-----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, IhosaP7HFAiAX4YjUPv5t0gVt25JOsSUoNcO52JHJA7uqp8jTZuz0SHtWAoxr3oS 3/2FHs2KXKmMiQ690I7ZJw== 0001005477-98-001726.txt : 19980518 0001005477-98-001726.hdr.sgml : 19980518 ACCESSION NUMBER: 0001005477-98-001726 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 001-03157 FILM NUMBER: 98626084 BUSINESS ADDRESS: STREET 1: TWO MANHATTANVILLE RD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9143971500 MAIL ADDRESS: STREET 1: TWO MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL PAPER & POWER CORP DATE OF NAME CHANGE: 19710527 10-Q 1 FORM 10-Q 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 March 31, 1998 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 April 30, 1998: 307,487,640 shares. INTERNATIONAL PAPER COMPANY INDEX Page No. -------- PART I. Financial Information Item 1. Financial Statements Consolidated Statement of Earnings - Three Months Ended March 31, 1998 and 1997 3 Consolidated Balance Sheet - March 31, 1998 and December 31, 1997 4-5 Consolidated Statement of Cash Flows - Three Months Ended March 31, 1998 and 1997 6 Consolidated Statement of Common Shareholders' Equity 7 Notes to Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-14 Item 3. Other Financial Information 15-16 PART II. Other Information Item 1. Legal Proceedings 17 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 18 Signatures 19 * 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, -------------------- 1998 1997 --------- --------- Net Sales $ 4,868 $ 4,862 --------- --------- Costs and Expenses Cost of products sold 3,654 3,636 Selling and administrative expenses 374 379 Depreciation and amortization 298 320 Distribution expenses 224 237 Taxes other than payroll and income taxes 50 52 --------- --------- Total Costs and Expenses 4,600 4,624 --------- --------- Earnings Before Interest, Income Taxes and Minority Interest 268 238 Interest expense, net 127 130 --------- --------- Earnings Before Income Taxes and Minority Interest 141 108 Income tax provision 46 40 Minority interest expense, net of taxes 20 34 --------- --------- Net Earnings $ 75 $ 34 ========= ========= Earnings Per Common Share $ 0.25 $ 0.11 ========= ========= Earnings Per Common Share - Assuming Dilution $ 0.25 $ 0.11 ========= ========= Average Shares of Common Stock Outstanding 302.3 300.6 ========= ========= Cash Dividends Per Common Share $ 0.25 $ 0.25 ========= ========= 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, 1998 1997 ---------- ---------- Assets Current Assets Cash and temporary investments $ 534 $ 398 Accounts and notes receivable, net 2,373 2,404 Inventories 2,720 2,760 Other current assets 365 383 ---------- ---------- Total Current Assets 5,992 5,945 ---------- ---------- Plants, Properties and Equipment, Net 12,286 12,369 Forestlands 3,026 2,969 Investments 1,269 1,166 Goodwill 2,532 2,557 Deferred Charges and Other Assets 1,795 1,748 ---------- ---------- Total Assets $ 26,900 $ 26,754 ========== ========== 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, 1998 1997 -------- ------------ Liabilities and Common Shareholders' Equity Current Liabilities Notes payable and current maturities of long-term debt $ 2,173 $ 2,212 Accounts payable 1,319 1,338 Accrued liabilities 1,337 1,330 -------- -------- Total Current Liabilities 4,829 4,880 -------- -------- Long-Term Debt 7,260 7,154 Deferred Income Taxes 2,709 2,681 Other Liabilities 1,203 1,236 Minority Interest 1,807 1,643 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 1998 - 302.9 shares, 1997 - 302.9 shares 303 303 Paid-in capital 3,647 3,654 Retained earnings 5,186 5,186 Accumulated other comprehensive income (loss) (475) (396) -------- -------- 8,661 8,747 Less: Common stock held in treasury, at cost; 1998 - 0.4 shares, 1997 - 0.7 shares 19 37 -------- -------- Total Common Shareholders' Equity 8,642 8,710 -------- -------- Total Liabilities and Common Shareholders' Equity $ 26,900 $ 26,754 ======== ======== 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, ------------------ 1998 1997 ------- ------- Operating Activities Net earnings $ 75 $ 34 Depreciation and amortization 298 320 Deferred income taxes 20 (26) Payments related to restructuring and legal reserves (18) Other, net (7) 17 Changes in current assets and liabilities Accounts and notes receivable (51) (57) Inventories (15) (65) Accounts payable and accrued liabilities (53) 40 Other (22) (22) -------- -------- Cash Provided by Operations 227 241 -------- -------- Investment Activities Invested in capital projects (206) (202) Mergers and acquisitions, net of cash acquired (156) Proceeds from divestitures 81 Other (31) 9 -------- -------- Cash Used for Investment Activities (312) (193) -------- -------- Financing Activities Issuance of common stock 37 14 Issuance of preferred securities by subsidiary 170 Issuance of debt 97 217 Reduction of debt (101) (43) Change in bank overdrafts 53 (52) Dividends paid (75) (75) Other 37 113 -------- -------- Cash Provided by Financing Activities 218 174 -------- -------- Effect of Exchange Rate Changes on Cash 3 (14) -------- -------- Change in Cash and Temporary Investments 136 208 Cash and Temporary Investments Beginning of the period 398 352 -------- -------- End of the period $ 534 $ 560 ======== ======== The accompanying notes are an integral part of these financial statements. 6 INTERNATIONAL PAPER COMPANY Consolidated Statement of Common Shareholders' Equity (Unaudited) (In millions, except share amounts in thousands)
Three Months Ended March 31, 1998 Common Stock Issued Treasury Stock ------------------- -------------- Accumulated Total Other Common Paid-in Retained Comprehensive Shareholders' Shares Amount Capital Earnings Income (Loss) Shares Amount Equity ------ ------ ------- -------- ------------- ------ ------ ------ Balance, December 31, 1997 302,910 $ 303 $ 3,654 $ 5,186 $ (396) 726 $ 37 $ 8,710 Issuance of stock for various plans 34 (7) (957) (46) 39 Repurchase of stock 610 28 (28) Cash dividends - common stock ($.25 per share) (75) (75) Comprehensive income Net earnings 75 75 Realized foreign currency translation adjustment related to divestitures 11 11 Change in cumulative foreign currency translation adjustment (90) (90) -------- Total comprehensive income (loss) (4) -------- ------- -------- -------- -------- ----- ------ -------- Balance, March 31, 1998 302,944 $ 303 $ 3,647 $ 5,186 $ (475) 379 $ 19 $ 8,642 ======== ======= ======== ======== ======== ===== ====== ======== Three Months Ended March 31, 1997 Common Stock Issued Treasury Stock ------------------- -------------- Accumulated Total Other Common Paid-in Retained Comprehensive Shareholders' Shares Amount Capital Earnings Income (Loss) Shares Amount Equity ------ ------ ------- -------- ------------- ------ ------ ------ Balance, December 31, 1996 300,824 $ 301 $ 3,599 $ 5,639 $ (173) 554 $ 22 $ 9,344 Issuance of stock for various plans 513 15 (620) (24) 39 Repurchase of stock 607 25 (25) Cash dividends - common stock ($.25 per share) (75) (75) Comprehensive income Net earnings 34 34 Change in cumulative foreign currency translation adjustment (4) (4) -------- Total comprehensive income 30 -------- -------- -------- -------- -------- ------ ------ -------- Balance, March 31, 1997 301,337 $ 301 $ 3,614 $ 5,598 $ (177) 541 $ 23 $ 9,313 ======== ======== ======== ======== ======== ====== ====== ========
The accompanying notes are an integral part of these financial statements. 7 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, 1997, which has previously been filed with the Commission. 2. Earnings per common share were computed by dividing net earnings by the weighted average number of common shares outstanding. Earnings per common share-assuming dilution were computed assuming that all potentially dilutive securities were converted into common shares at the beginning of each period. A reconciliation of the amounts included in the computation of earnings per common share and earnings per common share-assuming dilution is as follows. Three Months Ended March 31, In millions 1998 1997 -------- -------- Net earnings $ 75 $ 34 Effect of dilutive securities Preferred securities of subsidiary trust -------- -------- Net earnings - assuming dilution $ 75 $ 34 ======== ======== Average common shares outstanding 302.3 300.6 Effect of dilutive securities Long-term incentive plan deferred compensation (0.9) (0.9) Stock options 1.8 1.2 Preferred securities of subsidiary trust -------- -------- Average common shares outstanding-assuming dilution 303.2 300.9 ======== ======== Earnings per common share $ .25 $ .11 ======== ======== Earnings per common share - assuming dilution $ .25 $ .11 ======== ======== If an amount does not appear in the above table, the security was antidilutive for the period presented. 