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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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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, 1995 COMMISSION FILE NUMBER 1-3157
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INTERNATIONAL PAPER COMPANY
(Exact name of Company as specified in its charter)
NEW YORK 13-0872805
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
TWO MANHATTANVILLE ROAD, PURCHASE, N.Y. 10577
(Address of principal executive offices) (Zip Code)
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: 914-397-1500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Cumulative $4 Preferred Stock, without par value --
Common Stock, $1 per share par value New York Stock Exchange
5 1/8% Debentures due 2012 New York Stock Exchange
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 February 29, 1996, held by non-affiliates of the Company was
$9,220,244,390.00, calculated on the basis of the closing price on the Composite
Tape on February 29, 1996. 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
February 29, 1996:
OUTSTANDING IN TREASURY
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261,445,921 1,815,397
The following documents are incorporated by reference into the parts of
this report indicated below:
1995 ANNUAL REPORT TO SHAREHOLDERS
(PP. 1 AND 4 THROUGH 68) PARTS I, II AND IV
PROXY STATEMENT, DATED MARCH 29, 1996 PART III
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PART I
ITEM 1. BUSINESS
GENERAL
International Paper Company,* a New York corporation incorporated in 1941
as the successor to the New York corporation of the same name organized in 1898,
is a worldwide producer of printing and writing papers, paperboard and packaging
and wood products; and distributes paper and office supply products in the
United States, Europe and the Pacific Rim. It also produces pulp, laminated
products, and specialty products, including photosensitive films and papers,
nonwovens, chemicals and minerals.
In the United States, the Company operates 24 pulp and paper mills, 52
converting and packaging plants, 29 wood products facilities, 15 specialty
panels and laminated products plants and six nonwoven products facilities.
Production facilities in Europe, Asia, Latin America and Canada include 14 pulp
and paper mills, 30 converting and packaging plants, two wood products
facilities, four specialty panels and laminated products plants and four
nonwoven products facilities.
The Company distributes fine paper, printing and industrial products and
building materials, primarily manufactured by other companies, through over 300
distribution branches located primarily in the United States. In addition, the
Company produces photosensitive films and papers and photographic equipment
(three U.S. and six international locations) and specialty chemicals (seven U.S.
and three international locations), and engages in domestic oil and gas and real
estate activities.
Through its acquisition of Carter Holt Harvey, the Company, primarily in
New Zealand and Australia, operates seven mills producing pulp and paper,
packaging and tissue products, 32 converting and packaging facilities, 49 wood
products manufacturing and distribution facilities, and nine building products
plants. Carter Holt Harvey distributes paper and packaging products through 18
distribution branches located in New Zealand and Australia. In New Zealand,
Carter Holt Harvey controls approximately 800,000 acres of forestlands.
In January 1995, the Company acquired the assets of two Michigan-based
paper distributors, Carpenter Paper Company and Seaman-Patrick Paper Company. In
March 1994, the Company, through a subsidiary, acquired from Brierley
Investments Limited (Brierley) an additional 8 percent interest in Carter Holt
Harvey Limited (Carter Holt Harvey), a major New Zealand forest and paper
products company with substantial assets in Chile. The purchase increased the
Company's ownership of Carter Holt Harvey to 24 percent. In April 1995, the
Company acquired from Brierley their remaining 131.8 million shares of Carter
Holt Harvey for NZ$470 million (approximately $316 million). Further in April
1995, an additional 325.8 million Carter Holt Harvey shares were acquired by the
Company through a subsidiary in open-market purchases for NZ$3.80 per share
(approximately $834 million) bringing the Company's total ownership in Carter
Holt Harvey to 50.2% on a fully diluted basis. Beginning May 1, 1995, Carter
Holt Harvey was consolidated in the financial statements of the Company. The
Company in September 1995, acquired Micarta, the high pressure laminates
business of Westinghouse located in Hampton, South Carolina and in October 1995,
acquired the inks and adhesives resin business of DSM located in Niort, France.
In July 1994, the Company, through a subsidiary, acquired certain assets of
Papelera Kif and Ogi Papel, distributors of printing papers in Juarez and
Chihuahua, Mexico. In December 1994, the Company completed a merger with Kirk
Paper Corporation, a paper distributor located in Downey, California using the
pooling-of-interests accounting method, and acquired additional stock of Zanders
Feinpapiere AG.
In April 1993, the Company acquired certain assets of the Los Angeles-based
Ingram Paper Company, a distributor of industrial and fine printing papers. In
December, J.B. Papers, Inc., a paper distribution company located in Union,
N.J., was purchased. Also in December, the assets of Monsanto Company's
Kentucky-based Fome-Cor division, a manufacturer of polystyrene foam products,
were acquired.
All of the 1995, 1994 and 1993 acquisitions, except the merger with Kirk
Paper Corporation, were accounted for using the purchase method. The pro-forma
consolidated results of operations reflecting the 1995 acquisitions are
presented on page 58 of the Company's 1995 Annual Report to Shareholders (the
"Annual Report"), which information is incorporated herein by reference. The
effects of the 1994 and 1993 mergers and acquisitions, both individually and in
the aggregate, were not significant to the Company's consolidated financial
statements.
A further discussion of mergers and acquisitions can be found on pages 44,
57 and 58 of the Company's Annual Report, which information is incorporated
herein by reference.
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* Unless otherwise indicated by the context, the terms 'Company' and
'International Paper' are used interchangeably to describe International Paper
Company and its consolidated subsidiaries.
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From 1991 through 1995, International Paper's capital expenditures
approximated $6.2 billion, excluding mergers and acquisitions. These
expenditures reflect continuing efforts to improve product quality and
environmental performance, lower costs, expand production capacity, and acquire
and improve forestlands. Capital spending in 1995 was approximately $1.5 billion
and is budgeted to be approximately $1.4 billion in 1996. A further discussion
of capital expenditures can be found on pages 44 and 45 of the Annual Report,
which information is incorporated herein by reference.
The Company, which owns a majority interest in IP Timberlands, Ltd., a
Texas limited partnership (IPT), controlled approximately 6.0 million acres of
forestlands in the United States at December 31, 1995. IPT was formed to succeed
to substantially all of International Paper's forest products business for the
period 1985 through 2035, unless earlier terminated. Through its subsidiary
Carter Holt Harvey, the Company controls approximately 800,000 acres of
forestlands in New Zealand.
In March 1996, IPT signed a contract to sell a 98% general partnership
interest in a subsidiary partnership owning all of IPT's Western region assets,
which includes approximately 300,000 acres of forestlands in Oregon and
Washington. IPT will retain a 1% limited partner's interest and a preferred
interest of approximately $135 million. IP Forest Resources Company, the
managing general partner of IPT will own another 1% interest.
In March 1996, the Company completed its announced merger with Federal
Paper Board. For a further discussion of this merger, see pages 44 and 58 of the
Company's Annual Report, which information is incorporated herein by reference.
FINANCIAL INFORMATION CONCERNING INDUSTRY SEGMENTS
The financial information concerning industry segments is set forth on
pages 10, 18, 24, 34, 40, 45 and 50 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 49 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. Information on the impact of prices
and costs on operating profits is contained on pages 10, 18, 24, 34, 40 and 44
through 48 of the Annual Report, which information is incorporated herein by
reference.
MARKETING AND DISTRIBUTION
Paper and packaging products are sold through the Company's own sales
organization directly to users or converters for manufacture. Sales offices are
located throughout the United States as well as internationally. Significant
volumes of products are also sold through paper merchants and distributors,
including facilities in the Company's distribution network.
The Company's U.S. production of lumber and plywood is marketed 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 5 through 41 of the
Annual Report, which information is incorporated herein by reference.
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Production of major products for 1995, 1994 and 1993 was as follows:
PRODUCTION BY PRODUCTS
(UNAUDITED)
<TABLE>
<CAPTION>
1995(4,5) 1994(5) 1993
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<S> <C> <C> <C>
PRINTING PAPERS
(IN THOUSANDS OF TONS)
Business papers............................... 3,432 3,173 2,920
Coated papers................................. 1,136 1,036 972
Market pulp(1)................................ 1,733 1,611 1,529
Newsprint..................................... 91 68 3
PACKAGING
(IN THOUSANDS OF TONS)
Containerboard................................ 2,493 2,164 2,084
Bleached packaging board...................... 1,119 1,044 1,004
Industrial papers............................. 653 610 573
Industrial and consumer packaging(2).......... 2,994 2,946 2,933
SPECIALTY PRODUCTS (in thousands of tons)
Tissue................................... 68 -- --
FOREST PRODUCTS
(IN MILLIONS)
Panels (sq. ft. 3/8" basis)(3)................ 867 822 778
Lumber (board feet)........................... 1,104 953 952
</TABLE>
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(1) This excludes market pulp purchases of approximately 700,000 tons annually.
(2) A significant portion of this tonnage was fabricated from paperboard and
paper produced at the Company's own mills and included in the
containerboard, bleached packaging board and industrial papers figures in
this table.
(3) Panels include plywood and oriented strand board.
(4) Includes amounts for Carter Holt Harvey as applicable from May 1, 1995.
(5) Certain reclassifications and adjustments have been made to current and
prior-year amounts.
RESEARCH AND DEVELOPMENT
The Company operates research and development centers at Sterling Forest,
New York; Mobile, Alabama; Erie, Pennsylvania; Kaukauna, Wisconsin; Binghamton,
New York; South Walpole, Massachusetts; St. Charles, Illinois; Orange Park,
Florida; Holyoke, Massachusetts; Odenton, Maryland; Mobberley, United Kingdom;
Morley, United Kingdom; Munich, Germany; Fribourg, Switzerland; 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. Research and development activities are directed
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;
innovation and improvement of photographic materials and processes, printing
plates, pressroom/plate chemistries and plate processors; 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. Product
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 $110.8 million in 1995, $102.6 million in 1994 and
$94.7 million in 1993.
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ENVIRONMENTAL PROTECTION
Control over pollutants discharged into the air, water and groundwater to
avoid significant adverse impacts on the environment and achieve 100% compliance
with applicable law and regulations is a continuing objective of the Company.
The Company has invested substantial funds to modify facilities to assure
compliance with applicable environmental quality laws and plans to make
substantial capital expenditures for these purposes in the future. The Company
expects the pending merger with Federal to increase environmental expenditures.
The amount of these expenditures will be determined after the merger is
completed. The discussions in the following paragraphs are based on
International Paper facilities at the end of 1995.
A total of $108 million was spent in 1995 to control pollutant releases
into the air and water and to assure environmentally sound disposal of solid and
hazardous waste. The Company expects to spend approximately $175 million in 1996
for similar capital programs. Amounts to be spent for environmental control
facilities in future years will depend on new laws and regulations, changes in
legal requirements and changes in environmental concerns. Taking these
uncertainties into account, the Company's preliminary estimate for additional
environmental appropriations during the period 1997 through 1998 is in the range
of $390 million to $650 million.
In December 1993, the United States Environmental Protection Agency (EPA)
proposed new pulp and paper mill standards for air emissions and water
discharges to be met three years after final promulgation. This proposal is
known as 'Cluster Rulemaking.' EPA also promulgated regulations implementing the
Great Lakes Initiative ('GLI') covering water quality and permitting
implementation procedures. Future spending will be heavily influenced by the
final Cluster rules and, in the case of the GLI, on how the individual Great
Lakes states implement the program. In 1994, the Company estimated future
capital spending to comply with the Cluster Rulemaking and the GLI to be between
$700 million and $1.5 billion depending upon the methods and deadlines allowed
by the final regulations to meet requirements. There have been extensive
discussions with the Congress and EPA over the last two years but, there have
been no publicly announced changes to the proposed 'Cluster' regulations.
Nevertheless, there is reason to expect that changes will soon be announced and
that these estimates will be adjusted downward, and will occur over a longer
time frame than the three years in the current proposal. In 1994, the Company
estimated that annual operating costs, excluding depreciation, would increase
between $60 million and $120 million when these regulations are fully
implemented. This estimate will also be adjusted to the extent the EPA makes
moderating changes.
The Company expects the significant effort it has made in the analysis of
environmental issues and the development of environmental control technology to
enable it to keep costs for compliance with environmental regulations at, or
below, industry averages.
A further discussion of environmental issues can be found on pages 43, 47
and 48 of the Annual Report, which information is incorporated herein by
reference.
As of December 31, 1995, $916 million of industrial and pollution control
revenue bonds, secured by Company contractual obligations, were outstanding in
57 political subdivisions of various states, counties and municipalities,
primarily to finance environmental control projects located at or in conjunction
with the Company's plants in those subdivisions. It is contemplated that
additional industrial revenue bonds will be issued from time to time to finance
other environmental control projects, provided tax law changes do not curtail
the Company's access to the municipal bond market.
EMPLOYEES
As of December 31, 1995, the Company had approximately 81,500 employees, of
whom approximately 51,000 were located in the United States and the remainder
overseas. Of the domestic employees, approximately 33,000 are hourly employees,
approximately 15,000 of whom are represented by the United Paperworkers
International Union.
During 1995, new labor agreements were reached at the Erie and Georgetown
Mills. Currently, negotiations are still in progress at the Hudson River Mill.
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During 1996, labor agreements are scheduled to be negotiated at the
following mills: Gardiner, Pineville, Texarkana, Thilmany, Ticonderoga and
Woronoco. During 1997, labor agreements are scheduled to be negotiated at the
following mills: Mobile, Riverdale, Oswego, Millers Falls, and Vicksburg.
During 1995, labor agreements expired at 11 packaging plants, four
specialty products plants and four distribution operations. Multi-year labor
agreements were negotiated at each location except three packaging plants, one
specialty products plant and two distribution operations where negotiations were
still in progress at year end. One land and timber operation has a contract open
from a previous year.
RAW MATERIALS
For information as to the sources and availability of raw materials
essential to the Company's business, see Item 2 'Properties.'
ITEM 2. PROPERTIES.
FORESTLANDS
The principal raw material used by International Paper is wood in various
forms. At December 31, 1995, IPT, a limited partnership in which the Company has
a majority ownership interest, controlled approximately 5.9 million acres of
forestlands in the U.S. while an additional 0.1 million acres are held under
short-term leases to International Paper. In March 1996, IPT signed a contract
to sell a 98% general partnership interest in a subsidiary partnership owning
all of IPT's Western region assets, which includes approximately 300,000 acres
of forestlands in Oregon and Washington.
During 1995, such forestlands supplied 1.5 million cords of roundwood to
the Company's U.S. facilities. This amounted to the following percentages of the
roundwood requirements of its mills and forest products facilities: 12% in its
Northern mills, 16% in its Southern mills and none in its Western mill. The
balance was acquired from other private industrial and nonindustrial forestland
owners, as well as the United States government. In addition, 3.4 million cords
of IPT's wood were sold to other users in 1995.
In November 1994, the Company adopted the Sustainable Forestry Principles
developed by the American Forest and Paper Association in August 1994.
MILLS AND PLANTS
A listing of the Company's production facilities can be found in Appendix I
hereto, which information 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. The Company continues to
study the economics of modernizing or adopting other alternatives for higher
cost facilities. Further discussions of new mill and plant projects can be found
on pages 44 and 45 of the Annual Report, which information is incorporated
herein by reference.
CAPITAL INVESTMENTS AND DISPOSITIONS
Given the size, scope and complexity of its business interests,
International Paper continuously examines and evaluates a wide variety of
business opportunities and planning alternatives, including possible
acquisitions and sales or other dispositions of properties. Planned capital
investments for 1996, as of December 31, 1995, are set forth on pages 44 through
46 and 58 of the Annual Report, which information is incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS.
DIOXIN LITIGATION
On June 11, 1993, a lawsuit purporting to be a class action was filed by
individuals against the Company, Dow Chemical and individual employees of both
companies in the 18th Judicial District of Louisiana seeking compensatory and
punitive damages of an unspecified amount, alleging that the Company polluted
Staulkinghead Creek and all waterways south thereof, by discharging chemicals,
including dioxin, from its Bastrop, Louisiana mill. The case was removed to the
U.S. District Court for the Middle District of Louisiana. On June 22, 1994, the
Court entered an order dismissing Dow and its employees from the case. The
Plaintiff appealed this ruling challenging among other things federal
jurisdiction. The Fifth Circuit Court of Appeals ruled in favor of the
defendants on all issues and returned the case to the Federal District Court.
The case is still before that court for the determination of class
certification.
Beginning in November of 1990, the Company was named as a defendant in 88
lawsuits by individuals filed in state or federal court in Mississippi alleging
that it has polluted and damaged the Pascagoula, Leaf and
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Escatawpa Rivers by releasing dioxin and over 40 other chemicals into those
rivers. Georgia-Pacific was initially named in most of these suits but an order
severing it from the Company in all the then pending cases was entered on
September 15, 1992. Following the severance order, nine of the state cases were
removed from state court to Federal District Court for the Southern District of
Mississippi. Of the nine cases that were removed four were dismissed and the
remaining five were resolved by summary judgments in favor of the Company.
On May 24, 1993, a wrongful death action was filed in Mississippi state
court against the Company claiming the decedent's death was related to exposure
to hazardous and toxic substances from the Moss Point mill. The lawsuit also
included the independent survivorship claims of the widow. The complaint raised
claims similar to those in the previously-filed lawsuits and also contained
specific allegations relating to the disposal of sludge by the mill. The
plaintiff sought compensatory damages of $1 million and punitive damages of $20
million. The case was removed to the U.S. District Court for the Southern
District of Mississippi. In August of 1995 the federal court granted the
Company's motion for summary judgment and this case is now concluded.
All of the 64 cases that had been pending in the Mississippi state court
had been consolidated before one judge. Pursuant to a scheduling order a
bellwhether trial with six plaintiffs was set for trial in November, 1995.
However, prior to trial, the court granted the Company's motions for summary
judgment against those specific plaintiffs. Thereafter the Company filed similar
motions for summary judgment in some of the remaining cases. These motions were
granted on March 4, 1996, resulting in the dismissal of 29 cases and 3,094
plaintiffs. The Company has filed or will file similar motions in all the
remaining cases.
In summary, taking into account various dismissals, there are 36 cases
pending in state court and none in Federal Court for a total of 36 Mississippi
cases as of March 5, 1996. In these cases, there are a total of 1,981 plaintiffs
seeking compensatory and punitive damages and injunctive relief. While any of
this litigation has an element of uncertainty, the Company believes that in the
very near future it will prevail on its motions for summary judgment, thereby
eliminating all the remaining cases. The Company further believes that the
outcome of any of these proceedings, lawsuits or claims, pending or threatened,
or all of them combined, will not have a materially adverse effect on the
consolidated financial position or results of operations.
OTHER LITIGATION
On October 14, 1993, the Town of Jay, Maine assessed a penalty of $394,000
against the Company's Androscoggin mill for violations of its air permit under
the Town's Environmental Control and Improvement Ordinance attributable to
excess emissions of particulate from one of the mill's lime kilns, as well as
violations of certain reporting requirements. The Town's penalty assessment was
appealed. On September 28, 1994, the Maine Superior Court vacated most of the
penalty the Town had assessed, leaving $22,000 in place but providing the Town
with the opportunity to reassess the penalty on four violations. The Town
appealed this decision to the Maine Supreme Judicial Court, the State's highest
court, sitting as the Law Court. By decision, dated October 6, 1995, the Law
Court affirmed the decision of the Superior Court. On October 20, 1995, the Town
asked the Law Court to reconsider its decision. On November 10, 1995, the Law
Court denied the Town's request.
The Maine Department of Environmental Protection proposed on October 15,
1992 that the Androscoggin mill enter into an Administrative Consent Agreement
and Enforcement Order and pay a civil penalty of $217,892 because the
particulate emissions from the same lime kiln which was the subject of the
foregoing proceeding with the Town of Jay, had exceeded the limits in the state
air license. On March 9, 1994, the State commenced an action in the Maine
Superior Court but no specific amount is claimed in the complaint. With the
conclusion of the litigation with the Town of Jay, settlement discussions with
the State have resumed.
On September 26, 1994, the EPA issued a Complaint and Compliance Order
alleging that a facility in Gulfport, Mississippi owned and operated by Arizona
Chemical Company ('Arizona'), wholly owned subsidiary of the Company, violated
regulations governing the burning of hazardous waste fuel in an industrial
boiler. The Complaint sought a civil penalty of $712,350. On September 29, 1995,
Arizona settled the matter on terms which included a civil penalty of $442,150.
The United States Attorney's Office for the Southern District of
Mississippi and EPA Region IV, are investigating Arizona through a Federal Grand
Jury. Arizona has been informed that it is a target of the investigation, which
relates to environmental issues at Arizona facilities in Gulfport and Picayune,
Mississippi. Arizona is cooperating with the investigation. EPA criminal
investigators have interviewed some of Arizona's current and former employees
with respect to the foregoing matters and several have testified before the
Federal Grand Jury. The Company and Arizona have also received Federal Grand
Jury subpoenas seeking production of documents relating to these matters, and
have complied with the subpoenas. We are unable to predict the outcome of the
investigation.
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The Company's majority owned subsidiary, Carter Holt Harvey has an indirect
shareholding of 30.05% in Chile's largest industrial company, Copec. This
shareholding is held through Carter Holt Harvey's joint venture in Los Andes
with Inversiones Socoroma S.A., a Chilean investment company ('Socoroma'). In
late 1993, Carter Holt Harvey commenced several actions in Chilean courts
challenging certain corporate governance documents of Los Andes, as well as
agreements between Carter Holt Harvey's subsidiary and Socoroma. In December
1994, Socoroma commenced an arbitration action seeking to expel Carter Holt
Harvey from Los Andes at a price which is less than the carrying value. Although
the Company believes that the eventual resolution of this Carter Holt Harvey
litigation should not have a material adverse effect on the Company, the actual
resolution of each of these actions cannot be predicted because of the
uncertainties involved in the litigation and arbitration proceedings.
In 1989, Masonite Corporation, a wholly-owned subsidiary of the Company
('Masonite'), modified a production line to make a new product at a facility in
Ukiah, California. The facility obtained the necessary Authority to Construct
permits from the appropriate State authority. In May 1992 the EPA, Region 9,
issued an order alleging that an additional Prevention of Significant
Deterioration permit was required for the new product line. On January 18, 1995,
a consent decree which resolves this matter was lodged with the U.S. District
Court for the Northern District of California. The consent decree includes a
civil penalty of $600,000. The consent decree was challenged by a citizen's
group and the decree has not yet been entered by the court.
A lawsuit purporting to be a nationwide class action was filed against the
Company and Masonite, on December 27, 1994 in Mobile County Circuit Court,
Mobile, Alabama. This lawsuit alleges that hardboard siding, which is used as
exterior cladding for residential dwellings and is manufactured by Masonite,
fails prematurely, allowing moisture intrusion. It is further alleged that the
presence of moisture in turn causes the failure of the structure underneath the
siding. The class, which has been certified, consists of all owners of homes in
the United States having Masonite hardboard siding. It is impossible to know how
many homes may have this siding, but it is estimated that there are hundreds of
thousands. The Company and Masonite were unsuccessful in their attempt to remove
the case to the Federal District Court for the Southern District of Alabama on
diversity grounds. The case has been remanded to the Mobile County Circuit
Court. The Company and Masonite feel that there are valid defenses to this case
and will vigorously defend all claims asserted by the Plaintiff. While any
litigation has an element of uncertainty it is believed that the outcome of
these proceedings and lawsuit will not have a materially adverse effect on its
consolidated financial position or results of operations.
As of March 30, 1996, 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 administrative proceedings that arise under applicable environmental and
safety laws or regulations, including approximately 68 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
minimus liability with respect to 26 of these sites; that liability is not
likely to be significant at 26 sites; and that estimates of liability at 16 of
these sites is likely to be significant but not material to the Company's
consolidated financial position or results of operations.
The Company is also involved in other contractual disputes, administrative
and legal proceedings and investigations of various types. While any litigation,
proceeding or investigation has an element of uncertainty, the Company believes
that the outcome of any proceeding, lawsuit or claim that is pending or
threatened, or all of them combined, will not have a materially adverse effect
on its 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, 1995.
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SPECIAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY.
INTERNATIONAL PAPER COMPANY
EXECUTIVE OFFICERS
AS OF FEBRUARY 29, 1996
INCLUDING NAME, AGE, OFFICES AND POSITIONS HELD(1) AND
BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
JOHN A. GEORGES, 65, chief executive officer and chairman of the board of
directors of the Company since 1985(2).
JOHN T. DILLON, 57, president and chief operating officer(3). He was
executive vice president-packaging since 1987, until he assumed his current
position in 1995.
W. MICHAEL AMICK, 55, executive vice president, forest products and
industrial packaging. He was vice president and group executive-specialty
industrial papers from 1988 to 1992, when he became president-International
Paper-Europe. He assumed his current position in February 1996.
JAMES P. MELICAN, 55, executive vice president-legal and external affairs.
He assumed his current position in 1991.
DAVID W. OSKIN, 53, executive vice president-consumer packaging and
specialty industrial papers since 1995. He held the position of senior vice
president from 1988 to 1992, when he became the chief executive officer and
managing director of Carter Holt Harvey Limited of New Zealand until his current
position.
C. WESLEY SMITH, 56, executive vice president-printing papers. He was
elected president-International Paper Europe in 1989 and assumed his present
position in 1992.
MILAN J. TURK, 57, executive vice president-specialty businesses. He was
vice president and group executive-specialty products from 1990 until 1993, when
he became senior vice president-specialty products. He assumed his current
position in February, 1996.
ROBERT M. BYRNES, 58, senior vice president-human resources since 1989.
MARIANNE M. PARRS, 51, senior vice president and chief financial officer
since 1995. She was controller-printing papers from 1985 to 1993 and then held
the position of staff vice president-tax until 1995.
ANDREW R. LESSIN, 53, vice president and controller since 1995. Prior
thereto he was the controller since 1990.
WILLIAM B. LYTTON, 47, vice president and general counsel. He was vice
president and general counsel for GE Aerospace from 1990 to 1993; vice president
and associate general counsel for Martin Marietta from 1993 to 1995; and vice
president and general counsel for Lockheed Martin Electronics from 1995 to 1996.
He assumed his current position in 1996.
- ------------------
(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.
(2) Mr. Georges has announced his retirement as Chairman and Chief Executive
Officer of the Company, effective March 31, 1996. He will continue as a
director of the Company.
(3) On April 1, 1996, Mr. Dillon will become the Chairman and Chief Executive
Officer of the Company.
9
<PAGE>
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 1995
and 1994 are set forth on page 68 of the Annual Report and are incorporated
herein by reference.
As of March 22, 1996, there were 33,719 holders of record of the Company's
common stock.
ITEM 6. SELECTED FINANCIAL DATA.
The comparative columnar table showing selected financial data for the
Company is set forth on pages 66 and 67 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 10, 18, 24, 34, 40 and 44 through 48 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 51 through 65 of the Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors of the Company and their business experience are set forth on
pages 8 through 11 of the Company's Notice of 1996 Annual Meeting and Proxy
Statement, dated March 29, 1996 (the 'Proxy Statement') and are 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 13, 14 and 16 through 19 of the Proxy Statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company knows of no one owning beneficially more than five percent (5%)
of the Company's common stock other than the State Street Bank and Trust Co.,
N.A., as Trustee of the Company's Salaried Savings Plan and Retirement Savings
Plan, respectively, which in the aggregate own 7.68% of the Company's shares of
common stock as of December 31, 1995. State Street Bank and Trust Co., N.A.
holds 8.46% of the Company's common stock and disclaims beneficial ownership of
the Company's common stock it holds as Trustee for the Company's benefit plans.
The table showing ownership of the Company's common stock by directors and by
directors and executive officers as a group is set forth on pages 6 and 7 of the
Proxy Statement, which information is incorporated herein by reference.
In 1989, the Company announced that it had authorized the purchase, from
time to time, of additional shares of its common stock for use in the Company's
benefit and shareholder plans and for general corporate purposes. As of December
31, 1995, 9.8 million common shares may be repurchased under this program.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None, other than those described under Item 11.
FORWARD-LOOKING INFORMATION
THIS 1995 ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS CONCERNING PROJECTED COST SAVINGS AND PROFITABILITY OF INTERNATIONAL
PAPER. ACTUAL RESULTS MAY DIFFER BASED ON UNANTICIPATED CHANGES IN THE U.S. AND
INTERNATIONAL ECONOMIES, PRICING AND DEMAND FOR THE COMPANY'S PRODUCTS, RAW
MATERIAL COSTS, LOWER THAN ANTICIPATED SAVINGS FROM RESTRUCTURING AND
'WRITE-OFF' CHARGES, OR LOWER THAN EXPECTED EFFICIENCIES FROM HIGH-PERFORMANCE
WORK SYSTEMS AND OTHER PRODUCTIVITY AND COST-OF-QUALITY INITIATIVES.
10
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
EXHIBITS:
(10) (a) Form of Termination Agreement, Tier I*
(b) Form of Termination Agreement, Tier II*
(c) Form of Termination Agreement, Tier III*
(d) Revolving Credit Agreement, dated January 24, 1995**
(11) Statement of Computation of Per Share Earnings
(12) Computation of Ratio of Earnings to Fixed Charges
(13) 1995 Annual Report to Shareholders of the Company
(21) List of Significant Subsidiaries
(22) Proxy Statement, dated March 29, 1996
(23) Consent of Independent Public Accountants
(24) Power of Attorney
(27) Financial Data Schedule
(99) (a) Management Incentive Plan*
(b) Long-Term Incentive Compensation Plan*
(c) Unfunded Savings Plan for Senior Managers**
(d) Non-Funded Deferred Compensation Plan for Non-Employee Directors**
- ------------------
* Previously filed in the Annual Report on Form 10-K, for the year ended
December 31, 1992.
** Previously filed in the Annual Report on Form 10-K for the year ended
December 31, 1994.
REPORTS ON FORM 8-K
Current Reports on Form 8-K were filed by the Company on November 13, 1995,
December 5, 1995, February 1, 1996, February 15, 1996, March 8, 1996 and March
27, 1996.
FINANCIAL STATEMENT SCHEDULES
The consolidated balance sheets as of December 31, 1995 and 1994 and the
related consolidated statements of earnings, cash flows and common shareholders'
equity for each of the three years ended December 31, 1995 and the related Notes
to Consolidated Financial Statements, together with the report thereon of Arthur
Andersen LLP, dated February 13, 1996, appearing on pages 51 through 65 of the
Annual Report, are incorporated herein by reference. With the exception of the
aforementioned information and the information incorporated by reference in
Items 1, 2 and 5 through 8, the Annual Report is not to be deemed filed as part
of this report. 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.
11
<PAGE>
ADDITIONAL FINANCIAL DATA
1995, 1994 AND 1993
Report of Independent Public Accountants on Financial Statement Schedule ... 13
Consolidated Schedule:
II -- Valuation and Qualifying Accounts................................ 14
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 1995 Annual
Report to Shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated February 13, 1996. 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, 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 13, 1996
13
<PAGE>
SCHEDULE II
INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------
BALANCE
BALANCE AT ADDITIONS ADDITIONS DEDUCTIONS AT END
BEGINNING CHARGED TO CHARGED TO FROM OF
DESCRIPTION OF PERIOD EARNINGS OTHER ACCOUNTS RESERVES PERIOD
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves Applied
Against Specific
Assets Shown on
Balance Sheet:
Doubtful
accounts--current $ 97 $ 25 $ 0 $(21)(A) $ 101
---- ---- ---- ----- -------
---- ---- ---- ----- -------
<CAPTION>
FOR YEAR ENDED DECEMBER 31, 1994
- ----------------------------------------------------------------------------------------------
BALANCE
BALANCE AT ADDITIONS ADDITIONS DEDUCTIONS AT END
BEGINNING CHARGED TO CHARGED TO FROM OF
DESCRIPTION OF PERIOD EARNINGS OTHER ACCOUNTS RESERVES PERIOD
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves Applied
Against Specific
Assets Shown on
Balance Sheet:
Doubtful
accounts--current $104 $ 21 $ 0 $(28)(A) $ 97
---------- ---- ---- ----- -------
---------- ---- ---- ----- -------
<CAPTION>
FOR YEAR ENDED DECEMBER 31, 1993
- ----------------------------------------------------------------------------------------------
BALANCE
BALANCE AT ADDITIONS ADDITIONS DEDUCTIONS AT END
BEGINNING CHARGED TO CHARGED TO FROM OF
DESCRIPTION OF PERIOD EARNINGS OTHER ACCOUNTS RESERVES PERIOD
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves Applied
Against Specific
Assets Shown on
Balance Sheet:
Doubtful
accounts--current $ 91 $ 29 $ 0 $(16)(A) $ 104
---- ---- ---- ----- -------
---- ---- ---- ----- -------
</TABLE>
- ------------------
(A) Primarily write-offs, less recoveries, of accounts determined to be
uncollectible.
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.
INTERNATIONAL PAPER COMPANY
By: JAMES W. GUEDRY
JAMES W. GUEDRY, SECRETARY
March 29, 1996
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:
NAME TITLE DATE
- ---------------------------------------- ---------------------- --------------
JOHN A. GEORGES Chairman of the Board, March 29, 1996
(JOHN A. GEORGES) Chief Executive
Officer and Director
JOHN T. DILLON* President and Director March 29, 1996
(JOHN T. DILLON)
C. WESLEY SMITH* Executive Vice March 29, 1996
(C. WESLEY SMITH) President and Director
WILLARD C. BUTCHER* Director March 29, 1996
(WILLARD C. BUTCHER)
ROBERT J. EATON* Director March 29, 1996
(ROBERT J. EATON)
STANLEY C. GAULT* Director March 29, 1996
(STANLEY C. GAULT)
THOMAS C. GRAHAM* Director March 29, 1996
(THOMAS C. GRAHAM)
ARTHUR G. HANSEN* Director March 29, 1996
(ARTHUR G. HANSEN)
DONALD F. MCHENRY* Director March 29, 1996
(DONALD F. MCHENRY)
PATRICK F. NOONAN* Director March 29, 1996
(PATRICK F. NOONAN)
JANE C. PFEIFFER* Director March 29, 1996
(JANE C. PFEIFFER)
EDMUND T. PRATT, JR.* Director March 29, 1996
(EDMUND T. PRATT, JR.)
