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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 1-4001
UNION CAMP CORPORATION
VIRGINIA 13-5652423
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1600 VALLEY ROAD WAYNE, NEW JERSEY 07470
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
TELEPHONE: (973) 628-2000
- --------------------------------------------------------------------------------
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, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
69,284,264 shares of Registrant's Common Stock, par value $1 Per Share,
were outstanding as of the close of business on March 31, 1998.
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UNION CAMP CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. FINANCIAL INFORMATION*
Item 1. Financial Statements. 2
Item 2. Management's Discussion and 7
Analysis of Financial Condition
and Results of Operations.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. 9
Item 4. Submission of Matters to a Vote 9
Of Security-Holders.
Item 6. Exhibits and Reports on Form 8-K. 10
</TABLE>
--------------------------------------------------
* A summary of the Registrant's significant accounting policies is contained in
the Registrant's Form 10-K for the year ended December 31, 1997 which has
previously been filed with the Commission.
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements.
UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
NET SALES $1,144,574 $1,057,125
Costs and other charges:
Cost of products sold 864,883 812,133
Selling and administrative expenses 123,757 122,527
Depreciation, amortization, and cost of timber harvested 77,601 77,638
---------- ----------
Income from operations 78,333 44,827
---------- ----------
Gross interest expense 32,037 31,062
Less capitalized interest (1,967) (2,153)
Other (income) expense -net 1,504 (2,935)
---------- ----------
Income before income taxes and minority interest 46,759 18,853
---------- ----------
Income taxes:
Current 16,167 2,706
Deferred 1,367 4,006
---------- ----------
Total income taxes 17,534 6,712
---------- ----------
Minority interest (net of tax) (2,506) (2,523)
NET INCOME $ 26,719 $ 9,618
========== ==========
Basic earnings per share: $0.39 $0.14
Diluted earnings per share: $0.38 $0.14
Dividends per share $0.45 $0.45
</TABLE>
Earnings per share are computed on the basis of the average number of common
shares outstanding:
Basic: 1998: 69,227,528 1997: 69,240,938
Diluted: 1998: 69,948,960 1997: 69,531,790
See also the accompanying notes to consolidated financial statements.
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UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------- -------
<S> <C> <C>
Net Income $26,719 $ 9,618
Other comprehensive income, pre-tax:
Foreign currency translation (1,551) (8,673)
------- -------
Total other comprehensive income (1,551) (8,673)
------- -------
Comprehensive Income $25,168 $ 945
======= =======
</TABLE>
See also the accompanying notes to consolidated financial statements.
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UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 35,373 $ 34,878
Receivables-net 628,942 638,130
Inventories at lower of cost or market:
Finished goods 321,026 275,112
Raw materials 102,217 109,352
Supplies 108,748 110,849
---------- ----------
Total inventories 531,991 495,313
---------- ----------
Other 38,844 43,256
---------- ----------
Total current assets 1,235,150 1,211,577
---------- ----------
Plant and equipment, at cost 6,844,837 6,800,477
Less: accumulated depreciation 3,469,538 3,404,918
---------- ----------
3,375,299 3,395,559
Timberlands, less cost of timber harvested 366,101 364,226
---------- ----------
Total property 3,741,400 3,759,785
---------- ----------
Other assets 275,609 270,339
---------- ----------
Total Assets $5,252,159 $5,241,701
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 828,241 $ 803,018
Long-term debt 1,355,702 1,367,450
Deferred income taxes 745,876 744,677
Other liabilities and minority interest 292,230 290,838
Stockholders' equity:
Common stock - par value $1.00 per share 69,284 69,264
Capital in excess of par value 41,531 41,172
Retained earnings 1,940,187 1,944,623
Accumulated other comprehensive income (20,892) (19,341)
---------- ----------
Shares outstanding, 1998 - 69,284,264; 1997 - 69,264,160
Total Stockholders' Equity 2,030,110 2,035,718
---------- ----------
Total Liabilities and Stockholders' Equity $5,252,159 $5,241,701
========== ==========
</TABLE>
See also the accompanying notes to consolidated financial statements.
