<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, 1994 COMMISSION FILE NUMBER 1-8859
------------------------------
IP TIMBERLANDS, LTD.
(Exact name of Company as specified in its charter)
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 (Zip Code)
offices)
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 27, 1995, held by non-affiliates of the Registrant was
$161,490,375, calculated on the basis of the closing price on the Composite
Tape on March 27, 1995. 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 27, 1995:
<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:
<TABLE>
<S> <C>
1994 ANNUAL REPORT TO UNITHOLDERS
(PP. INSIDE FRONT COVER, 1 AND 9 THROUGH 18) PARTS I, II, III AND IV
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<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 International 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 9 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
1994 and 1993. 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 1994, 1993 and 1992, International Paper's facilities consumed
approximately 30%, 30% and 27%, respectively, of the logs and wood fiber
harvested from the Registrant's forestlands, which represented approximately
10%, 12% and 10%, 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
<PAGE>
portion of its requirements will be purchased from the Registrant in the future.
In addition to sales to International
2
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 9, 14 and 15 of the Annual Report, which
information is incorporated herein by reference.
ENVIRONMENTAL PROTECTION AND SUSTAINABLE FOREST MANAGEMENT
Management of the Registrant's forestlands to protect the environment and
maintain the health of its forestlands are 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 and
forest management costs and capital expenditures have not been significant and
are not expected to be significant in the future.
In November 1994, International Paper and the Registrant adopted the
Sustainable Forestry Principles developed by the American Forest and Paper
Association in August 1994.
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
Forestlands 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 5.4 million acres owned in fee (excluding
any interest in underlying minerals) and approximately 541,000 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 309,000 acres owned in fee and approximately 2,700 acres covered
by deeds and leases. In the southern and southeastern United States, forestlands
are located in seven states, including approximately 3,615,000 acres owned in
fee and approximately 535,200 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 1,466,000 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 page 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 210,000 acres of property in Louisiana and
Mississippi. The lessors sought to have the two forestland leases terminated and
IPTO enjoined from further operation on the land covered by the leases, as well
as approximately $52 million in alleged damages, plus alleged statutory and
trebling penalties and punitive damages in excess of
3
<PAGE>
$450 million. A jury trial in the Louisiana suit resulted in a verdict in
favor of IPTO and International Paper. A subsequent ruling by the trial judge
awarded lessors $2.1 million in damages. 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 arbitrated.
IPTO and International Paper plan to vigorously contest the remaining
allegations and assert that the lessors are in breach of the original agreement.
The Registrant is involved in 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, 1994.
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 17
of the Annual Report and are incorporated herein by reference.
As of March 27, 1995, there were 3,675 holders of record of the
Registrant's Class A Depositary Units.
Set forth below are the market price ranges for each quarter of 1994 and
1993 for the Class A Depositary Units on the New York Stock Exchange Composite
Index.
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
QUARTER HIGH LOW HIGH LOW
------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
1st.... 31 1/8 25 1/8 25 3/8 20 1/2
2nd.... 28 1/4 21 1/2 26 23 1/2
3rd.... 26 23 3/4 30 1/8 24 3/8
4th.... 25 1/2 22 3/8 27 7/8 25 1/4
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for 1994, 1993 and 1992 is set forth on page 1 of
the Annual Report and is incorporated herein by reference. Selected financial
data for 1991 and 1990 is as follows (in thousands, except per unit data):
<TABLE>
<CAPTION>
1991 1990
---------- --------
<S> <C> <C>
Total Revenues..................... $ 237,448 $195,461
Net Partnership Earnings........... 150,252 106,481
Earnings per Class A Unit.......... 3.09 3.01
Distributions per Class A Unit..... 2.88 2.88
Total Assets....................... $1,040,154 $972,000
</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 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
16 and 18 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:
JOHN A. GEORGES, 64, Chairman and Chief Executive Officer of IPFR since
1985. He has been chairman and chief executive officer of International Paper
Company since 1985. He is a director of AK Steel Holding Corporation,
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 and the
President's Advisory Committee for Trade Policy and Negotiations.
Director since January 8, 1985.
**THOMAS C. GRAHAM, 68, Chairman and Chief Executive Officer of AK Steel
Holding Corporation and AK Steel Corporation. He was elected to the 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 he assumed his current position in 1992. He
was vice chairman--steel and diversified group and executive director of USX
Corporation from 1986 to 1991. He joined the former U.S. Steel Corporation as
vice chairman and chief operating officer-- steel and related resources in 1983.
Prior to that time he served as president and chief executive officer of Jones &
Laughlin Steel Corporation. He is a director of Hershey Foods Corporation and
International Paper Company.
Director since April 12, 1994.
**ARTHUR G. HANSEN, 70, 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, a Commissioner of the Indiana
Commission for Higher Education and a fellow of the American Association for the
Advancement of Science.
Director since February 1, 1990.
**JANE C. PFEIFFER, 62, 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.
**ROGER B. SMITH, 69, former Chairman and Chief Executive Officer of
General Motors Corporation from 1981 to 1990, when he retired. He is a director
of Citicorp, International Paper Company, Johnson & Johnson and PepsiCo, Inc. He
is a member of The Business Council and is a trustee of the Michigan Colleges
Foundation, Inc. and the Sloan Foundation.
Director since April 12, 1994.
------------------
* 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, 1995
INCLUDING NAME, AGE, OFFICES AND POSITIONS HELD*,
AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
EDWARD J. KOBACKER, 56, 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--forestlands division of International Paper.
FREDERICK L. BLEIER, 46, 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 $1,200 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 27, 1995, 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>
A. G. Hansen........................ 200 No director or officer owns
J.C. Pfeiffer....................... 300 as much as 1/10 of 1%
All directors and executive officers
as a group.......................... 500
</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 (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
------------------
* 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>
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 16 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) 1994 Annual Report to Unitholders of the Registrant
(24) Power of Attorney
(27) Financial Data Schedule
REPORTS ON FORM 8-K
A report on Form 8-K was filed January 13, 1995.
FINANCIAL STATEMENT SCHEDULES
The consolidated balance sheets as of December 31, 1994 and 1993, and the
related consolidated statements of earnings and cash flows for each of the three
years in the period ended December 31, 1994, together with the report thereon of
Arthur Andersen LLP, dated February 9, 1995, except with respect to the matter
discussed in Note 8 of the Notes to consolidated financial statements as to
which the date is March 14, 1995, appearing on pages 11 through 16 and 18 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.
