-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GyHssP8S9A2KxyNYv1llXEEwKFLsiFF9Fc+6l2vDRobm1MTgT+dis8ZSZap+EViV 976bB9pKHjsZHSbD/lxqhw== 0000889812-96-000514.txt : 19960517 0000889812-96-000514.hdr.sgml : 19960517 ACCESSION NUMBER: 0000889812-96-000514 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL PAPER CO /NEW/ CENTRAL INDEX KEY: 0000051434 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD MILLS [2631] IRS NUMBER: 130872805 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03157 FILM NUMBER: 96567455 BUSINESS ADDRESS: STREET 1: TWO MANHATTANVILLE RD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9143971500 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL PAPER & POWER CORP DATE OF NAME CHANGE: 19710527 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________ FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1996 Commission file number 1-3157 INTERNATIONAL PAPER COMPANY (Exact name of registrant as specified in its charter) New York 13 0872805 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Two Manhattanville Road, Purchase, NY 10577 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 914-397-1500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock outstanding on April 30, 1996: 298,347,521 shares. INTERNATIONAL PAPER COMPANY INDEX Page No. ---- PART I. Financial Information Item 1. Financial Statements Consolidated Statement of Earnings - Three Months Ended March 31, 1996 and 1995 3 Consolidated Balance Sheet - March 31, 1996 and December 31, 1995 4-5 Consolidated Statement of Cash Flows - Three Months Ended March 31, 1996 and 1995 6 Notes to Consolidated Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-13 Item 3. Other Financial Information 14 PART II. Other Information Item 1. Legal Proceedings 15-16 Item 2. Changes in Securities * Item 3. Defaults upon Senior Securities * Item 4. Submission of Matters to a Vote of Security Holders * Item 5. Other Information * Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 * Omitted since no answer is called for, answer is in the negative or inapplicable. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTERNATIONAL PAPER COMPANY Consolidated Statement of Earnings (Unaudited) (In millions, except per-share amounts) Three Months Ended March 31, ---------------------- 1996 1995 -------- -------- Net Sales $4,798 $4,492 ------ ------ Costs and Expenses Cost of products sold 3,556 3,224 Selling and administrative expenses 347 304 Depreciation and amortization 263 234 Distribution expenses 201 179 Taxes other than payroll and income taxes 47 41 Restructuring and asset impairment charge 515 ------ ------ Total Costs and Expenses 4,929 3,982 ------ ------ Gain on sale of partnership interest 592 ------ ------ Earnings Before Interest, Income Taxes and Minority Interest 461 510 Interest expense, net 125 104 ------ ------ Earnings Before Income Taxes and Minority Interest 336 406 Provision for income taxes 163 146 Minority interest expense, net of taxes 75 14 ------ ------ Net Earnings $ 98 $ 246 ====== ====== Earnings per Common Share $ 0.36 $ 0.97 ====== ====== Average Shares of Common Stock Outstanding 268.9 252.8 ====== ====== Cash Dividends per Common Share $ 0.25 $ 0.21 ====== ====== The accompanying notes are an integral part of these financial statements. 3 INTERNATIONAL PAPER COMPANY Consolidated Balance Sheet (Unaudited) (In millions) March 31, December 31, 1996 1995 --------- ------------ ASSETS Current Assets Cash and temporary investments $ 399 $ 312 Accounts and notes receivable, net 2,681 2,571 Inventories 2,954 2,784 Other current assets 338 206 ------- ------- Total Current Assets 6,372 5,873 ------- ------- Plants, Properties and Equipment, Net 12,973 10,997 Forestlands 3,317 2,803 Investments 1,445 1,420 Goodwill 2,885 1,355 Deferred Charges and Other Assets 1,614 1,529 ------- ------- TOTAL ASSETS $28,606 $23,977 ======= ======= The accompanying notes are an integral part of these financial statements. 4 INTERNATIONAL PAPER COMPANY Consolidated Balance Sheet (Unaudited) (In millions) March 31, December 31, 1996 1995 --------- ------------ LIABILITIES AND COMMON SHAREHOLDERS' EQUITY Current Liabilities Notes payable and current maturities of long-term debt $ 4,296 $ 2,283 Accounts payable 1,321 1,464 Accrued Liabilities 1,636 1,116 ------- ------- Total Current Liabilities 7,253 4,863 ------- ------- Long-Term Debt 5,583 5,946 Deferred Income Taxes 2,779 1,974 Other Liabilities 1,215 980 Minority Interest 1,994 1,967 International Paper-Obligated Mandatorily Redeemable Preferred Securities of Trust Holding Solely International Paper Subordinated Debentures 450 450 Common Shareholders' Equity Common stock, $1 par value, issued 1996 -- 299.0 shares, 1995 -- 263.3 shares 299 263 Paid-in capital 3,399 1,963 Retained earnings 5,659 5,627 ------- ------- 9,357 7,853 Less: Common stock held in treasury, at cost; 1996 -- .9 shares, 1995 -- 2.3 shares 25 56 ------- ------- Total Common Shareholders' Equity 9,332 7,797 ------- ------- TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $28,606 $23,977 ======= ======= The accompanying notes are an integral part of these financial statements. 