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UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Cash Provided By (Used For) Operations:
Net income $ 26,719 $ 9,618
Adjustments to reconcile net income
to cash provided by operations:
Depreciation, amortization, and cost of company
timber harvested 77,601 77,638
Deferred income taxes 1,367 4,006
Other 6,114 5,393
Changes in operational assets and liabilities:
Receivables 9,968 (21,336)
Inventories (35,534) (14,007)
Other assets 4,270 2,535
Accounts payable, taxes and other liabilities (22,235) (29,812)
-------- --------
Cash Provided By Operations 68,270 34,035
-------- --------
Cash (Used For) Provided By Investment Activities:
Capital expenditures:
Plant and equipment (53,860) (67,720)
Timberlands (6,989) (5,141)
Payments for acquired businesses - (6,750)
Other (8,779) (5,338)
-------- --------
(69,628) (84,949)
-------- --------
Cash (Used For) Provided By Financing Activities:
Change in short-term notes payable 34,795 98,071
Repayments of long-term debt (2,550) (2,989)
Proceeds from the issuance of long-term debt 5,251 -
Common stock repurchases (5,109) -
Dividends paid (31,160) (31,160)
-------- --------
1,227 63,922
-------- --------
Effect of exchange rate changes on cash 626 (259)
-------- --------
Increase (decrease) in cash and cash equivalents 495 12,749
Balance at beginning of year 34,878 44,917
-------- --------
Balance at end of period $ 35,373 $ 57,666
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $31,584 $34,685
Income taxes $10,765 $4,145
</TABLE>
See also the accompanying notes to consolidated financial statements.
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UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The information furnished in this report is unaudited but
includes all adjustments which, in the opinion of management, are
necessary for a fair presentation of results for the interim
periods reported. The adjustments made were of a normal recurring
nature.
Note 2. Included in "Other Income/Expense" for the first quarter of 1997
is a $1.9 million pre-tax gain from the sale of company property
previously recorded in "Assets held for resale".
Note 3. Included in "Current Liabilities" are $139 million and $113
million of commercial paper borrowings at March 31, 1998 and
year-end 1997, respectively.
Note 4. Included in "Other Liabilities and Minority Interest" at March
31, 1998 and year-end 1997 are $92.8 million and $90.0 million,
respectively, representing the minority interest in Union Camp's
68% owned subsidiary, Bush Boake Allen.
Note 5. Effective March 31, 1998, the company implemented the provisions of
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income". This standard affects financial
statement presentation and disclosure but has no impact on the
company's consolidated financial position or results of operations.
The components of Other Comprehensive Income consist entirely of
the Foreign Currency Translation Adjustment as reported in the
Consolidated Statement of Comprehensive Income for the periods
ending March 31, 1998 and 1997, and as reported in the Consolidated
Balance Sheet as of March 31, 1998 and December 31, 1997. Union
Camp Corporation does not provide any Federal or State deferred
income taxes on the cumulative undistributed earnings of foreign
subsidiaries, including cumulative translation adjustments with
respect to such foreign subsidiaries, because it is management's
intention to permanently reinvest the earnings of foreign
subsidiaries within the businesses of those companies.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the first quarter of 1998, the company recorded net income of $26.7 million
and basic earnings per share of $.39 ($.38 per share on a diluted basis),
compared with $9.6 million or $.14 per share for the first quarter of last year.
Income from operations for the quarter was $78.3 million, a 75% increase from
last year's first quarter. The significant earnings increase reflects the
combination of higher prices and shipments for the company's principal products,
the benefit of cost reduction measures, and an emphasis on higher margin
products.
Net sales for the first quarter were $1.1 billion, 8% above the previous year's
comparable quarter. Sales for all operating segments increased from those in the
first quarter of 1997. Net sales for the Paper and Paperboard segment increased
by 10%, driven by a 3% rise in paper product shipments and higher average
selling prices within the segment. First quarter sales for the Packaging segment
rose 9% due mostly to a 3% volume increase, while Wood Products sales rose 6% as
strengthening markets for plywood offset a modest decline in lumber prices.
Chemical group sales increased marginally as higher prices offset the negative
impact of exchange rates. The Alling & Cory Company, a paper distribution
business acquired in August 1996, generated sales of $179 million in the first
quarter of 1998 versus sales of $158 million in the first quarter of 1997. The
impact of this business on first quarter operating results was not material.
<TABLE>
<CAPTION>
FIRST FIRST
OPERATING PROFIT BY SEGMENT ($000) QUARTER 1998 QUARTER 1997
- --------------------------------- ------------ ------------
<S> <C> <C>
Paper and Paperboard $52,157 $20,385
Packaging Products 8,304 10,337
Wood Products 9,064 12,863
Chemical 16,300 15,862
Corporate Items and Eliminations (7,492) (14,620)
------- -------
Income from Operations $78,333 $44,827
======= =======
</TABLE>
Operating income for the Paper and Paperboard segment in the first quarter of
1998 was $52.2 million, more than double the $20.4 million reported for the
first quarter of last year. Increased operating profits resulted from higher
average selling prices of both linerboard and uncoated business papers,
production efficiencies, and increased shipments of domestic and export
linerboard, which were partially offset by decreased shipments of business
papers and higher wood costs in the Southeast. Linerboard shipments increased by
37%, while uncoated business papers volume decreased by 6% compared with last
year's first quarter. First quarter average selling prices for domestic and
export linerboard increased 15% and 9% respectively, while average selling
prices for uncoated business papers increased 12%, compared with last year's
comparable period.
