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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A-1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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
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<S> <C>
VIRGINIA 13-5652423
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(State of Incorporation) (I.R.S. Employer Identification No.)
1600 VALLEY ROAD, WAYNE, NEW JERSEY 07470
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(Address of Principal Executive Offices) (Zip Code)
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TELEPHONE: (973) 628-2000
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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 [ ]
69,184,299 shares of Registrant's Common Stock, par value $1 Per Share,
were outstanding as of the close of business on September 30, 1998.
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UNION CAMP CORPORATION
INDEX
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Page
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Part I. FINANCIAL INFORMATION*
Item 1. Financial Statements. 2
Item 2. Management's Discussion and 8
Analysis of Financial Condition
and Results of Operations.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K. 14
</TABLE>
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* A summary of the Registrant's significant accounting policies is contained in
the Registrant's Form 10-K for the year ended December 31, 1997 which has
previously been filed with the Commission.
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements.
UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share)
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<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 1,107,305 $ 1,126,902 $ 3,385,948 $ 3,289,618
Costs and other charges:
Cost of products sold 852,705 849,318 2,586,823 2,505,991
Selling and administrative expenses 132,077 125,165 380,014 377,134
Depreciation, amortization, and cost of timber harvested 79,314 77,064 234,635 232,505
Special charge 39,750 -- 39,750 --
----------- ----------- ----------- -----------
Income from operations 3,459 75,355 144,726 173,988
----------- ----------- ----------- -----------
Gross interest expense 31,569 31,852 95,989 95,067
Less capitalized interest (3,580) (2,922) (8,665) (7,114)
Other (income) expense - net 1,856 (1,084) 2,604 (2,619)
----------- ----------- ----------- -----------
Income (loss) before income taxes and minority interest (26,386) 47,509 54,798 88,654
----------- ----------- ----------- -----------
Income taxes:
Current (7,979) 12,620 15,008 20,480
Deferred 683 4,431 7,902 11,794
----------- ----------- ----------- -----------
Total income taxes (7,296) 17,051 22,910 32,274
----------- ----------- ----------- -----------
Minority interest (net of tax) (2,731) (2,899) (8,177) (8,592)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (21,821) $ 27,559 $ 23,711 $ 47,788
=========== =========== =========== ===========
Basic earnings (loss) per share: ($0.32) $0.40 $0.34 $0.69
Diluted earnings (loss) per share: ($0.32) $0.40 $0.34 $0.69
Dividends per share $0.45 $0.45 $1.35 $1.35
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See also the accompanying notes to consolidated financial statements.
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UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
($ in thousands)
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QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net Income (Loss) $ (21,821) $ 27,559 $ 23,711 $ 47,788
Other comprehensive income, pre-tax:
Foreign currency translation 4,455 (9,998) 2,399 (16,349)
---------------- ---------------- ---------------- ----------------
Total other comprehensive income 4,455 (9,998) 2,399 (16,349)
---------------- ---------------- ---------------- ----------------
Comprehensive Income (Loss) $ (17,366) $ 17,561 $ 26,110 $ 31,439
================ ================ ================ ================
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See also the accompanying notes to consolidated financial statements.
