SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
March 8, 1996
----------------------------------------
Date of Report (Date of Earliest Event Reported)
INTERNATIONAL PAPER COMPANY
---------------------------------
(Exact name of Registrant as specified in its charter)
New York 1-3157 13-0872805
- -------------- ----------- --------------
(State of (Commission (IRS Employer
Incorporation) File) Identification
Number)
Two Manhattanville Road, Purchase, NY 10577
-------------------------------------------
(Address of Principal executive offices)
914-397-1500
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(Telephone No.)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
N/A
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
N/A
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
N/A
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
N/A
ITEM 5. OTHER EVENTS
N/A
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS
N/A
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Audited Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations for the
year ended December 31, 1995 are being filed as Exhibit 99.
(b) Pro Forma Financial Information:
N/A
(c) Exhibits:
2
(23) Consent of Independent Public Accountants.
(27) Financial Data Schedule.
(99) Audited Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations for the
year ended December 31, 1995.
ITEM 8. CHANGES IN FISCAL YEAR
N/A
3
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTERNATIONAL PAPER COMPANY
(Registrant)
Date: March 8, 1996 /s/ SYVERT E. NERHEIM
Purchase, NY ----------------------------
Syvert E. Nerheim
Assistant Secretary
4
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants we hereby consent to the incorporation of our
report included in this Form 8-K, into the Company's previously filed
Registration Statement File Nos. 33-52945, 33-32527, 33-44855, 33-48167,
33-51447, 2-86945, 2-57646, 33-11117, 33-38133, 33-50438, 33-58099, 33-61335,
033-62283 and 333-843.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
New York, New York,
March 8, 1996
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Record net sales of $19.8 billion in 1995, an increase of 32% over last year,
reflected very strong market conditions, especially early in the year. Of the
increase, $1.4 billion or 28% reflects the consolidation of Carter Holt
Harvey beginning in May 1995. Both strong demand and the Company's continuing
strategy to grow in international markets resulted in export and
international sales of $7.1 billion in 1995, about one-third of consolidated
net sales. Excluding Carter Holt Harvey, such sales totaled $5.7 billion, up
from $4.5 billion in 1994 and $4.0 billion in 1993.
Net income for the year totaled $1.2 billion or $4.50 per share,
substantially greater than the 1994 figure of $357 million or $1.43 per share
($422 million or $1.69 per share before an accounting change) and $289
million or $1.17 per share in 1993 ($314 million or $1.27 per share before
the revaluation of deferred income taxes). The 1995 results reflected
substantially higher operating profit for our printing papers and
packaging segments. Strong demand in 1995 had a positive impact on sales
prices for most of the Company's products, particularly business papers, pulp
and containerboard. However, demand slipped in the latter part of 1995 in
response to a slowdown in world economies and inventory reductions by customers.
In early 1996, we have experienced continuing weakness in the markets
for our major product lines, as customers continue to reduce inventories. We
view this weakness as temporary, until inventory levels come down. If strong
economic growth resumes, demand should rebound.
MERGER WITH FEDERAL PAPER BOARD
In November 1995, International Paper and Federal Paper Board, a diversified
forest and paper products company with sales of $1.9 billion in 1995,
announced that they had agreed to merge. In January 1996, the U.S. Department
of Justice cleared the way for the proposed merger. The transaction, which is
valued at approximately $3.5 billion including assumption of debt, is
expected to close late in the first quarter of 1996. See the discussion of
the merger in Note 6 to the consolidated financial statements on page 58.
CASH FLOW FROM OPERATIONS
Cash flow from operations improved substantially to $2.2 billion in 1995 from
$1.2 billion in 1994 and $928 million in 1993. The increase was primarily the
result of significantly higher earnings. Depreciation and amortization
expense, excluding depletion, also increased to $1.0 billion in 1995 from
$885 million in 1994 ($923 million before the change in accounting for
start-up costs) and $898 million in 1993. Deferred income taxes were $146
million, with the increase over 1994 primarily resulting from the use of
certain tax credits in 1995.
INVESTMENT ACTIVITIES
Capital spending was $1.5 billion in 1995 (including $90 million for Carter
Holt Harvey), up from $1.1 billion in 1994 and $954 million in 1993. The
primary emphasis for capital investment continues to be improving
productivity, cost reduction and strategic expansions. Spending in 1995
included completion of an uncoated papers machine at the Riverdale mill in
Selma, Ala., and a recycled linerboard machine in Mansfield, La.; construction
of an oriented strand board plant in Jefferson, Texas, and a spunbond nonwovens
plant in Mexico; and the rebuilding of a packaging board machine in Poland.
The Company has budgeted capital spending of approximately $1.4 billion in 1996.
Major projects will include the conversion of a paper machine from uncoated to
coated freesheet at the Androscoggin mill in Jay, Me., and construction of a
molded door facings facility in Ireland and a container plant in the United
Kingdom.
FINANCIAL REVIEW
44
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CAPITAL SPENDING BY SEGMENT
In millions for the years
ended December 31 1995 1994 1993
---- ---- ----
Printing Papers $ 375 $ 447 $ 429
Packaging 531 205 181
Distribution 18 16 13
Specialty Products 251 270 155
Forest Products 271 135 145
------ ------ ------
Subtotal 1,446 1,073 923
Corporate 72 41 31
------ ------ ------
Total $1,518 $1,114 $ 954
====== ====== ======
In late April 1995, the Company acquired approximately 26% of the
outstanding shares of Carter Holt Harvey, bringing International Paper's
ownership of the New Zealand-based forest and paper products company to just
over 50%. The Carter Holt Harvey share purchases were financed with borrowings
totaling $1.1 billion. The Company's financial statements reflect the
consolidation of Carter Holt Harvey effective May 1, 1995. Prior to May, the
equity accounting method was used to account for the investment. International
Paper's initial investment in Carter Holt Harvey of 16% was made in 1991 and
was followed by an additional 8% investment in 1994.
The Company also acquired the following in 1995: in January, the assets
of paper distributors Seaman-Patrick Paper Company and Carpenter Paper
Company, by issuing approximately 1 million (adjusted for the two-for-one
stock split) shares of common stock; in September, Micarta, the high-pressure
laminates business of Westinghouse; and in October, the inks and adhesives
resin business of DSM located in France.
In 1994, in addition to the investment in Carter Holt Harvey discussed
above, the Company acquired additional stock of Zanders Feinpapiere AG and
completed a merger with Kirk Paper Corporation, a California-based paper
distributor. In 1993, the Company made several small acquisitions in its
distribution and specialty products businesses.
FINANCING ACTIVITIES
In November 1995, the Company issued $750 million of five-year debentures, and
a non-U.S. subsidiary of the Company issued $300 million of U.S. dollar-
denominated notes that mature in 7 and 20 years, respectively. In July,
International Paper Capital Trust, a wholly owned subsidiary of the Company,
issued $450 million of preferred securities that are convertible into
International Paper common stock. Also in July, $200 million of 5 3/4%
convertible debentures were called by the Company and converted into
approximately 5.8 million shares of International Paper common stock. In each
of the years 1994 and 1993, the Company issued $600 million of long-term debt
with maturities ranging from 10 to 30 years. The proceeds of all of the
transactions described above were used primarily to reduce short-term
borrowings, to secure favorable long-term interest rates and for general
corporate purposes.
In July, our Board of Directors authorized a two-for-one stock split,
which was effective in September 1995, and a 19% increase in the common
stock dividend, raising the quarterly per share rate from $.21 to $.25.
Dividend payments were $237 million in 1995, $210 million in 1994 and $208
million in 1993.
CAPITAL RESOURCES OUTLOOK FOR 1996
The Company's balance sheet supports an investment-grade debt rating,
allowing ready access to financial markets. The debt-to-capital ratio was 39%
in 1995 compared with 41% in 1994 and 39% in 1993. The Company anticipates
that cash flow from operations, supplemented as necessary by short- or
long-term borrowings, will be adequate to fund its capital spending, working
capital and dividend requirements during 1996.
We anticipate that our merger with Federal Paper Board will close in
March 1996. At such time, International Paper will issue shares of common
stock with a market value
FINANCIAL REVIEW
45
<PAGE>
of approximately $1.4 billion and $1.3 billion of debt. Also, about $800
million of Federal's long-term debt will be assumed.
Also, IP Timberlands, Ltd., of which International Paper is the
majority owner, presently expects a subsidiary partnership that owns
approximately 300,000 acres of forestlands located in Oregon and Washington
to complete a sale of certain of its equity interests. In addition to this
sale, the partnership will borrow additional amounts. Proceeds of the sale
and borrowings will be used by the partnership principally to retire $750
million of its present indebtedness. The partnership expects to have a
capitalized value of almost $1.0 billion.
OTHER FINANCIAL STATEMENT ITEMS
Net interest expense totaled $493 million in 1995, increasing from $349
million in 1994 and $310 million in 1993. The consolidation of Carter Holt
Harvey accounted for about one-third of the increase in net interest expense
in 1995. The balance of the increase was the result of higher average
borrowing levels during 1995, largely due to short-term debt used to acquire
the additional shares of Carter Holt Harvey.
The consolidation of Carter Holt Harvey increased components of costs
and expenses in amounts ranging from 13% to 72%. This was also the primary
reason for the increases in forestlands, goodwill and the related accumulated
amortization, long-term debt and minority interest on the Company's consolidated
balance sheet. Such consolidation also contributed about 60% of the increase
in net property, plant and equipment, and to a lesser extent, to the increases
in working capital components.
In 1994, investments included primarily Scitex and Carter Holt Harvey.
In 1995, investments included primarily Scitex and Carter Holt Harvey's
investment in COPEC.
The effective tax rate was 35.5% of pre-tax income in 1995, 33% in 1994
and 40% in 1993 (35% before the revaluation of deferred taxes to reflect the
increase in the federal tax rate). We do not expect any significant change in
the effective tax rate for 1996. During 1994 and 1993, the Company recognized
tax benefits of $33 million and $55 million, respectively, related to losses
at certain non-U.S. locations. No net additional tax benefits were recognized
in 1995. We expect that these tax benefits will be realized.
ACCOUNTING CHANGE
Effective January 1, 1994, International Paper changed its method of
accounting for start-up costs to expense them as incurred. Our policy prior
to 1994 had been to capitalize start-up costs on major projects and amortize
them over a five-year period. The accounting change resulted in a one-time
after-tax charge of $75 million or $.30 per share. However, it also increased
1994 earnings by $10 million or $.04 per share for a net reduction in 1994
earnings of $65 million or $.26 per share.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (SFAS No. 121). The statement requires that such assets be
reviewed for impairment whenever events or changes in circumstances indicate
that their carrying value may not be recoverable and that such assets be
reported at the lower of their carrying amount or fair value. The Company will
adopt the provisions of the statement in the first quarter of 1996 and
estimates that adoption will result in a pre-tax charge to earnings of about
$80 million. Also in 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued. This statement,
effective for fiscal years beginning after December 15, 1995, requires
disclosure of
FINANCIAL REVIEW
46
<PAGE>
the pro forma impact on net earnings and earnings per share of the compensation
cost that would have been recognized if the fair value of the Company's
stock-based awards were recorded in the income statement. The Company will
adopt the disclosure provisions in 1996.
LEGAL AND ENVIRONMENTAL ISSUES
Environmental capital expenditures totaled $108 million in 1995, $95 million
in 1994 and $100 million in 1993. By the end of 1996, International Paper will
have successfully converted all 13 of its U.S. and European bleached mills to
elemental chlorine-free technology.
In 1993, the EPA released its "Cluster Rule" proposal to coordinate and
integrate the requirements for air emissions and water discharges for the
pulp and paper industry. The rules were to be effective three years after
their final promulgation. Separately, the EPA has now promulgated regulations
implementing the Great Lakes Initiative (GLI) covering water quality and
permitting implementation procedures in states bordering the Great Lakes.
