SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
------------------------------------------
For Quarter Ended June 30, 1999 Commission file number 1-3157
INTERNATIONAL PAPER COMPANY
(Exact name of registrant as specified in its charter)
New York 13 0872805
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
Two Manhattanville Road, Purchase, NY 10577
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 914-397-1500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common stock outstanding on July 31, 1999: 413,591,056 shares.
<PAGE>
INTERNATIONAL PAPER COMPANY
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings -
Three Months and Six Months Ended June 30, 1999 and 1998 1
Consolidated Balance Sheet -
June 30, 1999 and December 31, 1998 2
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1999 and 1998 3
Consolidated Statement of Common Shareholders' Equity -
Six Months Ended June 30, 1999 and 1998 4 - 5
Notes to Consolidated Financial Statements 6 - 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16 - 24
Item 3. Other Financial Information 25 - 26
PART II. Other Information
Item 1. Legal Proceedings 27 - 28
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 29
* Omitted since no answer is called for, answer is in the negative or
inapplicable.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
INTERNATIONAL PAPER COMPANY
Consolidated Statement of Earnings
(Unaudited)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 5,996 $ 5,833 $ 12,028 $ 11,839
-------- -------- -------- --------
Costs and Expenses
Cost of products sold 4,420 4,324 8,996 8,772
Selling and administrative expenses 549 496 1,053 994
Depreciation and amortization 374 367 757 740
Distribution expenses 277 253 553 535
Taxes other than payroll and income taxes 57 60 114 123
Restructuring and other charges 113 113
Write-off of in-process research and
development costs acquired by an investee company 6 6
Merger integration costs 157 157
Equity earnings from investment in Scitex (2) (3) (1)
-------- -------- -------- --------
Total Costs and Expenses 5,945 5,506 11,740 11,169
-------- -------- -------- --------
Reversal of reserves no longer required 36 36
-------- -------- -------- --------
Earnings Before Interest, Income Taxes, Minority
Interest and Extraordinary Item 87 327 324 670
Interest expense, net 123 156 266 314
-------- -------- -------- --------
Earnings (Loss) Before Income Taxes, Minority
Interest and Extraordinary Item (36) 171 58 356
Income tax provision (benefit) (18) 49 10 112
Minority interest expense, net of taxes 40 19 74 41
-------- -------- -------- --------
Earnings (Loss) Before Extraordinary Item (58) 103 (26) 203
Loss on extinguishment of debt, net of taxes (13) (13)
-------- -------- -------- --------
Net Earnings (Loss) $ (71) $ 103 $ (39) $ 203
======== ======== ======== ========
Earnings (Loss) Per Common Share Before Extraordinary Item $ (0.14) $ 0.25 $ (0.06) $ 0.50
Earnings (Loss) Per Common Share - Extraordinary Item (0.03) (0.03)
-------- -------- -------- --------
Earnings (Loss) Per Common Share $ (0.17) $ 0.25 $ (0.09) $ 0.50
======== ======== ======== ========
Earnings (Loss) Per Common Share - Assuming Dilution $ (0.17) $ 0.25 $ (0.09) $ 0.49
======== ======== ======== ========
Average Shares of Common Stock Outstanding 413.0 411.8 412.5 409.6
======== ======== ======== ========
Cash Dividends Per Common Share $ 0.25 $ 0.26 $ 0.51 $ 0.52
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
Assets
Current Assets
Cash and temporary investments $ 624 $ 533
Accounts and notes receivable, net 3,119 3,018
Inventories 3,078 3,211
Other current assets 380 378
-------- --------
Total Current Assets 7,201 7,140
Plants, Properties and Equipment, Net 14,749 15,328
Forestlands 3,077 3,093
Investments 1,100 1,147
Goodwill 2,658 2,699
Deferred Charges and Other Assets 2,027 1,932
-------- --------
Total Assets $ 30,812 $ 31,339
======== ========
Liabilities and Common Shareholders' Equity
Current Liabilities
Notes payable and current maturities of long-term debt $ 1,526 $ 1,418
Accounts payable 1,605 1,808
Accrued payroll and benefits 362 370
Other accrued liabilities 1,134 841
-------- --------
Total Current Liabilities 4,627 4,437
-------- --------
Long-Term Debt 7,615 7,697
Deferred Income Taxes 3,396 3,601
Other Liabilities 1,288 1,321
Minority Interest 1,683 1,720
International Paper - Obligated Mandatorily Redeemable Preferred
Securities of Subsidiaries Holding International Paper Debentures 1,805 1,805
Common Shareholders' Equity
Common stock, $1 par value, 1999 - 413.2 shares, 1998 - 413.2 shares 413 413
Paid-in capital 3,997 3,896
Retained earnings 6,617 6,868
Accumulated other comprehensive income (loss) (620) (395)
-------- --------
10,407 10,782
Less: Common stock held in treasury, at cost, 1999 - 0.1 shares,
1998 - 0.6 shares 9 24
-------- --------
Total Common Shareholders' Equity 10,398 10,758
-------- --------
Total Liabilities and Common Shareholders' Equity $ 30,812 $ 31,339
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
INTERNATIONAL PAPER COMPANY
Consolidated Statement of Cash Flows
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Operating Activities
Net earnings (loss) $ (39) $ 203
Depreciation and amortization 757 740
Deferred income tax (benefit) provision (128) 53
Payments related to restructuring and legal reserves (77) (63)
Payments related to the Union Camp merger (83)
Restructuring and other charges 113
Write-off of acquired in-process research and development costs by
an investee company 6
Merger integration costs 157
Reversal of reserves no longer required (36)
Loss on extinguishment of debt 21
Other, net 63 (15)
Changes in current assets and liabilities
Accounts and notes receivable (190) 42
Inventories 46 (59)
Accounts payable and accrued liabilities 98 (177)
Other 1 (5)
------------- -------------
Cash Provided by Operations 703 725
------------- -------------
Investment Activities
Invested in capital projects (459) (596)
Mergers and acquisitions, net of cash acquired (46) (202)
Proceeds from divestitures 119 230
Other (54) (70)
------------- -------------
Cash Used for Investment Activities (440) (638)
------------- -------------
Financing Activities
Issuance of common stock 166 67
Issuance of preferred securities by subsidiary 720
Issuance of debt 704 167
Reduction of debt (659) (527)
Penalties paid on early retirement of debt (18)
Change in bank overdrafts (120) (68)
Dividends paid (212) (214)
Other (18) (29)
------------- -------------
Cash (Used for) Provided by Financing Activities (157) 116
------------- -------------
Effect of Exchange Rate Changes on Cash (15) (24)
------------- -------------
Change in Cash and Temporary Investments 91 179
Cash and Temporary Investments
Beginning of the period 533 433
------------- -------------
End of the period $ 624 $ 612
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
INTERNATIONAL PAPER COMPANY
Consolidated Statement of Common Shareholders' Equity
(Unaudited)
(In millions, except share amounts in thousands)
Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
Accumulated Total
Other Common
Common Stock Issued Paid-in Retained Comprehensive Treasury Stock Shareholders'
Shares Amount Capital Earnings Income (Loss) Shares Amount Equity
-------- -------- -------- -------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1999 412,724 $413 $3,923 $6,792 ($581) 927 $40 $10,507
Issuance of stock for various
plans 504 74 (1,418) (64) 138
Repurchase of stock 630 33 (33)
Cash dividends - Common
stock ($0.25 per share) (104) (104)
Comprehensive income (loss)
Net earnings (loss) (71) (71)
Change in cumulative
foreign currency
translation adjustment (39) (39)
--------
Total comprehensive
income (loss) (110)
-------- -------- -------- -------- -------- -------- -------- --------
Balance, June 30, 1999 413,228 $413 $3,997 $6,617 ($620) 139 $9 $10,398
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Three Months Ended June 30, 1998
<TABLE>
<CAPTION>
Accumulated Total
Other Common
Common Stock Issued Paid-in Retained Comprehensive Treasury Stock Shareholders'
Shares Amount Capital Earnings Income (Loss) Shares Amount Equity
-------- -------- -------- -------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1998 408,228 $408 $3,653 $7,047 ($496) 379 $19 $10,593
Issuance of stock for merger 4,683 5 227 232
Issuance of stock for various
plans 128 2 (749) (38) 40
Repurchase of stock (30) (2) 630 31 (33)
Cash dividends - Common
stock ($0.26 per share) (109) (109)
Comprehensive income (loss)
Net earnings 103 103
Change in cumulative
foreign currency
translation adjustment 125 125
--------
Total comprehensive
income (loss) 228
-------- -------- -------- -------- -------- -------- -------- --------
Balance, June 30, 1998 413,009 $413 $3,880 $7,041 ($371) 260 $12 $10,951
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
INTERNATIONAL PAPER COMPANY
Consolidated Statement of Common Shareholders' Equity
(Unaudited)
(In millions, except share amounts in thousands)
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Accumulated Total
Other Common
Common Stock Issued Paid-in Retained Comprehensive Treasury Stock Shareholders'
Shares Amount Capital Earnings Income (Loss) Shares Amount Equity
-------- -------- -------- -------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 413,185 $413 $3,896 $6,868 ($395) 552 $24 $10,758
Issuance of stock for various
plans 43 101 (1,663) (75) 176
Repurchase of stock 1,250 60 (60)
Cash dividends - Common
stock ($0.51 per share) (212) (212)
Comprehensive income (loss)
Net earnings (loss) (39) (39)
Change in cumulative
foreign currency
translation adjustment (225) (225)
--------
Total comprehensive
income (loss) (264)
-------- -------- -------- -------- -------- -------- -------- --------
Balance, June 30, 1999 413,228 $413 $3,997 $6,617 ($620) 139 $9 $10,398
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Accumulated Total
Other Common
Common Stock Issued Paid-in Retained Comprehensive Treasury Stock Shareholders'
Shares Amount Capital Earnings Income (Loss) Shares Amount Equity
-------- -------- -------- -------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 408,174 $408 $3,659 $7,053 ($415) 726 $37 $10,668
Issuance of stock for merger 4,683 5 227 232
Issuance of stock for various
plans 276 (9) (1,706) (84) 75
Repurchase of stock (124) 3 1,240 59 (56)
Cash dividends - Common
stock ($0.52 per share) (215) (215)
Comprehensive income (loss)
Net earnings 203 203
Realized foreign currency
translation adjustment
related to divestitures 11 11
Change in cumulative
foreign currency
translation adjustment 33 33
--------
Total comprehensive
income (loss) 247
-------- -------- -------- -------- -------- -------- -------- --------
Balance, June 30, 1998 413,009 $413 $3,880 $7,041 ($371) 260 $12 $10,951
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
INTERNATIONAL PAPER COMPANY
Notes to Consolidated Financial Statements
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, in the
opinion of Management, include all adjustments (consisting only of normal
recurring accruals) which are necessary for the fair presentation of
results for the interim periods. It is suggested that these consolidated
financial statements be read in conjunction with the audited financial
statements and the notes thereto incorporated by reference in the
International Paper and Union Camp Corporation Form 10-Ks for the year
ended December 31, 1998, which have previously been filed with the
Commission.
On April 30, 1999, the Company completed its previously announced merger
with Union Camp Corporation in a transaction accounted for as a
pooling-of-interests. The accompanying financial statements have been
restated to include the financial position and results of operations for
both International Paper and Union Camp for all periods presented.
2. Earnings per common share were computed by dividing net earnings by the
weighted average number of common shares outstanding. Earnings per common
share - assuming dilution were computed assuming that all potentially
dilutive securities were converted into common shares at the beginning of
each period. A reconciliation of the amounts included in the computation
of earnings per common share and earnings per common share - assuming
dilution is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
In millions 1999 1998 1999 1998
- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings (loss) $ (71) $ 103 $ (39) $ 203
Effect of dilutive securities
Preferred securities of subsidiary trust
------- ------- ------- -------
Net earnings (loss) - assuming dilution $ (71) $ 103 $ (39) $ 203
======= ======= ======= =======
Average common shares outstanding 413.0 411.8 412.5 409.6
Effect of dilutive securities
Long-term incentive plan deferred
compensation (1.1) (0.8) (1.1) (0.8)
Stock options 3.2 3.1
Preferred securities of subsidiary trust
------- ------- ------- -------
Average common shares outstanding -
assuming dilution 411.9 414.2 411.4 411.9
======= ======= ======= =======
Earnings (loss) per common share $ (0.17) $ 0.25 $ (0.09) $ 0.50
======= ======= ======= =======
Earnings (loss) per common share -
assuming dilution $ (0.17) $ 0.25 $ (0.09) $ 0.49
======= ======= ======= =======
</TABLE>
Note: If an amount does not appear in the above table, the security was
antidilutive for the period presented.
3. On November 24, 1998, the Company announced that it had reached an
agreement to merge with Union Camp Corporation (Union Camp), a diversified
paper and forest products company. The transaction was approved by Union
Camp and International Paper shareholders on April 30, 1999. Union Camp
shareholders
6
<PAGE>
received 1.4852 International Paper common shares for each Union Camp
share held. The exchange ratio was calculated based on an average closing
price of International Paper common shares of $47.80625 per share. The
average closing price of International Paper common shares was determined
from ten randomly selected days during the 20 trading day period from
March 26 through April 23. Based on this exchange ratio and International
Paper's closing price on April 28, 1999 of $57.375 per share, the equity
value of the transaction was approximately $6.3 billion, or $85.21 per
Union Camp share. The total value of the transaction, including the
assumption of debt, was approximately $7.9 billion.
International Paper issued approximately 110 million shares for
approximately 74 million Union Camp shares, including options. Assuming
dilution, approximately 417 million shares of International Paper are
outstanding. Former Union Camp shareowners own 26.3% of International
Paper. The merger was accounted for as a pooling of interests.
The accompanying financial statements have been restated to combine the
historical financial position and results of operations for both
International Paper and Union Camp for all periods presented. The results
of operations for the separate companies for the periods prior to the
merger and the combined amounts included in the Company's consolidated
financial statements are as follows:
Three Months Six Months
Ended Ended
In millions March 31, 1999 June 30, 1998
----------- -------------- -------------
Net sales:
International Paper $ 4,962 $ 9,575
Union Camp 1,137 2,361
Intercompany eliminations (67) (97)
-------------- -------------
$ 6,032 $ 11,839
============== =============
Net earnings (loss)
International Paper $ 44 $ 161
Union Camp (10) 46
Other (2) (4)
-------------- -------------
$ 32 $ 203
============== =============
Note: Other includes the elimination of intercompany transactions and
adjustments to conform the accounting practices of the two
companies.
On April 30, 1999, Carter Holt Harvey, a subsidiary of International
Paper, announced the acquisition of the corrugated packaging business of
Stone Australia, a subsidiary of Smurfit-Stone Container Corporation. The
business was acquired for approximately $25 million and consists of two
sites in Melbourne and Sydney which serve industrial and primary produce
customers.
In December 1998, the Company completed the previously announced
acquisition of OAO Svetogorsk, a Russia-based pulp and paper business,
which should enhance the Company's ability to serve growing market demand
in Eastern Europe. Also in December 1998, Carter Holt Harvey and
International Paper jointly acquired Marinetti S.A.'s paper cup division
based in Chile. This acquisition will enable the foodservice business to
serve markets in South America.
