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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NO. 1-3157
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INTERNATIONAL PAPER COMPANY
(Exact name of Company as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 13-0872805
(State or other jurisdiction (I.R.S. Employee
of Identification No.)
incorporation or organization)
</TABLE>
TWO MANHATTANVILLE ROAD,
PURCHASE, N.Y.
(Address of principal executive offices)
10577
(Zip Code)
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: 914-397-1500
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
NAME OF EACH
EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ------------------------------------ -----------------------
Common Stock, $1 per share par
value............................... New York Stock Exchange
7 7/8% Debentures due 2038 New York Stock Exchange
</TABLE>
INDICATE BY CHECK MARK WHETHER THE COMPANY (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE COMPANY
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / /
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405, OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. /X/
THE AGGREGATE MARKET VALUE OF THE COMMON STOCK OF THE COMPANY OUTSTANDING AS
OF MARCH 17, 2000, HELD BY NON-AFFILIATES OF THE COMPANY WAS $15,719,434,577,
CALCULATED ON THE BASIS OF THE CLOSING PRICE ON THE COMPOSITE TAPE ON MARCH 17,
2000. FOR THIS COMPUTATION, THE COMPANY HAS EXCLUDED THE MARKET VALUE OF ALL
COMMON STOCK BENEFICIALLY OWNED BY ALL EXECUTIVE OFFICERS AND DIRECTORS OF THE
COMPANY AND THEIR ASSOCIATES AS A GROUP AND TREASURY STOCK. SUCH EXCLUSION IS
NOT TO SIGNIFY IN ANY WAY THAT MEMBERS OF THIS GROUP ARE "AFFILIATES" OF THE
COMPANY.
THE NUMBER OF SHARES OUTSTANDING OF THE COMPANY'S COMMON STOCK, AS OF
MARCH 17, 2000
<TABLE>
<S> <C>
OUTSTANDING IN TREASURY
413,825,796 1,583,006
</TABLE>
The following documents are incorporated by reference into the parts of this
report indicated below:
1999 ANNUAL REPORT TO SHAREHOLDERS PARTS I, II, AND IV
(INSIDE FRONT COVER AND PAGES 6 THROUGH 61)
PROXY STATEMENT DATED MARCH 24, 2000 PART III
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PART I
ITEM 1. BUSINESS
GENERAL
International Paper Company (the Company or International Paper, which may
be referred to as we or us), is a global paper and forest products company that
is complemented by an extensive distribution system. The Company produces
printing and writing papers, pulp, tissue, paperboard and packaging and wood
products. We also manufacture specialty chemicals and specialty panels and
laminated products. Our primary markets and manufacturing and distribution
operations are in the United States, Europe and the Pacific Rim. We are a New
York corporation and were incorporated in 1941 as the successor to the New York
corporation of the same name organized in 1898. Our home page on the Internet is
www.internationalpaper.com. You can learn more about us by visiting that site.
In the United States at December 31, 1999, the Company operated 30 pulp,
paper and packaging mills, 104 converting and packaging plants, 38 wood products
facilities, 8 specialty panels and laminated products plants and 12 specialty
chemicals plants. Production facilities at December 31, 1999 in Europe, Asia,
Latin America and Canada included 12 pulp, paper and packaging mills, 35
converting and packaging plants, 4 wood products facilities, 3 specialty panels
and laminated products plants and 23 specialty chemicals plants. We distribute
printing, packaging, graphic arts and industrial supply products, primarily
manufactured by other companies, through over 305 distribution branches located
primarily in the United States, and also engage in oil and gas and real estate
activities in the United States. At December 31, 1999, we controlled
approximately 7.1 million acres of forestlands in the United States.
Through Carter Holt Harvey, a New Zealand company which is 50.3% owned by
International Paper, the Company operates 6 mills producing pulp, paper,
packaging and tissue products, 27 converting and packaging plants and 54 wood
products manufacturing and distribution facilities, primarily in New Zealand and
Australia. Carter Holt Harvey distributes paper and packaging products through
17 distribution branches located in New Zealand and Australia. In New Zealand,
Carter Holt Harvey controls approximately 785,000 acres of forestlands.
For financial reporting purposes, our businesses are separated into six
segments: Printing and Communications Papers; Industrial and Consumer Packaging;
Distribution; Chemicals and Petroleum; Forest Products; and Carter Holt Harvey.
A description of these business segments can be found on pages 6 through 8 of
International Paper: From Innovation to Results, Our 1999 Annual Report (Annual
Report), which information is incorporated herein by reference.
From 1994 through 1999, International Paper's capital expenditures
approximated $8.9 billion, excluding mergers and acquisitions. These
expenditures reflect our continuing efforts to improve product quality and
environmental performance, lower costs, and improve forestlands. Capital
spending in 1999 was approximately $1.1 billion and is budgeted to be between
$1.2 and $1.3 billion in 2000. This amount is below our annual depreciation and
amortization expense of $1.5 billion. You can find more information about
capital expenditures on pages 13 through 14 of our Annual Report, which
information is incorporated herein by reference.
Discussions of mergers and acquisitions can be found on pages 6, 13 through
14, and 39 through 40 of the Annual Report, which information is incorporated
herein by reference.
You can find discussions of restructuring charges and other special items on
pages 15 through 22 and 40 through 47 of the Annual Report, which information is
incorporated herein by reference.
THROUGHOUT THIS 10-K REPORT, WE "INCORPORATE BY REFERENCE" CERTAIN
INFORMATION IN PARTS OF OTHER DOCUMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (SEC). THE SEC PERMITS US TO DISCLOSE IMPORTANT
INFORMATION BY REFERRING TO IT IN THAT MANNER. PLEASE REFER TO SUCH
INFORMATION.
1
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FINANCIAL INFORMATION CONCERNING INDUSTRY SEGMENTS
The financial information concerning segments is set forth on pages 30
through 31 of the Annual Report, which information is incorporated herein by
reference.
FINANCIAL INFORMATION ABOUT INTERNATIONAL AND DOMESTIC OPERATIONS
The financial information concerning international and domestic operations
and export sales is set forth on page 31 of the Annual Report, which information
is incorporated herein by reference.
COMPETITION AND COSTS
Despite the size of the Company's manufacturing capacities for paper,
paperboard, packaging and pulp products, the markets in all of the cited product
lines are large and highly fragmented. The markets for wood and specialty
products are similarly large and fragmented. There are numerous competitors, and
the major markets, both domestic and international, in which the Company sells
its principal products are very competitive. These products are in competition
with similar products produced by others, and in some instances, with products
produced by other industries from other materials.
Many factors influence the Company's competitive position, including prices,
costs, product quality and services. You can find more information about the
impact of prices and costs on operating profits on pages 6 through 12 of the
Annual Report, which information is incorporated herein by reference.
MARKETING AND DISTRIBUTION
The Company sells paper and packaging products through our own sales
organization directly to users or converters for manufacture. Sales offices are
located throughout the United States as well as internationally. We also sell
significant volumes of products through paper merchants and distributors,
including facilities in our distribution network.
We market our U.S. production of lumber and plywood through independent and
Company-owned distribution centers. Specialty products are marketed through
various channels of distribution.
DESCRIPTION OF PRINCIPAL PRODUCTS
The Company's principal products are described on pages 6 through 8 of the
Annual Report, which information is incorporated herein by reference.
2
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Production of major products for 1999, 1998 and 1997 was as follows:
PRODUCTION BY PRODUCT
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998(D) 1997(D)
-------- -------- --------
<S> <C> <C> <C>
Printing Papers (In thousands of tons)
White Papers and Bristols................................. 5,393 5,188 5,508
Coated Papers............................................. 1,308 1,241 1,304
Market Pulp (A)........................................... 2,082 2,020 2,268
Newsprint................................................. 100 95 86
Packaging (In thousands of tons)
Containerboard............................................ 4,837 4,670 4,874
Bleached Packaging Board.................................. 2,122 2,148 2,191
Industrial Papers......................................... 898 894 981
Industrial and Consumer Packaging (B)..................... 5,112 4,919 4,796
Specialty Products (In thousands of tons)
Tissue.................................................... 158 148 147
Forest Products (In millions)
Panels (sq. ft. 3/8"-basis) (C)........................... 2,106 1,818 1,650
Lumber (board feet)....................................... 2,927 2,726 2,671
MDF (sq. ft. 3/4"-basis).................................. 209 297 325
Particleboard (sq. ft. 3/4"-basis)........................ 196 195 188
</TABLE>
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(A) This excludes market pulp purchases.
(B) A significant portion of this tonnage was fabricated from paperboard and
paper produced at the Company's mills and is included in the containerboard,
bleached packaging board and industrial papers amounts in this table.
(C) Panels include plywood and oriented strand board.
(D) Certain reclassifications and adjustments have been made to prior-year
amounts.
RESEARCH AND DEVELOPMENT
The Company operates research and development centers at Sterling Forest,
New York; Cincinnati, Ohio; Panama City, Florida; Erie, Pennsylvania; Kaukauna,
Wisconsin; West Chicago, Illinois; Odenton, Maryland; Jacksonville, Florida;
Savannah, Georgia; Saint-Priest, France; Annecy, France; a regional center for
applied forest research in Bainbridge, Georgia; a forest biotechnology center in
Rotorua, New Zealand; and several product laboratories. We direct research and
development activities to short-term, long-term and technical assistance needs
of customers and operating divisions; process, equipment and product
innovations; and improvement of profits through tree generation and propagation
research. Activities include studies on improved forest species and management;
innovation and improvement of pulping, bleaching, chemical recovery, papermaking
and coating processes; packaging design and materials development; reduction of
environmental discharges; re-use of raw materials in manufacturing processes;
recycling of consumer and packaging paper products; energy conservation;
applications of computer controls to manufacturing operations; innovations and
improvement of products; and development of various new products. Our
development efforts specifically address product safety as well as the
minimization of solid waste. The cost to the Company of its research and
development operations was $88 million in 1999, $144 million in 1998 and
$157 million in 1997.
3
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ENVIRONMENTAL PROTECTION
The Company is subject to extensive federal and state environmental
regulation, and regulations in all other jurisdictions in which it operates. Our
continuing objectives are to: (1) control pollutants discharged into the air,
water and groundwater to avoid adverse impacts on the environment, (2) make
continual improvements in environmental performance, and (3) maintain 100%
compliance with applicable laws and regulations. A total of $90 million was
spent in 1999 for capital projects to control environmental releases into the
air and water, and to assure environmentally sound management and disposal of
waste. We expect to spend approximately $257 million in 2000 for similar capital
projects, including the costs to comply with the Environmental Protection
Agency's (EPA) Cluster Rule regulations. Amounts to be spent for environmental
control projects in future years will depend on new laws and regulations and
changes in legal requirements and environmental concerns. Taking these
uncertainties into account, our preliminary estimate for additional
environmental appropriations during the period 2001 through 2002 is
approximately $157 million in total.
On April 15, 1998, the EPA issued final Cluster Rule regulations that
established new requirements regarding air emissions and wastewater discharges
from pulp and paper mills to be met between now and 2006. One of the
requirements of the Cluster Rule is that pulp and paper mills use only elemental
chlorine-free technology (ECF) in the pulp bleaching process. We have spent
$247 million through 1999 to convert 15 of our U.S. and European bleached mills
to this technology and for certain other projects related to the Cluster Rule
regulations. The projected costs included in the Company's estimate related to
the Cluster Rule regulations for the years 2000 through 2001 are $229 million.
Projected Cluster Rule costs for 2002 through 2006 are in the range of
$150 million to $195 million. The final cost depends on the outcome of the
Cluster Rule water regulations for pulp and paper categories other than bleached
kraft and soda. Regulations for these categories are not likely to become final
until late 2000 or 2001. We estimate that annual operating costs, excluding
depreciation, will increase approximately $20 million when these regulations are
fully implemented.
The Company has been named as a potentially liable party in a number of
environmental remediation actions under various federal and state laws,
including the Comprehensive Environmental Response, Compensation and Liability
Act. Related costs are recorded in the financial statements when they are
probable and reasonably estimable. Completion of these actions is not expected
to have a material adverse effect on the Company's financial condition or
results of operations.
The Company expects the significant effort it has made in the analysis of
environmental issues and the development of environmental control technology
responses will enable it to keep costs for compliance with environmental
regulations at, or below, industry averages.
You can find a further discussion of environmental issues on page 24 of the
Annual Report, which information is incorporated herein by reference.
You can also find additional information about environmental matters in the
Company's 1998-1999 Environment, Health & Safety Annual Environmental Report,
which can be obtained by contacting the Company or through the Company's
website.
EMPLOYEES
As of December 31, 1999, the Company had approximately 99,000 employees, of
whom 70,000 were located in the United States and the remainder overseas. Of the
domestic employees, approximately 45,000 are hourly employees, approximately
20,000 of whom are represented by the Paper, Allied-Industrial, Chemical and
Energy International Union.
During 1999, a new labor agreement was reached at the Pine Bluff mill. Erie
mill negotiations were still in progress at year end. During 2000, labor
agreements are scheduled to be negotiated at the Camden, Natchez, Reigelwood,
Terre Haute and Hamilton mills.
4
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During 1999, twenty-five labor agreements were settled in non-papermill
operations. Settlements included nine in paper converting, four in building
materials, two in forest resources and ten in distribution. At year end, ten
open contracts existed where negotiations were in progress. These include two
paper converting, one chemical and seven distribution. During 2000, nineteen
non-papermill operations will negotiate new labor agreements.
RAW MATERIALS
For information as to the sources and availability of raw materials
essential to our business, see Item 2. PROPERTIES.
FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this report and in our Annual Report contain
some forward-looking statements. Forward-looking statements reflect our
expectations or forecasts of future events. These statements do not relate
strictly to historical or current facts. They use words such as "estimate,"
"anticipate," "plan," "intend," "believe," and similar meanings in connection
with any discussion of future operating or financial performance. These include
statements relating to future actions, future performance or the outcome of
contingencies, such as legal proceedings and financial results. We also provide
oral or written forward-looking statements in other materials we release to the
public.
Any or all of the forward-looking statements that we make in this report, in
the Annual Report and any other public statements may turn out to be wrong. They
can be influenced by inaccurate assumptions we might make or by known or unknown
risks and uncertainties. No forward-looking statements can be guaranteed and
actual results may vary materially. Factors which could cause actual results to
differ include, among other things, changes in overall demand, changes in
domestic or foreign competition, changes in the cost or availability of raw
materials, the cost of compliance with environmental laws and regulations, and
whether anticipated savings from merger and other restructuring activities can
be achieved. In view of such uncertainties, investors are cautioned not to place
undue reliance on these forward-looking statements.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You should consult any further disclosures we make on related subjects in our
10-Q, 8-K and 10-K reports to the SEC.
ITEM 2. PROPERTIES
FORESTLANDS
The principal raw material used by International Paper is wood in various
forms. At December 31, 1999, the Company controlled approximately 7.1 million
acres of forestlands in the United States. An additional 785,000 acres of
forestlands in New Zealand were held through Carter Holt Harvey, a consolidated
subsidiary of International Paper.
During 1999, the U.S. forestlands supplied 14.9 million tons of roundwood to
the Company's U.S. facilities. This amounted to the following percentages of the
roundwood requirements of its U.S. mills and forest products facilities: 14% in
its Northern mills and 39% in its Southern mills. The balance was acquired from
other private industrial and nonindustrial forestland owners, with only an
insignificant amount coming from public lands of the United States government.
In addition, 6 million tons of wood were sold to other users in 1999. In
November 1994, we adopted the Sustainable Forestry Principles developed by the
American Forest and Paper Association in August 1994.
5
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MILLS AND PLANTS
A listing of our production facilities can be found in Appendix I hereto,
which is incorporated herein by reference.
The Company's facilities are in good operating condition and are suited for
the purposes for which they are presently being used. We continue to study the
economics of modernizing or adopting other alternatives for higher cost
facilities.
CAPITAL INVESTMENTS AND DISPOSITIONS
Given the size, scope and complexity of our business interests, we
continuously examine and evaluate a wide variety of business opportunities and
planning alternatives, including possible acquisitions and sales or other
dispositions of properties. You can find planned capital investments for 2000,
dispositions, and restructuring activities as of December 31, 1999 on pages 6
and 13 through 22 of the Annual Report, which information is incorporated herein
by reference.
ITEM 3. 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 final approval of the settlement provides
for monetary compensation to class members meeting the settlement requirements
on a claims-made basis. It also provides for the payment of attorneys' fees
equaling 15% of the settlement amounts paid to class members, with a
nonrefundable advance of $47.5 million plus $2.5 million in costs.
The second suit made similar allegations with regard to Omniwood siding
manufactured by Masonite (Omniwood Lawsuit). The class consists of all U.S.
property owners having Omniwood siding installed on and incorporated into
buildings from January 1, 1992 to January 6, 1999.
The third suit alleged that Woodruf roofing manufactured by Masonite is
defective and causes damage to the structure underneath the roofing (Woodruf
Lawsuit). The class consists of all U.S. property owners on which Masonite
Woodruf roofing had 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 provide for payment of attorneys' fees equaling 13% of
the settlement amounts paid to class members with a nonrefundable advance of
$1.7 million plus $75,000 in costs for each of the two cases.
The Company's reserves for these matters total $76 million at December 31,
1999. This amount includes $25 million which the Company added to its reserve
for hardboard siding claims in the fourth quarter of 1999, to cover an expected
shortfall in that reserve resulting primarily from a higher than anticipated
number of hardboard siding claims in the fourth quarter of 1999. It is
reasonably possible that the higher number of hardboard siding claims might be
indicative of the need for one or more future additions to this reserve.
However, whether or not any future additions to this reserve become necessary,
the Company believes 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
6
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recoveries (apart from the insurance recoveries to date). Through December 31,
1999, settlement payments of $183 million, including the $51 million of
nonrefundable advances of attorneys' fees discussed above, have been made. Also,
we have received $27 million from our insurance carriers through December 31,
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 the
Company, the former Union Camp Corporation and other manufacturers of
linerboard. These suits allege that the defendants conspired to fix prices for
linerboard and corrugated sheets during the period October 1, 1993 through
November 30, 1995. Both lawsuits were filed seeking nationwide class
certification. The lawsuits allege that various purchasers of corrugated sheets
and corrugated containers were injured as a result of the alleged conspiracy.
The cases have been consolidated in federal court in the Eastern District of
Pennsylvania. Motions to dismiss the cases are pending before the Court.
COPEC
The Company's majority-owned subsidiary, Carter Holt Harvey, had an indirect
shareholding of 30.05% in Chile's largest industrial company, COPEC, through
Carter Holt Harvey's subsidiary, Carter Holt Harvey International. This
shareholding was held through Carter Holt Harvey International's 50% interest in
Inversiones y Desarrollo Los Andes S.A. (Los Andes), which held 60.1% of the
shares of COPEC. The other 50% of Los Andes was owned by Inversiones Socoroma
S.A. (Socoroma), a Chilean investment company. In late 1993, Carter Holt Harvey
International commenced several actions in Chilean courts challenging certain
corporate governance documents of Los Andes, as well as agreements between
Carter Holt Harvey and Socoroma. All of those actions have now been terminated.
In December 1994, Socoroma commenced an arbitration action seeking to expel
Carter Holt Harvey International from Los Andes. In April 1998, the arbitrator
dismissed Socoroma's request, but granted it the right to claim monetary damages
for what he found was Carter Holt Harvey International's breach of certain of
its obligations as a participant in the Los Andes joint venture. All of the
foregoing litigation has been settled. As a part of the settlement, AntarChile,
S.A., purchased Carter Holt Harvey's interest in COPEC for just over
$1.2 billion on January 3, 2000.
OTHER LITIGATION
In April 1999, the Franklin, Virginia mill received a Notice of Violation
(NOV) from the EPA, Region 3 in Philadelphia, and an NOV from the Commonwealth
of Virginia alleging that the mill violated the Prevention of Significant
Deterioration (PSD) regulations. The Franklin mill was owned by Union Camp
Corporation at that time and was one of seven paper mills in Region 3 owned by
different companies which received similar notices of violation. Union Camp
merged with International Paper on April 30, 1999, and International Paper has
entered into negotiations with the EPA and the Commonwealth of Virginia.
The Franklin mill NOVs were issued in connection with the EPA's well
publicized PSD air permit enforcement initiative against the paper industry. In
1999, our paper mills in Kaukauna, Wisconsin and Augusta, Georgia received
requests for information from the EPA regarding compliance with the PSD
regulations. The EPA's initiative may result in similar actions at other
facilities.
On August 5, 1999, International Paper and the New York Department of
Environmental Conservation entered into a consent order which resolved several
alleged air permit violations at our paper mill in Ticonderoga, New York, for a
civil penalty of $100,000.
In August 1998, the former Union Camp Corporation informed the Virginia
Department of Environmental Quality (DEQ) of certain New Source Performance
Standards (NSPS) permitting discrepancies
7
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related to a power boiler at the paper mill in Franklin, Virginia. On
August 11, 1999, the DEQ proposed a consent order with a civil penalty exceeding
$100,000. Terms of the consent order, including the penalty, are being
negotiated with the DEQ.
In November 1999, the Wisconsin Department of Natural Resources filed a
civil complaint alleging past exceedences of air permit limits at the former
Union Camp flexible packaging facility located in Tomah, Wisconsin. The
complaint seeks penalties that could exceed $100,000. International Paper is
engaged in settlement discussions with the state.
As of March 27, 2000, there were no other pending judicial proceedings,
brought by governmental authorities against the Company, for alleged violations
of applicable environmental laws or regulations. The Company is engaged in
various other proceedings that arise under applicable environmental and safety
laws or regulations, including approximately 108 active proceedings under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
and comparable state laws. Most of these proceedings involve the cleanup of
hazardous substances at large commercial landfills that received waste from many
different sources. While joint and several liability is authorized under the
CERCLA, as a practical matter, liability for CERCLA cleanups is allocated among
the many potential responsible parties. Based upon previous experience with
respect to the cleanup of hazardous substances and upon presently available
information, the Company believes that it has no or DE MINIMIS liability with
respect to 21 of these sites; that liability is not likely to be significant at
67 sites; and that estimates of liability at 20 of these sites is likely to be
significant but not material to the Company's consolidated financial position or
results of operations.
We are also involved in other contractual disputes, administrative and legal
proceedings and investigations of various types. While any litigation,
proceeding or investigation has an element of uncertainty, we believe that the
outcome of any proceeding, lawsuit or claim that is pending or threatened, or
all of them combined, will not have a material adverse effect on our
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
SPECIAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
INTERNATIONAL PAPER COMPANY
EXECUTIVE OFFICERS
AS OF MARCH 27, 2000
INCLUDING NAME, AGE, OFFICES AND POSITIONS HELD AND BUSINESS
EXPERIENCE DURING THE PAST FIVE YEARS(1)
John T. Dillon, 61, chairman and chief executive officer since 1996. Prior
to that he was executive vice president-packaging from 1987 to 1995, when he
became president and chief operating officer.
C. Wesley Smith, 60, executive vice president-operations group since 1998.
From 1992 to 1998 he was executive vice president-printing papers.
John V. Faraci, 50, senior vice president-finance and chief financial
officer since 1999. From 1995 until 1999 he was CEO and managing director of
Carter Holt Harvey Limited of New Zealand.
- ------------------------
(1) Executive officers of International Paper are elected to hold office until
the next annual meeting of the board of directors following the annual
meeting of shareholders and until election of successors, subject to removal
by the board.
8
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James P. Melican Jr., 59, executive vice president-legal and external
affairs. He assumed this position in 1991.
David W. Oskin, 57, executive vice president since 1995. He was CEO and
managing director of Carter Holt Harvey Limited of New Zealand from 1992 to
1995.
Marianne M. Parrs, 56, executive vice president-administration since
March 9, 1999. She was executive vice-president and chief financial officer from
1995 to 1999.
Andrew R. Lessin, 57, vice president and controller since 1995. Prior to
that he was controller from 1990.
William B. Lytton, 51, senior vice president and general counsel since
January 1999. From 1996 to 1999 he was vice president and general counsel. He
was vice president and general counsel for Lockheed Martin Electronics from 1995
to 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Dividend per share data on the Company's common stock and the high and low
sale prices for the Company's common stock for each of the four quarters in 1999
and 1998 are set forth on page 61 of the Annual Report and are incorporated
herein by reference.
As of March 17, 2000, there were 32,505 holders of record of the Company's
common stock.
ITEM 6. SELECTED FINANCIAL DATA
The Company's columnar table showing selected financial data for the Company
is set forth on pages 59 and 60 of the Annual Report and is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's review and comments on the consolidated financial statements
are set forth on pages 6 through 29 of the Annual Report and are incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are set forth on
pages 27 through 29 of the Annual Report and are incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, the notes thereto and the
reports of the independent public accountants and Company management are set
forth on pages 32 through 58 of the Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
9
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of the Company and their business experience are set forth on
pages 11 through 14 of the Company's Proxy Statement, dated March 24, 2000
(Proxy Statement), which information is incorporated herein by reference. The
discussion of executive officers of the Company is included in Part I under
"Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
A description of the compensation of the Company's executive officers is set
forth on pages 21 through 24 and 26 through 30 of the Proxy Statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A description of the security ownership of certain beneficial owners and
management is set forth on pages 6 through 8 of the Proxy Statement and is
incorporated herein by reference.
The table showing ownership of the Company's common stock held by individual
directors and by directors and executive officers as a group is set forth on
page 7 of the Proxy Statement, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A description of certain relationships and related transactions is set forth
on page 6 of the Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of the Company and consolidated
subsidiaries listed below are incorporated herein by reference to the
following pages of the Annual Report:
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Consolidated statement of earnings for fiscal years ended
December 31, 1999, 1998 and 1997.......................... 33
Consolidated balance sheet at December 31, 1999 and 1998.... 34
Consolidated statement of cash flows for fiscal years ended
December 31, 1999, 1998 and 1997.......................... 35
Consolidated statement of common shareholders' equity....... 36
Notes to consolidated financial statements.................. 37-58
Report of independent public accountants.................... 32
</TABLE>
10
<PAGE>
2. FINANCIAL STATEMENT SCHEDULE
The following additional financial data should be read in conjunction
with the financial statements in the Annual Report. Schedules not
included with this additional financial data have been omitted because
they are not applicable, or the required information is shown in the
financial statements or notes thereto.
ADDITIONAL FINANCIAL DATA
1999, 1998 AND 1997
<TABLE>
<S> <C>
Report of Independent Public Accountants on Financial
Statement Schedule........................................ 13
Consolidated Schedule:
II--Valuation and Qualifying Accounts..................... 14
</TABLE>
<TABLE>
<CAPTION>
3. EXHIBITS
<S> <C>
(2) Agreement and Plan of Merger, dated November 24, 1998,
between the Company and Union Camp Corporation (incorporated
herein by reference to Exhibit 2.1 to the Company's Report
on Form 8-K, dated November 25, 1998).
(3.1) Form of Restated Certificate of Incorporation of
International Paper (incorporated by reference to
International Paper's Report on Form 8-K dated November 20,
1990).
(3.2) Certificate of Amendment to the Certificate of Incorporation
of International Paper Company (incorporated herein by
reference to Exhibit (3)(i) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999).
(3.3) By-laws of the Company as amended March 9, 1999
(incorporated by reference to Exhibit (3)(ii) to the
Company's Report on Form 8-K, dated March 9, 1999).
(4) Specimen Common Stock Certificate (incorporated by reference
to Exhibit 2-A to the Company's registration statement on
Form S-7, No. 2-56588, dated June 10, 1976).
(10.1) Long Term Incentive Compensation Plan (incorporated by
reference to Exhibit 99 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999).
(10.2) Restricted Stock Plan for Non-Employee Directors
(incorporated by reference to Exhibit 99 to the Company's
Quarterly Report on Form 10-Q dated August 16, 1999 for the
quarter ended June 30, 1999).
(10.3) Transitional Performance Unit Plan (incorporated by
reference to Exhibit 99 to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999).
(10.4) Chief Executive Officer Performance Incentive Plan
(incorporated by reference to Exhibit 99 to the Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999).
(10.5) Union Camp Corporation 1989 Stock Option and Stock Award
Plan (incorporated by reference to Exhibit 99.1 to
Registration No. 333-75235, dated May 3, 1999).
(10.6) International Paper Company Stock Option Plan (incorporated
by reference to Registration No. 333-85051, dated
August 12, 1999).
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
3. EXHIBITS
<S> <C>
(10.7) Management Incentive Plan (incorporated by reference to
Exhibit 99 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998).
(10.8) Form of individual option agreement under Company Option
Plan.
(10.9) Form of individual executive continuity award under Company
Long Term Incentive Compensation Plan
(10.10a) Form of Termination Agreement--Tier I
(10.10b) Form of Termination Agreement--Tier II
(10.10c) Form of Termination Agreement--Tier III
(11) Statement of Computation of Per Share Earnings
(12) Computation of Ratio of Earnings to Fixed Charges
(13) 1999 Annual Report to Shareholders of the Company
(21) List of Subsidiaries of Registrant
(22) Proxy Statement dated March 24, 2000 (incorporated by
reference to the Company's Proxy Statement dated March 24,
2000, filed on March 27, 2000 pursuant to Rule 14a-6)
(23.1) Consent of Independent Public Accountants (Arthur Andersen
LLP)
(23.2) Consent of Independent Public Accountants
(PricewaterhouseCoopers LLP)
(24) Power of Attorney
(27) Financial Data Schedule
(99.1) Report of Independent Accountants (PricewaterhouseCoopers
LLP)
(99.2) From Innovation to Results: A Conversation About the Future
</TABLE>
(B) REPORTS ON FORM 8-K
There was one report filed on October 12, 1999 on Form 8-K, under Item 5
during the fourth quarter of 1999 which reported earnings for the quarter ended
September 30, 1999, disclosed a special item for pre-tax charges of
$50 million, and an extraordinary expense of $3 million.
12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To International Paper Company:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in the Company's 1999 Annual
Report to Shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated February 8, 2000. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in the accompanying index is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, based on our audits and
the report of other auditors, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
New York, N.Y.
February 8, 2000
13
<PAGE>
SCHEDULE II
INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------
ADDITIONS
BALANCE AT ADDITIONS CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO OTHER FROM END
DESCRIPTION OF PERIOD EARNINGS ACCOUNTS RESERVES OF PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserves Applied Against Specific Assets
Shown on Balance Sheet:
Doubtful accounts--current........... $115 $ 34 $ (43)(a) $106
Restructuring reserves............... 71 149 (105)(b) 115
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------
ADDITIONS
BALANCE AT ADDITIONS CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO OTHER FROM END
DESCRIPTION OF PERIOD EARNINGS ACCOUNTS RESERVES OF PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserves Applied Against Specific Assets
Shown on Balance Sheet:
Doubtful accounts--current........... $108 $39 $ (32)(a) $115
Restructuring reserves............... 91 81 (101)(c) 71
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------
ADDITIONS
BALANCE AT ADDITIONS CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO OTHER FROM END
DESCRIPTION OF PERIOD EARNINGS ACCOUNTS RESERVES OF PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Reserves Applied Against Specific Assets
Shown on Balance Sheet:
Doubtful accounts--current........... $116 $25 $(33)(a) $108
Restructuring reserves............... 76 95 (80) 91
</TABLE>
- ------------------------
(a) Includes write-offs, less recoveries, of accounts determined to be
uncollectible and other adjustments.
(b) Includes a $36 million deduction for the reversal of previously established
reserves that were no longer required. The reversal was recognized in 1999
net earnings and is a separate line item in the consolidated statement of
earnings.
(c) Includes an $83 million deduction for the reversal of previously established
reserves that were no longer required. The reversal was recognized in 1998
net earnings and is a separate line item in the consolidated statement of
earnings.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
INTERNATIONAL PAPER COMPANY
By: /s/ JAMES W. GUEDRY
-----------------------------------------
James W. Guedry
VICE PRESIDENT AND SECRETARY
</TABLE>
March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ JOHN T. DILLON Chairman of the Board,
------------------------------------------- Chief Executive Officer March 27, 2000
(John T. Dillon) and Director
/s/ C. WESLEY SMITH*
------------------------------------------- Executive Vice President March 27, 2000
(C. Wesley Smith) and Director
/s/ PETER I. BIJUR*
------------------------------------------- Director March 27, 2000
(Peter I. Bijur)
/s/ ROBERT J. EATON*
------------------------------------------- Director March 27, 2000
(Robert J. Eaton)
/s/ SAMIR G. GIBARA*
------------------------------------------- Director March 27, 2000
(Samir G. Gibara)
/s/ JAMES R. HENDERSON*
------------------------------------------- Director March 27, 2000
(James R. Henderson)
/s/ JOHN R. KENNEDY*
------------------------------------------- Director March 27, 2000
(John R. Kennedy)
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ ROBERT D. KENNEDY*
------------------------------------------- Director March 27, 2000
(Robert D. Kennedy)
/s/ W. CRAIG MCCLELLAND*
------------------------------------------- Director March 27, 2000
(W. Craig McClelland)
/s/ DONALD F. MCHENRY*
------------------------------------------- Director March 27, 2000
(Donald F. McHenry)
/s/ PATRICK F. NOONAN*
------------------------------------------- Director March 27, 2000
(Patrick F. Noonan)
/s/ JANE C. PFEIFFER*
------------------------------------------- Director March 27, 2000
(Jane C. Pfeiffer)
/s/ JEREMIAH J. SHEEHAN*
------------------------------------------- Director March 27, 2000
Jeremiah J. Sheehan
/s/ CHARLES R. SHOEMATE*
------------------------------------------- Director March 27, 2000
(Charles R. Shoemate)
/s/ JOHN V. FARACI
------------------------------------------- Senior Vice President and March 27, 2000
(John V. Faraci) Chief Financial Officer
/s/ ANDREW R. LESSIN Vice President and
------------------------------------------- Controller and Chief March 27, 2000
(Andrew R. Lessin) Accounting Officer
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JAMES W. GUEDRY
--------------------------------------
(James W. Guedry)
(ATTORNEY-IN-FACT)
</TABLE>
16
<PAGE>
APPENDIX I
1999 LISTING OF FACILITIES
PRINTING AND
COMMUNICATIONS PAPERS
BUSINESS PAPERS, COATED PAPERS, FINE PAPERS AND PULP
DOMESTIC:
Mobile, Alabama
Selma, Alabama
(Riverdale Mill)
Camden, Arkansas
Pine Bluff, Arkansas
Mira Loma, California
(C & D Center)
Augusta, Georgia
Bastrop, Louisiana
(Louisiana Mill)
Springhill, Louisiana
(C & D Center)
Jay, Maine
(Androscoggin Mill)
Millers Falls, Massachusetts
West Springfield,
Massachusetts
Westfield, Massachusetts
(C & D center)
Sturgis, Michigan
(C & D Center)
Moss Point, Mississippi
Corinth, New York
(Hudson River Mill)
Ticonderoga, New York
Riegelwood, North Carolina
Wilmington, North Carolina
(Reclaim Center)
Hamilton, Ohio
Saybrook, Ohio
(C & D Center)
Erie, Pennsylvania
Hazelton, Pennsylvania
(C & D Center)
Lock Haven, Pennsylvania
Eastover, South Carolina
Georgetown, South Carolina
Sumter, South Carolina
(C & D Center)
Texarkana, Texas
Franklin, Virginia
INTERNATIONAL:
Docelles, France
(Lana Mill)
Grenoble, France
(Pont De Claix Mill)
Maresquel, France
Saillat, France
Saint Die, France
(Anould Mill)
Strasbourg, France
(La Robertsau Mill)
Bergisch Gladbach, Germany
(Gorhrsmuhle Mill)
Duren, Germany
(Reflex Mill)
Klucze, Poland
Kwidzyn, Poland
Svetogorsk, Russia
Inverurie, Scotland
CONSUMER AND INDUSTRIAL PACKAGING
INDUSTRIAL PAPERS
DOMESTIC:
Lancaster, Ohio
Knoxville, Tennessee
De Pere, Wisconsin
Kaukauna, Wisconsin
Menasha, Wisconsin
INTERNATIONAL:
Limburg, Netherlands
INDUSTRIAL PACKAGING
CONTAINERBOARD
DOMESTIC:
Prattville, Alabama
Camden, Arkansas
Savannah, Georgia
Terre Haute, Indiana
Mansfield, Louisiana
Pineville, Louisiana
Vicksburg, Mississippi
Oswego, New York
Gardiner, Oregon
Georgetown, South Carolina
INTERNATIONAL:
Arles, France
CORRUGATED CONTAINER
DOMESTIC:
Decatur, Alabama
Mobile, Alabama
Montgomery, Alabama
Conway, Arkansas
Fordyce, Arkansas
Jonesboro, Arkansas
Russellville, Arkansas
Carson, California
Hanford, California
Modesto, California
Stockton, California
Vernon, California
Putnam, Connecticut
Auburndale, Flordia
Forest Park, Georgia
Savannah, Georgia
Statesboro, Georgia
Chicago, Illinois
Des Plaines, Illinois
North Lake, Illinois
Fort Wayne, Indiana
Terre Haute, Indiana
Lexington, Kentucky
LaFayette, Louisiana
Shreveport, Louisiana
Springhill, Louisiana
Auburn, Maine
Detroit, Michigan
Kalamazoo, Michigan
Minneapolis, Minnesota
Houston, Mississippi
Jackson, Mississippi
Tupelo, Mississippi
Kansas City, Missouri
West Deptford, New Jersey
Geneva, New York
Charlotte, North Carolina
King's Mountain,
North Carolina
Statesville, North Carolina
Cincinnati, Ohio
Cleveland,Ohio
Wooster, Ohio
A-1
<PAGE>
Eighty Four, Pennsylvania
Mount Carmel, Pennsylvania
Lancaster, Pennsylvania
Georgetown, South Carolina
Spartanburg, South Carolina
Columbia, Tennessee
Nashville, Tennessee
Morristown, Tennessee
Dallas, Texas
Edinburg, Texas
El Paso, Texas
Ft. Worth, Texas
San Antonio, Texas
Richmond, Virginia
Cedarburg, Wisconsin
Fond du Lac, Wisconsin
EMERGING MARKETS
Ranagua, Chile
Bayamon, Puerto Rico
INTERNATIONAL:
Las Palmas, Canary Islands
(2 locations)
Tenerife, Canary Islands
Arles, France
Chalon-sur-Saone, France
Chantilly, France
Creil, France
LePuy, France
Mortagne, France
Guadeloupe,
French West Indies
Asbourne, Ireland
Bellusco, Italy
Catania, Italy
Pedemonte, Italy
Pomezia, Italy
San Felice, Italy
Alcala, Spain
Almeria, Spain
Barcelona, Spain
Bilbao, Spain
Valencia, Spain
Valladolid, Spain
Thrapston, United Kingdom
Winsford, United Kingdom
KRAFT PAPER
Mobile, Alabama
Camden, Arkansas
Savannah, Georgia
Moss Point, Mississippi
CONSUMER PACKAGING
BLEACHED BOARD
Pine Bluff, Arkansas
Augusta, Georgia
Moss Point, Mississippi
Georgetown, South Carolina
Riegelwood, North Carolina
Texarkana, Texas
BEVERAGE PACKAGING
Turlock, California
Plant City, Florida
Cedar Rapids, Iowa
Kansas City, Kansas
Framingham, Massachusetts
Kalamazoo, Michigan
Raleigh, North Carolina
Philadelphia, Pennsylvania
Prosperity, South Carolina
INTERNATIONAL:
Edmonton, Alberta, Canada
London, Ontario, Canada
Longueuil, Quebec, Canada
St. Priest, France
Perugia, Italy
St. Catherine, Jamaica
Taipei, Taiwan
RETAIL PACKAGING
Mobile, Alabama
La Grange, Georgia
Thomaston, Georgia
Clinton, Iowa
Clifton, New Jersey
Englewood, New Jersey
Moonachie, New Jersey
Hendersonville, North Carolina
Wilmington, North Carolina
Cincinnati, Ohio
Richmond, Virginia
FOODSERVICE
Visalia, Calfornia
Shelbyville, Illinois
Hopkinsville, Kentucky
Kenton, Ohio
Jackson, Tennessee
FLEXIBLE PACKAGING
DOMESTIC:
Monticello, Arkansas
Hanford, California
Griffin, Georgia
Tifton, Georgia
Seymour, Indiana
Sibley, Iowa
St. Louis, Missouri
Hazleton, Pennsylvania
Spartanburg, South Carolina
Tomah, Wisconsin
INTERNATIONAL:
Bolsaflex
Buenos Aires, Argentina
DISTRIBUTION
WHOLESALE AND RETAIL
DISTRIBUTION
(305 distribution branches)
XPEDX
DOMESTIC:
Stores Group
Chicago, Illinois
174 locations nationwide
Southeast Region
Greensboro, North Carolina
27 branches in the
Middle Atlantic States
and Southeast
West Region
Denver, Colorado
22 branches in the
West and Midwest
Specialty Business Group
Erlanger, Kentucky
3 branches nationwide
Central Region
Erlanger, Kentucky
12 branches in Midwest
Northeast Region
East Grandy, Connecticut
21 branches in New England
and Middle Atlantic States
Midwest Region
Olathe, Kansas
25 branches in the West,
Midwest and South
A-2
<PAGE>
INTERNATIONAL:
Aussedat Rey France
Distribution S.A.,
Pantin, France
3 locations
Chihuahua, Mexico
6 locations
Recom Papers
Nijmegen, Netherlands
Scaldia Papier BV,
Nijmegen, Netherlands
Aalbers Paper Products
Veenendaal, Netherlands
Impap
Warsaw, Poland
9 locations
CHEMICALS AND PETROLEUM
CHEMICALS
DOMESTIC:
Panama City, Flordia
Pensacola, Flordia
Port St. Joe, Flordia
Oakdale, Louisiana
Savannah, Georgia
Valdosta, Georgia
Picayune, Mississippi
Dover, Ohio
INTERNATIONAL:
Oulu, Finland
Valkeakoski, Finland
Niort, France
Sandarne, Sweden
Greaker, Norway
Chester-Le-Street,
United Kingdom
Bedlington, United Kingdom
BUSH BOAKE ALLEN INC.