Future spending will be heavily influenced by the final Cluster Rule and, in
the case of the GLI, by how the individual Great Lakes states implement the
program. In 1994, the Company estimated future capital spending to comply with
the Cluster Rule and GLI to be between $700 million and $1.5 billion, depending
upon the methods allowed by the final regulations to meet requirements. While
there have been ongoing discussions with the EPA concerning these rules, there
have as yet been no publicly announced changes to the proposed Cluster Rule, and
thus these estimates remain valid at this time. Nevertheless, there is reason to
expect that proposed changes will soon be announced that will permit the
downward adjustment of these estimates. It is also expected that implementation
will occur over a longer time frame than the three years in the current
proposal. In 1994, we estimated that annual operating costs, excluding
depreciation and the cost of capital, would increase between $60 million and
$120 million when the proposed regulations were fully implemented. This estimate
will also be adjusted to the extent that the EPA makes moderating changes.
The Company paid fines and penalties related to environmental issues of
$630,000, $960,000 and $400,000 for the years 1995, 1994 and 1993,
respectively. Reviews are in progress by federal and state environmental
agencies at certain facilities to determine the Company's compliance with
environmental laws and regulations. Currently, the U.S. Attorney's Office for
the Southern District of Mississippi and EPA Region IV are investigating
Arizona Chemical Company, a wholly owned subsidiary of the Company, through
a federal grand jury. Arizona Chemical has been informed that it is a subject
of the investigation, which is centered on environmental issues at its
facilities in Gulfport and Picayune, Miss. Arizona Chemical is cooperating
with the investigation, but we are unable at this time to predict the outcome
of that investigation. However, we would not expect fines from this or any
other environmental investigation now under way to have a material adverse
effect on the Company's future financial condition or results of operations.
International Paper is also a party to a number of other environmental
remediation actions under various federal and states laws, including the
Comprehensive Environmental Response, Compensation and Liability Act. Related
costs are recorded in the financial statements when probable and reasonably
estimable. Completion of these actions is not expected to have a material
adverse effect on the Company's future financial condition or results of
operations.
Further details with respect to these cases can be found in the
Company's quarterly
FINANCIAL REVIEW
47
<PAGE>
reports on Form 10-Q and annual report on Form 10-K filed with the Securities
and Exchange Commission. Copies can be obtained as indicated on page 72 of
this report.
For a discussion of legal issues, see Note 10 to the consolidated
financial statements on page 60, and Item 3 (Legal Proceedings) of the annual
report on Form 10-K. While any proceeding or litigation has the element of
uncertainty, the Company believes that the outcome of any lawsuit or claim
that is pending or threatened, or all of them combined, will not have a
material adverse effect on its consolidated financial position or results of
operations.
SUBSEQUENT EVENT
On February 13, 1996, the Board of Directors approved a series of actions
that will require a pre-tax charge in the first quarter of 1996 of about $500
million ($350 million after taxes or $1.35 per share). These actions are
forecast to generate pre-tax savings of $70 million ($.17 per share) during
1996 and $100 million ($.25 per share) by 1997.
The charge includes $340 million for the write-off and impairment of
certain assets (about $80 million of which resulted from the application of
SFAS No. 121, as discussed on page 46). In addition, the charge consists of
cash costs of $115 million for severance and $45 million for exit costs,
including the cancellation of leases. Approximately half of the charge is
associated with the imaging products business.
EFFECTS OF INFLATION
General inflation has had minimal impact on International Paper's operating
results in the last three years. Sales prices and volumes are more strongly
influenced by supply-and-demand factors in specific markets and by exchange
rate fluctuations than by inflationary factors.
FINANCIAL REVIEW BY SEGMENT
Management's Discussion and Analysis of results of operations by industry
segment is set forth on pages 10 (Printing Papers), 18 (Packaging), 24
(Distribution), 34 (Specialty Products) and 40 (Forest Products), and is
incorporated herein by reference.
FINANCIAL REVIEW
48
<PAGE>
PRINTING PAPERS FINANCIAL REVIEW
Printing Papers achieved sales of $6.2 billion in 1995, an increase of 40%
from 1994 sales of $4.4 billion. Sales in 1993 were $3.9 billion. Operating
profit reached a record $1.1 billion in 1995 compared with $20 million in
1994 and a loss of $122 million in 1993. Generally favorable economic
conditions worldwide and strong demand for pulp and paper fueled a recovery in
our printing papers businesses beginning in the second half of 1994. These
factors resulted in strong markets and substantially higher prices in 1995.
Cost control and productivity measures also contributed to higher earnings.
Business Papers sales were $3.3 billion in 1995, an increase of 43%
over 1994 and 51% over 1993. Sales prices rose sharply in 1995, as supply was
tight most of the year. In the U.S., average prices were 50% above 1994
levels. During the fourth quarter, customers began to work down inventories,
sales slowed and prices began to decline. By February 1996, prices were
nearly 15% below the 1995 peak and currently remain under pressure. We are
taking downtime in order to control inventories. But as consumer demand
remains good, we expect conditions to improve later in 1996. The 1995 start-up
of a new uncoated papers machine at Riverdale was a major step toward our
goals of improving our cost position and of meeting our customers' increasing
desire for recycled papers.
In Europe, business papers operating profit increased fourfold in 1995.
Kwidzyn achieved record sales. Sales volumes improved 20%, due largely to
improvements in production and quality. Aussedat Rey turned profitable due to
sharply higher prices. In 1996, we anticipate that Western European economies
will grow moderately and that growth in Poland will be strong. Market
conditions are similar to the U.S. and prices have declined in the early part
of 1996 as consumers adjust inventories.
Coated Papers sales advanced nearly 30% in 1995 to $1.8 billion. Sales
were $1.4 billion in 1994 and $1.1 billion in 1993. Increased use of direct
mail and catalogs influenced this improvement. Our U.S. business, which is
heavily weighted toward coated groundwood, enjoyed record earnings in 1995,
after breaking even in 1994 and 1993. No significant new industry capacity
came onstream during 1995 and operating rates were high. Average prices for
coated groundwood papers were nearly 50% above 1994 and 1993 levels. Orders
declined in recent months as customers reduced inventories.
In Europe, following an upturn in 1994 that continued until the second
quarter of 1995, coated papers orders slackened and operating rates declined.
Zanders' sales increased about 20% in 1995, reflecting improvements in both
volume and average prices. However, stronger sales prices did not fully
compensate for higher pulp costs and weak currencies in export markets. These
factors, as well as costs to restructure and reduce personnel, resulted in a
loss at Zanders. Aussedat Rey was profitable in 1995 following losses in 1994
and 1993. In 1996, excess capacity will continue to affect the European
coated papers markets. Performance will depend on economic conditions in
France and Germany, as well as rigorous cost control and optimization of
sales mix.
Pulp sales increased 56% to $1.1 billion in 1995. Carter Holt Harvey
contributed about 40% of the increase. Our Kwidzyn and Saillat mills in
Europe operated near capacity in both 1995 and 1994, producing significantly
higher volume than in 1993. Operating results improved dramatically in 1995
as the upturn in pricing continued. However, prices began to decline in the
fourth quarter as demand for paper slowed. Operating results in 1996 will be
lower until inventories are liquidated.
PRINTING PAPERS
10
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PACKAGING FINANCIAL REVIEW
Packaging sales were $4.4 billion in 1995 compared with $3.4 billion in 1994
and $3.1 billion in 1993. Operating profit was $741 million, two-and-one-half
times 1994 earnings of $293 million and substantially greater than 1993
earnings of $188 million. The recovery in packaging markets that began in 1994
continued through the first half of 1995. Significant year-over-year
improvement in sales prices was the major reason for higher earnings for the
year.
Industrial Packaging sales increased nearly 40% in 1995 to $3.0
billion. About 35% of the increase was attributable to the addition of Carter
Holt Harvey beginning in May, and the balance, to higher prices. Sales in
1993 were $2.0 billion. Industrial packaging posted a more-than-threefold
improvement in operating profit in 1995. Accelerated demand for
containerboard, which began in early 1994, continued into 1995. Containerboard
prices in U.S. markets averaged $130 per ton higher in 1995 than in 1994, and
box prices increased similarly. Our corrugated container operations performed
well worldwide. And kraft paper and packaging results improved in 1995, again
reflecting higher prices. However, midway through the year, demand moderated
and industry inventories of containerboard rose sharply. As a result, we
experienced a softening in market conditions in the latter part of 1995, and
a decline in pricing.
Weak industrial packaging markets have extended into 1996. In February,
containerboard prices in the U.S. market were $75 per ton below the level
reached last spring. We expect demand to improve later in 1996 as the U.S.
economy emerges from the current slowdown and customers start to rebuild
inventories. The rebound in demand should tighten the North American
market by the second half, even in the face of capacity expansions. We expect
that 1996 containerboard and box prices will be below 1995 levels. Our new
recycled linerboard machine at Mansfield got off to a good start, and a
successful ramp-up is a major objective in 1996. We will continue to improve
our container plants in support of the Mansfield expansion. Also, a new box
plant will begin operations in the U.K. in midyear.
Consumer Packaging sales were $1.4 billion in 1995, up from $1.2
billion in 1994 and $1.1 billion in 1993. Operating profit in 1995 was twice
that earned in 1994 and 1993. Bleached board markets were strong during 1995,
leading our U.S. operations to a 14% improvement in volume and a 20% increase
in average sales prices. However, industry operating rates slackened in the
second half of the year as customers worked off inventories and new capacity
came onstream. This placed downward pressure on prices, and this weakness has
continued in early 1996. We expect markets to stabilize by midyear and to
gradually accelerate later in the year as the economy improves. The first
quarter start-up of a rebuilt machine at Kwidzyn will add to our bleached
board sales. Conditions in liquid packaging are favorable. In 1996, we will
continue to grow in offshore markets with the operation of new or expanded
plants in France, Brazil and China.
PACKAGING
18
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DISTRIBUTION FINANCIAL REVIEW
Distribution posted net sales of $5.0 billion in 1995, up substantially from
$3.5 billion in 1994 and $3.1 billion in 1993. Operating profit for the
segment was $106 million in 1995 compared with $74 million in 1994 and $58
million in 1993. Results reflect tight supply in 1995, which had a positive
impact on both sales prices and volume. However, demand slipped in the latter
part of the year in response to a slowdown in world economies and an
inventory drawdown by customers.
Our strategy to grow through internal expansion and acquisitions
resulted in higher total sales as well as profits in 1995. ResourceNet
International, our North American distribution business, achieved sales of
$4.6 billion in 1995, a 45% increase over 1994. Adding to the year-over-year
sales gain was the merger of Kirk Paper Corporation in December 1994 and the
acquisitions of Seaman-Patrick Paper Company and Carpenter Paper Company in
January 1995. Excluding these additions, sales increased 24% compared with
1994 sales.
In 1995, our North American companies continued their transition toward
being a unified premier merchant operating under the ResourceNet
International identity. In this regard, we opened a regional warehouse in
Dallas, Texas, and proceeded with plans for another in Olathe, Kan. In
addition to consolidating a number of smaller operations into larger, more
economical locations, these facilities will function as operational "hubs,"
allowing ResourceNet International to more effectively serve customers and
manage inventories. Additional realignments are planned for 1996. Further
enhancing our integration activities, we are implementing a common operating
system, which we initiated in the New England region during 1995. This system
provides us with information to reduce operating costs and provide better
service for our customers. Finally, during 1995, ResourceNet International
expanded its national accounts program. This program uses our national
presence, vast product offerings and excellent service to respond to
customers nationwide.
Our international distribution businesses posted sales of $456 million in
1995. Results for our European operations, based in France and the Netherlands,
reflected strong economic conditions in Western Europe, particularly in France,
where demand was good and higher prices were realized during much of the year.
The European business was profitable in 1995, following small operating losses
in the last few years. In addition, Carter Holt Harvey's distribution
operations in New Zealand and Australia contributed favorably to the segment's
1995 results.