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UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in thousands)
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
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ASSETS
Cash and cash equivalents $ 37,713 $ 34,878
Receivables-net 566,046 638,130
Inventories at lower of cost or market:
Finished goods 330,179 275,112
Raw materials 102,226 109,352
Supplies 109,624 110,849
----------------- ------------------
Total inventories 542,029 495,313
----------------- ------------------
Other current assets 56,259 43,256
----------------- ------------------
Total current assets 1,202,047 1,211,577
----------------- ------------------
Plant and equipment, at cost 6,913,965 6,800,477
Less: accumulated depreciation 3,587,300 3,404,918
----------------- ------------------
3,326,665 3,395,559
Timberlands, less cost of timber harvested 379,199 364,226
----------------- ------------------
Total property 3,705,864 3,759,785
----------------- ------------------
Other assets 283,474 270,339
----------------- ------------------
Total Assets $ 5,191,385 $ 5,241,701
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 863,516 $ 803,018
Long-term debt 1,301,629 1,367,450
Deferred income taxes 752,233 744,677
Other liabilities and minority interest 308,867 290,838
Stockholders' equity:
Common stock - par value $1.00 per share 69,184 69,264
Capital in excess of par value 38,589 41,172
Retained earnings 1,874,309 1,944,623
Accumulated other comprehensive income (16,942) (19,341)
----------------- ------------------
Shares outstanding, 1998 - 69,184,299; 1997 - 69,264,160
Total Stockholders' Equity 1,965,140 2,035,718
----------------- ------------------
Total Liabilities and Stockholders' Equity $ 5,191,385 $ 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)
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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
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1998 1997
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Cash Provided By (Used For) Operations:
Net income $23,711 $47,788
Adjustments to reconcile net income
to cash provided by operations:
Depreciation, amortization, and cost of company
timber harvested 234,635 232,505
Deferred income taxes 7,902 11,794
Special charge 39,750 -
Other 30,136 21,572
Changes in operational assets and liabilities:
Receivables 63,033 (38,422)
Inventories (43,036) (5,128)
Other assets 1,248 5,168
Accounts payable, taxes and other liabilities (40,401) (2,301)
-------------- --------------
Cash Provided By Operations 316,978 272,976
-------------- --------------
Cash (Used For) Provided By Investment Activities:
Capital expenditures:
Plant and equipment (164,011) (213,828)
Timberlands (22,735) (25,645)
Payments for acquired businesses - (13,890)
Other (29,234) 19,253
-------------- --------------
(215,980) (234,110)
-------------- --------------
Cash (Used For) Provided By Financing Activities:
Change in short-term notes payable 46,905 57,482
Repayments of long-term debt (59,464) (15,206)
Proceeds from the issuance of long-term debt 21,501 10,000
Common stock repurchases (13,002) -
Dividends paid (93,532) (93,681)
-------------- --------------
(97,592) (41,405)
-------------- --------------
Effect of exchange rate changes on cash (571) (1,680)
-------------- --------------
Increase (decrease) in cash and cash equivalents 2,835 (4,219)
Balance at beginning of year 34,878 44,917
-------------- --------------
Balance at end of period $37,713 $40,698
============== ==============
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $90,119 $94,946
Income taxes $30,536 $22,304
</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
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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, except as detailed
below in Note 2.
Note 2. During the third quarter of 1998, the company recorded a $39.8 million
pre-tax non-recurring special charge ($26.4 million after-tax) to
operating income. Included in the charge was $31.7 million for employee
termination benefits related to the elimination of approximately 540
positions, and $8.1 million for asset write downs. Included in the
severance program are approximately 190 positions eliminated through
a re-organization and restructuring of the company's research and
development activities; the elimination of 190 positions through the
consolidation of the Packaging Group's administrative support functions,
and about 160 positions through a series of organizational changes.
Substantially all of the 540 positions are expected to be eliminated
by the end of 1999; however, the announced merger with International
Paper Company may affect timing.
The asset write downs were principally attributable to the impairment
of goodwill specific to two packaging businesses. In 1990, Union Camp
acquired Chase Packaging Corporation. As part of this acquisition,
Union Camp recorded goodwill of $14.5 million. Subsequently, several of
the acquired Chase facilities were sold or closed. Union Camp wrote off
a pro-rata share of goodwill with each sale. In the third quarter of 1998,
after an ongoing pattern of declining operating performance over several
years at the remaining three Chase facilities, management assessed
the carrying value of the goodwill and wrote off the remaining $5.4
million. The other write-off is associated with Union Camp's 1996
purchase of a 50% interest in a packaging plant in Turkey. The operation
has resulted in Union Camp incurring losses of $2.5 million for the
full year 1997 and $1.4 million for the nine months ended September 30,
1998. Upon reviewing the historical and projected operating results
for the business, management concluded that expected future cash flows
did not support the carrying value of this asset and wrote off $1.2
million.
Note 3. Also included in third quarter 1998 income from operations are two
significant charges. The company recorded an $8.7 million reserve for
a potential loss relating to an outstanding trade receivable and loan
guarantee for a customer with questionable future cash flows. (See note
7 below). Additionally, during the quarter the company recorded higher
than normal environmental/OSHA remediation expenses of $6 million.
These charges totaling $14.7 million, previously included in the
special charge, have been reclassified; $6 million to "Cost of Products
Sold" and $8.7 million to "Selling and Administrative Expenses."
