-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, CW4awiMXcZa/qDHVsrN7SkBHwx60WkgeA9Qo+zH/v25XsOxAAlfM7dESOvO73lRF OR6SeGnRce96f2LsqzGt/Q== 0000950115-94-000073.txt : 19940404 0000950115-94-000073.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950115-94-000073 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL PAPER CO /NEW/ CENTRAL INDEX KEY: 0000051434 STANDARD INDUSTRIAL CLASSIFICATION: 2631 IRS NUMBER: 130872805 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-03157 FILM NUMBER: 94519663 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-K 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, 1993 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. / / The aggregate market value of the common stock of the Company outstanding as of February 28, 1994, held by non-affiliates of the Company was $8,995,743,848, calculated on the basis of the closing price on the Composite Tape on February 28, 1994. For this computation, the Company has excluded the market value of all common stock beneficially owned by all executive officers and directors of the Company and their associates as a group and treasury stock. Such exclusion is not to signify in any way that members of this group are 'affiliates' of the Company. The number of shares outstanding of the Company's common stock, as of February 28, 1994:
OUTSTANDING IN TREASURY - ----------- ----------- 127,287,796 2,822,329
The following documents are incorporated by reference into the parts of this report indicated below: 1993 ANNUAL REPORT TO SHAREHOLDERS (PP. 2 AND 6 THROUGH 56) PARTS I, II AND IV PROXY STATEMENT, DATED MARCH 31, 1994 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, wood products and distributes paper and office supply products in both the United States and Europe. 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 26 pulp and paper mills, 54 converting and packaging plants, 43 wood products facilities, 15 specialty panels and laminated products plants, six nonwoven products facilities and seven envelope plants. Production facilities in Europe, Asia, Latin America and Canada include 14 pulp and paper mills, 32 converting and packaging plants, three wood products facilities, three specialty panels and laminated products plants and five nonwoven products facilities. The Company distributes fine paper, printing and industrial products and building materials, primarily manufactured by other companies, through about 255 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 two international locations), and engages in domestic oil and gas and real estate activities. In March 1994, the Company, through a subsidiary, acquired approximately one-half of Brierley Investments Limited's (Brierley) holdings in Carter Holt Harvey Limited (Carter Holt), a major New Zealand forest products and paper company with substantial assets in Chile. The purchase increased the Company's ownership of Carter Holt to 24 percent and leaves Brierley with 8 percent. 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, JB 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. In the first quarter of 1992, the operating assets of Western Paper Company (Western Pacific), a printing and industrial paper distribution business based in Portland, Oregon, were purchased. In the second quarter, the Company acquired an equity interest in Scitex Corporation Ltd. (Scitex), an Israel-based world leader in color electronic prepress systems for the graphic design, printing and publishing industries. In the third quarter, Zaklady Celulozowa-Papierniecze S.A. w Kwidzynie (Kwidzyn) was acquired from the Government of the Republic of Poland. Kwidzyn is Poland's largest white papers manufacturer and the only integrated bleached pulp and paper company. In the fourth quarter, certain assets of the chemical division of Norway-based M. Peterson & Son AS (Peterson) were acquired. In the first quarter of 1991, the Company purchased certain packaging and sheeting facilities located in France (the Rhone Valley packaging business) from Georgia-Pacific Corporation. In April, the packaging equipment division of United Dominion Industries Ltd. (Evergreen Packaging Equipment) was purchased. Also in April, the Company acquired the common stock of Dillard Paper Company, a wholesale distributor of printing and industrial papers, packaging equipment and supplies based in the southern United States. In August, the Company completed a merger with Leslie Paper Co., a paper distribution firm headquartered in Minneapolis, Minnesota, using the pooling-of-interests method of accounting. In November, the Company entered into a joint venture agreement with Brierley to control 32% of Carter Holt. In December, the common stock of Scaldia Papier BV, a paper distribution company based in Nijmegen, Netherlands, primarily distributing coated and uncoated papers to the graphics industry, was purchased. - ------------------ * 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 All of the 1993, 1992 and 1991 acquisitions, except the merger with Leslie Paper Co., were accounted for using the purchase method. The effects of these mergers and acquisitions, individually or in the aggregate, were not significant to the Company's consolidated financial statements. A further discussion of mergers and acquisitions can be found on page 48 of the Company's 1993 Annual Report to Shareholders (the 'Annual Report'), which information is incorporated herein by reference. From 1989 through 1993, International Paper's capital expenditures approximated $5.7 billion, excluding mergers and acquisitions. These expenditures reflect continuing efforts to improve product quality, environmental performance, lower costs, expand production capacity, and acquire and improve forestlands. Capital spending in 1993 was $954 million and is expected to exceed $1.1 billion in 1994. A further discussion of capital expenditures can be found on pages 37 and 38 of the Annual Report, which information is incorporated herein by reference. The Company, which owns a majority interest in IP Timberlands, Ltd., a Texas limited partnership ('IPT'), controlled approximately 6.2 million acres of forestlands in the United States at December 31, 1993. IPT was formed to succeed to substantially all of International Paper's forest products business for the period 1985 through 2035, unless earlier terminated. A further discussion of IPT can be found on pages 28 and 47 of the 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 37 and 41 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 40 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, 16, 20, 26, 30 and 36 through 39 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. 3 DESCRIPTION OF PRINCIPAL PRODUCTS The Company's principal products are described on pages 6 through 31 of the Annual Report, which information is incorporated herein by reference. Production of major products for 1993, 1992 and 1991 was as follows: PRODUCTION BY PRODUCTS (UNAUDITED)
1993 1992 1991 ----- ----- ----- PRINTING PAPERS (IN THOUSANDS OF TONS) White papers and bristols................................................................ 2,920 2,845 2,915 Coated papers............................................................................ 972 1,038 927 Market pulp(1)........................................................................... 1,529 1,495 1,238 ----- ----- ----- PACKAGING (IN THOUSANDS OF TONS) Containerboard........................................................................... 2,084 2,135 2,074 Bleached packaging board................................................................. 1,004 959 942 Industrial papers........................................................................ 573 573 575 Industrial and consumer packaging(2)..................................................... 2,933 2,667 2,539 ----- ----- ----- FOREST PRODUCTS (IN MILLIONS) Panels (sq. ft. 3/8-in. basis)(3)........................................................ 778 737 671 Lumber (board feet)...................................................................... 952 915 863 ----- ----- -----
- ------------------ (1) This excludes market pulp purchases of approximately 600,000 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. 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; Jacksonville, Florida; Holyoke, Massachusetts; Mobberley, United Kingdom; Morley, United Kingdom; Munich, Germany; Fribourg, Switzerland; Saint-Priest, France; and Annecy, France; a regional center for applied forest research in Bainbridge, Georgia; 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 improvements 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 $94.7 million in 1993, $91.1 million in 1992 and $82.7 million in 1991. 4 ENVIRONMENTAL PROTECTION Control over discharges of pollutants into the air, water and groundwater to avoid significant adverse impacts on the environment and to achieve 100% compliance with 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. A total of $100 million was spent in 1993 to control air and water pollution and to assure environmentally sound disposal of solid waste. The Company expects to spend in the order of $160 million in 1994 for similar capital programs. Amounts to be spent for environmental control facilities in future years will depend on new laws and regulations and other 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 1995 through 1996 is in the range of $500 to $600 million. In December 1993, the United States Environmental Protection Agency ('EPA') proposed new guidelines for air emissions and water discharge for the pulp and paper industry to meet in 1998 known as 'Cluster Rulemaking'. It also proposed regulations implementing the Great Lakes Initiative ('GLI') covering water quality and implementation procedures. Future spending will be heavily influenced by the final standards included within each of the sets of proposed regulations. We estimate the Company's future capital spending to comply with the Cluster Rulemaking and GLI requirements to be between $700 million and $1.5 billion depending upon the methods allowed by the regulations to meet overall requirements. A portion of this spending is reflected in the 1995 to 1996 spending forecast. In addition, annual operating costs, excluding depreciation, are expected to increase between $60 million and $120 million when these regulations are fully implemented in 1998. 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 33, 34, 38 and 39 of the Annual Report, which information is incorporated herein by reference. As of December 31, 1993, $755 million of industrial and pollution control revenue bonds, secured by Company contractual obligations, were outstanding in 51 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, 1993, the Company had approximately 72,500 employees, of whom approximately 52,000 were located in the United States and the remainder overseas. Of these, approximately 44,500 are hourly employees, many of whom are represented by the United Paperworkers International Union. During 1993, new labor agreements were reached at the Mobile, Oswego, Riverdale and Millers Falls mills. At year end, negotiations were still in progress at the Beckett, Erie and Pine Bluff mills. During 1994, labor agreements are scheduled to be negotiated at the following mills: Camden and Natchez. During 1995 labor agreements are scheduled to be negotiated at the following mills: Georgetown, Turners Falls, Ward and Hudson River. During 1993, labor agreements expired at 17 packaging plants, one forest research facility, one chemical plant, two wood products plants, three specialty products plants and seven distribution operations. Multiyear labor agreements were negotiated at each location, except one converted paper products plant in South San Francisco, California, where negotiations were still in progress at year end. One packaging plant at Mount Carmel, Pennsylvania and one distribution operation at Minneapolis, Minnesota have contracts remaining open from a previous year. 5 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, 1993, IPT, a limited partnership in which the Company has a majority ownership interest, controlled approximately 6.0 million acres of forestlands in the U.S. while an additional 0.2 million acres are held under short term leases to International Paper. During 1993, such forestlands supplied 1.4 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: 15% in its Northern mills, 14% 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, 3.3 million cords of IPT's wood were sold to other users in 1993. 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. All mills and converting facilities are owned by the Company, except one mill and 13 plants in the United States and two non-U.S. facilities, which are leased. The Company believes that these facilities are in good operating condition and are suited for the purposes for which they are presently being used. The Company continues to study the economics of modernizing or adopting other alternatives for higher cost facilities. Further discussions of new mill and plant projects can be found on pages 37 and 38 of the Annual Report, which information is incorporated herein by reference. CAPITAL INVESTMENTS AND DISPOSITIONS Given the size, scope and complexity of its business interests, International Paper continuously examines and evaluates a wide variety of business opportunities and planning alternatives, including possible acquisitions and sales or other dispositions of properties. Planned capital investments for 1994, as of December 31, 1993, are set forth on pages 37 and 38 of the Annual Report, which information is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS. DIOXIN LITIGATION On July 31, 1992, 77 plaintiffs, all residents of Arkansas, filed a lawsuit in the U.S. District Court for the Western District of Arkansas, alleging that the Company polluted the Sulfur River by discharging chemicals, including dioxin, from its Domino, Texas plant. This case was settled in December, 1993 at which time there were 54 plaintiffs remaining in the litigation. The terms of the settlement are confidential. On June 11, 1993, a lawsuit purporting to be a class action was filed by individuals against the Company, Dow Chemical and other individual employees of both companies in the 18th Judicial District of Louisiana seeking compensatory and punitive damages of an unspecified amount for alleged claims similar to those raised in the previously-filed lawsuits. The case has been removed to the U.S. District Court for the Middle District of Louisiana. Beginning in November of 1990, the Company has been 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 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 6 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, two have been dismissed. On May 24, 1993, a wrongful death action was filed in Mississippi state court against the Company claiming that 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 raises claims similar to those in the previously-filed lawsuits and also contains specific allegations relating to the disposal of sludge by the mill. The plaintiff seeks compensatory damages of $1 million and punitive damages of $20 million. The case has been removed to the U.S. District Court for the Southern District of Mississippi. On June 26, 1993, a lawsuit was filed against the Company, Georgia-Pacific and individual employees of both companies in Mississippi state court by 20 plaintiffs alleging claims similar to those raised in previously-filed lawsuits. The plaintiffs seek an unspecified amount of compensatory and punitive damages. On October 22, 1993, Georgia-Pacific and its individual employee-defendants were severed from the Company. On September 28, 1993, 221 plaintiffs filed a lawsuit in the state court of Mississippi claiming that the Company polluted the Pascagoula and Escatawpa Rivers by discharging chemicals, including dioxin from its Moss Point mill. The plaintiffs seek compensatory damages of $33 million, punitive damages of $221 million and injunctive relief. On December 15, 1992, a lawsuit purporting to be a class action was filed against the Company in U.S. District Court for the Southern District of Mississippi (Biloxi). The plaintiffs seek unspecified compensatory and punitive damages for the alleged violation by the Company of Federal environmental laws relating to dioxin and other chemicals associated with the operations of the Moss Point Mill. On February 18, 1994, the judge denied the plaintiffs' motion to certify the class and the lawsuit will proceed forward with only the two named individuals as plaintiffs. In summary, taking into account various dismissals and new filings, there are 71 cases pending in state court and eight pending in federal court for a total of 79 Mississippi cases as of February 1, 1994. In these cases, both state and federal, there are a total of 5,093 plaintiffs seeking total compensatory damages of approximately $1.0 billion, punitive damages of approximately $8.4 billion and injunctive relief. While any of this litigation has an element of uncertainty, the Company 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 its 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 has been appealed. 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. Settlement discussions are no longer being conducted and the State has filed a lawsuit against the Company. Although no specific amount is claimed in the complaint, presumably the State will seek civil penalties in excess of the amount it had originally proposed. On November 15, 1993, the Thilmany division of the Company agreed with the EPA, Region 5, to pay a penalty of $150,000 for alleged violations of the Clean Air Act in 1988 at the Thilmany mill located in Kaukauna, Wisconsin. The settlement in the form of a consent decree must be approved by the federal court having jurisdiction of the civil action. In 1990, the Missouri Attorney General's office notified the Company that it was preparing an enforcement action alleging violations of the hazardous waste management rules at the Company's treated wood plant in Joplin, Missouri. Settlement discussions with the Attorney General's office are in progress. 7 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 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. The Company and the EPA are in settlement discussions and civil penalties are anticipated. Separate lawsuits were filed in the Superior Court, Mendocino County, California, in July 1992 against Masonite by the Mendocino County Air Pollution Control District and the California Air Resources Board. Both lawsuits, which were later consolidated, allege non-compliance with the California Air Toxics Hot Spots Information and Assessment Act of 1987 by Masonite's Ukiah, California, facility. The alleged non-compliance relates to an emissions plan allegedly required to be filed by August 1, 1989 but allegedly not filed until November 5, 1990. Additionally, the lawsuits allege that the molded products line was operated without a required permit. The lawsuits were settled in April 1993 for a civil penalty of $250,000 and a commitment to conduct additional environmental audits. This settlement terminated the proceeding. In May 1992 the EPA, Region 4, filed an administrative action alleging that Arizona Chemical Company, a wholly-owned subsidiary of the Company, at a facility located in Gulfport, Mississippi, failed to comply with regulations that govern the burning of hazardous wastes in the facility's boiler. The action, which sought a civil penalty of $274,500, was settled in February 1994 for a civil penalty of $95,000. This settlement terminated the proceedings. On September 21, 1993 the EPA, Region 4, filed an administrative action alleging that an Arizona Chemical facility in Panama City, Florida, failed to comply with regulations that govern the burning of hazardous wastes in the facility's boiler. The action seeks a civil penalty of $334,600. Settlement negotiations are in progress. The Company has been advised by the State of New York of an impending enforcement action concerning the power boiler at the Company's Ticonderoga, New York, paper mill. The action would involve civil penalties. Settlement discussions are in progress. As of March 30, 1994, 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 62 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 waste generators. 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 18 of these sites; that liability is not likely to be significant at 21 sites; and that estimates of liability at 23 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, 1993. 8 SPECIAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY. INTERNATIONAL PAPER COMPANY EXECUTIVE OFFICERS AS OF MARCH 31, 1994 INCLUDING NAME, AGE, OFFICES AND POSITIONS HELD* AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS JOHN A. GEORGES, 63, chief executive officer and chairman of the board of directors of the Company. He became president, chief operating officer and a director in 1981, chief executive officer in 1984 and chairman of the board in 1985. JOHN T. DILLON, 55, executive vice president-packaging. In 1982, he was elected vice president and group executive-forest products and assumed additional responsibilities for the wood products group in late 1985. In 1986, he was elected a senior vice president-forest products, liquid packaging, and folding carton and label. He was elected to his present position in 1987 and a director in 1991. JAMES P. MELICAN, 53, executive vice president-legal and external affairs. He was elected vice president and general counsel in 1984, senior vice president and general counsel in 1987 and assumed his present position in 1991. C. WESLEY SMITH, 54, executive vice president-printing papers. He was elected vice president manufacturing-white papers businesses in 1987 and president-International Paper Europe in 1989. He assumed his present position in 1992. MARK A. SUWYN, 51, executive vice president-forest and specialty products. He was senior vice president-imaging systems, medical products and corporate marketing with E.I. DuPont De Nemours & Company from 1990 to 1991 and prior to that held the position of group vice president-imaging systems and medical products from 1988 to 1990. He joined the Company in his present position in 1992. ROBERT C. BUTLER, 63, senior vice president and chief financial officer. In 1983, he became group executive vice president and chief financial officer of the National Broadcasting Company. He joined the Company in his present position in 1988. ROBERT M. BYRNES, 56, senior vice president-human resources. He was senior vice president-human resources at Emhart Corporation from 1986 to 1989. He joined the Company in his present position in 1989. ANDREW R. LESSIN, 51, controller. He served as a staff vice president and director-taxes of the Company from 1988 to 1990. He was elected to his current position in 1990. - ------------------ * Officers of International Paper are elected to hold office until the next annual meeting of the board of directors following the annual meeting of shareholders and until election of successors, subject to removal by the board. 9 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 1993 and 1992 are set forth on page 56 of the Annual Report and are incorporated herein by reference. As of March 22, 1994, there were 31,237 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 54 and 55 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, 16, 20, 26, 30 and 36 through 39 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 42 through 53 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 6 through 9 of the Company's Notice of 1994 Annual Meeting and Proxy Statement, dated March 31, 1994 (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.' As required by the Securities and Exchange Commission rules under Section 16 of the Securities Exchange Act of 1934, the Company notes that during 1993, two officers inadvertently filed untimely reports on transactions in the Company's common stock: Robert Byrnes, one report regarding two purchases by his wife and Robert Butler, two reports regarding gifts. ITEM 11. EXECUTIVE COMPENSATION. A description of the compensation of the Company's executive officers is set forth on pages 17, 18 and 20 through 23 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 8.26% of the Company's shares of common stock as of December 31, 1993. State Street Bank and Trust Co., N.A. holds 8.924% of the Company's common stock and disclaims beneficial ownership of the 8.26% which 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 5 and 6 of the Proxy Statement, which information is incorporated herein by reference. 10 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, 1993, 4.9 million common shares may be repurchased under this program. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None, other than those described under Item 11. 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* (11) Statement of Computation of Per Share Earnings (13) 1993 Annual Report to Shareholders of the Company (21) List of Significant Subsidiaries (22) Proxy Statement, dated March 31, 1994 (23) Consent of Independent Public Accountants (24) Power of Attorney (99) (a) Management Incentive Plan* (b) Long-Term Incentive Compensation Plan* (c) Supplemental Unfunded Savings Plan for Senior Managers*
- ------------------ * Previously filed in the Annual Report on Form 10-K, for the year ended December 31, 1992. REPORTS ON FORM 8-K Current Reports on Form 8-K were filed by the Company on October 28, 1993, February 9, 1994 and March 11, 1994. FINANCIAL STATEMENT SCHEDULES The consolidated balance sheets as of December 31, 1993 and 1992 and the related consolidated statements of earnings, cash flows and common shareholders' equity for each of the three years ended December 31, 1993 and the related Notes to Consolidated Financial Statements, together with the report thereon of Arthur Andersen & Co., dated February 4, 1994, appearing on pages 42 through 53 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 1993, 1992 AND 1991 Report of Independent Public Accountants on Financial Statement Schedules ................................. 13 Consolidated Schedules: V -- Property, Plant and Equipment.......................................................... 14-15 VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and 16 Equipment.............................................................................. VIII -- Valuation and Qualifying Accounts...................................................... 17 IX -- Short-Term Borrowings.................................................................. 18 X -- Supplementary Earnings Statement Information........................................... 19
12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES TO INTERNATIONAL PAPER COMPANY: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in the Company's 1993 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 4, 1994. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the accompanying index are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. New York, N.Y. February 4, 1994 13 SCHEDULE V INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT (IN MILLIONS)
FOR YEAR ENDED DECEMBER 31, 1993 - ---------------------------------------------------------------------------------------------------------------------------- BALANCE AT RETIREMENTS, BALANCE AT BEGINNING ADDITIONS SALES OR END OF CLASSIFICATION (A) OF PERIOD AT COST RECLASSIFICATIONS PERIOD - ---------------------------------------------------------------------------------------------------------------------------- Plants, Properties and Equipment: Mills................................................ $ 10,588 $ 554 $146 $ 10,996 Packaging plants..................................... 1,067 91 20 1,138 Wood products facilities............................. 1,082 77 (19) 1,178 Other plants, properties and equipment............... 1,801 172 108 1,865 -------- ----- ---- -------- Total........................................... $ 14,538 $ 894 $255 $ 15,177 -------- ----- ---- -------- -------- ----- ---- -------- FOR YEAR ENDED DECEMBER 31, 1992 - ---------------------------------------------------------------------------------------------------------------------------- BALANCE AT RETIREMENTS, BALANCE AT BEGINNING ADDITIONS SALES OR END OF CLASSIFICATION (A) OF PERIOD AT COST RECLASSIFICATIONS(B) PERIOD - ---------------------------------------------------------------------------------------------------------------------------- Plants, Properties and Equipment: Mills................................................ $ 9,194 $ 1,051 $ (343) $ 10,588 Packaging plants..................................... 922 110 (35) 1,067 Wood products facilities............................. 975 73 (34) 1,082 Other plants, properties and equipment............... 1,642 237 78 1,801 -------- ------- ------ -------- Total........................................... $ 12,733 $ 1,471 $ (334) $ 14,538 -------- ------- ------ -------- -------- ------- ------ -------- FOR YEAR ENDED DECEMBER 31, 1991 - ---------------------------------------------------------------------------------------------------------------------------- BALANCE AT RETIREMENTS, BALANCE AT BEGINNING ADDITIONS SALES OR END OF CLASSIFICATION (A) OF PERIOD AT COST RECLASSIFICATIONS PERIOD - ---------------------------------------------------------------------------------------------------------------------------- Plants, Properties and Equipment: Mills................................................ $ 8,459 $ 836 $101 $ 9,194 Packaging plants..................................... 791 166 35 922 Wood products facilities............................. 913 111 49 975 Other plants, properties and equipment............... 1,493 187 38 1,642 -------- ------- ---- -------- Total........................................... $ 11,656 $ 1,300 $223 $ 12,733 -------- ------- ---- -------- -------- ------- ---- --------
