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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1996 Commission file number 1-3157
INTERNATIONAL PAPER COMPANY
(Exact name of registrant as specified in its charter)
New York 13 0872805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Manhattanville Road, Purchase, NY 10577
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 914-397-1500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock outstanding on April 30, 1996: 298,347,521 shares.
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INTERNATIONAL PAPER COMPANY
INDEX
Page
No.
----
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings -
Three Months Ended March 31, 1996 and 1995 3
Consolidated Balance Sheet -
March 31, 1996 and December 31, 1995 4-5
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1996 and 1995 6
Notes to Consolidated Financial
Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
Item 3. Other Financial Information 14
PART II. Other Information
Item 1. Legal Proceedings 15-16
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
* Omitted since no answer is called for, answer is in the negative or
inapplicable.
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL PAPER COMPANY
Consolidated Statement of Earnings
(Unaudited)
(In millions, except per-share amounts)
Three Months Ended
March 31,
----------------------
1996 1995
-------- --------
Net Sales $4,798 $4,492
------ ------
Costs and Expenses
Cost of products sold 3,556 3,224
Selling and administrative expenses 347 304
Depreciation and amortization 263 234
Distribution expenses 201 179
Taxes other than payroll and income taxes 47 41
Restructuring and asset impairment charge 515
------ ------
Total Costs and Expenses 4,929 3,982
------ ------
Gain on sale of partnership interest 592
------ ------
Earnings Before Interest, Income Taxes and
Minority Interest 461 510
Interest expense, net 125 104
------ ------
Earnings Before Income Taxes and Minority
Interest 336 406
Provision for income taxes 163 146
Minority interest expense, net of taxes 75 14
------ ------
Net Earnings $ 98 $ 246
====== ======
Earnings per Common Share $ 0.36 $ 0.97
====== ======
Average Shares of Common Stock Outstanding 268.9 252.8
====== ======
Cash Dividends per Common Share $ 0.25 $ 0.21
====== ======
The accompanying notes are an integral part of these financial statements.
3
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INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
(Unaudited)
(In millions)
March 31, December 31,
1996 1995
--------- ------------
ASSETS
Current Assets
Cash and temporary investments $ 399 $ 312
Accounts and notes receivable, net 2,681 2,571
Inventories 2,954 2,784
Other current assets 338 206
------- -------
Total Current Assets 6,372 5,873
------- -------
Plants, Properties and Equipment, Net 12,973 10,997
Forestlands 3,317 2,803
Investments 1,445 1,420
Goodwill 2,885 1,355
Deferred Charges and Other Assets 1,614 1,529
------- -------
TOTAL ASSETS $28,606 $23,977
======= =======
The accompanying notes are an integral part of these financial statements.
4
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INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
(Unaudited)
(In millions)
March 31, December 31,
1996 1995
--------- ------------
LIABILITIES AND COMMON SHAREHOLDERS'
EQUITY
Current Liabilities
Notes payable and current maturities
of long-term debt $ 4,296 $ 2,283
Accounts payable 1,321 1,464
Accrued Liabilities 1,636 1,116
------- -------
Total Current Liabilities 7,253 4,863
------- -------
Long-Term Debt 5,583 5,946
Deferred Income Taxes 2,779 1,974
Other Liabilities 1,215 980
Minority Interest 1,994 1,967
International Paper-Obligated
Mandatorily Redeemable Preferred
Securities of Trust Holding Solely
International Paper Subordinated
Debentures 450 450
Common Shareholders' Equity
Common stock, $1 par value, issued
1996 -- 299.0 shares,
1995 -- 263.3 shares 299 263
Paid-in capital 3,399 1,963
Retained earnings 5,659 5,627
------- -------
9,357 7,853
Less: Common stock held in treasury,
at cost; 1996 -- .9 shares,
1995 -- 2.3 shares 25 56
------- -------
Total Common Shareholders' Equity 9,332 7,797
------- -------
TOTAL LIABILITIES AND
COMMON SHAREHOLDERS' EQUITY $28,606 $23,977
======= =======
The accompanying notes are an integral part of these financial statements.