As in our printing papers and packaging businesses, we expect to
experience a period of soft market demand in the early part of 1996 as
customers continue to reduce inventories. Our distribution businesses will
meet the challenge, using their competitive strengths to penetrate profitable
markets, reduce costs and increase customer responsiveness. We expect demand
to improve later in the year, boosted by an acceleration in world economic
growth.
DISTRIBUTION
24
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SPECIALTY PRODUCTS FINANCIAL REVIEW
Sales increased across our portfolio of specialty products businesses in
1995, and totaled $3.3 billion. This compares to sales of $2.6 billion in
1994 and $2.5 billion in 1993. However, operating profit for the segment
declined to $207 million in 1995 from $268 million in 1994 and $263 million
in 1993.
Specialty Panels sales improved 34% in 1995 to $1.0 billion, while
earnings declined 3%. This decline followed a 30% increase in 1994. Carter
Holt Harvey's building products accounted for about one-half of the sales
increase and contributed favorably to earnings. Masonite's earnings reflected
costs associated with a new production line in Laurel, Miss., and increased
marketing activities in Europe and the Far East. In decorative laminates, we
improved our market position in high-pressure laminates with the acquisition
of Micarta and with growth in the commercial segment. However, low-pressure
product sales declined due to soft demand and competition by Canadian
imports. As for 1996, we expect specialty panels sales and earnings to
improve along with stronger construction activity later in the year.
Imaging Products sales increased 6% to $775 million in 1995. Sales
totaled $730 million in 1994 and $700 million in 1993. Our graphic arts
business continued to face intense industry-wide competition, causing the
division to sustain an operating loss in 1995. It was modestly profitable in
1994 and 1993. The 1995 loss includes costs to reduce staffing and to
reposition the graphic arts business. In the first quarter of 1996, a reserve
was established, reflecting the necessary restructuring that will allow that
business to compete more effectively. Our offset printing plate and pressroom
chemical product lines are growing and continue to gain market share. We
expect 1996 operating results, before the effect of the reserve, to improve
as we continue to restructure graphic arts.
Specialty Papers posted sales of $530 million in 1995, a 15% increase
over 1994 due to higher prices. Operating profits improved 14%, following an
8% increase in 1994. Thilmany achieved both greater productivity and a better
product mix during the year. These factors, together with strong demand,
accounted for the improved earnings in 1995. We expect higher specialty papers
sales and earnings in 1996. We are anticipating the growth of Akrosil's
silicone-coating business with the start-up of a new coater in 1996.
The Tissue operations of Carter Holt Harvey added $265 million to
segment sales in 1995 and accounted for 10% of segment operating profit. In
January 1995, Carter Holt Harvey purchased the Australian tissue operations
of Bowater plc. In 1996, Carter Holt Harvey will integrate these operations
with its operations in New Zealand.
Nonwovens sales increased 8% to $265 million in 1995, as Veratec
successfully started up a second spunbond line in Toronto, Canada. However,
business results were adversely affected by lower profits in the diskette liner
business and by costs associated with the commercialization of InterSpun, a
unique fabric-enhancing process. We expect Veratec results to improve in 1996,
as additional spunbond capacity comes onstream in Mexico and as InterSpun sales
grow.
The combined sales of our Chemicals and Petroleum businesses were $445
million in 1995, 14% higher than 1994. Chemicals sales increased 21%, while
earnings were flat. European demand was strong for specialty chemicals and we
acquired an ink resins manufacturer in France. Higher prices had a favorable
impact on margins in both the U.S. and European markets. However, these gains
were offset by higher environmental-related costs. We expect better results
in 1996 as demand for specialty chemicals continues to grow worldwide. Petroleum
sales and profits declined in 1995 due to lower production at a major field and
lower gas prices. In 1996, petroleum sales and earnings are expected to improve
as we increase production of reserves developed in 1995.
SPECIALTY PRODUCTS
34
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FOREST PRODUCTS FINANCIAL REVIEW
Forest Products sales totaled $2.1 billion in 1995, up 22% from $1.7 billion
in 1994 and 1993. Carter Holt Harvey added $578 million to 1995 sales.
Despite a significant contribution from Carter Holt Harvey in 1995, overall
operating profit of the Forest Products segment declined to $388 million from
$418 million in 1994 and $488 million in 1993. The decline between 1995 and
1994 was due to lower wood products earnings in the U.S. Both forestland and
wood products operating profits were lower in 1995 compared with 1993.
Forestland revenues increased 33% to $695 million in 1995 and operating
profits increased 26%. However, before Carter Holt Harvey's contribution,
1995 sales declined 10% and profits were flat versus 1994 and 23% below 1993
levels.
In the U.S., 1995 stumpage sales were 17% above 1994 as strong demand
by pulp and paper mills early in the year pushed harvest volumes higher.
Average stumpage prices declined 5% year-over-year. Sales of sawlogs declined
21% in 1995 due to sluggish lumber markets and weak export demand. Sales of
nonstrategic land were considerably below 1994 and 1993 levels.
Market conditions and results varied from region to region. In the
South, low customer inventories and poor logging conditions led to strong
stumpage sales early in the year. Together with an increase in pulpwood
sales, this led to a 23% increase in harvest volumes in 1995. Southern
stumpage prices averaged 2% above 1994, although softening occurred as the
year progressed. In the West, harvests were 7% below 1994 levels, and average
prices were 3% lower. Soft lumber markets kept domestic stumpage prices down,
while a weak Japanese economy led to a soft export market. And in the
Northeast, average prices rose 11% in 1995, reflecting good demand by Canadian
mills and a sales mix weighted toward high-margin sawlogs.
In January 1996, a subsidiary partnership of IP Timberlands, Ltd.
announced its intention to sell partnership interests representing more than
80% of its equity. This partnership owns approximately 300,000 acres of
forestlands located in Oregon and Washington, making up all of IP
Timberlands' western holdings and the source of approximately one-third of
the Company's stumpage sales in 1995 and 1994. The capitalized value of the
partnership will be almost $1.0 billion. We project that harvest volumes for
our remaining U.S. forest operations will decline 10% in 1996. The year began
with mills holding high inventories in the face of soft paper markets.
January 1996 sawlog prices in the South were 9% below the prior year, while
in the Northeast, they were slightly higher. We expect some further softening
in timber markets until paper and wood products markets regain strength.
Radiata log demand will remain steady.
Wood Products sales increased 18% in 1995 to $1.4 billion, while
operating profit declined 55%. U.S. sales decreased 12% to $1.0 billion and
were 4% less than 1993 sales. U.S. operating profit was approximately
one-third the amount earned in 1994 and 1993. Lumber prices and volumes were
lower in 1995 due to soft demand and competition from Canadian imports. Panel
prices also trended lower as the year progressed. Also, high wood costs
continued to put pressure on earnings. Productivity improvements, including a
2% increase in lumber yield, and higher sales of medium-density overlay
partially offset lower lumber sales.
We believe that building activity will improve by midyear, driving
stronger performance by our wood products operations. Wood costs are
projected to be lower than in 1995. While panel prices will likely soften
further until new capacity is absorbed, the Company's new oriented strand
board plant in Jefferson, Texas, one of the industry's lowest cost producers,
will add to sales and earnings in 1996. In addition, projects at several of
our plants will improve our productivity.
FOREST PRODUCTS
40
<PAGE>
FINANCIAL INFORMATION BY GEOGRAPHIC AREA
NET SALES
- -------------------------------------------------------------------
In millions 1995 1994 1993
---- ---- ----
United States(1) $14,610 $11,965 $11,085
Europe 3,791 2,958 2,586
Pacific Rim(3) 1,571 195 176
Other 188 159 164
Less: Intergeographic Sales (363) (311) (326)
------- ------- -------
Net Sales $19,797 $14,966 $13,685
======= ======= =======
ASSETS
- -------------------------------------------------------------------
In millions 1995 1994 1993
---- ---- ----
United States $12,033 $11,237 $10,999
Europe 4,252 3,818 3,512
Pacific Rim(3) 4,334 129 143
Other 192 145 118
Equity Investments 1,291 967 559
Corporate 1,875 1,540 1,300
------- ------- -------
Assets $23,977 $17,836 $16,631
======= ======= =======
EUROPEAN SALES BY INDUSTRY SEGMENT
- -------------------------------------------------------------------
In millions 1995 1994 1993
---- ---- ----
Printing Papers $ 1,664 $ 1,231 $ 1,016
Packaging 756 559 513
Distribution 378 318 284
Specialty Products 960 819 746
Forest Products 33 31 27
------- ------- -------
European Sales $ 3,791 $ 2,958 $ 2,586
======= ======= =======
OPERATING PROFIT
- -------------------------------------------------------------------
In millions 1995 1994 1993
---- ---- ----
United States $ 2,062 $ 955 $ 876
Europe(2) 251 97 (23)
Pacific Rim(3) 216 15 14
Other 6 6 8
------- ------- -------
Operating Profit $ 2,535 $ 1,073 $ 875
======= ======= =======
(1) Export sales to unaffiliated customers (in millions) were $1,500 in
1995, $1,200 in 1994 and $1,100 in 1993.
(2) Includes amounts, net of goodwill amortization, for Aussedat Rey,
Ilford, Zanders, the Horsell graphic arts businesses, the Rhone Valley
Packaging business, Scaldia Papier BV and Kwidzyn from the dates of
acquisition.
(3) Includes the results of Carter Holt Harvey from May 1, 1995 (in
millions): sales of $1,368, operating profit of $206 and assets of $4,196.
EUROPE
European sales of $3.8 billion in 1995 were $800 million or 28% above 1994
sales after increasing 14% in 1994. Operating profit advanced to $251 million,
about two-and-a-half times the $97 million earned in 1994. Our European
businesses lost $23 million in 1993.
In printing papers, strong demand during the first half of 1995 resulted in a
55% gain in pulp prices and 35% improvement in paper prices. Packaging
operations continued to perform well and our specialty businesses showed
improvement, especially the chemicals division.
As in the United States, demand weakened in the fourth quarter of 1995 with
product prices continuing to fall during the first quarter of 1996. Given
moderate economic growth in 1996, printing papers markets in France and Germany
should stabilize, although the first half of 1996 is expected to be slow while
customers reduce inventories.
PACIFIC RIM
Carter Holt Harvey accounts for most of International Paper's activities in the
Pacific Rim. In late April 1995, International Paper increased its ownership of
Carter Holt Harvey from 24% to just over 50%. Its results were consolidated
with International Paper's beginning in May 1995. During the eight-month period
ended December 31, 1995, its sales were $1.4 billion, its operating profit was
$206 million, and at year-end, its assets included in the Pacific Rim were
$4.2 billion.
Carter Holt Harvey is a New Zealand-based integrated forest and paper products
company with substantial assets in Chile. It owns approximately 800,000 acres
of forestlands in New Zealand and its Chilean affiliate owns about one million
acres of radiata pine forests.
Carter Holt Harvey, which uses a March 31 year-end, reported net income for its
nine-month period ended December 31, 1995 (unaudited) about 15% higher than
comparable 1994 results. This reflected higher earnings from its pulp, paper
and tissue operations offset by some declines, most notably in its wood
products business.
Carter Holt Harvey was also impacted by weakening demand in the fourth quarter.
Economic growth in New Zealand is expected to slow to an annual pace of about
2% by the end of March 1996 compared with 6% early in 1995. While there are
signs of improved demand in New Zealand, pricing pressure remains.
A breakdown of Carter Holt Harvey's sales by industry segment, as they relate
to International Paper, is included on page 50.
