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<SEC-DOCUMENT>0000950117-01-000558.txt : 20010327
<SEC-HEADER>0000950117-01-000558.hdr.sgml : 20010327
ACCESSION NUMBER: 0000950117-01-000558
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 15
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010326
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-K
SEC ACT:
SEC FILE NUMBER: 001-03157
FILM NUMBER: 1578973
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
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>INTERNATIONAL PAPER COMPANY 10-K
<TEXT>
<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-3157
-------------------
INTERNATIONAL PAPER COMPANY
(EXACT NAME OF COMPANY AS SPECIFIED IN ITS CHARTER)
-------------------
<TABLE>
<S> <C>
NEW YORK 13-0872805
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYEE
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
400 ATLANTIC STREET 06921
STAMFORD, CONNECTICUT (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: 203-358-7000
-------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
<S> <C>
Common Stock, $1 per share par value New York Stock Exchange
7 7/8% Debentures due 2038 New York Stock Exchange
</TABLE>
-------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Company (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 Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
-------------------
The aggregate market value of the common stock of the Company outstanding as
of March 16, 2001, held by non-affiliates of the Company was $17,250,072,809,
calculated on the basis of the closing price on the Composite Tape on March 16,
2001. For this computation, the Company has excluded the market value of all
common stock beneficially owned by all executive officers and directors of the
Company and their associates as a group and treasury stock. Such exclusion is
not to signify in any way that members of this group are 'affiliates' of the
Company.
The number of shares outstanding of the Company's common stock, as of March
16, 2001
<TABLE>
<CAPTION>
OUTSTANDING IN TREASURY
----------- -----------
<S> <C>
482,973,450 1,194,696
</TABLE>
The following documents are incorporated by reference into the parts of this
report indicated below:
<TABLE>
<S> <C>
2000 ANNUAL REPORT TO SHAREHOLDERS PARTS I, II, AND IV
(INSIDE FRONT COVER AND PAGES 6 THROUGH 65)
PROXY STATEMENT DATED MARCH 26, 2001 PART III
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
International Paper Company (the Company or International Paper, which may
be referred to as we or us), is a global forest products, paper and packaging
company that is complemented by an extensive distribution system, with
primary markets and manufacturing operations in the United States, Canada,
Europe, the Pacific Rim, and South America. Substantially all of our businesses
have experienced, and are likely to continue to experience, cycles relating to
available industry capacity and general economic conditions. We are a New York
corporation and were incorporated in 1941 as the successor to the New York
corporation of the same name organized in 1898. Our home page on the Internet is
www.internationalpaper.com. You can learn more about us by visiting that site.
In the United States at December 31, 2000, the Company operated 35 pulp,
paper and packaging mills, 105 converting and packaging plants, 46 wood products
facilities, seven specialty panels and laminated products plants and eight
specialty chemicals plants. Production facilities at December 31, 2000 in
Europe, Asia, Latin America, South America and Canada included 15 pulp, paper
and packaging mills, 48 converting and packaging plants, 15 wood products
facilities, three specialty panels and laminated products plants and seven
specialty chemicals plants. We distribute printing, packaging, graphic arts,
maintenance and industrial products through over 300 distribution branches
located primarily in the United States. At December 31, 2000, we owned or
managed approximately 12 million acres of forestlands in the United States,
mostly in the South, 1.5 million acres in Brazil and had, through licenses
and forest management agreements, harvesting rights on government-owned
timberlands in Canada.
Through Carter Holt Harvey, a New Zealand company which is approximately
50.4% owned by International Paper, the Company operates five mills producing
pulp, paper, packaging and tissue products, 26 converting and packaging plants
and 56 wood products manufacturing and distribution facilities, primarily in New
Zealand and Australia. Carter Holt Harvey distributes paper and packaging
products through seven distribution branches located in New Zealand and
Australia. In New Zealand, Carter Holt Harvey owns approximately 820,000 acres
of forestlands.
For financial reporting purposes, our businesses are separated into six
segments: Printing Papers; Industrial and Consumer Packaging; Distribution;
Forest Products; Chemicals and Petroleum; and Carter Holt Harvey. A description
of these business segments can be found on pages 7 through 13 of our 2000 Annual
Report to Shareholders (Annual Report), which information is incorporated herein
by reference.
From 1995 through 2000, International Paper's capital expenditures
approximated $8.8 billion, excluding mergers and acquisitions. These
expenditures reflect our continuing efforts to improve product quality and
environmental performance, lower costs, and improve forestlands. Capital
spending in 2000 was $1.4 billion and is budgeted to be approximately $1.2
billion in 2001. This amount is below our annual depreciation and amortization
expense of $2 billion. You can find more information about capital expenditures
on pages 13 and 14 of our Annual Report, which information is incorporated
herein by reference.
Discussions of mergers and acquisitions can be found on pages 6, 13, 14, 39
and 40 of the Annual Report, which information is incorporated herein by
reference.
You can find discussions of restructuring charges and other special items on
pages 15 through 23 and 41 through 49 of the Annual Report, which information is
incorporated herein by reference.
Throughout this 10-K report, we 'incorporate by reference' certain
information in parts of other documents filed with the Securities and
Exchange Commission (SEC). The SEC permits us to disclose important
information by referring to it in that manner. Please refer to such
information.
FINANCIAL INFORMATION CONCERNING INDUSTRY SEGMENTS
The financial information concerning segments is set forth on pages 30 and
31 of the Annual Report, which information is incorporated herein by reference.
FINANCIAL INFORMATION ABOUT INTERNATIONAL AND DOMESTIC OPERATIONS
The financial information concerning international and domestic operations
and export sales is set forth on page 31 of the Annual Report, which information
is incorporated herein by reference.
1
<PAGE>
COMPETITION AND COSTS
Despite the size of the Company's manufacturing capacities for paper,
paperboard, packaging and pulp products, the markets in all of the cited product
lines are large and highly fragmented. The markets for wood and specialty
products are similarly large and fragmented. There are numerous competitors, and
the major markets, both domestic and international, in which the Company sells
its principal products are very competitive. These products are in competition
with similar products produced by others, and in some instances, with products
produced by other industries from other materials.
Many factors influence the Company's competitive position, including prices,
costs, product quality and services. You can find more information about the
impact of prices and costs on operating profits on pages 6 through 13 of the
Annual Report, which information is incorporated herein by reference.
MARKETING AND DISTRIBUTION
The Company sells paper and packaging products through our own sales
organization directly to users or converters for manufacture. Sales offices are
located throughout the United States as well as internationally. We also sell
significant volumes of products through paper merchants and distributors,
including facilities in our distribution network.
We market our U.S. production of lumber and plywood through independent and
Company-owned distribution centers. Specialty products are marketed through
various channels of distribution.
DESCRIPTION OF PRINCIPAL PRODUCTS
The Company's principal products are described on pages 7 through 9 of the
Annual Report, which information is incorporated herein by reference.
Production of major products for 2000, 1999 and 1998 was as follows:
PRODUCTION BY PRODUCT
(UNAUDITED)
<TABLE>
<CAPTION>
2000(A) 1999 1998
------- ---- ----
<S> <C> <C> <C>
Printing papers (In thousands of tons)
White papers and bristols............................... 6,046 5,393 5,188
Coated papers........................................... 2,020 1,308 1,241
Market pulp(A).......................................... 2,584 2,082 2,020
Newsprint............................................... 109 100 95
Packaging (In thousands of tons)
Containerboard.......................................... 4,454 4,837 4,670
Bleached packaging board................................ 2,113 2,122 2,148
Industrial papers....................................... 993 898 894
Industrial and consumer packaging(B).................... 5,240 5,112 4,919
Specialty products (In thousands of tons)
Tissue.................................................. 164 158 148
Forest products (In millions)
Panels (sq. ft 3/8" basis)(C)........................... 2,620 2,106 1,818
Lumber (board feet)..................................... 3,372 2,927 2,726
MDF (sq.ft 3/4" basis).................................. 335 209 297
Particleboard (sq. ft 3/4" basis)....................... 380 196 195
</TABLE>
- ---------
(A) Production includes Champion International Corporation (Champion) from the
date of acquisition.
(B) This excludes market pulp purchases.
(C) A significant portion of this tonnage was fabricated from paperboard and
paper produced at the Company's 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.
2
<PAGE>
RESEARCH AND DEVELOPMENT
The Company operates research and development centers at Sterling Forest,
New York; Cincinnati, Ohio; Kaukauna, Wisconsin; West Chicago, Illinois;
Odenton, Maryland; Jacksonville, Florida; Savannah, Georgia; Saint-Priest,
France; Annecy, France; a regional center for applied forest research in
Bainbridge, Georgia; a forest biotechnology center in Rotorua, New Zealand; and
several product laboratories. We direct research and development activities to
short-term, long-term and technical assistance needs of customers and operating
divisions; process, equipment and product innovations; and improve profits
through tree generation and propagation research. Activities include studies on
improved forest species and management; innovation and improvement of pulping,
bleaching, chemical recovery, papermaking and coating processes; packaging
design and materials development; reduction of environmental discharges; re-use
of raw materials in manufacturing processes; recycling of consumer and packaging
paper products; energy conservation; applications of computer controls to
manufacturing operations; innovations and improvement of products; and
development of various new products. Our development efforts specifically
address product safety as well as the minimization of solid waste. The cost to
the Company of its research and development operations in 2000 was $92 million,
including Champion for the period of July-December, $88 million in 1999, and
$144 million in 1998.
ENVIRONMENTAL PROTECTION
The Company is subject to extensive federal and state environmental
regulation as well as similar regulations in all other jurisdictions in which it
operates. Our continuing objectives are to: (1) control pollutants discharged
into the air, water and groundwater to avoid adverse impacts on the environment,
(2) make continual improvements in environmental performance, and (3) maintain
100% compliance with applicable laws and regulations. A total of $190 million
was spent in 2000 for capital projects to control environmental releases into
the air and water, and to assure environmentally sound management and disposal
of waste. We expect to spend approximately $136 million in 2001 for similar
capital projects, including the costs to comply with the Environmental
Protection Agency's (EPA) Cluster Rule regulations. Amounts to be spent for
environmental control projects in future years will depend on new laws and
regulations and changes in legal requirements and environmental concerns. Taking
these uncertainties into account, our preliminary estimate for additional
environmental appropriations during the period 2002 through 2003 is
approximately $307 million in total.
On April 15, 1998, the EPA issued final Cluster Rule regulations that
established new requirements regarding air emissions and wastewater discharges
from pulp and paper mills to be met by 2006. The projected costs included in our
estimate related to the Cluster Rule regulations for the years 2001 through 2002
are $116 million. Projected Cluster Rule costs for 2003 through 2006 are in the
range of $330 million to $370 million. Included in these estimates are costs
associated with combustion source standards for the pulp and paper industry,
which were issued by the EPA on January 12, 2001. The final cost depends on the
outcome of the Cluster Rule water regulations for pulp and paper categories
other than bleached kraft and soda. Regulations for these categories are not
likely to become final until late 2001. We estimate that annual operating costs,
excluding depreciation, will increase approximately $22 million when these
regulations are fully implemented.
Additional regulatory requirements that may affect future spending include
the EPA's requirements for states to assess current surface water loading from
industrial and area sources. This process, called Total Maximum Daily Load
(TMDL) allocation, could result in reduced allowable treated effluent discharges
from our manufacturing sites. To date there have been no significant impacts due
to the TMDL process, as the majority of our manufacturing sites operate at
levels significantly below allowable waste loadings.
In recent years, the EPA has undertaken significant air quality initiatives
associated with nitrogen oxide emissions, regional haze, and national ambient
air quality standards. When regulatory requirements for new and changing
standards are finalized, we will add any resulting future cost projections to
our expenditure forecast.
The Company has been named as a potentially liable party in a number of
environmental remediation actions under various federal and state laws,
including the Comprehensive Environmental
3
<PAGE>
Response, Compensation and Liability Act (CERCLA). Related costs are recorded in
the financial statements when they are probable and reasonably estimable. As of
December 31, 2000, these liabilities totaled approximately $170 million.
Completion of these actions is not expected to have a material adverse effect on
the Company's financial condition or results of operations.
The Company expects the significant effort it has made in the analysis of
environmental issues and the development of environmental control technology
responses will enable it to keep costs for compliance with environmental
regulations at, or below, industry averages.
You can find a further discussion of environmental issues on pages 24 and 25
of the Annual Report, which information is incorporated herein by reference.
You can also find additional information about environmental matters in the
Company's 1999-2000 Environment, Health & Safety Annual Environmental Report,
which can be obtained by contacting the Company or through the Company's
website.
EMPLOYEES
As of December 31, 2000, we had approximately 112,900 employees, 77,000 of
whom were located in the United States. Of the domestic employees, approximately
49,000 are hourly employees, approximately 23,000 of whom are represented by the
Paper, Allied-Industrial, Chemical and Energy International Union.
At December 31, 2000, employee reductions relating to the Union Camp merger
totaled approximately 2,200, based on a comparison of year end 2000 actual head
count versus 1998 budget. During 2000, we completed the Union Camp
merger-related integration benefits program, eliminating 1,062 employees of the
combined company. Under a Union Camp restructuring plan implemented in 1998
before the merger, another 540 positions were eliminated. Approximately 600
additional positions of the combined company were eliminated where the
individuals affected were not eligible for benefits under these programs.
During 2000, labor agreements were ratified at seven mills. During 2001,
labor agreements are scheduled to be negotiated at five mills: Georgetown, Erie,
Pensacola, Sartell and Hudson River.
During 2000, 27 labor agreements were settled in non-papermill operations.
Settlements included 12 in paper converting, six in building materials, six in
distribution and three in chemicals. At year end, one open contract existed
where negotiations were in progress. During 2001, 26 non-papermill operations
will negotiate new labor agreements.
RAW MATERIALS
For information on the sources and availability of raw materials essential
to our business, see Item 2. Properties.
FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this report and in our Annual Report, and in
particular, statements found in Management's Discussion and Analysis in the
Annual Report, contain some forward-looking statements. Forward-looking
statements reflect our expectations or forecasts of future events. These
statements do not relate strictly to historical or current facts. They use words
such as 'estimate,' 'anticipate,' 'plan,' 'expect,' 'project,' 'intend,'
'believe,' and similar meanings in connection with any discussion of future
operating or financial performance. These include statements relating to future
actions, future performance or the outcome of contingencies, such as legal
proceedings and financial results. We also provide oral or written
forward-looking statements in other materials we release to the public.
Such statements reflect the current views of International Paper with
respect to future events and are subject to risks and uncertainties. Actual
results may differ materially from those expressed or implied in these
statements. Factors which could cause actual results to differ include, among
other things, whether conditions influencing the recent economic slowdown will
continue or worsen, changes
4
<PAGE>
in overall demand, whether our initiatives relating to balancing our supply with
demand will be successful, changes in domestic or foreign 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 and facility rationalizations can be
achieved. In view of such uncertainties, investors are cautioned not to place
undue reliance on these forward-looking statements.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You should consult any further disclosures we make on related subjects in our
Forms 10-Q, 8-K and 10-K reports to the SEC.
ITEM 2. PROPERTIES
FORESTLANDS
The principal raw material used by International Paper is wood in various
forms. As of December 31, 2000, the Company or its subsidiaries owned or
controlled approximately 12 million acres of forestlands in the United States,
1.5 million acres in Brazil and had, through licenses and forest management
agreements, harvesting rights on government-owned timberlands in Canada. An
additional 820,000 acres of forestlands in New Zealand were held through Carter
Holt Harvey, a consolidated subsidiary of International Paper.
During 2000, the U.S. forestlands supplied 16 million tons of roundwood to
the Company's U.S. facilities. This amounted to the following percentages of the
roundwood requirements of its U.S. mills and forest products facilities: 15% in
its Northern mills and 38% in its Southern mills. The balance was acquired from
other private industrial and nonindustrial forestland owners, with only an
insignificant amount coming from public lands of the United States government.
In addition, in 2000, seven million tons of wood were sold to other users. In
November 1994, we adopted the Sustainable Forestry Principles developed by the
American Forest and Paper Association in August 1994.
MILLS AND PLANTS
A listing of our production facilities can be found in Appendix I hereto,
which is incorporated herein by reference.
The Company's facilities are in good operating condition and are suited for
the purposes for which they are presently being used. We continue to study the
economics of modernizing or adopting other alternatives for higher cost
facilities.
CAPITAL INVESTMENTS AND DISPOSITIONS
Given the size, scope and complexity of our business interests, we
continuously examine and evaluate a wide variety of business opportunities and
planning alternatives, including possible acquisitions and sales or other
dispositions of properties. You can find planned capital investments for 2001,
dispositions, and restructuring activities as of December 31, 2000 on pages 6
and 13 through 23 of the Annual Report, which information is incorporated herein
by reference.
ITEM 3. LEGAL PROCEEDINGS
MASONITE LITIGATION
Three nationwide class action lawsuits filed against International Paper
have been settled in recent years.
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
5
<PAGE>
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 non-refundable 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 consisted 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 consisted of all U.S. property owners who had incorporated
and installed Masonite Woodruf roofing 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 non-refundable advance of
$1.7 million plus $75,000 in costs for each of the two cases.
Reserves for these matters total $92 million at December 31, 2000, net of
expected future insurance recoveries of $51 million. This amount includes $25
million added to the reserve for hardboard siding claims in the fourth quarter
of 1999 (some of which has now been paid to claimants) and an additional $125
million added to that reserve in the third quarter of 2000 to cover an expected
shortfall, resulting primarily from a higher number of hardboard siding claims
than 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, we believe that these settlements will not have a material
adverse effect on our consolidated financial position or results of operations.
Through December 31, 2000, net settlement payments of $277 million,
including the $51 million of non-refundable advances of attorneys' fees
discussed above, have been made. Included in the non-refundable advances of
attorneys' fees is $5 million, which has been paid to the attorneys for the
plaintiffs in the Omniwood and Woodruf lawsuits. Also, we have received $27
million related to these matters from our insurance carriers through December
31, 2000. International Paper and Masonite have the right to terminate each of
the settlements after seven years from the dates of final approval. The
liability for these matters will be retained after the planned sale of Masonite
is completed.
OTHER LITIGATION
In March and April 2000, 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 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.
Champion has filed a motion to dismiss, which as of February 26, 2001 has not
been decided.
On May 14, 1999, and May 18, 1999, two lawsuits were filed against
International Paper, the former Union Camp Corporation (Union Camp) and other
manufacturers of linerboard. These suits allege that the defendants conspired to
fix prices for linerboard and corrugated sheets during the period October 1,
1993, through November 30, 1995. Both lawsuits were filed seeking nationwide
class certification. The lawsuits allege that various purchasers of corrugated
sheets and corrugated containers were injured as a result of the alleged
conspiracy. The cases have been consolidated in federal court in the Eastern
District of Pennsylvania. Defendants' motions to dismiss the cases were denied
on October 4, 2000. Plaintiffs filed motions for class certification on January
10, 2001, which were pending as of February 26, 2001.
Purchasers of high-pressure laminates have filed a number of purported class
actions under the federal antitrust laws in various federal district courts in
different states, alleging that International Paper's Nevamar division
participated in a price-fixing conspiracy with competitors. These cases have
been consolidated in federal district court in New York. Indirect and direct
purchasers of high-pressure
6
<PAGE>
laminates have also filed similar purported class action cases under various
state antitrust and consumer protection statutes in California, Florida, Maine,
Michigan, Minnesota, New Mexico, New York, North Dakota, South Dakota, Tennessee
and the District of Columbia. International Paper filed a motion to dismiss one
of the cases in federal court, which was denied by the court without prejudice.
The federal plaintiffs filed a consolidated amended complaint on February 22,
2001. As of February 26, 2001, International Paper has filed a motion to dismiss
the case pending in New York State court and has filed answers in California,
New Mexico, South Dakota and one of two complaints filed in Michigan. Answers
are not yet due in the remaining state cases.
OTHER ENVIRONMENTAL
In April 1999, the Franklin, Virginia mill received a Notice of Violation
(NOV) from the EPA, Region 3 in Philadelphia, and an NOV from the Commonwealth
of Virginia alleging that the mill violated the Prevention of Significant
Deterioration (PSD) regulations. The Franklin mill was owned by Union Camp at
that time and was one of seven paper mills in Region 3 owned by different
companies that received similar notices of violation. Union Camp merged with
International Paper on April 30, 1999, and International Paper has entered into
negotiations with the EPA and the Commonwealth of Virginia.
The Franklin mill NOVs were issued in connection with the EPA's well
publicized PSD air permit enforcement initiative against the paper industry. In
1999, our paper mills in Kaukauna, Wisconsin and Augusta, Georgia received
requests for information from the EPA regarding compliance with the PSD
regulations. Three additional facilities received information requests in 2000,
and the EPA's initiative may result in similar actions at other facilities.
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 that resolved the matter for a civil penalty of
$134,000.
In November 1999, the Wisconsin Department of Natural Resources filed a
civil complaint alleging past exceedences of air permit limits at the former
Union Camp flexible packaging facility located in Tomah, Wisconsin. The matter
was settled on November 2, 2000 for a civil penalty of $60,000.
On December 30, 1999, the Company entered into a Consent Order with the
Florida Department of Environmental Protection relating to alleged violations of
the wastewater discharge permit at the Company's Pensacola, Florida, mill. The
Consent Order requires the Company to take additional steps to control the
discharge of suspended solids, nutrients and oxygen-consuming material in the
mill's wastewater and to pay a civil penalty of $137,730. The Consent Order has
not yet become effective due to the filing of administrative appeals by third
parties.
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.
As of February 26, 2001, there were no other pending judicial proceedings,
brought by governmental authorities against International Paper, for alleged
violations of applicable environmental laws or regulations. International Paper
is engaged in various other proceedings that arise under applicable
environmental and safety laws or regulations, including approximately 97 active
proceedings under the CERCLA and comparable state laws. Most of these
proceedings involve the cleanup of hazardous substances at large commercial
landfills that received waste from many different sources. While joint and
several liability is authorized under the CERCLA, as a practical matter,
liability for CERCLA cleanups is allocated among the many potential responsible
parties. Based upon previous experience with respect to the cleanup of hazardous
substances and upon presently available information, International Paper
believes that it has no or de minimis liability with respect to 18 of these
sites; that liability is not likely to be significant at 51 sites; and that
estimates of liability at 28 of
7
<PAGE>
these sites is likely to be significant but not material to International
Paper's consolidated financial position or results of operations.
On June 19, 2000, before International Paper completed the acquisition of
Champion, Champion entered into a Consent Order with the Maine Department of
Environmental Protection that resolved allegations of past wastewater and
reporting deficiencies at Champion's lumber mills in Milford and Passadumkeag,
Maine. The U.S. EPA and the U.S. Attorney's Office in Maine have since that time
commenced a grand jury investigation of the same allegations.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2000.
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Dividend per share data on the Company's common stock and the high and low
sale prices for the Company's common stock are set forth on page 62 of the
Annual Report and are incorporated herein by reference.
As of March 16, 2001, there were 39,887 holders of record of the Company's
common stock.
ITEM 6. SELECTED FINANCIAL DATA
The Company's columnar table showing selected financial data for the Company
is set forth on pages 62 and 63 of the Annual Report and is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis on the consolidated financial
statements are set forth on pages 6 through 29 of the Annual Report and are
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are set forth on
pages 27 through 29 of the Annual Report and are incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, the notes thereto and the
reports of the independent public accountants and Company management are set
forth on pages 32 through 61 of the Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors of the Company is included on
pages 10 through 12 of the Company's Proxy Statement, dated March 26, 2001
(Proxy Statement), which information is incorporated herein by reference.
Information with respect to the executive officers of the Company is set forth
below:
John T. Dillon, 62, chairman and chief executive officer since 1996. Prior
to that he was executive vice president-packaging from 1987 to 1995, when he
became president and chief operating officer.
C. Wesley Smith, 61, executive vice president since 1992.
John V. Faraci, 51, executive vice president and chief financial officer
since 2000. Prior to that he was senior vice president-finance and chief
financial officer from 1999. From 1995 until 1999 he was chief executive officer
and managing director of Carter Holt Harvey Limited of New Zealand.
Robert M. Amen, 51, executive vice president since 2000. He served as
President of International Paper -- Europe from 1997 to 2000 and prior to that
was vice president.
James P. Melican Jr., 60, executive vice president since 1991.
9
<PAGE>
David W. Oskin, 58, executive vice president since 1995.
Marianne M. Parrs, 57, executive vice president since 1999. She was senior
vice president and chief financial officer from 1995 to 1999.
Andrew R. Lessin, 58, vice president-finance and chief accounting officer
since 2000. From 1995 to that time he was vice president and controller.
William B. Lytton, 52, senior vice president and general counsel since
January 1999. From 1996 to 1999 he was vice president and general counsel.
Executive officers of International Paper are elected to hold office until
the next annual meeting of the Board of Directors following the annual meeting
of shareholders and until election of successors, subject to removal by the
Board.
Information with respect to compliance with Section 16(a) of the Securities
and Exchange Act is set forth on page 16 of the Proxy Statement and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
A description of the compensation of the Company's executive officers is set
forth on pages 18 through 22 of the Proxy Statement and is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A description of the security ownership of certain beneficial owners and
management is set forth on pages 7 and 8 of the Proxy Statement and is
incorporated herein by reference.
The table showing ownership of the Company's common stock held by individual
directors and by directors and executive officers as a group is set forth on
pages 7 and 8 of the Proxy Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A description of certain relationships and related transactions is set forth
on page 6 of the Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Consolidated financial statements
The consolidated financial statements of the Company and consolidated
subsidiaries listed below are incorporated herein by reference to the
following pages of the Annual Report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated statement of earnings for fiscal years ended
December 31, 2000, 1999 and 1998.......................... 33
Consolidated balance sheet at December 31, 2000 and 1999.... 34
Consolidated statement of cash flows for fiscal years ended
December 31, 2000, 1999 and 1998.......................... 35
Consolidated statement of common shareholders' equity....... 36
Notes to consolidated financial statements.................. 37-61
Report of independent public accountants.................... 32
</TABLE>
2. Financial statement schedule
The following additional financial data should be read in conjunction with
the financial statements in the Annual Report. Schedules not included with
this additional financial data have been omitted
10
<PAGE>
because they are not applicable, or the required information is shown in the
financial statements or notes thereto.
ADDITIONAL FINANCIAL DATA
2000, 1999 AND 1998
<TABLE>
<S> <C>
Report of Independent Public Accountants on Financial
Statement Schedule........................................ 13
Consolidated Schedule:
II -- Valuation and Qualifying Accounts................. 14
</TABLE>
3. Exhibits
<TABLE>
<S> <C>
(2.1) -- Agreement and Plan of Merger by and among International
Paper Company, International Paper-37, Inc. and Shorewood
Packaging Corporation dated as of February 16, 2000,
(incorporated by reference to the Schedule TO of
International Paper Company and International Paper-37, Inc.
dated February 29, 2000).
(2.2) -- Agreement and Plan of Merger dated as of May 12, 2000, among
Champion International Corporation, International Paper
Company and Condor Acquisition Corporation (incorporated by
reference to Exhibit 2 to International Paper Company's
Registration Statement on Form S-4, as amended on June 2,
2000 and June 9, 2000).
(3.1) -- Form of Restated Certificate of Incorporation of
International Paper (incorporated by reference to
International Paper's Report on Form 8-K dated November 20,
1990).
(3.2) -- Certificate of Amendment to the Certificate of Incorporation
of International Paper Company (incorporated herein by
reference to Exhibit (3)(i) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999).
(3.3) -- By-laws of the Company as amended.
(4.1) -- Specimen Common Stock Certificate (incorporated by reference
to Exhibit 2-A to the Company's registration statement on
Form S-7, No. 2-56588, dated June 10, 1976).
(4.2) -- 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).
(4.3) -- 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).
(4.4) -- 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).
(4.5) -- 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).
(4.6) -- 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).
(4.7) -- Form of New Floating Rate Notes due July 8, 2002
(incorporated by reference to Exhibit 4.1 to International
Paper Company's Registration Statement on Form S-4, dated
October 23, 2000, as amended November 15, 2000).
(4.8) -- Form of New 8% Notes due July 8, 2003 (incorporated by
reference to Exhibit 4.1 to International Paper Company's
Registration Statement on Form S-4 dated October 23, 2000,
as amended November 15, 2000).
(4.9) -- Form of New 8 1/8% Note due July 8, 2005 (incorporated by
reference to Exhibit 4.1 to International Paper Company's
Registration Statement on Form S-4 dated October 23, 2000,
as amended November 15, 2000).
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
(4.10) -- Credit Agreement, dated as of June 14, 2000, among
International Paper Company, 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 Company's Report on
Form 8-K filed on June 29, 2000).
(10.1) -- Long-Term Incentive Compensation Plan.
(10.2) -- Restricted Stock Plan for Non-Employee Directors
(incorporated by reference to Exhibit 99 to the Company's
Quarterly Report on Form 10-Q dated August 16, 1999, for the
quarter ended June 30, 1999).
(10.3) -- Champion Merger Integration Chief Executive Officer
Performance Plan (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).
(10.4) -- Champion Merger Integration Savings and Synergy Plan
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2000).
(10.5) -- Union Camp Corporation 1989 Stock Option and Stock Award
Plan (incorporated by reference to Exhibit 99.1 to
Registration No. 333-75235, dated May 3, 1999).
(10.6) -- International Paper Company Stock Option Plan (incorporated
by reference to Registration No. 333-85051, dated
August 12, 1999).
(10.7) -- Management Incentive Plan (incorporated by reference to
Exhibit 99 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998).
(10.8) -- Form of individual option agreement under Company Option
Plan (incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
(10.9) -- Form of individual executive continuity award under Company
Long Term Incentive Compensation Plan (incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
(10.10a) -- Form of Termination Agreement -- Tier I (incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
(10.l0b) -- Form of Termination Agreement -- Tier II (incorporated by
reference to Exbibit 10.8 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
(10.10c) -- Form of Termination Agreement -- Tier III (incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
(10.11) -- International Paper Company Unfunded Savings Plan.
(10.12) -- International Paper Company Pension Restoration Plan for
Salaried Employees.
(10.13) -- International Paper Company Unfunded Supplemental Plan for
Senior Managers.
(11) -- Statement of Computation of Per Share Earnings.
(12) -- Computation of Ratio of Earnings to Fixed Charges.
(13) -- 2000 Annual Report to Shareholders of the Company.
(21) -- List of Subsidiaries of Registrant.
(22) -- Proxy Statement dated March 26, 2001 (incorporated by reference
to the Company's Proxy Statement dated March 26, 2001, filed on
March 26, 2001 pursuant to Rule 14a-6).
(23.1) -- Consent of Independent Public Accountants (Arthur Andersen
LLP).
(23.2) -- Consent of Independent Auditors (PricewaterhouseCoopers LLP).
(24) -- Power of Attorney.
(99.1) -- Report of Independent Auditors (PricewaterhouseCoopers LLP).
(99.2) -- Focus.
</TABLE>
(b) Reports on Form 8-K
International Paper filed a report on Form 8-K on October 18, 2000 under
Item 5 reporting earnings for the quarter ended September 30, 2000, the
closure of three mills and the scaling back of one mill.
International Paper filed a report on Form 8-K on January 25, 2001 under
Item 5, reporting earnings for quarter ended December 31, 2000, merger
synergies with Champion International Corporation, and the status of
capacity rationalizations and realignment initiatives.
12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
TO INTERNATIONAL PAPER COMPANY:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements included in the
Company's 2000 Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 13, 2001. Our
audits were made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in the accompanying index is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
based on our audits and the report of other auditors, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, N.Y.
February 13, 2001
13
<PAGE>
SCHEDULE II
INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------
BALANCE
AT ADDITIONS ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO CHARGED TO FROM END
DESCRIPTION OF PERIOD EARNINGS OTHER ACCOUNTS RESERVES OF PERIOD
----------- --------- -------- -------------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Reserves Applied Against Specific
Assets Shown on Balance Sheet:
Doubtful accounts -- current.... $106 $ 46 $ (24)(a) $128
Restructuring reserves.......... 115 248 (121)(b) 242
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------
BALANCE
AT ADDITIONS ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO CHARGED TO FROM END
DESCRIPTION OF PERIOD EARNINGS OTHER ACCOUNTS RESERVES OF PERIOD
----------- --------- -------- -------------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Reserves Applied Against Specific
Assets Shown on Balance Sheet:
Doubtful accounts -- current.... $115 $ 34 $ (43)(a) $106
Restructuring reserves.......... 71 149 (105)(b) 115
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------
BALANCE AT ADDITIONS ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO CHARGED TO FROM END
DESCRIPTION OF PERIOD EARNINGS OTHER ACCOUNTS RESERVES OF PERIOD
----------- --------- -------- -------------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Reserves Applied Against Specific
Assets Shown on Balance Sheet:
Doubtful accounts -- current.... $108 $ 39 $ (32)(a) $115
Restructuring reserves.......... 91 81 (101)(b) 71
</TABLE>
- ---------
(a) Includes write-offs, less recoveries, of accounts determined to be
uncollectible and other adjustments.
(b) Includes deductions for reversals of previously established reserves that
were no longer required.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ BARBARA L. SMITHERS
..................................
BARBARA L. SMITHERS
VICE PRESIDENT AND SECRETARY
March 26, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN T. DILLON Chairman of the Board, Chief March 26, 2001
.......................................... Executive Officer and Director
JOHN T. DILLON
/s/ C. WESLEY SMITH* Executive Vice President and March 26, 2001
......................................... Director
C. WESLEY SMITH
/s/ PETER I. BIJUR* Director March 26, 2001
.........................................
PETER I. BIJUR
/s/ ROBERT J. EATON* Director March 26, 2001
.........................................
ROBERT J. EATON
/s/ SAMIR G. GIBARA* Director March 26, 2001
.........................................
SAMIR G. GIBARA
/s/ JAMES R. HENDERSON* Director March 26, 2001
.........................................
JAMES R. HENDERSON
/s/ JOHN R. KENNEDY* Director March 26, 2001
.........................................
JOHN R. KENNEDY
/s/ ROBERT D. KENNEDY* Director March 26, 2001
.........................................
ROBERT D. KENNEDY
/s/ W. CRAIG MCCLELLAND* Director March 26, 2001
.........................................
W. CRAIG MCCLELLAND
/s/ DONALD F. MCHENRY* Director March 26, 2001
.........................................
DONALD F. MCHENRY
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PATRICK F. NOONAN* Director March 26, 2001
.........................................
PATRICK F. NOONAN
/s/ JANE C. PFEIFFER* Director March 26, 2001
.........................................
JANE C. PFEIFFER
/s/ JEREMIAH J. SHEEHAN* Director March 26, 2001
.........................................
JEREMIAH J. SHEEHAN
/s/ CHARLES R. SHOEMATE* Director March 26, 2001
.........................................
CHARLES R. SHOEMATE
/s/ JOHN V. FARACI Executive Vice President and Chief March 26, 2001
......................................... Financial Officer
JOHN V. FARACI
/s/ ANDREW R. LESSIN Vice President -- Finance and Chief March 26, 2001
......................................... Accounting Officer
ANDREW R. LESSIN
*By: /s/ BARBARA L. SMITHERS
.........................................
