<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1993 COMMISSION FILE NUMBER 1-8859
------------------------------
IP TIMBERLANDS, LTD.
(Exact name of Company as specified in its charter)
<TABLE>
<S> <C>
TEXAS 13-3259241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO MANHATTANVILLE ROAD, PURCHASE, NY 10577
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'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>
Class A Depositary Units New York Stock Exchange
</TABLE>
Indicate by check mark whether the Registrant (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
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (x)
The aggregate market value of the Class A Depositary Units of the
Registrant as of March 25, 1994, held by non-affiliates of the Registrant was
$1,300,435,612, calculated on the basis of the closing price on the Composite
Tape on March 25, 1994. For this computation, the Registrant has excluded the
market value of all Class A Depositary Units beneficially owned by International
Paper Company, its subsidiaries, and all executive officers and directors of any
of them and their associates as a group. Such exclusion is not to signify in any
way that members of this group are 'affiliates' of the Registrant.
The number of units outstanding of the Registrant's Class A Depositary
Units, as of March 25, 1994:
<TABLE>
<CAPTION>
OUTSTANDING IN TREASURY
- ------------ ------------
<S> <C>
46,445,729 -0-
</TABLE>
The following documents are incorporated by reference into the parts of
this report indicated below:
1993 ANNUAL REPORT TO UNITHOLDERS
(PP. INSIDE FRONT COVER, 1 AND 8 THROUGH 19) PARTS I, II, III AND IV
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
IP Timberlands, Ltd. (the 'Registrant') is a Texas limited partnership
formed by International Paper Company ('International Paper') to succeed to
substantially all of International Paper's forest resources business. The
Registrant's forest resources business includes the marketing and sale of forest
products for use as sawlogs, poles and pulpwood. In addition, the Registrant may
sell or exchange portions of its forestlands and may acquire additional
properties for cash, additional units or other consideration.
The Registrant operates through IP Timberlands Operating Company, Ltd., a
Texas limited partnership ('IPTO'), in which the Registrant holds a 99% limited
partner's interest. IP Forest Resources Company ('IPFR'), a wholly owned
subsidiary of International Paper, is the managing general partner of the
Registrant and IPTO, and lnternational Paper is the special general partner of
both. A further discussion of the Registrant's organization appears on the
inside front cover and page 14 of the Annual Report to Unitholders (the 'Annual
Report'), which information is incorporated herein by reference.
DESCRIPTION OF PRINCIPAL PRODUCTS
The Registrant's forestlands include merchantable forest products
inventory, approximately 60% of which consists of commercial softwoods,
principally Douglas fir in the Pacific Northwest, southern pine in the South,
and spruce and fir in the Northeast. A variety of hardwoods account for the
remaining 40% of the inventory.
The Registrant sells forest products to International Paper for use in its
pulp mills and wood products plants and to third party customers.
A discussion of the Registrant's harvest plan is presented on page 8 of the
Annual Report, which information is incorporated herein by reference.
COMPETITION AND COSTS
Log and wood fiber consuming facilities tend to purchase raw materials
within relatively small geographic areas, generally within a 100-mile radius.
Competitive factors within a market area generally include price, species, grade
and proximity to wood-consuming facilities. The Registrant competes in the log
and wood fiber market with numerous private industrial and nonindustrial
forestland owners as well as with the U.S. government, principally the U.S.
Forest Service and the Bureau of Land Management. Litigation involving
endangered species and environmental concerns has caused a decline in government
forest products sales volumes and market share in recent years and has resulted
in additional demand and higher prices for private forestland owners.
Many factors influence the Registrant's competitive position, including
costs, prices, product quality and services.
MARKETING
Consistent with International Paper's experience prior to the contribution
of its forestlands to the Registrant, the Registrant has annually sold forest
products from its lands to more than 800 purchasers other than International
Paper. No customer accounted for more than 10% of annual revenues for the years
1993 and 1991. In 1992, total revenues included $91 million in sales to a west
coast forest products company due principally to bulk sales and forestland
sales.
During 1993, 1992 and 1991, International Paper's facilities consumed
approximately 30%, 27% and 28%, respectively, of the logs and wood fiber
harvested from the Registrant's forestlands, which represented approximately
12%, 10% and 11%, respectively, of its manufacturing facilities' requirements
during such periods. International Paper does not anticipate any change in its
policy of relying on the Registrant's forestlands as an important source of raw
material for its manufacturing facilities, although it is unable to predict what
2
<PAGE>
portion of its requirements will be purchased from the Registrant in the future.
In addition to sales to International Paper for use in its manufacturing
facilities, the Registrant sells trees to International Paper that are harvested
and resold by International Paper to unaffiliated purchasers as logs, poles or
pulpwood.
Additional information on marketing activities, including related parties
and major customers, appears on pages 8 and 15 of the Annual Report, which
information is incorporated herein by reference.
ENVIRONMENTAL PROTECTION
Management of the Registrant's forestlands to protect the environment is a
continuing commitment of the Registrant. The Registrant expends considerable
efforts to comply with regulatory requirements for the use of pesticides,
protection of wetlands, and minimization of stream sedimentation and soil
erosion. From time to time the Registrant volunteers to or may be required to
clean up certain dump sites on its forestlands created by the general public.
Environmental protection costs and capital expenditures have not been
significant and are not expected to be significant in the future.
EMPLOYEES
The Registrant does not have officers or directors. Instead, officers and
directors of IPFR perform all management functions for the Registrant. In most
respects, the Registrant conducts the business formerly conducted by the Forest
Products Division of International Paper. Consequently, the employees of
International Paper or its subsidiaries formerly assigned to such division
continue to carry out the activities of the Registrant. These employees continue
to be employees of International Paper and in some cases are employed solely for
the conduct of the Registrant's business.
ITEM 2. PROPERTIES
FORESTLANDS
Forestlands include approximately 5.5 million acres owned in fee (excluding
any interest in underlying minerals) and approximately 507,000 acres held under
long-term deeds and leases (terms of three years or longer). These forestlands
are located in 14 states in three major regions of the United States. In the
Pacific Northwest, forestlands are located in Oregon and Washington, including
approximately 311,000 acres owned in fee and approximately 3,200 acres covered
by deeds and leases. In the southern and southeastern United States, forestlands
are located in seven states, including approximately 3,689,000 acres owned in
fee and approximately 500,400 acres held under long-term deeds and leases. In
the Northeast, forestlands are located in Maine, New York, Pennsylvania, Vermont
and New Hampshire, including approximately 1,531,000 acres owned in fee and
approximately 3,300 acres held under long-term deeds and leases. The deeds and
leases held by the Registrant generally do not include deeds and leases on
government lands in the western United States nor deeds and leases with terms of
less than three years, which are generally managed by International Paper in
connection with short-term wood procurement for its manufacturing facilities.