5
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INTERNATIONAL PAPER COMPANY
Consolidated Statement of Cash Flows
(Unaudited)
(In millions)
Three Months Ended
March 31,
------------------------
1996 1995
------- -------
OPERATING ACTIVITIES
Net earnings $ 98 $ 246
Noncash items
Gain on sale of partnership interest (592)
Restructuring and asset impairment
charge 515
Depreciation and amortization 263 234
Deferred income taxes 81 35
Other, net 89 (50)
Changes in current assets and liabilities
Accounts and notes receivable 50 (246)
Inventories 36 (94)
Other current assets (21) (13)
Accounts payable and accrued
liabilities (167) 86
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CASH PROVIDED BY OPERATIONS 352 198
------- -------
INVESTMENT ACTIVITIES
Invested in capital projects (253) (243)
Mergers and acquisitions (1,279) (9)
Other (9) (22)
------- -------
CASH USED FOR INVESTMENT ACTIVITIES (1,541) (274)
------- -------
FINANCING ACTIVITIES
Issuance of common stock 35 14
Issuance of debt 1,421 37
Reduction of debt (136) (58)
Change in bank overdrafts (12) 80
Dividends paid (65) (53)
Other 31 (23)
------- -------
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 1,274 (3)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2 5
------- -------
CHANGE IN CASH AND TEMPORARY INVESTMENTS 87 (74)
CASH AND TEMPORARY INVESTMENTS
Beginning of the period 312 270
------- -------
End of the period $ 399 $ 196
======= =======
The accompanying notes are an integral part of these financial statements.
6
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INTERNATIONAL PAPER COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
1. The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q
and, in the opinion of Management, include all adjustments
(consisting only of normal recurring accruals) which are necessary
for the fair presentation of results for the interim periods. It
is suggested that these consolidated financial statements be read
in conjunction with the audited financial statements and the notes
thereto incorporated by reference in the Company's Form 10-K for
the year ended December 31, 1995, which has previously been filed
with the Securities and Exchange Commission.
2. On March 12, 1996, the Company completed the recently-announced merger
with Federal Paper Board (Federal), a diversified forest and paper
products company. Under the terms of the merger agreement, Federal
shareholders received, at their election subject to certain
limitations, either $55 in cash per share or $55 worth of
International Paper common stock per share. To complete the
merger, Federal shares were acquired for approximately $1.3 billion
in cash and $1.4 billion in International Paper common stock. The
results of Federal are included in the consolidated statement of
earnings since March 12, 1996, and the March 31, 1996, consolidated
balance sheet includes the balances of Federal.
In late April 1995, the Company acquired approximately 26% of Carter
Holt Harvey, a New Zealand-based forest and paper products
company for $1.1 billion. The acquisition increased International
Paper's ownership to just over 50%. As a result, Carter Holt
Harvey was consolidated into International Paper's financial
statements beginning on May 1, 1995. Prior to this date, the equity
accounting method was utilized.
In January 1995, the Company acquired the assets of two Michigan-based
paper distributors, Carpenter Paper Company and Seaman-Patrick
Paper Company. In September 1995, the Company acquired Micarta, the
high pressure laminates business of Westinghouse located in
Hampton, South Carolina and in October 1995, the Company acquired the inks
and adhesives resin business of DSM located in Niort, France.
All of the 1996 and 1995 acquisitions were accounted for using the
purchase method.
The consolidated balance sheet at March 31, 1996 includes preliminary
purchase price allocations for Micarta, the inks and adhesives
resin business of DSM, Federal and Carter Holt Harvey.
3. On March 29, 1996, IP Timberlands Ltd. (IPT), a consolidated subsidiary of
International Paper, completed the sale of a 98% general partnership
interest in a subsidiary partnership that owns approximately 300,000 acres
of forestlands located in Oregon and Washington. Included in the net
assets of the partnership interest sold were forestlands, roads and $750
million of long-term debt. As a result of this transaction, International
Paper recognized in its first-quarter consolidated results a $592 million
pre-tax gain ($336 million after taxes and minority interest expense or
$1.25 per share). IPT and International Paper retained non operating
interests in the partnership.