15
<PAGE>
NAME TITLE DATE
- ---------------------------------------- ---------------------- --------------
CHARLES R. SHOEMATE* Director March 29, 1996
(CHARLES R. SHOEMATE)
ROGER B. SMITH* Director March 29, 1996
(ROGER B. SMITH)
MARIANNE M. PARRS Senior Vice President March 29, 1996
(MARIANNE M. PARRS) and Chief Financial
Officer
ANDREW R. LESSIN Vice President and March 29, 1996
(ANDREW R. LESSIN) Controller and Chief
Accounting Officer
*By JAMES W. GUEDRY
(JAMES W. GUEDRY, ATTORNEY-IN-FACT)
16
<PAGE>
APPENDIX I
1995 LISTING OF FACILITIES
PRINTING PAPERS
BUSINESS PAPERS, COATED
PAPERS AND PULP
Domestic:
Mobile, Alabama
Selma, Alabama
(Riverdale Mill)
Camden, Arkansas
Pine Bluff, Arkansas
Bastrop, Louisiana
(Louisiana Mill)
Springhill, Louisiana
(C & D Center)
Jay, Maine
(Androscoggin Mill)
Miller Falls, Massachusetts
West Springfield, Massachusetts
Westfield, Massachusetts
(C & D Center)
Woronoco, Massachusetts
Moss Point, Mississippi
Natchez, Mississippi
Corinth, New York
(Hudson River Mill)
Ticonderoga, New York
Hamilton, Ohio
Erie, Pennsylvania
Lock Haven, Pennsylvania
Georgetown, South Carolina
International:
Cali, Colombia
Coloto, Colombia
Clermont-Ferrand, France
(Corimex Mill)
Docelles, France
(Lana Mill)
Grenoble, France
(Lancey and
Pont De Claix Mills)
Maresquel, France
Saillat, France
Saint Die, France
(Anould Mill)
Strasbourg, France
(La Robertsau Mill)
Bergisch Gladbach, Germany
(Gorhrsmuhle Mill)
Duren, Germany
(Reflex Mill)
Kinleith, New Zealand
Mataura, New Zealand
Kwidzyn, Poland
PACKAGING
CONTAINERBOARD
Domestic:
Mansfield, Louisiana
Pineville, Louisiana
Vicksburg, Mississippi
Oswego, New York
Gardiner, Oregon
International:
Arles, France
Kinleith, New Zealand
Penrose, New Zealand
CORRUGATED CONTAINER
Domestic:
Mobile, Alabama
Russellville, Arkansas
Carson, California
Modesto, California
San Jose, California
Stockton, California
Putnam, Connecticut
Auburndale, Florida
Chicago, Illinois
Shreveport, Louisiana
Springhill, Louisiana
Detroit, Michigan
Minneapolis, Minnesota
Geneva, New York
Tallman, New York
Statesville, North Carolina
Cincinnati, Ohio
Wooster, Ohio
Mount Carmel, Pennsylvania
Georgetown, South Carolina
Nashville, Tennessee
Dallas, Texas
Edinburg, Texas
El Paso, Texas
Delavan, Wisconsin
Fond du Lac, Wisconsin
International:
Las Palmas, Canary Islands
Suva, Fiji
Arles, France
Chalon-sur-Saone, France
Chantilly, France
Creil, France
LePuy, France
Mortagne, France
Guadeloupe, French West
Indies
Bellusco, Italy
Catania, Italy
Pedemonte, Italy
Pomezia, Italy
San Felice, Italy
Auckland, New Zealand
Christchurch, New Zealand
Dunedin, New Zealand
Feilding, New Zealand
Hamilton, New Zealand
Hastings, New Zealand
Invercargill, New Zealand
Levin, New Zealand
Nelson, New Zealand
Barcelona, Spain
Bilbao, Spain
Valladolid, Spain
Winsford, United Kingdom
Fiber Converting Plants
Auckland, New Zealand
Nelson, New Zealand
BLEACHED BOARD
Domestic:
Pine Bluff, Arkansas
Moss Point, Mississippi
Georgetown, South
Carolina
Texarkana, Texas
International:
Whaketane, New Zealand
LIQUID PACKAGING
Domestic:
Turlock, California
Plant City, Florida
Atlanta, Georgia
Cedar Rapids, Iowa
Kansas City, Kansas
Framingham, Massachusetts
Kalamazoo, Michigan
Raleigh, North Carolina
Philadelphia, Pennsylvania
International:
Itu, Brazil
Edmonton, Alberta, Canada
London, Ontario, Canada
Longueuil, Quebec, Canada
Santiago, Dominican Republic
Perugia, Italy
Kingston, Jamaica
Tokyo, Japan
Seoul, Korea
Taipei, Taiwan
Caracas, Venezuela
A-1
<PAGE>
FOLDING CARTON
Domestic:
Clinton, lowa
Hopkinsville, Kentucky
Cincinnati, Ohio
Richmond, Virginia
International:
Auckland, New Zealand
Christchurch, New Zealand
Palmerston North,
New Zealand
LABEL
Commerce, California
Bowling Green, Kentucky
KRAFT PAPER
Mobile, Alabama
Camden, Arkansas
Moss Point, Mississippi
GROCERY BAGS & SACKS
Mobile, Alabama
Jackson, Tennessee
MULTIWALL BAGS
Domestic:
Camden, Arkansas
Pittsburg, Kansas
Wilmington, Ohio
International:
Auckland, New Zealand
Palmerston North,
New Zealand
PLASTIC PACKAGING
Domestic:
Janesville, Wisconsin
International:
Santiago, Chile
Auckland, New Zealand
Christchurch, New Zealand
Hamilton, New Zealand
Hastings, New Zealand
Wellington, New Zealand
DISTRIBUTION
WHOLESALE AND RETAIL DISTRIBUTION
(303 distribution branches)
ResourceNet International
Domestic:
Stores Group
Chicago, Illinois
142 locations nationwide
Dillard Paper
Greensboro, North Carolina
21 branches in the Middle
Atlantic States and
Southeast
Dixon Paper Company
Denver, Colorado
12 branches in the West
and Midwest
Specialty Business Group
Erlanger, Kentucky
12 branches in
New England and
Middle Atlantic
States, Midwest,
South and West
Ingram Paper
City of Industry, California
7 locations in the
Southwest and Hawaii
Kirk Paper Company
Downey, California
4 locations in the
West, Southwest,
and Northwest
Leslie Paper
Minneapolis, Minnesota
12 locations in the
Midwest
Northeast Region
Erlanger, Kentucky
43 branches
in New England,
Middle Atlantic States,
Midwest and
District of Columbia
Western Pacific
Portland, Oregon
2 locations in
the Northwest
Western Paper Company
Overland Park, Kansas
23 branches in the West,
Midwest and South
International:
Chihuahua,
Chihuahua, Mexico
3 locations
Other International:
Aussedat Rey France
Distribution S.A., Pantin,
France
Recom Papers
Nijmegen, Netherlands
Scaldia Papier BV,
Nijmegen, Netherlands
Aalbers Paper Products
Veenendaal, Netherlands
Paper Merchant, Warehousing
and Distribution Centers,
15 locations in
New Zealand and
3 locations in
Australia
FOREST PRODUCTS
FORESTLANDS
Domestic:
Approximately 6.0 million
acres in the South, Northeast
and Northwest
International:
Approximately 800,000 acres
in New Zealand
WOOD PRODUCTS
Domestic:
Maplesville, Alabama
Tuscaloosa, Alabama
Gurdon, Arkansas
Leola, Arkansas
Whelen Springs, Arkansas
DeRidder, Louisiana
Springhill, Louisiana
Morton, Mississippi
Wiggins, Mississippi
Joplin, Missouri
Pleasant Hill, Missouri
Madison, New Hampshire
Pilot Rock, Oregon
Sampit, South Carolina
Henderson, Texas
Mineola, Texas
Nacogdoches, Texas
New Boston, Texas
Danville, Virginia
Building Products
Ukiah, California
Lisbon Falls, Maine
Laurel, Mississippi
Towanda, Pennsylvania
Fiberboard
Spring Hope,
North Carolina
Marion, South Carolina
Particleboard
Stuart, Virginia
Waverly, Virginia
Slaughter
Dallas, Texas
2 branches in the
Southwest and Northwest
A-2
<PAGE>
International:
INTAMASA
Cella, Spain
Masonite Africa Limited
Estcourt Plant
Myrtleford,
New South Wales,
Australia
Mt. Druit, New South
Wales, Australia
Benella,
Victoria, Australia
Auckland, New Zealand
Kopu, New Zealand
Kumeu, New Zealand
Marton, New Zealand
Nelson, New Zealand
Putaruru, New Zealand
Rangiora, New Zealand
Rotorua, New Zealand
Taupo, New Zealand
Thames, New Zealand
Topuni, New Zealand
Tokoroa, New Zealand
Building Supply
Retail Outlets, 34 branches
in New Zealand
REALTY PROJECTS
Haig Point Plantation
Daufuskie Island, South Carolina
SPECIALTY PRODUCTS
TISSUE
Mills:
Box Hill,
Victoria, Australia
Myrtleford,
Victoria, Australia
Kawerau, New Zealand
Plants:
Box Hill,
Victoria, Australia
Clayton,
Victoria, Australia
Keon Park,
Victoria, Australia
Auckland, New Zealand
(three plants)
Christchurch, New Zealand
Te Rapa, New Zealand
NONWOVENS
Domestic:
Athens, Georgia
Griswoldville, Massachusetts
Walpole, Massachusetts
Lewisburg, Pennsylvania
Bethune, South Carolina
Green Bay, Wisconsin
International:
Liege, Belgium
Toronto, Ontario, Canada
Yokohama, Japan
San Jose Ituebide, Mexico
IMAGING PRODUCTS
Domestic:
Jacksonville, Florida
Holyoke, Massachusetts
Binghamton, New York
International:
Melbourne, Australia
Saint-Priest, France
Munich, Germany
Mobberley, Great Britain
Morley, Great Britain
Fribourg, Switzerland
CHEMICALS
Domestic:
Panama City, Florida
Pensacola, Florida
Port St. Joe, Florida
Oakdale, Louisiana
Springhill, Louisiana
Gulfport, Mississippi
Picayune, Mississippi
International:
Niort, France
Sandarne, Sweden
Greaker, Norway
PETROLEUM
Alvin, Texas
Houston, Texas
Midland, Texas
Orange, Texas
SPECIALTY PANELS
Domestic:
Chino, California
Ukiah, California
Cordele, Georgia
Glasgow, Kentucky
Louisville, Kentucky
Monticello, Kentucky
(2 plants)
Odenton, Maryland
Laurel, Mississippi
Statesville, North Carolina
Tarboro, North Carolina
Towanda, Pennsylvania
Hampton, South Carolina
Waverly, Virginia
Oshkosh, Wisconsin
International:
Pori, Finland
Bergerac, France
(Couze Mill)
Ussel, France
Barcelona, Spain
(Durion Mill)
BUILDING PRODUCTS
FLOORING
Sydney, New South
Wales, Australia
INSULATION
Minto, New South
Wales, Australia
Sydney, New South
Wales, Australia
Auckland, New Zealand
Christchurch, New Zealand
ROOFING
Corona, California
Auckland, New Zealand
SINKWARE AND ALUMINIUM PRODUCTS
Adelaide, South Australia
Auckland, New Zealand
SPECIALTY PAPERS
Thilmany
Knoxville, Tennessee
Kaukauna, Wisconsin
Nicolet
De Pere, Wisconsin
Jay, Maine
(Androscoggin Mill)
Akrosil
Domestic:
Menasha, Wisconsin
Lancaster, Ohio
International:
Toronto, Canada
Limburg, Netherlands
A-3
<PAGE>
[LOGO]
PRINTED ON HAMMERMILL PAPERS ACCENT OPAQUE, 50 LBS.
HAMMERMILL PAPERS IS A DIVISION OF INTERNATIONAL PAPER.
<PAGE>
(Exhibit 11)
INTERNATIONAL PAPER COMPANY
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(In millions, except per-share amounts)
Year to Date
December 31,
----------------------------
1995 1994 1993
------ ----- -----
Net earnings $1,153 $ 357 $ 289
Debenture interest savings, net of taxes,
assuming conversion of convertible
subordinated debentures 4 7 *
------ ----- -----
Primary net earnings 1,157 364 289
Reduction in minority interest expense,
net of taxes, assuming conversion of
preferred securities of subsidiary 7
------ ----- -----
Fully diluted net earnings $1,164 $ 364 $ 289
====== ===== =====
Earnings per common share $ 4.50 $1.43 $1.17
====== ===== =====
Primary earnings per share $ 4.45 $1.42 $1.17
====== ===== =====
Fully diluted earnings per share $ 4.41 $1.42 $1.17
====== ===== =====
PRIMARY SHARES
Average shares outstanding 256.5 249.7 246.5
Shares assumed to be repurchased using
long-term incentive plan deferred
compensation at average market price (0.8) (0.6) (0.7)
Shares assumed to be issued upon exercise
of stock options, net of treasury buyback
at average market price 1.0 0.9 0.7
Shares assumed to be issued upon conversion
of convertible subordinated debentures 3.4 5.8 *
------ ----- -----
Primary shares 260.1 255.8 246.5
====== ===== =====
FULLY DILUTED SHARES
Average shares outstanding 256.5 249.7 246.5
Shares assumed to be repurchased using
long-term incentive plan deferred
compensation at period-end market
price (if higher than average
market price) (0.8) (0.6) (0.7)
Shares assumed to be issued upon exercise of
stock options, net of treasury buyback
at period-end market price (if higher
than average market price) 1.0 1.1 1.0
Shares assumed to be issued upon conversion
of convertible subordinated debentures 3.4 5.8 *
Shares assumed to be issued upon
conversion of preferred
securities of subsidiary 3.8
------ ----- -----
Fully diluted shares 263.9 256.0 246.8
====== ===== =====
Note: The Company reports earnings per common share as the effect of diluted
securities is less than 3%.
* The convertible subordinated debentures were antidilutive for this period.
<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 1990 1991 1992 1993 1994 1995
- ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
A) Earnings before income taxes,
minority interest, extraordinary item
and accounting changes $ 988.0 $ 693.0 $ 226.0 $ 538.0 $ 715.0 $2,028.0
B) Less: Minority interest expense, net
of taxes (33.0) (42.0) (15.0) (36.0) (47.0) (156.0)
C) Add: Fixed charges excluding
capitalized interest 336.2 380.3 325.3 365.3 412.3 582.3
D) Add: Amortization of previously
capitalized interest 8.6 9.9 9.9 12.2 12.8 13.0
E) Less: Equity in undistributed earnings
of affiliates (9.4) (10.8) (19.1) (25.9) (49.1) (94.5)
-------- -------- -------- -------- -------- --------
F) Earnings before income taxes,
minority interest, extraordinary item,
accounting changes and fixed charges $1,290.4 $1,030.4 $ 527.1 $ 853.6 $1,044.0 $2,372.8
======== ======== ======== ======== ======== ========
FIXED CHARGES
G) Interest and amortization of debt expense $ 309.5 $ 351.1 $ 297.1 $ 334.5 $ 371.0 $ 542.3
H) Interest factor attributable to rentals 26.7 29.2 28.2 30.8 41.3 40.0
I) Capitalized Interest 26.3 36.4 42.0 12.2 18.0 58.0
-------- -------- -------- -------- -------- --------
J) Total Fixed Charges $ 362.5 $ 416.7 $ 367.3 $ 377.5 $ 430.3 $ 640.3
======== ======== ======== ======== ======== ========
K) Ratio of Earnings to Fixed Charges 3.56 2.47 1.44 2.26 2.43 3.71
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
Dollar amounts and shares in millions,
except per share amounts 1995 1994
------- -------
FINANCIAL SUMMARY
Net Sales $19,797 $14,966
Operating Profit 2,535(1) 1,073(1)
Earnings Before Income Taxes, Minority Interest and
Cumulative Effect of Accounting Change 2,028 715
Earnings Before Cumulative Effect of Accounting Change 1,153 432(2)
Net Earnings 1,153 357
Total Assets 23,977 17,836
Common Shareholders' Equity 7,797 6,514
Return on Equity 16.1% 5.6%(3)
PER SHARE OF COMMON STOCK(4)
Earnings Before Cumulative Effect of Accounting Change $ 4.50 $ 1.73(2)
Earnings 4.50 1.43
Cash Dividends .92 .84
Common Shareholders' Equity 29.87 25.87
SHAREHOLDER PROFILE
Shareholders of Record at December 31 31,340 29,756
Shares Outstanding at December 31 261.0 251.8
Average Shares Outstanding 256.5 249.7
(1) See the operating profit table on page 50 for a detail of operating profit
by industry segment.
(2) $422 million ($1.69 per share) before $17 million ($10 million after taxes
or $.04 per share) of additional earnings for the current-year effect of
the change in accounting for start-up costs.
(3) Return on equity was 6.7% in 1994 before the change in accounting for
start-up costs.
(4) Per share amounts adjusted for the two-for-one stock split in September
1995.
- --------------------------------------------------------------------------------
[Net Sales Chart--Appendix A No. 1]
[Net Earnings Chart--Appendix A No. 2]
[Earnings per Share Chart--Appendix A No. 3]
[Return on Equity Chart--Appendix A No. 4]
- --------------------------------------------------------------------------------
INTERNATIONAL PAPER
1
<PAGE>
TO OUR SHAREHOLDERS
Capping a decade of growth, 1995 was a record year for International Paper in
every sense of the word. Sales rose fourfold over that ten-year period to $20
billion. Net income increased almost ten times to $1.2 billion or $4.50 a
share. Company assets advanced to $24 billion. Return on equity last
year reached 16%.
We continue to grow our businesses outside North America. We have a
major presence in Europe and the Pacific Rim, notably Australia and New
Zealand, as well as other fast-growing Asian markets. In 1995, sales from
businesses located outside the U.S. amounted to $5.6 billion and exports from
the U.S. exceeded $1.5 billion.
Driven by very strong market conditions through most of 1995 and the
consolidation of Carter Holt Harvey in May, our Company's 1995 sales
increased 32% over year-earlier levels. Earnings, also a record, were up more
than threefold. However, as worldwide economic activity slowed at midyear,
our customers began to reduce inventories. This caused a decline in demand
and put pressure on prices as we closed the year. We believe the current
slowdown will reverse itself with the return of more robust economic growth.
While these results are impressive, we need to do better. For example,
we are committed to a 15% return on equity over a full business cycle and our
strategies are dedicated to meeting this goal. Currently, our results are
about 12%.
The array of businesses that we manage for growth and long-term
profitability are described throughout this report to our shareholders. The
focus of this report is on our customers. We believe anticipating customer
needs and responding quickly and creatively will keep us in the forefront of
our industry.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 1]
JOHN A. GEORGES
Chairman and Chief Executive Officer
- --------------------------------------------------------------------------------
To maintain our competitiveness and reach our return on equity target,
we continue to examine the costs of every activity in the Company. Our
internal programs center on four initiatives: cost-of-quality, organizational
redesign, purchasing, and high performance work systems. We are convinced
that cost-of-quality savings--making and delivering A-1 quality products 100%
of the time--is the most powerful way to increase productivity, and improve
quality and response to customers. As part of our organizational redesign, a
10% staffing reduction has been accomplished in each of our businesses.
Larger reductions are expected in some of our staff groups. Purchasing
initiatives are in place that allow us to leverage our more than $7 billion
in purchasing power around the world, and we continue to be successful in
building high-performance work systems that involve all employees in meeting
customer needs and running the business. We appreciate the efforts of our
employees, knowing full well that while solid results are beginning to show
up everywhere, these initiatives represent a never-ending effort. We believe
we have the stamina and the will to succeed.
We also continue to evaluate each of our businesses in terms of current
performance and longer term prospects. In the 1996 first quarter, we are
incurring a pre-tax charge of $500 million or $1.35 per share to improve
profitability. These actions are expected to generate pre-tax savings of $70
million or $.17 per share in 1996 and $100 million or $.25 per share in 1997.
About half of the charge relates to our imaging products business, reflecting
restructuring that will allow that business to compete more effectively.
Our growth objective remains the same. We expect to increase annual
revenue by more than 6%, measured in constant dollars. To reach it, we will
continue to expand those product lines with which we can achieve superior
returns. We are now completing the largest expansion in the Company's
LETTER TO SHAREHOLDERS
2
<PAGE>
history. This expansion includes our business and coated papers operations,
containerboard and oriented strand board businesses in the U.S., packaging
board in Poland, molded door facings in Ireland, nonwovens in Mexico, and
liquid packaging in France, Brazil and China.
In early 1995, we increased our ownership of Carter Holt Harvey to more
than 50%. We believe the long-term prospects for this company are excellent.
It is New Zealand's largest forest owner and has a 30% ownership in COPEC, a
Chilean company. Carter Holt Harvey produces wood, pulp, paper, packaging and
tissue products for Pacific Rim markets.
By the end of the first quarter, we expect to conclude our merger with
Federal Paper Board. It is a company with world-class, low-cost facilities
and geographically well-positioned forestlands that fits well with Internation
al Paper and will strengthen our pulp, bleached board and printing papers
businesses. We believe it represents the most attractive set of assets
available in our industry in the last 20 years and will be a rewarding
investment in the years ahead.
We continue to redeploy assets where appropriate. To that end, IP
Timberlands, Ltd., of which we are the majority owner, expects to dispose of
its 300,000 acres of western forestlands early in 1996. The value of these
lands is between $900 million and $1 billion. Proceeds will be used to
strengthen our balance sheet.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 2]
JOHN T. DILLON
President and Chief Operating Officer
- --------------------------------------------------------------------------------
During 1995, International Paper strengthened its top management team.
John Dillon was elected President and COO. David Oskin returned to the
Company as an EVP after serving four years as CEO of Carter Holt Harvey.
Marianne Parrs was appointed Sr. VP and CFO, replacing Robert Butler, who
retired and whose achievements at International Paper we appreciate.
Subsequently, Mike Amick and Milan Turk were named EVPs. Richard Phillips
became Sr. VP and Robert Amen became President of International Paper, Europe.
Wes Smith was elected a Director of the Company.
We are proud of our 1995 performance. We expect 1996 to be a difficult
year, but one that will bring major product and productivity improvements and
serve as a platform for expanded future growth and shareholder return.
Symbolic of our expectations--our ongoing quest for excellence--is our
sponsorship of the 1996 Olympic Games in Atlanta this summer.
On March 31, I will retire as Chairman and CEO and John Dillon will
succeed me.
It has been a privilege for me to serve as the CEO for these past 11
years. My colleagues and I have managed an immense amount of change. We have
improved our operations, strengthened and expanded our product lines and
grown in international markets. I'm particularly excited with the progress
made in the development of our people. We are a stronger, more dynamic
Company managed by a superb group of executives. I'm confident the Company
will do even better in the future.
/s/ John A. Georges /s/ John T. Dillon
John A. Georges, John T. Dillon,
Chairman and President and
Chief Executive Officer Chief Operating Officer
February 28, 1996
LETTER TO SHAREHOLDERS
3
<PAGE>
Printing Papers
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 3]
The new paper machine at our Riverdale mill in Selma, Ala., substantially
increases our capacity for reprographic papers, the market's fastest growing
grade, including papers with recycled content.
- --------------------------------------------------------------------------------
<PAGE>
REVIEW OF OPERATIONS
Most of us rely on the written word to acquire the information we need to
make decisions every day. International Paper makes communications possible--
many of the magazines you read, the correspondence you receive, the envelopes
you mail and the documents you review are printed on products by International
Paper.
- --------------------------------------------------------------------------------
[Printing Papers Sales Chart--Appendix A No. 5]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 4]
Hearst Magazines uses Publication Gloss, a coated paper from International
Paper, to produce popular magazines such as Redbook and Cosmopolitan.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 5]
Businesses around the globe rely on Hammermill office papers to communicate with
the world.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 6]
What you see is what you get--Aussedat Rey's Reylux uses transparent packaging
to let its true colors shine through.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 7]
6.2 billion dollars in printing papers sales
- --------------------------------------------------------------------------------
Even with the dramatic expansion of electronic communication, more paper is
used by businesses, individuals, advertisers and publishers every year. With
mills on four continents, International Paper is a leading manufacturer of
business and coated papers as well as various grades of pulp used worldwide.
BUSINESS PAPERS
The use of uncoated papers for business communications is on the rise. Far
from being a paperless environment, the "office of the future" continues to
rely on paper for fax machines, copiers, inkjet and laser printers. The growth
of direct mail advertising is creating new demands for many business paper
grades as well.
Our leadership position is due to our ability to respond quickly to
changing customer needs with the right products. For the past several years,
our strategy has been to optimize our system to better serve our customers--
manufacturing high-volume grades on large, low-cost machines while producing
lower volume, premium grades on smaller machines. We have also shut down, sold
or converted nine machines that were no longer economical. As a result, we are
PRINTING PAPERS
5
<PAGE>
producing more paper on fewer machines, thereby improving our cost position
across the board.
Capital improvements at our Riverdale mill are a significant part of
our rationalization program. A state-of-the-art uncoated papers machine, a
140,000-ton/year recycled fiber plant, two sheeters for office papers and a
gas turbine were completed in 1995. The new paper machine has an annual
capacity of 360,000 tons of reprographic papers, including recycled grades.
The facility is helping us achieve a cost savings of $50 per ton throughout
our U.S. uncoated papers system.
Completion of the improvements at Riverdale served as a catalyst for
the introduction of high-performance work teams. Almost half of the mill's
workforce assumed new responsibilities with the start-up of the new machine
and project. New work systems have already produced productivity gains in the
woodyard, the pulp mill and the existing paper machine.
We are devoting more resources to new products in order to capitalize
on high-growth business segments. In 1995, we introduced Hammermill Jet Print
Ultra, a paper product designed to produce vivid color on high-resolution
inkjet printers, allowing our customers to maximize the performance of their
office equipment. Strathmore Elements, the new text and cover grade
introduced in 1994, received a prestigious award from the Industrial Design
Society of America, the first time a paper product has been recognized for
its design.
Our new product strategy has begun to pay off; in 1995, 12% of our
U.S. printing papers sales were of new, premium products. Our goal for 1996
is to double the rate of new product introductions, and we expect to use 30%
of our system capacity for value-added grades.
We have also made good progress in our customer service efforts. In
1995, we began operating the first phase of PaperPro, a multimillion dollar
order management and information system. Other initiatives have allowed us to
increase our on-time shipping
- --------------------------------------------------------------------------------
BUSINESS PAPERS
When the business world communicates, much of the information it conveys
appears on high-quality business papers by International Paper. In the U.S.,
we are a producer of a wide variety of copy, offset, tablet and forms bond
papers including Hammermill, Springhill, Beckett and Strathmore. In Europe,
Aussedat Rey is one of the largest producers of business papers, including the
highly regarded Reylux, Reymat, EverRey and Adagio brands. Our Kwidzyn mill in
Poland produces the Pollux brand of business papers, newsprint and coated
board, some of which is sold in Europe through Aussedat Rey.
- --------------------------------------------------------------------------------
[Business Papers Sales to Geographic Areas Chart--Appendix A No. 6]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 8]
Our newly renovated mill near Gdansk, Poland, produces Pollux brand paper
products for distribution throughout Europe.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 9]
Redesigned Strathmore Writing System--fine papers for business cards and
announcements--was recently introduced.
- --------------------------------------------------------------------------------
PRINTING PAPERS
6
<PAGE>
percentage, which improved to 95% in 1995, up from about 90% in 1994.
In Europe, modernization of the Kwidzyn mill near Gdansk, Poland, is
nearing completion, and its printing papers and pulp products are now
commercially competitive throughout Europe. In 1995, sales exceeded 400,000
metric tons, about double the mill's output when it was acquired by
International Paper in 1992. We expect production to reach 600,000 metric
tons with the rebuild of the mill's No. 4 machine, which will produce coated
multi-ply folding boxboard. We also produce newsprint at Kwidzyn.
Aussedat Rey in France annually produces 70 million reams of business
papers at its Saillat mill, accounting for 13% of European office paper sales.
Aussedat Rey's success can be attributed to its advanced technical and
marketing capabilities. For example, by working closely with manufacturers
introducing new office equipment, we ensure that our
- --------------------------------------------------------------------------------
COATED PAPERS
Check out the publications at your local newsstand. Chances are, much of the
coated paper you see there is from International Paper. In the U.S., brand
names such as Hudson Web and Publication Gloss are used for magazines,
catalogs and coupon inserts, as are our recycled grades Adirondack, Saratoga
and Miraweb II. France's Aussedat Rey produces Nepal and Eurospatial coated
papers. In Germany, Zanders premium coated paper grades, Ikonorex and Ikonofix,
are used for high-end advertising brochures and annual reports such as this
one. Zanders Chromalux board is used for upscale folding cartons and displays.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 10]
Left to right, David Brandon, Valassis Communications' president and chief
executive officer, discusses his company's paper requirements with Charlie
Deutsch, International Paper sales executive; Roy Martell-Bowen, Valassis
director of paper purchasing; Erin Colombo, Valassis quality assurance
supervisor; and Scott Bond, Bulkley Dunton account executive.
- --------------------------------------------------------------------------------
[Coated Papers Sales to Geographic Areas Chart--Appendix A No. 7]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 11]
To produce the coupon booklets that you find in your Sunday newspaper, Valassis
Communications uses our custom-designed coated paper.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 12]
To convey exceptional quality in catalogs and brochures, marketers choose
premium papers from Zanders in Germany.
- --------------------------------------------------------------------------------
PRINTING PAPERS
7
<PAGE>
papers are tailor-made for the latest printing technology. In 1995, Aussedat
Rey's marketing team developed Visio transparent packaging that allows customers
to see the exact color of the paper they are buying, without sacrificing product
protection.
New Zealand's Carter Holt Harvey produces premium fine papers at its
Mataura mill. Mataura's product mix includes white and colored bond used for
letterheads, stationery and general printing papers; several brands of
reprographic paper; check paper and recycled kraft grades.
COATED PAPERS
Many magazines, catalogs and advertising inserts are printed on International
Paper's coated papers. Our global coated papers operations accounted for 1.1
million tons of production for customers around the world in 1995.
In the U.S., we have made excellent progress simply by listening to our
customers. When well-known cataloger Victoria's Secret required a coated paper
that would make its products look as good in its catalogs as they do in its
showrooms, we developed a custom coated paper that provides high gloss and
excellent print quality.
Our success in the coated papers business, as well as our unique
technology, will help us bring 200,000 tons of new coated freesheet capacity
on-line in 1996 as we convert an uncoated papers machine at our Androscoggin
mill in Jay, Me., to coated freesheet paper production. This project shows our
major commitment to the coated freesheet business. Our goal is to provide an
outstanding new web freesheet line for commercial printers, upscale catalogs
and magazines. To that end, Androscoggin will employ proprietary technological
applications that will enable us to manufacture a world-class coated
freesheet at a competitive advantage.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 13]
International Paper's coated paper Miraweb II was donated to the U.S. Olympic
Committee and was used to produce Olympian, its official publication.
- --------------------------------------------------------------------------------
In Europe, we are improving productivity by streamlining operations and
investing in modernization. For example, we are changing the way our people
work by implementing high-performance work systems, extensive training
programs, low-capital debottlenecking and significant process improvements.
We are developing new products and entering new markets with unprecedented
speed, and we are improving the quality of our products and customer service
capabilities.
Our German subsidiary, Zanders, is building on its international
reputation as a producer of some of the world's finest coated and specialty
papers. Its premier papers are often used by leading companies around the
world to advertise, package or label their products. The marketing success of
the year was the doubling in volume of the recently introduced Mega coated
freesheet product in Europe. Also at Zanders, important technical work continues
to ensure the company's quality position by improving coating processes and
printability of products. Major cost reduction programs are under way to
improve Zanders competitiveness.
PRINTING PAPERS
8
<PAGE>
- --------------------------------------------------------------------------------
PULP
Many of the products you use everyday--papers, clothing and even baby's
disposable diapers--contain pulp. International Paper is a leading producer of
paper, fluff and dissolving pulp worldwide. Our paper pulp grades, produced at
mills in the U.S., France and Poland, are used in our own mills and also sold
as market pulp worldwide. Supersoft fluff pulp is used extensively for hygiene
products where excellent absorbency and purity is required. Dissolving pulp
grades such as Estercell and Solvekraft are used for yarns, tow, films and
plastics.
- --------------------------------------------------------------------------------
[Pulp Sales to Geographic Areas Chart--Appendix A No. 8]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 14]
Where can consumers find our products? Even the clothes they wear may contain
our dissolving pulp.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 15]
To make high-quality paper, you start with the finest pulp. Many customers
insist on pulp from International Paper.
- --------------------------------------------------------------------------------
Aussedat Rey in France produces Nepal and Eurospatial coated papers,
brands that are popular because of their brightness, bulk and opacity.
Aussedat Rey's Research Centre has developed innovative papers that offer
customers genuine advantages. For example, beer-maker Heineken recently
certified use of our coated wet-strength paper for its famous green labels.
PULP
We are a leader in the conversion of fiber to pulp for applications ranging
from paper to rayon. Worldwide, we produce 1.8 million tons of market pulp
each year for the paper, packaging and specialty products industries. From
the U.S., we export to over 40 countries.
- --------------------------------------------------------------------------------
But more than simply delivering high-quality products, we strive to add value to
our customer relationships.
- --------------------------------------------------------------------------------
Strong customer relationships are key to our success. In 1995, a
leading consumer of chemical cellulose pulp awarded our Natchez, Miss., mill
a gold award for service excellence. The award was an expression of
appreciation for 100% on-time delivery, product performance and customer
service.
In Europe, our recently modernized pulp mill in Saillat, France,
strengthens Aussedat Rey's position as Europe's largest producer of office
papers while allowing them to sell more market pulp as well. Our Kwidzyn mill
in Poland contributes to our European pulp business with its modern operations.
In addition, through Carter Holt Harvey's 30% ownership in Chile's
COPEC, we have an interest in more than 800,000 metric tons of softwood pulp
sold worldwide.
PRINTING PAPERS
9
<PAGE>
PRINTING PAPERS FINANCIAL REVIEW
Printing Papers achieved sales of $6.2 billion in 1995, an increase of 40%
from 1994 sales of $4.4 billion. Sales in 1993 were $3.9 billion. Operating
profit reached a record $1.1 billion in 1995 compared with $20 million in
1994 and a loss of $122 million in 1993. Generally favorable economic
conditions worldwide and strong demand for pulp and paper fueled a recovery in
our printing papers businesses beginning in the second half of 1994. These
factors resulted in strong markets and substantially higher prices in 1995.
Cost control and productivity measures also contributed to higher earnings.
Business Papers sales were $3.3 billion in 1995, an increase of 43%
over 1994 and 51% over 1993. Sales prices rose sharply in 1995, as supply was
tight most of the year. In the U.S., average prices were 50% above 1994
levels. During the fourth quarter, customers began to work down inventories,
sales slowed and prices began to decline. By February 1996, prices were
nearly 15% below the 1995 peak and currently remain under pressure. We are
taking downtime in order to control inventories. But as consumer demand
remains good, we expect conditions to improve later in 1996. The 1995 start-up
of a new uncoated papers machine at Riverdale was a major step toward our goals
of improving our cost position and of meeting our customers' increasing desire
for recycled papers.
In Europe, business papers operating profit increased fourfold in 1995.
Kwidzyn achieved record sales. Sales volumes improved 20%, due largely to
improvements in production and quality. Aussedat Rey turned profitable due to
sharply higher prices. In 1996, we anticipate that Western European economies
will grow moderately and that growth in Poland will be strong. Market
conditions are similar to the U.S. and prices have declined in the early part
of 1996 as consumers adjust inventories.