- ------------------ (A) The Company does not maintain detailed property accounts for all of its properties classified as to land, buildings, equipment, etc. (B) Includes currency translation effects, write-downs of assets under the productivity improvement program and reclassifications related to the adoption of SFAS No. 109. - ------------------ Note: Certain reclassifications have been made to prior-year amounts to conform with the current-year presentation. 14 SCHEDULE V INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT--(CONTINUED) (IN MILLIONS)
FOR YEAR ENDED DECEMBER 31, 1993 - ------------------------------------------------------------------------------------------------------------------------------ COST OF TIMBER HARVESTED BALANCE AT RETIREMENTS, CREDITED BALANCE AT BEGINNING ADDITIONS SALES OR DIRECTLY END OF CLASSIFICATION OF PERIOD AT COST RECLASSIFICATIONS TO ASSET PERIOD - ------------------------------------------------------------------------------------------------------------------------------ Forestlands.................................... $759 $77 $(10) $(40) $786 ---- --- ---- ---- ---- ---- --- ---- ---- ---- FOR YEAR ENDED DECEMBER 31, 1992 - ------------------------------------------------------------------------------------------------------------------------------ COST OF TIMBER HARVESTED BALANCE AT RETIREMENTS, CREDITED BALANCE AT BEGINNING ADDITIONS SALES OR DIRECTLY END OF CLASSIFICATION OF PERIOD AT COST RECLASSIFICATIONS TO ASSET PERIOD - ------------------------------------------------------------------------------------------------------------------------------ Forestlands.................................... $743 $60 $(11) $(33) $759 ---- --- ---- ---- ---- ---- --- ---- ---- ---- FOR YEAR ENDED DECEMBER 31, 1991 - ------------------------------------------------------------------------------------------------------------------------------ COST OF TIMBER HARVESTED BALANCE AT RETIREMENTS, CREDITED BALANCE AT BEGINNING ADDITIONS SALES OR DIRECTLY END OF CLASSIFICATION OF PERIOD AT COST RECLASSIFICATIONS TO ASSET PERIOD - ------------------------------------------------------------------------------------------------------------------------------ Forestlands.................................... $751 $28 $(6) $(30) $743 ---- --- --- ---- ---- ---- --- --- ---- ----
- ------------------ Note: Certain reclassifications have been made to prior-year amounts to conform with the current-year presentation. 15 SCHEDULE VI INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (IN MILLIONS)
FOR YEAR ENDED DECEMBER 31, 1993 - ---------------------------------------------------------------------------------------------------------------------------- BALANCE AT RETIREMENTS, BALANCE AT BEGINNING SALES OR END OF CLASSIFICATION OF PERIOD DEPRECIATION RECLASSIFICATIONS PERIOD - ---------------------------------------------------------------------------------------------------------------------------- Plants, Properties and Equipment: Mills................................................ $4,031 $550 $ 70 $4,511 Packaging plants..................................... 460 66 15 511 Wood products facilities............................. 431 71 (7) 509 Other plants, properties and equipment............... 732 140 98 774 ------ ---- ---- ------ Total........................................... $5,654 $827 $176 $6,305 ------ ---- ---- ------ ------ ---- ---- ------ FOR YEAR ENDED DECEMBER 31, 1992 - ---------------------------------------------------------------------------------------------------------------------------- BALANCE AT RETIREMENTS, BALANCE AT BEGINNING SALES OR END OF CLASSIFICATION OF PERIOD DEPRECIATION RECLASSIFICATIONS PERIOD - ---------------------------------------------------------------------------------------------------------------------------- Plants, Properties and Equipment: Mills................................................ $3,520 $535 $ 24 $4,031 Packaging plants..................................... 391 61 (8) 460 Wood products facilities............................. 355 65 (11) 431 Other plants, properties and equipment............... 619 121 8 732 ------ ---- ---- ------ Total........................................... $4,885 $782 $ 13 $5,654 ------ ---- ---- ------ ------ ---- ---- ------ FOR YEAR ENDED DECEMBER 31, 1991 - ---------------------------------------------------------------------------------------------------------------------------- BALANCE AT RETIREMENTS, BALANCE AT BEGINNING SALES OR END OF CLASSIFICATION OF PERIOD DEPRECIATION RECLASSIFICATIONS PERIOD - ---------------------------------------------------------------------------------------------------------------------------- Plants, Properties and Equipment: Mills................................................ $3,115 $461 $ 56 $3,520 Packaging plants..................................... 370 49 28 391 Wood products facilities............................. 348 52 45 355 Other plants, properties and equipment............... 536 106 23 619 ------ ---- ---- ------ Total........................................... $4,369 $668 $152 $4,885 ------ ---- ---- ------ ------ ---- ---- ------
- ------------------ Note: Certain reclassifications have been made to prior-year amounts to conform with the current-year presentation. 16 SCHEDULE VIII INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS (IN MILLIONS)
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 --- --- --- ---- ---- --- --- --- ---- ---- FOR YEAR ENDED DECEMBER 31, 1992 - -------------------------------------------------------------------------------------------------------------------------- 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................... $74 $23 $ 9 $(15)(A) $ 91 --- --- --- ---- ---- --- --- --- ---- ---- FOR YEAR ENDED DECEMBER 31, 1991 - -------------------------------------------------------------------------------------------------------------------------- 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................... $57 $32 $ 0 $(15)(A) $ 74 --- --- --- ---- ---- --- --- --- ---- ----
- ------------------ (A) Primarily write-offs, less recoveries, of accounts determined to be uncollectible. 17 SCHEDULE IX INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE IX--SHORT-TERM BORROWINGS (IN MILLIONS)
FOR YEAR ENDED DECEMBER 31, 1993 - ------------------------------------------------------------------------------------------------------------------------- WEIGHTED MAXIMUM AVERAGE AVERAGE WEIGHTED AMOUNT AMOUNT INTEREST BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE DURING THE SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD(3) PERIOD(4) - ------------------------------------------------------------------------------------------------------------------------- Notes payable(1).................................. $ 766 6.04% $ 1,266 $ 1,159 4.60% Commercial paper and bank notes(2)................ $1,145 3.53% $ 1,174 $ 1,013 3.53% FOR YEAR ENDED DECEMBER 31, 1992 - ------------------------------------------------------------------------------------------------------------------------- WEIGHTED MAXIMUM AVERAGE AVERAGE WEIGHTED AMOUNT AMOUNT INTEREST BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE DURING THE SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD(3) PERIOD(4) - ------------------------------------------------------------------------------------------------------------------------- Notes payable(1).................................. $1,164 5.31% $ 1,164 $ 818 4.49% Commercial paper and bank notes(2)................ $1,093 4.17% $ 1,098 $ 748 4.11% FOR YEAR ENDED DECEMBER 31, 1991 - ------------------------------------------------------------------------------------------------------------------------- WEIGHTED MAXIMUM AVERAGE AVERAGE WEIGHTED AMOUNT AMOUNT INTEREST BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE DURING THE SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD(3) PERIOD(4) - ------------------------------------------------------------------------------------------------------------------------- Notes payable(1).................................. $1,201 6.29% $ 1,201 $ 883 8.38% Commercial paper and bank notes(2)................ $ 380 5.33% $ 585 $ 308 6.25%
- ------------------ (1) Consists of domestic and international bank borrowings with various due dates. (2) Generally matures thirty days from date of issue with no provisions for extension of maturity. (3) Computed based on an average of month-end balances. (4) Computed using monthly principal balances and stated month-end interest rates. 18 SCHEDULE X INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE X--SUPPLEMENTARY EARNINGS STATEMENT INFORMATION (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 1993 1992 1991 ---- ---- ---- Maintenance and repairs.................................. $680 $667 $617 ---- ---- ---- ---- ---- ----
19 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 31, 1994 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
NAME TITLE DATE - -------------------------------------------------------------- ----------------------- --------------- JOHN A. GEORGES Chairman of the Board, March 31, 1994 - -------------------------------------------------------------- Chief Executive (JOHN A. GEORGES) Officer and Director JOHN T. DILLON* Executive Vice March 31, 1994 - -------------------------------------------------------------- President and Director (JOHN T. DILLON) WILLARD C. BUTCHER* Director March 31, 1994 - -------------------------------------------------------------- (WILLARD C. BUTCHER) FREDERICK B. DENT* Director March 31, 1994 - -------------------------------------------------------------- (FREDERICK B. DENT) WILLIAM M. ELLINGHAUS* Director March 31, 1994 - -------------------------------------------------------------- (WILLIAM M. ELLINGHAUS) STANLEY C. GAULT* Director March 31, 1994 - -------------------------------------------------------------- (STANLEY C. GAULT) THOMAS C. GRAHAM* Director March 31, 1994 - -------------------------------------------------------------- (THOMAS C. GRAHAM) ARTHUR G. HANSEN* Director March 31, 1994 - -------------------------------------------------------------- (ARTHUR G. HANSEN) WILLIAM G. KUHNS* Director March 31, 1994 - -------------------------------------------------------------- (WILLIAM G. KUHNS) PATRICK F. NOONAN* Director March 31, 1994 - -------------------------------------------------------------- (PATRICK F. NOONAN) DONALD F. MCHENRY* Director March 31, 1994 - -------------------------------------------------------------- (DONALD F. MCHENRY)
20
NAME TITLE DATE - -------------------------------------------------------------- ----------------------- --------------- JANE C. PFEIFFER* Director March 31, 1994 - -------------------------------------------------------------- (JANE C. PFEIFFER) SAMUEL R. PIERCE, JR.* Director March 31, 1994 - -------------------------------------------------------------- (SAMUEL R. PIERCE, JR.) EDMUND T. PRATT, JR.* Director March 31, 1994 - -------------------------------------------------------------- (EDMUND T. PRATT, JR.) ROGER B. SMITH* Director March 31, 1994 - -------------------------------------------------------------- (ROGER B. SMITH) ROBERT C. BUTLER Senior Vice President March 31, 1994 - -------------------------------------------------------------- and Chief Financial (ROBERT C. BUTLER) Officer ANDREW R. LESSIN Controller and Chief March 31, 1994 - -------------------------------------------------------------- Accounting Officer (ANDREW R. LESSIN) By *By JAMES W. GUEDRY ----------------------------------------------------------- (JAMES W. GUEDRY, ATTORNEY-IN-FACT)
21 APPENDIX I 1993 LISTING OF FACILITIES PRINTING PAPERS COATED AND UNCOATED PAPERS AND BRISTOLS 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) Moss Point, Mississippi Corinth, New York (Hudson River Mill) Oswego, New York Ticonderoga, New York Erie, Pennsylvania Lock Haven, Pennsylvania Georgetown, South Carolina International: Cali, Colombia Coloto, Colombia Strasbourg, France (La Robertsau Mill) Clermont-Ferrand, France (Corimex Mill) Annecy, France (Cran Mill) Saillat, France Genoble, France (Lancey and Pont De Claix Mills) Maresquel, France Saint Die, France (Anould Mill) Bergisch Gladbach, Germany (Gorhrsmuhle Mill) Duren, Germany (Reflex and Neumuhl Mills) Kwidzyn, Poland PAPER AND SPECIALTY PULPS Selma, Alabama (Riverdale Mill) Jay, Maine (Androscoggin Mill) Natchez, Mississippi Erie, Pennsylvania Georgetown, South Carolina Texarkana, Texas FINE & PRINTING PAPERS Strathmore Paper Company Miller Falls, Massachusetts Turners Falls, Massachusetts Westfield, Massachusetts West Springfield, Massachusetts Woronoco, Massachusetts Merrill, Wisconsin Beckett Paper Company Hamilton, Ohio PACKAGING CONTAINERBOARD Domestic: Mansfield, Louisiana Pineville, Louisiana Vicksburg, Mississippi Gardiner, Oregon International: Arles, France 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 Presque Isle, Maine 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 Delevan, Wisconsin Fond du Lac, Wisconsin International: Las Palmas, Canary Islands Arles, France Chalon-sur-Saone, France Chantilly, France Creil, France LePuy, France Mortagne, France Guadeloupe, French West Indies Martinique, French West Indies Bellusco, Italy Catania, Italy Pedemonte, Italy Pomezia, Italy San Felice, Italy Barcelona, Spain Bilbao, Spain Valladolid, Spain Winsford, United Kingdom A-1 BLEACHED BOARD Pine Bluff, Arkansas Bastrop, Louisiana (Louisiana Mill) Moss Point, Mississippi Georgetown, South Carolina Texarkana, Texas 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: Edmonton, Alberta, Canada Burnaby, British Columbia, Canada London, Ontario, Canada Longueil, Quebec, Canada Santiago, Dominican Republic Tel Aviv, Israel Perugia, Italy Kingston, Jamaica Tokyo, Japan Seoul, Korea Taipei, Taiwan Caracas, Venezuela FOLDING CARTON Clinton, lowa Hopkinsville, Kentucky Raleigh, North Carolina Cincinnati, Ohio Richmond, Virginia LABEL Commerce, California Newark, California Peoria, Illinois Bowling Green, Kentucky KRAFT PACKAGING Mobile, Alabama Camden, Arkansas Jay, Maine (Androscoggin Mill) Moss Point, Mississippi GROCERY BAGS & SACKS Mobile, Alabama Jackson, Tennessee MULTIWALL BAGS Camden, Arkansas Pittsburg, Kansas Wilmington, Ohio ENVELOPES Glendale, California Los Angeles, California San Francisco, California Chicago, Illinois Westfield, Massachusetts Richmond, Virginia (2 plants) DISTRIBUTION WHOLESALE AND RETAIL DISTRIBUTION (255 distribution branches) ResourceNet International/Domestic: Arvey Paper and Office Products Chicago, Illinois 25 locations nationwide Carter Rice Boston, Massachusetts 16 branches in New England, Middle Atlantic States and District of Columbia CDA Distributors Erlanger, Kentucky 21 branches in the Midwest, South, New England and Middle Atlantic States Dillard Paper Greensboro, North Carolina 85 branches in the Middle Atlantic States and Southeast Dixon Paper Company Denver, Colorado 23 branches in the West and Midwest Industrial Materials Distributors Erlanger, Kentucky 13 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 JB Papers, Inc. Union, New Jersey 3 locations in the Northeast Leslie Paper Company Minneapolis, Minnesota 16 locations in the Midwest Western Pacific Portland, Oregon 3 locations in the Northwest Western Paper Company Overland Park, Kansas 43 branches in the West, Midwest and South A-2 International: Plastic & Paper Sales, Ltd. Toronto, Ontario, Canada Aussedat Rey France Distribution S.A., Pantin, France Scaldia Papier BV, Nijmegen, Netherlands Masonite CP Ltd. Leeds, United Kingdom FOREST 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 Sampit, South Carolina Henderson, Texas Mineola, Texas Nacogdoches, Texas New Boston, Texas Building Products Ukiah, California Lisbon Falls, Maine Laurel, Mississippi Gulfport, Mississippi Fiberboard Spring Hope, North Carolina Pilot Rock, Oregon Marion, South Carolina Particleboard Danville, Virginia Stuart, Virginia Waverly, Virginia Slaughter Dallas, Texas 2 branches in the Southwest and Northwest McEwen Lumber Company High Point, North Carolina 14 branches in the Southeast International: INTAMASA Cella, Spain Masonite Africa Limited Estcourt Plant Ezebilt Products (PTY) Ltd. FORESTLANDS Approximately 6.2 million acres in the South, Northeast and Northwest REALTY PROJECTS Haig Point Plantation Daufuskie Island, South Carolina SPECIALTY PRODUCTS NONWOVEN PRODUCTS Domestic: Athens, Georgia Griswoldville, Massachusetts Walpole, Massachusetts Lewisburg, Pennsylvania Bethune, South Carolina Green Bay, Wisconsin International: Liege, Belgium Toronto, Ontario, Canada Yokohama, Japan Braunton, United Kingdom Hong Kong 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 CHEMICAL PRODUCTS Domestic: Panama City, Florida Pensacola, Florida Port St. Joe, Florida Oakdale, Louisiana Springhill, Louisiana Gulfport, Mississippi Picayune, Mississippi International: Sandarne, Sweden Greaker, Norway MINERALS Alvin, Texas Houston, Texas Midland, Texas SPECIALTY PANELS AND LAMINATED PRODUCTS Domestic: Chino, California Cordele, Georgia Elkhart, Indiana Newton, Kansas Glasgow, Kentucky Louisville, Kentucky Monticello, Kentucky Odenton, Maryland Montevideo, Minnesota Statesville, North Carolina Tarboro, North Carolina Towanda, Pennsylvania Portland, Tennessee Marshfield, Wisconsin Oshkosh, Wisconsin International: Bergerac, France (Couze Mill) Ussel, France Barcelona, Spain (Durion Mill) INDUSTRIAL AND PACKAGING PAPERS Thilmany Pulp & Paper Company Knoxville, Tennessee Kaukauna, Wisconsin Nicolet Paper Company De Pere, Wisconsin Jay, Maine (Androscoggin Mill) Akrosil Domestic: Menasha, Wisconsin Lancaster, Ohio International: Limburg, Netherlands A-3 (INTERNATIONAL PAPER LOGO) PRINTED ON HAMMERMILL PAPERS ACCENT OPAQUE, 50 LBS. HAMMERMILL PAPERS IS A DIVISION OF INTERNATIONAL PAPER. EXHIBIT INDEX Exhibits: Page No. --------- -------- (10)(a) Form of Termination Agreement Tier I* (b) Form of Termination Agreement, Tier II* (c) Form of Termination Agreement, Tier III* (11) Statement of Computation of Per Share Earnings (13) 1993 Annual Report to Shareholders of the Company (21) List of Significant Subsidiaries (22) Proxy Statement, dated March 31, 1994 (23) Consent of Independent Public Accountants (24) Power of Attorney (99)(a) Management Incentive Plan* (b) Long-Term Incentive Compensation Plan* (c) Supplemental Unfunded Savings Plan for Senior Managers* - ---------- * Previously filed in the Annual Report on Form 10-K, for the year ended December 31, 1992. 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)
For the Years Ended December 31 --------------------------------- 1993 1992 1991 ---------- --------- ---------- Net earnings $ 289 $ 86 $ 184 Debenture interest savings, net of taxes, assuming conversion of convertible subordinated debentures * * * -------- ------- ------- Primary and fully diluted net earnings $ 289 $ 86 $ 184 -------- ------- ------- -------- ------- ------- Earnings per common share $ 2.34 $ 0.71 $ 1.66 -------- ------- ------- -------- ------- ------- Primary and fully diluted earnings per share $ 2.34 $ 0.71 $ 1.66 -------- ------- ------- -------- ------- ------- PRIMARY SHARES Average shares outstanding 123.2 121.4 110.5 Shares assumed to be repurchased using long-term incentive plan deferred compensation at average market price (0.4) (0.3) (0.3) Shares assumed to be issued upon exercise of stock options, net of treasury buyback at average maket price 0.4 0.5 0.6 Shares assumed to be issued upon conversion of convertible subordinated debentures * * * -------- ------- ------- Primary shares 123.2 121.6 110.8 -------- ------- ------- -------- ------- ------- FULLY DILUTED SHARES Average shares outstanding 123.2 121.4 110.5 Shares assumed to be repurchased using long-term incentive plan deferred compensation at year-end market price (if higher than average market price) (0.3) (0.3) (0.3) Shares assumed to be issued upon exercise of stock options, net of treasury buyback at year-end market price (if higher than average market price) 0.5 0.5 0.8 Shares assumed to be issued upon conversion of convertible subordinated debentures * * * -------- ------- ------- Fully diluted shares 123.4 121.6 111.0 -------- ------- ------- -------- ------- -------
- -------------- The Company reports earnings per common share as the effect of dilutive secur- ities is less than 3%. * Convertible subordinated debentures are antidilutive in 1993, 1992 and 1991. EX-13 3 1993 ANNUAL REPORT TO SHAREHOLDERS OF THE COMPANY International Paper 1993 Annual Report Financial Highlights Dollar amounts and shares in millions, except per share amounts 1993 1992 - -------------------------------------- ------- ------- FINANCIAL SUMMARY Net Sales $13,685 $13,598 Operating Profit 832 570 1 Earnings Before Income Taxes, Extraordinary Item and Cumulative Effect of Accounting Change 500 206 2 Earnings Before Extraordinary Item and Cumulative Effect of Accounting Change 289 3 142 4 Net Earnings 289 3 86 5 Total Assets 16,631 16,516 Common Shareholders' Equity 6,225 6,189 Return on Equity 4.7% 6 1.4% 6 PER SHARE OF COMMON STOCK Earnings Before Extraordinary Item and Cumulative Effect of Accounting Change 2.34 3 1.17 4 Net Earnings 2.34 3 .71 5 Cash Dividends 1.68 1.68 Common Shareholders' Equity 50.25 50.46 SHAREHOLDER PROFILE Shareholders of Record at December 31 31,750 33,722 Shares Outstanding at December 31 123.9 122.7 Average Shares Outstanding 123.2 121.4 1 $906 million before restructuring and other charges. 2 $604 million before restructuring and other charges. 3 $314 million ($2.54 per share) before $25 million ($.20 per share) of additional income tax expense to revalue deferred tax balances to reflect the increase in the U.S. statutory federal income tax rate. 4 $405 million ($3.34 per share) before restructuring and other charges. 5 Includes an after-tax charge of $50 million ($.41 per share) for the cumulative effect of the adoption of SFAS No. 109. 6 Return on equity was 5.1% in 1993 before the additional income tax expense. Return on equity was 6.3% in 1992 before the accounting change, extraordinary item and restructuring and other charges. Performance Profile (BAR CHARTS-Appendix A Nos. 1, 2 and 3) 2 The Reason... OUR STRENGTH IN PRINTING PAPERS (PHOTO-Appendix B No. 1) Caption Right: Atapco wanted bright colors for their new line of file folders. We worked with them to get the colors exactly right. Here Randy Austin and David Ruff of Printing Papers respond as Atapco's David Hutchison inspects the final product. (PHOTO-Appendix B No. 2) Caption Far right: Our Corporate Research Center in Tuxedo, N.Y., uses state-of-the-art laser equipment to ensure that our printing papers are superior. Printing Papers serves customers around the world with a wide variety of products. Our mill system gives us a strong competitive position as recent capital investments in both Europe and the United States, combined with cost reduction programs, have increased our efficiency. With the start-up of new recycling facilities, we are also a leader in the growing products market segment. In Uncoated Papers, International Paper is the world's largest producer of uncoated freesheet, with U.S. production of more than two million tons representing 17 percent of U.S. supply. These products include reprographic papers, offset printing papers, and grades that customers convert for such uses as envelopes and forms. Market franchises include the renowned Springhill, Hammermill, Strathmore and Beckett brands. In Coated Papers, International Paper ranks second among U.S. coated groundwood producers. Our Bristols products are heavyweight papers used in a variety of end uses, including tags, posters, file folders and tickets. We also manufacture Pulp, including specialty pulps used to make rayon and acetate products, fluff pulp for diapers and paper pulps. A GROWING INTERNATIONAL PRESENCE International Paper is one of the few U.S. paper companies with a major international presence, giving us access to large markets where growth in paper use will continue to exceed that of the United States. Europe has been the focus of our global expansion, with European-based sales increasing from 12 percent of our total sales in 1989 to 19 percent in 1993. In Printing Papers, European sales were $1 billion in 1993, one fourth of the segment total. Aussedat Rey, our subsidiary in France, is Europe's second largest producer of reprographic papers. Zanders, in Germany, sells internationally acclaimed coated freesheet papers to more than 100 countries worldwide. Zanders products are less price-sensitive to cyclical trends than other papers. Kwidzyn, our printing papers mill in Poland, is ideally located to serve the growing Eastern European markets as economic development and industrialization continue there. Kwidzyn products are also distributed in Western Europe through our Aussedat Rey distribution system. Cooperative efforts among our 6 WHY? o Reprographics, our largest grade, is the fastest growing segment of the uncoated papers market. o A leadership position in recycled papers, as increasing numbers of consumers express their preference for recycled products. o A commitment to product quality and excellent customer service. o The ability to provide customers with a diverse array of products. o Good positioning for a rebound in Europe as improvements at our mills there have increased productivity and cost efficiency. (PHOTO-Appendix B No. 3) Caption Right: The foundation is laid for a new office papers machine with recycling capability at our Riverdale mill near Selma, Ala. 7 WHY? o Zanders, a producer of the world's finest coated papers. o Strathmore and Beckett, strongly positioned as premier producers of fine specialty papers. o Hammermill and Springhill, long-respected brands in the United States. o Adirondack, Saratoga and Miraweb II, high-quality recycled coated papers. o Dissolving pulp, a high-value specialty product and a major part of our pulp business. o Responsive product development and innovation through state-of-the-art technology and research. (PHOTO-Appendix B No. 4) Caption Right: With multiple manufacturing locations and an excellent distribution system, Aussedat Rey is ready to serve the growing European markets. 8 European operations, as well as with our U.S. operations, continue to increase, leading to improved efficiencies. A LEADER IN RECYCLING An important strength of International Paper is the progress we have made in meeting our customers' growing desire for recycled products. We market nearly 100 different printing and writing grades that include varying amounts of recycled fiber ranging from 10 to 100 percent. In 1993, we introduced the Springhill Incentive 100 and Unity brands. These printing and reprographic papers, the nation's first manufactured entirely from newspapers, magazines and catalogs, are produced at our Lock Haven, Pa., mill using a de-inking process licensed exclusively by International Paper. (PHOTO-Appendix B No. 5) Caption Above: Our Lock Haven, Pa., mill is the first to make high-quality office papers from newspapers, magazines and catalogs. The facility will use 100,000 tons of waste paper annually. International Paper holds a leadership position in recycled coated grades with its Adirondack, Saratoga and Miraweb II publication grades. In April 1993, we strengthened this position with the start-up of a proprietary de-inking process at our Hudson River mill in Corinth, N.Y. At our Androscoggin mill in Jay, Maine, de-inked pulp from our Lock Haven, Pa., mill will be used in coated publication papers. A major expansion to produce recycled papers is under way at our Riverdale mill near Selma, Ala. It includes a 360,000-ton-per-year paper machine and a 140,000-ton-per-year de-inking plant. The project will significantly expand our ability to meet the growing demand for recycled office papers as well as our capacity to produce reprographic papers, the fastest growing segment of the uncoated freesheet market. Start-up is expected by mid-1995. A STRONG COMPETITIVE POSITION International Paper's large, flexible mill system has the machine mix and mill scale to support a wide breadth of products. Our goal is to meet the needs of our customers 100 percent of the time while continually making our system more efficient. Selective capital investments have enabled us to lower costs and improve productivity throughout our system. Significant expenditures have been made in recent years in Europe as we modernized or upgraded our mills at Aussedat Rey, Zanders and Kwidzyn, improving efficiency while increasing quality and customer service. Aussedat Rey has made great strides in trimming costs with the start-up in early 1993 of a world-class pulp mill at Saillat, France, that will significantly reduce system-wide manufacturing costs. At Zanders, the 1992 start-up of a new paper machine has maximized the production of high-quality base papers for three key product lines. Kwidzyn is a modern mill with competitive costs. Since acquiring it in 1992, we have made significant improvements in product quality while reducing manufacturing costs through improved technology. The first of Kwidzyn's four machines was rebuilt in 1993 under a $175 million improvement program. The program will continue with the rebuilding of two other machines in the first half of 1994. Domestically, we have focused on investing in low-cost capacity and making our existing capacity more productive. Our new de-inking facility at Lock Haven has improved the cost position of the mill through the use of a low-cost fiber resource. Previously, the mill was nonintegrated. At Riverdale, the new machine will be highly efficient and, along with other actions, will reduce our overall uncoated papers cost position by $50 per ton. Throughout our mill system, we have the flexibility to move product lines to the most efficient paper machines, giving us the ability to further reduce our cost base and support more than one business. 