7
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4. During the first quarter of 1996 , the Company's Board of Directors
authorized a series of management actions to restructure and strengthen
existing businesses which resulted in a pre-tax charge to earnings of $515
million ($362 million after taxes or $1.35 per share). The charge included
$260 million for the write-off of certain assets, $88 million for asset
impairments, $115 million in associated severance costs and $52 million of
other expenses, including the cancellation of leases. Accruals for
one-time cash costs, which include severance costs and other expenses,
totaled $167 million. Approximately $100 million of these cash costs are
expected to be incurred in 1996 with the remainder to be spent in 1997. All
actions are planned to be completed before the end of 1997.
5. In the third quarter of 1995, International Paper Capital Trust (the
"Trust") issued $450 million of International Paper-obligated
mandatorily redeemable preferred securities. The Trust is a wholly
owned consolidated subsidiary of International Paper. The Trust's
sole assets are International Paper 5 1/4% convertible subordinated
debentures. The obligations of the Trust related to its preferred
securities are unconditionally guaranteed by International Paper
Company. These preferred securities are convertible into
International Paper common stock.
6. Inventories by major category include:
March 31, December 31,
1996 1995
--------- ------------
(In millions)
Raw materials $ 569 $ 591
Finished pulp, paper and packaging products 1,458 1,340
Finished lumber and panel products 226 223
Operating supplies 392 343
Other 309 287
----- -----
Total $2,954 $2,784
===== =====
7. Interest payments made during the three months ended March 31, 1996 and
1995 were $162 million and $114 million, respectively. Interest income
for the three months ended March 31, 1996 and 1995 was $11 million and $7
million, respectively. Income tax payments made during the three months
ended March 31, 1996 and 1995 were $14 million and $6 million,
respectively.
8. Temporary investments with a maturity of three months or less are treated
as cash equivalents and are stated at cost. Temporary investments totaled
$255 million and $184 million at March 31, 1996 and December 31, 1995,
respectively.
9. Accumulated depreciation was $8.7 billion at March 31, 1996 and $8.4
billion at December 31, 1995. The allowance for doubtful accounts was $103
million at March 31, 1996 and $101 million at December 31, 1995.
10. Certain reclassifications have been made to prior-year amounts to conform
with the current-year presentation.
8
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11. The following unaudited pro forma financial information for the three
months ended March 31, 1996 and 1995 presents the combined results of the
continuing operations of International Paper, Federal, Carter Holt Harvey
and the other acquisitions completed during 1995.
The merger with Federal was completed on March 12,1996 and is included in
the consolidated pro forma information presented for each period. The
acquisiton of 26.5% of Carter Holt Harvey common stock was completed in
April 1995, thereby increasing the Company's total ownership to 50.3%
(50.2% on a fully-diluted basis). Carter Holt Harvey was accounted for
under the equity method prior to May 1, 1995, at which time it was
consolidated. Carter Holt Harvey is consolidated in each of the periods
presented.
The pro forma information is prepared as if each of the acquisitions
occurred as of the beginning of each period. The pro forma adjustments are
based on available information, estimated purchase price allocations and
certain assumptions that the Company believes are reasonable. There can be
no assurance that the assumptions and estimates will be realized. The pro
forma information does not purport to represent the Company's actual
results of operations if the transactions described above would have
occurred at the beginning of the respective period. In addition, the
information is not indicative of future results.
1996 1995
------- --------
Net Sales $ 5,112 $ 5,479
======= ========
Net Earnings 84 301
======= ========
Earnings Per Common Share 0.28 1.03
======= ========
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
International Paper's first-quarter 1996 consolidated net sales were $4.8
billion, which exceeded 1995 first-quarter net sales of $4.5 billion, but were
below fourth-quarter 1995 sales of $5.1 billion.
First-quarter 1996 net earnings were $98 million or $.36 per share. This
included a gain on the sale of an interest in a forestlands partnership that
contributed $336 million after taxes and minority interest expense or $1.25 per
share, and a restructuring and asset impairment charge of $362 million after
taxes or $1.35 per share. Before these items, first quarter 1996 net earnings
were $124 million or $.46 per share. These results were about 50% below
first-quarter 1995 net earnings of $246 million or $.97 per share and
fourth-quarter 1995 net earnings of $263 million or $1.01 per share.