Coated Papers sales advanced nearly 30% in 1995 to $1.8 billion. Sales
were $1.4 billion in 1994 and $1.1 billion in 1993. Increased use of direct
mail and catalogs influenced this improvement. Our U.S. business, which is
heavily weighted toward coated groundwood, enjoyed record earnings in 1995,
after breaking even in 1994 and 1993. No significant new industry capacity
came onstream during 1995 and operating rates were high. Average prices for
coated groundwood papers were nearly 50% above 1994 and 1993 levels. Orders
declined in recent months as customers reduced inventories.
In Europe, following an upturn in 1994 that continued until the second
quarter of 1995, coated papers orders slackened and operating rates declined.
Zanders' sales increased about 20% in 1995, reflecting improvements in both
volume and average prices. However, stronger sales prices did not fully
compensate for higher pulp costs and weak currencies in export markets. These
factors, as well as costs to restructure and reduce personnel, resulted in a
loss at Zanders. Aussedat Rey was profitable in 1995 following losses in 1994
and 1993. In 1996, excess capacity will continue to affect the European
coated papers markets. Performance will depend on economic conditions in
France and Germany, as well as rigorous cost control and optimization of
sales mix.
Pulp sales increased 56% to $1.1 billion in 1995. Carter Holt Harvey
contributed about 40% of the increase. Our Kwidzyn and Saillat mills in
Europe operated near capacity in both 1995 and 1994, producing significantly
higher volume than in 1993. Operating results improved dramatically in 1995 as
the upturn in pricing continued. However, prices began to decline in the fourth
quarter as demand for paper slowed. Operating results in 1996 will be lower
until inventories are liquidated.
- --------------------------------------------------------------------------------
[Printing Papers Net Sales Chart--Appendix A No. 9]
[Printing Papers Operating Profit Chart--Appendix A No. 9]
- --------------------------------------------------------------------------------
PRINTING PAPERS
10
<PAGE>
- --------------------------------------------------------------------------------
[Printing Papers 1995 Worldwide Production Chart--Appendix A No. 10]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 16]
Literary and artistic masterpieces look even better on fine printing and
artist papers from Strathmore.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 17]
When the copy has to look as good as the original, discerning businesses
worldwide rely on Springhill reprographic papers.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 18]
Our heavyweight papers find their way into products such as these folders and
other office supplies.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 19]
Don't tell mom, but the secret to the absorbency and light weight of today's
diapers is Supersoft fluff pulp.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 20]
When color, weight and texture are important, graphic designers and printers
turn to premium text and cover stock from Beckett.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 21]
The secret is out! Our coated paper makes products in a catalog look as good as
they do in the store.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 22]
Springhill Incentive 100 and Hammermill Unity contain 100% recycled fiber from
old newspapers and magazines.
- --------------------------------------------------------------------------------
PRINTING PAPERS
11
Packaging
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 23]
Start-up of the world's largest recycled linerboard machine in Mansfield, La.,
makes us a low-cost producer of fast-growing premium packaging grades.
- --------------------------------------------------------------------------------
<PAGE>
REVIEW OF OPERATIONS
From corrugated boxes to the milk cartons familiar to schoolchildren
worldwide, International Paper produces packaging for a wide range of
industrial and consumer applications.
- --------------------------------------------------------------------------------
[Packaging Sales Chart--Appendix A No. 11]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 24]
Few products are as fragile as fruits and vegetables, which is why growers buy
so much of their agricultural packaging from our container division.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 25]
Kids, parents and other consumers appreciate the freshness and long shelf life
of juice and other beverages in our aseptic packages.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 26]
Our new label plant in Bowling Green, Ky., serves diverse markets with its
printing expertise.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 27]
4.4 billion dollars in packaging sales
- --------------------------------------------------------------------------------
International Paper's packaging products help customers keep their goods fresh,
secure and attractive. The segment is composed of both industrial and consumer-
oriented businesses, each with different products and capabilities. Yet both
businesses add value in similar ways: by listening and responding to customers'
needs.
INDUSTRIAL PACKAGING
International Paper's containerboard products are leading the evolution of
corrugated shipping containers from commodity-like products to value-added
solutions to businesses' distribution and merchandising needs.
In December, we significantly improved our position as a supplier of
premium-grade containerboard with the start-up of the world's largest recycled
linerboard machine in Mansfield, La. The machine produces the industry's widest
product range, with capacity of up to 1,200 tons of linerboard daily and the
ability to use a variety of waste paper grades, giving us a substantial
presence in the recycled linerboard business. The new machine also increases
our capacity to manufacture visual-appeal grades for upscale printing
applications. For example, our new white-top grade fills a need for a bright,
smooth substrate positioned in the market between mottled white and fully
bleached linerboard.
PACKAGING
13
<PAGE>
In 1995, specialty grades accounted for one-third of containerboard
shipments, a threefold increase since 1985. We expect sales of specialty
containerboard grades to grow 7% annually as converters increasingly seek the
ability to print colorful graphics on corrugated containers.
New Zealand's Carter Holt Harvey is an important addition to our
industrial packaging business. The fully integrated Kinleith mill complex,
the largest in Australasia, is New Zealand's only linerboard producer. It
produces containerboard, sackkraft and specialty packaging papers for
conversion into box and bag packaging products. In addition, the Penrose mill
is New Zealand's only manufacturer of corrugating medium.
- --------------------------------------------------------------------------------
INDUSTRIAL PACKAGING
Every day, businesses around the world ship goods that are protected in
corrugated packaging supplied by International Paper. We have one of the
industry's widest ranges of containerboard grades, the principal component of
corrugated boxes and other industrial packages, including our well-known Pine
liner, ColorBrite, KlaWhite and StarLite brands. We produce corrugated boxes
in the U.S., Europe and New Zealand for products ranging from perishable
foods to fragile electronics. And we manufacture a broad array of kraft
papers as well as multiwall and retail bags for retailers and manufacturers
worldwide.
- --------------------------------------------------------------------------------
[Industrial Packaging Sales Chart--Appendix A No. 12]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 28]
J.C. Penney understands that the shopping experience only gets better when
customers carry purchases home in our kraft paper bags.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 29]
Products look as good on the box as they do inside the package when the outer
liner is preprinted by our U.S. container division.
- --------------------------------------------------------------------------------
About 60% of the volume of containerboard produced in our U.S. mill
system is converted in our U.S. container plants, where we provide over
43,000 different corrugated packaging products for industries ranging from
foods to electronics. We have improved productivity in our plants through
continuing investments in equipment, training and management systems, and now
are producing more volume per plant than ever before. Growth is being enhanced
by implementing effective partnerships with customers. These initiatives,
along with creative designs, flexible processes, and constant attention to
quality and customer service, underlie a 23% increase in productivity since
1992. We expect productivity to increase another 25% by year-end 1998.
Our proudest accomplishments, however, are not statistical results, but
the ways in which we help our customers. When Tyson Foods needed to improve
the condition of chicken drumsticks on the bottom layers of pallets shipped
to supermarkets, we helped solve the problem with our ClassicPak7 shipping
container. This innovative octagonal container, engineered to provide high-
compression strength in wet and cold conditions, was designed specifically
to maximize pallet utilization. As a result, even the Tyson drumsticks
PACKAGING
14
<PAGE>
on the bottom of the pallet arrive at their destinations in excellent condition.
In Europe, we are a leading provider of packaging for agricultural
products. Extensive modernization of plants in Spain and Italy, start-up of a
new plant in the U.K. in 1996, and significant productivity gains will continue
to strengthen our status as a supplier of value-added boxes. We are proactive
in developing customer-oriented packaging solutions. For example, in 1995, our
Valladolid, Spain, facility successfully introduced a new single-wall Plaform
box for the shipment and display of peppers that incorporates a 7% savings in
materials cost while providing 10% more shipping capacity.
With 10 packaging plants in New Zealand, Carter Holt Harvey is a
leading producer of corrugated and solid fiberboard boxes used primarily in
the food industry for exports of dairy products, meat, apples, pears and
kiwifruit. The company is also New Zealand's leading kraft packaging
producer, manufacturing retail bags and multi-ply paper sacks for industrial,
agricultural and consumer uses.
International Paper produces kraft packaging for dozens of different
consumer and industrial applications. The retail segment of the kraft
business is growing particularly well, due to our products' diversity,
durable construction, and high-quality printing and graphics. We also provide
recycled and recyclable kraft packaging. Seventeen percent of our kraft
packaging shipments contain recycled fiber.
The newest addition to our Camden series of multiwall kraft paper
grades is a premier extensible paper with superior stretch and durability
features.
CONSUMER PACKAGING
More than ever, our customers require greater visual appeal and improved
performance from our products. Internationally, expanding economies are
stimulating demand for consumer products that require attractive and durable
packaging.
Everest bleached board is well accepted in the marketplace because of its
exceptional smoothness and printability, making it a superior material for
companies seeking high-impact packaging. Everest Spring, a newly formulated
folding carton board for food packaging, was recently introduced to meet the
need for a more cost-effective board with superior printing qualities. These
bleached board products are used extensively to package products that touch the
lives of millions of consumers, including pharmaceuticals, cosmetics, software,
electronics, food, cups and trays.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 30]
ClassicPak7 shipping containers help customers such as Tyson Foods protect their
perishable goods even in cold and wet conditions.
- --------------------------------------------------------------------------------
Carter Holt Harvey's Whakatane mill is New Zealand's sole producer of
bleached cartonboard and point-of-sale paperboard packaging materials, much
of which is sold to converters in New Zealand, Australia and across the
Pacific Rim.
About half of our U.S. bleached board production is used by our own
liquid packaging
PACKAGING
15
<PAGE>
and folding carton systems. Use of liquid packaging is increasing worldwide as
demand grows for fresh milk and juice in Europe, Latin America and Asia. During
1995, the Company operated 18 liquid packaging plants in 9 countries, and we are
expanding our presence worldwide. For example, a new gable-top carton plant in
Shanghai, scheduled for start-up in 1996, will serve more than one billion
potential consumers in the People's Republic of China.
- --------------------------------------------------------------------------------
Our challenge is to add value through new product development, enhanced graphics
and features that set our products apart.
- --------------------------------------------------------------------------------
What makes our liquid packaging so popular? Ask our customers. Lykes
Pasco Inc., makers of chilled juices such as FloridaGold(R) orange juice,
recently chose International Paper as an exclusive supplier. It attributes
its choice to our ability to supply a complete system consisting of cartons,
SpoutPak fitments and Evergreen packaging machines. In addition, our
lithographic and rotogravure printing capabilities produce sharp, colorful
images, enabling customers to maximize their point-of-sale merchandising
opportunities.
The global aseptic packaging business has grown at an average annual
rate of 7% over the last decade. We have taken steps to capture a larger share
through capital investments in new equipment and technology. Improvements at our
Raleigh, N.C., facility will allow us to take advantage of growth opportunities
around the world, especially in Latin America. We will extend our global reach
in 1996 with a new plant in Lyon, France.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 31]
When Microsoft launched the most eagerly anticipated software product of 1995,
Microsoft(R) Windows(R) 95, it relied on our Everest bleached board to protect
and merchandise its flagship operating system.
- --------------------------------------------------------------------------------
Our success means success for our customers. For example, Johanna Foods,
Inc. and Apple & Eve, leading producers of beverage products such as Ssips(R),
Jjust Jjuicy(TM), Nothin'
PACKAGING
16
<PAGE>
But Juice(R) and Apple & Eve(R), enjoy the benefits of our high-speed filling
systems in 250ml and 300ml sizes. In fact, Johanna Foods, Inc. set new
production records within one year of installation.
Around the world, our folding cartons protect and merchandise dry and
frozen foods, baked goods, beverages and tobacco products. Our bleached board
division adapted our new Everest Spring product for a major fast-food customer
that will be using it for all its chicken boxes in 1996. New state-of-the-art
printing presses and cutting equipment at our Cincinnati, Ohio, facility
provide our customers with high-impact graphics and reduced cycle times.
As the only integrated supplier of labels to the beverage, food and
household chemical industries, we can develop new substrates tailored to
specific applications. Polyweave, produced at our Lock Haven, Pa., mill, is a
label applied to HDPE plastic bottles. Since Polyweave labels are made from the
same material as the bottle, the entire package is recyclable.
- --------------------------------------------------------------------------------
CONSUMER PACKAGING
The next time you visit your local store, chances are that many of the items you
see are packaged in International Paper products. We are a leading producer of
high-quality Everest bleached board. Our worldwide liquid packaging division
uses some of that production to manufacture a variety of gable-top and aseptic
packaging products for milk, juice and other beverages. Our folding carton and
label division makes paperboard containers and labels for markets worldwide. Our
bleached board is also used to produce food service items such as plates, cups
and trays.
- --------------------------------------------------------------------------------
[Consumer Packaging Sales Chart--Appendix A No. 13]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 32]
SpoutPak cartons are easy-to-pour and provide extended shelf life for juice and
dairy products.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 33]
Everest bleached board is used for beverage cups to provide eye-catching
graphics.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 34]
Within one year after switching to our high-speed Fuji aseptic filling system,
leading juice producer Johanna Foods, Inc. set new production records at its
Flemington, N.J., facility.
- --------------------------------------------------------------------------------
PACKAGING
17
<PAGE>
PACKAGING FINANCIAL REVIEW
Packaging sales were $4.4 billion in 1995 compared with $3.4 billion in 1994
and $3.1 billion in 1993. Operating profit was $741 million, two-and-one-half
times 1994 earnings of $293 million and substantially greater than 1993 earnings
of $188 million. The recovery in packaging markets that began in 1994 continued
through the first half of 1995. Significant year-over-year improvement in sales
prices was the major reason for higher earnings for the year.
Industrial Packaging sales increased nearly 40% in 1995 to $3.0
billion. About 35% of the increase was attributable to the addition of Carter
Holt Harvey beginning in May, and the balance, to higher prices. Sales in
1993 were $2.0 billion. Industrial packaging posted a more-than-threefold
improvement in operating profit in 1995. Accelerated demand for
containerboard, which began in early 1994, continued into 1995. Containerboard
prices in U.S. markets averaged $130 per ton higher in 1995 than in 1994, and
box prices increased similarly. Our corrugated container operations performed
well worldwide. And kraft paper and packaging results improved in 1995, again
reflecting higher prices. However, midway through the year, demand moderated
and industry inventories of containerboard rose sharply. As a result, we
experienced a softening in market conditions in the latter part of 1995, and a
decline in pricing.
Weak industrial packaging markets have extended into 1996. In February,
containerboard prices in the U.S. market were $75 per ton below the level
reached last spring. We expect demand to improve later in 1996 as the U.S.
economy emerges from the current slowdown and customers start to rebuild
inventories. The rebound in demand should tighten the North American
market by the second half, even in the face of capacity expansions. We expect
that 1996 containerboard and box prices will be below 1995 levels. Our new
recycled linerboard machine at Mansfield got off to a good start, and a
successful ramp-up is a major objective in 1996. We will continue to improve
our container plants in support of the Mansfield expansion. Also, a new box
plant will begin operations in the U.K. in midyear.
Consumer Packaging sales were $1.4 billion in 1995, up from $1.2
billion in 1994 and $1.1 billion in 1993. Operating profit in 1995 was twice
that earned in 1994 and 1993. Bleached board markets were strong during 1995,
leading our U.S. operations to a 14% improvement in volume and a 20% increase
in average sales prices. However, industry operating rates slackened in the
second half of the year as customers worked off inventories and new capacity
came onstream. This placed downward pressure on prices, and this weakness has
continued in early 1996. We expect markets to stabilize by midyear and to
gradually accelerate later in the year as the economy improves. The first
quarter start-up of a rebuilt machine at Kwidzyn will add to our bleached
board sales. Conditions in liquid packaging are favorable. In 1996, we will
continue to grow in offshore markets with the operation of new or expanded
plants in France, Brazil and China.
- --------------------------------------------------------------------------------
[Packaging Net Sales Chart--Appendix A No. 14]
[Packaging Operating Profit Chart--Appendix A No. 14]
- --------------------------------------------------------------------------------
PACKAGING
18
<PAGE>
- --------------------------------------------------------------------------------
PACKAGING
1995 WORLDWIDE PRODUCTION (IN TONS)
INDUSTRIAL PACKAGING
Containerboard
U.S. 2,183,000
Europe 120,000
New Zealand 289,000
- ----------------------
Total 2,592,000
Corrugated Boxes
U.S. 1,371,000
Europe 770,000
New Zealand 115,000
- ----------------------
Total 2,256,000
Kraft Papers
U.S. 348,000
New Zealand 26,000
- ----------------------
Total 374,000
Kraft Packaging
U.S. 171,000
New Zealand 14,000
- ----------------------
Total 185,000
CONSUMER PACKAGING
Bleached Board
U.S. 1,105,000
New Zealand 28,000
- ----------------------
Total 1,133,000
Liquid Packaging
18 plants around the world produced over 368,000 tons of liquid packaging.
Folding Carton and Label
U.S. 166,000
New Zealand 95,000
- ----------------------
Total 261,000
New Zealand's Carter Holt Harvey production is for the 12 months ended
December 31, 1995. International Paper owns just over 50% of Carter Holt Harvey.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 35]
Multiwall bags made with our kraft paper protect and merchandise goods such as
cement.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 36]
The Triton beverage carrier system provides a printable and environmentally
responsible alternative to plastic rings.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 37]
Itambe in Brazil uses our convenient SpoutPak carton for this innovative yogurt
container.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 38]
Our new Polyweave label eliminates the need to remove the label before recycling
plastic bottles.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 39]
Carter Holt Harvey extends our Company's heritage of quality corrugated
packaging to agricultural markets in the Pacific Rim.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 40]
Open your kitchen cabinet and you're likely to find food products packaged in
our folding cartons.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 41]
Agricultural producers throughout Europe send their goods to market in Plaform
trays from our international container division.
- --------------------------------------------------------------------------------
PACKAGING
19
<PAGE>
Distribution
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 42]
ResourceNet International's new regional distribution facility in Dallas, Texas,
uses modern inventory management technology to service its customers.
- --------------------------------------------------------------------------------
<PAGE>
REVIEW OF OPERATIONS
At International Paper, customer service means more than manufacturing products
that respond to our customers' needs. Through our merchant distribution
businesses, we provide industry wholesalers and end-users with a vast array of
products from the world's finest manufacturers.
- --------------------------------------------------------------------------------
[Distribution Sales Chart--Appendix A No. 15]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 43]
ResourceNet International's commitment to customer service provides for just-in-
time delivery across the United States.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 44]
We distribute printing papers, industrial packaging, maintenance supplies,
graphic arts supplies and other products used every day by businesses and
consumers.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 45]
5.0 billion dollars in distribution sales
- --------------------------------------------------------------------------------
International Paper's merchant distribution capabilities help support our
leadership position in important markets. By taking advantage of economies of
scale, we are able to give our customers fast and efficient service for
virtually any printing, packaging, graphic arts or industrial supplies product
they may need.
RESOURCENET INTERNATIONAL
Our flagship distribution company continued to make great strides forward in
1995. Geographic acquisitions have helped ResourceNet International improve
its regional balance, penetrate new markets and achieve a 73% increase in
sales since 1992.
As we have grown, we have created greater efficiencies by consolidating
multiple locations into single regional operations. In 1995, we opened modern
regional distribution facilities in Dallas, Texas, and Charlotte, N.C.,
replacing several smaller warehouses. A major new distribution center in
Olathe, Kan., is scheduled to open in July 1996. These consolidations give us
substantial cost savings, more efficient inventory utilization and better
service.
These multimillion dollar facilities serve as ResourceNet International's
distribution
DISTRIBUTION
21
<PAGE>
hubs in their respective regions. In addition to generous amounts of warehouse
space, the new facilities include showrooms, conference areas, training
facilities and offices. By providing a centrally located venue for the
demonstration, training and sales of new printing, electronic pre-press,
bindery and packaging equipment, these distribution business centers serve as
key resources for customers in the printing, graphic arts and packaging
industries, thereby enhancing our relationships with them. By achieving
economies of scale in each location, we are better able to support the
sophisticated sales and distribution systems our customers require.
In addition, ResourceNet International's growth and geographic range
has been strengthened by the acquisition of several regional distribution
companies over the past several years. Most recently, we grew with the
addition of Kirk Paper in the western U.S. and Seaman-Patrick and Carpenter
Paper in Michigan. Because each of these companies was the paper distribution
leader in its respective region, we immediately attained an important
position in these areas. Geographic expansion also gave us the platform we
needed to expand our national accounts program, in which we provide hundreds
of products to companies with multiple locations under a single contract. This
program creates greater efficiencies for our larger customers and strengthens
their relationships with us.
- --------------------------------------------------------------------------------
DISTRIBUTION
When consumers around the world use paper, industrial products and graphic
arts supplies, these items may have been provided by International Paper's
distribution businesses. As a leading North American distributor, ResourceNet
International unites 130 wholesale facilities in the U.S., Canada and Mexico,
as well as over 150 outlets for smaller customers. Aussedat Rey in France and
Scaldia in the Netherlands give us broad exposure to a growing European
marketplace. And Carter Holt Harvey serves retailers and end-users in New
Zealand and Australia.
- --------------------------------------------------------------------------------
[Sales by Major Product Chart--Appendix A No. 16]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 46]
Office supplies you rely on everyday may have come from one of our many
distribution businesses.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 47]
Paper products from many manufacturers are a large part of our distribution
businesses worldwide.
- --------------------------------------------------------------------------------
ResourceNet International now encompasses 130 wholesale locations in
North America, each with full warehousing capabilities and knowledgeable
sales personnel. Far from being stand-alone sites, however, all of our
wholesale locations will be linked electronically into a continent-wide
network by 1997. Our sophisticated information system, initiated in New
England during 1995, is already boosting efficiency, facilitating better
communications, reducing costs and, most
DISTRIBUTION
22
<PAGE>
importantly, improving our responsiveness to customers' needs.
New initiatives also made progress in 1995. We successfully implemented
a national brands program in which certain products produced for us carry the
ResourceNet brand name. For the small printer, small business and individual
consumer, we continued to open our Express Paper and Graphics outlets in
1995. We now have over 150 of these stores open for business.
Also in 1995, ResourceNet International developed the Color & Texture
Selector to help customers choose the perfect paper for their specific
application. The program is customized to each local region and broadens the
ability to select the appropriate paper for any design need.
AUSSEDAT REY FRANCE DISTRIBUTION AND SCALDIA PAPIER
Just as ResourceNet International is growing aggressively in North America by
improving efficiency and customer service, Aussedat Rey in France and Scaldia
in the Netherlands are leveraging their own strengths in purchasing,
marketing and efficient distribution. Aussedat Rey France Distribution ranks
as the third largest distribution group in France and has an outstanding
reputation throughout the country. Scaldia is the third largest paper
merchant in the Netherlands, with particular strength in the office supplies
business.
CARTER HOLT HARVEY
The late April 1995 acquisition of a majority interest in Carter Holt Harvey
contributed a world-class distribution system serving the fast-growing
markets of the Pacific Rim. The company's merchant distribution subsidiaries
B.J. Ball Papers and Raleigh Paper have compiled proven track records. B.J.
Ball has a major position in New Zealand's paper distribution market. In
Australia, Raleigh focuses on specialty papers used by the graphic design
industry for corporate annual reports and other high-end applications. Carter
Holt Harvey Distributors ranks as New Zealand's only nationwide distributor of
hospitality, hygiene and packaging supplies. Carter Holt Harvey Distributors
is also making excellent progress in its quest to expand its industrial
distribution business within the food industry.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 48]
ResourceNet International developed the Color & Texture Selector computer
program to assist customers in choosing the perfect paper grades for their
needs. (top left)
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 49]
Our experienced sales force sets us apart from the competition. Here, Bob
Muse (right) meets with Lee Daniels of Daniels Printing in our Wilmington,
Mass., facility. (lower left)
- --------------------------------------------------------------------------------
DISTRIBUTION
23
<PAGE>
DISTRIBUTION FINANCIAL REVIEW
Distribution posted net sales of $5.0 billion in 1995, up substantially from
$3.5 billion in 1994 and $3.1 billion in 1993. Operating profit for the
segment was $106 million in 1995 compared with $74 million in 1994 and $58
million in 1993. Results reflect tight supply in 1995, which had a positive
impact on both sales prices and volume. However, demand slipped in the latter
part of the year in response to a slowdown in world economies and an
inventory drawdown by customers.
Our strategy to grow through internal expansion and acquisitions
resulted in higher total sales as well as profits in 1995. ResourceNet
International, our North American distribution business, achieved sales of
$4.6 billion in 1995, a 45% increase over 1994. Adding to the year-over-year
sales gain was the merger of Kirk Paper Corporation in December 1994 and the
acquisitions of Seaman-Patrick Paper Company and Carpenter Paper Company in
January 1995. Excluding these additions, sales increased 24% compared with
1994 sales.
In 1995, our North American companies continued their transition toward
being a unified premier merchant operating under the ResourceNet
International identity. In this regard, we opened a regional warehouse in
Dallas, Texas, and proceeded with plans for another in Olathe, Kan. In
addition to consolidating a number of smaller operations into larger, more
economical locations, these facilities will function as operational "hubs,"
allowing ResourceNet International to more effectively serve customers and
manage inventories. Additional realignments are planned for 1996. Further
enhancing our integration activities, we are implementing a common operating
system, which we initiated in the New England region during 1995. This system
provides us with information to reduce operating costs and provide better
service for our customers. Finally, during 1995, ResourceNet International
expanded its national accounts program. This program uses our national
presence, vast product offerings and excellent service to respond to
customers nationwide.
Our international distribution businesses posted sales of $456 million
in 1995. Results for our European operations, based in France and the
Netherlands, reflected strong economic conditions in Western Europe,
particularly in France, where demand was good and higher prices were realized
during much of the year. The European business was profitable in 1995, following
small operating losses in the last few years. In addition, Carter Holt Harvey's
distribution operations in New Zealand and Australia contributed favorably to
the segment's 1995 results.
As in our printing papers and packaging businesses, we expect to
experience a period of soft market demand in the early part of 1996 as
customers continue to reduce inventories. Our distribution businesses will
meet the challenge, using their competitive strengths to penetrate profitable
markets, reduce costs and increase customer responsiveness. We expect demand
to improve later in the year, boosted by an acceleration in world economic
growth.
- --------------------------------------------------------------------------------
[Distribution Net Sales Chart--Appendix A No. 17]
[Distribution Operating Profit Chart--Appendix A No. 17]
- --------------------------------------------------------------------------------
DISTRIBUTION
24
<PAGE>
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 50]
ResourceNet International expanded its distribution business in 1994 with the
acquisition of two Mexican paper distributors.
- --------------------------------------------------------------------------------
[Map--Appendix B No. 51]
ResourceNet International operates 130 full-service distribution facilities
across North America.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 52]
Our European distribution operations include Aussedat Rey in France and Scaldia
in the Netherlands.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 53]
In 1995, ResourceNet International initiated a sophisticated information system.
All of our wholesale locations should be linked electronically by 1997.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 54]
Industrial supplies are also available from ResourceNet International locations
across the country.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 55]
Our ColorLok precision printing products complement one another--giving our
customers superior performance.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 56]
Our diverse product range includes items for the food service industry.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 57]
Our distribution businesses market a wide range of office supplies to their
customers, including envelopes in many colors and sizes.
- --------------------------------------------------------------------------------
DISTRIBUTION
25
<PAGE>
Specialty Products
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 58]
Customers can choose from among our many styles to pick the perfect door for
their home with Masonite's CraftMaster molded door display, shown here at
Jaeger Lumber in Madison, N.J.
- --------------------------------------------------------------------------------
<PAGE>
REVIEW OF OPERATIONS
Few consumers think of International Paper as a well-known manufacturer of
molded door facings, printing plates, disposable diaper components, label
backings, and resins for inks and adhesives. Yet sales of specialty products
such as these constitute a $3.3 billion business, making International Paper
far more than your typical paper and forest products company.
- --------------------------------------------------------------------------------
[Specialty Products Sales Chart--Appendix A No. 18]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 59]
Fountainhead by Nevamar countertops offered in many colors and finishes are on
the cutting edge of style.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 60]
Black-and-white and color films made by Ilford are used by professional
photographers worldwide.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 61]
With thousands of specialized products, peel-and-stick labels are just one of
the applications of our specialty papers division.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 62]
Graphic arts professionals rely on Veratec's Nubtex wipes for strength and
absorbency.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 63]
Consumers in New Zealand and Australia are familiar with Carter Holt Harvey's
tissue products.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 64]
For tape that sticks, Arizona Chemical's specialized resins will do the trick.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 65]
3.3 billion dollars in specialty products sales
- --------------------------------------------------------------------------------
Why is a paper and forest products company in the business of producing a
diverse array of specialty products? One important reason is that these
businesses make efficient use of the by-products, processes and franchises of
our traditional manufacturing operations. And by using our resources and
technologies in innovative ways, we are able to produce value-added products
that help reduce our exposure to fluctuations in paper prices.
SPECIALTY PANELS
Our specialty panels business is an example. Wood chips and kraft papers are
used to manufacture molded door facings and decorative laminates,
respectively, for the construction industry. Our CraftMaster line of door
facings has long enjoyed a strong franchise in the U.S. because of the
performance advantages these products have over solid wood doors, as well as
their lower cost. Over the past 10 years, sales of molded door facings have
increased rapidly. We started a new door facings line at our Laurel, Miss.,
plant in 1995 to meet rising domestic demand for styles and sizes that
satisfy new customer trends. In addition, we recently added prestained door
facings and solid
SPECIALTY PRODUCTS
27
<PAGE>
door cores to the CraftMaster product line.
Based on our success in the U.S. and export markets, our door facings
business is about to make strong inroads internationally. Masonite recently
began construction of a molded door facings plant in Ireland to satisfy
European demand, which will make International Paper the largest molded door
facings producer in Europe. We intend to continue the geographic expansion of
this business as new opportunities arise.
Our Nevamar decorative laminates businesses in the U.S. and Polyrey in
France give us participation in commercial and residential construction
projects and furniture manufacturing worldwide. We have long been a style
leader, known for our ability to work with customers' designers to create
laminates that are flexible in their uses, attractive in their styles and
competitive in their pricing. For example, our new LamMates product line offers
our customers a variety of high-pressure and low-pressure laminates with
matching patterns. This enables furniture manufacturers to maintain their
quality and styling while reducing their cost. We continually create new colors,
finishes and materials--design elements that evolve from year to year to keep
pace with changing fashions.
- --------------------------------------------------------------------------------
SPECIALTY PANELS
The next time you knock on a door, consider this: you may be face-to-face
with a CraftMaster door facing by International Paper. With sales in North
America, Europe and Asia, our Company is the world's leading producer of
molded door facings. Masonite also manufactures Colorlok siding. Our
decorative products division makes Nevamar, Micarta and Vitricor laminates
and Fountainhead countertops. Other specialty panel products are produced by
our Micarta and Polyrey divisions. GatorFoam and FomeCor paper-faced foam
products are also part of our decorative products division.
- --------------------------------------------------------------------------------
[Specialty Panels Sales to Geographic Areas Chart--Appendix A No. 19]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 66]
For attractive and durable countertops--consumers rely on high-pressure
laminates from our recently expanded decorative products division.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 67]
FomeCor products, used in the graphic arts industry, come in an array of sizes
and colors.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 68]
Colorlok engineered wood siding is prefinished and easy to install.
- --------------------------------------------------------------------------------
SPECIALTY PRODUCTS
28
<PAGE>
The acquisition of Westinghouse's Micarta division in South Carolina
substantially increases our high-pressure decorative laminates capacity and
increases our share of the large-scale residential and office furniture
business. Micarta also gives us a low-cost printing capability that allows us
to print the top sheet for our decorative laminates and, in the process, add
value for our customers. As a result, we are better able to expand our
laminates business, explore new opportunities and maintain our position on
the cutting edge of style.
IMAGING PRODUCTS
Our imaging products businesses are in the midst of a transformation as the
professional photography and graphic arts industries move increasingly toward
digital technology. Consequently, we are restructuring to ensure that we are
competitive and profitable in a changing business environment.
- --------------------------------------------------------------------------------
By using our resources and technology in innovative ways, we are able to produce
value-added products.
- --------------------------------------------------------------------------------
Several innovative new products from our imaging group are helping us
keep pace. The Printasia minilab imaging system, developed in conjunction
with Scitex, is a fully integrated workstation, image scanner and printer
system that potentially doubles color display output for professional photo
labs. The new system also enables operators to eliminate "red eye" from their
customers' photos, remove unwanted information and make photographic greeting
cards. In addition, Ilford's private-label color copy materials for photo
kiosks in amusement arcades and stores cut processing times in half, greatly
enhancing customer satisfaction.
- --------------------------------------------------------------------------------
IMAGING PRODUCTS
International Paper's imaging products group includes several companies that
serve the professional photography and graphic arts markets. Ilford
manufactures photographic films and papers; their black-and-white films in
particular are appreciated by professionals for their quality and value. Anitec
and Horsell produce printing film and plates, respectively, for graphic arts
and commercial printing processes. And our investment in Scitex gives us an
equity interest in a well-known producer of digital electronic graphic art
technologies.
- --------------------------------------------------------------------------------
[Imaging Products Sales to Geographic Areas Chart--Appendix A No. 20]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 69]
Well-known Anitec films, papers and plates are sold to the printing industry.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 70]
Professional photographers use our Ilford film and papers for professional
results.
- --------------------------------------------------------------------------------
SPECIALTY PRODUCTS
29
<PAGE>
SPECIALTY PAPERS
As more consumer hygiene products, industrial sealants and tapes, and pressure-
sensitive labels incorporate silicone-backed papers, Thilmany, Akrosil and
Nicolet are working individually and in concert to increase our position in
this growing business. In 1995, Nicolet and Thilmany cooperated in the
start-up of a machine that adds new capacity in release-backing papers.
Akrosil started up a new silicone coater and acquired a coating facility in
Canada and will start up another line in 1996, completing a 40% expansion of
its capacity.
As we continue to look for ways to achieve synergies among our
businesses, Nicolet, Hammermill and Springhill have joined forces to supply
both backing and face papers to manufacturers of pressure-sensitive labels,
making International Paper a full-line supplier of these materials for the
first time. Similarly, Thilmany worked with our bleached board and Veratec
divisions to create DataGuard, an innovative package for CD-ROMs that is
printable and protects the sensitive media inside.
Other 1995 product developments include new differential silicone
coating grades by Akrosil for the production of two-sided industrial tapes
with different release values on each side. Led by new product innovations,
Akrosil grew twice as fast as the pressure-sensitive label business in 1995.
- --------------------------------------------------------------------------------
SPECIALTY PAPERS
International Paper produced 286,000 tons of specialty papers in 1995, making
us an important supplier of the papers used in thousands of specialized
applications. For example, peel-and-stick labels continue to replace old-fash-
ioned lick-and-stick adhesive labels in uses ranging from airline-baggage
tags to overnight-courier airbills. International Paper divisions Akrosil,
Thilmany and Nicolet have been at the forefront of the specialty papers
industry, developing new products and processes to help customers maintain a
competitive edge in a rapidly evolving market.