DOMESTIC:
Jacksonville, Florida
Chicago, Illinois
Norwood, New Jersey
Carrollton, Texas
INTERNATIONAL:
Buenos Aires, Argentina
Melbourne, Australia
Sydney, Australia
Montreal, Canada
Madras, India
Atlacomulco, Mexico
Auckland, New Zealand
Manila, Philippines
Jurong, Singapore
Johannesburg, South Africa
Knislinge, Sweden
Istanbul, Turkey
London, United Kingdom
Long Melford, United Kingdom
Widnes, United Kingdom
Witham, United Kingdom
CHEMICAL CELLULOSE PULP
Natchez, Mississippi
PETROLEUM
Alvin, Texas
Midland, Texas
FORESTLANDS
FOREST RESOURCES
Approximately 7.1 million
acres in the South
and Northeast
REALTY PROJECTS
Haig Point Plantation
Daufuskie Island,
South Carolina
BUILDING MATERIALS
WOOD PRODUCTS
Chapman, Alabama
Maplesville, Alabama
Opelika, Alabama
Thorsby, Alabama
Tuscaloosa, Alabama
Gurdon, Arkansas
Leola, Arkansas
Whelen Springs, Arkansas
Augusta, Georgia
Cordele, Georgia
Meldrim, Georgia
Folkston, Georgia
Washington, Georgia
Springhill, Louisiana
Morton, Mississippi
Wiggins, Mississippi
Joplin, Missouri
Madison, New Hampshire
Armour, North Carolina
Seaboard, North Carolina
Johnston, South Carolina
Newberry, South Carolina
Sampit, South Carolina
Henderson, Texas
Jefferson, Texas
Nacogdoches, Texas
New Boston, Texas
Slaughter
Dallas, Texas
2 branches in the
Southwest and
Northwest
Franklin, Virginia
DECORATIVE PRODUCTS
Particleboard
Franklin, Virginia
Stuart, Virginia
Waverly, Virginia
SPECIALTY PANELS
DOMESTIC:
Chino, California
Glasgow, Kentucky
Odenton, Maryland
Statesville, North Carolina
Tarboro, North Carolina
Hampton, South Carolina
Memphis, Tennessee
Oshkosh, Wisconsin
INTERNATIONAL:
Bergerac, France
(Couze mill)
Ussel, France
Barcelona, Spain
(Durion mill)
MASONITE
DOMESTIC:
Ukiah, Calfornia
Lisbon Falls, Maine
Laurel, Mississippi
Pilot Rock, Oregon
Towanda, Pennsylvania
Danville, Virginia
INTERNATIONAL:
Carrick-on-Shannon, Ireland
Masonite Africa Limited
Estcourt Plant
Kunpo-shi, Korea
A-3
<PAGE>
CARTER HOLT HARVEY
FORESTLANDS
Approximately 785,000
acres in New Zealand
WOOD PRODUCTS
Sawmills and Processing Plants
Box Hill, Victoria, Australia
Mt. Burr, South Australia
Mt. Gambier, South Australia
Myrtleford, New South
Wales, Australia
Kopu, New Zealand
Nelson, New Zealand
Putaruru, New Zealand
Rotorua, New Zealand
Taupo, New Zealand
Tokoroa, New Zealand
Timber Merchants
Box Hill, Victoria, Australia
Hamilton Central,
Queensland, Australia
Sydney, New South Wales,
Australia
Plywood Mills
Myrtleford, New South
Wales, Australia
Nangwarry, South Australia
Tokoroa, New Zealand
Panel Production Plants
Auckland, New Zealand
Christchurch, New Zealand
Rangiora, New Zealand
Thames, New Zealand
Building Supplies Retail Outlets
Retail Outlets, 37 branches
in New Zealand
PULP AND PAPER
Kraft Paper, Pulp, Coated and
Uncoated Papers and Bristols
Kinleith, New Zealand
Mataura, New Zealand
Cartonboard
Whakatane, New Zealand
Containerboard
Kinleith, New Zealand
Penrose, New Zealand
Fiber Recycling Operations
Auckland, New Zealand
TISSUE
Pulp and Tissue
Box Hill, Victoria, Australia
Kawerau, New Zealand
Conversion Sites
Box Hill, Victoria, Australia
Keon Park, Victoria, Australia
Clayton, Victoria, Australia
Suva, Fiji
Auckland, New Zealand
(2 plants)
Te Rapa, New Zealand
PACKAGING
Case Manufacturing
Northern (Auckland,
New Zealand)
Central (Levin,
New Zealand)
Southern (Christchurch,
New Zealand)
Solid Fibre (Hamilton,
New Zealand)
Suva, Fiji
Carton Manufacturing
Crestmead, Queensland,
Australia
Dandenong, Victoria,
Australia
Reservoir, Victoria,
Australia
Smithfield, New South
Wales, Australia
Woodville, Australia
Auckland, New Zealand
Christchurch, New Zealand
Corrugated Manufacturing
Sydney, Australia
Melbourne, Australia
Paper Bag Manufacturing
Auckland, New Zealand
Paper Cups
Brisbane, Australia
Plastic Packaging
Sydney, Australia
Santiago, Chile
Albany, New Zealand
Hamilton, New Zealand
Hastings, New Zealand
Wellington, New Zealand
DISTRIBUTION
Paper Merchant
Warehousing and
Distribution Centers,
Australia, 3 locations
New Zealand, 14 locations
A-4
<PAGE>
Exhibit 10.8
INTERNATIONAL PAPER COMPANY
NON-QUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement (such Agreement, together with all
documents incorporated herein by reference, hereinafter referred to as the
"Agreement") is made between International Paper Company, a New York corporation
(the "Company"), and the "Optionee" signing below in connection with the
employment of the Optionee and subject to provisions of the International Paper
Company Long-Term Incentive Compensation Plan (the "Plan"), the Notice of Grant
of Stock Option or Notice of Replacement Grant of Stock Option given from time
to time upon each grant or replacement grant of an option (a "Grant Notice") and
the Confidentiality and Non-Competition Agreement between the Company and the
Optionee, if signed by the Optionee (the "CNC Agreement"). Terms and provisions
of the Plan, each Grant Notice and the CNC Agreement, if signed by the Optionee,
are incorporated by reference herein. Pursuant to the provisions of the Plan and
by direction of the Committee of the Board of Directors which is authorized to
administer the Plan (the "Committee"), it is hereby agreed between the parties
as follows:
1. Grants of Options
Subject to the provisions of the Agreement, the Company has and may in
the future grant to Optionee options: (a) to purchase the number of shares of
common stock (par value $1.00) of the Company which is set forth in the Grant
Notice, (b) at a purchase price which is set forth in the Grant Notice (which
option price has been determined by the Committee to be not less than the fair
market price of such shares at the time the option is granted), and (c) for an
exercise period ending on the date which is set forth in the Grant Notice.
2. Compliance with Laws and Regulations
It is the intention of the parties that the options shall satisfy the
provisions of SEC Rule 16b-3 relating to transactions occurring under qualified
employee benefit plans. For federal income tax purposes options issued under
this Agreement are Non-Qualified Stock Options which do not come within the
scope of sections 421-424 of the Internal Revenue Code (relating to Incentive
Stock Options).
3. Termination of an Option
Any unexercised portion of an option shall terminate, and shall not be
exercisable, on and after the first to occur of the following dates:
(a) The date the option ends, which is set forth in the Grant Notice
for a particular option;
(b) The date the Optionee ceases to be an employee of the Company (or a
subsidiary corporation of the Company, or a corporation or any subsidiary
corporation of such corporation issuing or assuming a stock option in a
transaction to which Internal Revenue Code section 424(a) applies), unless the
termination of employment results from disability, retirement (as defined in
section 6 below), or death (as provided in paragraphs 5, 6, or 7 below), or
unless the Committee determines otherwise pursuant to section 2 of the Plan.
4. Exercise of Options
An option shall become exercisable as set forth below, and thereafter
may be exercised at any time, and from time to time, in whole or in part, until
the termination of the option as provided in the Grant Notice and in sections 1,
3, or 9 of this Agreement and provided that:
(a) An option is not transferable or assignable by the Optionee
otherwise than by will or the laws of descent and distribution, and during the
lifetime of the Optionee is exercisable only by the Optionee or the Optionee's
guardian or legal representative.
(b) Any option shall in no event be exercisable after the date the
particular option ends, which is set forth in the Grant Notice.
<PAGE>
(c) The Optionee has continuously been an employee of the Company (or a
subsidiary corporation) since the date an option was granted (except as provided
in sections 5, 6, or 7 below in the event of disability, retirement, or death).
(d) In the event an option is exercised within two years after the date
the option was granted (as set forth in the Grant Notice), then the Company
shall have the right (but not an obligation) until that date to repurchase from
Optionee, at the purchase price which is set forth in the Grant Notice, the
shares which are registered in the name of the Optionee upon such exercise of
the option. The certificate evidencing such shares shall contain an endorsement
setting forth this restriction, and possession of the certificate shall be
retained by the Company until the restriction expires or terminates. This
restriction shall lapse upon a "change of control of the Company" (as defined
below), or upon Optionee's retirement (as defined in section 6 below), permanent
disability (as defined in section 5 below), or death. For purposes of this
Agreement, the term "change of control of the Company" shall mean a change in
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14a of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended ("Exchange Act"); provided that without limitation, such
a change of control shall be deemed to have occurred if (i) any "person" as such
term is used in section 13(d) and 14(d)(2) of the Exchange Act (other than
employee benefit plans sponsored by the Company) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding securities,
or (ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company, cease
for any reason to constitute at least a majority thereof, unless the election,
or the nomination for election, by the Company's shareowners of each new
director was approved by a vote of at least two-thirds of the directors still in
office who were directors at the beginning of the period.
(e) An option shall in no event be exercisable if the issuance of the
shares upon such exercise would constitute a violation of any applicable federal
or state securities statutes or other law or valid governmental regulation.
(f) A copy of this Agreement has been signed by the Optionee
and is on file in the Executive Compensation office of the Company.
(g) A copy of the CNC Agreement has been signed by the Optionee, if
requested to do so by the Company, and is on file in the Executive Compensation
office of the Company.
(h) This option shall be exercisable by completion by the Optionee of
an exercise form furnished by the Company which shall:
(i) be fully completed and signed by the person entitled to
exercise the option and, if the option is being exercised by any person other
than the Optionee, be accompanied by proof, satisfactory to counsel for the
Company, of the right of such person to exercise the option; and
(ii) be for multiples of 25 shares, or for the entire
outstanding portion of a particular option; and
(iii) be delivered in person or by mail to:
International Paper Company
Two Manhattanville Road
Purchase, New York 10577
Attention: Executive Compensation
(i) Payment of the purchase price for any shares with respect to which
an option is being exercised shall be by certified or bank check or other cash
equivalent (or, in the sole discretion of the Committee, in shares of Company
stock so long as the stock has been held by the Optionee for six months).
(j) An option shall not be exercisable as an "incentive stock option"
pursuant to the provisions of section 422 of the Internal Revenue Code.
5. Disability of Optionee
In the event the Optionee becomes "totally disabled", the Optionee may
exercise an option for up to one year of the remaining term of an option
(measured from the date of such total disability). For purposes of this
paragraph, the term "totally disabled" means the condition of total disability
as defined in the Company's long-term disability plan.
<PAGE>
6. Retirement of Optionee
In the event of termination of employment because of retirement under a
Company pension plan on or after attaining age 61 with 20 years service, 62 with
10 years service or 65 with 5 years service, the Optionee may exercise an option
within its remaining term.
7. Death of Optionee
In the event of the death of the Optionee, an option may be exercised
for up to one year of its remaining term (measured from the date of the
Optionee's death) by the beneficiary or beneficiaries so designated (or if no
beneficiary has been designated or survives the Optionee, by the person or
persons who have acquired the rights of the Optionee by will or under the laws
of descent and distribution).
8. Information for Company Tax Returns
Optionee (or his or her estate or beneficiary) shall promptly provide
all information related to an option, or disposition of stock acquired under an
option, which is requested by the Company for its tax returns.
9. Other Terms and Conditions of Options
(a) 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 in its sole discretion it deems equitable in
the number of shares covered by any outstanding portions of options granted
hereunder.
(b) Prior to the exercise of an option and delivery of the stock
represented thereby, Optionee shall have no rights to any dividends nor be
entitled to any voting rights on any stock represented by that option.
(c) Optionee acknowledges receipt of a copy of the Plan, and represents
that Optionee is familiar with the terms and provisions of the Plan, and will
accept all options subject to all the terms and provisions thereof. Optionee
hereby agrees to accept as binding, conclusive and final all decisions which are
made by the Committee with respect to interpretations of the terms of the Plan
or any option and with respect to any questions or disputes arising under the
Plan or any option.
(d) Optionee authorizes the Company to withhold from the shares
deliverable upon exercise of a particular option, or from any compensation
otherwise payable to Optionee, the amount of any taxes which are required to be
withheld by federal, state or local law as a result of the exercise of that
option.
(e) All of the terms and conditions of this Agreement shall be binding
upon any surviving spouse, beneficiary, executor, administrator, heirs,
successors or assigns of Optionee.
This Agreement has been signed by each of the following parties as of the date
set out below:
International Paper Company:
Dated:_________________ By_________________________________________
(Senior Vice President - Human Resources)
SSN:__________________ Optionee:__________________________________
(Print Name)
<PAGE>
By:_________________________________________
(Optionee's Signature)
<PAGE>
INTERNATIONAL PAPER COMPANY
NOTICE OF GRANT OF STOCK OPTION
XXXXXXXXX
XXX-XX-XXXX
You, (the "Optionee"), have been granted an Option under the International Paper
Company Long-Term Incentive Compensation Plan, subject to your Non-Qualified
Stock Option Agreement (the "Agreement"), to buy International Paper Company
common stock as follows:
Non-Qualified Stock Option Grant XXXXX
Date of Stock Option Grant XX/XX/XXXX
Option Price Per Share $XXXXXXX
Total Number of Shares $XXXXXXX
Total Purchase Price of Shares $XXXXXXX
If this Option is exercised prior to vesting on XX/XX/XXXX, then the Company
buy-back provisions described under section 4(d) of the Agreement shall be
applicable.
The final termination and expiration date of this Option is XX/XX/XXXX.
The Option may terminate at an earlier date as described under sections 3, 5, 6
or 7 of the Agreement.
(Original 2000 Stock Option Grant)
INTERNATIONAL PAPER COMPANY
NOTICE OF REPLACEMENT GRANT OF STOCK OPTION
<PAGE>
David A. Bailey
###-##-####
You, (the "Optionee"), have been granted a Replacement Option, subject to your
previously signed Non- Qualified Stock Option Agreement (the "Agreement"), to
buy International Paper Company common stock as follows:
Non-Qualified Replacement Stock Option Grant RXXXXX
Date of Replacement Grant XX/XX/XXXX
Option Price Per Share $XXXXXXX
Total Number of Shares $XXXXXXX
Total Purchase Price of Shares $XXXXXXX
The date of grant of the original option was XX/XX/XXXX. If this Replacement
Option is exercised prior to vesting on XX/XX/XXXX, then the Company buy-back
provisions described under section 4(d) of the Agreement shall be applicable.
The final termination and expiration date of this Replacement Option is
XX/XX/XXXX. The Option may terminate at an earlier date as described under
sections 3, 5, 6 or 7 of the Agreement.
(Replacement for XXXX Stock Option Grant)
<PAGE>
Exhibit 10.9
INTERNATIONAL PAPER COMPANY
LONG-TERM INCENTIVE COMPENSATION PLAN
EXECUTIVE CONTINUITY AWARD
RESTRICTED STOCK AGREEMENT
The International Paper Company Long-Term Incentive Compensation Plan
(the "Plan") provides in Section 16 that the Committee of the Board which
administers the Plan (the "Committee") may authorize an Executive Continuity
Award consisting of a tandem grant of Restricted Shares of common stock of
International Paper Company (the "Company"), together with a related
Non-Qualified Stock Option under the terms of the Plan. The terms and provisions
of the Plan are incorporated by reference herein. In connection with the
employment of PARTICIPANT NAME (the "Executive") and pursuant to the provisions
of the Plan and by direction of the Committee of the Board of Directors which is
authorized to administer the Plan, the following agreement is made on DATE OF
AWARD, between the Company and the Executive:
1. SHARE
The term "Share" or "Stock" as used in this Restricted Stock Agreement
shall mean a share of common stock of $1.00 par value of International Paper
Company.
2. COMPLIANCE WITH LAW AND REGULATIONS
It is the intention of the parties that this Restricted Stock
Agreement, and any securities issued pursuant to this Agreement, shall comply
with all provisions of federal and applicable state securities laws.
3. AWARD OF RESTRICTED SHARES
(a) Subject to the provisions of the Plan and this Restricted Stock
Agreement, the Company hereby awards and authorizes the issuance
to Executive of XX,XXX Restricted Shares. Such Shares shall be
issued with the restriction that the Executive may not sell,
transfer, pledge, or assign such Shares until the Shares are
earned and the restrictions are removed as described below, and
shall be subject to forfeiture and cancellation pursuant to the
provisions of the Plan and this Agreement.
(b) Exercise of the related tandem Executive Continuity Award Stock
Option Agreement between the parties dated DATE OF AWARD, will
result in cancellation and forfeiture of Restricted Shares
awarded to Executive under the Restricted Stock Agreement at the
ratio of: one share of Restricted Stock (plus all shares of
Restricted Stock purchased with reinvested dividends paid on such
Shares) for each five Option Shares purchased upon exercise of
the Executive Continuity Award Stock Option.
<PAGE>
(c) All dividends paid on Restricted Shares shall be reinvested in
additional Restricted Shares (which shall be subject to being
earned by the Executive on the same basis as the original
Shares).
(d) The number of Shares determined by the Committee to have been
earned by Executive under the Plan and this Restricted Stock
Agreement shall be final, conclusive and binding upon all
parties, including the Company, the shareowners and the
Executive.
4. METHOD OF EARNING EXECUTIVE CONTINUITY AWARD SHARES AND REMOVAL OF
RESTRICTIONS
(a) Upon Executive's attainment of age AGE (on SNAP SHOT DATE) while
employed by the Company, (or death or the Executive's becoming
disabled as such condition is determined in the sole discretion
of the Committee, if earlier) or upon a change of control of the
Company (as defined in subsection (b) below), the restrictions on
the Executive Continuity Award will be removed, and the award
will vest in the following manner:
(i) If the current realizable gain on the Executive's related
tandem Executive Continuity Award Stock Option dated DATE
OF AWARD, is greater than the current market value of the
related Restricted Shares awarded under this Restricted
Stock Agreement (including Restricted Shares purchased
with reinvested dividends), then all such Restricted
Shares shall be cancelled and forfeited (and the Stock
Option shall continue in effect as provided in the Stock
Option Agreement).
(ii) If the current market value of the Restricted Shares
awarded under this Restricted Stock Agreement (including
Restricted Shares purchased with reinvested dividends) is
greater than the current realizable gain on the related
tandem Stock Option, then the option shall be cancelled
and the restrictions shall be removed from all of the
Restricted Shares under this Agreement.
If Executive ceases to be an active employee of the Company prior to
age AGE for any reason other than death or disability as described
above, all of the Restricted Shares under this Agreement shall be
cancelled and forfeited unless the Committee determines otherwise
pursuant to Section 2 of the Plan.
(b) For purposes of this Agreement, the term "change of control of
the Company" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A 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 (i) any "person" as such term is used in Section
13(d) and 14(d)(2) of the Exchange Act (other than employee
benefits plans sponsored by the Company) is or becomes the
beneficial owner, directly or indirectly, of securities of the
Company
<PAGE>
representing 20% or more of the combined voting power of
the Company's then outstanding securities, or (ii) during any
period of two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Company,
cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election, by the
Company's shareowners of each new director was approved by a vote
of at least two-thirds of the directors still in office who were
directors at the beginning of the period, except that a change of
control for purpose of this Agreement shall not include a
transaction initiated by management such as a management led
buyout or recapitalization except where such transaction (1) 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.
5. DESIGNATION OF BENEFICIARY
The Executive 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 Executive'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 Executive, before termination of employment or
after retirement or disability, any portions of the Executive's award to which
the Executive's designated beneficiary or estate is entitled under the Plan and
this Restricted Stock Agreement, shall be paid to the beneficiary or
beneficiaries so designated or, if no beneficiary has been designated or
survives the Executive, shall be delivered as directed by the executor or
administrator of the Executive's estate.
6. NON-TRANSFERABILITY OF AWARDS AND SHARES
No award or Share under this Plan, and no rights or interest therein,
shall be assignable or transferable by the Executive, except at death by will or
by the laws of descent and distribution.
7. CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
Attached to this Award Agreement and incorporated herein by this
reference is a copy of the Confidentiality and Non-Competition Agreement entered
into between the Company and the Executive. In the event either (1) the
Executive has not yet signed a Confidentiality and Non-Competition Agreement, or
(2) the form of the Confidentiality and Non-Compettion Agreement has been
updated since the date of the most recent Confidentiality and Non-Competition
Agreement signed by the Executive, then a blank form has been attached to be
signed by the Executive and the Company and incorporated into this Award
Agreement.
8. OTHER TERMS AND CONDITIONS
<PAGE>
(a) Executive (or his or her estate or beneficiary) shall promptly
provide all information related to this Restricted Stock
Agreement which is requested by the Company for its tax returns.
(b) Executive acknowledges receipt of a copy of the Plan, and
represents that Executive is familiar with the terms and
provisions of the Plan, and hereby accepts the Restricted Shares
awarded under this Restricted Stock Agreement subject to all the
terms and provisions of the Plan and this Agreement. Executive
hereby agrees to accept as binding, conclusive and final all
decisions which are made by the Committee with respect to
interpretations of the terms of the Plan or this Agreement and
with respect to any questions or disputes arising under the Plan
or this Agreement.
(c) All of the terms and conditions of the Plan and this Restricted
Stock Agreement shall be binding upon any surviving spouse,
beneficiary, executor, administrator, heirs, successors or
assigns of Executive.
(d) Participation in the Plan, and execution of this Restricted Stock
Agreement, shall not give the Executive any right to a subsequent
award, nor any right to continued employment by the Company for
any period, nor shall the granting of an award or execution of
this Agreement give the Company any right to continued services
of the Executive for any period.
(e) All Restricted Shares awarded under this Restricted Stock
Agreement, and purchased with reinvested dividends, will be
uncertificated shares with notations describing the applicable
restrictions of the Plan and this Agreement, and no stock
certificates will be issued by the Company or its designated
custodian until the restrictions are removed and, then, only at
the request of the Executive.
IN WITNESS WHEREOF, the parties hereby execute this Executive Continuity Award
Restricted Stock Agreement, effective as of DATE OF AWARD.
INTERNATIONAL PAPER COMPANY
By: ____________________________________
Title: Senior Vice President-Human Resources
Signature of Executive: ____________________________________
Address: ____________________________________
Social Security Number: ____________________________________
<PAGE>
INTERNATIONAL PAPER COMPANY
LONG-TERM INCENTIVE COMPENSATION PLAN
EXECUTIVE CONTINUITY AWARD
NON-QUALIFIED STOCK OPTION AGREEMENT
This agreement is made effective DATE OF AWARD, between International
Paper Company, a New York Corporation (the "Company") and PARTICIPANT NAME (the
"Executive") in connection with the employment of Executive and pursuant to the
provisions of the International Paper Company Long-Term Incentive Compensation
Plan (the "Plan"). The terms and provisions of the Plan are incorporated by
reference herein.
Pursuant to the provisions of the Plan and by direction of the
Committee of the Board of Directors which is authorized to administer the Plan
(the "Committee"), it is hereby agreed between the parties as follows:
1. GRANT OF OPTION
Subject to the provisions of the Plan and this Agreement, the Company
hereby grants to Executive an option to purchase XX,XXX shares of common stock
(par value $1.00) of the Company at a purchase price of $xx.xxxx per share
(which option price has been determined by the Committee to be not less than the
fair market value of such stock at the time this option is granted).
2. COMPLIANCE WITH LAWS AND REGULATIONS
It is the intention of the parties that this option shall satisfy the
provisions of SEC Rule 16b-3 relating to transactions occurring under employee
benefit plans. For federal income tax purposes this is a Non-Qualified Stock
Option which does not come within the scope of Sections 421-425 of the Internal
Revenue Code (relating to Qualified, Incentive and Restricted Stock Options).
3. TERMINATION OF OPTION
Any unexercised portion of this option shall terminate, and shall not
be exercisable, on and after attaining age AGE (TERMINATE DATE) provided,
however, that this option shall terminate immediately if Executive ceases to be
an employee of the Company prior to attaining age AGE (VESTING DATE) (except as
provided in Sections 5 or 6 below in the event of disability or death, or unless
the Committee determines otherwise pursuant to Section 2 of the Plan).
4. EXERCISE OF OPTION
<PAGE>
This option may be exercised at any time, and from time to time, in
whole or in part, until the termination of the option as provided in Sections 3
or 8 of this Agreement; provided however that:
(a) The Executive has continuously been an employee of the Company
(or a subsidiary corporation) since the date the option was
granted (except as provided in Sections 5 or 6 below in the
event of disability or death).
(b) This option shall in no event be exercisable after the latest
date set forth in Section 3 above.
(c) This option is not transferable or assignable by the Executive
otherwise than by will or the laws of descent and
distribution, and during the lifetime of the Executive is
exercisable only by the Executive.
(d) This option shall in no event be exercisable if the issuance
of the shares upon such exercise would constitute a violation
of any applicable federal or state securities statutes or
other law or valid governmental regulation.
(e) In the event this option is exercised prior to VESTING DATE,
then the Company shall have the right (but not an obligation)
to repurchase from Executive, at the purchase price which is
set forth in Section 1 of this Agreement, the shares which are
registered in the name of the Executive upon such exercise of
this option. Such shares shall be uncertificated and contain a
notation setting forth this restriction, and no certificate
shall be issued by the Company until the restriction expires
or terminates and, then, only at the request of the Executive.
This restriction shall lapse upon a "change of control of the
Company" (as defined below), or upon Executive's retirement
after age AGE, permanent disability (as defined in Section 5
below), or death. For purposes of this Agreement, the term
"change of control of the Company" shall mean a change of
control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14a of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"); provided that, without limitation,
such a change of 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 Exchange Act (other than employee benefit
plans sponsored by the Company) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the
Company's then outstanding securities, or (ii) during any
period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of
the Company, cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for
election, by the Company's share owners 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, except that a change of control
<PAGE>
for purpose of this Stock Option Agreement shall not include a
transaction initiated by management (such as a management led
buyout or recapitalization) except where such transaction: (1)
is in response to the acquisition of 10% or more of the
Company's stock or to 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 of Directors of the Company in accordance with
the standards set forth in Section 717 of the New York
Business Corporation Law or any successor provision.
(f) This option shall be exercisable by written notice which shall:
(i) be delivered in person or by certified mail to:
International Paper Company
Two Manhattanville Road
Purchase, New York 10577
Attention: Executive Compensation
(ii) state the election to exercise the option, the number
of shares as to which it is being exercised, and the
name, address and Social Security number of the
person in whose name the stock is to be registered;
(iii) be signed by the person entitled to exercise the
option and, if the option is being exercised by any
person other than the Executive, be accompanied by
proof, satisfactory to counsel for the Company, of
the right of such person to exercise the option; and
(iv) be for multiples of 100 shares, or for the entire
outstanding portion of this option.
(g) Payment of the purchase price for any shares with respect to
which the option is being exercised shall be by certified or
bank check or other cash equivalent (or, in the sole
discretion of the Committee, in stock of the Company owned by
the Executive including Performance Share Stock awarded under
the Plan).
(h) This option shall not be exercisable as an "incentive stock
option" pursuant to the provisions of Section 422 of the
Internal Revenue Code.
5. DISABILITY OF EXECUTIVE
In the event the Executive becomes disabled (as such condition is
determined in the sole discretion of the Committee) prior to age AGE, this
option may be exercised for up to one year after the date of such disability by
the Executive, or by the person or persons who have acquired the rights of the
Executive by will or under the laws of descent and distribution.
<PAGE>
6. DEATH OF EXECUTIVE
In the event of death of the Executive prior to age AGE, this
option may be exercised for up to one year after the Executive's death by the
beneficiary or beneficiaries so designated, or if no beneficiary has been
designated or survives the Executive, by the person or persons who have acquired
the rights of the Executive by will or under the laws of descent and
distribution.
7. INFORMATION FOR COMPANY TAX RETURNS
Executive (or his or her estate or beneficiary) shall promptly provide
all information related to this stock option, or disposition of stock acquired
under this option, which is requested by the Company for its tax returns.
8. CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
Attached to this Award Agreement and incorporated herein by this
reference is a copy of the Confidentiality and Non-Competition Agreement entered
into between the Company and the Participant. In the event either (1) the
Participant has not yet signed a Confidentiality and Non-Competition Agreement,
or (2) the form of Confidentiality and Non-Competition Agreement has been
updated since the date of the most recent Confidentiality and Non-Competition
Agreement signed by the Participant, then a blank form has been attached to be
signed by the Participant and the Company and incorporated into this Award
Agreement.
9. OTHER TERMS AND CONDITIONS OF OPTION
(a) 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 in its sole discretion it deems
equitable in the number of shares covered by any outstanding
portion of this option.
(b) Prior to the exercise of this option and delivery of the stock
represented thereby, Executive shall have no rights to any
dividends nor be entitled to any voting rights on any stock
represented by this option.
(c) Executive acknowledges receipt of a copy of the Plan, and
represents that Executive is familiar with the terms and
provisions of the Plan, and hereby accepts this option subject
to all the terms and provisions thereof. Executive hereby
agrees to accept as binding, conclusive and final all
decisions which are made by the Committee with respect to
interpretation of the terms of the Plan or this option and
with respect to any questions or disputes arising under the
Plan or this option.
<PAGE>
(d) Executive authorizes the Company to withhold from the shares
deliverable upon exercise of this option, or from any
compensation otherwise payable to Executive, the amount of any
taxes which are required to be withheld by federal, state or
local law as a result of the exercise of this option.
(e) All of the terms and conditions of the Plan and this option
shall be binding upon any surviving spouse, beneficiary,
executor, administrator, heirs, successors or assigns of
Executive.
(f) At any time prior to exercise, this option shall be subject to
being terminated by the Committee, in the Committee's sole
discretion, if the Executive shall have been found by the
Committee (i) to be in breach of any agreement between the
Company and the Executive concerning confidentiality or
non-competition with the Company, (ii) to have engaged in any
action inimical to the interests of the Company, or engaged in
any acts of dishonesty or other serious misconduct in
connection with the Executive's employment by the Company or a
subsidiary.
IN WITNESS WHEREOF, the parties hereby execute this Stock Option Agreement,
effective as of DATE OF AWARD.
INTERNATIONAL PAPER COMPANY
By: ____________________________________
Title: Senior Vice President-Human Resources
Signature of Executive: ____________________________________
Address: ____________________________________
Social Security Number: ____________________________________
<PAGE>
Exhibit 10.10(a)
Date
Mr.
Chairman & Chief Executive Officer
International Paper Company
Two Manhattanville Road
Purchase, New York 10577
Dear:
International Paper Company (the "Company") considers the establishment
and maintenance of a sound and vital management to be essential to protecting
and enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognized that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among senior
management, may result in the departure or distraction of senior management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's senior management, including yourself, to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in the employ of the Company, and to
continue to exercise your special skills and knowledge at the Company, this
letter agreement sets forth the benefits which the Company agrees will be
provided to you in the event of a "change in control of the Company" (as defined
in Section 2 hereof) under the circumstances described as follows.
1. TERM. This Agreement shall commence on the date hereof and
unless there is a "change in control of the Company" (as defined in Section 2
hereof), shall continue until the earlier of your termination of employment as a
"full-time employee" of the Company or the date you attain the age of 65 years,
or the date this Agreement is terminated by the Company in accordance with the
next sentence. If a change in control of the Company has not occurred, the
Company shall have the right at any time to terminate this Agreement by giving
you twelve months prior written notice of termination of this Agreement. If a
"change in control of the Company" occurs at any time prior to the actual
<PAGE>
termination of this Agreement, then this Agreement shall terminate on the
earlier of three (3) years following such "change in control" or the date you
attain the age of 65 years.
2. CHANGE IN CONTROL. For purposes of this Agreement, a
"change in control of the Company" shall mean a change in control of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A 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 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 (b)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company (the "Board") 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 then still in
office who were directors at the beginning of the period.
3. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. If
a change in control of the Company shall have occurred and your employment is
subsequently terminated by you or by the Company, you shall be entitled to the
benefits provided in Section 4 hereof for the respective reasons for termination
set forth therein. Such reasons are defined as follows:
(A) DISABILITY. Termination by the Company or you of your
employment based on "Disability" shall mean termination in accordance with the
Company's long-term disability policy generally applicable to its salaried
employees or in accordance with any long-term disability arrangement established
with your consent with respect to you.
(B) RETIREMENT. Termination by the Company or you of your
employment based on "Retirement" shall mean termination on or after age 65 in
accordance with the Company's retirement policy generally applicable to its
salaried employees or in accordance with any retirement arrangement established
with your consent with respect to you.
(C) CAUSE. The Company may terminate your employment for
Cause. For the purposes of this Agreement, the Company shall have "Cause" to
terminate your employment hereunder upon (i) the willful and continued failure
by you to substantially perform your duties with the Company (other) than any
such failure resulting from your incapacity due to physical or mental illness),
after a demand for substantial performance is delivered to you by the Board
which specifically identifies the manner in which the Board believes that you
have not substantially performed your duties, or (ii) the willful engaging by
you in gross misconduct materially and demonstrably injurious to the Company,
including, but not limited to, your conviction or guilty plea for any felony
crime. For purposes of this paragraph, no act, or failure to act, on your part
shall be considered
<PAGE>
"willful" unless done, or omitted to be done, by you not in good faith and
without reasonable belief that your action or omission was in the best interest
of the Company or, in the alternative, unless your act or failure to act has
resulted in your conviction or guilty plea for any felony crime. Notwithstanding
the foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution duly
adopted by the affirmative vote of three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct set forth above in clauses (i) or (ii) of this
paragraph and specifying the particulars thereof in detail.
(D) VOLUNTARY TERMINATION. You may terminate employment at any
time within a period of eighteen (18) months following a change in control of
the Company.
(E) NOTICE OF TERMINATION. Any termination by the Company
pursuant to subparagraphs (A), (B) or (C) above or by you pursuant to
subparagraph (D) above shall be communicated by written Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of your
employment under the provision so indicated.
(F) DATE OF TERMINATION. "Date of Termination" shall mean (i)
if your employment is terminated for Disability or Retirement, the date of
termination as a "full-time employee" under the Company's long-term disability
policy or retirement policy, which is generally applicable to salaried
employees, or in accordance with any long-term disability or retirement
arrangement established with your consent with respect to you, (ii) if your
employment is terminated pursuant to subparagraph (D) above, the date specified
in the Notice of Termination, and (iii) if your employment is terminated for any
other reason, the date on which a Notice of Termination is given; provided that
if within ten (10) business days after any Notice of Termination is given the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding and final arbitration award, or by a
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefor having expired and no appeal having been perfected).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(A) DISABILITY. During any period that you fail to perform
your duties hereunder as a result of incapacity due to physical or mental
illness, you shall continue to receive your full base salary and benefits at the
rate then in effect until your employment is terminated pursuant to paragraph
3(A) hereof. Thereafter, your benefits shall be determined in accordance with
the Company's Long Term Disability Plan, or a substitute
<PAGE>
plan then in effect, and the Company shall have no further obligations to you
under this Agreement.
(B) RETIREMENT. If your employment shall be terminated
pursuant to paragraph 3(B) hereof, your benefits shall be determined in
accordance with the Retirement Plan for Salaried Employees of International
Paper Company and the Supplemental Retirement Plan for Senior Managers (or
substitute plans then in effect) referred to collectively herein as the "Pension
Plan", and the Company shall have no further obligations to you under this
Agreement.
(C) CAUSE. If you employment shall be terminated for Cause,
the Company shall pay you your full base salary, plus normal benefits to which
you would otherwise be entitled, through the Date of Termination at the rate in
effect at the time Notice of Termination is given and the Company shall have no
further obligations to you under this Agreement.
(D) OTHER TERMINATIONS. Unless your employment is terminated
by death or pursuant to paragraph 3(A), 3(B) or 3(C) hereof, upon your
termination of employment, the Company shall pay to you the following amounts:
(i) Your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given plus an amount in
cash equal to the value of any vacation earned but not taken (based upon such
rate of base salary).
(ii) An amount equal to the product of (a) the sum of your
annual base salary at the rate in effect as of the Date of Termination,
multiplied by (b) the smaller of the number "four (4)" or the number of years
(including fractions) between the Date of Termination and the date you reach the
age of 65.
(iii) An amount equal to (a) the product of (x) the average
annual amount of your Management Incentive Plan ("MIP") or successor plan award
for the three (3) years preceding the year of the Date of Termination (the
"Termination Year") multiplied by (y) the smaller of the number "four (4)" or
the number of years (including fractions) between the Date of Termination and
the date you reach the age of 65; PLUS (b) an amount equal to the unpaid amount
of any deferred incentive award if you were the recipient of a deferred
incentive award which was not fully paid at the Date of Termination.
(iv) An amount equal to the following:
(a) The value of the product of your average earned
award (deferred and non-deferred) under the Performance Share Plan ("PSP") or
successor plan for the three (3) years preceding the Termination Year (but
excluding any special executive continuity award from that figure) multiplied by
the smaller of the number "four (4)" or the number of years (including
fractions) between the Date of Termination and the date you reach the age of 65;
<PAGE>
(b) the value of any Company Common Stock previously
earned but deferred under PSP or the former Performance Incentive Plan;
(c) the value to be used in determining awards under
this subsection (iv) shall be the average of the closing prices of Company
Common Stock as reported for New York Stock Exchange Composite Transactions (or
such other stock exchange where the Company's Common Stock is principally
listed) for thirty (30) consecutive trading days ending with the Date of
Termination.
(v) Stock options equal to the product of (a) the average
number of stock options awarded to you during the three (3) years prior to the
Termination Year (but excluding any special executive continuity award stock
options) multiplied by (b) the smaller of the number "four (4)" or the number of
years (including fractions between the Date of Termination and the date you
reach the age of 65; PLUS the extension of all stock options held by you for the
period from the Date of Termination until the end of the normal terms of the
options had you not left the Company.
(vi) A single lump-sum payment (determined by the Company's
outside auditors) which will approximately offset the economic effect of any
special federal excise tax which may be imposed under Sections 280G and 4999 of
the Internal Revenue Code on the termination payments made and benefits provided
under this Agreement (but not offsetting the economic effect of any federal,
state or local income taxes, and not offsetting any taxes resulting from the
removal of restrictions, pursuant to the terms of the plans under which awards
were made, on contingent performance shares, restricted performance stock,
restricted stock, earned deferred stock, executive continuity awards, or stock
options, because of a change in control of the Company).
(vii) The payment due you under the foregoing provisions of
this paragraph 4(D) shall be paid to you in cash in one lump sum payment no
later than the fifth business day following the Termination Date.
(viii) The payments made to you under the foregoing provisions
of this paragraph 4(D) shall be in lieu of any other salary payments, or
payments under compensation or deferred compensation plans (other than payments
due from trusts) for periods prior to and subsequent to the Date of Termination.
(E) NORMAL BENEFITS. Unless your employment is terminated by
death or pursuant to paragraphs 3(A), 3(B) or 3(C), the Company shall maintain
in full force and effect for the continued benefit of you and your dependents
until the date you reach the age of 65, all employee benefit plans and programs
or arrangements in which you were entitled to participate immediately prior to
the Date of Termination (including medical and dental insurance coverage for you
your dependents) except the Company's Salary Continuance Plan, Long-Term
Disability Plan, travel and accident insurance, and the savings investment
plans, provided that your continued participation is possible under the general
terms and provisions of such plans and programs. In the event that your
participation in any such plan or program is barred, the Company shall arrange
to provide you with benefits substantially similar to those which you are
entitled to receive under such plans and programs except as otherwise provided
in paragraph 4(F) below. At the end of the
<PAGE>
period of coverage, you shall have the option to have assigned to you at no cost
and with no apportionment of prepaid premiums, any assignable insurance policy
owned by the Company and relating specifically to you. That portion of the
payment described in paragraph 4(D) above which constitutes "compensation" (as
that term is defined under the Pension Plan) shall be included in determining
your benefit entitlement under the terms of the Pension Plan. It is understood
and agreed that you shall be entitled to any benefits in which you are vested as
of termination pursuant to the terms of the respective benefit plans including,
without limitation, the Pension Plan.
(F) BENEFITS OUTSIDE THE PENSION PLAN. Unless your employment
is terminated by death or pursuant to paragraphs 3(A), 3(B) or 3(C) hereof, you
shall be entitled to a lump sum cash payment in addition to the payment set
forth in paragraph 4(D) calculated as follows:
(i) Your vested benefits under the terms of the Pension Plan
will be paid to you pursuant to paragraph 4(E); in addition, you shall be paid
under this paragraph 4(F) a sum equal to the difference between (a) the
actuarial present value on the Termination Date of your accrued vested benefits
under the Pension Plan (payable as a life annuity from age 65), and (b) the
actuarial present value on the Termination Date of what your accrued benefits
under the Pension Plan (payable as a life annuity from age 65) would have been
if the period and payments referred to in paragraph 4(D)(ii) and (iii)hereof
were recognized under the Pension Plan.
(ii) In calculating the lump sum payment referred to in
paragraph (F)(i) above, the Company will use the applicable Pension Benefit
Guaranty Corporation interest rate effective as of your Termination Date and
will make the lump sum cash payment no later than thirty days following the date
of determination of the amount due.
(G) NON-MITIGATION OF DAMAGES. You shall not be required to
mitigate the amount of any payment provided for in this paragraph 4 by seeking
other employment or otherwise, nor shall the amount of any payment provided for
in this paragraph 4 by reduced by any compensation earned by you as a result of
employment by another employer after the Date of Termination, or otherwise.
5. SUCCESSOR; BINDING AGREEMENT.
(A) SUCCESSOR COMPANIES. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to you, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to terminate your employment and to receive compensation from
the Company in the same amount and on the same terms as you would be entitled
hereunder if
<PAGE>
you voluntarily terminated your employment following a change in control of the
Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
paragraph 5 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(B) HEIRS; REPRESENTATIVES. This Agreement shall inure to the
benefit of and be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amounts would still be payable to you
hereunder if you continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to your
devisee, legatee, or other designee, or, if there be no such designee, to your
estate.
6. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Senior
Vice President Human Resources of the Company with a copy to the Secretary of
the Company, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
7. MISCELLANEOUS. This Agreement constitutes the entire
agreement on this subject matter between the parties and supersedes any prior
oral or written agreements or understandings on the subject matter covered by
this Agreement. No significant provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and both the Chairman of the Compensation Committee of
the Board of Directors and the Senior Vice President Human Resources. No waiver
by either party hereto at any time of any breach by the other hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. In the event that
this Agreement provides benefits upon termination of your employment which
duplicate benefits contained in any other employment arrangement with you, such
arrangement shall automatically be amended in accordance with this Agreement so
that your benefits under this Agreement shall be sole and exclusive to the
extent to which they are duplicative. Any benefits upon termination to which you
are entitled under other employment arrangement with the Company which are in
excess of those provided hereunder shall remain in effect upon the terms
provided under such arrangement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
York.
<PAGE>
8. VALIDITY. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
9. ARBITRATION; LEGAL EXPENSES. Any dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in New York, New York, in accordance with the rules of the
American Arbitration Association then in effect. Notwithstanding the pendency of
any such dispute or controversy, the Company will continue to pay you your base
salary in effect when the notice giving rise to the dispute was given and
continue you as a participant in all compensation, benefit and insurance plans
in which you were participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved.
The Company shall also pay all legal fees and expenses incurred by you
as a result of such termination (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in seeking to obtain
or enforce any right or benefit provided by this Agreement). All amounts paid
under this paragraph are in addition to any other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
Judgement may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
INTERNATIONAL PAPER COMPANY
By __________________________
Senior Vice President
Human Resources
AGREED:
- ------------------------------------
<PAGE>
Social Security Number: __________________________
<PAGE>
Exhibit 10.10(b)
Date
(Name)
International Paper Company
Two Manhattanville Road
Purchase, New York 10577
Dear:
International Paper Company (the "Company") considers the establishment and
maintenance of a sound and vital management to be essential to protecting and
enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among senior
management, may result in the departure or distraction of senior management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's senior management, including yourself, to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in the employ of the Company, and to continue
to exercise your special skills and knowledge at the Company, this letter
agreement sets forth the benefits which the Company agrees will be provided to
you in the event your employment with the Company is terminated subsequent to a
"Change in Control of the Company" (as defined in Section 2 hereof) under the
circumstances described below.
1. TERM
This agreement shall commence on the date hereof and unless there is a "Change
in Control of the Company" (as defined in Section 2 hereof), shall continue
until the earlier of your termination of employment as a "full-time employee" of
the Company or the date you attain the age
<PAGE>
of 65 years, or the date this Agreement is terminated by the Company in
accordance with the next sentence. If a "Change in Control of the Company" has
not occurred, the Company shall have the right at any time to terminate this
Agreement by giving you twelve (12) months prior written notice of termination
of this Agreement.
If a "Change in Control of the Company" occurs at any time prior to the actual
termination of this Agreement, then this Agreement shall terminate on the
earlier of three (3) years following such "Change in Control" or the date you
attain the age of 65 years.
2. CHANGE IN CONTROL
For purposes of this Agreement, a "Change in Control of the Company" shall mean
a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A 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 Section 13(d) and 14(d)(2) of the
Exchange Act, other than employee benefit plans sponsored by the Company) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company's
then outstanding securities, or (b) during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company (the "Board") 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 (2/3) of the Directors then still in office who were Directors
at the beginning of the period.
3. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL
If a "Change in Control of the Company" occurs, you shall be entitled to the
benefits provided in Section 5 of this Agreement upon the subsequent termination
of your employment during the term of this Agreement unless such termination is
(a) because of your death or normal retirement at or after age 65, (b) by the
Company for "Cause" as defined below or for Disability as defined below, or (c)
by you other than for "Good Reason" as defined below.
(i) DISABILITY; NORMAL RETIREMENT. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six (6) consecutive months, and
within thirty (30) days after written notice of termination is given you shall
not have returned to the full-time performance of your duties, the Company may
terminate your employment for "Disability." Termination based on "Retirement"
shall mean termination after becoming eligible for Normal Retirement at or after
age 65 under the Company's Pension Plan.
(ii) CAUSE. Termination by the Company of your employment for "Cause"
shall mean termination upon
<PAGE>
(a) the willful and continued failure by you substantially to perform
your duties with the Company (other than any such failure resulting from your
incapacity due to physical or mental illness or any such actual or anticipated
failure resulting from termination by you for Good Reason) after a written
demand for substantial performance is delivered to you by the Board, which
demand specifically identifies the manner in which the Board believes that you
have not substantially performed your duties, or
(b) the willful engaging by you in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise. For purposes of
this Subsection, no act, or failure to act, on your part shall be deemed
"willful" unless done, or omitted to be done, by you not in good faith and
without reasonable belief that your action or omission was in the best interest
of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for "Cause" unless and until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice to you and an opportunity for
you, together with your counsel, to be heard before the Board), finding that in
the good faith opinion of the Board you were guilty of conduct set forth above
in clauses (a) or (b) of the first sentence of this Subsection and specifying
the particulars thereof in detail.