First-quarter 1996 earnings declined from the 1995 fourth quarter primarily due
to sharply lower prices, extensive downtime at company mills as customers
continued to draw down their inventories, and unusually severe weather
conditions. Compared with the 1995 first quarter, current-period earnings were
down in all product lines. The largest declines occurred in the pulp and
printing and converting papers businesses. Although prices declined during the
first quarter, improvements in market conditions led to price increase
announcements early in the second quarter for uncoated papers, pulp and
containerboard.
The consolidated results of operations include Federal Paper Board (Federal)
since March 12, 1996 and Carter Holt Harvey since May 1, 1995. About 12% of
first quarter 1996 net sales were generated by these businesses. The results
for each of these companies are included in the segments in which they operate
although their segment results have been adjusted to conform with International
Paper's classifications. The following segment discussions are before the gain
on the sale of an interest in a forestlands partnership and the restructuring
and asset impairment charge.
Printing Papers 1996 first-quarter net sales decreased to $1.4 billion from $1.5
billion in the 1995 first quarter even though contributions from Carter Holt
Harvey and Federal were approximately 6% of total segment sales for the 1996
first quarter. Segment sales and operating profit were lower than the 1995
first quarter and the 1995 fourth quarter due to significant price declines for
most paper products as customers continued to reduce their inventories.
Customer inventory corrections are estimated to be complete and improvement in
some product lines has led to price increases announced for the second quarter
for most uncoated U.S. business papers.
Packaging 1996 first-quarter net sales increased 19% to $1.1 billion from $955
million in the 1995 first quarter and were about even with the 1995 fourth
quarter. First-quarter sales before contributions from Carter Holt Harvey and
Federal would have been about 3% below the 1995 first quarter. Operating profit
declined sharply from the 1995 first quarter and the 1995 fourth quarter
primarily due to rapidly deteriorating prices for containerboard which more than
offset increased volume. Bleached board results were about even with the 1995
first quarter.
Distribution net sales of $1.2 billion for the 1996 first quarter, including
contributions from 1995 acquisitions, were about even with the 1995 first
quarter and were slightly below the 1995 fourth quarter. Operating profit
declined from the 1995 first quarter reflecting lower prices for printing
papers.
Specialty Products 1996 first-quarter net sales increased 20% to $860 million
from $715 million in the 1995 first quarter and declined slightly from the 1995
fourth quarter. Before Carter Holt Harvey's
10
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contribution, first quarter sales would have increased about 3% over the 1995
first quarter. Operating profit was about even with the 1995 first quarter.
Positive contributions from Carter Holt Harvey offset declines in other
businesses.
Forest Products 1996 first-quarter net sales increased 49% to $575 million from
$385 million in the 1995 first quarter. However, before contributions from
Carter Holt Harvey and Federal, sales would have decreased about 12%. Operating
earnings declined from the 1995 first quarter reflecting lower wood products
earnings that more than offset contributions from Carter Holt Harvey and
Federal.
MERGERS AND ACQUISITIONS
On March 12, 1996, International Paper completed the previously announced merger
with Federal Paper Board, a diversified forest and paper products company. Under
the terms of the merger agreement, Federal shareholders received, at their
election subject to certain limitations, either $55 in cash per share or $55
worth of International Paper common stock per share. To complete the merger,
Federal shares were acquired for approximately $1.3 billion in cash and $1.4
billion in International Paper common stock. The results of Federal are
included in the consolidated statement of earnings from March 12, 1996, and the
March 31, 1996 consolidated balance sheet includes the balances of Federal. As
a result of this merger, Federal contributed about 2% of consolidated net sales
and up to 5% for each of the components of consolidated costs and expenses.
Increases since December 31, 1995 in property, plant and equipment,
forestlands, goodwill, notes payable and current maturities of long-term debt,
deferred income taxes, and other liabilities were primarily the result of the
consolidation of Federal. Consolidated common shareholders' equity increased
due to the International Paper common shares issued in exchange for Federal
shares. Consolidated working capital was negative at March 31, 1996 due to the
short-term debt used to acquire Federal shares and the consolidation of
borrowings classified as short term included on the balance sheet of Federal.
