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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1997 Commission file number 1-3157
INTERNATIONAL PAPER COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code: 914-397-1500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common stock outstanding on July 31, 1997: 302,419,290 shares.
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INTERNATIONAL PAPER COMPANY
INDEX
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PAGE NO.
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PART I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings -
Three Months and Six Months Ended June 30, 1997 and 1996 3
Consolidated Balance Sheet -
June 30, 1997 and December 31, 1996 4-5
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Other Financial Information 15
PART II. Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
</TABLE>
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* 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)
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<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
--------- --------- --------- ---------
Net Sales............................................................. $ 5,034 $ 5,093 $ 9,896 $ 9,891
--------- --------- --------- ---------
Costs and Expenses
Cost of products sold............................................... 3,786 3,771 7,422 7,327
Selling and administrative expenses................................. 391 379 770 726
Depreciation and amortization....................................... 318 302 638 565
Distribution expenses............................................... 233 237 470 438
Taxes other than payroll and income taxes........................... 53 50 105 97
Business improvement charge......................................... 535 535
Provision for legal reserve......................................... 150 150
Restructuring and asset impairment charge........................... 515
--------- --------- --------- ---------
Total Costs and Expenses.............................................. 5,466 4,739 10,090 9,668
--------- --------- --------- ---------
Gain on sale of partnership interest................................ 592
--------- --------- --------- ---------
Earnings (Loss) Before Interest, Income Taxes and
Minority Interest................................................... (432) 354 (194) 815
Interest expense, net............................................... 125 137 255 262
--------- --------- --------- ---------
Earnings (Loss) Before Income Taxes and
Minority Interest................................................... (557) 217 (449) 553
Income tax provision (benefit)...................................... (167) 80 (127) 243
Minority interest expense, net of taxes............................. 29 38 63 113
--------- --------- --------- ---------
Net Earnings (Loss)................................................... $ (419) $ 99 $ (385) $ 197
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings (Loss) Per Common Share...................................... $ (1.39) $ 0.33 $ (1.28) $ 0.69
--------- --------- --------- ---------
--------- --------- --------- ---------
Average Shares of Common Stock Outstanding............................ 301.1 299.1 300.9 284.0
--------- --------- --------- ---------
--------- --------- --------- ---------
Cash Dividends Per Common Share....................................... $ 0.25 $ 0.25 $ 0.50 $ 0.50
--------- --------- --------- ---------
--------- --------- --------- ---------
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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)
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<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
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Assets
Current Assets
Cash and temporary investments............................ $ 455 $ 352
Accounts and notes receivable, net........................ 2,616 2,553
Inventories............................................... 2,857 2,840
Other current assets...................................... 265 253
--------- -----------
Total Current Assets........................................ 6,193 5,998
--------- -----------
Plants, Properties and Equipment, Net....................... 12,570 13,217
Forestlands................................................. 3,324 3,342
Investments................................................. 1,150 1,178
Goodwill.................................................... 2,688 2,748
Deferred Charges and Other Assets........................... 1,828 1,769
--------- -----------
Total Assets................................................ $ 27,753 $ 28,252
--------- -----------
--------- -----------
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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)
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<CAPTION>
JUNE 30, DECEMBER 31,
Liabilities and Common Shareholders' Equity 1997 1996
--------- -------------
<S> <C> <C>
Current Liabilities
Notes payable and current maturities of long-term debt.. $ 3,198 $ 3,296
Accounts payable........................................ 1,415 1,426
Accrued liabilities..................................... 1,607 1,172
--------- -----------
Total Current Liabilities................................. 6,220 5,894
--------- -----------
Long-Term Debt............................................ 6,656 6,691
Deferred Income Taxes..................................... 2,563 2,768
Other Liabilities......................................... 1,215 1,240
Minority Interest......................................... 1,856 1,865
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
1997--302.4 shares, 1996--300.8 shares................ 302 301
Paid-in capital......................................... 3,417 3,426
Retained earnings....................................... 5,104 5,639
--------- -----------
8,823 9,366
Less: Common stock held in treasury, at cost;
1997--0.7 shares, 1996--0.6 shares................... 30 22
--------- -----------
Total Common Shareholders' Equity........................ 8,793 9,344
--------- -----------
Total Liabilities and Common Shareholders' Equity........ $ 27,753 $ 28,252
--------- -----------
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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)
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<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
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Operating Activities
Net earnings (loss)................................... $ (385) $ 197
Noncash items
Depreciation and amortization........................ 638 565
Deferred income taxes................................ (176) 120
Business improvement charge.......................... 535
Provision for legal reserve.......................... 150
Restructuring and asset impairment charge............ 515
Gain on sale of partnership interest................. (592)
Other, net........................................... 72 35
Changes in current assets and liabilities
Accounts and notes receivable........................ (160) 91
Inventories.......................................... (82) 160
Accounts payable and accrued liabilities............. (72) (388)
Other................................................ (23) (14)
--------- ---------
Cash Provided by Operations.............................. 497 689
--------- ---------
Investment Activities
Invested in capital projects........................... (460) (598)
Mergers and acquisitions, net of cash acquired......... (1,303)
Other.................................................. (69) (1)
--------- ---------
Cash Used for Investment Activities...................... (529) (1,902)
--------- ---------
Financing Activities
Issuance of common stock............................... 91 73
Issuance of debt....................................... 299 1,483
Reduction of debt...................................... (203) (216)
Change in bank overdrafts.............................. 47 6
Dividends paid......................................... (150) (140)
Other.................................................. 74 58
--------- ---------
Cash Provided by Financing Activities.................... 158 1,264
--------- ---------
Effect of Exchange Rate Changes on Cash.................. (23) (1)
--------- ---------
Change in Cash and Temporary Investments................. 103 50
Cash and Temporary Investments
Beginning of the period................................ 352 312
--------- ---------
End of the period...................................... $ 455 $ 362
--------- ---------
--------- ---------
</TABLE>
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, 1996, which has previously been filed with the
Commission.
