-----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, Q791SnQss+OO1I0E/Fugt+DsuL1YIZBQfqFRD4YXKUjDBxy8Cn3YxFpbeiku/qoq QWDWjZ9C7ISVhw0FIVDwmA== 0000889812-96-001696.txt : 19961115 0000889812-96-001696.hdr.sgml : 19961115 ACCESSION NUMBER: 0000889812-96-001696 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL PAPER CO /NEW/ CENTRAL INDEX KEY: 0000051434 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] 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: 96662481 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 Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 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 of 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 October 31, 1996: 300,155,785 shares. INTERNATIONAL PAPER COMPANY INDEX Page No. PART I. Financial Information Item 1. Financial Statements Consolidated Statement of Earnings - Three Months and Nine Months Ended September 30, 1996 and 1995 3 Consolidated Balance Sheet - September 30, 1996 and December 31, 1995 4-5 Consolidated Statement of Cash Flows - Nine Months Ended September 30, 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 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 16 Signatures 17 * 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 Nine Months Ended September 30, September 30, ----------------------------- ------------------------------- 1996 1995 1996 1995 ------------ ---------------- -------------- --------------- Net Sales $ 5,108 $ 5,145 $ 14,999 $ 14,721 ------------ ---------------- -------------- --------------- Costs and Expenses Cost of products sold 3,760 3,566 11,087 10,322 Selling and administrative expenses 387 342 1,113 992 Depreciation and amortization 307 266 872 764 Distribution expenses 240 205 678 589 Taxes other than payroll and income taxes 51 46 148 132 Restructuring and asset impairment charge 515 ------------ ---------------- -------------- --------------- Total Costs and Expenses 4,745 4,425 14,413 12,799 ------------ ---------------- -------------- --------------- Gain on sale of partnership interest 592 ------------ ---------------- -------------- --------------- Earnings Before Interest, Income Taxes and Minority Interest 363 720 1,178 1,922 Interest expense, net 136 129 398 371 ------------ ---------------- -------------- --------------- Earnings Before Income Taxes and Minority Interest 227 591 780 1,551 Provision for income taxes 86 210 329 551 Minority interest expense, net of taxes 30 53 143 110 ------------ ---------------- -------------- --------------- Net Earnings $ 111 $ 328 $ 308 $ 890 ============ ================ ============= ============== Earnings per Common Share $ 0.37 $ 1.27 $ 1.06 $ 3.49 ============ ================ ============= ============== Average Shares of Common Stock Outstanding 300.0 258.7 289.4 255.1 ============ ================ ============= ============== Cash Dividends per Common Share $ 0.25 $ 0.25 $ 0.75 $ 0.67 ============ ================ ============= ==============
The accompanying notes are an integral part of these financial statements. 3 INTERNATIONAL PAPER COMPANY Consolidated Balance Sheet (Unaudited) (In millions)
September 30, December 31, 1996 1995 ------------------ ------------------ Assets Current Assets Cash and temporary investments $ 405 $ 312 Accounts and notes receivable, net 2,646 2,571 Inventories 2,876 2,784 Other current assets 276 206 ----------------- ----------------- Total Current Assets 6,203 5,873 ----------------- ----------------- Plants, Properties and Equipment, Net 13,078 10,997 Forestlands 3,330 2,803 Investments 1,361 1,420 Goodwill 2,888 1,355 Deferred Charges and Other Assets 1,704 1,529 ----------------- ----------------- Total Assets $ 28,564 $ 23,977 ================= =================
The accompanying notes are an integral part of these financial statements. 4 INTERNATIONAL PAPER COMPANY Consolidated Balance Sheet (Unaudited) (In millions)
September 30, December 31, 1996 1995 ------------------ -------------------- Liabilities and Common Shareholders' Equity Current Liabilities Notes payable and current maturities of long-term debt $ 3,779 $ 2,283 Accounts payable 1,308 1,464 Accrued liabilities 1,449 1,116 ----------------- ------------------ Total Current Liabilities 6,536 4,863 ----------------- ------------------ Long-Term Debt 6,183 5,946 Deferred Income Taxes 2,851 1,974 Other Liabilities 1,236 980 Minority Interest 1,894 1,967 International Paper - Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely International Paper Subordinated Debentures 450 450 Common Shareholders' Equity Common stock, $1 par value, issued 1996 - 300.7 shares, 1995 - 263.3 shares 301 263 Paid-in capital 3,410 1,963 Retained earnings 5,720 5,627 ----------------- ------------------ 9,431 7,853 Less: Common stock held in treasury, at cost; 1996 - .5 shares, 1995 - 2.3 shares 17 56 ----------------- ------------------ Total Common Shareholders' Equity 9,414 7,797 ----------------- ------------------ Total Liabilities and Common Shareholders' Equity $ 28,564 $ 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)
