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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended JUNE 30, 2004

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 30, 2004 was 51,685,251.

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, 2004 (unaudited) and
June 30, 2003 (unaudited) 1

Condensed Consolidated Balance
Sheets, June 30, 2004 (unaudited)
and December 31, 2003 (derived from
audited financial statements) 2

Condensed Consolidated Statements
of Cash Flows, Six Months
Ended June 30, 2004 (unaudited)
and June 30, 2003 (unaudited) 3

Notes to Condensed Consolidated
Financial Statements (unaudited) 3-9

Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10-17

Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17

Item 4. Controls and Procedures 17

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders 18

Item 6. Exhibits and Reports on Form 8-K 18
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) 2004 2003 2004 2003

NET SALES $264,109 $ 242,833 $515,924 $482,659

Cost of products sold 235,973 217,737 461,090 436,684

GROSS PROFIT 28,136 25,096 54,834 45,975

Selling and administrative expenses 19,754 17,419 38,638 33,663

OPERATING PROFIT 8,382 7,677 16,196 12,312

Interest expense (2,550) (2,570) (5,077) (5,071)

Other income (expense), net 98 15 292 1

EARNINGS BEFORE INCOME TAXES 5,930 5,122 11,411 7,242

Provision for income taxes 2,193 1,894 4,222 2,679

NET EARNINGS $ 3,737 $ 3,228 $ 7,189 $ 4,563

NET EARNINGS PER SHARE-BASIC $ 0.07 $ 0.06 $ 0.14 $ 0.09

NET EARNINGS PER SHARE-DILUTED $ 0.07 $ 0.06 $ 0.14 $ 0.09

Weighted average shares outstanding-basic 51,663,152 51,550,078 51,640,274 51,543,521

Weighted average shares outstanding-diluted 51,929,290 51,650,691 51,867,042 51,627,531

Dividends declared per common share $ 0.17 $ 0.17 $.0.17 $ 0.17


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,
2004 2003
ASSETS (UNAUDITED)

Current assets:
Cash and cash equivalents $ 59,382 $ 36,305
Receivables, net 99,687 81,300
Refundable income taxes 1,842 1,668
Inventories 109,336 115,835
Deferred income taxes 12,573 12,616
Other current assets 3,118 3,694
Total current assets 285,938 251,418

Property, plant and equipment, net 548,218 565,722
Other assets 41,363 40,960

TOTAL ASSETS $875,519 $858,100

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current maturities of long-term debt $ 113 $ 112
Accounts payable 69,623 55,368
Accrued and other liabilities 63,563 59,524
Total current liabilities 133,299 115,004

Long-term debt 161,754 162,174
Deferred income taxes 114,920 115,879
Postretirement benefits 57,225 54,197
Pension 36,523 40,829
Other noncurrent liabilities 21,590 19,701
Total liabilities 525,311 507,784
Stockholders' equity 350,208 350,316

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $875,519 $858,100

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) 2004 2003

Net cash provided by operating activities $40,085 $27,965

Cash provided by (used in) investing activities:
Capital expenditures (9,471) (9,975)
Acquisition of business 0 (8,413)
Proceeds of sale of property, plant and equipment 12 6
(9,459) (18,382)
Cash provided by (used in) financing activities:
Payments under capital lease obligation (55) (34)
Dividends paid (8,773) (8,763)
Proceeds from stock option exercise 1,279 135
(7,549) (8,662)

Net increase in cash and cash equivalents 23,077 921
Cash and cash equivalents, beginning of period 36,305 23,383

Cash and cash equivalents, end of period $59,382 $24,304

Interest-net of amount capitalized $ 5,330 $ 5,282
Income taxes paid 3,597 3,578

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 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
3
for the year ended December 31, 2003, for the Company's accounting
policies which are pertinent to these statements.

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 $8.5 million in cash. The
acquisition was accounted for as a purchase business combination and,
accordingly, the purchase price has been allocated using the fair values
of the acquired receivables, inventory, machinery and equipment, and
identifiable intangible assets. No goodwill was recorded as a result of
this acquisition. The pro forma disclosures required under Statement of
Financial Accounting Standard (SFAS) No. 141 "Business Combinations"
have not been presented as the impact of this acquisition does not
materially impact the results of operations.