9 Financial Review PRINTING PAPERS (BAR CHARTS-Appendix A No. 4) Sales of Uncoated Papers, representing 51 percent of segment sales, increased slightly in 1993 following a decline of 2 percent in 1992. Although a loss was incurred, 1993 U.S. operating results showed improvement over 1992 mainly due to price recovery. European results, however, declined. Overall, 1993 results improved after a sharp reduction in 1992. U.S. prices moved up steadily until late in 1993 when they weakened. However, prices at year-end were about $50 per ton higher than at the end of 1992. In Europe, sharply lower volumes and prices caused sales to decline by 13 percent. Operating margins were further reduced when currencies of our export customers were devalued against the French franc and German mark. Additionally, the devaluation of Scandinavian currencies provided cost advantages to these producers, causing price erosion in almost every market. For 1994, we estimate that the increase in U.S. industry shipments of uncoated papers will slightly exceed GDP growth, and operating rates will sustain price increases. These factors, combined with cost reduction efforts and the expansion of our line of recycled products, should improve profitability. We expect 1994 operating results in Europe to improve as local economies recover. Aussedat Rey implemented a price increase in early 1994. Operating efficiency should also improve as demand and sales volumes recover. Sales of Coated Papers represented 26 percent of segment sales in 1993 compared with 30 percent in 1992 and 1991. Sales declined 12 percent in 1993 (although U.S. sales increased, European sales fell by 21 percent) after a slight decline in 1992. Continued low levels of magazine advertising and a surge of imports from Europe limited our ability to raise prices in the United States. After a midyear increase, prices retreated to levels slightly above those at the beginning of the year. For the year, U.S. operating results improved somewhat but were offset in Europe, where both volumes and prices declined. Prices for Zanders premium coated products, however, were relatively stable. For 1994, we expect recovery in U.S. magazine advertising and growth in catalogs and direct mail to increase demand for coated products. Price recovery, however, will depend on the level of imports. In Europe, we expect operating results to improve as volumes recover and aggressive cost reduction efforts continue. Bristols contributed about 8 percent to segment sales. Operating profits declined 25 percent in 1993 versus a 37 percent decline in 1992. A 12 percent increase in volume was more than offset by lower average prices. We expect profitability to improve in 1994 as our new product efforts and marketing programs continue. Pulp accounted for 15 percent of segment sales in 1993, up from 14 percent in 1992 and 1991. Weak export markets, high industry inventories and a stronger U.S. dollar led to weaker paper pulp prices. Additionally, the growing use of thinner disposable diapers and increased industry capacity depressed fluff pulp prices. These conditions resulted in an operating loss in 1993. Operating profit declined 5 percent in 1992. We increased prices on paper pulps in early 1994 as wood shortages in Scandinavia and increased paper output tightened supplies. However, we expect pulp earnings to remain under pressure throughout the year. Longer term improvement will depend on a stronger worldwide economy. 10 RESULTS (PIE CHART-Appendix A No. 5) (PHOTO-Appendix B No. 6) Caption Net sales for Printing Papers were $3.9 billion in 1993, down from $4.0 billion in 1992 and $4.1 billion in 1991. An operating loss of $122 million was recorded in 1993 compared with a loss of $70 million (a profit of $19 million before unusual items) in 1992 and profits of $298 million ($318 million before unusual items) in 1991. Weak economic conditions, particularly in Europe, and excess capacity in key product lines lowered operating profits for both our domestic and European operations. U.S. pricing for uncoated papers increased slightly in 1993. We expect price recovery as the U.S. economy strengthens and European business conditions improve. Actions to improve our costs and expand our offerings of recycled products also position International Paper favorably. 11 The Reason... OUR STRENGTH IN PACKAGING (PHOTO-Appendix B No. 7) Caption Right: Our liquid packaging division serves a wide variety of customer needs worldwide with our full line of packaging materials and filling systems--a key to success in this global market. (PHOTO-Appendix B No. 8) Caption Far Right: Our container division's superior graphics capabilities enable us to transform our customers' boxes into powerful sales promotions. International Paper's Packaging businesses provide customers with high-performance products and innovative packaging solutions. Our mills are efficient and flexible due to investments aimed at quality and productivity. Industrial Packaging produces more than two million tons of containerboard annually. About 60 percent of this is converted by International Paper's 25 U.S. container plants. We also operate 19 plants throughout Western Europe, making us the second largest producer of corrugated boxes in the European Community. Consumer Packaging supplies worldwide markets with the Everest line of bleached products for folding cartons, liquid packaging for milk and juice, and food service products such as cups, plates and trays. International Paper is the world's largest producer of bleached packaging board, with a 15 percent share, and is the largest U.S. supplier to international markets. Our Evergreen Packaging Equipment subsidiary makes machines for filling gable-top cartons. Kraft Packaging offers the widest range of kraft paper and packaging in the industry. EXPANDING SPECIALTY PRODUCTS International Paper strives to meet customers' needs for high-performance and specialty products that are cost-effective and solve packaging problems. This is a win-win strategy as it helps sustain our earnings during downturns, secures higher prices for our products and makes entry by competitors more difficult. Our containerboard division has repositioned its product mix to 33 percent in specialty grades. By 1997, we plan to increase specialty grades to 40 percent of the mix. Because visual-appeal grades are expected to grow at three to four times the rate of conventional kraft linerboard, we recently reentered the mottled-white market with our KlaWhite brand. The process of upgrading product mix--a Company-wide strategy--will continue. INNOVATIVE PRODUCTS: KEY TO GROWTH Our container division is an industry leader in design innovations, notable in the produce markets for its inventive designs for grape and lettuce boxes. In 1994, we will introduce a new line of 12 WHY? o An integrated company offering a wide variety of quality packaging materials, design capabilities and manufacturing processes. o A successful strategy focused on growing higher margin, value-added products. o A passion for quality and commitment to meet customers' expectations 100 percent of the time. o The foresight to anticipate the needs of tomorrow and develop new products to meet those needs. o High-quality Everest bleached board, widely recognized by discerning customers. (PHOTO-Appendix B No. 9) Caption Right: We serve a broad base of customers representing the world's most respected and successful companies. 13 WHY? o A flexible mill system that allows production shifts to meet market needs. o Modern world-class bleached board mills. o Dedication to a partnership approach that offers customers higher quality products, better value and greater satisfaction. o The supplier of choice for many leading companies. o Market leaders PineLiner superior stacking-strength containerboard and ColorBrite premium printing grades. (PHOTO-Appendix B No. 10) Caption Right: International Paper actively promotes milk and juice carton recycling nationwide. Shown here are students in Montoursville, Pa., contributing to their community's efforts. 14 corrugated pallets that are reuseable, reduce customers' shipping costs with their light weight and are recyclable. Because environmental concerns are critical to our customers, our liquid packaging division has responded with creative solutions. One example is Space-Pak, a half-pint milk carton used widely in schools. It flattens when pressed along scores on two sides, reducing volume and taking less space in landfills. Among other new products, one developed by our folding carton division is an environmentally friendly paperboard beverage ring, designed to replace plastic six-pack carriers. And the eat-in-tray, made with dual-ovenable QRX board, allows food to be packaged, heated and served all in one package. (PHOTO-Appendix B No. 11) Caption Above: The graphic design department at our new label plant in Bowling Green, Ky., provides creative support to help food packagers comply with new U.S. food-labeling regulations. A DEDICATION TO QUALITY The quality of our containerboard is among the highest in the industry. PineLiner superior stacking-strength containerboard and ColorBrite premium printing grades are market leaders in high-growth segments. Everest bleached board is recognized as one of the best in the industry and commands a premium price in the marketplace. It offers an exceptional printing surface, important in high-end folding carton applications. The Quality Improvement Process is an ongoing program aimed at improving our products and service as we strive to meet customer expectations 100 percent of the time. International Paper also supports the goals of the International Standards Organization (ISO), an internationally recognized effort that seeks a global standard of quality control and quality assurance systems. We use the ISO 9000 series as a benchmark for identifying opportunities for improvement. In 1993, mills at Pine Bluff, Ark., and Pineville, La., and container plants in Arles, Creil and Mortagne, France, successfully completed the ISO registration process. FINANCIAL STRENGTH LEADS TO IMPROVEMENT International Paper's balance sheet is one of the strongest in the paper industry. This strength has allowed us to improve and modernize our facilities, transforming International Paper into one of the industry's lowest cost producers. Investments also foster improvements in quality and new products. One such project was the completion in 1993 of a new label plant in Bowling Green, Ky. Equipped with high-speed presses and a sophisticated electronic prepress system, the plant will design and produce labels for a broad range of food and consumer products. Whereas industry turnaround for lables is three to four weeks, we are targeting a much shorter cycle time. A proposed new machine to produce recycled containerboard at our Mansfield, La., mill will provide new grades and will enable us to add recycled fiber to the two existing machines there. A decision on this project is expected in 1994. GROWTH IN EXPORT MARKETS International Paper is a primary exporter of containerboard to China, Japan and Europe, with long-standing relationships in each of these regions. We will continue to expand our presence in these markets as well as in Latin America, where our specialty grades are compatible with the major end-use markets, particularly agricultural products. Overseas markets show great potential for the future. In 1993, we introduced new high-speed aseptic filling equipment and wrote our first orders for Evergreen equipment and packaging materials in China, Russia and Brazil. Finally, the expansion of our Raleigh, N.C., plant will allow us to produce aseptic packaging for worldwide markets. 15 Financial Review PACKAGING (BAR CHARTS-Appendix A No. 6) Industrial Packaging accounts for just over 50 percent of segment sales. Operating profits declined by 67 percent from 1992 due to depressed U.S. and international economies, major shifts in exchange rates and significant price erosion. In 1992, operating profits were slightly ahead of 1991. Despite 1993 growth of more than 5 percent in U.S. box shipments, containerboard prices weakened until the final quarter of the year. Increased U.S. consumption of containerboard was not sufficient to offset a decline of 6 percent in exports. Containerboard inventories declined, reaching a six-year low in October. These factors allowed implementation of a $25 per-ton price increase in the United States in the fourth quarter. The U.S. container division benefited from increased demand for high-performance linerboard for poultry and other food applications. Competitive conditions, however, adversely affected prices. Despite depressed economic conditions throughout Europe, our international container division remained a strong contributor to earnings in 1993. We are optimistic about 1994. U.S. containerboard capacity is expected to grow at a rate of less than 2 percent in 1994, with operating rates above 95 percent. Exports should recover as European economies improve and China replenishes low inventories. Another price increase of $30 per ton has been announced in the United States, as well as in European and Asian markets. Consumer Packaging accounted for 37 percent of segment sales in 1993 compared with 36 percent in 1992 and 39 percent in 1991. Operating profits declined by 30 percent, after falling by 27 percent in 1992. The principal source of pressure on bleached board industry profits over the past few years has been a relatively rapid expansion in capacity, forcing operating rates steadily downward. Over-supply, combined with sharp devaluation of Scandinavian currencies in late 1992, has led to aggressive pricing across world markets. Prices for major grades, which began to decline in 1991, fell an additional 10 percent in 1993. Strong customer acceptance of our high-quality Everest product line helped limit the decline in operating profits. Prices for liquid packaging products were also lower in 1993 and we incurred costs to realign production facilities. While we expect U.S. consumption of bleached folding carton board to increase in 1994, we believe that industry operating rates will remain static as the full impact of new capacity reaches the market and the 1993 buildup of inventory is consumed. Prices are trending downward, with only limited recovery expected by late 1994. However, liquid packaging results are expected to benefit from restructuring and product development efforts. Kraft Packaging contributed 13 percent of segment sales in 1993 and 12 percent in 1992. Operating profits declined 34 percent from 1992 due to lower prices. We expect earnings to improve in 1994, as a result of operating enhancements and modest price improvements. 16 RESULTS (PIE CHART-Appendix A No. 7) Packaging net sales were $3.1 billion in 1993 compared with $3.2 billion in 1992 and $3.0 billion in 1991. Operating profits declined to $188 million in 1993 from $308 million ($330 million before unusual items) in 1992 and $334 million ($346 million before unusual items) in 1991. The decline in earnings in 1993 and 1992 is attributable to weak economic conditions, eroding prices in key product lines, and sharp devaluation of Scandinavian currencies. A program of cost reduction and efficiency improvement has established a base for an earnings rebound as general business conditions improve in 1994. (PHOTO-Appendix B No. 12) Caption 17 The Reason... OUR STRENGTH IN DISTRIBUTION (PHOTO-Appendix B No. 13) Caption Right: ResourceNet International's sales and marketing reach, as well as its coordinated operations, enables us to serve customers across the United States. ResourceNet International, our U.S.- based distribution business in more than 250 North American locations, offers 30,000 different products and serves as a link between customers and the many suppliers of printing papers, industrial packaging, janitorial and maintenance supplies, graphic arts supplies and equipment, and other products. ResourceNet International is joined by International Paper's Scaldia and Aussedat Rey subsidiaries in Europe. About 20 percent of Distribution sales are products produced by International Paper's own facilities. COORDINATED OPERATIONS International Paper's distribution group adopted the name ResourceNet International in 1993, reflecting the broad resources and value we bring to customers in local and national markets. Shared inventories and an exchange of marketplace data and operational procedures help achieve cost savings and superior service capabilities. ResourceNet International's coordinated operations foster national relationships while meeting the needs of customers at the local level. For an increasing number of customers, ResourceNet International is a single-source supplier, providing everything from office supplies to industrial products. These national accounts capitalize on ResourceNet International's strengths, including its broad geographic reach and responsive service. Further coordinating its operations, ResourceNet International has pushed ahead on the implementation of a market-focused information system to enhance on-time delivery and inventory availability while helping reduce operating costs. HIGHLY QUALIFIED PEOPLE ResourceNet International's 6,000 employees are among the most skilled and experienced in the business. With only a few proprietary products--most of our products are also sold by our competitors--we differentiate ourselves by providing problem-solving services to thousands of customers. Technical services are the critical advantage we bring to the markets we serve. MARKET POSITION The ability to represent the best suppliers in the world, economically taking their products to market, is key to our success. Continued growth and ever-broadening geographic coverage enhance our value to both suppliers and customers. 18 WHY? o A group of top-flight local and regional distribution companies that supplies a broad selection of competitively priced products and valuable services to customers here and abroad. o Coordinated operations of our national accounts group that foster national relationships as well as meet customers' needs at the local level. o Our employees, among the most skilled and experienced in the industry, who provide problem-solving and technical service. o The ability to represent the best suppliers in the world, economically taking their products to market. (PHOTO-Appendix B No. 14) Caption Right: ResourceNet International delivers to more than 200 Kinko's locations nationwide. 19 Financial Review DISTRIBUTION (BAR CHARTS-Appendix A No. 8) Net sales for Distribution were $3.1 billion in 1993, up from $3.0 billion in 1992 and $2.6 billion in 1991. Operating profits for 1993 were $58 million compared with $52 million ($58 million before unusual items) in 1992 and $53 million ($54 million before unusual items) in 1991. Acquisitions, aggressive marketing and cost control enabled us to achieve solid results despite a sluggish printing market and a competitive climate for reprographic papers. Earnings of ResourceNet International, our U.S.-based distribution business, increased 5 percent in 1993 after growing 10 percent in 1992. Overall margins were down slightly in 1993, the result of a shift in the sales mix toward direct sales. Margins on warehouse sales were maintained and profits improved as we progressed in coordinating nationwide operations. These changes began with the establishment of geographic trading regions in early 1991 and included investments in marketing, customer service and distribution logistics. The benefits of these investments are being realized in the Greater Boston market, where ResourceNet International is reconfiguring its regional distribution system. Carter Rice, a fine paper merchant, and The Dowd Company, an industrial products merchant, are joining to form a single merchant organization that will capitalize on the strengths of both businesses. The new Carter-Rice-Dowd organization will realize additional efficiencies by consolidating sales, warehouse and administrative functions. In other major markets, ResourceNet International has identified similar opportunities and continues to pursue them. Significant resources have been committed to training sales and support organizations and to the development of an integrated business and customer information system. In 1993, we broadened our North American group with two acquisitions: Ingram Paper Company, expanding our West Coast market presence, and JB Papers, Inc., serving printing papers markets in the New York metropolitan area. Acquisitions in markets that will strengthen our business will continue to be a part of our growth strategy. In 1991, Dillard Paper Company, which serves Southeastern markets, and Leslie Paper Company joined our system. In Europe, poor demand and lower prices led to 1993 sales that were 15 percent lower than 1992 and to a larger operating loss. Most European operations are in France, where the recession deepened in 1993. Consolidating operations and reducing costs partially offset the lower prices. We expect European business conditions to improve in 1994. As International Paper expands its worldwide distribution business, we will continue to improve productivity and customer response time and reduce operating costs and working capital. Market position and earnings should improve in 1994, although both demand in the printing market and pricing will influence the extent and timing of improvement in results. 20 RESULTS (PIE CHART-Appendix A No. 9) Distribution recorded net sales of $3.1 billion in 1993, up from $3.0 billion in 1992 and $2.6 billion in 1991. Operating profits totaled $58 million in 1993 versus $52 million ($58 million before unusual items) in 1992 and $53 million ($54 million before unusual items) in 1991. In the U.S., earnings increased. In Europe, poor demand and lower prices led to lower sales and a larger operating loss than in 1992. In 1994, we expect sales and earnings to improve as the U.S. economy grows and additional efficiencies from coordination efforts and improved logistics are realized. European operations will improve as local economies recover. (PHOTO-Appendix B No. 15) Caption 21 The Reason... OUR STRENGTH IN SPECIALTY PRODUCTS (PHOTO-Appendix B No. 16) Caption Right: Veratec is expanding its spunbond capacity to meet vigorous growth in demand for light- to medium-weight nonwovens. (PHOTO-Appendix B No. 17) Caption Far right: Arizona Chemical offers a family of environmentally friendly NIREZ specialty ink solvents to the printing industry. Specialty Products is a diverse group of profitable businesses that complement and add value to International Paper's paper and forest products businesses. A logical extension of our core businesses, they use the same raw materials or similar processes, or have the same customers. They also tend to be less sensitive to the cyclicality of the paper industry. Specialty Products includes: Imaging Products, Specialty Panels, Specialty Industrial Papers, Nonwovens, Chemicals and Petroleum. RESPONSIVE TO CHANGING MARKETS Imaging Products serves two primary markets: professional photography and graphic arts. In graphic arts, Anitec and Horsell sell photographic films, papers and plates to the printing market. Ilford specializes in monochrome and color photographic films for the professional photography market. Ilford is the market leader in monochrome photographic films in Europe, attributable to a continuing stream of new and improved products, systems and processes. The growth of electronic imaging is leading to fast-paced changes in the graphic arts market, particularly in the way commercial printers and publishers approach their work. We have responded by introducing new imagesetting films and papers and consolidating operations to reduce costs and increase productivity. At the same time, electronic imaging is stimulating color printing, leading to the use of more printing plates and pressroom chemicals. Our Horsell subsidiary is at the forefront of printing plate development and is one of the leaders worldwide. Our equity investment in Scitex, a leading producer of color electronic prepress systems, has allowed us to tailor our new film and plate products to emerging technology. In 1993, Horsell introduced a plate that is imaged directly by laser, thereby shortening "make-ready" times for printing. International Paper and Scitex have also developed cooperative marketing programs in the graphic arts and professional photographic laboratory markets. DISTINCTIVE PRODUCTS The Specialty Panels businesses serve the building and furniture markets. Nevamar produces solid surfacing, decorative laminates and acrylic 22 WHY? o A group of profitable businesses that complement our core paper business by sharing raw materials, processes and customers. o Imaging Products, which is positioned for growth in changing printing markets. o Arizona Chemical, a world leader in crude tall oil processing. o A strong position in the growing market for pressure-sensitive base papers. (PHOTO-Appendix B No. 18) Caption Right: CraftMaster door facings offer exceptional beauty at a fraction of the cost of solid wood for today's discriminating homeowner. 23 WHY? o Veratec--positioned to become a leader in the growing spunbond market. o Oil and gas reserves that serve as a hedge against fluctuating energy prices. o Responsiveness to changing markets and customer needs. o Continued sales growth of CraftMaster molded interior door facings. (PHOTO-Appendix B No. 19) Caption Right: Since discovering the Sugg Ranch field in West Texas in 1987, International Paper has drilled over 670 oil and gas wells on it. Shown here are Petroleum operations employees (from left) Mike Senich and Gary Weber discussing the next well location. Sugg Ranch is one of the largest discoveries in West Texas in over 20 years. 24 sheets. Polyrey markets specialty laminates in Europe. Masonite provides high-quality engineered panel products. These include CraftMaster interior door facings, which produce an attractive upgrade to flat panel doors by offering style, economy and performance, and OmniWood, a composite wood siding launched in late 1992 made from a unique oriented strand substrate with a wood fiber overlay. In 1994, we expect continued growth for both siding and door facings as the building and repair and remodeling markets remain strong. Export markets for door facings are also growing. (PHOTO-Appendix B No. 20) Caption Above: In 1993, Horsell introduced a revolutionary computer-to-plate system that allows printing plates to be imaged directly by laser from digital data. Here Horsell's Simon Waite examines a plate imaged using the computer-to-plate system at the group's headquarters in Morley, England. POSITIONED IN GROWING NICHE MARKETS Specialty Industrial Papers offers highly specialized products for industrial and consumer applications, and papers for laminating, tape, and release applications, such as pressure-sensitive labels. Nicolet's pressure-sensitive base papers market has been expanding at more than 10 percent annually and is expected to continue to grow. In 1993, Nicolet announced plans to expand to meet growing demand. In 1993, Specialty Industrial Papers was reclassified to the Specialty Products segment from Packaging to more accurately reflect the unique features of these product lines. A LEADER IN NONWOVENS TECHNOLOGY Nonwovens are produced by Veratec, the fourth largest producer worldwide, from natural and synthetic fibers in a process similar to papermaking. Consumer disposables--diapers and feminine hygiene and incontinence products--is our most important market. This market is undergoing a major change as customers switch from traditional drylaid products to lightweight spunbond fabrics. Spunbond fabrics are lower in cost and have high projected market growth. Anticipating this change, Veratec acquired rights to technology in North America for a lightweight spunbond process and started up a spunbond unit in 1991. Our second unit in Toronto, Canada, will start up in late 1994, tripling capacity. We are also increasing sales in other high-growth segments and rationalizing our manufacturing operations to reduce costs. OPTIMIZING COMPANY RESOURCES Chemicals is a logical extension of our pulp and paper business because the raw materials used are natural by-products of the papermaking process: these are crude tall oil and crude sulfate turpentine. Arizona Chemical is the world leader in tall oil, with a broad and stable raw material base. Our strategy to increase sales of higher margin products continues, with more than half of the division's sales now in specialty chemicals. This approach also reduces our exposure to volatility in commodity pricing. In 1993, we began construction of resin solution units at Oakdale, La., and Gulfport, Miss., to increase capacity of these specialty chemicals used in printing inks. Petroleum plays an important part in our energy strategy by developing oil and gas reserves. These assets not only contribute to earnings, but also serve as a hedge against fluctuating energy prices. Since 1986, oil and gas reserves have increased tenfold to more than 58 million energy-equivalent barrels of oil (BOE). In 1993, the division produced more than eight million BOE, equal to more than 50 percent of the energy used by our U.S. paper mills. We will explore for new reserves while developing our current oil and gas properties. During 1993, oil and gas drilling on our fee properties in Texas, Louisiana and Alabama added more than two million BOE to our reserves. 