Note 4. The increase in "Other Current Assets" from December 31, 1997 is due
to the reclassification of $14.3 million to assets held for resale
from plant and equipment.
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6
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Note 5. Included in "Current Liabilities" are $169 million and $113 million of
commercial paper borrowings at September 30, 1998 and year-end 1997,
respectively.
Note 6. Included in "Other Liabilities and Minority Interest" at September 30,
1998 and year-end 1997 are $98.2 million and $90.0 million,
respectively, representing the minority interest in Union Camp's 68%
owned subsidiary, Bush Boake Allen.
Note 7. The company has guaranteed loans of up to $30 million made by a
financial institution to non-controlled entities. Each of the loan
guarantees has a term of four years or less and is secured by the
entity's assets or, in the case of one borrower, contains contractual
rights to obtain possession of stock in the business. The terms of one
guaranteed loan for $15 million made to a customer of the company
require a principal payment of $3.75 million during the fourth quarter
of 1998. In addition, this same customer has a $15 million past
due trade account receivable owed to the company. The customer's
recent results of operations and anticipated cash flows indicate that
it is doubtful that its obligations relative to the loan guaranteed by
the company and the past due receivable will be fully met. As a
result, the company has estimated the potential for loss and recorded
an $8.7 million charge as a reserve in the third quarter. Including
previously recorded amounts, the total reserve was $10.7 million as of
September 30, 1998. On-going events and future business conditions
may require the company to record additional charges.
Note 8. Earnings per share are computed on the basis of the average number of
common shares outstanding:
</TABLE>
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1998 1997
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<S> <C> <C> <C>
Quarter Ended September 30, Basic 69,251,024 69,546,878
Diluted 69,299,737 70,321,568
Nine Months Ended September 30, Basic 69,270,833 69,359,639
Diluted 69,669,667 69,795,368
</TABLE>
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The diluted earnings per share calculation excludes the effect of
stock options when the options' exercise price exceed the average
market price of the common shares during the period. For the three and
nine months periods ended September 30, 1998, 4.0 million and 1.0
million options, respectively, were excluded. There were no
antidilutive options for the comparable periods of 1997.
Note 9. Certain amounts have been reclassified for 1997 to conform with the
1998 presentation.
Note 10. On November 23, 1998, the Boards of Directors of Union Camp Corporation
and International Paper Company approved a merger of the two companies
through an exchange of Union Camp shares for International Paper
shares valued at approximately $4.9 billion. The transaction, which is
expected to be finalized early in the second quarter of 1999, is subject
to shareholder approval. The merger is expected to be accounted for as
as a pooling of interests.
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7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the third quarter of 1998, the company recorded a net loss of $21.8 million
or $.32 per share (diluted). Included in the company's third quarter results was
a special, non-recurring charge amounting to $39.8 million pre-tax ($26.4
million or $.38 per share after-tax). The special charge represents the cost of
a series of restructuring and reorganization actions to further improve
profitability. Included in the charge was $31.7 million for employee severance
costs related to the elimination of approximately 540 positions, and $8.1
million for asset write downs.
Included in the severance program are approximately 190 positions eliminated
through a re-organization and restructuring of the company's research and
development activities; the elimination of 190 positions through the
consolidation of the Packaging Group's administrative support functions, and
about 160 positions through a series of organizational changes. Substantially
all of the 540 positions are expected to be eliminated by the end of 1999.
The asset write downs were principally attributable to the impairment of
goodwill specific to two packaging businesses. In 1990, Union Camp acquired
Chase Packaging Corporation. As part of the acquisition, Union Camp recorded
goodwill of $14.5 million. Subsequently, several of the acquired Chase
facilities were sold or closed. Union Camp wrote off a pro-rata share of
goodwill with each sale. In the third quarter of 1998, after an ongoing pattern
of declining operating performance over several years at the remaining three
Chase facilities, management assessed the carrying value of the assets and
wrote off the remaining $5.4 million of goodwill. The other write-off is
associated with Union Camp's 1996 purchase of a 50% interest in a packaging
plant in Turkey. The operation has resulted in Union Camp incurring losses
of $2.5 million and $1.7 million in 1997 and 1998, respectively. Upon
reviewing the historical and projected operating results for the business,
management concluded that expected future cash flows did not support the
carrying value of the goodwill.
