The Year in
FINE PAPER
The Fine Paper Division produces uncoated white paper, coated and uncoated white
paperboard, and bleached market pulp at mills in Franklin, Virginia, and
Eastover, South Carolina. About half the division's output, primarily printing
and business papers, is sold to distributors who supply commercial printers,
book publishers, offices, home users, and organizations with in-house printing
capabilities. Our Great White Consumer Products'tm' unit provides business
papers directly to consumers through retail outlets such as Office Depot,
Staples, and Wal-Mart. The balance of our paper and board is sold directly to
manufacturers who convert it into products such as envelopes, computer printout
papers, business forms, greeting cards, and folding cartons.
Operating Highlights
We continue to concentrate our marketing efforts on the four segments that make
up two-thirds of our business -- SOHO (small office/home office), the corporate
information center, direct mail, and commercial printing. In 1997, sales across
those four segments rose by 60,000 tons.
In order to better serve the fast-growing SOHO market, we created a
separate Great White Consumer Products'tm' unit that targets consumers through
office supply superstores and catalogers. It's already delivering increased
sales for the Great White'r' line.
In keeping with our consumer-oriented strategy, we are adding line
extensions to the Great White'r' brand. This fall, we agreed to market colored
paper for computerprinters under the Crayola'r' name*. The partnership not only
adds to our range of retail products, it also links Great White'r' products to a
highly visible and reputable brand name.
We continued to promote the Great White'r' brand through advertising in
print and on TV. We also introduced a new line of kraft envelopes under the
Tiger Shark'tm' brand name.
Among manufacturing highlights, the division had record shipments in
1997, and the Franklin mill had record first-grade production driven by better
operating efficiency.
Our Franklin mill brought on line a gas-fired turbine generator and
boiler that uses natural gas to generate steam and electricity. Cleaner than
systems using coal and wood, it's also more energy efficient and less expensive
to operate.
At our Eastover mill, a new saltcake recovery plant is improving
operations. The plant reclaims chemicals that otherwise would be lost from the
liquor system and enables us to reduce expenses by about $2 million a year.
*Crayola is a registered trademark of Binney & Smith.
- ---
16
The Year in
PACKAGING
The Packaging Group integrates the company's Kraft Paper and Board Division
(KP&B) and its packaging businesses. KP&B's mills in Savannah, Georgia, and
Prattville, Alabama, supply much of the paper and paperboard to our packaging
plants. The Container Division manufactures corrugated boxes, solid fiber
containers and slip sheets, and display packaging. The Flexible Packaging
Division produces industrial and consumer bags made of paper and/or plastic
film. The International Packaging Division manufactures corrugated containers at
many overseas locations. The Folding Carton Division manufactures packaging for
the cosmetics, toiletries, pharmaceuticals, and food industries.
Operating Highlights
In Kraft Paper & Board, we set records last year for both production and
shipments.
The Container Division's Graphics Group broadened its packaging and
merchandising capabilities when Union Camp acquired Phoenix Display and
Packaging, a leader in temporary and permanent point-of-purchase (POP) displays.
Phoenix gives us national POP production and sales capability. We also acquired
Riley & Geehr, a manufacturer of specialty bulk packaging that provides our
Performance Products Group with an improved market position in the Midwest.
In our Container Division's Integrated Products Group, we restructured
our sales organization to better serve the textile, food, appliance, and poultry
industries. Also in Container, we introduced Microlite'tm', a cost-effective,
lightweight corrugated packaging material aimed at the wholesale club market.
And in China, our joint venture, Eastgate Packaging Ltd., brought on line a box
plant in Guangzhou. A second plant is scheduled to open in central China in
1999.
Our Flexible Packaging Division began operating its first plant outside
the United States when we acquired a majority interest in Puntapel, a multiwall
bag manufacturer in Argentina.
Our Folding Carton Division formed its second international alliance,
teaming up with Marinetti of Santiago, Chile, which serves cosmetics
manufacturers on three continents.
Folding Carton also opened a new Customer Response Center in Englewood,
New Jersey, where we can digitally create and retouch packaging artwork, working
in partnership with our customers.
Across the division, we continued to set new standards for safety. Last
year, our folding carton plant in Clifton, New Jersey, achieved Star Site
status, the highest honor bestowed by the Occupational Safety and Health
Administration in its Voluntary Protection Program. Our company now has five
plants that have achieved this distinction, which fewer than one percent of the
nation's manufacturing facilities have earned.
--
17
The Year in
CHEMICALS
The Chemical Group comprises the Chemical Products Division and Bush Boake Allen
Inc. (BBA), which operates as a freestanding corporation. Chemical Products
converts by-products from the papermaking process into tall oil fatty acids,
rosin acid, dimer acid, rosin, and polyamide resins. These products are used in
adhesives, inks, coatings, lubricants, soaps, and personal care products. BBA is
one of the world's leading producers of aroma chemicals and compounders of
flavors and fragrances.
Operating Highlights:
Chemical Products Division
Our focus on high-growth, international markets paid off in 1997, as we achieved
double-digit sales increases in Asia/Pacific, Latin America, Eastern Europe, and
India. We expanded our network of sales, marketing, and customer technical
support services, opening offices in Sao Paulo, Brazil, and Bombay, India.
We completed a series of capital expansions to serve the international
and U.S. markets for resins used in inks and adhesives, a high-demand product
worldwide.
The division also continued its successful investment in new product
and process development. In fact, over 30 percent of our sales in 1997 came from
products developed within the last five years. We have had particular success
with hot-melt and water-based adhesive resins, as well as high-performance ink
resins.
Operating Highlights:
Bush Boake Allen
BBA expanded its Jacksonville, Florida, facility to increase the output of
geraniols, which give perfumes their rose and geranium aroma. The company also
automated much of its plant in Widnes, England, paving the way for better
service and lower costs.
Overseas, BBA purchased its first flavor and fragrance manufacturing
site in Mexico, doubled the capacity of its Swedish seasonings plant, and
expanded the production capacity of its Argentine fragrance factory. In
Australia, BBA installed new spray dryers to meet growing demand for flavors in
powdered form. And in India, BBA opened a new office and laboratory complex for
flavors and fragrances to support its two manufacturing facilities in that
country.
- ---
18
The Year in
FOREST RESOURCES
The Forest Resources Group manages the company's woodlands, wood products, and
land development activities. The Woodlands Division manages about 1.6 million
acres in Alabama, Florida, Georgia, North Carolina, South Carolina, and
Virginia, and supplies high-quality, competitively priced fiber to our paper
mills and wood products plants. The Wood Products Division produces southern
pine lumber, plywood, and particleboard panels for the industrial and home
improvement markets. Wood Products operates nine facilities in Alabama, Georgia,
North Carolina, and Virginia. The third division of the Forest Resources Group,
The Branigar Organization, Inc., is a wholly owned subsidiary that develops
high-value land for residential, recreational, and commercial use
Operating Highlights
Our emphasis on advanced land management techniques, along with intensive
culture management, has helped make all of our land more productive. In fact,
from 1987 to 1997, our standing pine inventory increased by 34 percent, while
our land holdings actually decreased by 200,000 acres.
Our intensive culture program continues to maximize fiber yield,
producing an average yield of 12 tons per acre compared to an average yield in
the South of three to four tons. The trees grow faster, with our harvest
rotation for pulpwood having decreased substantially.
We also made significant progress in our ongoing environmental education
program for private landowners. By year's end, nearly all of our 1,200 foresters
and contract wood suppliers had completed logger training on air, soil, water,
and wildlife issues. It's part of our commitment to the industry's Sustainable
Forestry Initiative'sm', a code of principles that guides the responsible
stewardship of our woodlands.
The Woodlands Division had record earnings in 1997, while the lumber
segment of our Wood Products Division set records for profits and sales, and,
for the first time, produced over one-half billion board feet of lumber.
Our new laminated veneer lumber (LVL) facility is on track to start up
in mid-1998. Growth for LVL products is exceeding our forecast, and we intend to
be well positioned in this niche, value- added segment.
The Branigar Organization has sold nearly all 4,250 units at the
Landings on Skidaway Island, a world-class development near Savannah where the
first unit was sold in 1972. Branigar also continues to serve as master
developer for a broad range of commercial projects in the Southeast.
Capitalizing on new technology, Branigar has generated more than $1 million in
sales from Union Camp's Web site.
---
19
Financial Review
Results of Operations
1997 Earnings Per Share (in dollars)
1st Quarter $0.14
2nd Quarter $0.15
3rd Quarter $0.40
4th Quarter $0.45
The adverse market conditions which had affected paper and packaging prices in
1996 continued through most of the first half of 1997. Improvements in the
pricing environment became evident by mid-year and this trend progressed through
year-end. The company achieved steady earnings improvement over the last three
quarters of the year. Tight cost control coupled with improvements in volume and
mix were critical factors in this upward trend of earnings.
Consolidated net income was $81.1 million or $1.17 per share in 1997,
down from $85.3 million or $1.23 per share in 1996 after a special charge of
$28.9 million or $.42 per share after-tax relating to restructuring costs and
asset write downs. This decline in earnings reflects the impact of significantly
lower average selling prices for linerboard and uncoated free sheet, the
company's principal paper products, but was substantially mitigated by
improvements in manufacturing cost efficiencies and better volume and mix.
Income from Operations (million of dollars)
1995 $841
1996* $253
1996 $257
*1996 includes $47 million special charge
Operations in 1997 benefited from the profit enhancement plan announced
at the end of 1996. This two year program has the objective of adding $100
million to pre-tax earnings through product mix enhancements, cost reductions,
and business process improvements. At year-end 1997, progress on this program
was well ahead of schedule. A portion of the cost reduction plan includes a
targeted job elimination of 400 positions and, by year-end, 65% of this goal was
achieved. Production cost efficiencies represent another element of the plan.