Nine Months Ended September 30, -------------------------------- 1996 1995 ------------ ------------- Operating Activities Net earnings $ 308 $ 890 Noncash items Gain on sale of partnership interest (592) Restructuring and asset impairment charge 515 Depreciation and amortization 872 764 Deferred income taxes 133 123 Other, net 61 (102) Changes in current assets and liabilities Accounts and notes receivable 128 (178) Inventories 157 (326) Accounts payable and accrued liabilities (331) 214 Other (2) (6) ------------ ------------- Cash Provided by Operations 1,249 1,379 ------------ ------------- Investment Activities Invested in capital projects (944) (916) Mergers and acquisitions, net of cash acquired (1,524) (1,108) Consolidation of equity investment 241 Other 27 (90) ------------ ------------- Cash Used for Investment Activities (2,441) (1,873) ------------ ------------- Financing Activities Issuance of common stock 79 64 Issuance of preferred securities by subsidiary 450 Issuance of debt 1,713 873 Reduction of debt (252) (665) Change in bank overdrafts (71) 91 Dividends paid (215) (171) Other 29 (51) ------------ ------------- Cash Provided by Financing Activities 1,283 591 ------------ ------------- Effect of Exchange Rate Changes on Cash 2 5 ------------ ------------- Change in Cash and Temporary Investments 93 102 Cash and Temporary Investments Beginning of the period 312 270 ------------ ------------- End of the period $ 405 $ 372 ============ =============
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 Commission. 2. In September 1996, Carter Holt Harvey, a consolidated subsidiary of the Company, acquired Forwood Products, the timber processing business of the South Australian Government. In August 1996, the Company acquired Forchem, a tall oil and turpentine processor in Finland. On March 12, 1996, the Company completed the 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 September 30, 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. As a result of this consolidation, the Company's consolidated cash and temporary investments balance increased by $241 million, representing approximately 74% of Carter Holt Harvey's cash and temporary investments balance as of the acquisition date. This is reflected in the consolidated statement of cash flows as the consolidation of an equity investment. 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. 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 September 30, 1996 includes preliminary purchase price allocations for Federal, Forchem and Forwood Products. Final allocations for these acquisitions will be completed in 1997. 7 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). IPT and International Paper retained non-operating interests in the partnership. 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 ). The charge included $250 million for the write-off of certain assets, $100 million for asset impairments, $80 million in associated severance costs and $85 million of other expenses, including the cancellation of leases. Accruals for one-time cash costs, which include severance costs and other expenses, totaled $165 million. Approximately $100 million of these costs are expected to be incurred in 1996 with the remainder to be spent in 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's sole assets are $464 million aggregate principal amount of International Paper 5 1/4% convertible subordinated debentures due 2025. These preferred securities are convertible into International Paper common stock. Preferred securities distributions of $18 million were paid during the nine months ended September 30, 1996. 6. Inventories by major category include:
September 30, December 31, 1996 1995 ------------------- ------------------ (In millions) Raw materials $ 579 $ 591 Finished pulp, paper and packaging products 1,383 1,340 Finished lumber and panel products 218 223 Operating supplies 388 343 Other 308 287 ------------------- ------------------ Total $ 2,876 $ 2,784 =================== ==================
7. Interest payments made during the nine months ended September 30, 1996 and 1995 were $536 million and $430 million, respectively, including payments of $200 million and $167 million for the 1996 and 1995 third quarters. Interest income for the nine months ended September 30, 1996 and 1995 was $37 million and $35 million, respectively. Income tax payments made during the nine months ended September 30, 1996 and 1995 were $209 million and $335 million, respectively. 8 8. Temporary investments with a maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $201 million and $184 million at September 30, 1996 and December 31, 1995, respectively. 9. Accumulated depreciation was $9.4 billion at September 30, 1996 and $8.4 billion at December 31, 1995. The allowance for doubtful accounts was $109 million at September 30, 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. 11. The following unaudited pro forma financial information for the three months and nine months ended September 30, 1996 and 1995 presents the combined results of the continuing operations of International Paper, Federal, Carter Holt Harvey and the other acquisitions completed during 1996 and 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 acquisition 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 the transactions 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.