Also included in third quarter 1998 earnings are two significant charges. The
company recorded an $8.7 million reserve for a potential loss relating to
an outstanding trade receivable and loan guarantee for a customer with
questionable future cash flows. Additionally, during the quarter, the company
recorded higher than normal environmental/OSHA remediation expenses of $6
million. These charges totaling $14.7 million, previously included as part of
the special charge, have been reclassified; $6 million to "Cost of Products
Sold" and $8.7 million to "Selling and Administrative Expenses".
Third quarter net income before the effects of the special charge was $4.6
million or $.07 per share (diluted), compared with $27.6 million or $.40 per
share (diluted) for the third quarter of last year. The earnings decrease from
the prior year reflects a combination of lower average selling prices for
uncoated free sheet and lumber, higher wood costs, as well as a drop-off in
linerboard shipments, which was partially offset by higher average selling
prices for linerboard and overall production efficiencies.
Net income for the first nine months of 1998 was $23.7 million or $.34 per share
(diluted), compared with $47.8 million or $.69 per share (diluted) for the same
period last year. Operating income for the first nine months of 1998 was $184.5
million, before the effects of the special charge, which was a 6% increase above
the $174.0 million reported for the first nine months of 1997. Although earnings
before the special charge improved over the comparable prior year period, the
economic turmoil in Asia significantly impacted the worldwide supply/demand
balance during 1998, thereby affecting the markets and demand for the company's
core products.
In comparison to the second quarter of this year, third quarter net income
before the effects of the special charge decreased by $41 million. Third quarter
income from operations before the special charge declined by 31% from this
year's second quarter. During this year's third quarter, industry wide excess
inventory levels have resulted in declining prices for all of the company's
major products. In recognition of these weaker markets, the company took
approximately 100,000 tons of downtime primarily in its linerboard mills during
the third quarter of this year. The earnings decline from the second 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 linerboard.
8
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Net sales for the third quarter were $1.1 billion, down slightly from the
previous year's comparable quarter, as well as this year's second quarter.
Overall, total paper products shipments were down 6% from last year's third
quarter.
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Third Third
Operating Profit by Segment ($000) Quarter 1998 Quarter 1997
- ---------------------------------- --------------- ---------------
<S> <C> <C>
Paper and Paperboard $ 25,216 $ 45,674
Packaging Products 6,626 6,424
Wood Products 4,281 18,776
Chemical 16,500 20,255
Corporate Items and Eliminations* (49,164) (15,774)
--------------- ---------------
Income from Operations $ 3,459 $ 75,355
=============== ===============
</TABLE>
*Current year results include a special charge of $39.8 million pre-tax.
Operating income for the Paper and Paperboard segment in the third quarter of
1998 was $25.2 million, compared to $45.7 million reported for the third quarter
of last year. The decline in operating profit was primarily attributable to an
$8.7 million reserve for a potential loss relating to an outstanding trade
receivable and loan guarantee for a customer with questionable future cash
flows in addition to lower average selling prices for uncoated free sheet,
decreased shipments of domestic and export linerboard, and higher wood costs,
all of which were partially offset by higher average selling prices for domestic
and export linerboard. Compared with last year's third quarter, domestic and
export linerboard shipments decreased by 10% and 32%, while shipments of
uncoated free sheet remained level with last year. Third quarter average
selling prices for uncoated free sheet decreased 6%, while average
selling prices for domestic and export linerboard increased 14% and 1%
respectively, versus last year's comparable period. Compared to the preceding
quarter, uncoated free sheet prices declined 6%, and domestic and export
linerboard prices declined 4% and 7%, respectively.
Packaging Products segment operating income was $6.6 million for the third
quarter of 1998, compared with $6.4 million for last year's comparable quarter.
Earnings increased slightly due to improved performances in the flexible
packaging and folding carton operations, which were partially offset by lower
margins within both the domestic and international corrugated container
businesses in addition to higher than normal environmental/OSHA remediation
expenses. During the third quarter of 1998, the company recognized a $1.5
million gain on the sale of its Lakeland, Florida container operation. Earlier
this year, the company decided to sell its Newtown, Connecticut plant as an
ongoing operation. The book value of this asset has been reclassified 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 third quarter. The Wood Products segment reported third quarter
earnings of $4.3 million, a significant decrease from last year's third quarter,
due largely to a 16% decrease in the average selling price of lumber from the
third 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 an increase in particleboard shipments of 4%, compared
with last year's comparable period. The 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, the economic
slowdown in the Asia Pacific region, higher fixed costs, and lower average
selling prices in addition to higher than normal environmental/OSHA remediation
expenses. Although unfavorable currency exchange rates and the Asia Pacific
economic slowdown also negatively impacted the company's Bush Boake Allen
business, the effectiveness of cost control programs more than offset the
negative impact.