FINANCIAL REVIEW
49
<PAGE>
FINANCIAL INFORMATION BY INDUSTRY SEGMENT
NET SALES
- -------------------------------------------------------------------
In millions 1995 1994 1993
---- ---- ----
Printing Papers $ 6,175 $ 4,400 $ 3,905
Packaging 4,420 3,375 3,095
Distribution 5,025 3,470 3,140
Specialty Products 3,300 2,590 2,460
Forest Products 2,100 1,715 1,700
Less: Intersegment Sales (1,223) (584) (615)
------- ------- -------
Net Sales $19,797 $14,966 $13,685
======= ======= =======
OPERATING PROFIT
- -------------------------------------------------------------------
In millions 1995 1994 1993
---- ---- ----
Printing Papers $ 1,093 $ 20 $ (122)
Packaging 741 293 188
Distribution 106 74 58
Specialty Products 207 268 263
Forest Products 388 418 488
------- ------- -------
Operating Profit 2,535 1,073 875
Interest Expense, net (493) (349) (310)
Corporate Items, net (14) (9) (27)
------- ------- -------
Earnings Before Income Taxes,
Minority Interest and
Cumulative Effect of
Accounting Change $ 2,028 $ 715 $ 538
======= ======= =======
ASSETS
- -------------------------------------------------------------------
In millions 1995 1994 1993
---- ---- ----
Printing Papers $ 7,121 $ 6,706 $ 6,466
Packaging 4,150 3,098 3,011
Distribution 1,454 1,210 1,085
Specialty Products 3,639 2,782 2,607
Forest Products 4,447 1,533 1,603
Equity Investments 1,291 967 559
Corporate(1) 1,875 1,540 1,300
------- ------- -------
Assets $23,977 $17,836 $16,631
======= ======= =======
DEPRECIATION, DEPLETION AND AMORTIZATION
- -------------------------------------------------------------------
In millions 1995 1994 1993
---- ---- ----
Printing Papers $ 475 $ 443 $ 414
Packaging 246 192 213
Distribution 35 29 28
Specialty Products 199 161 180
Forest Products 150 96 93
Corporate 6 5 10
------- ------- -------
Depreciation, Depletion
and Amortization 1,111 926 938
Less: Depletion(2) (80) (41) (40)
------- ------- -------
Depreciation and Amortization $ 1,031 $ 885 $ 898
======= ======= =======
(1) Corporate assets are principally cash and temporary investments,
investments, deferred taxes and other assets that are not identifiable
with industry segments.
(2) Included in Forest Products.
CARTER HOLT HARVEY SALES
International Paper's financial statements reflect the consolidation of Carter
Holt Harvey effective May 1, 1995. The table below shows the contribution of
eight months of its sales to each of International Paper's industry segments in
1995 (Carter Holt Harvey's tissue business is included in Specialty Products):
1995 NET SALES
- -----------------------------------------------------------------------
International Carter Holt
In millions Paper Harvey Consolidated
----- ------ ------------
Printing Papers $ 5,970 $ 205 $ 6,175
Packaging 4,060 360 4,420
Distribution 4,947 78 5,025
Specialty Products 2,890 410 3,300
Forest Products 1,522 578 2,100
Less: Intersegment Sales (960) (263) (1,223)
------- ------- -------
Net Sales $18,429 $ 1,368 $19,797
======= ======= =======
FINANCIAL REVIEW
50
<PAGE>
REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS
The management of International Paper Company is responsible for the fair
presentation of the information contained in the financial statements in this
annual report. The statements are prepared in accordance with generally
accepted accounting principles and reflect management's best judgment as to the
Company's financial position, results of operations and cash flows.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that transactions are properly recorded and
summarized so that reliable financial records and reports can be prepared and
assets safeguarded.
An important part of the internal controls system is the Company's Policy on
Ethical Business Conduct, which requires employees to maintain the highest
ethical and legal standards in their conduct of Company business. The internal
controls system further includes careful selection and training of supervisory
and management personnel, appropriate delegation of authority and division of
responsibility, dissemination of accounting and business policies throughout
the Company, and an extensive program of internal audits with management
follow-up. During 1993, the Company instituted a toll-free telephone
"compliance line" whereby any employee may report suspected violations of law
or Company policy.
The independent public accountants provide an objective, independent review of
management's discharge of its responsibility for the fairness of the Company's
financial statements. They review the Company's internal accounting controls
and conduct tests of procedures and accounting records to enable them to form
the opinion set forth in their report.
The Board of Directors monitors management's administration of the Company's
financial and accounting policies and practices, and the preparation of these
financial statements. The Audit Committee, which consists of five nonemployee
directors, meets regularly with representatives of management, the independent
public accountants and the internal Auditor to review their activities. The
Audit Committee recommends that the shareholders approve the appointment of
the independent public accountants to conduct the annual audit.
The independent public accountants and the internal Auditor both have free
access to the Audit Committee and meet regularly with the Audit Committee, with
and without management representatives in attendance.
/s/ Marianne M. Parrs
Marianne M. Parrs
Senior Vice President and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of International Paper Company:
We have audited the accompanying consolidated balance sheets of International
Paper Company (a New York corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of earnings, common
shareholders' equity and cash flows for each of the three years ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Paper Company
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years ended December 31,
1995 in conformity with generally accepted accounting principles.
As explained in Note 18 to the financial statements, effective January 1, 1994,
the Company changed its method of accounting for start-up costs.
/s/ Arthur Andersen LLP
New York, New York
February 13, 1996
FINANCIAL REVIEW
51
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
In millions, except per share amounts,
for the years ended December 31 1995 1994 1993
---- ---- ----
NET SALES $19,797 $14,966 $13,685
------- ------- -------
COSTS AND EXPENSES
Cost of products sold 13,896 11,092 10,153
Selling and administrative expenses 1,381 1,082 999
Depreciation and amortization 1,031 885 898
Distribution expenses 794 692 634
Taxes other than payroll and income taxes 174 151 153
------- ------- -------
TOTAL COSTS AND EXPENSES 17,276 13,902 12,837
------- ------- -------
EARNINGS BEFORE INTEREST, INCOME TAXES,
MINORITY INTEREST AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 2,521 1,064 848
Interest expense, net 493 349 310
------- ------- -------
EARNINGS BEFORE INCOME TAXES, MINORITY
INTEREST AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 2,028 715 538
Provision for income taxes 719 236 213
Minority interest expense, net of taxes 156 47 36
------- ------- -------
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 1,153 432 289
Cumulative effect of change in accounting
for start-up costs (less tax benefit of
$50)--Note 18 (75)
------- ------- -------
NET EARNINGS $ 1,153 $ 357 $ 289
======= ======= =======
EARNINGS PER COMMON SHARE
Earnings before cumulative effect of
accounting change $ 4.50 $ 1.73 $ 1.17
Cumulative effect of change in
accounting for start-up costs--Note 18 (.30)
------- ------- -------
EARNINGS PER COMMON SHARE $ 4.50 $ 1.43 $ 1.17
======= ======= =======
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW
52
<PAGE>
CONSOLIDATED BALANCE SHEET
In millions at December 31 1995 1994
---- ----
ASSETS
Current Assets
Cash and temporary investments, at cost, which
approximates market $ 312 $ 270
Accounts and notes receivable, less allowances
of $101 in 1995 and $97 in 1994 2,571 2,241
Inventories 2,784 2,075
Other current assets 206 244
------- -------
Total Current Assets 5,873 4,830
------- -------
Plants, Properties and Equipment, Net 10,997 9,139
Forestlands 2,803 802
Investments 1,420 1,032
Goodwill 1,355 763
Deferred Charges and Other Assets 1,529 1,270
------- -------
TOTAL ASSETS $23,977 $17,836
======= =======
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable and current maturities of
long-term debt $ 2,283 $ 2,083
Accounts payable 1,464 1,204
Accrued liabilities 1,116 747
------- -------
Total Current Liabilities 4,863 4,034
------- -------
Long-Term Debt 5,946 4,464
Deferred Income Taxes 1,974 1,612
Other Liabilities 980 870
Minority Interest 1,967 342
International Paper-Obligated Mandatorily Redeemable
Preferred Securities of Trust Holding Solely
International Paper Subordinated Debentures--Note 7 450
Commitments and Contingent Liabilities--Note 10
Common Shareholders' Equity
Common stock, $1 par value, issued at December 31,
1995--263.3 shares, 1994--256.5 shares 263 256
Paid-in capital 1,963 1,658
Retained earnings 5,627 4,711
------- -------
7,853 6,625
Less: Common stock held in treasury, at cost,
1995--2.3 shares, 1994--4.7 shares 56 111
------- -------
Total Common Shareholders' Equity 7,797 6,514
------- -------
TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $23,977 $17,836
======= =======
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW
53
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
In millions for the years ended December 31 1995 1994 1993
---- ---- ----
OPERATING ACTIVITIES
Net earnings $ 1,153 $ 357 $ 289
Cumulative effect of accounting change 75
Noncash items
Depreciation and amortization 1,031 885 898
Deferred income taxes 146 42 54
Other, net (92) (34) (75)
Changes in current assets and liabilities
Accounts and notes receivable 45 (339) 78
Inventories (320) 8 (93)
Accounts payable and accrued liabilities 289 252 (220)
Other (4) (3) (3)
------- ------- -------
CASH PROVIDED BY OPERATIONS 2,248 1,243 928
------- ------- -------
INVESTMENT ACTIVITIES
Invested in capital projects (1,518) (1,114) (954)
Acquisitions and investments, net of cash
acquired (1,168) (357) (44)
Consolidation of equity investment 241
Other (111) (39) (71)
------- ------- -------
CASH USED FOR INVESTMENT ACTIVITIES (2,556) (1,510) (1,069)
------- ------- -------
FINANCING ACTIVITIES
Issuance of common stock 66 67 60
Issuance of preferred securities by
subsidiary 450
Sale of limited partnership interests 165
Issuance of debt 1,055 1,059 727
Reduction of debt (950) (275) (467)
Change in bank overdrafts 57 (115) (52)
Dividends paid (237) (210) (208)
Other (100) (235) (62)
------- ------- -------
CASH PROVIDED BY FINANCING ACTIVITIES 341 291 163
------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 9 4 (5)
------- ------- -------
CHANGE IN CASH AND TEMPORARY INVESTMENTS 42 28 17
CASH AND TEMPORARY INVESTMENTS
Beginning of the year 270 242 225
------- ------- -------
End of the year $ 312 $ 270 $ 242
======= ======= =======
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW
54
<PAGE>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Issued Treasury Stock Total
------------------- -------------------- Common
In millions, except share Paid-In Retained Shareholders'
amounts in thousands Shares Amount Capital(1) Earnings Shares Amount Equity
-------- ------- ---------- -------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 253,986 $254 $1,665 $4,472 8,662 $202 $6,189
Issuance of stock for acquisition 2 (234) (5) 7
Issuance of stock for various plans 588 38 (1,630) (38) 76
Cash dividends--Common stock
($.84 per share) (208) (208)
Foreign currency translation
(less tax benefit of $14) (128) (128)
Net earnings 289 289
-------- ------- ------- ------- ------ ----- --------
Balance, December 31, 1993 254,574 254 1,577 4,553 6,798 159 6,225
Issuance of stock for merger 1,638 2 14 11 27
Issuance of stock for various plans 276 30 (2,100) (48) 78
Cash dividends--Common stock
($.84 per share) (210) (210)
Foreign currency translation
(less tax benefit of $70) 37 37
Net earnings 357 357
-------- ------- ------- ------- ------ ----- --------
Balance, December 31, 1994 256,488 256 1,658 4,711 4,698 111 6,514
Issuance of stock for acquisitions 988 1 37 38
Issuance of stock for various plans 27 (2,445) (55) 82
Conversion of subordinated debentures 5,785 6 199 205
Cash dividends--Common stock
($.92 per share) (237) (237)
Foreign currency translation
(less tax benefit of $66) 42 42
Net earnings 1,153 1,153
-------- ------- ------- ------- ------ ----- --------
BALANCE, DECEMBER 31, 1995 263,261 $263 $1,963 $5,627 2,253 $ 56 $7,797
======== ======= ======= ======= ====== ===== ========
</TABLE>
(1) The cumulative foreign currency translation adjustment (in millions) was
$(201), $(243) and $(280) at December 31, 1995, 1994 and 1993, respectively.
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts
of International Paper Company and its subsidiaries (the Company).