3. In February 1998, the Company entered into a joint venture with Olmuksa in Turkey for the manufacture of containerboard and corrugated boxes for markets in Turkey and Europe. Also in February 1998, Carter Holt Harvey and International Paper jointly acquired Australian-based Continental Cup. This acquisition will allow Carter Holt Harvey and International Paper's cup subsidiary, Imperial Bondware, to offer a full line of food service products in the Australian and New Zealand markets. In September 1997, the Company acquired Merbok Formtec, a company that has pioneered the development of door facing products through postforming medium-density fiberboard. In November 1997, the stock of Taussig Graphics Supply, Inc. was acquired. All of the above acquisitions were accounted for using the purchase method. 8 4. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information", which requires the presentation of segment information on a basis consistent with that used by management for operating decisions. The provisions of this statement will be adopted in fiscal year 1998. 5. In March 1998, IP Timberlands, Ltd. completed the third in a series of transactions relating to the sale of a subsidiary partnership interest in approximately 175,000 acres of forestlands in Pennsylvania and New York. This first-quarter 1998 transaction covered approximately 36,000 acres and resulted in a gain of approximately $36 million before taxes. 6. In March 1998, IP Forest Resources Company, a subsidiary of International Paper, in accordance with the IP Timberlands, Ltd. partnership agreement, purchased all of the 7,299,500 publicly traded Class A Depositary Units of IP Timberlands, Ltd. for a cash purchase price of $13.6325 per unit. 7. In March 1998, Timberlands Capital Corp. II, Inc., a subsidiary of International Paper, issued $170 million of 7.005% preferred securities as part of the financing to repurchase the outstanding units of IP Timberlands, Ltd. These securities are classified in the consolidated balance sheet as a minority interest liability and dividend payments will be included in minority interest expense. 8. In June 1997, a $535 million pre-tax business improvement reserve ($385 million after taxes or $1.28 per share) was established under a plan to improve the Company's financial performance through closing or divesting of operations that no longer meet financial or strategic objectives. It included approximately $230 million for asset write-downs, $210 million for the estimated losses on sales of businesses included in the reserve and $95 million for severance and other expenses. The majority of the reserve relates to the restructuring of the printing papers business in the United States and overseas and the sale of certain specialty businesses. In December 1997, an additional pre-tax charge of $125 million ($80 million after taxes or $.26 per share) was recorded for anticipated losses on the sale of the remaining imaging businesses. Through the end of the 1998 first quarter, most of the restructuring actions have been completed or announced. We believe the reserves established for these actions will be adequate. 9. Also in June 1997, the Company recorded a $150 million pre-tax charge ($93 million after taxes or $.31 per share) to add to its legal reserves. On July 14, 1997, Masonite Corporation, a wholly-owned subsidiary of the Company, announced that it had reached a proposed settlement in a class action pending in Mobile County, Alabama. The Company believes its legal reserves are adequate to cover any amounts to be paid pursuant to the proposed settlement, which is now final. 10. In December 1997, the Company recorded a $170 million pre-tax gain ($97 million after taxes and minority interest expense or $.32 per share) from the redemption of certain retained west coast partnership interests and the release of a related debt guaranty. 11. 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 and its sole assets are International Paper 5-1/4% convertible subordinated debentures. The obligations of the Trust related to its preferred securities are fully and unconditionally guaranteed by International Paper. These preferred securities are convertible into International Paper common stock. Preferred securities distributions of $6 million were paid during each of the three months ended March 31, 1998 and 1997. 