In late April 1995, the Company acquired approximately 26% of Carter Holt
Harvey, a New Zealand-based forest and paper products company, for $1.1 billion.
The acquisition increased International Paper's ownership to just over 50%. As
a result, Carter Holt Harvey was consolidated into International Paper's
financial statements beginning on May 1, 1995. Prior to this date, the equity
accounting method was utilized. Sales contributions from Carter Holt Harvey were
approximately 10% of total consolidated net sales for the 1996 first quarter.
Carter Holt Harvey also contributed from 8% to 13% of each of the components of
consolidated costs and expenses except for taxes other than payroll and income
taxes for which the contribution was de minimis. The consolidated balance sheets
at December 31, 1995 and March 31, 1996 include Carter Holt Harvey.
Interest expense increased as a result of higher International Paper borrowings
used for the acquisitions of Carter Holt Harvey and Federal, as well as the
consolidation of their interest expense since the dates of acquisition. The
consolidated balance sheet reflects preliminary purchase price allocations for
Carter Holt Harvey and Federal.
11
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RESTRUCTURING AND ASSET IMPAIRMENT CHARGE
During the first quarter of 1996 , the Company's Board of Directors authorized a
series of management actions to restructure and strengthen existing businesses
that resulted in a pre-tax charge to earnings of $515 million ($362 million
after taxes or $1.35 per share). The charge included $260 million for the
write-off of certain assets, $88 million for asset impairments, $115 million in
associated severance costs and $52 million of other expenses, including the
cancellation of leases. Accruals for one-time cash costs, which include
severance costs and other expenses, totaled $167 million. Approximately $100
million of these cash costs are expected to be incurred in 1996 with the
remainder to be spent in 1997. Annual pre-tax savings generated by these
actions are expected to be approximately $70 million or $.17 per share in 1996
and $100 million or $.25 per share in 1997.
About three-quarters of the charge related to businesses in the specialty
products segment with the majority to be used for the consolidation of the
imaging products business in the United States and Europe. The printing papers
and packaging segments each received roughly 10% of the charge and about 5%
related to the forest products segment.
GAIN ON SALE OF PARTNERSHIP INTEREST
On March 29, 1996, IP Timberlands Ltd. (IPT), a consolidated subsidiary of
International Paper, completed the sale of a 98% general partnership interest in
a subsidiary partnership that owns approximately 300,000 acres of forestlands
located in Oregon and Washington. Included in the net assets of the partnership
interest sold were forestlands, roads and $750 million of long-term debt. As a
result of this transaction, International Paper recognized in its first-quarter
consolidated results a $592 million pre-tax gain ($336 million after taxes and
minority interest expense or $1.25 per share).
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flow totaled $352 million for the three months of 1996, an
increase over 1995 first-quarter operating cash flow of $198 million. The
increase was primarily the result of lower increases in working capital
requirements ($102 million in 1996 compared with $267 million in 1995) and
higher noncash expenses included in earnings.
Investments in capital projects, including Carter Holt Harvey, totaled $253
million for the three months, about even with the 1995 first quarter.
Approximately $1.3 billion of cash was spent and $1.4 billion of International
Paper common stock was issued (35.4 million shares) to acquire the
outstanding shares of Federal under the terms of the merger completed in the
1996 first quarter.
Financing activities for the 1996 three-month period included approximately $1.3
billion of short-term borrowings primarily used to acquire Federal common
shares. Dividend payments of $65 million or $.25 per common share reflected the
third-quarter 1995 increase in the quarterly dividend and the two-for-one common
stock split.
The Company anticipates that cash flow generated by operations, supplemented as
necessary by short- or long-term borrowings, will be adequate to fund its
capital expenditures, which are expected to be about $1.5 billion for 1996,
including the expected capital spending activities of Carter Holt Harvey and
Federal.
