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, 1996
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
(Exact Name of Registrant as Specified in Its Charter)
VIRGINIA 13-5652423
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1600 VALLEY ROAD, WAYNE, NEW JERSEY 07470
(Address of Principal Executive Offices) (Zip Code)
(201) 628-2000
(Registrant's Telephone Number, Including Area Code)
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
____ _____
68,589,126 shares of Registrant's Common Stock, Par Value $1 Per Share, were
outstanding as of the close of business on June 30, 1996.
UNION CAMP CORPORATION
INDEX
Page
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Part I. FINANCIAL INFORMATION*
Item 1. Financial Statements. 2
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. 7
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. 9
Item 6. Exhibits and Reports on Form 8-K. 10
---------------
*A summary of the Registrant's significant accounting policies is contained in
the Registrant's Form 10-K for the year ended December 31, 1995 which has
previously been filed with the Commission.
PART I. FINANCIAL INFORMATION
Item I. Financial Statements.
UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($ in thousands, except per share)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -------------------------
1996 1995 1996 1995
Net Sales $ 934,048 $1,109,295 $1,912,303 $2,130,441
Costs and other charges:
Cost of products sold 709,583 693,129 1,388,290 1,355,958
Selling and administrative expenses 99,478 98,634 202,977 189,268
Depreciation and cost of timber harvested 69,464 68,487 137,914 134,851
--------- --------- ----------- ----------
Income from operations 55,523 249,045 183,122 450,364
--------- --------- ----------- ----------
Gross interest expense 28,841 31,905 57,073 64,840
Less capitalized interest (942) (2,153) (1,802) (7,231)
Other (income) expense - net (7,133) 2,514 (3,655) 3,529
--------- --------- ----------- ----------
Income before income taxes
and minority interest 34,757 216,779 131,506 389,226
--------- --------- ----------- ----------
Income taxes:
Current 9,757 53,004 32,206 97,405
Deferred 3,628 27,521 16,977 47,861
--------- --------- ----------- ----------
Total income taxes 13,385 80,525 49,183 145,266
--------- --------- ----------- ----------
Minority interest (net of tax) (3,233) (3,103) (5,681) (5,802)
--------- --------- ----------- ----------
Net Income $ 18,139 $ 133,151 $ 76,642 $ 238,158
========= ========= ============ ==========
Earnings per share: $0.26 $1.90 $1.11 $3.40
Dividends per share $0.45 $0.41 $0.90 $0.80
Earnings per share are computed on the
basis of the average number of common
shares outstanding:
1996 1995
Quarter Ended June 30, 68,960,257 70,074,370
Six Months Ended June 30, 69,034,603 70,055,541
See also the accompanying notes to consolidated financial statements.
2
UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
($ in thousands)
JUNE 30, DECEMBER 31,
1996 1995
---- ----
ASSETS
Cash and cash equivalents $ 45,075 $ 30,332
Receivables-net 484,945 489,967
Inventories at lower of cost or market:
Finished goods 214,298 242,732
Raw materials 106,738 109,181
Supplies 118,326 116,804
------- -------
Total inventories 439,362 468,717
------- -------
Assets held for resale 1,302 1,289
Other 47,517 43,512
------ ------
Total current assets 1,018,201 1,033,817
Plant and equipment, at cost 6,416,967 6,304,113
Less: accumulated depreciation 3,044,331 2,918,963
--------- ---------
3,372,636 3,385,150
Timberlands, less cost of timber harvested 348,970 274,935
--------- ---------
Total property 3,721,606 3,660,085
--------- ---------
Other assets 176,387 144,441
--------- ---------
Total Assets $ 4,916,194 $ 4,838,343
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 647,040 $ 620,113
Long-term debt 1,189,957 1,151,536
Deferred income taxes 727,717 709,850
Other liabilities and minority interest 245,666 235,152
Stockholders' equity (Shares outstanding
1996: 68,589,126; 1995: 69,078,078) 2,105,814 2,121,692
--------- ---------
Total Liabilities and Stockholdes' Equity $4,916,194 $4,838,343
========== ==========
See also the accompanying notes to consolidated financial statements.
-3-
UNION CAMP CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($ IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
Cash Provided By (Used For) Operations:
Net income $ 76,642 $238,158
Adjustments to reconcile net income
to cash provided by operations:
Depreciation, amortization, and cost of company
timber harvested 146,680 142,982
Deferred income taxes 16,977 47,861
Other 8,496 2,474
Changes in operational assets and liabilities:
Receivables 5,159 (95,629)
Inventories 29,230 (33,618)
Other assets (6,017) (10,376)
Accounts payable, taxes and other liabilities (16,055) (7,471)
------- ------
Cash Provided By Operations 261,112 284,381
Cash (Used For) Provided By Investment Activities:
Capital expenditures:
Plant and equipment (117,358) (98,920)
Timberlands (81,031) (10,250)
Proceeds from sale of businesses - 35,862
Payments for acquired businesses (31,850) -
Other (6,774) 4,298
-------- -------
(237,013) (69,010)
-------- -------
Cash (Used For) Provided By Financing Activities:
Change in short-term notes payable 106,277 (122,447)
Repayments of long-term debt (21,048) (15,630)
Repurchase of common stock (32,065) -
Dividends paid (62,085) (56,049)
------- --------
(8,921) (194,126)
------- --------
Effect of exchange rate changes on cash (435) 291
---- ---
Increase (decrease) in cash and cash equivalents 14,743 21,536
Balance at beginning of year 30,332 13,256
------ ------
Balance at end of period $ 45,075 $ 34,792
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $56,043 $57,616
Income taxes $38,886 $93,555
See also the accompanying notes to consolidated financial statements.