BARBARA L. SMITHERS
ATTORNEY-IN-FACT
</TABLE>
16
<PAGE>
APPENDIX I
2000 LISTING OF FACILITIES
PRINTING AND
COMMUNICATIONS PAPERS
BUSINESS PAPERS, COATED PAPERS,
FINE PAPERS AND PULP
U.S.:
Courtland, Alabama
Selma, Alabama
(Riverdale Mill)
Pine Bluff, Arkansas
Mira Loma, California
(C & D Center)
Pensacola, Florida
Augusta, Georgia
Bastrop, Louisiana
(Louisiana Mill)
Springhill, Louisiana
(C & D Center)
Bucksport, Maine
Jay, Maine
(Androscoggin Mill)
West Springfield,
Massachusetts
Westfield, Massachusetts
(C & D center)
Quinnesec, Michigan
Sturgis, Michigan
(C & D Center)
Sartell, Minnesota
Moss Point, Mississippi
Corinth, New York
(Hudson River Mill)
Ticonderoga, New York
Riegelwood, North Carolina
Wilmington, North Carolina
(Reclaim Center)
Hamilton, Ohio
Saybrook, Ohio
(C & D center)
Erie, Pennsylvania
Hazleton, Pennsylvania
(C & D Center)
Lock Haven, Pennsylvania
Eastover, South Carolina
Georgetown, South Carolina
Sumter, South Carolina
(C & D Center)
Texarkana, Texas
Franklin, Virginia
International:
Maresquel, France
Saillat, France
Saint Die, France
(Anould Mill)
Strasbourg, France
(La Robertsau Mill)
Bergisch Gladbach, Germany
(Gorhrsmuhle Mill)
Duren, Germany
(Reflex Mill)
Klucze, Poland
Kwidzyn, Poland
Svetogorsk, Russia
Inverurie, Scotland
CONSUMER AND INDUSTRIAL
PACKAGING
INDUSTRIAL PAPERS
U.S.:
Lancaster, Ohio
De Pere, Wisconsin
Kaukauna, Wisconsin
Menasha, Wisconsin
International:
Limburg, Netherlands
INDUSTRIAL PACKAGING
CONTAINERBOARD
U.S.:
Prattville, Alabama
Savannah, Georgia
Terre Haute, Indiana
Mansfield, Louisiana
Pineville, Louisiana
Vicksburg, Mississippi
Oswego, New York
Roanoke Rapids, North Carolina
Georgetown, South Carolina
International:
Arles, France
CORRUGATED CONTAINER
U.S.:
Bay Minette, Alabama
Decatur, Alabama
Conway, Arkansas
Fordyce, Arkansas
Jonesboro, Arkansas
Russellville, Arkansas
Carson, California
Hanford, California
Modesto, California
Stockton, California
Vernon, California
Putnam, Connecticut
Auburndale, Florida
Forest Park, Georgia
Savannah, Georgia
Statesboro, Georgia
Chicago, Illinois
Des Plaines, Illinois
Fort Wayne, Indiana
Lexington, Kentucky
LaFayette, Louisiana
Shreveport, Louisiana
Springhill, Louisiana
Auburn, Maine
Howell, Michigan
Kalamazoo, Michigan
Monroe, Michigan
Minneapolis, Minnesota
Houston, Mississippi
Jackson, Mississippi
Kansas City, Missouri
West Deptford, New Jersey
Geneva, New York
King's Mountain, North Carolina
Statesville, North Carolina
Cincinnati, Ohio
Solon, Ohio
Wooster, Ohio
Lancaster, Pennsylvania
Mount Carmel, Pennsylvania
Washington, Pennsylvania
Georgetown, South Carolina
Spartanburg, South Carolina
Morristown, Tennessee
Murfreesboro, Tennessee
Dallas, Texas
Edinburg, Texas
El Paso, Texas
Ft. Worth, Texas
San Antonio, Texas
Richmond, Virginia
Cedarburg, Wisconsin
Fond du Lac, Wisconsin
Emerging Markets
Ranagua, Chile
Bayamon, Puerto Rico
International:
Las Palmas, Canary Islands
(2 locations)
Tenerife, Canary Islands
Arles, France
Chalon-sur-Saone, France
Chantilly, France
Creil, France
LePuy, France
Mortagne, France
Guadeloupe, French West
Indies
Asbourne, Ireland
Bellusco, Italy
Catania, Italy
Pedemonte, Italy
Pomezia, Italy
San Felice, Italy
Alcala, Spain
Almeria, Spain
Barcelona, Spain
Bilbao, Spain
Valencia, Spain
Valladolid, Spain
Thrapston, United Kingdom
Winsford, United Kingdom
KRAFT PAPER
Savannah, Georgia
Moss Point, Mississippi
Roanoke Rapids, North Carolina
A-1
<PAGE>
CONSUMER PACKAGING
BLEACHED BOARD
Pine Bluff, Arkansas
Augusta, Georgia
Moss Point, Mississippi
Riegelwood, North Carolina
Georgetown, South Carolina
Prosperity, South Carolina
Texarkana, Texas
BEVERAGE PACKAGING
U.S.:
Turlock, California
Plant City, Florida
Cedar Rapids, Iowa
Kansas City, Kansas
Framingham, Massachusetts
Kalamazoo, Michigan
Raleigh, North Carolina
International:
London, Ontario, Canada
Longueuil, Quebec, Canada
Shanghai, China
Santiago, Dominican Republic
San Salvador, El Salvador
St. Priest, France
Fukusaki, Japan
Seoul, Korea
Taipei, Taiwan
Guacara,Venezuela
RETAIL PACKAGING
La Grange, Georgia
Thomaston, Georgia
Springdale, Ohio
FOODSERVICE
U.S.:
Visalia, California
Shelbyville, Illinois
Clinton, Iowa
Hopkinsville, Kentucky
Wilmington, North Carolina
Kenton, Ohio
Jackson, Tennessee
International:
Brisbane, Australia
Santiago, Chile
Shanghai, China
Bogota, Columbia
Bombay, India
Manila, Philippines
FLEXIBLE PACKAGING
U.S.:
Monticello, Arkansas
Hanford, California
Griffin, Georgia
Tifton, Georgia
Seymour, Indiana
Sibley, Iowa
Hazleton, Pennsylvania
Spartanburg, South Carolina
Tomah, Wisconsin
International:
Bolsaflex
Buenos Aires, Argentina
SHOREWOOD PACKAGING
U.S.:
Waterbury, Connecticut
LaGrange, Georgia
Indianapolis, Indiana
Louisville, Kentucky
East Flat Rock, North Carolina
Weaverville, North Carolina
Clifton, New Jersey
Edison, New Jersey
Englewood, New Jersey
Harrison, New Jersey
Moonachie, New Jersey
Cincinnati, Ohio
Springfield, Oregon
Danville, Virginia
Newport News, Virginia
Roanoke, Virginia
International:
Smith Falls, Onta rio, Canada
Brockville, Ontario, Canada
Toronto, Ontario, Canada
Guangzhou, China
DISTRIBUTION
WHOLESALE AND RETAIL
DISTRIBUTION
(270 distribution branches)
XPEDX
U.S.:
Stores Group
Chicago, Illinois
139 locations nationwide
Southeast Region
Greensboro, North Carolina
27 branches in the Middle
Atlantic States and
Southeast
4 Nationwide branches
West Region
Denver, Colorado
32 branches in the West,
Midwest and South
17 Nationwide branches
Specialty Business Group
Erlanger, Kentucky
3 branches nationwide
Central Region
Erlanger, Kentucky
10 branches in Midwest
4 Nationwide branches
Northeast Region
East Granby, Connecticut
14 branches in New England
and Middle Atlantic States
1 Nationwide branch
International:
Aussedat Rey France
Distribution S.A., Pantin,
France
3 locations
Chihuahua, Mexico
6 locations
Recom Papers
Nijmegen, Netherlands
Scaldia Papier BV,
Nijmegen, Netherlands
Aalbers Paper Products
Veenendaal, Netherlands
Impap
Warsaw, Poland
7 locations
CHEMICALS AND PETROLEUM
CHEMICALS
U.S.:
Panama City, Florida
Pensacola, Florida
Port St. Joe, Florida
Savannah, Georgia
Valdosta, Georgia
Oakdale, Louisiana
Picayune, Mississippi
Dover, Ohio
International:
Oulu, Finland
Valkeakoski, Finland
Niort, France
Greaker, Norway
Sandarne, Sweden
Chester-Le-Street, United Kingdom
Bedlington, United Kingdom
CHEMICAL CELLULOSE PULP
Natchez, Mississippi
PETROLEUM
Alvin, Texas
Midland, Texas
FORESTLANDS
FOREST RESOURCES
Approximately 12 million arces in the South, Northeast and West
REALTY PROJECTS
Haig Point Plantation
Daufuskie Island,
South Carolina
BUILDING MATERIALS
WOOD PRODUCTS
Chapman, Alabama
Citronelle, Alabama
Maplesville, Alabama
Opelika, Alabama
Thorsby, Alabama
Tuscaloosa, Alabama
Gurdon, Arkansas
Leola, Arkansas
Whelen Springs, Arkansas
McDavid, Florida
Whitehouse, Florida
Augusta, Georgia
Cordele, Georgia
Folkston, Georgia
Meldrim, Georgia
Washington, Georgia
Waycross, Georgia
Springhill, Louisiana
Costigan, Maine
Passadumkeag, Maine
Morton, Mississippi
Wiggins, Mississippi
A-2
<PAGE>
Joplin, Missouri
Madison, New Hampshire
Armour, North Carolina
Seaboard, North Carolina
Johnston, South Carolina
Newberry, South Carolina
Sampit, South Carolina
Camden, Texas
Corrigan, Texas
Henderson, Texas
Jefferson, Texas
Nacogdoches, Texas
New Boston, Texas
Slaughter
Dallas, Texas
2 branches in the
Southwest and
Northwest
Franklin, Virginia
DECORATIVE PRODUCTS
Particleboard
Franklin, Virginia
Stuart, Virginia
Waverly, Virginia
SPECIALTY PANELS
U.S.:
Chino, California
Glasgow, Kentucky
Odenton, Maryland
Statesville, North Carolina
Tarboro, North Carolina
Hampton, South Carolina
Oshkosh, Wisconsin
International:
Bergerac, France
(Couze mill)
Ussel, France
Barcelona, Spain
(Durion mill)
MASONITE
U.S.:
Ukiah, California
Lisbon Falls, Maine
Laurel, Mississippi
Towanda, Pennsylvania
Danville, Virginia
International:
Carrick-on-Shannon, Ireland
Masonite Africa Limited
Estcourt Plant
Kunpo-shi, Korea
CARTER HOLT HARVEY
FORESTLANDS
Approximately 820,000 acres in
New Zealand
WOOD PRODUCTS
Sawmills and Processing Plants
Mt. Gambier, South Australia
Myrtleford, New South
Wales, Australia
Oberon, New South
Wales, Australia
Kopu, New Zealand
Nelson, New Zealand
Putaruru, New Zealand
Rotorua, New Zealand
Taupo, New Zealand
Tokoroa, New Zealand
Timber Merchants
Box Hill, Victoria, Australia
Hamilton Central,
Queensland, Australia
Sydney, New South Wales,
Australia
Plywood Mills
Myrtleford, New South
Wales, Australia
Nangwarry, South Australia
Tokoroa, New Zealand
Whangarei, Marsden Point,
New Zealand
Panel Production Plants
Gympie, Queensland
Australia
Mt. Gambier, South Australia
(2 plants)
Oberon, New South Wales,
Australia
Tumut, New South Wales,
Australia
Auckland, New Zealand
Kopu, New Zealand
Rangiora, New Zealand
Building Supplies Retail Outlets
Retail Outlets, 35 branches
in New Zealand
PULP AND PAPER
Kraft Paper, Pulp, Coated and Uncoated Papers and Bristols
Kinleith, New Zealand
Cartonboard
Whakatane, New Zealand
Containerboard
Kinleith, New Zealand
Penrose, New Zealand
Fiber Recycling Operation
Auckland, New Zealand
Conversion Site
Auckland, New Zealand
TISSUE
Pulp and Tissue
Box Hill, Victoria, Australia
Kawerau, New Zealand
Conversion Sites
Box Hill, Victoria, Australia
Clayton, Victoria, Australia
Keon Park, Victoria, Australia
Suva, Fiji
Auckland, New Zealand
(2 plants)
Kawerau, New Zealand
Te Rapa, New Zealand
PACKAGING
Case Manufacturing
Suva, Fiji
Central (Levin, New Zealand)
Northern (Auckland, New
Zealand)
Solid Fibre (Hamilton, New
Zealand)
Southern (Christchurch, New
Zealand)
Carton Manufacturing
Crestmead, Queensland,
Australia
Dandenong, Victoria,
Australia
Reservoir, Victoria, Australia
Smithfield, New South
Wales, Australia
Woodville, Australia
Auckland, New Zealand
Christchurch, New Zealand
Corrugated Manufacturing
Sydney, Australia
Melbourne, Australia
Paper Bag Manufacturing
Auckland, New Zealand
Paper Cups
Brisbane, Australia
Plastic Packaging
Santiago, Chile
DISTRIBUTION
Paper Merchant
Warehousing and
Distribution Centers,
Australia, 3 locations
New Zealand, 4 locations
PAPEL e CELULOSE
FORESTLANDS
Approximately 1.5 million acres in Brazil
PULP AND PAPER
Amapa, AP, Brazil
Arapoti, PR, Brazil
Mogi Guacu, SP, Brazil
WELDWOOD OF CANADA LIMITED
WOOD PRODUCTS
Burns Lake, British Columbia (3 plants)
Houston, British Columbia
100 Mile House, British Columbia
Quesnel, British Columbia
Williams Lake, British Columbia
Hinton, Alberta
Strachan, Alberta
Sundre, Alberta
NBSK PULP
Hinton, Alberta
Quesnel, British Columbia
A-3
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as.................... 'r'
The copyright symbol shall be expressed as............................... 'c'
The trademark symbol shall be expressed as .............................. 'TM'
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>EXHIBIT 3.3
<TEXT>
<PAGE>
================================================================================
BY-LAWS
OF
INTERNATIONAL PAPER COMPANY
------------------------
AS AMENDED FEBRUARY 13, 2001
------------------------
INTERNATIONAL [LOGO] PAPER
================================================================================
<PAGE>
BY-LAWS
OF
INTERNATIONAL PAPER COMPANY
---------------------
ARTICLE I
STOCKHOLDERS' MEETINGS
SECTION 1. Annual Meeting. The annual meeting of the Stockholders of the
Corporation for the election of Directors, and for the transaction of such other
business as may come before the meeting, shall be held on such date and at such
place within or without the State of New York as shall have been fixed by the
Board of Directors on a timely basis.
SECTION 2. Special Meetings. Special meetings of the Stockholders, unless
otherwise provided by statute, or by the Certificate of Incorporation or other
certificate filed pursuant to law, at any time may be called or caused to be
called by a majority of the Board of Directors or by the Chairman of the Board,
or by the President. Special meetings shall be held at such place within or
without the State of New York as is specified in the call thereof.
SECTION 3. Notice of Meetings. Unless otherwise required by statute, the
notice of every meeting of the Stockholders shall be in writing and shall state
the place, date and hour of the meeting. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called. A copy of the
notice of any meeting shall be given personally, electronically or by mail, not
less than ten nor more than fifty days before the date of the meeting, to each
Stockholder entitled to vote at the meeting and to each Stockholder who, by
reason of any action proposed at such meeting, is entitled by law to notice
thereof. If mailed, it shall be directed to a Stockholder at his address as it
appears on the record of Stockholders or, if he shall have filed with the
Secretary of the Corporation a written request that notices to him be mailed to
some other address, then directed to him at such other address. If transmitted
electronically, such notice is given when directed to the Shareholder's
electronic mail address as supplied by the Shareholder to the Secretary of the
Corporation or as otherwise directed pursuant to the Shareholder's authorization
or instructions.
SECTION 4. Quorum. Proxies. Voting. Except as otherwise provided by law or
by the Certificate of Incorporation or other certificate filed pursuant to law,
at any meeting of the Stockholders there must be present in person or by proxy
the holders of record of stock representing at least one-third of the number of
votes entitled to be cast upon any question to be considered at the meeting in
order to constitute a quorum for the determination of such question, but a less
interest may adjourn the meeting from time to time without notice other than
announcement at the meeting until a quorum be present, and thereupon any
business may be transacted at the adjourned meeting which might have been
transacted at the meeting as originally called. Except as otherwise provided by
law or by the Certificate of Incorporation or other certificate filed pursuant
to law or by the By-Laws of the Corporation, a majority vote of a quorum at a
meeting shall decide any question brought before such meeting. Every holder of
record of stock of a class entitled to vote at a meeting shall be entitled to
one vote for every share of such stock standing in his name on the books of the
Corporation, and may vote either in person or by proxy.
SECTION 5. Presiding Officer and Secretary. At all meetings of the
Stockholders the Chairman of the Board, or in his absence the President, or in
his absence a Vice Chairman of the Board or a Vice President designated by the
Board of Directors, or if none be present, the appointee of the meeting, shall
preside. The Secretary of the Corporation, or in his absence an Assistant
Secretary, or if none be present, the appointee of the Presiding Officer of the
meeting, shall act as Secretary of the meeting.
SECTION 6. Inspectors. At each meeting of Stockholders at which Directors
are to be elected the Presiding Officer shall appoint two Inspectors of Election
who shall perform the duties required by the statute at that meeting and any
adjournment thereof. If any Inspector shall refuse to serve, or neglect to
attend at the election or his office becomes vacant, the Presiding Officer shall
appoint an Inspector in his place.
<PAGE>
The Presiding Officer of any meeting may also appoint, at such meeting, two
Inspectors with authority to count and report upon the votes cast at such
meeting upon such questions (other than the election of Directors) as may be
voted upon by ballot.
Inspectors shall be sworn.
SECTION 7. Stockholders' Meetings. No business may be transacted at an
annual meeting of Stockholders of the Corporation, other than business that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors or any duly authorized
committee thereof, (b) otherwise properly brought before the annual meeting by
or at the direction of the Board of Directors or any duly authorized committee
thereof or (c) otherwise properly brought before the annual meeting by any
Stockholder of the Corporation (i) who is a Stockholder of record on the date of
the giving of the notice provided for in this Section and on the record date for
the determination of Stockholders entitled to vote at such annual meeting and
(ii) who complies with the notice procedures set forth in this Section.
Business shall be brought before the annual meeting by any Stockholder of
the Corporation by notice in writing delivered or mailed by first class United
States mail, postage prepaid, to the Secretary of the Corporation at the
principal executive offices of the Corporation, and received by such person not
less than ninety (90) days nor more than one-hundred twenty (120) days prior to
any meeting of the Stockholders.
At Stockholder's notice to the Secretary shall set forth as to each matter
such Stockholder proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record address
of such Stockholder, (iii) the number of shares of stock of the Corporation
which are owned beneficially or of record by such Stockholder, (iv) a
description of all arrangements or understandings between such Stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such Stockholder and any material interest of such
Stockholder in such business and (v) a representation that such Stockholder
intends to appear in person or by proxy at the meeting to bring such business
before the meeting.
No business shall be conducted at the annual meeting of Stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section, provided, however, that once business has been properly
brought before the annual meeting in accordance with such procedures, nothing in
this Section shall be deemed to preclude discussion by any Stockholder of any
such business. The Presiding Officer of the meeting may, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the annual meeting in accordance with the foregoing procedure, and if
such person should so determine, he or she shall so declare to the meeting and
such business shall not be transacted.
Nothing in this Section 7 shall be deemed to affect any rights of
shareholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act and to put before such
meeting any proposals so included in the Corporation's proxy statement at his or
her request.
For purposes of this Section 7 and Article II, Section 9, 'public
disclosure' shall mean disclosure in a communication sent by first class mail to
Stockholders, in a press release reported by the Dow Jones News Service, Reuters
Information Services, Inc., Associated Press or comparable national news service
or in a document filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number. Election. Vacancies. Term of Office. Within the limits
provided by the Corporation's Certificate of Incorporation or other certificate
filed pursuant to law, the Board of Directors shall determine from time to time
the number of Directors who shall constitute the entire Board of Directors. Any
such determination made by the Board of Directors shall continue in effect
2
<PAGE>
unless and until changed by the Board of Directors, but no such changes shall
affect the term of any Director then in office and, in case any of the Directors
then in office shall have been elected by holders of the Cumulative $4 Preferred
Stock in accordance with the provisions of the Certificate of the Corporation
filed May 31, 1946 pursuant to Section Thirty-six of the Stock Corporation law
(hereafter in this Section 1 referred to as the 'Certificate filed May 31,
1946'), no increase in the number of Directors then in office shall be made
which would reduce the number of Directors then in office elected as aforesaid
to less than one-third (or the nearest whole number thereto) of the total number
of Directors then in office. The Board of Directors shall from time to time make
such determinations pursuant to this Section 1 as shall be necessary or
appropriate in order to ensure that, under any circumstances, the holders of
each series of the Serial Preferred Stock shall be able, giving effect to all
applicable provisions of the Corporation's Certificate of Incorporation, and of
these By-Laws (including, without limitation, the preceding sentence), duly and
effectively to exercise any exclusive right conferred upon them by the
Certificate of Incorporation or any certificate filed pursuant to law to elect
Directors of the Corporation.
Except as otherwise provided in the Certificate of Incorporation or other
certificate filed pursuant to law, at each annual meeting of the Stockholders,
the successors to the class of Directors whose terms shall then expire, up to
the number determined in accordance with the foregoing provisions and with the
provisions of the Certificate of Incorporation or other certificate filed
pursuant to law, shall be elected by ballot or by proxy by the holders of the
Common Stock by a plurality of the votes cast at such election.
Except as otherwise provided by law or in the Certificate of Incorporation
or other certificate filed pursuant to law and except as otherwise provided in
this paragraph, any vacancy in the Board occurring during the year, occurring as
a result of an increase in the number of Directors who shall constitute the
Board or any other vacancy, may be filled only by the vote of the Board provided
that a quorum is then in office and present, or by a majority of the Directors
then in office, if less than a quorum is then in office or by a sole remaining
Director. Any vacancy in the Board occurring during the year with respect to
Directors who may have been elected by holders of the Cumulative $4 Preferred
Stock in accordance with the provisions of the Certificate filed May 31, 1946
may only be filled by the holders of the Cumulative $4 Preferred Stock at a
special meeting of such holders in the same manner as at an annual meeting.
Except as otherwise provided by statute, or in the Certificate of
Incorporation or other certificate filed pursuant to law, the term of office of
each Director heretofore or hereafter elected shall be from the time of his
election and qualification until the third annual meeting next following his
election and until his successor shall have been duly elected and shall have
qualified.
Directors need not be Stockholders.
SECTION 2. Resignations. Any Director may resign his office at any time by
delivering his resignation in writing to the Corporation, and the acceptance of
such resignation, unless required by the terms thereof, shall not be necessary
to make such resignation effective.
SECTION 3. Method of Electing Entirely New Board. In case the entire Board
of Directors shall die or resign, any Stockholder may call a special meeting in
the same manner that the Chairman of the Board may call such meeting, and
Directors for the unexpired terms may be elected at any such special meeting in
the manner provided for their election at annual meetings.
SECTION 4. Powers. Except as provided by law, or by the Certificate of
Incorporation or other certificate of the Corporation filed pursuant to law, or
by these By-Laws, the powers, business and affairs of the Corporation shall be
exercised and managed by the Board of Directors.
SECTION 5. Meetings. Regular meetings of the Board of Directors shall be
held at such regular intervals and at such fixed time and place as from time to
time may be determined by the Board, and no notice of such meetings shall be
required.
Special meetings of the Board of Directors shall be held whenever called by
direction of the Chairman of the Board, or of a Vice Chairman of the Board, or
of the President, or of any two of the Directors for the time being in office.
3
<PAGE>
The Secretary shall give notice of each special meeting by mailing the same
not later than the second day before the meeting, or personally or by
telegraphing or telephoning the same not later than the day before the meeting,
to each Director, but such notice may be waived by any Director.
The Chairman of the Board, or in his absence, the President, or in his
absence, a Vice Chairman (to be designated by the persons present at the meeting
in the event of more than one Vice Chairman being present) shall preside at all
meetings of the Board of Directors. If all of the aforesaid officers be absent
or decline to act, the persons present may choose one of their number to act as
chairman of the meeting.
At the first meeting held after the annual meeting of Stockholders, the
Board of Directors shall elect the Executive Officers of the Corporation, each
of whom shall hold his office until the next annual election of Officers and
until another is elected and qualified in his stead, unless sooner removed.
Any Director may vote or act on behalf of the Corporation in contracting
with any other company, notwithstanding he may be an Officer, Director or
Stockholder therein.
Any one or more members of the Board of Directors or any Committee thereof
may participate in a meeting of the Board of Directors of such Committee by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
SECTION 6. Quorum. One-third of the total number of Directors determined
pursuant to Section 1 of this Article as constituting the Board of Directors
shall constitute a quorum for the transaction of business, but if there shall be
less than a quorum at any meeting of the Board, a majority of those present (or
if only one be present, then that one) may adjourn the meeting from time to time
and the meeting may be held as adjourned without further notice.
SECTION 7. Committees. The Board of Directors may appoint an Executive
Committee and such other committee or committees as they may determine. Such
committee or committees shall have such powers as shall be specified by
resolution of the Board of Directors. The Executive Committee, so far as
permitted by law, may be vested with all of the powers of the Board of Directors
when the Board of Directors is not in session. One-third of the total number of
Directors appointed to a Committee shall constitute a quorum for the transaction
of business.
SECTION 8. Compensation of Directors. Directors shall be entitled to
reasonable compensation for their services. They may be paid a fixed salary and
may also receive a fee for attendance at any meeting of the Board of Directors
or of any Committee of the Board. The amount of compensation shall be determined
by resolution of the Board. Nothing herein contained shall preclude any Director
from serving in any other capacity and receiving compensation therefor.
SECTION 9. Nominations. Nominations for election to the Board of Directors
of the Corporation at a meeting of the Stockholders may be made (a) by the
Board, or on behalf of the Board by any nominating committee appointed by the
Board, or (b) by any Stockholder of the Corporation (i) who is a Stockholder of
record on the date of the giving of the notice provided for in this Section and
on the record date for the determination of Stockholders entitled to vote at
such meeting and (ii) who complies with the notice procedures set forth in this
Section.
Stockholder nominations shall be made by notice in writing delivered or
mailed by first class United States mail, postage prepaid, to the Secretary of
the Corporation at the principal executive offices of the Corporation, and
received by such person not less than ninety (90) days nor more than one-hundred
twenty (120) days prior to any meeting of the Stockholders called for the
election of Directors.
Such notice shall set forth (a) as to each proposed nominee who is not an
incumbent Director (i) the name, age, business address and residence address of
each nominee proposed in such notice, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
Corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed of nominees in
proxy solicitations pursuant to Section 14 of the Securities Exchange Act of
1934, as amended from time to time (the 'Exchange Act') and the rules and
regulations promulgated thereunder and (b) as to the Stockholder giving the
notice (i) the
4
<PAGE>
name and record address of such Stockholder, (ii) the number of shares of stock
of the Corporation which are beneficially owned by such Stockholder, (iii) a
description of all arrangements or understandings between such Stockholder and
each proposed nominee and any other person or persons (including their names)
pursuant to which the nomination(s) are to be made by such Stockholder, (iv) a
representation that such Stockholder intends to appear in person or by proxy at
the annual meeting to nominate the persons named in its notice and (v) any other
information relating to such Stockholder that would be required to be disclosed
in a proxy statement or other filing required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
shall be accompanied by the written consent of each proposed nominee to serve as
a Director of the Corporation. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the procedures
set forth herein.
The Presiding Officer of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if such person should so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
ARTICLE III
OFFICERS AND AGENTS
SECTION 1. General. The Elected Officers of the Corporation shall be elected
by the Board of Directors. The Elected Officers of the Corporation may include a
Chief Executive Officer, a President, one or more Executive Vice Presidents,
Senior Vice Presidents, and Vice Presidents, a Treasurer, a Secretary and such
other Elected Officers as may be deemed necessary or desirable. Any two or more
such offices may be held by the same person, except the offices of President and
Secretary.
The Board of Directors, at any time and from time to time, may appoint or
authorize the Chief Executive Officer, to appoint one or more Vice Presidents, a
Controller, an Auditor, a Chief Tax Officer, one or more Assistant Treasurers
and one or more Assistant Secretaries, and such other Officers or agents as may
be deemed necessary or desirable, and may prescribe or authorize the Chief
Executive Officer to prescribe the powers and duties of each, and fill any
vacancy which may occur in any such office.
All Elected Officers shall be subject to removal at any time by the
affirmative vote of a majority of the whole Board of Directors. All other
Officers, and all heads of departments, managers, assistant managers, agents and
employees of the Corporation, may be removed at any time, by vote of the Board
of Directors, or by the Officer appointing them, or by any other superior
Officers or any Committee thereunto authorized by the Board.
SECTION 2. Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the Stockholders and of the Board of Directors. He shall have
such other powers and perform such other duties as may, from time to time, be
specified by the Board of Directors.
SECTION 3. Vice Chairman of the Board. A Vice Chairman of the Board, in the
absence of the Chairman of the Board and the President, shall preside at
meetings of the Stockholders and of the Board of Directors. He shall have such
other powers and perform such other duties as may, from time to time, be
specified by the Board of Directors or by the chief executive officer of the
Corporation. He shall be subject to the control of the Board of Directors and to
the powers of the chief executive officer of the Corporation.
SECTION 4. President. The President, in the absence of the Chairman of the
Board, shall preside at meetings of the Stockholders and of the Board of
Directors. He shall have such other powers and perform such other duties as may,
from time to time, be specified by the Board of Directors or by the the chief
executive officer of the Corporation. He shall be subject to the control of the
Board of Directors and to the powers of the chief executive officer of the
Corporation.
SECTION 5. Chief Executive Officer. The chief executive officer shall have
general charge of the business of the Corporation and the power to formulate all
plans and policies in connection therewith,
5
<PAGE>
subject to the control of the Board of Directors. He shall keep the Board of
Directors fully informed and shall freely consult with the Board concerning the
business of the Corporation. He shall have such other powers and perform such
other duties as may, from time to time, be specified by the Board of Directors.
SECTION 6. Vice Presidents. Any Vice President shall have such powers and
perform such duties as may, from time to time, be specified by the Board of
Directors or by the chief executive officer of the Corporation.
SECTION 7. Treasurer. The Treasurer shall have the care and custody of the
funds and securities of the Corporation and shall have such powers and perform
such duties as are incident to the office of Treasurer, or as may, from time to
time, be specified by the Board of Directors or by the chief executive officer
of the Corporation. He shall be subject to the control of the Board of Directors
and to the powers of the chief executive officer of the Corporation.
SECTION 8. Assistant Treasurers. Any Assistant Treasurer shall perform such
duties as the Treasurer or the chief executive officer of the Corporation or the
Board of Directors may from time to time assign to him.
SECTION 9. Secretary. The Secretary shall have the care and custody of the
seal and minute books of the Corporation and shall have such powers and perform
such duties as are incident to the office of Secretary or as may, from time to
time, be specified by the Board of Directors. He shall be subject to the control
of the Board of Directors.
SECTION 10. Assistant Secretaries. Any Assistant Secretary shall perform
such duties as the Secretary or the chief executive officer of the Corporation
of the Board of Directors may from time to time assign to him.
SECTION 11. Controller. If a Controller shall have been elected, he shall be
the chief accounting officer of the Corporation and shall have such powers and
perform such duties as may, from time to time, be specified by the Board of
Directors or the chief executive officer of the Corporation.
SECTION 12. Auditor. If an Auditor shall have been elected, he shall have
full charge of the auditing of all accounts of every kind, subject to the
control of the Board of Directors, and shall also perform such other duties as
the Board of Directors or the chief executive officer of the Corporation may
from time to time direct.
SECTION 13. Chief Tax Officer. The Chief Tax Officer shall have
responsibility for all tax matters of the Corporation, subject to control of the
Board of Directors, and shall have such powers and perform such other duties as
the Board of Directors or the chief executive officer or the chief financial
officer may from time to time direct.
ARTICLE IV
CAPITAL STOCK
SECTION 1. Certificates of Shares and Uncertificated Shares. The shares of
each class of the capital stock of the Corporation shall be represented by
certificates or shall be uncertificated. Each registered holder of shares, upon
request to the Company, shall be provided with a certificate of stock
representing the number of shares owned by such holder. Certificates of stock
shall be issued in such forms, not inconsistent with law or with the Certificate
of Incorporation or other certificate filed pursuant to law, as shall be
approved by the Board of Directors.
SECTION 2. Transfers of Shares of Stock. Transfers of shares shall only be
made upon the books of the Corporation by the holder in person, or by the power
of attorney duly executed and filed with the Corporation, and on the surrender
and cancellation of the certificate or certificates of such shares properly
assigned.
The Board of Directors shall have power and authority to make all such rules
and regulations as they may deem expedient concerning the issue, transfer and
registration of certificates of shares in the capital stock of the Corporation.
6
<PAGE>
SECTION 3. Record Dates. For the purpose of determining the Stockholders
entitled to notice of or to vote at any meeting of Stockholders or any
adjournment thereof, or for the purpose of determining Stockholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board may fix, in advance, a date as the record
for any such determination of Stockholders. Such date shall not be more than
sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action.
SECTION 4. Lost Certificates. No certificate of shares in the capital stock
of the Corporation shall be issued in place of any certificate alleged to have
been lost, stolen or destroyed, except on delivery to the Corporation of a bond
of indemnity, against such lost, stolen or destroyed certificate, with such
surety or security, if any, as shall be approved by the Treasurer or Secretary.
Proper and legal evidence of such loss, theft or destruction shall be produced
to the Treasurer or Secretary, if they require the same. The Treasurer or
Secretary may (except as otherwise provided in any agreement executed and
delivered on behalf of the Corporation and authorized by the Board of Directors)
in their discretion refuse to issue such new certificate, save upon the order of
the court having jurisdiction in such matters.
ARTICLE V
DIVIDENDS
Dividends may be declared and paid out of funds of the Corporation legally
available therefor as often and at such times and to such extent as the Board of
Directors may determine, consistent with the provisions of the Certificate of
Incorporation or other certificate filed pursuant to law.
ARTICLE VI
SEAL
The seal of the Corporation shall consist of a flat-faced circular die with
the name of the Corporation in a circle and the year of its incorporation in the
center.
ARTICLE VII
WAIVER
Any notice required by the By-Laws of the Corporation to be given to
Directors or Stockholders for any meeting may be waived by any Director or
Stockholder in writing, signed by such Director or Stockholder or by his
attorney thereunto authorized, and filed with the Secretary of the Corporation.
ARTICLE VIII
CHECKS, DRAFTS, NOTES, ETC.
Funds of the Corporation on deposit with banks shall be disbursed by checks
or drafts signed by such officer or officers as the Board of Directors from time
to time designate or by such person or persons as shall from time to time be
designated either by the Board of Directors or by such officer or officers as
the Board shall from time to time authorize so to do. Notes, drafts,
acceptances, bills of exchange, or other obligation for the payment of money
(other than checks and drafts on banks with which the Corporation has funds on
deposit) made, accepted, or endorsed, shall be signed by such officer or
officers or person or persons as the Board of Directors shall from time to time
designate.
ARTICLE IX
INDEMNIFICATION
The Corporation shall indemnify each Officer or Director who is made, or
threatened to be made, a party to any action by reason of the fact that he or
she is or was an Officer or Director of the Corporation, or is or was serving at
the request of the Corporation in any capacity for the Corporation or any other
enterprise, to the fullest extent permitted by applicable law. The Corporation
may, so far as permitted by law, enter into an agreement to indemnify and
advance expenses to any Officer or Director who is made, or threatened to be
made, a party to any such action.
7
<PAGE>
ARTICLE X
AMENDMENTS
These By-Laws, or any of them, may be altered, amended, or repealed, and new
By-Laws may be adopted, at any annual meeting of the Stockholders, or at any
special meeting called for that purpose, by a vote of a majority of the shares
represented and entitled to vote thereat. The Board of Directors shall have the
power, by a majority vote of the whole Board, to alter or amend or repeal these
By-Laws, but any such action of the Board of Directors may be amended or
repealed by the Stockholders at any annual meeting.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>EXHIBIT 10.1
<TEXT>
<PAGE>
(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, 1999, and 2000 by a vote of shareholders.
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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, except as otherwise determined by the
Committee:
(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
<PAGE>
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.
<PAGE>
(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.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>EXHIBIT 10.11
<TEXT>
<PAGE>
IP Benefits You
Unfunded Savings Plan
[Graphic]
INTERNATIONAL [LOGO] PAPER
<PAGE>
IP Benefits You
[Graphic]
Overview of the Plan
Who Is Eligible
How to Enroll
Participation
How the Plan Works
How Participation in the Plan Affects Your Other Benefits
Types of Contributions
Basic Contributions
Company Matching Contributions
Supplemental Contributions
MIP Deferral Election
Changing Your Rate of Contributions
Investment Options
Basic and Supplemental Contributions
Company Matching Contributions
Changing Investment of Future Contributions
Investment Fund Equivalents
The Stable Value Fund Equivalent
The Bond Fund Equivalent
The Balanced Fund Equivalent
The S&P 500 Index Fund Equivalent
The Small Cap Fund Equivalent
The Growth Fund Equivalent
The International Stock Fund Equivalent
The Company Stock Fund Equivalent
Rate of Return on Your Investment
Valuation of Your Account
Interfund Transfers
Transfers of Basic Contributions and Supplemental Contributions
Transfers of Company Matching Contributions
Vesting Rights
Vesting of Your Contributions
Vesting of Company Matching Contributions
Withdrawals
Designated at Initial Plan Participation
Designated After Initial Plan Participation
Distributions
Termination of Employment
Retirement or Disability
How Payments Are Made
Distributions Upon Death
Other Information
Nonassignability of Interest
If You Are Transferred
Federal Income Tax Information
General Administration of the Plan
Introduction
The International Paper Company Unfunded Savings Plan (the USP or Plan) is a
savings plan designed to provide you with an opportunity to save through your
own deferrals of pay and through company matching contributions.
The USP is an unfunded deferred compensation plan. This means that the pay
which you defer under the USP and any company matching contributions credited to
your account are not invested in a separate trust. Instead, all deferred amounts
will be paid directly by the company out of its general assets at the time when
benefits become due and payable under the Plan.
The Plan was amended and restated effective January 1, 1995. This booklet
reflects provisions effective February 1, 2000, unless otherwise indicated.
This booklet is intended to help you better understand your benefits under the
Plan. If there is any conflict between the information in this summary plan
description and the provisions of the Plan, the plan document always will
control.