Substantial operating cost savings were recognized within the company's
production facilities throughout 1997.
Paper product shipments in 1997 reached a record level, 3.7 million
tons, 6% above prior year shipments, reflecting the improvement in customer
demand and less mill downtime. Consolidated sales in 1997 were also a record
$4.5 billion, 12% over 1996. Excluding the Alling & Cory Company, a paper
distribution business acquired in August 1996, sales were up slightly. The
increases in cost of products sold and selling, general and administrative
expenses in 1997 reflect, in large part, the full year's effect of the Alling
and Cory acquisition.
In the fourth quarter of 1997, financial market concerns increased
relative to the weakness of Asian economies. The company exported approximately
163,000 tons of linerboard into this region during 1997. Company shipments did
not decrease appreciably in the fourth quarter. In addition, the company has not
seen significant deterioration in sales activity in 1998.
In 1996, consolidated net income was $85.3 million or $1.23 per share,
after a special charge relating to restructuring costs and asset write downs.
Before the special charge, 1996's net income was $114.2 million or $1.65 per
share which was significantly lower than the all-time record reported in 1995 of
$451.1 million or $6.45 per share.
Operating results and other financial information for the company's
principal business segments are presented on page 40. A discussion of the
results of these segments follows.
Paper and Paperboard
Paper and Paperboard Operating Profit (millions of dollars)
1995 $750
1996 $176
1997 $145
The principal operations in this segment are two kraft paper and board
mills, two bleached paper and board mills, and woodlands operations which
support these mills as well as the company's wood products operation. Almost
one-half of the company's 1997 sales were generated by this segment. Operating
income was $145 million in 1997, compared to $176 million in 1996 and $750
million in 1995. The two year decline in operating income from 1995 reflected
sharply lower demand in the linerboard and uncoated free sheet markets. Higher
than normal inventory levels, particularly in uncoated free sheet, were a major
factor in the decline. By mid 1997, selling prices in these markets began to
increase and by year-end were well above end of year 1996 levels. Sales for the
segment were $2.0 billion, level with 1996, and down from $2.6 billion in 1995.
Kraft Paper & Board: The company is the fifth largest producer of linerboard
within the United States. Operating income from the two kraft mills declined in
1997. Domestic and export linerboard prices averaged 14% and 4% below 1996.
Pricing began to recover at the beginning of the third quarter. Year-end selling
prices in the domestic markets were almost 30% above their mid-year low.
Customer shipments increased 18% and 39%, in the domestic and export markets,
respectively, year to year. Operating rates exceeded 100% for both mills during
1997; record production was achieved at the Savannah mill, for the first time
exceeding one million tons. Also,
---
23
Financial Review
cost containment initiatives were successful in achieving improvement in direct
manufacturing costs per ton.
Operating profit in 1996 declined significantly compared with 1995,
primarily due to lower average selling prices. Domestic and export linerboard
prices averaged 29% and 33% below 1995, respectively. Further contributing to
the decrease in operating profit for 1996 was a 7% decline in linerboard
shipments from 1995's level, and a slight increase in variable and fixed costs.
Bleached Paper and Board: Despite record shipments of 1.4 million tons,
operating profits in 1997 decreased slightly compared with 1996, primarily due
to lower average prices in the uncoated free sheet market. Average selling
prices of uncoated free sheet decreased by 4% compared to 1996. Offsetting the
weakness in selling prices for the year was a 3% increase in total shipments
over 1996, in addition to lower manufacturing costs. Operating rates at both
bleached paper and board mills improved over the prior year. The Franklin mill
set a new production record in 1997, exceeding the previous record by 6%.
Operating profit decreased in 1996 compared with 1995, as the decline in
selling prices, which began during the fourth quarter of 1995, continued
throughout 1996. Average selling prices of uncoated business papers were
approximately 25% less in 1996 compared with 1995. Total shipments increased by
8% over 1995, partially offsetting the effect of reduced selling prices.
Packaging
Chart Omitted:
Packaging Operating Profit (millions of dollars)
1995 $51
1996 $45
1997 $36
The Packaging segment includes the corrugated container, flexible
packaging and folding carton businesses. Packaging products are produced at 41
locations in the U.S. and 9 locations overseas. Although 1997 shipments for
these products increased modestly over last year, prices in the corrugated
container markets declined significantly throughout the year. Segment sales were
$1.3 billion, down slightly from $1.4 billion in 1996 and $1.5 billion in 1995.
Operating profit declined to $36 million in 1997, from $45 million in 1996 and
$51 million in 1995, which was a record performance for the segment.
The Container Division is the largest unit in this segment, operating 28
plants in the domestic market. Primary products include bulk and triplewall
containers, graphics packaging and display items, and solid fiber containers.
Despite a modest increase in shipments, operating profit declined in 1997. This
reflects lower gross profit margins, despite improved production and stable
converting expenses. Segment results in 1997 include a gain relating to the sale
of the Denver, Colorado container plant as an ongoing business. Offsetting a
substantial portion of the gain was the write down of certain non-performing
assets.
Revenues for the company's International Packaging group, which
manufactures corrugated containers overseas, decreased by 12% in 1997, compared
with a 5% increase in 1996. Despite improved volume, operating profit declined
in 1997, primarily as a result of a 16% decline in selling prices, partially
offset by reduced manufacturing costs. Local market conditions varied by
country.
The Flexible Packaging Division is the second largest operating unit in
this segment, producing a broad variety of industrial and consumer bags,
polyethylene film and other non-rigid packaging at 10 plants in the U.S.
Operating profits declined in 1997, despite a 4% increase in sales over 1996.
Although total shipments for 1997 increased 5% over 1996, lower average selling
prices and higher fixed costs more than offset the increase.
The company's Folding Carton Division operates three plants, which
produce consumer products packaging with high quality graphics, principally for
the cosmetics and pharmaceutical industries. Although sales volume was level
year to year, operating profits decreased from 1996, primarily due to eroding
margins and higher operating costs.
Wood Products
Chart Omitted:
Wood Products Operating Profit (millions of dollars)
1995 $33
1996 $43
1997 $60
The Wood Products segment consists of lumber, plywood and particleboard
operations. Segment revenue increased by 16% compared with 1996, and operating
profit surged 39% to $60 million in 1997.
This increase in profits is largely the result of an improvement in
overall market conditions in the lumber business, with prices and volume
increasing by 15% and 7%, respectively, during 1997. Lumber operations posted
both record profits and production in 1997. Particleboard and plywood prices
remained level with 1996, while volume increased 2% over 1996 levels.
In 1996, operating profits increased by 33% compared with 1995,
primarily attributable to a 4% increase in lumber prices and a 3% increase in
volume. The favorable lumber operations, coupled with increased particleboard
shipments, more than offset lower prices for plywood and particleboard.
- ---
24
Chemical
Chart Omitted:
Chemical Operating Profit (millions of dollars)
1995 $75
1996 $67
1997 $74
Net sales for the Chemical segment were $759 million in 1997, an 8%
increase over 1996 and 14% above 1995. Operating profit for this segment was $74
million, up from the $67 million reported in 1996 and down slightly from the $75
million in 1995.
Bush Boake Allen, the largest operating unit in this segment, conducts
operations on six continents and has locations in 39 countries worldwide. Union
Camp is a majority owner of this global business with a 68% holding. BBA
supplies flavors and fragrances for use in foods, beverages, cosmetics and
toiletries. Sales were $491 million in 1997, up from $449 million in 1996, and
$425 million in 1995. Operating profit was $53 million in 1997, a 13% increase
over $47 million in 1996, and a 6% increase over $50 million in 1995. The growth
in 1997 resulted from improved performance in both flavors and fragrances and
chemicals operations.
The company's Chemical Products Division, with facilities in the United
States and United Kingdom, upgrades papermaking by-products and other raw
materials into a wide range of specialized chemicals, primarily for use in inks,
coatings and adhesives. Operating profit in 1997 increased by 3%, although the
cost of crude tall oil, a primary raw material, increased by 6%. The division
benefited from increased sales in its domestic and international markets and the
continued implementation of efficiency enhancing programs. The division's
performance for 1997 was largely driven by an expanded presence in international
markets. Although results from the division's U.K. operations were somewhat
hampered by a strengthening of the pound sterling, higher volumes and throughput
enabled the operation to improve its results from 1996. Shipments increased by
14% during 1997. In 1996, operating profit declined by 18% from 1995.
Interest Expense
Net interest expense for 1997 was $117 million, compared to $112 million in 1996
and $114 million in 1995.
The increase in interest expense for 1997 was the result of higher
outstanding debt, in addition to slightly higher short-term interest rates,
offset partially by an increase in capitalized interest. The decrease in
interest expense in 1996 from the prior year was due to lower short-term
interest rates which more than offset an increase in outstanding debt and a
lower level of capitalized interest.
Other (Income) Expense-Net
In 1997, other income was $4 million, compared with $11 million in 1996 and $3
million in 1995. Other income for 1996 included $6.1 million related to other
asset disposals.
Financial Position, Liquidity
and Capital Resources
Chart Omitted:
Capital Structure (millions of dollars)
1995 1996 1997
Shareholders' Equity $2,122 $2,094 $2,036
Deferred Income Taxes $ 710 $ 723 $ 745
Long-Term Debt $1,152 $1,252 $1,367
Chart Omitted:
Cash Provided by Operations (millions of dollars)
1995 $759
1996 $503
1997 $381
The company's financial condition remains strong. Net working capital (the
excess of current assets over current liabilities) was $409 million at year-end
1997, an increase of $55 million from the end of 1996. The increase was
primarily attributable to higher trade receivables which resulted from higher
sales and the impact of new businesses. The company's current ratio was 1.5 for
both 1997 and 1996. The interest coverage ratio for 1997 was 2.0 compared to 2.2
for 1996. Stockholders' equity decreased by $58 million to $2.0 billion at
year-end 1997 or $29.39 per share compared to $30.25 per share at the end of
1996.