-4-
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, except as described
in Notes 2, 3 and 6.
Note 2. Included in "Income from Operations" for the current quarter is a $2.9
million pre-tax charge for estimated severance costs related to the
company's decision to outsource timber harvesting operations in the
third quarter of 1996. Included in last year's results for the second
quarter was a $6.4 million gain from the sale of a flexible packaging
operation.
Note 3. Included in "Other Income/Expense" for the second quarter of 1996 is a
$4.2 million pre-tax gain from the sale of land by the company's Bush
Boake Allen flavor and fragrance business.
Note 4. "Other Assets" increased by more than $31 million from year-end 1995,
primarily due to a $22.5 million investment to acquire a 50% interest in
a corrugated container plant in Turkey.
Note 5. Included in "Current Liabilities" are $154 million and $90 million of
commercial paper borrowings at June 30, 1996 and year-end 1995,
respectively. (See Note 6 below.)
Note 6. Effective July 2, 1996, the company filed an amended Annual Report on
Form 10-K/A for the year ended December 31, 1995, and an amended
Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1996.
The amendments reflected the reclassification of $46 million of
commercial paper borrowings which had originally been included in
"Long-Term Debt" in the December 31, 1995 and March 31, 1996
Consolidated Balance Sheets. These restatements increased current
liabilities by $46 million with corresponding decreases in long-term
debt. Since the filing of the amended Forms 10-K/A and 10-Q/A, the
company has extended a revolving credit agreement which permits
inclusion of the above commercial paper borrowings within "Long-Term
Debt". Accordingly, the company has included $46 million of commercial
paper borrowings in "Long-Term Debt" for the June 30, 1996 Consolidated
Balance Sheet.
5
Note 7. Included in "Other Liabilities and Minority Interest" at June 30, 1996
and year-end 1995 are $74.7 million and $69.3 million, respectively,
representing the minority interest in Union Camp's 68% owned subsidiary,
Bush Boake Allen.
Note 8. Certain amounts have been reclassified for 1995 to conform with the 1996
presentation.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net income for the second quarter of 1996 was $18.1 million or $.26 per share,
compared to $133.2 million or $1.90 per share for the second quarter of last
year. The significant decline in earnings occurred as a result of the continued
unfavorable pricing climate in both the domestic and export paper products
markets. Operating income for the quarter was $55.5 million, a 78% decrease from
the $249.0 million reported for last year's second quarter. Last year's second
quarter results included a $.06 per share gain from the sale of a flexible
packaging operation.
Net income for the first half of 1996 was $76.6 million or $1.11 per share,
compared to $238.2 million or $3.40 per share for the same period last year.
Operating income for the first half of 1996 was $183.1 million, a 59% decrease
from the $450.4 million reported for the first half of 1995.
Net sales for the second quarter were $934 million, 16% below the previous
year's comparable quarter. Total paper product shipments for the quarter were
approximately 879,000 tons, a 6% decline from last year's second quarter. Lower
selling prices for the company's paper and packaging products also contributed
to the decrease in revenue.
Operating income for the paper and paperboard segment was $13.9 million, a 94%
decrease from the $216.6 million reported for the second quarter of last year.
The decline in earnings was primarily attributable to lower average selling
prices for both domestic and export linerboard and uncoated business papers and
a 29% decrease in linerboard shipments from the level achieved in 1995's second
quarter. Average selling prices for the company's linerboard and uncoated
business papers decreased 40% and 28%, respectively, compared to last year's
second quarter, reflecting the impact of a continued sluggish economy. As a
result of the slowness in the market, the company took approximately 75,000 tons
of market-related linerboard downtime during the second quarter, and anticipates
taking 65,000 tons of additional linerboard downtime during the third quarter.
Included in operating income for the quarter is a $2.9 million pre-tax charge
for estimated severance costs related to the company's decision to outsource
timber harvesting operations in the third quarter of 1996.
Packaging segment operating income was $15.8 million for the second quarter of
1996, compared to $18.3 million for last year's comparable quarter. Included
in last year's results was income of $3.3 million from non-recurring items,
primarily the result of a gain from the sale of a flexible packaging operation.
Earnings for the flexible packaging operations in the second quarter of
1996 improved substantially over the same quarter of last year, primarily
attributable to an improvement in average selling prices and a reduction
in overall costs. Although average selling prices decreased for the domestic
corrugated container operations, operating income remained level with last
year's second quarter due to significant cost reductions. Overseas container
operations reported a $2.8 million decline in operating income primarily
resulting from lower average selling prices, which was partially offset by an
increase in shipments.