In July 1998, International Paper acquired the Zellerbach distribution
business from the Mead Corporation for approximately $261 million in cash.
Zellerbach has been integrated into xpedx, the Company's distribution
business.
7
<PAGE>
In April 1998, Weston Paper and Manufacturing Company (Weston) was
acquired by exchanging about 4.7 million International Paper common shares
valued at approximately $232 million for all of the outstanding Weston
shares in a noncash transaction.
In 1998, Carter Holt Harvey acquired Riverwood International, an
Australia-based folding carton business for approximately $46 million in
cash. The results of this acquisition are included in the consolidated
financial statements beginning in April 1998.
In February 1998, the Company entered into a joint venture with Olmuksa in
Turkey for the manufacture of containerboard and corrugated boxes for
markets in Turkey and surrounding countries. Also in February 1998, Carter
Holt Harvey and International Paper jointly acquired Australia-based
Continental Cup. This acquisition has allowed Carter Holt Harvey and
International Paper's Foodservice Division to offer a full line of
foodservice products in the Australian and New Zealand markets.
All of the acquisitions completed in 1998 and the Stone-Australia
acquisition in 1999, were accounted for using the purchase method. The
operating results of these mergers and acquisitions have been included in
the consolidated statement of earnings from the dates of acquisition.
4. In March 1998, IP Forest Resources Company, a wholly-owned subsidiary of
International Paper, in accordance with the IP Timberlands, Ltd.
partnership agreement, purchased all of the 7,299,500 publicly traded
Class A Depositary Units of IP Timberlands, Ltd. for a cash purchase price
of $13.6325 per unit.
5. In September 1998, the Company completed the last in a series of five
transactions relating to the sale of a subsidiary partnership interest in
approximately 175,000 acres of forestlands in Pennsylvania and New York.
The third quarter 1998 transaction resulted in a gain of approximately $37
million before taxes. A similar transaction was completed in each of the
previous four quarters.
6. 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.
8
<PAGE>
Distributions paid under all of the Company's subsidiary preferred
securities were $30 million and $6 million for the second quarter of 1999
and 1998, respectively, and $72 million and $12 million for the six months
ended June 30, 1999 and 1998.
7. During the second quarter of 1999 the Company recorded special items
amounting to a net pre-tax charge of $234 million ($158 million after
taxes). The special items included a $98 million pre-tax charge ($67
million after taxes) for Union Camp merger-related termination benefits, a
$59 million pre-tax charge ($49 million after taxes) for one-time merger
expenses, a $113 million charge ($69 million after taxes) for asset
shutdowns of excess internal capacity and cost reduction actions, and a
$36 million pre-tax credit ($27 million after taxes) for the reversal of
reserves that were no longer required.
The Company also recorded an extraordinary $21 million pre-tax charge ($13
million after taxes) related to the refinancing of high interest Union
Camp debt, which the Company assumed under the merger agreement.
The one-time merger expenses of $59 million consist of $49 million of
merger costs and $10 million of post-merger expenses. The merger costs are
primarily investment banker, consulting, legal and accounting fees.
Post-merger expenses include costs related to employee retention, such as
stay bonuses, and other one time cash costs related to the integration of
Union Camp.
The Union Camp merger-related termination benefit charge results from the
integration of the previously separate International Paper and Union Camp
organizations. Under an integration benefits program, as of June 30, 1999,
572 employees of the combined company had been identified for termination.
Benefits for certain senior executives and managers are to be paid from
the general assets of the Company. Benefits for remaining employees will
be paid from plan assets of the Company's qualified pension plan. Through
June 30, 1999, 83 employees have been terminated. Cash payments related
thereto approximated $24 million. The majority of the remaining charge
represents an increase in the projected benefit obligation of the
Company's pension plan.
The following table is a roll forward of the Union Camp merger-related
termination benefit charge:
Termination
In millions Benefits
----------- ----------
Opening balance - second quarter 1999 $ 98
Cash charges - second quarter 1999 (24)
Increase in projected benefit obligation (6)
----------
Balance, June 30, 1999 $ 68
==========
The $113 million charge for the asset shutdowns of excess internal
capacity and cost reduction actions includes $57 million of asset
write-downs and $56 million of severance and other charges. The following
table and discussion presents additional detail related to the $113
million charge.
<TABLE>
<CAPTION>
Asset Severance
In millions Write-downs and Other Total
----------- ----------- --------- -------
<S> <C> <C> <C>
Printing and Communication 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>
9
<PAGE>
(a) The Company recorded a charge of $24 million for severance related
to the second phase of the Printing and Communication Papers
business plan to improve the cost position of its mills. The charge,
pursuant to the Company's ongoing severance program, covers a
reduction of approximately 289 employees at several mills in the
U.S.
Also, management approved a decision to permanently shut down the
Hudson River mill No. 4 paper machine located in Corinth, N.Y. and
the No. 2 paper machine at the Franklin, V.A. mill. The Franklin
machine is scheduled to be shut down in September 1999 and the
Hudson River machine has been shut down. The Hudson River machine
had been temporarily shut down in October 1998 because of lack of
orders. The machines were written down by $6 million to their
estimated fair value of zero. Severance costs of $3 million cover
the termination of 147 employees.
(b) The charge for European Papers, which covers the shutdown of two
mills, consists 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 capacity. The Lana mill
produces approximately 5,000 metric tons of high-end uncoated
specialty paper per year. The Company plans to shift this production
to the La Robertsau mill in Strasbourg, France. The Lana mill fixed
assets were written down $3 million to their estimated fair value of
zero. Costs related to the site closure are expected to be $1
million and severance related to the termination of 42 employees
will be approximately $4 million. The Lana mill had revenues of $5
million and an operating loss of $.4 million for the six months
ended June 30, 1999.
The Corimex coating plant was shut down in April 1999. The market
for thermal fax paper, which was produced at the plant, has been
shrinking since the mid-1990's. The assets at this plant were
considered to be impaired in 1997 and were written down accordingly
at that time. 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 $5 million and an operating loss
of $2 million for the six months ended June 30, 1999.
(c) The Company's Consumer Packaging business has implemented a plan to
improve the overall performance of the Moss Point, Miss., mill.
Included in this plan is the shutdown of the No. 3 paper machine
which produces labels, this production is being transferred to the
Hudson River mill. The machine will be written down $6 million to
its estimated fair value of zero. Severance costs including, but not
limited to, employees associated with the No. 3 machine total $10
million and cover the elimination of 360 positions.
Consumer Packaging also plans to shut down a Latin American
operation in an effort to reduce excess capacity. The assets were
written down $13 million to their estimated fair value of zero and a
severance charge of $1 million covers the elimination of 29
positions. Other exist costs total $1 million.
(d) As a result of the merger with Union Camp, the Company entered into
negotiations with Union Camp's joint venture partner in an
Industrial Packaging business in Turkey to resolve a non-compete
clause in the joint venture agreement. 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
non-compete agreement.
(e) As a result of an overall reduction in market demand for dissolving
pulp, the decision was made to downsize the Company's Natchez mill.
Charges associated with capacity reduction total $10 million and
include the shutdown of several pieces of equipment. A severance
charge of $3 million includes the elimination of 89 positions.
10
<PAGE>
(f) The Company's Industrial Papers business has implemented a plan to
reduce excess capacity at several of its locations. Certain
equipment at the Kaukauna, De Pere, and Menasha, Wis., plants is
scheduled to be shut down and the Toronto, Canada plant has been
closed. The total amount related to the write-down of these assets
is $7 million. Severance costs related to these shutdowns are $5
million and are based on a personnel reduction of 123 employees.
Other exit costs total $2 million.
The $36 million pre-tax credit consists of $30 million related to a
retained exposure at the Lancey mill in France and $6 million of excess
reserves previously established by Union Camp. The Lancey mill was sold to
an employee group in October of 1997. In April 1999, the Company's
remaining exposure to potential obligations under this sale were resolved,
and the reserve was returned to income in the second quarter.
The following table shows the impact of special items on 1998 pre-tax
earnings by quarter:
<TABLE>
<CAPTION>
Quarter
------------------------------------------------------------
In millions First Second Third Fourth Year
- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings before special items, income
taxes and minority interest $ 185 $ 177 $ 128 $ 110 $ 600
Reversal of reserves no longer required 45 38 83
Gain on sale of Veratec business 20 20
Oil and gas impairment charges (55) (56) (111)
Restructuring charges and write-off of
acquired in-process research and
development costs by Scitex (6) (10) (16)
Restructuring and other charges (145) (145)
--------- --------- --------- --------- ---------
Earnings (loss) before income taxes and
minority interest $ 185 $ 171 $ (17) $ 92 $ 431
========= ========= ========= ========= =========
</TABLE>
In June 1998, a $6 million pre-tax charge ($4 million after taxes) was
recorded to write off in-process research and development costs related to
an acquisition by Scitex, an investee company owned approximately 13% by
International Paper.
During the 1998 third quarter the Company recorded special items resulting
in a pre-tax charge of $145 million ($82 million after taxes and minority
interest). These items included a $45 million pre-tax gain ($27 million
after taxes) for the reversal of previously established reserves that were
no longer required and a $20 million pre-tax gain ($12 million after
taxes) from the sale of the Veratec nonwovens business. The Company also
recorded a $55 million pre-tax charge ($33 million after taxes) to write
down the value of its oil and gas assets. This write-down was made in
accordance with the Securities and Exchange Commission's regulation that
companies that use the full-cost method of accounting for oil and gas
activities perform a ceiling test on a quarterly basis. Also during the
third quarter, the Company recorded restructuring and other charges of
$145 million ($82 million after taxes and minority interest) consisting of
$64 million of asset write-downs and $81 million of severance costs and a
$10 million charge ($6 million after taxes) which represents International
Paper's share of a restructuring reserve taken by Scitex to exit its
digital video business.
In December 1998, the Company recorded a pre-tax charge of $56 million
($35 million after taxes) for the further impairment of its oil and gas
assets due to declining prices. After further analysis of previously
established reserves, an additional $38 million ($23 million after taxes)
was returned to earnings in the fourth quarter of 1998.
A full discussion of these charges is included in the Company's 1998
Annual Report filed on Form 10-K.
11
<PAGE>
The following table is a roll forward of the severance costs included in
the 1998 restructuring plan:
In millions Severance
----------- ---------
Opening balance - third quarter 1998 $ 81
Cash charges - fourth quarter 1998 (19)
---------
Balance, December 31, 1998 62
Cash charges - first quarter 1999 (36)
Cash charges - second quarter 1999 (14)
Reserve reversal (6)
---------
Balance, June 30, 1999 $ 6
=========
The severance reserve recorded in the 1998 third quarter is related to
2,508 employees. At December 31, 1998, 1,080 employees had been
terminated. At June 30, 1999, 2,049 employees had been terminated. We
anticipate that substantially all of the remaining reserve will be
utilized by December 31, 1999.
In June 1997, a $535 million pre-tax business improvement charge ($385
million after taxes) was established under a plan to improve the Company's
financial performance through closing or divesting of operations that no
longer met financial or strategic objectives. The charge included
approximately $230 million for asset write-downs, $210 million for the
estimated losses on sales of businesses and $95 million for severance and
other expenses. The severance charge was based on a head count reduction
of 3,015 employees. At December 31, 1998, 2,446 employees had been
terminated. At June 30, 1999, 2,671 employees had been terminated. A full
discussion of this reserve is included in the Company's 1998 Annual Report
filed on Form 10-K.
12
<PAGE>
The following table is a roll forward of the severance and other costs
included in the 1997 restructuring plan:
Severance
In millions and Other
----------- ---------
Opening balance - second quarter 1997 $ 95
1997 Activity
Asset write-downs (18)
Cash charges (15)
---------
Balance, December 31, 1997 62
1998 Activity
Asset write-downs (4)
Reserve reversals (9)
Cash charges (40)
---------
Balance, December 31, 1998 9
1999 Activity
Cash charges - first quarter 1999 (2)
Cash charges - second quarter 1999 (7)
---------
Balance, June 30, 1999 $ 0
=========
8. Inventories by major category include:
June 30, December 31,
In millions 1999 1998
----------- ------------- ------------
Raw materials $ 390 $ 555
Finished pulp, paper and packaging products 1,826 1,800
Finished lumber and panel products 191 183
Operating supplies 485 510
Other 186 163
------------- ------------
Total $ 3,078 $ 3,211
============= ============
9. Interest payments made during the six month periods ended June 30, 1999
and 1998 were $331 million and $390 million, respectively. Capitalized net
interest costs were $16 million for the six months ended June 30, 1999.
The Company capitalized net interest costs of $29 million for the six
months ended June 30, 1998. Total interest expense was $314 million for
the six months ended June 30, 1999 and $359 million for the six months
ended June 30, 1998. Income tax payments made during the six months ended
June 30, 1999 and 1998 were $20 million and $122 million respectively.
10. Temporary investments with a maturity of three months or less are treated
as cash equivalents and are stated at cost. Temporary investments totaled
$194 million and $316 million at June 30, 1999 and December 31, 1998,
respectively.
11. Accumulated depreciation was $14.7 billion at June 30, 1999 and $14.2
billion at December 31, 1998. The allowance for doubtful accounts was $114
million at June 30, 1999 and $115 million at December 31, 1998.
13
<PAGE>
12. The Company's equity investments consist primarily of Scitex and Carter
Holt Harvey's 30% ownership in COPEC, which it holds through a joint
venture. Both Scitex and COPEC are publicly traded companies. At June 30,
1999, the carrying amounts of these investments and their market values
based on the closing per share amounts were as follows:
In millions Scitex COPEC
----------- ------- -------
Carrying amount $ 33 $ 830
Market value $ 57 $ 1,325
For various reasons, the market values on the closing per share amount may
be higher or lower than the amount that could be realized if these
investments were sold.
13. The Company uses financial instruments primarily to hedge its exposure to
currency and interest rate risk. To qualify as hedges, financial
instruments must reduce the currency or interest rate risk associated with
the related underlying items and be designated as hedges by management.
Gains or losses from the revaluation of financial instruments which do not
qualify for hedge accounting treatment are recognized in earnings.
The Company has a policy of financing a portion of its investments in
overseas operations with borrowings denominated in the same currency as
the investment or by entering into foreign exchange contracts in tandem
with U.S. dollar borrowings. These contracts are effective in providing a
hedge against fluctuations in currency exchange rates. Gains or losses
from the revaluation of these contracts, which are fully offset by gains
or losses from the revaluation of the net assets being hedged, are
determined monthly based on published currency exchange rates and are
recorded as translation adjustments in common shareholders' equity. Upon
liquidation of the net assets being hedged or early termination of the
foreign exchange contracts, the gains or losses from the revaluation of
foreign exchange contracts are included in earnings. Amounts payable to or
due from the counterparties to the foreign exchange contracts are included
in accrued liabilities or accounts receivable as applicable.
The Company also utilizes foreign exchange contracts to hedge certain
transactions that are denominated in foreign currencies, primarily export
sales and equipment purchases from nonresident vendors. These contracts
serve to protect the Company from currency fluctuations between the
transaction and settlement dates. Gains or losses from the revaluation of
these contracts, based on published currency exchange rates, along with
offsetting gains or losses resulting from the revaluation of the
underlying transactions, are recognized in earnings or deferred and
recognized in the basis of the underlying transaction when completed. Any
gains or losses arising from the cancellation of the underlying
transactions or early termination of the foreign currency contracts are
included in earnings.
