FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2003
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________ to _________________
Commission file number: 1-13923
WAUSAU-MOSINEE PAPER CORPORATION
(Exact name of registrant as specified in charter)
WISCONSIN 39-0690900
(State of incorporation) (I.R.S. Employer Identification Number)
1244 KRONENWETTER DRIVE
MOSINEE, WISCONSIN 54455-9099
(Address of principal executive office)
Registrant's telephone number, including area code: 715-693-4470
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No ____
The number of common shares outstanding at July 31, 2003 was 51,551,891.
WAUSAU-MOSINEE PAPER CORPORATION
AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations, Three Months and Six Months Ended
June 30, 2003 (unaudited) and
June 30, 2002 (unaudited) 1
Condensed Consolidated Balance
Sheets, June 30, 2003 (unaudited)
and December 31, 2002 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows, Six Months
Ended June 30, 2003 (unaudited)
and June 30, 2002 (unaudited) 3
Notes to Condensed Consolidated
Financial Statements (unaudited) 3-8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Wausau-Mosinee Paper Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands, except per share data) 2003 2002 2003 2002
NET SALES $ 242,833 $ 237,820 $482,659 $ 463,748
Cost of products sold 217,737 209,349 436,684 409,949
GROSS PROFIT 25,096 28,471 45,975 53,799
Selling and administrative expenses 17,419 16,703 33,663 33,775
OPERATING PROFIT 7,677 11,768 12,312 20,024
Interest expense (2,570) (2,773) (5,071) (5,536)
Other income (expense), net 15 41 1 (14)
EARNINGS BEFORE INCOME TAXES 5,122 9,036 7,242 14,474
Provision for income taxes 1,894 3,340 2,679 5,350
NET EARNINGS $ 3,228 $ 5,696 $ 4,563 $ 9,124
NET EARNINGS PER SHARE-BASIC $ 0.06 $ 0.11 $ 0.09 $ 0.18
NET EARNINGS PER SHARE-DILUTED $ 0.06 $ 0.11 $ 0.09 $ 0.18
Weighted average shares outstanding-basic 51,550,078 51,536,891 51,543,521 51,526,038
Weighted average shares outstanding-diluted 51,650,691 51,727,711 51,627,531 51,684,330
See Notes to Condensed Consolidated Financial Statements.
1
Wausau-Mosinee Paper Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) JUNE 30, December 31,
2003 2002
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 24,304 $ 23,383
Receivables, net 81,651 70,806
Refundable income taxes 1,577 10,264
Inventories 130,529 119,033
Deferred income taxes 12,439 12,812
Other current assets 3,642 4,100
Total current assets 254,142 240,398
Property, plant and equipment, net 581,405 597,979
Other assets 40,115 35,380
TOTAL ASSETS $ 875,662 $ 873,757
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 110 $ 0
Accounts payable 73,058 63,422
Accrued and other liabilities 55,497 58,578
Total current liabilities 128,665 122,000
Long-term debt 162,593 162,763
Deferred income taxes 110,380 111,377
Postretirement benefits 54,179 52,534
Pension 49,647 51,142
Other noncurrent liabilities 18,277 17,993
Total liabilities 523,741 517,809
Stockholders' equity 351,921 355,948
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 875,662 $ 873,757
See Notes to Condensed Consolidated Financial Statements.
2
Wausau-Mosinee Paper Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
(Dollars in thousands) 2003 2002
Net cash provided by operating activities $27,965 $26,883
Cash used in investing activities:
Capital expenditures (9,975) (10,429)
Acquisition of business (8,413) 0
Proceeds on sale of property, plant and equipment 6 165
(18,382) (10,264)
Cash used in financing activities:
Net payments under credit agreements 0 ( 6,110)
Payments under capital lease obligation (34) 0
Dividends paid (8,763) ( 8,759)
Proceeds from stock-option exercise 135 325
(8,662) (14,544)
Net increase in cash and cash equivalents 921 2,075
Cash and cash equivalents, beginning of period 23,383 12,010
Cash and cash equivalents, end of period $24,304 $14,085
Noncash investing and financing activities: A capital lease obligation of $336
was recorded in the second quarter of 2003 when the Company entered into a
lease for new equipment.
See Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. The condensed consolidated financial statements include the results of
Wausau-Mosinee Paper Corporation and our consolidated subsidiaries.
All significant intercompany transactions have been eliminated. The
accompanying condensed financial statements, in the opinion of
management, reflect all adjustments which are normal and recurring in
nature and which are necessary for a fair statement of the results for
the periods presented. Results for the interim period are not
necessarily indicative of future results. In all regards, the
financial statements have been presented in accordance with accounting
principles generally accepted in the United States of America. Refer
to notes to the financial statements which appear in the Annual Report
on Form 10-K for the year ended December 31, 2002, for the Company's
accounting policies which are pertinent to these statements.
3
Note 2. During the second quarter of 2003, the Company's Towel & Tissue Group,
reached a settlement of all claims of the parties in the patent
litigation. As a result of the settlement, the Company recognized $4.2
million in pre-tax income (reduction of cost of sales) as a fee for
licensing certain patented dispenser technologies.
Note 3. Effective March 3, 2003, the Company acquired certain assets of a
laminated papers producer for approximately $8.4 million in cash. The
acquisition is being accounted for as a purchase business combination
and, accordingly, the purchase price has been allocated using the fair
values of the acquired receivables, inventory, machinery and equipment,
and identifiable intangible assets. No goodwill was recorded as a
result of this acquisition. The pro forma disclosures required under
Statement of Financial Accounting Standard (SFAS) No. 141 "Business
Combinations" have not been presented as the impact of this acquisition
does not materially impact the results of operations.
Note 4. SFAS No. 143, "Accounting for Asset Retirement Obligations,"
Establishes accounting and reporting standards associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. The Company adopted SFAS No. 143 on January 1,
2003. There was no significant impact on the financial statements
as a result of the adoption.
Note 5. Net earnings include provisions, or credits, for stock incentive plans
calculated by using the average price of the Company's stock at the
close of each calendar quarter as if all such plans had been exercised
on that day. For the three months ended June 30, 2003, the provision
for incentive plans was $665,000. For the three months ended June 30,
2002, the credit for incentive plans was $317,000. For the six months
ended June 30, 2003 and 2002, provisions of $414,000 and $216,000,
respectively, were recognized as stock incentive plan expense.
4
As permitted under SFAS No. 123, the Company continues to measure
compensation cost for stock-option plans using the "intrinsic value
based method" prescribed under APB No. 25, "Accounting for Stock Issued
to Employees."
Pro forma net earnings and earnings per share had the Company elected to
adopt the fair-value based method" of SFAS No. 123, "Accounting for
Stock-Based Compensation," are as follows:
(Dollars in thousands, except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Net earnings, as reported $ 3,228 $ 5,696 $ 4,563 $ 9,124
Add: Total stock-based employee
compensation expense (credit)
under APB No. 25, net of
related tax effects 419 (200) 261 136
Deduct: Total stock-based
compensation expense (credit)
determined under fair-value
based method for all awards,
net of related tax effects 460 (138) 327 201
Proforma $ 3,187 $ 5,634 $ 4,497 $ 9,059
Earnings per share - basic:
As reported $ 0.06 $ 0.11 $ 0.09 $ 0.18
Pro forma $ 0.06 $ 0.11 $ 0.09 $ 0.18
Earnings per share - diluted:
As reported $ 0.06 $ 0.11 $ 0.09 $ 0.18
Pro forma $ 0.06 $ 0.11 $ 0.09 $ 0.18
5
Note 6. Basic and diluted earnings per share are recognized as follows:
(Dollars in thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Net earnings $ 3,228 $ 5,696 $ 4,563 $ 9,124
Basic weighted average common
shares outstanding 51,550,078 51,536,891 51,543,521 51,526,038
Dilutive securities:
Stock options 100,613 190,820 84,010 158,292
Dilutive weighted average common
shares outstanding 51,650,691 51,727,711 51,627,531 51,684,330
Net earnings per share-basic $ 0.06 $ 0.11 $ 0.09$ 0.18
Net earnings per share-diluted $ 0.06 $ 0.11 $ 0.09 $ 0.18
For the three months ended June 30, 2003, options for 757,255 shares
were excluded from the diluted EPS calculation because the options were
antidilutive. For the three months ended June 30, 2002, options for
491,251 shares were excluded from the diluted EPS calculation because
the options were antidilutive. For the six months ended June 30, 2003
and 2002, 819,255 shares and 615,053 shares, respectively, were excluded
from the diluted EPS calculation because the options were antidilutive.