- --------------------------------------------------------------------------------
[Specialty Papers Sales to Geographic Areas Chart--Appendix A No. 21]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 71]
Our specialty papers business makes the paper for the peel-off strips and
Veratec produces the padding for this bandage.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 72]
These Crescent rolls from Pillsbury are kept fresh with one of the many unique
specialty papers made by our Thilmany mill.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 73]
Our specialty papers business is reaching new heights as our customers continue
to find new uses for pressure-sensitive labels. (lower right)
- --------------------------------------------------------------------------------
SPECIALTY PRODUCTS
30
<PAGE>
- --------------------------------------------------------------------------------
NONWOVENS
Veratec is growing as a supplier of spunbond fabrics used in components of
personal hygiene and other consumer products. Serving markets worldwide, Veratec
manufactures nonwovens in the U.S. and Canada. In 1996, the start-up of a new
plant in Mexico will serve Latin American markets. Veratec is also the world's
leading producer of bleached cotton used in feminine hygiene products and
medical applications. Veratec's dramatic new process, InterSpun Enhanced Fabric,
improves woven fabrics performance and appearance.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 74]
Veratec's newest offering in the media market, DataGuard, is poised to
capitalize on the explosive growth in compact discs and CD-ROMs.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 75]
Veratec's EverSpun nonwoven provides the softness and strength customers need
in absorbent products.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 76]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 77]
InterSpun Enhanced Fabric gives clothing and upholstery softness and durability
while reducing the need for chemical treatment or back-coating.
- --------------------------------------------------------------------------------
NONWOVENS
Manufacturers of consumer disposable products such as diapers and feminine
hygiene products continually seek lighter weight materials with high strength
for their products components. Our nonwovens business, Veratec, is expanding
its spunbond capacity to meet this need internationally. Our second
full-scale spunbond line began operation in Toronto, Canada, in 1995, and a
new world-class plant in Mexico is scheduled for start-up in 1996. These
facilities will satisfy growing demand and will help us achieve our goal of
being a leading supplier of lightweight spunbond material.
In addition to expanding capacity for the spunbond process, Veratec
developed and began commercial production of InterSpun Enhanced Fabric, a
dramatic new process that makes woven fabrics look and perform better. This
revolutionary process uses jets of water under high pressure to enhance the
performance, texture and appearance of textile manufacturers' products. For
example, InterSpun can make upholstery stronger and clothing softer.
TISSUE
Our move to majority ownership in Carter Holt Harvey gave International Paper
entry into the tissue business in New Zealand and Australia. Reinforced by the
January 1995 acquisition of the Australian tissue operations of Bowater plc,
Carter Holt Harvey is now the
SPECIALTY PRODUCTS
31
<PAGE>
largest tissue-products manufacturer in Australasia. Carter Holt Harvey is also
a major supplier of New Zealand's toilet tissue, facial tissue, kitchen and
commercial towels, serviettes and medical disposables. In addition, it is a
major producer of "nappie" products at its Kawerau, New Zealand, mill. Capital
investment in new plant and technology and a commitment to innovation in product
development has ensured responsiveness to changing consumer trends and market
competitiveness.
- --------------------------------------------------------------------------------
TISSUE
With 1995 production of 120,000 tons, Carter Holt Harvey ranks as New Zealand
and Australia's leading manufacturer of crepe and flat tissue papers and a
converter of tissue products such as toilet tissue, facial tissue, kitchen
towels and disposable medical supplies. Marketed under a portfolio of brand
names that enjoy strong awareness among consumers, the company's tissue
products are used extensively throughout New Zealand and Australia. Carter
Holt Harvey is New Zealand's only manufacturer of toilet tissue.
- --------------------------------------------------------------------------------
[Tissue Sales to Geographic Areas Chart--Appendix A No. 22]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 78]
Toilet tissue is one of the largest product lines in Carter Holt Harvey's
tissue business.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 79]
Carter Holt Harvey's tissue products--such as these paper towels--are part of
everyday life for consumers in New Zealand and Australia.
- --------------------------------------------------------------------------------
CHEMICALS AND PETROLEUM
Arizona Chemical continues its evolution from a provider of commodity
products to a producer of specialty products. Already one of the world's
leading processors of crude tall oil and crude sulfate turpentine, Arizona
Chemical is increasing production of resins that are in demand by
manufacturers of printing inks, adhesives and chewing gum.
Arizona Chemical established new sales records in 1995, primarily the
result of expanded production of several key products and the European
acquisition of the inks and adhesives resin business of DSM, with operations
in France and the Netherlands. The acquisition strengthens Arizona Chemical's
reputation as an innovator in the field of resin technology. For example, in
1995, the division introduced new resins that can change the surface
characteristics of plastics to significantly improve their ability to bond
with other substrates. In addition, Arizona Chemical doubled capacity at the
Oakdale, La., facility for rosin-based resins used in printing ink and coating
applications.
Our petroleum and minerals division manages the mineral rights for more
than five million acres of Company land at the same time that it explores
on- and off-shore for new oil and gas reserves. Thanks to our energy development
and exploration initiatives, our production is the equivalent of approximately
half of International Paper's purchased energy
SPECIALTY PRODUCTS
32
<PAGE>
needs, offering protection against adverse energy price fluctuations.
Development of our 750-well Sugg Ranch field in West Texas is nearing
completion, and we are expanding exploration to new locations in Texas and
the Gulf of Mexico. Using sophisticated three-dimensional seismic mineral
exploration technologies, we have already discovered several new oil and gas
reserves in the Gulf of Mexico, two of which have been classified as
significant sources of natural gas. The new technology also helps reduce the
economic risks of exploration by enabling our geoscientists to identify and
map deep geological structures with greater accuracy.
- --------------------------------------------------------------------------------
CHEMICALS AND PETROLEUM
By-products of our papermaking operations are used in the manufacture of
chemicals used in a variety of industrial applications and processes. With
plants in the U.S. and in Europe, Arizona Chemical ranks as one of the
world's leading processors of crude tall oil and crude sulfate turpentine and
is a prominent supplier of resins used in inks and adhesives.
Our petroleum and minerals operation develops and manages mineral
resources on International Paper's land. The division also actively explores
and develops oil and gas reserves in the southern U.S. and Gulf of Mexico.
- --------------------------------------------------------------------------------
[Chemicals and Petroleum Sales to Geographic Areas Chart--Appendix A No. 23]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 80]
With the acquisition of the inks and adhesives resin business of DSM in Europe,
Arizona Chemical increased its capacity to produce resins used in printing inks.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 81]
Your everyday tire may contain resins from Arizona Chemical as well as
petroleum-based products.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 82]
Arizona Chemical's food-grade resins find their way into products such as gum.
- --------------------------------------------------------------------------------
SPECIALTY PRODUCTS
33
<PAGE>
SPECIALTY PRODUCTS FINANCIAL REVIEW
Sales increased across our portfolio of specialty products businesses in
1995, and totaled $3.3 billion. This compares to sales of $2.6 billion in
1994 and $2.5 billion in 1993. However, operating profit for the segment
declined to $207 million in 1995 from $268 million in 1994 and $263 million
in 1993.
Specialty Panels sales improved 34% in 1995 to $1.0 billion, while
earnings declined 3%. This decline followed a 30% increase in 1994. Carter
Holt Harvey's building products accounted for about one-half of the sales
increase and contributed favorably to earnings. Masonite's earnings reflected
costs associated with a new production line in Laurel, Miss., and increased
marketing activities in Europe and the Far East. In decorative laminates, we
improved our market position in high-pressure laminates with the acquisition
of Micarta and with growth in the commercial segment. However, low-pressure
product sales declined due to soft demand and competition by Canadian
imports. As for 1996, we expect specialty panels sales and earnings to
improve along with stronger construction activity later in the year.
Imaging Products sales increased 6% to $775 million in 1995. Sales
totaled $730 million in 1994 and $700 million in 1993. Our graphic arts
business continued to face intense industry-wide competition, causing the
division to sustain an operating loss in 1995. It was modestly profitable in
1994 and 1993. The 1995 loss includes costs to reduce staffing and to
reposition the graphic arts business. In the first quarter of 1996, a reserve
was established, reflecting the necessary restructuring that will allow that
business to compete more effectively. Our offset printing plate and pressroom
chemical product lines are growing and continue to gain market share. We
expect 1996 operating results, before the effect of the reserve, to improve
as we continue to restructure graphic arts.
Specialty Papers posted sales of $530 million in 1995, a 15% increase over
1994 due to higher prices. Operating profits improved 14%, following an 8%
increase in 1994. Thilmany achieved both greater productivity and a better
product mix during the year. These factors, together with strong demand,
accounted for the improved earnings in 1995. We expect higher specialty papers
sales and earnings in 1996. We are anticipating the growth of Akrosil's
silicone-coating business with the start-up of a new coater in 1996.
The Tissue operations of Carter Holt Harvey added $265 million to
segment sales in 1995 and accounted for 10% of segment operating profit. In
January 1995, Carter Holt Harvey purchased the Australian tissue operations
of Bowater plc. In 1996, Carter Holt Harvey will integrate these operations with
its operations in New Zealand.
Nonwovens sales increased 8% to $265 million in 1995, as Veratec
successfully started up a second spunbond line in Toronto, Canada. However,
business results were adversely affected by lower profits in the diskette liner
business and by costs associated with the commercialization of InterSpun, a
unique fabric-enhancing process. We expect Veratec results to improve in 1996,
as additional spunbond capacity comes onstream in Mexico and as InterSpun
sales grow.
The combined sales of our Chemicals and Petroleum businesses were $445
million in 1995, 14% higher than 1994. Chemicals sales increased 21%, while
earnings were flat. European demand was strong for specialty chemicals and we
acquired an ink resins manufacturer in France. Higher prices had a favorable
impact on margins in both the U.S. and European markets. However, these gains
were offset by higher environmental-related costs. We expect better results
in 1996 as demand for specialty chemicals continues to grow worldwide.
Petroleum sales and profits declined in 1995 due to lower production at a major
field and lower gas prices. In 1996, petroleum sales and earnings are expected
to improve as we increase production of reserves developed in 1995.
- --------------------------------------------------------------------------------
[Specialty Products Net Sales Chart--Appendix A No. 24]
[Specialty Products Net Sales Chart--Appendix A No. 24]
- --------------------------------------------------------------------------------
SPECIALTY PRODUCTS
34
<PAGE>
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 83]
With a range of complementary products and its palette of decorative finishes,
France's Polyrey is the ideal partner for the interior design of both offices
and homes.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 84]
Our specialty papers division makes the paper for the glassine window in this
envelope.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 85]
Our inks and adhesives resin business grew this year in Europe with the
acquisition of a plant in France.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 86]
Our imaging business is positioning for growth in changing printing markets.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 87]
Nonwoven liners are an important component in computer diskettes--and an
important product for our Veratec division.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 88]
Carter Holt Harvey's tissue business has a large product range--stretching from
diapers to paper towels.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 89]
In New Zealand and Australia, many parents put "nappies" from Carter Holt Harvey
on their children.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 90]
Doors made from CraftMaster door facings can inspire beautiful rooms and are
the choice for homeowners and professional contractors.
- --------------------------------------------------------------------------------
SPECIALTY PRODUCTS
35
<PAGE>
Forest Products
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 91]
Carter Holt Harvey owns and manages approximately 800,000 acres of radiata
pine plantation forest in New Zealand.
- --------------------------------------------------------------------------------
<PAGE>
REVIEW OF OPERATIONS
International Paper is a leader in the management of forestlands. From
creating new ways to renew and harvest our forestlands to developing low-cost
and improved substitutes for traditional wood products, we are committed to
utilizing our natural resources in a manner that is responsible environmentally
and economically.
- --------------------------------------------------------------------------------
[Forest Products Sales Chart--Appendix A No. 25]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 92]
Our foresters harvest unopened, ripe pine cones from superior trees which yield
seeds that are sowed in nurseries and eventually used for replanting.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 93]
Our wood products business produces lumber, plywood, hardboard siding and
oriented strand board.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 94]
2.1 billion dollars in forest products sales
- --------------------------------------------------------------------------------
Whether we are improving logging operations on our forestlands or processing
lumber in our sawmills, the continued vitality of our forestlands is
paramount. That's not just good environmental policy--it is also good common
sense: our future depends on the continuing availability of abundant,
renewable resources.
FORESTLANDS
At International Paper, we take our stewardship responsibilities very seriously.
We strive to strike a balance between the public's need for forest products and
the well-being of the forest environment. In the U.S., we have developed
advanced land management techniques that enable us to harvest trees while
providing for watershed protection, wildlife habitat preservation and
recreational opportunities. In 1995, we completed a decade-long soil survey of
all our forestlands. This information is the cornerstone of our decisions about
harvesting, replanting and other silvicultural treatments. We also introduced
the Geographical Information System, a computer-based program that includes
detailed data about our forestlands, promoting efficient, integrated and
long-term management of our forests at the field-office level.
FOREST PRODUCTS
37
<PAGE>
Forest regeneration is a critical part of our operations. We grew 200
million seedlings in our nurseries during 1995, of which 50 million were
planted on 90,000 acres of our land and the balance was donated or sold to
public and private landowners. In addition, our new Sustainable Forest
Technologies business promotes reforestation in the southern U.S.
Conservation is also an important aspect of our operations. We recently
worked with The Conservation Fund and the State of North Carolina to preserve
6,000 acres of wetlands near Lake Waccamaw. The land will become part of North
Carolina's park system, forever preserved in its natural state.
International Paper has entered into a landmark environmental and
research partnership with the National Audubon Society designed to evaluate
forest management practices and means of assuring habitat protection in
sensitive forested ecosystems. Specifically, the study on Company land will
focus on the ecology of migratory birds, amphibians and reptiles. Additional
partners in this joint research include the U.S. Forest Service Center for
Forested Wetlands, the National Council of the Paper Industry for Air and
Stream Improvement, the South Carolina Department of Natural Resources and
three major universities: Clemson, North Carolina State and the University of
Georgia Savannah River Ecology Lab.
With more than 800,000 acres of renewable radiata pine forests, Carter
Holt Harvey gives us access to export markets throughout the Pacific Rim,
where rapid economic growth is fueling a construction boom. Carter Holt Harvey
also has a 30% stake in COPEC, one of the largest industrial companies in
Chile. COPEC's principal business, Arauco, owns about one million acres of
radiata pine forests in South America.
- --------------------------------------------------------------------------------
FORESTLANDS
The mountains of New York's Adirondack region, the valleys of East Texas and
the rolling terrain of New Zealand have one thing in common: each is home to
forestlands owned or managed by International Paper. We control approximately
six million acres in the U.S. mainly through IP Timberlands, Ltd., and we
have an interest in 800,000 acres in New Zealand owned by Carter Holt Harvey.
These operations serve global markets for lumber and fiber and supply raw
materials for our papermaking, packaging and specialty products businesses
worldwide.
- --------------------------------------------------------------------------------
[Forestlands Sales to Geographic Areas Chart--Appendix A No. 26]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 95]
International Paper developed fast-growing SuperTree pine seedlings to renew
harvested tracts of land.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 96]
Radiata pine harvests on Carter Holt Harvey's plantations in New Zealand will
increase by 80% over the next 15 years.
- --------------------------------------------------------------------------------
WOOD PRODUCTS
We continue to improve the cost position
of our wood products business through improved log recovery and enhanced
productivity. Quality improvement processes at the
FOREST PRODUCTS
38
<PAGE>
Gurdon, Ark., and Whelen Springs, Ark., facilities have produced average annual
savings of $2 million over the past six years.
Our structural panels business is increasing production of lower-cost
oriented strand board. Our new, 350-million-square-feet/year oriented strand
board mill in Jefferson, Texas, will more than double our capacity in 1996.
As New Zealand's largest lumber producer, Carter Holt Harvey is
enjoying good demand. A portion of its lumber, plywood and wood composite
panels are sold through its own building materials outlets, including
Carters, the nation's second largest building materials merchandiser.
Exports, primarily to Australia and Japan, account for almost half of its
sales. The 1995 acquisition of Bowater plc's sawmilling and plywood
businesses strengthens Carter Holt Harvey in Australia. The company also
established an office in Bangkok for sales of wood products, as well as a
joint venture in Thailand to build timber-processing plants.
- --------------------------------------------------------------------------------
WOOD PRODUCTS
Where do trees from our forestlands go after they are harvested? Many of the
lumber, plywood, hardboard siding, medium-density fiberboard and oriented
strand board products used by residential and commercial builders throughout
North America, Europe and the Pacific Rim are produced by International Paper
and Carter Holt Harvey from wood harvested from our forestlands.
- --------------------------------------------------------------------------------
[Wood Products Sales to Geographic Areas Chart--Appendix A No. 27]
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 97]
Our Madison, N.H., wood products plant uses eastern white pine to produce
high-quality paneling products and moldings.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 98]
Our structural panels business is more than doubling production of oriented
strand board in response to consumer demand.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 99]
Construction of our new oriented strand board plant in Jefferson, Texas, is
complete, and commercial production began in the first quarter of 1996.
- --------------------------------------------------------------------------------
FOREST PRODUCTS
39
<PAGE>
FOREST PRODUCTS FINANCIAL REVIEW
Forest Products sales totaled $2.1 billion in 1995, up 22% from $1.7 billion
in 1994 and 1993. Carter Holt Harvey added $578 million to 1995 sales.
Despite a significant contribution from Carter Holt Harvey in 1995, overall
operating profit of the Forest Products segment declined to $388 million from
$418 million in 1994 and $488 million in 1993. The decline between 1995 and
1994 was due to lower wood products earnings in the U.S. Both forestland and
wood products operating profits were lower in 1995 compared with 1993.
Forestland revenues increased 33% to $695 million in 1995 and operating
profits increased 26%. However, before Carter Holt Harvey's contribution,
1995 sales declined 10% and profits were flat versus 1994 and 23% below 1993
levels.
In the U.S., 1995 stumpage sales were 17% above 1994 as strong demand
by pulp and paper mills early in the year pushed harvest volumes higher.
Average stumpage prices declined 5% year-over-year. Sales of sawlogs declined
21% in 1995 due to sluggish lumber markets and weak export demand. Sales of
nonstrategic land were considerably below 1994 and 1993 levels.
Market conditions and results varied from region to region. In the
South, low customer inventories and poor logging conditions led to strong
stumpage sales early in the year. Together with an increase in pulpwood
sales, this led to a 23% increase in harvest volumes in 1995. Southern
stumpage prices averaged 2% above 1994, although softening occurred as the
year progressed. In the West, harvests were 7% below 1994 levels, and average
prices were 3% lower. Soft lumber markets kept domestic stumpage prices down,
while a weak Japanese economy led to a soft export market. And in the
Northeast, average prices rose 11% in 1995, reflecting good demand by
Canadian mills and a sales mix weighted toward high-margin sawlogs.
In January 1996, a subsidiary partnership of IP Timberlands, Ltd.
announced its intention to sell partnership interests representing more than
80% of its equity. This partnership owns approximately 300,000 acres of
forestlands located in Oregon and Washington, making up all of IP
Timberlands' western holdings and the source of approximately one-third of
the Company's stumpage sales in 1995 and 1994. The capitalized value of the
partnership will be almost $1.0 billion. We project that harvest volumes for
our remaining U.S. forest operations will decline 10% in 1996. The year began
with mills holding high inventories in the face of soft paper markets.
January 1996 sawlog prices in the South were 9% below the prior year, while
in the Northeast, they were slightly higher. We expect some further softening
in timber markets until paper and wood products markets regain strength.
Radiata log demand will remain steady.
Wood Products sales increased 18% in 1995 to $1.4 billion, while
operating profit declined 55%. U.S. sales decreased 12% to $1.0 billion and
were 4% less than 1993 sales. U.S. operating profit was approximately
one-third the amount earned in 1994 and 1993. Lumber prices and volumes were
lower in 1995 due to soft demand and competition from Canadian imports. Panel
prices also trended lower as the year progressed. Also, high wood costs
continued to put pressure on earnings. Productivity improvements, including a
2% increase in lumber yield, and higher sales of medium-density overlay
partially offset lower lumber sales.
We believe that building activity will improve by midyear, driving
stronger performance by our wood products operations. Wood costs are
projected to be lower than in 1995. While panel prices will likely soften
further until new capacity is absorbed, the Company's new oriented strand
board plant in Jefferson, Texas, one of the industry's lowest cost producers,
will add to sales and earnings in 1996. In addition, projects at several of
our plants will improve our productivity.
- --------------------------------------------------------------------------------
[Forest Products Net Sales Chart--Appendix A No. 28]
[Forest Products Operating Profit Chart--Appendix A No. 28]
- --------------------------------------------------------------------------------
FOREST PRODUCTS
40
<PAGE>
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 100]
In New Zealand, radiata pine plantations have twice the productivity of softwood
grown in the southern U.S.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 101]
In the United States, International Paper is a leading producer of southern
yellow pine lumber.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 102]
We strive to foster habitats for all types of wildlife and protect the natural
treasures in our care.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 103]
Plywood is used in a number of applications including pallets and bins as well
as construction.
- --------------------------------------------------------------------------------
WOOD PRODUCTS
1995 WORLDWIDE PRODUCTION
(in millions)
Lumber
(board ft.) Plywood* OSB* MDF*
----------- -------- ---- ----
U.S. 879 593 268 128
Europe 17
New Zealand 365 15 32
----- --- --- ---
Total 1,244 608 268 177
*sq. ft., 3/8" basis
New Zealand's Carter Holt Harvey production is for the 12 months ended
December 31, 1995. International Paper owns just over 50% of Carter Holt Harvey.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 104]
Medium-density fiberboard is used for kitchen cabinets and ready-to-assemble
furniture.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 105]
Loblolly pine grows on most of the four million acres of forestland we control
in the southern U.S.
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 106]
Landscape timbers, produced as a by-product of plywood manufacturing, are used
by homeowners in landscaping projects.
- --------------------------------------------------------------------------------
FOREST PRODUCTS
41
<PAGE>
Environment, Health and Safety
- --------------------------------------------------------------------------------
[Photograph--Appendix B No. 107]
In 1995, our Mobile, Ala., mill created a six-acre wetland and wildlife
preserve, working with The Conservation Fund's Freshwater Institute.
- --------------------------------------------------------------------------------
<PAGE>
ENVIRONMENT, HEALTH & SAFETY
We strive for continuous improvement in the safety of our workers and the
impact of our operations on the environment. In 1995 we again made
significant progress in preventing work-related injuries, protecting air and
water quality and reducing the amount of solid waste going to landfills.
For the last several years, we have met our objective to achieve an
annual 15% reduction in overall work-related injuries. We have also asked our
employees worldwide to aim for our new goal--to have no work-related injuries
in our facilities. As an indication of our commitment, International Paper
now has more facilities accepted into OSHA's Voluntary Protection Program
than any other company.
We are particularly proud of our forest management program. It is among
the most comprehensive programs in the industry--meeting or exceeding industry
standards in all categories. Our Company assumed a leadership role in
drafting the American Forest and Paper Association's Sustainable Forestry
Principles. In 1996, the principles will become effective.
Last year we invested more than $100 million to meet or exceed air,
water and solid waste disposal standards. By the end of 1996, we will have
reduced the amount of solid waste we send to landfills by more than 50%
compared with a 1992 baseline. In 1988, as a voluntary participant in the
U.S. Environmental Protection Agency's Industrial Toxics Project, we
committed to a 50% reduction in certain chemical emissions by 1995. We met
that goal four years early, and by the end of last year, we had achieved a
more than 80% reduction. By the end of 1996, all 13 of the International
Paper bleached mills in the U.S. and Europe will have converted to elemental
chlorine-free bleaching technology.
Our commitment to safety and the environment begins at the highest
levels of our Company. Our executive management has set specific goals that
are monitored by the Environment, Health and Technology Committee of our
Board of Directors.
The industry continues to make major progress in achieving its goal of
50% recovery of all paper products by the year 2000. In the last four years,
International Paper has invested in facilities to recycle more than one
million tons of waste paper per year.
We publish an annual environment, health and safety report that details
our performance and provides the data by which we measure our improvement.
See page 72 of this report for information on how to obtain a copy.
- --------------------------------------------------------------------------------
[Total Incidence Rate Chart--Appendix A No. 29]
[Lost Workday Incidence Rate Chart--Appendix A No. 30]
[Solid Waste at 24 Manufacturing Sites Chart--Appendix A No. 31]
[Industrial Toxics Project (33/50 Program) Chart--Appendix A No. 32]
- --------------------------------------------------------------------------------
ENVIRONMENT, HEALTH AND SAFETY
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Record net sales of $19.8 billion in 1995, an increase of 32% over last year,
reflected very strong market conditions, especially early in the year. Of the
increase, $1.4 billion or 28% reflects the consolidation of Carter Holt
Harvey beginning in May 1995. Both strong demand and the Company's continuing
strategy to grow in international markets resulted in export and
international sales of $7.1 billion in 1995, about one-third of consolidated
net sales. Excluding Carter Holt Harvey, such sales totaled $5.7 billion, up
from $4.5 billion in 1994 and $4.0 billion in 1993.
Net income for the year totaled $1.2 billion or $4.50 per share,
substantially greater than the 1994 figure of $357 million or $1.43 per share
($422 million or $1.69 per share before an accounting change) and $289
million or $1.17 per share in 1993 ($314 million or $1.27 per share before
the revaluation of deferred income taxes). The 1995 results reflected
substantially higher operating profit for our printing papers and
packaging segments. Strong demand in 1995 had a positive impact on sales
prices for most of the Company's products, particularly business papers, pulp
and containerboard. However, demand slipped in the latter part of 1995 in
response to a slowdown in world economies and inventory reductions by customers.
In early 1996, we have experienced continuing weakness in the markets
for our major product lines, as customers continue to reduce inventories. We
view this weakness as temporary, until inventory levels come down. If strong
economic growth resumes, demand should rebound.
- --------------------------------------------------------------------------------
[Net Sales Chart--Appendix A No. 33]
- --------------------------------------------------------------------------------
MERGER WITH FEDERAL PAPER BOARD
In November 1995, International Paper and Federal Paper Board, a diversified
forest and paper products company with sales of $1.9 billion in 1995,
announced that they had agreed to merge. In January 1996, the U.S. Department
of Justice cleared the way for the proposed merger. The transaction, which is
valued at approximately $3.5 billion including assumption of debt, is
expected to close late in the first quarter of 1996. See the discussion of
the merger in Note 6 to the consolidated financial statements on page 58.
CASH FLOW FROM OPERATIONS
Cash flow from operations improved substantially to $2.2 billion in 1995 from
$1.2 billion in 1994 and $928 million in 1993. The increase was primarily the
result of significantly higher earnings. Depreciation and amortization
expense, excluding depletion, also increased to $1.0 billion in 1995 from
$885 million in 1994 ($923 million before the change in accounting for
start-up costs) and $898 million in 1993. Deferred income taxes were $146
million, with the increase over 1994 primarily resulting from the use of
certain tax credits in 1995.
INVESTMENT ACTIVITIES
Capital spending was $1.5 billion in 1995 (including $90 million for Carter
Holt Harvey), up from $1.1 billion in 1994 and $954 million in 1993. The
primary emphasis for capital investment continues to be improving
productivity, cost reduction and strategic expansions. Spending in 1995
included completion of an uncoated papers machine at the Riverdale mill in
Selma, Ala., and a recycled linerboard machine in Mansfield, La.;
construction of an oriented strand board plant in Jefferson,
Texas, and a spunbond nonwovens plant in Mexico; and the rebuilding of a
packaging board machine in Poland. The Company has budgeted capital spending
of approximately $1.4 billion in 1996. Major projects will include the
conversion of a paper machine from uncoated to coated freesheet at the
Androscoggin mill in Jay, Me., and construction of a molded door facings
facility in Ireland and a container plant in the United Kingdom.
FINANCIAL REVIEW
44
<PAGE>
CAPITAL SPENDING BY SEGMENT
In millions for the years
ended December 31 1995 1994 1993
---- ---- ----
Printing Papers $ 375 $ 447 $429
Packaging 531 205 181
Distribution 18 16 13
Specialty Products 251 270 155
Forest Products 271 135 145
------ ------ ----
Subtotal 1,446 1,073 923
Corporate 72 41 31
------ ------ ----
Total $1,518 $1,114 $954
====== ====== ====
In late April 1995, the Company acquired approximately 26% of the
outstanding shares of Carter Holt Harvey, bringing International Paper's
ownership of the New Zealand-based forest and paper products company to just
over 50%. The Carter Holt Harvey share purchases were financed with borrowings
totaling $1.1 billion. The Company's financial statements reflect the
consolidation of Carter Holt Harvey effective May 1, 1995. Prior to May, the
equity accounting method was used to account for the investment. International
Paper's initial investment in Carter Holt Harvey of 16% was made in 1991 and
was followed by an additional 8% investment in 1994.
The Company also acquired the following in 1995: in January, the assets
of paper distributors Seaman-Patrick Paper Company and Carpenter Paper Company,
by issuing approximately 1 million (adjusted for the two-for-one stock split)
shares of common stock; in September, Micarta, the high-pressure laminates
business of Westinghouse; and in October, the inks and adhesives resin business
of DSM located in France.
In 1994, in addition to the investment in Carter Holt Harvey discussed
above, the Company acquired additional stock of Zanders Feinpapiere AG and
completed a merger with Kirk Paper Corporation, a California-based paper
distributor. In 1993, the Company made several small acquisitions in its
distribution and specialty products businesses.
- --------------------------------------------------------------------------------
[Cash Flow from Operations Chart--Appendix A No. 34]
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
In November 1995, the Company issued $750 million of five-year debentures, and
a non-U.S. subsidiary of the Company issued $300 million of U.S. dollar-
denominated notes that mature in 7 and 20 years, respectively. In July,
International Paper Capital Trust, a wholly owned subsidiary of the Company,
issued $450 million of preferred securities that are convertible into
International Paper common stock. Also in July, $200 million of 5 3/4%
convertible debentures were called by the Company and converted into
approximately 5.8 million shares of International Paper common stock. In each
of the years 1994 and 1993, the Company issued $600 million of long-term debt
with maturities ranging from 10 to 30 years. The proceeds of all of the
transactions described above were used primarily to reduce short-term
borrowings, to secure favorable long-term interest rates and for general
corporate purposes.
In July, our Board of Directors authorized a two-for-one stock split,
which was effective in September 1995, and a 19% increase in the common
stock dividend, raising the quarterly per share rate from $.21 to $.25.
Dividend payments were $237 million in 1995, $210 million in 1994 and $208
million in 1993.
CAPITAL RESOURCES OUTLOOK FOR 1996
The Company's balance sheet supports an investment-grade debt rating,
allowing ready access to financial markets. The debt-to-capital ratio was 39%
in 1995 compared with 41% in 1994 and 39% in 1993. The Company anticipates
that cash flow from operations, supplemented as necessary by short- or
long-term borrowings, will be adequate to fund its capital spending, working
capital and dividend requirements during 1996.
We anticipate that our merger with Federal Paper Board will close in
March 1996. At such time, International Paper will issue shares of common
stock with a market value
FINANCIAL REVIEW
45
<PAGE>
of approximately $1.4 billion and $1.3 billion of debt. Also, about $800
million of Federal's long-term debt will be assumed.
Also, IP Timberlands, Ltd., of which International Paper is the
majority owner, presently expects a subsidiary partnership that owns
approximately 300,000 acres of forestlands located in Oregon and Washington
to complete a sale of certain of its equity interests. In addition to this
sale, the partnership will borrow additional amounts. Proceeds of the sale
and borrowings will be used by the partnership principally to retire $750
million of its present indebtedness. The partnership expects to have a
capitalized value of almost $1.0 billion.
- --------------------------------------------------------------------------------
[Debt to Capital Ratio Chart--Appendix A No. 35]
- --------------------------------------------------------------------------------
OTHER FINANCIAL STATEMENT ITEMS
Net interest expense totaled $493 million in 1995, increasing from $349
million in 1994 and $310 million in 1993. The consolidation of Carter Holt
Harvey accounted for about one- third of the increase in net interest expense
in 1995. The balance of the increase was the result of higher average
borrowing levels during 1995, largely due to short-term debt used to acquire
the additional shares of Carter Holt Harvey.
The consolidation of Carter Holt Harvey increased components of costs
and expenses in amounts ranging from 13% to 72%. This was also the primary
reason for the increases in forestlands, goodwill and the related accumulated
amortization, long-term debt and minority interest on the Company's
consolidated balance sheet. Such consolidation also contributed about 60% of
the increase in net property, plant and equipment, and to a lesser extent, to
the increases in working capital components.
In 1994, investments included primarily Scitex and Carter Holt Harvey.
In 1995, investments included primarily Scitex and Carter Holt Harvey's
investment in COPEC.
The effective tax rate was 35.5% of pre-tax income in 1995, 33% in 1994
and 40% in 1993 (35% before the revaluation of deferred taxes to reflect the
increase in the federal tax rate). We do not expect any significant change in
the effective tax rate for 1996. During 1994 and 1993, the Company recognized
tax benefits of $33 million and $55 million, respectively, related to losses
at certain non-U.S. locations. No net additional tax benefits were recognized
in 1995. We expect that these tax benefits will
be realized.
ACCOUNTING CHANGE
Effective January 1, 1994, International Paper changed its method of
accounting for start-up costs to expense them as incurred. Our policy prior
to 1994 had been to capitalize start-up costs on major projects and amortize
them over a five-year period. The accounting change resulted in a one-time
after-tax charge of $75 million or $.30 per share. However, it also increased
1994 earnings by $10 million or $.04 per share for a net reduction in 1994
earnings of $65 million or $.26 per share.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (SFAS No. 121). The statement requires that such assets be
reviewed for impairment whenever events or changes in circumstances indicate
that their carrying value may not be recoverable and that such assets be
reported at the lower of their carrying amount or fair value. The Company will
adopt the provisions of the statement in the first quarter of 1996 and
estimates that adoption will result in a pre-tax charge to earnings of about
$80 million. Also in 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued. This statement,
effective for fiscal years beginning after December 15, 1995, requires
disclosure of
FINANCIAL REVIEW
46
<PAGE>
the pro forma impact on net earnings and earnings per share of the compensation
cost that would have been recognized if the fair value of the Company's
stock-based awards were recorded in the income statement. The Company will adopt
the disclosure provisions in 1996.
LEGAL AND ENVIRONMENTAL ISSUES
Environmental capital expenditures totaled $108 million in 1995, $95 million
in 1994 and $100 million in 1993. By the end of 1996, International Paper will
have successfully converted all 13 of its U.S. and European bleached mills to
elemental chlorine-free technology.
In 1993, the EPA released its "Cluster Rule" proposal to coordinate and
integrate the requirements for air emissions and water discharges for the pulp
and paper industry. The rules were to be effective three years after their
final promulgation. Separately, the EPA has now promulgated regulations
implementing the Great Lakes Initiative (GLI) covering water quality and
permitting implementation procedures in states bordering the Great Lakes.
