-----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, LonKHBB7Eh0u2E0xyy3/vO5unegLfZcnE+gSRbstpYF4q+nYjopBmzz9R/R2HBoC NH7q89hARAShP1ZvguOaAg== 0001047469-98-033277.txt : 19980901 0001047469-98-033277.hdr.sgml : 19980901 ACCESSION NUMBER: 0001047469-98-033277 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980831 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL PAPER CO /NEW/ CENTRAL INDEX KEY: 0000051434 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 130872805 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-03157 FILM NUMBER: 98701879 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/A 1 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-Q/A Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 1998 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Common stock outstanding on July 31, 1998: 307,247,628 shares. INTERNATIONAL PAPER COMPANY INDEX PART I. Financial Information Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Year 2000 Updated and Revised PART II. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures 2 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YEAR 2000 The Year 2000 problem concerns the inability of information systems to properly recognize and process date-sensitive information beyond January 1, 2000. Many of our systems and related software are Year 2000 compliant. However, we have a program in place designed to bring the remaining software and systems into Year 2000 compliance in time to minimize any significant detrimental effects on operations. The program covers information systems infrastructure, financial and administrative systems, process control and manufacturing operating systems and significant vendors and customers. Our program recognizes that date sensitive systems may fail at different points in time depending on their function. Forward looking production and procurement systems may fail earlier and require corrective actions sooner to allow for reasonable testing. Other applications, including gauging and recording systems, may fail only during the transition to Year 2000. We are utilizing internal personnel, contract programmers and vendors to identify Year 2000 noncompliance problems, modify code and test the modifications. In some cases, non-compliant software and hardware will be replaced. We rely on third party suppliers for raw materials, water, utilities, transportation and other key services. Interruption of supplier operations due to Year 2000 issues could affect Company operations. We have initiated efforts to evaluate the status of suppliers' efforts and to determine alternatives and contingency plan requirements. While approaches to reducing risks of interruption due to supplier failures will vary by business and facility, options include identification of alternate suppliers and accumulation of inventory to assure production capability where feasible or warranted. These activities are intended to provide a means of managing risk, but cannot eliminate the potential for disruption due to third party failure. We are also dependent upon our customers for sales and cash flow. Year 2000 interruptions in our customers' operations could result in reduced sales, increased inventory or receivable levels and cash flow reductions. While these events are possible, our customer base is broad enough to minimize the affects of a single occurrence. We are, however, taking steps to monitor the status of our customers as a means of determining risks and alternatives. Our manufacturing facilities (mills and converting plants) rely on control systems which include production monitoring, power, emissions and safety. The 46 pulp and paper mills operated by the Company utilize various complex control systems comprised of roughly 1,000 - 2,000 components per mill to monitor and regulate power, emissions and production operations. Failure to identify, correct and test Year 2000 sensitive systems at any one of these facilities could result in manufacturing interruptions, possible environmental contamination or safety hazards. Annual sales for our larger U.S. mills range from approximately $100 million to $500 million at each site. Control systems used at the 219 converting facilities cover comparable operations, but are typically comprised of 300-500 components per facility. The production impact of a Year 2000 related interruption varies significantly between facilities, but would be typically much smaller in terms of sales than a comparable event at a pulp and paper mill. While comparable control systems are used, specific facility related configurations exist to meet the needs of production equipment at each of our mills and plants. If a failure were to occur, the potential impact would be isolated to the affected facility. Also, in many cases, we have the capability of manufacturing the same product at different facilities. The consequences of a Year 2000 related event could range from an orderly shutdown of one or more facilities to a sudden halt at one or more facilities with possible safety, environmental and equipment impact. The likelihood of either type of event, or the related financial impact, is not reasonably predictable. Recovery under existing insurance policies should be available depending upon the circumstances of a Year 2000 related event and the type of facility involved. Generally, no recovery would be available in the event