Note 7. Accounts receivable consisted of the following:
(Dollars in thousands) JUNE 30, December 31,
2003 2002
Trade $82,602 $71,655
Other 1,397 1,527
83,999 73,182
Less: Allowances 2,348 2,376
$81,651 $70,806
6
Note 8. The various components of inventories were as follows:
(Dollars in thousands) JUNE 30, December 31,
2003 2002
Raw Materials $ 38,023 $ 33,989
Finished Goods and Work in Process 91,359 79,200
Supplies 28,030 27,463
Subtotal 157,412 140,652
Less: LIFO Reserve 26,883 21,619
Net inventories $ 130,529 $ 119,033
Note 9. The accumulated depreciation on fixed assets was $639,510,000 as of
June 30, 2003 and $613,840,000 as of December 31, 2002. The
provision for depreciation, amortization and depletion for the six
months ended June 30, 2003 and June 30, 2002 was $30,558,000 and
$30,345,000, respectively.
Note 10. Interim Segment Information
FACTORS USED TO IDENTIFY REPORTABLE SEGMENTS
The Company's operations are classified into three principal
reportable segments: the Printing & Writing Group, the Specialty
Paper Group, and the Towel & Tissue Group, each providing different
products. Separate management of each segment is required because
each business unit is subject to different marketing, production, and
technology strategies.
PRODUCTS FROM WHICH REVENUE IS DERIVED
The Printing & Writing Group produces a broad line of premium
Printing and writing grades at manufacturing facilities in Brokaw,
Wisconsin and Groveton, New Hampshire. The Printing & Writing Group
also includes converting facilities which produce wax-laminated roll
wrap and related specialty finishing and packaging products, and a
converting facility which converts printing and writing grades. The
Specialty Paper Group produces specialty papers at its manufacturing
facilities in Rhinelander, Wisconsin; Mosinee, Wisconsin; and Jay,
Maine. The Towel & Tissue Group produces a complete line of towel
and tissue products that are marketed along with soap and dispensing
systems for the "away-from-home" market. The Towel & Tissue Group
operates a paper mill in Middletown, Ohio, and a converting facility
in Harrodsburg, Kentucky.