Packaging segment operating income was $8.3 million for the first quarter of
1998, compared with $10.3 million for last year's comparable quarter. Earnings
declined due to lower margins within the domestic corrugated container business
and price erosion in the company's offshore container operations. However,
increased shipment levels and an improved performance in the flexible packaging
and folding carton operations partially offset this profit decline. Operating
profit within flexible packaging increased substantially as operations benefited
from increased efficiencies and a 5% increase in paper shipments. Also, paper
and plastic selling prices increased by 2% and 3%, respectively. Folding carton
operating income exceeded last year's first quarter as the group continued to
shift its product mix toward higher margin segments. In March 1998, the company
decided to exit the Central Florida container market and is pursing
opportunities to sell its Lakeland plant as an ongoing operation.
The company's non-paper businesses reported mixed results compared with last
year's first quarter. The Wood Products segment reported first quarter earnings
of $9.1 million, a 30% decrease from last year's first quarter, largely due to a
3% decrease in the average selling price of lumber from the record levels set
7
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in the first half of 1997 and higher wood costs. Increased earnings for the
Chemical segment resulted principally from a 19% increase in operating profits
in the company's Bush Boake Allen business, which benefited from strong
performances in its domestic operations and increased margins for its flavors
and fragrances business. This mitigated the negative impact of exchange rates
and an economic slowdown in the Asia Pacific Region, which affected the
company's other chemical business as well.
Depreciation expense for the first quarter of 1998 increased 2% from last year's
comparable quarter, due to various capital projects becoming operational since
last year. Gross interest expense in the first quarter increased slightly
compared to the same quarter last year, reflecting an increase in outstanding
debt.
Cash flow from operations for the first quarter of 1998 was $68.3 million,
compared with $34.0 million for last year's comparable period. The increase was
primarily due to the increased earnings for the first quarter of this year, and
a decrease in trade receivables. Capital expenditures for the first quarter of
this year totaled $60.8 million, compared with $72.9 million last year. Total
debt increased $37.5 million during the first quarter of 1998, due to increased
commercial paper borrowings. The ratio of total debt to total capital employed
increased slightly to 37.4% at March 31, 1998, compared with 36.8% at year-end
1997.
Net working capital decreased to $406.9 million at March 31, 1998, from $408.6
million at year-end 1997, primarily due to an increase in short-term borrowings,
which was partially offset by an increase in inventory.
In February 1998, the FASB issued SFAS No. 132 "Employer's Disclosures about
Pensions and Other Postretirement Benefits". The company intends to adopt this
statement for the year ended December 31, 1998. In addition, the FASB also
issued SFAS No. 130, "Reporting Comprehensive Income", which was adopted by the
company in the first quarter of 1998. This statement establishes standards for
the reporting and display of comprehensive income in the company's financial
statements and footnotes. These statements affect financial statement
presentation and disclosure but will not have an impact on the company's
consolidated financial position or results of operations.
The company is currently evaluating its operations to determine if its computer
systems and process control equipment are "Year 2000" compliant. The company has
not yet fully assessed the "Year 2000" compliance expenses, but is in the
process of developing a workplan to correct any foreseeable problems. While it
is not possible at present to quantify the cost of corrective actions,
management currently expects that these actions will not have a material impact
on the company's financial position, liquidity, or results of operations. While
the company believes all necessary work will be completed in a timely fashion,
there can be no guarantee that all systems will be compliant by the year 2000 or
that the systems of other companies on which the company relies will be
converted within the same timeframe.
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Statements in this report or in other company announcements that are not
historical are forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially. Such risks
and uncertainties with respect to the company include the effect of general
economic conditions, fluctuations in supply and demand for the company's
products including exports and potential imports, paper industry production
capacity, operating rates and competitive pricing pressures.
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8
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the Annual Report on Form 10-K for 1997 the Company reported
the status of the investigation to ascertain existing conditions
at its Dover, Ohio facility under the Resource Conservation and
Recovery Act. The investigation is being conducted under a
Consent Order which the Company entered in August 1992 with
Region V of the U.S. Environmental Protection Agency (the "EPA").