5 INTERNATIONAL PAPER COMPANY Consolidated Statement of Cash Flows (Unaudited) (In millions) Three Months Ended March 31, ------------------------ 1996 1995 ------- ------- OPERATING ACTIVITIES Net earnings $ 98 $ 246 Noncash items Gain on sale of partnership interest (592) Restructuring and asset impairment charge 515 Depreciation and amortization 263 234 Deferred income taxes 81 35 Other, net 89 (50) Changes in current assets and liabilities Accounts and notes receivable 50 (246) Inventories 36 (94) Other current assets (21) (13) Accounts payable and accrued liabilities (167) 86 ------- ------- CASH PROVIDED BY OPERATIONS 352 198 ------- ------- INVESTMENT ACTIVITIES Invested in capital projects (253) (243) Mergers and acquisitions (1,279) (9) Other (9) (22) ------- ------- CASH USED FOR INVESTMENT ACTIVITIES (1,541) (274) ------- ------- FINANCING ACTIVITIES Issuance of common stock 35 14 Issuance of debt 1,421 37 Reduction of debt (136) (58) Change in bank overdrafts (12) 80 Dividends paid (65) (53) Other 31 (23) ------- ------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 1,274 (3) ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 2 5 ------- ------- CHANGE IN CASH AND TEMPORARY INVESTMENTS 87 (74) CASH AND TEMPORARY INVESTMENTS Beginning of the period 312 270 ------- ------- End of the period $ 399 $ 196 ======= ======= The accompanying notes are an integral part of these financial statements. 6 INTERNATIONAL PAPER COMPANY Notes to Consolidated Financial Statements (Unaudited) 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments (consisting only of normal recurring accruals) which are necessary for the fair presentation of results for the interim periods. It is suggested that these consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto incorporated by reference in the Company's Form 10-K for the year ended December 31, 1995, which has previously been filed with the Securities and Exchange Commission. 2. On March 12, 1996, the Company completed the recently-announced merger with Federal Paper Board (Federal), a diversified forest and paper products company. Under the terms of the merger agreement, Federal shareholders received, at their election subject to certain limitations, either $55 in cash per share or $55 worth of International Paper common stock per share. To complete the merger, Federal shares were acquired for approximately $1.3 billion in cash and $1.4 billion in International Paper common stock. The results of Federal are included in the consolidated statement of earnings since March 12, 1996, and the March 31, 1996, consolidated balance sheet includes the balances of Federal. In late April 1995, the Company acquired approximately 26% of Carter Holt Harvey, a New Zealand-based forest and paper products company for $1.1 billion. The acquisition increased International Paper's ownership to just over 50%. As a result, Carter Holt Harvey was consolidated into International Paper's financial statements beginning on May 1, 1995. Prior to this date, the equity accounting method was utilized. In January 1995, the Company acquired the assets of two Michigan-based paper distributors, Carpenter Paper Company and Seaman-Patrick Paper Company. In September 1995, the Company acquired Micarta, the high pressure laminates business of Westinghouse located in Hampton, South Carolina and in October 1995, the Company acquired the inks and adhesives resin business of DSM located in Niort, France. All of the 1996 and 1995 acquisitions were accounted for using the purchase method. The consolidated balance sheet at March 31, 1996 includes preliminary purchase price allocations for Micarta, the inks and adhesives resin business of DSM, Federal and Carter Holt Harvey. 3. On March 29, 1996, IP Timberlands Ltd. (IPT), a consolidated subsidiary of International Paper, completed the sale of a 98% general partnership interest in a subsidiary partnership that owns approximately 300,000 acres of forestlands located in Oregon and Washington. Included in the net assets of the partnership interest sold were forestlands, roads and $750 million of long-term debt. As a result of this transaction, International Paper recognized in its first-quarter consolidated results a $592 million pre-tax gain ($336 million after taxes and minority interest expense or $1.25 per share). IPT and International Paper retained non operating interests in the partnership. 