7
RECONCILIATIONS
The following are reconciliations to corresponding totals in the
accompanying consolidated financial statements:
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2003 2002 2003 2002
Net sales external customers
Printing & Writing $ 99,458 $ 95,790 $197,835 $192,097
Specialty Paper 89,701 88,756 182,159 171,676
Towel & Tissue 53,674 53,274 102,665 99,975
$ 242,833 $ 237,820 $482,659 $463,748
Net sales intersegment
Printing & Writing $ 1,995 $ 1,761 $ 3,473 $ 3,605
Specialty Paper 0 67 0 150
Towel & Tissue 0 0 0 0
$ 1,995 $ 1,828 $ 3,473 $ 3,755
Operating profit (loss)
Printing & Writing $ 2,704 $ 10,524 $ 4,190 $ 17,328
Specialty Paper 64 (2,854) 1,576 (3,784)
Towel & Tissue 8,372 6,260 12,403 11,818
Total reportable segment
operating profit 11,140 13,930 18,169 25,362
Corporate & eliminations (3,463) (2,162) (5,857) (5,338)
Interest expense (2,570) (2,773) (5,071) (5,536)
Other income/expense 15 41 1 (14)
Earnings before income taxes $ 5,122 $ 9,036 $ 7,242 $ 14,474
(Dollars in thousands) JUNE 30, December 31,
2003 2002
Segment Assets
Printing & Writing $291,585 $284,652
Specialty Paper 346,359 347,380
Towel & Tissue 175,027 170,854
Corporate & Unallocated* 62,691 70,871
$875,662 $873,757
* Segment assets do not include intersegment accounts receivable, cash,
deferred tax assets and certain other assets which are not
identifiable with segments.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2003 2002 2003 2002
Net sales $242,833 $237,820 $482,659 $463,748
Percent increase/(decrease) 2% (1%) 4% (2%)
For the three months ended June 30, 2003, consolidated net sales for the
Company were $242.8 million compared to $237.8 million for the same three month
period in 2002, an increase of 2%. Company-wide shipments in the second
quarter of 2003 were 211,414 tons, a 1% improvement over the 209,904 tons
shipped in the second quarter of 2002. Second quarter 2003 average selling
price increased less than 2% as compared to the same period in 2002 with actual
product selling prices improving approximately 1%, or $2.6 million, and product
mix enhancements accounting for the remainder of the average selling price
increase.
For the six months ended June 30, 2003 and 2002, consolidated net sales were
$482.7 million and $463.7 million, respectively, representing a 4% improvement
year-over-year. Year-to-date shipments at June 30, 2003, improved to 422,170
tons, an increase of 3% over the 409,027 tons reported for the same year-to-
date period of 2002. During the first six months of 2003, average selling
price improved approximately 1%, with actual product pricing improvements and
product mix enhancements accounting for an equal share of the increase.
Together, product pricing and product mix changes accounted for approximately
$4.6 million of the consolidated net sales improvement.
Second quarter net sales and shipments for the Printing & Writing Group
increased 4% and 5%, respectively in 2003 compared to the second quarter of
2002. As a group, net sales improved to $99.5 million in 2003 from $95.8
million reported for the same three-month period in 2002. Shipments grew
quarter-over-quarter from the 86,412 tons in 2002 to 90,672 tons in 2003. The
increase in tons shipped was driven by a 28 percent increase in laminated roll-
wrap volume as a result of the first quarter acquisition of the production
assets and customer base of Laminated Papers, Inc. Average net selling price
decreased approximately 1% with product mix changes accounting for the decline
as actual product pricing was principally unchanged quarter-over-quarter.
Second quarter consumer product shipments increased 26% compared to last year
and premium paper shipments increased 3%. Shipments to paper merchants and
converters declined 5% as demand for uncoated free-sheet papers decreased
approximately 2% compared to the same period last year. The decline in
shipments to paper merchants and converters is due primarily to a reduction in
paper demand of end-use commercial printers. Market conditions remained weak
and pricing competitive as the third quarter began.
9
Printing & Writing Group net sales for the first half of 2003 improved 3% to
$197.8 million compared to $192.1 million in the first half of 2002. The
increase in net sales was due primarily to increased shipments year-over-year
with 179,403 tons and 173,481 tons shipped in the first six months of 2003 and
2002, respectively. As in the quarter-over-quarter comparison, the volume
improvement was driven by the increase in laminated roll-wrap and consumer
product shipments period over period. Average selling price declined less than
1% year-over-year with both real selling prices and product mix marginally
weaker in the first six months of 2003.