(iii) GOOD REASON. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, any of the following:
(a) the assignment to you of any duties with the Company (or
with a successor or affiliated company) inconsistent with your status as an
executive, or a substantial adverse alteration in the nature or status of your
responsibilities, from those in effect immediately prior to a "Change in Control
of the Company";
(b) a reduction in your annual base salary as in effect on the
date hereof or as the same may be increased from time to time (except for
across-the-board salary reductions similarly affecting all executives of the
Company and all executives of any person in control of the Company);
(c) the failure by the Company to continue in effect any
material compensation plan in which you participate (including but not limited
to the Company's Performance Share Plan, Stock Option Plan and Management
Incentive Plan) or any substitute plans adopted prior to the Change in Control,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan in connection with the
"Change in Control of the Company," or the failure by the Company to continue
your participation therein on substantially the same basis, both in terms of the
amount of benefits provided and the level of your participation relative to
<PAGE>
other participants, as existed immediately prior to the Change in Control;
(d) except for across-the-board reductions similarly affecting
all executives of the Company and all executives of any person in control of the
Company: (i) the failure by the Company to continue to provide you with benefits
substantially similar to those enjoyed by you under any of the Company's
pension, life insurance, medical, health and accident, or disability plans in
which you were participating at the time of a "Change in Control of the
Company", (ii) the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive you of any material
fringe benefit enjoyed by you at the time of the "Change in Control of the
Company", or (iii) the failure by the Company to provide you with the number of
paid vacation days to which you are entitled on the basis of years of service
with the Company in accordance with the Company's normal vacation policy in
effect immediately prior to the Change in Control;
(e) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement;
(f) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
Subsection (iv) below (and, if applicable, the requirements of Subsection (ii)
above); for purposes of this Agreement, no such purported termination shall be
effective;
(g) the individual holding the position of Chief Executive
Officer prior to the time of occurrence of the event constituting the "Change in
Control of the Company" shall have ceased to hold such position (except when
such cessation is the result of the person's Disability or Retirement or was for
"Cause"); or
(h) the Company's requiring you to be based anywhere other
than the Company's current principal executive offices except for required
travel on the Company's business to an extent substantially consistent with your
present business travel obligations.
Your right to terminate your employment pursuant to this
Subsection shall not be affected by your incapacity due to physical or mental
illness.
(iv) NOTICE OF TERMINATION. Any termination of your employment by the
Company or by you shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 7 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under the provision so indicated, and
shall specify a date for termination of employment ("Date of Termination") which
shall not be less than thirty (30) or
<PAGE>
more than sixty (60) days after the date of delivery of the Notice of
Termination.
4. DEATH, DISABILITY OR ELIGIBILITY FOR NORMAL RETIREMENT
This Agreement shall not be applicable in the event of termination of your
employment because of Death, Disability under the Company's plans for long-term
disability, or after you become eligible for Normal Retirement at or after age
65 under the Company's Pension Plan.
5. COMPENSATION UPON TERMINATION
If a "Change in Control of the Company" occurs and your employment is
subsequently terminated during the term of this Agreement under the
circumstances described in Section 3 (other than for "Cause") which entitle you
to benefits under this Agreement, then:
(A) The Company will continue to provide medical and dental insurance
coverage to you and your dependents which is comparable in benefits and in
participant contributions, deductibles, co-payments, and other terms, to the
coverage which you had immediately prior to the Change in Control, and this
coverage will continue until such time as you become eligible to join a
comparable plan sponsored by another employer, or attain age 65 and are eligible
to enroll in the Medicare program.
(B) After you attain age 65 the Company will provide retiree medical
coverage for you and your dependents which is comparable in benefits and in
participant contributions, deductibles, co-payments, and other terms to the
coverage provided by the Company's retiree medical plan in effect immediately
prior to the Change of Control (with a coordination of benefits clause
comparable to the clause used by the Company in its Retiree Medical Plan at the
time of the Change of Control).
(C) You shall be entitled to a lump-sum payment within thirty (30) days
of the Date of Termination of the following amounts:
(i) Your full base salary through the Date of Termination, at
the rate in effect at the time Notice of Termination is given, plus an amount in
cash equal to the value of any vacation earned but not taken (based upon such
rate of base salary); plus
(ii) A termination payment equal to:
(a) the lesser of the number of three (3) or the
number of years (including fractions) between the Date of Termination and the
date you reach the age of 65, times a "Base Amount" consisting of your
annualized base salary as of the Date of Termination together with the most
recent short-term annual incentive compensation payment (or amount to which you
have become entitled in respect thereof) during the year preceding the Date of
Termination (excluding any compensation under long-term incentive compensation
plans, performance
<PAGE>
share plans, stock option plans, or executive recognition awards); plus
(b) a single lump-sum payment (determined by the
Company's outside auditors), which
will approximately offset the economic effect of any special federal excise tax
which may be imposed under Section 280G and 4999 of the Internal Revenue Code on
the termination payments made and benefits provided under this Agreement (but
not offsetting the economic effect of any federal, state or local income taxes,
resulting from the removal of restrictions pursuant to the terms of the plans
under which awards were made on contingent performance shares, restricted
performance stock, restricted stock earned deferred stock, executive continuity
awards, or stock options, because of a Change in Control of the Company).
You shall not be required to mitigate the amount of any payment provided for in
this paragraph 5 (by seeking other employment or otherwise) nor shall the amount
of any payment provided for in this paragraph 5 be reduced by any compensation
earned by you as a result of employment by another employer after the Date of
Termination.
The compensation set forth above shall be in lieu of any severance or
termination payments which might otherwise be payable under any other severance
programs or policy or practice of the Company other than those set out as part
of any of the Company's long-term incentive plans, performance share plans,
stock option plans, executive recognition awards and retirement or supplemental
retirement plans.
In addition to the payments under this Agreement, you shall continue to be
eligible to receive all of your vested accrued benefits under employee pension
and welfare benefit plans sponsored by the Company.
6. SUCCESSORS; BINDING AGREEMENT
(a) SUCCESSOR COMPANIES. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to you, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure by the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to terminate your employment and to receive compensation from
the Company in the same amount and on the same terms as you would be entitled
hereunder if you terminated your employment for Good Reason pursuant to Section
3, except that the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Company" shall mean
the Company hereinbefore defined and any successor to its business
<PAGE>
and/or assets as aforesaid which executes and delivers the agreement provided
for in this paragraph 6 or which otherwise becomes bound by all terms and
provisions of this Agreement by operation of law.
(b) HEIRS; REPRESENTATIVES. This Agreement shall inure to the benefit
of and be enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee, or, if there be no such designee, to your estate.
7. NOTICE
For the purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Senior Vice President Human
Resources of the Company with a copy to the Secretary of the Company, or to such
address as either party may
have furnished to the other in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
8. MISCELLANEOUS
This Agreement constitutes the entire agreement on this subject matter between
the parties and supersedes any prior oral or written agreements or
understandings on the subject matter covered by this Agreement and shall not be
amended or modified except by written agreement signed by both parties. No
significant provisions of this Agreement may be waived or discharged unless such
waiver or discharge is in writing signed by the party who is making the waiver
or discharge. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of any
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. In the event that this Agreement provides benefits upon
termination of your employment which duplicate benefits contained in any
employment arrangement with you, such arrangement shall automatically be amended
in accordance with this Agreement so that your benefits under this Agreement
shall be sole and exclusive to the extent to which they are duplicative. The
validity, interpretation, construction and
<PAGE>
performance of this Agreement shall be governed by the laws of the State of New
York.
9. VALIDITY
The invalidity or unenforceability of any provisions of this Agreement shall not
affect the validity or enforceability of any other provisions of this Agreement,
which shall remain in full force and effect.
10. ARBITRATION; LEGAL EXPENSES
Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration in New York, New York, in accordance
with the rules of the American Arbitration Association then in effect.
Notwithstanding the pendency of any such dispute or controversy, the Company
will continue to pay you your base salary in effect when the notice giving rise
to the dispute was given and will continue you as a participant in all
compensation, benefit and insurance plans in which you were participating when
the notice giving rise to the dispute was given, until the dispute is finally
resolved.
The Company shall also pay all legal fees and expenses incurred by you as a
result of such termination (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in seeking to obtain
or enforce any right or benefit provided by this Agreement). All amounts paid
under this paragraph are in addition to any other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
If this letter correctly sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
INTERNATIONAL PAPER COMPANY
By:
Agreed:
Social Security Number:
<PAGE>
Exhibit 10.10(c)
Date
(Name)
International Paper Company
Two Manhattanville Road
Purchase, New York 10577
Dear:
International Paper Company (the "Company") considers the establishment and
maintenance of a sound and vital management to be essential to protecting and
enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among senior
management, may result in the departure or distraction of senior management
personnel to the detriment of the Company and its shareholders. Accordingly, the
Company's Board of Directors has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's senior management, including yourself, to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in the employ of the Company, and to continue
to exercise your special skills and knowledge at the Company, this letter
agreement sets forth the benefits which the Company agrees will be provided to
you in the event your employment with the Company is terminated subsequent to a
"Change in Control of the Company" (as defined in Section 2 hereof) under the
circumstances described below.
<PAGE>
1. TERM
This agreement shall commence on the date hereof and unless there is a "Change
in Control of the Company" (as defined in Section 2 hereof), shall continue
until the earlier of your termination of employment as a "full-time employee" of
the Company or the date you attain the age of 65 years, or the date this
Agreement is terminated by the Company in accordance with the next sentence. If
a "Change in Control of the Company" has not occurred, the Company shall have
the right at any time to terminate this Agreement by giving you twelve (12)
months prior written notice of termination of this Agreement.
If a "Change in Control of the Company" occurs at any time prior to the actual
termination of this Agreement, then this Agreement shall terminate on the
earlier of three (3) years following such "Change in Control" or the date you
attain the age of 65 years.
2. CHANGE IN CONTROL
For purposes of this Agreement, a "Change in Control of the Company" shall mean
a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A 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 Section 13(d) and 14(d)(2) of the
Exchange Act, other than employee benefit plans sponsored by the Company), is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company's
then outstanding securities, or (b) during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company (the "Board") 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 (2/3) of the Directors then still in office who were Directors
at the beginning of the period.
3. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL
If a "Change in Control of the Company" occurs you shall be entitled to the
benefits provided in Section 5 of this Agreement upon the subsequent termination
of your employment during
<PAGE>
the term of this Agreement unless such termination is (a) because of your death
or normal retirement at or after age 65, (b) by the Company for "Cause" as
defined below or for Disability as defined below, or (c) by you other than for
"Good Reason" as defined below.
(i) DISABILITY; NORMAL RETIREMENT. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six (6) consecutive months, and
within thirty (30) days after written notice of termination is given you shall
not have returned to the full-time performance of your duties, the Company may
terminate your employment for "Disability." Termination based on "Retirement"
shall mean termination after becoming eligible for Normal Retirement at or after
age 65 under the Company's Pension Plan.
(ii) CAUSE. Termination by the Company of your employment for "Cause"
shall mean termination upon
(a) the willful and continued failure by you substantially to
perform your duties with the Company (other than any such failure resulting from
your incapacity due to physical or mental illness or any such actual or
anticipated failure resulting from termination by you for Good Reason) after a
written demand for substantial performance is delivered to you by the Board,
which demand specifically identifies the manner in which the Board believes that
you have not substantially performed your duties, or
(b) the willful engaging by you in conduct which is
demonstrably and materially injurious to the Company, monetarily or otherwise.
For purposes of this Subsection, no act, or failure to act, on your part shall
be deemed "willful" unless done, or omitted to be done, by you not in good faith
and without reasonable belief that your action or omission was in the best
interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for "Cause" unless and until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice to you and an opportunity for
you, together with your counsel, to be heard before the Board), finding that in
the good faith opinion of the Board you were guilty of conduct set forth above
in clauses (a)
<PAGE>
or (b) of the first sentence of this Subsection and specifying the particulars
thereof in detail.
(iii) GOOD REASON. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, any of the following:
(a) the assignment to you of any duties with the Company (or
with a successor or affiliated company) inconsistent with your status as an
executive, or a substantial adverse alteration in the nature or status of your
responsibilities, from those in effect immediately prior to a "Change in Control
of the Company";
(b) a reduction in your annual base salary as in effect on the
date hereof or as the same may be increased from time to time (except for
across-the-board salary reductions similarly affecting all executives of the
Company and all executives of any person in control of the Company);
(c) the failure by the Company to continue in effect any
material compensation plan in which you participate (including but not limited
to the Company's Performance Share Plan, Stock Option Plan and Management
Incentive Plan) or any substitute plans adopted prior to the Change in Control,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan in connection with the
"Change in Control of the Company," or the failure by the Company to continue
your participation therein on substantially the same basis, both in terms of the
amount of benefits provided and the level of your participation relative to
other participants, as existed immediately prior to the Change in Control;
(d) except for across-the-board reductions similarly affecting
all executives of the Company and all executives of any person in control of the
Company: (i) the failure by the Company to continue to provide you with benefits
substantially similar to those enjoyed by you under any of the Company's
pension, life insurance, medical, health and accident, or disability plans in
which you were participating at the time of a "Change in Control of the
Company," (ii) the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive you of any material
fringe benefit enjoyed by you at the time of the "Change in Control of the
Company," or (iii) the failure by the Company to provide you with the number
<PAGE>
of paid vacation days to which you are entitled on the basis of years of service
with the Company in accordance with the Company's normal vacation policy in
effect immediately prior to the Change in Control;
(e) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement;
(f) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
Subsection (iv) below (and, if applicable, the requirements of Subsection (ii)
above); for purpose of this Agreement, no such purported termination shall be
effective; or
(g) the Company's requiring you to be based anywhere other
than the Company's current principal executive offices except for required
travel on the Company's business to an extent substantially consistent with your
present business travel obligations.
Your right to terminate your employment pursuant to this
Subsection shall not be affected by your incapacity due to physical or mental
illness.
(iv) NOTICE OF TERMINATION. Any termination of your employment by the
Company or by you shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 7 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under the provision so indicated, and
shall specify a date for termination of employment ("Date of Termination") which
shall not be less than thirty (30) or more than sixty (60) days after the date
of delivery of the Notice of Termination.
4. DEATH, DISABILITY OR ELIGIBILITY FOR NORMAL RETIREMENT
This Agreement shall not be applicable in the event of termination of your
employment because of Death, Disability under the Company's plans for long-term
disability, or after you become eligible for Normal Retirement at or after age
65 under the Company's Pension Plan.
<PAGE>
5. COMPENSATION UPON TERMINATION
If a "Change in Control of the Company" occurs and your employment is
subsequently terminated during the term of this Agreement under the
circumstances described in Section 3 (other than for "Cause") which entitle you
to benefits under this Agreement, then:
(A) The Company will continue to provide medical and dental insurance
coverage to you and your dependents which is comparable in benefits and in
participant contributions, deductibles, co-payments, and other terms, to the
coverage which you had immediately prior to the Change in Control, and this
coverage will continue until such time as you become eligible to join a
comparable plan sponsored by another employer, or attain age 65 and are eligible
to enroll in the Medicare program.
(B) After you attain age 65 the Company will provide retiree medical
coverage for you and your dependents which is comparable in benefits and in
participant contributions, deductibles, co-payments, and other terms to the
coverage provided by the Company's retiree medical plan in effect immediately
prior to the Change of Control (with a coordination of benefits clause
comparable to the clause used by the Company in its Retiree Medical Plan at the
time of the Change of Control).
(C) You shall be entitled to a lump-sum payment within thirty (30) days
of the Date of Termination of the following amounts:
(i) Your full base salary through the Date of Termination, at
the rate in effect at the time Notice of Termination is given, plus an amount in
cash equal to the value of any vacation earned but not taken (based upon such
rate of base salary); plus
(ii) A termination payment equal to:
(a) the lesser of the number of three (3) or the
number of years (including fractions) between the Date of Termination and the
date you reach the age of 65, times a "Base Amount" consisting of your
annualized base salary as of the Date of Termination together with the most
recent short-term annual incentive compensation payment (or amount to which you
have become entitled in respect thereof) during the year preceding the Date of
Termination (excluding any compensation under long-term
<PAGE>
incentive compensation plans performance share plans, stock option plans, or
executive recognition awards); plus
(b) a single lump-sum payment (determined by the
Company's outside auditors), which will approximately offset the economic effect
of any special federal excise tax which may be imposed under Section 280G and
4999 of the Internal Revenue Code on the termination payments made and benefits
provided under this Agreement (but not offsetting the economic effect of any
federal, state or local income taxes, and not offsetting any taxes resulting
from the removal of restrictions, pursuant to the terms of the plans under which
awards were made, on contingent performance shares, restricted performance
stock, restricted stock, earned deferred stock, executive continuity awards, or
stock options, because of a Change in Control of the Company).
You shall not be required to mitigate the amount of any payment provided for in
this paragraph 5 (by seeking other employment or otherwise) nor shall the amount
of any payment provided for in this paragraph 5 be reduced by any compensation
earned by you as a result of employment by another employer after the Date of
Termination.
The compensation set forth above shall be in lieu of any severance or
termination payments which might otherwise be payable under any other severance
programs or policy or practice of the Company other than those set out as part
of any of the Company's long-term incentive plans, performance share plans,
stock option plans, executive recognition awards and retirement or supplemental
retirement plans.
In addition to the payments under this Agreement, you shall continue to be
eligible to receive all of your vested accrued benefits under employee pension
and welfare benefit plans sponsored by the Company.
6. SUCCESSORS; BINDING AGREEMENT
(a) SUCCESSOR COMPANIES. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to you, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure by the Company to obtain such agreement prior to the
effectiveness of any such succession
<PAGE>
shall be a breach of this Agreement and shall entitle you to terminate your
employment and to receive compensation from the Company in the same amount and
on the same terms as you would be entitled hereunder if you terminated your
employment for Good Reason pursuant to Section 3, except that the date on which
any such succession becomes effective shall be deemed the Date of Termination.
As used in this Agreement, "Company" shall mean the Company hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this paragraph 6 or which otherwise
becomes bound by all terms and provisions of this Agreement by operation of law.
(b) HEIRS; REPRESENTATIVES. This Agreement shall inure to the benefit
of and be enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee, or
other designee, or, if there be no such designee, to your estate.
7. NOTICE
For the purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Senior Vice President Human
Resources of the Company with a copy to the Secretary of the Company, or to such
address as either party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only upon
receipt.
8. MISCELLANEOUS
This Agreement constitutes the entire agreement on this subject matter between
the parties and supersedes any prior oral or written agreements or
understandings on the subject matter covered by this Agreement and shall not be
amended or modified except by written agreement signed by both parties. No
significant provisions of this Agreement may be waived or discharged unless such
waiver or discharge is in writing signed
<PAGE>
by the party who is making the waiver or discharge. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of any similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. In the event that
this Agreement provides benefits upon termination of your employment which
duplicate benefits contained in any employment arrangement with you, such
arrangement shall automatically be amended in accordance with this Agreement so
that your benefits under this Agreement shall be sole and exclusive to the
extent to which they are duplicative. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
New York.
9. VALIDITY
The invalidity or unenforceability of any provisions of this Agreement shall not
affect the validity or enforceability of any other provisions of this Agreement,
which shall remain in full force and effect.
10. ARBITRATION; LEGAL EXPENSES
Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration in New York, New York, in accordance
with the rules of the American Arbitration Association then in effect.
Notwithstanding the pendency of any such dispute or controversy, the Company
will continue to pay you your base salary in effect when the notice giving rise
to the dispute was given and will continue you as a participant in all
compensation, benefit and insurance plans in which you were participating when
the notice giving rise to the dispute was given, until the dispute is finally
resolved.
The Company shall also pay all legal fees and expenses incurred by you as a
result of such termination (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in seeking to obtain
or enforce any right or benefit provided by this Agreement). All amounts paid
under this paragraph are in addition to any other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid
<PAGE>
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
If this letter correctly sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
INTERNATIONAL PAPER COMPANY
By:
Agreed:
Social Security Number: ____________________
<PAGE>
EXHIBIT 11
INTERNATIONAL PAPER COMPANY
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR TO DATE DECEMBER 31
-----------------------------------------
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
NET EARNINGS (LOSS) $183 $ 247 $(80)
Effect of dilutive securities
Preferred securities of subsidiary trust
----- ----- -----
NET EARNINGS (LOSS) - ASSUMING DILUTION $183 $247 $(80)
===== ===== =====
AVERAGE COMMON SHARES OUTSTANDING 413.0 411.0 406.7
Effect of dilutive securities
Long-term incentive plan
deferred compensation
Stock options 3.1 3.2
Preferred securities of subsidiary trust
----- ----- -----
AVERAGE COMMON SHARES OUTSTANDING - 416.1 414.2 406.7
ASSUMING DILUTION
EARNINGS (LOSS) PER COMMON SHARE $ 0.44 $ 0.60 $ (0.20)
======= ======= =========
EARNINGS (LOSS) PER COMMON SHARE - $ 0.44 $ 0.60 $ (0.20)
ASSUMING DILUTION ======== ======= =========
</TABLE>
Note: If an amount does not appear in the above table, the security was
antidilutive for the period presented.
<PAGE>
EXHIBIT 12
INTERNATIONAL PAPER COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----- -------------------------------------------------------------------------
TITLE 1994 1995 1996 1997 1998 1999
----- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
(A) Earnings before income taxes,
minority interest, extraordinary
item and accounting changes ............. $ 896.0 $2,742.0 $ 939.0 $ 143.0 $ 429.0 $ 448.0
(B) Less: Minority interest
expense, net of taxes ................... (54.0) (166.0) (180.0) (140.0) (87.0) (163.0)
(C) Add: Fixed charges
excluding capitalized interest .......... 554.4 740.3 802.1 826.6 866.7 820.9
(D) Add: Amortization of
previously capitalized interest ......... 27.7 29.6 34.2 37.0 38.8 17.0
(E) Less: Equity in undistributed
earnings of affiliates .................. (49.1) (94.5) 6.2 (40.4) 23.7 (41.6)
---------- ---------- ---------- --------- ---------- ---------
(F) EARNINGS BEFORE INCOME TAXES,
MINORITY INTEREST, EXTRAORDINARY ITEM,
ACCOUNTING CHANGES AND FIXED CHARGES $1,375.0 $3,251.4 $1,601.5 $ 826.2 $1,271.2 $1,081.3
========== ========== ========== ========= ========== =========
FIXED CHARGES
(G) Interest and amortization of debt expense $ 501.8 $ 664.9 $ 699.5 $ 720.0 $ 716.9 $ 611.5
(H) Interest factor attributable to rentals . 52.6 64.8 79.0 83.0 80.7 76.3
(I) Preferred dividends of subsidiary ....... 10.6 23.6 23.6 69.1 133.1
(J) Capitalized interest .................... 39.6 66.9 71.2 71.6 53.4 29.3
---------- ---------- ---------- --------- ---------- ---------
(K) TOTAL FIXED CHARGES ..................... $ 594.0 $ 807.2 $ 873.3 $ 898.2 $ 920.1 $ 850.2
========== ========== ========== ========= ========== =========
(L) RATIO OF EARNINGS TO FIXED CHARGES ...... 2.31 4.03 1.83 1.38 1.27
========== ========== ========== ========= ========== =========
(M) DEFICIENCY IN EARNINGS
NECESSARY TO COVER FIXED CHARGES ....... $ (72.0)
==========
</TABLE>
<PAGE>
Exhibit 13
International Paper:
From Innovation to Results
OUR 1999 ANNUAL REPORT
[GRAPHIC OMITTED]
INTERNATIONAL [LOGO] PAPER
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Dollar amounts and shares in millions, except per share amounts 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SUMMARY
Net Sales $24,573 $23,979
Operating Profit 1,810(1) 1,375(1)
Earnings Before Income Taxes, Minority Interest and Extraordinary Item 448(2) 429(3)
Net Earnings 183(2) 247(3)
Total Assets 30,268 31,466
Common Shareholders' Equity 10,304 10,738
Return on Investment 2.6% 2.5%
- ---------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK
Earnings Before Extraordinary Item $0.48(2) $0.60(3)
Earnings - Assuming Dilution 0.44(2) 0.60(3)
Cash Dividends 1.01(4) 1.05(4)
Common Shareholders' Equity 24.95 26.13
- ---------------------------------------------------------------------------------------------------
SHAREHOLDER PROFILE
Shareholders of Record at December 31 32,881 31,050
Shares Outstanding at December 31 414.6 413.2
Average Shares Outstanding 413.0 411.0
</TABLE>
(1) See the operating profit table on page 30 for details of operating profit
by industry segment. Results of equity investees are not included in
operating profit.
(2) Includes a $148 million pre-tax charge ($97 million after taxes) for Union
Camp merger-related termination benefits, a $107 million pre-tax charge
($78 million after taxes) for one-time merger expenses, a $298 million
pre-tax charge ($180 million after taxes and minority interest expense)
for asset shutdowns of excess internal capacity and cost reduction
actions, a $10 million pre-tax charge ($6 million after taxes) to increase
existing environmental remediation reserves related to certain former
Union Camp facilities, a $30 million pre-tax charge ($18 million after
taxes) to increase existing legal reserves and a $36 million pre-tax
credit ($27 million after taxes) for the reversal of reserves that were no
longer required. Return on investment was 4.0% before these items.
(3) Includes a $20 million pre-tax gain ($12 million after taxes) on the sale
of the Veratec nonwovens business, an $83 million pre-tax gain ($50
million after taxes) from the reversal of previously established reserves
that are no longer required, a $111 million pre-tax charge ($68 million
after taxes) for the impairment of oil and gas reserves due to low prices,
a $145 million pre-tax restructuring and asset impairment charge ($82
million after taxes and minority interest expense) and $16 million of
pre-tax charges ($10 million after taxes) related to our share of charges
taken by Scitex, a 13% investee company, for the write-off of in-process
research and development related to an acquisition and costs to exit the
digital video business. Return on investment was 2.8% before these items.
(4) The International Paper dividend was $1.00 per share in 1999 and 1998.
However, dividends on a per share basis have been restated to include
dividends paid by Union Camp Corporation which merged with International
Paper during 1999 in a transaction accounted for as a pooling-of-interests.
<PAGE>
TO OUR SHAREHOLDERS
[PHOTO OMITTED]
To International Paper Shareowners: Two major events stand out as milestones for
International Paper during 1999: our announcement of a powerful profit
improvement program that will guide our decisions and actions through 2002 and
beyond; and, the completion of our merger with Union Camp Corporation, the most
significant in the history of International Paper.
We intend to improve our operating profits across our businesses by at
least $1.8 billion by the end of 2002 before the benefits we get from price
increases. As a result, we expect our return on investment will increase by 400
basis points.
I am confident this program, coupled with our ongoing efforts to better
involve our people, strengthened focus on our customers, and continued
improvements in the way we operate our facilities will result in International
Paper entering a prolonged period of greater profitability and improved
performance relative to our competition.
By all measures, the merger with Union Camp is shaping up to be a
tremendous success. The complementary product lines and land holdings have
allowed us to increase our focus in our key areas of paper, packaging and forest
products. We generated over $130 million in annualized merger benefits in 1999
and are ahead of schedule to meet our goal of at least $425 million in
annualized merger benefits by the end of 2000. A significant portion of our $1.8
billion in profit improvement by 2002 will be a direct result of the Union Camp
merger.
1
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TO OUR SHAREHOLDERS
1999 Financial Performance
Earnings for 1999 before special and extraordinary items increased by 60
percent to $551 million compared with $345 million in 1998. Sales of $24.6
billion were up from $24.0 billion in 1998. Net earnings after special and
extraordinary items were $183 million, or $.44 per share.
Carter Holt Harvey, the New Zealand-based company in which International
Paper owns a controlling interest, announced the sale of its interest in COPEC,
a large Chilean company. The proceeds from the sale, which closed in early 2000,
exceeded $1.2 billion.
Profitability Improvement
Within International Paper, we talk a lot about "winning." Our goal,
simply put, is to be the best in our industry and our actions will be focused on
generating higher value for our shareholders, our customers, our employees and
our communities.
For example, the compensation of 4,000 International Paper leaders is
dependent on profit improvement. Most of our incentive pay is based on how well
we do improving our return on investment in both an absolute sense and against
competition.
Traditionally, we favored capital projects that would yield increased
production capacity. No more. Today, we are investing discretionary capital in
ways to meet market needs.
And, we are pursuing all of the benefits e-commerce can bring to
International Paper. Whether to generate more revenue or to reduce costs, we are
determined to rapidly integrate electronic commerce into our future strategy.
International Paper is a dynamic organization, and so we are constantly
looking to ensure that our businesses are the correct fit for us. We will divest
those businesses that do not add value to the company and acquire others that
do.
That is the primary reason for the acquisitions and divestitures we have
made during the last few years. The Union Camp merger, the acquisition of
Zellerbach,
2
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TO OUR SHAREHOLDERS
Weston Paper and others have added significant value to the company's bottom
line as part of our effort to build stronger businesses. At the same time, we
have sold $2.5 billion of assets since 1997.
In late 1998, we acquired Svetogorsk AO in Russia, where we immediately
introduced the unique advantages found in International Paper's people,
processes and technology. The results: rapidly improved financial performance
and a product line that has captured a 40 percent share of the reprographic
market in Russia. Similarly, our Kwidzyn mill in Poland, acquired in 1992, is
one of the most profitable mills in the International Paper system with an
increasing share of the growing eastern European market.
There is tremendous value in our being a global company. We have
manufacturing facilities around the world to serve customers who are part of the
emerging, global marketplace. As more of our customers grow from their home
markets to compete on a worldwide scale, International Paper will be ready to
support them, too.
Looking Ahead
Market fundamentals are extremely promising. Demand for our products is
strong, the supply is well-balanced with demand within our industry, and
importantly, very little new production capacity is expected within the next few
years. The U.S. economy remains healthy, Asia continues to recover and Europe is
rebounding strongly. That's important to International Paper because the ability
to meet customer needs around the world is a key part of our value strategy.
We have aggressive profit improvement goals in each of our businesses to
ensure we reach our company-wide $1.8 billion profit improvement goal. As part
of that effort, we shut down paper machines in 1999 - some on a temporary basis,
some permanently - and we are not going to add capacity that will result in
excessive inventory in the coming years. We are also producing product at a more
efficient rate to achieve greater profits, not just more tons. The theory of
matching
3
<PAGE>
TO OUR SHAREHOLDERS
production rates to highest profit level per ton, known as "marginal economics"
is being used successfully to improve our performance at a number of facilities.
We have also adopted a rigorous financial discipline. We have tight
controls on capital spending, resulting in expenditures well below our
depreciation and amortization levels for 1999 - $1.1 billion in capital
expenditures versus $1.5 billion for D & A. In 2000, we will again keep our
capital expenditures below D & A.
We have an aggressive program underway to improve margins. We are focused
on more than cost reduction. We've changed how we pay people, how we allocate
capital and how we measure success. We have raised the bar on expectations and
accountability. I am pleased to report the results of these efforts were evident
in 1999 and will grow throughout 2000.
All this leads me to say I am very optimistic about the future. I believe
the outlook for the industry as a whole looks bright and that as a result of all
the actions we have taken and have underway, the future for International Paper
is even stronger.
Finally, I want to thank you for the confidence you have placed in this
company and our employees. I know you have a large number of investment choices,
but I want you to know that we are absolutely committed to producing a
remarkable return to our shareowners. To repeat what I said before, we intend to
be the best company in the global paper and forest products industry.
[PHOTO OMITTED]
/s/ John Dillon
JOHN DILLON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MARCH 1, 2000
4
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Table of Contents
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6 MANAGEMENT'S DISCUSSION AND ANALYSIS
6 CORPORATE OVERVIEW
6 DESCRIPTION OF INDUSTRY SEGMENTS
8 INDUSTRY SEGMENT RESULTS
8 PRINTING AND COMMUNICATIONS PAPERS
9 INDUSTRIAL AND CONSUMER PACKAGING
10 DISTRIBUTION
10 CHEMICALS AND PETROLEUM
11 FOREST PRODUCTS
12 CARTER HOLT HARVEY
13 LIQUIDITY & CAPITAL RESOURCES
30 FINANCIAL INFORMATION BY INDUSTRY SEGMENT
31 FINANCIAL INFORMATION BY GEOGRAPHIC AREA
32 REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS
32 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
33 CONSOLIDATED STATEMENT OF EARNINGS
34 CONSOLIDATED BALANCE SHEET
35 CONSOLIDATED STATEMENT OF CASH FLOWS
36 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
59 SIX-YEAR FINANCIAL SUMMARY
61 INTERIM FINANCIAL RESULTS
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS
CORPORATE OVERVIEW
RESULTS OF OPERATIONS
International Paper's results reflect the merger with Union Camp
Corporation on April 30, 1999. The merger was accounted for as a
pooling-of-interests with all prior period results having been restated to
reflect the combined results of the merged companies.
International Paper's 1999 net sales of $24.6 billion increased 3% as
compared with 1998 net sales of $24.0 billion and were level with 1997 net sales
of $24.6 billion. The increase in sales in 1999 reflects strengthened sales
volumes offset by lower prices in many of our businesses. Net sales decreased in
1998 as compared with 1997 due to lower sales volumes and the weakening New
Zealand dollar.
International net sales (including U.S. exports) totaled $6.9 billion, 28%
of total sales in 1999. This is just above the $6.8 billion of such sales in
1998, but well below the 1997 level of $8.0 billion, both because of the sale of
the Imaging businesses in late 1997 and early 1998 and the weakening of the New
Zealand dollar. Export sales from the U.S. remained unchanged at $1.5 billion in
1999 from 1998 but were below 1997 exports of $1.8 billion.
Net earnings in 1999 before special and extraordinary items increased 60%
to $551 million, or $1.33 per share, compared with net earnings before special
items of $345 million, or $.84 per share, in 1998 and $381 million, or $.94 per
share, in 1997. Special items amounted to net expense of $352 million, or $.85
per share, $98 million, or $.24 per share, and $461 million, or $1.13 per share,
in 1999, 1998 and 1997, respectively. Net earnings after special and
extraordinary items were $183 million, or $.44 per share, in 1999 and $247
million, or $.60 per share, in 1998, and a net loss in 1997 of $80 million, or
$.20 per share.
Operating profit totaled $1.8 billion in 1999, 29% above the $1.4 billion
in 1998, and 20% above the $1.5 billion in 1997. Higher sales volumes increased
1999 operating profit by about $210 million, and lower costs increased 1999
operating profit by $370 million as compared with 1998. However, this increase
was offset, in part, by lower average annual prices which reduced 1999 operating
profit by about $200 million as compared with 1998. Prices for many of our paper
and packaging products reached cyclical lows in the 1999 first quarter and have
since rebounded, increasing by 8%. In 1999, we curtailed production by more than
1 million tons at our U.S. pulp and paper mills, more than 45% of which was
market-related, to help control inventories. Excluding special items, return on
investment was 4.0% in 1999, 43% above the 2.8% in 1998 and 33% above the 3.0%
in 1997.
We generated over $130 million in Union Camp merger benefits in 1999, and
we are ahead of schedule to meet our goal of at least $425 million in annualized
merger benefits by the end of 2000. About 70% of the 1999 special items were
associated with the Union Camp merger, including direct expenses of the merger
and actions taken to achieve merger benefits.
Market fundamentals are extremely promising. Demand for our products is
strong and supply is well-balanced with demand within our industry. Also, little
new production capacity is expected within the next few years. The worldwide
economic environment is promising. In addition, we have aggressive non-price
profit improvement goals in each of our businesses targeted to improve operating
profit by $1.8 billion and return on investment by 4 ROI points by the end of
2002. We have aligned how we pay people, how we allocate capital and how we
measure success to the achievement of this goal. As a consequence, we are
optimistic about the future.
DESCRIPTION OF INDUSTRY SEGMENTS
PRINTING AND COMMUNICATIONS PAPERS
Uncoated Papers: International Paper is one of the largest U.S. producers
of uncoated papers. With our recent merger with Union Camp we have production
capacity of 3.7 million tons annually. Products include office papers, printing
papers, fine papers, and converting grades for envelopes, tablets, business
forms and specialty papers. Brands include HammerMill, Springhill, Great White,
Beckett, Strathmore, and Via by HammerMill. We also make uncoated bristols for
file folders, tags, tickets and index cards.
Coated Papers: We produce coated papers and bristols for catalogs, direct
mail, magazines and other media, with production capacity of 1.3 million tons
annually. International Paper ranks fifth among U.S. coated groundwood
producers. We also produce coated freesheet, such as Accolade, for upscale
catalogs and magazines, and make Carolina coated bristols used for book covers
and commercial printing applications.
Pulp: We have annual production capacity of 1 million
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS
tons of market pulp. Grades range from pulp used to make paper to fluff pulp for
hygiene products.
European Papers: Our European business is a leading supplier of office,
coated and specialty papers produced at facilities in France, Germany, Poland,
the United Kingdom and Russia. This business has annual production capacity of
over 2 million tons. Brands such as ReyMat, Reylux, Duo, and Polspeed supply the
papers Europe's consumers and businesses require. Zanders produces premium
coated papers such as Ikono for high-end brochures and annual reports. Our
facilities in Kwidzyn, Poland and Svetogorsk, Russia produce business papers,
newsprint and coated board for markets throughout Europe.
INDUSTRIAL AND CONSUMER PACKAGING
Industrial Packaging: With production capacity of 5 million tons annually,
International Paper is the second largest manufacturer of containerboard in the
U.S. Nearly one-third of our production is specialty grades, such as PineLiner,
Sunliner, Polarboard, Coastliner and BriteTop. About 60% of our production is
converted to corrugated boxes and other packaging by our 57 U.S. container
plants. Our European operations include 1 recycling mill in France and 23
container plants in France, Ireland, Italy, Spain and the United Kingdom. Our
global presence now includes operations in Puerto Rico, Chile, Turkey, Argentina
and China. Industrial Packaging also offers total packaging solutions and supply
chain initiatives through regional packaging design centers. We have capacity to
produce over 600,000 tons of kraft paper each year that is used in multiwall and
retail bags.
Consumer Packaging: With production capacity of 2 million tons annually,
International Paper is the world's largest producer of bleached board. Our
Everest and Starcote brands are used in packaging applications for juice, milk,
food, cosmetics, pharmaceuticals, computer software and tobacco products.
Premium label papers are sold under the DeltaStar family of products. Over
one-third of our bleached board is converted into packaging and other products
in our own plants. Beverage Packaging has 21 plants worldwide offering complete
packaging systems, from paper to machines, using fresh and aseptic technologies.
Retail Packaging operates 12 plants producing packaging with high-impact
graphics for a variety of consumer products. Foodservice offers cups, lids,
cartons, bags, containers, trays and plates from 5 domestic plants and through 5
international joint ventures. Flexible Packaging provides paper and plastic
packaging for both consumer and industrial markets from 11 U.S. and South
American locations.
Industrial Papers: We produce 370,000 tons of specialty industrial papers
annually used in applications such as pressure-sensitive labels, food and
industrial packaging, industrial sealant and tapes and consumer hygiene
products.
DISTRIBUTION
Through xpedx, our North American merchant distribution business, we
supply industry wholesalers and end users with a vast array of printing,
packaging, graphic arts, maintenance and industrial products. xpedx operates
over 100 warehouses, 130 sales offices and 180 retail stores in the U.S. and
Mexico. Overseas, Papeteries de France, Scaldia in the Netherlands and Impap in
Poland serve European markets. About 22% of Distribution sales are products from
International Paper's own facilities.
CHEMICALS AND PETROLEUM
Chemicals: Arizona Chemical is a leading processor of crude tall oil and
crude sulfate turpentine, natural by-products of the papermaking process.
Products also include specialty resins used in adhesives and inks, made at 15
plants in the U.S. and Europe. In addition, we produce chemical specialty pulp,
primarily utilized in cigarette filters and fabrics.
Bush Boake Allen: Bush Boake Allen, which is 68.2% owned by International
Paper, conducts operations on 6 continents and has locations in 39 countries
worldwide. Bush Boake Allen supplies flavors and fragrances for use in foods,
beverages, cosmetics and toiletries.
Petroleum: This business manages mineral rights on company-owned and
leased land and explores and develops oil and gas reserves, generally by
establishing partnerships with other independent oil and gas producing
companies. These assets contribute to our results and serve as a partial hedge
against fluctuating energy prices.
FOREST PRODUCTS
Forest Resources: International Paper owns or manages 7.1 million acres of
forestlands in the U.S., mostly in the South. In 1999, these forestlands
supplied about 25% of our wood requirements.
Wood Products: Our 28 U.S. plants produce southern pine lumber, plywood,
oriented strand board (OSB) and engineered wood products. The majority of these
plants are located in the southern U.S. near our forestlands. We produce 2.3
billion board feet of lumber, 900 million square feet of plywood and 900 million
square feet of OSB annually.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Masonite: From 9 locations in North America, Europe and Korea, Masonite
manufactures and markets CraftMaster door facings and other molded products for
residential and commercial construction, as well as a broad line of hardboard
exterior siding, industrial hardboard and a wide range of softboard products for
the home and office. Our worldwide capacity for door facings is approximately
1.2 billion square feet annually.
Decorative Products: We produce high- and low-pressure laminates,
particleboard and graphic arts products from 15 facilities. Markets served
include residential and commercial construction, furniture, store fixtures,
graphic arts and specialty niche markets.
CARTER HOLT HARVEY
Carter Holt Harvey is 50.3% owned by International Paper. It is one of the
largest forest products companies in the Southern Hemisphere, with operations in
New Zealand, Australia and Chile. The Australasian market accounts for 84% of
its sales. Asia, particularly Korea and Japan, is an important market for its
logs. Carter Holt Harvey's forest operations include ownership of 785,000 acres
of predominantly sustainable radiata pine plantations in New Zealand currently
yielding 5.8 million cubic meters of logs annually. This yield is expected to
increase to over 7 million cubic meters by 2005. About 50% of the harvest is
processed through Carter Holt Harvey's wood products and pulp and paper
businesses. Their access to one of the largest low-cost softwood fiber bases in
the Southern Hemisphere is a key strength.
Carter Holt Harvey is the largest Trans-Tasman company producing lumber,
plywood and engineered wood products. It has 600 million board feet of lumber
capacity annually. Carter Holt Harvey is New Zealand's largest manufacturer and
marketer of pulp and paper products, with overall annual capacity of 850,000
tons at 4 mills. Its major products are linerboard and pulp. Carter Holt Harvey
produces 140,000 tons of tissue products from 2 mills and 7 converting
facilities and is the market leader and largest manufacturer in Australia.
Sorbent is the most recognized local tissue brand in this market. Carter Holt
Harvey produces corrugated boxes and plastic packaging with a focus on the
horticulture, primary produce and foodservice markets in New Zealand and
Australia. It also has a significant share of the Australian cup market through
its Continental Cup joint venture with International Paper. The distribution
business comprises the Carters building supplies chain and paper merchants B. J.
Ball in New Zealand and Raleigh Paper in Australia.
At December 31, 1999, Carter Holt Harvey owned a 50% stake in a joint
venture (Los Andes) that held 60% of Compania de Petroleos de Chile (COPEC),
Chile's largest industrial conglomerate. Carter Holt Harvey announced the sale
of its indirect interest in COPEC for just over $1.2 billion effective January
3, 2000.
INDUSTRY SEGMENT RESULTS
PRINTING AND COMMUNICATIONS PAPERS
Printing and Communications Papers posted sales of $5.9 billion in 1999
and 1998 compared with $6.4 billion in 1997. Increased volumes were more than
offset by lower market prices.
Operating profit rose to $255 million in 1999 from $180 million in 1998
due mainly to the success of management actions to reduce costs. In 1997,
operating profit was $245 million.
Printing and Communications Papers
- --------------------------------------------------------------------------------
In millions 1999 1998 1997
- --------------------------------------------------------------------------------
Sales $5,930 $5,915 $6,415
Operating Profit $ 255 $ 180 $ 245
U.S. Papers sales were $4.1 billion in 1999, down from $4.3 billion in
1998 and $4.6 billion in 1997. Although business conditions improved during
1999, average prices were lower than 1998 levels. Demand in the U.S. began to
strengthen in the latter part of 1999 and prices increased. Due to seasonal
weaknesses at the end of the year, however, production was curtailed at our U.S.
mills to avoid building inventories. U.S. Papers operating profit in 1999
improved considerably from 1998 levels primarily due to our cost reduction
efforts. Current year operating profit was about even with 1997.
Uncoated Papers sales were $2.6 billion in 1999, a decline of 3% from 1998
and 12% from 1997. On average, prices in 1999 were 3% lower than 1998 and 4%
lower than 1997. Uncoated prices fell throughout 1998, bottomed out in the first
quarter of 1999, but steadily increased thereafter. Year-end 1999 pricing
reflected a 17% increase over the first quarter of 1999. Despite lower sales,
operating profit improved considerably in 1999 over 1998 reflecting the effect
of cost reduction initiatives. Current year operating
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MANAGEMENT'S DISCUSSION AND ANALYSIS
profit remained below 1997 levels.