The Company uses cross-currency and interest rate swap agreements to
manage the composition of its fixed and floating rate debt portfolio.
Amounts to be paid or received as interest under these agreements are
recognized over the life of the swap agreements as adjustments to interest
expense. Gains or losses from the revaluation of cross-currency swap
agreements that qualify as hedges of investments are recorded as
translation adjustments in common shareholders' equity. Gains or losses
from the revaluation of cross-currency swap agreements that do not qualify
as hedges of investments are included in earnings. The related amounts
payable to or receivable from the counterparties to the agreements are
included in accrued liabilities or accounts receivable. If swap agreements
are terminated early, the resulting gain or loss is deferred and amortized
over the remaining life of the related debt.
The Company does not hold or issue financial instruments for trading
purposes. The counterparties to the Company's interest rate swap
agreements and foreign exchange contracts consist of a number of major
14
<PAGE>
international financial institutions. The Company continually monitors its
positions with and the credit quality of these financial institutions and
does not expect nonperformance by the counterparties.
14. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes 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. The Statement requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement and requires that a company must
formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
The Statement is effective for fiscal years beginning after June 15, 2000.
A company may also implement the Statement as of the beginning of any
fiscal quarter after issuance. The Statement cannot be applied
retroactively. The Statement must be applied to (a) derivative instruments
and (b) certain derivative instruments embedded in hybrid contracts that
were issued, acquired, or substantively modified after December 31, 1997
(and, at the company's election, before January 1, 1998).
The Company has not yet quantified the impact of adopting the Statement on
its consolidated financial statements and has not determined the timing of
or method of the adoption. However, adoption of the provisions of the
Statement could increase volatility in earnings and other comprehensive
income.
15. Certain reclassifications have been made to prior-year amounts to conform
with the current-year presentation.
16. On August 11, 1999 the Company issued Euro 250 million notes in bearer
form, with a coupon of 5 3/8%. The notes were issued at 99.516% of the par
amount and mature on August 11, 2006. These notes are subject to
redemption in whole, but not in part, at any time, at the option of the
Company. International Paper may also call the notes in the event of
certain changes affecting taxation in the United States.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
-------------
Results of Operations
International Paper's second-quarter 1999 net sales were $5,996 million about
even with $6,032 million in the 1999 first-quarter and slightly ahead of 1998
second-quarter net sales of $5,833 million. On April 30, 1999, the Company
completed its previously announced merger with Union Camp Corporation in a
transaction accounted for as a pooling-of-interests. The accompanying financial
statements have been restated to include the financial position and results of
operations for both International Paper and Union Camp for all periods
presented.
International Paper reported second quarter 1999 earnings of $99 million, or
$.24 per share, before special and extraordinary items. This is an increase of
$67 million ($.16 per share) over first quarter 1999 earnings of $32 million
($.08 per share) but down from the 1998 second quarter net earnings of $107
million before special charges or $.25 per share.
After special and extraordinary items, we reported a loss of $71 million or $.17
per share in the second-quarter of 1999. Special items amounted to $234 million
before tax ($157 million after tax or $.38 per share) and consisted of charges
of $98 million for Union Camp merger-related severance, $59 million for one-time
merger expenses, $113 million for asset shut downs of excess internal capacity
and cost reduction actions and credits of $36 million from the reversal of
restructuring reserves that were no longer required. The Company also recorded
an extraordinary item of $13 million after tax or $.03 per share for the
refinancing of high interest Union Camp debt which International Paper assumed
under the merger agreement. Second-quarter 1998 earnings were $103 million or
$.25 per share after a charge of $6 million ($4 million after tax) to write off
in-process research and development costs related to an acquisition by Scitex, a
13% owned investee company.
Printing and Communications Papers 1999 second-quarter net sales of $1,405
million were down from $1,475 million in the 1999 first-quarter and $1,480
million in the 1998 second-quarter. Operating profit for the 1999 second-quarter
was $22 million, up from $8 million in the 1999 first-quarter and down from $77
million in the 1998 second-quarter. North American Papers earnings increased
about 9% over the previous quarter, and European Papers earnings nearly doubled.
Contributing significantly to this increase was the converting and specialty
papers business which achieved profitability in the 1999 first-quarter. Our
North American Pulp business remained in a net loss position, but showed
significant improvement from the previous quarter. With prices remaining below
those in 1998, earnings for the segment were down about 72% from the 1998
second-quarter. North American Papers earnings were down about 52% from the
second quarter of 1998 while North American Pulp results were down approximately
21% and European Papers earnings declined 67%.
Printing & Communications Papers (in millions)
----------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------ ------------------------------------------------
1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,475 $1,405 $2,880 $1,585 $1,480 $3,065
Operating Profit $8 $22 $30 $98 $77 $175
</TABLE>
Industrial and Consumer Packaging 1999 second-quarter net sales were $1,760
million, up from $1,675 million in the 1999 first-quarter and about even with
the $1,790 million in the 1998 second-quarter. Second-quarter 1999 operating
profit of $142 million was a significant improvement over the $56 million in the
previous quarter and up 29% from the second-quarter 1998 operating profit of
$110 million. Industrial Packaging earnings were up tenfold over the previous
quarter as containerboard price increases were realized. Consumer Packaging
results increased nearly a third largely due to improved earnings in bleached
board and beverage packaging. Compared to the 1998 second quarter, Industrial
Packaging earnings more than doubled. This improvement was offset by a
16
<PAGE>
19% reduction in earnings from Consumer Packaging resulting in an overall
increase to segment earnings of 29%.
Industrial & Consumer Packaging (in millions)
---------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------ ------------------------------------------------
1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,675 $1,760 $3,435 $1,730 $1,790 $3,520
Operating Profit $56 $142 $198 $90 $110 $200
</TABLE>
Distribution 1999 second-quarter net sales of $1,675 million were about even
with $1,700 million in the 1999 first-quarter but ahead of the 1998
second-quarter of $1,380 million. The July 1998 acquisition of Zellerbach is the
main reason that sales increased over the 1998 second-quarter. Second-quarter
1999 operating profit of $27 million reflects a 13% improvement from the $24
million in the 1999 first-quarter and 35% over the $20 million in the 1998
second-quarter. Margins improved and more benefits were realized from the
Zellerbach merger.
Distribution (in millions)
--------------------------
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------ ------------------------------------------------
1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,700 $1,675 $3,375 $1,410 $1,380 $2,790
Operating Profit $24 $27 $51 $17 $20 $37
</TABLE>
Chemicals and Petroleum, which includes results from our approximately 68% owned
subsidiary, Bush Boake Allen, reported 1999 second-quarter net sales of $360
million which were slightly higher than the $350 million in the previous quarter
and down 4% from the 1998 second-quarter. Operating profit of $28 million in the
current quarter is up from the $19 million in the previous quarter primarily
because of improvement in demand for chemical products and higher oil and gas
prices. Operating profit in the 1998 second-quarter was $31 million.
Chemicals & Petroleum (in millions)
-----------------------------------
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------ ------------------------------------------------
1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $350 $360 $710 $365 $375 $740
Operating Profit $19 $28 $47 $30 $31 $61
</TABLE>
Forest Products 1999 second-quarter net sales of $815 million were up from the
$785 million in the 1999 first-quarter and $715 million in the 1998
second-quarter. Current quarter operating profit of $175 million is up slightly
from the previous quarter but well ahead of the $136 million in the 1998
second-quarter. A 61% increase over the 1999 first-quarter in Building Materials
earnings was offset by a 26% decline in earnings from Forest Resources. Driving
the increase in Building Materials over the first-quarter was the Wood Products
business whose earnings nearly doubled on very strong demand. Panel prices
reached record levels and lumber prices continued to rise. From the 1998
second-quarter, Building Materials operating profit more than doubled as Wood
Products results increased sevenfold. Forest Resources earnings were down about
9% from the 1998 second-quarter reflecting lower timber sales in the current
quarter.
Forest Products (in millions)
-----------------------------
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------ ------------------------------------------------
1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $785 $815 $1,600 $715 $715 $1,430
Operating Profit $174 $175 $349 $125 $136 $261
</TABLE>
Carter Holt Harvey reported net sales of $400 million in the 1999 second-quarter
compared with $365 million in the 1999 first quarter and $365 million in the
1998 second-quarter. Second-quarter 1999 operating profit for
17
<PAGE>
Carter Holt Harvey improved from breakeven in the 1999 first quarter to $8
million. Carter Holt Harvey earned $11 million in the 1998 second-quarter. Sales
volumes for Forests for the 1999 second quarter were up 20% over last year
driven by a recovery in the Korean and Japanese export markets. Timber results
were down slightly from prior and first quarter, volume improved, but prices
declined. Tissue results, which remained strong, improved over the first quarter
because of lower costs and and higher volumes. Pulp and Paper was impacted in
the second quarter by scheduled downtime at the Kinleith mill. Packing results
were lower due to lower prices.
Carter Holt Harvey (in millions)
--------------------------------
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------ ------------------------------------------------
1st Quarter 2nd Quarter Six Months 1st Quarter 2nd Quarter Six Months
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $365 $400 $765 $415 $365 $780
Operating Profit - $8 $8 $4 $11 $15
</TABLE>
International Paper's results for this segment differ from those reported by
Carter Holt Harvey in New Zealand due to (1) Carter Holt Harvey's fiscal year
ends March 31 versus our calendar year, (2) our segment earnings include only
our share of Carter Holt Harvey's operating earnings while 100% of sales are
included, (3) our results are in U.S. dollars while Carter Holt Harvey reports
in New Zealand dollars, and (4) Carter Holt Harvey reports under New Zealand
accounting standards while our segment results comply with U.S. generally
accepted accounting principles. The major accounting differences relate to cost
of timber harvested and start-up costs.
Liquidity and Capital Resources
Cash provided by operations totaled $703 million for the 1999 first half
compared with $725 million for the 1998 six month period. Lower earnings for the
1999 first half were partially offset by decreased working capital requirements.
Working capital on a cash flow basis increased $45 million during the first half
of 1999 compared with an increase of $199 million for the first half of 1998.
Investments in capital projects totaled $459 million for the 1999 six month
period compared to the $596 million spent in the first half of 1998. Cash flow
generated by operations, supplemented as necessary by short- or long-term
borrowings, is anticipated to be adequate to fund expected capital expenditures.
Capital expenditures for 1999 are anticipated to be approximately $1.2 billion,
which is below depreciation expense. Discretionary capital spending will be
primarily for reducing costs, stabilizing processes and improving services.
Financing activities for the 1999 and 1998 six month periods include a $45
million net increase and $360 million net reduction in primarily short-term
debt, respectively. During the 1998 first quarter, $170 million of 7.005%
preferred securities were issued by a subsidiary of the Company as part of the
financing to repurchase the outstanding units of IP Timberlands, Ltd. During the
second quarter of 1998, the Company issued $550 million of preferred securities
with a dividend payment based on LIBOR, the proceeds of which were used to
retire short-term debt. Both of these securities are classified in the
consolidated balance sheet as a minority interest liability and the dividend
payments are included in minority interest expense.
Common stock dividend payments were $212 million or $.51 per common share for
the 1999 first half and $214 million or $.52 per common share for the 1998 first
half. Dividend payments for the second quarters ended June 30, 1999 and 1998
were $104 million or $.25 per common share and $109 million or $.26 per common
share, respectively.
Mergers and Acquisitions
On November 24, 1998, the Company announced that it had reached an agreement to
merge with Union Camp Corporation (Union Camp), a diversified paper and forest
products company. The transaction was approved by Union Camp and International
Paper shareholders on April 30, 1999. Union Camp shareholders received 1.4852
18
<PAGE>
International Paper common shares for each Union Camp share held. The exchange
ratio was calculated based on an average closing price of International Paper
common shares of $47.80625 per share. The average closing price of International
Paper common shares was determined from ten randomly selected days during the 20
trading day period from March 26 through April 23. Based on this exchange ratio
and International Paper's closing price on April 28, 1999 of $57.375 per share,
the equity value of the transaction was approximately $6.3 billion, or $85.21
per Union Camp share. The total value of the transaction, including the
assumption of debt, was approximately $7.9 billion.
International Paper issued approximately 110 million shares for approximately 74
million Union Camp shares, including options. Assuming dilution, approximately
417 million shares of International Paper are outstanding. Former Union Camp
shareowners own 26.3% of International Paper. The merger was accounted for as a
pooling of interests.
The merger is expected to result in at least $425 million in annual cost savings
by the end of the year 2000, an increase from previously reported cost savings
of $300 million, through a combination of reductions in overhead, process
improvements, facility rationalization, purchasing and logistics savings.
Restructuring, Special and Extraordinary Items
During the second quarter of 1999 the Company recorded special items amounting
to a net pre-tax charge of $234 million ($158 million after taxes). The special
items included a $98 million pre-tax charge ($67 million after taxes) for Union
Camp merger-related termination benefits, a $59 million pre-tax charge ($49
million after taxes) for one-time merger expenses, a $113 million charge ($69
million after taxes) for asset shutdowns of excess internal capacity and cost
reduction actions, and a $36 million pre-tax credit ($27 million after taxes)
for the reversal of reserves that were no longer required.
The Company also recorded an extraordinary $21 million pre-tax charge ($13
million after taxes) related to the refinancing of high interest Union Camp
debt, which the Company assumed under the merger agreement.
The one-time merger expenses of $59 million consist of $49 million of merger
costs and $10 million of post-merger expenses. The merger costs are primarily
investment banker, consulting, legal and accounting fees. Post-merger expenses
include costs related to employee retention, such as stay bonuses, and other
one-time cash costs related to the integration of Union Camp.
The Union Camp merger-related termination benefit charge results from the
integration of the previously separate International Paper and Union Camp
organizations. Under an integration benefits program, as of June 30, 1999, 572
employees of the combined company had been identified for termination. Benefits
for certain senior executives and managers are to be paid from the general
assets of the Company. Benefits for remaining employees will be paid from plan
assets of the Company's qualified pension plan. Through June 30, 1999, 83
employees have been terminated. Cash payments related thereto approximated $24
million. The majority of the remaining charge represents an increase in the
projected benefit obligation of the Company's pension plan.
The following table is a roll forward of the Union Camp merger-related
termination benefit charge:
Termination
In millions Benefits
----------- -----------
Opening balance - second quarter 1999 $ 98
Cash charges - second quarter 1999 (24)
Increase in projected benefit obligation (6)
-----------
Balance, June 30, 1999 $ 68
===========
19
<PAGE>
The $113 million charge for the asset shutdowns of excess internal capacity and
cost reduction actions includes $57 million of asset write-downs and $56
million of severance and other charges. The following table and discussion
presents additional detail related to the $113 million charge.
<TABLE>
<CAPTION>
Asset Severance
In millions Write-downs and Other Total
----------- ------------- ------------- -------------
<S> <C> <C> <C>
Printing and Communication 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) The Company recorded a charge of $24 million for severance related
to the second phase of the Printing and Communication Papers
business plan to improve the cost position of its mills. The charge,
pursuant to the Company's ongoing severance program, covers a
reduction of approximately 289 employees at several mills in the
U.S.
