01—Abstract
Summary
Summary of the 10-K filed March 26, 2001. Cited figures are marked; the original filing is the authoritative source.
International Paper Company, a global forest products, paper and packaging company, reported 2000 net sales of $28.18 billiona, up from $24.57 billion in 1999, primarily due to the Champion International acquisition completed June 20, 2000.
Operating profit rose to $2.71 billionb from $1.81 billion, but net earnings after special and extraordinary items were only $142 million ($0.32 per share), down from $183 million in 1999. Earnings before special and extraordinary items were $969 million ($2.16 per share), compared with $551 million ($1.33 per share) in 1999. Special charges after taxes and minority interest totaled $601 million in 2000, mainly for asset shutdowns of excess capacity, and extraordinary items were a net loss of $226 million, including impairment losses on businesses to be sold.
Management is executing a divestiture program now estimated at about $5 billionc in gross proceeds by the end of 2001, with roughly $1.2 billion realized as of March 1, 2001. The company closed or announced closures of several mills, including Mobile, Alabama and Lock Haven, Pennsylvania, removing over 1.2 million tons of annual capacity. Capital spending was $1.4 billion in 2000 and is budgeted at $1.2 billion for 2001, below depreciation and amortization of $1.9 billion.
Total debt reached $14.8 billiond, and the company reported that Moody's lowered its long-term debt rating to Baa1 at the time of the Champion acquisition. Energy costs rose more than $200 million above 1999 levels, and the company cited an economic slowdown in the second half of 2000 that reduced demand.
The filing also details ongoing legal and environmental matters, including Masonite hardboard siding reserves of $92 million net of insurance recoveries, linerboard price-fixing class actions, and high-pressure laminate antitrust suits. Management stated that these matters are not expected to have a material adverse effect on consolidated financial position or results of operations, though the company noted that additional hardboard siding reserve additions are reasonably possible.
02—Key points
Key Highlights
- Net sales rose 15% to $28.18 billion in 2000, driven mainly by the Champion International acquisition completed June 20, 2000
- Net earnings fell to $142 million ($0.32 per share) from $183 million ($0.44 per share) in 1999, after special charges of $601 million after taxes and extraordinary items of $226 million
- Earnings before special and extraordinary items improved to $969 million ($2.16 per share) from $551 million ($1.33 per share)
- Divestiture program raised to about $5 billion in gross proceeds by end of 2001, with about $1.2 billion realized as of March 1, 2001
- Capacity rationalization removed over 1.2 million tons per year, including closures of Mobile, Alabama and Lock Haven, Pennsylvania mills
- Capital spending was $1.4 billion in 2000 and is budgeted at $1.2 billion for 2001, below depreciation and amortization of $1.9 billion
- Total debt of $14.8 billion at year-end 2000, with Moody's having lowered long-term debt rating to Baa1 at the Champion acquisition
03—Questions
Frequently Asked Questions
Why did net earnings decline despite higher sales and operating profit?
Operating profit rose to $2.71 billion from $1.81 billion, but the company recorded special charges of $601 million after taxes and minority interest, mainly for asset shutdowns of excess internal capacity and cost reduction actions. Extraordinary items were a net loss of $226 million, largely from impairment losses on businesses to be sold, reducing net earnings to $142 million.
How did the Champion International acquisition affect results?
The Champion acquisition, completed June 20, 2000 for about $5 billion in cash and 68.7 million shares, was the main driver of the 15% increase in net sales to $28.18 billion. Champion contributed approximately $325 million to operating profit increases compared with 1999 and 1998, and International Paper assumed about $2.8 billion of Champion debt.
What is the status of the company's divestiture program?
The company estimates the program will generate gross proceeds of about $5 billion by the end of 2001, up from an original $3 billion goal. As of March 1, 2001, about $1.2 billion had been realized, primarily from Bush Boake Allen, oil and gas interests, Zanders and the former Champion headquarters building. An agreement to sell Masonite was entered into in September 2000, and an agreement to sell about 265,000 acres of Washington forestlands for about $500 million was announced February 15, 2001.
What are the main legal and environmental risks?
The largest disclosed exposure is Masonite hardboard siding litigation, with reserves of $92 million at December 31, 2000, net of $51 million of expected insurance recoveries, and the filing states additional reserve additions are reasonably possible. Other matters include linerboard price-fixing class actions and high-pressure laminate antitrust suits. The company states these matters are not expected to have a material adverse effect on its consolidated financial position or results of operations, and environmental remediation liabilities were approximately $170 million.
What is the company's outlook for 2001?
The company expects continued softness in domestic containerboard demand, pricing pressure in uncoated markets, and further pressure on wood products and lumber prices. It plans capital spending of $1.2 billion, targets $500 million in annualized Champion merger benefits by year-end 2001, and expects an effective income tax rate of approximately 31%. Energy costs are expected to remain high entering 2001.
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