-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OxKAxF53mXxKs4IjSg0hhhdOwhV6m9HB74mYpWluRJi2GA37JZWfwWgdw202j+Zb iKpGT522Q4k+/xKoqVorOA== 0000889812-96-000318.txt : 19960402 0000889812-96-000318.hdr.sgml : 19960402 ACCESSION NUMBER: 0000889812-96-000318 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL PAPER CO /NEW/ CENTRAL INDEX KEY: 0000051434 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD MILLS [2631] IRS NUMBER: 130872805 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03157 FILM NUMBER: 96543338 BUSINESS ADDRESS: STREET 1: TWO MANHATTANVILLE RD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9143971500 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL PAPER & POWER CORP DATE OF NAME CHANGE: 19710527 10-K405 1 ANNUAL REPORT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1995 COMMISSION FILE NUMBER 1-3157 ------------------------------ INTERNATIONAL PAPER COMPANY (Exact name of Company as specified in its charter) NEW YORK 13-0872805 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) TWO MANHATTANVILLE ROAD, PURCHASE, N.Y. 10577 (Address of principal executive offices) (Zip Code) COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: 914-397-1500 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------------------------------------ ------------------------ Cumulative $4 Preferred Stock, without par value -- Common Stock, $1 per share par value New York Stock Exchange 5 1/8% Debentures due 2012 New York Stock Exchange Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of the common stock of the Company outstanding as of February 29, 1996, held by non-affiliates of the Company was $9,220,244,390.00, calculated on the basis of the closing price on the Composite Tape on February 29, 1996. For this computation, the Company has excluded the market value of all common stock beneficially owned by all executive officers and directors of the Company and their associates as a group and treasury stock. Such exclusion is not to signify in any way that members of this group are 'affiliates' of the Company. The number of shares outstanding of the Company's common stock, as of February 29, 1996: OUTSTANDING IN TREASURY ----------- ----------- 261,445,921 1,815,397 The following documents are incorporated by reference into the parts of this report indicated below: 1995 ANNUAL REPORT TO SHAREHOLDERS (PP. 1 AND 4 THROUGH 68) PARTS I, II AND IV PROXY STATEMENT, DATED MARCH 29, 1996 PART III - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL International Paper Company,* a New York corporation incorporated in 1941 as the successor to the New York corporation of the same name organized in 1898, is a worldwide producer of printing and writing papers, paperboard and packaging and wood products; and distributes paper and office supply products in the United States, Europe and the Pacific Rim. It also produces pulp, laminated products, and specialty products, including photosensitive films and papers, nonwovens, chemicals and minerals. In the United States, the Company operates 24 pulp and paper mills, 52 converting and packaging plants, 29 wood products facilities, 15 specialty panels and laminated products plants and six nonwoven products facilities. Production facilities in Europe, Asia, Latin America and Canada include 14 pulp and paper mills, 30 converting and packaging plants, two wood products facilities, four specialty panels and laminated products plants and four nonwoven products facilities. The Company distributes fine paper, printing and industrial products and building materials, primarily manufactured by other companies, through over 300 distribution branches located primarily in the United States. In addition, the Company produces photosensitive films and papers and photographic equipment (three U.S. and six international locations) and specialty chemicals (seven U.S. and three international locations), and engages in domestic oil and gas and real estate activities. Through its acquisition of Carter Holt Harvey, the Company, primarily in New Zealand and Australia, operates seven mills producing pulp and paper, packaging and tissue products, 32 converting and packaging facilities, 49 wood products manufacturing and distribution facilities, and nine building products plants. Carter Holt Harvey distributes paper and packaging products through 18 distribution branches located in New Zealand and Australia. In New Zealand, Carter Holt Harvey controls approximately 800,000 acres of forestlands. In January 1995, the Company acquired the assets of two Michigan-based paper distributors, Carpenter Paper Company and Seaman-Patrick Paper Company. In March 1994, the Company, through a subsidiary, acquired from Brierley Investments Limited (Brierley) an additional 8 percent interest in Carter Holt Harvey Limited (Carter Holt Harvey), a major New Zealand forest and paper products company with substantial assets in Chile. The purchase increased the Company's ownership of Carter Holt Harvey to 24 percent. In April 1995, the Company acquired from Brierley their remaining 131.8 million shares of Carter Holt Harvey for NZ$470 million (approximately $316 million). Further in April 1995, an additional 325.8 million Carter Holt Harvey shares were acquired by the Company through a subsidiary in open-market purchases for NZ$3.80 per share (approximately $834 million) bringing the Company's total ownership in Carter Holt Harvey to 50.2% on a fully diluted basis. Beginning May 1, 1995, Carter Holt Harvey was consolidated in the financial statements of the Company. The Company in September 1995, acquired Micarta, the high pressure laminates business of Westinghouse located in Hampton, South Carolina and in October 1995, acquired the inks and adhesives resin business of DSM located in Niort, France. In July 1994, the Company, through a subsidiary, acquired certain assets of Papelera Kif and Ogi Papel, distributors of printing papers in Juarez and Chihuahua, Mexico. In December 1994, the Company completed a merger with Kirk Paper Corporation, a paper distributor located in Downey, California using the pooling-of-interests accounting method, and acquired additional stock of Zanders Feinpapiere AG. In April 1993, the Company acquired certain assets of the Los Angeles-based Ingram Paper Company, a distributor of industrial and fine printing papers. In December, J.B. Papers, Inc., a paper distribution company located in Union, N.J., was purchased. Also in December, the assets of Monsanto Company's Kentucky-based Fome-Cor division, a manufacturer of polystyrene foam products, were acquired. All of the 1995, 1994 and 1993 acquisitions, except the merger with Kirk Paper Corporation, were accounted for using the purchase method. The pro-forma consolidated results of operations reflecting the 1995 acquisitions are presented on page 58 of the Company's 1995 Annual Report to Shareholders (the "Annual Report"), which information is incorporated herein by reference. The effects of the 1994 and 1993 mergers and acquisitions, both individually and in the aggregate, were not significant to the Company's consolidated financial statements. A further discussion of mergers and acquisitions can be found on pages 44, 57 and 58 of the Company's Annual Report, which information is incorporated herein by reference. - ------------------ * Unless otherwise indicated by the context, the terms 'Company' and 'International Paper' are used interchangeably to describe International Paper Company and its consolidated subsidiaries. 2 From 1991 through 1995, International Paper's capital expenditures approximated $6.2 billion, excluding mergers and acquisitions. These expenditures reflect continuing efforts to improve product quality and environmental performance, lower costs, expand production capacity, and acquire and improve forestlands. Capital spending in 1995 was approximately $1.5 billion and is budgeted to be approximately $1.4 billion in 1996. A further discussion of capital expenditures can be found on pages 44 and 45 of the Annual Report, which information is incorporated herein by reference. The Company, which owns a majority interest in IP Timberlands, Ltd., a Texas limited partnership (IPT), controlled approximately 6.0 million acres of forestlands in the United States at December 31, 1995. IPT was formed to succeed to substantially all of International Paper's forest products business for the period 1985 through 2035, unless earlier terminated. Through its subsidiary Carter Holt Harvey, the Company controls approximately 800,000 acres of forestlands in New Zealand. In March 1996, IPT signed a contract to sell a 98% general partnership interest in a subsidiary partnership owning all of IPT's Western region assets, which includes approximately 300,000 acres of forestlands in Oregon and Washington. IPT will retain a 1% limited partner's interest and a preferred interest of approximately $135 million. IP Forest Resources Company, the managing general partner of IPT will own another 1% interest. In March 1996, the Company completed its announced merger with Federal Paper Board. For a further discussion of this merger, see pages 44 and 58 of the Company's Annual Report, which information is incorporated herein by reference. FINANCIAL INFORMATION CONCERNING INDUSTRY SEGMENTS The financial information concerning industry segments is set forth on pages 10, 18, 24, 34, 40, 45 and 50 of the Annual Report, which information is incorporated herein by reference. FINANCIAL INFORMATION ABOUT INTERNATIONAL AND DOMESTIC OPERATIONS The financial information concerning international and domestic operations and export sales is set forth on page 49 of the Annual Report, which information is incorporated herein by reference. COMPETITION AND COSTS Despite the size of the Company's manufacturing capacities for paper, paperboard, packaging and pulp products, the markets in all of the cited product lines are large and highly fragmented. The markets for wood and specialty products are similarly large and fragmented. There are numerous competitors, and the major markets, both domestic and international, in which the Company sells its principal products are very competitive. These products are in competition with similar products produced by others, and in some instances, with products produced by other industries from other materials. Many factors influence the Company's competitive position, including prices, costs, product quality and services. Information on the impact of prices and costs on operating profits is contained on pages 10, 18, 24, 34, 40 and 44 through 48 of the Annual Report, which information is incorporated herein by reference. MARKETING AND DISTRIBUTION Paper and packaging products are sold through the Company's own sales organization directly to users or converters for manufacture. Sales offices are located throughout the United States as well as internationally. Significant volumes of products are also sold through paper merchants and distributors, including facilities in the Company's distribution network. The Company's U.S. production of lumber and plywood is marketed through independent and Company-owned distribution centers. Specialty products are marketed through various channels of distribution. DESCRIPTION OF PRINCIPAL PRODUCTS The Company's principal products are described on pages 5 through 41 of the Annual Report, which information is incorporated herein by reference. 3 Production of major products for 1995, 1994 and 1993 was as follows: PRODUCTION BY PRODUCTS (UNAUDITED)
1995(4,5) 1994(5) 1993 --------- ------- ----- PRINTING PAPERS (IN THOUSANDS OF TONS) Business papers............................... 3,432 3,173 2,920 Coated papers................................. 1,136 1,036 972 Market pulp(1)................................ 1,733 1,611 1,529 Newsprint..................................... 91 68 3 PACKAGING (IN THOUSANDS OF TONS) Containerboard................................ 2,493 2,164 2,084 Bleached packaging board...................... 1,119 1,044 1,004 Industrial papers............................. 653 610 573 Industrial and consumer packaging(2).......... 2,994 2,946 2,933 SPECIALTY PRODUCTS (in thousands of tons) Tissue................................... 68 -- -- FOREST PRODUCTS (IN MILLIONS) Panels (sq. ft. 3/8" basis)(3)................ 867 822 778 Lumber (board feet)........................... 1,104 953 952
- ------------------ (1) This excludes market pulp purchases of approximately 700,000 tons annually. (2) A significant portion of this tonnage was fabricated from paperboard and paper produced at the Company's own mills and included in the containerboard, bleached packaging board and industrial papers figures in this table. (3) Panels include plywood and oriented strand board. (4) Includes amounts for Carter Holt Harvey as applicable from May 1, 1995. (5) Certain reclassifications and adjustments have been made to current and prior-year amounts. RESEARCH AND DEVELOPMENT The Company operates research and development centers at Sterling Forest, New York; Mobile, Alabama; Erie, Pennsylvania; Kaukauna, Wisconsin; Binghamton, New York; South Walpole, Massachusetts; St. Charles, Illinois; Orange Park, Florida; Holyoke, Massachusetts; Odenton, Maryland; Mobberley, United Kingdom; Morley, United Kingdom; Munich, Germany; Fribourg, Switzerland; Saint-Priest, France; Annecy, France; a regional center for applied forest research in Bainbridge, Georgia; a forest biotechnology center in Rotorua, New Zealand; and several product laboratories. Research and development activities are directed to short-term, long-term and technical assistance needs of customers and operating divisions; process, equipment and product innovations; and improvement of profits through tree generation and propagation research. Activities include studies on improved forest species and management; innovation and improvement of pulping, bleaching, chemical recovery, papermaking and coating processes; innovation and improvement of photographic materials and processes, printing plates, pressroom/plate chemistries and plate processors; reduction of environmental discharges; re-use of raw materials in manufacturing processes; recycling of consumer and packaging paper products; energy conservation; applications of computer controls to manufacturing operations; innovations and improvement of products; and development of various new products. Product development efforts specifically address product safety as well as the minimization of solid waste. The cost to the Company of its research and development operations was $110.8 million in 1995, $102.6 million in 1994 and $94.7 million in 1993. 4 ENVIRONMENTAL PROTECTION Control over pollutants discharged into the air, water and groundwater to avoid significant adverse impacts on the environment and achieve 100% compliance with applicable law and regulations is a continuing objective of the Company. The Company has invested substantial funds to modify facilities to assure compliance with applicable environmental quality laws and plans to make substantial capital expenditures for these purposes in the future. The Company expects the pending merger with Federal to increase environmental expenditures. The amount of these expenditures will be determined after the merger is completed. The discussions in the following paragraphs are based on International Paper facilities at the end of 1995. A total of $108 million was spent in 1995 to control pollutant releases into the air and water and to assure environmentally sound disposal of solid and hazardous waste. The Company expects to spend approximately $175 million in 1996 for similar capital programs. Amounts to be spent for environmental control facilities in future years will depend on new laws and regulations, changes in legal requirements and changes in environmental concerns. Taking these uncertainties into account, the Company's preliminary estimate for additional environmental appropriations during the period 1997 through 1998 is in the range of $390 million to $650 million. In December 1993, the United States Environmental Protection Agency (EPA) proposed new pulp and paper mill standards for air emissions and water discharges to be met three years after final promulgation. This proposal is known as 'Cluster Rulemaking.' EPA also promulgated regulations implementing the Great Lakes Initiative ('GLI') covering water quality and permitting implementation procedures. Future spending will be heavily influenced by the final Cluster rules and, in the case of the GLI, on how the individual Great Lakes states implement the program. In 1994, the Company estimated future capital spending to comply with the Cluster Rulemaking and the GLI to be between $700 million and $1.5 billion depending upon the methods and deadlines allowed by the final regulations to meet requirements. There have been extensive discussions with the Congress and EPA over the last two years but, there have been no publicly announced changes to the proposed 'Cluster' regulations. Nevertheless, there is reason to expect that changes will soon be announced and that these estimates will be adjusted downward, and will occur over a longer time frame than the three years in the current proposal. In 1994, the Company estimated that annual operating costs, excluding depreciation, would increase between $60 million and $120 million when these regulations are fully implemented. This estimate will also be adjusted to the extent the EPA makes moderating changes. The Company expects the significant effort it has made in the analysis of environmental issues and the development of environmental control technology to enable it to keep costs for compliance with environmental regulations at, or below, industry averages. A further discussion of environmental issues can be found on pages 43, 47 and 48 of the Annual Report, which information is incorporated herein by reference. As of December 31, 1995, $916 million of industrial and pollution control revenue bonds, secured by Company contractual obligations, were outstanding in 57 political subdivisions of various states, counties and municipalities, primarily to finance environmental control projects located at or in conjunction with the Company's plants in those subdivisions. It is contemplated that additional industrial revenue bonds will be issued from time to time to finance other environmental control projects, provided tax law changes do not curtail the Company's access to the municipal bond market. EMPLOYEES As of December 31, 1995, the Company had approximately 81,500 employees, of whom approximately 51,000 were located in the United States and the remainder overseas. Of the domestic employees, approximately 33,000 are hourly employees, approximately 15,000 of whom are represented by the United Paperworkers International Union. During 1995, new labor agreements were reached at the Erie and Georgetown Mills. Currently, negotiations are still in progress at the Hudson River Mill. 5 During 1996, labor agreements are scheduled to be negotiated at the following mills: Gardiner, Pineville, Texarkana, Thilmany, Ticonderoga and Woronoco. During 1997, labor agreements are scheduled to be negotiated at the following mills: Mobile, Riverdale, Oswego, Millers Falls, and Vicksburg. During 1995, labor agreements expired at 11 packaging plants, four specialty products plants and four distribution operations. Multi-year labor agreements were negotiated at each location except three packaging plants, one specialty products plant and two distribution operations where negotiations were still in progress at year end. One land and timber operation has a contract open from a previous year. RAW MATERIALS For information as to the sources and availability of raw materials essential to the Company's business, see Item 2 'Properties.' ITEM 2. PROPERTIES. FORESTLANDS The principal raw material used by International Paper is wood in various forms. At December 31, 1995, IPT, a limited partnership in which the Company has a majority ownership interest, controlled approximately 5.9 million acres of forestlands in the U.S. while an additional 0.1 million acres are held under short-term leases to International Paper. In March 1996, IPT signed a contract to sell a 98% general partnership interest in a subsidiary partnership owning all of IPT's Western region assets, which includes approximately 300,000 acres of forestlands in Oregon and Washington. During 1995, such forestlands supplied 1.5 million cords of roundwood to the Company's U.S. facilities. This amounted to the following percentages of the roundwood requirements of its mills and forest products facilities: 12% in its Northern mills, 16% in its Southern mills and none in its Western mill. The balance was acquired from other private industrial and nonindustrial forestland owners, as well as the United States government. In addition, 3.4 million cords of IPT's wood were sold to other users in 1995. In November 1994, the Company adopted the Sustainable Forestry Principles developed by the American Forest and Paper Association in August 1994. MILLS AND PLANTS A listing of the Company's production facilities can be found in Appendix I hereto, which information is incorporated herein by reference. The Company's facilities are in good operating condition and are suited for the purposes for which they are presently being used. The Company continues to study the economics of modernizing or adopting other alternatives for higher cost facilities. Further discussions of new mill and plant projects can be found on pages 44 and 45 of the Annual Report, which information is incorporated herein by reference. CAPITAL INVESTMENTS AND DISPOSITIONS Given the size, scope and complexity of its business interests, International Paper continuously examines and evaluates a wide variety of business opportunities and planning alternatives, including possible acquisitions and sales or other dispositions of properties. Planned capital investments for 1996, as of December 31, 1995, are set forth on pages 44 through 46 and 58 of the Annual Report, which information is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS. DIOXIN LITIGATION On June 11, 1993, a lawsuit purporting to be a class action was filed by individuals against the Company, Dow Chemical and individual employees of both companies in the 18th Judicial District of Louisiana seeking compensatory and punitive damages of an unspecified amount, alleging that the Company polluted Staulkinghead Creek and all waterways south thereof, by discharging chemicals, including dioxin, from its Bastrop, Louisiana mill. The case was removed to the U.S. District Court for the Middle District of Louisiana. On June 22, 1994, the Court entered an order dismissing Dow and its employees from the case. The Plaintiff appealed this ruling challenging among other things federal jurisdiction. The Fifth Circuit Court of Appeals ruled in favor of the defendants on all issues and returned the case to the Federal District Court. The case is still before that court for the determination of class certification. Beginning in November of 1990, the Company was named as a defendant in 88 lawsuits by individuals filed in state or federal court in Mississippi alleging that it has polluted and damaged the Pascagoula, Leaf and 6 Escatawpa Rivers by releasing dioxin and over 40 other chemicals into those rivers. Georgia-Pacific was initially named in most of these suits but an order severing it from the Company in all the then pending cases was entered on September 15, 1992. Following the severance order, nine of the state cases were removed from state court to Federal District Court for the Southern District of Mississippi. Of the nine cases that were removed four were dismissed and the remaining five were resolved by summary judgments in favor of the Company. On May 24, 1993, a wrongful death action was filed in Mississippi state court against the Company claiming the decedent's death was related to exposure to hazardous and toxic substances from the Moss Point mill. The lawsuit also included the independent survivorship claims of the widow. The complaint raised claims similar to those in the previously-filed lawsuits and also contained specific allegations relating to the disposal of sludge by the mill. The plaintiff sought compensatory damages of $1 million and punitive damages of $20 million. The case was removed to the U.S. District Court for the Southern District of Mississippi. In August of 1995 the federal court granted the Company's motion for summary judgment and this case is now concluded. All of the 64 cases that had been pending in the Mississippi state court had been consolidated before one judge. Pursuant to a scheduling order a bellwhether trial with six plaintiffs was set for trial in November, 1995. However, prior to trial, the court granted the Company's motions for summary judgment against those specific plaintiffs. Thereafter the Company filed similar motions for summary judgment in some of the remaining cases. These motions were granted on March 4, 1996, resulting in the dismissal of 29 cases and 3,094 plaintiffs. The Company has filed or will file similar motions in all the remaining cases. In summary, taking into account various dismissals, there are 36 cases pending in state court and none in Federal Court for a total of 36 Mississippi cases as of March 5, 1996. In these cases, there are a total of 1,981 plaintiffs seeking compensatory and punitive damages and injunctive relief. While any of this litigation has an element of uncertainty, the Company believes that in the very near future it will prevail on its motions for summary judgment, thereby eliminating all the remaining cases. The Company further believes that the outcome of any of these proceedings, lawsuits or claims, pending or threatened, or all of them combined, will not have a materially adverse effect on the consolidated financial position or results of operations. OTHER LITIGATION On October 14, 1993, the Town of Jay, Maine assessed a penalty of $394,000 against the Company's Androscoggin mill for violations of its air permit under the Town's Environmental Control and Improvement Ordinance attributable to excess emissions of particulate from one of the mill's lime kilns, as well as violations of certain reporting requirements. The Town's penalty assessment was appealed. On September 28, 1994, the Maine Superior Court vacated most of the penalty the Town had assessed, leaving $22,000 in place but providing the Town with the opportunity to reassess the penalty on four violations. The Town appealed this decision to the Maine Supreme Judicial Court, the State's highest court, sitting as the Law Court. By decision, dated October 6, 1995, the Law Court affirmed the decision of the Superior Court. On October 20, 1995, the Town asked the Law Court to reconsider its decision. On November 10, 1995, the Law Court denied the Town's request. The Maine Department of Environmental Protection proposed on October 15, 1992 that the Androscoggin mill enter into an Administrative Consent Agreement and Enforcement Order and pay a civil penalty of $217,892 because the particulate emissions from the same lime kiln which was the subject of the foregoing proceeding with the Town of Jay, had exceeded the limits in the state air license. On March 9, 1994, the State commenced an action in the Maine Superior Court but no specific amount is claimed in the complaint. With the conclusion of the litigation with the Town of Jay, settlement discussions with the State have resumed. On September 26, 1994, the EPA issued a Complaint and Compliance Order alleging that a facility in Gulfport, Mississippi owned and operated by Arizona Chemical Company ('Arizona'), wholly owned subsidiary of the Company, violated regulations governing the burning of hazardous waste fuel in an industrial boiler. The Complaint sought a civil penalty of $712,350. On September 29, 1995, Arizona settled the matter on terms which included a civil penalty of $442,150. The United States Attorney's Office for the Southern District of Mississippi and EPA Region IV, are investigating Arizona through a Federal Grand Jury. Arizona has been informed that it is a target of the investigation, which relates to environmental issues at Arizona facilities in Gulfport and Picayune, Mississippi. Arizona is cooperating with the investigation. EPA criminal investigators have interviewed some of Arizona's current and former employees with respect to the foregoing matters and several have testified before the Federal Grand Jury. The Company and Arizona have also received Federal Grand Jury subpoenas seeking production of documents relating to these matters, and have complied with the subpoenas. We are unable to predict the outcome of the investigation. 7 The Company's majority owned subsidiary, Carter Holt Harvey has an indirect shareholding of 30.05% in Chile's largest industrial company, Copec. This shareholding is held through Carter Holt Harvey's joint venture in Los Andes with Inversiones Socoroma S.A., a Chilean investment company ('Socoroma'). In late 1993, Carter Holt Harvey commenced several actions in Chilean courts challenging certain corporate governance documents of Los Andes, as well as agreements between Carter Holt Harvey's subsidiary and Socoroma. In December 1994, Socoroma commenced an arbitration action seeking to expel Carter Holt Harvey from Los Andes at a price which is less than the carrying value. Although the Company believes that the eventual resolution of this Carter Holt Harvey litigation should not have a material adverse effect on the Company, the actual resolution of each of these actions cannot be predicted because of the uncertainties involved in the litigation and arbitration proceedings. In 1989, Masonite Corporation, a wholly-owned subsidiary of the Company ('Masonite'), modified a production line to make a new product at a facility in Ukiah, California. The facility obtained the necessary Authority to Construct permits from the appropriate State authority. In May 1992 the EPA, Region 9, issued an order alleging that an additional Prevention of Significant Deterioration permit was required for the new product line. On January 18, 1995, a consent decree which resolves this matter was lodged with the U.S. District Court for the Northern District of California. The consent decree includes a civil penalty of $600,000. The consent decree was challenged by a citizen's group and the decree has not yet been entered by the court. A lawsuit purporting to be a nationwide class action was filed against the Company and Masonite, on December 27, 1994 in Mobile County Circuit Court, Mobile, Alabama. This lawsuit alleges that hardboard siding, which is used as exterior cladding for residential dwellings and is manufactured by Masonite, fails prematurely, allowing moisture intrusion. It is further alleged that the presence of moisture in turn causes the failure of the structure underneath the siding. The class, which has been certified, consists of all owners of homes in the United States having Masonite hardboard siding. It is impossible to know how many homes may have this siding, but it is estimated that there are hundreds of thousands. The Company and Masonite were unsuccessful in their attempt to remove the case to the Federal District Court for the Southern District of Alabama on diversity grounds. The case has been remanded to the Mobile County Circuit Court. The Company and Masonite feel that there are valid defenses to this case and will vigorously defend all claims asserted by the Plaintiff. While any litigation has an element of uncertainty it is believed that the outcome of these proceedings and lawsuit will not have a materially adverse effect on its consolidated financial position or results of operations. As of March 30, 1996, there were no other pending judicial proceedings, brought by governmental authorities against the Company, for alleged violations of applicable environmental laws or regulations. The Company is engaged in various administrative proceedings that arise under applicable environmental and safety laws or regulations, including approximately 68 active proceedings under the Comprehensive Environmental Response, Compensation and Liability Act ('CERCLA') and comparable state laws. Most of these proceedings involve the cleanup of hazardous substances at large commercial landfills that received waste from many different sources. While joint and several liability is authorized under the CERCLA, as a practical matter, liability for CERCLA cleanups is allocated among the many potential responsible parties. Based upon previous experience with respect to the cleanup of hazardous substances and upon presently available information, the Company believes that it has no or de minimus liability with respect to 26 of these sites; that liability is not likely to be significant at 26 sites; and that estimates of liability at 16 of these sites is likely to be significant but not material to the Company's consolidated financial position or results of operations. The Company is also involved in other contractual disputes, administrative and legal proceedings and investigations of various types. While any litigation, proceeding or investigation has an element of uncertainty, the Company believes that the outcome of any proceeding, lawsuit or claim that is pending or threatened, or all of them combined, will not have a materially adverse effect on its consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1995. 8 SPECIAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY. INTERNATIONAL PAPER COMPANY EXECUTIVE OFFICERS AS OF FEBRUARY 29, 1996 INCLUDING NAME, AGE, OFFICES AND POSITIONS HELD(1) AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS JOHN A. GEORGES, 65, chief executive officer and chairman of the board of directors of the Company since 1985(2). JOHN T. DILLON, 57, president and chief operating officer(3). He was executive vice president-packaging since 1987, until he assumed his current position in 1995. W. MICHAEL AMICK, 55, executive vice president, forest products and industrial packaging. He was vice president and group executive-specialty industrial papers from 1988 to 1992, when he became president-International Paper-Europe. He assumed his current position in February 1996. JAMES P. MELICAN, 55, executive vice president-legal and external affairs. He assumed his current position in 1991. DAVID W. OSKIN, 53, executive vice president-consumer packaging and specialty industrial papers since 1995. He held the position of senior vice president from 1988 to 1992, when he became the chief executive officer and managing director of Carter Holt Harvey Limited of New Zealand until his current position. C. WESLEY SMITH, 56, executive vice president-printing papers. He was elected president-International Paper Europe in 1989 and assumed his present position in 1992. MILAN J. TURK, 57, executive vice president-specialty businesses. He was vice president and group executive-specialty products from 1990 until 1993, when he became senior vice president-specialty products. He assumed his current position in February, 1996. ROBERT M. BYRNES, 58, senior vice president-human resources since 1989. MARIANNE M. PARRS, 51, senior vice president and chief financial officer since 1995. She was controller-printing papers from 1985 to 1993 and then held the position of staff vice president-tax until 1995. ANDREW R. LESSIN, 53, vice president and controller since 1995. Prior thereto he was the controller since 1990. WILLIAM B. LYTTON, 47, vice president and general counsel. He was vice president and general counsel for GE Aerospace from 1990 to 1993; vice president and associate general counsel for Martin Marietta from 1993 to 1995; and vice president and general counsel for Lockheed Martin Electronics from 1995 to 1996. He assumed his current position in 1996. - ------------------ (1) Executive officers of International Paper are elected to hold office until the next annual meeting of the board of directors following the annual meeting of shareholders and until election of successors, subject to removal by the board. (2) Mr. Georges has announced his retirement as Chairman and Chief Executive Officer of the Company, effective March 31, 1996. He will continue as a director of the Company. (3) On April 1, 1996, Mr. Dillon will become the Chairman and Chief Executive Officer of the Company. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Dividend per share data on the Company's common stock and the high and low sale prices for the Company's common stock for each of the four quarters in 1995 and 1994 are set forth on page 68 of the Annual Report and are incorporated herein by reference. As of March 22, 1996, there were 33,719 holders of record of the Company's common stock. ITEM 6. SELECTED FINANCIAL DATA. The comparative columnar table showing selected financial data for the Company is set forth on pages 66 and 67 of the Annual Report and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's review and comments on the consolidated financial statements are set forth on pages 10, 18, 24, 34, 40 and 44 through 48 of the Annual Report and are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's consolidated financial statements, the notes thereto and the reports of the independent public accountants and Company management are set forth on pages 51 through 65 of the Annual Report and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The directors of the Company and their business experience are set forth on pages 8 through 11 of the Company's Notice of 1996 Annual Meeting and Proxy Statement, dated March 29, 1996 (the 'Proxy Statement') and are incorporated herein by reference. The discussion of executive officers of the Company is included in Part I under 'Executive Officers of the Company.' ITEM 11. EXECUTIVE COMPENSATION. A description of the compensation of the Company's executive officers is set forth on pages 13, 14 and 16 through 19 of the Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The Company knows of no one owning beneficially more than five percent (5%) of the Company's common stock other than the State Street Bank and Trust Co., N.A., as Trustee of the Company's Salaried Savings Plan and Retirement Savings Plan, respectively, which in the aggregate own 7.68% of the Company's shares of common stock as of December 31, 1995. State Street Bank and Trust Co., N.A. holds 8.46% of the Company's common stock and disclaims beneficial ownership of the Company's common stock it holds as Trustee for the Company's benefit plans. The table showing ownership of the Company's common stock by directors and by directors and executive officers as a group is set forth on pages 6 and 7 of the Proxy Statement, which information is incorporated herein by reference. In 1989, the Company announced that it had authorized the purchase, from time to time, of additional shares of its common stock for use in the Company's benefit and shareholder plans and for general corporate purposes. As of December 31, 1995, 9.8 million common shares may be repurchased under this program. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None, other than those described under Item 11. FORWARD-LOOKING INFORMATION THIS 1995 ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS CONCERNING PROJECTED COST SAVINGS AND PROFITABILITY OF INTERNATIONAL PAPER. ACTUAL RESULTS MAY DIFFER BASED ON UNANTICIPATED CHANGES IN THE U.S. AND INTERNATIONAL ECONOMIES, PRICING AND DEMAND FOR THE COMPANY'S PRODUCTS, RAW MATERIAL COSTS, LOWER THAN ANTICIPATED SAVINGS FROM RESTRUCTURING AND 'WRITE-OFF' CHARGES, OR LOWER THAN EXPECTED EFFICIENCIES FROM HIGH-PERFORMANCE WORK SYSTEMS AND OTHER PRODUCTIVITY AND COST-OF-QUALITY INITIATIVES. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. EXHIBITS: (10) (a) Form of Termination Agreement, Tier I* (b) Form of Termination Agreement, Tier II* (c) Form of Termination Agreement, Tier III* (d) Revolving Credit Agreement, dated January 24, 1995** (11) Statement of Computation of Per Share Earnings (12) Computation of Ratio of Earnings to Fixed Charges (13) 1995 Annual Report to Shareholders of the Company (21) List of Significant Subsidiaries (22) Proxy Statement, dated March 29, 1996 (23) Consent of Independent Public Accountants (24) Power of Attorney (27) Financial Data Schedule (99) (a) Management Incentive Plan* (b) Long-Term Incentive Compensation Plan* (c) Unfunded Savings Plan for Senior Managers** (d) Non-Funded Deferred Compensation Plan for Non-Employee Directors** - ------------------ * Previously filed in the Annual Report on Form 10-K, for the year ended December 31, 1992. ** Previously filed in the Annual Report on Form 10-K for the year ended December 31, 1994. REPORTS ON FORM 8-K Current Reports on Form 8-K were filed by the Company on November 13, 1995, December 5, 1995, February 1, 1996, February 15, 1996, March 8, 1996 and March 27, 1996. FINANCIAL STATEMENT SCHEDULES The consolidated balance sheets as of December 31, 1995 and 1994 and the related consolidated statements of earnings, cash flows and common shareholders' equity for each of the three years ended December 31, 1995 and the related Notes to Consolidated Financial Statements, together with the report thereon of Arthur Andersen LLP, dated February 13, 1996, appearing on pages 51 through 65 of the Annual Report, are incorporated herein by reference. With the exception of the aforementioned information and the information incorporated by reference in Items 1, 2 and 5 through 8, the Annual Report is not to be deemed filed as part of this report. The following additional financial data should be read in conjunction with the financial statements in the Annual Report. Schedules not included with this additional financial data have been omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto. 11 ADDITIONAL FINANCIAL DATA 1995, 1994 AND 1993 Report of Independent Public Accountants on Financial Statement Schedule ... 13 Consolidated Schedule: II -- Valuation and Qualifying Accounts................................ 14 12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE TO INTERNATIONAL PAPER COMPANY: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in the Company's 1995 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 13, 1996. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, N.Y. February 13, 1996 13 SCHEDULE II INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN MILLIONS)
