01—Abstract
Summary
Summary of the 10-K filed March 31, 1999. Cited figures are marked; the original filing is the authoritative source.
International Paper Company's 1998 10-K reports net sales of $19.5 billiona, down 3% from $20.1 billion in 1997 and 1996, with sales declining on lower volumes and prices and a weaker New Zealand dollar.
Net earnings were $236 millionb, or $.77 per share, including special items that reduced net earnings by $72 million; earnings before special items were $308 million, or $1.00 per share. Operating profit was $1.1 billion in both 1998 and 1997. Return on investment was 3.2% before special items.
Management states that current financial returns are not satisfactory and continues to pursue company-wide business improvement initiatives. The most significant event disclosed is the pending merger with Union Camp Corporation, valued at approximately $6.6 billionc including assumed debt, under which Union Camp shareholders will receive International Paper common shares worth $71 per Union Camp share. The merger is subject to shareholder approval, is expected to close early in the second quarter of 1999 as a pooling of interests, and is projected to yield about $300 million in annual cost savings, with about $40 million of direct merger expenses and additional one-time restructuring costs in 1999.
Management expects continued sizable challenges from global economic conditions and excess capacity, with announced price increases for linerboard, uncoated papers and pulp in the first quarter of 1999. The balance sheet shows total assets of $26.4 billiond, long-term debt of $6.4 billion, and common shareholders' equity of $8.9 billion at year-end 1998. Cash provided by operations was $1.7 billion and capital spending was $1.0 billion, with 1999 capital spending budgeted at just under $1.0 billion.
Standard & Poor's downgraded the company's long-term debt rating from A- to BBB+ during 1998. Litigation over Masonite hardboard siding has been settled, with reserves of $129 million at December 31, 1998.
02—Key points
Key Highlights
- Net sales of $19.5 billion in 1998, down 3% from $20.1 billion in 1997 and 1996, driven by lower volumes and prices and a weaker New Zealand dollar
- Net earnings of $236 million, or $.77 per share, after special items reducing net earnings by $72 million; earnings before special items were $308 million, or $1.00 per share
- Pending merger with Union Camp Corporation valued at approximately $6.6 billion including assumed debt, at $71 in International Paper shares per Union Camp share, expected to close early in the second quarter of 1999
- Expected annual cost savings of about $300 million from the Union Camp combination, with direct merger expenses estimated at about $40 million
- Return on investment of 3.2% before special items in 1998, compared with 3.0% in 1997 and 3.6% in 1996
- Total assets of $26.4 billion, long-term debt of $6.4 billion, and common shareholders' equity of $8.9 billion at December 31, 1998
- Cash provided by operations of $1.7 billion in 1998, with capital spending of $1.0 billion and 1999 capital spending budgeted at just under $1.0 billion
03—Questions
Frequently Asked Questions
What is the Union Camp merger and when is it expected to close?
International Paper agreed on November 24, 1998 to merge with Union Camp Corporation, valued at approximately $6.6 billion including assumed debt. Union Camp shareholders will receive International Paper common shares worth $71 for each Union Camp share. The merger requires approval from both companies' shareholders, is expected to close early in the second quarter of 1999, and will be accounted for as a pooling of interests.
Why did earnings fall in 1998 and how did the company respond?
Lower sales volumes and prices reduced 1998 operating profit by about $400 million compared with 1997, which was largely offset by $300 million of manufacturing and other cost reductions, lower material costs, and higher profits from forestland sales. The company curtailed production by 1 million tons at its U.S. pulp and paper mills, more than 60% of which was market-related, and completed about $1 billion of nonstrategic asset sales.
What is the company's outlook for 1999?
Management expects global economic conditions and excess worldwide capacity to remain sizable challenges, with the U.S. and Europe growing more slowly than in 1998 and a slow recovery in Asia. Management sees signs of improvement in supply and demand and is more optimistic about the latter part of 1999. Average U.S. and European Papers prices are expected to be well below 1998 averages, while profit improvement programs are expected to contribute $200 million annually to that segment's pre-tax earnings. The company expects a 1999 effective tax rate of approximately 30%.
How is the company's debt and credit standing?
Long-term debt and notes payable were $7.5 billion at year-end 1998, compared with $9.4 billion in 1997. Total debt was reduced by approximately $1.9 billion on a cash flow basis in 1998. During 1998, Standard & Poor's downgraded the company's long-term debt rating from A- to BBB+. The company had unused bank lines of credit of approximately $4.1 billion at December 31, 1998, and management anticipates cash flow from operations, supplemented as necessary by borrowings, will fund capital expenditures, debt service, working capital and dividends in 1999.
What are the main legal and environmental exposures?
The Masonite hardboard siding class action has been settled, with reserves of $129 million at December 31, 1998, net of $58 million of expected insurance recoveries; the company believes these reserves are adequate and the settlements will not have a material adverse effect. Environmental capital spending was $100 million in 1998, with about $80 million expected in 1999 and a preliminary estimate of approximately $230 million for 2000 and 2001, including costs under the EPA Cluster Rule. The Cluster Rule is estimated to cost an additional $194 million for 1999 through 2001.
04—Continue