9 12. Inventories by major category include (in millions): March 31, December 31, 1998 1997 --------- ------------ Raw materials $ 456 $ 478 Finished pulp, paper and packaging products 1,482 1,466 Finished lumber and panel products 168 160 Operating supplies 387 387 Other 227 269 --------- --------- Total $ 2,720 $ 2,760 ========= ========= 13. Interest payments made during the three month periods ended March 31, 1998 and 1997 were $149 million and $140 million, respectively. The Company capitalized net interest costs of $12 million for the 1998 first quarter and $14 million for the 1997 first quarter. Total interest expense was $150 million for both the 1998 and 1997 first quarter. Income tax payments made during the three months ended March 31, 1998 and 1997 were $38 million and $8 million, respectively. 14. Temporary investments with a maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $231 million and $268 million at March 31, 1998 and December 31, 1997, respectively. 15. Accumulated depreciation was $10.1 billion at March 31, 1998 and $10.0 billion at December 31, 1997. The allowance for doubtful accounts was $90 million at March 31, 1998 and $93 million at December 31, 1997. 16. The Company uses financial instruments primarily to hedge its exposure to currency and interest rate risk. To qualify as hedges, financial instruments must reduce the currency or interest rate risk associated with the related underlying items and be designated as hedges by management. Gains or losses from the revaluation of financial instruments which do not qualify for hedge accounting treatment are recognized in earnings. The Company has a policy of financing a portion of its investments in overseas operations with borrowings denominated in the same currency as the investment or by entering into foreign exchange contracts in tandem with U.S. dollar borrowings. These contracts are effective in providing a hedge against fluctuations in currency exchange rates. Gains or losses from the revaluation of these contracts, which are fully offset by gains or losses from the revaluation of the net assets being hedged, are determined monthly based on published currency exchange rates and are recorded as translation adjustments in common shareholders' equity. Upon liquidation of the net assets being hedged or early termination of the foreign exchange contracts, the gains or losses from the revaluation of foreign exchange contracts are included in earnings. Amounts payable to or due from the counterparties to the foreign exchange contracts are included in accrued liabilities or accounts receivable as applicable. The Company also utilizes foreign exchange contracts to hedge certain transactions that are denominated in foreign currencies, primarily export sales and equipment purchases from nonresident vendors. These contracts serve to protect the Company from currency fluctuations between the transaction and settlement dates. Gains or losses from the revaluation of these contracts, based on published currency exchange rates, along with offsetting gains or losses resulting from the revaluation of the underlying transactions, are recognized in earnings or deferred and recognized in the basis of the underlying transaction when completed. Any gains or losses arising from the cancellation of the underlying transactions or early termination of the foreign currency contracts are included in earnings. 10 The Company uses cross-currency and interest rate swap agreements to manage the composition of its fixed and floating rate debt portfolio. Amounts to be paid or received as interest under these agreements are recognized over the life of the swap agreements as adjustments to interest expense. Gains or losses from the revaluation of cross-currency swap agreements that qualify as hedges of investments are recorded as translation adjustments in common shareholders' equity. Gains or losses from the revaluation of cross-currency swap agreements that do not qualify as hedges of investments are included in earnings. The related amounts payable to or receivable from the counterparties to the agreements are included in accrued liabilities or accounts receivable. If swap agreements are terminated early, the resulting gain or loss is deferred and amortized over the remaining life of the related debt. The Company does not hold or issue financial instruments for trading purposes. 17. Subsequent Events In April 1998, International Paper completed the previously announced merger with Weston Paper and Manufacturing Company by exchanging 4.7 million International Paper common shares valued at approximately $232 million for the outstanding Weston shares. Also in April 1998, the remaining printing plates business of the imaging division was sold and the Company announced that it had reached an agreement to sell the Veratec nonwovens business for approximately $290 million. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS International Paper's first-quarter 1998 net sales of $4.9 billion were even with the 1997 first quarter and below the $5.1 billion recorded in the 1997 fourth quarter. First-quarter 1998 net earnings were $75 million or $.25 per share compared with $34 million or $.11 per share in the 1997 first quarter and $115 million or $.38 per share before special items in the 1997 fourth quarter. Fourth-quarter 1997 earnings were $132 million or $.44 per share after special items that consisted of a $125 million pretax charge ($80 million after taxes or $.26 per share) for anticipated losses on the sale of the remaining imaging businesses and a $170 million pretax gain ($97 million after taxes and minority interest expense or $.32 per share) from the redemption of certain west coast partnership interests and the release of a related debt guaranty. First-quarter 1998 operating profit from businesses totaled $290 million compared with $250 million in the first quarter of 1997 and $360 million in the 1997 fourth quarter before special items. Fourth-quarter 1997 operating profit was $405 million after special items which added $45 million before taxes and minority interest expense. First-quarter 1998 earnings were well ahead of the 1997 first quarter reflecting improved pricing for coated and uncoated papers in the United States and Europe. Earnings for the first quarter of 1998 were down from the 1997 fourth quarter as the economic situation in Asia continues to affect some businesses, particularly the domestic pulp business and Carter Holt Harvey's log exports and pulp prices. Weather conditions in the southern United States resulted in higher than expected wood costs that were partially offset by the continued progress of cost-reduction efforts. Compared with the 1997 fourth quarter, timber harvest volumes on the Company's U.S. forestlands declined about 30% which negatively impacted earnings. Printing Papers 1998 first-quarter net sales of $1.4 billion were about even with the 1997 first quarter and the 1997 fourth quarter. Operating profit for the 1998 first quarter was $70 million compared with break-even results for the 1997 first quarter reflecting higher prices for major coated and uncoated paper grades. Compared with 1997 fourth-quarter operating profit of $85 million, segment profit for the 1998 first quarter declined moderately due to poor pulp markets and lower sales volumes for uncoated grades. Sales for coated grades were up over the previous quarter and demand for coated groundwood remained strong throughout the quarter. Packaging 1998 first-quarter net sales of $1.2 billion were even with the 1997 first quarter and declined from the 1997 fourth quarter. First-quarter 1998 operating profit of $60 million was about even with the 1997 first quarter and improved over 1997 fourth-quarter profit of $45 million. Domestic containerboard results were ahead of the 1997 first quarter and the previous quarter. Earnings for Carter Holt Harvey were behind the 1997 first and fourth quarters. While corrugated box pricing continued to improve over the previous quarter, bleached board markets weakened somewhat and production was reduced to control inventories. Distribution net sales of $1.2 billion for the 1998 first quarter were ahead of the 1997 first quarter and about even with the 1997 fourth quarter. First-quarter 1998 operating profit declined to $20 million from $25 million in the 1997 first and fourth quarters. First-quarter 1998 operating profit for xpedx was behind the 1997 first and fourth quarters primarily due to lower margins. The current quarter also included the results of Taussig Graphic Supply that was acquired in November of 1997. 12 Specialty Products 1998 first-quarter net sales declined to $750 million, down from $860 million in the 1997 first quarter and $840 million in the 1997 fourth quarter, primarily due to the divestiture of the imaging products businesses. Despite a good quarter for the chemicals business, operating profit for the specialty products segment declined to $50 million from $65 million in the previous quarter before special items and $80 million in the 1997 first quarter due to weak pricing in the oil and gas businesses and losses from the imaging businesses that operated during the quarter. 