Three Months Ended Nine Months Ended (In millions, except per-share amounts) September 30, September 30, ----------------------------------- ------------------------------- 1996 1995 1996 1995 ---------------- ---------------- -------------- -------------- (Unaudited) (Unaudited) Net Sales $ 5,144 $ 5,712 $ 15,446 $ 17,087 ================ ================ ============== ============== Net Earnings $ 111 $ 376 $ 293 $ 1,032 ================ ================ ============== ============== Earnings Per Common Share $ .37 $ 1.27 $ .98 $ 3.52 ================ ================ ============== ==============
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS International Paper's third-quarter 1996 net sales of $5.1 billion were about even with the 1995 third-quarter and the 1996 second quarter. Nine-month 1996 net sales were $15.0 billion compared with $14.7 billion for the 1995 nine-month period. Third-quarter 1996 net earnings were $111 million or $.37 per share, a 12% increase over second-quarter 1996 net earnings of $99 million or $.33 per share. Net earnings for the 1995 third quarter were a record $328 million or $1.27 per share. Net earnings for the 1996 nine months totaled $308 million or $1.06 per share ($334 million or $1.16 per share before unusual items recorded in the first quarter). Unusual items consisted of a gain on the sale of an interest in a forestlands partnership of $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. Nine-month 1995 net earnings were $890 million or $3.49 per share. Third-quarter 1996 earnings declined from the 1995 third quarter primarily due to lower prices experienced by major product lines. Earnings improved over the 1996 second-quarter as demand continued to improve and customer orders approached normal levels. The consolidated results of operations include Federal Paper Board (Federal) since March 12, 1996 and Carter Holt Harvey since May 1, 1995. About 18% of third-quarter 1996 net sales were generated by these businesses. The results for each of these businesses are included in each applicable segment although their segment results have been adjusted to conform with International Paper's classifications. Printing Papers 1996 third-quarter net sales decreased to $1.4 billion from $1.6 billion in the 1995 third quarter. Carter Holt Harvey and Federal contributed about 15% of total segment sales for the 1996 third quarter. Nine-month 1996 sales of $4.2 billion were below the $4.7 billion recorded in the comparable 1995 period. Operating profits for the third quarter were significantly below the 1995 third quarter primarily due to lower prices. Operating profits advanced over the 1996 second quarter due to a strengthening of U.S. and European pulp and uncoated papers markets and less downtime at U.S. manufacturing facilities. Pulp prices increased early in the third quarter while prices for reprographics and offset grades increased late in the quarter. Packaging 1996 third-quarter net sales increased to $1.3 billion from $1.2 billion in the third quarter of 1995. Sales contributions from Carter Holt Harvey and Federal were about 28% of total 1996 third-quarter sales for this segment. Net sales for the 1996 nine months increased to $3.7 billion from $3.3 billion in the 1995 nine-month period. Operating profits, which declined significantly from the 1995 third quarter, were also down slightly from the 1996 second quarter mainly due to lower containerboard and box prices and weaker results from overseas operations. Third-quarter containerboard volume reached record levels. Bleached board orders and shipments improved, and price increases have been announced in U.S. and export markets for certain bleached board grades. 10 Distribution net sales of $1.2 billion for the 1996 third quarter were below 1995 third-quarter net sales of $1.3 billion. Net sales for the 1996 nine-month period were $3.5 billion compared with $3.8 billion for the 1995 nine months. Operating profits improved slightly over the 1995 third quarter and were about even with the 1996 second quarter. Specialty Products 1996 third-quarter net sales increased to $885 million from $870 million in the 1995 third quarter. Carter Holt Harvey contributed about 17% of 1996 third-quarter sales. Net sales for the 1996 nine months increased to $2.6 billion from $2.4 billion for the 1995 nine months. Third-quarter operating profits, which were nearly twice the level of the 1995 third quarter, remained about even with the 1996 second quarter, primarily due to strong demand for door facings and decorative laminates. Higher energy prices aided the petroleum and minerals businesses. Forest Products 1996 third-quarter net sales increased 18% to $675 million from $570 million in the 1995 third quarter. Sales