Minority interest represents minority shareholders' proportionate share of
the equity in several of the Company's consolidated subsidiaries,
primarily Carter Holt Harvey Limited, IP Timberlands, Ltd. (IPT), Zanders
Feinpapiere AG, Georgetown Equipment Leasing Associates, L.P. and Trout
Creek Equipment Leasing, L.P. All significant intercompany balances and
transactions are eliminated. Investments in affiliated companies owned 20%
to 50%, and the Company's investment in Scitex Corporation Ltd. where the
Company has the ability to exercise significant influence, are accounted
for by the equity method. The Company's share of affiliates' earnings is
included in the consolidated statement of earnings. The results of Carter
Holt Harvey are consolidated on a one-month-lag basis due to the
availability of financial information.
Temporary Investments
Temporary investments with an original maturity of three months or less
are treated as cash equivalents and are stated at cost.
Inventories
Inventory values include all costs directly associated with
manufacturing products: materials, labor and manufacturing overhead. These
values are presented at cost or market, if it is lower. In the United
States, costs of raw materials and finished pulp and paper products are
generally determined using the last-in, first-out method. Other
inventories are primarily stated using the first-in, first-out or average
cost method.
Plants, Properties and Equipment
Plants, properties and equipment are stated at cost, less accumulated
depreciation. For financial reporting purposes, the Company uses the
units-of-production method for depreciating its major pulp and paper mills
and certain wood products facilities and the straight-line method for
other plants and equipment. Annual straight-line depreciation rates are:
buildings, 2 1/2% to 8 1/2%, and machinery and equipment, 5% to 33%. For tax
purposes, depreciation is computed utilizing accelerated methods.
Interest costs for the development of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives.
The Company capitalized net interest costs of $58 million in 1995, $18
million in 1994 and $12 million in 1993. Interest payments made during
1995, 1994 and 1993 were $603 million, $369 million and $372 million,
respectively. Total interest expense was $542 million in 1995, $371
million in 1994 and $335 million in 1993.
Forestlands
The Company, which currently owns 84% and 100% of IPT's Class A and
Class B Units, respectively, controlled approximately 6.0 million acres of
forestlands in the United States and, through its ownership of Carter Holt
Harvey, approximately 800,000 acres of forestlands in New Zealand at
December 31, 1995. Forestlands are stated at cost, less accumulated
depletion representing the cost of timber harvested. Forestlands include
owned property as well as certain timber harvesting rights with terms of
one or more years. Costs attributable to timber are charged against income
as trees are cut. The depletion rate charged is determined annually based
on the relationship of remaining costs to estimated recoverable volume.
Translation of Financial Statements
Balance sheets of the Company's international operations are translated
into U.S. dollars at year-end exchange rates, while statements of earnings
are translated at average rates. Adjustments resulting from financial
statement translations are included as cumulative translation adjustments
in paid-in capital. Gains and losses resulting from foreign currency
transactions are included in earnings.
Amortization of Intangible Assets
Goodwill, the cost in excess of assigned value of businesses acquired,
is amortized for periods of up to 40 years. Accumulated amortization was
$235 million and $113 million at December 31, 1995 and 1994, respectively.
Revenue Recognition
The Company recognizes revenues when goods are shipped.
Earnings per Common Share
Earnings per common share were computed on the basis of the following
average number of shares outstanding (in millions): 1995-256.5, 1994-249.7
and 1993-246.5. The effect of all dilutive securities is immaterial.
Nature of the Company's Business
The Company is a worldwide producer of paper, packaging and forest
products, all complemented by related specialty products and an extensive
distribution system, with primary markets and manufacturing operations in
the United States, Europe and the Pacific Rim. Substantially all of the
FINANCIAL REVIEW
56
<PAGE>
Company's businesses have experienced and are likely to continue to
experience cycles relating to available industry capacity and general
economic conditions. For a further discussion of the Company's business,
see pages 44 through 48 of management's discussion and analysis of
financial condition and results of operations.
Financial Statements
The preparation of these financial statements in conformity with
generally accepted accounting principles requires the use of management's
estimates. For a further discussion of significant estimates and
assumptions that affect the reported amounts of assets and liabilities and
results of operations, and disclosure of contingent assets and liabilities,
see the legal and environmental issues section on page 47.
Reclassifications
Certain reclassifications have been made to prior-year amounts to
conform with the current-year presentation.
NOTE 2. INDUSTRY SEGMENT INFORMATION
Financial information by industry segment and geographic area for 1995,
1994 and 1993 is presented on pages 45, 49 and 50.
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS No. 121). This statement
requires that such assets be reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable and that such assets be reported at the lower of carrying
amount or fair value. The Company will adopt the provisions of this
statement in the first quarter of 1996 and estimates that adoption will
result in a pre-tax charge to earnings of about $80 million.
Also in 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued, which is effective
for fiscal years beginning after December 15, 1995. This statement
requires footnote disclosure of the pro forma impact on net earnings and
earnings per share of the compensation cost that would have been
recognized if the fair value of all stock-based awards was recorded in the
income statement. The disclosure provisions of this statement will be
adopted in 1996.
NOTE 4. MERGERS AND ACQUISITIONS
In late April 1995, the Company acquired approximately 26% of Carter
Holt Harvey Limited, a major New Zealand forest and paper products
company, through open-market share purchases and an additional acquisition
from Brierley Investments Limited (BIL). This acquisition raised the
Company's total ownership of it from the 24% previously acquired from BIL
(8% purchased in 1994) to just over 50%. The 1995 purchases were financed
with borrowings totaling approximately $1.1 billion.
The Company's financial statements reflect the consolidation of Carter
Holt Harvey effective 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. The acquisition of Carter Holt Harvey is
presented net of 26% of its cash and temporary investments as of the
acquisition date.
In January 1995, the assets of both Seaman-Patrick and Carpenter Paper
Companies, two Michigan-based paper distribution companies, were acquired
by issuing approximately 988,000 shares of common stock. In September,
Micarta, the South Carolina-based high-pressure laminates business of
Westinghouse, was acquired. In October, the Company purchased the inks and
adhesives resin business of DSM located in Niort, France.
The December 31, 1995 consolidated balance sheet reflects a preliminary
allocation of the purchase price for these acquisitions, to be finalized
in 1996.
In December 1994, the Company acquired additional stock
of Zanders Feinpapiere AG. Also in December, a merger was completed
with Kirk Paper Corporation, a California-based paper distribution
company. In 1993, the Company made several small acquisitions in its
distribution and specialty products businesses.
With the exception of Kirk Paper Corporation, which was accounted for
as a pooling-of-interests, all of the 1995, 1994 and 1993 acquisitions
were accounted for using the purchase method. The operating results of
these mergers and acquisitions have been included in the consolidated
statement of earnings from the dates of acquisition.
FINANCIAL REVIEW
57
<PAGE>
NOTE 5. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information reflects the
combined results of the continuing operations of the Company and the 1995
acquisitions listed in Note 4. The pro forma information is presented as
if the transactions occurred as of the beginning of each respective year.
The pro forma adjustments are based on available information, preliminary
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 years. In addition, the information may not be indicative of
future results.
In millions, except per share amounts,
for the years ended December 31 (Unaudited) 1995 1994
------- -------
Net Sales $20,599 $16,901
Earnings Before Cumulative Effect of
Accounting Change 1,171 434
Net Earnings 1,171 359
Earnings Per Common Share Before
Cumulative Effect of Accounting Change 4.57 1.73
Earnings Per Common Share 4.57 1.43
NOTE 6. FEDERAL PAPER BOARD MERGER
In the fourth quarter of 1995, International Paper and Federal Paper
Board announced that they have agreed to merge. Once the merger is
complete, Federal Paper Board, a diversified forest and paper products
company, will become a wholly owned subsidiary of International Paper. The
transaction, which is valued at approximately $3.5 billion, including
assumption of debt, is subject to approval by Federal Paper Board's
shareholders. In January 1996, the U.S. Department of Justice cleared the
way for the proposed merger and it is expected to close in the first
quarter of 1996.
Under the terms of the merger agreement, Federal Paper Board's
shareholders will be entitled to receive, at their election, either $55 in
cash per share or $55 worth of International Paper common stock per share,
subject to the limitation that not more than 1.612 and not less than
1.275 International Paper common shares will be issued for each Federal
Paper Board share exchanged for International Paper common stock. The
shareholder election to receive cash or International Paper common stock
will be subject to adjustment so that, in the aggregate, approximately 49%
of the Federal Paper Board shares will be exchanged for cash. The merger is
intended to qualify as a tax-free reorganization.
NOTE 7. PREFERRED SECURITIES OF SUBSIDIARY
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 $10 million were paid in 1995.
NOTE 8. SALE OF LIMITED PARTNERSHIP INTERESTS
During 1993, the Company contributed assets with a fair market value of
approximately $900 million to two newly formed limited partnerships,
Georgetown Equipment Leasing Associates, L.P. and Trout Creek Equipment
Leasing, L.P. These partnerships are separate and distinct legal entities
from the Company and have separate assets, liabilities, business functions
and operations. However, for accounting purposes, the Company continues to
consolidate these assets, and the minority shareholders' interest is
reflected as minority interest in the accompanying financial statements. The
purpose of the partnerships is to invest in and manage a portfolio of
assets including pulp and paper equipment used at the Georgetown, S.C.,
and Ticonderoga, N.Y., mills. This equipment is leased to the Company
under long-term leases. Partnership assets also include floating rate
notes and cash. During 1993, outside investors purchased a portion of the
Company's limited-partner interests for $132 million and also contributed
an additional $33 million to one of these partnerships.
At December 31, 1995, the Company held aggregate general and
limited-partner interests totaling 83.5% in Georgetown Equipment Leasing
Associates, L.P. and 81.3% in Trout Creek Equipment Leasing, L.P. The
Company also held $315 million and $273 million of borrowings at December
31, 1995 and 1994, respectively, from these partnerships. These funds are
being used for general corporate purposes.
FINANCIAL REVIEW
58
<PAGE>
NOTE 9. INCOME TAXES
The Company uses the liability method required by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
whereby deferred income taxes are recorded based upon differences between
the financial statement and tax bases of assets and liabilities. Deferred
tax assets and liabilities must be revalued to reflect new tax rates in
the periods rate changes are enacted. Accordingly, the 1993 provision for
income taxes included a charge of $25 million ($.10 per share) for deferred
tax expense resulting from the enactment of the Omnibus Budget
Reconciliation Act of 1993, which raised the U.S. federal income tax rate
by 1% effective January 1, 1993.
The components of earnings before income taxes, minority interest and
cumulative effect of an accounting change, and the provision for income
taxes by taxing jurisdiction were:
In millions 1995 1994 1993
------ ------ ------
Earnings (losses)
U.S. $ 1,565 $ 646 $ 623
Non-U.S. 463 69 (85)
------- ------ ------
Earnings before income taxes,
minority interest and cumulative
effect of accounting change $ 2,028 $ 715 $ 538
======= ====== ======
In millions 1995 1994 1993
------ ------ ------
Current tax provision
U.S. federal $ 380 $ 148 $ 114
U.S. state and local 88 10 12
Non-U.S. 105 36 33
------- ------ ------
573 194 159
------- ------ ------
Deferred tax provision
U.S. federal 141 23 64
U.S. federal rate change 25
U.S. state and local (6) 24 20
Non-U.S. 11 (5) (55)
------- ------ ------
146 42 54
------- ------ ------
Provision for income taxes $ 719 $ 236 $ 213
======= ====== ======
The Company made income tax payments of $413 million, $75 million and $156
million in 1995, 1994 and 1993, respectively.