7 4. During the first quarter of 1996 , the Company's Board of Directors authorized a series of management actions to restructure and strengthen existing businesses which resulted in a pre-tax charge to earnings of $515 million ($362 million after taxes or $1.35 per share). The charge included $260 million for the write-off of certain assets, $88 million for asset impairments, $115 million in associated severance costs and $52 million of other expenses, including the cancellation of leases. Accruals for one-time cash costs, which include severance costs and other expenses, totaled $167 million. Approximately $100 million of these cash costs are expected to be incurred in 1996 with the remainder to be spent in 1997. All actions are planned to be completed before the end of 1997. 5. In the third quarter of 1995, International Paper Capital Trust (the "Trust") issued $450 million of International Paper-obligated mandatorily redeemable preferred securities. The Trust is a wholly owned consolidated subsidiary of International Paper. The Trust's sole assets are International Paper 5 1/4% convertible subordinated debentures. The obligations of the Trust related to its preferred securities are unconditionally guaranteed by International Paper Company. These preferred securities are convertible into International Paper common stock. 6. Inventories by major category include: March 31, December 31, 1996 1995 --------- ------------ (In millions) Raw materials $ 569 $ 591 Finished pulp, paper and packaging products 1,458 1,340 Finished lumber and panel products 226 223 Operating supplies 392 343 Other 309 287 ----- ----- Total $2,954 $2,784 ===== ===== 7. Interest payments made during the three months ended March 31, 1996 and 1995 were $162 million and $114 million, respectively. Interest income for the three months ended March 31, 1996 and 1995 was $11 million and $7 million, respectively. Income tax payments made during the three months ended March 31, 1996 and 1995 were $14 million and $6 million, respectively. 8. Temporary investments with a maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $255 million and $184 million at March 31, 1996 and December 31, 1995, respectively. 9. Accumulated depreciation was $8.7 billion at March 31, 1996 and $8.4 billion at December 31, 1995. The allowance for doubtful accounts was $103 million at March 31, 1996 and $101 million at December 31, 1995. 10. Certain reclassifications have been made to prior-year amounts to conform with the current-year presentation. 8 11. The following unaudited pro forma financial information for the three months ended March 31, 1996 and 1995 presents the combined results of the continuing operations of International Paper, Federal, Carter Holt Harvey and the other acquisitions completed during 1995. The merger with Federal was completed on March 12,1996 and is included in the consolidated pro forma information presented for each period. The acquisiton of 26.5% of Carter Holt Harvey common stock was completed in April 1995, thereby increasing the Company's total ownership to 50.3% (50.2% on a fully-diluted basis). Carter Holt Harvey was accounted for under the equity method prior to May 1, 1995, at which time it was consolidated. Carter Holt Harvey is consolidated in each of the periods presented. The pro forma information is prepared as if each of the acquisitions occurred as of the beginning of each period. The pro forma adjustments are based on available information, estimated purchase price allocations and certain assumptions that the Company believes are reasonable. There can be no assurance that the assumptions and estimates will be realized. The pro forma information does not purport to represent the Company's actual results of operations if the transactions described above would have occurred at the beginning of the respective period. In addition, the information is not indicative of future results. 