<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
---------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NO. 1-3157
------------------------
INTERNATIONAL PAPER COMPANY
(Exact name of Company as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 13-0872805
(State or other jurisdiction of (I.R.S. Employee Identification No.)
incorporation or organization)
TWO MANHATTANVILLE ROAD, PURCHASE, N.Y. 10577
(Address of principal executive offices) (Zip Code)
</TABLE>
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: 914-397-1500
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- - --------------------------------------------------------------------------- --------------------------------------------------
<S> <C>
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
</TABLE>
------------------------
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ) 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. / /
The Aggregate market value of the common stock of the Company outstanding as
of February 28, 1997, held by non-affiliates of the Company was $11,386,671,055,
calculated on the basis of the closing price on the Composite Tape on February
28, 1997. 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 28, 1997:
<TABLE>
<CAPTION>
OUTSTANDING IN TREASURY
- - -------------------------------------------------------------- --------------------------------------------------------------
<S> <C>
300,699,457 498,663
</TABLE>
The following documents are incorporated by reference into the parts of this
report indicated below:
<TABLE>
<S> <C>
1996 ANNUAL REPORT TO SHAREHOLDERS PARTS I, II AND
(PAGE 1 AND PAGES 15 THROUGH 60) IV
PROXY STATEMENT, DATED MARCH 28, 1997 PART III
</TABLE>
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
International Paper Company, (referred to subsequently as the "Company" or
"International Paper") a New York corporation incorporated in 1941 as the
successor to the New York corporation of the same name organized in 1898, is a
global paper and forest products company that produces printing and writing
papers, pulp, paperboard and packaging and wood products. It also manufactures
specialty items including tissue products; photographic films, papers and
equipment; nonwovens; specialty chemicals; and specialty panels and laminated
products. The Company also distributes printing and writing papers and other
products in the United States, Europe and the Pacific Rim.
In the United States at December 31, 1996, the Company operated 27 pulp,
paper and packaging mills, 60 converting and packaging plants, 34 wood products
facilities, 13 specialty panels and laminated products plants, 6 nonwoven
products facilities, 3 imaging products facilities and 5 specialty chemicals
plants. Production facilities at December 31, 1996 in Europe, Asia, Latin
America and Canada included 15 pulp, paper and packaging mills, 32 converting
and packaging plants, one wood products plant, 4 specialty panels and laminated
products plants, 3 nonwoven products facilities, 5 imaging products facilities
and 5 specialty chemicals plants. The Company distributes printing, packaging,
graphic arts and industrial supply products, primarily manufactured by other
companies, through over 300 distribution branches located primarily in the
United States, and also engages in oil and gas and real estate activities in the
United States. At December 31, 1996, the Company controlled approximately 6.4
million acres of forestlands in the United States.
Through its acquisition of Carter Holt Harvey, the Company, primarily in New
Zealand and Australia, operates 6 mills producing pulp, paper, packaging and
tissue products, 29 converting and packaging facilities, 54 wood products
manufacturing and distribution facilities, and 7 building products plants.
Carter Holt Harvey distributes paper and packaging products through 17
distribution branches located in New Zealand and Australia. In New Zealand,
Carter Holt Harvey controls approximately 800,000 acres of forestlands.
On March 12, 1996, the Company completed the merger with Federal Paper Board
(Federal), a diversified forest and paper products company. Under the terms of
the merger agreement, Federal shareholders received, at their election and
subject to certain limitations, either $55 in cash or a combination of cash and
International Paper common stock worth $55 for each share of Federal common
stock. To complete the merger, Federal shares were acquired for approximately
$1.3 billion in cash and $1.4 billion in International Paper common stock, and
approximately $800 million of debt was assumed.
In August 1996, the Company acquired Forchem, a tall oil and turpentine
processor in Finland. In September 1996, Carter Holt Harvey, a consolidated
subsidiary, acquired Forwood Products, the timber processing business of the
South Australian Government.
In late April 1995, the Company acquired approximately 26% of Carter Holt
Harvey, a New-Zealand based forest and paper products company for $1.1 billion.
The acquisition increased International Paper's ownership to just over 50%. As a
result, Carter Holt Harvey was consolidated into International Paper's financial
statements beginning on May 1, 1995. Prior to this date the equity accounting
method was utilized.
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,
1
<PAGE>
was acquired. In October, the Company purchased the inks and adhesives resin
business of DSM located in Niort, France.
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.
With the exception of Kirk Paper Corporation, which was accounted for as a
pooling-of-interests, all of the 1996, 1995 and 1994 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.
A further discussion of mergers and acquisitions can be found on pages 37,
38 and 49 of the Annual Report, which information is incorporated herein by
reference.
From 1991 through 1996, International Paper's capital expenditures
approximated $7.5 billion, excluding mergers and acquisitions. These
expenditures reflect the continuing efforts to improve product quality and
environmental performance, lower costs, expand production capacity, and acquire
and improve forestlands. Capital spending in 1996 was approximately $1.4 billion
and is budgeted to be approximately $1.2 billion in 1997. A further discussion
of capital expenditures can be found on pages 37 and 38 of the Annual Report,
which information is incorporated herein by reference.
The Company, primarily through its majority-owned subsidiary, IP
Timberlands, Ltd. (IPT), a Texas limited partnership, and the merger with
Federal, controlled approximately 6.4 million acres of forestlands in the United
States at December 31, 1996. IPT controlled approximately 5.6 million acres of
forestlands in the United States at December 31, 1996. IPT was formed to succeed
to substantially all of International Paper's forestlands business for the
period 1985 through 2035 unless earlier terminated. Through its ownership of
Carter Holt Harvey, International Paper controls approximately 800,000 acres of
forestlands in New Zealand.
On March 29, 1996, IPT completed the sale of a 98% general partnership
interest in a subsidiary partnership that owns approximately 300,000 acres of
forestlands located in Oregon and Washington. Included in the net assets of the
partnership interest sold were forestlands, roads and $750 million of long-term
debt. As a result of this transaction, International Paper recognized in its
first-quarter consolidated results a $592 million pre-tax gain ($336 million
after taxes and minority interest expense or $1.25 per share). IPT and
International Paper retained nonoperating interests in the partnership.
Also in the first quarter of 1996, the Company's Board of Directors
authorized a series of management actions to restructure and strengthen existing
businesses that resulted in a pre-tax charge to earnings of $515 million ($362
million after taxes or $1.35 per share). The charge included $305 million for
the write-off of certain assets, $100 million for asset impairments (related to
the adoption of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of"), $80 million in associated severance costs and $30 million of other
expenses, including the cancellation of leases. Accruals for one-time cash
costs, which included severance and other expenses, totaled $110 million.
Approximately $34 million of these costs were incurred in 1996 and the remainder
will be spent in 1997.
In the fourth quarter of 1996, the Company recorded a $165 million pre-tax
charge ($105 million after taxes or $.35 per share) for the write-down of its
investment in Scitex, a company that markets digital communication products, and
to record its share of a restructuring charge announced by Scitex in November
1996.
FINANCIAL INFORMATION CONCERNING INDUSTRY SEGMENTS
The financial information concerning segments is set forth on pages 18, 19,
22, 23, 26, 27, 30, 31, 34, 35, 37 and 42 of the Annual Report, which
information is incorporated herein by reference.
2
<PAGE>
FINANCIAL INFORMATION ABOUT INTERNATIONAL AND DOMESTIC OPERATIONS
The financial information concerning international and domestic operations
and export sales is set forth on page 41 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 18, 19, 22, 23, 26, 27, 30, 31,
34, 35 and 36 through 40 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 2 through 35 of the
Annual Report, which information is incorporated herein by reference.
Production of major products for 1996, 1995 and 1994 was as follows:
PRODUCTION BY PRODUCTS
(UNAUDITED)
<TABLE>
<CAPTION>
1996(D,F) 1995(E,F) 1994(F)
----------- ----------- -----------
<S> <C> <C> <C>
Printing Papers (in thousands of tons)
Business Papers................................................................. 3,875 3,432 3,173
Coated Papers................................................................... 1,089 1,136 1,036
Market Pulp(A).................................................................. 2,007 1,733 1,611
Newsprint....................................................................... 94 91 68
Packaging (In thousands of tons)
Containerboard.................................................................. 2,702 2,387 2,164
Bleached Packaging Board........................................................ 1,885 1,167 1,044
Industrial Papers............................................................... 667 653 610
Industrial and Consumer Packaging(B)............................................ 3,313 2,952 2,946
Speciality Products (in thousands of tons)
Tissue.......................................................................... 126 68 --
Forest Products (In millions)
Panels (sq. ft. 3/8" basis)(C).................................................. 1,218 936 882
Lumber (board feet)............................................................. 1,815 1,104 953
MDF (sq. ft. 3/4" basis)........................................................ 285 263 138
Particleboard (sq. ft. 3/4" basis............................................... 192 182 176
</TABLE>
3
<PAGE>
- - ------------------------
(A) This excludes market pulp purchases.
(B) 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 amounts in
this table.
(C) Panels include plywood and oriented strand board.
(D) Includes Federal Paper Board from March 12, 1996 and Carter Holt Harvey for
a full year.
(E) Includes amounts for Carter Holt Harvey as applicable since May 1, 1995.
(F) 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; Loveland, Ohio; Mobile, Alabama; Panama City, Florida; 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; packaging design and
materials development; 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 $112.5 million in 1996, $110.8 million in 1995
and $102.6 million in 1994.
ENVIRONMENTAL PROTECTION
Controlling pollutants discharged into the air, water and groundwater to
avoid adverse impacts on the environment, making continual improvements in
environmental performance and achieving 100% compliance with applicable law
regulations are continuing objectives of the Company. The Company has invested
substantial funds to modify facilities to assure compliance, and plans to make
substantial capital expenditures for these purposes in the future. The completed
merger with Federal Paper Board will increase environmental expenditures. The
amount of these expenditures in 1996 and those for future years are included in
the discussion in the following paragraphs.
A total of $130 million was spent in 1996 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 $140 million in 1997
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 1998 through 1999 is in the range
of $350 million to $580 million.
4
<PAGE>
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 (the "Cluster
Regulations"). 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
Regulations 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 Regulations 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 Congress and the EPA over the last three 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 expenditures 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 39 and 40
of the Annual Report, which information is incorporated herein by reference.
As of December 31, 1996, $981 million of industrial and pollution control
revenue bonds, secured by Company contractual obligations, were outstanding in
63 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, 1996, the Company had approximately 87,000 employees, of
whom approximately 56,000 were located in the United States and the remainder
overseas. Of the domestic employees, approximately 38,000 are hourly employees,
approximately 17,000 of whom are represented by the United Paperworkers
International Union.
During 1996, new labor agreements were reached at the Pineville, Texarkana,
Thilmany, Ticonderoga, and Woronoco mills. Currently, negotiations are still in
progress at the Augusta and Sprague mills of the former Federal Paper Board, and
the Gardiner Mill.
During 1997, labor agreements are scheduled to be negotiated at the
following mills: Mobile, Riverdale, Oswego, Millers Falls, and Vicksburg. During
1998, labor agreements are scheduled to be negotiated at the following mills:
Louisiana, Moss Point, and Pine Bluff.
During 1996, labor agreements expired in 13 packaging plants, four wood
products plants and nine distribution operations. New labor agreements were
negotiated at each location except one packaging plant, two wood products plants
and three distribution operations where negotiations were still in progress at
year end. Two packaging plants have contracts 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."
5
<PAGE>
ITEM 2. PROPERTIES.
FORESTLANDS
The principal raw material used by International Paper is wood in various
forms. At December 31, 1996, the Company controlled approximately 6.4 million
acres of forestlands in the United States. Of this acreage, IP Timberlands, Ltd.
("IPT"), a limited partnership in which the Company has a majority ownership
interest, controlled approximately 5.6 million acres of forestlands in the U.S.
An additional 800,000 acres of Forestlands in New Zealand are held through
Carter Holt Harvey, a consolidated subsidiary of International Paper. In March
1996, IPT sold a 98% general partnership interest in a subidiary partnership
owning all of IPT'S Western region assets, which included approximately 300,000
acres of forestlands in Oregon and Washington.
During 1996, the U.S. forestlands supplied 1.7 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: 13% in its
Northern mills, 15% in its Southern mills and none in its Western mill. The
balance was acquired from other private industrial and nonindustrial forestland
owners, with only an insignificant amount coming from public lands of the United
States government. In addition, 4.4 million cords of wood were sold to other
users in 1996. 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 37 and 38 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 1997, as of December 31, 1996 are set forth on pages 37 and 38
of the Annual Report, which information is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
DIOXIN LITIGATION
Since 1991, the Company has reported on lawsuits which alleged that the
Company had polluted various bodies of water in Mississippi, Louisiana, Arkansas
and Texas by discharging certain chemicals, including dioxin, thereby causing
personal injury, property damage, business loss, and fear of contracting
disease.
All of the lawsuits have been resolved by summary judgment in favor of the
Company and are no longer pending. Therefore, the Company will no longer be
reporting on these matters.
6
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MASONITE LITIGATION
A lawsuit which has been certified as a nationwide class action was filed
against the Company and Masonite Corporation, a wholly owned subsidiary of the
Company (Masonite), on December 27, 1994, in Mobile County Circuit Court,
Mobile, Alabama. This lawsuit alleged that hardboard siding, which is used as
exterior cladding for residential dwellings and is manufactured by Masonite,
fails prematurely, allowing moisture intrusion. It alleged further that the
presence of moisture in turn causes the failure of the structure underneath the
siding. The class consists of all owners of homes in the United States having
Masonite hardboard siding manufactured after 1980. It is impossible to know how
many homes have this siding, but it is estimated that there are between three
and four million. 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 was remanded to the Mobile County Circuit
Court where a Phase I trial was conducted in August and September of 1996 to
determine the sole issue of inherent product defect. The jury, in attempting to
apply the various laws of all the states on a nationwide basis, returned a mixed
decision that found in favor of the Company and Masonite in some jurisdictions
and in favor of the plaintiffs in other jurisdictions. A Phase II trial is set
for July 14, 1997 on the remaining issues in the case. The Company and Masonite
feel that there are valid defenses to this case and will continue to 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 lawsuits
will not have a material adverse effect on its consolidated financial position
or results of operation.
ARIZONA CHEMICAL
As reported previously, Arizona Chemical Company (Arizona), a wholly owned
subsidiary of the Company, was the subject of a federal investigation concerning
environmental issues. On September 26, 1996, Arizona entered a plea of guilty to
two counts alleging violations of the Clean Water Act at a facility in Gulfport,
Mississippi, and one count alleging violations of hazardous waste requirements
at a facility in Picayune, Mississippi. Pursuant to an agreement with the
government, Arizona paid a criminal penalty of $2.5 million and was placed on
probation for three years. Arizona also paid a civil penalty of $150,000 and
restitution in the amount of $1.5 million to the Mississippi Department of
Environmental Quality.
In addition to the resolution of the Arizona matter, the Company paid civil
penalties related to environmental issues of $1,053,000 in 1996. Civil penalties
related to these issues were $630,000 and $960,000 for the years 1995 and 1994,
respectively.
OTHER LITIGATION
An order was entered on April 11, 1996, in Maine Superior Court, whereby in
consideration of the payment of $175,296, the Company settled with both the
State of Maine and the Town of Jay, all air emission violations that may have
occurred through December 31, 1995, as well as all alleged violations of state
waste water discharge and hazardous waste laws through December 31, 1995. This
concluded the actions involving emissions from the Company's Adroscoggin mill's
lime kiln. The Company paid and did not appeal the $22,000 penalty assessed by
the Town in its order of October 14, 1993.
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 April 24, 1996, a
consent decree resolving this matter was entered by the U.S. District Court for
the Northern District of California. The consent decree included a civil penalty
of $600,000.
7
<PAGE>
As of March 31, 1997, 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 73 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 27 of these sites; that liability is not
likely to be significant at 34 sites; and that estimates of liability at 12 of
these sites is likely to be significant but not material to the Company's
consolidated financial position or results of operations.
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.
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 material 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, 1996.
8
<PAGE>
SPECIAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY.
INTERNATIONAL PAPER COMPANY
EXECUTIVE OFFICERS
AS OF FEBRUARY 28, 1997
INCLUDING NAME, AGE, OFFICES AND POSITIONS HELD (1) AND
BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
John T. Dillon, 58, chairman and chief executive officer since 1996. Prior
to that he was executive vice president-packaging from 1987 to 1995 when he
assumed the position of president and chief operating officer.
C. Wesley Smith, 57, executive vice president--printing papers since 1992.
Prior thereto he was president--International Paper Europe from 1989.
W. Michael Amick, 56, 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, Jr., 56, executive vice president--legal and external
affairs. He assumed his current position in 1991.
David W. Oskin, 54, 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.
Milan J. Turk, 58, 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, 59, senior vice president, human resources since 1989.
Thomas E. Costello, 57, senior vice president--distribution businesses since
March 1997. Prior to that he was president--ResourceNet International, the
Company's distribution business since 1991.
Marianne M. Parrs, 53, 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, 54, vice president and controller since 1995. Prior
thereto he was the controller since 1990.
William B. Lytton, 48, 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.
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 1996
and 1995 are set forth on page 60 of the Annual Report and are incorporated
herein by reference.
As of March 21, 1997, there were 300,865,985 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 58 and 59 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 18, 19, 22, 23, 26, 27, 30, 31, 34 and 35 through 40 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 43 through 57 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 7 through 10 of the Company's Notice of 1997 Annual Meeting and Proxy
Statement, dated March 27, 1997 (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 through 15 and 17 through 22 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 following:
<TABLE>
<S> <C> <C>
MERRILL LYNCH CO., INC. AND MERRILL LYNCH PIERCE FENNER &
SMITH INCORPORATED 30,608,893 10.2%
</TABLE>
As of March 13, 1997, Merrill Lynch & Co., Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated are, respectively, a parent holding company and a
broker-dealer registered under Section 15 of the Securities Exchange Act of 1934
(the "Act"). They, or subsidiaries, hold these shares primarily as
10
<PAGE>
sponsor and investment advisor to various registered investment companies, but
disclaim beneficial ownership thereof other than certain of which are held in
proprietary accounts.
<TABLE>
<S> <C> <C>
STATE STREET BANK & TRUST CO., N.A. 25,523,640 8.5%
</TABLE>
As of December 31, 1996, 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 benefit 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 25,523,640 shares of common stock of the
Company. The trustee disclaims beneficial ownership of all such shares except
3,229,706 shares of which it has sole power to dispose or to direct the
disposition. 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.
<TABLE>
<S> <C> <C>
THE CAPITAL GROUP COMPANIES, INC. AND CAPITAL
RESEARCH & MANAGEMENT COMPANY 15,165,000 5.0%
</TABLE>
As of February 12, 1997 the Capital Group Companies, Inc. holds such shares
as the parent holding company of a group of investment management companies that
hold investment power and, in some cases, voting power over these securities.
The investment management companies, which include a "bank" as defined in
Section 3(a)6 of the Act and several investment advisers registered under
Section 203 of the Investment Advisers Act of 1940, provide investment advisory
and management services for their respective clients which include registered
investment companies and institutional accounts. The Capital Group Companies,
Inc. does not have investment power or voting power over any of the securities
reported here; however, The Capital Group Companies, Inc. may be deemed to
"beneficially own" such securities by virtue of Rule 13d-3 under the Act.
Capital Research and Management Company, an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940 and wholly owned subsidiary
of The Capital Group Companies, Inc., is the beneficial owner of these shares as
a result of acting as investment adviser to various investment companies
registered under Section 8 of the Investment Company Act of 1940.
<TABLE>
<S> <C> <C>
COMMON STOCK HELD BY DIRECTORS
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP 1,622,158 0.54%
</TABLE>
The table showing ownership of the Company's common stock held by directors
and by directors and executive officers as a group is set forth on page 4 of the
Proxy Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None, other than those described under Item 11.
FORWARD-LOOKING INFORMATION
THIS 1996 ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS CONCERNING PROJECTED MODEST IMPROVEMENT IN EARNINGS AT INTERNATIONAL
PAPER. ACTUAL RESULTS MAY DIFFER BASED PRIMARILY ON OVERALL DEMAND AND WHETHER
PRICING INITIATIVES FOR VARIOUS PAPER AND PACKAGING PRODUCTS CAN BE REALIZED IN
1997 AND ANTICIPATED SAVINGS FROM RESTRUCTURING ARE ACHIEVED.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBITS:
<TABLE>
<S> <C>
(11) Statement of Computation of Per Share Earnings
(12) Computation of Ratio of Earnings to Fixed Charges
(13) 1996 Annual Report to Shareholders of the Company
(21) List of Significant Subsidiaries
(22) Proxy Statement, dated March 28, 1997
(23) Consent of Independent Public Accountants
(24) Power of Attorney
(27) Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
A Current Report on Form 8-K was filed by the Company on February 18, 1997.
FINANCIAL STATEMENT SCHEDULES
The consolidated balance sheets as of December 31, 1996 and 1995 and the
related consolidated statements of earnings, cash flows and common shareholders'
equity for each of the three years ended December 31, 1996 and the related Notes
to Consolidated Financial Statements, together with the report thereon of Arthur
Andersen LLP, dated February 7, 1997, appearing on pages 43 through 57 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.
12
<PAGE>
ADDITIONAL FINANCIAL DATA
1996, 1995 AND 1994
<TABLE>
<CAPTION>
Report of Independent Public Accountants on Financial Statement Schedule............. 14
<S> <C>
Consolidated Schedule:
II--Valuation and Qualifying Accounts.............................................. 15
</TABLE>
13
<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 1996 Annual
Report to Shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated February 7, 1997. 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, NY
February 7, 1997
14
<PAGE>
SCHEDULE II
INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
FOR YEAR ENDED DECEMBER 31, 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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...................... $ 101 $ 22 $ 0 $ (22)(A) $ 101
--
--
----- --- --- -----
----- --- --- -----
FOR YEAR ENDED DECEMBER 31, 1995
- - -------------------------------------------------------------------------------------------
<CAPTION>
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
--
--
----- --- --- -----
----- --- --- -----
FOR YEAR ENDED DECEMBER 31, 1994
- - -------------------------------------------------------------------------------------------
<CAPTION>
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
--
--
----- --- --- -----
----- --- --- -----
</TABLE>
- - ------------------------
(A) Primarily write-offs, less recoveries, of accounts determined to be
uncollectible.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C> <C>
INTERNATIONAL PAPER COMPANY
BY:
<CAPTION>
JAMES W. GUEDRY
---------------------------------------
James W. Guedry,
VICE PRESIDENT AND SECRETARY
</TABLE>
March 28, 1997
Pursuant to the requirements of the securities exchange act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- - ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
JOHN T. DILLON Chairman of the Board, March 28, 1997
------------------------------------------- Chief Executive
(John T. Dillon) Officer and Director
C. WESLEY SMITH* Executive Vice March 28, 1997
------------------------------------------- President and Director
(C. Wesley Smith)
WILLARD C. BUTCHER* Director March 28, 1997
-------------------------------------------
(Willard C. Butcher)
ROBERT J. EATON* Director March 28, 1997
-------------------------------------------
(Robert J. Eaton)
STANLEY C. GAULT* Director March 28, 1997
-------------------------------------------
(Stanley C. Gault)
JOHN A. GEORGES* Director March 28, 1997
-------------------------------------------
(John A. Georges)
THOMAS C. GRAHAM* Director March 28, 1997
-------------------------------------------
(Thomas C. Graham)
JOHN R. KENNEDY* Director March 28, 1997
-------------------------------------------
(John R. Kennedy)
DONALD F. MCHENRY* Director March 28, 1997
-------------------------------------------
(Donald F. McHenry)
PATRICK F. NOONAN* Director March 28, 1997
-------------------------------------------
(Patrick F. Noonan)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- - ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
JANE C. PFEIFFER* Director March 28, 1997
-------------------------------------------
(Jane C. Pfeiffer)
EDMUND T. PRATT, JR.* Director March 28, 1997
-------------------------------------------
(Edmund T. Pratt, Jr.)
CHARLES R. SHOEMATE* Director March 28, 1997
-------------------------------------------
(Charles R. Shoemate)
ROGER B. SMITH* Director March 28, 1997
-------------------------------------------
(Roger B. Smith)
MARIANNE M. PARRS Senior Vice President and March 28, 1997
------------------------------------------- Chief Financial Officer
(Marianne M. Parrs)
ANDREW R. LESSIN Vice President and Controller and March 28, 1997
------------------------------------------- Chief Accounting Officer
(Andrew R. Lessin)
*By: JAMES W. GUEDRY
(James W. Guedry,
ATTORNEY-IN-FACT)
</TABLE>
17
<PAGE>
APPENDIX I
1996 LISTING OF FACILITIES
PRINTING PAPERS
BUSINESS PAPERS, COATED PAPERS
AND PULP
DOMESTIC:
Mobile, Alabama
Selma, Alabama
(Riverdale Mill)
Camden, Arkansas
Pine Bluff, Arkansas
Augusta, Georgia
Bastrop, Louisiana
(Louisiana Mill)
Springhill, Louisiana
(C & D Center)
Jay, Maine
(Androscoggin Mill)
Millers Falls, Massachusetts
West Springfield,
Massachusetts
Westfield, Massachusetts
(C & D Center)
Woronoco, Massachusetts
Moss Point, Mississippi
Natchez, Mississippi
Corinth, New York
(Hudson River Mill)
Ticonderoga, New York
Riegelwood, North Carolina
Hamilton, Ohio
Erie, Pennsylvania
Lock Haven, Pennsylvania
Georgetown, South Carolina
Texarkana, Texas
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
Inverurie, Scotland
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
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
Hamilton, New Zealand
Hastings, New Zealand
Levin, New Zealand
Nelson, New Zealand
Barcelona, Spain
Bilbao, Spain
Valladolid, Spain
Thrapston, United Kingdom
Winsford, United Kingdom
Fiber Converting Plant
Auckland, New Zealand
BLEACHED BOARD
DOMESTIC:
Pine Bluff, Arkansas
Sprague, Connecticut
Augusta, Georgia
Moss Point, Mississippi
Georgetown, South Carolina
Riegelwood, North 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
Shanghai, China
Santiago, Dominican Republic
St. Priest, France
Kingston, Jamaica
A-1
<PAGE>
Hyogo, Japan
Seoul, Korea
Taipei, Taiwan
Caracas, Venezuela
IMPERIAL BONDWARE
Visalia, California
Shelbyville, Illinois
Kenton, Ohio
Menomonee Falls, Wisconsin
FOLDING CARTON
DOMESTIC:
La Grange, Georgia
Thomaston, Georgia
Clinton, Iowa
Hopkinsville, Kentucky
Durham, North Carolina
Hendersonville, North
Carolina
Wilmington, North Carolina
Cincinnati, Ohio
Richmond, Virginia
INTERNATIONAL:
Auckland, New Zealand
Christchurch, New Zealand
Palmerston North,
New Zealand
LABEL
Bowling Green, Kentucky
KRAFT PAPER
Mobile, Alabama
Camden, Arkansas
Moss Point, Mississippi
GROCERY BAGS & SACKS
Mobile, Alabama
Jackson, Tennessee
MULTIWALL BAGS
DOMESTIC:
Camden, Arkansas
Fordyce, Arkansas
Pittsburg, Kansas
Wilmington, Ohio
INTERNATIONAL:
Auckland, New Zealand
Palmerston North,
New Zealand
PLASTIC PACKAGING
DOMESTIC:
Janesville, Wisconsin
INTERNATIONAL:
Santiago, Chile
Albany, New Zealand
Auckland, 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
150 locations nationwide
Dillard Paper
Greensboro, North Carolina
22 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
6 locations in the West,
Southwest and Hawaii
Kirk Paper Company
Downey, California
2 locations in the West
Leslie Paper
Minneapolis, Minnesota
9 locations in the Midwest
Northeast Region
Erlanger, Kentucky
36 branches
in New England,
Middle Atlantic States,
Midwest and District of
Columbia
Western Pacific
Portland, Oregon
3 locations in the
Northwest
Western Paper Company
Overland Park, Kansas
22 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,
Australia, 4 locations
New Zealand, 13 locations
Poland, 5 locations
FOREST PRODUCTS
FORESTLANDS
DOMESTIC:
Approximately 6.4 million
acres in the South and
Northeast
INTERNATIONAL:
Approximately 800,000 acres
in New Zealand
WOOD PRODUCTS
DOMESTIC:
Maplesville, Alabama
Tuscaloosa, Alabama
Gurdon, Arkansas
Leola, Arkansas
Whelen Springs, Arkansas
Augusta, Georgia
Washington, Georgia
DeRidder, Louisiana
Springhill, Louisiana
Morton, Mississippi
Wiggins, Mississippi
Joplin, Missouri
Pleasant Hill, Missouri
Madison, New Hampshire
Riegelwood, North Carolina
Pilot Rock, Oregon
Johnston, South Carolina
Newberry, South Carolina
Sampit, South Carolina
Henderson, Texas
Jefferson, Texas
Mineola, Texas
Nacogdoches, Texas
New Boston, Texas
Danville, Virginia
Building Products
Ukiah, California
Lisbon Falls, Maine
Laurel, Mississippi
Towanda, Pennsylvania
A-2
<PAGE>
Fiberboard
Spring Hope, North Carolina
Marion, South Carolina
Particleboard
Stuart, Virginia
Waverly, Virginia
Slaughter
Dallas, Texas
2 branches in the
Southwest and Northwest
International:
Masonite Africa Limited
Estcourt Plant
Mt. Gambier, South Australia
Nangwarry, South Australia
Myrtleford,
New South Wales,
Australia
Mt. Druit, New South Wales,
Australia
Benella,
Victoria, Australia
Box Mill, Victoria, Australia
Auckland, New Zealand
Christchurch, New Zealand
Kopu, 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, 36 branches
in New Zealand
REALTY PROJECTS
Haig Point Plantation
Daufuskie Island,
South Carolina
SPECIALTY PRODUCTS
TISSUE
Mills:
Box Hill, Victoria, Australia
Kawerau, New Zealand
Klucze, Poland
Plants:
Box Hill, Victoria, Australia
Clayton, Victoria, Australia
Keon Park, Victoria,
Australia
Suva, Fiji
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
San Jose Ituebide, Mexico
IMAGING PRODUCTS
DOMESTIC:
Jacksonville, Florida
Holyoke, Massachusetts
Binghamton, New York
INTERNATIONAL:
Melbourne, Australia
Munich, Germany
Mobberley, Great Britain
Morley, Great Britain
Fribourg, Switzerland
CHEMICALS
DOMESTIC:
Panama City, Florida
Pensacola, Florida
Port St. Joe, Florida
Springhill, Louisiana
Picayune, Mississippi
INTERNATIONAL:
Oulu, Finland
Yalkeakoski, Finland
Niort, France
Sandarne, Sweden
Greaker, Norway
PETROLEUM
Alvin, Texas
Midland, Texas
Orange, Texas
SPECIALTY PANELS
DOMESTIC:
Chino, California
Ukiah, California
Cordele, Georgia
Glasgow, Kentucky
Odenton, Maryland
Laurel, Mississippi
Statesville, North Carolina
Tarboro, North Carolina
Klamoth Falls, Oregon
Towanda, Pennyslvania
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
Auckland, New Zealand
Christchurch, New Zealand
ROOFING
Corona, California
Auckland, New Zealand
SINKWARE
Adelaide, South Australia
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>
12345
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)
(UNAUDITED)
YEAR TO DATE
DECEMBER 31,
-----------------------------------
1996 1995 1994
-------- -------- -------
NET EARNINGS $ 303 $ 1,153 $ 357
Debenture interest savings, net of taxes,
assuming conversion of convertible
subordinated debentures 4 7
-------- -------- -------
Primary net earnings 303 1,157 364
Reduction in minority interest expense,
net of taxes, assuming conversion of
preferred securities of subsidiary * 7
-------- -------- -------
Fully diluted net earnings $ 303 $ 1,164 $ 364
-------- -------- -------
-------- -------- -------
Earnings per common share $ 1.04 $ 4.50 $ 1.43
-------- -------- -------
-------- -------- -------
Primary earnings per share $ 1.04 $ 4.45 $ 1.42
-------- -------- -------
-------- -------- -------
Fully diluted earnings per share $ 1.04 $ 4.41 $ 1.42
-------- -------- -------
-------- -------- -------
PRIMARY SHARES
Average shares outstanding 292.1 256.5 249.7
Shares assumed to be repurchased using
long-term incentive plan deferred
compensation at average market price (0.9) (0.8) (0.6)
Shares assumed to be issued upon exercise
of stock options, net of treasury
buyback at average market price 1.2 1.0 0.9
Shares assumed to be issued upon
conversion of convertible
subordinated debentures 3.4 5.8
-------- -------- -------
Primary shares 292.4 260.1 255.8
-------- -------- -------
-------- -------- -------
FULLY DILUTED SHARES
Average shares outstanding 292.1 256.5 249.7
Shares assumed to be repurchased using
long-term incentive plan deferred
compensation at period-end market
price (if higher than average
market price) (0.9) (0.8) (0.6)
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) 1.4 1.0 1.1
Shares assumed to be issued upon
conversion of convertible
subordinated debentures 3.4 5.8
Shares assumed to be issued upon
conversion of prefered securities
of subsidiary * 3.8
-------- -------- -------
Fully diluted shares 292.6 263.9 256.0
-------- -------- -------
-------- -------- -------
Note: The company reports earnings per common
share as the effect of dilutive securities
is less than 3%.
