ITEM 1 BUSINESS
General
Repap Wisconsin, Inc. (the Company) is a producer of high quality grades of recycled coated paper and produces a complete range of coated paper products. The Company was purchased by Repap Enterprises Inc. (Repap Enterprises) in 1976 for $12 million. Following the acquisition, the Company undertook a capital investment program completed in 1989 of $587 million to construct two new coated paper machines and to modernize one of the existing machines, while shutting down the remaining four. The objective of these investments was to convert the Company from a small, low margin operation, producing approximately 135,000 tons per year of medium quality coated groundwood and freesheet paper, to a leading producer of high quality grades of coated paper capable of supplying a full spectrum of product grades and basis weights to the growing North American coated paper market.
By 1994, the Company had successfully converted all of its coated paper grades to recycled content without changing the quality of its product line. The Company believes that its use of recycled fibers in all of its coated paper grades has become a marketing advantage as the public's awareness of environmental issues has increased. To enhance its capacity for producing recycled coated paper grades, the Company acquired a 25,000 ton per year recycling facility in 1994 that uses office and other waste paper to produce recycled fiber.
The Company's current operating annual coated paper design capacity totals approximately 508,000 tons as of December 31, 1996. Among the top ten producers of coated paper in North America, based on total annual design capacity as reported by industry sources, the Company's average annual design capacity per machine of approximately 169,000 tons represents the highest productive capacity per machine in the United States and the second highest in North America.
Coated Paper Markets
The Company's products are used for magazines, catalogues, brochures, advertising inserts and annual reports. The markets for coated paper products are highly competitive with a number of major companies competing in each market. The four largest producers of coated paper in North America are Champion International Corporation, the S.D. Warren Company, a subsidiary of Sappi Limited, Consolidated Papers, Inc. and Repap Enterprises (including the Company and Repap New Brunswick Inc.). Repap has a design capacity of 1.0 million tons annually (0.5 million tons for the Company).
Based on design capacity, the Company is the ninth largest coated paper producer in North America and competes with other U.S., Canadian and European producers in all of its product lines. Competition is primarily on the basis of quality, breadth of product line and price, as well as product innovation and sales and distribution support. No. 5 machine coated paper also competes with uncoated supercalendered paper. In addition, the market for paper generally competes with non-paper substitutes, such as electronic media.
The Company's competitive strengths in the coated paper market include high product quality, a broad product line, excellent sales support and leadership in recycled grades. The Company has developed a line of fully recycled paper products across a wide spectrum of weights and finishes, with the same quality standards as non-recycled coated paper products, and believes that it is well positioned to meet any shift in customer demand toward recycled coated paper.
The Company believes that the demand for high quality grades of recycled coated paper is growing as the general public becomes increasingly aware of the environmental impact of paper disposal in landfills. In the United States, manufacturers of recycled coated paper use an average of 50% recycled content, including 10% post-consumer fiber, in the raw material mix of their recycled grades. Although recycled fiber can be used in most papers, several factors determine the recycled content of paper and paper products, including available technology, economics and product performance requirements. Due to the lower quality of paper in the newsprint, tissue and packaging papers industries, producers of these grades can use substantially greater amounts of post-consumer fiber in their grades versus coated paper producers.
While seasonal variation in demand is not a major factor in the Company's business, sales volumes increase in general during the third and fourth quarters of each year, particularly in September and October, as the use of paper increases for the holiday season printing of catalogues and advertising inserts.
Operating Strategy
Modern Equipment
The Company's modern asset base, along with various ongoing productivity improvements, allows the Company to maintain its status as a low cost producer of high quality coated paper.
Product and Fiber Mix Flexibility
The Company has the ability of changing the mix of paper produced on its W-7 machine between coated freesheet grades in either sheet or roll form. In addition, the Company's W-5 machine has a "swing design" capability, allowing it to produce either coated groundwood or freesheet paper. Also, being only partially fiber integrated facilitates product mix flexibility and optimization of fiber mix and costs. This flexibility in the production mix allows the Company to maximize profitability as market conditions change.
Environmental Stewardship
The Company furthered its commitment to recycled coated paper by converting all of its line of products to include recycled content without changing the quality of its existing line. Management believes that it is the only producer of coated paper to have successfully converted its entire line of coated paper products to include recycled content. In addition, the Company's recycling facility is expected to provide a significant portion of its longer term recycled fiber requirements.
Quality
The Company has achieved ISO 9002 certification, an important benchmark in its strategy of being recognized as a quality leader in the industry. The International Standards Organization (ISO) 9002 certification provides a consistent framework for maintaining total quality management principles at Repap Wisconsin and identifies the Company as a world-class supplier.
Marketing
The Company's full line of coated paper has enabled it to supply the complete coated paper needs of many of its customers. In addition, the Company believes that its use of recycled fibers in all of its coated paper grades has become a marketing advantage as the public's awareness of environmental issues has increased.
The Company sells its products through Repap Sales Corporation (Repap Sales) on a commission basis, as agent, to end users (such as printers and magazine publishers), to third-party "merchants" and to "brokerage" distributors (See Item 13 "Certain Relationships & Related Transactions"). The Company rarely enters into long-term contracts, which would fix the list price and discounts at which its products may be sold, allowing it to take advantage of upturns in market prices while subjecting it to greater exposure to changes in prices than manufacturers that enter into such contracts. Sales to WWF Paper Corporation, in which Repap Sales has an investment in preferred stock, were 18% and 14% of net sales during 1995 and 1996, respectively. Sales to Unisource Worldwide Inc. were 14% and 15% of net sales during 1995 and 1996, respectively.
With respect to product inventories, the Company generally maintains inventories at a level required to meet the delivery requirements of its customers. With respect to order backlogs, at March 24, 1997 the Company had a total backlog of 48 days in coated groundwood paper and 24 days in coated freesheet paper as compared to 21 days and 7 days, respectively, at March 24, 1996. Order backlogs vary on a seasonal basis and are also impacted by the market demand for paper.
Almost all of the Company's products are sold to customers in North America, with approximately 40% of product shipments being delivered to customers within 500 miles of the facility. Substantially all of the Company's distributions are made from local warehouses. The Company is not dependent upon a particular mode of transportation in delivering its products. Approximately 80 percent of its shipments are delivered by truck, and the remainder are delivered primarily by rail.
Supply Requirements
A basic raw material used by the Company is wood, which is converted into pulp for use in producing its coated paper products. Although the Company does not own any timber resources, it operates an on-site hardwood groundwood pulp mill with an annual design capacity of approximately 45,000 metric tons, which is normally sufficient to meet the Company's groundwood pulp requirements. Wood used to make the hardwood groundwood pulp is obtained from approximately 35 independent suppliers in northern Wisconsin at prevailing market rates and is stored at the facility. From time to time, hardwood groundwood pulp is purchased from third-party vendors when the Company's demand exceeds the hardwood groundwood mill's capacity.
The Company's other wood fiber requirements consist of softwood and hardwood kraft pulp, pre and post consumer recycled fiber and secondary fiber rolls purchased from third party vendors. The Company's kraft pulp purchases are made mainly through Repap Enterprises'pulp procurement department, which negotiates the prices and terms of delivery of the Company's pulp purchases. The Company's annual requirements of softwood
kraft are suppliedby Repap Enterprises and its subsidiaries, Repap British Columbia, Inc. (Repap British Columbia) and Repap New Brunswick Inc. (Repap New Brunswick), as well as other suppliers that are not affiliated with the Company, at market prices less a market rate discount. In addition, the Company purchases hardwood kraft from Repap Enterprises, as well as on the open market as needed.
Recycled fiber and secondary fiber rolls can be used in place of kraft pulp in manufacturing coated paper and are acquired by the Company's purchasing department at market prices. The Company has entered into a long-term contract with one supplier, terminating in 1998, for approximately 50% of its anticipated usage of post-consumer recycled fiber. The balance of the post-consumer fiber requirements is provided by the Company's recycling facility, as well as what is purchased at market prices from three other suppliers. See Item 2
ITEM 2 PROPERTIES
The Company owns and operates a world-class coated paper complex in Kimberly, Wisconsin, containing three modern coated paper machines with a total annual design capacity of 508,000 tons, as well as a bleached hardwood groundwood pulp mill. In addition, the Company purchased a recycling facility in 1994 located in Appleton, Wisconsin.
The No. 5 machine (W-5) has an annual design capacity of 109,000 tons. The W-5 machine, based on a "swing design," produces both coated groundwood and coated freesheet papers in basis weights ranging from 45 to 70 lbs. This complex was built in 1955- 1956 and rebuilt in 1985-1986.
The No. 6 machine (W-6) has an annual design capacity of 145,000 tons. The W-6 machine produces coated groundwood papers for use in the web offset and rotogravure printing markets in basis weights ranging from 32 to 50 lbs. This complex was newly constructed in 1980 and 1981.
