-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IBbbPanhvYE8MRJ7cj66tuBIiGaHB278UYpQyKUa1swcDL/x1UYN65La64RyONqK Ltnk0Je8QBznKeOLC3H8uQ== /in/edgar/work/20000811/0000912057-00-036595/0000912057-00-036595.txt : 20000921 0000912057-00-036595.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-036595 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL PAPER CO /NEW/ CENTRAL INDEX KEY: 0000051434 STANDARD INDUSTRIAL CLASSIFICATION: [2621 ] IRS NUMBER: 130872805 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03157 FILM NUMBER: 694020 BUSINESS ADDRESS: STREET 1: TWO MANHATTANVILLE RD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9143971500 MAIL ADDRESS: STREET 1: TWO MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL PAPER & POWER CORP DATE OF NAME CHANGE: 19710527 10-Q 1 a10-q.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-Q \X\ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 \ \ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO --------------- COMMISSION FILE NUMBER 1-3157 INTERNATIONAL PAPER COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW YORK 13-0872805 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OF ORGANIZATION) IDENTIFICATION NO.) TWO MANHATTANVILLE ROAD, PURCHASE, NY 10577 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 397-1500 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO ___ THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF JULY 31, 2000 WAS 483,449,593 - -------------------------------------------------------------------------------- INTERNATIONAL PAPER COMPANY INDEX
PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Earnings - 1 Three Months and Six Months Ended June 30, 2000 and 1999 Consolidated Balance Sheet - 2 June 30, 2000 and December 31, 1999 Consolidated Statement of Cash Flows - 3 Six Months Ended June 30, 2000 and 1999 Consolidated Statement of Common Shareholders' Equity - 4 - 5 Three Months and Six Months Ended June 30, 2000 and 1999 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and 16 Results of Operations Financial Information by Industry Segment 25 Item 3. Quantitative and Qualitative Disclosures About Market Risk 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings 28 Item 2. Changes in Securities and Use of Proceeds * Item 3. Defaults upon Senior Securities * Item 4. Submission of Matters to a Vote of Security Holders 30 Item 5. Other Information * Item 6. Exhibits and Reports on Form 8-K 31 Signatures 32
* Omitted since no answer is called for, answer is in the negative or inapplicable. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTERNATIONAL PAPER COMPANY CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- ------- NET SALES $6,780 $5,996 $13,151 $12,028 -------- -------- -------- ------- COSTS AND EXPENSES Cost of products sold 4,770 4,420 9,334 8,996 Selling and administrative expenses 563 549 1,084 1,053 Depreciation and amortization 404 374 787 757 Distribution expenses 271 277 537 553 Taxes other than payroll and income taxes 61 57 124 114 Restructuring and other charges 71 113 71 113 Merger integration costs 4 157 12 157 Equity earnings from investment in Scitex (2) (3) -------- -------- -------- ------- TOTAL COSTS AND EXPENSES 6,144 5,945 11,949 11,740 -------- -------- -------- ------- Reversal of reserves no longer required 36 36 -------- -------- -------- ------- EARNINGS BEFORE INTEREST, INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS 636 87 1,202 324 Interest expense, net 156 123 287 266 -------- -------- -------- ------- EARNINGS (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS 480 (36) 915 58 Income tax provision (benefit) 142 (18) 278 10 Minority interest expense, net of taxes 68 40 123 74 -------- -------- -------- ------- EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEMS 270 (58) 514 (26) Loss on extinguishment of debt, net of taxes (13) (13) Gains on sales of investments, net of taxes and minority interest 134 -------- -------- -------- ------- NET EARNINGS (LOSS) $ 270 $ (71) $ 648 $ (39) ======== ======== ======== ======== EARNINGS (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEMS $ 0.64 $(0.14) $ 1.23 $ (0.06) EARNINGS (LOSS) PER COMMON SHARE - EXTRAORDINARY ITEMS (0.03) 0.32 (0.03) -------- -------- -------- ------- EARNINGS (LOSS) PER COMMON SHARE $ 0.64 $(0.17) $ 1.55 $ (0.09) ======== ======== ======== ======== EARNINGS (LOSS) PER COMMON SHARE - ASSUMING DILUTION $ 0.64 $(0.17) $ 1.55 $ (0.09) ======== ======== ======== ======== AVERAGE SHARES OF COMMON STOCK OUTSTANDING 421.0 413.0 417.3 412.5 ======== ======== ======== ======== CASH DIVIDENDS PER COMMON SHARE $ 0.25 $ 0.25 $ 0.50 $ 0.51 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. 1 INTERNATIONAL PAPER COMPANY CONSOLIDATED BALANCE SHEET (UNAUDITED) (IN MILLIONS)
June 30, December 31, 2000 1999 ----------- ------------- ASSETS Current Assets Cash and temporary investments $ 1,145 $ 453 Accounts and notes receivable, net 4,070 3,227 Inventories 3,743 3,203 Other current assets 576 358 -------- ------- Total Current Assets 9,534 7,241 -------- ------- Plants, Properties and Equipment, Net 18,731 14,381 Forestlands 6,115 2,921 Investments 503 1,044 Goodwill 6,701 2,596 Deferred Charges and Other Assets 2,872 2,085 -------- ------- TOTAL ASSETS $44,456 $30,268 ======== ======== LIABILITIES AND COMMON SHAREHOLDERS' EQUITY Current Liabilities Notes payable and current maturities of long-term debt $ 3,147 $ 920 Accounts payable 1,978 1,870 Accrued payroll and benefits 589 423 Other accrued liabilities 2,098 1,169 -------- ------- Total Current Liabilities 7,812 4,382 -------- ------- Long-Term Debt 12,933 7,520 Deferred Income Taxes 5,023 3,344 Other Liabilities 2,140 1,332 Minority Interest 1,702 1,581 International Paper - Obligated Mandatorily Redeemable Preferred Securities of Subsidiaries Holding International Paper Debentures 1,805 1,805 Common Shareholders' Equity Common stock, $1 par value, 2000 - 483.5 shares, 1999 - 414.6 shares 484 415 Paid-in capital 6,437 4,078 Retained earnings 7,054 6,613 Accumulated other comprehensive income (loss) (862) (739) -------- ------- 13,113 10,367 Less: Common stock held in treasury, at cost, 2000 - 1.6 shares, 1999 - 1.2 shares 72 63 -------- ------- Total Common Shareholders' Equity 13,041 10,304 -------- ------- TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $44,456 $30,268 ======== ========
The accompanying notes are an integral part of these financial statements. 2 INTERNATIONAL PAPER COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN MILLIONS)
SIX MONTHS ENDED JUNE 30, ---------------- 2000 1999 ---- ---- OPERATING ACTIVITIES Net earnings (loss) $ 648 $ (39) Depreciation and amortization 787 757 Deferred income tax provision (benefit) 107 (128) Payments related to restructuring and legal reserves (105) (77) Payments related to mergers (16) (83) Merger integration costs 12 157 Restructuring and other charges 71 113 Reversal of reserves no longer required (36) Loss on extinguishment of debt 21 Gains on sales of investments (385) Other, net 142 63 Changes in current assets and liabilities Accounts and notes receivable (282) (190) Inventories (69) 46 Accounts payable and accrued liabilities 49 98 Other 9 1 ------ ------ CASH PROVIDED BY OPERATIONS 968 703 ------ ------ INVESTMENT ACTIVITIES Invested in capital projects (488) (459) Mergers and acquisitions, net of cash acquired (5,355) (46) Proceeds from divestitures 1,359 119 Other (106) (54) ------ ------ CASH USED FOR INVESTMENT ACTIVITIES (4,590) (440) ------ ------ FINANCING ACTIVITIES Issuance of common stock 39 166 Issuance of debt 6,173 704 Reduction of debt (1,487) (659) Change in bank overdrafts (199) (120) Dividends paid (207) (212) Other 39 (36) ------ ------ CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 4,358 (157) ------ ------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (44) (15) ------ ------ CHANGE IN CASH AND TEMPORARY INVESTMENTS 692 91 CASH AND TEMPORARY INVESTMENTS Beginning of the period 453 533 ------ ------ End of the period $ 1,145 $ 624 ======== ======
The accompanying notes are an integral part of these financial statements. 3 INTERNATIONAL PAPER COMPANY CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY (UNAUDITED) (IN MILLIONS, EXCEPT SHARE AMOUNTS IN THOUSANDS) THREE MONTHS ENDED JUNE 30, 2000
Accumulated Total Other Common Common Stock Issued Paid-in Retained Comprehensive Treasury Stock Shareholders' Shares Amount Capital Earnings Income (Loss) Shares Amount Equity ------------ -------- ------- -------- ------------- -------- ------ ------------ BALANCE, MARCH 31, 2000 414,735 $415 $4,076 $6,887 $(799) 1,055 $50 $10,529 Issuance of stock for merger 68,706 69 2,360 2,429 Issuance of stock for various plans 9 1 (93) (1) 2 Repurchase of stock 620 23 (23) Cash dividends - Common stock ($0.25 per share) (103) (103) Comprehensive income (loss) Net earnings 270 270 Change in cumulative foreign currency translation adjustment (63) (63) ------- Total comprehensive income (loss) 207 ------- ------- -------- -------- -------- ------ ------- ------- BALANCE, JUNE 30, 2000 483,450 $484 $6,437 $7,054 $(862) 1,582 $72 $13,041 ======= ======= ======== ======== ======== ====== ======= =======
THREE MONTHS ENDED JUNE 30, 1999
Accumulated Total Other Common Common Stock Issued Paid-in Retained Comprehensive Treasury Stock Shareholders' Shares Amount Capital Earnings Income (Loss) Shares Amount Equity ----------- -------- -------- --------- ------------- ------- ------- ------------ BALANCE, MARCH 31, 1999 412,724 $413 $3,923 $6,772 $(581) 927 $ 40 $10,487 Issuance of stock for various plans 504 74 (1,418) (64) 138 Repurchase of stock 630 33 (33) Cash dividends - Common stock ($0.25 per share) (104) (104) Comprehensive income (loss) Net earnings (loss) (71) (71) Change in cumulative foreign currency translation adjustment (39) (39) -------- Total comprehensive income (loss) (110) -------- ------- ------- -------- ------- -------- -------- -------- BALANCE, JUNE 30, 1999 413,228 $413 $3,997 $6,597 $(620) 139 $ 9 $10,378 ======== ======= ======= ======== ======= ======== ======== ========
The accompanying notes are an integral part of these financial statements. 4 INTERNATIONAL PAPER COMPANY CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY (UNAUDITED) (IN MILLIONS, EXCEPT SHARE AMOUNTS IN THOUSANDS) SIX MONTHS ENDED JUNE 30, 2000
Accumulated Total Other Common Common Stock Issued Paid-in Retained Comprehensive Treasury Stock Shareholders' Shares Amount Capital Earnings Income (Loss) Shares Amount Equity --------- ------ ------- -------- ------------- ------ ------ --------- BALANCE, DECEMBER 31, 1999 414,584 $415 $4,078 $6,613 $(739) 1,216 $ 63 $10,304 Issuance of stock for merger 68,706 69 2,360 2,429 Issuance of stock for various plans 160 (1) (884) (42) 41 Repurchase of stock 1,250 51 (51) Cash dividends - Common stock ($0.50 per share) (207) (207) Comprehensive income (loss) Net earnings 648 648 Change in cumulative foreign currency translation adjustment (123) (123) -------- Total comprehensive income (loss) 525 ------- ------- ------- ------ ------- ------ ------- -------- BALANCE, JUNE 30, 2000 483,450 $484 $6,437 $7,054 $(862) 1,582 $ 72 $13,041 ======= ======= ======= ======= ======== ====== ======= ========
SIX MONTHS ENDED JUNE 30, 1999 Accumulated Total Other Common Common Stock Issued Paid-in Retained Comprehensive Treasury Stock Shareholders' Shares Amount Capital Earnings Income (Loss) Shares Amount Equity --------- ------ ------- -------- ------------- ------ ------ ------------ BALANCE, DECEMBER 31, 1998 413,185 $413 $3,896 $6,848 $(395) 552 $ 24 $10,738 Issuance of stock for various plans 43 101 (1,663) (75) 176 Repurchase of stock 1,250 60 (60) Cash dividends - Common stock ($0.51 per share) (212) (212) Comprehensive income (loss) Net earnings (loss) (39) (39) Change in cumulative foreign currency translation adjustment (225) (225) -------- Total comprehensive income (loss) (264) ------- ------ -------- -------- ------- ------ ------- -------- BALANCE, JUNE 30, 1999 413,228 $413 $3,997 $6,597 $(620) 139 $ 9 $10,378 ======== ====== ======== ======== ======= ====== ======== ========
The accompanying notes are an integral part of these financial statements. 5 INTERNATIONAL PAPER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments (consisting only of normal recurring accruals) which are necessary for the fair presentation of results for the interim periods. It is suggested that these consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto incorporated by reference in International Paper's Form 10-K for the year ended December 31, 1999, which has previously been filed with the Commission. On June 20, 2000, International Paper completed its previously announced merger with Champion International Corporation (Champion) in a transaction accounted for as a purchase. Champion was acquired for approximately $5 billion in cash and International Paper common stock totaling approximately $2.4 billion. Also, International Paper assumed approximately $2.3 billion of Champion debt. The results of Champion are included in the consolidated statement of earnings from June 20, 2000, and the June 30, 2000 consolidated balance sheet includes the assets and liabilities of Champion as well as preliminary purchase price allocations. On April 30, 1999, International Paper completed its previously announced merger with Union Camp Corporation in a transaction accounted for as a pooling-of-interests. The accompanying 1999 financial statements have been restated to include the financial position and results of operations for both International Paper and Union Camp. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. NOTE 2 - EARNINGS PER COMMON SHARE Earnings per common share before extraordinary items were computed by dividing earnings before extraordinary items by the weighted average number of common shares outstanding. Earnings per common share before extraordinary items - assuming dilution were computed assuming that all potentially dilutive securities were converted into common shares at the beginning of each period. A reconciliation of the amounts included in the computation of earnings per common share before extraordinary items and earnings per common share before extraordinary items - assuming dilution is as follows: 6