7
<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 31, 1995
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 31, 1995
---------------------------------------- Chief Executive
(JOHN A. GEORGES) Officer and Director
THOMAS C. GRAHAM* Director March 31, 1995
----------------------------------------
(THOMAS C. GRAHAM)
ARTHUR G. HANSEN* Director March 31, 1995
----------------------------------------
(ARTHUR G. HANSEN)
JANE C. PFEIFFER* Director March 31, 1995
----------------------------------------
(JANE C. PFEIFFER)
ROGER B. SMITH* Director March 31, 1995
----------------------------------------
(ROGER B. SMITH)
FREDERICK L. BLEIER Treasurer and March 31, 1995
---------------------------------------- Controller and Chief
(FREDERICK L. BLEIER) Financial and
Accounting Officer
*By JAMES W. GUEDRY
-------------------------------------
(JAMES W. GUEDRY, ATTORNEY-IN-FACT)
</TABLE>
8
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Descriptions
----------- --------------------
(13) 1994 Annual Report to Unitholders of the Registrant
(24) Power of Attorney
(27) Financial Data Schedule
<PAGE>
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 remain-
der 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 1994, the units traded in a price range of
$21.50 to $31.13.
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.
During 1994, the Partnership declared per unit dis-
tributions to Class A unitholders of $.72 per quarter
or $2.88 for the year, the same as the regular distri-
bution in 1993. In addition, a special distribution of
$4.00 per Class A Unit was paid in October 1993,
and another special distribution of $4.00 per
Class A Unit was declared on March 14, 1995,
payable on March 31, 1995 to unitholders of record
on March 24, 1995.
-----------------------------------------
Cover:
Mature loblolly pine commonly reaches
heights of 80 feet in 30 years on the
Partnership's Southern forestlands.
-----------------------------------------
Less than five years remain in the Initial
Term of the Partnership. Because of this, and
due to the decrease in their share of earnings
from 95 percent to four percent 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.
However, if the Partnership continues until
that time, Class A unitholders will be entitled
to 95 percent of any cash remaining in the
Primary Account. Some or all of this amount
may be distributed prior to the end of the
Initial Term, depending on future cash flows
and the Partnership's distribution policy. Net
liquid assets attributable to Class A Units in
that account totaled $6.42 per unit at
December 31, 1994. The special distribution
declared in March 1995 of $4.00 per Class
A Unit will be paid from this account.
Tax Consequences of IPT
Under the Partnership tax structure, all income and
expenses flow directly to the unitholder. Unitholders
are liable for taxes on their share of Partnership tax-
able earnings. The quarterly cash distributions paid
by the Partnership represent a tax-free return of
capital until a unitholder's cost basis equals zero. No
tax is paid on cash distributions until that time.
The unitholder's original cost basis is the price paid
for the unit when purchased. This cost basis is
adjusted upward by the unitholder's share of
Partnership taxable earnings and downward by cash
distributions received. When selling the unit, the tax-
able gain or loss is the difference between the sales
price and the adjusted cost basis.
Foreign investors in IPT are subject to U.S. with-
holding tax on their distributions.
Each year, IPT prepares customized tax information
for each unitholder. See Unitholder Tax Information
(page 20) for details.
<PAGE>
FINANCIAL HIGHLIGHTS
Years Ended December 31
-----------------------
In millions, except per unit data 1994 1993 1992
--------------------------------------------------------------------------
Total Revenues $369 $426 $297
Operating Earnings(1) 259 314 195
Net Partnership Earnings 274 323 206
Earnings Allocated to Class A Limited Partners 255 276 159
Per Class A Unit
Earnings 5.49 5.94 3.42
Distributions 2.88 6.88(2) 2.88
Operating Cash Flow Attributable to Class A Units 280 234 149
Total Class A Unit Distributions Declared $134 $320(2) $134
Weighted Average Class A Units Outstanding 46 46 46
--------------------------------------------------------------------------
December 31
------------------------
1994 1993 1992
--------------------------------------------------------------------------
Working Capital $ 439 $ 308 $ 289
Forestlands and Roads 775 772 755
Total Assets $1,227 $1,094 $1,116
--------------------------------------------------------------------------
(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
2 To Our Unitholders
3 Commonly Asked Questions About IPT
6 Partnership Performance
8 Sustainable Forestry Principles
9 Management's Discussion and Analysis
11 Financial Statements
19 Directors and Managers
20 Unitholder Tax Information
20 Partnership Information
1
<PAGE>
TO OUR UNITHOLDERS
In 1994, IP Timberlands, Ltd., (IPT) reported
Partnership earnings totaling $274 million on rev-
enues of $369 million compared with 1993 record
earnings of $323 million on revenues of $426 mil-
lion. Earnings per Class A Depositary Unit declined
to $5.49 from the $5.94 earned in 1993.
Cash flow attributable to Class A Units increased
in 1994 to $280 million or $6.02 per unit from
$234 million or $5.04 per unit in 1993. Collection in
early 1994 of a note receivable from a 1993 forest-
land sale and receipt of amounts due from
International Paper led to higher cash flow despite
the decrease in earnings.
Both demand and pricing for Partnership stumpage
remained strong in 1994 in each of our three major
operating areas. As expected, harvest volumes
declined 10 percent due to a decline in the percent-
age of mature tracts on Partnership lands. In our
Southern region, pine sawlog prices reached record
levels in the first quarter, but moderated somewhat
during the late spring and summer as customers
focused on controlling inventory levels. By year end,
unseasonably wet weather conditions and continued
strong lumber and panel markets again pushed log
prices higher. Pulpwood prices also strengthened
during the year as improved pulp and paper markets
led to increased demand for fiber. In the Northeast,
spruce-fir sawlog prices rose steadily on the strength
of good demand from Canadian sawmills and strong
domestic lumber markets. In the Western region,
average sales prices increased slightly despite high
domestic customer log inventories and uncertain
export markets. As planned, harvest volumes in the
West were nearly 25 percent below the 1993 harvest
level.
Due to the age classes of the Partnership's south-
ern pine forests, we anticipate that the 1995 harvest
will decline by an additional 10 percent to a level
where it will remain for the next several years. While
sawlog and pulpwood prices entering 1995 are above
comparable prices in early 1994, the lower harvest
and a planned decrease in forestland sales are
expected to lead to slightly lower Partnership rev-
enues and earnings in 1995.