The No. 7 machine (W-7) has an annual design capacity of 254,000 tons. The W-7 machine produces coated freesheet papers in the No. 1 to No. 3 range for both web and sheetfed offset printing in basis weights ranging from 45 to 183 lbs. This complex was constructed in 1987-1988 and commenced operation in late 1988. The W-7 machine is one of the North American coated paper industry's largest and fastest medium to heavy weight coated freesheet paper machines. The broad range of basis weights that the W-7 machine is able to manufacture makes it one of the most technologically advanced coated freesheet paper machines in North America.
The Company's hardwood groundwood pulp mill, which is comprised of eight grinders connected in pairs, uses peroxide in the bleaching of pulp. The grinders produce approximately 45,000 metric tons of pulp annually. Pulp from the grinders can be pumped directly to the Company's paper machine facilities. Six grinders were installed in 1927, and two were added in 1941. Since 1978, the Company has from time to time upgraded and made modifications to its pulp mill.
The Company's recycling facility, located on 13 acres, uses office and other waste paper to make recycled fiber. The facility is currently producing 80 tons per day and is expected to provide a significant portion of the Company's longer term recycled fiber requirements.
The Company maintains on-site warehousing for approximately 9,000 tons of pulp, 9,000 tons of work-in-process coated paper rolls, 4,000 tons of finished sheets and 4,000 tons of finished rolls. Warehouses are also leased locally by the Company as required to meet its additional storage needs.
ITEM 3
ITEM 3 LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during 1996.
PART II
ITEM 5
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no public market for the stock of the Company. The number of holders of record of the Company's common stock as of December 31, 1996 was 1.
ITEM 7
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Results of Operations - 1996 Compared to 1995
Net Sales
Net sales decreased 21% in 1996 to $404.7 million from $509.5 million in 1995. The decrease was due to lower prices for the Company's coated paper as well as lower sales volumes.
Lower pricing resulted in decreased net sales revenue of $72.0 million. On a per ton basis, average net sales decreased $163 per ton or 15%, from $1,077 per ton in 1995 to $914 per ton in 1996. Net sales per ton decreased steadily throughout 1996 but the majority (94%) of the decline occurred in the first three quarters of the year . Pricing stabilized in the fourth quarter in the wake of improved sales volumes, decreased inventory levels and increased order backlogs.
Lower sales volume resulted in decreased net sales revenue of $32.8 million. Shipments decreased 30,438 tons or 6%, from 472,946 tons in 1995 to 442,508 tons in 1996. However, after a difficult first quarter, sales volumes improved steadily throughout the remainder of 1996. Shipments increased 55,852 tons or 29%, from 193,328 tons in the first half of 1996 to 249,180 tons in the second half of 1996. The last four months of 1996 accounted for 40% of total shipments for 1996.
Cost of Sales, other than Depreciation and Amortization
Cost of sales, other than depreciation and amortization, amounted to $333.2 million for 1996, a $54.5 million decrease over 1995. The decrease in cost of sales resulted from a decrease in production costs, amounting to $29.6 million, combined with reduced sales volume, amounting to $24.9 million. On a per ton basis, cost of sales decreased $67 per ton to $753 per ton for 1996 compared to $820 per ton in 1995. As a percentage of net sales, cost of sales increased from 76% in 1995 to 82% in 1996, reflecting the fact that decreases in sell price outpaced decreases in costs. One factor negatively impacting costs was 36 days of market and maintenance related downtime taken by the Company in 1996. It is estimated that this downtime negatively impacted costs by approximately $15 per ton. The decrease in production cost noted above was due mainly to decreased fiber cost combined with rigorous cost control. Fiber accounted for approximately 40% of the Company's total 1996 production cost. After reaching record highs in the later part of 1995, fiber prices plummeted during the early part of 1996. The market price for northern softwood kraft reached a high of $985 per air dry metric ton (ADMT) in October of 1995, after which the price dropped to $520/ADMT by April 1996 before
rebounding somewhat to $580/ADMT by December 1996. A similar story for northern hardwood kraft pulp which hit a record price of $860/ADMT in 1995 before dropping to $400/ADMT by April 1996 and then rebounded to $505/ADMT by December 1996. Due to high inventories of pulp, built up during the second half of 1995 in anticipation of higher pulp prices, the Company was unable to take full advantage of lower market pulp prices until the third quarter of 1996.
Depreciation and Amortization
The Company uses a unit of production method for most of its machinery and equipment. As a result, depreciation and amortization fluctuate with the level of production. Depreciation and amortization totaled $22.6 million in 1996 as compared to $21.6 million in 1995. See Note 1 of Notes to Consolidated Financial Statements.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $3.1 million to $22.2 million in 1996 from $25.3 million in 1995. The decrease was primarily caused by decreased selling commissions due to lower net sales in 1996.
Interest Expense and Amortization of Financing Fees
Interest expense and amortization of financing fees of $40.7 million in 1996 remained comparable to the $41.1 million reported in 1995. See Liquidity and Capital Resources and Note 4 of Notes to Consolidated Financial Statements.
Other Income
Other income was $5.2 million in 1996 compared with $1.2 million in 1995. The increase in 1996 relates primarily to interest income on forward purchases contracts of pulp to be received in the form of additional pulp on the forward purchases contracts.
Income Taxes
The Company recorded an income tax benefit of $2.3 million in 1996, partially offset by a $0.7 million change in the valuation allowance relating to prior year's net operating losses. The Company has not assumed any future income in determining the necessary valuation allowances for the various carryforwards. See Note 10 of Notes to Consolidated Financial Statements.
Results of Operations - 1995 Compared to 1994
Net Sales
Net sales increased 22% in 1995 to $509.5 million from $418.2 million in 1994. The increase was due mainly to higher prices for the Company's coated paper products. Higher pricing resulted in increased net sales revenue of $124.6 million. On a per ton basis, net sales increased $263 per ton or 32%, from $814 per ton in 1994 to $1,077 per ton in 1995. Due to a continuing strong demand for coated paper caused by an advancing economy and limited additional capacity, coated paper pricing continued the upward trend started in July of 1994. In addition, general price discounts on freesheet web and groundwood grades were virtually eliminated in 1995.
Partially offsetting the increase in net sales caused by higher net sell prices was a reduced sales volume. Shipments decreased 40,894 tons or 8%, from 513,840 tons in 1994 to 472,946 tons in 1995. This reduced sales volume resulted in decreased net sales revenue of $33.3 million. Shipments in 1994 were bolstered by a 30,000 ton inventory reduction which reduced inventories to normal operating levels by the end of 1994. Inventories were maintained at normal operating levels throughout most of 1995.
Cost of Sales, other than Depreciation and Amortization
Cost of sales, other than depreciation and amortization, amounted to $387.7 million for 1995, a $53.2 million increase over 1994. The increase in cost of sales, other than depreciation and amortization, resulted from an increase in production costs which amounted to $79.8 million, partially offset by reduced sales volume which lowered total cost of sales by $26.6 million. The increase in production cost was due mainly to an increase in fiber cost (fiber accounted for 40-50% of the Company's total 1995 production cost). On a per ton basis, cost of sales, other than depreciation and amortization, increased $169 per ton to $820 per ton for 1995 compared to $651 per ton in 1994. As a percentage of net sales, cost of sales, other than depreciation and amortization, decreased from 80% in 1994 to 76% in 1995, reflecting the fact that sell price increases outpaced increases in costs.
Continued strong demand and the lack of additional supply drove fiber prices to record highs in 1995. Market prices for northern softwood kraft pulp increased from $700/ADMT in December 1994 to $985/ADMT in October 1995 (41% increase) before declining to $935/ADMT in December 1995. A similar story for northern hardwood kraft pulp which increased from $640/ADMT in December 1994 to $860/ADMT in June 1995 (34% increase) before declining to $840/ADMT in November and declining further to $820/ADMT in December 1995. Recycled fiber prices peaked in May, 32% higher than December 1994, and then steadily declined through December 1995, finishing the year 15% higher than year-end 1994. Broke prices also peaked in May, 34% higher than December 1994, and then steadily dropped through December 1995, finishing the year 15% lower than year-end 1994.
Depreciation and Amortization
The Company uses a unit of production method for most of its machinery and equipment. As a result, depreciation and amortization fluctuate with the level of production. As a result, depreciation and amortization fluctuate with the level of production. Depreciation and amortization totaled $21.6 million in 1995 as compared to $22.8 million in 1994. See Note 1 of Notes to Consolidated Financial Statements.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.8 million to $25.3 million in 1995 from $21.5 million in 1994. The increase was primarily caused by increased selling commissions due to higher net sales and, to a lessor extent, compensation adjustments due to the increased profitability in 1995.
Interest Expense and Amortization of Financing Fees
Interest expense and amortization of financing fees of $41.1 million in 1995 remained comparable to the $41.6 million reported in 1994. See Liquidity and Capital Resources and Note 4 of Notes to Consolidated Financial Statements.
Other Income
Other income was $1.2 million in 1995 compared with $0.4 million in 1994. The increase in 1995 relates primarily to interest received on a forward purchase contract of pulp.