2. In August 1996, the Company acquired Forchem, a tall oil and turpentine
processor in Finland. In September 1996, Carter Holt Harvey, a consolidated
subsidiary of the Company, acquired Forwood Products, the timber processing
business of the South Australian Government.
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
and subject to certain limitations, either $55 in cash or a combination of
cash and International Paper common stock worth $55 for each share of
Federal common stock. To complete the merger, Federal shares were acquired
for approximately $1.3 billion in cash and $1.4 billion in International
Paper common stock, and approximately $800 million of debt was assumed. The
results of Federal are included in the consolidated statement of earnings
from March 12, 1996.
All of the above acquisitions were accounted for using the purchase method.
The consolidated balance sheets at June 30, 1997 and December 31, 1996
include preliminary purchase price allocations for Forchem and Forwood
Products. Final allocations for these acquisitions will be completed in
1997.
3. The following unaudited pro forma financial information for the three
months and six months ended June 30, 1996 presents the combined results of
the continuing operations of International Paper, Federal, and the other
acquisitions completed during 1996.
The 1997 amounts presented in the following table are actual results for the
second quarter and first half. These amounts include the results of all of
the 1996 acquisitions for the entire period and are presented for
comparative purposes only.
The pro forma information is presented as if the transactions occurred as of
the beginning of the three-month and six-month periods ended June 30, 1996.
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
would have been 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 1996 periods,
nor is it indicative of the actual results since acquisition. In addition,
the information may not be indicative of future results.
7
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<CAPTION>
PRO FORMA FINANCIAL INFORMATION
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
(ACTUAL) (ACTUAL)
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales................................................................... $ 5,034 $ 5,146 $ 9,896 $ 10,313
--------- --------- --------- ---------
--------- --------- --------- ---------
Net Earnings (Loss)......................................................... $ (419) $ 99 $ (385) $ 183
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings (Loss) Per Common Share............................................ $ (1.39) $ 0.33 $ (1.28) $ 0.61
--------- --------- --------- ---------
--------- --------- --------- ---------
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4. In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation Liabilities"
(the SOP), which was adopted by the Company in the first quarter of 1997. The
SOP provides guidance concerning the recognition, measurement and disclosure
of environmental remediation liabilities. The adoption of the SOP did not
have a material effect on the Company's financial position or results of
operations.
5. In February 1997, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
which specifies the computation, presentation and disclosure requirements for
earnings per share. This statement is effective for fiscal years ending after
December 15, 1997, and earlier adoption is not permitted. Adoption of the
provisions of this statement is not expected to have a material effect on
reported earnings per share. In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components. This statement is effective for fiscal years
beginning after December 15, 1997.
6. 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 consolidated results for the first quarter of 1996 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. In June 1997, a $535 million pre-tax business improvement reserve ($385
million after taxes or $1.28 per share) was established under a plan to
improve the Company's financial performance through closing or divesting
of operations that no longer meet financial or strategic objectives.
The second-quarter charge to establish the business improvement reserve
included approximately $230 million for asset write-downs, $210 million
for the estimated losses on sales of businesses included in the reserve and
$95 million for severance and other expenses. The majority of the reserve
relates to the restructuring of the printing papers business in the United
States and overseas and the sale of certain specialty businesses. Annual
improvement in earnings before interest and income taxes of approximately
$100 million is expected by the end of 1998.
8
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8. Also in June 1997, the Company recorded a $150 million pre-tax charge ($93
million after taxes or $.31 per share) to add to its legal reserves. On
July 14, 1997, Masonite Corporation, a wholly-owned subsidiary of the
Company, announced that it had reached a proposed settlement in a class
action pending in Mobile County, Alabama. The Company believes its legal
reserves are adequate to cover any amounts to be paid pursuant to the
proposed settlement, which is subject to Court approval.
9. 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
$305 million for the write-off of certain assets, $100 million for asset
impairments, $80 million in associated severance costs and $30 million of
other expenses, including the cancellation of leases. Accruals for
one-time cash costs, which include severance costs and other expenses,
totaled $110 million. Approximately $34 million of these costs were
incurred in 1996 and the remainder will be spent in 1997.
10. 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 $12 million were paid during each of the six months ended
June 30, 1997 and 1996.