Three Months Ended Six Months Ended June 30, June 30, ------------------- ---------------- IN MILLIONS, EXCEPT PER SHARE AMOUNTS 2000 1999 2000 1999 ------------------------------------- ---- ---- ---- ---- EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEMS $ 270 $ (58) $ 514 $ (26) Effect of dilutive securities Preferred securities of subsidiary trust 5 9 -------- --------- --------- --------- EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEMS - ASSUMING DILUTION $ 275 $ (58) $ 523 $ (26) ======== ======== ========= ========= AVERAGE COMMON SHARES OUTSTANDING 421.0 413.0 417.3 412.5 Effect of dilutive securities Preferred securities of subsidiary trust 8.3 8.3 Long-term incentive plan deferred compensation (1.1) (1.1) Stock options 0.3 0.5 -------- --------- --------- ---------- AVERAGE COMMON SHARES OUTSTANDING - ASSUMING DILUTION 429.6 411.9 426.1 411.4 ======== ========= ========= ========== EARNINGS (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEMS $ 0.64 $ (0.14) $ 1.23 $ (0.06) ======== ========= ========= ========== EARNINGS (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEMS - ASSUMING DILUTION $ 0.64 $ (0.14) $ 1.23 $ (0.06) ======== ========= ========= ==========
Note: If an amount does not appear in the above table, the security was antidilutive for the period presented. NOTE 3 - MERGERS AND ACQUISITIONS On June 20, 2000, International Paper completed the previously announced merger with Champion, a leading manufacturer of paper for business communications, commercial printing and publications with significant market pulp, plywood, lumber and wood chip manufacturing operations. Under the terms of the merger agreement, Champion shareholders received $50 in cash per share and $25 worth of International Paper common stock per share. Champion shares were acquired for approximately $5 billion in cash and 68.7 million shares of International Paper common stock totaling $2.4 billion. Approximately $2.3 billion of debt was assumed. The results of Champion are included in the consolidated statement of earnings from June 20, 2000, and the June 30, 2000 consolidated balance sheet includes the balances of Champion. In connection with the merger announcement, International Paper also announced its intention to sell more than $3 billion of assets by the end of 2001 as part of its increased focus on its core businesses. When the decision has been made to sell a specific business, costs and charges may be incurred in future periods. Also, as a result of the merger announcement, Moody's lowered our long-term debt rating to Baa1. At June 30, 2000, outstanding debt included approximately $3 billion of commercial paper and bank notes with interest rates that fluctuate based on market conditions and our credit rating. On February 21, 2000, Carter Holt Harvey, a subsidiary of International Paper, announced the purchase of CSR Limited's medium density fiberboard and particleboard businesses and its Oberon sawmill for approximately $200 million in cash. This acquisition was completed on April 28, 2000. On February 17, 2000, International Paper announced that we had reached an agreement to acquire Shorewood Packaging Corporation, a leader in the premium retail packaging market, for approximately $640 million in cash and the assumption of approximately $280 million of debt. This merger was completed on March 31, 2000. 7 On November 24, 1998, International Paper announced that we had reached an agreement to merge with Union Camp Corporation (Union Camp), a diversified paper and forest products company. The transaction was approved by Union Camp and International Paper shareholders, and the merger was completed, on April 30, 1999. Union Camp shareholders received 1.4852 International Paper common shares for each Union Camp share held. The total value of the transaction, including the assumption of debt, was approximately $7.9 billion. International Paper issued 110 million shares for 74 million Union Camp shares, including options. The merger was accounted for as a pooling-of-interests. In April 1999, Carter Holt Harvey acquired the corrugated packaging business of Stone Australia, a subsidiary of Smurfit-Stone Container Corporation. The business consists of two sites in Melbourne and Sydney which serve industrial and primary produce customers. All of the acquisitions completed in the first and second quarters of 2000 and for the year 1999 were accounted for using the purchase method, with the exception of the Union Camp acquisition, which was accounted for as a pooling-of-interests. The operating results of those mergers and acquisitions accounted for under the purchase method have been included in the consolidated statement of earnings from the dates of acquisition. The accompanying consolidated balance sheet as of June 30, 2000 reflects preliminary allocations of the purchase prices of Shorewood Packaging, CSR Limited and Champion to the fair value of the assets and liabilities acquired. NOTE 4 - PREFERRED SECURITIES OF SUBSIDIARIES In September 1998, International Paper Capital Trust III issued $805 million of International Paper-obligated mandatorily redeemable preferred securities. International Paper Capital Trust III is a wholly-owned consolidated subsidiary of International Paper and its sole assets are International Paper 7 7/8% debentures. The obligations of International Paper Capital Trust III related to its preferred securities are fully and unconditionally guaranteed by International Paper. These preferred securities are mandatorily redeemable on December 1, 2038. In June 1998, IP Finance (Barbados) Limited, a non-U.S. wholly-owned consolidated subsidiary of International Paper, issued $550 million of preferred securities with a dividend payment based on LIBOR. These preferred securities are mandatorily redeemable on June 30, 2008. In March 1998, Timberlands Capital Corp. II, Inc., a wholly-owned consolidated subsidiary of International Paper, issued $170 million of 7.005% preferred securities as part of the financing to repurchase the outstanding units of IP Timberlands, Ltd. These securities are not mandatorily redeemable and are classified in the consolidated balance sheet as a minority interest liability. In the third quarter of 1995, International Paper Capital Trust (the Trust) issued $450 million of International Paper-obligated mandatorily redeemable preferred securities. The Trust is a wholly-owned consolidated subsidiary of International Paper, and its sole assets are International Paper 5 1/4% convertible subordinated debentures. The obligations of the Trust related to its preferred securities are fully and unconditionally guaranteed by International Paper. These preferred securities are convertible into International Paper common stock. Distributions paid under all of International Paper's subsidiary preferred securities were $32 million and $30 million for the second quarter of 2000 and 1999, respectively, and $76 million and $72 million for the six months ended June 30, 2000 and 1999, respectively. These distributions are included in minority interest expense in the consolidated statement of earnings. 8 NOTE 5 - SPECIAL AND EXTRAORDINARY ITEMS INCLUDING RESTRUCTURING AND BUSINESS IMPROVEMENT ACTIONS During the second quarter of 2000, International Paper recorded special items amounting to a net charge before taxes and minority interest of $75 million ($45 million after taxes and minority interest). The special items included a $4 million pre-tax charge ($3 million after taxes) for one-time merger costs and a $71 million pre-tax charge ($42 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions. The one-time merger expenses of $4 million consist primarily of travel expenses and system integration costs related to the Union Camp and Champion mergers. The $71 million charge for asset shutdowns of excess internal capacity and cost reduction actions includes $40 million of asset write-downs and $31 million of severance and other charges. The following table presents additional detail related to the $71 million charge:
ASSET SEVERANCE WRITE - AND IN MILLIONS DOWNS OTHER TOTAL ----------- ------- --------- ----- Printing and Communications Papers (a) $22 $ 7 $29 Consumer Packaging (b) 7 9 16 Industrial Papers (c) 9 4 13 Other (d) 2 11 13 ------- --------- ------ $40 $31 $71 ======= ========= ======
(a) The Printing and Communications Papers business announced the shutdown of the Millers Falls, Massachusetts mill due to excess capacity. Charges associated with the shutdown include $22 million of asset write-downs, $2 million of severance costs covering the termination of 119 employees and other exit costs of $3 million. Also, the Franklin, Virginia mill reduced its salaried workforce in a continuing effort to improve the cost effectiveness and long-term competitive position of the pulp and paper operation. A severance charge of $2 million covers the elimination of 108 salaried positions. (b) The Consumer Packaging business has implemented a plan to reduce excess capacity and streamline administrative functions at several of its locations as a result of the Shorewood acquisition. The Richmond, Virginia facility is scheduled to be shut down. Charges associated with the shutdown include $6 million of asset write-downs, $2 million of severance costs covering the termination of 126 employees and other exit costs of $1 million. Management also decided to permanently idle the lithographic department of the Clinton, Iowa facility. This action will allow the Retail Packaging business to better focus its resources for further profit improvement. The charge includes $1 million of asset write-downs, $3 million of severance covering the termination of 187 employees and $2 million of other exit costs. A severance reserve of $1 million has also been established related to the streamlining efforts of the Consumer Packaging business. This reserve covers the termination of 17 employees. (c) Industrial Papers announced the shutdown of the Knoxville, Tennessee converting facility in an effort to reduce excess capacity. The charge includes $9 million of asset write-downs, $1 million of severance costs related to the termination of 120 employees and other exit costs of $3 million. (d) Other includes $8 million related to Industrial Packaging, primarily for the shutdown of the Tupelo, Mississippi sheet plant. The Industrial Packaging charge includes $5 million of severance costs covering 9 the termination of 221 employees, $2 million of asset write-offs and $1 million of other cash costs. Other also includes $5 million related to the indefinite shutdown of Carter Holt Harvey's Mataura paper mill. The Carter Holt Harvey charge includes $3 million of severance costs covering the termination of 158 employees and $2 million of other cash costs. The $31 million reserve for severance and other costs recorded in the 2000 second quarter related to 1,056 employees. During the first quarter of 2000, International Paper recorded special items amounting to a net pre-tax charge of $8 million ($5 million after taxes) for additional Union Camp merger integration costs. International Paper also recorded an extraordinary gain of $385 million before taxes and minority interest expense ($134 million after taxes and minority interest expense) on the sale of our investment in Scitex and Carter Holt Harvey's sale of its share of Compania de Petroleos de Chile (COPEC), Chile's largest industrial conglomerate. The sale for just over $1.2 billion of Carter Holt Harvey's equity interest in COPEC closed on January 3, 2000. The sale for $79 million of our equity interest in Scitex was completed on January 6, 2000. The gains on these sales are recorded as extraordinary items pursuant to the pooling-of-interests rules. The following table shows the impact of special items on 2000 pre-tax earnings by quarter:
QUARTER ------------------ IN MILLIONS FIRST SECOND YEAR-TO-DATE ----------- ----- ------ ------------ EARNINGS BEFORE SPECIAL ITEMS, INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS $443 $555 $998 One-time merger expenses (8) (4) (12) Restructuring and other charges (71) (71) ---- ---- ---- EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS $435 $480 $915 ==== ==== ====
During 1999 special items amounting to a net charge before taxes and minority interest expense of $557 million ($352 million after taxes and minority interest expense) were recorded. The special items included a $148 million pre-tax charge ($97 million after taxes) for Union Camp merger-related termination benefits, a $107 million pre-tax charge ($78 million after taxes) for one-time merger expenses, a $298 million pre-tax charge ($180 million after taxes and minority interest expense) for asset shutdowns of excess internal capacity and cost reduction actions, a $10 million pre-tax charge ($6 million after taxes) to increase existing environmental remediation reserves related to certain former Union Camp facilities, a $30 million pre-tax charge ($18 million after taxes) to increase existing legal reserves and a $36 million pre-tax credit ($27 million after taxes) for the reversal of reserves that were no longer required. The 1999 extraordinary item was a $26 million pre-tax charge ($16 million after taxes) related to the refinancing of high interest Union Camp debt, which we assumed under the merger agreement. The following table shows the impact of special items on 1999 pre-tax earnings by quarter: 10
QUARTER -------------------------------------------- YEAR-TO- IN MILLIONS FIRST SECOND THIRD FOURTH DATE - ----------- ----- ------ ----- ------ -------- EARNINGS BEFORE SPECIAL ITEMS, INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS $ 94 $ 198 $ 320 $ 393 $1,005 Merger-related termination benefits (98) (50) (148) One-time merger expenses (59) (18) (30) (107) Restructuring and other charges (113) (185) (298) Reversal of reserves no longer required 36 36 Environmental reserve (10) (10) Provision for legal reserves (30) (30) ------ ------ ------ ------ ------- EARNINGS (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS $ 94 $ (36) $ 242 $ 148 $ 448 ====== ====== ====== ====== =======
The Union Camp merger-related termination benefits charge relates to employees terminating after the effective date of the merger under an integration benefits program. Under this program, 1,218 employees of the combined company were identified for termination. Benefits payable under this program for certain senior executives and managers have been paid from the general assets of International Paper. Benefits for remaining employees have been primarily paid from plan assets of our qualified pension plan. As of June 30, 2000, 1,062 employees had been terminated. Related cash payments approximated $71 million (including payments related to our nonqualified pension plans). The remainder of the incurred costs primarily represents an increase in the projected benefit obligation of our qualified pension plan. The following table is a roll forward of the Union Camp merger-related termination benefits charge and costs incurred by quarter. The amounts identified below as incurred include all payments made or to be made to employees that have been terminated. The payments are made from the general assets of International Paper or from the assets of our qualified pension plan.