Income Taxes
The Company recorded an income tax provision of $7.9 million in 1995, including an income tax benefit of $4.5 million due to the effect of the change in the valuation allowance from recognition of prior years' net operating losses. The Company has not assumed any future income in determining the necessary valuation allowances for the various carryforwards. See Note 10 of Notes to Consolidated Financial Statements.
Extraordinary Items
In 1995, the Company repurchased $8.0 million of the Second Priority Notes for $7.4 million. The purchase resulted in an extraordinary gain of $0.4 million, net of income taxes of $0.2 million. The extraordinary gain of $1.1 million in 1994 related to the Company's repurchase of $15.0 million of the Second Priority Notes for $13.2 million, net of income taxes of $0.7 million.
Liquidity and Capital Resources
The Company's primary sources of liquidity are net cash provided by operating activities and the funds available under its revolving credit facility. During 1996, capital additions of $15.7 million were funded principally by cash provided by operating activities of $15.4 million and net borrowings under the revolving credit facility of $0.3 million. In comparison, 1995 capital additions of $12.8 million, debt repayments of $7.5 million and dividend payments on the Class I and Class II Preferred Stock of $0.5 million and $1.1 million, respectively, were funded principally by net borrowings under the revolving credit facility of $20.5 milllion and cash provided by operating activities of $1.4 million.
On February 8, 1994, the Company completed a public note offering of $250 million, 9 % First Priority Senior Secured Notes (First Priority Notes) and $150 million 9 7/8% Second Priority Secured Notes (Second Priority Notes). The First Priority Notes mature on February 1, 2002, and the Second Priority Notes mature on May 1, 2006. The Company used the proceeds from the offering of $388 million (net of offering costs of $12.0 million) to repay the First Mortgage Bonds (including premium, fees and accrued interest), to purchase 75,000 shares of the Class I Preferred Stock (including accrued dividends), to repay the noncurrent liabilities to affiliates, to make a cash distribution to Repap USA Inc. (Repap USA) and to reduce the amount outstanding under the revolving credit facility. The refinancing resulted in a simplified capital structure, extended debt maturities, and provided the Company with improved liquidity to meet its ongoing funding requirements, which principally consist of amounts required for working capital and capital expenditures.
Net cash provided by operating activities was $15.4 million in 1996, $1.4 million in 1995 and $48.7 million in 1994. Cash provided by operating activities before changes in operating assets and liabilities was $11.2 million, $61.6 million and $26.5 million in 1996, 1995 and 1994, respectively. The $50.4 million decrease in 1996 was due primarily to lower operating profits, reflecting decreased coated paper prices and six percent lower shipments. The $35.1 million increase in 1995 was due primarily to improved operating profits as a result of higher coated paper prices, partially offset by an eight percent decrease in shipments.
In 1996, working capital decreased by $34.5 million, from $87.5 million at December 31, 1995 to $53.0 million at December 31, 1996. The decrease was primarily the result of a $35.2 million reclassification from other current assets to other noncurrent assets in which forward purchase contracts for the future delivery of pulp, originally scheduled to be delivered in 1996, were re-negotiated with delivery to be completed through 1998. See Note 2 of Notes to Consolidated Financial Statements. The decrease in inventories of $7.0 million primarily reflects a decrease in finished goods as a result of paper machine related downtime and a 27 percent increase in fourth quarter shipments to customers, compared with the fourth quarter of 1995. The changes in the other working capital items principally reflect the timing of payments.
At December 31, 1995 working capital amounted to $87.5 million, up $63.6 million over the same period of 1994. This increase was primarily a result of an increase in inventories of $39.4 million together with an increase in forward purchase contracts of pulp of $24.5 million, partially offset by a decrease in accounts receivable of $5.9 million. The increase in inventories primarily reflects a build in fiber inventory, assuring the Company of an adequate supply, and an increase in freesheet paper inventory. The increase in freesheet paper inventory and the decrease in accounts receivable was primarily due to reduced sales in the fourth quarter of 1995, compared with the fourth quarter of 1994. At December 31, 1995, the balance outstanding under the forward purchase pulp contracts was $36.0 million.
In 1994 and 1995, the Company repurchased $15.0 million and $8.0 million of the Second Priority Notes for $13.2 million and $7.4 million, respectively. The purchases resulted in extraordinary gains of $1.1 million in 1994 and $0.4 million in 1995, net of income taxes of $0.7 million and $0.2 million, respectively.
In March 1996, the revolving credit facility lenders of the Company agreed to increase the maximum available credit under this facility by $10 million to $70 million, and to extend its maturity to March 1998. Accordingly, borrowings under the revolving credit facility have been classified as long-term debt. The Company will pay interest under this facility at prime plus .75% or LIBOR plus 2% and will be charged a commitment fee of .375% per year on the unused portion. Under the expiring facility, the Company was paying interest at the rate of prime plus 2%. At December 31, 1996 the Company had $32.4 million in available capacity under the existing revolving credit facility.
At the end of 1996, authorized but uncompleted capital commitments totaled $1.4 million. For 1997, a capital budget has been approved for new projects in the amount of $7.7 million. This will result in planned capital spending of $9.1 million in 1997 and compares with expenditures of $15.7 million in 1996. The 1997 budget includes expenditures primarily related to improvements to the Company's papermaking and converting equipment. Additionally, the Company from time to time enters into operating lease agreements for various papermaking and other equipment necessary for mill operations. The Company does not anticipate entering into any new material operating lease agreements in 1997, compared with $0.9 million entered into in 1996. See Note 4 of Notes to Consolidated Financial Statements for disclosure of future minimum lease payments.
Current financial resources and anticipated funds from operations are expected to be adequate to meet cash requirements in the year ahead. The Company's principal use of funds for the next several years will be for the repayment of indebtedness under the revolving credit facility, capital expenditures, the payment of dividends to the extent they become allowable under the Indentures to the Company's Notes, support of the Company's working capital requirements and to repurchase in the open market, from time to time when market conditions are favorable, the Company's First and Second Priority Notes.
The First and Second Priority Notes and the revolving credit facility impose certain limitations on the Company's ability to incur additional indebtedness and make restricted payments. Refer to Note 4 of Notes to Consolidated Financial Statements for a description of other covenants under the terms of the Company's debt agreements.
Refer to Note 10 of Notes to Consolidated Financial Statements for a description of certain matters related to income taxes.
ITEM 8
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules are listed in Part IV Item 14 of this Form 10-K.
ITEM 9
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
The business experience of each of the Directors and executive officers of the Company during at least the past five years is as follows:
Mr. Petty has served as Chairman and Director since May 1976. Mr. Petty also serves as Director and Chairman and Chief Executive Officer of Repap Enterprises and is a Director and Chief Executive Officer of Repap British Columbia, positions he has held since September 1986. In addition, he has served as Chief Executive Officer and Director of Repap New Brunswick since October 1974.
Mr. Sumner has served as Executive Vice President and Director since September 1982. Mr. Sumner also serves as Director and Executive Vice-President, Finance of Repap Enterprises and Repap British Columbia, positions he has held since September 1986. Furthermore, he has served at Repap New Brunswick as Executive Vice-President, Finance since February 1982 and as Director since April 1986.
Mr. Fenton has served as Senior Vice-President, Coated Paper Operations, since October 1992. Prior to that date, Mr. Fenton served as Vice-President and General Manager of the Company, positions he held since November 1987. Mr. Fenton also serves as Senior Vice-President, Coated Paper Operations, of Repap Enterprises and Repap New Brunswick, positions he has held since October 1992.
Mr. McBride has served as Secretary since February 1989. Mr. McBride also serves as Vice-President, General Counsel and Secretary of Repap Enterprises, positions he has held since February 1989.
Mr. Morgan has served as Senior Vice-President and Controller, Coated Paper Operations, at the Company and Repap New Brunswick, since October 1993. Mr. Morgan joined the Company as Vice-President and Controller in July 1989.
Mr. Nash has served as Vice-President and General Manager since December 1993 and as Vice-President and Mill Manager since October 1992. Mr. Nash joined the Company as manager of the W-7 machine facilities in June 1988 and was appointed Mill Manager in 1989.
Mr. Unkefer has served as Vice-President and Controller since November 1993. Prior to that date, Mr. Unkefer served as Assistant Controller since April 1990.
The Directors and Officers are elected annually to serve until the next annual meeting of stockholders and until their successors have been elected and duly qualified.
There are presently no arrangements pursuant to which Directors of the Company are compensated for their services as Directors of the Company. See Item 11; "Executive Compensation."
Conflicts of Interest of Directors and Executive Officers of the Company
All of the directors and executive officers of the Company, other than Mr. Nash and Mr. Unkefer, also serve as directors or executive officers of Repap Enterprises and/or other affiliates of the Company. See "Relationship with the Repap Enterprises Group."