Coated Papers sales of $1.1 billion decreased 5% and 3% from 1998 and
1997, respectively. On average, prices decreased 2% from 1998, but were above
1997 levels. Operating profit decreased 12% from 1998, primarily due to
operational impacts from Hurricane Floyd, as well as other manufacturing
problems during the year. Operating profit in 1999 was considerably higher than
1997.
Pulp sales from our U.S. facilities were $425 million in 1999, increasing
7% over 1998 but below 1997 by 14%. The improvement from 1998 reflects an
increase in average pulp prices of 6% with volume relatively flat. Pulp prices
ended the year 33% higher than the first quarter of 1999. Although the business
continued to post an overall loss, significant improvement occurred from 1998
reflecting the effect of higher pulp prices. However, operating profit remained
below 1997 results.
Future profits of U.S. Papers should improve as we continue to realize
additional benefits from our profit improvement programs and expected price
improvements during 2000.
European Papers sales were $1.8 billion, 9% higher than 1998 and 2% lower
than 1997. European demand for paper began to recover in the spring and
continued through the year. Except for market pulp, prices declined for all
product lines in the first half of the year, remained stable during the summer,
and began to increase in the fourth quarter. Pulp prices increased over 40%
during the year, more than $140 per ton on average. The continued strengthening
of the U.S. dollar against local currencies in 1999 depressed the translated
value of our sales and increased pulp costs. Despite these factors, operating
profit remained level with 1998 as cost-reduction and productivity efforts
continued. Zanders reported profit for the third consecutive year, even though
pulp costs rose faster than product prices. We continued our expansion into the
highly profitable markets of Central and Eastern Europe, which, coupled with
low-cost production, resulted in another strong performance from Kwidzyn and a
successful first full year for Svetogorsk.
Demand in Europe is expected to grow in 2000. For uncoated papers, we
expect a 4% increase in demand and for prices to continue to rise. Coupled with
a strategic focus on value-added grades, the outlook is good.
INDUSTRIAL AND CONSUMER PACKAGING
Industrial and Consumer Packaging sales totaled $7.0 billion in 1999 and
1998. Operating profit in 1999 increased 67% to $560 million from $335 million
mainly due to manufacturing and marketing initiatives resulting in increased
volumes and cost reductions. Operating profit was also bolstered by synergies
realized from the Union Camp merger. Improved Industrial Packaging pricing
during the second half of the year was offset by competitive markets served by
Consumer Packaging. Sales were $6.8 billion in 1997 and operating profit was
$260 million.
Industrial and Consumer Packaging
- --------------------------------------------------------------------------------
In millions 1999 1998 1997
- --------------------------------------------------------------------------------
Sales $7,050 $7,010 $6,785
Operating Profit $ 560 $ 335 $ 260
Industrial Packaging revenues were $3.8 billion in 1999, up from $3.7
billion in 1998 and $3.5 billion in 1997. After incurring an operating loss in
1997, profits have risen steadily in 1998 and 1999. Demand remained healthy
throughout 1999, with our containerboard and domestic box businesses recording a
7% rise in shipments compared to 1998. The growth in shipments from the
converting plants exceeded the industry growth average, reflecting the
continuing emphasis on customer-focused improvement programs, merger synergies
and a full year of operation for the Weston plants acquired in April 1998.
Average U.S. prices for linerboard rose 4% in 1999, but exited the year almost
30% higher than January. European box markets were weaker than expected for most
of 1999, which held results of our European container plants to 1998 levels.
Kraft papers domestic markets improved during the fourth quarter, with better
margins due to stronger demand for high-end products.
Looking ahead, the Industrial Packaging business is measurably stronger
than it was entering 1999, both from sales and manufacturing perspectives. Given
the relatively healthy industry conditions, we expect a strong performance in
2000.
Consumer Packaging sales were $3.2 billion, down slightly from $3.3
billion in both 1998 and 1997. Operating profit was relatively flat with 1998
but below 1997 by 9%. Sales in 1999 were lower than 1998 and 1997 due to
competitive market conditions in most businesses at the beginning of 1999 and
lower bleached board volume due to the
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MANAGEMENT'S DISCUSSION AND ANALYSIS
sale of the Sprague mill in April 1999. Performance improvement programs across
all of the businesses were able to offset most of the shortfall caused by market
conditions.
Bleached board markets stabilized during the second quarter. Backlogs
ended the year at a respectable mid-20 day range. Asian economic recovery was a
positive factor for several businesses. Bleached board exports increased 6% year
over year. Operational costs were reduced 7% in the current year due to mill
manufacturing initiatives. The bleached board business embarked on an aggressive
process improvement program that began to add to results the last half of the
year. We expect the contribution from this program next year will be
significant. Our converting businesses, leveraging the customer-focused
operational realignment that occurred at the end of 1998, made progress toward
providing total packaging solutions to our customers.
Our outlook going into 2000 is optimistic. Market conditions improved
compared to this time last year.
DISTRIBUTION
North American and European distribution sales totaled $6.9 billion in
1999 compared with $6.3 billion in 1998 and $5.3 billion in 1997. Operating
profit in 1999 increased 24% from 1998 and 17% from 1997. Profit on sales
increased from 1.4% in 1998 to 1.5% in 1999 due largely to sharply higher
earnings resulting from the Zellerbach integration. This impact from Zellerbach
more than offset a competitive paper price environment, one-time integration
costs, and systems spending related to Year 2000 readiness.
Distribution
- --------------------------------------------------------------------------------
In millions 1999 1998 1997
- --------------------------------------------------------------------------------
Sales $6,850 $6,280 $5,250
Operating Profit $ 105 $ 85 $ 90
xpedx, our North American distribution operation, posted sales of $6.5
billion in 1999, up 9% from 1998 and 32% from 1997. The increase over 1998 was
driven by unit sales growth of 4% and the acquisition of Zellerbach in July
1998. Excluding Zellerbach and Taussig's Graphic Supply, Inc., acquired in late
1997, sales were $5.2 billion in 1998. Despite sales growth, operating profit
declined 0.5% mainly because of lower sales prices and increasingly competitive
markets for printing papers as both merchants and customers consolidate. Certain
one-time costs also reduced 1998 operating profit. These included marketing
costs aimed at strengthening the xpedx brand name, as well as costs related to
the Zellerbach integration.
In 1999, xpedx and Alling & Cory, the distribution company acquired
through our merger with Union Camp, successfully combined operations in 7
metropolitan areas eliminating duplicate facilities. By the end of 1999, the
integration was largely completed, with a reduction of over 400 employees.
Operating profits in the combined facilities trended up in the second half of
1999. Our strategy in both the integration of Zellerbach and Alling & Cory was
to retain only those customers and markets that met our strategic and financial
objectives.
xpedx plans to achieve higher earnings in 2000, as performance from the
facilities impacted by the Zellerbach and Alling & Cory mergers improve further,
and non-recurring integration expenses and Year 2000-related expenses are
eliminated.
Our European distribution operations--Papeteries de France, Scaldia in the
Netherlands and Impap in Poland--posted sales of $350 million, increasing 3%
from 1998 and 8% from 1997. Operating profit increased 26% over 1998 and 34%
over 1997.
Overall, we expect an acceleration of the improvement in earnings for the
distribution businesses in 2000.
CHEMICALS AND PETROLEUM
Chemicals and Petroleum sales were $1.5 billion in 1999, flat with 1998
and 8% lower than 1997. Earnings were $125 million in 1999, declining from $135
million in 1998 and $180 million in 1997. Results were mixed with the Petroleum
operation showing an increase over last year which was more than offset by
declines in the other businesses.
Chemicals and Petroleum
- --------------------------------------------------------------------------------
In millions 1999 1998 1997
- --------------------------------------------------------------------------------
Sales $1,455 $1,465 $1,585
Operating Profit $ 125 $ 135 $ 180
Chemicals sales were $885 million in 1999, slightly below 1998, and 11%
lower than 1997. Operating profit declined about 20% from 1998 and 37% from
1997. The decline over the three year period is due largely to decreased demand
and lower prices for chemical cellulose pulp. We have recently implemented plans
in this business which will reduce costs and improve financial performance.
While demand for commodity chemical products and specialty adhesive resins was
strong throughout the year, shipments of other upgraded products, particularly
ink resins, were lower. In addition, prices
10
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MANAGEMENT'S DISCUSSION AND ANALYSIS
were down due to lower raw material prices for crude tall oil and crude sulfate
turpentine, as well as increased competition from substitute products. We
continued to lower our manufacturing costs. Our focus for 2000 is to capture the
merger synergies, further improving our cost position and eliminating redundant
capacity.
Bush Boake Allen sales of $500 million were better than both 1998 and 1997
by 3% and 2%, respectively. Operating profit, however, was 24% below last year
and 17% below 1997. The operation's Flavors and Fragrance business grew by about
6% as compared with 1998 with strong demand from the Americas and Asia,
partially offset by weaker European shipments. The decline in crude sulfate
turpentine prices, however, coupled with industry overcapacity, resulted in
strong downward price pressure. As a result, sales from the Aroma Chemicals
business declined by about 7%. The resulting decline in operating profit more
than offset the 5% earnings increase generated by the Flavors and Fragrance
business.
Petroleum realized sales of $70 million in 1999 which were about equal to
1998 and 31% lower than 1997. Operating profit was 57% higher than 1998, but 32%
lower than 1997. Total year average prices for gas and oil increased over last
year's very low levels. However, we were still about 10% below 1997. Our
exploration program, generally operated through joint ventures, is focused on
West Texas, the Gulf Coast and the Gulf of Mexico and yielded reserves which
were about equal to production in 1999.
FOREST PRODUCTS
Forest Products sales were $3.2 billion in 1999, up from $2.9 billion in
1998 and $3.0 billion in 1997. Operating profit totaled $725 million in 1999
compared with $620 million in 1998 and $615 million in 1997. The 1999
improvement was driven by the strong performance of our Building Materials
businesses.
Forest Products
- --------------------------------------------------------------------------------
In millions 1999 1998 1997
- --------------------------------------------------------------------------------
Sales $3,205 $2,930 $3,025
Operating Profit $ 725 $ 620 $ 615
Forest Resources sales in 1999 were $653 million compared with $553
million in 1998 and $537 million in 1997. Operating profit was 7% below 1998 but
16% higher than 1997. Earnings in all three years include income from
transactions that disposed of interests in non-strategic forestlands. While
harvest volumes in 1999 remained about the same as in 1998, average prices
declined from the record levels of 1998. Pine sawtimber prices averaged about 6%
lower, and pulpwood prices about 22% lower, in 1999.
Stumpage prices entering 2000 were well below comparable prices at the
beginning of 1999. Furthermore, wood inventory levels at pulp and paper mills
and wood products plants are generally at or near targeted levels, except in the
Carolina's where facilities are still recovering from the hurricanes of 1999.
Accordingly, we do not expect any significant changes in prices in early 2000,
although we believe that full year prices should average about the same as in
1999. Harvest volumes in 2000 are also scheduled to approximate 1999 levels.
Wood Products sales increased 17% to $1.4 billion in 1999 from $1.2
billion in 1998. Sales in 1997 were $1.3 billion. Operating profit for this
business improved significantly from the prior year. A strong U.S. housing
market, low interest rates, and generally good U.S. and global economic
conditions contributed to the strong demand and higher pricing for wood
products. OSB reached record price levels while lumber prices also strengthened.
Also impacting earnings favorably were merger synergies, product mix, management
programs and lower fiber costs.
Masonite sales were $512 million in 1999, 3% above 1998 sales of $499
million, but 10% below 1997 sales of $567 million. The 1999 improvement was
mainly due to increased door facings volume in North America. However, increased
global capacity for molded door facings caused a decline in door facing prices,
partially offsetting the sales growth. In addition, the siding and hardboard
markets are becoming increasingly competitive. Weaker demand for these products
resulted in lower operating profit. Internal cost reduction initiatives and new
product development will begin to offset these declines in 2000.
Decorative Products sales were $624 million in 1999 which were 5% below
1998 sales of $658 million. Sales in 1997 were $599 million. The decrease in
sales was mainly due to the closure of 2 medium density fiberboard (MDF) plants
in late 1998 and sale of the Fountainhead business in early 1999. Sales volumes
and profitability improved in the particleboard and low pressure laminates
businesses. The markets for high pressure laminates in North America and Europe
were extremely competitive, leading to lower earnings in this business.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
CARTER HOLT HARVEY
International Paper's results for this segment differ from those reported
by Carter Holt Harvey in New Zealand in four major respects:
1. Carter Holt Harvey's reporting period is a fiscal year ending March 31.
Our segment results are for the calendar year.
2. Our segment earnings include only our share of Carter Holt Harvey's
operating earnings. Segment sales, however, represent 100% of Carter Holt
Harvey's sales.
3. Carter Holt Harvey reports in New Zealand dollars but our segment results
are reported in U.S. dollars. The weighted average currency exchange rate
used to translate New Zealand dollars to U.S. dollars was .52 in 1999, .54
in 1998, and .66 in 1997.
4. Carter Holt Harvey reports under New Zealand accounting standards but our
segment results comply with U.S. generally accepted accounting principles
(U.S. GAAP). The major differences relate to cost of timber harvested
(COTH), land sales, COPEC and start-up costs. These differences reduced
segment earnings by about $50 million in 1999, $40 million in 1998 and $30
million in 1997.
Carter Holt Harvey
- --------------------------------------------------------------------------------
In millions 1999 1998 1997
- --------------------------------------------------------------------------------
Sales $1,605 $1,505 $1,955
Operating Profit $ 40 $ 20 $ 90
Carter Holt Harvey's segment sales were $1.6 billion in 1999, slightly
higher than 1998 sales of $1.5 billion but below 1997 sales of $2.0 billion. The
translation effect of the weakening New Zealand dollar more than accounted for
the sales shortfall as compared with 1997.
Segment operating income doubled to $40 million in 1999, compared with the
$20 million earned in 1998, but was still less than half the operating profit
realized in 1997. Results in 1998 were severely impacted by the weakness in
Asian economies during this period, as well as that of New Zealand. However,
volumes and prices in most products have improved in 1999 as the Asian markets
have recovered and paper has moved up from a cyclical low point in the first
quarter. Also contributing to an improvement in earnings in 1999 was the
continued success of Carter Holt Harvey's performance improvement program.
Forests sales in 1999 improved 22% from 1998 as the log export market,
after nearly collapsing in 1998, returned to strength in 1999. Log export
volumes in the fourth quarter of 1999 of 545,000 tons were 29% higher compared
to the same quarter a year ago and set a quarterly record. However, because of a
large negative U.S. GAAP adjustment for COTH, the Forests segment remained in a
loss position although improving 70% and approaching breakeven. The Wood segment
results remained relatively robust, but were about flat with 1998. However,
momentum is now strengthening and lumber price increases in both Australia and
New Zealand of between 5% and 7% have been announced. Construction of a plant to
produce laminated veneer lumber, a value-added product, is underway in New
Zealand. Earnings for the Pulp, Paper and Tissue segment improved in 1999.
Prices are improving and after two periods of construction down time in 1999 to
complete its modernization, the Kinleith mill produced 142,000 tons in the
fourth quarter. However, the performance of the Kinleith linerboard machine is
not yet at operating design levels. The tissue business remains strong, holding
its share of the Australian premium toilet tissue category in the face of heavy
competition and price discounting while the paper towel business achieved its
highest market share ever in a category with 10% annual growth. The ongoing
focus in coming months is to minimize the impact of rising pulp prices, which
are significantly higher than a year ago. The Packaging segment earnings fell
74% from 1998 levels, primarily because of intensely competitive markets.
Distribution returned to profitability in 1999. Earnings from Carter Holt
Harvey's equity investment in COPEC showed significant improvement in 1999 as
higher pulp demand and prices more than offset a 12% weakening in the Chilean
peso. Carter Holt Harvey sold its investment in COPEC for just over $1.2 billion
in January 2000.
The outlook is for continuing volume and price improvement as well as
further gains to be realized from Carter Holt Harvey's performance improvement
program. We expect good demand from the New Zealand agricultural sector and
construction markets in both Australia and New Zealand. Driving performance
improvement will continue to be a priority for management.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY & CAPITAL RESOURCES
CASH PROVIDED BY OPERATIONS
Cash provided by operations totaled $1.7 billion for 1999, compared with
$2.1 billion in 1998 and $1.6 billion in 1997. The largest factors in the
decrease in operating cash flow in 1999 were payments related to the Union Camp
merger and restructuring and legal reserves. Excluding special items, after
taxes and minority interest, net earnings for 1999 increased $206 million
compared with 1998. However, 1998 net earnings were $36 million less than 1997.
An increase in working capital reduced 1999 operating cash flow by $32 million.
Working capital changes increased 1998 operating cash flow by $74 million and
decreased 1997 operating cash flow by $451 million. Depreciation and
amortization expense was $1.5 billion in 1999 and 1998 and $1.6 billion in 1997.
INVESTMENT ACTIVITIES
Capital spending was $1.1 billion in 1999, lower than 1998 spending of
$1.3 billion and 1997 spending of $1.4 billion. As part of our program to
improve return on investment, we plan to continue to hold annual capital
spending below our annual depreciation and amortization expense of $1.5 billion.
We expect 2000 spending to be between $1.2 billion and $1.3 billion. The
following table presents capital spending by each of our business segments.
Capital Spending by Industry Segment
In millions for the years ended December 31 1999 1998 1997
- ------------------------------------------- ------ ------ ------
Printing and Communications Papers $ 382 $ 302 $ 385
Industrial and Consumer Packaging 287 391 343
Distribution 16 19 20
Chemicals and Petroleum 104 170 142
Forest Products 189 222 249
Carter Holt Harvey 99 166 230
------ ------ ------
Subtotal 1,077 1,270 1,369
Corporate and other 62 52 79
------ ------ ------
Total $1,139 $1,322 $1,448
====== ====== ======
Under a 1997 business improvement plan, we undertook the sale of $1
billion of non-strategic assets. This program was substantially completed in
1998. Divestitures completed during 1998 included the Imaging printing and
graphic arts businesses, the label business, the Veratec nonwovens division and
Carter Holt Harvey's building products business. Substantially all of these
proceeds were used to reduce debt or for general corporate purposes.
On November 24, 1998, International Paper 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 International Paper common shares for each Union Camp share
held. The total value of the transaction, including the assumption of debt, was
approximately $7.9 billion.
International Paper issued 110 million shares for 74 million Union Camp
shares, including options. The merger was accounted for as a
pooling-of-interests.
In April 1999, Carter Holt Harvey acquired the corrugated packaging
business of Stone Australia, a subsidiary of Smurfit-Stone Container
Corporation. The business consists of two sites in Melbourne and Sydney which
serve industrial and primary produce customers.
In December 1998, we completed the acquisition of Svetogorsk AO, a
Russia-based pulp and paper business, which has enhanced International Paper'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 has enabled the foodservice
business to better serve markets in South America.
In July 1998, International Paper acquired the Zellerbach distribution
business from the Mead Corporation for $261 million in cash. Zellerbach has been
integrated into xpedx, our distribution business.
In April 1998, Weston Paper and Manufacturing Company (Weston) was
acquired by exchanging 4.7 million International Paper common shares valued at
$232 million for all of the outstanding Weston shares in a noncash transaction.
In April 1998, Carter Holt Harvey acquired Riverwood International, an
Australia-based folding carton business.
In March 1998, a wholly-owned subsidiary of International Paper purchased
all of the publicly traded Class A depository units of IP Timberlands, Ltd. for
a cash purchase price of $100 million.
In February 1998, we 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.
Acquisitions in 1997 included: Taussig's Graphic Supply, Inc., a
distribution company; Phoenix Display and Packaging
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Corporation, a merchandising and point-of-purchase display company; Merbok
Formtec, a pioneer in the development of door facing products; Antietem Paper
Company, a distribution company; and a 75% interest in Puntapel S.A., an
Argentinean multiwall plant. The cost of these acquisitions, net of cash
acquired, was $94 million in the aggregate.
FINANCING ACTIVITIES
During 1999, we extinguished $275 million of high interest debt that was
assumed in the merger with Union Camp, at an after tax cost of $16 million,
which is reflected as an extraordinary item in the 1999 statement of earnings.
We also reduced other debt, primarily short-term, by $540 million.
During 1998, we reduced debt, primarily short-term, by $1.9 billion and
issued $1.5 billion of preferred securities of subsidiaries. In March 1998,
Timberlands Capital Corp. II, a wholly-owned consolidated subsidiary, issued
$170 million of 7.005% preferred securities as part of the financing to
repurchase the outstanding units of IP Timberlands, Ltd. In June 1998, IP
Finance (Barbados) Limited, a wholly-owned consolidated non-U.S. subsidiary,
issued $550 million of preferred securities with a dividend payment that is
based on LIBOR. In September 1998, International Paper Capital Trust III, a
wholly-owned consolidated subsidiary, issued $805 million of 7 7/8% mandatorily
redeemable preferred securities.
During 1997, we issued environmental and industrial development bonds for
various capital projects, repaid $164 million of 10% debentures, and reduced
commercial paper and short-term borrowings.
Long-term debt and notes payable on our consolidated balance sheet were
$8.4 billion in 1999 compared with $9.1 billion in 1998 and $11.0 billion in
1997. However, after adjusting for foreign exchange, acquisitions and
restructuring activities, total debt was reduced by approximately $540 million
and $1.9 billion in 1999 and 1998, respectively, on a cash flow basis. During
1998, one of the corporate debt rating agencies, Standard & Poor, downgraded our
long-term debt rating from A- to BBB+.
Unless otherwise noted, the proceeds of all of the financings described
above were used to reduce short-term debt or for general corporate purposes.
Dividend payments were $418 million, $431 million and $427 million in
1999, 1998 and 1997, respectively. On a per share basis, dividend payments were
$1.01 in 1999, and $1.05 in 1998 and 1997. The International Paper dividend has
remained at $1.00 per share during the three year period. However, dividend
payments on a per share basis have been restated to include dividends paid by
Union Camp.
CAPITAL RESOURCES OUTLOOK FOR 2000
Our financial condition continues to be strong. We expect to receive just
over $1.2 billion after tax in the first quarter of 2000 from the sales of our
equity investments in COPEC and Scitex. The cash proceeds from the sale of COPEC
are being received by our consolidated subsidiary, Carter Holt Harvey. We
anticipate that cash flow from operations, supplemented as necessary by short-
or long-term borrowings, will be adequate to fund our capital expenditures, to
service existing debt, and to meet working capital and dividend requirements
during 2000.
OTHER FINANCIAL STATEMENT ITEMS
Net interest expense decreased to $541 million in 1999 compared with $614
million in 1998 and $607 million in 1997. The decrease was primarily due to a
net decrease in total debt outstanding, after adjusting for the effects of
currency translation, from December 1998 to December 1999. Proceeds received
from the sale of assets in 1998 and 1999 as well as proceeds from the issuance
of preferred securities were used to reduce debt and for other general corporate
purposes.
Minority interest expense increased to $163 million in 1999 compared with
$87 million in 1998 and $140 million in 1997. Minority interest expense
increased in 1999 because the preferred securities of subsidiaries issued during
1998 were outstanding for the full year in 1999 and Carter Holt Harvey's
earnings improved. The decrease in minority interest expense from the year ended
December 31, 1997 to the year ended December 31, 1998, was primarily due to a
decrease in earnings at Carter Holt Harvey in 1998 as compared to 1997 partially
offset by an increase in interest expense related to the issuance of preferred
securities in 1998.
Net periodic pension results for the U.S. defined benefit plans were
income of $49 million, $77 million and $63 million in 1999, 1998 and 1997,
respectively. The variation between pension income in 1999 and 1998 was
primarily due to the expiration of International Paper's transition asset
amortization which reduced 1999 pension income by $26 million as compared to
1998.
As of June 1, 1999 International Paper enhanced pension benefits for its
major union groups. As a result, the pension plan was revalued. The revaluation
assumed a discount rate of 7.25% and a rate of compensation increase of 4.5%.
These actions had the net effect of reducing the pension benefit obligation by
$179 million.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Our equity investments consisted primarily of Scitex and Carter Holt
Harvey's 30% ownership in COPEC, which it held through a joint venture. Both
Scitex and COPEC are publicly traded companies. Carter Holt Harvey sold its
equity interest in COPEC on January 3, 2000 for just over $1.2 billion and
International Paper sold its equity interest in Scitex on January 6, 2000 for
$79 million. At such time the carrying value of these investments was $865
million and $35 million, respectively. These transactions will result in income
after tax and minority interest of about $135 million or $.33 per share, which
will be recorded in the first quarter of 2000 as an extraordinary item pursuant
to pooling-of-interests accounting rules.
SPECIAL ITEMS INCLUDING RESTRUCTURING
AND BUSINESS IMPROVEMENT ACTIONS
Special items reduced 1999 net earnings by $352 million, 1998 net earnings
by $98 million and 1997 net earnings by $461 million. The following tables and
discussion present the impact of special items for 1999, 1998 and 1997:
1999
----------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
In millions Interest Interest
- ---------------------------------------------- ------------- ------------
Before special and extraordinary items $ 1,005 $ 551
Union Camp merger-related termination benefits (148) (97)
One-time merger expenses (107) (78)
Restructuring and other charges (298) (180)
Environmental remediation charge (10) (6)
Provision for legal reserves (30) (18)
Reversal of reserves no longer required 36 27
------- -------
After special items $ 448 $ 199
======= =======
During 1999 special items amounting to a net charge before taxes and
minority interest expense of $557 million ($352 million after taxes and minority
interest expense) were recorded. The special items included a $148 million
pre-tax charge ($97 million after taxes) for Union Camp merger-related
termination benefits, a $107 million pre-tax charge ($78 million after taxes)
for one-time merger expenses, a $298 million pre-tax charge ($180 million after
taxes and minority interest expense) for asset shutdowns of excess internal
capacity and cost reduction actions, a $10 million pre-tax charge ($6 million
after taxes) to increase existing environmental remediation reserves related to
certain former Union Camp facilities, a $30 million pre-tax charge ($18 million
after taxes) to increase existing legal reserves and a $36 million pre-tax
credit ($27 million after taxes) for the reversal of reserves that were no
longer required.
The one-time merger expenses of $107 million consisted of $49 million of
merger costs and $58 million of post-merger expenses. The merger costs were
primarily investment banker, consulting, legal and accounting fees. Post-merger
integration expenses 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 relates to
employees terminating after the effective date of the merger under an
integration benefits program . Under this program, 1,218 employees of the
combined company were identified for termination. An additional 777 employees
left the company after the merger was announced, but were not eligible for
benefits under the integration benefits program. Benefits payable under this
program for certain senior executives and managers are or have been paid from
the general assets of International Paper. Benefits for remaining employees have
been or will be primarily paid from plan assets of our qualified pension plan.
Through December 31, 1999, 787 employees had been terminated. Related cash
payments approximated $65 million (including payments related to our
nonqualified pension plans). The remaining charge primarily represents an
increase in the projected benefit obligation of our qualified pension plan.
The following table is a roll forward of the Union Camp merger-related
termination benefit charge:
Termination
In millions Benefits
- ---------------------------------------------------------- --------------
Special charge (1,218 employees) $ 148
Incurred costs (787 employees) (116)
-----
Balance, December 31, 1999 $ 32
=====
Note: Benefit costs are treated as incurred on the termination date of the
employee.
The $298 million charge for the asset shutdowns of excess internal
capacity consisted of a $113 million charge in the 1999 second quarter and a
$185 million charge in the 1999 fourth quarter.
The second quarter 1999 $113 million charge for the asset shutdowns of
excess internal capacity and cost reduction actions included $57 million of
asset write-downs and $56 million of severance and other charges. The following
table and discussion presents additional detail related to the $113 million
charge:
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Asset Severance
In millions Write-downs and Other Total
- -------------------------------- ----------- --------- -------
Printing and Communications
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
===== ===== =====
(a) We recorded a charge of $24 million for severance related to the second
phase of the Printing and Communications Papers business plan to improve
the cost position of its mills. The charge, pursuant to our ongoing
severance program, covers a reduction of approximately 289 employees at
several mills in the U.S. At December 31, 1999, 146 employees had been
terminated.
Also, management approved a decision to permanently shut down the
Hudson River mill No. 4 paper machine located in Corinth, New York and the
No. 2 paper machine at the Franklin, Virginia mill. The Franklin machine
was shut down in September of 1999 and the Hudson River machine has also
been shut down. The Hudson River machine had previously been temporarily
shut down 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. At December 31, 1999, 76
employees had been terminated.
(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 produced approximately
5,000 metric tons of high-end uncoated specialty paper per year. This
production was shifted 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 $12 million and
an operating loss of $2 million for the year ended December 31, 1999. At
December 31, 1999, 14 employees had been terminated.
The Corimex coating plant in Clermont-Ferrand, France 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 $6 million and an operating loss of $3 million for the
year ended December 31, 1999. At December 31, 1999, all 81 employees had
been terminated.
(c) The Consumer Packaging business has implemented a plan to improve the
overall performance of the Moss Point, Mississippi 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
has been 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. At December 31, 1999, 272 employees had been terminated.
Consumer Packaging also shut down the beverage packaging facility in
Itu, Brazil in an effort to reduce excess capacity in Latin America. 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 exit costs total $1 million. At December 31, 1999, 24
employees had been terminated.
(d) As a result of the merger with Union Camp, we negotiated the resolution of
contractual commitments in an industrial packaging investment in Turkey.
As a result of these negotiations and evaluation of this entity, it was
determined that the investment was impaired. A $12 million charge was
recorded to reflect this impairment and the related costs of resolving the
contractual commitments.
(e) As a result of an overall reduction in market demand for dissolving pulp,
the decision was made to downsize the Natchez, Mississippi 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. At December 31, 1999, 88
employees had been terminated.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(f) The Industrial Papers business has implemented a plan to reduce excess
capacity at several of its locations. The Toronto, Canada plant has been
closed. Equipment at the Kaukauna, Wisconsin and Knoxville, Tennessee
facilities has been taken out of service, with additional equipment at the
Menasha, Wisconsin plant scheduled to be shut down in 2000. 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 81 employees. Other exit costs total $2 million. At
December 31, 1999, a reduction of 59 employees had been made through
severance and attrition.
The $185 million fourth-quarter 1999 charge for shutdowns of excess
internal capacity and cost reduction actions includes $92 million of asset
write-downs and $93 million of severance and other charges. The following table
presents additional detail related to the $185 million charge:
Asset Severance
In millions Write-downs and Other Total
- -------------------------------- ----------- --------- -------
Printing and Communications
Papers (a) $ 7 $ 5 $ 12
Consumer Packaging (b) 14 22 36
Industrial Packaging (c) 7 14 21
Chemicals and Petroleum (d) 30 20 50
Building Materials (e) 10 6 16
Distribution (f) 6 17 23
Carter Holt Harvey (g) 18 9 27
----- ----- -----
$ 92 $ 93 $ 185
===== ===== =====
(a) The Printing and Communications Papers charge of $12 million encompasses a
production curtailment at the Erie, Pennsylvania mill due to lower demand,
the write-off of deferred software costs as the result of a decision to
discontinue the installation of a Union Camp order entry system and an
impairment of our investment in the Otis Hydroelectric plant. In November
1999 we announced that the Erie, Pennsylvania mill would change from a
seven day, four crew schedule to a three crew schedule in order to balance
operating capacity with sales demand. This production curtailment resulted
in a severance charge of $2 million for the termination of 99 employees.
The charge for the deferred software write-off was $3 million.
International Paper also wrote down its investment in the Otis
Hydroelectric partnership by $7 million to the approximate market value of
the investment based upon our current offer to acquire the other partner's
interest.
(b) The Consumer Packaging business charge of $36 million is related to the
shutdown of facilities, capacity optimization and a deferred software
write-off. The Philadelphia, Pennsylvania plant and the Edmonton, Alberta
plant are scheduled to be shut down. Charges associated with these
shutdowns include $7 million of asset write-downs, $1 million of severance
costs covering the termination of 194 employees and other exit costs of $5
million. Charges related to eliminating excess capacity include $7 million
of asset write-downs and a severance charge of $11 million for the
termination of 512 employees. The capacity reductions are related to the
aseptic and flexible packaging businesses. The business also decided to
discontinue the implementation of a Union Camp order management system.
The write-off of deferred software costs related to this system is $5
million.
(c) The Industrial Packaging business will shut down the following plants and
shift production to other facilities: the Terre Haute, Indiana box plant;
the Northlake, Illinois box plant; the Columbia, Tennessee sheet plant;
and the Montgomery, Alabama sheet plant. The design center in Spartanburg,
South Carolina will also be closed. The functions performed in Spartanburg
will continue in Memphis, Tennessee. Charges associated with the
consolidation and improvement of the Industrial Packaging business total
$21 million and include $7 million of asset write-downs, a $12 million
severance charge covering the termination of 426 employees and other exit
costs of $2 million.
(d) The Chemicals and Petroleum charge of $50 million is related to the
partial shutdown of the Chester-Le-Street plant located in Northeast
England and additional costs related to the 1998 shutdown of the
Springhill, Louisiana plant. The Chester-Le-Street plant is currently a
fully integrated site comprised of a crude tall oil fractionation plant, a
rosin resin upgrading plant and a dimer plant. The crude tall oil and
rosin resin upgrading facilities at the site will be closed and production
shifted to other Arizona Chemical facilities. Asset write-downs for this
plant total $30 million. A severance charge of $3 million covers the
termination of 83 employees. Other costs of $12 million include demolition
and contract cancellations.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
We also recorded an additional charge of $5 million related to the 1998
closure of the Springhill plant, covering other exit costs including
demolition and cleanup.
(e) The Building Materials charge of $16 million includes $3 million for a
program to improve the profitability of the decorative surfaces business
and $13 million for the shutdown of the Pilot Rock, Oregon mill. The
Decorative Products business has developed an improvement plan that will
result in the consolidation of certain manufacturing activities and
streamlining of administrative functions. As a result, a reserve of $3
million was established to cover asset write-offs totaling $2 million and
severance charges of $1 million related to the reduction of 65 employees.
International Paper announced in October of 1999 that it would shut down
the Pilot Rock, Oregon mill due to excess capacity within the Masonite
manufacturing system. The softboard production will be moved to our Ukiah,
California and Lisbon Falls, Maine facilities. The charge includes $8
million of asset write-downs, a $2 million severance charge covering the
termination of 155 employees and other exit costs of $3 million.
(f) xpedx, our distribution business, implemented a plan to consolidate
duplicate facilities and eliminate excess capacity. The $23 million charge
associated with this plan includes $6 million of asset write-downs, a
severance charge of $5 million for the termination of 211 employees and
other costs of $12 million. Other costs consist primarily of lease
cancellations.
(g) This charge is related to the shutdown of the No. 5 paper machine at
Carter Holt Harvey's Kinleith mill. The machine had been idled due to a
reconfiguration project at the mill. Plans for alternative uses for the
machine were reexamined and it was determined that based on current
competitive conditions it would not provide adequate returns on the
capital required and that it would be scrapped. Accordingly, the machine
was written down from its $20 million book value to its estimated salvage
value of $2 million. Also, severance costs total $9 million and cover the
costs of terminating 300 employees.
The $30 million pre-tax charge to increase existing legal reserves
includes $25 million which we added to our reserve for hardboard siding claims.
A further discussion of this charge can be found in Note 11. Commitments and
Contingent Liabilities. The remaining $5 million is related to other potential
exposures.
The $36 million pre-tax credit for reserves no longer required consists of
$30 million related to a retained exposure at the Lancey mill in France and $6
million of excess severance reserves previously established by Union Camp. The
Lancey mill was sold to an employee group in October 1997. In April 1999,
International Paper's remaining exposure to potential obligations under this
sale was resolved, and the reserve was returned to income in the second quarter.
The following table is a roll forward of the severance and other costs
included in the 1999 restructuring plans (in millions):
Severance
and Other
----------
Opening Balance (second quarter 1999) $ 56
Additions (fourth quarter 1999) 93
1999 Activity
Cash charges (34)
-----
Balance, December 31, 1999 $ 115
=====
The severance reserves recorded in the 1999 second and fourth quarters
related to 3,163 employees. As of December 31, 1999, 760 employees had been
terminated.
1998
-----------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
In millions Interest Interest
- ---------------------------------------- ------------- ------------
Before special items $ 598 $ 345
Oil and gas impairment charges (111) (68)
Restructuring and other charges (161) (92)
Gain on sale of business 20 12
Reversals of reserves no longer required 83 50
----- -----
After special items $ 429 $ 247
===== =====
During 1998, we recorded $111 million of oil and gas impairment charges
($68 million after taxes). Of this amount, $56 million ($35 million after taxes)
was recorded in the fourth quarter and $55 million ($33 million after taxes) was
recorded in the third quarter. International Paper has oil and gas exploration
and production operations in West Texas, the Gulf Coast and the Gulf of Mexico.
The Securities and Exchange Commission's regulations for companies that use
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
the full-cost method of accounting for oil and gas activities require companies
to perform a ceiling test on a quarterly basis. As a result of low oil and gas
prices, the value of our properties was written down through these noncash
charges.
Also in 1998, we recorded a $145 million pre-tax restructuring charge ($82
million after taxes and minority interest expense) consisting of $64 million of
asset write-downs and $81 million of severance costs and we recorded pre-tax
charges of $16 million ($10 million after taxes) related to our share of
write-offs taken by Scitex, a 13% investee company, related to in-process
research and development of an acquisition and its exit from the digital video
business. The Scitex items are reflected as equity losses from the investment in
Scitex in the consolidated statement of earnings. In addition, we recorded a $20
million pre-tax gain ($12 million after taxes) on the sale of our Veratec
nonwovens division, and an $83 million pre-tax gain ($50 million after taxes)
from the reversal of previously established reserves that were no longer
required. These reserves were established in 1996 and 1997 and were primarily
associated with the Veratec and Imaging businesses. The sales of these
businesses were completed in 1998 and those reserves not required were returned
to earnings.
The following table and discussion presents additional detail related to
the $145 million restructuring charge:
Asset
In millions Write-downs Severance Total
- --------------------------------- ----------- --------- -----
Distribution (a) $ 20 $ 10 $ 30
Printing and Communications
Papers (b) 13 14 27
Carter Holt Harvey (c) 15 3 18
Industrial Packaging (d) 8 7 15
Union Camp (e) 8 32 40
Other (f) 15 15
----- ----- -----
Total $ 64 $ 81 $ 145
===== ===== =====
(a) After the acquisition of Zellerbach, management of xpedx decided to
terminate certain software projects that were in process and to use
Zellerbach's systems in certain of its regions. Accordingly, we wrote off
related deferred software costs on these projects, resulting in a $20
million charge. As part of the Zellerbach integration plan, management
determined that a significant part of the personnel reduction related to
the termination of employees at duplicate facilities and locations. The
$10 million severance charge represents the costs for terminating 274
xpedx employees. At December 31, 1999, all of the 274 employees had been
terminated.
(b) Our Printing and Communications Papers business shut down equipment at the
Mobile, Alabama mill and announced the termination of 750 employees at the
Mobile, Alabama, Lock Haven, Pennsylvania, and Ticonderoga, New York
mills. At the Mobile mill, International Paper permanently shut down a
paper machine and related equipment with a net book value of $13 million.
These assets were written down to their estimated fair market value of
zero. The severance charge associated with the employee reductions at the
3 mills was $14 million. At December 31, 1999, all employees under this
program had been terminated.
(c) This charge primarily consists of a $15 million asset write-down
associated with the closure of two Carter Holt Harvey facilities,
Myrtleford and Taupo. Myrtleford, a tissue pulp mill located in Australia,
was closed due to excess capacity in its tissue pulp system. Carter Holt
Harvey will be able to produce the volume at lower costs at its Kawerau
tissue pulp mill located in New Zealand. Carter Holt Harvey also decided
to close the Taupo, New Zealand sawmill due to excess capacity in its
sawmill system as the result of recent productivity improvements. The $3
million severance charge represents the cost for terminating 236
employees. At December 31, 1999, all of the 236 employees had been
terminated. Our consolidated financial statements included revenues of $21
million and $36 million and operating income of $1 million and $3 million
from these facilities in 1998 and 1997, respectively.
(d) Management decided to close the Gardiner, Oregon mill because of excess
capacity in International Paper's containerboard system. As a result, the
net plant, property and equipment assets of this mill were reduced from
$13 million to the estimated salvage value of $5 million. In connection
with the third-quarter decision to close this mill, 298 employees at the
mill were terminated and a $7 million severance charge was recorded. This
mill had revenues of $78 million and $105 million and operating losses of
$16 million and $1 million in 1998 and 1997, respectively.
(e) During 1998 Union Camp recorded a pre-tax special
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
charge of $40 million. Included in the charge was $32 million related to
the termination of 540 positions and $8 million of asset write-downs.
Approximately 190 positions were related to a reorganization and
restructuring of Union Camp's research and development activities. Another
190 positions were related to a consolidation of the packaging group's
administrative support functions and the remaining 160 positions were to
be eliminated through a series of other organizational changes. At
December 31, 1999, all of the 540 employees had been terminated.
The asset write-downs were principally attributable to the
impairment of goodwill specific to two packaging businesses, the Chase
packaging facility and Union Camp's 1996 purchase of a 50% interest in a
packaging plant in Turkey. Upon reviewing the historical and projected
operating results for these businesses, management concluded that expected
future cash flows did not fully support the carrying value of these
assets.
(f) The $15 million severance charge was recorded as a result of an
announcement by International Paper of a plan to consolidate its land and
timber and logging and fiber supply divisions into a new division called
Forest Resources and the consolidation of the Consumer Packaging group. Of
the $15 million charge, $10 million related to a headcount reduction of
200 employees in the Forest Resources group and the remaining $5 million
was based on a personnel reduction of 210 employees in the Consumer
Packaging group. At December 31, 1999, all of the 410 employees had been
terminated.
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
1998 Activity
Cash charges (19)
1999 Activity
Cash charges (56)
Reserve reversal (6)
----
Balance, December 31, 1999 $ 0
====
The severance reserve recorded in the 1998 third quarter related to 2,508
employees. As of December 31, 1999, all employees had been terminated.
1997
----------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
In millions Interest Interest
- ------------------------------------------- ------------- ------------
Before special items $ 783 $ 381
Provision for legal reserve (150) (93)
Restructuring and other charges (660) (465)
Gain on sale of business 170 97
----- -----
After special items $ 143 $ (80)
===== =====
In June 1997, a $535 million pre-tax business improvement charge ($385
million after taxes) was recorded under a plan to improve our financial
performance through closing or divesting of operations that no longer met
financial or strategic objectives. It 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. At this point, the anticipated
pre-tax earnings improvement of $100 million from the 1997 restructuring actions
has been largely realized. The earnings improvement consists of $25 million of
lower depreciation expense and $75 million of lower cash costs.
The $230 million write-down of assets that International Paper recorded in
the second quarter of 1997 consisted primarily of write-downs associated with
assets to be sold or shut down as follows (in millions):
Shutdown of European Papers facilities (a) $ 105
Shutdown of U.S. Papers and Fine Papers facilities (b) 101
Write-off of Haig Point real estate development (c) 13
Other shutdowns 11
------
$ 230
======
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(a) In the second quarter of 1997, management committed to sell the Lancey,
France mill to an employee group. We wrote down the net carrying amount of
the mill at June 30, 1997 by $65 million and established a reserve of $30
million to cover a retained exposure. This remaining exposure was resolved
in 1999. The sale closed in October 1997. Lancey had revenues of $52
million and an operating loss of $7 million in 1997. The Corimex, France
mill produced coated thermal fax paper, which is a market that weakened in
the mid-1990's. During the second quarter of 1997, management concluded
that it would continue to operate this mill but that the assets were
impaired. Based on an analysis of expected future cash flows completed in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," we reduced the carrying value of the Corimex
mill from $12 million to $2 million, resulting in a $10 million charge.
The Corimex mill was shut down in April 1999. Charges related to the
shutdown are included in the 1999 special charge. Corimex had operating
losses of $4 million in 1998 and $2 million in 1997.
(b) The $101 million reserve related to the restructuring of the Fine Papers
manufacturing operations in the Northeast ($51 million) and the shutdown
of the deinking facility at the Lock Haven, Pennsylvania mill ($50
million). The restructuring of the Fine Papers operations included the
shutdown of the Woronoco, Massachusetts paper mill and 3 small paper
machines at the Erie, Pennsylvania mill. In the 1997 second quarter, we
decided to close the deinking facility. Given that each of these actions
represented the permanent shutdown of equipment or facilities,
International Paper wrote down the net carrying amount of the assets to
zero. The Woronoco, Massachusetts mill had revenues of $46 million and
operating earnings of $5 million in 1997.