*The preferred securities of subsidiary were antidilutive for this period.
<PAGE>
(Exhibit 12)
INTERNATIONAL PAPER COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
For the Years Ended December 31,
<TABLE>
<CAPTION>
TITLE 1991 1992 1993 1994 1995 1996
- - ----------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
A) Earnings before income taxes, minority
interest, extraordinary item and
accounting changes $ 693.0 $226.0 $ 538.0 $ 715.0 $ 2,028.0 $ 802.0
B) Less: Minority interest expense,
net of taxes (42.0) (15.0) (36.0) (47.0) (156.0) (169.0)
C) Add: Fixed charges excluding
capitalized interest 380.3 325.3 365.3 412.3 605.9 672.4
D) Add: Amortization of previously
capitalized interest 9.9 9.9 12.2 12.8 13.0 17.8
E) Less: Equity in undistributed
earnings of affiliates (10.8) (19.1) (25.9) (49.1) (94.5) 6.2
-------- -------- -------- -------- -------- --------
F) EARNINGS BEFORE INCOME TAXES,
MINORITY INTEREST, EXTRAORDINARY
ITEM, ACCOUNTING CHANGES AND
FIXED CHARGES $ 1,030.4 $ 527.1 $ 853.6 $1,044.0 $ 2,396.4 $1,329.4
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
FIXED CHARGES
G) Interest and amortization of debt
expense $ 351.1 $ 297.1 $ 334.5 $ 371.0 $ 542.3 $ 582.8
H) Interest factor attributable to
rentals 29.2 28.2 30.8 41.3 53.0 66.0
I) Preferred dividends of subsidiary 10.6 23.6
J) Capitalized Interest 36.4 42.0 12.2 18.0 58.0 66.7
-------- -------- -------- -------- -------- --------
K) TOTAL FIXED CHARGES $ 416.7 $ 367.3 $ 377.5 $ 430.3 $ 663.9 $ 739.1
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
L) RATIO OF EARNINGS TO FIXED CHARGES 2.47 1.44 2.26 2.43 3.61 1.80
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
- - --------------------------------------------------------------------------------
DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER
SHARE AMOUNTS 1996 1995
- - --------------------------------------------------------------------------------
FINANCIAL SUMMARY
Net Sales $20,143 $19,797
Operating Profit 1,589(1),(2) 2,535(1)
Earnings Before Income Taxes and Minority Interest 802(2) 2,028
Net Earnings 303(2) 1,153
Total Assets 28,252 23,977
Common Shareholders' Equity 9,344 7,797
Return on Equity 3.4%(2) 16.1%
- - --------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK
Earnings $ 1.04(2) $ 4.50
Cash Dividends 1.00 .92
Common Shareholders' Equity 31.13 29.87
- - --------------------------------------------------------------------------------
SHAREHOLDER PROFILE
Shareholders of Record at December 31 33,930 31,340
Shares Outstanding at December 31 300.2 261.0
Average Shares Outstanding 292.1 256.5
- - --------------------------------------------------------------------------------
(1) See the operating profit tables on page 42 for details of operating profit
by industry segment. Results from equity investments are not included in
operating profit.
(2) Includes a pre-tax restructuring and asset impairment charge of $515
million ($362 million after taxes or $1.35 per share), a $592 million
pre-tax gain on the sale of a partnership interest ($336 million after
taxes and minority interest or $1.25 per share) and a $165 million pre-tax
charge ($105 million after taxes or $.35 per share) for the write-down of
the investment in Scitex. The write-down of the Scitex investment is not
included in operating profit. Return on equity was 4.8% before these
items.
- - --------------------------------------------------------------------------------
[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
"...you will see from our Company more accountability from our businesses for
increasing return on investment, more emphasis on serving customers and greater
participation by employees..."
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 1]
- - --------------------------------------------------------------------------------
JOHN T. DILLON,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
- - --------------------------------------------------------------------------------
In many respects, International Paper made a great deal of progress in 1996. We
added quality businesses and facilities in global markets, thereby adding to our
competitive strength. We successfully integrated Federal Paper Board into the
Company, exceeding the merger's financial targets. We completed one of the
largest internal expansion programs in our nearly 100-year history, positioning
the Company for continued market leadership into the next century. And in the
midst of one of the most severe industry downturns in more than a decade, we
undertook a thorough evaluation of our businesses, leading to decisions that
will guide our allocation of capital and set new requirements for acceptable
levels of profitability and industry leadership for each business.
In one important respect, however, 1996 did not meet our expectations.
Our financial performance was not satisfactory for a company with our range of
capabilities. Improving that performance in 1997 will be the most critical
objective for every one of International Paper's 87,000 employees. During this
year, you will see from our Company more accountability from our businesses for
increasing return on investment, more emphasis on serving customers and greater
participation by employees in the conduct and improvement of operations. The
urgency for achieving these improvements could not be greater.
The difficult market conditions that dominated 1996 continued into the
early part of this year. Those conditions actually began building in 1995.
Customers stockpiled substantial inventories in reaction to that year's rising
prices and subsequent supply shortages. As supply and demand came into balance,
inventories were liquidated and orders throughout the industry fell
2 INTERNATIONAL PAPER
<PAGE>
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 2]
DEVELOPING EXCITING NEW PRODUCTS REQUIRES THE EFFORTS OF MANY DEDICATED
EMPLOYEES. PICTURED HERE ARE SOME OF THE MEMBERS OF THE TEAM THAT HELPED TO
DEVELOP ACCOLADE, THE NEW COATED FREESHEET PAPER PRODUCT LINE AT OUR
ANDROSCOGGIN MILL IN JAY, MAINE.
- - --------------------------------------------------------------------------------
INTERNATIONAL PAPER 3
<PAGE>
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 3]
INTEGRATING TWO WORLD-CLASS ORGANIZATIONS IS A CHALLENGE, BUT THE BENEFITS ARE
WORTH THE EFFORT. OUR MERGER WITH FEDERAL PAPER BOARD CREATED AN EXCELLENT
BLEACHED BOARD SYSTEM FOR SERVING A DIVERSE CUSTOMER BASE. SHOWN HERE IS THE
SALES AND MARKETING MANAGEMENT TEAM ON-SITE AT OUR AUGUSTA, GA., MILL.
- - --------------------------------------------------------------------------------
4 INTERNATIONAL PAPER
<PAGE>
substantially. This caused prices to drop as well, in some cases by 30 percent
during 1996.
At International Paper, these developments strongly impacted 1996
financial results. Net sales of $20 billion were a slight increase over 1995
levels, including the addition of Federal Paper Board. Earnings before special
items were $434 million and were $303 million after these items compared with
$1.2 billion in 1995.
Following the record-setting year of 1995, when International Paper's
earnings per share were $4.50, we earned $1.04 per share after special items in
1996. Business conditions gained some strength in the fourth quarter of 1996 but
those gains were eroded by the seasonally weak period at year-end. Although we
compared favorably with many others in our industry, our earnings per share
must improve.
- - --------------------------------------------------------------------------------
OPERATIONAL EXCELLENCE
"Today, teams across our Company are reducing lead times, improving product
quality in our manufacturing facilities and communicating more frequently and
openly with customers."
- - --------------------------------------------------------------------------------
Much of our focus in the last several months has been on attaining that
objective. While it still appears that 1997 will be a recovery year, we will not
manage International Paper based entirely upon expectations of what the
marketplace will do and when it will do it. It is management's responsibility to
make the Company less vulnerable to marketplace conditions we cannot control by
concentrating more intensely on what we can control--improving our operating
performance across the board. These efforts will be directed toward areas that
can have a significant and immediate influence on results.
CUSTOMERS
Only one concept will drive our performance for customers. International Paper
will be the supplier of choice. We will offer competitive prices to be sure, but
we will not expect to earn business solely on the basis of price.
The total value of products and services that we provide to
INTERNATIONAL PAPER 5
<PAGE>
customers needs to be greater than that offered by our competition. In my
frequent meetings with customers, they stress to me the importance of service
and responsiveness in addition to product quality. Expectations are clear.
Customers want partners who deliver a broad range of competitive advantages.
These advantages begin with the consistent delivery of quality products
and services on time and to specification. We will continue to support and
expand high-performance work teams to ensure that we maintain the operational
excellence required to meet all customer expectations. Today, teams across our
Company are reducing lead times, improving product quality in our manufacturing
facilities and communicating more frequently and openly with customers. These
discussions are changing the way we do business in order to accommodate new
- - --------------------------------------------------------------------------------
[PARTIAL PHOTOGRAPH--APPENDIX B NO. 4]
- - --------------------------------------------------------------------------------
OUR COMPANY IS COMMITTED TO FOREST-RELATED RESEARCH, FOCUSING ON FOREST HEALTH
AND PRODUCTIVITY, WATER QUALITY AND WILDLIFE PROTECTION. SHOWN HERE IS A
FORESTRY TEAM IN A STAND OF OLD-GROWTH, LONGLEAF PINE, WHERE THEY STUDY THE
HABITAT OF THE RED COCKADED WOODPECKER IN OUR 16,000-ACRE SOUTHLANDS EXPERIMENT
FOREST IN BAINBRIDGE, GA.
- - --------------------------------------------------------------------------------
6 INTERNATIONAL PAPER
<PAGE>
- - --------------------------------------------------------------------------------
[PARTIAL PHOTOGRAPH--APPENDIX B NO. 4]
- - --------------------------------------------------------------------------------
RESPONSIBLE CORPORATE CITIZEN
"I want International Paper to be viewed as a highly responsible corporate
citizen...a company that continuously provides, for all generations, healthy and
sustainable natural resources."
- - --------------------------------------------------------------------------------
customer requirements. Accelerating this process will be a 1997 priority.
Looking beyond today, a supplier of choice also must be able to provide
customers with the new products and services that allow them to be first to
market tomorrow. We are positioned on two fronts to do this. First, over the
years, we have developed a strong technology base and we will continue to
increase the value of this strategic asset. Second, with more diversity of
products than any other company in our industry, we are able to fill a broad
range of customer needs.
We also will utilize our global diversity to better serve customers.
Today, when more products and services are sold around the world than ever
before, there is greater desire and need among companies to do business in
international marketplaces. We have more manufacturing experience, a stronger
market presence and more extensive distribution networks and we generate higher
levels of revenue around the globe than any other paper and forest products
company.
EMPLOYEES
In 1997, employees will have more responsibility for the management of our
businesses than ever before. This is a basic requirement of our high-performance
work teams and for the internal performance improvements we expect to achieve
this year.
Employees make an extraordinary difference at International Paper. I have
seen it in our manufacturing facilities, laboratories and offices and on lands
belonging to the Company. Time and again, I have seen the most effective ideas
for improving productivity, for making our facilities safer and for building
stronger relationships with customers begin with the employee who has the direct
responsibility. This process needs to go further.
Everyday, all over the world, International Paper employees are
INTERNATIONAL PAPER 7
<PAGE>
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 5]
SAFETY IS A TOP PRIORITY AMONG INTERNATIONAL PAPER'S EMPLOYEES. MASONITE'S
TOWANDA, PA., PLANT HAS ACHIEVED AN IMPRESSIVE SAFETY RECORD, EARNING OSHA'S
DISTINGUISHED "STAR" STATUS, THANKS TO THE MEMBERS OF VARIOUS SAFETY TEAMS AND
THE EFFORTS OF ALL EMPLOYEES AT THE MILL.
- - --------------------------------------------------------------------------------
MAKING A DIFFERENCE
"...I have seen the most effective ideas for... making our facilities
safer...begin with the employee who has the direct responsibility."
- - --------------------------------------------------------------------------------
mastering some aspect of their business that is transferable to other
organizations in our Company. Sharing these ideas, experiences and benefits,
using the broad diversity of a global leader as a competitive advantage-that is
what I have come to call the "IP Way." Innovative operating practices for a
paper machine in one location can improve results on other paper machines in
several other locations. But the application of the "IP Way" is not limited to
common machines. There are, by design, great similarities in the operations of
our various businesses, enabling them to take advantage of successful practices
in other lines of business both here and overseas.
These rapid transfers of knowledge and experience, magnified by the broad
range of assets and capabilities unique to a globally diverse company, are what
distinguishes one company from all others in an industry. They also can be
8 INTERNATIONAL PAPER
<PAGE>
- - --------------------------------------------------------------------------------
THE "IP WAY"
"Our ability to fulfill our vision will depend upon how quickly we become a
company of employees who think and act with the creativity, energy and drive to
succeed..."
- - --------------------------------------------------------------------------------
the foundation for how a company helps its customers improve their competitive
positions and how to build shareholder value. It is my intent that this process
become an integral part of the "IP Way."
More formally, the "IP Way" encompasses a broad statement of the Company's
vision, which consists of five commitments: 1) International Paper will be a
global leader and provide an excellent financial return. 2) We will be the
company of choice not only for customers but for shareholders, employees and
suppliers. 3) We will be responsible members of the communities where we live
and work. 4) Ethical behavior and personal integrity are the core of our
culture. 5) With customers and facilities around the globe, we answer to the
world.
Our ability to fulfill our vision will depend upon how quickly we become a
company of employees who think and act with the
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 6]
A TEAM-ORIENTED ENTREPRENEURIAL SPIRIT CAN TAKE A GREAT IDEA FROM THE DRAWING
BOARD DIRECTLY TO THE CUSTOMER. GATORPRINT, A NEW PRODUCT DEVELOPED BY THIS
CROSS-DIVISIONAL TEAM, REALLY HOLDS UP UNDER PRESSURE. EXCEPTIONAL STRENGTH AND
A SUPERIOR PRINTING SURFACE MAKE GATORPRINT AN EXCITING NEW MATERIAL FOR
ENVELOPES.
- - --------------------------------------------------------------------------------
<PAGE>
creativity, energy and drive to succeed and how completely we eliminate
management by mandate. For example, instead of being given corporate goals,
individual businesses are now expected to set their own goals for serving
customers, return on investment, profitability and market leadership. It will be
management's responsibility to involve employees in setting these goals and in
providing the resources and support necessary to achieve them.
The power of this approach shines through in the pictorial essays included
in this report. They illustrate teams that are successfully working together,
sharing both ideas and a commitment to excellence, not just within our industry
but in the wider corporate universe.
SHAREHOLDERS
That same commitment to excellence will redefine our relationship with
shareholders in 1997. We will be more shareholder-oriented, beginning with an
improvement
- - --------------------------------------------------------------------------------
[PARTIAL PHOTOGRAPH--APPENDIX B NO. 7]
TEAMS LIKE THIS ONE IN OUR DALLAS, TEXAS, REGIONAL WAREHOUSE MAKE SURE YOUR
ORDERS FROM RESOURCENET GET TO YOU QUICKLY AND EFFICIENTLY. FROM SALES TO
CUSTOMER SERVICE TO DISPATCH TO SHIPPING, EVERYONE WORKS FOR THE CUSTOMER.
- - --------------------------------------------------------------------------------
10 INTERNATIONAL PAPER
<PAGE>
- - --------------------------------------------------------------------------------
[PARTIAL PHOTOGRAPH--APPENDIX B NO. 7]
- - --------------------------------------------------------------------------------
SUPPLIER OF CHOICE
"The total value of products and services that we provide to customers needs to
be greater than that offered by our competition."
- - --------------------------------------------------------------------------------
in the Company's return on investment. Over the past decade, the Company's sales
growth has been impressive. This solid base now needs to be matched by similarly
impressive earnings growth. We have set the marker high-our goal is to earn a 12
percent average return on investment over a business cycle.
Several actions this year will move us toward that goal.
As previously noted, each of our businesses will establish as its
responsibility to shareholders an objective for the return on investment it will
deliver. We will measure performance and reward managers in accordance with
their success in meeting their commitments.
We also will support this goal by the way in which we allocate capital.
Those businesses that are meeting performance objectives for return on
investment and market leadership will receive the bulk of our investment
capital.
We define market leadership as being highly competitive on costs, having
unique technological strengths and being able to profitably grow. Some of our
businesses do not meet these criteria and must improve. Businesses that do not
have adequate plans for improvement within a reasonable time period, or are in
product lines to which we can add only limited value, will be sold or shut down.
Among the contributors to the industry's historically low return on
investment has been the addition of capacity in anticipation of market upswings.
Our capital spending this year will be focused on those projects that directly
benefit our cost structure and our ability to serve customers. We are not
planning any pulp or paper projects that would add significant capacity.
In fact, our capital budget will be $1.2 billion, inclusive of spending at
Carter Holt Harvey and the former Federal Paper Board
INTERNATIONAL PAPER 11
<PAGE>
operations. This is below our forecasted depreciation and amortization level of
$1.3 billion in 1997.
Operationally, we expect our return on investment this year to benefit
from several additional actions. Productivity improvements and the reduction of
working capital as a percent of sales are priorities. We will be returning free
cash flow to shareholders in the form of debt reduction and we intend to reduce
asset holdings that do not meet our long-term investment objectives.
LOOKING AHEAD
In my first year as Chairman, I have had the opportunity to travel to many
locations and meet and talk with thousands of employees, our customers and
shareholders. These discussions have crystallized for me the important tasks
ahead for our Company and they also have reaffirmed my confidence in our ability
to succeed in those efforts.
- - --------------------------------------------------------------------------------
WORLDWIDE OPERATIONS
"Today, we are well positioned to prosper in areas of the world where economic
growth rates and demand for our products will outpace those rates in the United
States."
- - --------------------------------------------------------------------------------
Our Company today is much different from what it was 10 years ago in many
respects, but in no more dramatic way than in the scope and breadth of our
worldwide operations. Today, we are well positioned to prosper in areas of the
world where economic growth rates and demand for our products will outpace those
rates in the United States. Our liquid packaging business, with facilities in
Asia and South America, is positioned to take advantage of such opportunities. A
new aseptic liquid packaging plant in Europe permits us to serve that very
attractive market. Our Kwidzyn mill in Poland gives us access to Eastern
European consumer markets that are just awakening. We have expanded our box
business in the United Kingdom. Arizona Chemical has expanded through an
acquisition in Finland. Our Veratec nonwovens business has new and modern
facilities in Canada and
12 INTERNATIONAL PAPER
<PAGE>
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 8]
WE ARE PROUD TO HAVE A STRONG PRESENCE IN POLAND, WHERE OUR MARKETING TEAM
SHARES CULTURAL AND BUSINESS EXPERTISE FOR THE BENEFIT OF CUSTOMERS SUCH AS
ANDRZEJ CHRZANOWSKI, PUBLISHER OF SCHOOL TEXTBOOKS (SECOND ROW, MIDDLE). SHOWN
HERE AT THE NATIONAL THEATRE IN WARSAW WITH LOCAL FOLK DANCERS ARE SOME MEMBERS
OF OUR POLISH MARKETING TEAM, WHICH INCLUDE POLISH AND AMERICAN EMPLOYEES.
- - --------------------------------------------------------------------------------
INTERNATIONAL PAPER 13
<PAGE>
- - --------------------------------------------------------------------------------
LOOKING AHEAD
"We will be more shareholder-oriented, beginning with an improvement in the
Company's return on investment...I want International Paper to be at the top of
our industry in profitability."
- - --------------------------------------------------------------------------------
Mexico to meet rising demand. And our majority interest in New Zealand's Carter
Holt Harvey, with its valuable softwood resources, expands our access to markets
in the Pacific Rim and gives us an important presence in Chile, the most vibrant
market economy in South America.
In this regard, I'd like to acknowledge my predecessor, John Georges, who
retired during 1996 after more than a decade as Chairman. More than any other
individual, John was responsible for "taking International Paper global." He
also was the guiding force behind the Company's substantial accomplishments in
managing change, using as an approach the setting of seemingly impossible
targets and motivating employees to perform beyond them. The list of John's
long-term contributions is extensive, but I'm sure he feels best about the
Company's dedication to continuous improvement and its ability to take on and
meet difficult challenges.
During my first year as Chairman, I've often been asked about my
objectives for International Paper. In addition to global leadership, I want
International Paper to be at the top of our industry in profitability. I want
our customers to know our Company as the supplier of choice, an organization
they wish to do business with because we make them more successful. I want our
employees to consider International Paper a great place to work and to be
stimulated by the diversity of opportunity offered by a company always on the
cutting edge of technological development and with a presence in markets all
over the world. I want International Paper to be viewed as a highly responsible
corporate citizen, a company that meets its responsibilities to its communities
and a company that continuously provides, for all generations, healthy and
sustainable natural resources. I can think of no other company in the industry
with more capabilities to meet these objectives than ours.
/s/ John T. Dillon
John T. Dillon
Chairman and
Chief Executive Officer
February 28, 1997
14 INTERNATIONAL PAPER
<PAGE>
A WORLD OF
PRODUCTS
From cities and towns across America to over 130 nations around the world,
International Paper products touch the everyday lives of consumers. But aren't
we basically a paper and forest products company? Of course we are. Our PRINTING
PAPERS are preferred by our customers worldwide. Our PACKAGING grades protect
our customers' goods, and enhanced graphics make them appealing to consumers.
Over the years however, these businesses have led us to related fields, making
us a leader in the DISTRIBUTION of paper, industrial products and graphic arts
supplies, and the manufacture of an impressive array of SPECIALTY PRODUCTS,
including tissue products and door facings. And our FOREST PRODUCTS are used to
build and furnish homes and offices. The widespread popularity and availability
of our products make us much more than a paper company; instead, International
Paper creates solutions to the communication, construction and production needs
of businesses and individuals worldwide.
INTERNATIONAL PAPER 15
<PAGE>
PRINTING
PAPERS
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 9]
- - --------------------------------------------------------------------------------
BOOK COVERS ARE ONE OF THE MANY USES FOR OUR SPRINGHILL AND CAROLINA BRISTOLS
GRADES.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 10]
- - --------------------------------------------------------------------------------
HIGH-QUALITY DUO, MADE IN SCOTLAND FOR CUSTOMERS IN EUROPE, CAN BE USED IN
COPIERS, PRINTERS AND FAXES.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 11]
- - --------------------------------------------------------------------------------
IT'S NOT SURPRISING THAT HAMMERMILL TIDAL DP REPROGRAPHIC PAPERS CAN BE FOUND IN
OFFICES ACROSS THE COUNTRY.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 12]
- - --------------------------------------------------------------------------------
OUR PULP GRADES ARE USED TO MAKE MANY DIVERSE PRODUCTS RANGING FROM PAPER TO
YARN.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 13]
- - --------------------------------------------------------------------------------
OUR KWIDZYN MILL'S POLSPEED, POLCOPY AND POLLUX BRAND PAPER PRODUCTS ARE USED
THROUGHOUT EUROPE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 14]
- - --------------------------------------------------------------------------------
OUR COATED PAPERS ARE USED TO PRODUCE MANY WELL-KNOWN PUBLICATIONS THAT YOU MAY
READ AND USE EVERY DAY. FOR EXAMPLE, LOUIS A. FORTE, MANAGER, CATALOG PUBLISHING
OPERATIONS, JCP MEDIA CORPORATION, IS HOLDING A COPY OF THE JCPENNEY CATALOG,
WHICH INCLUDES PUBLICATION GLOSS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
International Paper's printing papers business is present in markets around the
world, with production in seven countries. Our ability to produce about eight
million tons annually of printing papers makes our product range far reaching as
well. BUSINESS PAPERS About three and one-half million tons of paper for
business needs,
<PAGE>
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 15]
ZANDERS PRODUCES SOME OF THE WORLD'S FINEST COATED PAPERS FOR SOPHISTICATED
PRINTING.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 16]
SPRINGHILL PRINTING PAPERS AND BRISTOLS PROVIDE PRINTERS AND PUBLISHERS SUPERIOR
PRINT QUALITY.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 17]
OUR COATED PAPERS ARE USED IN A WIDE VARIETY OF MAGAZINES ENJOYED BY MILLIONS OF
READERS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 18]
WE PRODUCE AND MARKET SPECIALTY GRADES OF HAMMERMILL PAPER FOR SALE
IN RETAIL OUTLETS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 19]
OUR DISTINCTIVE STRATHMORE AND BECKETT PREMIUM FINE PAPERS ARE RECOGNIZED FOR
THEIR EXCELLENT QUALITY AND WIDE SELECTION.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 20]
IN FRANCE, AUSSEDAT REY'S GRADES INCLUDE REYPRINT, REPROGRAPHIC COATED PAPER FOR
COLOR LASER PRINTERS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
such as reprographic paper for copiers and paper for various kinds of printers;
offset papers for books, direct mail and other publications; uncoated bristols
for file folders and index cards; converting papers for tablets and envelopes;
and premium grades for high-quality artist, printing and writing needs.
COATED PAPERS Almost two million tons of coated paper for magazines, catalogs
and annual reports; coated bristols for book covers and commercial printing.
PULP Over two million tons of pulp, used as the basic ingredient for all papers
and paperboard, as well as disposable diapers and some fabrics.