<PAGE>
IP Benefits You
[Graphic]
Overview of the Plan
o You have the opportunity to defer more than the statutory maximum allowed in
the International Paper Company Salaried Savings Plan (the SSP);
o Company matching contributions are credited on your basic contributions;
o Basic contributions and supplemental contributions may be credited with
earnings based on your choice of eight investment fund equivalents -- the
Stable Value Fund Equivalent, the Bond Fund Equivalent, the Balanced Fund
Equivalent, the S&P 500 Index Fund Equivalent, the Small Cap Fund Equivalent,
the Growth Fund Equivalent, the International Stock Fund Equivalent and the
Company Stock Fund Equivalent;
o Company matching contributions are credited with earnings based on the Company
Stock Fund Equivalent;
o Taxes are deferred on your contributions, company matching contributions and
earnings credited to your account until distributed from the Plan;
o The value of your contributions is vested immediately, and a vesting schedule
is applied to company matching contributions;
o While you are actively employed, distributions of specific dollar amounts may
be made from your contributions without penalty or suspension, provided you
designate the amounts and dates of distribution prior to initial plan
participation;
o While you are actively employed, withdrawals of your contributions may be made
with a 10 percent forfeiture penalty and 12-month suspension of contributions,
if the withdrawal distribution is requested after initial plan participation;
o On and after February 1, 2000, you may transfer the balance of your basic and
supplemental contributions among the eight investment fund equivalents daily;
o Beginning with the year you attain age 55, you may transfer all or part of the
balance of your company matching contributions from the Company Stock Fund
Equivalent among the other investment fund equivalents. This provision is
effective October 1, 1999;
o If you retire or become disabled, you may receive your account balance in a
lump sum or installments, or you may defer commencement up to age 70 1/2.
Who Is Eligible
You are eligible to participate in the Plan if you are:
o Eligible to participate in the Salaried Savings Plan; and
o Employed in Position Level 18 or above (or equivalent) or have SSP plan
compensation in excess of $160,000 (indexed for cost of living) for the
preceding calendar year.
In order to participate, you must enroll in the Plan and be actively
contributing to the Salaried Savings Plan.
1
<PAGE>
IP Benefits You
[Graphic]
How to Enroll
When you become eligible, you will be given an enrollment packet. You may make
your elections by calling Savings Plan PAL. If you choose to make contributions
to the Plan, you will:
o Select the percentage of total pay you want to contribute under the SSP and
the USP, in combination;
o Authorize the company to make payroll deductions for your contributions;
o Choose the investment fund equivalent(s) for your contributions;
o Designate any in-service distribution(s) to be paid to you; and
o Select your beneficiary(ies).
Important Note - If you choose not to join the Plan when you first become
eligible, you may join at a later date by calling Savings Plan PAL.
Participation
How the Plan Works
If you choose to participate in the USP, your SSP and USP contributions are
determined in combination and are allocated between the two plans based on the
following:
o The percentage of compensation which you wish to save; and
o Your choice to either maximize before-tax contributions or to maximize
contributions to the SSP.
You also have the following optional choice:
o Your USP contributions may be limited to the maximum basic rate available.
When you become a participant in the Plan, an account is established for you.
Your account contains all the details relating to your contributions, company
matching contributions and any investment fund equivalent gains or losses. This
information is recorded separately for each investment fund equivalent in which
you have amounts credited.
How Participation in the Plan Affects Your Other Benefits
Most salaried pensions under the Retirement Plan of International Paper
Company are based on final average earnings. In general, earnings included in
the pension calculation are base pay, bonuses, salary deferrals to the SSP and
to Internal Revenue Code Section 125 Plans (including Health and Dependent Day
Care contributions), but not salary deferred as contributions under this Plan.
Thus, making contributions to the Plan during your final years of employment,
when final average earnings are calculated, could reduce your annual pension
from the Retirement Plan.
However, if your Retirement Plan pension is reduced by your contributions to
this Plan, the amount of the reduction will be paid as a benefit from the
International Paper Company Pension Restoration Plan at retirement. The Pension
Restoration Plan is a nonqualified plan with benefits paid from the general
assets of the company.
Important Note - Making contributions to this Plan will not lower your life
insurance or disability insurance benefits from the company.
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Types of Contributions
The following sections describe the various types of contributions you may
make to the SSP and USP, as well as any company matching contributions which may
be credited to your accounts under the SSP and USP.
You must designate the percentage of your total pay which you wish to
contribute to the combined SSP/USP. Your contributions will be designated as
basic or supplemental.
Basic Contributions
The first contributions which you make will be designated as basic
contributions. The range of percentages permitted for basic contributions is
listed in the Appendix.
Basic contributions are credited with company matching contributions.
Company Matching Contributions
The company will credit matching contributions to your SSP or USP account in
an amount equal to a percentage of the basic contributions which you make. The
company matching percentage is listed in the Appendix.
Supplemental Contributions
If you make the maximum basic contributions permitted, any excess
contributions will be designated as supplemental contributions. The range of
percentages permitted for supplemental contributions is listed in the Appendix.
Supplemental contributions are not eligible for company matching
contributions.
MIP Deferral Election
As a participant in the company's Management Incentive Plan (MIP), you have
the option of making a separate election as to the rate of contributions to be
applied to your MIP award. Midyear, you will receive communications outlining
the process to make this election.
Changing Your Rate of Contributions
Once a month you may:
o Increase or decrease the percentage of total pay you contribute under the
combined SSP/USP; or
o Suspend your contributions.
To make a change, enter the change on Savings Plan PAL. The change will take
effect as soon as administratively possible after the month in which the change
is made.
Investment Options
The Plan has eight investment options: the Stable Value Fund Equivalent; the
Bond Fund Equivalent; the Balanced Fund Equivalent; the S&P 500 Index Fund
Equivalent; the Small Cap Fund Equivalent; the Growth Fund Equivalent; the
International Stock Fund Equivalent and the Company Stock Fund Equivalent. Since
this is an unfunded plan, your contributions and any company matching
contributions are not invested in a separate trust. Instead, your account is
simply credited with the same investment gain or loss that it would have
received had it been invested in the Stable Value Fund, Bond Fund, Balanced
Fund, S&P 500 Index Fund, Small Cap Fund, Growth Fund, International Stock Fund
and/or Company Stock Fund of the SSP.
Basic and Supplemental Contributions
You may invest your basic and supplemental contributions among the Stable
Value Fund Equivalent, the Bond Fund Equivalent, the Balanced Fund Equivalent,
the S&P 500 Index Equivalent, the Small Cap Fund Equivalent, the Growth Fund
Equivalent, the International Stock Fund Equivalent and the Company Stock Fund
Equivalent, in multiples of 1 percent.
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Company Matching Contributions
Company matching contributions are invested in the Company Stock Fund
Equivalent.
Changing Investment of Future Contributions
You may change your choice of investment fund equivalents for your future
basic and supplemental contributions daily. Your investment selection will be
processed with the next available payroll cycle.
Investment Fund Equivalents
The Stable Value Fund Equivalent
The Stable Value Fund Equivalent is based on the SSP Stable Value Fund which
seeks to preserve capital while earning a competitive rate of return by
investing in a diversified portfolio of contracts backed by high-quality bonds
and investment contracts issued by insurance companies and banks. The rate of
return earned by the SSP fund will be a function of the rates earned on each of
the fund's holdings, which are actively managed, and will be impacted by changes
in interest rates.
The Bond Fund Equivalent
The Bond Fund Equivalent is based on the SSP Bond Fund which seeks a high
level of interest income and some capital appreciation by investing in a
diversified portfolio representative of the U. S. bond market. The fund invests
primarily in U.S. government, investment grade corporate, and mortgage-backed
securities. The fund's value will usually change in response to interest rates.
When interest rates rise, the value of the fund can generally be expected to
decline; conversely, when interest rates fall, the value of the fund can
generally be expected to rise.
The Balanced Fund Equivalent
The Balanced Fund Equivalent is based on the SSP Balanced Fund which seeks
long-term capital growth and income through investment in a managed mutual fund
of 60-70 percent stocks and 30-40 percent high-quality bonds. The stocks are
held for potential growth and income from dividends, while the bonds are held
for income and relative stability. The value of your investment will fluctuate
with the market prices of and income earned by the mutual fund's holdings.
The S&P 500 Index Fund Equivalent
The S&P 500 Index Fund Equivalent is based on the SSP S&P 500 Index Fund which
seeks long-term growth of capital and income by investing in a mutual fund which
holds the 500 most widely held stocks in the U.S. in an attempt to match the
performance and risk characteristics of the Standard & Poor's 500 Composite
Stock Price Index. The value of your investment will fluctuate with the market
prices of and dividends paid on the various stocks held in the mutual fund.
The Small Cap Fund Equivalent
The Small Cap Fund Equivalent is based on the SSP Small Cap Fund which seeks
long-term growth of capital by investing in stocks that are among the smallest
companies in the stock market (these stocks generally have market
capitalizations of less than $2.5 billion). In aggregate, this fund has a
blended orientation, holding stocks that have both a growth- and
value-orientation. The value of your investment will fluctuate with the market
prices of the various stocks held in the fund.
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The Growth Fund Equivalent
The Growth Fund Equivalent is based on the SSP Growth Fund which seeks
long-term growth of capital by investing in a managed mutual fund of common
stocks of mid- to large-capitalization companies exhibiting above-average
prospects for growth. Dividend income is a secondary consideration. The value of
your investment will fluctuate primarily with the market prices of the various
stocks held by the mutual fund.
The International Stock Fund Equivalent
The International Stock Fund Equivalent is based on the SSP International
Stock Fund which seeks long-term growth of capital by investing in a diversified
mutual fund of stocks of companies outside the United States, normally investing
in at least five different countries. The value of your investment will
fluctuate with the market prices of the various stocks held by the mutual fund
and can be affected by currency exchange rates.
The Company Stock Fund Equivalent
The Company Stock Fund Equivalent is based on the SSP Company Stock Fund which
is invested in International Paper Company common stock. Dividends are
reinvested in additional shares of International Paper Company common stock. The
value of the SSP fund fluctuates depending upon dividends paid and the market
value of the stock.
Rate of Return on Your Investment
Any investment involves some degree of financial risk. Furthermore, since your
USP contributions are not in a separate trust but are part of the company's
general assets, participation in this Plan involves greater risks than
participation in the Salaried Savings Plan. The annual investment results will
vary depending on the growth of the equivalent investment fund which is being
mirrored. Investment results will be reported to you quarterly.
Valuation of Your Account
Each of the investment fund equivalents is valued every day that the New York
Stock Exchange (NYSE) is open using the daily price on the NYSE. The value of
your account is equal to: the amounts you originally contributed, plus your
company matching contributions, plus deemed reinvested earnings, plus any
equivalent increase or less any equivalent decrease in the market value of your
investments, less any distributions from your account.
Quarterly, you will receive a statement showing the value of your account.
This statement will show all savings activity, including your contributions,
company matching contributions, investment experience and any transfers or
distributions made in that investment period.
Interfund Transfers
Transfers of Basic Contributions and Supplemental Contributions
On a daily basis, you may transfer the balance of your basic and supplemental
contributions in the Plan among the Stable Value Fund Equivalent, the Bond Fund
Equivalent, the Balanced Fund Equivalent, the S&P 500 Index Fund Equivalent, the
Small Cap Fund Equivalent, the Growth Fund Equivalent, the International Stock
Fund Equivalent and the Company Stock Fund Equivalent so that the resulting
investments in such investment fund equivalents are in multiples of 1 percent.
The transfers will take effect each day the NYSE is open, provided the request
is entered by close of business, generally 4 p.m. Eastern time.
Transfers of Company Matching Contributions
Beginning with the year in which you attain age 55 or older, you may transfer
all or a part of the balance of company matching contributions in the Company
Stock Fund Equivalent so that it is reallocated among the
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Stable Value Fund Equivalent, the Bond Fund Equivalent, the Balanced Fund
Equivalent, the S&P 500 Index Fund Equivalent, the Small Cap Fund Equivalent,
the Growth Fund Equivalent, the International Stock Fund Equivalent and/or the
Company Stock Fund Equivalent. This transfer may be made on a daily basis during
the calendar year and will take effect each day that the NYSE is open, provided
the request is entered by close of business, generally 4 p.m. Eastern time. You
must designate the percentage of your account to be transferred, in multiples of
1 percent. The balance must be invested in the available investment fund
equivalents in multiples of 1 percent.
To make a transfer, enter the transfer request on Savings Plan PAL. Transfers
are processed every day that the NYSE is open, as of the close of business,
generally 4 p.m. Eastern time.
Vesting Rights
Vesting of Your Contributions
You always are 100 percent vested in the value of your contributions to the
Plan.
Vesting of Company Matching Contributions
You become vested in the value of company matching contributions as follows:
<TABLE>
<CAPTION>
Years of Service Vested
Completed Percentage
<S> <C>
------------------------------------------
Less than 3 0%
------------------------------------------
3 but less than 4 35%
------------------------------------------
4 but less than 5 70%
------------------------------------------
5 or more 100%
------------------------------------------
</TABLE>
Withdrawals
To offer you the financial flexibility you may need, the Plan gives you access
to your account during your active employment through withdrawals, subject to
certain penalties described below.
Designated at Initial Plan Participation
At initial plan participation, you may designate specific dollar amount(s) to
be paid at specific date(s) in the future. These withdrawals are made from the
balance of your basic and supplemental contributions to the extent such
amount(s) are available and provided the designated date(s) occur before your
termination of employment. There are no penalties associated with this type of
withdrawal.
Designated After Initial Plan Participation
After initial plan participation, you may request a withdrawal, for any reason
and in any amount, to be paid from the balance of your basic and supplemental
contributions. The withdrawal payment will be made in the year following your
request, on the date you designate. Because of the IRS tax-deferred status of
accounts under the Plan, your contributions to the Plan will be suspended for
the year during which the withdrawal is paid and your withdrawal amount will be
reduced by 10 percent.
Important Note - Any withdrawal may be restricted to the extent necessary to
comply with certain statutory limitations regarding the five officers subject
to proxy disclosure reporting.
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Distributions
Distribution of your account balance is made under a form of payment described
below, based on the event causing distribution.
Termination of Employment
If your employment terminates before retirement or disability, your account
balance will be distributed to you in a lump sum at termination.
Retirement or Disability
Normal Form
Under the normal form, if your employment terminates due to retirement at or
after age 55 with 10 years of service or due to disability, your account balance
will be distributed to you in a lump sum in January following your retirement.
Optional Form
If you do not want your distribution paid in the normal form, you may make a
choice prior to your retirement to have your distribution paid in an optional
form. Under this choice, you may defer receipt of your account balance to a
designated date beginning any time in the year following retirement and up to
age 70 1/2 , and you may choose to receive distribution in either a lump sum or
installments over 5 to 20 years. If you elect the optional form, you must
forward a completed distribution and deferral form to the savings plan service
center prior to your retirement date.
How Payments Are Made
The value of your account will be determined as soon as practicable after your
distribution date. Your distribution will be processed by the end of the month
following your termination. Interest and dividends will be credited to your
account until the valuation date. All distributions will be made in cash.
Distribution requests will be processed as soon as practicable following the
receipt of the distribution form. In general, distributions are processed on a
monthly cycle, with interest and dividend equivalents credited to your account
to the payment date. A detailed schedule of distribution processing cycles is
available from the savings plan service center.
Distributions Upon Death
If you die while actively employed or before distribution of your account
balance, the value of your account will be paid to your designated
beneficiary(ies) in a lump sum as soon as practicable following your death.
If you die while receiving installment payments, the remaining installment
payments will continue to your designated beneficiary(ies). The plan
administrator, in its discretion, may choose to pay the balance in a lump sum to
your beneficiary(ies).
Other Information
Nonassignability of Interest
Apart from your right to name one or more beneficiaries to receive any
distribution payable in the event of your death, federal law requires that no
right to payment under the Plan can be subject to sale, transfer, pledge,
assignment, attachment or encumbrance of any kind.
If You Are Transferred
If you are transferred to a subsidiary or group that is not covered by the
Plan and, as a result, are no longer eligible to make deferrals under the Plan,
your account will remain in the Plan until distributed. However, you will not be
able to make contributions under the Plan, and the company will not credit any
additional company matching contributions to your account.
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Federal Income Tax Information
While any amount you choose to defer as USP contributions will reduce the
amount of your current reportable total pay for federal income and certain state
and local income tax purposes, your deferral will not reduce the amount of your
reportable total pay which is subject to Social Security and Medicare taxes. All
amounts deferred (and company matching contributions as they "vest") are
included in your Social Security and Medicare wage bases subject to the
statutory annual Social Security maximum wage base (the Medicare wage base is
unlimited).
When you receive a payment from the Plan, you will be responsible for paying
any income taxes that apply in the year you receive your payment. The total
amount of your distribution (including withdrawals) will be reflected on your
Form W-2 from the company and will be taxable as additional compensation in the
year of payment.
Federal and state laws require that applicable federal, state and local income
taxes be withheld from your distribution. The plan administrator will provide
you with a distribution statement showing the details.
Because the Plan is an unfunded, non-qualified deferred compensation plan, the
rollover rules are not available.
General Administration of the Plan
Plan Sponsor
The Plan described in this summary plan description is sponsored by:
International Paper Company
Two Manhattanville Road
Purchase, NY 10577
(914) 397-1500
Plan Administrator
The administration of the Plan is the responsibility of the plan
administrator, who is:
Senior Vice President - Human Resources
International Paper
c/o Employee Benefits Department
6400 Poplar Avenue
Memphis, TN 38197
(901) 763-6000
As an officer of the company, the plan administrator serves at the discretion
of the company's board of directors. No charge is made to the employee accounts
under this Plan for compensation of the plan administrator.
Amendment and Termination
The company reserves the right to amend, suspend or terminate the Unfunded
Savings Plan at any time, provided that any such action shall not adversely
affect any plan participant's right to receive payment, pursuant to the terms of
this Plan, of any unpaid vested amounts.
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ERISA Classification
The Plan is an unfunded employee pension benefit savings plan which is
maintained by the company "for the purpose of providing deferred compensation
for a select group of management or highly compensated employees." The Plan is,
therefore, exempt from Parts 2, 3 and 4 of Subtitle B of Title I of the Employee
Retirement Income Security Act of 1974, as amended (ERISA) which pertains to
participation and vesting, funding and fiduciary responsibilities. Pursuant to
regulations issued by the Secretary of Labor in 29 CFR 2520.104-23, the Plan is
exempted from the reporting and disclosure provisions of Part 1 of Subtitle B of
Title I of ERISA, except for providing plan documents to the Secretary of Labor
upon request. Title IV of ERISA relating to plan termination insurance does not
apply to the Plan, and insurance benefits of the type specified in Title IV of
ERISA will not be extended to plan participants or their beneficiaries.
Available Information
The company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the Exchange Act) and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the Commission). Copies of such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; the Commission's regional offices at 26 Federal Plaza,
Room 1102, New York, New York 10278; and 219 S. Dearborn Street, Chicago,
Illinois 60604. Copies of such material also can be obtained at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005, where
the shares of the company's common stock are listed.
The company hereby undertakes to provide without charge to each participant,
upon written or oral request of such person to the company at the address set
forth below, a copy of its most recent annual report to shareholders, as well as
any and all information that has been incorporated by reference in the
Registration Statement of which this document is a part, excluding exhibits to
the information incorporated by reference unless such exhibits are specifically
incorporated herein. Additional updating information with respect to the
securities and the Plan covered herein may be provided in the future by means of
updates to this document. Such written or oral requests should be directed to:
International Paper Company
Two Manhattanville Road
Purchase, NY 10577
Attn: Investor Relations Department
(914) 397-1500
The company hereby incorporates by reference into this document the following
documents filed with the Commission:
o The company's Annual Report on Form 10-K;
o All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act
by the company and by the Plan; and
o The description of the common stock of the company contained in the
Registration Statements filed pursuant to Section 12 of the Exchange Act
relating thereto, including any amendment or report filed for the purpose of
updating such description.
All documents filed by the company pursuant to Section 13, 14 or 15(d) of the
Exchange Act after the date of this document and before the termination of this
offering of the company's common stock will be deemed to be incorporated by
reference into this document and to be part hereof from the date of filing of
such documents.
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Unfunded Savings Plan Appendix
<TABLE>
<CAPTION>
Basic Supplemental Company
Contributions Contributions Matching
Organization (Percent of Pay) (Percent of Pay) Contributions
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Paper 1 - 8% 1 - 77% 70% of basic up to 4%;
locations with SIP 50% of basic up to next 4%
- --------------------------------------------------------------------------------------------
xpedx 1 - 7.5% .5 - 77.5% 50% of basic
- --------------------------------------------------------------------------------------------
</TABLE>
SAL_USPA-2000 Printed September 1999
<PAGE>
INTERNATIONAL [LOGO] PAPER
September 1999
International Paper is an equal opportunity employer.
M/F/D/V
USP_SAL99
Printed on Regalia'r' by Hammermill, Olde Porcelain, 80 lb., Text, Smooth.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>EXHIBIT 10.12
<TEXT>
<PAGE>
INTERNATIONAL PAPER COMPANY
PENSION RESTORATION PLAN
FOR
SALARIED EMPLOYEES
Effective April 1, 1991
As Amended Effective January 1, 1993
<PAGE>
PREAMBLE
The purpose of this International Paper Company Pension Restoration Plan
for Salaried Employees (the "Plan") is to provide for the payment of
supplemental pension benefits, out of the general assets of International Paper
Company (the "Company"), to an eligible salaried employee in situations where
such employee's full accrued pension benefits cannot be paid out of the trust
established under the tax-qualified retirement plan or plans sponsored by the
Company or any of its subsidiaries in which such employee participates because
of statutory limitations imposed by Internal Revenue Code Sections 415 and
401(a)(17) and other statutes and regulations.
The portion of this unfunded plan which provides benefits solely as a
result of the impact of Internal Revenue Code Section 415 is an "excess benefit
plan" as defined in Section 3 (36) of the Employee Retirement Income Security
Act of 1974, as amended (and related provisions of the Internal Revenue Code of
1986, as amended). The Plan was authorized, effective April 1, 1991, by a
resolution of the Board of Directors of the Company dated April 9, 1991.
Effective January 1, 1993, the Plan was amended to recognize compensation
deferred under a non-qualified savings plan of the Company or its United States
subsidiaries and awards deferred under the Company's Management Incentive Plan.
<PAGE>
ARTICLE I
DEFINITIONS
1.01 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.02 "Company" shall mean International Paper Company and any successor by
merger, purchase or otherwise.
1.03. "Effective Date" shall mean April 1, 1991.
1.04. "Eligible Participant" shall mean any salaried employee of the
Company or any of its United States subsidiaries or affiliated business entities
who is a participant in a Pension Plan on or after the Effective Date and whose
pension benefits determined on the basis of the provisions of such Pension Plan
(without regard to the limitations of the Code) would exceed the Maximum Benefit
permitted under Sections 415 and 401(a)(17) and other provisions of the Code,
and who is not eligible for a comparable statutory limitation excess benefit
under any other plan sponsored by the Company or its subsidiaries.
1.05 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
1.06 "Maximum Benefit" shall mean the monthly equivalent of the maximum
benefit permitted by the Code to be paid to an Eligible Participant by a Pension
Plan under Sections 415, 401(a)(17) and other provisions of the Code.
1.07 "Pension Plan" shall mean the Retirement Plan of International Paper
Company as amended, and any other defined benefit tax-qualified retirement plan
for salaried employees sponsored by the Company or any of its United States
subsidiaries or affiliated business entities in which an Eligible Participant is
a participant.
1.08 "Plan" shall mean the International Paper Company Pension Restoration
Plan for Salaried Employees as from time to time amended or restated, a portion
of which shall be an unfunded excess benefit plan as defined in ERISA Section
3(36).
1.09 "Unrestricted Benefit" shall mean the maximum monthly Normal or Early
Retirement Benefit (whichever is applicable), determined on the basis of the
provisions of a Pension Plan without regard to the limitations imposed under
Sections 415 and 401(a)(17) of the Code or other statutory limitations, and by
including in the Pension Plan's definition of "Compensation" any compensation
deferred under a non-qualified savings plan sponsored by the Company or its
United States subsidiaries and awards deferred under the Company's Management
Incentive Plan, in the calendar year of deferral.
<PAGE>
ARTICLE II
BENEFITS UNDER THIS PLAN
2.01 Normal Retirement Benefit: Upon the Normal Retirement of an Eligible
Participant (as provided under the applicable Pension Plan), such Eligible
Participant shall be entitled to a monthly benefit from this Plan equal to the
amount of his or her Unrestricted Benefit less the Maximum Benefit.
2.02 Early Retirement Benefit: Upon the Early Retirement of an Eligible
Participant (as provided under the applicable Pension Plan), such Eligible
Participant shall be entitled to a monthly benefit from this Plan equal to his
or her Unrestricted Benefit less the Maximum Benefit.
2.03 Surviving Spouse's Benefit: In the event an Eligible Participant dies
before benefit payments commence under Section 2.05 below, and his or her spouse
is eligible for a surviving spouse's benefit under an applicable Pension Plan,
the Eligible Participant's surviving spouse shall be entitled to a monthly
benefit from this Plan equal to the surviving spouse's benefit determined in
accordance with the provisions of the applicable Pension Plan (without regard to
the limitations under the Code) less the Maximum Benefit.
2.04 Coordination of Benefit Payments: In the event an Eligible Participant
or surviving spouse entitled to a benefit under this Plan is also entitled to a
benefit under the International Paper Company Unfunded Supplemental Retirement
Plan for Senior Managers, the benefit determined under Section 2.01, 2.02 or
2.03 above shall be reduced by the amount of such other plan's benefit,
determined on the same basis as this Plan's benefit.
2.05 Forms of Benefit Payment: The forms of benefit payment available under
this Plan (including joint and survivor annuity benefit options) shall be the
same as under the provisions of the applicable Pension Plan. Any election made
by an Eligible Participant as to form of benefit payment under the provisions of
the Pension Plan shall be deemed also to have been made with respect to the
benefit payable under this Plan, and any early retirement or actuarial reduction
factors applied to the benefit elected under the Pension Plan shall be similarly
applied to the benefit payable under this Plan. Benefits payable under this
Article II shall commence at the same time benefits payable under the applicable
Pension Plan commence.
2.06 Benefit Not Assignable: An Eligible Participant's rights under this
Plan shall not be subject to assignment, encumbrance, garnishment, attachment or
charge (whether voluntary or involuntary), and, in the event of any such
assignment, action or proceeding, any benefit otherwise payable under this Plan
shall be deemed terminated or forfeited.
<PAGE>
ARTICLE III
GENERAL PROVISIONS
3.01 Administration of Plan: The Plan Administrator of this Plan shall be
the Vice President - Human Resources of the Company. This Plan shall be
administered by the Plan Administrator who shall have discretion to interpret
the provisions of the Plan, to determine the amount of benefits payable under
the Plan, and to decide any questions or disputes arising under the Plan. All
such decisions made by the Plan Administrator shall be final and binding on the
Company, its subsidiaries, the Eligible Participants and their heirs or
beneficiaries.
3.02 Amendment or Termination of Plan: The Company reserves the right to
amend, modify or terminate this Plan at any time by authority of its Board of
Directors, provided that such action shall not adversely affect any Eligible
Participant's rights to a benefit which has become payable pursuant to the
provisions of this Plan prior to such action.
3.03 Termination of Employment: Nothing contained in this Plan shall be
construed as a contract of employment between the Company or a subsidiary and
any Eligible Participant, or as a right of any Eligible Participant to be
continued in employment of the Company or a subsidiary, or as a limitation on
the right of the Company or a subsidiary to discharge any of its employees, with
or without cause.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>EXHIBIT 10.13
<TEXT>
<PAGE>
(Exhibit 10.13)
INTERNATIONAL PAPER COMPANY
UNFUNDED SUPPLEMENTAL RETIREMENT PLAN
FOR SENIOR MANAGERS
As Amended Effective December 1, 1993
PREAMBLE
This Plan was originally established as the International Paper Company
Unfunded Excess-Benefit Plan for Senior Managers and became effective as of
November 1, 1983, pursuant to a resolution of the Board of Directors of
International Paper Company ("the Company") dated October 11, 1983. Effective as
of November 12, 1985, the name of the Plan was changed to the International
Paper Company Unfunded Supplemental Retirement Plan for Senior Managers, and
additional benefit provisions were added to the Plan as set forth herein
pursuant to a resolution of the Board of Directors of the Company dated November
12, 1985. The Plan was amended effective as of April 1, 1991, pursuant to a
resolution of the Board of Directors of the Company dated April 9, 1991, to
delete the statutory limitation excess benefit provision from this Plan, because
the Company has established a separate plan to provide statutory limitation
excess benefits to salaried employees of the Company and its United States
subsidiaries. The Plan was amended effective September 8, 1992, pursuant to a
resolution of the Board of Directors of the Company dated September 8, 1992, to
change the calculation of the Supplemental Benefit payable under the Plan. The
Plan was amended effective July 1, 1993, pursuant to a resolution of the Board
of Directors of the Company dated July 13, 1993, to change the definition of
Compensation under the Plan. The Plan was amended effective December 1, 1993,
pursuant to a resolution of the Board of Directors of the Company dated December
14, 1993, to specify the optional forms of benefit payment and death benefits.
1. Name and Purpose.
This Plan shall be known as the International Paper Company Unfunded
Supplemental Retirement Plan for Senior Managers (the "Plan"). The
Plan is an unfunded plan maintained by the Company for the purpose of
providing deferred compensation for a select group of management or
highly compensated employees within the meaning of the exemption
provisions of Parts 2, 3 and 4 of Subtitle B of Title I of the
Employee Retirement Income Security Act of 1974, as amended (and
related regulations and provisions of the Internal Revenue Code of
1986, as amended). This Plan is maintained for the purpose of
providing for the payment of a supplemental retirement benefit to an
Eligible Employee which is in addition to the amount of the retirement
benefits payable to such person under the standard 1.67% benefit
formula provisions for salaried employees of the Retirement Plan of
International Paper Company (the "Retirement Plan") and any statutory
limitation excess pension benefits payable to such person under any
other plan maintained by the Company or its subsidiaries. The
Supplemental Benefit
1
<PAGE>
provided under this Plan becomes effective immediately and is not
dependent upon having a vested pension benefit under the Retirement
Plan.
2. Funding of Benefits.
The benefits payable under this Plan will be paid from the Company's
general assets as payments become due under the Plan, and will not be
funded in advance through an IRS qualified trust arrangement or
through insurance annuity contracts. From time to time the Company may
arrange for insurance annuity contracts on the lives of Eligible
Employees (the proceeds of which are payable to the Company) in order
to insure the Company for part or all of the payments which the
Company will make under the Plan. All Eligible Employees participating
in the Plan agree to authorize the Company to purchase such insurance
contracts. Eligible Employees participating in the Plan (and their
beneficiaries) will not have any beneficial interest in such insurance
contracts or in the proceeds of such insurance contracts. With respect
to claims for benefits under the Plan, Eligible Employees and their
beneficiaries shall be general unsecured creditors of the Company.
3. Eligible Employees.
The persons who are eligible to receive benefits under this Plan
("Eligible Employees") are persons who are salaried employees of the
Company and its subsidiaries on or after the effective date of this
Plan who are designated by the Chief Executive Officer of the Company
as eligible to participate in this Plan and who are also participants
in the Retirement Plan. All of the terms and conditions of this Plan
shall be binding upon any surviving spouse, beneficiaries, executor,
administrator, heirs, or successors of an Eligible Employee.
4. Amount and Time of Payment of Supplemental Benefit.
The amount of the monthly supplemental retirement benefit payable to
an Eligible Employee under this Plan (the "Supplemental Benefit") is
an amount (in the form of a monthly benefit payable as a single-life
annuity on an unreduced basis starting at age 62) determined as set
forth below:
(A) Calculation of the Amount of the Supplemental Benefit.
The Supplemental Benefit is calculated in the manner set forth
for determining an "Accrued Benefit" under the standard 1.67%
salaried benefit formula of the Retirement Plan, using the terms
"Compensation", "Benefit Service" and "Primary Social Security
Benefit" as such terms are defined in the Retirement Plan, except
that the term "Compensation" shall also include, in the calendar
year of deferral, compensation deferred under a non-qualified
plan sponsored by the Company and awards deferred under the
Company's Management Incentive Plan, except that the term
"Benefit Service" may also include service with an acquired
company, to the extent granted by the Plan Administrator, and
except that the formula shall be the greater of Paragraph (i) or
(ii) below.
(i) An amount equal to the lesser of (a) or (b), reduced by (c)
below:
2
<PAGE>
(a) 3.25% of the Eligible Employee's Compensation for the
calendar year in which the Eligible Employee had the
highest Compensation during the three consecutive
calendar years prior to the determination date
multiplied by the number of years of Benefit Service.
(b) Fifty percent (50%) of the Eligible Employee's
Compensation for the calendar year in which the
Eligible Employee had the highest Compensation during
the three consecutive calendar years prior to the
determination date.
(c) The product of:
(1) 3.25% of the Eligible Employee's Primary Social
Security Benefit multiplied by the number of years
of Benefit Service projected to age 65 subject to
a maximum of 50% of the Eligible Employee's
Primary Social Security Benefit, and
(2) The ratio of years of Benefit Service at the
determination date to Benefit Service projected
to age 65.
(ii) Twenty-five percent (25%) of the Eligible Employee's
Compensation for the calendar year in which the Eligible
Employee had the highest Compensation during the three
consecutive calendar years prior to the determination date;
and the amount calculated under the formula set forth above shall be
reduced by all of the following amounts:
(i) the actual amount of the Eligible Employee's vested benefit
under the Retirement Plan or any other qualified pension
benefit plan maintained by the Company or its subsidiaries
(converted to a single life annuity); and
(ii) the single-life annuity actuarial equivalent of any
retirement benefit paid or payable directly from the Company
or any of its subsidiaries under a similar contractual-type
arrangement (but not payments made pursuant to the
International Paper Company Salaried Savings Plan or any
other defined contribution or non-qualified savings plan).
(B) Time of Payment of the Supplemental Benefit.
As specified in Section 5 below, payment of the Supplemental
Benefit may commence on the first day of any month on or after an
Eligible Employee's retirement following attainment of age 62.
Payment of the Supplemental Benefit may commence prior to age 62
with the consent of the Management Development and Compensation
Committee of the Board of Directors of the Company.
3
<PAGE>
5. Forms of Benefit Payment.
(A) The forms of benefit payment available under this Plan (including
joint and survivor annuity benefit options) shall be the same as
under the provisions of the Retirement Plan. Any election as to
form of benefit payment and time of benefit payment made by an
Eligible Employee under the provisions of the Retirement Plan
shall be deemed also to have been made with respect to the
Supplemental Benefit payable under this Plan, and any early
retirement or actuarial reduction factors applied to the benefit
elected under the Retirement Plan shall be similarly applied to
the Supplemental Benefit. Payment of the Supplemental Benefit
shall commence on January 1 of the year following an Eligible
Employee's retirement date, provided that, solely at the Plan
Administrator's discretion and direction, payment of the
Supplemental Benefit may commence on a date beginning on or after
the Eligible Employee's retirement date.
(B) Notwithstanding the foregoing, with the consent of the Plan
Administrator, an Eligible Employee may elect payment of the
Supplemental Benefit in the form of a lump-sum distribution or
annual installments payable over a designated period ranging from
two to 15 years. An Eligible Employee may make this election at
any time beginning with the calendar year in which he or she
attains age 61, but must make an election before his or her
retirement date. Payment of the lump-sum distribution or
installments so elected shall commence on January 1 of the year
following his or her retirement date. This election may be made
only once during the applicable election period and is
irrevocable, except as provided in Subsection (D) below. Prior to
the commencement of benefit payment under this election, a
portion of the supplemental Benefit may be paid to the Eligible
Employee in accordance with Subsection (A) above, solely at the
Plan Administrator's discretion and direction, on a single life
annuity basis with no reductions, beginning on or after the
Eligible Employee's retirement date.
(C) Both the lump-sum distribution and installment payment amounts
under Subsection (B) above shall be computed on a cost neutral
basis to the Company, using a discount rate as recommended by the
Company's Chief Financial Officer with the advice of the
Company's actuary. An Eligible Employee has the choice of having
the discount rate determined at the time of election or on the
December 31 preceding the January 1 payment commencement date.
The availability of the lump-sum distribution and installment
forms of payment shall be subject to the Company's financial
requirements.
(D) An Eligible Employee's election under Subsection (B) above may be
revoked, with the consent of the Plan Administrator, in the event
such Eligible Employee suffers a significant life change
following such election, but prior to his or her retirement date.
The marriage or divorce of an Eligible Employee or death of an
Eligible Employee's spouse shall constitute a significant life
change. Upon revocation of the election under Subsection (B)
above, the Eligible Employee shall make a new election, prior to
his or her retirement date, as to payment of the Supplemental
Benefit in a form available under Subsection (A) or (B) above.
4
<PAGE>
(E) In the event an Eligible Employee dies on or after attainment of
age 62, but prior to his or her retirement date, the Supplemental
Benefit shall be payable to his or her surviving spouse, if any,
in the form of a pre-retirement surviving spouse's benefit, based
on the provision of the Retirement Plan. Upon the recommendation
of the Management Development and Compensation Committee, a
pre-retirement surviving spouse's benefit may be provided in the
event of an Eligible Employee's death prior to age 62.
(F) In the event an Eligible Employee dies on or after his or her
retirement date, but prior to the January 1 on which an annuity
under Subsection (A) is to commence, the Eligible Employee's
named annuitant or beneficiary, if any shall receive the payments
due under the annuity option elected.
In the event an Eligible Employee dies on or after his or her
retirement date but prior to the January 1 on which a lump-sum
distribution elected under Subsection (B) is to be paid, the
Eligible Employee's beneficiary shall be paid the value of the
Supplemental Benefit which was to have been paid on such January
1, in a lump-sum. In the event an Eligible Employee who has
elected installment payments under Subsection (B) above dies on
or after his or her retirement date but prior to having received
the full number of installment payments, the Eligible Employee's
beneficiary shall receive the remaining installment payments,
provided that the Plan Administrator has the discretion to
convert the remaining installment payments into a lump-sum
payable to the beneficiary.
