<PAGE>
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, 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 July 31, 1996: 299,948,993 shares.
<PAGE>
INTERNATIONAL PAPER COMPANY
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings -
Three Months and Six Months Ended June 30, 1996 and 1995 3
Consolidated Balance Sheet -
June 30, 1996 and December 31, 1995 4-5
Consolidated Statement of Cash Flows -
Six Months Ended June 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 14-16
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 18
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
* Omitted since no answer is called for, answer is in the negative or
inapplicable.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INTERNATIONAL PAPER COMPANY
Consolidated Statement of Earnings
(Unaudited)
(In millions, except per-share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Sales $5,093 $5,084 $9,891 $9,576
------ ------ ------ ------
Costs and Expenses
Cost of products sold 3,771 3,532 7,327 6,756
Selling and administrative expenses 379 346 726 650
Depreciation and amortization 302 264 565 498
Distribution expenses 237 205 438 384
Taxes other than payroll and income taxes 50 45 97 86
Restructuring and asset impairment charge 515
------ ------ ------ ------
Total Costs and Expenses 4,739 4,392 9,668 8,374
------ ------ ------ ------
Gain on sale of partnership interest 592
------ ------ ------ ------
Earnings Before Interest, Income Taxes and
Minority Interest 354 692 815 1,202
Interest expense, net 137 138 262 242
------ ------ ------ ------
Earnings Before Income Taxes and Minority Interest 217 554 553 960
Provision for income taxes 80 195 243 341
Minority interest expense, net of taxes 38 43 113 57
------ ------ ------ ------
Net Earnings $ 99 $ 316 $ 197 $ 562
====== ====== ====== ======
Earnings per Common Share $ 0.33 $ 1.25 $ 0.69 $ 2.22
====== ====== ====== ======
Average Shares of Common Stock Outstanding 299.1 253.5 284.0 253.1
====== ====== ====== ======
Cash Dividends per Common Share $ 0.25 $ 0.21 $ 0.50 $ 0.42
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
(Unaudited)
(In millions)
June 30, December 31,
1996 1995
Assets -------- ------------
Current Assets
Cash and temporary investments $ 362 $ 312
Accounts and notes receivable, net 2,635 2,571
Inventories 2,788 2,784
Other current assets 330 206
------- -------
Total Current Assets 6,115 5,873
------- -------
Plants, Properties and Equipment, Net 12,931 10,997
Forestlands 3,298 2,803
Investments 1,426 1,420
Goodwill 2,867 1,355
Deferred Charges and Other Assets 1,609 1,529
------- -------
Total Assets $28,246 $23,977
======= =======
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
(Unaudited)
(In millions)
June 30, December 31,
1996 1995
Liabilities and Common Shareholders' Equity -------- ------------
Current Liabilities
Notes payable and current maturities of long-term debt $ 3,889 $ 2,283
Accounts payable 1,326 1,464
Accrued liabilities 1,428 1,116
------- -------
Total Current Liabilities 6,643 4,863
------- -------
Long-Term Debt 5,873 5,946
Deferred Income Taxes 2,810 1,974
Other Liabilities 1,220 980
Minority Interest 1,881 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 - 300.2 shares, 1995 - 263.3 shares 300 263
Paid-in capital 3,395 1,963
Retained earnings 5,684 5,627
------- -------
9,379 7,853
Less: Common stock held in treasury, at cost;
1996 - .3 shares, 1995 - 2.3 shares 10 56
------- -------
Total Common Shareholders' Equity 9,369 7,797
------- -------
Total Liabilities and Common Shareholders' Equity $28,246 $23,977
======= =======
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
INTERNATIONAL PAPER COMPANY
Consolidated Statement of Cash Flows
(Unaudited)
(In millions)
Six Months Ended
June 30,
-------------------
1996 1995
------- -------
Operating Activities
Net earnings $ 197 $ 562
Noncash items
Gain on sale of partnership interest (592)
Restructuring and asset impairment charge 515
Depreciation and amortization 565 498
Deferred income taxes 120 76
Other, net 35 (40)
Changes in current assets and liabilities
Accounts and notes receivable 91 (303)
Inventories 160 (215)
