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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 June 30, 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 |_|
69,334,052 shares of Registrant's Common Stock, par value $1 Per Share,
were outstanding as of the close of business on June 30, 1998.
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UNION CAMP CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. FINANCIAL INFORMATION*
Item 1. Financial Statements. 2
Item 2. Management's Discussion and 8
Analysis of Financial Condition
and Results of Operations.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 11
</TABLE>
* A summary of the Registrant's significant accounting policies is contained in
the Registrant's Form 10-K for the year ended December 31, 1997 which has
previously been filed with the Commission.
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements.
UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
Net Sales $ 1,134,069 $ 1,105,591 $ 2,278,643 $ 2,162,716
Costs and other charges:
Cost of products sold 869,235 844,540 1,734,118 1,656,673
Selling and administrative expenses 124,180 129,442 247,937 251,969
Depreciation, amortization, and cost of timber harvested 77,720 77,803 155,321 155,441
--------- --------- --------- ---------
Income from operations 62,934 53,806 141,267 98,633
--------- --------- --------- ---------
Gross interest expense 32,383 32,153 64,420 63,215
Less capitalized interest (3,118) (2,039) (5,085) (4,192)
Other (income) expense - net (756) 1,400 748 (1,535)
--------- --------- --------- ---------
Income before income taxes and minority interest 34,425 22,292 81,184 41,145
--------- --------- --------- ---------
Income taxes:
Current 6,820 5,154 22,987 7,860
Deferred 5,852 3,357 7,219 7,363
--------- --------- --------- --------
Total income taxes 12,672 8,511 30,206 15,223
--------- --------- --------- --------
Minority interest (net of tax) (2,940) (3,170) (5,446) (5,693)
--------- --------- --------- --------
Net Income $ 18,813 $ 10,611 $ 45,532 $ 20,229
========= ========= ========= ========
Basic earnings per share: $ 0.27 $ 0.15 $ 0.66 $ 0.29
Diluted earnings per share: $ 0.27 $ 0.15 $ 0.65 $ 0.29
Dividends per share $ 0.45 $ 0.45 $ 0.90 $ 0.90
</TABLE>
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>
Quarter Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
Net Income $ 18,813 $ 10,611 $ 45,532 $ 20,229
Other comprehensive income, pre-tax:
Foreign currency translation $ (505) $ 2,322 (2,056) (6,351)
-------- -------- -------- --------
Total other comprehensive income (505) 2,322 (2,056) (6,351)
-------- -------- -------- --------
Comprehensive Income $ 18,308 $ 12,933 $ 43,476 $ 13,878
======== ======== ======== ========
</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>
JUNE 30, DECEMBER 31,
1998 1997
------------ --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 34,000 $ 34,878
Receivables-net 588,928 638,130
Inventories at lower of cost or market:
Finished goods 323,798 275,112
Raw materials 100,866 109,352
Supplies 109,035 110,849
---------- ----------
Total inventories 533,699 495,313
---------- ----------
Other current assets 58,986 43,256
---------- ----------
Total current assets 1,215,613 1,211,577
---------- ----------
Plant and equipment, at cost 6,852,777 6,800,477
Less: accumulated depreciation 3,511,942 3,404,918
---------- ----------
3,340,835 3,395,559
Timberlands, less cost of timber harvested 374,449 364,226
---------- ----------
Total property 3,715,284 3,759,785
---------- ----------
Other assets 289,638 270,339
---------- ----------
Total Assets $ 5,220,535 $ 5,241,701
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 853,050 $ 803,018
Long-term debt 1,299,215 1,367,450
Deferred income taxes 751,000 744,677
Other liabilities and minority interest 297,610 290,838
Stockholders' equity:
Common stock - par value $1.00 per share 69,334 69,264
Capital in excess of par value 43,937 41,172
Retained earnings 1,927,786 1,944,623
Accumulated other comprehensive income (21,397) (19,341)
--------- ---------
Shares outstanding, 1998 - 69,334,052; 1997 - 69,264,160
Total Stockholders' Equity 2,019,660 2,035,718
--------- ---------
Total Liabilities and Stockholders' Equity $ 5,220,535 $ 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>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash Provided By (Used For) Operations:
Net income $ 45,532 $ 20,229
Adjustments to reconcile net income
to cash provided by operations:
Depreciation, amortization, and cost of company
timber harvested 155,321 155,441
Deferred income taxes 7,219 7,363
Other 10,568 14,289
Changes in operational assets and liabilities:
Receivables 49,820 (19,768)
Inventories (37,502) 2,250
Other assets (806) (1,032)
