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International Paper Authorizes $3 Billion Share Repurchase Program

July 13, 2006 - International Paper today announced that its board of directors has authorized a share repurchase program to acquire up to $3 billion of the company's stock.

The $3 billion share repurchase amounts to approximately 20 percent of the company's outstanding shares at yesterday's closing price of $32.12. International Paper plans to begin the program in the third quarter of 2006 and intends to repurchase a significant amount of shares before the end of the year. The company is considering various forms of share repurchase vehicles, including tender offers, accelerated share repurchases and/or open market purchases, with the intention of completing the program before the end of 2007.

"A year ago, International Paper announced its transformation plan, and committed to a balanced and disciplined use of proceeds from planned divestitures. The board's decision to return up to $3 billion to our shareowners is another milestone in delivering on that promise," said John Faraci, IP chairman and chief executive. "In addition to returning value to our shareowners through the share repurchase, we are reducing debt to strengthen our balance sheet and we are exploring attractive reinvestment opportunities that will improve our global uncoated paper and packaging businesses."

Strengthening the Balance Sheet

International Paper plans to spend approximately $6 billion to $7 billion to strengthen the balance sheet through debt repayment and potential voluntary cash contributions to its U.S. pension fund. As of the end of the first quarter of 2006, the company had approximately $11.5 billion in debt, having reduced its debt by approximately $600 million using proceeds from the September 2005 sale of its interest in Carter Holt Harvey Limited. The company is considering voluntary cash contributions to its U.S. pension fund, in the range of $500 million to $1 billion, to begin satisfying longer-term funding requirements and to lower its pension expense.

"This approach to strengthening our balance sheet is consistent with our intent to maintain our investment-grade credit rating," Faraci said. "Reducing debt through expected improvements in cash flow from operations, combined with divestiture proceeds, will reduce our annual interest expense by about $350 million and will increase our financial flexibility."

Strategic Reinvestment

International Paper continues to evaluate high-return opportunities for selective reinvestment and may use remaining proceeds and free cash flow from operations for such reinvestments, estimated to be in the range of $2 billion to $4 billion. The company is only evaluating opportunities projected to have returns greater than the cost of capital, improve the company's return on investment, strengthen its global platform businesses, and in the case of acquisitions, be earnings-accretive within 12-18 months.

One reinvestment opportunity the company is exploring includes selling the company's Tres Lagoas forestlands and mill site in Brazil to a buyer who would build, own and operate the pulp mill. This would give IP proceeds from the sale of its forestlands and preserve the option of building one or two 220,000 ton-per-year uncoated paper machines, at a cost of less than $300 million each, on the Tres Lagoas site. Pulp fiber and utilities would be provided by the pulp mill owner. The company expects to make a decision on this opportunity by the end of 2006. In addition, International Paper is evaluating a number of other attractive reinvestment opportunities in Brazil to strengthen its global uncoated paper and packaging businesses. The company is also exploring possible investments in China, Russia and North America.

Divestiture Update

In the year since announcing its transformation plan, International Paper has completed the sale of its majority share of Carter Holt Harvey Limited and has announced it has entered into sale agreements, expected to close throughout the second half of 2006, for 5.7 million acres of U.S. forestland and its coated papers and kraft papers businesses. Proceeds expected from sales announced to date will total approximately $9.3 billion.

Other business units being evaluated for possible sale include the company's beverage packaging, wood products and Arizona Chemical businesses, as well as its Inpacel assets in Brazil. While the Arizona Chemical evaluation may extend into fourth quarter 2006 or beyond, decisions around the remaining businesses may be reached within the next 90 days.

The company expects total divestiture proceeds, including those already announced, could exceed $11 billion. However, the timing, amount and implementation of plans for share repurchase, strengthening the balance sheet and selective reinvestment may change, depending upon economic and market conditions, receipt of proceeds, share price, operating results, or other variables.

SOURCE: International Paper




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