Why did International Paper record a net loss in 1997?

The company recorded a $535 million pre-tax business improvement charge, a $150 million pre-tax provision to increase legal reserves for the Masonite siding class action, and a $125 million pre-tax charge for anticipated losses on the sale of remaining imaging businesses. These were partly offset by a $170 million pre-tax gain on redemption of retained West Coast partnership interests. Together these special items reduced net earnings by $461 million, or $1.53 per share, producing a net loss of $151 million.

What is the company doing to improve returns?

The business improvement plan targets closing or divesting operations that no longer meet financial or strategic objectives, with over $1 billion of asset sales expected to be completed by midyear 1998. The company also cited restructuring of the U.S. printing papers business, removal of 400,000 tons of high-cost uncoated papers and pulp capacity, and an expected annual improvement in earnings before interest and taxes of approximately $100 million by the end of 1998.

How is the company's financial condition and liquidity?

Management described its financial condition as strong. Long-term debt and notes payable to banks were $9.4 billion at December 31, 1997, compared with $10 billion in 1996. The debt-to-total-capital ratio was 39%, unchanged from 1996 and 1995. Management expects cash flow from operations, supplemented as necessary by borrowings, to fund 1998 capital expenditures, debt service, working capital and dividends.

What environmental and legal costs could affect investors?

The company spent $90 million on environmental control projects in 1997 and expects to spend approximately $105 million in 1998. Its preliminary estimate for additional environmental appropriations in 1999 through 2000 is approximately $350 million, and the EPA Cluster Rule is expected to add about $230 million in capital costs over 1998 to 2000. For the Masonite class action, the company stated the settlement is not expected to have a material adverse effect on its consolidated financial position or results of operations.

What dividend did shareholders receive in 1997?

The company paid cash dividends of $1.00 per common share in 1997, the same as in 1996, totaling $302 million in 1997 compared with $291 million in 1996.

IP/INPAP 10-K FY1997 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K/A filed March 29, 1999. Cited figures are marked; the original filing is the authoritative source.

International Paper Company's Form 10-K/A for fiscal year 1997 reports a net loss of $151 million^a, or $.50 per share, after special items, compared with net earnings of $303 million ($1.04 per share) in 1996.

Net sales were $20.1 billion^b, essentially flat with 1996, as lower pricing for most products offset stronger demand. Before special items, 1997 earnings were $310 million, or $1.03 per share, versus $434 million, or $1.49 per share, in 1996. Special items in 1997 included a $535 million pre-tax business improvement charge, a $150 million legal reserve provision for the Masonite siding class action, a $125 million charge for anticipated losses on the sale of remaining imaging businesses, and a $170 million gain on redemption of West Coast partnership interests.

Management stated that current financial returns were not satisfactory. Return on investment was 3.0% before special items in 1997, compared with 3.6% in 1996 and 8.4% in 1995. The company is pursuing a plan to sell over $1 billion^c of assets or businesses that do not meet return requirements or market leadership, and it expects to complete those sales by midyear 1998.

Capital spending was reduced to $1.1 billion^d in 1997 and is budgeted at a similar level for 1998. Cash provided by operations declined to $1.2 billion from $1.7 billion in 1996. The company reported that its financial condition remained strong, with the ratio of debt to total capital at 39% in 1997, and that cash flow from operations is expected to fund capital expenditures, debt service and dividends in 1998.

Management noted that the Asian economic downturn had begun to weaken pulp and some paper prices and created uncertainty for 1998. The filing also describes ongoing environmental compliance costs tied to the EPA Cluster Rule, with a preliminary estimate of approximately $350 million for environmental appropriations in 1999 and 2000.

02—Key points

Key Highlights

Net loss of $151 million, or $.50 per share, for 1997, versus net earnings of $303 million, or $1.04 per share, in 1996
Net sales of $20.1 billion in 1997, essentially flat with 1996 as lower prices offset stronger demand
Earnings before special items of $310 million, or $1.03 per share, down from $434 million, or $1.49 per share, in 1996
Special items reduced 1997 net earnings by $461 million, or $1.53 per share, including a $535 million business improvement charge and a $150 million legal reserve provision
Return on investment before special items was 3.0% in 1997, compared with 3.6% in 1996 and 8.4% in 1995
Plan to sell over $1 billion of nonstrategic assets and businesses, with proceeds primarily used to reduce debt; $322 million in proceeds realized in 1997
Capital spending reduced to $1.1 billion in 1997 and budgeted at $1.1 billion for 1998; debt-to-total-capital ratio held at 39%

03—Questions

Frequently Asked Questions

Why did International Paper record a net loss in 1997?
The company recorded a $535 million pre-tax business improvement charge, a $150 million pre-tax provision to increase legal reserves for the Masonite siding class action, and a $125 million pre-tax charge for anticipated losses on the sale of remaining imaging businesses. These were partly offset by a $170 million pre-tax gain on redemption of retained West Coast partnership interests. Together these special items reduced net earnings by $461 million, or $1.53 per share, producing a net loss of $151 million.
What is the company doing to improve returns?
The business improvement plan targets closing or divesting operations that no longer meet financial or strategic objectives, with over $1 billion of asset sales expected to be completed by midyear 1998. The company also cited restructuring of the U.S. printing papers business, removal of 400,000 tons of high-cost uncoated papers and pulp capacity, and an expected annual improvement in earnings before interest and taxes of approximately $100 million by the end of 1998.
How is the company's financial condition and liquidity?
Management described its financial condition as strong. Long-term debt and notes payable to banks were $9.4 billion at December 31, 1997, compared with $10 billion in 1996. The debt-to-total-capital ratio was 39%, unchanged from 1996 and 1995. Management expects cash flow from operations, supplemented as necessary by borrowings, to fund 1998 capital expenditures, debt service, working capital and dividends.
What environmental and legal costs could affect investors?
The company spent $90 million on environmental control projects in 1997 and expects to spend approximately $105 million in 1998. Its preliminary estimate for additional environmental appropriations in 1999 through 2000 is approximately $350 million, and the EPA Cluster Rule is expected to add about $230 million in capital costs over 1998 to 2000. For the Masonite class action, the company stated the settlement is not expected to have a material adverse effect on its consolidated financial position or results of operations.
What dividend did shareholders receive in 1997?
The company paid cash dividends of $1.00 per common share in 1997, the same as in 1996, totaling $302 million in 1997 compared with $291 million in 1996.

04—Continue

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