Internally generated cash flow has been and will remain a primary source
of capital to fund the company's growth. Cash flow from operations was $381
million in 1997, $503 million in 1996 and $759 million in 1995. The decline in
1997 was attributable to increases in working capital items, primarily trade
receivables. Cash used for investment activities was down $105 million in 1997,
primarily the result of a lower level of capital spending. Cash used for
financing activities in 1997 was $60 million compared to $55 million in the
prior year. This reflects a net increase in total debt of $80 million offset by
lower level of common stock repurchases. During the fourth quarter, the company
issued $150 million of 6 1/2% 10-year notes, which was used to replace $57
million of expiring debt with higher interest rates and reduce the level of
short-term borrowing.
The ratio of long-term debt to total capital employed (the sum of
long-term debt, deferred taxes and stockholders' equity) was 33.0% at December
31, 1997 compared with 30.8% at year-end 1996. Total debt to total capital for
the current year increased to 36.8% compared with 35.3% at the end of 1996.
---
25
Financial Review
Capital Expenditures
Capital spending totaled $337 million in 1997 compared with $386 million in 1996
and $267 million in 1995. Included in capital expenditures for 1997 is paper
mill spending of $152 million. This includes $34 million to complete the
installation of a $70 million turbine generator and heat recovery steam
generator at the Franklin, Virginia mill and $17 million of a $27 million
turbine generator at the Savannah, Georgia mill.
Chart Omitted:
Capital Expenditures (millions of dollars)
1995 $267
1996 $386
1997 $337
Also included is $13 million in spending for a sheet finishing facility in
Franklin, Virginia. Investment at domestic and international packaging plants
was $42 million including a joint venture corrugated container plant in China.
Chemical sector spending, including Bush Boake Allen, totaled $57 million.
Spending at Wood Products facilities was $34 million which included $26 million
of a $45 million laminated veneer lumber production facility at Thorsby,
Alabama, which is scheduled for start up in mid 1998. Expenditures related to
the company's timberlands totaled $36 million.
($ in millions) 1997 1996 1995
- ------------------------------------------------------------------
Plant and Equipment
(excludes acquisitions):
Expansion & Cost Reduction $145 $139 $137
Replacement & Other 146 148 88
Capitalized Interest 10 4 9
Timberlands (acquisition
and regeneration) 36 95 33
- -----------------------------------------------------------------
Total $337 $386 $267
=================================================================
At year-end 1997, purchase commitments related to capital projects in-progress
were approximately $59 million. Capital spending in 1998 is expected to be about
$300 million.
Acquisitions and Dispositions
During 1997, Union Camp made three acquisitions. In October, the company
acquired the outstanding shares of Phoenix Display and Packaging Corporation, a
leading merchandising and point-of-purchase display company based in New Jersey.
This acquisition builds on the company's national display business. In June,
Alling and Cory, the company's paper distribution business, acquired the
Antietam Paper Company. The acquisition strengthens Alling and Cory's position
in Maryland and adds warehouse operations in Virginia. In March, the company
acquired a 75% interest in Puntapel, S.A., a multiwall plant located in San
Luis, Argentina. This acquisition positions the company into a high potential
international packaging market. The cost of these acquisitions was $20 million
in the aggregate.
Also in October 1997, the company sold its Denver, Colorado container
plant. Net sales for the Denver operation in 1997 were $19 million through the
month of sale. In March, the Denton, Texas multiwall plant was closed and
subsequently sold.
In August 1997, the company contributed 25 thousand acres of timberlands
valued at $30.7 million for a 50% equity investment in Forestmax LLC, which has
as its primary assets timberland holdings. The company will recognize a gain of
$27 million over a future period on the basis of timber cut.
In January 1996, the company acquired the operating assets and assumed
certain liabilities of O'Grady Containers, Inc., a graphics oriented, direct
print, sheet plant in Fort Worth, Texas. Later in the first quarter, the company
invested in a 50% interest in a corrugated container operation in Turkey. The
total cost of these purchases was $34 million. In August 1996, the company
acquired the outstanding shares of The Alling & Cory Company for $88.5 million,
consisting of 1.7 million shares of company common stock and $5.4 million cash.
Alling and Cory distributes communications and printing papers, industrial
packaging and business products.
The company sold two corrugated container plants in the second half of
1996. The divestiture of these two plants did not have a significant impact on
the company's operations.
Dividends and Stock Repurchases
Cash dividends paid in 1997 were $125.1 million or $1.80 per share compared with
$124.7 million or $1.80 per share in 1996 and $116.1 million or $1.66 per share
in 1995. Stockholders' dividends are paid quarterly. The dividend rate was
raised by 15% in two increments during 1995.
In the second quarter of 1995, the Board of Directors authorized the repurchase
of up to five million shares of the company's common stock. During 1997, 687,600
shares were repurchased. Share repurchases in 1996 and 1995 totaled 2,865,900.
The total cost of these repurchases was $183 million.
Environmental Matters
The company invested approximately $31 million in pollution control facilities
in 1997. Over the past five years, the company has invested approximately $130
million in such facilities, which is about 8% of total capital spending. In
1997, the company recorded expenses of $9 million for study, testing and
remediation in compliance with environmental regulations.
- ---
26
Regulations known as the Cluster Rule have been adopted by the U.S.
Environmental Protection Agency. As applicable to Union Camp, these regulations
establish various compliance completion dates which fall within the 2001-2006
time frame. Preliminary assessment by the company indicates the capital cost
required to achieve compliance will be in the range of $125 to $150 million.
Compliance involves various initiatives with different completion dates spread
over a six year period. Some degree of flexibility exists with respect to the
timing of required capital spending. However, the company expects a majority of
this spending will be completed by 2001. The incremental operating cost is
estimated to be immaterial. The company believes compliance with these rules
will not adversely affect its competitive position since these regulations also
apply in varying degrees to its domestic competitors.
Accouting Matters
The FASB recently issued Statement of Financial Accounting Standards (SFAS) No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the reporting of financial information
relating to operating segments for both interim and annual periods. In addition,
the FASB also issued SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes standards for the reporting and display of comprehensive
income in the company's financial statements and footnotes. These statements,
which will be adopted by the company in 1998, affect financial statement
presentation and disclosure but will not have an impact on the company's
consolidated financial position or results of operations.
Year 2000
The company is currently in the process of evaluating its operations to ensure
that its computer systems and process control equipment are "Year 2000"
compliant. Management does not expect the financial impact of necessary actions
to be material to the company's financial position or results of operations in
any period.
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.
Statements in this report 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 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, and whether capital
and restructuring projects are successfully completed. The company's goal of
enhancing its earnings power during the next 12 months is subject to risks and
uncertainties that planned product mix improvements are not implemented, and
that cost reductions expected to result from investing in information
technology, work flow redesign, shared service activities and other activities
do not materialize. The company's assessment of the effects of complying with
the U.S. Environmental Protection Agency's Cluster Rule is subject to risks and
uncertainties regarding the amount the company will be required to expend
vis-a-vis its competitors and the effect of timing differences in the rate such
required expenditures are made.
Quarterly Information
($ in thousands, except share and per share)
- -----------------------------------------------------------------------------------------------------------------------------
Stock Price*
Gross Net Basic Earnings Diluted Earnings Dividends ------------
Net Sales Profit Income(Loss) Per Share Per Share Per Share High Low
- -----------------------------------------------------------------------------------------------------------------------------
1997 Fourth Quarter $1,187,143 $283,841 $33,282 $ 0.48 $ 0.47 $0.45 $64 9/16 $49 3/4
Third Quarter 1,126,902 266,707 27,559 0.40 0.40 0.45 63 1/8 50 1/4
Second Quarter 1,105,591 251,809 10,611 0.15 0.15 0.45 54 7/8 45 1/8
First Quarter 1,057,125 232,034 9,618 0.14 0.14 0.45 52 1/4 46 7/8
- -----------------------------------------------------------------------------------------------------------------------------
1996 Fourth Quarter $1,083,584 $157,014 $(5,687) $(0.09) $(0.09) $0.45 $50 5/8 $46 7/8
Third Quarter 1,017,310 222,814 14,353 0.21 0.21 0.45 51 1/2 46 1/4
Second Quarter 934,048 214,397 18,139 0.26 0.26 0.45 55 3/8 48 3/4
First Quarter 978,255 286,791 58,503 0.85 0.85 0.45 52 3/8 44 7/8
=============================================================================================================================
1996 has been restated to conform with the 1997 presentation.
Fourth quarter 1996 includes a special charge relating to restructuring costs
and asset write downs which reduces income from operations by $46.9 million
pre-tax and after-tax net income by $28.9 million or $.42 per share.
* The company's common stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange.
The number of stockholders of record at December 31, 1997 was 7,760.
---
27
Report of Independent Accountants
To the Stockholders and Board of Directors of
Union Camp Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and of cash flows present fairly, in all
material respects, the financial position of Union Camp Corporation and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Morristown, New Jersey
February 5, 1998
- ---
28
Consolidated Income
($ in thousands, except per share)
For The Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
Net sales $ 4,476,761 $ 4,013,197 $ 4,211,709
Costs and other charges:
Costs of products sold 3,399,559 2,965,149 2,680,938
Selling and administrative expenses 509,372 450,117 401,644
Depreciation, amortization and
cost of company timber harvested 310,618 298,457 287,738
Special charge -- 46,935 --
- ------------------------------------------------------------------------------------------------------------
Income from operations 257,212 252,539 841,389
- ------------------------------------------------------------------------------------------------------------
Interest expense, net of capitalized interest 117,290 112,286 113,705
Other (income) expense--net (3,888) (10,792) (3,173)
- -------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 143,810 151,045 730,857
- -------------------------------------------------------------------------------------------------------------
Income taxes 51,804 55,250 268,895
- -------------------------------------------------------------------------------------------------------------
Minority interest, net of tax 10,936 10,487 10,889
- ------------------------------------------------------------------------------------------------------------
Net income $ 81,070 $ 85,308 $ 451,073
- -------------------------------------------------------------------------------------------------------------
Earnings per share: Basic $ 1.17 $ 1.23 $ 6.45
Diluted $ 1.16 $ 1.23 $ 6.39
=============================================================================================================
See the accompanying notes to consolidated financial statements.