Accounts payable, taxes and other liabilities (35,998) (24,784)
--------- ---------
Cash Provided By Operations 194,154 153,988
--------- ---------
Cash (Used For) Provided By Investment Activities:
Capital expenditures:
Plant and equipment (109,651) (150,976)
Timberlands (15,447) (13,697)
Payments for acquired businesses -- (13,350)
Other (22,443) 1,523
--------- ---------
(147,541) (176,500)
--------- ---------
Cash (Used For) Provided By Financing Activities:
Change in short-term notes payable 41,786 82,600
Repayments of long-term debt (24,326) (12,114)
Proceeds from the issuance of long-term debt 5,251 10,000
Common stock repurchases (6,648) --
Dividends paid (62,373) (62,546)
--------- ---------
(46,310) 17,940
--------- ---------
Effect of exchange rate changes on cash (1,181) (495)
--------- ---------
Increase (decrease) in cash and cash equivalents (878) (5,067)
Balance at beginning of year 34,878 44,917
--------- ---------
Balance at end of period $ 34,000 $ 39,850
========= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 59,035 $ 59,109
Income taxes $ 25,510 $ 13,977
</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 Current Assets at June 30, 1998 is $15.1
million of assets held for resale. This increase relates in part
to the company's decision to sell its Lakeland, Florida and
Newtown, Connecticut operations.
Note 3. Included in Current Liabilities are $157 million and $113
million of commercial paper borrowings at June 30, 1998 and
year-end 1997, respectively.
Note 4. Included in "Other Liabilities and Minority Interest" at June
30, 1998 and year-end 1997 are $95.6 million and $90.0 million,
respectively, representing the minority interest in Union Camp's
68% owned subsidiary, Bush Boake Allen.
Note 5. Effective January 1, 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 June 30, 1998 and 1997, and as reported in
the Consolidated Balance Sheet as of June 30, 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.
Note 6. The company has guaranteed loans of up to $30 million made by
a financial institution to non-controlled entities. The loan
guarantees have terms of 4 years or less and are either secured
by the borrower's assets or contain contractual rights to obtain
possession of stock in the borrower's business. The terms of a
guaranteed loan for $15 million calls for a principal payment in
the amount of $3.75 million during the fourth quarter of 1998.
Although the company expects the borrower will meet this
scheduled principal payment, there is a possibility that the
company may have to fulfill this obligation.
6
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<PAGE>
Note 7. Earnings per share are computed on the basis of the average
number of common shares outstanding:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C> <C>
Quarter Ended June 30, Basic 69,333,689 69,287,739
Diluted 68,984,671 69,738,945
Six Months Ended June 30, Basic 69,280,902 69,264,468
Diluted 69,961,595 69,715,674
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the second quarter of 1998, the company recorded net income of $18.8 million
or $.27 per share (diluted), compared with $10.6 million or $.15 per share
(diluted) for the second quarter of last year. Income from operations for the
quarter was $62.9 million, a 17% increase from last year's second quarter. The
significant earnings increase over the prior year reflects a combination of
higher prices for linerboard and uncoated free sheet, as well as the benefit of
cost reduction measures, offset in part by higher wood costs.
Net income for the first half of 1998 was $45.5 million or $.65 per share
(diluted), compared with $20.2 million or $.29 per share (diluted) for the same
period last year. Although operating income for the first half of 1998 of $141.3
million increased 43% above the $98.6 million reported for the first half of
1997, the economic turmoil in Asia has significantly impacted the worldwide
supply/demand balance during the first half of 1998, thereby affecting the
markets and demand for our core products.
In comparison to the first quarter of this year, second quarter net income
decreased by 30%. Income from operations for the second quarter also declined by
20% from this year's first quarter. During this year's second quarter, excess
inventory levels have resulted in declining prices for most of the company's
major products. The earnings decline from the first quarter of this year
primarily reflects the impact of downtime taken at one paper mill and weakness
in prices primarily for uncoated free sheet and lumber. In recognition of these
weaker markets, the company took approximately 70,000 tons of downtime in its
linerboard mills and approximately 16,000 tons downtime in its uncoated free
sheet mills during the second quarter of this year.