(c) We are the developer of a residential golf community named Haig Point at
Daufuskie Island, South Carolina. As the developer, International Paper
was responsible for operating this community until a specified number of
lots were sold, at which time we would turn the community over to the
homeowners. The net book value of our investment in Haig Point was $13
million at June 30, 1997. Given continuing operating losses, $5 million in
1997 and an updated marketing study, we concluded that the investment was
permanently impaired and wrote it down to zero. Operating losses of $1
million and $500,000 were recorded in 1999 and 1998, respectively.
The $210 million for the estimated losses on sales of businesses related
to the following (in millions):
Imaging (a) $ 150
Veratec (b) 25
Decorative Products (c) 20
Label (d) 15
------
$ 210
======
(a) We decided to sell our Imaging businesses in the second quarter of 1997.
Based on discussions with our investment banker and meetings with
potential buyers, International Paper believed that the most likely
outcome was to realize approximately $325 million. A reserve of $150
million was established, which represented the estimated loss on the sale.
We expected to complete the sale of the Imaging businesses within one
year. The Imaging businesses had revenues of $690 million and operating
earnings of $9 million in 1997.
(b) The Veratec division had developed a business that was based on an
interspun technology for treating fabrics. The net carrying value of this
business was $25 million at June 30, 1997. In June 1997, we decided to
shut down this business and recorded a reserve of $25 million. Prior to
the shutdown, this business had revenues of $2 million and an operating
loss of $7 million in 1997.
(c) In the second quarter of 1997, management decided to sell the
medium-density fiberboard, low-pressure laminates and particleboard
businesses. We estimated the expected sales prices for each of these
businesses and recorded a reserve of $20 million to reduce the net
carrying amounts to these levels. We expected to complete the sales of
these businesses within one year. These businesses had revenues of $196
million and operating losses of $1 million in 1997.
(d) In the second quarter of 1997, management committed to a plan to sell the
label business. The estimated total loss on the label business sale
included in the second-quarter 1997 restructuring charge was $15 million.
The label business
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
was sold in May of 1998. The label business had revenues of $24 million
and an operating loss of $2 million in 1997.
The $95 million of severance and other expenses consists of the following
(in millions):
Severance (a) $ 42
Write-off of deferred software costs (b) 18
Lease buyouts at warehouses (c) 9
Write-off of deinking process license (d) 4
Other exit costs (e) 22
-----
$ 95
=====
(a) The $42 million severance charge relates to programs initiated and
approved in the 1997 second quarter in the Printing and Communications
Papers, Industrial and Consumer Packaging segments and corporate staff
groups to reduce headcount by 3,015 employees under our existing ongoing
severance plans. We recorded the charge in the second quarter as (1)
management had committed to the plan of termination, (2) the benefit
arrangement had been communicated to the employees, (3) the number of
employees, their functions and locations had been identified, and (4) all
terminations were to be completed in approximately one year. As of
December 31, 1999, all employees had been terminated under these programs.
(b) The $18 million charge for the write-off of deferred software costs
relates to two items as follows: (1) during the 1997 second quarter, a
human resources software project, for which $11 million of deferred
software costs had been recorded, was cancelled and (2) as a result of the
decision to sell certain businesses in the second quarter of 1997, we
decided to terminate enterprise software projects in these businesses, for
which we had recorded $7 million of deferred software costs.
(c) The $9 million charge represents the cost to buy out obligations under
existing warehouse leases. A decision to close these warehouses was made
in the second quarter of 1997.
(d) The $4 million charge represents the write-off of the net carrying value
of the deinking process license that had been acquired from a third party.
International Paper permanently shut down this operation in the 1997
second quarter. Accordingly, we wrote the license down to zero.
(e) The charge of $22 million relates to other exit costs.
In December 1997, an additional pre-tax charge of $125 million ($80
million after taxes) was recorded for anticipated losses associated with the
sale of the remaining Imaging businesses. Such amount was determined after
consideration of the sales of certain of the Imaging businesses that had been
completed and the estimated proceeds from the businesses remaining to be sold.
The remaining Imaging businesses were sold in 1998.
Also included in the 1997 special items was a $150 million provision to
increase our legal reserves as a result of a settlement by Masonite Corporation,
a wholly-owned subsidiary, of a class-action lawsuit relating to its hardboard
siding product. A more detailed discussion of this legal settlement is included
in Note 11. to the financial statements.
The following table is a roll forward of the severance and other costs
included in the 1997 restructuring plan (in millions):
Severance
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 (9)
------
Balance, December 31, 1999 $ 0
======
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
ONGOING PROFIT IMPROVEMENT REVIEW
International Paper continually evaluates its operations for improvement.
When any such plans are finalized, we may incur costs or charges in future
periods related to improvement plans when and if such plans are implemented.
INCOME TAXES
Before special items, the 1999 effective income tax rate was 28% of
pre-tax earnings, increasing from 26% in 1998 and decreasing from 34% in 1997.
The effective income tax rates are below the U.S. statutory tax rate primarily
because of the geographic mix of overall taxable earnings and the impact of
state tax and other credits, both of which were more pronounced in 1999 and 1998
than in 1997. After special items, the effective income tax rate was 19%, 22%
and 58% for 1999, 1998 and 1997, respectively. We estimate that the 2000
effective income tax rate will be approximately 31% based on expected earnings
and business conditions, which are subject to change.
The following tables present the impact of the special items on the
effective income tax rate for the three years. Taxes on special charges were
provided at statutory rates except for those charges that represent tax
deductions that management does not believe will be realized.
1999
--------------------------------------
Earnings (Loss)
Before Income
Income Taxes Tax Effective
and Minority Provision Tax
In millions Interest (Benefit) Rate
- -------------------------------------- --------------- --------- ---------
Before special and extraordinary items $1,005 $ 281 28%
Union Camp merger-related
termination benefits (148) (51) 34%
One-time merger expenses (107) (29) 27%
Restructuring and other charges (298) (108) 36%
Environmental remediation charge (10) (4) 40%
Provision for legal reserves (30) (12) 40%
Reversal of reserves no longer
required 36 9 25%
------ -----
After special items $ 448 $ 86 19%
====== =====
1998
--------------------------------------
Earnings (Loss)
Before Income
Income Taxes Tax Effective
and Minority Provision Tax
In millions Interest (Benefit) Rate
- -------------------------------------- --------------- --------- ---------
Before special items $ 598 $ 158 26%
Oil and gas impairment charges (111) (43) 39%
Restructuring and other charges (161) (61) 38%
Gain on sale of business 20 8 40%
Reversals of reserves no longer
required 83 33 40%
------ -----
After special items $ 429 $ 95 22%
====== =====
1997
--------------------------------------
Earnings (Loss)
Before Income
Income Taxes Tax Effective
and Minority Provision Tax
In millions Interest (Benefit) Rate
- -------------------------------------- --------------- --------- ---------
Before special items $ 783 $ 268 34%
Provision for legal reserve (150) (57) 38%
Restructuring and other charges (660) (195) 30%
Gain on sale of business 170 67 39%
------ -----
After special items $ 143 $ 83 58%
====== =====
RECENT ACCOUNTING DEVELOPMENTS
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
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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).
We have not quantified the impact of adopting the Statement on our
consolidated financial statements nor have we 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.
LEGAL AND ENVIRONMENTAL ISSUES
International Paper operates in an industry subject to extensive federal
and state environmental regulation. Controlling pollutants discharged into the
air, water and groundwater to avoid adverse impacts on the environment, making
continual improvements in environmental performance, and maintaining 100%
compliance with applicable laws and regulations are continuing requirements of
International Paper. A total of $90 million was spent in 1999 for capital
projects to control environmental releases into the air and water and to assure
environmentally sound management and disposal of waste. We expect to spend
approximately $257 million in 2000 for similar capital projects, including the
costs to comply with the Environmental Protection Agency's (EPA) Cluster Rule
regulations. Amounts to be spent for environmental control projects in future
years will depend on new laws and regulations and changes in legal requirements
and environmental concerns. Taking these uncertainties into account, our
preliminary estimate for 2001 and 2002 is approximately $157 million in total.
On April 15, 1998, the EPA issued final Cluster Rule regulations that
established new requirements regarding air emissions and wastewater discharges
from pulp and paper mills to be met between now and 2006. One of the
requirements of the Cluster Rule is that pulp and paper mills use only elemental
chlorine-free (ECF) technology in the pulp bleaching process. We have spent $247
million through 1999 to convert 15 of our U.S. and European bleached mills to
this technology and for certain other projects related to the Cluster Rule
regulations. The projected costs included in our estimate related to the Cluster
Rule regulations for the years 2000 through 2001 are $229 million. Projected
Cluster Rule costs for 2002 through 2006 are in the range of $150 million to
$195 million. The final cost depends on the outcome of the Cluster Rule water
regulations for pulp and paper categories other than bleached kraft and soda.
Regulations for these categories are not likely to become final until late 2000
or 2001. We estimate that annual operating costs, excluding depreciation, will
increase approximately $20 million when these regulations are fully implemented.
International Paper has been named as a potentially liable party in a
number of environmental remediation actions under various federal and state
laws, including the Comprehensive Environmental Response, Compensation and
Liability Act. Related costs are recorded in the financial statements when they
are probable and reasonably estimable. Completion of these actions is not
expected to have a material adverse effect on our financial condition or results
of operations.
Masonite Litigation
Three nationwide class action lawsuits filed against International Paper
have been settled. The first suit alleged that hardboard siding manufactured by
Masonite fails prematurely, allowing moisture intrusion that in turn causes
damage to the structure underneath the siding. The class consisted of all U.S.
property owners having Masonite hardboard siding installed on and incorporated
into buildings between 1980 and January 15, 1998. Final approval of the
settlement was granted by the Court on January 15, 1998. The settlement provides
for monetary compensation to class members meeting the settlement requirements
on a claims-made basis. It also provides for the payment of attorneys' fees
equaling 15% of the settlement amounts paid to class members, with a
nonrefundable advance of $47.5 million plus $2.5 million in costs.
The second suit made similar allegations with regard to Omniwood siding
manufactured by Masonite (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
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 13% of
the settlement amounts paid to class members with a nonrefundable advance of
$1.7 million plus $75,000 in costs for each of the two cases.
Our reserves for these matters total $76 million at December 31, 1999.
This amount includes $25 million which we added to our reserve for hardboard
siding claims in the fourth quarter of 1999, to cover an expected shortfall in
that reserve resulting primarily from a higher number of hardboard siding claims
in the fourth quarter of 1999 than we had anticipated. It is reasonably possible
that the higher number of hardboard siding claims might be indicative of the
need for one or more future additions to this reserve. However, whether or not
any future additions to this reserve become necessary, International Paper
believes that these settlements will not have a material adverse effect on our
consolidated financial position or results of operations. The reserve balance is
net of $51 million of expected insurance recoveries (apart from the insurance
recoveries to date). Through December 31, 1999, settlement payments of $183
million, including the $51 million of nonrefundable advances of attorney's fees
discussed above, have been made. Also, we have received $27 million from our
insurance carriers through December 31, 1999. International Paper 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 have been consolidated in federal court in the Eastern District of
Pennsylvania. Motions to dismiss the cases are pending before the Court.
COPEC
International Paper's majority-owned subsidiary, Carter Holt Harvey, had
an indirect shareholding of 30.05% in Chile's largest industrial company, COPEC,
through Carter Holt Harvey's subsidiary, Carter Holt Harvey International. This
shareholding was held through Carter Holt Harvey International's 50% interest in
Inversiones y Desarrollo Los Andes S.A. ("Los Andes"), which held 60.1% of the
shares of COPEC. The other 50% of Los Andes was owned by Inversiones Socoroma
S.A. ("Socoroma"), a Chilean investment company. In late 1993, Carter Holt
Harvey International commenced several actions in Chilean courts challenging
certain corporate governance documents of Los Andes, as well as agreements
between Carter Holt Harvey and Socoroma. All of those actions have now been
terminated. In December 1994, Socoroma commenced an arbitration action seeking
to expel Carter Holt Harvey International from Los Andes. In April 1998, the
arbitrator dismissed Socoroma's request, but granted it the right to claim
monetary damages for what he found was Carter Holt Harvey International's breach
of certain of its obligations as a participant in the Los Andes joint venture.
All of the foregoing litigation has been settled. As part of the settlement, on
January 3, 2000, AntarChile, S.A. purchased Carter Holt Harvey's interest in
COPEC for just over $1.2 billion.
Other Litigation
In April 1999, the Franklin, Virginia mill received a Notice of Violation
("NOV") from the U.S. Environmental Protection Agency ("EPA"), Region 3 in
Philadelphia, and an NOV from the Commonwealth of Virginia alleging that the
mill violated the Prevention of Significant Deterioration ("PSD") regulations.
The Franklin mill was owned by Union Camp Corporation at that time and was one
of seven paper mills in Region 3 owned by different companies which received
similar notices of violation. Union Camp merged with International Paper on
April 30, 1999, and International Paper has entered into negotiations with the
EPA and the Commonwealth of Virginia.
The Franklin mill NOVs were issued in connection with the EPA's well
publicized PSD air permit enforcement initiative against the paper industry. In
1999, our paper mills in Kaukauna, Wisconsin and Augusta, Georgia received
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
requests for information from the EPA regarding compliance with the PSD
regulations. The EPA's initiative may result in similar actions at other
facilities.
On August 5, 1999, International Paper and the New York Department of
Environmental Conservation entered into a consent order which resolved several
alleged air permit violations at our paper mill in Ticonderoga, New York, for a
civil penalty of $100,000.
In August 1998, the former Union Camp Corporation informed the Virginia
Department of Environmental Quality ("DEQ") of certain New Source Performance
Standards ("NSPS") permitting discrepancies related to a power boiler at the
paper mill in Franklin, Virginia. On August 11, 1999, the DEQ proposed a consent
order with a civil penalty exceeding $100,000. Terms of the consent order,
including the penalty, are being negotiated with the DEQ.
In November 1999, the Wisconsin Department of Natural Resources filed a
civil complaint alleging past exceedences of air permit limits at the former
Union Camp flexible packaging facility located in Tomah, Wisconsin. The
complaint seeks penalties that could exceed $100,000. International Paper is
engaged in settlement discussions with the state.
We are also involved in other contractual disputes, administrative and
legal proceedings and investigations of various types. While any litigation,
proceeding or investigation has an element of uncertainty, we believe that the
outcome of any proceeding, lawsuit or claim that is pending or threatened, or
all of them combined, will not have a material adverse effect on our
consolidated financial position or results of operations.
IMPACT OF EURO
The introduction of the euro for noncash transactions took place on
January 1, 1999, with 11 countries participating in the first wave: Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands,
Portugal and Spain. There has been an irrevocable locking of exchange rates
between each of the participating countries' national currencies and the new
euro currency, which became a currency in its own right. The euro has begun
trading on world currency exchanges and may be used in business transactions. On
January 2, 2002, new euro-denominated bills and coins will be issued and legacy
currencies will be completely withdrawn from circulation that year. In general,
the euro is expected to increase price transparency for our products in Europe.
The major impact to International Paper will be to its businesses within the
euro zone, which make up approximately 10% of sales. Each of our European
businesses has a plan in place to deal with the introduction of the euro.
Over the three year transition period, our computer systems will be
updated to ensure euro compliance. Also, we are reviewing our marketing and
operational policies and procedures to ensure our ability to continue to
successfully conduct all aspects of our business in this new market. In general,
our product lines are likely to become somewhat more international, with some
leveling of prices that is not expected to significantly impact our operations.
We anticipate that the total costs in connection with the euro conversion will
not be material. Further, we do not anticipate that the conversion from the
legacy currencies to the euro will have a material adverse effect on our
consolidated financial position or results of operations.
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 not experienced any significant issues associated with the Year
2000 and to our knowledge and belief are not aware of any incidents which may
have affected the safety of our employees or the environment, customer service
or production. Our locations worldwide are operating normally and according to
schedule. Although some problems were noted, they were quickly corrected and
were insignificant.
We completed the necessary testing, remediation and final action plans at
our facilities, including the facilities acquired in our merger with Union Camp,
in an effort to ensure that we entered the Year 2000 without a material
disruption to our customers. The program covered information systems
infrastructure, financial and administrative systems, process control and
manufacturing operating systems. It also included readiness assessment of
significant vendors and customers, as well as a contingency and continuing
compliance plan. The Year 2000 Program Office, a centralized department which
coordinated Year 2000 efforts throughout International Paper, is in the process
of disbanding.
We adopted a 9-step process toward Year 2000 readiness: (1) planning and
awareness; (2) inventory; (3) triage (assess risks and prioritize efforts); (4)
detailed assessment (identification of where failures may occur, solutions and
workarounds, and plans to repair or replace); (5) resolution (repair, replace or
retire systems that cannot properly process Year 2000
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 were completed.
We rely on third-party suppliers for raw materials, water, utilities,
transportation and other key services. We are also dependent upon our customers
for sales and cash flow. An ongoing program was instituted to evaluate the
status of our suppliers' and customers' efforts and to determine alternatives
and contingency plan requirements. This program included both written
correspondence and on-site visits to assess their readiness. We received
assurances from our key suppliers and customers that they would be able to
handle the transition to the Year 2000. We believe that no individual supplier
or customer is material to our total business.
The incremental Year 2000-related costs were $85 million which was well
within our estimated range of $90 million plus or minus 10%. This cost excludes
software and systems that are being replaced or upgraded in the normal course of
business. The majority of these costs related to production facility systems. We
utilized internal personnel, contract programmers and vendors to complete the
project.
EFFECT OF INFLATION
General inflation has had minimal impact on our operating results in the
last three years. Sales prices and volumes are more strongly influenced by
supply and demand factors in specific markets and by exchange rate fluctuations
than by inflationary factors.
MARKET RISK
We use financial instruments, including fixed and variable rate debt, to
finance operations, for capital spending programs and for general corporate
purposes. Additionally, financial instruments, including swap and forward
contracts, are used to hedge exposures to interest rate and foreign currency
risks. We do not use financial instruments for trading purposes.
Our exposure to market risk for changes in interest rates relates
primarily to investments in marketable securities, and short- and long-term debt
obligations. We invest in high-credit-quality securities with major
international financial institutions while limiting exposure to any one issuer.
Our debt obligations outstanding as of December 31, 1999, expressed in U.S.
dollar equivalents, are summarized as to their principal cash flows and related
weighted average interest rates by year of maturity in the following table. Our
investments in marketable securities at December 31, 1999 were not significant.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Short- and Long-Term Debt (in millions)
<TABLE>
<CAPTION>
Outstanding as of December 31, 1999 2000 2001 2002 2003 2004
- ---------------------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. commercial paper and
bank notes - 6.6% average interest rate $ 307
New Zealand dollar commercial
paper and bank notes - 5.6% average interest rate 436
Australian dollar commercial
paper and bank notes - 5.7% average interest rate 271
Chinese renminbi bank notes -
6.5% average interest rate 19
Euro bank notes - 3.3% average interest rate 133
New Zealand dollar notes
payable - 6.2% average interest rate 510
Fixed rate debt - 7.9% average interest rate 373 $ 289 $ 389 $ 239 $ 688
5 7/8% Swiss franc debentures 68
Medium-term notes - 8.3% average interest rate 24 145 80 30 9
Environmental and industrial
development bonds - 6.1% average interest rate 34 24 75 6 34
German mark fixed rate
borrowings - 4.7% average interest rate 24 41 40 20 7
Euro fixed rate borrowings -
5 3/8% average interest rate
Other 114 46 56 5 6
------ ----- ----- ----- -----
Total Debt $2,245 $ 613 $ 640 $ 300 $ 744
====== ===== ===== ===== =====
<CAPTION>
Outstanding as of December 31, 1999 Thereafter Total Fair Value
- ---------------------------------------------------- ---------- ----- ----------
<S> <C> <C> <C>
U.S. commercial paper and
bank notes - 6.6% average interest rate $ 307 $ 307
New Zealand dollar commercial
paper and bank notes - 5.6% average interest rate 436 436
Australian dollar commercial
paper and bank notes - 5.7% average interest rate 271 271
Chinese renminbi bank notes -
6.5% average interest rate 19 19
Euro bank notes - 3.3% average interest rate 133 133
New Zealand dollar notes
payable - 6.2% average interest rate 510 510
Fixed rate debt - 7.9% average interest rate $ 2,316 4,294 4,336
5 7/8% Swiss franc debentures 68 70
Medium-term notes - 8.3% average interest rate 43 331 336
Environmental and industrial
development bonds - 6.1% average interest rate 1,179 1,352 1,350
German mark fixed rate
borrowings - 4.7% average interest rate 132 132
Euro fixed rate borrowings -
5 3/8% average interest rate 249 249 244
Other 111 338 340
------- ------- -------
Total Debt $ 3,898 $ 8,440 $ 8,484
======= ======= =======
</TABLE>
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by year of maturity. Variable interest rates
disclosed represent the weighted average rates at the end of the period. For
financial statement classification, $1.5 billion of short-term debt has been
classified as long-term pursuant to line of credit agreements.
We use cross-currency and interest rate swap agreements to manage the
composition of our fixed and floating rate debt portfolio. Amounts to be paid or
received as interest under these agreements are recognized over the life of the
swap agreements as adjustments to interest expense. The impact on earnings and
our net liability under these agreements was not significant. Our cross-currency
and interest rate swap agreements outstanding at December 31, 1999, expressed in
U.S. dollar equivalents, by year of maturity, are presented in the following
table.
Interest Rate and Currency Swaps (in millions)
<TABLE>
<CAPTION>
Outstanding as of December 31, 1999 2000 2001 2002 2003 2004 Thereafter Total Fair Value
- ----------------------------------------------------- ---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. dollar variable to fixed rate swaps $45 $200 $300 $500 $1,045 $16
Average pay rate 7.3%
Average receive rate 6.1%
Australian dollar variable to fixed rate swaps $48 $48 16 48 16 176 2
Average pay rate 6.0%
Average receive rate 5.4%
New Zealand dollar variable to fixed rate swaps 23 26 52 26 13 140 2
Average pay rate 6.8%
Average receive rate 5.4%
U.S. dollar fixed to variable rate swaps 45 200 550 500 1,295 (25)
Average pay rate 7.4%
Average receive rate 6.6%
U.S. dollar to Australian dollar cross-currency swap 150 150 (4)
Swiss franc to New Zealand dollar cross-currency swaps 75 75 (8)
</TABLE>
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
We also transact business in many currencies and are subject to currency
exchange rate risk. We address this risk through a risk management program that
involves financing a portion of our investments in overseas operations with
borrowings denominated in the same currency as the investment or by entering
into currency exchange contracts in tandem with U.S. dollar borrowings. These
contracts are effective in providing hedges against fluctuations in currency
exchange rates. Additionally, we utilize currency exchange contracts to hedge
certain transactions that are denominated in foreign currencies, primarily
export sales and equipment purchased from nonresident vendors. These contracts
serve to protect us from currency fluctuations between the transaction and
settlement dates.
The following table presents information about our foreign currency
forward contracts outstanding as of December 31, 1999, expressed in U.S. dollar
equivalents. The majority of the contracts have maturities of less than 12
months. This information should be read in conjunction with Note 14. to the
consolidated financial statements which can be found on pages 52 and 53.
Foreign Currency Forward Contracts
(U.S. dollars in millions)
<TABLE>
<CAPTION>
Weighted Net
Average Unrealized
Contract Exchange Gain
Outstanding as of December 31, 1999 Amount Rate (Loss)
- ---------------------------------------------------- -------- -------- ----------
<S> <C> <C> <C>
Receive Australian dollars / Pay New Zealand dollars $ 20 0.79 $(1)
Receive German marks / Pay British pounds 40 3.00 (3)
Receive European euros / Pay U.S. dollars 1,063 0.95 52
Receive European euros / Pay British pounds 65 1.58 (1)
Receive British pounds / Pay U.S. dollars 107 0.62
Receive British pounds / Pay European euros 21 0.63
Receive New Zealand dollars / Pay Australian dollars 117 1.23 (5)
Receive New Zealand dollars / Pay U.S. dollars 499 1.94 10
Receive Swedish kronas / Pay U.S. dollars 34 8.09 2
Receive U.S. dollars / Pay European euros 56 1.07
Receive U.S. dollars / Pay British pounds 20 1.61
Receive U.S. dollars / Pay New Zealand dollars 26 0.56 3
</TABLE>
We have an additional $71 million in a number of smaller contracts to
purchase or sell other currencies with a related net unrealized immaterial gain.
VALUE AT RISK
Value at risk is used to describe an approach for measuring market risk
exposure that utilizes statistical models that are based on historical price and
volatility patterns to estimate the probability of the value of a financial
instrument falling above or below a specified amount at a specified confidence
level and over a given time period. Our analysis uses variance-covariance
statistical modeling techniques and includes substantially all interest
rate-sensitive debt and swaps, and currency exchange contracts. The model
estimates the potential loss in fair market value or earnings we could incur
from adverse changes in interest rates or currency exchange rates. We believe
that any loss incurred would be substantially offset by the effects of interest
rate or currency exchange movements on the respective underlying hedged
transactions. The results of our analysis at a 95% confidence level were not
significant to our consolidated common shareholders' equity, earnings or daily
change in market capitalization.
FORWARD-LOOKING STATEMENTS
Certain statements in this 1999 Annual Report to Shareholders that are not
historical in nature may constitute forward-looking statements. These statements
are often identified by the words, "believe," "expect," "plan," "project,"
"intend," and words of similar import. Such statements reflect the current views
of International Paper with respect to future events and are subject to risks
and uncertainties. Actual results may differ materially from those expressed or
implied in these statements. Factors which could cause actual results to differ
include, among other things, changes in overall demand, changes in domestic or
foreign competition, changes in the cost or availability of raw materials, the
cost of compliance with environmental laws and regulations, and whether
anticipated savings from merger and other restructuring activities can be
achieved. In view of such uncertainties, investors are cautioned not to place
undue reliance on these forward-looking statements. International Paper does not
assume any obligation to update these forward-looking statements.
29
<PAGE>
FINANCIAL INFORMATION BY INDUSTRY SEGMENT
AND GEOGRAPHIC AREA
INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
For information about our industry segments, see the "Description of Industry
Segments" included in management's discussion and analysis of financial
condition and results of operations. The segment and geographic area information
has been restated to include Union Camp for all years presented.
For management purposes, we report the operating performance of each
business based on earnings before interest and income taxes ("EBIT") excluding
special and extraordinary items and gains or losses on sales of businesses. Our
Carter Holt Harvey segment includes our share, about half, of Carter Holt
Harvey's operating earnings adjusted for U.S. generally accepted accounting
principles. The remaining half is included in the minority interest adjustment.
Intersegment sales and transfers are recorded at current market prices.
Corporate sales include the Imaging and Veratec businesses that were sold in
1998 and 1997. Corporate operating profit also includes these businesses as well
as corporate expenses. Corporate assets include these businesses for the
applicable years in addition to other assets not allocated to our segments.
Sales for these businesses were $220 million in 1998 and $938 million in 1997.
These businesses recorded an operating loss of $2 million in 1998 and operating
profits of $27 million in 1997.
External Sales by Major Product is determined by aggregating sales from
each segment based on similar products or services. External sales are defined
as those that are made to parties outside International Paper's consolidated
group whereas sales by segment in the Net Sales table are determined by the
management approach and include intersegment sales.
Capital Spending by Industry Segment is reported on page 13 of
management's discussion and analysis of financial condition and results of
operations.
FINANCIAL INFORMATION BY INDUSTRY SEGMENT
NET SALES
In millions 1999 1998 1997
- ------------------------------------------ -------- -------- --------
Printing and Communications Papers $ 5,930 $ 5,915 $ 6,415
Industrial and Consumer Packaging 7,050 7,010 6,785
Distribution 6,850 6,280 5,250
Chemicals and Petroleum 1,455 1,465 1,585
Forest Products 3,205 2,930 3,025
Carter Holt Harvey 1,605 1,505 1,955
Corporate and Intersegment
Sales (1) (1,522) (1,126) (459)
-------- -------- --------
Net Sales $ 24,573 $ 23,979 $ 24,556
======== ======== ========
ASSETS
In millions 1999 1998 1997
- ------------------------------------------ -------- -------- --------
Printing and Communications Papers $ 7,929 $ 8,213 $ 8,458
Industrial and Consumer Packaging 7,316 7,389 6,823
Distribution 1,893 1,903 1,370
Chemicals and Petroleum 1,531 1,614 2,033
Forest Products 3,819 3,644 3,845
Carter Holt Harvey (2) 4,183 4,475 4,953
Corporate (1) 3,597 4,228 4,489
-------- -------- --------
Assets $ 30,268 $ 31,466 $ 31,971
======== ======== ========
OPERATING PROFIT
In millions 1999 1998 1997
- ------------------------------------------ -------- -------- --------
Printing and Communications Papers $ 255 $ 180 $ 245
Industrial and Consumer Packaging 560 335 260
Distribution 105 85 90
Chemicals and Petroleum 125 135 180
Forest Products 725 620 615
Carter Holt Harvey (3) 40 20 90
-------- -------- --------
Operating Profit 1,810 1,375 1,480
Interest expense, net (541) (614) (607)
Minority interest adjustment (3) 74 57 165
Corporate items, net (1) (338) (220) (255)
Merger integration costs (255)
Environmental remediation charge (10)
Provision for legal reserves (30) (150)
Restructuring and other charges (298) (145) (660)
Oil and gas impairment charges (111)
Scitex restructuring and
other charges (16)
Reversals of reserves no longer
required 36 83
Gains on sales of businesses 20 170
Earnings Before Income Taxes, Minority -------- -------- --------
Interest and Extraordinary Item $ 448 $ 429 $ 143
======== ======== ========
30
<PAGE>
FINANCIAL INFORMATION BY INDUSTRY SEGMENT
AND GEOGRAPHIC AREA
RESTRUCTURING AND OTHER CHARGES
In millions 1999 1998 1997
- ------------------------------------------ -------- -------- --------
Printing and Communications Papers $ 55 $ 32 $ 186
Industrial and Consumer Packaging 114 46 48
Distribution 23 31 16
Chemicals and Petroleum 63 4 29
Forest Products 16 14 66
Carter Holt Harvey 27 18
Corporate 315
-------- -------- --------
Restructuring and Other Charges $ 298 $ 145 $ 660
======== ======== ========
DEPRECIATION, DEPLETION AND AMORTIZATION
In millions 1999 1998 1997
- ------------------------------------------ -------- -------- --------
Printing and Communications Papers $ 556 $ 535 $ 577
Industrial and Consumer Packaging 466 447 459
Distribution 32 25 22
Chemicals and Petroleum 99 106 109
Forest Products 196 218 217
Carter Holt Harvey 201 193 202
Corporate 115 136 152
-------- -------- --------
Depreciation, Depletion and Amortization 1,665 1,660 1,738
Less: Depletion (4) 145 166 168
-------- -------- --------
Depreciation and Amortization $ 1,520 $ 1,494 $ 1,570
======== ======== ========
EXTERNAL SALES BY MAJOR PRODUCT
In millions 1999 1998 1997
- ------------------------------------------ -------- -------- --------
Printing Papers $ 5,069 $ 5,475 $ 6,015
Packaging 7,361 7,360 7,115
Distribution 6,926 6,235 5,165
Chemicals and Petroleum 1,458 1,230 1,320
Forest Products 3,759 3,430 3,850
Corporate Sales (1) 249 1,091
-------- -------- --------
Net Sales $ 24,573 $ 23,979 $ 24,556
======== ======== ========
(1) Includes results or assets, as applicable, from operations that were
disposed of in 1998 and 1997.
(2) Includes an equity investment (in millions) of $876 in 1999, $956 in 1998
and $974 in 1997.
(3) Includes equity earnings (in millions) of $54 in 1999, $20 in 1998 and $65
in 1997. Half of these equity earnings amounts are in the Carter Holt
Harvey segment and half are in the minority interest adjustment.
(4) Depletion consists of Cost of Timber Harvested and is included in the
Forest Products and Carter Holt Harvey segments.
FINANCIAL INFORMATION BY GEOGRAPHIC AREA
NET SALES (1)
In millions 1999 1998 1997
- ------------------------------------------ ------- ------- -------
United States (2) $19,152 $18,682 $18,317
Europe 3,257 3,251 3,680
Pacific Rim (3) 1,865 1,731 2,217
Other 299 315 342
------- ------- -------
Net Sales $24,573 $23,979 $24,556
======= ======= =======
EUROPEAN SALES BY INDUSTRY SEGMENT
In millions 1999 1998 1997
- ------------------------------------------ ------- ------- -------
Printing and Communications Papers $ 1,514 $ 1,423 $ 1,675
Industrial and Consumer Packaging 750 772 765
Distribution 347 323 232
Chemicals and Petroleum 446 465 494
Forest Products 200 208 119
Other Businesses 60 395
------- ------- -------
European Sales $ 3,257 $ 3,251 $ 3,680
======= ======= =======
LONG-LIVED ASSETS (4)
In millions 1999 1998 1997
- ------------------------------------------ ------- ------- -------
United States $12,325 $13,149 $13,308
Europe 1,888 2,101 2,057
Pacific Rim (3) 2,625 2,793 3,048
Other 77 74 131
Corporate 387 296 436
------- ------- -------
Long-Lived Assets $17,302 $18,413 $18,980
======= ======= =======
(1) Revenues are attributed to countries based on location of seller.
(2) Export sales to unaffiliated customers (in billions) were $1.5 in 1999 and
1998 and $1.8 in 1997.
(3) Operations in New Zealand and Australia account for most of the Pacific
Rim amounts.
(4) Long-Lived Assets includes Forestlands and Plants, Properties and
Equipment, Net.
31
<PAGE>
REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS
The management of International Paper Company is responsible for the fair
presentation of the information contained in the financial statements in this
annual report. The statements are prepared in accordance with U.S. generally
accepted accounting principles and reflect management's best judgment as to our
financial position, results of operations and cash flows.
International Paper maintains a system of internal accounting controls
designed to provide reasonable assurance that transactions are properly recorded
and summarized so that reliable financial records and reports can be prepared
and assets safeguarded.
An important part of the internal controls system is our ethics program:
including our long-standing policy on Ethical Business Conduct, which requires
employees to maintain the highest ethical and legal standards in their conduct
of International Paper business; a toll-free telephone compliance line whereby
any employee may report suspected violations of law or International Paper's
policy; and an office of ethics and business practices. The internal controls
system further includes careful selection and training of supervisory and
management personnel, appropriate delegation of authority and division of
responsibility, dissemination of accounting and business policies throughout
International Paper, and an extensive program of internal audits with management
follow-up.
The independent public accountants provide an objective, independent
review of management's discharge of its responsibility for the fairness of our
financial statements. They review our internal accounting controls and conduct
tests of procedures and accounting records to enable them to form the opinion
set forth in their report.
The Board of Directors monitors management's administration of
International Paper's financial and accounting policies and practices, and the
preparation of these financial statements. The Audit Committee, which consists
of four nonemployee directors, meets regularly with representatives of
management, the independent public accountants and the Internal Auditor to
review their activities. The Audit Committee recommends that the shareholders
approve the appointment of the independent public accountants to conduct the
audit.
The independent public accountants and the Internal Auditor both have free
access to the Audit Committee and meet regularly with the Audit Committee, with
and without management representatives in attendance.
/s/ John V. Faraci
JOHN V. FARACI
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of International Paper Company:
We have audited the accompanying consolidated balance sheets of International
Paper Company (a New York corporation) and subsidiaries as of December 31, 1999
and 1998, and the related statements of earnings, common shareholders' equity
and cash flows for each of the three years ended December 31, 1999. These
financial statements are the responsibility of International Paper's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the consolidated financial statements of Union
Camp Corporation (a company acquired during 1999 in a transaction accounted for
as a pooling-of-interests) prior to 1999. The Union Camp financial statements
reflect total assets and total revenues of 16% and 19% in each of 1998 and 1997,
respectively, of the related consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us and our opinion, insofar
as it relates to the amounts included for that entity, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of International Paper Company and subsidiaries
as of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years ended December 31, 1999 in conformity
with generally accepted accounting principles in the United States.
/s/ Arthur Andersen
NEW YORK, N.Y.
FEBRUARY 8, 2000
32
<PAGE>
INTERNATIONAL PAPER
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS
In millions, except per share amounts, for the years ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $24,573 $23,979 $24,556
------- ------- -------
COSTS AND EXPENSES
Cost of products sold 18,105 17,924 18,087
Selling and administrative expenses 2,083 2,032 2,090
Depreciation and amortization 1,520 1,494 1,570
Distribution expenses 1,098 1,087 1,165
Taxes other than payroll and income taxes 226 231 255
Equity (earnings) losses from investment in Scitex (5) 15 (1)
Merger integration costs 255
Restructuring and other charges 298 145 660
Environmental remediation charge 10
Oil and gas impairment charges 111
Provision for legal reserves 30 150
------- ------- -------
TOTAL COSTS AND EXPENSES 23,620 23,039 23,976
Reversals of reserves no longer required 36 83
Gains on sales of businesses 20 170
------- ------- -------
EARNINGS BEFORE INTEREST, INCOME TAXES,
MINORITY INTEREST AND EXTRAORDINARY ITEM 989 1,043 750
Interest expense, net 541 614 607
------- ------- -------
EARNINGS BEFORE INCOME TAXES,
MINORITY INTEREST AND EXTRAORDINARY ITEM 448 429 143
Income tax provision 86 95 83
Minority interest expense, net of taxes 163 87 140
------- ------- -------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM 199 247 (80)
Loss on extinguishment of debt, net of taxes 16
------- ------- -------
NET EARNINGS (LOSS) $ 183 $ 247 $ (80)
======= ======= =======
EARNINGS (LOSS) PER COMMON SHARE -
BEFORE EXTRAORDINARY ITEM $ 0.48 $ 0.60 $ (0.20)
EARNINGS (LOSS) PER COMMON SHARE - EXTRAORDINARY ITEM (0.04)
------- ------- -------
EARNINGS (LOSS) PER COMMON SHARE $ 0.44 $ 0.60 $ (0.20)
======= ======= =======
EARNINGS (LOSS) PER COMMON SHARE - ASSUMING DILUTION $ 0.44 $ 0.60 $ (0.20)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
INTERNATIONAL PAPER
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
In millions at December 31 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and temporary investments $ 453 $ 533
Accounts and notes receivable, less allowances of $106 in 1999 and $115 in 1998 3,227 3,018
Inventories 3,203 3,211
Other current assets 358 399
-------- --------
Total Current Assets 7,241 7,161
-------- --------
Plants, Properties and Equipment, Net 14,381 15,320
Forestlands 2,921 3,093
Investments 1,044 1,147
Goodwill 2,596 2,699
Deferred Charges and Other Assets 2,085 2,046
-------- --------
TOTAL ASSETS $ 30,268 $ 31,466
======== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable and current maturities of long-term debt $ 920 $ 1,418
Accounts payable 1,870 1,808
Accrued payroll and benefits 423 370
Other accrued liabilities 1,169 890
-------- --------
Total Current Liabilities 4,382 4,486
-------- --------
Long-Term Debt 7,520 7,697
Deferred Income Taxes 3,344 3,673
Other Liabilities 1,332 1,347
Minority Interest 1,581 1,720
International Paper - Obligated Mandatorily Redeemable Preferred Securities
of Subsidiaries Holding International Paper Debentures - Note 8 1,805 1,805
Commitments and Contingent Liabilities - Note 11
Common Shareholders' Equity
Common stock, $1 par value, 1999 - 414.6 shares, 1998 - 413.2 shares 415 413
Paid-in capital 4,078 3,896
Retained earnings 6,613 6,848
Accumulated other comprehensive income (loss) (739) (395)
-------- --------
10,367 10,762
Less: Common stock held in treasury, at cost, 1999 - 1.2 shares, 1998 - 0.6 shares 63 24
-------- --------
Total Common Shareholders' Equity 10,304 10,738
-------- --------
TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $ 30,268 $ 31,466
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
INTERNATIONAL PAPER
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
In millions for the years ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 183 $ 247 $ (80)
Depreciation and amortization 1,520 1,494 1,570
Deferred income tax provision (benefit) (208) 132 (79)
Payments related to restructuring and legal reserves (191) (82) (103)
Payments related to the Union Camp merger (172)
Merger integration costs 255
Restructuring and other charges 298 145 660
Environmental remediation charge 10
Provision for legal reserves 30 150
Oil and gas impairment charges 111
Reversals of reserves no longer required (36) (83)
Gains on sales of businesses (20) (170)
Loss on extinguishment of debt 26
Other, net 45 80 126
Changes in current assets and current liabilities
Accounts and notes receivable (361) 152 (142)
Inventories (121) 51 (149)
Accounts payable and accrued liabilities 449 (113) (168)
Other 1 (16) 8
------- ------- -------
CASH PROVIDED BY OPERATIONS 1,728 2,098 1,623
------- ------- -------
INVESTMENT ACTIVITIES
Invested in capital projects (1,139) (1,322) (1,448)
Mergers and acquisitions, net of cash acquired (54) (498) (94)
Proceeds from divestitures 119 523 322
Other (11) (51) 37
------- ------- -------
CASH USED FOR INVESTMENT ACTIVITIES (1,085) (1,348) (1,183)
------- ------- -------
FINANCING ACTIVITIES
Issuance of common stock 246 115 164
Issuance of preferred securities by subsidiary 1,525
Issuance of debt 1,023 348 719
Reduction of debt (1,563) (2,213) (860)
Change in bank overdrafts 102 68 29
Dividends paid (418) (431) (427)
Other (96) (63) (31)
------- ------- -------
CASH USED FOR FINANCING ACTIVITIES (706) (651) (406)
------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (17) 1 2
------- ------- -------
CHANGE IN CASH AND TEMPORARY INVESTMENTS (80) 100 36
CASH AND TEMPORARY INVESTMENTS
Beginning of the year 533 433 397
------- ------- -------
End of the year $ 453 $ 533 $ 433
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
INTERNATIONAL PAPER
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
In millions, except share amounts in thousands
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Common Stock Issued
--------------------- Paid-In Retained
Shares Amount Capital Earnings
-----------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 406,041 $ 406 $ 3,607 $ 7,539
Issuance of stock for merger 184 11
Issuance of stock for various plans 2,637 3 77
Repurchase of stock (688) (1) (36)
Cash dividends - Common stock ($1.05 per share) (427)
Comprehensive income (loss)
Net loss (80)
Change in cumulative foreign currency
translation adjustment (less tax expense of $200)
Realized foreign currency translation
adjustment related to divestitures
(less tax benefit of $6)
Total comprehensive income (loss)
-------- -------- -------- --------
BALANCE, DECEMBER 31, 1997 408,174 408 3,659 7,032
Issuance of stock for merger 4,683 5 227
Issuance of stock for various plans 605 1 23
Repurchase of stock (277) (1) (13)
Cash dividends - Common stock ($1.05 per share) (431)
Comprehensive income (loss)
Net earnings 247
Minimum pension liability adjustment
(less tax benefit of $5)
Change in cumulative foreign currency
translation adjustment (less tax benefit of $2)
Realized foreign currency translation
adjustment related to divestitures
(less tax benefit of $4)
Total comprehensive income
-------- -------- -------- --------
BALANCE, DECEMBER 31, 1998 413,185 413 3,896 6,848
Issuance of stock for various plans 1,399 2 182
Repurchase of stock
Cash dividends - Common stock ($1.01 per share) (418)
Comprehensive income (loss)
Net earnings 183
Minimum pension liability adjustment
(less tax expense of $1)
Change in cumulative foreign currency
translation adjustment (less tax expense of $31)
Total comprehensive income (loss)
-------- -------- -------- --------
BALANCE, DECEMBER 31, 1999 414,584 $ 415 $ 4,078 $ 6,613
======== ======== ======== ========
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Accumulated Total
Other Treasury Stock Common
Comprehensive -------------------- Shareholders'
Income (Loss) Shares Amount Equity
----------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ (181) 554 $ 22 $ 11,349
Issuance of stock for merger 11
Issuance of stock for various plans (2,345) (106) 186
Repurchase of stock 2,517 121 (158)
Cash dividends - Common stock ($1.05 per share) (427)
Comprehensive income (loss)
Net loss (80)
Change in cumulative foreign currency
translation adjustment (less tax expense of $200) (257) (257)
Realized foreign currency translation
adjustment related to divestitures
(less tax benefit of $6) 23 23
--------
Total comprehensive income (loss) (314)
-------- -------- -------- --------
BALANCE, DECEMBER 31, 1997 (415) 726 37 10,647
Issuance of stock for merger 232
Issuance of stock for various plans (2,694) (128) 152
Repurchase of stock 2,520 115 (129)
Cash dividends - Common stock ($1.05 per share) (431)
Comprehensive income (loss)
Net earnings 247
Minimum pension liability adjustment
(less tax benefit of $5) (8) (8)
Change in cumulative foreign currency
translation adjustment (less tax benefit of $2) 21 21
Realized foreign currency translation
adjustment related to divestitures
(less tax benefit of $4) 7 7
--------
Total comprehensive income 267
-------- -------- -------- --------
BALANCE, DECEMBER 31, 1998 (395) 552 24 10,738
Issuance of stock for various plans (1,866) (87) 271
Repurchase of stock 2,530 126 (126)
Cash dividends - Common stock ($1.01 per share) (418)
Comprehensive income (loss)
Net earnings 183
Minimum pension liability adjustment
(less tax expense of $1) 2 2
Change in cumulative foreign currency
translation adjustment (less tax expense of $31) (346) (346)
--------
Total comprehensive income (loss) (161)
-------- -------- -------- --------
BALANCE, DECEMBER 31, 1999 $ (739) 1,216 $ 63 $ 10,304
======== ======== ======== ========
</TABLE>
The cumulative foreign currency translation adjustment (in millions) was $(733),
$(387) and $(415) at December 31, 1999, 1998 and 1997, respectively, and is
included as a component of accumulated other comprehensive income (loss).