FOR YEAR ENDED DECEMBER 31, 1995 - --------------------------------------------------------------------------------------------- BALANCE BALANCE AT ADDITIONS ADDITIONS DEDUCTIONS AT END BEGINNING CHARGED TO CHARGED TO FROM OF DESCRIPTION OF PERIOD EARNINGS OTHER ACCOUNTS RESERVES PERIOD - --------------------------------------------------------------------------------------------- Reserves Applied Against Specific Assets Shown on Balance Sheet: Doubtful accounts--current $ 97 $ 25 $ 0 $(21)(A) $ 101 ---- ---- ---- ----- ------- ---- ---- ---- ----- ------- FOR YEAR ENDED DECEMBER 31, 1994 - ---------------------------------------------------------------------------------------------- BALANCE BALANCE AT ADDITIONS ADDITIONS DEDUCTIONS AT END BEGINNING CHARGED TO CHARGED TO FROM OF DESCRIPTION OF PERIOD EARNINGS OTHER ACCOUNTS RESERVES PERIOD - ---------------------------------------------------------------------------------------------- Reserves Applied Against Specific Assets Shown on Balance Sheet: Doubtful accounts--current $104 $ 21 $ 0 $(28)(A) $ 97 ---------- ---- ---- ----- ------- ---------- ---- ---- ----- ------- FOR YEAR ENDED DECEMBER 31, 1993 - ---------------------------------------------------------------------------------------------- BALANCE BALANCE AT ADDITIONS ADDITIONS DEDUCTIONS AT END BEGINNING CHARGED TO CHARGED TO FROM OF DESCRIPTION OF PERIOD EARNINGS OTHER ACCOUNTS RESERVES PERIOD - ---------------------------------------------------------------------------------------------- Reserves Applied Against Specific Assets Shown on Balance Sheet: Doubtful accounts--current $ 91 $ 29 $ 0 $(16)(A) $ 104 ---- ---- ---- ----- ------- ---- ---- ---- ----- -------
- ------------------ (A) Primarily write-offs, less recoveries, of accounts determined to be uncollectible. 14 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. INTERNATIONAL PAPER COMPANY By: JAMES W. GUEDRY JAMES W. GUEDRY, SECRETARY March 29, 1996 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED: NAME TITLE DATE - ---------------------------------------- ---------------------- -------------- JOHN A. GEORGES Chairman of the Board, March 29, 1996 (JOHN A. GEORGES) Chief Executive Officer and Director JOHN T. DILLON* President and Director March 29, 1996 (JOHN T. DILLON) C. WESLEY SMITH* Executive Vice March 29, 1996 (C. WESLEY SMITH) President and Director WILLARD C. BUTCHER* Director March 29, 1996 (WILLARD C. BUTCHER) ROBERT J. EATON* Director March 29, 1996 (ROBERT J. EATON) STANLEY C. GAULT* Director March 29, 1996 (STANLEY C. GAULT) THOMAS C. GRAHAM* Director March 29, 1996 (THOMAS C. GRAHAM) ARTHUR G. HANSEN* Director March 29, 1996 (ARTHUR G. HANSEN) DONALD F. MCHENRY* Director March 29, 1996 (DONALD F. MCHENRY) PATRICK F. NOONAN* Director March 29, 1996 (PATRICK F. NOONAN) JANE C. PFEIFFER* Director March 29, 1996 (JANE C. PFEIFFER) EDMUND T. PRATT, JR.* Director March 29, 1996 (EDMUND T. PRATT, JR.) 15 NAME TITLE DATE - ---------------------------------------- ---------------------- -------------- CHARLES R. SHOEMATE* Director March 29, 1996 (CHARLES R. SHOEMATE) ROGER B. SMITH* Director March 29, 1996 (ROGER B. SMITH) MARIANNE M. PARRS Senior Vice President March 29, 1996 (MARIANNE M. PARRS) and Chief Financial Officer ANDREW R. LESSIN Vice President and March 29, 1996 (ANDREW R. LESSIN) Controller and Chief Accounting Officer *By JAMES W. GUEDRY (JAMES W. GUEDRY, ATTORNEY-IN-FACT) 16 APPENDIX I 1995 LISTING OF FACILITIES PRINTING PAPERS BUSINESS PAPERS, COATED PAPERS AND PULP Domestic: Mobile, Alabama Selma, Alabama (Riverdale Mill) Camden, Arkansas Pine Bluff, Arkansas Bastrop, Louisiana (Louisiana Mill) Springhill, Louisiana (C & D Center) Jay, Maine (Androscoggin Mill) Miller Falls, Massachusetts West Springfield, Massachusetts Westfield, Massachusetts (C & D Center) Woronoco, Massachusetts Moss Point, Mississippi Natchez, Mississippi Corinth, New York (Hudson River Mill) Ticonderoga, New York Hamilton, Ohio Erie, Pennsylvania Lock Haven, Pennsylvania Georgetown, South Carolina International: Cali, Colombia Coloto, Colombia Clermont-Ferrand, France (Corimex Mill) Docelles, France (Lana Mill) Grenoble, France (Lancey and Pont De Claix Mills) Maresquel, France Saillat, France Saint Die, France (Anould Mill) Strasbourg, France (La Robertsau Mill) Bergisch Gladbach, Germany (Gorhrsmuhle Mill) Duren, Germany (Reflex Mill) Kinleith, New Zealand Mataura, New Zealand Kwidzyn, Poland PACKAGING CONTAINERBOARD Domestic: Mansfield, Louisiana Pineville, Louisiana Vicksburg, Mississippi Oswego, New York Gardiner, Oregon International: Arles, France Kinleith, New Zealand Penrose, New Zealand CORRUGATED CONTAINER Domestic: Mobile, Alabama Russellville, Arkansas Carson, California Modesto, California San Jose, California Stockton, California Putnam, Connecticut Auburndale, Florida Chicago, Illinois Shreveport, Louisiana Springhill, Louisiana Detroit, Michigan Minneapolis, Minnesota Geneva, New York Tallman, New York Statesville, North Carolina Cincinnati, Ohio Wooster, Ohio Mount Carmel, Pennsylvania Georgetown, South Carolina Nashville, Tennessee Dallas, Texas Edinburg, Texas El Paso, Texas Delavan, Wisconsin Fond du Lac, Wisconsin International: Las Palmas, Canary Islands Suva, Fiji Arles, France Chalon-sur-Saone, France Chantilly, France Creil, France LePuy, France Mortagne, France Guadeloupe, French West Indies Bellusco, Italy Catania, Italy Pedemonte, Italy Pomezia, Italy San Felice, Italy Auckland, New Zealand Christchurch, New Zealand Dunedin, New Zealand Feilding, New Zealand Hamilton, New Zealand Hastings, New Zealand Invercargill, New Zealand Levin, New Zealand Nelson, New Zealand Barcelona, Spain Bilbao, Spain Valladolid, Spain Winsford, United Kingdom Fiber Converting Plants Auckland, New Zealand Nelson, New Zealand BLEACHED BOARD Domestic: Pine Bluff, Arkansas Moss Point, Mississippi Georgetown, South Carolina Texarkana, Texas International: Whaketane, New Zealand LIQUID PACKAGING Domestic: Turlock, California Plant City, Florida Atlanta, Georgia Cedar Rapids, Iowa Kansas City, Kansas Framingham, Massachusetts Kalamazoo, Michigan Raleigh, North Carolina Philadelphia, Pennsylvania International: Itu, Brazil Edmonton, Alberta, Canada London, Ontario, Canada Longueuil, Quebec, Canada Santiago, Dominican Republic Perugia, Italy Kingston, Jamaica Tokyo, Japan Seoul, Korea Taipei, Taiwan Caracas, Venezuela A-1 FOLDING CARTON Domestic: Clinton, lowa Hopkinsville, Kentucky Cincinnati, Ohio Richmond, Virginia International: Auckland, New Zealand Christchurch, New Zealand Palmerston North, New Zealand LABEL Commerce, California Bowling Green, Kentucky KRAFT PAPER Mobile, Alabama Camden, Arkansas Moss Point, Mississippi GROCERY BAGS & SACKS Mobile, Alabama Jackson, Tennessee MULTIWALL BAGS Domestic: Camden, Arkansas Pittsburg, Kansas Wilmington, Ohio International: Auckland, New Zealand Palmerston North, New Zealand PLASTIC PACKAGING Domestic: Janesville, Wisconsin International: Santiago, Chile Auckland, New Zealand Christchurch, New Zealand Hamilton, New Zealand Hastings, New Zealand Wellington, New Zealand DISTRIBUTION WHOLESALE AND RETAIL DISTRIBUTION (303 distribution branches) ResourceNet International Domestic: Stores Group Chicago, Illinois 142 locations nationwide Dillard Paper Greensboro, North Carolina 21 branches in the Middle Atlantic States and Southeast Dixon Paper Company Denver, Colorado 12 branches in the West and Midwest Specialty Business Group Erlanger, Kentucky 12 branches in New England and Middle Atlantic States, Midwest, South and West Ingram Paper City of Industry, California 7 locations in the Southwest and Hawaii Kirk Paper Company Downey, California 4 locations in the West, Southwest, and Northwest Leslie Paper Minneapolis, Minnesota 12 locations in the Midwest Northeast Region Erlanger, Kentucky 43 branches in New England, Middle Atlantic States, Midwest and District of Columbia Western Pacific Portland, Oregon 2 locations in the Northwest Western Paper Company Overland Park, Kansas 23 branches in the West, Midwest and South International: Chihuahua, Chihuahua, Mexico 3 locations Other International: Aussedat Rey France Distribution S.A., Pantin, France Recom Papers Nijmegen, Netherlands Scaldia Papier BV, Nijmegen, Netherlands Aalbers Paper Products Veenendaal, Netherlands Paper Merchant, Warehousing and Distribution Centers, 15 locations in New Zealand and 3 locations in Australia FOREST PRODUCTS FORESTLANDS Domestic: Approximately 6.0 million acres in the South, Northeast and Northwest International: Approximately 800,000 acres in New Zealand WOOD PRODUCTS Domestic: Maplesville, Alabama Tuscaloosa, Alabama Gurdon, Arkansas Leola, Arkansas Whelen Springs, Arkansas DeRidder, Louisiana Springhill, Louisiana Morton, Mississippi Wiggins, Mississippi Joplin, Missouri Pleasant Hill, Missouri Madison, New Hampshire Pilot Rock, Oregon Sampit, South Carolina Henderson, Texas Mineola, Texas Nacogdoches, Texas New Boston, Texas Danville, Virginia Building Products Ukiah, California Lisbon Falls, Maine Laurel, Mississippi Towanda, Pennsylvania Fiberboard Spring Hope, North Carolina Marion, South Carolina Particleboard Stuart, Virginia Waverly, Virginia Slaughter Dallas, Texas 2 branches in the Southwest and Northwest A-2 International: INTAMASA Cella, Spain Masonite Africa Limited Estcourt Plant Myrtleford, New South Wales, Australia Mt. Druit, New South Wales, Australia Benella, Victoria, Australia Auckland, New Zealand Kopu, New Zealand Kumeu, New Zealand Marton, New Zealand Nelson, New Zealand Putaruru, New Zealand Rangiora, New Zealand Rotorua, New Zealand Taupo, New Zealand Thames, New Zealand Topuni, New Zealand Tokoroa, New Zealand Building Supply Retail Outlets, 34 branches in New Zealand REALTY PROJECTS Haig Point Plantation Daufuskie Island, South Carolina SPECIALTY PRODUCTS TISSUE Mills: Box Hill, Victoria, Australia Myrtleford, Victoria, Australia Kawerau, New Zealand Plants: Box Hill, Victoria, Australia Clayton, Victoria, Australia Keon Park, Victoria, Australia Auckland, New Zealand (three plants) Christchurch, New Zealand Te Rapa, New Zealand NONWOVENS Domestic: Athens, Georgia Griswoldville, Massachusetts Walpole, Massachusetts Lewisburg, Pennsylvania Bethune, South Carolina Green Bay, Wisconsin International: Liege, Belgium Toronto, Ontario, Canada Yokohama, Japan San Jose Ituebide, Mexico IMAGING PRODUCTS Domestic: Jacksonville, Florida Holyoke, Massachusetts Binghamton, New York International: Melbourne, Australia Saint-Priest, France Munich, Germany Mobberley, Great Britain Morley, Great Britain Fribourg, Switzerland CHEMICALS Domestic: Panama City, Florida Pensacola, Florida Port St. Joe, Florida Oakdale, Louisiana Springhill, Louisiana Gulfport, Mississippi Picayune, Mississippi International: Niort, France Sandarne, Sweden Greaker, Norway PETROLEUM Alvin, Texas Houston, Texas Midland, Texas Orange, Texas SPECIALTY PANELS Domestic: Chino, California Ukiah, California Cordele, Georgia Glasgow, Kentucky Louisville, Kentucky Monticello, Kentucky (2 plants) Odenton, Maryland Laurel, Mississippi Statesville, North Carolina Tarboro, North Carolina Towanda, Pennsylvania Hampton, South Carolina Waverly, Virginia Oshkosh, Wisconsin International: Pori, Finland Bergerac, France (Couze Mill) Ussel, France Barcelona, Spain (Durion Mill) BUILDING PRODUCTS FLOORING Sydney, New South Wales, Australia INSULATION Minto, New South Wales, Australia Sydney, New South Wales, Australia Auckland, New Zealand Christchurch, New Zealand ROOFING Corona, California Auckland, New Zealand SINKWARE AND ALUMINIUM PRODUCTS Adelaide, South Australia Auckland, New Zealand SPECIALTY PAPERS Thilmany Knoxville, Tennessee Kaukauna, Wisconsin Nicolet De Pere, Wisconsin Jay, Maine (Androscoggin Mill) Akrosil Domestic: Menasha, Wisconsin Lancaster, Ohio International: Toronto, Canada Limburg, Netherlands A-3 [LOGO] PRINTED ON HAMMERMILL PAPERS ACCENT OPAQUE, 50 LBS. HAMMERMILL PAPERS IS A DIVISION OF INTERNATIONAL PAPER. EX-11 2 STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (Exhibit 11) INTERNATIONAL PAPER COMPANY STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (In millions, except per-share amounts) Year to Date December 31, ---------------------------- 1995 1994 1993 ------ ----- ----- Net earnings $1,153 $ 357 $ 289 Debenture interest savings, net of taxes, assuming conversion of convertible subordinated debentures 4 7 * ------ ----- ----- Primary net earnings 1,157 364 289 Reduction in minority interest expense, net of taxes, assuming conversion of preferred securities of subsidiary 7 ------ ----- ----- Fully diluted net earnings $1,164 $ 364 $ 289 ====== ===== ===== Earnings per common share $ 4.50 $1.43 $1.17 ====== ===== ===== Primary earnings per share $ 4.45 $1.42 $1.17 ====== ===== ===== Fully diluted earnings per share $ 4.41 $1.42 $1.17 ====== ===== ===== PRIMARY SHARES Average shares outstanding 256.5 249.7 246.5 Shares assumed to be repurchased using long-term incentive plan deferred compensation at average market price (0.8) (0.6) (0.7) Shares assumed to be issued upon exercise of stock options, net of treasury buyback at average market price 1.0 0.9 0.7 Shares assumed to be issued upon conversion of convertible subordinated debentures 3.4 5.8 * ------ ----- ----- Primary shares 260.1 255.8 246.5 ====== ===== ===== FULLY DILUTED SHARES Average shares outstanding 256.5 249.7 246.5 Shares assumed to be repurchased using long-term incentive plan deferred compensation at period-end market price (if higher than average market price) (0.8) (0.6) (0.7) Shares assumed to be issued upon exercise of stock options, net of treasury buyback at period-end market price (if higher than average market price) 1.0 1.1 1.0 Shares assumed to be issued upon conversion of convertible subordinated debentures 3.4 5.8 * Shares assumed to be issued upon conversion of preferred securities of subsidiary 3.8 ------ ----- ----- Fully diluted shares 263.9 256.0 246.8 ====== ===== ===== Note: The Company reports earnings per common share as the effect of diluted securities is less than 3%. * The convertible subordinated debentures were antidilutive for this period. EX-12 3 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Exhibit 12) INTERNATIONAL PAPER COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (dollar amounts in millions) (unaudited)
For the Years Ended December 31, TITLE 1990 1991 1992 1993 1994 1995 - ----- ---- ---- ---- ---- ---- ---- A) Earnings before income taxes, minority interest, extraordinary item and accounting changes $ 988.0 $ 693.0 $ 226.0 $ 538.0 $ 715.0 $2,028.0 B) Less: Minority interest expense, net of taxes (33.0) (42.0) (15.0) (36.0) (47.0) (156.0) C) Add: Fixed charges excluding capitalized interest 336.2 380.3 325.3 365.3 412.3 582.3 D) Add: Amortization of previously capitalized interest 8.6 9.9 9.9 12.2 12.8 13.0 E) Less: Equity in undistributed earnings of affiliates (9.4) (10.8) (19.1) (25.9) (49.1) (94.5) -------- -------- -------- -------- -------- -------- F) Earnings before income taxes, minority interest, extraordinary item, accounting changes and fixed charges $1,290.4 $1,030.4 $ 527.1 $ 853.6 $1,044.0 $2,372.8 ======== ======== ======== ======== ======== ======== FIXED CHARGES G) Interest and amortization of debt expense $ 309.5 $ 351.1 $ 297.1 $ 334.5 $ 371.0 $ 542.3 H) Interest factor attributable to rentals 26.7 29.2 28.2 30.8 41.3 40.0 I) Capitalized Interest 26.3 36.4 42.0 12.2 18.0 58.0 -------- -------- -------- -------- -------- -------- J) Total Fixed Charges $ 362.5 $ 416.7 $ 367.3 $ 377.5 $ 430.3 $ 640.3 ======== ======== ======== ======== ======== ======== K) Ratio of Earnings to Fixed Charges 3.56 2.47 1.44 2.26 2.43 3.71 ======== ======== ======== ======== ======== ========
EX-13 4 1995 ANNUAL REPORT TO SHAREHOLDERS FINANCIAL HIGHLIGHTS Dollar amounts and shares in millions, except per share amounts 1995 1994 ------- ------- FINANCIAL SUMMARY Net Sales $19,797 $14,966 Operating Profit 2,535(1) 1,073(1) Earnings Before Income Taxes, Minority Interest and Cumulative Effect of Accounting Change 2,028 715 Earnings Before Cumulative Effect of Accounting Change 1,153 432(2) Net Earnings 1,153 357 Total Assets 23,977 17,836 Common Shareholders' Equity 7,797 6,514 Return on Equity 16.1% 5.6%(3) PER SHARE OF COMMON STOCK(4) Earnings Before Cumulative Effect of Accounting Change $ 4.50 $ 1.73(2) Earnings 4.50 1.43 Cash Dividends .92 .84 Common Shareholders' Equity 29.87 25.87 SHAREHOLDER PROFILE Shareholders of Record at December 31 31,340 29,756 Shares Outstanding at December 31 261.0 251.8 Average Shares Outstanding 256.5 249.7 (1) See the operating profit table on page 50 for a detail of operating profit by industry segment. (2) $422 million ($1.69 per share) before $17 million ($10 million after taxes or $.04 per share) of additional earnings for the current-year effect of the change in accounting for start-up costs. (3) Return on equity was 6.7% in 1994 before the change in accounting for start-up costs. (4) Per share amounts adjusted for the two-for-one stock split in September 1995. - -------------------------------------------------------------------------------- [Net Sales Chart--Appendix A No. 1] [Net Earnings Chart--Appendix A No. 2] [Earnings per Share Chart--Appendix A No. 3] [Return on Equity Chart--Appendix A No. 4] - -------------------------------------------------------------------------------- INTERNATIONAL PAPER 1 TO OUR SHAREHOLDERS Capping a decade of growth, 1995 was a record year for International Paper in every sense of the word. Sales rose fourfold over that ten-year period to $20 billion. Net income increased almost ten times to $1.2 billion or $4.50 a share. Company assets advanced to $24 billion. Return on equity last year reached 16%. We continue to grow our businesses outside North America. We have a major presence in Europe and the Pacific Rim, notably Australia and New Zealand, as well as other fast-growing Asian markets. In 1995, sales from businesses located outside the U.S. amounted to $5.6 billion and exports from the U.S. exceeded $1.5 billion. Driven by very strong market conditions through most of 1995 and the consolidation of Carter Holt Harvey in May, our Company's 1995 sales increased 32% over year-earlier levels. Earnings, also a record, were up more than threefold. However, as worldwide economic activity slowed at midyear, our customers began to reduce inventories. This caused a decline in demand and put pressure on prices as we closed the year. We believe the current slowdown will reverse itself with the return of more robust economic growth. While these results are impressive, we need to do better. For example, we are committed to a 15% return on equity over a full business cycle and our strategies are dedicated to meeting this goal. Currently, our results are about 12%. The array of businesses that we manage for growth and long-term profitability are described throughout this report to our shareholders. The focus of this report is on our customers. We believe anticipating customer needs and responding quickly and creatively will keep us in the forefront of our industry. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 1] JOHN A. GEORGES Chairman and Chief Executive Officer - -------------------------------------------------------------------------------- To maintain our competitiveness and reach our return on equity target, we continue to examine the costs of every activity in the Company. Our internal programs center on four initiatives: cost-of-quality, organizational redesign, purchasing, and high performance work systems. We are convinced that cost-of-quality savings--making and delivering A-1 quality products 100% of the time--is the most powerful way to increase productivity, and improve quality and response to customers. As part of our organizational redesign, a 10% staffing reduction has been accomplished in each of our businesses. Larger reductions are expected in some of our staff groups. Purchasing initiatives are in place that allow us to leverage our more than $7 billion in purchasing power around the world, and we continue to be successful in building high-performance work systems that involve all employees in meeting customer needs and running the business. We appreciate the efforts of our employees, knowing full well that while solid results are beginning to show up everywhere, these initiatives represent a never-ending effort. We believe we have the stamina and the will to succeed. We also continue to evaluate each of our businesses in terms of current performance and longer term prospects. In the 1996 first quarter, we are incurring a pre-tax charge of $500 million or $1.35 per share to improve profitability. These actions are expected to generate pre-tax savings of $70 million or $.17 per share in 1996 and $100 million or $.25 per share in 1997. About half of the charge relates to our imaging products business, reflecting restructuring that will allow that business to compete more effectively. Our growth objective remains the same. We expect to increase annual revenue by more than 6%, measured in constant dollars. To reach it, we will continue to expand those product lines with which we can achieve superior returns. We are now completing the largest expansion in the Company's LETTER TO SHAREHOLDERS 2 history. This expansion includes our business and coated papers operations, containerboard and oriented strand board businesses in the U.S., packaging board in Poland, molded door facings in Ireland, nonwovens in Mexico, and liquid packaging in France, Brazil and China. In early 1995, we increased our ownership of Carter Holt Harvey to more than 50%. We believe the long-term prospects for this company are excellent. It is New Zealand's largest forest owner and has a 30% ownership in COPEC, a Chilean company. Carter Holt Harvey produces wood, pulp, paper, packaging and tissue products for Pacific Rim markets. By the end of the first quarter, we expect to conclude our merger with Federal Paper Board. It is a company with world-class, low-cost facilities and geographically well-positioned forestlands that fits well with Internation al Paper and will strengthen our pulp, bleached board and printing papers businesses. We believe it represents the most attractive set of assets available in our industry in the last 20 years and will be a rewarding investment in the years ahead. We continue to redeploy assets where appropriate. To that end, IP Timberlands, Ltd., of which we are the majority owner, expects to dispose of its 300,000 acres of western forestlands early in 1996. The value of these lands is between $900 million and $1 billion. Proceeds will be used to strengthen our balance sheet. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 2] JOHN T. DILLON President and Chief Operating Officer - -------------------------------------------------------------------------------- During 1995, International Paper strengthened its top management team. John Dillon was elected President and COO. David Oskin returned to the Company as an EVP after serving four years as CEO of Carter Holt Harvey. Marianne Parrs was appointed Sr. VP and CFO, replacing Robert Butler, who retired and whose achievements at International Paper we appreciate. Subsequently, Mike Amick and Milan Turk were named EVPs. Richard Phillips became Sr. VP and Robert Amen became President of International Paper, Europe. Wes Smith was elected a Director of the Company. We are proud of our 1995 performance. We expect 1996 to be a difficult year, but one that will bring major product and productivity improvements and serve as a platform for expanded future growth and shareholder return. Symbolic of our expectations--our ongoing quest for excellence--is our sponsorship of the 1996 Olympic Games in Atlanta this summer. On March 31, I will retire as Chairman and CEO and John Dillon will succeed me. It has been a privilege for me to serve as the CEO for these past 11 years. My colleagues and I have managed an immense amount of change. We have improved our operations, strengthened and expanded our product lines and grown in international markets. I'm particularly excited with the progress made in the development of our people. We are a stronger, more dynamic Company managed by a superb group of executives. I'm confident the Company will do even better in the future. /s/ John A. Georges /s/ John T. Dillon John A. Georges, John T. Dillon, Chairman and President and Chief Executive Officer Chief Operating Officer February 28, 1996 LETTER TO SHAREHOLDERS 3 Printing Papers - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 3] The new paper machine at our Riverdale mill in Selma, Ala., substantially increases our capacity for reprographic papers, the market's fastest growing grade, including papers with recycled content. - -------------------------------------------------------------------------------- REVIEW OF OPERATIONS Most of us rely on the written word to acquire the information we need to make decisions every day. International Paper makes communications possible-- many of the magazines you read, the correspondence you receive, the envelopes you mail and the documents you review are printed on products by International Paper. - -------------------------------------------------------------------------------- [Printing Papers Sales Chart--Appendix A No. 5] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 4] Hearst Magazines uses Publication Gloss, a coated paper from International Paper, to produce popular magazines such as Redbook and Cosmopolitan. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 5] Businesses around the globe rely on Hammermill office papers to communicate with the world. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 6] What you see is what you get--Aussedat Rey's Reylux uses transparent packaging to let its true colors shine through. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 7] 6.2 billion dollars in printing papers sales - -------------------------------------------------------------------------------- Even with the dramatic expansion of electronic communication, more paper is used by businesses, individuals, advertisers and publishers every year. With mills on four continents, International Paper is a leading manufacturer of business and coated papers as well as various grades of pulp used worldwide. BUSINESS PAPERS The use of uncoated papers for business communications is on the rise. Far from being a paperless environment, the "office of the future" continues to rely on paper for fax machines, copiers, inkjet and laser printers. The growth of direct mail advertising is creating new demands for many business paper grades as well. Our leadership position is due to our ability to respond quickly to changing customer needs with the right products. For the past several years, our strategy has been to optimize our system to better serve our customers-- manufacturing high-volume grades on large, low-cost machines while producing lower volume, premium grades on smaller machines. We have also shut down, sold or converted nine machines that were no longer economical. As a result, we are PRINTING PAPERS 5 producing more paper on fewer machines, thereby improving our cost position across the board. Capital improvements at our Riverdale mill are a significant part of our rationalization program. A state-of-the-art uncoated papers machine, a 140,000-ton/year recycled fiber plant, two sheeters for office papers and a gas turbine were completed in 1995. The new paper machine has an annual capacity of 360,000 tons of reprographic papers, including recycled grades. The facility is helping us achieve a cost savings of $50 per ton throughout our U.S. uncoated papers system. Completion of the improvements at Riverdale served as a catalyst for the introduction of high-performance work teams. Almost half of the mill's workforce assumed new responsibilities with the start-up of the new machine and project. New work systems have already produced productivity gains in the woodyard, the pulp mill and the existing paper machine. We are devoting more resources to new products in order to capitalize on high-growth business segments. In 1995, we introduced Hammermill Jet Print Ultra, a paper product designed to produce vivid color on high-resolution inkjet printers, allowing our customers to maximize the performance of their office equipment. Strathmore Elements, the new text and cover grade introduced in 1994, received a prestigious award from the Industrial Design Society of America, the first time a paper product has been recognized for its design. Our new product strategy has begun to pay off; in 1995, 12% of our U.S. printing papers sales were of new, premium products. Our goal for 1996 is to double the rate of new product introductions, and we expect to use 30% of our system capacity for value-added grades. We have also made good progress in our customer service efforts. In 1995, we began operating the first phase of PaperPro, a multimillion dollar order management and information system. Other initiatives have allowed us to increase our on-time shipping - -------------------------------------------------------------------------------- BUSINESS PAPERS When the business world communicates, much of the information it conveys appears on high-quality business papers by International Paper. In the U.S., we are a producer of a wide variety of copy, offset, tablet and forms bond papers including Hammermill, Springhill, Beckett and Strathmore. In Europe, Aussedat Rey is one of the largest producers of business papers, including the highly regarded Reylux, Reymat, EverRey and Adagio brands. Our Kwidzyn mill in Poland produces the Pollux brand of business papers, newsprint and coated board, some of which is sold in Europe through Aussedat Rey. - -------------------------------------------------------------------------------- [Business Papers Sales to Geographic Areas Chart--Appendix A No. 6] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 8] Our newly renovated mill near Gdansk, Poland, produces Pollux brand paper products for distribution throughout Europe. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 9] Redesigned Strathmore Writing System--fine papers for business cards and announcements--was recently introduced. - -------------------------------------------------------------------------------- PRINTING PAPERS 6 percentage, which improved to 95% in 1995, up from about 90% in 1994. In Europe, modernization of the Kwidzyn mill near Gdansk, Poland, is nearing completion, and its printing papers and pulp products are now commercially competitive throughout Europe. In 1995, sales exceeded 400,000 metric tons, about double the mill's output when it was acquired by International Paper in 1992. We expect production to reach 600,000 metric tons with the rebuild of the mill's No. 4 machine, which will produce coated multi-ply folding boxboard. We also produce newsprint at Kwidzyn. Aussedat Rey in France annually produces 70 million reams of business papers at its Saillat mill, accounting for 13% of European office paper sales. Aussedat Rey's success can be attributed to its advanced technical and marketing capabilities. For example, by working closely with manufacturers introducing new office equipment, we ensure that our - -------------------------------------------------------------------------------- COATED PAPERS Check out the publications at your local newsstand. Chances are, much of the coated paper you see there is from International Paper. In the U.S., brand names such as Hudson Web and Publication Gloss are used for magazines, catalogs and coupon inserts, as are our recycled grades Adirondack, Saratoga and Miraweb II. France's Aussedat Rey produces Nepal and Eurospatial coated papers. In Germany, Zanders premium coated paper grades, Ikonorex and Ikonofix, are used for high-end advertising brochures and annual reports such as this one. Zanders Chromalux board is used for upscale folding cartons and displays. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 10] Left to right, David Brandon, Valassis Communications' president and chief executive officer, discusses his company's paper requirements with Charlie Deutsch, International Paper sales executive; Roy Martell-Bowen, Valassis director of paper purchasing; Erin Colombo, Valassis quality assurance supervisor; and Scott Bond, Bulkley Dunton account executive. - -------------------------------------------------------------------------------- [Coated Papers Sales to Geographic Areas Chart--Appendix A No. 7] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 11] To produce the coupon booklets that you find in your Sunday newspaper, Valassis Communications uses our custom-designed coated paper. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 12] To convey exceptional quality in catalogs and brochures, marketers choose premium papers from Zanders in Germany. - -------------------------------------------------------------------------------- PRINTING PAPERS 7 papers are tailor-made for the latest printing technology. In 1995, Aussedat Rey's marketing team developed Visio transparent packaging that allows customers to see the exact color of the paper they are buying, without sacrificing product protection. New Zealand's Carter Holt Harvey produces premium fine papers at its Mataura mill. Mataura's product mix includes white and colored bond used for letterheads, stationery and general printing papers; several brands of reprographic paper; check paper and recycled kraft grades. COATED PAPERS Many magazines, catalogs and advertising inserts are printed on International Paper's coated papers. Our global coated papers operations accounted for 1.1 million tons of production for customers around the world in 1995. In the U.S., we have made excellent progress simply by listening to our customers. When well-known cataloger Victoria's Secret required a coated paper that would make its products look as good in its catalogs as they do in its showrooms, we developed a custom coated paper that provides high gloss and excellent print quality. Our success in the coated papers business, as well as our unique technology, will help us bring 200,000 tons of new coated freesheet capacity on-line in 1996 as we convert an uncoated papers machine at our Androscoggin mill in Jay, Me., to coated freesheet paper production. This project shows our major commitment to the coated freesheet business. Our goal is to provide an outstanding new web freesheet line for commercial printers, upscale catalogs and magazines. To that end, Androscoggin will employ proprietary technological applications that will enable us to manufacture a world-class coated freesheet at a competitive advantage. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 13] International Paper's coated paper Miraweb II was donated to the U.S. Olympic Committee and was used to produce Olympian, its official publication. - -------------------------------------------------------------------------------- In Europe, we are improving productivity by streamlining operations and investing in modernization. For example, we are changing the way our people work by implementing high-performance work systems, extensive training programs, low-capital debottlenecking and significant process improvements. We are developing new products and entering new markets with unprecedented speed, and we are improving the quality of our products and customer service capabilities. Our German subsidiary, Zanders, is building on its international reputation as a producer of some of the world's finest coated and specialty papers. Its premier papers are often used by leading companies around the world to advertise, package or label their products. The marketing success of the year was the doubling in volume of the recently introduced Mega coated freesheet product in Europe. Also at Zanders, important technical work continues to ensure the company's quality position by improving coating processes and printability of products. Major cost reduction programs are under way to improve Zanders competitiveness. PRINTING PAPERS 8 - -------------------------------------------------------------------------------- PULP Many of the products you use everyday--papers, clothing and even baby's disposable diapers--contain pulp. International Paper is a leading producer of paper, fluff and dissolving pulp worldwide. Our paper pulp grades, produced at mills in the U.S., France and Poland, are used in our own mills and also sold as market pulp worldwide. Supersoft fluff pulp is used extensively for hygiene products where excellent absorbency and purity is required. Dissolving pulp grades such as Estercell and Solvekraft are used for yarns, tow, films and plastics. - -------------------------------------------------------------------------------- [Pulp Sales to Geographic Areas Chart--Appendix A No. 8] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 14] Where can consumers find our products? Even the clothes they wear may contain our dissolving pulp. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 15] To make high-quality paper, you start with the finest pulp. Many customers insist on pulp from International Paper. - -------------------------------------------------------------------------------- Aussedat Rey in France produces Nepal and Eurospatial coated papers, brands that are popular because of their brightness, bulk and opacity. Aussedat Rey's Research Centre has developed innovative papers that offer customers genuine advantages. For example, beer-maker Heineken recently certified use of our coated wet-strength paper for its famous green labels. PULP We are a leader in the conversion of fiber to pulp for applications ranging from paper to rayon. Worldwide, we produce 1.8 million tons of market pulp each year for the paper, packaging and specialty products industries. From the U.S., we export to over 40 countries. - -------------------------------------------------------------------------------- But more than simply delivering high-quality products, we strive to add value to our customer relationships. - -------------------------------------------------------------------------------- Strong customer relationships are key to our success. In 1995, a leading consumer of chemical cellulose pulp awarded our Natchez, Miss., mill a gold award for service excellence. The award was an expression of appreciation for 100% on-time delivery, product performance and customer service. In Europe, our recently modernized pulp mill in Saillat, France, strengthens Aussedat Rey's position as Europe's largest producer of office papers while allowing them to sell more market pulp as well. Our Kwidzyn mill in Poland contributes to our European pulp business with its modern operations. In addition, through Carter Holt Harvey's 30% ownership in Chile's COPEC, we have an interest in more than 800,000 metric tons of softwood pulp sold worldwide. PRINTING PAPERS 9 PRINTING PAPERS FINANCIAL REVIEW Printing Papers achieved sales of $6.2 billion in 1995, an increase of 40% from 1994 sales of $4.4 billion. Sales in 1993 were $3.9 billion. Operating profit reached a record $1.1 billion in 1995 compared with $20 million in 1994 and a loss of $122 million in 1993. Generally favorable economic conditions worldwide and strong demand for pulp and paper fueled a recovery in our printing papers businesses beginning in the second half of 1994. These factors resulted in strong markets and substantially higher prices in 1995. Cost control and productivity measures also contributed to higher earnings. Business Papers sales were $3.3 billion in 1995, an increase of 43% over 1994 and 51% over 1993. Sales prices rose sharply in 1995, as supply was tight most of the year. In the U.S., average prices were 50% above 1994 levels. During the fourth quarter, customers began to work down inventories, sales slowed and prices began to decline. By February 1996, prices were nearly 15% below the 1995 peak and currently remain under pressure. We are taking downtime in order to control inventories. But as consumer demand remains good, we expect conditions to improve later in 1996. The 1995 start-up of a new uncoated papers machine at Riverdale was a major step toward our goals of improving our cost position and of meeting our customers' increasing desire for recycled papers. In Europe, business papers operating profit increased fourfold in 1995. Kwidzyn achieved record sales. Sales volumes improved 20%, due largely to improvements in production and quality. Aussedat Rey turned profitable due to sharply higher prices. In 1996, we anticipate that Western European economies will grow moderately and that growth in Poland will be strong. Market conditions are similar to the U.S. and prices have declined in the early part of 1996 as consumers adjust inventories. Coated Papers sales advanced nearly 30% in 1995 to $1.8 billion. Sales were $1.4 billion in 1994 and $1.1 billion in 1993. Increased use of direct mail and catalogs influenced this improvement. Our U.S. business, which is heavily weighted toward coated groundwood, enjoyed record earnings in 1995, after breaking even in 1994 and 1993. No significant new industry capacity came onstream during 1995 and operating rates were high. Average prices for coated groundwood papers were nearly 50% above 1994 and 1993 levels. Orders declined in recent months as customers reduced inventories. In Europe, following an upturn in 1994 that continued until the second quarter of 1995, coated papers orders slackened and operating rates declined. Zanders' sales increased about 20% in 1995, reflecting improvements in both volume and average prices. However, stronger sales prices did not fully compensate for higher pulp costs and weak currencies in export markets. These factors, as well as costs to restructure and reduce personnel, resulted in a loss at Zanders. Aussedat Rey was profitable in 1995 following losses in 1994 and 1993. In 1996, excess capacity will continue to affect the European coated papers markets. Performance will depend on economic conditions in France and Germany, as well as rigorous cost control and optimization of sales mix. Pulp sales increased 56% to $1.1 billion in 1995. Carter Holt Harvey contributed about 40% of the increase. Our Kwidzyn and Saillat mills in Europe operated near capacity in both 1995 and 1994, producing significantly higher volume than in 1993. Operating results improved dramatically in 1995 as the upturn in pricing continued. However, prices began to decline in the fourth quarter as demand for paper slowed. Operating results in 1996 will be lower until inventories are liquidated. - -------------------------------------------------------------------------------- [Printing Papers Net Sales Chart--Appendix A No. 9] [Printing Papers Operating Profit Chart--Appendix A No. 9] - -------------------------------------------------------------------------------- PRINTING PAPERS 10 - -------------------------------------------------------------------------------- [Printing Papers 1995 Worldwide Production Chart--Appendix A No. 10] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 16] Literary and artistic masterpieces look even better on fine printing and artist papers from Strathmore. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 17] When the copy has to look as good as the original, discerning businesses worldwide rely on Springhill reprographic papers. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 18] Our heavyweight papers find their way into products such as these folders and other office supplies. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 19] Don't tell mom, but the secret to the absorbency and light weight of today's diapers is Supersoft fluff pulp. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 20] When color, weight and texture are important, graphic designers and printers turn to premium text and cover stock from Beckett. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 21] The secret is out! Our coated paper makes products in a catalog look as good as they do in the store. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 22] Springhill Incentive 100 and Hammermill Unity contain 100% recycled fiber from old newspapers and magazines. - -------------------------------------------------------------------------------- PRINTING PAPERS 11 Packaging - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 23] Start-up of the world's largest recycled linerboard machine in Mansfield, La., makes us a low-cost producer of fast-growing premium packaging grades. - -------------------------------------------------------------------------------- REVIEW OF OPERATIONS From corrugated boxes to the milk cartons familiar to schoolchildren worldwide, International Paper produces packaging for a wide range of industrial and consumer applications. - -------------------------------------------------------------------------------- [Packaging Sales Chart--Appendix A No. 11] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 24] Few products are as fragile as fruits and vegetables, which is why growers buy so much of their agricultural packaging from our container division. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 25] Kids, parents and other consumers appreciate the freshness and long shelf life of juice and other beverages in our aseptic packages. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 26] Our new label plant in Bowling Green, Ky., serves diverse markets with its printing expertise. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 27] 4.4 billion dollars in packaging sales - -------------------------------------------------------------------------------- International Paper's packaging products help customers keep their goods fresh, secure and attractive. The segment is composed of both industrial and consumer- oriented businesses, each with different products and capabilities. Yet both businesses add value in similar ways: by listening and responding to customers' needs. INDUSTRIAL PACKAGING International Paper's containerboard products are leading the evolution of corrugated shipping containers from commodity-like products to value-added solutions to businesses' distribution and merchandising needs. In December, we significantly improved our position as a supplier of premium-grade containerboard with the start-up of the world's largest recycled linerboard machine in Mansfield, La. The machine produces the industry's widest product range, with capacity of up to 1,200 tons of linerboard daily and the ability to use a variety of waste paper grades, giving us a substantial presence in the recycled linerboard business. The new machine also increases our capacity to manufacture visual-appeal grades for upscale printing applications. For example, our new white-top grade fills a need for a bright, smooth substrate positioned in the market between mottled white and fully bleached linerboard. PACKAGING 13 In 1995, specialty grades accounted for one-third of containerboard shipments, a threefold increase since 1985. We expect sales of specialty containerboard grades to grow 7% annually as converters increasingly seek the ability to print colorful graphics on corrugated containers. New Zealand's Carter Holt Harvey is an important addition to our industrial packaging business. The fully integrated Kinleith mill complex, the largest in Australasia, is New Zealand's only linerboard producer. It produces containerboard, sackkraft and specialty packaging papers for conversion into box and bag packaging products. In addition, the Penrose mill is New Zealand's only manufacturer of corrugating medium. - -------------------------------------------------------------------------------- INDUSTRIAL PACKAGING Every day, businesses around the world ship goods that are protected in corrugated packaging supplied by International Paper. We have one of the industry's widest ranges of containerboard grades, the principal component of corrugated boxes and other industrial packages, including our well-known Pine liner, ColorBrite, KlaWhite and StarLite brands. We produce corrugated boxes in the U.S., Europe and New Zealand for products ranging from perishable foods to fragile electronics. And we manufacture a broad array of kraft papers as well as multiwall and retail bags for retailers and manufacturers worldwide. - -------------------------------------------------------------------------------- [Industrial Packaging Sales Chart--Appendix A No. 12] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 28] J.C. Penney understands that the shopping experience only gets better when customers carry purchases home in our kraft paper bags. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 29] Products look as good on the box as they do inside the package when the outer liner is preprinted by our U.S. container division. - -------------------------------------------------------------------------------- About 60% of the volume of containerboard produced in our U.S. mill system is converted in our U.S. container plants, where we provide over 43,000 different corrugated packaging products for industries ranging from foods to electronics. We have improved productivity in our plants through continuing investments in equipment, training and management systems, and now are producing more volume per plant than ever before. Growth is being enhanced by implementing effective partnerships with customers. These initiatives, along with creative designs, flexible processes, and constant attention to quality and customer service, underlie a 23% increase in productivity since 1992. We expect productivity to increase another 25% by year-end 1998. Our proudest accomplishments, however, are not statistical results, but the ways in which we help our customers. When Tyson Foods needed to improve the condition of chicken drumsticks on the bottom layers of pallets shipped to supermarkets, we helped solve the problem with our ClassicPak7 shipping container. This innovative octagonal container, engineered to provide high- compression strength in wet and cold conditions, was designed specifically to maximize pallet utilization. As a result, even the Tyson drumsticks PACKAGING 14 on the bottom of the pallet arrive at their destinations in excellent condition. In Europe, we are a leading provider of packaging for agricultural products. Extensive modernization of plants in Spain and Italy, start-up of a new plant in the U.K. in 1996, and significant productivity gains will continue to strengthen our status as a supplier of value-added boxes. We are proactive in developing customer-oriented packaging solutions. For example, in 1995, our Valladolid, Spain, facility successfully introduced a new single-wall Plaform box for the shipment and display of peppers that incorporates a 7% savings in materials cost while providing 10% more shipping capacity. With 10 packaging plants in New Zealand, Carter Holt Harvey is a leading producer of corrugated and solid fiberboard boxes used primarily in the food industry for exports of dairy products, meat, apples, pears and kiwifruit. The company is also New Zealand's leading kraft packaging producer, manufacturing retail bags and multi-ply paper sacks for industrial, agricultural and consumer uses. International Paper produces kraft packaging for dozens of different consumer and industrial applications. The retail segment of the kraft business is growing particularly well, due to our products' diversity, durable construction, and high-quality printing and graphics. We also provide recycled and recyclable kraft packaging. Seventeen percent of our kraft packaging shipments contain recycled fiber. The newest addition to our Camden series of multiwall kraft paper grades is a premier extensible paper with superior stretch and durability features. CONSUMER PACKAGING More than ever, our customers require greater visual appeal and improved performance from our products. Internationally, expanding economies are stimulating demand for consumer products that require attractive and durable packaging. Everest bleached board is well accepted in the marketplace because of its exceptional smoothness and printability, making it a superior material for companies seeking high-impact packaging. Everest Spring, a newly formulated folding carton board for food packaging, was recently introduced to meet the need for a more cost-effective board with superior printing qualities. These bleached board products are used extensively to package products that touch the lives of millions of consumers, including pharmaceuticals, cosmetics, software, electronics, food, cups and trays. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 30] ClassicPak7 shipping containers help customers such as Tyson Foods protect their perishable goods even in cold and wet conditions. - -------------------------------------------------------------------------------- Carter Holt Harvey's Whakatane mill is New Zealand's sole producer of bleached cartonboard and point-of-sale paperboard packaging materials, much of which is sold to converters in New Zealand, Australia and across the Pacific Rim. About half of our U.S. bleached board production is used by our own liquid packaging PACKAGING 15 and folding carton systems. Use of liquid packaging is increasing worldwide as demand grows for fresh milk and juice in Europe, Latin America and Asia. During 1995, the Company operated 18 liquid packaging plants in 9 countries, and we are expanding our presence worldwide. For example, a new gable-top carton plant in Shanghai, scheduled for start-up in 1996, will serve more than one billion potential consumers in the People's Republic of China. - -------------------------------------------------------------------------------- Our challenge is to add value through new product development, enhanced graphics and features that set our products apart. - -------------------------------------------------------------------------------- What makes our liquid packaging so popular? Ask our customers. Lykes Pasco Inc., makers of chilled juices such as FloridaGold(R) orange juice, recently chose International Paper as an exclusive supplier. It attributes its choice to our ability to supply a complete system consisting of cartons, SpoutPak fitments and Evergreen packaging machines. In addition, our lithographic and rotogravure printing capabilities produce sharp, colorful images, enabling customers to maximize their point-of-sale merchandising opportunities. The global aseptic packaging business has grown at an average annual rate of 7% over the last decade. We have taken steps to capture a larger share through capital investments in new equipment and technology. Improvements at our Raleigh, N.C., facility will allow us to take advantage of growth opportunities around the world, especially in Latin America. We will extend our global reach in 1996 with a new plant in Lyon, France. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 31] When Microsoft launched the most eagerly anticipated software product of 1995, Microsoft(R) Windows(R) 95, it relied on our Everest bleached board to protect and merchandise its flagship operating system. - -------------------------------------------------------------------------------- Our success means success for our customers. For example, Johanna Foods, Inc. and Apple & Eve, leading producers of beverage products such as Ssips(R), Jjust Jjuicy(TM), Nothin' PACKAGING 16 But Juice(R) and Apple & Eve(R), enjoy the benefits of our high-speed filling systems in 250ml and 300ml sizes. In fact, Johanna Foods, Inc. set new production records within one year of installation. Around the world, our folding cartons protect and merchandise dry and frozen foods, baked goods, beverages and tobacco products. Our bleached board division adapted our new Everest Spring product for a major fast-food customer that will be using it for all its chicken boxes in 1996. New state-of-the-art printing presses and cutting equipment at our Cincinnati, Ohio, facility provide our customers with high-impact graphics and reduced cycle times. As the only integrated supplier of labels to the beverage, food and household chemical industries, we can develop new substrates tailored to specific applications. Polyweave, produced at our Lock Haven, Pa., mill, is a label applied to HDPE plastic bottles. Since Polyweave labels are made from the same material as the bottle, the entire package is recyclable. - -------------------------------------------------------------------------------- CONSUMER PACKAGING The next time you visit your local store, chances are that many of the items you see are packaged in International Paper products. We are a leading producer of high-quality Everest bleached board. Our worldwide liquid packaging division uses some of that production to manufacture a variety of gable-top and aseptic packaging products for milk, juice and other beverages. Our folding carton and label division makes paperboard containers and labels for markets worldwide. Our bleached board is also used to produce food service items such as plates, cups and trays. - -------------------------------------------------------------------------------- [Consumer Packaging Sales Chart--Appendix A No. 13] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 32] SpoutPak cartons are easy-to-pour and provide extended shelf life for juice and dairy products. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 33] Everest bleached board is used for beverage cups to provide eye-catching graphics. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 34] Within one year after switching to our high-speed Fuji aseptic filling system, leading juice producer Johanna Foods, Inc. set new production records at its Flemington, N.J., facility. - -------------------------------------------------------------------------------- PACKAGING 17 PACKAGING FINANCIAL REVIEW Packaging sales were $4.4 billion in 1995 compared with $3.4 billion in 1994 and $3.1 billion in 1993. Operating profit was $741 million, two-and-one-half times 1994 earnings of $293 million and substantially greater than 1993 earnings of $188 million. The recovery in packaging markets that began in 1994 continued through the first half of 1995. Significant year-over-year improvement in sales prices was the major reason for higher earnings for the year. Industrial Packaging sales increased nearly 40% in 1995 to $3.0 billion. About 35% of the increase was attributable to the addition of Carter Holt Harvey beginning in May, and the balance, to higher prices. Sales in 1993 were $2.0 billion. Industrial packaging posted a more-than-threefold improvement in operating profit in 1995. Accelerated demand for containerboard, which began in early 1994, continued into 1995. Containerboard prices in U.S. markets averaged $130 per ton higher in 1995 than in 1994, and box prices increased similarly. Our corrugated container operations performed well worldwide. And kraft paper and packaging results improved in 1995, again reflecting higher prices. However, midway through the year, demand moderated and industry inventories of containerboard rose sharply. As a result, we experienced a softening in market conditions in the latter part of 1995, and a decline in pricing. Weak industrial packaging markets have extended into 1996. In February, containerboard prices in the U.S. market were $75 per ton below the level reached last spring. We expect demand to improve later in 1996 as the U.S. economy emerges from the current slowdown and customers start to rebuild inventories. The rebound in demand should tighten the North American market by the second half, even in the face of capacity expansions. We expect that 1996 containerboard and box prices will be below 1995 levels. Our new recycled linerboard machine at Mansfield got off to a good start, and a successful ramp-up is a major objective in 1996. We will continue to improve our container plants in support of the Mansfield expansion. Also, a new box plant will begin operations in the U.K. in midyear. Consumer Packaging sales were $1.4 billion in 1995, up from $1.2 billion in 1994 and $1.1 billion in 1993. Operating profit in 1995 was twice that earned in 1994 and 1993. Bleached board markets were strong during 1995, leading our U.S. operations to a 14% improvement in volume and a 20% increase in average sales prices. However, industry operating rates slackened in the second half of the year as customers worked off inventories and new capacity came onstream. This placed downward pressure on prices, and this weakness has continued in early 1996. We expect markets to stabilize by midyear and to gradually accelerate later in the year as the economy improves. The first quarter start-up of a rebuilt machine at Kwidzyn will add to our bleached board sales. Conditions in liquid packaging are favorable. In 1996, we will continue to grow in offshore markets with the operation of new or expanded plants in France, Brazil and China. - -------------------------------------------------------------------------------- [Packaging Net Sales Chart--Appendix A No. 14] [Packaging Operating Profit Chart--Appendix A No. 14] - -------------------------------------------------------------------------------- PACKAGING 18 - -------------------------------------------------------------------------------- PACKAGING 1995 WORLDWIDE PRODUCTION (IN TONS) INDUSTRIAL PACKAGING Containerboard U.S. 2,183,000 Europe 120,000 New Zealand 289,000 - ---------------------- Total 2,592,000 Corrugated Boxes U.S. 1,371,000 Europe 770,000 New Zealand 115,000 - ---------------------- Total 2,256,000 Kraft Papers U.S. 348,000 New Zealand 26,000 - ---------------------- Total 374,000 Kraft Packaging U.S. 171,000 New Zealand 14,000 - ---------------------- Total 185,000 CONSUMER PACKAGING Bleached Board U.S. 1,105,000 New Zealand 28,000 - ---------------------- Total 1,133,000 Liquid Packaging 18 plants around the world produced over 368,000 tons of liquid packaging. Folding Carton and Label U.S. 166,000 New Zealand 95,000 - ---------------------- Total 261,000 New Zealand's Carter Holt Harvey production is for the 12 months ended December 31, 1995. International Paper owns just over 50% of Carter Holt Harvey. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 35] Multiwall bags made with our kraft paper protect and merchandise goods such as cement. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 36] The Triton beverage carrier system provides a printable and environmentally responsible alternative to plastic rings. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 37] Itambe in Brazil uses our convenient SpoutPak carton for this innovative yogurt container. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 38] Our new Polyweave label eliminates the need to remove the label before recycling plastic bottles. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 39] Carter Holt Harvey extends our Company's heritage of quality corrugated packaging to agricultural markets in the Pacific Rim. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 40] Open your kitchen cabinet and you're likely to find food products packaged in our folding cartons. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 41] Agricultural producers throughout Europe send their goods to market in Plaform trays from our international container division. - -------------------------------------------------------------------------------- PACKAGING 19 Distribution - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 42] ResourceNet International's new regional distribution facility in Dallas, Texas, uses modern inventory management technology to service its customers. - -------------------------------------------------------------------------------- REVIEW OF OPERATIONS At International Paper, customer service means more than manufacturing products that respond to our customers' needs. Through our merchant distribution businesses, we provide industry wholesalers and end-users with a vast array of products from the world's finest manufacturers. - -------------------------------------------------------------------------------- [Distribution Sales Chart--Appendix A No. 15] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 43] ResourceNet International's commitment to customer service provides for just-in- time delivery across the United States. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 44] We distribute printing papers, industrial packaging, maintenance supplies, graphic arts supplies and other products used every day by businesses and consumers. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 45] 5.0 billion dollars in distribution sales - -------------------------------------------------------------------------------- International Paper's merchant distribution capabilities help support our leadership position in important markets. By taking advantage of economies of scale, we are able to give our customers fast and efficient service for virtually any printing, packaging, graphic arts or industrial supplies product they may need. RESOURCENET INTERNATIONAL Our flagship distribution company continued to make great strides forward in 1995. Geographic acquisitions have helped ResourceNet International improve its regional balance, penetrate new markets and achieve a 73% increase in sales since 1992. As we have grown, we have created greater efficiencies by consolidating multiple locations into single regional operations. In 1995, we opened modern regional distribution facilities in Dallas, Texas, and Charlotte, N.C., replacing several smaller warehouses. A major new distribution center in Olathe, Kan., is scheduled to open in July 1996. These consolidations give us substantial cost savings, more efficient inventory utilization and better service. These multimillion dollar facilities serve as ResourceNet International's distribution DISTRIBUTION 21 hubs in their respective regions. In addition to generous amounts of warehouse space, the new facilities include showrooms, conference areas, training facilities and offices. By providing a centrally located venue for the demonstration, training and sales of new printing, electronic pre-press, bindery and packaging equipment, these distribution business centers serve as key resources for customers in the printing, graphic arts and packaging industries, thereby enhancing our relationships with them. By achieving economies of scale in each location, we are better able to support the sophisticated sales and distribution systems our customers require. In addition, ResourceNet International's growth and geographic range has been strengthened by the acquisition of several regional distribution companies over the past several years. Most recently, we grew with the addition of Kirk Paper in the western U.S. and Seaman-Patrick and Carpenter Paper in Michigan. Because each of these companies was the paper distribution leader in its respective region, we immediately attained an important position in these areas. Geographic expansion also gave us the platform we needed to expand our national accounts program, in which we provide hundreds of products to companies with multiple locations under a single contract. This program creates greater efficiencies for our larger customers and strengthens their relationships with us. - -------------------------------------------------------------------------------- DISTRIBUTION When consumers around the world use paper, industrial products and graphic arts supplies, these items may have been provided by International Paper's distribution businesses. As a leading North American distributor, ResourceNet International unites 130 wholesale facilities in the U.S., Canada and Mexico, as well as over 150 outlets for smaller customers. Aussedat Rey in France and Scaldia in the Netherlands give us broad exposure to a growing European marketplace. And Carter Holt Harvey serves retailers and end-users in New Zealand and Australia. - -------------------------------------------------------------------------------- [Sales by Major Product Chart--Appendix A No. 16] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 46] Office supplies you rely on everyday may have come from one of our many distribution businesses. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 47] Paper products from many manufacturers are a large part of our distribution businesses worldwide. - -------------------------------------------------------------------------------- ResourceNet International now encompasses 130 wholesale locations in North America, each with full warehousing capabilities and knowledgeable sales personnel. Far from being stand-alone sites, however, all of our wholesale locations will be linked electronically into a continent-wide network by 1997. Our sophisticated information system, initiated in New England during 1995, is already boosting efficiency, facilitating better communications, reducing costs and, most DISTRIBUTION 22 importantly, improving our responsiveness to customers' needs. New initiatives also made progress in 1995. We successfully implemented a national brands program in which certain products produced for us carry the ResourceNet brand name. For the small printer, small business and individual consumer, we continued to open our Express Paper and Graphics outlets in 1995. We now have over 150 of these stores open for business. Also in 1995, ResourceNet International developed the Color & Texture Selector to help customers choose the perfect paper for their specific application. The program is customized to each local region and broadens the ability to select the appropriate paper for any design need. AUSSEDAT REY FRANCE DISTRIBUTION AND SCALDIA PAPIER Just as ResourceNet International is growing aggressively in North America by improving efficiency and customer service, Aussedat Rey in France and Scaldia in the Netherlands are leveraging their own strengths in purchasing, marketing and efficient distribution. Aussedat Rey France Distribution ranks as the third largest distribution group in France and has an outstanding reputation throughout the country. Scaldia is the third largest paper merchant in the Netherlands, with particular strength in the office supplies business. CARTER HOLT HARVEY The late April 1995 acquisition of a majority interest in Carter Holt Harvey contributed a world-class distribution system serving the fast-growing markets of the Pacific Rim. The company's merchant distribution subsidiaries B.J. Ball Papers and Raleigh Paper have compiled proven track records. B.J. Ball has a major position in New Zealand's paper distribution market. In Australia, Raleigh focuses on specialty papers used by the graphic design industry for corporate annual reports and other high-end applications. Carter Holt Harvey Distributors ranks as New Zealand's only nationwide distributor of hospitality, hygiene and packaging supplies. Carter Holt Harvey Distributors is also making excellent progress in its quest to expand its industrial distribution business within the food industry. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 48] ResourceNet International developed the Color & Texture Selector computer program to assist customers in choosing the perfect paper grades for their needs. (top left) - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 49] Our experienced sales force sets us apart from the competition. Here, Bob Muse (right) meets with Lee Daniels of Daniels Printing in our Wilmington, Mass., facility. (lower left) - -------------------------------------------------------------------------------- DISTRIBUTION 23 DISTRIBUTION FINANCIAL REVIEW Distribution posted net sales of $5.0 billion in 1995, up substantially from $3.5 billion in 1994 and $3.1 billion in 1993. Operating profit for the segment was $106 million in 1995 compared with $74 million in 1994 and $58 million in 1993. Results reflect tight supply in 1995, which had a positive impact on both sales prices and volume. However, demand slipped in the latter part of the year in response to a slowdown in world economies and an inventory drawdown by customers. Our strategy to grow through internal expansion and acquisitions resulted in higher total sales as well as profits in 1995. ResourceNet International, our North American distribution business, achieved sales of $4.6 billion in 1995, a 45% increase over 1994. Adding to the year-over-year sales gain was the merger of Kirk Paper Corporation in December 1994 and the acquisitions of Seaman-Patrick Paper Company and Carpenter Paper Company in January 1995. Excluding these additions, sales increased 24% compared with 1994 sales. In 1995, our North American companies continued their transition toward being a unified premier merchant operating under the ResourceNet International identity. In this regard, we opened a regional warehouse in Dallas, Texas, and proceeded with plans for another in Olathe, Kan. In addition to consolidating a number of smaller operations into larger, more economical locations, these facilities will function as operational "hubs," allowing ResourceNet International to more effectively serve customers and manage inventories. Additional realignments are planned for 1996. Further enhancing our integration activities, we are implementing a common operating system, which we initiated in the New England region during 1995. This system provides us with information to reduce operating costs and provide better service for our customers. Finally, during 1995, ResourceNet International expanded its national accounts program. This program uses our national presence, vast product offerings and excellent service to respond to customers nationwide. Our international distribution businesses posted sales of $456 million in 1995. Results for our European operations, based in France and the Netherlands, reflected strong economic conditions in Western Europe, particularly in France, where demand was good and higher prices were realized during much of the year. The European business was profitable in 1995, following small operating losses in the last few years. In addition, Carter Holt Harvey's distribution operations in New Zealand and Australia contributed favorably to the segment's 1995 results. As in our printing papers and packaging businesses, we expect to experience a period of soft market demand in the early part of 1996 as customers continue to reduce inventories. Our distribution businesses will meet the challenge, using their competitive strengths to penetrate profitable markets, reduce costs and increase customer responsiveness. We expect demand to improve later in the year, boosted by an acceleration in world economic growth. - -------------------------------------------------------------------------------- [Distribution Net Sales Chart--Appendix A No. 17] [Distribution Operating Profit Chart--Appendix A No. 17] - -------------------------------------------------------------------------------- DISTRIBUTION 24 - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 50] ResourceNet International expanded its distribution business in 1994 with the acquisition of two Mexican paper distributors. - -------------------------------------------------------------------------------- [Map--Appendix B No. 51] ResourceNet International operates 130 full-service distribution facilities across North America. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 52] Our European distribution operations include Aussedat Rey in France and Scaldia in the Netherlands. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 53] In 1995, ResourceNet International initiated a sophisticated information system. All of our wholesale locations should be linked electronically by 1997. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 54] Industrial supplies are also available from ResourceNet International locations across the country. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 55] Our ColorLok precision printing products complement one another--giving our customers superior performance. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 56] Our diverse product range includes items for the food service industry. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 57] Our distribution businesses market a wide range of office supplies to their customers, including envelopes in many colors and sizes. - -------------------------------------------------------------------------------- DISTRIBUTION 25 Specialty Products - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 58] Customers can choose from among our many styles to pick the perfect door for their home with Masonite's CraftMaster molded door display, shown here at Jaeger Lumber in Madison, N.J. - -------------------------------------------------------------------------------- REVIEW OF OPERATIONS Few consumers think of International Paper as a well-known manufacturer of molded door facings, printing plates, disposable diaper components, label backings, and resins for inks and adhesives. Yet sales of specialty products such as these constitute a $3.3 billion business, making International Paper far more than your typical paper and forest products company. - -------------------------------------------------------------------------------- [Specialty Products Sales Chart--Appendix A No. 18] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 59] Fountainhead by Nevamar countertops offered in many colors and finishes are on the cutting edge of style. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 60] Black-and-white and color films made by Ilford are used by professional photographers worldwide. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 61] With thousands of specialized products, peel-and-stick labels are just one of the applications of our specialty papers division. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 62] Graphic arts professionals rely on Veratec's Nubtex wipes for strength and absorbency. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 63] Consumers in New Zealand and Australia are familiar with Carter Holt Harvey's tissue products. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 64] For tape that sticks, Arizona Chemical's specialized resins will do the trick. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 65] 3.3 billion dollars in specialty products sales - -------------------------------------------------------------------------------- Why is a paper and forest products company in the business of producing a diverse array of specialty products? One important reason is that these businesses make efficient use of the by-products, processes and franchises of our traditional manufacturing operations. And by using our resources and technologies in innovative ways, we are able to produce value-added products that help reduce our exposure to fluctuations in paper prices. SPECIALTY PANELS Our specialty panels business is an example. Wood chips and kraft papers are used to manufacture molded door facings and decorative laminates, respectively, for the construction industry. Our CraftMaster line of door facings has long enjoyed a strong franchise in the U.S. because of the performance advantages these products have over solid wood doors, as well as their lower cost. Over the past 10 years, sales of molded door facings have increased rapidly. We started a new door facings line at our Laurel, Miss., plant in 1995 to meet rising domestic demand for styles and sizes that satisfy new customer trends. In addition, we recently added prestained door facings and solid SPECIALTY PRODUCTS 27 door cores to the CraftMaster product line. Based on our success in the U.S. and export markets, our door facings business is about to make strong inroads internationally. Masonite recently began construction of a molded door facings plant in Ireland to satisfy European demand, which will make International Paper the largest molded door facings producer in Europe. We intend to continue the geographic expansion of this business as new opportunities arise. Our Nevamar decorative laminates businesses in the U.S. and Polyrey in France give us participation in commercial and residential construction projects and furniture manufacturing worldwide. We have long been a style leader, known for our ability to work with customers' designers to create laminates that are flexible in their uses, attractive in their styles and competitive in their pricing. For example, our new LamMates product line offers our customers a variety of high-pressure and low-pressure laminates with matching patterns. This enables furniture manufacturers to maintain their quality and styling while reducing their cost. We continually create new colors, finishes and materials--design elements that evolve from year to year to keep pace with changing fashions. - -------------------------------------------------------------------------------- SPECIALTY PANELS The next time you knock on a door, consider this: you may be face-to-face with a CraftMaster door facing by International Paper. With sales in North America, Europe and Asia, our Company is the world's leading producer of molded door facings. Masonite also manufactures Colorlok siding. Our decorative products division makes Nevamar, Micarta and Vitricor laminates and Fountainhead countertops. Other specialty panel products are produced by our Micarta and Polyrey divisions. GatorFoam and FomeCor paper-faced foam products are also part of our decorative products division. - -------------------------------------------------------------------------------- [Specialty Panels Sales to Geographic Areas Chart--Appendix A No. 19] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 66] For attractive and durable countertops--consumers rely on high-pressure laminates from our recently expanded decorative products division. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 67] FomeCor products, used in the graphic arts industry, come in an array of sizes and colors. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 68] Colorlok engineered wood siding is prefinished and easy to install. - -------------------------------------------------------------------------------- SPECIALTY PRODUCTS 28 The acquisition of Westinghouse's Micarta division in South Carolina substantially increases our high-pressure decorative laminates capacity and increases our share of the large-scale residential and office furniture business. Micarta also gives us a low-cost printing capability that allows us to print the top sheet for our decorative laminates and, in the process, add value for our customers. As a result, we are better able to expand our laminates business, explore new opportunities and maintain our position on the cutting edge of style. IMAGING PRODUCTS Our imaging products businesses are in the midst of a transformation as the professional photography and graphic arts industries move increasingly toward digital technology. Consequently, we are restructuring to ensure that we are competitive and profitable in a changing business environment. - -------------------------------------------------------------------------------- By using our resources and technology in innovative ways, we are able to produce value-added products. - -------------------------------------------------------------------------------- Several innovative new products from our imaging group are helping us keep pace. The Printasia minilab imaging system, developed in conjunction with Scitex, is a fully integrated workstation, image scanner and printer system that potentially doubles color display output for professional photo labs. The new system also enables operators to eliminate "red eye" from their customers' photos, remove unwanted information and make photographic greeting cards. In addition, Ilford's private-label color copy materials for photo kiosks in amusement arcades and stores cut processing times in half, greatly enhancing customer satisfaction. - -------------------------------------------------------------------------------- IMAGING PRODUCTS International Paper's imaging products group includes several companies that serve the professional photography and graphic arts markets. Ilford manufactures photographic films and papers; their black-and-white films in particular are appreciated by professionals for their quality and value. Anitec and Horsell produce printing film and plates, respectively, for graphic arts and commercial printing processes. And our investment in Scitex gives us an equity interest in a well-known producer of digital electronic graphic art technologies. - -------------------------------------------------------------------------------- [Imaging Products Sales to Geographic Areas Chart--Appendix A No. 20] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 69] Well-known Anitec films, papers and plates are sold to the printing industry. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 70] Professional photographers use our Ilford film and papers for professional results. - -------------------------------------------------------------------------------- SPECIALTY PRODUCTS 29 SPECIALTY PAPERS As more consumer hygiene products, industrial sealants and tapes, and pressure- sensitive labels incorporate silicone-backed papers, Thilmany, Akrosil and Nicolet are working individually and in concert to increase our position in this growing business. In 1995, Nicolet and Thilmany cooperated in the start-up of a machine that adds new capacity in release-backing papers. Akrosil started up a new silicone coater and acquired a coating facility in Canada and will start up another line in 1996, completing a 40% expansion of its capacity. As we continue to look for ways to achieve synergies among our businesses, Nicolet, Hammermill and Springhill have joined forces to supply both backing and face papers to manufacturers of pressure-sensitive labels, making International Paper a full-line supplier of these materials for the first time. Similarly, Thilmany worked with our bleached board and Veratec divisions to create DataGuard, an innovative package for CD-ROMs that is printable and protects the sensitive media inside. Other 1995 product developments include new differential silicone coating grades by Akrosil for the production of two-sided industrial tapes with different release values on each side. Led by new product innovations, Akrosil grew twice as fast as the pressure-sensitive label business in 1995. - -------------------------------------------------------------------------------- SPECIALTY PAPERS International Paper produced 286,000 tons of specialty papers in 1995, making us an important supplier of the papers used in thousands of specialized applications. For example, peel-and-stick labels continue to replace old-fash- ioned lick-and-stick adhesive labels in uses ranging from airline-baggage tags to overnight-courier airbills. International Paper divisions Akrosil, Thilmany and Nicolet have been at the forefront of the specialty papers industry, developing new products and processes to help customers maintain a competitive edge in a rapidly evolving market. - -------------------------------------------------------------------------------- [Specialty Papers Sales to Geographic Areas Chart--Appendix A No. 21] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 71] Our specialty papers business makes the paper for the peel-off strips and Veratec produces the padding for this bandage. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 72] These Crescent rolls from Pillsbury are kept fresh with one of the many unique specialty papers made by our Thilmany mill. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 73] Our specialty papers business is reaching new heights as our customers continue to find new uses for pressure-sensitive labels. (lower right) - -------------------------------------------------------------------------------- SPECIALTY PRODUCTS 30 - -------------------------------------------------------------------------------- NONWOVENS Veratec is growing as a supplier of spunbond fabrics used in components of personal hygiene and other consumer products. Serving markets worldwide, Veratec manufactures nonwovens in the U.S. and Canada. In 1996, the start-up of a new plant in Mexico will serve Latin American markets. Veratec is also the world's leading producer of bleached cotton used in feminine hygiene products and medical applications. Veratec's dramatic new process, InterSpun Enhanced Fabric, improves woven fabrics performance and appearance. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 74] Veratec's newest offering in the media market, DataGuard, is poised to capitalize on the explosive growth in compact discs and CD-ROMs. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 75] Veratec's EverSpun nonwoven provides the softness and strength customers need in absorbent products. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 76] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 77] InterSpun Enhanced Fabric gives clothing and upholstery softness and durability while reducing the need for chemical treatment or back-coating. - -------------------------------------------------------------------------------- NONWOVENS Manufacturers of consumer disposable products such as diapers and feminine hygiene products continually seek lighter weight materials with high strength for their products components. Our nonwovens business, Veratec, is expanding its spunbond capacity to meet this need internationally. Our second full-scale spunbond line began operation in Toronto, Canada, in 1995, and a new world-class plant in Mexico is scheduled for start-up in 1996. These facilities will satisfy growing demand and will help us achieve our goal of being a leading supplier of lightweight spunbond material. In addition to expanding capacity for the spunbond process, Veratec developed and began commercial production of InterSpun Enhanced Fabric, a dramatic new process that makes woven fabrics look and perform better. This revolutionary process uses jets of water under high pressure to enhance the performance, texture and appearance of textile manufacturers' products. For example, InterSpun can make upholstery stronger and clothing softer. TISSUE Our move to majority ownership in Carter Holt Harvey gave International Paper entry into the tissue business in New Zealand and Australia. Reinforced by the January 1995 acquisition of the Australian tissue operations of Bowater plc, Carter Holt Harvey is now the SPECIALTY PRODUCTS 31 largest tissue-products manufacturer in Australasia. Carter Holt Harvey is also a major supplier of New Zealand's toilet tissue, facial tissue, kitchen and commercial towels, serviettes and medical disposables. In addition, it is a major producer of "nappie" products at its Kawerau, New Zealand, mill. Capital investment in new plant and technology and a commitment to innovation in product development has ensured responsiveness to changing consumer trends and market competitiveness. - -------------------------------------------------------------------------------- TISSUE With 1995 production of 120,000 tons, Carter Holt Harvey ranks as New Zealand and Australia's leading manufacturer of crepe and flat tissue papers and a converter of tissue products such as toilet tissue, facial tissue, kitchen towels and disposable medical supplies. Marketed under a portfolio of brand names that enjoy strong awareness among consumers, the company's tissue products are used extensively throughout New Zealand and Australia. Carter Holt Harvey is New Zealand's only manufacturer of toilet tissue. - -------------------------------------------------------------------------------- [Tissue Sales to Geographic Areas Chart--Appendix A No. 22] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 78] Toilet tissue is one of the largest product lines in Carter Holt Harvey's tissue business. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 79] Carter Holt Harvey's tissue products--such as these paper towels--are part of everyday life for consumers in New Zealand and Australia. - -------------------------------------------------------------------------------- CHEMICALS AND PETROLEUM Arizona Chemical continues its evolution from a provider of commodity products to a producer of specialty products. Already one of the world's leading processors of crude tall oil and crude sulfate turpentine, Arizona Chemical is increasing production of resins that are in demand by manufacturers of printing inks, adhesives and chewing gum. Arizona Chemical established new sales records in 1995, primarily the result of expanded production of several key products and the European acquisition of the inks and adhesives resin business of DSM, with operations in France and the Netherlands. The acquisition strengthens Arizona Chemical's reputation as an innovator in the field of resin technology. For example, in 1995, the division introduced new resins that can change the surface characteristics of plastics to significantly improve their ability to bond with other substrates. In addition, Arizona Chemical doubled capacity at the Oakdale, La., facility for rosin-based resins used in printing ink and coating applications. Our petroleum and minerals division manages the mineral rights for more than five million acres of Company land at the same time that it explores on- and off-shore for new oil and gas reserves. Thanks to our energy development and exploration initiatives, our production is the equivalent of approximately half of International Paper's purchased energy SPECIALTY PRODUCTS 32 needs, offering protection against adverse energy price fluctuations. Development of our 750-well Sugg Ranch field in West Texas is nearing completion, and we are expanding exploration to new locations in Texas and the Gulf of Mexico. Using sophisticated three-dimensional seismic mineral exploration technologies, we have already discovered several new oil and gas reserves in the Gulf of Mexico, two of which have been classified as significant sources of natural gas. The new technology also helps reduce the economic risks of exploration by enabling our geoscientists to identify and map deep geological structures with greater accuracy. - -------------------------------------------------------------------------------- CHEMICALS AND PETROLEUM By-products of our papermaking operations are used in the manufacture of chemicals used in a variety of industrial applications and processes. With plants in the U.S. and in Europe, Arizona Chemical ranks as one of the world's leading processors of crude tall oil and crude sulfate turpentine and is a prominent supplier of resins used in inks and adhesives. Our petroleum and minerals operation develops and manages mineral resources on International Paper's land. The division also actively explores and develops oil and gas reserves in the southern U.S. and Gulf of Mexico. - -------------------------------------------------------------------------------- [Chemicals and Petroleum Sales to Geographic Areas Chart--Appendix A No. 23] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 80] With the acquisition of the inks and adhesives resin business of DSM in Europe, Arizona Chemical increased its capacity to produce resins used in printing inks. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 81] Your everyday tire may contain resins from Arizona Chemical as well as petroleum-based products. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 82] Arizona Chemical's food-grade resins find their way into products such as gum. - -------------------------------------------------------------------------------- SPECIALTY PRODUCTS 33 SPECIALTY PRODUCTS FINANCIAL REVIEW Sales increased across our portfolio of specialty products businesses in 1995, and totaled $3.3 billion. This compares to sales of $2.6 billion in 1994 and $2.5 billion in 1993. However, operating profit for the segment declined to $207 million in 1995 from $268 million in 1994 and $263 million in 1993. Specialty Panels sales improved 34% in 1995 to $1.0 billion, while earnings declined 3%. This decline followed a 30% increase in 1994. Carter Holt Harvey's building products accounted for about one-half of the sales increase and contributed favorably to earnings. Masonite's earnings reflected costs associated with a new production line in Laurel, Miss., and increased marketing activities in Europe and the Far East. In decorative laminates, we improved our market position in high-pressure laminates with the acquisition of Micarta and with growth in the commercial segment. However, low-pressure product sales declined due to soft demand and competition by Canadian imports. As for 1996, we expect specialty panels sales and earnings to improve along with stronger construction activity later in the year. Imaging Products sales increased 6% to $775 million in 1995. Sales totaled $730 million in 1994 and $700 million in 1993. Our graphic arts business continued to face intense industry-wide competition, causing the division to sustain an operating loss in 1995. It was modestly profitable in 1994 and 1993. The 1995 loss includes costs to reduce staffing and to reposition the graphic arts business. In the first quarter of 1996, a reserve was established, reflecting the necessary restructuring that will allow that business to compete more effectively. Our offset printing plate and pressroom chemical product lines are growing and continue to gain market share. We expect 1996 operating results, before the effect of the reserve, to improve as we continue to restructure graphic arts. Specialty Papers posted sales of $530 million in 1995, a 15% increase over 1994 due to higher prices. Operating profits improved 14%, following an 8% increase in 1994. Thilmany achieved both greater productivity and a better product mix during the year. These factors, together with strong demand, accounted for the improved earnings in 1995. We expect higher specialty papers sales and earnings in 1996. We are anticipating the growth of Akrosil's silicone-coating business with the start-up of a new coater in 1996. The Tissue operations of Carter Holt Harvey added $265 million to segment sales in 1995 and accounted for 10% of segment operating profit. In January 1995, Carter Holt Harvey purchased the Australian tissue operations of Bowater plc. In 1996, Carter Holt Harvey will integrate these operations with its operations in New Zealand. Nonwovens sales increased 8% to $265 million in 1995, as Veratec successfully started up a second spunbond line in Toronto, Canada. However, business results were adversely affected by lower profits in the diskette liner business and by costs associated with the commercialization of InterSpun, a unique fabric-enhancing process. We expect Veratec results to improve in 1996, as additional spunbond capacity comes onstream in Mexico and as InterSpun sales grow. The combined sales of our Chemicals and Petroleum businesses were $445 million in 1995, 14% higher than 1994. Chemicals sales increased 21%, while earnings were flat. European demand was strong for specialty chemicals and we acquired an ink resins manufacturer in France. Higher prices had a favorable impact on margins in both the U.S. and European markets. However, these gains were offset by higher environmental-related costs. We expect better results in 1996 as demand for specialty chemicals continues to grow worldwide. Petroleum sales and profits declined in 1995 due to lower production at a major field and lower gas prices. In 1996, petroleum sales and earnings are expected to improve as we increase production of reserves developed in 1995. - -------------------------------------------------------------------------------- [Specialty Products Net Sales Chart--Appendix A No. 24] [Specialty Products Net Sales Chart--Appendix A No. 24] - -------------------------------------------------------------------------------- SPECIALTY PRODUCTS 34 - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 83] With a range of complementary products and its palette of decorative finishes, France's Polyrey is the ideal partner for the interior design of both offices and homes. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 84] Our specialty papers division makes the paper for the glassine window in this envelope. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 85] Our inks and adhesives resin business grew this year in Europe with the acquisition of a plant in France. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 86] Our imaging business is positioning for growth in changing printing markets. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 87] Nonwoven liners are an important component in computer diskettes--and an important product for our Veratec division. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 88] Carter Holt Harvey's tissue business has a large product range--stretching from diapers to paper towels. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 89] In New Zealand and Australia, many parents put "nappies" from Carter Holt Harvey on their children. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 90] Doors made from CraftMaster door facings can inspire beautiful rooms and are the choice for homeowners and professional contractors. - -------------------------------------------------------------------------------- SPECIALTY PRODUCTS 35 Forest Products - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 91] Carter Holt Harvey owns and manages approximately 800,000 acres of radiata pine plantation forest in New Zealand. - -------------------------------------------------------------------------------- REVIEW OF OPERATIONS International Paper is a leader in the management of forestlands. From creating new ways to renew and harvest our forestlands to developing low-cost and improved substitutes for traditional wood products, we are committed to utilizing our natural resources in a manner that is responsible environmentally and economically. - -------------------------------------------------------------------------------- [Forest Products Sales Chart--Appendix A No. 25] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 92] Our foresters harvest unopened, ripe pine cones from superior trees which yield seeds that are sowed in nurseries and eventually used for replanting. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 93] Our wood products business produces lumber, plywood, hardboard siding and oriented strand board. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 94] 2.1 billion dollars in forest products sales - -------------------------------------------------------------------------------- Whether we are improving logging operations on our forestlands or processing lumber in our sawmills, the continued vitality of our forestlands is paramount. That's not just good environmental policy--it is also good common sense: our future depends on the continuing availability of abundant, renewable resources. FORESTLANDS At International Paper, we take our stewardship responsibilities very seriously. We strive to strike a balance between the public's need for forest products and the well-being of the forest environment. In the U.S., we have developed advanced land management techniques that enable us to harvest trees while providing for watershed protection, wildlife habitat preservation and recreational opportunities. In 1995, we completed a decade-long soil survey of all our forestlands. This information is the cornerstone of our decisions about harvesting, replanting and other silvicultural treatments. We also introduced the Geographical Information System, a computer-based program that includes detailed data about our forestlands, promoting efficient, integrated and long-term management of our forests at the field-office level. FOREST PRODUCTS 37 Forest regeneration is a critical part of our operations. We grew 200 million seedlings in our nurseries during 1995, of which 50 million were planted on 90,000 acres of our land and the balance was donated or sold to public and private landowners. In addition, our new Sustainable Forest Technologies business promotes reforestation in the southern U.S. Conservation is also an important aspect of our operations. We recently worked with The Conservation Fund and the State of North Carolina to preserve 6,000 acres of wetlands near Lake Waccamaw. The land will become part of North Carolina's park system, forever preserved in its natural state. International Paper has entered into a landmark environmental and research partnership with the National Audubon Society designed to evaluate forest management practices and means of assuring habitat protection in sensitive forested ecosystems. Specifically, the study on Company land will focus on the ecology of migratory birds, amphibians and reptiles. Additional partners in this joint research include the U.S. Forest Service Center for Forested Wetlands, the National Council of the Paper Industry for Air and Stream Improvement, the South Carolina Department of Natural Resources and three major universities: Clemson, North Carolina State and the University of Georgia Savannah River Ecology Lab. With more than 800,000 acres of renewable radiata pine forests, Carter Holt Harvey gives us access to export markets throughout the Pacific Rim, where rapid economic growth is fueling a construction boom. Carter Holt Harvey also has a 30% stake in COPEC, one of the largest industrial companies in Chile. COPEC's principal business, Arauco, owns about one million acres of radiata pine forests in South America. - -------------------------------------------------------------------------------- FORESTLANDS The mountains of New York's Adirondack region, the valleys of East Texas and the rolling terrain of New Zealand have one thing in common: each is home to forestlands owned or managed by International Paper. We control approximately six million acres in the U.S. mainly through IP Timberlands, Ltd., and we have an interest in 800,000 acres in New Zealand owned by Carter Holt Harvey. These operations serve global markets for lumber and fiber and supply raw materials for our papermaking, packaging and specialty products businesses worldwide. - -------------------------------------------------------------------------------- [Forestlands Sales to Geographic Areas Chart--Appendix A No. 26] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 95] International Paper developed fast-growing SuperTree pine seedlings to renew harvested tracts of land. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 96] Radiata pine harvests on Carter Holt Harvey's plantations in New Zealand will increase by 80% over the next 15 years. - -------------------------------------------------------------------------------- WOOD PRODUCTS We continue to improve the cost position of our wood products business through improved log recovery and enhanced productivity. Quality improvement processes at the FOREST PRODUCTS 38 Gurdon, Ark., and Whelen Springs, Ark., facilities have produced average annual savings of $2 million over the past six years. Our structural panels business is increasing production of lower-cost oriented strand board. Our new, 350-million-square-feet/year oriented strand board mill in Jefferson, Texas, will more than double our capacity in 1996. As New Zealand's largest lumber producer, Carter Holt Harvey is enjoying good demand. A portion of its lumber, plywood and wood composite panels are sold through its own building materials outlets, including Carters, the nation's second largest building materials merchandiser. Exports, primarily to Australia and Japan, account for almost half of its sales. The 1995 acquisition of Bowater plc's sawmilling and plywood businesses strengthens Carter Holt Harvey in Australia. The company also established an office in Bangkok for sales of wood products, as well as a joint venture in Thailand to build timber-processing plants. - -------------------------------------------------------------------------------- WOOD PRODUCTS Where do trees from our forestlands go after they are harvested? Many of the lumber, plywood, hardboard siding, medium-density fiberboard and oriented strand board products used by residential and commercial builders throughout North America, Europe and the Pacific Rim are produced by International Paper and Carter Holt Harvey from wood harvested from our forestlands. - -------------------------------------------------------------------------------- [Wood Products Sales to Geographic Areas Chart--Appendix A No. 27] - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 97] Our Madison, N.H., wood products plant uses eastern white pine to produce high-quality paneling products and moldings. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 98] Our structural panels business is more than doubling production of oriented strand board in response to consumer demand. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 99] Construction of our new oriented strand board plant in Jefferson, Texas, is complete, and commercial production began in the first quarter of 1996. - -------------------------------------------------------------------------------- FOREST PRODUCTS 39 FOREST PRODUCTS FINANCIAL REVIEW Forest Products sales totaled $2.1 billion in 1995, up 22% from $1.7 billion in 1994 and 1993. Carter Holt Harvey added $578 million to 1995 sales. Despite a significant contribution from Carter Holt Harvey in 1995, overall operating profit of the Forest Products segment declined to $388 million from $418 million in 1994 and $488 million in 1993. The decline between 1995 and 1994 was due to lower wood products earnings in the U.S. Both forestland and wood products operating profits were lower in 1995 compared with 1993. Forestland revenues increased 33% to $695 million in 1995 and operating profits increased 26%. However, before Carter Holt Harvey's contribution, 1995 sales declined 10% and profits were flat versus 1994 and 23% below 1993 levels. In the U.S., 1995 stumpage sales were 17% above 1994 as strong demand by pulp and paper mills early in the year pushed harvest volumes higher. Average stumpage prices declined 5% year-over-year. Sales of sawlogs declined 21% in 1995 due to sluggish lumber markets and weak export demand. Sales of nonstrategic land were considerably below 1994 and 1993 levels. Market conditions and results varied from region to region. In the South, low customer inventories and poor logging conditions led to strong stumpage sales early in the year. Together with an increase in pulpwood sales, this led to a 23% increase in harvest volumes in 1995. Southern stumpage prices averaged 2% above 1994, although softening occurred as the year progressed. In the West, harvests were 7% below 1994 levels, and average prices were 3% lower. Soft lumber markets kept domestic stumpage prices down, while a weak Japanese economy led to a soft export market. And in the Northeast, average prices rose 11% in 1995, reflecting good demand by Canadian mills and a sales mix weighted toward high-margin sawlogs. In January 1996, a subsidiary partnership of IP Timberlands, Ltd. announced its intention to sell partnership interests representing more than 80% of its equity. This partnership owns approximately 300,000 acres of forestlands located in Oregon and Washington, making up all of IP Timberlands' western holdings and the source of approximately one-third of the Company's stumpage sales in 1995 and 1994. The capitalized value of the partnership will be almost $1.0 billion. We project that harvest volumes for our remaining U.S. forest operations will decline 10% in 1996. The year began with mills holding high inventories in the face of soft paper markets. January 1996 sawlog prices in the South were 9% below the prior year, while in the Northeast, they were slightly higher. We expect some further softening in timber markets until paper and wood products markets regain strength. Radiata log demand will remain steady. Wood Products sales increased 18% in 1995 to $1.4 billion, while operating profit declined 55%. U.S. sales decreased 12% to $1.0 billion and were 4% less than 1993 sales. U.S. operating profit was approximately one-third the amount earned in 1994 and 1993. Lumber prices and volumes were lower in 1995 due to soft demand and competition from Canadian imports. Panel prices also trended lower as the year progressed. Also, high wood costs continued to put pressure on earnings. Productivity improvements, including a 2% increase in lumber yield, and higher sales of medium-density overlay partially offset lower lumber sales. We believe that building activity will improve by midyear, driving stronger performance by our wood products operations. Wood costs are projected to be lower than in 1995. While panel prices will likely soften further until new capacity is absorbed, the Company's new oriented strand board plant in Jefferson, Texas, one of the industry's lowest cost producers, will add to sales and earnings in 1996. In addition, projects at several of our plants will improve our productivity. - -------------------------------------------------------------------------------- [Forest Products Net Sales Chart--Appendix A No. 28] [Forest Products Operating Profit Chart--Appendix A No. 28] - -------------------------------------------------------------------------------- FOREST PRODUCTS 40 - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 100] In New Zealand, radiata pine plantations have twice the productivity of softwood grown in the southern U.S. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 101] In the United States, International Paper is a leading producer of southern yellow pine lumber. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 102] We strive to foster habitats for all types of wildlife and protect the natural treasures in our care. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 103] Plywood is used in a number of applications including pallets and bins as well as construction. - -------------------------------------------------------------------------------- WOOD PRODUCTS 1995 WORLDWIDE PRODUCTION (in millions) Lumber (board ft.) Plywood* OSB* MDF* ----------- -------- ---- ---- U.S. 879 593 268 128 Europe 17 New Zealand 365 15 32 ----- --- --- --- Total 1,244 608 268 177 *sq. ft., 3/8" basis New Zealand's Carter Holt Harvey production is for the 12 months ended December 31, 1995. International Paper owns just over 50% of Carter Holt Harvey. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 104] Medium-density fiberboard is used for kitchen cabinets and ready-to-assemble furniture. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 105] Loblolly pine grows on most of the four million acres of forestland we control in the southern U.S. - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 106] Landscape timbers, produced as a by-product of plywood manufacturing, are used by homeowners in landscaping projects. - -------------------------------------------------------------------------------- FOREST PRODUCTS 41 Environment, Health and Safety - -------------------------------------------------------------------------------- [Photograph--Appendix B No. 107] In 1995, our Mobile, Ala., mill created a six-acre wetland and wildlife preserve, working with The Conservation Fund's Freshwater Institute. - -------------------------------------------------------------------------------- ENVIRONMENT, HEALTH & SAFETY We strive for continuous improvement in the safety of our workers and the impact of our operations on the environment. In 1995 we again made significant progress in preventing work-related injuries, protecting air and water quality and reducing the amount of solid waste going to landfills. For the last several years, we have met our objective to achieve an annual 15% reduction in overall work-related injuries. We have also asked our employees worldwide to aim for our new goal--to have no work-related injuries in our facilities. As an indication of our commitment, International Paper now has more facilities accepted into OSHA's Voluntary Protection Program than any other company. We are particularly proud of our forest management program. It is among the most comprehensive programs in the industry--meeting or exceeding industry standards in all categories. Our Company assumed a leadership role in drafting the American Forest and Paper Association's Sustainable Forestry Principles. In 1996, the principles will become effective. Last year we invested more than $100 million to meet or exceed air, water and solid waste disposal standards. By the end of 1996, we will have reduced the amount of solid waste we send to landfills by more than 50% compared with a 1992 baseline. In 1988, as a voluntary participant in the U.S. Environmental Protection Agency's Industrial Toxics Project, we committed to a 50% reduction in certain chemical emissions by 1995. We met that goal four years early, and by the end of last year, we had achieved a more than 80% reduction. By the end of 1996, all 13 of the International Paper bleached mills in the U.S. and Europe will have converted to elemental chlorine-free bleaching technology. Our commitment to safety and the environment begins at the highest levels of our Company. Our executive management has set specific goals that are monitored by the Environment, Health and Technology Committee of our Board of Directors. The industry continues to make major progress in achieving its goal of 50% recovery of all paper products by the year 2000. In the last four years, International Paper has invested in facilities to recycle more than one million tons of waste paper per year. We publish an annual environment, health and safety report that details our performance and provides the data by which we measure our improvement. See page 72 of this report for information on how to obtain a copy. - -------------------------------------------------------------------------------- [Total Incidence Rate Chart--Appendix A No. 29] [Lost Workday Incidence Rate Chart--Appendix A No. 30] [Solid Waste at 24 Manufacturing Sites Chart--Appendix A No. 31] [Industrial Toxics Project (33/50 Program) Chart--Appendix A No. 32] - -------------------------------------------------------------------------------- ENVIRONMENT, HEALTH AND SAFETY 43 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Record net sales of $19.8 billion in 1995, an increase of 32% over last year, reflected very strong market conditions, especially early in the year. Of the increase, $1.4 billion or 28% reflects the consolidation of Carter Holt Harvey beginning in May 1995. Both strong demand and the Company's continuing strategy to grow in international markets resulted in export and international sales of $7.1 billion in 1995, about one-third of consolidated net sales. Excluding Carter Holt Harvey, such sales totaled $5.7 billion, up from $4.5 billion in 1994 and $4.0 billion in 1993. Net income for the year totaled $1.2 billion or $4.50 per share, substantially greater than the 1994 figure of $357 million or $1.43 per share ($422 million or $1.69 per share before an accounting change) and $289 million or $1.17 per share in 1993 ($314 million or $1.27 per share before the revaluation of deferred income taxes). The 1995 results reflected substantially higher operating profit for our printing papers and packaging segments. Strong demand in 1995 had a positive impact on sales prices for most of the Company's products, particularly business papers, pulp and containerboard. However, demand slipped in the latter part of 1995 in response to a slowdown in world economies and inventory reductions by customers. In early 1996, we have experienced continuing weakness in the markets for our major product lines, as customers continue to reduce inventories. We view this weakness as temporary, until inventory levels come down. If strong economic growth resumes, demand should rebound. - -------------------------------------------------------------------------------- [Net Sales Chart--Appendix A No. 33] - -------------------------------------------------------------------------------- MERGER WITH FEDERAL PAPER BOARD In November 1995, International Paper and Federal Paper Board, a diversified forest and paper products company with sales of $1.9 billion in 1995, announced that they had agreed to merge. In January 1996, the U.S. Department of Justice cleared the way for the proposed merger. The transaction, which is valued at approximately $3.5 billion including assumption of debt, is expected to close late in the first quarter of 1996. See the discussion of the merger in Note 6 to the consolidated financial statements on page 58. CASH FLOW FROM OPERATIONS Cash flow from operations improved substantially to $2.2 billion in 1995 from $1.2 billion in 1994 and $928 million in 1993. The increase was primarily the result of significantly higher earnings. Depreciation and amortization expense, excluding depletion, also increased to $1.0 billion in 1995 from $885 million in 1994 ($923 million before the change in accounting for start-up costs) and $898 million in 1993. Deferred income taxes were $146 million, with the increase over 1994 primarily resulting from the use of certain tax credits in 1995. INVESTMENT ACTIVITIES Capital spending was $1.5 billion in 1995 (including $90 million for Carter Holt Harvey), up from $1.1 billion in 1994 and $954 million in 1993. The primary emphasis for capital investment continues to be improving productivity, cost reduction and strategic expansions. Spending in 1995 included completion of an uncoated papers machine at the Riverdale mill in Selma, Ala., and a recycled linerboard machine in Mansfield, La.; construction of an oriented strand board plant in Jefferson, Texas, and a spunbond nonwovens plant in Mexico; and the rebuilding of a packaging board machine in Poland. The Company has budgeted capital spending of approximately $1.4 billion in 1996. Major projects will include the conversion of a paper machine from uncoated to coated freesheet at the Androscoggin mill in Jay, Me., and construction of a molded door facings facility in Ireland and a container plant in the United Kingdom. FINANCIAL REVIEW 44 CAPITAL SPENDING BY SEGMENT In millions for the years ended December 31 1995 1994 1993 ---- ---- ---- Printing Papers $ 375 $ 447 $429 Packaging 531 205 181 Distribution 18 16 13 Specialty Products 251 270 155 Forest Products 271 135 145 ------ ------ ---- Subtotal 1,446 1,073 923 Corporate 72 41 31 ------ ------ ---- Total $1,518 $1,114 $954 ====== ====== ==== In late April 1995, the Company acquired approximately 26% of the outstanding shares of Carter Holt Harvey, bringing International Paper's ownership of the New Zealand-based forest and paper products company to just over 50%. The Carter Holt Harvey share purchases were financed with borrowings totaling $1.1 billion. The Company's financial statements reflect the consolidation of Carter Holt Harvey effective May 1, 1995. Prior to May, the equity accounting method was used to account for the investment. International Paper's initial investment in Carter Holt Harvey of 16% was made in 1991 and was followed by an additional 8% investment in 1994. The Company also acquired the following in 1995: in January, the assets of paper distributors Seaman-Patrick Paper Company and Carpenter Paper Company, by issuing approximately 1 million (adjusted for the two-for-one stock split) shares of common stock; in September, Micarta, the high-pressure laminates business of Westinghouse; and in October, the inks and adhesives resin business of DSM located in France. In 1994, in addition to the investment in Carter Holt Harvey discussed above, the Company acquired additional stock of Zanders Feinpapiere AG and completed a merger with Kirk Paper Corporation, a California-based paper distributor. In 1993, the Company made several small acquisitions in its distribution and specialty products businesses. - -------------------------------------------------------------------------------- [Cash Flow from Operations Chart--Appendix A No. 34] - -------------------------------------------------------------------------------- FINANCING ACTIVITIES In November 1995, the Company issued $750 million of five-year debentures, and a non-U.S. subsidiary of the Company issued $300 million of U.S. dollar- denominated notes that mature in 7 and 20 years, respectively. In July, International Paper Capital Trust, a wholly owned subsidiary of the Company, issued $450 million of preferred securities that are convertible into International Paper common stock. Also in July, $200 million of 5 3/4% convertible debentures were called by the Company and converted into approximately 5.8 million shares of International Paper common stock. In each of the years 1994 and 1993, the Company issued $600 million of long-term debt with maturities ranging from 10 to 30 years. The proceeds of all of the transactions described above were used primarily to reduce short-term borrowings, to secure favorable long-term interest rates and for general corporate purposes. In July, our Board of Directors authorized a two-for-one stock split, which was effective in September 1995, and a 19% increase in the common stock dividend, raising the quarterly per share rate from $.21 to $.25. Dividend payments were $237 million in 1995, $210 million in 1994 and $208 million in 1993. CAPITAL RESOURCES OUTLOOK FOR 1996 The Company's balance sheet supports an investment-grade debt rating, allowing ready access to financial markets. The debt-to-capital ratio was 39% in 1995 compared with 41% in 1994 and 39% in 1993. The Company anticipates that cash flow from operations, supplemented as necessary by short- or long-term borrowings, will be adequate to fund its capital spending, working capital and dividend requirements during 1996. We anticipate that our merger with Federal Paper Board will close in March 1996. At such time, International Paper will issue shares of common stock with a market value FINANCIAL REVIEW 45 of approximately $1.4 billion and $1.3 billion of debt. Also, about $800 million of Federal's long-term debt will be assumed. Also, IP Timberlands, Ltd., of which International Paper is the majority owner, presently expects a subsidiary partnership that owns approximately 300,000 acres of forestlands located in Oregon and Washington to complete a sale of certain of its equity interests. In addition to this sale, the partnership will borrow additional amounts. Proceeds of the sale and borrowings will be used by the partnership principally to retire $750 million of its present indebtedness. The partnership expects to have a capitalized value of almost $1.0 billion. - -------------------------------------------------------------------------------- [Debt to Capital Ratio Chart--Appendix A No. 35] - -------------------------------------------------------------------------------- OTHER FINANCIAL STATEMENT ITEMS Net interest expense totaled $493 million in 1995, increasing from $349 million in 1994 and $310 million in 1993. The consolidation of Carter Holt Harvey accounted for about one- third of the increase in net interest expense in 1995. The balance of the increase was the result of higher average borrowing levels during 1995, largely due to short-term debt used to acquire the additional shares of Carter Holt Harvey. The consolidation of Carter Holt Harvey increased components of costs and expenses in amounts ranging from 13% to 72%. This was also the primary reason for the increases in forestlands, goodwill and the related accumulated amortization, long-term debt and minority interest on the Company's consolidated balance sheet. Such consolidation also contributed about 60% of the increase in net property, plant and equipment, and to a lesser extent, to the increases in working capital components. In 1994, investments included primarily Scitex and Carter Holt Harvey. In 1995, investments included primarily Scitex and Carter Holt Harvey's investment in COPEC. The effective tax rate was 35.5% of pre-tax income in 1995, 33% in 1994 and 40% in 1993 (35% before the revaluation of deferred taxes to reflect the increase in the federal tax rate). We do not expect any significant change in the effective tax rate for 1996. During 1994 and 1993, the Company recognized tax benefits of $33 million and $55 million, respectively, related to losses at certain non-U.S. locations. No net additional tax benefits were recognized in 1995. We expect that these tax benefits will be realized. ACCOUNTING CHANGE Effective January 1, 1994, International Paper changed its method of accounting for start-up costs to expense them as incurred. Our policy prior to 1994 had been to capitalize start-up costs on major projects and amortize them over a five-year period. The accounting change resulted in a one-time after-tax charge of $75 million or $.30 per share. However, it also increased 1994 earnings by $10 million or $.04 per share for a net reduction in 1994 earnings of $65 million or $.26 per share. RECENT ACCOUNTING PRONOUNCEMENTS In 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). The statement requires that such assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable and that such assets be reported at the lower of their carrying amount or fair value. The Company will adopt the provisions of the statement in the first quarter of 1996 and estimates that adoption will result in a pre-tax charge to earnings of about $80 million. Also in 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," was issued. This statement, effective for fiscal years beginning after December 15, 1995, requires disclosure of FINANCIAL REVIEW 46 the pro forma impact on net earnings and earnings per share of the compensation cost that would have been recognized if the fair value of the Company's stock-based awards were recorded in the income statement. The Company will adopt the disclosure provisions in 1996. LEGAL AND ENVIRONMENTAL ISSUES Environmental capital expenditures totaled $108 million in 1995, $95 million in 1994 and $100 million in 1993. By the end of 1996, International Paper will have successfully converted all 13 of its U.S. and European bleached mills to elemental chlorine-free technology. In 1993, the EPA released its "Cluster Rule" proposal to coordinate and integrate the requirements for air emissions and water discharges for the pulp and paper industry. The rules were to be effective three years after their final promulgation. Separately, the EPA has now promulgated regulations implementing the Great Lakes Initiative (GLI) covering water quality and permitting implementation procedures in states bordering the Great Lakes. Future spending will be heavily influenced by the final Cluster Rule and, in the case of the GLI, by how the individual Great Lakes states implement the program. In 1994, the Company estimated future capital spending to comply with the Cluster Rule and GLI to be between $700 million and $1.5 billion, depending upon the methods allowed by the final regulations to meet requirements. While there have been ongoing discussions with the EPA concerning these rules, there have as yet been no publicly announced changes to the proposed Cluster Rule, and thus these estimates remain valid at this time. Nevertheless, there is reason to expect that proposed changes will soon be announced that will permit the downward adjustment of these estimates. It is also expected that implementation will occur over a longer time frame than the three years in the current proposal. In 1994, we estimated that annual operating costs, excluding depreciation and the cost of capital, would increase between $60 million and $120 million when the proposed regulations were fully implemented. This estimate will also be adjusted to the extent that the EPA makes moderating changes. The Company paid fines and penalties related to environmental issues of $630,000, $960,000 and $400,000 for the years 1995, 1994 and 1993, respectively. Reviews are in progress by federal and state environmental agencies at certain facilities to determine the Company's compliance with environmental laws and regulations. Currently, the U.S. Attorney's Office for the Southern District of Mississippi and EPA Region IV are investigating Arizona Chemical Company, a wholly owned subsidiary of the Company, through a federal grand jury. Arizona Chemical has been informed that it is a subject of the investigation, which is centered on environmental issues at its facilities in Gulfport and Picayune, Miss. Arizona Chemical is cooperating with the investigation, but we are unable at this time to predict the outcome of that investigation. However, we would not expect fines from this or any other environmental investigation now under way to have a material adverse effect on the Company's future financial condition or results of operations. International Paper is also a party to a number of other environmental remediation actions under various federal and states laws, including the Comprehensive Environmental Response, Compensation and Liability Act. Related costs are recorded in the financial statements when probable and reasonably estimable. Completion of these actions is not expected to have a material adverse effect on the Company's future financial condition or results of operations. Further details with respect to these cases can be found in the Company's quarterly FINANCIAL REVIEW 47 reports on Form 10-Q and annual report on Form 10-K filed with the Securities and Exchange Commission. Copies can be obtained as indicated on page 72 of this report. For a discussion of legal issues, see Note 10 to the consolidated financial statements on page 60, and Item 3 (Legal Proceedings) of the annual report on Form 10-K. While any proceeding or litigation has the element of uncertainty, the Company believes that the outcome of any lawsuit or claim that is pending or threatened, or all of them combined, will not have a material adverse effect on its consolidated financial position or results of operations. SUBSEQUENT EVENT On February 13, 1996, the Board of Directors approved a series of actions that will require a pre-tax charge in the first quarter of 1996 of about $500 million ($350 million after taxes or $1.35 per share). These actions are forecast to generate pre-tax savings of $70 million ($.17 per share) during 1996 and $100 million ($.25 per share) by 1997. The charge includes $340 million for the write-off and impairment of certain assets (about $80 million of which resulted from the application of SFAS No. 121, as discussed on page 46). In addition, the charge consists of cash costs of $115 million for severance and $45 million for exit costs, including the cancellation of leases. Approximately half of the charge is associated with the imaging products business. EFFECTS OF INFLATION General inflation has had minimal impact on International Paper's operating results in the last three years. Sales prices and volumes are more strongly influenced by supply-and-demand factors in specific markets and by exchange rate fluctuations than by inflationary factors. FINANCIAL REVIEW BY SEGMENT Management's Discussion and Analysis of results of operations by industry segment is set forth on pages 10 (Printing Papers), 18 (Packaging), 24 (Distribution), 34 (Specialty Products) and 40 (Forest Products), and is incorporated herein by reference. FINANCIAL REVIEW 48 FINANCIAL INFORMATION BY GEOGRAPHIC AREA NET SALES - --------------------------------------------------------------- In millions 1995 1994 1993 -------- -------- -------- United States(1) $ 14,610 $ 11,965 $ 11,085 Europe 3,791 2,958 2,586 Pacific Rim(3) 1,571 195 176 Other 188 159 164 Less: Intergeographic Sales (363) (311) (326) -------- -------- -------- Net Sales $ 19,797 $ 14,966 $ 13,685 ======== ======== ======== ASSETS - --------------------------------------------------------------- In millions 1995 1994 1993 -------- -------- -------- United States $ 12,033 $ 11,237 $ 10,999 Europe 4,252 3,818 3,512 Pacific Rim(3) 4,334 129 143 Other 192 145 118 Equity Investments 1,291 967 559 Corporate 1,875 1,540 1,300 -------- -------- -------- Assets $23,977 $17,836 $16,631 ======== ======== ======== EUROPEAN SALES BY INDUSTRY SEGMENT - --------------------------------------------------------------- In millions 1995 1994 1993 -------- -------- -------- Printing Papers $ 1,664 $ 1,231 $ 1,016 Packaging 756 559 513 Distribution 378 318 284 Specialty Products 960 819 746 Forest Products 33 31 27 -------- -------- -------- European Sales $ 3,791 $ 2,958 $ 2,586 ======== ======== ======== OPERATING PROFIT - --------------------------------------------------------------- In millions 1995 1994 1993 -------- -------- -------- United States $ 2,062 $ 955 $ 876 Europe(2) 251 97 (23) Pacific Rim(3) 216 15 14 Other 6 6 8 -------- -------- -------- Operating Profit $ 2,535 $ 1,073 $ 875 ======== ======== ======== (1) Export sales to unaffiliated customers (in millions) were $1,500 in 1995, $1,200 in 1994 and $1,100 in 1993. (2) Includes amounts, net of goodwill amortization, for Aussedat Rey, Ilford, Zanders, the Horsell graphic arts businesses, the Rhone Valley Packaging business, Scaldia Papier BV and Kwidzyn from the dates of acquisition. (3) Includes the results of Carter Holt Harvey from May 1, 1995 (in millions): sales of $1,368, operating profit of $206 and assets of $4,196. EUROPE European sales of $3.8 billion in 1995 were $800 million or 28% above 1994 sales after increasing 14% in 1994. Operating profit advanced to $251 million, about two-and-a-half times the $97 million earned in 1994. Our European businesses lost $23 million in 1993. In printing papers, strong demand during the first half of 1995 resulted in a 55% gain in pulp prices and 35% improvement in paper prices. Packaging operations continued to perform well and our specialty businesses showed improvement, especially the chemicals division. As in the United States, demand weakened in the fourth quarter of 1995 with product prices continuing to fall during the first quarter of 1996. Given moderate economic growth in 1996, printing papers markets in France and Germany should stabilize, although the first half of 1996 is expected to be slow while customers reduce inventories. PACIFIC RIM Carter Holt Harvey accounts for most of International Paper's activities in the Pacific Rim. In late April 1995, International Paper increased its ownership of Carter Holt Harvey from 24% to just over 50%. Its results were consolidated with International Paper's beginning in May 1995. During the eight-month period ended December 31, 1995, its sales were $1.4 billion, its operating profit was $206 million, and at year-end, its assets included in the Pacific Rim were $4.2 billion. Carter Holt Harvey is a New Zealand-based integrated forest and paper products company with substantial assets in Chile. It owns approximately 800,000 acres of forestlands in New Zealand and its Chilean affiliate owns about one million acres of radiata pine forests. Carter Holt Harvey, which uses a March 31 year-end, reported net income for its nine-month period ended December 31, 1995 (unaudited) about 15% higher than comparable 1994 results. This reflected higher earnings from its pulp, paper and tissue operations offset by some declines, most notably in its wood products business. Carter Holt Harvey was also impacted by weakening demand in the fourth quarter. Economic growth in New Zealand is expected to slow to an annual pace of about 2% by the end of March 1996 compared with 6% early in 1995. While there are signs of improved demand in New Zealand, pricing pressure remains. A breakdown of Carter Holt Harvey's sales by industry segment, as they relate to International Paper, is included on page 50. FINANCIAL REVIEW 49 FINANCIAL INFORMATION BY INDUSTRY SEGMENT NET SALES - ---------------------------------------------------------------- In millions 1995 1994 1993 -------- -------- -------- Printing Papers $ 6,175 $ 4,400 $ 3,905 Packaging 4,420 3,375 3,095 Distribution 5,025 3,470 3,140 Specialty Products 3,300 2,590 2,460 Forest Products 2,100 1,715 1,700 Less: Intersegment Sales (1,223) (584) (615) -------- -------- -------- Net Sales $ 19,797 $ 14,966 $ 13,685 ======== ======== ======== OPERATING PROFIT - ---------------------------------------------------------------- In millions 1995 1994 1993 -------- -------- -------- Printing Papers $ 1,093 $ 20 $ (122) Packaging 741 293 188 Distribution 106 74 58 Specialty Products 207 268 263 Forest Products 388 418 488 -------- -------- -------- Operating Profit 2,535 1,073 875 Interest Expense, net (493) (349) (310) Corporate Items, net (14) (9) (27) -------- -------- -------- Earnings Before Income Taxes, Minority Interest and Cumulative Effect of Accounting Change $ 2,028 $ 715 $ 538 ======== ======== ======== ASSETS - ---------------------------------------------------------------- In millions 1995 1994 1993 -------- -------- -------- Printing Papers $ 7,121 $ 6,706 $ 6,466 Packaging 4,150 3,098 3,011 Distribution 1,454 1,210 1,085 Specialty Products 3,639 2,782 2,607 Forest Products 4,447 1,533 1,603 Equity Investments 1,291 967 559 Corporate(1) 1,875 1,540 1,300 -------- -------- -------- Assets $ 23,977 $ 17,836 $ 16,631 ======== ======== ======== DEPRECIATION, DEPLETION AND AMORTIZATION - ---------------------------------------------------------------- In millions 1995 1994 1993 -------- -------- -------- Printing Papers $ 475 $ 443 $ 414 Packaging 246 192 213 Distribution 35 29 28 Specialty Products 199 161 180 Forest Products 150 96 93 Corporate 6 5 10 -------- -------- -------- Depreciation, Depletion and Amortization 1,111 926 938 Less: Depletion(2) (80) (41) (40) -------- -------- -------- Depreciation and Amortization $ 1,031 $ 885 $ 898 ======== ======== ======== (1) Corporate assets are principally cash and temporary investments, investments, deferred taxes and other assets that are not identifiable with industry segments. (2) Included in Forest Products. CARTER HOLT HARVEY SALES International Paper's financial statements reflect the consolidation of Carter Holt Harvey effective May 1, 1995. The table below shows the contribution of eight months of its sales to each of International Paper's industry segments in 1995 (Carter Holt Harvey's tissue business is included in Specialty Products): 1995 NET SALES - ---------------------------------------------------------------- International Carter Holt Consoli- In millions Paper Harvey dated -------- -------- -------- Printing Papers $ 5,970 $ 205 $ 6,175 Packaging 4,060 360 4,420 Distribution 4,947 78 5,025 Specialty Products 2,890 410 3,300 Forest Products 1,522 578 2,100 Less: Intersegment Sales (960) (263) (1,223) -------- -------- -------- Net Sales $ 18,429 $ 1,368 $ 19,797 ======== ======== ======== FINANCIAL REVIEW 50 REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS The management of International Paper Company is responsible for the fair presentation of the information contained in the financial statements in this annual report. The statements are prepared in accordance with generally accepted accounting principles and reflect management's best judgment as to the Company's financial position, results of operations and cash flows. The Company maintains a system of internal accounting controls designed to provide reasonable assurance that transactions are properly recorded and summarized so that reliable financial records and reports can be prepared and assets safeguarded. An important part of the internal controls system is the Company's Policy on Ethical Business Conduct, which requires employees to maintain the highest ethical and legal standards in their conduct of Company business. The internal controls system further includes careful selection and training of supervisory and management personnel, appropriate delegation of authority and division of responsibility, dissemination of accounting and business policies throughout the Company, and an extensive program of internal audits with management follow-up. During 1993, the Company instituted a toll-free telephone "compliance line" whereby any employee may report suspected violations of law or Company policy. The independent public accountants provide an objective, independent review of management's discharge of its responsibility for the fairness of the Company's financial statements. They review the Company's internal accounting controls and conduct tests of procedures and accounting records to enable them to form the opinion set forth in their report. The Board of Directors monitors management's administration of the Company's financial and accounting policies and practices, and the preparation of these financial statements. The Audit Committee, which consists of five nonemployee directors, meets regularly with representatives of management, the independent public accountants and the internal Auditor to review their activities. The Audit Committee recommends that the shareholders approve the appointment of the independent public accountants to conduct the annual audit. The independent public accountants and the internal Auditor both have free access to the Audit Committee and meet regularly with the Audit Committee, with and without management representatives in attendance. /s/ Marianne M. Parrs Marianne M. Parrs Senior Vice President and Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of International Paper Company: We have audited the accompanying consolidated balance sheets of International Paper Company (a New York corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of earnings, common shareholders' equity and cash flows for each of the three years ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Paper Company and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years ended December 31, 1995 in conformity with generally accepted accounting principles. As explained in Note 18 to the financial statements, effective January 1, 1994, the Company changed its method of accounting for start-up costs. /s/ Arthur Anderson LLP New York, N.Y. February 13, 1996 INTERNATIONAL PAPER 51 CONSOLIDATED STATEMENT OF EARNINGS In millions, except per share amounts, for the years ended December 31 1995 1994 1993 ---- ---- ---- NET SALES $19,797 $14,966 $13,685 ------- ------- ------- COSTS AND EXPENSES Cost of products sold 13,896 11,092 10,153 Selling and administrative expenses 1,381 1,082 999 Depreciation and amortization 1,031 885 898 Distribution expenses 794 692 634 Taxes other than payroll and income taxes 174 151 153 ------- ------- ------- TOTAL COSTS AND EXPENSES 17,276 13,902 12,837 ------- ------- ------- EARNINGS BEFORE INTEREST, INCOME TAXES, MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,521 1,064 848 Interest expense, net 493 349 310 ------- ------- ------- EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,028 715 538 Provision for income taxes 719 236 213 Minority interest expense, net of taxes 156 47 36 ------- ------- ------- EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,153 432 289 Cumulative effect of change in accounting for start-up costs (less tax benefit of $50)--Note 18 (75) ------- ------- ------- NET EARNINGS $ 1,153 $ 357 $ 289 ======= ======= ======= EARNINGS PER COMMON SHARE Earnings before cumulative effect of accounting change $ 4.50 $ 1.73 $ 1.17 Cumulative effect of change in accounting for start-up costs--Note 18 (.30) ------- ------- ------- EARNINGS PER COMMON SHARE $ 4.50 $ 1.43 $ 1.17 ======= ======= ======= The accompanying notes are an integral part of these financial statements. FINANCIAL REVIEW 52 CONSOLIDATED BALANCE SHEET In millions at December 31 1995 1994 ---- ---- ASSETS Current Assets Cash and temporary investments, at cost, which approximates market $ 312 $ 270 Accounts and notes receivable, less allowances of $101 in 1995 and $97 in 1994 2,571 2,241 Inventories 2,784 2,075 Other current assets 206 244 ------- ------- Total Current Assets 5,873 4,830 ------- ------- Plants, Properties and Equipment, Net 10,997 9,139 Forestlands 2,803 802 Investments 1,420 1,032 Goodwill 1,355 763 Deferred Charges and Other Assets 1,529 1,270 ------- ------- TOTAL ASSETS $23,977 $17,836 ======= ======= LIABILITIES AND COMMON SHAREHOLDERS' EQUITY Current Liabilities Notes payable and current maturities of long-term debt $ 2,283 $ 2,083 Accounts payable 1,464 1,204 Accrued liabilities 1,116 747 ------- ------- Total Current Liabilities 4,863 4,034 ------- ------- Long-Term Debt 5,946 4,464 Deferred Income Taxes 1,974 1,612 Other Liabilities 980 870 Minority Interest 1,967 342 International Paper-Obligated Mandatorily Redeemable Preferred Securities of Trust Holding Solely International Paper Subordinated Debentures--Note 7 450 Commitments and Contingent Liabilities--Note 10 Common Shareholders' Equity Common stock, $1 par value, issued at December 31, 1995--263.3 shares, 1994--256.5 shares 263 256 Paid-in capital 1,963 1,658 Retained earnings 5,627 4,711 ------- ------- 7,853 6,625 Less: Common stock held in treasury, at cost, 1995--2.3 shares, 1994--4.7 shares 56 111 ------- ------- Total Common Shareholders' Equity 7,797 6,514 ------- ------- TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY $23,977 $17,836 ======= ======= The accompanying notes are an integral part of these financial statements. FINANCIAL REVIEW 53 CONSOLIDATED STATEMENT OF CASH FLOWS In millions for the years ended December 31 1995 1994 1993 ---- ---- ---- OPERATING ACTIVITIES Net earnings $ 1,153 $ 357 $ 289 Cumulative effect of accounting change 75 Noncash items Depreciation and amortization 1,031 885 898 Deferred income taxes 146 42 54 Other, net (92) (34) (75) Changes in current assets and liabilities Accounts and notes receivable 45 (339) 78 Inventories (320) 8 (93) Accounts payable and accrued liabilities 289 252 (220) Other (4) (3) (3) ------ ------ ------ CASH PROVIDED BY OPERATIONS 2,248 1,243 928 ------ ------ ------ INVESTMENT ACTIVITIES Invested in capital projects (1,518) (1,114) (954) Acquisitions and investments, net of cash acquired (1,168) (357) (44) Consolidation of equity investment 241 Other (111) (39) (71) ------ ------ ------ CASH USED FOR INVESTMENT ACTIVITIES (2,556) (1,510) (1,069) ------ ------ ------ FINANCING ACTIVITIES Issuance of common stock 66 67 60 Issuance of preferred securities by subsidiary 450 Sale of limited partnership interests 165 Issuance of debt 1,055 1,059 727 Reduction of debt (950) (275) (467) Change in bank overdrafts 57 (115) (52) Dividends paid (237) (210) (208) Other (100) (235) (62) ------ ------ ------ CASH PROVIDED BY FINANCING ACTIVITIES 341 291 163 ------ ------ ------ EFFECT OF EXCHANGE RATE CHANGES ON CASH 9 4 (5) ------ ------ ------ CHANGE IN CASH AND TEMPORARY INVESTMENTS 42 28 17 CASH AND TEMPORARY INVESTMENTS Beginning of the year 270 242 225 ------ ------ ------ End of the year $ 312 $ 270 $ 242 ====== ====== ====== The accompanying notes are an integral part of these financial statements. FINANCIAL REVIEW 54 CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
Common Stock Issued Treasury Stock Total ------------------- -------------- Common Paid-In Retained Shareholders' In millions, except share amounts in thousands Shares Amount Capital(1) Earnings Shares Amount Equity ------ ------ ---------- -------- ------ ------ ------------ Balance, January 1, 1993 253,986 $254 $1,665 $4,472 8,662 $202 $6,189 Issuance of stock for acquisition 2 (234) (5) 7 Issuance of stock for various plans 588 38 (1,630) (38) 76 Cash dividends--Common stock ($.84 per share) (208) (208) Foreign currency translation (less tax benefit of $14) (128) (128) Net earnings 289 289 ------- ---- ------ ------ ----- ---- ------ Balance, December 31, 1993 254,574 254 1,577 4,553 6,798 159 6,225 Issuance of stock for merger 1,638 2 14 11 27 Issuance of stock for various plans 276 30 (2,100) (48) 78 Cash dividends--Common stock ($.84 per share) (210) (210) Foreign currency translation (less tax benefit of $70) 37 37 Net earnings 357 357 ------- ---- ------ ------ ----- ---- ------ Balance, December 31, 1994 256,488 256 1,658 4,711 4,698 111 6,514 Issuance of stock for acquisitions 988 1 37 38 Issuance of stock for various plans 27 (2,445) (55) 82 Conversion of subordinated debentures 5,785 6 199 205 Cash dividends--Common stock ($.92 per share) (237) (237) Foreign currency translation (less tax benefit of $66) 42 42 Net earnings 1,153 1,153 ------- ---- ------ ------ ----- ---- ------ BALANCE, DECEMBER 31, 1995 263,261 $263 $1,963 $5,627 2,253 $ 56 $7,797 ======= ==== ====== ====== ===== ==== ======
(1) The cumulative foreign currency translation adjustment (in millions) was $(201), $(243) and $(280) at December 31, 1995, 1994 and 1993, respectively. The accompanying notes are an integral part of these financial statements. FINANCIAL REVIEW 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The consolidated financial statements include the accounts of International Paper Company and its subsidiaries (the Company). Minority interest represents minority shareholders' proportionate share of the equity in several of the Company's consolidated subsidiaries, primarily Carter Holt Harvey Limited, IP Timberlands, Ltd. (IPT), Zanders Feinpapiere AG, Georgetown Equipment Leasing Associates, L.P. and Trout Creek Equipment Leasing, L.P. All significant intercompany balances and transactions are eliminated. Investments in affiliated companies owned 20% to 50%, and the Company's investment in Scitex Corporation Ltd. where the Company has the ability to exercise significant influence, are accounted for by the equity method. The Company's share of affiliates' earnings is included in the consolidated statement of earnings. The results of Carter Holt Harvey are consolidated on a one-month-lag basis due to the availability of financial information. Temporary Investments Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost. Inventories Inventory values include all costs directly associated with manufacturing products: materials, labor and manufacturing overhead. These values are presented at cost or market, if it is lower. In the United States, costs of raw materials and finished pulp and paper products are generally determined using the last-in, first-out method. Other inventories are primarily stated using the first-in, first-out or average cost method. Plants, Properties and Equipment Plants, properties and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, the Company uses the units-of-production method for depreciating its major pulp and paper mills and certain wood products facilities and the straight-line method for other plants and equipment. Annual straight-line depreciation rates are: buildings, 2-1/2% to 8-1/2%, and machinery and equipment, 5% to 33%. For tax purposes, depreciation is computed utilizing accelerated methods. Interest costs for the development of certain long-term assets are capitalized and amortized over the related assets' estimated useful lives. The Company capitalized net interest costs of $58 million in 1995, $18 million in 1994 and $12 million in 1993. Interest payments made during 1995, 1994 and 1993 were $603 million, $369 million and $372 million, respectively. Total interest expense was $542 million in 1995, $371 million in 1994 and $335 million in 1993. Forestlands The Company, which currently owns 84% and 100% of IPT's Class A and Class B Units, respectively, controlled approximately 6.0 million acres of forestlands in the United States and, through its ownership of Carter Holt Harvey, approximately 800,000 acres of forestlands in New Zealand at December 31, 1995. Forestlands are stated at cost, less accumulated depletion representing the cost of timber harvested. Forestlands include owned property as well as certain timber harvesting rights with terms of one or more years. Costs attributable to timber are charged against income as trees are cut. The depletion rate charged is determined annually based on the relationship of remaining costs to estimated recoverable volume. Translation of Financial Statements Balance sheets of the Company's international operations are translated into U.S. dollars at year-end exchange rates, while statements of earnings are translated at average rates. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in paid-in capital. Gains and losses resulting from foreign currency transactions are included in earnings. Amortization of Intangible Assets Goodwill, the cost in excess of assigned value of businesses acquired, is amortized for periods of up to 40 years. Accumulated amortization was $235 million and $113 million at December 31, 1995 and 1994, respectively. Revenue Recognition The Company recognizes revenues when goods are shipped. Earnings per Common Share Earnings per common share were computed on the basis of the following average number of shares outstanding (in millions): 1995-256.5, 1994-249.7 and 1993-246.5. The effect of all dilutive securities is immaterial. Nature of the Company's Business The Company is a worldwide producer of paper, packaging and forest products, all complemented by related specialty products and an extensive distribution system, with primary markets and manufacturing operations in the United States, Europe and the Pacific Rim. Substantially all of the FINANCIAL REVIEW 56 Company's businesses have experienced and are likely to continue to experience cycles relating to available industry capacity and general economic conditions. For a further discussion of the Company's business, see pages 44 through 48 of management's discussion and analysis of financial condition and results of operations. Financial Statements The preparation of these financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. For a further discussion of significant estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations, and disclosure of contingent assets and liabilities, see the legal and environmental issues section on page 47. Reclassifications Certain reclassifications have been made to prior-year amounts to conform with the current-year presentation. NOTE 2. INDUSTRY SEGMENT INFORMATION Financial information by industry segment and geographic area for 1995, 1994 and 1993 is presented on pages 45, 49 and 50. NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS In 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). This statement requires that such assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable and that such assets be reported at the lower of carrying amount or fair value. The Company will adopt the provisions of this statement in the first quarter of 1996 and estimates that adoption will result in a pre-tax charge to earnings of about $80 million. Also in 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," was issued, which is effective for fiscal years beginning after December 15, 1995. This statement requires footnote disclosure of the pro forma impact on net earnings and earnings per share of the compensation cost that would have been recognized if the fair value of all stock-based awards was recorded in the income statement. The disclosure provisions of this statement will be adopted in 1996. NOTE 4. MERGERS AND ACQUISITIONS In late April 1995, the Company acquired approximately 26% of Carter Holt Harvey Limited, a major New Zealand forest and paper products company, through open-market share purchases and an additional acquisition from Brierley Investments Limited (BIL). This acquisition raised the Company's total ownership of it from the 24% previously acquired from BIL (8% purchased in 1994) to just over 50%. The 1995 purchases were financed with borrowings totaling approximately $1.1 billion. The Company's financial statements reflect the consolidation of Carter Holt Harvey effective May 1, 1995. Prior to this date, the equity accounting method was utilized. As a result of this consolidation, the Company's consolidated cash and temporary investments balance increased by $241 million, representing approximately 74% of Carter Holt Harvey's cash and temporary investments balance as of the acquisition date. This is reflected in the consolidated statement of cash flows as the consolidation of an equity investment. The acquisition of Carter Holt Harvey is presented net of 26% of its cash and temporary investments as of the acquisition date. In January 1995, the assets of both Seaman-Patrick and Carpenter Paper Companies, two Michigan-based paper distribution companies, were acquired by issuing approximately 988,000 shares of common stock. In September, Micarta, the South Carolina-based high-pressure laminates business of Westinghouse, was acquired. In October, the Company purchased the inks and adhesives resin business of DSM located in Niort, France. The December 31, 1995 consolidated balance sheet reflects a preliminary allocation of the purchase price for these acquisitions, to be finalized in 1996. In December 1994, the Company acquired additional stock of Zanders Feinpapiere AG. Also in December, a merger was completed with Kirk Paper Corporation, a California-based paper distribution company. In 1993, the Company made several small acquisitions in its distribution and specialty products businesses. With the exception of Kirk Paper Corporation, which was accounted for as a pooling-of-interests, all of the 1995, 1994 and 1993 acquisitions were accounted for using the purchase method. The operating results of these mergers and acquisitions have been included in the consolidated statement of earnings from the dates of acquisition. FINANCIAL REVIEW 57 NOTE 5. PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma financial information reflects the combined results of the continuing operations of the Company and the 1995 acquisitions listed in Note 4. The pro forma information is presented as if the transactions occurred as of the beginning of each respective year. The pro forma adjustments are based on available information, preliminary purchase price allocations and certain assumptions that the Company believes are reasonable. There can be no assurance that the assumptions and estimates will be realized. The pro forma information does not purport to represent the Company's actual results of operations if the transactions described above would have occurred at the beginning of the respective years. In addition, the information may not be indicative of future results. In millions, except per share amounts, for the years ended December 31 (Unaudited) 1995 1994 ---- ---- Net Sales $20,599 $16,901 Earnings Before Cumulative Effect of Accounting Change 1,171 434 Net Earnings 1,171 359 Earnings Per Common Share Before Cumulative Effect of Accounting Change 4.57 1.73 Earnings Per Common Share 4.57 1.43 NOTE 6. FEDERAL PAPER BOARD MERGER In the fourth quarter of 1995, International Paper and Federal Paper Board announced that they have agreed to merge. Once the merger is complete, Federal Paper Board, a diversified forest and paper products company, will become a wholly owned subsidiary of International Paper. The transaction, which is valued at approximately $3.5 billion, including assumption of debt, is subject to approval by Federal Paper Board's shareholders. In January 1996, the U.S. Department of Justice cleared the way for the proposed merger and it is expected to close in the first quarter of 1996. Under the terms of the merger agreement, Federal Paper Board's shareholders will be entitled to receive, at their election, either $55 in cash per share or $55 worth of International Paper common stock per share, subject to the limitation that not more than 1.612 and not less than 1.275 International Paper common shares will be issued for each Federal Paper Board share exchanged for International Paper common stock. The shareholder election to receive cash or International Paper common stock will be subject to adjustment so that, in the aggregate, approximately 49% of the Federal Paper Board shares will be exchanged for cash. The merger is intended to qualify as a tax-free reorganization. NOTE 7. PREFERRED SECURITIES OF SUBSIDIARY In the third quarter of 1995, International Paper Capital Trust (the Trust) issued $450 million of International Paper-obligated mandatorily redeemable preferred securities. The Trust is a wholly owned consolidated subsidiary of International Paper and its sole assets are International Paper 5 1/4% convertible subordinated debentures. The obligations of the Trust related to its preferred securities are fully and unconditionally guaranteed by International Paper. These preferred securities are convertible into International Paper common stock. Preferred securities distributions of $10 million were paid in 1995. NOTE 8. SALE OF LIMITED PARTNERSHIP INTERESTS During 1993, the Company contributed assets with a fair market value of approximately $900 million to two newly formed limited partnerships, Georgetown Equipment Leasing Associates, L.P. and Trout Creek Equipment Leasing, L.P. These partnerships are separate and distinct legal entities from the Company and have separate assets, liabilities, business functions and operations. However, for accounting purposes, the Company continues to consolidate these assets, and the minority shareholders' interest is reflected as minority interest in the accompanying financial statements. The purpose of the partnerships is to invest in and manage a portfolio of assets including pulp and paper equipment used at the Georgetown, S.C., and Ticonderoga, N.Y., mills. This equipment is leased to the Company under long-term leases. Partnership assets also include floating rate notes and cash. During 1993, outside investors purchased a portion of the Company's limited-partner interests for $132 million and also contributed an additional $33 million to one of these partnerships. At December 31, 1995, the Company held aggregate general and limited-partner interests totaling 83.5% in Georgetown Equipment Leasing Associates, L.P. and 81.3% in Trout Creek Equipment Leasing, L.P. The Company also held $315 million and $273 million of borrowings at December 31, 1995 and 1994, respectively, from these partnerships. These funds are being used for general corporate purposes. FINANCIAL REVIEW 58 NOTE 9. INCOME TAXES The Company uses the liability method required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," whereby deferred income taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities must be revalued to reflect new tax rates in the periods rate changes are enacted. Accordingly, the 1993 provision for income taxes included a charge of $25 million ($.10 per share) for deferred tax expense resulting from the enactment of the Omnibus Budget Reconciliation Act of 1993, which raised the U.S. federal income tax rate by 1% effective January 1, 1993. The components of earnings before income taxes, minority interest and cumulative effect of an accounting change, and the provision for income taxes by taxing jurisdiction were: In millions 1995 1994 1993 ---- ---- ---- Earnings (losses) U.S. $ 1,565 $ 646 $ 623 Non-U.S. 463 69 (85) ------- ------- ------- Earnings before income taxes, minority interest and cumulative effect of accounting change $ 2,028 $ 715 $ 538 ======= ======= ======= In millions 1995 1994 1993 ---- ---- ---- Current tax provision U.S. federal $ 380 $ 148 $ 114 U.S. state and local 88 10 12 Non-U.S. 105 36 33 ------- ------- ------- 573 194 159 ======= ======= ======= Deferred tax provision U.S. federal 141 23 64 U.S. federal rate change 25 U.S. state and local (6) 24 20 Non-U.S. 11 (5) (55) ------- ------- ------- 146 42 54 ------- ------- ------- Provision for income taxes $ 719 $ 236 $ 213 ======= ======= ======= The Company made income tax payments of $413 million, $75 million and $156 million in 1995, 1994 and 1993, respectively. A reconciliation of income tax expense using the statutory U.S. income tax rate compared with the Company's actual income tax expense follows: In millions 1995 1994 1993 ---- ---- ---- Earnings before income taxes, minority interest and cumulative effect of accounting change $ 2,028 $ 715 $ 538 Statutory U.S. income tax rate 35% 35% 35% ------- ------- ------- Tax expense using statutory U.S. income tax rate 710 250 188 State and local taxes 53 22 21 Non-U.S. tax rate differences (46) (2) (2) U.S. federal rate change 25 Minority interest (32) (14) (11) Other, net 34 (20) (8) ------- ------- ------- Provision for income taxes $ 719 $ 236 $ 213 ------- ------- ------- Effective income tax rate 35.5% 33% 40% ======= ======= ======= The net deferred income tax liability as of December 31, 1995 and 1994 includes the following components: In millions 1995 1994 ---- ---- Current deferred tax asset $ 86 $ 138 Noncurrent deferred tax liability(1) (1,796) (1,462) ------- ------- Total $(1,710) $(1,324) ======= ======= (1) Net of $178 million and $150 million at December 31, 1995 and 1994, respectively, of noncurrent deferred tax assets. The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, 1995 and 1994 were as follows: In millions 1995 1994 ---- ---- Plants, properties and equipment $(1,772) $(1,634) Prepaid pension costs (286) (233) Forestlands (245) (97) Postretirement benefit accruals 166 167 Non-U.S. net operating losses 146 148 Alternative minimum tax credit carryforwards 43 145 Other 238 180 ------- ------- Total $(1,710) $(1,324) ======= ======= The Company's alternative minimum tax credit carryforwards can be carried forward indefinitely. The Company had net operating loss carryforwards applicable to non-U.S. subsidiaries of which $81 million expire in years 1997 through 2002 and $287 million can be carried forward indefinitely. Deferred taxes are not provided for temporary differences of approximately $501 million, $297 million and $385 million as of December 31, 1995, 1994 and 1993, respectively, representing earnings of non-U.S. subsidiaries that are intended to be permanently reinvested. If these earnings were remitted, the Company believes that U.S. foreign tax credits would eliminate any significant impact on future income tax provisions. FINANCIAL REVIEW 59 NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES The Company leases certain property, machinery and equipment under cancelable and noncancelable lease agreements. At December 31, 1995, total future minimum rental commitments under noncancelable leases were $435 million, due as follows: 1996-$112 million, 1997-$96 million, 1998-$83 million, 1999-$62 million, 2000-$43 million, and thereafter- $39 million. Rent expense was $159 million, $124 million and $92 million for 1995, 1994 and 1993, respectively. Masonite Corporation, a subsidiary of the Company, and the Company are parties to class action lawsuits in Alabama and Mississippi purporting to represent plaintiffs who purchased Masonite hardboard siding, since 1980 in the Alabama case and with no specific time limits set out in the Mississippi case. The suits allege, among other things, that Masonite hardboard siding is inherently defective and that Masonite knowingly and falsely advertised and sold a defective product. Masonite and the Company plan to vigorously contest the allegations. The Company is also involved in various other inquiries, administrative proceedings and litigation relating to contracts, sales of property, environmental protection, tax, antitrust and other matters, some of which allege substantial monetary damages. While any proceeding or litigation has the element of uncertainty, the Company believes that the outcome of any lawsuit or claim that is pending or threatened, or all of them combined, will not have a material adverse effect on its consolidated financial position or results of operations. NOTE 11. SUPPLEMENTARY BALANCE SHEET INFORMATION Inventories by major category were: In millions at December 31 1995 1994 ------- ------- Raw materials $ 591 $ 365 Finished pulp, paper and packaging products 1,340 1,067 Finished lumber and panel products 223 77 Operating supplies 343 335 Other 287 231 ------- ------- Inventories $ 2,784 $ 2,075 ======= ======= The Company uses the last-in, first-out inventory method to value substantially all of its U.S. inventories. Approximately 65% of the Company's total raw materials and finished products inventories were valued using this method. If the first-in, first-out method had been used, it would have increased total inventory balances by approximately $227 million, $194 million and $160 million at December 31, 1995, 1994 and 1993, respectively. Plants, properties and equipment by major classification were: In millions at December 31 1995 1994 ------- ------- Pulp, paper and packaging facilities Mills $13,554 $11,672 Packaging plants 1,508 1,180 Wood products facilities 1,754 1,296 Other plants, properties and equipment 2,597 2,042 ------- ------- Gross cost 19,413 16,190 Less: Accumulated depreciation 8,416 7,051 ------- ------- Plants, properties and equipment, net $10,997 $ 9,139 ======= ======= NOTE 12. DEBT AND LINES OF CREDIT A summary of long-term debt follows: In millions at December 31 1995 1994 ------- ------- 8 7/8% to 9.7% notes--due 2000-2004 $ 600 $ 400 8 3/8% to 9 1/2% debentures--due 2015-2024 300 7 1/2% to 7 7/8% notes--due 2002-2007 798 648 6 7/8% to 8 1/8% notes--due 2023-2024 545 545 6 1/8% notes--due 2003 199 199 6.11% debentures--due 1998-2000(1) 750 5 7/8% Swiss franc debentures--due 2001 98 5 3/4% convertible subordinated debentures 199 5 1/8% debentures--due 2012 81 81 Medium-term notes--due 1996-2009(2) 516 594 Environmental and industrial development bonds--due 1996-2017(3,4) 916 848 Commercial paper and bank notes(5) 581 677 Other(6) 818 585 ------- ------- Total(7) 6,202 4,776 Less: Current maturities 256 312 ------- ------- Long-term debt $ 5,946 $ 4,464 ======= ======= (1) If retired before maturity, these debentures provide for a penalty, which was not significant at December 31, 1995. (2) The weighted average interest rate on these notes was 8.4% in 1995 and 8.5% in 1994. (3) The weighted average interest rate on these bonds was 5.9% in 1995 and 5.7% in 1994. (4) Includes $323 million of bonds at both December 31, 1995 and 1994, which may be tendered at various dates and/or under certain circumstances. (5) Includes $393 million in 1995 and $143 million in 1994 of non-U.S. dollar denominated borrowings. The weighted average interest rate was 5.3% in 1995 and 5.7% in 1994. (6) Includes $96 million in both 1995 and 1994 of French franc borrowings with a weighted average interest rate of 4.9% in 1995 and 4.7% in 1994, and $242 million in 1995 and $227 million in 1994 of German mark borrowings with a weighted average interest rate of 6.7% in both 1995 and 1994. (7) The fair market value was approximately $6.6 billion and $4.7 billion at December 31, 1995 and 1994, respectively. FINANCIAL REVIEW 60 At December 31, 1995 and 1994, the Company, including a non-U.S. subsidiary, classified $900 million and $1.0 billion, respectively, of tenderable bonds, commercial paper and bank notes as long-term debt. The Company and this subsidiary have the intent and ability to renew or convert these obligations through 1996 and into future periods. Total maturities of long-term debt over the next five years are: 1996-$256 million, 1997-$235 million, 1998-$456 million, 1999-$396 million and 2000-$ 1.4 billion. At December 31, 1995, the Company had unused bank lines of credit of approximately $2.4 billion. The lines generally provide for interest at market rates plus a margin based on the Company's current bond rating. The principal line, which is cancelable only if the Company's bond rating drops below investment grade, provides for $750 million of credit through January 2000, and has a facility fee of .10% that is payable quarterly. A non-U.S. subsidiary of the Company also has a $600 million line of credit that supports its U.S. dollar commercial paper program. This line matures in June 2000 and has a facility fee of .1875%, which is payable quarterly. At December 31, 1995, notes payable classified as current liabilities included $1.8 billion of non-U.S. dollar-denominated debt with a weighted average interest rate of 5.7%. At December 31, 1995, the Company's total outstanding debt included approximately $2.6 billion of borrowings with interest rates that fluctuate based on market conditions and the Company's credit rating. In July 1995, the 5 3/4% convertible debentures were called by the Company, and converted into 5.8 million shares of common stock. NOTE 13. FINANCIAL INSTRUMENTS The Company has a policy of financing a portion of its investments in overseas operations with borrowings denominated in the same currency as the investment or by entering into foreign exchange contracts in tandem with U.S. borrowings. The purpose of this activity is to provide a hedge against fluctuations in exchange rates. Non-U.S. dollar-denominated debt totaling $2.8 billion was outstanding at December 31, 1995. Also outstanding were foreign exchange contracts totaling $2.2 billion, all having maturities of less than 360 days, as follows: French francs, $1.1 billion; British pounds, $363 million; Australian dollars, $205 million; Spanish pesetas, $119 million; Italian lira, $102 million; Swiss francs, $98 million; German marks, $69 million; and contracts totaling $191 million in six other currencies. In addition, a non-U.S. subsidiary of the Company had outstanding foreign exchange contracts totaling $264 million that were denominated in U.S. dollars. The average amount of outstanding contracts during 1995 and 1994 was $1.2 billion and $2.1 billion, respectively. Gains and losses from these contracts (including an immaterial gain related to contracts outstanding at December 31, 1995), which are fully offset by gains and losses from the revaluation of the net assets being hedged, are determined monthly based on published currency exchange rates and are recorded as translation adjustments in shareholders' equity. The Company also utilizes foreign exchange contracts to hedge certain transactions denominated in foreign currencies, primarily export sales and equipment purchased from nonresident vendors. These contracts serve to protect the Company from currency fluctuations between the transaction date and settlement. Gains and losses on these contracts, along with offsetting gains and losses resulting from the revaluations of the underlying transactions, are recognized in earnings based on published currency exchange rates. At December 31, 1995, foreign exchange contracts totaling $457 million, all having maturities of less than 12 months, were outstanding as follows: Australian dollars, $151 million; French francs, $80 million; German marks, $39 million; and contracts totaling $187 million in 13 different currencies. Non-U.S. subsidiaries of the Company also had contracts outstanding of $127 million that were denominated in U.S. dollars. The average amount of outstanding contracts during 1995 and 1994 was $486 million and $170 million, respectively. Net gains and losses related to contracts outstanding at December 31, 1995 and 1994 were not significant. The Company used interest rate swap agreements to manage the composition of its fixed and floating rate debt portfolio in 1994 and 1993. The agreements involved the exchange of fixed or floating rate interest payments, without changing the underlying principal amounts, related to $600 million and $400 million of long-term debt having maturities ranging from 10 to 30 years issued in 1994 and 1993, respectively. A non-U.S. subsidiary of the Company uses cross-currency and interest rate swap agreements to manage the composition of its fixed and floating rate debt. Under the cross-currency agreement that matures in April 2002, the subsidiary will receive $150 million and will pay 203 million Australian dollars. Interest is receivable at 7 5/8% and payable at floating rates. Also outstanding were two interest rate FINANCIAL REVIEW 61 swap agreements under which the subsidiary will receive interest at floating rates and pay interest at fixed rates based on principal amounts of 100 million New Zealand dollars and 100 million Australian dollars, and two agreements under which the subsidiary will receive interest at fixed rates and pay interest at floating rates based on a combined principal amount of $250 million. The interest payments made or received pursuant to the swap agreements are included in interest expense. The impact on earnings and the Company's net liability under these agreements were not significant. The Company does not hold or issue financial instruments for trading purposes. The counterparties to the Company's interest rate and cross-currency swap agreements and foreign exchange contracts consist of a number of major international financial institutions. The Company continually monitors its positions with and the credit quality of these financial institutions and does not expect nonperformance by the counterparties. NOTE 14. CAPITAL STOCK The authorized capital stock of the Company at December 31, 1995 and 1994 consisted of 400,000,000 shares of common stock, $1 par value; 400,000 shares of cumulative $4 nonredeemable preferred stock, without par value (stated value of $100 per share); and 8,750,000 shares of serial preferred stock, $1 par value. The serial preferred stock is issuable in one or more series by the Board of Directors without further shareholder action. In the third quarter of 1995, the Company declared a two-for-one common stock split that was distributed to shareholders of record as of August 18, 1995. All share amounts have been retroactively adjusted for the effect of the common stock split. In addition, the quarterly dividend was raised $.04 to $.25 per common share on a split-adjusted basis. The Company has stock rights under a Shareholder Rights Plan whereby each share of common stock has one right. Each right entitles shareholders to purchase one common stock share at an exercise price of $77.50. The rights will become exercisable 10 days after anyone acquires or tenders for 20% or more of the Company's common stock. If, thereafter, anyone acquires 30% or more of the common stock, or a 20% or more owner combines with the Company in a reverse merger in which the Company survives and its common stock is not changed, each right will entitle its holder to purchase Company common stock with a value of twice the $77.50 exercise price. If, following an acquisition of 20% or more of the common stock, the Company is acquired in a merger or sells 50% of its assets or earnings power, each right will entitle its holder to purchase stock of the acquiring company with a value of twice the $77.50 exercise price. NOTE 15. RETIREMENT PLANS The Company maintains pension plans that provide retirement benefits to substantially all employees. Employees generally are eligible to participate in the plans upon completion of one year of service and attainment of age 21. The plans provide defined benefits based on years of credited service and either final average earnings (salaried employees), hourly job rates or specified benefit rates (hourly and union employees). U.S. Defined Benefit Plans The Company makes contributions that are sufficient to fully fund its actuarially determined costs, generally equal to the minimum amounts required by ERISA. Net periodic pension income for the Company's qualified and nonqualified defined benefit plans comprised the following: - -------------------------------------------------------------------------------- In millions 1995 1994 1993 ---- ---- ---- Service cost--benefits earned during the period $ (39) $ (54) $ (43) Interest cost on projected benefit obligation (170) (151) (143) Actual return on plan assets 477 7 291 Net amortization and deferrals (193) 275 (18) ------- ------- ------- Net periodic pension income $ 75 $ 77 $ 87 ======= ======= ======= The actuarial assumptions used in determining net periodic pension income for the years presented were: - -------------------------------------------------------------------------------- 1995 1994 1993 ---- ---- ---- Discount rate 8.75% 7.25% 8.0% Expected long-term return on plan assets 10.0% 10.0% 10.0% Weighted average rate of increase in compensation levels 4.75% 4.0% 5.0% The discount rates and the rates of increase in future compensation levels used to determine the projected benefit obligation at December 31, 1995 were 7.25% and 4.25%, respectively, and at December 31, 1994 were 8.75% and 4.75%, respectively. The following table presents the funded status of the Company's U.S. pension plans and the amounts reflected in the accompanying consolidated balance sheet: FINANCIAL REVIEW 62 - ------------------------------------------------------------------------------ In millions at December 31 1995 1994 ---- ---- Actuarial present value of benefit obligations Vested benefits $ 2,080 $ 1,649 ------- ------- Accumulated benefit obligation $ 2,203 $ 1,777 ------- ------- Projected benefit obligation $ 2,376 $ 1,909 Plan assets at fair value 2,896 2,557 ------- ------- Plan assets in excess of projected benefit obligation 520 648 Unrecognized net loss (gain) 170 (6) Balance of unrecorded transition asset (82) (109) Other 44 53 ------- ------- Prepaid pension cost $ 652 $ 586 ======= ======= Plan assets are held primarily in master trust accounts and comprise the following: - ------------------------------------------------------------------------------ In millions at December 31 1995 1994 ---- ---- Cash reserves $ 45 $ 134 Fixed income securities 1,003 843 Diversified equities 1,192 943 International Paper common stock 394 392 Real estate 113 117 Other 149 128 ------- ------- Total plan assets $ 2,896 $ 2,557 ======= ======= Non-U.S. Defined Benefit Plans Generally, the Company's non-U.S. pension plans are funded using the projected benefit as a target, except in certain countries where funding of benefit plans is not required. Net periodic pension expense for the Company's non-U.S. pension plans was immaterial for 1995, 1994 and 1993. The following table presents the funded status of the Company's non-U.S. pension plans and the amounts reflected in the accompanying consolidated balance sheet. Plan assets are made up principally of common stocks and fixed income securities. - ------------------------------------------------------------------------------ In millions at December 31 1995 1994 ---- ---- Actuarial present value of benefit obligations Vested benefits $ 338 $ 276 ------- ------- Accumulated benefit obligation $ 365 $ 292 ------- ------- Projected benefit obligation(1) $ 446 $ 347 Plan assets at fair value 477 338 ------- ------- Plan assets in excess of (less than) projected benefit obligation 31 (9) Unrecognized net gain (21) (16) Balance of unrecorded transition asset (35) (40) Other 5 3 ------- ------- Pension liability $ (20) $ (62) ======= ======= (1) The weighted average discount rate and the weighted average rate of compensation increase used to measure the projected benefit obligation were 6.93% (7.01% in 1994) and 4.65% (4.61% in 1994), respectively. Other Plans The Company sponsors several defined contribution plans to provide substantially all U.S. salaried and certain hourly employees of the Company an opportunity to accumulate personal funds for their retirement. Contributions may be made on a before-tax basis to substantially all of these plans. As determined by the provisions of each plan, the Company matches the employees' basic voluntary contributions. Company matching contributions to the plans were approximately $38 million, $36 million and $38 million for the plan years ending in 1995, 1994 and 1993, respectively. The net assets of these plans approximated $1.6 billion as of the 1995 plan year ends. NOTE 16. POSTRETIREMENT BENEFITS The Company provides certain retiree health care and life insurance benefits covering a majority of U.S. salaried and certain hourly employees. Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. A plan amendment in 1992 limits the maximum annual Company contribution for health care benefits for retirees after January 1, 1992 based on age at retirement and years of service after age 50. The Company does not pre-fund these benefits and has the right to modify or terminate certain of these plans in the future. The components of postretirement benefit expense in 1995, 1994 and 1993 were as follows: In millions 1995 1994 1993 ---- ---- ---- Service cost--benefits earned during the period $ 6 $ 8 $ 8 Interest cost on accumulated postretirement benefit obligation 26 23 25 Net amortization of plan amendments (18) (16) (15) ------- ------- ------- Net postretirement benefit cost $ 14 $ 15 $ 18 ======= ======= ======= The accumulated postretirement benefit obligation, included in other liabilities in the accompanying consolidated balance sheet, comprises the following components: In millions at December 31 1995 1994 ---- ---- Retirees $ 250 $ 223 Fully eligible active plan participants 17 15 Other active plan participants 76 63 ------- ------- Total accumulated postretirement benefit obligation 343 301 Unrecognized net loss (57) (26) Unrecognized effect of plan amendments 78 96 ------- ------- Accrued postretirement benefit obligation $ 364 $ 371 ======= ======= FINANCIAL REVIEW 63 Future benefit costs were estimated assuming medical costs would increase at a 10.25% annual rate, decreasing to a 5% annual growth rate ratably over the next eight years and then remaining at a 5% annual growth rate thereafter. A 1% increase in this annual trend rate would have increased the accumulated postretirement benefit obligation at December 31, 1995 by $23 million, with an immaterial effect on 1995 postretirement benefit expense. The weighted average discount rate used to estimate the accumulated postretirement benefit obligation at December 31, 1995 was 7.25% compared with 8.75% at December 31, 1994. NOTE 17. INCENTIVE PLANS The Company has a Long-Term Incentive Compensation Plan that includes a Restricted Performance Share Plan, a Stock Option Plan and an Executive Continuity Award Plan, administered by a committee of nonemployee members of the Board of Directors who are not eligible for awards. The plan allows stock appreciation rights to be awarded either separately or in combination with other awards, although none were awarded in 1995, 1994 or 1993. Under the Restricted Performance Share Plan, contingent awards of Company common stock are granted by the committee. Awards are earned if the Company's financial performance over a five-year period meets or exceeds that of other forest products companies using standards determined by the committee. In 1994 and 1993, 266,000 shares and 304,000 shares, respectively, were earned. The awards for 1995 have not yet been determined. The Stock Option Plan provides for the granting of incentive stock options and nonqualified stock options to key employees. The committee determines the option price, the number of shares for which an option is granted and the term (which cannot exceed 10 years). The option price is the market price of the stock at the date of grant. Upon exercise of an option, a replacement option may be granted with the exercise price equal to the current market price and with a term extending to the expiration date of the original option. The following summarizes stock option transactions under stock option plans for the three years ended December 31, 1995: Shares Option Price ------ ------------ Balance at 1/1/93(1) 6,447,618 $ 6.965-39.000 Granted 1,883,800 29.688-34.625 Exercised (850,392) 6.965-32.000 ---------- --------------- Balance at 12/31/93(1) 7,481,026 6.965-39.000 Granted 2,706,540 32.313-39.813 Exercised (1,790,698) 6.965-37.000 ---------- --------------- Balance at 12/31/94(1) 8,396,868 6.965-39.813 Granted 3,196,311 35.125-45.375 Exercised (2,331,066) 6.965-41.625 ---------- --------------- Balance at 12/31/95(1) 9,262,113 $ 6.965-45.375 ========== =============== (1) All options are exercisable under the plan upon grant; however, the underlying shares cannot be sold or are otherwise restricted for various periods. The Executive Continuity Award Plan provides for the granting of tandem awards of restricted stock and/or nonqualified stock options to key executives. Grants are restricted and awards conditioned on attainment of specified age and years of service requirements. Exercise of the options results in the cancellation of the related restricted shares. In 1995, 1994 and 1993, restricted shares of 20,000, 64,000 and 64,000, respectively, were awarded under this plan. In 1995, 120,000 options were exercised at an exercise price of $24.188. At December 31, 1995, 2,220,000 options at exercise prices ranging from $24.125 to $42.938 were outstanding under the Executive Continuity Award Plan. The options expire at various dates through 2008. At December 31, 1995 and 1994, a total of 10.8 million shares and 14.2 million shares, respectively, were available for grant under incentive plans. Provisions for awards under the Long-Term Incentive Compensation Plan and all other incentive plans amounted to $47 million, $37 million and $31 million in 1995, 1994 and 1993, respectively. The provisions include charges for recently acquired companies, and adjustments of prior-year awards due to changes in the market price of Company stock and final determination of Restricted Performance Share Plan awards. FINANCIAL REVIEW 64 NOTE 18. START-UP COSTS Effective January 1, 1994, the Company changed its method of accounting for start-up costs on major projects to expense these costs as incurred. Prior to 1994, the Company capitalized these costs and amortized them over a five-year period. This change was made to increase the focus on controlling costs associated with facility start-ups. The Company restated 1994 first-quarter results to record a pre-tax charge of $125 million ($75 million after taxes or $.30 per share) as the cumulative effect of an accounting change. This change also decreased 1994 total costs and expenses by $17 million ($10 million after taxes or $.04 per share). On a pro forma basis, this change would have had no impact on 1993. NOTE 19. SUBSEQUENT EVENTS On January 19, 1996, a subsidiary partnership of IPT filed a registration statement in anticipation of a possible public offering. The offering would consist of limited partnership units representing more than 80% of the equity in the subsidiary partnership, which owns approximately 300,000 acres of forestlands located in Oregon and Washington. In conjunction with the units offering, the subsidiary partnership would also place $350 million in senior debt securities. If this public offering is completed, the net proceeds from the units offering and debt placement would approximate $800 million. However, several alternatives are being pursued for the sale of these partnership interests. On February 13, 1996, the Company's Board of Directors authorized management actions that will result in the shut-down of certain plants, consolidation of certain operations and job eliminations. Accordingly, a pre-tax charge of about $500 million ($350 million after taxes or $1.35 per share) will be recorded in the first quarter of 1996. The charge consists of asset write-offs and impairments ($340 million, including $80 million from adopting SFAS No. 121 as described in Note 3), severance ($115 million) and lease cancellation and other exit costs ($45 million). The management actions will result in the reduction of 2,100 jobs, primarily in the U.S. and Europe. FINANCIAL REVIEW 65 ELEVEN-YEAR FINANCIAL SUMMARY Dollar amounts in millions, except per share amounts and stock prices 1995 1994 1993 ---- ---- ---- RESULTS OF OPERATIONS Net sales $19,797 $14,966 $13,685 Costs and expenses, excluding interest 17,276 13,902 12,837 Earnings before income taxes, minority interest, extraordinary item and cumulative effect of accounting changes 2,028 715(1) 538 Minority interest expense, net of taxes 156 47 36 Extraordinary item Cumulative effect of accounting changes (75) Net earnings 1,153 357(1) 289(2) Earnings applicable to common shares 1,153 357(1) 289(2) ------- ------- ------- FINANCIAL POSITION Working capital $ 1,010 $ 796 $ 472 Plants, properties and equipment, net 10,997 9,139 8,872 Forestlands 2,803 802 786 Total assets 23,977 17,836 16,631 Long-term debt 5,946 4,464 3,601 Common shareholders' equity 7,797 6,514 6,225 ------- ------- ------- PER SHARE OF COMMON STOCK(7) Earnings before extraordinary item and cumulative effect of accounting changes $ 4.50 $ 1.73(1) $ 1.17(2) Extraordinary item Cumulative effect of accounting changes (.30) Earnings 4.50 1.43(1) 1.17(2) Cash dividends .92 .84 .84 Common shareholders' equity 29.87 25.87 25.12 ------- ------- ------- COMMON STOCK PRICES(7) High 45 3/4 40 1/4 35 Low 34 1/8 30 3/8 28 3/8 Year-end 37 7/8 37 3/4 33 7/8 ------- ------- ------- FINANCIAL RATIOS Current ratio 1.2 1.2 1.1 Total debt to capital ratio 38.5 41.2 38.5 Return on equity 16.1 5.6(1,8) 4.7(2,8) Return on capital employed 9.2 4.1(1,8) 4.0(2,8) ------- ------- ------- CAPITAL EXPENDITURES $ 1,518 $ 1,114 $ 954 ------- ------- ------- NUMBER OF EMPLOYEES 81,500(9) 70,000 72,500 ======= ======= ======= FINANCIAL GLOSSARY Current ratio--current assets divided by current liabilities. Total debt to capital ratio--long-term debt plus notes payable and current maturities of long-term debt divided by long-term debt, notes payable and current maturities of long-term debt, deferred income taxes, minority interest, other liabilities, preferred securities and total common shareholders' equity. Return on equity--net earnings divided by average common shareholders' equity (computed monthly). Return on capital employed--net earnings plus after-tax interest expense, provision for deferred income taxes and minority interest expense divided by an average of total assets minus accounts payable and accrued liabilities. FINANCIAL REVIEW 66
Dollar amounts in millions, except per share amounts and stock prices 1992 1991 1990 1989 1988 1987 1986 1985 ---- ---- ---- ---- ---- ---- ---- ---- RESULTS OF OPERATIONS Net sales $13,598 $12,703 $12,960 $11,378 $ 9,587 $ 7,800 $ 5,540 $ 4,530 Costs and expenses, excluding interest 13,125(3) 11,695(4) 11,695(5) 9,739 8,199 6,930 5,010 4,373 Earnings before income taxes, minority interest, extraordinary item and cumulative effect of accounting changes 226(3) 693(4) 988(5) 1,434 1,223 703 474 165 Minority interest expense, net of taxes 15 42 33 26 22 21 20 6 Extraordinary item (6) Cumulative effect of accounting changes (50) (215) Net earnings 86(3) 184(4) 569(5) 864 754 407 305 133 Earnings applicable to common shares 86(3) 184(4) 569(5) 845 733 387 284 107 ------- ------- ------- ------- ------- ------- ------- ------- FINANCIAL POSITION Working capital $ (165)(6) $ 404 $ 784 $ 366 $ 781 $ 657 $ 296 $ 350 Plants, properties and equipment, net 8,884 7,848 7,287 6,238 5,456 5,125 4,788 3,725 Forestlands 759 743 751 764 772 780 783 741 Total assets 16,516 14,941 13,669 11,582 9,462 8,710 7,848 6,039 Long-term debt 3,096 3,351 3,096 2,324 1,853 1,937 1,764 1,191 Common shareholders' equity 6,189 5,739 5,632 5,147 4,557 4,052 3,664 3,195 ------- ------- ------- ------- ------- ------- ------- ------- PER SHARE OF COMMON STOCK(7) Earnings before extraordinary item and cumulative effect of accounting changes $ .58(3) $ 1.80(4) $ 2.61(5) $ 3.86 $ 3.28 $ 1.84 $ 1.45 $ .54 Extraordinary item (.02) Cumulative effect of accounting changes (.21) (.97) Earnings .35(3) .83(4) 2.61(5) 3.86 3.28 1.84 1.45 .54 Cash dividends .84 .84 .84 .77 .64 .60 .60 .60 Common shareholders' equity 25.23 25.52 25.67 23.67 20.57 18.18 17.52 16.67 ------- ------- ------- ------- ------- ------- ------- ------- COMMON STOCK PRICES(7) High 39 1/4 39 1/8 29 7/8 29 3/8 24 3/4 28 7/8 20 14 1/2 Low 29 1/4 25 1/4 21 3/8 22 5/8 18 1/4 13 1/2 12 1/8 11 1/8 Year-end 33 3/8 35 3/8 26 3/4 28 1/4 23 1/4 21 1/8 18 3/4 12 3/4 ------- ------- ------- ------- ------- ------- ------- ------- FINANCIAL RATIOS Current ratio .96(6) 1.1 1.2 1.1 1.5 1.4 1.2 1.5 Total debt to capital ratio 38.0 39.1 36.1 33.9 25.8 31.6 31.2 24.1 Return on equity 1.4(3)(8) 3.2(4) 10.5(5) 17.8 17.0 10.0 8.3 3.3 Return on capital employed 1.2(3)(8) 3.7(4) 7.5(5) 12.3 13.6 9.9 7.8 2.7 ------- ------- ------- ------- ------- ------- ------- ------- CAPITAL EXPENDITURES $ 1,368 $ 1,197 $ 1,267 $ 887 $ 645 $ 603 $ 576 $ 794 ------- ------- ------- ------- ------- ------- ------- ------- NUMBER OF EMPLOYEES 73,000 70,500 69,000 63,500 55,500 45,500 44,000 32,000 ======= ======= ======= ======= ======= ======= ======= =======