The Company submitted a final risk assessment and site
investigation report in late 1996 which were approved with
modifications by the EPA. Further investigative work is underway.
The Company submitted a corrective measures study to the EPA with
its recommendations for corrective action. Based upon comments
made by the EPA during the first quarter of 1998, the Company is
amending the corrective measures study. On the basis of the
information presently available to it, Union Camp believes that
remedial action required as a result of the investigation will
not result in a material adverse effect on its financial
condition.
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company's annual meeting of its stockholders was held on
April 28, 1998.
At the annual meeting the Company's stockholders voted on five
proposals: (1) the election of four nominees to serve as
directors for three year terms; (2) the ratification of the
appointment of Price Waterhouse as independent accountants for
the year 1998; (3) the approval of the Deferred Stock Unit Plan
for Outside Directors; (4) the approval of the Outside Directors'
Stock Option Plan; and (5) a stockholder proposal to endorse the
CERES Principles. The voting of the Company's stockholders as to
these matters was as follows:
1. Election of Directors.
<TABLE>
<CAPTION>
Votes
Nominees Votes For Withheld
-------- --------- --------
<S> <C> <C>
Jerry H. Ballengee 57,061,066 355,607
Ann D. McLaughlin 56,898,569 518,104
George J. Sella, Jr. 56,904,732 511,941
Ted D. Simmons 56,925,183 491,490
</TABLE>
2. Ratification of Appointment of Accountants.
<TABLE>
<CAPTION>
Votes
Votes For Against Abstentions
--------- ------- -----------
<S> <C> <C>
57,199,523 125,164 91,986
</TABLE>
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3. Approval of the Deferred Stock Unit Plan for Outside
Directors.
<TABLE>
<CAPTION>
Votes
Votes For Against Abstentions
--------- ------- -----------
<S> <C> <C>
54,583,855 2,500,333 332,485
</TABLE>
4. Approval of the Outside Directors' Stock Option Plan.
<TABLE>
<CAPTION>
Votes
Votes For Against Abstentions
--------- ------- -----------
<S> <C> <C>
53,463,797 3,615,446 337,430
</TABLE>
5. Stockholder Proposal to Endorse the CERES Principles.
<TABLE>
<CAPTION>
Votes Broker
Votes For Against Abstentions Non-Votes
--------- ------- ----------- ---------
<S> <C> <C> <C>
4,087,926 43,337,929 4,928,386 5,062,432
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
No. Description
--- -----------
11 Statement re computation of
per share earnings.
27 Financial data schedule.
b) Reports on Form 8-K.
No Current Report on Form 8-K was filed by the Registrant
during the first quarter of 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION CAMP CORPORATION
------------------------------
(Registrant)
Date: May 13, 1998 /S/ Dirk R. Soutendijk
----------------------
DIRK R. SOUTENDIJK
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
Date: May 13, 1998 /S/ John F. Haren
-----------------
CONTROLLER
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EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Net Income ($000) $26,719 $9,618
Weighted Average Common
Shares Outstanding 69,227,528 69,240,938
Basic Earnings Per Share $0.39 $0.14
Weighted Average Common
Shares Outstanding
Including Common Stock
Equivalents - Diluted Basis 69,948,960 69,531,790
Diluted Earnings Per Share $0.38 $0.14
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND THE CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 35,373
<SECURITIES> 0
<RECEIVABLES> 647,046
<ALLOWANCES> 18,104
<INVENTORY> 531,991
<CURRENT-ASSETS> 1,235,150
<PP&E> 7,210,938
<DEPRECIATION> 3,469,538
<TOTAL-ASSETS> 5,252,159
<CURRENT-LIABILITIES> 828,241
<BONDS> 1,355,702
0
0
<COMMON> 69,284
<OTHER-SE> 1,960,826
<TOTAL-LIABILITY-AND-EQUITY> 5,252,159
<SALES> 1,144,574
<TOTAL-REVENUES> 1,144,574
<CGS> 864,883
<TOTAL-COSTS> 1,066,241
<OTHER-EXPENSES> 1,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,070
<INCOME-PRETAX> 46,759
<INCOME-TAX> 17,534
<INCOME-CONTINUING> 26,719<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,719
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.38
<FN>
<F1>REFLECTS ADJUSTMENT FOR MINORITY INTEREST (NET OF TAX) OF $2,506
</FN>
</TABLE>