A reconciliation of income tax expense using the statutory U.S. income
tax rate compared with the Company's actual income tax expense follows:
In millions 1995 1994 1993
------ ------ ------
Earnings before income taxes,
minority interest and cumulative
effect of accounting change $ 2,028 $ 715 $ 538
Statutory U.S. income tax rate 35% 35% 35%
------- ------ ------
Tax expense using statutory
U.S. income tax rate 710 250 188
State and local taxes 53 22 21
Non-U.S. tax rate differences (46) (2) (2)
U.S. federal rate change 25
Minority interest (32) (14) (11)
Other, net 34 (20) (8)
------- ------ ------
Provision for income taxes $ 719 $ 236 $ 213
------- ------ ------
Effective income tax rate 35.5% 33% 40%
======= ====== ======
The net deferred income tax liability as of December 31, 1995 and 1994
includes the following components:
In millions 1995 1994
------- -------
Current deferred tax asset $ 86 $ 138
Noncurrent deferred tax liability(1) (1,796) (1,462)
------- -------
Total $(1,710) $(1,324)
======= =======
(1) Net of $178 million and $150 million at December 31, 1995 and 1994,
respectively, of noncurrent deferred tax assets.
The tax effects of significant temporary differences representing
deferred tax assets and liabilities at December 31, 1995 and 1994 were as
follows:
In millions 1995 1994
------- -------
Plants, properties and equipment $(1,772) $(1,634)
Prepaid pension costs (286) (233)
Forestlands (245) (97)
Postretirement benefit accruals 166 167
Non-U.S. net operating losses 146 148
Alternative minimum tax credit carryforwards 43 145
Other 238 180
------- -------
Total $(1,710) $(1,324)
======= =======
The Company's alternative minimum tax credit carryforwards can be
carried forward indefinitely. The Company had net operating loss
carryforwards applicable to non-U.S. subsidiaries of which $81 million
expire in years 1997 through 2002 and $287 million can be carried forward
indefinitely.
Deferred taxes are not provided for temporary differences of approximately
$501 million, $297 million and $385 million as of December 31, 1995, 1994
and 1993, respectively, representing earnings of non-U.S. subsidiaries that
are intended to be permanently reinvested. If these earnings were remitted,
the Company believes that U.S. foreign tax credits would eliminate any
significant impact on future income tax provisions.
FINANCIAL REVIEW
59
<PAGE>
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases certain property, machinery and equipment under
cancelable and noncancelable lease agreements. At December 31, 1995, total
future minimum rental commitments under noncancelable leases were $435
million, due as follows: 1996-$112 million, 1997-$96 million, 1998-$83
million, 1999-$62 million, 2000-$43 million, and thereafter-$39 million.
Rent expense was $159 million, $124 million and $92 million for 1995, 1994
and 1993, respectively.
Masonite Corporation, a subsidiary of the Company, and the Company are
parties to class action lawsuits in Alabama and Mississippi purporting to
represent plaintiffs who purchased Masonite hardboard siding, since 1980
in the Alabama case and with no specific time limits set out in the
Mississippi case. The suits allege, among other things, that Masonite
hardboard siding is inherently defective and that Masonite knowingly and
falsely advertised and sold a defective product. Masonite and the Company
plan to vigorously contest the allegations. The Company is also involved
in various other inquiries, administrative proceedings and litigation
relating to contracts, sales of property, environmental protection, tax,
antitrust and other matters, some of which allege substantial monetary
damages. While any proceeding or litigation has the element of
uncertainty, the Company believes that the outcome of any lawsuit or claim
that is pending or threatened, or all of them combined, will not have a
material adverse effect on its consolidated financial position or results
of operations.
NOTE 11. SUPPLEMENTARY BALANCE SHEET INFORMATION
Inventories by major category were:
In millions at December 31 1995 1994
------- -------
Raw materials $ 591 $ 365
Finished pulp, paper and packaging products 1,340 1,067
Finished lumber and panel products 223 77
Operating supplies 343 335
Other 287 231
------- -------
Inventories $ 2,784 $ 2,075
======= =======
The Company uses the last-in, first-out inventory method to value
substantially all of its U.S. inventories. Approximately 65% of the
Company's total raw materials and finished products inventories were
valued using this method. If the first-in, first-out method had been used,
it would have increased total inventory balances by approximately $227 mill-
ion, $194 million and $160 million at December 31, 1995, 1994 and 1993,
respectively.
Plants, properties and equipment by major classification were:
In millions at December 31 1995 1994
------- -------
Pulp, paper and packaging facilities
Mills $13,554 $11,672
Packaging plants 1,508 1,180
Wood products facilities 1,754 1,296
Other plants, properties and equipment 2,597 2,042
------- -------
Gross cost 19,413 16,190
Less: Accumulated depreciation 8,416 7,051
------- -------
Plants, properties and equipment, net $10,997 $ 9,139
======= =======
NOTE 12. DEBT AND LINES OF CREDIT
A summary of long-term debt follows:
In millions at December 31 1995 1994
------- -------
8 7/8% to 9.7% notes--due 2000-2004 $ 600 $ 400
8 3/8% to 9 1/2% debentures--due 2015-2024 300
7 1/2% to 7 7/8% notes--due 2002-2007 798 648
6 7/8% to 8 1/8% notes--due 2023-2024 545 545
6 1/8% notes--due 2003 199 199
6.11% debentures--due 1998-2000(1) 750
5 7/8% Swiss franc debentures--due 2001 98
5 3/4% convertible subordinated debentures 199
5 1/8% debentures--due 2012 81 81
Medium-term notes--due 1996-2009(2) 516 594
Environmental and industrial development
bonds--due 1996-2017(3,4) 916 848
Commercial paper and bank notes(5) 581 677
Other(6) 818 585
------- -------
Total(7) 6,202 4,776
Less: Current maturities 256 312
------- -------
Long-term debt $ 5,946 $ 4,464
======= =======
(1) If retired before maturity, these debentures provide for a penalty,
which was not significant at December 31, 1995.
(2) The weighted average interest rate on these notes was 8.4% in 1995
and 8.5% in 1994.
(3) The weighted average interest rate on these bonds was 5.9% in 1995
and 5.7% in 1994.
(4) Includes $323 million of bonds at both December 31, 1995 and 1994,
which may be tendered at various dates and/or under certain
circumstances.
(5) Includes $393 million in 1995 and $143 million in 1994 of non-U.S.
dollar denominated borrowings. The weighted average interest rate was
5.3% in 1995 and 5.7% in 1994.
(6) Includes $96 million in both 1995 and 1994 of French franc borrowings
with a weighted average interest rate of 4.9% in 1995 and 4.7% in 1994,
and $242 million in 1995 and $227 million in 1994 of German mark
borrowings with a weighted average interest rate of 6.7% in both 1995 and
1994.
(7) The fair market value was approximately $6.6 billion and $4.7 billion
at December 31, 1995 and 1994, respectively.
FINANCIAL REVIEW
60
<PAGE>
At December 31, 1995 and 1994, the Company, including a non-U.S.
subsidiary, classified $900 million and $1.0 billion, respectively, of
tenderable bonds, commercial paper and bank notes as long-term debt. The
Company and this subsidiary have the intent and ability to renew or
convert these obligations through 1996 and into future periods.
Total maturities of long-term debt over the next five years are: 1996-$2
56 million, 1997-$235 million, 1998-$456 million, 1999-$396 million and
2000-$1.4 billion.
At December 31, 1995, the Company had unused bank lines of credit of
approximately $2.4 billion. The lines generally provide for interest at
market rates plus a margin based on the Company's current bond rating. The
principal line, which is cancelable only if the Company's bond rating
drops below investment grade, provides for $750 million of credit through
January 2000, and has a facility fee of .10% that is payable quarterly. A
non-U.S. subsidiary of the Company also has a $600 million line of credit
that supports its U.S. dollar commercial paper program. This line matures in
June 2000 and has a facility fee of .1875%, which is payable quarterly.
At December 31, 1995, notes payable classified as current liabilities
included $1.8 billion of non-U.S. dollar-denominated debt with a weighted
average interest rate of 5.7%.
At December 31, 1995, the Company's total outstanding debt included
approximately $2.6 billion of borrowings with interest rates that
fluctuate based on market conditions and the Company's credit rating.
In July 1995, the 5 3/4% convertible debentures were called by the
Company, and converted into 5.8 million shares of common stock.
NOTE 13. FINANCIAL INSTRUMENTS
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. borrowings. The purpose of this activity is to provide a hedge
against fluctuations in exchange rates.
Non-U.S. dollar-denominated debt totaling $2.8 billion was outstanding
at December 31, 1995. Also outstanding were foreign exchange contracts
totaling $2.2 billion, all having maturities of less than 360 days, as
follows: French francs, $1.1 billion; British pounds, $363 million;
Australian dollars, $205 million; Spanish pesetas, $119 million; Italian
lira, $102 million; Swiss francs, $98 million; German marks, $69 million;
and contracts totaling $191 million in six other currencies. In addition,
a non-U.S. subsidiary of the Company had outstanding foreign exchange
contracts totaling $264 million that were denominated in U.S. dollars. The
average amount of outstanding contracts during 1995 and 1994 was $1.2
billion and $2.1 billion, respectively. Gains and losses from these
contracts (including an immaterial gain related to contracts outstanding
at December 31, 1995), which are fully offset by gains and 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 shareholders' equity.
The Company also utilizes foreign exchange contracts to hedge certain
transactions denominated in foreign currencies, primarily export sales and
equipment purchased from nonresident vendors. These contracts serve to
protect the Company from currency fluctuations between the transaction
date and settlement. Gains and losses on these contracts, along with
offsetting gains and losses resulting from the revaluations of the
underlying transactions, are recognized in earnings based on published
currency exchange rates. At December 31, 1995, foreign exchange contracts
totaling $457 million, all having maturities of less than 12 months, were
outstanding as follows: Australian dollars, $151 million; French francs,
$80 million; German marks, $39 million; and contracts totaling $187
million in 13 different currencies. Non-U.S. subsidiaries of the Company
also had contracts outstanding of $127 million that were denominated in
U.S. dollars. The average amount of outstanding contracts during 1995 and
1994 was $486 million and $170 million, respectively. Net gains and losses
related to contracts outstanding at December 31, 1995 and 1994 were not
significant.
The Company used interest rate swap agreements to manage the
composition of its fixed and floating rate debt portfolio in 1994 and
1993. The agreements involved the exchange of fixed or floating rate
interest payments, without changing the underlying principal amounts,
related to $600 million and $400 million of long-term debt having
maturities ranging from 10 to 30 years issued in 1994 and 1993,
respectively.
A non-U.S. subsidiary of the Company uses cross-currency and interest
rate swap agreements to manage the composition of its fixed and floating
rate debt. Under the cross-currency agreement that matures in April 2002,
the subsidiary will receive $150 million and will pay 203 million
Australian dollars. Interest is receivable at 7 5/8% and payable at
floating rates. Also outstanding were two interest rate
FINANCIAL REVIEW
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<PAGE>
swap agreements under which the subsidiary will receive interest at
floating rates and pay interest at fixed rates based on principal amounts
of 100 million New Zealand dollars and 100 million Australian dollars, and
two agreements under which the subsidiary will receive interest at fixed
rates and pay interest at floating rates based on a combined principal
amount of $250 million.
The interest payments made or received pursuant to the swap agreements
are included in interest expense. The impact on earnings and the Company's
net liability under these agreements were not significant.
The Company does not hold or issue financial instruments for trading
purposes.
The counterparties to the Company's interest rate and cross-currency
swap agreements and foreign exchange contracts consist of a number of
major international financial institutions. The Company continually
monitors its positions with and the credit quality of these financial
institutions and does not expect nonperformance by the counterparties.
NOTE 14. CAPITAL STOCK
The authorized capital stock of the Company at December 31, 1995 and
1994 consisted of 400,000,000 shares of common stock, $1 par value; 400,000
shares of cumulative $4 nonredeemable preferred stock, without par value
(stated value of $100 per share); and 8,750,000 shares of serial preferred
stock, $1 par value. The serial preferred stock is issuable in one or more
series by the Board of Directors without further shareholder action.
In the third quarter of 1995, the Company declared a two-for-one common
stock split that was distributed to shareholders of record as of August
18, 1995. All share amounts have been retroactively adjusted for the
effect of the common stock split. In addition, the quarterly dividend was
raised $.04 to $.25 per common share on a split-adjusted basis.