11. Inventories by major category include (in millions):
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<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
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Raw materials............................................................................ $ 488 $ 534
Finished pulp, paper and packaging products.............................................. 1,424 1,365
Finished lumber and panel products....................................................... 198 215
Operating supplies....................................................................... 400 397
Other.................................................................................... 347 329
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Total.................................................................................... $ 2,857 $ 2,840
----------- -----------
----------- -----------
</TABLE>
12. Interest payments made during the six months ended June 30, 1997 and 1996
were $361 million and $336 million, respectively. Interest income for the
six months ended June 30, 1997 and 1996 was $33 million and $24 million,
respectively, including income of $14 million and $13 million for the 1997
and 1996 second quarters. Income tax payments made during the six months
ended June 30, 1997 and 1996 were $82 million and $174 million,
respectively.
13. Temporary investments with a maturity of three months or less are
treated as cash equivalents and are stated at cost. Temporary investments
totaled $268 million and $221 million at June 30, 1997 and December 31,
1996, respectively.
14. Accumulated depreciation was $9.9 billion at June 30, 1997 and $9.5
billion at December 31, 1996. The allowance for doubtful accounts was $105
million at June 30, 1997 and $101 million at December 31, 1996.
15. The Company uses financial instruments primarily to hedge its exposure to
currency and interest rate risk. To qualify as hedges, financial
9
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instruments must reduce the currency or interest rate risk associated with
the related underlying items and be designated as hedges by management.
Gains or losses from the revaluation of financial instruments which do
not qualify for hedge accounting treatment are recognized in earnings.
The Company has a policy of financing a portion of its investments in
overseas operations with borrowings demoninated in the same currency as
the investment or by entering into foreign exchange contracts in tandem
with U.S. dollar borrowings. These contracts are effective in providing
a hedge against fluctuations in currency exchange rates. Gains or losses
from the revaluation of these contracts, which are fully offset by gains
or 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 common shareholders' equity. Upon
liquidation of the net assets being hedged or early termination of the
foreign exchange contracts, the gains and losses from the revaluation of
foreign exchange contracts are included in earnings. Amounts payable to
or due from the counterparties to the foreign exchange contracts are
included in accrued liabilities or accounts receivable as applicable.
The Company also utilizes foreign exchange contracts to hedge certain
transactions that are denominated in foreign currencies, primarily export
sales and equipment purchases from nonresident vendors. These contracts
serve to protect the Company from currency fluctuations between the
transaction and settlement dates. Gains or losses from the revaluation of
these contracts, based on published currency exchange rates, along with
offsetting gains or losses resulting from the revaluation of the
underlying transactions, are recognized in earnings or deferred and
recognized in the basis of the underlying transaction when completed. Any
gains or losses arising from the cancellation of the underlying
transactions or early termination of the foreign currency contracts are
included in earnings.
The Company uses cross-currency and interest rate swap agreements to
manage the composition of its fixed and floating rate debt portfolio.
Amounts to be paid or received as interest under these agreements are
recognized over the life of the swap agreements as adjustments to interest
expense. Gains or losses from the revaluation of cross-currency swap
agreements that qualify as hedges of investments are recorded as
translation adjustments in common shareholders' equity. Gains or losses
from the revaluation of cross-currency swap agreements that do not qualify
as hedges of investments are included in earnings. The related amounts
payable to or receivable from the counterparties to the agreements are
included in accrued liabilities or accounts receivable. If swap
agreements are terminated early, the resulting gain or loss is deferred
and amortized over the remaining life of the related debt.
The Company does not hold or issue financial instruments for trading
purposes.
16. Through a public tender offer from July 23, 1997 through August 6, 1997,
the Company's wholly owned subsidiary, Federal Paper Board, repurchased $164
million of its 10% debentures due April 15, 2011. The earnings impact of
the debt retirement was not material.
17. Certain reclassifications have been made to prior-year amounts to
conform with the current-year presentation.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
International Paper's second-quarter 1997 net sales of $5.0 billion were
slightly below the $5.1 billion reported in the 1996 second-quarter.
First-quarter 1997 net sales were $4.9 billion. First half 1997 net sales of
$9.9 billion were even with the 1996 first half.
Second-quarter 1997 results were a net loss of $419 million or $1.39 per
share after a $535 million pre-tax charge ($385 million after taxes or $1.28
per share) to establish a business improvement reserve and a $150 million
pre-tax charge ($93 million after taxes or $.31 per share) to add to the
Company's legal reserves. Second-quarter net earnings before these charges of
$59 million or $.20 per share were below second-quarter 1996 net earnings of
$99 million or $.33 per share, but were well ahead of 1997 first-quarter net
earnings of $34 million or $.11 per share.
First-half 1997 results were a net loss of $385 million or $1.28 per share
after the special charges. Before these charges, 1997 first-half net earnings
were $93 million or $.31 per share compared with first-half 1996 net earnings
of $223 million or $.79 per share before a $515 million pre-tax restructuring
and asset impairment charge ($362 million after taxes or $1.35 per share) and
a $592 million pre-tax gain ($336 million after taxes and minority interest
expense or $1.25 per share) on the sale of a partnership interest.
Before special charges, second-quarter 1997 net earnings declined
significantly from the 1996 second quarter primarily due to lower prices for
key paper and packaging products. Second-quarter earnings before special
items increased significantly from the 1997 first quarter reflecting the
favorable trend in industry conditions that began earlier in the year. The
strong demand currently experienced by the industry is expected to lead to
increased profitability over the next six months.