TERMINATION DOLLARS IN MILLIONS BENEFITS ------------------- ----------- Special charge - second quarter 1999 (572 employees) $ 98 Incurred costs - second quarter 1999 (83 employees) (30) Special charge - third quarter 1999 (646 employees) 50 Incurred costs - third quarter 1999 (484 employees) (53) Incurred costs - fourth quarter 1999 (220 employees) (33) ----------- Balance, December 31, 1999 (431 employees) 32 Incurred costs - first quarter 2000 (111 employees) (8) Incurred costs - second quarter 2000 (164 employees) (18) ----------- Balance, June 30, 2000 (156 employees) $ 6 ===========
Note: Benefit costs are treated as incurred on the termination date of the employee. The program was substantially completed in the second quarter. We are in the process of reevaluating the program to determine if additional costs will be incurred in the third quarter. Any accruals that remain after the reevaluation process will be reversed to income in the third quarter of this year. The one-time merger expenses of $107 million consisted of $49 million of merger costs and $58 million of post-merger expenses. The merger costs were primarily investment banker, consulting, legal and accounting 11 fees. Post-merger integration expenses included costs related to employee retention such as stay bonuses and other one-time cash costs related to the integration of Union Camp. The $298 million charge for the asset shutdowns of excess internal capacity consisted of a $113 million charge in the 1999 second quarter and a $185 million charge in the 1999 fourth quarter. The charges included $149 million of asset write-downs and $149 million of severance and other charges. A full discussion of these charges is included in International Paper's 1999 Annual Report filed on Form 10-K. The following table is a roll forward of the severance and other costs included in the 1999 restructuring plan:
SEVERANCE DOLLARS IN MILLIONS AND OTHER ------------------- --------- Opening balance - second quarter 1999 (1,118 employees) $ 56 Cash charges - third quarter 1999 (710 employees) (13) Additions - fourth quarter 1999 (2,045 employees) 93 Cash charges - fourth quarter 1999 (50 employees) (21) --------- Balance, December 31, 1999 (2,403 employees) 115 Cash charges - first quarter 2000 (1,031 employees) (25) Other charges - first quarter 2000 (8) Cash charges - second quarter 2000 (673 employees) (14) --------- Balance, June 30, 2000 (699 employees) $ 68 =========
The $36 million pre-tax credit for the reversal of reserves that were no longer required consists of $30 million related to a retained exposure at the Lancey mill in France and $6 million of excess reserves previously established by Union Camp. The Lancey mill was sold to an employee group in October of 1997. In April 1999, International Paper's remaining exposure to potential obligations under this sale were resolved, and the reserve was returned to income in the second quarter. The $30 million pre-tax charge to increase existing legal reserves included $25 million which we added to our reserve for hardboard siding claims. The remaining $5 million is related to other potential exposures. NOTE 6 - INVENTORIES Inventories by major category include:
JUNE 30, DECEMBER 31, IN MILLIONS 2000 1999 ----------- -------- ------------ Raw materials $ 581 $ 484 Finished pulp, paper and packaging products 2,199 1,869 Finished lumber and panel products 253 178 Operating supplies 515 486 Other 195 186 -------- ------------ TOTAL $3,743 $ 3,203 ======== ============
Approximately $455 million of the increase in inventories is due to the Champion merger. 12 NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION Interest payments made during the six month period ended June 30, 2000 and 1999 were $309 million and $331 million, respectively. Capitalized net interest costs were $13 million for the six months ended June 30, 2000 and $16 million for the six months ended June 30, 1999. Total interest expense was $326 million for the six months ended June 30, 2000 and $314 million for the six months ended June 30, 1999. Income tax payments made during the six months ended June 30, 2000 and 1999 were $161 million and $20 million, respectively. NOTE 8 - TEMPORARY INVESTMENTS Temporary investments with a maturity of three months or less are treated as cash equivalents and are stated at cost. Temporary investments totaled $655 million and $153 million at June 30, 2000 and December 31, 1999, respectively. The increase was primarily due to unused proceeds from Carter Holt Harvey's sale of its share of COPEC. NOTE 9 - SUPPLEMENTAL BALANCE SHEET INFORMATION Accumulated depreciation was $15.5 billion at June 30, 2000 and $15.1 billion at December 31, 1999. The allowance for doubtful accounts was $116 million at June 30, 2000 and $106 million at December 31, 1999. NOTE 10 - FINANCIAL INSTRUMENTS International Paper uses financial instruments primarily to hedge its exposure to currency and interest rate risk. To qualify as hedges, financial instruments must reduce the currency or interest rate risk associated with the related underlying items and be designated as hedges by management. Gains or losses from the revaluation of financial instruments which do not qualify for hedge accounting treatment are recognized in earnings. International Paper has a policy of financing a portion of its investments in overseas operations with borrowings denominated in the same currency as the investment or by entering into foreign exchange contracts in tandem with U.S. dollar borrowings. These contracts are effective in providing a hedge against fluctuations in currency exchange rates. Gains or losses from the revaluation of these contracts, which are fully offset by gains or losses from the revaluation of the net assets being hedged, are determined monthly based on published currency exchange rates and are recorded as translation adjustments in common shareholders' equity. Upon liquidation of the net assets being hedged or early termination of the foreign exchange contracts, the gains or losses from the revaluation of foreign exchange contracts are included in earnings. Amounts payable to or due from the counterparties to the foreign exchange contracts are included in accrued liabilities or accounts receivable as applicable. International Paper also utilizes foreign exchange contracts to hedge certain transactions that are denominated in foreign currencies, primarily export sales and equipment purchases from nonresident vendors. These contracts serve to protect us from currency fluctuations between the transaction and settlement dates. Gains or losses from the revaluation of these contracts, based on published currency exchange rates, along with offsetting gains or losses resulting from the revaluation of the underlying transactions, are recognized in earnings or deferred and recognized in the basis of the underlying transaction when completed. Any gains or losses arising from the cancellation of the underlying transactions or early termination of the foreign currency contracts are included in earnings. International Paper uses cross-currency and interest rate swap agreements to manage the composition of its fixed and floating rate debt portfolio. Amounts to be paid or received as interest under these agreements are 13 recognized over the life of the swap agreements as adjustments to interest expense. Gains or losses from the revaluation of cross-currency swap agreements that qualify as hedges of investments are recorded as translation adjustments in common shareholders' equity. Gains or losses from the revaluation of cross-currency swap agreements that do not qualify as hedges of investments are included in earnings. The related amounts payable to or receivable from the counterparties to the agreements are included in accrued liabilities or accounts receivable. If swap agreements are terminated early, the resulting gain or loss is deferred and amortized over the remaining life of the related debt. International Paper does not hold or issue financial instruments for trading purposes. The counterparties to our interest rate swap agreements and foreign exchange contracts consist of a number of major international financial institutions. International Paper continually monitors its positions with and the credit quality of these financial institutions and does not expect nonperformance by the counterparties. NOTE 11 - RECENT ACCOUNTING DEVELOPMENTS In June 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", an amendment to Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", issued in June 1998. Statement No. 133 established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured by its fair value. Statement No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. Statement No. 138 amends the accounting and reporting standards of Statement No. 133 for certain derivative instruments and certain hedging activities. The Statements are effective for fiscal years beginning after June 15, 2000. A company may also implement the Statements as of the beginning of any fiscal quarter after issuance. The Statements cannot be applied retroactively. The Statements must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the company's election, before January 1, 1998). International Paper has not yet quantified the impact of adopting the Statements on its consolidated financial statements and has not determined the timing or method of the adoption. However, adoption of the provisions of the Statements could increase volatility in earnings and other comprehensive income. 14 NOTE 12 - PRO FORMA FINANCIAL INFORMATION International Paper's consolidated results of operations include Champion's activity from June 20, 2000, the date of the merger. The following unaudited pro forma financial information for the six months ended June 30, 2000 and 1999 presents the combined results of the continuing operations of International Paper and Champion as if the merger occurred as of the beginning of each period. The pro forma adjustments are based on available information, estimated purchase price allocations and certain assumptions that we believe are reasonable. There can be no assurance that the assumptions and estimates will be realized. The pro forma information does not purport to represent International Paper's actual results of operations if the transaction described above would have occurred at the beginning of the respective period. In addition, the information is not indicative of future results.