of an orderly shutdown which does not result in damage to a facility. Potential recoveries in the event of facility damage, including business interruption, would be subject to deductibles which range from $100,000 to $10 million. The Company has adopted a nine-step process toward Year 2000 readiness: (1) planning and awareness; (2) inventory; (3) triage (assess risks and prioritize efforts); (4) detailed assessment (identification of where failures may occur, solutions and workarounds and plans to repair or replace); (5) resolution (repair, replace or retire systems that cannot properly process Year 2000 dates; create bridges to other systems and perform unit testing); (6) test planning; (7) test execution (some manufacturing systems require scheduling of equipment downtime); (8) deployment of compliant systems; and (9) fallout (remove bridges and patches; recertify). The first three steps, planning and awareness, inventory and triage, are largely complete. We also rely on various administrative and financial applications (e.g., order processing and collection systems) that require correction to properly handle Year 2000 dates. In the event one of these systems was not corrected, our ability to capture, schedule and fulfill customer demands could be impaired. Likewise, if a collection processing system were to fail, we may not be able to properly apply payments to customer balances or correctly determine cash balances. Centrally controlled administrative applications are approximately 50% complete, with the remainder in the process of code correction or testing. Various non-centrally controlled systems are also utilized by our businesses. The impact of a failure of these systems would be limited to the business using the affected system, and then only to the extent that manual or other alternate processes were not able to meet processing requirements. Such an occurrence is not expected to have a significant adverse impact on the Company. We now estimate that the incremental costs will be approximately $135 million plus or minus 30%, exclusive of software and systems that are being replaced or upgraded in the normal course of business. The majority of these costs are expected to be incurred during the next twelve months. The increase over the previously reported estimate of $65 million is the result of the identification of more production facility systems that need to be modified as detailed inventories are completed. These systems represent our greatest area of risk and plans are currently being formulated to reduce the risk of noncompliance of these systems. While we believe our efforts will provide reasonable assurance that material disruptions will not occur due to internal failure, the potential for interruption still exists. Our policy is to expense as incurred information system maintenance and modification costs and to capitalize the cost of new software and amortize it over the assets' useful lives. There is a risk that our plans for achieving Year 2000 compliance may not be completed on time. However, failure to meet critical milestones identified in our plans would provide advance notice, and steps would be taken to prevent injuries to employees and others, and to prevent environmental contamination. Customers and suppliers would also receive advance notice allowing them to implement alternate plans. THE ESTIMATES AND CONCLUSIONS HEREIN CONTAIN FORWARD-LOOKING STATEMENTS AND ARE BASED ON MANAGEMENT'S BEST ESTIMATES OF FUTURE EVENTS. RISKS TO COMPLETING THE PLAN INCLUDE THE AVAILABILITY OF RESOURCES, OUR ABILITY TO DISCOVER AND CORRECT THE POTENTIAL YEAR 2000 SENSITIVE PROBLEMS WHICH COULD HAVE A SERIOUS IMPACT ON SPECIFIC FACILITIES, AND THE ABILITY OF SUPPLIERS TO BRING THEIR SYSTEMS INTO YEAR 2000 COMPLIANCE. 3 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (10) International Paper Company Management Incentive Plan, as amended and restated as of January 1, 1998. (b) Reports on Form 8-K - none. 4 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 31, 1998 By /s/MARIANNE M. PARRS ----------------------- Marianne M. Parrs Senior Vice President and Chief Financial Officer Date: August 31, 1998 By /s/ANDREW R. LESSIN ----------------------- Andrew R. Lessin Vice President,Controller and Chief Accounting Officer EX-10 2 EX-10 (EXHIBIT 10) INTERNATIONAL PAPER COMPANY - MANAGEMENT INCENTIVE PLAN (MIP) AMENDED AND RESTATED AS OF JANUARY 1, 1998 I. Purposes of the Plan The purposes of this Amended and Restated Management Incentive Plan are: (a) to provide greater incentive for Participants to exert their best efforts to increase the profitability of the Company, (b) to attract and retain in the employ of the Company persons of outstanding competence, and (c) to further the identity of interests of Plan Participants with the interests of the Company's shareholders. The awards made under the Plan are not a form of deferred regular compensation with respect to the Participants' normal performance of their regular duties, but are instead intended to provide an incentive to achieve higher than expected levels of performance. Defined terms used herein shall have the meanings set forth in Article II. II. Definitions Business Unit: "Business Unit" means a business unit or sector, composed of an aggregate of Mill/Facilities and identified in a list each Plan Year by the Committee. Committee: "Committee" means