On March 14, 1995, the IPFR Board of Directors
approved a special distribution of $4.00 per Class A
Unit payable on March 31, 1995 to unitholders of
record on March 24, 1995. This special distribution
reflects the Partnership's recent strong cash flow
and our latest projection of future cash require-
ments for operations and asset acquisitions. The
regular quarterly distribution, which is currently
$.72 per Class A Unit, is authorized by IPFR each
quarter, and is not affected by this special payment.
Because we continue to receive questions concern-
ing the ownership structure and operations of the
Partnership as we approach the end of the Initial
Term, we have printed our responses to several fre-
quently asked questions on pages 3-5. We hope
that these comments will increase our unitholders'
understanding of the Partnership and the changes
that will occur at the end of the Initial Term.
During 1994, we welcomed two new members to
the IPFR Board of Directors, Tom Graham, Chief
Executive Officer of AK Steel Corporation, and Roger
Smith, former Chief Executive Officer of General
Motors Corporation. We look forward to benefiting
from their guidance and advice in the years to come.
John A. Georges
Chairman and Chief Executive Officer
Edward J. Kobacker
President
March 14, 1995
2
<PAGE>
COMMONLY ASKED QUESTIONS ABOUT IPT
Below are answers to some of the most commonly
asked questions about IPT.
Partnership Units
How are Partnership earnings and cash flows allocated
between Class A and Class B Units?
---------------
Class A unitholders are generally entitled to 95 percent,
and Class B unitholders to four percent, of net earn-
ings and cash flows associated with the harvest and
sale of trees during the Initial Term (the first 15 years
of the Partnership, ending at December 31, 1999).
Subsequently, Class A unitholders' participation
drops to four percent of total Partnership net earnings
and cash flows including reforestation and land
management costs, with Class B unitholders sharing
in 95 percent of such net earnings and cash flows.
The general partners of IPT receive one percent of
Partnership net earnings and cash flows throughout
the life of the Partnership.
Why do the sharing percentages change after 1999?
---------------
While the Class A unitholders are principally
benefiting from the sale of trees cut during the first
15 years of the Partnership (1985-1999), Class B
unitholders fund the land management and refor-
estation costs. Since the trees grown under the
reforestation program will mature after the end of
the Initial Term, the benefits from sales of such
trees will accrue to the Class B unitholders
How does the Partnership keep track of earnings and
distributions for Class A and Class B unitholders?
---------------
To properly account for the sharing of revenues and
costs between the Class A and Class B Units, the
Partnership maintains two accounts - the Primary
Account, which is credited with revenues and charged
with costs associated with the harvest and sale of
trees during the Initial Term, and the Secondary
Account, which is credited with revenues and charged
with costs associated with the harvest and sale of trees
after the Initial Term. Revenues and costs arising
from forestland and bulk sales, which may include
trees scheduled for harvesting during or after the
Initial Term, are allocated between the Primary and
Secondary Accounts based on the relative asset values
of the forestlands and trees and when the trees
would be harvested
Class A unitholders are credited with 95 percent of
Primary Account earnings and cash flow and four
percent of Secondary Account earnings and cash
flow through 1999.
Separate balance sheets and income statements
are maintained for both the Primary and Secondary
Accounts. This ensures that Primary Account cash is
used only for expenditures that are expected to benefit
the Partnership during the Initial Term.
What happens at the end of the Initial Term?
---------------
At December 31, 1999, the end of the Initial Term,
the Primary Account will be closed and all remaining
Primary Account cash will be distributed. Class A
unitholders will receive 95 percent of this cash dis-
tribution, the same as their interest in the Partnership
during the Initial Term. After this date, Class A
unitholders' participation falls to four percent of all
activities of the Partnership, including reforestation
and land management costs.
3
<PAGE>
Will there be any trees purchased with Primary
Account cash that haven't been harvested by the end
of the Initial Term?
---------------
Only trees scheduled to be harvested during the
Initial Term are purchased with Primary Account
cash. Thus, the amount of any such unharvested
trees (or other nonliquid assets) remaining in the
Primary Account at the end of the Initial Term
should be minimal.
Why is the value of Class A Units expected to decline
as the end of the Initial Term approaches?
---------------
The value of a unitholder's investment in Class A
Units is based on the expected level of future cash
distributions. Class A unitholders' participation in
any distributions after the end of the Initial Term
declines to four percent from 95 percent, or a small
fraction of current distribution levels. Thus, it is
expected that the market price of Class A Units will
decline substantially by December 31, 1999.
Is the "yield" included in stock listings relevant to the
Class A Units?
---------------
"Yield" is the dividend paid by a company on its
Security, expressed as a percent of the current price.
For IPT, this would be the annual cash distribution
per Class A Unit expressed as a percentage of the
market price of each unit. IPT's quarterly distributions
are not dividends, but primarily a return of capital.
Additionally, since the Class A unitholder's distribu-
tion decreases significantly after December 31, 1999,
this measure may be misleading as an indicator of
expected future investment return.
Can the Class A Units be "called" before the end of
the Initial Term?
---------------
International Paper can, at its option, call the out-
standing Class A Units at any time before the end of
the Initial Term at a purchase price equal to 133 per-
cent of the then-current market value of Class A Units.
Cash Distributions
How does IPFR determine the amount of quarterly
cash distributions?
---------------
IPT's policy is to make quarterly cash distributions
to Class A unitholders based on the amount of cash
available from operations after provisions for work-
ing capital, possible asset acquisitions and such
reserves as IPFR, the managing general partner,
deems appropriate.
Why has IPT declared two special distributions of
$4.00 per Class A Unit instead of raising the rate?
---------------
When determining the amount of a cash distribu-
tion, management reserves cash for potential forest-
land and merchantable timber acquisitions. Special
distributions were declared in March 1995 and
September 1993 because near-term acquisition
prospects under consideration became unlikely due
to rising prices. Accordingly, most of the cash reserves
were paid out to Class A unitholders at those times.
Certain reserves continue to be maintained to meet
ongoing and potential business requirements.
What happens to any excess of cash flow generated
over distributions paid for a given quarter?
---------------
Any cash from operations retained for working capital,
asset acquisitions and reserves is loaned to
International Paper until the funds are needed by
the Partnership. These loans, which are due on
demand, earn interest at market rates.
4
<PAGE>
When will undistributed cash be paid to the
unitholders?
---------------
Any undistributed cash that remains in the Primary
Account at the end of the Initial Term (December 31,
1999) will be distributed to unitholders in accordance
with their respective Primary Account percentage
interests. Class A unitholders will receive approxi-
mately 95 percent of these distributions. Any undis-
tributed Secondary Account cash remains in the
Partnership until the Partnership is terminated.