<PAGE>
PRINTING PAPERS
Printing Papers reported 1996 sales of $5.6 billion, declining from $6.1 billion
in 1995. Operating profit fell to $185 million (after a special charge of $35
million) from a record $1.1 billion in 1995. In 1994, sales were $4.4 billion
and operating profit was $20 million. Pulp and paper markets softened in late
1995 and remained weak through the early part of 1996. During this time,
International Paper took 215,000 tons of downtime at its U.S. mills to control
inventory levels. Demand improved somewhat at midyear, but industry operating
rates, which averaged 92% to 93% for business and coated papers and 89% for pulp
in 1996, were not strong enough to sustain higher prices.
BUSINESS PAPERS sales were $3.0 billion, declining 9% from $3.3 billion
in 1995. Sales were $2.3 billion in 1994. Operating profit was only one-sixth
of that reported in 1995, following a loss in 1994. Results include the
contribution of Federal Paper Board's Tait mill in Scotland, which supplies
220,000 tons of uncoated papers annually to markets in the United Kingdom and
continental Europe.
In the U.S., high customer inventories of printing papers and bristols led
to weak demand and low operating rates. Average prices were 20% below 1995. Our
well-respected brands, Springhill and Hammermill business papers, Strathmore and
Beckett printing and artist papers, as well as Springhill and Carolina bristols,
continued to command a prominent presence in the marketplace.
In Poland, Kwidzyn's shipments were strong, but prices fell more than 30%
from the peak level of 1995. The mill reached a major milestone in 1996,
achieving product quality that matches that of leading Western European
suppliers. Kwidzyn also completed a major modernization program, and is now
Europe's lowest cost business papers mill. In Western Europe, Aussedat Rey and
Tait experienced price declines similar to Kwidzyn.
As 1997 begins, underlying demand is good and customer inventories are
close to normal levels. We expect improved business conditions and price
recovery as the year progresses. However, because early-1997 prices are
significantly below 1996 levels,
[Printing Papers Net Sales Chart--Appendix A No. 5]
[Printing Papers Sales By Business Pie Chart--Appendix A No. 7]
18 INTERNATIONAL PAPER
<PAGE>
it will be difficult to improve average prices year over year. Higher earnings
will come mainly from increased volumes, improved grade mix and cost control,
including a major effort to improve the efficiency of all of our mills and
reduce waste. Our goal is to produce A-1 quality paper 100% of the time.
COATED PAPERS sales of $1.7 billion were flat with 1995, but operating profit
declined nearly 30%, largely due to lower prices in the U.S. Weak demand for
coated ground-wood and severe price erosion characterized U.S. coated markets in
1996. During the year, we rebuilt a paper machine at our mill in Jay, Maine,
converting it to coated freesheet. Our unique new product line, Accolade, will
serve commercial printers and upscale catalogs and magazines. The mill will
employ proprietary technology to produce this world-class product at a
competitive advantage. While the project's start-up costs reduced earnings in
1996, we expect it to add positively in 1997. Overall, we see signs of stronger
demand and believe coated papers prices in the U.S. will strengthen as the year
progresses.
In Europe, Zanders' sales declined 14% due to lower prices, following a
20% increase in 1995. Zanders made significant progress in streamlining its
business and reducing costs, resulting in a significantly smaller loss than in
1995. Zanders is also expanding its marketing efforts for its well-regarded,
high-quality coated papers such as Chromolux and Ikono. In 1997, rising industry
capacity is likely to adversely affect European coated papers markets. However,
operating results should improve as Zanders benefits from lower pulp costs and
further cost reductions.
PULP sales of $900 million declined 18% from $1.1 billion in 1995. Federal Paper
Board brought 550,000 tons of annual pulp capacity to International Paper.
Operating profit declined substantially due to significantly lower prices for
paper pulps. We expect prices to recover once high producer inventories are
reduced. Pricing for specialty pulps, especially dissolving pulps used in
textiles, exhibited far more price stability.
[Printing Papers Operating Profit Chart--Appendix A No. 6]
[Printing Papers Sales to Geographic Areas Pie Chart--Appendix A No. 8]
FINANCIAL REVIEW
INTERNATIONAL PAPER 19
<PAGE>
PACKAGING
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 21]
IN POLAND, OUR KWIDZYN MILL NOW PRODUCES COATED MULTI-PLY FOLDING BOXBOARD FOR
PACKAGING MANY PRODUCTS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 22]
EVEN "SEATTLE'S BEST COFFEE" TASTES BETTER WHEN SERVED IN PAPER CUPS PRODUCED BY
IMPERIAL BONDWARE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 23]
OUR CORRUGATED BOXES NOT ONLY PROTECT OUR CUSTOMERS' PRODUCTS, BUT BOLD GRAPHICS
CAN HELP SELL THEM AS WELL.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 24]
OUR NEW ASEPTIC PACKAGING PLANT IN LYON, FRANCE, SERVES A GROWING MARKET FOR
DAIRY AND JUICE PRODUCTS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 25]
IT'S A "BREEZE" TO SEE WHY PACKAGING WITH VIVID FOUR-COLOR PRINTING GIVES OUR
CUSTOMERS AN ADVANTAGE ON THE SHELVES.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
With mills in four countries producing packaging grades of paper and board
and converting plants in over one dozen more, International Paper is truly a
global supplier of packaging products. INDUSTRIAL PACKAGING Three million
tons of containerboard manufactured annually worldwide; corrugated boxes
supplied from 51 plants in the U.S., Europe and New Zealand; and kraft paper
and packaging. CONSUMER PACKAGING Over two million tons of bleached board and
cartonboard produced annually for packaging cosmetics, software, tobacco
products, pharmaceuticals and food; fresh
<PAGE>
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 26]
OUR SPOUTPAK CARTONS ARE EASY-TO-POUR AND PROVIDE EXTENDED SHELF LIFE FOR DAIRY
AND JUICE PRODUCTS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 27]
CARTER HOLT HARVEY IN NEW ZEALAND HELPS TO BRING PRODUCTS TO MARKET WITH ITS
SUPERIOR PACKAGING CAPABILITIES.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 28]
OUR COLORFUL LABELS CAN BE FOUND ON MANY OF YOUR FAVORITE PRODUCTS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 29]
MERCHANDISE PURCHASED FROM FAMILIAR RETAILERS LIKE ACE HARDWARE IS CARRIED HOME
IN OUR KRAFT BAGS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 30]
OUR FOLDING CARTONS HAVE EYE-CATCHING GRAPHICS AND HELP PREVENT PRODUCTS FROM
"GOING TO PIECES."
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 31]
A VARIETY OF "HARVESTS" CAN BE PACKAGED IN THE CORRUGATED BOXES WE PRODUCE IN
EUROPE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 32]
IVY HILL CORPORATION (A TIME WARNER COMPANY) USES OUR EVEREST AND STARCOTE
BLEACHED BOARD AT ITS PLANTS IN INDIANA AND CALIFORNIA TO PRODUCE SUPERIOR
PACKAGING WITH BOLD GRAPHICS FOR ITS CUSTOMERS. IVY HILL EXECUTIVE VICE
PRESIDENT STEVEN H. SHAPOFF IS HOLDING A MICROSOFT(R) OFFICE(R) 97 CARTON THAT
WAS PRINTED ON EVEREST BOARD AT IVY HILL'S LOS ANGELES PLANT.
- - --------------------------------------------------------------------------------
and aseptic packaging for customers worldwide from 20 liquid packaging plants
in 11 countries; folding cartons from plants in the U.S. and New Zealand;
labels produced domestically; and cups made by Imperial Bondward.
<PAGE>
PACKAGING
Packaging achieved sales of $4.9 billion in 1996, increasing from $4.5
billion in 1995 and $3.4 billion in 1994. Operating profit was $421 million
(after a special charge of $42 million) compared with $741 million in 1995
and $293 million in 1994. While shipments across International Paper's
packaging businesses were generally stronger than in 1995, prices for
industrial packaging were significantly weaker, leading to lower 1996 segment
earnings.
INDUSTRIAL PACKAGING sales were $2.8 billion in 1996, declining 10% from
$3.1 billion in 1995, including the full-year impact of Carter Holt Harvey and
sales from our new containerboard machine in Mansfield, La., which reached
design capacity this year. Sales were $2.2 billion in 1994. Operating profit
in 1996 was 40% of that earned in 1995.
In the U.S., pricing weakness that began in late 1995 continued into 1996
due to excess new industry capacity. We curtailed production by 250,000 tons to
balance inventories. While prices declined steadily until late summer, demand
was relatively strong, with U.S. industry box shipments reaching record levels
in 1996. Overall, our shipments increased 8% but attempts to raise prices were
not successful and, for the year, average prices for containerboard were 30%
lower than in 1995. Conditions were similar in Europe, as well as in New
Zealand, where Carter Holt Harvey's margins were lower due to increased domestic
competition and price weakness in export markets.
In 1997, we will continue to strengthen customer relationships and grow
our premium-grade products supported by our new machine at Mansfield. The early
1996 introduction of WhiteTop linerboard is regarded to be the single most
successful product launch in our history. Additionally, Carter Holt Harvey will
proceed with a project to improve the competitiveness of the Kinleith mill by
simplifying their product mix and adding waste paper recycling capability and
pulp processing equipment. When completed in 1998, Kinleith will be one of the
lowest cost containerboard manufacturers in the Pacific Rim and will provide our
Asian customers with a full range of packaging materials. While we expect price
recovery during the year, average prices for containerboard and boxes may not
reach 1996
[Packaging Net Sales Chart--Appendix A No. 9]
[Packaging Sales By Business Pie Chart--Appendix A No. 11]
22 INTERNATIONAL PAPER
<PAGE>
levels. However, we believe our continuing marketing initiatives, as well as
productivity and cost-reduction efforts, will result in steadily improving
earnings in 1997. For example, our U.S. box business was recently aligned along
end-user markets and across geographic boundaries in an effort to be more
responsive to our customers' needs. This change in the way we do business has
allowed us to improve our service on a national and global level, and has made
us a supplier of choice with our worldwide customers.
CONSUMER PACKAGING sales were $2.1 billion in 1996. This compares with $1.4
billion in 1995 and $1.2 billion in 1994. Higher sales were due primarily to the
merger with Federal Paper Board in March. Operating profit was up 21% over 1995
and more than twice that of 1994. The very successful integration of Federal's
operations at its two low-cost U.S. bleached board mills, one boxboard mill and
seven converting plants was largely completed in 1996, and added to earnings per
share. The positive impact of Federal more than offset declines caused by weak
U.S. bleached board markets early in the year and costs to expand the Company's
liquid packaging business in France, Brazil and China. The addition of StarCote
to our well-known Everest brand has broadened our bleached board product line.
Imperial Bondware has also been a valuable addition to our consumer packaging
business. While 1996 average bleached board prices were down 8% from 1995,
demand improved late in the year.
Consumer packaging markets softened somewhat in early 1997, but we expect
overall demand to grow during the year. We anticipate that earnings will
strengthen, driven by further efficiencies as we continue to optimize our
combined manufacturing and marketing organizations. Importantly, International
Paper's strength in technology and Federal's focused marketing approach have
aided expansion of relationships with key customers including Nabisco, Quaker
Oats, The Dial Corporation and JCPenney. We also expect growth to continue in
offshore liquid packaging markets due to rising standards of living in
fast-growing economies in Asia and Latin America.
[Packaging Operating Profit Chart--Appendix A No. 10]
[Packaging Sales To Geographic Areas Pie Chart--Appendix A No. 12]
FINANCIAL REVIEW
INTERNATIONAL PAPER 23
<PAGE>
DISTRIBUTION
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 33]
FOR GRAPHIC ARTS, OUR COLORLOK LINE OF PRECISION PRINTING PRODUCTS GIVES OUR
CUSTOMERS SUPERIOR PERFORMANCE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 34]
OUR REPLICOPY REPROGRAPHIC PAPER IS JUST ONE OF THE MANY BRANDS OF PAPER
RESOURCENET INTERNATIONAL OFFERS THROUGHOUT ITS SYSTEM.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 35]
ROUNDING OUT OUR PRESENCE WORLDWIDE, CARTER HOLT HARVEY SERVES CUSTOMERS IN BOTH
NEW ZEALAND AND AUSTRALIA.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 36]
RESOURCENET INTERNATIONAL'S EXPRESS STORES CAN SUPPLY YOUR COMPANY WITH A WIDE
RANGE OF PRODUCTS FOR DAY-TO-DAY OFFICE NEEDS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 37]
RESOURCENET INTERNATIONAL IS COMMITTED TO OFFERING ITS CUSTOMERS THROUGHOUT
NORTH AMERICA THE EXCELLENT SERVICE THEY DEMAND AND DESERVE. SHOWN HERE IS KAREN
ASHLEY, MANAGER, GLOBAL PURCHASING ORGANIZATION FOR LUCENT TECHNOLOGIES, HOLDING
A REAM OF REPLICOPY PAPER, ONE OF THE MANY PRODUCTS WE PROVIDE TO LUCENT'S
LOCATIONS ACROSS THE U.S.
- - --------------------------------------------------------------------------------
Through our merchant distribution businesses, we supply industry, wholesalers
and end users with a vast array of products from the world's finest
manufacturers. International Paper has distribution capability on three
continents, providing our customers with fast and efficient service for
virtually any
<PAGE>
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 38]
TUFFLEX, RESOURCENET'S NATIONAL BRAND OF PACKAGING TAPE, COMES IN VARIOUS
SIZES, STRENGTHS AND SUBSTRATES.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 39]
OUR NATIONWIDE DELIVERY FLEET BRINGS ALL OF OUR RESOURCES RIGHT TO EACH
CUSTOMER'S DOOR.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 40]
IN EUROPE, OUR DISTRIBUTION SYSTEM SELLS A FULL RANGE OF GRADES, INCLUDING
INTERNATIONAL PAPER PRODUCTS MADE IN EUROPE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 41]
OUR FULL LINE OF REGENCY CLEANING PRODUCTS PROVIDES A COST-EFFECTIVE ALTERNATIVE
FOR OUR CUSTOMERS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 42]
ALL OF RESOURCENET INTERNATIONAL'S 130 WAREHOUSE LOCATIONS ACROSS NORTH AMERICA
WILL SOON BE LINKED ELECTRONICALLY.
- - --------------------------------------------------------------------------------
printing, packaging, graphic arts, sanitary maintenance or industrial
supplies they desire. In North America, ResourceNet International encompasses
130 wholesale facilities in the U.S. and Mexico as well as 165 Express Paper
and Graphics stores for printers, small businesses and individual consumers.
We operate modern regional distribution facilities as hubs in their
respective regions. In Europe, Aussedat Rey serves the French market and
Scaldia Papier BV serves the Netherlands. In Australia and New Zealand,
Carter Holt Harvey operates distribution systems that supply paper and
industrial products to that region.
<PAGE>
DISTRIBUTION
Distribution posted sales of $4.7 billion in 1996, a 6% decline from $5.0
billion in 1995. Sales in 1994 were $3.5 billion. More than two-thirds of
distribution sales are in printing papers markets, the balance in graphic arts
and industrial products. Lower sales in 1996 reflect market conditions and
declines of more than 20% in sales prices similar to those faced by our printing
papers segment. Acquisitions represent 50% of the increase since 1994. Operating
profit for the segment was $109 million, improving slightly from $106 million in
1995 and nearly 50% greater than $74 million in 1994. In 1996, we saw
improvement in both operating margins and return on assets under extremely
difficult market conditions.
ResourceNet International, our North American distribution business,
generates 90% of our merchant distribution sales. We have built our business
through a series of acquisitions and are now consolidating and coordinating
activities to make over 20 independent companies into one national distribution
operation. Over the past 10 years, sales have grown at an average annual rate of
16%. Most recently, Seaman-Patrick Paper Company and Carpenter Paper Company
were added to the ResourceNet International family. Today, ResourceNet comprises
130 wholesale locations coast-to-coast. Although ResourceNet's overall sales
dollars declined in 1996, unit sales volume increased more than 5%.
ResourceNet International operates in an environment where responsiveness
to customers is vital. Meeting this challenge, ResourceNet continues to sharpen
its service capabilities. With close proximity to our large customers and strong
local management, we provide a high level of service that allows our customers
an advantage in cost and asset management. This is particularly important for
our national accounts, a growing and profitable part of our business. A major
initiative under way is the implementation of an operating information system
that will electronically link locations
[Distribution Net Sales Chart--Appendix A No. 13]
[Distribution Sales By Business Pie Chart--Appendix A No. 15]
26 INTERNATIONAL PAPER
<PAGE>
throughout North America. The system is designed to facilitate better
communications with customers, improve efficiency and reduce costs. It is
already a success in the Northeast, and installation will begin in the West and
Midwest regions during 1997. While the installation of the centralized system
will bring many advantages, ResourceNet International is not waiting for system
improvements to drive stronger financial returns.
Another important initiative has been the consolidation of multiple
locations into highly automated, efficient regional distribution centers
enabling ResourceNet to reduce its operating costs and working capital. New
"hubs" in Texas and Kansas were fully operational in 1996 and another in
Wisconsin is scheduled to open by mid-1997.
We are establishing a national format for purchasing and focusing on key
partnerships for growth with committed vendors. Utilizing a national data
system, we will increase our asset turn and reduce the cost of goods and
purchasing.
ResourceNet International also continues to seek out new customers by
electronically selling through the Internet, and by searching for new markets.
One of the most important is the small-office, home-office market. To meet
growth in this market, we plan to open 30 new retail stores in 1997, bringing
our total to more than 180. At these stores, we offer a broad selection of
familiar brands of paper and related products, essentially allowing our smaller
customers the same choice as our largest, while improving their cost.
Our international distribution businesses posted sales of $470 million,
flat with 1995. European operations, Aussedat Rey based in France and Scaldia in
the Netherlands, contributed positively to segment results, as did Carter Holt
Harvey's operations in New Zealand and Australia.
As in our printing papers and packaging businesses, we look forward to
improving market conditions and continued volume growth as 1997 progresses.
[Distribution Operating Profit Chart--Appendix A No. 14]
[Distribution Sales By Major Product Pie Chart--Appendix A No. 16]
FINANCIAL REVIEW
INTERNATIONAL PAPER 27
<PAGE>
SPECIALTY
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 43]
CARTER HOLT HARVEY IS THE LARGEST TISSUE PRODUCTS PRODUCER IN AUSTRALIA AND NEW
ZEALAND.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 44]
IN FRANCE, POLYREY SPECIALTY PANELS ARE POPULAR IN BOTH RESIDENTIAL AND
COMMERCIAL CONSTRUCTION PROJECTS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 45]
THILMANY'S UNIQUE DRINK POUCH PROTECTS DRY INGREDIENTS, IS HEAT-SEALABLE AND HAS
AN EXCELLENT PRINT SURFACE FOR GRAPHICS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 46]
OUR DECORATIVE PRODUCTS DIVISION PRODUCES DURABLE AND ATTRACTIVE FOUNTAINHEAD
COUNTERTOP SURFACES IN MANY PATTERNS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 47]
OUR PETROLEUM AND MINERALS DIVISION EXPLORES IN THE GULF OF MEXICO FOR NEW OIL
AND GAS RESERVES.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 48]
INTERSPUN ENHANCED FABRIC GIVES THIS PILLOW SOFTNESS, DURABILITY AND
BREATHABILITY WITHOUT CHEMICAL TREATMENT.
- - --------------------------------------------------------------------------------
Our presence in specialty products makes us much more than your typical paper
and forest products company. SPECIALTY PANELS CraftMaster door facings;
Nevamar and Polyrey decorative laminates. IMAGING PRODUCTS Ilford, Anitec,
Horsell and Anchor serving the photography and printing markets. SPECIALTY
PAPERS Thilmany, Nicolet and Akrosil specialty papers for food packaging,
consumer and industrial pressure-sensitive applications. NONWOVENS Veratec
spunbond nonwoven fabrics used for components of both consumer and industrial
products. TISSUE Carter Holt Harvey is the largest tissue products
manufacturer in
<PAGE>
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 49]
RESINS MADE BY ARIZONA CHEMICAL ARE USED IN BRIGHTLY COLORED PRINTING INKS SUCH
AS THESE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 50]
PHOTEX SCANNER WIPES, MADE BY VERATEC, ARE USED IN THE GRAPHIC ARTS INDUSTRY.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 51]
ILFORD IS THE FILM AND PAPER OF CHOICE FOR PROFESSIONAL PHOTOGRAPHERS AROUND THE
WORLD.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 52]
MASONITE'S CRAFTMASTER LINE OF DOOR FACINGS OFFERS A WIDE RANGE OF STYLES AND
VALUE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 53]
ARIZONA CHEMICAL SUPPLIES H.B. FULLER WITH ADHESIVE RESINS TO PRODUCE ITS
CONSUMER-PACKAGED GLUE STICKS.
- - --------------------------------------------------------------------------------
Australasia. CHEMICALS AND PETROLEUM Arizona Chemical is a leading processor
of pulp mill organic byproducts such as tall oil and crude sulfate
turpentine, and produces resins for inks and adhesives; our petroleum
business manages mineral rights and explores for and develops oil and gas
reserves.
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 54]
PATRICK INDUSTRIES SUPPLIES BUILDING MATERIALS TO THE RAPIDLY GROWING
MANUFACTURED HOUSING MARKET. PATRICK HAS PURCHASED MASONITE PRODUCTS FOR MORE
THAN 20 YEARS. DAVID LUNG, PRESIDENT, IS SHOWN HERE HOLDING SAMPLES OF MASONITE
SIDING.
- - --------------------------------------------------------------------------------
<PAGE>
SPECIALTY PRODUCTS
Specialty Products sales continued to grow in 1996, increasing 6% to $3.5
billion. Sales were $3.3 billion in 1995 and $2.6 billion in 1994. Earnings were
$319 million before a special charge in 1996 compared with $207 million in 1995
and $268 million in 1994. Including a restructuring charge of $370 million,
relating primarily to the imaging products businesses, the segment reported an
operating loss of $51 million in 1996.
SPECIALTY PANELS sales were $990 million in 1996, in line with 1995. Earnings
for this group of products, the largest contributor to segment profit, improved
21%. Growth was driven by increased sales of high-pressure laminates and by
Masonite's continued penetration of overseas door facings markets. U.S. housing
starts were strong during 1996, and we continued to increase our sales in repair
and remodeling markets. A new door facings plant in Ireland will begin
production in mid-1997, and we are pursuing opportunities to develop Asian and
Latin American markets. Low-pressure laminates earnings declined in 1996 due to
excess capacity. In 1997, we expect specialty panels results to improve as
market conditions remain favorable.
IMAGING PRODUCTS sales declined 8% to $715 million. The division reported a
small profit, following a loss in 1995. The improvement reflects a major program
undertaken in early 1996 to reposition our graphic arts business in order to
compete more effectively. However, advances in digital-based imaging continue to
reduce demand for photosensitive papers and films. As a result, the Company's
accomplishments have in part been offset by the ongoing technology changes. Our
printing plate, pressroom chemical and Ilford products continue to be
profitable.
SPECIALTY PAPERS sales grew 4% to $555 million. Operating profit improved 16%,
following a 14% improvement last year. Shipments increased 6% in 1996 and higher
margins were achieved through a better sales mix including a wide range of
release liners and face stocks for label, hygiene, tape and industrial
applications, and lower costs. Growth of specialty papers is driven by
increasing demand for such release liners, which are used in pressure-sensitive
labels. This demand is being met by a rebuilt machine, which
[Specialty Products Net Sales Chart--Appendix A No. 17]
[Specialty Products Sales By Business Pie Chart--Appendix A No. 19]
30 INTERNATIONAL PAPER
<PAGE>
started up in 1995. Akrosil is positioned for expansion in release liner markets
with new coaters in Toronto and Knoxville. We expect continued growth and higher
sales and earnings in 1997.
The TISSUE operations of Carter Holt Harvey posted sales of $405 million
in 1996, increasing from $265 million in 1995, reflecting a full year of
operations in 1996. Operating profit doubled. The year was marked by the
successful integration of Carter Holt Harvey's New Zealand tissue business with
the Australian operations of Bowater plc, purchased in early 1995. During the
year, sales activities were consolidated, shipping costs were significantly
reduced and in New Zealand, a new ultra thin disposable diaper was successfully
launched.
Veratec's NONWOVENS sales of $265 million were flat with 1995 and 7%
stronger than 1994. The division was profitable in 1996, as we completed our
transition to spunbond technology with the June start up of a facility in
Mexico. Veratec's spunbond nonwoven product has gained strong market acceptance
and is now positioned to supply North and South American demand with three
production lines. We expect considerably higher sales and earnings in 1997 and
also plan to introduce several new specialty products.
Combined sales of our CHEMICALS AND PETROLEUM businesses were $545 million
in 1996, 23% higher than 1995. Sales growth was driven by our European chemicals
operations and higher prices for both oil and gas. The year was one of both
opportunities and challenges for Arizona Chemical, brought on by two recent
acquisitions in Europe and sluggish markets for ink and adhesive resins. Arizona
Chemical is a global business with more than 50% of sales occurring outside the
U.S. Although chemicals profits declined in 1996, results should improve in 1997
as we proceed to integrate our European operations and benefit from
strengthening markets. Petroleum operating profit in 1996 was almost twice that
of 1995 due to higher oil and gas prices. A successful offshore exploration
program led to record reserves at year-end. Earnings in 1997 will be influenced
by fluctuations in oil and gas prices.
[Specialty Products Operating Profit Chart--Appendix A No. 18]
[Specialty Products Sales To Geographic Areas Pie Chart--Appendix A No. 20]
FINANCIAL REVIEW
INTERNATIONAL PAPER 31
<PAGE>
FOREST PRODUCTS
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 55]
NEXT TIME YOU TACKLE A LANDSCAPING PROJECT AROUND THE HOUSE, YOU MAY BE USING
OUR LANDSCAPE TIMBERS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 56]
OUR SUPERTREE PINE SEEDLINGS ARE PLANTED ON COMPANY-OWNED AND -MANAGED LAND AND
OFFERED TO OTHER LANDOWNERS IN THE SOUTHERN U.S.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 57]
PINE CONES FROM SUPERIOR TREES PROVIDE SEEDS THAT ARE GROWN INTO SEEDLINGS USED
TO REPLANT HARVESTED LAND.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 58]
CONSUMER DEMAND CONTINUES TO GROW FOR MORE ECONOMICAL BUILDING MATERIALS LIKE
OUR ORIENTED STRAND BOARD.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 59]
CARTER HOLT HARVEY CONTROLS MORE THAN 800,000 ACRES OF RENEWABLE RADIATA PINE
FORESTS IN NEW ZEALAND.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 60]
EASTERN WHITE PINE IS A FAVORITE AMONG BUILDERS FOR HIGH-QUALITY MOLDINGS AND
PANELING PRODUCTS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 61]
CENTEX HOMES, ONE OF THE NATION'S LARGEST HOMEBUILDERS, UTILIZES A VARIETY OF
INTERNATIONAL PAPER PRODUCTS SUCH AS PLYWOOD, ORIENTED STRAND BOARD, LUMBER AND
TREATED LUMBER IN ITS NEW HOME CONSTRUCTION. CTX BUILDERS SUPPLY PRESIDENT JOHN
MIKKELSON IS SHOWN HERE HOLDING LUMBER PRODUCED AT OUR NEW BOSTON, TEXAS, LUMBER
MILL THAT WILL BE USED IN CONSTRUCTION OF A NEW CENTEX HOME IN DALLAS.
- - --------------------------------------------------------------------------------
International Paper is committed to utilizing our natural resources in an
environmentally and economically responsible manner. We continue to harvest
and replant our forestlands and develop low-cost and improved substitutes for
traditional wood products. FORESTLANDS Approximately 6.4 million acres of
forest-
<PAGE>
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 62]
MEDIUM-DENSITY FIBERBOARD IS A POPULAR MATERIAL FOR KITCHEN CABINETS AND
FURNITURE LIKE THIS DESK.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 63]
INTERNATIONAL PAPER IS A LEADING PRODUCER OF SOUTHERN PINE LUMBER IN THE U.S.
AND ALSO MANUFACTURES MANY GRADES OF PLYWOOD. BOTH ARE ESSENTIAL MATERIALS FOR
CONSTRUCTION PROJECTS.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[PHOTOGRAPH--APPENDIX B NO. 64]
LOBLOLLY PINE IS THE PREDOMINANT SOFTWOOD SPECIES ON THE FOUR MILLION ACRES WE
CONTROL IN EIGHT SOUTHERN STATES.
- - --------------------------------------------------------------------------------
lands in the U.S. under our control primarily through a majority ownership in
IP Timberlands, Ltd. providing sawlogs and pulpwood for use in papermaking
and wood products; an interest in more than 800,000 acres of radiata pine
forests in New Zealand owned and managed by Carter Holt Harvey; and an
interest in one million acres of forestlands in South America through Carter
Holt Harvey's stake in Chile's COPEC. WOOD PRODUCTS 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.
<PAGE>
FOREST PRODUCTS
Forest Products achieved sales of $2.7 billion in 1996, up substantially from
$2.1 billion in 1995 and $1.7 billion in 1994. Operating profit was $390 million
before special items compared with $388 million in 1995 and $418 million in
1994. In March 1996, IP Timberlands, Ltd. sold an interest in a subsidiary
partnership that owns approximately 300,000 acres of forestlands in Oregon and
Washington. The interest sold represented essentially all of IPT's western
forestland holdings, the source of one-third of 1995 and 1994 stumpage sales. As
a result of the sale, the Company reported a gain before taxes and minority
interest expense of $592 million. Segment operating profit of $925 million in
1996 reflects this gain, as well as a restructuring and asset impairment charge
of $57 million.