CAPITAL INVESTMENTS
Discussion of the Registrant's capital investments can be found on pages 9
and 10 of the Annual Report, which information is incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS
IPTO and International Paper are parties to two lawsuits involving
long-term leases on approximately 212,000 acres of forestlands in Louisiana and
Mississippi. Successors in interest to the original lessors are seeking to have
the two leases terminated and IPTO enjoined from further operation on the land
covered by the leases, as well as seeking approximately $52 million in alleged
damages, plus alleged statutory and trebling penalties and punitive damages in
excess of $450 million. A jury trial in the Louisiana state court case resulted
in a verdict in favor of IPTO and International Paper on January 24, 1992.
Appeals are pending.
3
<PAGE>
Trial in the Mississippi state court case has been stayed while the parties
litigate certain issues relating to the purchase option exercise by IPTO. IPTO
and International Paper plan to vigorously contest any remaining allegations.
The Registrant is a party to various legal proceedings incidental to its
business. While any proceeding or litigation has an element of uncertainty, the
Registrant 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.
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, 1993.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The market and cash distribution data on the Registrant's Class A
Depositary Units are set forth below and on the inside front cover and page 18
of the Annual Report and are incorporated herein by reference.
As of March 25, 1994, there were 3,947 holders of record of the
Registrant's Class A Depositary Units.
Set forth below are the market price ranges for each quarter of 1993 and
1992 for the Class A Depositary Units on the New York Stock Exchange Composite
Index.
<TABLE>
<CAPTION>
1993 1992
------------ ------------
QUARTER HIGH LOW HIGH LOW
- ------------------------------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
1st.......................................................... 25 3/8 20 1/2 26 7/8 21 3/8
2nd.......................................................... 26 23 1/2 27 3/8 24 5/8
3rd.......................................................... 30 1/8 24 3/8 27 1/4 25 1/2
4th.......................................................... 27 7/8 25 1/4 27 1/4 17 3/4
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for 1993, 1992 and 1991 is set forth on page 1 of
the Annual Report and is incorporated herein by reference. Selected financial
data for 1990 and 1989 is as follows (in thousands, except per unit data):
<TABLE>
<CAPTION>
1990 1989
-------- --------
<S> <C> <C>
Total Revenues........................................................ $195,461 $229,611
Net Partnership Earnings.............................................. 106,481 128,133
Earnings per Class A Unit............................................. 3.01 3.05
Distributions per Class A Unit........................................ 2.88 2.76
Total Assets.......................................................... $972,000 $983,496
</TABLE>
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 8, 9 and 10 of the Annual Report and are incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's consolidated financial statements, the notes thereto and
the report of independent public accountants are set forth on pages 11 through
17 and 19 of the Annual Report and are incorporated herein by reference.
4
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of IPFR* and their business
experiences are as set forth below:
**WILLIAM M. ELLINGHAUS, 72, former President, Chief Operating Officer and
director of American Telephone & Telegraph Company, having retired in 1984. He
was Executive Vice Chairman of The New York Stock Exchange until 1986. He is a
director of International Paper Company and Textron Inc.
Director since April 8, 1986.
JOHN A. GEORGES, 63, Chairman and Chief Executive Officer of IPFR since
1985. He has been Chairman and Chief Executive Officer of International Paper
Company since 1985. He was elected Chief Executive Officer of International
Paper in 1984 and President in 1981. He is a director of International Paper
Company, Ryder Systems, Inc., Scitex Corporation Ltd. and Warner-Lambert
Company. He is a member of The Business Council and the Policy Committee of the
Business Roundtable. He is a Board member of The Business Council of New York
State, a member of the Trilateral Commission, the President's Advisory Committee
for Trade Policy and Negotiations, and a trustee of Drexel University.
Director since January 8, 1985.
**ARTHUR G. HANSEN, 69, Educational Consultant. He was Director of Research
of the Hudson Institute from 1987 to 1988, Chancellor of the Texas A&M
University System from 1982 to 1986, President of Purdue University from 1971 to
1982 and President of Georgia Institute of Technology from 1969 to 1971. He is a
director of American Electric Power Company, Inc., The Interlake Corporation,
International Paper Company and Navistar International Corporation. He is a
member of the National Academy of Engineering, Chairman of the Corporation for
Educational Technology and a fellow of the American Association for the
Advancement of Science.
Director since February 1, 1990.
**WILLIAM G. KUHNS, 72, former Chairman of General Public Utilities
Corporation (a public utility holding company). He is a director of
Ingersoll-Rand Company and International Paper Company.
Director since April 14, 1987.
**JANE C. PFEIFFER, 61, Management Consultant. She is a director of Ashland
Oil, Inc., International Paper Company, 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, the Overseas Development Council and a member of
The Council on Foreign Relations.
Director since January 13, 1988.
- ------------------
* Managing General Partner of the Registrant.
** Member of the Audit Committee of IPFR. The Audit Committee reviews policies
and practices of the Registrant dealing with various matters (including
accounting and financial practices) as to which conflicts of interest with
the special general partner may arise. The Audit Committee consists of
nonemployee directors of IPFR.
5
<PAGE>
EXECUTIVE OFFICERS
AS OF MARCH 31, 1994
INCLUDING NAME, AGE, OFFICES AND POSITIONS HELD*,
AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
EDWARD J. KOBACKER, 55, president since August, 1992. He was general
manager and group executive of the kraft paper group of International Paper from
1987 to 1992, when he assumed his current position and was elected vice
president and general manager--forest products of International Paper.
FREDERICK L. BLEIER, 45, treasurer and controller since July, 1993;
controller from 1991. He has been sector controller--forest products of
International Paper since July, 1993. He was director-corporate accounting of
International Paper from 1990 to 1993. He joined International Paper as
manager-financial reporting in 1988.
ITEM 11. EXECUTIVE COMPENSATION
The four nonemployee directors of IPFR receive a retainer of $7,000 per
year plus a fee of $1,100 for each IPFR Board and committee meeting attended.
These fees are paid by IPFR. The Registrant has no employees. All management and
services are performed by International Paper on behalf of the Registrant.
International Paper pays the personnel used in the Registrant's business with
certain expenses reimbursed to it by the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Registrant knows of no one owning beneficially more than five percent
(5%) of the Registrant's Class A Depositary Units except International Paper,
which owns approximately eighty-four percent (84%). The following table shows,
as of March 25, 1994, the number of Class A Depositary Units in the Registrant
beneficially owned (as defined by the Securities and Exchange Commission) or
otherwise claimed by current IPFR directors and by all IPFR directors and
executive officers as a group (if no name appears, no Class A Depositary Units
are owned or claimed).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
UNITS PERCENT OF TOTAL
BENEFICIALLY CLASS A DEPOSITARY
NAME OF INDIVIDUAL OR GROUP OWNED (1) UNITS OUTSTANDING
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
W. M. Ellinghaus....................................... 100
A. G. Hansen........................................... 200
W. G. Kuhns............................................ 1,000 No director or officer owns
J.C. Pfeiffer.......................................... 300 as much as 1/10 of 1%
All directors and executive officers as a group........ 1,600
</TABLE>
- ------------------
(1) Ownership shown includes securities over which the individual has or shares,
directly or indirectly, voting or investment powers, including units owned
by a spouse or 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 units, but they are included for the purpose of computing the holdings
and the percentages of Class A Depositary Units owned.
