences
that give rise to the deferred tax assets and liabilities at
August 31, 1994 are as follows:
(all dollar amounts in thousands)
Deferred tax asset:
Allowances on accounts receivable $ 787
Accrued compensated absences 1,689
Stock appreciation rights plans 1,149
Inventories 1,630
Postretirement benefits 11,454
Other 1,338
--------
Gross deferred tax asset 18,047
--------
Deferred tax liability:
Property, plant and equipment ( 41,875)
Other ( 1,186)
--------
Gross deferred tax liability ( 43,061)
--------
Net deferred tax liability ($ 25,014)
========
The total deferred tax liabilities (assets) as presented in the
accompanying balance sheets are as follows:
(all dollar amounts in thousands)
Net long-term deferred tax liabilities $ 31,945
Net current deferred tax assets ( 6,931)
--------
Net deferred tax liability $ 25,014
========
For the years ended August 31, 1993 and 1992, the components of
deferred tax expense are as follows:
(all dollar amounts in thousands) 1993 1992
Excess of tax over book depreciation $ 4,571 $ 3,508
Bad debt allowance ( 12) 55
Accrued expenses ( 1,946) ( 46)
Other - Net 146 1,432
-------- --------
Totals $ 2,759 $ 4,949
======== ========
NOTE 9. STOCK OPTIONS AND APPRECIATION RIGHTS
The company maintains the 1981 and 1991 Employee Stock Option
Plans. Each plan specifies purchase price, time and method of
exercise. Payment of the option price may be made in cash or by
tendering an amount of common stock having a fair market value
equal to the option price.
Options are granted for terms of 10 to 20 years, the option price
being equal to the fair market value of the company's common stock
at the date of grant under the 1981 plan and for incentive options
granted under the 1991 plan. The option price for non-qualified
options under the 1991 plan may not be less than 50% of the fair
market value of the company's common stock at the date of grant.
During 1992, options were granted under the 1991 Employee Stock
Option Plan. The options are earned over a three-year period
based upon the satisfaction of operating goals set forth in the
agreement. A total of 88,894 and 65,780 options terminated in
1994 and 1993, respectively, when operating goals were not met.
The following table summarizes the activity relating to the
company's stock option plans:
STOCK OPTIONS: 1994 1993 1992
Options outstanding at beginning
of the year (number of shares) 490,744 476,968 305,412
Granted 7,112 113,333 178,667
Terminated ( 88,894) ( 76,447)
Exercised ( 89,379) ( 23,110) ( 7,111)
------- -------- --------
Options outstanding at end of
year (number of shares) 319,583* 490,744 476,968
======= ======= =======
Options exercisable at end of
year (number of shares) 296,916** 338,301 287,635
======= ======= =======
Price range of options exercised $2.07-13.75 $2.07-18.06 $ 2.07
Price range of outstanding options $2.07-24.94 $2.07-24.94 $2.07-18.06
----------- ----------- -----------
*285,476 and 34,107 options granted and remain outstanding under
the 1991 Employee Stock Option Plan and the 1981 Employee Stock
Option Plan, respectively.
**262,809 and 34,107 options granted and are exercisable under the
1991 Employee Stock Option Plan and the 1981 Employee Stock Option
Plan, respectively.
All shares and option prices have been restated to reflect the
four-for-three stock splits occurring in 1994 and 1993, and the
two-for-one stock split occurring in 1992.
