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 June 30, 1994 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 July 29, 1994: 124,794,130 shares.
INTERNATIONAL PAPER COMPANY
INDEX
Page No.
________
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings - 4
Three Months and Six Months Ended
June 30, 1994 and 1993.
Consolidated Balance Sheet - 5-6
June 30, 1994 and December 31, 1993.
Consolidated Statement of Cash Flows - 7
Six Months Ended June 30, 1994 and 1993.
Notes to Consolidated Financial 8-9
Statements.
Item 2. Management's Discussion and Analysis of 10-11
Financial Condition and Results
of Operations.
Item 3. Other Financial Information 12
PART II Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of 14
Security Holders
- 2 -
INTERNATIONAL PAPER COMPANY
INDEX (Con'd)
Page No.
________
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
* Omitted since no answer is called for, answer is in the
negative or inapplicable.
- 3 -
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL PAPER COMPANY
Consolidated Statement of Earnings
(Unaudited)
(In millions, except per-share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $ 3,633 $ 3,506 $ 7,047 $ 6,868
------- ------- ------- -------
Costs and Expenses
Cost of products sold 2,712 2,619 5,277 5,162
Depreciation and amortization 228 228 453 448
Distribution expenses 175 165 329 319
Selling and administrative expenses 258 252 502 484
Taxes other than payroll and income taxes 40 41 78 80
------- ------- ------- -------
Total Costs and Expenses 3,413 3,305 6,639 6,493
------- ------- ------- -------
Earnings Before Interest and Income Taxes 220 201 408 375
Interest expense, net 86 79 163 152
------- ------- ------- -------
Earnings Before Income Taxes 134 122 245 223
Provision for income taxes 47 45 86 82
------- ------- ------- -------
Net Earnings $ 87 $ 77 $ 159 $ 141
======= ======= ======= =======
Earnings per Common Share $ .70 $ .62 $ 1.28 $ 1.14
======= ======= ======= =======
Average Shares of Common Stock Outstanding 124.6 123.1 124.4 123.0
======= ======= ======= =======
Cash Dividends per Common Share $ .42 $ .42 $ .84 $ .84
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- ------------
<S> <C> <C>
Assets
Current Assets
Cash and temporary investments $ 193 $ 242
Accounts and notes receivable, net 2,098 1,856
Inventories 2,072 2,024
Other current assets 274 279
-------- --------
Total Current Assets 4,637 4,401
Plants, Properties and Equipment, net 8,909 8,872
Forestlands 796 786
Investments 975 631
Goodwill 763 754
Deferred Charges and Other Assets 1,295 1,187
-------- --------
Total Assets $ 17,375 $ 16,631
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- ------------
<S> <C> <C>
Liabilities and Common Shareholders' Equity
Current Liabilities
Notes payable and current maturities of long-term debt $ 2,371 $ 2,089
Accounts payable and accrued liabilities 1,871 1,920
-------- --------
Total Current Liabilities 4,242 4,009
Long-Term Debt 3,981 3,601
Deferred Income Taxes 1,643 1,614
Minority Interest and Other Liabilities 1,195 1,182
Common Shareholders' Equity
Common stock, $1 par value, issued
1994 - 127.4 shares, 1993 - 127.3 shares 127 127
Paid-in capital 1,706 1,704
Retained earnings 4,607 4,553
-------- --------
6,440 6,384
Less: Common stock held in treasury, at cost;
1994 - 2.7 shares, 1993 - 3.4 shares 126 159
-------- --------
Total Common Shareholders' Equity 6,314 6,225
-------- --------
Total Liabilities and
Common Shareholders' Equity $ 17,375 $ 16,631
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
INTERNATIONAL PAPER COMPANY
Consolidated Statement of Cash Flows
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1994 1993
------- ------
<S> <C> <C>
Operating Activities
Net earnings $ 159 $ 141
Noncash items
Depreciation and amortization 453 448
Deferred income taxes 7 2
Other, net (21) (18)
Changes in current assets and liabilities
Accounts and notes receivable (258) (117)
Inventories (29) (42)
Other current assets (1) (36)
Accounts payable and accrued liabilities 9 (89)
------- ------
Cash Provided by Operations 319 289
------- ------
Investment Activities
Invested in capital projects (418) (373)
Mergers and acquisitions
Plants, properties and equipment, net (4)
Other assets and liabilities, net (17)
Investments in affiliated companies (299)
Other (60) (28)
------- ------
Cash Used for Investment Activities (777) (422)
------- ------
Financing Activities
Issuance of common stock 52 38
Issuance of debt 1,150 430
Reduction of debt (521) (161)
Change in bank overdrafts (119) 3
Dividends paid (105) (103)
Other (50) (26)
------- ------
Cash Provided by Financing Activities 407 181
------- ------
Effect of Exchange Rate Changes on Cash 2 (1)
Change in Cash and Temporary Investments (49) 47
Cash and Temporary Investments
Beginning of the period 242 225
------- ------
End of the period $ 193 $ 272
======= ======
</TABLE>
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 financial statements
and the notes thereto incorporated by reference in the Company's Form 10-K
for the year ended December 31, 1993, which has previously been filed with
the Commission.