The provisions of this Subsection (F) shall apply regardless of
whether, at the direction of the Plan Administrator as provided
in Subsections (A) and (B) above, a portion of the Supplemental
Benefit was paid to the Eligible Employee during the calendar
year which includes his or her retirement date.
(G) In the event an Eligible Employee who has made an election under
Subsection (B) above with respect to the payment of his or her
Supplemental Benefit under this Plan is also entitled to a
benefit under the International Paper Company Pension Restoration
Plan for Salaried Employees, the benefit under such other plan
shall be paid in the same form as that elected under Subsection
(B) above for benefits payable under this Plan. At the time
benefit payment is to commence, the benefit payable under the
International Paper Company Pension Restoration Plan for Salaried
Employees shall be transferred to the Plan for Payment.
6. Benefit Not Assignable.
An Eligible Employee's rights under this Plan shall not be
subject to assignment, encumbrance, garnishment, attachment or
charge, whether voluntary or involuntary, and in the event of any
such assignment, action or proceeding, any benefit otherwise
payable under this Plan shall be deemed terminated or forfeited.
7. Termination of Benefit/Repayment of Benefit.
5
<PAGE>
(A) Eligibility of a person to participate in this Plan, or to
receive payment of any benefit under this Plan, shall be subject
to being terminated by the Management Development and
Compensation Committee (the "Committee") of the Board of
Directors of the Company (the "Board"), in the Committee's sole
discretion, if the person:
(i) shall, without the consent of the Committee or without "good
reason" as defined below, voluntarily terminate employment
with the Company (or retire from the Company) prior to
attaining age 62; for purposes of this subparagraph "good
reason" for voluntary resignation or retirement before age
62 shall mean any of the following:
(a) the assignment of any duties inconsistent with the
person's status as a senior manager of the Company or a
substantial alteration in the nature or status of the
person's responsibilities;
(b) a reduction in the person's base salary (except for
across-the-board salary reductions similarly affecting
all managers of the Company);
(c) the failure of the Company to continue in effect any
vacation plan or any material compensation plan in
which the person participates, unless an equitable
arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such
plan, or the failure by the Company to continue the
person's participation therein on substantially the
same basis, both in terms of the amount of benefits
provided and the level of participation, relative to
other participants;
(d) the failure by the Company, except as necessary to
comply with applicable laws, to continue to provide the
person with benefits substantially similar to those
enjoyed under any of the Company's pension, life
insurance, medical, health and accident, or disability
plans in which the person previously participated, or
the taking of any action by the Company which would
directly or indirectly materially reduce any of such
benefits or deprive the person of any material fringe
benefit previously enjoyed by the person;
(ii) shall, without the consent of the Committee, become a
proprietor, director, officer, partner, employee or
consultant of, or otherwise become connected with, any
business which is in competition with the Company or a
subsidiary of the Company (other than as a shareholder with
a non-substantial interest in any such business); or
(iii) shall have been involuntarily terminated by the Company for
"good cause" (as defined below), or shall have been found by
the Committee to have engaged in any action inimical to the
interests of the Company, dishonesty or other serious
misconduct in connection with the person's employment
6
<PAGE>
by the Company or a subsidiary; for purposes of this
subparagraph "good cause" for involuntary termination shall
mean termination upon (a) the willful and continued failure
substantially to perform properly assigned duties with the
Company (other than any such failure resulting from
incapacity due to physical or mental illness) after a
written demand is delivered by the Board which specifically
identifies the manner in which the Board believes that
properly assigned duties have not been substantially
performed, or (b) the willful engaging in conduct which is
demonstrably and materially injurious to the Company,
monetarily or otherwise; for purposes of this subsection, no
act, or failure to act, shall be deemed "willful" unless
done (or omitted to be done) not in good faith and without
reasonable belief that the action or omission was in the
best interest of the Company; notwithstanding the foregoing,
a person shall not be deemed to have been terminated for
"good cause" unless and until there shall have been
delivered a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board
(after reasonable notice to the person and an opportunity,
together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board the
person was guilty of conduct set forth in clauses (a) or (b)
above and specifying the particulars thereof in detail.
(B) In the event an Eligible Employee who has retired and received
payment of the Supplemental Benefit in the form of a lump-sum
distribution or installments enters into competition with the
Company or a subsidiary of the Company, as set forth in paragraph
(A) (ii) above, he or she shall repay to the Company a portion of
the Supplemental Benefit received. The amount which shall be
repaid is the difference between the amount of Supplemental
Benefit the Eligible Employee has received from the Company by
the time the Committee notifies the Eligible Employee of its
objection to such competition and the amount the eligible
Employee would have received by the time of such notification had
the Supplemental Benefit been paid on a single-life annuity
basis, plus reasonable interest as recommended by the Company's
Chief Financial Officer.
8. Amendment or Termination of Plan.
The Company reserves the right to amend, modify or terminate this Plan
at any time by action of its Board of Directors, provided that such
action shall not adversely affect any Eligible Employee's right to a
benefit which accrued pursuant to the provisions of this Plan prior to
such action.
9. Administration of Plan.
The Senior Vice President of Human Resources of the Company shall be
the Plan Administrator of this Plan. The Plan Administrator shall have
discretion to interpret the Plan, to determine eligibility and amounts
of benefits under this Plan and to decide any questions or disputes
under this Plan (except for any necessary decisions by the Board of
Directors of the Company or by the Management Development and
Compensation
7
<PAGE>
Committee of the Board pursuant to Section 7 of the Plan). All
decisions which are made by the Board of Directors of the Company or
by the Management Development and Compensation Committee of the Board
or by the Plan Administrator with respect to the Plan shall be final
and binding on the Company and the Eligible Employees (and their heirs
or beneficiaries).
10. Change of Control of International Paper Company.
(A) If a "Change of Control" of the Company occurs (as defined
below), the minimum amount under the formula set forth in Section
4(A)(iv) above shall be increased from 25% to 50% of the Eligible
Employee's Compensation for the calendar year in which the
Eligible Employee had the highest Compensation during the three
consecutive calendar years prior to the determination date, and
the Eligible Employee's Supplemental Benefit under this Plan
shall become vested and nonforfeitable, and shall not be subject
to termination pursuant to any of the provisions of Section 7 of
this Plan.
(B) For purposes of this Section 10, the term "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 Securities Exchange
Act of 1934 as amended ("Exchange Act"); provided that without
limitation, such change of control shall be deemed to have
occurred if (i) any "person" as such term is used in Section
13(d) and 14(d)(2) of the Exchange 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 shareowners 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.
8
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>EXHIBIT 11
<TEXT>
<PAGE>
(Exhibit 11)
INTERNATIONAL PAPER COMPANY
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Year to Date December 31
------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net earnings $142 $183 $247
Effect of dilutive securities
Preferred securities of subsidiary trust ---- ---- ----
Net earnings assuming dilution $142 $183 $247
---- ---- ----
---- ---- ----
Average common shares outstanding 449.6 413.0 411.0
Effect of dilutive securities
Long-term incentive plan deferred compensation
Stock options 0.4 3.1 3.2
Preferred securities of subsidiary trust
Average common shares outstanding - ---- ---- ----
assuming dilution 450.0 416.1 414.2
----- ----- -----
----- ----- -----
Earnings per common share $0.32 $0.44 $0.60
----- ----- -----
----- ----- -----
Earnings per common share -
assuming dilution $0.32 $0.44 $0.60
----- ----- -----
----- ----- -----
</TABLE>
Note: if an amount does not appear in the above table, the security was
antidilutive for the period presented.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>EXHIBIT 12
<TEXT>
<PAGE>
(Exhibit 12)
INTERNATIONAL PAPER COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
(Unaudited)
<TABLE>
<CAPTION>
For the Years Ended December 31
-------------------------------
TITLE 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
A) Earnings before income taxes, minority
interest and extraordinary items $2,742.0 $ 939.0 $ 143.0 $ 429.0 $ 448.0 $ 723.0
B) Minority interest expense, net of taxes (166.0) (180.0) (140.0) (87.0) (163.0) (238.0)
C) Fixed charges excluding capitalized interest 740.3 802.1 826.6 866.7 820.9 1,151.5
D) Amortization of previously capitalized interest 29.6 34.2 37.0 38.8 17.0 23.5
E) Equity in undistributed earnings of affiliates (94.5) 6.2 (40.4) 23.7 (41.6) 5.6
--------- --------- ------- --------- --------- --------
F) Earnings before income taxes, extraordinary
items and fixed charges $3,251.4 $1,601.5 $ 826.2 $1,271.2 $1,081.3 $1,665.6
--------- --------- ------- --------- --------- --------
FIXED CHARGES
G) Interest and amortization of debt expense $ 664.9 $ 699.5 $ 720.0 $ 716.9 $ 611.5 $ 938.1
H) Interest factor attributable to rentals 64.8 79.0 83.0 80.7 76.3 72.8
I) Preferred dividends of subsidiary 10.6 23.6 23.6 69.1 133.1 140.6
J) Capitalized interest 66.9 71.2 71.6 53.4 29.3 25.2
--------- --------- ------- --------- --------- --------
K) Total fixed charges $ 807.2 $ 873.3 $ 898.2 $ 920.1 $ 850.2 $1,176.7
--------- --------- ------- --------- --------- --------
L) Ratio of earnings to fixed charges 4.03 1.83 1.38 1.27 1.42
M) Deficiency in earnings necessary to cover
fixed charges $(72.0)
-------
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>9
<FILENAME>0009.txt
<DESCRIPTION>EXHIBIT 13
<TEXT>
<PAGE>
International Paper [Logo]
20OO
ANNUAL REPORT
<PAGE>
Financial Highlights International Paper
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Dollar amounts and shares in millions, except per share amounts 2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial Summary
Net Sales $28,180 $24,573
Operating Profit 2,712(a) 1,808(a)
Earnings Before Income Taxes, Minority Interest and Extraordinary Items 723(b) 448(d)
Net Earnings 142(b,c) 183(d,e)
Total Assets 42,109 30,268
Common Shareholders' Equity 12,034 10,304
Return on Investment Before Extraordinary Items 3.3%(b) 2.6%(d)
Return on Investment Before Special and Extraordinary Items 5.3% 4.0%
Per Share of Common Stock
Earnings Before Extraordinary Items $ 0.82(b) $ 0.48(d)
Earnings--Assuming Dilution 0.32(b,c) 0.44(d,e)
Cash Dividends 1.00 1.01(f)
Common Shareholders'Equity 24.85 24.85
Shareholder Profile
Shareholders of Record at December 31 39,486 32,881
Shares Outstanding at December 31 484.2 414.6
Average Shares Outstanding 449.6 413.0
</TABLE>
(a) See the operating profit table on page 30 for details of operating profit
by industry segment. Results of equity investees are not included in
operating profit.
(b) Includes a charge before taxes and minority interest of $949 million ($589
million after taxes and minority interest) for asset shutdowns of excess
internal capacity, cost reduction actions, and additions to existing
Masonite legal reserves, a $54 million pre-tax charge ($33 million after
taxes) for merger-related expenses and a $34 million pre-tax credit ($21
million after taxes) for the reversals of reserves no longer required.
(c) Includes an extraordinary gain of $385 million before taxes and minority
interest ($134 million after taxes and minority interest) on the sale of
our investment in Scitex and Carter Holt Harvey's sale of its share of
COPEC, an extraordinary loss of $460 million before taxes ($310 million
after taxes) related to the impairment of our Zanders and Masonite
businesses to be sold, an extraordinary pre-tax gain of $368 million ($183
million after taxes and minority interest) related to the sale of Bush
Boake Allen, an extraordinary loss of $5 million before taxes and minority
interest ($2 million after taxes and minority interest) related to Carter
Holt Harvey's sale of its Plastics division, and an extraordinary pre-tax
charge of $373 million ($231 million after taxes) related to impairments of
our Argentine investments, as well as the Chemical Cellulose pulp business
and Fine Papers businesses to be sold.
(d) Includes 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 merger-related expenses, a $298 million
charge before taxes and minority interest ($180 million after taxes and
minority interest) 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 reversals of reserves no longer
required.
(e) Includes an extraordinary loss of $26 million before taxes ($16 million
after taxes) for the extinguishment of high-interest debt that was assumed
in the merger with Union Camp.
(f) The International Paper dividend was $1.00 per share in 1999. However,
dividends on a per share basis were restated to include dividends paid by
Union Camp which merged with International Paper during 1999 in a
transaction accounted for as a pooling-of-interests.
<PAGE>
[PHOTO of John Dillon]
To International Paper Shareowners
I believe this past year at International Paper can best be characterized by our
FOCUS. We focused on our three core businesses--Paper, Packaging and Forest
Products--further defining and strengthening these businesses.
The course for 2000 and beyond was set in mid-1999, when we announced our
long-term strategy to investors following our Union Camp acquisition. We said
then that International Paper is a company on the move, changing and improving
in ways we never have before. We said that we are dedicated to strengthening our
businesses and improving shareowner value. Specifically, we made a commitment in
1999 to make strong businesses stronger, shut down excess capacity and achieve
non-price improvement.
Today, as we look back on the year 2000, it's clear that we did what we
said we would do. First, we narrowed the portfolio of International Paper to
paper, packaging, and forest products, and, in turn, achieved the necessary
focus to win in these core businesses. The Champion International acquisition in
mid-2000 was a key component in providing this focus and strengthening of our
businesses. Second, in October we took aggressive and bold steps to improve our
returns through a rationalization and realignment program, which addresses our
commitment to improve competitiveness. Third, we not only proceeded with a $3
billion divestiture program, we increased the target to $5 billion, including
timberland sales. Through February of this year, we have made major progress
toward our non-price improvement target. In fact, $.66 per share, or 31%, of our
2000 EPS before special and extraordinary items came from results in this area.
Acquisitions
- --------------------------------------------------------------------------------
Successful acquisitions during the past few years have provided the platform for
focusing on our core businesses. As a consequence of acquiring Federal Paper
Board in 1996, we were able to build a world class consumer packaging business.
With the addition of Union Camp in 1999, we gained world class assets and a very
strong position in uncoated papers and industrial packaging. The Champion
International acquisition in mid-2000 significantly strengthened our coated
papers position, while also giving us a strategically important printing papers
business in Brazil, low-cost U.S. uncoated assets, and the Weldwood business in
Canada. Both Union Camp and Champion strengthened
1
<PAGE>
xpedx--our distribution business. And all three companies brought major
timberlands and important wood products operations.
In terms of results, the Union Camp integration continues to progress very
well, is ahead of our plan, and is considered a real home run. Our merger with
Champion International is also doing very well. This move allowed us to take
major actions to bring our cost structure down and significantly sharpen our
focus on core businesses. There is a lot more to do and we have a plan to get
the results this year. In fact, the Champion merger synergies target has been
increased by nearly 20 percent, from $425 million to $500 million.
Overall, our focus on core businesses is dramatically different from just a
few years ago. In 1997, for example, 78% of our invested capital was directed at
the paper, packaging, and forest products businesses. Today, almost 95% of our
invested capital is directed to these core businesses.
Capacity Rationalization and Realignment
- --------------------------------------------------------------------------------
On another positive front, International Paper's capacity rationalization and
realignment initiatives are right on schedule. As a result of the Union Camp and
Champion acquisitions, we added further uncoated paper capacity to our
manufacturing system in the United States. The contribution of these assets
allowed us to re-evaluate our manufacturing system, which resulted in some
important decisions to rationalize and realign capacity in order to improve
our cost position, enrich the customer/product mix, increase production
efficiencies, and improve our financial performance.
In fourth quarter 2000, we announced that we were taking 1.2 million tons
of capacity out of the International Paper system. Our actions removed 18% of
our U.S. uncoated papers capacity and 7% of our U.S. market pulp capacity. This
was accomplished through an indefinite shutdown of our Mobile, Alabama mill; the
staged closure of our Lock Haven, Pennsylvania facility; and the downsizing of
the Courtland, Alabama mill. In addition, by closing our Camden, Arkansas
facility and realigning our Kraft papers production, we reduced our U.S.
containerboard system capacity by 5%.
To sum up, the 2000 rationalization and realignment activities are a
significant step in improving the competitiveness of the International Paper
system for printing papers and containerboard. It takes excess
2
<PAGE>
capacity out of our system and allows us to fully concentrate our resources on
very competitive facilities. In short, these actions ensure a more profitable
company.
At International Paper, we believe that we must manage capacity to meet
customer demand without building inventory. And we continued to take downtime to
keep production in line with demand. International Paper effectively balanced
our supply to meet the demands of our customers in 2000, and took about 1.7
million tons of market-related downtime. As we move through 2001, we will
continue to manage our system consistent with the orders that we receive from
our customers.
Divestitures
- --------------------------------------------------------------------------------
As with all other activities in 2000 and this year to date, our divestiture
program allows for increased focus on our core businesses. The businesses that
we sold, and are in the process of selling, are very good businesses--but don't
fit with our focused strategy.
Originally, we set a goal for asset divestitures of $3 billion, excluding
timberlands. In December, after further study, we revised our goal upward to $5
billion in asset divestitures, including timberlands.
Non-price Improvements
- --------------------------------------------------------------------------------
When we established our non-price improvement program in 1999, we set a target
to achieve ROI improvement of 400 basis points, excluding the impact of price,
by year-end 2002. Included in this program are non-price initiatives, such as
our FAST (Focus, Align, Simplify, and Time) change initiative, other
business-specific performance improvement initiatives, and our merger synergies
from Union Camp and Champion.
In 2000, even with increased raw material and energy costs, we were able to
make significant strides toward reaching our target. Indeed, we are about
halfway to our target as we enter the second half of the program, and are in an
excellent position to continue our efforts and achieve our goal.
2000 Financial Performance
- --------------------------------------------------------------------------------
Earnings for the year 2000 were $969 million ($2.16 per share) before special
and extraordinary items, compared with 1999 full year net earnings of $551
million ($1.33 per share) before special and extraordinary items. Sales in 2000
of $28.2 billion were up from $24.6 billion
3
<PAGE>
in sales for 1999 primarily due to the Champion acquisition. Full year 2000 net
earnings after special and extraordinary items were $142 million ($.32 per
share). Net earnings for 1999 after special and extraordinary items were $183
million ($.44 per share).
Financial Flexibility
- --------------------------------------------------------------------------------
International Paper is committed to regaining financial flexibility, using
proceeds from the divestiture program and free cash flow to pay down debt. In
fact, International Paper has paid down over $1 billion in debt since the
Champion acquisition and will continue to use this discipline in 2001.
Looking Ahead
- --------------------------------------------------------------------------------
As we move forward, I am confident that we are on the right course. The number
one goal at International Paper is to improve our profitability. We remain
dedicated to improving shareowner value at a rate faster than our competition.
I am convinced that the hard decisions we have made, and continue to make,
are resulting in a stronger and more profitable International Paper. They are
the right decisions for our future. The achievements of last year not only
reflect this, but also serve as a catalyst for 2001 as we strive to improve
performance.
I've said this before, but it bears repeating that I believe we have the
most engaged, the most focused--in short, we have the best employees in our
industry. The value of their contributions on a daily basis is terrific. As we
continue our efforts to build a diverse employee community, it is clear we could
not reach our objectives without such a dedicated team of employees.
At International Paper, the key word is focus. As we continue to focus on
our three core businesses and our success drivers--People, Customers and
Operational Excellence--we will continue our march to improve profitability. And
in so doing, we will become the world's best paper and forest products company.
John T. Dillon
John T. Dillon
Chairman and Chief Executive Officer
March 1, 2001
4
<PAGE>
Table of Contents
<TABLE>
<S> <C>
- -----------------------------------------------------------
Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Corporate Overview 6
Description of Industry Segments 7
Industry Segment Results 9
Printing Papers 9
Industrial and Consumer Packaging 10
Distribution 10
Forest Products 11
Chemicals and Petroleum 12
Carter Holt Harvey 12
Liquidity and Capital Resources 13
- -----------------------------------------------------------
Financial Information by Industry Segment 30
and Geographic Area
- -----------------------------------------------------------
Report of Management on Financial Statements 32
- -----------------------------------------------------------
Report of Independent Public Accountants 32
- -----------------------------------------------------------
Consolidated Statement of Earnings 33
- -----------------------------------------------------------
Consolidated Balance Sheet 34
- -----------------------------------------------------------
Consolidated Statement of Cash Flows 35
- -----------------------------------------------------------
Consolidated Statement of Common 36
Shareholders' Equity
- -----------------------------------------------------------
Notes to Consolidated Financial Statements 37
- -----------------------------------------------------------
Six-Year Financial Summary 62
- -----------------------------------------------------------
Interim Financial Results 64
</TABLE>
<PAGE>
Management's Discussion and Analysis
Corporate Overview
- --------------------------------------------------------------------------------
Results of Operations
International Paper's 2000 results of operations include Champion International
Corporation (Champion), a company acquired on June 20, 2000 in a transaction
accounted for as a purchase from the acquisition date.
Earnings per share before special and extraordinary items in 2000 were
62% above 1999 and 157% above 1998. Although markets during the first half of
2000 were stable, the U.S. economy slowed at an accelerating rate during the
second half of the year, which adversely impacted demand for our products. As a
result, through market related down-time, we curtailed production during 2000 by
1.7 million tons throughout our mill system in order to align production with
our customer demand. In addition, we are realigning our production to increase
efficiency and reduce costs. To this end, we have announced the closures of our
Mobile, Alabama, Lock Haven, Pennsylvania, and Camden, Arkansas paper mills and
the downsizing of our Courtland, Alabama mill. These actions will permanently
remove over 1.2 million tons of capacity per year from our system.
Rapidly rising energy costs increased our manufacturing costs and
eroded profit margins throughout our North American system. Where possible,
mills switched to less costly alternative fuels. However, overall energy costs
were more than $200 million above 1999 levels and continue to be high as we
enter 2001.
During 2000, International Paper increasingly focused on its three core
businesses--paper, packaging and forest products. In support of this strategy,
we announced a $5 billion divestiture program to exit those businesses that are
considered to be non-core or do not meet our return on investment criteria. As
of March 1, 2001, we have completed the dispositions of our interests in Bush
Boake Allen, Zanders Feinpapiere AG (Zanders), the Argentine packaging assets,
the oil and gas assets, the Hamilton, Ohio mill, and the former Champion
headquarters building. We have entered into agreements to sell our Masonite
business and certain western forestlands, and we are exploring strategic
alternatives for, including the possible sales of, the Arizona Chemical,
Flexible Packaging, Decorative Products, Fine Papers and Chemical Cellulose pulp
businesses, and our hydroelectric assets. Non-strategic timberlands in east
Texas are also planned for sale and are included in our $5 billion divestiture
target. Approximately $740 million in proceeds were received during 2000 from
these divestitures, and we expect to complete most of the remaining dispositions
by the end of 2001.
Our 2000 net sales of $28.2 billion increased 15% and 18% over 1999 and
1998 net sales of $24.6 billion and $24.0 billion, respectively. The increase
was due primarily to the Champion acquisition. Excluding contributions from
Champion, 2000 sales increased about 2% over 1999 sales and about 4% over sales
reported in 1998.
International net sales (including U.S. exports) totaled $7.6 billion,
or 27% of total sales in 2000. This was well above sales of $6.9 billion in 1999
and $6.8 billion in 1998. These increases are attributable mainly to
contributions from Brazilian and Canadian operations from the Champion
acquisition. Export sales from the U.S. increased slightly in 2000 to $1.6
billion compared with $1.5 billion in both 1999 and 1998.
Earnings before special and extraordinary items in 2000 improved to
$969 million, or $2.16 per share, compared with earnings before special and
extraordinary items of $551 million, or $1.33 per share, in 1999, and $345
million, or $.84 per share, in 1998. Special charges after taxes and minority
interest totaled $601 million, or $1.34 per share, in 2000, $352 million, or
$.85 per share, in 1999, and $98 million, or $.24 per share, in 1998. About 85%
of the 2000 special charges related to facility rationalizations. Extraordinary
items were a loss of $226 million, or $.50 per share, in 2000, and $16 million,
or $.04 per share, in 1999. After special and extraordinary items, net earnings
were $142 million, or $.32 per share, in 2000, $183 million, or $.44 per share,
in 1999, and $247 million, or $.60 per share, in 1998.
Operating profit of $2.7 billion in 2000 was up 50% from the $1.8
billion in 1999, and almost double the 1998 level of $1.4 billion. Profit
contributions from Champion accounted for approximately $325 million of the
increases compared with both 1999 and 1998. Additionally, $400 million of
operating improvement was driven mainly by enhanced sales mix and lower costs
resulting from our profit improvement initiatives and merger benefit programs.
These improvements were partially offset by sharply rising domestic energy
costs, which reduced profits by about $200 million in 2000 compared with 1999.
Improved prices increased operating profit by almost $500 million in 2000
compared with 1999. This increase was offset, in part, by a $200 million
reduction due to market related downtime. Excluding special and extraordinary
items, return on investment was 5.3% in 2000, 33% above the 4.0% in 1999 and 89%
above the 2.8% in 1998.
The integration of International Paper and Champion is proceeding well.
We realized approximately $70 million in merger benefits in the fourth quarter
of 2000 and are on schedule to meet our annualized target of $500 million by the
end of 2001. We realized our Union Camp integration goal of $425 million in
annualized merger benefits by year-end 2000.
6
<PAGE>
Management's Discussion and Analysis
International Paper is committed to improving return on investment by
400 basis points through non-price improvements by the end of 2002 as compared
to the first quarter of 1999. In addition to our announced asset sales, we have
budgeted 2001 capital spending at $1.2 billion, down from $1.4 billion in 2000.
Description of Industry Segments
- --------------------------------------------------------------------------------
Printing Papers
International Paper is the world's leading producer of printing and writing
papers. These products include uncoated and coated papers. Bristols and market
pulp are other major products included in this segment.
Uncoated Papers: This business includes office papers for use in desktop
printing and copiers, offset paper used in commercial printing, and a variety of
papers that are converted by our customers into such products as envelopes,
forms and file folders. Our brands include:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Office Papers Hammermill
Great White
Commercial Printing Williamsburg
Bristols Carolina
- --------------------------------------------------------------------------------
Europe Office Papers Reylux
Polspeed
Ballet
- --------------------------------------------------------------------------------
</TABLE>
The mills producing uncoated papers are located in the U.S., Scotland,
France, Poland, and Russia. These mills have uncoated paper production capacity
of 5.7 million tons annually.
Coated Papers: Coated papers are used in a variety of printing and publication
end uses. Products include coated free sheet, coated groundwood and
supercalendered ground-wood papers. These products are used in catalogs,
magazines, inserts and commercial printing.
International Paper's position in this business was significantly
expanded with the acquisition of Champion. Production capacity in the U.S.
amounts to 2.2 million tons annually.
In January 2001, International Paper sold its interest in Zanders, a
German producer of high-quality coated papers. The results of Zanders are
included in this segment for 2000.
Market Pulp: Market pulp is an intermediate product used by non-integrated paper
mills and synthetic fiber makers, and in the production of sanitary products
such as diapers. International Paper is a major supplier of market pulp.
Products include softwood pulp, both northern and southern, birch, northern and
southern hardwood paper pulp as well as fluff pulp. These products are produced
in the U.S., Canada, France, Poland and Russia, and are sold around the world.
These facilities have annual pulp capacity of about 2.2 million tons.
Brazil: Through the Champion acquisition, we have added operations in Brazil,
which function through International Paper do Brasil, Ltda. These operations
have an annual production capacity of 670,000 tons of coated and uncoated
papers. We own or manage 1.5 million acres of forestlands.
Industrial and Consumer Packaging
Industrial Packaging: With a capacity of about 5 million tons annually,
International Paper is the second largest manufacturer of containerboard in the
U.S. Nearly one-third of our production is specialty grades, such as PineLiner,
SunLiner, Polarboard, Coastliner, BriteTop and Spra White. About 60% of our
production is converted into corrugated boxes and other packaging by our 53 U.S.
container plants. In Europe, our operations include one recycled fiber mill in
France and 23 container plants in France, Ireland, Italy, Spain and the United
Kingdom. Our global presence also includes operations in Puerto Rico, Chile,
Turkey, and China. Our container plants are supported by regional design
centers, which offer total packaging solutions and supply chain initiatives. We
also have the capacity to produce over 600,000 tons of kraft paper each year for
use in multiwall and retail bags.
Consumer Packaging: With annual production capacity of 2 million tons,
International Paper is the world's largest producer of bleached packaging board.
Our Everest and Starcote brands are used in packaging applications for juice,
milk, food, cosmetics, pharmaceuticals, computer software and tobacco products.
Approximately 40% of our bleached board production is converted into packaging
products in our own plants. Our Beverage Packaging business has 17 plants
worldwide offering complete packaging systems, from paper to filling machines,
using fresh and aseptic technologies including Tru-Taste brand barrier board
technology for premium long-life juices. Shorewood Packaging Corporation
(Shorewood), acquired in March 2000, operates 20 plants worldwide, producing
packaging with high-impact graphics for a variety of consumer markets, including
tobacco, cosmetics and home entertainment. The Foodservice business offers cups,
lids, cartons, bags, containers, beverage carriers, trays and plates from seven
domestic plants and through six international joint ventures.
Industrial Papers: We produce 370,000 tons of specialty industrial papers
annually used in applications such as pressure-sensitive labels, food and
industrial packaging, industrial sealants and tapes and consumer hygiene
products.
7
<PAGE>
Management's Discussion and Analysis
Distribution
Through xpedx, our North American merchant distribution business, we supply
industry wholesalers and end users with a vast array of printing, packaging,
graphic arts, maintenance and industrial products. xpedx operates over 116
warehouses, 138 sales offices and 139 retail stores in the U.S. and Mexico.
Overseas, Papeteries de France, Scaldia in the Netherlands, and Impap in Poland
serve European accounts. About 22% of our worldwide distribution sales are
products manufactured by International Paper's own facilities.
Forest Products
Forest Resources: International Paper owns or manages about 12 million acres of
forestlands in the U.S., mostly in the South. About 26% of our wood requirements
in 2000 were supplied by these forestlands.
Wood Products: International Paper owns and operates 38 U.S. plants producing
southern pine lumber, oriented strand board (OSB), plywood and engineered wood
products. The majority of these plants are located in the southern U.S. near our
forestlands. We can produce up to 2.8 billion board feet of lumber, 1.8 billion
square feet of plywood and 950 million square feet of OSB annually.
Canadian Wood Products: Weldwood of Canada Limited produces about 1.1 billion
board feet of lumber and 410 million square feet of plywood annually. We have,
through licenses and forest management agreements, harvesting rights on
government-owned timberlands in Canada.
Masonite: From eight locations in North America, Europe and Korea, Masonite
manufactures and markets CraftMaster door facings and other molded products for
residential and commercial construction, as well as a broad line of hardboard
exterior siding, industrial hardboard and a wide range of softboard products for
the home and office. Our worldwide capacity for door facings is approximately
1.2 billion square feet annually.
Decorative Products: We produce high- and low-pressure laminates, particleboard
and graphic arts products from 13 facilities. Our customers include residential
and commercial construction, furniture, store fixtures and graphic arts
businesses as well as customers with specialty niche applications.
Chemicals and Petroleum
Chemicals: Arizona Chemical is a leading processor of crude tall oil and crude
sulfate turpentine, natural by-products of the papermaking process. Products
also include specialty resins used in adhesives and inks made at 15 plants in
the U.S. and Europe. In addition, we produce chemical specialty pulp, primarily
utilized in cigarette filters and fabrics.
Bush Boake Allen: International Paper sold its 68.2% interest in Bush Boake
Allen on November 8, 2000. During our ownership, Bush Boake Allen, which
conducted operations on six continents and had locations in 39 countries,
supplied flavors and fragrances for use in foods, beverages, cosmetics and
toiletries.
Petroleum: In January 2001, International Paper conveyed its oil and gas
properties and royalty interests to a third party. We have retained management
of other mineral rights on company-owned and leased lands. During 2000, our
petroleum business managed mineral rights and explored and developed oil and gas
reserves, generally by establishing partnerships with other independent oil and
gas producing companies.
Carter Holt Harvey
Carter Holt Harvey is approximately 50.4% owned by International Paper. It is
one of the largest forest products companies in the Southern Hemisphere, with
operations mainly in New Zealand and Australia. The Australasian region accounts
for approximately 84% of its sales. Asian countries, particularly Japan, Korea
and China, are important markets for its logs, pulp and linerboard. Carter Holt
Harvey's forest operations include ownership of 820,000 productive acres of
predominantly sustainably managed radiata pine plantations located in New
Zealand, currently yielding 7.4 million tons of logs annually. This yield is
expected to increase to over 7.9 million tons by 2002. About 50% of the harvest
is processed through Carter Holt Harvey's wood products and pulp and paper
businesses. Their access to one of the largest low-cost softwood fiber bases in
the Southern Hemisphere is a key strength.
8
<PAGE>
Management's Discussion and Analysis
Carter Holt Harvey is the largest Australasian producer of lumber,
plywood, laminated veneer lumber and panel products. It has over 600 million
board feet of lumber capacity. The panels business is comprised of two medium
density fiberboard mills and six particleboard facilities with approximately 605
million square feet of annual capacity. Carter Holt Harvey is New Zealand's
largest manufacturer and marketer of pulp and paper products, with overall
annual capacity of 825,000 tons at three mills. Its major products are
linerboard and pulp. Carter Holt Harvey produces 140,000 tons of tissue products
from two mills and eight converting facilities and is the largest manufacturer
of tissue in Australia. Sorbent is the most recognized local tissue brand in
this market. Carter Holt Harvey also produces corrugated boxes, cartons and
paper bags with a focus on the horticulture, primary produce and foodservice
markets in New Zealand and Australia. It is a leading producer of cups in
Australia through its Continental Cup joint venture with International Paper.
Its distribution business comprises Carters, a building supplies chain in New
Zealand, and paper merchants B.J. Ball Papers in New Zealand and Raleigh Paper
in Australia. In January 2000, Carter Holt Harvey sold its equity interest in
Compania de Petroleos de Chile (COPEC).
Industry Segment Results
- --------------------------------------------------------------------------------
Printing Papers
Printing Papers posted sales of $8.0 billion compared with $5.8 billion in 1999
and 1998. About $2.0 billion of the increase in sales was a result of the
Champion acquisition. Operating profit rose to $959 million in 2000 from $254
million in 1999 and $178 million in 1998, due mainly to contributions from
Champion in the second half of 2000. Excluding Champion, operating profit
increased 170% over 1999 due to significant price improvements, favorable mix
and cost reduction actions.
Printing Papers
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $7,960 $5,840 $5,815
Operating Profit $ 959 $ 254 $ 178
</TABLE>
Uncoated Papers sales were $4.9 billion in 2000, up from $4.1 billion in 1999
and $4.0 billion in 1998. The increase in sales was due both to a 13% rise in
domestic shipments, primarily as a result of the Champion acquisition mid-year,
and an increase in pricing year-over-year. Paper prices averaged 8% higher than
in 1999 and were strongest in the first half of 2000. As demand softened
mid-year, we significantly curtailed production at our mills to balance
production with orders and control our inventories. Operating profit was up
156% over 1999 and nearly three times the 1998 level. Our profit improvement and
cost reduction initiatives have been effective and have positively impacted
earnings. However, the continued strengthening of the U.S. dollar in 2000
depressed the translated value of our non-U.S. sales and increased pulp costs.
Additionally, raw material and energy price increases in 2000 continue to
negatively impact earnings. Our continued expansion in Central and Eastern
Europe, coupled with low-cost production, resulted in another strong performance
from our Kwidzyn facility in Poland and a successful year for Svetogorsk, our
Russian operation.
Coated Papers sales were $1.9 billion, $575 million of which resulted from the
Champion acquisition in the second half of the year, compared with $1.2 billion
in 1999 and $1.3 billion in 1998. Operating profit was up about 80% compared
with 1999 and 1998. Excluding Champion, results of operations rose about 16% in
2000 from both the 1999 and 1998 level. Average prices in 2000 were up about 13%
in the U.S., but down slightly in Europe compared with 1999. In addition to
price improvement, enhanced mix also contributed to the increase. The increase
was offset somewhat by higher pulp and raw material costs, driven mainly by the
cost of energy.
Market Pulp sales from our U.S., European and Canadian facilities were $925
million in 2000 compared with $535 million and $480 million in 1999 and 1998,
respectively. While Champion sales of $270 million were a factor, a 32% market
pulp price improvement over the 1999 level also contributed to the increase.
After incurring operating losses in 1999 and 1998, an operating profit was
realized in 2000.
Brazil is included since the date of the Champion acquisition, June 20, 2000.
The Brazilian business reported sales of $270 million.
Looking ahead to 2001, we expect profits in U.S. Printing Papers to
improve as we continue to drive our profit improvement initiatives and balance
our production to our orders. We expect uncoated markets to experience some
pressure on pricing while maintaining stable volumes. European sales volumes are
also expected to remain solid. With the sale of Zanders, our strategy will be to
focus on value-added uncoated grades. With this focus and ongoing cost
improvements, our outlook is good.
9
<PAGE>
Management's Discussion and Analysis
Industrial and Consumer Packaging
Industrial and Consumer Packaging sales totaled $7.6 billion in 2000, 9% better
than the two previous years'sales of $7.0 billion. Operating profit of $773
million in 2000 improved 38% from the $562 million of 1999, mainly due to
additional benefits from synergies realized from the Union Camp merger and
manufacturing and commercial initiatives implemented across all of the
businesses. Improved pricing during the first half of the year was offset by
softer second half demand that resulted in significant mill production slowdowns
to match our supply with demand. Higher fourth quarter energy costs also
adversely affected results. Sales were $7.0 billion in 1998 and operating profit
was $334 million.