IN MILLIONS, EXCEPT PER SHARE AMOUNTS, FOR THE SIX MONTHS ENDED JUNE 30, 2000 1999 --------------------------------- -------- -------- Net Sales $ 15,888 $ 14,594 Earnings (Loss) Before Extraordinary Items $ 313 $ (155) Net Earnings (Loss) $ 447 $ (168) Earnings (Loss) Per Common Share Before Extraordinary Items $ 0.65 $ (0.35) Earnings (Loss) Per Common Share $ 0.93 $ (0.35)
15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS International Paper's second-quarter 2000 net sales were $6.8 billion, ahead of the $6.4 billion reported in the 2000 first-quarter and $6.0 billion reported in the 1999 second-quarter. International Paper reported second quarter 2000 earnings of $315 million, or $.75 per share, before special items. This is an increase of $66 million, or $.15 per share, over first quarter 2000 earnings of $249 million, or $.60 per share, before special and extraordinary items, and well above second-quarter 1999 earnings before special and extraordinary items of $99 million, or $.24 per share. We reported net earnings of $270 million, or $.64 per share, after special items in the second-quarter of 2000. Special items totaled $75 million before taxes and minority interest, $45 million after taxes and minority interest or $.11 per share, and consisted of $71 million associated with asset write-downs, severance and other charges and $4 million of one-time merger expenses. International Paper reported a net loss in the 1999 second-quarter of $71 million, or $.17 per share, after special and extraordinary items. Special items amounted to $234 million, or $157 million after taxes. These items included a $98 million charge for Union Camp merger-related severance, a $59 million charge for one-time Union Camp and Champion merger expenses, a $113 million charge for asset shutdowns, and credits of $36 million from the reversal of reserves that were no longer required. We also recorded an extraordinary charge of $13 million after taxes, or $.03 per share, for the refinancing of high interest Union Camp debt which International Paper assumed under the merger agreement. The consolidated results of operations include Champion for the eleven days in June that International Paper owned the company. The Champion merger was completed on June 20, 2000, in a transaction accounted for as a purchase. The following segment discussions exclude sales and operating profit generated by Champion. PRINTING AND COMMUNICATIONS PAPERS 2000 second-quarter net sales of $1,620 million experienced a 2% decline from the $1,650 million reported in the 2000 first-quarter, but increased 17% over the 1999 second-quarter net sales of $1,385 million. Operating profit for the 2000 second-quarter of $212 million was ahead of the $178 million of earnings recorded in the 2000 first-quarter and a significant improvement over 1999 second-quarter earnings of $22 million. Earnings in the U.S. papers business remained strong during the second quarter primarily due to the combination of favorable pricing and the continuation of internal cost-cutting activities. However, due to softening in demand coupled with high inventory levels, International Paper took 125,000 tons of downtime in uncoated freesheet in the second quarter and plans to take out an additional 10% of capacity in July and August in order to keep inventories in line. European Papers' results for the second quarter were above earnings reported in the prior quarter and increased significantly over the 1999 second-quarter due to the improving external market and excellent performance at the Saillat, Kwidzyn and Svetogorsk mills. PRINTING AND COMMUNICATIONS PAPERS (IN MILLIONS)
2000 1999 ---------------------------------------- --------------------------------------- 1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months ----------- ----------- ---------- ----------- ----------- ---------- Sales $1,650 $1,620 $3,270 $1,450 $1,385 $2,835 Operating Profit 178 212 390 8 22 30
INDUSTRIAL AND CONSUMER PACKAGING 2000 second-quarter net sales of $1,985 million were 10% better than the $1,805 million reported in the 2000 first-quarter and up 13% from the 1999 second-quarter net sales of $1,760 million. Operating profit for the 2000 second-quarter of $234 million was up from both the 2000 first-quarter and the 1999 second-quarter operating profits of $196 million and $142 million, respectively. Industrial 16 Packaging's second quarter results continued to improve as a result of internal sales initiatives and operations improvements. This led to a more than 25% increase in earnings over the prior quarter and more than two times the earnings recorded in the 1999 second quarter. Due to weak U.S. box shipments and reduced export containerboard shipments, inventory levels were relatively high during the quarter. International Paper took 165,000 tons of containerboard downtime in order to balance its production with customer demand. An additional 200,000 tons of downtime is planned for July and August, which is over 20% of total system capacity. Consumer Packaging earnings were 7% better than both the prior quarter and the 1999 second-quarter due to the success of internal cost initiatives achieved in the mills. Increases in raw materials costs, however, eroded some of the manufacturing progress. INDUSTRIAL AND CONSUMER PACKAGING (IN MILLIONS)
2000 1999 --------------------------------------- -------------------------------------- 1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months ----------- ----------- ---------- ----------- ----------- ---------- Sales $1,805 $1,985 $3,790 $1,675 $1,760 $3,435 Operating Profit 196 234 430 56 142 198
DISTRIBUTION 2000 second-quarter net sales of $1,700 million were down slightly from the $1,750 million recorded in the first quarter and slightly higher than the $1,675 million recorded in the 1999 second-quarter. The 2000 second-quarter operating profit of $35 million improved over both the 2000 first-quarter and the 1999 second-quarter operating profits of $30 million and $27 million, respectively. Contributing to the improved performance were cost reduction efforts in under-performing facilities and the Alling and Cory integration sites, along with stronger realization in margin per unit sold. DISTRIBUTION (IN MILLIONS)
2000 1999 ---------------------------------------- -------------------------------------- 1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months ----------- ----------- ---------- ----------- ----------- ---------- Sales $1,750 $1,700 $3,450 $1,700 $1,675 $3,375 Operating Profit 30 35 65 24 27 51
CHEMICALS AND PETROLEUM, which includes results from our approximately 68% owned subsidiary, Bush Boake Allen, reported second-quarter 2000 net sales of $365 million, ahead of $345 million reported in the 2000 first-quarter and $360 million in the 1999 second-quarter. Operating profit of $36 million for the 2000 second-quarter increased 9% over 2000 first-quarter earnings of $33 million and was up 29% over 1999 second-quarter earnings of $28 million. The earnings results of our chemicals businesses reflect an improvement in demand for chemical products and higher oil and gas prices. CHEMICALS AND PETROLEUM (IN MILLIONS)
2000 1999 ----------------------------------------- ---------------------------------------- 1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months ----------- ----------- ---------- ----------- ----------- ---------- Sales $345 $365 $710 $350 $360 $710 Operating Profit 33 36 69 19 28 47
FOREST PRODUCTS 2000 second-quarter net sales were $750 million compared with $780 million in the 2000 first-quarter and $815 million in the 1999 second-quarter. Operating profit of $174 million for the 2000 second-quarter improved 17% over 2000 first-quarter earnings of $149 million, but were down slightly from 1999 second-quarter earnings of $175 million. The improvement over the first quarter was primarily the result of increases in harvest volumes, sales of standing timber and a seasonal increase in recreational income. Stumpage prices for both pulpwood and sawtimber for the 2000 second-quarter were slightly below the first quarter and continued to average well below 1999 levels. Second-quarter 2000 earnings for the Building Materials group were down slightly from the prior quarter, and well below the second quarter of 1999. The year over year decline is primarily the result of weaker pricing for wood products and molded door facings. The cumulative effect of interest rate increases, lower consumer confidence and future uncertainty became increasingly evident this 17 quarter as prices eroded and demand remained sluggish during what is typically the start of the peak construction season. FOREST PRODUCTS (IN MILLIONS)
2000 1999 -------------------------------------------- --------------------------------------------- 1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months ----------- ----------- ---------- ----------- ----------- ---------- Sales $780 $750 $1,530 $785 $815 $1,600 Operating Profit 149 174 323 174 175 349
CARTER HOLT HARVEY reported 2000 second-quarter net sales of $460 million compared with $410 million recorded in the prior quarter and $400 million recorded in the 1999 second-quarter. Operating profit of $23 million reported in the 2000 second-quarter was ahead of the 2000 first-quarter earnings of $17 million and reflects a significant improvement over the $8 million reported in the same period a year ago. Carter Holt Harvey's Forest Products, Wood Products, Packaging and Pulp and Paper businesses contributed to the favorable second quarter results primarily due to increased volumes and higher prices in each of the markets and improved performance at the Kinleith mill. However, Tissue results weakened as the result of higher pulp prices and increased competition. In addition, sales and earnings for the Wood Products business were boosted by the reporting of two months of trading results from an Australian panels business and sawmill acquired in April of 2000. CARTER HOLT HARVEY (IN MILLIONS)
2000 1999 ------------------------------------------ --------------------------------------- 1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months ----------- ----------- ---------- ----------- ----------- ---------- Sales $410 $460 $870 $365 $400 $765 Operating Profit 17 23 40 - 8 8
International Paper's results for this segment differ from those reported by Carter Holt Harvey in New Zealand due to (1) Carter Holt Harvey's fiscal year ending March 31 versus our calendar year, (2) our segment earnings include only our share of Carter Holt Harvey's operating earnings while 100% of sales are included, (3) our results are in U.S. dollars while Carter Holt Harvey reports in New Zealand dollars, and (4) Carter Holt Harvey reports under New Zealand accounting standards while our segment results comply with U.S. generally accepted accounting principles. The major accounting differences relate to cost of timber harvested and start-up costs. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations totaled $968 million for the 2000 first half compared with $703 million for the 1999 six month period. Higher earnings for the 2000 first half were partially offset by increased working capital requirements. Working capital changes decreased operating cash flow by $293 million and $45 million for the 2000 and 1999 six month periods, respectively. Investments in capital projects totaled $488 million and $459 million for the 2000 and 1999 six month periods. Cash flow generated by operations, supplemented as necessary by short- or long-term borrowings, is anticipated to be adequate to fund capital expenditures. As part of our program to improve return on investment, we plan to continue to hold annual capital spending below annual depreciation and amortization expense. Discretionary capital spending will be primarily for reducing costs, stabilizing processes and improving services. Financing activities for the 2000 and 1999 six month periods include a $4.7 billion and $45 million net increase in debt. The 2000 increase includes both the $5.0 billion debt issuance to finance the Champion merger and the $650 million debt issuance to finance the Shorewood merger. Debt reductions include the repayment of $279 million of assumed Shorewood debt, $147 million of assumed Champion debt, and approximately $700 million of debt repayments by Carter Holt Harvey. Common stock dividend payments were $207 million, or $.50 per common share for the 2000 first half compared with $212 million or $.51 per common share for the 1999 first 18 half. Dividend payments for the second quarters ended June 30, 2000 and 1999 were $103 million and $104 million or $.25 per common share for both periods. Actual cash dividends paid for the 1999 first-quarter were $.25 per common share. However, cash dividends declared per common share have been restated to include dividends declared by Union Camp. At June 30, 2000, cash and temporary investments totaled $1.1 billion compared to $453 million at December 31, 1999. The increase in cash and temporary investments is due primarily to proceeds of $1.2 billion from Carter Holt Harvey's sale of COPEC and cash acquired through the Champion merger of approximately $325 million, less Carter Holt Harvey debt reductions of $700 million and Carter Holt Harvey's acquisition of CSR for approximately $200 million. MERGERS AND ACQUISITIONS On June 20, 2000, International Paper completed the previously announced merger with Champion, a leading manufacturer of paper for business communications, commercial printing and publications with significant market pulp, plywood, lumber and wood chip manufacturing operations. Under the terms of the merger agreement, Champion shareholders received $50 in cash per share and $25 worth of International Paper common stock per share. Champion shares were acquired for approximately $5 billion in cash and 68.7 million shares of International Paper common stock totaling $2.4 billion. Approximately $2.3 billion of debt was assumed. The results of Champion are included in the consolidated statement of earnings from June 20, 2000, and the June 30, 2000 consolidated balance sheet includes the balances of Champion. In connection with the merger announcement, International Paper also announced its intention to sell more than $3 billion of assets by the end of 2001 as part of its increased focus on its core businesses. When the decision has been made to sell a specific business, costs and charges may be incurred in future periods. Also, as a result of the merger announcement, Moody's lowered our long-term debt rating to Baa1. At June 30, 2000, outstanding debt included approximately $3 billion of commercial paper and bank notes with interest rates that fluctuate based on market conditions and our credit rating. On February 21, 2000, Carter Holt Harvey announced the purchase of CSR Limited's medium density fiberboard and particleboard businesses and its Oberon sawmill for approximately $200 million in cash. This acquisition was completed on April 28, 2000. On February 17, 2000, International Paper announced that we had reached an agreement to acquire Shorewood Packaging Corporation, a leader in the premium retail