Also, management approved a decision to permanently shut down the
Hudson River mill No. 4 paper machine located in Corinth, N.Y. and
the No. 2 paper machine at the Franklin, V.A. mill. The Franklin
machine is scheduled to be shut down in September 1999 and the
Hudson River machine has been shut down. The Hudson River machine
had been temporarily shut down in October 1998 because of lack of
orders. The machines were written down by $6 million to their
estimated fair value of zero. Severance costs of $3 million cover
the termination of 147 employees.
(b) The charge for European Papers, which covers the shutdown of two
mills, consists 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 capacity. The Lana mill
produces approximately 5,000 metric tons of high-end uncoated
specialty paper per year. The Company plans to shift this production
to the La Robertsau mill in Strasbourg, France. The Lana mill fixed
assets were written down $3 million to their estimated fair value of
zero. Costs related to the site closure are expected to be $1
million and severance related to the termination of 42 employees
will be approximately $4 million. The Lana mill had revenues of $5
million and an operating loss of $.4 million for the six months
ended June 30, 1999.
The Corimex coating plant was shut down in April 1999. The market
for thermal fax paper, which was produced at the plant, has been
shrinking since the mid-1990's. The assets at this plant were
considered to be impaired in 1997 and were written down accordingly
at that time. 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 $5 million and an operating loss
of $2 million for the six months ended June 30, 1999.
(c) The Company's Consumer Packaging business has implemented a plan to
improve the overall performance of the Moss Point, Miss., mill.
Included in this plan is the shutdown of the No. 3 paper machine
which produces labels, this production is being transferred to the
Hudson River mill. The machine will be written down $6 million to
its estimated fair value of zero. Severance costs including, but not
limited to, employees associated with the No. 3 machine total $10
million and cover the elimination of 360 positions.
Consumer Packaging also plans to shut down a Latin American
operation in an effort to reduce excess capacity. The assets were
written down $13 million to their estimated fair value of zero and a
severance charge of $1 million covers the elimination of 29
positions. Other exist costs total $1 million.
20
<PAGE>
(d) As a result of the merger with Union Camp, the Company entered into
negotiations with Union Camp's joint venture partner in an
Industrial Packaging business in Turkey to resolve a non-compete
clause in the joint venture agreement. 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
non-compete agreement.
(e) As a result of an overall reduction in market demand for dissolving
pulp, the decision was made to downsize the Company's Natchez mill.
Charges associated with capacity reduction total $10 million and
include the shutdown of several pieces of equipment. A severance
charge of $3 million includes the elimination of 89 positions.
(f) The Company's Industrial Papers business has implemented a plan to
reduce excess capacity at several of its locations. Certain
equipment at the Kaukauna, De Pere, and Menasha, Wis., plants is
scheduled to be shut down and the Toronto, Canada plant has been
closed. The total amount related to the write-down of these assets
is $7 million. Severance costs related to these shutdowns are $5
million and are based on a personnel reduction of 123 employees.
Other exit costs total $2 million.
The $36 million pre-tax credit consists of $30 million related to a retained
exposure at the Lancey mill in France and $6 million of excess reserves
previously established by Union Camp. The Lancey mill was sold to an employee
group in October of 1997. In April 1999, the Company's remaining exposure to
potential obligations under this sale were resolved, and the reserve was
returned to income in the second quarter.
International Paper continually evaluates its operations for improvement. When
any such plans are finalized the Company may incur costs or charges in future
periods related to the implementation of such plans. We expect to incur charges
in the second half of 1999 for additional severance related to the Union Camp
merger and also to incur other one-time merger costs.
Other
Interest expense decreased from $314 million for the first half of 1998 to $266
million in the 1999 first half. During 1998 about $1.5 billion of preferred
securities of subsidiaries were issued and debt was reduced by approximately
$1.8 billion. The distributions of the preferred securities are included in
minority interest expense. This decrease in debt was the primary reason for the
decline in interest expense from the 1998 first quarter.
Minority interest expense for the 1999 first half increased due to increased
expense related to preferred securities partially offset by lower earnings at
Carter Holt Harvey, which is owned approximately 50.1% by International Paper.
The effective income tax rate for the 1999 first half declined to 17% from 31%
in the 1998 first half primarily due to changes in the mix of estimated annual
earnings. The fourth quarter 1998 rate of 8%, included adjustments to lower the
full year 1998 rate to 22%. The adjustments were a result of the impact of state
tax credits, changes in the geographic mix of overall taxable earnings, and
permanent tax benefits on sales of non-U.S. businesses and non-strategic
timberland assets. The following table presents the components of pre-tax
earnings and losses and the related income tax expense or benefit for each of
the six month periods ended June 30, 1999 and 1998.
21
<PAGE>
<TABLE>
<CAPTION>
1999 1998
-------------------------------------- --------------------------------------
Pre-Tax Tax Pre-Tax Tax
Earnings Expense Effective Earnings Expense Effective
(Loss) (Benefit) Tax Rate (Loss) (Benefit) Tax Rate
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Before special and extraordinary
items $ 313 $ 94 30% $ 362 $ 114 31%
Union Camp merger-related
termination benefits (98) (31) 32%
One-time merger expenses (59) (10) 17%
Restructuring and other charges (113) (44) 39%
Reversals of reserves no longer
required 36 9 25%
Loss on extinguishment of debt (21) (8) 38%
Write-off of in-process research
and development costs acquired
by an investee company (6) (2) 33%
---------- ---------- ---------- ----------
After special and extraordinary
items $ 58 $ 10 17% $ 356 $ 112 31%
========== ========== ========== ==========
</TABLE>
Year 2000 Readiness
The Year 2000 problem concerns the inability of systems to properly recognize
and process date-sensitive information beyond January 1, 2000.
We have substantially completed the necessary testing, remediation and final
action plans at International Paper facilities in an effort to ensure that we
will enter the Year 2000 without a material disruption to our customers. The
program covers information systems infrastructure, financial and administrative
systems, process control and manufacturing operating systems. It also includes
readiness assessment of significant vendors and customers, as well as a
contingency and continuing compliance plan. The former Union Camp facilities
acquired in our recent merger are on track to meet a September 30, 1999 target
date for completion of this program. The Year 2000 Program Office, a centralized
department which coordinates Y2K efforts throughout the Company, will continue
to support our extensive network of Y2K coordinators and contacts up to and
through the year 2000.
Some systems will be addressed between now and year end for practical business
reasons. These exceptions to our target dates represent less than .5% of our
total inventory of potential Y2K exposure items and do not present major risks
to the continued operation of the Company.
Examples include:
o There were replacement projects initiated before the Year 2000 plan
was developed which will be kept on schedule to avoid disruption and
additional cost. While these projects solve some of the Company's
Year 2000 problems, their implementation was driven by efficiency
considerations and would have been conducted even in the absence of
the Year 2000 plan.
o Some systems will be remediated during normal facility maintenance
shutdowns scheduled during the second half of the year, because
this is the most feasible time to complete the work.
o There are cases where system remediation is resolved through
workarounds that cannot be scheduled before late 1999. An example
would be shutting a system down on December 31, 1999, and restarting
it on January 1, 2000.
22
<PAGE>
The Company adopted a 9-step process toward Year 2000 in readiness: (1) planning
and awareness; (2) inventory; (3) triage (assess risks and prioritize efforts);
(4) detailed assessment (identification of where failures may occur, solutions
and workarounds, and plans to repair or replace); (5) resolution (repair,
replace or retire systems that cannot properly process Year 2000 dates; create
bridges to other systems and perform unit testing); (6) test planning; (7) test
execution (some manufacturing systems require scheduling of equipment downtime);
(8) deployment of compliant systems; and (9) fallout (remove bridges and
patches; recertify). These steps are essentially complete.
Our estimate of the incremental Year 2000-related costs is $90 million plus or
minus 10% which includes $15 million for the former Union Camp facilities. This
cost excludes software and systems that are being replaced or upgraded in the
normal course of business. The majority of these costs relate to production
facility systems. Spending through June 30, 1999 was $66 million. Our policy is
to expense as incurred information system maintenance and modification costs and
to capitalize the cost of new software and amortize it over the assets' useful
lives.
We utilized internal personnel, contract programmers and vendors to identify
Year 2000 noncompliance problems, modify code and test the modifications. In
some cases, non-compliant software and hardware were replaced.
We rely on third-party suppliers for raw materials, water, utilities,
transportation and other key services. Interruption of supplier operations due
to Year 2000 issues could affect Company operations. An ongoing program is in
place to evaluate the status of suppliers' efforts and to determine alternatives
and contingency plan requirements. This program includes both written
correspondence with suppliers and visits to supplier facilities to assess their
readiness. We are receiving assurances from its supplier base that they will be
able to handle the transition to the Year 2000. These activities are intended to
provide a means of managing risk, but cannot entirely eliminate the potential
for disruption due to third-party failure. Approaches to reduce the risks of
interruption due to supplier failures vary by business and facility. Contingency
options include identification of alternate suppliers and accumulation of
inventory to assure production capability where feasible or warranted. We
believe that no individual vendor is material to our total business.
We are also dependent upon our customers for sales and cash flow. Year 2000
interruptions in our customers' operations could result in reduced sales,
increased inventory or receivable levels, and cash flow reductions. While these
events are possible, we believe that our customer base is broad enough to
minimize the effects of a single occurrence. We are, however, monitoring the
status of our customers through discussions and correspondence as a means of
determining risks and alternatives. We believe that no individual customer is
material to our total business. None of our larger customers are significant as
defined by the provisions of Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information."
Our manufacturing facilities (mills and converting plants) rely on control
systems that include production monitoring, power, emissions and safety. The
pulp and paper mills operated by the Company utilize various complex control
systems to monitor and regulate power, emissions and production operations.
Failure to identify, correct and test Year 2000-sensitive systems at any one of
these facilities could result in manufacturing interruptions, possible
environmental contamination or safety hazards. Annual sales for our larger U.S.
mills range from approximately $100 million to $500 million at each site.
Control systems used at the converting facilities cover comparable operations.
The production impact of a Year 2000-related interruption varies significantly
between facilities, but would be typically much smaller in terms of sales than a
comparable event at a pulp and paper mill.
23
<PAGE>
While comparable control systems are used, specific facility-related
configurations exist to meet the needs of production equipment at each of the
Company's mills and plants. If a failure were to occur, the potential impact
would be isolated to the affected facility. Also, in many cases, the Company has
the capability of manufacturing the same product at different facilities.
The consequences of a Year 2000-related event could range from an orderly
shutdown of one or more facilities to a sudden halt at one or more facilities,
with possible safety, environmental and equipment impact. The likelihood of
either type of event, or the related financial impact, is not reasonably
predictable. Our contingency planning efforts include consideration of reduced
operations or shutdowns over the new year. Decisions regarding the need or
feasibility of such actions are not expected to be made until later in 1999.
Production facility systems represent our greatest area of risk, and plans are
in place to reduce the risk of noncompliance of these systems, including
contingency planning. While we believe our efforts will provide reasonable
assurance that material disruptions will not occur due to internal failure, the
potential for interruption still exists. Production facility shutdowns could
have a material adverse effect on the Company's results of operations, financial
condition and cash flows. Recovery under existing insurance policies may be
available depending upon the circumstances of a Year 2000-related event and the
type of facility involved. Potential recoveries in the event of facility damage,
including business interruption, would be subject to deductibles that range from
$100,000 to $10 million.
We also rely on various administrative and financial applications (e.g., order
processing and collection systems) that require correction to properly handle
Year 2000 dates. In the event that one of these systems were not corrected, our
ability to capture, schedule and fulfill customer demands could be impaired.
Likewise, if a collection processing system were to fail, we may not be able to
properly apply payments to customer balances or correctly determine cash
balances. Centrally controlled administrative applications are essentially
complete. Various non-centrally controlled systems are also utilized by our
businesses. The impact of a failure of these systems would be limited to the
business using the affected system, and then only to the extent that manual or
other alternate processes were not able to meet processing requirements. Such an
occurrence is not expected to have a significant adverse impact on the Company.
THE ESTIMATES AND CONCLUSIONS HEREIN CONTAIN FORWARD-LOOKING STATEMENTS AND ARE
BASED ON THE COMPANY'S BEST ESTIMATES OF FUTURE EVENTS. RISKS TO COMPLETING THE
PLAN INCLUDE THE AVAILABILITY OF RESOURCES, OUR ABILITY TO DISCOVER AND CORRECT
THE POTENTIAL YEAR 2000 PROBLEMS THAT COULD HAVE A SERIOUS IMPACT ON SPECIFIC
FACILITIES, AND THE ABILITY OF SUPPLIERS TO BRING THEIR SYSTEMS INTO YEAR 2000
COMPLIANCE.
24
<PAGE>
ITEM 3. OTHER FINANCIAL INFORMATION
- -----------------------------------
Financial Information by Industry Segment
(Unaudited)
(In millions)
Net Sales by Industry Segment
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Printing and Communications Papers $ 1,405 $ 1,480 $ 2,880 $ 3,065
Industrial and Consumer Packaging 1,760 1,790 3,435 3,520
Distribution 1,675 1,380 3,375 2,790
Chemicals and Petroleum 360 375 710 740
Forest Products 815 715 1,600 1,430
Carter Holt Harvey 400 365 765 780
Corporate and Intersegment Sales (1) (419) (272) (737) (486)
-------- -------- -------- --------
Net Sales $ 5,996 $ 5,833 $ 12,028 $ 11,839
======== ======== ======== ========
</TABLE>
Operating Profit by Industry Segment
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Printing and Communications Papers $ 22 $ 77 $ 30 $ 175
Industrial and Consumer Packaging 142 110 198 200
Distribution 27 20 51 37
Chemicals and Petroleum 28 31 47 61
Forest Products 175 136 349 261
Carter Holt Harvey (2) 8 11 8 15
-------- -------- -------- --------
Operating Profit 402 385 683 749
Interest Expense, Net (123) (156) (266) (314)
Minority Interest Adjustment 15 23 21 42
Corporate Items, Net (1) (3) (98) (75) (149) (116)
Restructuring and other charges (113) (113)
Merger integration costs (157) (157)
Reversal of reserves no longer required 36 36
Scitex restructuring and other charges 2 (6) 3 (5)
-------- -------- -------- --------
Earnings (loss) before income taxes,
minority interest and extraordinary item $ (36) $ 171 $ 58 $ 356
======== ======== ======== ========
</TABLE>
(1) Includes results from operations that were disposed of in 1998.
(2) Includes equity earnings (in millions) of $21 and $11 for the 3 months
ended June 30, 1999 and 1998 respectively and $22 and $16 for the six
months ended June 30, 1999 and 1998, respectively. Half of these equity
earnings amounts are in the Carter Holt Harvey segment and half are in the
minority interest adjustment.
(3) Includes goodwill amortization related to Federal Paper Board (in
millions) of $10 for the three months ended June 30, 1999 and 1998 and $20
for the six months ended June 30, 1999 and 1998.
