International Paper to Report Q4 Earnings Slightly Above Estimates
Friday, January 17, 2003
STAMFORD, Conn., Jan. 16 -- International Paper announced today that the company will report fourth-quarter operating earnings that will be slightly above First Call consensus estimates of $0.26 per share, before special items. International Paper will release fourth-quarter 2002 earnings on Thursday, Jan. 30, 2003, before the opening of the New York Stock Exchange. The company also announced it recorded a pre-tax charge of $450 million in its fourth-quarter 2002 earnings for additional exterior siding and roofing legal reserves. The reserves are related to liabilities in three nationwide class action suits, which were settled in 1998 and 1999, involving exterior siding and roofing products manufactured by Masonite Corporation when it was owned by International Paper and previous owners. In 2001, Masonite Corporation's exterior siding business was closed, and International Paper subsequently sold Masonite Corporation to Premdor Inc. in September 2001. International Paper retained liability for claims under the class action settlements. Prior to this fourth-quarter 2002 charge, cumulative provisions totaled $576 million. The company has also received a $100 million payment from a third party pursuant to a financial collar arrangement, and has recorded $61 million received from insurance carriers. Cumulative payment made through Dec. 31, 2002, including claims, administrative costs and plaintiffs attorneys' fees, totaled $688 million. After the charge, the reserve balance at Dec. 31, 2002 was $507 million, excluding any future insurance recoveries. The additional reserve reflects the most current claims experience data as well as revised projections on future claims payments, which were developed by two independent third parties. While the company expects future amounts paid under the three settlements will decline, the change in the total projected liability estimate reflects a lower total rate of decline than previously expected. Over the past three years, total payments have averaged approximately $42 million per quarter, and the company does not expect future payments to exceed that amount. In addition, the company has pursued litigation against several of its insurers seeking indemnification for hardboard siding claims paid and has signed one settlement agreement, which subject to court approval, will result in $40 million in insurance collections, in addition to the $61 million of insurance already recovered. The trial against other insurers is expected to commence in April 2003. During the fall of 2001, International Paper was awarded a $93 million jury verdict in a trial of its former Masonite subsidiary's claim that Employer's Insurance of Wausau failed to provide a defense in one of the class action lawsuits, and in 2002, the court added $2 million in attorney's fees to the $93 million verdict. Post trial motions brought by Wausau seeking to upset the jury verdict have been denied, but no judgment has been entered by the court. International Paper believes that the reserve balances after the fourth-quarter charge will be adequate, and that additional amounts will be recovered from its insurance carriers in the future relating to these claims. However, it is possible that additional charges may be required for these matters in the future. Under the settlement agreement relating to hardboard siding, claimants with hardboard siding installed before 1990 may not submit claims after Jan. 15, 2005. Because the amount of hardboard siding product installed before 1990 represents approximately two-thirds of total hardboard siding product installed, and because of changes made in post-1990 manufactured product, the company expects claims for hardboard siding to decline significantly after that date.