<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1996 Commission file number 1-3157
INTERNATIONAL PAPER COMPANY
(Exact name of registrant as specified in its charter)
New York 13 0872805
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
Two Manhattanville Road, Purchase, NY 10577
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 914-397-1500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common stock outstanding on October 31, 1996: 300,155,785 shares.
<PAGE>
INTERNATIONAL PAPER COMPANY
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings -
Three Months and Nine Months Ended September 30, 1996 and 1995 3
Consolidated Balance Sheet -
September 30, 1996 and December 31, 1995 4-5
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
Item 3. Other Financial Information 14
PART II. Other Information
Item 1. Legal Proceedings 15
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 16
Signatures 17
* Omitted since no answer is called for, answer is in the negative
or inapplicable.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL PAPER COMPANY
Consolidated Statement of Earnings
(Unaudited)
(In millions, except per-share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -------------------------------
1996 1995 1996 1995
------------ ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net Sales $ 5,108 $ 5,145 $ 14,999 $ 14,721
------------ ---------------- -------------- ---------------
Costs and Expenses
Cost of products sold 3,760 3,566 11,087 10,322
Selling and administrative expenses 387 342 1,113 992
Depreciation and amortization 307 266 872 764
Distribution expenses 240 205 678 589
Taxes other than payroll and income taxes 51 46 148 132
Restructuring and asset impairment charge 515
------------ ---------------- -------------- ---------------
Total Costs and Expenses 4,745 4,425 14,413 12,799
------------ ---------------- -------------- ---------------
Gain on sale of partnership interest 592
------------ ---------------- -------------- ---------------
Earnings Before Interest, Income Taxes and
Minority Interest 363 720 1,178 1,922
Interest expense, net 136 129 398 371
------------ ---------------- -------------- ---------------
Earnings Before Income Taxes and Minority Interest 227 591 780 1,551
Provision for income taxes 86 210 329 551
Minority interest expense, net of taxes 30 53 143 110
------------ ---------------- -------------- ---------------
Net Earnings $ 111 $ 328 $ 308 $ 890
============ ================ ============= ==============
Earnings per Common Share $ 0.37 $ 1.27 $ 1.06 $ 3.49
============ ================ ============= ==============
Average Shares of Common Stock Outstanding 300.0 258.7 289.4 255.1
============ ================ ============= ==============
Cash Dividends per Common Share $ 0.25 $ 0.25 $ 0.75 $ 0.67
============ ================ ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------ ------------------
<S> <C> <C>
Assets
Current Assets
Cash and temporary investments $ 405 $ 312
Accounts and notes receivable, net 2,646 2,571
Inventories 2,876 2,784
Other current assets 276 206
----------------- -----------------
Total Current Assets 6,203 5,873
----------------- -----------------
Plants, Properties and Equipment, Net 13,078 10,997
Forestlands 3,330 2,803
Investments 1,361 1,420
Goodwill 2,888 1,355
Deferred Charges and Other Assets 1,704 1,529
----------------- -----------------
Total Assets $ 28,564 $ 23,977
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------ --------------------
<S> <C> <C>
Liabilities and Common Shareholders' Equity
Current Liabilities
Notes payable and current maturities of long-term debt $ 3,779 $ 2,283
Accounts payable 1,308 1,464
Accrued liabilities 1,449 1,116
----------------- ------------------
Total Current Liabilities 6,536 4,863
----------------- ------------------
Long-Term Debt 6,183 5,946
Deferred Income Taxes 2,851 1,974
Other Liabilities 1,236 980
Minority Interest 1,894 1,967
International Paper - Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust Holding Solely
International Paper Subordinated Debentures 450 450
Common Shareholders' Equity
Common stock, $1 par value, issued
1996 - 300.7 shares, 1995 - 263.3 shares 301 263
Paid-in capital 3,410 1,963
Retained earnings 5,720 5,627
----------------- ------------------
9,431 7,853
Less: Common stock held in treasury, at cost;
1996 - .5 shares, 1995 - 2.3 shares 17 56
----------------- ------------------
Total Common Shareholders' Equity 9,414 7,797
----------------- ------------------