FORESTLANDS revenues increased 6% in 1996 to $750 million, due mainly to the
full-year impact of Carter Holt Harvey, while operating profit declined 6%. In
the U.S., sales declined 14%. Volumes were 8% higher in 1996, including
harvesting on 700,000 acres of pine forests in the southeastern U.S. acquired
with Federal Paper Board. Although harvest volumes were higher, average prices
realized by the Company were off 12% because our sales mix included premium West
Coast timber only during the first quarter. Overall, lower U.S. earnings from
harvest activities were offset by bulk timber sales in the South. However,
Carter Holt Harvey's earnings declined considerably due to weak export markets,
leading to lower overall forestlands profit for International Paper in 1996.
In 1997, we expect timber markets to remain strong. As the year began,
prices for U.S. southern pine were 10% above January 1996 levels. However, as a
result of selling our western operations and reduced harvest levels, we project
lower sales and earnings.
[Forest Products Net Sales Chart--Appendix A No. 21]
[Forest Products Sales By Business Pie Chart--Appendix A No. 23]
34 INTERNATIONAL PAPER
<PAGE>
WOOD PRODUCTS sales increased 34% in 1996 to $1.9 billion, following a 20%
increase in 1995. Operating profit improved 20% over 1995, but was about half
that reported in 1994. Results reflect strong lumber operations, offset by lower
earnings for panels and other products. On average for the year, U.S. lumber
prices were 7% higher than 1995, while panel prices declined considerably.
Shipments of both lumber and panels were significantly higher in 1996. The
merger with Federal added five mills, which more than doubled International
Paper's U.S. lumber capacity. The start-up of a new facility in Jefferson,
Texas, expanded our position in oriented strand board, a business in which our
plants are among the lowest cost producers in the industry. And we have been
successful in developing specialties within our wood products businesses. Today,
more than half of our panel output is in products other than commodity
sheathing. Finally, Carter Holt Harvey contributed solidly to wood products
results in 1996. With its acquisition of Forwood, Carter Holt Harvey now holds a
leadership position in wood products in Australasia.
We believe U.S. housing starts will be strong in 1997, at about 1.35
million units, with further growth in repair and remodeling markets. Lumber
prices during the early months of 1997 have been higher than last year, and the
full-year impact of Federal's operations will add to our profits. Additionally,
new log scanning technology installed at several locations has already provided
significant yield and grade improvements. Our expectations for panel markets are
less optimistic. Until new capacity is absorbed, pricing will be weak. We will
continue to identify ways to reduce costs and further enhance our competitive
position. Overall, we expect wood products results to improve modestly in 1997.
[Forest Products Operating Profit Chart--Appendix A No. 22]
[Forest Products Sales To Geographic Areas Pie Chart--Appendix A No. 24]
FINANCIAL REVIEW
INTERNATIONAL PAPER 35
<PAGE>
OVERVIEW
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The Company's 1996 results reflect a merger with Federal Paper Board on March
12, 1996 and a full year's contribution from the consolidation of Carter Holt
Harvey on May 1, 1995.
International Paper's 1996 net sales of $20.1 billion increased slightly
over 1995 sales of $19.8 billion, reflecting contributions from recent
acquisitions that offset weak pricing experienced in major product lines. While
shipments across our paper and packaging businesses were generally stronger than
in 1995, prices were significantly weaker. Excluding contributions from Federal
and Carter Holt Harvey, 1996 sales declined 10%. Sales in 1996 were
significantly higher than 1994 sales of $15.0 billion, with over 80% of the
increase due to acquisitions.
Sales totaled $6.0 billion outside the U.S. in 1996, increasing to 30% of
consolidated net sales. Carter Holt Harvey contributed $2.1 billion and $1.4
billion in 1996 and 1995, respectively. International sales, including exports
from the U.S., amounted to $7.4 billion, up from $7.1 billion in 1995 and $4.5
billion in 1994.
Net earnings for the year were $303 million or $1.04 per share after
special items that reduced earnings by $131 million. Net earnings before special
items were $434 million or $1.49 per share, one-third of 1995 record earnings of
$1.2 billion or $4.50 per share. Earnings for 1994 were $357 million or $1.43
per share ($422 million or $1.69 per share before an accounting change).
Results for 1996 were considerably weaker than those of a year ago due to
significantly lower average selling prices. Late 1995 through early 1996 was a
period of inventory destocking by customers. As the year progressed, demand
recovered but industry operating rates were not sufficient to sustain higher
prices.
Despite difficult market conditions, 1996 was a year of significant
accomplishment. The integration of the Federal Paper Board businesses exceeded
our expectations and contributed positively to earnings. We started up a
containerboard machine at Mansfield, La., a spunbond nonwovens facility in
Mexico, a box plant in the United Kingdom, and an aseptic liquid packaging plant
in Lyon, France.
In 1997, sales growth will come from both new capacity and higher
shipments in a number of product lines, as well as including Federal for the
full year. Pricing during the early months of 1997 has been disappointing.
However, assuming ongoing moderate economic growth in the U.S. and Europe, our
performance should improve during the year.
[Net Sales Chart -- Appendix A No. 25]
SPECIAL ITEMS
Special items reduced 1996 net earnings by $131 million or $.45 per share. Their
impact on segment operating profit is shown in the table on page 42.
First-quarter results included a gain of $592 million ($336 million after
taxes and minority interest or $1.25 per share) on the sale by IP Timberlands,
Ltd. (IPT), a consolidated subsidiary of International Paper, of a 98% interest
in a partnership that owns 300,000 acres of forestlands located in Oregon and
Washington. In addition to forestlands, included in the net assets of the
partnership were roads and $750 million of long-term debt. IPT and International
Paper retained nonoperating interests in the partnership.
First-quarter results also included a restructuring and asset impairment
charge of $515 million ($362 million after taxes or $1.35 per share). The charge
reflected the costs of management actions to restructure and strengthen existing
36 INTERNATIONAL PAPER
<PAGE>
businesses and included $305 million to write off certain assets, primarily
those of the imaging products businesses; $100 million for asset impairments
related to the adoption of SFAS No. 121; and one-time cash costs of $110 million
(severance costs of $80 million and lease-cancellation and other expenses of $30
million). Cash costs totaling $34 million were incurred in 1996 and the balance
will be spent in 1997. Our projections called for annual savings (primarily
lower personnel costs and depreciation, and the reduction of operating losses)
of $70 million by the end of 1996 and $100 million in 1997. We achieved 85% of
the 1996 target and expect to exceed the 1997 estimate.
Fourth-quarter results included a $165 million noncash charge ($105
million after taxes or $.35 per share) to write down our 13% investment in
Scitex and to record our share of costs of a restructuring program that Scitex
announced in November 1996.
CASH FLOW FROM OPERATIONS
Cash flow from operations of $1.7 billion in 1996 compares with $2.2 billion in
1995 and $1.2 billion in 1994. Net earnings declined $850 million in 1996.
Higher noncash items, including the $88 million net impact of special items,
offset to some extent the lower earnings in 1996. Depreciation and amortization
expense increased to $1.2 billion in 1996 from $1.0 billion in 1995 and $885
million in 1994 ($923 million before a change in accounting for start-up costs).
INVESTMENT ACTIVITIES
Capital spending was $1.4 billion in 1996 and $1.5 billion in 1995, up from $1.1
billion in 1994. Included in 1996 was $320 million spent by Federal Paper Board
and Carter Holt Harvey. Capital spending is estimated at $1.2 billion in 1997.
The primary emphasis of capital programs continues to be productivity and cost
reduction. Discretionary spending in 1997 will be focused on stronger, more
competitive operations.
In March 1996, we merged with Federal Paper Board, a paper and forest
products company with facilities in the U.S. and the U.K. Federal shareholders
received, at their election and subject to certain limitations, $55 in cash or a
combination of cash and International Paper common stock for each share of
Federal Paper Board common stock. To complete the merger, Federal Paper Board
shares were acquired for approximately $1.3 billion in cash and $1.4 billion in
International Paper common stock, and $800 million of debt was assumed.
[Cash Flow From Operations Chart -- Appendix A No. 26]
Also during 1996, Forchem, a tall oil and turpentine processor in Finland,
was acquired for about $100 million; and Carter Holt Harvey acquired Forwood
Products, a timber-processing business in Australia for about $100 million.
Our acquisitions in 1995 included the following: In April, about 26% of
the outstanding shares of Carter Holt Harvey, bringing our ownership to just
over 50%. The Carter Holt Harvey share purchases were financed with borrowings
totaling $1.1 billion. (Our initial investment of 16% of Carter Holt Harvey was
made in 1991 and was followed by an
CAPITAL SPENDING BY INDUSTRY SEGMENT
- - --------------------------------------------------------------------------------
In millions for the years
ended December 31 1996 1995 1994
- - --------------------------------------------------------------------------------
Printing Papers $ 454 $ 375 $ 447
Packaging 338 531 205
Distribution 14 18 16
Specialty Products 289 251 270
Forest Products 195 271 135
------ ------ ------
Subtotal 1,290 1,446 1,073
Corporate 104 72 41
------ ------ ------
Total $1,394 $1,518 $1,114
====== ====== ======
FINANCIAL REVIEW
INTERNATIONAL PAPER 37
<PAGE>
OVERVIEW
additional 8% investment in 1994); in January, the assets of paper distributors
Seaman-Patrick Paper Company and Carpenter Paper Company; in September, Micarta,
a high-pressure laminates business; and in October, the inks and adhesives resin
business of DSM in France.
FINANCING ACTIVITIES
Financing activities in 1996 included short-term borrowings of $1.3 billion used
to acquire Federal Paper Board common shares. Also, $741 million of notes with
maturities ranging from three to seven years were issued. And in November, IPT
borrowed $450 million due in 1999 from a consortium of banks.
In November 1995, IPT issued $750 million of five-year debt and a non-U.S.
subsidiary of the Company issued $300 million of U.S. dollar-denominated notes
that mature in seven and 20 years, respectively. In July 1995, International
Paper Capital Trust, a wholly owned subsidiary, issued $450 million of preferred
securities that are convertible into International Paper common stock. Also in
July, 5.75% convertible debentures were called by the Company and converted into
5.8 million shares of common stock. In 1994, we issued $600 million of long-term
debt with maturities ranging from 10 to 30 years.
Unless otherwise noted, the proceeds of all of the financings described
above were used to reduce short-term debt or for general corporate purposes.
Dividend payments were $291 million in 1996 ($1.00 per common share), $237
million in 1995 and $210 million in 1994. In the third quarter of 1995, we
declared a two-for-one stock split and raised the quarterly dividend from $.21
to $.25 per common share.
CAPITAL RESOURCES OUTLOOK FOR 1997
Our financial condition continues to be strong. The ratio
of debt to total capital remained at 39% for 1996 and 1995 and was 41% in 1994.
The Company anticipates that cash flow from operations, supplemented as
necessary by short- or long-term borrowings, will be adequate to fund its
capital expenditures, to service existing debt, and to meet working capital and
dividend requirements during 1997. Our first priority for using excess cash is
to repay debt.
OTHER FINANCIAL STATEMENT ITEMS
Net interest expense totaled $530 million in 1996, increasing from $493 million
in 1995 and $349 million in 1994. The increase over 1995 reflects the cost of
debt issued by the Company to acquire Federal Paper Board shares, as well as
debt assumed in that merger, and a full year of interest from Carter Holt
Harvey.
[Debt to Capital Ratio Chart -- Appendix A No. 27]
Minority interest expense was $169 million in 1996 (including $32 million
for the minority owners' share of a gain on the sale by IPT of an interest in a
forestlands partnership). Minority interest expense was $156 million in 1995 and
$47 million in 1994. The increases over 1994 are due to the consolidation of
Carter Holt Harvey.
The full-year impact of the consolidation of Carter Holt Harvey and the
merger with Federal Paper Board contributed between 12% and 22% to each of the
components of 1996 consolidated costs and expenses. The Federal merger was the
primary reason for increases in net property, plant and equipment, forestlands,
goodwill, long-term debt and working capital components.
Investments include Scitex and Carter Holt Harvey's interest in COPEC. The
decline in 1996 reflects the write-down of the Scitex investment.
38 INTERNATIONAL PAPER
<PAGE>
The effective tax rate was 41% of pre-tax income in 1996 (36% before
special items), 35.5% in 1995 and 33% in 1994. Components of the restructuring
and asset impairment charge that were not deductible for tax purposes, as well
as the taxes at statutory rates on the gain on IPT's sale of a partnership
interest, caused the effective tax rate to increase in 1996. We expect the
effective tax rate for 1997 to be in the range of 36% to 37%.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1996, we adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The adoption of this
statement resulted in a pre-tax charge of $100 million that was included in the
restructuring and asset impairment charge recorded in the first quarter. We also
adopted SFAS No. 123, "Accounting for Stock-Based Compensation." Disclosures
required by this statement are presented in Note 18 to the consolidated
financial statements.
In 1997, we will adopt the provisions of American Institute of Certified
Public Accountants Statement of Position 96-1, "Environmental Remediation
Liabilities." We estimate that adoption will not have a material effect on the
Company's financial position or results of operations.
ACCOUNTING CHANGE
In 1994, International Paper changed its method of accounting for start-up costs
to expense them as incurred. Prior to 1994, our policy had been to capitalize
start-up costs on major projects and amortize them over five years. The change
resulted in a one-time after-tax charge of $75 million or $.30 per share, while
increasing 1994 earnings by $10 million or $.04 per share. The net reduction in
1994 earnings was $65 million or $.26 per share.
LEGAL AND ENVIRONMENTAL ISSUES
Environmental capital expenditures totaled $130 million in 1996, $108 million in
1995 and $95 million in 1994. During 1996, we completed the conversion of 13 of
our U.S. and European bleached mills to elemental chlorine-free technology, and
two additional mills acquired as part of the Federal Paper Board merger will be
converted by the end of 1998.
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. 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 as proposed and GLI to be between $700 million and $1.5 billion. There have
as yet been no publicly announced decisions on the Cluster Rule, and thus these
original estimates must remain. Nevertheless, there is reason to expect that
when the rule is promulgated, now expected during the spring of 1997, it will
permit the downward adjustment of these estimates.
On September 26, 1996, Arizona Chemical Company (Arizona), a wholly owned
subsidiary, entered a plea of guilty to two counts alleging violations of the
Clean Water Act at a facility in Gulfport, Miss., and one count alleging
violations of hazardous waste requirements at a facility in Picayune, Miss.
Pursuant to an agreement with the government, Arizona paid a criminal penalty of
$2.5 million and was placed on probation for three years. Arizona
FINANCIAL REVIEW
INTERNATIONAL PAPER 39
<PAGE>
OVERVIEW
also paid a civil penalty of $150,000 and restitution in the amount of $1.5
million to the Mississippi Department of Environmental Quality.
In addition to the resolution of the Arizona matter, the Company paid
civil penalties related to environmental issues of $1.1 million, $630,000 and
$960,000 for the years, 1996, 1995 and 1994, respectively. There are routine
inspections in progress by federal and state environmental agencies at some
facilities to determine the Company's compliance with environmental laws and
regulations. We would not expect any fines that may result to have a material
adverse effect on our future financial condition or results of operations.
International Paper is also a party to other environmental remediation
actions under various federal and state laws, including the Comprehensive
Environmental Response, Compensation and Liability Act. Related costs are
recorded in the financial statements when 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 can be found in the Company's quarterly 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 64 of this report.
Masonite Corporation, a wholly owned subsidiary of the Company, and the
Company are parties to a nationwide class action lawsuit in state court in
Alabama purporting to represent plaintiffs nationwide who purchased Masonite
siding since 1980. The suit alleges that Masonite hardboard siding is inherently
defective and that Masonite knowingly and falsely advertised and sold a
defective product. Masonite and the Company are vigorously contesting the
allegations. After a split jury decision in the first phase of the Alabama case
in September 1996 on the single issue of product defect, the court has set the
remaining issues for trial in July 1997. Similar allegations were made in a
proposed class action case pending in Federal Court in New Orleans. The federal
judge, after reviewing the same factual and legal issues as presented in the
Alabama case, denied class certification on February 19, 1997.
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. For a further
discussion of legal issues, see Note 11 to the consolidated financial statements
on page 52 and Item 3 (Legal Proceedings) of the annual report on Form 10-K.
EFFECT OF INFLATION
General inflation has had minimal impact on our operating results. 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 by industry segment appears on
pages 18 (Printing Papers), 22 (Packaging), 26 (Distribution), 30 (Specialty
Products) and 34 (Forest Products), and is incorporated herein by reference.
Comments refer to segment operating profit before special items, unless
otherwise noted.
FINANCIAL REVIEW
40 INTERNATIONAL PAPER
<PAGE>
FINANCIAL INFORMATION BY GEOGRAPHIC AREA
NET SALES
- - --------------------------------------------------------------------------------
IN MILLIONS 1996 1995 1994
- - --------------------------------------------------------------------------------
United States(1),(2) $ 14,512 $ 14,610 $ 11,965
Europe(2) 3,583 3,791 2,958
Pacific Rim(3) 2,263 1,571 195
Other 186 188 159
Less: Intergeographic Sales (401) (363) (311)
-------- -------- --------
Net Sales $ 20,143 $ 19,797 $ 14,966
======== ======== ========
EUROPEAN SALES BY INDUSTRY SEGMENT
- - --------------------------------------------------------------------------------
IN MILLIONS 1996 1995 1994
- - --------------------------------------------------------------------------------
Printing Papers(2) $ 1,506 $ 1,664 $ 1,231
Packaging 707 756 559
Distribution 334 378 318
Specialty Products 1,006 960 819
Forest Products 30 33 31
-------- -------- --------
European Sales $ 3,583 $ 3,791 $ 2,958
======== ======== ========
ASSETS
- - --------------------------------------------------------------------------------
IN MILLIONS 1996 1995 1994
- - --------------------------------------------------------------------------------
United States(2) $ 15,695 $ 12,033 $ 11,237
Europe(2) 4,405 4,252 3,818
Pacific Rim(3) 4,779 4,334 129
Other 187 192 145
Equity Investments 1,070 1,291 967
Corporate 2,116 1,875 1,540
-------- -------- --------
Assets $ 28,252 $ 23,977 $ 17,836
======== ======== ========
OPERATING PROFIT
- - --------------------------------------------------------------------------------
IN MILLIONS 1996 1995 1994
- - --------------------------------------------------------------------------------
Before After
Special Special Special
Items Items Items
United States(2) $ 1,272 $ 306 $1,578 $2,062 $ 955
Europe(2) (218) (218) 251 97
Pacific Rim(3) 218 218 216 15
Other 11 11 6 6
------- ----- ------ ------ ------
Operating Profit(4) $ 1,501 $ 88 $1,589 $2,535 $1,073
======= ===== ====== ====== ======
(1) Export sales to unaffiliated customers (in billions) were $1.4 in 1996,
$1.5 in 1995 and $1.2 in 1994.
(2) Includes the results of Federal Paper Board from March 12, 1996.
(3) Includes the results of Carter Holt Harvey from May 1, 1995 except for
earnings from its investment in COPEC, which are included in corporate
items, net.
(4) Includes amounts for acquisitions, net of goodwill amortization, from the
dates of acquisition.
Europe
Sales from our European businesses declined $210 million or 5% in 1996 after
increasing $835 million or 28% in 1995. Results were break-even in 1996 before a
$218 million restructuring charge, primarily relating to the imaging products
division. This resulted in a $218 million operating loss and compares with
profits of $251 million in 1995 and $97 million in 1994.
Pulp and paper prices declined significantly in 1996 after rising rapidly during
the first half of 1995. This resulted in an operating loss for printing papers,
including Aussedat Rey and Zanders, that was offset by profits in other sectors.
Sales from acquisitions including Federal's uncoated papers mill in Scotland,
and Forchem, a chemical processor in Finland, offset about one-half of the sales
impact of lower prices.
Our outlook is for prices to improve modestly from the current low levels. We
expect 1997 to benefit from restructuring programs, the Kwidzyn modernization
completed in 1996, and several new production facilities including an aseptic
packaging plant in France, a corrugated box plant in the United Kingdom and a
door facings facility in Ireland.
Pacific Rim
Carter Holt Harvey accounts for most of International Paper's activities in the
Pacific Rim. It is a New Zealand-based integrated forest and paper products
company with substantial assets in Chile. Recent acquisitions have positioned
Carter Holt Harvey as the largest tissue producer in Australasia and the second
largest supplier of wood products in the Australian market.
Carter Holt Harvey's results have been consolidated with International Paper's
on a one-month lag since May 1995, at which time International Paper increased
its ownership from 24% to just over 50%.
International Paper's consolidated results for 1996 include Carter Holt Harvey
sales of $2.1 billion and operating profit of $211 million. This compares with
$1.4 billion and $206 million, respectively, for the eight-month period ended
December 31, 1995.
Sales and operating profit in 1996 were adversely affected by lower prices for
logs, wood products and pulp as well as lower margins in packaging. Carter Holt
Harvey has implemented a number of margin improvement initiatives that have
already realized cost savings in lower personnel costs, logistics and
procurement. Also, a capital project to modernize the Kinleith mill, reduce its
costs and increase productivity will begin in 1997.
A breakdown of Carter Holt Harvey's sales by industry segment as they relate to
International Paper is included on page 42.
INTERNATIONAL PAPER 41
<PAGE>
FINANCIAL INFORMATION BY INDUSTRY SEGMENT
NET SALES
- - --------------------------------------------------------------------------------
IN MILLIONS 1996 1995 1994
- - --------------------------------------------------------------------------------
Printing Papers $ 5,640 $ 6,090 $ 4,400
Packaging 4,945 4,475 3,375
Distribution 4,675 5,040 3,470
Specialty Products 3,475 3,260 2,590
Forest Products 2,665 2,140 1,715
Less: Intersegment Sales (1,257) (1,208) (584)
-------- -------- --------
Net Sales $ 20,143 $ 19,797 $ 14,966
======== ======== ========
ASSETS
- - --------------------------------------------------------------------------------
IN MILLIONS 1996 1995 1994
- - --------------------------------------------------------------------------------
Printing Papers $ 8,627 $ 7,121 $ 6,706
Packaging 6,088 4,150 3,098
Distribution 1,346 1,454 1,210
Specialty Products 3,636 3,639 2,782
Forest Products 5,369 4,447 1,533
Equity Investments 1,070 1,291 967
Corporate(2) 2,116 1,875 1,540
-------- -------- --------
Assets $ 28,252 $ 23,977 $ 17,836
======== ======== ========
OPERATING PROFIT
- - --------------------------------------------------------------------------------
IN MILLIONS 1996 1995 1994
- - --------------------------------------------------------------------------------
Printing Papers $ 185 $ 1,093 $ 20
Packaging 421 741 293
Distribution 109 106 74
Specialty Products (51) 207 268
Forest Products 925 388 418
-------- -------- --------
Operating Profit 1,589 2,535 1,073
Interest Expense, net (530) (493) (349)
Corporate Items, net(3) (257) (14) (9)
-------- -------- --------
Earnings Before Income Taxes,
Minority Interest and
Cumulative Effect of
Accounting Change $ 802 $ 2,028 $ 715
======== ======== ========
1996 OPERATING PROFIT
- - --------------------------------------------------------------------------------
IN MILLIONS
- - --------------------------------------------------------------------------------
Before After
Special Special Special
Items Items Items
Printing Papers $ 220 $ (35) $ 185
Packaging 463 (42) 421
Distribution 109 109
Specialty Products 319 (370) (51)
Forest Products 390 535 925
-------- -------- --------
Operating Profit 1,501 88 1,589
Interest Expense, net (530) (530)
Corporate Items, net(3) (81) (176)(4) (257)
-------- -------- --------
Earnings Before Income Taxes
and Minority Interest $ 890 $ (88) $ 802
======== ======== ========
DEPRECIATION, DEPLETION AND AMORTIZATION
- - --------------------------------------------------------------------------------
IN MILLIONS 1996 1995 1994
- - --------------------------------------------------------------------------------
Printing Papers $ 528 $ 475 $ 443
Packaging 329 246 192
Distribution 35 35 29
Specialty Products 194 199 161
Forest Products 220 150 96
Corporate 9 6 5
-------- -------- --------
Depreciation, Depletion
and Amortization 1,315 1,111 926
Less: Depletion(5) (121) (80) (41)
-------- -------- --------
Depreciation and
Amortization $ 1,194 $ 1,031 $ 885
======== ======== ========
(1) 1995 net sales have been adjusted to conform with the current-year
presentation.
(2) Corporate assets are principally cash and temporary investments,
investments, deferred taxes and other assets that are not identifiable
with industry segments.
(3) Corporate Items, net includes our share of earnings from equity
investments and unallocated corporate expenses. In 1996, earnings from
equity investments decreased by $40 million because of losses at Scitex
and lower pulp earnings at COPEC. The remaining increase resulted from
higher corporate expenses because of Federal Paper Board and Carter Holt
Harvey.
(4) Includes the write-down of the Scitex investment.
(5) Included in Forest Products.
FEDERAL PAPER BOARD AND CARTER HOLT HARVEY SALES
The financial statements reflect the merger with Federal Paper Board (March 12,
1996) and the consolidation of Carter Holt Harvey (May 1, 1995). Their net
sales, adjusted to conform with International Paper's classifications, are
presented below.
1996 NET SALES
- - --------------------------------------------------------------------------------
IN MILLIONS
- - --------------------------------------------------------------------------------
Federal Carter
International Paper Holt
Paper Board Harvey Consolidated
Printing Papers $ 4,941 $ 565 $ 134 $ 5,640
Packaging 3,659 650 636 4,945
Distribution 4,538 137 4,675
Specialty Products 2,924 551 3,475
Forest Products 1,492 222 951 2,665
Less: Intersegment Sales (877) (50) (330) (1,257)
-------- ------- ------- --------
Net Sales $ 16,677 $ 1,387 $ 2,079 $ 20,143
======== ======= ======= ========
1995 NET SALES(1)
- - --------------------------------------------------------------------------------
IN MILLIONS
- - --------------------------------------------------------------------------------
Carter
International Holt
Paper Harvey Consolidated
Printing Papers $ 5,973 $ 117 $ 6,090
Packaging 4,062 413 4,475
Distribution 4,945 95 5,040
Specialty Products 2,889 371 3,260
Forest Products 1,521 619 2,140
Less: Intersegment Sales (961) (247) (1,208)
-------- ------- --------
Net Sales $ 18,429 $ 1,368 $ 19,797
======== ======= ========
42 INTERNATIONAL PAPER
<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.
The Company maintains 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 six
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, 1996
and 1995, and the related consolidated statements of earnings, common
shareholders' equity and cash flows for each of the three years ended December
31, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years ended December 31,
1996 in conformity with generally accepted accounting principles.