ITEM 11
ITEM 11 EXECUTIVE COMPENSATION
Pursuant to a management agreement, the Company is charged a monthly fee of $0.4 million for management services provided by Repap Enterprises. See "Relationship with the Repap Enterprises Group." None of the Company's officers, other than Mr. Fenton, Mr. Morgan, Mr. Nash and Mr. Unkefer, is compensated by the Company. Mr. Petty and three of the four most highly compensated officers of the Company for the year ended December 31, 1996 (the "named executive officers") are officers of Repap Enterprises, from which they receive compensation, and are also officers of other subsidiaries of Repap Enterprises. Executive officer compensation is determined by the Board of Directors of Repap Enterprises, including certain of the named executive officers. Repap Enterprises does not allocate the amount of compensation that each such named executive officer receives for such officer's services to the Company. Under the Company's employee-wide profit-sharing plan, only Mr. Fenton, Mr. Morgan, Mr. Nash and Mr. Unkefer received compensation in fiscal 1996.
The following table sets forth certain information with respect to the annual compensation of the Company's Chairman and each of the Company's four other most highly compensated executive officers for fiscal 1996.
The following table sets forth individual grants of stock options during the fiscal year ended December 31, 1996. Mr. Petty and Mr. Fenton were the only officers to receive such options in 1996.
The following table sets forth details of all exercises of stock options by each of the named executive officers of the Corporation during the fiscal year ended December 31, 1996 and the fiscal year end value of unexercised options on an aggregated basis.
Long-Term Incentive Plan - Effective for the year ending December 31, 1995, a long-term incentive paln, based on return on common shareholder equity, has been established to reward executive team efforts that benefit the Corporation's shareholders. The long-term incentive plan has both a cash and a stock option component.
The first component establishes bonuses for participating executives based upon salary levels, responsibility and return on equity ("ROE"). The Corporation must achieve a level of 8% ROE before any bonuses under the long-term incentive plan can be earned. At 8% ROE, bonuses range from 2% of base salary (at the lowest eligible executive position) up to 6% of salary. For each one percentage increase of ROE up to and including 22% ROE, the bonuses increase form 2% to 6% of salary. Thereafter for each percentage increase of ROE, bonuses only increase by 1.25% to 3.75% of salary. For 1995 only, the ROE bonuses have been capped at 30% ROE.
The second component provides the executive with the opportunity to participate in the equity of the Corporation. Executives are awarded options under the Corporation's 1987 Stock Option Plan to acquire Common Shares having a value equal to 150% of the long-term incentive cash bonus. Outstanding options previously granted to executives are not taken into account in determining the number of new options to be granted. Executives over 55 are entitled to receive all of the option portion of their long-term incentive plan benefit in stock options under the Corporation's 1991 Stock Option Plan. Options under the 1987 Stock Option Plan vest over a period of five years and are exercisable over ten years. Options under the 1991 Stock Option Plan vest immediately and are exercisable over five years. The exercise price payable for each Common Share covered by an option will be 100% of the market price of a Common Share on the last trading day prior to the effective date of the grant of each option.
Pension Benefits
Prior to 1996, Repap Enterprises did not have a pension plan for its head office executives and employees except for Mr. R.H. Sumner. Effective with the year 1996, a pension plan has been established pursuant to which head office employees at Repap Enterprises, including executives, will be entitled at time of retirement (age 65), based on years of service (with past service recognized) to receive a pension of up to 60% of their average best three years base salary, excluding bonuses. The pension will be partially funded up to the maximum tax deductible limit allowable by Revenue Canada. Any excess will be provided by an unfunded supplementary plan. The estimated credited years for each of the four named executive officers are: George S. Petty, 16 years - Terry W. McBride, 8 years - Gary B. Fenton, 16 years - Ronald H. Sumner, 16 years.
Other
In February 1991, Ronald H. Sumner received a personal demand loan from Repap Enterprises bearing interest at the rate of 8.5% per annum. In April 1994, Mr. Sumner received an additional loan of $140,000 which was repaid in December 1994. During 1996, the largest aggregate amount of debt outstanding was $697,107 including interest. For 1996 the interest charged was established at the rate of 5% per annum. As at December 31, 1996 the amount outstanding, including interest, was $657,933.
Employment, Change-In-Control and Service Agreements
Repap Enterprises has entered into change-in-control agreements dated as of June 17, 1996 with George S. Petty, Chairman and Chief Executive Officer, Ronald H. Sumner, Executive Vice-President, Finance, Gary B. Fenton, Senior Vice-President, Coated Paper Operations and Terry W. McBride, Secretary. These agreements replace similar agreements entered into in 1992. These agreements provide that in the event of an involuntary termination of employment within two years following a change in control of Repap Enterprises, the executives will be entitled to receive 30 days written notice (other than George S. Petty) and compensation (the "Termination Payment") equal to 3 times the annual salary of the executive. Mr. Petty will also be entitled to the Termination Payment if he voluntarily terminates his employment with Repap Enterprises at any time within 30 days following a period of six months after the change in control of Repap Enterprises. For the purpose of determining such payments, it shall be the highest of his annual salary in the three years preceding the date of the change in control of Repap Enterprises.
The agreements also provide that the executive will be entitled to terminate his employment within a two-year period and receive the Termination Payment in the event of either a reduction in authority or duties, a change of the city of employment or a reduction in compensation of benefits. Each of the named executives is entitled upon termination to benefits continuation together with credit for service under Repap Enterprises pension plans for additional numbers of years ranging up to five years depending on the executive officer. All Repap Enterprises Stock Options held by such executives have become immediately vested and exercisable.
Repap Enterprises has also entered into agreements with certain other executives and key employees. These agreements provide that in the event of an involuntary termination or employment within two years following a change in control of Repap Enterprises, the employees will be entitled to receive 30 days' written notice and Termination Payments equal to, depending on the employee, the product of a number of years varying between one and three and the employee's highest salary in the one to three years preceding the change of control of Repap Enterprises. Each person is entitled upon such termination to benefits continuation. All Repap Enterprises Stock Options held by each such employee have become immediately vested and exercisable on September 25, 1996.
ITEM 12
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial ownership of the Company's voting securities.
ITEM 13
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH THE REPAP ENTERPRISES GROUP
The Company is an indirect wholly-owned subsidiary of Repap Enterprises Inc., an integrated North American forest products company and one of North America's largest manufacturers of coated paper based on design capacity in place at December 31, 1996.
The following chart shows Repap Enterprises' principal subsidiaries, all of the common stock of which is directly or indirectly wholly-owned by Repap Enterprises as of December 31, 1996.
As described below, the Company has historically engaged in transactions with certain of its affiliates in the ordinary course of its operations. The Company has marketed all of its coated paper products through Repap Sales (which also markets paper products for Repap New Brunswick) and, in connection with its marketing efforts, Repap Sales has warehoused certain of these products. A significant amount of the Company's pulp requirements have been supplied by Repap Enterprises, Repap British Columbia and Repap New Brunswick. In addition, much of the Company's research and development activities have been conducted through Repap Technologies, which also has assisted in service calls to customers.
Pulp and Paper Purchases
The Company purchases pulp at market prices (less volume discounts) directly from Repap Enterprises, Repap British Columbia and Repap New Brunswick, as well as from various non-affiliates. These purchases have varied from month to month, depending on the Company's raw material inventories and production requirements. During 1996, the Company's pulp purchases from Repap Enterprises, Repap British Columbia and Repap New Brunswick, including deliveries under forward purchase contracts, were $6.8 million, $25.7 million and $18.4 million, respectively. In addition, the Company purchased $0.2 million of coated paper from Repap New Brunswick to facilitate roll rewinding and returns of coated paper from customers.
In 1995, the Company entered into forward purchase contracts with Repap British Columbia and Repap Enterprises for the future delivery of pulp. At December 31,1996 the balances remaining under these contracts with Repap British Columbia and Repap Enterprises were $24.7 million and $10.5 million, respectively. At December 31, 1996, the forward purchase contracts were re-negotiated and the remaining balances are scheduled to be delivered through 1998. See Note 2 of Notes to Consolidated Financial Statements.
Repap Sales
Repap Sales is the principal sales agent for the Company for which it receives a commission of 2 1/2% of the sales price of coated paper sold by Repap Sales. These commissions cover expenses relating to the general marketing, sale and distribution of coated paper products and were $10.1 million in 1996. In addition, during 1996 the Company reimbursed Repap Sales for specific marketing related costs in the amount of $2.4 million.
The Company made coated paper sales to Repap Sales in the amount of $23.2 million in 1996 for the purpose of serving several customers through strategically located distribution centers. In addition, during the year the Company charged $1.3 million to Repap Sales for costs incurred with data processing and accounting assistance.
Repap Technologies
Repap Technologies allocates to the Company research and development expenses incurred in connection with the development and testing of new products, raw materials and production processes on the Company's behalf. Repap Technologies also assists in service calls to the Company's customers. For these services, the Company was charged $1.1 million in 1996.
Repap Enterprises
Repap Enterprises' provides services to the Company, including but not limited to, advice and assistance concerning the strategy, planning, operations and financing of the Company. For these services, the Company was charged $5.0 million in 1996. In addition, Repap Wisconsin was allocated a portion of the actual cost of the Repap Enterprises' corporate aircraft, which totaled $0.5 million in 1996.