Total Liabilities and Common Shareholders' Equity $ 28,564 $ 23,977
================= ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
INTERNATIONAL PAPER COMPANY
Consolidated Statement of Cash Flows
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1996 1995
------------ -------------
<S> <C> <C>
Operating Activities
Net earnings $ 308 $ 890
Noncash items
Gain on sale of partnership interest (592)
Restructuring and asset impairment charge 515
Depreciation and amortization 872 764
Deferred income taxes 133 123
Other, net 61 (102)
Changes in current assets and liabilities
Accounts and notes receivable 128 (178)
Inventories 157 (326)
Accounts payable and accrued liabilities (331) 214
Other (2) (6)
------------ -------------
Cash Provided by Operations 1,249 1,379
------------ -------------
Investment Activities
Invested in capital projects (944) (916)
Mergers and acquisitions, net of cash acquired (1,524) (1,108)
Consolidation of equity investment 241
Other 27 (90)
------------ -------------
Cash Used for Investment Activities (2,441) (1,873)
------------ -------------
Financing Activities
Issuance of common stock 79 64
Issuance of preferred securities by subsidiary 450
Issuance of debt 1,713 873
Reduction of debt (252) (665)
Change in bank overdrafts (71) 91
Dividends paid (215) (171)
Other 29 (51)
------------ -------------
Cash Provided by Financing Activities 1,283 591
------------ -------------
Effect of Exchange Rate Changes on Cash 2 5
------------ -------------
Change in Cash and Temporary Investments 93 102
Cash and Temporary Investments
Beginning of the period 312 270
------------ -------------
End of the period $ 405 $ 372
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
INTERNATIONAL PAPER COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, in
the opinion of Management, include all adjustments (consisting only of
normal recurring accruals) which are necessary for the fair presentation of
results for the interim periods. It is suggested that these consolidated
financial statements be read in conjunction with the audited financial
statements and the notes thereto incorporated by reference in the Company's
Form 10-K for the year ended December 31, 1995, which has previously been
filed with the Commission.
2. In September 1996, Carter Holt Harvey, a consolidated subsidiary of the
Company, acquired Forwood Products, the timber processing business of the
South Australian Government. In August 1996, the Company acquired Forchem,
a tall oil and turpentine processor in Finland.
On March 12, 1996, the Company completed the merger with Federal Paper Board
(Federal), a diversified forest and paper products company. Under the terms
of the merger agreement, Federal shareholders received, at their election
subject to certain limitations, either $55 in cash per share or $55 worth of
International Paper common stock per share. To complete the merger, Federal
shares were acquired for approximately $1.3 billion in cash and $1.4 billion
in International Paper common stock. The results of Federal are included in
the consolidated statement of earnings since March 12, 1996, and the
September 30, 1996 consolidated balance sheet includes the balances of
Federal.
In late April 1995, the Company acquired approximately 26% of Carter Holt
Harvey, a New Zealand-based forest and paper products company for $1.1
billion. The acquisition increased International Paper's ownership to just
over 50%. As a result, Carter Holt Harvey was consolidated into
International Paper's financial statements beginning on May 1, 1995. Prior
to this date, the equity accounting method was utilized. As a result of this
consolidation, the Company's consolidated cash and temporary investments
balance increased by $241 million, representing approximately 74% of Carter
Holt Harvey's cash and temporary investments balance as of the acquisition
date. This is reflected in the consolidated statement of cash flows as the
consolidation of an equity investment.
In January 1995, the Company acquired the assets of two Michigan-based paper
distributors, Carpenter Paper Company and Seaman-Patrick Paper Company. In
September 1995, the Company acquired Micarta, the high pressure laminates
business of Westinghouse located in Hampton, South Carolina. 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 September 30, 1996 includes preliminary
purchase price allocations for Federal, Forchem and Forwood Products. Final
allocations for these acquisitions will be completed in 1997.