1997 fourth-quarter results for the specialty products segment were a loss of $60 million after a $125 million pretax charge for anticipated losses on the sale of the remaining imaging businesses. Forest Products 1998 first-quarter net sales were $590 million compared with $605 million for the 1997 first quarter and $710 million for the 1997 fourth quarter. Operating profit of $90 million for the 1998 first quarter was even with the 1997 first quarter and down substantially from the $140 million recorded in the previous quarter before special items as timber harvest levels declined from last year's record highs. Results for Carter Holt Harvey's forest products business declined from the previous quarter primarily due to recent economic events in Asian markets. The 1998 first quarter benefited from a $36 million gain before taxes from the sale of a partnership interest in about 36,000 acres of the Company's Allegheny forestlands. This sale was the third in a series of transactions announced in the 1997 second quarter. 1997 fourth-quarter operating profit of $310 million after special items included a $170 million pretax gain from the redemption of certain west coast partnership interests and the release of a related debt guaranty. Carter Holt Harvey reported net sales of $415 million in the 1998 first quarter, down from $470 million in the 1997 first quarter. First-quarter 1998 operating profit for Carter Holt Harvey declined to $10 million from $60 million in the 1997 first quarter largely due to the Asian economic slowdown which particularly affected log exports and pulp prices. About $10 million of the earnings decline is due to unfavorable currency exchange rate changes. COPEC, the Chilean forest products company owned 30% by Carter Holt Harvey, also reported lower earnings due to adverse currency exchange rate fluctuations and weak demand resulting from the Asian economic situation. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations totaled $227 million for the 1998 first quarter compared with $241 million in the 1997 first quarter. Improved earnings were offset by higher working capital requirements for the 1998 first quarter and payments related to the prior-year restructuring charges. The $141 million increase in working capital included a $51 million increase in receivables and a $53 million decrease in current liability balances from December 1997. Working capital on a cash flow basis increased $104 million during the first quarter of 1997. Investments in capital projects totaled $206 million for the 1998 first quarter, about even with the $202 million spent in the 1997 first quarter. Mergers and acquisitions included the investment in a joint venture with Olmuksa in Turkey for the manufacture of containerboard and corrugated boxes, the acquisition of Australian-based Continental Cup and the repurchase of the publicly traded units of IP Timberlands, Ltd. for approximately $100 million. Proceeds from divestitures totaled $81 million from the sale of certain imaging businesses. Cash flow generated by operations, supplemented as necessary by short- or long-term borrowings, are anticipated to be adequate to fund expected capital expenditures, which have been lowered to approximately $1.1 billion for 1998, below expected 1998 depreciation expense. Capital spending will continue to be focused on the Company's stronger, more competitive businesses. Financing activities for the 1998 first quarter include a $4 million net reduction in primarily short-term debt. Net borrowings of $174 million for the 1997 first quarter consisted primarily of short-term debt. During the 1998 first 13 quarter, $170 million of 7.005% preferred securities were issued by a subsidiary of the Company as part of the financing to repurchase the outstanding units of IP Timberlands, Ltd. These securities are classified in the consolidated balance sheet as a minority interest liability and dividend payments will be included in minority interest expense. Common stock dividend payments were $75 million or $.25 per common share for the 1998 first quarter, even with the prior-year period on a per share basis. MERGERS AND ACQUISITIONS In February 1998, the Company entered into a joint venture with Olmuksa in Turkey for the manufacture of containerboard and corrugated boxes for markets in Turkey and Europe. In February 1998, Carter Holt Harvey and International Paper jointly acquired Australian-based Continental Cup. This acquisition will allow Carter Holt Harvey and International Paper's cup subsidiary, Imperial Bondware, to offer a full line of food service products in the Australian and