Specialty Paper Group net sales improved to $89.7 million for the three months
ended June 30, 2003 compared to $88.8 million in the three months ended June
30, 2002, an increase of 1%. Shipments declined to 82,651 tons in the second
quarter of 2003 compared to 85,741 tons in 2002. The volume decline of
approximately 4% was due to a reduction in shipments of non-core product and
was more than offset by a 5% improvement in average selling price in the
quarter-over-quarter comparison. Product selling prices increased
approximately 4%, with product mix enhancements accounting for the balance of
the average selling price improvement.
For the first six months of 2003, Specialty Paper Group net sales were $182.2
million compared to $171.7 million in the same period of 2002, an increase of
6%. Shipment volume increased 4% in the year-to-date comparison with 170,326
tons shipped in 2003 and 164,426 tons shipped in 2002. Average selling price
improvement of 2% year-over-year contributed to the net sales gain and was
driven by actual product pricing improvements of 2% with product mix comparable
to prior year.
Net sales for the second quarter of 2003 were comparable to the second quarter
of 2002 at $53.7 million and $53.3 million, respectively, in the Towel & Tissue
Group. Mix enhancement, offset by a decline in product pricing, resulted in a
1% improvement in average net selling price quarter-over-quarter. Shipment
volume remained relatively flat with 38,091 tons shipped in the second quarter
of 2003 compared to 37,751 tons shipped in the second quarter of 2002. The
"away-from-home" segment of the towel and tissue market grew approximately 1%
in the second quarter of 2003 compared with the same period in 2002.
Year-to-date sales for the Towel & Tissue Group were $102.7 million in 2003
compared to $100.0 million in 2002-an improvement of 3%. Mix enhancement
resulted in an increase in average selling price of slightly less 2% when
comparing the first half of 2003 to 2002. The remainder of the year-to-date
revenue gain was the result of a 2% increase in shipment volume with 72,441
tons shipped in 2003 versus 71,120 tons shipped in 2002.
10
Gross Profit
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2003 2002 2003 2002
Gross profit on sales $25,096 $28,471 $45,975 $53,799
Gross profit margin 10% 12% 10% 12%
Gross profit for the three months ended June 30, 2003, was $25.1 million
compared to $28.5 million for the three months ended June 30, 2002. The
decrease in the gross profit margin year-over-year was principally due to
increases in energy and fiber prices. These increases were partially offset by
volume gains, operational efficiencies and cost-reduction efforts. In total,
natural gas prices increased 80% resulting in additional cost of $4.3 million
in the second quarter of 2003 compared to the second quarter of 2002. Compared
to the second quarter of 2002, market pulp prices were higher by $90 per air-
dried metric ton, or approximately $9.4 million, quarter-over-quarter while
wastepaper prices were higher by $6 per standard ton, or approximately $0.3
million. During the second quarter of 2003, as the result of a settlement of
all claims of the parties in a patent litigation case, the Company recognized
$4.2 million of income as a fee for licensing certain patented dispenser
technologies. In addition, the Company recorded $1.9 million during the second
quarter of 2003 for the loss on the disposal of equipment.
Year-to-date, gross profit margins declined to $46.0 million, or 10% of net
sales in 2003 compared to $53.8 million, or 12% of net sales in 2002. As in
the quarterly comparison, unfavorable market pulp, wastepaper, energy costs and
the expense associated with the disposal of equipment negatively impacted the
gross profit margin year-over-year. Offsetting a portion of these unfavorable
variances was the settlement of litigation involving patented dispenser
technologies, cost-reduction efforts and improved operating efficiencies. Year-
over- year, market pulp increased 16%, or $63 per air-dried metric ton and
natural gas costs increased 91%.
Early in the third quarter, market pulp list prices declined $30 per air-dried
metric ton while natural gas prices continued to decline from peak first
quarter levels but remained above historical averages. At the end of the
second quarter, less than half of the Company's July through December natural
gas requirements were protected through purchase contracts. The price of these
contracts is approximately 5% below the Company's second quarter average price.