The consolidated results of operations include Federal Paper Board (Federal)
since March 12, 1996. Federal contributed about 8% of first half 1997
consolidated net sales. Operating results for Carter Holt Harvey, adjusted as
necessary to conform with International Paper's classifications, are also
included in each segment as applicable. The following segment discussions are
based on results before the charges for the business improvement and legal
reserves.
Printing Papers 1997 second-quarter net sales of $1.3 billion were slightly
below net sales of $1.4 billion recorded in the 1996 second quarter and the
1997 first quarter. Net sales of $2.7 billion for the 1997 first half were
down slightly from the $2.8 billion reported in the 1996 first half.
Operating profits for the 1997 second quarter were below the comparable 1996
period primarily due to lower prices. Second-quarter 1997 earnings improved
significantly from the previous quarter reflecting higher prices for coated
and uncoated papers. Operating profits reported by the European papers
businesses improved over the prior quarter and the 1996 second quarter.
Packaging second-quarter 1997 net sales of $1.3 billion were about even with
the 1996 second-quarter and increased slightly over reported 1997
first-quarter net sales of $1.2 billion. First-half 1997 net sales of $2.4
billion were about even with the 1996 first-half. Second-quarter 1997
operating profits, which were up slightly over the 1997 first quarter,
declined significantly from the 1996 second quarter reflecting lower
containerboard and corrugated box prices. Although demand for containerboard
was strong, excess industry capacity continued to depress prices. Bleached
board results were comparable to the previous
11
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quarter and the 1996 second quarter. Carter Holt Harvey earnings were below
the 1996 second quarter and about even with the 1997 first quarter.
Distribution net sales of $1.2 billion for the 1997 second quarter were even
with the 1996 second quarter and slightly ahead of the 1997 first quarter. Net
sales were $2.3 billion for the 1997 and 1996 six-month periods. Operating
profits were also about even with the 1996 second quarter and ahead of the 1997
first quarter largely due to improved volumes and increases in printing papers
prices.
Specialty Products 1997 second-quarter net sales were $890 million compared
with $885 million for the 1996 second quarter and $860 million for the 1997
first quarter. First half net sales remained at $1.7 billion. Second-quarter
1997 operating profits were about even with the 1996 second quarter and
improved from 1997 first-quarter levels largely due to a strong performance
by the building products business. Earnings for the chemicals business
improved over the 1996 second quarter and the 1997 first quarter. Forchem, a
tall oil and turpentine processor in Finland acquired in August of 1996
contributed to the increase over the 1996 period. Sales and profits for the
petroleum business were behind the 1997 first quarter and the 1996 second
quarter.
Forest Products 1997 second-quarter net sales were $680 million compared with
$695 million for the 1996 second quarter and $605 million for the 1997 first
quarter. Net sales totaled $1.3 billion for the 1997 and 1996 six-month
periods. Operating profits were down from the 1996 second quarter and the
1997 first quarter that included a timberland sale transaction. Contributions
from Carter Holt Harvey, with its acquisition of Forwood Products in
September 1996, were comparable to 1996 second-quarter and 1997 first-quarter
levels. Siding markets continued to be weak while demand for lumber remained
strong.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaling $497 million for the 1997 first half
decreased from $689 million for the 1996 first half. Lower earnings and
higher working capital levels for the 1997 first half were primarily
responsible for the decrease. Working capital increased $337 million in the
1997 first half compared with an increase of $151 million in 1996. About half
of the 1997 working capital increase was due to an increase in accounts and
notes receivable. Noncash operating items for the 1997 first half included
the business improvement charge and a provision to add to the Company's legal
reserves. Prior-year noncash operating items included the $77 million net
impact of special items recorded in the 1996 first quarter.
Investments in capital projects totaled $460 million for the 1997 first half
compared with $598 million reported for the 1996 first half. Approximately
$1.3 billion of cash was spent and $1.4 billion of International Paper common
stock was exchanged (35.4 million shares) to acquire the outstanding shares
of Federal during the first quarter of 1996.
Financing activities for the 1997 first half include $96 million of net
borrowing activities primarily consisting of short-term debt. During the 1996
first half, approximately $1.3 billion of short-term debt was issued to
acquire the Federal common shares. Dividend payments totaled $150 million or
$.50 per common share for the first six months of 1997 compared with $140
million paid in the 1996 first half. This change reflects the increase in
common shares outstanding due to the Federal merger.
Cash flow generated by operations, supplemented as necessary by short- or
long-term borrowings, is anticipated to be adequate to fund expected 1997
capital expenditures, which have been reduced to approximately $1.2 billion,
about equal to expected 1997 depreciation expense.
12
<PAGE>
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 and
subject to certain limitations, either $55 in cash or a combination of cash
and International Paper common stock worth $55 for each share of Federal
common stock. To complete the merger, Federal shares were acquired for
approximately $1.3 billion in cash and $1.4 billion in International Paper
common stock, and approximately $800 million of debt was assumed.
The results of Federal are included in the consolidated statement of earnings
from March 12, 1996. As a result of the merger, Federal contributed about 8%
of consolidated net sales for the 1997 first half and between 2% and 14% for
each of the components of consolidated costs and expenses. The consolidated
balance sheets at June 30, 1997 and December 31, 1996 include the balances of
Federal.
