CAPITAL SPENDING

 

Capital spending up 8% for 1999

Capital expenditures by North Amer-ican pulp and paper manufacturers, including expenditures for environmental and Year 2000 (Y2K) compliance, are expected to increase 8.1% in fiscal 1999, according to a survey recently published by Pulp & Paper Project Report. Spending estimates by 54 U.S. and Canadian-based companies show an expected increase of $724 million for capital expenditures in 1999 to total $9.64 billion.

Capital expenditures by 36 U.S. companies are estimated to increase 4.9% to total $8.06 billion for fiscal 1999. This increase comes on the heels of two consecutive years of double-digit spending decreases, including an 11.2% reduction recorded for fiscal 1998. Capital spending by 18 Canadian companies is expected to jump 27.4% in 1999 to total C$2.34 billion. This projected increase follows three years of sharp spending declines since the most recent peak of nearly C$3.6 billion in 1995.

U.S. mills still require significant expenditures for environmental projects to bring their operations into compliance with Cluster Rules legislation from the Environmental Protection Agency (EPA). A tally of projected capital spending necessary for Cluster Rules compliance finds that an estimated $2.5 billion to $2.8 billion will be required in 1999 and beyond to meet the stricter environmental standards. This estimate does not include spending already completed through 1998.

Pulp and paper companies also face significant expenditures to make their manufacturing and business systems Y2K compliant. Through 1998, North American manufacturers had spent just over 40% of their estimated required spending of over $950 million to bring their operations into Y2K compliance.

Not surprisingly, International Paper Co. (IP) leads the U.S. spending pack once again, with estimated spending of $1.2 billion in 1999, following the completion of its acquisition of Union Camp Corp. Combined, the two companies spent $1.32 billion in 1998. IP, including Union Camp, estimated its total Y2K compliance spending to be $118 million, the highest of any U.S. paper company, with only $37 million spent through the end of 1998.

Georgia-Pacific Corp. (G-P) expects to boost its spending nearly 11% to $700 million, up from its 1998 spending of $632 million. G-P also has the highest estimate of spending necessary to meet Cluster Rules compliance, with $300 million estimated to be spent through 2000, following spending of $75 million in 1998.

Abitibi-Consolidated Inc. will maintain its capital expenditures at or below its depreciation and amortization level of C$380 million through 2001, following spending of C$250 million in 1998. The company has projects planned or underway at its mills in Beaupre and Jonquiere, Que. and Snowflake, Ariz.

Donohue Inc. is also expected to increase its capital spending significantly in 1999, largely as a result of its 1998 acquisition and announced expansion plans at the former Cham-pion International Corp. newsprint and uncoated groundwood papers mills in Texas. Donohue plans to invest $332 million at the Sheldon and Lufkin, Texas, mills through 2000.

 

MERGERS & ACQUISITIONS

 

IP-UC merger OK’d; valued at $7.9 billion

Approval was granted by share- holders Apr. 30 of the merger between International Paper Co. (IP) and Union Camp Corp. The deal is expected to have $300 million in cost savings over the next five years, coming in part from changes in operations including possible consolidations.

The stock-for-stock merger of the world’s biggest paper company—IP—and North America’s seventh-largest was announced Nov. 24. The stock swap was valued at $7.9 billion, including assumption of debt, with a value of $85.21 per each Union Camp share. Union Camp shareholders will own more than 26% of the company.

The combined IP will have about $24.4 billion in annual sales. Upon completion, the merger will boost IP’s timberlands holdings by about 25% to approximately 7.6 million acres.

IP officials stated the largest part--about $200 million--of the estimated $300 million in cost savings created by the merger will come from reduced selling and administrative expenses from combined corporate and business staffs; about $35 million will come from lower costs of purchased items because of volume discounts. The companies anticipate a further $65 million will come from operating efficiencies and consolidating production.

Pre-merger IP had operations in 31 countries and employs more than 80,000 people. Union Camp, which was based in Wayne, N.J., employed nearly 18,000. The U.S. paper operations will be based in Memphis, Tenn.

 

RESTRUCTURING

 

SSCC seeks asset sales, less debt

Smurfit-Stone Container Corp. has detailed an aggressive plan for turning around the $8 billion packaging giant, including selling off $2 billion in non-core assets within two years, getting higher prices for the company’s corrugated containers and boxes, and paying down debt of $6.6 billion.

An investment adviser has been hired to sell approximately 1 million acres of timberland in Alabama, Florida, and Georgia, and the sale could go completed by September. The company also hired an investment adviser for selling two newsprint mills in Oregon and one newsprint mill in California. Since merging, Smurfit-Stone Container has also closed down four corrugated plants, a folding carton plant, and a corrugated pallet plant. The company expects another five or 10 box plants could be closed in the future. Overall, the company also expects to let go 3,600 workers; 1,660 workers were let go from closing four containerboard mills Illinois, Ohio, Georgia, and Florida.