Repap USA
Repap USA, a holding company, was advanced $4.5 million by the Company in 1993 bearing market rate interest and payable on demand. The interest charged to Repap USA on this advance in 1996 totaled $0.4 million.
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements of Repap Wisconsin Inc.
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Common and Other Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts S-1
The following schedules are omitted as not applicable or not required under rules of Regulation S-X: I, III, IV, and V
3. Exhibits
The exhibits to this report are listed in the exhibit index elsewhere herein.
(b) Reports on Form 8-K
No reports on Form 8-K were file by the Company during the last quarter of 1996.
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors Repap Wisconsin, Inc.
We have audited the accompanying consolidated balance sheets of Repap Wisconsin, Inc. (the Company) as of December, 31 1995 and 1996, and the related consolidated statements of operations, common and other shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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 are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1995 and 1996 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Milwaukee, Wisconsin ERNST & YOUNG LLP January 14, 1997, except for Note 13, as to which the date is March 26, 1997
REPAP WISCONSIN INC. CONSOLIDATED BALANCE SHEETS
December 31 1995 1996 (In Thousands, Except Number of Shares)
Assets (Note 4) Current assets: Cash $ 11 $ 42 Accounts receivable, less allowances of $1,668 and $1,706, respectively (Note 9) 35,571 32,102 Accounts receivable from affiliates (Note 56 9,449 7) Advances to affiliates (Notes 7 and 12) 4,500 4,500 Inventories (Note 2) 84,589 77,545 Other current assets (Note 2) 36,684 1,155 Total current assets 161,411 124,793
Net property, plant and equipment (Note 3) 474,378 468,518 Deferred charges and other assets (Note 2) 19,723 53,266 $655,512 $646,577
Liabilities and shareholders_ equity Current liabilities: Current maturities of long-term debt $ 26 $ _ (Notes 4 and 12) Accounts payable 37,850 37,271 Accrued liabilities (Note 2) 24,459 21,417 Accounts payable to affiliates (Note 7) 11,547 13,065 Total current liabilities 73,882 71,753
Long-term debt (Notes 4 and 12) 413,189 414,609 Deferred income taxes (Note 10) 24,301 21,889 Accrued postretirement benefit liability 11,757 12,509 (Note 8) Commitments and contingency (Notes 4 and 11) Class I Preferred Stock (Notes 5 and 12) 5,828 6,405
Common and other shareholders' equity (Notes 4 and 6): Class II Preferred Stock, no par value, 200 shares authorized; 103.65 shares issued and outstanding ($11,766 10,365 10,365 redemption value)
Class III Preferred Stock, no par value, 800 shares authorized; 539.94 shares issued and outstanding ($53,994 53,994 53,994 redemption value) Class IV Preferred Stock, no par value, 700 shares authorized; 483.25 shares issued and outstanding ($48,325 48,325 48,325 redemption value) Common Stock, no par value, 300 shares authorized; 105 shares issued and 33,126 33,126 outstanding Accumulated deficit (19,255) (26,398) Total common and other shareholders' 126,555 119,412 equity $655,512 $646,577
REPAP WISCONSIN INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31 1994 1995 1996
(In Thousands)
Net sales (Notes 7 and 9) $418,163 $509,475 $404,657
Cost of sales excluding depreciation and amortization 334,473 387,655 333,163 (Notes 7 and 8) Depreciation and amortization 22,778 21,645 22,582 Selling, general and administrative expenses (Note 21,453 25,319 22,211 7) Operating profit 39,459 74,856 26,701
Interest expense 40,052 39,449 39,035 Amortization of deferred 1,515 1,686 1,692 financing costs Other income (Note 2) (371) (1,155) (5,197) Income (loss) before income taxes and extraordinary items (1,737) 34,876 (8,829)
Income tax provision (benefit) (1,291) 7,937 (2,263) (Note 10) Income (loss) before (446) 26,939 (6,566) extraordinary items Extraordinary items, net of tax 1,062 363 _ (Note 4) Net income (loss) $ 616 $27,302 $ (6,566)
REPAP WISCONSIN INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 1994 1995 1996 (In Thousands) Operating activities Net income (loss) $ 616 $ 27,302 $(6,566)
Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 24,293 23,331 24,274 Non-cash portion of postretirement 3,981 4,200 752 benefit expense Deferred income taxes (596) 7,314 (2,412) Extraordinary items, gross (1,770) (575) _ Interest received in form of forward _ _ (4,886) purchase contract Changes in operating assets and liabilities: Accounts receivable (2,392) 5,853 (5,924) Inventories 8,289 (39,403) 7,044 Inventory deposits (11,500) (24,500) 5,669 Other current assets 311 (466) (471) Accounts payable and accrued 27,462 (1,634) (2,103) liabilities Net cash provided by operating 48,694 1,422 15,377 activities
Investing activities Additions to property, plant and (15,355) (12,778) (15,718) equipment Other (981) (826) (1,022) Net cash used in investing activities (16,336) (13,604) (16,740)
Financing activities Net borrowings (repayments) under revolving credit facilities (29,944) 21,289 1,420 Repayment of noncurrent liabilities (41,130) - _ to affiliates Issuance of long-term debt 400,000 - _ Payments of long-term debt (221,169) (7,527) (26)
Deferred financing costs (13,194) - _ Dividends paid on Class I Preferred (24,230) (506) _ Stock Redemption of Class I Preferred Stock (79,242) - _ Dividends paid on Class II Preferred (4,794) (1,088) _ Stock Distribution to common stockholder (18,992) - _ Net cash provided by (used in) (32,695) 12,168 1,394 financing activities
Net increase (decrease) in cash (337) (14) 31 Cash at beginning of year 362 25 11 Cash at end of year $ 25 $ 11 $ 42
REPAP WISCONSIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, Except Share and Per Share Amounts)
December 31, 1996
1. Significant Accounting Policies
Description of Business
Repap Wisconsin, Inc. (the Company) is a producer of high quality grades of recycled coated paper and a complete range of coated paper products. The Company_s products are used for magazines, catalogs, brochures, advertising inserts and annual reports. The Company competes with other U.S., Canadian and European producers in all of its product lines. The Company sells its products through Repap Sales Corporation (Repap Sales), an affiliate, on a commission basis, as agent, to end users, third-party merchants and brokerage distributors. Almost all of the Company's products are sold to customers in North America. The Company's annual requirements of softwood and hardwood kraft pulp are supplied by three affiliates, Repap British Columbia, Inc. (Repap British Columbia), Repap New Brunswick, Inc. (Repap New Brunswick) and Repap Enterprises, Inc. (Repap Enterprises) and by other suppliers that are not affiliated with the Company. In the event that any of its suppliers is unable to meet the Company's demands, the Company believes that adequate alternative suppliers or substitute materials are available.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company is a wholly owned subsidiary of Repap U.S.A. Inc. (Repap USA), which is a subsidiary of Repap Enterprises. Repap New Brunswick and Repap British Columbia are also subsidiaries of Repap Enterprises.
During 1994, the Company reincorporated from Delaware to Wisconsin and reduced the number of authorized and issued shares for each class of common and preferred stock. The reincorporation was effected through exchanges of shares at the following exchange rates: Common Stock, 10,000 shares for 1 share; Class I Cumulative Redeemable Preferred Stock (Class I Preferred Stock), 10 shares for 1 share; Class II Cumulative Redeemable Preferred Stock (Class II Preferred Stock), 1,000 shares for 1 share; Class III Noncumulative Redeemable Preferred Stock (Class III Preferred Stock), 1,000 shares for 1 share; and Class IV Noncumulative Redeemable Preferred Stock (Class IV Preferred Stock), 1,000 shares for 1 share. All share and per share amounts have been restated to reflect the exchanges.
1. Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and notes. Actual results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market with cost determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, including interest and start-up costs related to major assets during construction. Interest and start-up costs are capitalized until the asset is ready for its intended use. Property, plant and equipment are depreciated using straight-line and unit-of-production methods for financial reporting purposes over their estimated useful lives as follows:
Years
Plant and buildings 12 - 42 Machinery and equipment 10 - 36
Accelerated methods and prescribed lives are used for reporting depreciation for income tax purposes.
Deferred Charges
Costs incurred in connection with the procurement of financing are deferred and amortized using the straight-line method over the term of the related financing.
1. Significant Accounting Policies (continued)
Income Taxes
The Company's results of operations are included in the consolidated federal income tax return of Repap USA. For financial reporting purposes, the Company has provided for federal income taxes as if it filed a separate income tax return.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes.
Supplemental Cash Flows Information
Interest payments were $33,286, $39,676 and $40,007 in 1994, 1995 and 1996, respectively. Income tax payments were $835 and $149 in 1995 and 1996, respectively. There were no income tax payments in 1994.