Accounts payable and accrued liabilities (388) 144
Other (14) (31)
------- -------
Cash Provided by Operations 689 691
------- -------
Investment Activities
Invested in capital projects (598) (573)
Mergers and acquisitions, net of cash acquired (1,303) (1,074)
Consolidation of equity investment 241
Other (1) (43)
------- -------
Cash Used for Investment Activities (1,902) (1,449)
------- -------
Financing Activities
Issuance of common stock 73 31
Issuance of debt 1,483 1,343
Reduction of debt (216) (390)
Dividends paid (140) (106)
Other 64 (53)
------- -------
Cash Provided by Financing Activities 1,264 825
------- -------
Effect of Exchange Rate Changes on Cash (1) 10
------- -------
Change in Cash and Temporary Investments 50 77
Cash and Temporary Investments
Beginning of the period 312 270
------- -------
End of the period $ 362 $ 347
======= =======
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
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. 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
June 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, and in October
1995, the Company acquired the inks and adhesives resin business of DSM
located in Niort, France.
All of the 1996 and 1995 acquisitions were accounted for using the purchase
method.
The consolidated balance sheet at June 30, 1996 includes preliminary
purchase price allocations for Micarta, the inks and adhesives resin
business of DSM, and Federal. Final allocations for these acquisitions will
be completed in 1996, except for Federal, which will be completed in early
1997.
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.
7
<PAGE>
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. All actions are
planned to be completed before the end of 1997.
5. In the third quarter of 1995, International Paper Capital Trust (the
"Trust") issued $450 million of International Paper-obligated mandatorily
redeemable preferred securities. The Trust'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
$12 million were paid during the six months ended June 30, 1996.
6. Inventories by major category include:
June 30, December 31,
1996 1995
-------- ------------
(In millions)
Raw materials $ 499 $ 591
Finished pulp, paper and packaging products 1,417 1,340
Finished lumber and panel products 219 223
Operating supplies 386 343
Other 267 287
------ ------
Total $2,788 $2,784
====== ======
7. Interest payments made during the six months ended June 30, 1996 and 1995
were $336 million and $263 million, respectively, including payments of $174
million and $149 million for the 1996 and 1995 second quarters. Interest
income for the six months ended June 30, 1996 and 1995 was $24 million and
$19 million, respectively. Income tax payments made during the six months
ended June 30, 1996 and 1995 were $174 million and $209 million,
respectively.
8. Temporary investments with a maturity of three months or less are treated as
cash equivalents and are stated at cost. Temporary investments totaled $232
million and $184 million at June 30, 1996 and December 31, 1995,
respectively.
9. Accumulated depreciation was $9.1 billion at June 30, 1996 and $8.4 billion
at December 31, 1995. The allowance for doubtful accounts was $113 million
at June 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.
8
<PAGE>
11. The following unaudited pro forma financial information for the three months
and six months ended June 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 Six Months
(In millions, except Ended Ended
per-share amounts) June 30, June 30,
----------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
(Unaudited) (Unaudited)
Net Sales $5,093 $5,768 $10,205 $11,247
====== ====== ======= =======
Net Earnings $ 99 $ 368 $ 183 $ 656
====== ====== ======= =======
Earnings Per Common Share $ 0.33 $ 1.26 $ 0.61 $ 2.25
====== ====== ======= =======
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
International Paper's second-quarter 1996 net sales of $5.1 billion were about
even with the 1995 second-quarter and were ahead of first-quarter 1996 net
sales of $4.8 billion. First-half 1996 net sales increased to $9.9 billion
from $9.6 billion in the 1995 first half.