7
<PAGE>
3. On March 29, 1996, IP Timberlands Ltd. (IPT), a consolidated subsidiary
of International Paper completed the sale of a 98% general
partnership interest in a subsidiary partnership that owns
approximately 300,000 acres of forestlands located in Oregon and
Washington. Included in the net assets of the partnership interest
sold were forestlands, roads and $750 million of long-term debt. As a
result of this transaction, International Paper recognized in its
first-quarter consolidated results a $592 million pre-tax gain ($336
million after taxes and minority interest expense). IPT and
International Paper retained non-operating interests in the
partnership.
4. During the first quarter of 1996 , the Company's Board of Directors
authorized a series of management actions to restructure and
strengthen existing businesses which resulted in a pre-tax
charge to earnings of $515 million ($362 million after taxes ). The charge
included $250 million for the write-off of certain assets, $100 million for
asset impairments, $80 million in associated severance costs and $85 million
of other expenses, including the cancellation of leases. Accruals for
one-time cash costs, which include severance costs and other expenses,
totaled $165 million. Approximately $100 million of these costs are expected
to be incurred in 1996 with the remainder to be spent in 1997.
5. In the third quarter of 1995, International Paper Capital Trust (the
"Trust") issued $450 million of International Paper-obligated mandatorily
redeemable preferred securities. The Trust's sole assets are $464
million aggregate principal amount of International Paper 5 1/4% convertible
subordinated debentures due 2025. These preferred securities are convertible
into International Paper common stock. Preferred securities distributions of
$18 million were paid during the nine months ended September 30, 1996.
6. Inventories by major category include:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------- ------------------
(In millions)
<S> <C> <C>
Raw materials $ 579 $ 591
Finished pulp, paper and packaging products 1,383 1,340
Finished lumber and panel products 218 223
Operating supplies 388 343
Other 308 287
------------------- ------------------
Total $ 2,876 $ 2,784
=================== ==================
</TABLE>
7. Interest payments made during the nine months ended September 30, 1996
and 1995 were $536 million and $430 million, respectively, including
payments of $200 million and $167 million for the 1996 and 1995 third
quarters. Interest income for the nine months ended September 30, 1996
and 1995 was $37 million and $35 million, respectively. Income tax payments
made during the nine months ended September 30, 1996 and 1995 were
$209 million and $335 million, respectively.
8
<PAGE>
8. Temporary investments with a maturity of three months or less are treated
as cash equivalents and are stated at cost. Temporary investments totaled
$201 million and $184 million at September 30, 1996 and December 31, 1995,
respectively.
9. Accumulated depreciation was $9.4 billion at September 30, 1996 and $8.4
billion at December 31, 1995. The allowance for doubtful accounts was $109
million at September 30, 1996 and $101 million at December 31, 1995.
10. Certain reclassifications have been made to prior-year amounts to conform
with the current-year presentation.
11. The following unaudited pro forma financial information for the three
months and nine months ended September 30, 1996 and 1995 presents the
combined results of the continuing operations of International Paper,
Federal, Carter Holt Harvey and the other acquisitions completed during 1996
and 1995.
The merger with Federal was completed on March 12,1996 and is included in
the consolidated pro forma information presented for each period. The
acquisition of 26.5% of Carter Holt Harvey common stock was completed in
April 1995, thereby increasing the Company's total ownership to 50.3% (50.2%
on a fully-diluted basis). Carter Holt Harvey was accounted for under the
equity method prior to May 1, 1995, at which time it was consolidated.
Carter Holt Harvey is consolidated in each of the periods presented.
The pro forma information is prepared as if the transactions occurred as of
the beginning of each period. The pro forma adjustments are based on
available information, estimated purchase price allocations and certain
assumptions that the Company believes are reasonable. There can be no
assurance that the assumptions and estimates will be realized. The pro forma
information does not purport to represent the Company's actual results of
operations if the transactions described above would have occurred at the
beginning of the respective period. In addition, the information is not
indicative of future results.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(In millions, except per-share amounts) September 30, September 30,
----------------------------------- -------------------------------
1996 1995 1996 1995
---------------- ---------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 5,144 $ 5,712 $ 15,446 $ 17,087
================ ================ ============== ==============
Net Earnings $ 111 $ 376 $ 293 $ 1,032
================ ================ ============== ==============
Earnings Per Common Share $ .37 $ 1.27 $ .98 $ 3.52
================ ================ ============== ==============
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
International Paper's third-quarter 1996 net sales of $5.1 billion were about
even with the 1995 third-quarter and the 1996 second quarter. Nine-month 1996
net sales were $15.0 billion compared with $14.7 billion for the 1995 nine-month
period.