The certificate of incorporation of IPFR ('IPFR Charter') provides for two
classes of common stock: Class A Common Stock and Class B Common Stock, of which
International Paper is the sole owner. The Class B Common Stock possesses
exclusive voting rights and the holder or holders thereof are entitled to
cumulative voting for the election of directors of IPFR. Except with respect to
voting rights, the Class B Common Stock of IPFR is equal in all other respects
to the Class A Common Stock of IPFR. However, the Class B Common Stock
represents only .00005 of 1% of the total authorized Common Stock of IPFR, all
of which has been issued and is outstanding.
The IPFR Charter further provides that in the event International Paper
owns, or as a result of certain events would own, less than 50% of either the
outstanding Class A Depositary Units or Class B Depositary Units, then
- ------------------
* Officers of IPFR are elected to hold office until the next annual meeting of
the board of directors and until election of successors, subject to removal by
the board.
6
<PAGE>
(i) International Paper must sell all of the shares of Class B Common Stock to
the directors of IPFR, on a pro rata basis, at a price equal to $100.00 per
share in cash; (ii) any director who does not purchase his pro rata shares of
Class B Common Stock must resign; and (iii) the directors of IPFR are then
required, as soon as practicable but not later than the next annual meeting of
stockholders of IPFR, to vote or cause their shares of Class B Common Stock to
be voted to elect a Board of Directors of IPFR comprised entirely of persons who
are not employees, officers, directors or affiliates of International Paper or
of any affiliate of International Paper (other than IPFR). Each director of IPFR
is further required to execute a voting trust agreement, pursuant to which the
Class B Common Stock will be held and voted, and a stockholders agreement,
pursuant to which transfer of ownership in the Class B Common Stock is
restricted to persons who are directors of IPFR. In order to maintain the
independence of IPFR's Board of Directors, the IPFR Charter further provides
that (i) each director, upon resigning as a director of IPFR, must sell his
shares of Class B Common Stock to IPFR, and (ii) each subsequent director
elected to replace any director so resigning must similarly purchase shares of
Class B Common Stock and enter into the voting trust agreement and stockholders
agreement described above. International Paper believes that the foregoing
arrangement for the possible ownership of the Class B Common Stock of IPFR
assists in reducing the potential for conflicts of interests should
International Paper's ownership of units decrease significantly.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A description of certain relationships and related transactions is set
forth on pages 14 through 17 of the Annual Report and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBITS
(13) 1993 Annual Report to Unitholders of the Registrant
(24) Power of Attorney
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant for the fourth quarter
of 1993.
FINANCIAL STATEMENT SCHEDULES
The consolidated balance sheets as of December 31, 1993 and 1992, and the
related consolidated statements of earnings and cash flows for each of the three
years in the period ended December 31, 1993, together with the report thereon of
Arthur Andersen & Co., dated February 4, 1994, appearing on pages 11 through 17
and 19 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, 5 through 8, and 13, 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.
7
<PAGE>
ADDITIONAL FINANCIAL DATA
1993, 1992 AND 1991
<TABLE>
<C> <S> <C>
Report of Independent Public Accountants on Financial Statement Schedules .................................... 9
Consolidated Schedules:
II -- Amounts Receivable from Related Parties................................................ 10
V -- Property, Plant and Equipment.......................................................... 11
VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and
Equipment.............................................................................. 12
</TABLE>
8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
TO THE PARTNERS OF IP TIMBERLANDS, LTD.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in IP Timberlands, Ltd.'s 1993
Annual Report to Unitholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 4, 1994. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
schedules listed in the accompanying index are the responsibility of the
Partnership's management and are presented for the purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state 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 & CO.
New York, N. Y.
February 4, 1994
9
<PAGE>
SCHEDULE II
IP TIMBERLANDS, LTD.
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS BALANCE AT END OF
BALANCE AT -------------------------- PERIOD
BEGINNING AMOUNTS AMOUNTS ----------------------
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NONCURRENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
International Paper............. (a) $ 296,364 $ 328,226 $ (348,444) $ -- $276,146 $ --
---------- --------- ------------ ----------- -------- ----------
---------- --------- ------------ ----------- -------- ----------
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DEDUCTIONS BALANCE AT END OF
BALANCE AT -------------------------- PERIOD
BEGINNING AMOUNTS AMOUNTS ----------------------
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NONCURRENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
International Paper............. (a) $ 279,852 $ 193,479 $ (176,967) $ -- $296,364 $ --
---------- --------- ------------ ----------- -------- ----------
---------- --------- ------------ ----------- -------- ----------
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS BALANCE AT END OF
BALANCE AT -------------------------- PERIOD
BEGINNING AMOUNTS AMOUNTS ----------------------
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NONCURRENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
International Paper............. (a) $ 199,953 $ 260,700 $ (180,801) $ -- $279,852 $ --
---------- --------- ------------ ----------- -------- ----------
---------- --------- ------------ ----------- -------- ----------
IP Realty Corporation........... (b) $ 5,978 $ -- $ (5,978) $ -- $ -- $ --
---------- --------- ------------ ----------- -------- ----------
---------- --------- ------------ ----------- -------- ----------
</TABLE>
- ------------------
(a) Consists of notes with due dates of up to 90 days; weighted average interest
rates of 3.5% at December 31, 1993, 3.68% at December 31, 1992, and 5.28% at
December 31, 1991.
(b) Consisted of notes with annual due dates through 1995; weighted average
interest rates of 9.75% at December 31, 1990.
10
<PAGE>
SCHEDULE V
IP TIMBERLANDS, LTD.