25 Financial Review SPECIALTY PRODUCTS (BAR CHARTS-Appendix A No. 10) Imaging Products sales represented 28 percent of segment sales in 1993 compared with 31 percent in 1992 and 34 percent in 1991. Continuing weak economic conditions, as well as technological changes, depressed margins in the graphic arts and film businesses. Currency translation effects also contributed to lower margins, particularly in Europe, the division's largest market. These factors led to declines of 9 percent in sales and 64 percent in operating profit in 1993. Market share gains in the offset plate and professional photography markets were a positive factor. Also, extensive restructuring in the graphic arts business has reduced manufacturing costs. Introduction of improved imagesetting films and cooperative programs with Scitex are strengthening our position in the expanding electronic imaging market. Emphasis on electronic imaging, new products and reduced operating costs position the business to grow in commercial printing markets, and should lead to improved earnings. Specialty Panels accounted for 28 percent of segment sales in 1993 versus 25 percent in 1992 and 21 percent in 1991. Operating profit improved 22 percent in 1993. The major contributor, CraftMaster molded interior door facings, had volume increases in all markets . In addition, siding products experienced strong demand. The outlook for 1994 is for even higher sales and earnings, led by door facings sales. The December 1993 acquisition of Fome-Cor, a manufacturer of paper-faced polystyrene foam boards that complements our graphic arts and signage panels businesses, will also contribute to 1994 earnings. Specialty Industrial Papers contributed 17 percent to segment sales. Earnings improved 42 percent in 1993 after declining 25 percent in 1992. Strong demand for release backing papers led to record shipments. Successful cost reduction programs more than offset weak demand for other products. Despite some downward pressure on prices, earnings should remain strong in 1994 as shipments improve and further productivity actions take effect. Nonwovens contributed 12 percent to segment sales. Sales fell modestly in 1993 as a result of technological changes in the consumer disposables market, whereby major diaper manufacturers shifted from use of our drylaid diaper coverstock to spunbond products. Growth in specialty applications partially offset the sales decline. The start-up of a new spunbond line in Toronto, Canada, in late 1994 and growth in new products should strengthen sales and earnings. Chemicals and Petroleum contributed 15 percent to segment sales in 1993. Petroleum achieved record sales and earnings as the Sugg Ranch, a major field in West Texas, increased production. Chemicals earnings increased over 1992, most markedly in Europe. Contributing factors were lower raw material costs, price increases and growth in specialty resins. In the United States, specialty resin sales grew, offset by a decline in commodity product volume and price. For 1994, we expect Petroleum will experience a decline in earnings due to lower oil prices. However, Chemicals sales and earnings should improve as commodity prices rise and sales of specialty chemicals grow. 26 RESULTS (PIE CHART-Appendix A No. 11) Specialty Products net sales totaled $2.5 billion in 1993 and 1992, up from $2.3 billion in 1991. Operating profits were $263 million compared with $83 million ($238 million before unusual items) in 1992 and $227 million ($244 million before unsual items) in 1991. Improvement in 1993 was led by Specialty Panels, with sales of door facings growing in both domestic and export markets. Weak economic conditions in Europe resulted in lower sales and earnings for Imaging Products. We expect improved profitability for the segment in 1994. Specialty Panels will lead the group in sales growth. Imaging Products profitability will improve as a result of restructuring actions in graphics arts and as we develop our position in commercial printing markets. (PHOTO-Appendix B No. 21) Caption 27 The Reason... OUR STRENGTH IN FOREST PRODUCTS (PHOTO-Appendix B No. 22) Caption Right: A $750,000 capital investment at our Gurdon, Ark., wood products plant resulted in a higher quality medium-density-overlay panel. International Paper's six million acres of Forestlands, mostly in the southern United States, are managed through IP Timberlands, Ltd. (IPT). IPT's total harvest represents 36 percent of our U.S. log and fiber needs. International Paper purchases 30 percent of IPT's harvest for our manufacturing operations. We manage our forestlands on a sustainable basis, seeking to maintain a balance between financial returns and environmental stewardship. Wood Products manufactures a broad range of quality lumber, panel and oriented strand board products at 17 mills, principally in the South. ENVIRONMENTAL STEWARDSHIP International Paper is a leader in responsible stewardship of forest resources. Examples include the 53 million SuperTrees planted on more than 90,000 acres in 1993. In partnership with the U.S. Fish and Wildlife Service, in 1993 International Paper completed a Habitat Conservation Plan under the Endangered Species Act to save the habitat of the threatened Red Hills salamander. A similar plan to protect the gopher tortoise will be completed in 1995. To safeguard a delicate coastal ecosystem, in 1993 we provided 2,000 acres for South Carolina's Lewis Ocean Bay preserve, bringing the total to 10,000 acres. INCREASING PRODUCTIVITY Every harvested acre of our land is regenerated to maintain a profitable long-term fiber supply. With nearly a century's experience in refining our silvicultural practices, we grow more fiber than we harvest. Over the past five years, the wood products division has lowered costs and increased productivity. Since 1988, lumber production has increased 150 million board feet, the equivalent of adding a mill. During the same period, panel production increased by 75 million square feet. A LEADER IN SAFETY International Paper was the first industry member to have a wood products plant earn the Star Level of OSHA's prestigious Voluntary Protection Program (VPP) when our New Boston, Texas, mill was honored in 1992. In 1993, our facilities in the Arkansas communities of Leola and Gurdon achieved Star status, and additional facilities are presently under consideration. 28 WHY? o Responsible stewardship of forest resources, conservation of wildlife, and creation of recreational opportunities for the public. o A balanced approach to responsible care for the environment while ensuring economic viability. o A leader in the genetic improvement of trees, providing healthier forests with better yields. o Strategically located wood products plants with state-of-the-art technology that bring a wide variety of products to our customers. o A vigilance in safety with the goal of a totally accident-free workplace. (PHOTO-Appendix B No. 23) Caption Right: At our nursery near Selma, Ala., (from left) Mike Shanks, Andrew Blevins and Henry Hughes inspect SuperTree pine seedlings. The 170 million SuperTrees grown annually at our five nurseries are planted on our forestlands, or are sold or donated to other landowners. 29 Financial Review FOREST PRODUCTS (BAR CHARTS-Appendix A No. 12) Forestland revenues reached record levels in 1993, increasing 15 percent compared with an 11 percent increase in 1992. A surge in U.S. housing starts combined with ongoing logging restrictions on federal lands in the West led to 1993 stumpage prices that exceeded high prices set in 1992. In the South, record lumber and panel prices spurred a significant increase in demand for sawlogs as mills sought to increase production. As a result, pine sawlog prices reached record levels by year-end. Further, pulpwood prices advanced as greater use of small logs by wood products plants, an increase in exports of hardwood chips and poor weather conditions early in 1993 forced paper mills to compete for available fiber. In the Northeast, strong demand for spruce-fir logs from Canadian and U.S. lumber mills caused prices to increase. In the West, domestic and export log prices also reached record levels in 1993 before softening slightly as the year ended. Taking advantage of strong demand and record prices, IPT increased harvest volumes 8 percent in 1993. The 1992 harvest was slightly below 1991 levels. The strong prices also supported an increase in sales of nonstrategic forestlands in 1993. Together with stringent control over operating expenses, the higher volumes and prices led to a 56 percent increase in IPT's operating profits in 1993 after a 37 percent increase in 1992. Operating results in 1994 should continue to be strong as both prices and demand were favorable as the year began. Expected further growth in housing starts, resumption of exports to Japan, and continued strength in repair and remodeling markets should cause prices to remain strong. However, a short-term decline in the inventory of mature trees is expected to lead to lower IPT harvests over the next several years. Future harvests may be supplemented through forestland purchases where economically advantageous. Wood Products benefited from an increase in U.S. housing starts, which were up 7 percent in 1993 after a 19 percent increase in 1992, reaching the highest level since 1989. Combined with an improving U.S. economy, this led to steadily increasing demand for lumber and panels as the year progressed. In general, prices increased sharply in the first quarter and, after easing during the summer months, trended steadily higher to finish the year at record levels. Sales for the year were up 24 percent after a 23 percent increase in 1992. Despite higher fiber costs due to increased competition for tight stumpage supplies, operating earnings for wood products were about double those of 1992. Current favorable prices and continued strength in housing starts and the repair and remodeling markets present an optimistic outlook for wood products operations as 1994 begins. 30 RESULTS (PIE CHART-Appendix A No. 13) Forest Products net sales were $1.7 billion in 1993, up from $1.4 billion in 1992 and $1.2 billion in 1991. Operating profits totaled $445 million in 1993, up considerably from $197 million ($261 million before unusual items) in 1992 and $126 million in 1991. International Paper took advantage of strong demand and record prices for trees and sawlogs by increasing its harvest and selling nonstrategic forestlands. An improving U.S. economy and strong housing starts led to stronger demand for lumber and panels. Prices increased sharply, ending the year at record levels. We expect operating results in 1994 to again be favorable as both prices and demand remain strong. (PHOTO-Appendix B No. 24) 31 (PHOTO-Appendix B No. 25) Caption Right: Balancing environmental and economic issues through research and sound management practices is our goal. The 16,000-acre Southland Experiment Forest near Bainbridge, Ga., is the hub of our forest research efforts. 32 The Environment The environmental challenges facing the paper and forest products industry take many forms, from endangered species and wetlands issues affecting our forestlands, to air and water emissions and solid and hazardous waste disposal at our manufacturing facilities, to recycling and packaging reduction initiatives focused on our products. For each of the last several years, International Paper has spent $100 million or more addressing these issues--and has made excellent progress. For example, we have voluntarily: o Reduced the already small amount of dioxin in the water discharged from our bleached pulp mills by more than 95 percent; o Slashed air and water emissions of 17 toxic chemicals specifically targeted by the Environmental Protection Agency (EPA) by 72 percent; o Cut solid waste going to landfills by more than 50 percent; o Converted one of our paper machines to make 100 percent recycled printing papers from old newspapers and magazines; and o Established an innovative and widely applauded habitat conservation plan for a threatened species--the Red Hills salamander. The progress we have made is set forth in a 28-page report, "A Commitment to Environment, Health and Safety Excellence by International Paper," published in November 1993 (see page 60 for details on how to obtain a copy). We realize that our environmental performance impacts the public's perception of our Company, and that governmental officials, opinion leaders in the communities where we operate and many of our shareholders are as likely to measure us by that standard as by our financial returns. Further discussion of these matters can be found on pages 38-39 of this annual report. Overall, our goal is to continue to reduce the environmental impact of our products and operations, but to do so in an efficient and cost-effective manner. Just as we have a responsibility to protect the environment, so too do we have a responsibility to spend capital wisely. To this end, we have voluntarily adopted ambitious environmental goals that will significantly lessen the impact of our products and processes on the environment. For 1994, our goals call for a 15 percent reduction in environmental incidents compared with 1993. ELIMINATION OF ELEMENTAL CHLORINE We plan to eliminate the use of elemental chlorine in our processes by converting our bleached mills to elemental chlorine-free (ECF) technology within three years. For many years, chlorine has been used for bleaching because it effectively produces pulp having the strength, cleanliness, absorbency, softness and brightness needed to produce paper and paperboard. Recently, the use of chlorine in the bleaching process has come into question following the initial discovery in the mid-'80s that dioxin is an unwanted by-product that could enter the environment in the water discharged by a paper mill. Following this discovery, International Paper took a leading role in responding to regulatory and public concerns about dioxin. We have already reduced dioxin discharges by more than 95 percent by modifying processes and partially substituting chlorine dioxide for elemental chlorine. At our bleached mills today, International Paper discharges less than four tenths of an ounce of dioxin per year--a level that cannot be detected at any facility using the EPA's standard dioxin-testing measurement. TOXIC EMISSIONS Using 1990 as the baseline, International Paper has also committed itself to reducing its emissions of chemicals included in the EPA's Toxic Release Inventory (TRI) by 75 percent before the end of the century. Our manufacturing facilities presently report air or water emissions on 50 of the more than 300 chemicals included in the TRI. We are making steady progress in reducing those emissions. Through the end of 1992, the last year for which we have complete data, we have reduced TRI emissions from 1990 levels by 17 percent, and we believe we can cut these emissions by three fourths within a 10-year period. 33 Additionally, we have volunteered to participate in the EPA's Industrial Toxics Project, to reduce emissions of 17 particularly prevalent and potentially toxic chemicals by 33 percent by the end of 1992 and 50 percent by the end of 1995 (using 1988 as the baseline). International Paper has far exceeded that goal, having reduced those chemicals by 72 percent through 1992. Our new goal is to reduce these emissions by 85 percent by the year 2000. SOLID WASTE Several years ago, we set a goal of reducing the amount of solid waste sent from our facilities to landfills in 1988 by 50 percent by the end of 1994. Since then, we have focused on using the dirt and rocks from logs for landscaping purposes, burning sawdust and tree bark to produce power for our facilities, and spreading ash from the bark boilers to return beneficial nutrients to the soil. As a result, International Paper exceeded its target by achieving a 52 percent reduction by the end of 1993--a year early. Our ambitious new goal is a 75 percent reduction by year-end 1996. In 1993, we reduced solid waste 28 percent from year-earlier levels, and we will be seeking a further 10 percent reduction in 1994. HAZARDOUS WASTE International Paper is also striving to reduce the generation of hazardous waste. Much of this waste is made up of used solvents, characterized as hazardous because they are flammable. We have a program in place to reduce the quantity and toxicity of these wastes, such as by substituting substances that are other than oil-based to clean equipment. Our corporate goal is to reduce hazardous waste shipments off-site by 60 percent in the year 2000 compared with a 1992 baseline. The 1994 goal is a 10 percent reduction compared with 1993. ODOR REDUCTION AND WATER CONSERVATION International Paper has established two other important goals relating to mill operations. The first is to reduce odor-causing emissions (total reduced sulfur, or TRS) by 30 percent in 1996 and 75 percent in 1998, using a 1990 baseline. The other is to conserve on the usage of water in our largest facilities by reducing the discharge flow by 10 percent in 1994 compared with 1993. FORESTLAND STEWARDSHIP In our forestland operations, there are programs in place to minimize the environmental effects of our forest management activities. Several years ago, we voluntarily developed a set of forest environmental quality guidelines, which are strictly enforced on our forestlands. These guidelines empower our foresters to cancel a harvesting operation if environmental quality is threatened. We make every effort to lessen the potential environmental and aesthetic effects when we do harvest, by maintaining natural buffers, establishing streamside management zones and limiting the size of the tract harvested. We reforest, either through natural regeneration or by systematic replanting, all Company land we harvest. We also continually monitor our lands for the presence of threatened and endangered species. In 1993, with the U.S. Fish and Wildlife Service, we developed a habitat conservation plan to protect the Red Hills salamander on our forestlands in southern Alabama. We are developing a similar plan for the gopher tortoise in parts of Mississippi and Alabama, where it is threatened. We have conducted comprehensive soil surveys of all of our land in the South to identify wetlands under our stewardship, and we have a strict set of guidelines designed to protect wetland functions and values. International Paper intends to continue its leadership role in proactively developing environmentally sound forest management practices, and in promoting or requiring the use of those practices by our suppliers and contractors. Our goal is to be--and to be recognized as--the most responsible steward of our nation's forests in our industry. 34 Financial Review Management's Discussion and Analysis 36 Financial Information by Geographic Area 40 Financial Information by Industry Segment 41 Report of Management on Financial Statements 42 Report of Independent Public Accountants 42 Consolidated Statement of Earnings 43 Consolidated Balance Sheet 44 Consolidated Statement of Cash Flows 45 Consolidated Statement of Common Shareholders' Equity 46 Notes to Consolidated Financial Statements 47 Eleven-Year Financial Summary 54 Interim Financial Results 56 35 MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations International Paper's 1993 consolidated net sales were $13.7 billion, slightly higher than 1992 sales of $13.6 billion and 8% above 1991 sales of $12.7 billion. Full-year contributions of companies acquired in 1991 were a major factor in the 1992 increase. Sales from operations outside the United States decreased to $2.9 billion in 1993 from $3.4 billion in 1992 and $3.2 billion in 1991. Poor European economic conditions resulted in lower prices and shipments. U.S. export sales were $1.1 billion in 1993 compared with $1.2 billion in 1992 and $1.1 billion in 1991. Net earnings were $289 million or $2.34 per share in 1993 ($314 million or $2.54 per share before the revaluation of deferred taxes to reflect the increase in the U.S. federal income tax rate) versus $86 million or $.71 per share in 1992 ($405 million or $3.34 per share before the effects of an accounting change, an extraordinary item, and charges for a profitability improvement program and for environmental costs) and $184 million or $1.66 per share in 1991 ($452 million or $4.09 per share before an accounting change and a charge for severance costs). Profits continued to decrease in 1993 as the U.S. economy recovered slowly and European economic conditions worsened. A continuing focus on cost reduction helped minimize the decrease in profits. However, generally weak prices led to reductions in Printing Papers and Packaging results, offsetting a record-breaking year by our Forest Products operations. Although Printing Papers prices in the United States generally improved as the year progressed, European prices continued to fall, with the segment losing $122 million in 1993. Price increases in containerboard and some Printing Papers grades were announced in early 1994. (BAR CHARTS-Appendix A No. 14) Accounting Changes As of January 1, 1992, International Paper adopted SFAS No. 109, "Accounting for Income Taxes," which requires the liability method of determining deferred income taxes. Net earnings were reduced by $50 million or $.41 per share for the cumulative effect of this change. Also, in adopting SFAS No. 109, we revised our accounting for prior acquisitions. As a result, 1992 depreciation expense increased by $41 million. However, there was no impact on net earnings because of an offsetting deferred tax benefit. The 1991 adoption of SFAS No. 106, requiring accrual accounting for postretirement benefits, reduced 1991 earnings by $231 million or $2.10 per share. Of this, $215 million or $1.95 per share related to the cumulative effect of the accounting change as of the beginning of the year. Restructuring and Other Charges In 1992, International Paper recorded pre-tax charges of $370 million to establish a productivity improvement reserve and $28 million for environmental remediation and clean-up. These charges totaled $398 million ($263 million after taxes or $2.17 per share). The productivity improvement charge was primarily for asset write-downs and related severance costs to shift production from older, less efficient facilities to newer or modernized plants, costs to consolidate operations and write-downs of some facilities with marginal returns. Asset write-downs were estimated at $250 million with accruals for one-time cash costs of $120 million (for employee severance, legal, warranty, leases and miscellaneous items). Approximately 40% of the cash costs were incurred in 1993 and, except for legal costs, we expect the remainder to be spent equally in 1994 and 1995. We had projected that annual savings-composed of lower personnel costs and depreciation and the elimination of operating losses-would approach $75 million by the end of 1994. We have realized 45% of the annual savings in 1993, and we expect to reach 85% by the end of 1994 and to exceed $75 million in 1995 when actions are completed. No overall adjustment to the reserve balance is anticipated at this time. In 1991, a $60 million pre-tax charge ($37 million after taxes or $.33 per share) was recorded for personnel reductions of more than 1,000 positions worldwide. These reductions have now been implemented with annual savings of over $30 million. 36 MANAGEMENT'S DISCUSSION AND ANALYSIS Cash Flow From Operations International Paper continued to generate substantial cash flow in 1993 despite lower operating earnings. However, cash provided by operations of $929 million in 1993 was below the $1.1 billion in 1992 and $1.2 billion in 1991. During 1993, working capital increased $290 million, most of which was from lower accounts payable and accrued liabilities. An increase in depreciation and amortization charges in 1993 to $898 million from $850 million in 1992 and $725 million in 1991 mitigated the effect of lower net earnings on cash flow. Capital Expenditures by Industry Segment In millions for the years ended December 31 1993 1992 1991 - ------------------------------------------- ---- ------ ------ Printing Papers $429 $ 740 $ 604 Packaging 181 201 246 Distribution 13 14 14 Specialty Products 155 245 209 Forest Products 145 104 79 ---- ------ ------ 923 1,304 1,152 Corporate 31 64 45 ---- ------ ------ Consolidated Total $954 $1,368 $1,197 ---- ------ ------ ---- ------ ------ Investment Activities Capital spending of $954 million in 1993 was well below the $1.4 billion and $1.2 billion spent in 1992 and 1991. This reduced spending reflects completion of several major projects in late 1992 including Zanders' new paper machine for the production of high-quality base papers and expansion of Aussedat Rey's Saillat pulp mill. As in recent years, 1993 capital spending largely focused on further reduction of production costs, plant upgrades and incremental capacity expansions, quality and productivity improvements, and environmental and safety programs. During 1993, the project at Lock Haven, Pa., to produce 100% recycled-paper grades from postconsumer newspapers and magazines was completed and started production late in the year. Also, one paper machine at Kwidzyn, in Poland, was upgraded to improve productivity. Capital spending for 1994 is expected to exceed $1.1 billion. Major projects will focus on printing papers and packaging facilities. In the United States, the design for a new, low-cost uncoated paper machine at the Riverdale mill near Selma, Ala., was completed and the majority of spending for this project will occur during 1994. In Europe, the $175 million capital investment program for Kwidzyn will continue. Spending for acquisitions decreased substantially in 1993. In 1993, $35 million was spent and $22 million of debt was assumed to acquire certain assets of Los Angeles-based Ingram Paper Company, a distributor of industrial and fine writing papers, and the assets of Monsanto Company's Fome-Cor division, a manufacturer of polystyrene foam boards. The Company also acquired the assets of JB Papers, Inc., a paper distribution company located in Union, N.J., by issuing 117,000 shares of Company common stock. In 1992, $153 million was spent and $30 million accrued, principally for the acquisitions of Kwidzyn in Poland and Western Pacific in Oregon. The Company also spent $209 million to acquire an equity interest in Scitex, a world leader in color electronic prepress systems. In 1991, $457 million was spent and $50 million of debt assumed to acquire the Rhone Valley Packaging business, Evergreen Packaging Equipment, Dillard Paper Company and Scaldia Papier BV. A merger with Leslie Paper Company and the formation of a joint venture to control 32% of Carter Holt Harvey Limited were also completed in 1991. (BAR CHARTS-Appendix A Nos. 15 and 16) 37 MANAGEMENT'S DISCUSSION AND ANALYSIS Financing Activities In 1993, the Company issued $600 million of long-term debt as follows: in March, $200 million of debentures due in 2023; in October, $200 million of debentures due in 2023; and in November, $200 million of debentures due in 2003. The proceeds of all debentures were used mainly to reduce short-term borrowings and secure favorable long-term interest rates. Interest rate swaps were utilized to obtain the equivalent of short-term rates during the first year of the October and November financings. In 1992, taking advantage of low interest rates, the Company increased short-term borrowings by $657 million to, in part, retire $255 million of high-rate long-term debt. Also, in January, 9.2 million shares of common stock were sold in a public offering yielding $650 million, and $200 million of 7 5/8% notes due in 2007 were issued. These proceeds were principally used to retire higher rate debt outstanding at that time. Net borrowings were $994 million in 1991, principally used to finance acquisitions and large capital projects. Common stock dividends per share were $.42 per quarter ($1.68 on an annual basis) in 1993, 1992 and 1991. Payments were $208 million in 1993, $206 million in 1992 and $186 million in 1991. Capital Resource Outlook for 1994 Cash flow from operations is expected to be adequate to meet internal capital expenditures, working capital and dividend requirements. A strong balance sheet (debt to capital ratio of 39% in 1993, up from 38% in 1992 and comparable with 39% in 1991) supporting an investment-grade debt rating allows ready access to financial markets to take advantage of external investment and favorable financing opportunities. (BAR CHART-Appendix A No. 17) Other Financial Statement Items Net interest expense increased to $310 million in 1993 from $247 million in 1992 and down from $315 million in 1991. 