In August 1996, the Company acquired Forchem, a tall oil and turpentine
processor in Finland for approximately $100 million. In September 1996,
Carter Holt Harvey acquired Forwood Products, the timber processing business
of the South Australian Government for approximately $100 million.
SPECIAL CHARGES
In June 1997, a $535 million pre-tax business improvement reserve ($385
million after taxes or $1.28 per share) was established under a plan to
improve the Company's financial performance through closing or divesting of
operations that no longer meet financial or strategic objectives. The
majority of the reserve relates to the restructuring of the printing papers
business in the United States and overseas and the sale of certain specialty
businesses. Included in the reserve are costs to shut down or close the
Woronoco, Mass. mill; three production lines at the Erie, Pa. mill; the
de-inking pulp operation at the Lock Haven, Pa. mill; and a paper machine
producing kraft papers at the Moss Point, Miss. mill. Also included are
estimated losses on dispositions of the Imaging Products business; three
multiwall kraft bag plants; Veratec's InterSpun business; four low pressure
laminates plants; two particleboard facilities; two medium density
fiberboard facilities; and six Pluswood distribution centers. Other actions
are included in the reserve but have not yet been announced.
The second-quarter charge to establish the business improvement reserve
included approximately $230 million for asset write-downs, $210 million for
the estimated losses on the sales of businesses included in the reserve and
$95 million for severance and other expenses. Annual improvement in earnings
before interest and income taxes of approximately $100 million is expected by
the end of 1998.
Also in June 1997, the Company recorded a $150 million pre-tax charge ($93
million after taxes or $.31 per share) to add to its legal reserves. On July
14, 1997, Masonite Corporation, a wholly-owned subsidiary of the Company,
announced that it had reached a proposed settlement in a class action pending in
Mobile County, Alabama. The Company believes its legal reserves are adequate to
cover any amounts to be paid pursuant to the proposed settlement, which is
subject to Court approval.
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 $305
million for the write-off of certain assets, $100 million for asset impairments,
$80 million in associated severance costs and $30 million of other expenses,
including the cancellation of leases. Accruals for one-time cash costs, which
include severance costs and other expenses, totaled $110 million. Approximately
$34 million of these costs were incurred in 1996 and the remainder will be
spent in 1997.
13
<PAGE>
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 1996
first-quarter consolidated results a $592 million pre-tax gain ($336 million
after taxes and minority interest expense or $1.25 per share).
OTHER
Minority interest expense for the 1997 first half decreased significantly
from the comparable 1996 period due to the minority interestholders' share of
the gain on the sale of a partnership interest that was recorded in the 1996
first quarter.
In August 1997, IP Timberlands, Ltd. entered into an agreement for the sale
of certain partnership interests, including a general partnership interest in
a subsidiary partnership that will control approximately 175,000 acres of
forestlands in Pennsylvania and New York.
The effective tax rate for the first half of 1997 was a 28% benefit compared
with a 44% expense for the first half of 1996 primarily because of the impact
of the special charges. The following table presents the components of
pre-tax earnings and losses and the related income tax expense and benefit
for each period.
<TABLE>
<CAPTION>
First Half Effective Income Tax Rate
1997 1996
----------------------------------- -----------------------------------
Pre-tax Tax Pre-tax Tax
Earnings Expense Effective Earnings Expense Effective
(Loss) (Benefit) Tax Rate (Loss) (Benefit) Tax Rate
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Before Special Charges......... $ 236 $ 80 34% $ 476 $ 172 36%
Business Improvement Charge.... (535) (150) 28%
Provision for Legal Reserve.... (150) (57) 38%
Restructuring and Asset
Impairment Charge............. (515) (153) 30%
Gain on Sale of Partnership
Interest...................... 592 224 38%
--------- --------- --------- ---------
Total.......................... $ (449) $ (127) 28% $ 553 $ 243 44%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Both the business improvement charge and the restructuring and asset
impairment charge included expenses that were not deductible for tax
purposes. The effective tax rate on earnings before special charges for the
first half of 1997 was 34% compared with 36% in the 1996 first half and 37%
in the 1997 first quarter. This decline was the result of changes in the mix
of estimated earnings.
14
<PAGE>
ITEM 3. OTHER FINANCIAL INFORMATION
Financial Information by Industry Segment
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
NET SALES BY INDUSTRY SEGMENT 1997 1996 1997 1996
- - ----------------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Printing Papers.............................................................. $ 1,340 $ 1,430 $ 2,720 $ 2,785
Packaging.................................................................... 1,255 1,285 2,445 2,420
Distribution................................................................. 1,160 1,155 2,280 2,340
Specialty Products........................................................... 890 885 1,750 1,745
Forest Products.............................................................. 680 695 1,285 1,270
Less: Intersegment Sales..................................................... (291) (357) (584) (669)
--------- --------- --------- ---------
Net Sales.................................................................... $ 5,034 $ 5,093 $ 9,896 $ 9,891
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT BY INDUSTRY SEGMENT SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------
BEFORE AFTER
SPECIAL SPECIAL SPECIAL
ITEMS ITEMS(1) ITEMS
----------- ----------- -----------
<S> <C> <C> <C>
Printing Papers....................................................................... $ 22 $ (212) $ (190)
Packaging............................................................................. 117 (48) 69
Distribution.......................................................................... 49 (16) 33
Specialty Products.................................................................... 171 (202) (31)
Forest Products....................................................................... 157 (46) 111
--------- --------- --------
Operating Profit (Loss)............................................................... 516 (524) (8)
Corporate items, net............................................................... (25) (161)(2) (186)
Interest expense, net.............................................................. (255) (255)
Income tax (provision) benefit..................................................... (80) 207 127
Minority interest expense, net of taxes............................................ (63) (63)
--------- --------- --------
Net Earnings (Loss)................................................................... $ 93 $ (478) $ (385)
--------- --------- --------
--------- --------- --------
</TABLE>
- - ------------------------
(1) Includes a $535 million pre-tax business improvement charge ($385 million
after taxes or $1.28 per share).