Second-quarter 1996 net earnings of $99 million or $.33 per share declined
approximately 70% from 1995 second-quarter net earnings of $316 million or $1.25
per share. Second-quarter 1996 earnings were also below 1996 first-quarter
earnings of $124 million or $.46 per share before the first-quarter 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.
First-half 1996 net earnings were $197 million or $.69 per share compared with
$562 million or $2.22 per share in the 1995 first half. Before the first-quarter
unusual items, 1996 first-half earnings were $223 million or $.79 per share,
about a 60% decline from the 1995 first-half.
Second-quarter 1996 earnings declined from the 1995 second quarter primarily due
to sharply lower prices experienced by the pulp, printing papers and packaging
businesses. Earnings also declined from the 1996 first quarter, although demand
is continuing to improve across all major product lines. Inventories for most
product lines are approaching normal levels and the price erosion experienced
during the past year is moderating. Price increases for pulp were announced in
June and July.
The consolidated results of operations include Federal Paper Board (Federal)
since March 12, 1996 and Carter Holt Harvey since May 1, 1995. About 19% of
second-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. The following segment discussions are based on results before
the first-quarter unusual items.
Printing Papers 1996 second-quarter net sales decreased to $1.4 billion from
$1.6 billion in the 1995 second quarter. Carter Holt Harvey and Federal
contributed about 14% of total segment sales for the 1996 second quarter.
First-half 1996 sales of $2.8 billion were below first-half 1995 sales of $3.1
billion. Operating profits were significantly below the 1995 second quarter and
the 1996 first quarter primarily due to weak pulp and European paper markets.
However, demand for pulp and paper strengthened considerably and pulp and some
U.S. paper prices began to recover during the second quarter.
Packaging 1996 second-quarter net sales increased to $1.3 billion from $1.2
billion in the 1995 second quarter. Second-quarter sales before contributions
from Carter Holt Harvey and Federal would have been about 15% below the 1995
second quarter. Operating profits declined sharply from the 1995 second quarter
and were down moderately from the 1996 first quarter primarily due to lower
containerboard and bleached board prices. Second-quarter 1996 bleached board
results were favorably impacted by contributions from Federal.
Distribution net sales of $1.2 billion for the 1996 second quarter were below
1995 second-quarter net sales of $1.3 billion. First-half 1996 net sales of $2.3
billion were below 1995 first-half sales of $2.5 billion. Operating profits
declined from the 1995 second quarter reflecting lower prices for printing
papers, but increased over the 1996 first quarter as ResourceNet International,
the Company's North American distribution business, benefited from higher
margins.
10
<PAGE>
Specialty Products 1996 second-quarter net sales increased 9% to $885 million
from $815 million in the 1995 second quarter. Before Carter Holt Harvey's
contribution, second quarter sales would have increased about 5% over the 1995
second quarter. First-half 1996 net sales increased to $1.7 billion from $1.5
billion in the 1995 first half. Operating profits were ahead of both the 1995
second quarter and the 1996 first quarter reflecting improvements across most
major businesses. Building materials businesses were particularly strong in the
current-year second quarter.
Forest Products 1996 second-quarter net sales increased 35% to $695 million from
$515 million in the 1995 second quarter. However, before contributions from
Carter Holt Harvey and Federal, 1996 second-quarter net sales would have been
about even with the 1995 second quarter. First-half 1996 net sales increased 41%
to $1.3 billion. Operating earnings improved over the 1995 second quarter and
the 1996 first quarter. Wood products demand continued to be strong based in
part on good housing starts. Forestlands sales and earnings were ahead of the
1995 second quarter and the 1996 first quarter partially due to contributions
from acquisitions.
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 June 30,
1996 consolidated balance sheet includes the balances of Federal. As a result of
this merger, Federal contributed about 9% of 1996 second-quarter consolidated
net sales and between 4% 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 June 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 second quarter. Carter Holt Harvey also
contributed from 4% to 13% of each of the components of consolidated costs and
expenses. The consolidated balance sheets at December 31, 1995 and June 30, 1996
include the balances of Carter Holt Harvey.