The Printing & Writing Group's gross profit for the second quarter of 2003 was
8% of net sales compared to 17% for the same period last year. On a year-to-
date basis, gross profit declined from 15% in the first six months of 2002 to
8% in the first six months of 2003. The decline in gross margins on a quarter-
over-quarter and year-to-date basis is attributable to unfavorable pricing in
both natural gas and market pulp as discussed in the consolidated gross margin
comparisons.
The Specialty Paper Group's improved operations and cost-reduction efforts
offset the unfavorable impacts of natural gas and market pulp to report
improved year-over-year margins from 2% in the second quarter of 2002 to 5% in
the second quarter of 2003. Similarly, year-to-date margins improved to 6%
from 3% in 2003 and 2002, respectively.
11
The gross profit margin for the Towel & Tissue Group improved from 19% in the
second quarter of 2002 to 24% in the second quarter of 2003. As indicated in
the consolidated gross profit margin comparisons, a favorable $4.2 million
settlement of patent litigation reduced by unfavorable wastepaper pricing and
expense as the result of asset disposals accounted for the change in the gross
profit margin for the Towel & Tissue Group. Year-to-date gross margins
remained flat at 20% of net sales in both six month periods ending June 30,
2003 and 2002.
Consolidated order backlogs declined to approximately 30,700 tons at June 30,
2003 from approximately 37,300 tons at June 30, 2002. Backlog tons at June 30,
2003 represent $34.7 million in sales compared to $39.8 million in sales at
June 30, 2002. Declines in customer backlog were evident in both the Printing &
Writing and Specialty Paper Groups, while the Towel & Tissue Group improved
slightly. The Printing & Writing Group backlog tons declined from 10,000 tons
as of June 30, 2002 to 7,100 tons at June 30, 2003. Specialty Paper Group
backlog tons declined to 21,700 tons at the end of the second quarter of 2003
compared to 25,500 tons at the end of the second quarter of 2002. The Towel &
Tissue Group experienced a slight increase in backlogs compared to the second
quarter of 2002 at 1,900 tons compared to 1,800 tons. The change in customer
order backlogs does not necessarily indicate business conditions as a large
portion of orders are shipped directly from inventory upon receipt and do not
impact backlog numbers.
Selling and Administrative Expenses
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2003 2002 2003 2002
Selling and administrative expense $17,419 $16,703 $33,663 $33,775
Percent increase/(decrease) 4% (13%) -- (8%)
As a percent of net sales 7% 7% 7% 7%
Selling and administrative expenses in the second quarter of 2003 were $17.4
million compared to $16.7 million in the same period of 2002. Incentive
compensation programs based on the market price of the Company's stock resulted
in a provision of $0.7 million for the three months ended June 30, 2003
compared to a credit of $0.3 million for the three months ended June 30, 2002.
For the six months ended June 30, 2003, selling and administrative expenses
were $33.7 million compared to $33.8 million in the first half of 2002.
Expense recognized for stock-incentive based programs was $0.4 million and $0.2
million in the year-to-date comparisons of 2003 and 2002, respectively.
12
Other Income and Expense
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2003 2002 2003 2002
Interest expense $2,570 $2,773 $5,071 $5,536
Other income (expense) 15 41 1 (14)
Interest expense was $2.6 million in the second quarter of 2003 compared to
$2.8 million in the second quarter of 2002. The decrease quarter-over-quarter
was attributable to lower average debt levels partially offset by a slightly
higher effective interest rate. Long-term debt was $162.6 million and $185.8
million at June 30, 2003 and 2002, respectively. Long-term debt at December
31, 2002, was $162.8 million. Interest expense is expected to remain slightly
lower in 2003 than in 2002 due to reduced borrowings against the Company's
credit facilities.
