01—Abstract
Summary
Summary of the 10-K/A filed January 16, 2002. Cited figures are marked; the original filing is the authoritative source.
International Paper Company, a global forest products, paper and packaging company with primary operations in the United States, Canada, Europe, the Pacific Rim and South America, 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. However, after $969 million of pre-tax special charges (largely $824 million for asset shutdowns of excess internal capacity), along with $541 million of after-tax impairment losses on businesses to be sold and an extraordinary net loss, net earnings were $142 million, or $0.32 per share, compared with $183 million, or $0.44 per share, in 1999. Earnings before special and extraordinary items were $969 million, or $2.16 per share.
Management highlighted a $5 billionc divestiture program, including timberlands, intended to be largely completed by the end of 2001, with about $1.2 billion of proceeds realized as of March 1, 2001. 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 rose to $14.8 billion at year-end 2000 following the acquisitions, and Moody's lowered the company's long-term debt rating to Baa1 at the time of the Champion deal.
The company also disclosed ongoing exposure to Masonite hardboard siding claims, with reserves of $92 milliond net of expected insurance recoveries, and pending linerboard and high-pressure laminate antitrust suits. For investors, the filing shows a materially larger but more leveraged company, with management targeting a 400 basis point improvement in return on investment through non-price improvements by the end of 2002 and a Champion merger synergy target of $500 million by the end of 2001.
02—Key points
Key Highlights
- Net sales of $28.18 billion in 2000, up from $24.57 billion in 1999, driven primarily by the Champion International acquisition completed June 20, 2000
- Operating profit of $2.71 billion in 2000, compared with $1.81 billion in 1999
- Net earnings of $142 million ($0.32 per share) after special and extraordinary items, versus $183 million ($0.44 per share) in 1999; earnings before special and extraordinary items were $969 million ($2.16 per share)
- Special charges before taxes and minority interest of $969 million in 2000, including an $824 million charge for asset shutdowns of excess internal capacity and cost reduction actions
- Divestiture program increased to $5 billion including timberlands, with about $1.2 billion of proceeds realized as of March 1, 2001
- Capital spending of $1.4 billion in 2000, budgeted at $1.2 billion for 2001, below depreciation and amortization of $1.9 billion
- Total debt of $14.8 billion at December 31, 2000; long-term debt rating lowered to Baa1 by Moody's at the time of the Champion acquisition
03—Questions
Frequently Asked Questions
Why did net earnings fall in 2000 even though sales and operating profit rose?
Net sales rose to $28.18 billion and operating profit to $2.71 billion, but the company recorded large special items, including $824 million for asset shutdowns and $125 million for additional Masonite legal reserves. Extraordinary items were also a net loss of $226 million, which included $541 million of after-tax impairment losses on businesses to be sold, partly offset by net gains on sales of investments and businesses. Net earnings after these items were $142 million, or $0.32 per share.
What is the status of the company's divestiture program?
Management announced a $5 billion divestiture program, including timberlands, expected to be largely completed by the end of 2001. As of March 1, 2001, about $1.2 billion of proceeds had been realized, primarily from the sales of Bush Boake Allen, the oil and gas interests, Zanders and the former Champion headquarters building. The company had also agreed to sell its Masonite business and certain western forestlands, including approximately 265,000 acres in Washington for approximately $500 million.
How is the company's debt position affected by the Champion acquisition?
The Champion acquisition was financed largely with debt. Approximately $5 billion of debt was issued and $2.8 billion of Champion debt was assumed, and $6.7 billion of debt related to Champion remained outstanding at December 31, 2000. Total debt was $14.8 billion, and the company stated it had paid down over $1 billion of debt since the Champion acquisition and intended to continue reducing debt in 2001 using divestiture proceeds and free cash flow.
What are the main legal and environmental exposures disclosed?
Masonite hardboard siding claims carry net reserves of $92 million at December 31, 2000, after expected insurance recoveries of $43 million, and the company noted it is reasonably possible additional reserve additions may be needed. Pending matters include class actions alleging linerboard price fixing and high-pressure laminate price fixing involving the Nevamar division, and a grand jury investigation by the U.S. EPA and the U.S. Attorney's Office in Maine related to Champion's lumber mills. Environmental remediation liabilities totaled approximately $170 million, and the company expects to spend approximately $136 million in 2001 on environmental capital projects.
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