Note 4.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, 2004, the provision
for incentive plans was $2.0 million. For the three months ended June
30, 2003, the provision for incentive plans was $0.7 million. For the
six months ended June 30, 2004 and 2003, provisions of $2.2 million and
$0.4 million, respectively, were recognized as stock incentive plan
expense.

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."
4

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,
2004 2003 2004 2003

Net earnings, as reported $ 3,737 $ 3,228 $ 7,189 $ 4,563
Add: Total stock-based employee
compensation expense (credit)
under APB No. 25, net of
related tax effects 1,269 419 1,365 261
Deduct: Total stock-based
compensation (expense) credit
determined under fair-value
based method for all awards,
net of related tax effects ( 1,345) (460) (1,485) (327)
Proforma $ 3,661 $ 3,187 $ 7,069 $ 4,497

Earnings per share - basic:
As reported $ 0.07 $ 0.06 $ 0.14 $ 0.09
Pro forma $ 0.07 $ 0.06 $ 0.14 $ 0.09
Earnings per share - diluted:
As reported $ 0.07 $ 0.06 $ 0.14 $ 0.09
Pro forma $ 0.07 $ 0.06 $ 0.14 $ 0.09

5
Note 5.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,
2004 2003 2004 2003

Net earnings $ 3,737 $ 3,228 $ 7,189 $ 4,563

Basic weighted average common
shares outstanding 51,663,152 51,550,078 51,640,274 51,543,521
Dilutive securities:
Stock options 266,138 100,613 226,768 84,010
Dilutive weighted average common
shares outstanding 51,929,290 51,650,691 51,867,042 51,627,531

Net earnings per share-basic $ 0.07 $ 0.06 $ 0.14 $ 0.09

Net earnings per share-diluted $ 0.07 $ 0.06 $ 0.14 $ 0.09

For the three months ended June 30, 2004, options for 432,911 shares
were excluded from the diluted EPS calculation because the options were
antidilutive. 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 six months ended June 30, 2004
and 2003, 449,140 shares and 819,255 shares, respectively, were excluded
from the diluted EPS calculation because the options were antidilutive.

Note 6.Accounts receivable consisted of the following:


(Dollars in thousands) JUNE 30, December 31,
2004 2003

Trade $100,026 $82,142
Other 1,764 1,086
101,790 83,228
Less: Allowances (2,103) (1,928)
$99,687 $81,300

6

Note 7.The various components of inventories were as follows:


(Dollars in thousands) JUNE 30, December 31,
2004 2003

Raw Materials $ 30,226 $ 27,282
Finished Goods and Work in Process 76,921 83,757
Supplies 28,002 27,920
Subtotal 135,149 138,959
Less: LIFO Reserve (25,813) (23,124)
Net inventories $109,336 $115,835

Note 8.The accumulated depreciation on fixed assets was $670.4 million as of
June 30, 2004 and $653.0 million as of December 31, 2003. The provision
for depreciation, amortization and depletion for the six months ended
June 30, 2004 and June 30, 2003 was $30.0 million and $30.6 million,
respectively.

Note 9.The components of net periodic benefit costs recognized in the Condensed
Consolidated Statements of Operations for the three months ended June
30, 2004 and 2003, are as follows:


(Dollars in thousands) Other
Post-retirement
Pension Benefits Benefits
2004 2003 2004 2003

Service cost $ 1,720 $ 1,379 $ 671 $ 504
Interest cost 2,423 2,329 1,505 1,481
Expected return on plan assets (2,504) (2,056) 0 0
Amortization of:
Prior service cost 488 485 (87) (89)
Actuarial loss 420 187 447 225
Transition (asset) (12) (47) 0 0
Settlement 0 248 0 0
Net periodic benefit cost $ 2,535 $ 2,525 $ 2,536 $ 2,121

7

The components of net periodic benefit costs recognized in the Condensed
Consolidated Statements of Operations for the six months ended June 30,
2004 and 2003, are as follows:


(Dollars in thousands) Other
Post-retirement
Pension Benefits Benefits
2004 2003 2004 2003

Service cost $ 3,440 $ 2,758 $ 1,342 $ 1,008
Interest cost 4,846 4,658 3,046 2,643
Expected return on plan assets (5,005) (4,116) 0 0
Amortization of:
Prior service cost 975 970 (174) (178)
Actuarial loss 839 374 894 450
Transition (asset) (26) (94) 0 0
Settlement 0 248 0 0
Net periodic benefit cost $ 5,069 $ 4,798 $ 5,108 $ 3,923

On December 8, 2003, the President signed into law the Medicare
Prescription Drug Improvement and Modernization Act of 2003 (the Act).
The Act introduces a prescription drug benefit under Medicare as well as
a federal subsidy to sponsors of retiree health care benefit plans that
override a benefit that is at least actuarially equivalent to Medicare.
In June 2004, the FASB issued FSP 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003. The FSP provides guidance on the accounting
for the effects of the Act for employers that sponsor postretirement
health care plans that provide prescription drug benefits. The FSP also
requires those employers to provide certain disclosures regarding the
effect of the federal subsidy provided by the Act. The FSP is not
effective until the first interim or annual period beginning after June
15, 2004, therefore, the measure of the Company's accumulated
postretirement benefit obligation and net periodic postretirement
benefit cost do not reflect any amount associated with the subsidy.

The Company previously disclosed in its consolidated financial
statements for the year ended December 31, 2003, that it expected to
contribute $21.2 million to its pension plans in 2004. As of June 30,
2004, $7.8 million of contributions have been made. The Company expects
to contribute an additional $13.4 million in 2004 for a total of $21.2
million.

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.
8
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.

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) 2004 2003 2004 2003

Net sales external customers
Printing & Writing $101,181$ 99,458 $201,282 $197,835
Specialty Paper 105,771 89,701 206,702 182,159
Towel & Tissue 57,157 53,674 107,940 102,665
$264,109 $242,833 $515,924 $482,659

Operating profit
Printing & Writing $ 1,971 $ 2,704 $ 4,522 $ 4,190
Specialty Paper 3,375 64 6,826 1,576
Towel & Tissue 8,131 8,372 13,432 12,403
Total reportable segment
operating profit 13,477 11,140 24,780 18,169
Corporate & eliminations (5,095) (3,463) (8,584) (5,857)
Interest expense (2,550) (2,570) (5,077) (5,071)
Other income (expense), net 98 15 292 1
Earnings before income taxes $ 5,930 $ 5,122 $ 11,411 $ 7,242



(Dollars in thousands) JUNE 30, December 31,
2004 2003

Segment Assets
Printing & Writing $282,836 $283,711
Specialty Paper 330,944 334,079
Towel & Tissue 163,514 165,199
Corporate & Unallocated* 98,225 75,111
$875,519 $858,100

* Segment assets do not include intersegment accounts receivable, cash,
deferred tax assets and certain other assets which are not
identifiable with segments.

9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

For the second quarter of 2004, gradual improvement in market conditions,
combined with the Company's ongoing focus on product and business development,
resulted in increased net sales and shipments in all three of the Company's
operating segments. Increased market pulp, wastepaper and employee fringe
benefit costs unfavorably impacted the current quarter in comparison to the
same quarter last year. Natural gas prices remained above historical averages.
Through the first half of 2004, sales from new products developed within the
previous three years accounted for nearly 40% of the Company's consolidated net
sales, exceeding the internal target of 25%; operating efficiencies improved
above the Company's target of 1%; and meaningful progress was made toward the
Company's cost reduction goal of 2% of prior year cost of sales.