12
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OTHER
The prior-year financial statements have been adjusted to present minority
interest expense separately. Minority interest expense was previously included
as a component of cost of products sold, and a reduction in operating profit,
because the amounts were not material. Minority interest expense for the 1996
first quarter increased significantly over the comparable 1995 first quarter due
to the consolidation of Carter Holt Harvey and the minority interestholder's
share of the gain on the sale of an interest in a forestlands partnership.
The effective income tax rate increased from about 36% in the 1995 first
quarter to about 48.5% in the 1996 first quarter. The reasons for the
increase related to components of the restructuring and asset impairment charge
that are not deductible for tax purposes and the statutory tax rate on the gain
on the sale of an interest in a forestlands partnership.
13
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ITEM 3. OTHER FINANCIAL INFORMATION
Sales by Industry Segment
and
Production by Products
(Unaudited)
Sales by Industry Segment (In millions)
Three Months Ended
March 31,
------------------
1996 1995
-------- --------
Printing Papers $1,355 $1,475
Packaging 1,135 955
Distribution 1,185 1,195
Specialty Products 860 715
Forest Products 575 385
Less: Intersegment Sales (312) (233)
----- -----
$4,798 $4,492
===== =====
Production by Products
Three Months Ended
March 31,
------------------
1996 (D) 1995
-------- --------
Printing Papers (In thousands of tons)
White Papers and Bristols 833 849
Coated Papers 246 322
Market Pulp (A) 404 428
Newsprint 22 21
Packaging (In thousands of tons)
Containerboard 652 543
Bleached Packaging Board 343 265
Industrial Papers 160 160
Industrial and Consumer Packaging (B) 793 732
Specialty Products
Tissue 25 --
Forest Products (In millions)
Panels (sq. ft. 3/8" basis) (C) 286 206
Lumber (board feet) 348 218
(A) This excludes market pulp purchases.
(B) A significant portion of this tonnage was fabricated from paperboard and
paper produced at the Company's own mills and included in the
containerboard, bleached packaging board, and industrial papers amounts
in this table.
(C) Panels include plywood and oriented strand board.
(D) Includes Carter Holt Harvey for the full quarter and Federal from
March 12, 1996.
14
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
DIOXIN LITIGATION
As reported in the Annual Report on Form 10-K for the year ended
December 31, 1995 (the "Annual Report"), on June 11, 1993, a lawsuit purporting
to be a class action was filed by individuals against the Company, Dow Chemical
and individual employees of both companies in the 18th Judicial District of
Louisiana seeking compensatory and punitive damages of an unspecified amount,
alleging that the Company polluted Staulkinghead Creek and all waterways south
thereof, by discharging chemicals, including dioxin, from its Bastrop, Louisiana
mill. The case was removed to the U.S. District Court for the Middle District of
Louisiana. On June 22, 1994, the Court entered an order dismissing Dow and its
employees from the case. The plaintiff appealed this ruling challenging among
other things federal jurisdiction. The Fifth Circuit Court of Appeals ruled in
favor of the defendants on all issues and returned the case to the Federal
District Court. That Court dismissed plaintiff's claims based on an alleged fear
of contracting cancer since these lawsuits were filed beyond the limitations
period for such actions. The case is proceeding on the property damage and
business loss causes of action. The class certification issue remains before the
Court for determination.
Beginning in November of 1990, the Company was named as a defendant in 88
lawsuits by individuals filed in state or federal court in Mississippi alleging
that it has polluted and damaged the Pascagoula, Leaf and Escatawpa Rivers by
releasing dioxin and over forty other chemicals into those rivers. The 88
original Mississippi cases were consolidated before one judge and for
administrative purposes were divided into the Pritchard Group and the Deakle
Group. Following a series of rulings by the court on Motions to Dismiss and
Motions for Summary Judgment, as of May 3, 1996, all of the Pritchard Group
cases have been dismissed, leaving only the Deakle Group cases still pending (6
cases, 1,831 plaintiffs) in Mississippi. Motions for Summary Judgment have been
filed in all the Deakle Group cases raising the same legal issues as those
raised in the Pritchard Group cases. While any of this litigation has an element
of uncertainty, the Company believes that in the very near future it will
prevail on its Motions for Summary Judgment, thereby eliminating all the
remaining cases. The Company further believes that the outcome of any of these
proceedings, lawsuits or claims, pending or threatened, or all of them combined,
will not have a materially adverse effect on the consolidated financial position
or results of operations.