The 1990 Stock Appreciation Rights Plan entitles certain officers
and key employees the right to receive cash equal to the sum of
the appreciation in 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 1988
Management Incentive Plan entitles certain management employees
the right to receive similar cash payments. The stock
appreciation rights granted under both plans 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. Compensation expense is
recorded with respect to the rights 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:
STOCK APPRECIATION RIGHTS: 1994 1993 1992
Rights outstanding at beginning
of the year (number of shares) 144,222 221,644 243,156
Exercised ( 10,000) ( 77,422) ( 21,512)
------- -------- -------
Rights outstanding at end of
year (number of shares) 134,222 144,222 221,644
======= ======= =======
Rights exercisable at end of
year (number of shares) 134,222 117,555 180,311
======= ======= =======
Price range of outstanding
stock appreciation rights $6.14-8.61 $6.14-8.61 $6.14-8.61
---------- ---------- ----------
RIGHTS GRANTED AND REMAIN
OUTSTANDING UNDER THE FOLLOWING
PLANS AT THE END OF THE YEAR 1994 1993 1992
---- ---- ----
1990 Stock Appreciation Rights
Plan 66,667
1988 Management Incentive Plan 134,222 144,222 154,977
------- ------- -------
Total rights outstanding at end
of the year (number of shares) 134,222 144,222 221,644
======= ======= =======
RIGHTS EXERCISABLE UNDER THE
FOLLOWING PLANS AT THE END
OF THE YEAR 1994 1993 1992
---- ---- ----
1990 Stock Appreciation Rights
Plan 66,667
1988 Management Incentive Plan 134,222 117,555 113,644
------- ------- -------
Total rights exercisable at end
of the year (number of shares) 134,222 117,555 180,311
======= ======= =======
All shares and price ranges have been restated to reflect the
four-for-three stock splits occurring in 1994 and 1993, and the
two-for-one stock split occurring in 1992.
The company maintains the 1991 Dividend Equivalent Plan.
Participants are entitled to receive the hypothetical value of
cash dividends which would have been paid on the stock covered by
the grant assuming reinvestment in company stock. During 1992,
178,667 dividend equivalents were granted under the plan. The
dividend equivalents granted in 1992 and 24,000 of the dividend
equivalents granted in 1993 are earned over a three-year period
based upon the satisfaction of operating goals set forth in the
agreement. A total of 81,778 and 65,780 dividend equivalents
terminated in 1994 and 1993, respectively, when operating goals
were not met.
DIVIDEND EQUIVALENTS: 1994 1993 1992
Equivalents outstanding at
beginning of the year
(number of shares) 407,999 400,889 222,222
Granted 90,667 178,667
Exercised (222,222) ( 7,110)
Terminated ( 81,778) ( 76,447)
------- ------- -------
Equivalents outstanding at end
of year (number of shares) 103,999 407,999 400,889
======= ======= =======
Equivalents exercisable at end
of year (number of shares) 103,999 288,889 222,222
======= ======= =======
All shares have been restated to reflect the four-for-three stock
splits occurring in 1994 and 1993, and the two-for-one stock split
occurring in 1992.
The impact of all stock options, dividend equivalents and stock
appreciation rights for the years ended August 31, 1994, 1993 and
1992 was income of $283,000, expense of $1,934,000 and expense of
$1,208,000, respectively.
NOTE 10. SHAREHOLDERS' EQUITY
On December 16, 1991, the shareholders of the company approved a
resolution which amended the company's Restated Articles of
Incorporation to increase the number of authorized shares of
common stock from 12,000,000 shares, par value $.50 (stated value
$1.40), to 36,000,000 shares, without par value. The authorized
shares of preferred stock were changed from $1.00 par value to
shares without par value. The additional paid-in capital account
has been combined with common stock as presented in the
Consolidated Statements of Shareholders' Equity.
NOTE 11. RESEARCH EXPENSES
Research expenses charged to operations were $1,158,000 in 1994,
$957,000 in 1993 and $868,000 in 1992.
NOTE 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY
TRANSACTIONS
The company is involved in various legal proceedings in the normal
course of business. It is the opinion of management that any
judgment or settlement resulting from pending or threatened
litigation would not have a material adverse effect on the
financial position or on the operations of the company.
As of August 31, 1994, the company was committed to spend
approximately $30 million to complete capital projects which were
in various stages of completion.
Rhinelander Paper Company Inc., a subsidiary of the company, has
signed an agreement with Wisconsin Public Service Corporation.