Third-quarter 1996 net earnings were $111 million or $.37 per share, a 12%
increase over second-quarter 1996 net earnings of $99 million or $.33 per share.
Net earnings for the 1995 third quarter were a record $328 million or $1.27 per
share.
Net earnings for the 1996 nine months totaled $308 million or $1.06 per share
($334 million or $1.16 per share before unusual items recorded in the first
quarter). Unusual items consisted of a gain on the sale of an interest in a
forestlands partnership of $336 million after taxes and minority interest
expense or $1.25 per share and a restructuring and asset impairment charge of
$362 million after taxes or $1.35 per share. Nine-month 1995 net earnings were
$890 million or $3.49 per share.
Third-quarter 1996 earnings declined from the 1995 third quarter primarily due
to lower prices experienced by major product lines. Earnings improved over the
1996 second-quarter as demand continued to improve and customer orders
approached normal levels.
The consolidated results of operations include Federal Paper Board (Federal)
since March 12, 1996 and Carter Holt Harvey since May 1, 1995. About 18% of
third-quarter 1996 net sales were generated by these businesses. The results for
each of these businesses are included in each applicable segment although their
segment results have been adjusted to conform with International Paper's
classifications.
Printing Papers 1996 third-quarter net sales decreased to $1.4 billion from $1.6
billion in the 1995 third quarter. Carter Holt Harvey and Federal contributed
about 15% of total segment sales for the 1996 third quarter. Nine-month 1996
sales of $4.2 billion were below the $4.7 billion recorded in the comparable
1995 period. Operating profits for the third quarter were significantly below
the 1995 third quarter primarily due to lower prices. Operating profits advanced
over the 1996 second quarter due to a strengthening of U.S. and European pulp
and uncoated papers markets and less downtime at U.S. manufacturing facilities.
Pulp prices increased early in the third quarter while prices for reprographics
and offset grades increased late in the quarter.
Packaging 1996 third-quarter net sales increased to $1.3 billion from $1.2
billion in the third quarter of 1995. Sales contributions from Carter Holt
Harvey and Federal were about 28% of total 1996 third-quarter sales for this
segment. Net sales for the 1996 nine months increased to $3.7 billion from $3.3
billion in the 1995 nine-month period. Operating profits, which declined
significantly from the 1995 third quarter, were also down slightly from the 1996
second quarter mainly due to lower containerboard and box prices and weaker
results from overseas operations. Third-quarter containerboard volume reached
record levels. Bleached board orders and shipments improved, and price
increases have been announced in U.S. and export markets for certain bleached
board grades.
10
<PAGE>
Distribution net sales of $1.2 billion for the 1996 third quarter were below
1995 third-quarter net sales of $1.3 billion. Net sales for the 1996 nine-month
period were $3.5 billion compared with $3.8 billion for the 1995 nine months.
Operating profits improved slightly over the 1995 third quarter and were about
even with the 1996 second quarter.
Specialty Products 1996 third-quarter net sales increased to $885 million from
$870 million in the 1995 third quarter. Carter Holt Harvey contributed about 17%
of 1996 third-quarter sales. Net sales for the 1996 nine months increased to
$2.6 billion from $2.4 billion for the 1995 nine months. Third-quarter operating
profits, which were nearly twice the level of the 1995 third quarter, remained
about even with the 1996 second quarter, primarily due to strong demand for door
facings and decorative laminates. Higher energy prices aided the petroleum and
minerals businesses.
Forest Products 1996 third-quarter net sales increased 18% to $675 million from
$570 million in the 1995 third quarter. Sales contributions for the 1996 third
quarter from Carter Holt Harvey and Federal were about 43% of total segment
sales. Nine month 1996 net sales increased to $1.9 billion from $1.5 billion for
the 1995 nine months. Operating profits were somewhat below the 1995 third
quarter and the 1996 second quarter primarily due to lower timber pricing.