1992's net interest benefited from tax-related interest income and higher capitalized interest related to two major European capital projects that are now completed. The effective tax rate for 1993 increased to 42% (37% before the revaluation of deferred tax balances) of pre-tax income compared with 31% in 1992 and 37% in 1991. The adoption of SFAS No. 109 and the tax benefit at statutory rates of the productivity improvement and other charges in 1992 contributed to 1992's lower rate. The increase in the rate for 1993 results from the increase in the U. S. statutory federal income tax rate of 1%, which also increased deferred taxes by $25 million. During 1993, the Company recognized tax benefits amounting to $55 million related to losses at certain of its non-U.S. operations, increasing noncurrent deferred tax assets to $115 million at December 31, 1993. The Company believes that it is more likely than not that these assets will be realized. Environmental Issues Given the nature of its businesses, International Paper is closely linked to the environment. Increasingly demanding environmental laws and regulations have resulted in significant capital spending to meet or exceed air, water and solid waste disposal standards. Environmental capital expenditures totaled $100 million in 1993, $126 million in 1992 and $107 million in 1991. Capital spending to increase recycling capacity totaled $102 million, $35 million and $5 million in 1993, 1992 and 1991, respectively. 38 MANAGEMENT'S DISCUSSION AND ANALYSIS International Paper has made good progress protecting the environment. For example, the Company has reduced by 72% the release of certain chemicals targeted by the Environmental Protection Agency (EPA) under a voluntary program and met its 1995 goal ahead of schedule. Further, the Company reached agreement with the U.S. Fish and Wildlife Service to protect the habitats of threatened species, and initiated a program to recover and recycle milk and juice cartons. In 1993, the EPA released its proposal, known as "Cluster Rulemaking," to coordinate and integrate the requirements for air emissions and water discharge for the pulp and paper industry to meet in 1998. Further in 1993, the EPA issued proposed regulations implementing the "Great Lakes Initiative" (GLI), which covers minimum water quality and implementation procedures. Spending to meet the GLI regulations, which still need to be finalized and then adopted by the participating states, is not likely to occur until 1998. Future spending will be heavily influenced by the final standards included within each of the sets of proposed regulations. However, we estimate the Company's future capital spending to comply with the Cluster Rulemaking and GLI requirements to be between $700 million and $1.5 billion, depending upon the methods allowed by the regulations to meet overall requirements. In addition, annual operating costs, excluding depreciation, are expected to increase between $60 million and $120 million when these changes are fully implemented in 1998. The Company paid fines and penalties related to environmental issues of $400,000, $1.6 million and $3.6 million for the years 1993, 1992 and 1991, respectively. Reviews have been completed by federal and state environmental agencies at certain Company facilities to determine if all permits required under law have been obtained. Any fines arising from these reviews should not have a material effect on the Company's future financial condition or results of operations. In the fourth quarter of 1992, agreement was reached with the State of New York concluding an investigation of the Company's Anitec facility in Binghamton, N.Y. Under the agreement, the Company agreed to pay a civil penalty, reimburse state expenses, fund a community emergency planning program, and implement a remediation plan to clean up soil and groundwater contamination. Estimated costs of remediation were accrued in 1992. In May 1992, the EPA issued an order alleging that Masonite failed to obtain a permit required for operation of a production line added in 1989 to its Ukiah, Calif., facility. Two additional lawsuits related to the facility were filed by state and county officials alleging noncompliance with certain aspects of state law and late filing of a required emissions plan. The state and county lawsuits were settled during 1993 and settlement of the EPA action is expected in 1994. None of the settlements had or will have a material effect on the Company's future financial condition or results of operations. Beginning in late 1990, several lawsuits were filed against paper producers alleging property damage, business loss or risk of personal injury resulting from the presence of dioxin in mill discharges. International Paper was named in a number of these lawsuits. Although no International Paper case has yet gone to trial, one case involving the Company's Texarkana, Texas, facility was settled in late 1993 without any admission or finding of liability. Due to aggressive solicitations by plaintiffs' attorneys, cumulative damage claims totaled more than $9.4 billion by the end of 1993, principally in punitive damages. Management believes these suits are without merit and expects to prevail upon final resolution. International Paper is also a party to a number of other environmental remediation actions under various federal and state laws, including the Comprehensive Environmental Response, Compensation and Liability Act. Related costs are recorded in the financial statements when reasonably estimable. Although these costs have increased in recent years, 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 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 60 of this annual report. 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), 16 (Packaging), 20 (Distribution), 26 (Specialty Products) and 30 (Forest Products), and is incorporated herein by reference. 39 FINANCIAL INFORMATION BY GEOGRAPHIC AREA Net Sales In millions 1993 1992 1991 - ----------- ------- ------- ------- United States 1 $11,085 $10,524 $ 9,811 Europe 2,586 3,030 2,833 Other 340 347 318 Less: Intergeographic Sales (326) (303) (259) ------- ------- ------- Net Sales $13,685 $13,598 $12,703 ------- ------- ------- ------- ------- ------- 1 Export sales to unafliated customers (in millions) were $1,100 in 1993, $1,200 in 1992 and $1,100 in 1991. Assets In millions 1993 1992 1991 - ----------- ------- ------- ------- United States $10,999 $10,680 $10,207 Europe 3,512 3,832 3,153 Other 2 820 812 518 Corporate 1,300 1,192 1,063 ------- ------- ------- Assets $16,631 $16,516 $14,941 ------- ------- ------- ------- ------- ------- 2 Includes investments in Scitex Corporation Ltd. (1993 and 1992). Operating Profit In millions 1993 1992 1991 - ----------- ------- ------- ------- United States 3 $833 $511 $871 Europe 3,4,5 (23) 41 143 Other 22 18 24 ------- ------- ------- Operating Profit $832 $570 6 $1,038 7 ------- ------- ------- ------- ------- ------- 3 Includes additional depreciation related to SFAS No. 109 of $22 million in the United States and $19 million in Europe in 1993 and 1992. 4 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. See Note 3 on page 48. 5 While net sales includes 100% of Zanders' sales, operating profit is adjusted for minority interests. 6 Includes restructuring and other charges totaling $336 million. 7 Includes a $50 million restructuring charge. Sales in the United States increased in 1993 to $11.1 billion, up 5% from 1992, after a 7% increase in 1992. However, European sales declined 15% in 1993 to $2.6 billion after a 7% increase in 1992 to $3.0 billion. While the European units within our Packaging and Specialty Products segments remained profitable, European operations as a whole produced an operating loss of $23 million in 1993 compared with a $41 million profit in 1992 ($74 million before the productivity improvement charge) and $143 million in 1991. France and Germany, the predominant European economies, were in a recession in 1993 with real GDP falling by .8% and 1.9%, respectively. These weak economic conditions, combined with strong currencies in these countries where much of our European paper production is sited, resulted in sharply lower prices and shipments, particularly for coated and uncoated papers. While cost reductions helped limit the impact of the downturn, our European Printing Papers operations realized a loss in 1993. We believe that prices have now reached their cyclical lows and results should improve in the latter part of 1994 as European economies resume growth. An indicator of this improvement is the price increases implemented by Aussedat Rey early in 1994. European Sales by Business Segment In millions 1993 1992 1991 - ----------- ------ ------ ------ Printing Papers $1,016 $1,172 $1,150 Packaging 513 675 580 Distribution 284 335 282 Specialty Products 710 791 794 Forest Products 63 57 27 ------ ------ ------ European Sales $2,586 $3,030 $2,833 ------ ------ ------ ------ ------ ------ Equity Investments (unaudited) International Paper owns a 12% interest in Scitex Corporation Ltd., a world leader in color electronic prepress systems for the graphic design, printing and publishing industries. Scitex, with annual 1993 revenues of $623 million, is headquartered in Israel, with most of its sales to European, North American and Japanese customers. For the year ended December 31, 1993, Scitex reported net income of $94 million, which was 23% below 1992 and about equal to 1991. The 1993 results were adversely impacted by a decline in revenues in Europe and lower gross margins related to product mix. Focused research and development, aggressive marketing and strong cost control point to continued long-term growth. The Company is a partner in a 50:50 joint venture that holds 32% of Carter Holt Harvey Limited (CHH), a New Zealand-based forest products company with substantial assets in Chile. CHH has annual sales of about $1.3 billion. For the six months ended September 30, 1993, CHH reported a 47% increase in profits to about $90 million. Results were led by forest and wood products operations with record-high prices for export logs to Asia. 40 FINANCIAL INFORMATION BY INDUSTRY SEGMENT Net Sales In millions 1993 1992 1991 - ----------- ------- ------- ------- Printing Papers $ 3,905 $ 4,040 $ 4,075 Packaging 3,095 3,245 3,030 Distribution 3,140 2,980 2,590 Specialty Products 2,460 2,460 2,335 Forest Products 1,700 1,410 1,190 Less: Intersegment Sales (615) (537) (517) ------- ------- ------- Net Sales $13,685 $13,598 $12,703 ------- ------- ------- ------- ------- ------- Operating Profit In millions 1993 1992 1991 - ----------- ----- ----- ------ Printing Papers $(122) $(70) $ 298 Packaging 188 308 334 Distribution 58 52 53 Specialty Products 263 83 227 Forest Products 445 197 126 ----- ----- ------ Operating Profit 832 570 1,038 Interest Expense, net (310) (247) (315) Corporate Items, net (22) (117) (85) ----- ----- ------ Earnings Before Income Taxes, Extraordinary Item and Cumulative Effect of Accounting Changes $ 500 $ 206 $ 638 ----- ----- ------ ----- ----- ------ Assets In millions 1993 1992 1991 - ----------- ------- ------- ------- Printing Papers $ 6,466 $ 6,566 $ 5,448 Packaging 3,011 3,090 3,118 Distribution 1,085 1,062 1,008 Specialty Products 2,607 2,585 2,427 Forest Products 1,603 1,522 1,619 Investment in: Carter Holt Harvey 331 285 258 Scitex 228 214 Corporate 1 1,300 1,192 1,063 ------- ------- ------- Assets $16,631 $16,516 $14,941 ------- ------- ------- ------- ------- ------- 1 Corporate assets are principally cash and temporary investments, investments and other assets that are not identifiable with industry segments. Depreciation, Depletion and Amortization In millions 1993 1992 1991 - ----------- ---- ---- ---- Printing Papers $414 $392 $328 Packaging 213 211 191 Distribution 28 30 20 Specialty Products 180 152 129 Forest Products 93 84 76 Corporate 10 14 11 ---- ---- ---- Depreciation, Depletion and Amortization $938 2 $883 2 $755 ---- ---- ---- ---- ---- ---- 2 Increased by $41 million in both 1993 and 1992 for additional depreciation related to the adoption of SFAS No. 109. Industry Segment Contributions Earnings before income taxes were $500 million in 1993, $206 million ($604 million before the $370 million productivity improvement charge and $28 million of environmental charges) in 1992 and $638 million ($698 million before the reduction in force charge) in 1991. Discussions of operating results by business segment are set forth on pages 10 (Printing Papers), 16 (Packaging), 20 (Distribution), 26 (Specialty Products) and 30 (Forest Products). The following table portrays 1993, 1992 and 1991 industry segment contributions:
Restruct- Operating Profit turing Before and Restructuring and Other Operating Other Charges Charges Profit -------------------- ---------- -------------------- In millions 1993 1992 1991 1992 1991 1993 1992 1991 - ----------- ----- ----- ------ ---- ---- ----- ----- ------ Printing Papers $(122) $ 19 $ 318 $ 89 $20 $(122) $ (70) $ 298 Packaging 188 330 346 22 12 188 308 334 Distribution 58 58 54 6 1 58 52 53 Specialty Products 263 238 244 155 17 263 83 227 Forest Products 445 261 126 64 445 197 126 ----- ----- ------ ---- --- ----- ----- ------ Operating Profit 832 906 1,088 336 50 832 570 1,038 Interest Expense, net (310) (247) (315) (310) (247) (315) Corporate Items, net (22) (55) (75) 62 10 (22) (117) (85) ----- ----- ------ ---- --- ----- ----- ------ Earnings Before Income Taxes, Extraordinary Item and Cumulative Effect of Accounting Changes $ 500 $ 604 $ 698 $398 $60 $ 500 $ 206 $ 638 ----- ----- ------ ---- --- ----- ----- ------ ----- ----- ------ ---- --- ----- ----- ------
Industry segment data for 1992 and 1991 has been restated to reclassify certain operations from Packaging and Forest Products to Specialty Products to conform with the current-year presentation. 41 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. At the annual meeting, the Audit Committee presents a summary of its findings to the shareholders and 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. Robert C. Butler Robert C. Butler 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, 1993 and 1992, and the related consolidated statements of earnings, common shareholders' equity and cash flows for each of the three years ended December 31, 1993. 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, 1993 and 1992, and the results of their operations and their cash flows for each of the three years ended December 31, 1993, in conformity with generally accepted accounting principles. As explained in Notes 5 and 11 to the financial statements, effective January 1, 1992, the Company changed its method of accounting for income taxes, and effective January 1, 1991, changed its method of accounting for postretirement benefits. Arthur Anderson & Co. New York, N.Y. February 4, 1994 42 CONSOLIDATED STATEMENT OF EARNINGS In millions, except per share amounts, for the years ended December 31 1993 1992 1991 - -------------------------------------- ------- ------- ------- Net Sales $13,685 $13,598 $12,703 ------- ------- ------- Costs and Expenses Cost of products sold 10,191 10,137 9,316 Depreciation and amortization 898 850 725 Distribution expenses 634 629 569 Selling and administrative expenses 999 981 945 Taxes other than payroll and income taxes 153 150 135 Restructuring charges 370 60 Other 28 ------- ------- ------- Total Costs and Expenses 12,875 13,145 11,750 ------- ------- ------- Earnings Before Interest, Income Taxes, Extraordinary Item and Cumulative Effect of Accounting Changes 810 453 953 Interest expense, net 310 247 315 ------- ------- ------- Earnings Before Income Taxes, Extraordinary Item and Cumulative Effect of Accounting Changes 500 206 638 Provision for income taxes (includes $25 in 1993 related to the increase in the U.S. statutory federal income tax rate) 211 64 239 ------- ------- ------- Earnings Before Extraordinary Item and Cumulative Effect of Accounting Changes 289 142 399 Extraordinary item--loss on extinguishment of debt (less tax benefit of $3)--Note 8 (6) Cumulative effect of change in accounting for income taxes--Note 5 (50) Cumulative effect of change in accounting for postretirement benefits (less deferred tax benefit of $135)--Note 11 (215) ------- ------- ------- Net Earnings $ 289 $ 86 $ 184 ------- ------- ------- ------- ------- ------- Earnings per Common Share Earnings before extraordinary item and cumulative effect of accounting changes $ 2.34 $ 1.17 $ 3.61 Extraordinary item--loss on extinguishment of debt--Note 8 (.05) Cumulative effect of change in accounting for income taxes--Note 5 (.41) Cumulative effect of change in accounting for postretirement benefits--Note 11 (1.95) ------- ------- ------- Earnings per Common Share $ 2.34 $ .71 $ 1.66 ------- ------- ------- ------- ------- ------- The accompanying notes are an integral part of these financial statements. 43 CONSOLIDATED BALANCE SHEET In millions at December 31 1993 1992 - -------------------------- ------- ------- Assets Current Assets Cash and temporary investments, at cost, which approximates market $ 242 $ 225 Accounts and notes receivable, less allowances of $104 in 1993 and $91 in 1992 1,856 1,861 Inventories 2,024 1,938 Other current assets 279 342 ------- ------- Total Current Assets 4,401 4,366 ------- ------- Plants, Properties and Equipment, Net 8,872 8,884 Forestlands 786 759 Investments 631 599 Goodwill 754 772 Deferred Charges and Other Assets 1,187 1,136 ------- ------- Total Assets $16,631 $16,516 ------- ------- ------- ------- Liabilities and Common Shareholders' Equity Current Liabilities Notes payable and current maturities of long-term debt $ 2,089 $ 2,356 Accounts payable 1,089 1,259 Accrued payroll and benefits 181 173 Accrued income taxes 97 104 Other accrued liabilities 553 639 ------- ------- Total Current Liabilities 4,009 4,531 ------- ------- Long-Term Debt 3,601 3,096 Deferred Income Taxes 1,614 1,474 Minority Interest and Other Liabilities 1,182 1,226 Commitments and Contingent Liabilities--Note 6 Common Shareholders' Equity Common stock, $1 par value; issued 1993--127.3 shares, 1992--127.0 shares 127 127 Paid-in capital 1,704 1,792 Retained earnings 4,553 4,472 ------- ------- 6,384 6,391 Less: Common stock held in treasury, at cost; 1993--3.4 shares, 1992--4.3 shares 159 202 ------- ------- Total Common Shareholders' Equity 6,225 6,189 ------- ------- Total Liabilities and Common Shareholders' Equity $16,631 $16,516 ------- ------- ------- ------- The accompanying notes are an integral part of these financial statements. 44 CONSOLIDATED STATEMENT OF CASH FLOWS In millions for the years ended December 31 1993 1992 1991 - ------------------------------------------- ------- ------- ------- Operating Activities Net earnings $ 289 $ 86 $ 184 Cumulative effect of accounting changes 50 215 Noncash items Depreciation and amortization 898 850 725 Deferred income taxes 54 (99) 30 Restructuring and other charges 398 60 Other, net (22) (95) 45 Changes in current assets and liabilities Accounts and notes receivable 78 2 79 Inventories (93) (127) (74) Accounts payable and accrued liabilities (272) (2) (122) Other (3) 15 35 ------- ------- ------- Cash Provided by Operations 929 1,078 1,177 ------- ------- ------- Investment Activities Invested in capital projects (954) (1,368)(1,197) Mergers and acquisitions Plants, properties and equipment (17) (163) (131) Goodwill (9) (13) (211) Other assets and liabilities, net (9) 23 (115) Investments in affiliated companies (9) (247) (258) Other (124) (104) (56) ------- ------- ------- Cash Used for Investment Activities (1,122) (1,872) (1,968) ------- ------- ------- Financing Activities Issuance of common stock 60 703 45 Sale of limited partnership interests 165 Issuance of debt 1,276 1,852 1,583 Reduction of debt (1,016) (1,458) (589) Dividends paid (208) (206) (186) Other (62) (102) (76) ------- ------- ------- Cash Provided by Financing Activities 215 789 777 ------- ------- ------- Effect of Exchange Rate Changes on Cash (5) (8) (4) ------- ------- ------- Change in Cash and Temporary Investments 17 (13) (18) Cash and Temporary Investments Beginning of the year 225 238 256 ------- ------- ------- End of the year $ 242 $ 225 $ 238 ------- ------- ------- ------- ------- ------- The accompanying notes are an integral part of these financial statements. 45 CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
Total Common Stock Common Issued Treasury Stock Share- ---------------- Paid-In Retained --------------- holders' In millions, except share amounts in thousands Shares Amount Capital 1 Earnings Shares Amount Equity - ---------------------------------------------- ------- ------ --------- -------- ------ ------ -------- Balance, January 1, 1991 117,303 $117 $1,243 $4,581 7,594 $309 $5,632 Conversion of subordinated debentures 33 (1,244) (43) 76 Issuance of stock for merger (7) 13 (512) (13) 19 Issuance of stock for various plans 275 1 39 (714) (18) 58 Cash dividends--Common stock ($1.68 per share) (186) (186) Foreign currency translation (less tax benefit of $10) (44) (44) Net earnings 184 184 ------- ---- ------ ------ ------ ---- ------ Balance, December 31, 1991 117,578 118 1,264 4,592 5,124 235 5,739 Issuance of stock in a public offering 9,200 9 641 650 Issuance of stock for various plans 215 27 (793) (33) 60 Cash dividends--Common stock ($1.68 per share) (206) (206) Foreign currency translation (less tax benefit of $58) (140) (140) Net earnings 86 86 ------- ---- ------ ------ ------ ---- ------ Balance, December 31, 1992 126,993 127 1,792 4,472 4,331 202 6,189 Issuance of stock for acquisition 2 (117) (5) 7 Issuance of stock for various plans 294 38 (815) (38) 76 Cash dividends--Common stock ($1.68 per share) (208) (208) Foreign currency translation (less tax benefit of $14) (128) (128) Net earnings 289 289 ------- ---- ------ ------ ------ ---- ------ Balance, December 31, 1993 127,287 $127 $1,704 $4,553 3,399 $159 $6,225 ------- ---- ------ ------ ------ ---- ------ ------- ---- ------ ------ ------ ---- ------
1 The cumulative foreign currency translation adjustment was $(280) million, $(152) million and $(12) million at December 31, 1993, 1992 and 1991, respectively. The accompanying notes are an integral part of these financial statements. 46 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 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% or more, and the Company's investments in Carter Holt Harvey Limited and 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. 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. Costs of raw materials and finished pulp and paper products are generally determined on 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%, and machinery and equipment, 5% to 33%. For tax purposes, depreciation is computed utilizing accelerated methods. Start-up costs on major projects are capitalized and amortized over a five-year period. Unamortized start-up costs were $125 million, $126 million and $93 million at December 31, 1993, 1992 and 1991, respectively. Interest costs for the construction of certain long-term assets are capitalized and amortized over the related assets' estimated useful lives. The Company capitalized net interest costs of $12 million in 1993, $42 million in 1992 and $36 million in 1991. Interest payments during 1993, 1992 and 1991 were $372 million, $363 million and $385 million, respectively. Forestlands The Company, which currently owns 84% and 100% of IPT's Class A and Class B Units, respectively, controlled approximately 6.2 million acres of forestlands in the United States at December 31, 1993. 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 International Currencies 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. The Company enters into foreign exchange contracts to hedge a portion of its investment in overseas operations. Gains and losses resulting from these contracts are determined monthly based on published currency exchange rates and are recorded as translation adjustments in paid-in capital. At December 31, 1993, contracts in various currencies totaling $2.6 billion were outstanding based on year-end exchange rates. Gains of $68 million related to these outstanding contracts have been included in paid-in capital. These gains are offset by losses from the revaluation of the net assets being hedged. Amortization of Intangible Assets Goodwill, the cost in excess of assigned value of businesses acquired, is amortized over 40 years. Accumulated amortization was $101 million and $77 million at December 31, 1993 and 1992, respectively. Revenue Recognition The Company generally 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): 1993--123.2; 1992--121.4; 1991--110.5. The effect of all dilutive securities is immaterial. Reclassifications Certain reclassifications have been made to prior-year amounts to conform with the current-year presentation. 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2. Industry Segment Information Financial information by industry segment and geographic area for 1993, 1992 and 1991 is presented on pages 37, 40 and 41. Note 3. Mergers and Acquisitions In April 1993, the Company acquired certain assets of the Los Angeles-based Ingram Paper Company (Ingram), a distributor of industrial and fine printing papers. In December, JB Papers, Inc. (JB Papers), 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 boards, were acquired. The consolidated balance sheet as of December 31, 1993 includes a preliminary allocation of the purchase prices for Ingram, JB Papers and Fome-Cor, which will be finalized in 1994. During the first quarter of 1992, the operating assets of Western Paper Company (Western Pacific), a printing and industrial distribution business based in Portland, Ore., were purchased. In the second quarter, the Company acquired an equity interest in Scitex Corporation Ltd. (Scitex), an Israeli-based world leader in color electronic prepress systems for the graphic design, printing and publishing industries. In the third quarter, Zaklady Celulozowa-Papierniecze S.A. w Kwidzynie (Kwidzyn) was acquired from the Government of the Republic of Poland. Kwidzyn is Poland's largest white papers manufacturer and only integrated bleached pulp and paper company. In the fourth quarter, certain assets of the chemical division of M. Peterson & Son AS (Peterson) were acquired. During the first quarter of 1991, the Company purchased certain packaging and sheeting facilities located in France previously owned by Georgia-Pacific Corporation (the Rhone Valley Packaging business). In April, the packaging equipment division of United Dominion Industries Ltd. (Evergreen Packaging Equipment) was purchased. Also in April, the Company acquired the common stock of Dillard Paper Company, a domestic wholesale distributor of printing and industrial papers, packaging equipment and supplies. In August, the Company completed a merger with Leslie Paper Company, a paper distribution firm headquartered in Minneapolis, Minn. In November, the Company entered into an agreement with Brierley Investments Limited to control 32% of Carter Holt Harvey Limited, a major New Zealand forest products and paper company. In December, the common stock of Scaldia Papier BV, a paper distribution company based in Nijmegen, Netherlands, was purchased. All of the 1993, 1992 and 1991 acquisitions, except the merger with Leslie Paper Company, 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. The effects of these mergers and acquisitions, individually or in the aggregate, were not significant to the Company's consolidated financial statements. 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, 1993, the Company held aggregate general and limited-partner interests totaling 83.5% in Georgetown Equipment Leasing Associates, L.P. and 81.2% in Trout Creek Equipment Leasing, L.P. The Company also held $197 million of borrowings from these partnerships. These funds are being used for general corporate purposes. Note 4. Restructuring and Other Charges In November 1992, the Company recorded pre-tax charges of $370 million to establish a productivity improvement reserve and $28 million for environmental remediation and clean-up. Of the total productivity improvement charge, $328 million was for plant shutdowns ($126 million), consolidations and other write-offs ($138 million) and severance and employee relocation ($64 million). Other costs included in the productivity charge concerned legal, warranty and miscellaneous items amounting to $42 million. In December 1991, the Company recorded a $60 million ($37 million after taxes or $.33 per share) reduction in force charge to cover severance costs associated with the elimination of more than 1,000 positions from its worldwide work force. 