Income Tax Consequences
How are Partnership earnings taxed?
---------------
Under the Partnership tax structure, all income and
expenses flow directly to the unitholders who are
responsible for taxes on their share of Partnership
taxable earnings. Customized tax information con-
cerning current-year earnings and distributions is
provided to unitholders in late February.
Are Class A Unit distributions taxable?
---------------
Class A unitholders pay taxes on their annual share
of IPT's taxable earnings, as noted above. Quarterly
cash distributions represent a tax-free return of
capital until a unitholder's cost basis equals zero.
No tax is payable on cash distributions until that
time. Foreign investors in IPT are subject to U.S.
withholding tax on their distributions.
How is a unitholder's cost basis calculated?
---------------
A unitholder's cost basis is the original cost of the
units adjusted upward by the unitholder's annual
share of IPT's taxable earnings attributable to the
units and adjusted downward by the unitholder's
share of cash distributions attributable to the units.
IPT annually provides the information needed to
make these calculations.
How is the sale of Class A Units taxed?
---------------
Sales proceeds are compared to a unitholder's cost
basis in the units. If the result is a gain, the
unitholder will be taxed at the existing capital gains
rate. If the result is a loss, the unitholder will be
allowed to offset the loss against other capital gains.
Harvest Activity
What is the Partnership's harvest to date and what is
the projected harvest through 1999?
---------------
At the Partnership's inception, it was estimated that
approximately 44 to 54 million cunits would be har-
vested during the Initial Term. Approximately 34
million cunits have been harvested through 1994.
During 1994, harvest volumes were expected to
decline. The actual decrease in volume was 10 percent.
In 1995, harvest levels are expected to be down an
additional 10 percent, due to the age classes of the
Partnership's southern pine plantations. These har-
vest levels will continue for the next several years.
Current harvest plans indicate that the total harvest
during the Initial Term will be within the original
range.
5
<PAGE>
PARTNERSHIP PERFORMANCE
IP Timberlands, Ltd., now completing its tenth year
of operations, manages 5.9 million acres of U.S.
forestlands in 14 states. The majority of the annual
harvest, which in 1994 totaled 3.2 million cunits
(one cunit equals 100 cubic feet), is pulpwood used
in the manufacture of paper. The remainder is saw-
logs used for lumber, plywood and pole production.
The Partnership manages a complex array of activi-
ties that, taken together, result in economically
attractive and environmentally responsible forest
management. These activities include the growth
and planting of genetically improved seedlings, the
use of site-specific prescriptions to enhance growth,
and the promotion of environmentally sound harvest-
ing techniques. Our experience demonstrates that
environmentally sound management also yields the
best long-term economics.
The process begins with the growth of seedlings.
In 1994, we planted over 40 million seedlings on
Partnership lands and distributed about 140 million
seedlings to other industrial and private, nonindus-
trial landowners for reforestation. Intensive research
and development efforts over the years have yielded
faster growing, disease-resistant families of super-
trees. Genetic research now under way promises
continued advancements for the future. Our research
on soil types, site preparation, erosion control and
planting techniques has increased survival rates and
benefited early seedling growth. Selective control of
weeds and fertilization has improved growth and
yields as the young trees develop. And finally, research
into nonconventional harvesting techniques has
allowed us to operate in previously inaccessible areas
while minimizing soil compaction and disturbance of
the environment.
The combination of focused research and sound
forestry techniques allows the Partnership to earn a
good economic return for its unitholders while fulfill-
ing its environmental stewardship responsibilities.
The comments that follow highlight some of the ini-
tiatives under way in each of the Partnership's three
regions that exemplify our commitment to protecting
the environment while sustaining economic growth.
Southern Region
In the South, IPT controls 4.1 million acres of forest-
land in seven states: Alabama, Arkansas, Louisiana,
Mississippi, North Carolina, South Carolina and
Texas. The Southern land base includes 2.4 million
acres of planted forests, 700,000 acres of natural
mixed pine-hardwood forests and 900,000 acres of
natural hardwood forests. In 1994, the Partnership
harvested approximately 2.4 million cunits in the
South while modifying harvest activity on approxi-
mately 12 percent of the region's forestlands to
protect environmentally sensitive areas or wildlife
species. These holdings make the South the major
contributor to the Partnership's financial results as
well as the focus of its environmental initiatives.
The quality of environmental stewardship on our
land in the South was recognized by several inde-
pendent organizations during 1994:
- The National Wild Turkey Federation awarded
its first Land Stewardship Award to International
Paper in recognition of a "decades-long com-
mitment to balance the economic priorities of an
industrial forest with the environmental needs of
the wildlife that inhabit it."
- The National Environmental Development Asso-
ciation listed International Paper on its 1994
Honor Roll for efforts to protect the endangered
Red Hills salamander of southern Alabama
through a Habitat Conservation Plan, the first
of its kind in the South developed by a forest
products enterprise.
- Field & Stream magazine named Lake Erling, a
7,000-acre lake located in a 40,000-acre forest
managed for wood production and wildlife on IPT
land, as the "best bass lake in Arkansas."
New environmental initiatives undertaken in 1994
included the Bayou Dorcheat Ecosystem Manage-
ment Project with the Arkansas Natural Heritage
Commission. This project, involving over 10,000
acres of IPT land in southwest Arkansas, is intended
to serve as an example of how for-profit forest man-
agement and ecological protection can be compatible
in a bottomland forest ecosystem.
6
<PAGE>
Western Region
IPT ownership in the West consists of approximately
300,000 acres in the coastal ranges of western
Oregon and Washington, including 169,000 acres of
planted Douglas fir, 81,000 acres of second-growth
natural Douglas fir and 36,000 acres of other conifers
and hardwood. Much of this land, especially in
Oregon, is intermingled with federal lands managed
by the Bureau of Land Management (BLM) and the
U.S. Forest Service, creating opportunities for coop-
erative ecosystem management. Partnership opera-
tions in the West focus on growing trees for sawlogs.
Pulpwood is not sold in the West, where paper mills
use chips produced in the production of lumber.
Approximately 313,000 cunits were harvested from
Partnership lands in this region during 1994.