Industrial and Consumer Packaging
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $7,625 $7,050 $7,010
Operating Profit $ 773 $ 562 $ 334
</TABLE>
Industrial Packaging revenues were $4.0 billion in 2000, up from $3.8 billion
the previous year and $3.7 billion in 1998. Profits in 2000 improved 67% over
1999, after substantial improvement from 1998. While improved pricing benefited
operating results, internal initiatives coupled with further savings from the
Union Camp merger and the 2000 acquisition of Champion were the major reasons
for the year-to-year profit gains. Demand remained healthy through the first
half of 2000, but weakened progressively over the balance of the year. Domestic
box shipments were about the same as 1999, but were slightly better than
experienced across the industry despite the closure of four unprofitable
facilities during the year. Second half mill production cutbacks were necessary
to counter the market softness. Published domestic linerboard prices, after
increasing in February, remained steady through the remainder of the year
despite softer demand. Markets for our European converting operations improved
during 2000, with volumes slightly better than 1999. The strong U.S. dollar,
however, adversely impacted results reported by our non-U.S. operations, and
detracted from our competitiveness in containerboard export markets. The
inclusion of Champion's Roanoke Rapids, North Carolina, manufacturing facility
in the second half of 2000 also contributed to the year-over-year earnings
improvement.
During 2000, the Industrial Packaging business took more than one
million tons of market related downtime in container-board, representing more
than 20% of our system capacity. Most of the downtime was taken during the third
and fourth quarters as demand weakened significantly. Going forward, we expect
continued softness in demand for the domestic business beyond the seasonally
weak January/February time frame. Although the strong dollar has now retreated
somewhat, it will take considerable time to regain our former position in export
markets. Mill production will be managed as needed to keep our inventories in
line with customer demand.
Consumer Packaging sales were $3.6 billion, up from $3.2 billion in 1999 and
$3.3 billion in 1998. The revenue increase was mainly due to the acquisition of
Shorewood in March 2000. Consumer Packaging's 2000 operating profit was
comparable with both 1999 and 1998. Our internal process improvement program,
which began in the mill system during 1999 and expanded into the converting
businesses during 2000, has proven to be a major success and continues to add to
earnings. However, weaker market conditions for most of the Consumer Packaging
businesses and higher input costs offset most of the progress in 2000. Overall,
bleached board prices were 5% higher than 1999. However, softening demand during
the second half of the year resulted in production curtailments in the fourth
quarter to balance internal supply with customer demand. A restructuring of the
converting business in 2000, along with the addition of Shorewood, allowed us to
move more quickly away from commodity grades. We closed or offered for sale
certain facilities producing retail and beverage packaging, and are exploring
strategic alternatives for our Flexible Packaging business, including its
possible sale.
Looking ahead, markets are expected to remain under pressure in the
short term. Success in 2001 will come from a focused execution of marketing and
manufacturing initiatives, as well as from realignment in our converting
businesses.
Distribution
North American and European distribution sales totaled $7.3 billion in 2000
compared with $6.9 billion in 1999 and $6.3 billion in 1998. Operating profit in
2000 increased 14% from 1999 and 40% from 1998. Sales margins increased from
1.5% in 1999 to 1.7% in 2000 due largely to operating efficiencies. Market
conditions were highly competitive throughout the year.
Distribution
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $7,255 $6,850 $6,280
Operating Profit $ 120 $ 105 $ 86
</TABLE>
10
<PAGE>
Management's Discussion and Analysis
xpedx, our North American distribution operation, posted sales of $6.9
billion, up 6% from 1999, and 17% from 1998. The increase over 1999 was driven
primarily by the acquisition of Nationwide, Champion's distribution operation.
Excluding Nationwide, xpedx had sales of $6.5 billion in 2000, up 3% from 1999,
reflecting slightly higher product prices and volumes. In 1999, xpedx and Alling
& Cory, the distribution company acquired with Union Camp, were combined. Our
integration strategy was to retain market segments that met our strategic and
financial objectives. This strategy, coupled with a highly competitive pricing
environment in 2000, and an economic slowdown in the fourth quarter resulted in
a reduction in sales. However, operating profits rose as a result of cost
reductions, which helped offset weaker market conditions in the second half of
2000.
In 2000, xpedx and Nationwide employed the same successful integration
strategies used in the earlier Alling & Cory and Zellerbach acquisitions. By the
end of 2000, integrations were complete in 21 of 28 metropolitan areas,
eliminating duplicate facilities and causing a reduction of over 350 employees.
Integrations at the remaining seven sites are targeted for completion in early
2001.
Our European distribution operations--Papeteries de France, Scaldia in
the Netherlands and Impap in Poland--posted sales of $370 million, increasing 6%
from 1999 and 9% from 1998. Operating profit increased 44% over 1999 and 81%
over 1998.
Looking ahead, we expect pricing pressure and a continuing economic
slowdown to negatively impact our business.
Forest Products
Forest Products sales were $3.5 billion, up from $3.2 billion in 1999 and $2.9
billion in 1998. Operating profit in 2000 of $602 million was down from $724
million in 1999 and $622 million in 1998. This decline was attributable to lower
average building materials prices and sales volumes.
Forest Products
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $3,465 $3,205 $2,930
Operating Profit $ 602 $ 724 $ 622
</TABLE>
Forest Resources sales in 2000 were $848 million compared with $653 million in
1999 and $553 million in 1998. Operating profit was 23% higher than 1999 and 14%
higher than 1998 primarily due to the inclusion of Champion results in the
second half of 2000. While harvest volumes in 2000 were higher than 1999 and
1998, average prices declined from 1999, which were below the record levels seen
in 1998. Average pine sawtimber and pulpwood prices in 2000 were lower than 1999
average prices by about 5% and 11%, respectively. Stumpage prices entering 2001
are well below comparable prices at the beginning of 1999. Furthermore, customer
wood inventory levels at pulp and paper mills and wood products plants are
generally at or near targeted levels. As a result, we do not expect any
significant price improvement in early 2001, and we anticipate full-year prices
will average less than 2000, and well below 1999. Harvest volumes in 2001 are
also projected to be lower than the record volumes in 2000.
Wood Products sales in 2000 of $1.3 billion were off slightly from $1.4 billion
in 1999, but higher than 1998 sales of $1.2 billion. This business reported a
loss for the current year following a strong performance in 1999. The loss was
due largely to significant pricing pressure and weak demand resulting from lower
housing starts and increasing interest rates. Prices in 2000, compared with
1999, were off 21% for lumber, and about 26% in panels. We expect similar market
conditions early in 2001 and will continue to manage capacity to keep supply in
line with customer demand.
Canadian Wood Products, a former Champion business operated through Weldwood of
Canada, reported sales of $190 million for the second half of 2000. By year-end,
lumber prices had dropped significantly versus 1999. High inventories and low
prices are expected to continue to negatively impact this business in 2001.
Masonite sales were $465 million in 2000, 9% below 1999 sales of $512 million
and 7% below 1998 sales of $499 million. The sales decline was principally the
result of a lower demand for siding and hardboard products as well as increased
global competition in the molded door facings market. Prices for molded door
facings continued to decline in 2000. Shipments in all business lines declined
in the second half of the year as market conditions slowed. Operating profits
for the year declined due to lower sales volumes, lower prices and higher input
costs. Masonite is included in our program to divest non-strategic assets. In
September 2000, we reached an agreement to sell Masonite to a third party.
Decorative Products sales were $619 million, down slightly from 1999 sales of
$624 million and 6% from 1998 sales of $658 million. The decline in sales from
1998 reflects the closure and sale of several facilities in late 1998 and early
1999. Although sales were relatively flat in 2000, operating profits declined
due to higher raw material, energy and manufacturing costs. Demand in the second
half of the year was weak, particularly in particleboard, resulting in reduced
operating schedules at several locations. We are exploring strategic
alternatives for this business, including its possible sale.
11
<PAGE>
Management's Discussion and Analysis
Chemicals and Petroleum
Chemicals and Petroleum sales were $1.4 billion in 2000, down slightly from $1.5
billion in 1999 and 1998. Earnings were $161 million in 2000, up about 30% from
the $124 million in 1999 and 18% from $136 million in 1998. Petroleum operations
drove the improvements, which were offset, in part, by declines in the other
businesses.
Chemicals and Petroleum
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,395 $1,455 $1,465
Operating Profit $ 161 $ 124 $ 136
</TABLE>
Chemicals sales were $845 million in 2000, compared with $885 million and $905
million in 1999 and 1998, respectively. Operating profit declined 23% from 1999
and 39% from 1998. The decline was primarily due to increased costs in the
Chemical Cellulose pulp business. Offsetting this decline somewhat was an
improved sales mix of higher valued products and a reduction of manufacturing
costs from facility rationalizations in the commodity chemical and specialty
adhesive resins businesses. These positive business strategies reduced the
unfavorable impact of higher energy costs, higher raw material costs, and
unfavorable foreign exchange rates. We are exploring strategic alternatives for
our commodity chemical and specialty adhesive resins businesses and our Chemical
Cellulose pulp business, including their possible sales.
Bush Boake Allen results are included up to November 8, 2000, the date we sold
our interest in the company. Sales included for 2000 were $425 million compared
with full year 1999 and 1998 sales of $500 million and $485 million,
respectively. The 2000 partial year operating profit was about 12% higher than
the full year 1999 operating profit, but about 15% lower than in 1998.
Petroleum sales of $125 million were well ahead of the $70 million in 1999 and
$75 million in 1998. Operating profit was almost 150% higher than 1999 and
nearly four times 1998 profits. Higher oil and gas prices had a positive impact
on this business. Year-over-year average prices for oil and gas rose about 70%.
Our exploration program, generally operated through joint ventures, was focused
on West Texas, the Gulf Coast and the Gulf of Mexico and generated additional
reserves that were slightly higher than production in 2000. On January 31, 2001,
the oil and gas assets were conveyed to a third party.
Carter Holt Harvey
International Paper's results for this segment differ from those reported by
Carter Holt Harvey in New Zealand in four major respects:
1. Carter Holt Harvey's reporting period is a fiscal year ending March 31. Our
segment results are for the calendar year.
2. Our segment earnings include only our share of Carter Holt Harvey's
operating earnings. Segment sales, however, represent 100% of Carter Holt
Harvey's sales.
3. Carter Holt Harvey reports in New Zealand dollars but our segment results
are reported in U.S. dollars. The weighted average currency exchange rate
used to translate New Zealand dollars to U.S. dollars was 0.46 in 2000,
0.52 in 1999 and 0.54 in 1998.
4. Carter Holt Harvey reports under New Zealand accounting standards, but our
segment results comply with U.S. generally accepted accounting principles.
The major differences relate to cost of timber harvested (COTH), land
sales, equity investment in COPEC and start-up costs. These differences
reduced segment earnings by about $20 million in 2000, $50 million in 1999
and $40 million in 1998.
Carter Holt Harvey
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,675 $1,605 $1,505
Operating Profit $ 71 $ 39 $ 20
</TABLE>
Carter Holt Harvey's segment sales were $1.7 billion in 2000 compared
with $1.6 billion in 1999 and $1.5 billion in 1998. Operating profit of $71
million was up over 80% from the $39 million in 1999 and more than triple the
$20 million reported in 1998. The increase was mainly due to improved demand in
Asia and Australia, improved operational performance at the Kinleith pulp and
paper mill, increased harvest volumes and added contribution from an Australian
panels business acquired in May 2000.
12
<PAGE>
Management's Discussion and Analysis
Forests sales were up 27% due to increased harvest volumes and some
price improvement in both domestic and export markets. Wood Products net sales
improved by 37%, due to the acquisition of an Australian panels business during
the year. The slowdown in residential construction led to lower timber sales
volumes while log costs were higher than 1999. Net sales for the pulp, paper and
tissue business were up 20%, and operating profit was significantly higher than
a year ago. The enhanced performance was driven by rising prices for pulp and
linerboard, while the Kinleith mill operations improved due to the completion of
a major mill modernization. A number of production records were set at the
Kinleith mill during the year including total annual output. The 24,000-ton
Mataura fine paper mill was shut down during the year for an indefinite period.
The tissue business was adversely impacted by higher pulp prices, while markets
remained very competitive. Although packaging markets in New Zealand and
Australia also remained highly competitive, some price improvement helped to
offset higher linerboard costs. The packaging operations reported a profit for
the year. The plastics packaging business was sold during the fourth quarter.
The outlook is mixed with pricing for export logs, pulp and linerboard
dependent upon the overall level of economic activity in Asia. Construction
markets in Australia and New Zealand, which slowed during 2000, appear to have
leveled but we are not expecting early improvement.
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
Cash Provided by Operations
Cash provided by operations totaled $2.4 billion for 2000, compared with $1.7
billion in 1999 and $2.1 billion in 1998. The largest factor in the increase in
operating cash flow in 2000 was higher earnings before special and extraordinary
items. Excluding special and extraordinary items, after taxes and minority
interest, net earnings for 2000 increased $418 million from 1999. The largest
factors in the decrease in operating cash flow in 1999 were payments related to
the Union Camp merger and restructuring and legal reserves. Excluding special
and extraordinary items, after taxes and minority interest, net earnings for
1999 increased $206 million compared with 1998. An increase in working capital
reduced 2000 operating cash flow by $146 million. Working capital changes
decreased 1999 operating cash flow by $32 million and increased 1998 operating
cash flow by $74 million. Depreciation and amortization expense was $1.9 billion
in 2000 and $1.7 billion in 1999 and 1998.
Investment Activities
Capital spending was $1.4 billion in 2000, or 71%, of depreciation and
amortization as compared to $1.1 billion, or 68%, of depreciation and
amortization in 1999, and $1.3 billion, or 80%, of depreciation and amortization
in 1998. The increase in spending in 2000 was the result of capital projects for
Champion and Shorewood. As part of our program to improve return on investment,
we plan to continue to hold capital spending well below depreciation and
amortization. We plan to spend $1.2 billion in capital in 2001. The following
table presents capital spending by each of our business segments for the years
ended December 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing Papers $ 447 $ 382 $ 302
Industrial and Consumer Packaging 333 287 391
Distribution 24 16 19
Forest Products 262 189 222
Chemicals and Petroleum 90 104 170
Carter Holt Harvey 100 99 166
------ ------ ------
Subtotal 1,256 1,077 1,270
Corporate and other 96 62 52
------ ------ ------
Total $1,352 $1,139 $1,322
====== ====== ======
</TABLE>
On June 20, 2000, International Paper completed the previously
announced acquisition of Champion, a leading manufacturer of paper for business
communications, commercial printing and publications with significant market
pulp, plywood and lumber manufacturing operations. Champion shareholders
received $50 in cash and $25 worth of International Paper common stock for each
Champion share. The acquisition was completed for approximately $5 billion in
cash and 68.7 million shares of International Paper common stock with a market
value of $2.4 billion. Approximately $2.8 billion of Champion debt was assumed.
On March 31, 2000, we acquired Shorewood, a leader in the manufacture
of premium retail packaging, for approximately $640 million in cash and the
assumption of $280 million of debt.
On April 28, 2000, Carter Holt Harvey purchased CSR Limited's (CSR)
medium density fiberboard and particleboard businesses and its Oberon sawmill
for approximately $200 million in cash.
13
<PAGE>
Management's Discussion and Analysis
The Champion, Shorewood and CSR acquisitions were accounted for using the
purchase method. Their results of operations are included in International
Paper's consolidated statement of earnings from their respective dates of
acquisition. The accompanying consolidated balance sheet as of December 31,
2000, reflects preliminary purchase price allocations for Champion, Shorewood
and CSR to the fair value of the assets and liabilities acquired.
In connection with the Champion acquisition, we announced a divestment program
that we now estimate will generate gross proceeds of approximately $5 billion by
the end of 2001. As of March 1, 2001, about $1.2 billion of proceeds have been
realized under the program, primarily from the dispositions of Bush Boake Allen,
the oil and gas interests, Zanders and the former Champion headquarters
building. It is possible that additional charges will be required in 2001 as
specific businesses are identified for sale. See Note 7--Businesses Held for
Sale for information related to the planned sales under this program.
Also, at the time of the Champion acquisition, Moody's lowered our long-term
debt rating to Baa1. At December 31, 2000, outstanding debt included
approximately $2.1 billion of borrowings with interest rates that fluctuate
based on market conditions and our credit rating.
The merger with Union Camp 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.
Also 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.
During 1998, International Paper acquired the Zellerbach distribution business
from the Mead Corporation for $261 million in cash, Weston Paper and
Manufacturing Company through the exchange of 4.7 million International Paper
common shares valued at $232 million, and Svetogorsk AO, a Russia-based pulp and
paper business. Carter Holt Harvey and International Paper jointly acquired
Marinetti S.A.'s paper cup division based in Chile, and Australia-based
Continental Cup. Carter Holt Harvey separately acquired Riverwood International,
an Australia-based folding carton business. We also entered into a joint venture
with Olmuksa in Turkey to manufacture containerboard and corrugated boxes.
Finally, a wholly owned subsidiary of International Paper purchased all of the
publicly-traded Class A depository units of IP Timberlands, Ltd. for $100
million in cash.
All of the above acquisitions 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 acquisitions accounted for
under the purchase method have been included in the consolidated statement of
earnings from the dates of acquisition.
In November 2000, International Paper sold its interest in Bush Boake Allen
for $640 million, resulting in an extraordinary gain of $183 million after taxes
and minority interest. This transaction was completed as part of our asset sale
program. Bush Boake Allen, which had been included in the Chemicals and
Petroleum segment, contributed sales of $425 million, $500 million and $485
million and operating earnings of $31 million, $28 million and $37 million for
each of the three years ended December 31, 2000, 1999 and 1998, respectively.
In January 2000, International Paper sold its equity interest in Scitex for
$79 million, and Carter Holt Harvey sold its equity interest in Compania de
Petroleos de Chile (COPEC) for just over $1.2 billion. These sales resulted in a
combined extraordinary gain of $134 million after taxes and minority interest.
The gains on these sales are recorded as extraordinary items pursuant to the
pooling-of-interests rules.
Financing Activities
Financing activities during 2000 included $6.3 billion of debt issuance. This
increase included $4.3 billion in long-term debt and $2 billion of short-term
debt instruments (largely commercial paper) issued mainly to finance the
Champion and Shorewood acquisitions. In addition, we assumed approximately $3
billion of debt associated with acquisitions, and subsequently reduced the
acquired debt balances by $450 million. We repaid $600 million of maturing
long-term debt and $1.0 billion in short-term debt from divestiture proceeds and
operating cash flows, as well as $700 million of Carter Holt Harvey debt from
proceeds received on the sale of their interest in COPEC.
Financing activities during 1999 included an early extinguishment of $275
million of high interest debt that was assumed in the acquisition of Union Camp,
at an after tax cost of $16 million, which is reflected as an extraordinary item
in the 1999 statement of earnings. Other debt, primarily short-term, was reduced
by $540 million.
Financing activities during 1998 included $1.9 billion in net reductions,
primarily of short-term debt, and the issuance of $1.5 billion of preferred
securities of subsidiaries.
Dividend payments were $447 million, $418 million and $431 million in 2000,
1999 and 1998, respectively. On a per share basis, dividend payments were $1.00
in 2000, $1.01 in
14
<PAGE>
Management's Discussion and Analysis
1999, and $1.05 in 1998. The International Paper dividend remained at $1.00 per
share during the three-year period. However, dividend payments on a per share
basis for 1999 and 1998 have been restated to include dividends paid by Union
Camp.
At December 31, 2000, cash and temporary investments totaled $1.2 billion
compared to $453 million at December 31, 1999. This increase was due primarily
to $500 million remaining from Carter Holt Harvey's sale of COPEC. The balance
of the increase was related to the operations in Brazil and Canada that were
acquired through the Champion acquisition.
Capital Resources Outlook for 2001
Our financial condition continues to be strong. We anticipate that cash flow
from operations, supplemented by proceeds from sales of our divested businesses
and certain other assets and short- or long-term borrowings as necessary, will
be adequate to fund our capital expenditures, to service and reduce existing
debt, and to meet working capital and dividend requirements during 2001.
Other Financial Statement Items
Net interest expense increased to $816 million in 2000 compared with $541
million in 1999 and $614 million in 1998. The increase reflects the net increase
in total debt outstanding, after adjusting for the effects of currency
translation, from December 1999 to December 2000. Proceeds received from the
sale of assets in 1998, 1999 and 2000, as well as proceeds from the issuance of
preferred securities, were used to reduce debt and for other general corporate
purposes.
Minority interest increased to $238 million of expense in 2000, compared with
$163 million in 1999 and $87 million in 1998. The increase in 2000 was mainly
due to the minority shareholders'portion of the gain on the sale of Carter Holt
Harvey's investment in COPEC in January 2000. The increase in minority interest
expense from the year ended December 31, 1998, to the year ended December 31,
1999, was primarily due to an increase in earnings at Carter Holt Harvey in
1999, and the fact that preferred securities of subsidiaries issued during 1998
were outstanding for the full year in 1999.
Net periodic pension results for the U.S. defined benefit plans were income of
$101 million, $49 million and $77 million in 2000, 1999 and 1998, respectively.
The variation between pension income in 2000 and 1999 was primarily due to the
acquisition of Champion. The variation between pension income in 1999 and 1998
was primarily due to the expiration of International Paper's transition asset
amortization that reduced 1999 pension income by $26 million as compared to
1998.
On June 1, 1999, International Paper enhanced pension benefits for its major
union groups. As a result, the pension plan was revalued. The revaluation
assumed a discount rate of 7.25% and a rate of compensation increase of 4.5%.
These actions had the net effect of reducing the pension benefit obligation by
$179 million.
Special Items Including Restructuring and Business Improvement Actions
2000: Special items reduced 2000 net earnings by $601 million, 1999 net earnings
by $352 million and 1998 net earnings by $98 million. The following table and
discussion presents the impact of special items for 2000:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 2000
- --------------------------------------------------------------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
Interest Interest
- --------------------------------------------------------------------------------
<S> <C> <C>
Before special and extraordinary items $1,692 $ 969
Merger-related expenses (54) (33)
Restructuring and other charges (824) (509)
Provision for legal reserves (125) (80)
Reversals of reserves no longer required 34 21
------ -----
After special items $ 723 $ 368
====== =====
</TABLE>
During 2000, special charges before taxes and minority interest of $969
million ($601 million after taxes and minority interest) were recorded. These
special items included a $54 million pre-tax charge ($33 million after taxes)
for merger-related expenses, an $824 million charge before taxes and minority
interest ($509 million after taxes and minority interest) for asset shutdowns of
excess internal capacity and cost reduction actions, a $125 million pre-tax
charge ($80 million after taxes) for additional Masonite legal reserves and a
$34 million pre-tax credit ($21 million after taxes) for the reversals of
reserves no longer required. A further discussion of the Masonite legal
reserves, can be found in Note 11--Commitments and Contingent Liabilities.
The merger-related expenses of $54 million consisted primarily of travel,
systems integration, employee retention, and other one-time cash costs related
to the Champion acquisition and Union Camp merger.
The $824 million charge for the asset shutdowns of excess internal capacity
and cost reduction actions consisted of a $71 million charge in the second
quarter of 2000 and a $753 million charge in the fourth quarter of 2000.
15
<PAGE>
Management's Discussion and Analysis
The second quarter charge of $71 million consisted of $40 million of asset
write-downs and $31 million of severance and other charges. The following table
and discussion presents additional detail related to this charge:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Asset Severance
In millions Write-downs and Other Total
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Printing 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
=== === ===
</TABLE>
(a) The Printing Papers business shut down the Millers Falls, Massachusetts
mill in August 2000 due to excess internal capacity. Charges associated
with the shutdown included $22 million to write down the assets to their
estimated fair market value of zero, $2 million of severance costs covering
the termination of 119 employees, and other exit costs of $3 million. The
Millers Falls mill had revenues of $33 million, $39 million and $44 million
in 2000, 1999 and 1998, respectively. The mill had no operating income in
2000 and operating income of $3 million in both 1999 and 1998. At December
31, 2000, all 119 employees had been terminated.
Also, a severance charge of $2 million was recorded covering the
elimination of 108 salaried positions at the Franklin, Virginia mill
in a continuing effort to improve its cost effectiveness and long-term
competitive position. At December 31,2000,103 employees had been
terminated.
(b) The Consumer Packaging business implemented a plan to reduce excess
internal capacity and streamline administrative functions at several of its
locations as a result of the Shorewood acquisition. As a result, the
Richmond, Virginia facility was shut down in June 2000. Charges associated
with this shutdown included $6 million to write down assets to their fair
market value of zero, $2 million of severance costs covering the
termination of 126 employees, and other exit costs of $1 million. This
facility had revenues of $8 million, $23 million and $37 million in 2000,
1999 and 1998, respectively. The Richmond facility had operating losses of
$2 million and $1 million in 2000 and 1999, respectively, and operating
income of $3 million in 1998. At December 31, 2000, 125 employees had been
terminated.
Management also permanently idled 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.
Related charges included $1 million of asset write-downs, $3 million of
severance costs covering the termination of 187 employees, and $2 million
of other exit costs. At December 31, 2000, 151 employees had been
terminated.
A severance reserve of $1 million was also established to streamline the
Consumer Packaging business. This reserve covers the termination of 17
employees. At December 31,2000, all 17 employees had been terminated.
(c) Industrial Papers shut down the Knoxville, Tennessee converting facility in
December 2000 to reduce excess internal capacity. Assets were written down
$9 million to their estimated fair market value and a severance charge of
$1 million was recorded to terminate 120 employees. Other exit costs
totaled $3 million. The Knoxville facility had revenues of $46 million, $62
million and $56 million in 2000, 1999 and 1998, respectively. This facility
had operating income of $2 million in 2000 and 1999, and an operating loss
of $2 million in 1998. At December 31, 2000, the head count had been
reduced by 106 employees.
(d) Other includes $8 million related to Industrial Packaging, primarily for
the shutdown of the Tupelo, Mississippi sheet plant. The Industrial
Packaging charge included $2 million of asset write-offs, $5 million of
severance costs covering the termination of 221 employees and $1 million of
other cash costs. At December 31, 2000, 212 employees had been terminated.
Other also includes $5 million related to the indefinite shutdown of
Carter Holt Harvey's Mataura paper mill. This charge included $3 million of
severance costs covering the termination of 158 employees and $2 million of
other cash costs. At December 31, 2000, all 158 employees had been
terminated.
16
<PAGE>
Management's Discussion and Analysis
The fourth quarter charge of $753 million consisted of $536 million of asset
write-downs and $217 million of severance and other charges. The following table
and discussion presents additional detail related to this charge:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Asset Severance
In millions Write-downs and Other Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Printing Papers (a) $293 $103 $396
Consumer Packaging (b) 86 7 93
Industrial Packaging (c) 114 46 160
Chemicals and Petroleum (d) 16 18 34
Forest Products (e) 15 20 35
Distribution (f) 3 19 22
Carter Holt Harvey (g) 1 4 5
Other (h) 8 - 8
---- ---- ----
$536 $217 $753
==== ==== ====
</TABLE>
(a) The Printing Papers business announced the indefinite closure of the Mobile,
Alabama mill and permanent closure of the Lock Haven, Pennsylvania mill.
The announcement was in conjunction with the business's plan to realign and
rationalize papermaking capacity to benefit future operations. Charges
associated with the Mobile shutdown included $223 million to write assets
down to their salvage value, $31 million of severance costs covering the
termination of 760 employees, and other exit costs of $41 million. The
Mobile mill had revenues of $274 million, $287 million and $258 million in
2000, 1999 and 1998, respectively. This mill had operating earnings of $34
million and $8 million in 2000 and 1999, respectively, and an operating
loss of $43 million in 1998. Charges associated with the Lock Haven
shutdown included $70 million to write the assets down to their salvage
value, $16 million of severance costs covering the termination of 589
employees, and other exit costs of $15 million. The Lock Haven mill had
revenues of $267 million in 2000 and $225 million in each of 1999 and 1998.
This mill had an operating loss of $21 million in 2000, and operating
earnings of $12 million and $27 million in 1999 and 1998, respectively.
(b) The Consumer Packaging business announced shutdowns of the beverage
packaging converting plant in Jamaica and the packaging facility in
Cincinnati, Ohio. Production at the Jamaica plant was moved to Venezuela to
increase plant utilization. The Cincinnati facility was closed in order to
better align our manufacturing system with customer demand. Charges
associated with these shutdowns included $6 million of asset write-downs,
$5 million of severance costs covering the termination of 239 employees,
and other exit costs of $2 million. The Consumer Packaging charge also
included an $80 million asset impairment due to continuing losses in its
aseptic business. The aseptic assets were written down to their estimated
fair market value based on expected future discounted cash flows.
(c) The Industrial Packaging business charge of $160 million is related to the
closure of the Camden, Arkansas mill, the shutdown of the Pedemonte, Italy
container plant and the write-down of the Walsum No. 10 paper machine. The
Camden mill, which produced unbleached kraft and multi-wall paper, was
closed due to the declining kraft paper market, excess internal capacity
and shrinking customer demand. The mill's assets were written down $102
million to their salvage value, and severance costs of $24 million were
recorded to cover the termination of 613 employees. Other exit costs
totaled $15 million. The Camden mill had revenues of $151 million, $162
million and $153 million and operating earnings of $14 million, $22 million
and $18 million in 2000, 1999 and 1998, respectively. Charges associated
with the Pedemonte plant shutdown included $2 million of asset write-downs,
$3 million of severance costs covering the termination of 83 employees, and
$4 million of other exit costs. The Pedemonte plant had revenues of $9
million, $11 million and $15 million in 2000, 1999 and 1998, respectively.
This plant had operating losses of $2 million in 2000 and 1999 and $1
million in 1998. The business also wrote down the Walsum No. 10 paper
machine acquired in the Union Camp merger by $10 million to its estimated
fair market value.
(d) The Chemicals and Petroleum business charge of $34 million was related to
the announced closure of the Oakdale, Louisiana plant. This is part of the
business's Asset Rationalization Program to increase earnings, improve
plant efficiencies and reduce excess internal capacity. A portion of the
facility was shut down at the end of 2000, with the remainder to be closed
by the end of 2001. The charge included $16 million to write the assets
down to their estimated fair market value of zero, $1 million of severance
costs covering the termination of 61 employees, and $17 million of other
exit costs. The Oakdale plant had revenues of $31 million, $30 million and
$32 million and operating earnings of $3 million, zero and $6 million in
2000, 1999 and 1998, respectively.
17
<PAGE>
Management's Discussion and Analysis
(e) The Forest Products business charge of $35 million was primarily related to
the announced shutdown of the Washington, Georgia lumber mill and
restructuring costs associated with the Mobile mill closure. The Washington
lumber mill will be closed due to unfavorable market conditions and excess
internal capacity. The mill had revenues of $54 million, $66 million and
$62 million in 2000, 1999 and 1998, respectively. This facility had an
operating loss of $6 million in 2000, operating income of $2 million in
1999, and an operating loss of $3 million in 1998. The total Forest
Products business charge included $15 million of asset write-downs, $7
million of severance costs covering the termination of 264 employees, and
$13 million of other exit costs.
(f) xpedx, our distribution business, implemented a restructuring plan to
consolidate duplicate facilities, eliminate excess internal capacity and
increase productivity. The $22 million charge associated with this plan
included $3 million of asset write-downs, $15 million of severance costs
covering the termination of 433 employees, and $4 million of other cash
costs.
(g) The Carter Holt Harvey charge of $5 million is related to cost reduction
actions primarily associated with the tissue and packaging businesses. This
charge included $1 million of asset write-downs and $4 million of severance
covering the termination of 145 employees.
(h) This $8 million charge relates to the write-down of our investment in
PaperExchange.com, an online provider of e-commerce for the paper industry,
to its estimated fair market value.
Also, a pre-tax credit of $28 million was recorded for excess 1999 second and
fourth quarter restructuring reserves no longer required, and a pre-tax credit
of $6 million was recorded for excess Union Camp merger-related termination
benefits reserves no longer required.
The following table presents a roll forward of the severance and other costs
included in the 2000 restructuring plans:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Severance
In millions and Other
- --------------------------------------------------------------------------------
<S> <C>
Opening Balance (second quarter 2000) $ 31
Additions (fourth quarter 2000) 217
2000 Activity
Cash charges (19)
----
Balance, December 31, 2000 $229
====
</TABLE>
The severance charges recorded in the second and fourth quarters of 2000
related to 4,243 employees. As of December 31, 2000, 991 employees had been
terminated.
1999: The following table and discussion presents the impact of special items
for 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
In millions 1999
- ---------------------------------------------------------------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
Interest Interest
- ---------------------------------------------------------------------------------
<S> <C> <C>
Before special and extraordinary items $1,005 $ 551
Union Camp merger-related
termination benefits (148) (97)
Merger-related expenses (107) (78)
Restructuring and other charges (298) (180)
Environmental remediation charge (10) (6)
Provision for legal reserves (30) (18)
Reversals of reserves no longer required 36 27
------ -----
After special items $ 448 $ 199
====== =====
</TABLE>
During 1999, special charges before taxes and minority interest of $557
million ($352 million after taxes and minority interest) were recorded. These
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 merger-related expenses, a $298 million
charge before taxes and minority interest ($180 million after taxes and minority
interest) 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 reversals of reserves that were no longer required.
The merger-related 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 cash costs related to the integration of Union Camp.
18
<PAGE>
Management's Discussion and Analysis
The Union Camp merger-related termination benefits charge related 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
originally identified for termination. An additional 346 employees left the
company after the merger was announced, but were not eligible for benefits under
the integration benefits program completed in the third quarter of 2000.
Benefits payable under this program for certain senior executives and managers
were paid from the general assets of International Paper. Benefits for remaining
employees were primarily paid from plan assets of our qualified pension plan. In
total, 1,062 employees were terminated. Related cash payments approximated $71
million (including payments related to our nonqualified pension plans). The
remainder of the costs incurred primarily represented an increase in the
projected benefit obligation of our qualified pension plan. Upon termination of
the program in the third quarter of 2000, $6 million of the original reserve of
$148 million was reversed to income.
The following table is a roll forward of the Union Camp merger-related
termination benefits charge:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Termination
Dollars in millions Benefits
- --------------------------------------------------------------------------------
<S> <C>
Special charge (1,218 employees) $ 148
1999 incurred costs (787 employees) (116)
2000 incurred costs (275 employees) (26)
Reversal of reserve no longer required (6)
-----
Balance, December 31, 2000 $ --
=====
</TABLE>
Note: Benefit costs are treated as incurred on the termination date of the
employee.
The $298 million charge for asset shutdowns of excess internal capacity
consisted of a $113 million charge in the second quarter of 1999 and a $185
million charge in the fourth quarter of 1999.
The second quarter $113 million charge for the asset shutdowns of excess
internal capacity and cost reduction actions included $57 million of asset
write-downs and $56 million of severance and other charges. The following table
and discussion presents additional detail related to this charge:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Asset Severance
In millions Write-downs and Other Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Printing Papers (a) $ 6 $ 27 $ 33
European Papers (b) 3 7 10
Consumer Packaging (c) 19 12 31
Industrial Packaging (d) 12 - 12
Chemicals and Petroleum (e) 10 3 13
Industrial Papers (f) 7 7 14
---- ---- ----
$ 57 $ 56 $113
==== ==== ====
</TABLE>
(a) International Paper recorded a charge of $24 million for severance related
to the second phase of the Printing Papers business plan to improve the
cost position of its mills. The charge, pursuant to an ongoing severance
program, covered a reduction of approximately 289 employees at several
mills in the U.S. At December 31, 2000, 258 employees had been terminated.
Also, management approved a decision to permanently shut down the Hudson
River mill No. 4 paper machine located in Corinth, New York and the No. 2
paper machine at the Franklin, Virginia mill due to excess internal
capacity. Both machines have now been shut down. The machines were written
down by $6 million to their estimated fair market value of zero. Severance
costs of $3 million were recorded to cover the termination of 147
employees. At December 31, 2000, 142 employees had been terminated.
(b) The charge for European Papers, which covered the shutdown of two mills,
consisted of $3 million in asset write-downs, $6 million in severance costs
and $1 million of other exit costs. The Lana mill in Docelles, France was
shut down due to excess internal capacity. The Lana mill produced high-end
uncoated specialty paper that was shifted to the La Robertsau mill in
Strasbourg, France. The mill's fixed assets were written down $3 million to
their estimated fair market value of zero. Costs of $1 million related to
the site closure and severance of $4 million related to the termination of
42 employees were also recorded. The Lana mill had revenues of $12 million
and an operating loss of $2 million for the year ended December 31, 1999.
At December 31, 2000, all 42 employees had been terminated.
The Corimex coating plant in Clermont-Ferrand, France was shut down in
April 1999. The assets at this plant had been considered to be impaired in
1997 and were written down at that time because of a decline in the market
for thermal fax paper. A $2 million severance charge was recorded during
the second quarter of 1999 to cover the costs of terminating 81 employees.
Corimex had revenues of $6 million and an operating loss of $3 million for
the year ended December 31, 1999. At December 31, 2000, all 81 employees
had been terminated.