48 Notes to Consolidated Financial Statements Note 5. Income Taxes The Company uses the liability method required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), 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 includes a charge of $25 million ($.20 per share) for deferred tax expense resulting from the August enactment of the Omnibus Budget Reconciliation Act of 1993, which raised the federal income tax rate by 1% retroactive to January 1, 1993. The Company adopted the provisions of SFAS No. 109 in the fourth quarter of 1992. First-quarter operations were restated to record an after-tax charge of $50 million ($.41 per share) as the cumulative effect of the accounting change as of January 1, 1992. For 1992 this change also increased depreciation and amortization expense and decreased the provision for income taxes by approximately $41 million. In addition, plants, properties and equipment and deferred income taxes each increased by approximately $500 million as of January 1, 1992. The components of earnings before income taxes, extraordinary item and cumulative effect of accounting changes and the provision for income taxes by taxing jurisdiction were: In millions 1993 1992 1991 - ----------- ---- ---- ---- Earnings (losses) U.S. $577 $134 $505 Non-U.S. (77) 72 133 ---- ---- ---- Earnings before income taxes, extraordinary item and cumulative effect of accounting changes $500 $206 $638 ---- ---- ---- ---- ---- ---- In millions 1993 1992 1991 - ----------- ---- ---- ---- Current tax provision U.S. federal $114 $120 $151 U.S. state and local 12 14 9 Non-U.S. 31 29 49 ---- ---- ---- 157 163 209 ---- ---- ---- Deferred tax provision U.S. federal 64 (79) 15 U.S. state and local 20 (17) 5 Non-U.S. (55) (3) 10 U.S. federal rate change 25 ---- ---- ---- 54 (99) 30 ---- ---- ---- Provision for income taxes $211 $ 64 $239 ---- ---- ---- ---- ---- ---- Major components of deferred income taxes relate to alternative minimum tax credits, non-U.S. net operating losses, accelerated depreciation, restructuring accruals, pension cost funding, adoption of SFAS No. 109 and the U.S. statutory federal income tax rate change. The Company made income tax payments of $156 million, $130 million and $247 million in 1993, 1992 and 1991, respectively. A reconciliation of income tax expense using the statutory U.S. income tax rate compared to the Company's actual income tax expense follows: In millions 1993 1992 1991 - ----------- ---- ---- ---- Earnings before income taxes, extraordinary item and cumulative effect of accounting changes $500 $206 $638 Statutory U.S. income tax rate 35% 34% 34% ---- ---- ---- Tax expense using statutory U.S. income tax rate 175 70 217 State and local taxes 21 (2) 9 Goodwill 7 18 4 Foreign sales corporation benefit (6) (6) (9) U.S. federal rate change 25 Tax credits (9) (6) (1) Other, net (2) (10) 19 ---- ---- ---- Provision for income taxes $211 $ 64 $239 ---- ---- ---- Effective income tax rate 42% 31% 37% ---- ---- ---- ---- ---- ---- The net deferred income tax liability as of December 31, 1993 and 1992 includes the following components: In millions 1993 1992 - ----------- ------- ------- Current deferred tax asset $ 176 $ 213 Noncurrent deferred tax asset 115 57 Noncurrent deferred tax liability (1,614) (1,474) ------- ------- Total $(1,323) $(1,204) ------- ------- ------- ------- The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, 1993 and 1992 were as follows: In millions 1993 1992 - ----------- ------- ------- Plants, properties and equipment $(1,644) $(1,460) Prepaid pension costs (204) (156) Postretirement benefit accruals 150 163 Alternative minimum tax credit carryforwards 92 70 Non-U.S. net operating losses 115 57 Other 168 122 ------- ------- Total $(1,323) $(1,204) ------- ------- ------- ------- At December 31, 1993, the Company had alternative minimum tax credit carryforwards of approximately $92 million that can be carried forward indefinitely. The Company had net operating loss carryforwards applicable to non-U.S. subsidiaries of which $137 million expires in years 1997 through 2003 and $206 million can be carried forward indefinitely. Deferred taxes are not provided for temporary differences of approximately $385 million and $440 million as of December 31, 1993 and 1992, 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. 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6. Commitments and Contingent Liabilities The Company leases certain property, machinery and equipment under cancelable and noncancelable lease agreements. At December 31, 1993, total future minimum rental commitments under noncancelable leases were $305 million, due as follows: 1994--$68 million, 1995--$55 million, 1996--$46 million, 1997--$39 million, 1998--$35 million and thereafter--$62 million. The Company is involved in various inquiries, administrative proceedings and litigation relating to contracts, sales of property, environmental protection, tax, anti-trust 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 7. Supplementary Balance Sheet Information Inventories by major category were: In millions at December 31 1993 1992 - -------------------------- ------ ------ Raw materials $ 380 $ 354 Finished pulp, paper and packaging products 1,017 964 Finished imaging products 164 192 Finished lumber and panel products 79 70 Operating supplies 324 310 Other 60 48 ------ ------ Inventories $2,024 $1,938 ------ ------ ------ ------ Total inventories at December 31, 1991 were approximately $1.8 billion. Approximately 72% of the Company's total raw materials and finished products inventories were valued using the last-in, first-out method. If the first-in, first-out method had been used, it would have increased total inventory balances by approximately $160 million, $168 million and $183 million at December 31, 1993, 1992 and 1991, respectively. Plants, properties and equipment by major classification were: In millions at December 31 1993 1992 - -------------------------- ------- ------- Pulp, paper and packaging facilities Mills $10,996 $10,588 Packaging plants 1,138 1,067 Wood products facilities 1,178 1,082 Other plants, properties and equipment 1,865 1,801 ------- ------- Gross cost 15,177 14,538 Less: Accumulated depreciation 6,305 5,654 ------- ------- Plants, properties and equipment, net $ 8,872 $ 8,884 ------- ------- ------- ------- Note 8. Debt and Lines of Credit A summary of long-term debt follows: In millions at December 31 1993 1992 - -------------------------- ------ ------ 9.4% to 9.7% notes--due 1995-2002 $ 400 $ 400 7 5/8% notes--due 2007 199 199 7 5/8% notes--due 2023 199 6 1/8% notes--due 2003 199 6 7/8% notes--due 2023 197 Medium-term notes--due 1994-2006 1 549 589 9 3/8% French franc note--due 1994 95 94 5 1/8% debentures--due 2012 78 77 5 3/4% convertible subordinated debentures-- due 2002 2 199 199 Environmental and industrial development bonds 3,4 747 750 Commercial paper 5 516 473 Other 6 401 414 ------ ------ Total 3,779 7 3,195 Less: Current maturities 178 99 ------ ------ Long-term debt $3,601 $3,096 ------ ------ ------ ------ 1 The weighted average interest rate on these notes was 8.7% in both 1993 and 1992. 2 The 5 3/4% convertible subordinated debentures are convertible into Company common stock at a conversion price of $68.50 per share. These debentures are redeemable at par. 3 The weighted average interest rate on these bonds was 5.3% in 1993 and 6.4% in 1992. 4 Includes $279 million and $284 million of bonds at December 31,1993 and 1992, respectively, which may be tendered at various dates and/or under certain circumstances. 5 The average interest rate based on a weighted average of stated month-end rates was 3.5% in 1993 and 4.2% in 1992. 6 Includes $95 million in 1993 and $104 million in 1992 of French franc borrowings with a weighted average interest rate of 5.6% in 1993 and 6.6% in 1992, and $214 million in 1993 and $190 million in 1992 of German mark borrowings with a weighted average interest rate of 6.6% in 1993 and 5.1% in 1992. 7 The fair market value is approximately $4.0 billion. At December 31, 1993 and 1992, the Company classified $795 and $760 million, respectively, of tenderable bonds and commercial paper as long-term debt. The Company has the intent and ability to renew or convert these obligations through 1994 and into future periods. Total maturities of long-term debt over the next five years are: 1994--$178 million, 1995--$1,104 million, 1996--$234 million, 1997--$152 million and 1998--$123 million. The 1995 amount includes $795 million under a revolving credit agreement that will be rolled over before maturity. At December 31, 1993, the Company had unused bank lines of credit of approximately $1.5 billion. The lines generally provide for interest at market rates plus a margin based on the Company's current bond rating. The principal line provides for $795 million of credit through November 1995, cancelable only if the Company's bond rating drops below investment grade. A facility fee of .125% to .25% of the line is payable annually. 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Notes payable at December 31, 1993 included $245 million of French franc-denominated borrowings with a weighted average interest rate of 7.6%. The Company has entered into certain cross-currency and interest rate swap agreements. In November 1993, the Company entered into interest rate swap agreements that effectively converted $400 million of fixed-rate 10- and 30-year notes with interest rates of 6 1/8% to 6 7/8% to adjustable-rate debt. During the first year, interest rates are adjustable at six-month intervals based on LIBOR. After the first year, interest is payable at fixed rates slightly above the stated coupon rates. Additionally, a cross-currency swap agreement provides that in April 1994, the Company will pay 14 million British pounds plus interest at an 11.34% average rate and will receive about $21 million plus interest based on commercial paper rates. The risk of loss to the Company for nonperformance by any party to these agreements is not significant. In 1992, an extraordinary loss of $6 million after taxes ($.05 per share) was recorded for the extinguishment of high-interest-rate debt. Note 9. Capital Stock The authorized capital stock of the Company at December 31, 1993 and 1992 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 January 1992, 9.2 million shares of common stock were sold in a public offering. Proceeds of $650 million were used to repay long-term and short-term borrowings. 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 $155. 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 $155 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 $155 exercise price. Note 10. Retirement Plans The Company maintains numerous noncontributory pension plans that provide retirement benefits to substantially all employees. Employees generally are eligible to participate in the plans upon commencement of employment and become fully vested after five years of service. 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). 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 1993 1992 1991 - ----------- ----- ----- ----- Service cost--benefits earned during the period $ (43) $ (43) $ (40) Interest cost on projected benefit obligation (143) (136) (129) Actual return on plan assets 291 135 565 Net amortization and deferrals (18) 125 (331) ----- ----- ----- Net periodic pension income $ 87 $ 81 $ 65 ----- ----- ----- ----- ----- ----- The actuarial assumptions used in determining net periodic pension costs for the years presented were: 1993 1992 1991 ----- ----- ---- Discount rate 8.0% 8.0% 8.5% Expected long-term return on plan assets 10.0% 10.0% 9.5% Weighted average rate of increase in compensation levels 5.0% 5.0% 5.5% ----- ----- ----- ----- ----- ----- The discount rates and the rates of increase in future compensation levels used to determine the projected benefit obligations at December 31, 1993 were 7.25% and 4.0%, respectively, and at December 31, 1992 were 8.0% and 5.0%, respectively. The following table presents the funded status of the Company's pension plans and the amounts reflected in the accompanying consolidated balance sheet: In millions at December 31 1993 1992 - -------------------------- ------ ------ Actuarial present value of benefit obligations Vested benefits $1,835 $1,575 ------ ------ Accumulated benefit obligation $1,986 $1,682 ------ ------ Projected benefit obligation $2,145 $1,828 Plan assets at fair value 2,671 2,523 ------ ------ Projected benefit obligation less than plan assets 526 695 Unrecognized net loss/(gain) 58 (131) Balance of unrecorded transition asset (136) (164) Other 59 21 ------ ------ Prepaid pension cost $ 507 $ 421 ------ ------ ------ ------ 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Plan assets are held primarily in master trust accounts and comprised the following: In millions at December 31 1993 1992 - -------------------------- ------ ------ Temporary investments $ 101 $ 108 Fixed income securities 774 628 Corporate stocks 1,290 1,305 International Paper common stock 351 347 Income-producing real estate 155 135 ------ ------ Total plan assets $2,671 $2,523 ------ ------ ------ ------ 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' voluntary contributions. Company matching contributions to the plans were approximately $38 million, $30 million and $28 million for the plan years ending in 1993, 1992 and 1991, respectively. The net assets of these plans approximated $1.3 billion as of the 1993 plan year-ends. Note 11. Postretirement Benefits The Company provides certain retiree health care and life insurance benefits covering substantially all 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. In the fourth quarter of 1991, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," changing to the accrual method of accounting for these benefits effective January 1, 1991. Prior to 1991, postretirement benefit expense was recognized when claims were paid. The Company restated 1991 first-quarter operations to record a pre-tax charge of $350 million ($215 million after taxes or $1.95 per share) as the cumulative effect of an accounting change at that date. This change also increased 1991 pre-tax postretirement benefit expense by $25 million. In 1992, the Company adopted the provisions of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." The impact of this change was not significant. Postretirement benefit expense was $18 million, $12 million and $42 million in 1993, 1992 and 1991, respectively. Plan amendments in 1992 decreased expense by approximately $33 million. The components of expense in 1993 and 1992 were as follows: In millions 1993 1992 - ----------- ---- ---- Service cost--benefits earned during the period $ 8 $ 7 Interest cost on accumulated postretirement benefit obligation 25 23 Net amortization of plan amendments (15) (18) ---- ---- Net postretirement benefit cost $ 18 $ 12 ---- ---- ---- ---- The accumulated postretirement benefit obligation, included in minority interest and other liabilities in the accompanying consolidated balance sheet, comprised the following components: In millions at December 31 1993 1992 - -------------------------- ---- ---- Retirees $249 $209 Fully eligible active plan participants 16 44 Other active plan participants 83 58 ---- ---- Total accumulated postretirement benefit obligation 348 311 Unrecognized net loss (58) (28) Unrecognized effect of plan amendments 104 115 ---- ---- Accrued postretirement benefit obligation $394 $398 ---- ---- ---- ---- Future benefit costs were estimated assuming medical costs would increase at a 15% annual rate starting in 1991, decreasing to a 5% annual growth rate ratably over the next 13 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, 1993 by $24 million, with an immaterial effect on 1993 postretirement benefit expense. The weighted average discount rate used to estimate the accumulated postretirement benefit obligation at December 31, 1993 was 7.25%, down from 8.0% at December 31, 1992. 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12. 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 1993, 1992 or 1991. 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 1992 and 1991, 163,000 shares and 141,000 shares, respectively, were earned. The awards for 1993 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. Options awarded under the plan are restricted for a period of four years after the date of grant. The following summarizes stock option transactions under stock option plans for the three years ended December 31, 1993: Shares Option Price --------- ------------- Balance at 1/1/91 1 2,274,364 13.930-58.750 Granted 1,077,392 52.875-76.750 Exercised (657,682) 13.930-63.625 --------- ------------- Balance at 12/31/91 1 2,694,074 13.930-76.750 Granted 1,091,369 60.750-78.000 Exercised (561,634) 13.930-70.625 --------- ------------- Balance at 12/31/92 1 3,223,809 13.930-78.000 Granted 941,900 59.375-69.250 Exercised (425,196) 13.930-64.000 --------- ------------- Balance at 12/31/93 1 3,740,513 13.930-78.000 --------- ------------- --------- ------------- 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 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 1993, 1992 and 1991, restricted shares of 32,000, 20,000 and 8,000, respectively, were awarded under this plan. In each of the years 1992 and 1991, grants for 20,000 shares were forfeited. At December 31, 1993 and 1992, a total of 3.7 million shares and 4.7 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 $31 million, $29 million and $32 million in 1993, 1992 and 1991, 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. 53 ELEVEN-YEAR FINANCIAL SUMMARY
Dollar amounts in millions, except per share amounts and stock prices 1993 1992 1991 - ---------------------------------- ------- ------- ------- Results of Operations Net sales $13,685 $13,598 $12,703 Costs and expenses, excluding interest 12,875 13,145 2 11,750 3 Earnings before income taxes, extraordinary item and cumulative effect of accounting changes 500 206 2 638 3 Extraordinary item (6) Cumulative effect of accounting changes (50) (215) Net earnings 289 1 86 2 184 3 Earnings applicable to common shares 289 1 86 2 184 3 Financial Position Working capital $ 392 $ (165) 5 $ 404 Plants, properties and equipment, net 8,872 8,884 7,848 Forestlands 786 759 743 Total assets 16,631 16,516 14,941 Long-term debt 3,601 3,096 3,351 Common shareholders' equity 6,225 6,189 5,739 Per Share of Common Stock 6 Earnings before extraordinary item and cumulative effect of accounting changes $ 2.34 1 $ 1.17 2 $ 3.61 3 Extraordinary item (.05) Cumulative effect of accounting changes (.41) (1.95) Net earnings 2.34 1 .71 2 1.66 3 Cash dividends 1.68 1.68 1.68 Common shareholders' equity 50.25 50.46 51.03 Common Stock Prices 6 High 69 7/8 78 1/2 78 1/4 Low 56 5/8 58 1/2 50 1/2 Year-end 67 3/4 66 5/8 70 3/4 Financial Ratios Current ratio 1.1 .96 5 1.1 Total debt to capital ratio 38.7 38.0 39.1 Return on equity 4.7 1,7 1.4 2,7 3.2 3,7 Return on capital employed 3.8 1,7 1.2 2,7 3.5 3,7 Capital Expenditures $ 954 $ 1,368 $ 1,197 Number of Employees 72,500 73,000 70,500
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 and other liabilities, preferred stock 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 and provision for deferred income taxes divided by total assets minus accounts payable and accrued liabilities at the beginning of the year 54 ELEVEN-YEAR FINANCIAL SUMMARY
Dollar amounts in millions, except per share amounts and stock prices 1990 1989 1988 1987 1986 1985 1984 1983 - --------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS Net sales $12,960 $11,378 $9,587 $7,800 $5,540 $4,530 $4,750 $4,423 Costs and expenses, excluding interest 11,737 4 9,768 8,224 6,952 5,030 4,379 4,590 4,190 Earnings before income taxes, extraordinary item and cumulative effect of accounting changes 946 4 1,405 1,198 681 454 159 144 253 Extraordinary item Cumulative effect of accounting changes Net earnings 569 4 864 754 407 305 133 120 255 Earnings applicable to common shares 569 4 845 733 387 284 107 94 229 - --------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Working capital $ 784 $ 366 $ 781 $ 657 $ 296 $ 350 $ 574 $ 652 Plants, properties and equipment, net 7,287 6,238 5,456 5,125 4,788 3,725 3,2763,129 Forestlands 751 764 772 780 783 741 780 780 Total assets 13,669 11,582 9,462 8,710 7,848 6,039 5,795 5,617 Long-term debt 3,096 2,324 1,853 1,937 1,764 1,191 1,015 940 Common shareholders' equity 5,632 5,147 4,557 4,052 3,664 3,195 3,2983,321 - --------------------------------------------------------------------------------------------------------------------- PER SHARE OF COMMON STOCK 6 Earnings before extraordinary item and cumulative effect of accounting changes $ 5.21 4 $ 7.72 $ 6.57 $ 3.68 $ 2.89 $ 1.08 $ .94 $ 2.31 Extraordinary item Cumulative effect of accounting changes Net earnings 5.21 4 7.72 6.57 3.68 2.89 1.08.94 2.31 Cash dividends 1.68 1.53 1.28 1.20 1.20 1.20 1.20 1.20 Common shareholders' equity 51.34 47.35 41.1436.35 35.04 33.34 33.0233.39 - --------------------------------------------------------------------------------------------------------------------- COMMON STOCK PRICES 6 High 59 3/4 58 3/4 49 3/8 57 3/4 40 28 7/8 29 7/8 30 Low 42 3/4 45 1/8 36 1/2 27 24 1/4 22 1/8 23 23 Year-end 53 1/2 56 1/2 46 3/8 42 1/4 37 1/2 25 3/8 26 7/8 29 1/2 - --------------------------------------------------------------------------------------------------------------------- FINANCIAL RATIOS Current ratio 1.2 1.11.5 1.4 1.2 1.51.9 2.2 Total debt to capital ratio 36.1 33.9 25.8 31.6 31.2 24.1 20.7 19.4 Return on equity 10.5 4 17.8 17.0 10.0 8.3 3.32.8 7.0 Return on capital employed 8.0 4 13.4 13.8 10.2 8.4 2.52.2 6.6 - --------------------------------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES $ 1,267 $ 887 $ 645 $ 603 $ 576 $ 79 $ 628 $ 738 NUMBER OF EMPLOYEES 69,000 63,500 55,500 45,500 44,000 32,000 33,500 33,600 - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
1 Includes $25 million ($.20 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. 2 Includes restructuring and other charges totaling $398 million ($263 million after taxes or $2.17 per share). 3 Includes a $60 million pre-tax restructuring charge ($37 million after taxes or $.33 per share) and additional expenses related to the adoption of SFAS No. 106 of $25 million ($16 million after taxes or $.15 per share). 4 Includes a $212 million pre-tax restructuring charge ($137 million after taxes or $1.26 per share). 5 Reflects increase in short-term versus long-term borrowings due to favorable interest rates. 6 Appropriate per share amounts and common stock prices have been adjusted to reflect the 2-for-1 stock split in May 1987. 7 Return on equity was 5.1% and return on capital employed was 3.8% in 1993 before the additional income tax expense. Return on equity was 6.3% and return on capital employed was 3.7% in 1992 before the accounting change, extraordinary item and restructuring and other charges. Return on equity was 7.8% and return on capital employed was 5.9% in 1991 before the accounting change, restructuring charge and additional expenses related to the adoption of SFAS No. 106. 55 INTERIM FINANCIAL RESULTS (unaudited)
Quarter In millions, except per share amounts --------------------------------------------------------------------------- and stock prices First Second Third Fourth Year - ---------------------------------------------------------------------------------------------------------------------- 1993 - ---------------------------------------------------------------------------------------------------------------------- Net Sales $3,362 $3,506 $3,405 $3,412 $13,685 Gross Margin 1 819 887 862 926 3,494 Earnings Before Income Taxes 101 122 119 158 500 Net Earnings 64 77 48 2 100 289 2 Per Common Share Earnings $ .52 $ .62 $ .39 2 $ .81 $ 2.34 2 Dividends .42 .42 .42 .42 1.68 Stock Price High 69 7/8 68 68 3/8 68 5/8 69 7/8 Low 60 3/4 61 3/4 58 56 5/8 56 5/8 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- 1992 - ---------------------------------------------------------------------------------------------------------------------- Net Sales $ 3,356 $ 3,386 $ 3,478 $ 3,378 $13,598 Gross Margin 1 860 873 866 862 3,461 Earnings (Loss) Before Income Taxes, Extraordinary Item and Cumulative Effect of Accounting Change 157 174 152 (277) 3 206 3 Earnings (Loss) Before Extraordinary Item and Cumulative Effect of Accounting Change 104 114 100 (176) 3 142 3 Extraordinary Item (2) (2) (2) (6) Cumulative Effect of Accounting Change (50) (50) Net Earnings (Loss) 52 112 98 (176) 3 86 3 Per Common Share Earnings (Loss) Before Extraordinary Item and Cumulative Effect of Accounting Change $ .87 $ .94 $ .82 $ (1.46) 3 $ 1.17 3 Extraordinary Item (.02) (.02) (.01) (.05) Cumulative Effect of Accounting Change (.41) (.41) Earnings (Loss) .44 .92 .81 (1.46) 3 .71 3 Dividends .42 .42 .42 .42 1.68 Stock Price High 78 1/2 77 70 3/8 67 3/8 78 1/2 Low 68 1/8 64 1/2 61 58 1/2 58 1/2 - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
1 Gross margin represents net sales less cost of products sold. 2 A charge of $25 million ($.20 per share) was recorded in the 1993 third quarter to revalue deferred tax balances to reflect the increase in the U.S. statutory federal income tax rate. 3 Restructuring and other charges totaling $398 million ($263 million after taxes or $2.17 per share) were recorded in the 1992 fourth quarter. 56 International Paper 1993 Annual Report to Shareholders Exhibit 13 APPENDIX A CHARTS 1--NET SALES (PAGE 2) Bar chart of NET SALES for the years 1988 through 1993, in billions of dollars. Data points as follows: 1988 1989 1990 1991 1992 1993 ---- ---- ---- ---- ---- ---- 9.6 11.4 13.0 12.7 13.6 13.7 2--NET EARNINGS (PAGE 2) Bar chart of NET EARNINGS for the years 1988 through 1993, in millions of dollars. Charts contain color keys for the years 1990 through 1993 to highlight the following unusual or nonrecurring items: In 1990, Restructuring charge; in 1991, Accrual effect of SFAS No. 106, restructuring charge, and accounting change; in 1992, Restructuring and other charges, extraordinary item and accounting change; in 1993, Adjustment of deferred tax balances to reflect the federal tax rate change. Data points as follows: 1988 1989 1990 1991 1992 1993 ---- ---- ---- ---- ---- ---- NET EARNINGS BEFORE UNUSUAL ITEMS 754 864 706 452 405 314 Adjustment of deferred tax balances (25) Restructuring and other charges (263) Restructuring charge (137) (37) Accounting change-SFAS No. 109 (50) Extraordinary item (6) Accounting change-SFAS No. 106 (215) Accrual effect of SFAS No. 106 (16) ---- ---- ---- ---- ---- ---- NET EARNINGS 754 864 569 184 86 289 3--EARNINGS PER SHARE (PAGE 2) Bar chart of EARNINGS PER SHARE for the years 1988 through 1993, in dollars. Charts contain color keys for the years 1990 through 1993 to highlight the following unusual or nonrecurring items: In 1990, Restructuring charge; in 1991, Accrual effect of SFAS No. 106, restructuring charge, and accounting change; in 1992, Restructuring and other charges, extraordinary item and accounting change; in 1993, Adjustment of deferred tax balances to reflect the federal tax rate change. Data points as follows: 1988 1989 1990 1991 1992 1993 ---- ---- ---- ---- ---- ---- EARNINGS PER SHARE BEFORE UNUSUAL ITEMS 6.57 7.72 6.47 4.09 3.34 2.54 Adjustment of deferred tax balances (0.20) Restructuring and other charges (2.17) Restructuring charge (1.26) (0.33) Accounting change-SFAS No. 109 (0.41) Extraordinary item (0.05) Accounting change-SFAS No. 106 (1.95) Accrual effect of SFAS No. 106 (0.15) ---- ---- ---- ---- ---- ---- EARNINGS PER SHARE 6.57 7.72 5.21 1.66 0.71 2.34 4--PRINTING PAPERS--NET SALES AND OPERATING PROFIT (PAGE 10) Bar charts of NET SALES and OPERATING PROFIT for the segment for the years 1991 through 1993, in millions of dollars. NET SALES chart contains color keys to show breakdown of U.S. and non-U.S. sales. OPERATING PROFIT chart contains color key to highlight restructuring charge in 1991 and 1992. Data points for NET SALES as follows: 1991 1992 1993 ----- ----- ----- U.S. 2,818 2,747 2,746 Non-U.S. 1,257 1,293 1,159 ----- ----- ----- NET SALES 4,075 4,040 3,905 Data points for OPERATING PROFIT as follows: 1991 1992 1993 ----- ----- ----- Operating profit before restructuring charge 318 19 (122) Restructuring charge (20) (89) ----- ----- ----- OPERATING PROFIT 298 (70) (122) 5--PRINTING PAPERS--SEGMENT SALES (PAGE 11) A pie chart showing 1993 PRINTING PAPERS industry segment sales in relation to total Company sales. Chart contains color keys to show breakdown of U.S. and non-U.S. sales for the segment. Data points as follows: Segment sales as percent of total Company sales, 27%; U.S. 70%, non-U.S. 30%. Chart is labeled to indicate that segment sales were $3.9 billion, 27% of total sales and that U.S. and non-U.S. segment sales were 70% and 30%, respectively. 6--PACKAGING--NET SALES AND OPERATING PROFIT (PAGE 16) Bar charts of NET SALES and OPERATING PROFIT for the segment for the years 1991 through 1993, in millions of dollars. NET SALES chart contains color keys to show breakdown of U.S. and non-U.S. sales. OPERATING PROFIT chart contains color keys to highlight restructuring charge in 1991 and 1992. Data points for NET SALES as follows: 1991 1992 1993 ----- ----- ----- U.S. 2,252 2,381 2,366 Non-U.S. 778 864 729 ----- ----- ----- NET SALES 3,030 3,245 3,095 Data points for OPERATING PROFIT as follows: 1991 1992 1993 ----- ----- ----- Operating profit before restructuring charge 346 330 188 Restructuring charge (12) (22) ----- ----- ----- OPERATING PROFIT 334 308 188 7--PACKAGING--SEGMENT SALES (PAGE 17) A pie chart showing 1993 PACKAGING industry segment sales in relation to total Company sales. Chart contains color keys to show breakdown of U.S. and non-U.S. sales for the segment. Data points as follows: Segment sales as percent of total Company sales, 22%; U.S. 76%, non-U.S. 24%. Chart is labeled to indicate that segment sales were $3.1 billion, 22% of total sales and that U.S. and non-U.S. segment sales were 76% and 24%, respectively. 