01—Abstract
Summary
Summary of the 10-K filed March 30, 1998. Cited figures are marked; the original filing is the authoritative source.
International Paper Company (Purchase, N.Y.) reported a 1997 net loss of $151 milliona, or $.50 per share, after special items, compared with net earnings of $303 million, or $1.04 per share, in 1996.
Excluding special items, 1997 net earnings were $310 millionb, or $1.03 per share, versus $434 million, or $1.49 per share, in 1996. Net sales were $20.1 billion, essentially flat with 1996, as lower pricing for most products offset stronger demand. Return on investment before special items was 3.0% in 1997, compared with 3.6% in 1996.
Management stated that current financial returns are not satisfactory and described a business improvement program, including a $535 millionc pre-tax charge recorded in June 1997 and an additional $125 million charge in December 1997 tied to the sale of the imaging businesses. The company is focused on narrowing its portfolio. It planned to sell over $1 billion of assets or businesses in 1998, with the proceeds used primarily to reduce debt, and reported $322 million of divestiture proceeds in 1997.
Capital spending fell to $1.1 billiond in 1997 from $1.4 billion in 1996 and is expected to be about $1.1 billion in 1998. Cash provided by operations declined to $1.2 billion from $1.7 billion. Long-term debt was $7.2 billion at year-end 1997, and the ratio of debt to total capital was 39%.
Pending transactions include a proposed merger with Weston Paper and Manufacturing Company, valued at $232 million in shares, and a joint venture with Olmuksa in Turkey. Legal matters include the Masonite hardboard siding class action, which received final court approval on January 15, 1998.
Management believes the settlement will not have a material adverse effect on its financial position or results of operations. The Cluster Rule environmental regulations are expected to require about $230 million in additional capital spending over 1998 to 2000.
02—Key points
Key Highlights
- 1997 net loss of $151 million, or $.50 per share, after special items, versus 1996 net earnings of $303 million, or $1.04 per share
- Earnings before special items were $310 million, or $1.03 per share, compared with $434 million, or $1.49 per share, in 1996
- Net sales of $20.1 billion were essentially flat with 1996, as lower pricing for most products offset stronger demand
- Return on investment before special items was 3.0% in 1997, compared with 3.6% in 1996
- Special items included a $535 million pre-tax business improvement charge and a $150 million legal reserve provision in June 1997, and a $125 million charge in December 1997 for the sale of the imaging businesses
- Plans to sell over $1 billion of assets or businesses, with proceeds used primarily to reduce debt; $322 million of proceeds were received in 1997
- Capital spending was reduced to $1.1 billion in 1997 from $1.4 billion in 1996 and is budgeted at $1.1 billion for 1998
03—Questions
Frequently Asked Questions
Why did International Paper report a loss in 1997?
The loss reflected special items totaling $461 million after taxes, or $1.53 per share. These included a $535 million pre-tax business improvement charge, a $150 million pre-tax provision for legal reserves related to the Masonite settlement, and a $125 million pre-tax charge for anticipated losses on the sale of the remaining imaging businesses, partly offset by a $170 million pre-tax gain on the redemption of retained West Coast partnership interests. Before these items, the company earned $310 million, or $1.03 per share.
What is the company doing to improve its returns?
The company plans to narrow its focus to businesses where it can hold a leadership position and earn strong returns. It expects to complete over $1 billion of asset sales by mid-1998, shut down or reallocate about 400,000 tons of uncoated papers capacity, and expects the business improvement program to produce annual earnings before interest and taxes improvement of about $100 million by the end of 1998. The company also set more aggressive profit improvement targets for 1998.
How is the company's balance sheet and cash flow position?
Cash provided by operations declined to $1.2 billion in 1997 from $1.7 billion in 1996. Long-term debt and notes payable to banks were $9.4 billion at December 31, 1997, compared with $10 billion in 1996. The ratio of debt to total capital was held at 39%, and the company anticipates that cash flow from operations, supplemented as necessary by borrowings, will be adequate to fund capital expenditures, debt service, working capital, and dividends in 1998.
What are the main risks from the Asian economic downturn?
Management said the economic downturn in Asia created considerable uncertainty and had started to weaken pulp and some paper prices worldwide. It expected pulp prices to remain under pressure through the first quarter of 1998, and noted weaker bleached board order backlogs and possible adverse effects on stumpage demand in the U.S. and on Carter Holt Harvey's 1998 results.
What is the status of the Masonite litigation?
A nationwide class action over Masonite hardboard siding was settled, and final approval was granted by the Mobile County Circuit Court on January 15, 1998. The settlement provides monetary compensation on a claims-made basis for seven to ten years, with attorneys' fees of 15% of amounts paid to class members plus a $47.5 million advance and $2.5 million in costs. The company believes the settlement will not have a material adverse effect on its financial position or results of operations.
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