 

SALES & EARNINGS First quarter earnings better than expected First-quarter earnings for U.S. pulp, paper, and forest products companies came in better than many Wall Street analysts expected which boosted stock prices to recent highs for many producers. Those companies whose product mix was bolstered by lumber and other building products showed particularly strong results, including Weyerhaeuser Co., Georgia-Pacific Corp. and Boise Cascade Corp. Total net earnings were up nearly 6% compared to last year for 32 companies while net sales were almost unchanged at $30.2 million. Although most commodity paper prices remained depressed during the first quarter, profits were boosted by cost-cutting programs and improved productivity at many mills.
U.S. PAPER INDUSTRY SALES AND EARNINGS—FIRST-QUARTER 1999 ($ 000)
Company	1Q sales 1999	% chg. 1999/98	1Q net income 1999	% chg. 1999/98
Boise Cascade	$1,611,153	8.2%	$18,853	n.m.
Bowater*	571,300	49.1	19,200	–7.7%
Buckeye Technologies	155,880	–4.1	11,488	–19.1
Caraustar	187,565	6.0	11,415	–13.4
Champion Intl.	1,274,600	–13.7	41,600	118.9
Chesapeake	239,100	10.3	8,500	6.3
Consolidated Papers	459,233	–11.2	13,970	–64.2
FiberMark	75,906	–5.1	4,054	–6.8
Fort James	1,790,300	–0.3	122,000	3.7
Gaylord Container	201,000	–8.3	(19,300)	n.m.
Georgia-Pacific	3,352,000	5.0	99,000	518.8
Glatfelter	165,846	–14.2	8,140	–46.9
International Paper	4,962,000	1.9	44,000	–41.3
Kimberly-Clark	3,125,200	2.5	387,552	28.1
Longview Fibre*	163,324	–7.3	(1,213)	n.m.
Louisiana-Pacific	594,400	8.4	27,200	n.m.
Mead*	863,200	2.9	22,900	–25.2
Pope & Talbot	109,205	5.5	(2,276)	n.m.
Potlatch*	416,400	3.5	5,200	–51.4
Rayonier	226,400	0.4	15,100	–17.0
Rock-Tenn	312,166	–4.8	8,806	–10.0
St. Laurent*	198,400	–3.9	2,275	548.1
Schweitzer-Mauduit	128,600	–4.2	9,100	–9.
Smurfit-Stone*	1,720,000	–18.5	(88,000)	n.m.
Sonoco Products	560,479	–16.8	43,900	–5.6
Temple-Inland	955,500	1.2	18,700	–29.2
Union Camp	1,094,123	–4.4	(9,596)	n.m.
Wausau-Mosinee*	226,441	–4.7	12,700	–26.6
Westvaco*	650,715	–7.3	25,222	–22.4
Weyerhaeuser*	2,665,000	2.4	102,000	20.0
Willamette	923,453	2.6	31,594	43.1
Totals	$30,180,089	–0.5%	$986,782	5.8%
Note: Earnings represent net income after taxes from continuing operations, before nonrecurring and extraordinary items. ( ) = loss, n.m. = not meaningful due to loss. * = before or after extraordinary item. ** = Non-calendar fiscal year.

 

CORPORATE STRATEGY

 

Alliance outlines Ala. investment program

Alliance Forest Products Inc. unveiled plans for a two-phase, $370 million investment program at its newsprint and uncoated groundwood papers mill in Coosa Pines, Ala. Phase one is expected to begin in early 2001 and be completed in 2003.

The $170 million project will replace groundwood pulp usage with expanded deinked pulp (DIP) capacity, boosting the recycled content of newsprint from 40% to 95%. The mill will permanently shut down its 505 mtpd stone groundwood and 135 mtpd hardwood kraft market pulp mills. As part of the hardwood kraft market pulp elimination, the mill will end production on its 270 mtpd Kamyr continuous digester, No. 2 recovery boiler, a lime kiln and No. 3 bark boiler.

In conjunction with the fiber furnish changes, the company will increase the speed and efficiency of the three currently operating Beloit Corp. paper machines, Nos. 1, 3,and 4, boosting total capacity to 448,000 mtpy from 393,000 mtpy. Essentially all of the 55,000 mtpy capacity increase will be newsprint.

Phase two consists of the construction of a $200 million cogeneration plant, to be financed by a third party that will also own it. The project will begin as soon as a partnership agreement can be signed. Alliance is currently investing C$80 million ($55 million) at the Coosa Pines mill for Cluster Rules compliance.