8--DISTRIBUTION--NET SALES AND OPERATING PROFIT (PAGE 20) Bar charts of NET SALES and OPERATING PROFIT for the segment for the years 1991 through 1993, in millions of dollars. NET SALES chart contains color keys to show breakdown of U.S. and non-U.S. sales. OPERATING PROFIT chart contains color key to highlight restructuring charge in 1991 and 1992. Data points for NET SALES as follows: 1991 1992 1993 ----- ----- ----- U.S. 2,275 2,617 2,853 Non-U.S. 315 363 287 ----- ----- ----- NET SALES 2,590 2,980 3,140 Data points for OPERATING PROFIT as follows: 1991 1992 1993 ----- ----- ----- Operating profit before restructuring charge 54 58 58 Restructuring charge (1) (6) ----- ----- ----- OPERATING PROFIT 53 52 58 9--DISTRIBUTION--SEGMENT SALES (PAGE 21) A pie chart showing 1993 DISTRIBUTION industry segment sales in relation to total Company sales. Chart contains color keys to show breakdown of U.S. and non-U.S. sales for the segment. Data points as follows: Segment sales as percent of total Company sales, 22%; U.S. 91%, non-U.S. 9%. Chart is labeled to indicate that segment sales were $3.1 billion, 22% of total sales and that U.S. and non-U.S. segment sales were 91% and 9%, respectively. 10--SPECIALTY PRODUCTS--NET SALES AND OPERATING PROFIT (PAGE 26) Bar charts of NET SALES and OPERATING PROFIT for the segment for the years 1991 through 1993, in millions of dollars. NET SALES chart contains color keys to show breakdown of U.S. and non-U.S. sales. OPERATING PROFIT chart contains color key to highlight restructuring and other charges in 1991 and 1992. Data points for NET SALES as follows: 1991 1992 1993 ----- ----- ----- U.S. 1,540 1,656 1,749 Non-U.S. 795 804 711 ----- ----- ----- NET SALES 2,335 2,460 2,460 Data points for OPERATING PROFIT as follows: 1991 1992 1993 ----- ----- ----- Operating profit before restructuring and other charges 244 238 263 Restructuring and other charges (17) (155) ----- ----- ----- OPERATING PROFIT 227 83 263 11--SPECIALTY PRODUCTS--SEGMENT SALES (PAGE 27) A pie chart showing 1993 SPECIALTY PRODUCTS industry segment in relation to total Company sales. Chart contains color keys to show breakdown of U.S. and non-U.S. sales for the segment. Data points as follows: Segment sales as percent of total Company sales, 17%, U.S. 71%, non-U.S. 29%. Chart is labeled to indicate that segment sales were $2.5 billion, 17% of total sales and that U.S. and non-U.S. segment sales were 71% and 29%, respectively. 12--FOREST PRODUCTS--NET SALES AND OPERATING PROFIT (PAGE 30) Bar charts of NET SALES and OPERATING PROFIT for the segment for the years 1991 through 1993, in millions of dollars. NET SALES chart contains color keys to show breakdown of U.S. and non-U.S. sales. OPERATING PROFIT chart contains color key to highlight restructuring and other charges in 1991 and 1992. Data points for NET SALES as follows: 1991 1992 1993 ----- ----- ----- U.S. 1,121 1,313 1,597 Non-U.S. 69 97 103 ----- ----- ----- NET SALES 1,190 1,410 1,700 Data points for OPERATING PROFIT as follows: 1991 1992 1993 ----- ----- ----- Operating profit before restructuring and other charges 126 261 445 Restructuring and other charges (64) ----- ----- ----- OPERATING PROFIT 126 197 445 13--FOREST PRODUCTS-SEGMENT SALES (PAGE 31) A pie chart showing 1993 FOREST PRODUCTS industry segment sales in relation to total Company sales. Chart contains color keys to show breakdown of U.S. and non-U.S. sales for the segment. Data points as follows: Segment sales as percent of total Company sales, 12%; U.S. 94%; non-U.S. 6%. Chart is labeled to indicate that segment sales were $1.7 billion, 12% of total sales and that U.S. and non-U.S. segment sales were 94% and 6%, respectively. 14--NET SALES (PAGE 36) Bar charts of NET SALES for the years 1991 through 1993, in billions of dollars. Data points as follows: 1991 1992 1993 ----- ----- ----- 12.7 13.6 13.7 15--CASH FLOW FROM OPERATIONS (PAGE 37) Bar chart of CASH FLOW FROM OPERATIONS for the years 1991 through 1993, in millions of dollars. Data points as follows: 1991 1992 1993 ----- ----- ----- 1,177 1,078 929 16--RETURN ON EQUITY (PAGE 37) Bar chart of RETURN ON EQUITY for the years 1991 through 1993, expressed as a percent. Chart contains color keys for the years 1991 through 1993 to highlight the following unusual or nonrecurring items: In 1991, accrual effect of SFAS No. 106, restructuring charge, and accounting change; in 1992. Restructuring and other charges, extraordinary item and accounting change; in 1993. Adjustment of deferred tax balances to reflect the federal tax rate change. Data points as follows: 1991 1992 1993 ----- ----- ----- RETURN ON EQUITY BEFORE UNUSUAL ITEMS 7.8 6.3 5.1 Adjustment of deferred tax balances .4 Restructuring and other charges 4.1 Restructing charge .6 Accounting change-SFAS No. 109 .7 Extraordinary item .1 Accounting change-SFAS No. 106 3.7 Accrual effect of SFAS No. 106 .3 ----- ----- ----- RETURN ON EQUITY 3.2 1.4 4.7 17--TOTAL DEBT TO CAPITAL RATIO (PAGE 38) Bar chart of TOTAL DEBT TO CAPITAL RATIO for the years 1991 through 1993, expressed as a percent. Data points as follows: 1991 1992 1993 ----- ----- ----- 39.1 38.0 38.7 International Paper 1993 Annual Report to Shareholders Exhibit 13 Appendix B PHOTOGRAPHS 1. Color photograph of two printing papers empolyees and a customer examining bright colored file folders surrounded by rolls of file folder paper stock. (Page 6) 2. Color photograph of a researcher examining paper through test instrument. (Page 6) 3. Color photograph of construction site containing various pieces of construction equipment and cement trucks and initial work completed at the site. The site is the Riverdale mill near Selma, Alabama. (Page 7) 4. Color photograph of street scene and delivery person unloading reprographic papers produced by International Paper's French subsidiary Aussedat Rey. (Page 8) 5. Color photograph of warehouse containing waste paper used to make high quality office papers and bailing machine, with bailed waste paper exiting the machine. (Page 9) 6. Color photograph of various printing papers manufactured by International Paper. (Page 11) 7. Color photograph of a customer's filling plant and two empoyees examining aseptic liquid packaging produced using International Paper's packaging materials and equipment. (Page 12) 8. Color photograph of corrugated boxes produced by International Paper. (Page 12) 9. Color photograph of street scene and a Federal Express employee holding corrugated boxes made by International Paper. (Page 13) 10. Color photograph of students and teachers standing behind a container of milk and juice cartons collected for recycling. (Page 14) 11. Color phograph of International Paper employee at a state-of-the-art computer equipment terminal used for designing labels, with various other video screens displaying various labels. (Page 15) 12. Color photograph of various International Paper packaging products. (Page 17) 13. Color photograph of a map of the United States with pins inserted in locations where International Paper's distribution business, ResourceNet International has operations. (Page 18) 14. Color photograph of a street scene and an employee of ResourceNet International's Carter Rice operations delivering various products. (Page 19) 15. Color photographs of various products distributed by International Paper's distribution business. (Page 21) 16. Color photograph of an International Paper Veratec division employee examining spunbond nonwoven product, with rolls of the product in the background. (Page 22) 17. Color photograph of various ink solvents produced by International Paper's Arizona Chemical Company blending together. (Page 22) 18. Color photograph of woman and child seated in front of a white CraftMaster door facing. (Page 23) 19. Color photograph of two International Paper petroleum operations employees (one seated, the other standing) reviewing and discussing the next well location on the Sugg Ranch field in west Texas, with a computer video terminal and various charts in the background. (Page 24) 20. Color photograph of an International Paper Horsell group employee examining a plate image produced by Horsell's computer-to-plate system. (Page 25) 21. Color photograph of various products produced by International Paper's Specialty Products businesses. (Page 27) 22. Color photograph of two International Paper wood products employees unloading medium-density-overlay panels from a machine. (Paage 28) 23. Color photograph of three International Paper employees inspecting SuperTree seedlings at a SuperTree nursery near Selma, Alabama. (Page 29) 24. Color photograph of various wood panel and molding products produced by International Paper's Forest Products segment. (Page 31) 25. Color photograph of International Paper's Southland Experimental Forest near Bainbridge, Georgia. (Page 32) EX-21 4 SUSIDIARIES OF THE REGISTRANT EXHIBIT (21) Company and Subsidiary: Percentage of voting Sovereign power securities owned by under which organized immediate parent --------------------- -------------------- International Paper Company (the "Company") New York Parent 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 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 5 PROXY STATEMENT, DATED MARCH 31, 1994 EXHIBIT 22 INTERNATIONAL PAPER Two Manhattanville Road Purchase, New York 10577 JOHN A. GEORGES Chairman March 31, 1994 Dear Fellow Shareholders: The annual meeting of International Paper will be held this year at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas. The meeting will start at 9:30 a.m., on Tuesday, May 10, 1994. 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 three directors to the remaining term of their designated class; approval of the appointment of Arthur Andersen & Co. as independent auditors for 1994; and approve amendments to the Long-Term Incentive Compensation Plan. 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 March 22, 1994, 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, detach and return the enclosed Request for Admittance card. Thank you for your continued support. Sincerely, /s/ JOHN A. GEORGES JOHN A. GEORGES INTERNATIONAL PAPER 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 Tuesday, May 10, 1994, at 9:30 a.m. at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas, to: 1. Elect one class of directors comprised of three members to the Board of Directors and three directors to the remaining term of their designated class; 2. Approve the appointment of Arthur Andersen & Co. as independent auditors for 1994; 3. Approve amendments to the Long-Term Incentive Compensation Plan; and 4. Transact such other business as may properly come before the meeting or any adjournments thereof. YOUR BOARD OF DIRECTORS URGES SHAREHOLDERS TO VOTE FOR ITEMS: 1, 2 AND 3. Shareholders of record at the close of business on March 22, 1994, will be entitled to vote at the meeting or any adjournments thereof. By order of the Board of Directors JAMES W. GUEDRY Secretary March 31, 1994 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 10, 1994. 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, 1994. As of that date, there were 124,587,410 shares of common stock outstanding. The annual report, including the audited financial statements of the Company for the fiscal year ended December 31, 1993, has been mailed to shareholders separately from 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 $15,000 plus reimbursable expenses. This solicitation may be carried out either by mail, telephone, telegraph, other electronic communication, or personal interview. The cost of any such solicitation will be borne by the Company. The Company has adopted a policy of confidentiality in the voting of shareholder proxies generally and uses the services of its registrar and transfer agent, Chemical Bank, as independent inspectors of election to receive and tabulate proxy votes. This Proxy Statement and the form of Proxy were sent to shareholders, commencing on or about March 31, 1994. MEETING ADMITTANCE PROCEDURES Shareholders of record as of the close of business on March 22, 1994 (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, detach 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. Beneficial owners of record on March 22, 1994 (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 I directors, of which there are currently five, were elected at the 1992 annual meeting to serve until the 1995 annual meeting; Class II directors, of which there are currently five, were elected at the 1993 annual meeting to serve until the 1996 annual meeting; and Class III directors, of which there are currently four, were elected at the 1991 annual meeting to serve until the 1994 annual meeting. Each class is elected for a three-year term. Eleven regular meetings and seven special meetings of the Board of Directors were held in 1993. In addition, there were 28 Committee meetings. Each director attended at least 80% of the meetings of the Board and the Committees on which he or she serves. All of the directors attended an average of 96% of such meetings of the Board and the Committees on which he or she serves. With respect to the Company's director, Samuel R. Pierce, Jr., former Secretary of Housing and Urban Development of the United States, an independent counsel was appointed on March 1, 1990 to inquire into whether the Secretary or other HUD employees engaged in a conspiracy to defraud the United States by directing housing grants to political associates. As mentioned in the Company's 1992 annual report, in December 1992, the Company announced the donation of a 15,000 acre tract of forestlands, in the Adirondack Park in New York, to The Conservation Fund, in recognition of the 100th anniversary of that Park. Following an independent appraisal which valued the donation at $3,977,000, the transaction was finalized last year. Mr. Noonan, who is chairman and chief executive officer of The Conservation Fund, joined the Board in December 1993. Beneficial ownership of current directors in equity securities of the Company is shown in the table on page 5. 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. 2 Current members of the Committee, none of whom is an employee of the Company, are W.M. Ellinghaus (Chairman), F.B. Dent, A.G. Hansen, W.G. Kuhns and J.C. Pfeiffer. Four meetings of the Committee were held in 1993. 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, T.C. Graham, S.R. Pierce, Jr. and E.T. Pratt, Jr. Eight meetings of the Committee were held in 1993. 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; and to review and recommend annually to the full Board the slate of nominees for election by the Company's shareholders. Current members of the Committee, none of whom is an employee of the Company, are J.C. Pfeiffer (Chairman), W.C. Butcher, F.B. Dent, W.M. Ellinghaus, D.F. McHenry and E.T. Pratt, Jr. Three meetings of the Committee were held in 1993. 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), F.B. Dent, J.T. Dillon, S.C. Gault, A.G. Hansen, P.F. Noonan and S.R. Pierce, Jr. Four meetings of the Committee were held in 1993. OTHER COMMITTEES Membership of the other regular Committees of the Board of Directors is shown on page 58 of the Company's annual report. FUTURE SHAREHOLDER PROPOSALS AND NOMINATIONS Any shareholder proposal intended to be presented at the 1995 annual meeting must be made in writing and received by the Secretary of the Company at the Company's principal executive offices by December 1, 1994, for inclusion in the 1995 Proxy Statement and form of proxy relating to the meeting. 3 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 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 1995 election of directors must be received by the Secretary of the Company not earlier than March 11, 1995, or later than April 11, 1995, if the annual meeting is held on the second Tuesday of May, 1995. 4 COMMON STOCK OWNERSHIP OF DIRECTORS AND MANAGEMENT The following table shows, as of March 22, 1994, the number of shares of Company common stock beneficially owned (as defined by the Securities and Exchange Commission) or otherwise claimed by each current director and each nominee for director and by all directors and executive officers of the Company as a group. To the best knowledge of the Company, no person or group beneficially owns more than 5% of the Company's common stock outstanding, except as set forth below in the table.
SHARES PERCENT OF TOTAL NAME OF INDIVIDUAL BENEFICIALLY COMMON STOCK OR GROUP OWNED(1) OUTSTANDING - -------------------------------------------------------------------- ------------- ---------------------------- W.C. Butcher........................................................ 2,592 F.B. Dent.......................................................... 2,920 J.T. Dillon......................................................... 89,016 W.M. Ellinghaus.................................................... 1,970 S.C. Gault.......................................................... 7,963 J.A. Georges........................................................ 210,630 T.C. Graham......................................................... 6,580 A.G. Hansen......................................................... 2,308 No director or executive W.G. Kuhns.......................................................... 3,960 officer owns as much D.F. McHenry........................................................ 2,627 as 1/5th of 1% P.F. Noonan......................................................... 125 J.C. Pfeiffer....................................................... 2,369 S.R. Pierce, Jr..................................................... 1,880 E.T. Pratt, Jr...................................................... 2,580 R.B. Smith.......................................................... 2,300 J.P. Melican........................................................ 55,082 C.W. Smith.......................................................... 59,464 M.A. Suwyn.......................................................... 35,832 All directors and executive officers as a group..................... 599,803 0.48% Bank trustee under Company and subsidiary employee benefit plans (2)................................................................. 10,213,760 8.26%
- --------------- (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 384,284 shares represented by stock options granted executive officers under the Long-Term Incentive Compensation Plan, including options for 146,700 shares for Mr. Georges, 59,300 shares for Mr. Dillon, 54,684 shares for Mr. Melican, 25,700 shares for Mr. Smith and 12,950 shares for Mr. Suwyn. In addition, under the Nonfunded Deferred Compensation Plan for Directors or the Supplemental Unfunded Savings Plan for Senior Managers, the Directors and executive officers listed below own the non-voting stock-equivalent Units set forth in the following chart: (Footnotes continued on following page) 5 (Footnotes continued from preceding page) DIRECTORS AND EXECUTIVE OFFICERS
STOCK STOCK UNITS UNITS --------- --------- W.C. Butcher........................... 4,314 D.F. McHenry........................... 2,072 F.B. Dent............................. 4,423 P.F. Noonan............................ 45 J.T. Dillon............................ 8,239 E.T. Pratt............................. 13,184 W.M. Ellinghaus....................... 3,487 R.B. Smith............................. 3,823 J.A. Georges........................... 33,824 J.P. Melican........................... 6,467 T.C. Graham............................ 6,191 C.W. Smith............................. 4,159 A.G. Hansen............................ 3,980 M.A. Suwyn............................. 1,347
(2) As of December 31, 1993, 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 11,031,412 shares of common stock of the Company. The trustee disclaims beneficial ownership of 10,213,760 shares of common stock it holds as trustee. 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 Three directors, Mr. Frederick B. Dent (Class III director), Mr. William M. Ellinghaus (Class III director) and Mr. William G. Kuhns (Class I director), after many years of outstanding service to the Company, will not stand for election at the annual meeting since they have reached the mandatory retirement age. The three classes of directors will therefore be reorganized as set forth below. Three (3) directors are to be elected as Class III directors for three-year terms expiring in 1997. Two (2) directors are to be elected as Class I directors and one (1) is to be elected a Class II director for terms expiring in 1995 and 1996, respectively. 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. The term of the present Class III directors expires at the adjournment of the 1994 annual meeting. The three nominees for election at that meeting as Class III directors are listed below: CLASS III NOMINEES--TERM EXPIRING IN 1997 (PHOTO) JOHN A. GEORGES, 63, Chairman and Chief Executive Officer. He was elected president in 1981, chief executive officer in 1984 and became chairman and chief executive officer in 1985. He has been a director and chairman of the board of IP Forest Resources Company (the managing general partner of IP Timberlands, Ltd.) since 1985. He is a director of Ryder Systems, Inc., Scitex Corporation Ltd. and Warner-Lambert Company. He is a member of The Business Council and the Planning and Policy Committees of the Business Roundtable. He is a board member of the Business Council of New York State, a member of The Trilateral Commission, the President's Advisory Committee for Trade Policy and Negotiations and a trustee of Drexel University. Director since February 1, 1980 6 (PHOTO) DONALD F. MCHENRY, 57, University Research Professor of Diplomacy and International Affairs at Georgetown University since 1981. He is president of the IRC Group, Inc. 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 also a director of the Council on Foreign Relations. He is a trustee of the Johnson Foundation, The Brookings Institution, and chairman of the board of Africare. Director since April 14, 1981 (PHOTO) PATRICK F. NOONAN, 51, Chairman and Chief Executive Officer since 1993 of The Conservation Fund (a nonprofit organization dedicated to conserving America's land and water resources). Previously, he was president of the Fund and has been with the Fund since 1985. Prior to that he was president of The Nature Conservancy. He is a trustee of The National Geographic Society, the American Farmland Trust and the American Conservation Association. He is also a director of Ashland Oil, Inc., the Fund for Government Investors, Saul Centers (REIT) 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 The following nominees for election to Class I and Class II directors are currently Class III directors and a Class I director, respectively. The three nominees for election as Class I and Class II directors are listed below: CLASS I NOMINEES--TERM EXPIRING IN 1995 (PHOTO) STANLEY C. GAULT, 68, Chairman and Chief Executive Officer of The Goodyear Tire & Rubber Company since June 1991. Previously thereto, 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, a director of the National Association of Manufacturers, and a member of the President's Advisory Committee for Trade Policy and Negotiations. Director since January 8, 1980 (PHOTO) ROGER B. SMITH, 68, former Chairman and Chief Executive Officer of General Motors Corporation from 1981 to 1990, when he retired. He is a director of Citicorp, 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 7 CLASS II NOMINEE--TERM EXPIRING IN 1996 (PHOTO) JANE C. PFEIFFER, 61, management consultant. She is a director of Ashland Oil, 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 Other directors who will continue to serve are listed below under their respective classes. None of these directors is being elected at the 1993 annual meeting. CLASS I DIRECTORS--TERM EXPIRING IN 1995 (PHOTO) JOHN T. DILLON, 54, Executive Vice President-- packaging since 1987. He was elected a senior vice president--land and timber, liquid packaging and folding carton and label in 1986 and was vice president and group executive--land and timber from 1982, assuming in 1985 the additional responsibility of the wood products group. 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. Director since March 1, 1991 (PHOTO) ARTHUR G. HANSEN, 69, educational consultant. He was director of research of the Hudson Institute from 1987 to 1988, chancellor of the Texas A&M University System from 1982 to 1986, president of Purdue University from 1971 to 1982 and president of Georgia Institute of Technology from 1969 to 1971. He is a director of American Electric Power Company, Inc., The Interlake Corporation, IP Forest Resources Company (the managing general partner of IP Timberlands, Ltd.) and Navistar International Corporation. He is a member of the National Academy of Engineering, chairman of the Corporation for Educational Technology and a fellow of the American Association for the Advancement of Science. Director since February 10, 1976 (PHOTO) SAMUEL R. PIERCE, JR., 71, attorney-at-law; former Secretary of Housing and Urban Development of the United States from 1981 to 1989. Prior to his cabinet appointment, he was a senior partner in the New York law firm of Battle, Fowler, Jaffin, Pierce & Kheel. He also served on the board of directors of the Company from 1973--1981. He is a consultant to The Turner Corporation. He is a former judge of the New York Court of General Sessions and former General Counsel of the US Treasury Department. Director 1973-1981 and since February 14, 1989 8 CLASS II DIRECTORS--TERM EXPIRING IN 1996 (PHOTO) WILLARD C. BUTCHER, 67, former Chairman and Chief Executive Officer of The Chase Manhattan Bank, N.A. He is a director of ASARCO, Incorporated, Celgene Corporation, Olympia & York Companies (U.S.A.) and Texaco Inc. He is a member of The Business Council, the Advisory Committee for Daimler-Benz of North America 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, 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, 67, President and Chief Executive Officer of Armco Steel Company L.P. He was formerly chairman and chief executive officer of Washington Steel Corporation until he assumed his current position in 1992. He was formerly vice chairman-steel and diversified group and executive director of USX Corporation from 1986 to 1991. He joined the former U.S. Steel Corporation as vice chairman and chief operating officer--steel and related resources in 1983. Prior to that time he served as president and chief executive officer of Jones & Laughlin Steel Corporation. He is a director of Hershey Foods Corporation. He is a trustee of The Carnegie and the Committee for Economic Development. He also serves as a director of the American Iron & Steel Institute. Director since October 14, 1986 (PHOTO) EDMUND T. PRATT, JR., 67, 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 Celgene Corporation, Minerals Technologies, Inc., The Chase Manhattan Corporation, The Chase Manhattan Bank, N.A. and General Motors Corporation. He is a member of the Board of Trustees of Logistics Management Institute. Director since September 9, 1975 9 ITEM NO. 2--APPROVAL OF THE APPOINTMENT OF ARTHUR ANDERSEN & CO. AS INDEPENDENT AUDITORS FOR 1994 The Audit Committee has considered the qualifications of Arthur Andersen & Co. and recommended that the Board of Directors appoint them as independent auditors of the consolidated financial statements of the Company for the year 1994. 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 & Co., as independent auditors of the consolidated financial statements of the Company for the year 1994. A representative of Arthur Andersen & Co. will be present at the annual meeting to respond to appropriate questions and to make a statement if he or she desires and answer appropriate questions. APPROVAL OF ITEM NO. 2 REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES VOTING ON THIS PROPOSAL. ABSTENTIONS AND BROKER NON-VOTES WILL NOT BE COUNTED AS HAVING VOTED ON THIS ITEM NO. 2. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF ARTHUR ANDERSEN & CO. AS INDEPENDENT AUDITORS OF THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR 1994. 