However, overall demand for wood products improved during the quarter and
customer inventories continue to trend downward.
MERGERS AND ACQUISITIONS
On March 12, 1996, International Paper completed the merger with Federal Paper
Board, a diversified forest and paper products company. Under the terms of the
merger agreement, Federal shareholders received, at their election subject to
certain limitations, either $55 in cash per share or $55 worth of International
Paper common stock per share. To complete the merger, Federal shares were
acquired for approximately $1.3 billion in cash and $1.4 billion in
International Paper common stock. The results of Federal are included in the
consolidated statement of earnings from March 12, 1996 and the September 30,
1996 consolidated balance sheet includes the balances of Federal. As a result of
this merger, Federal contributed about 8% of 1996 third-quarter consolidated net
sales and between 3% and 14% for each of the components of consolidated costs
and expenses. Increases since December 31, 1995, in property, plant and
equipment, forestlands, goodwill, notes payable and current maturities of
long-term debt, deferred income taxes, and other liabilities were primarily the
result of the consolidation of Federal. Consolidated common shareholders' equity
increased due to the International Paper common shares issued in exchange for
Federal shares. Consolidated working capital was negative at September 30, 1996
due to the short-term debt used to acquire Federal shares and the consolidation
of Federal borrowings classified as short term.
In late April 1995, the Company acquired approximately 26% of Carter Holt
Harvey, a New Zealand-based forest and paper products company, for $1.1 billion.
The acquisition increased International Paper's ownership to just over 50%. As a
result, Carter Holt Harvey was consolidated into International Paper's financial
statements beginning on May 1, 1995. Prior to this date, the equity
accounting method was utilized.
Sales contributions from Carter Holt Harvey were approximately 10% of
consolidated net sales for the 1996 third quarter. Carter Holt Harvey also
contributed from 8% to 12% of each of the components of consolidated costs and
expenses. The consolidated balance sheets at December 31, 1995 and September 30,
1996 include the balances of Carter Holt Harvey.
11
<PAGE>
In September 1996, Carter Holt Harvey completed the acquisition of Forwood
Products, the timber processing business of the South Australian Government. In
August 1996, the Company acquired Forchem, a tall oil and turpentine processor
in Finland.
The consolidated balance sheet at September 30, 1996 reflects preliminary
purchase price allocations for Federal, Forwood Products and Forchem.
RESTRUCTURING AND ASSET IMPAIRMENT CHARGE
During the first quarter of 1996, the Company's Board of Directors authorized a
series of management actions to strengthen existing businesses, which resulted
in a pre-tax charge to earnings of $515 million ($362 million after taxes or
$1.35 per share). The charge included $250 million for the write-off of certain
assets, $100 million for asset impairments, $80 million in associated severance
costs and $85 million of other expenses, including the cancellation of leases.
Accruals for one-time cash costs, which include severance costs and other
expenses, totaled $165 million. Approximately $100 million of these costs are
expected to be incurred in 1996 with the remainder to be spent in 1997. Annual
pre-tax savings generated by these actions are expected to be approximately $70
million in 1996 and $100 million in 1997.
About three quarters of the charge related to businesses in the specialty
products segment with the majority to be used for the consolidation of the
imaging products business in the United States and Europe. The printing papers,
packaging and forest products segments each received roughly 10% of the charge.
GAIN ON SALE OF PARTNERSHIP INTEREST
On March 29, 1996, IP Timberlands Ltd. (IPT), a consolidated subsidiary of
International Paper, completed the sale of a 98% general partnership interest in
a subsidiary partnership that owns approximately 300,000 acres of forestlands
located in Oregon and Washington. Included in the net assets of the partnership
interest sold were forestlands, roads and $750 million of long-term debt. As a
result of this transaction, International Paper recognized in its first-quarter
consolidated results a $592 million pre-tax gain ($336 million after taxes and
minority interest expense or $1.25 per share).
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaling $1.2 billion for the 1996 nine-month period
decreased from the $1.4 billion reported for the 1995 nine months. Lower
earnings for the 1996 nine months, partially offset by higher noncash expenses
and reduced working capital requirements, were primarily responsible for the
decrease. Working capital requirements for the 1996 nine-month period were
$48 million compared with $296 million for the nine months of 1995.