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT RETIREMENTS, OTHER BALANCE AT
BEGINNING ADDITIONS SALES OR CHANGES- END OF
CLASSIFICATION OF PERIOD AT COST RECLASSIFICATIONS ADD (DEDUCT) PERIOD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Forestlands................................. $ 718,550 $51,513 $ (11,417) $ (21,961)(a) $ 736,685
---------- --------- ----------------- --------------- ----------
---------- --------- ----------------- --------------- ----------
Roads....................................... $ 81,853 $ 2,228 $ (2,065) $ -- $ 82,016
---------- --------- ----------------- --------------- ----------
---------- --------- ----------------- --------------- ----------
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT RETIREMENTS, OTHER BALANCE AT
BEGINNING ADDITIONS SALES OR CHANGES- END OF
CLASSIFICATION OF PERIOD AT COST RECLASSIFICATIONS ADD (DEDUCT) PERIOD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Forestlands................................. $ 708,985 $34,920 $(6,577) $ (18,778)(a) $ 718,550
---------- --------- ----------------- --------------- ----------
---------- --------- ----------------- --------------- ----------
Roads....................................... $ 78,438 $ 3,628 $ (213) $ -- $ 81,853
---------- --------- ----------------- --------------- ----------
---------- --------- ----------------- --------------- ----------
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT RETIREMENTS, OTHER BALANCE AT
BEGINNING ADDITIONS SALES OR CHANGES- END OF
CLASSIFICATION OF PERIOD AT COST RECLASSIFICATIONS ADD (DEDUCT) PERIOD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Forestlands................................. $ 715,202 $15,459 $(2,003) $ (19,673)(a) $ 708,985
---------- --------- ----------------- --------------- ----------
---------- --------- ----------------- --------------- ----------
Roads....................................... $ 76,521 $ 2,431 $ (514) $ -- $ 78,438
---------- --------- ----------------- --------------- ----------
---------- --------- ----------------- --------------- ----------
</TABLE>
- ------------------
(a) Represents depletion credited directly to the asset.
11
<PAGE>
SCHEDULE VI
IP TIMBERLANDS, LTD.
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT RETIREMENTS, OTHER BALANCE AT
BEGINNING ADDITIONS SALES OR CHANGES- END OF
CLASSIFICATION OF PERIOD AT COST RECLASSIFICATIONS ADD (DEDUCT) PERIOD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Road Amortization........................... $ 45,745 $ 2,180 $(1,178) $ -- $ 46,747
---------- --------- ----------------- --------------- ----------
---------- --------- ----------------- --------------- ----------
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT RETIREMENTS, OTHER BALANCE AT
BEGINNING ADDITIONS SALES OR CHANGES- END OF
CLASSIFICATION OF PERIOD AT COST RECLASSIFICATIONS ADD (DEDUCT) PERIOD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Road Amortization........................... $ 43,579 $ 2,179 $ (13) $ -- $ 45,745
---------- --------- ----------------- --------------- ----------
---------- --------- ----------------- --------------- ----------
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE AT RETIREMENTS, OTHER BALANCE AT
BEGINNING ADDITIONS SALES OR CHANGES- END OF
CLASSIFICATION OF PERIOD AT COST RECLASSIFICATIONS ADD (DEDUCT) PERIOD
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Road Amortization........................... $ 41,440 $ 2,288 $ (149) $ -- $ 43,579
---------- --------- ----------------- --------------- ----------
---------- --------- ----------------- --------------- ----------
</TABLE>
12
<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.
IP TIMBERLANDS, LTD.
By: IP Forest Resources Company
(as managing general partner)
By: JAMES W. GUEDRY
-------------------------------
JAMES W. GUEDRY, VICE PRESIDENT
AND SECRETARY
March 30, 1994
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
- -------------------------------------------------------------- ----------------------- ---------------
<S> <C> <C>
JOHN A. GEORGES Chairman of the Board, March 30, 1994
(JOHN A. GEORGES) Chief Executive Officer
and Director
WILLIAM M. ELLINGHAUS* Director March 30, 1994
(WILLIAM M. ELLINGHAUS)
ARTHUR G. HANSEN* Director March 30, 1994
(ARTHUR G. HANSEN)
WILLIAM G. KUHNS* Director March 30, 1994
(WILLIAM G. KUHNS)
JANE C. PFEIFFER* Director March 30, 1994
(JANE C. PFEIFFER)
FREDRICK L. BLEIER Treasurer and March 30, 1994
(FREDERICK L. BLEIER) Controller and Chief
Financial and
Accounting Officer
*By JAMES W. GUEDRY
----------------------------------
(JAMES W. GUEDRY, ATTORNEY-IN-FACT)
</TABLE>
13
<PAGE>
( IP TIMBERLANDS, LTD. LOGO )
PRINTED ON HAMMERMILL PAPERS, ACCENT OPAQUE, 50 LBS.
HAMMERMILL PAPERS IS A DIVISION OF INTERNATIONAL PAPER
<PAGE>
EXHIBIT INDEX
Exhibits Page No.
-------- --------
(13) 1993 Annual Report to Unitholders of the Registrant
(24) Power of Attorney
<PAGE>
EXHIBIT (13)
About IP Timberlands, Ltd.
Background of the Partnership
IP Timberlands, Ltd. (IPT) began operations in 1985 as a publicly traded
limited partnership to succeed to substantially all of International
Paper's forest resources business. International Paper contributed 6.3
million acres of forestlands it owned or held under long-term leases to
IPT.
The Partnership has two types of securities: Class A and Class B
Depositary Units. Presently, 16 percent of the Class A Units are
publicly traded. The remainder of the Class A Units and all the Class B
Units are owned by International Paper.
Description of the Class A Depositary Units
IP Timberlands, Ltd. Class A Units trade on the New York Stock Exchange
under the symbol "IPT." During 1993, the units traded in a price range of
$20.50 to $30.13.
The Class A Unit generally entitles the holder to share in 95 percent of
the net cash flow and earnings generated from the sale of trees harvested
during the Initial Term, the first 15 years of the Partnership
(1985-1999). Thereafter, the majority of the benefit goes to the Class B
unitholders, with the Class A unitholders' share reduced to four percent
of total Partnership activities, which include reforestation and land
management costs as well as stumpage sales. The general partners' share
is one percent.
Less than six years remain in the Initial Term of the Partnership.
Because of this and due to the decrease in the share of earnings when
the Initial Term of the Partnership expires, Class A unitholders should
expect the market price of Class A Units to begin to decrease well
before December 31, 1999.
During 1993, the Partnership declared per unit distributions to Class A
unitholders of $.72 per quarter and a special distribution of $4.00, or
$6.88 for the year.
For answers to commonly asked questions about IPT, see page 3.
<PAGE>
Inside Front Cover
Financial Highlights
<TABLE>
<CAPTION>
In millions, except per unit data,
for the years ended December 31 1993 1992 1991
<S> <C> <C> <C>
Total Revenues $ 426 $ 297 $ 237
Operating Earnings(1) 314 195 135
Net Partnership Earnings 323 206 150
Earnings Allocated to Class A Limited
Partners 276 159 143
Per Class A Unit
Earnings 5.94 3.42 3.09
Distributions 6.88(2) 2.88 2.88
Operating Cash Flow
Attributable to Class A Units 234 149 161
Total Class A Unit Distributions Declared $ 320(2) $ 134 $ 134
Weighted Average Class A Units Outstanding 46 46 46
</TABLE>
<TABLE>
<CAPTION>
December 31 1993 1992 1991
<S> <C> <C> <C>
Working Capital $ 308 $ 289 $ 282
Forestlands and Roads 772 755 744
Total Assets $1,094 $1,116 $1,040
</TABLE>
1 Operating earnings equal total revenues less operating costs and
expenses. Operating earnings are lower than net Partnership earnings
because operating earnings exclude interest income.