The company's non-paper businesses reported an 18% decrease in operating income,
compared to last year's second quarter. The chemical operations reported
operating income of $17.8 million, 22% below the second quarter of last year.
Although total shipments increased for the chemical operations, lower average
selling prices more than offset the increase, resulting in the decline in
operating income. Operating income weakened slightly within the company's Bush
Boake Allen flavors and fragrances business, also contributing to the decline in
earnings in the chemical operations. Operating income for the wood products
segment was $10.3 million for the quarter, compared to $11.3 million for last
year's second quarter, due to a combination of decreased volume and lower
average selling prices for the quarter. However, the downward trend of the last
several quarters has begun to turnaround, as wood products operating income
almost doubled over the first quarter of 1996.
7
Depreciation expense for the second quarter was level with last year's
comparable period and increased 1% for the first half of 1996 compared to last
year's first half. The increase is primarily due to the start up of a recovery
boiler at the Savannah mill at the end of the first quarter of last year.
Cash flow from operations for the first half of 1996 was $261.1 million,
compared to $284.4 million for last year's comparable period. The decrease was
primarily due to the lower earnings and decreased deferred taxes, partially
offset by decreased working capital during the first half of this year. Capital
expenditures for the first half of this year totaled $198.4 million, compared to
$109.2 million last year. This increase is primarily attributable to a large
timberland acquisition in early 1996. Total debt increased $85 million during
the first half of 1996, primarily attributable to increased commercial paper
borrowings. The ratio of long-term debt to total capital was 29.6% at June 30,
1996, compared to 28.9% at year-end 1995.
Net working capital was $371.2 million at June 30, 1996, compared to $413.7
million at year-end 1995. The decrease in working capital was primarily
attributable to an increase in short-term commercial paper borrowings combined
with a decrease in inventory.
During the second quarter of 1996, the company repurchased 603,200 shares of its
common stock for a total cost of $32.1 million, under its stock repurchase
program.
In April 1996, the company entered into a definitive agreement to acquire the
outstanding shares of The Alling & Cory Company (Alling & Cory) a paper
distribution business, for a combination of company common stock and cash
totaling approximately $88 million. Alling & Cory had net sales of $764 million
in 1995. The acquisition was approved by Alling & Cory stockholders and closed
on August 2, 1996.
In June 1996, the company decided to exit the Kansas City container market. This
decision will not have a significant impact on the company's operations.
Subsequent to the close of the second quarter, the company signed a letter of
intent to sell the Kansas City container plant as an ongoing business.
8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In its Annual Report on Form 10-K for the year ended December 31, 1995,
the Company reported that the United States Environmental Protection
Administration ("EPA") had notified the Company it was contemplating commencing
a civil action against Union Camp and several other potentially responsible
parties under the Comprehensive Environmental Response and Compensation
Liability Act ("CERCLA") for recovery of past and future remediation costs
incurred by the EPA at the Bayou Bonfouca Superfund Site in Slidell, Louisiana
which operated as a wood treatment facility from 1882 to 1972. The EPA has spent
approximately $100 million for remediation at the site and has stated there will
be future response costs. In 1956 a subsidiary of Union Camp acquired the assets
of American Creosoting Company which included the stock of a subsidiary which
owned and operated the Slidell facility since 1933. The Slidell facility was
sold in 1958 and the subsidiary was sold in 1964.
Representatives of the Company met with the EPA to discuss their respective
views of this matter and possible settlement. Thereafter, in May 1996, the EPA
filed suit against the Company in the U.S. District Court for the District of
Louisiana seeking recovery for past and future response costs. The State of
Louisiana filed a similar claim against the Company seeking to recover the share
of the response costs for which it is responsible under CERCLA. The EPA alleges
that Union Camp has owner and/or operator status under CERCLA by virtue of its
ownership of the subsidiary which owned the Slidell facility. Union Camp denies
it ever owned and/or operated the Slidell facility. While it is not possible to
estimate the likely outcome of these proceedings, Union Camp believes it has
meritorious defenses based upon longstanding principles of corporate and
shareholders' liability.
9
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
No. Description
3.2 Bylaws of Union Camp Corporation,
as amended June 25, 1996.
10 Union Camp Corporation Supplemental
Retirement Income Plan for Executive
Officers as amended and restated
June 24, 1996.
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 1996.
10
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 6, 1996 /S/ Dirk R. Soutendijk
----------------------
DIRK R. SOUTENDIJK
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
Date: August 6, 1996 /S/ Robert E. Moore
-------------------
ROBERT E. MOORE
VICE PRESIDENT AND COMPTROLLER
(Chief Accounting Officer)
11
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
NO. DESCRIPTION PAGE
3.2 Bylaws of Union Camp Corporation, 14
as amended June 25, 1996
10 Union Camp Corporation Supplemental 35
Retirement Income Plan for Executive
Officers as amended and restated
June 24, 1996
11 Statement re computation of per 49
share earnings
27 Financial data schedule 50