contributions for the 1996 third quarter from Carter Holt Harvey and Federal were about 43% of total segment sales. Nine month 1996 net sales increased to $1.9 billion from $1.5 billion for the 1995 nine months. Operating profits were somewhat below the 1995 third quarter and the 1996 second quarter primarily due to lower timber pricing. However, overall demand for wood products improved during the quarter and customer inventories continue to trend downward. MERGERS AND ACQUISITIONS On March 12, 1996, International Paper completed the 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 September 30, 1996 consolidated balance sheet includes the balances of Federal. As a result of this merger, Federal contributed about 8% of 1996 third-quarter consolidated net sales and between 3% and 14% 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 September 30, 1996 due to the short-term debt used to acquire Federal shares and the consolidation of Federal borrowings classified as short term. 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 consolidated net sales for the 1996 third quarter. Carter Holt Harvey also contributed from 8% to 12% of each of the components of consolidated costs and expenses. The consolidated balance sheets at December 31, 1995 and September 30, 1996 include the balances of Carter Holt Harvey. 11 In September 1996, Carter Holt Harvey completed the acquisition of Forwood Products, the timber processing business of the South Australian Government. In August 1996, the Company acquired Forchem, a tall oil and turpentine processor in Finland. The consolidated balance sheet at September 30, 1996 reflects preliminary purchase price allocations for Federal, Forwood Products and Forchem. RESTRUCTURING AND ASSET IMPAIRMENT CHARGE During the first quarter of 1996, the Company's Board of Directors authorized a series of management actions to 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 $250 million for the write-off of certain assets, $100 million for asset impairments, $80 million in associated severance costs and $85 million of other expenses, including the cancellation of leases. Accruals for one-time cash costs, which include severance costs and other expenses, totaled $165 million. Approximately $100 million of these 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 in 1996 and $100 million 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, packaging and forest products segments each received roughly 10% of the charge. 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 Cash provided by operations totaling $1.2 billion for the 1996 nine-month period decreased from the $1.4 billion reported for the 1995 nine months. Lower earnings for the 1996 nine months, partially offset by higher noncash expenses and reduced working capital requirements, were primarily responsible for the decrease. Working capital requirements for the 1996 nine-month period were $48 million compared with $296 million for the nine months of 1995. 12 Investments in capital projects, including spending by Carter Holt Harvey and Federal, totaled $944 million for the 1996 nine months compared with $916 million reported for the 1995 nine months. Approximately $1.3 billion of cash was spent and $1.4 billion of International Paper common stock was exchanged (35.4 million shares) to acquire the outstanding shares of Federal under the terms of the merger completed during the 1996 first quarter. Financing activities for the 1996 nine-month period include approximately $1.3 billion of short- term borrowings used to acquire Federal common shares. Also, $425 million of 6.875% to 7% notes and $316 million of medium-term notes were issued. The proceeds of these notes were used primarily to reduce short-term borrowings. Dividend payments of $215 million or $.75 per common share reflect 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. This amount includes the expected capital spending activities of Carter Holt Harvey and Federal. On November 13, 1996, a subsidiary of the Company borrowed $450 million from a consortium of banks. The principal is payable on December 31, 1999. The proceeds from these borrowings will be used primarily to repay existing short-term debt. OTHER Minority interest expense for the 1996 nine months increased significantly over the comparable 1995 period due to the consolidation of Carter Holt Harvey and the minority interestholders' share of the gain on the sale of an interest in a forestlands partnership. The effective income tax rate increased from about 35.5% for the 1995 nine months to about 42% for the 1996 nine month period. The reasons for the increase relate 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. The effective income tax rate for the 1996 nine months