OPERATIONS REVIEW


Net Sales
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2004 2003 2004 2003

Net sales $264,109 $242,833 $515,924 $482,659
Percent increase 9% 2% 7% 4%

For the three months ended June 30, 2004, consolidated net sales for the
Company were $264.1 million compared to $242.8 million for the same three month
period in 2003, an increase of 9%. Company-wide shipments in the second
quarter of 2004 were 221,317 tons, a 5% improvement over the 211,414 tons
shipped in the second quarter of 2003. Second quarter 2004 average selling
price increased more than 3% as compared to the same period in 2003 with actual
product selling prices and product mix each accounting for half of the average
selling price increase. Together, product pricing and product mix accounted for
approximately $7.9 million of the improvement in consolidated net sales.

For the six months ended June 30, 2004 and 2003, consolidated net sales were
$515.9 million and $482.7 million, respectively, representing a 7% improvement
year-over-year. Year-to-date shipments at June 30, 2004, improved to 436,565
tons, an increase of 3% over the 422,170 tons reported for the same year-to-
date period of 2003. During the first six months of 2004, average selling
price improved approximately 3%, with product mix enhancements accounting for 2
percentage points, or approximately two-thirds, of the average selling price
increase and actual product pricing improvements comprising the balance of the
increase.

Printing & Writing net sales increased 2% to $101.2 million in the second
quarter of 2004 compared to $99.5 million in the second quarter of 2003. Total
group shipments increased slightly to 90,881 tons in the second quarter from
90,672 tons in the same period last year.
10
Average net selling price increased approximately 2% with product mix changes
accounting for the increase as actual product pricing declined
quarter-over-quarter. Second quarter consumer product shipments increased 20%

compared to last year and premium paper shipments increased 12%. Market
demand for uncoated free-sheet papers increased approximately 3% compared to
the same period last year with much of the gain occurring in
commodity-oriented grades. Market conditions for text, cover and similar
premium grades had begun to improve as the third quarter began.

Printing & Writing net sales for the first half of 2004 improved 2% to $201.3
million compared to $197.8 million in the first half of 2003. The increase in
net sales was due primarily to increased shipments year-over-year with 183,121
tons and 179,403 tons in the first six months of 2004 and 2003, respectively.
Average selling price declined less than 1% year-over-year with real selling
prices declining and product mix improving in the first six months of 2004.

Specialty Paper net sales improved to $105.8 million for the three months ended
June 30, 2004 compared to $89.7 million in the three months ended June 30,
2003, an increase of 18%. Shipments increased 9,075 tons, or 11% to 91,726 tons
in the second quarter of 2004 compared to 82,651 tons in 2003. Shipments of
the group's higher-priced core products increased 13% as compared to the same
period last year. In addition, average net selling price improved by more than
5% in the quarter-over-quarter comparison, due primarily to actual product
selling price increases as a result of improving business conditions which have
allowed recovery of recent fiber and other cost increases in some of the
group's markets.

For the first six months of 2004, Specialty Paper net sales were $206.7 million
compared to $182.2 million in the same period of 2003, an increase of 13%.
Shipment volume increased 5% in the year-to-date comparison with 179,311 tons
in 2004 and 170,326 tons in 2003. Average selling price improvement of nearly
7% year-over-year contributed to the net sales gain and was driven by actual
product pricing improvements of 4% with product mix accounting for the balance
of the year-over-year improvement.

Net sales for the second quarter of 2004 improved from the second quarter of
2003 by over 6% in Towel & Tissue from $53.7 million to $57.2 million,
respectively. Selling price increases implemented early in the second quarter
of 2004 resulted in a 4% improvement in average net selling price quarter-over-
quarter. Shipment volume increased 2% to 38,710 tons in the second quarter of
2004 compared to 38,091 tons in the second quarter of 2003. Shipment volume of
the group's higher-priced value-added grades increased 8 percent as compared to
last year. The "away-from-home" segment of the towel and tissue market grew
nearly 2% in the second quarter of 2004 compared with the same period in 2003.