2 Includes a $186 million ($4.00 per Class A Unit) special distribution
paid on October 1, 1993.
Inside This Report
To Our Unitholders 2
Commonly Asked Questions About IPT 3
Managing Our Forestlands 6
Management's Discussion and Analysis 8
Financial Statements 11
Directors and Officers 20
Partnership Information 21
Unitholder Tax Information 21
-1-
<PAGE>
Management's Discussion and Analysis
Results of Operations
Stumpage sales revenues increased 29% to a record $305 million in 1993
from $237 million in 1992. Stumpage revenues were $192 million in 1991.
Net Partnership earnings rose to $323 million from $206 million in 1992
and $150 million in 1991. The Partnership took advantage of favorable
weather conditions, good demand and record sawlog prices to increase
harvest volumes by 8% in 1993.
In the South, revenues increased 60% over 1992 totals. Record lumber and
panel prices spurred a significant increase in demand for sawlogs as mills
sought to increase production. As a result, pine sawlog prices reached
record levels by year end. Pulpwood prices also advanced as greater
utilization of small logs by wood products plants and an increase in
exports of hardwood chips forced paper mills to compete for available
fiber. Domestic and export log prices in the West also achieved record
levels before softening slightly as the year ended. As a result,
stumpage sales revenues in the West increased 4% despite a 35% decline
in harvest volumes from lower bulk sales. In the Northeast, strong
spruce-fir sawlog demand from Canadian and domestic lumber mills kept
prices high, resulting in a 17% increase in revenues.
Forestland sales of selected nonstrategic holdings vary from year to
year. The Partnership took advantage of the high prices in 1993 to
increase forestland sales to $108 million compared with $49 million in
1992.
Although 1994 began with prices at or near record levels, a declining
inventory of mature trees is expected to lead to a lower harvest over
the next several years. This future harvest may be supplemented by
forestland purchases or cutting contracts where economically
advantageous. Thus, while the outlook for 1994 is favorable, operating
results will remain dependent upon construction activity, export demand,
and continued strength in the repair and remodeling market.
The following table presents major earnings statement revenue categories
attributable to the Primary and Secondary Accounts.
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
<S> <C> <C> <C>
Stumpage sales
Primary Account $303,147 $194,678 $179,358
Secondary Account 2,159 42,250 12,815
-------- -------- --------
$305,306 $236,928 $192,173
Forestland sales
Primary Account $ 33,505 $ 4,678 $ 2,789
Secondary Account 74,449 43,837 31,650
-------- -------- --------
$107,954 $ 48,515 $ 34,439
</TABLE>
Volumes related to the above stumpage sales were:
<TABLE>
<CAPTION>
In thousand cunits 1993 1992 1991
<S> <C> <C> <C>
Used in International Paper facilities 1,045 896 936
Resold by International Paper 725 698 756
Sales to unaffiliated parties 1,762 1,691 1,683
----- ----- -----
3,532 3,285 3,375
</TABLE>
Operating Costs and Expenses
Operating costs and expenses attributable
to the Primary and Secondary Accounts were as follows:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
<S> <C> <C> <C>
Primary Account $ 64,504 $ 54,016 $ 55,044
Secondary Account 47,578 47,781 47,678
-------- -------- --------
$112,082 $101,797 $102,722
</TABLE>
-8-
<PAGE>
Depletion and the cost of forestlands sold are generally attributed to
the Primary and Secondary Accounts in the same proportion as revenues
from stumpage sales and forestland sales, respectively. Road
amortization is fully attributed to the Secondary Account. Increased
depletion and costs of forestland sales in 1993 resulted in the increase
in Primary Account expenses.
Costs related to land and forest management and administration of IPT
are associated to some extent with both the Primary Account and the
Secondary Account because the benefits derived from such expenditures will
be realized both during and after the Initial Term. The Primary Account
is charged for forest operating costs and general and administrative
expenses based on a percentage of revenues from stumpage and forestland
sales credited to the Primary Account. The remaining balance of such
costs is charged to the Secondary Account. This method of allocation and
the cost allocation percentage are reviewed annually by IP Forest
Resources Company (IPFR) to determine that the cost allocations between
the Accounts are representative of the respective benefits derived by the
Accounts.
General and administrative expenses are a combination of direct costs
charged to IPT plus indirect overhead costs that are allocated to IPT by
International Paper. These expenses decreased in 1992 compared with 1991
due to lower expenses related to certain long-term forestland leases.
Impact of Inflation
Prices for stumpage may be subject to sharp cyclical fluctuations due to
market or other economic conditions and generally do not directly follow
inflationary trends. Costs of forest management and operations generally
tend to reflect inflationary trends.
Liquidity and Capital Resources
At December 31, 1993, IP Timberlands, Ltd. had cash and temporary
investments of $6.8 million and notes receivable from International
Paper of $276.1 million, totaling $282.9 million in liquid assets.
Cash is either invested in temporary investments or loaned to
International Paper at market rates.
<TABLE>
<CAPTION>
In thousands, except per unit data 1993 1992
<S> <C> <C>
Cash, temporary investments and notes receivable
Primary Account $158,556 $252,754
Secondary Account 124,372 50,240
-------- --------
$282,928 $302,994
Total per Class A Unit $ 3.35 $ 5.21
</TABLE>
The decrease in Primary Account liquid assets was due to the payment of
a $4.00 per Class A Unit special distribution in 1993. The increase in
Secondary Account liquid assets reflects cash proceeds received from
forestland and bulk sales. Cash flow from operations and existing cash
balances are expected to be adequate to meet anticipated cash
requirements of the Primary Account. Costs charged to the Secondary
Account, which include reforestation costs, road construction and a
significant portion of forest management expenses, have exceeded revenues
credited to such account in the past. To the extent that future
Secondary Account cash flows and existing cash balances do not cover
cash costs charged to such account, IPT will fund such shortfalls
through the sale of additional units (principally Class B Units) to
International Paper, borrowings from International Paper or unaffiliated
parties, or other financing alternatives. International Paper and IPFR
contributed $69.3 million in 1991 to the Secondary Account to fund the
anticipated shortfalls. No contributions were made in 1992 or 1993.
In contrast to other depletable natural resources such as oil and gas,
forest resources are managed to regenerate over a period of time
generally ranging from 25 to 55 years. IPT believes that the size and
diversity of its forest resource base should provide recurring annual
revenues without the need for a major reinvestment of cash to acquire
additional resources. IPT's investment in forestlands and roads, which
includes expenditures for reforestation, road construction and
capitalized leases, is expected to decline slightly in 1994 compared
with 1993 levels.