Under the terms of the agreement, Wisconsin Public Service
Corporation will fund, construct, own and operate a high-
efficiency cogeneration power plant. The Rhinelander division
will become the plant's exclusive steam customer. The agreement
has a term of 35 years from the initial date of commercial
operation, which is projected to be in 1998. Upon start up of the
project and delivery of steam, the company will incur fixed and
variable charges under the agreement. Fixed charges will be
subject to certain force majeure and payment deferral provisions,
and, unless the utility company fails to supply steam, such fixed
costs are approximately $7 million annually. In addition, the
variable cost of steam and electricity purchased is determined by
a formula based on the operating and maintenance costs of the
facility determined on a monthly basis.
During fiscal 1994, the company purchased 100,000 shares of the
company's no-par value common stock from a director in a private
transaction at $27.625 per share, the average market price on the
day of the transaction.
NOTE 13. MAJOR CUSTOMERS
One customer accounted for 12.3% of net sales aggregating
$52,313,000, 11.2% of net sales aggregating $42,812,000 and 10.4%
of net sales aggregating $38,482,000 in 1994, 1993 and 1992,
respectively.
QUARTERLY DATA (UNAUDITED)
(all dollar amounts 1994 1993
in thousands, except ---- ----
per share data) Fourth Third Second First Fourth Third Second First
Net Sales $111,355 $108,709 $ 97,709 $108,731 $ 99,485 $100,268 $ 87,269 $ 94,794
Gross profit 22,179 26,413 22,830 25,891 26,691 25,333 17,927 18,986
Operating profit 15,442 20,748 15,335 18,465 18,316 18,806 13,333 12,455
Earnings before
cumulative effect
of accounting
changes 9,361 12,516 9,114 11,061 10,676 11,583 8,305 7,807
Per share $0.35 $0.46 $0.34 $0.41 $ 0.39 $ 0.43 $ 0.31 $ 0.29
Net earnings (loss) 9,361 12,516 9,114 12,061 10,676 11,583 8,305 ( 7,943)
Per share $0.35 $0.46 $0.34 $0.45 $ 0.39 $ 0.43 $ 0.31 $ (0.29)
Per share basis:
Cash dividends* $0.06 $0.06 $0.12 $0.0525 $0.0525 $ 0.105
Common Stock
price
(closing)**
High $ 26.50 $ 34.00 $ 32.63 $ 30.38 $ 29.63 $ 26.63 $ 27.00 $ 27.29
Low $ 22.25 $ 25.50 $ 27.94 $ 27.56 $ 24.00 $ 22.31 $ 22.01 $ 17.86
*Dividends reported as of declaration date. During each year
presented, two quarterly dividends were declared in the second
quarter.
**Such prices reflect the high and low "closing" price quotation
on the Nasdaq National Market System and do not reflect markups,
markdowns or commissions and may not necessarily reflect actual
transactions.
The estimated effective tax rate utilized for the first three
quarters of each fiscal year was different than the final annual
effective rate and the adjustment of income taxes was all
reflected in the quarter ended August 31 of each fiscal year.
All per share data has been restated to reflect the four-for-three
stock splits occurring in 1994 and 1993.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to directors is incorporated in this 10-K by
reference to the table on page 4 of the registrant's 1994 Proxy
Statement. Information relating to officers is found in Part I of
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is incorporated in
this 10-K by reference to the registrant's 1994 Proxy Statement
page 5 under the subcaption "Director Compensation" and pages 6
thru 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information relating to security ownership of certain beneficial
owners and management is incorporated by reference to the
registrant's 1994 Proxy Statement under the caption "Beneficial
Ownership of Shares," pages 2 and 3.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal 1994, the company purchased 100,000 shares of the
company's no-par value common stock from David B. Smith, Jr., a
director, in a private transaction at $27.625 per share, the
average market price on the day of the transaction.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Financial statements and financial statement schedules,
filed as part of this report and required by Item 14(d), are
set forth on page 18 herein.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the company during the
fourth quarter of fiscal 1994.
(c) Exhibits required by Item 601 of Regulation S-K.
The following exhibits are filed with the Securities and Exchange
Commission as part of this report.