The consolidated balance sheet at June 30, 1996 reflects a preliminary purchase
price allocation for Federal.
11
<PAGE>
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 $689 million for the 1996 first half was
about even with the $691 million reported for the 1995 first half even though
earnings declined $365 million. Lower earnings for the 1996 first half were
offset by higher noncash expenses and a much smaller increase in working capital
requirements. Working capital requirements for the 1995 first half were $405
million compared with $151 million for the 1996 six months.
Investments in capital projects, including spending by Carter Holt Harvey and
Federal, totaled $598 million for the 1996 six months compared with $573 million
reported for the 1995 first half. 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 six-month period include debt issuances
totaling $1.5 billion that consist primarily of short-term borrowings used to
acquire Federal common shares and $250 million of 7% medium-term notes used
primarily to reduce short-term borrowings. Dividend payments of $140 million or
$.50 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.
12
<PAGE>
In July, the Company issued approximately $260 million of medium-term notes with
interest rates ranging from 6.68% to 7.17%. The proceeds from these notes will
be used primarily to retire short-term borrowings.
Carter Holt Harvey recently announced that it would acquire Forwood Products,
the timber processing business of the South Australian Government, for
approximately $100 million. The sale is expected to be completed during the
third quarter of 1996.
OTHER
Minority interest expense for the 1996 first half increased significantly over
the comparable 1995 period due to the consolidation of Carter Holt Harvey and
the minority interest holders' share of the gain on the sale of an interest in a
forestlands partnership.
The effective income tax rate increased from about 35.5% in the 1995 first half
to about 44% in the 1996 first half. The reasons for the increase related to
components of the restructuring and asset impairment charge that are not
deductible for tax purposes and the statutory tax rate on the gain on the sale
of an interest in a forestlands partnership. The effective income tax rate for
the 1996 first half before the first-quarter unusual items was approximately
36%.
Scitex Corporation Ltd. (Scitex), an equity investee of International Paper, has
reported a net loss of $6 million on revenues of $190 million for its second
quarter ended June 30, 1996. Commenting on the second-quarter results, the
Scitex earnings release contained the following statement related to the
performance of and the market conditions experienced by its graphic arts
business. "The industry is consolidating and most participants are experiencing
lower revenues and gross margins". As a result, Scitex said that it is
developing a detailed plan to restructure its prepress business that will be
finalized before the end of the third quarter. International Paper's share of
Scitex's reported results, including any restructuring charges that may be
recorded, would be approximately 13%.
13
<PAGE>
ITEM 3. OTHER FINANCIAL INFORMATION
Financial Information by Industry Segment
(Unaudited)
(In millions)
Net Sales by Industry Segment
Three Months Six Months
Ended Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
------ ------ ------ ------
Printing Papers $1,430 $1,600 $2,785 $3,075
Packaging 1,285 1,160 2,420 2,115
Distribution 1,155 1,290 2,340 2,485
Specialty Products 885 815 1,745 1,530
Forest Products 695 515 1,270 900
Less: Intersegment Sales (357) (296) (669) (529)
------ ------ ------ ------
Net Sales $5,093 $5,084 $9,891 $9,576
====== ====== ====== ======
Operating Profit by Industry Segment
Six Months Ended June 30,
-----------------------------------
1996
-------------------------
Before After
Unusual Unusual Unusual
Items Items(1) Items 1995
------- ------- ------- ------
Printing Papers $ 117 $ (35) $ 82 $ 495
Packaging 248 (42) 206 345
Distribution 48 48 63
Specialty Products 155 (370) (215) 135
Forest Products 178 535 713 162
----- ----- ----- ------
Operating Profit 746 88 834 1,200
Corporate items, net (8) (11) (19) 2
Interest expense, net (262) (262) (242)
Provision for income taxes (172) (71) (243) (341)
Minority interest expense, net of taxes (81) (32) (113) (57)
----- ----- ----- ------
Net Earnings $ 223 $ (26) $ 197 $ 562
===== ===== ===== ======
(1) Includes a $515 million pre-tax restructuring and asset impairment charge
($362 million after taxes or $1.35 per share) and a $592 million pre-tax
gain ($336 million after taxes and minority interest expense or $1.25 per
share) on the sale of a partnership interest.