the Management Development and Compensation Committee of the Company's Board of Directors. Company: "Company" means International Paper Company, a New York corporation, together with its subsidiaries. Company Peer Group: "Company Peer Group" means those companies engaged in the forest products industry which the Committee determines from time to time to be a representative group of companies with which the Company competes. Company ROI: "Company ROI" means, with respect to any Plan Year, the Company's Return on Investment for such Plan Year compared to its budgeted Return on Investment for such Plan Year. Competitive ROI: "Competitive ROI" means a comparison of the Company ROI with the ROI of the Company's Peer Group, calculated on a weighted basis, as determined from time to time by the Committee. Corporate Participants: "Corporate Participants " means those Participants not included in the list of Participants attached to a specific Business Unit or Mill/ Facility. Employees: "Employees" mean those persons who are full time employees of the Company. Incentive Compensation Fund: "Incentive Compensation Fund" means, with respect to any Plan Year, the aggregate amount available for incentive compensation payments under the Plan, as determined in accordance with Article VI hereof. Key Initiatives: "Key Initiatives" means areas that have been specifically targeted for growth and development by the unit to which such Key Initiatives relate. Mill/Facility: "Mill/Facility" means a mill, facility, forest region or similar subdivision of a Business Unit as identified in a list compiled each Plan Year by the Committee. Non-financial Goals: "Non-financial Goals" means, with respect to any Plan Year, a comparison of how well the Company performed in certain non-financial areas compared to targeted performance in such areas. Participant: "Participant" means a person who has been designated as a participant in the Plan pursuant to Article V hereof. Performance Factor: "Performance Factor" means the percentage amount assigned by the Committee to a Performance Measure for a level of achievement and representing a percentage of Target Award, pursuant to Article VI(C) hereof. Performance Measure: "Performance Measure" means one of the three separate measurements of corporate performance used in determining the Incentive Compensation Fund. Plan: "Plan" means this Amended and Restated Management Incentive Plan, as the same may be amended from time to time. Plan Year: "Plan Year" means the twelve month period corresponding to the Company's fiscal year. Pool Funding Factor: "Pool Funding Factor" means, with respect to any given Plan Year, the sum of all Performance Measures, after giving effect to the weighting of each Performance Measure and after multiplication of each Performance Measure by its Performance Factor. Return on Investment/ROI: "Return on Investment" or "ROI" means earnings before interest and after taxes divided by capital employed. Target Award: "Target Award" means an amount equal to the percentage of salary range midpoint applicable to the actual position level of each Participant, as set forth in Appendix A hereto. Unit Non-financial Rating: "Unit Non-financial Rating" means, with respect to any given Plan year, the numerical rating which can range from .50 to 1.75 awarded the 2 Corporate Participants as a group, and each Business Unit and Mill/Facility as a measure of such unit's achievement of its respective non-financial goals. III. Plan Description The Plan establishes a maximum fund based on corporate performance compared to Plan Year financial and non-financial objectives as described herein. Funds are allocated proportionally to Corporate, Business Unit and Mill/Facility Participants based on performance levels established for the organizational units to which such Participants are allocated. Individual Participant awards are based on a proportionate share of their respective fund, adjusted for individual performance. A separate Special Recognition Fund may be established to reward special contributions by Employees during the Plan Year. IV. Administration of the Plan The Plan shall be administered under the direction of the Committee. The Committee is authorized to exercise considerable discretion and judgment in interpreting the Plan and in adopting, from time to time, rules and regulations governing the administration of the Plan. Decisions of the Committee shall be final, conclusive and binding upon all parties, including the Company, its shareholders and employees. V. Participation in the Plan Participants in the Plan shall be limited to officers and employees of the Company, as determined from time to time by the Chief Executive Officer. Recommendations with respect to the final determination of the Participants who are to receive incentive awards for each Plan Year and to the amount of the awards for each Plan Year, shall be made each year to the Committee by the Chief Executive Officer under such procedures as may from time to time be prescribed by the Committee. Employees who are eligible for participation in any business unit or divisional variable cash compensation plan of the Company shall not be eligible for an incentive award under this Plan based upon the same period of service, and amounts paid under such plans shall not be regarded as awards under this Plan. Participation in this Plan, or receipt