-40-
Council--.4 percent. PCC stock was not publicly traded, whereas IKPC
stock was listed on the Brazilian stock exchanges.
PCC was engaged in the production of unbleached and bleached
kraft paper and bleached fluff pulp as well as multiwall paper bags
and envelopes. PCC's management and the management of its principal
subsidiaries were fully integrated with that of its parent, IKPC.
PCC's directors had all been in the Klabin group for more than 30
years.
Paper consumption is closely linked to economic activity.
Consequently, swings in economic activity place pulp and paper
manufacturers at risk. Prior to 1986, PCC had been consistently
profitable. (For example, its 1985 net income was $13,453,000.)
From 1976 through 1985, PCC paid dividends averaging approximately
31 percent of its net profits. In 1986, PCC was cash rich and had
only a small amount of long-term indebtedness. As of December 31,
1985, PCC had cash and short-term financial investments totaling
$11,430,000; long-term loans totaled $2,166,000. PCC's shareholders'
equity at the end of 1985 was approximately $125 million.
1. PCC's Expansion Plans
The Brazilian pulp and paper industry operated at or close to
full capacity in 1985 and 1986. Additional investments in
productive capacity were needed to meet Brazil's 7-percent annual
growth in paper demand. PCC planned to expand its production
capacity from 80,200 to 178,700 tons per year in order to meet
expected demand. By early 1987, the cost of PCC's planned expansion
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