During the year, IPT land managers began a joint
effort with the BLM to improve the migratory routes
of the coho salmon (currently being considered for
listing under the Endangered Species Act) and other
species on Partnership land in the Siuslaw River
basin of western Oregon. The project included the
replacement of sectional concrete culverts with metal
arch culverts, which more closely resemble the nat-
ural stream bed. This facilitates the migration of
adult salmon and trout to, and the less robust juve-
nile fish from, traditional spawning areas. The project
resulted in "opening three miles of good quality
spawning habitat that has been unreachable by fish
for many years," according to a BLM official. Charles
Gauvin, president and chief executive officer of Trout
Unlimited, further recognized the importance of the
project, stating, "The health of every stream in a
watershed - from a large river to its smallest tributaries
- is important to restoring healthy fish population.
We commend the IP/BLM culvert project for offering
a practical solution to one of the most widespread
problems facing ongoing restoration efforts."
Northeast Region
Partnership forestlands in the Northeast consist of
1.5 million acres in Maine, New Hampshire, Vermont,
New York and Pennsylvania. These holdings are
diverse, including 400,000 acres of spruce-fir forests,
300,000 acres of mixed conifer-hardwood forests and
700,000 acres of hardwood forests containing some
of the finest stands of black cherry in the world. The
Partnership harvested nearly 506,000 cunits in the
Northeast in 1994. More than half of the pulpwood
grown on Partnership lands is sold to International
Paper facilities. All of the Partnership's sawlogs are
sold to other customers.
Forests in the Northeast are principally managed
using natural regeneration methods following har-
vests by selective cutting or small harvest cuts. After
heavy cutting in the 1980s to salvage trees affected
by the spruce-budworm epidemic, harvest levels in
this region during the 1990s have been reduced by
approximately seven percent to a long-term sustain-
able level.
During 1994, IPT's foresters participated in the
organization of a statewide Biodiversity Project and
the formation of a Sportsman's Forest Landowner
Alliance in the state of Maine, and also served on the
Northern Forest Lands Council and Northern Forest
Dialogue Project. All four represent collaborative
efforts to find common-ground solutions to complex
forestland issues in the Northeast. Additionally,
International Paper entered into cooperative agree-
ments with Trout Unlimited to study brook trout
habitat on Partnership lands in northern Maine and
to undertake stream habitat improvements on prop-
erty in Pennsylvania.
These initiatives illustrate the Partnership's com-
mitment to protect the environment while earning a
good economic return through responsible harvesting
of our forest resources. We will continue cooperative
initiatives with groups who share our commitment
for a healthy forest ecosystem for generations to come.
7
<PAGE>
SUSTAINABLE FORESTRY PRINCIPLES
The adoption of the American Forest and Paper
Association's (AFPA) Sustainable Forestry Principles
and Implementation Guidelines during 1994 demon-
strates our commitment to continuously improve the
practice of forest management.
The objective of these Principles, shown on the
right, is to raise the level of environmental perfor-
mance across the forest products industry. The
Principles include a commitment to reforest all har-
vested lands by planting or direct reseeding within
two years of harvest, or by planned natural regener-
ation within five years; limiting the average size of
clearcut harvests to a maximum of 120 acres; and
allowing all newly reforested lands to grow for at
least three years, or to a height of five feet, before
harvesting is begun on adjacent lands. The
Partnership further renewed its commitment to
protect the water quality and wildlife habitat on the
lands it owns and manages.
Furthermore, in the states where the Partnership
operates, we will work with logging and forestry
associations to develop training and education
programs for smaller, nonindustrial landowners and
loggers who are not members of the AFPA. The training
will focus on forest regeneration, water quality, and
protection of threatened and endangered species,
and will enable them to benefit from our expertise in
current best forestry practices.
By adopting these Principles, we are committing to
annual public reporting of our forestry performance,
including the progress of our educational efforts.
The Principles are consistent with the internal
standards and respective state best management
practices followed by the Partnership for many years.
The adoption of these Principles serves as another
example of our commitment to ensure that healthy,
productive forests are sustained as a legacy for future
generations. We remain convinced that adherence to
environmentally sound, scientifically based forestry
principles will provide the maximum benefits for
both economic and public interests in years to come.
The American Forest and Paper
Association's Sustainable Forestry Principles
I. To practice sustainable forestry to meet
the needs of the present without compro-
mising the ability of future generations to
meet their own needs by practicing a
land stewardship ethic that integrates
the reforestation, managing, growing,
nurturing and harvesting of trees for
useful products with the conservation of
soil, air and water quality, wildlife and
fish habitats, and aesthetics.
II. To use in its own forests, and promote
among other forest landowners, sustain-
able forestry practices that are economi-
cally and environmentally responsible.
III. To protect forests from wildfire, pests,
diseases and other damaging agents in
order to maintain and improve long-term
forest health and productivity.
IV. To manage its forests and lands of special
significance (e.g. biologically, geologically
or historically significant) in a manner
that takes into account their unique
qualities.
V. To continuously improve the practice of
forest management and also to monitor,
measure and report the performance of
our members in achieving our commit-
ment to sustainable forestry.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Revenues from stumpage sales in 1994 were $286 million,
slightly below 1993 record revenues of $305 million.
Revenues in 1992 were $237 million. Net Partnership
earnings were $274 million compared with $323 million in
1993 and $206 million in 1992. The declines in revenues
and earnings in 1994 were due to lower forestland sales
and a planned decrease in harvest volumes.
Revenues from stumpage sales in the South were
approximately the same as in 1993 as higher average
prices offset an 8% decline in harvest volumes. While high
customer inventories kept prices soft through midyear,
unusually wet weather in the fourth quarter constrained
harvest activity and pushed prices sharply higher. In the
West, revenues were 18% lower than in 1993. Customers
in the domestic market remained cautious of changes in
interest rates and construction activity and kept inventories
low. Export sales were weak as customers resisted higher
prices. Strong demand from Canadian lumber mills and
domestic producers in the Northeast pushed prices for
spruce-fir sawtimber steadily higher during 1994, reaching
record levels by year end, leading to a 19% increase in
revenues for the year in this region.
Forestland sales are made when current market values
for selected tracts exceed the values expected from future
operations, and thus vary from period to period. Forestland
sales totaled $71 million in 1994, a 35% decline from
sales of $108 million in 1993 and well above sales of $49
million in 1992.
Due to the age classes of the Partnership's southern
pine plantations, management anticipates an additional
10% decline in the harvest in 1995, to a level where it will
continue for the next several years. As a result, revenues
and Partnership earnings are expected to decline slightly
in 1995 despite early-1995 prices in the South and
Northeast that are well above 1994 average prices. Future
harvests may be supplemented by forestland acquisitions
or cutting contracts, as market conditions dictate.