Depreciation expense for the third quarter of 1998 increased 3% from last year's
comparable quarter, due to the completion of several capital projects. Gross
interest expense in the third quarter decreased slightly compared to the same
quarter last year.
Cash flow from operations for the first nine months of 1998 was $317.0 million,
compared with $273.0 million for last year's comparable period. The increase was
primarily due to the increased earnings for the first nine months of this year,
before the effect of the special charge, and a decrease in trade receivables,
which were partially offset by a build up in inventories, and a decline in
accounts payable. Capital
9
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expenditures for the first nine months of this year totaled $186.7 million,
compared with $239.5 million last year. Total debt increased $8.9 million
during the first nine months of 1998 due to increased commercial paper
borrowings. The ratio of total debt to total capital employed increased
slightly to 37.5% at September 30, 1998, compared with 36.8% at year-end 1997.
Net working capital decreased to $338.5 million at September 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.
In the third quarter of 1998, the Board of Directors increased the amount of
common stock that the company is authorized to repurchase by 5 million shares.
Prior to the increased authorization, the existing repurchase program had about
1.2 million shares remaining to be purchased. With this action, the shares
authorized for repurchase increased to approximately 6.2 million. During the
first nine months of 1998, the company repurchased 276,800 shares for
approximately $13.0 million. At its meeting November 23, 1998, the Board of
Directors rescinded the authorization to repurchase up to 5 million shares of
the company's common stock. The prior authorization, which had been approved
in June 1995, was terminated in March 1999 as to any further repurchase.
During the third quarter of 1998, the company continued to negotiate the
conversion of a $15 million past due trade account receivable to an interest
bearing note which would mature in 2001. In addition, the company previously
guaranteed a loan from a financial institution on behalf of this customer for
$15 million, which is payable in four equal annual installments commencing in
the fourth quarter of 1998. The customer's recent results of operations and
anticipated cash flows indicate that it is doubtful that its obligations
relative to the loan guaranteed by the company and the past due receivable will
be fully met. As a result, the company has estimated the potential for loss and
recorded an $8.7 million charge as a reserve in the third quarter. Including
previously recorded amounts, the total reserve was $10.7 million as of
September 30, 1998. On-going events and future business conditions may require
the company to record additional charges. The company has security interests
in the customer's assets and is in contact with the customer regarding its
prospects and results of operation.
On January 1, 1999 certain member nations of the European Economic and Monetary
Union (EMU) will adopt a common currency, the "Euro". For a three-year
transition period, both the Euro and the members' national currencies will
remain in circulation. After June 30, 2002, the Euro will be the sole legal
tender for EMU countries. The company's current accounting systems will
accommodate the Euro conversion with minimal intervention. In addition, the
company does not expect that the adoption of the Euro currency unit will have a
material impact on its operations, financial condition or liquidity. The costs
of addressing the Euro conversion are not expected to be material and will be
charged to operations as incurred.
IMPACT OF YEAR 2000
The Year 2000 problem relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with "19,"
but may not properly recognize the year 2000. If a computer system or software
application used by the company or a third party dealing with the company fails
because of the inability of the system or application to properly read the year
"2000," the results could conceivably have a material adverse effect on the
company.
STATE OF READINESS. The company has instituted a Year 2000 Compliance Program
which embraces internal business systems, manufacturing and logistics systems,
process control systems, security and mechanical systems, and associated
software. The program includes, where appropriate and significant, efforts to
determine whether relevant third party vendors, suppliers and service providers
are also actively engaged in achieving Year 2000 compliance in products,
services, and software, whichever may apply. The company began its Year 2000
compliance efforts in mid-1996 with an initial emphasis on the business
applications of information technology.
Individual sites are responsible to their division management for achieving Year
2000 compliance. Project coordinators at each division oversee the site
activities and provide consolidated progress reporting for the
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business unit. Their effort emphasizes the identification of business risk
related to business systems and technology infrastructure.