2. Additional Balance Sheet Information December 31
1995 1996 Inventories: Finished goods $38,954 $34,826 Work in process 8,138 5,416 Raw materials and supplies 37,497 37,303 $84,589 $77,545 Accrued liabilities: Payroll and payroll related costs $ 8,868 $ 5,372 Interest 12,112 11,868 Other 3,479 4,177 $24,459 $21,417
2. Additional Balance Sheet Information (continued)
During 1994 and 1995, the Company entered into forward purchase contracts with Repap British Columbia and Repap Enterprises for the future delivery of pulp, a raw material. Activity with regard to the contracts during 1994, 1995 and 1996 and the remaining balances at December 31 are as follows:
Balance, January 1, 1994 $ -
Deposits 20,104 Deliveries 8,604 Balance, December 31, 1994 11,500 Deposits 36,000 Deliveries 11,500 Balance, December 31, 1995 36,000 Interest income received in form of 4,886 additional deposits Deliveries 5,669 Balance, December 31, 1996 $35,217
The forward purchase contracts will be settled at the market price at the time of delivery (less volume discounts and interest based on the delivery dates). At December 31, 1995, the balances under the contracts were scheduled to be delivered during 1996 and were included in other current assets in the accompanying consolidated balance sheet. Because the forward purchase contracts were not settled in 1996, the contracts specify that the Company receives interest income in the form of additional future deliveries. At December 31, 1996, the forward purchase contracts were renegotiated and the remaining balances are scheduled to be delivered through 1998. The Company does not anticipate any deliveries of pulp under the contracts in 1997 and, accordingly, the balance is included in other noncurrent assets in the accompanying consolidated balance sheet at December 31, 1996. See Notes_7 and 13 for additional information regarding pulp purchases from Repap British Columbia, Repap New Brunswick and Repap Enterprises and realization of the forward purchase contracts.
3. Property, Plant and Equipment
Property, plant and equipment at December 31 consist of the following:
1995 1996
Land, Plant, and Buildings $ 27,445 $ 21,274 Machinery and equipment 619,420 630,270 646,865 651,544 Less accumulated depreciation 176,426 196,804 470,439 454,740 Construction in progress 3,939 13,778 $474,378 $468,518
4. Long-Term Debt and Lease Commitments
Long-term debt at December 31 consists of the following: 1995 1996
9 1/4% First Priority Senior Secured $250,000 $250,000 Notes 9 7/8% Second Priority Senior Secured 127,000 127,000 Notes Revolving credit facility bearing interest at prime plus _% or LIBOR 36,189 37,609 plus 2% Other 26 _ 413,215 414,609 Less current maturities 26 _ $413,189 $414,609
The 9 1/2% First Priority Senior Secured Notes (First Priority Notes) mature on February 1, 2002, and the 9 7/8% Second Priority Senior Secured Notes (Second Priority Notes) mature on May 1, 2006.
In 1994 and 1995, the Company repurchased $15,000 and $8,000 of the Second Priority Notes for $13,230 and $7,425, respectively. The purchases resulted in extraordinary gains of $1,062, net of income taxes of $708, in 1994 and $363, net of income taxes of $212, in 1995.
The revolving credit facility provides up to $70,000 of availability, matures in March 1998 and requires a commitment fee of .375% per year on the unused portion. Accordingly, borrowings under the revolving credit facility have been classified as long-term debt in the accompanying consolidated balance sheets.
4. Long-Term Debt and Lease Commitments (continued)
Substantially all assets of the Company are pledged as security under the First and Second Priority Notes and the revolving credit facility. The indentures for the First and Second Priority Notes include certain covenants that limit additional debt; restrict certain payments, including stock redemptions, dividends and other distributions; and limit transactions with affiliates. At December 31, 1996, no amounts were available for restricted payments.
Future minimum payments under noncancelable operating leases total $27,449 and are due as follows: 1997-$5,380; 1998- $5,179; 1999-$4,882; 2000-$3,878; 2001-$3,819; thereafter- $4,311. Rent expense, including payments under operating leases, was $655, $1,692 and $4,308 in 1994, 1995 and 1996, respectively.
5. Class I Preferred Stock
The Company has authorized 7,000 shares of Class I Preferred Stock. The shares are entitled to receive cumulative annual dividends of $100 per share payable quarterly. In February 1994, the Company redeemed 75,000 shares of Class_I Preferred Stock for $75,000 and $23,266 of accrued dividends from the proceeds of the First and Second Priority Notes. Subsequently, the Company redeemed an additional 4,241.8 shares of Class I Preferred Stock for $4,242 and $195 of accrued dividends. Subject to the restrictions of certain debt covenants, the Company is required to redeem, at $1,000 per share plus accrued dividends, 50% of the outstanding shares of Class I Preferred Stock on July 15, 1997 and 100% of the then outstanding shares on July 15, 1998. At December 31, 1996, there are accrued dividends of $647. The aggregate changes in Class I Preferred Stock are as follows: Shares Amount
Balance, January 1, 1994 85,000.0 $107,429 Accrued dividends - 1,801 Redemption of preferred shares (79,241.8) (79,242) Dividends paid - (24,230) Balance, December 31, 1994 5,758.2 5,758 Accrued dividends - 576 Dividends paid - (506) Balance, December 31, 1995 5,758.2 5,828 Accrued dividends _ 577 Balance, December 31, 1996 5,758.2 $ 6,405
6. Shareholders' Equity
The Company has issued 103.65 shares of Class_II Preferred Stock to Repap USA with cumulative annual dividends of $10,000 per share payable annually, as and when declared by the Board of Directors, subject to restrictions of debt covenants. The Company may redeem these shares at $100,000 per share plus accrued dividends, subject to the restrictions of certain debt covenants and provided there are no shares of Class_I Preferred Stock outstanding. The Company paid cumulative dividends of $4,794 and $1,088 on the Class II Preferred Stock in 1994 and 1995, respectively. As of December 31, 1996, $1,401 of cumulative dividends are in arrears.
The 539.94 shares of Class_III Preferred Stock are entitled to noncumulative annual dividends of $10,000 per share, as and when declared by the Board of Directors, subject to restrictions of certain debt covenants. The Company may redeem the shares at $100,000 per share plus accrued dividends, subject to the restrictions of certain debt covenants and provided there are no shares of Class_I Preferred Stock or Class_II Preferred Stock outstanding.
The 483.25 shares of Class_IV Preferred Stock are entitled to noncumulative annual dividends of $10,000 per share, as and when declared by the Board of Directors, subject to restrictions of certain debt covenants. The Company may redeem the shares at $100,000 per share plus accrued dividends, subject to the restrictions of certain debt covenants and provided there are no shares of Class_I Preferred Stock or Class_II Preferred Stock outstanding.
7. Related-Party Transactions
The following summarizes related-party transactions, in addition to those summarized in previous notes: 1994 1995 1996
Sales to affiliates $15,758 $14,684 $23,249 Purchases of raw materials and paper from affiliates 32,206 50,728 51,060 Selling, general and administrative expenses 19,662 21,777 19,017 incurred with affiliates Interest expense on balances 87 - _ with Repap USA Interest income on advance to 365 365 366 Repap USA
The sales to affiliates principally consist of sales to Repap Sales (a subsidiary of Repap USA) in order for it to provide certain customers with just-in-time deliveries.
7. Related-Party Transactions (continued)
Purchases of raw materials principally consist of purchases of pulp from Repap British Columbia, Repap New Brunswick and Repap Enterprises. The deliveries under the forward purchase contracts discussed in Note 2 are included in these purchases. Purchases from affiliates also include small amounts of coated paper from Repap New Brunswick primarily to facilitate roll rewinding and returns of coated paper from customers.
The selling, general and administrative expenses incurred with affiliates include charges for services and allocated costs from Repap Enterprises, Repap USA and Repap Sales.
Repap Enterprises charges the Company a management fee for services including advice and assistance concerning the strategy, planning, operations and financing of the Company. The management fees were $5,000 in each of the years 1994, 1995 and 1996.
Repap Enterprises also incurs various costs and expenses, such as research and development expenses and aircraft expenses, which it allocates to its subsidiaries, including the Company, based on management's assessment of the relative benefits received by the respective subsidiaries for which the expenses were incurred. Management believes that this method of allocation is reasonable. Total allocated costs charged to the Company by Repap Enterprises were $1,689, $1,780 and $1,626 in 1994, 1995 and 1996, respectively.
The Company allocates to Repap Sales its portion of the actual costs the Company incurs for data processing and accounting assistance. The amounts allocated to Repap Sales were $1,268, $1,324 and $1,302 in 1994, 1995 and 1996, respectively.
Repap Sales, as the principal sales agent for the Company, receives a commission of 21/2% of the sales price of coated paper sold by Repap Sales. These commissions cover expenses relating to the marketing, sale and distribution of coated paper products and were $10,453, $12,736 and $10,120 in 1994, 1995 and 1996, respectively. In addition, the Company has reimbursed Repap Sales for marketing-related costs totaling $2,520, $2,520 and $2,359 in 1994, 1995 and 1996, respectively.