---
29
Consolidated Balance Sheet
($ in thousands)
December 31, 1997 1996
- -------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 34,878 $ 44,917
Receivables-net 638,130 544,320
Inventories 495,313 496,433
Other 43,256 48,440
- -------------------------------------------------------------------------------------------------
1,211,577 1,134,110
- -------------------------------------------------------------------------------------------------
Property
Plant and equipment, at cost 6,800,477 6,562,465
Less: accumulated depreciation 3,404,918 3,161,450
- -------------------------------------------------------------------------------------------------
3,395,559 3,401,015
364,226 351,334
- -------------------------------------------------------------------------------------------------
Timberlands, less cost of company timber harvested 3,759,785 3,752,349
- -------------------------------------------------------------------------------------------------
Other Assets 270,339 209,848
- -------------------------------------------------------------------------------------------------
Total Assets $ 5,241,701 $ 5,096,307
- -------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Current installments of long-term debt $ 40,439 $ 95,840
Notes payable 212,900 185,614
Accounts payable 298,641 264,064
Other accrued liabilities 212,973 201,319
Income and other taxes 38,065 33,032
- -------------------------------------------------------------------------------------------------
803,018 779,869
- -------------------------------------------------------------------------------------------------
Long-Term Debt 1,367,450 1,252,475
- -------------------------------------------------------------------------------------------------
Deferred Income Taxes 744,677 723,431
- -------------------------------------------------------------------------------------------------
Other Liabilities and Minority Interest 290,838 246,938
- -------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock-par value $1.00 per share 69,264 69,217
Capital in excess of par value 42,820 41,853
Other equity adjustments (20,989) (6,080)
Retained earnings 1,944,623 1,988,604
- -------------------------------------------------------------------------------------------------
Shares outstanding, 1997--69,264,160; 1996--69,217,119
Stockholders' Equity--Net 2,035,718 2,093,594
- -------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 5,241,701 $ 5,096,307
=================================================================================================
See the accompanying notes to consolidated financial statements.
- ---
30
Consolidated Statement of Cash Flows
($ in thousands)
For The Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
Cash (Used For) Provided By Operations:
Net income $ 81,070 $ 85,308 $ 451,073
Adjustments to reconcile net income to cash
provided by operations:
Depreciation, amortization and cost of company
timber harvested 310,618 298,457 287,738
Deferred income taxes 17,858 7,877 105,899
Special charge -- 46,935 --
Other 24,807 17,511 18,885
Changes in operational assets and liabilities:
Receivables (89,489) 43,963 (23,000)
Inventories 1,200 13,139 (55,325)
Other assets 9,139 1,511 (3,637)
Accounts payable, taxes and other liabilities 25,913 (11,556) (22,753)
- ---------------------------------------------------------------------------------------------------------------
Cash Provided By Operations 381,116 503,145 758,880
- ---------------------------------------------------------------------------------------------------------------
Cash (Used For) Provided By Investment Activities:
Capital expenditures:
Plant and equipment (301,517) (291,345) (233,444)
Timberlands (35,709) (95,098) (33,355)
- ----------------------------------------------------------------------------------------------------------------
(337,226) (386,443) (266,799)
Acquisitions (13,890) (49,452) (7,115)
Sale of businesses-net -- 5,318 36,133
Sale of assets 9,518 22,009 9,822
Other 10,914 (27,093) (17,348)
- ---------------------------------------------------------------------------------------------------------------
Cash Used For Investment Activities (330,684) (435,661) (245,307)
- ---------------------------------------------------------------------------------------------------------------
Cash (Used For) Provided By Financing Activities:
Issuance of long-term debt 160,000 150,000 22,625
Repayments of long-term debt (108,172) (48,954) (69,338)
Change in short-term notes payable 28,211 52,156 (279,999)
Proceeds from issuance of common stock 22,105 3,377 6,042
Common stock repurchases (36,864) (86,499) (59,614)
Dividends paid (125,051) (124,718) (116,132)
- ---------------------------------------------------------------------------------------------------------------
Cash Used For Financing Activities (59,771) (54,638) (496,416)
- ---------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (700) 1,739 (81)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (10,039) 14,585 17,076
Balance at beginning of year 44,917 30,332 13,256
- ---------------------------------------------------------------------------------------------------------------
Balance at end of year $ 34,878 $ 44,917 $ 30,332
===============================================================================================================
See the accompanying notes to consolidated financial statements.
---
31
Notes to Consolidated Financial Statements
($ in thousands, except per share)
1 Significant Accounting Policies
Principles of Consolidation and Preparation of Financial Statements: The
consolidated financial statements present the operating results and the
financial position of the company and all of its subsidiaries. All significant
intercompany transactions are eliminated.
In accordance with generally accepted accounting principles, the
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of some assets and liabilities and,
in some instances, the reported amounts of revenues and expenses during the
reporting period.
Cash and Cash Equivalents: Cash and cash equivalents include all highly liquid
investment instruments with an original maturity of three months or less.
Inventories: Inventories are stated at the lower of cost or market and include
the cost of materials, labor and manufacturing overhead. Finished goods and raw
materials of domestic operations are valued principally at last in, first out
(LIFO) cost. Supplies and all inventories of foreign operations are valued at
first in, first out (FIFO) or average cost.
Property and Depreciation: Plant and equipment is recorded at cost, less
accumulated depreciation. Upon sale or retirement, the asset cost and related
depreciation are removed from the balance sheet and the resulting gain or loss
is included in income.
Depreciation is principally calculated on a straight-line basis with
lives for buildings from 15 to 33 years and for machinery and equipment from 10
to 20 years. For major expansion projects, the company uses the
units-of-production depreciation method until design level production is
reasonably sustained. Accelerated depreciation methods are used for tax
purposes.
The cost of company timber harvested is charged to income as timber is
cut. The charge to income is the product of the volume of timber cut multiplied
by annually developed unit cost rates.
Goodwill: The excess of the cost over the fair value of net assets of acquired
businesses is recorded as goodwill and is amortized on a straight-line basis
over appropriate periods not to exceed 40 years. The company reviews the
goodwill recoverability period on a regular basis.
Research and Development Costs: Research and development costs are expensed as
incurred. These expenditures totaled $57.3 million in 1997, $55.9 million in
1996, and $55.4 million in 1995.
Capitalized Interest: Interest is capitalized on major capital expenditures
during the period of construction. Total interest costs incurred and amounts
capitalized were:
1997 1996 1995
- --------------------------------------------------------------
Total interest $126,978 $116,748 $122,572
Interest capitalized (9,688) (4,462) (8,867)
- --------------------------------------------------------------
Net interest expense $117,290 $112,286 $113,705
- --------------------------------------------------------------
- --------------------------------------------------------------
Stock-Based Compensation: In accordance with Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the company
has elected to continue to account for its employee stock option plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and to disclose supplementally the pro forma effect
of accounting for these plans as if the provisions of SFAS No. 123 had been
adopted. (See also Note 10.)
Accounting Standards: In June 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 130, "Reporting Comprehensive Income." This statement
establishes standards for the reporting and display of comprehensive income and
its components in the company's financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of a Business and Related Information." This statement establishes
revised standards for the reporting of financial information about a company's
operating segments for both interim and annual reporting.
These statements, which will be adopted by the company in 1998, affect
financial statement presentation and disclosure but will not have an impact
on the company's consolidated financial position or results of operations.
Environmental Liabilities: Environmental expenditures that improve the condition
of the property are generally capitalized, all other environmental expenditures
are expensed as incurred. Liabilities are recorded when remedial efforts are
probable and the costs can be reasonably estimated. The timing of these accruals
generally coincides with the completion of a feasibility study or the company's
commitment to a formal plan of action.
Income Taxes: Deferred income taxes are recorded using enacted tax rates in
effect for the year temporary differences are expected to reverse. Federal and
state income taxes are not accrued on the cumulative undistributed earnings of
foreign subsidiaries because the earnings have been reinvested in the businesses
of those companies. As of December 31, 1997, the total of all such undistributed
earnings amounted to $202.4 million. It is not practical to estimate the amount
of tax that might be payable on the distribution of the foreign earnings. The
company has, as
- ---
32
required, provided for tax potentially payable on the distribution of its share
of $85.7 million, the undistributed earnings of Bush Boake Allen Inc. (BBA) and
subsidiaries earned subsequent to 1992. (See also Note 9.)
Foreign Currency Translation: The assets and liabilities of the company's
foreign subsidiaries and affiliates are translated into U.S. dollars at year-end
exchange rates, while income and expense accounts are translated at average
annual rates. The primary factor used to determine the functional currencies of
the company's foreign subsidiaries is the local currency cash flows resulting
from manufacturing, sales and financing activities. Gains and losses resulting
from foreign currency translation are reflected in a separate component of
Stockholders' Equity entitled Other Equity Adjustments. The effect of these
cumulative adjustments was to reduce equity by $19.3 million at December 31,
1997 and $4.2 million at December 31, 1996.
Derivatives: The company hedges foreign currency transactions by entering into
forward foreign exchange contracts. Gains and losses associated with the forward
contracts are matched with the offsetting gains and losses recorded for exchange
rate fluctuations on the underlying assets and liabilities. Gains and losses on
interest rate swap agreements are charged or credited to interest expense over
the life of the agreement. (See also Note 8.)
Revenue Recognition: The company recognizes revenue upon the passage of title,
which is generally at the time of shipment.