New Zealand markets. In March 1998, IP Forest Resources Company, a subsidiary of International Paper, purchased all of the 7,299,500 publicly traded Class A Depositary Units of IP Timberlands, Ltd. for a cash purchase price of $13.6325 per unit. In April 1998, the Company completed the merger with Weston Paper, a corrugated manufacturer serving markets in the United States, by exchanging International Paper common stock worth approximately $232 million for all of the outstanding Weston Paper shares. RESTRUCTURING ACTIONS Certain of the imaging products printing and graphic arts businesses were sold in late February 1998 and the remaining imaging businesses were sold early in the 1998 second quarter. The sales of the Veratec nonwovens business and the Company's label business have been announced. OTHER Minority interest expense for the 1998 first quarter declined primarily due to lower earnings for Carter Holt Harvey, which is owned approximately 50% by International Paper. The effective income tax rate for the 1998 first quarter declined to 33% from 37% in the 1997 first quarter primarily due to changes in the mix of estimated annual earnings. YEAR-2000 COSTS Many of our systems and related computer technology are year-2000 compliant. However, we have a program in place to bring the remaining software and systems into year-2000 compliance by mid-1999. We estimate that this will cost $65 million, exclusive of software and systems that are being replaced or upgraded in the normal course of business. Under the program as we continue to review existing systems and related computer technology and alternatives for bringing them into year-2000 compliance, this cost estimate may be revised. Information system maintenance or modification costs are expensed as incurred, while the cost of new software and equipment is capitalized and amortized over the assets' useful lives. 14 ITEM 3. OTHER FINANCIAL INFORMATION Financial Information by Industry Segment (Unaudited) (In millions) Net Sales by Industry Segment Three Months Ended March 31, ------------------------- 1998 1997 --------- --------- Printing Papers $ 1,380 $ 1,380 Packaging 1,200 1,190 Distribution 1,225 1,090 Specialty Products 750 860 Forest Products 590 605 Less: Intersegment Sales (277) (263) --------- --------- Net Sales $ 4,868 $ 4,862 ========= ========= The above amounts include Carter Holt Harvey net sales of $415 million in the first quarter of 1998 and $470 million in the first quarter of 1997. Operating Profit by Industry Segment Three Months Ended March 31, ------------------------ 1998 1997 --------- --------- Printing Papers $ 70 $ 0 Packaging 60 55 Distribution 20 25 Specialty Products 50 80 Forest Products 90 90 --------- --------- Operating Profit 290 250 Interest expense, net (127) (130) Corporate items, net (22) (12) --------- --------- Earnings Before Income Taxes and Minority Interest $ 141 $ 108 ========= ========= The above amounts include Carter Holt Harvey operating profit of $10 million in the first quarter of 1998 and $60 million in the first quarter of 1997. 15 Production by Products Three Months Ended March 31, -------------------- 1998 1997 (D) -------- -------- Printing Papers (In thousands of tons) White Papers and Bristols 990 1,027 Coated Papers 332 310 Market Pulp (A) 512 575 Newsprint 24 21 Packaging (In thousands of tons) Containerboard 709 699 Bleached Packaging Board 521 549 Industrial Papers 161 172 Industrial and Consumer Packaging (B) 782 807 Specialty Products (In thousands of tons) Tissue 35 32 Forest Products (In millions) Panels (sq. ft. 3/8" basis) (C) 360 301 Lumber (board feet) 529 481 MDF (sq. ft. 3/4" basis) 48 52 Particleboard (sq. ft. 3/4" basis) 47 45 (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) Certain reclassifications and adjustments have been made to prior-period amounts. 