12
<PAGE>
Investments in capital projects, including spending by Carter Holt Harvey and
Federal, totaled $944 million for the 1996 nine months compared with $916
million reported for the 1995 nine months. Approximately $1.3 billion of cash
was spent and $1.4 billion of International Paper common stock was exchanged
(35.4 million shares) to acquire the outstanding shares of Federal under the
terms of the merger completed during the 1996 first quarter.
Financing activities for the 1996 nine-month period include approximately $1.3
billion of short- term borrowings used to acquire Federal common shares. Also,
$425 million of 6.875% to 7% notes and $316 million of medium-term notes were
issued. The proceeds of these notes were used primarily to reduce short-term
borrowings. Dividend payments of $215 million or $.75 per common share reflect
the third-quarter 1995 increase in the quarterly dividend and the two-for-one
common stock split.
The Company anticipates that cash flow generated by operations, supplemented as
necessary by short- or long-term borrowings, will be adequate to fund its
capital expenditures, which are expected to be about $1.5 billion for 1996.
This amount includes the expected capital spending activities of Carter Holt
Harvey and Federal.
On November 13, 1996, a subsidiary of the Company borrowed $450 million
from a consortium of banks. The principal is payable on December 31,
1999. The proceeds from these borrowings will be used primarily to
repay existing short-term debt.
OTHER
Minority interest expense for the 1996 nine months increased significantly over
the comparable 1995 period due to the consolidation of Carter Holt Harvey and
the minority interestholders' share of the gain on the sale of an interest in a
forestlands partnership.
The effective income tax rate increased from about 35.5% for the 1995 nine
months to about 42% for the 1996 nine month period. The reasons for the increase
relate to components of the restructuring and asset impairment charge that are
not deductible for tax purposes and the statutory tax rate on the gain on the
sale of an interest in a forestlands partnership. The effective income tax rate
for the 1996 nine months before the first-quarter unusual items was
approximately 37%.
Scitex Corporation announced on October 12, 1996 that its third-quarter 1996
loss will be substantially greater than the $6 million loss incurred by Scitex
in the second quarter of 1996. Scitex also indicated that its third-quarter
earnings, including any charges required by a restructuring program, would be
released in mid-November. International Paper is reviewing to what extent the
realizability of its 13% investment in Scitex could be impaired as a result of
the lower earnings and restructuring program. International Paper expects to
complete this evaluation in the fourth quarter of 1996 after details of Scitex's
restructuring plan are available.
13
<PAGE>
ITEM 3. OTHER FINANCIAL INFORMATION
Financial Information by Industry Segment
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
Net Sales by Industry Segment
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- --------------------------------
1996 1995 1996 1995
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Printing Papers $ 1,435 $ 1,595 $ 4,220 $ 4,670
Packaging 1,265 1,175 3,685 3,290
Distribution 1,175 1,290 3,515 3,775
Specialty Products 885 870 2,630 2,400
Forest Products 675 570 1,945 1,470
Less: Intersegment Sales (327) (355) (996) (884)
--------------- --------------- ---------------- ---------------
Net Sales $ 5,108 $ 5,145 $ 14,999 $ 14,721
=============== =============== ================ ===============
</TABLE>
<TABLE>
<CAPTION>
Production by Products Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- -----------------------------------
1996 (D) 1995 (F) 1996 (E)/(F) 1995 (F)
-------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Printing Papers (In thousands of tons)
White Papers and Bristols 1,038 875 2,850 2,570
Coated Papers 292 255 792 887
Market Pulp (A) 537 445 1,437 1,310
Newsprint 27 22 73 65
Packaging (In thousands of tons)
Containerboard 724 626 2,033 1,784
Bleached Packaging Board 507 321 1,361 876
Industrial Papers 181 168 496 489
Industrial and Consumer Packaging (B) 839 729 2,470 2,225
Specialty Products (In thousands of tons)
Tissue 29 25 82 42
Forest Products (In millions)
Panels (sq. ft. 3/8" basis) (C) 322 242 881 688
Lumber (board feet) 503 320 1,301 812
MDF (sq. ft. 3/4" basis) 71 72 209 189
Particleboard (sq. ft. 3/4" basis) 49 46 143 135
</TABLE>
(A) This excludes market pulp purchases.