The Company has an advance of $4,500 to Repap USA which bears the market rate of interest and is payable on demand.
See Note 13 for information regarding realization of net assets related to affiliates.
8. Postretirement Benefits Other Than Pensions
The Company has three defined benefit postretirement plans that provide benefits to full-time employees who have worked at least five years and attained age 57 while in service with the Company. One plan provides medical benefits, another provides dental benefits and the third provides life insurance benefits. The medical plan benefits are provided under a traditional indemnity arrangement or under an HMO arrangement, at the participant's option. The medical benefit indemnity arrangement and the dental plan contain cost-sharing features such as deductibles and coinsurance. The life insurance plan is contributory.
The accumulated postretirement benefit obligation at December 31 is as follows:
December 31
1995 1996
Retirees $ 16,480 $ 18,295 Fully eligible active 5,961 4,671 participants Other active participants 2,760 2,892 25,201 25,858 Unrecognized transition (22,600) (21,271) obligation Unrecognized net gain 9,156 7,922 Accrued postretirement benefit $ 11,757 $ 12,509 liability
The net periodic postretirement benefit cost includes the following:
1994 1995 1996
Service cost for benefits $1,106 $ 864 $ 914 earned during the year Interest cost on accumulated postretirement benefit 2,110 2,233 1,844 obligation Amortization of net gain - (226) (1,010) Amortization of transition 1,356 1,329 1,329 obligation $4,572 $4,200 $ 3,077
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) for the medical benefit indemnity arrangement are assumed to decrease gradually to 2006 and then remain at that level thereafter. The ranges of cost trend rates for 1996 are 8.6% to 5.25% (9.1% to 5.25% for 1995) for the
8. Postretirement Benefits Other Than Pensions (continued)
medical benefit indemnity arrangement. The cost trend rate for the dental plan for 1996 is an annual increase of 5.25% per year (5% for 1995). The cost trend rate for the medical benefit HMO arrangement for 1996 is an annual increase of 5% per year (same for 1995).
The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996, by $3,025, and the aggregate of the service and the interest cost components of net periodic postretirement benefit cost for 1996 by $334.
The discount rate used in determining the accumulated postretirement benefit obligation was 7.5% at December 31, 1995 and 1996. The discount rate used for determining the net periodic postretirement benefit cost was 7.75%, 8.5% and 7.5% for 1994, 1995 and 1996, respectively.
9. Major Customers
Sales to one customer, in which Repap Sales has an investment in preferred stock, were 16%, 18% and 14% of net sales during 1994, 1995 and 1996, respectively. Accounts receivable from this customer were $5,592 and $5,324 at December 31, 1995 and 1996, respectively. Sales to one other customer were 16%, 14% and 15% of net sales during 1994, 1995 and 1996, respectively. Accounts receivable from this customer were $4,369 and $3,803 at December 31, 1995 and 1996, respectively.
10. Income Taxes
The income tax provision (benefit) on income (loss) before extraordinary items is comprised of the following: 1994 1995 1996
Current federal income tax $ - $ 835 $ _ expense Deferred income tax expense (credit), excluding 96 11,591 (2,966) components listed below Benefits of operating loss (1,215) - _ carryforwards Effect of change in valuation (172) (4,489) 703 allowance Income tax provision (benefit) $(1,291) $7,937 $(2,263)
10. Income Taxes (continued)
The income tax provision (benefit) differs from the amount computed by applying the federal statutory rate of 34% to income (loss) before income taxes and extraordinary items as follows: 1994 1995 1996 Income tax provision (benefit) at federal $ (591) $11,858 $(3,002) statutory rate State income taxes, net of (320) 588 (161) federal benefit Effect of change in valuation (172) (4,489) 703 allowance Other (208) (20) 197 Income tax provision $(1,291) $ 7,937 $(2,263) (benefit)
Significant components of the Company's deferred income tax liabilities and assets as of December 31 are as follows: 1995 1996 Deferred income tax liabilities: Property, plant and equipment $50,724 $54,659 Other 2,231 1,972 52,955 56,631 Deferred income tax assets: Accrued liabilities and other items not currently deductible 7,731 8,416 State net operating loss 549 709 carryforwards State tax credit carryforwards 8,564 8,879 Federal net operating loss 17,261 21,842 carryforwards Federal general business credit 7,501 6,669 carryforwards Federal alternative minimum tax 1,646 1,289 credit carryforwards 43,252 47,804 Valuation allowance for deferred tax 14,598 13,062 assets 28,654 34,742 Net deferred income tax liabilities $24,301 $21,889
Because of the recent cumulative losses, future income has not been assumed in determining the necessary valuation allowances for the various carryforwards.
10. Income Taxes (continued)
At December 31, 1996, the Company has the following carryforwards for operating losses, general business credits and state tax credits available to reduce future income taxes: Federal General
Net Operating Business State Losses Tax
Federal State Credits Credits
Year expires: 1997 $ - $ - $ 495 $ 585 1998 - - 2,242 735 1999 3,170 - 1,683 717 2000 - - 171 827 2001 2,912 - 283 868 2002 8,332 - - 682 2003 1,493 - 41 788 2004 - - 929 1,049 2005 - - 822 1,006 2006 - - 2 973 2007 12,082 - 1 939 2008 - - - 1,025 2009 29,666 6,493 - 1,019 2010 - - - 998 2011 6,575 6,970 - 993 2012 12 136 _ 249 $64,242 $13,599 $6,669 $13,453
The Company also has alternative minimum tax credit carryforwards of $1,289 that are available to reduce future regular federal income taxes.
11. Commitments and Contingency
In 1993, the Company entered into an agreement with Wisconsin Electric Power Company (WEPCO) to construct a cogeneration facility adjacent to the Company's mill which would have provided steam for its paper making operations. In late 1993, the Wisconsin Public Service Commission issued an order denying WEPCO's application to construct the cogeneration facility. The Company is contingently liable for approximately $4.9 million in engineering costs incurred by WEPCO in the event that the related engineering costs cannot be recovered by WEPCO through a sale of the equipment owned by WEPCO or in a comparable project in the future.
12. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31:
1995 1996
Carrying Carrying Fair Fair Amount Value Amount Value Financial assets - Advance to affiliate $ $ $ $ 4,500 (1) 4,500 (1) Financial liabilities: Long-term debt (2) 413,215 395,215 414,609 424,293
Class I Preferred 5,828 (1) 6,405 (1) Stock
(1) The fair values for the advance to affiliates and the Class I Preferred Stock held by affiliates are not practicable to estimate because of the lack of quoted market prices.
(2) The carrying amount of the borrowings under the revolving credit facility approximates their fair value. The fair values of the First and Second Priority Notes are based on quoted market prices.
13. Subsequent Events
In July 1996, Repap Enterprises engaged investment advisors to explore strategic alternatives available to Repap Enterprises and its subsidiaries to maximize shareholder value.
On December 17, 1996 (and as amended March 3, 1997), Avenor Inc. (Avenor) and Repap Enterprises entered into a Pre- Merger Agreement providing for the amalgamation of Avenor and Repap Enterprises pursuant to an Amalgamation Agreement whereby common and preferred stock of Repap Enterprises would have been exchanged for common stock of Avenor. On March 26, 1997, Avenor shareholders voted to not approve the proposed amalgamation.
The management of Repap Enterprises is considering what steps to take following the rejection of the proposed amalgamation by the Avenor shareholders. Management and the Board of Directors of Repap Enterprises intend to pursue a strategy that is in the best interest of preserving and creating value for its shareholders. It is uncertain what, if any, impact this will have on the Company.
13. Subsequent Events (continued)
As discussed in Notes 2 and 7, the Company's consolidated balance sheet at December 31, 1996 includes forward purchase contracts with affiliates, an investment in Repap Enterprises preferred stock, advances to affiliates and amounts due from/to affiliates. Such amounts aggregate to net assets of $39,035, of which $24,722 and $10,495 represent forward purchase contracts with Repap British Columbia and Repap Enterprises, respectively. On March 3, 1997, Repap Enterprises entered into a Restructuring and Settlement Agreement with certain banks whereby such banks acquired control of Repap British Columbia. The Restructuring and Settlement Agreement provides for the forward purchase contract with Repap British Columbia to continue on the same terms. Repap Enterprises has indicated its intention to honor the commitment under its forward purchase contract. Management believes that the remainder of the net assets due from affiliates of $3,818 will be realized. However, realization of such amounts is uncertain pending the future actions of Repap Enterprises and the financial condition of Repap British Columbia.
Schedule II
Repap Wisconsin, Inc. Valuation and Qualifying Accounts
S-1 Additions Balance Charged Charged Balance at to Cost to Description Beg. and Other Deductions at End of Expense Accts. (1) of Year Year
(In Thousands)
Year ended December 31, 1994: Deducted from asset accounts - Allowance for doubtful accounts and reserve for returns and $1,630 $1,947 $ - $2,096 $1,481 allowances
Year ended December 31, 1995: Deducted from asset accounts - Allowance for doubtful accounts and reserve for returns and $1,481 $2,400 $ - $2,213 $1,668 allowances
Year ended December 31, 1996: Deducted from asset accounts - Allowance for doubtful accounts and reserve for returns and $1,668 $2,376 $ - $2,338 $1,706 allowances
(1)Represents uncollectible accounts written off, net of recoveries, and net losses on paper returns and allowances.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 31 , 1997.