(1) Includes $17 million ($10 million after taxes or $.04 per share) of additional earnings related to the change in accounting for start-up costs. (2) Includes $25 million ($.10 per share) of additional income tax expense to revalue deferred tax balances to reflect the increase in the U.S. statutory federal income tax rate. (3) Includes restructuring and other charges totaling $398 million ($263 million after taxes or $1.08 per share). (4) Includes a $60 million pre-tax restructuring charge ($37 million after taxes or $.17 per share) and additional expenses related to the adoption of SFAS No. 106 of $25 million ($16 million after taxes or $.07 per share). (5) Includes a $212 million pre-tax restructuring charge ($137 million after taxes or $.63 per share). (6) Reflects increase in short-term versus long-term borrowings due to favorable interest rates. (7) Per share data and common stock prices have been adjusted to reflect two-for-one stock splits in September 1995 and May 1987. (8) Return on equity was 6.7% and return on capital employed was 4.9% in 1994 before the accounting change. Return on equity was 5.1% and return on capital employed was 4.0% in 1993 before the additional income tax expense. Return on equity was 6.3% and return on capital employed was 4.5% in 1992 before the accounting change, extraordinary item, and restructuring and other charges. (9) Acquisitions during 1995, primarily Carter Holt Harvey, added 12,500 employees. FINANCIAL REVIEW 67 INTERIM FINANCIAL RESULTS (UNAUDITED) Quarter In millions, except per share --------------------------------------- amounts and stock prices First Second Third Fourth Year ----- ------ ----- ------ ---- 1995 Net Sales $ 4,492 $ 5,084 $ 5,145 $ 5,076 $19,797 Gross Margin(1) 1,268 1,552 1,579 1,502 5,901 Earnings Before Income Taxes and Minority Interest 406 554 591 477 2,028 Net Earnings 246 316 328 263 1,153 Per Share of Common Stock(3) Earnings $ .97 $ 1.25 $ 1.27 $ 1.01 $ 4.50 Dividends .21 .21 .25 .25 .92 Common Stock Prices(3) High 39 7/8 43 3/8 45 3/4 42 45 3/4 Low 35 1/8 36 40 1/4 34 1/8 34 1/8 1994 Net Sales $ 3,414 $ 3,633 $ 3,792 $ 4,127 $14,966 Gross Margin(1) 863(2) 931(2) 984(2) 1,096 3,874 Earnings Before Income Taxes, Minority Interest and Cumulative Effect of Accounting Change 134(2) 153(2) 184(2) 244 715 Earnings Before Cumulative Effect of Accounting Change 76(2) 91(2) 111(2) 154 432 Cumulative Effect of Accounting Change (75) (75) Net Earnings 1(2) 91(2) 111(2) 154 357 Per Share of Common Stock(3) Earnings Before Cumulative Effect of Accounting Change $ .31(2) $ .36(2) $ .45(2) $ .61 $ 1.73 Cumulative Effect of Accounting Change (.30) (.30) Earnings .01(2) .36(2) .45(2) .61 1.43 Dividends .21 .21 .21 .21 .84 Common Stock Prices(3) High 39 36 1/2 40 1/4 40 1/4 40 1/4 Low 33 5/8 30 3/8 33 1/4 34 30 3/8 (1) Gross margin represents net sales less cost of products sold. (2) Amounts have been restated to reflect the change in accounting for start-up costs. The additional earnings in each quarter are as follows: first quarter, $7 million ($4 million after taxes or $.02 per share); second quarter, $6 million ($4 million after taxes or $.01 per share); and third quarter, $4 million ($2 million after taxes or $.01 per share). (3) Per share amounts and common stock prices adjusted for the two-for-one stock split in September 1995. FINANCIAL REVIEW 68 APPENDIX A INTERNATIONAL PAPER EXPLANATION OF CHARTS IN ANNUAL REPORT 3/28/96 1--NET SALES (PAGE 1) Bar charts of NET SALES for the years 1993 through 1995, in billions of dollars. Data points as follows: 1993 1994 1995 ---- ---- ---- 13.7 15.0 19.8 2--NET EARNINGS (PAGE 1) Bar chart of NET EARNINGS for the years 1993 through 1995, in millions of dollars. Charts contain color keys for the years 1993 through 1994 to highlight the following unusual or nonrecurring items: In 1993, Adjustment of deferred tax balances to reflect the federal tax rate change. In 1994, change in accounting for start-up costs. Data ponts as follows: 1993 1994 1995 ---- ---- ---- NET EARNINGS BEFORE UNUSUAL ITEMS 314 422 1,153 Change in accounting for start-up costs (65) Adjustment of deferred tax balances (25) --- --- ----- NET EARNINGS 289 357 1,153 3--EARNINGS PER SHARE (PAGE 1) Bar chart of EARNINGS PER SHARE for the years 1993 through 1995, in dollars. Charts contain color keys for the years 1993 through 1994 to highlight the following unusual or nonrecurring items: In 1993, Adjustment of deferred tax balances to reflect the federal tax rate change. In 1994, change in accounting for start-up costs. Data points as follows: 1993 1994 1995 ---- ---- ---- EARNINGS PER SHARE BEFORE UNUSUAL ITEMS 1.27 1.69 4.50 Change in accounting for start-up costs (0.26) Adjustment of deferred tax balances (0.10) ----- ----- ---- EARNINGS PER SHARE 1.17 1.43 4.50 4--RETURN ON EQUITY (PAGE 1) Bar chart of RETURN ON EQUITY for the years 1993 through 1995, in percent. Charts contain color keys for the years 1993 through 1994 to highlight the following unusual or nonrecurring items: In 1993, Adjustment of deferred tax balances to reflect the federal tax rate change; In 1994, change in accounting for start-up costs. Data points as follows: 1993 1994 1995 ---- ---- ---- RETURN ON EQUITY BEFORE UNUSUAL ITEMS 5.1 6.7 16.1 Change in accounting for start-up costs (1.1) Adjustment of deferred tax balances (0.4) ---- ---- ---- RETURN ON EQUITY 4.7 5.6 16.1 5, 6, 7, 8--PIE CHARTS Above each pie chart is a title indicating what the chart illustrates. Each pie's slice is a different color, and has a dotted line next to it leading to the name of the business the pie slice represents, and the related percentage. PAGE DESCRIPTION PERCENT - ---- ----------- ------- 5 Printing Papers Sales Business Papers 54% Coated Papers 28% Pulp 18% 6 Business Papers Sales to Geographic Areas U.S. 71% International 29% 7 Coated Papers Sales to Geographic Areas U.S. 43% International 57% 8 Pulp Sales to Geographic Areas U.S. 31% International 69% 9--PRINTING PAPERS-NET SALES AND OPERATING PROFIT (PAGE 10) Bar chart of NET SALES and OPERATING PROFIT for the segment for the years 1993 through 1995, in millions of dollars. NET SALES chart contains color keys to show breakdown of U.S. and non-U.S. sales. Data points for NET SALES as follows: 1993 1994 1995 ---- ---- ---- U.S. 2,746 3,028 4,116 Non-U.S. 1,159 1,372 2,059 ----- ----- ----- NET SALES 3,905 4,400 6,175 Data points for OPERATING PROFIT as follows: 1993 1994 1995 ---- ---- ---- OPERATING PROFIT (122) 20 1,093 10--PRINTING PAPERS 1995 WORLDWIDE PRODUCTION Business Papers Coated Papers Pulp --------------- ------------- ---- U.S. 2,764,000 556,000 1,324,000 Europe 652,000 580,000 268,000 New Zealand 24,000 220,000 --------- --------- --------- Total 3,440,000 1,136,000 1,812,000 New Zealand's Carter Holt Harvey production is for the 12 months ended December 31, 1995. International Paper owns just over 50% of Carter Holt Harvey. 11, 12, 13--PIE CHARTS Above each pie chart is a title indicating what the chart illustrates. Each pie's slice is a different color, and has a dotted line next to it leading to the name of the business the pie slice represents, and the related percentage. PAGE DESCRIPTION PERCENT - ---- ----------- ------- 13 Packaging Sales Industrial Packaging 68% Consumer Packaging 32% 14 Industrial Packaging Sales Containerboard 25% Corrugated 61% Kraft 14% 17 Consumer Packaging Sales Bleached Board 32% Liquid Packaging 46% Folding Carton & Label 22% 14--PACKAGING-NET SALES AND OPERATING PROFIT (PAGE 18) Bar chart of NET SALES and OPERATING PROFIT for the segment for the years 1993 through 1995, in millions of dollars. NET SALES chart contains color keys to show breakdown of U.S. and non-U.S. sales. Data points for NET SALES as follows: 1993 1994 1995 ---- ---- ---- U.S. 2,366 2,579 3,058 Non-U.S. 729 796 1,362 ----- ----- ----- NET SALES 3,095 3,375 4,420 Data points for OPERATING PROFIT as follows: 1993 1994 1995 ---- ---- ---- OPERATING PROFIT 188 293 741 15, 16--PIE CHARTS Above each pie chart is a title indicating what the chart illustrates. Each pie's slice is a different color, and has a dotted line next to it leading to the name of the business the pie slice represents, and the related percentage. PAGE DESCRIPTION PERCENT - ---- ----------- ------- 21 Distribution Sales ResourceNet International 91% International 9% 22 Distribution Sales by Major Product Paper Products 75% Industrial & Graphic Arts 25% 17--DISTRIBUTION-NET SALES AND OPERATING PROFIT (PAGE 24) Bar charts of NET SALES and OPERATING PROFIT for the segment for the years 1993 through 1995, in millions of dollars. NET SALES chart contains color keys to show breakdown of U.S. and non-U.S. sales. Data points for NET SALES as follows: 1993 1994 1995 ---- ---- ---- U.S. 2,853 3,145 4,557 Non-U.S. 287 325 468 ----- ----- ----- NET SALES 3,140 3,470 5,025 Data points for OPERATING PROFIT as follows: 1993 1994 1995 ---- ---- ---- OPERATING PROFIT 58 74 106 18, 19, 20, 21, 22, 23--PIE CHARTS Above each pie chart is a title indicating what the chart illustrates. Each pie's slice is a different color, and has a dotted line next to it leading to the name of the business the pie slice represents, and the related percentage. PAGE DESCRIPTION PERCENT - ---- ----------- ------- 27 Specialty Products Sales Specialty Panels 31% Imaging 23% Nonwovens 8% Specialty Papers 16% Tissue 8% Chemicals & Petroleum 14% 28 Specialty Panels Sales to Geographic Areas North America 61% Europe 21% Other 18% 29 Imaging Products Sales to Geographic Areas North America 34% Europe 57% Other 9% 30 Specialty Papers Sales to Geographic Areas North America 92% Europe 5% Other 3% 32 Tissue Sales to Geographic Areas New Zealand 43% Australia 57% 33 Chemicals & Petroleum Sales to Geographic Areas North America 60% Europe 34% Other 6% 24--SPECIALTY PRODUCTS-NET SALES AND OPERATING PROFIT (PAGE 34) Bar charts of NET SALES and OPERATING PROFIT for the segment for the years 1993 through 1995, in millions of dollars. NET SALES chart contains color keys to show the breakdown of U.S. and Non-U.S. sales. Data points for NET SALES as follows: 1993 1994 1995 ---- ---- ---- U.S. 1,749 1,840 1,916 Non-U.S. 711 750 1,384 ----- ----- ----- NET SALES 2,460 2,590 3,300 Data points for OPERATING PROFIT as follows: 1993 1994 1995 ---- ---- ---- OPERATING PROFIT 263 268 207 25, 26, 27--PIE CHARTS Above each pie chart is a title indicating what the chart illustrates. Each pie's slice is a different color, and has a dotted line next to it leading to the name of the business the pie slice represents, and the related percentage. PAGE DESCRIPTION PERCENT - ---- ----------- ------- 37 Forest Products Sales Forestlands 33% Wood Products 67% 38 Forestlands Sales to Geograhic Areas U.S. 50% International 50% 39 Wood Products Sales to Geographic Areas U.S. 60% International 40% 28--FOREST PRODUCTS-NET SALES AND OPERATING PROFIT (PAGE 40) Bar charts of NET SALES and OPERATING PROFIT for the segment for the years 1993 through 1995, in millions of dollars. NET SALES chart contains color keys to show breakdown of U.S. and non-U.S. sales. Data points for NET SALES as follows: 1993 1994 1995 ---- ---- ---- U.S. 1,597 1,595 1,442 Non-U.S. 103 120 658 ----- ----- ----- NET SALES 1,700 1,715 2,100 Data points for OPERATING PROFIT as follows: 1993 1994 1995 ---- ---- ---- OPERATING PROFIT 488 418 388 ENVIRONMENT, HEALTH AND SAFETY CHARTS (PAGE 43) 29--TOTAL INCIDENCE RATE Bar chart showing recordable injuries per 200,000 work hours (U.S. data). Data points as follows: 1989 1991 1993 1995 ---- ---- ---- ---- 8.4 6.3 4.6 3.4 30--LOST WORKDAY INCIDENCE RATE Bar chart showing lost time injuries per 200,000 work hours (U.S. data). Data points as follows: 1989 1991 1993 1995 ---- ---- ---- ---- 1.5 1.1 0.69 0.47 31--SOLID WASTE AT 24 MANUFACTURING SITES Bar chart showing cubic yards of solid waste per 100 tons of product (U.S. data). Data points as follows: 1988 1992 1994 1996* ---- ---- ---- ----- 55 35.5 20.3 18 *estimated 32--INDUSTRIAL TOXICS PROJECT (33/50 PROGRAM) Bar chart showing industrial toxics in millions of pounds (U.S. data). A color key across the chart shows a 1995 goal of 5.33, and a year 2000 goal of 1.60. 1988 1990 1992 1994 ---- ---- ---- ---- 10.67 7.03 3.15 2.37 33--NET SALES (PAGE 44) Bar chart of NET SALES for the years 1993 through 1995, in billions of dollars. Data points as follows: 1993 1994 1995 ---- ---- ---- 13.7 15.0 19.8 34--CASH FLOW FROM OPERATIONS (PAGE 45) Bar chart of CASH FLOW FROM OPERATIONS for the years 1993 through 1995, in millions of dollars. Data points as follows: 1993 1994 1995 ---- ---- ---- 928 1,243 2,248 35--TOTAL DEBT TO CAPITAL RATIO (PAGE 46) Bar chart of TOTAL DEBT TO CAPITAL RATIO for the years 1993 through 1995, expressed as a percent. Data points as follows: 1993 1994 1995 ---- ---- ---- 38.5 41.2 38.5 APPENDIX B PHOTOGRAPHS AND ILLUSTRATIONS FOR 1995 ANNUAL REPORT: 1. Page 2: A photo of John A. Georges, Chairman and Chief Executive Officer. 2. Page 3: A photo of John T. Dillon, President and Chief Operating Officer. 3. Page 4: A full page photo of rolls of paper and the dry end of the new paper machine at the Riverdale mill in Alabama. The words "Printing Papers" appear in large letters across the center of the photo. 4. Page 5: A photo of two magazines - Redbook and Cosmopolitan to represent our coated papers business. 5. Page 5: A photo of two reams of Hammermill copy paper to represent our business papers business. 6. Page 5: A photo of two reams of Aussedat Rey paper products to represent our international presence. 7. Page 5: A photo of a paper machine at our Kwidzyn mill in Poland. The words "6.2 billion dollars in printing papers sales" appear over the photograph. 8. Page 6: A photo of Pollux paper products from our Kwidzyn mill in Poland. 9. Page 6: A photo of Strathmore Paper's writing system of papers. 10. Page 7: A photo of salespeople and customers in front of rolls of our coated paper in Vallassis Communications' warehouse. 11. Page 7: A photo of coupon booklets printed on our coated paper. 12. Page 7: A photo of brochures from German-based Zanders. 13. Page 8: A photo of three Olympian magazines, printed on our coated paper. 14. Page 9: A photo of fabric that contains our dissolving pulp. 15. Page 9: A photo of a stack of paper of various colors. 16. Page 11: A photo of brochures and products from Strathmore Paper. 17. Page 11: A photo of three reams of Springhill copy paper. 18. Page 11: A photo of various color folders made with our heavyweight papers. 19. Page 11: A photo of diapers and the absorbent material inside of it. 20. Page 11: A photo of Beckett brochures. 21. Page 11: A photo of Victoria's Secret magazines printed on our coated paper. 22. Page 11: A photo of two reams of 100% recycled paper and the newspaper and magazines used to produce the paper. 23. Page 12: A full page photo of the new paper machine at our Mansfield mill in Louisiana. A control panel is in the foreground of the photo. The word "Packaging" appears in large letters in the center of the photo. 24. Page 13: A photo of a preprinted corrugated box containing strawberries to represent our industrial packaging business. 25. Page 13: A photo of two aseptic juice cartons produced by our domestic liquid packaging division to represent our consumer packaging business. 26. Page 13: A photo of three cans of DelMonte peas - the label is produced by our label division. 27. Page 13: A photo of a production line of Triton beverage rings with the words "4.4 billion dollars in packaging sales" in the center of the photo. 28. Page 14: A photo of one of the retail bags we produce for JC Penney, the bag contains a shirt and tie. 29. Page 14: A photo of a preprinted corrugated box for Mercury Propellors, produced by our container division. 30. Page 15: A photo of our ClassicPak 7 shipping container used by the poultry industry. 31. Page 16: A photo of Windows '95 boxes, made from our bleached packaging board. 32. Page 17: A photo of a glass of milk and spout-pak milk carton produced by our liquid packaging division. 33. Page 17: A photo of a Coca-Cola cup that is made from our bleached packaging board. 34. Page 17: A photo of aseptic packaging cartons on our Fuji filling machine at a customer's juice facility. 35. Page 19: A photo of a multiwall cement bag made from our kraft packaging. 36. Page 19: A photo of a six-pack of juice packaged together with our Triton beverage ring holder. 37. Page 19: A photo of our spout-pak carton being used by a Brazilian customer to package their liquid yogurt. 38. Page 19: A photo of a detergent bottle that has our Polyweave label attached to it. 39. Page 19: A photo of a corrugated box produced in New Zealand. The box contains apples. 40. Page 19: A photo of a Quaker Oatmeal box that is made by our folding carton division. 41. Page 19: A photo of a corrugated box filled with peppers. The box was produced by our international container division. 42. Page 20: A full page photo of ResourceNet International's new warehouse in Dallas, Texas. The word "Distribution" appears in large letters across the center of the page. 43. Page 21: A photo of a ResourceNet International delivery truck to represent our delivery system. 44. Page 21: A photo of a tower of products representing the wide variety of products we distribute in our network. 45. Page 21: A photo of flags with the words "5.0 billion dollars in distribution sales" in the center of the photo. 46. Page 22: A photo of a tower of office supply products that represent the many products we distribute. 47. Page 22: A photo of three reams of copy paper - Springhill, Hammermill and Replicopy. 48. Page 23: A photo of the Color & Texture Selector computer program used to assist customers in selecting papers. 49. Page 23: A photo of a ResourceNet International salesperson with a customer from Daniels Printing in Massachusetts. 50. Page 25: A photo of a Mexican flag to represent our acquisition of two Mexican distribution companies. 51. Page 25: A map of the United States that identifies our 130 warehouse locations. 52. Page 25: A photo of brochures from our European subsidiaries, Aussedat Rey and Scaldia. 53. Page 25: a computer mouse and pad to represent the initiation of our new information system that will link all our locations. 54. Page 25: A photo of industrial supplies that are available through our distribution group. 55. Page 25: A photo of our ColorLok printing products. 56. Page 25: A photo of products we distribute to the food service industry. 57. Page 25: A photo of a wide variety of colors and sizes of envelopes that we distribute through our distribution group. 58. Page 26: A full page photo of our CraftMaster door facings on display in a retail store. The words "Specialty Products" appear in the center of the photo in large letters. 59. Page 27: A photo of a stack of Fountainhead countertop samples to represent our Specialty Panels business. 60. Page 27: A photo of a roll of Ilford film to represent our Imaging business. 61. Page 27: A photo of peel and stick labels to represent our specialty papers business. 62. Page 27: A photo of Nubtex shop cloths used in the graphic arts industry. 63. Page 27: A photo of a box of tissues to represent Carter Holt Harvey's tissue business. 64. Page 27: A photo of a roll of tape to represent the resins produced by our Chemicals business. 65. Page 27: A photo of samples of our panels with the words "3.3 billion dollars in specialty products sales" in the center of the photo. 66. Page 28: A photo of a kitchen countertop to represent our decorative laminates business. 67. Page 28: A photo of Fome-Cor art board products in a variety of colors. 68. Page 28: A photo of Colorlok engineered wood siding product samples. 69. Page 29: A photo of a box of Anitec film paper. 70. Page 29: A photo of Ilford film papers. 71. Page 30: A photo of a band aid showing the peel of strip and padding that we produce. 72. Page 30: A photo of Pillsbury crescent rolls that shows the outside liner that we produce. 73. Page 30: A photo of a suitcase with an airline baggage tag attached to the handle. 74. Page 31: A photo of Veratec's DataGuard packaging product and the CD that it is protecting. 75. Page 31: A photo of diapers, sanitary pads and tampons that contain absorbent materials made by our Veratec business. 76. Page 31: A photo of fabric enhanced with Veratec's InterSpun process. 77. Page 31: A photo of jeans enhanced with Veratec's InterSpun process. 78. Page 32: A photo of toilet tissue produced by Carter Holt Harvey in New Zealand. 79. Page 32: A photo of paper towels produced by Carter Holt Harvey in New Zealand. 80. Page 33: A photo of several cans of colorful inks to represent our Chemicals business. 81. Page 33: A photo of a tire to represent our Chemicals and Petroleum business. 82. Page 33: A photo of a bubble gum dispenser that contains gumballs to represent the food grade resins made by our Chemicals business. 83. Page 35: A photo of samples of France's Polyrey decorative laminate finishes. 84. Page 35: A photo of envelopes with a glassine window to represent our specialty papers business. 85. Page 35: A photo of a can of red ink to represent our recent acquisition of a European ink resin producer. 86. Page 35: A photo of Anitec and Ilford products to represent our imaging business. 87. Page 35: A photo of diskettes showing the diskette liner as a component of the diskette. 88. Page 35: A photo of a variety of tissue products made by Carter Holt Harvey in New Zealand. 89. Page 35: A photo of diapers made by Carter Holt Harvey in New Zealand. 90. Page 35: A photo of a red door made from CraftMaster door facings. 91. Page 36: A full page photo of radiata pine trees in New Zealand. The words "Forest Procucts" appear in large letters across the center of the page. 92. Page 37: An illustration of a pine cone. 93. Page 37: An illustration of the variety of wood products that we produce. 94. Page 37: A photo of lumber with the words " 2.1 billion dollars in forest products sales" in the center of the photo. 95. Page 38: A photo of seedlings. 96. Page 38: A map of the country of New Zealand. 97. Page 39: A photo of wood products made from our eastern white pine. 98. Page 39: A photo of oriented strand board products. 99. Page 39: A photo of our new oriented strand board plant in Jefferson, Texas. 100. Page 41: An illustration of a radiata pine tree. 101. Page 41: A photo of southern yellow pine lumber. 102. Page 41: An illustration of a turkey to represent our protection of wildlife habitats. 103. Page 41: A photo of plywood. 104. Page 41: A photo of medium-density fibreboard. 105. Page 41: An illustration of loblolly pine trees. 106. Page 41: A photo of landscape timbers. 107. Page 42: A photo of two employees in a wildlife preserve at our Mobile, Ala., mill. EX-21 5 LIST OF SIGNIFICANT SUBSIDIARIES EXHIBIT 21 COMPANY AND SUBSIDIARIES: PERCENTAGE OF VOTING SOVEREIGN POWER SECURITIES OWNED BY UNDER WHICH ORGANIZED IMMEDIATE PARENT --------------------- -------------------- International Paper Company (the "Company").. New York Parent Federal Paper Board Company, Inc. ........... North Carolina 100% IP Timberlands, Ltd.*..... Texas The Company owns 100% of the Class A Common Stock and Class B Common Stock of IP Forest Resources Company, managing general partner of IPT, and 84% of the Class A Depositary Units and 100% of the Class B Depositary Units of IPT. Names of subsidiaries which, if considered in the aggregate as a single subsidiary would not constitute a significant subsidiary, have been omitted. - ---------- * For Regulation S-X purposes. EX-22 6 PROXY STATEMENT, DATED MARCH 29, 1996 [LOGO] TWO MANHATTANVILLE ROAD PURCHASE, NEW YORK 10577 JOHN A. GEORGES CHAIRMAN March 29, 1996 Dear Fellow Shareholders: The annual meeting of International Paper will be held this year at Swissotel Chicago, 323 East Wacker Drive, Chicago, Illinois. The meeting will start at 8:30 a.m., on Thursday, May 9, 1996. You are cordially invited to attend this meeting and we look forward to seeing you there. The following Proxy Statement outlines the business to be conducted at the meeting, which includes the election of one class of directors and one director to the remaining term of his designated class and approval of the appointment of Arthur Andersen LLP as independent auditors for 1996. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOUR REPRESENTATION AND VOTE ARE IMPORTANT. WE URGE YOU TO VOTE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD. Attendance at the meeting will be limited to shareholders of record as of the close of business on March 22, 1996, or their duly appointed proxy holder (not to exceed one proxy per shareholder), and to guests of management. If you or your proxy holder plan to attend this meeting, please complete, sign and return the enclosed Request for Admittance card. Thank you for your continued support. Sincerely, [SIGNATURE] JOHN A. GEORGES [LOGO] NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO THE OWNERS OF COMMON STOCK OF INTERNATIONAL PAPER COMPANY: The annual meeting of shareholders of International Paper Company will be held Thursday, May 9, 1996, at 8:30 a.m. at the Swissotel Chicago, 323 East Wacker Drive, Chicago, Illinois to: 1. Elect one class of directors comprised of five members to the Board of Directors and one director to the remaining term of his designated class; 2. Approve the appointment of Arthur Andersen LLP as independent auditors for 1996; and 3. Transact such other business as may properly come before the meeting or any adjournments thereof. YOUR BOARD OF DIRECTORS URGES SHAREHOLDERS TO VOTE FOR ITEMS 1 AND 2. Shareholders of record at the close of business on March 22, 1996, will be entitled to vote at the meeting or any adjournments thereof. By order of the Board of Directors JAMES W. GUEDRY VICE PRESIDENT AND SECRETARY March 29, 1996 INTERNATIONAL PAPER COMPANY PROXY STATEMENT TWO MANHATTANVILLE ROAD PURCHASE, NEW YORK 10577 (914) 397-1500 GENERAL INFORMATION This statement is furnished by the Board of Directors of International Paper Company (the "Company") in connection with the solicitation of proxies to be voted at the annual meeting of shareholders to be held on May 9, 1996. Owners of shares of common stock outstanding are entitled to one vote for each share of common stock held of record at the close of business on March 22, 1996. As of that date, there were 291,649,514 shares of common stock outstanding. The annual report, including the audited financial statements of the Company for the fiscal year ended December 31, 1995, has been mailed to shareholders with this Proxy Statement and should be read carefully in conjunction with this Proxy Statement before voting on any proposals contained herein, as it contains details of the Company's operations and other relevant disclosures. PROXY PROCEDURE Shares eligible to be voted, and for which a proxy is properly signed and returned, will be voted in accordance with the instructions specified thereon. Where no instruction is received, eligible shares will be voted as recommended by the Board of Directors in this Proxy Statement. If any other matters come before the meeting, including any proposal submitted by a shareholder which was omitted from this Proxy Statement in accordance with the applicable provisions of the federal securities laws, the persons voting the proxies will vote them in accordance with their best judgment. As of the time this Proxy Statement was printed, management was not aware of any other matters to be voted upon. Any proxy may be revoked at any time before its exercise by submitting a written revocation or a new proxy, or by the shareholder's attendance and vote at the annual meeting. Solicitation of proxies from the Company's shareholders may be undertaken by directors, officers and employees, as well as by Georgeson & Company Inc. Payments to that firm as compensation are estimated at approximately $14,500 plus reimbursable expenses. This solicitation may be carried out either by mail, telephone, telegraph, or personal interview. The cost of any such solicitation will be borne by the Company. The Company has a policy of confidentiality in the voting of shareholder proxies generally and uses the services of its registrar and transfer agent, Chemical Mellon Shareholder Services L.L.C., as independent inspectors of election to receive and tabulate the proxy vote. This Proxy Statement and the form of Proxy were sent to shareholders commencing March 29, 1996. MEETING ADMITTANCE PROCEDURES Shareholders of record as of the close of business on March 22, 1996 (or their duly appointed proxy holder upon verification--not to exceed one proxy per shareholder) will be entitled to vote and attend the meeting. The following procedures have been adopted to insure that no inconvenience or delays are caused to the Company's shareholders or their proxy holders when entering the meeting. If you plan to attend the annual meeting in person or will appoint a proxy to attend the meeting (other than the proxies set forth on the proxy card), please complete (including the name of the appointed proxy, if any), sign and return the enclosed Request for Admittance promptly so that an admittance card can be reserved for you or your proxy in advance of the meeting. These admittance cards will be delivered to you or your proxy holder upon verification of identification at the shareholders' admittance counter at the meeting. Record shareholders who do not have admittance cards reserved for them at the meeting will be admitted upon verification of ownership at the shareholders' admittance counter. If you have not appointed a proxy in advance or have changed the appointed proxy on the Request for Admittance, your duly appointed proxy who will attend the meeting will be required to present evidence of your signature on the proxy (a copy of your driver's license or employment identification card or other identification with your signature) in order to determine that only valid proxies are admitted and voted. 2 Beneficial owners of record on March 22, 1996 (or their duly appointed proxy holder upon verification--not to exceed one proxy per shareholder) can obtain admittance cards only at the shareholders' admittance counter by presenting evidence of common stock ownership in the Company. This evidence could be a proxy from the institution that is the record holder of the stock or your most recent bank or brokerage firm account statement, along with proper identification. If you are a beneficial shareholder who will appoint a proxy to attend the meeting on your behalf, your duly appointed proxy will be required to comply with the procedures in this paragraph, as well as the admittance procedures described above for duly appointed proxies not designated in advance on the Request for Admittance. CORPORATE GOVERNANCE BOARD OF DIRECTORS The Board is classified into three classes of directors: Class II directors, of which there are currently four, were elected to serve until the 1996 annual meeting; Class III directors, of which there are currently five, were elected to serve until the 1997 annual meeting; and Class I directors, of which there are currently four, were elected to serve until the 1998 annual meeting. Each class is elected for a three-year term. In addition, Messrs. C. Wesley Smith and John R. Kennedy were elected directors, effective December 12, 1995 and March 12, 1996, respectively. Mr. Smith has been designed to stand for election as a Class II director at the 1996 annual meeting and Mr. Kennedy has been designed to stand for election as a Class I director at the 1996 annual meeting. Mr. Kennedy is to serve the remaining term of his designated class. Eleven regular meetings and seven special meetings of the Board of Directors were held in 1995. In addition, there were 28 Committee meetings. Each director attended at least 83% of the meetings of the Board and the Committees on which he or she serves. All of the directors attended an average of 95% of such meetings of the Board and the Committees on which he or she serves. In December 1995, a Company affiliate sold 6,184 acres of property in North Carolina to The Conservation Fund, a not-for-profit natural resources conservation entity, for approximately $1.6 million and a donation value of $1.5 million, which price approximates the fair market value as determined by the Company's land utilization department based upon an MAI independent appraisal. Mr. Noonan, a director of the Company, is chairman of The Conservation Fund but did not participate in the sale negotiations. Mr. John R. Kennedy, a director, was the president and chief executive officer of Federal Paper Board Company ("FPB") which merged into a Company subsidiary on March 12, 1996 (the "Merger"). As the holder of 662,856 shares of FPB, he received consideration valued at $36,457,080 in the Merger. Various trusts and other holdings of which Mr. Kennedy is a trustee, or co-trustee, held 316,612 FPB shares and received consideration valued at $17,413,660; Mr. Kennedy disclaims beneficial ownership of these shares and consideration. In addition, in the Merger, all FPB options were assumed by the Company. Since Mr. Kennedy held options for 274,000 FPB shares at an average exercise price of $25.45, these were converted into options for 398,397 Company shares at an average exercise price of $16.40. In the Merger, it was agreed that Mr. Kennedy's FPB bonus of $1,842,227 would be paid by the Company on January 1, 1997. He also will receive benefits from the FPB pension plan, the Benefit Equalization Plan and the Supplemental Executive Retirement Plan insofar as he retired from FPB coincident with the Merger. Finally, as part of the Merger, the Company agreed to take all necessary action to appoint Mr. Kennedy a Company director, which he became on March 12, 1996. Beneficial ownership of current directors in equity securities of the Company is shown in the table on page 6. AUDIT COMMITTEE The functions of the Audit Committee of the Board are to assist the Board in carrying out its responsibilities for monitoring management's accounting for the Company's financial results and for the timeliness and adequacy of the reporting of those results; to discuss and make inquiry into the audits of the Company's books made internally and by outside independent auditors, the Company's financial and accounting policies, its internal controls and its financial reporting; and to investigate and make a recommendation to the Board each year with respect to the appointment of independent auditors for the following year. 3 Current members of the Committee, none of whom is an employee of the Company, are J. C. Pfeiffer (Chairman), W.C. Butcher, A.G. Hansen, P.F. Noonan and R.B. Smith. Four meetings of the Committee were held in 1995. MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE The functions of the Management Development and Compensation Committee are to review Company policies and programs for the development of management personnel; to make recommendations to the Board with respect to any proposals for compensation or compensation adjustments of officers who are also directors of the Company; to authorize compensation or compensation adjustments for other elected officers of the Company; to administer the Company's executive bonus and Long-Term Incentive Compensation Plan; to review and endorse changes in Company employee retirement and benefits plans; to review officer candidates and endorse nominees for election as officers; and to make recommendations to the Board with respect to directors' compensation. Current members of the Committee, none of whom is an employee of the Company, are S.C. Gault (Chairman), W.C. Butcher, R. J. Eaton, T.C. Graham, E.T. Pratt, Jr. and C. R. Shoemate. Nine meetings of the Committee were held in 1995. NOMINATING COMMITTEE The functions of the Nominating Committee are to review the size and composition of the Board; to review possible director candidates and director nominations properly presented by shareholders; to recommend to the Board individuals suitable for election as directors; to review and recommend annually to the full Board the slate of nominees for election by the Company's shareholders; and to review assignments of individual Board members to various Board committees. Current members of the Committee, none of whom is an employee of the Company, are W.C. Butcher (Chairman), D.F. McHenry, J.C. Pfeiffer, E.T. Pratt, Jr. and C.R. Shoemate. Two meetings of the Committee were held in 1995. ENVIRONMENT, HEALTH AND TECHNOLOGY COMMITTEE The functions of the Environment, Health & Technology Committee are to discuss and make inquiries into the environmental and safety audits performed by the Company's internal auditors; to review environmental, safety and health and technological policies and programs throughout the Company, to assure that they are appropriate to the short- and long-term objectives of the Company in terms of industry leadership, compliance with federal and state laws and regulations and social responsibility; and to advise the Board of the effectiveness of these policies and programs. Current members of the Committee are T.C. Graham (Chairman), J.T. Dillon, R.J. Eaton, S.C. Gault, A.G. Hansen and P.F. Noonan. Five meetings of the Committee were held in 1995. OTHER COMMITTEES Membership of the other regular Committees of the Board of Directors is shown on page 69 of the Company's annual report. FUTURE SHAREHOLDER PROPOSALS AND NOMINATIONS Any shareholder proposals intended to be presented at the 1997 annual meeting must be made in writing and received by the Secretary of the Company at the Company's principal executive offices by the close of business on December 4, 1996, for inclusion in the 1997 Proxy Statement and form of proxy relating to the meeting. Nomination by shareholders for directors, at a meeting called for the purpose of electing directors, shall be made in accordance with Article II, Section 9 of the Company's By-laws, as set forth below: "Nominations for election to the Board of Directors of the Corporation at a meeting of the Stockholders may be made by the Board, or on behalf of the Board by any nominating committee appointed by the Board, or by any Stockholder of the Corporation entitled to 4 vote for the election of Directors at such meeting. Such nominations, other than those made by or on behalf of the Board, shall be made by notice in writing delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation, and received by him not less than thirty (30) days nor more than sixty (60) days prior to any meeting of the Stockholders called for the election of Directors; provided, however, that if less than thirty-five (35) days notice of the meeting is given to the Stockholders, such nomination shall have been mailed or delivered to the Secretary of the Corporation not later than the close of business on the seventh (7th) day following the day on which the notice of meeting was mailed. Such notice shall set forth as to each proposed nominee who is not an incumbent Director (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee, (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee and by the nominating Stockholder, and (iv) any other information concerning the nominee that must be disclosed of nominees in proxy solicitations pursuant to Rule 14(a) of the Securities Exchange Act of 1934. Such notice shall be accompanied by the written consent of each proposed nominee to serve as a Director of the Corporation. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth herein. "The Presiding Officer of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded." The effect of this By-law is that shareholder nominations for the 1997 election of directors must be received by the Secretary of the Company not earlier than March 17, 1997, or later than April 14, 1997, if the annual meeting is held on the second Tuesday of May, 1997. 5 COMMON STOCK OWNERSHIP OF DIRECTORS AND MANAGEMENT The following table shows, as of March 22, 1996, the number of shares of Company common stock beneficially owned (as defined by the Securities and Exchange Commission) or otherwise claimed by each current director and each nominee for director and by all directors and executive officers of the Company as a group, as adjusted for the two-for-one stock dividend on September 15, 1995. To the best knowledge of the Company, no person or group beneficially owns more than 5% of the Company's common stock outstanding, except as set forth below in the table.