2. In March 1994, the Company acquired approximately one-half of Brierley
Investments Limited's (Brierley) holdings in Carter Holt Harvey Limited
(Carter Holt), a major New Zealand forest products and paper company with
substantial assets in Chile. The purchase increased the Company's
ownership of Carter Holt to 24 percent and leaves Brierley with 8 percent.
The investment in Carter Holt is accounted for using the equity method.
In April 1993, the Company acquired certain assets of the Los Angeles -
based Ingram Paper Company (Ingram). Ingram is a distributor of
industrial and fine printing papers. In December, JB Papers, Inc., a
paper distribution company located in Union, N.J., was purchased. Also in
December, the assets of Monsanto Company's Kentucky-based Fome-Cor
division, a manufacturer of polystyrene foam products, were acquired.
All of the 1993 acquisitions were accounted for using the purchase method.
The effects of these acquisitions, individually or in the aggregate,
were not significant to the Company's financial statements.
The consolidated balance sheet at June 30, 1994 includes preliminary
purchase price allocations for JB Papers and Fome-Cor. The consolidated
balance sheet at December 31, 1993 includes preliminary purchase price
allocations for Ingram, JB Papers and Fome-Cor. Final allocations for
JB Papers and Fome-Cor will be completed in 1994.
3. Inventories by major category include:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- ------------
(In millions)
<S> <C> <C>
Raw materials $ 378 $ 380
Finished pulp, paper and packaging products 1,042 1,017
Finished imaging products 172 164
Finished lumber and panel products 80 79
Operating supplies 331 324
Other 69 60
------ ------
Total $2,072 $2,024
====== ======
</TABLE>
- 8 -
4. Interest payments made during the periods ended June 30, 1994 and
1993 were $164 million and $170 million, respectively, including payments
of $76 million and $69 million for the 1994 and 1993 second quarters.
Income tax payments made during the six months of 1994 and 1993 were
$67 million and $85 million, respectively.
5. Temporary investments with a maturity of three months or less are treated
as cash equivalents and are stated at cost. Temporary investments totaled
$85 million and $160 million at June 30, 1994 and December 31, 1993,
respectively.
6. Certain amounts have been reclassified in the 1993 consolidated statement
of cash flows to conform with the current year presentation for changes in
bank overdrafts as financing activities. Changes in bank overdrafts were
presented as operating activities prior to 1994.
Bank overdrafts are included in accounts payable and accrued liabilities
in the consolidated balance sheet.
7. Early in the second quarter of 1994 the Company filed a shelf registration
statement with the Securities and Exchange Commission to register
$2.0 billion of debt and other securities. At August 12, 1994, $600
million of long-term notes have been issued under this shelf registration
statement. The proceeds from these notes were used primarily for
the retirement of short-term borrowings.
- 9 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The first half of 1994 saw steady improvement in International Paper's overall
results. Sales for the period totaled $7.0 billion versus $6.9 billion during
the first six months of 1993. Net earnings were $159 million, or $1.28 per
share, up from $141 million and $1.14, respectively, one year ago.
1994 second-quarter net earnings of $87 million or $.70 per share, is a 13%
increase over prior-year second-quarter net earnings of $77 million or $.62
per share. Second-quarter net sales were $3.6 billion, compared with last
year's second-quarter net sales of $3.5 billion and 1994 first-quarter net
sales of $3.4 billion.
Although these increases are relatively modest, we believe that they represent
the beginning of a fundamental turnaround in many of our key markets. As
economic growth, worldwide demand, pricing trends and internal cost-cutting
initiatives gather strength during the second half of this year, we expect
operating results to improve further.
Printing Papers net sales totaled $1.0 billion in each of the second quarters
of 1994 and 1993 and were $2.0 billion in the first half of each year. While
the printing papers business reported a loss in 1994, operating results were
ahead of the prior-year second quarter and the 1994 first quarter. First-half
prices for uncoated papers declined slightly compared to a year ago, but sales
began to improve late in the second quarter in response to low merchant
inventories and rising end-user demand. In Europe, paper product prices and
sales volume have improved in response to the region's economic recovery.
Additionally, pulp profits rose on improved worldwide pricing and coated
papers prices have stabilized, supported by greater U.S. demand. The Company
is optimistic about prospects for continued improvement in printing papers
markets during the second half of this year.