The Company has stock rights under a Shareholder Rights Plan whereby
each share of common stock has one right. Each right entitles shareholders
to purchase one common stock share at an exercise price of $77.50. The
rights will become exercisable 10 days after anyone acquires or tenders
for 20% or more of the Company's common stock. If, thereafter, anyone
acquires 30% or more of the common stock, or a 20% or more owner combines
with the Company in a reverse merger in which the Company survives and its
common stock is not changed, each right will entitle its holder to
purchase Company common stock with a value of twice the $77.50 exercise
price. If, following an acquisition of 20% or more of the common stock,
the Company is acquired in a merger or sells 50% of its assets or earnings
power, each right will entitle its holder to purchase stock of the
acquiring company with a value of twice the $77.50 exercise price.
NOTE 15. RETIREMENT PLANS
The Company maintains pension plans that provide retirement benefits to
substantially all employees. Employees generally are eligible to
participate in the plans upon completion of one year of service and
attainment of age 21.
The plans provide defined benefits based on years of credited service
and either final average earnings (salaried employees), hourly job rates
or specified benefit rates (hourly and union employees).
U.S. Defined Benefit Plans
The Company makes contributions that are sufficient to fully fund its
actuarially determined costs, generally equal to the minimum amounts
required by ERISA.
Net periodic pension income for the Company's qualified and
nonqualified defined benefit plans comprised the following:
In millions 1995 1994 1993
------- ------ ------
Service cost--benefits earned during
the period $ (39) $ (54) $ (43)
Interest cost on projected benefit
obligation (170) (151) (143)
Actual return on plan assets 477 7 291
Net amortization and deferrals (193) 275 (18)
------- ------ ------
Net periodic pension income $ 75 $ 77 $ 87
======= ====== ======
The actuarial assumptions used in determining net periodic pension
income for the years presented were:
1995 1994 1993
---- ---- ----
Discount rate 8.75% 7.25% 8.0%
Expected long-term return on plan assets 10.0% 10.0% 10.0%
Weighted average rate of increase in
compensation levels 4.75% 4.0% 5.0%
The discount rates and the rates of increase in future compensation
levels used to determine the projected benefit obligation at December 31,
1995 were 7.25% and 4.25%, respectively, and at December 31, 1994 were
8.75% and 4.75%, respectively.
The following table presents the funded status of the Company's U.S.
pension plans and the amounts reflected in the accompanying consolidated
balance sheet:
FINANCIAL REVIEW
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<PAGE>
In millions at December 31 1995 1994
------- -------
Actuarial present value of benefit obligations
Vested benefits $ 2,080 $ 1,649
------- -------
Accumulated benefit obligation $ 2,203 $ 1,777
------- -------
Projected benefit obligation $ 2,376 $ 1,909
Plan assets at fair value 2,896 2,557
------- -------
Plan assets in excess of projected benefit obligation 520 648
Unrecognized net loss (gain) 170 (6)
Balance of unrecorded transition asset (82) (109)
Other 44 53
------- -------
Prepaid pension cost $ 652 $ 586
======= =======
Plan assets are held primarily in master trust accounts and comprise
the following:
In millions at December 31 1995 1994
------- -------
Cash reserves $ 45 $ 134
Fixed income securities 1,003 843
Diversified equities 1,192 943
International Paper common stock 394 392
Real estate 113 117
Other 149 128
------- -------
Total plan assets $ 2,896 $ 2,557
======= =======
Non-U.S. Defined Benefit Plans
Generally, the Company's non-U.S. pension plans are funded using the
projected benefit as a target, except in certain countries where funding
of benefit plans is not required. Net periodic pension expense for the
Company's non-U.S. pension plans was immaterial for 1995, 1994 and 1993.
The following table presents the funded status of the Company's
non-U.S. pension plans and the amounts reflected in the accompanying
consolidated balance sheet. Plan assets are made up principally of common
stocks and fixed income securities.
In millions at December 31 1995 1994
------- -------
Actuarial present value of benefit obligations
Vested benefits $ 338 $ 276
------- -------
Accumulated benefit obligation $ 365 $ 292
------- -------
Projected benefit obligation(1) $ 446 $ 347
Plan assets at fair value 477 338
------- -------
Plan assets in excess of (less than) projected
benefit obligation 31 (9)
Unrecognized net gain (21) (16)
Balance of unrecorded transition asset (35) (40)
Other 5 3
------- -------
Pension liability $ (20) $ (62)
======= =======
(1) The weighted average discount rate and the weighted average rate of
compensation increase used to measure the projected benefit obligation
were 6.93% (7.01% in 1994) and 4.65% (4.61% in 1994), respectively.
Other Plans
The Company sponsors several defined contribution plans to provide
substantially all U.S. salaried and certain hourly employees of the
Company an opportunity to accumulate personal funds for their retirement.
Contributions may be made on a before-tax basis to substantially all of
these plans.
As determined by the provisions of each plan, the Company matches the
employees' basic voluntary contributions. Company matching contributions
to the plans were approximately $38 million, $36 million and $38 million
for the plan years ending in 1995, 1994 and 1993, respectively. The net
assets of these plans approximated $1.6 billion as of the 1995 plan year
ends.
NOTE 16. POSTRETIREMENT BENEFITS
The Company provides certain retiree health care and life insurance
benefits covering a majority of U.S. salaried and certain hourly employees.
Employees are generally eligible for benefits upon retirement and
completion of a specified number of years of creditable service. A plan
amendment in 1992 limits the maximum annual Company contribution for health
care benefits for retirees after January 1, 1992 based on age at retirement
and years of service after age 50. The Company does not pre-fund these
benefits and has the right to modify or terminate certain of these plans
in the future.
The components of postretirement benefit expense in 1995, 1994 and 1993
were as follows:
In millions 1995 1994 1993
------- ------ ------
Service cost--benefits earned during
the period $ 6 $ 8 $ 8
Interest cost on accumulated
postretirement benefit obligation 26 23 25
Net amortization of plan amendments (18) (16) (15)
------- ------ ------
Net postretirement benefit cost $ 14 $ 15 $ 18
======= ====== ======
The accumulated postretirement benefit obligation, included in other
liabilities in the accompanying consolidated balance sheet, comprises the
following components:
In millions at December 31 1995 1994
------- -------
Retirees $ 250 $ 223
Fully eligible active plan participants 17 15
Other active plan participants 76 63
------- -------
Total accumulated postretirement benefit obligation 343 301
Unrecognized net loss (57) (26)
Unrecognized effect of plan amendments 78 96
------- -------
Accrued postretirement benefit obligation $ 364 $ 371
======= =======
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<PAGE>
Future benefit costs were estimated assuming medical costs would
increase at a 10.25% annual rate, decreasing to a 5% annual growth rate
ratably over the next eight years and then remaining at a 5% annual growth
rate thereafter. A 1% increase in this annual trend rate would have
increased the accumulated postretirement benefit obligation at December
31, 1995 by $23 million, with an immaterial effect on 1995 postretirement
benefit expense. The weighted average discount rate used to estimate the
accumulated postretirement benefit obligation at December 31, 1995 was
7.25% compared with 8.75% at December 31, 1994.
NOTE 17. INCENTIVE PLANS
The Company has a Long-Term Incentive Compensation Plan that includes a
Restricted Performance Share Plan, a Stock Option Plan and an Executive
Continuity Award Plan, administered by a committee of nonemployee members
of the Board of Directors who are not eligible for awards. The plan allows
stock appreciation rights to be awarded either separately or in
combination with other awards, although none were awarded in 1995, 1994 or
1993.
Under the Restricted Performance Share Plan, contingent awards of
Company common stock are granted by the committee. Awards are earned if
the Company's financial performance over a five-year period meets or
exceeds that of other forest products companies using standards determined
by the committee. In 1994 and 1993, 266,000 shares and 304,000 shares,
respectively, were earned. The awards for 1995 have not yet been
determined.
The Stock Option Plan provides for the granting of incentive stock
options and nonqualified stock options to key employees. The committee
determines the option price, the number of shares for which an option is
granted and the term (which cannot exceed 10 years). The option price is
the market price of the stock at the date of grant. Upon exercise of an
option, a replacement option may be granted with the exercise price equal
to the current market price and with a term extending to the expiration
date of the original option.
The following summarizes stock option transactions under stock option
plans for the three years ended December 31, 1995:
Shares Option Price
---------- ---------------
Balance at 1/1/93(1) 6,447,618 $ 6.965-39.000
Granted 1,883,800 29.688-34.625
Exercised (850,392) 6.965-32.000
---------- ---------------
Balance at 12/31/93(1) 7,481,026 6.965-39.000
Granted 2,706,540 32.313-39.813
Exercised (1,790,698) 6.965-37.000
---------- ---------------
Balance at 12/31/94(1) 8,396,868 6.965-39.813
Granted 3,196,311 35.125-45.375
Exercised (2,331,066) 6.965-41.625
---------- ---------------
Balance at 12/31/95(1) 9,262,113 $ 6.965-45.375
========== ===============
(1) All options are exercisable under the plan upon grant; however, the
underlying shares cannot be sold or are otherwise restricted for various
periods.
The Executive Continuity Award Plan provides for the granting of tandem
awards of restricted stock and/or nonqualified stock options to key
executives. Grants are restricted and awards conditioned on attainment of
specified age and years of service requirements. Exercise of the options
results in the cancellation of the related restricted shares.
In 1995, 1994 and 1993, restricted shares of 20,000, 64,000
and 64,000, respectively, were awarded under this plan. In 1995,
120,000 options were exercised at an exercise price of $24.188. At
December 31, 1995, 2,220,000 options at exercise prices ranging from
$24.125 to $42.938 were outstanding under the Executive Continuity Award
Plan. The options expire at various dates through 2008.
At December 31, 1995 and 1994, a total of 10.8 million shares and 14.2
million shares, respectively, were available for grant under incentive
plans.
Provisions for awards under the Long-Term Incentive Compensation Plan
and all other incentive plans amounted to $47 million, $37 million and $31
million in 1995, 1994 and 1993, respectively. The provisions include
charges for recently acquired companies, and adjustments of prior-year
awards due to changes in the market price of Company stock and final
determination of Restricted Performance Share Plan awards.
FINANCIAL REVIEW
64
<PAGE>
NOTE 18. START-UP COSTS
Effective January 1, 1994, the Company changed its method of accounting
for start-up costs on major projects to expense these costs as incurred.
Prior to 1994, the Company capitalized these costs and amortized them over
a five-year period. This change was made to increase the focus on
controlling costs associated with facility start-ups.
The Company restated 1994 first-quarter results to record a pre-tax charge
of $125 million ($75 million after taxes or $.30 per share) as the
cumulative effect of an accounting change. This change also decreased 1994
total costs and expenses by $17 million ($10 million after taxes or
$.04 per share). On a pro forma basis, this change would have had no
impact on 1993.
NOTE 19. SUBSEQUENT EVENTS
On January 19, 1996, a subsidiary partnership of IPT filed a
registration statement in anticipation of a possible public offering. The
offering would consist of limited partnership units representing more than
80% of the equity in the subsidiary partnership, which owns approximately
300,000 acres of forestlands located in Oregon and Washington. In
conjunction with the units offering, the subsidiary partnership would also
place $350 million in senior debt securities. If this public offering is
completed, the net proceeds from the units offering and debt placement
would approximate $800 million. However, several alternatives are
being pursued for the sale of these partnership interests.
On February 13, 1996, the Company's Board of Directors authorized
management actions that will result in the shut-down of certain plants,
consolidation of certain operations and job eliminations. Accordingly, a
pre-tax charge of about $500 million ($350 million after taxes or $1.35
per share) will be recorded in the first quarter of 1996. The charge
consists of asset write-offs and impairments ($340 million, including $80
million from adopting SFAS No. 121 as described in Note 3), severance
($115 million) and lease cancellation and other exit costs ($45 million).