packaging market, for approximately $640 million in cash and the assumption of approximately $280 million of debt. This merger was completed on March 31, 2000. On November 24, 1998, International Paper announced that we had reached an agreement to merge with Union Camp Corporation (Union Camp), a diversified paper and forest products company. The transaction was approved by Union Camp and International Paper shareholders, and the merger was completed, on April 30, 1999. Union Camp shareholders received 1.4852 International Paper common shares for each Union Camp share held. The total value of the transaction, including the assumption of debt, was approximately $7.9 billion. International Paper issued 110 million shares for 74 million Union Camp shares, including options. The merger was accounted for as a pooling-of-interests. In April 1999, Carter Holt Harvey, a subsidiary of International Paper, acquired the corrugated packaging business of Stone Australia, a subsidiary of Smurfit-Stone Container Corporation. The business consists of two sites in Melbourne and Sydney which serve industrial and primary produce customers. All of the acquisitions completed in the first and second quarters of 2000 and for the year 1999 were accounted for using the purchase method, with the exception of the Union Camp acquisition, which was accounted for as a 19 pooling-of-interests. The operating results of those mergers and acquisitions accounted for under the purchase method have been included in the consolidated statement of earnings from the dates of acquisition. The accompanying consolidated balance sheet as of June 30, 2000 reflects preliminary allocations of the purchase prices of Shorewood Packaging, CSR Limited and Champion to the fair value of the assets and liabilities acquired. RESTRUCTURING, SPECIAL AND EXTRAORDINARY ITEMS During the second quarter of 2000, International Paper recorded special items amounting to a net charge before taxes and minority interest of $75 million ($45 million after taxes and minority interest). The special items included a $4 million pre-tax charge ($3 million after taxes) for one-time merger costs and a $71 million pre-tax charge ($42 million after taxes and minority interest) for asset shutdowns of excess internal capacity and cost reduction actions. The one-time merger expenses of $4 million consist primarily of travel expenses and system integration costs related to the Union Camp and Champion mergers. The $71 million charge for asset shutdowns of excess internal capacity and cost reduction actions includes $40 million of asset write-downs and $31 million of severance and other charges. The following table presents additional detail related to the $71 million charge:
ASSET SEVERANCE WRITE - AND IN MILLIONS DOWNS OTHER TOTAL ----------- ----- ----- ----- Printing and Communications Papers (a) $22 $ 7 $29 Consumer Packaging (b) 7 9 16 Industrial Papers (c) 9 4 13 Other (d) 2 11 13 ----- ----- ----- $40 $31 $71 ===== ===== =====
(a) The Printing and Communications Papers business announced the shutdown of the Millers Falls, Massachusetts mill due to excess capacity. Charges associated with the shutdown include $22 million of asset write-downs, $2 million of severance costs covering the termination of 119 employees and other exit costs of $3 million. Also, the Franklin, Virginia mill reduced its salaried workforce in a continuing effort to improve the cost effectiveness and long-term competitive position of the pulp and paper operation. A severance charge of $2 million covers the elimination of 108 salaried positions. (b) The Consumer Packaging business has implemented a plan to reduce excess capacity and streamline administrative functions at several of its locations as a result of the Shorewood acquisition. The Richmond, Virginia facility is scheduled to be shut down. Charges associated with the shutdown include $6 million of asset write-downs, $2 million of severance costs covering the termination of 126 employees and other exit costs of $1 million. Management also decided to permanently idle the lithographic department of the Clinton, Iowa facility. This action will allow the Retail Packaging business to better focus its resources for further profit improvement. The charge includes $1 million of asset write-downs, $3 million of severance covering the termination of 187 employees and $2 million of other exit costs. A severance reserve of $1 million has also been established related to the streamlining efforts of the Consumer Packaging business. This reserve covers the termination of 17 employees. 20 (c) Industrial Papers announced the shutdown of the Knoxville, Tennessee converting facility in an effort to reduce excess capacity. The charge includes $9 million of asset write-downs, $1 million of severance costs related to the termination of 120 employees and other exit costs of $3 million. (d) Other includes $8 million related to Industrial Packaging, primarily for the shutdown of the Tupelo, Mississippi sheet plant. The Industrial Packaging charge includes $5 million of severance costs covering the termination of 221 employees, $2 million of asset write-offs and $1 million of other cash costs. Other also includes $5 million related to the indefinite shutdown of Carter Holt Harvey's Mataura paper mill. The Carter Holt Harvey charge includes $3 million of severance costs covering the termination of 158 employees and $2 million of other cash costs. The $31 million reserve for severance and other costs recorded in the 2000 second quarter related to 1,056 employees. During the first quarter of 2000, International Paper recorded special items amounting to a net pre-tax charge of $8 million ($5 million after taxes) for additional Union Camp merger integration costs. International Paper also recorded an extraordinary gain of $385 million before taxes and minority interest expense ($134 million after taxes and minority interest expense) on the sale of our investment in Scitex and Carter Holt Harvey's sale of its share of Compania de Petroleos de Chile (COPEC), Chile's largest industrial conglomerate. The sale for just over $1.2 billion of Carter Holt Harvey's equity interest in COPEC closed on January 3, 2000. The sale for $79 million of our equity interest in Scitex was completed on January 6, 2000. The gains on these sales are recorded as extraordinary items pursuant to the pooling-of-interests rules. The following table shows the impact of special items on 2000 pre-tax earnings by quarter:
QUARTER ---------------- IN MILLIONS FIRST SECOND YEAR-TO-DATE - ----------- ----- ------ ------------ EARNINGS BEFORE SPECIAL ITEMS, INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS $ 443 $ 555 $ 998 One-time merger expenses (8) (4) (12) Restructuring and other charges (71) (71) ------ ----- ------------ EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS $ 435 $ 480 $ 915 ====== ===== ============
During 1999 special items amounting to a net charge before taxes and minority interest expense of $557 million ($352 million after taxes and minority interest expense) were recorded. The special items included a $148 million pre-tax charge ($97 million after taxes) for Union Camp merger-related termination benefits, a $107 million pre-tax charge ($78 million after taxes) for one-time merger expenses, a $298 million pre-tax charge ($180 million after taxes and minority interest expense) for asset shutdowns of excess internal capacity and cost reduction actions, a $10 million pre-tax charge ($6 million after taxes) to increase existing environmental remediation reserves related to certain former Union Camp facilities, a $30 million pre-tax charge ($18 million after taxes) to increase existing legal reserves and a $36 million pre-tax credit ($27 million after taxes) for the reversal of reserves that were no longer required. The 1999 extraordinary item was a $26 million pre-tax charge ($16 million after taxes) related to the refinancing of high interest Union Camp debt, which we assumed under the merger agreement. 21 The following table shows the impact of special items on 1999 pre-tax earnings by quarter:
QUARTER ------------------------------------- YEAR-TO- IN MILLIONS FIRST SECOND THIRD FOURTH DATE - ----------- ----- ------ ----- ------ -------- EARNINGS BEFORE SPECIAL ITEMS, INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS $ 94 $ 198 $ 320 $ 393 $1,005 Merger-related termination benefits (98) (50) (148) One-time merger expenses (59) (18) (30) (107) Restructuring and other charges (113) (185) (298) Reversal of reserves no longer required 36 36 Environmental reserve (10) (10) Provision for legal reserves (30) (30) ------ ------ ------ ------ ------ EARNINGS (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS $ 94 $ (36) $ 242 $ 148 $ 448 ====== ====== ====== ====== ======
The Union Camp merger-related termination benefits charge relates to employees terminating after the effective date of the merger under an integration benefits program. Under this program, 1,218 employees of the combined company were identified for termination. Benefits payable under this program for certain senior executives and managers have been paid from the general assets of International Paper. Benefits for remaining employees have been primarily paid from plan assets of our qualified pension plan. As of June 30, 2000, 1,062 employees had been terminated. Related cash payments approximated $71 million (including payments related to our nonqualified pension plans). The remainder of the incurred costs primarily represents an increase in the projected benefit obligation of our qualified pension plan. The following table is a roll forward of the Union Camp merger-related termination benefits charge and costs incurred by quarter. The amounts identified below as incurred include all payments made or to be made to employees that have been terminated. The payments are made from the general assets of International Paper or from the assets of our qualified pension plan.
TERMINATION DOLLARS IN MILLIONS BENEFITS ------------------- ----------- Special charge - second quarter 1999 (572 employees) $ 98 Incurred costs - second quarter 1999 (83 employees) (30) Special charge - third quarter 1999 (646 employees) 50 Incurred costs - third quarter 1999 (484 employees) (53) Incurred costs - fourth quarter 1999 (220 employees) (33) ----------- Balance, December 31, 1999 (431 employees) 32 Incurred costs - first quarter 2000 (111 employees) (8) Incurred costs - second quarter 2000 (164 employees) (18) ----------- Balance, June 30, 2000 (156 employees) $ 6 ===========
Note: Benefit costs are treated as incurred on the termination date of the employee. The program was substantially completed in the second quarter. We are in the process of reevaluating the program to determine if additional costs will be incurred in the third quarter. Any accruals that remain after the reevaluation process will be reversed to income in the third quarter of this year. 22 The one-time merger expenses of $107 million consisted of $49 million of merger costs and $58 million of post-merger expenses. The merger costs were primarily investment banker, consulting, legal and accounting fees. Post-merger integration expenses included costs related to employee retention such as stay bonuses and other one-time cash costs related to the integration of Union Camp. The $298 million charge for the asset shutdowns of excess internal capacity consisted of a $113 million charge in the 1999 second quarter and a $185 million charge in the 1999 fourth quarter. The charges included $149 million of asset write-downs and $149 million of severance and other charges. A full discussion of these charges is included in International Paper's 1999 Annual Report filed on Form 10-K. The following table is a roll forward of the severance and other costs included in the 1999 restructuring plan:
SEVERANCE DOLLARS IN MILLIONS AND OTHER ------------------- --------- Opening balance - second quarter 1999 (1,118 employees) $ 56 Cash charges - third quarter 1999 (710 employees) (13) Additions - fourth quarter 1999 (2,045 employees) 93 Cash charges - fourth quarter 1999 (50 employees) (21) --------- Balance, December 31, 1999 (2,403 employees) 115 Cash charges - first quarter 2000 (1,031 employees) (25) Other charges - first quarter 2000 (8) Cash charges - second quarter 2000 (673 employees) (14) --------- Balance, June 30, 2000 (699 employees) $ 68 =========
The $36 million pre-tax credit for the reversal of reserves that were no longer required consists of $30 million related to a retained exposure at the Lancey mill in France and $6 million of excess reserves previously established by Union Camp. The Lancey mill was sold to an employee group in October of 1997. In April 1999, International Paper's remaining exposure to potential obligations under this sale were resolved, and the reserve was returned to income in the second quarter. The $30 million pre-tax charge to increase existing legal reserves included $25 million which we added to our reserve for hardboard siding claims. The remaining $5 million is related to other potential exposures. OTHER The effective income tax rate before special and extraordinary items increased to 31% for the 2000 first-half from 29% in the 1999 first-half. The increase was primarily due to changes in the mix of estimated annual earnings. The effective income tax rate after special items but before extraordinary items was 30% and 17% for the 2000 and 1999 six month periods, respectively. The following table presents the components of pre-tax earnings and losses and the related income tax expense or benefit for each of the six month periods ended June 30, 2000 and 1999. 23
2000 1999 ----------------------------------------- -------------------------------------- Earnings Earnings (Loss) Before (Loss) Before Income Taxes Income Tax Income Taxes Income Tax and Minority Provision Effective and Minority Provision Effective In Millions Interest (Benefit) Tax Rate Interest (Benefit) Tax Rate - ----------- ------------ ---------- --------- ------------- ---------- --------- Before special and extraordinary items $ 998 $ 309 31% $ 292 $ 86 29% Merger-related termination benefits (98) (31) 32% One-time merger expenses (12) (4) 33% (59) (10) 17% Restructuring and other charges (71) (27) 38% (113) (44) 39% Reversals of reserves no longer required 36 9 25% ------------ ---------- ------------- ---------- After special items $ 915 $ 278 30% $ 58 $ 10 17% ============ ========== ============= ==========
FORWARD-LOOKING STATEMENTS The statements under "Management's Discussion and Analysis" and other statements contained herein that are not historical facts are forward-looking statements (as such term is defined under the Private Securities Litigation Reform Act of 1995). Forward-looking statements reflect our expectations or forecasts of future events. These include statements relating to future actions, future performance or the outcome of contingencies, such as legal proceedings and financial results. Any or all of the forward-looking statements that we make in this report may turn out to be wrong. They can be influenced by inaccurate assumptions we might make or by known or unknown risks and uncertainties. No forward-looking statements can be guaranteed and actual results may vary materially. Factors which could cause actual results to differ include, among other things, changes in overall demand, changes in domestic competition, changes in the cost or availability of raw materials, the cost of compliance with environmental laws and regulations and whether anticipated savings from merger and other restructuring activities can be achieved. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. 24 FINANCIAL INFORMATION BY INDUSTRY SEGMENT (UNAUDITED) (IN MILLIONS) NET SALES BY INDUSTRY SEGMENT