Future spending will be heavily influenced by the final Cluster Rule and, in the
case of the GLI, by how the individual Great Lakes states implement the
program. In 1994, the Company estimated future capital spending to comply with
the Cluster Rule and GLI to be between $700 million and $1.5 billion,
depending upon the methods allowed by the final regulations to meet
requirements. While there have been ongoing discussions with the EPA
concerning these rules, there have as yet been no publicly announced changes
to the proposed Cluster Rule, and thus these estimates remain valid at this
time. Nevertheless, there is reason to expect that proposed changes will soon
be announced that will permit the downward adjustment of these estimates. It
is also expected that implementation will occur over a longer time frame than
the three years in the current proposal. In 1994, we estimated that annual
operating costs, excluding depreciation and the cost of capital, would
increase between $60 million and $120 million when the proposed regulations
were fully implemented. This estimate will also be adjusted to the extent that
the EPA makes moderating changes.
The Company paid fines and penalties related to environmental issues of
$630,000, $960,000 and $400,000 for the years 1995, 1994 and 1993,
respectively. Reviews are in progress by federal and state environmental
agencies at certain facilities to determine the Company's compliance with
environmental laws and regulations. Currently, the U.S. Attorney's Office for
the Southern District of Mississippi and EPA Region IV are investigating
Arizona Chemical Company, a wholly owned subsidiary of the Company, through a
federal grand jury. Arizona Chemical has been informed that it is a subject of
the investigation, which is centered on environmental issues at its facilities
in Gulfport and Picayune, Miss. Arizona Chemical is cooperating with the
investigation, but we are unable at this time to predict the outcome of that
investigation. However, we would not expect fines from this or any other
environmental investigation now under way to have a material adverse effect on
the Company's future financial condition or results of operations.
International Paper is also a party to a number of other environmental
remediation actions under various federal and states laws, including the
Comprehensive Environmental Response, Compensation and Liability Act. Related
costs are recorded in the financial statements when probable and reasonably
estimable. Completion of these actions is not expected to have a material
adverse effect on the Company's future financial condition or results of
operations.
Further details with respect to these cases can be found in the
Company's quarterly
FINANCIAL REVIEW
47
<PAGE>
reports on Form 10-Q and annual report on Form 10-K filed with the Securities
and Exchange Commission. Copies can be obtained as indicated on page 72 of
this report.
For a discussion of legal issues, see Note 10 to the consolidated
financial statements on page 60, and Item 3 (Legal Proceedings) of the annual
report on Form 10-K. While any proceeding or litigation has the element of
uncertainty, the Company believes 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 its consolidated financial position or results of operations.
SUBSEQUENT EVENT
On February 13, 1996, the Board of Directors approved a series of actions
that will require a pre-tax charge in the first quarter of 1996 of about $500
million ($350 million after taxes or $1.35 per share). These actions are
forecast to generate pre-tax savings of $70 million ($.17 per share) during
1996 and $100 million ($.25 per share) by 1997.
The charge includes $340 million for the write-off and impairment of
certain assets (about $80 million of which resulted from the application of
SFAS No. 121, as discussed on page 46). In addition, the charge consists of
cash costs of $115 million for severance and $45 million for exit costs,
including the cancellation of leases. Approximately half of the charge is
associated with the imaging products business.
EFFECTS OF INFLATION
General inflation has had minimal impact on International Paper's 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.
FINANCIAL REVIEW BY SEGMENT
Management's Discussion and Analysis of results of operations by industry
segment is set forth on pages 10 (Printing Papers), 18 (Packaging), 24
(Distribution), 34 (Specialty Products) and 40 (Forest Products), and is
incorporated herein by reference.
FINANCIAL REVIEW
48
<PAGE>
FINANCIAL INFORMATION BY GEOGRAPHIC AREA
NET SALES
- ---------------------------------------------------------------
In millions 1995 1994 1993
-------- -------- --------
United States(1) $ 14,610 $ 11,965 $ 11,085
Europe 3,791 2,958 2,586
Pacific Rim(3) 1,571 195 176
Other 188 159 164
Less: Intergeographic Sales (363) (311) (326)
-------- -------- --------
Net Sales $ 19,797 $ 14,966 $ 13,685
======== ======== ========
ASSETS
- ---------------------------------------------------------------
In millions 1995 1994 1993
-------- -------- --------
United States $ 12,033 $ 11,237 $ 10,999
Europe 4,252 3,818 3,512
Pacific Rim(3) 4,334 129 143
Other 192 145 118
Equity Investments 1,291 967 559
Corporate 1,875 1,540 1,300
-------- -------- --------
Assets $23,977 $17,836 $16,631
======== ======== ========
EUROPEAN SALES BY INDUSTRY SEGMENT
- ---------------------------------------------------------------
In millions 1995 1994 1993
-------- -------- --------
Printing Papers $ 1,664 $ 1,231 $ 1,016
Packaging 756 559 513
Distribution 378 318 284
Specialty Products 960 819 746
Forest Products 33 31 27
-------- -------- --------
European Sales $ 3,791 $ 2,958 $ 2,586
======== ======== ========
OPERATING PROFIT
- ---------------------------------------------------------------
In millions 1995 1994 1993
-------- -------- --------
United States $ 2,062 $ 955 $ 876
Europe(2) 251 97 (23)
Pacific Rim(3) 216 15 14
Other 6 6 8
-------- -------- --------
Operating Profit $ 2,535 $ 1,073 $ 875
======== ======== ========
(1) Export sales to unaffiliated customers (in millions) were $1,500 in
1995, $1,200 in 1994 and $1,100 in 1993.
(2) Includes amounts, net of goodwill amortization, for Aussedat Rey,
Ilford, Zanders, the Horsell graphic arts businesses, the Rhone Valley
Packaging business, Scaldia Papier BV and Kwidzyn from the dates of
acquisition.
(3) Includes the results of Carter Holt Harvey from May 1, 1995 (in
millions): sales of $1,368, operating profit of $206 and assets of $4,196.
EUROPE
European sales of $3.8 billion in 1995 were $800 million or 28% above 1994
sales after increasing 14% in 1994. Operating profit advanced to $251 million,
about two-and-a-half times the $97 million earned in 1994. Our European
businesses lost $23 million in 1993.
In printing papers, strong demand during the first half of 1995 resulted in a
55% gain in pulp prices and 35% improvement in paper prices. Packaging
operations continued to perform well and our specialty businesses showed
improvement, especially the chemicals division.
As in the United States, demand weakened in the fourth quarter of 1995 with
product prices continuing to fall during the first quarter of 1996. Given
moderate economic growth in 1996, printing papers markets in France and Germany
should stabilize, although the first half of 1996 is expected to be slow while
customers reduce inventories.
PACIFIC RIM
Carter Holt Harvey accounts for most of International Paper's activities in the
Pacific Rim. In late April 1995, International Paper increased its ownership of
Carter Holt Harvey from 24% to just over 50%. Its results were consolidated
with International Paper's beginning in May 1995. During the eight-month period
ended December 31, 1995, its sales were $1.4 billion, its operating profit was
$206 million, and at year-end, its assets included in the Pacific Rim were
$4.2 billion.
Carter Holt Harvey is a New Zealand-based integrated forest and paper products
company with substantial assets in Chile. It owns approximately 800,000 acres
of forestlands in New Zealand and its Chilean affiliate owns about one million
acres of radiata pine forests.
Carter Holt Harvey, which uses a March 31 year-end, reported net income for its
nine-month period ended December 31, 1995 (unaudited) about 15% higher than
comparable 1994 results. This reflected higher earnings from its pulp, paper
and tissue operations offset by some declines, most notably in its wood
products business.
Carter Holt Harvey was also impacted by weakening demand in the fourth quarter.
Economic growth in New Zealand is expected to slow to an annual pace of about
2% by the end of March 1996 compared with 6% early in 1995. While there are
signs of improved demand in New Zealand, pricing pressure remains.
A breakdown of Carter Holt Harvey's sales by industry segment, as they relate
to International Paper, is included on page 50.
FINANCIAL REVIEW
49
<PAGE>
FINANCIAL INFORMATION BY INDUSTRY SEGMENT
NET SALES
- ----------------------------------------------------------------
In millions 1995 1994 1993
-------- -------- --------
Printing Papers $ 6,175 $ 4,400 $ 3,905
Packaging 4,420 3,375 3,095
Distribution 5,025 3,470 3,140
Specialty Products 3,300 2,590 2,460
Forest Products 2,100 1,715 1,700
Less: Intersegment Sales (1,223) (584) (615)
-------- -------- --------
Net Sales $ 19,797 $ 14,966 $ 13,685
======== ======== ========
OPERATING PROFIT
- ----------------------------------------------------------------
In millions 1995 1994 1993
-------- -------- --------
Printing Papers $ 1,093 $ 20 $ (122)
Packaging 741 293 188
Distribution 106 74 58
Specialty Products 207 268 263
Forest Products 388 418 488
-------- -------- --------
Operating Profit 2,535 1,073 875
Interest Expense, net (493) (349) (310)
Corporate Items, net (14) (9) (27)
-------- -------- --------
Earnings Before Income Taxes,
Minority Interest and
Cumulative Effect of
Accounting Change $ 2,028 $ 715 $ 538
======== ======== ========
ASSETS
- ----------------------------------------------------------------
In millions 1995 1994 1993
-------- -------- --------
Printing Papers $ 7,121 $ 6,706 $ 6,466
Packaging 4,150 3,098 3,011
Distribution 1,454 1,210 1,085
Specialty Products 3,639 2,782 2,607
Forest Products 4,447 1,533 1,603
Equity Investments 1,291 967 559
Corporate(1) 1,875 1,540 1,300
-------- -------- --------
Assets $ 23,977 $ 17,836 $ 16,631
======== ======== ========
DEPRECIATION, DEPLETION AND AMORTIZATION
- ----------------------------------------------------------------
In millions 1995 1994 1993
-------- -------- --------
Printing Papers $ 475 $ 443 $ 414
Packaging 246 192 213
Distribution 35 29 28
Specialty Products 199 161 180
Forest Products 150 96 93
Corporate 6 5 10
-------- -------- --------
Depreciation, Depletion
and Amortization 1,111 926 938
Less: Depletion(2) (80) (41) (40)
-------- -------- --------
Depreciation and Amortization $ 1,031 $ 885 $ 898
======== ======== ========
(1) Corporate assets are principally cash and temporary investments,
investments, deferred taxes and other assets that are not identifiable
with industry segments.
(2) Included in Forest Products.
CARTER HOLT HARVEY SALES
International Paper's financial statements reflect the consolidation of Carter
Holt Harvey effective May 1, 1995. The table below shows the contribution of
eight months of its sales to each of International Paper's industry segments in
1995 (Carter Holt Harvey's tissue business is included in Specialty Products):
1995 NET SALES
- ----------------------------------------------------------------
International Carter Holt Consoli-
In millions Paper Harvey dated
-------- -------- --------
Printing Papers $ 5,970 $ 205 $ 6,175
Packaging 4,060 360 4,420
Distribution 4,947 78 5,025
Specialty Products 2,890 410 3,300
Forest Products 1,522 578 2,100
Less: Intersegment Sales (960) (263) (1,223)
-------- -------- --------
Net Sales $ 18,429 $ 1,368 $ 19,797
======== ======== ========
FINANCIAL REVIEW
50
<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 generally
accepted accounting principles and reflect management's best judgment as to the
Company's financial position, results of operations and cash flows.
The Company 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 the Company's Policy on
Ethical Business Conduct, which requires employees to maintain the highest
ethical and legal standards in their conduct of Company business. 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
the Company, and an extensive program of internal audits with management
follow-up. During 1993, the Company instituted a toll-free telephone
"compliance line" whereby any employee may report suspected violations of law
or Company policy.
The independent public accountants provide an objective, independent review of
management's discharge of its responsibility for the fairness of the Company's
financial statements. They review the Company's 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 the Company's
financial and accounting policies and practices, and the preparation of these
financial statements. The Audit Committee, which consists of five 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 annual 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/ Marianne M. Parrs
Marianne M. Parrs
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, 1995
and 1994, and the related consolidated statements of earnings, common
shareholders' equity and cash flows for each of the three years ended December
31, 1995. 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 in accordance with generally accepted auditing
standards. 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 provide a reasonable basis
for our opinion.
In our opinion, 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years ended December
31, 1995 in conformity with generally accepted accounting principles.
As explained in Note 18 to the financial statements, effective January 1,
1994, the Company changed its method of accounting for start-up costs.
/s/ Arthur Anderson LLP
New York, N.Y.
February 13, 1996
INTERNATIONAL PAPER
51
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
In millions, except per share amounts,
for the years ended December 31 1995 1994 1993
---- ---- ----
NET SALES $19,797 $14,966 $13,685
------- ------- -------
COSTS AND EXPENSES
Cost of products sold 13,896 11,092 10,153
Selling and administrative expenses 1,381 1,082 999
Depreciation and amortization 1,031 885 898
Distribution expenses 794 692 634
Taxes other than payroll and income taxes 174 151 153
------- ------- -------
TOTAL COSTS AND EXPENSES 17,276 13,902 12,837
------- ------- -------
EARNINGS BEFORE INTEREST, INCOME TAXES,
MINORITY INTEREST AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 2,521 1,064 848
Interest expense, net 493 349 310
------- ------- -------
EARNINGS BEFORE INCOME TAXES, MINORITY
INTEREST AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 2,028 715 538
Provision for income taxes 719 236 213
Minority interest expense, net of taxes 156 47 36
------- ------- -------
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 1,153 432 289
Cumulative effect of change in accounting
for start-up costs (less tax benefit
of $50)--Note 18 (75)
------- ------- -------
NET EARNINGS $ 1,153 $ 357 $ 289
======= ======= =======
EARNINGS PER COMMON SHARE
Earnings before cumulative effect of
accounting change $ 4.50 $ 1.73 $ 1.17
Cumulative effect of change in
accounting for start-up costs--Note 18 (.30)
------- ------- -------
EARNINGS PER COMMON SHARE $ 4.50 $ 1.43 $ 1.17
======= ======= =======
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW
52
<PAGE>
CONSOLIDATED BALANCE SHEET
In millions at December 31 1995 1994
---- ----
ASSETS
Current Assets
Cash and temporary investments, at cost, which
approximates market $ 312 $ 270
Accounts and notes receivable, less allowances
of $101 in 1995 and $97 in 1994 2,571 2,241
Inventories 2,784 2,075
Other current assets 206 244
------- -------
Total Current Assets 5,873 4,830
------- -------
Plants, Properties and Equipment, Net 10,997 9,139
Forestlands 2,803 802
Investments 1,420 1,032
Goodwill 1,355 763
Deferred Charges and Other Assets 1,529 1,270
------- -------
TOTAL ASSETS $23,977 $17,836
======= =======
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable and current maturities of
long-term debt $ 2,283 $ 2,083
Accounts payable 1,464 1,204
Accrued liabilities 1,116 747
------- -------
Total Current Liabilities 4,863 4,034
------- -------
Long-Term Debt 5,946 4,464
Deferred Income Taxes 1,974 1,612
Other Liabilities 980 870
Minority Interest 1,967 342
International Paper-Obligated Mandatorily
Redeemable Preferred Securities of Trust
Holding Solely International Paper
Subordinated Debentures--Note 7 450
Commitments and Contingent Liabilities--Note 10
Common Shareholders' Equity
Common stock, $1 par value, issued at
December 31, 1995--263.3 shares,
1994--256.5 shares 263 256
Paid-in capital 1,963 1,658
Retained earnings 5,627 4,711
------- -------
7,853 6,625
Less: Common stock held in treasury, at cost,
1995--2.3 shares, 1994--4.7 shares 56 111
------- -------
Total Common Shareholders' Equity 7,797 6,514
------- -------
TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $23,977 $17,836
======= =======
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW
53
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
In millions for the years ended December 31 1995 1994 1993
---- ---- ----
OPERATING ACTIVITIES
Net earnings $ 1,153 $ 357 $ 289
Cumulative effect of accounting change 75
Noncash items
Depreciation and amortization 1,031 885 898
Deferred income taxes 146 42 54
Other, net (92) (34) (75)
Changes in current assets and liabilities
Accounts and notes receivable 45 (339) 78
Inventories (320) 8 (93)
Accounts payable and accrued liabilities 289 252 (220)
Other (4) (3) (3)
------ ------ ------
CASH PROVIDED BY OPERATIONS 2,248 1,243 928
------ ------ ------
INVESTMENT ACTIVITIES
Invested in capital projects (1,518) (1,114) (954)
Acquisitions and investments, net of cash
acquired (1,168) (357) (44)
Consolidation of equity investment 241
Other (111) (39) (71)
------ ------ ------
CASH USED FOR INVESTMENT ACTIVITIES (2,556) (1,510) (1,069)
------ ------ ------
FINANCING ACTIVITIES
Issuance of common stock 66 67 60
Issuance of preferred securities by subsidiary 450
Sale of limited partnership interests 165
Issuance of debt 1,055 1,059 727
Reduction of debt (950) (275) (467)
Change in bank overdrafts 57 (115) (52)
Dividends paid (237) (210) (208)
Other (100) (235) (62)
------ ------ ------
CASH PROVIDED BY FINANCING ACTIVITIES 341 291 163
------ ------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 9 4 (5)
------ ------ ------
CHANGE IN CASH AND TEMPORARY INVESTMENTS 42 28 17
CASH AND TEMPORARY INVESTMENTS
Beginning of the year 270 242 225
------ ------ ------
End of the year $ 312 $ 270 $ 242
====== ====== ======
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW
54
<PAGE>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Issued Treasury Stock Total
------------------- -------------- Common
Paid-In Retained Shareholders'
In millions, except share amounts in thousands Shares Amount Capital(1) Earnings Shares Amount Equity
------ ------ ---------- -------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 253,986 $254 $1,665 $4,472 8,662 $202 $6,189
Issuance of stock for acquisition 2 (234) (5) 7
Issuance of stock for various plans 588 38 (1,630) (38) 76
Cash dividends--Common stock ($.84 per share) (208) (208)
Foreign currency translation (less tax
benefit of $14) (128) (128)
Net earnings 289 289
------- ---- ------ ------ ----- ---- ------
Balance, December 31, 1993 254,574 254 1,577 4,553 6,798 159 6,225
Issuance of stock for merger 1,638 2 14 11 27
Issuance of stock for various plans 276 30 (2,100) (48) 78
Cash dividends--Common stock ($.84 per share) (210) (210)
Foreign currency translation (less tax
benefit of $70) 37 37
Net earnings 357 357
------- ---- ------ ------ ----- ---- ------
Balance, December 31, 1994 256,488 256 1,658 4,711 4,698 111 6,514
Issuance of stock for acquisitions 988 1 37 38
Issuance of stock for various plans 27 (2,445) (55) 82
Conversion of subordinated debentures 5,785 6 199 205
Cash dividends--Common stock ($.92 per share) (237) (237)
Foreign currency translation (less tax
benefit of $66) 42 42
Net earnings 1,153 1,153
------- ---- ------ ------ ----- ---- ------
BALANCE, DECEMBER 31, 1995 263,261 $263 $1,963 $5,627 2,253 $ 56 $7,797
======= ==== ====== ====== ===== ==== ======
</TABLE>
(1) The cumulative foreign currency translation adjustment (in millions)
was $(201), $(243) and $(280) at December 31, 1995, 1994 and 1993,
respectively.
The accompanying notes are an integral part of these financial statements.
FINANCIAL REVIEW
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of International
Paper Company and its subsidiaries (the Company). Minority interest represents
minority shareholders' proportionate share of the equity in several of the
Company's consolidated subsidiaries, primarily Carter Holt Harvey Limited, IP
Timberlands, Ltd. (IPT), Zanders Feinpapiere AG, 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 the Company's investment in Scitex Corporation
Ltd. where the Company has the ability to exercise significant influence, are
accounted for by the equity method. The Company's share of affiliates' earnings
is included in the consolidated statement of earnings. The results of Carter
Holt Harvey are consolidated on a one-month-lag basis due to the availability
of financial information.
Temporary Investments
Temporary investments with an original maturity of three months or less are
treated as cash equivalents and are stated at cost.
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 United States, 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, the Company uses the
units-of-production method for depreciating its 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 utilizing accelerated methods.
Interest costs for the development of certain long-term assets are capitalized
and amortized over the related assets' estimated useful lives. The Company
capitalized net interest costs of $58 million in 1995, $18 million in 1994 and
$12 million in 1993. Interest payments made during 1995, 1994 and 1993 were $603
million, $369 million and $372 million, respectively. Total interest expense was
$542 million in 1995, $371 million in 1994 and $335 million in 1993.
Forestlands
The Company, which currently owns 84% and 100% of IPT's Class A and Class B
Units, respectively, controlled approximately 6.0 million acres of forestlands
in the United States and, through its ownership of Carter Holt Harvey,
approximately 800,000 acres of forestlands in New Zealand at December 31, 1995.
Forestlands are stated at cost, less accumulated depletion representing the cost
of timber harvested. Forestlands include owned property as well as certain
timber harvesting rights with terms of one or more years. Costs attributable to
timber are 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.
Translation of Financial Statements
Balance sheets of the Company's 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 paid-in
capital. Gains and losses resulting from foreign currency transactions are
included in earnings.
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 $235
million and $113 million at December 31, 1995 and 1994, respectively.
Revenue Recognition
The Company recognizes revenues when goods are shipped.
Earnings per Common Share
Earnings per common share were computed on the basis of the following average
number of shares outstanding (in millions): 1995-256.5, 1994-249.7 and
1993-246.5. The effect of all dilutive securities is immaterial.
Nature of the Company's Business
The Company is a worldwide producer of paper, packaging and forest products, all
complemented by related specialty products and an extensive distribution system,
with primary markets and manufacturing operations in the United States, Europe
and the Pacific Rim. Substantially all of the
FINANCIAL REVIEW
56
<PAGE>
Company's 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 the Company's business, see pages 44 through 48 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 on page 47.
Reclassifications
Certain reclassifications have been made to prior-year amounts to conform with
the current-year presentation.
NOTE 2. INDUSTRY SEGMENT INFORMATION
Financial information by industry segment and geographic area for 1995, 1994
and 1993 is presented on pages 45, 49 and 50.
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (SFAS No. 121). This statement requires that such assets be
reviewed for impairment whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable and that such assets be
reported at the lower of carrying amount or fair value. The Company will adopt
the provisions of this statement in the first quarter of 1996 and estimates
that adoption will result in a pre-tax charge to earnings of about $80 million.
Also in 1995, Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," was issued, which is effective for fiscal years
beginning after December 15, 1995. This statement requires footnote disclosure
of the pro forma impact on net earnings and earnings per share of the
compensation cost that would have been recognized if the fair value of all
stock-based awards was recorded in the income statement. The disclosure
provisions of this statement will be adopted in 1996.
NOTE 4. MERGERS AND ACQUISITIONS
In late April 1995, the Company acquired approximately 26% of Carter Holt Harvey
Limited, a major New Zealand forest and paper products company, through
open-market share purchases and an additional acquisition from Brierley
Investments Limited (BIL). This acquisition raised the Company's total ownership
of it from the 24% previously acquired from BIL (8% purchased in 1994) to just
over 50%. The 1995 purchases were financed with borrowings totaling
approximately $1.1 billion.
The Company's financial statements reflect the consolidation of Carter Holt
Harvey effective May 1, 1995. Prior to this date, the equity accounting method
was utilized. As a result of this consolidation, the Company's consolidated cash
and temporary investments balance increased by $241 million, representing
approximately 74% of Carter Holt Harvey's cash and temporary investments balance
as of the acquisition date. This is reflected in the consolidated statement of
cash flows as the consolidation of an equity investment. The acquisition of
Carter Holt Harvey is presented net of 26% of its cash and temporary investments
as of the acquisition date.
In January 1995, the assets of both Seaman-Patrick and Carpenter Paper
Companies, two Michigan-based paper distribution companies, were acquired by
issuing approximately 988,000 shares of common stock. In September, Micarta, the
South Carolina-based high-pressure laminates business of Westinghouse, was
acquired. In October, the Company purchased the inks and adhesives resin
business of DSM located in Niort, France.
The December 31, 1995 consolidated balance sheet reflects a preliminary
allocation of the purchase price for these acquisitions, to be finalized in
1996.
In December 1994, the Company acquired additional stock of Zanders Feinpapiere
AG. Also in December, a merger was completed with Kirk Paper Corporation, a
California-based paper distribution company. In 1993, the Company made several
small acquisitions in its distribution and specialty products businesses.
With the exception of Kirk Paper Corporation, which was accounted for as a
pooling-of-interests, all of the 1995, 1994 and 1993 acquisitions were accounted
for using the purchase method. The operating results of these mergers and
acquisitions have been included in the consolidated statement of earnings from
the dates of acquisition.
FINANCIAL REVIEW
57
<PAGE>
NOTE 5. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information reflects the combined
results of the continuing operations of the Company and the 1995 acquisitions
listed in Note 4. The pro forma information is presented as if the transactions
occurred as of the beginning of each respective year. The pro forma adjustments
are based on available information, preliminary purchase price allocations and
certain assumptions that the Company believes are reasonable. There can be no
assurance that the assumptions and estimates will be realized. The pro forma
information does not purport to represent the Company's actual results of
operations if the transactions described above would have occurred at the
beginning of the respective years. In addition, the information may not be
indicative of future results.
In millions, except per share amounts,
for the years ended December 31 (Unaudited) 1995 1994
---- ----
Net Sales $20,599 $16,901
Earnings Before Cumulative Effect of Accounting Change 1,171 434
Net Earnings 1,171 359
Earnings Per Common Share Before Cumulative Effect of
Accounting Change 4.57 1.73
Earnings Per Common Share 4.57 1.43
NOTE 6. FEDERAL PAPER BOARD MERGER
In the fourth quarter of 1995, International Paper and Federal Paper Board
announced that they have agreed to merge. Once the merger is complete, Federal
Paper Board, a diversified forest and paper products company, will become a
wholly owned subsidiary of International Paper. The transaction, which is
valued at approximately $3.5 billion, including assumption of debt, is subject
to approval by Federal Paper Board's shareholders. In January 1996, the U.S.
Department of Justice cleared the way for the proposed merger and it is
expected to close in the first quarter of 1996.
Under the terms of the merger agreement, Federal Paper Board's shareholders
will be entitled to receive, at their election, either $55 in cash per share or
$55 worth of International Paper common stock per share, subject to the
limitation that not more than 1.612 and not less than 1.275 International Paper
common shares will be issued for each Federal Paper Board share exchanged for
International Paper common stock. The shareholder election to receive cash or
International Paper common stock will be subject to adjustment so that, in the
aggregate, approximately 49% of the Federal Paper Board shares will be
exchanged for cash. The merger is intended to qualify as a tax-free
reorganization.
NOTE 7. PREFERRED SECURITIES OF SUBSIDIARY
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. Preferred securities distributions of $10 million were paid in
1995.
NOTE 8. SALE OF LIMITED PARTNERSHIP INTERESTS
During 1993, the Company 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 the Company and have
separate assets, liabilities, business functions and operations. However, for
accounting purposes, the Company continues to consolidate these assets, and the
minority shareholders' interest is 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, S.C., and Ticonderoga, N.Y., mills. This equipment is leased to
the Company under long-term leases. Partnership assets also include floating
rate notes and cash. During 1993, outside investors purchased a portion of the
Company's limited-partner interests for $132 million and also contributed an
additional $33 million to one of these partnerships.
At December 31, 1995, the Company held aggregate general and limited-partner
interests totaling 83.5% in Georgetown Equipment Leasing Associates, L.P. and
81.3% in Trout Creek Equipment Leasing, L.P. The Company also held $315 million
and $273 million of borrowings at December 31, 1995 and 1994, respectively, from
these partnerships. These funds are being used for general corporate purposes.
FINANCIAL REVIEW
58
<PAGE>
NOTE 9. INCOME TAXES
The Company uses the liability method required by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," whereby deferred
income taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities. Deferred tax assets and
liabilities must be revalued to reflect new tax rates in the periods rate
changes are enacted. Accordingly, the 1993 provision for income taxes included
a charge of $25 million ($.10 per share) for deferred tax expense resulting
from the enactment of the Omnibus Budget Reconciliation Act of 1993, which
raised the U.S. federal income tax rate by 1% effective January 1, 1993.
The components of earnings before income taxes, minority interest and
cumulative effect of an accounting change, and the provision for income taxes
by taxing jurisdiction were:
In millions 1995 1994 1993
---- ---- ----
Earnings (losses)
U.S. $ 1,565 $ 646 $ 623
Non-U.S. 463 69 (85)
------- ------- -------
Earnings before income taxes,
minority interest and cumulative
effect of accounting change $ 2,028 $ 715 $ 538
======= ======= =======
In millions 1995 1994 1993
---- ---- ----
Current tax provision
U.S. federal $ 380 $ 148 $ 114
U.S. state and local 88 10 12
Non-U.S. 105 36 33
------- ------- -------
573 194 159
======= ======= =======
Deferred tax provision
U.S. federal 141 23 64
U.S. federal rate change 25
U.S. state and local (6) 24 20
Non-U.S. 11 (5) (55)
------- ------- -------
146 42 54
------- ------- -------
Provision for income taxes $ 719 $ 236 $ 213
======= ======= =======
The Company made income tax payments of $413 million, $75 million and $156
million in 1995, 1994 and 1993, respectively.
A reconciliation of income tax expense using the statutory U.S. income tax rate
compared with the Company's actual income tax expense follows:
In millions 1995 1994 1993
---- ---- ----
Earnings before income taxes,
minority interest and cumulative
effect of accounting change $ 2,028 $ 715 $ 538
Statutory U.S. income tax rate 35% 35% 35%
------- ------- -------
Tax expense using statutory
U.S. income tax rate 710 250 188
State and local taxes 53 22 21
Non-U.S. tax rate differences (46) (2) (2)
U.S. federal rate change 25
Minority interest (32) (14) (11)
Other, net 34 (20) (8)
------- ------- -------
Provision for income taxes $ 719 $ 236 $ 213
------- ------- -------
Effective income tax rate 35.5% 33% 40%
======= ======= =======
The net deferred income tax liability as of December 31, 1995 and 1994 includes
the following components:
In millions 1995 1994
---- ----
Current deferred tax asset $ 86 $ 138
Noncurrent deferred tax liability(1) (1,796) (1,462)
------- -------
Total $(1,710) $(1,324)
======= =======
(1) Net of $178 million and $150 million at December 31, 1995 and 1994,
respectively, of noncurrent deferred tax assets.
The tax effects of significant temporary differences representing deferred tax
assets and liabilities at December 31, 1995 and 1994 were as follows:
In millions 1995 1994
---- ----
Plants, properties and equipment $(1,772) $(1,634)
Prepaid pension costs (286) (233)
Forestlands (245) (97)
Postretirement benefit accruals 166 167
Non-U.S. net operating losses 146 148
Alternative minimum tax credit carryforwards 43 145
Other 238 180
------- -------
Total $(1,710) $(1,324)
======= =======
The Company's alternative minimum tax credit carryforwards can be carried
forward indefinitely. The Company had net operating loss carryforwards
applicable to non-U.S. subsidiaries of which $81 million expire in years 1997
through 2002 and $287 million can be carried forward indefinitely.
Deferred taxes are not provided for temporary differences of approximately $501
million, $297 million and $385 million as of December 31, 1995, 1994 and 1993,
respectively, representing earnings of non-U.S. subsidiaries that are intended
to be permanently reinvested. If these earnings were remitted, the Company
believes that U.S. foreign tax credits would eliminate any significant impact
on future income tax provisions.
FINANCIAL REVIEW
59
<PAGE>
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases certain property, machinery and equipment under cancelable
and noncancelable lease agreements. At December 31, 1995, total future minimum
rental commitments under noncancelable leases were $435 million, due as follows:
1996-$112 million, 1997-$96 million, 1998-$83 million, 1999-$62 million,
2000-$43 million, and thereafter- $39 million. Rent expense was $159 million,
$124 million and $92 million for 1995, 1994 and 1993, respectively.
Masonite Corporation, a subsidiary of the Company, and the Company are parties
to class action lawsuits in Alabama and Mississippi purporting to represent
plaintiffs who purchased Masonite hardboard siding, since 1980 in the Alabama
case and with no specific time limits set out in the Mississippi case. The
suits allege, among other things, that Masonite hardboard siding is inherently
defective and that Masonite knowingly and falsely advertised and sold a
defective product. Masonite and the Company plan to vigorously contest the
allegations. The Company is 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, the Company believes 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 its consolidated financial position or
results of operations.
NOTE 11. SUPPLEMENTARY BALANCE SHEET INFORMATION
Inventories by major category were:
In millions at December 31 1995 1994
------- -------
Raw materials $ 591 $ 365
Finished pulp, paper and packaging products 1,340 1,067
Finished lumber and panel products 223 77
Operating supplies 343 335
Other 287 231
------- -------
Inventories $ 2,784 $ 2,075
======= =======
The Company uses the last-in, first-out inventory method to value substantially
all of its U.S. inventories. Approximately 65% of the Company's 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 $227 million, $194 million and $160 million
at December 31, 1995, 1994 and 1993, respectively.
Plants, properties and equipment by major classification were:
In millions at December 31 1995 1994
------- -------
Pulp, paper and packaging facilities
Mills $13,554 $11,672
Packaging plants 1,508 1,180
Wood products facilities 1,754 1,296
Other plants, properties and equipment 2,597 2,042
------- -------
Gross cost 19,413 16,190
Less: Accumulated depreciation 8,416 7,051
------- -------
Plants, properties and equipment, net $10,997 $ 9,139
======= =======
NOTE 12. DEBT AND LINES OF CREDIT
A summary of long-term debt follows:
In millions at December 31 1995 1994
------- -------
8 7/8% to 9.7% notes--due 2000-2004 $ 600 $ 400
8 3/8% to 9 1/2% debentures--due 2015-2024 300
7 1/2% to 7 7/8% notes--due 2002-2007 798 648
6 7/8% to 8 1/8% notes--due 2023-2024 545 545
6 1/8% notes--due 2003 199 199
6.11% debentures--due 1998-2000(1) 750
5 7/8% Swiss franc debentures--due 2001 98
5 3/4% convertible subordinated debentures 199
5 1/8% debentures--due 2012 81 81
Medium-term notes--due 1996-2009(2) 516 594
Environmental and industrial development
bonds--due 1996-2017(3,4) 916 848
Commercial paper and bank notes(5) 581 677
Other(6) 818 585
------- -------
Total(7) 6,202 4,776
Less: Current maturities 256 312
------- -------
Long-term debt $ 5,946 $ 4,464
======= =======
(1) If retired before maturity, these debentures provide for a penalty, which
was not significant at December 31, 1995.
(2) The weighted average interest rate on these notes was 8.4% in 1995
and 8.5% in 1994.
(3) The weighted average interest rate on these bonds was 5.9% in 1995
and 5.7% in 1994.
(4) Includes $323 million of bonds at both December 31, 1995 and 1994,
which may be tendered at various dates and/or under certain circumstances.
(5) Includes $393 million in 1995 and $143 million in 1994 of non-U.S. dollar
denominated borrowings. The weighted average interest rate was 5.3% in
1995 and 5.7% in 1994.
(6) Includes $96 million in both 1995 and 1994 of French franc borrowings
with a weighted average interest rate of 4.9% in 1995 and 4.7% in 1994, and
$242 million in 1995 and $227 million in 1994 of German mark borrowings
with a weighted average interest rate of 6.7% in both 1995 and 1994.