The Year 2000 program is organized to proceed in phases and to be implemented by
each production operation, information systems group, and administrative unit.
The management of this activity is being conducted by internal resources,
usually engineers in maintenance or project management at operational sites or
in division or corporate offices.
Year 2000 work has been assigned the following five phases:
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<S> <C>
Phase 1: Awareness: Awareness of the problem is communicated, compliance is
defined, and goals set.
Phase 2: Inventory: Inventory plans are developed. All sites complete
inventories. Information Services' data is inventoried for in-house
analysis.
Phase 3: Triage/Set Priorities: Assess the devices and software with potential
Year 2000 problems, consider likely impact on operations, and
prioritize remediation actions.
Phase 4: Detailed Assessment: Investigate devices and software that have a
Year 2000 compliance problem. Retain vendors as required and obtain
proposals for fixes or replacements.
Phase 5: Resolution, Testing, and Deployment: Repair, replace, provide work
arounds for non-compliant devices and software. Define test plans and
implement. Deploy upgrades and perform verification testing.
</TABLE>
The company's information services group currently has identified 237 major
business and technology systems. Ninety-five of these systems have been
designated as having higher risk. Approximately 70% of these systems are in the
final resolution, testing and deployment phase. In aggregate, all information
technology compliance efforts are scheduled to be completed by September 1999.
The company is primarily utilizing internal staff resources in the Year 2000
effort. No significant consulting or contract personnel resources are being used
for the Year 2000 effort. In 1999, less than 10% of the information services
budget is expected to be spent for the Year 2000 effort.
For each division, and for the corporation as a whole, major new systems are in
their fourth year of development, implementation or operation. Over this period,
the entire information technology infrastructure of the corporation has been
upgraded providing Year 2000 compliance as a by-product in most instances.
PROCESS CONTROL SYSTEMS. The Awareness and Inventory phases are essentially
complete at all the company's mills and plant facilities. The majority of these
sites are well into the Triage phase which assesses potential Year 2000
problems. Currently, no operation has reported the need to replace a major
system. The company expects to complete the final phase, Resolution, Testing and
Deployment, by mid-1999.
SUPPLIER RELATIONSHIPS. The company's purchasing function is guiding the
execution and tracking of Year 2000 readiness in its supply chain relationships.
In addition to sending letters requesting confirmation of compliance or
compliance planning, the operations are identifying key materials, levels of
dependence, existence of backup resources or safety stock requirements, and
organizing responses to specific vendor issues.
REPORTING AND PROGRESS TRACKING. The company is utilizing a comprehensive
project management methodology. Reporting requirements are consistent in most of
the operating units of the corporation. Summaries of detailed division plans are
reviewed for progress according to business area, risk of non-compliance and
scheduled completion of the standard phases.
11
<PAGE>
<PAGE>
COSTS. Both internal and external resources are being used to reprogram or
replace non-compliant technologies, and to appropriately test Year 2000
modifications. Such modifications are being funded through operating cash flows.
The company estimates the incremental cost of corrective actions will be
approximately $20 million. Included in these costs are $2.5 million of capital
expenditures. Approximately $7.0 million of the total estimated cost will be
spent in 1998. 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 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.
CONTINGENCY PLANNING. While the company currently expects no material adverse
consequences on its financial condition or results of operations due to Year
2000 issues, the company's beliefs and expectations are based on certain
assumptions that ultimately may prove to be inaccurate. Divisions are developing
specific contingency plans for most reasonably likely worst case scenarios.
These plans are expected to be complete by September 1999. To mitigate the
effects of the company's or significant suppliers' failure to remediate the year
2000 problem in a timely manner, the company would take appropriate actions.
These actions include the inventorying of critical raw materials and supplies,
increasing finished goods inventories, switching to alternative energy sources,
and making arrangements for alternate suppliers.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
12
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
During 1998 the Company discovered that a small power boiler
constructed at its Franklin, Virginia mill in 1986 had been operated
for brief periods at a rate in excess of its permit limit for sulfur
dioxide emissions. Such rate would have required the boiler to meet
more stringent emission limits on sulfur dioxide under New Source
Performance Standard regulations for stationary sources within the
time frame under which the boiler was constructed. The Company
notified the Virginia Department of Environmental Quality and Region
III of the United States Environmental Protection Agency and received
a notice of violation from the Virginia Department of Environmental
Quality. The Company anticipates that a penalty will be imposed.