Income Taxes
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2003 2002 2003 2002
Provision for income taxes $1,894 $3,340 $2,679 $5,350
Effective tax rate 37% 37% 37% 37%
The effective tax rates for the periods presented are indicative of the
Company's normalized tax rate. The effective rate for 2003 is expected to
remain at 37%.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Capital Expenditures
Six Months Ended June 30,
(Dollars in thousands) 2003 2002
Cash provided by operating activities $27,965 $26,883
Capital expenditures 9,975 10,429
For the six months ended June 30, 2003, cash provided by operating activities
was $28.0 million and improved from the cash provided by operations for the six
months ended June 30, 2002, of $26.9 million. The improvement in cash flows
provided by operating activities quarter-over-quarter is attributable to $9.0
million in refunds received in the first six months of 2003 on income taxes,
offset somewhat by reduced earnings and larger inventory and receivable
increases in the current year period.
In 2003, due to weak economic conditions and to excess production capacity in
the paper industry, the Company has continued efforts initiated in 2001 to
limit capital spending without sacrificing the maintenance of its facilities
and operating assets. The Company has established an objective to achieve a
weighted-average internal rate of return of 17% on capital projects
13
approved in 2003 and has achieved this objective for projects approved through
the first half of the year. As a result, capital spending for the first six
months of 2003 was $10.0 million compared to $10.4 million during the first six
months of 2002. Capital spending over the second-half of 2003 is expected to be
greater than the first-half of 2003 due to capital projects slated for
installation during the last six months. Total capital spending in 2003 is
expected to be approximately $30 million, or one-half the Company's rate of
depreciation, depletion, and amortization.
For 2003, capital expenditures for projects with total spending expected to
exceed $1.0 million were $0.6 million in the Printing & Writing Group as part
of a capital project to expand premium papers production capabilities at the
Brokaw mill and $0.4 million on a process control system computer replacement
at the Groveton mill. In the Towel & Tissue Group, $0.9 million was spent on a
screw press project and $1.1 million was spent for various converting lines.
The balance of spending for the first six months of 2003 was related to
projects that individually are expected to cost less than $1.0 million. These
expenditures included approximately $4.2 million for essential non or low-
return projects, and approximately $2.8 million on projects expected to provide
a return on investment that exceeds the Company's cost of capital.
Through the end of the second quarter of 2002, capital expenditures for
projects with total spending expected to exceed $1.0 million were $0.8 million
for a pulp mill digester replacement and $0.7 million for a paper machine
process control system replacement at the Printing & Writing Group's Brokaw and
Groveton mills, respectively. At the Towel & Tissue Group, $2.5 million was
spent on various converting lines. The balance of the spending in the first
six months of 2002 was on projects individually under $1.0 million.
Effective March 3, 2003, the Company acquired certain assets of a laminated
papers producer for approximately $8.4 million in cash. The acquisition is
being accounted for as a purchase business combination and, accordingly, the
purchase price has been allocated using the fair values of the acquired
receivables, inventory, machinery and equipment, and identifiable intangible
assets. No goodwill was recorded as a result of this acquisition.
14
Debt and Equity
JUNE 30, December 31,
(Dollars in thousands) 2003 2002
Total debt, including current maturities $162,703 $162,763
Stockholders' equity 351,921 355,948
Total capitalization 514,624 518,711
Long-term debt/capitalization ratio 32% 31%
As of June 30, 2003, there was no significant change in total debt as compared
to December 31, 2002.
During the second quarter of 2003, the Company entered into a capital lease for
new information systems equipment. As a result, a capital lease obligation in
the amount of $0.3 million was recorded.
On June 30, 2003, the Company had approximately $131.0 million available
borrowing capacity from existing bank facilities. The Company's borrowing
capacity and cash provided by operations are expected to meet capital and
dividend requirements.
Dividends
A dividend declared on December 12, 2002 of $0.085 per common share was paid on
February 17, 2003 to shareholders of record on February 1, 2003. At the April
17, 2003 meeting of the Board of Directors, a quarterly cash dividend was
declared in the amount of $0.085 per common share. The dividend was paid on
May 15, 2003 to shareholders of record on May 1, 2003. On June 20, 2003, the
Board of Directors declared a quarterly cash dividend of $0.085 per common
share which is payable on August 15, 2003 to shareholders of record on August
1, 2003.