(2) Includes a $150 million pre-tax provision for legal reserve ($93 million
after taxes or $.31 per share).
15
<PAGE>
<TABLE>
<CAPTION>
OPERATING PROFIT BY INDUSTRY SEGMENT SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------
BEFORE AFTER
SPECIAL SPECIAL SPECIAL
ITEMS ITEMS(1) ITEMS
--------- ----------- ----------
<S> <C> <C> <C>
Printing Papers....................................................................... $ 117 $ (35) $ 82
Packaging............................................................................. 248 (42) 206
Distribution.......................................................................... 48 48
Specialty Products.................................................................... 155 (370) (215)
Forest Products....................................................................... 178 535 713
--------- ------- -------
Operating Profit...................................................................... 746 88 834
Corporate items, net............................................................... (8) (11) (19)
Interest expense, net.............................................................. (262) (262)
Income tax (provision) benefit..................................................... (172) (71) (243)
Minority interest expense, net of taxes............................................ (81) (32) (113)
--------- ------- -------
Net Earnings.......................................................................... $ 223 $ (26) $ 197
--------- ------- -------
--------- ------- -------
</TABLE>
(1) Includes a $515 million pre-tax restructuring and asset impairment
charge ($362 million after taxes or $1.35 per share) and a $592 million
pre-tax gain ($336 million after taxes and minority interest expense or
$1.25 per share) on the sale of a partnership interest.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS BY INDUSTRY SEGMENT 1997 1996
- - ------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C> <C>
Printing Papers................................................................ $ 8,010 $ 8,627
Packaging...................................................................... 6,229 6,088
Distribution................................................................... 1,344 1,346
Specialty Products............................................................. 3,512 3,636
Forest Products................................................................ 5,382 5,369
Equity Investments............................................................. 1,045 1,070
Corporate...................................................................... 2,231 2,116
---------- ---------
Assets......................................................................... $ 27,753 $ 28,252
---------- ---------
---------- ---------
</TABLE>
16
<PAGE>
Financial Information by Geographic Area
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NET SALES BY GEOGRAPHIC AREA JUNE 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
United States................................................................................... $ 7,178 $ 7,104
Europe.......................................................................................... 1,736 1,783
Pacific Rim..................................................................................... 1,082 1,106
Other........................................................................................... 105 84
Less:Intergeographic Sales...................................................................... (205) (186)
--------- ---------
Net Sales....................................................................................... $ 9,896 $ 9,891
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT BY GEOGRAPHIC AREA SIX MONTHS ENDED JUNE 30, 1997
------------------------------
BEFORE AFTER
SPECIAL SPECIAL SPECIAL
ITEMS ITEMS(1) ITEMS
- - --------------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
United States.......................................................................... $ 394 $ (339) $ 55
Europe................................................................................. 44 (185) (141)
Pacific Rim............................................................................ 69 69
Other.................................................................................. 9 9
----- ----- ---
Operating Profit (Loss)................................................................ $ 516 $ (524) $ (8)
----- ----- ---
----- ----- ---
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------
BEFORE AFTER
SPECIAL SPECIAL SPECIAL
ITEMS ITEMS(2) ITEMS
----------- ----------- -----------
<S> <C> <C> <C>
United States.......................................................................... $ 637 $ 306 $ 943
Europe................................................................................. (1) (218) (219)
Pacific Rim............................................................................ 107 107
Other.................................................................................. 3 3
----- ----- -----
Operating Profit....................................................................... $ 746 $ 88 $ 834
----- ----- -----
----- ----- -----
</TABLE>
(1) Includes a $535 million pre-tax business improvement charge ($385 million
after taxes or $1.28 per share).
(2) Includes a $515 million pre-tax restructuring and asset impairment charge
($362 million after taxes or $1.35 per share) and a $592 million pre-tax
gain ($336 million after taxes and minority interest expense or $1.25 per
share) on the sale of a partnership interest.