(7) The fair market value was approximately $6.6 billion and $4.7 billion
at December 31, 1995 and 1994, respectively.
FINANCIAL REVIEW
60
<PAGE>
At December 31, 1995 and 1994, the Company, including a non-U.S. subsidiary,
classified $900 million and $1.0 billion, respectively, of tenderable bonds,
commercial paper and bank notes as long-term debt. The Company and this
subsidiary have the intent and ability to renew or convert these obligations
through 1996 and into future periods.
Total maturities of long-term debt over the next five years are: 1996-$256
million, 1997-$235 million, 1998-$456 million, 1999-$396 million and 2000-$ 1.4
billion.
At December 31, 1995, the Company had unused bank lines of credit of
approximately $2.4 billion. The lines generally provide for interest at market
rates plus a margin based on the Company's current bond rating. The principal
line, which is cancelable only if the Company's bond rating drops below
investment grade, provides for $750 million of credit through January 2000, and
has a facility fee of .10% that is payable quarterly. A non-U.S. subsidiary of
the Company also has a $600 million line of credit that supports its U.S.
dollar commercial paper program. This line matures in June 2000 and has a
facility fee of .1875%, which is payable quarterly.
At December 31, 1995, notes payable classified as current liabilities included
$1.8 billion of non-U.S. dollar-denominated debt with a weighted average
interest rate of 5.7%.
At December 31, 1995, the Company's total outstanding debt included
approximately $2.6 billion of borrowings with interest rates that fluctuate
based on market conditions and the Company's credit rating.
In July 1995, the 5 3/4% convertible debentures were called by the Company, and
converted into 5.8 million shares of common stock.
NOTE 13. FINANCIAL INSTRUMENTS
The Company has a policy of financing a portion of its investments in overseas
operations with borrowings denominated in the same currency as the investment
or by entering into foreign exchange contracts in tandem with U.S. borrowings.
The purpose of this activity is to provide a hedge against fluctuations in
exchange rates.
Non-U.S. dollar-denominated debt totaling $2.8 billion was outstanding at
December 31, 1995. Also outstanding were foreign exchange contracts totaling
$2.2 billion, all having maturities of less than 360 days, as follows: French
francs, $1.1 billion; British pounds, $363 million; Australian dollars, $205
million; Spanish pesetas, $119 million; Italian lira, $102 million; Swiss
francs, $98 million; German marks, $69 million; and contracts totaling $191
million in six other currencies. In addition, a non-U.S. subsidiary of the
Company had outstanding foreign exchange contracts totaling $264 million that
were denominated in U.S. dollars. The average amount of outstanding contracts
during 1995 and 1994 was $1.2 billion and $2.1 billion, respectively. Gains and
losses from these contracts (including an immaterial gain related to contracts
outstanding at December 31, 1995), which are fully offset by gains and 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 shareholders' equity.
The Company also utilizes foreign exchange contracts to hedge certain
transactions denominated in foreign currencies, primarily export sales and
equipment purchased from nonresident vendors. These contracts serve to protect
the Company from currency fluctuations between the transaction date and
settlement. Gains and losses on these contracts, along with offsetting gains
and losses resulting from the revaluations of the underlying transactions, are
recognized in earnings based on published currency exchange rates. At December
31, 1995, foreign exchange contracts totaling $457 million, all having
maturities of less than 12 months, were outstanding as follows: Australian
dollars, $151 million; French francs, $80 million; German marks, $39 million;
and contracts totaling $187 million in 13 different currencies. Non-U.S.
subsidiaries of the Company also had contracts outstanding of $127 million that
were denominated in U.S. dollars. The average amount of outstanding contracts
during 1995 and 1994 was $486 million and $170 million, respectively. Net gains
and losses related to contracts outstanding at December 31, 1995 and 1994 were
not significant.
The Company used interest rate swap agreements to manage the composition of its
fixed and floating rate debt portfolio in 1994 and 1993. The agreements
involved the exchange of fixed or floating rate interest payments, without
changing the underlying principal amounts, related to $600 million and $400
million of long-term debt having maturities ranging from 10 to 30 years issued
in 1994 and 1993, respectively.
A non-U.S. subsidiary of the Company uses cross-currency and interest rate swap
agreements to manage the composition of its fixed and floating rate debt. Under
the cross-currency agreement that matures in April 2002, the subsidiary will
receive $150 million and will pay 203 million Australian dollars. Interest is
receivable at 7 5/8% and payable at floating rates. Also outstanding were two
interest rate
FINANCIAL REVIEW
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<PAGE>
swap agreements under which the subsidiary will receive interest at floating
rates and pay interest at fixed rates based on principal amounts of 100 million
New Zealand dollars and 100 million Australian dollars, and two agreements under
which the subsidiary will receive interest at fixed rates and pay interest at
floating rates based on a combined principal amount of $250 million.
The interest payments made or received pursuant to the swap agreements are
included in interest expense. The impact on earnings and the Company's net
liability under these agreements were not significant.
The Company does not hold or issue financial instruments for trading purposes.
The counterparties to the Company's interest rate and cross-currency swap
agreements and foreign exchange contracts consist of a number of major
international financial institutions. The Company continually monitors its
positions with and the credit quality of these financial institutions and does
not expect nonperformance by the counterparties.
NOTE 14. CAPITAL STOCK
The authorized capital stock of the Company at December 31, 1995 and 1994
consisted of 400,000,000 shares of common stock, $1 par value; 400,000 shares of
cumulative $4 nonredeemable preferred stock, without par value (stated value of
$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.
In the third quarter of 1995, the Company declared a two-for-one common stock
split that was distributed to shareholders of record as of August 18, 1995. All
share amounts have been retroactively adjusted for the effect of the common
stock split. In addition, the quarterly dividend was raised $.04 to $.25 per
common share on a split-adjusted basis.
The Company has stock rights under a Shareholder Rights Plan whereby each share
of common stock has one right. Each right entitles shareholders to purchase one
common stock share at an exercise price of $77.50. The rights will become
exercisable 10 days after anyone acquires or tenders for 20% or more of the
Company's common stock. If, thereafter, anyone acquires 30% or more of the
common stock, or a 20% or more owner combines with the Company in a reverse
merger in which the Company survives and its common stock is not changed, each
right will entitle its holder to purchase Company common stock with a value of
twice the $77.50 exercise price. If, following an acquisition of 20% or more of
the common stock, the Company is acquired in a merger or sells 50% of its assets
or earnings power, each right will entitle its holder to purchase stock of the
acquiring company with a value of twice the $77.50 exercise price.
NOTE 15. RETIREMENT PLANS
The Company 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
The Company makes contributions that are sufficient to fully fund its
actuarially determined costs, generally equal to the minimum amounts required by
ERISA.
Net periodic pension income for the Company's qualified and nonqualified defined
benefit plans comprised the following:
- --------------------------------------------------------------------------------
In millions 1995 1994 1993
---- ---- ----
Service cost--benefits earned during the period $ (39) $ (54) $ (43)
Interest cost on projected benefit obligation (170) (151) (143)
Actual return on plan assets 477 7 291
Net amortization and deferrals (193) 275 (18)
------- ------- -------
Net periodic pension income $ 75 $ 77 $ 87
======= ======= =======
The actuarial assumptions used in determining net periodic pension income for
the years presented were:
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Discount rate 8.75% 7.25% 8.0%
Expected long-term return on plan assets 10.0% 10.0% 10.0%
Weighted average rate of increase in
compensation levels 4.75% 4.0% 5.0%
The discount rates and the rates of increase in future compensation levels used
to determine the projected benefit obligation at December 31, 1995 were 7.25%
and 4.25%, respectively, and at December 31, 1994 were 8.75% and 4.75%,
respectively.
The following table presents the funded status of the Company's U.S. pension
plans and the amounts reflected in the accompanying consolidated balance sheet:
FINANCIAL REVIEW
62
<PAGE>
- ------------------------------------------------------------------------------
In millions at December 31 1995 1994
---- ----
Actuarial present value of benefit obligations
Vested benefits $ 2,080 $ 1,649
------- -------
Accumulated benefit obligation $ 2,203 $ 1,777
------- -------
Projected benefit obligation $ 2,376 $ 1,909
Plan assets at fair value 2,896 2,557
------- -------
Plan assets in excess of projected benefit obligation 520 648
Unrecognized net loss (gain) 170 (6)
Balance of unrecorded transition asset (82) (109)
Other 44 53
------- -------
Prepaid pension cost $ 652 $ 586
======= =======
Plan assets are held primarily in master trust accounts and comprise the
following:
- ------------------------------------------------------------------------------
In millions at December 31 1995 1994
---- ----
Cash reserves $ 45 $ 134
Fixed income securities 1,003 843
Diversified equities 1,192 943
International Paper common stock 394 392
Real estate 113 117
Other 149 128
------- -------
Total plan assets $ 2,896 $ 2,557
======= =======
Non-U.S. Defined Benefit Plans
Generally, the Company's 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 the Company's non-U.S. pension plans was
immaterial for 1995, 1994 and 1993.
The following table presents the funded status of the Company's non-U.S.
pension plans and the amounts reflected in the accompanying consolidated
balance sheet. Plan assets are made up principally of common stocks and fixed
income securities.
- ------------------------------------------------------------------------------
In millions at December 31 1995 1994
---- ----
Actuarial present value of benefit obligations
Vested benefits $ 338 $ 276
------- -------
Accumulated benefit obligation $ 365 $ 292
------- -------
Projected benefit obligation(1) $ 446 $ 347
Plan assets at fair value 477 338
------- -------
Plan assets in excess of (less than) projected
benefit obligation 31 (9)
Unrecognized net gain (21) (16)
Balance of unrecorded transition asset (35) (40)
Other 5 3
------- -------
Pension liability $ (20) $ (62)
======= =======
(1) The weighted average discount rate and the weighted average rate of
compensation increase used to measure the projected benefit obligation
were 6.93% (7.01% in 1994) and 4.65% (4.61% in 1994), respectively.
Other Plans
The Company sponsors several defined contribution plans to provide
substantially all U.S. salaried and certain hourly employees of the Company 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, the Company matches the
employees' basic voluntary contributions. Company matching contributions to the
plans were approximately $38 million, $36 million and $38 million for the plan
years ending in 1995, 1994 and 1993, respectively. The net assets of these plans
approximated $1.6 billion as of the 1995 plan year ends.
NOTE 16. POSTRETIREMENT BENEFITS
The Company 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. A plan amendment in 1992 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.
The Company does not pre-fund these benefits and has the right to modify or
terminate certain of these plans in the future.
The components of postretirement benefit expense in 1995, 1994 and 1993 were as
follows:
In millions 1995 1994 1993
---- ---- ----
Service cost--benefits earned during the period $ 6 $ 8 $ 8
Interest cost on accumulated postretirement
benefit obligation 26 23 25
Net amortization of plan amendments (18) (16) (15)
------- ------- -------
Net postretirement benefit cost $ 14 $ 15 $ 18
======= ======= =======
The accumulated postretirement benefit obligation, included in other
liabilities in the accompanying consolidated balance sheet, comprises the
following components:
In millions at December 31 1995 1994
---- ----
Retirees $ 250 $ 223
Fully eligible active plan participants 17 15
Other active plan participants 76 63
------- -------
Total accumulated postretirement benefit obligation 343 301
Unrecognized net loss (57) (26)
Unrecognized effect of plan amendments 78 96
------- -------
Accrued postretirement benefit obligation $ 364 $ 371
======= =======
FINANCIAL REVIEW
63
<PAGE>
Future benefit costs were estimated assuming medical costs would increase at a
10.25% annual rate, decreasing to a 5% annual growth rate ratably over the next
eight 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, 1995 by $23 million, with an
immaterial effect on 1995 postretirement benefit expense. The weighted average
discount rate used to estimate the accumulated postretirement benefit obligation
at December 31, 1995 was 7.25% compared with 8.75% at December 31, 1994.
NOTE 17. INCENTIVE PLANS
The Company has a Long-Term Incentive Compensation Plan that includes a
Restricted Performance Share Plan, a Stock Option 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 either separately or in combination with other
awards, although none were awarded in 1995, 1994 or 1993.
Under the Restricted Performance Share Plan, contingent awards of Company common
stock are granted by the committee. Awards are earned if the Company's financial
performance over a five-year period meets or exceeds that of other forest
products companies using standards determined by the committee. In 1994 and
1993, 266,000 shares and 304,000 shares, respectively, were earned. The awards
for 1995 have not yet been determined.
The Stock Option Plan provides for the granting of incentive stock options and
nonqualified stock options to key employees. The committee determines the option
price, the number of shares for which an option is granted and the term (which
cannot exceed 10 years). The option price is the market price of the stock at
the date of 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.
The following summarizes stock option transactions under stock option plans for
the three years ended December 31, 1995:
Shares Option Price
------ ------------
Balance at 1/1/93(1) 6,447,618 $ 6.965-39.000
Granted 1,883,800 29.688-34.625
Exercised (850,392) 6.965-32.000
---------- ---------------
Balance at 12/31/93(1) 7,481,026 6.965-39.000
Granted 2,706,540 32.313-39.813
Exercised (1,790,698) 6.965-37.000
---------- ---------------
Balance at 12/31/94(1) 8,396,868 6.965-39.813
Granted 3,196,311 35.125-45.375
Exercised (2,331,066) 6.965-41.625
---------- ---------------
Balance at 12/31/95(1) 9,262,113 $ 6.965-45.375
========== ===============
(1) All options are exercisable under the plan upon grant; however, the
underlying shares cannot be sold or are otherwise restricted for various
periods.
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 the options results in the cancellation of
the related restricted shares.
In 1995, 1994 and 1993, restricted shares of 20,000, 64,000 and 64,000,
respectively, were awarded under this plan. In 1995, 120,000 options were
exercised at an exercise price of $24.188. At December 31, 1995, 2,220,000
options at exercise prices ranging from $24.125 to $42.938 were outstanding
under the Executive Continuity Award Plan. The options expire at various dates
through 2008.
At December 31, 1995 and 1994, a total of 10.8 million shares and 14.2 million
shares, respectively, were available for grant under incentive plans.
Provisions for awards under the Long-Term Incentive Compensation Plan and all
other incentive plans amounted to $47 million, $37 million and $31 million in
1995, 1994 and 1993, respectively. The provisions include charges for recently
acquired companies, and adjustments of prior-year awards due to changes in the
market price of Company stock and final determination of Restricted Performance
Share Plan awards.
FINANCIAL REVIEW
64
<PAGE>
NOTE 18. START-UP COSTS
Effective January 1, 1994, the Company changed its method of accounting for
start-up costs on major projects to expense these costs as incurred. Prior to
1994, the Company capitalized these costs and amortized them over a five-year
period. This change was made to increase the focus on controlling costs
associated with facility start-ups.
The Company restated 1994 first-quarter results to record a pre-tax charge of
$125 million ($75 million after taxes or $.30 per share) as the cumulative
effect of an accounting change. This change also decreased 1994 total costs and
expenses by $17 million ($10 million after taxes or $.04 per share). On a pro
forma basis, this change would have had no impact on 1993.
NOTE 19. SUBSEQUENT EVENTS
On January 19, 1996, a subsidiary partnership of IPT filed a registration
statement in anticipation of a possible public offering. The offering would
consist of limited partnership units representing more than 80% of the equity in
the subsidiary partnership, which owns approximately 300,000 acres of
forestlands located in Oregon and Washington. In conjunction with the units
offering, the subsidiary partnership would also place $350 million in senior
debt securities. If this public offering is completed, the net proceeds from the
units offering and debt placement would approximate $800 million. However,
several alternatives are being pursued for the sale of these partnership
interests.
On February 13, 1996, the Company's Board of Directors authorized management
actions that will result in the shut-down of certain plants, consolidation of
certain operations and job eliminations. Accordingly, a pre-tax charge of about
$500 million ($350 million after taxes or $1.35 per share) will be recorded in
the first quarter of 1996. The charge consists of asset write-offs and
impairments ($340 million, including $80 million from adopting SFAS No. 121 as
described in Note 3), severance ($115 million) and lease cancellation and other
exit costs ($45 million). The management actions will result in the reduction of
2,100 jobs, primarily in the U.S. and Europe.
FINANCIAL REVIEW
65
<PAGE>
ELEVEN-YEAR FINANCIAL SUMMARY
Dollar amounts in millions, except
per share amounts and stock prices 1995 1994 1993
---- ---- ----
RESULTS OF OPERATIONS
Net sales $19,797 $14,966 $13,685
Costs and expenses, excluding interest 17,276 13,902 12,837
Earnings before income taxes, minority
interest, extraordinary item and
cumulative effect of accounting
changes 2,028 715(1) 538
Minority interest expense, net of taxes 156 47 36
Extraordinary item
Cumulative effect of accounting changes (75)
Net earnings 1,153 357(1) 289(2)
Earnings applicable to common shares 1,153 357(1) 289(2)
------- ------- -------
FINANCIAL POSITION
Working capital $ 1,010 $ 796 $ 472
Plants, properties and equipment, net 10,997 9,139 8,872
Forestlands 2,803 802 786
Total assets 23,977 17,836 16,631
Long-term debt 5,946 4,464 3,601
Common shareholders' equity 7,797 6,514 6,225
------- ------- -------
PER SHARE OF COMMON STOCK(7)
Earnings before extraordinary item
and cumulative effect of
accounting changes $ 4.50 $ 1.73(1) $ 1.17(2)
Extraordinary item
Cumulative effect of accounting changes (.30)
Earnings 4.50 1.43(1) 1.17(2)
Cash dividends .92 .84 .84
Common shareholders' equity 29.87 25.87 25.12
------- ------- -------
COMMON STOCK PRICES(7)
High 45 3/4 40 1/4 35
Low 34 1/8 30 3/8 28 3/8
Year-end 37 7/8 37 3/4 33 7/8
------- ------- -------
FINANCIAL RATIOS
Current ratio 1.2 1.2 1.1
Total debt to capital ratio 38.5 41.2 38.5
Return on equity 16.1 5.6(1,8) 4.7(2,8)
Return on capital employed 9.2 4.1(1,8) 4.0(2,8)
------- ------- -------
CAPITAL EXPENDITURES $ 1,518 $ 1,114 $ 954
------- ------- -------
NUMBER OF EMPLOYEES 81,500(9) 70,000 72,500
======= ======= =======
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, deferred income taxes, minority interest,
other liabilities, preferred securities and total common shareholders' equity.
Return on equity--net earnings divided by average common shareholders' equity
(computed monthly).
Return on capital employed--net earnings plus after-tax interest expense,
provision for deferred income taxes and minority interest expense divided by an
average of total assets minus accounts payable and accrued liabilities.
FINANCIAL REVIEW
66
<PAGE>
<TABLE>
<CAPTION>
Dollar amounts in millions, except
per share amounts and stock prices 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales $13,598 $12,703 $12,960 $11,378 $ 9,587 $ 7,800 $ 5,540 $ 4,530
Costs and expenses, excluding interest 13,125(3) 11,695(4) 11,695(5) 9,739 8,199 6,930 5,010 4,373
Earnings before income taxes, minority
interest, extraordinary item and
cumulative effect of accounting
changes 226(3) 693(4) 988(5) 1,434 1,223 703 474 165
Minority interest expense, net of taxes 15 42 33 26 22 21 20 6
Extraordinary item (6)
Cumulative effect of accounting changes (50) (215)
Net earnings 86(3) 184(4) 569(5) 864 754 407 305 133
Earnings applicable to common shares 86(3) 184(4) 569(5) 845 733 387 284 107
------- ------- ------- ------- ------- ------- ------- -------
FINANCIAL POSITION
Working capital $ (165)(6) $ 404 $ 784 $ 366 $ 781 $ 657 $ 296 $ 350
Plants, properties and equipment, net 8,884 7,848 7,287 6,238 5,456 5,125 4,788 3,725
Forestlands 759 743 751 764 772 780 783 741
Total assets 16,516 14,941 13,669 11,582 9,462 8,710 7,848 6,039
Long-term debt 3,096 3,351 3,096 2,324 1,853 1,937 1,764 1,191
Common shareholders' equity 6,189 5,739 5,632 5,147 4,557 4,052 3,664 3,195
------- ------- ------- ------- ------- ------- ------- -------
PER SHARE OF COMMON STOCK(7)
Earnings before extraordinary item
and cumulative effect of
accounting changes $ .58(3) $ 1.80(4) $ 2.61(5) $ 3.86 $ 3.28 $ 1.84 $ 1.45 $ .54
Extraordinary item (.02)
Cumulative effect of accounting changes (.21) (.97)
Earnings .35(3) .83(4) 2.61(5) 3.86 3.28 1.84 1.45 .54
Cash dividends .84 .84 .84 .77 .64 .60 .60 .60
Common shareholders' equity 25.23 25.52 25.67 23.67 20.57 18.18 17.52 16.67
------- ------- ------- ------- ------- ------- ------- -------
COMMON STOCK PRICES(7)
High 39 1/4 39 1/8 29 7/8 29 3/8 24 3/4 28 7/8 20 14 1/2
Low 29 1/4 25 1/4 21 3/8 22 5/8 18 1/4 13 1/2 12 1/8 11 1/8
Year-end 33 3/8 35 3/8 26 3/4 28 1/4 23 1/4 21 1/8 18 3/4 12 3/4
------- ------- ------- ------- ------- ------- ------- -------
FINANCIAL RATIOS
Current ratio .96(6) 1.1 1.2 1.1 1.5 1.4 1.2 1.5
Total debt to capital ratio 38.0 39.1 36.1 33.9 25.8 31.6 31.2 24.1
Return on equity 1.4(3)(8) 3.2(4) 10.5(5) 17.8 17.0 10.0 8.3 3.3
Return on capital employed 1.2(3)(8) 3.7(4) 7.5(5) 12.3 13.6 9.9 7.8 2.7
------- ------- ------- ------- ------- ------- ------- -------
CAPITAL EXPENDITURES $ 1,368 $ 1,197 $ 1,267 $ 887 $ 645 $ 603 $ 576 $ 794
------- ------- ------- ------- ------- ------- ------- -------
NUMBER OF EMPLOYEES 73,000 70,500 69,000 63,500 55,500 45,500 44,000 32,000
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(1) Includes $17 million ($10 million after taxes or $.04 per share) of
additional earnings related to the change in accounting for start-up costs.
(2) Includes $25 million ($.10 per share) of additional income tax expense to
revalue deferred tax balances to reflect the increase in the U.S. statutory
federal income tax rate.
(3) Includes restructuring and other charges totaling $398 million ($263 million
after taxes or $1.08 per share).
(4) Includes a $60 million pre-tax restructuring charge ($37 million after taxes
or $.17 per share) and additional expenses related to the adoption of SFAS
No. 106 of $25 million ($16 million after taxes or $.07 per share).
(5) Includes a $212 million pre-tax restructuring charge ($137 million after
taxes or $.63 per share).
(6) Reflects increase in short-term versus long-term borrowings due to favorable
interest rates.
(7) Per share data and common stock prices have been adjusted to reflect
two-for-one stock splits in September 1995 and May 1987.
(8) Return on equity was 6.7% and return on capital employed was 4.9% in 1994
before the accounting change. Return on equity was 5.1% and return on
capital employed was 4.0% in 1993 before the additional income tax expense.
Return on equity was 6.3% and return on capital employed was 4.5% in 1992
before the accounting change, extraordinary item, and restructuring and
other charges.
(9) Acquisitions during 1995, primarily Carter Holt Harvey, added 12,500
employees.
FINANCIAL REVIEW
67
<PAGE>
INTERIM FINANCIAL RESULTS (UNAUDITED)
Quarter
In millions, except per share ---------------------------------------
amounts and stock prices First Second Third Fourth Year
----- ------ ----- ------ ----
1995
Net Sales $ 4,492 $ 5,084 $ 5,145 $ 5,076 $19,797
Gross Margin(1) 1,268 1,552 1,579 1,502 5,901
Earnings Before Income Taxes
and Minority Interest 406 554 591 477 2,028
Net Earnings 246 316 328 263 1,153
Per Share of Common Stock(3)
Earnings $ .97 $ 1.25 $ 1.27 $ 1.01 $ 4.50
Dividends .21 .21 .25 .25 .92
Common Stock Prices(3)
High 39 7/8 43 3/8 45 3/4 42 45 3/4
Low 35 1/8 36 40 1/4 34 1/8 34 1/8
1994
Net Sales $ 3,414 $ 3,633 $ 3,792 $ 4,127 $14,966
Gross Margin(1) 863(2) 931(2) 984(2) 1,096 3,874
Earnings Before Income
Taxes, Minority Interest
and Cumulative Effect of
Accounting Change 134(2) 153(2) 184(2) 244 715
Earnings Before Cumulative
Effect of Accounting Change 76(2) 91(2) 111(2) 154 432
Cumulative Effect of
Accounting Change (75) (75)
Net Earnings 1(2) 91(2) 111(2) 154 357
Per Share of Common Stock(3)
Earnings Before Cumulative
Effect of Accounting
Change $ .31(2) $ .36(2) $ .45(2) $ .61 $ 1.73
Cumulative Effect of
Accounting Change (.30) (.30)
Earnings .01(2) .36(2) .45(2) .61 1.43
Dividends .21 .21 .21 .21 .84
Common Stock Prices(3)
High 39 36 1/2 40 1/4 40 1/4 40 1/4
Low 33 5/8 30 3/8 33 1/4 34 30 3/8
(1) Gross margin represents net sales less cost of products sold.
(2) Amounts have been restated to reflect the change in accounting for
start-up costs. The additional earnings in each quarter are as follows:
first quarter, $7 million ($4 million after taxes or $.02 per share);
second quarter, $6 million ($4 million after taxes or $.01 per share);
and third quarter, $4 million ($2 million after taxes or $.01 per share).
(3) Per share amounts and common stock prices adjusted for the two-for-one
stock split in September 1995.
FINANCIAL REVIEW
68
APPENDIX A
INTERNATIONAL PAPER
EXPLANATION OF CHARTS IN ANNUAL REPORT 3/28/96
1--NET SALES (PAGE 1)
Bar charts of NET SALES for the years 1993 through 1995, in billions of dollars.
Data points as follows:
1993 1994 1995
---- ---- ----
13.7 15.0 19.8
2--NET EARNINGS (PAGE 1)
Bar chart of NET EARNINGS for the years 1993 through 1995, in millions of
dollars. Charts contain color keys for the years 1993 through 1994 to highlight
the following unusual or nonrecurring items: In 1993, Adjustment of deferred tax
balances to reflect the federal tax rate change. In 1994, change in accounting
for start-up costs. Data ponts as follows:
1993 1994 1995
---- ---- ----
NET EARNINGS BEFORE UNUSUAL ITEMS 314 422 1,153
Change in accounting for start-up costs (65)
Adjustment of deferred tax balances (25)
--- --- -----
NET EARNINGS 289 357 1,153
3--EARNINGS PER SHARE (PAGE 1)
Bar chart of EARNINGS PER SHARE for the years 1993 through 1995, in dollars.
Charts contain color keys for the years 1993 through 1994 to highlight the
following unusual or nonrecurring items: In 1993, Adjustment of deferred tax
balances to reflect the federal tax rate change. In 1994, change in accounting
for start-up costs. Data points as follows:
1993 1994 1995
---- ---- ----
EARNINGS PER SHARE BEFORE
UNUSUAL ITEMS 1.27 1.69 4.50
Change in accounting for start-up costs (0.26)
Adjustment of deferred tax balances (0.10)
----- ----- ----
EARNINGS PER SHARE 1.17 1.43 4.50
4--RETURN ON EQUITY (PAGE 1)
Bar chart of RETURN ON EQUITY for the years 1993 through 1995, in percent.
Charts contain color keys for the years 1993 through 1994 to highlight the
following unusual or nonrecurring items: In 1993, Adjustment of deferred tax
balances to reflect the federal tax rate change; In 1994, change in accounting
for start-up costs. Data points as follows:
1993 1994 1995
---- ---- ----
RETURN ON EQUITY BEFORE
UNUSUAL ITEMS 5.1 6.7 16.1
Change in accounting for start-up costs (1.1)
Adjustment of deferred tax balances (0.4)
---- ---- ----
RETURN ON EQUITY 4.7 5.6 16.1
5, 6, 7, 8--PIE CHARTS
Above each pie chart is a title indicating what the chart illustrates. Each
pie's slice is a different color, and has a dotted line next to it leading to
the name of the business the pie slice represents, and the related percentage.
PAGE DESCRIPTION PERCENT
- ---- ----------- -------
5 Printing Papers Sales
Business Papers 54%
Coated Papers 28%
Pulp 18%
6 Business Papers Sales to Geographic Areas
U.S. 71%
International 29%
7 Coated Papers Sales to Geographic Areas
U.S. 43%
International 57%
8 Pulp Sales to Geographic Areas
U.S. 31%
International 69%
9--PRINTING PAPERS-NET SALES AND OPERATING PROFIT (PAGE 10)
Bar chart of NET SALES and OPERATING PROFIT for the segment for the years 1993
through 1995, in millions of dollars. NET SALES chart contains color keys to
show breakdown of U.S. and non-U.S. sales.
Data points for NET SALES as follows:
1993 1994 1995
---- ---- ----
U.S. 2,746 3,028 4,116
Non-U.S. 1,159 1,372 2,059
----- ----- -----
NET SALES 3,905 4,400 6,175
Data points for OPERATING PROFIT as follows:
1993 1994 1995
---- ---- ----
OPERATING PROFIT (122) 20 1,093
10--PRINTING PAPERS 1995 WORLDWIDE PRODUCTION
Business Papers Coated Papers Pulp
--------------- ------------- ----
U.S. 2,764,000 556,000 1,324,000
Europe 652,000 580,000 268,000
New Zealand 24,000 220,000
--------- --------- ---------
Total 3,440,000 1,136,000 1,812,000
New Zealand's Carter Holt Harvey production is for the 12 months ended December
31, 1995. International Paper owns just over 50% of Carter Holt Harvey.
11, 12, 13--PIE CHARTS
Above each pie chart is a title indicating what the chart illustrates. Each
pie's slice is a different color, and has a dotted line next to it leading to
the name of the business the pie slice represents, and the related percentage.
PAGE DESCRIPTION PERCENT
- ---- ----------- -------
13 Packaging Sales
Industrial Packaging 68%
Consumer Packaging 32%
14 Industrial Packaging Sales
Containerboard 25%
Corrugated 61%
Kraft 14%
17 Consumer Packaging Sales
Bleached Board 32%
Liquid Packaging 46%
Folding Carton & Label 22%
14--PACKAGING-NET SALES AND OPERATING PROFIT (PAGE 18)
Bar chart of NET SALES and OPERATING PROFIT for the segment for the years 1993
through 1995, in millions of dollars. NET SALES chart contains color keys to
show breakdown of U.S. and non-U.S. sales.
Data points for NET SALES as follows:
1993 1994 1995
---- ---- ----
U.S. 2,366 2,579 3,058
Non-U.S. 729 796 1,362
----- ----- -----
NET SALES 3,095 3,375 4,420
Data points for OPERATING PROFIT as follows:
1993 1994 1995
---- ---- ----
OPERATING PROFIT 188 293 741
15, 16--PIE CHARTS
Above each pie chart is a title indicating what the chart illustrates. Each
pie's slice is a different color, and has a dotted line next to it leading to
the name of the business the pie slice represents, and the related percentage.
PAGE DESCRIPTION PERCENT
- ---- ----------- -------
21 Distribution Sales
ResourceNet International 91%
International 9%
22 Distribution Sales by Major Product
Paper Products 75%
Industrial & Graphic Arts 25%
17--DISTRIBUTION-NET SALES AND OPERATING PROFIT (PAGE 24)
Bar charts of NET SALES and OPERATING PROFIT for the segment for the years 1993
through 1995, in millions of dollars. NET SALES chart contains color keys to
show breakdown of U.S. and non-U.S. sales.
Data points for NET SALES as follows:
1993 1994 1995
---- ---- ----
U.S. 2,853 3,145 4,557
Non-U.S. 287 325 468
----- ----- -----
NET SALES 3,140 3,470 5,025
Data points for OPERATING PROFIT as follows:
1993 1994 1995
---- ---- ----
OPERATING PROFIT 58 74 106
18, 19, 20, 21, 22, 23--PIE CHARTS
Above each pie chart is a title indicating what the chart illustrates. Each
pie's slice is a different color, and has a dotted line next to it leading to
the name of the business the pie slice represents, and the related percentage.
PAGE DESCRIPTION PERCENT
- ---- ----------- -------
27 Specialty Products Sales
Specialty Panels 31%
Imaging 23%
Nonwovens 8%
Specialty Papers 16%
Tissue 8%
Chemicals & Petroleum 14%
28 Specialty Panels Sales to Geographic Areas
North America 61%
Europe 21%
Other 18%
29 Imaging Products Sales to Geographic Areas
North America 34%
Europe 57%
Other 9%
30 Specialty Papers Sales to Geographic Areas
North America 92%
Europe 5%
Other 3%
32 Tissue Sales to Geographic Areas
New Zealand 43%
Australia 57%
33 Chemicals & Petroleum Sales to Geographic Areas
North America 60%
Europe 34%
Other 6%
24--SPECIALTY PRODUCTS-NET SALES AND OPERATING PROFIT (PAGE 34)
Bar charts of NET SALES and OPERATING PROFIT for the segment for the years 1993
through 1995, in millions of dollars. NET SALES chart contains color keys to
show the breakdown of U.S. and Non-U.S. sales.
Data points for NET SALES as follows:
1993 1994 1995
---- ---- ----
U.S. 1,749 1,840 1,916
Non-U.S. 711 750 1,384
----- ----- -----
NET SALES 2,460 2,590 3,300
Data points for OPERATING PROFIT as follows:
1993 1994 1995
---- ---- ----
OPERATING PROFIT 263 268 207
25, 26, 27--PIE CHARTS
Above each pie chart is a title indicating what the chart illustrates. Each
pie's slice is a different color, and has a dotted line next to it leading to
the name of the business the pie slice represents, and the related percentage.
PAGE DESCRIPTION PERCENT
- ---- ----------- -------
37 Forest Products Sales
Forestlands 33%
Wood Products 67%
38 Forestlands Sales to Geograhic Areas
U.S. 50%
International 50%
39 Wood Products Sales to Geographic Areas
U.S. 60%
International 40%
28--FOREST PRODUCTS-NET SALES AND OPERATING PROFIT (PAGE 40)
Bar charts of NET SALES and OPERATING PROFIT for the segment for the years 1993
through 1995, in millions of dollars. NET SALES chart contains color keys to
show breakdown of U.S. and non-U.S. sales.