Net sales for the second quarter were $1.1 billion, 3% above the previous year's
comparable quarter. The Alling & Cory Company, a paper distribution business
acquired in August 1996, generated sales of $177 million in the second quarter
of 1998 versus sales of $165 million in the second quarter of 1997. The impact
of this business on second quarter operating results was not material. Overall,
total paper products shipments were down 4% from last year's second quarter.
<TABLE>
<CAPTION>
Second Second
Operating Profit by Segment ($000) Quarter 1998 Quarter 1997
- ---------------------------------- ------------ -------------
<S> <C> <C>
Paper and Paperboard $ 42,165 $ 17,642
Packaging Products 6,982 9,529
Wood Products 5,606 20,277
Chemical 17,013 20,617
Corporate Items and Eliminations (8,832) (14,259)
---------- ----------
Income from Operations $ 62,934 $ 53,806
========== ==========
</TABLE>
Operating income for the Paper and Paperboard segment in the second quarter of
1998 was $42.2 million, more than double the $17.6 million reported for the
second quarter of last year. Increased operating profits resulted from higher
average selling prices of both linerboard and uncoated business papers, and
increased shipments of domestic linerboard, which were partially offset by
decreased shipments of business papers and export linerboard, as well as higher
wood costs. Compared with last year's second quarter, domestic linerboard
shipments increased by 3%, while shipments for export linerboard and uncoated
business papers decreased by 20% and 3%, respectively. Second quarter average
selling prices for domestic and export linerboard increased 27% and 11%
respectively, while average selling prices for uncoated business papers
increased 5%, versus last year's comparable period. Compared to the preceding
quarter, uncoated free sheet prices declined 5%.
Packaging segment operating income was $7.0 million for the second quarter of
1998, compared with $9.5 million for last year's comparable quarter. Earnings
declined due to lower margins within both the domestic and international
corrugated container businesses. However, improved performances in the flexible
packaging and folding carton operations partially offset this profit decline. In
the first half of 1998, the company decided to sell its Lakeland, Florida and
Newtown, Connecticut plants as ongoing operations. The company is in receipt of
signed letters of intent for the sale of both operations.The book
8
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value of these assets has been reclassed into assets held for resale, which is
included within other current assets.
The company's other business groups reported decreased operating income compared
with last year's second quarter. The Wood Products segment reported second
quarter earnings of $5.6 million, a significant decrease from last year's second
quarter, due largely to a 15% decrease in the average selling price of lumber
from the second quarter of 1997, higher wood stumpage costs, as well as start up
expenses associated with the company's new laminated veneer lumber plant. These
factors were partially offset by lumber and plywood volume increases of 3% and
4%, respectively, compared with last year's comparable period. The 17% earnings
decline in the Chemical segment resulted from a significant decrease in
operating profits in the Chemical Products business due to the unfavorable
impact of exchange rates and the economic slowdown in the Asia Pacific region,
both of which also negatively affected the company's Bush Boake Allen business.
However, Bush Boake Allen was able to partially offset this negative impact with
the effectiveness of cost control programs and product mix improvements.
Depreciation expense for the second quarter of 1998 increased 1% from last
year's comparable quarter, due to the completion of several capital projects.
Gross interest expense in the second quarter increased slightly compared to the
same quarter last year, reflecting an increase in outstanding debt, which was
partially offset by greater capitalized interest.
Cash flow from operations for the first half of 1998 was $194.2 million,
compared with $154.0 million for last year's comparable period. The increase was
primarily due to the increased earnings for the first half of this year and a
decrease in trade receivables. Capital expenditures for the first half of this
year totaled $125.1 million, compared with $164.7 million last year. Total debt
increased $22.7 million during the first half of 1998, due to increased
commercial paper borrowings. The ratio of total debt to total capital employed
increased slightly to 37.2% at June 30, 1998, compared with 36.8% at year-end
1997.
Net working capital decreased to $362.5 million at June 30, 1998, from $408.6
million at year-end 1997, primarily due to an increase in short-term borrowings,
and a decrease in trade receivables, which partially offset increases in
inventory levels.