The following table presents major earnings statement
revenue categories attributable to the Primary and
Secondary Accounts:
In thousands 1994 1993 1992
--------------------------------------------------------------------------------
Stumpage sales
Primary Account $285,792 $303,147 $194,678
Secondary Account 2,159 42,250
--------------------------------------------------------------------------------
$285,792 $305,306 $236,928
================================================================================
Forestland sales
Primary Account $ 27,621 $ 33,505 $ 4,678
Secondary Account 42,980 74,449 43,837
--------------------------------------------------------------------------------
$ 70,601 $107,954 $ 48,515
================================================================================
Volumes related to stumpage sales were:
In thousand cunits 1994 1993 1992
--------------------------------------------------------------------------------
Used in International Paper facilities 985 1,045 896
Resold by International Paper 609 725 698
Sales to unaffiliated parties 1,582 1,762 1,691
--------------------------------------------------------------------------------
3,176 3,532 3,285
================================================================================
The decline in harvest volumes in 1994 was due to a
lower inventory of mature trees.
Operating Costs and Expenses
Operating costs and expenses attributable to the Primary
and Secondary Accounts were as follows:
In thousands 1994 1993 1992
--------------------------------------------------------------------------------
Primary Account $ 64,108 $ 64,504 $ 54,016
Secondary Account 46,666 47,578 47,781
--------------------------------------------------------------------------------
$110,774 $112,082 $101,797
================================================================================
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.
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 have decreased since 1992 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.
9
<PAGE>
Liquidity and Capital Resources
At December 31, 1994, IP Timberlands, Ltd. had cash and
temporary investments of $8 million and notes receivable
from International Paper of $430 million, totaling $438
million in liquid assets. Cash is either invested in tempo-
rary investments or loaned to International Paper at mar-
ket rates.
In thousands, except per unit data 1994 1993
--------------------------------------------------------------------------------
Cash, temporary investments and
notes receivable
Primary Account $313,742 $158,556
Secondary Account 124,326 124,372
--------------------------------------------------------------------------------
$438,068 $282,928
--------------------------------------------------------------------------------
Total per Class A unit $ 6.52 $ 3.35
================================================================================
The Primary Account liquid assets in 1993 reflect the pay-
ment of a $4.00 per Class A Unit special distribution.
Cash flow from operations and existing cash balances are
expected to be adequate to meet anticipated cash require-
ments of the Primary Account. Costs charged to the
Secondary Account, which include reforestation costs,
road construction and a significant portion of forest man-
agement 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, borrow-
ings from International Paper or unaffiliated parties, or
other financing alternatives.
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. However, future investments
in forestlands and roads, which include expenditures for
reforestation, road construction and capitalized leases,
may exceed current-year expenditures as the Partnership
takes advantage of favorable market opportunities.
It is IPT's policy to make quarterly cash distributions
from the Primary Account based on the amount of cash
available from operations after provisions for working cap-
ital, 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 har-
vest 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 1994, 1993 and 1992, IPT paid regular quarterly dis-
tributions to Class A unitholders of $.72 per quarter. In
October 1993, IPT paid a special cash distribution of
$4.00 per Class A Unit. On March 14, 1995, IPT declared
a $4.00 per Class A Unit special distribution payable on
March 31, 1995 to unitholders of record on March 24,
1995. This special distribution reflects recent strong cash
flow and management's latest projection of future cash
requirements for operations and asset acquisitions. The
regular quarterly distribution in 1995 will not be affected
by this special payment. 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.
Primary Secondary IPT
In thousands Account Account Total
--------------------------------------------------------------------------------
Year Ended December 31, 1994
--------------------------------------------------------------------------------
Cash provided by operations $318,165 $ 17,197 $335,362
Investment in forestlands and roads (20,752) (17,243) (37,995)
IPTO general partners' interest in above (2,974) (2,974)
--------------------------------------------------------------------------------
Cash flow after capital expenditures 294,439 (46) 294,393
Class A Unit allocation factor 95% 4%
Cash flow attributable to Class A Units $279,717 $ (2) $279,715
================================================================================
Distributions declared for Class A Units $133,764 $133,764
================================================================================
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
================================================================================
At the end of the Initial Term, the Primary Account will be
closed, and all cash remaining after payment of borrow-
ings and liabilities will be distributed. Class A unitholders
will receive 95% of this cash distribution. As of December
31, 1994, 95% of the Primary Account liquid assets was
$298 million or $6.42 per Class A Unit. That amount will
be subsequently reduced by $4.00 as a result of the
March 1995 special distribution.