Earnings Per Share: In accordance with the provisions of SFAS No. 128, "Earnings
Per Share," the company is presenting net income per share on a basic and
diluted basis. Basic earnings per share is computed using the weighted average
number of shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of shares outstanding adjusted for
dilutive common stock equivalents.
The weighted average number of shares outstanding for basic earnings per
share were 69,439,150 for 1997, 69,220,157 for 1996 and 69,940,397 for 1995. For
diluted earnings per share, these amounts increased by 491,292, 385,379 and
629,140 in 1997, 1996 and 1995, respectively, due to potentially dilutive common
stock equivalents issuable under the company's stock option plan. In 1997 and
1996, 949,700 and 28,000 potential common shares were excluded from the
computation of diluted earnings per share because the effect would have been
antidilutive. There were no antidilutive common stock equivalents in 1995.
Reclassifications: Certain amounts have been reclassified for 1995 and 1996 to
conform with the 1997 presentation.
2 Special Charge
During the fourth quarter of 1996, the company recorded a $46.9 million pre-tax
charge ($28.9 million after-tax) to operating income. Included in the charge was
$21.0 million for employee severance costs, $18.4 million for asset write downs,
and $7.5 million for other expenses. The asset write downs were taken to
recognize equipment rendered obsolete as a result of replacement equipment and
to reflect the fair value of certain investment properties.
3 Other (Income) Expense-Net
The year 1996 included a $6.1 million gain related to other asset disposals.
4 Acquisitions
In October 1997, the company acquired the outstanding shares of Phoenix Display
and Packaging Corporation, a leading merchandising and point-of-purchase display
company. In June, Alling and Cory, the company's paper distribution business,
acquired the Antietam Paper Company. In March, the company acquired a 75%
interest in Puntapel, S.A., a multiwall plant located in San Luis, Argentina.
The cost of these acquisitions was $20 million in the aggregate.
In August 1997, the company contributed 25 thousand acres of timberlands
valued at $30.7 million for a 50% equity investment in Forestmax LLC, which has
as its primary assets timberland holdings. The company will recognize a gain of
$27 million over a future period on the basis of timber cut.
In the first quarter of 1996, the company purchased the operating assets
and assumed certain liabilities of O'Grady Containers, Inc. In addition, the
company acquired a 50% interest in a corrugated container joint venture in
Turkey. The total cost of these purchases was $34 million.
On August 2, 1996, the company acquired The Alling & Cory Company
(Alling and Cory), a paper distribution business, for a consideration totaling
$88.5 million, consisting of 1.7 million shares of company common stock and
$5.4 million cash.
These acquisitions were accounted for under the purchase method and,
accordingly, the net assets and results of operations have been included in the
consolidated financial statements since the date of acquisition. The excess of
purchase price over the estimated fair values of the net assets acquired has
been treated as goodwill.
The pro forma effect of these acquisitions is not material.
---
33
Notes to Consolidated Financial Statements
($ in thousands, except per share)
5 Supplemental Balance Sheet Information
December 31, 1997 1996
- ----------------------------------------------------------------
Receivables
Trade $598,105 $514,799
Other 57,810 46,791
- ----------------------------------------------------------------
655,915 561,590
Less estimated doubtful accounts,
discounts and allowances 17,785 17,270
- ----------------------------------------------------------------
Net $638,130 $544,320
================================================================
Inventories
Finished goods $275,112 $270,123
Raw materials 109,352 110,569
Supplies 110,849 115,741
- ----------------------------------------------------------------
Total $495,313 $496,433
================================================================
At December 31, 1997 and 1996, finished goods and raw materials totaling $240.1
million and $254.6 million, respectively, were valued at LIFO cost. The excess
of current cost over LIFO value was $99.0 million and $101.7 million in 1997 and
1996, respectively.
December 31, 1997 1996
- ----------------------------------------------------------------
Other Current Assets
Prepayments $ 24,212 $ 22,745
Short-term timber leases 19,044 19,045
Assets held for resale -- 6,650
- ----------------------------------------------------------------
Total $ 43,256 $ 48,440
================================================================
Plant and Equipment,
at cost
Land $ 36,429 $ 37,151
Buildings and improvements 568,506 561,078
Machinery and equipment 5,974,738 5,777,737
Construction-in-progress 220,804 186,499
- -----------------------------------------------------------------
Total $6,800,477 $6,562,465
=================================================================
At December 31, 1997, property (principally machinery and equipment) having an
original cost of approximately $388 million and a net book value of $152 million
is pledged against lease obligations and notes payable to industrial development
authorities (see also Note 6). These obligations and notes payable have
outstanding long-term balances totaling approximately $334 million.
December 31, 1997 1996
- -----------------------------------------------------------------
Other Assets
Goodwill $ 82,783 $ 72,646
Investments in affiliates 76,019 46,015
Other intangibles 44,383 30,096
Pension assets 42,593 28,738
Other 24,561 32,353
- -----------------------------------------------------------------
Total $270,339 $209,848
=================================================================
Short-Term Debt: Included in Notes Payable at December 31, 1997 and 1996 were
$112.8 million and $114.0 million, respectively, of commercial paper borrowings.
The weighted average interest rate on these borrowings for the years 1997 and
1996 were 5.76% and 5.60%, respectively.
The company has short-term revolving credit facilities in numerous
countries primarily outside the United States, which provide for aggregate
availability of $157 million. At December 31, 1997 and 1996, approximately $92
million and $60 million, respectively, was outstanding and included in
short-term borrowings. Related commitment fees are either nominal or zero.
December 31, 1997 1996
- ---------------------------------------------------------------------
Other Accrued Liabilities
Payrolls $ 72,276 $ 67,892
Interest 29,652 30,758
Special charge reserve 5,647 16,410
Other 105,398 86,259
- ---------------------------------------------------------------------
Total $212,973 $201,319
=====================================================================
Other Liabilities and Minority Interest
Postretirement and
postemployment benefits $130,412 $128,838
Minority interest 102,429 86,507
Minimum pension liability 7,210 3,134
Other 50,787 28,459
- --------------------------------------------------------------------
Total $290,838 $246,938
====================================================================
6 Long-Term Debt
December 31, 1997 1996
- -----------------------------------------------------------------------
Sinking fund debentures:
8 5/8% due 1999-2016 $ 42,674 $ 47,474
10% due 2000-2019 100,000 100,000
9 1/4% due 2002-2021 117,780 117,780
Debentures:
9 1/2% due 2002 100,000 100,000
9 1/4% due 2011 124,800 124,800
8 1/2% due 2022 100,000 100,000
Notes:
7 3/8% due 1999 50,000 50,000
7% due 2006 150,000 150,000
6 1/2% due 2007 150,000 --
Medium-term notes due
1999-2001; 7.75% to 9.54%;
weighted average rate 8.61% 53,000 84,000
Industrial Development Revenue
Bonds due 2001-2013; 4.0%
to 8.0%; weighted average
rate 6.14% 36,944 41,575
Pollution Control Revenue Bonds
due 1999-2027; 4.7% to 7.45%;
weighted average rate 6.58% 297,500 289,005
Other notes due 1999-2004 5,024 5,560
Commercial paper 46,000 46,000
Less unamortized discount (6,272) (3,719)
- -------------------------------------------------------------------------
Total $1,367,450 $1,252,475
=========================================================================
- ---
34
The current portion of long-term debt at December 31, 1997 amounted to $40.4
million. Amounts payable in the years 1999 through 2002 are $70.3 million, $31.1
million, $38.1 million and $140.9 million, respectively.
At December 31, 1997, $46 million of commercial paper borrowings was
classified as long-term debt, since the company has the ability and intent to
renew these obligations through the year 2000. The effective interest rate on
these borrowings was 5.76%.
The company has revolving credit and term loan agreements which provide
for unsecured borrowings up to $500 million in the United States through the
year 2001. Any borrowings under these agreements would incur interest at the
prevailing prime rate or other market rates. Nominal commitment fees are paid on
the unused portion. No borrowings were made in 1997 under these agreements.
7 Stockholders' Equity
Capital in Other
Common Excess of Retained Equity
Stock Par Value Earnings Adjustments
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $70,012 $ 87,897 $1,693,073 $(14,661)
Net Income -- -- 451,073 --
Cash dividends ($1.66 per share) -- -- (116,132) --
Common stock repurchases (1,152) (58,462) -- --
Issuance of stock for options and award plans 218 8,909 -- (203)
Foreign currency translation -- -- -- 1,120
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $69,078 $ 38,344 $2,028,014 $(13,744)
Net Income -- -- 85,308 --
Cash dividends ($1.80 per share) -- -- (124,718) --
Common stock repurchases (1,714) (84,785) -- --
Issuance of stock for options and award plans 152 6,964 -- (1,326)
Shares issued for business acquisitions 1,701 81,330 -- --
Foreign currency translation -- -- -- 8,990
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $69,217 $ 41,853 $1,988,604 $(6,080)
Net Income -- -- 81,070 --
Cash dividends ($1.80 per share) -- -- (125,051) --
Common stock repurchases (688) (36,176) -- --
Issuance of stock for options and award plans 551 25,760 -- 273
Shares issued for business acquisitions 184 11,383 -- --
Foreign currency translation -- -- -- (15,182)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $69,264 $ 42,820 $1,944,623 $(20,989)
========================================================================================================================
The authorized capital stock of the company at December 31, 1997, 1996 and 1995
consisted of 125,000,000 shares of common stock, $1.00 par value, and 1,000,000
shares of authorized but unissued preferred stock, $1.00 par value. Common stock
repurchased is included in the authorized but unissued shares of the company.