As explained in Note 19 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 7, 1997
INTERNATIONAL PAPER 43
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE AMOUNTS, FOR THE YEARS ENDED DECEMBER 31 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 20,143 $19,797 $14,966
-------- ------- -------
COSTS AND EXPENSES
Cost of products sold 14,901 13,896 11,092
Selling and administrative expenses 1,509 1,381 1,082
Depreciation and amortization 1,194 1,031 885
Distribution expenses 925 794 692
Taxes other than payroll and income taxes 194 174 151
Restructuring and asset impairment charges 680
-------- ------- -------
TOTAL COSTS AND EXPENSES 19,403 17,276 13,902
Gain on sale of partnership interest 592
-------- ------- -------
EARNINGS BEFORE INTEREST, INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,332 2,521 1,064
Interest expense, net 530 493 349
-------- ------- -------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 802 2,028 715
Provision for income taxes 330 719 236
Minority interest expense, net of taxes 169 156 47
-------- ------- -------
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 303 1,153 432
Cumulative effect of change in accounting for
start-up costs (less tax benefit of $50) -- Note 19 (75)
-------- ------- -------
NET EARNINGS $ 303 $ 1,153 $ 357
======== ======= =======
EARNINGS PER COMMON SHARE
Earnings before cumulative effect of accounting change $ 1.04 $ 4.50 $ 1.73
Cumulative effect of change in accounting for start-up costs -- Note 19 (.30)
-------- ------- -------
EARNINGS PER COMMON SHARE $ 1.04 $ 4.50 $ 1.43
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
44 INTERNATIONAL PAPER
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
IN MILLIONS AT DECEMBER 31 1996 1995
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and temporary investments $ 352 $ 312
Accounts and notes receivable, less allowances of $101 in 1996 and 1995 2,553 2,571
Inventories 2,840 2,784
Other current assets 253 206
------- -------
Total Current Assets 5,998 5,873
------- -------
Plants, Properties and Equipment, Net 13,217 10,997
Forestlands 3,342 2,803
Investments 1,178 1,420
Goodwill 2,748 1,355
Deferred Charges and Other Assets 1,769 1,529
------- -------
TOTAL ASSETS $28,252 $23,977
======= =======
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable and current maturities of long-term debt $ 3,296 $ 2,283
Accounts payable 1,426 1,464
Accrued liabilities 1,172 1,116
------- -------
Total Current Liabilities 5,894 4,863
------- -------
Long-Term Debt 6,691 5,946
Deferred Income Taxes 2,768 1,974
Other Liabilities 1,240 980
Minority Interest 1,865 1,967
International Paper-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trust Holding Solely International Paper Subordinated
Debentures -- Note 8 450 450
Commitments and Contingent Liabilities -- Note 11
Common Shareholders' Equity
Common stock, $1 par value, issued at December 31, 1996 -- 300.8 shares,
1995 -- 263.3 shares 301 263
Paid-in capital 3,426 1,963
Retained earnings 5,639 5,627
------- -------
9,366 7,853
Less: Common stock held in treasury, at cost, 1996 -- 0.6 shares,
1995 -- 2.3 shares 22 56
------- -------
Total Common Shareholders' Equity 9,344 7,797
------- -------
TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $28,252 $23,977
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
INTERNATIONAL PAPER 45
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
IN MILLIONS FOR THE YEARS ENDED DECEMBER 31 1996 1995 1994
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 303 $ 1,153 $ 357
Cumulative effect of accounting change 75
Noncash items
Gain on sale of partnership interest (592)
Restructuring and asset impairment charges 680
Depreciation and amortization 1,194 1,031 885
Deferred income taxes 107 146 42
Other, net 133 (92) (34)
Changes in current assets and liabilities
Accounts and notes receivable 192 45 (339)
Inventories 174 (320) 8
Accounts payable and accrued liabilities (433) 289 252
Other (19) (4) (3)
-------- -------- --------
CASH PROVIDED BY OPERATIONS 1,739 2,248 1,243
-------- -------- --------
INVESTMENT ACTIVITIES
Invested in capital projects (1,394) (1,518) (1,114)
Mergers and acquisitions, net of cash acquired (1,527) (1,168) (357)
Consolidation of equity investment 241
Other (59) (111) (39)
-------- -------- --------
CASH USED FOR INVESTMENT ACTIVITIES (2,980) (2,556) (1,510)
-------- -------- --------
FINANCING ACTIVITIES
Issuance of common stock 100 66 67
Issuance of preferred securities by subsidiary trust 450
Issuance of debt 1,909 1,055 1,059
Reduction of debt (375) (950) (275)
Change in bank overdrafts (23) 57 (115)
Dividends paid (291) (237) (210)
Other (40) (100) (235)
-------- -------- --------
CASH PROVIDED BY FINANCING ACTIVITIES 1,280 341 291
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1 9 4
-------- -------- --------
CHANGE IN CASH AND TEMPORARY INVESTMENTS 40 42 28
CASH AND TEMPORARY INVESTMENTS
Beginning of the year 312 270 242
-------- -------- --------
End of the year $ 352 $ 312 $ 270
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
46 INTERNATIONAL PAPER
<PAGE>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
IN MILLIONS, EXCEPT SHARE AMOUNTS IN THOUSANDS
- - -------------------------------------------------------------------------------------------------------------------------------
Common Stock Issued Treasury Stock Total
Common
Paid-In Retained Shareholders'
Shares Amount Capital(1) Earnings Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 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
Issuance of stock for merger 35,348 35 1,368 1,403
Issuance of stock for various plans 2,215 3 67 (2,567) (70) 140
Repurchase of stock 868 36 (36)
Cash dividends -- Common stock
($1.00 per share) (291) (291)
Foreign currency translation
(less tax expense of $36) 28 28
Net earnings 303 303
------- ------ -------- ------- ------ ----- -------
BALANCE, DECEMBER 31, 1996 300,824 $ 301 $ 3,426 $ 5,639 554 $ 22 $ 9,344
======= ====== ======== ======= ====== ===== =======
</TABLE>
(1) The cumulative foreign currency translation adjustment (in millions) was
$(173), $(201) and $(243) at December 31, 1996, 1995 and 1994,
respectively.
The accompanying notes are an integral part of these financial statements.
INTERNATIONAL PAPER 47
<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, which approximates market.
Inventories
Inventory values include all costs directly associated with manufacturing
products: materials, labor and manufacturing overhead. These values are
presented at cost or market, if it is lower. In the 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 related to 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 $67 million in 1996, $58 million in
1995 and $18 million in 1994. Interest payments made during 1996, 1995 and 1994
were $658 million, $603 million and $369 million, respectively. Total interest
expense was $583 million in 1996, $542 million in 1995 and $371 million in 1994.
Forestlands
The Company, which currently owns 84% and 100% of IPT's Class A and Class B
Units, respectively, controlled approximately 6.4 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, 1996.
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 $296
million and $235 million at December 31, 1996 and 1995, 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): 1996-292.1, 1995-256.5 and
1994-249.7. 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 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
48 INTERNATIONAL PAPER
<PAGE>
36 through 40 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 pages 39 and 40.
Reclassifications
Certain reclassifications have been made to prior-year amounts to conform with
the current-year presentation.
Stock-Based Compensation
Stock options and other stock-based compensation awards are accounted for using
the intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
- - --------------------------------------------------------------------------------
NOTE 2. INDUSTRY SEGMENT INFORMATION
- - --------------------------------------------------------------------------------
Financial information by industry segment and geographic area for 1996, 1995 and
1994 is presented on pages 37, 41 and 42.
- - --------------------------------------------------------------------------------
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
- - --------------------------------------------------------------------------------
The American Institute of Certified Public Accountants issued Statement of
Position 96-1, "Environmental Remediation Liabilities" (the SOP), in October
1996. The SOP provides guidance concerning the recognition, measurement and
disclosure of environmental remediation liabilities and is effective for fiscal
years beginning after December 15, 1996. The Company will adopt the provisions
of the SOP in 1997 and estimates that adoption will not have a material effect
on its financial position or results of operations.
- - --------------------------------------------------------------------------------
NOTE 4. MERGERS AND ACQUISITIONS
- - --------------------------------------------------------------------------------
On March 12, 1996, the Company completed the merger with Federal Paper Board
(Federal), a diversified forest and paper products company. Under the terms of
the merger agreement, Federal shareholders received, at their election and
subject to certain limitations, $55 in cash or a combination of cash and
International Paper common stock worth $55 for each share of Federal common
stock. To complete the merger, Federal shares were acquired for approximately
$1.3 billion in cash and $1.4 billion in International Paper common stock, and
approximately $800 million of debt was assumed.
In August 1996, the Company acquired Forchem, a tall oil and turpentine
processor in Finland. In September 1996, Carter Holt Harvey acquired Forwood
Products, the timber-processing business of the South Australian Government.
The consolidated balance sheet at December 31, 1996 includes preliminary
purchase price allocations for Forchem and Forwood Products. Final allocations
for these acquisitions will be completed in 1997.
In late April 1995, the Company acquired approximately 26% of Carter Holt
Harvey, a New Zealand-based forest and paper products company for $1.1 billion.
The acquisition increased International Paper's ownership to just over 50%. As a
result, Carter Holt Harvey was consolidated into International Paper's financial
statements beginning on 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.
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.
With the exception of Kirk Paper Corporation, which was accounted for as a
pooling-of-interests, all of the 1996, 1995 and 1994 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.
- - --------------------------------------------------------------------------------
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 1996 acquisitions
listed in Note 4.
INTERNATIONAL PAPER 49
<PAGE>
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 would have been 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, nor is it indicative of the actual results
since acquisition. In addition, the information may not be indicative of future
results.
- - --------------------------------------------------------------------------------
In millions, except per share amounts,
for the years ended December 31 (Unaudited) 1996 1995
- - --------------------------------------------------------------------------------
Net Sales $20,500 $22,777
Net Earnings 289 1,267
Earnings Per Common Share .96 4.30
- - --------------------------------------------------------------------------------
NOTE 6. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
- - --------------------------------------------------------------------------------
In the first quarter of 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards 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 their carrying
amount or fair value. The adoption of the provisions of this statement resulted
in a pre-tax charge to earnings totaling $100 million as noted below.
Also in the first quarter of 1996, the Company's Board of Directors authorized a
series of management actions to restructure and strengthen existing businesses
that resulted in a pre-tax charge to earnings of $515 million ($362 million
after taxes or $1.35 per share). The charge included $305 million for the
write-off of certain assets, $100 million for asset impairments (related to the
adoption of SFAS No. 121), $80 million in associated severance costs and $30
million of other expenses, including the cancellation of leases. Accruals for
one-time cash costs, which include severance costs and other expenses, totaled
$110 million. Approximately $34 million of these costs were incurred in 1996 and
the remainder will be spent in 1997.
In the fourth quarter of 1996, the Company recorded a $165 million pre-tax
charge ($105 million after taxes or $.35 per share) for the write-down of its
investment in Scitex, a company that markets digital communication products, and
to record its share of a restructuring charge announced by Scitex in November
1996.
- - --------------------------------------------------------------------------------
NOTE 7. GAIN ON SALE OF PARTNERSHIP INTEREST
- - --------------------------------------------------------------------------------
On March 29, 1996, IP Timberlands, Ltd. (IPT) completed the sale of a 98%
general partnership interest in a subsidiary partnership that owns approximately
300,000 acres of forestlands located in Oregon and Washington. Included in the
net assets of the partnership interest sold were forestlands, roads and $750
million of long-term debt. As a result of this transaction, International Paper
recognized in its first-quarter consolidated results a $592 million pre-tax gain
($336 million after taxes and minority interest expense or $1.25 per share). IPT
and International Paper retained nonoperating interests in the partnership.
- - --------------------------------------------------------------------------------
NOTE 8. 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 $24 million were paid in
1996 and $10 million were paid in 1995.
- - --------------------------------------------------------------------------------
NOTE 9. 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' interests are reflected as minority interest in the
accompanying financial statements. The purpose of the partnerships is to invest
in and manage a portfolio of assets including pulp and paper equipment used at
the Georgetown, 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, debentures 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.
50 INTERNATIONAL PAPER
<PAGE>
At December 31, 1996, the Company held aggregate general and limited partner
interests totaling 83.5% in Georgetown Equipment Leasing Associates, L.P. and
81.4% in Trout Creek Equipment Leasing, L.P. The Company also held $378 million
and $315 million of borrowings at December 31, 1996 and 1995, respectively, from
these partnerships. These funds are being used for general corporate purposes.
- - --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES
- - --------------------------------------------------------------------------------
The Company uses the asset and liability method of accounting for income taxes
whereby deferred income taxes are recorded for the future tax consequences
attributable to differences between the financial statement and tax bases of
assets and liabilities. Deferred tax assets and liabilities are measured using
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Deferred tax
assets and liabilities are revalued to reflect new tax rates in the periods rate
changes are enacted.
The components of earnings before income taxes, minority interest and cumulative
effect of an accounting change, and the provision for income taxes by taxing
jurisdiction were:
- - --------------------------------------------------------------------------------
In millions 1996 1995 1994
- - --------------------------------------------------------------------------------
Earnings (losses)
U.S. $ 815 $ 1,565 $ 646
Non-U.S. (13) 463 69
------- ------- -------
Earnings before income taxes,
minority interest and cumulative
effect of accounting change $ 802 $ 2,028 $ 715
======= ======= =======
- - --------------------------------------------------------------------------------
In millions 1996 1995 1994
- - --------------------------------------------------------------------------------
Current tax provision
U.S. federal $ 158 $ 380 $ 148
U.S. state and local 1 88 10
Non-U.S. 64 105 36
------- ------- -------
223 573 194
------- ------- -------
Deferred tax provision
U.S. federal 146 141 23
U.S. state and local (3) (6) 24
Non-U.S. (36) 11 (5)
------- ------- -------
107 146 42
------- ------- -------
Provision for income taxes $ 330 $ 719 $ 236
======= ======= =======
The Company made income tax payments of $286 million, $413 million and $75
million in 1996, 1995 and 1994, 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 1996 1995 1994
- - --------------------------------------------------------------------------------
Earnings before income taxes,
minority interest and cumulative
effect of accounting change $ 802 $ 2,028 $ 715
Statutory U.S. income tax rate 35% 35% 35%
------- ------- -------
Tax expense using statutory
U.S. income tax rate 281 710 250
State and local taxes (1) 53 22
Non-U.S. tax rate differences 37 (45) (4)
Minority interest (37) (32) (14)
Goodwill 21 8 8
Net U.S. tax on non-U.S. dividends 54 3 2
Tax credits (23) (5) (6)
Other, net (2) 27 (22)
------- ------- -------
Provision for income taxes $ 330 $ 719 $ 236
------- ------- -------
Effective income tax rate 41% 35.5% 33%
======= ======= =======
The net deferred income tax liability as of December 31, 1996 and 1995 includes
the following components:
- - --------------------------------------------------------------------------------
In millions 1996 1995
- - --------------------------------------------------------------------------------
Current deferred tax asset $ 107 $ 86
Noncurrent deferred tax liability(1) (2,576) (1,796)
------- -------
Total $(2,469) $(1,710)
======= =======
(1) Net of $192 million and $178 million at December 31, 1996 and 1995,
respectively, of noncurrent deferred tax assets.
The tax effects of significant temporary differences representing deferred tax
assets and liabilities at December 31, 1996 and 1995 were as follows:
- - --------------------------------------------------------------------------------
In millions 1996 1995
- - --------------------------------------------------------------------------------
Plants, properties and equipment $(2,332) $(1,772)
Prepaid pension costs (299) (286)
Forestlands (622) (176)
Postretirement benefit accruals 174 166
Alternative minimum and other tax credits 173 90
Non-U.S. net operating losses 148 146
Other 289 122
------- -------
Total $(2,469) $(1,710)
======= =======
The Company had net operating loss carryforwards applicable to non-U.S.
subsidiaries of which $204 million expire in years 1998 through 2006 and $299
million can be carried forward indefinitely.
Deferred taxes are not provided for temporary differences of approximately $361
million, $501 million and $297 million as of December 31, 1996, 1995 and 1994,
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.
INTERNATIONAL PAPER 51
<PAGE>
- - --------------------------------------------------------------------------------
NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES
- - --------------------------------------------------------------------------------
The Company leases certain property, machinery and equipment under cancelable
and noncancelable lease agreements. At December 31, 1996, total future minimum
rental commitments under noncancelable leases were $470 million, due as follows:
1997-$129 million, 1998-$105 million, 1999-$83 million, 2000-$64 million,
2001-$45 million, and thereafter-$44 million. Rent expense was $198 million,
$159 million and $124 million for 1996, 1995 and 1994, respectively.
Masonite Corporation, a subsidiary of the Company, and the Company are parties
to a class action lawsuit in state court in Alabama purporting to represent
plaintiffs who purchased Masonite hardboard siding since 1980. The suit alleges,
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 are vigorously contesting 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 12. SUPPLEMENTARY BALANCE SHEET INFORMATION
- - --------------------------------------------------------------------------------
Inventories by major category were:
- - --------------------------------------------------------------------------------
In millions at December 31 1996 1995
- - --------------------------------------------------------------------------------
Raw materials $ 552 $ 591
Finished pulp, paper and packaging products 1,400 1,340
Finished lumber and panel products 215 223
Operating supplies 397 343
Other 276 287
------ ------
Inventories $2,840 $2,784
====== ======
The Company uses the last-in, first-out inventory method to value substantially
all of its domestic inventories. Approximately 70% 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 $228 million, $227 million and $194 million
at December 31, 1996, 1995 and 1994, respectively.
Plants, properties and equipment by major classification were:
- - --------------------------------------------------------------------------------
In millions at December 31 1996 1995
- - --------------------------------------------------------------------------------
Pulp, paper and packaging facilities
Mills $16,386 $13,554
Packaging plants 1,620 1,508
Wood products facilities 1,914 1,754
Other plants, properties and equipment 2,811 2,597
------- -------
Gross cost 22,731 19,413
Less: Accumulated depreciation 9,514 8,416
------- -------
Plants, properties and equipment, net $13,217 $10,997
======= =======
- - --------------------------------------------------------------------------------
NOTE 13. DEBT AND LINES OF CREDIT
- - --------------------------------------------------------------------------------
A summary of long-term debt follows:
- - --------------------------------------------------------------------------------
In millions at December 31 1996 1995
- - --------------------------------------------------------------------------------
8 7/8% to 10% debentures -- due 2011-2012 $ 325
8 7/8% to 9.7% notes -- due 2000-2004 600 $ 600
8 3/8% to 9 1/2% debentures -- due 2015-2024 300 300
6 7/8% to 7 7/8% notes -- due 2000-2007 1,223 798
6 7/8% to 8 1/8% notes -- due 2023-2024 545 545
6 1/8% notes -- due 2003 199 199
6.11% debentures 750
5 7/8% Swiss franc debentures -- due 2001 88 98
5 1/8% debentures -- due 2012 82 81
Floating rate notes -- due 1999(1) 450
Medium-term notes -- due 1997-2009(2) 664 516
Environmental and industrial development
bonds -- due 1997-2020(3),(4) 981 916
Commercial paper and bank notes(5) 727 581
Other(6) 814 818
------ ------
Total(7) 6,998 6,202
Less: Current maturities 307 256
------ ------
Long-term debt $6,691 $5,946
====== ======
(1) The weighted average interest rate on these notes was 6.2% in 1996 and is
based on LIBOR.
(2) The weighted average interest rate on these notes was 7.5% in 1996 and
8.4% in 1995.
(3) The weighted average interest rate on these bonds was 5.8% in 1996 and
5.9% in 1995.
(4) Includes $323 million of bonds at both December 31, 1996 and 1995, which
may be tendered at various dates and/or under certain circumstances.
(5) Includes $393 million in 1995 of non-U.S. dollar-denominated borrowings.
The weighted average interest rate was 5.6% in 1996 and 5.3% in 1995.
(6) Includes $60 million in 1996 and $96 million in 1995 of French franc
borrowings with a weighted average interest rate of 3.2% in 1996 and 4.9%
in 1995, and $218 million in 1996 and $242 million in 1995 of German mark
borrowings with a weighted average interest rate of 6.7% in 1996 and 1995.
(7) The fair market value was approximately $7.3 billion and $6.6 billion at
December 31, 1996 and 1995, respectively.
At December 31, 1996 and 1995, the Company, including a non-U.S. subsidiary,
classified $1.1 billion and $900 million, 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 1997 and into future periods.
Total maturities of long-term debt over the next five years are: 1997-$307
million, 1998-$228 million, 1999-$861 million, 2000-$1.5 billion and 2001-$621
million.
52 INTERNATIONAL PAPER
<PAGE>
At December 31, 1996, the Company had unused bank lines of credit of
approximately $2.9 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%, which 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, 1996, notes payable classified as current liabilities included
$2.3 billion of non-U.S. dollar-denominated debt with a weighted average
interest rate of 4.6%.
At December 31, 1996, the Company's total outstanding debt included
approximately $3.2 billion of borrowings with interest rates that fluctuate
based on market conditions and the Company's credit rating.
In July 1995, 5 3/4% convertible debentures were called by the Company and
converted into 5.8 million shares of common stock.
- - --------------------------------------------------------------------------------
NOTE 14. 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 $2.3 billion was outstanding at
December 31, 1996. Also outstanding were foreign exchange contracts totaling
$2.1 billion, all having maturities of less than 360 days, as follows: French
francs, $779 million; British pounds, $391 million; Australian dollars, $320
million; Spanish pesetas, $173 million; German marks, $159 million; Italian
lira, $106 million; Swiss francs, $87 million; and contracts totaling $108
million in three other currencies. In addition, a non-U.S. subsidiary of the
Company had outstanding foreign exchange contracts totaling $280 million that
were denominated in U.S. dollars. The average amount of outstanding contracts
during 1996 and 1995 was $1.9 billion and $1.2 billion, respectively. Gains and
losses from these contracts, 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
common 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, 1996, foreign exchange contracts totaling $557 million, all having
maturities of less than 12 months, were outstanding as follows: Belgian francs,
$191 million; German marks, $70 million; Dutch guilders, $67 million; Australian
dollars, $66 million; British pounds, $41 million; French francs, $31 million;
and contracts totaling $91 million in eight different currencies. Non-U.S.
subsidiaries of the Company also had contracts outstanding of $114 million that
were denominated in U.S. dollars. The average amount of outstanding contracts
during 1996 and 1995 was $583 million and $486 million, respectively. Net gains
and losses related to contracts outstanding at December 31, 1996 and 1995, were
not significant.
The Company uses interest rate swap agreements to manage the composition of its
fixed and floating rate debt portfolio. During 1996, the Company entered into
interest rate swap agreements maturing in 1998 and 1999 under which it will
receive interest at floating rates and pay interest at fixed rates based on a
principal amount of $575 million. Also, in 1994, the Company used interest rate
swap agreements involving 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.
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
a cross-currency agreement maturing in 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. During 1996, the subsidiary entered into
an interest rate swap agreement maturing in 1999 under which it will receive
interest at floating rates and pay interest at fixed rates based on a principal
amount of 65 million Australian dollars. Also outstanding at December 31, 1996
and 1995 were two interest rate swap agreements maturing in 1997 and 1998 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 maturing
INTERNATIONAL PAPER 53
<PAGE>
in 2004 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 was 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 15. CAPITAL STOCK
- - --------------------------------------------------------------------------------
The authorized capital stock of the Company at December 31, 1996 and 1995
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 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 16. 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 1996 1995 1994
- - --------------------------------------------------------------------------------
Service cost-benefits earned
during the period $ (61) $ (39) $ (54)
Interest cost on projected benefit
obligation (192) (170) (151)
Actual return on plan assets 372 477 7
Net amortization and deferrals (47) (193) 275
------- ------- -------
Net periodic pension income $ 72 $ 75 $ 77
======= ======= =======
The actuarial assumptions used in determining net periodic pension income for
the years presented were:
- - --------------------------------------------------------------------------------
1996 1995 1994
- - --------------------------------------------------------------------------------
Discount rate 7.25% 8.75% 7.25%
Expected long-term return on
plan assets 10.0% 10.0% 10.0%
Weighted average rate of increase
in compensation levels 4.25% 4.75% 4.0%
The discount rates and the rates of increase in future compensation levels used
to determine the projected benefit obligations at December 31, 1996 were 7.5%
and 4.5%, respectively, and at December 31, 1995 were 7.25% and 4.25%,
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:
54 INTERNATIONAL PAPER
<PAGE>
- - --------------------------------------------------------------------------------
In millions at December 31 1996 1995
- - --------------------------------------------------------------------------------
Actuarial present value of benefit obligations
Vested benefits $ 2,420 $ 2,080
------- -------
Accumulated benefit obligation $ 2,558 $ 2,203
------- -------
Projected benefit obligation(1) $ 2,745 $ 2,376
Plan assets at fair value 3,355 2,896
------- -------
Plan assets in excess of projected benefit obligation 610 520
Unrecognized net loss 92 170
Balance of unrecorded transition asset (55) (82)
Other 42 44
------- -------
Prepaid pension cost $ 689 $ 652
======= =======
(1) Includes nonqualified unfunded plans with projected benefit obligations of
approximately $76 million and $45 million at December 31, 1996 and 1995,
respectively.
Plan assets are held primarily in master trust accounts and comprise the
following:
- - --------------------------------------------------------------------------------
In millions at December 31 1996 1995
- - --------------------------------------------------------------------------------
Cash reserves $ 44 $ 45
Fixed income securities 1,159 1,003
Diversified equities 1,449 1,192
International Paper common stock 422 394
Real estate 117 113
Other 164 149
------ ------
Total plan assets $3,355 $2,896
====== ======
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 1996, 1995 and 1994.
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 composed principally of common stocks and fixed income
securities.
- - --------------------------------------------------------------------------------
In millions at December 31 1996 1995
- - --------------------------------------------------------------------------------
Actuarial present value of benefit obligations
Vested benefits $ 367 $ 338
----- -----
Accumulated benefit obligation $ 382 $ 365
----- -----
Projected benefit obligation (1) $ 473 $ 446
Plan assets at fair value 511 477
----- -----
Plan assets in excess of projected benefit obligation 38 31
Unrecognized net gain (12) (21)
Balance of unrecorded transition asset (34) (35)
Other 4 5
----- -----
Pension liability $ (4) $ (20)
===== =====
(1) The weighted average discount rate and the weighted average rate of
compensation increase used to measure the projected benefit obligation
were 7.08% (6.93% in 1995) and 4.99% (4.65% in 1995), 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 $42 million, $38 million and $36 million for the plan years ending
in 1996, 1995 and 1994, respectively. The net assets of these plans approximated
$1.8 billion as of the 1996 plan year-end.
- - --------------------------------------------------------------------------------
NOTE 17. 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 1996, 1995 and 1994 were as
follows:
- - --------------------------------------------------------------------------------
In millions 1996 1995 1994
- - --------------------------------------------------------------------------------
Service cost-benefits earned during
the period $ 7 $ 6 $ 8
Interest cost on accumulated post-
retirement benefit obligation 25 26 23
Net amortization of plan amendments (17) (18) (16)
----- ----- -----
Net postretirement benefit cost $ 15 $ 14 $ 15
===== ===== =====
The accumulated postretirement benefit obligation, included in other liabilities
in the accompanying consolidated balance sheet, comprises the following
components:
- - --------------------------------------------------------------------------------
In millions at December 31 1996 1995
- - --------------------------------------------------------------------------------
Retirees $ 251 $ 250
Fully eligible active plan participants 22 17
Other active plan participants 85 76
----- -----
Total accumulated postretirement benefit obligation 358 343
Unrecognized net loss (30) (57)
Unrecognized effect of plan amendments 58 78
----- -----
Accrued postretirement benefit obligation $ 386 $ 364
===== =====
INTERNATIONAL PAPER 55
<PAGE>
Future benefit costs were estimated assuming medical costs would increase at a
9.5% annual rate, decreasing to a 5% annual growth rate ratably over the next
seven 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, 1996 by $24 million, with an
immaterial effect on 1996 postretirement benefit expense. The weighted average
discount rate used to estimate the accumulated postretirement benefit obligation
at December 31, 1996 was 7.5% compared with 7.25% at December 31, 1995.
- - --------------------------------------------------------------------------------
NOTE 18. INCENTIVE PLANS
- - --------------------------------------------------------------------------------
The Company has a Long-Term Incentive Compensation Plan that includes a Stock
Option Plan, a Restricted Performance Share Plan, and an Executive Continuity
Award Plan, administered by a committee of nonemployee members of the Board of
Directors who are not eligible for awards. The plan allows stock appreciation
rights to be awarded, although none were awarded in 1996, 1995 or 1994.
The Company applies the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans and the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123), which was adopted in 1996. Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with the provisions of
SFAS No. 123, the Company's net earnings and earnings per common share would
have been reduced to the pro forma amounts indicated below:
- - --------------------------------------------------------------------------------
In millions, except per share amounts 1996 1995 1994
- - --------------------------------------------------------------------------------
Net Earnings
As reported $ 303 $1,153 $ 357
Pro forma 291 1,143 351
Earnings Per Common Share
As reported $1.04 $ 4.50 $1.43
Pro forma 1.00 4.46 1.41
The effect on 1996, 1995 and 1994 pro forma net earnings and earnings per common
share of expensing the estimated fair value of stock options is not necessarily
representative of the effect on reported earnings for future years due to the
vesting period of stock options and the potential for issuance of additional
stock options in future years.
Stock Option Plan
Initial stock options are normally granted in January of each year. The option
price is the market price of the stock at the date of grant. Options are
immediately exercisable under the plan; however, the underlying shares cannot be
sold and carry profit forfeiture provisions during the initial four years
following grant. Upon exercise of an option, a replacement option may be granted
with the exercise price equal to the current market price and with a term
extending to the expiration date of the original option.
For purposes of the pro forma disclosure above, the fair value of each option
grant has been estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
1996, 1995 and 1994, respectively.
- - --------------------------------------------------------------------------------
1996 1995 1994
- - --------------------------------------------------------------------------------
Initial Options(1)
Risk-free interest rate 5.45% 7.80% 4.88%
Price volatility 22.18% 22.15% 21.70%
Dividend yield 2.72% 2.44% 2.61%
Expected term in years 4.74 4.74 4.74
Replacement Options(2)
Risk-free interest rate 6.38% 5.91% 6.80%
Price volatility 22.18% 22.15% 21.70%
Dividend yield 2.68% 2.34% 2.45%
Expected term in years 2.97 2.97 2.97
(1) The average fair values of initial option grants during 1996, 1995 and
1994 were $8.37, $10.33 and $7.52, respectively.
(2) The average fair values of replacement option grants during 1996, 1995 and
1994 were $6.82, $7.23 and $6.72, respectively.
A summary of the status of the Stock Option Plan as of December 31, 1996, 1995
and 1994, and changes during the years ended on those dates is presented below:
Weighted Average
Exercise
Options(1) Price
- - --------------------------------------------------------------------------------
Outstanding at 1/1/94 7,481,026 $29.95
Granted 2,706,540 36.99
Exercised (1,559,030) 27.72
Forfeited (231,668) 33.82
----------- ------
Outstanding at 12/31/94 8,396,868 32.41
Granted 3,196,311 40.03
Exercised (2,069,022) 30.09
Forfeited (262,044) 35.64
----------- ------
Outstanding at 12/31/95 9,262,113 35.44
Granted(2) 4,234,695 35.42
Exercised (2,091,942) 30.39
Forfeited (460,321) 36.89
----------- ------
Outstanding at 12/31/96 10,944,545 36.53
=========== ======
(1) This table does not include Executive Continuity Award tandem options
described below. No fair value is assigned to these options under SFAS No.