1996 1995 ------- -------- Net Sales $ 5,112 $ 5,479 ======= ======== Net Earnings 84 301 ======= ======== Earnings Per Common Share 0.28 1.03 ======= ======== 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS International Paper's first-quarter 1996 consolidated net sales were $4.8 billion, which exceeded 1995 first-quarter net sales of $4.5 billion, but were below fourth-quarter 1995 sales of $5.1 billion. First-quarter 1996 net earnings were $98 million or $.36 per share. This included a gain on the sale of an interest in a forestlands partnership that contributed $336 million after taxes and minority interest expense or $1.25 per share, and a restructuring and asset impairment charge of $362 million after taxes or $1.35 per share. Before these items, first quarter 1996 net earnings were $124 million or $.46 per share. These results were about 50% below first-quarter 1995 net earnings of $246 million or $.97 per share and fourth-quarter 1995 net earnings of $263 million or $1.01 per share. First-quarter 1996 earnings declined from the 1995 fourth quarter primarily due to sharply lower prices, extensive downtime at company mills as customers continued to draw down their inventories, and unusually severe weather conditions. Compared with the 1995 first quarter, current-period earnings were down in all product lines. The largest declines occurred in the pulp and printing and converting papers businesses. Although prices declined during the first quarter, improvements in market conditions led to price increase announcements early in the second quarter for uncoated papers, pulp and containerboard. The consolidated results of operations include Federal Paper Board (Federal) since March 12, 1996 and Carter Holt Harvey since May 1, 1995. About 12% of first quarter 1996 net sales were generated by these businesses. The results for each of these companies are included in the segments in which they operate although their segment results have been adjusted to conform with International Paper's classifications. The following segment discussions are before the gain on the sale of an interest in a forestlands partnership and the restructuring and asset impairment charge. Printing Papers 1996 first-quarter net sales decreased to $1.4 billion from $1.5 billion in the 1995 first quarter even though contributions from Carter Holt Harvey and Federal were approximately 6% of total segment sales for the 1996 first quarter. Segment sales and operating profit were lower than the 1995 first quarter and the 1995 fourth quarter due to significant price declines for most paper products as customers continued to reduce their inventories. Customer inventory corrections are estimated to be complete and improvement in some product lines has led to price increases announced for the second quarter for most uncoated U.S. business papers. Packaging 1996 first-quarter net sales increased 19% to $1.1 billion from $955 million in the 1995 first quarter and were about even with the 1995 fourth quarter. First-quarter sales before contributions from Carter Holt Harvey and Federal would have been about 3% below the 1995 first quarter. Operating profit declined sharply from the 1995 first quarter and the 1995 fourth quarter primarily due to rapidly deteriorating prices for containerboard which more than offset increased volume. Bleached board results were about even with the 1995 first quarter. Distribution net sales of $1.2 billion for the 1996 first quarter, including contributions from 1995 acquisitions, were about even with the 1995 first quarter and were slightly below the 1995 fourth quarter. Operating profit declined from the 1995 first quarter reflecting lower prices for printing papers. Specialty Products 1996 first-quarter net sales increased 20% to $860 million from $715 million in the 1995 first quarter and declined slightly from the 1995 fourth quarter. Before Carter Holt Harvey's 10 contribution, first quarter sales would have increased about 3% over the 1995 first quarter. Operating profit was about even with the 1995 first quarter. Positive contributions from Carter Holt Harvey offset declines in other businesses. Forest Products 1996 first-quarter net sales increased 49% to $575 million from $385 million in the 1995 first quarter. However, before contributions from Carter Holt Harvey and Federal, sales would have decreased about 12%. Operating earnings declined from the 1995 first quarter reflecting lower wood products earnings that more than offset contributions from Carter Holt Harvey and Federal. MERGERS AND ACQUISITIONS On March 12, 1996, International Paper completed the previously announced merger with Federal Paper Board, a diversified forest and paper products company. Under the terms of the merger agreement, Federal shareholders received, at their election subject to certain limitations, either $55 in cash per share or $55 worth of International Paper common stock per share. To complete the merger, Federal shares were acquired for approximately $1.3 billion in cash and $1.4 billion in International Paper common stock. The results of Federal are included in the consolidated statement of earnings from March 12, 1996, and the March 31, 1996 consolidated balance sheet includes the balances of Federal. As a result of this merger, Federal contributed about 2% of consolidated net sales and up to 5% for each of the components of consolidated costs and expenses. Increases since December 31, 1995 in property, plant and equipment, forestlands, goodwill, notes payable and current maturities of long-term debt, deferred income taxes, and other liabilities were primarily the result of the consolidation of Federal. Consolidated common shareholders' equity increased due to the International Paper common shares issued in exchange for Federal shares. Consolidated working capital was negative at March 31, 1996 due to the short-term debt used to acquire Federal shares and the consolidation of borrowings classified as short term included on the balance sheet of Federal. In late April 1995, the Company acquired approximately 26% of Carter Holt Harvey, a New Zealand-based forest and paper products company, for $1.1 billion. The acquisition increased International Paper's ownership to just over 50%. As a result, Carter Holt Harvey was consolidated into International Paper's financial statements beginning on May 1, 1995. Prior to this date, the equity accounting method was utilized. Sales contributions from Carter Holt Harvey were approximately 10% of total consolidated net sales for the 1996 first quarter. Carter Holt Harvey also contributed from 8% to 13% of each of the components of consolidated costs and expenses except for taxes other than payroll and income taxes for which the contribution was de minimis. The consolidated balance sheets at December 31, 1995 and March 31, 1996 include Carter Holt Harvey. Interest expense increased as a result of higher International Paper borrowings used for the acquisitions of Carter Holt Harvey and Federal, as well as the consolidation of their interest expense since the dates of acquisition. The consolidated balance sheet reflects preliminary purchase price allocations for Carter Holt Harvey and Federal. 11 RESTRUCTURING AND ASSET IMPAIRMENT CHARGE During the first quarter of 1996 , the Company's Board of Directors authorized a series of management actions to restructure and strengthen existing businesses that resulted in a pre-tax charge to earnings of $515 million ($362 million after taxes or $1.35 per share). The charge included $260 million for the write-off of certain assets, $88 million for asset impairments, $115 million in associated severance costs and $52 million of other expenses, including the cancellation of leases. Accruals for one-time cash costs, which include severance costs and other expenses, totaled $167 million. Approximately $100 million of these cash costs are expected to be incurred in 1996 with the remainder to be spent in 1997. Annual pre-tax savings generated by these actions are expected to be approximately $70 million or $.17 per share in 1996 and $100 million or $.25 per share in 1997. About three-quarters of the charge related to businesses in the specialty products segment with the majority to be used for the consolidation of the imaging products business in the United States and Europe. The printing papers and packaging segments each received roughly 10% of the charge and about 5% related to the forest products segment. GAIN ON SALE OF PARTNERSHIP INTEREST On March 29, 1996, IP Timberlands Ltd. (IPT), a consolidated subsidiary of International Paper, completed the sale of a 98% general partnership interest in a subsidiary partnership that owns approximately 300,000 acres of forestlands located in Oregon and Washington. Included in the net assets of the partnership interest sold were forestlands, roads and $750 million of long-term debt. As a result of this transaction, International Paper recognized in its first-quarter consolidated results a $592 million pre-tax gain ($336 million after taxes and minority interest expense or $1.25 per share). LIQUIDITY AND CAPITAL RESOURCES Operating cash flow totaled $352 million for the three months of 1996, an increase over 1995 first-quarter operating cash flow of $198 million. The increase was primarily the result of lower increases in working capital requirements ($102 million in 1996 compared with $267 million in 1995) and higher noncash expenses included in earnings. Investments in capital projects, including Carter Holt Harvey, totaled $253 million for the three months, about even with the 1995 first