19
<PAGE>
Management's Discussion and Analysis
(c) The Consumer Packaging business implemented a plan to improve the overall
performance of the Moss Point, Mississippi mill. Included in this plan was
the shutdown of the No. 3 paper machine, which produced labels. This
production was transferred to the Hudson River mill. The machine was
written down $6 million to its estimated fair market value of zero.
Severance costs including, but not limited to, employees associated with
the No. 3 machine totaled $10 million and covered the elimination of 360
positions. At December 31, 2000, 331 employees had been terminated.
Consumer Packaging also shut down the Beverage Packaging facility in
Itu, Brazil in an effort to reduce excess internal capacity in Latin
America. The related assets were written down $13 million to their
estimated fair market value of zero, and a severance charge of $1 million
covering the elimination of 29 positions was recorded. Other exit costs
totaled $1 million. At December 31, 2000, 27 employees had been terminated.
(d) With the merger of Union Camp, International Paper negotiated the
resolution of contractual commitments related to an Industrial Packaging
investment in Turkey. As a result of these negotiations and evaluation of
this entity, it was determined that the investment was impaired. A $12
million charge was recorded to reflect this impairment and the related
costs of resolving the contractual commitments.
(e) As a result of an overall reduction in demand for dissolving pulp, a
decision was made to downsize the Natchez, Mississippi mill. Charges
associated with capacity reduction totaled $10 million and included the
shutdown of several pieces of equipment. A severance charge of $3 million
was recorded to eliminate 89 positions. At December 31, 2000, all 89
employees had been terminated.
(f) The Industrial Papers business implemented a plan to reduce excess internal
capacity at several of its locations. The Toronto, Canada plant was closed.
Equipment at the Kaukauna, Wisconsin, Knoxville, Tennessee and Menasha,
Wisconsin facilities was taken out of service. The total amount related to
the write-down of these assets was $7 million. Severance costs related to
these shutdowns were $5 million, based on a personnel reduction of 81
employees. Other exit costs totaled $2 million. At December 31, 2000, 73
employees had been terminated.
The $185 million fourth quarter charge for shutdowns of excess internal
capacity and cost reduction actions included $92 million of asset
write-downs and $93 million of severance and other charges. The following
table and discussion presents additional detail related to this charge:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Asset Severance
In millions Write-downs and Other Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Printing Papers (a) $ 7 $ 5 $ 12
Consumer Packaging (b) 14 22 36
Industrial Packaging (c) 7 14 21
Chemicals and Petroleum (d) 30 20 50
Building Materials (e) 10 6 16
Distribution (f) 6 17 23
Carter Holt Harvey (g) 18 9 27
---- ---- ----
$ 92 $ 93 $185
==== ==== ====
</TABLE>
(a) The Printing Papers charge encompassed a $2 million severance charge
related to a production curtailment at the Erie, Pennsylvania mill due to
lower demand, a $3 million write-off of deferred software costs as the
result of a decision to discontinue the installation of a Union Camp order
entry system, and a $7 million impairment of our investment in the Otis
Hydroelectric plant. In November 1999, the Erie mill changed from a
seven-day, four-crew schedule to a three-crew schedule in order to balance
operating capacity with sales demand. This production curtailment resulted
in the termination of 99 employees. At December 31, 2000, all 99 employees
had been terminated. We wrote down our investment in the Otis Hydroelectric
partnership to the approximate fair market value of the investment based
upon our offer to acquire the other partner's interest.
(b) The Consumer Packaging charge of $36 million was related to the shutdown of
facilities, capacity optimization and a deferred software write-off. The
Philadelphia, Pennsylvania plant was shut down in June 2000 and the
Edmonton, Alberta plant was shut down in April 2000. Charges associated
with these shutdowns included $7 million of asset write-downs, $1 million
of severance costs covering the termination of 194 employees, and other
exit costs of $5 million. At December 31, 2000, all 194 employees had been
terminated. Charges related to eliminating excess internal capacity
included $7 million of asset write-downs and a severance charge of $11
million for the termination of 512 employees. The capacity reductions
related to the aseptic and flexible packaging businesses. At December 31,
2000, 381 employees had been terminated. The business also discontinued the
implementation of a Union Camp order management system. The write-off of
deferred software costs related to this system was $5 million.
20
<PAGE>
Management's Discussion and Analysis
(c) The Industrial Packaging business shut down the following plants and
shifted production to other facilities: the Terre Haute, Indiana box plant;
the Northlake, Illinois box plant; the Columbia, Tennessee sheet plant; and
the Montgomery, Alabama sheet plant. The design center in Spartanburg,
South Carolina was also closed. The functions performed in Spartanburg will
continue in Memphis, Tennessee. Charges associated with the consolidation
and improvement of the Industrial Packaging business totaled $21 million
and included $7 million of asset write-downs, a $12 million severance
charge covering the termination of 426 employees, and other exit costs of
$2 million. At December 31, 2000, 309 employees had been terminated.
(d) The Chemicals and Petroleum charge of $50 million related to the partial
shutdown of the Chester-le-Street plant located in northeast England and
additional costs related to the 1998 shutdown of the Springhill, Louisiana
plant. The Chester-le-Street plant was a fully integrated site comprised of
a crude tall oil fractionation plant, a rosin resin upgrading plant and a
dimer plant. The crude tall oil and rosin resin upgrading facilities at the
site were closed and production shifted to other Arizona Chemical
facilities. Asset write-downs for this plant totaled $30 million. A
severance charge of $3 million covered the termination of 83 employees.
Other costs of $12 million included demolition and contract cancellations.
At December 31, 2000, all 83 employees had been terminated. We also
recorded an additional charge of $5 million related to the 1998 closure of
the Springhill plant, covering other exit costs including demolition and
cleanup.
(e) The Building Materials charge of $16 million included $3 million for a
program to improve the profitability of the decorative surfaces business
and $13 million for the shutdown of the Pilot Rock, Oregon mill. The
Decorative Products business developed an improvement plan to consolidate
certain manufacturing activities and streamline administrative functions.
As a result, a reserve was established to cover asset write-offs totaling
$2 million, and severance charges of $1 million were recorded related to
the reduction of 65 employees. At December 31, 2000, 38 employees had been
terminated.
International Paper announced in October 1999 that it would shut down
the Pilot Rock, Oregon mill due to excess capacity within the Masonite
manufacturing system. Soft-board production was moved to our Ukiah,
California and Lisbon Falls, Maine facilities. The related charge included
$8 million of asset write-downs, a $2 million severance charge covering the
termination of 155 employees, and $3 million of other exit costs. At
December 31, 2000, 149 employees had been terminated.
(f) xpedx implemented a plan to consolidate duplicate facilities and eliminate
excess internal capacity. The $23 million charge associated with this plan
included $6 million of asset write-downs, a severance charge of $5 million
for the termination of 211 employees, and other costs of $12 million. Other
costs consisted primarily of lease cancellations. At December 31, 2000, 197
employees had been terminated.
(g) This charge related to the shutdown of the No. 5 paper machine at Carter
Holt Harvey's Kinleith mill. The machine had been idled due to a
reconfiguration project at the mill. Plans for alternative uses for the
machine were reexamined and it was determined that based on current
competitive conditions it would not provide adequate returns on the capital
required and that it would be scrapped. Accordingly, the machine was
written down by $18 million to its estimated salvage value. Also, severance
costs of $9 million were recorded to cover the costs of terminating 300
employees. At December 31, 2000, all 300 employees had been terminated.
The $30 million pre-tax charge to increase existing legal reserves included
$25 million added to the reserve for hard-board siding claims. A further
discussion of this charge can be found in Note 11--Commitments and Contingent
Liabilities.
The $36 million pre-tax credit for reserves no longer required consisted of
$30 million related to a retained exposure at the Lancey mill in France and $6
million of excess severance reserves previously established by Union Camp. The
Lancey mill was sold to an employee group in October 1997. In April 1999,
International Paper's remaining exposure to potential obligations under this
sale was resolved, with the reserve returned to income in the second quarter.
The following table presents a roll forward of severance and other costs
included in the 1999 restructuring plans:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Severance
In millions and Other
- ---------------------------------------------------------------------------------
<S> <C>
Opening Balance (second quarter 1999) $ 56
Additions (fourth quarter 1999) 93
1999 Activity
Cash charges (34)
2000 Activity
Cash charges (75)
Other charges (13)
Reversals of reserves no longer required (14)
----
Balance, December 31, 2000 $ 13
====
</TABLE>
21
<PAGE>
Management's Discussion and Analysis
The severance reserves recorded in the second and fourth quarters of 1999
related to 3,163 employees. At December 31, 2000, 2,793 employees had been
terminated. Reserves of $14 million were determined to no longer be required and
reversed to income in the fourth quarter of 2000. The remaining $13 million of
reserves represents costs to be incurred or severance to be paid in the first
quarter of 2001.
1998: The following table and discussion presents the impact of special items
for 1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 1998
- --------------------------------------------------------------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
Interest Interest
- --------------------------------------------------------------------------------
<S> <C> <C>
Before special items $ 598 $ 345
Oil and gas impairment charges (111) (68)
Restructuring and other charges (161) (92)
Gain on sale of business 20 12
Reversals of reserves no longer required 83 50
----- -----
After special items $ 429 $ 247
===== =====
</TABLE>
During 1998, International Paper recorded $111 million of oil and gas
impairment charges ($68 million after taxes); $56 million ($35 million after
taxes) in the fourth quarter and $55 million ($33 million after taxes) in the
third quarter. International Paper had oil and gas exploration and production
operations in West Texas, the Gulf Coast and the Gulf of Mexico. The Securities
and Exchange Commission's regulations for companies that use the full-cost
method of accounting for oil and gas activities require companies to perform a
ceiling test on a quarterly basis. As a result of low oil and gas prices, the
value of International Paper's properties was written down through these noncash
charges.
Also in 1998, International Paper recorded a $145 million pre-tax
restructuring charge ($82 million after taxes and minority interest) consisting
of $64 million of asset write-downs and $81 million of severance costs, and
recorded pre-tax charges of $16 million ($10 million after taxes) related to
International Paper's share of write-offs taken by Scitex, a then-owned 13%
investee company, related to an acquisition of in-process research and
development and its exit from the digital video business. The Scitex items were
reflected as equity losses from the investment in Scitex in the consolidated
statement of earnings. International Paper sold its equity interest in Scitex in
January 2000. In addition, International Paper recorded a $20 million pre-tax
gain ($12 million after taxes) on the sale of its Veratec nonwovens division,
and an $83 million pre-tax credit ($50 million after taxes) from the reversals
of previously established reserves that were no longer required. These reserves
had been established in 1996 and 1997 and were primarily associated with the
Veratec and Imaging businesses. The sales of these businesses were completed in
1998, and those reserves not required were returned to earnings.
The following table and discussion presents additional detail related to the
$145 million restructuring charge:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Asset
In millions Write-downs Severance Total
- -------------------------------------------------------------------
<S> <C> <C> <C>
Distribution (a) $ 20 $ 10 $ 30
Printing Papers (b) 13 14 27
Carter Holt Harvey (c) 15 3 18
Industrial Packaging (d) 8 7 15
Union Camp (e) 8 32 40
Other (f) -- 15 15
---- ---- ----
$ 64 $ 81 $145
==== ==== ====
</TABLE>
(a) After the acquisition of Zellerbach, management of xpedx terminated certain
software projects that were in process and began to use Zellerbach's systems
in certain of its regions. Accordingly, $20 million of deferred software
costs were written off. In addition, a $10 million severance charge was
recorded to terminate 274 xpedxemployees at duplicate facilities and
locations. At December 31, 1999, all 274 employees had been terminated.
(b) International Paper's Printing Papers business shut down equipment at the
Mobile, Alabama mill and announced the termination of 750 employees at the
Mobile, Alabama, Lock Haven, Pennsylvania, and Ticonderoga, New York mills.
At the Mobile mill, International Paper permanently shut down a paper
machine and related equipment with a net book value of $13 million. These
assets were written down to their estimated fair market value of zero. The
severance charge associated with the employee reductions at the three mills
was $14 million. At December 31, 1999, all employees under this program had
been terminated.
(c) This charge primarily consisted of a $15 million asset write-down associated
with the closure of two Carter Holt Harvey facilities, Myrtleford and Taupo.
Myrtleford, a tissue pulp mill located in Australia, was closed due to
excess capacity in its tissue pulp system. Carter Holt Harvey will be able
to produce the volume at lower costs at its Kawerau tissue pulp mill located
in New Zealand. Carter Holt Harvey also closed the Taupo, New Zealand
22
<PAGE>
Management's Discussion and Analysis
sawmill due to excess capacity in its sawmill system as the result of recent
productivity improvements. The $3 million severance charge represented the
cost of terminating 236 employees. At December 31, 1999, all 236 employees
had been terminated. International Paper's consolidated financial statements
included revenues of $21 million and operating income of $1 million from
these facilities in 1998.
(d) Management indefinitely closed the Gardiner, Oregon mill because of excess
capacity in International Paper's containerboard system. As a result, the
net plant, property and equipment assets of this mill were reduced from $13
million to the estimated salvage value of $5 million. In connection with
this decision to close, 298 employees at the mill were terminated and a $7
million severance charge was recorded. This mill had revenues of $78 million
and operating losses of $16 million in 1998.
(e) During 1998, Union Camp recorded a pre-tax special charge of $40 million.
Included in the charge was $32 million related to the termination of 540
positions and $8 million of asset write-downs. Approximately 190 of these
positions related to a reorganization and restructuring of Union Camp's
research and development activities. Another 190 positions related to a
consolidation of the packaging group's administrative support functions. The
remaining 160 positions related to a series of other organizational changes.
At December 31, 1999, all 540 employees had been terminated.
The asset write-downs were principally attributable to the impairment of
goodwill specific to two packaging businesses, the Chase packaging facility
and Union Camp's 1996 purchase of a 50% interest in a packaging plant in
Turkey. Upon reviewing the historical and projected operating results for
these businesses, management concluded that expected future cash flows did
not fully support the carrying value of these assets.
(f) The $15 million severance charge was recorded as a result of an announcement
by International Paper of a plan to consolidate its land and timber and
logging and fiber supply divisions into a new division called Forest
Resources, and the consolidation of the Consumer Packaging group. Of the $15
million charge, $10 million related to a head count reduction of 200
employees in the Forest Resources group and the remaining $5 million was
based on a personnel reduction of 210 employees in the Consumer Packaging
group. At December 31, 1999, all 410 employees had been terminated.
The following table presents a roll forward of the severance costs included
in the 1998 restructuring plan:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
In millions Severance
- ----------------------------------------------------------------------------
<S> <C>
Opening Balance (third quarter 1998) $ 81
1998 Activity
Cash charges (19)
1999 Activity
Cash charges (56)
Reversal of reserve no longer required (6)
----
Balance, December 31, 1999 $ --
====
</TABLE>
The severance reserve recorded in the third quarter of 1998 related to 2,508
employees. As of December 31, 1999, all employees had been terminated.
Ongoing Profit Improvement Review
International Paper continually evaluates its operations for improvement. When
any such plans are finalized, we may incur costs or charges in future periods
related to improvement plans when and if such plans are implemented.
Income Taxes
Before special and extraordinary items, the 2000 and 1999 effective income tax
rate was 28% of pre-tax earnings, increasing from 26% in 1998. The effective
income tax rates are below the U.S. statutory tax rate primarily because of the
geographic mix of overall taxable earnings and the impact of state tax and other
credits. After special items, the effective income tax rate was 16%, 19% and 22%
for 2000, 1999 and 1998, respectively. We estimate that the 2001 effective
income tax rate will be approximately 31% based on expected earnings and
business conditions, which are subject to change.
23
<PAGE>
Management's Discussion and Analysis
The following tables present the impact of the special items on the
effective income tax rate for the three years. Taxes on special charges were
provided at statutory rates except for those charges that represent tax
deductions that management does not believe will be realized.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 2000
- --------------------------------------------------------------------------------
Earnings (Loss)
Before Income
Income Taxes Tax Effective
and Minority Provision Tax
Interest (Benefit) Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Before special and extraordinary items $1,692 $ 480 28%
Merger-related expenses (54) (21) 39%
Restructuring and other charges (824) (310) 38%
Provision for legal reserves (125) (45) 36%
Reversals of reserves no longer required 34 13 38%
------ -----
After special items $ 723 $ 117 16%
====== =====
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 1999
- --------------------------------------------------------------------------------
Earnings (Loss)
Before Income
Income Taxes Tax Effective
and Minority Provision Tax
Interest (Benefit) Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Before special and extraordinary items $1,005 $ 281 28%
Union Camp merger-related
termination benefits (148) (51) 34%
Merger-related expenses (107) (29) 27%
Restructuring and other charges (298) (108) 36%
Environmental remediation charge (10) (4) 40%
Provision for legal reserves (30) (12) 40%
Reversals of reserves no longer required 36 9 25%
------ -----
After special items $ 448 $ 86 19%
====== =====
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 1998
- --------------------------------------------------------------------------------
Earnings (Loss)
Before Income
Income Taxes Tax Effective
and Minority Provision Tax
Interest (Benefit) Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Before special items $ 598 $158 26%
Oil and gas impairment charges (111) (43) 39%
Restructuring and other charges (161) (61) 38%
Gain on sale of business 20 8 40%
Reversals of reserves no longer required 83 33 40%
----- -----
After special items $ 429 $ 95 22%
===== =====
</TABLE>
Recent Accounting Developments
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," an amendment to SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 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. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.
International Paper will adopt SFAS No. 133 (as amended by SFAS No. 138) as
of January 1, 2001. We estimate that adoption will require a one-time, non-cash
charge before taxes and minority interest of approximately $23 million ($14
million after taxes and minority interest), which will be recorded as a
cumulative change in accounting method.
Legal and Environmental Issues
International Paper is subject to extensive federal and state environmental
regulation as well as similar regulations in all other jurisdictions in which we
operate. Our continuing objectives are to: (1) control pollutants discharged
into the air, water and groundwater to avoid adverse impacts on the environment,
(2) make continual improvements in environmental performance, and (3) maintain
100% compliance with applicable laws and regulations. A total of $190 million
was spent in 2000 for capital projects to control environmental releases into
the air and water, and to assure environmentally sound management and disposal
of waste. We expect to spend approximately $136 million in 2001 for similar
capital projects, including the costs to comply with the Environmental
Protection Agency's (EPA) Cluster Rule regulations. Amounts to be spent for
environmental control projects in future years will depend on new laws and
regulations and changes in legal requirements and environmental concerns. Taking
these uncertainties into account, our preliminary estimate for additional
environmental appropriations during the period 2002 through 2003 is
approximately $307 million in total.
On April 15, 1998, the EPA issued final Cluster Rule regulations that
established new requirements regarding air emissions and wastewater discharges
from pulp and paper mills to be met by 2006. The projected costs included in our
estimate related to the Cluster Rule regulations for the years 2001 through 2002
are $116 million. Projected Cluster Rule costs for 2003 through 2006 are in the
range of $330 million
24
<PAGE>
Management's Discussion and Analysis
to $370 million. Included in these estimates are costs associated with
combustion source standards for the pulp and paper industry, which were issued
by the EPA on January 12, 2001. The final cost depends on the outcome of the
Cluster Rule water regulations for pulp and paper categories other than bleached
kraft and soda. Regulations for these categories are not likely to become final
until late 2001. We estimate that annual operating costs, excluding
depreciation, will increase approximately $22 million when these regulations are
fully implemented.
Additional regulatory requirements that may affect future spending include
the EPA's requirements for states to assess current surface water loading from
industrial and area sources. This process, called Total Maximum Daily Load
(TMDL) allocation, could result in reduced allowable treated effluent discharges
from our manufacturing sites. To date there have been no significant impacts due
to the TMDL process, as the majority of our manufacturing sites operate at
levels significantly below allowable waste loadings.
In recent years, the EPA has undertaken significant air quality initiatives
associated with nitrogen oxide emissions, regional haze, and national ambient
air quality standards. When regulatory requirements for new and changing
standards are finalized, we will add any resulting future cost projections to
our expenditure forecast.
International Paper has been named as a potentially liable party in a number
of environmental remediation actions under various federal and state laws,
including the Comprehensive Environmental Response, Compensation and Liability
Act. Related costs are recorded in the financial statements when they are
probable and reasonably estimable. As of December 31, 2000, these liabilities
totaled approximately $170 million. Completion of these actions is not expected
to have a material adverse effect on our financial condition or results of
operations.
The significant effort International Paper has made in the analysis of
environmental issues and the development of environmental control technology
responses will enable us to keep costs for compliance with environmental
regulations at, or below, industry averages.
Masonite Litigation: Three nationwide class action lawsuits filed against
International Paper have been settled in recent years.
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 non-refundable
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 consisted 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 consisted of all U.S. property owners who had incorporated
and installed Masonite Woodruf roofing 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 non-refundable advance of
$1.7 million plus $75,000 in costs for each of the two cases.
Reserves for these matters total $92 million at December 31, 2000, net of
expected future insurance recoveries of $51 million. This amount includes $25
million added to the reserve for hardboard siding claims in the fourth quarter
of 1999 (some of which has now been paid to claimants) and an additional $125
million added to that reserve in the third quarter of 2000 to cover an expected
shortfall, resulting primarily from a higher number of hardboard siding claims
than 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, we believe that these settlements will not have a material
adverse effect on our consolidated financial position or results of operations.
25
<PAGE>
Management's Discussion and Analysis
Through December 31, 2000, net settlement payments of $277 million,
including the $51 million of non-refundable advances of attorneys' fees
discussed above, have been made. Included in the non-refundable advances of
attorneys' fees is $5 million, which has been paid to the attorneys for
the plaintiffs in the Omniwood and Woodruf lawsuits. Also, we have received
$27 million related to these matters from our insurance carriers through
December 31, 2000. International Paper and Masonite have the right to terminate
each of the settlements after seven years from the dates of final approval.
The liability for these matters will be retained after the planned sale of
Masonite is completed.
Other Litigation: In March and April 2000, 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 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. Champion has filed a motion to dismiss, which as of February 26, 2001 has
not been decided.
On May 14, 1999, and May 18, 1999, two lawsuits were filed against
International Paper, the former Union Camp Corporation and other manufacturers
of linerboard. These suits allege that the defendants conspired to fix prices
for linerboard and corrugated sheets during the period October 1, 1993, through
November 30, 1995. Both lawsuits were filed seeking nationwide class
certification. The lawsuits allege that various purchasers of corrugated sheets
and corrugated containers were injured as a result of the alleged conspiracy.
The cases have been consolidated in federal court in the Eastern District of
Pennsylvania. Defendants'motions to dismiss the cases were denied on October 4,
2000. Plaintiffs filed motions for class certification on January 10, 2001,
which were pending as of February 26, 2001.
Purchasers of high-pressure laminates have filed a number of purported class
actions under the federal antitrust laws in various federal district courts in
different states, alleging that International Paper's Nevamar division
participated in a price-fixing conspiracy with competitors. These cases have
been consolidated in federal district court in New York. Indirect and direct
purchasers of high-pressure laminates have also filed similar purported class
action cases under various state antitrust and consumer protection statutes in
California, Florida, Maine, Michigan, Minnesota, New Mexico, New York, North
Dakota, South Dakota, Tennessee and the District of Columbia. International
Paper filed a motion to dismiss one of the cases in federal court, which was
denied by the court without prejudice. The federal plaintiffs filed a
consolidated amended complaint on February 22, 2001. As of February 26, 2001,
International Paper has filed a motion to dismiss the case pending in New York
State court and has filed answers in California, New Mexico, South Dakota and
one of two complaints filed in Michigan. Answers are not yet due in the
remaining state cases.
Other Environmental: In April 1999, the Franklin, Virginia mill received a
Notice of Violation (NOV) from the EPA, Region 3 in Philadelphia, and an NOV
from the Commonwealth of Virginia alleging that the mill violated the Prevention
of Significant Deterioration (PSD) regulations. The Franklin mill was owned by
Union Camp Corporation at that time and was one of seven paper mills in Region 3
owned by different companies that received similar notices of violation. Union
Camp merged with International Paper on April 30, 1999, and International Paper
has entered into negotiations with the EPA and the Commonwealth of Virginia.
The Franklin mill NOVs were issued in connection with the EPA's well
publicized PSD air permit enforcement initiative against the paper industry. In
1999, our paper mills in Kaukauna, Wisconsin and Augusta, Georgia received
requests for information from the EPA regarding compliance with the PSD
regulations. Three additional facilities received information requests in 2000,
and the EPA's initiative may result in similar actions at other facilities.
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 that resolved the matter for a civil penalty of
$134,000.
In November 1999, the Wisconsin Department of Natural Resources filed a
civil complaint alleging past exceedences of air permit limits at the former
Union Camp flexible packaging facility located in Tomah, Wisconsin. The matter
was settled on November 2, 2000 for a civil penalty of $60,000.
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.
26
<PAGE>
Management's Discussion and Analysis
As of February 26, 2001, there were no other pending judicial proceedings,
brought by governmental authorities against International Paper, for alleged
violations of applicable environmental laws or regulations. International Paper
is engaged in various other proceedings that arise under applicable
environmental and safety laws or regulations, including approximately 97 active
proceedings under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) and comparable state laws. Most of these proceedings
involve the cleanup of hazardous substances at large commercial landfills that
received waste from many different sources. While joint and several liability is
authorized under the CERCLA, as a practical matter, liability for CERCLA
cleanups is allocated among the many potential responsible parties. Based upon
previous experience with respect to the cleanup of hazardous substances and upon
presently available information, International Paper believes that it has no or
de minimis liability with respect to 18 of these sites; that liability is not
likely to be significant at 51 sites; and that estimates of liability at 28 of
these sites is likely to be significant but not material to International
Paper's consolidated finan-cial position or results of operations.
On June 19, 2000, before International Paper completed the acquisition of
Champion, Champion entered into a Consent Order with the Maine Department of
Environmental Protection that resolved allegations of past wastewater and
reporting deficiencies at Champion's lumber mills in Milford and Passadumkeag,
Maine. The U.S. EPA and the U.S. Attorney's Office in Maine have since that time
commenced a grand jury investigation of the same allegations.
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.
Impact of the Euro
The introduction of the euro for noncash transactions took place on January 1,
1999, with 11 countries participating in the first wave: Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and
Spain. The euro has been trading on world currency exchanges since 1999 and is
used by our businesses in transactions. On January 2, 2002, new euro-denominated
bills and coins will be issued and legacy currencies will be completely
withdrawn from circulation that year. In general, the euro has increased price
transparency for our products in Europe. The major impact on International Paper
has been on its businesses within the euro zone, which make up approximately 9%
of sales. Each of our European businesses has a plan in place to deal with the
introduction of the euro.
Over the three-year transition period, our computer systems will be updated
to ensure euro compliance. Also, we are reviewing our marketing and operational
policies and procedures to ensure our ability to continue to successfully
conduct all aspects of our business in this new market. In general, our product
lines are likely to become somewhat more international, with some leveling of
prices that is not expected to significantly impact our operations. We
anticipate that the total costs in connection with the euro conversion will not
be material. Further, we do not anticipate that the conversion from the legacy
currencies to the euro will have a material adverse effect on our consolidated
financial position or results of operations.
Effect of Inflation
General inflation has had minimal impact on our operating results in the last
three years. Sales prices and volumes are more strongly influenced by supply and
demand factors in specific markets and by exchange rate fluctuations than by
inflationary factors.
Market Risk
We use financial instruments, including fixed and variable rate debt, to finance
operations, for capital spending programs and for general corporate purposes.
Additionally, financial instruments, including swap and forward contracts, are
used to hedge exposures to interest rate and foreign currency risks. We do not
use financial instruments for trading purposes.
Our exposure to market risk for changes in interest rates relates primarily
to investments in marketable securities, and short- and long-term debt
obligations. We invest in high-credit-quality securities with major
international financial institutions while limiting exposure to any one issuer.
Our debt obligations outstanding as of December 31, 2000, expressed in U.S.
dollar equivalents, are summarized as to their principal cash flows and related
weighted average interest rates by year of maturity in the following table. Our
investments in marketable securities at December 31, 2000 were not significant.
27
<PAGE>
Management's Discussion and Analysis
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. dollars in millions 2001 2002 2003 2004 2005 Thereafter Total Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. commercial paper and bank notes
7.3% average interest rate $ 879 $ - $ - $637 $ - $ - $ 1,516 $ 1,516
Euro commercial paper and bank notes
5.1% average interest rate 178 - - - - - 178 178
Chinese renminbi bank notes
6.0% average interest rate 18 - - - - - 18 18
Euro fixed rate notes
5 3/8% average interest rate - - - - - 223 223 214
New Zealand dollar bank notes
7.1% average interest rate 285 - - - - - 285 285
Fixed rate debt--7.8% average interest rate 397 484 1,432 683 1,177 3,218 7,391 7,518
5 7/8% Swiss franc debentures 67 - - - - - 67 71
Medium term notes--8.2% average interest rate 146 79 30 9 - 43 307 312
Environmental and industrial development bonds
6.3% average interest rate 44 75 6 32 77 2,100 2,334 2,431
Brazilian real notes
13.4% average interest rate 24 24 22 18 100 6 194 194
Floating rate notes--7.9% average interest rate - 2,100 - - - - 2,100 2,100
Other 77 15 10 8 6 34 150 147
------ ------ ------ ------ ------ ------ ------- -------
Total Debt $2,115 $2,777 $1,500 $1,387 $1,360 $5,624 $14,763 $14,984
====== ====== ====== ====== ====== ====== ======= =======
</TABLE>
For debt obligations, the table above presents principal cash flows and
related weighted average interest rates by year of maturity. Variable interest
rates disclosed represent the weighted average rates at the end of the period.
For financial statement classification, $750 million of short-term debt has been
classified as long-term pursuant to line of credit agreements.
We use cross-currency and interest rate swap agreements to manage the
composition of our fixed and floating rate debt portfolio. Amounts to be paid or
received as interest under these agreements are recognized over the life of the
swap agreements as adjustments to interest expense. The impact on earnings and
our net liability under these agreements was not significant. Our cross-currency
and interest rate swap agreements outstanding at December 31, 2000, expressed in
U.S. dollar equivalents, by year of maturity, are presented in the following
table.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
U.S. dollars in millions 2001 2002 2003 2004 2005 Thereafter Total Fair Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. dollar variable to fixed rate swaps $ - $ 45 $200 $300 $- $500 $1,045 $ 97
Average pay rate 6.3% / Average receive rate 6.9%
U.S. dollar fixed to variable rate swaps - 45 200 550 - 500 1,295 (98)
Average pay rate 7.6% / Average receive rate 6.8%
U.S. dollar to New Zealand dollar cross-currency swap - 150 - - - - 150 (5)
Australian dollar to New Zealand dollar cross-currency swap - 130 - - - - 130 25
Swiss franc to New Zealand dollar cross-currency swaps 68 - - - - - 68 1
</TABLE>
28
<PAGE>
Management's Discussion and Analysis
We also transact business in many currencies and are subject to currency
exchange rate risk. We address this risk through a risk management program that
involves financing a portion of our investments in overseas operations with
borrowings denominated in the same currency as the investment or by entering
into currency exchange contracts in tandem with U.S. dollar borrowings. These
contracts are effective in providing hedges against fluctuations in currency
exchange rates. Additionally, we utilize currency exchange contracts to hedge
certain transactions that are denominated in foreign currencies, primarily
export sales and equipment purchased from nonresident vendors. These contracts
serve to protect us from currency fluctuations between the transaction and
settlement dates.
The following table presents information about our foreign currency forward
contracts outstanding as of December 31, 2000, expressed in U.S. dollar
equivalents. The majority of the contracts have maturities of less than 12
months. This information should be read in conjunction with Note 14--Financial
Instruments to the consolidated financial statements which can be found on pages
54 through 56.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Weighted Net
Average Unrealized
Contract Exchange Gain
U.S. dollars in millions Amount Rate (Loss)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pay U.S. dollars /
Receive European euros $1,072 0.89 $(10)
Pay British pounds /
Receive European euros 70 0.59 1
Pay U.S. dollars /
Receive British pounds 129 1.46 (2)
Pay European euros /
Receive British pounds 39 1.63 -
Receive New Zealand dollars /
Pay Australian dollars 475 1.31 15
Pay U.S. dollars /
Receive New Zealand dollars 350 0.46 (5)
Receive Swedish kronas /
Pay U.S. dollars 30 9.64 -
Receive U.S. dollars /
Pay European euros 29 0.88 (1)
Receive U.S. dollars /
Pay British pounds 18 1.44 -
Receive U.S. dollars /
Pay New Zealand dollars 440 0.41 (25)
</TABLE>
We have an additional $31 million in a number of smaller forward contracts to
purchase or sell other currencies with a related net unrealized immaterial gain.
We also purchase foreign exchange option contracts, with terms that generally
do not exceed one year, to hedge export sales. Premiums paid under these
contracts are expensed over the life of the option contract. Gains arising on
these options are recognized at the time the options are exercised. Option
contracts outstanding at December 31, 2000 amounted to $121 million.
Value at Risk
Value at risk is used to describe an approach for measuring market risk exposure
that utilizes statistical models that are based on historical price and
volatility patterns to estimate the probability of the value of a financial
instrument falling above or below a specified amount at a specified confidence
level and over a given time period. Our analysis uses variance-covariance
statistical modeling techniques and includes substantially all interest
rate-sensitive debt and swaps, and currency exchange contracts. The model
estimates the potential loss in fair value or earnings we could incur from
adverse changes in interest rates or currency exchange rates. We believe the
effects of interest rate or currency exchange movements on the respective
underlying hedged transactions would substantially offset any loss incurred. The
results of our analysis at a 95% confidence level were not significant to our
consolidated common shareholders' equity, earnings or daily change in market
capitalization.
Forward-Looking Statements
Certain statements in this 2000 Annual Report to Shareholders, and in
particular, statements found in Management's Discussion and Analysis, that are
not historical in nature may constitute forward-looking statements. These
statements are often identified by the words, "believe," "expect," "plan,"
"appear," "project," "estimate," "intend," and words of similar import. Such
statements reflect the current views of International Paper with respect to
future events and are subject to risks and uncertainties. Actual results may
differ materially from those expressed or implied in these statements. Factors
that could cause actual results to differ include, among other things, whether
conditions influencing the recent economic slowdown will continue or worsen,
changes in overall demand, whether our initiatives relating to balancing our
supply with demand will be successful, changes in domestic or foreign
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 and facility
rationalizations can be achieved. In view of such uncertainties, investors are
cautioned not to place undue reliance on these forward-looking statements.
International Paper does not assume any obligation to update these
forward-looking statements.
29
<PAGE>
Financial Information by Industry Segment and Geographic Area
For information about our industry segments, see the "Description of Industry
Segments" included in management's discussion and analysis of financial
condition and results of operations.
For management purposes, we report the operating performance of each business
based on earnings before interest and income taxes ("EBIT") excluding special
and extraordinary items and gains or losses on sales of businesses. Our Carter
Holt Harvey segment includes our share, about half, of their operating earnings
adjusted for U.S. generally accepted accounting principles. The remaining half
is included in the minority interest adjustment. Intersegment sales and
transfers are recorded at current market prices. Corporate sales include the
Imaging and Veratec businesses that were sold in 1998. Sales for these
businesses were $220 million in 1998. Corporate operating profit includes an
operating loss of $2 million for these businesses in 1998 as well as corporate
expenses. Corporate assets include these businesses for the applicable years in
addition to other assets not allocated to our segments.
External Sales by Major Product is determined by aggregating sales from each
segment based on similar products or services. External sales are defined as
those that are made to parties outside International Paper's consolidated group
whereas sales by segment in the Net Sales table are determined by the management
approach and include intersegment sales.
Capital Spending by Industry Segment is reported on page 13 of management's
discussion and analysis of financial condition and results of operations.
Information by Industry Segment
<TABLE>
<CAPTION>
Net Sales
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing Papers(a) $ 7,960 $ 5,840 $ 5,815
Industrial and Consumer Packaging 7,625 7,050 7,010
Distribution 7,255 6,850 6,280
Forest Products 3,465 3,205 2,930
Chemicals and Petroleum 1,395 1,455 1,465
Carter Holt Harvey 1,675 1,605 1,505
Corporate and Intersegment Sales(a,b,c) (1,195) (1,432) (1,026)
------- ------- -------
Net Sales $28,180 $24,573 $23,979
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Assets
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing Papers $11,692 $ 7,929 $ 8,213
Industrial and Consumer Packaging 8,187 7,316 7,389
Distribution 1,989 1,893 1,903
Forest Products 7,454 3,819 3,644
Chemicals and Petroleum 1,056 1,531 1,614
Carter Holt Harvey(d) 3,141 4,183 4,475
Corporate(c) 8,590 3,597 4,228
------- ------- -------
Assets $42,109 $30,268 $31,466
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Operating Profit(a)
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing Papers $ 959 $ 254 $ 178
Industrial and Consumer Packaging 773 562 334
Distribution 120 105 86
Forest Products 602 724 622
Chemicals and Petroleum 161 124 136
Carter Holt Harvey(e) 71 39 20
Corporate(b) 26 -- --
------- ------- -------
Operating Profit 2,712 1,808 1,376
Interest expense, net (816) (541) (614)
Minority interest adjustment(e) 108 74 57
Corporate items, net (312) (336) (237)(c)
Merger integration costs (54) (255) --
Restructuring and other charges (949) (338) (256)
Reversals of reserves no longer required 34 36 83
Gain on sale of business -- -- 20
------- ------- -------
Earnings Before Income Taxes, Minority
Interest and Extraordinary Items $ 723 $ 448 $ 429
======= ======= =======
</TABLE>
30
<PAGE>
Financial Information by Industry Segment and Geographic Area
<TABLE>
<CAPTION>
Restructuring and Other Charges
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing Papers $425 $ 55 $ 32
Industrial and Consumer Packaging 290 114 46
Distribution 22 23 31
Forest Products 35 16 14
Chemicals and Petroleum 34 63 4
Carter Holt Harvey 10 27 18
Corporate(a) 133 40 111
---- ---- -----
Restructuring and Other Charges $949 $338 $256
==== ==== =====
</TABLE>
<TABLE>
<CAPTION>
Depreciation and Amortization
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing Papers(f) $ 635 $ 556 $ 535
Industrial and Consumer Packaging 487 466 447
Distribution 35 32 25
Forest Products(f) 273 196 218
Chemicals and Petroleum 91 99 106
Carter Holt Harvey(f) 177 201 193
Corporate 218 115 136
------- ------- -------
Depreciation and Amortization $ 1,916 $ 1,665 $ 1,660
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
External Sales by Major Product
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing Papers $ 7,210 $ 5,069 $ 5,475
Packaging 8,051 7,361 7,360
Distribution 7,275 6,926 6,235
Forest Products 4,226 3,759 3,430
Chemicals and Petroleum 1,418 1,458 1,230
Corporate Sales(c) -- -- 249
------- ------- -------
Net Sales $28,180 $24,573 $23,979
======= ======= =======
</TABLE>
(a) Certain reclassifications and adjustments have been made to prior year
amounts.