Year-to-date sales for Towel & Tissue were $107.9 million in 2004 compared to
$102.7 million in 2003-an improvement of 5%. Mix enhancement resulted in an
increase in average selling price of 2% when comparing the first half of 2004
to 2003. The remainder of the year-to-date revenue gain was the result of a 2%
increase in shipment volume with 74,133 tons in 2004 versus 72,441 tons in
2003.
11



Gross Profit
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2004 2003 2004 2003

Gross profit on sales $28,136 $25,096 $54,834 $45,975
Gross profit margin 11% 10% 11% 10%

Gross profit for the three months ended June 30, 2004, was $28.1 million
compared to $25.1 million for the three months ended June 30, 2003. 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. This
settlement improved the gross profit margin for the quarter ended June 30, 2003
by approximately 2 percentage points. The improvement in the gross profit
margin quarter-over-quarter in 2004 was principally due to select increases in
product selling prices, sales mix enhancements and continuing cost-reduction
efforts. These improvements were partially offset by higher market pulp,
wastepaper and higher fringe benefit costs-most notably health-care and post-
retirement benefit costs, experienced in the second quarter of 2004 versus the
second quarter of 2003. Compared to the second quarter of 2003, market pulp
prices were higher by $30 per air-dried metric ton, or approximately $3.1
million, quarter-over-quarter while wastepaper prices were higher by $23 per
standard ton, or approximately $0.9 million. Market pulp and wastepaper costs
were approximately $5.0 million higher in the second quarter of 2004 than the
first quarter of 2004. Health-care and post-retirement costs increased
approximately $1 million over the same period in 2003. Natural gas costs
remained at historically high levels during the second quarter of 2004 but were
comparable to the second quarter of 2003 and the first quarter of 2004.

Year-to-date, gross profit margins increased to $54.8 million, or 11% of net
sales in 2004 compared to $46.0 million, or 10% of net sales in 2003. As in
the quarterly comparison, unfavorable market pulp, wastepaper and employee
fringe benefit costs negatively impacted the gross profit margin year-over-
year. These negative factors were more than offset by average net selling
price increases, volume gains and continuing cost reduction efforts. Year-
over-year, market pulp increased over 8%, or $37 per air-dried metric ton.

The list price of northern bleached softwood kraft increased $100 per metric
ton over the first six months of 2004, with the list price for other market
pulps moving higher by lesser amounts. No further market pulp price changes
had been announced as of the beginning of the third quarter.

Printing & Writing's gross profit for the second quarter of 2004 and year-to-
date was comparable to the second quarter and year-to-date of 2003 at 8% of net
sales. During the second quarter of 2004, Printing & Writing's results include
approximately $1.7 million in costs related to operational issues involving the
Brokaw mill's recovery system and power boiler. Necessary repairs were
completed during the quarter and no additional operational impact is
anticipated. Despite these costs and unfavorable market pulp costs, quarter-
over-quarter and year-to-date gross margins remained constant due to average
selling price increases and ongoing cost-reduction efforts.
12

Specialty Paper's improved average net selling price, operations and cost-
reduction efforts offset the unfavorable impacts of market pulp and fringe
benefit costs to report improved year-over-year margins from 5% in the second
quarter of 2003 to 8% in the second quarter of 2004. Similarly, year-to-date
margins improved to 8% in 2004 from 6% in 2003, respectively.

The gross profit margin for Towel & Tissue declined from 24% in the second
quarter of 2003 to 22% in the second quarter of 2004. As indicated in the
consolidated gross profit margin comparisons, a favorable $4.2 million
settlement of patent litigation favorably impacted the second quarter of 2003.
Year-to-date gross margins remained flat at 20% of net sales in both six month
periods ending June 30, 2004 and 2003. Outside parent rolls, purchased from
towel and tissue producers, account for approximately 30% of Towel & Tissue's
paper requirements. Although market conditions impacting both price and supply
of parent rolls began to tighten in the second quarter of 2004, the Company
believes an adequate supply will be available to meet continuing needs.

Consolidated order backlogs increased to approximately 49,600 tons at June 30,
2004 from approximately 30,700 tons at June 30, 2003. Backlog tons at June 30,
2003 represent $34.7 million in sales compared to $59.2 million in sales at
June 30, 2004. Customer order backlogs improved in all three operating groups.
Printing & Writing backlog tons increased from 7,100 tons as of June 30, 2003
to 12,100 tons at June 30, 2004. Specialty Paper backlog tons improved to
34,400 tons at the end of the second quarter of 2004 compared to 21,700 tons at
the end of the second quarter of 2003. Towel & Tissue experienced an increase
in backlog compared to the second quarter of 2003 at 3,100 tons compared to
1,900 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.