The management actions will result in the reduction of 2,100 jobs,
primarily in the U.S. and Europe.
FINANCIAL REVIEW
65
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR FINANCIAL SUMMARY
Dollar amounts in millions, except per share
amounts and stock prices 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales $19,797 $14,966 $13,685
Costs and expenses, excluding interest 17,276 13,902 12,837
Earnings before income taxes, minority
interest, extraordinary item and cumulative
effect of accounting changes 2,028 715(1) 538
Minority interest expense, net of taxes 156 47 36
Extraordinary item
Cumulative effect of accounting changes (75)
Net earnings 1,153 357(1) 289(2)
Earnings applicable to common shares 1,153 357(1) 289(2)
------- ------- -------
FINANCIAL POSITION
Working capital $ 1,010 $ 796 $ 472
Plants, properties and equipment, net 10,997 9,139 8,872
Forestlands 2,803 802 786
Total assets 23,977 17,836 16,631
Long-term debt 5,946 4,464 3,601
Common shareholders' equity 7,797 6,514 6,225
------- ------- -------
PER SHARE OF COMMON STOCK(7)
Earnings before extraordinary item and
cumulative effect of accounting changes $ 4.50 $ 1.73(1) $ 1.17(2)
Extraordinary item
Cumulative effect of accounting changes (.30)
Earnings 4.50 1.43(1) 1.17(2)
Cash dividends .92 .84 .84
Common shareholders' equity 29.87 25.87 25.12
------- ------- -------
COMMON STOCK PRICES(7)
High 45 3/4 40 1/4 35
Low 34 1/8 30 3/8 28 3/8
Year-end 37 7/8 37 3/4 33 7/8
------- ------- -------
FINANCIAL RATIOS
Current ratio 1.2 1.2 1.1
Total debt to capital ratio 38.5 41.2 38.5
Return on equity 16.1 5.6(1)(8) 4.7(2)(8)
Return on capital employed 9.2 4.1(1)(8) 4.0(2)(8)
------- ------- -------
CAPITAL EXPENDITURES $ 1,518 $ 1,114 $ 954
------- ------- -------
NUMBER OF EMPLOYEES 81,500(9) 70,000 72,500
======= ======= =======
</TABLE>
FINANCIAL GLOSSARY
Current ratio--current assets divided by current liabilities.
Total debt to capital ratio--long-term debt plus notes payable and current
maturities of long-term debt divided by long-term debt, notes payable and
current maturities of long-term debt, deferred income taxes, minority interest,
other liabilities, preferred securities and total common shareholders' equity.
Return on equity--net earnings divided by average common shareholders' equity
(computed monthly).
Return on capital employed--net earnings plus after-tax interest expense,
provision for deferred income taxes and minority interest expense divided by an
average of total assets minus accounts payable and accrued liabilities.
FINANCIAL REVIEW
66
<TABLE>
<CAPTION>
1992 1991 1990 1989
---- ---- ---- ----
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales $13,598 $12,703 $12,960 $11,378
Costs and expenses, excluding interest 13,125(3) 11,695(4) 11,695(5) 9,739
Earnings before income taxes, minority
interest, extraordinary item and cumulative
effect of accounting changes 226(3) 693(4) 988(5) 1,434
Minority interest expense, net of taxes 15 42 33 26
Extraordinary item (6)
Cumulative effect of accounting changes (50) (215)
Net earnings 86(3) 184(4) 569(5) 864
Earnings applicable to common shares 86(3) 184(4) 569(5) 845
------- ------- ------- -------
FINANCIAL POSITION
Working capital $ (165)(6) $ 404 $ 784 $ 366
Plants, properties and equipment, net 8,884 7,848 7,287 6,238
Forestlands 759 743 751 764
Total assets 16,516 14,941 13,669 11,582
Long-term debt 3,096 3,351 3,096 2,324
Common shareholders' equity 6,189 5,739 5,632 5,147
------- ------- ------- -------
PER SHARE OF COMMON STOCK(7)
Earnings before extraordinary item and
cumulative effect of accounting changes $ .58(3) $ 1.80(4) $ 2.61(5) $ 3.86
Extraordinary item (.02)
Cumulative effect of accounting changes (.21) (.97)
Earnings .35(3) .83(4) 2.61(5) 3.86
Cash dividends .84 .84 .84 .77
Common shareholders' equity 25.23 25.52 25.67 23.67
------- ------- ------- -------
COMMON STOCK PRICES(7)
High 39 1/4 39 1/8 29 7/8 29 3/8
Low 29 1/4 25 1/4 21 3/8 22 5/8
Year-end 33 3/8 35 3/8 26 3/4 28 1/4
------- ------- ------- -------
FINANCIAL RATIOS
Current ratio .96(6) 1.1 1.2 1.1
Total debt to capital ratio 38.0 39.1 36.1 33.9
Return on equity 1.4(3)(8) 3.2(4) 10.5(5) 17.8
Return on capital employed 1.2(3)(8) 3.7(4) 7.5(5) 12.3
------- ------- ------- -------
CAPITAL EXPENDITURES $ 1,368 $ 1,197 $ 1,267 $ 887
------- ------- ------- -------
NUMBER OF EMPLOYEES 73,000 70,500 69,000 63,500
======= ======= ======= =======
<CAPTION>
1988 1987 1986 1985
---- ---- ---- ----
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales $ 9,587 $ 7,800 $ 5,540 $ 4,530
Costs and expenses, excluding interest 8,199 6,930 5,010 4,373
Earnings before income taxes, minority
interest, extraordinary item and cumulative
effect of accounting changes 1,223 703 474 165
Minority interest expense, net of taxes 22 21 20 6
Extraordinary item
Cumulative effect of accounting changes
Net earnings 754 407 305 133
Earnings applicable to common shares 733 387 284 107
------- ------- ------- -------
FINANCIAL POSITION
Working capital $ 781 $ 657 $ 296 $ 350
Plants, properties and equipment, net 5,456 5,125 4,788 3,725
Forestlands 772 780 783 741
Total assets 9,462 8,710 7,848 6,039
Long-term debt 1,853 1,937 1,764 1,191
Common shareholders' equity 4,557 4,052 3,664 3,195
------- ------- ------- -------
PER SHARE OF COMMON STOCK(7)
Earnings before extraordinary item and
cumulative effect of accounting changes $ 3.28 $ 1.84 $ 1.45 $ .54
Extraordinary item
Cumulative effect of accounting changes
Earnings 3.28 1.84 1.45 .54
Cash dividends .64 .60 .60 .60
Common shareholders' equity 20.57 18.18 17.52 16.67
------- ------- ------- -------
COMMON STOCK PRICES(7)
High 24 3/4 28 7/8 20 14 1/2
Low 18 1/4 13 1/2 12 1/8 11 1/8
Year-end 23 1/4 21 1/8 18 3/4 12 3/4
------- ------- ------- -------
FINANCIAL RATIOS
Current ratio 1.5 1.4 1.2 1.5
Total debt to capital ratio 25.8 31.6 31.2 24.1
Return on equity 17.0 10.0 8.3 3.3
Return on capital employed 13.6 9.9 7.8 2.7
------- ------- ------- -------
CAPITAL EXPENDITURES $ 645 $ 603 $ 576 $ 794
------- ------- ------- -------
NUMBER OF EMPLOYEES 55,500 45,500 44,000 32,000
======= ======= ======= =======
</TABLE>
(1) Includes $17 million ($10 million after taxes or $.04 per share) of
additional earnings related to the change in accounting for start-up costs.
(2) Includes $25 million ($.10 per share) of additional income tax expense to
revalue deferred tax balances to reflect the increase in the U.S. statutory
federal income tax rate.
(3) Includes restructuring and other charges totaling $398 million ($263 million
after taxes or $1.08 per share).
(4) Includes a $60 million pre-tax restructuring charge ($37 million after taxes
or $.17 per share) and additional expenses related to the adoption of SFAS
No. 106 of $25 million ($16 million after taxes or $.07 per share).
(5) Includes a $212 million pre-tax restructuring charge ($137 million after
taxes or $.63 per share).
(6) Reflects increase in short-term versus long-term borrowings due to favorable
interest rates.
(7) Per share data and common stock prices have been adjusted to reflect
two-for-one stock splits in September 1995 and May 1987.
(8) Return on equity was 6.7% and return on capital employed was 4.9% in 1994
before the accounting change. Return on equity was 5.1% and return on
capital employed was 4.0% in 1993 before the additional income tax expense.
Return on equity was 6.3% and return on capital employed was 4.5% in 1992
before the accounting change, extraordinary item, and restructuring and
other charges.
(9) Acquisitions during 1995, primarily Carter Holt Harvey, added 12,500
employees.
FINANCIAL REVIEW
67
<PAGE>
<TABLE>
<CAPTION>
INTERIM FINANCIAL RESULTS (UNAUDITED)
Quarter
In millions, except per share ---------------------------------------------
amounts and stock prices First Second Third Fourth Year
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
1995
Net Sales $ 4,492 $ 5,084 $ 5,145 $ 5,076 $19,797
Gross Margin(1) 1,268 1,552 1,579 1,502 5,901
Earnings Before Income Taxes and
Minority Interest 406 554 591 477 2,028
Net Earnings 246 316 328 263 1,153
Per Share of Common Stock(3)
Earnings $ .97 $ 1.25 $ 1.27 $ 1.01 $ 4.50
Dividends .21 .21 .25 .25 .92
Common Stock Prices(3)
High 39 7/8 43 3/8 45 3/4 42 45 3/4
Low 35 1/8 36 40 1/4 34 1/8 34 1/8
1994
Net Sales $ 3,414 $ 3,633 $ 3,792 $ 4,127 $14,966
Gross Margin(1) 863(2) 931(2) 984(2) 1,096 3,874
Earnings Before Income Taxes, Minority
Interest and Cumulative Effect of
Accounting Change 134(2) 153(2) 184(2) 244 715
Earnings Before Cumulative Effect of
Accounting Change 76(2) 91(2) 111(2) 154 432
Cumulative Effect of Accounting Change (75) (75)
Net Earnings 1(2) 91(2) 111(2) 154 357
Per Share of Common Stock(3)
Earnings Before Cumulative Effect
of Accounting Change $ .31(2) $ .36(2) $ .45(2) $ .61 $ 1.73
Cumulative Effect of Accounting
Change (.30) (.30)
Earnings .01(2) .36(2) .45(2) .61 1.43
Dividends .21 .21 .21 .21 .84
Common Stock Prices(3)
High 39 36 1/2 40 1/4 40 1/4 40 1/4
Low 33 5/8 30 3/8 33 1/4 34 30 3/8
</TABLE>
(1) Gross margin represents net sales less cost of products sold.
(2) Amounts have been restated to reflect the change in accounting for start-up
costs. The additional earnings in each quarter are as follows: first
quarter, $7 million ($4 million after taxes or $.02 per share); second
quarter, $6 million ($4 million after taxes or $.01 per share); and third
quarter, $4 million ($2 million after taxes or $.01 per share).
(3) Per share amounts and common stock prices adjusted for the two-for-one stock
split in September 1995.
FINANCIAL REVIEW
68
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 312
<SECURITIES> 0
<RECEIVABLES> 2,672
<ALLOWANCES> (101)
<INVENTORY> 2,784
<CURRENT-ASSETS> 206
<PP&E> 19,413
<DEPRECIATION> 8,416
<TOTAL-ASSETS> 23,977
<CURRENT-LIABILITIES> 4,863
<BONDS> 5,946
0
0
<COMMON> 263
<OTHER-SE> 7,534
<TOTAL-LIABILITY-AND-EQUITY> 23,977
<SALES> 19,797
<TOTAL-REVENUES> 19,797
<CGS> 13,896
<TOTAL-COSTS> 17,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 493
<INCOME-PRETAX> 2,028
<INCOME-TAX> 719
<INCOME-CONTINUING> 1,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,153
<EPS-PRIMARY> 4.45
<EPS-DILUTED> 4.41
</TABLE>