14
<PAGE>
ITEM 3: OTHER FINANCIAL INFORMATION - Continued
Assets by Industry Segment
June 30, December 31,
1996 1995
------- -----------
Printing Papers $ 8,690 $ 7,120
Packaging 6,100 4,150
Distribution 1,395 1,455
Specialty Products 3,455 3,640
Forest Products 5,160 4,445
Equity Investments 1,270 1,290
Corporate 2,176 1,877
------- -------
Assets $28,246 $23,977
======= =======
Financial Information by Geographic Area
(Unaudited)
(In millions)
Net Sales by Geographic Area
Six Months Ended
June 30, 1996
----------------
United States $7,104
Europe 1,783
Pacific Rim 1,106
Other 84
Less: Intergeographic Sales (186)
------
Net Sales $9,891
======
Operating Profit by Geographic Area
Six Months Ended June 30, 1996
------------------------------
Before Unusual After
Unusual Items Items (1) Unusual Items
------------- --------- -------------
United States $637 $ 306 $ 943
Europe (1) (218) (219)
Pacific Rim 107 107
Other 3 3
---- ----- -----
Operating Profit $746 $ 88 $ 834
==== ===== =====
(1) Includes a $515 million pre-tax restructuring and asset impairment
charge ($362 million after taxes or $1.35 per share) and a $592
million pre-tax gain ($336 million after taxes and minority interest
expense or $1.25 per share) on the sale of a partnership interest.
15
<PAGE>
ITEM 3. OTHER FINANCIAL INFORMATION-Continued
Assets by Geographic Area
June 30, 1996
----------------
United States $16,010
Europe 4,185
Pacific Rim 4,410
Other 195
Equity Investments 1,270
Corporate 2,176
-------
Assets $28,246
=======
Production by Products
Three Months Six Months
Ended June 30, Ended June 30,
---------------- -------------------
1996(D) 1995(F) 1996(E)(F) 1995(F)
------- ------- ---------- -------
Printing Papers (In thousands of tons)
White Papers and Bristols 979 846 1,812 1,695
Coated Papers 254 310 500 632
Market Pulp (A) 496 437 900 864
Newsprint 24 22 46 43
Packaging (In thousands of tons)
Containerboard 657 615 1,309 1,158
Bleached Packaging Board 511 290 854 555
Industrial Papers 155 161 315 321
Industrial and Consumer Packaging (B) 857 803 1,631 1,582
Specialty Products (In thousands of tons)
Tissue 28 17 53 17
Forest Products (In millions)
Panels (sq. ft. 3/8" basis) (C) 302 255 588 461
Lumber (board feet) 450 274 798 492
(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.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
MASONITE
As reported in the Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, a lawsuit 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. The judge has ordered that a trial of the single
issue of inherent product defect be conducted on August 19, 1996. The Company
is preparing for trial and will vigorously defend its position. The Company
does not beleive that this matter will have a materially adverse effect on its
consolidated financial position or result of operations.
As reported in the Annual Report on Form 10-K for the year ended December 31,
1995, in 1989, Masonite modified a production line to make a new product at a
facility in Ukiah, California. The facility obtained the necessary Authority to
Construct permits from the appropriate State authority. In May, 1992, the EPA,
Region 9, issued an order alleging that an additional Prevention of Significant
Deterioration permit was required for the new product line. On January 18,
1995, a consent decree resolving this matter was lodged with the U.S. District
Court for the Northern District of California, and was entered on April 24,
1996.