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
NATURE OF OUR BUSINESS
International Paper is a global forest products, paper and packaging company
that is complemented by an extensive distribution system, with primary markets
and manufacturing operations in the U.S., Europe and the Pacific Rim.
Substantially all of our businesses have experienced and are likely to continue
to experience cycles relating to available industry capacity and general
economic conditions. For a further discussion of our business see pages 6
through 29 of management's discussion and analysis of financial condition and
results of operations.
FINANCIAL STATEMENTS
The preparation of these financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates. For a
further discussion of significant estimates and assumptions that affect the
reported amounts of assets and liabilities and results of operations, and
disclosure of contingent assets and liabilities, see the legal and environmental
issues section beginning on page 24. Actual results could differ from
management's estimates.
On April 30, 1999, International Paper completed the merger with Union
Camp Corporation (Union Camp) in a transaction accounted for as a
pooling-of-interests. The accompanying financial statements have been restated
to include the financial position and results of operations for both Union Camp
and International Paper for all periods presented.
REVENUE RECOGNITION
Revenues are recognized when goods are shipped.
CONSOLIDATION
The consolidated financial statements include the accounts of International
Paper Company and its subsidiaries. Minority interest represents minority
shareholders' proportionate share of the equity in several of our consolidated
subsidiaries, primarily Carter Holt Harvey Limited, Zanders Feinpapiere AG, Bush
Boake Allen, Inc., Georgetown Equipment Leasing Associates, L.P. and Trout Creek
Equipment Leasing, L.P. All significant intercompany balances and transactions
are eliminated. Investments in affiliated companies owned 20% to 50%, and our
13% investment in Scitex Corporation Ltd., where we had the ability to exercise
significant influence, because we were party to a shareowners' agreement with
two other entities which together with International Paper owned just over 39%
of Scitex, were accounted for by the equity method. International Paper's share
of affiliates' earnings is included in the consolidated statement of earnings.
TEMPORARY INVESTMENTS
Temporary investments with an original maturity of three months or less are
treated as cash equivalents and are stated at cost, which approximates market.
INVENTORIES
Inventory values include all costs directly associated with manufacturing
products: materials, labor and manufacturing overhead. These values are
presented at cost or market, if it is lower. In the U.S., costs of raw materials
and finished pulp and paper products are generally determined using the last-in,
first-out method. Other inventories are primarily stated using the first-in,
first-out or average cost method.
PLANTS, PROPERTIES AND EQUIPMENT
Plants, properties and equipment are stated at cost, less accumulated
depreciation. For financial reporting purposes, we use the units-of-production
method of depreciation for our major pulp and paper mills and certain wood
products facilities and the straight-line method for other plants and equipment.
Annual straight-line depreciation rates are buildings, 2 1/2% to 8 1/2%, and
machinery and equipment, 5% to 33%. For tax purposes, depreciation is computed
using accelerated methods.
Interest costs related to the development of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives. We
capitalized net interest costs of $29 million in 1999, $53 million in 1998 and
$72 million in 1997. Interest payments made during 1999, 1998 and 1997 were $594
million, $766 million and $836 million, respectively. Total interest expense was
$611 million in 1999, $706 million in 1998 and $710 million in 1997.
FORESTLANDS
International Paper controlled, through domestic subsidiaries, approximately 7.1
million acres of forestlands in the U.S. and, through its ownership of Carter
Holt Harvey, approximately 785,000 acres of forestlands in New Zealand at
December 31, 1999. Forestlands are stated at cost, less accumulated depletion
representing the cost of timber harvested. The cost of timber harvested is
included in cost of products sold in the consolidated statement of earnings.
Forestlands include owned property as well as certain timber harvesting rights
with terms of one or more years. Costs attributable to timber are
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
charged against income as trees are cut. The depletion rate charged is
determined annually based on the relationship of remaining costs to estimated
recoverable volume.
AMORTIZATION OF INTANGIBLE ASSETS
Goodwill, the cost in excess of assigned value of businesses acquired, is
amortized for periods of up to 40 years. Accumulated amortization was $487
million and $441 million at December 31, 1999 and 1998, respectively. Goodwill
amortization expense is included in depreciation and amortization in the
consolidated statement of earnings.
STOCK-BASED COMPENSATION
Stock options and other stock-based compensation awards are accounted for using
the intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
ENVIRONMENTAL REMEDIATION COSTS
Costs associated with environmental remediation obligations are accrued when
such costs are probable and reasonably estimable. Such accruals are adjusted as
further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are discounted to their
present value when the expected cash flows are reliably determinable.
TRANSLATION OF FINANCIAL STATEMENTS
Balance sheets of international operations are translated into U.S. dollars at
year-end exchange rates, while statements of earnings are translated at average
rates. Adjustments resulting from financial statement translations are included
as cumulative translation adjustments in accumulated other comprehensive income
(loss). Gains and losses resulting from foreign currency transactions are
included in earnings.
RECLASSIFICATIONS
Certain reclassifications have been made to prior-year amounts to conform with
the current-year presentation.
- --------------------------------------------------------------------------------
NOTE 2 EARNINGS PER COMMON SHARE
- --------------------------------------------------------------------------------
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 year. A
reconciliation of the amounts included in the computation of earnings per common
share and earnings per common share - assuming dilution is as follows:
In millions 1999 1998 1997
- ------------------------------------------ -------- -------- --------
Net earnings (loss) $ 183 $ 247 $ (80)
Effect of dilutive securities
Preferred securities of subsidiary trust
-------- -------- --------
Net earnings (loss) - assuming dilution $ 183 $ 247 $ (80)
======== ======== ========
Average common shares outstanding 413.0 411.0 406.7
Effect of dilutive securities
Long-term incentive plan
deferred compensation
Stock options 3.1 3.2
Preferred securities of subsidiary trust
-------- -------- --------
Average common shares outstanding -
assuming dilution 416.1 414.2 406.7
======== ======== ========
Earnings (loss) per common share $ 0.44 $ 0.60 $ (0.20)
======== ======== ========
Earnings (loss) per common share -
assuming dilution $ 0.44 $ 0.60 $ (0.20)
======== ======== ========
Note: If an amount does not appear in the above table, the security was
antidilutive for the period presented.
- --------------------------------------------------------------------------------
NOTE 3 INDUSTRY SEGMENT INFORMATION
- --------------------------------------------------------------------------------
Financial information by industry segment and geographic area for 1999, 1998 and
1997 is presented on pages 30 and 31. The segment and geographic area
information has been restated to include Union Camp for all years presented.
- --------------------------------------------------------------------------------
NOTE 4 RECENT ACCOUNTING DEVELOPMENTS
- --------------------------------------------------------------------------------
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 of 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
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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).
We have not quantified the impact of adopting the Statement on our
consolidated financial statements nor have we determined the timing of or method
of the adoption. However, we believe that adoption of the provisions of the
Statement could increase volatility in earnings and other comprehensive income.
- --------------------------------------------------------------------------------
NOTE 5 MERGERS AND ACQUISITIONS
- --------------------------------------------------------------------------------
On November 24, 1998, International Paper announced that it had reached an
agreement to merge with Union Camp Corporation, 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
International Paper common shares for each Union Camp share held. The total
value of the transaction, including the assumption of debt, was approximately
$7.9 billion.
We issued 110 million shares for 74 million Union Camp shares, including
options. 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 our consolidated financial statements are as follows:
<TABLE>
<CAPTION>
Three Months Twelve Months Twelve Months
Ended Ended Ended
In millions March 31, 1999 December 31, 1998 December 31, 1997
- --------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales:
International Paper $ 4,962 $ 19,541 $ 20,096
Union Camp 1,137 4,503 4,477
Intercompany eliminations (67) (65) (17)
-------- -------- --------
$ 6,032 $ 23,979 $ 24,556
======== ======== ========
Net earnings (loss):
International Paper $ 44 $ 236 $ (151)
Union Camp (10) 19 81
Other (2) (8) (10)
-------- -------- --------
$ 32 $ 247 $ (80)
======== ======== ========
</TABLE>
Note: Other includes the elimination of intercompany transactions and
adjustments to conform the accounting practices of the two companies.
In April 1999, Carter Holt Harvey acquired the corrugated packaging
business of Stone Australia, a subsidiary of Smurfit-Stone Container
Corporation. The business consists of two sites in Melbourne and Sydney which
serve industrial and primary produce customers.
In December 1998, we completed the acquisition of Svetogorsk AO, a
Russia-based pulp and paper business, which has enhanced International Paper'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 has enabled the foodservice
business to better serve markets in South America.
In July 1998, International Paper acquired the Zellerbach distribution
business from the Mead Corporation for $261 million in cash. Zellerbach has been
integrated into xpedx, our distribution business.
In April 1998, Weston Paper and Manufacturing Company (Weston) was
acquired by exchanging 4.7 million International Paper common shares valued at
$232 million for all of the outstanding Weston shares in a noncash transaction.
In April 1998, Carter Holt Harvey acquired Riverwood International, an
Australia-based folding carton business.
In March 1998, a wholly-owned subsidiary of International Paper purchased
all of the publicly traded Class A depository units of IP Timberlands, Ltd. for
a cash purchase price of $100 million.
In February 1998, we 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
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International Paper jointly acquired Australia-based Continental Cup.
Acquisitions in 1997 included: Taussig's Graphic Supply, Inc., a
distribution company; Phoenix Display and Packaging Corporation, a merchandising
and point-of-purchase display company; Merbok Formtec, a pioneer in the
development of door facing products; Antietem Paper Company, a distribution
company; and a 75% interest in Puntapel S.A., an Argentinean multi-wall plant.
The cost of these acquisitions, net of cash acquired, was $94 million in the
aggregate.
All of the acquisitions in 1999, 1998 and 1997, with the exception of the
Union Camp acquisition which was accounted for as a pooling-of-interests, were
accounted for using the purchase method. The operating results of those mergers
and acquisitions accounted for under the purchase method have been included in
the consolidated statement of earnings from the dates of acquisition.
- --------------------------------------------------------------------------------
NOTE 6 SPECIAL ITEMS INCLUDING RESTRUCTURING AND BUSINESS IMPROVEMENT ACTIONS
- --------------------------------------------------------------------------------
Special items reduced 1999 net earnings by $352 million, 1998 net earnings by
$98 million and 1997 net earnings by $461 million. The following tables and
discussion present the impact of special items for 1999, 1998 and 1997:
1999
----------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
In millions Interest Interest
- ---------------------------------------------- ------------- ------------
Before special and extraordinary items $ 1,005 $ 551
Union Camp merger-related termination benefits (148) (97)
One-time merger expenses (107) (78)
Restructuring and other charges (298) (180)
Environmental remediation charge (10) (6)
Provision for legal reserves (30) (18)
Reversal of reserves no longer required 36 27
------- -------
After special items $ 448 $ 199
======= =======
During 1999 special items amounting to a net charge before taxes and
minority interest expense of $557 million ($352 million after taxes and minority
interest expense) were recorded. The special items included a $148 million
pre-tax charge ($97 million after taxes) for Union Camp merger-related
termination benefits, a $107 million pre-tax charge ($78 million after taxes)
for one-time merger expenses, a $298 million pre-tax charge ($180 million after
taxes and minority interest expense) for asset shutdowns of excess internal
capacity and cost reduction actions, a $10 million pre-tax charge ($6 million
after taxes) to increase existing environmental remediation reserves related to
certain former Union Camp facilities, a $30 million pre-tax charge ($18 million
after taxes) to increase existing legal reserves and a $36 million pre-tax
credit ($27 million after taxes) for the reversal of reserves that were no
longer required.
The one-time merger expenses of $107 million consisted of $49 million of
merger costs and $58 million of post-merger expenses. The merger costs were
primarily investment banker, consulting, legal and accounting fees. Post-merger
integration expenses 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 relates to
employees terminating after the effective date of the merger under an
integratation benefits program . Under this program, 1,218 employees of the
combined company were identified for termination. Benefits payable under this
program for certain senior executives and managers are or have been paid from
the general assets of International Paper. Benefits for remaining employees have
been or will be primarily paid from plan assets of our qualified pension plan.
Through December 31, 1999, 787 employees had been terminated. Related cash
payments approximated $65 million (including payments related to our
nonqualified pension plans). The remaining charge primarily represents an
increase in the projected benefit obligation of our qualified pension plan.
The following table is a roll forward of the Union Camp merger-related
termination benefit charge:
Termination
In millions Benefits
- -------------------------------- -----------
Special charge (1,218 employees) $ 148
Incurred costs (787 employees) (116)
-----
Balance, December 31, 1999 $ 32
=====
Note: Benefit costs are treated as incurred on the termination date of the
employee.
The $298 million charge for the asset shutdowns of excess internal
capacity consisted of a $113 million charge in the 1999 second quarter and a
$185 million charge in the 1999 fourth quarter.
The second quarter 1999 $113 million charge for the asset shutdowns of
excess internal capacity and cost reduction actions
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
included $57 million of asset write-downs and $56 million of severance and other
charges. The following table and discussion presents additional detail related
to the $113 million charge:
Asset Severance
In millions Write-downs and Other Total
- --------------------------- ----------- --------- -----
Printing and Communications
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
==== ==== ====
(a) We recorded a charge of $24 million for severance related to the second
phase of the Printing and Communications Papers business plan to improve
the cost position of its mills. The charge, pursuant to our ongoing
severance program, covers a reduction of approximately 289 employees at
several mills in the U.S. At December 31, 1999, 146 employees had been
terminated.
Also, management approved a decision to permanently shut down the
Hudson River mill No. 4 paper machine located in Corinth, New York and the
No. 2 paper machine at the Franklin, Virginia mill. The Franklin machine
was shut down in September of 1999 and the Hudson River machine has also
been shut down. The Hudson River machine had previously been temporarily
shut down 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. At December 31, 1999, 76
employees had been terminated.
(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 produced approximately
5,000 metric tons of high-end uncoated specialty paper per year. This
production was shifted 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 $12 million and
an operating loss of $2 million for the year ended December 31, 1999. At
December 31, 1999, 14 employees had been terminated.
The Corimex coating plant in Clermont-Ferrand, France 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 $6 million and an operating loss of $3 million for the
year ended December 31, 1999. At December 31, 1999, all 81 employees had
been terminated.
(c) The Consumer Packaging business has implemented a plan to improve the
overall performance of the Moss Point, Mississippi 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
has been 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. At December 31, 1999, 272 employees had been terminated.
Consumer Packaging also shut down the beverage packaging facility in
Itu, Brazil in an effort to reduce excess capacity in Latin America. 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 exit costs total $1 million. At December 31, 1999, 24
employees had been terminated.
(d) As a result of the merger with Union Camp, we negotiated the resolution of
contractual commitments in an industrial packaging investment in Turkey.
As a result of these negotiations and evaluation of this entity, it was
determined that the investment was impaired. A $12 million charge was
recorded to reflect this impairment and the related costs of resolving the
contractual commitments.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(e) As a result of an overall reduction in market demand for dissolving pulp,
the decision was made to downsize the Natchez, Mississippi 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. At December 31, 1999, 88
employees had been terminated.
(f) The Industrial Papers business has implemented a plan to reduce excess
capacity at several of its locations. The Toronto, Canada plant has been
closed. Equipment at the Kaukauna, Wisconsin and Knoxville, Tennessee
facilities has been taken out of service, with additional equipment at the
Menasha, Wisconsin plant scheduled to be shut down in 2000. 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 81 employees. Other exit costs total $2 million. At
December 31, 1999, a reduction of 59 employees had been made through
severance and attrition.
The $185 million fourth-quarter 1999 charge for shutdowns of excess
internal capacity and cost reduction actions includes $92 million of asset
write-downs and $93 million of severance and other charges. The following table
presents additional detail related to the $185 million charge:
Asset Severance
In millions Write-downs and Other Total
- --------------------------- ----------- --------- -----
Printing and Communications
Papers (a) $ 7 $ 5 $ 12
Consumer Packaging (b) 14 22 36
Industrial Packaging (c) 7 14 21
Chemicals and Petroleum (d) 30 20 50
Building Materials (e) 10 6 16
Distribution (f) 6 17 23
Carter Holt Harvey (g) 18 9 27
---- ---- ----
$ 92 $ 93 $185
==== ==== ====
(a) The Printing and Communications Papers charge of $12 million encompasses a
production curtailment at the Erie, Pennsylvania mill due to lower demand,
the write-off of deferred software costs as the result of a decision to
discontinue the installation of a Union Camp order entry system and an
impairment of our investment in the Otis Hydroelectric plant. In November
1999 we announced that the Erie, Pennsylvania mill would change from a
seven day, four crew schedule to a three crew schedule in order to balance
operating capacity with sales demand. This production curtailment resulted
in a severance charge of $2 million for the termination of 99 employees.
The charge for the deferred software write-off was $3 million.
International Paper also wrote down its investment in the Otis
Hydroelectric partnership by $7 million to the approximate market value of
the investment based upon our current offer to acquire the other partner's
interest.
(b) The Consumer Packaging business charge of $36 million is related to the
shutdown of facilities, capacity optimization and a deferred software
write-off. The Philadelphia, Pennsylvania plant and the Edmonton, Alberta
plant are scheduled to be shut down. Charges associated with these
shutdowns include $7 million of asset write-downs, $1 million of severance
costs covering the termination of 194 employees and other exit costs of $5
million. Charges related to eliminating excess capacity include $7 million
of asset write-downs and a severance charge of $11 million for the
termination of 512 employees. The capacity reductions are related to the
aseptic and flexible packaging businesses. The business also decided to
discontinue the implementation of a Union Camp order management system.
The write-off of deferred software costs related to this system is $5
million.
(c) The Industrial Packaging business will shut down the following plants and
shift production to other facilities: the Terre Haute, Indiana box plant;
the Northlake, Illinois box plant; the Columbia, Tennessee sheet plant;
and the Montgomery, Alabama sheet plant. The design center in Spartanburg,
South Carolina will also be closed. The functions performed in Spartanburg
will continue in Memphis, Tennessee. Charges associated with the
consolidation and improvement of the Industrial Packaging business total
$21 million and include $7 million of asset write-downs, a $12 million
severance charge covering the termination of 426 employees and other exit
costs of $2 million.
(d) The Chemicals and Petroleum charge of $50 million is related to the
partial shutdown of the Chester-Le-Street plant located in Northeast
England and additional costs related to the 1998 shutdown of the
Springhill, Louisiana plant. The Chester-Le-Street plant is currently
42
<PAGE>
a fully integrated site comprised of a crude tall oil fractionation plant,
a rosin resin upgrading plant and a dimer plant. The crude tall oil and
rosin resin upgrading facilities at the site will be closed and production
shifted to other Arizona Chemical facilities. Asset write-downs for this
plant total $30 million. A severance charge of $3 million covers the
termination of 83 employees. Other costs of $12 million include demolition
and contract cancellations. We also recorded an additional charge of $5
million related to the 1998 closure of the Springhill plant, covering
other exit costs including demolition and cleanup.
(e) The Building Materials charge of $16 million includes $3 million for a
program to improve the profitability of the decorative surfaces business
and $13 million for the shutdown of the Pilot Rock, Oregon mill. The
Decorative Products business has developed an improvement plan that will
result in the consolidation of certain manufacturing activities and
streamlining of administrative functions. As a result, a reserve of $3
million was established to cover asset write-offs totaling $2 million and
severance charges of $1 million related to the reduction of 65 employees.
International Paper announced in October of 1999 that it would shut down
the Pilot Rock, Oregon mill due to excess capacity within the Masonite
manufacturing system. The softboard production will be moved to our Ukiah,
California and Lisbon Falls, Maine facilities. The charge includes $8
million of asset write-downs, a $2 million severance charge covering the
termination of 155 employees and other exit costs of $3 million.
(f) xpedx, our distribution business, implemented a plan to consolidate
duplicate facilities and eliminate excess capacity. The $23 million charge
associated with this plan includes $6 million of asset write-downs, a
severance charge of $5 million for the termination of 211 employees and
other costs of $12 million. Other costs consist primarily of lease
cancellations.
(g) This charge is related to the shutdown of the No. 5 paper machine at
Carter Holt Harvey's Kinleith mill. The machine had been idled due to a
reconfiguration project at the mill. Plans for alternative uses for the
machine were reexamined and it was determined that based on current
competitive conditions it would not provide adequate returns on the
capital required and that it would be scrapped. Accordingly, the machine
was written down from its $20 million book value to its estimated salvage
value of $2 million. Also, severance costs total $9 million and cover the
costs of terminating 300 employees.
The $30 million pre-tax charge to increase existing legal reserves
includes $25 million which we added to our reserve for hardboard siding claims.
A further discussion of this charge can be found in Note 11. Commitments and
Contingent Liabilities. The remaining $5 million is related to other potential
exposures.
The $36 million pre-tax credit for reserves no longer required consists of
$30 million related to a retained exposure at the Lancey mill in France and $6
million of excess severance reserves previously established by Union Camp. The
Lancey mill was sold to an employee group in October 1997. In April 1999,
International Paper's remaining exposure to potential obligations under this
sale was resolved, and the reserve was returned to income in the second quarter.
The following table is a roll forward of the severance and other costs
included in the 1999 restructuring plans (in millions):
Severance
and Other
----------
Opening Balance (second quarter 1999) $ 56
Additions (fourth quarter 1999) 93
1999 Activity
Cash charges (34)
-----
Balance, December 31, 1999 $ 115
=====
The severance reserves recorded in the 1999 second and fourth quarters
related to 3,163 employees. As of December 31, 1999, 760 employees had been
terminated.
1998
-------------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
In millions Interest Interest
- ---------------------------------------- ------------- ------------
Before special items $ 598 $ 345
Oil and gas impairment charges (111) (68)
Restructuring and other charges (161) (92)
Gain on sale of business 20 12
Reversals of reserves no longer required 83 50
----- -----
After special items $ 429 $ 247
===== =====
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1998, we recorded $111 million of oil and gas impairment charges
($68 million after taxes). Of this amount, $56 million ($35 million after taxes)
was recorded in the fourth quarter and $55 million ($33 million after taxes) was
recorded in the third quarter. International Paper has oil and gas exploration
and production operations in West Texas, the Gulf Coast and the Gulf of Mexico.
The Securities and Exchange Commission's regulations for companies that use the
full-cost method of accounting for oil and gas activities require companies to
perform a ceiling test on a quarterly basis. As a result of low oil and gas
prices, the value of our properties was written down through these noncash
charges.
Also in 1998, we recorded a $145 million pre-tax restructuring charge ($82
million after taxes and minority interest expense) consisting of $64 million of
asset write-downs and $81 million of severance costs and we recorded pre-tax
charges of $16 million ($10 million after taxes) related to our share of
write-offs taken by Scitex, a 13% investee company, related to in-process
research and development of an acquisition and its exit from the digital video
business. The Scitex items are reflected as equity losses from the investment in
Scitex in the consolidated statement of earnings. In addition, we recorded a $20
million pre-tax gain ($12 million after taxes) on the sale of our Veratec
nonwovens division, and an $83 million pre-tax gain ($50 million after taxes)
from the reversal of previously established reserves that were no longer
required. These reserves were established in 1996 and 1997 and were primarily
associated with the Veratec and Imaging businesses. The sales of these
businesses were completed in 1998 and those reserves not required were returned
to earnings.
The following table and discussion presents additional detail related to
the $145 million restructuring charge:
Asset
In millions Write-downs Severance Total
- --------------------------- ----------- --------- -----
Distribution (a) $ 20 $ 10 $ 30
Printing and Communications
Papers (b) 13 14 27
Carter Holt Harvey (c) 15 3 18
Industrial Packaging (d) 8 7 15
Union Camp (e) 8 32 40
Other (f) 15 15
---- ---- ----
Total $ 64 $ 81 $145
==== ==== ====
(a) After the acquisition of Zellerbach, management of xpedx decided to
terminate certain software projects that were in process and to use
Zellerbach's systems in certain of its regions. Accordingly, we wrote off
related deferred software costs on these projects, resulting in a $20
million charge. As part of the Zellerbach integration plan, management
determined that a significant part of the personnel reduction related to
the termination of employees at duplicate facilities and locations. The
$10 million severance charge represents the costs for terminating 274
xpedx employees. At December 31, 1999, all of the 274 employees had been
terminated.
(b) Our Printing and Communications Papers business shut down equipment at the
Mobile, Alabama mill and announced the termination of 750 employees at the
Mobile, Alabama, Lock Haven, Pennsylvania, and Ticonderoga, New York
mills. At the Mobile mill, International Paper permanently shut down a
paper machine and related equipment with a net book value of $13 million.
These assets were written down to their estimated fair market value of
zero. The severance charge associated with the employee reductions at the
3 mills was $14 million. At December 31, 1999, all employees under this
program had been terminated.
(c) This charge primarily consists of a $15 million asset write-down
associated with the closure of two Carter Holt Harvey facilities,
Myrtleford and Taupo. Myrtleford, a tissue pulp mill located in Australia,
was closed due to excess capacity in its tissue pulp system. Carter Holt
Harvey will be able to produce the volume at lower costs at its Kawerau
tissue pulp mill located in New Zealand. Carter Holt Harvey also decided
to close the Taupo, New Zealand sawmill due to excess capacity in its
sawmill system as the result of recent productivity improvements. The $3
million severance charge represents the cost for terminating 236
employees. At December 31, 1999, all of the 236 employees had been
terminated. Our consolidated financial statements included revenues of $21
million and $36 million and operating income of $1 million and $3 million
from these facilities in 1998 and 1997, respectively.
(d) Management decided to close the Gardiner, Oregon mill because of excess
capacity in International Paper's containerboard system. As a result, the
net plant, property and equipment assets of this mill were reduced from
$13 million to the estimated salvage value of $5 million. In
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
connection with the third-quarter decision to close this mill, 298
employees at the mill were terminated and a $7 million severance charge
was recorded. This mill had revenues of $78 million and $105 million and
operating losses of $16 million and $1 million in 1998 and 1997,
respectively.
(e) During 1998 Union Camp recorded a pre-tax special charge of $40 million.
Included in the charge was $32 million related to the termination of 540
positions and $8 million of asset write-downs. Approximately 190 positions
were related to a reorganization and restructuring of Union Camp's
research and development activities. Another 190 positions were related to
a consolidation of the packaging group's administrative support functions
and the remaining 160 positions were to be eliminated through a series of
other organizational changes. At December 31, 1999, all of the 540
employees had been terminated.
The asset write-downs were principally attributable to the impairment of
goodwill specific to two packaging businesses, the Chase packaging
facility and Union Camp's 1996 purchase of a 50% interest in a packaging
plant in Turkey. Upon reviewing the historical and projected operating
results for these businesses, management concluded that expected future
cash flows did not fully support the carrying value of these assets.
(f) The $15 million severance charge was recorded as a result of an
announcement by International Paper of a plan to consolidate its land and
timber and logging and fiber supply divisions into a new division called
Forest Resources and the consolidation of the Consumer Packaging group. Of
the $15 million charge, $10 million related to a headcount reduction of
200 employees in the Forest Resources group and the remaining $5 million
was based on a personnel reduction of 210 employees in the Consumer
Packaging group. At December 31, 1999, all of the 410 employees had been
terminated.
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
1998 Activity
Cash charges (19)
1999 Activity
Cash charges (56)
Reserve reversal (6)
----
Balance, December 31, 1999 $ 0
====
The severance reserve recorded in the 1998 third quarter related to 2,508
employees. As of December 31, 1999, all employees had been terminated.
1997
-----------------------------------
Earnings Earnings
(Loss) (Loss)
Before Income After Income
Taxes and Taxes and
Minority Minority
In millions Interest Interest
- ------------------------------- ------------- ------------
Before special items $ 783 $ 381
Provision for legal reserve (150) (93)
Restructuring and other charges (660) (465)
Gain on sale of business 170 97
----- -----
After special items $ 143 $ (80)
===== =====
In June 1997, a $535 million pre-tax business improvement charge ($385
million after taxes) was recorded under a plan to improve our financial
performance through closing or divesting of operations that no longer met
financial or strategic objectives. It 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. At this point, the anticipated
pre-tax earnings improvement of $100 million from the 1997 restructuring actions
has been largely realized. The earnings improvement consists of $25 million of
lower depreciation expense and $75 million of lower cash costs.
The $230 million write-down of assets that International Paper recorded in
the second quarter of 1997 consisted primarily of write-downs associated with
assets to be sold or shut down as follows (in millions):
Shutdown of European Papers facilities (a) $105
Shutdown of U.S. Papers and Fine Papers facilities (b) 101
Write-off of Haig Point real estate development (c) 13
Other shutdowns 11
----
$230
====
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) In the second quarter of 1997, management committed to sell the Lancey,
France mill to an employee group. We wrote down the net carrying amount of
the mill at June 30, 1997 by $65 million and established a reserve of $30
million to cover a retained exposure. This remaining exposure was resolved
in 1999. The sale closed in October 1997. Lancey had revenues of $52
million and an operating loss of $7 million in 1997. The Corimex, France
mill produced coated thermal fax paper, which is a market that weakened in
the mid-1990's. During the second quarter of 1997, management concluded
that it would continue to operate this mill but that the assets were
impaired. Based on an analysis of expected future cash flows completed in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," we reduced the carrying value of the Corimex
mill from $12 million to $2 million, resulting in a $10 million charge.
The Corimex mill was shut down in April 1999. Charges related to the
shutdown are included in the 1999 special charge. Corimex had operating
losses of $4 million in 1998 and $2 million in 1997.
(b) The $101 million reserve related to the restructuring of the Fine Papers
manufacturing operations in the Northeast ($51 million) and the shutdown
of the deinking facility at the Lock Haven, Pennsylvania mill ($50
million). The restructuring of the Fine Papers operations included the
shutdown of the Woronoco, Massachusetts paper mill and 3 small paper
machines at the Erie, Pennsylvania mill. In the 1997 second quarter, we
decided to close the deinking facility. Given that each of these actions
represented the permanent shutdown of equipment or facilities,
International Paper wrote down the net carrying amount of the assets to
zero. The Woronoco, Massachusetts mill had revenues of $46 million and
operating earnings of $5 million in 1997.
(c) We are the developer of a residential golf community named Haig Point at
Daufuskie Island, South Carolina. As the developer, International Paper
was responsible for operating this community until a specified number of
lots were sold, at which time we would turn the community over to the
homeowners. The net book value of our investment in Haig Point was $13
million at June 30, 1997. Given continuing operating losses, $5 million in
1997 and an updated marketing study, we concluded that the investment was
permanently impaired and wrote it down to zero. Operating losses of $1
million and $500,000 were recorded in 1999 and 1998, respectively.
The $210 million for the estimated losses on sales of businesses related
to the following (in millions):
Imaging (a) $150
Veratec (b) 25
Decorative Products (c) 20
Label (d) 15
----
$210
====
(a) We decided to sell our Imaging businesses in the second quarter of 1997.
Based on discussions with our investment banker and meetings with
potential buyers, International Paper believed that the most likely
outcome was to realize approximately $325 million. A reserve of $150
million was established, which represented the estimated loss on the sale.
We expected to complete the sale of the Imaging businesses within one
year. The Imaging businesses had revenues of $690 million and operating
earnings of $9 million in 1997.
(b) The Veratec division had developed a business that was based on an
interspun technology for treating fabrics. The net carrying value of this
business was $25 million at June 30, 1997. In June 1997, we decided to
shut down this business and recorded a reserve of $25 million. Prior to
the shutdown, this business had revenues of $2 million and an operating
loss of $7 million in 1997.
(c) In the second quarter of 1997, management decided to sell the
medium-density fiberboard, low-pressure laminates and particleboard
businesses. We estimated the expected sales prices for each of these
businesses and recorded a reserve of $20 million to reduce the net
carrying amounts to these levels. We expected to complete the sales of
these businesses within one year. These businesses had revenues of $196
million and operating losses of $1 million in 1997.
(d) In the second quarter of 1997, management committed to a plan to sell the
label business. The estimated total loss on the label business sale
included in the second-quarter 1997 restructuring charge was $15 million.
The label
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
business was sold in May of 1998. The label business had revenues of $24
million and an operating loss of $2 million in 1997.
The $95 million of severance and other expenses consists of the following
(in millions):
Severance (a) $42
Write-off of deferred software costs (b) 18
Lease buyouts at warehouses (c) 9
Write-off of deinking process license (d) 4
Other exit costs (e) 22
---
$95
===
(a) The $42 million severance charge relates to programs initiated and
approved in the 1997 second quarter in the Printing and Communications
Papers, Industrial and Consumer Packaging segments and corporate staff
groups to reduce headcount by 3,015 employees under our existing ongoing
severance plans. We recorded the charge in the second quarter as (1)
management had committed to the plan of termination, (2) the benefit
arrangement had been communicated to the employees, (3) the number of
employees, their functions and locations had been identified, and (4) all
terminations were to be completed in approximately one year. As of
December 31, 1999, all employees had been terminated under these programs.
(b) The $18 million charge for the write-off of deferred software costs
relates to two items as follows: (1) during the 1997 second quarter, a
human resources software project, for which $11 million of deferred
software costs had been recorded, was cancelled and (2) as a result of the
decision to sell certain businesses in the second quarter of 1997, we
decided to terminate enterprise software projects in these businesses, for
which we had recorded $7 million of deferred software costs.
(c) The $9 million charge represents the cost to buy out obligations under
existing warehouse leases. A decision to close these warehouses was made
in the second quarter of 1997.
(d) The $4 million charge represents the write-off of the net carrying value
of the deinking process license that had been acquired from a third party.
International Paper permanently shut down this operation in the 1997
second quarter. Accordingly, we wrote the license down to zero.
(e) The charge of $22 million relates to other exit costs.
In December 1997, an additional pre-tax charge of $125 million ($80
million after taxes) was recorded for anticipated losses associated with the
sale of the remaining Imaging businesses. Such amount was determined after
consideration of the sales of certain of the Imaging businesses that had been
completed and the estimated proceeds from the businesses remaining to be sold.
The remaining Imaging businesses were sold in 1998.
Also included in the 1997 special items was a $150 million provision to
increase our legal reserves as a result of a settlement by Masonite Corporation,
a wholly-owned subsidiary, of a class-action lawsuit relating to its hardboard
siding product. A more detailed discussion of this legal settlement is included
in Note 11. to the financial statements.
The following table is a roll forward of the severance and other costs
included in the 1997 restructuring plan (in millions):
Severance
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 (9)
----
Balance, December 31, 1999 $ 0
====
- --------------------------------------------------------------------------------
NOTE 7 GAINS ON SALES OF WEST COAST PARTNERSHIP INTERESTS
- --------------------------------------------------------------------------------
On March 29, 1996, IP Timberlands, Ltd. (IPT) completed the sale of a 98%
general partnership interest in a subsidiary partnership that owned
approximately 300,000 acres of forestlands located in Oregon and Washington.
Included in the net assets of the partnership interest sold were forestlands,
roads and $750 million of long-term debt. As a result
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of this transaction, International Paper recognized in its 1996 first-quarter
consolidated results a $592 million pre-tax gain ($336 million after taxes and
minority interest expense). IPT and International Paper retained nonoperating
interests in the partnership. In December 1997, these retained interests were
redeemed and a related debt guaranty was released resulting in a pre-tax gain of
$170 million ($97 million after taxes and minority interest expense). These
gains were presented in the consolidated statement of earnings as gains on sales
of businesses.
- --------------------------------------------------------------------------------
NOTE 8 PREFERRED SECURITIES OF SUBSIDIARIES
- --------------------------------------------------------------------------------
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 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 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 the third quarter of 1995, International Paper Capital Trust (the
Trust) issued $450 million of International Paper - obligated mandatorily
redeemable preferred securities. The Trust is a wholly-owned consolidated
subsidiary of International Paper and its sole assets are International Paper
5 1/4% convertible subordinated debentures. The obligations of the Trust related
to its preferred securities are fully and unconditionally guaranteed by
International Paper. These preferred securities are convertible into
International Paper common stock.
Distributions paid under all of the preferred securities noted above were
$134 million, $54 million and $24 million in 1999, 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
NOTE 9 SALE OF LIMITED PARTNERSHIP INTERESTS
- --------------------------------------------------------------------------------
During 1993, International Paper contributed assets with a fair market value of
approximately $900 million to two newly formed limited partnerships, Georgetown
Equipment Leasing Associates, L.P. and Trout Creek Equipment Leasing, L.P. These
partnerships are separate and distinct legal entities from International Paper
and have separate assets, liabilities, business functions and operations.
However, for accounting purposes, we continue to consolidate these assets, and
the minority shareholders' interests are reflected as minority interest in the
accompanying financial statements. The purpose of the partnerships is to invest
in and manage a portfolio of assets including pulp and paper equipment used at
the Georgetown, South Carolina and Ticonderoga, New York mills. This equipment
is leased to International Paper under long-term leases. Partnership assets also
include floating rate notes and cash. During 1993, outside investors purchased a
portion of our limited partner interests for $132 million and also contributed
an additional $33 million to one of these partnerships.
At December 31, 1999, we held aggregate general and limited partner
interests totaling 58% in Georgetown Equipment Leasing Associates, L.P. and 50%
in Trout Creek Equipment Leasing, L.P.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 INCOME TAXES
- --------------------------------------------------------------------------------
We use the asset and liability method of accounting for income taxes whereby
deferred income taxes are recorded for the future tax consequences attributable
to differences between the financial statement and tax bases of assets and
liabilities. Deferred tax assets and liabilities are measured using tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets and
liabilities are revalued to reflect new tax rates in the periods rate changes
are enacted.
The components of earnings before income taxes and minority interest by
taxing jurisdiction were:
In millions 1999 1998 1997
- -------------------------------------- ----- ----- -----
Earnings
U.S. $ 237 $ 297 $ 43
Non-U.S. 211 132 100
----- ----- -----
Earnings before income taxes, minority
interest and extraordinary item $ 448 $ 429 $ 143
===== ===== =====
The provision for income taxes by taxing jurisdiction was:
In millions 1999 1998 1997
- -------------------------------------- ----- ----- -----
Current tax provision (benefit)
U.S. federal $ 259 $ (64) $ 104
U.S. state and local 27 (6) 11
Non-U.S. 8 33 47
----- ----- -----
294 (37) 162
----- ----- -----
Deferred tax provision (benefit)
U.S. federal (108) 117 (41)
U.S. state and local (103) (12) (41)
Non-U.S. 3 27 3
----- ----- -----
(208) 132 (79)
----- ----- -----
Income tax provision $ 86 $ 95 $ 83
===== ===== =====
We made income tax payments, net of refunds, of $68 million, $144 million
and $209 million in 1999, 1998 and 1997, respectively.
A reconciliation of income tax expense using the statutory U.S. income tax
rate compared with actual income tax expense follows:
In millions 1999 1998 1997
- -------------------------------------- ----- ----- -----
Earnings before income taxes, minority
interest and extraordinary item $ 448 $ 429 $ 143
Statutory U.S. income tax rate 35% 35% 35%
----- ----- -----
Tax expense using statutory
U.S. income tax rate 157 150 50
State and local income taxes (20) (11) (20)
Non-U.S. tax rate differences (52) 20 32
Permanent benefits on sales of
non-U.S. businesses (2) (33)
Permanent benefits on sales of
non-strategic timberland assets (29)
Nondeductible business expenses 30 9 53
Foreign sales corporation benefit (9) (9) (22)
Minority interest (56) (31) (23)
Goodwill 21 21 20
Net U.S. tax on non-U.S. dividends 15 10 11
Tax credits (12) (1) (7)
Other, net 14 (1) (11)
----- ----- -----
Income tax provision $ 86 $ 95 $ 83
----- ----- -----
Effective income tax rate 19% 22% 58%
===== ===== =====
The net deferred income tax liability as of December 31, 1999 and 1998
includes the following components:
In millions 1999 1998
- --------------------------------- ------- -------
Current deferred tax asset $ 196 $ 211
Noncurrent deferred tax asset 240 284
Noncurrent deferred tax liability (3,344) (3,673)
------- -------
Total $(2,908) $(3,178)
======= =======
The tax effects of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1999 and 1998 were as follows:
In millions 1999 1998
- ----------------------------------------- ------- -------
Plants, properties and equipment $(2,995) $(3,036)
Prepaid pension costs (339) (347)
Forestlands (534) (638)
Postretirement benefit accruals 225 210
Alternative minimum and other tax credits 390 376
Net operating loss carryforwards 235 135
Other 110 122
------- -------
Total $(2,908) $(3,178)
======= =======
Net operating loss carryforwards, most of which are applicable to non-U.S.
subsidiaries, expire as follows: years
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2001 through 2006 - $139 million, year 2019 - $37 million and indefinite
carryforward - $564 million.
Deferred taxes are not provided for temporary differences of approximately
$570 million, $475 million and $555 million as of December 31, 1999, 1998 and
1997, respectively, representing earnings of non-U.S. subsidiaries that are
intended to be permanently reinvested. If these earnings were remitted, we
believe that U.S. foreign tax credits would eliminate any significant impact on
future income tax provisions.
- --------------------------------------------------------------------------------
NOTE 11 COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------
Certain property, machinery and equipment are leased under cancelable and
noncancelable agreements. At December 31, 1999, total future minimum rental
commitments under noncancelable leases were $606 million, due as follows: 2000 -
$150 million, 2001 - $121 million, 2002 - $91 million, 2003 - $77 million, 2004
- - $62 million and thereafter - $105 million. Rent expense was $229 million, $237
million and $242 million for 1999, 1998 and 1997, respectively.
Three nationwide class action lawsuits filed against International Paper
have been settled. The first suit alleged that hardboard siding manufactured by
Masonite fails prematurely, allowing moisture intrusion that in turn causes
damage to the structure underneath the siding. The class consisted of all U.S.
property owners having Masonite hardboard siding installed on and incorporated
into buildings between 1980 and January 15, 1998. Final approval of the
settlement was granted by the Court on January 15, 1998. The settlement provides
for monetary compensation to class members meeting the settlement requirements
on a claims-made basis. It also provides for the payment of attorneys' fees
equaling 15% of the settlement amounts paid to class members, with a
nonrefundable advance of $47.5 million plus $2.5 million in costs.
The second suit made similar allegations with regard to Omniwood siding
manufactured by Masonite (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 13% of
the settlement amounts paid to class members with a nonrefundable advance of
$1.7 million plus $75,000 in costs for each of the two cases.
Our reserves for these matters total $76 million at December 31, 1999. The
amount includes $25 million which we added to our reserve for hardboard siding
claims in the fourth quarter of 1999, to cover an expected shortfall in that
reserve resulting primarily from a higher number of hardboard siding claims in
the fourth quarter of 1999 than we had anticipated. It is reasonably possible
that the higher number of hardboard siding claims might be indicative of the
need for one or more future additions to this reserve. However, whether or not
any future additions to this reserve become necessary, International Paper
believes that these settlements will not have a material adverse effect on our
consolidated financial position or results of operations. The reserve balance is
net of $51 million of expected insurance recoveries (apart from the insurance
recoveries to date). Through December 31, 1999, settlement payments of $183
million, including the $51 million of nonrefundable advances of attorney's fees
discussed above, have been made. Also, we have received $27 million from our
insurance carriers through December 31, 1999. International Paper and Masonite
have the right to terminate each of the settlements after seven years from the
dates of final approval.
We are also involved in various other inquiries, administrative
proceedings and litigation relating to contracts, sales of property,
environmental protection, tax, antitrust and other matters, some of which allege
substantial monetary damages. While any proceeding or litigation has the element
of uncertainty, we believe that the outcome of any lawsuit or claim that is
pending or threatened, or all of them combined, will not have a material adverse
effect on our consolidated financial position or results of operations.