Shareholder Rights Plan: The company has a Shareholders' Rights Plan pursuant to
which preferred stock purchase rights are issued to the common stockholders at
the rate of one right for each share of common stock. Each right entitles
shareholders to purchase, under certain conditions (i) one one-thousandth of a
share of the company's Series A Junior Participating Preferred Stock at an
exercise price of $175 or (ii) common stock of the company having a market value
of two times the exercise price. Alternatively, the Board of Directors may
permit holders to surrender each right in exchange for one share of common
stock. The rights will be exercisable only if a person or group acquires 15% or
more of the outstanding common stock or announces a tender offer for 15% or more
of the common stock. The rights expire February 26, 2006 and may be redeemed for
$.001 per right by the Board of Directors prior to the time the rights become
exercisable. In addition, if after any person acquires 15% or more of the
company's common stock, the company is involved in a merger or other business
combination transaction with another person after which its common stock does
not remain outstanding, or the company sells 50% or more of its assets or
earning power, each right will entitle its holder to purchase, at the then
current exercise price, shares of the acquiring company's common stock having a
market value equal to two times the purchase price.
---
35
Notes to Consolidated Financial Statements
($ in thousands, except per share)
8 Financial Instruments
Fair Value of Financial Instruments: The carrying amounts of certain financial
instruments: cash, short-term investments, trade receivables and payables
approximate their fair values. The fair value of the company's long-term debt
varies with market conditions and is estimated based on quoted market prices for
similar financial instruments by obtaining quotes from brokers.
At December 31, 1997, the book value of long-term debt was $1.4 billion
and the fair value was approximately $1.5 billion. The book value of all other
financial instruments approximates their fair value.
Derivative Financial Instruments: Derivative instruments are used by the company
only to hedge the risk associated with underlying business transactions such as
existing floating rate debt and existing foreign currency commitments.
Derivatives are not used for trading or speculative purposes. The book value of
these derivatives approximates their fair value.
At December 31, 1997, the company had outstanding foreign exchange
contracts valued at $103.6 million. The purpose of $87.8 million of these
contracts is to neutralize foreign currency transaction risk generated by the
company's firm foreign currency business commitments resulting from the sale and
purchase of products. The change in value of these contracts resulting from
changes in the respective foreign currency rates versus the U.S. dollar is
accrued monthly and credited or charged to foreign exchange gain or loss. These
foreign currency commitment exposures are evaluated on an ongoing basis and the
amount of the related foreign currency contracts are adjusted as required to
offset the risk associated with the underlying transactions. Cash settlements
are executed whenever the contracts are adjusted, which occurs at least monthly.
The additional $15.8 million of foreign exchange contracts at December 31, 1997
represent hedges of specific firm commitments for certain capital expenditure
and raw material purchase transactions denominated in foreign currencies. The
company enters into these contracts, from time to time, to establish with
certainty the U.S. dollar amount of the specific firm commitments. All foreign
exchange contracts are limited to currencies with established forward markets
and to counterparties, which have Moody's credit ratings of A1 or better. As a
result, the company considers the credit risk of counterparty default to be
minimal.
At December 31, 1997, the company had an outstanding interest rate swap
agreement, the purpose of which is to convert $32.5 million of floating rate
commercial paper to fixed rate debt. The swap agreement is based on a declining
principal balance schedule which terminates in April 2000. The differential
between fixed and floating rate obligations is accrued as interest rates change
and is charged or credited to interest expense over the life of the agreement.
Cash settlements are payable semi-annually. The counterparty has a Moody's
credit rating of Aa1.
9 Income Taxes
The components of income before income taxes and minority interest are as
follows:
1997 1996 1995
- ------------------------------------------------------------
Domestic $ 99,071 $ 97,187 $669,487
Foreign 44,739 53,858 61,370
- ------------------------------------------------------------
Total $143,810 $151,045 $730,857
============================================================
The provision for income taxes is comprised of the following:
1997 1996 1995
- ------------------------------------------------------------
Current:
Federal $19,493 $34,313 $124,937
State and local 3,132 3,831 21,880
Foreign 11,321 9,229 16,179
- -------------------------------------------------------------
$33,946 $47,373 $162,996
- -------------------------------------------------------------
Deferred:
Federal $13,870 $ 2,094 $ 96,601
State 1,297 (206) 6,477
Foreign 2,691 5,989 2,821
- -------------------------------------------------------------
$17,858 $ 7,877 $105,899
- -------------------------------------------------------------
Total $51,804 $55,250 $268,895
=============================================================
The company follows the provisions of SFAS No. 109, "Accounting for Income
Taxes," whereby deferred taxes represent estimated liabilities to be paid or
assets to be received in the future and tax rate changes would immediately
affect those liabilities or assets. The cumulative deferred tax liability at
December 31, 1997 and 1996 was $744.7 million and $723.4 million, respectively.
The significant components of these liabilities (assets) are as follows:
December 31, 1997 1996
- -------------------------------------------------------------
Deferred federal taxes:
Accelerated depreciation $713,436 $704,912
Alternative minimum tax (45,540) (43,816)
Postretirement benefits (44,294) (42,706)
Other 26,553 16,601
- --------------------------------------------------------------
Total deferred federal taxes 650,155 634,991
Deferred state taxes 64,467 63,170
Deferred foreign taxes 30,055 25,270
- -------------------------------------------------------------
Total deferred taxes $744,677 $723,431
=============================================================
A detailed analysis of the effective tax rate is as follows:
1997 1996 1995
- -------------------------------------------------------------
Statutory federal tax rate 35.0% 35.0% 35.0%
State taxes (net of
federal tax impact) 2.4 1.5 2.8
Foreign income taxes (1.2) (2.3) (0.3)
Other (0.2) 2.4 (0.7)
- -------------------------------------------------------------
Effective rate 36.0% 36.6% 36.8%
=============================================================
- ---
36
10 Employee Stock Option Plans
Under the stock option plans adopted in 1982 and 1989 (as amended), a maximum of
2,175,000 shares and 5,678,000 shares, respectively, of the company's common
stock were made available for the granting of options and stock appreciation
rights to officers and other key employees of the company and its subsidiaries
at prices not less than 100% of fair market value at the dates of grant. Such
options generally become exercisable two years after the date of grant and
expire ten years from that date. No further options may be granted under the
1982 plan. At the end of 1997, 230,250 options were available for future grants
under the 1989 plan.
Under the 1989 plan, 1,135,607 shares may be awarded as restricted stock
to selected officers and other key employees of the company and its
subsidiaries. Recipients of restricted stock are entitled to receive cash
dividends and to vote their respective shares. Restrictions limit the sale or
transfer of these shares during a specified period.
Common shares issued as restricted stock under this plan were 4,533
shares in 1997, 38,890 shares in 1996 and 11,924 shares in 1995. The weighted
average fair value on the date of grant was $48.56 for restricted stock granted
in 1997, $49.50 for restricted stock granted in 1996, and $46.88 for restricted
stock granted in 1995. Unearned compensation, equivalent to the market price of
the restricted shares at date of grant, is included within Stockholders' Equity
and is amortized to expense over the five-year restriction period.
The following table summarizes activity in the company's stock option
plans for 1997, 1996 and 1995. The options outstanding that had related stock
appreciation rights attached were 1,067,101 at December 31, 1996, and 1,207,641
at December 31, 1995.
In the third quarter of 1997, all outstanding stock appreciation rights
previously granted in tandem with nonqualified stock options under the company's
management incentive program were relinquished. This did not have a material
impact on reported earnings. The related stock options were not affected and
remain outstanding.
1997 1996 1995
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding at
beginning of year 4,120,426 $44.86 3,582,626 $43.57 3,213,253 $41.67
Granted 949,700 58.84 722,000 49.38 664,400 49.45
Exercised (544,225) 41.08 (96,427) 38.97 (197,637) 36.03
Forfeited (96,065) 35.33 (76,598) 34.24 (78,840) 35.00
Expired -- -- (11,175) 47.90 (18,550) 42.98
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding
at end of year 4,429,836 $48.48 4,120,426 $44.86 3,582,626 $43.57
- -----------------------------------------------------------------------------------------------------------------------
Options exercisable
at end of year 2,758,136 $44.75 2,741,526 $42.57 2,345,510 $41.55
=======================================================================================================================
For options outstanding as of the end of 1997, the range of exercise
prices was $33.69 to $58.84 per share and the weighted average remaining life
was 7.1 years. The weighted average fair values of the options granted during
1997, 1996 and 1995 were $12.60, $9.66 and $9.70 per share, respectively.
Fair value was determined through use of the Black-Scholes options
pricing formula. For options granted in 1997, the risk-free interest rate was
5.70%, the expected life was 7 years, the expected volatility was 19% and
expected dividend yield was 3.4%, all calculated on a weighted average basis.
For options granted in 1996 and 1995, the risk-free interest rate was 5.74% and
5.47%, respectively, the expected life was 6 years, the expected volatility was
18% and 19%, respectively, and the expected dividend yield was 3.4%, all
calculated on a weighted average basis.
Total compensation cost recognized in income for stock-based
compensation awards was $3.3 million in 1997, $0.7 million in 1996 and $1.3
million in 1995. If the company had elected to adopt the provisions of SFAS No.
123, the pro forma net income and earnings per share would have been $76.7
million or $1.10 per share in 1997 and $83.1 million or $1.20 per share in 1996.
The comparable pro forma impact on 1995 net income and earnings per share would
be insignificant
---
37
Notes to Consolidated Financial Statements
($ in thousands, except per share)
11 Pension Plans
The company and certain foreign subsidiaries have non-contributory defined
benefit pension plans covering substantially all of their employees. Benefits
are based on years of service and, for salaried employees, final average
earnings. The company funds its plans annually based upon a consistently applied
formula which amortizes the unfunded liability adjusted for actuarial gains or
losses. Assets of the plans are primarily fixed income instruments and publicly
traded stocks.