- ---------------------------------------------------------------- SHARES PERCENT OF TOTAL NAME OF INDIVIDUAL BENEFICIALLY COMMON STOCK OR GROUP OWNED (1) OUTSTANDING - ---------------------------------------------------------------- W.C. Butcher 5,184 J.T. Dillon 239,591 R.J. Eaton 3,400 S.C. Gault 19,146 No director or executive J.A. Georges 471,958 officer owns as much as T.C. Graham 13,160 1/5th of 1% A.G. Hansen 6,416 J.R. Kennedy 152,629 D.F. McHenry 5,877 P.F. Noonan 2,050 J.C. Pfeiffer 5,571 E.T. Pratt 5,160 C.R. Shoemate 2,100 C.W. Smith 143,869 R.B. Smith 7,000 J.P. Melican 143,813 M.J. Turk 74,903 All directors and executive officers as a group 1,721,590 0.59% Bank trustee under Company and subsidiary employee benefit plans (2) 22,407,510 7.68% - ----------------------------------------------------------------
(1) Ownership shown includes securities over which the individual has or shares, directly or indirectly, voting or investment powers, including shares held in the Restricted Stock Plan for Non-Employee Directors, shares owned by a spouse or certain relatives and ownership by trusts for the benefit of such relatives, as required to be reported by the Securities and Exchange Commission. Certain individuals may disclaim beneficial ownership of some of these shares, but they are included for the purpose of computing the holdings and the percentages of common stock owned. Interests in shares resulting from participation in the Company's Salaried Savings Plan, Performance Share Awards, and Executive Continuity Awards, are included above. The above table does not include 1,507,337 shares represented by stock options granted executive officers under the Long-Term Incentive Compensation Plan, including options for 749,500 shares for Mr. Georges, 157,037 shares for Mr. Dillon, 131,000 shares for Mr. Melican, 99,200 shares for Mr. C.W. Smith and 66,000 shares for Mr. Turk. In addition, under the 6 Nonfunded Deferred Compensation Plan for Non-Employee Directors or the Unfunded Savings Plan, the Directors and executive officers (as indicated by the asterisk) listed below own or have a restricted right to the non-voting stock-equivalent Units set forth in the following chart:
- -------------------------------------------------------------------------------- STOCK STOCK DIRECTOR UNITS DIRECTOR UNITS - -------------------------------------------------------------------------------- W.C. Butcher 20,025 P.F. Noonan 2,159 J.T. Dillon* 157,037 J.C. Pfeiffer 4,610 R.J. Eaton 2,554 E.T. Pratt 38,820 J.A. Georges* 349,500 C.R. Shoemate 3,214 T.C. Graham 24,048 C.W. Smith* 99,200 S.C. Gault 7,425 R.B. Smith 20,116 A.G. Hansen 16,325 J.P. Melican* 131,000 D.F. McHenry 24,346 M.J. Turk* 66,000 - --------------------------------------------------------------------------------
(2) As of December 31, 1995, State Street Bank & Trust Co., N.A. holds such shares as the independent trustee in trust funds for employee savings, thrift, and similar employee benefit plans of the Company and its subsidiaries ("Company Trust Funds"). In addition, State Street Bank & Trust Co., N.A. is trustee for various third party trusts and employee benefits plans and is an Investment Advisor. As a result of its holdings in all capacities, State Street Bank & Trust Co., N.A. is the record holder of 24,676,896 shares of common stock of the Company. The trustee disclaims beneficial ownership of all such shares except 2,256,208 of which it has sole power to dispose or to direct the disposition of. The common stock held by the Company Trust Funds is allocated to participants' accounts and such stock or the cash equivalent will be distributed to participants upon termination of employment or pursuant to withdrawal rights. The trustee votes the shares of common stock held in the Company Trust Funds in accordance with the instructions of the participants; shares for which no instructions are received are voted proportionately to those shares voted by participants. MATTERS TO BE CONSIDERED AT THE MEETING ITEM NO. 1--ELECTION OF DIRECTORS Five (5) directors are to be elected as Class II directors for three-year terms expiring in 1999. One (1) director who joined the Board since the last annual meeting is to be elected as a Class I director, for a term expiring in 1998. Each nominee is currently a director of the Company. Election requires the affirmative vote by the holders of a plurality of outstanding common stock voting at the annual meeting of shareholders. A plurality means that the six (6) nominees receiving the largest number of votes cast will be elected. Votes which are withheld from any nominee, as well as broker non-votes, will not be counted in such nominee's favor. Shareholders voting at the meeting may not vote for more than the number of nominees listed in the Proxy Statement. Proxies given to management to vote will be voted according to instructions given, but only for nominees listed in the Proxy Statement. 7 The term of the present Class II directors expires at the adjournment of the 1996 annual meeting. The five nominees for election at the 1996 meeting as Class II directors are: CLASS II NOMINEES--TERM EXPIRING IN 1999 [PHOTO] WILLARD C. BUTCHER, 69, former Chairman and Chief Executive Officer of The Chase Manhattan Bank, N.A. He is a director of ASARCO, Incorporated, M.I.M. Holdings, Ltd. (Australia), Olympia & York Companies (U.S.A.) and Texaco Inc. He is a member of The Business Council, the International Advisory Board for Banca Nazionale del Lavaro, vice chairman of the International Advisory Committee for The Chase Manhattan Bank and vice chairman of the Lincoln Center for the Performing Arts, Inc. He is a trustee emeritus of the American Enterprise Institute for Public Policy Research and a fellow emeritus of Brown University and a trustee of Business Committee for the Arts, Inc. Director since August 1, 1989 [Photo] THOMAS C. GRAHAM, 69, Chairman of the Board of AK Steel Corporation. Previously, he was Chairman and Chief Executive Officer, elected to those posts concurrent with the formation of AK Steel, a publicly held corporation which emerged from the privately-held Armco Steel Company, L.P. in April of 1994. He had been named president and chief executive officer of Armco Steel in June 1992. He was formerly chairman and chief executive officer of Washington Steel Corporation until he assumed his current position in 1992. He was vice chairman--steel and diversified group and executive director of USX Corporation from 1986 to 1991. He was named vice chairman and chief operating officer--steel and related resources, U.S. Steel Corporation, in 1983. Prior to that time he served as president and chief executive officer of Jones & Laughlin Steel Corporation. He is a director of Hershey Foods Corporation and IP Forest Resources Company (the managing general partner of IP Timberlands, Ltd.). Director since October 14, 1986 [Photo] JANE C. PFEIFFER, 63, management consultant. She is a director of Ashland, Inc., IP Forest Resources Company (the managing general partner of IP Timberlands, Ltd.), J.C. Penney Company, Inc. and The Mutual Life Insurance Company of New York. She is a trustee of the Conference Board, The University of Notre Dame and the Overseas Development Council and a member of The Council on Foreign Relations. Director since June 14, 1977 [Photo] EDMUND T. PRATT, JR., 69, former Chairman of the Board (from 1972 to 1992) and Chief Executive Officer from (1972 to 1991) of Pfizer Inc. He is chairman emeritus and a director of Pfizer, Inc., a director of Minerals Technologies, Inc., The Chase Manhattan Corporation, The Chase Manhattan Bank, N.A., and General Motors Corporation. He is a director and member of the Executive Committee of AEA Investors, Inc. and a member of the Board of Trustees of Logistics Management Institute. Director since September 9, 1975
8 [Photo] C. WESLEY SMITH, 56, Executive Vice President--printing papers since 1992. Prior thereto, he was president--International Paper--Europe from 1989. Director since December 12, 1995
The one nominee for election at the 1996 meeting as a Class I director is listed below. CLASS I NOMINEE--TERM EXPIRING 1998 [PHOTO] JOHN R. KENNEDY, 65, former President and Chief Executive Officer of Federal Paper Board Company, Inc. from 1975 to 1996. He is a director of DeVlieg Bullard, Inc. and Chase Brass Industries, Inc. Director since March 12, 1996
Other directors who will continue to serve are listed below under their respective classes. None of these directors are to be elected at the 1996 annual meeting. CLASS III DIRECTORS--TERM EXPIRING IN 1997 [PHOTO] ROBERT J. EATON, 56, Chairman and Chief Executive Officer of the Chrysler Corporation. He joined Chrysler in 1992, as Vice Chairman and Chief Operating Officer and a member of the Board. Prior to joining Chrysler, his 29-year career with General Motors included various management positions, the most recent being President of General Motors Europe (1988 - 1992). He is a fellow of both the Society of Automotive Engineers and the Engineering Society of Detroit and a member of the National Academy of Engineering. He is a director of the American Automobile Manufacturers Association and is a member of The Business Council, The Business Roundtable, and the U.S./Japan Business Council. He also is a member of the President's Advisory Committee on Trade Policy and Negotiations and serves as a director of Detroit Renaissance, United Way of Southeastern Michigan, Economic Club of Detroit, Detroit Symphony Orchestra and the Michigan Leaders Health Care Group. Director since January 10, 1995
9 [Photo] JOHN A. GEORGES, 65, Chairman and Chief Executive Officer. He was elected chief executive officer in 1984 and became chairman and chief executive officer in 1985. He has been a director, chairman of the board and chief executive officer of IP Forest Resources Company (the managing general partner of IP Timberlands, Ltd.) since 1985. He is a director of AK Steel Holding Corporation, Ryder Systems, Inc., Scitex Corporation Ltd. and Warner-Lambert Company. He is a member of The Business Council and the Policy Committee of the Business Roundtable. He is a board member of the Business Council of New York State, a member of The Trilateral Commission, the President's Advisory Committee for Trade Policy and Negotiations and president of the University of Illinois Foundation. Mr. Georges has announced his retirement as Chairman and Chief Executive Officer of the Company, effective March 31, 1996. He will remain a director. Director since February 1, 1980 [Photo] DONALD F. MCHENRY, 59, University Research Professor of Diplomacy and International Affairs at Georgetown University since 1981. He is president of the IRC Group and a director of American Telephone and Telegraph Company, The Coca-Cola Company, Bank of Boston Corporation, the First National Bank of Boston, SmithKline Beecham plc and the Institute for International Economics. He is a trustee of the Johnson Foundation, The Brookings Institution, The Mayo Foundation and Columbia University; and chairman of the board of Africare. Director since April 14, 1981 [Photo] PATRICK F. NOONAN, 53, Chairman of the Board of The Conservation Fund (a nonprofit organization dedicated to conserving America's land and water resources) and previously, also its chief executive officer since 1985. Prior to that he was president of The Nature Conservancy. He is a trustee of The National Geographic Society and the American Farmland Trust. He is also a director of Ashland, Inc., the Fund for Government Investors, Saul Centers and the American Gas Association Index Fund. He is a member of the Board of Visitors of Duke University School of the Environment. Director since December 14, 1993 [Photo] CHARLES R. SHOEMATE, 56, Chairman, President and Chief Executive Officer of CPC International Inc. He was elected president and a member of its board of directors in 1988, chief executive officer in August 1990 and chairman in September 1990. He joined CPC International in 1962 and progressed through a variety of positions in manufacturing, finance and business management within the consumer foods and corn refining businesses. In 1981, he was named president of Canada Starch Company, CPC's Canadian subsidiary. He was elected vice president of the corporation in 1983, and in 1986 became president of the Corn Refining Division. He is a director of CIGNA Corporation and the Grocery Manufacturers of America, Inc. He is a member of the Business Roundtable; a trustee of the Committee for Economic Development; and a trustee of The Conference Board. Director since November 1, 1994
10 CLASS I DIRECTORS--TERM EXPIRING IN 1998 [PHOTO] JOHN T. DILLON, 57, President and Chief Operating Officer since 1995 and prior thereto, Executive Vice President--packaging since 1987. He is a director of Carter Holt Harvey Limited, a New Zealand forest products and paper company. He is a member of the Board of Trustees of the Executive Committee of The Joint Council on Economic Education. He is the chairman of the Forest Industries Committee on Timber Valuation and Taxation. Mr. Dillon was elected Chairman and Chief Executive Officer of the Company, effective April 1, 1996. Director since March 1, 1991 [Photo] STANLEY C. GAULT, 70, Chairman of the Board since January 1, 1996 and previously thereto the chairman and chief executive officer of The Goodyear Tire & Rubber Company, holding that position since June 1991. Previously, he was chairman and chief executive officer of Rubbermaid Incorporated (1980-1991). He is a director of Avon Products, Inc., PPG Industries, Inc., The New York Stock Exchange, Inc., Rubbermaid Incorporated and The Timken Company. He is a trustee and chairman of the board of The College of Wooster and honorary vice chairman of the National Association of Manufacturers. Director since January 8, 1980 [Photo] ARTHUR G. HANSEN, 71, educational consultant. He was director of research of the Hudson Institute from 1987 to 1988, chancellor of the Texas A&M University System from 1982 to 1986, president of Purdue University from 1971 to 1982 and president of Georgia Institute of Technology from 1969 to 1971. He is a director of American Electric Power Company, Inc. and IP Forest Resources Company (the managing general partner of IP Timberlands, Ltd.). He is a member of the National Academy of Engineering, a Commissioner of the Indiana Commission for Higher Education and a fellow of the American Association for the Advancement of Science. Director since February 10, 1976 [Photo] ROGER B. SMITH, 70, former Chairman and Chief Executive Officer of General Motors Corporation from 1981 to 1990, when he retired. He is a director of Citicorp, IP Forest Resources Company (the managing general partner of IP Timberlands, Ltd.), Johnson & Johnson and PepsiCo, Inc. He is a member of The Business Council and is a trustee of the Michigan Colleges Foundation, Inc. and the Sloan Foundation. Director since December 1, 1989
11 ITEM NO. 2--APPROVAL OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS FOR 1996 The Audit Committee has considered the qualifications of Arthur Andersen LLP and recommended that the Board of Directors appoint them as independent auditors of the consolidated financial statements of the Company for the year 1996. This included a review of their performance in prior years, as well as their reputation for integrity and competence in the fields of accounting and auditing. The Committee has expressed its satisfaction with Arthur Andersen in all of these respects. The Committee's review also included inquiry concerning litigation involving Arthur Andersen and the existence of any investigations by the Securities and Exchange Commission into the financial reporting practices of the companies audited by them. In this respect, the Committee concluded that the ability of Arthur Andersen to perform services for the Company is not in any way adversely affected by any such investigation or litigation. The Board of Directors desires to obtain shareholders' approval of the Board's action in appointing Arthur Andersen LLP, as independent auditors of the consolidated financial statements of the Company for the year 1996. A representative of Arthur Andersen LLP will be present at the annual meeting to respond to appropriate questions and to make a statement if he or she desires. Approval of Item No. 2 requires the affirmative vote of the holders of a majority of the shares voting on this proposal. Abstentions and broker non-votes will not be counted as having voted on this Item No. 2. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS OF THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR 1996 12 REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS As of December 31, 1995, the Management Development and Compensation Committee (the "Committee") consisted of six outside directors: William C. Butcher, Robert J. Eaton, Stanley C. Gault, Thomas C. Graham, Edmund T. Pratt, Jr. and Charles R. Shoemate. Mr. Gault is chairman. The Committee met nine times in 1995 with a 100% attendance record. The chairman and chief executive officer of the Company was not present during any discussion of his compensation. GENERAL Total compensation received by the named executive officers consists of salary, cash bonus, stock options and restricted stock. The total compensation has been designed to attract the most qualified talent, motivate them to reach their highest level of achievement, reward sustained superior performance and retain those senior managers whose competencies are prerequisite to shareholder value appreciating over the long term. The cash bonus and long-term incentives introduce considerable risk in the total executive compensation package, since the value of these components may vary significantly from year to year based on Company performance, individual performance and Company stock price. The Committee periodically reviews each component of the Company's executive compensation program to ensure that pay levels and incentive opportunities are competitive and that incentive opportunities are linked to Company performance. The Committee relates total compensation levels for the Company's executives to the compensation paid at a select group of comparator companies. These companies are surveyed on an on-going basis by independent compensation consulting firms and include a cross section of approximately 40 manufacturing companies in industries that are close in size and manufacturing complexity to International Paper and who compete directly with International Paper for executive talent. The Committee reviews and approves the selection of companies used for compensation comparisons. International Paper also uses independent compensation consulting firms to advise the Committee. The Company's compensation levels for each component of pay are compared to the median of the comparator group's competitive pay levels. The Company's Management Incentive Plan (MIP) links payment of an annual cash bonus directly to achievement of a specified level of net earnings, which accounts for 80% of target bonus funds available, and predetermined targets for qualitative nonfinancial performance factors, which were quality, safety and employee development, which account for the remainder. In 1995, the Company achieved a level of net earnings and performance compared to predetermined nonfinancial targets which generated a bonus fund. Performance against the financial target for 1995 was exceeded. The Company, in the aggregate, met the 1995 nonfinancial targets. The Company's Long-Term Incentive Compensation Plan and amendments, which were approved by the shareholders in 1989 and 1994, respectively, provides for awards of stock options and restricted stock in the form of performance shares which are made in amounts which the Committee determines to be competitive based on the surveys described above. Stock options are granted at fair market value at the time of the award and are restricted for four years. Contingent awards of performance shares are made in December of the year preceding a five-year Award Period. At the end of the five-year Award Period, the number of shares earned is determined by financial performance which the Committee measures by comparing the Company's and Peer Paper Group's (eight companies which comprise the Peer Line of the Performance Graphs on page 15) and weighing equally, the five-year average return on equity and earnings per share. If the threshold level of performance is not attained, no shares are earned. Above the threshold, the contingent award is reduced if the target goal is not met or supplemented if the target goal is exceeded. Payouts of earned performance shares are made in Company stock at the end of the five-year Award Period. One half of the shares earned is mandatorily deferred for an additional three years, and payout is subject to the executive's continued employment throughout that period. From time to time executive continuity awards are made with long-term vesting requirements which are designed to encourage retention of a small number of senior executives designated by the Committee. The size of an award, and any adjustments, is determined by the Committee to reflect an executive's level of responsibility and individual performance. As provided by the Company's Long-Term Incentive Compensation Plan, a continuity award may consist of restricted stock or a tandem grant of restricted stock together 13 with a related non-qualified stock option which is granted at fair market value and restricted until a specified age. If the stock option is exercised, then the related restricted shares are canceled; if any portion of the stock option is not exercised by the date the continuity award terminates, then the less valuable component of the tandem award is canceled. The Committee has considered the provisions of the Omnibus Budget Reconciliation Act of 1993 which limit deductibility of compensation paid to named executive officers which exceeds $1 million. The Committee endorsed amendments to the Company's Long-Term Incentive Compensation Plan in 1994 to make certain sections of the plan compatible with those provisions, while maintaining the Committee's flexibility in the Company's Management Incentive Plan to exercise business judgment in determining awards to take account of business conditions or the performance of individual executives. Any limitations upon deductibility of compensation are not expected to be material to the Company. The Committee will continue to monitor tax and other related compensation legislation. In 1995, the Committee recognized that a portion of Mr. Georges's and Mr. Dillon's total current cash compensation is above $1 million. THE 1995 EXECUTIVE OFFICERS' COMPENSATION The Committee approved merit salary increases for the named executive officers based on competitiveness of the executives' pay and personal performance. In May 1995, Mr. Georges's salary was increased to $1,060,000, approximating the median increase awarded CEO's in the group of surveyed companies referred to above. Salaries paid to the named officers in 1995, including Mr. Georges's salary, were competitively positioned from slightly above to below the median of the survey companies. MIP awards for the named executive officers in 1995 were determined by the Committee after review of respective levels of responsibility, personal performance and Company performance compared to the predetermined 1995 financial and nonfinancial goals. Actual awards to all named executive officers represented 11.5% of the bonus fund. All named executive officers' MIP awards increased compared to 1994 in recognition of the 173% improvement in earnings before a net charge resulting from an accounting change in 1994. The performance share guidelines described above were used by the Committee to determine contingent performance share awards in December 1995 to the named executive officers for the 1996-2000 Award Period and the payout in 1995 of earned shares for the 1990-1994 Award Period. The pretax values of Mr. Georges's performance share awards in 1995 were: $722,262 in contingent restricted stock for the 1996-2000 Award Period; $206,457 in deferred restricted stock for the Award Period 1990-1994; and $206,457 in earned shares (long-term incentive payout) for the 1990-1994 Award Period. The shares earned for the 1990-1994 Award Period reflect Company performance which exceeded performance of the Peer Paper Group. The Committee granted stock options in 1995 based on competitive surveys described earlier, without consideration of the amount of stock options already held by named executive officers. Mr. Georges's 1995 stock option award was 38,000 shares, the same as his award in 1993 and 1994. In 1995, a continuity award of restricted stock and a related option was granted to Mr. Dillon based on his promotion to President. There were no other executive continuity awards granted to any of the named executive officers in 1995. THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS William C. Butcher Robert J. Eaton Stanley C. Gault, chairman Thomas C. Graham Edmund T. Pratt, Jr. Charles R. Shoemate COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No executive officer or other employee of the Company served as a member of the Committee or as a member of the compensation committee on the board of any company where an executive officer of such company is a member of the Committee. Mr. Graham, a member of the Committee, is the chairman of AK Steel Corporation; Mr. Georges, chairman and chief executive officer of the Company, is on the board of AK Steel Corporation. 14 PERFORMANCE GRAPHS The following charts compare a $100 investment in International Paper stock with a similar investment in a peer group of eight key competitor companies and the S&P 500. The charts portray total nominal return, 1990-1995 and 1985-1995 assuming reinvestment of dividends. The Company has presented information pertaining to total shareholder return over two different time periods since all holders of the common stock did not acquire their investment in International Paper on the same date. The Company believes a presentation in this format more accurately reflects the financial return provided to the holders of its Common Stock which may not be evident if only one time period was highlighted. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN International Paper S & P 500 Index Peer Group 1990 100 100 100 1991 136 131 136 1992 131 141 152 1993 137 155 173 1994 156 157 178 1995 160 216 194
Assumes $100 invested on December 31, 1990. * Total return assumes reinvestment of dividends. ** Includes Boise Cascade, Champion, Georgia Pacific, Mead, Stone Container, Union Camp, Westvaco, and Weyerhaeuser. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN International Paper S & P 500 Index Peer Group 1985 100 100 100 1986 154 119 134 1987 177 125 145 1988 200 146 154 1989 251 192 169 1990 245 186 136 1991 333 242 186 1992 321 261 208 1993 335 287 236 1994 382 291 243 1995 393 400 265
Assumes $100 invested on December 31, 1985. * Total return assumes reinvestment of dividends. ** Includes Boise Cascade, Champion, Georgia Pacific, Mead, Stone Container, Union Camp, Westvaco, and Weyerhaeuser. 15 ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION The compensation of the Company's executive officers is approved by the Committee except for the compensation of the officer-directors, which is recommended by the Committee and approved by the Board of Directors. The Company paid a two-for-one stock dividend on September 15, 1995. Amounts of stock prior to that date referenced to herein have been restated to reflect that share dividend. The following tables set forth information with respect to the Chairman and Chief Executive Officer and the four most highly compensated executive officers of the Company for the years 1993-1995. SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------------------- LONG-TERM COMPENSATION ANNUAL COMPENSATION CONTINGENT AWARDS ------------------------------------ --------------------- (A) (B) (C) (D) (E) (F) (G) (H) OTHER RESTRICTED ANNUAL STOCK ALL OTHER SALARY BONUS COMPENSATION AWARD OPTIONS COMPENSATION NAME AND POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) (#)(5) ($)(6) - ---------------------------------------------------------------------------------------------------------------------------------- John A. Georges as 1995 $1,035,000 $1,300,000 $ 0 $1,083,393 38,000 $264,713 Chief Executive Officer 1994 $ 953,750 $1,115,000 $ 0 $1,051,857 38,000 $198,548 1993 $ 880,833 $ 525,000 $ 0 $ 819,672 38,000 $136,571 John T. Dillon as 1995 $ 490,417 $ 600,000 $ 0 $2,227,287 35,737 $129,717 President and Chief Operating Officer 1994 $ 430,000 $ 370,000 $ 0 $ 398,690 16,000 $ 96,681 1993 $ 396,667 $ 230,000 $ 0 $ 332,316 16,000 $ 77,234 James P. Melican as 1995 $ 446,667 $ 410,000 $ 0 $ 373,480 27,700 $106,803 Executive Vice President 1994 $ 420,000 $ 345,000 $ 0 $ 362,664 64,592 $ 88,763 1993 $ 386,667 $ 215,000 $ 0 $ 302,430 15,400 $ 69,747 C. Wesley Smith as 1995 $ 380,750 $ 410,000 $ 0 $ 551,428 36,600 $ 93,299 Executive Vice President 1994 $ 333,750 $ 335,000 $357,784 $ 362,664 15,400 $ 78,922 1993 $ 283,333 $ 190,000 $ 0 $ 944,705 13,600 $ 55,390 Milan J. Turk as 1995 $ 293,750 $ 260,000 $ 0 $ 287,108 27,200 $ 60,554 Senior Vice President, (now Executive Vice 1994 $ 278,333 $ 210,000 $ 0 $ 279,006 9,600 $ 37,164 President) 1993 $ 265,000 $ 150,000 $ 0 $ 973,164 9,600 $ 41,382 - ----------------------------------------------------------------------------------------------------------------------------------
(1) Salary paid in 1995 including amounts deferred pursuant to Section 401(k) of the Internal Revenue Code or pursuant to unfunded deferral arrangements. (2) Management Incentive Plan awards paid in 1996, 1995 and 1994 attributable to 1995, 1994 and 1993 respectively, including amounts deferred pursuant to Section 401(k) of the Internal Revenue Code or pursuant to deferral arrangements reported in the year earned. (3) Represents settlement of tax equalization with respect to Mr. Smith's expatriate assignment from 1989 to 1992. (4) Represents (a) 150% of the value of gross target restricted performance shares contingently awarded in 1995 for the 1996-2000 award period, in 1994 for the 1995-1999 award period and in 1993 for the 1994-1998 award period, which is the maximum achievable for those award periods; only 100% of the target restricted performance shares are earned if the target goal is met for an award period, with the awards being reduced if the goal is not met or entirely forfeited if a predetermined threshold goal is not met; (b) 150% of the value of incremental maximum awards for prior award periods made upon promotion, subject to the same contingencies; and (c) the value of continuity awards of $858,750 in 1995 for Mr. Dillon, $497,000 in 1993 for Mr. Smith and $745,500 in 1993 for Mr. Turk. The number and dollar value of restricted stock holdings at December 31, 1995 are as follows: 210,271/$7,964,014 for Mr. Georges; 129,200/$4,893,457 for Mr. Dillon; 88,590/$3,355,335 for Mr. Melican; 86,353/$3,270,615 for Mr. Smith; and 55,629/$2,106,940 for Mr. Turk. These numbers include the restricted stock portion of the tandem awards of restricted stock/options made to the respective individuals under continuity awards. Dividends are paid on restricted shares. (5) Includes replacement options if applicable. These figures do not include the tandem option awards made as part of the continuity awards referred to in footnote (4) above insofar as the awards are characterized as restricted stock awards. Such tandem options were for 100,000 shares for Mr. Dillon in 1995; 80,000 shares for Mr. Smith in 1993; and 24,000 shares for Mr. Turk in 1993. The options are generally restricted as to exercise prior to age 62. (6) 1995 totals represent Company contributions to the Salaried Savings Plan and Unfunded Savings Plan, premium payments grossed up for taxes for the Executive Supplemental Insurance Plan (ESIP), accruals for ESIP lump sum dividend payments and imputed income from group life as follows: $103,200, $74,168, $58,984 and $28,361 for Mr. Georges; $41,300, $59,194, $20,846 and $8,378 for Mr. Dillon; $38,000, $36,444, $20,323 and $12,036 for Mr. Melican; $34,356, $31,938, $17,221 and $9,785 for Mr. Smith; and $24,180, $28,928, $0 and $7,446 for Mr. Turk. 16 The table below sets out information on the option grants made in 1995 to the named executive officers: OPTION GRANTS IN 1995
- ---------------------------------------------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED COMPOUND ANNUAL GROWTH RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM INDIVIDUAL GRANTS (2) ----------------------------------------------------- ---------------------------------------------- (A) (B) (C) (D) (E) (F) (G) (H) % OF TOTAL OPTIONS OPTIONS GRANTED EXERCISE OR GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION NAME AND POSITION (#)(1) 1995 ($/SH) DATE 0% 5% 10% - ---------------------------------------------------------------------------------- ---------------------------------------------- John A. Georges as Chief 38,000 1.15% $ 38.875 01/10/05 $0 $ 814,450 $ 2,006,028 Executive Officer John T. Dillon as President 16,000 0.48% $ 43.500 01/12/03 $0 $ 283,342 $ 660,307 and Chief Operating 17,000 0.51% $ 38.875 01/10/05 $0 $ 364,359 $ 897,434 Officer 2,737 0.08% $ 42.938 09/12/05 $0 $ 71,075 $ 178,547 James P. Melican as 12,300 0.37% $ 40.875 01/09/00 $0 $ 51,533 $ 105,580 Executive Vice President 15,400 0.46% $ 38.875 01/10/05 $0 $ 330,066 $ 812,969 C. Wesley Smith as 4,000 0.12% $ 39.750 02/09/97 $0 $ 7,950 $ 15,900 Executive Vice President 8,600 0.26% $ 39.750 01/09/00 $0 $ 73,671 $ 158,653 8,600 0.26% $ 39.750 01/08/01 $0 $ 94,447 $ 208,703 15,400 0.46% $ 38.875 01/10/05 $0 $ 330,066 $ 812,969 Milan J. Turk as Senior 7,600 0.23% $ 39.688 05/08/00 $0 $ 71,013 $ 154,239 Vice President, (now 7,600 0.23% $ 39.688 01/08/01 $0 $ 83,333 $ 184,145 Executive Vice President) 12,000 0.36% $ 38.875 01/10/05 $0 $ 257,195 $ 633,483 - ---------------------------------------------------------------------------------------------------------------------------------- All shareholders N/A N/A N/A N/A $0 $6,569,389,207 $16,648,122,070 - ----------------------------------------------------------------------------------------------------------------------------------
(1) Each option granted may be replaced upon exercise. This means that a new option is granted for the same number of shares as is exercised, with the then current market value becoming the new exercise price. The replacement option does not extend the term of the original option. Options may not be replaced more than three times. These numbers do not include any options granted as part of the tandem awards of restricted stock/options made as continuity awards in 1995; the restricted stock is reported as part of the total holdings of the respective individuals under footnote (4) to the Summary Compensation Table. (2) The dollar amounts under these columns are the result of calculations at 0%, and at the 5% and 10% rates set by the SEC and therefore are not intended to forecast possible future appreciation, if any, of the stock price. (3) No gain to the optionee is possible without an increase in stock price, which will benefit all shareholders commensurately. A zero percent gain in stock price will result in zero dollars for the optionee. 17 The table below sets out information on options exercised and options outstanding. AGGREGATED OPTION EXERCISES IN 1995 AND DECEMBER 31, 1995 OPTION VALUES
- ---------------------------------------------------------------------------------------------------------------------------------- (A) (B) (C) (D) (E) (F) (G) NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT 12/31/95 OPTIONS AT 12/31/95 SHARES VALUE REALIZED ($) (#)(5) ($)(5) ACQUIRED ON ---------------------- ------------------------- ------------------------- EXERCISE AGGREGATE ANNUALIZED RESTRICTED UNRESTRICTED RESTRICTED NAME AND POSITION (1) (#)(1) (1) (2) UNRESTRICTED (3) (4) (3)(4) - ---------------------------------------------------------------------------------------------------------------------------------- John A. Georges as 11,756 $ 50,698 $ 24,335 183,000 152,000 $949,113 $410,875 Chief Executive Officer John T. Dillon as 32,100 $281,225 $127,541 72,200 67,737 $328,369 $ 71,000 President and Chief Operating Officer James P. Melican as 21,708 $204,625 $ 52,710 62,900 61,600 $ 0 $166,513 Executive Vice President C. Wesley Smith as 21,200 $241,726 $ 50,746 29,200 53,000 $ 43,000 $132,088 Executive Vice President Milan J. Turk as 15,200 $204,625 $ 49,354 15,200 38,800 $ 0 $ 97,050 Senior Vice President, (now Executive Vice President) - ----------------------------------------------------------------------------------------------------------------------------------
(1) The number of incremental shares retained on exercises is as follows: 5,778 for Mr. Dillon; 2,710 for Mr. Melican and 3,632 for Mr. Turk. (2) Represents the aggregate incremental value realized divided by the number of years the option was held prior to exercise. (3) All options are exercisable under the plan upon grant; however, columns (e) and (g) indicate the number and value of options, the underlying shares of which, while exercisable, cannot be sold or are otherwise restricted. (4) Total value of options (market value minus exercise price) based on fair market value of Company stock of $37.875 as of December 31, 1995. (5) Options granted as part of the tandem awards of restricted stock/options made as continuity awards are not included; these awards are counted as restricted stock awards and holdings. 18 RETIREMENT BENEFITS The following table shows the total estimated annual pension benefits payable under the Company's qualified and supplementary retirement plans upon retirement at age 65, calculated on a straight life annuity basis and reduced by a Social Security offset: COMBINED RETIREMENT PLANS TABLE OF ESTIMATED BENEFITS
- --------------------------------------------------------------------------------- PENSIONABLE REMUNERATION CREDITABLE YEARS OF SERVICE - --------------------------------------------------------------------------------- 5 10 15 20 25 30 -------- -------- ---------- ---------- ---------- ---------- $ 400,000 $100,000 $125,324 $ 187,986 $ 192,806 $ 192,806 $ 193,206 $ 600,000 $150,000 $190,324 $ 285,486 $ 292,806 $ 292,806 $ 293,406 $ 800,000 $200,000 $255,324 $ 382,986 $ 392,806 $ 392,806 $ 393,606 $1,000,000 $250,000 $320,324 $ 480,486 $ 492,806 $ 492,806 $ 493,806 $1,500,000 $375,000 $482,824 $ 724,236 $ 742,806 $ 742,806 $ 744,306 $2,000,000 $500,000 $645,324 $ 967,986 $ 992,806 $ 992,806 $ 994,806 $2,500,000 $625,000 $807,824 $1,211,736 $1,242,806 $1,242,806 $1,245,306 - ---------------------------------------------------------------------------------
"Pensionable Remuneration" for purposes of the table above means salary, bonus and compensation deferred under the Unfunded Savings Plan or awards deferred under the MIP. Retirement benefits are payable under one or more of the following plans: a qualified plan covering all salaried employees which provides pension benefits based on final average earnings; a supplementary plan which provides a make-up of qualified plan benefits limited by the imposition of statutory Code limitations; and a supplementary plan covering designated senior managers which provides supplemental benefits to the qualified plan. At December 31, 1995, the number of creditable years of service and the currently applicable average pensionable remuneration under the retirement plans for Mr. Georges were 16.58 years and $2,335,000; for Mr. Dillon, 28.92 years and $1,090,417; for Mr. Melican, 11.92 years and $856,667; for Mr. Smith, 15.33 years and $790,750; and for Mr. Turk, 5.58 years and $553,750. COMPENSATION OF DIRECTORS The compensation of each non-employee director of the Company is a retainer fee of $36,000 per year plus fees of $1,200 for each board and committee or other meeting attended. Directors may elect to defer receipt of all or part of their remuneration until a later date under a deferred compensation plan, at which time the director will be paid in cash equal to (1) the cash amount deferred plus interest at the higher of 6% per annum or the yield of U.S. Treasury bills or (2) the value at the time of payment of units equivalent to the value of Company common stock credited to the director's account at the time of each deferral, plus dividend equivalents. The Company terminated its Retirement Plan for Non-Employee Directors as of December 31, 1995 which provided that directors receive an annual retirement benefit equal to 100% of the annual retainer fee upon mandatory retirement at age 72, and instituted a compulsory portion to the Deferred Compensation Plan. Under this new plan, each non-employee director is credited with common stock equivalent units in the actuarially determined amount required to provide upon retirement an annual benefit equal to a director's retainer fee payable for the director's actuarially determined remaining life. Thus, each year a director will receive a continuing service award of 300 non-voting stock equivalent units. The common stock units held in each non-employee director's account are credited with dividend equivalents. Upon retirement, the amounts will be paid in cash. Employees of the Company who are also directors receive no compensation for services as a director or for attendance at board or committee meetings. 19 In addition, under the Non-Employee Directors Restricted Stock Plan, awards of 1,800 shares of common stock (on a two-for-one post stock dividend basis) are made upon the election or re-election of a director to a full three-year term, or the appointment of a non-employee director to fill an unexpired term (in which latter event the number of shares to be awarded will be a pro-rata portion of the number issued to non-employee directors elected to serve for a full term at the most recent annual meeting of shareholders). Awards made in 1995 were 1,800 shares each for Class I directors and pro-rata awards of 1,200 shares for two directors, reclassified as Class III directors. Directors receive dividend payments represented by the shares awarded under the Restricted Stock Plan, previously at $0.42 per share per quarter until June 15, 1995 and $0.25 commencing with the September 15, 1995 dividend pursuant to a two-for-one stock dividend. Further, four of the non-employee directors of the Company serve as directors of IP Forest Resources Company ("IPFR"), a wholly-owned subsidiary which acts as the managing general partner of IP Timberlands, Ltd., a New York Stock Exchange-listed limited partnership. As such, each of the four non-employee directors receives a retainer fee of $7,000 per year plus a fee of $1,200 for each IPFR board and committee meeting attended. These fees are paid by IPFR. There were six meetings of the board in 1995. As part of its overall program to assist corporate recruiting and research efforts, the Company has established a planned gift program funded by life insurance polices on all directors. Upon the death of an individual director, the Company will donate $1 million over a ten-year period to one or more Company approved universities or colleges recommended by the individual director and the Company will be reimbursed by life insurance proceeds. Individual directors derive no financial benefit from this program since charitable deductions accrue solely to the Company. Moreover, the program does not result in any material cost to the Company. INDEMNIFICATION INSURANCE AND CONTRACTS The Company provides liability insurance for the Company's directors and all elected officers, as well as contractual arrangements with directors and certain officers of the Company, agreeing to compensate them for costs and liabilities incurred in actions brought against them while acting as directors or officers. On June 15, 1995, the Company amended the aforementioned policies with Federal Insurance Company at a current annual premium cost aggregating $525,825, such policies expiring on June 15, 1996. No monies have been paid under such policies by the carrier or by the Company under the contractual arrangements. TERMINATION AGREEMENTS The Company has agreements with members of the executive officer group, providing for payments and other benefits if there is a change of control of the Company and the officer's employment is terminated (i) by the Company or its successor, other than for cause, disability or retirement, or (ii) by the officer if the chief executive officer of the Company ceases to hold that position for reasons other than cause, retirement or disability, or if the officer determines that by reason of adverse changes in, among other things, the officer's authority, compensation, duties, office location or responsibilities, the officer is unable to perform the duties and responsibilities of the position the officer held immediately prior to the change in control. These agreements provide that if the officer's employment terminates under the circumstances described above, the officer will receive: (a) continuation of medical and dental insurance coverage until age 65 or eligibility to join a comparable plan sponsored by another employer; (b) retiree medical coverage comparable to the Company's pre-change of control retiree medical plan; (c) a lump-sum payment equal to (i) his annual salary at termination together with his most recent short-term annual incentive compensation payment during the year preceding termination, multiplied by the smaller of the number "three" or the number of years between the termination date and the date he reaches age 65 and (ii) an amount necessary to offset any special federal excise tax on all payments received under the termination agreement. In addition to the foregoing, the Long-Term Incentive Compensation Plan contains provisions that release restrictions from stock awards and stock options for all members of the group if there is a change of control 20 of the Company. Also, the Supplemental Retirement Plan for senior managers provides that if a change of control of the Company occurs, pension benefits will vest immediately and the minimum benefit will be increased from 25% to 50% of pensionable remuneration. The Company has authorized a grantor trust under Sections 671 through 677 of the Code in connection with the Company's benefit plans and termination agreements. Under the grantor trust, the trustee will pay the beneficiaries of the trust the amounts to which they are entitled under such plans and agreements subject to claims of the Company's creditors. 21 [LOGO] TWO MANHATTANVILLE ROAD PURCHASE, NEW YORK 10577 Printed on Hammermill Papers, Accent Opaque 40 lbs. Hammermill Papers is a division of International Paper. EX-23 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports, dated February 13, 1996, included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statement No. 333-1667. ARTHUR ANDERSEN LLP New York, N.Y. March 28, 1996 EX-24 8 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY Know all Men By These Presents, that the undersigned hereby constitutes and appoints JAMES W. GUEDRY, WILLIAM B. LYTTON and JAMES P. MELICAN and each of them (with full power to each of them to act alone) their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for them on their behalf and in their name, place and stead, in any and all capacities, to sign, execute and affix their seal thereto and file the Annual Report of International Paper Company on Form 10-K (or any other appropriate form), under the Securities Exchange Act of 1934, as amended, together with any and all amendments to such Annual Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same, for all intents and purposes, and that the undersigned hereby ratify and confirm all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. Executed on this 12th day of March, 1996, at New York, New York. Name Title ---- ----- /s/ John T. Dillon President, Director, and Chief Operating Officer - ------------------------ (John T. Dillon) /s/ C. Wesley Smith Executive Vice President and Director - ------------------------ (C. Wesley Smith) /s/ Willard C. Butcher Director - ------------------------ (Willard C. Butcher) /s/ Robert J. Eaton Director - ------------------------ (Robert J. Eaton) /s/ Stanley C. Gault Director - ------------------------ (Stanley C. Gault) /s/ Thomas C. Graham Director - ------------------------ (Thomas C. Graham) /s/ Arthur G. Hansen Director - ------------------------ (Arthur G. Hansen) Name Title ---- ----- Director - ------------------------ (John R. Kennedy) /s/ Donald F. McHenry Director - ------------------------ (Donald F. McHenry) /s/ Patrick F. Noonan Director - ------------------------ (Patrick F. Noonan) /s/ Jane C. Pfeiffer Director - ------------------------ (Jane C. Pfeiffer) Director - ------------------------ (Edmund T. Pratt, Jr.) /s/ Charles R. Shoemate Director - ------------------------ (Charles R. Shoemate) /s/ Roger B. Smith Director - ------------------------ (Roger B. Smith) EX-27 9 AMENDED FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 312 0 2,672 (101) 2,784 206 19,413 (8,416) 23,977 4,863 5,946 263 0 0 7,534 23,977 19,797 19,797 13,896 17,276 0 25 493 2,028 719 1,153 0 0 0 1,153 4.45 4.41
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