25
<PAGE>
Production by Product
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Printing Papers (In thousands of tons)
White Papers and Bristols 1,288 1,252 2,567 2,593
Coated Papers 339 308 655 640
Market Pulp (a) 448 467 961 1,006
Newsprint 25 23 48 47
Packaging (In thousands of tons)
Containerboard 1,225 1,141 2,340 2,350
Bleached Packaging Board 531 551 1,081 1,072
Industrial Papers 234 223 445 445
Industrial and Consumer Packaging (b) 1,268 1,251 2,502 2,397
Specialty Products (In thousands of tons)
Tissue 39 37 81 72
Forest Products (In millions)
Panels (sq. ft. 3/8" - basis) (c) 492 469 979 883
Lumber (board feet) 715 699 1,498 1,355
MDF (sq. ft. 3/4" - basis) 58 80 114 159
Particleboard (sq. ft. 3/4" - basis) 51 48 97 95
</TABLE>
(a) This excludes market pulp purchases.
(b) A significant portion of this tonnage was fabricated from paperboard and
paper produced at the Company's own mills and included in the
containerboard, bleached packaging board and industrial papers amounts in
this table.
(c) Panels include plywood and oriented strand board.
26
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
Masonite Litigation
Three nationwide class action lawsuits filed against the Company have been
settled.
The first suit alleged that hardboard siding manufactured by Masonite fails
prematurely, allowing moisture intrusion that in turn causes damage to the
structure underneath the siding. The class consisted of all U.S. property owners
having Masonite hardboard siding installed on and incorporated into buildings
between 1980 and January 15, 1998. Final approval of the settlement was granted
by the court on January 15, 1998. The settlement provides for monetary
compensation to class members meeting the settlement requirements on a
claims-made basis. It also provides for the payment of attorneys' fees equaling
fifteen percent of the settlement amounts paid to class members, with a
nonrefundable advance of $47.5 million plus $2.5 million in costs.
The second suit made similar allegations with regard to Omniwood siding
manufactured by Masonite (the "Omniwood Lawsuit"). The class consists of all
U.S. property owners having Omniwood siding installed on and incorporated into
buildings from January 1, 1992 to January 6, 1999. The third suit alleged that
Woodruf roofing manufactured by Masonite is defective and causes damage to the
structure underneath the roofing (the "Woodruf Lawsuit"). The class consists of
all U.S. property owners on which Masonite Woodruf roofing has been incorporated
and installed 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 provides for payment of attorneys' fees equaling thirteen
percent of the settlement amounts paid to class members with a nonrefundable
advance of $1.7 million plus $75,000 in costs for each of the two cases.
While the total cost of these three settlements is not presently known with
certainty, the Company believes its reserves, totaling $97 million at June 30,
1999, are adequate to cover any amounts to be paid and that these settlements
will not have a material adverse effect on its consolidated financial position
or results of operations. The reserve balance is net of $51 million of expected
insurance recoveries (apart from the insurance recoveries to date). Through June
30, 1999, settlement payments of $128 million, including the $49 million of
nonrefundable advances of attorneys' fees discussed above, have been made. Also,
we have received $26 million from our insurance carriers through June 30, 1999.
The Company and Masonite have the right to terminate each of the settlements
after seven years from the dates of final approval.
Linerboard Litigation
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
alleging 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, which have been
consolidated in federal court in the Eastern District of Pennsylvania, are at a
very preliminary stage and no class has been certified at this time.
While any proceeding or litigation has an element of uncertainty, the Company
believes that the outcome of this litigation will not have a material adverse
effect on its consolidated financial position or results of operation.
27
<PAGE>
Other Litigation
Last quarter the Company reported that its paper mill in Franklin, Virginia
received a notice of violation in connection with the Environmental Protection
Agency's (the "EPA") air permit enforcement initiative against the paper
industry. On June 21, 1999, the Company's paper mill in Kaukauna, Wisconsin
received a request for information from the EPA regarding the mill's compliance
with air permitting regulations. The EPA's initiative may result in similar
actions at other facilities.
The Company is 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, the Company believes
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
its consolidated financial position or results of operations.
ITEM 5. OTHER INFORMATION
- -------------------------
Certificate of Amendment of The Certificate of Incorporation of International
Paper
The Certificate of Incorporation of International Paper Company was amended by
approval of the shareholders by a vote held on March 30, 1999. (Exhibit 3(i))
Long-Term Incentive Compensation Plan
The Long-Term Incentive Compensation Plan was amended by approval of the
shareholders by a vote held on May 27, 1999. (Exhibit 99)
Restricted Stock Plan for Non-Employee Directors
The Restricted Stock Plan for Non-Employee Directors was amended by approval of
the shareholders by a vote held on May 27, 1999. (Exhibit 99)
Transitional Performance Unit Plan
The Transitional Performance Unit Plan was approved by the Board of Directors on
June 8, 1999, effective July 1, 1999. (Exhibit 99)
Chief Executive Officer Performance Incentive Plan
The Chief Executive Officer Performance Incentive Plan was approved by the Board
of Directors on June 8, 1999. (Exhibit 99)
28
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits
(3)(i) Certificate of Amendment of The Certificate of
Incorporation of International Paper Company
(11) Statement of Computation of Per Share Earnings
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(99) Long Term Incentive Compensation Plan
(99) Restricted Stock Plan for Non-Employee Directors
(99) Transitional Performance Unit Plan
(99) Chief Executive Officer Performance Incentive Plan
(b) Reports on Form 8-K
A Report on Form 8-K was filed on July 15, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL PAPER COMPANY
(Registrant)
Date: August 16, 1999 By /s/ JOHN V. FARACI
------------------
John V. Faraci
Senior Vice President and Chief
Financial Officer
Date: August 16, 1999 By /s/ ANDREW R. LESSIN
--------------------
Andrew R. Lessin
Vice President and Controller and
Chief Accounting Officer
29
(Exhibit 3(i))
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL PAPER COMPANY
(Under Section 805 of the Business Corporation Law)
* * * * *
The undersigned, James W. Guedry, being the Vice President and Secretary
of International Paper Company (the "Corporation"), hereby certifies:
1. The name of the Corporation is International Paper Company.
2. The Certificate of Incorporation was filed with the Department of State
of New York on June 23, 1941, under the name of International Paper and Power
Corporation.
3. The following is a statement of any amendments or changes in the
Certificate of Incorporation to be effected by this Certificate of Amendment
pursuant to Section 805 of the Business Corporation Law of the State of New
York:
(a) The Certificate of Incorporation shall be amended to increase
the aggregate number of shares of stock which the corporation has authority to
issue under paragraph 1 of Article V from i) four hundred and nine million one
hundred fifty thousand (409,150,000) shares, of which four hundred eight million
seven hundred fifty thousand (408,750,000) shares have a par value of $1.00
each, and four hundred thousand (400,000) shares are without a par value, to ii)
one billion (1,000,000,000) shares, of which nine hundred and ninety nine
million six hundred thousand (999,600,000) shares have a par value of $1.00
each, and four hundred thousand (400,000) shares are without a par value.
(b) The Certificate of Incorporation shall be amended to increase
the number of shares of stock which the corporation has classified as Common
Stock under subparagraph 3 of paragraph 1 of Article V from i) four hundred
million (400,000,000) shares, par value $1.00 each, to ii) nine hundred ninety
million eight hundred fifty thousand (990,850,000) shares, par value $1.00 each.
4. To affect the foregoing amendments, Article V of the Certificate of
Incorporation is hereby amended to read in its entirety as follows :
<PAGE>
ARTICLE V. The total number of shares which the Corporation shall have
authority to issue is one billion (1,000,000,000) shares, of which nine hundred
and ninety nine million six hundred thousand (999,600,000) shares have a par
value of one dollar ($1.00) each, and four hundred thousand (400,000) shares
shall be without par value. The shares of the Corporation shall be classified.
The number of shares in each class shall be as follows:
Four hundred thousand (400,000) shares without par value shall be
Cumulative $4 Preferred Stock (the "Preferred Stock");
Eight million seven hundred fifty thousand (8,750,000) shares having a par
value of one dollar ($1.00) each shall be Serial Preferred Stock; and
Nine hundred ninety million eight hundred fifty thousand (990,850,000)
shares having a par value of one dollar ($1.00) each shall be Common Stock.
The whole or any part of the shares of Common Stock of the Corporation may
be issued as partly paid, subject to calls thereon until the whole thereof shall
have been paid in.
The designations, preferences, privileges and voting powers of the shares
of each class, and the restrictions or qualifications thereof, are to be as
follows:
PREFERRED STOCK
1. The Preferred Stock shall be issued in one series.
2. All shares of the Preferred Stock shall be identical with each other in
all respects, except that shares issued at different times may differ as to
dates from which dividends thereon shall accumulate.
3.1. The holders of the Preferred Stock shall be entitled to receive, but
only when and as declared by the Board of Directors, dividends from the surplus
or net profits of the Corporation at the rate of $4 per share per annum, and no
more, payable quarterly in each year on such dates as from time to time may be
fixed by the Board of Directors. Dividends on the Preferred Stock shall be
cumulative. On shares of the Preferred Stock issued prior to October 1, 1946
dividends shall commence to accrue from July 1, 1946. Any other shares of the
Preferred Stock shall be issued with accruals of dividends uniform with the
unpaid accruals of dividends, if any, on the Preferred Stock outstanding at the
time of each such issue. Accumulations of dividends shall not bear interest.
2
<PAGE>
3.2. If dividends in full on all outstanding shares of the Preferred Stock
for all past quarterly dividend periods and for the then current quarterly
dividend period shall not have been paid or been declared and set apart for
payment, no dividends (other than dividends payable in stock ranking junior to
the Preferred Stock) shall be declared or paid or set apart for payment on, nor
shall any distribution be made to, any class of stock ranking junior to the
Preferred Stock.
3.3. So long as any shares of the Preferred Stock are outstanding, the
Corporation, without first obtaining the affirmative vote of the holders of
record of at least a majority of the outstanding shares of the Preferred Stock,
given in person or by proxy, either in writing or by resolution adopted at any
meeting called for the purpose, shall not declare or pay any dividend or make
any distribution on any stock ranking junior to the Preferred Stock (other than
a dividend payable in stock ranking junior to the Preferred Stock), or purchase,
redeem or otherwise acquire for value any stock ranking junior to the Preferred
Stock, or pay, set aside or make available any monies to or for a sinking fund
for the purchase or redemption of any stock ranking junior to the Preferred
Stock, except to the extent that the sum of
(i) $5,000,000, plus
(ii) the aggregate net earnings of the Corporation since December 31,
1945, as determined annually by the independent public accountants employed by
the Corporation and, pending such determination for any particular year, as
determined by the accounting staff of the Corporation, plus
(iii) the aggregate net proceeds received by the Corporation from the
Issuance, exchange or sale, subsequent to December 31, 1945, of stock ranking
junior to the Preferred Stock (except any such stock issued on conversion of, or
as consideration for exchange of, or to provide funds for redemption or purchase
of Cumulative Convertible 5% Preferred Stock formerly authorized and
outstanding)
exceeds the sum of
(iv) all dividends (other than dividends payable in stock ranking junior
to the Preferred Stock) and distributions declared, paid or made subsequent to
December 31, 1945 on any stock of the Corporation, plus
(v) the cost to the Corporation of the acquisition for value (by purchase,
redemption, exchange, or otherwise) of all stock, other than the Cumulative
Convertible 5% Preferred Stock formerly authorized and outstanding, ranking
junior to the Preferred Stock acquired by the Corporation subsequent to December
31, 1945, including in such cost all monies set apart for any such purpose.
3
<PAGE>
3.4. If dividends in full on all outstanding shares of the Preferred Stock
for all past quarterly dividend periods shall not have been paid or been
declared and set apart for payment:
(i) the Corporation shall not call for redemption any shares of the
Preferred Stock unless either:
(a) all shares of the Preferred Stock outstanding are called for
simultaneous redemption, or
(b) if less than all shares of the Preferred Stock outstanding are
called for redemption at any time, the number of shares called for
redemption from each registered holder at that time shall be that number
which bears the same proportion to the total number of shares of such
stock registered in the name of such holder as the number of shares called
for redemption at that time bears to the total number of shares of the
Preferred Stock then outstanding, except that in so determining the number
of shares called, fractions of less than one-half shall be disregarded and
fractions of one-half or more shall be treated as one whole share;
(ii) neither the Corporation nor any subsidiary shall purchase any shares
of the Preferred Stock except in accordance with an invitation for tenders or a
purchase offer made in writing to all holders of the Preferred Stock on the same
terms; and
(iii) the Corporation shall not call for redemption, and neither the
Corporation nor any subsidiary shall purchase or otherwise acquire for valuable
consideration, any shares of any class of stock ranking junior to the Preferred
Stock, nor shall the Corporation or any subsidiary pay or make available any
moneys for any such redemption, purchase or acquisition.
4. Upon the dissolution, liquidation or winding up of the Corporation, the
holders of the Preferred Stock shall be entitled to receive out of the net
assets of the Corporation (whether represented by capital or surplus), (i) if
such dissolution, liquidation or winding up is voluntary, cash in an amount per
share as follows: if the date fixed for the distribution upon such dissolution,
liquidation or winding up shall occur between July 1, 1946 and June 30, 1952
inclusive, $115; if said date shall occur between July 1, 1952 and June 30, 1955
inclusive, $112.50; if said date shall occur between July 1, 1955 and June 30,
1958 inclusive, $110; if said date shall occur between July 1, 1958 and June 30,
1961 inclusive, $107.50; and thereafter, $105; and (ii) if such dissolution,
liquidation or winding up is involuntary, cash in the amount of $100 per share,
plus in each case an amount equal to all dividends accrued and unpaid on such
share up to and including the
4
<PAGE>
date fixed for distribution, whether or not earned or declared, and no more, in
either case before any distribution of the assets to be distributed shall be
made to the holders of stock ranking junior to the Preferred Stock. If, upon any
dissolution, liquidation or winding up, the assets of the Corporation
distributable among the holders of the Preferred Stock shall be insufficient to
pay in full the preferential amount aforesaid, then such assets, or the proceeds
thereof, shall be distributed among the holders of the Preferred Stock ratably
in accordance with the sums which would be payable on such distribution if all
sums payable were discharged in full.
5.1. Except as herein or by law expressly provided, the holders of the
Preferred Stock shall not be entitled to vote in any proceeding or to be
represented at or to receive notice of any meeting of stockholders, and there is
hereby specifically excluded any right of the holders of the Preferred Stock to
vote (i) for mortgaging the property and franchises of the Corporation pursuant
to Section 911 of the Business Corporation Law of the State of New York or any
statutory provision amendatory of, supplementary to or substituted for said
Section, whether as a part of said Law or otherwise, (ii) for authorizing any
guaranty pursuant to Section 908 of the said Law or any statutory provision
amendatory of, supplementary to or substituted for said Section, whether as a
part of said Law or otherwise, (iii) for sale of the franchises and property of
the Corporation pursuant to Section 909 of the said Law or any statutory
provision amendatory of, supplementary to or substituted for said Section,
whether as a part of said Law or otherwise, other than as provided in
subdivision 8 hereof, (iv) for consolidation pursuant to Section 903 of the said
Law or any statutory provision amendatory of, supplementary to or substituted
for said Section, whether as a part of said Law or otherwise, (v) for voluntary
dissolution pursuant to Section 1001 of the said Law or any statutory provision
amendatory of, supplementary to or substituted for said Section, whether as a
part of said Law or otherwise, or (vi) for change of name pursuant to the
Business Corporation Law of the State of New York or any statute amendatory
thereof, supplementary thereto or substituted therefor; provided, however, that
if at the time of any annual meeting of stockholders the Corporation shall be in
arrears in dividends on the Preferred Stock in an amount equal to four full
quarterly dividends thereon, then at such annual meeting and thereafter at all
meetings for the election of directors until all arrearages of dividends
accumulated on the Preferred Stock for all preceding dividend periods shall have
been paid or declared and set apart for payment, and no longer, the holders of
the Preferred Stock shall have the sole right, to the exclusion of all other
classes of stock, to vote for and elect one-third (or the nearest whole number
thereto) of the total number of directors to be elected at the meeting. At all
meetings for the election of directors, so long as such right to elect directors
shall continue, the holders of the Preferred Stock, voting separately as a
class, shall first vote for and elect the total number of directors which they
are entitled to elect as aforesaid, and
5
<PAGE>
thereafter the holders of the Common Stock and any other stock having voting
powers shall, in accordance with their respective voting rights, vote for and
elect the remaining directors.