Labor

A new five-year labor agreement was entered into on June 1, 2004 with the
Paper, Allied-Industrial, Chemical & Energy Workers International Union for
union employees at Specialty Paper's Otis mill located in Jay, Maine. The
agreement contains wage increases of 1.7% effective June 1 of each year of the
contract. Labor agreements will expire at other facilities in 2005, 2006, 2007
and 2008. The Company maintains good labor relations at all facilities.


Selling and Administrative Expenses
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2004 2003 2004 2003

Selling and administrative expense $19,754 $17,419 $38,638 $33,663
Percent increase 13% 4% 15% --
As a percent of net sales 7% 7% 7% 7%

Selling and administrative expenses in the second quarter of 2004 were $19.8
million compared to $17.4 million in the same period of 2003. Incentive
compensation programs based on the market price of the Company's stock resulted
in a provision of $2.0 million for the three months ended June 30, 2004
compared to a provision of $0.7 million for the three months
13

ended June 30, 2003. The remaining increase in selling and administrative
expense quarter-over-quarter was due to higher fringe benefit costs,
particularly health-care costs and post-retirement expense, and increased
employee recruiting and relocation costs.

For the six months ended June 30, 2004, selling and administrative expenses
were $38.7 million compared to $33.7 million in the first half of 2003.
Expense recognized for stock-incentive based programs was $2.2 million and $0.4
million in the year-to-date comparisons of 2004 and 2003, respectively. As in
the quarter-over-quarter comparison, the remaining increase was due principally
to increases in fringe benefits and employee recruiting and relocation costs.


Other Income and Expense

Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2004 2003 2004 2003

Interest expense $2,550 $2,570 $5,077 $5,071
Other income 98 15 292 1

Interest expense was $2.6 million in both of the second quarters of 2004 and
2003 and $5.1 million year-to-date for 2004 and 2003. Long-term debt was $161.8
million and $162.6 million at June 30, 2004 and 2003, respectively. Long-term
debt at December 31, 2003, was $162.2 million. Interest expense is expected to
remain similar between 2004 and 2003. Other income is higher in 2004 compared
to 2003 in both the quarterly and year-to-date comparisons due to interest
income as a result of higher cash and cash equivalent balances year-over-year.


Income Taxes
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2004 2003 2004 2003

Provision for income taxes $2,193 $1,894 $4,222 $2,679
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 2004 is expected to
remain at 37%.

LIQUIDITY AND CAPITAL RESOURCES


Cash Flows and Capital Expenditures

Six Months Ended June 30,
(Dollars in thousands) 2004 2003

Cash provided by operating activities $40,085 $27,965
Capital expenditures 9,471 9,975

14

For the six months ended June 30, 2004, cash provided by operating activities
was $40.1 million and improved from the cash provided by operations for the six
months ended June 30, 2003, of $28.0 million. The improvement in cash flows
provided by operating activities year-over-year is attributable to a reduction
of inventories in 2004 of $6.5 million compared to an increase in inventory of
$11.5 million during the same period in 2003. The current year inventory
reduction, as well as an improvement in net earnings year-over-year and
increased accounts payable levels, was partially offset by increased customer
receivables. In addition, during the first six months of 2003, the Company
received $9.0 million in refunds on income taxes. During the first six months
of 2004, the Company received $1.4 million in refunds on income taxes.

In 2004, the Company has continued to limit capital spending to necessary
maintenance-related and high-return capital projects. The Company has
established an objective to achieve a weighted-average internal rate of return
of 17% on capital projects approved in 2004 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 2004 was $9.5 million compared to $10.0
million during the first six months of 2003. Capital spending over the second-
half of 2004 is expected to be greater than the first-half of 2004 due to
capital projects slated for installation during the last six months. Total
capital spending in 2004 is expected to be less than $30 million, or one-half
the Company's rate of depreciation, depletion, and amortization.