OTHER LITIGATION
In actions reported in the Annual Report, an order was entered on April 11,
1996, in Maine Superior Court, whereby in consideration of the payment of
$175,296, the Company settled with both the State of Maine and the Town of Jay,
all air emission violations that may have occurred through December 31, 1995, as
well as all violations of state waste water discharge and hazardous waste laws
through December 31, 1995, thereby concluding the foregoing two actions
involving emissions from the Company's Adroscoggin mill's lime kiln. The Company
has also paid the $22,000 penalty assessed by the Town in its order of
October 14, 1993, which it did not appeal.
15
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The Annual Report disclosed that in 1989, Masonite Corporation, a
wholly-owned subsidiary of the Company ("Masonite"), modified a production line
to make a new product at a facility in Ukiah, California. The facility obtained
the necessary Authority to Construct permits from the appropriate state
authority. In May 1992, the EPA, Region 9, issued an order alleging that an
additional Prevention of Significant Deterioration permit was required for the
new product line. On January 18, 1995, a consent decree which resolves this
matter was lodged with the U.S. District Court for the Northern District of
California. The consent decree includes a civil penalty of $600,000. The consent
decree was entered on April 24, 1996, terminating this matter.
A lawsuit purporting to be a nationwide class action suit was filed against
the Company and Masonite, on December 27, 1994 in Mobile County Circuit Court,
Mobile, Alabama. This lawsuit alleges that hardboard siding, which is used as
exterior cladding for residential dwellings and is manufactured by Masonite,
fails prematurely, allowing moisture intrusion. It is further alleged that the
presence of moisture in turn causes the failure of the structure underneath the
siding. The class, which has been certified, consists of all owners of homes in
the United States having Masonite hardboard siding. It is impossible to know how
many homes may have this siding, but it is estimated that there are hundreds of
thousands. The Company and Masonite were unsuccessful in their attempt to remove
the case to the Federal District Court for the Southern District of Alabama on
diversity grounds. The case has been remanded to the Mobile County Circuit Court
and has been set for trial on August 19, 1996. In addition, on December 7, 1995,
a lawsuit was filed in the United States District Court in Hattiesburg,
Mississippi seeking class certification on behalf of all owners of buildings
with Masonite siding. This action was transferred by the Panel for Multidistrict
Litigation to the United States District Court in New Orleans, Louisiana where
all pending federal cases involving claims of defective Masonite siding have
been consolidated.
The Company is also involved in other contractual disputes, administrative
and legal proceedings and investigations of various types. While any litigation,
proceeding or investigation has an element of uncertainty, the Company believes
that the outcome of any proceeding, lawsuit or claim that is pending or
threatened, or all of them combined, will not have a materially adverse effect
on its consolidated financial position or results of operations.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Statement of Computation of Per Share Earnings
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company
for the period covered by this report except those previously
set forth in the Annual Report on Form 10-K for the year
ended December 31, 1995.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL PAPER COMPANY
(Registrant)
Date: May 15, 1996 By /s/ MARIANNE M. PARRS
--------------------------------
Marianne M. Parrs
Senior Vice President
and Chief Financial Officer
Date: May 15, 1996 By /s/ ANDREW R. LESSIN
--------------------------------
Andrew R. Lessin
Vice President and
Controller and Chief
Accounting Officer
18
<PAGE>
(Exhibit 11)
INTERNATIONAL PAPER COMPANY
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(In millions, except per-share amounts)
Three Months Ended
March 31,
-----------------------
1996 1995
-------- --------
Net earnings $ 98 $ 246
Debenture interest savings, net of taxes, assuming
conversion of convertible subordinated debentures 2
----- -----
Primary net earnings 98 248
Reduction in minority interest expense, net of taxes,
assuming conversion of preferred securities of
subsidiary 3
----- -----
Fully diluted net earnings $ 101 $ 248
===== =====
Earnings per common share $ 0.36 $ 0.97
===== =====
Primary earnings per share $ 0.36 $ 0.96
===== =====
Fully diluted earnings per share $ 0.36 $ 0.96
===== =====
PRIMARY SHARES
Average shares outstanding 268.9 252.8
Shares assumed to be repurchased using long-term
incentive plan deferred compensation at
average market price (0.8) (0.6)
Shares assumed to be issued upon exercise of
stock options, net of treasury buyback at
average market price 2.0 0.9
Shares assumed to be issued upon conversion of
convertible subordinated debentures 5.8
----- -----
Primary shares 270.1 258.9
===== =====
FULLY DILUTED SHARES
Average shares outstanding 268.9 252.8
Shares assumed to be repurchased using long-term
incentive plan deferred compensation at
period-end market price (if higher than average
market price) (0.7) (0.6)
Shares assumed to be issued upon exercise of
stock options, net of treasury buyback at
period-end market price (if higher than average
market price) 2.1 0.9
Shares assumed to be issued upon conversion of
preferred securities of subsidiary 8.3
Shares assumed to be issued upon conversion of
convertible subordinated debentures 5.9
----- -----
Fully diluted shares 278.6 258.9
===== =====
Note: The Company reports earnings per common share as the effect of dilutive
securities is less than 3%.