5.2. At any meeting of the stockholders at which the holders of the
Preferred Stock shall have the right to vote they shall have one vote for each
share. The holders of the Preferred Stock shall be entitled to notice of any
meeting of the stockholders called for the election of directors at which such
holders shall be entitled to vote as in subdivision 5.1 provided (as well as to
notice of any other meeting at which such holders shall be entitled to vote),
and at any such election the holders of the shares of the Preferred Stock
represented at the meeting shall constitute a quorum for the election of such
directors, and a plurality of all votes of the Preferred Stock cast at the
meeting shall be sufficient to elect such directors.
5.3. Whenever all arrearages of dividends on the Preferred Stock as
aforesaid shall have been paid or declared and set apart for payment, all powers
of the holders of the Preferred Stock to vote for directors shall terminate, and
the tenure of office of all Directors elected by them shall forthwith
automatically come to an end.
6.1. On and after July 1, 1949, the Preferred Stock may be redeemed, in
whole or in part, at the option of the Corporation, by resolution of its Board
of Directors, at any time or from time to time, at the redemption price per
share as follows: if the date fixed for redemption shall occur between July 1,
1949 and June 30, 1952 inclusive, $115; if said date shall occur between July 1,
1952 and June 30, 1955 inclusive, $112.50; if said date shall occur between July
1, 1955 and June 30, 1958 inclusive, $110; if said date shall occur between July
1, 1958 and June 30, 1961 inclusive, $107.50; and thereafter, $105; plus in each
case an amount equal to all dividends accrued and unpaid on such share up to and
including the date fixed for redemption, whether or not earned or declared. If
less than all shares of the Preferred Stock outstanding are to be redeemed, the
shares to be redeemed shall be chosen by lot in such manner as the Board of
Directors may determine, provided that, if dividends in full on all outstanding
shares of the Preferred Stock for all past quarterly dividend periods shall not
have been paid or been declared and set apart for payment, the shares to be
redeemed shall be determined as provided in subdivisions 3.4(i)(b) hereof.
6.2. Not less than thirty (30) nor more than sixty (60) days previous to
the date fixed for redemption, a notice specifying the time and place thereof
shall be given to the holders of record of the Preferred Stock to be redeemed by
mail at their respective addresses as the same shall appear on the books of the
Corporation and by publication at least once in at least one newspaper printed
in
6
<PAGE>
the English language of general circulation in the Borough of Manhattan, The
City of New York, but no failure to mail such notice, nor any defect therein or
in the mailing thereof, shall affect the validity of the proceedings for the
redemption of any shares of the Preferred Stock so to be redeemed. At any time
after notice of redemption has been given by publication in the manner
prescribed above to the holders of stock so to be redeemed, the Corporation may
deposit the aggregate redemption price in trust with a bank or trust company (in
good standing, organized under the laws of the United States of America or of
the State of New York, doing business in The City of New York, and having
capital, surplus and undivided profits aggregating at least $5,000,000) named in
such notice, for payment on the date fixed for redemption as aforesaid (or prior
to such date if so determined by the Board of Directors) to the holders of the
shares so to be redeemed, on endorsement, if required by the Board of Directors,
and upon surrender of the certificates for such shares. Upon the deposit of such
money as aforesaid or, if no such deposit is made, upon said redemption date
(unless the Corporation shall default in making payment of the redemption price
as set forth in such notice), such holders shall cease to be stockholders with
respect to said shares and from and after the making of said deposit, or, if no
such deposit is made, after the redemption date (the Corporation not having
defaulted in making payment of the redemption price as set forth in such
notice), the said holders shall have no interest in or claim against the
Corporation and shall have no voting or other rights with respect to said
shares, except the right to receive said monies on the date fixed for redemption
as aforesaid (or earlier if so determined as aforesaid) from said bank or trust
company or from the Corporation, without interest thereon, upon endorsement, if
required, and surrender of the certificates as aforesaid; and the shares
represented thereby shall no longer be outstanding. In case the holder of any
such shares of the Preferred Stock shall not, within six years after said
deposit, claim the amount deposited as above stated for the redemption thereof,
the depositary shall, upon demand, pay over to the Corporation such unclaimed
amount so deposited, and the depositary shall thereupon be relieved of all
responsibility therefor to such holder.
6.3. Shares of the Preferred Stock which have been redeemed shall be
canceled and shall not be reissued, and the Corporation shall from time to time
take appropriate action to reduce the authorized amount of the Preferred Stock
accordingly.
6.4. Nothing contained in subdivision 6.1 or 6.2 hereof shall limit the
right of the Corporation to make purchases of shares of the Preferred Stock at
any price.
7. So long as any shares of the Preferred Stock are outstanding, the
Corporation, without first obtaining the affirmative vote of the holders of
record
7
<PAGE>
of at least two-thirds of the outstanding shares of the Preferred Stock, given
in person or by proxy, either in writing or by resolution adopted at any meeting
called for the purpose, shall not
(i) authorize, create or issue stock of any class, or any security
convertible into stock of any class, ranking, as to the payment of
dividends or as to distribution upon dissolution, liquidation or winding
up, prior to the Preferred Stock; or
(ii) amend, alter, change or repeal any of the express provisions of
(a) the "Certificate of Authorization of New Shares Without Par Value and
of the Issuance of Such New Shares From Time to Time in One Series, and
Change of Previously Authorized Unissued Shares with Par Value into the
Same Number of Shares Without Par Value of A New Class and
Reclassification of Shares, Pursuant to Section 36 of the Stock
Corporation Law of the State of New York", filed in the Department of
State in the State of New York on May 31, 1946, or (b) any certificate
filed pursuant to Section 11 of the Stock Corporation Law of the State of
New York (including particularly the certificate so filed on July 3, 1946)
or Sections 501 and 502 of the Business Corporation Law of the State of
New York or any statutory provisions amendatory of, supplementary to or
substituted for said Sections, whether as a part of said Law or otherwise,
applicable to the Preferred Stock then outstanding, in a manner which is
in any material respect prejudicial to the holders thereof, provided,
however, that the provisions of this subdivision 7(ii) shall not apply to
any such amendment, alteration, change or repeal resulting from a merger
or consolidation.
8. So long as any shares of the Preferred Stock are outstanding, the
Corporation, without first obtaining the affirmative vote of the holders of
record of at least a majority of the outstanding shares of the Preferred Stock,
given in person or by proxy, either in writing or by resolution adopted at any
meeting called for the purpose, shall not
(i) increase the authorized number of shares of the Preferred Stock;
(ii) authorize, create or issue stock of any class, or any security
convertible into stock of any class, ranking, as to the payment of
dividends or as to distribution upon dissolution, liquidation or winding
up, on a parity with the Preferred Stock; or
8
<PAGE>
(iii) sell, lease or otherwise dispose (otherwise then by merger or
consolidation) all or substantially all of the assets of the Corporation.
9. If at the time of any merger or consolidation to which the Corporation
shall become a party any holder of the Preferred Stock does not have the right
to demand and receive payment in cash of the then value of his shares of the
Preferred Stock as determined by appraisal in the manner provided in the
Business Corporation Law of the State of New York or any statute amendatory
thereof, supplementary thereto or substituted therefore, such holder shall be
entitled (if he so elects within 20 days after the Corporation shall have mailed
to him notice of such merger or consolidation) to receive payment in cash of an
amount equal to that to which he would then be entitled upon a voluntary
liquidation of the Corporation under the provisions of subdivision 4 hereof,
unless by the terms of the merger or consolidation he is entitled to shares or
securities (which may be his shares of the Preferred Stock) of the Corporation
resulting from the merger or consolidation which have a relative position and
priority in the capital stock structure of said Corporation, and rights and
preferences, at least equal to those of his shares of the Preferred Stock
immediately prior to the merger or consolidation.
10. No holder of shares of the Preferred Stock shall, as such holder, have
any preemptive or preferential right of subscription to or purchase of any
shares or securities of any class which at any time may be sold or offered for
sale by the Corporation.
11. When full cumulative dividends to which each share of the Preferred
Stock at the time outstanding is entitled for all prior dividend periods and for
the then current dividend period shall have been paid or declared and set apart
for payment, but not otherwise, the Board of Directors may, subject to the
respective terms and provisions hereof, if any, applying thereto, declare and
pay dividends on any other class or classes of stock ranking junior to the
Preferred Stock, and the Preferred Stock shall not be entitled to share therein.
12. Upon the dissolution, liquidation or winding up of the Corporation,
after payment shall have been made in full to the holders of the Preferred Stock
as provided in subdivision 4 hereof, but not prior thereto, the holders of the
class or classes of stock ranking junior to the Preferred Stock shall, subject
to the respective terms and provisions hereof, if any, applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed, and
the holders of the Preferred Stock shall not be entitled to share therein.
13. When used in subdivisions 1 through 12 above, the term "stock ranking
junior to the Preferred Stock" shall mean the Common Stock and any other class
of stock which ranks junior to the Preferred Stock as to the payment of
9
<PAGE>
dividends or as to distribution upon dissolution, liquidation or winding up of
the Corporation.
14. Subject to the provisions hereof, shares of the Preferred Stock may be
issued from time to time as determined by the Board of Directors for such
consideration as from time to time may be fixed by the Board of Directors.
15. The Common Stock shall be subject to the prior rights of the Preferred
Stock as hereinabove declared.
COMMON STOCK
16. Subject to any exclusive voting rights which may vest in any holders
of shares of the capital stock of the Corporation, other than Common Stock,
holders of shares of the Common Stock shall be entitled to one vote for each
share upon all matters upon which stockholders have the right to vote.
17.1. No holder of bonds or other obligations or securities convertible
into shares of any class shall as such holder have any preemptive or
preferential right of subscription to or purchase of any shares or securities of
any class which at any time may be sold or offered for sale by the Corporation.
17.2. No holder of shares of the Corporation's Stock shall as such holder
have any preemptive or preferential right of subscription to or purchase of any
shares or securities of any class which at any time may be sold or offered for
sale by the Corporation.
SERIAL PREFERRED STOCK
18.1. The Serial Preferred Stock may be issued from time to time by the
Board of Directors as shares of one or more series. Subject to the limitations
hereof and the limitations prescribed by law, the Board of Directors is
expressly authorized, prior to issuance, to adopt resolutions providing for the
issuance of, or providing for a change in the number of shares of any particular
series, and, if and to the extent from time to time required by law, to file a
certificate under Section 805 of the Business Corporation Law of New York, or
any statute amendatory thereof or supplemental thereto, establishing or changing
the number of shares to be included in each such series and fixing the
designation and relative rights, preferences and limitations of the shares of
each such series. The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of the following:
10
<PAGE>
(i) the serial designation of such shares and the number of shares
constituting such series;
(ii) the annual dividend rate on shares of such series, whether
dividends shall be cumulative and, if so, from which date or dates;
(iii) whether the shares of such series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or
dates upon and after which such shares shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
(iv) the obligation, if any, of the Corporation to retire shares of
such series pursuant to a sinking fund;
(v) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if
so, the terms and conditions of such conversion or exchange, including the
price or prices or the rate or rates of conversion or exchange and the
terms of adjustment, if any;
(vi) whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of
such voting rights;
(vii) the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(viii) any other relative rights, preferences and limitations of
such series.
18.2. No holder of Serial Preferred Stock shall have any preemptive or
preferential right of subscription to or purchase of any shares or securities of
any class which at any time may be sold or offered for sale by the Corporation.
18.3. So long as any shares of Preferred Stock are outstanding, the
preferences, privileges and voting powers, if any, of the shares of Serial
Preferred Stock of any series, and the restrictions or qualifications thereof,
shall be subject to the preferences, privileges and voting powers, if any, of
the shares of Preferred Stock, and the restrictions and qualifications thereof.
11
<PAGE>
18.4. So long as any shares of the Serial Preferred Stock are outstanding,
the Corporation shall not issue any shares of Preferred Stock without first
obtaining the affirmative vote of the holders of record of at least a majority
of the outstanding shares of Serial Preferred Stock, given in person or by
proxy, either in writing or by resolution adopted at any meeting called for the
purpose.
MISCELLANEOUS
19. The Board of Directors may from time to time issue scrip in lieu of
fractional shares of any class or classes or any rights in respect of fractional
shares and upon such terms and with such provisions as may be determined by the
Board of Directors. Such scrip shall not confer upon the holder thereof any
right to dividends, except in so far as may be specifically provided by the
Board of Directors at the time of issuance thereof or thereafter, or any voting
or other rights as a stockholder of the Corporation, but the Corporation shall
from time to time, within such time as the Board of Directors may determine, or
without limit of time if the Board of Directors so determines, issue
certificates for one or more whole shares upon the surrender of scrip for
fractional shares aggregating the number of whole shares represented by the
scrip so surrendered, provided that the scrip so surrendered shall be properly
endorsed for transfer if in registered form.
20. The Board of Directors shall have power, in its absolute discretion,
at any time, and from time to time, without any action by the stockholders of
the Corporation and whether or not in connection with the issue or sale of any
shares of stock or other securities of the Corporation, to grant rights
entitling the holders thereof to purchase from the Corporation any shares of its
capital stock. Any such rights shall be evidenced by such warrants or other
instruments as shall be approved by the Board of Directors. The terms upon
which, the time or times at or within which, and the price or prices, not less
than the par value thereof, at which any such shares may be purchased or
subscribed for upon the exercise of any such rights and the price or other
consideration, if any, for which such rights shall be granted shall be such as
shall be fixed and stated in the resolution or resolutions adopted by the Board
of Directors providing for the granting thereof.
5. This amendment to the Certificate of Incorporation was authorized by
vote of the board of directors followed by vote of a majority of all outstanding
shares entitled to vote thereon at a Special Meeting of shareholders of the
Corporation held on April 30, 1999.
12
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed this certificate on the
30th of April, 1999 and hereby affirms the statements contained therein as true
under penalties of perjury.