10
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
Years Ended December 31
-----------------------------------
In thousands, except per unit data 1994 1993 1992
-------------------------------------------------------------------------
Revenues
Stumpage sales
International Paper $ 172,083 $ 185,372 $ 119,613
Unaffiliated parties 113,709 119,934 117,315
Forestland sales 70,601 107,954 48,515
Other income, net 12,950 12,774 11,580
-------------------------------------------------------------------------
Total revenues 369,343 426,034 297,023
-------------------------------------------------------------------------
Operating Costs and Expenses
Depletion
International Paper 10,553 10,126 8,225
Unaffiliated parties 11,522 11,835 10,553
Cost of forestlands sold 10,093 12,780 6,285
Amortization of roads 2,119 2,180 2,179
Forest operations 40,689 38,190 37,465
General and administrative 19,497 20,359 21,865
Property and severance taxes 16,301 16,612 15,225
-------------------------------------------------------------------------
Total operating costs and expenses 110,774 112,082 101,797
-------------------------------------------------------------------------
Operating Earnings 258,569 313,952 195,226
Interest Income 17,946 12,159 13,176
General Partners' Interest in IPTO (2,765) (3,261) (2,084)
-------------------------------------------------------------------------
Net Partnership Earnings $ 273,750 $ 322,850 $ 206,318
=========================================================================
Earnings per Class A Unit (Note 4) $ 5.49 $ 5.94 $ 3.42
=========================================================================
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
CONSOLIDATED BALANCE SHEET
December 31
-------------------------
In thousands 1994 1993
--------------------------------------------------------------------------------
Assets
Current Assets
Cash and temporary investments, at cost,
which approximates market $ 7,922 $ 6,782
Notes receivable-International Paper 430,146 276,146
Due from International Paper 3,328
Accounts and notes receivable 8,716 37,279
--------------------------------------------------------------------------------
Total current assets 450,112 320,207
--------------------------------------------------------------------------------
Notes Receivable 1,174 1,872
Forestlands 739,136 736,685
Roads, net of accumulated amortization of
$47,504 (1994) and $46,747 (1993) 36,097 35,269
--------------------------------------------------------------------------------
Total Assets $1,226,519 $1,094,033
================================================================================
Liabilities and Partners' Capital
Current Liabilities
Accounts payable and accrued liabilities $ 354 $ 431
Due to International Paper 3,825
Accrued property and severance taxes 5,868 5,577
Customer advance payments 4,658 2,725
--------------------------------------------------------------------------------
Total current liabilities 10,880 12,558
--------------------------------------------------------------------------------
Lease Obligations 1,443 1,567
General Partners' Interest in IPTO 34,607 33,264
Commitments and Contingent Liabilities
Partners' Capital
General partners 33,651 32,321
Limited partners 1,145,938 1,014,323
--------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $1,226,519 $1,094,033
================================================================================
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31
------------------------------------
In thousands 1994 1993 1992
--------------------------------------------------------------------------------
Operating Activities
Net Partnership earnings $ 273,750 $ 322,850 $ 206,318
Noncash items
Depletion 22,075 21,961 18,778
Cost of forestlands sold 10,093 12,780 6,285
Amortization of roads 2,119 2,180 2,179
Other, net 3,193 2,786 2,576
Changes in current assets and liabilities
Accounts and notes receivable 29,261 18,875 (50,026)
Due from International Paper (7,153) (7,567) 9,806
Customer advance payments 1,933 (1,601) 538
Other, net 91 1,174 (995)
--------------------------------------------------------------------------------
Cash provided by operations 335,362 373,438 195,459
--------------------------------------------------------------------------------
Investment Activities
Investment in forestlands and roads (37,995) (53,741) (38,548)
Loans to International Paper (345,744) (328,226) (193,479)
Repayment of loans by International Paper 191,744 348,444 176,967
--------------------------------------------------------------------------------
Cash used for investment activities (191,995) (33,523) (55,060)
--------------------------------------------------------------------------------
Financing Activities
Distributions to partners of IPT and IPTO (142,227) (339,763) (142,227)
--------------------------------------------------------------------------------
Change in Cash and Temporary Investments 1,140 152 (1,828)
Cash and Temporary Investments
Beginning of the year 6,782 6,630 8,458
--------------------------------------------------------------------------------
End of the year $ 7,922 $ 6,782 $ 6,630
================================================================================
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 partner-
ship, 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 manage-
ment 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 stat-
ed at cost. Temporary investments at both December
31, 1994 and 1993 were $6.5 million.
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 har-
vesting 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 esti-
mated 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.
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 $10.6 million
(1994), $10.1 million (1993) and $8.2 million (1992).
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 man-
agement and operations of the Partnerships and
indirect costs, principally general and administrative
14
<PAGE>
expenses, allocated to the Partnerships. Charges for
indirect expenses were $9.3 million (1994), $10.2
million (1993) and $9.8 million (1992). 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 $16.6 million (1994), $10.7 million (1993)
and $11.9 million (1992).
In addition to transactions with International Paper,
total revenues in 1992 included $91 million in forest-
land and bulk sales to a West Coast forest products
company. Included in Notes Receivable at December
31, 1992 was $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 1994 or 1993.
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 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 forest-
land sales or bulk sales, the proceeds and costs
associated with such sales are allocated by the man-
aging 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, gener-
ally are created 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 rev-
enues 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.
The following table presents the computation of
earnings per Class A Unit.
Years Ended December 31
-----------------------------------
In thousands, except per unit data 1994 1993 1992
--------------------------------------------------------------------------
Allocation to Primary Account $268,273 $288,856 $165,288
Allocation to Secondary Account 5,477 33,994 41,030
--------------------------------------------------------------------------
Net Partnership Earnings $273,750 $322,850 $206,318
--------------------------------------------------------------------------
95% of the Primary Account(1) $254,860 $274,413 $157,023
4% of the Secondary Account(1) 219 1,360 1,641
--------------------------------------------------------------------------
Earnings Allocated to Class A
Limited Partners 255,079 275,773 158,664
Weighted Average Class A Units
Outstanding 46,446 46,446 46,446
--------------------------------------------------------------------------
Earnings per Class A Unit $ 5.49 $ 5.94 $ 3.42
==========================================================================
(1) Class B units are allocated 4% of Primary Account and 95% of Secondary
Account earnings. The general partners are allocated 1% of each account.
15
<PAGE>
5. Receivables
The major components of Accounts and Notes
Receivable are presented below. No allowance for
doubtful accounts was required in either year.
In thousands at December 31 1994 1993
------------------------------------------------------------------
Notes receivable - trade $ 7,487 $ 35,329
Accounts receivable - trade 609 1,268
Accrued interest and other receivables 620 682
------------------------------------------------------------------
$ 8,716 $ 37,279
==================================================================
6. Partners' Capital
The following table presents the activity in the
Partners' Capital accounts.
General Limited
In thousands Partners Partners Total
-----------------------------------------------------------------------------
Balance - January 1, l992 $ 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
Net earnings for the period 2,738 271,012 273,750
Partner distributions (1,408) (139,397) (140,805)
-----------------------------------------------------------------------------
Balance - December 31, 1994 $ 33,651 $1,145,938 $1,179,589
=============================================================================
Distributions in 1993 include a special distribution
of $4.00 per Class A Unit paid October l, 1993.
The authorized and outstanding Class A and Class B
Units at December 31, 1994, 1993 and 1992, which
represent the limited partnership interests of IPT,
are presented below. The Class B Units are 100%
owned by International Paper and affiliates.
Class A Depositary Units
------------------------------------------
International Unaffiliated Class B
Paper and Third Depositary
Affiliates Parties Total Units
-------------------------------------------------------------------------------
Number of units 39,146,229 7,299,500 46,445,729 50,976,480
===============================================================================
Percentage of total 84% 16% 100% 100%
===============================================================================
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 law-
suits involving long-term leases on 210,000 acres of
property in Louisiana and Mississippi. The lessors
sought to have the two forestland leases terminated
and IPTO enjoined from further operation on the
land covered by the leases as well as approximately
$52 million in alleged damages, plus alleged statuto-
ry 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. A subsequent ruling by the trial
judge awarded the lessors $2.1 million in damages.
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 arbitrated. 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.