(b) Includes results of operations from Champion, which was acquired on June
20, 2000. Beginning on July 1, 2000, the results of the former Champion
business have been included in the appropriate business segment.
(c) Includes results or assets, as applicable, from operations disposed of in
1998.
(d) Includes equity investments (in millions) of $16 in 2000, $876 in 1999 and
$956 in 1998.
(e) Includes equity earnings (in millions) of $11 in 2000, $54 in 1999 and $20
in 1998. Half of these equity earnings amounts are in the Carter Holt
Harvey segment and half are in the minority interest adjustment.
(f) Includes cost of timber harvested.
Information by Geographic Area
<TABLE>
<CAPTION>
Net Sales(g)
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States(h) $22,131 $19,152 $18,682
Europe 3,353 3,257 3,251
Pacific Rim(i) 1,923 1,865 1,731
Americas, other than U.S.(k) 773 299 315
------- ------- -------
Net Sales $28,180 $24,573 $23,979
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
European Sales by Industry Segment
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing Papers $ 1,637 $ 1,514 $ 1,423
Industrial and Consumer Packaging 736 750 772
Distribution 370 347 323
Forest Products 196 200 208
Chemicals and Petroleum 414 446 465
Other Businesses(c) -- -- 60
------- ------- -------
European Sales $ 3,353 $ 3,257 $ 3,251
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Long-Lived Assets(j)
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $17,026 $12,325 $13,149
Europe 1,213 1,888 2,101
Pacific Rim(i) 2,291 2,625 2,793
Americas, other than U.S.(k) 1,313 77 74
Corporate 134 387 296
------- ------- -------
Long-Lived Assets $21,977 $17,302 $18,413
======= ======= =======
</TABLE>
(g) Net sales are attributed to countries based on location of seller.
(h) Export sales to unaffiliated customers (in billions) were $1.6 in 2000, and
$1.5 in 1999 and 1998.
(i) Operations in New Zealand and Australia account for most of the Pacific Rim
amounts.
(j) Long-Lived Assets includes Forestlands and Plants, Properties and
Equipment, net.
(k) Increases in 2000 reflect operations in Brazil and Canada acquired with
Champion.
31
<PAGE>
Report of Management on Financial Statements
The management of International Paper Company is responsible for the fair
presentation of the information contained in the financial statements in this
annual report. The statements are prepared in accordance with U.S. generally
accepted accounting principles and reflect management's best judgment as to our
financial position, results of operations and cash flows.
International Paper maintains a system of internal accounting controls
designed to provide reasonable assurance that transactions are properly recorded
and summarized so that reliable financial records and reports can be prepared
and assets safeguarded. The internal controls system includes our long-standing
policy on ethical business conduct and careful selection and training of
supervisory and management personnel, appropriate delegation of authority and
division of responsibility, dissemination of accounting and business policies
throughout International Paper, and an extensive program of internal audits with
management follow-up.
The independent public accountants provide an objective, independent review
of management's discharge of its responsibility for the fairness of our
financial statements. They review our internal accounting controls and conduct
tests of procedures and accounting records to enable them to form the opinion
set forth in their report.
The Board of Directors monitors management's administration of International
Paper's financial and accounting policies and practices, and the preparation of
these financial statements. The Audit and Finance Committee (Committee), which
consists of five non-employee directors, meets regularly with representatives of
management, the independent public accountants and the Internal Auditor to
review their activities. The Committee has reviewed and discussed the
consolidated financial statements for the year ended December 31, 2000 with
management and the independent public accountants. The Committee's report
recommending the inclusion of such financial statements in this Annual Report is
set forth in our Proxy Statement.
The independent public accountants and the Internal Auditor both have free
access to the Committee and meet regularly with the Committee, with and without
management representatives in attendance.
JOHN V. FARACI
John V. Faraci
Executive Vice President and Chief Financial Officer
Report of Independent Public Accountants
To the Shareholders of International Paper Company:
We have audited the accompanying consolidated balance sheets of International
Paper Company (a New York corporation) and subsidiaries as of December 31, 2000
and 1999, and the related statements of earnings, common shareholders' equity
and cash flows for each of the three years ended December 31, 2000. These
financial statements are the responsibility of International Paper's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the consolidated financial statements of Union
Camp Corporation (a company acquired during 1999 in a transaction accounted for
as a pooling-of-interests) prior to 1999. The Union Camp financial statements
reflect total assets and total revenues of 16% and 19% in 1998 of the related
consolidated totals. Those statements were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to the
amounts included for that entity, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of International Paper Company and subsidiaries
as of December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years ended December 31, 2000 in conformity
with generally accepted accounting principles in the United States.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
New York, N.Y.
February 13, 2001
32
<PAGE>
Consolidated Statement of Earnings International Paper
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
In millions, except per share amounts, for the years ended December 31 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $28,180 $24,573 $23,979
------- ------- -------
Costs and Expenses
Cost of products sold 20,082 17,960 17,758
Selling and administrative expenses 2,283 2,083 2,032
Depreciation and amortization 1,916 1,665 1,660
Distribution expenses 1,104 1,098 1,087
Taxes other than payroll and income taxes 287 226 231
Equity (earnings) losses from investment in Scitex -- (5) 15
Merger integration costs 54 255 --
Restructuring and other charges 949 338 256
------- ------- -------
Total Costs and Expenses 26,675 23,620 23,039
Reversals of reserves no longer required 34 36 83
Gain on sale of business -- -- 20
------- ------- -------
Earnings Before Interest, Income Taxes, Minority Interest
and Extraordinary Items 1,539 989 1,043
Interest expense, net 816 541 614
------- ------- -------
Earnings Before Income Taxes, Minority Interest
and Extraordinary Items 723 448 429
Income tax provision 117 86 95
Minority interest expense, net of taxes 238 163 87
------- ------- -------
Earnings Before Extraordinary Items 368 199 247
Impairment losses on businesses to be sold, net of taxes (541) -- --
Net gain on sales of investments and businesses, net of taxes
and minority interest 315 -- --
Loss on extinguishment of debt, net of taxes -- (16) --
------- ------- -------
Net Earnings $ 142 $ 183 $ 247
======= ======= =======
Earnings Per Common Share--Before Extraordinary Items $ 0.82 $ 0.48 $ 0.60
Earnings (Loss) Per Common Share--Extraordinary Items (0.50) (0.04) --
------- ------- -------
Earnings Per Common Share $ 0.32 $ 0.44 $ 0.60
======= ======= =======
Earnings Per Common Share--Assuming Dilution $ 0.32 $ 0.44 $ 0.60
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
Consolidated Balance Sheet International Paper
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
In millions at December 31 2000 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and temporary investments $ 1,198 $ 453
Accounts and notes receivable, less allowances of $128 in 2000 and $106 in 1999 3,433 3,227
Inventories 3,182 3,203
Assets of businesses held for sale 1,890 --
Other current assets 752 358
------- -------
Total Current Assets 10,455 7,241
------- -------
Plants, Properties and Equipment, net 16,011 14,381
Forestlands 5,966 2,921
Investments 269 1,044
Goodwill 6,310 2,596
Deferred Charges and Other Assets 3,098 2,085
------- -------
Total Assets $42,109 $30,268
======= =======
Liabilities and Common Shareholders' Equity
Current Liabilities
Notes payable and current maturities of long-term debt $ 2,115 $ 920
Accounts payable 2,113 1,870
Accrued payroll and benefits 511 423
Liabilities of businesses held for sale 541 --
Other accrued liabilities 2,133 1,169
------- -------
Total Current Liabilities 7,413 4,382
------- -------
Long-Term Debt 12,648 7,520
Deferred Income Taxes 4,699 3,344
Other Liabilities 2,155 1,332
Minority Interest 1,355 1,581
International Paper-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiaries Holding International Paper Debentures--Note 8 1,805 1,805
Commitments and Contingent Liabilities--Note 11
Common Shareholders' Equity
Common stock, $1 par value, 2000--484.2 shares, 1999--414.6 shares 484 415
Paid-in capital 6,501 4,078
Retained earnings 6,308 6,613
Accumulated other comprehensive income (loss) (1,142) (739)
------- -------
12,151 10,367
Less: Common stock held in treasury, at cost, 2000--2.7 shares, 1999--1.2 shares 117 63
------- -------
Total Common Shareholders' Equity 12,034 10,304
------- -------
Total Liabilities and Common Shareholders' Equity $42,109 $30,268
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
Consolidated Statement of Cash Flows International Paper
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
In millions for the years ended December 31 2000 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net earnings $ 142 $ 183 $ 247
Depreciation and amortization 1,916 1,665 1,660
Deferred income tax provision (benefit) (323) (208) 132
Payments related to restructuring and legal reserves (233) (191) (82)
Payments related to mergers (58) (172) -
Merger integration costs 54 255 -
Restructuring and other charges 949 338 256
Reversals of reserves no longer required (34) (36) (83)
Gains on sales of investments and businesses (748) - (20)
Loss on extinguishment of debt - 26 -
Impairment losses on businesses to be sold 833 - -
Other, net 78 (100) (86)
Changes in current assets and liabilities
Accounts and notes receivable (59) (361) 152
Inventories (143) (121) 51
Accounts payable and accrued liabilities 19 449 (113)
Other 37 1 (16)
------- ------- -------
Cash Provided by Operations 2,430 1,728 2,098
------- ------- -------
Investment Activities
Invested in capital projects (1,352) (1,139) (1,322)
Mergers and acquisitions, net of cash acquired (5,677) (54) (498)
Proceeds from divestitures 2,116 119 523
Other (1) (11) (51)
------- ------- -------
Cash Used for Investment Activities (4,914) (1,085) (1,348)
------- ------- -------
Financing Activities
Issuance of common stock 25 246 115
Issuance of preferred securities by subsidiary - - 1,525
Issuance of debt 6,328 1,023 348
Reduction of debt (2,770) (1,563) (2,213)
Change in bank overdrafts 118 102 68
Dividends paid (447) (418) (431)
Other 140 (96) (63)
------- ------- -------
Cash Provided by (Used for) Financing Activities 3,394 (706) (651)
------- ------- -------
Effect of Exchange Rate Changes on Cash (165) (17) 1
------- ------- -------
Change in Cash and Temporary Investments 745 (80) 100
Cash and Temporary Investments
Beginning of the year 453 533 433
------- ------- -------
End of the year $ 1,198 $ 453 $ 533
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
Consolidated Statement of Common International Paper
Shareholders'Equity
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated Total
Common Stock Issued Other Com- Treasury Stock Common
In millions, except share amounts -------------------- Paid-in Retained prehensive ---------------- Shareholders'
in thousands Shares Amount Capital Earnings Income (Loss) Shares Amount Equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 408,174 $ 408 $ 3,659 $ 7,032 $ (415) 726 $ 37 $ 10,647
Issuance of stock for acquisition 4,683 5 227 -- -- -- -- 232
Issuance of stock for various plans 605 1 23 -- -- (2,694) (128) 152
Repurchase of stock (277) (1) (13) -- -- 2,520 115 (129)
Cash dividends--Common stock
($1.05 per share) -- -- -- (431) -- -- -- (431)
Comprehensive income (loss)
Net earnings -- -- -- 247 -- -- -- 247
Minimum pension liability adjustment
(less tax benefit of $5) -- -- -- -- (8) -- -- (8)
Change in cumulative foreign currency
translation adjustment
(less tax benefit of $2) -- -- -- -- 21 -- -- 21
Realized foreign currency translation
adjustment related to divestitures
(less tax benefit of $4) -- -- -- -- 7 -- -- 7
--------
Total comprehensive income 267
------- ----- ------- ------- ------- ------ ------ --------
Balance, December 31, 1998 413,185 413 3,896 6,848 (395) 552 24 10,738
Issuance of stock for various plans 1,399 2 182 -- -- (1,866) (87) 271
Repurchase of stock -- -- -- -- -- 2,530 126 (126)
Cash dividends--Common stock
($1.01 per share) -- -- -- (418) -- -- -- (418)
Comprehensive income (loss)
Net earnings -- -- -- 183 -- -- -- 183
Minimum pension liability adjustment
(less tax expense of $1) -- -- -- -- 2 -- -- 2
Change in cumulative foreign currency
translation adjustment
(less tax expense of $31) -- -- -- -- (346) -- -- (346)
--------
Total comprehensive (loss) (161)
------- ----- ------- ------- ------- ------ ------ --------
Balance, December 31, 1999 414,584 415 4,078 6,613 (739) 1,216 63 10,304
Issuance of stock for acquisition 68,706 69 2,360 -- -- -- -- 2,429
Issuance of stock for various plans 870 -- 63 -- -- (236) (12) 75
Repurchase of stock -- -- -- -- -- 1,710 66 (66)
Cash dividends--Common stock
($1.00 per share) -- -- -- (447) -- -- -- (447)
Comprehensive income (loss)
Net earnings -- -- -- 142 -- -- -- 142
Minimum pension liability adjustment
(less tax benefit of $13) -- -- -- -- (23) -- -- (23)
Change in cumulative foreign currency
translation adjustment
(less tax expense of $123) -- -- -- -- (380) -- -- (380)
--------
Total comprehensive (loss) (261)
------- ----- ------- ------- ------- ------ ------ --------
Balance, December 31, 2000 484,160 $ 484 $ 6,501 $ 6,308 $(1,142) 2,690 $ 117 $ 12,034
======= ===== ======= ======= ======= ====== ======= ========
</TABLE>
The cumulative foreign currency translation adjustment (in millions) was
$(1,113), $(733) and $(387) at December 31, 2000, 1999 and 1998, respectively,
and is included as a component of accumulated other comprehensive income (loss).
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
Notes to Consolidated Financial Statements
1 Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Nature of Our Business
International Paper is a global forest products, paper and packaging company
that is complemented by an extensive distribution system, with primary markets
and manufacturing operations in the U.S., Canada, Europe, the Pacific Rim and
South America. Substantially all of our businesses have experienced, and are
likely to continue to experience, cycles relating to available industry capacity
and general economic conditions. For a further discussion of our business, see
pages 6 through 29 of management's discussion and analysis of financial
condition and results of operations.
Financial Statements
The preparation of these financial statements in conformity with U.S. generally
accepted accounting principles requires the use of management's estimates. For a
further discussion of significant estimates and assumptions that affect the
reported amounts of assets and liabilities, results of operations, and
disclosure of contingent assets and liabilities, see the legal and environmental
issues section beginning on page 24. Actual future results could differ from
management's estimates. See page 29 for a description of factors which could
cause future results to differ from management's estimates.
On June 20, 2000, International Paper acquired Champion International
Corporation (Champion) in a transaction accounted for as a purchase. The
accompanying financial statements include Champion's results of operations from
the date of acquisition.
On April 30, 1999, International Paper completed the merger with Union Camp
Corporation (Union Camp) in a transaction accounted for as a
pooling-of-interests. The accompanying financial statements include the
financial position and results of operations for both Union Camp and
International Paper for all periods presented.
Revenue Recognition
Revenues are recognized when goods are shipped except for export and timberland
sales. Export sales revenue is recognized at the point title passes, generally
at the destination port. Timberland sales revenue is recognized when title and
risk of loss pass to the buyer.
Shipping and Handling Costs
Shipping and handling costs, such as freight to our customers' destinations, are
included in distribution expenses in the consolidated statement of earnings.
These costs when included in the sales price charged for our products are
recognized in net sales.
Consolidation
The consolidated financial statements include the accounts of International
Paper and its subsidiaries. Minority interest represents minority
shareholders' proportionate share of the equity in several of our consolidated
subsidiaries, primarily Carter Holt Harvey Limited, Zanders Feinpapiere AG
(Zanders), Georgetown Equipment Leasing Associates, L.P., Trout Creek Equipment
Leasing, L.P. and, prior to its sale in 2000, Bush Boake Allen. International
Paper sold its interest in Zanders in January 2001. All significant intercompany
balances and transactions are eliminated.
Investments in affiliated companies are accounted for by the equity method,
including companies owned 20% to 50% and our 13% investment in Scitex
Corporation, Ltd. prior to its sale in 2000. International Paper's share of
affiliates' earnings is included in the consolidated statement of earnings.
Temporary Investments
Temporary investments with an original maturity of three months or less are
treated as cash equivalents and are stated at cost, which approximates market.
Inventories
Inventory values include all costs directly associated with manufacturing
products: materials, labor and manufacturing overhead. These values are
presented at cost or market, if it is lower. In the U.S., costs of raw materials
and finished pulp and paper products are generally determined using the last-in,
first-out method. Other inventories are primarily stated using the first-in,
first-out or average cost method.
Plants, Properties and Equipment
Plants, properties and equipment are stated at cost, less accumulated
depreciation. Expenditures for betterments are capitalized whereas normal
repairs and maintenance are expensed as incurred. For financial reporting
purposes, the units-of-production method of depreciation is used for major pulp
and
37
<PAGE>
Notes to Consolidated Financial Statements
paper mills and certain wood products facilities and the straight-line method
for other plants and equipment. Annual straight-line depreciation rates are
buildings, 2 1/2% to 8 1/2%, and machinery and equipment, 5% to 33%. For tax
purposes, depreciation is computed using accelerated methods.
Interest costs related to the development of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives.
Capitalized net interest costs were $25 million in 2000, $29 million in 1999 and
$53 million in 1998. Interest payments made during 2000, 1999 and 1998 were $816
million, $594 million and $766 million, respectively. Total interest expense was
$938 million in 2000, $611 million in 1999 and $706 million in 1998.
Forestlands
At December 31, 2000, International Paper and its subsidiaries controlled about
12 million acres of forestlands in the U.S., 1.5 million acres in Brazil,
820,000 acres in New Zealand, and had, through licenses and forest management
agreements, harvesting rights on government-owned timberlands in Canada.
Forestlands include owned property as well as certain timber harvesting rights
with terms of one or more years, and are stated at cost, less cost of timber
harvested. Costs attributable to timber are charged against income as trees are
cut. The rate charged is determined annually based on the relationship of
incurred costs to estimated current volume. Cost of timber harvested is included
in depreciation and amortization in the consolidated statement of earnings.
Goodwill
Goodwill, the cost in excess of assigned value of businesses acquired, is
amortized over its estimated period of benefit on a straight-line basis, not to
exceed 40 years. Accumulated amortization was $574 million and $487 million at
December 31, 2000 and 1999, respectively. Goodwill amortization expense is
included in depreciation and amortization in the consolidated statement of
earnings.
Impairment of Long-Lived Assets
Long-lived assets, including allocated goodwill, are reviewed for impairment
upon the occurrence of events or changes in circumstances that indicate the
carrying value of the assets may not be recoverable, as measured by comparing
their net book value to the estimated future cash flows generated by their use.
Impaired assets are recorded at the lesser of their carrying value or fair
market value as determined by their expected future discounted cash flows.
Enterprise-level goodwill is periodically reviewed for impairment by
comparing expected undiscounted cash flows to the carrying value of goodwill.
Enterprise-level goodwill would be written down to fair market value if it were
impaired.
Stock-Based Compensation
Stock options and other stock-based compensation awards are accounted for using
the intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Environmental Remediation Costs
Costs associated with environmental remediation obligations are accrued when
such costs are probable and reasonably estimable. Such accruals are adjusted as
further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are discounted to their
present value when the expected cash flows are reliably determinable.
Translation of Financial Statements
Balance sheets of international operations are translated into U.S. dollars at
year-end exchange rates, while statements of earnings are translated at average
rates. Adjustments resulting from financial statement translations are included
as cumulative translation adjustments in accumulated other comprehensive income
(loss). Gains and losses resulting from foreign currency transactions are
included in earnings.
Reclassifications
Certain reclassifications have been made to prior-year amounts to conform with
the current-year presentation.
38
<PAGE>
Notes to Consolidated Financial Statements
2 Earnings Per Common Share
- --------------------------------------------------------------------------------
Earnings per common share before extraordinary items is 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, is computed assuming that all potentially dilutive securities
were converted into common shares at the beginning of each year. 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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before extraordinary items $ 368 $ 199 $ 247
Effect of dilutive securities
Preferred securities of subsidiary trust - - -
----- ----- -----
Earnings before extraordinary items--
assuming dilution $ 368 $ 199 $ 247
===== ===== =====
Average common shares outstanding 449.6 413.0 411.0
Effect of dilutive securities
Long-term incentive plan
deferred compensation - - -
Stock options 0.4 3.1 3.2
Preferred securities of subsidiary trust - - -
----- ----- -----
Average common shares outstanding--
assuming dilution 450.0 416.1 414.2
===== ===== =====
Earnings per common share before
extraordinary items $0.82 $0.48 $0.60
===== ===== =====
Earnings per common share before
extraordinary items--assuming dilution $0.82 $0.48 $0.60
===== ===== =====
</TABLE>
Note: If an amount does not appear in the above table, the security was
antidilutive for the period presented.
3 Industry Segment Information
- --------------------------------------------------------------------------------
Financial information by industry segment and geographic area for 2000, 1999 and
1998 is presented on pages 30 and 31.
4 Recent Accounting Developments
- --------------------------------------------------------------------------------
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," an amendment to SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 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. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.
International Paper will adopt SFAS No. 133 (as amended by SFAS No. 138) as
of January 1, 2001. We estimate that adoption will require a one-time, non-cash
charge before taxes and minority interest of approximately $23 million ($14
million after taxes and minority interest), which will be recorded as a
cumulative change in accounting method.
5 Mergers, Acquisitions and Divestitures
- --------------------------------------------------------------------------------
On June 20, 2000, International Paper completed the previously announced
acquisition of Champion, a leading manufacturer of paper for business
communications, commercial printing and publications with significant market
pulp, plywood and lumber manufacturing operations. Champion shareholders
received $50 in cash and $25 worth of International Paper common stock for each
Champion share. The acquisition was completed for approximately $5 billion in
cash and 68.7 million shares of International Paper common stock with a market
value of $2.4 billion. Approximately $2.8 billion of Champion debt was assumed.
On March 31, 2000, we acquired Shorewood Packaging Corporation (Shorewood),
a leader in the manufacture of premium retail packaging, for approximately $640
million in cash and the assumption of $280 million of debt.
On April 28, 2000, Carter Holt Harvey purchased CSR Limited's (CSR) medium
density fiberboard and particleboard businesses and its Oberon sawmill for
approximately $200 million in cash.
39
<PAGE>
Notes to Consolidated Financial Statements
The Champion, Shorewood and CSR acquisitions were accounted for using the
purchase method. Their results of operations are included in International
Paper's consolidated statement of earnings from their respective dates of
acquisition. The accompanying consolidated balance sheet as of December 31, 2000
reflects preliminary purchase price allocations for Champion, Shorewood and CSR
to the fair value of the assets and liabilities acquired.
The following table presents unaudited pro forma financial information
that reflects the combined results of operations of International Paper,
Champion and Shorewood as if the acquisitions had occurred as of the beginning
of each of the respective periods. This pro forma information does not
necessarily reflect the actual results that would have occurred, nor is it
necessarily indicative of future results of operations of the combined
companies.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions, except per share amounts,
for the twelve months ended December 31, 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $31,050 $30,549
Earnings before extraordinary items 304 169
Net earnings 78 149
Earnings per common share before
extraordinary items 0.63 0.35
Earnings per common share 0.16 0.31
</TABLE>
International Paper announced a divestment program in connection with the
Champion acquisition that it now estimates will generate gross proceeds of
approximately $5 billion by the end of 2001. As of March 1, 2001, about $1.2
billion of proceeds have been realized under the program, primarily from the
dispositions of Bush Boake Allen, the oil and gas interests, Zanders and the
former Champion headquarters building. It is possible that additional charges
will be required in 2001 as specific businesses are identified for sale. See
Note 7-Businesses Held for Sale for information related to the planned sales
under this program.
The merger with Union Camp 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.
Also 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 that
serve industrial and primary produce customers.
During 1998, International Paper acquired the Zellerbach distribution
business from the Mead Corporation for $261 million in cash, Weston Paper and
Manufacturing Company through the exchange of 4.7 million International Paper
common shares valued at $232 million, and Svetogorsk AO, a Russia-based pulp and
paper business. Carter Holt Harvey and International Paper jointly acquired
Marinetti S.A.'s paper cup division based in Chile, and Australia-based
Continental Cup. Carter Holt Harvey separately acquired Riverwood International,
an Australia-based folding carton business. International Paper also entered
into a joint venture with Olmuksa in Turkey to manufacture containerboard and
corrugated boxes. Finally, a wholly owned subsidiary of International Paper
purchased all of the publicly traded Class A depository units of IP Timberlands,
Ltd. for $100 million in cash.
All of the above acquisitions 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 acquisitions accounted for
under the purchase method have been included in the consolidated statement of
earnings from the dates of acquisition.
In November 2000, International Paper sold its interest in Bush Boake
Allen, for $640 million, resulting in an extraordinary gain of $183 million
after taxes and minority interest. This transaction was completed as part of the
asset sale program. Bush Boake Allen, which had been included in the Chemicals
and Petroleum segment, contributed sales of $425 million, $500 million and $485
million and operating earnings of $31 million, $28 million and $37 million for
each of the three years ended December 31, 2000, 1999 and 1998, respectively.
In January 2000, International Paper sold its equity interest in Scitex for
$79 million, and Carter Holt Harvey sold its equity interest in Compania de
Petroleos de Chile (COPEC) for just over $1.2 billion. These sales resulted in a
combined extraordinary gain of $134 million after taxes and minority interest.
The gains on these sales are recorded as extraordinary items pursuant to the
pooling-of-interests rules.
40
<PAGE>
Notes to Consolidated Financial Statements
6 Special Items Including Restructuring and
Business Improvement Actions
- --------------------------------------------------------------------------------
2000: Special items reduced 2000 net earnings by $601 million, 1999 net earnings
by $352 million and 1998 net earnings by $98 million. The following table and
discussion presents the impact of special items for 2000:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
In millions 2000
- -------------------------------------------------------------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
Interest Interest
- -------------------------------------------------------------------------------
<S> <C> <C>
Before special and extraordinary items $1,692 $ 969
Merger-related expenses (54) (33)
Restructuring and other charges (824) (509)
Provision for legal reserves (125) (80)
Reversals of reserves no longer required 34 21
------ ------
After special items $ 723 $ 368
====== ======
</TABLE>
During 2000, special charges before taxes and minority interest of $969
million ($601 million after taxes and minority interest) were recorded. These
special items included a $54 million pre-tax charge ($33 million after taxes)
for merger-related expenses, an $824 million charge before taxes and minority
interest ($509 million after taxes and minority interest) for asset shutdowns of
excess internal capacity and cost reduction actions, a $125 million pre-tax
charge ($80 million after taxes) for additional Masonite legal reserves and a
$34 million pre-tax credit ($21 million after taxes) for the reversals of
reserves no longer required. A further discussion of the Masonite legal
reserves, can be found in Note 11-Commitments and Contingent Liabilities.
The merger-related expenses of $54 million consisted primarily of travel,
systems integration, employee retention, and other one-time cash costs related
to the Champion acquisition and Union Camp merger.
The $824 million charge for the asset shutdowns of excess internal capacity
and cost reduction actions consisted of a $71 million charge in the second
quarter of 2000 and a $753 million charge in the fourth quarter of 2000.
The second quarter charge of $71 million consisted of $40 million of asset
write-downs and $31 million of severance and other charges. The following table
and discussion presents additional detail related to this charge:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Asset Severance
In millions Write-downs and Other Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Printing 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
=== === ===
</TABLE>
(a) The Printing Papers business shut down the Millers Falls, Massachusetts
mill in August 2000 due to excess internal capacity. Charges associated
with the shutdown included $22 million to write down the assets to their
estimated fair market value of zero, $2 million of severance costs covering
the termination of 119 employees, and other exit costs of $3 million. The
Millers Falls mill had revenues of $33 million, $39 million and $44 million
in 2000, 1999 and 1998, respectively. The mill had no operating income in
2000 and operating income of $3 million in both 1999 and 1998. At December
31, 2000, all 119 employees had been terminated.
Also, a severance charge of $2 million was recorded covering the
elimination of 108 salaried positions at the Franklin, Virginia mill in a
continuing effort to improve its cost effectiveness and long-term
competitive position. At December 31, 2000, 103 employees had been
terminated.
(b) The Consumer Packaging business implemented a plan to reduce excess
internal capacity and streamline administrative functions at several of its
locations as a result of the Shorewood acquisition. As a result, the
Richmond, Virginia facility was shut down in June 2000. Charges associated
with this shutdown included $6 million to write down assets to their fair
market value of zero, $2 million of severance costs covering the
termination of 126 employees, and other exit costs of $1 million. This
facility had revenues of $8 million, $23 million and $37 million in 2000,
1999 and 1998, respectively. The Richmond facility had operating losses of
$2 million and $1 million in 2000 and 1999, respectively, and operating
income of $3 million in 1998. At December 31, 2000, 125 employees had been
terminated.
41
<PAGE>
Notes to Consolidated Financial Statements
Management also permanently idled 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.
Related charges included $1 million of asset write-downs, $3 million of
severance costs covering the termination of 187 employees, and $2 million
of other exit costs. At December 31, 2000, 151 employees had been
terminated.
A severance reserve of $1 million was also established to streamline
the Consumer Packaging business. This reserve covers the termination of 17
employees. At December 31, 2000, all 17 employees had been terminated.
(c) Industrial Papers shut down the Knoxville, Tennessee converting facility in
December 2000 to reduce excess internal capacity. Assets were written down
$9 million to their estimated fair market value and a severance charge of
$1 million was recorded to terminate 120 employees. Other exit costs
totaled $3 million. The Knoxville facility had revenues of $46 million, $62
million and $56 million in 2000, 1999 and 1998, respectively. This facility
had operating income of $2 million in 2000 and 1999, and an operating loss
of $2 million in 1998. At December 31, 2000, the head count had been
reduced by 106 employees.
(d) Other includes $8 million related to Industrial Packaging, primarily for
the shutdown of the Tupelo, Mississippi sheet plant. The Industrial
Packaging charge included $2 million of asset write-offs, $5 million of
severance costs covering the termination of 221 employees and $1 million of
other cash costs. At December 31, 2000, 212 employees had been terminated.
Other also includes $5 million related to the indefinite shutdown of
Carter Holt Harvey's Mataura paper mill. This charge included $3 million of
severance costs covering the termination of 158 employees and $2 million of
other cash costs. At December 31, 2000, all 158 employees had been
terminated.
The fourth quarter charge of $753 million consisted of $536 million of
asset write-downs and $217 million of severance and other charges. The following
table and discussion presents additional detail related to this charge:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Asset Severance
In millions Write-downs and Other Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Printing Papers (a) $293 $103 $396
Consumer Packaging (b) 86 7 93
Industrial Packaging (c) 114 46 160
Chemicals and Petroleum (d) 16 18 34
Forest Products (e) 15 20 35
Distribution (f) 3 19 22
Carter Holt Harvey (g) 1 4 5
Other (h) 8 - 8
---- ---- ----
$536 $217 $753
==== ==== ====
</TABLE>
(a) The Printing Papers business announced the indefinite closure of the
Mobile, Alabama mill and permanent closure of the Lock Haven, Pennsylvania
mill. The announcement was in conjunction with the business's plan to
realign and rationalize papermaking capacity to benefit future operations.
Charges associated with the Mobile shutdown included $223 million to write
assets down to their salvage value, $31 million of severance costs covering
the termination of 760 employees, and other exit costs of $41 million. The
Mobile mill had revenues of $274 million, $287 million and $258 million in
2000, 1999 and 1998, respectively. This mill had operating earnings of $34
million and $8 million in 2000 and 1999, respectively, and an operating
loss of $43 million in 1998. Charges associated with the Lock Haven
shutdown included $70 million to write the assets down to their salvage
value, $16 million of severance costs covering the termination of 589
employees, and other exit costs of $15 million. The Lock Haven mill had
revenues of $267 million in 2000 and $225 million in each of 1999 and 1998.
This mill had an operating loss of $21 million in 2000, and operating
earnings of $12 million and $27 million in 1999 and 1998, respectively.
(b) The Consumer Packaging business announced shutdowns of the beverage
packaging converting plant in Jamaica and the packaging facility in
Cincinnati, Ohio. Production at the Jamaica plant was moved to Venezuela to
increase plant utilization. The Cincinnati facility was closed in order to
better align our manufacturing system with customer demand. Charges
associated with these shutdowns included $6 million of asset write-downs,
$5 million of
42
<PAGE>
Notes to Consolidated Financial Statements
severance costs covering the termination of 239 employees, and other exit
costs of $2 million. The Consumer Packaging charge also included an $80
million asset impairment due to continuing losses in its aseptic business.
The aseptic assets were written down to their estimated fair market value
based on expected future discounted cash flows.
(c) The Industrial Packaging business charge of $160 million is related to the
closure of the Camden, Arkansas mill, the shutdown of the Pedemonte, Italy
container plant and the write-down of the Walsum No. 10 paper machine. The
Camden mill, which produced unbleached kraft and multi-wall paper, was
closed due to the declining kraft paper market, excess internal capacity
and shrinking customer demand. The mill's assets were written down $102
million to their salvage value, and severance costs of $24 million were
recorded to cover the termination of 613 employees. Other exit costs
totaled $15 million. The Camden mill had revenues of $151 million, $162
million and $153 million and operating earnings of $14 million, $22 million
and $18 million in 2000, 1999 and 1998, respectively. Charges associated
with the Pedemonte plant shutdown included $2 million of asset write-downs,
$3 million of severance costs covering the termination of 83 employees, and
$4 million of other exit costs. The Pedemonte plant had revenues of $9
million, $11 million and $15 million in 2000, 1999 and 1998, respectively.
This plant had operating losses of $2 million in 2000 and 1999 and $1
million in 1998. The business also wrote down the Walsum No. 10 paper
machine acquired in the Union Camp merger by $10 million to its estimated
fair market value.
(d) The Chemicals and Petroleum business charge of $34 million was related to
the announced closure of the Oakdale, Louisiana plant. This is part of the
business's Asset Rationalization Program to increase earnings, improve
plant efficiencies and reduce excess internal capacity. A portion of the
facility was shut down at the end of 2000, with the remainder to be closed
by the end of 2001. The charge included $16 million to write the assets
down to their estimated fair market value of zero, $1 million of severance
costs covering the termination of 61 employees, and $17 million of other
exit costs. The Oakdale plant had revenues of $31 million, $30 million and
$32 million and operating earnings of $3 million, zero and $6 million in
2000, 1999 and 1998, respectively.
(e) The Forest Products business charge of $35 million was primarily related to
the announced shutdown of the Washington, Georgia lumber mill and
restructuring costs associated with the Mobile mill closure. The Washington
lumber mill will be closed due to unfavorable market conditions and excess
internal capacity. The mill had revenues of $54 million, $66 million and
$62 million in 2000, 1999 and 1998, respectively. This facility had an
operating loss of $6 million in 2000, operating income of $2 million in
1999, and an operating loss of $3 million in 1998. The total Forest
Products business charge included $15 million of asset write-downs, $7
million of severance costs covering the termination of 264 employees, and
$13 million of other exit costs.
(f) xpedx, our distribution business, implemented a restructuring plan to
consolidate duplicate facilities, eliminate excess internal capacity and
increase productivity. The $22 million charge associated with this plan
included $3 million of asset write-downs, $15 million of severance costs
covering the termination of 433 employees, and $4 million of other cash
costs.
(g) The Carter Holt Harvey charge of $5 million is related to cost reduction
actions primarily associated with the tissue and packaging businesses. This
charge included $1 million of asset write-downs and $4 million of severance
covering the termination of 145 employees.
(h) This $8 million charge relates to the write-down of our investment in
PaperExchange.com, an online provider of e-commerce for the paper industry,
to its estimated fair market value.
Also, a pre-tax credit of $28 million was recorded for excess 1999 second and
fourth quarter restructuring reserves no longer required, and a pre-tax credit
of $6 million was recorded for excess Union Camp merger-related termination
benefits reserves no longer required.