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Printing and Communications Papers (1) $ 1,620 $ 1,385 $ 3,270 $ 2,835 Industrial and Consumer Packaging 1,985 1,760 3,790 3,435 Distribution 1,700 1,675 3,450 3,375 Chemicals and Petroleum 365 360 710 710 Forest Products 750 815 1,530 1,600 Carter Holt Harvey 460 400 870 765 Corporate and Intersegment Sales (1)(2) (100) (399) (469) (692) -------- -------- -------- -------- NET SALES $ 6,780 $ 5,996 $ 13,151 $ 12,028 ======== ======== ======== ========
OPERATING PROFIT BY INDUSTRY SEGMENT
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2000 1999 2000 1999 ------- ------- ------- -------- Printing and Communications Papers $ 212 $ 22 $ 390 $ 30 Industrial and Consumer Packaging 234 142 430 198 Distribution 35 27 65 51 Chemicals and Petroleum 36 28 69 47 Forest Products 174 175 323 349 Carter Holt Harvey (3) 23 8 40 8 Corporate (2) 26 26 ------- ------- ------- ------- OPERATING PROFIT 740 402 1,343 683 Interest expense, net (156) (123) (287) (266) Minority interest adjustment 38 15 62 21 Corporate items, net (67) (98) (120) (149) Restructuring and other charges (71) (113) (71) (113) Merger integration costs (4) (157) (12) (157) Reversal of reserves no longer required 36 36 Scitex restructuring and other charges 2 3 ------- ------- ------- ------- EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEMS $ 480 $ (36) $ 915 $ 58 ======= ======= ======= =======
- -------------- (1) Certain reclassifications and adjustments have been made to prior year amounts. (2) Includes results from operations of Champion International Corporation acquired on June 20, 2000. Beginning on July 1, 2000, the results of the former Champion business will be included in the appropriate business segment. (3) Includes equity earnings (in millions) of $5 and $21 for the three months ended June 30, 2000 and 1999, respectively, and $9 and $22 for the six months ended June 30, 2000 and 1999, respectively. Half of these equity earnings amounts are in the Carter Holt Harvey segment and half are in the minority interest adjustment. 25 PRODUCTION BY PRODUCT
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 2000 1999 2000 1999 ------ ------ ------ ------ Printing Papers (In thousands of tons) White Papers and Bristols (a) 1,355 1,364 2,735 2,715 Coated Papers 317 339 642 655 Market Pulp (b) 516 461 1,037 993 Newsprint 28 25 55 48 Packaging (In thousands of tons) Containerboard (a) 1,190 1,236 2,394 2,371 Bleached Packaging Board 542 535 1,074 1,050 Industrial Papers 230 223 471 450 Industrial and Consumer Packaging (c) 1,332 1,272 2,653 2,510 Specialty Products (In thousands of tons) Tissue 42 39 83 81 Forest Products (In millions) Panels (sq. ft. 3/8" - basis) (d) 510 492 1,003 979 Lumber (board feet) 713 715 1,428 1,498 MDF (sq. ft. 3/4" - basis) 84 58 143 114 Particleboard (sq. ft. 3/4" - basis) 95 51 143 97
- --------------- (a) Certain reclassifications and adjustments have been made to current and prior year amounts. (b) This excludes market pulp purchases. (c) A significant portion of this tonnage was fabricated from paperboard and paper produced at International Paper's own mills and is included in the containerboard, bleached packaging board and industrial papers amounts in this table. (d) Panels include plywood and oriented strand board. 26 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK On June 20, 2000, International Paper completed the previously announced merger with Champion. To complete the merger, Champion shares were acquired for approximately $5 billion in cash and 68.7 million shares of International Paper common stock totaling $2.4 billion. Approximately $2.3 billion of Champion's debt, mostly long-term fixed rate debt, was assumed. International Paper financed the cash portion of the merger with a combination of short- and long-term, fixed and floating rate notes. The results of our analysis of value at risk, considering the Champion borrowings noted above, were not significant to our consolidated common shareholders' equity, earnings or daily change in market capitalization. 27 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The following matters discussed in previous filings under the Securities Exchange Act, are updated as follows: MASONITE LITIGATION Three nationwide class action lawsuits filed against International Paper have been settled. The first suit alleged that hardboard siding manufactured by Masonite fails prematurely, allowing moisture intrusion that in turn causes damage to the structure underneath the siding. The class consisted of all U.S. property owners having Masonite hardboard siding installed on and incorporated into buildings between 1980 and January 15, 1998. Final approval of the settlement was granted by the Court on January 15, 1998. The settlement provides for monetary compensation to class members meeting the settlement requirements on a claims-made basis. It also provides for the payment of attorneys' fees equaling 15% of the settlement amounts paid to class members, with a nonrefundable advance of $47.5 million plus $2.5 million in costs. The second suit made similar allegations with regard to Omniwood siding manufactured by Masonite (Omniwood Lawsuit). The class consists of all U.S. property owners having Omniwood siding installed on and incorporated into buildings from January 1, 1992 to January 6, 1999. The third suit alleged that Woodruf roofing manufactured by Masonite is defective and causes damage to the structure underneath the roofing (Woodruf Lawsuit). The class consists of all U.S. property owners having Masonite Woodruf roofing incorporated into and installed on buildings from January 1, 1980 to January 6, 1999. Final approval of the settlements of the Omniwood and Woodruf lawsuits was granted by the Court on January 6, 1999. The settlements provide for monetary compensation to class members meeting the settlement requirements on a claims-made basis, and provide for payment of attorneys' fees equaling 13% of the settlement amounts paid to class members with a nonrefundable advance of $1.7 million plus $75,000 in costs for each of the two cases. Our reserves for these matters total $66 million at June 30, 2000. This amount includes $25 million, which we added to our reserve for hardboard siding claims in the fourth quarter of 1999, to cover an expected shortfall in that reserve resulting primarily from a higher number of hardboard siding claims in the fourth quarter of 1999 than we had anticipated. It is reasonably possible that the higher number of hardboard siding claims might be indicative of the need for one or more future additions to this reserve. However, whether or not any future additions to this reserve become necessary, International Paper believes that these settlements will not have a material adverse effect on our consolidated financial position or results of operations. Expected insurance recoveries, apart from the insurance recoveries to date, are $51 million. Through June 30, 2000, settlement payments of $248 million, including the $51 million of nonrefundable advances of attorneys' fees discussed above, have been made. Also, we have received $27 million from our insurance carriers through June 30, 2000. International Paper and Masonite have the right to terminate each of the settlements after seven years from the dates of final approval. OTHER LITIGATION In March and April 2000, Champion International Corporation (Champion)and 10 members of its board of directors were served with six lawsuits that have been filed in the Supreme Court for the State of New York, New York County. Each of the suits purports 28 to be a class action filed on behalf of Champion shareholders and alleges that the defendants breached their fiduciary duties in connection with the proposed merger with UPM-Kymmene Corporation and the merger proposal from International Paper. A number of class actions have been filed in federal and state courts in New York, Texas, California and Tennessee alleging that International Paper's Nevamar division participated in a price fixing conspiracy with three of its competitors. The cases in federal court assert a violation of the federal antitrust laws, while the state court cases allege violations of state antitrust and consumer protection statutes. We have filed a motion to dismiss one of these cases. As of July 31, 2000, we have not filed a pleading responsive to the complaints in any of the other cases. We intend to defend these cases vigorously. In August 1998, the former Union Camp Corporation informed the Virginia Department of Environmental Quality (DEQ) of certain New Source Performance Standards (NSPS) permitting discrepancies related to a power boiler at the paper mill in Franklin, Virginia. On April 11, 2000, International Paper and the DEQ entered into a consent order which resolved the matter for a civil penalty of $134,000. In February 2000, the Town of Lyman, South Carolina, issued an administrative order alleging past violations of a wastewater pretreatment permit at the former Union Camp folding carton facility in Spartanburg, South Carolina. While International Paper has satisfied the terms of the order, the Town of Lyman recently indicated it may seek penalties and other surcharges that together may exceed $100,000. We are engaged in settlement discussions with the Town of Lyman. On June 19, 2000, prior to the completion of the merger of Champion, Champion entered into a Consent Order with the Maine Department of Environmental Protection which resolved allegations of past wastewater and reporting deficiencies at Champion's lumber mills in Milford and Passadumkeag, Maine. Champion paid a civil penalty of $800,000 in connection with the Consent Order. We are also involved in other contractual disputes, administrative and legal proceedings and investigations of various types. While any litigation, proceeding or investigation has an element of uncertainty, we believe that the outcome of any proceeding, lawsuit or claim that is pending or threatened, or all of them combined, will not have a material adverse effect on our consolidated financial position or results of operations. 29 ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Shareholders of International Paper was held on May 9, 2000. (b) N/A (c) (i) The Annual Meeting involved the election of seven directors as follows: The election of five directors to Class III. No votes were cast against a nominee. The votes for or withheld for each nominee were: For Withheld ------------ --------- Mr. Robert J. Eaton 340,445,510 3,333,678 Mr. John R. Kennedy 340,332,526 3,446,662 Mr. Donald F. McHenry 340,293,547 3,485,641 Mr. Patrick F. Noonan 338,844,779 4,934,409 Mr. Charles R. Shoemate 340,430,943 3,348,245 The election of one director to Class I. No votes were cast against the nominee. The votes for or withheld for the nominee were: For Withheld ----------- --------- Mr. James A. Henderson 340,413,655 3,365,533 The election of one director to Class II. No votes were cast against the nominee. The votes for or withheld for the nominee were: For Withheld ----------- --------- Mr. Robert D. Kennedy 340,335,889 3,443,299 (c) (ii) The shareholders approved the appointment of Arthur Andersen LLP as the Company's independent auditor for 2000. There were 341,044,753 votes cast in favor of the ratification, 511,263 votes cast against the ratification and 2,223,172 votes in abstention. (c) (iii)The shareholders approved an amendment to the Company's Long-Term Incentive Compensation Plan. There were 319,200,668 votes cast in favor of the proposal, 21,495,376 votes cast against the proposal, and 3,083,127 votes in abstention. (d) N/A 30 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (2) Agreement and Plan of Merger, dated as of May 12, 2000, among Champion, International Paper and the Purchaser (incorporated by reference to exhibit 2 to International Paper's Registration Statement on Form S-4, as amended on June 2, 2000 and June 9, 2000). (4.1) Indenture, dated as of April 12, 1999, between International Paper and The Bank of New York, as Trustee (incorporated by reference to exhibit 4.1 to International Paper's Report on Form 8-K filed on June 29, 2000). (4.2) Floating Rate Notes Supplemental Indenture, dated as of June 14, 2000, between International Paper and The Bank of New York, as Trustee (incorporated by reference to exhibit 4.2 to International Paper's Report on Form 8-K filed on June 29, 2000). (4.3) 8% Notes Due July 8, 2003 Supplemental Indenture, dated as of June 14, 2000, between International Paper and The Bank of New York, as Trustee (incorporated by reference to exhibit 4.3 to International Paper's Report on Form 8-K filed on June 29, 2000). (4.4) 8 1/8% Notes Due July 8, 2005 Supplemental Indenture, dated as of June 14, 2000, between International Paper and The Bank of New York, as Trustee (incorporated by reference to exhibit 4.4 to International Paper's Report on Form 8-K filed on June 29, 2000). (4.5) Credit Agreement, dated as of June 14, 2000, among International Paper, International Paper Financial Services, Inc., various lenders and Credit Suisse First Boston, New York Branch, as Administrative Agent, Lead Arranger and Book Manager (incorporated by reference to exhibit 4.5 to International Paper's Report on Form 8-K filed on June 29, 2000). (10.1) Long-Term Incentive Compensation Plan (11) Statement of Computation of Per Share Earnings (12) Computation of Ratio of Earnings to Fixed Charges (27) Financial Data Schedule (99.1) Registration Rights Agreement, dated as of June 14, 2000, by and among International Paper and Credit Suisse First Boston Corporation, Banc of America Securities LLC, Chase Securities 31 Inc., Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc., Blaylock & Partners, L.P. and Utendahl Capital Partners L.P. (incorporated by reference to exhibit 99.1 to International Paper's Report on Form 8-K filed on June 29, 2000). (b) Reports on Form 8-K International Paper filed reports on Form 8-K on April 11, 2000, April 25, 2000, May 19, 2000, May 22, 2000, and July 12, 2000 reporting information under Item 5, Other Events, and on June 29, 2000 reporting information under Item 2, Acquisition or Disposition of Assets, Item 5, Other Events, and Item 7, Financial Statements of Business Acquired and Pro Forma Financial Information. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERNATIONAL PAPER COMPANY (REGISTRANT) Date: August 11, 2000 By /s/ JOHN V. FARACI ------------------ John V. Faraci Executive Vice President and Chief Financial Officer Date: August 11, 2000 By /s/ ANDREW R. LESSIN -------------------- Andrew R. Lessin Vice President, Finance and Chief Accounting Officer 32 EX-10.1 2 ex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 INTERNATIONAL PAPER COMPANY LONG-TERM INCENTIVE COMPENSATION PLAN 1. PURPOSE AND EFFECTIVE DATE This plan shall be known as the International Paper Company Long-Term Incentive Compensation Plan (the "Plan"). The purpose of this Plan is to provide incentive for senior management officers and employees of the Company and its subsidiaries (the "Company") to improve the performance of the Company on a long-term basis, and to attract and retain in the employ of the Company persons of outstanding competence. The terms "subsidiary" and "subsidiaries" as used herein shall mean corporations which are owned or controlled by International Paper Company, directly or indirectly. The effective date of the Plan is January 1, 1989. The Plan was amended in 1994 and 1999 by a vote of shareholders. Subject to the approval of this Plan as amended hereby by a majority of shareholders of the Company entitled to vote on the matter at the 2000 annual meeting of shareholders, certain changes to the Plan will also be effective as of January 1, 2000. 2. ADMINISTRATION OF THE PLAN (a) The Plan shall be administered by a committee (the "Committee") which shall be composed of members of the Board of Directors of the Company and which shall be constituted so as to permit the Plan to comply with the provisions of Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("1934 Act") (or any successor rule) and Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Committee is authorized to administer and interpret the Plan, to authorize, change, and waive the restrictions and conditions imposed on awards and stock options under the Plan, to delegate the granting of awards hereunder, and to adopt such rules and regulations for carrying out the Plan as it may deem appropriate. Decisions of the Committee or its delegates on all matters relating to the Plan shall be in the Committee's sole discretion and shall be conclusive and binding on all parties, including the Company, the shareholders and the participants. (b) No member of the Committee or any employee acting on its behalf shall incur any liability for any action or failure to act in connection with this Plan. The Company shall indemnify each member of the Committee and any employee acting on its behalf against any and all claims, losses, damages, expenses and liabilities arising from any action or failure to act. 3. PARTICIPANTS (a) Participation in this Plan shall be limited to senior managers and other key employees of the Company as determined by the Committee or its delegates. Awards of stock and stock appreciation rights and grants of stock options may be made to such employees and for such respective numbers of Shares, as the Committee or its delegates in their absolute discretion shall determine (all such individuals to whom awards and options shall be granted being herein called "participants"). (b) Members of the Board of Directors who are also employees of the Company shall be eligible to participate in the Plan. However, members of the Board of Directors who are not also employees of the Company shall be ineligible for awards under this Plan. Notwithstanding the foregoing, any members of the Board of Directors who are also retired employees of the Company shall be entitled to the portions of their awards which are earned or vested pursuant to the provisions of the Plan. (c) A person who is compensated on the basis of a fee or retainer, as distinguished from salary, shall not be eligible for participation in the Plan. (d) Participation in this Plan, or receipt of an award or option under this Plan, shall not give a participant any right to a subsequent award or option, nor any right to continued employment by the Company for any period, nor shall the granting of an award or option give the Company any right to continued services of the participant for any period. Likewise, participation in the Plan will not in any way affect the Company's right to terminate the employment of the participant at any time with or without cause. 4. DEFINITIONS (a) "Stock" or "Share" shall mean a share of the common stock of $1.00 par value of International Paper Company. (b) "Performance Shares" shall mean Shares contingently awarded with respect to an Award Period and issued with the restriction that the holder may not sell, transfer, pledge, or assign such Shares, and with such other restrictions as the Committee in its sole discretion may determine (including, without limitation, restrictions with respect to forfeiture of the Shares and with respect to reinvestment of dividends in additional restricted Shares), which restrictions may lapse separately or in combination at such time or times (in installments or otherwise) as the Committee may determine. (c) "Stock Appreciation Right" or "SAR" shall mean a right included in an award under this Plan to receive upon exercise of the SAR a payment equal to the amount of the appreciation in the fair market value of a Share over the exercise price which is set forth in the SAR provided that the exercise price is not less than the fair market value of a Share on the date the SAR is granted. Payment upon exercise of an SAR may be in the form of cash, or restricted stock, or unrestricted stock, or a combination, as determined by the Committee in its sole discretion. SARs may be awarded separately or in combination with other awards and stock options under this Plan pursuant to terms and conditions contained in an award agreement as determined by the Committee. (d) "Change of Control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the 1934 Act; provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" as such term is used in Sections 13(d) and 14(d)(2) of the 1934 Act (other than employee benefit plans sponsored by the Company) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company, cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election, by the Company's shareholders of each new director was approved by a vote of at least two-thirds of the directors still in office who were directors at the beginning of the period. 5. STOCK AVAILABLE FOR THE PLAN Subject to the adjustments permitted by Section 6 of the Plan, an aggregate of twenty-five million five-hundred thousand (25,500,000) Shares shall be available under the Plan as amended by the shareholders at the 1999 Annual Meeting for delivery pursuant to the future awards, and options granted pursuant to the Plan, together with any Shares previously authorized by shareholders under the Plan, as previously amended, which are not yet issued to, or are reacquired from, participants in the Plan as previously amended. Such Shares shall be either previously unissued Shares or reacquired Shares. Shares covered by awards which are not earned, or which are settled in cash, or which are forfeited or terminated for any reason, and options which expire unexercised or which are exchanged for other awards, shall again be available for other awards and stock options under the Plan. Shares received by the Company in connection with the exercise of stock options by delivery of other Shares, and received in connection with payment of withholding taxes, shall again be available for delivery under the Plan. Shares reacquired by the Company on the open market using the cash proceeds received by the Company from the exercise of stock options granted under the Plan as previously amended shall be available for awards and options up to the number of Shares issued upon option exercises which generated such proceeds, provided any such exercise occurred on or after January 1, 1989. Notwithstanding the foregoing, the maximum number of Shares available for delivery pursuant to future awards, options and SARs to executive officers of the Company who, at the time of grant, are subject to the provisions of Section 16 of the 1934 Act shall not exceed 14,600,000 Shares, subject to the adjustments permitted by Section 6 of the Plan. Notwithstanding any other provision of this Plan, subject, however, to the adjustments permitted by Section 6 of the Plan, the aggregate number of Shares that can be covered by future stock options or SARs granted to any individual in any period of three consecutive fiscal years shall be 1,800,000 and the aggregate number of restricted Shares issued under this Plan after the 1999 annual meeting of shareholders may not exceed 3,000,000 Shares. 6. CHANGES IN STOCK AND EXERCISE PRICE OF STOCK OPTIONS AND SARS In the event of any stock dividend, split-up, reclassification or other analogous change in capitalization or any distribution (other than regular cash dividends) to holders of the Company's common stock, the Committee shall make such adjustments, if any, as it deems to be equitable in the exercise price of outstanding options and SARs, and in the number of Performance Shares awarded and earned, and in the number of Shares covered by any outstanding stock options and SARs, granted under this Plan, and in the aggregate number of Shares covered by this Plan. 7. TIME OF GRANTING AWARDS AND STOCK OPTIONS Nothing contained in this Plan, or in any resolution adopted or to be adopted by the Board of Directors or the shareholders of the Company, shall constitute the granting of an award or stock option under this Plan. The granting of an award or stock option pursuant to the Plan shall take place only when authorized by the Committee or its delegates. 8. DEATH OR DISABILITY OF A PARTICIPANT In the event of the death of a participant, a stock option or an SAR may be exercised within one year of the participant's death by the participant's designated beneficiary or beneficiaries (or if no beneficiary has been designated or survives the participant, by the person or persons who have acquired the rights of the participant by will or under the laws of descent and distribution). If a participant becomes disabled, the participant may exercise a stock option or an SAR within one year after the date of the disability. For purposes of this Plan, the term "disabled" shall refer to the condition of total disability defined in the Company's long-term disability plan. A participant may file with the Committee a designation of a beneficiary or beneficiaries on a form approved by the Committee, which designation may be changed or revoked by the participant's sole action, provided that the change or revocation is filed with the Committee on a form approved by it. In case of the death of the participant, before termination of employment or after retirement or disability, any portions of the participant's award to which the participant's designated beneficiary or estate is entitled under the Plan and the award agreement, shall be paid to the beneficiary or beneficiaries so designated or, if no beneficiary has been designated or survives such participant, shall be delivered as directed by the executor or administrator of the participant's estate. 9. RETIREMENT OF HOLDER OF STOCK OPTION OR SAR If a participant retires under a Company pension plan, the participant may exercise a stock option or an SAR within its remaining term unless otherwise provided in the award agreement. Retirement under any of the Company's pension plans shall cause incentive stock options to be treated for federal income tax purposes as non-qualified stock options on a date which is three months after the date of retirement. For purposes of this section, retirement shall be given the meaning used under the Company's pension plan for salaried employees. 10. NON-TRANSFERABILITY OF AWARDS No award, stock option or SAR under this Plan, and no rights or interests therein, shall be assignable or transferable by a participant (or legal representative), except at death by will or by the laws of descent and distribution unless otherwise permitted by the Committee and by law and, in the case of incentive stock options, to the extent consistent with Section 422 of the Code. 11. MODIFICATION OF THE PLAN The Board of Directors, without further approval of the shareholders, may at any time amend the Plan to take into account and comply with any changes in applicable securities or federal income tax laws and regulations, or other applicable laws and regulations, including without limitation, any modifications to Rule 16b-3 under the 1934 Act or Section 162(m) of the Code (or any successor rule, provision or regulation), terminate or modify or suspend (and if suspended, may reinstate) any or all of the provisions of this Plan, except that no modification of this Plan shall without the approval of the Company's shareholders increase the total number of Shares for which awards, stock options and SARs may be granted under the Plan (except pursuant to Section 6). RESTRICTED PERFORMANCE SHARE AWARDS 12. TERMS AND CONDITIONS OF AWARDS OF PERFORMANCE SHARES (a) Each award of Performance Shares under this Plan shall be contingently awarded with respect to a period of consecutive calendar years as determined by the Committee (herein called an "Award Period") and shall be made from reacquired Shares. The first complete Award Period under this Plan began with the year 1989. A new Award Period shall commence at the beginning of each calendar year. (b) The Performance Shares awarded under this Plan will be earned by a participant on the basis of the Company's financial performance over the Award Period for which it was awarded, on the basis of pre-established performance goals determined by the Committee in its sole discretion. The Performance measurement criteria used for Performance Shares shall be limited to one or more of: earnings per share, return on stockholders equity, return on investment, return on assets, growth in earnings, growth in sales revenue, and shareholder returns. Such criteria may be measured based on the Company's results or on the Company's performance as measured against a group of peer companies selected by the Committee. In applying such criteria, earnings may be calculated based on the exclusion of discontinued operations and extraordinary items. Subject to the adjustments permitted by Section 6 of the Plan, the maximum number of Performance Shares that can be earned for any one individual for any future Award Period is 100,000. Subject to such maximum number of Shares, the amount, if any, that may be earned by a participant receiving Performance Shares may vary in accordance with the level of achievement of the performance goal or goals established by the Committee. (c) A participant's rights with respect to all unearned Performance Shares shall terminate at the end of each Award Period. (d) The number of Shares determined by the Committee to have been earned with respect to any Award Period shall be final, conclusive and binding upon all parties, including the Company, the shareholders and the participants. (e) All dividend equivalents credited on Performance Shares during an Award Period shall be reinvested in additional Performance Shares (which shall be allocated to the same Award Period, and shall be subject to being earned by the participant on the same basis as the