REPAP WISCONSIN, INC.
/s/ Timothy J. Morgan Timothy J. Morgan
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.
Signature Title Date
/s/ George S. Petty Director and Chairman March 31, 1997 George S. Petty (Principal Executive Officer)
/s/ Ronald H. Sumner Director and Executive Vice- March 31, 1997 Ronald H. Sumner President
/s/ Timothy J. Morgan Senior Vice-President and Controller, March 31, 1997 Timothy J. Morgan Coated Paper Operations (Principal Financial and Accounting Officer)
3. Exhibits
Exhibit Number Description
3.1 Restated Certificate of Incorporation of the Company dated July 18, 1994. (Incorporated by reference to Exhibit 3.1 as filed with the Company's Form 10-K for the year ended December 31, 1994).
3.2 Restated By-laws of the Company dated July 18, 1994. (Incorporated by reference to Exhibit 3.2 as filed with the Company's Form 10-K for the year ended December 31, 1994).
4.1 Form of First Priority Note Indenture, dated as of February 1, 1994, between the Company and the Bank of New York, as trustee. (Incorporated by reference to Exhibit 4.1 as filed with the Company's Form S-1 on January 31, 1994).
4.2 Form of First Priority Note (included in the form of First Priority Note Indenture filed as Exhibit 4.1). (Incorporated by reference to Exhibit 4.2 as filed with the Company's Form S-1 on January 31, 1994).
4.3 Form of Second Priority Note Indenture, dated as of February 1, 1994, between the Company and Bankers Trust Company, as trustee. (Incorporated by reference to Exhibit 4.3 as filed with the Company's Form S-1 on January 31,1994).
4.4 Form of Second Priority Note (included in the form of Second Priority Note Indenture filed as Exhibit 4.3). (Incorporated by reference to Exhibit 4.4 as filed with the Company's Form S-1 on January 31, 1994).
4.5 Form of Collateral Agency Agreement, dated as of February 1, 1994, among the Company, the Trustees and the Collateral Agent. (Incorporated by reference to Exhibit 4.7 as filed with the Company's Form S-1 on January 31, 1994).
4.6 Form of Mortgage. (Incorporated by reference to Exhibit 4.8 as filed with the Company's Form S-1 on January 31, 1994).
Exhibit Number Description
4.7 First Supplemental Indenture, dated as of August 9, 1994, between the Company and The Bank of New York, as trustee. (Incorporated by reference to Exhibit 4.7 as filed with the Company's Form 10-K for the year ended December 31, 1994).
4.8 First Supplemental Indenture, dated as of August 9, 1994, between the Company and Bankers Trust Company, as trustee. (Incorporated by reference to Exhibit 4.8 as filed with the Company's Form 10-K for the year ended December 31, 1994).
4.9 Second Supplemental Indenture, dated as of January 10, 1996, between the Company and the Bank of New York, as trustee. (Incorporated by reference to Exhibit 4.9 as filed with the Company's Form 10-K for the year ended December 31, 1995).
4.10 Second Supplemental Indenture, dated as of January 10, 1996, between the Company and Bankers Trust Company, as trustee. (Incorporated by reference to Exhibit 4.10 as filed with the Company's Form 10-K for the year ended December 31, 1995).
4.11 Second Amended and Restated Credit Agreement, dated as of November 8, 1994, by and between the Company and Heller Financial, Inc. (Incorporated by reference to Exhibit 10.1 as filed with the Company's Form 10-K for the year ended December 31, 1994).
4.12 First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27, 1995, by and between the Company and Heller Financial, Inc. (Incorporated by reference to Exhibit 4.12 as filed with the Company's Form 10-K for the year ended December 31, 1995).
4.13 Second Amendment to Second Amended and Restated Credit Agreement, dated as of February 14, 1996, by and between the Company and Heller Financial, Inc. (Incorporated by reference to Exhibit 4.13 as filed with the Company's Form 10-K for the year ended December 31, 1995).
4.14 Third Amendment to Second Amended and Restated Credit Agreement, dated as of March 8, 1996, by and between the Company and Heller Financial, Inc. (Incorporated by reference to Exhibit 4.14 as filed with the Company's Form 10-K for the year ended December 31, 1995).
4.15 Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of March 24, 1997, by and between the Company and Heller Financial, Inc.
10.1 PCC Production and Sale Agreement, dated as of October 23, 1990, between the Company (formerly known as Midtec Paper Corporation) and Pfizer Specialty Minerals Inc. (Incorporated by reference to Exhibit 10.5 as filed with the Company's Form S-1 on January 31, 1994).
10.2. Supply/Purchase Agreement, dated March 2, 1992, by and between the Company and Repap Midtec Limited Partnership, on the one hand, and ECC America, Inc., on the hand. (Incorporated by reference to Exhibit 10.6 as filed with the Company's Form S-1 on January 31, 1994).
10.3 Lease/Construction Agreement, dated March 2, 1992, by and between Repap USA Inc. and ECC America, Inc. (Incorporated by reference to Exhibit 10.7 as filed with the Company's Form S-1 on January 31, 1994).
10.4 Electric Service Agreement, dated February 22, 1988, by and between the Company (formerly known as Midtec Paper Company) and Repap Midtec Limited Partnership, on the one hand, and Wisconsin Electric Power Company, on the other hand. (Incorporated by reference to Exhibit 10.8 as filed with the Company's Form S-1 on January 31, 1994).
10.5 Supply Agreement, dated as of February 28, 1991, by and between the Company (formerly known as Midtec Paper Corporation) and Fox River Fiber Company. (Incorporated by reference to Exhibit 10.9 as filed with the Company's Form S-1 on January 31, 1994).
10.6 Letter Agreement, dated August 14, 1989, between the Company (formerly known as Midtec Paper Corporation) and Engelhard Corporation. (Incorporated by reference to Exhibit 10.10 as filed with the Company's Form S-1 on January 31, 1994).
Exhibit Number Description
10.7 Sales/Purchase Contract, dated October 12, 1991, between the Company (formerly known as Midtec Paper Corporation) and ECC International. (Incorporated by reference to Exhibit 10.12 as filed with the Company's Form S-1 on January 31, 1994).
10.8 Form of Management Services and Cost Allocation Agreement between Repap Enterprises and the Company. (Incorporated by reference to Exhibit 10.14 as filed with the Company's Form S-1 on January 31, 1994).
10.9 Form of Woodpulp Contract between Repap British Colombia Inc. (formerly known as Skeena) and the Company. (Incorporated by reference to Exhibit 10.15 as filed with the Company's Form S-1 on January 31, 1994).
10.10 Midtec Paper Corporation/Repap Sales Corporation Sales Agency Agreement, dated as of January 1, 1990, between the Company (formerly known as Midtec Paper Corporation) and Repap Sales. (Incorporated by reference to Exhibit 10.17 as filed with the Company's Form S-1 on January 31, 1994).
10.11 Pulp Purchase Agreement, dated September 26, 1994, between Repap British Columbia Inc. (formerly known as Skeena) and the Company. (Incorporated by reference to Exhibit 10.13 as filed with the Company's Form 10-K for the year ended December 31, 1994).
10.12 Pulp Purchase Agreement dated December 22, 1994, between Repap New Brunswick (formerly known as Miramichi Pulp and Paper) and the Company. (Incorporated by reference to Exhibit 10.14 as filed with the Company's Form 10-K for the year ended December 31, 1994).
10.13 Pulp Purchase Agreement #7, dated as of July 12, 1995, between Repap British Columbia Inc. (formerly known as Skeena) and the Company. (Incorporated by reference to Exhibit 10.13 as filed with the Company's Form 10-K for the year ended December 31, 1995).
Exhibit Number Description
10.14 Pulp Purchase Agreement #8, dated as October 19, 1995 between Repap British Columbia Inc. (formerly known as Skeena) and the Company. (Incorporated by reference to Exhibit 10.14 as filed with the Company's Form 10-K for the year ended December 31,1995).
10.15 Amendments to Pulp Purchase Agreements #7 and #8, dated as of November 21, 1996, between Repap British Columbia Inc. (formerly known as Skeena) and the Company.
10.16 Pulp Purchase Agreement, dated as of September 1, 1995, between Repap Enterprises and the Company. (Incorporated by reference to Exhibit 10.15 as filed with the Company's Form 10-K for the year ended December 31, 1995).
10.17 Labor Agreement, dated as of January 19, 1995, between the Company and the Paper Mill Workers Union of Kimberly, Wisconsin. (Incorporated by reference to Exhibit 10.16 Form 10-K for the year ended December 31, 1995).
21.1 Subsidiaries of the Registrant. The Registrant has one inactive wholly owned subsidiary.