17
<PAGE>
ITEM 3: OTHER FINANCIAL INFORMATION--CONTINUED
<TABLE>
<CAPTION>
ASSETS BY GEOGRAPHIC AREA
JUNE 30, 1997 DECEMBER 31, 1996
- - -------------------------------------------------------------------------------------------- -------------- -----------------
<S> <C> <C>
United States............................................................................... $ 15,726 $ 15,695
Europe...................................................................................... 3,908 4,405
Pacific Rim................................................................................. 4,654 4,779
Other....................................................................................... 189 187
Equity Investments.......................................................................... 1,045 1,070
Corporate................................................................................... 2,231 2,116
--------- ---------
Assets...................................................................................... $ 27,753 $ 28,252
--------- ---------
--------- ---------
</TABLE>
INTERNATIONAL PAPER AND CARTER HOLT HARVEY NET SALES
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------------
1997 1996
----------------------------------------- -----------------------------------------
CARTER CARTER
INTERNATIONAL HOLT INTERNATIONAL HOLT
PAPER HARVEY CONSOLIDATED PAPER HARVEY CONSOLIDATED
------------------ ------ ------------ ------------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Printing Papers................ $ 2,658 $ 62 $ 2,720 $ 2,718 $ 67 $ 2,785
Packaging...................... 2,148 297 2,445 2,087 333 2,420
Distribution................... 2,214 66 2,280 2,275 65 2,340
Specialty Products............. 1,481 269 1,750 1,484 261 1,745
Forest Products................ 829 456 1,285 816 454 1,270
Less: Intersegment Sales....... (431) (153) (584) (505) (164) (669)
------- ------ -------- -------- ------- -------
Net Sales...................... $ 8,899 $ 997 $ 9,896 $ 8,875 $1,016 $ 9,891
------- ------ -------- -------- ------- -------
------- ------ -------- -------- ------- -------
</TABLE>
18
<PAGE>
PRODUCTION BY PRODUCTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -----------------
<CAPTION>
1997(D) 1996(D)(F) 1997(D) 1996(E)(F)
---------- ---------- ------- --------
<S> <C> <C> <C> <C>
Printing Papers (In thousands of tons)
White Papers and Bristols..................................................... 978 979 2,005 1,812
Coated Papers................................................................. 334 254 644 500
Market Pulp (A)............................................................... 526 496 1,101 900
Newsprint..................................................................... 19 24 40 46
Packaging (In thousands of tons)
Containerboard................................................................ 698 657 1,397 1,309
Bleached Packaging Board...................................................... 542 531 1,091 874
Industrial Papers............................................................. 167 155 339 315
Industrial and Consumer Packaging (B)......................................... 897 857 1,704 1,631
Specialty Products (In thousands of tons)
Tissue........................................................................ 39 28 71 53
Forest Products (In millions)
Panels (sq.ft. 3/8" basis)(C)................................................. 369 314 670 559
Lumber (board feet)........................................................... 545 459 1,026 798
MDF (sq. ft. 3/4" basis)...................................................... 54 67 106 138
Particleboard (sq. ft. 3/4" basis)............................................ 47 49 92 94
</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 Federal for the full period.
(E) Includes Federal from March 12, 1996.
(F) Certain reclassifications and adjustments have been made to prior-period
amounts.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
MASONITE
As previously reported on Forms 10-K and 10-Q, a lawsuit which had 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 plaintiffs and partly for Masonite. The
jury was not asked to determine any other liability issues, causation or
damages. A phase II trial had been set for July 14, 1997 on the remaining
issues in the case. On July 14th, Masonite announced that a proposed
settlement of the matter had been reached. The settlement, which provides
for payment to class members making claims to an independent administrator,
is subject to approval by the Court in Mobile, Alabama. The Company believes
that its legal reserves will be sufficient to cover any payments to be made
pursuant to the settlement. In the event the settlement is not approved, the
Company will continue to vigorously defend all claims asserted by the
plaintiffs. While any litigation has an element of uncertainty, it is
believed that the outcome of any further proceedings in this matter will not
have a material adverse effect on the Company's consolidated financial
position or results of operations.
20
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of shareholders of the common stock of the Company was
held on May 8, 1997. The shareholders voted on*:
(a) the election of five directors to Class II. The votes for and those
withheld for each nominee were:
<TABLE>
<S> <C> <C>
Mr. Eaton............................................................ 241,889,337 3,462,329
Mr. Georges.......................................................... 239,975,515 5,376,151
Mr. McHenry.......................................................... 241,700,047 3,651,619
Mr. Noonan........................................................... 241,857,078 3,494,588
Mr. Shoemate......................................................... 241,778,622 3,573,044
</TABLE>
(b) the appointment of Arthur Andersen LLP as independent auditors for 1997 was
approved and the votes were: For 242,521,213; Against 2,066,213; and
Abstention 764,241.
(c) the shareholder proposal for total phaseout of chlorine and chlorine-
containing compounds for papermaking: For 13,186,667; Against 187,813,394;
and Abstention 7,910,596.