-9-
<PAGE>
It is IPT's policy to make quarterly cash distributions from the Primary
Account based on cash available from operations after provisions for
working capital, asset acquisitions and such reserves as IPFR, the
managing general partner of IPT, deems appropriate. The distribution
rate also balances any large nonrecurring inflows from forestland sales
in the current year against expected future cash flows based on IPT's
projected harvest plan. The partners participate in distributions in the
same ratio in which they share revenues and costs. In the case of the
Primary Account, the Class A Units receive 95% of the total IPT
distributions, with the Class B Units and general partners receiving 4%
and 1%, respectively. Class A Units' participation in distributions will
decline significantly to 4%, and Class B Units' participation will increase
to 95%, after the end of the Initial Term.
In 1993, 1992 and 1991, IPT paid regular Class A quarterly distributions
of $.72 per quarter. In October 1993, IPT paid a special cash
distribution of $4.00 per unit, as management believed that existing
cash balances plus projected future cash flows would be adequate for
capital expenditure, working capital and regular quarterly distribution
requirements during the remainder of the Initial Term. It is anticipated
that the 1994 distribution will at least maintain the $.72 per quarter
rate. In considering changes to the distribution rate, the Partnership
manages conservatively to avoid undue volatility.
The following table presents cash flow from operations, after provision
for capital expenditures, attributable to Class A Units. It also shows
cash distributions declared for Class A Units for the same period,
including the $4.00 per unit special distribution paid in 1993.
<TABLE>
<CAPTION>
Primary Secondary IPT
In thousands Account Account Total
<S> <C> <C> <C>
Year Ended December 31, 1993
Cash provided by operations $284,456 $ 88,982 $373,438
Investment in forestlands and roads (38,890) (14,851) (53,741)
IPTO general partners' interest in above (2,456) (741) (3,197)
Cash flow after capital expenditures 243,110 73,390 316,500
Class A Unit allocation factor 95% 4%
Cash flow attributable to Class A Units $230,955 $ 2,936 $233,891
Distributions declared for Class A Units $319,547 $319,547
Year Ended December 31, 1992
Cash provided by operations $181,701 $ 13,758 $195,459
Investment in forestlands and roads (23,058) (15,490) (38,548)
IPTO general partners' interest in above (1,586) 17 (1,569)
Cash flow after capital expenditures 157,057 (1,715) 155,342
Class A Unit allocation factor 95% 4%
Cash flow attributable to Class A Units $149,204 $ (69) $149,135
Distributions declared for Class A Units $133,764 $133,764
Year Ended December 31, 1991
Cash provided by operations $174,110 $ (3,193) $170,917
Investment in forestlands and roads (2,484) (15,406) (17,890)
IPTO general partners' interest in above (1,716) 186 (1,530)
Cash flow after capital expenditures 169,910 (18,413) 151,497
Class A Unit allocation factor 95% 4%
Cash flow attributable to Class A Units $161,414 $ (736) $160,678
Distributions declared for Class A Units 133,668 $133,668
</TABLE>
At the end of the Initial Term, the Primary Account will be closed, and
all cash remaining after payment of borrowings and liabilities will be
distributed. Class A unitholders will receive 95% of this cash
distribution.
-10-
<PAGE>
Consolidated Statement of Earnings
<TABLE>
<CAPTION>
In thousands, except per unit data, for the years ended December 31
1993 1992 1991
<S> <C> <C> <C>
Revenues
Stumpage sales
International Paper $185,372 $119,613 $112,424
Unaffiliated parties 119,934 117,315 79,749
Forestland sales 107,954 48,515 34,439
Other income, net 12,774 11,580 10,836
-------- -------- --------
Total revenues 426,034 297,023 237,448
Operating Costs and Expenses
Depletion
International Paper 10,126 8,225 9,062
Unaffiliated parties 11,835 10,553 10,611
Cost of forestlands sold 12,780 6,285 2,618
Amortization of roads 2,180 2,179 2,288
Forest operations 38,190 37,465 37,282
General and administrative 20,359 21,865 25,274
Property and severance taxes 16,612 15,225 15,587
-------- -------- --------
Total operating costs and expenses 112,082 101,797 102,722
Operating Earnings 313,952 195,226 134,726
Interest Income 12,159 13,176 17,044
General Partners' Interest in IPTO (3,261) (2,084) (1,518)
Net Partnership Earnings $322,850 $206,318 $150,252
Earnings per Class A Unit (Note 4) $ 5.94 $ 3.42 $ 3.09
</TABLE>
The accompanying notes are an integral part of these financial statements.
-11-
<PAGE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
In thousands at December 31
1993 1992
<S> <C> <C>
Assets
Current Assets
Cash and temporary investments, at cost,
which approximates market $ 6,782 $ 6,630
Notes receivable--International Paper 276,146 296,364
Accounts and notes receivable 37,279 6,695
Total current assets 320,207 309,689
Notes Receivable 1,872 51,331
Forestlands 736,685 718,550
Roads, net of accumulated amortization of
$46,747 (1993) and $45,745 (1992) 35,269 36,108
---------- ----------
Total Assets $1,094,033 $1,115,678
Liabilities and Partners' Capital
Current Liabilities
Accounts payable and accrued liabilities $ 431 $ 524
Due to International Paper 3,825 11,392
Accrued property and severance taxes 5,577 4,221
Customer advance payments 2,725 4,326
Total current liabilities 12,558 20,463
Lease Obligations 1,567 1,656
General Partners' Interest in IPTO 33,264 33,400
Commitments and Contingent Liabilities
Partners' Capital
General partners 32,321 32,456
Limited partners 1,014,323 1,027,703
---------- ----------
Total Liabilities and Partners' Capital $1,094,033 $1,115,678
</TABLE>
The accompanying notes are an integral part of these financial statements.
-12-
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
In thousands for the years ended December 31 1993 1992 1991
<S> <C> <C> <C>
Operating Activities
Net Partnership earnings $ 322,850 $ 206,318 $ 150,252
Noncash items
Depletion 21,961 18,778 19,673
Cost of forestlands sold 12,780 6,285 2,618
Amortization of roads 2,180 2,179 2,288
Other, net 2,786 2,576 1,268
Changes in current assets and liabilities
Accounts and notes receivable 18,875 (50,026) 6,412
Due to International Paper (7,567) 9,806 (12,615)
Customer advance payments (1,601) 538 (51)
Other, net 1,174 (995) 1,072
Cash provided by operations 373,438 195,459 170,917
Investment Activities
Investment in forestlands and roads (53,741) (38,548) (17,890)
Loans to International Paper (328,226) (193,479) (260,700)
Repayment of loans by International Paper 348,444 176,967 180,801
Cash used for investment activities (33,523) (55,060) (97,789)
Financing Activities
Limited partners' cash contributions 68,607
General partners' cash contributions 1,393
Distributions to partners of IPT and IPTO (339,763) (142,227) (142,022)
Cash used for financing activities (339,763) (142,227) (72,022)
Change in Cash and Temporary Investments 152 (1,828) 1,106
Cash and Temporary Investments
Beginning of the year 6,630 8,458 7,352
End of the year $ 6,782 $ 6,630 $ 8,458
</TABLE>
The accompanying notes are an integral part of these financial statements.