123. The tandem restricted shares accompanying these options are expensed
over their vesting periods.
(2) At acquisition, outstanding Federal Paper Board options that were not paid
in cash were converted to 797,776 options of International Paper with a
fair value of $20.58 per option. The fair value for all acquired options
was included in the purchase price that has been allocated to acquired
assets and liabilities.
56 INTERNATIONAL PAPER
<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding and Exercisable
-----------------------------------
Number Weighted Average Weighted Average
Range of Outstanding at Remaining Exercise
Exercise Prices 12/31/96 Life Price
- - --------------------------------------------------------------------------------
$17-$34 2,047,036 4.4 $26.85
$34-$37 2,566,018 5.3 $35.79
$37-$39 2,210,578 5.9 $38.52
$39-$40 2,165,362 7.1 $39.20
$40-$46 1,955,551 3.1 $42.43
Restricted Performance Share Plan
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.
The following summarizes the activity of the Restricted Performance Share Plan
for the three years ending December 31, 1996:
- - --------------------------------------------------------------------------------
Shares
- - --------------------------------------------------------------------------------
Outstanding at 1/1/94 650,192
Granted 261,207
Issued (183,719)
Forfeited (37,668)
--------
Outstanding at 12/31/94 690,012
Granted 360,701
Issued (211,648)
Forfeited (28,101)
--------
Outstanding at 12/31/95 810,964
Granted 424,264
Issued (190,660)
Forfeited (85,178)
--------
Outstanding at 12/31/96 959,390
========
Executive Continuity Award Plan
The Executive Continuity Award Plan provides for the granting of tandem awards
of restricted stock and/or nonqualified stock options to key executives. Grants
are restricted and awards conditioned on attainment of specified age and years
of service requirements. Exercise of a tandem stock option results in the
cancellation of the related restricted shares.
The following summarizes the activity of the Executive Continuity Award Plan for
the three years ending December 31, 1996:
- - --------------------------------------------------------------------------------
Shares
- - --------------------------------------------------------------------------------
Outstanding at 1/1/94 389,000
Granted 116,000
Issued (22,000)
Forfeited (6,000)
--------
Outstanding at 12/31/94 477,000
Granted 28,000
Forfeited(1) (26,000)
--------
Outstanding at 12/31/95 479,000
Granted 136,650
Forfeited(1) (132,000)
--------
Outstanding at 12/31/96 483,650
========
(1) Includes restricted shares canceled when tandem stock options were
exercised. In 1996 and 1995, 400,000 and 120,000 tandem stock options were
exercised, respectively.
At December 31, 1996 and 1995, a total of 7.9 million and 10.8 million shares,
respectively, were available for grant under the Long-Term Incentive
Compensation Plan.
The compensation cost that has been charged to earnings for the
performance-based plans was $13 million, $14 million and $9 million for 1996,
1995 and 1994, respectively.
- - --------------------------------------------------------------------------------
NOTE 19. 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).
INTERNATIONAL PAPER 57
<PAGE>
ELEVEN-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND STOCK PRICES
1996 1995 1994
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales $20,143 $19,797 $ 14,966
Costs and expenses, excluding interest 19,403 17,276 13,902
Earnings before income taxes, minority
interest, extraordinary item
and cumulative effect of accounting changes 802(1) 2,028 715(2)
Minority interest expense, net of taxes 169(1) 156 47
Extraordinary item
Cumulative effect of accounting changes (75)
Net earnings 303(1) 1,153 357(2)
Earnings applicable to common shares 303(1) 1,153 357(2)
------- ------- --------
FINANCIAL POSITION
Working capital $ 104 $ 1,010 $ 796
Plants, properties and equipment, net 13,217 10,997 9,139
Forestlands 3,342 2,803 802
Total assets 28,252 23,977 17,836
Long-term debt 6,691 5,946 4,464
Common shareholders' equity 9,344 7,797 6,514
------- ------- --------
PER SHARE OF COMMON STOCK(8)
Earnings before extraordinary item and
cumulative effect of accounting changes $ 1.04(1) $ 4.50 $ 1.73(2)
Extraordinary item
Cumulative effect of accounting changes (.30)
Earnings 1.04(1) 4.50 1.43(2)
Cash dividends 1.00 .92 .84
Common shareholders' equity 31.13 29.87 25.87
------- ------- --------
COMMON STOCK PRICES(8)
High 44 5/8 45 3/4 40 1/4
Low 35 5/8 34 1/8 30 3/8
Year-end 40 1/2 37 7/8 37 3/4
------- ------- --------
FINANCIAL RATIOS
Current ratio 1.0 1.2 1.2
Total debt to capital ratio 38.9 38.5 41.2
Return on equity 3.4(1),(9) 16.1 5.6(2),(9)
Return on capital employed 3.7(1),(9) 9.2 4.1(2),(9)
------- ------- --------
CAPITAL EXPENDITURES $ 1,394 $ 1,518 $ 1,114
------- ------- --------
NUMBER OF EMPLOYEES 87,000 81,500 70,000
======= ======= ========
</TABLE>
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.
58 INTERNATIONAL PAPER
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986
- - -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 13,685 $ 13,598 $12,703 $12,960 $11,378 $ 9,587 $ 7,800 $ 5,540
12,837 13,125(4) 11,695(5) 11,695(6) 9,739 8,199 6,930 5,010
538 226(4) 693(5) 988(6) 1,434 1,223 703 474
36 15 42 33 26 22 21 20
(6)
(50) (215)
289(3) 86(4) 184(5) 569(6) 864 754 407 305
289(3) 86(4) 184(5) 569(6) 845 733 387 284
- - -------- -------- ------- ------- ------- ------- ------- -------
$ 472 $ (165)(7) $ 404 $ 784 $ 366 $ 781 $ 657 $ 296
8,872 8,884 7,848 7,287 6,238 5,456 5,125 4,788
786 759 743 751 764 772 780 783
16,631 16,516 14,941 13,669 11,582 9,462 8,710 7,848
3,601 3,096 3,351 3,096 2,324 1,853 1,937 1,764
6,225 6,189 5,739 5,632 5,147 4,557 4,052 3,664
$ 1.17(3) $ .58(4) $ 1.80(5) $ 2.61(6) $ 3.86 $ 3.28 $ 1.84 $ 1.45
(.02)
(.21) (.97)
1.17(3) .35(4) .83(5) 2.61(6) 3.86 3.28 1.84 1.45
.84 .84 .84 .84 .77 .64 .60 .60
25.12 25.23 25.52 25.67 23.67 20.57 18.18 17.52
- - -------- -------- ------- ------- ------- ------- ------- -------
35 39 1/4 39 1/8 29 7/8 29 3/8 24 3/4 28 7/8 20
28 3/8 29 1/4 25 1/4 21 3/8 22 5/8 18 1/4 13 1/2 12 1/8
33 7/8 33 3/8 35 3/8 26 3/4 28 1/4 23 1/4 21 1/8 18 3/4
- - -------- -------- ------- ------- ------- ------- ------- -------
1.1 .96(7) 1.1 1.2 1.1 1.5 1.4 1.2
38.5 38.0 39.1 36.1 33.9 25.8 31.6 31.2
4.7(3),(9) 1.4(4),(9) 3.2(5) 10.5(6) 17.8 17.0 10.0 8.3
4.0(3),(9) 1.2(4),(9) 3.7(5) 7.5(6) 12.3 13.6 9.9 7.8
- - -------- -------- ------- ------- ------- ------- ------- -------
$ 954 $ 1,368 $ 1,197 $ 1,267 $ 887 $ 645 $ 603 $ 576
- - -------- -------- ------- ------- ------- ------- ------- -------
72,500 73,000 70,500 69,000 63,500 55,500 45,500 44,000
======== ======== ======= ======= ======= ======= ======= =======
</TABLE>
(1) Includes a pre-tax restructuring and asset impairment charge of $515
million ($362 million after taxes or $1.35 per share), a $592 million
pre-tax gain on the sale of a partnership interest ($336 million after
taxes and minority interest expense or $1.25 per share) and a $165 million
pre-tax charge ($105 million after taxes or $.35 per share) for the
write-down of the investment in Scitex.
(2) Includes $17 million ($10 million after taxes or $.04 per share) of
additional earnings related to the change in accounting for start-up
costs.
(3) 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.
(4) Includes restructuring and other charges totaling $398 million ($263
million after taxes or $1.08 per share).
(5) 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).
(6) Includes a $212 million pre-tax restructuring charge ($137 million after
taxes or $.63 per share).
(7) Reflects increase in short-term versus long-term borrowings due to
favorable interest rates.
(8) Per share data and common stock prices have been adjusted to reflect
two-for-one stock splits in September 1995 and May 1987.
(9) Return on equity was 4.8% and return on capital employed was 4.0% in 1996
before the restructuring and asset impairment charge, the gain on sale of
the partnership interest and the write-down of the investment in Scitex.
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.
INTERNATIONAL PAPER 59
<PAGE>
INTERIM FINANCIAL RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND STOCK PRICES
QUARTER
FIRST SECOND THIRD FOURTH YEAR
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Net Sales $4,798 $5,093 $5,108 $ 5,144 $20,143
Gross Margin(1) 1,242 1,322 1,348 1,330 5,242
Earnings Before Income Taxes and
Minority Interest 336(2) 217 227 22(3) 802(2),(3)
Net Earnings (Loss) 98(2) 99 111 (5)(3) 303(2),(3)
Per Share of Common Stock
Earnings (Loss) $ .36(2) $ .33 $ .37 $ (.02)(3) $1.04(2),(3)
Dividends .25 .25 .25 .25 1.00
Common Stock Prices
High 41 1/2 43 3/8 44 5/8 44 44 5/8
Low 35 5/8 36 7/8 36 3/4 38 3/4 35 5/8
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(4)
Earnings $ .97 $ 1.25 $ 1.27 $ 1.01 $ 4.50
Dividends .21 .21 .25 .25 .92
Common Stock Prices(4)
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
</TABLE>
(1) Gross margin represents net sales less cost of products sold.
(2) Includes a pre-tax restructuring and asset impairment charge of $515
million ($362 million after taxes or $1.35 per share) and a $592 million
pre-tax gain on the sale of a partnership interest ($336 million after
taxes and minority interest expense or $1.25 per share).
(3) Includes a $165 million pre-tax charge ($105 million after taxes or $.35
per share) for the write-down of the investment in Scitex.
(4) Per share amounts and common stock prices adjusted for the two-for-one
stock split in September 1995.
60 INTERNATIONAL PAPER
<PAGE>
BOARD OF DIRECTORS
"We appreciate the ongoing leadership of our distinguished Board of Directors,
who provide International Paper with sound counsel, a broad perspective and
judgment based on extensive experience."
[Photograph -- Appendix B No. 65]
STANDING IN THE BACK ROW FROM LEFT TO RIGHT: ROGER B. SMITH, JOHN A. GEORGES,
PATRICK F. NOONAN, ROBERT J. EATON, THOMAS C. GRAHAM, JOHN R. KENNEDY, CHARLES
R. SHOEMATE. SEATED IN THE MIDDLE ROW FROM LEFT TO RIGHT: C. WESLEY SMITH,
EDMUND T. PRATT, JR., ARTHUR G. HANSEN. SEATED IN THE FRONT ROW FROM LEFT TO
RIGHT: STANLEY C. GAULT, WILLARD C. BUTCHER, JANE C. PFEIFFER, JOHN T. DILLON,
DONALD F. MCHENRY.
INTERNATIONAL PAPER 61
<PAGE>
DIRECTORS AND SENIOR MANAGEMENT
DIRECTORS
WILLARD C. BUTCHER (1)(3)(4)(5)*
Retired Chairman and
Chief Executive Officer
The Chase Manhattan Bank, N.A.
JOHN T. DILLON (2)*(3)(6)
Chairman and
Chief Executive Officer
International Paper
ROBERT J. EATON (4)(7)
Chairman, President and
Chief Executive Officer
Chrysler Corporation
STANLEY C. GAULT (2)(4)*(7)
Retired Chairman and
Chief Executive Officer
The Goodyear Tire &
Rubber Company
JOHN A. GEORGES (2)(3)(6)
Retired Chairman and
Chief Executive Officer
International Paper
THOMAS C. GRAHAM (2)(4)(7)*
Retired Chairman of the Board
AK Steel Corporation
ARTHUR G. HANSEN (1)(7)
Educational Consultant
JOHN R. KENNEDY (1)(7)
Retired Chairman and
Chief Executive Officer
Federal Paper Board
DONALD F. MCHENRY (3)(5)(6)*
University Research
Professor of Diplomacy
and International Affairs
Georgetown University
PATRICK F. NOONAN (1)(6)(7)
Chairman and
Chief Executive Officer
The Conservation Fund
JANE C. PFEIFFER (1)*(5)(6)
Management Consultant
EDMUND T. PRATT, JR. (2)(3)*(4)(5)
Retired Chairman and
Chief Executive Officer
Pfizer Inc.
CHARLES R. SHOEMATE (4)(5)
Chairman, President and
Chief Executive Officer
CPC International, Inc.
C. WESLEY SMITH (6)(7)
Executive Vice President
Printing Papers
International Paper
ROGER B. SMITH (1)(3)(6)
Retired Chairman and
Chief Executive Officer
General Motors Corporation
(1) Audit Committee
(2) Executive Committee
(3) Finance Committee
(4) Management Development and
Compensation Committee
(5) Nominating Committee
(6) Public and Legal Affairs Committee
(7) Environment, Health and Technology
Committee
* Committee Chairperson
SENIOR MANAGEMENT
JOHN T. DILLON
Chairman and
Chief Executive Officer
W. MICHAEL AMICK
Executive Vice President
Forest Products and
Industrial Packaging
JAMES P. MELICAN
Executive Vice President
Legal and External Affairs
DAVID W. OSKIN
Executive Vice President
Consumer Packaging and
Specialty Industrial Papers
C. WESLEY SMITH
Executive Vice President
Printing Papers
MILAN J. TURK
Executive Vice President
Specialty Businesses
ROBERT M. AMEN
President
International Paper
Europe
ROBERT M. BYRNES
Senior Vice President
Human Resources
THOMAS E. COSTELLO
Senior Vice President
Distribution Business
MARIANNE M. PARRS
Senior Vice President and
Chief Financial Officer
RICHARD B. PHILLIPS
Senior Vice President
Technology
62 INTERNATIONAL PAPER
<PAGE>
SENIOR MANAGEMENT
(CONTINUED)
DAVID A. BAILEY
President
International Paper
Poland
ROBERT G. BELL
Vice President
Environment, Health & Safety
E. WILLIAM BOEHMLER
Vice President and Treasurer
WILLIAM P. CRAWFORD
Vice President
Logistics
HANS PETER DAROCZI
Vice President
International Container
C. CATO EALY
Vice President
Business Development
and Planning
JOHN V. FLYNN
President
International Paper CIS
HARTWIG GEGINAT
Chairman and
Chief Executive Officer
Zanders
THOMAS E. GESTRICH
Vice President
Bleached Board
PHILLIP S. GIARAMITA
Vice President
Corporate Communications
MARK O. GODBOLD
Auditor
JAMES W. GUEDRY
Vice President and
Corporate Secretary
EVANS A. HEATH
Vice President
Liquid Packaging
PAUL HERBERT
Chief Operating Officer
Zanders
ROBERT M. HUNKELER
Vice President
Investments
ROBERT L. JANDA
Vice President
Manufacturing
Printing Papers
THOMAS C. JORLING
Vice President
Environmental Affairs
JEFFREY F. KASS
Vice President, Sales
Printing Papers
EDWARD J. KOBACKER
President, IP Forest
Resources Company
HARRY G. LAMBROUSSIS
President
International Paper
Latin/South America
PETER F. LEE
Vice President
Research and Development
NEWLAND A. LESKO
Vice President
Coated and Bristol Papers
ANDREW R. LESSIN
Vice President and
Controller
WILLIAM B. LYTTON
Vice President and
General Counsel
GERALD C. MARTERER
President
International Paper
Asia
ARTHUR W. MCGOWEN
Vice President
Wood Products
JEAN-PHILIPPE MONTEL
Chairman and
Chief Executive Officer
Aussedat Rey
KARL W. MOORE
Vice President and
Chief Information Officer
JOSEPH R. RIMSTIDT
Vice President
Quality Management
R. MICHAEL ROSS
Vice President
Container
GERHARD H. SEBLATNIGG
Chief Financial Officer
Zanders
WILLIAM H. SLOWIKOWSKI
Vice President
Imaging Products
BENNIE R. SMITH
Vice President
Containerboard and Kraft
RICHARD M. SMITH
Vice President
Business Papers
MANCO L. SNAPP
President
Masonite
W. DENNIS THOMAS
Vice President
Government Relations
TOBIN J. TREICHEL
Vice President
Tax
CAROL S. TUTUNDGY
Vice President
Investor Relations
INTERNATIONAL PAPER 63
<PAGE>
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
International Paper
Two Manhattanville Road
Purchase, NY 10577
914-397-1500
ANNUAL MEETING
The next annual meeting of shareholders will be held at 9:00 a.m., Thursday, May
8, 1997, at the Swissotel, 323 E. Wacker Drive, Chicago, IL.
TRANSFER AGENT
For services regarding your account such as change of address, lost certificates
or dividend checks, change in registered ownership, or the dividend reinvestment
program, write or call:
ChaseMellon Shareholder Services L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
800-678-8715
STOCK EXCHANGE LISTINGS
Common shares (symbol: IP) are traded on the following exchanges: New York,
Basel, Geneva, Lausanne, Zurich and Amsterdam. International Paper options are
traded on the Chicago Board of Options Exchange.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Under our plan you may invest all or a portion of your dividends, and you may
purchase up to $20,000 of additional shares each year. The Company pays all
brokerage commissions and fees. You may also deposit your certificates with the
transfer agent for safekeeping. For a copy of the plan prospectus, call or write
to the Corporate Secretary at corporate headquarters.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
1345 Avenue of the Americas
New York, NY 10105
REPORTS AND PUBLICATIONS
Additional copies of this annual report, the most recent environment, health and
safety annual report, SEC filings and other publications are available by
calling 914-397-1522 or writing to the investor relations department at
corporate headquarters. Additional information is also available on our website
- - -http://www.ipaper.com
INVESTOR RELATIONS
Investors desiring further information about International Paper should contact
the investor relations department at corporate headquarters, 914-397-1625.
CREDITS
Papers used in this report-Cover: Zanders Chromolux 700, 12 pt. cover; pages
1-14, 61-64: Zanders Ikono Gloss, 115 lb. text, a recycled paper; pages 15-40:
Strathmore Elements, 80 lb. text, bright white solids, a recycled paper; pages
41-60: Hammermill Accent Opaque Recycled , 70 lb. text, smooth, a recycled
paper.
Designed by Pentagram New York.
Products and brand designations appearing in italics are trademarks of
International Paper or a related company.
Microsoft photograph reprinted with permission from Microsoft Corporation.
Heinz photograph reprinted with permission from
H.J. Heinz Company.
THIS 1996 ANNUAL REPORT TO SHAREHOLDERS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS CONCERNING PROJECTED MODEST IMPROVEMENT IN EARNINGS AT INTERNATIONAL
PAPER. ACTUAL RESULTS MAY DIFFER BASED PRIMARILY ON OVERALL DEMAND AND WHETHER
PRICING INITIATIVES FOR VARIOUS PAPER AND PACKAGING PRODUCTS CAN BE REALIZED IN
1997 AND ANTICIPATED SAVINGS FROM RESTRUCTURING ARE ACHIEVED.
(C) 1997 International Paper Company.
All rights reserved.
64 INTERNATIONAL PAPER
<PAGE>
LIST OF EMPLOYEE TEAMS
COVER: CONTAINERBOARD SALES IN LATIN AMERICA
DOLE FRESH FRUIT COMPANY
BANANA PLANTATION
NEAR LA CEIBA, HONDURAS
Guillermo Botero* - Production Manager
Sariago Arbelaez - International Sales
Elisa Isabel Herrera* - Production
Carlos Ponce Posas* - General Manager
Dinora Hiza* - Quality Control
Iris Posas de Machigua* - Administration
*Employee of Dole Fresh Fruit Company
PAGE 3: ACCOLADE DEVELOPMENT TEAM
ANDROSCROGGIN MILL
JAY, MAINE
Mark Bayer - Technical Services
Jon Edmans - Product Performance
Michael Evans - Research
Alan Stevens - Graphic Arts Evaluation and Development
Joe Duffy - Quality
Bill Roepke - Project Management
Tom Jeffrey - Market Development
Tom Moore - Product Development
PAGE 4: BLEACHED BOARD SALES AND MARKETING TEAM
AUGUSTA, MILL
AUGUSTA, GEORGIA
Ken Kreig - Sales and Marketing
Allan Scott - Customer Service
Bob O'Keefe - Technical Services
Denton Stargel - Customer Service
Angela Medico - Domestic Sales
Bill Donahue - International Sales
Darryl Flanner - Marketing
PAGES 6-7: FOREST MANAGEMENT TEAM
SOUTHLANDS EXPERIMENT FOREST
BAINBRIDGE, GEORGIA
Jeremy Piorier - Wildlife Biology
Craig Hedman - Forest Ecology
Sam Stubbs - Forestry
Paul Durfield - Forestry
Neeti Bathala - Research
Sharon Haines - Natural Resources
PAGE 8: SAFETY TEAM MEMBERS
MASONITE
TOWANDA, PENNSYLVANIA
Leslie Woznicki - Ergonomics Team
Joe Coyle - Lift Truck Task Team
Lucy Snyder - Occupational Health Nurse
Ken Carle - Behavior Observation Team
Tim Crawford - Safety Captain
PAGE 9: GATORPRINT DEVELOPMENT TEAM
ERIE RESEARCH CENTER
ERIE, PENNSYLVANIA
Rick Williams - Research
John Knopp - Veratec
Tom Arnson - Research
Kathy Halligan - Printing Papers
Gary Knauf - Converting Technical Services
Donnie Hathcock - McKinney Coated Products
David Boone - Specialty Papers
Bob Dillon - Specialty Papers
PAGES 10-11: DISTRIBUTION CUSTOMER SERVICE TEAM
RESOURCENET INTERNATIONAL
DALLAS, TEXAS
April Lyon - Sales
Keith Washington - Dispatch
Sheila Bullard - Customer Servicve
Billy Walls - Warehouse
Greg Launza - Shipping
Ted Webb - Warehouse
PAGE 13: POLISH SALES AND MARKETING TEAM
THE NATIONAL THEATRE
WARSAW, POLAND
Zoltan Mate - Business Development
Barbara Lendzion - Sales
Grzegorz Ignatowski - Distribution
Krzysztof Jakubowski - Product Management
Agnieska Pochwalska-Piwko - Marketing
Andrzej Chrzanowski - Publisher of School Textbooks
David Bailey - President, IP Poland
Irena Waszak - Export Sales
The Dance Ensemble of Agricultural College "Promni"
65 INTERNATIONAL PAPER
<PAGE>
APPENDIX A
INTERNATIONAL PAPER
EXPLANATION OF CHARTS IN ANNUAL REPORT
1. NET SALES (PAGE 1)
Bar chart of NET SALES for the years 1994 through 1996, in billions of
dollars.
Data points as follows:
1994 1995 1996
---- ---- ----
15 19.8 20.1
2. NET EARNINGS (PAGE 1)
Bar chart of NET EARNINGS for the years 1994 through 1996, in millions of
dollars. Charts contain color keys for the years 1994 and 1996 to highlight
the following unusual or special items. In 1994, change in accounting for
start-up costs. In 1996, special items consisting of restructuring and asset
impairment charges and the gain on the sale of a partnership interest. Data
points as follows:
1994 1995 1996
---- ---- ----
NET EARNINGS BEFORE UNUSUAL ITEMS 432 1,153 434
Special items (131)
Change in accounting for start-up costs (75)
-------------------------
NET EARNINGS 357 1,153 303
3. EARNINGS PER SHARE (PAGE 1)
Bar chart of EARNINGS PER SHARE for the years 1994 through 1996, in dollars.
Charts contain color keys for the years 1994 and 1996 to highlight the
following unusual or special items: In 1994, change in accounting for
start-up costs. In 1996, special items consisting of restructuring and asset
impairment charges and the gain on the sale of a partnership interest.
Data points as follows:
1994 1995 1996
---- ---- ----
EARNINGS PER SHARE BEFORE UNUSUAL ITEMS 1.73 4.50 1.49
Special items (0.45)
Change in accounting for start-up costs (0.30)
-------------------------
EARNINGS PER SHARE 1.43 4.50 1.04
4. RETURN ON EQUITY (PAGE 1)
Bar chart of RETURN OF EQUITY for the years 1994 through 1996, in
percentages. Charts contain color keys for the years 1994 and 1996 to
highlight the following unusual or special items: In 1994, change in
accounting for start-up costs. In 1996, special items consisting of
restructuring and asset impairment charges and the gain on the sale of
a partnership interest.
Data points as follows:
1994 1995 1996
---- ---- ----
RETURN ON EQUITY BEFORE UNUSUAL ITEMS 6.7 16.1 4.8
Special items (1.4)
Change in accounting for start-up costs (1.1)
------------------------
RETURN ON EQUITY 5.6 16.1 3.4
<PAGE>
5,6. PRINTING PAPERS-NET SALES AND OPERATING PROFIT (PAGES 18-19)
Bar chart of NET SALES and OPERATING PROFIT for the segment for the years
1994 through 1996, in millions of dollars. NET SALES chart contains color
keys to show breakdown of U.S. and non-U.S. sales. OPERATING PROFIT chart
contains color keys for 1996 to highlight a special item consisting of a
restructuring and asset impairment charge.
Data points for NET SALES as follows:
1994 1995 1996
---- ---- ----
U.S. 3,028 4,118 3,841
Non-U.S. 1,372 1,972 1,799
-------------------------
NET SALES 4,400 6,090 5,640
Data points for OPERATING PROFIT as follows:
1994 1995 1996
---- ---- ----
OPERATING PROFIT BEFORE SPECIAL ITEM 20 1,093 220
Special item (35)
------------------------
OPERATING PROFIT 20 1,093 185
PIE CHARTS
7,8. Above each pie chart is a title indicating what the chart illustrates. Each
pie's slice is a different color, and has the name of the business the pie
slice represents, and the related percentage.
PERCENT
Printing Papers Sales by Business (Page 18)
Business Papers 53%
Coated Papers 31%
Pulp 16%
Printing Papers Sales to Geographic Areas (Page 19)
U.S. 57%
International 43%
9,10. PACKAGING-NET SALES AND OPERATING PROFIT (PAGES 22-23)
Bar chart of NET SALES and OPERATING PROFIT for the segment for the years
1994 through 1996, in millions of dollars. NET SALES chart contains color
keys to show breakdown of U.S. and non-U.S. sales. OPERATING PROFIT chart
contains color keys for 1996 to highlight a special item consisting of a
restructuring and asset impairment charge.
Data points for NET SALES as follows:
1994 1995 1996
---- ---- ----
U.S. 2,579 3,064 3,374
Non-U.S. 796 1,411 1,571
-------------------------
NET SALES 3,375 4,475 4,945
<PAGE>
Data points for OPERATING PROFIT as follows:
1994 1995 1996
---- ---- ----
OPERATING PROFIT BEFORE SPECIAL ITEM 293 741 463
Special item (42)
------------------------
OPERATING PROFIT 293 741 421
11,12. PIE CHARTS
Above each pie chart is a title indicating what the chart illustrates.
Each pie's slice is a different color, and has the name of the business
the pie slice represents, and the related percentage.
PERCENT
Packaging Sales by Business (Page 22)
Consumer Packaging 43%
Industrial Packaging 57%
Packaging Sales to Geographic Areas (Page 23)
U.S. 58%
International 42%
13,14. DISTRIBUTION-NET SALES AND OPERATING PROFIT (PAGES 26-27)
Bar charts of NET SALES and OPERATING PROFIT for the segment for the
years 1994 through 1996, 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:
1994 1995 1996
---- ---- ----
U.S. 3,145 4,555 4,190
Non-U.S. 325 485 485
-------------------------
NET SALES 3,470 5,040 4,675
Data points for OPERATING PROFIT as follows:
1994 1995 1996
---- ---- ----
OPERATING PROFIT 74 106 109
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 the name of the business
the pie slice represents, and the related percentage.
PERCENT
Distribution Sales by Business (Page 26)
International 10%
ResourceNet International 90%
Distribution Sales by Major Product (Page 27)
Industrial & Graphic Arts 30%
Paper Products 70%
<PAGE>
17,18. SPECIALTY PRODUCTS-NET SALES AND OPERATING PROFIT (PAGES 30-31)
Bar charts of NET SALES and OPERATING PROFIT for the segment for the
years 1994 through 1996, in millions of dollars. NET SALES chart
contains color keys to show breakdown of U.S. and non-U.S. sales.
OPERATING PROFIT chart contains color keys for 1996 to highlight a
special item consisting of a restructuring and asset impairment charge.