Exhibit 3 - Articles of Incorporation and Bylaws
a. Articles of Incorporation, as amended
12/18/91 . . . . . . . . . . . . . . . . . 33-45(2)
b. Bylaws, as restated 7/17/92. . . . . . . . 46-81(2)
Exhibit 4 - Instruments Defining the Rights of
Security Holders
a. Articles and Bylaws (see Exhibit 3)
Exhibit 10 - Material Contracts*
a. Executive Officers' Deferred Compensation
Retirement Plan, as amended 5/20/93. . . . 40-54(1)
b. Incentive Compensation Plans, as amended
10/23/92 and 10/28/93 (Printing and
Writing Division and Rhinelander Paper
Company, Inc.) . . . . . . . . . . . . . . 55-62(1)
c. Corporate Management Incentive Plan, as
amended 8/19/87. . . . . . . . . . . . . . 63-69(1)
d. Chief Executive Officer's Incentive
Compensation Plan (1993 and 1994). . . . . 70(1)
e. 1988 Stock Appreciation Rights Plan,
as amended 4/17/91 . . . . . . . . . . . . 106-114(3)
f. 1988 Management Incentive Plan, as
amended 4/17/91. . . . . . . . . . . . . . 115-123(3)
g. 1990 Stock Appreciation Rights Plan,
as amended 4/17/91 . . . . . . . . . . . . 124-132(3)
h. Deferred Compensation Agreement dated
March 2, 1990, as amended July 1, 1994
i. 1991 Employee Stock Option Plan. . . . . . 133-146(3)
j. 1991 Dividend Equivalent Plan. . . . . . . 147-155(3)
k. Supplemental Retirement Benefit Plan
dated January 16, 1992 . . . . . . . . . . 90-97(2)
l. Directors' Deferred Compensation Plan. . . 71-86(1)
m. Director Retirement Benefit Policy . . . . 87-88(1)
*All exhibits represent executive compensation plans and
arrangements.
Exhibit 22 - Subsidiaries. . . . . . . . . . . . . . . 89(1)
Exhibit 27 - Financial Data Schedule (electronically transmitted
filing only)
Page numbers set forth herein correspond to the page numbers using
the sequential numbering system, where such exhibit can be found
in the following Annual Reports on Form 10-K:
(1) Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1993; Commission File
Number 0-7574.
(2) Registrant's Annual Report on Form 10-K for the fiscal
year ended August 31, 1992; Commission File
Number 0-7574.
(3) Registrant's Annual Report on Form 10-K for the fiscal
year ended August 31, 1991; Commission File
Number 0-7574.
The above exhibits are available upon request in writing from the
Secretary, Wausau Paper Mills Company, P.O. Box 1408, Wausau,
Wisconsin 54402-1408.
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
Other
Balance Changes Balance
(all dollar amounts in at Beginning Additions Retirements Add at End
thousands) of Year at Cost and Sales (Deduct) of Year
Year Ended August 31, 1992
Buildings $ 23,313 $ 6,204 ($ 319) $ 29,198
Machinery and equipment 228,337 21,425 ( 1,408) 248,354
-------- ------- -------- -------- --------
251,650 27,629 ( 1,727) 277,552
Land 1,058 44 1,102
Timberlands 1,575 ( 49) 1,526
Capital additions in process 4,298 4,104 8,402
-------- ------- -------- -------- --------
Totals $258,581 $31,777 ($ 1,727) ($ 49) $288,582
-------- ------- -------- -------- --------
Year Ended August 31, 1993
Buildings $ 29,198 $ 9,311 ($ 30) ($ 173) $ 38,306
Machinery and equipment 248,354 42,624 ( 661) 290,317
-------- ------- -------- -------- --------
277,552 51,935 ( 691) ( 173) 328,623
Land 1,102 694 ( 1) 173 1,968
Timberlands 1,526 4 ( 40) 1,490
Capital additions in process 8,402 ( 1,336) 7,066
-------- ------- -------- -------- --------
Totals $288,582 $51,297 ($ 692) ($ 40) $339,147
-------- ------- -------- -------- --------
Year Ended August 31, 1994
Buildings $ 38,306 $ 4,015 ($ 66) ($ 195) $ 42,060
Machinery and equipment 290,317 31,993 ( 2,495) 731 320,546
-------- -------- -------- -------- --------