Data points for NET SALES as follows:
1993 1994 1995
---- ---- ----
U.S. 1,597 1,595 1,442
Non-U.S. 103 120 658
----- ----- -----
NET SALES 1,700 1,715 2,100
Data points for OPERATING PROFIT as follows:
1993 1994 1995
---- ---- ----
OPERATING PROFIT 488 418 388
ENVIRONMENT, HEALTH AND SAFETY CHARTS (PAGE 43)
29--TOTAL INCIDENCE RATE
Bar chart showing recordable injuries per 200,000 work hours (U.S. data). Data
points as follows:
1989 1991 1993 1995
---- ---- ---- ----
8.4 6.3 4.6 3.4
30--LOST WORKDAY INCIDENCE RATE
Bar chart showing lost time injuries per 200,000 work hours (U.S. data). Data
points as follows:
1989 1991 1993 1995
---- ---- ---- ----
1.5 1.1 0.69 0.47
31--SOLID WASTE AT 24 MANUFACTURING SITES
Bar chart showing cubic yards of solid waste per 100 tons of product (U.S.
data). Data points as follows:
1988 1992 1994 1996*
---- ---- ---- -----
55 35.5 20.3 18
*estimated
32--INDUSTRIAL TOXICS PROJECT (33/50 PROGRAM)
Bar chart showing industrial toxics in millions of pounds (U.S. data). A color
key across the chart shows a 1995 goal of 5.33, and a year 2000 goal of 1.60.
1988 1990 1992 1994
---- ---- ---- ----
10.67 7.03 3.15 2.37
33--NET SALES (PAGE 44)
Bar chart of NET SALES for the years 1993 through 1995, in billions of dollars.
Data points as follows:
1993 1994 1995
---- ---- ----
13.7 15.0 19.8
34--CASH FLOW FROM OPERATIONS (PAGE 45)
Bar chart of CASH FLOW FROM OPERATIONS for the years 1993 through 1995, in
millions of dollars. Data points as follows:
1993 1994 1995
---- ---- ----
928 1,243 2,248
35--TOTAL DEBT TO CAPITAL RATIO (PAGE 46)
Bar chart of TOTAL DEBT TO CAPITAL RATIO for the years 1993 through 1995,
expressed as a percent. Data points as follows:
1993 1994 1995
---- ---- ----
38.5 41.2 38.5
APPENDIX B
PHOTOGRAPHS AND ILLUSTRATIONS FOR 1995 ANNUAL REPORT:
1. Page 2: A photo of John A. Georges, Chairman and Chief Executive
Officer.
2. Page 3: A photo of John T. Dillon, President and Chief Operating Officer.
3. Page 4: A full page photo of rolls of paper and the dry end of the new
paper machine at the Riverdale mill in Alabama. The words "Printing
Papers" appear in large letters across the center of the photo.
4. Page 5: A photo of two magazines - Redbook and Cosmopolitan to represent
our coated papers business.
5. Page 5: A photo of two reams of Hammermill copy paper to represent our
business papers business.
6. Page 5: A photo of two reams of Aussedat Rey paper products to represent
our international presence.
7. Page 5: A photo of a paper machine at our Kwidzyn mill in Poland. The
words "6.2 billion dollars in printing papers sales" appear over the
photograph.
8. Page 6: A photo of Pollux paper products from our Kwidzyn mill in Poland.
9. Page 6: A photo of Strathmore Paper's writing system of papers.
10. Page 7: A photo of salespeople and customers in front of rolls of our
coated paper in Vallassis Communications' warehouse.
11. Page 7: A photo of coupon booklets printed on our coated paper.
12. Page 7: A photo of brochures from German-based Zanders.
13. Page 8: A photo of three Olympian magazines, printed on our coated paper.
14. Page 9: A photo of fabric that contains our dissolving pulp.
15. Page 9: A photo of a stack of paper of various colors.
16. Page 11: A photo of brochures and products from Strathmore Paper.
17. Page 11: A photo of three reams of Springhill copy paper.
18. Page 11: A photo of various color folders made with our heavyweight papers.
19. Page 11: A photo of diapers and the absorbent material inside of it.
20. Page 11: A photo of Beckett brochures.
21. Page 11: A photo of Victoria's Secret magazines printed on our coated
paper.
22. Page 11: A photo of two reams of 100% recycled paper and the newspaper and
magazines used to produce the paper.
23. Page 12: A full page photo of the new paper machine at our Mansfield mill
in Louisiana. A control panel is in the foreground of the photo. The word
"Packaging" appears in large letters in the center of the photo.
24. Page 13: A photo of a preprinted corrugated box containing strawberries to
represent our industrial packaging business.
25. Page 13: A photo of two aseptic juice cartons produced by our domestic
liquid packaging division to represent our consumer packaging business.
26. Page 13: A photo of three cans of DelMonte peas - the label is produced by
our label division.
27. Page 13: A photo of a production line of Triton beverage rings with the
words "4.4 billion dollars in packaging sales" in the center of the photo.
28. Page 14: A photo of one of the retail bags we produce for JC Penney, the
bag contains a shirt and tie.
29. Page 14: A photo of a preprinted corrugated box for Mercury Propellors,
produced by our container division.
30. Page 15: A photo of our ClassicPak 7 shipping container used by the poultry
industry.
31. Page 16: A photo of Windows '95 boxes, made from our bleached packaging
board.
32. Page 17: A photo of a glass of milk and spout-pak milk carton produced by
our liquid packaging division.
33. Page 17: A photo of a Coca-Cola cup that is made from our bleached
packaging board.
34. Page 17: A photo of aseptic packaging cartons on our Fuji filling machine
at a customer's juice facility.
35. Page 19: A photo of a multiwall cement bag made from our kraft packaging.
36. Page 19: A photo of a six-pack of juice packaged together with our Triton
beverage ring holder.
37. Page 19: A photo of our spout-pak carton being used by a Brazilian customer
to package their liquid yogurt.
38. Page 19: A photo of a detergent bottle that has our Polyweave label
attached to it.
39. Page 19: A photo of a corrugated box produced in New Zealand. The box
contains apples.
40. Page 19: A photo of a Quaker Oatmeal box that is made by our folding carton
division.
41. Page 19: A photo of a corrugated box filled with peppers. The box was
produced by our international container division.
42. Page 20: A full page photo of ResourceNet International's new warehouse in
Dallas, Texas. The word "Distribution" appears in large letters across the
center of the page.
43. Page 21: A photo of a ResourceNet International delivery truck to represent
our delivery system.
44. Page 21: A photo of a tower of products representing the wide variety of
products we distribute in our network.
45. Page 21: A photo of flags with the words "5.0 billion dollars in
distribution sales" in the center of the photo.
46. Page 22: A photo of a tower of office supply products that represent the
many products we distribute.
47. Page 22: A photo of three reams of copy paper - Springhill, Hammermill and
Replicopy.
48. Page 23: A photo of the Color & Texture Selector computer program used to
assist customers in selecting papers.
49. Page 23: A photo of a ResourceNet International salesperson with a customer
from Daniels Printing in Massachusetts.
50. Page 25: A photo of a Mexican flag to represent our acquisition of two
Mexican distribution companies.
51. Page 25: A map of the United States that identifies our 130 warehouse
locations.
52. Page 25: A photo of brochures from our European subsidiaries, Aussedat Rey
and Scaldia.
53. Page 25: a computer mouse and pad to represent the initiation of our new
information system that will link all our locations.
54. Page 25: A photo of industrial supplies that are available through our
distribution group.
55. Page 25: A photo of our ColorLok printing products.
56. Page 25: A photo of products we distribute to the food service industry.
57. Page 25: A photo of a wide variety of colors and sizes of envelopes that we
distribute through our distribution group.
58. Page 26: A full page photo of our CraftMaster door facings on display in a
retail store. The words "Specialty Products" appear in the center of the
photo in large letters.
59. Page 27: A photo of a stack of Fountainhead countertop samples to represent
our Specialty Panels business.
60. Page 27: A photo of a roll of Ilford film to represent our Imaging
business.
61. Page 27: A photo of peel and stick labels to represent our specialty papers
business.
62. Page 27: A photo of Nubtex shop cloths used in the graphic arts industry.
63. Page 27: A photo of a box of tissues to represent Carter Holt Harvey's
tissue business.
64. Page 27: A photo of a roll of tape to represent the resins produced by our
Chemicals business.
65. Page 27: A photo of samples of our panels with the words "3.3 billion
dollars in specialty products sales" in the center of the photo.
66. Page 28: A photo of a kitchen countertop to represent our decorative
laminates business.
67. Page 28: A photo of Fome-Cor art board products in a variety of colors.
68. Page 28: A photo of Colorlok engineered wood siding product samples.
69. Page 29: A photo of a box of Anitec film paper.
70. Page 29: A photo of Ilford film papers.
71. Page 30: A photo of a band aid showing the peel of strip and padding that
we produce.
72. Page 30: A photo of Pillsbury crescent rolls that shows the outside liner
that we produce.
73. Page 30: A photo of a suitcase with an airline baggage tag attached to the
handle.
74. Page 31: A photo of Veratec's DataGuard packaging product and the CD that
it is protecting.
75. Page 31: A photo of diapers, sanitary pads and tampons that contain
absorbent materials made by our Veratec business.
76. Page 31: A photo of fabric enhanced with Veratec's InterSpun process.
77. Page 31: A photo of jeans enhanced with Veratec's InterSpun process.
78. Page 32: A photo of toilet tissue produced by Carter Holt Harvey in New
Zealand.
79. Page 32: A photo of paper towels produced by Carter Holt Harvey in New
Zealand.
80. Page 33: A photo of several cans of colorful inks to represent our
Chemicals business.
81. Page 33: A photo of a tire to represent our Chemicals and Petroleum
business.
82. Page 33: A photo of a bubble gum dispenser that contains gumballs to
represent the food grade resins made by our Chemicals business.
83. Page 35: A photo of samples of France's Polyrey decorative laminate
finishes.
84. Page 35: A photo of envelopes with a glassine window to represent our
specialty papers business.
85. Page 35: A photo of a can of red ink to represent our recent acquisition of
a European ink resin producer.
86. Page 35: A photo of Anitec and Ilford products to represent our imaging
business.
87. Page 35: A photo of diskettes showing the diskette liner as a component of
the diskette.
88. Page 35: A photo of a variety of tissue products made by Carter Holt Harvey
in New Zealand.
89. Page 35: A photo of diapers made by Carter Holt Harvey in New Zealand.
90. Page 35: A photo of a red door made from CraftMaster door facings.
91. Page 36: A full page photo of radiata pine trees in New Zealand. The words
"Forest Procucts" appear in large letters across the center of the page.
92. Page 37: An illustration of a pine cone.
93. Page 37: An illustration of the variety of wood products that we produce.
94. Page 37: A photo of lumber with the words " 2.1 billion dollars in forest
products sales" in the center of the photo.
95. Page 38: A photo of seedlings.
96. Page 38: A map of the country of New Zealand.
97. Page 39: A photo of wood products made from our eastern white pine.
98. Page 39: A photo of oriented strand board products.
99. Page 39: A photo of our new oriented strand board plant in Jefferson,
Texas.
100. Page 41: An illustration of a radiata pine tree.
101. Page 41: A photo of southern yellow pine lumber.
102. Page 41: An illustration of a turkey to represent our protection of
wildlife habitats.
103. Page 41: A photo of plywood.
104. Page 41: A photo of medium-density fibreboard.
105. Page 41: An illustration of loblolly pine trees.
106. Page 41: A photo of landscape timbers.
107. Page 42: A photo of two employees in a wildlife preserve at our Mobile,
Ala., mill.
EXHIBIT 21
COMPANY AND SUBSIDIARIES:
PERCENTAGE OF VOTING
SOVEREIGN POWER SECURITIES OWNED BY
UNDER WHICH ORGANIZED IMMEDIATE PARENT
--------------------- --------------------
International Paper
Company (the "Company").. New York Parent
Federal Paper Board
Company, Inc. ........... North Carolina 100%
IP Timberlands, Ltd.*..... Texas The Company owns 100% of
the Class A Common Stock
and Class B Common Stock
of IP Forest Resources
Company, managing
general partner of IPT,
and 84% of the Class A
Depositary Units and
100% of the Class B
Depositary Units of IPT.
Names of subsidiaries which, if considered in the aggregate as a single
subsidiary would not constitute a significant subsidiary, have been omitted.
- ----------
* For Regulation S-X purposes.
<PAGE>
[LOGO]
TWO MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
JOHN A. GEORGES
CHAIRMAN
March 29, 1996
Dear Fellow Shareholders:
The annual meeting of International Paper will be held this year at
Swissotel Chicago, 323 East Wacker Drive, Chicago, Illinois. The meeting will
start at 8:30 a.m., on Thursday, May 9, 1996. You are cordially invited to
attend this meeting and we look forward to seeing you there.
The following Proxy Statement outlines the business to be conducted at the
meeting, which includes the election of one class of directors and one director
to the remaining term of his designated class and approval of the appointment of
Arthur Andersen LLP as independent auditors for 1996.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOUR REPRESENTATION AND VOTE
ARE IMPORTANT. WE URGE YOU TO VOTE, DATE, SIGN AND RETURN THE ENCLOSED PROXY
CARD.
Attendance at the meeting will be limited to shareholders of record as of
the close of business on March 22, 1996, or their duly appointed proxy holder
(not to exceed one proxy per shareholder), and to guests of management. If you
or your proxy holder plan to attend this meeting, please complete, sign and
return the enclosed Request for Admittance card.
Thank you for your continued support.
Sincerely,
[SIGNATURE]
JOHN A. GEORGES
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE OWNERS OF COMMON STOCK OF
INTERNATIONAL PAPER COMPANY:
The annual meeting of shareholders of International Paper Company will be held
Thursday, May 9, 1996, at 8:30 a.m. at the Swissotel Chicago, 323 East Wacker
Drive, Chicago, Illinois to:
1. Elect one class of directors comprised of five members to the Board of
Directors and one director to the remaining term of his designated class;
2. Approve the appointment of Arthur Andersen LLP as independent auditors for
1996; and
3. Transact such other business as may properly come before the meeting or any
adjournments thereof.
YOUR BOARD OF DIRECTORS URGES SHAREHOLDERS TO VOTE FOR ITEMS 1 AND 2.
Shareholders of record at the close of business on March 22, 1996, will be
entitled to vote at the meeting or any adjournments thereof.
By order of the Board of Directors
JAMES W. GUEDRY
VICE PRESIDENT AND SECRETARY
March 29, 1996
<PAGE>
INTERNATIONAL PAPER COMPANY PROXY STATEMENT
TWO MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
(914) 397-1500
GENERAL INFORMATION
This statement is furnished by the Board of Directors of International Paper
Company (the "Company") in connection with the solicitation of proxies to be
voted at the annual meeting of shareholders to be held on May 9, 1996. Owners of
shares of common stock outstanding are entitled to one vote for each share of
common stock held of record at the close of business on March 22, 1996. As of
that date, there were 291,649,514 shares of common stock outstanding.
The annual report, including the audited financial statements of the Company for
the fiscal year ended December 31, 1995, has been mailed to shareholders with
this Proxy Statement and should be read carefully in conjunction with this Proxy
Statement before voting on any proposals contained herein, as it contains
details of the Company's operations and other relevant disclosures.
PROXY PROCEDURE
Shares eligible to be voted, and for which a proxy is properly signed and
returned, will be voted in accordance with the instructions specified thereon.
Where no instruction is received, eligible shares will be voted as recommended
by the Board of Directors in this Proxy Statement. If any other matters come
before the meeting, including any proposal submitted by a shareholder which was
omitted from this Proxy Statement in accordance with the applicable provisions
of the federal securities laws, the persons voting the proxies will vote them in
accordance with their best judgment. As of the time this Proxy Statement was
printed, management was not aware of any other matters to be voted upon. Any
proxy may be revoked at any time before its exercise by submitting a written
revocation or a new proxy, or by the shareholder's attendance and vote at the
annual meeting.
Solicitation of proxies from the Company's shareholders may be undertaken by
directors, officers and employees, as well as by Georgeson & Company Inc.
Payments to that firm as compensation are estimated at approximately $14,500
plus reimbursable expenses. This solicitation may be carried out either by mail,
telephone, telegraph, or personal interview. The cost of any such solicitation
will be borne by the Company.
The Company has a policy of confidentiality in the voting of shareholder proxies
generally and uses the services of its registrar and transfer agent, Chemical
Mellon Shareholder Services L.L.C., as independent inspectors of election to
receive and tabulate the proxy vote.
This Proxy Statement and the form of Proxy were sent to shareholders commencing
March 29, 1996.
MEETING ADMITTANCE PROCEDURES
Shareholders of record as of the close of business on March 22, 1996 (or their
duly appointed proxy holder upon verification--not to exceed one proxy per
shareholder) will be entitled to vote and attend the meeting. The following
procedures have been adopted to insure that no inconvenience or delays are
caused to the Company's shareholders or their proxy holders when entering the
meeting.
If you plan to attend the annual meeting in person or will appoint a proxy to
attend the meeting (other than the proxies set forth on the proxy card), please
complete (including the name of the appointed proxy, if any), sign and return
the enclosed Request for Admittance promptly so that an admittance card can be
reserved for you or your proxy in advance of the meeting. These admittance cards
will be delivered to you or your proxy holder upon verification of
identification at the shareholders' admittance counter at the meeting.
Record shareholders who do not have admittance cards reserved for them at the
meeting will be admitted upon verification of ownership at the shareholders'
admittance counter. If you have not appointed a proxy in advance or have changed
the appointed proxy on the Request for Admittance, your duly appointed proxy who
will attend the meeting will be required to present evidence of your signature
on the proxy (a copy of your driver's license or employment identification card
or other identification with your signature) in order to determine that only
valid proxies are admitted and voted.
2
<PAGE>
Beneficial owners of record on March 22, 1996 (or their duly appointed proxy
holder upon verification--not to exceed one proxy per shareholder) can obtain
admittance cards only at the shareholders' admittance counter by presenting
evidence of common stock ownership in the Company. This evidence could be a
proxy from the institution that is the record holder of the stock or your most
recent bank or brokerage firm account statement, along with proper
identification. If you are a beneficial shareholder who will appoint a proxy to
attend the meeting on your behalf, your duly appointed proxy will be required to
comply with the procedures in this paragraph, as well as the admittance
procedures described above for duly appointed proxies not designated in advance
on the Request for Admittance.
CORPORATE GOVERNANCE
BOARD OF DIRECTORS
The Board is classified into three classes of directors: Class II directors, of
which there are currently four, were elected to serve until the 1996 annual
meeting; Class III directors, of which there are currently five, were elected to
serve until the 1997 annual meeting; and Class I directors, of which there are
currently four, were elected to serve until the 1998 annual meeting. Each class
is elected for a three-year term. In addition, Messrs. C. Wesley Smith and John
R. Kennedy were elected directors, effective December 12, 1995 and March 12,
1996, respectively. Mr. Smith has been designed to stand for election as a Class
II director at the 1996 annual meeting and Mr. Kennedy has been designed to
stand for election as a Class I director at the 1996 annual meeting. Mr. Kennedy
is to serve the remaining term of his designated class.
Eleven regular meetings and seven special meetings of the Board of Directors
were held in 1995. In addition, there were 28 Committee meetings. Each director
attended at least 83% of the meetings of the Board and the Committees on which
he or she serves. All of the directors attended an average of 95% of such
meetings of the Board and the Committees on which he or she serves.
In December 1995, a Company affiliate sold 6,184 acres of property in North
Carolina to The Conservation Fund, a not-for-profit natural resources
conservation entity, for approximately $1.6 million and a donation value of $1.5
million, which price approximates the fair market value as determined by the
Company's land utilization department based upon an MAI independent appraisal.
Mr. Noonan, a director of the Company, is chairman of The Conservation Fund but
did not participate in the sale negotiations.
Mr. John R. Kennedy, a director, was the president and chief executive officer
of Federal Paper Board Company ("FPB") which merged into a Company subsidiary on
March 12, 1996 (the "Merger"). As the holder of 662,856 shares of FPB, he
received consideration valued at $36,457,080 in the Merger. Various trusts and
other holdings of which Mr. Kennedy is a trustee, or co-trustee, held 316,612
FPB shares and received consideration valued at $17,413,660; Mr. Kennedy
disclaims beneficial ownership of these shares and consideration. In addition,
in the Merger, all FPB options were assumed by the Company. Since Mr. Kennedy
held options for 274,000 FPB shares at an average exercise price of $25.45,
these were converted into options for 398,397 Company shares at an average
exercise price of $16.40. In the Merger, it was agreed that Mr. Kennedy's FPB
bonus of $1,842,227 would be paid by the Company on January 1, 1997. He also
will receive benefits from the FPB pension plan, the Benefit Equalization Plan
and the Supplemental Executive Retirement Plan insofar as he retired from FPB
coincident with the Merger. Finally, as part of the Merger, the Company agreed
to take all necessary action to appoint Mr. Kennedy a Company director, which he
became on March 12, 1996.
Beneficial ownership of current directors in equity securities of the Company is
shown in the table on page 6.
AUDIT COMMITTEE
The functions of the Audit Committee of the Board are to assist the Board in
carrying out its responsibilities for monitoring management's accounting for the
Company's financial results and for the timeliness and adequacy of the reporting
of those results; to discuss and make inquiry into the audits of the Company's
books made internally and by outside independent auditors, the Company's
financial and accounting policies, its internal controls and its financial
reporting; and to investigate and make a recommendation to the Board each year
with respect to the appointment of independent auditors for the following year.
3
<PAGE>
Current members of the Committee, none of whom is an employee of the Company,
are J. C. Pfeiffer (Chairman), W.C. Butcher, A.G. Hansen, P.F. Noonan and R.B.
Smith.
Four meetings of the Committee were held in 1995.
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
The functions of the Management Development and Compensation Committee are to
review Company policies and programs for the development of management
personnel; to make recommendations to the Board with respect to any proposals
for compensation or compensation adjustments of officers who are also directors
of the Company; to authorize compensation or compensation adjustments for other
elected officers of the Company; to administer the Company's executive bonus and
Long-Term Incentive Compensation Plan; to review and endorse changes in Company
employee retirement and benefits plans; to review officer candidates and endorse
nominees for election as officers; and to make recommendations to the Board with
respect to directors' compensation.
Current members of the Committee, none of whom is an employee of the Company,
are S.C. Gault (Chairman), W.C. Butcher, R. J. Eaton, T.C. Graham, E.T. Pratt,
Jr. and C. R. Shoemate.
Nine meetings of the Committee were held in 1995.
NOMINATING COMMITTEE
The functions of the Nominating Committee are to review the size and composition
of the Board; to review possible director candidates and director nominations
properly presented by shareholders; to recommend to the Board individuals
suitable for election as directors; to review and recommend annually to the full
Board the slate of nominees for election by the Company's shareholders; and to
review assignments of individual Board members to various Board committees.
Current members of the Committee, none of whom is an employee of the Company,
are W.C. Butcher (Chairman), D.F. McHenry, J.C. Pfeiffer, E.T. Pratt, Jr. and
C.R. Shoemate.
Two meetings of the Committee were held in 1995.
ENVIRONMENT, HEALTH AND TECHNOLOGY COMMITTEE
The functions of the Environment, Health & Technology Committee are to discuss
and make inquiries into the environmental and safety audits performed by the
Company's internal auditors; to review environmental, safety and health and
technological policies and programs throughout the Company, to assure that they
are appropriate to the short- and long-term objectives of the Company in terms
of industry leadership, compliance with federal and state laws and regulations
and social responsibility; and to advise the Board of the effectiveness of these
policies and programs.
Current members of the Committee are T.C. Graham (Chairman), J.T. Dillon, R.J.
Eaton, S.C. Gault, A.G. Hansen and P.F. Noonan.
Five meetings of the Committee were held in 1995.
OTHER COMMITTEES
Membership of the other regular Committees of the Board of Directors is shown on
page 69 of the Company's annual report.
FUTURE SHAREHOLDER PROPOSALS AND NOMINATIONS
Any shareholder proposals intended to be presented at the 1997 annual meeting
must be made in writing and received by the Secretary of the Company at the
Company's principal executive offices by the close of business on December 4,
1996, for inclusion in the 1997 Proxy Statement and form of proxy relating to
the meeting. Nomination by shareholders for directors, at a meeting called for
the purpose of electing directors, shall be made in accordance with Article II,
Section 9 of the Company's By-laws, as set forth below:
"Nominations for election to the Board of Directors of the
Corporation at a meeting of the Stockholders may be made by the
Board, or on behalf of the Board by any nominating committee
appointed by the Board, or by any Stockholder of the Corporation
entitled to
4
<PAGE>
vote for the election of Directors at such meeting. Such
nominations, other than those made by or on behalf of the Board,
shall be made by notice in writing delivered or mailed by first
class United States mail, postage prepaid, to the Secretary of the
Corporation, and received by him not less than thirty (30) days
nor more than sixty (60) days prior to any meeting of the
Stockholders called for the election of Directors; provided,
however, that if less than thirty-five (35) days notice of the
meeting is given to the Stockholders, such nomination shall have
been mailed or delivered to the Secretary of the Corporation not
later than the close of business on the seventh (7th) day
following the day on which the notice of meeting was mailed. Such
notice shall set forth as to each proposed nominee who is not an
incumbent Director (i) the name, age, business address and, if
known, residence address of each nominee proposed in such notice,
(ii) the principal occupation or employment of each such nominee,
(iii) the number of shares of stock of the Corporation which are
beneficially owned by each such nominee and by the nominating
Stockholder, and (iv) any other information concerning the nominee
that must be disclosed of nominees in proxy solicitations pursuant
to Rule 14(a) of the Securities Exchange Act of 1934. Such notice
shall be accompanied by the written consent of each proposed
nominee to serve as a Director of the Corporation. No person shall
be eligible for election as a Director of the Corporation unless
nominated in accordance with the procedures set forth herein.
"The Presiding Officer of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he should
so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded."
The effect of this By-law is that shareholder nominations for the 1997 election
of directors must be received by the Secretary of the Company not earlier than
March 17, 1997, or later than April 14, 1997, if the annual meeting is held on
the second Tuesday of May, 1997.
5
<PAGE>
COMMON STOCK OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table shows, as of March 22, 1996, the number of shares of Company
common stock beneficially owned (as defined by the Securities and Exchange
Commission) or otherwise claimed by each current director and each nominee for
director and by all directors and executive officers of the Company as a group,
as adjusted for the two-for-one stock dividend on September 15, 1995. To the
best knowledge of the Company, no person or group beneficially owns more than 5%
of the Company's common stock outstanding, except as set forth below in the
table.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
SHARES PERCENT OF TOTAL
NAME OF INDIVIDUAL BENEFICIALLY COMMON STOCK
OR GROUP OWNED (1) OUTSTANDING
- ----------------------------------------------------------------
<S> <C> <C>
W.C. Butcher 5,184
J.T. Dillon 239,591
R.J. Eaton 3,400
S.C. Gault 19,146 No director or executive
J.A. Georges 471,958 officer owns as much as
T.C. Graham 13,160 1/5th of 1%
A.G. Hansen 6,416
J.R. Kennedy 152,629
D.F. McHenry 5,877
P.F. Noonan 2,050
J.C. Pfeiffer 5,571
E.T. Pratt 5,160
C.R. Shoemate 2,100
C.W. Smith 143,869
R.B. Smith 7,000
J.P. Melican 143,813
M.J. Turk 74,903
All directors and
executive officers
as a group 1,721,590 0.59%
Bank trustee under
Company and subsidiary
employee benefit plans
(2) 22,407,510 7.68%
- ----------------------------------------------------------------
</TABLE>
(1) Ownership shown includes securities over which the individual has or
shares, directly or indirectly, voting or investment powers, including
shares held in the Restricted Stock Plan for Non-Employee Directors, shares
owned by a spouse or certain relatives and ownership by trusts for the
benefit of such relatives, as required to be reported by the Securities and
Exchange Commission. Certain individuals may disclaim beneficial ownership
of some of these shares, but they are included for the purpose of computing
the holdings and the percentages of common stock owned. Interests in shares
resulting from participation in the Company's Salaried Savings Plan,
Performance Share Awards, and Executive Continuity Awards, are included
above. The above table does not include 1,507,337 shares represented by
stock options granted executive officers under the Long-Term Incentive
Compensation Plan, including options for 749,500 shares for Mr. Georges,
157,037 shares for Mr. Dillon, 131,000 shares for Mr. Melican, 99,200 shares
for Mr. C.W. Smith and 66,000 shares for Mr. Turk. In addition, under the
6
<PAGE>
Nonfunded Deferred Compensation Plan for Non-Employee Directors or the
Unfunded Savings Plan, the Directors and executive officers (as indicated by
the asterisk) listed below own or have a restricted right to the non-voting
stock-equivalent Units set forth in the following chart:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STOCK STOCK
DIRECTOR UNITS DIRECTOR UNITS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
W.C. Butcher 20,025 P.F. Noonan 2,159
J.T. Dillon* 157,037 J.C. Pfeiffer 4,610
R.J. Eaton 2,554 E.T. Pratt 38,820
J.A. Georges* 349,500 C.R. Shoemate 3,214
T.C. Graham 24,048 C.W. Smith* 99,200
S.C. Gault 7,425 R.B. Smith 20,116
A.G. Hansen 16,325 J.P. Melican* 131,000
D.F. McHenry 24,346 M.J. Turk* 66,000
- --------------------------------------------------------------------------------
</TABLE>
(2) As of December 31, 1995, State Street Bank & Trust Co., N.A. holds such
shares as the independent trustee in trust funds for employee savings,
thrift, and similar employee benefit plans of the Company and its
subsidiaries ("Company Trust Funds"). In addition, State Street Bank & Trust
Co., N.A. is trustee for various third party trusts and employee benefits
plans and is an Investment Advisor. As a result of its holdings in all
capacities, State Street Bank & Trust Co., N.A. is the record holder of
24,676,896 shares of common stock of the Company. The trustee disclaims
beneficial ownership of all such shares except 2,256,208 of which it has
sole power to dispose or to direct the disposition of. The common stock held
by the Company Trust Funds is allocated to participants' accounts and such
stock or the cash equivalent will be distributed to participants upon
termination of employment or pursuant to withdrawal rights. The trustee
votes the shares of common stock held in the Company Trust Funds in
accordance with the instructions of the participants; shares for which no
instructions are received are voted proportionately to those shares voted by
participants.
MATTERS TO BE CONSIDERED AT THE MEETING
ITEM NO. 1--ELECTION OF DIRECTORS
Five (5) directors are to be elected as Class II directors for three-year terms
expiring in 1999. One (1) director who joined the Board since the last annual
meeting is to be elected as a Class I director, for a term expiring in 1998.
Each nominee is currently a director of the Company. Election requires the
affirmative vote by the holders of a plurality of outstanding common stock
voting at the annual meeting of shareholders. A plurality means that the six (6)
nominees receiving the largest number of votes cast will be elected. Votes which
are withheld from any nominee, as well as broker non-votes, will not be counted
in such nominee's favor. Shareholders voting at the meeting may not vote for
more than the number of nominees listed in the Proxy Statement. Proxies given to
management to vote will be voted according to instructions given, but only for
nominees listed in the Proxy Statement.
7
<PAGE>
The term of the present Class II directors expires at the adjournment of the
1996 annual meeting. The five nominees for election at the 1996 meeting as Class
II directors are:
<TABLE>
<S> <C>
CLASS II NOMINEES--TERM EXPIRING IN 1999
[PHOTO] WILLARD C. BUTCHER, 69, former Chairman and Chief Executive Officer of
The Chase Manhattan Bank, N.A. He is a director of ASARCO, Incorporated,
M.I.M. Holdings, Ltd. (Australia), Olympia & York Companies (U.S.A.) and
Texaco Inc. He is a member of The Business Council, the International
Advisory Board for Banca Nazionale del Lavaro, vice chairman of the
International Advisory Committee for The Chase Manhattan Bank and vice
chairman of the Lincoln Center for the Performing Arts, Inc. He is a
trustee emeritus of the American Enterprise Institute for Public Policy
Research and a fellow emeritus of Brown University and a trustee of
Business Committee for the Arts, Inc.
Director since August 1, 1989
[Photo] THOMAS C. GRAHAM, 69, Chairman of the Board of AK Steel Corporation.
Previously, he was Chairman and Chief Executive Officer, elected to
those posts concurrent with the formation of AK Steel, a publicly held
corporation which emerged from the privately-held Armco Steel Company,
L.P. in April of 1994. He had been named president and chief executive
officer of Armco Steel in June 1992. He was formerly chairman and chief
executive officer of Washington Steel Corporation until he assumed his
current position in 1992. He was vice chairman--steel and diversified
group and executive director of USX Corporation from 1986 to 1991. He
was named vice chairman and chief operating officer--steel and related
resources, U.S. Steel Corporation, in 1983. Prior to that time he served
as president and chief executive officer of Jones & Laughlin Steel
Corporation. He is a director of Hershey Foods Corporation and IP Forest
Resources Company (the managing general partner of IP Timberlands,
Ltd.).
Director since October 14, 1986
[Photo] JANE C. PFEIFFER, 63, management consultant. She is a director of
Ashland, Inc., IP Forest Resources Company (the managing general partner
of IP Timberlands, Ltd.), J.C. Penney Company, Inc. and The Mutual Life
Insurance Company of New York. She is a trustee of the Conference Board,
The University of Notre Dame and the Overseas Development Council and a
member of The Council on Foreign Relations.
Director since June 14, 1977
[Photo] EDMUND T. PRATT, JR., 69, former Chairman of the Board (from 1972 to
1992) and Chief Executive Officer from (1972 to 1991) of Pfizer Inc. He
is chairman emeritus and a director of Pfizer, Inc., a director of
Minerals Technologies, Inc., The Chase Manhattan Corporation, The Chase
Manhattan Bank, N.A., and General Motors Corporation. He is a director
and member of the Executive Committee of AEA Investors, Inc. and a
member of the Board of Trustees of Logistics Management Institute.
Director since September 9, 1975
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
[Photo] C. WESLEY SMITH, 56, Executive Vice President--printing papers since
1992. Prior thereto, he was president--International Paper--Europe from
1989.
Director since December 12, 1995
</TABLE>
The one nominee for election at the 1996 meeting as a Class I director is listed
below.
<TABLE>
<S> <C>
CLASS I NOMINEE--TERM EXPIRING 1998
[PHOTO] JOHN R. KENNEDY, 65, former President and Chief Executive Officer of
Federal Paper Board Company, Inc. from 1975 to 1996. He is a director of
DeVlieg Bullard, Inc. and Chase Brass Industries, Inc.
Director since March 12, 1996
</TABLE>
Other directors who will continue to serve are listed below under their
respective classes. None of these directors are to be elected at the 1996 annual
meeting.
<TABLE>
<S> <C>
CLASS III DIRECTORS--TERM EXPIRING IN 1997
[PHOTO] ROBERT J. EATON, 56, Chairman and Chief Executive Officer of the
Chrysler Corporation. He joined Chrysler in 1992, as Vice Chairman and
Chief Operating Officer and a member of the Board. Prior to joining
Chrysler, his 29-year career with General Motors included various
management positions, the most recent being President of General Motors
Europe (1988 - 1992). He is a fellow of both the Society of Automotive
Engineers and the Engineering Society of Detroit and a member of the
National Academy of Engineering. He is a director of the American
Automobile Manufacturers Association and is a member of The Business
Council, The Business Roundtable, and the U.S./Japan Business Council.