-13-
<PAGE>
Notes to Consolidated Financial Statements
1. Organization
IP Timberlands, Ltd. (IPT), a Texas limited partnership, was formed
to succeed to substantially all of the forest resources business of
International Paper.
IP Forest Resources Company (IPFR), a wholly owned subsidiary
of International Paper, is the managing general partner of IPT, and
International Paper is the special general partner.
International Paper received IPT Class A Depositary Units (Class A
Units) and IPT Class B Depositary Units (Class B Units) in exchange for
the contribution of approximately 6.3 million acres of forestlands owned
in fee or held under long-term leases as well as certain deeds and other
assets. IPT operates through IP Timberlands Operating Company, Ltd. (IPTO),
a Texas limited partnership, in which IPT holds a 99% limited partners'
interest. IPFR is also the managing general partner of IPTO, and
International Paper is the special general partner.
The Partnerships have no officers, directors or employees. The officers,
directors and employees of International Paper and IPFR perform all management
and business activities for the Partnerships.
2. Summary of Significant Accounting Policies
Consolidation. The consolidated financial statements include the accounts
of IPT and IPTO. All significant intercompany items and transactions have
been eliminated.
Basis of Presentation. The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles and
will not be the basis for reporting taxable income to unitholders.
Temporary Investments. Temporary investments with an original maturity
of three months or less are stated at cost. Temporary investments were
$6.5 million at both December 31, 1993 and 1992.
Income Taxes. IPT is not a taxable entity for federal, state and local
income tax purposes. Any taxable earnings or losses and certain other items
are reported by the partners on their own tax returns in accordance with
their Partnership Agreement.
Forestlands. Forestlands, including capitalized harvesting rights, are
stated at cost, less accumulated depletion. IPT capitalizes cutting contracts
where the total price to be paid is fixed and the term is in excess of one year.
The portion of the costs of forestlands attributed to the trees is charged
against earnings as the trees are cut, at rates determined annually based on
the relationship of unamortized costs to the estimated recoverable
harvest volumes.
Roads. Roads are stated at cost, less accumulated amortization. The
depreciable portion of the cost is amortized over the economic lives of the
roads using the straight-line method (eight to 20 years).
Revenue Recognition. Stumpage sales are recognized when legal ownership
and the risk of loss pass to the purchaser and the quantity sold is determined.
This generally occurs when the purchaser severs and measures the volumes.
Bulk sales represent the sale of standing timber. Revenues from bulk sales
and forestland sales are recognized when legal ownership and the risk of loss
pass, normally at the time of sale.
-14-
<PAGE>
Notes to Consolidated Financial Statements
3. Transactions With International Paper and Major Customers
IPT is a major source of fiber and wood used in International Paper's pulp,
paper, lumber and panel manufacturing facilities. The cost associated with
sales to International Paper was $10.1 million (1993), $8.2 million (1992)
and $9.1 million (1991).
IPT does not compensate IPFR or International Paper for services as
general partners. However, IPT does reimburse them for direct costs and
expenses (included in forest operations and general and administrative
expenses) associated with the management and operations of the Partnerships
and indirect costs, principally general and administrative expenses, allocated
to the Partnerships. Charges for indirect expenses were $10.2 million (1993),
$9.8 million (1992) and $9.0 million (1991). In the opinion of IPFR management,
the allocation methods and amounts are reasonable.
Notes with International Paper bear interest at market rates. Interest
income from notes with International Paper was $10.7 million (1993),
$11.9 million (1992) and $15.8 million (1991).
In addition to transactions with International Paper, total revenues in
1992 included $91 million in forestland and bulk sales to a West Coast forest
products company. Included in Notes Receivable at December 31, 1992 were
$50 million of 6% interest-bearing notes from these sales that were paid
in full in 1993. No unaffiliated customer accounted for sales in excess of 10%
of total revenues in 1993 or 1991.
4. Computation of Earnings per Class A Unit
Holders of Class A Units participate principally in the revenues and
costs associated with IPT's stumpage sales through December 31, 1999 (the
Initial Term), and to a significantly lesser extent in such revenues and
costs after the Initial Term. Holders of the Class B Units participate
principally in the revenues and costs associated with IPT's stumpage sales
after the Initial Term, and to a significantly lesser extent in such revenues
and costs during the Initial Term.
In order to implement the sharing of revenues and costs between the
Class A Units and the Class B Units, the Partnership Agreement of IPT
created two accounting units--the Primary Account and the Secondary Account.
The Primary Account is credited with all revenues and costs associated with
the sale of trees harvested during the Initial Term. For forestland sales
or bulk sales, the proceeds and costs associated with such sales are allocated
by the managing general partner between the Primary Account and the Secondary
Account based on the relative asset values of the forestlands and trees and
the projected harvest schedule during and after the Initial Term. Other
revenues not associated with the harvesting and sale of trees, such as
revenues from permits, leases, easements and similar items, generally
are credited to the Primary Account. Interest income on the short-term
investment of proceeds from stumpage sales is treated in the same manner
as revenues and costs associated with the harvesting and sale of trees.
The Class A Units are credited with 95% of the revenues and costs of the
Primary Account and 4% of the revenues and costs of the Secondary Account. The
Class B Units are credited with 95% of the revenues and costs of the Secondary
Account and 4% of the revenues and costs of the Primary Account. International
Paper and IPFR are credited with 1% in the aggregate of the revenues and costs
of the Primary Account and the Secondary Account.
-15-
<PAGE>
Notes to Consolidated Financial Statements
The following table presents the computation of earnings per Class A Unit.
<TABLE>
<CAPTION>
In thousands, except per unit data,
for the years ended December 31 1993 1992 1991
<S> <C> <C> <C>
Allocation to Primary Account $288,856 $165,288 $151,006
Allocation to Secondary Account 33,994 41,030 (754)
Net Partnership Earnings $322,850 $206,318 $150,252
95% of the Primary Account $274,413 $157,023 $143,455
4% of the Secondary Account 1,360 1,641 (30)
Earnings Allocated to Class A Limited Partners 275,773 158,664 143,425
Weighted Average Class A Units Outstanding 46,446 46,446 46,401
Earnings per Class A Unit $ 5.94 $ 3.42 $ 3.09
</TABLE>
5. Receivables
The major components of Accounts and Notes Receivable are presented
below. No allowance for doubtful accounts was required in either year.
<TABLE>
<CAPTION>
In thousands at December 31 1993 1992
<S> <C> <C>
Notes receivable--trade $35,329 $4,773
Accounts receivable--trade 1,268 1,439
Accrued interest and other receivables 682 483
------- ------
$37,279 $6,695
------- ------
</TABLE>
The increase in Notes receivable--trade in 1993 is due to a forestland sale
in the West completed near year end.
