-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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