328,623 36,008 ( 2,561) 536 362,606
Land 1,968 81 ( 80) ( 536) 1,433
Timberlands 1,490 107 ( 9) ( 47) 1,541
Capital additions in process 7,066 7,604 14,670
-------- -------- -------- -------- --------
Totals $339,147 $ 43,800 ($ 2,650) ($ 47) $380,250
======== ======== ======== ======== ========
Depreciation and Amortization
The annual provisions for depreciation and amortization have been
computed principally in accordance with the following ranges of
rates (applied on the straight-line method):
Buildings . . . . . . . . . . 2.25%-4%
Machinery and equipment . . . 6.25%-25%
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Additions Other
Balance Charged to Changes Balance
(all dollar amounts in at Beginning Costs and Add at End
thousands) of Year Expense Retirements (Deduct) of Year
Year Ended August 31, 1992
Buildings $ 7,364 $ 631 ($ 187) $ $ 7,808
Machinery and equipment 82,759 12,971 ( 1,141) 94,589
-------- -------- -------- -------- --------
Totals $ 90,123 $ 13,602 ($ 1,328) $ $102,397
-------- -------- -------- -------- --------
Year Ended August 31, 1993
Buildings $ 7,808 $ 809 ($ 22) $ $ 8,595
Machinery and equipment 94,589 14,579 ( 455) 108,713
-------- -------- -------- -------- --------
Totals $102,397 $ 15,388 ($ 477) $ $117,308
-------- -------- -------- -------- --------
Year Ended August 31, 1994
Buildings $ 8,595 $ 998 ($ 60) $ $ 9,533
Machinery and equipment 108,713 16,569 ( 1,637) 123,645
-------- -------- -------- -------- --------
Totals $117,308 $ 17,567 ($ 1,697) $ $133,178
======== ======== ======== ======== ========
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Allowance Allowance
for Allowance for
(all dollar amounts in Doubtful for Pending
thousands) Total Accounts Discounts Credits
Balance August 31, 1991 $ 3,430 $ 1,318 $ 372 $ 1,740
Charges to costs and expenses 13,039 5,112 7,927
Deductions ( 12,962) ( 160) ( 5,059) ( 7,743)
-------- -------- -------- --------
Balance August 31, 1992 $ 3,507 $ 1,158 $ 425 $ 1,924
Charges to costs and expenses 12,319 49 5,388 6,882
Deductions ( 12,160) ( 7) ( 5,380) ( 6,773)
-------- -------- -------- --------
Balance August 31, 1993 $ 3,666 $ 1,200 $ 433 $ 2,033
Charges to costs and expenses 15,644 18 6,189 9,437
(Deductions) recoveries ( 14,666) 117 ( 6,105) ( 8,678)
-------- -------- -------- --------
Balance August 31, 1994 $ 4,644 $ 1,335 $ 517 $ 2,792
======== ======== ======== ========
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(all dollar amounts in thousands) 1994 1993 1992
Maintenance and repairs $ 29,628 $ 28,820 $ 26,445
-------- -------- --------
Amounts for taxes other than payroll and income taxes, royalties,
advertising costs and amortization of intangible assets are not
presented as such amounts are less than 1% of total sales and
revenue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant had duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WAUSAU PAPER MILLS COMPANY
/s/ STEVEN A. SCHMIDT
Steven A. Schmidt
Vice President, Finance,
Secretary and Treasurer
(Principal Accounting and
Financial Officer)
Date: October 28, 1994
Pursuant to the requirements 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.
/s/ SAN W. ORR, JR. /s/ DAVID B. SMITH, JR.
San W. Orr, Jr. David B. Smith, Jr.
October 28, 1994 October 28, 1994
Chairman of the Board of Director
Directors and
Chief Executive Officer
(Principal Executive Officer)
/s/ DANIEL D. KING /s/ STANLEY F. STAPLES, JR.
Daniel D. King Stanley F. Staples, Jr.
October 28, 1994 October 28, 1994
President and Chief Operating Director
Officer
Director
/s/ HARRY R. BAKER
Harry R. Baker
October 28, 1994
Director