19
<PAGE>
(Exhibit 12)
INTERNATIONAL PAPER COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
(Unaudited)
<TABLE>
<CAPTION>
For the Years Ended December 31, Three Months Ended
March 31,
TITLE 1991 1992 1993 1994 1995 1995 1996
- ------------------------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
A) Earnings before income taxes, minority
interest, extraordinary item and
accounting changes $ 693.0 $ 226.0 $ 538.0 $ 715.0 $2,028.0 $ 406.0 $ 336.0
B) Less: Minority interest expense, net of
taxes (42.0) (15.0) (36.0) (47.0) (156.0) (14.0) (75.0)
C) Add: Fixed charges excluding
capitalized interest 380.3 325.3 365.3 412.3 582.3 119.9 147.3
D) Add: Amortization of previously
capitalized interest 9.9 9.9 12.2 12.8 13.0 3.2 3.7
E) Less: Equity in undistributed
earnings of affiliates (10.8) (19.1) (25.9) (49.1) (94.5) (16.3) (12.4)
-------- -------- -------- -------- -------- -------- --------
F) Earnings before income taxes, minority
interest, extraordinary item, accounting
changes and fixed charges $1,030.4 $ 527.1 $ 853.6 $1,044.0 $2,372.8 $ 498.8 $ 399.6
======== ======== ======== ======== ======== ======== ========
Fixed Charges
G) Interest and amortization of debt
expense $ 351.1 $ 297.1 $ 334.5 $ 371.0 $ 542.3 $ 110.8 $ 136.3
H) Interest factor attributable to rentals 29.2 28.2 30.8 41.3 40.0 9.1 11.0
I) Capitalized interest 36.4 42.0 12.2 18.0 58.0 7.6 15.3
-------- -------- -------- -------- -------- -------- --------
J) Total fixed charges $ 416.7 $ 367.3 $ 377.5 $ 430.3 $ 640.3 $ 127.5 $ 162.6
======== ======== ======== ======== ======== ======== ========
K) Ratio of earnings to fixed charges 2.47 1.44 2.26 2.43 3.71 3.91 2.46
======== ======== ======== ======== ======== ======== ========
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 399
<SECURITIES> 0
<RECEIVABLES> 2,782
<ALLOWANCES> 101
<INVENTORY> 2,954
<CURRENT-ASSETS> 6,372
<PP&E> 21,692
<DEPRECIATION> 8,719
<TOTAL-ASSETS> 28,606
<CURRENT-LIABILITIES> 7,253
<BONDS> 5,583
0
0
<COMMON> 299
<OTHER-SE> 9,033
<TOTAL-LIABILITY-AND-EQUITY> 28,606
<SALES> 4,798
<TOTAL-REVENUES> 4,798
<CGS> 3,556
<TOTAL-COSTS> 4,929
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125
<INCOME-PRETAX> 336
<INCOME-TAX> 163
<INCOME-CONTINUING> 98
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