INTERNATIONAL PAPER COMPANY
By /s/ JAMES W. GUEDRY
------------------------------
By: James W. Guedry,
Title: Vice President, Secretary and
Associate General Counsel
13
(Exhibit 11)
INTERNATIONAL PAPER COMPANY
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings (loss) $ (71) $ 103 $ (39) $ 203
Effect of dilutive securities
Preferred securities of subsidiary trust
------- ------- ------- -------
Net earnings (loss) - assuming dilution $ (71) $ 103 $ (39) $ 203
======= ======= ======= =======
Average common shares outstanding 413.0 411.8 412.5 409.6
Effect of dilutive securities
Long-term incentive plan deferred
compensation (1.1) (0.8) (1.1) (0.8)
Stock options 3.2 3.1
Preferred securities of subsidiary trust
------- ------- ------- -------
Average common shares outstanding -
assuming dilution 411.9 414.2 411.4 411.9
======= ======= ======= =======
Earnings (loss) per common share $ (0.17) $ 0.25 $ (0.09) $ 0.50
======= ======= ======= =======
Earnings (loss) per common share -
assuming dilution $ (0.17) $ 0.25 $ (0.09) $ 0.49
======= ======= ======= =======
</TABLE>
Note: If an amount does not appear in the above table, the security was
antidilutive for the period presented.
(Exhibit 12)
INTERNATIONAL PAPER COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
For the Years Ended December 31, June 30,
------------------------------------------------------------------ ------------------------
TITLE 1994 1995 1996 1997 1998 1998 1999
- --------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
A) Earnings before income taxes,
minority interest,
extraordinary item and
accounting changes $ 832.0 $ 2,742.0 $ 938.0 $ 146.0 $ 431.0 $ 356.0 $ 58.0
B) Less: Minority interest
expense, net of taxes (54.0) (166.0) (180.0) (140.0) (87.0) (41.0) (74.0)
C) Add: Fixed charges excluding
capitalized interest 554.4 740.3 802.1 826.6 866.7 411.9 415.8
D) Add: Amortization of
previously capitalized
interest 27.7 29.6 34.2 37.0 38.8 19.0 8.4
E) Less: Equity in undistributed
earnings of affiliates (49.1) (94.5) 6.2 (40.4) 23.7 11.8 (10.2)
---------- ---------- ---------- ---------- ---------- ---------- ----------
F) Earnings before income taxes,
minority interest,
extraordinary item,
accounting changes and fixed
charges $ 1,311.0 $ 3,251.4 $ 1,600.5 $ 829.2 $ 1,273.2 $ 757.7 $ 398.0
========== ========== ========== ========== ========== ========== ==========
Fixed Charges
G) Interest and amortization of
debt expense $ 501.8 $ 664.9 $ 699.5 $ 720.0 $ 716.9 $ 364.4 $ 314.2
H) Interest factor attributable
to rentals 52.6 64.8 79.0 83.0 80.7 35.7 35.8
I) Preferred dividends of
subsidiary 10.6 23.6 23.6 69.1 11.8 65.8
J) Capitalized interest 39.6 66.9 71.2 71.6 53.2 29.2 15.9
---------- ---------- ---------- ---------- ---------- ---------- ----------
K) Total fixed charges $ 594.0 $ 807.2 $ 873.3 $ 898.2 $ 919.9 $ 441.1 $ 431.7
========== ========== ========== ========== ========== ========== ==========
L) Ratio of earnings to fixed charges 2.21 4.03 1.83 1.38 1.72
========== ========== ========== ========== ==========
M) Deficiency in earnings
necessary to cover fixed
charges $ (69.0) $ (33.7)
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 624
<SECURITIES> 0
<RECEIVABLES> 3,233
<ALLOWANCES> 114
<INVENTORY> 3,078
<CURRENT-ASSETS> 7,201
<PP&E> 29,423
<DEPRECIATION> 14,674
<TOTAL-ASSETS> 30,812
<CURRENT-LIABILITIES> 4,627
<BONDS> 7,615
0
0
<COMMON> 413
<OTHER-SE> 9,985
<TOTAL-LIABILITY-AND-EQUITY> 30,812
<SALES> 12,028
<TOTAL-REVENUES> 12,028
<CGS> 8,996
<TOTAL-COSTS> 11,740
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 266
<INCOME-PRETAX> 324
<INCOME-TAX> 10
<INCOME-CONTINUING> (26)
<DISCONTINUED> 0
<EXTRAORDINARY> (13)
<CHANGES> 0
<NET-INCOME> (39)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
(Exhibit 99)
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 by a vote of shareholders. Subject to approval of this Plan as amended
hereby by a majority of shareholders of the Company entitled to vote on the
matter at the 1999 annual meeting of shareholders, certain changes to the Plan
will also be effective.
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, and to adopt such rules and
regulations for carrying out the Plan as it may deem appropriate. Decisions of
the Committee 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. Awards of
stock and stock appreciation rights and grants of stock options may be made to
such employees and for such respective numbers of Shares, as the Committee in
its 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.
<PAGE>
(c) A person who is compensated on the basis of a fee or retainer, as
distinguished from salary, shall not be eligible for participation in the Plan.
(d) Participation in this Plan, or receipt of an award or option under
this Plan, shall not give a participant any right to a subsequent award or
option, nor any right to continued employment by the Company for any period, nor
shall the granting of an award or option give the Company any right to continued
services of the participant for any period. Likewise, participation in the Plan
will not in any way affect the Company's right to terminate the employment of
the participant at any time with or without cause.
4. Definitions
(a) "Stock" or "Share" shall mean a share of the common stock of $1.00 par
value of International Paper Company.
(b) "Performance Shares" shall mean Shares contingently awarded with
respect to an Award Period and issued with the restriction that the holder may
not sell, transfer, pledge, or assign such Shares, and with such other
restrictions as the Committee in its sole discretion may determine (including,
without limitation, restrictions with respect to forfeiture of the Shares and
with respect to reinvestment of dividends in additional restricted Shares),
which restrictions may lapse separately or in combination at such time or times
(in installments or otherwise) as the Committee may determine.
(c) "Stock Appreciation Right" or "SAR" shall mean a right included in an
award under this Plan to receive upon exercise of the SAR a payment equal to the
amount of the appreciation in the fair market value of a Share over the exercise
price which is set forth in the SAR provided that the exercise price is not less
than the fair market value of a Share on the date the SAR is granted. Payment
upon exercise of an SAR may be in the form of cash, or restricted stock, or
unrestricted stock, or a combination, as determined by the Committee in its sole
discretion. SARs may be awarded separately or in combination with other awards
and stock options under this Plan pursuant to terms and conditions contained in
an award agreement as determined by the Committee.
(d) "Change of Control of the Company" shall mean a change in control of a
nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the 1934 Act; provided that,
without limitation, such a change in control shall be deemed to have occurred if
(i) any "person" as such term is used in Sections 13(d) and 14(d)(2) of the 1934
Act (other than employee benefit plans sponsored by the Company) is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities, or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company, cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election, by the Company's
shareholders of each new director was approved by a vote of at least two-thirds
of the directors still in office who were directors at the beginning of the
period.
5. Stock Available for the Plan
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
<PAGE>
taxes, shall again be available for delivery under the Plan. Shares reacquired
by the Company on the open market using the cash proceeds received by the
Company from the exercise of stock options granted under the Plan as previously
amended shall be available for awards and options up to the number of Shares
issued upon option exercises which generated such proceeds, provided any such
exercise occurred on or after January 1, 1989. Notwithstanding the foregoing,
the maximum number of Shares available for delivery pursuant to future awards,
options and SARs to executive officers of the Company who, at the time of grant,
are subject to the provisions of Section 16 of the 1934 Act shall not exceed
14,600,000 Shares, subject to the adjustments permitted by Section 6 of the
Plan. Notwithstanding any other provision of this Plan, subject, however, to the
adjustments permitted by Section 6 of the Plan, the aggregate number of Shares
that can be covered by future stock options or SARs granted to any individual in
any period of three consecutive fiscal years shall be 1,800,000 and the
aggregate number of restricted Shares issued under this Plan after the 1999
annual meeting of shareholders may not exceed 3,000,000 Shares.
6. Changes in Stock and Exercise Price of Stock Options and SARs
In the event of any stock dividend, split-up, reclassification or other
analogous change in capitalization or any distribution (other than regular cash
dividends) to holders of the Company's common stock, the Committee shall make
such adjustments, if any, as it deems to be equitable in the exercise price of
outstanding options and SARs, and in the number of Performance Shares awarded
and earned, and in the number of Shares covered by any outstanding stock options
and SARs, granted under this Plan, and in the aggregate number of Shares covered
by this Plan.
7. Time of Granting Awards and Stock Options
Nothing contained in this Plan, or in any resolution adopted or to be
adopted by the Board of Directors or the shareholders of the Company, shall
constitute the granting of an award or stock option under this Plan. The
granting of an award or stock option pursuant to the Plan shall take place only
when authorized by the Committee.
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.
<PAGE>
9. Retirement of Holder of Stock Option or SAR
If a participant retires under a Company pension plan, the participant may
exercise a stock option or an SAR within its remaining term unless otherwise
provided in the award agreement. Retirement under any of the Company's pension
plans shall cause incentive stock options to be treated for federal income tax
purposes as non-qualified stock options on a date which is three months after
the date of retirement. For purposes of this section, retirement shall be given
the meaning used under the Company's pension plan for salaried employees.
10. Non-Transferability of Awards
No award, stock option or SAR under this Plan, and no rights or interests
therein, shall be assignable or transferable by a participant (or legal
representative), except at death by will or by the laws of descent and
distribution unless otherwise permitted by the Committee and by law and, in the
case of incentive stock options, to the extent consistent with Section 422 of
the Code.
11. Modification of the Plan
The Board of Directors, without further approval of the shareholders, may
at any time amend the Plan to take into account and comply with any changes in
applicable securities or federal income tax laws and regulations, or other
applicable laws and regulations, including without limitation, any modifications
to Rule 16b-3 under the 1934 Act or Section 162(m) of the Code (or any successor
rule, provision or regulation), terminate or modify or suspend (and if
suspended, may reinstate) any or all of the provisions of this Plan, except that
no modification of this Plan shall without the approval of the Company's
shareholders increase the total number of Shares for which awards, stock options
and SARs may be granted under the Plan (except pursuant to Section 6).
RESTRICTED PERFORMANCE SHARE AWARDS
12. Terms and Conditions of Awards of Performance Shares
(a) Each award of Performance Shares under this Plan shall be contingently
awarded with respect to a period of consecutive calendar years as determined by
the Committee (herein called an "Award Period") and shall be made from
reacquired Shares. The first complete Award Period under this Plan began with
the year 1989. A new Award Period shall commence at the beginning of each
calendar year.
(b) The Performance Shares awarded under this Plan will be earned by a
participant on the basis of the Company's financial performance over the Award
Period for which it was awarded, on the basis of pre-established performance
goals determined by the Committee in its sole discretion. The Performance
measurement criteria used for Performance Shares shall be limited to one or more
of: earnings per share, return on stockholders equity, return on 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. Adjustments in the number of
shares earned can be made by the Committee with any such adjustments offset by
reductions in other awards made under the Company's Long-Term Incentive
Compensation Plan or other Company bonus awards. Subject to the adjustments
permitted by Section 6 of the Plan, the maximum number of Performance Shares
that can be earned for any one individual for any future Award Period is
100,000. Subject to such maximum number of Shares, the amount, if any, that may
be earned by a participant receiving Performance Shares may vary in accordance
with the level of achievement of the performance goal or goals established by
the Committee.
(c) A participant's rights with respect to all unearned Performance Shares
shall terminate at the end of each Award Period.
<PAGE>
(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
(i) all restrictions shall be immediately removed with respect to
all earned Performance Shares and
(ii) a pro rata portion of each outstanding Award that would have
been earned were Company performance to reach the goals established by the
Committee for each uncompleted Award Period shall be deemed earned (based
on the number of months of the total Award Period which have been
completed prior to the Change of Control), and all restrictions shall be
immediately removed with respect to that number of shares; the remaining
portion of each Award shall remain outstanding as Performance Shares
subject to the provisions of this Plan and the participant's award
agreements.
STOCK OPTION AWARDS
13. Terms and Conditions of Stock Options
(a) The Committee 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.
(b) The term of each option granted under the Plan shall be set by the
Committee, but in no event shall an option be exercised after ten years
following the date of its grant (or date of vesting for Executive Continuity
Awards) 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.
<PAGE>
(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 the 1983 Plan or this Plan is exercised by a
participant, then, at the discretion of the Committee, the participant may
receive a replacement option under this part of the Plan to purchase a number of
Shares equal to the number of Shares which the participant purchased on the
exercise of the option, with an exercise price equal to the current fair market
value, and with a term extending to the expiration date of the original stock
option. If a stock option is exercised by delivery of restricted Shares, then
the participant shall receive an equal number of identically restricted Shares;
the remaining option exercise Shares shall contain any applicable restrictions
which are set forth in the participant's award agreement and shall otherwise be
unrestricted.
(c) In the event a Change of Control of the Company occurs, all stock
options granted under this part of the Plan shall be immediately exercisable,
and all restrictions on Shares issued under this plan pursuant to the exercise
of stock option shall be immediately removed.
EXECUTIVE 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 stock option or grant
of restricted Shares, or 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, if earlier)
or upon a Change of Control of the Company (as limited under subsection (g)
below), the restrictions on the award will be removed, and the award will vest
in the following manner:
<PAGE>
(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 a predetermined age, the related shares
of restricted Shares shall be canceled, and the additional Shares issued upon
the exercise of the stock option shall be restricted and subject to either
forfeiture or repurchase by the Company at the option exercise price for a
period ranging up to 12 years from the date of the grant of the option, or
longer, as determined by the Committee and set forth in the award agreement.
(d) A stock option granted under this portion of the Plan shall be
exercisable as provided in accordance with the document evidencing the option by
full payment of the option price in cash or, at the discretion of the Committee,
in Stock owned by the participant (including Performance Shares awarded under
this Plan). At the discretion of the Committee, the participant may receive a
replacement stock option to purchase a number of shares equal to the number of
shares purchased by the participant in exercising the option, with an exercise
price equal to the current market value, and with a term extending to the
expiration date of the original stock option. If an option is exercised by
delivery of restricted Shares, then the participant shall receive an equal
number of identically restricted Shares; the remaining option exercise Shares
shall be subject to the Company's right to impose restrictions on such Shares as
described in subsection (c) above.
(e) As a condition of any executive continuity award under this Plan, each
participant shall enter into an award agreement authorized by the Committee. The
Committee may, in its sole discretion, include additional conditions and
restrictions in the award agreement.
(f) At the discretion of the Committee, SARs may be awarded separately or
in combination with other awards or grants under this portion of the Plan.
(g) In the event a Change of Control of the Company occurs, all
restrictions shall be immediately removed with respect to the exercise of stock
options under this part of the Plan and with respect to Shares issued upon the
exercise of any stock option. A Change of Control, for these purposes, shall not
include a transaction initiated by management such as a management led buyout or
recapitalization except where such transaction (i) is in response to the
acquisition of 10% or more of the Company's stock or the announcement of a
tender offer for 20% or more of the Company's stock (other than by employee
benefit plans sponsored by the Company); or (ii) is approved by the Board in
accordance with the standards set forth in Section 717 of the New York Business
Corporation Law or any successor provision.
MISCELLANEOUS
16. 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.