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 SUPPLEMENTARY BALANCE SHEET INFORMATION
- --------------------------------------------------------------------------------
Inventories by major category were:
In millions at December 31 1999 1998
- -------------------------------------- ------- -------
Raw materials $ 484 $ 555
Finished pulp, paper and packaging products 1,869 1,800
Finished lumber and panel products 178 183
Operating supplies 486 510
Other 186 163
------- -------
Inventories $ 3,203 $ 3,211
======= =======
The last-in, first-out inventory method is used to value most of our
domestic inventories. Approximately 73% of total raw materials and finished
products inventories were valued using this method. If the first-in, first-out
method had been used, it would have increased total inventory balances by
approximately $250 million, $321 million and $348 million at December 31, 1999,
1998 and 1997, respectively.
Plants, properties and equipment by major classification were:
In millions at December 31 1999 1998
- -------------------------------------- ------- -------
Pulp, paper and packaging facilities
Mills $21,288 $21,367
Packaging plants 3,233 3,082
Wood products facilities 2,117 2,134
Other plants, properties and equipment 2,889 2,987
------- -------
Gross cost 29,527 29,570
Less: Accumulated depreciation 15,146 14,250
------- -------
Plants, properties and equipment, net $14,381 $15,320
======= =======
- --------------------------------------------------------------------------------
NOTE 13 DEBT AND LINES OF CREDIT
- --------------------------------------------------------------------------------
A summary of long-term debt follows:
In millions at December 31 1999 1998
- --------------------------------------------- ------ ------
8 7/8% to 10.5% notes - due 2000 - 2012 $ 563 $ 596
8 7/8% to 9.7% notes - due 2000 - 2004 600 600
8 5/8% to 10% sinking fund debentures -
due 2000 - 2021 34 243
8.5% to 9.5% debentures - due 2002 - 2022 246 325
8 3/8% to 9 1/2% debentures - due 2015 - 2024 300 300
6 7/8% to 7 7/8% notes - due 2000 - 2007 1,373 1,423
6 7/8% to 8 1/8% notes - due 2023 - 2029 741 546
6.5% notes - due 2007 148 148
6 1/8% notes - due 2003 200 200
5 7/8% Swiss franc debentures - due 2001 68 82
5 3/8% note due - 2006 249
5 1/8% debentures - due 2012 88 86
Floating rate notes - due 1999 (1) 450
Medium-term notes - due 2000 - 2009 (2) 331 625
Environmental and industrial development
bonds - due 2000 - 2028 (3,4) 1,352 1,363
Commercial paper and bank notes (5) 1,325 1,196
Other (6) 416 459
------ ------
Total (7) 8,034 8,642
Less: Current maturities 514 945
------ ------
Long-term debt $7,520 $7,697
====== ======
(1) The weighted average interest rate on these notes was 6.2% in 1998 and was
based on LIBOR.
(2) The weighted average interest rate on these notes was 8.3% in 1999 and
7.5% in 1998.
(3) The weighted average interest rate on these bonds was 6.1% in 1999 and
5.8% in 1998.
(4) Includes $149 million of bonds at December 31, 1999 and $274 million at
December 31, 1998, which may be tendered at various dates and/or under
certain circumstances.
(5) Includes $708 million in 1999 of non-U.S. dollar denominated borrowings
with a weighted average interest rate of 5.6% in 1999.
(6) Includes $14 million in 1999 and $36 million in 1998 of French franc
borrowings with a weighted average interest rate of 2.8% in 1999 and 2.7%
in 1998, and $132 million in 1999 and $159 million in 1998 of German mark
borrowings with a weighted average interest rate of 4.7% in 1999 and 4.6%
in 1998.
(7) The fair market value was approximately $8.1 billion and $9.0 billion at
December 31, 1999 and 1998, respectively.
Total maturities of long-term debt over the next five years are 2000 -
$514 million, 2001 - $619 million, 2002 - $1.4 billion, 2003 - $300 million and
2004 - $1.5 billion.
At December 31, 1999 and 1998, International Paper, including a non-U.S.
subsidiary, classified $1.5 billion and $1.4 billion, respectively, of
tenderable bonds, commercial paper and bank notes as long-term debt.
International Paper and this subsidiary have the intent and ability to renew or
convert these obligations through 2000 and into future periods.
At December 31, 1999, unused bank lines of credit amounted to $1.9
billion. The lines generally provide for interest at market rates plus a margin
based on our current
51
<PAGE>
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
bond rating. The principal line, which is cancelable only if our bond rating
drops below investment grade, provides for $750 million of credit through March
2004, and has a facility fee of .10% that is payable quarterly. A 364-day
facility provides for $500 million of credit through March 29, 2000 and has a
facility fee of .07% that is payable quarterly. Carter Holt Harvey also has two
principal lines of credit that support its commercial paper programs. A $600
million line of credit matures in April 2002 and has a .15% facility fee that is
payable quarterly and a 250 million New Zealand dollar line of credit matures in
February 2002 and has a .13% facility fee that is payable quarterly.
At December 31, 1999, notes payable included $693 million of non-U.S.
dollar denominated debt with maturities of less than twelve months and a
weighted average interest rate of 10.3%.
At December 31, 1999, outstanding debt included approximately $1.7 billion
of borrowings with interest rates that fluctuate based on market conditions and
our credit rating.
In 1999, International Paper recorded an extraordinary loss of $16 million
after taxes for the extinguishment of high interest debt which was assumed under
the merger agreement with Union Camp. We extinguished approximately $275 million
of long-term debt with interest rates ranging from 8.5% to 10%.
Through a public tender offer in the 1997 third quarter, International
Paper's then wholly-owned subsidiary, Federal Paper Board, repurchased $164
million of its 10% debentures due April 15, 2011. The earnings impact of the
debt retirement was not significant.
- --------------------------------------------------------------------------------
NOTE 14 FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
Financial instruments are used primarily to hedge exposure to currency and
interest rate risk. To qualify as hedges, financial instruments must reduce the
currency or interest rate risk associated with the related underlying items and
be designated as hedges by management. Gains or losses from the revaluation of
financial instruments that do not qualify for hedge accounting treatment are
recognized in earnings.
Our policy is to finance a portion of our investments in non-U.S.
operations with borrowings denominated in the same currency as the investment or
by entering into foreign exchange contracts in tandem with U.S. dollar
borrowings. These contracts are effective in providing a hedge against
fluctuations in currency exchange rates. Gains or losses from the revaluation of
these contracts, which are fully offset by gains or losses from the revaluation
of the net assets being hedged, are determined monthly based on published
currency exchange rates and are recorded as translation adjustments in common
shareholders' equity. Upon liquidation of the net assets being hedged or early
termination of the foreign exchange contracts, the gains or losses from the
revaluation of foreign exchange contracts would be included in earnings. Amounts
payable to or due from the counterparties to the foreign exchange contracts are
included in accrued liabilities or accounts receivable as applicable.
Financial instruments outstanding at December 31, 1999 used to hedge net
investments in non-U.S. operations consisted of non-U.S. dollar denominated debt
totaling $1.7 billion. Also outstanding were foreign currency forward contracts
totaling $1.5 billion, substantially all having maturities of less than twelve
months, as noted in the following table expressed in U.S. dollar equivalents.
The average amount of outstanding contracts during 1999 and 1998 was $1.0
billion and $1.4 billion, respectively.
<TABLE>
<CAPTION>
Weighted Net
Average Unrealized
Foreign Currency Contract Exchange Gain
Forward Contracts (dollars in millions) Amount Rate (Loss)
- --------------------------------------- -------- ---------- ------
<S> <C> <C> <C>
Receive Australian dollars / Pay New
Zealand dollars $ 20 0.79 $(1)
Receive European euros / Pay U.S. dollars 1,012 0.95 52
Receive British pounds / Pay U.S. dollars 99 0.62
Receive New Zealand dollars / Pay U.S. dollars 332 1.93 3
Receive Swedish kronas / Pay U.S. dollars 34 8.09 2
Receive U.S. dollars / Pay New Zealand dollars 25 0.56 3
</TABLE>
Foreign exchange contracts are also used to hedge certain transactions
that are denominated in non-U.S. currencies, primarily export sales and
equipment purchased from nonresident vendors. These contracts serve to protect
International Paper from currency fluctuations between the transaction and
settlement dates. Gains and losses from the revaluation of these contracts,
based on published currency exchange rates, along with offsetting gains and
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
exchange contracts would be included in earnings.
Financial instruments outstanding at December 31, 1999 used to hedge
transactions denominated in non-U.S. curren-
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
cies consisted of foreign currency forward contracts totaling $617 million, a
majority having maturities of less than twelve months, as noted in the following
table expressed in U.S. dollar equivalents. The average amount of outstanding
contracts during 1999 and 1998 was $454 million and $610 million, respectively.
<TABLE>
<CAPTION>
Weighted Net
Average Unrealized
Foreign Currency Contract Exchange Gain
Forward Contracts (U.S. dollars in millions) Amount Rate (Loss)
- ---------------------------------------------- -------- -------- ----------
<S> <C> <C> <C>
Receive German marks / Pay British pounds $ 40 3.00 $(3)
Receive European euros / Pay U.S. dollars 51 0.99
Receive European euros / Pay British pounds 65 1.58 (1)
Receive British pounds / Pay European euros 21 0.63
Receive New Zealand dollars / Pay Australian
dollars 116 1.23 (5)
Receive New Zealand dollars / Pay U.S. dollars 167 1.96 7
Receive U.S. dollars / Pay European euros 56 1.07
Receive U.S. dollars / Pay British pounds 20 1.61
</TABLE>
Note: We have an additional $81 million in a number of smaller contracts to
purchase or sell other currencies with a related net immaterial unrealized loss.
Cross-currency and interest rate swap agreements are used to manage the
composition of our fixed and floating rate debt portfolio. Amounts to be paid or
received as interest under these agreements are recognized over the life of the
swap agreements as adjustments to interest expense. 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 due from the counterparties to the agreements are
included in accrued liabilities or accounts receivable as applicable. If swap
agreements are terminated early, the resulting gain or loss would be deferred
and amortized over the remaining life of the related debt. The following table
presents notional amounts and principal cash flows for currency and interest
rate swap agreements by year of maturity expressed in U.S. dollar equivalents.
The impact on our earnings and net liability under these agreements was not
significant.
Interest Rate and Currency Swaps (in millions)
<TABLE>
<CAPTION>
Outstanding as There- Fair
of December 31, 1999 2000 2001 2002 2003 2004 after Total Value
- -------------------------------- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. dollar variable to
fixed rate swaps $ 45 $200 $300 $500 $1,045 $ 16
Average pay rate 7.3%
Average receive rate 6.1%
Australian dollar variable to
fixed rate swaps $ 48 $ 48 16 48 16 176 2
Average pay rate 6.0%
Average receive rate 5.4%
New Zealand dollar variable to
fixed rate swaps 23 26 52 26 13 140 2
Average pay rate 6.8%
Average receive rate 5.4%
U.S. dollar fixed to
variable rate swaps 45 200 550 500 1,295 (25)
Average pay rate 7.4%
Average receive rate 6.6%
U.S. dollar to Australian dollar
cross-currency swap 150 150 (4)
Swiss franc to New Zealand
dollar cross-currency swaps 75 75 (8)
</TABLE>
We do not hold or issue financial instruments for trading purposes. The
counterparties to interest rate swap agreements and foreign exchange contracts
consist of a number of major international financial institutions. International
Paper continually monitors its positions with and the credit quality of these
financial institutions and does not expect nonperformance by the counterparties.
- --------------------------------------------------------------------------------
NOTE 15 CAPITAL STOCK
- --------------------------------------------------------------------------------
The authorized capital stock at December 31, 1999 and 1998 consisted of
990,850,000 and 400,000,000 shares of common stock, $1 par value, respectively;
400,000 shares of cumulative $4 nonredeemable preferred stock, without par value
(stated value $100 per share); and 8,750,000 shares of serial preferred stock,
$1 par value. The serial preferred stock is issuable in one or more series by
the Board of Directors without further shareholder action.
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16 RETIREMENT PLANS
- --------------------------------------------------------------------------------
International Paper maintains pension plans that provide retirement benefits to
substantially all employees. Employees generally are eligible to participate in
the plans upon completion of one year of service and attainment of age 21.
The plans provide defined benefits based on years of credited service and
either final average earnings (salaried employees), hourly job rates or
specified benefit rates (hourly and union employees).
U.S. Defined Benefit Plans
International Paper makes contributions that are sufficient to fully fund
its actuarially determined costs, generally equal to the minimum amounts
required by the Employee Retirement Income Security Act (ERISA).
Net periodic pension income for qualified and nonqualified defined benefit
plans comprised the following:
In millions 1999 1998 1997
- ---------------------------------------- ----- ----- -----
Service cost $(101) $ (97) $ (90)
Interest cost (303) (297) (280)
Expected return on plan assets 469 455 418
Amortization of net transition asset (1) 26 26
Actuarial gains and losses (6) (3) (1)
Amortization of prior service cost (16) (12) (10)
Curtailment gain 6 5
----- ----- -----
Net periodic pension income $ 49 $ 77 $ 63
===== ===== =====
(1) Amortization of International Paper's net transition asset, which
increased annual periodic pension income, was completed in 1999.
The following table presents the changes in benefit obligation and plan
ssets for 1999 and 1998 and the plans' funded status and amounts recognized in
the consolidated balance sheet as of December 31, 1999 and 1998.
In millions 1999 1998
- ----------------------------------------- ------- -------
Change in benefit obligation:
Benefit obligation, January 1 $ 4,492 $ 3,928
Service cost 101 92
Interest cost 303 285
Participants' contributions 1
Actuarial (gain) loss (439) 393
Benefits paid (322) (258)
Acquisitions 53
Divestitures (23)
Curtailment gain (10)
Special termination benefits 92 11
Plan amendments 106 10
------- -------
Benefit obligation, December 31 (1) $ 4,323 $ 4,492
======= =======
Change in plan assets:
Fair value of plan assets, January 1 $ 4,942 $ 4,684
Actual return on plan assets 950 436
Company and participants' contributions 42 20
Benefits paid (322) (258)
Acquisitions 85
Divestitures (25)
------- -------
Fair value of plan assets, December 31 $ 5,612 $ 4,942
======= =======
Funded status (2) $ 1,289 $ 450
Unrecognized actuarial (gain) loss (615) 322
Unamortized prior service cost 183 87
Unrecognized net transition obligation 2 3
------- -------
Prepaid benefit cost $ 859 $ 862
======= =======
Amounts recognized in the consolidated
balance sheet consist of:
Prepaid benefit cost $ 928 $ 959
Accrued benefit liability (85) (129)
Intangible asset 6 19
Minimum pension liability adjustment
included in accumulated other
comprehensive income 10 13
------- -------
Net amount recognized $ 859 $ 862
======= =======
(1) Includes nonqualified unfunded plans with projected benefit obligations of
$110 million and $125 million at December 31, 1999 and 1998, respectively.
(2) The Union Camp and Alling and Cory domestic qualified pension plans were
merged with the International Paper domestic qualified pension plan
effective September 30, 1999. The funded status information for 1999
reflects this merger. Prior to the plan merger, the Union Camp domestic
qualified hourly plan had an accumulated benefit obligation in excess of
the fair value of plan assets. As of December 31, 1998, the projected
benefit obligation, accumulated benefit obligation and fair value of plan
assets for the Union Camp hourly plan were $290 million, $290 million and
$269 million, respectively.
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Included in the 1999 special charge was $92 million for special
termination benefits attributable to the elimination of approximately 1,171
positions in connection with an employee integration benefits program provided
to employees whose jobs were eliminated as a result of the merger of
International Paper and Union Camp.
Included in the 1998 special charge was $11 million for special
termination benefits attributable to the elimination of approximately 540
positions in connection with a Union Camp employee severance program.
Plan assets are held in master trust accounts and include investments in
International Paper common stock in the amounts of $401 million and $432 million
at December 31, 1999 and 1998, respectively.
Weighted average assumptions as of December 31, 1999, 1998 and 1997 were
as follows:
1999 1998 (1,2) 1997 (2)
----- ---- ----
Discount rate 7.75% 6.60% 7.20%
Expected long-term return on
plan assets 10.00% 9.90% 9.90%
Rate of compensation increase 5.00% 4.20% 4.60%
(1) As of June 1, 1999 International Paper enhanced pension benefits for its
major union groups. As a result, the pension plan was revalued. The
revaluation assumed a discount rate of 7.25% and a rate of compensation
increase of 4.5%. These actions had the net effect of reducing the pension
benefit obligation by $179 million.
(2) The 1998 and 1997 rates are a blended average of the Union Camp and
International Paper plan assumptions. The International Paper discount
rate, expected long-term return on plan assets and rate of compensation
increase for 1998 was 6.5%, 10.0% and 4.0%, respectively. For 1997 the
respective rates were 7.25%, 10.0% and 4.5%.
Non-U.S. Defined Benefit Plans
Generally, our non-U.S. pension plans are funded using the projected
benefit as a target, except in certain countries where funding of benefit plans
is not required. Net periodic pension expense for our non-U.S. plans was not
significant for 1999, 1998 and 1997.
The plans' projected benefit obligation in excess of plan assets at fair
value at December 31, 1999 and 1998 was $43 million and $66 million,
respectively. Plan assets are composed principally of common stocks and other
fixed income securities.
Other Plans
We sponsor several defined contribution plans to provide substantially all
U.S. salaried and certain hourly employees of International Paper an opportunity
to accumulate personal funds for their retirement. Contributions may be made on
a before-tax basis to substantially all of these plans.
As determined by the provisions of each plan, International Paper matches
the employees' basic voluntary contributions. Such matching contributions to the
plans were approximately $67 million, $58 million and $56 million for the plan
years ending in 1999, 1998 and 1997, respectively. The net assets of these plans
approximated $3.4 billion as of the 1999 plan year-end.
- --------------------------------------------------------------------------------
NOTE 17 POSTRETIREMENT BENEFITS
- --------------------------------------------------------------------------------
International Paper provides certain retiree health care and life insurance
benefits covering a majority of U.S. salaried and certain hourly employees.
Employees are generally eligible for benefits upon retirement and completion of
a specified number of years of creditable service. An amendment in 1992 to one
of the plans limits the maximum annual company contribution for health care
benefits for retirees after January 1, 1992, based on age at retirement and
years of service after age 50. Amortization of this plan amendment, which
reduced annual net postretirement benefit cost, was completed in 1999.
International Paper does not prefund these benefits and has the right to modify
or terminate certain of these plans in the future.
The components of postretirement benefit expense in 1999, 1998 and 1997
were as follows:
In millions 1999 1998 1997
- ---------------------------------- ---- ---- ----
Service cost $ 11 $ 11 $ 11
Interest cost 30 33 33
Actuarial gains and losses 2 1 1
Amortization of prior service cost (12) (21) (21)
---- ---- ----
Net postretirement benefit cost $ 31 $ 24 $ 24
==== ==== ====
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the plans' funded status as of December 31,
1999 and 1998 and changes in benefit obligation and plan assets for 1999 and
1998.
In millions 1999 1998
- ---------------------------------------- ----- -----
Change in benefit obligation:
Benefit obligation, January 1 $ 503 $ 489
Service cost 11 11
Interest cost 30 33
Participants' contributions 16 15
Actuarial loss (gain) (66) (6)
Benefits paid (44) (45)
Plan amendments (15)
Acquisitions 3
Curtailment loss (gain) 4
Special termination benefits 7 3
----- -----
Benefit obligation, December 31 $ 446 $ 503
===== =====
Change in plan assets:
Fair value of plan assets, January 1 $ -- $ --
Company contributions 28 30
Participants' contributions 16 15
Benefits paid (44) (45)
----- -----
Fair value of plan assets, December 31 $ -- $ --
===== =====
Funded status $(446) $(503)
Unamortized prior service cost (47) (39)
Unrecognized actuarial loss 4 58
----- -----
Prepaid (accrued) benefit cost $(489) $(484)
===== =====
Future benefit costs were estimated assuming medical costs would increase
at a 7.25% annual rate, decreasing to a 5% annual growth rate ratably over the
next four years and then remaining at a 5% annual growth rate thereafter. A 1%
increase in this annual trend rate would have increased the accumulated
postretirement benefit obligation at December 31, 1999 by $21 million. A 1%
decrease in the annual trend rate would have decreased the accumulated
postretirement benefit obligation at December 31, 1999 by $18 million. The
effect on net postretirement benefit cost from a 1% increase or decrease would
not be material. The weighted average discount rate used to estimate the
accumulated postretirement benefit obligation at December 31, 1999 was 7.75%
compared with 6.60% at December 31, 1998.
Included in the 1999 special charge was $7 million for special termination
benefits attributable to the elimination of approximately 313 positions in
connection with an integration benefits program provided to employees whose jobs
were eliminated as a result of the merger of International Paper and Union Camp.
Included in the 1998 special charge was $3 million for special termination
benefits attributable to the elimination of approximately 540 positions in
connection with a Union Camp employee severance program.
- --------------------------------------------------------------------------------
NOTE 18 INCENTIVE PLANS
- --------------------------------------------------------------------------------
International Paper currently has a Long-Term Incentive Compensation Plan that
includes a Stock Option Plan, a Restricted Performance Share Plan and an
Executive Continuity Award Plan, administered by a committee of nonemployee
members of the Board of Directors who are not eligible for awards. The Plan
allows stock appreciation rights to be awarded, although none were outstanding
at December 31, 1999 or 1998. We also have other performance-based restricted
share/unit plans available to senior executives and directors.
We apply the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for our plans and the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123). Accordingly, no compensation cost has been recognized for the stock
option plan. Had compensation cost for our stock-based compensation plans been
determined consistent with the provisions of SFAS No. 123, our net earnings,
earnings per common share and earnings per common share - assuming dilution
would have been reduced to the pro forma amounts indicated below:
In millions, except per share amounts 1999 1998 1997
- ------------------------------------- ------- ------- -------
Net Earnings (Loss)
As reported $ 183 $ 247 $ (80)
Pro forma 152 223 (108)
Earnings (Loss) Per Common Share
As reported $ 0.44 $ 0.60 $ (0.20)
Pro forma 0.37 0.54 (0.27)
Earnings (Loss) Per Common Share -
Assuming Dilution
As reported $ 0.44 $ 0.60 $ (0.20)
Pro forma 0.37 0.54 (0.27)
The effect on 1999, 1998 and 1997 pro forma net earnings, earnings per
common share and earnings per common share - assuming dilution of expensing the
estimated fair value of stock options is not necessarily representative of the
effect on reported earnings for future years due to the vest-
56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ing period of stock options and the potential for issuance of additional stock
options in future years.
Stock Option Plan
Under the current plan officers and certain other employees may be granted
options to purchase International Paper common stock. The option price is the
market price of the stock at the date of grant. Options are immediately
exercisable under the plan; however, the underlying shares cannot be sold and
carry profit forfeiture provisions during the initial two years following grant.
Upon exercise of an option, a replacement option may be granted with the
exercise price equal to the current market price and with a term extending to
the expiration date of the original option.
For purposes of the pro forma disclosure above the fair value of each
option grant has been estimated on the date of the grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
grants in 1999, 1998 and 1997, respectively:
1999 1998 1997
------- ------- -------
Initial Options (1)
Risk-Free Interest Rate 4.78% 5.05% 6.14%
Price Volatility 33.00% 29.28% 26.46%
Dividend Yield 2.08% 2.38% 2.77%
Expected Term in Years 4.39 5.31 5.13
Replacement Options (2)
Risk-Free Interest Rate 5.47% 5.51% 6.31%
Price Volatility 33.00% 31.09% 29.50%
Dividend Yield 2.05% 2.17% 2.31%
Expected Term in Years 2.09 2.12 2.22
(1) The average fair values of initial option grants during 1999, 1998 and
1997 were $13.14, $10.83 and $10.69, respectively.
(2) The average fair values of replacement option grants during 1999, 1998 and
1997 were $10.14, $9.40 and $9.04, respectively.
A summary of the status of the Stock Option Plan as of December 31, 1999,
1998 and 1997 and changes during the years ended on those dates is presented
below:
Weighted
Average
Exercise
Options (1,2) Price
----------- --------
Outstanding at January 1, 1997 17,066,505 $34.26
Granted 6,889,324 44.55
Exercised (5,005,818) 34.17
Forfeited (605,679) 35.99
Expired (220,248) 42.56
----------- ------
Outstanding at December 31, 1997 18,124,084 38.03
Granted 4,820,970 42.96
Exercised (3,314,612) 35.85
Forfeited (789,621) 42.82
Expired (154,915) 49.97
----------- ------
Outstanding at December 31, 1998 18,685,906 39.39
Granted 4,521,627 49.76
Exercised (6,531,818) 36.56
Forfeited (522,214) 42.91
Expired (354,566) 51.41
----------- ------
Outstanding at December 31, 1999 15,798,935 43.14
===========
(1) The table does not include Executive Continuity Award tandem options
described below. No fair value is assigned to these options under SFAS No.
123. The tandem restricted shares accompanying these options are expensed
over their vesting period.
(2) The table does include options outstanding under two acquired company
plans under which options may no longer be granted.
The following table summarizes information about stock options outstanding
at December 31, 1999:
Outstanding and Exercisable
------------------------------------------
Weighted Weighted
Average Average
Options Remaining Exercise
Range of Exercise Prices Outstanding Life Price
- ------------------------ ----------- ---------- ----------
$22.68 - $38.50 3,415,956 5.5 $32.29
$38.62 - $41.94 4,187,083 6.9 $40.29
$41.98 - $46.00 3,578,837 7.5 $44.54
$46.06 - $52.25 2,112,332 4.7 $49.74
$52.37 - $59.94 2,504,727 3.2 $55.15
Performance - Based Restricted Shares
Under the Restricted Performance Share Plan, contingent awards of
International Paper's common stock are granted by the Committee. Awards are
earned on the basis of International Paper's financial performance over a period
of consecutive calendar years as determined by the Committee. A majority of the
awards under the Restricted Performance Share Plan in effect at the beginning of
1999 have been can-
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
celled. Prior to the amended plan which is expected to commence in 2001, a
one-time Transitional Performance Unit Plan was implemented effective July 1,
1999, which provides a cash award upon successful achievement of pre-established
performance criteria.
The following summarizes the activity of all performance-based plans for
the three years ending December 31, 1999:
Shares
----------
Outstanding at January 1, 1997 1,037,061
Granted 284,547
Issued (120,187)
Forfeited (40,352)
----------
Outstanding at December 31, 1997 1,161,069
Granted 330,656
Issued (156,935)
Forfeited (50,100)
----------
Outstanding at December 31, 1998 1,284,690
Granted 95,035
Issued (227,553)
Forfeited (1) (1,067,153)
----------
Outstanding at December 31, 1999 85,019
==========
(1) Includes 974,734 shares forfeited under the Restricted Performance Share
Plan.
Executive Continuity Award Plan
The Executive Continuity Award Plan provides for the granting of tandem
awards of restricted stock and/or nonqualified stock options to key executives.
Grants are restricted and awards conditioned on attainment of specified age and
years of service requirements. Exercise of a tandem stock option results in the
cancellation of the related restricted shares.
The following summarizes the activity of the Executive Continuity Award
Plan for the three years ending December 31, 1999:
Shares
--------
Outstanding at January 1, 1997 483,650
Granted 106,108
Issued (9,500)
--------
Outstanding at December 31, 1997 580,258
Granted 24,000
Issued (5,500)
Forfeited (5,000)
--------
Outstanding at December 31, 1998 593,758
Granted 71,900
Issued (65,412)
Forfeited (1) (89,390)
--------
Outstanding at December 31, 1999 510,856
========
(1) Includes restricted shares cancelled when tandem stock options were
exercised. In 1999, 440,000 tandem stock options were exercised.
At December 31, 1999 and 1998, a total of 30.1 million and 4.6 million
shares, respectively, were available for grant under the Long-Term Incentive
Compensation Plan. In 1999, shareholders approved an additional 25.5 million
shares to be made available for grant, with 3 million of these shares reserved
specifically for the granting of restricted stock. A total of 4.2 million shares
remain available for the granting of restricted stock as of December 31, 1999.
The compensation cost that has been charged to earnings for the
performance-based plans was $3 million, $15 million and $14 million for 1999,
1998 and 1997, respectively. Our 1999 earnings included income of $20 million
recognized upon cancellation of a majority of the awards under the Restricted
Performance Share Plan.
- --------------------------------------------------------------------------------
NOTE 19 SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
The sale for just over $1.2 billion of Carter Holt Harvey's equity interest in
COPEC closed on January 3, 2000. Also, the sale for $79 million of our equity
interest in Scitex was completed on January 6, 2000. These transactions resulted
in an after-tax profit of about $135 million or $.33 per share which will be
recorded as an extraordinary item, pursuant to the pooling-of-interests rules,
in the first quarter of 2000.
On February 17, 2000, International Paper announced that we had reached an
agreement to acquire Shorewood Packaging Corporation, a leader in the premium
retail packaging market, for $600 million in cash and the assumption of $275
million of debt.
On February 21, 2000, Carter Holt Harvey announced the purchase of CSR
Limited's medium density fiberboard and particleboard businesses and its Oberon
sawmill for approximately $207 million in cash.
58
<PAGE>
INTERNATIONAL PAPER
<TABLE>
<CAPTION>
SIX-YEAR FINANCIAL SUMMARY
Dollar amounts in millions, except per share amounts and stock prices 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Results of Operations
Net sales $ 24,573 $ 23,979 $ 24,556
Costs and expenses, excluding interest 23,620 23,039 23,976
Earnings before income taxes, minority
interest, extraordinary item and
cumulative effect of accounting changes 448(1) 429(2) 143(3)
Minority interest expense, net of taxes 163(1) 87(2) 140(3)
Extraordinary item 16
Cumulative effect of accounting changes
Net earnings (loss) 183(1) 247(2) (80)(3)
Earnings (loss) applicable to common shares 183(1) 247(2) (80)(3)
-------- -------- ---------
Financial Position
Working capital $ 2,859 $ 2,675 $ 1,476
Plants, properties and equipment, net 14,381 15,320 15,707
Forestlands 2,921 3,093 3,273
Total assets 30,268 31,466 31,971
Long-term debt 7,520 7,697 8,521
Common shareholders' equity 10,304 10,738 10,647
-------- -------- ---------
Per Share of Common Stock -
Assuming No Dilution (7)
Earnings (loss) before extraordinary item
and cumulative effect of accounting changes $ 0.48 $ 0.60 $ (0.20)
Extraordinary item (0.04)
Cumulative effect of accounting changes
Earnings (loss) 0.44 0.60 (0.20)
Cash dividends 1.01 1.05 1.05
Common shareholders' equity 24.95 26.13 26.18
-------- -------- ---------
Common Stock Prices (7)
High 59 1/2 55 1/4 61
Low 39 1/2 35 1/2 38 5/8
Year-end 56 7/16 44 13/16 43 1/8
-------- -------- ---------
Financial Ratios
Current ratio 1.7 1.6 1.3
Total debt to capital ratio 38.1 39.0 46.1
Return on equity 1.7(1,6) 2.3(2,6) (0.7)(3,6)
Return on investment 2.6(1,6) 2.5(2,6) 1.5(3,6)
-------- -------- ---------
Capital Expenditures $ 1,139 $ 1,322 $ 1,448
-------- -------- ---------
Number of Employees 98,700 98,300 100,900
======== ======== =========
<CAPTION>
SIX-YEAR FINANCIAL SUMMARY
Dollar amounts in millions, except per share amounts and stock prices 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Results of Operations
Net sales $ 24,182 $ 24,140 $ 18,469
Costs and expenses, excluding interest 23,193 20,791 17,150
Earnings before income taxes, minority
interest, extraordinary item and
cumulative effect of accounting changes 939(4) 2,742 896(5)
Minority interest expense, net of taxes 180(4) 166 54
Extraordinary item
Cumulative effect of accounting changes (79)
Net earnings (loss) 379(4) 1,595 461(5)
Earnings (loss) applicable to common shares 379(4) 1,595 461(5)
--------- -------- ---------
Financial Position
Working capital $ 454 $ 1,471 $ 856
Plants, properties and equipment, net 16,570 14,347 12,546
Forestlands 3,637 3,030 1,009
Total assets 33,357 28,838 22,624
Long-term debt 7,943 7,144 5,716
Common shareholders' equity 11,349 9,837 8,280
--------- -------- ---------
Per Share of Common Stock -
Assuming No Dilution (7)
Earnings (loss) before extraordinary item
and cumulative effect of accounting changes $ 0.95 $ 4.41 $ 1.52
Extraordinary item
Cumulative effect of accounting changes (0.22)
Earnings (loss) 0.95 4.41 1.30
Cash dividends 1.05 0.98 0.90
Common shareholders' equity 28.57 27.20 23.34
--------- -------- ---------
Common Stock Prices (7)
High 44 5/8 45 3/4 40 1/4
Low 35 5/8 34 1/8 30 3/8
Year-end 40 1/2 37 7/8 37 3/4
--------- -------- ---------
Financial Ratios
Current ratio 1.1 1.3 1.2
Total debt to capital ratio 45.6 43.7 48.6
Return on equity 3.4(4) 17.6 5.7(5)
Return on investment 3.3(4) 9.0 4.1(5)
--------- -------- ---------
Capital Expenditures $ 1,780 $ 1,785 $ 1,439
--------- -------- ---------
Number of Employees 106,300 99,800 88,900
========= ======== =========
</TABLE>
59
<PAGE>
INTERNATIONAL PAPER
FINANCIAL GLOSSARY
Current ratio -
current assets divided by current liabilities.
Total debt to capital ratio -
long-term debt plus notes payable and current maturities of long-term debt
divided by long-term debt, notes payable and current maturities of
long-term debt, minority interest, preferred securities and total common
shareholders' equity.
Return on equity -
net earnings divided by average common shareholders' equity (computed
monthly).
Return on investment -
net earnings plus after-tax interest expense and minority interest expense
divided by an average of total assets minus accounts payable and accrued
liabilities.
FOOTNOTES TO SIX-YEAR FINANCIAL SUMMARY
(1) Includes a $148 million pre-tax charge ($97 million after taxes) for Union
Camp merger-related termination benefits, a $107 million pre-tax charge
($78 million after taxes) for one-time merger expenses, a $298 million
pre-tax charge ($180 million after taxes and minority interest expense)
for asset shutdowns of excess internal capacity and cost reduction
actions, a $10 million pre-tax charge ($6 million after taxes) to increase
existing environmental remediation reserves related to certain former
Union Camp facilities, a $30 million pre-tax charge ($18 million after
taxes) to increase existing legal reserves and a $36 million pre-tax
credit ($27 million after taxes) for the reversal of reserves that were no
longer required.
(2) Includes a $20 million pre-tax gain ($12 million after taxes) on the sale
of the Veratec nonwovens business, an $83 million pre-tax gain ($50
million after taxes) from the reversal of previously established reserves
that are no longer required, a $111 million pre-tax charge ($68 million
after taxes) for the impairment of oil and gas reserves due to low prices,
a $145 million pre-tax restructuring and asset impairment charge ($82
million after taxes and minority interest expense) and $16 million of
pre-tax charges ($10 million after taxes) related to our share of charges
taken by Scitex, a 13% investee company, for the write-off of in-process
research and development related to an acquisition and costs to exit the
digital video business.
(3) Includes a pre-tax business improvement charge of $535 million ($385
million after taxes), a $150 million pre-tax provision for legal reserve
($93 million after taxes), a pre-tax charge of $125 million ($80 million
after taxes) for anticipated losses associated with the sale of the
Imaging businesses, and a pre-tax gain of $170 million ($97 million after
taxes and minority interest expense) from the redemption of certain
retained west coast partnership interests and the release of a related
debt guaranty.
(4) Includes a pre-tax restructuring and asset impairment charge of $554
million ($386 million after taxes), a $592 million pre-tax gain on the
sale of a west coast partnership interest ($336 million after taxes and
minority interest expense), a $155 million pre-tax charge ($99 million
after taxes) for the write-down of the investment in Scitex and a $10
million pre-tax charge ($6 million after taxes) for our share of a
restructuring charge announced by Scitex in November 1996.
(5) Includes $17 million ($10 million after taxes) of additional earnings
related to the change in accounting for start-up costs.
(6) Return on equity was 5.2% and return on investment was 4.0% in 1999 before
special items. Return on equity was 3.2% and return on investment was 2.8%
in 1998 before special items. Return on equity was 3.4% and return on
investment was 3.0% in 1997 before special items.
(7) Per share data and common stock prices have been adjusted to reflect a
two-for-one stock split in September 1995. All per share amounts are
computed before the effects of dilutive securities.
60
<PAGE>
INTERNATIONAL PAPER
INTERIM FINANCIAL RESULTS (UNAUDITED)
In millions, except per share amounts and stock prices
<TABLE>
<CAPTION>
Quarter
---------------------------------------------------
First Second Third Fourth Year
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
1999
Net Sales $ 6,032 $ 5,996 $ 6,251 $ 6,294 $24,573
Gross Margin (1) 1,456 1,576 1,658 1,778 6,468
Earnings (Loss) Before Income Taxes,
Minority Interest and Extraordinary Item 94 (36)(2) 242(3) 148(4) 448(2,3,4)
Net Earnings (Loss) 32 (71)(2) 142(3) 80(4) 183(2,3,4)
Per Share of Common Stock
Earnings (Loss) $ 0.08 $ (0.17) $ 0.34 $ 0.19 $ 0.44
Earnings (Loss) - Assuming Dilution 0.08 (0.17) 0.34 0.19 0.44
Dividends 0.26 0.25 0.25 0.25 1.01
Common Stock Prices
High 47 1/4 59 1/2 56 1/16 57 11/16 59 1/2
Low 39 1/2 42 11/16 46 15/16 43 9/16 39 1/2
1998
Net Sales $ 6,006 $ 5,833 $ 6,032 $ 6,108 $23,979
Gross Margin (1) 1,558 1,509 1,464 1,524 6,055
Earnings (Loss) Before Income Taxes
and Minority Interest 185 171(5) (17)(6) 90(7) 429(5,6,7)
Net Earnings (Loss) 100 103(5) (2)(6) 46(7) 247(5,6,7)
Per Share of Common Stock
Earnings (Loss) $ 0.25 $ 0.25 $ (0.01) $ 0.11 $ 0.60
Earnings (Loss) - Assuming Dilution 0.25 0.25 (0.01) 0.11 0.60
Dividends 0.26 0.26 0.26 0.27 1.05
Common Stock Prices
High 52 5/8 55 1/4 49 3/8 49 3/16 55 1/4
Low 40 7/8 42 1/2 35 1/2 40 3/16 35 1/2
</TABLE>
(1) Gross margin represents net sales less cost of products sold.
(2) Includes 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
pre-tax 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.
(3) Includes a $50 million pre-tax charge ($30 million after taxes) for Union
Camp merger-related termination benefits, an $18 million pre-tax charge
($11 million after taxes) for one-time merger expenses and a $10 million
pre-tax charge ($6 million after taxes) to increase existing environmental
remediation reserves related to certain former Union Camp facilities.
(4) Includes a $185 million pre-tax charge ($111 million after taxes and
minority interest expense) for asset shutdowns of excess internal capacity
and cost reduction actions, a $30 million pre-tax charge ($18 million
after taxes) for one-time merger expenses and a $30 million pre-tax charge
($18 million after taxes) to increase existing legal reserves.
(5) Includes a $6 million pre-tax charge ($4 million after taxes) recorded to
write off in-process research and development costs related to an
acquisition by Scitex, a 13% owned investee company.
(6) Includes special items totaling a pre-tax loss of $145 million ($82
million after taxes and minority interest expense). These special items
include a $10 million pre-tax charge ($6 million after taxes) related to
our share of a restructuring charge taken by Scitex. The Scitex charge is
reflected as an equity loss from the investment in Scitex in the
consolidated statement of earnings.
(7) Includes a $56 million pre-tax oil and gas impairment charge ($35 million
after taxes) and a $38 million pre-tax credit ($23 million after taxes)
from the reversal of reserves that were no longer required.
61
<PAGE>
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
International Paper
Two Manhattanville Road
Purchase, NY 10577
914-397-1500
ANNUAL MEETING
The next annual meeting of shareholders will be held at 8:30 a.m., Tuesday, May
9, 2000 at the Manhattanville College, Purchase, New York.
TRANSFER AGENT
For services regarding your account such as change of address, lost certificates
or dividend checks, change in registered ownership, or the dividend
reinvestment program, write or call:
ChaseMellon Shareholder Services L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
800-678-8715
STOCK EXCHANGE LISTINGS
Common shares (symbol: IP) are traded on the following exchanges: New York,
Basel, Geneva, Lausanne, Zurich and Amsterdam. International Paper options are
traded on the Chicago Board of Options Exchange.
DIRECT PURCHASE PLAN
Under our plan you may invest all or a portion of your dividends, and you may
purchase up to $20,000 of additional shares each year. International Paper pays
most of the brokerage commissions and fees. You may also deposit your
certificates with the transfer agent for safekeeping. For a copy of the plan
prospectus, call or write to the Corporate Secretary at corporate headquarters.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
1345 Avenue of the Americas
New York, NY 10105
REPORTS AND PUBLICATIONS
Additional copies of this annual report, the most recent environment, health and
safety annual report, SEC filings and other publications are available by
calling 914-397-1522 or writing to the investor relations department at
corporate headquarters. Additional information is also available on our website
- - http://www.internationalpaper.com
INVESTOR RELATIONS
Investors desiring further information about International Paper should contact
the investor relations department at corporate headquarters, 914-397-1625.
CREDITS
Papers used in this report-Cover: Zanders Mega Dull 80 lb. cover; pages 1-4,
Zanders Mega Dull 80 lb. text; pages 5-64, Beckett Expression, Radiance, 70 lb.
text.
Designed by Pentagram New York and Dick Pepper & Mike Coulson. Printed by The
Hennegan Company. Major photography by Jack Kenner. Photo of Mr. Dillon by Keith
Renard.
Products and brand designations appearing in italics are trademarks of
International Paper or a related company.
(c) 2000 International Paper Company.
All rights reserved.
On our cover: Kristen Henderson enjoys a beautiful day on
her new bicycle. The bicycle packaging was specially
designed and manufactured by employees at our Fond du Lac,
Wis., Edinburg, Texas, and Putnam, Conn., container
facilities. Henderson, who also appears in International
Paper television commercials, is the daughter of employee
Maureen Henderson, senior financial analyst, in Tuxedo, N.Y.
Kristen and Maureen are featured on the cover of our
Conversation About the Future brochure.
62
<PAGE>
DIRECTORS AND SENIOR MANAGEMENT
DIRECTORS
PETER I. BIJUR(1)(4)(7)*
Chairman and
Chief Executive Officer
Texaco, Inc.
JOHN T. DILLON(2)*(3)
Chairman and
Chief Executive Officer
International Paper
ROBERT J. EATON(4)*(5)
Chairman of the
Board of Management
DaimlerChrysler AG
SAMIR G. GIBARA(1)(5)
Chairman and
Chief Executive Officer
The Goodyear Tire &
Rubber Company
JAMES A. HENDERSON(1)(4)
Former Chairman and
Chief Executive Officer
Cummins Engine Company
JOHN R. KENNEDY(5)(7)
Former President and
Chief Executive Officer
Federal Paper Board Company, Inc.