quarter. Approximately $1.3 billion of cash was spent and $1.4 billion of International Paper common stock was issued (35.4 million shares) to acquire the outstanding shares of Federal under the terms of the merger completed in the 1996 first quarter. Financing activities for the 1996 three-month period included approximately $1.3 billion of short-term borrowings primarily used to acquire Federal common shares. Dividend payments of $65 million or $.25 per common share reflected the third-quarter 1995 increase in the quarterly dividend and the two-for-one common stock split. The Company anticipates that cash flow generated by operations, supplemented as necessary by short- or long-term borrowings, will be adequate to fund its capital expenditures, which are expected to be about $1.5 billion for 1996, including the expected capital spending activities of Carter Holt Harvey and Federal. 12 OTHER The prior-year financial statements have been adjusted to present minority interest expense separately. Minority interest expense was previously included as a component of cost of products sold, and a reduction in operating profit, because the amounts were not material. Minority interest expense for the 1996 first quarter increased significantly over the comparable 1995 first quarter due to the consolidation of Carter Holt Harvey and the minority interestholder's share of the gain on the sale of an interest in a forestlands partnership. The effective income tax rate increased from about 36% in the 1995 first quarter to about 48.5% in the 1996 first quarter. The reasons for the increase related to components of the restructuring and asset impairment charge that are not deductible for tax purposes and the statutory tax rate on the gain on the sale of an interest in a forestlands partnership. 13 ITEM 3. OTHER FINANCIAL INFORMATION Sales by Industry Segment and Production by Products (Unaudited) Sales by Industry Segment (In millions) Three Months Ended March 31, ------------------ 1996 1995 -------- -------- Printing Papers $1,355 $1,475 Packaging 1,135 955 Distribution 1,185 1,195 Specialty Products 860 715 Forest Products 575 385 Less: Intersegment Sales (312) (233) ----- ----- $4,798 $4,492 ===== ===== Production by Products Three Months Ended March 31, ------------------ 1996 (D) 1995 -------- -------- Printing Papers (In thousands of tons) White Papers and Bristols 833 849 Coated Papers 246 322 Market Pulp (A) 404 428 Newsprint 22 21 Packaging (In thousands of tons) Containerboard 652 543 Bleached Packaging Board 343 265 Industrial Papers 160 160 Industrial and Consumer Packaging (B) 793 732 Specialty Products Tissue 25 -- Forest Products (In millions) Panels (sq. ft. 3/8" basis) (C) 286 206 Lumber (board feet) 348 218 (A) This excludes market pulp purchases. (B) A significant portion of this tonnage was fabricated from paperboard and paper produced at the Company's own mills and included in the containerboard, bleached packaging board, and industrial papers amounts in this table. (C) Panels include plywood and oriented strand board. (D) Includes Carter Holt Harvey for the full quarter and Federal from March 12, 1996. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS DIOXIN LITIGATION As reported in the Annual Report on Form 10-K for the year ended December 31, 1995 (the "Annual Report"), on June 11, 1993, a lawsuit purporting to be a class action was filed by individuals against the Company, Dow Chemical and individual employees of both companies in the 18th Judicial District of Louisiana seeking compensatory and punitive damages of an unspecified amount, alleging that the Company polluted Staulkinghead Creek and all waterways south thereof, by discharging chemicals, including dioxin, from its Bastrop, Louisiana mill. The case was removed to the U.S. District Court for the Middle District of Louisiana. On June 22, 1994, the Court entered an order dismissing Dow and its employees from the case. The plaintiff appealed this ruling challenging among other things federal jurisdiction. The Fifth Circuit Court of Appeals ruled in favor of the defendants on all issues and returned the case to the Federal District Court. That Court dismissed plaintiff's claims based on an alleged fear of contracting cancer since these lawsuits were filed beyond the limitations period for such actions. The case is proceeding on the property damage and business loss causes of action. The class certification issue remains before the Court for determination. Beginning in November of 1990, the Company was named as a defendant in 88 lawsuits by individuals filed in state or federal court in Mississippi