INFORMATION CONCERNING FORWARD LOOKING STATEMENTS
This report contains certain of management's expectations and other forward-
looking information regarding the Company pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. While the
Company believes that these forward-looking statements are based on reasonable
assumptions, such statements are not guarantees of future performance, and all
such statements involve risk and uncertainties that could cause actual results
to differ materially from those contemplated in this report. The assumptions,
risks, and uncertainties relating to the forward-looking statements in this
report include general economic and business conditions, changes in the prices
of raw materials or energy, competitive pricing in the markets served by the
Company as a result of economic conditions, overcapacity in the industry and
the demand for paper products, manufacturing problems at Company facilities and
various other risks and assumptions. These and other assumptions, risks, and
uncertainties are described under the caption "Cautionary Statement Regarding
Forward-Looking Information" in Item 1 of the Company's Annual Report on Form
10-K for the year ended December 31, 2002, and from time to time, in the
Company's other filings with the Securities and Exchange
15
Commission. The Company assumes no obligation to update or supplement
forward-looking statements that become untrue because of subsequent events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the information provided in response to
Item 7A of the Company's Form 10-K for the year ended December 31, 2002
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, management, under the
supervision, and with the participation, of the Company's President and Chief
Executive Officer and the Chief Financial Officer, evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934. Based upon,
and as of the date of such evaluation, the President and Chief Executive
Officer and the Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective in all material respects. There have
been no significant changes in the Company's internal controls or in other
factors which could significantly affect internal controls subsequent to the
date the Company carried out its evaluation, nor were there any significant
deficiencies or material weaknesses identified which required any corrective
action to be taken.
16
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April 17, 2003.
The matters voted upon, including the number of votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes, as to each
such matter were as follows:
Matter Shares Voted
Broker Broker
For Withheld Non-Vote
1. Election of Class I
Directors
(a) Walter Alexander 44,852,382 265,527 0
(b) San W. Orr, Jr. 44,880,137 237,772 0
(c) David B. Smith, Jr. 44,872,643 245,266 0
ITEM 5. Other Information
On August 4, 2003, Bay West Paper Corporation, a wholly-owned subsidiary of the
Company, served a complaint against Kimberly-Clark Corporation and Alwin
Manufacturing Co., Inc. in a suit filed in the U.S. District Court for the
Western District of Wisconsin. The complaint alleges that Kimberly-Clark and
Alwin have infringed on a patent used in the Bay West WAVE 'N DRY
dispenser and seeks an injunction that will prohibit the defendants from using
the infringing device in any of their cabinets and monetary damages that result
from the infringement. The defendants have 20 days from the date of service in
which to answer the complaint.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
31.1 Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act of
2002
31.2 Certification of CFO pursuant to Section 302 of Sarbanes-Oxley Act of
2002
32.1 Certification of CEO and CFO pursuant to Section 906 of Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K:
Form 8-K dated April 21, 2003. The Company filed a current report on Form
8-K on April 21, 2003, reporting earnings and net sales information for the
first quarter ended March 31, 2003, under Item 5 and additional related
information under Items 9 and 12.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WAUSAU-MOSINEE PAPER CORPORATION
August 14, 2003 SCOTT P. DOESCHER
Scott P. Doescher
Senior Vice President-Finance,
Secretary and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
18
EXHIBIT INDEX
TO
FORM 10-Q
OF
WAUSAU-MOSINEE PAPER CORPORATION
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. Section 232.102(d))
The following exhibits are filed as part of this report:
31.1 Certification of CEO pursuant to Section 302 of Sarbanes-Oxley Act of
2002
31.2 Certification of CFO pursuant to Section 302 of Sarbanes-Oxley Act of
2002
32.1 Certification of CEO and CFO pursuant to Section 906 of Sarbanes-Oxley
Act of 2002
19