Packaging net sales increased to $825 million in the 1994 second quarter from
$790 million in the 1993 second quarter and were $1.6 billion and $1.5 billion
in the first half of 1994 and 1993, respectively. Demand for containerboard
rose in response to strong domestic and export markets, enabling price
increases late in 1993 and again in the spring and summer of 1994. While
bleached board prices declined compared to first-half 1993 levels, stronger
global demand for consumer packaging should support higher prices in the
months ahead.
Distribution net sales were $820 million and $775 million in the second
quarter of 1994 and 1993, respectively. Net sales for the first half of 1994
were $1.6 billion compared with $1.5 billion in the first half of 1993. Sales
for the second quarter of 1994 were favorably impacted by the acquisition of
JB Papers late in 1993. Operating results were up slightly for the 1994
second quarter compared with the 1993 second quarter due to improved business
conditions in U.S and European markets.
- 10 -
Specialty Products net sales were $640 million and $630 million in the second
quarter of 1994 and 1993, respectively, and were $1.3 billion in the 1994
first half compared with $1.2 billion in the 1993 first half. Specialty
Products earnings continued to increase, up from the 1994 first quarter and
slightly ahead of the second quarter a year ago. The specialty panels
business led the group in sales growth and operating profits, supported by a
strong housing market and robust sales of decorative products.
Forest Products net sales of $445 million for the 1994 second quarter and
$870 million for the six-month period were higher than the $440 million and
$840 million reported in the respective 1993 periods. Steady demand for
curtailed supplies of stumpage and wood products resulted in second-quarter
1994 operating profits that were about even with the prior year. Despite some
moderation in the second quarter of 1994, overall pricing levels for stumpage
and wood products remained high. Harvest and wood products volumes over the
next six months should match first-half levels in a favorable pricing
environment.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaled $319 million for the 1994 six months, up
from $289 million for the comparable 1993 period. Higher earnings coupled
with lower working capital requirements led to the increase.
Investments in capital projects totaled $418 million for the first half of
1994, up from the $373 million spent in the first half of 1993. Additionally,
$299 million was spent to increase investments in affiliated companies.
Dividend payments were $105 million, or $.84 per common share. Debt issued in
1994 included commercial paper and bank notes together with $300 million of
long-term notes used to retire short-term borrowings and additional non-US
borrowings. Early in the 1994 third quarter, an additional $300 million of
long-term notes were issued that will be used to reduce short-term borrowings.
At June 30, 1994, approximately $2.2 billion of borrowings were outstanding
with floating short-term interest rates.
The Company anticipates that cash flow generated from operations, supplemented
as necessary by short- or long-term borrowings, will be adequate to meet
capital expenditures which are expected to exceed $1.1 billion for 1994.
- 11 -
ITEM 3. OTHER FINANCIAL INFORMATION
Sales by Industry Segment
and
Production by Products
(Unaudited)
Sales by Industry Segment (In millions)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Printing Papers $ 1,035 $ 1,020 $ 1,990 $ 2,030
Packaging 825 790 1,580 1,545
Distribution 820 775 1,620 1,520
Specialty Products 640 630 1,265 1,235
Forest Products 445 440 870 840
Less: Intersegment Sales (132) (149) (278) (302)
------- ------- ------- -------
Net Sales $ 3,633 $ 3,506 $ 7,047 $ 6,868
======= ======= ======= =======
</TABLE>
Production by Products
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
---- ---- ----- -----
<S> <C> <C> <C> <C>
Printing Papers (In thousands of tons)
White Papers and Bristols 713 703 1,523 1,417
Coated Papers 250 248 506 490
Market Pulp (A) 406 413 825 795
Packaging (In thousands of tons)
Containerboard 552 541 1,041 1,036
Bleached Packaging Board 279 245 527 508
Industrial Papers 192 137 343 275
Industrial and Consumer Packaging (B) 739 716 1,471 1,406
Forest Products (In millions)
Panels (sq. ft. 3/8" basis) (C) 209 200 416 385
Lumber (board feet) 242 243 475 474
</TABLE>
(A) This excludes market pulp purchases of approximately 700,000 tons annually.
(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.
- 12 -
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, 1993 and the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, a lawsuit
purporting to be a class action suit was filed against the
Company, Dow Chemical and other 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 the Staulkinghead River
and all other 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 is appealing that ruling.
As reported in the Annual Report on Form 10-K for the year
ended December 31, 1993, a summary was given of the number
of cases and amount of claims in the Mississippi dioxin
litigations, and due to various dismissals and new filings
as of that report, there are now 70 cases pending in State
Court and 7 pending in Federal Court, for a total of 77
Mississippi cases as of June 30, 1994. In these cases, both
State and Federal, there are a total of 5,093 plaintiffs
seeking total compensatory damages of approximately $1.0
billion, punitive damages of approximately $8.2 billion and
injunctive relief.