During the third quarter of 1998, the company intends to convert a $15 million
trade account receivable, of which $14 million is past due, to an interest
bearing note maturing in 2001. As described in Note 6 to the company's second
quarter Financial Statements, the company has also guaranteed a loan from a
financial institution to this customer of $15 million, which is payable in four
equal annual installments commencing in the fourth quarter of 1998. Based on the
information currently available to the company, it is expected that the
principal payment due in the fourth quarter will be made. However, there is a
possibility that payment, wholly or partially, may not occur and the company
will be required to satisfy the payment obligation. The company has security
interests in the customer's assets and is in close contact with the customer
regarding its prospects and results of operation.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments. The
statement, which is effective for the first quarter of 2000, requires all
derivatives to be measured at fair value and recognized as either assets or
liabilities. Management is in the process of reviewing this new pronouncement
and currently does not expect adoption of this statement to have a material
effect on the company's consolidated financial position or results of
operations.
The company has completed an enterprise-wide program to identify computer
systems and process control equipment with date sensitive "Year 2000" software.
This effort included a preliminary assessment of the expected range of costs to
be incurred in modifying or replacing systems and equipment that require
remedial action. Based upon this preliminary assessment, the company estimates
the cost of corrective actions to be between $20 to $25 million. All
modification costs will be expensed as incurred. The company believes all
necessary work will be completed in a timely fashion. While it is possible that
the costs of these remedial efforts may be material to the results of operations
in one or more fiscal quarters, management believes these costs will not have a
material adverse impact on the long-term results of operations, liquidity, or
consolidated financial position of the company.
9
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In addition, the "Year 2000" issue will impact the company's customers and
suppliers. It is not possible at this time to predict with certainty that the
systems and equipment of customers, suppliers or other companies on which the
company relies will be Year 2000 compliant within the necessary timeframe. The
company will soon begin the process of contacting major customers and suppliers
to discuss their remediation plans.
- -------------------------------------------------------------------------------
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, competitive pricing pressures, that the company's
future "Year 2000" efforts reveal the costs of corrective action to be higher
than presently estimated and that, if the obligor of the $15 million trade
receivable and $15 million note guaranteed by the company defaults in its
payment obligations, the company's remedies may be insufficient.
- -------------------------------------------------------------------------------
10
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<S> <C> <C>
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 second quarter of 1998.
</TABLE>
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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: August 13, 1998 /S/ Dirk R. Soutendijk
--------------- ----------------------------------
DIRK R. SOUTENDIJK
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
Date: August 13, 1998 /S/ John F. Haren
--------------- ----------------------------------
CONTROLLER
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EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
----------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income ($000) $ 18,813 $ 10,611 $ 45,532 $ 20,229
Weighted Average Common
Shares Outstanding 69,333,689 69,287,739 69,280,902 69,264,468
Basic Earnings Per Share $ 0.27 $ 0.15 $ 0.66 $ 0.29
Weighted Average Common
Shares Outstanding
Including Common Stock
Equivalents - Fully
Diluted Basis 69,984,671 69,738,945 69,961,595 69,715,674
Diluted Earnings Per Share $ 0.27 $ 0.15 $ 0.65 $ 0.29
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND THE CONSOLIDATED BALANCE
SHEET AT JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 34,000
<SECURITIES> 0
<RECEIVABLES> 608,275
<ALLOWANCES> 19,347
<INVENTORY> 533,699
<CURRENT-ASSETS> 1,215,613
<PP&E> 7,227,226
<DEPRECIATION> 3,511,942
<TOTAL-ASSETS> 5,220,535
<CURRENT-LIABILITIES> 853,050
<BONDS> 1,299,215
<COMMON> 69,334
0
0
<OTHER-SE> 1,950,326
<TOTAL-LIABILITY-AND-EQUITY> 5,220,535
<SALES> 2,278,643
<TOTAL-REVENUES> 2,278,643
<CGS> 1,734,118
<TOTAL-COSTS> 2,137,376
<OTHER-EXPENSES> 748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,335
<INCOME-PRETAX> 81,184
<INCOME-TAX> 30,206
<INCOME-CONTINUING> 45,532 <F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,532
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.65
<FN>
<F1>
REFLECTS ADJUSTMENT FOR MINORITY INTEREST (NET OF TAX) OF $5,446
</FN>
</TABLE>