ROBERT D. KENNEDY(3)(4)
Former Chairman and
Chief Executive Officer
Union Carbide Corporation
W. CRAIG MCCLELLAND(3)(6)
Former Chairman and
Chief Executive Officer
Union Camp Corporation
DONALD F. MCHENRY(1)(2)(4)(5)*
Distinguished
Professor of Diplomacy
Georgetown University
PATRICK F. NOONAN(6)*(7)
Chairman and
Chief Executive Officer
The Conservation Fund
JANE C. PFEIFFER(1)*(3)(6)
Management Consultant
JEREMIAH J. SHEEHAN(6)(7)
Chairman and
Chief Executive Officer
Reynolds Metals Company
CHARLES R. SHOEMATE(2)(3)*(4)(5)
Chairman, President and
Chief Executive Officer
Bestfoods
C. WESLEY SMITH(6)(7)
Executive Vice President
International Paper
1 Audit Committee
2 Executive Committee
3 Finance Committee
4 Management Development and Compensation Committee
5 Governance Committee
6 Public and Legal Affairs Committee
7 Environment, Health and Technology Committee
* Committee Chairperson
SENIOR MANAGEMENT
JOHN T. DILLON
Chairman and
Chief Executive Officer
DAVID W. OSKIN
Executive Vice President
C. WESLEY SMITH
Executive Vice President
JAMES P. MELICAN
Executive Vice President
Legal and External Affairs
MARIANNE M. PARRS
Executive Vice President
Administration
ROBERT M. AMEN
President
International Paper
Europe
JEROME N. CARTER
Senior Vice President
Human Resources
THOMAS E. COSTELLO
Senior Vice President
Distribution
JOHN V. FARACI
Senior Vice President
Finance &
Chief Financial Officer
CHARLES H. GREINER
Senior Vice President
Printing & Communications Papers
NEWLAND LESKO
Senior Vice President
Industrial Packaging
WILLIAM B. LYTTON
Senior Vice President
& General Counsel
RICHARD B. PHILLIPS
Senior Vice President
Technology
WILLIAM H. SLOWIKOWSKI
Senior Vice President
Consumer Packaging
MANCO SNAPP
Senior Vice President
Building Materials
DENNIS THOMAS
Senior Vice President
Public Affairs and Communications
DAVID A. BAILEY
Managing Director
European Papers, East
JOHN N. BALBONI
Vice President
E-commerce
MICHAEL J. BALDUINO
Vice President
Foodservice
H. WAYNE BRAFFORD
Vice President
Converting & Specialty Papers
E. WILLIAM BOEHMLER
Vice President and Treasurer
DENNIS J. COLLEY
Vice President
Retail Packaging
63
<PAGE>
DIRECTORS AND SENIOR MANAGEMENT
WILLIAM P. CRAWFORD
Vice President
Logistics
HANS PETER DAROCZI
Vice President
International Container
C. CATO EALY
Vice President
Business Development
and Planning
JOHN V. FLYNN
Vice President
Human Resources
THOMAS E. GESTRICH
Vice President
Beverage Packaging
JAMES W. GUEDRY
Vice President and
Corporate Secretary
PAUL HERBERT
Managing Director
European Papers, West
WILLIAM P. HOEL
Vice President
Executive Assistant to the Chairman
NEWELL E. HOLT
Vice President
Bleached Board
ROBERT M. HUNKELER
Vice President
Investments
THOMAS C. JORLING
Vice President
Environmental Affairs
JEFFREY F. KASS
Vice President
Printing & Communications Papers
TIMOTHY P. KENEALLY
Vice President
Industrial Packaging
PETER F. LEE
Vice President
Research & Development
ANDREW R. LESSIN
Vice President and Controller
ARTHUR W. MCGOWEN
Vice President
Wood Products
GERALD C. MARTERER
Vice President
Specialty Industrial Papers
JEAN-PHILLIPPE MONTEL
Vice President
European Papers
KARL W. MOORE
Director
Finance, IP Europe
GEORGE A. O'BRIEN
Vice President
Forest Resources
MAXIMO PACHECO
President
International Paper Latin America
LH PUCKETT
Vice President
Commercial Printing & Office Papers
CAROL L. ROBERTS
Vice President
People Development
DAVID L. ROBINSON
Vice President
Industrial Packaging
R. MICHAEL ROSS
Vice President
Industrial Packaging
J. CHRIS SCALET
Vice President and
Chief Information Officer
BENNIE R. SMITH
Vice President
Industrial Packaging
PETER M. SPRINGFORD
President
International Paper Company (Asia)
Limited
LARRY J. STOWELL
Vice President
Arizona Chemical
TOBIN J. TREICHEL
Vice President
Tax
CAROL S. TUTUNDGY
Vice President
Investor Relations
LYN M. WITHEY
Vice President
Public Affairs
RICHARD A. O'LEARY
Auditor
64
<PAGE>
INTERNATIONAL [LOGO] PAPER
Two Manhattanville Road
Purchase, NY 10577-2196
914-397-1500
www.internationalpaper.com
Equal Opportunity Employer (M/F/D/V)
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Pertcentage of
voting securities
owned by its
United States immediate parent
- -------------- -----------------
Bush Boake Allen, Inc. Delaware 68.10%
Masonite Corporation Delaware 100%
Sustainable Forests, LLC Delaware 100%
Other than United States
- ------------------------
Carter Holt Harvey New Zealand 50.3%
International Paper S.A. France 99.92%
The names of other subsidiaries have been omitted once these subsidiaries
considered in the aggregate as a single entity do not constitute a significant
subsidiary.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To International Paper Company:
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 8, 2000, included and incorporated by reference in this
Form 10-K, into the Company's previously filed Registration Statement File Nos.
33-11117, 33-32527, 33-41374, 33-50438, 33-51447, 33-52945, 33-61335, 33-62283,
333-008431, 333-01667, 333-02137, 333-24869, 333-47583, 333-62661, 333-75235,
333-85051, and 333-85133.
Arthur Andersen LLP
New York, NY
March 24, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements (Registration Nos. 33-11117, 33-32527, 33-41374, 33-50438, 33-51447,
33-52945, 33-61335, 33-62283, 333-008431, 333-01667, 333-02137, 333-24869,
333-47583, 333-62661, 333-75235, 333-85051 and 333-85133) of International Paper
Company of our report dated February 5, 1999 relating to the financial
statements and financial statement schedule of Union Camp Corporation, which
report appears in this Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 24, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
Know all Men By these Presents, that the undersigned hereby constitutes
and appoints JAMES W. GUEDRY, WILLIAM B. LYTTON AND JAMES P. MELICAN and each of
them (with full power to each of them to act alone) their true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for them on their behalf and in their name, place and stead, in
any and all capacities, to sign, execute and affix their seal thereto and file
the Annual Report of International Paper Company on Form 10-K (or any other
appropriate form), under the Securities Exchange Act of 1934, as amended,
together with any and all amendments to such Annual Report and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities Exchange Commission, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, for all intents and purposes, and that the undersigned
hereby ratify and confirm all that said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
Executed on the 14th day of March, 2000, at Purchase, New York.
NAME TITLE
/s/ JOHN T. DILLON
- --------------------------------
John T. Dillon Director and Chairman of the Board
(Chief Executive Officer)
/s/ C. WESLEY SMITH
- --------------------------------
C. Wesley Smith Executive Vice President and
Director
/s/ PETER I. BIJUR
- --------------------------------
Peter I. Bijur Director
/s/ ROBERT J. EATON
- --------------------------------
Robert J. Eaton Director
/s/ SAMIR G. GIBARA
- --------------------------------
Samir G. Gibara Director
<PAGE>
NAME TITLE
/s/ JAMES A. HENDERSON
- --------------------------------
James A. Henderson Director
/S/ JOHN R. KENNEDY
- --------------------------------
John R. Kennedy Director
/s/ ROBERT D. KENNEDY
- --------------------------------
Robert D. Kennedy Director
/s/ W. CRAIG MCCLELLAND
- --------------------------------
W. Craig McClelland Director
/s/ DONALD F. MCHENRY
- --------------------------------
Donald F. McHenry Director
/s/ PATRICK F. NOONAN
- --------------------------------
Patrick F. Noonan Director
/s/ JANE C. PFEIFFER
- --------------------------------
Jane C. Pfeiffer Director
/s/ JEREMIAH J. SHEEHAN
- --------------------------------
Jeremiah J. Sheehan Director
/s/ CHARLES R. SHOEMATE
- --------------------------------
Charles R. Shoemate Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 453
<SECURITIES> 0
<RECEIVABLES> 3,333
<ALLOWANCES> 106
<INVENTORY> 3,203
<CURRENT-ASSETS> 7,241
<PP&E> 29,527
<DEPRECIATION> 15,146
<TOTAL-ASSETS> 30,268
<CURRENT-LIABILITIES> 4,382
<BONDS> 7,520
0
0
<COMMON> 415
<OTHER-SE> 9,889
<TOTAL-LIABILITY-AND-EQUITY> 30,268
<SALES> 24,573
<TOTAL-REVENUES> 24,573
<CGS> 18,105
<TOTAL-COSTS> 23,620
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 34
<INTEREST-EXPENSE> 541
<INCOME-PRETAX> 989
<INCOME-TAX> 86
<INCOME-CONTINUING> 199
<DISCONTINUED> 0
<EXTRAORDINARY> (16)
<CHANGES> 0
<NET-INCOME> 183
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.44
</TABLE>
<PAGE>
EXHIBIT 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Union Camp Corporation
In our opinion, the consolidated balance sheet as of December 31, 1998 and the
related consolidated statements of income, comprehensive income, shareholders'
equity and cash flows for each of the two years in the period ended
December 31, 1998 of Union Camp Corporation and its subsidiaries (not presented
separately herein) present fairly, in all material respects, the financial
position, results of operations and cash flows of Union Camp Corporation and its
subsidiaries at December 31, 1998 and for each of the two years in the period
ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedule "Valuation and Qualifying Accounts" (not presented separately
herein) presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Union Camp Corporation for any period
subsequent to December 31, 1998.
As described in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for costs of computer software developed or
obtained for internal use effective January 1, 1998.
PricewaterhouseCoopers LLP
New York, New York
February 5, 1999
<PAGE>
EXHIBIT 99.2
International Paper:
A CONVERSATION ABOUT THE FUTURE
[LOGO] INTERNATIONAL PAPER
[PHOTOGRAPH - COVER]
This is a photo of a woman and a little girl taking a bicycle out of a large
corrugated box.
<PAGE>
INTERNATIONAL PAPER AT A GLANCE
[CHART - INSIDE COVER]
This is a chart of sales by segment:
Printing & Communications Papers 23%
Forest Products 12%
Chemicals and Petroleum 6%
Carter Holt Harvey 6%
Packaging 27%
Distribution 26%
SALES BY SEGMENT
[CHART - INSIDE COVER]
This is a chart of operating profit by segment:
Forest Products 40%
Carter Holt Harvey 2%
Distribution 6%
Chemical and Petroleum 7%
Printing & Communications Papers 14%
Packaging 31%
OPERATING PROFIT BY SEGMENT
Each part of International Paper is dedicated to exceeding customer expectations
by providing the highest product quality, incomparable service and innovative
new product development. International Paper's global paper, packaging and
forest products businesses are complemented by an extensive distribution system
and the production of related chemical and petroleum products. We operate more
than 425 facilities in nearly 50 countries on behalf of customers in more than
130 different nations. International Paper is also the majority shareholder in
Carter Holt Harvey, a leading forest products company based in New Zealand.
[CHART - INSIDE COVER]
This is a chart of geographic sales:
United States 78%
Europe 13%
Pacific Rim 8%
Other 1%
<PAGE>
INTERNATIONAL PAPER
FROM INNOVATION TO RESULTS
[PHOTOGRAPH]
This is a photo of John Dillon, chairman and CEO, International Paper.
International Paper is taking the actions necessary to continue to be the very
best in the global paper and forest products industry -- measured against any
standard and against any competitor. Our goal is to improve shareowner value at
a rate faster than our competition. We will do this by changing the way we think
about our business -- we are managing for performance, building stronger
businesses on a global basis and creating a worldwide competitive advantage. I
am very optimistic about the future. Success, in my mind, is being the best. We
have raised the bar on expectations and accountability. The results of these
efforts will be evident throughout 2000. I am absolutely convinced we will make
this company the best in the world -- against any measure.
We are advancing our efforts From innovation in the way we think and act, to
results that our shareowners, communities, customers and all of our employees
will love.
/s/ John Dillon
JOHN DILLON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MARCH 2000
<PAGE>
How is being a large, global company a competitive advantage? Our customers are
growing across borders, and we are well-positioned to provide them the service
and products they need to be successful. International Paper is in a strategic
position only a few other companies can achieve. We believe there is huge growth
potential in world markets that we intend to tap. Industry projections indicate
that within 10 years there will be a half-dozen or so major, global companies in
this business, and we will be one of these. Our
[PHOTOGRAPH]
This is a photo of a little girl riding a bicycle.
--------------------------
Kristen Henderson enjoys a beautiful day on her new bicycle. The bicycle
packaging was specially designed and manufactured by employees at our Fond du
Lac, Wis., Edinburg, Texas, and Putnam, Conn., container facilities. Henderson,
who also appears in International Paper television commercials, is the daughter
of employee Maureen Henderson, senior financial analyst, in Tuxedo, N.Y. Kristen
and Maureen are featured on the cover of this book.
- --------------------------------------------------------------------------------
FROM MODERN HOME DECORS SUCH AS KITCHEN CABINETRY AND COUNTERTOPS TO DESIGN
SERVICE, INTERNATIONAL PAPER IS TAPPING INTO THE MANUFACTURED HOUSING MARKET. WE
HAVE DEVELOPED A PARTNERSHIP WITH OAKWOOD HOMES, A LEADING SUPPLIER OF
MANUFACTURED HOMES IN NORTH AMERICA. WE PROVIDE MANUFACTURED HOUSES WITH THE
LOOK AND FEEL OF A SITE-BUILT HOME.
IP HAS BEGUN HOLDING FAMILY FORUMS AT FACILITIES WORLDWIDE IN ORDER TO RECOGNIZE
THE SOURCE OF OUR SUCCESS - PEOPLE. THE EVENTS ALLOW EMPLOYEES AND THEIR
FAMILIES TO MEET WITH IP BUSINESS LEADERS. ALSO, THEY PROVIDE A FORUM TO DISCUSS
THE COMPANY'S PLAN FOR SUCCESS AND HOW EMPLOYEES PLAY A VITAL ROLE.
INTERNATIONAL PAPER'S AWARD-WINNING RETAIL MERCHANDISING AND DISPLAY BUSINESS
DOES IT ALL...AND UNDER ONE ROOF. OUR EXPERIENCED TEAM WORKS WITH MAJOR
RETAILERS AND CONSUMER PRODUCTS FIRMS TO DESIGN, MANUFACTURE, INSTALL AND
MAINTAIN THEIR TEMPORARY, SEMI-PERMANENT AND PERMANENT DISPLAYS.
2
<PAGE>
global leadership position is clearly a distinct advantage for us. We have a
presence in 50 countries worldwide and serve customers in more than 130 nations.
We have the experience, scale and resources to tackle the larger or more
aggressive international opportunities without placing the entire company at
risk. We believe the paper and forest products industry will continue to grow.
It will offer more opportunities for growth and profit in the future than in the
past.
What's on the drawing board for improving International Paper's operations?
International Paper is a company on the move, changing and improving in ways we
never have before. Our No. 1 objective is to improve our profitability at a
faster rate than our competition. We have powerful plans in place to reach this
goal. Our company is committed to reaching this objective.
We are transforming ourselves, following specific plans to strengthen our
business. We are changing the way we think about customers, the way we measure
success and how we involve our people.
In addition to profit-improvement programs, we have put key performance
measurements in place. You can visit our plants, and our employees can tell you
for whom they are producing the product and what is important to those
customers.
We are asking managers of facilities that have excellent safety and
environmental performances to work with those that don't. We have managers and
employees from facilities needing improvement visiting the "super performers" to
learn from them. This is an excellent way to share best practices across the
network.
- --------------------------------------------------------------------------------
[PHOTOGRAPH]
This is a photo of two men examining a stack of lumber.
Augusta, Ga., Lumber Mill employees Hardy Maloch and Wayne Thompson check some
prime lumber destined for our customers' shelves.
--------------------------
OUR PRIME LUMBER
A full bin of good-looking lumber used to be hard to come by for people working
on do-it-yourself projects such as building decks and making flowerbeds. Thanks
to International Paper, the do-it-yourself builders no longer have to spend
hours searching store shelves for desirable lumber, because our Wood Products
team provides its customers with a higher grade of southern pine lumber that is
as handsome as it is useful.
IP went further than producing lumber for these customers by helping to
manage the inventories at their stores and distribution centers. The commitment
of employees reinforces IP's total dedication to the customer. This high-quality
product, coupled with exceptional customer service, is responsible for IP being
named "Supplier of the Year" and "Partner of the Year" in 1999 by two of the
leading companies in the building materials industry.
3
<PAGE>
[PHOTOGRAPH]
This is a photo of a woman in Chile holding a box of grapes.
In Chile, Fabiola Leiva loads grapes in the DEFOR interlocking boxes.
--------------------------
DEFOR
International Paper innovators have done it again. A new packaging system gets
produce from the grower to the consumer looking as fresh as if it has just been
picked.
Thanks to the new DEFORTM System's interlocking boxes, produce now can be
stacked for shipping without bruising and spoiling. And once these colorful,
open-top boxes arrive at grocery stores, they can go directly from the truck to
the display. The new design reduces unpacking and handling, cutting retailer
labor costs and decreasing product damage and waste.
IP teamwork aggressively launched DEFOR into the marketplace. Carter Holt
Harvey
- --------------------------------------------------------------------------------
What is International Paper doing differently that adds value to your customers?
We believe that if we help our customers become more successful, we will, in
turn, be more successful. We must direct our energies and assets toward this
goal. Our customers ask us to become partners so that we can provide creativity,
innovation, quality products and world-class service. We measure this not so
much by the tons of product we manufacture, rather on how we can make existing
products better and how we can develop innovative solutions to help our
customers succeed in their marketplaces.
We are refining ways we measure markets and we survey customers to
determine how we can better meet their needs in the future. We continuously
train our sales force in account management to offer superior customer service.
We also let our employees know how their individual contributions reach our
customers.
4
<PAGE>
In the past, we've been credited with making some of the finest products
on the market. Our new kind of responsiveness doesn't mean asking the customer,
"How much will you buy?" It means finding out what particular challenges our
customers face and working with them to find solutions. It means finding ways to
add value to their businesses. We are perfecting the art of inter-divisional
selling where we look at how best to use our resources in simplifying our
dealings with our customers.
We believe it should be easy to do business with us.
Why the new tagline, From innovation to results?
You will see from many of the stories we've included in this book that
International Paper is turning innovations into results. Over the last two
years, we've seen a dramatic increase in the number of new products.
What are your views on industry consolidation?
International Paper has grown primarily through acquisition because it is the
sensible way to enter new markets with existing customers and infrastructure
rather than building new facilities - all of which translates into greater
economies of scale, and thus, earnings power.
The defining action of 1999 was our merger with Union Camp. It positioned
us to be an even stronger company. The merger was not about size, but about
getting better and the benefits we expected from it are coming in right on
target. We generated $130 million in savings in 1999 and expect to reach $425
million in annualized
- --------------------------------------------------------------------------------
pioneered the system, the Containerboard Mill in Mansfield, La., produced the
Brite-Top(R) grade, and the Carson, Calif., Container plant partnered with xpedx
to distribute the DEFORsystem.
DEFOR's popularity has grown from a request by Albertson's, the second
largest grocery chain in the U.S. Albertson's asked for packaging that improved
produce quality and sales appeal, while eliminating shrinkage, labor costs and
safety issues associated with handling produce at the store.
A success story? Albertson's is now asking its suppliers to use the
DEFORsystem or something comparable. Other grocers and retailers are also now
interested in the DEFORsystem.
[PHOTOGRAPH]
This is a photo of a woman in the grocery store picking grapes.
Artie Watson, Community Relations communications assistant, chooses grapes from
Chile for her family at a local grocery.
--------------------------
PRINTING & COMMUNICATIONS PAPERS INTRODUCED LIBERTY(TM) 2000, A NEW LIGHTWEIGHT
COATED PAPER BRAND TARGETED PRIMARILY FOR CATALOG USERS. CUSTOMERS SUCH AS
LILLIAN VERNON, L.L. BEAN(R) AND LANDS' END USE LIBERTY 2000.
5
<PAGE>
WE ENTERED INTO AN AGREEMENT TO BECOME THE MAJOR SUPPLIER OF THE
CHOLESTEROL-REDUCING ADDITIVE FOUND IN BENECOL(TM). MEDICAL STUDIES SHOWED THAT
PEOPLE WITH BORDERLINE-TO-HIGH CHOLESTEROL WHO REGULARLY CONSUMED MARGARINES AND
OTHER FOODS WITH THE BENECOL ADDITIVE LOWERED THEIR TOTAL CHOLESTEROL LEVEL.
UNDER THIS AGREEMENT, THE ACTIVE INGREDIENT, WHICH IS FOUND IN TREES, IS TO BE
SUPPLIED BY ARIZONA CHEMICAL.
INTERNATIONAL PAPER-KOREA IS THE NO.1 BEVERAGE CARTON MANUFACTURER IN KOREA. WE
DIFFERENTIATED OURSELVES FROM THE COMPETITION BY PROVIDING QUALITY SERVICE AND
TECHNICAL SUPPORT TO GAIN A 60 PERCENT SHARE OF LOTTE HAM & MILK COMPANY, A
SUBSIDIARY OF LOTTE BUSINESS GROUP IN KOREA.
OUR NEW TRU-TASTE(TM) PACKAGING SYSTEM FOR MILK AND JUICE REDUCES PACKAGING
DEFECTS THROUGHOUT THE CUSTOMER SUPPLY CHAIN, SEALS IN VITAMIN C, AND HAS A
LONGER SHELF LIFE.
THE PINE BLUFF, ARK., MILL IS THE FIRST U.S. PAPER MILL TO RECEIVE ISO 14001
CERTIFICATION. THIS ACHIEVEMENT WILL ENABLE THE MILL TO HELP COMMUNICATE ITS
ENVIRONMENTAL COMMITMENT TO CUSTOMERS, STAKEHOLDERS, EMPLOYEES AND COMMUNITIES.
- --------------------------------------------------------------------------------
savings by the end of 2000. These savings are a big part of our $1.8 billion
profit improvement we anticipate by the end of 2002.
Conditions in our industry are very solid. Supply is well balanced with
demand, and there is very little new capacity expected within the next few
years.
How are you changing to make this a more people-focused company? We know that
our people make the difference. We want to become the company of choice for our
employees as a great place to work. We believe that if our employees understand
where we're going and are committed to help get us there, we'll be successful.
We are dedicated to hiring, motivating, developing, promoting and retaining
outstanding people. We believe the most effective ideas -- such as improving
productivity, making our facilities safer, enriching the environment, and
building stronger partnerships with customers and communities -- come from the
talents and skills of our employees. People development at International Paper
is more than just teaching new skills, it calls for building on each person's
strengths.
In 1999, we asked all our employees what we can do to get better. A team
from International Paper and the Gallup Organization developed the
research-based global employee survey. The survey will become one of our
standard measurements. The success of International Paper will be determined by
how well our employees delight customers with superior products, services and
solutions.
What are you doing to help the forestland environment? We recognize that in
order to create our products sustainably, we must be responsible
6
<PAGE>
stewards of the environment. To that end, we are proud to say that we don't
harvest or use old-growth wood or wood from temperate or tropical rainforests in
any of our products. We strive, every day, to improve our forest practices. In
fact, we were the first forest products company in the United States to
third-party certify one of our forest management operations to ISO 14001, an
internationally recognized standard for environmental management systems. We've
integrated our industry's commitment to the Sustainable Forestry Initiative
(SFIsm) program with this world-class international standard and have a
commitment to verify all of our forestry operations by the end of 2000.
We're also engaging environmental groups in helping us protect wildlife.
We recently collaborated with the Environmental Defense Fund and the U.S. Fish
and Wildlife Service to develop the first-of-its-kind Habitat Conservation Plan
for the endangered red-cockaded woodpecker. This landmark project was awarded
the Gold Medal for International Corporate Environmental Achievement by the
World Environment Center. It includes an innovative mitigation bank feature
which provides an economic incentive to other private landowners to enhance this
endangered species' habitat.
Are you looking to go into electronic commerce?
We are exploring the benefits e-commerce can bring to International Paper. From
the opportunity to generate more revenue, to the ability to reduce costs, we are
intent on rapidly integrating electronic commerce into our strategy to improve
profits. We
- --------------------------------------------------------------------------------
[PHOTOGRAPH]
This is a photo of a man unloading product in a warehouse.
--------------------------
James Gleaton, xpedx distribution center truck driver, unloads product for
customers.
ONE-STOP SHOPPING
International Paper has stepped to the head of the line with the new all-in-one
packaging and distribution system.
We combined the unique capabilities, strengths and market focus of our
packaging plants with the 300 xpedx stores and distribution centers across the
U.S. and created a selling process that's one-of-a-kind. The result is one sales
representative, one invoice and a total systems approach to customer focus.
Our target customers value the "one-stop shopping" opportunities of our
interdivisional partnering process. We offer customers a total packaging value
proposition, including a wide array of packaging products as well as
distribution services. Also, we offer a solution that will not only be difficult
for our competitors to duplicate, but can also eliminate significant costs from
the supply chain.
7
<PAGE>
[PHOTOGRAPH]
This is a photo of a group of people walking through the forest.
CUSTOMER FORESTRY TOURS
Customers are getting a firsthand view of how International Paper manages
forests through guided tours of our forestlands. The tours help customers see
how we sustain the forest as a natural resource and protect the forest
ecosystems.
Our customers experience the world of forestry as they journey through our
forestlands in areas like Georgetown, S.C., and our 16,000-acre Southlands
Experiment Forest in Bainbridge, Ga.
Prior to the tour, our foresters explain our Sustainable Forestry
Initiative (SFI)(SM) practices and compare these to other forest management
programs. Customers then tour replanted and site-prepared land as well as
streamside management zones. IP foresters explain our water quality initiatives
and protection of endangered species.
Our SFI practices enable us to responsibly manage and nurture our
resources to meet society's needs today while providing forests for future
generations. We reached an environmental landmark in 1999 by becoming one of the
first U.S. forest products company to achieve independent third-party
verification on 4.7 million acres of our forestlands.
- --------------------------------------------------------------------------------
[PHOTOGRAPH]
This is a photo of a girl leaning on a wooden post with her
carton of orange juice.
Aimee Deneve, daughter of employee Cheryl Deneve, Plant City, Fla., Beverage
Packaging sales service rep, has a new carton of orange juice. The beverage
carton for kids is the latest innovation from Beverage Packaging and is
manufactured by employees at our Raleigh, N.C., facility.
8
<PAGE>
- --------------------------------------------------------------------------------
Our Forest Resources Mid-South, South Central and Northeast regions have been
verified to the American Forest & Paper Association's SFI and ISO 14001
standards. We are in the process of having all 7.1 million acres of our U.S.
forestlands verified to both sets of guidelines by the end of the year 2000.
IP customer forestry tours are just another way we respond to the needs of
our customers worldwide.
EMPLOYEES FROM THE ANDROSCOGGIN MILL IN JAY, MAINE, IP'S NORTHEAST FORESTERS,
CONDUCTED A TRAINING SESSION IN THE STATE FOR THE FORESTERS FROM OUR SVETOGORSK
MILL IN WESTERN RUSSIA. NATIONALLY KNOWN FOR THEIR SUSTAINABLE FORESTRY AND BEST
MANAGEMENT PRACTICES, THE IP TEAM MEMBERS FROM MAINE TAUGHT THE RUSSIAN CREW HOW
TO HELP IMPROVE THE ENVIRONMENT DURING LOGGING OPERATIONS IN RUSSIA.
--------------------------
9
<PAGE>
REINVENTING THE HAMMERMILL(R) BRAND TO MAKE YOUR WORK LOOK BETTER!
The HammerMill(R) brand has been reinvented in order to meet the needs of
consumers who, research shows, are often frustrated and confused by the way
paper is identified on the retail shelf.
Through the relaunch initiative, papers are clearly marked and sold
according to their end use. Whether on office superstore shelves, in catalogs or
through the Internet, HammerMill makes the buying choice easier for consumers
with end-use labels for
[PHOTOGRAPH]
This is a photo of a man surrounded by HammerMill product.
Donald Starver, HammerMill senior brand manager, looks at the new product lines.
- --------------------------------------------------------------------------------
have several pilot internet programs aimed at reducing our
inventories and improving the supply chain. The real impact of the internet is
likely to be the emergence of business-to-business web sites which will act as
exchanges for various types of paper and building material products.
Increasingly, wholesalers and retailers throughout the world are managing
their inventory supply levels and consumers are placing catalog mail orders
through the internet. This activity, in turn, is driving much of the upsurge in
e-commerce.
Customers industry-wide are increasingly accustomed to gaining information
on inventories, billing and supplies online on a real-time basis as they seek to
replenish stocks at any given time to and from facilities worldwide.
--------------------------
- --------------------------------------------------------------------------------
10
<PAGE>
How far does International Paper go to provide safe work environments? As we
enter 2000 and our second century of operation, we place a renewed emphasis on
safety in all areas of the company. We have had an exemplary record in many
locations.
We had 16 sites awarded OSHA's Voluntary Protection Program (VPP) STAR
status in 1999. We have 67 sites currently in VPP, more than any other company.
The prestigious STAR status recognizes sites that have sustained exemplary
standards in health and safety performance that go well beyond the
requirements of the laws of the United States in providing an accident-free
work environment.
International Paper received the Business Roundtable's 1999 Construction
Industry Safety Excellence Award. This annual award recognizes the diligent
efforts of companies which have created world-class construction site safety
programs and achieved exemplary results in their commitment to an injury-free
workplace. The Business Roundtable is a group of leading corporations with a
combined work force of more than 10 million employees in the United States.
We have included some of the most frequently asked questions we receive at
International Paper. If you have additional questions, please visit our web
site, www.internationalpaper.com or write us at International Paper, Two
Manhattanville Road, Purchase, NY 10577-2196. For investor information, call our
Investor Relations office at 914-397-1500. For general information, call
Employee Communications at 901-763-6000.
- --------------------------------------------------------------------------------
papers such as Proposals and Presentations, Reports & Analyses, Signs and
Notices and Letterhead and Resumes.
The new HammerMill product line features high quality papers designed to
meet communication and sales needs of small office and home office consumers.
HammerMill makes your work look better and your buying choice easier.
WE'RE CHANGING THE FACE OF INTERPERSONAL COMMUNICATIONS. WE DESIGNED PAPERS SUCH
AS INVENT IT!(R), CRAYOLA(R) COMPUTER PAPERS AND SPECIALLY YOURS(TM) TO BRIDGE
THE HOME COMPUTER AND ARTS AND CRAFTS MARKETS WITH PRINTER PAPERS. THIS ALLOWS
CUSTOMERS TO ENHANCE THEIR PERSONAL CREATIONS AND PRINT THEIR OWN GREETING
CARDS, IRON-ON TRANSFERS, PARTY INVITATIONS AND PHOTO ALBUM KITS.
IP'S PACKAGING GROUPS WORKED TOGETHER AS A TEAM TO PRODUCE A NEW CEREAL CARTON.
THE CONTAINER LOOKS LIKE A HALF-GALLON MILK CARTON WITH A RESEALABLE OPENING TO
OPTIMIZE FRESHNESS, WHILE TAKING UP LESS SHELF SPACE.
11
<PAGE>
INTERNATIONAL PAPER
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDING
Dollar amounts and shares in millions except per share amounts DECEMBER 31, 1999
<S> <C>
FINANCIAL SUMMARY
Net Sales .................................................. $ 24,573
Operating Profit ........................................... 1,810
Earnings Before Income Taxes, Minority Interest and
Extraordinary Item ....................................... 448
Net Earnings ............................................... 183
Earnings per Average Common Share - Assuming Dilution ...... 0.44(1)
Cash Dividends per Common Share ............................ 1.00(2)
Common Shareholders' Equity per Average Common Share ....... 24.95
SHAREHOLDER PROFILE
Shareholders of Record at December 31 ...................... 32,881
Shares Outstanding at December 31 .......................... 414.6
Average Shares Outstanding ................................. 413.0
</TABLE>
Note: The summary financial information on pages 12 and 13 is meant to be read
in conjunction with the consolidated financial statements and related
notes included in our 1999 Annual Report.
(1) During 1999 we incurred merger costs and restructuring and other special
charges which reduced net earnings by $368 million and earnings per common
share by $.89. Before these charges, net earnings would have been $551
million or $1.33 per common share.
(2) The International Paper dividend paid was $1.00 per common share in 1999.
However, the dividend per average common share for 1999 was $1.01 and has
been restated to include dividends paid by Union Camp Corporation which
merged with International Paper during 1999 in a transaction accounted for
as a pooling-of-interests.
12
<PAGE>
INTERNATIONAL PAPER
CONDENSED CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In millions DECEMBER 31, 1999
<S> <C>
ASSETS
Current Assets ................................................. $ 7,241
Plant, Properties and Equipment, Net ........................... 14,381
Forestlands .................................................... 2,921
Other Assets ................................................... 5,725
-------
Total Assets ................................................... $30,268
=======
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current Liabilities ............................................ $ 4,382
Long-Term Debt ................................................. 7,520
Deferred Income Taxes .......................................... 3,344
Other Liabilities .............................................. 4,718
Common Shareholders' Equity .................................... 10,304
-------
Total Liabilities and Common Shareholders' Equity .............. $30,268
=======
</TABLE>
Note: Certain statements in this document that are not historical in nature may
constitute forward-looking statements. These statements are often
identified by the words, "believe," "expect," "plan," "project," "intend,"
and words of similar import. Such statements reflect the current views of
International Paper with respect to future events and are subject to risks
and uncertainties. Actual results may differ materially from those
expressed or implied in these statements. Factors which could cause actual
results to differ include, among other things, changes in overall demand,
changes in domestic or foreign competition, changes in the cost or
availability of raw materials, our ability to bring new products online,
the cost of compliance with environmental laws and regulations, and
whether anticipated savings from merger and other restructuring activities
can be achieved. In view of such uncertainties, investors are cautioned
not to place undue reliance on these forward-looking statements.
International Paper does not assume any obligation to update these
forward-looking statements.
13
<PAGE>
INTERNATIONAL PAPER AT A GLANCE
[PHOTOGRAPH]
This is a photo of three men examining huge stacks of paper.
PRINTING AND COMMUNICATIONS PAPERS
Our North American business is a major manufacturer of office papers, commercial
printing papers, coated papers, converting papers, bristols, fine papers and
pulp.
Office papers are widely used in photocopiers, office printers and digital
imaging printers. Commercial printing papers are primarily used for both offset
and rotogravure printing. Some of our well-known brands include HammerMill,
Great White, Williamsburg and Accent Opaque.
International Paper is also a prominent supplier of coated papers for
magazines, catalogs, direct mail, and other media. Converting and speciality
papers makes paper for envelopes, forms, tablets, file folders and other special
applications. Our pulp grades include paper pulp for paper and paperboard, fluff
pulp for hygiene products, and high-purity pulp for acetate and fabrics. Our
Fine Papers division manufactures premium-quality text, cover, coated and
business papers under the Via by HammerMill brands, Zanders USA (manufactured in
Germany), Beckett and Strathmore.
Our European business is a leading supplier of office, coated and
specialty papers produced at facilities in France, Germany, Poland, the U.K. and
Russia. Brands such as ReyMat, ReyLux, Duo and Polspeed supply the papers
Europe's consumers and businesses require. Zanders produces premium coated
papers such as Ikono for high-end brochures and annual reports. Our facilities
in Kwidzyn, Poland, and Svetogorsk, Russia, produce business papers, newsprint
and coated board for markets throughout Europe.
[PHOTOGRAPH]
This is a photo of IP packaging products.
PACKAGING
Industrial Packaging produces containerboard, including visual appeal and
high-performance grades such as BriteTopTM and PineLiner(R). Approximately 60
percent of our production is converted at our 67 container plants in North
America. that produce corrugated boxes, shipping containers, and other
corrugated packaging products and services for agricultural, consumer and
industrial markets. A total of 22 container plants in the U.K., Italy, Spain,
France, Ireland and the Canary Islands also manufacture corrugated packaging.
Other locations include Puerto Rico, Chile, Argentina, Turkey and China.
International Paper's Industrial Papers business produces lightweight
papers, paper composite structures and silicone coated release liners for a
variety of industrial, food packaging, pressure sensitive and hygiene markets.
The business employs about 2,000 people at six sites in Wisconsin, Tennessee,
Ohio and The Netherlands.
Consumer Packaging operates a world-class bleached board system, over
one-third of which creates materials for our own converting operations. Our
high-quality Everest(R) and Starcote(R) brands are used globally as packaging
board for juice, milk, food, cosmetics, pharmaceuticals, computer software and
tobacco products. Beverage Packaging has 30 sites worldwide offering complete
packaging systems, from paper to machines, using fresh and aseptic technologies.
Retail Packaging produces packaging to protect and merchandise products such as
frozen food, beverages, entertainment and household products at 12 U.S. plants.
Foodservice, with six locations, offers cups, lids, bags, plates, cartons, trays
and containers from six plants in the U.S. and operates joint ventures with
Carter Holt Harvey. Flexible Packaging, with 11 plants in the U.S. and two in
Argentina, supports such end uses as pet food, charcoal, lawn and garden
products, and rice.
14
<PAGE>
INTERNATIONAL PAPER at a glance
[PHOTOGRAPH]
This is a photo of a pine seedling.
FOREST PRODUCTS
Forest Resources manages in excess of 7.1 million acres of forestlands,
principally in the southern U.S. More than 50 percent of the fiber harvested is
used by International Paper in the manufacture of paper and wood products. Our
forests are managed using advanced high-yield silviculture and land management
techniques to enhance their financial returns while providing watershed
protection, wildlife habitat preservation and recreational opportunities. In
addition, we continually buy and sell forestlands in line with our strategic
objectives. We believe our leadership role in the American Forest & Paper
Association's Sustainable Forestry Initiative (SFI) exemplifies our commitment
to manage our forestlands in an environmentally responsible manner.
We also have a Building Materials Group with 46 manufacturing locations
worldwide. Wood Products produces lumber, plywood, oriented strand board,
treated poles and laminated veneer lumber that are distributed throughout North
America and Europe. Masonite's Molded Products is the leading maker of molded
door facings marketed primarily under the CraftMaster(R) brand. Masonite's
Building and Industrial Products markets a broad range of products, including
siding, exterior trim, decorative panels and a variety of products used in
furniture, store fixtures and commercial roofing. Decorative Products
manufactures high- and low-pressure laminates, particleboard and graphic arts
supplies primarily for residential and commercial construction, furniture and
specialty markets.
[PHOTOGRAPH]
This is a photo of an xpedx delivery truck.
15
<PAGE>
INTERNATIONAL PAPER AT A GLANCE
DISTRIBUTION
Our distribution business, xpedx, distributes printing paper, packaging supplies
and equipment, facility supplies and graphic imaging prepress equipment and
supplies. xpedx delivers customer solutions through more than 100 wholesale
distribution centers with 10 million square feet of warehouse space and more
than 190 stores serving retail customers and small printers. The xpedx focus is
retail, commercial printing, on-demand printing, manufacturing, the automotive
industry, and publishing industries. About 23 percent of xpedx revenue is
generated by products manufactured by International Paper. Papeteries de France,
Scaldia and Impap distribute similar products throughout Europe.
[PHOTOGRAPH]
This is a photo of a yellow measurement container.
CHEMICALS AND PETROLEUM
Our chemical business uses the raw materials and by-products of our papermaking
processes to provide global products to our customers. With 15 plants worldwide,
Arizona Chemical is a leader in tall oil, fatty acids, rosin esters, dimer acid,
polyamide resins and other pine chemicals used to make chewing-gum base,
adhesives, road markings, inks, lubricants, household cleaners, soaps and more.
International Paper is the majority owner of Bush Boake Allen, an international
flavor, fragrance and aroma chemicals business.
Chemical Cellulose produces high-purity pulp for acetate, fabrics, as well
as a wide range of other consumer products that are produced at the company's
Natchez, Miss., Mill.
Our Petroleum and Minerals business manages mineral resources on company
land and develops oil and gas reserve, principally through joint venture
partners in West Texas, the Gulf Coast and the Gulf of Mexico.
[PHOTOGRAPH]
This is a photo of a man building a home with a large piece of wood.
CARTER HOLT HARVEY
International Paper holds more than 50 percent interest in Carter Holt Harvey,
one of the largest forest products companies in the Southern Hemisphere. With
operations in New Zealand, Australia and Chile, Carter Holt Harvey serves
markets in the Pacific Rim, Asia and Latin America. The company harvests over 6
million tons of logs from 785,000 acres of forestlands in New Zealand on a
sustainable yield basis. Carter Holt Harvey is Australia and New Zealand's
leading provider of solid wood products, enjoys a strong regional position in
packaging, and is New Zealand's largest manufacturer of pulp and paper products.
With popular brands such as Sorbent, Purex and Handee, the company is the
largest tissue products manufacturer in Australia and New Zealand. Paper
distribution subsidiaries B.J. Ball Papers and Raleigh Papers serve customers
throughout New Zealand and Australia. Carters is New Zealand's third largest
building materials merchandiser, with 35 store locations.
Carter Holt Harvey held an indirect interest in Compania de Petroleoas de
Chile (COPEC), Chile's largest industrial conglomerate. Effective January 3,
2000, Carter Holt Harvey sold its interest in COPEC for just over US $1.2
billion.
16
<PAGE>
SENIOR MANAGEMENT
JOHN T. DILLON
Chairman and
Chief Executive Officer
DAVID W. OSKIN
Executive Vice President
C. WESLEY SMITH
Executive Vice President
JAMES P. MELICAN
Executive Vice President
Legal and External Affairs
MARIANNE M. PARRS
Executive Vice President
Administration
ROBERT M. AMEN
President
International Paper Europe
JEROME N. CARTER
Senior Vice President
Human Resources
THOMAS E. COSTELLO
Senior Vice President
Distribution
JOHN V. FARACI
Senior Vice President
Finance & Chief Financial Officer
CHARLES H. GREINER
Senior Vice President
Printing & Communications Papers
NEWLAND LESKO
Senior Vice President
Industrial Packaging
WILLIAM B. LYTTON
Senior Vice President & General Counsel
RICHARD B. PHILLIPS
Senior Vice President
Technology
WILLIAM H. SLOWIKOWSKI
Senior Vice President
Consumer Packaging
MANCO SNAPP
Senior Vice President
Building Materials
DENNIS THOMAS
Senior Vice President
Public Affairs and Communications
DAVID A. BAILEY
Managing Director
European Papers, East
JOHN N. BALBONI
Vice President
E-commerce
MICHAEL J. BALDUINO
Vice President
Foodservice
H. WAYNE BRAFFORD
Vice President
Converting & Specialty Papers
E. WILLIAM BOEHMLER
Vice President and Treasurer
DENNIS J. COLLEY
Vice President
Retail Packaging
WILLIAM P. CRAWFORD
Vice President
Logistics
HANS-PETER DAROCZI
Vice President
International Container
C. CATO EALY
Vice President
Business Development and Planning
JOHN V. FLYNN
Vice President
Human Resources
THOMAS E. GESTRICH
Vice President
Beverage Packaging
JAMES W. GUEDRY
Vice President and
Corporate Secretary
PAUL HERBERT
Managing Director
European Papers, West
WILLIAM P. HOEL
Vice President
Executive Assistant to the Chairman
NEWELL E. HOLT
Vice President
Bleached Board
ROBERT M. HUNKELER
Vice President
Investments
THOMAS C. JORLING
Vice President
Environmental Affairs
JEFFREY F. KASS
Vice President
Printing & Communications Papers
TIMOTHY P. KENEALLY
Vice President
Industrial Packaging
PETER F. LEE
Vice President
Research & Development
ANDREW R. LESSIN
Vice President and
Controller
ARTHUR W. MCGOWEN
Vice President
Wood Products
GERALD C. MARTERER
Vice President
Specialty Industrial Papers
JEAN-PHILLIPPE MONTEL
Vice President
European Papers
KARL W. MOORE
Director, Finance
European Papers
GEORGE A. O'BRIEN
Vice President
Forest Resources
MAXIMO PACHECO
President
International Paper Latin America
LH PUCKETT
Vice President
Commercial Printing & Office Papers
CAROL L. ROBERTS
Vice President
People Development
DAVID L. ROBINSON
Vice President
Industrial Packaging
R. MICHAEL ROSS
Vice President
Industrial Packaging
J. CHRIS SCALET
Vice President and
Chief Information Officer
BENNIE R. SMITH
Vice President
Industrial Packaging
PETER M. SPRINGFORD
President
International Paper Company
(Asia) Limited
LARRY J. STOWELL
Vice President
Arizona Chemical
TOBIN J. TREICHEL
Vice President
Tax
CAROL S. TUTUNDGY
Vice President
Investor Relations
LYN M. WITHEY
Vice President
Public Affairs
RICHARD A. O'LEARY
Auditor
<PAGE>
CORPORATE HEADQUARTERS
Two Manhattanville Road
Purchase, NY 10577-2196
914-397-1500
OPERATIONAL HEADQUARTERS
6400 Poplar Avenue
Memphis, TN 38197
901-763-6000
EUROPEAN HEADQUARTERS
INTERNATIONAL PAPER
100 Boulevard de la Woluwe
1200 Brussels, Belgium
32-2-774-1211
INTERNATIONAL PAPER ASIA
1401-1407 Shui On Centre
6-8 Harbour Road
Wanchazi, Hong Kong
852-2824-3000
INTERNATIONAL PAPER
Building Materials
1955 Powis Road
West Chicago, IL 60185
630-584-6330
XPEDX-DISTRIBUTION
50 East River Center Blvd.
Suite 700
Covington, KY 41011
606-655-2000
ARIZONA CHEMICAL
4600 Touchton Rd. E
Suite 500
Jacksonville, FL 33246
904-928-8700
BUSH BOAKE ALLEN
7 Mercedes Drive
Montvale, NJ 07645
201-391-9870
CARTER HOLT HARVEY LIMITED
640 Great South Road
Manukau City
Auckland, New Zealand
64-9-262-6000
[LOGO] INTERNATIONAL PAPER
www.internationalpaper.com
Equal Opportunity Employer (M/F/D/V)
Printed on Zanders Mega Dull, 80 lb. text and cover