The following table sets forth the status of all funded pension plans
for 1997 and 1996:
December 31, 1997 December 31, 1996
--------------------------------------------------------------------------------
Domestic Plans Foreign Plans Domestic Plans Foreign Plans
--------------------------------------------------------------------------------
Assets in Accumulated Assets in
excess of benefits in excess of
accumulated excess of accumulated
benefits assets benefits
- --------------------------------------------------------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $ 542,226 $ 250,439 $ 138,797 $ 696,736 $ 122,859
==========================================================================================================================
Accumulated benefit obligation 580,968 264,943 140,249 742,222 123,995
==========================================================================================================================
Projected benefit obligation 685,835 264,943 168,467 821,853 150,340
Plan assets at fair value 695,527 259,474 181,667 859,805 160,213
- --------------------------------------------------------------------------------------------------------------------------
Plan assets greater (less) than
projected benefit obligation 9,692 (5,469) 13,200 37,952 9,873
Unrecognized net (gain) loss (11,974) (26,783) 21,303 (61,864) 20,107
Unrecognized prior service cost (2,013) 20,313 (1,351) 10,944 46
Unrecognized transition (asset) obligation 147 4,543 (1,486) 6,257 (2,302)
- --------------------------------------------------------------------------------------------------------------------------
Pension (liability) asset recorded on
Balance Sheet $ (4,148) $ (7,396) $ 31,666 $ (6,711) $ 27,724
==========================================================================================================================
The company has certain supplementary domestic pension plans that are
not funded. At December 31, 1997 and 1996, the projected benefit obligation for
these plans was $32.0 million and $23.0 million of which $25.7 million and $17.4
million represent the accumulated benefit obligation, and $24.2 million and
$17.0 million represent the vested benefit obligation, respectively. The accrued
pension liability for the unfunded plans recorded on the Balance Sheet at
December 31, 1997 and 1996 was $23.8 million and $17.8 million, respectively.
The minimum pension liability for these plans recorded on the Balance Sheet at
December 31, 1997 and 1996 was $7.2 million and $3.1 million, respectively.
The pension expense for all plans included the following components:
1997 1996 1995
- --------------------------------------------------------------------------------
Service cost-benefits
earned during
the period $ 28,165 $ 28,747 $ 20,643
Interest cost on
projected benefit
obligations 75,032 68,613 64,548
Actual return on assets (170,551) (137,070) (155,838)
Net amortization
and deferral 79,602 56,282 90,824
- --------------------------------------------------------------------------------
Total pension expense $ 12,248 $ 16,572 $ 20,177
================================================================================
The discount rates used to determine the pension benefit obligation for the
domestic plans at December 31, 1997 and 1996 were 7.0% and 7.5%, respectively.
The discount rates used for the foreign plans were 7.0% and 8.0%, respectively,
at December 31, 1997 and 1996.
The compensation progression rate for domestic plans was 4.75% for 1997,
1996 and 1995. The expected long-term rate of return on domestic plan assets was
9.5% for each year.
The compensation progression rates for the foreign plans were 6.0% for
1997 and 1996 and 7.0% for 1995. The expected long-term rate of return on
foreign plan assets was 10.5% for 1997 and 11.5% for 1996 and 1995.
In 1996, the company recorded a charge for special termination benefits
of approximately $8.2 million, primarily attributable to the elimination of
approximately 400 positions in connection with an employee severance program.
- ---
38
12 Postretirement Benefits
The company has a contributory postretirement health care plan covering
primarily its U.S. salaried employees. Employees become eligible for these
benefits when they meet minimum age and service requirements. The company funds
its plan on a "pay-as-you-go" basis, in an amount equal to the retirees' medical
claims paid.
The components of the Accumulated Postretirement Benefit Obligation as
of December 31, 1997 and 1996 are as follows:
1997 1996
- --------------------------------------------------------------
Retirees $ 84,786 $ 72,632
Fully eligible active plan
participants 8,845 6,904
Other active plan participants 51,446 44,558
- ---------------------------------------------------------------
145,077 124,094
Unrecognized net gain (loss) (16,122) 511
Unrecognized prior service cost (2,402) (2,587)
- ---------------------------------------------------------------
Accrued postretirement
benefit obligation $ 126,553 $ 122,018
===============================================================
The components of the postretirement benefit expense for the years 1997,
1996 and 1995 are as follows:
1997 1996 1995
- ----------------------------------------------------------------------
Service cost-benefits
earned during period $ 4,798 $ 5,311 $ 3,801
Interest cost on accumulated
benefit obligation 9,458 8,819 7,954
Net amortization
and deferral 185 185 (155)
- -----------------------------------------------------------------------
Postretirement
benefit expense $ 14,441 $ 14,315 $ 11,600
=======================================================================
The discount rates used to determine the accumulated postretirement benefit
obligation at December 31, 1997 and 1996 were 7.0% and 7.5%, respectively.
For measurement purposes, an 8% increase in the medical cost trend rate
was assumed for 1997. This rate decreases incrementally to 5.0% by the year 2003
and will remain at that level thereafter. It is estimated that a 1% increase in
the medical cost trend rate would increase the accumulated postretirement
benefit obligation as of December 31, 1997 by $17.4 million and the
postretirement benefit expense for 1997 by $2.1 million.
13 Supplemental Cash Flow Information
Cash paid for income taxes was $29.7 million in 1997, $52.1 million in 1996 and
$161.1 million in 1995. Cash paid for interest, net of amounts capitalized, was
$118.4 million in 1997, $109.4 million in 1996 and $114.2 million in 1995.
The following table summarizes non-cash investing and financing
activities related to the company's acquisitions in 1997, 1996 and 1995.
1997 1996 1995
- ------------------------------------------------------------------
Fair value of assets
acquired $ 42,085 $235,139 $ 8,345
Less: cash paid 13,890 49,452 7,115
Common stock issued 11,567 83,031 --
- ------------------------------------------------------------------
Liabilities incurred or
assumed $ 16,628 $102,656 $ 1,230
==================================================================
14 Commitments and Contingent Liabilities
The company is involved in various legal proceedings and environmental actions.
Although the outcome of these matters is subject to many variables and cannot be
predicted with any degree of certainty, based upon the company's evaluation of
the information presently available, management believes the ultimate resolution
of any such legal proceedings and environmental actions will not have a material
adverse effect on the company's consolidated financial position. However, it is
remotely possible that such legal proceedings and environmental actions could
have a material effect on quarterly or annual operating results when they are
resolved in future reporting periods.
The company has guaranteed loans of up to $20 million made by a
financial institution to non-controlled entities. The guarantees have terms of 6
years or less and are either secured by the borrowers' assets and stock or
contain contractual rights to obtain possession of stock in the borrower's
business.
15 Segment Information
Union Camp is a leading manufacturer of paper, packaging, chemicals and wood
products serving both U.S. and international markets. The company derives
approximately three fourths of its sales from paper and packaging products, such
as linerboard, kraft paper, uncoated free sheet, corrugated containers, flexible
packaging and folding cartons. The company's chemical business is involved in
the manufacture of chemicals used in inks, coatings and adhesives, and through
its Bush Boake Allen subsidiary, the manufacture of flavor, fragrance and aroma
chemicals. Chemicals comprise about a sixth of Union Camp's sales. The company
also manages a woodlands base of about 1.6 million acres, supplying raw
materials for its linerboard, packaging and paper making business, as well as
for the manufacture of wood products.
Operating results and other financial data are presented for the
principal business segments of the company for
---
39
Notes to Consolidated Financial Statements
($ in thousands, except per share)
the years ended December 31, 1997, 1996 and 1995. Total revenue and operating
profit by business segment include both sales to customers, as reported in the
company's consolidated income statement, and intersegment sales, which are
accounted for at prices charged to customers and eliminated in consolidation.
The amount of the elimination of intersegment profit on any product that remains
in inventory at the end of the period is determined by changes in quantities of
inventory and changes in the margins of profit.
Operating profit by business segment is total revenue less operating
expenses. In computing operating profit by business segment, none of the
following items has been added or deducted: other income, portions of
administrative expenses, interest expense, income taxes and unusual items.
Identifiable assets by business segment are those assets used in company
operations in each segment. Corporate assets are principally cash, intangible
assets, deferred charges and assets held for resale. Included within Corporate
Items are the company's real estate operation, Branigar, and the company's paper
distribution business, Alling and Cory. Since the date of acquisition, August 2,
1996, Alling and Cory had sales to customers of $279 million in 1996 and $694
million in 1997. Its impact on operating profit for 1997 and 1996 was
insignificant. Capital expenditures are reported exclusive of acquisitions.
Total revenue and operating profit from the company's foreign
subsidiaries were $564 million and $51 million in 1997, $538 million and $48
million in 1996, and $504 million and $61 million in 1995. No geographic area
outside the United States was material relative to consolidated revenues,
operating profits or identifiable assets. Export sales from the United States
were $384 million in 1997, $359 million in 1996 and $418 million in 1995.