For the first six months of 2004, capital expenditures for projects with total
spending expected to exceed $1.0 million were $0.7 million in Printing &
Writing as part of a capital project to expand premium papers production
capabilities at the Brokaw mill. In Towel & Tissue, $0.2 million was spent on
a screw press project and $1.7 million was spent for various converting lines.

The balance of spending during the first six months of 2004 was related to
projects that individually are expected to cost less than $1.0 million. These
expenditures included approximately $4.3 million for essential non or low-
return projects, and approximately $2.6 million on projects expected to provide
a return on investment that exceeds the Company's cost of capital.

For 2003, capital expenditures for projects with total spending expected to
exceed $1.0 million were $0.6 million in Printing & Writing as part of a
capital project to expand premium papers production capabilities at the Brokaw
mill and $0.4 million on a process control system computer replacement at the
Groveton mill. In Towel & Tissue, $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.

Effective March 3, 2003, the Company acquired certain assets of a laminated
papers producer for approximately $8.5 million in cash. The acquisition was
accounted for as a purchase business
15
combination and, accordingly, the purchase price has been allocated using the
fair values of the acquired receivables, inventory, machinery and equipment,
and identifiable intangible assets. No goodwill was recorded as a result of
this acquisition.



Debt and Equity

JUNE 30, December 31,
(Dollars in thousands) 2004 2003

Short-term debt $ 113 $ 112
Long-term debt 161,754 162,174
Total debt 161,867 162,286
Stockholders' equity 350,208 350,316
Total capitalization 512,075 512,602
Long-term debt/capitalization ratio 32% 32%

As of June 30, 2004, there was no significant change in total debt as compared
to December 31, 2003.

On June 30, 2004, 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 support operations,
fund capital plans and meet dividend requirements. By the end of the third
quarter of 2004, the Company expects to replace the current revolving credit
facility which expires in December 2004.

Dividends

On December 19, 2003, the Board of Directors declared a quarterly cash dividend
of $0.085 per common share. The dividend was paid on February 17, 2004, to
shareholders of record on February 2, 2004. On April 22, 2004, the Board of
Directors declared a cash dividend in the amount of $0.085 per share. The
dividend was paid on May 17, 2004, to shareholders of record on May 3, 2004.
At a meeting held on June 14, 2004, the Board of Directors declared a quarterly
cash dividend of $0.085 per common share which is payable on August 16, 2004,
to shareholders of record on August 2, 2004.

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
and supply 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
16
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, 2003, and from time to time, in
the Company's other filings with the Securities and Exchange Commission. The
Company assumes no obligation to update or supplement forward-looking
statements that become untrue because of subsequent events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in the information provided in response to
Item 7A of the Company's Form 10-K for the year ended December 31, 2003.

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 during the period covered by this report which could significantly
affect internal controls, nor were there any significant deficiencies or
material weaknesses identified which required any corrective action to be
taken.
17

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 22, 2004.

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

For Withheld
1. Election of Class I
Directors

(a) Dennis J. Kuester 45,506,437 2,618,547

(b) Andrew N. Baur 47,799,032 325,952


Matter Shares Voted
Broker
For Against Abstention Non-Vote
2. Approval of 2000 Stock
Incentive Plan, as amended 43,289,462 1,502,006 223,609 4,109,907

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits required by Item 601 of Regulation S-K

10.1 2000 Stock Incentive Plan
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 26, 2004. The Company filed a current report on Form
8-K on April 26, 2004, reporting earnings and net sales information for the
first quarter ended March 31, 2004, under Item 5 and additional related
information under Item 12.
18

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 9, 2004 SCOTT P. DOESCHER
Scott P. Doescher
Senior Vice President-Finance,
Secretary and Treasurer

(On behalf of the Registrant and as
Principal Financial Officer)
19

EXHIBIT INDEX
TO
FORM 10-Q
OF
WAUSAU-MOSINEE PAPER CORPORATION
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
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:

10.1 2000 Stock Incentive Plan
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
20