of an award under this Plan, shall not give a Participant or Employee any right to a subsequent award, nor any right to continued employment by the Company for any period, nor shall the granting of an award give the Company any right to continued services of the Participant or Employee 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 or Employee at any time with or without cause. VI. Amount Available for Incentive Awards 3 A. Incentive Compensation Fund. The amount available in any Plan Year in the Incentive Compensation Fund shall be determined in accordance with this Article VI. B. Performance Measures. In establishing the Incentive Compensation Fund, three separate measurements of corporate performance shall be used. These measurements shall include Company ROI, Competitive ROI and Non-financial Goals. Weighting factors of forty percent (40%), thirty-five percent (35%) and twenty-five percent (25%), shall be given, respectively, to the Performance Measures reflecting Company ROI, Competitive ROI and Non-financial Goals. C. Performance Factor. Each Performance Measure shall be multiplied by a Performance Factor ranging from fifty percent (50%) to one hundred seventy-five percent (175%) . The Committee shall determine the Performance Factor applicable to each Performance Measure and shall have broad discretion in determining such Performance Factors. In connection with Company ROI and Competitive ROI, the Committee may take into account, without limitation, such items as unforeseen changes in economic conditions and the like. In connection with Non-financial Goals, the Committee may take into account, without limitation, such items as changes in the law, technology, natural disasters or catastrophic occurrences. D. Calculation of Incentive Compensation Fund. The sum of all Performance Measures, after giving effect to the weighting of each Performance Measure and after multiplication of each Performance Measure by its Performance Factor, shall equal the "Pool Funding Factor." The sum of Target Awards for all Participants shall be multiplied by the Pool Funding Factor and the amount so obtained shall constitute the Incentive Compensation Fund for the applicable Plan Year. Examples of the methodology to be used in applying Performance Factors and Performance Measures to the determination of Target Awards are set forth in Appendix B hereto. VII. Allocation of Incentive Compensation Fund Among Participants A. General. Amounts available under the Incentive Compensation Fund for payment of individual awards shall be allocated among Corporate, Business Unit and Mill/ Facility Participants based on organizational level performance. B. Corporate Level Performance. To the extent feasible under the applicable portion of the Incentive Compensation Fund, the attainment of Participant Target awards by Corporate Participants, subject to adjustment under Section VII E below, shall be (1) eighty percent (80%) of the sum of a figure based (a) seventy percent (70%) on overall Company performance and (b) thirty percent (30%) on Key Initiatives in the Participant's specific area plus (2) twenty percent (20%) of the Unit Non-financial Rating. 4 C. Business Unit Performance. To the extent feasible under the applicable portion of the Incentive Compensation Fund, the attainment of Participant Target awards by Business Unit Participants, subject to adjustment under Section VII E below, shall be (1) eighty percent (80%) of the sum of a figure based (a) fifty percent (50%) on Company performance and (b) fifty percent (50%) on Business Unit performance plus (2) twenty percent (20%) of the Unit Non-financial Rating. The Company portion of such performance shall be based entirely on overall Company performance. The remaining fifty percent (50%) shall be based on the particular Business Unit's Performance, with seventy percent (70%) of such amount based on actual ROI, or, if such an ROI measurement is determined, in the sole discretion of the Committee to be inappropriate, based on such other financial measurements as the Committee shall deem appropriate, compared to budgeted ROI, and thirty percent (30%) of such amount based on Key Initiatives in the Participant's Unit. D. Mill/Facility Performance. To the extent feasible under the applicable portion of the Incentive Compensation Fund, the attainment of Participant Target Awards by Mill/Facility Participants, subject to adjustment under Section VII E below, shall be (1) eighty percent (80%) of the sum of a figure based (a) twenty-five percent (25%) on overall Company performance, (b) twenty-five percent (25%) on Business Unit ROI and Key Initiatives measurements for that Business Unit in which the Mill/Facility is included and (c) the remaining fifty percent (50%) on such Mill/Facility's performance plus (2) twenty percent (20%) of the Unit Non-financial Rating. In determining Mill/Facility performance, seventy percent (70%) of such amount based on actual ROI against budgeted ROI or, if such an ROI measurement is determined, in the sole discretion of the Committee to be inappropriate, based on such other financial measurements as the Committee shall deem appropriate, and thirty percent (30%) of such amount based on Key Initiatives. E. Individual Awards. Individual awards for Participants shall be based on each Participant's share of the relevant fund established in connection with Corporate performance, Business Unit performance and Mill/Facility performance, as the case may be, factored by the individual performance of the Participant, within a range of 0 percent (0%) to one hundred twenty percent (120%). VIII. Special Recognition Fund. The Committee may approve the establishment of a discretionary fund to be used to reward Employees whose contribution during the Plan Year merits special recognition. Such awards shall be recommended by the Chief Executive Officer of the Company and, in the aggregate, may not exceed two percent (2%) of the total Incentive Compensation Fund approved by the Committee for the Plan Year. IX. Award Recommendations. 