43
<PAGE>
Notes to Consolidated Financial Statements
The following table presents a roll forward of the severance and other costs
included in the 2000 restructuring plans:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Severance
In millions and Other
- --------------------------------------------------------------------------------
<S> <C>
Opening Balance (second quarter 2000) $ 31
Additions (fourth quarter 2000) 217
2000 Activity
Cash charges (19)
----
Balance, December 31, 2000 $229
====
</TABLE>
The severance charges recorded in the second and fourth quarters of 2000
related to 4,243 employees. As of December 31, 2000, 991 employees had been
terminated.
1999: The following table and discussion presents the impact of special items
for 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 1999
- --------------------------------------------------------------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
Interest Interest
- --------------------------------------------------------------------------------
<S> <C> <C>
Before special and extraordinary items $1,005 $ 551
Union Camp merger-related termination benefits (148) (97)
Merger-related expenses (107) (78)
Restructuring and other charges (298) (180)
Environmental remediation charge (10) (6)
Provision for legal reserves (30) (18)
Reversals of reserves no longer required 36 27
----- -----
After special items $ 448 $ 199
===== =====
</TABLE>
During 1999, special charges before taxes and minority interest of $557
million ($352 million after taxes and minority interest) were recorded. These
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 merger-related expenses, a $298 million
charge before taxes and minority interest ($180 million after taxes and minority
interest) 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 reversals of reserves that were no longer required.
The merger-related 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 cash costs related to the integration of Union Camp.
The Union Camp merger-related termination benefits charge related 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 originally identified for termination. An additional 346
employees left the company after the merger was announced, but were not eligible
for benefits under the integration benefits program completed in the third
quarter of 2000. Benefits payable under this program for certain senior
executives and managers were paid from the general assets of International
Paper. Benefits for remaining employees were primarily paid from plan assets of
our qualified pension plan. In total, 1,062 employees were terminated. Related
cash payments approximated $71 million (including payments related to our
nonqualified pension plans). The remainder of the costs incurred primarily
represented an increase in the projected benefit obligation of our qualified
pension plan. Upon termination of the program in the third quarter of 2000, $6
million of the original reserve of $148 million was reversed to income.
The following table is a roll forward of the Union Camp merger-related
termination benefits charge:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Termination
Dollars in millions Benefits
- --------------------------------------------------------------------------------
<S> <C>
Special charge (1,218 employees) $ 148
1999 incurred costs (787 employees) (116)
2000 incurred costs (275 employees) (26)
Reversal of reserve no longer required (6)
-----
Balance, December 31, 2000 $ --
=====
</TABLE>
Note: Benefit costs are treated as incurred on the termination date of the
employee.
The $298 million charge for asset shutdowns of excess internal capacity
consisted of a $113 million charge in the second quarter of 1999 and a $185
million charge in the fourth quarter of 1999.
44
<PAGE>
Notes to Consolidated Financial Statements
The second quarter $113 million charge for the asset shutdowns of excess
internal capacity and cost reduction actions included $57 million of asset
write-downs and $56 million of severance and other charges. The following table
and discussion presents additional detail related to this charge:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Asset Severance
In millions Write-downs and Other Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Printing Papers (a) $ 6 $27 $ 33
European Papers (b) 3 7 10
Consumer Packaging (c) 19 12 31
Industrial Packaging (d) 12 -- 12
Chemicals and Petroleum (e) 10 3 13
Industrial Papers (f) 7 7 14
--- --- ----
$57 $56 $113
=== === ====
</TABLE>
(a) International Paper recorded a charge of $24 million for severance related
to the second phase of the Printing Papers business plan to improve the cost
position of its mills. The charge, pursuant to an ongoing severance program,
covered a reduction of approximately 289 employees at several mills in the
U.S. At December 31, 2000, 258 employees had been terminated.
Also, management approved a decision to permanently shut down the Hudson
River mill No. 4 paper machine located in Corinth, New York and the No. 2
paper machine at the Franklin, Virginia mill due to excess internal
capacity. Both machines have now been shut down. The machines were written
down by $6 million to their estimated fair market value of zero. Severance
costs of $3 million were recorded to cover the termination of 147 employees.
At December 31, 2000, 142 employees had been terminated.
(b) The charge for European Papers, which covered the shutdown of two mills,
consisted of $3 million in asset write-downs, $6 million in severance costs
and $1 million of other exit costs. The Lana mill in Docelles, France was
shut down due to excess internal capacity. The Lana mill produced high-end
uncoated specialty paper that was shifted to the La Robertsau mill in
Strasbourg, France. The mill's fixed assets were written down $3 million to
their estimated fair market value of zero. Costs of $1 million related to
the site closure and severance of $4 million related to the termination of
42 employees were also recorded. The Lana mill had revenues of $12 million
and an operating loss of $2 million for the year ended December 31, 1999. At
December 31, 2000, all 42 employees had been terminated.
The Corimex coating plant in Clermont-Ferrand, France was shut down in
April 1999. The assets at this plant had been considered to be impaired in
1997 and were written down at that time because of a decline in the market
for thermal fax paper. A $2 million severance charge was recorded during the
second quarter of 1999 to cover the costs of terminating 81 employees.
Corimex had revenues of $6 million and an operating loss of $3 million for
the year ended December 31, 1999. At December 31, 2000, all 81 employees had
been terminated.
(c) The Consumer Packaging business implemented a plan to improve the overall
performance of the Moss Point, Mississippi mill. Included in this plan was
the shutdown of the No. 3 paper machine, which produced labels. This
production was transferred to the Hudson River mill. The machine was written
down $6 million to its estimated fair market value of zero. Severance costs
including, but not limited to, employees associated with the No. 3 machine
totaled $10 million and covered the elimination of 360 positions. At
December 31, 2000, 331 employees had been terminated.
Consumer Packaging also shut down the Beverage Packaging facility in
Itu, Brazil in an effort to reduce excess internal capacity in Latin
America. The related assets were written down $13 million to their estimated
fair market value of zero, and a severance charge of $1 million covering the
elimination of 29 positions was recorded. Other exit costs totaled $1
million. At December 31, 2000, 27 employees had been terminated.
(d) With the merger of Union Camp, International Paper negotiated the resolution
of contractual commitments related to an Industrial Packaging investment in
Turkey. As a result of these negotiations and evaluation of this entity, it
was determined that the investment was impaired. A $12 million charge was
recorded to reflect this impairment and the related costs of resolving the
contractual commitments.
(e) As a result of an overall reduction in demand for dissolving pulp, a
decision was made to downsize the Natchez, Mississippi mill. Charges
associated with capacity reduction totaled $10 million and included the
shutdown of several pieces of equipment. A severance charge of $3 million
was recorded to eliminate 89 positions. At December 31, 2000, all 89
employees had been terminated.
45
<PAGE>
Notes to Consolidated Financial Statements
(f) The Industrial Papers business implemented a plan to reduce excess internal
capacity at several of its locations. The Toronto, Canada plant was closed.
Equipment at the Kaukauna, Wisconsin, Knoxville, Tennessee and Menasha,
Wisconsin facilities was taken out of service. The total amount related to
the write-down of these assets was $7 million. Severance costs related to
these shutdowns were $5 million, based on a personnel reduction of 81
employees. Other exit costs totaled $2 million. At December 31, 2000, 73
employees had been terminated.
The $185 million fourth quarter charge for shutdowns of excess internal
capacity and cost reduction actions included $92 million of asset write-downs
and $93 million of severance and other charges. The following table and
discussion presents additional detail related to this charge:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Asset Severance
In millions Write-downs and Other Total
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Printing Papers (a) $ 7 $ 5 $ 12
Consumer Packaging (b) 14 22 36
Industrial Packaging (c) 7 14 21
Chemicals and Petroleum (d) 30 20 50
Building Materials (e) 10 6 16
Distribution (f) 6 17 23
Carter Holt Harvey (g) 18 9 27
--- --- ----
$92 $93 $185
=== === ====
</TABLE>
(a) The Printing Papers charge encompassed a $2 million severance charge related
to a production curtailment at the Erie, Pennsylvania mill due to lower
demand, a $3 million write-off of deferred software costs as the result of a
decision to discontinue the installation of a Union Camp order entry system,
and a $7 million impairment of our investment in the Otis Hydroelectric
plant. In November 1999, the Erie mill changed from a seven-day, four-crew
schedule to a three-crew schedule in order to balance operating capacity
with sales demand. This production curtailment resulted in the termination
of 99 employees. At December 31, 2000, all 99 employees had been terminated.
We wrote down our investment in the Otis Hydroelectric partnership to the
approximate fair market value of the investment based upon our offer to
acquire the other partner's interest.
(b) The Consumer Packaging charge of $36 million was related to the shutdown of
facilities, capacity optimization and a deferred software write-off. The
Philadelphia, Pennsylvania plant was shut down in June 2000 and the
Edmonton, Alberta plant was shut down in April 2000. Charges associated with
these shutdowns included $7 million of asset write-downs, $1 million of
severance costs covering the termination of 194 employees, and other exit
costs of $5 million. At December 31, 2000, all 194 employees had been
terminated. Charges related to eliminating excess internal capacity included
$7 million of asset write-downs and a severance charge of $11 million for
the termination of 512 employees. The capacity reductions related to the
aseptic and flexible packaging businesses. At December 31, 2000, 381
employees had been terminated. The business also discontinued the
implementation of a Union Camp order management system. The write-off of
deferred software costs related to this system was $5 million.
(c) The Industrial Packaging business shut down the following plants and shifted
production to other facilities: the Terre Haute, Indiana box plant; the
Northlake, Illinois box plant; the Columbia, Tennessee sheet plant; and the
Montgomery, Alabama sheet plant. The design center in Spartanburg, South
Carolina was also closed. The functions performed in Spartanburg will
continue in Memphis, Tennessee. Charges associated with the consolidation
and improvement of the Industrial Packaging business totaled $21 million and
included $7 million of asset write-downs, a $12 million severance charge
covering the termination of 426 employees, and other exit costs of $2
million. At December 31, 2000, 309 employees had been terminated.
(d) The Chemicals and Petroleum charge of $50 million related to the partial
shutdown of the Chester-le-Street plant located in northeast England and
additional costs related to the 1998 shutdown of the Springhill, Louisiana
plant. The Chester-le-Street plant was a fully integrated site comprised of
a crude tall oil fractionation plant, a rosin resin upgrading plant and a
dimer plant. The crude tall oil and rosin resin upgrading facilities at the
site were closed and production shifted to other Arizona Chemical
facilities. Asset write-downs for this plant totaled $30 million. A
severance charge of $3 million covered the termination of
83 employees. Other costs of $12 million included demolition and contract
cancellations. At December 31, 2000, all
46
<PAGE>
Notes to Consolidated Financial Statements
83 employees had been terminated. We also recorded an additional charge of
$5 million related to the 1998 closure of the Springhill plant, covering
other exit costs including demolition and cleanup.
(e) The Building Materials charge of $16 million included $3 million for a
program to improve the profitability of the decorative surfaces business and
$13 million for the shutdown of the Pilot Rock, Oregon mill. The Decorative
Products business developed an improvement plan to consolidate certain
manufacturing activities and streamline administrative functions. As a
result, a reserve was established to cover asset write-offs totaling $2
million, and severance charges of $1 million were recorded related to the
reduction of 65 employees. At December 31, 2000, 38 employees had been
terminated.
International Paper announced in October 1999 that it would shut down
the Pilot Rock, Oregon mill due to excess capacity within the Masonite
manufacturing system. Softboard production was moved to our Ukiah,
California and Lisbon Falls, Maine facilities. The related charge included
$8 million of asset write-downs, a $2 million severance charge covering the
termination of 155 employees, and $3 million of other exit costs. At
December 31, 2000, 149 employees had been terminated.
(f) xpedx implemented a plan to consolidate duplicate facilities and eliminate
excess internal capacity. The $23 million charge associated with this plan
included $6 million of asset write-downs, a severance charge of $5 million
for the termination of 211 employees, and other costs of $12 million. Other
costs consisted primarily of lease cancellations. At December 31, 2000, 197
employees had been terminated.
(g) This charge related to the shutdown of the No. 5 paper machine at Carter
Holt Harvey's Kinleith mill. The machine had been idled due to a
reconfiguration project at the mill. Plans for alternative uses for the
machine were reexamined and it was determined that based on current
competitive conditions it would not provide adequate returns on the capital
required and that it would be scrapped. Accordingly, the machine was written
down by $18 million to its estimated salvage value. Also, severance costs of
$9 million were recorded to cover the costs of terminating 300 employees. At
December 31, 2000, all 300 employees had been terminated.
The $30 million pre-tax charge to increase existing legal reserves included
$25 million added to the reserve for hardboard siding claims. A further
discussion of this charge can be found in Note 11-Commitments and Contingent
Liabilities.
The $36 million pre-tax credit for reserves no longer required consisted of
$30 million related to a retained exposure at the Lancey mill in France and $6
million of excess severance reserves previously established by Union Camp. The
Lancey mill was sold to an employee group in October 1997. In April 1999,
International Paper's remaining exposure to potential obligations under this
sale was resolved, with the reserve returned to income in the second quarter.
The following table presents a roll forward of severance and other costs
included in the 1999 restructuring plans:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Severance
In millions and Other
- --------------------------------------------------------------------------------
<S> <C>
Opening Balance (second quarter 1999) $ 56
Additions (fourth quarter 1999) 93
1999 Activity
Cash charges (34)
2000 Activity
Cash charges (75)
Other charges (13)
Reversals of reserves no longer required (14)
----
Balance, December 31, 2000 $ 13
====
</TABLE>
The severance reserves recorded in the second and fourth quarters of 1999
related to 3,163 employees. At December 31, 2000, 2,793 employees had been
terminated. Reserves of $14 million were determined to no longer be required and
reversed to income in the fourth quarter of 2000. The remaining $13 million of
reserves represents costs to be incurred or severance to be paid in the first
quarter of 2001.
1998: The following table and discussion presents the impact of special items
for 1998:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In millions 1998
- --------------------------------------------------------------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
Interest Interest
- --------------------------------------------------------------------------------
<S> <C> <C>
Before special items $ 598 $345
Oil and gas impairment charges (111) (68)
Restructuring and other charges (161) (92)
Gain on sale of business 20 12
Reversals of reserves no longer required 83 50
----- ----
After special items $ 429 $247
===== ====
</TABLE>
47
<PAGE>
Notes to Consolidated Financial Statements
During 1998, International Paper recorded $111 million of oil and gas
impairment charges ($68 million after taxes); $56 million ($35 million after
taxes) in the fourth quarter and $55 million ($33 million after taxes) in the
third quarter. International Paper had oil and gas exploration and production
operations in West Texas, the Gulf Coast and the Gulf of Mexico. The Securities
and Exchange Commission's regulations for companies that use the full-cost
method of accounting for oil and gas activities require companies to perform a
ceiling test on a quarterly basis. As a result of low oil and gas prices, the
value of International Paper's properties was written down through these noncash
charges.
Also in 1998, International Paper recorded a $145 million pre-tax
restructuring charge ($82 million after taxes and minority interest) consisting
of $64 million of asset write-downs and $81 million of severance costs, and
recorded pre-tax charges of $16 million ($10 million after taxes) related to
International Paper's share of write-offs taken by Scitex, a then-owned 13%
investee company, related to an acquisition of in-process research and
development and its exit from the digital video business. The Scitex items were
reflected as equity losses from the investment in Scitex in the consolidated
statement of earnings. International Paper sold its equity interest in Scitex in
January 2000. In addition, International Paper recorded a $20 million pre-tax
gain ($12 million after taxes) on the sale of its Veratec nonwovens division,
and an $83 million pre-tax credit ($50 million after taxes) from the reversals
of previously established reserves that were no longer required. These reserves
had been established in 1996 and 1997 and were primarily associated with the
Veratec and Imaging businesses. The sales of these businesses were completed in
1998, and those reserves not required were returned to earnings.
The following table and discussion presents additional detail related to the
$145 million restructuring charge:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Asset
In millions Write-downs Severance Total
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distribution (a) $20 $10 $ 30
Printing Papers (b) 13 14 27
Carter Holt Harvey (c) 15 3 18
Industrial Packaging (d) 8 7 15
Union Camp (e) 8 32 40
Other (f) -- 15 15
--- --- ----
$64 $81 $145
=== === ====
</TABLE>
(a) After the acquisition of Zellerbach, management of xpedx terminated certain
software projects that were in process and began to use Zellerbach's systems
in certain of its regions. Accordingly, $20 million of deferred software
costs were written off. In addition, a $10 million severance charge was
recorded to terminate 274 xpedx employees at duplicate facilities and
locations. At December 31, 1999, all 274 employees had been terminated.
(b) International Paper's Printing Papers business shut down equipment at the
Mobile, Alabama mill and announced the termination of 750 employees at the
Mobile, Alabama, Lock Haven, Pennsylvania, and Ticonderoga, New York mills.
At the Mobile mill, International Paper permanently shut down a paper
machine and related equipment with a net book value of $13 million. These
assets were written down to their estimated fair market value of zero. The
severance charge associated with the employee reductions at the three mills
was $14 million. At December 31, 1999, all employees under this program had
been terminated.
(c) This charge primarily consisted of a $15 million asset write-down associated
with the closure of two Carter Holt Harvey facilities, Myrtleford and Taupo.
Myrtleford, a tissue pulp mill located in Australia, was closed due to
excess capacity in its tissue pulp system. Carter Holt Harvey will be able
to produce the volume at lower costs at its Kawerau tissue pulp mill located
in New Zealand. Carter Holt Harvey also closed the Taupo, New Zealand
sawmill due to excess capacity in its sawmill system as the result of recent
productivity improvements. The $3 million severance charge represented the
cost of terminating 236 employees. At December 31, 1999, all 236 employees
had been terminated. International Paper's consolidated financial statements
included revenues of $21 million and operating income of $1 million from
these facilities in 1998.
(d) Management indefinitely closed the Gardiner, Oregon mill because of excess
capacity in International Paper's containerboard system. As a result, the
net plant, property and equipment assets of this mill were reduced from $13
million to the estimated salvage value of $5 million. In connection with
this decision to close, 298 employees at the mill were terminated and a $7
million severance charge was recorded. This mill had revenues of $78 million
and operating losses of $16 million in 1998.
48
<PAGE>
Notes to Consolidated Financial Statements
(e) During 1998, Union Camp recorded a pre-tax special charge of $40 million.
Included in the charge was $32 million related to the termination of 540
positions and $8 million of asset write-downs. Approximately 190 of these
positions related to a reorganization and restructuring of Union Camp's
research and development activities. Another 190 positions related to a
consolidation of the packaging group's administrative support functions. The
remaining 160 positions related to a series of other organizational changes.
At December 31, 1999, all 540 employees had been terminated.
The asset write-downs were principally attributable to the impairment of
goodwill specific to two packaging businesses, the Chase packaging facility
and Union Camp's 1996 purchase of a 50% interest in a packaging plant in
Turkey. Upon reviewing the historical and projected operating results for
these businesses, management concluded that expected future cash flows did
not fully support the carrying value of these assets.
(f) The $15 million severance charge was recorded as a result of an announcement
by International Paper of a plan to consolidate its land and timber and
logging and fiber supply divisions into a new division called Forest
Resources, and the consolidation of the Consumer Packaging group. Of the $15
million charge, $10 million related to a head count reduction of 200
employees in the Forest Resources group and the remaining $5 million was
based on a personnel reduction of 210 employees in the Consumer Packaging
group. At December 31, 1999, all 410 employees had been terminated.
The following table presents a roll forward of the severance costs included
in the 1998 restructuring plan:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
In millions Severance
- ---------------------------------------------------------------------------
<S> <C>
Opening Balance (third quarter 1998) $ 81
1998 Activity
Cash charges (19)
1999 Activity
Cash charges (56)
Reversal of reserve no longer required (6)
----
Balance, December 31, 1999 $ --
====
</TABLE>
The severance reserve recorded in the third quarter of 1998 related to 2,508
employees. As of December 31, 1999, all employees had been terminated.
7 Businesses Held for Sale
- --------------------------------------------------------------------------------
During 2000, International Paper announced plans to sell by the end of 2001,
approximately $5 billion of assets that are not strategic to its core
businesses. The decision to sell these businesses and certain other assets
resulted from International Paper's acquisition of Champion and the completion
of its strategic analysis to focus on its core businesses of paper, packaging
and forest products.
The following table presents the businesses held for sale at December 31,
2000 along with their sales and operating earnings for each of the three years
ended December 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
In millions for the years ended December 31 2000 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Chemical
(Chemicals and Petroleum)
Sales $ 630 $ 677 $ 673
Operating earnings 63 54 64
Chemical Cellulose
(Chemicals and Petroleum)
Sales 215 208 232
Operating earnings (loss) (14) 9 16
Fine Papers (Printing Papers)
Sales 262 265 294
Operating earnings 21 10 22
Masonite (Forest Products)
Sales 465 512 499
Operating earnings 5 26 36
Petroleum & Minerals
(Chemicals and Petroleum)
Sales 125 70 75
Operating earnings 81 33 21
Zanders (Printing Papers)
Sales 626 594 626
Operating earnings (loss) (4) 8 9
Other (Various)
Sales 102 18 12
Operating earnings (loss) (22) -- (1)
Total
Sales $2,425 $2,344 $2,411
Operating earnings $ 130 $ 140 $ 167
</TABLE>
Note: Other, for the year ended December 31, 2000, includes the Hamilton mill,
which was acquired in the June 20, 2000 Champion acquisition.
49
<PAGE>
Notes to Consolidated Financial Statements
In the third quarter of 2000, the assets of Masonite and Zanders were
written down to their fair market values based on estimated sales proceeds. This
resulted in an extraordinary pre-tax charge of $460 million ($310 million after
taxes). In the fourth quarter of 2000, Fine Papers, the Chemical Cellulose pulp
business and International Paper's Flexible Packaging businesses in Argentina
(included in Other) were written down to their fair market values based on
estimated sales proceeds, resulting in an extraordinary pre-tax charge of $373
million ($231 million after taxes). These charges are presented as extraordinary
items, net of taxes, in the consolidated statement of earnings in accordance
with the pooling-of-interests rules.
The assets of the businesses held for sale, totaling $1.9 billion, are
included in "assets of businesses held for sale" in current assets in the
accompanying consolidated balance sheet. The liabilities of these businesses,
totaling $541 million, are included in "liabilities of businesses held for sale"
in current liabilities in the accompanying consolidated balance sheet.
An agreement to sell Masonite to Premdor Inc. of Toronto, Canada was
entered into September 30, 2000, and is subject to closing conditions and
regulatory approval.
See Note 19-Subsequent Events for a discussion of the completion of the
dispositions of Zanders, the Argentine businesses, the oil and gas interests and
the Hamilton mill. International Paper is currently soliciting or evaluating
bids on the remaining businesses.
8 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 the preferred securities noted above
were $141 million, $134 million and $54 million in 2000, 1999 and 1998,
respectively. The expense related to these preferred securities is shown in
minority interest expense in the consolidated statement of earnings.
9 Sale of Limited Partnership Interests
- --------------------------------------------------------------------------------
During 1993, International Paper contributed assets with a fair market value of
approximately $900 million to two newly formed limited partnerships, Georgetown
Equipment Leasing Associates, L.P. and Trout Creek Equipment Leasing, L.P. These
partnerships are separate and distinct legal entities from International Paper
and have separate assets, liabilities, business functions and operations.
However, for accounting purposes, these assets continue to be consolidated, with
the minority shareholders' interests reflected as minority interest in the
accompanying financial statements. The purpose of the partnerships is to invest
in and manage a portfolio of assets including pulp and paper equipment used at
the Georgetown, South Carolina and Ticonderoga, New York mills. This equipment
is leased to International Paper under long-term leases. Partnership assets also
include floating rate notes and cash. During 1993, outside investors purchased
a portion of our limited partner interests for $132 million and also contributed
an additional $33 million to one of these partnerships.
At December 31, 2000, International Paper held aggregate general and
limited partner interests totaling 63% in Georgetown Equipment Leasing
Associates, L.P. and 57% in Trout Creek Equipment Leasing, L.P.
50
<PAGE>
Notes to Consolidated Financial Statements
10 Income Taxes
- --------------------------------------------------------------------------------
International Paper uses the asset and liability method of accounting for income
taxes whereby deferred income taxes are recorded for the future tax consequences
attributable to differences between the financial statement and tax bases of
assets and liabilities. Deferred tax assets and liabilities are measured using
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Deferred tax
assets and liabilities are revalued to reflect new tax rates in the periods rate
changes are enacted.
The components of earnings before income taxes, minority interest and
extraordinary items by taxing jurisdiction were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
In millions 2000 1999 1998
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Earnings
U.S. $202 $237 $297
Non-U.S. 521 211 132
---- ---- ----
Earnings before income taxes, minority
interest and extraordinary items $723 $448 $429
==== ==== ====
</TABLE>
The provision for income taxes by taxing jurisdiction was:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
In millions 2000 1999 1998
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision (benefit)
U.S. federal $130 $259 $(64)
U.S. state and local 41 27 (6)
Non-U.S. 102 8 33
---- ---- ----
273 294 (37)
==== ==== ====
Deferred tax provision (benefit)
U.S. federal (31) (108) 117
U.S. state and local (65) (103) (12)
Non-U.S. (60) 3 27
---- ---- ----
(156) (208) 132
==== ==== ====
Income tax provision $117 $ 86 $ 95
==== ==== ====
</TABLE>
International Paper made income tax payments, net of refunds, of $298
million, $68 million and $144 million in 2000, 1999 and 1998, respectively.
A reconciliation of income tax expense using the statutory U.S. income
tax rate compared with actual income tax expense follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
In millions 2000 1999 1998
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before income taxes, minority
interest and extraordinary items $723 $448 $429
Statutory U.S. income tax rate 35% 35% 35%
---- ---- ----
Tax expense using statutory
U.S. income tax rate 253 157 150
State and local income taxes (15) (20) (11)
Non-U.S. tax rate differences (80) (52) 20
Permanent benefits on sales of
non-U.S. businesses - (2) (33)
Permanent benefits on sales of
non-strategic timberland assets - - (29)
Nondeductible business expenses 10 30 9
Foreign sales corporation benefit (18) (9) (9)
Minority interest (82) (56) (31)
Goodwill amortization 39 21 21
Net U.S. tax on non-U.S. dividends 28 15 10
Tax credits - (12) (1)
Other, net (18) 14 (1)
---- ---- ----
Income tax provision $117 $ 86 $ 95
==== ==== ====
Effective income tax rate 16% 19% 22%
==== ==== ====
</TABLE>
The net deferred income tax liability as of December 31, 2000 and 1999
includes the following components:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
In millions 2000 1999
- ----------------------------------------------------------------------
<S> <C> <C>
Current deferred tax asset $ 562 $ 196
Noncurrent deferred tax asset 311 240
Noncurrent deferred tax liability (4,699) (3,344)
------- -------
Total $(3,826) $(2,908)
======= =======
</TABLE>
The tax effects of significant temporary differences representing
deferred tax assets and liabilities at December 31, 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
In millions 2000 1999
- ----------------------------------------------------------------------
<S> <C> <C>
Plants, properties and equipment $(3,344) $(2,995)
Prepaid pension costs (326) (339)
Forestlands (1,686) (534)
Postretirement benefit accruals 199 225
Alternative minimum and other tax credits 432 390
Net operating loss carryforwards 264 235
Other 635 110
------- -------
Total $(3,826) $(2,908)
======= =======
</TABLE>
51
<PAGE>
Notes to Consolidated Financial Statements
Net operating loss carryforwards, most of which are applicable to
non-U.S. subsidiaries, expire as follows: years 2001 through 2007--$130 million,
years 2019 through 2020--$273 million and indefinite carryforward--$363 million.
Deferred taxes are not provided for temporary differences of
approximately $1.7 billion, $1.2 billion and $1.1 billion as of December 31,
2000, 1999 and 1998, respectively, representing earnings of non-U.S.
subsidiaries that are intended to be permanently reinvested. Computation of the
potential deferred tax liability associated with these undistributed earnings is
not practicable.
11 Commitments and Contingent Liabilities
- --------------------------------------------------------------------------------
Certain property, machinery and equipment are leased under cancelable and
noncancelable agreements. At December 31, 2000, total future minimum rental
commitments under noncancelable leases were $977 million, due as follows: 2001--
$170 million, 2002--$143 million, 2003--$121 million, 2004--$111 million,
2005--$100 million and thereafter--$332 million. Rent expense was $218 million,
$229 million and $237 million for 2000, 1999 and 1998, respectively.
International Paper has entered into an agreement to guarantee, for a
fee, a contractual credit agreement of an unrelated third party. The maximum
amount of the guarantee is $110 million and expires in 2008. The guaranty fees
are payable to International Paper at the time the borrowings under the
agreement are repaid to the third party lenders.
Three nationwide class action lawsuits filed against International
Paper have been settled in recent years.
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 non-refundable
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 consisted 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 consisted of all U.S. property owners who had incorporated
and installed Masonite Woodruf roofing 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 non-refundable advance of
$1.7 million plus $75,000 in costs for each of the two cases.
Reserves for these matters total $92 million at December 31, 2000, net
of expected future insurance recoveries of $51 million. This amount includes $25
million added to the reserve for hardboard siding claims in the fourth quarter
of 1999 (some of which has now been paid to claimants) and an additional $125
million added to that reserve in the third quarter of 2000 to cover an expected
shortfall, resulting primarily from a higher number of hardboard siding claims
than 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 its consolidated financial position or results
of operations.
Through December 31, 2000, net settlement payments of $277 million,
including the $51 million of non-refundable advances of attorneys' fees
discussed above, have been made. Included in the non-refundable advances of
attorneys' fees is $5 million, which has been paid to the attorneys for the
plaintiffs in the Omniwood and Woodruf lawsuits. Also, International Paper has
received $27 million related to these matters from our insurance carriers
through December 31, 2000. International Paper and Masonite have the right to
terminate each of the settlements after seven years from the dates of final
approval. The liability for these matters will be retained after the planned
sale of Masonite is completed.
52
<PAGE>
Notes to Consolidated Financial Statements
International Paper is also involved in various other inquiries,
administrative proceedings and litigation relating to contracts, sales of
property, environmental protection, tax, antitrust and other matters, some of
which allege substantial monetary damages. While any proceeding or litigation
has the element of uncertainty, International Paper believes that the outcome of
any lawsuit or claim that is pending or threatened, or all of them combined,
will not have a material adverse effect on its consolidated financial position
or results of operations.
12 Supplementary Balance Sheet Information
- --------------------------------------------------------------------------------
Inventories by major category were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
In millions at December 31 2000 1999
- ----------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 431 $ 484
Finished pulp, paper and packaging products 1,912 1,869
Finished lumber and panel products 261 178
Operating supplies 473 486
Other 105 186
------ ------
Inventories $3,182 $3,203
====== ======
</TABLE>
The last-in, first-out inventory method is used to value most of
International Paper's U.S. inventories. Approximately 68% of total raw materials
and finished products inventories were valued using this method. If the
first-in, first-out method had been used, it would have increased total
inventory balances by approximately $264 million and $250 million at December
31, 2000 and 1999, respectively.
Plants, properties and equipment by major classification were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
In millions at December 31 2000 1999
- ----------------------------------------------------------------------
<S> <C> <C>
Pulp, paper and packaging facilities
Mills $22,710 $21,288
Packaging plants 3,464 3,233
Wood products facilities 2,358 2,117
Other plants, properties and equipment 1,522 2,889
------- -------
Gross cost 30,054 29,527
Less: Accumulated depreciation 14,043 15,146
------- -------
Plants, properties and equipment, net $16,011 $14,381
======= =======
</TABLE>
13 Debt and Lines of Credit
- --------------------------------------------------------------------------------
A summary of long-term debt follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
In millions at December 31 2000 1999
- ----------------------------------------------------------------------
<S> <C> <C>
8 7/8% to 10.5% notes, due 2001-2012 $ 522 $ 563
8 7/8% to 9.7% notes, due 2001-2004 564 600
9 1/4% sinking fund debentures, due 2001-2021 8 34
8.5% to 9.5% debentures, due 2002-2022 246 246
8 3/8% to 9 1/2% debentures, due 2015-2024 300 300
8% to 8 1/8% notes, due 2003-2005 2,197 -
7% to 7 7/8% notes, due 2001-2007 1,343 1,373
6 7/8% to 8 1/8% notes, due 2023-2029 742 741
6.65% notes, due 2037 92 -
6.5% notes, due 2007 148 148
6.4% to 7.75% debentures, due 2023-2027 865 -
6 1/8% notes, due 2003 200 200
5 7/8% Swiss franc debentures, due 2001 67 68
5 3/8% euro notes, due 2006 223 249
12% to 16% Brazilian real notes, due 2001-2006 194 -
5 1/8% debentures, due 2012 90 88
Medium-term notes, due 2001-2009(a) 307 331
Floating rate notes, due 2002(b) 2,100 -
Environmental and industrial development
bonds, due 2001-2033(c,d) 2,334 1,352
Commercial paper and bank notes(e) 637 1,325
Other(f) 157 416
------- ------
Total(g) 13,336 8,034
Less: Current maturities 688 514
------- ------
Long-term debt $12,648 $7,520
======= =======
</TABLE>
(a) The weighted average interest rate on these notes was 8.2% in 2000 and 8.3%
in 1999.
(b) The weighted average interest rate on these notes was 7.9% in 2000.
(c) The weighted average interest rate on these bonds was 6.3% in 2000 and 6.1%
in 1999.
(d) Includes $130 million of bonds at December 31, 2000 and $149 million at
December 31, 1999, which may be tendered at various dates and/or under
certain circumstances.
(e) The weighted average interest rate was 7.2% in 2000. Includes $708 million
in 1999 of non-U.S. dollar denominated borrowings with a weighted average
interest rate of 5.6%.
(f) Includes $19 million in 2000 and $14 million in 1999 of French franc
borrowings with a weighted average interest rate of 2.2% in 2000 and 2.8%
in 1999, $5 million in 2000 of Canadian dollar borrowings with an interest
rate of 9.0%, and $132 million in 1999 of German mark borrowings with a
weighted average interest rate of 4.7%.
(g) The fair market value was approximately $13.5 billion and $8.1 billion at
December 31, 2000 and 1999, respectively.
53
<PAGE>
Notes to Consolidated Financial Statements
Total maturities of long-term debt over the next five years are 2001--$688
million, 2002--$2.8 billion, 2003--$1.5 billion, 2004--$1.4 billion and
2005--$1.4 billion.
At December 31, 2000 and 1999, International Paper, including Carter Holt
Harvey, classified $750 million and $1.5 billion, respectively, of tenderable
bonds, commercial paper and bank notes as long-term debt. International Paper
and this subsidiary have the intent and ability to renew or convert these
obligations through 2001 and into future periods.
At December 31, 2000, unused bank lines of credit amounted to $2.3 billion.
The agreements generally provide for interest rates at a floating rate index
plus a margin predetermined by International Paper's credit rating. The
principal line, which is cancelable only if International Paper's bond rating
drops below investment grade, provides for $750 million of credit through March
2004, and has a facility fee of 0.13% that is payable quarterly. International
Paper also has a 364-day facility that provides for $1.0 billion of credit
through March 2001 and has a facility fee of 0.09% that is payable quarterly.
Additionally, International Paper has a $1.8 billion 364-day facility that
provides credit through June 2001, and has a facility fee of 0.10% paid
quarterly. Carter Holt Harvey also has two principal lines of credit that
support its commercial paper programs. A $360 million line of credit matures in
April 2002 and has a 0.15% facility fee that is payable quarterly and a 250
million New Zealand dollar line of credit matures in February 2002 with a 0.13%
facility fee that is payable quarterly.
At December 31, 2000, notes payable included $517 million of non-U.S.
dollar denominated debt with maturities of less than twelve months and a
weighted average interest rate of 6.3%.
At December 31, 2000, outstanding debt included approximately $2.1 billion
of commercial paper and bank notes with interest rates that fluctuate based on
market conditions and our credit rating.
On June 20, 2000, International Paper issued $5 billion of debt to finance
the acquisition of Champion and assumed $2.8 billion of Champion debt. At the
time of the acquisition announcement, Moody's lowered International Paper's
long-term debt rating to Baa1 from A3. At December 31, 2000, $6.7 billion of
debt related to the Champion acquisition remained outstanding.
In 1999, International Paper recorded an extraordinary loss of $16 million
after taxes for the extinguishment of high interest debt that was assumed in
connection with the merger with Union Camp. International Paper extinguished
approximately $275 million of long-term debt with interest rates ranging from
8.5% to 10%.
14 Financial Instruments
- ------------------------------------------------------------------------------
Financial instruments are used primarily to hedge 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 that do not qualify for hedge accounting treatment are
recognized in earnings.
International Paper's policy has been to finance a portion of our
investments in non-U.S. 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 would be 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.
Financial instruments outstanding at December 31, 2000 used to hedge net
investments in non-U.S. operations consisted of non-U.S. dollar denominated debt
totaling $600 million. Also outstanding were foreign currency forward contracts
totaling $1.7 billion, substantially all having maturities of less than twelve
months, as noted in the following table expressed in U.S. dollar equivalents.
The average amount of outstanding contracts was $1.5 billion and $1.0 billion
during 2000 and 1999, respectively.
54
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Weighted