6. Partners' Capital
The following table presents the activity in the Partners' Capital accounts.
<TABLE>
<CAPTION>
General Limited
In thousands Partners Partners Total
<S> <C> <C> <C>
Balance--January 1, 1991 $30,660 $ 849,934 $ 880,594
Cash contribution of International Paper and IPFR 693 68,607 69,300
Net earnings for the period 1,503 148,749 150,252
Partner distributions (1,055) (104,446) (105,501)
Balance--December 31, 1991 31,801 962,844 994,645
Net earnings for the period 2,063 204,255 206,318
Partner distributions (1,408) (139,396) (140,804)
Balance--December 31, 1992 32,456 1,027,703 1,060,159
Net earnings for the period 3,229 319,621 322,850
Partner distributions (3,364) (333,001) (336,365)
Balance--December 31, 1993 $32,321 $1,014,323 $1,046,644
</TABLE>
In 1991, International Paper and IPFR made a cash contribution to fund
anticipated shortfalls with respect to Secondary Account capital expenditures
and operating expenses.
-16-
<PAGE>
Notes to Consolidated Financial Statements
Beginning with the second quarter of 1991, the declaration of quarterly
Partnership distributions was changed to the month following the end of the
quarter. Accordingly, partner distributions charged to Partners' Capital for
1991 included only three quarterly distributions.
Distributions in 1993 include a special distribution of $4.00 per Class A
Unit paid October 1, 1993.
The authorized and outstanding Class A and Class B Units at December 31,
1993, 1992 and 1991, which represent the limited partnership interests of IPT,
are presented below. The Class B Units are 100% owned by International Paper
and affiliates.
<TABLE>
<CAPTION>
Class A Depositary Units
-------------------------------
International Unaffiliated Class B
Paper and Third Depositary
Affiliates Parties Total Units
<S> <C> <C> <C> <C>
Number of units 39,146,229 7,299,500 46,445,729 50,976,480
Percentage of total 84% 16% 100% 100%
</TABLE>
Under the terms of the Partnership Agreement, International Paper has
the right to purchase, at any time, all outstanding Class A Units at a
price equal to 133% of the market price at that time.
7. Commitments and Contingent Liabilities
IPTO and International Paper are parties in two lawsuits involving
long-term leases on 212,000 acres of property in Louisiana and Mississippi.
The lessors are seeking to have the two forestland leases terminated and
IPTO enjoined from further operation on the land covered by the leases as
well as seeking approximately $52 million in alleged damages, plus alleged
statutory and trebling penalties and punitive damages in excess of
$450 million. A jury trial in the Louisiana suit resulted in a verdict
in favor of IPTO and International Paper. Appeals are pending. Trial in the
Mississippi state court case has been stayed while certain issues relating
to the exercise of a purchase option by IPTO are litigated. IPTO and
International Paper plan to vigorously contest the remaining allegations
and assert that the lessors are in breach of the original agreement.
IPT is involved in various legal proceedings incidental to its business.
While any proceeding or litigation has an element of uncertainty, IPT
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.
-17-
<PAGE>
<TABLE>
<CAPTION>
Interim Financial Results
(unaudited)
Quarter
--------------------------------------------------------
In thousands, except per unit data First Second Third Fourth
<S> <C> <C> <C> <C>
1993
Total revenues $103,268 $83,361 $110,496 $128,909
Operating earnings 72,294 57,265 83,126 101,267
Net Partnership earnings 74,924 59,779 85,477 102,670
Per Class A Unit
Earnings $ 1.41 $ 1.05 $ 1.47 $ 2.01
Distributions .72 .72 4.72(1) .72
1992
Total revenues $ 73,179 $63,311 $ 75,197 $ 85,336
Operating earnings 47,994 39,466 50,054 57,712
Net Partnership earnings 50,928 42,264 52,738 60,388
Per Class A Unit
Earnings $ .87 $ .69 $ . 89 $ .97
Distributions .72 .72 .72 .72
</TABLE>
1 Includes a special distribution of $4.00 per Class A Unit.
-18-
<PAGE>
Responsibility for Financial Statements
IP Timberlands, Ltd., through the participation of IP Forest Resources
Company, "IPFR," (the managing general partner) and International Paper Company
(the special general partner), is responsible for the fair presentation of the
information contained in the financial statements in this annual report. The
statements were prepared in accordance with generally accepted accounting
principles and reflect management's best judgment as to the Partnership's
financial position, the results of its operations and cash flows.
A system of internal accounting controls is maintained and designed to
provide reasonable assurance that transactions are properly recorded and
summarized so that reliable financial records and reports can be prepared and
assets can be safeguarded. An important part of the internal controls system is
the involvement of the general partners, who provide all required services to
ensure the adequacy of internal controls. Procedures are also in place to
assess compliance with the terms of the Partnership Agreement and identify
and resolve any business issues arising between the Partnership and
the general partners.
Compliance with the internal controls system is monitored by internal
audit with management follow-up. The independent public accountants provide an
objective, independent review of management's discharge of its responsibility
for the fairness of the Partnership's financial statements. They review the
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 of IPFR monitors management's administration of the
Partnership's financial and accounting policies and practices and the
preparation of financial reports. The Audit Committee, consisting of
nonemployee directors, meets regularly with representatives of management,
the independent public accountants and the Internal Auditor to review their
activities. 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.
Frederick L. Bleier
Treasurer and Controller
Report of Independent Public Accountants
To the Partners of IP Timberlands, Ltd.:
We have audited the accompanying consolidated balance sheets of IP
Timberlands, Ltd. (a Texas limited partnership) and subsidiary as of
December 31, 1993 and 1992 and the related consolidated statements of
earnings and cash flows for each of the three years ended December 31,
1993. These financial statements are the responsibility of the
Partnership'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 IP
Timberlands, Ltd. and subsidiary as of December 31, 1993 and 1992 and
the results of their operations and their cash flows for each of the
three years ended December 31, 1993 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN & CO.
New York, N.Y.
February 4, 1994
-19-
EXHIBIT (24)
POWER OF ATTORNEY
Know all Men By These Presents, that the undersigned hereby
constitutes and appoints JAMES W. GUEDRY, JAMES P. MELICAN and JAMES A.
WILDEROTTER, 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 IP
Timberlands, Ltd. 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 the date set forth opposite their names.
Name Title Date
---- ----- ----
/s/ WILLIAM M. ELLINGHAUS
.............................. Director March 8, 1994
(William M. Ellinghaus*)
/s/ ARTHUR G. HANSEN
.............................. Director March 8, 1994
(Arthur G. Hansen*)
/s/ WILLIAM G. KUHNS
.............................. Director March 8, 1994
(William G. Kuhns*)
/s/ JANE C. PFEIFFER
.............................. Director March 8, 1994
(Jane C. Pfeiffer*)
* Directors of IP Forest Resources Company, managing general partner of
IP Timberlands, Ltd.
03024002.doc