DIOXIN LITIGATION
Louisiana
The Company reported in the Annual Report on Form 10-K for the year ended
December 31, 1995, that on June 11, 1993, a lawsuit purporting to be a class
action was filed by individuals against the Company, Dow Chemical and individual
employees of both companies in the 18th Judicial District of Louisiana seeking
compensatory and punitive damages of an unspecified amount, alleging that the
Company polluted Staulkinghead Creek and all waterways south thereof, by
discharging chemicals, including dioxin, from its Bestrop, Louisiana mill. On
July 2, 1996, the Federal District Judge for the Middle District of Louisiana
(the court to which the case had been removed) denied class certification and
ordered that the case proceed forward with the single named plaintiff. Only
claims for property damage remain.
Mississippi
The Company reported in its Annual Report on Form 10-K for the year ended
December 31, 1995, that in November, 1990, the Company was named as a defendant
in 88 lawsuits filed in state or federal court in Mississippi alleging that it
had polluted and damaged the Pascagoula, Leaf and Escatawpa Rivers by releasing
dioxin and over 40 other chemicals into those rivers.
Over the past five years, as a result of various rulings dismissing
plaintiffs and cases, all of these matters have ended and there are no
cases remaining in Mississippi.
Since the Louisiana and Mississippi litigation involving dioxin is no longer
considered to have a materially adverse effect on the financial position of the
Company, this is the last time that these dioxin matters will be reported.
17
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of shareholders of the common stock of the Company was held
on May 9, 1996. The shareholders voted on*:
(a) the election of one director to Class I and five directors to Class II. The
votes for and those withheld for each nominee were:
Class I
Mr. Kennedy For: 253,832,108 Withheld: 4,850,797
Class II
Mr. Butcher For: 254,312,985 Withheld: 4,369,920
Mr. Graham For: 254,312,802 Withheld: 4,370,103
Mrs. Pfeiffer For: 254,356,367 Withheld: 4,326,538
Mr. Pratt For: 254,317,335 Withheld: 4,365,570
Mr. C. W. Smith For: 253,839,285 Withheld: 4,843,620
(b) the appointment of Arthur Andersen LLP as independent auditors for 1996 was
approved and the votes were: for 256,089,811, against 2,156,714, and
abstentions 436,380.
- ------------
* If a specific vote category for, against withheld, abstentions and broker
no-votes is omitted, the number is zero.
18
<PAGE>
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
Reports on Form 8-K were filed on May 31, 1996, June 3, 1996, and July 5,
1996.
19
<PAGE>
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 14, 1996 By /s/ MARIANNE M. PARRS
---------------------
Marianne M. Parrs
Senior Vice President
and Chief Financial Officer
Date: August 14, 1996 By /s/ ANDREW R. LESSIN
--------------------
Andrew R. Lessin
Vice President,
Controller and Chief
Accounting Officer
20
<PAGE>
(Exhibit 11)
INTERNATIONAL PAPER COMPANY
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(In millions, except per-share amounts)
Three Months Six Months
Ended Ended
June 30, June 30,
------------- -------------
1996 1995 1996 1995
----- ----- ----- -----
Net earnings $ 99 $ 316 $ 197 $ 562
Debenture interest savings, net of taxes,
assuming conversion of convertible
subordinated debentures 2 4
----- ----- ----- -----
Primary net earnings 99 318 197 566
Reduction in minority interest expense, net of
taxes, assuming conversion of preferred
securities of subsidiary * *
----- ----- ----- -----
Fully diluted net earnings $ 99 $ 318 $ 197 $ 566
===== ===== ===== =====
Earnings per common share $0.33 $1.25 $0.69 $2.22
===== ===== ===== =====
Primary earnings per share $0.33 $1.22 $0.69 $2.18
===== ===== ===== =====
Fully diluted earnings per share $0.33 $1.22 $0.69 $2.18
===== ===== ===== =====
PRIMARY SHARES
Average shares outstanding 299.1 253.5 284.0 253.1
Shares assumed to be repurchased using
long-term incentive plan deferred compensation
at average market price (0.7) (0.6) (0.7) (0.6)
Shares assumed to be issued upon exercise of
stock options, net of treasury buyback at
average market price 1.2 1.3 1.2 1.2
Shares assumed to be issued upon conversion of
convertible subordinated debentures 5.8 5.8
----- ----- ----- -----
Primary shares 299.6 260.0 284.5 259.5
===== ===== ===== =====
FULLY DILUTED SHARES
Average shares outstanding 299.1 253.5 284.0 253.1
Shares assumed to be repurchased using
long-term incentive plan deferred compensation
at period-end market price (if higher than
average market price) (0.7) (0.6) (0.7) (0.6)
Shares assumed to be issued upon exercise of
stock options, net of treasury buyback at
period-end market price (if higher than
average market price) 1.2 1.8 1.2 1.8
Shares assumed to be issued upon conversion of
preferred securities of subsidiary * *
Shares assumed to be issued upon conversion of
convertible subordinated debentures 5.8 5.8
----- ----- ----- -----
Fully diluted shares 299.6 260.5 284.5 260.1
===== ===== ===== =====
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.