alleging that it has polluted and damaged the Pascagoula, Leaf and Escatawpa Rivers by releasing dioxin and over forty other chemicals into those rivers. The 88 original Mississippi cases were consolidated before one judge and for administrative purposes were divided into the Pritchard Group and the Deakle Group. Following a series of rulings by the court on Motions to Dismiss and Motions for Summary Judgment, as of May 3, 1996, all of the Pritchard Group cases have been dismissed, leaving only the Deakle Group cases still pending (6 cases, 1,831 plaintiffs) in Mississippi. Motions for Summary Judgment have been filed in all the Deakle Group cases raising the same legal issues as those raised in the Pritchard Group cases. While any of this litigation has an element of uncertainty, the Company believes that in the very near future it will prevail on its Motions for Summary Judgment, thereby eliminating all the remaining cases. The Company further believes that the outcome of any of these proceedings, lawsuits or claims, pending or threatened, or all of them combined, will not have a materially adverse effect on the consolidated financial position or results of operations. OTHER LITIGATION In actions reported in the Annual Report, an order was entered on April 11, 1996, in Maine Superior Court, whereby in consideration of the payment of $175,296, the Company settled with both the State of Maine and the Town of Jay, all air emission violations that may have occurred through December 31, 1995, as well as all violations of state waste water discharge and hazardous waste laws through December 31, 1995, thereby concluding the foregoing two actions involving emissions from the Company's Adroscoggin mill's lime kiln. The Company has also paid the $22,000 penalty assessed by the Town in its order of October 14, 1993, which it did not appeal. 15 The Annual Report disclosed that in 1989, Masonite Corporation, a wholly-owned subsidiary of the Company ("Masonite"), modified a production line to make a new product at a facility in Ukiah, California. The facility obtained the necessary Authority to Construct permits from the appropriate state authority. In May 1992, the EPA, Region 9, issued an order alleging that an additional Prevention of Significant Deterioration permit was required for the new product line. On January 18, 1995, a consent decree which resolves this matter was lodged with the U.S. District Court for the Northern District of California. The consent decree includes a civil penalty of $600,000. The consent decree was entered on April 24, 1996, terminating this matter. A lawsuit purporting to be a nationwide class action suit was filed against the Company and Masonite, on December 27, 1994 in Mobile County Circuit Court, Mobile, Alabama. This lawsuit alleges that hardboard siding, which is used as exterior cladding for residential dwellings and is manufactured by Masonite, fails prematurely, allowing moisture intrusion. It is further alleged that the presence of moisture in turn causes the failure of the structure underneath the siding. The class, which has been certified, consists of all owners of homes in the United States having Masonite hardboard siding. It is impossible to know how many homes may have this siding, but it is estimated that there are hundreds of thousands. The Company and Masonite were unsuccessful in their attempt to remove the case to the Federal District Court for the Southern District of Alabama on diversity grounds. The case has been remanded to the Mobile County Circuit Court and has been set for trial on August 19, 1996. In addition, on December 7, 1995, a lawsuit was filed in the United States District Court in Hattiesburg, Mississippi seeking class certification on behalf of all owners of buildings with Masonite siding. This action was transferred by the Panel for Multidistrict Litigation to the United States District Court in New Orleans, Louisiana where all pending federal cases involving claims of defective Masonite siding have been consolidated. The Company is also involved in other contractual disputes, administrative and legal proceedings and investigations of various types. While any litigation, proceeding or investigation has an element of uncertainty, the Company believes that the outcome of any proceeding, lawsuit or claim that is pending or threatened, or all of them combined, will not have a materially adverse effect on its consolidated financial position or results of operations. 