Other Litigation
As reported in the Annual Report on Form 10-K for the year
ended December 31, 1993, the Company had entered into
settlement discussions with the State of New York concerning
the emissions from the power boiler at the Company's
Ticonderoga, New York paper mill. In July 1994 the Company
entered into an Order on Consent with the State, which
settles with the State all outstanding emissions matters
concerning the mill's power boiler. The Order requires the
Company to install new control equipment on the power boiler
in accordance with a schedule and assessed a penalty against
the Company of $175,000, of which $25,000 was suspended so
long as the Company complies with the provisions of the Order.
-13-
The Joplin, Missouri environmental matter reported in the
Annual Report on Form 10-K for the year ended December 31,
1993, was terminated on July 18, 1994, when the Company
entered into a consent decree with the Missouri Attorney
General's office and the Department of Natural Resources,
which resolved an enforcement action alleging hazardous
waste violations at the Company's treated wood plant in
Joplin. The settlement included a civil penalty of $273,500.
Item 4. Submission of Matters to Vote a Security Holders
The Annual Meeting of shareholders of the common stock of
the Company was held on May 10, 1994. The shareholders
voted on*:
(a) the election of three directors to Class III, two
directors to Class I and one director to Class II. The
votes for and those withheld for each nominee were:
Class III
Mr. Georges For: 101,681,725 Withheld: 1,682,966
Mr. McHenry For: 101,737,712 Withheld: 1,626,979
Mr. Noonan For: 101,728,404 Withheld: 1,636,287
Class I
Mr. Gault For: 101,751,653 Withheld: 1,613,038
Mr. Smith For: 101,377,324 Withheld: 1,987,367
Class II
Mrs. Pfeiffer For: 101,737,180 Withheld: 1,627,511
(b) the appointment of Arthur Andersen & Co. as independent
auditors for 1994 was approved and the votes were; for
102,473,642, against 714,224 and abstentions 176,825; and
(c) a management proposal relating to the Amendment of the
Long-Term Incentive Compensation Plan and the votes were;
for 79,993,874, against 21,387,502, abstentions 1,977,887
and broker non-votes 5,428, which constituted a vote "for"
the proposal of more than a majority of all outstanding
shares of common stock entitled to vote at the meeting and
required to pass the proposal under New York law.
__________________________________
* If a specific vote category, for, against, withheld, abstentions
and broker non-votes is omitted the number is zero.
-14-
PART II OTHER INFORMATION (cont'd)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(11) Statement of Computation of Per Share Earnings.
(b) Reports on Form 8-K.
Reports on Form 8-K were filed on April 29, 1994, May
19, 1994, June 9, 1994, August 1, 1994, August 3, 1994 and
August 10, 1994.
-15-
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: August 12, 1994 By /s/ ROBERT C. BUTLER
-------------------------
Robert C. Butler
Senior Vice President
and Chief Financial Officer
Date: August 12, 1994 By /s/ ANDREW R. LESSIN
-------------------------
Andrew R. Lessin
Controller and Chief
Accounting Officer
- 16 -
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
11 International Paper Company Statement of Computation of
Per Share Earnings
(Exhibit 11)
INTERNATIONAL PAPER COMPANY
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(In millions, except per-share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ------------------
1994 1993 1994 1993
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $ 87 $ 77 $ 159 $ 141
Debenture interest savings, net
of taxes, assuming conversion
of convertible subordinated
debentures 2 2 * *
-------- -------- ------- -------
Primary and fully diluted
net earnings $ 89 $ 79 $ 159 $ 141
======== ======== ======= =======
Earnings per common share $ .70 $ .62 $ 1.28 $ 1.14
======== ======== ======= =======
Primary and fully diluted earnings
per share $ .70 $ .62 $ 1.28 $ 1.14
======== ======== ======= =======
PRIMARY AND FULLY DILUTED SHARES
Average shares outstanding 124.6 123.1 124.4 123.0
Shares assumed to be repurchased
using long-term incentive plan
deferred compensation at average
market price (.3) (.3) (.3) (.4)
Shares assumed to be issued upon
exercise of stock options, net
of treasury buyback at average
market price .3 .4 .4 .4
Shares assumed to be issued upon
conversion of convertible
subordinated debentures 2.9 2.9 * *
-------- -------- ------- -------
Primary and fully diluted shares 127.5 126.1 124.5 123.0
======== ======== ======= =======
</TABLE>
- --------------------
The Company reports earnings per common share as the effect of dilutive
securities is less than 3%.
* Convertible subordinated debentures are antidilutive.