before the first-quarter unusual items was approximately 37%. Scitex Corporation announced on October 12, 1996 that its third-quarter 1996 loss will be substantially greater than the $6 million loss incurred by Scitex in the second quarter of 1996. Scitex also indicated that its third-quarter earnings, including any charges required by a restructuring program, would be released in mid-November. International Paper is reviewing to what extent the realizability of its 13% investment in Scitex could be impaired as a result of the lower earnings and restructuring program. International Paper expects to complete this evaluation in the fourth quarter of 1996 after details of Scitex's restructuring plan are available. 13 ITEM 3. OTHER FINANCIAL INFORMATION Financial Information by Industry Segment (Unaudited) (In millions)
Net Sales by Industry Segment Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- -------------------------------- 1996 1995 1996 1995 -------------- -------------- --------------- -------------- Printing Papers $ 1,435 $ 1,595 $ 4,220 $ 4,670 Packaging 1,265 1,175 3,685 3,290 Distribution 1,175 1,290 3,515 3,775 Specialty Products 885 870 2,630 2,400 Forest Products 675 570 1,945 1,470 Less: Intersegment Sales (327) (355) (996) (884) --------------- --------------- ---------------- --------------- Net Sales $ 5,108 $ 5,145 $ 14,999 $ 14,721 =============== =============== ================ ===============
Production by Products Three Months Ended Nine Months Ended September 30, September 30, -------------------------------- ----------------------------------- 1996 (D) 1995 (F) 1996 (E)/(F) 1995 (F) -------------- --------------- --------------- ----------------- Printing Papers (In thousands of tons) White Papers and Bristols 1,038 875 2,850 2,570 Coated Papers 292 255 792 887 Market Pulp (A) 537 445 1,437 1,310 Newsprint 27 22 73 65 Packaging (In thousands of tons) Containerboard 724 626 2,033 1,784 Bleached Packaging Board 507 321 1,361 876 Industrial Papers 181 168 496 489 Industrial and Consumer Packaging (B) 839 729 2,470 2,225 Specialty Products (In thousands of tons) Tissue 29 25 82 42 Forest Products (In millions) Panels (sq. ft. 3/8" basis) (C) 322 242 881 688 Lumber (board feet) 503 320 1,301 812 MDF (sq. ft. 3/4" basis) 71 72 209 189 Particleboard (sq. ft. 3/4" basis) 49 46 143 135
(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 and Federal for the full quarter. (E) Includes Federal from March 12, 1996. (F) Certain reclassifications and adjustments have been made to year-to-date and prior year amounts. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS MASONITE As reported in the Quarterly Report on Form 10-Q for previous quarters, a lawsuit which has been certified as a nationwide class action was filed against the Company and its wholly owned subsidiary, Masonite Corporation, on December 27, 1994, in Mobile County Circuit Court, Mobile, Alabama. The lawsuit alleged that hardboard siding, which is used as exterior cladding for residential dwellings and is manufactured by Masonite, fails prematurely, allowing moisture intrusion. It further alleged that the presence of moisture, in turn, causes the failure of the structure underneath. In August, 1996, the single issue of product defect was tried to a jury and they returned a split decision, finding partly for the plaintiff and partly for Masonite. The jury was not asked to determine any other liability issues, causation or damages. The next procedural step is not clear but Masonite expects the court to decide that before year end. The Company intends to defend the lawsuit vigorously and continues to believe that this matter will not have a materially adverse effect on its consolidated financial position or results of operations. ARIZONA CHEMICAL The Company reported in the Annual Report on Form 10-K for the year ended December 31, 1995, that Arizona Chemical Company (Arizona) was being investigated through a Federal Grand Jury on matters relating to environmental issues. On September 26, 1996, Arizona entered a plea and was sentenced on two counts alleging violations of the Clean Water Act at a facility in Gulfport, Mississippi, and one count alleging violations of hazardous waste requirements at a facility in Picayune, Mississippi. Arizona agreed to pay a criminal penalty of $2.5 million and was placed on probation for three years. Arizona also agreed to pay a civil penalty of $150,000 and restitution in the amount of $1.5 million to the Mississippi Department of Environmental Quality. 15 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 A report on Form 8-K was filed on August 15, 1996. 16 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: November 13, 1996 By /s/ MARIANNE M. PARRS --------------------- Marianne M. Parrs Senior Vice President and Chief Financial Officer Date: November 13, 1996 By /s/ ANDREW R. LESSIN -------------------- Andrew R. Lessin Vice President, Controller and Chief Accounting Officer 17 EX-11 2 STATEMENT OF COMPUTATION OF PER SHARE EARNINGS INTERNATIONAL PAPER COMPANY (Exhibit 11) STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (Unaudited) (In millions, except per-share amounts)