original award). (f) All dividends paid on earned restricted Shares under this part of the Plan shall be paid in cash. (g) As a condition of any award of Performance Shares under this Plan, each participant shall enter into an award agreement authorized by the Committee. The Committee may in its sole discretion, include additional conditions and restrictions in the award agreement entered into under this Plan. Settlements in Shares may be subject to forfeiture and other contingencies as the Committee may determine. (h) At the discretion of the Committee, SARs may be awarded separately or in combination with other awards or grants under this portion of the Plan. (i) In the event a Change of Control of the Company occurs, then (A) all restrictions shall be immediately removed with respect to all earned Performance Shares and (B) a pro rata portion of each outstanding Award that would have been earned were Company performance to reach the goals established by the Committee for each uncompleted Award Period shall be deemed earned (based on the number of months of the total Award Period which have been completed prior to the Change of Control), and all restrictions shall be immediately removed with respect to that number of shares; the remaining portion of each Award shall remain outstanding as Performance Shares subject to the provisions of this Plan and the participant's award agreements. STOCK OPTION AWARDS 13. TERMS AND CONDITIONS OF STOCK OPTIONS (a) The Committee and its delegates shall have the sole authority to grant stock options under this Plan. Such grants may consist of non-qualified stock options, or Incentive Stock Options, or any combination thereof, as the Committee shall decide from time to time. The aggregate fair market value (determined at the time the option is granted) of the Stock with respect to which Incentive Stock Options are exercisable for the first time by an individual during a calendar year shall not exceed $100,000 as determined under Section 422A of the Internal Revenue Code or comparable legislation. The maximum number of Shares for which stock options can be awarded to any one individual over any consecutive three-year period commencing on the effective date of the amendment to the Plan is 1,800,000 Shares, subject to the adjustments permitted by Section 6 of the Plan. (b) The term of each option granted under the Plan shall be set by the Committee, but in no event shall an Incentive Stock Option be exercised after ten years following the date of its grant under this Plan. (c) The exercise price of each option granted under the Plan shall be no less than the fair market value of the underlying Stock at the time the option is granted as determined by the Committee. (d) Prior to the exercise of the option and delivery of the Stock represented thereby, the participant shall have no rights to any dividends nor be entitled to any voting rights on any Stock represented by outstanding options. (e) As a condition of any grant of a stock option under this Plan, each participant shall enter into an award agreement authorized by the Committee. The Committee may, in its sole discretion, include additional conditions and restrictions in the award agreement entered into under this Plan. (f) At the discretion of the Committee, SARs may be awarded separately or in combination with other awards or grants under this part of the Plan. 14. EXERCISE OF STOCK OPTIONS (a) Each stock option granted under this Plan shall be exercisable as provided in accordance with the document evidencing the option by full payment of the option price in cash or at the discretion of the Committee in Stock owned by the participant (including Performance Shares and other restricted Shares awarded under this Plan). Unless otherwise provided herein, a participant may exercise a stock option only if he or she is an employee of the Company and has continuously been an employee of the Company since the date the option was granted. (b) If a stock option under this Plan is exercised by a participant, then, at the discretion of the Committee, the participant may receive a replacement option under this part of the Plan to purchase a number of Shares equal to the number of Shares which the participant purchased on the exercise of the option, with an exercise price equal to the current fair market value, and with a term extending to the expiration date of the original stock option. If a stock option is exercised by delivery of restricted Shares, then the participant shall receive an equal number of identically restricted Shares; the remaining option exercise Shares shall contain any applicable restrictions which are set forth in the participant's award agreement and shall otherwise be unrestricted. (c) In the event a Change of Control of the Company occurs, all stock options granted under this part of the Plan shall be immediately exercisable, and all restrictions on Shares issued under this plan pursuant to the exercise of stock option shall be immediately removed. CONTINUITY AWARDS 15. TERMS AND CONDITIONS OF EXECUTIVE CONTINUITY AWARDS (a) Executive Continuity Awards may be made from time to time under this Plan at the discretion of the Committee, in such amounts and upon such terms and conditions as are established by the Committee under this portion of the Plan. (b) An executive Continuity Award shall consist of a tandem grant of restricted Shares together with a related non-qualified stock option (options to be granted in accordance with the provisions of sections 13-14 of this Plan) to purchase a specified number of Shares, in such amounts as may be determined by the Committee. All dividends paid on the restricted Shares shall be reinvested in additional shares of restricted Shares (subject to the same restrictions, terms and conditions). Upon attainment of age 65, (or death or the executive's becoming disabled) or such other age as is determined in the sole discretion of the Committee, or upon a Change of Control of the Company (as limited under subsection (h) below), the restrictions on the award will be removed, and the award will vest in the following manner: (i) If the current realizable gain on a tandem stock option is greater than the current market value of the related restricted Shares (including re-invested dividends), then all such shares of restricted Shares shall be canceled and the term of the stock option shall continue for the term set forth in the award agreement. (ii) If the current market value of the restricted Shares (including re-invested dividends) is greater than the current realizable gain on any related tandem stock option, then the option shall be canceled and the restrictions shall be removed from all of the related restricted Shares. (c) If a stock option granted under this portion of the Plan is exercised prior to the executive's attainment of an age determined by the Committee, the related shares of restricted Shares shall be canceled, and the additional Shares issued upon the exercise of the stock option shall be restricted and subject to either forfeiture or repurchase by the Company at the option exercise price for a period ranging up to 12 years from the date of the grant of the option, or longer, as determined by the Committee and set forth in the award agreement. (d) A stock option granted under this portion of the Plan shall be exercisable as provided in accordance with the document evidencing the option by full payment of the option price in cash or, at the discretion of the Committee, in Stock owned by the participant (including Performance Shares awarded under this Plan). At the discretion of the Committee, the participant may receive a replacement stock option to purchase a number of shares equal to the number of shares purchased by the participant in exercising the option, with an exercise price equal to the current market value, and with a term extending to the expiration date of the original stock option. If an option is exercised by delivery of restricted Shares, then the participant shall receive an equal number of identically restricted Shares; the remaining option exercise Shares shall be subject to the Company's right to impose restrictions on such Shares as described in subsection (c) above. (e) As a condition of any executive Continuity Award under this Plan, each participant shall enter into an award agreement authorized by the Committee. The Committee may, in its sole discretion, include additional conditions and restrictions in the award agreement. (f) At the discretion of the Committee, SARs may be awarded separately or in combination with other awards or grants under this portion of the Plan. (g) In the event a Change of Control of the Company occurs, all restrictions shall be immediately removed with respect to the exercise of stock options under this part of the Plan and with respect to Shares issued upon the exercise of any stock option. A Change of Control, for these purposes, shall not include a transaction initiated by management such as a management led buyout or recapitalization except where such transaction (i) is in response to the acquisition of 10% or more of the Company's stock or the announcement of a tender offer for 20% or more of the Company's stock (other than by employee benefit plans sponsored by the Company); or (ii) is approved by the Board in accordance with the standards set forth in Section 717 of the New York Business Corporation Law or any successor provision. 16. TERMS AND CONDITIONS OF OTHER CONTINUITY AWARDS (a) Awards of restricted stock, hereinafter called "continuity awards" may be made from time to time under the Plan at the discretion of the Committee or its delegates, in such amounts and upon such terms and conditions as are established by the Committee or its delegates under this portion of the Plan. (b) As a condition of any such continuity award under this Plan, each participant shall enter into an award agreement authorized by the Committee or its delegates. The Committee or its delegates, in their sole discretion, may include additional conditions or restrictions in the award agreement. (c) In the event a Change of Control of the Company occurs, all restrictions shall be immediately removed with respect to Shares issued as a continuity award. A Change of Control, for these purposes, shall not include a transaction initiated by management, such as a management led buyout or recapitalization except where such transaction (i) is in response to the acquisition of 10% or more of the Company's stock or the announcement of a tender offer for 20% or more of the Company's stock (other than by employee benefit plans sponsored by the Company); or (ii) is approved by the Board in accordance with the standards set forth in Section 717 of the New York Business Corporation Law or any successor provision. MISCELLANEOUS 17. PRIOR AWARDS Awards of stock options and Performance Shares made under the Plan prior to the amendments approved by shareholders at the 1994 annual meeting continued to be subject to the terms of the Plan and the instruments evidencing such awards prior to such amendments becoming effective. 18. TAX WITHHOLDING The Company shall have the right to deduct from any settlement of an award made under the Plan, including the delivery or vesting of Shares, a sufficient amount to cover withholding of any federal, state, local or foreign jurisdiction taxes required by law, or to take such other action as may be necessary to satisfy any such withholding obligations. The Committee may permit or require Shares to be used to satisfy required tax withholding and such Shares shall be valued at the fair market value as of the settlement date of the applicable award. EX-11 3 ex-11.txt EXHIBIT 11 (EXHIBIT 11) INTERNATIONAL PAPER COMPANY STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2000 1999 2000 1999 ---------- ---------- ---------- --------- EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEMS $ 270 $ (58) $ 514 $ (26) Effect of dilutive securities Preferred securities of subsidiary trust 5 9 ---------- ---------- ---------- --------- EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEMS - -ASSUMING DILUTION $ 275 $ (58) $ 523 $ (26) ========== ========== ========== ========= AVERAGE COMMON SHARES OUTSTANDING 421.0 413.0 417.3 412.5 Effect of dilutive securities Preferred securities of subsidiary trust 8.3 8.3 Long-term incentive plan deferred compensation (1.1) (1.1) Stock options 0.3 0.5 ---------- ---------- ---------- --------- AVERAGE COMMON SHARES OUTSTANDING - ASSUMING DILUTION 429.6 411.9 426.1 411.4 ========== ========== ========== ========= EARNINGS (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEMS $ 0.64 $ (0.14) $ 1.23 $ (0.06) ========== ========== ========== ========= EARNINGS (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEMS - ASSUMING DILUTION $ 0.64 $ (0.14) $ 1.23 $ (0.06) ========== ========== ========== =========
Note: If an amount does not appear in the above table, the security was antidilutive for the period presented. EX-12 4 ex-12.txt EXHIBIT 12 (EXHIBIT 12) INTERNATIONAL PAPER COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------------ ----------------------- TITLE 1995 1996 1997 1998 1999 1999 2000 - --------------------------------- ----------- ----------- ---------- ----------- ----------- --------- ---------- A) Earnings before income taxes, minority interest, extraordinary items and accounting changes $ 2,742.0 $ 939.0 $ 143.0 $ 429.0 $ 448.0 $ 58.0 $ 915.0 B) Minority interest expense, net of taxes (166.0) (180.0) (140.0) (87.0) (163.0) (74.0) (123.0) C) Fixed charges excluding capitalized interest 740.3 802.1 826.6 866.7 820.9 415.8 430.1 D) Amortization of previously capitalized interest 29.6 34.2 37.0 38.8 17.0 8.4 10.1 E) Equity in undistributed earnings of affiliates (94.5) 6.2 (40.4) 23.7 (41.6) (10.2) (5.1) ----------- ----------- ---------- ----------- ----------- --------- ---------- F) EARNINGS BEFORE INCOME TAXES, EXTRAORDINARY ITEMS, ACCOUNTING CHANGES AND FIXED CHARGES $ 3,251.4 $ 1,601.5 $ 826.2 $ 1,271.2 $ 1,081.3 $ 398.0 $ 1,227.1 =========== =========== ========== =========== =========== ========= ========== FIXED CHARGES G) Interest and amortization of debt expense $ 664.9 $ 699.5 $ 720.0 $ 716.9 $ 611.5 $ 314.2 $ 326.4 H) Interest factor attributable to rentals 64.8 79.0 83.0 80.7 76.3 35.8 34.0 I) Preferred dividends of subsidiary 10.6 23.6 23.6 69.1 133.1 65.8 69.7 J) Capitalized interest 66.9 71.2 71.6 53.4 29.3 15.9 12.6 ----------- ----------- ---------- ----------- ----------- --------- ---------- K) TOTAL FIXED CHARGES $ 807.2 $ 873.3 $ 898.2 $ 920.1 $ 850.2 $ 431.7 $ 442.7 =========== =========== ========== =========== =========== ========= ========== L) RATIO OF EARNINGS TO FIXED CHARGES 4.03 1.83 1.38 1.27 2.77 =========== =========== =========== =========== ========== M) DEFICIENCY IN EARNINGS NECESSARY TO COVER FIXED CHARGES $ (72.0) $ (33.7) ========== =========
EX-27 5 ex-27.txt EXHIBIT 27
5 6-MOS DEC-31-2000 JUN-30-2000 1,145 0 4,186 116 3,743 9,534 34,273 15,542 44,456 7,812 12,933 1,805 0 484 12,557 44,456 13,151 13,151 9,334 11,949 0 13 287 915 278 514 0 134 0 648 1.55 1.55
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