Paper and Packaging Wood Corporate
Paperboard Products Products Chemical Items Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
1997
Sales to Customers $1,336,685 $1,324,726 $ 326,373 $ 758,607 $ 730,370 $4,476,761
Intersegment Sales 660,367 10,866 114 347 (671,694)* --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Revenue 1,997,052 1,335,592 326,487 758,954 58,676 4,476,761
Operating Profit 144,793 35,857 60,068 74,248 (57,754)** 257,212
Identifiable Assets 3,325,112 774,260 163,081 620,851 358,397 5,241,701
Depreciation, Amortization and Cost
of Company Timber Harvested 228,268 40,320 8,891 26,392 6,747 310,618
Capital Expenditures 198,368 41,540 34,589 57,627 5,102 337,226
- -----------------------------------------------------------------------------------------------------------------------------------
1996
Sales to Customers $1,313,226 $1,402,602 $ 281,467 $ 700,662 $ 315,240 $4,013,197
Intersegment Sales 659,096 9,930 72 -- (669,098)* --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Revenue 1,972,322 1,412,532 281,539 700,662 (353,858) 4,013,197
Operating Profit 175,973 45,448 43,360 66,500 (78,742)** 252,539
Identifiable Assets 3,318,008 702,698 139,040 579,380 357,181 5,096,307
Depreciation, Amortization and Cost
of Company Timber Harvested 225,262 38,056 7,209 22,065 5,865 298,457
Capital Expenditures 235,303 60,393 27,110 54,925 8,712 386,443
- -----------------------------------------------------------------------------------------------------------------------------------
1995
Sales to Customers $1,714,009 $1,515,694 $ 283,594 $ 666,794 $ 31,618 $4,211,709
Intersegment Sales 852,589 11,317 71 150 (864,127)* --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Revenue 2,566,598 1,527,011 283,665 666,944 (832,509) 4,211,709
Operating Profit 750,239 51,437 32,697 74,545 (67,529)** 841,389
Identifiable Assets 3,338,311 719,124 118,118 494,865 167,925 4,838,343
Depreciation, Amortization and Cost
of Company Timber Harvested 215,247 35,503 12,012 20,497 4,479 287,738
Capital Expenditures 141,598 55,861 27,775 37,261 4,304 266,799
====================================================================================================================================
* Elimination of Intersegment Sales.
** Includes intersegment eliminations and unallocated corporate, technology and
engineering expenses of $60,482 in 1997, $64,801 in 1996, and $61,491 in
1995. 1996 includes a $46.9 million special charge relating to restructuring
costs and asset write downs. If this amount had been allocated to segment
operating profits in 1996, Paper and Paperboard operating profits would have
been $152.9 million, Packaging operating profits would have been $37.2
million, Wood Products operating profits would have been $43.4 million,
Chemical operating profits would have been $64.7 million, and Corporate Items
operating loss would have been $45.6 million.
- ---
40
Shipments
(Unaudited) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Paper and Board Products--Tons
- ------------------------------------------------------------------------------------------------------------------------------
Primary Mill Shipments
Kraft Paper and Board 930,109 755,440 823,585 666,378 663,356
Bleached Paper and Board* 1,374,592 1,366,668 1,318,661 1,321,152 1,257,569
- ------------------------------------------------------------------------------------------------------------------------------
Total Mills 2,304,701 2,122,108 2,142,246 1,987,530 1,920,925
- ------------------------------------------------------------------------------------------------------------------------------
Converter Shipments
Flexible Packaging 187,643 178,817 182,095 274,695 265,810
Containers 1,172,325 1,161,436 1,150,054 1,180,137 1,088,875
Other 9,807 11,054 10,826 10,242 15,645
- ------------------------------------------------------------------------------------------------------------------------------
Total Converted 1,369,775 1,351,307 1,342,975 1,465,074 1,370,330
- ------------------------------------------------------------------------------------------------------------------------------
Total Paper and Board Products 3,674,476 3,473,415 3,485,221 3,452,604 3,291,255
- ------------------------------------------------------------------------------------------------------------------------------
Wood Products
- ------------------------------------------------------------------------------------------------------------------------------
Lumber-M Board Feet 523,429 488,938 476,711 462,978 463,216
Plywood-M Square Feet 203,287 201,653 232,191 226,678 227,235
Particleboard-M Square Feet 109,227 106,155 96,801 100,794 99,724
==============================================================================================================================
* Years 1997-1993 include 113,727, 101,497, 116,564, 100,574, and 87,454 tons of
market pulp, respectively.
Paper and Paperboard-Mill Production and Capacity
(Unaudited) 1997 1998 (Thousands of tons)
- ------------------------------------------------------------------------------------------------------
Location Production Capacity Principal Products
Prattville, AL 984 985 Linerboard
Savannah, GA 1,189 1,250 Linerboard; Kraft Paper; Saturating Kraft
- ----------------------------------------------------
Kraft Paper and Board 2,173 2,235
- ------------------------------------------------------------------------------------------------------
Eastover, SC 727 750 Printing and Writing Papers; Market Pulp
Franklin, VA 800 785 Printing and Writing Papers; Coated and
Uncoated Board; Recycled Fiber
- -------------------------------------------------------------------------------------------------------
Bleached Paper and Board 1,527 1,535
- -------------------------------------------------------------------------------------------------------
Total 3,700 3,770
=======================================================================================================
--
41
Historical Data (1997-1987)
1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Operating Results
Net Sales $ 4,476,761 $ 4,013,197 $ 4,211,709 $ 3,395,825
Costs and Other Charges 4,219,549 3,760,658* 3,370,320 3,111,539
- ---------------------------------------------------------------------------------------------------------------------------------
Income From Operations 257,212 252,539 841,389 284,286
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Expense, net of capitalized interest 117,290 112,286 113,705 109,172
Other (Income) Expense-Net (3,888) (10,792) (3,173) (20,050)**
- ---------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes, Minority
Interest, Extraordinary Item, and
Accounting Changes 143,810 151,045 730,857 195,164
Income Taxes 51,804 55,250 268,895 71,420
Minority Interest, net of tax (10,936) (10,487) (10,889) (6,518)
Extraordinary Item, net of tax -- -- -- --
Effect of Accounting Changes, net of tax -- -- -- (3,716)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income 81,070 85,308 451,073 113,510
- ---------------------------------------------------------------------------------------------------------------------------------
Per Common Share
Net Income:
Basic Earnings 1.17 1.23 6.45 1.62
Diluted Earnings 1.16 1.23 6.39 1.61
Dividends 1.80 1.80 1.66 1.56
Stockholders' Equity 29.39 30.25 30.71 26.23
- ---------------------------------------------------------------------------------------------------------------------------------
Financial Position
Current Assets 1,211,577 1,134,110 1,033,817 951,133
Current Liabilities 803,018 779,869 620,113 883,924
- ---------------------------------------------------------------------------------------------------------------------------------
Working Capital 408,559 354,241 413,704 67,209
Total Assets 5,241,701 5,096,307 4,838,343 4,776,578
- ---------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt 1,367,450 1,252,475 1,151,536 1,252,249
Deferred Income Taxes 744,677 723,431 709,850 605,643
Stockholders' Equity 2,035,718 2,093,594 2,121,692 1,836,321
- ---------------------------------------------------------------------------------------------------------------------------------
Percent of Long-Term Debt to Total Capital 33.0% 30.8% 28.9% 33.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Additional Data
Cash Provided by Operations 381,116 503,145 758,880 377,587
Capital Expenditures (excluding acquisitions) 337,226 386,443 266,799 324,939
Depreciation, Amortization and Cost of
Company Timber Harvested 310,618 298,457 287,738 270,850
Tons Sold-Paper and Paperboard Products 3,674,476 3,473,415 3,485,221 3,452,604
Average Shares of Common
Stock Outstanding 69,439,150 69,220,157 69,940,397 69,954,082
================================================================================================================================
Years prior to 1997 have been restated to reflect the reclassification
of certain items from other (income) expense to income from operations.
* 1996 includes a $46.9 million special charge relating to restructuring
costs and asset write downs.
** Includes $34.7 million pre-tax gain on sale of minority interest in
Bush Boake Allen.
- ---
42
($ in thousands)
1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------------
$ 3,120,421 $ 3,064,358 $ 2,967,138 $ 2,839,704 $ 2,761,337 $ 2,660,918 $ 2,361,684
2,889,495 2,872,080 2,681,718 2,451,487 2,260,653 2,156,288 1,963,631
- -----------------------------------------------------------------------------------------------------------------------------------
230,926 192,278 285,420 388,217 500,684 504,630 398,053
- -----------------------------------------------------------------------------------------------------------------------------------
124,911 136,240 81,750 31,228 47,800 50,527 61,294
5,877 (9,372) (1,318) (9,029) (16,394) (13,906) (6,115)
- -----------------------------------------------------------------------------------------------------------------------------------
100,138 65,410 204,988 366,018 469,278 468,009 342,874
50,095 22,755 76,978 136,427 169,878 172,863 135,391
- -----------------------------------------------------------------------------------------------------------------------------------
-- (7,228) (3,220) -- -- -- --
-- 40,806 -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
50,043 76,233 124,790 229,591 299,400 295,146 207,483
- -----------------------------------------------------------------------------------------------------------------------------------
0.72 1.10 1.80 3.35 4.35 4.25 2.83
0.71 1.09 1.79 3.34 4.33 4.24 2.81
1.56 1.56 1.56 1.54 1.42 1.22 1.14
26.00 27.01 27.88 27.60 25.47 22.66 20.24
- -----------------------------------------------------------------------------------------------------------------------------------
910,718 1,016,117 909,990 859,532 721,195 769,323 753,683
909,372 892,115 764,916 642,776 366,962 326,079 295,618
- -----------------------------------------------------------------------------------------------------------------------------------
1,346 124,002 145,074 216,756 354,233 443,244 458,065
4,685,033 4,745,197 4,697,714 4,403,354 3,413,862 3,094,414 2,919,115
- -----------------------------------------------------------------------------------------------------------------------------------
1,244,907 1,289,706 1,348,157 1,221,597 690,149 627,928 632,706
583,155 553,871 627,120 589,477 581,835 581,080 538,774
1,815,848 1,881,878 1,936,256 1,910,643 1,754,524 1,559,327 1,452,017
- -----------------------------------------------------------------------------------------------------------------------------------
34.2% 34.6% 34.5% 32.8% 22.8% 22.7% 24.1%
- -----------------------------------------------------------------------------------------------------------------------------------
436,393 279,429 383,390 401,315 528,803 526,621 460,471
310,113 219,654 482,638 934,452 556,268 358,671 188,587
261,518 253,087 219,120 230,383 215,992 200,519 189,224
3,291,255 3,242,511 3,004,980 2,835,549 2,726,105 2,733,205 2,675,541
69,740,458 69,604,174 69,270,992 68,550,315 68,836,229 69,433,734 73,391,106
===================================================================================================================================
---
43