5 A. Recommendations. The Chief Executive Officer shall submit to the Committee at the end of each Plan Year recommendations with respect to the Participants who should receive incentive awards for that Plan Year, together with the proposed amount of such individual awards. B. Granting of Awards. The Committee, in its sole discretion, may approve, revise or disapprove any recommended award to a Participant as it deems appropriate. Any award to an Officer-Director shall be subject to approval by the full Board of Directors of the Company. C. Death, Disability or Retirement of a Participant. A Participant whose employment terminates during a Plan Year because of death, retirement or disability (or who is granted a leave of absence) may, at the discretion of the Committee and under such rules as the Committee may from time to time prescribe, be eligible for consideration for a pro-rata award based on the period of active employment during the Plan Year. If a Participant's employment with the Company is terminated for any reason other than death, disability, retirement, or the grant of a leave of absence, prior to actual payment of an award hereunder, such award shall be canceled and the Participant shall have no right to receive payment on account of such award. X Method and Time of Payment of Awards A. Type of Payment. As soon as practicable after an individual incentive award under this Plan has been approved by the Committee (or approved by the Board of Directors with respect to an award to an Officer-Director), the award shall be paid to the Participant in cash unless the Participant has elected to defer payment as described in Article X(C). B. Payment to Beneficiaries. If a Participant dies prior to receipt of an approved award under the Plan, the award shall be paid to such beneficiary or beneficiaries as the Participant shall designate in writing. The beneficiary designation shall state whether payment shall be made in a lump-sum or in quarterly installments over a specified period of time (not to exceed forty calendar quarters). If a Participant dies without having filed a beneficiary designation as set forth above, the award shall be paid in a lump-sum to the Participant's estate. C. Deferral of Payment (1998 Award Years and After). Subject to the approval of the Committee and for any Award Year beginning in 1998, any Participant may elect to defer payment of all or any portion of an award under this Plan by filing a written irrevocable Election to Defer Payment with the Company by a date determined by the Company. Awards or portions thereof so elected to be deferred shall be invested in the Participant's accounts under the Company's Unfunded Savings Plan as directed by the Participant. 6 XI. Modification, Suspension or Termination of Plan. The Board of Directors may at any time suspend, terminate, modify or amend any or all of the provisions of this Plan. XII. Governing Law. The Plan shall be governed by the laws of the State of New York. XIII. Tax Withholding. The Company shall have the right to deduct from any award made under the Plan, 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. XIV. Non-Transferability of Awards. No award, under this Plan, and no rights or interests therein, shall be assignable or transferable by a Participant (or legal representative). XV. Effective Date This Plan shall become effective as of January 1, 1998. 7 Appendix A Management Incentive Plan (MIP) Target Awards
Position MIP Level Target -------- ------ 43 75% 36 55% 35 55% 34 55% 33 50% 32 50% 31 50% 30 45% 29 45% 28 45% 27 40% 26 40% 25 40% 24 36% 23 30% 22 30% 21 25% 20 20% 19 20% 18 15%
8 Appendix B Management Incentive Plan (MIP) Calculation of Incentive Compensation Fund Financial and Non-Financial Performance Rating
Goal Achievement Performance Rating ---------------- ------------------ 125% and above 1.75 100% 1.00 70% 0.50 69% and below 0.00
Financial Performance Factor
Goal Performance Performance Goals Achievement Rating Weighting Factor - ----- ----------- ----------- --------- ----------- ROI vs. Budget 78.9% .648 .40 .324 ROI vs. Peers 100.0 .700 .35 .175 --- ---- Total .75 .499
Non-Financial Performance Factor
Goal Performance Performance Goals Achievement Rating Weighting Factor - ----- ----------- ----------- --------- ----------- Quality 115.0% 1.45 .0833 .121 Safety & Environment 113.0 1.39 .0833 .116 People Development 103.0 1.09 .0833 .091 ----- ---- Total .2500 .328
Company Performance Factor Financial Performance Factor (.499) + Non-Financial Performance Factor(.328) = .827 Preliminary Management Incentive Plan Fund Projection Company Performance Factor x Aggregate Target Awards .827 x $23.312MM = $19.279MM 9 -----END PRIVACY-ENHANCED MESSAGE-----