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The litigation referred to in the Company's Form 10-K for 1997 under "Other Litigation" relating to Los Andes, in Chile, is updated as follows: The Company's majority-owned subsidiary, Carter Holt Harvey, has an indirect shareholding of 30.05% in Chile's largest industrial company, COPEC. This shareholding is held through Carter Holt Harvey's 50% interest in Inversiones y Desarrollo Los Andes S.A. ("Los Andes") which holds 60.1% of the shares of COPEC. The other 50% of Los Andes is owned by Inversiones Socoroma S.A. ("Socoroma"), a Chilean investment company. In late 1993, Carter Holt Harvey commenced several actions in Chilean courts challenging certain corporate governance documents of Los Andes, as well as agreements between Carter Holt Harvey's subsidiary and Socoroma. All of those actions have now been terminated. In December 1994, Socoroma commenced an arbitration action seeking to expel Carter Holt Harvey from Los Andes at a price which is less than the carrying value. In April 1998, the arbitrator dismissed Socoroma's request, but granted it the right to claim monetary damages for Carter Holt Harvey's breach of certain of its obligations as a participant in the Los Andes joint venture. While any proceeding or litigation has an element of uncertainty, the Company believes that the resolution of this issue will not have a material adverse effect on its consolidated financial position or results of operations. 17 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 April 14, 1998. 18 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, 1998 By /s/ MARIANNE M. PARRS ---------------------------- Marianne M. Parrs Senior Vice President and Chief Financial Officer Date: May 15, 1998 By /s/ ANDREW R. LESSIN ---------------------------- Andrew R. Lessin Vice President, Controller and Chief Accounting Officer 19 EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS INTERNATIONAL PAPER COMPANY STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (Unaudited) (In millions, except per-share amounts) Three Months Ended March 31, -------------------- 1998 1997 -------- -------- Net earnings $ 75 $ 34 Reduction in minority interest expense, net of taxes, assuming conversion of preferred securities of subsidiary trust -------- -------- Net earnings - assuming dilution $ 75 $ 34 ======== ======== Average common shares outstanding 302.3 300.6 Shares assumed to be repurchased using long-term incentive plan deferred compensation at average market price (0.9) (0.9) Shares assumed to be issued upon exercise of stock options, net of treasury buyback at average market price 1.8 1.2 Shares assumed to be issued upon conversion of preferred securities of subsidiary trust -------- -------- Average common shares outstanding - assuming dilution 303.2 300.9 ======== ======== Earnings per common share $ .25 $ .11 ======== ======== Earnings per common share - assuming dilution $ .25 $ .11 ======== ======== Note: If an amount does not appear in the above table, the security was antidilutive for the period presented. EX-12 3 STATEMENT RE: COMPUTATION OF RATIOS 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 1993 1994 1995 1996 1997 1997 1998 - ---------------------------------- --------- --------- --------- --------- --------- --------- --------- A) Earnings before income taxes, minority interest, extraordinary item and accounting changes $ 538.0 $ 715.0 $ 2,028.0 $ 802.0 $ 16.0 $ 108.0 $ 141.0 B) Less: Minority interest expense, net of taxes (36.0) (47.0) (156.0) (169.0) (129.0) (34.0) (20.0) C) Add: Fixed charges excluding capitalized interest 365.3 412.3 605.9 672.4 686.6 170.4 171.3 D) Add: Amortization of previously capitalized interest 12.2 12.8 13.0 17.8 20.0 4.8 5.4 E) Less: Equity in undistributed earnings of affiliates (25.9) (49.1) (94.5) 6.2 (40.4) (5.8) 2.7 --------- --------- --------- --------- --------- --------- --------- F) Earnings before income taxes, minority interest, extraordinary item, accounting changes and fixed charges $ 853.6 $ 1,044.0 $ 2,396.4 $ 1,329.4 $ 553.2 $ 243.4 $ 300.4 ========= ========= ========= ========= ========= ========= ========= Fixed Charges G) Interest and amortization of debt expense $ 334.5 $ 371.0 $ 542.3 $ 582.8 $ 593.0 $ 149.6 $ 150.5 H) Interest factor attributable to rentals 30.8 41.3 53.0 66.0 70.0 14.9 14.9 I) Preferred dividends of subsidiary 10.6 23.6 23.6 5.9 5.9 J) Capitalized interest 12.2 18.0 58.0 66.7 61.9 13.8 11.7 --------- --------- --------- --------- --------- --------- --------- K) Total fixed charges $ 377.5 $ 430.3 $ 663.9 $ 739.1 $ 748.5 $ 184.2 $ 183.0 ========= ========= ========= ========= ========= ========= ========= L) Ratio of earnings to fixed charges 2.26 2.43 3.61 1.80 1.32 1.64 ========= ========= ========= ========= ========= ========= M) Deficiency in earnings necessary to cover fixed charges $ 195.3 =========
EX-27 4 FDS
5 1,000,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 534 0 2,463 90 2,720 5,992 22,417 10,131 26,900 4,829 7,260 0 0 303 8,339 26,900 4,868 4,868 3,654 4,600 0 6 127 141 46 75 0 0 0 75 .25 .25
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