8. Subsequent Event
On March 14, 1995, the IPFR Board of Directors
announced a $4.00 per Class A Unit special distri-
bution payable on March 31, 1995 to unitholders of
record on March 24, 1995.
16
<PAGE>
INTERIM FINANCIAL RESULTS (unaudited)
Quarter
----------------------------------------
In thousands, except per unit data First Second Third Fourth
-------------------------------------------------------------------------------
1994
-------------------------------------------------------------------------------
Total revenues $109,579 $88,990 $ 98,443 $ 72,331
Operating earnings 79,905 63,051 68,024 47,589
Net Partnership earnings 81,898 66,100 72,363 53,389
Per Class A Unit
Earnings $ 1.49 $ 1.09 $ 1.47 $ 1.44
Distributions .72 .72 .72 .72
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
===============================================================================
(1) Includes a special distribution of $4.00 per Class A Unit.
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of IP Timberlands, Ltd.:
We have audited the accompanying consolidated bal-
ance sheets of IP Timberlands, Ltd. (a Texas limited
partnership) and subsidiary as of December 31, 1994
and 1993, and the related consolidated statements
of earnings and cash flows for each of the three years
ended December 31, 1994. These financial statements
are the responsibility of the Partnership's manage-
ment. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with gener-
ally 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 esti-
mates 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 sub-
sidiary as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for
each of the three years ended December 31, 1994
in conformity with generally accepted accounting
principles.
New York, N.Y.
February 9, 1995 (except with respect
to the matter discussed in Note 8, as to
which the date is March 14, 1995)
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 state-
ments were prepared in accordance with generally
accepted accounting principles and reflect manage-
ment'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 main-
tained and designed to provide reasonable assurance
that transactions are properly recorded and summa-
rized 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 com-
pliance 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 dis-
charge 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 manage-
ment's administration of the Partnership's financial
and accounting policies and practices and the prepa-
ration 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, with and without
management representatives in attendance.
Frederick L. Bleier
Treasurer and Controller
18
<PAGE>
DIRECTORS
John A. Georges
Chairman and Chief Executive Officer
International Paper
Thomas C. Graham*
Chairman and Chief Executive Officer
AK Steel Corporation
Arthur G. Hansen*
Educational Consultant
Jane C. Pfeiffer*
Management Consultant
Roger B. Smith*
Former Chairman and Chief Executive Officer
General Motors Corporation
*Member of the Audit Committee
Directors of IP Forest Resources Company,
Managing General Partner of IP Timberlands, Ltd.
MANAGERS
John A. Georges
Chairman and Chief Executive officer
Edward J. Kobacker
President
John A. Cureton
Vice President
James W. Guedry
Vice President and Secretary
Robert W. Hintze
Vice President
Robert A. Kriscunas
Vice President and General Counsel
John A. Nugent
Vice President
David R. Titzer
Vice President
Richard R. Yarbrough
Vice President
Frederick L. Bleier
Treasurer and Controller
Carl Q. Carter
Chief Tax Officer
Dennis G. Schroeder
Auditor
Managers of IP Forest Resources Company,
Managing General Partner of IP Timberlands, Ltd.
19
<PAGE>
UNITHOLDER TAX INFORMATION
Each year IPT prepares a customized tax package for
each unitholder showing the unitholder's share of
the Partnership's capital gain, ordinary income (or
loss) and other information required for the unit-
holder's federal income tax return. The package also
includes information regarding state tax reporting
requirements for those states in which the
Partnership has operations. Unitholders should dis-
cuss the requirement for state tax reporting with
their tax advisers.
IPT makes available upon request a generalized tax
package providing detailed instructions for determin-
ing the capital gain, ordinary income (or loss) and
other tax results on a per unit basis.
Tax packages for 1994 were mailed to unitholders
in late February 1995. Information pertaining to
customized or generalized tax packages may be
obtained by calling 1-800-942-4555.
PARTNERSHIP INFORMATION
Partnership Headquarters
IP Timberlands, Ltd.
Two Manhattanville Road
Purchase, N.Y. 10577
1-800-634-8050
Stock Transfer Agent and Registrar
For questions concerning change of address, lost
certificates or cash distribution checks, or change in
registered ownership, write or call:
Chemical Bank
Shareholder Services Department
450 West 33rd Street
New York, N.Y. 10001
Within the U.S., call 1-800-851-9677. Outside the
U.S., call collect 0-212-613-7427.
Investor Services
For questions concerning your units other than
those noted directly above, contact the Investor
Relations Department at 1-800-634-8050.
Independent Public Accountants
Arthur Andersen LLP
1345 Avenue of the Americas
New York, N.Y. 10105
Reports and Publications
For additional copies of this annual report, or copies
of SEC filings, or to have your name added to our
mailing list, call 1-800-634-8050 or write to the
Investor Relations Department at Partnership head-
quarters.
To obtain a "Fax on Demand" of current financial
data, call 1-800-851-4FAX. This service is available
on a 24-hour basis.
20
EXHIBIT (24)
POWER OF ATTORNEY
Know all Men By These Presents, that the undersigned hereby
constitutes and appoints JAMES W. GUEDRY 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 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/ Thomas C. Graham
--------------------- Director March 14, 1995
(Thomas C. Graham*)
/s/ Arthur G. Hansen
--------------------- Director March 14, 1995
(Arthur G. Hansen*)
/s/ Jane C. Pfeiffer
--------------------- Director March 14, 1995
(Jane C. Pfeiffer*)
/s/ Roger B. Smith
--------------------- Director March 14, 1995
(Roger B. Smith*)
* Directors of IP Forest Resources Company, managing general partner of IP
Timberlands, Ltd.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
(In thousands - except per unit data)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,922
<SECURITIES> 0
<RECEIVABLES> 442,190
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 450,112
<PP&E> 775,233
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,226,519
<CURRENT-LIABILITIES> 10,880
<BONDS> 0
<COMMON> 1,179,589
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,226,519
<SALES> 356,393
<TOTAL-REVENUES> 369,343
<CGS> 0
<TOTAL-COSTS> 110,774
<OTHER-EXPENSES> 2,765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (17,946)
<INCOME-PRETAX> 273,750
<INCOME-TAX> 0
<INCOME-CONTINUING> 273,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 273,750
<EPS-PRIMARY> 5.49
<EPS-DILUTED> 5.49
<FN>
This schedule contains summary financial information extracted from the
Consolidated Statement of Earnings and the Consolidated Balance Sheet of
IP Timberlands, Ltd. and is qualified in its entirety by reference to
such financial statements.
</TABLE>