(B) A significant portion of this tonnage was fabricated from paperboard and
paper produced at the Company's own mills and included in the containerboard,
bleached packaging board, and industrial papers amounts in this table.
(C) Panels include plywood and oriented strand board.
(D) Includes Carter Holt Harvey and Federal for the full quarter.
(E) Includes Federal from March 12, 1996.
(F) Certain reclassifications and adjustments have been made to year-to-date
and prior year amounts.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
MASONITE
As reported in the Quarterly Report on Form 10-Q for previous quarters, a
lawsuit which has been certified as a nationwide class action was filed against
the Company and its wholly owned subsidiary, Masonite Corporation, on
December 27, 1994, in Mobile County Circuit Court, Mobile, Alabama. The
lawsuit alleged that hardboard siding, which is used as exterior cladding for
residential dwellings and is manufactured by Masonite, fails prematurely,
allowing moisture intrusion. It further alleged that the presence of moisture,
in turn, causes the failure of the structure underneath. In August, 1996, the
single issue of product defect was tried to a jury and they returned a split
decision, finding partly for the plaintiff and partly for Masonite. The jury
was not asked to determine any other liability issues, causation or damages. The
next procedural step is not clear but Masonite expects the court to decide that
before year end. The Company intends to defend the lawsuit vigorously and
continues to believe that this matter will not have a materially adverse effect
on its consolidated financial position or results of operations.
ARIZONA CHEMICAL
The Company reported in the Annual Report on Form 10-K for the year ended
December 31, 1995, that Arizona Chemical Company (Arizona) was being
investigated through a Federal Grand Jury on matters relating to environmental
issues. On September 26, 1996, Arizona entered a plea and was sentenced on two
counts alleging violations of the Clean Water Act at a facility in Gulfport,
Mississippi, and one count alleging violations of hazardous waste requirements
at a facility in Picayune, Mississippi. Arizona agreed to pay a criminal penalty
of $2.5 million and was placed on probation for three years. Arizona also agreed
to pay a civil penalty of $150,000 and restitution in the amount of $1.5 million
to the Mississippi Department of Environmental Quality.
15
<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
A report on Form 8-K was filed on August 15, 1996.
16
<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: November 13, 1996 By /s/ MARIANNE M. PARRS
---------------------
Marianne M. Parrs
Senior Vice President
and Chief Financial Officer
Date: November 13, 1996 By /s/ ANDREW R. LESSIN
--------------------
Andrew R. Lessin
Vice President, Controller and
Chief Accounting Officer
17
<PAGE>
<PAGE>
INTERNATIONAL PAPER COMPANY (Exhibit 11)
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(In millions, except per-share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ------------------------
1996 1995 1996 1995
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Net earnings $ 111 $ 328 $ 308 $ 890
Debenture interest savings, net of taxes, assuming
conversion of convertible subordinated debentures 1 4
------------ ------------- ------------ -----------
Primary net earnings 111 329 308 894
Reduction in minority interest expense, net of taxes, assuming
conversion of preferred securities of subsidiary * 3 * 3
------------ ------------- ------------ -----------
Fully diluted net earnings $ 111 $ 332 $ 308 $ 897
============ ============= ============ ===========
Earnings per common share $ 0.37 $ 1.27 $ 1.06 $ 3.49
============ ============= ============ ===========
Primary earnings per share $ 0.37 $ 1.26 $ 1.06 $ 3.44
============ ============= ============ ===========
Fully diluted earnings per share $ 0.37 $ 1.24 $ 1.06 $ 3.41
============ ============= ============ ===========
PRIMARY SHARES
Average shares outstanding 300.0 258.7 289.4 255.1
Shares assumed to be repurchased using long-term
incentive plan deferred compensation at average
market price (0.6) (0.5) (0.6) (0.6)
Shares assumed to be issued upon exercise of
stock options, net of treasury buyback at average
market price 1.5 1.5 1.6 1.2
Shares assumed to be issued upon conversion of
convertible subordinated debentures 1.7 4.3
------------ ------------- ------------ ------------
Primary shares 300.9 261.4 290.4 260.0
============ ============= ============ ===========
FULLY DILUTED SHARES
Average shares outstanding 300.0 258.7 289.4 255.1
Shares assumed to be repurchased using long-term
incentive plan deferred compensation at period-end
market price (if higher than average market price) (0.6) (0.5) (0.6) (0.5)
Shares assumed to be issued upon exercise of
stock options, net of treasury buyback at period-end
market price (if higher than average market price) 1.9 1.5 2.1 1.6
Shares assumed to be issued upon conversion of
convertible subordinated debentures * 1.7 * 4.3
Shares assumed to be issued upon conversion of
preferred securities of subsidiary 7.1 2.6
------------ ------------- ------------ ------------
Fully diluted shares 301.3 268.5 290.9 263.1
============ ============= ============ ===========
</TABLE>
Note: The Company reports earnings per common share as the effect of
dilutive securities is less than 3%.