Data points for NET SALES as follows:
1994 1995 1996
---- ---- ----
U.S. 1,821 1,914 1,973
Non-U.S. 769 1,346 1,502
-------------------------
NET SALES 2,590 3,260 3,475
Data points for OPERATING PROFIT as follows:
1994 1995 1996
OPERATING PROFIT BEFORE SPECIAL ITEM 268 207 319
Special item (370)
------------------------
OPERATING PROFIT 268 207 (51)
19,20. PIE CHARTS
Above each pie chart is a title indicating what the chart illustrates.
Each pie's slice is a different color, and has the name of the business
the pie slice represents, and the related percentage.
PERCENT
Specialty Products Sales by Business (Page 30)
Specialty Panels 28%
Imaging Products 20%
Chemicals & Petroleum 16%
Specialty Papers 16%
Tissue 12%
Nonwovens 8%
Specialty Products Sales to Geographic Areas (Page 31)
North America 51%
International 49%
21,22. FOREST PRODUCTS-NET SALES AND OPERATING PROFIT (PAGES 34-35)
Bar charts of NET SALES and OPERATING PROFIT for the segment for the
years 1994 through 1996, in millions of dollars. NET SALES chart
contains color keys to show breakdown of U.S. and non-U.S. sales.
OPERATING PROFIT chart contains color keys for 1996 to highlight
special items consisting of restructuring and asset impairment
charges and the gain on the sale of a partnership interest.
Data points for NET SALES as follows:
1994 1995 1996
---- ---- ----
U.S. 1,595 1,442 1,635
Non-U.S. 120 698 1,030
-------------------------
NET SALES 1,715 2,140 2,665
<PAGE>
Data points for OPERATING PROFIT as follows:
1994 1995 1996
---- ---- ----
OPERATING PROFIT BEFORE SPECIAL ITEMS 418 388 390
Special items 535
------------------------
OPERATING PROFIT 418 388 925
23,24. PIE CHARTS
Above each pie chart is a title indicating what the chart illustrates.
Each pie's slice is a different color, and has the name of the business
the pie slice represents, and the related percentage.
PERCENT
Forest Products Sales by Business (Page 34)
Forestlands 28%
Wood Products 72%
Forest Products Sales to Geographic Areas (Page 35)
U.S. 58%
International 42%
25. NET SALES (PAGE 36)
Bar chart of NET SALES for the years 1994 through 1996, in billions of
dollars.
Data points as follows:
1994 1995 1996
---- ---- ----
15 19.8 20.1
26. CASH FLOW FROM OPERATIONS (PAGE 37)
Bar charts of CASH FLOW FROM OPERATIONS for the years 1994 through 1996, in
billions of dollars. Data points as follows:
1994 1995 1996
---- ---- ----
1,243 2,248 1,739
27. TOTAL DEBT TO CAPITAL RATIO (PAGE 38)
Bar charts of TOTAL DEBT TO CAPITAL RATIO for the years 1994 through 1996,
in percentages. Data points as follows:
1994 1995 1996
---- ---- ----
41.2 38.5 38.9
<PAGE>
APPENDIX B
PHOTOGRAPHS AND ILLUSTRATIONS FOR 1996 ANNUAL REPORT:
1. Page 2: A photograph of John T. Dillon, Chairman and Chief Executive
Officer.
2. Page 3: A full page photo of stacks of ACCOLADE paper rolls and eight
employees representing the team that developed the new grade. Taken at
the Androscoggin mill in Jay, Maine.
3. Page 4: A full page photo of the dry end of the paper machine at the
Augusta mill in Augusta, Georgia. Standing in front of the machine are
seven employees from the marketing and sales team.
4. Pages 6-7: A photo of six forestry employees in a stand of longleaf pine
trees at our Southlands Experiment Forest in Bainbridge, Georgia.
5. Page 8: A photo of 5 employees standing amongst stacks of product at
our Masonite mill in Towanda, Pennsylvania. The product shown is siding
wrapped in blue plastic with the Masonite logo printed on it.
6. Page 9: A photo of 8 employees taken at our research center in Erie,
Pennsylvania. One employee is in the center of the photo, sitting on a
large sheet of paper, the other 7 employees are holding onto the sheet.
The name of the product, GATORPRINT, appears at the top, center of the
photograph, along with a photo of an envelope (the end use application).
7. Pages 10-11: A photo of 6 employees in the warehouse at ResourceNet
International in Dallas, Texas. Each employee is standing on a
forklift, 3 are at ground level, and 3 are elevated. In the background
are racks of paper products.
8. Page 13: A full page photo of 16 people taken at the National Theatre
in Warsaw, Poland. Seven of the people are employees of International
Paper - Poland, 1 person is a customer, the other 8 are local folk
dancers dressed in traditional costume.
9. Page 16: A photo of a book "Time for School Little Dinosaur," printed
on our bristol paper.
10. Page 16: A photo of a ream of DUO copier paper from our Tait mill in
Scotland.
11. Page 16: A photo of two reams of HAMMERMILL copy paper.
<PAGE>
12. Page 16: A photo of a spool of yellow thread, depicting our pulp
business.
13. Page 16: A photo of three packages of Kwidzyn papers - POLSPEED (red),
POLCOPY (green) and POLLUX (purple).
14. Page 16: A photo of a customer holding a JCPenney catalog.
15. Page 17: A photo of "Romer's Restaurant Report '96", printed on Zanders
paper.
16. Page 17: A photo of three SPRINGHILL advertising brochures.
17. Page 17: A photo of two magazines, Forbes and Parents.
18. Page 17: A photo of four different packages of Hammermill papers for
various types of printers (ink jet and laser).
19. Page 17: A photo of a ream of STRATHMORE paper.
20. Page 17: A photo of a ream of REYPRINT reprographic paper.
21. Page 20: A photo of a package of "Modelina" modeling paste (in Polish).
22. Page 20: A photo of a "Seattle's Best Coffee" cup, filled with coffee.
23. Page 20: A photo of a Heinz tomato ketchup display made from
corrugated, containing 20 Heinz ketchup bottles (28 oz. size).
24. Page 20: A photo of an aseptic carton by "Elle & Vire" containing creme
(in french).
25. Page 20: A photo of a stack of three "Breezer by Bacardi" corrugated
boxes.
26. Page 21: A photo of a SPOUTPAK milk carton by "Alta Dena."
27. Page 21: A photo of "New Zealand Draught" beer, 12-pack carton.
28. Page 21: A photo of a "Ragu" chunky gardenstyle pasta sauce glass jar.
29. Page 21: A photo of a retail bag we produce for Ace Hardware.
30. Page 21: A photo of a folding carton we produce for Keebler Town House
crackers.
<PAGE>
31. Page 21: A photo of a corrugated box for "Le Vigneron Catalan" (in
french).
32. Page 21: A photo of a customer holding a Microsoft Office '97 box.
33. Page 24: A photo of a box containing Colorlok precision printing
blankets.
34. Page 24: A photo of a ream of REPLICOPY copy paper.
35. Page 24: A photo of ream of paper from Carter Holt Harvey in New
Zealand.
36. Page 24: A photo of an "array" of products, including tape, a diskette,
steno pad, paper and a pen.
37. Page 24: A photo of a customer holding a ream of REPLICOPY paper.
38. Page 25: A photo of a box of TUFFLEX tape with a roll of tape on top.
39. Page 25: A photo of a ResourceNet International truck.
40. Page 25: A photo of two reams of paper, ADAGIO from Aussedat Rey and
POLCOPY from Kwidzyn.
41. Page 25: A photo of a bottle of heavy duty glass cleaner from Regency.
42. Page 25: A photo of a computer with the ResourceNet International logo
on the screen.
43. Page 28: A photo of a open tissue box.
44. Page 28: A photo of multi-colored specialty panel samples.
45. Page 28: A photo of a "Myoplex" precision nutrition formula drink pouch.
46. Page 28: A photo of a countertop made from FOUNTAINHEAD laminates.
47. Page 28: A photo of an oil rig.
48. Page 28: A photo of a pillow.
49. Page 29: A photo of three jars of printing inks, in red, yellow and
blue.
50. Page 29: A photo of a box of PHOTEX scanner wipes.
<PAGE>
51. Page 29: A photo of a roll of Ilford SFX200 film.
52. Page 29: A photo of red door.
53. Page 29: A photo of a glue stick.
54. Page 29: A photo of a customer holding samples of Masonite siding.
55. Page 32: A photo of 3 landscape timbers.
56. Page 32: A photo of a seedling in a test tube.
57. Page 32: A photo of a pine cone.
58. Page 32: A photo of a square piece of oriented strand board.
59. Page 32: An illustration of a radiata pine tree.
60. Page 32: A photo of three pieces of molding made from eastern white
pine.
61. Page 32: A photo of a customer holding a piece of lumber.
62. Page 33: A photo of a desk made from medium-density fiberboard.
63. Page 33: A photo of the frame of a house built with plywood and lumber.
64. Page 33: An illustration of two loblolly pine trees.
65. Page 61: A photo of the 15 members of the Board of Directors of
International Paper.
<PAGE>
IP 10K
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.
<PAGE>
[LOGO]
TWO MANHATTANVILLE ROAD
PURCHASE, NEW YORK 10577
JOHN T. DILLON
CHAIRMAN
March 28, 1997
Dear Fellow Shareholders:
The annual meeting of International Paper will be held this year at the
Swissotel Chicago, 323 East Wacker Drive, Chicago, Illinois. The meeting will
start at 9:00 a.m., on Thursday, May 8, 1997. 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 re-election of one class of directors; ratification
of the appointment of Arthur Andersen LLP as independent auditors for 1997; and
consideration of one shareholder proposal concerning a chlorine phaseout
schedule.
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 21, 1997, 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 T. DILLON
<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 8, 1997, at 9:00 a.m. at the Swissotel Chicago, 323 East Wacker
Drive, Chicago, Illinois to:
1. Re-elect one class of directors comprised of five members to the Board of
Directors;
2. Approve the ratification of the appointment of Arthur Andersen LLP as
independent auditors for 1997;
3. Consider and vote upon a shareholder resolution concerning a schedule for
total phaseout of chlorine and chlorine-containing compounds for papermaking;
and
4. 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 AND AGAINST
ITEM 3.
Reference is made to page 5 and Exhibits A and B of the attached Proxy Statement
for the text of recent By-law amendments relating to a change in the advance
notice provisions relating to share owner nominations for election of directors
and a new requirement for advance notification of shareholder proposals being
made at shareholder meetings, which texts are incorporated by reference in this
Notice.
Shareholders of record at the close of business on March 21, 1997, 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 28, 1997
<PAGE>
PROXY STATEMENT
INTERNATIONAL PAPER COMPANY
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 8, 1997. 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 21, 1997. As of
that date, there were 300,865,985 shares of common stock outstanding.
The annual report, including the audited financial statements of the Company for
the fiscal year ended December 31, 1996, 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, telecommunication, 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, ChaseMellon
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 28, 1997.
MEETING ADMITTANCE PROCEDURES
Shareholders of record as of the close of business on March 21, 1997 (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.
2
<PAGE>
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 desk. 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.
Beneficial owners of record on March 21, 1997 (or their duly appointed proxy
holder upon verification-- not to exceed one proxy per shareholder) can obtain
admittance cards only at the shareholders' admittance desk 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 III directors, of
which there are currently five, were elected until the 1997 annual meeting;
Class I directors, of which there are currently four, were elected to serve
until the 1998 annual meeting; and Class II directors, of which there are
currently five, were elected until the 1999 annual meeting. Each class is
elected for a three-year term, unless they retire earlier.
Eleven regular meetings and one special meeting of the Board of Directors were
held in 1996. In addition, there were 24 Committee meetings. Each director
attended at least 82% 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 they serve.
Beneficial ownership of current directors in equity securities of the Company is
shown in the table on page 5.
In June 1996, the Company announced the donation of 2,200 acres of land along
the Escatawpa River held by the Company's Moss Point mill in Jackson County,
Mississippi, to The Conservation Fund for possible later disposition to the
State of Mississippi and/or a university in the area which would manage the land
for conservation and recreation purposes. The donation was valued at
approximately $550,000. Mr. Noonan, a director of the Company, is chairman and
chief executive officer of The Conservation Fund.
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;
inform the Board of any significant accounting matters, and review the
performance of the Committee.
Current members of the Committee, none of whom is an employee of the Company,
are J. C. Pfeiffer (Chairman), W. C. Butcher, J. R. Kennedy, P. F. Noonan and R.
B. Smith.
Four meetings of the Committee were held in 1996.
3
<PAGE>
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
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; to delegate to the Chief Executive Officer
the authority to act on compensation adjustments at certain levels; to make
recommendations to the Board with respect to directors' compensation; to review
senior management succession planning; and to review the performance of the
Committee.
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.
Six meetings of the Committee were held in 1996.
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; to
review institutional affiliations of directors and director candidates for
possible conflicts; and to review and recommend Board Committee assignments.
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 1996.
ENVIRONMENT, HEALTH AND TECHNOLOGY COMMITTEE
The functions of the Environment, Health and Technology Committee are 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; to advise
the Board of the effectiveness of these policies and programs; and to review the
performance of the Committee.
Current members of the Committee are T. C. Graham (Chairman), R. J. Eaton, S. C.
Gault, J. R. Kennedy, P. F. Noonan and C. W. Smith.
Four meetings of the Committee were held in 1996.
OTHER COMMITTEES
Membership of the other regular Committees of the Board of Directors is shown on
page 62 of the Company's annual report which accompanies this Proxy Statement.
FUTURE SHAREHOLDER PROPOSALS AND NOMINATIONS
For inclusion in the 1998 Proxy Statement and form of proxy relating to the
meeting, shareholder proposals intended to be presented at the 1998 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 November
28, 1997.
Other shareholder proposals intended to be introduced at the 1998 annual meeting
shall be made in accordance with Article I, Section 7 of the Company's By-laws,
as set forth under Exhibit A and described under the heading "By-law Changes".
The effect of this By-law is that shareholder proposals intended to be presented
at the 1998 annual meeting, but not included in the 1998 Proxy Statement and
form of proxy
4
<PAGE>
relating to the meeting, must be received by the Secretary of the Company not
earlier than February 5, 1998 nor later than March 7, 1998, if the annual
meeting is held on May 7, 1998.
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, amended as set forth in Exhibit B and described under the
heading "By-law Changes". The effect of this By-law is that shareholder
nominations for the 1998 election of directors must be received by the Secretary
of the Company not earlier than February 5, 1998, nor later than March 7, 1998,
if the annual meeting is held on May 7, 1998.
BY-LAW CHANGES
Article I of the By-laws was amended on February 12, 1997 to add Section 7
relating to shareholder proposals which is set forth in Exhibit A and
incorporated herein by reference. Article II, Section 9 of the By-laws, relating
to shareholder nominations, was amended on February 12, 1997, and is set forth
in Exhibit B which is incorporated herein by reference.
COMMON STOCK OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table shows, as of March 21, 1997, 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.
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..................................... 6,984
J.T. Dillon...................................... 304,235
R.J. Eaton....................................... 3,400
S.C. Gault....................................... 19,624 No director or
J.A. Georges..................................... 198,265 officer owns as much as
T.C. Graham...................................... 14,960 1/5th of 1%
J.R. Kennedy..................................... 153,829
D.F. McHenry..................................... 5,890
P.F. Noonan...................................... 2,050
J.C. Pfeiffer.................................... 7,134
E.T. Pratt....................................... 6,960
C.R. Shoemate.................................... 2,100
R.B. Smith....................................... 7,000
C.W. Smith....................................... 157,922
J.P. Melican..................................... 131,894
D.W. Oskin....................................... 151,531
M.J. Turk........................................ 109,488
All directors and executive officers as a 0.54%
group.......................................... 1,622,158
Merrill Lynch Co., Inc. and Merrill Lynch, Pierce 10.2%
Fenner & Smith Incorporated (2)................ 30,608,893
Bank trustee under Company and subsidiary 8.5%
employee benefit plans (3)..................... 25,523,640
The Capital Group Companies, Inc., and Capital 5.0%
Research and Management Company (4)............ 15,165,000
</TABLE>
5
<PAGE>
(FOOTNOTES FOR PRECEDING PAGE)
- - ------------------------
(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 1,073,137 shares represented by
stock options granted executive officers under the Long-Term Incentive
Compensation Plan, including options for 250,337 shares for Mr. Dillon,
128,700 shares for Mr. C. W. Smith, 151,800 shares for Mr. Melican, 121,300
shares for Mr. Oskin, 90,000 shares for Mr. Turk, and 726,000 shares for Mr.
Georges which were granted prior to his retirement as an officer. In
addition, under the 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 the non-voting
stock-equivalent Units set forth in the following chart:
<TABLE>
<CAPTION>
DIRECTOR STOCK UNITS DIRECTOR STOCK UNITS
- - ---------------------------------------- ----------- ---------------------------------------- -----------
<S> <C> <C> <C>
W.C. Butcher............................ 22,894 J.C. Pfeiffer........................... 5,026
J.T. Dillon*............................ 26,410 E.T. Pratt.............................. 42,124
R.J. Eaton.............................. 4,720 C.R. Shoemate........................... 3,656
S.C. Gault.............................. 7,912 R.B. Smith.............................. 30,087
J.A. Georges............................ 0 C.W. Smith*............................. 15,727
T.C. Graham............................. 26,923 J.P. Melican*........................... 21,925
J.R. Kennedy............................ 1,595
D.F. McHenry............................ 9,357 D.W. Oskin*............................. 0
P.F. Noonan............................. 3,607 M.J. Turk*.............................. 4,363
</TABLE>
- - ------------------------
(2) As of February 14, 1997, Merrill Lynch & Co., Inc. and Merrill Lynch, Pierce
Fenner & Smith Incorporated are, respectively, a parent holding company and
a broker-dealer registered under Section 15 of the Securities Exchange Act
of 1934 (the "Act"). They, or subsidiaries, hold these shares primarily as
sponsor and investment advisor to various registered investment companies,
but disclaim beneficial ownership thereof other than certain of which are
held in proprietary accounts.
(3) As of December 31, 1996, 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 benefit
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
25,523,640 shares of common stock of the Company. The trustee disclaims
beneficial ownership of all such shares except 3,229,706 shares of which it
has sole power to dispose or to direct the disposition. 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.
(4) As of February 12, 1997, the Capital Group Companies, Inc. holds such shares
as the parent holding company of a group of investment management companies
that hold investment power and, in some cases, voting power over these
securities. The investment management companies, which include a "bank" as
defined in Section 3(a)6 of the Act and several investment advisors
registered under Section 203 of the Investment Advisors Act of 1940, provide
investment advisory and management services for their respective clients
which include registered investment companies and institutional accounts.
The Capital Group Companies, Inc. does not have investment power or voting
power over any of the securities reported here; however, The Capital Group
Companies, Inc. may be deemed to "beneficially own" such securities by
virtue of Rule 13d-3 under the Act. Capital Research and Management Company,
an investment advisor registered under Section 203 of the Investment
Advisors Act of 1940 and wholly owned subsidiary of The Capital Group
Companies, Inc., is the beneficial owner of these shares as a result of
acting as investment advisor to various investment companies registered
under Section 8 of the Investment Company Act of 1940.
6
<PAGE>
MATTERS TO BE CONSIDERED AT THE MEETING
ITEM NO. 1--RE-ELECTION OF FIVE DIRECTORS
Dr. Arthur G. Hansen, after many years of outstanding service to the Company,
reached the mandatory retirement age in February 1997. Prior to the 1998 annual
meeting, Mr. Roger B. Smith (Class I director) and Mr. Stanley C. Gault (Class I
director) will reach mandatory retirement age, the former in July 1997 and the
latter in January 1998.
Five (5) directors are to be re-elected at this meeting as Class III directors
for three-year terms expiring in 2000. 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 five (5) 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. The term of the present Class III directors expires at the
adjournment of the 1997 annual meeting. The five nominees for re-election at
that meeting as Class III directors are listed below:
<TABLE>
<S> <C>
CLASS III DIRECTORS--TERM EXPIRING IN 1997
[PHOTO] ROBERT J. EATON, 57, Chairman, President 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 to 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 member of The Business Council
and The Business Roundtable. He also is a member of the President's
Advisory Committee on Trade Policy and Negotiations and serves as a
director of The Economic Strategy Institute and the U.S./Japan Business
Council.
Director since January 10, 1995
[Photo] JOHN A. GEORGES, 66, retired Chairman and Chief Executive Office of
International Paper. He was elected chief executive officer in 1984 and
became chairman and chief executive officer in 1985. He was a director,
chairman of the board and chief executive officer of IP Forest Resources
Company (the managing general partner of IP Timberlands, Ltd.) from 1985
to 1996. Since retirement from International Paper, he has joined
Windward Capital Partners as senior managing director. He is a director
of AK Steel Holding Corporation, Ryder Systems, Inc. and Warner-Lambert
Company. He is a member of The Business Council, The Trilateral
Commission, and Bankers Trust European Advisory Board. He is a trustee
of the Public Policy Institute of the Business Council of New York State
and president of the University of Illinois Foundation.
Director since February 1, 1980
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
[Photo] DONALD F. MCHENRY, 60, 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 Brookings
Institution, The Mayo Foundation and Columbia University; and chairman
of the board of Africare.
Director since April 14, 1981
[Photo] PATRICK F. NOONAN, 54, 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. 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, 57, 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>
Other directors who will continue to serve are listed below under their
respective classes. None of these directors are to be elected at the 1997 annual
meeting.
<TABLE>
<S> <C>
CLASS I DIRECTORS--TERM EXPIRING IN 1998
[PHOTO] JOHN T. DILLON, 58, Chairman and Chief Executive Officer since 1996.
Prior to that he was executive vice president--packaging from 1987 to
1995 when he assumed the position of president and chief operating
officer. He is also a director and chairman of the board of IP Forest
Resources (the managing general partner of IP Timberlands, Ltd.) and a
director of Caterpillar Inc. He is chairman of the board of The National
Council on Economic Education.
Director since March 1, 1991
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
[Photo] STANLEY C. GAULT, 71, retired Chairman of the Board (June 1991 to June
1996) and Chief Executive Officer (June 1991 to December 1995) of The
Goodyear Tire & Rubber Company. Previously, he was chairman and chief
executive officer of Rubbermaid Incorporated (1980 to 1991). He is a
director of Avon Products, Inc., The Timken Company and Wal-Mart Stores,
Inc. 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] JOHN R. KENNEDY, 66, retired President and Chief Executive Officer of
Federal Paper Board Company, Inc. from 1975 to 1996. He is a director of
DeVlieg Bullard, Inc., Chase Brass Industries, Inc. and Holnam, Inc. He
is director and chairman of the board of Georgetown University, on the
board of governors of the United Nations Association of the United
States of America, and one of the directors for the Foreign Policy
Association.
Director since March 12, 1996
[Photo] ROGER B. SMITH, 71, retired Chairman and Chief Executive Officer of
General Motors Corporation from 1981 to 1990. He is a director of IP
Forest Resources Company (the managing general partner of IP
Timberlands, Ltd.) and Johnson & Johnson. 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
CLASS II DIRECTORS--TERM EXPIRING IN 1999
[PHOTO] WILLARD C. BUTCHER, 70, retired Chairman and Chief Executive of The
Chase Manhattan Bank, N.A. He is a director of ASARCO, Incorporated, and
Texaco, Inc. He is a member of The Business Council, the International
Advisory Board for Banca Nazionale del Lavaro, the International
Advisory Council of 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 the Business
Committee for the Arts, Inc.
Director since August 1, 1989.
[Photo] THOMAS C. GRAHAM, 70, Consultant. Retired 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 Holding Corporation, 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 1992. 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
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
[Photo] JANE C. PFEIFFER, 64, 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., 70, retired Chairman of the Board (from 1972 to
1992) and Chief Executive Officer from (1972-1991) of Pfizer Inc. He is
a director of 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. Until February of 1997 he
was also a director of Minerals Technology and Pfizer, Inc.
Director since September 9, 1975
[Photo] C. WESLEY SMITH, 57, Executive Vice President--printing papers since
1992. Prior thereto, he was president--International Paper--Europe from
1989.
Director since December 12, 1995
</TABLE>
10
<PAGE>
ITEM NO. 2--RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT AUDITORS FOR 1997
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 1997. The
Committee reviewed its performance in prior years, as well as its reputation for
integrity and competence in the fields of accounting and auditing. The Committee
has expressed its satisfaction with Arthur Andersen LLP in all of these
respects. The Committee's review also included inquiry concerning litigation
involving Arthur Andersen LLP 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 LLP 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 1997.
Representatives 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
and to answer appropriate questions.
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 RATIFICATION OF ARTHUR ANDERSEN LLP AS
INDEPENDENT AUDITORS OF THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY FOR 1997
ITEM NO. 3--SHAREHOLDER PROPOSAL CONCERNING A CHLORINE PHASEOUT SCHEDULE
Progressive Asset Management, 1814 Franklin Street, Oakland, California 94612,
acting as agent for its client, Educational Foundation of America, represented
that, as of November 25, 1996, its client owned 6,000 shares of common stock of
the Company and has informed the Company that it intends to present the
following proposal at the annual meeting. Four groups whose names, addresses and
shareholdings will be supplied upon oral or written request to the Secretary of
the Company have co-sponsored this proposal. The text of the proposal follows:
"WHEREAS the manufacturing processes used by the company have the potential to
form organochlorines, including dioxins and furans, which may be harmful to
human health and the environment even in the most minute (or not 'detectable')
amounts;
"WHEREAS national and international bodies have publicly recognized the
significant dangers posed by chlorine-based bleaching processes in the pulp and
paper industry including the U.S. Environmental Protection Agency, the American
Public Health Association, The International Joint Commission, The World Bank,
and the Intergovernmental Forum on Chemical Safety (convened by the United
Nations Environment Program). Conclusions from these agencies reflect the
growing sense of urgency regarding the need to phase out the use of
chlorine-containing compounds;
"WHEREAS the company has already recognized the threat posed by dioxins and
furans by reducing the level of organochlorines in its effluents by converting
most of its bleach lines to a process which substitutes chlorine dioxide for
elemental chlorine. However, chlorine dioxide is extremely unstable and so does
not eliminate the potential for threats of explosion endangering environment and
worker safety;
11
<PAGE>
"WHEREAS we believe dioxins can be generated through the use of chlorine
dioxide; even at levels below analytical detection, dioxins can accumulate in
the bodies of living creatures as they pass through the food chain--the American
Public Health Association has stated that even at low levels, exposure to
dioxins can result in or contribute to reproductive failure, birth defects,
developmental impairment, hormonal disruption, behavioral disorders, immune
suppression and cancer;
"WHEREAS we believe the best method of preventing continued contamination from
persistent or bioaccumulative toxic substances is to phase out production
processes (including chlorine dioxide substitution) that inadvertently generate
and release such substances;
WHEREAS we believe worldwide demand is increasing for paper produced without the
release of hazardous organochlorines (i.e. Totally Chlorine-Free or TCF paper);
"WHEREAS significant cost savings and competitive advantages could result from
the conversion to TCF;
"WHEREAS totally chlorine-free processes are in use at more than two dozen kraft
mills worldwide which produce high quality pulp, and these processes appear to
be the most technologically feasible and cost-effective ways to move towards
effluent-free production;"
"RESOLVED THAT THE SHAREHOLDERS SHALL REQUEST THE COMPANY ESTABLISH A SCHEDULE
FOR THE TOTAL PHASEOUT FROM ITS PULP AND PAPER PRODUCTION PROCESSES OF CHLORINE
AND CHLORINE-CONTAINING COMPOUNDS".
THE STATEMENT OF SHAREHOLDERS IN SUPPORT OF THE RESOLUTION IS AS FOLLOWS:
SUPPORTING STATEMENT
"The company's actions to reduce dioxins and furans in its effluents are
commendable. However, the Environmental Protection Agency's comprehensive draft
review of dioxin states that health effects attributable to dioxin may be
occurring in humans at very low levels of exposure. This suggests that there may
be no safe or acceptable exposure to dioxins or furans exists (sic). We believe
the Company could be materially affected by clean up costs and fines.
Furthermore, investment in chlorine dioxide substitution delays the adoption of
more protective technologies (totally chlorine-free and effluent-free). For the
company to claim to be an environmental leader, we believe it must go beyond
current or proposed regulations to COMPLETELY, and not 'virtually' eliminate the
potential for formation and release of organochlorines in pulp and paper
production.
POSITION OF YOUR COMPANY'S BOARD OF DIRECTORS
Your Board of Directors recommends that the shareholders vote AGAINST the
proposal for the reasons set forth below:
As noted in the shareholder's proposal, the Company has eliminated dioxins and
furans in its mill effluents, utilizing the EPA's very low (10 parts per
quadmillion) detection levels.
The Company formerly used sodium-hypochlorite and elemental chlorine as
bleaching agents in its pulp and paper making process but began phasing it out
in 1988. The Company set and met a schedule for conversion of all of its mills
to 100% elemental chlorine free ("ECF") bleaching by December 31, 1996. Two
additional mills acquired in 1996 as part of the merger with Federal Paper Board
will be converted by the end of 1998. Having voluntarily expended $160 million,
the Company has eliminated any detectable dioxins or furans, by-products of
using chlorine as a bleaching agent.