16 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (11) Statement of Computation of Per Share Earnings (12) Computation of Ratio of Earnings to Fixed Charges (27) Financial Data Schedule (b) Reports on Form 8-K No Current Reports on Form 8-K were filed by the Company for the period covered by this report except those previously set forth in the Annual Report on Form 10-K for the year ended December 31, 1995. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERNATIONAL PAPER COMPANY (Registrant) Date: May 15, 1996 By /s/ MARIANNE M. PARRS -------------------------------- Marianne M. Parrs Senior Vice President and Chief Financial Officer Date: May 15, 1996 By /s/ ANDREW R. LESSIN -------------------------------- Andrew R. Lessin Vice President and Controller and Chief Accounting Officer 18 EX-11 2 COMPUTATION OF PER SHARE EARNINGS (Exhibit 11) INTERNATIONAL PAPER COMPANY STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (Unaudited) (In millions, except per-share amounts) Three Months Ended March 31, ----------------------- 1996 1995 -------- -------- Net earnings $ 98 $ 246 Debenture interest savings, net of taxes, assuming conversion of convertible subordinated debentures 2 ----- ----- Primary net earnings 98 248 Reduction in minority interest expense, net of taxes, assuming conversion of preferred securities of subsidiary 3 ----- ----- Fully diluted net earnings $ 101 $ 248 ===== ===== Earnings per common share $ 0.36 $ 0.97 ===== ===== Primary earnings per share $ 0.36 $ 0.96 ===== ===== Fully diluted earnings per share $ 0.36 $ 0.96 ===== ===== PRIMARY SHARES Average shares outstanding 268.9 252.8 Shares assumed to be repurchased using long-term incentive plan deferred compensation at average market price (0.8) (0.6) Shares assumed to be issued upon exercise of stock options, net of treasury buyback at average market price 2.0 0.9 Shares assumed to be issued upon conversion of convertible subordinated debentures 5.8 ----- ----- Primary shares 270.1 258.9 ===== ===== FULLY DILUTED SHARES Average shares outstanding 268.9 252.8 Shares assumed to be repurchased using long-term incentive plan deferred compensation at period-end market price (if higher than average market price) (0.7) (0.6) Shares assumed to be issued upon exercise of stock options, net of treasury buyback at period-end market price (if higher than average market price) 2.1 0.9 Shares assumed to be issued upon conversion of preferred securities of subsidiary 8.3 Shares assumed to be issued upon conversion of convertible subordinated debentures 5.9 ----- ----- Fully diluted shares 278.6 258.9 ===== ===== Note: The Company reports earnings per common share as the effect of dilutive securities is less than 3%. 19 EX-12 3 RATIO OF EARNINGS TO FIXED CHARGES (Exhibit 12) INTERNATIONAL PAPER COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollar amounts in millions) (Unaudited)
For the Years Ended December 31, Three Months Ended March 31, TITLE 1991 1992 1993 1994 1995 1995 1996 - ------------------------------------- -------- -------- -------- -------- -------- -------- -------- A) Earnings before income taxes, minority interest, extraordinary item and accounting changes $ 693.0 $ 226.0 $ 538.0 $ 715.0 $2,028.0 $ 406.0 $ 336.0 B) Less: Minority interest expense, net of taxes (42.0) (15.0) (36.0) (47.0) (156.0) (14.0) (75.0) C) Add: Fixed charges excluding capitalized interest 380.3 325.3 365.3 412.3 582.3 119.9 147.3 D) Add: Amortization of previously capitalized interest 9.9 9.9 12.2 12.8 13.0 3.2 3.7 E) Less: Equity in undistributed earnings of affiliates (10.8) (19.1) (25.9) (49.1) (94.5) (16.3) (12.4) -------- -------- -------- -------- -------- -------- -------- F) Earnings before income taxes, minority interest, extraordinary item, accounting changes and fixed charges $1,030.4 $ 527.1 $ 853.6 $1,044.0 $2,372.8 $ 498.8 $ 399.6 ======== ======== ======== ======== ======== ======== ======== Fixed Charges G) Interest and amortization of debt expense $ 351.1 $ 297.1 $ 334.5 $ 371.0 $ 542.3 $ 110.8 $ 136.3 H) Interest factor attributable to rentals 29.2 28.2 30.8 41.3 40.0 9.1 11.0 I) Capitalized interest 36.4 42.0 12.2 18.0 58.0 7.6 15.3 -------- -------- -------- -------- -------- -------- -------- J) Total fixed charges $ 416.7 $ 367.3 $ 377.5 $ 430.3 $ 640.3 $ 127.5 $ 162.6 ======== ======== ======== ======== ======== ======== ======== K) Ratio of earnings to fixed charges 2.47 1.44 2.26 2.43 3.71 3.91 2.46 ======== ======== ======== ======== ======== ======== ========
20 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 399 0 2,782 101 2,954 6,372 21,692 8,719 28,606 7,253 5,583 0 0 299 9,033 28,606 4,798 4,798 3,556 4,929 0 0 125 336 163 98 0 0 0 98 0.36 0.36
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