* Preferred securities of subsidiary were anti-dilutive.
18
<PAGE>
INTERNATIONAL PAPER COMPANY (Exhibit 12)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
(Unaudited)
<TABLE>
<CAPTION>
For the Years Ended December 31, Nine Months Ended
September 30,
TITLE 1991 1992 1993 1994 1995 1995 1996
- ------------------------------------------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
A) Earnings before income taxes, minority
interest, extraordinary item and
accounting changes $ 693.0 $ 226.0 $ 538.0 $ 715.0 $ 2,028.0 $ 1,551.0 $ 780.0
B) Less: Minority interest expense, net of
taxes (42.0) (15.0) (36.0) (47.0) (156.0) (110.0) (143.0)
C) Add: Fixed charges excluding
capitalized interest 380.3 325.3 365.3 412.3 592.9 439.3 493.8
D) Add: Amortization of previously
capitalized interest 9.9 9.9 12.2 12.8 13.0 9.7 14.0
E) Less: Equity in undistributed
earnings of affiliates (10.8) (19.1) (25.9) (49.1) (94.5) (80.8) (3.4)
--------- ---------- ---------- --------- ---------- ---------- --------
F) Earnings before income taxes,
minority interest, extraordinary
item, accounting changes
and fixed charges $ 1,030.4 $ 527.1 $ 853.6 $ 1,044.0 $ 2,383.4 $ 1,809.2 $1,141.4
=========== =========== =========== ========== =========== =========== ========
Fixed Charges
G) Interest and amortization of debt
expense $ 351.1 $ 297.1 $ 334.5 $ 371.0 $ 542.3 $ 406.6 $ 435.7
H) Interest factor attributable to rentals 29.2 28.2 30.8 41.3 40.0 29.1 40.4
I) Preferred dividends of subsidiary 10.6 3.6 17.7
J) Capitalized interest 36.4 42.0 12.2 18.0 58.0 22.4 43.4
----------- ----------- ----------- ---------- ----------- ----------- --------
K) Total fixed charges $ 416.7 $ 367.3 $ 377.5 $ 430.3 $ 650.9 $ 461.7 $ 537.2
=========== =========== =========== ========== =========== =========== ========
L) Ratio of earnings to fixed charges 2.47 1.44 2.26 2.43 3.66 3.92 2.12
=========== =========== =========== ========== =========== =========== ========
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 405
<SECURITIES> 0
<RECEIVABLES> 2,755
<ALLOWANCES> 109
<INVENTORY> 2,876
<CURRENT-ASSETS> 6,203
<PP&E> 22,432
<DEPRECIATION> 9,354
<TOTAL-ASSETS> 28,564
<CURRENT-LIABILITIES> 6,536
<BONDS> 6,183
0
0
<COMMON> 301
<OTHER-SE> 9,113
<TOTAL-LIABILITY-AND-EQUITY> 28,564
<SALES> 14,999
<TOTAL-REVENUES> 14,999
<CGS> 11,087
<TOTAL-COSTS> 14,413
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 398
<INCOME-PRETAX> 780
<INCOME-TAX> 329
<INCOME-CONTINUING> 308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
</TABLE>