We disagree with the proponent's opinions regarding chlorine dioxide. We believe
that:
- There is no scientific evidence that an ECF mill produces any dioxin;
- There is no scientific evidence that there is any bioaccumulation of
dioxin associated with an ECF mill;
12
<PAGE>
- There is no national or international body that has publicly recognized
any dangers, much less significant dangers, from ECF bleaching. In fact,
the opposite is true: all agencies that have evaluated ECF bleaching, such
as the U.S. EPA, have supported ECF bleaching as protective of health and
the environment;
- Totally Chlorine Free ("TCF") pulp is qualitatively inferior to ECF pulp
and requires more wood per unit of pulp;
- To convert International Paper mills to TCF would cost an estimated $500
million over and above what has already been spent on ECF conversion with
no environmental, health or other benefits, but with serious reductions in
product quality and significant increases in energy and wood fiber usage
for the same unit of production.
We believe that no valid health, safety or financial objective would be obtained
from the very substantial expenditure of capital required to implement a total
phase out of chlorine dioxide in our mill system. Since none of our major U.S.
competitors are utilizing totally chlorine-free processes, to require
International Paper to do so would put us at a significant cost disadvantage
from a competitive standpoint.
Approval of Item No. 3 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 proposal.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE AGAINST THIS ITEM NO. 3
REPORT OF THE MANAGEMENT DEVELOPMENT
AND COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
As of December 31, 1996, the Management Development and Compensation Committee
(the "Committee") consisted of six outside directors: Willard 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 six times in 1996 with a
98% attendance record. On April 1, 1996, John T. Dillon replaced the retiring
John A. Georges as chairman and chief executive officer of International Paper.
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. 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. In 1996, a comprehensive pay study of
incentive-eligible positions was conducted by the independent compensation
consulting firms, Hewitt Associates and Skopos Consulting, and included a cross
section of 31 manufacturing companies and 12 independent salary surveys. The 31
manufacturing companies included in the pay study are in industries
13
<PAGE>
that are close in size ($18 billion average revenue) and manufacturing
complexity to International Paper and who compete directly with International
Paper for executive talent. The twelve independent salary surveys also have a
direct focus and impact on various sections of International Paper. The
Company's compensation levels for each component of pay were compared to the
median of the comparator group's competitive pay.
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 remaining 20%. In 1996, the Company
did not achieve the specified level of net earnings and, accordingly, there was
no MIP cash bonus fund, and no management incentive payments to the
participants.
The Company's Long-Term Incentive Compensation Plan and amendments, which were
approved by the shareholders in 1989 and 1994, respectively, provide 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 19) 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 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. In 1996, the Company does not expect any
limitations upon deductibility of compensation. The Committee will continue to
monitor tax and other related compensation legislation.
THE 1996 EXECUTIVE OFFICERS' COMPENSATION
The Committee approved merit salary increases for two of the named executive
officers based on competitiveness of the executives' pay and personal
performance, and promotional salary increases for three of them. In April 1996,
upon being named chief executive officer of the Company, Mr. Dillon's salary was
increased to $750,000, which is below the median base salary level for CEO's in
the group of surveyed companies referred to above. Salaries paid to the named
officers in 1996, including Mr. Georges's salary
14
<PAGE>
while actively employed, were competitively positioned from below to slightly
above the median of the survey companies.
No named executive officers received MIP awards in 1996 since no bonus fund was
generated.
The performance share guidelines described above were used by the Committee to
determine contingent performance share awards in December 1996 to the named
executive officers for the 1997-2001 Award Period and the payout in 1996 of
earned shares for the 1991-1995 Award Period. The pretax values of Mr. Dillon's
performance share awards in 1996 were: $999,990 in contingent restricted stock
for the 1997-2001 Award Period; $94,379 in deferred restricted stock for the
1991-1995 Award Period; and $94,379 in earned shares (long-term incentive
payout) for the 1991-1995 Award Period. The shares earned for the 1991-1995
Award Period reflect Company performance which exceeded performance of the Peer
Paper Group.
The Committee granted stock options in 1996 based on competitive surveys
described earlier, without consideration of the amount of stock options already
held by named executive officers. Mr. Georges's 1996 stock option award was
38,000 shares, the same as his award in 1995 and 1994. Mr. Dillon's 1996 stock
option award was 26,000 shares; his 1995 stock option awards were 19,737 shares
which reflected his promotion to president; and, his 1994 stock option award was
16,000 shares.
In 1996, continuity awards of restricted stock and a related option were granted
to three named executive officers based on their promotions. Mr. Dillon was
promoted to chief executive officer, and Messrs. Oskin and Turk were promoted as
executive vice presidents of the Company.
THE MANAGEMENT DEVELOPMENT AND COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
Willard 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, was the chairman and chief executive
officer of AK Steel Holding Corporation until January 30, 1997; Mr. Georges,
chairman and chief executive officer of the Company until March 31, 1996, is on
the board of AK Steel Holding Corporation.
15
<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, 1991-1996 and 1986-1996
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>
5 YEARS ENDED DECEMBER 31, 1996*
International Paper S&P 500 Index Peer Group**
1991 $100 $100 $100
1992 96 108 112
1993 101 118 127
1994 115 120 131
1995 118 165 143
1996 130 203 154
</TABLE>
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**
1986 100 100 100
1987 116 105 109
1988 130 123 115
1989 163 162 127
1990 160 156 102
1991 217 204 139
1992 209 220 156
1993 218 242 177
1994 249 245 182
1995 256 337 199
1996 281 415 215
Assumes $100 invested on December 31, 1986
* Total return assumes reinvestment of dividends.
** Includes Boise Cascade, Champion, Georgia Pacific, Mead,
Stone Container, Union Camp, Westvaco, and Weyerhaeuser.
</TABLE>
16
<PAGE>
ADDITIONAL INFORMATION
REGARDING EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is approved by the
Committee except for the compensation of the officer-directors, which is
recommended by the Committee and approved by the Board of Directors.
The following tables set forth information with respect to the retired chairman
and chief executive officer, the new chairman and chief executive officer, and
the four most highly compensated executive officers of the Company for the years
1994-1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
CONTINGENT AWARDS
ANNUAL COMPENSATION --------------------
----------------------------------
(E) (F)
OTHER RESTRICTED (H)
(C) (D) ANNUAL STOCK (G) ALL OTHER
(A) (B) SALARY BONUS COMPENSATION AWARD OPTIONS COMPENSATION
NAME AND POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) (#)(5) ($)(6)
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John T. Dillon as 1996 $ 712,500 $ 0 $ 0 $4,681,367 26,000 $ 172,397
Chief Executive Officer 1995 $ 490,417 $ 600,000 $ 0 $2,227,287 35,737 $ 129,717
1994 $ 430,000 $ 370,000 $ 0 $ 398,690 16,000 $ 96,681
James P. Melican as 1996 $ 471,667 $ 0 $ 0 $ 467,277 15,400 $ 111,882
Executive Vice President 1995 $ 446,667 $ 410,000 $ 0 $ 373,480 27,700 $ 106,803
1994 $ 420,000 $ 345,000 $ 0 $ 362,664 64,592 $ 88,763
C. Wesley Smith as 1996 $ 429,667 $ 0 $ 0 $ 510,635 25,000 $ 114,086
Executive Vice President 1995 $ 380,750 $ 410,000 $ 0 $ 551,428 36,600 $ 93,299
1994 $ 333,750 $ 335,000 $ 357,784 $ 362,664 15,400 $ 78,922
David W. Oskin as 1996 $ 397,917 $ 0 $ 0 $ 950,960 50,800 $ 143,199
Executive Vice President 1995 $ 461,315 $ 129,410 $ 149,719 $ 600,197 12,000 $ 256,608
1994 $ 157,820 $ 0 $ 156,578 $ 302,430 9,600 $ 62,082
Milan J. Turk as 1996 $ 332,083 $ 0 $ 0 $1,382,943 12,000 $ 68,842
Executive Vice President 1995 $ 293,750 $ 260,000 $ 0 $ 287,108 27,200 $ 60,554
1994 $ 278,333 $ 210,000 $ 0 $ 279,006 9,600 $ 37,164
John A. Georges as 1996 $ 265,000 $ 0 $ 0 $ 0 443,030 $ 215,263
Chief Executive Officer 1995 $1,035,000 $1,300,000 $ 0 $1,083,393 38,000 $ 264,713
(retired 03/31/96) 1994 $ 953,750 $1,115,000 $ 0 $1,051,857 38,000 $ 198,548
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Salary paid in 1996 including amounts deferred pursuant to Section 401(k) of
the Internal Revenue Code or pursuant to unfunded deferral arrangements.
Includes, for 1995, Mr. Oskin's salary paid by Carter Holt Harvey, Ltd.
during the six months after which it became a Company subsidiary.
(2) Management Incentive Plan awards paid in 1996 and 1995 attributable to 1995
and 1994 respectively, including amounts deferred pursuant to Section 401(k)
of the Internal Revenue Code or pursuant to deferral arrangements reported
in the year earned. No awards were paid for 1996.
(3) Includes (a) settlement of tax equalization with respect to Mr. Smith's
expatriate assignment from 1989 to 1992 and (b) payment of household
maintenance expenses and home leave of $81,477 and $47,018 in 1995; and
$94,775 and $52,085 in 1994, respectively, while Mr. Oskin was on an
expatriate assignment with an affiliate, later a subsidiary.
(4) Represents (a) 150% of the value of gross target restricted performance
shares contingently awarded in 1996 for the 1997-2001 award period, in 1995
for the 1996-2000 award period, and in 1994 for the 1995-1999 award period,
which is the maximum achievable for those award periods; 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 periods made upon
promotion, subject to the same contingencies; and (c) the value of
continuity awards of $840,000 in 1996 and $858,750 in 1995 for Mr. Dillon,
$336,000 in 1996 for Mr. Oskin, and $648,000 in 1996 for Mr. Turk. The
number and dollar value of restricted stock holdings at December 31, 1996
are as follows: 199,135/$8,064,950 for Mr. Dillon; 92,053/$3,728,127 for Mr.
Melican; 93,164/$3,773,150 for Mr.Smith; 88,487/$3,583,712 for Mr. Oskin;
80,352/$3,254,276 for Mr. Turk and none for Mr. Georges, who is now retired.
17
<PAGE>
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. Except for Mr. Georges referred
to in footnote (4) above, these figures do not include the tandem option
awards made as a part of the continuity awards, insofar as the awards are
characterized as restricted stock awards. Such tandem options were for
100,000 shares for Mr. Dillon in each of 1996 and 1995; 40,000 shares for
Mr. Oskin in 1996; and 80,000 shares for Mr. Turk in 1996.
(6) 1996 totals represent Company contributions to the Salaried Savings Plan and
Unfunded Savings Plan, cost of group life, premium payments grossed up for
taxes for the Executive Supplemental Insurance Plan (ESIP), accruals for
ESIP lump sum dividend payments, vacation pay upon retirement, reimbursement
of relocation and overseas allowance as follows: $63,000, $12,375, $76,176,
$20,846, $0 and $0 for Mr. Dillon; $42,320, $12,228, $37,010, $20,323, $0
and $0 for Mr. Melican; $40,304, $11,099, $45,462, $17,221, $0 and $0 for
Mr. Smith; $7,287, $3,083, $24,317, $9,372, $0 and $99,141 for Mr. Oskin;
$28,420, $8,476, $31,946, $0 and $0 for Mr. Turk; and $16,255, $13,041,
$78,552, $8,753, $98,662 and $0 for Mr. Georges.
The table below sets out information on the option grants made in 1996 to the
named executive officers:
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
----------------------------------------------------------------------
(C)
(B) % OF TOTAL (D) (F)
OPTIONS OPTIONS GRANTED EXERCISE OR (E) GRANT DATE
(A) GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION VALUE
NAME AND POSITION (#)(1) 1996 ($/SH) DATE ($)(2)
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John T. Dillon as 26,000(3) 0.78% $ 39.000 01/09/06 $ 217,768
Chief Executive Officer
James P. Melican as 15,400(3) 0.46% $ 39.000 01/09/06 $ 128,986
Executive Vice President
C. Wesley Smith as 4,000(4) 0.12% $ 43.750 01/12/98 $ 20,882
Executive Vice President 4,000(4) 0.12% $ 43.750 01/10/99 $ 28,313
17,000(3) 0.51% $ 39.000 01/09/06 $ 142,386
David W. Oskin as 5,030(4) 0.15% $ 39.500 01/12/98 $ 27,632
Executive Vice President 2,570(4) 0.08% $ 39.500 01/12/98 $ 14,118
8,600(4) 0.26% $ 39.500 01/10/99 $ 60,000
9,600(4) 0.29% $ 39.500 01/09/00 $ 69,848
9,600(4) 0.29% $ 39.500 01/08/01 $ 69,848
15,400(3) 0.46% $ 39.000 01/09/06 $ 128,986
Milan J. Turk as 12,000(3) 0.36% $ 39.000 01/09/06 $ 100,508
Executive Vice President
John A. Georges as 5,030(4) 0.15% $ 38.750 01/12/98 $ 27,770
Chief Executive Officer (retired 160,000(4) 4.82% $ 38.125 02/24/99 $1,123,616
03/31/96) 40,000(4) 1.21% $ 36.625 02/24/99 $ 269,852
40,000(4) 1.21% $ 36.875 02/24/99 $ 271,692
40,000(4) 1.21% $ 35.875 02/24/99 $ 264,324
80,000(4) 2.41% $ 36.500 02/24/99 $ 537,856
40,000(4) 1.21% $ 35.750 02/24/99 $ 263,404
38,000(3) 1.15% $ 39.000 01/09/06 $ 318,277
- - --------------------------------------------------------------------------------------------------------------
</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. Original options are indicated by "(3)" and
replacement options by "(4)". Except for the replacement option grant of
400,000 shares to Mr. Georges upon exercise of his options which resulted in
the cancellation of restricted stock, these numbers do not include any
options granted as part of the tandem awards of restricted stock/options
made as continuity awards in 1996. The restricted stock is reported as part
of the total holdings of the respective individuals under footnote 3 to the
Summary Compensation Table.
(2) Grant date value is based on the Black-Scholes option pricing model adapted
for use in valuing stock options. The real value of the options in this
table depends upon the actual performance of the Company's stock during the
applicable period and upon when they are exercised. The Company believes
that no model accurately predicts the
18
<PAGE>
future price of International Paper's stock or places an accurate present
value on stock options. The grant date values were determined based upon the
following assumptions:
<TABLE>
<CAPTION>
ORIGINAL(3) REPLACEMENT(4)
------------- -----------------
<S> <C> <C>
Expected volatility 22.18% 22.18%
Risk-free rate of return 5.45% 6.38%
Dividend yield 2.72% 2.68%
Expected term (years) 4.74 2.97
</TABLE>
The table below sets out information on options exercised and options
outstanding:
AGGREGATED OPTION EXERCISES IN 1996
AND DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E) (F) (G)
VALUE OF UNEXERCISED
<S> <C> <C> <C> <C> <C> <C> <C>
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES VALUE REALIZED ($) 12/31/96 (#)(5) 12/31/96($)(5)
ACQUIRED ON ---------------------- ------------------------ ------------------------
EXERCISE AGGREGATE ANNUALIZED RESTRICTED UNRESTRICTED RESTRICTED
NAME AND POSITION (#)(1) (1) (2) (3) (4) (3)(4)
UNRESTRICTED
- - -----------------------------------------------------------------------------------------------------------------------
John T. Dillon as 0 $ 0 $ 0 79,300 77,737 $ 590,531 $ 125,625
Chief Executive Officer
James P. Melican as 7,492 $ 18,262 $ 12,893 69,400 61,600 $ 177,803 $ 243,513
Executive Vice President
C. Wesley Smith as 12,000 $ 112,000 $ 31,243 37,800 61,400 $ 64,500 $ 229,713
Executive Vice President
David W. Oskin as 39,652 $ 586,096 $ 85,140 52,200 46,600 $ 102,043 $ 164,400
Executive Vice President
Milan J. Turk as 0 $ 0 $ 0 22,800 43,200 $ 57,950 $ 159,300
Executive Vice President
John A. Georges as 452,030 $5,475,386 $ 814,569 749,500 0 $3,254,133 $ 0
Chief Executive Officer
(retired 03/31/96)
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The number of incremental shares retained on exercises by Mr. Georges was
87,601 shares.
(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 $40.50, as of December 31, 1996.
(5) Options granted as part of the tandem awards of restricted stock/options
made as continuity awards are not included except for Mr. Georges; these
awards are counted as restricted stock awards and holdings. In the first
quarter of 1996, Mr. Georges excerised 400,000 tandem options resulting in
the cancellation of 80,000 restricted shares. A replacement option was
issued to Mr. Georges as exercise was prior to retirement.
19
<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
<S> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------------
<CAPTION>
5 10 15 20 25 30
-------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000 $100,000 $125,129 $ 187,693 $ 192,506 $ 192,506 $ 192,906
$ 600,000 $150,000 $190,129 $ 285,193 $ 292,506 $ 292,506 $ 293,106
$ 800,000 $200,000 $255,129 $ 382,693 $ 392,506 $ 392,506 $ 393,306
$1,000,000 $250,000 $320,129 $ 480,193 $ 492,506 $ 492,506 $ 493,506
$1,500,000 $375,000 $482,629 $ 723,943 $ 742,506 $ 742,506 $ 744,006
- - ---------------------------------------------------------------------------------
</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, 1996, the
number of creditable years of service and the currently applicable average
pensionable remuneration under the retirement plans for Mr. Dillon, 29.92 years
and $1,090,417; for Mr. Melican, 12.92 years and $856,667; for Mr. Smith, 16.33
years and $790,750; for Mr. Oskin, 21.25 years and $599,833; and for Mr. Turk,
6.58 years and $553,750.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors among others, to file reports of ownership and
changes in ownership of such securities with the Securities Exchange Commission
and the New York Stock Exchange. Copies of these reports must also be furnished
to the Company. Based solely upon a review of the copies of the forms filed
under Section 16(a) and furnished to the Company, or written representations
from reporting persons, the Company believes that all filing requirements
applicable to its executive officers and directors were complied with during
1996, except that Robert M. Byrnes, an executive officer, inadvertently failed
to file a report reflecting his sale of stock in October 1996 but made a late
filing of such report immediately upon discovery of the oversight.
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. In addition, there is a compulsory portion
to the Deferred Compensation Plan. Under this, each non-employee director, 54
years or older, is credited with 300 common stock equivalent units each year
which remain in the Plan until death, disability or retirement. The common stock
units held in each non-employee director's account are credited with dividend
equivalents. Upon retirement, the
20
<PAGE>
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.
In addition, under the Non-Employee Directors Restricted Stock Plan, awards of
1,800 shares of common stock 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. Awards made in 1996 were 1,800 shares each
for Class II directors and a pro-rata award of 1,200 shares to one director
elected to the remaining term of his Class. Directors receive dividend payments
represented by the shares awarded under the Restricted Stock Plan at $0.25 per
share per quarter.
Further, three 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 three 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 eight meetings of the Board in 1996 and five Committee meetings.
As part of its overall program to promote charitable giving to education and
assist corporate recruiting and research efforts, the Company has established a
directors' 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 qualifying 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. 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, 1996, the Company amended its policy with Federal Insurance Company
and purchased a policy with National Union Insurance Company at a current annual
premium cost aggregating $525,825, such policies expiring on June 15, 1997. 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.
21
<PAGE>
In addition to the foregoing provisions, Mr. Dillon's agreement can be triggered
by a voluntary termination at any time within 18 months of the change in
control. The agreement provides him with the above benefits as well as (a)
payment of vested benefits under the pension plan which entitlement shall
include payments made under the agreement which constitute "compensation" under
the pension plan; (b) a lump-sum payment equal to the difference between (i) the
actuarial value on termination date of accrued vested pension benefits and (ii)
the actuarial value on termination date of what accrued pension benefits would
have been if the period and payments set out in (c)(i) and (c)(ii) below were
recognized under the pension plan; (c) a lump-sum payment equal to (i) his
annual salary at termination, (ii) the average of his short-term incentive
compensation award for three years preceding termination and (iii) the value of
his average earned award under the Performance Share Plan (PSP) for three years
preceding termination, multiplied by the number "four"; (d) a lump-sum payment
equal to the value of any deferred incentive compensation or PSP awards and
unvested Company matching contributions under the Salaried Savings Plan; (e)
stock options equal to the average number of options awarded during the three
years preceding termination, multiplied by the number "four", plus the extension
of each option held until the end of the normal term of such option if he had
not left the Company.
The Board requires unanimous approval at a meeting of the Management Development
and Compensation Committee, composed solely of non-employee directors, and
majority approval by the Board before any termination agreement such as those
described above is amended or entered into. The potential cost of satisfying the
payments called for under the above-described termination agreements, prior to
tax "gross up", if there had been a change in control and all of the members of
the executive officer group described in the Summary Compensation Table had been
terminated on December 31, 1996, would have been approximately $23,000,000.
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 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.
22
<PAGE>
EXHIBIT A
ARTICLE 1
STOCKHOLDERS' MEETINGS
SECTION 7. No business may be transacted at an annual meeting of Stockholders of
the Corporation, other than business that is either (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors or any duly authorized committee thereof, (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors or any duly authorized committee thereof or (c) otherwise properly
brought before the annual meeting by any Stockholder of the Corporation (i) who
is a Stockholder of record on the date of the giving of the notice provided for
in this Section and on the record date for the determination of Stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section.
Business shall be brought before the annual meeting by any Stockholder of the
Corporation by notice in writing delivered or mailed by first class United
States mail, postage prepaid, to the Secretary of the Corporation at the
principal executive offices of the Corporation, and received by such person not
less than sixty (60) days nor more than ninety (90) days prior to any meeting of
the Stockholders; provided, however, that if less than seventy (70) days' notice
or prior public disclosure of the meeting is given or made to the Stockholders,
such proposal shall have been received by the Secretary of the Corporation not
later than the close of business on the tenth (10th) day following the day on
which the notice of meeting was mailed or public disclosure was made.
A Stockholder's notice to the Secretary shall set forth as to each matter such
Stockholder proposes to bring before the meeting (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record address
of such Stockholder, (iii) the number of shares of stock of the Corporation
which are owned beneficially or of record by such Stockholder, (iv) a
description of all arrangements or understandings between such Stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such Stockholder and any material interest of such
Stockholder in such business and (v) a representation that such Stockholder
intends to appear in person or by proxy at the meeting to bring such business
before the meeting.
No business shall be conducted at the annual meeting of Stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section, provided, however, that once business has been properly
brought before the annual meeting in accordance with such procedures, nothing in
this Section shall be deemed to preclude discussion by any Stockholder of any
such business. The Presiding Officer of the meeting may, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the annual meeting in accordance with the foregoing procedure, and if
such person should so determine, he or she shall so declare to the meeting and
such business shall not be transacted.
Nothing in this Section 7 shall be deemed to affect any rights of shareholders
to request inclusion of proposals in the Corporation's proxy statement pursuant
to Rule 14a-8 under the Exchange Act and to put before such meeting any
proposals so included in the Corporation's proxy statement at his or her
request.
For purposes of this Section 7 and Article II, Section 9, "public disclosure"
shall mean disclosure in a communication sent by first class mail to
Stockholders, in a press release reported by the Dow Jones News Service, Reuters
Information Services, Inc., Associated Press or comparable national news service
or in a document filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
<PAGE>
EXHIBIT B
ARTICLE II
BOARD OF DIRECTORS
WORDS AND PHRASES INDICATED BY ITALICS ARE ADDED AND WORDS AND PHRASES INDICATED
BY [BRACKETS] ARE OMITTED FROM FORMER SECTION 9
SECTION 9. Nominations. Nominations for election to the Board of Directors of
the Corporation at a meeting of the Stockholders may be made (a) by the Board,
or on behalf of the Board by any nominating committee appointed by the Board, or
(b) by any Stockholder of the Corporation [entitled to vote for the election of
Directors at such meeting] (i) WHO IS A STOCKHOLDER OF RECORD ON THE DATE OF THE
GIVING OF THE NOTICE PROVIDED FOR IN THIS SECTION AND ON THE RECORD DATE FOR THE
DETERMINATION OF STOCKHOLDERS ENTITLED TO VOTE AT SUCH MEETING AND (II) WHO
COMPLIES WITH THE NOTICE PROCEDURES SET FORTH IN THIS SECTION.
[Such] STOCKHOLDER 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 AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION, and received by SUCH PERSON not
less than [thirty (30)] SIXTY (60) days nor more than [sixty (60)] NINETY (90)
days prior to any meeting of the Stockholders called for the election of
Directors; provided, however, that if less than [thirty-five (35)] SEVENTY (70)
days notice OR PRIOR PUBLIC DISCLOSURE of the meeting is given OR MADE to the
Stockholders, such nomination shall have been [mailed or deliveries to] RECEIVED
BY the Secretary of the Corporation not later than the close of business on the
[seventh (7th)] TENTH (10TH) day following the day on which the notice of
meeting was mailed OR PUBLIC DISCLOSURE WAS MADE.
Such notice shall set forth (A) as to each proposed nominee who is not an
incumbent Director (i) the name, age, business address and 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 (iv) any
other information concerning the nominee that must be disclosed of nominees in
proxy solicitations pursuant to SECTION 14 of the Securities Exchange Act of
1934, AS AMENDED FROM TIME TO TIME (THE "EXCHANGE ACT") AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER AND (B) AS TO THE STOCKHOLDER GIVING THE
NOTICE (I) THE NAME AND RECORD ADDRESS OF SUCH STOCKHOLDER, (II) THE NUMBER OF
SHARES OF STOCK OF THE CORPORATION WHICH ARE BENEFICIALLY OWNED BY SUCH
STOCKHOLDER, (III) A DESCRIPTION OF ALL ARRANGEMENTS OR UNDERSTANDINGS BETWEEN
SUCH STOCKHOLDER AND EACH PROPOSED NOMINEE AND ANY OTHER PERSON OR PERSONS
(INCLUDING THEIR NAMES) PURSUANT TO WHICH THE NOMINATION(S) ARE TO BE MADE BY
SUCH STOCKHOLDER, (IV) A REPRESENTATION THAT SUCH STOCKHOLDER INTENDS TO APPEAR
IN PERSON OR BY PROXY AT THE ANNUAL MEETING TO NOMINATE THE PERSONS NAMED IN ITS
NOTICE AND (V) ANY OTHER INFORMATION RELATING TO SUCH STOCKHOLDER THAT WOULD BE
REQUIRED TO BE DISCLOSED IN A PROXY STATEMENT OR OTHER FILING REQUIRED TO BE
MADE IN CONNECTION WITH SOLICITATIONS OF PROXIES FOR ELECTION OF DIRECTORS
PURSUANT TO SECTION 14 OF THE EXCHANGE ACT AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER. 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] SUCH PERSON should so determine HE OR SHE,
shall so declare to the meeting and the defective nomination shall be
disregarded.
<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.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 7, 1997, included and incorporated by reference in
this Form 10-K, into the Company's previously filed Registration Statement
File Nos. 2-57646, 2-86945, 33-11117, 33-32527, 33-38133, 33-44855, 33-48167,
33-50438, 33-51447, 33-52945, 33-58099, 33-61335, 33-62283, 333-00843,
333-01667, and 333-02137.
ARTHUR ANDERSEN LLP
New York, New York,
March 26, 1997.
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
Know all Men By These Presents, that the undersigned hereby constitutes and
appoints JAMES W. GUEDRY, WILLIAM B. LYTTON and JAMES P. MELICAN and each of
them (with full power to each of them to act alone) their true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for them on their behalf and in their name, place and stead, in
any and all capacities, to sign, execute and affix their seal thereto and file
the Annual Report of International Paper Company on Form 10-K (or any other
appropriate form), under the Securities Exchange Act of 1934, as amended,
together with any and all amendments to such Annual Report and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities Exchange Commission, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, for all intents and purposes, and that the undersigned
hereby ratify and confirm all that said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
Executed on this 11th day of March, 1997, at Purchase, New York.
<PAGE>
NAME TITLE
/s/ C. Wesley Smith
------------------------------------- Executive Vice
(C. Wesley Smith) President and Director
/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/ John A. Georges
------------------------------------- Director
(John A. Georges)
/s/ Thomas C. Graham
------------------------------------- Director
(Thomas C. Graham)
/s/ John R. Kennedy
------------------------------------- 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)
/s/ Edmund T. Pratt, Jr.
------------------------------------- Director
(Edmund T. Pratt, Jr.)
/s/ Charles R. Shoemate
------------------------------------- Director
(Charles R. Shoemate)
/s/ Roger B. Smith
------------------------------------- Director
(Roger B. Smith)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 352
<SECURITIES> 0
<RECEIVABLES> 2,654
<ALLOWANCES> (101)
<INVENTORY> 2,840
<CURRENT-ASSETS> 253
<PP&E> 22,731
<DEPRECIATION> (9,514)
<TOTAL-ASSETS> 28,252
<CURRENT-LIABILITIES> 5,894
<BONDS> 6,691
0
0
<COMMON> 301
<OTHER-SE> 9,043
<TOTAL-LIABILITY-AND-EQUITY> 28,252
<SALES> 20,143
<TOTAL-REVENUES> 20,143
<CGS> 14,901
<TOTAL-COSTS> 19,403
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22
<INTEREST-EXPENSE> 530
<INCOME-PRETAX> 802
<INCOME-TAX> 330
<INCOME-CONTINUING> 303
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 303
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
</TABLE>