<PAGE>
17. 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.
(Exhibit 99)
AMENDMENT No. 2
TO
INTERNATIONAL PAPER COMPANY
RESTRICTED STOCK PLAN
FOR
NON-EMPLOYEE DIRECTORS
(Effective May 27, 1999)
The International Paper Company Restricted Stock Plan for Non-Employee Directors
is hereby amended to delete the words and phrases indicated by brackets, e.g.,
[omit] and to add the words and phrases indicated by asterisks, e.g.* add.*
1. Purpose and Effective Date of Plan
This plan shall be known as the International Paper Company Restricted Stock
Plan for Non-Employee Directors. The purpose of this plan is to enable
International Paper Company ("International Paper") to attract and retain
persons of outstanding competence to serve as directors of International Paper
by paying such persons a portion of their compensation in restricted common
stock of International Paper pursuant to the terms of this plan. The plan [shall
become] *became* effective as of January 1, 1988, [subject to approval of
shareholders of International Paper] *was amended May 12, 1992*, and each
amendment *further* thereto shall become effective as of the effective date set
forth in such amendment.
2. Stock Available for the Plan
An aggregate of [100,000] *250,000* shares of $1.00 par value common stock of
International Paper shall be available for delivery pursuant to the provisions
of this plan. Such shares shall be either previously unissued shares or
reacquired shares. Any restricted shares awarded under this plan with respect to
which the restrictions are not removed in accordance with the service
requirements of the plan, or which become forfeited for any reason, shall not be
available for other restricted awards under the plan and shall become treasury
stock of the Company.
3. Eligibility for Participating in Plan
Participation in this plan is limited to persons who serve as directors of
International Paper and who are not "employees" of International Paper (or its
subsidiaries) within the meaning of the Employee Retirement Income Security Act
of 1974. An employee-director who retires from employment with International
Paper (and its subsidiaries) shall become eligible to participate in this plan
and shall be entitled to receive an award of restricted stock at the time of
re-election as a non-employee director.
4. Awards of Restricted Common Stock Under the Plan
Upon the approval of this Amendment No. [1] 2 awards of restricted common stock
of International Paper will be made to each director effective as of the date of
the annual meeting at which a participant is elected as a director commencing in
1992. Such awards will consist of 2100* restricted shares for a full three-year
term of directorship. A participant who would serve a partial term of
directorship for his or her particular Class due to retirement, or who is
elected by the Board to fill a vacancy between annual meetings or elected at an
annual meeting to fill less than a three-year term of directorship, shall
receive a number of shares representing a pro rata
<PAGE>
portion of the number of restricted shares awarded to non-employee directors
elected at the most recent annual meeting to serve for a full three-year term.
Each award of restricted shares under this plan shall be immediately registered
in the name of the participant but shall be expressly subject to all of the
restrictions, the service provisions, and all of the other terms and conditions
set forth in Section 5 of this plan.
*As of May 13, 1997 award increased from 1800.
5. Restrictions, Removal of Restrictions, and Terms and Conditions of Awards of
Restricted Shares
(a) Participants shall have the right to receive all dividends and other
distributions made with respect to restricted shares registered in his or her
name, and shall have the right to vote or execute proxies with respect to such
registered restricted shares (other than the awards of restricted shares made
prior to the date of shareowners approval which shall have such right only upon
such approval of the plan or amendment affecting such awards), unless and until
such shares are forfeited pursuant to the provisions of this plan. All
certificates of shares shall be endorsed with a legend referring to the
restrictions imposed by this plan. Possession of the certificates of shares
shall be retained by the Treasurer of International Paper until the provisions
of the plan relating to removal of the restrictions have been satisfied.
(b) Shares of restricted stock may not be sold, assigned, pledged or otherwise
transferred by the participant unless and until all of the restrictions imposed
by this plan have been removed pursuant to the provisions of this plan, and a
new certificate of shares has been issued by International Paper which does not
contain the legend of restrictions.
(c) None of the shares of restricted stock awarded under this plan shall become
free of restrictions and non-forfeitable until the termination of the
participant's service as a director of International Paper. Such shares shall
become non-forfeitable at the earlier of:
(i) the participant's death or disability;
(ii) mandatory retirement at the end of the term during which the
participant reaches mandatory retirement age; or
(iii) resignation or failure to stand for re-election with the consent of
the Board (which shall mean approval by at least 80% of the directors
voting, with the affected director abstaining), or any failure to be
re-elected after being duly nominated. In the event of a resignation with
consent during a term, the number of shares with respect to which the
restrictions will be removed will be a pro rata portion of shares
originally awarded determined by dividing the period of the director's
term served to the effective date of resignation by the original term for
which the director was elected or appointed.
Termination of service as a director for any other reason, including, without
limitation, any involuntary termination effected by Board action, shall result
in forfeiture of the restricted shares.
(d) In the event of a "change of control" of International Paper (as defined
below), the Board may accelerate the removal of all restrictions relating to all
or an equal portion of the outstanding restricted shares. Termination of Board
service resulting from a change of control will result in immediate lapse of the
forfeiture provisions relating to all of the affected director's restricted
shares. In any situation involving acceleration of the removal of restrictions
relating to the awarded shares upon a change of control, the Board may elect to
repurchase such shares at the then fair market price instead of releasing the
shares to the participant owning such shares. For purposes of this plan, a
"change in control" of International Paper shall mean a change in control of a
nature that would be required to be reported in response to Item 1(a) of Form
8-K promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"); provided that, without limitation, such a change in control shall be
deemed to have occurred if (a) any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act other than company benefit plans) except
a transaction that is approved by the Board in accordance with the standards set
forth in section 7-17 of the New York Business Corporation Law or any successor
<PAGE>
provision is or becomes the beneficial owner, directly or indirectly, of
securities of International Paper representing 20% or more of the combined
voting power of International Paper's then outstanding securities, or (b) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of International Paper cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election, by shareholders of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(e) All shares with respect to which the restrictions are not removed in
accordance with the provisions of this plan shall be forfeited and shall revert
to the Treasury of International Paper.
(f) All awarded shares shall remain subject to the plan's restrictions
prohibiting sales or transfer of such shares during the period of time while the
participant continues to serve as a director of International Paper, and during
the period of six (6) months from the date of grant which is required by SEC
Rule 16b-3(c)(1), and all certificates of shares shall be endorsed with a legend
referring to such restriction. In addition, the issuance or delivery of any
shares may be postponed for such period as may be required to comply with any
applicable requirements of any national securities exchange or any requirements
under any other law of regulation applicable to the issuance or delivery of such
shares, and International Paper shall not be obligated to issue or deliver any
such shares if the issuance or delivery thereof shall constitute a violation of
any provision of any law of any regulation of any governmental authority or any
national securities exchange.
6. Amendment or Termination of Plan
International Paper reserves the right to amend, modify or terminate this plan
at any time by action of its Board of Directors, provided (a) no amendment shall
be made more than once every six months, other than to comport with changes in
the Internal Revenue Code, the Employee Retirement Income Security Act, or the
rules thereunder; and (b) that such action shall not adversely affect any
participant's rights under the provisions of this plan with respect to awards of
restricted stock which were made prior to such action, provided further that no
modification of this plan shall be made which shall increase the aggregate
number of shares available for award under this plan without the approval of the
shareholders of International Paper.
7. Administration of Plan
This plan shall be administered by the Vice President-Human Resources of
International Paper. All decisions which are made by the Administrator with
respect to interpretation of the terms of the plan, with respect to the
restrictions, terms and conditions of the restricted shares, and with respect to
any questions or disputes arising under this plan, shall be final and binding on
International Paper and the participants (and their heirs or beneficiaries).
8. Changes in Stock and Adjustment of Number under the Plan
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 International Paper's common stock, the number of
shares awarded and earned under this Plan, and the aggregate number of shares
covered by this Plan shall be adjusted by the administrator to take account of
such change.
9. Designation of Beneficiary
A participant may file with the Administrator a designation of beneficiary or
beneficiaries on a form approved by the Administrator (which designation may be
changed or revoked by the participant's sole action) to receive distribution of
all or a designated portion of the participant's restricted stock account under
this Plan upon the
<PAGE>
death of the participant. If no beneficiary has been designated or survives the
participant, then the account shall be distributed as directed by the executor
or administrator of the participant's estate.
(Exhibit 99)
International Paper
Transitional Performance Unit Plan
Effective July 1, 1999
I. Purpose of the Plan
- -- -------------------
The purpose of the Transitional Performance Unit Plan (the Plan), is to
provide incentive to senior managers of International Paper to achieve
additional ROI improvement during a transitional period between the
cancellation of the Performance Share Plan portion of the Long Term
Incentive Compensation Plan (LTICP) and the implementation of a new plan
in 2001.
II. Plan Description
- --- ----------------
The Plan is a one-time, performance unit plan that provides a cash award
to Participants upon successful achievement of the additional ROI targets
established. Target awards may be adjusted up or down based on performance
subject to the recommendation of the Chairman and Chief Executive Officer,
and final review and approval by the Management Development and
Compensation Committee of the Board (the Committee).
III. Participation
- ---- -------------
Participation in this Plan is limited to those individuals whose positions
are PL 25 and higher, who were participants in the Company's Performance
Share Plan of the Long Term Incentive Compensation Plan immediately prior
to its termination, and those additional individuals selected by the
Chairman and Chief Executive Officer based upon those individuals'
contribution to the strategic success of the Company. Participation in the
Plan, or receipt of an award under this Plan, does not give the
Participant any right, implied or otherwise, to continued employment.
IV. Awards
- --- ------
A. Award Amount
------------
Awards are expressed as performance units and will be earned in full
or in part, based upon the level of achievement of the ROI
improvement goals established at the Corporate Performance and
Business Performance levels. The target and maximum number of
performance units established by Position Level are established by
the Committee upon adoption of this Plan. Total awards cannot exceed
150% of the aggregate target awards for all Plan participants.
B. Performance Criteria
--------------------
o Corporate Performance is the aggregate ROI improvement
performance of all business units.
o Business Performance is the specific ROI improvement
performance for a particular business.
<PAGE>
C. Award Determination
-------------------
Awards are earned according to the following schedule:
Corporate Business
Participation Level Performance Performance
------------------- ----------- -----------
CEO and Corporate Staff 100% 0
Business Group Executive 50% 50%
Subordinate Business Executive 40% 60%
D. Award Scale
-----------
Awards are determined by performance according to the following
scale:
Performance to Target Percent of Target Award
--------------------- -----------------------
120% 150%
100% 100%
80% 50%
Awards will be interpolated to the nearest whole percent.
E. Award Amount
------------
The amount of the award is determined by multiplying the percent of
target award by the target number of performance units multiplied by
the fair market value of the stock at the close of trading on
December 29, 2000. The award will be made in cash no later than
April, 2001.
V. Administration of the Plan
- -- --------------------------
The Plan operates at the discretion of the Committee. The Committee may
exercise total discretion and judgment in interpreting the Plan, and
adopting from time to time rules and regulations that govern the
administration of the Plan.
Decisions of the Committee are final, conclusive and binding on all
parties, including the Company, its shareholders, and employees.
The Committee may at any time suspend, terminate, modify, or amend any or
all of the provisions of this Plan.
VI. Method of Timing of Payment of Awards
- --- -------------------------------------
Performance units will be earned on the date the Committee determines the
performance objectives have been achieved. Payment will be in cash, on or
before April, 2001.
The Committee, in its discretion, may award any or all of any unearned
award to the Participant or Participant's estate or beneficiary upon the
Participant's death or total disability.
<PAGE>
VII. Governing Law
- ---- -------------
The Plan is governed by the laws of the State of New York.
VIII. Tax Withholding
- ----- ---------------
The Company will deduct from settlement of any award made under the Plan,
a sufficient amount to cover withholding of any federal, state, local
taxes required by law, or to take such other action as may be necessary to
satisfy any such withholding obligations.
IX. Non-Transferability of Award
- --- ----------------------------
No award, under this Plan, and no rights or interests therein, will be
assignable or transferable by a participant (or legal representative).
X. Change of Control
- -- -----------------
Should the Company experience a Change of Control (as defined in the
LTICP), all awards described in this Plan will be awarded in full, at the
earlier of the date of the Change of Control or the Participant's
termination from the Company.
(Exhibit 99)
Chief Executive Officer Performance Incentive Plan
Effective June 8, 1999
I. Purpose of the Plan
-------------------
The purpose of the Chief Executive Officer Performance Incentive Plan (the
Plan), is to provide additional incentive and recognition to the
Participant for:
1. successfully initiating and accomplishing the acquisition of
Union Camp Corporation, and
2. achieving the aggressive integration of Union Camp Corporation
resulting in savings of at least $300,000,000 by October 31, 2000.
II. Plan Description
----------------
The Plan provides shares of stock, share options and/or cash to the
Participant upon successful completion of the above objectives. Awards are
forfeited if performance objectives are not achieved as determined by the
Management Development and Compensation Committee (the "Committee").
III. Participation
-------------
Participation in this plan is limited to the Chairman of the Board and
Chief Executive Officer. Participation in the Plan, or receipt of an award
under this Plan, does not give the Participant any right to a subsequent
award, nor any right to continued employment by the Company for any
period.
IV. Awards
------
o 50,000 performance units will be granted to the Participant and will
be earned in full or in part based upon the Committee's
determination of the level of achievement of the performance
objectives, identified in Section I.
o 150,000 non-qualified stock options will be granted to the
Participant and will vest , in full or in part, based upon the
Committee's determination of the level of achievement of the
performance objectives, identified in Section I.
Each performance unit will equal one share of International Paper common
stock.
V. Administration of the Plan
--------------------------
The Plan operates at the discretion of the Committee. The Committee may
exercise considerable discretion and judgment in interpreting the Plan,
and adapting from time to time rules and regulations that govern the
administration of the Plan.
<PAGE>
Decisions of the Committee are final, conclusive and binding on all
parities, including the Company, its Shareholders, and employees.
The Committee may at any time suspend, terminate, modify, or amend any or
all of the provisions of this Plan.
VI. Method and Timing of Payment of Awards
--------------------------------------
o Performance units will be earned on the date the committee
determines the performance objectives have been achieved. Payment
may be in cash, in shares of International Paper common stock, or in
any combination, as determined by the Committee in its discretion.
o Stock options will vest in full or in part on the date the Committee
determines the performance objectives have been achieved. The terms
and conditions of the stock option will be governed by the specific
stock option agreement.
The Committee, in its discretion, may award any or all of any unearned
award to the Participant or Participant's estate or beneficiary upon the
Participant's death or total disability.
VII. Governing Law
-------------
The Plan is governed by the laws of the State of New York.
VIII. Tax Withholding
---------------
The Company will deduct from any award made under the Plan, a sufficient
amount to cover withholding of any federal, state, local taxes required by
law, or to take such other action as may be necessary to satisfy any such
withholding obligations.
IX. Non-Transferability of Award
----------------------------
No award, under this Plan, and no rights or interests therein, will be
assignable or transferable by a Participant (or legal representative).
X. Change of Control
-----------------
Should the company experience a Change of Control as described in the
Participant's letter agreement dated February 11, 1997, all awards
described in this Plan will be awarded in full, at the earlier of the date
of the change of control or the Participant's termination from the
Company.