21
<PAGE>
(Exhibit 12)
<TABLE>
<CAPTION>
INTERNATIONAL PAPER COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
(Unaudited)
Six Months
For the Years Ended December 31, Ended June 30,
TITLE 1991 1992 1993 1994 1995 1995 1996
- -------------------------------------------- -------- ------ ------ -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
A) Earnings before income taxes, minority
interest, extraordinary item and
accounting changes $ 693.0 $226.0 $538.0 $ 715.0 $2,028.0 $ 960.0 $553.0
B) Less: Minority interest expense, net
of taxes (42.0) (15.0) (36.0) (47.0) (156.0) (57.0) (113.0)
C) Add: Fixed charges excluding
capitalized interest 380.3 325.3 365.3 412.3 592.9 279.0 324.1
D) Add: Amortization of previously
capitalized interest 9.9 9.9 12.2 12.8 13.0 6.5 9.1
E) Less: Equity in undistributed
earnings of affiliates (10.8) (19.1) (25.9) (49.1) (94.5) (44.0) 8.3
-------- ------ ------ -------- -------- -------- ------
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 $1,144.5 $781.5
======== ====== ====== ======== ======== ======== ======
Fixed Charges
G) Interest and amortization of debt expense $ 351.1 $297.1 $334.5 $ 371.0 $ 542.3 $ 260.7 $286.7
H) Interest factor attributable to rentals 29.2 28.2 30.8 41.3 40.0 18.3 25.6
I) Preferred dividends of subsidiary 10.6 11.8
J) Capitalized interest 36.4 42.0 12.2 18.0 58.0 17.1 29.7
-------- ------ ------ -------- -------- -------- ------
K) Total fixed charges $ 416.7 $367.3 $377.5 $ 430.3 $ 650.9 $ 296.1 $353.8
======== ====== ====== ======== ======== ======== ======
L) Ratio of earnings to fixed charges 2.47 1.44 2.26 2.43 3.66 3.87 2.21
======== ====== ====== ======== ======== ======== ======
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 362
<SECURITIES> 0
<RECEIVABLES> 2,748
<ALLOWANCES> 113
<INVENTORY> 2,788
<CURRENT-ASSETS> 6,115
<PP&E> 22,027
<DEPRECIATION> 9,096
<TOTAL-ASSETS> 28,246
<CURRENT-LIABILITIES> 6,643
<BONDS> 5,873
0
0
<COMMON> 300
<OTHER-SE> 9,069
<TOTAL-LIABILITY-AND-EQUITY> 28,246
<SALES> 9,891
<TOTAL-REVENUES> 9,891
<CGS> 7,327
<TOTAL-COSTS> 9,668
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262
<INCOME-PRETAX> 553
<INCOME-TAX> 243
<INCOME-CONTINUING> 197
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