Although the precise nature and amount of the penalty is not known at
this time, based upon the information currently available to it, the
Company believes the penalty could exceed $100,000.
Item 5. Other Information.
In June 1998 the Securities and Exchange Commission amended Rule 14a-4
under the Securities Exchange Act of 1934. The amended rule provides
that a proxy may confer discretionary authority to vote on any matter
at an annual meeting if the company did not have written notice of the
matter to be raised at the annual meeting at least 45 days in advance
of the anniversary of the mailing of proxy materials for the prior
year's annual meeting. The rule further provides that any advance
notice provision in a company's bylaws or articles of incorporation
will override the 45 day advance notice provision in the rule. The
Company adopted a 60 day advance notice provision in June 1990 to give
the Company adequate time to consider and react to such proposals. In
order to permit the Company to receive approximately the same advance
notice it would receive, in the absence of a bylaw provision, under
Rule 14a-4, the Company amended Article II, Section 1 of the Company's
bylaws on September 29, 1998 (with a subsequent minor change on
October 27, 1998) to provide that a stockholder who wishes to propose
the transaction of any business at any annual meeting of the Company's
stockholders, including the nomination of one or more persons for
election as directors, must provide written notice of such intent not
less than 90 days before the anniversary date of the annual meeting
(subject to the stated exceptions if the date of the meeting is more
than 30 days before or after the anniversary date of the prior year's
meeting). Accordingly, any stockholder wishing to propose the
transaction of business at the next annual meeting of stockholders
must notify the Corporate Secretary in writing no later than January
28, 1999.
-13-
<PAGE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
<TABLE>
<CAPTION>
No. Description
--- ------------
<S> <C>
3.2 Bylaws of Union Camp
Corporation through October
27, 1998 (filed as an exhibit
to the Quarterly Report on
Form 10-Q filed November 13, 1998
and incorporated herein by
reference).
10.1 Union Camp Corporation
Supplemental
Retirement Income Plan for
Executive Officers (filed as
an exhibit to the Quarterly
Report on Form 10-Q filed
November 13, 1998 and
incorporated herein by
reference).
10.2 Union Camp Corporation
Severance Policy for Key
Employees (filed as an
exhibit to the Quarterly
Report on Form 10-Q filed
November 13, 1998 and
incorporated herein by
reference).
27 Restated Financial Data schedule.
</TABLE>
b) Reports on Form 8-K.
No Current Report on Form 8-K was filed by the Registrant during
the third quarter of 1998.
-14-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendement report to be signed on its behalf
by the undersigned thereunto duly authorized.
UNION CAMP CORPORATION
-------------------------------------
(Registrant)
Date: March 29, 1999 /S/ John F. Haren
-------------------------------------
CONTROLLER
-15-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 AND THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 37,713
<SECURITIES> 0
<RECEIVABLES> 587,649
<ALLOWANCES> 21,603
<INVENTORY> 542,029
<CURRENT-ASSETS> 1,202,047
<PP&E> 7,293,164
<DEPRECIATION> 3,587,300
<TOTAL-ASSETS> 5,191,385
<CURRENT-LIABILITIES> 863,516
<BONDS> 1,301,629
<COMMON> 69,184
0
0
<OTHER-SE> 1,895,956
<TOTAL-LIABILITY-AND-EQUITY> 5,191,385
<SALES> 3,385,948
<TOTAL-REVENUES> 3,385,948
<CGS> 2,586,823
<TOTAL-COSTS> 3,241,222<F1>
<OTHER-EXPENSES> 2,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,324
<INCOME-PRETAX> 54,798
<INCOME-TAX> 22,910
<INCOME-CONTINUING> 23,711<F2>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,711
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
<FN>
<F1> INCLUDES A SPECIAL CHARGE OF $39.8 MILLION PRE-TAX RELATING TO
RESTRUCTURING AND REORGANIZATION CHARGES AND ASSET WRITE-DOWNS.
<F2> REFLECTS ADJUSTMENT FOR MINORITY INTEREST (NET OF TAX) OF $8,177
</FN>
</TABLE>