- - -------------------------
*If a specific vote category for, against withheld, abstentions and broker
no-votes is omitted, the number is zero.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Statement of Computation of Per Share Earnings
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
Reports on Form 8-K were filed on July 8, 1997, July 23, 1997 and
August 7, 1997.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL PAPER COMPANY
(REGISTRANT)
Date: August 14, 1997 By /s/ MARIANNE M. PARRS
---------------------------------
Marianne M. Parrs
Senior Vice President
and Chief Financial Officer
Date: August 14, 1997 By /s/ ANDREW R. LESSIN
---------------------------------
Andrew R. Lessin
Vice President, Controller and
Chief Accounting Officer
23
<PAGE>
(Exhibit 11)
INTERNATIONAL PAPER COMPANY
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ----------------------
1997 1996 1997 1996
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Net earnings (loss)........................................ $ (419) $ 99 $ (385) $ 197
Reduction in minority interest expense, net of taxes,
assuming conversion of preferred securities of
subsidiary............................................... * * * *
---------- ---------- --------- --------
Primary and fully diluted net earnings (loss)............. $ (419) $ 99 $ (385) $ 197
---------- ---------- --------- --------
---------- ---------- --------- --------
Earnings (loss) per common share........................... $ (1.39) $ 0.33 $ (1.28) $ 0.69
---------- ---------- --------- --------
---------- ---------- --------- --------
Primary earnings (loss) per share.......................... $ (1.39) $ 0.33 $ (1.28) $ 0.69
---------- ---------- --------- --------
---------- ---------- --------- --------
Fully diluted earnings (loss) per share.................... $ (1.38) $ 0.33 $ (1.27) $ 0.69
---------- ---------- --------- --------
---------- ---------- --------- --------
PRIMARY SHARES
Average shares outstanding................................. 301.1 299.1 300.9 284.0
Shares assumed to be repurchased using long-term incentive
plan deferred compensation at average market price (0.7) (0.7) (0.7) (0.7)
Shares assumed to be issued upon exercise of stock options,
net of treasury buyback at average market price 1.7 1.2 1.5 1.2
---------- ---------- --------- --------
Primary shares 302.1 299.6 301.7 284.5
---------- ---------- --------- --------
---------- ---------- --------- --------
FULLY DILUTED SHARES
Average shares outstanding................................. 301.1 299.1 300.9 284.0
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) (0.7) (0.7) (0.7)
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) 2.5 1.2 2.6 1.2
Shares assumed to be issued upon conversion of preferred
securities of subsidiary * * * *
---------- ---------- --------- --------
Fully diluted shares 302.9 299.6 302.8 284.5
---------- ---------- --------- --------
---------- ---------- --------- --------
</TABLE>
Note: The Company reports earnings per common share as the effect of
dilutive securities is less than 3%.
* The preferred securities of subsidiary were anti-dilutive for this period.
24
<PAGE>
(EXHIBIT 12)
INTERNATIONAL PAPER COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------- -------------------
<CAPTION>
TITLE 1992 1993 1994 1995 1996 1996 1997
- - ----------------------------------------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A) Earnings (loss) before income
taxes, minority interest,
extraordinary item and
accounting changes $ 226.0 $ 538.0 $ 715.0 $ 2,028.0 $ 802.0 $ 553.0 $(449.0)
B) Less: Minority interest
expense, net of taxes (15.0) (36.0) (47.0) (156.0) (169.0) (113.0) (63.0)
C) Add: Fixed charges excluding
capitalized interest 325.3 365.3 412.3 605.9 672.4 324.1 329.8
D) Add: Amortization of previously
capitalized interest 9.9 12.2 12.8 13.0 17.8 9.1 9.8
E) Less: Equity in undistributed
earnings of affiliates (19.1) (25.9) (49.1) (94.5) 6.2 8.3 (7.1)
--------- ---------- --------- --------- --------- --------- ---------
F) Earnings (loss) before income taxes,
minority interest, extraordinary
item, accounting changes and fixed
charges $ 527.1 $ 853.6 $ 1,044.0 $ 2,396.4 $ 1,329.4 $ 781.5 $(179.5)
--------- ---------- --------- --------- --------- --------- ---------
--------- ---------- --------- --------- --------- --------- ---------
Fixed Charges
G) Interest and amortization of
debt expense $ 297.1 $ 334.5 $ 371.0 $ 542.3 $ 582.8 $ 286.7 $ 288.0
H) Interest factor attributable
to rentals 28.2 30.8 41.3 53.0 66.0 25.6 30.0
I) Preferred dividends of subsidiary 10.6 23.6 11.8 11.8
J) Capitalized interest 42.0 12.2 18.0 58.0 66.7 29.7 33.8
--------- ---------- --------- --------- --------- --------- --------
K) Total fixed charges $ 367.3 $ 377.5 $ 430.3 $ 663.9 $ 739.1 $ 353.8 $ 363.6
--------- ---------- --------- --------- --------- --------- --------
--------- ---------- --------- --------- --------- --------- --------
L) Ratio of earnings to
fixed charges 1.44 2.26 2.43 3.61 1.80 2.21
--------- ---------- --------- --------- --------- ---------
--------- ---------- --------- --------- --------- ---------
M) Deficiency in earnings
necessary to cover fixed 543.1
charges --------
--------
</TABLE>
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 455
<SECURITIES> 0
<RECEIVABLES> 2,721
<ALLOWANCES> 105
<INVENTORY> 2,857
<CURRENT-ASSETS> 6,193
<PP&E> 22,478
<DEPRECIATION> 9,908
<TOTAL-ASSETS> 27,753
<CURRENT-LIABILITIES> 6,220
<BONDS> 6,656
0
0
<COMMON> 302
<OTHER-SE> 8,491
<TOTAL-LIABILITY-AND-EQUITY> 27,753
<SALES> 9,896
<TOTAL-REVENUES> 9,896
<CGS> 7,422
<TOTAL-COSTS> 10,090
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> (449)
<INCOME-TAX> (127)
<INCOME-CONTINUING> (385)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (385)
<EPS-PRIMARY> (1.28)
<EPS-DILUTED> (1.27)
</TABLE>