 

ESOP at Champion’s Canton paper mill

Champion International Corp. announced that it has reached an agreement to sell its paper mill in Canton, N.C., and its liquid packaging business to a New York investment fund and the employees of the operations for $200 million. Along with the mill, which has production capacity of 705 tpd of uncoated free-sheet paper (mainly envelope and fine papers) and 750 tpd of bleached paperboard (mainly liquid packaging), the Canton system includes an extrusion coating facility located in Waynesville, N.C., and five DairyPak milk and juice carton packaging plants located in five states.

 

Sappi to close part of Westbrook mill

Sappi Ltd. announced it will close the pulp mill and a coated paper machine at its mill in Westbrook, Maine. The South Africa-based company said the closures will take effect in late June and will affect about 315 salaried and hourly employees at Westbrook, which will leave about 500 jobs at the mill.

Sappi Executive Chairman Eugene van As said it was a difficult decision to announce the closings, but he said it would cost approximately $50 million to bring the pulp mill into compliance with the new Cluster Rule regulations by 2001 and the expenditure could not be justified as it would not improve the competitiveness of an already high-cost operation.

Since 1995, the company has shut down a total of 12 paper machines with a combined capacity of approximately 400,000 tons. At the end of 1998, it shut down the unprofitable release liner paper machine No. 6 at Westbrook.

 

NEWSPRINT

 

Abitibi to cut 1,300 jobs in cost-cutting

Abitibi-Consolidated Inc. said it plans to reduce its total workforce by 10%, or 1,300 positions, through next year resulting in annual pre-tax savings of about C$100 million.

The 10% reduction in workforce includes about 900 job cuts from previously announced restructurings at four mills: 240 jobs at Iroquois Falls, Ont.; 200 jobs at Gaspesia Pulp & Paper Co. in Chandler, Que.; 150 jobs at the Wayagamack mill in Trois Rivieres, Que.; and 200 jobs at the Kenogami mill in Jonquiere, Que. (see P&P May). Another 100 jobs at the four mills will be eliminated through early retirement, according to the company.

The remaining 400 positions will come from Abitibi’s Montreal, Que., headquarters and other mills to be announced in the future. The company hopes to make as many reductions as possible through severance packages and early retirements.

 

ENVIRONMENT

 

EPA cites pulp mills for air pollution

The U.S.’s Environmental Protection Agency (EPA) Region III office in Philadelphia has issued notices of violations to seven mid-Atlantic kraft pulp mills, citing non-compliance with the Clean Air Act (CAA). The mills are: St. Laurent Paperboard Corp., West Point, Va.; Smurfit-Stone Container Corp., Hopewell, Va.; Westvaco Corp., Luke, Md.; P.H. Glatfelter Co., Spring Grove, Pa.; Willamette Industries Inc., Johnsonburg, Pa.; and, Union Camp Corp., Franklin, Va. Earlier, the EPA cited Richmond Paperboard Corp., Richmond, Va.

The notices allege significant violations of emission standards, failure to install required air pollution equipment, failure to maintain and operate air pollution control equipment, failure to obtain required permits, and failure to test, monitor, and notify as required by law.

The agency charges that the violations caused the release of more than 100 million lb/yr of sulfur dioxide, nitrogen oxides, and sulfur compounds into the air. The environmental effects include the polluting of Chesapeake Bay with more than 10 million lb/yr of nitrogen and contributing to ground level ozone pollution. Most of the alleged illegal releases are from boilers used to generate energy at the mills, said EPA.

Companies indicated they were trying to understand the allegations. Smurfit-Stone Container Corp. said in a statement: “Stone has been cooperating fully over the last two years with an [EPA] investigation of Virginia industrial facilities. We believe the Hopewell mill is currently in compliance with all permits and other requirements of the Clean Air Act.”

Union Camp Corp. (now International Paper Co.) said its notice from EPA “contains numerous paragraphs citing statutes and regulations” as well as allegations going back as far as 10 years. “These are complicated and controversial regulations, and Union Camp has been working with our industry and EPA for over five years to clarify the guidelines,” the company said, according to a local press report.

“The EPA's allegations are absurd,” said George Glatfelter II, President and CEO of P. H. Glatfelter. “The Company's Spring Grove mill has one of the best environmental records in the pulp and paper industry and to suggest that during the 1990s we somehow profited from pollution while investing over $170 million on projects driven principally by environmental improvement and compliance is ridiculous,” added Mr. Glatfelter.

The company also announced plans to invest $32 million to improve air and water quality near its Spring Grove mill. The money will be spent over the next 6 years to reduce the mill’s odor and the effluent color.