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ------------------------ 1996 1995 1996 1995 ------------ ------------- ------------ ----------- Net earnings $ 111 $ 328 $ 308 $ 890 Debenture interest savings, net of taxes, assuming conversion of convertible subordinated debentures 1 4 ------------ ------------- ------------ ----------- Primary net earnings 111 329 308 894 Reduction in minority interest expense, net of taxes, assuming conversion of preferred securities of subsidiary * 3 * 3 ------------ ------------- ------------ ----------- Fully diluted net earnings $ 111 $ 332 $ 308 $ 897 ============ ============= ============ =========== Earnings per common share $ 0.37 $ 1.27 $ 1.06 $ 3.49 ============ ============= ============ =========== Primary earnings per share $ 0.37 $ 1.26 $ 1.06 $ 3.44 ============ ============= ============ =========== Fully diluted earnings per share $ 0.37 $ 1.24 $ 1.06 $ 3.41 ============ ============= ============ =========== PRIMARY SHARES Average shares outstanding 300.0 258.7 289.4 255.1 Shares assumed to be repurchased using long-term incentive plan deferred compensation at average market price (0.6) (0.5) (0.6) (0.6) Shares assumed to be issued upon exercise of stock options, net of treasury buyback at average market price 1.5 1.5 1.6 1.2 Shares assumed to be issued upon conversion of convertible subordinated debentures 1.7 4.3 ------------ ------------- ------------ ------------ Primary shares 300.9 261.4 290.4 260.0 ============ ============= ============ =========== FULLY DILUTED SHARES Average shares outstanding 300.0 258.7 289.4 255.1 Shares assumed to be repurchased using long-term incentive plan deferred compensation at period-end market price (if higher than average market price) (0.6) (0.5) (0.6) (0.5) 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) 1.9 1.5 2.1 1.6 Shares assumed to be issued upon conversion of convertible subordinated debentures * 1.7 * 4.3 Shares assumed to be issued upon conversion of preferred securities of subsidiary 7.1 2.6 ------------ ------------- ------------ ------------ Fully diluted shares 301.3 268.5 290.9 263.1 ============ ============= ============ ===========
Note: The Company reports earnings per common share as the effect of dilutive securities is less than 3%. * Preferred securities of subsidiary were anti-dilutive. 18 EX-12 3 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES INTERNATIONAL PAPER COMPANY (Exhibit 12) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollar amounts in millions) (Unaudited)
For the Years Ended December 31, Nine Months Ended September 30, 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 $ 1,551.0 $ 780.0 B) Less: Minority interest expense, net of taxes (42.0) (15.0) (36.0) (47.0) (156.0) (110.0) (143.0) C) Add: Fixed charges excluding capitalized interest 380.3 325.3 365.3 412.3 592.9 439.3 493.8 D) Add: Amortization of previously capitalized interest 9.9 9.9 12.2 12.8 13.0 9.7 14.0 E) Less: Equity in undistributed earnings of affiliates (10.8) (19.1) (25.9) (49.1) (94.5) (80.8) (3.4) --------- ---------- ---------- --------- ---------- ---------- -------- F) Earnings before income taxes, minority interest, extraordinary item, accounting changes and fixed charges $ 1,030.4 $ 527.1 $ 853.6 $ 1,044.0 $ 2,383.4 $ 1,809.2 $1,141.4 =========== =========== =========== ========== =========== =========== ======== Fixed Charges G) Interest and amortization of debt expense $ 351.1 $ 297.1 $ 334.5 $ 371.0 $ 542.3 $ 406.6 $ 435.7 H) Interest factor attributable to rentals 29.2 28.2 30.8 41.3 40.0 29.1 40.4 I) Preferred dividends of subsidiary 10.6 3.6 17.7 J) Capitalized interest 36.4 42.0 12.2 18.0 58.0 22.4 43.4 ----------- ----------- ----------- ---------- ----------- ----------- -------- K) Total fixed charges $ 416.7 $ 367.3 $ 377.5 $ 430.3 $ 650.9 $ 461.7 $ 537.2 =========== =========== =========== ========== =========== =========== ======== L) Ratio of earnings to fixed charges 2.47 1.44 2.26 2.43 3.66 3.92 2.12 =========== =========== =========== ========== =========== =========== ========
19 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 405 0 2,755 109 2,876 6,203 22,432 9,354 28,564 6,536 6,183 0 0 301 9,113 28,564 14,999 14,999 11,087 14,413 0 0 398 780 329 308 0 0 0 308 1.06 1.06
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