He also is a member of the President's Advisory Committee on Trade
Policy and Negotiations and serves as a director of Detroit Renaissance,
United Way of Southeastern Michigan, Economic Club of Detroit, Detroit
Symphony Orchestra and the Michigan Leaders Health Care Group.
Director since January 10, 1995
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
[Photo] JOHN A. GEORGES, 65, Chairman and Chief Executive Officer. He was
elected chief executive officer in 1984 and became chairman and chief
executive officer in 1985. He has been a director, chairman of the board
and chief executive officer of IP Forest Resources Company (the managing
general partner of IP Timberlands, Ltd.) since 1985. He is a director of
AK Steel Holding Corporation, Ryder Systems, Inc., Scitex Corporation
Ltd. and Warner-Lambert Company. He is a member of The Business Council
and the Policy Committee of the Business Roundtable. He is a board
member of the Business Council of New York State, a member of The
Trilateral Commission, the President's Advisory Committee for Trade
Policy and Negotiations and president of the University of Illinois
Foundation.
Mr. Georges has announced his retirement as Chairman and Chief Executive
Officer of the Company, effective March 31, 1996. He will remain a
director.
Director since February 1, 1980
[Photo] DONALD F. MCHENRY, 59, University Research Professor of Diplomacy and
International Affairs at Georgetown University since 1981. He is
president of the IRC Group and a director of American Telephone and
Telegraph Company, The Coca-Cola Company, Bank of Boston Corporation,
the First National Bank of Boston, SmithKline Beecham plc and the
Institute for International Economics. He is a trustee of the Johnson
Foundation, The Brookings Institution, The Mayo Foundation and Columbia
University; and chairman of the board of Africare.
Director since April 14, 1981
[Photo] PATRICK F. NOONAN, 53, Chairman of the Board of The Conservation Fund (a
nonprofit organization dedicated to conserving America's land and water
resources) and previously, also its chief executive officer since 1985.
Prior to that he was president of The Nature Conservancy. He is a
trustee of The National Geographic Society and the American Farmland
Trust. He is also a director of Ashland, Inc., the Fund for Government
Investors, Saul Centers and the American Gas Association Index Fund. He
is a member of the Board of Visitors of Duke University School of the
Environment.
Director since December 14, 1993
[Photo] CHARLES R. SHOEMATE, 56, Chairman, President and Chief Executive Officer
of CPC International Inc. He was elected president and a member of its
board of directors in 1988, chief executive officer in August 1990 and
chairman in September 1990. He joined CPC International in 1962 and
progressed through a variety of positions in manufacturing, finance and
business management within the consumer foods and corn refining
businesses. In 1981, he was named president of Canada Starch Company,
CPC's Canadian subsidiary. He was elected vice president of the
corporation in 1983, and in 1986 became president of the Corn Refining
Division. He is a director of CIGNA Corporation and the Grocery
Manufacturers of America, Inc. He is a member of the Business
Roundtable; a trustee of the Committee for Economic Development; and a
trustee of The Conference Board.
Director since November 1, 1994
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
CLASS I DIRECTORS--TERM EXPIRING IN 1998
[PHOTO] JOHN T. DILLON, 57, President and Chief Operating Officer since 1995 and
prior thereto, Executive Vice President--packaging since 1987. He is a
director of Carter Holt Harvey Limited, a New Zealand forest products
and paper company. He is a member of the Board of Trustees of the
Executive Committee of The Joint Council on Economic Education. He is
the chairman of the Forest Industries Committee on Timber Valuation and
Taxation.
Mr. Dillon was elected Chairman and Chief Executive Officer of the
Company, effective April 1, 1996.
Director since March 1, 1991
[Photo] STANLEY C. GAULT, 70, Chairman of the Board since January 1, 1996 and
previously thereto the chairman and chief executive officer of The
Goodyear Tire & Rubber Company, holding that position since June 1991.
Previously, he was chairman and chief executive officer of Rubbermaid
Incorporated (1980-1991). He is a director of Avon Products, Inc., PPG
Industries, Inc., The New York Stock Exchange, Inc., Rubbermaid
Incorporated and The Timken Company. He is a trustee and chairman of the
board of The College of Wooster and honorary vice chairman of the
National Association of Manufacturers.
Director since January 8, 1980
[Photo] ARTHUR G. HANSEN, 71, educational consultant. He was director of
research of the Hudson Institute from 1987 to 1988, chancellor of the
Texas A&M University System from 1982 to 1986, president of Purdue
University from 1971 to 1982 and president of Georgia Institute of
Technology from 1969 to 1971. He is a director of American Electric
Power Company, Inc. and IP Forest Resources Company (the managing
general partner of IP Timberlands, Ltd.). He is a member of the National
Academy of Engineering, a Commissioner of the Indiana Commission for
Higher Education and a fellow of the American Association for the
Advancement of Science.
Director since February 10, 1976
[Photo] ROGER B. SMITH, 70, former Chairman and Chief Executive Officer of
General Motors Corporation from 1981 to 1990, when he retired. He is a
director of Citicorp, IP Forest Resources Company (the managing general
partner of IP Timberlands, Ltd.), Johnson & Johnson and PepsiCo, Inc. He
is a member of The Business Council and is a trustee of the Michigan
Colleges Foundation, Inc. and the Sloan Foundation.
Director since December 1, 1989
</TABLE>
11
<PAGE>
ITEM NO. 2--APPROVAL OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
AUDITORS FOR 1996
The Audit Committee has considered the qualifications of Arthur Andersen LLP and
recommended that the Board of Directors appoint them as independent auditors of
the consolidated financial statements of the Company for the year 1996. This
included a review of their performance in prior years, as well as their
reputation for integrity and competence in the fields of accounting and
auditing. The Committee has expressed its satisfaction with Arthur Andersen in
all of these respects. The Committee's review also included inquiry concerning
litigation involving Arthur Andersen and the existence of any investigations by
the Securities and Exchange Commission into the financial reporting practices of
the companies audited by them. In this respect, the Committee concluded that the
ability of Arthur Andersen to perform services for the Company is not in any way
adversely affected by any such investigation or litigation.
The Board of Directors desires to obtain shareholders' approval of the Board's
action in appointing Arthur Andersen LLP, as independent auditors of the
consolidated financial statements of the Company for the year 1996.
A representative of Arthur Andersen LLP will be present at the annual meeting to
respond to appropriate questions and to make a statement if he or she desires.
Approval of Item No. 2 requires the affirmative vote of the holders of a
majority of the shares voting on this proposal. Abstentions and broker non-votes
will not be counted as having voted on this Item No. 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT AUDITORS OF THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY FOR 1996
12
<PAGE>
REPORT OF THE MANAGEMENT DEVELOPMENT
AND COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
As of December 31, 1995, the Management Development and Compensation Committee
(the "Committee") consisted of six outside directors: William C. Butcher, Robert
J. Eaton, Stanley C. Gault, Thomas C. Graham, Edmund T. Pratt, Jr. and Charles
R. Shoemate. Mr. Gault is chairman. The Committee met nine times in 1995 with a
100% attendance record. The chairman and chief executive officer of the Company
was not present during any discussion of his compensation.
GENERAL
Total compensation received by the named executive officers consists of salary,
cash bonus, stock options and restricted stock. The total compensation has been
designed to attract the most qualified talent, motivate them to reach their
highest level of achievement, reward sustained superior performance and retain
those senior managers whose competencies are prerequisite to shareholder value
appreciating over the long term. The cash bonus and long-term incentives
introduce considerable risk in the total executive compensation package, since
the value of these components may vary significantly from year to year based on
Company performance, individual performance and Company stock price.
The Committee periodically reviews each component of the Company's executive
compensation program to ensure that pay levels and incentive opportunities are
competitive and that incentive opportunities are linked to Company performance.
The Committee relates total compensation levels for the Company's executives to
the compensation paid at a select group of comparator companies. These companies
are surveyed on an on-going basis by independent compensation consulting firms
and include a cross section of approximately 40 manufacturing companies in
industries that are close in size and manufacturing complexity to International
Paper and who compete directly with International Paper for executive talent.
The Committee reviews and approves the selection of companies used for
compensation comparisons. International Paper also uses independent compensation
consulting firms to advise the Committee. The Company's compensation levels for
each component of pay are compared to the median of the comparator group's
competitive pay levels.
The Company's Management Incentive Plan (MIP) links payment of an annual cash
bonus directly to achievement of a specified level of net earnings, which
accounts for 80% of target bonus funds available, and predetermined targets for
qualitative nonfinancial performance factors, which were quality, safety and
employee development, which account for the remainder. In 1995, the Company
achieved a level of net earnings and performance compared to predetermined
nonfinancial targets which generated a bonus fund. Performance against the
financial target for 1995 was exceeded. The Company, in the aggregate, met the
1995 nonfinancial targets.
The Company's Long-Term Incentive Compensation Plan and amendments, which were
approved by the shareholders in 1989 and 1994, respectively, provides for awards
of stock options and restricted stock in the form of performance shares which
are made in amounts which the Committee determines to be competitive based on
the surveys described above. Stock options are granted at fair market value at
the time of the award and are restricted for four years. Contingent awards of
performance shares are made in December of the year preceding a five-year Award
Period. At the end of the five-year Award Period, the number of shares earned is
determined by financial performance which the Committee measures by comparing
the Company's and Peer Paper Group's (eight companies which comprise the Peer
Line of the Performance Graphs on page 15) and weighing equally, the five-year
average return on equity and earnings per share. If the threshold level of
performance is not attained, no shares are earned. Above the threshold, the
contingent award is reduced if the target goal is not met or supplemented if the
target goal is exceeded. Payouts of earned performance shares are made in
Company stock at the end of the five-year Award Period. One half of the shares
earned is mandatorily deferred for an additional three years, and payout is
subject to the executive's continued employment throughout that period.
From time to time executive continuity awards are made with long-term vesting
requirements which are designed to encourage retention of a small number of
senior executives designated by the Committee. The size of an award, and any
adjustments, is determined by the Committee to reflect an executive's level of
responsibility and individual performance. As provided by the Company's
Long-Term Incentive Compensation Plan, a continuity award may consist of
restricted stock or a tandem grant of restricted stock together
13
<PAGE>
with a related non-qualified stock option which is granted at fair market value
and restricted until a specified age. If the stock option is exercised, then the
related restricted shares are canceled; if any portion of the stock option is
not exercised by the date the continuity award terminates, then the less
valuable component of the tandem award is canceled.
The Committee has considered the provisions of the Omnibus Budget Reconciliation
Act of 1993 which limit deductibility of compensation paid to named executive
officers which exceeds $1 million. The Committee endorsed amendments to the
Company's Long-Term Incentive Compensation Plan in 1994 to make certain sections
of the plan compatible with those provisions, while maintaining the Committee's
flexibility in the Company's Management Incentive Plan to exercise business
judgment in determining awards to take account of business conditions or the
performance of individual executives. Any limitations upon deductibility of
compensation are not expected to be material to the Company. The Committee will
continue to monitor tax and other related compensation legislation. In 1995, the
Committee recognized that a portion of Mr. Georges's and Mr. Dillon's total
current cash compensation is above $1 million.
THE 1995 EXECUTIVE OFFICERS' COMPENSATION
The Committee approved merit salary increases for the named executive officers
based on competitiveness of the executives' pay and personal performance. In May
1995, Mr. Georges's salary was increased to $1,060,000, approximating the median
increase awarded CEO's in the group of surveyed companies referred to above.
Salaries paid to the named officers in 1995, including Mr. Georges's salary,
were competitively positioned from slightly above to below the median of the
survey companies.
MIP awards for the named executive officers in 1995 were determined by the
Committee after review of respective levels of responsibility, personal
performance and Company performance compared to the predetermined 1995 financial
and nonfinancial goals. Actual awards to all named executive officers
represented 11.5% of the bonus fund. All named executive officers' MIP awards
increased compared to 1994 in recognition of the 173% improvement in earnings
before a net charge resulting from an accounting change in 1994.
The performance share guidelines described above were used by the Committee to
determine contingent performance share awards in December 1995 to the named
executive officers for the 1996-2000 Award Period and the payout in 1995 of
earned shares for the 1990-1994 Award Period. The pretax values of Mr. Georges's
performance share awards in 1995 were: $722,262 in contingent restricted stock
for the 1996-2000 Award Period; $206,457 in deferred restricted stock for the
Award Period 1990-1994; and $206,457 in earned shares (long-term incentive
payout) for the 1990-1994 Award Period. The shares earned for the 1990-1994
Award Period reflect Company performance which exceeded performance of the Peer
Paper Group.
The Committee granted stock options in 1995 based on competitive surveys
described earlier, without consideration of the amount of stock options already
held by named executive officers. Mr. Georges's 1995 stock option award was
38,000 shares, the same as his award in 1993 and 1994.
In 1995, a continuity award of restricted stock and a related option was granted
to Mr. Dillon based on his promotion to President. There were no other executive
continuity awards granted to any of the named executive officers in 1995.
THE MANAGEMENT DEVELOPMENT AND COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
William C. Butcher
Robert J. Eaton
Stanley C. Gault, chairman
Thomas C. Graham
Edmund T. Pratt, Jr.
Charles R. Shoemate
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer or other employee of the Company served as a member of the
Committee or as a member of the compensation committee on the board of any
company where an executive officer of such company is a member of the Committee.
Mr. Graham, a member of the Committee, is the chairman of AK Steel Corporation;
Mr. Georges, chairman and chief executive officer of the Company, is on the
board of AK Steel Corporation.
14
<PAGE>
PERFORMANCE GRAPHS
The following charts compare a $100 investment in International Paper stock with
a similar investment in a peer group of eight key competitor companies and the
S&P 500. The charts portray total nominal return, 1990-1995 and 1985-1995
assuming reinvestment of dividends. The Company has presented information
pertaining to total shareholder return over two different time periods since all
holders of the common stock did not acquire their investment in International
Paper on the same date. The Company believes a presentation in this format more
accurately reflects the financial return provided to the holders of its Common
Stock which may not be evident if only one time period was highlighted.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL
RETURN
<S> <C> <C> <C>
International Paper S & P 500 Index Peer Group
1990 100 100 100
1991 136 131 136
1992 131 141 152
1993 137 155 173
1994 156 157 178
1995 160 216 194
</TABLE>
Assumes $100 invested on December 31, 1990.
* Total return assumes reinvestment of dividends.
** Includes Boise Cascade, Champion, Georgia Pacific, Mead,
Stone Container, Union Camp, Westvaco, and Weyerhaeuser.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF TEN YEAR CUMULATIVE TOTAL
RETURN
<S> <C> <C> <C>
International Paper S & P 500 Index Peer Group
1985 100 100 100
1986 154 119 134
1987 177 125 145
1988 200 146 154
1989 251 192 169
1990 245 186 136
1991 333 242 186
1992 321 261 208
1993 335 287 236
1994 382 291 243
1995 393 400 265
</TABLE>
Assumes $100 invested on December 31, 1985.
* Total return assumes reinvestment of dividends.
** Includes Boise Cascade, Champion, Georgia Pacific, Mead,
Stone Container, Union Camp, Westvaco, and Weyerhaeuser.
15
<PAGE>
ADDITIONAL INFORMATION
REGARDING EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is approved by the
Committee except for the compensation of the officer-directors, which is
recommended by the Committee and approved by the Board of Directors. The Company
paid a two-for-one stock dividend on September 15, 1995. Amounts of stock prior
to that date referenced to herein have been restated to reflect that share
dividend.
The following tables set forth information with respect to the Chairman and
Chief Executive Officer and the four most highly compensated executive officers
of the Company for the years 1993-1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION CONTINGENT AWARDS
------------------------------------ ---------------------
(A) (B) (C) (D) (E) (F) (G) (H)
OTHER RESTRICTED
ANNUAL STOCK ALL OTHER
SALARY BONUS COMPENSATION AWARD OPTIONS COMPENSATION
NAME AND POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) (#)(5) ($)(6)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John A. Georges as 1995 $1,035,000 $1,300,000 $ 0 $1,083,393 38,000 $264,713
Chief Executive Officer 1994 $ 953,750 $1,115,000 $ 0 $1,051,857 38,000 $198,548
1993 $ 880,833 $ 525,000 $ 0 $ 819,672 38,000 $136,571
John T. Dillon as 1995 $ 490,417 $ 600,000 $ 0 $2,227,287 35,737 $129,717
President and Chief Operating Officer 1994 $ 430,000 $ 370,000 $ 0 $ 398,690 16,000 $ 96,681
1993 $ 396,667 $ 230,000 $ 0 $ 332,316 16,000 $ 77,234
James P. Melican as 1995 $ 446,667 $ 410,000 $ 0 $ 373,480 27,700 $106,803
Executive Vice President 1994 $ 420,000 $ 345,000 $ 0 $ 362,664 64,592 $ 88,763
1993 $ 386,667 $ 215,000 $ 0 $ 302,430 15,400 $ 69,747
C. Wesley Smith as 1995 $ 380,750 $ 410,000 $ 0 $ 551,428 36,600 $ 93,299
Executive Vice President 1994 $ 333,750 $ 335,000 $357,784 $ 362,664 15,400 $ 78,922
1993 $ 283,333 $ 190,000 $ 0 $ 944,705 13,600 $ 55,390
Milan J. Turk as 1995 $ 293,750 $ 260,000 $ 0 $ 287,108 27,200 $ 60,554
Senior Vice President, (now Executive Vice 1994 $ 278,333 $ 210,000 $ 0 $ 279,006 9,600 $ 37,164
President) 1993 $ 265,000 $ 150,000 $ 0 $ 973,164 9,600 $ 41,382
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Salary paid in 1995 including amounts deferred pursuant to Section 401(k) of
the Internal Revenue Code or pursuant to unfunded deferral arrangements.
(2) Management Incentive Plan awards paid in 1996, 1995 and 1994 attributable to
1995, 1994 and 1993 respectively, including amounts deferred pursuant to
Section 401(k) of the Internal Revenue Code or pursuant to deferral
arrangements reported in the year earned.
(3) Represents settlement of tax equalization with respect to Mr. Smith's
expatriate assignment from 1989 to 1992.
(4) Represents (a) 150% of the value of gross target restricted performance
shares contingently awarded in 1995 for the 1996-2000 award period, in 1994
for the 1995-1999 award period and in 1993 for the 1994-1998 award period,
which is the maximum achievable for those award periods; only 100% of the
target restricted performance shares are earned if the target goal is met
for an award period, with the awards being reduced if the goal is not met or
entirely forfeited if a predetermined threshold goal is not met; (b) 150% of
the value of incremental maximum awards for prior award periods made upon
promotion, subject to the same contingencies; and (c) the value of
continuity awards of $858,750 in 1995 for Mr. Dillon, $497,000 in 1993 for
Mr. Smith and $745,500 in 1993 for Mr. Turk. The number and dollar value of
restricted stock holdings at December 31, 1995 are as follows:
210,271/$7,964,014 for Mr. Georges; 129,200/$4,893,457 for Mr. Dillon;
88,590/$3,355,335 for Mr. Melican; 86,353/$3,270,615 for Mr. Smith; and
55,629/$2,106,940 for Mr. Turk. These numbers include the restricted stock
portion of the tandem awards of restricted stock/options made to the
respective individuals under continuity awards. Dividends are paid on
restricted shares.
(5) Includes replacement options if applicable. These figures do not include the
tandem option awards made as part of the continuity awards referred to in
footnote (4) above insofar as the awards are characterized as restricted
stock awards. Such tandem options were for 100,000 shares for Mr. Dillon in
1995; 80,000 shares for Mr. Smith in 1993; and 24,000 shares for Mr. Turk in
1993. The options are generally restricted as to exercise prior to age 62.
(6) 1995 totals represent Company contributions to the Salaried Savings Plan and
Unfunded Savings Plan, premium payments grossed up for taxes for the
Executive Supplemental Insurance Plan (ESIP), accruals for ESIP lump sum
dividend payments and imputed income from group life as follows: $103,200,
$74,168, $58,984 and $28,361 for Mr. Georges; $41,300, $59,194, $20,846 and
$8,378 for Mr. Dillon; $38,000, $36,444, $20,323 and $12,036 for Mr.
Melican; $34,356, $31,938, $17,221 and $9,785 for Mr. Smith; and $24,180,
$28,928, $0 and $7,446 for Mr. Turk.
16
<PAGE>
The table below sets out information on the option grants made in 1995 to the
named executive officers:
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
ASSUMED COMPOUND ANNUAL GROWTH RATES
OF STOCK PRICE APPRECIATION FOR OPTION TERM
INDIVIDUAL GRANTS (2)
----------------------------------------------------- ----------------------------------------------
(A) (B) (C) (D) (E) (F) (G) (H)
% OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE OR
GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME AND POSITION (#)(1) 1995 ($/SH) DATE 0% 5% 10%
- ---------------------------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John A. Georges as Chief 38,000 1.15% $ 38.875 01/10/05 $0 $ 814,450 $ 2,006,028
Executive Officer
John T. Dillon as President 16,000 0.48% $ 43.500 01/12/03 $0 $ 283,342 $ 660,307
and Chief Operating 17,000 0.51% $ 38.875 01/10/05 $0 $ 364,359 $ 897,434
Officer 2,737 0.08% $ 42.938 09/12/05 $0 $ 71,075 $ 178,547
James P. Melican as 12,300 0.37% $ 40.875 01/09/00 $0 $ 51,533 $ 105,580
Executive Vice President 15,400 0.46% $ 38.875 01/10/05 $0 $ 330,066 $ 812,969
C. Wesley Smith as 4,000 0.12% $ 39.750 02/09/97 $0 $ 7,950 $ 15,900
Executive Vice President 8,600 0.26% $ 39.750 01/09/00 $0 $ 73,671 $ 158,653
8,600 0.26% $ 39.750 01/08/01 $0 $ 94,447 $ 208,703
15,400 0.46% $ 38.875 01/10/05 $0 $ 330,066 $ 812,969
Milan J. Turk as Senior 7,600 0.23% $ 39.688 05/08/00 $0 $ 71,013 $ 154,239
Vice President, (now 7,600 0.23% $ 39.688 01/08/01 $0 $ 83,333 $ 184,145
Executive Vice President) 12,000 0.36% $ 38.875 01/10/05 $0 $ 257,195 $ 633,483
- ----------------------------------------------------------------------------------------------------------------------------------
All shareholders N/A N/A N/A N/A $0 $6,569,389,207 $16,648,122,070
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each option granted may be replaced upon exercise. This means that a new
option is granted for the same number of shares as is exercised, with the
then current market value becoming the new exercise price. The replacement
option does not extend the term of the original option. Options may not be
replaced more than three times. These numbers do not include any options
granted as part of the tandem awards of restricted stock/options made as
continuity awards in 1995; the restricted stock is reported as part of the
total holdings of the respective individuals under footnote (4) to the
Summary Compensation Table.
(2) The dollar amounts under these columns are the result of calculations at 0%,
and at the 5% and 10% rates set by the SEC and therefore are not intended to
forecast possible future appreciation, if any, of the stock price.
(3) No gain to the optionee is possible without an increase in stock price,
which will benefit all shareholders commensurately. A zero percent gain in
stock price will result in zero dollars for the optionee.
17
<PAGE>
The table below sets out information on options exercised and options
outstanding.
AGGREGATED OPTION EXERCISES IN 1995
AND DECEMBER 31, 1995 OPTION VALUES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
IN-THE-MONEY
OPTIONS AT 12/31/95 OPTIONS AT 12/31/95
SHARES VALUE REALIZED ($) (#)(5) ($)(5)
ACQUIRED ON ---------------------- ------------------------- -------------------------
EXERCISE AGGREGATE ANNUALIZED RESTRICTED UNRESTRICTED RESTRICTED
NAME AND POSITION (1) (#)(1) (1) (2) UNRESTRICTED (3) (4) (3)(4)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John A. Georges as 11,756 $ 50,698 $ 24,335 183,000 152,000 $949,113 $410,875
Chief Executive Officer
John T. Dillon as 32,100 $281,225 $127,541 72,200 67,737 $328,369 $ 71,000
President and Chief Operating
Officer
James P. Melican as 21,708 $204,625 $ 52,710 62,900 61,600 $ 0 $166,513
Executive Vice President
C. Wesley Smith as 21,200 $241,726 $ 50,746 29,200 53,000 $ 43,000 $132,088
Executive Vice President
Milan J. Turk as 15,200 $204,625 $ 49,354 15,200 38,800 $ 0 $ 97,050
Senior Vice President, (now
Executive Vice President)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The number of incremental shares retained on exercises is as follows: 5,778
for Mr. Dillon; 2,710 for Mr. Melican and 3,632 for Mr. Turk.
(2) Represents the aggregate incremental value realized divided by the number of
years the option was held prior to exercise.
(3) All options are exercisable under the plan upon grant; however, columns (e)
and (g) indicate the number and value of options, the underlying shares of
which, while exercisable, cannot be sold or are otherwise restricted.
(4) Total value of options (market value minus exercise price) based on fair
market value of Company stock of $37.875 as of December 31, 1995.
(5) Options granted as part of the tandem awards of restricted stock/options
made as continuity awards are not included; these awards are counted as
restricted stock awards and holdings.
18
<PAGE>
RETIREMENT BENEFITS
The following table shows the total estimated annual pension benefits payable
under the Company's qualified and supplementary retirement plans upon retirement
at age 65, calculated on a straight life annuity basis and reduced by a Social
Security offset:
COMBINED RETIREMENT PLANS TABLE OF ESTIMATED BENEFITS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
PENSIONABLE
REMUNERATION CREDITABLE YEARS OF SERVICE
- ---------------------------------------------------------------------------------
5 10 15 20 25 30
-------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000 $100,000 $125,324 $ 187,986 $ 192,806 $ 192,806 $ 193,206
$ 600,000 $150,000 $190,324 $ 285,486 $ 292,806 $ 292,806 $ 293,406
$ 800,000 $200,000 $255,324 $ 382,986 $ 392,806 $ 392,806 $ 393,606
$1,000,000 $250,000 $320,324 $ 480,486 $ 492,806 $ 492,806 $ 493,806
$1,500,000 $375,000 $482,824 $ 724,236 $ 742,806 $ 742,806 $ 744,306
$2,000,000 $500,000 $645,324 $ 967,986 $ 992,806 $ 992,806 $ 994,806
$2,500,000 $625,000 $807,824 $1,211,736 $1,242,806 $1,242,806 $1,245,306
- ---------------------------------------------------------------------------------
</TABLE>
"Pensionable Remuneration" for purposes of the table above means salary,
bonus and compensation deferred under the Unfunded Savings Plan or awards
deferred under the MIP.
Retirement benefits are payable under one or more of the following plans: a
qualified plan covering all salaried employees which provides pension benefits
based on final average earnings; a supplementary plan which provides a make-up
of qualified plan benefits limited by the imposition of statutory Code
limitations; and a supplementary plan covering designated senior managers which
provides supplemental benefits to the qualified plan. At December 31, 1995, the
number of creditable years of service and the currently applicable average
pensionable remuneration under the retirement plans for Mr. Georges were 16.58
years and $2,335,000; for Mr. Dillon, 28.92 years and $1,090,417; for Mr.
Melican, 11.92 years and $856,667; for Mr. Smith, 15.33 years and $790,750; and
for Mr. Turk, 5.58 years and $553,750.
COMPENSATION OF DIRECTORS
The compensation of each non-employee director of the Company is a retainer fee
of $36,000 per year plus fees of $1,200 for each board and committee or other
meeting attended. Directors may elect to defer receipt of all or part of their
remuneration until a later date under a deferred compensation plan, at which
time the director will be paid in cash equal to (1) the cash amount deferred
plus interest at the higher of 6% per annum or the yield of U.S. Treasury bills
or (2) the value at the time of payment of units equivalent to the value of
Company common stock credited to the director's account at the time of each
deferral, plus dividend equivalents. The Company terminated its Retirement Plan
for Non-Employee Directors as of December 31, 1995 which provided that directors
receive an annual retirement benefit equal to 100% of the annual retainer fee
upon mandatory retirement at age 72, and instituted a compulsory portion to the
Deferred Compensation Plan. Under this new plan, each non-employee director is
credited with common stock equivalent units in the actuarially determined amount
required to provide upon retirement an annual benefit equal to a director's
retainer fee payable for the director's actuarially determined remaining life.
Thus, each year a director will receive a continuing service award of 300
non-voting stock equivalent units. The common stock units held in each
non-employee director's account are credited with dividend equivalents. Upon
retirement, the amounts will be paid in cash. Employees of the Company who are
also directors receive no compensation for services as a director or for
attendance at board or committee meetings.
19
<PAGE>
In addition, under the Non-Employee Directors Restricted Stock Plan, awards of
1,800 shares of common stock (on a two-for-one post stock dividend basis) are
made upon the election or re-election of a director to a full three-year term,
or the appointment of a non-employee director to fill an unexpired term (in
which latter event the number of shares to be awarded will be a pro-rata portion
of the number issued to non-employee directors elected to serve for a full term
at the most recent annual meeting of shareholders). Awards made in 1995 were
1,800 shares each for Class I directors and pro-rata awards of 1,200 shares for
two directors, reclassified as Class III directors. Directors receive dividend
payments represented by the shares awarded under the Restricted Stock Plan,
previously at $0.42 per share per quarter until June 15, 1995 and $0.25
commencing with the September 15, 1995 dividend pursuant to a two-for-one stock
dividend.
Further, four of the non-employee directors of the Company serve as directors of
IP Forest Resources Company ("IPFR"), a wholly-owned subsidiary which acts as
the managing general partner of IP Timberlands, Ltd., a New York Stock
Exchange-listed limited partnership. As such, each of the four non-employee
directors receives a retainer fee of $7,000 per year plus a fee of $1,200 for
each IPFR board and committee meeting attended. These fees are paid by IPFR.
There were six meetings of the board in 1995.
As part of its overall program to assist corporate recruiting and research
efforts, the Company has established a planned gift program funded by life
insurance polices on all directors. Upon the death of an individual director,
the Company will donate $1 million over a ten-year period to one or more Company
approved universities or colleges recommended by the individual director and the
Company will be reimbursed by life insurance proceeds. Individual directors
derive no financial benefit from this program since charitable deductions accrue
solely to the Company. Moreover, the program does not result in any material
cost to the Company.
INDEMNIFICATION INSURANCE AND CONTRACTS
The Company provides liability insurance for the Company's directors and all
elected officers, as well as contractual arrangements with directors and certain
officers of the Company, agreeing to compensate them for costs and liabilities
incurred in actions brought against them while acting as directors or officers.
On June 15, 1995, the Company amended the aforementioned policies with Federal
Insurance Company at a current annual premium cost aggregating $525,825, such
policies expiring on June 15, 1996. No monies have been paid under such policies
by the carrier or by the Company under the contractual arrangements.
TERMINATION AGREEMENTS
The Company has agreements with members of the executive officer group,
providing for payments and other benefits if there is a change of control of the
Company and the officer's employment is terminated (i) by the Company or its
successor, other than for cause, disability or retirement, or (ii) by the
officer if the chief executive officer of the Company ceases to hold that
position for reasons other than cause, retirement or disability, or if the
officer determines that by reason of adverse changes in, among other things, the
officer's authority, compensation, duties, office location or responsibilities,
the officer is unable to perform the duties and responsibilities of the position
the officer held immediately prior to the change in control. These agreements
provide that if the officer's employment terminates under the circumstances
described above, the officer will receive: (a) continuation of medical and
dental insurance coverage until age 65 or eligibility to join a comparable plan
sponsored by another employer; (b) retiree medical coverage comparable to the
Company's pre-change of control retiree medical plan; (c) a lump-sum payment
equal to (i) his annual salary at termination together with his most recent
short-term annual incentive compensation payment during the year preceding
termination, multiplied by the smaller of the number "three" or the number of
years between the termination date and the date he reaches age 65 and (ii) an
amount necessary to offset any special federal excise tax on all payments
received under the termination agreement.
In addition to the foregoing, the Long-Term Incentive Compensation Plan contains
provisions that release restrictions from stock awards and stock options for all
members of the group if there is a change of control
20
<PAGE>
of the Company. Also, the Supplemental Retirement Plan for senior managers
provides that if a change of control of the Company occurs, pension benefits
will vest immediately and the minimum benefit will be increased from 25% to 50%
of pensionable remuneration.
The Company has authorized a grantor trust under Sections 671 through 677 of the
Code in connection with the Company's benefit plans and termination agreements.
Under the grantor trust, the trustee will pay the beneficiaries of the trust the
amounts to which they are entitled under such plans and agreements subject to
claims of the Company's creditors.
21
<PAGE>
[LOGO]
TWO MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
Printed on Hammermill Papers, Accent Opaque 40 lbs.
Hammermill Papers is a division of International Paper.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports, dated February 13, 1996, included and incorporated by reference in
this Form 10-K, into the Company's previously filed Registration Statement No.
333-1667.
ARTHUR ANDERSEN LLP
New York, N.Y.
March 28, 1996
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 this 12th day of March, 1996, at New York, New York.
Name Title
---- -----
/s/ John T. Dillon President, Director, and Chief Operating Officer
- ------------------------
(John T. Dillon)
/s/ C. Wesley Smith Executive Vice President and Director
- ------------------------
(C. Wesley Smith)
/s/ Willard C. Butcher Director
- ------------------------
(Willard C. Butcher)
/s/ Robert J. Eaton Director
- ------------------------
(Robert J. Eaton)
/s/ Stanley C. Gault Director
- ------------------------
(Stanley C. Gault)
/s/ Thomas C. Graham Director
- ------------------------
(Thomas C. Graham)
/s/ Arthur G. Hansen Director
- ------------------------
(Arthur G. Hansen)
Name Title
---- -----
Director
- ------------------------
(John R. Kennedy)
/s/ Donald F. McHenry Director
- ------------------------
(Donald F. McHenry)
/s/ Patrick F. Noonan Director
- ------------------------
(Patrick F. Noonan)
/s/ Jane C. Pfeiffer Director
- ------------------------
(Jane C. Pfeiffer)
Director
- ------------------------
(Edmund T. Pratt, Jr.)
/s/ Charles R. Shoemate Director
- ------------------------
(Charles R. Shoemate)
/s/ Roger B. Smith Director
- ------------------------
(Roger B. Smith)
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 312
<SECURITIES> 0
<RECEIVABLES> 2,672
<ALLOWANCES> (101)
<INVENTORY> 2,784
<CURRENT-ASSETS> 206
<PP&E> 19,413
<DEPRECIATION> (8,416)
<TOTAL-ASSETS> 23,977
<CURRENT-LIABILITIES> 4,863
<BONDS> 5,946
<COMMON> 263
0
0
<OTHER-SE> 7,534
<TOTAL-LIABILITY-AND-EQUITY> 23,977
<SALES> 19,797
<TOTAL-REVENUES> 19,797
<CGS> 13,896
<TOTAL-COSTS> 17,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 493
<INCOME-PRETAX> 2,028
<INCOME-TAX> 719
<INCOME-CONTINUING> 1,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,153
<EPS-PRIMARY> 4.45
<EPS-DILUTED> 4.41
</TABLE>