 

>MARKET PULP

 

Al-Pac to boost pulp production

Alberta-Pacific Forest Industries Inc. in Boyle, Alta, plans to boost its capacity over the next five years by 50,000 mtpy to 610,000 mtpy. The project, part of the mill’s five-year program, involves optimizing equipment efficiencies at the cost of normal maintenance rather than through capital expenditures. The pulp capacity increase would fully utilize Alberta Pacific’s Annual Allowable Cut within its Forest Management Area.

 

Crestbrook to up NBSK capacity

Crestbrook Forest Industries Inc. is increasing capacity at its NBSK mill in Skookumchuck, B.C., by 50 mtpd, to 700 mtpd, in a debottlenecking project expected to be completed by September. New owner Tembec Inc. has ordered the equipment and expects to have it installed in June. The project would increase yearly capacity from 225,000 metric tons to 250,000 metric tons.

 

K-C selling Spain pulp mill

Kimberly-Clark Corp. (K-C) has agreed to sell its 140,000 mtpy eucalyptus mill in Miranda, Spain, to Rottneros AB of Sweden. The transaction was expected to close in May following approval from the Spanish government. Terms were not disclosed. This would be K-C’s third pulp mill sale or closure plan since early 1997, amounting to 1.1 million metric tons of market and integrated pulp. K-C said would enter into a five-year supply contract with Rottneros to purchase a portion of the pulp produced at the mill.

 

TISSUE

 

G-P installing new tissue machine

Georgia-Pacific Corp. (G-P) announced plans to install a new 80,000 tpy tissue paper machine at its Port Hudson mill in Zachary, La. As part of the new machine installation, G-P will dismantle the pulp dryer at the mill which was shut down in July 1998. The company said the tissue machine plan arose out of a combination of strategies—getting out of the Southern hardwood kraft market pulp business and growing its tissue business sector.

Project cost is estimated at $90 million with completion slated for 2001. The new Valmet Corp. tissue machine will make parent rolls of a variety of premium tissue products for the consumer market which will be converted at G-P’s Crossett, Ark., mill.

 

PACKAGING

 

Fort James sells packaging business

Fort James Corp. said in late April it will sell its paperboard packaging business to ACX Technologies Inc. of Golden, Colo., for $830 million in cash. The facilities involved in the sale include 12 folding carton plants located across the country and a 330,000 tpy coated recycled paper-board mill in Kalamazoo, Mich. Fort James’ packaging group had 1998 sales of approximately $590 million and about 2,600 employees. The sale is another step in Fort James’ plan to focus resources on its core paper towel and tissue products as well as the company’s Dixie brand cup and plate business, said chairman and CEO Miles Marsh.

With the acquisition, the Graphic Packaging Corp. subsidiary of AXC Technologies would become the largest folding carton producer in the U.S. with revenues in excess of $1 billion.

 

RESEARCH

 

Paper companies in biotech venture

Fletcher Challenge Forests, International Paper Co., Westvaco Corp., and Monsanto Co. announced their intent to form a forestry biotechnology joint venture to produce and market tree seedlings that will improve forest health and productivity worldwide. The four companies will contribute $60 million in total over five years to the joint venture. The companies also announced their intent to contract with Genesis Research and Development Corp. of Auckland, N.Z., a biotechnology research firm which will provide genomics research and forestry intellectual property.

 

WMU acquires $25 million coater

The Dept. of Paper and Printing Science and Engineering at Western Michigan University (WMU) will install a new high-speed coater as part of a $25 million equipment donation to the Kalamazoo, Mich. school. The equipment will be installed in a new facility scheduled to be completed by mid-2000 on WMU’s new engineering campus. The department will be the only public research center in the world that can go from pulp to printed material on a single campus.

 

GROUNDWOOD PAPERS

 

Irving Paper completes calender installation

Irving Paper Inc. of Saint John, N. B., recently completed a rebuild of its PM No. 2, which included the first online multi-nip soft calender for supercalendered (SC) grades in North America. The mill will shift production from newsprint and groundwood specialties to higher quality SC grades to be used for retail catalogs and advertising inserts.

Valmet Corp. supplied an OptiLoad calender, OptiReel automated reel and WinBelt winder. The calender has six rolls: two Sym-CD zone-controlled rolls with polymer covers in the top and bottom positions, two intermediate polymer-covered rolls and two heated steel rolls.

As part of the rebuild, a new Valmet MB forming section was installed for improved sheet formation. Design speed of the 330 in. trim machine was also boosted to 4,000 ft/min. Project cost was C$60 million. Later in 1999, Irving will install a Valmet roll wrapping line to handle rolls up to 150 inches wide and 60 inches in diameter.

Bart Duns, Irving’s Vice President of Sales and Marketing, noted, “Irving Paper has been at the forefront of adopting new technology. We saw that the multi-nip calendering technology offered us the opportunity to produce superior quality grades with the cost effectiveness of an online process.”