10 ITEM NO. 3--APPROVAL OF 1989 LONG-TERM INCENTIVE COMPENSATION PLAN AMENDMENTS The 1989 Long-Term Incentive Compensation Plan (the "Plan") was adopted by the Board of Directors and approved by shareholders at the 1989 annual meeting. The Plan is administered by the Management Development and Compensation Committee of the Board (the "Committee") which is composed solely of non-employee directors. The Board of Directors believes that the Plan has promoted the Company's interests and those of shareholders by providing opportunities to attract, retain, and motivate key employees through awards of stock options and restricted stock and that the Company should continue to utilize such awards as part of a competitive compensation program and as a means of encouraging its executives to own stock in the Company. Accordingly, the Board of Directors proposes to amend the Plan in the following principal respects: . To increase the number of shares available for future Plan awards by 5,000,000 shares thus providing an aggregate of said 5,000,000 shares together with the approximately 2,300,000 shares remaining for awards under the Plan prior to this amendment; . To provide that stock option exercise proceeds may be used to purchase Company stock in the open market for future issuance as options or awards; and . To allow the Company to maximize the deductibility for federal income tax purposes of the compensation of its executives. The complete text of the amended Plan is set forth in Appendix A to this Proxy Statement which is incorporated herein by reference. The following summarizes the material features of the Plan, as amended, but it does not purport to be complete and is qualified in its entirety by reference to Appendix A. EXPLANATION OF PLAN CHANGES The changes to the Plan are recommended by the Board to ensure that the Company continues to be properly positioned to compete for executive talent with forest products companies and other enterprises. At the same time, the Board believes that awards made under the Plan should minimize ownership dilution to existing shareholders when shares are issued under the Plan. The number of shares which the amended Plan may use in the future is the aggregate of the following: 5,000,000 shares to be newly authorized for use under the amended Plan; 2,300,000 unused shares carried forward from the earlier 7,000,000 share authorization originally approved by shareholders in 1989; shares forfeited, exchanged or not delivered as explained below; and the shares to be purchased in the open market with stock option exercise proceeds. Currently, the Plan provides that the following shares covered by Plan awards may be utilized for subsequent awards under the Plan: shares that are forfeited; shares not earned; shares exchanged or delivered to the Company in exercising stock options; shares covered by Plan awards that are distributed in cash; and any shares that are used to settle tax withholding payment obligations triggered by Plan awards. The amended Plan will expand the share replenishment provisions by permitting amounts equal to cash proceeds received by the Company since January 1, 1989, upon the exercise of stock options granted under the Plan and the predecessor 1983 Plans, to be used to reacquire shares of Company stock on the open market. The number of shares so reacquired under this provision cannot exceed the number of shares exercised which generated the cash proceeds. By way of illustration, between January 1, 1989 and February 28, 1994, the Company received approximately $80,000,000 in cash proceeds from the exercise of stock options. Based on a stock price of $70.80 per share (the average closing price of a share of Company stock trading on the New York Stock Exchange from March 1 through March 11 20, 1994), 1,129,944 shares could be acquired from time to time in the open market and made available for future awards under the amended Plan. Shares reacquired would be held in the form of segregated treasury shares, i.e., they would be held in a separate treasury account and would not be outstanding until issued as future Plan awards. Shares issued in settlement of Plan awards result in some dilution to shareholders, since more shares are subsequently outstanding. This dilutive effect is minimized by reacquiring outstanding shares with stock option exercise proceeds and using these shares for Plan purposes. Other Plan changes are proposed in order to help ensure that compensation paid to participants under the Plan is deductible by the Company for federal income tax purposes in view of recent federal tax law changes. As amended, the Plan will (1) limit the number of shares that can be covered by stock options and stock appreciation rights ("SARs") to any one person to 900,000 over any consecutive three-year period; (2) limit the number of shares that can be covered by a Performance Share award made to any one person for any Award Period to 50,000; and (3) limit the total number of shares available under the amended Plan for all awards, options and SARs to executive officers of the Company subject to Section 16 of the 1934 Act to 7,300,000. The Performance Share portion of the Plan (see "Performance Share Awards" below) is being amended to set forth the measurement criteria to be used by the Committee in presetting the goals for determining the number of Performance Shares earned by participants during a Award Period. The Plan will be changed so that a Continuity Award will consist solely of a stock option. Under the tax law change, this will preserve the deductibility for the Company of compensation realized under a Continuity Award. Additional changes have been made to provide the Committee with the necessary authority and flexibility to determine the terms and conditions governing awards made under the Plan, and to allow participants to make such transfers or assignments of Plan awards as may be permitted by law. The Plan is also being amended to give the Committee increased flexibility over the terms and conditions, including forfeiture restrictions, contained in award agreements which participants must sign. The amended Plan removes certain specific terms and conditions from the text of the Plan and allows the Committee to place such items in the award agreements. It is anticipated that terms and conditions at least as restrictive as those removed from the text of the Plan will be included by the Committee in award agreements under the Plan. Finally, changes have been made to consolidate certain common terms and to clarify wording. PLAN DESCRIPTION--GENERAL Participation in the Plan is determined solely by the Committee and is limited to senior managers of the Company and its subsidiaries. In 1993, approximately 670 employees participated in the stock option portion of the Plan; approximately 80 employees participated in the Performance Share portion; and fewer than 20 employees participated in the Continuity Award portion. These numbers should not be affected by the proposed amendment to the Plan. The Board of Directors may amend the Plan to take into account or comply with any changes in applicable securities or tax laws and regulations, and may otherwise modify the Plan, without shareholder approval, except that no modification shall increase the total number of shares for which awards and stock options may be granted under the Plan without shareholder approval. STOCK OPTION AWARDS The stock option features of the Plan are essentially unchanged, except as noted above. Stock options may be in the form of Incentive Stock Options (within the meaning of Section 422 of the Code) 12 or options which do not qualify for favorable federal tax treatment ("nonqualified stock options") or combinations of both. The Committee determines the recipients of stock options, the number of shares covered by each award, and the other terms and conditions of the option, except that the exercise price cannot be less than the fair market value of a share of the Company's common stock at the time of award grant. An Incentive Stock Option may not extend beyond ten years from the date of grant. Other options may be for longer terms. Restrictions, as determined by the Committee, on the exercise of the option and on the stock acquired under an option are contained in stock option award agreements. Such award agreements to date have provided that if the option is exercised within four years of the date of grant, the Company will have the right to repurchase the acquired stock at the exercise price for the balance of the four-year period. These restrictions lapse upon a change of control of the Company, or upon death, retirement after age 62 or permanent disability. The Committee may continue to grant stock options with this restriction provision or it may grant options with other provisions. As noted above, several provisions in the Plan text containing restrictive terms and conditions are being eliminated by the amendment; however, it is anticipated that the Committee will determine to include terms and conditions at least as restrictive in future award agreements. All conditions and terms regarding the disposition of stock options upon termination of employment with the Company shall be made by the Committee. Options may be exercised by payment of the option price in cash or, at the discretion of the Committee, by delivering stock of the Company, including restricted stock awarded under the Plan. If an option is exercised by delivery of Performance Shares, the participant will receive an equal number of identically restricted shares, and the remaining option exercise shares will contain any applicable restrictions which are included in the stock option agreement. At the discretion of the Committee, a plan participant who exercises an option may receive a replacement option for the same number of shares that the participant purchases in exercising the original option. The exercise price of the replacement option will be equal to the current fair market value at the time the replacement option is issued, and the term of the replacement option will be the same as the remaining balance of the term of the original option. PERFORMANCE SHARE AWARDS Performance Share Awards have been granted to senior management as described below under "Plan Benefits." These contingent awards have been in the form of shares of restricted stock ("Performance Shares"). The awards are earned by a participant over a specified award period commencing with the year of award ("Award Period"). The length of the Award Period will be determined by the Committee and is presently five years. During an Award Period, the participant is the beneficial owner of the Performance Shares and is entitled to vote the shares. Certificates are issued in the participant's name with restrictive legends and are retained by the Company. Dividends are reinvested in additional shares of restricted stock. A new Performance Share Award can be made each year by the Committee, with a new Award Period commencing at the beginning of each calendar year. Performance Share Awards are earned over the Award Period as determined by the Committee, presently based on a comparison of the Company's earnings per share and return on equity with similar financial tests of a representative group of forest products companies. At the end of an Award Period, the Committee measures the degree to which the established performance goals have been met. The contingent award is reduced if the goal is not met, or supplemented if the goal is exceeded. At such time, restrictions are removed on 50% of the award so earned (the "earned award"). The remaining 50% of the earned award remains restricted for three years from the date of determination of the earned award. Performance Share Awards are subject to forfeiture and cancellation by the Committee in the event a participant terminates employment, other than by reason of death, disability or retirement after age 62. Dividends on earned awards are paid in cash. 13 In the event of a participant's death, disability, or retirement after age 62, the restrictions may be removed on earned restricted shares and on a portion of the outstanding Performance Shares equal to the pro-rata portion of each award that would have been earned if Company performance reached the established goals for those Award Periods. The Plan is being amended to specify the measurement criteria to be used by the Committee in determining whether the Company has achieved performance goals preset by the Committee. Thus, the Committee may in the future use any one or more of the following measurements of performance including: earnings per share, return on equity, return on assets, growth in earnings, growth in sales revenue or shareholder returns. These can be measured in comparison to the performance of a group of peer companies selected by the Committee or based on the Company's results. In applying any of these criteria, the Committee may calculate earnings excluding discontinued operations and extraordinary items. The specific Plan provisions regarding earning of Performance Share Awards and removing restrictions, as described in the foregoing paragraphs, are being removed from the text of the Plan. It is the present intention of the Committee to continue to include these provisions in the award agreements which participants are required to execute upon receipt of awards. In the event of a "change of control" of the Company, all restrictions will be removed on earned awards and on a pro rata portion of the contingent awards for each uncompleted award period based on the number of months completed prior to the change of control. As used in this Proxy Statement and in the Plan, a change of control is defined as the acquisition by any person (other than Company employee-benefit plans) of beneficial ownership of 20% or more of the Company's outstanding stock, or a change of more than 50% of the members of the Board over a period of two years or less (except for changes approved by two-thirds of the directors who were in office at the beginning of the period). A Performance Share Award may be denominated in share units, as well as actual restricted shares, or a combination of both. Under the amended Plan , the maximum number of Performance Shares that can be earned by any individual for any one Award Period is 50,000 shares. CONTINUITY AWARDS Continuity Awards may consist of a contingent grant of restricted stock, or a tandem grant of restricted stock together with a related nonqualified stock option, in such amount and upon such terms and conditions as determined by the Committee. The amended Plan will provide that a Continuity Award may also consist solely of a nonqualified stock option. Under the Plan, at the discretion of the Committee, SARs may be awarded separately or in combination with other awards or grants. Generally, the amendments to the Plan will not change the operation of the Continuity Award provisions of the Plan. The participant is entitled to vote the restricted shares included in the award. Dividends are reinvested in additional shares of restricted stock, subject to the same restrictions, terms and conditions. Upon attainment of age 65, or the permanent disability or death of the executive, or upon a change of control of the Company, the restrictions on the award are removed and the award will vest in the following manner: (a) if the current realizable gain on the tandem stock option is greater than the current fair market value of the related shares of restricted stock (including reinvested dividends), then all such shares of restricted stock will be cancelled and the stock option will continue for its remaining term; (b) if the current fair market value of the shares of restricted stock (including reinvested dividends) is greater than the current realizable gain on the related tandem stock option, then the option will be cancelled and the restrictions will be removed from all of the related shares of restricted stock. If the option is exercised prior to age 65, then the related shares of restricted stock will be cancelled, and the additional shares issued upon the exercise of the option will be restricted and subject to forfeiture or repurchase by the Company at the option exercise price for a period ranging up to twelve 14 years, or longer, from the date of the award as set forth in the award agreement. If there is a change of control of the Company, all restrictions on the Continuity Award will be removed. The exercise price of each option will not be less than the fair market value of the underlying stock at the time the option is granted. The option may be exercised by full payment of the option price in cash or, at the discretion of the Committee, by delivering stock of the Company including Performance Shares awarded under the Plan. At the discretion of the Committee, a participant who exercises an option may receive a replacement option for the same number of shares that the participant purchases in exercising the original option. The exercise price of the replacement option will be equal to the fair market value at the time the replacement option is issued, and the term of the replacement option will be the same as the remaining balance of the term of the original option. Shares received upon exercise of an option will be subject to the restrictions included in the award agreement. PLAN BENEFITS Because the Committee makes all determinations regarding the selection of participants and the size of each award made to a participant, it is impossible to estimate or predict the benefits or amounts that any person or persons will receive in the future (except that they will not exceed the maximums set forth above). Information regarding past awards made to persons named in the Summary Compensation Table under the Plan is provided elsewhere in this Proxy Statement as part of the disclosure of the executive compensation program for management. The following summarizes the awards made in 1993 under the Plan to all current executive officers of the Company and all other employees:
NUMBER OF SHARES COVERED BY 1993 AWARDS -------------------------- ALL EXECUTIVE ALL OTHER OFFICERS EMPLOYEES ------------- ----------- Stock Options(1)................................................. 64,000 877,900 Performance Shares(2)............................................ 26,373 48,558 Continuity Award Shares(3)....................................... 20,000 12,000
- --------------- (1) Includes replacement options granted in 1993. These figures do not include the tandem option awards made as part of the Continuity Awards of stock/options, insofar as these are characterized as contingent restricted stock awards. (2) Includes the total number of shares contingently awarded in 1993 under the Plan to be earned over five years by participants. (3) Includes the total number of shares contingently awarded in 1993 under the Plan as Continuity Awards of stock/options, to be fully vested upon reaching certain ages unless the options are exercised. APPROVAL OF ITEM NO. 3 REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF RECORD OF A MAJORITY OF OUTSTANDING SHARES OF COMMON STOCK ENTITLED TO VOTE. ABSTENTIONS AND BROKER NON-VOTES WILL NOT BE COUNTED AS HAVING VOTED FOR THE ITEM NO. 3 AND, ACCORDINGLY, WILL HAVE THE EFFECT OF A VOTE AGAINST ITEM NO. 3. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE AMENDED LONG-TERM INCENTIVE COMPENSATION PLAN AS SET FORTH IN APPENDIX A 15 STATEMENT ON THE COMPANY'S SOUTH AFRICAN AFFILIATE'S OPERATIONS The Company strives to uphold responsible business practices in its operations around the world. Its commitment to human rights and equality is evidenced by company policies such as those on equal employment opportunity, community responsibility and ethical business conduct. In South Africa, its affiliate, Masonite (Africa) Limited, has done business in a highly responsible manner that it believes has been a positive example in that country. In that regard, Masonite (Africa) Limited's facilities in South Africa have a totally integrated workforce and wage policies are identical for whites and non-whites. It provides its employees with benefit programs, which include medical benefits, financial aid and in-kind support for schools and adult training programs. Masonite (Africa) Limited believes its policies and practices are consonant with the Code of Conduct for Business Operating in South Africa endorsed by the South African Council of Churches (SACC), Southern African Catholic Bishops Conference and Jewish Board of Deputies. Masonite (Africa) Limited intends to continue to implement its policies concerning human rights and equality in South Africa, which it believes will cause it to maintain the ethical standards promoted by the SACC Code of Business Conduct. Masonite (Africa) Limited also intends, through continued example of responsible operations, to promote responsible practices by all companies operating in South Africa. 16 REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS The Management Development and Compensation Committee ("the Committee") consists of five outside directors: Willard C. Butcher, Stanley C. Gault, Thomas C. Graham, Samuel R. Pierce, Jr. and Edmund T. Pratt, Jr. Mr. Gault is chairman. No member of this Committee is an executive officer of a company on whose board an executive officer of International Paper serves as a director. The Committee met eight times in 1993 with a 98% 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 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 companies used to measure competitiveness include the fifteen largest forest products companies (including the "Peer Paper Group" of eight companies which comprise the peer line of the performance graph on page 19) and which are surveyed annually by Management Compensation Services, a subsidiary of the independent compensation consulting firm, Hewitt Associates. In 1993, the Company also used the Hay Associates and F.W. Cook executive compensation surveys which cover similar positions in companies similar in size and complexity to International Paper across all industries. In 1993, the Company's compensation levels were targeted to the median of the competitive surveys, and competitiveness was determined by evaluating total cash compensation and long-term incentive compensation. 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 female and minority employee development, which account for the remainder. In 1993, 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 was above threshold but did not achieve 100% of goal, thus generating a smaller bonus fund in 1993 than in 1992 or 1991. Performance compared to the nonfinancial targets met or exceeded the goals for 1993. The Company's Long-Term Incentive Compensation Plan, which was approved by the shareholders in 1989, 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 and weighing equally the Company's and Peer Paper Group's 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 which are designed to encourage retention of a small number of executives designated by the Committee. The size of an award, and any 17 adjustments is determined by the Committee to reflect an executive's level of responsibility and individual performance. As provided by the Company's Long-Term Incentive Compensation Plan, a continuity award may consist of restricted stock or a tandem grant of restricted stock together with a related non-qualified stock option which is granted at fair market value and restricted until a specified age. If the stock option is exercised, then the related restricted shares are cancelled; if the stock option is not exercised by age 65, then the less valuable component of the tandem award is cancelled. 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 $1,000,000. The Committee has endorsed amendments to the Company's Long-Term Incentive Compensation Plan to make certain sections of the plan compatible with those provisions, while maintaining the Committee's flexibility to exercise business judgment in determining awards to take account of business conditions or the performance of individual executives. In that regard, the Committee will retain discretion to make awards which may not be fully deductible in certain cases. 1993 EXECUTIVE OFFICERS' COMPENSATION The Committee approved promotional and merit salary increases for the named executive officers based on competitiveness of the executives' pay and personal performance. In June 1993, Mr. Georges received an 8.3% merit salary increase, covering the eighteen-month time period since his last salary adjustment (5.5% annualized). Promotional increases were awarded to two of the named executive officers. Salaries paid to the named executive officers in 1993, including Mr. Georges's salary, were slightly below the median of the survey companies. MIP awards for the named executive officers in 1993 were determined by the Committee after review of respective levels of responsibility, personal performance and Company performance compared to the predetermined 1993 financial and nonfinancial goals. Actual awards to all named executive officers represented 10.6% of the bonus fund. Mr. Georges's MIP award and the awards of two other named executive officers decreased compared to 1992. The 1993 MIP award of one named executive officer increased compared to 1992 insofar as 1992 represented only a partial year award for that individual. The performance share guidelines described above were used by the Committee to determine contingent performance share awards in December 1993 to the named executive officers for the 1994-1998 Award Period and the payout in 1993 of earned shares for the 1988-1992 Award Period. As shown in the Summary Compensation Table, the pretax values of Mr. Georges's performance share awards in 1993 were: $546,448 in contingent restricted stock for the 1994-1998 Award Period; $198,803 in deferred restricted stock for the 1988-1992 Award Period; and $198,803 in earned shares (long-term incentive payout) for the 1988-1992 Award Period. The shares earned for the 1988-1992 Award Period reflect Company performance which exceeded performance of the Peer Paper Group. The Committee granted stock options in 1993 based on competitive surveys described earlier, without consideration of the amount of stock options already held by named executive officers. Mr. Georges's 1993 stock option award was 19,000 shares, the same as his awards in 1992 and 1991. In 1993, previously granted continuity awards of restricted stock and a related option to two named executive officers were increased based on promotions. The Management Development and Compensation Committee of the Board of Directors Willard C. Butcher Stanley A. Gault, chairman Thomas C. Graham Samuel R. Pierce, Jr. Edmund T. Pratt, Jr. 18 PERFORMANCE GRAPH The following chart compares 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, 1988-1993, assuming reinvestment of dividends. (PERFORMANCE GRAPH)
COMPARISON OF FIVE YEAR CUMULATIVE RETURN* DECEMBER 31, 1988 1989 1990 1991 1992 1993 International Paper 100 126 123 167 161 168 S&P 500 Index 100 132 127 166 179 197 Peer Group** 100 110 89 121 135 153
Assumes $100 Invested on December 31, 1988. * Total return assumes reinvestment of Dividends. ** Includes Boise Cascade, Champion, Georgia Pacific, Mead, Stone Container, Union Camp, Westvaco, and Weyerhaeuser. 19 ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION The compensation of the Company's executive officers is approved by the Committee except for the compensation of the officer-directors, which is recommended by the Committee and approved by the Board of Directors. The following tables set forth information with respect to the Chairman and Chief Executive Officer and the four most highly compensated executive officers of the Company for the years 1991-1993. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ----------------------- ANNUAL COMPENSATION CONTINGENT AWARDS ---------------------- ----------------------- (A) (B) (C) (D) (E) (F) (G) RESTRICTED ALL OTHER SALARY BONUS STOCK AWARD OPTIONS COMPENSATION NAME AND POSITION YEAR ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) - ---------------------------------------------------- --------- ---------- ---------- ------------ --------- ------------ John A. Georges..................................... 1993 $ 880,833 $ 525,000 $ 819,672 19,000 $ 136,571 as Chief Executive Officer 1992 $ 840,000 $ 555,000 $ 794,195 112,632 $ 85,304 1991 $ 775,833 $ 580,721 $ 770,385 41,618 $ 85,718 John T. Dillon...................................... 1993 $ 396,667 $ 230,000 $ 332,316 8,000 $ 77,234 as Executive Vice President 1992 $ 367,500 $ 240,000 $ 322,040 54,900 $ 33,397 1991 $ 327,333 $ 250,000 $ 311,190 7,000 $ 32,554 James P. Melican.................................... 1993 $ 386,667 $ 215,000 $ 302,430 7,700 $ 69,747 as Executive Vice President 1992 $ 357,917 $ 225,000 $ 293,084 16,238 $ 20,578 1991 $ 322,333 $ 235,000 $ 284,056 6,800 $ 31,148 Mark A. Suwyn....................................... 1993 $ 323,333 $ 210,000 $ 1,193,205 6,800 $ 53,528 as Executive Vice President 1992 $ 250,000 $ 175,000 $ 2,612,669 6,150 $ 24,546 1991 $ 0 $ 0 $ 0 0 $ 0 C. Wesley Smith..................................... 1993 $ 283,333 $ 190,000 $ 944,705 6,800 $ 55,390 as Executive Vice President 1992 $ 238,000 $ 190,000 $ 786,035 4,300 $ 132,037 1991 $ 200,000 $ 120,000 $ 177,986 10,300 $ 52,433
- --------------- (1) Salary paid in 1993 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 1994, 1993 and 1992 attributable to 1993, 1992 and 1991 respectively, including amounts deferred pursuant to Section 401(k) of the Internal Revenue Code or pursuant to unfunded deferral arrangements reported in the year earned. (3) Represents (a) 150% of the value of gross target restricted performance shares contingently awarded in 1993 for the 1994-1998 award period, in 1992 for the 1993-1997 award period and in 1991 for the 1992-1996 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 $745,500 and $591,000 in 1993 and 1992 respectively for Mr. Suwyn and $497,000 in 1993 for Mr. Smith. The number and dollar value of restricted stock holdings at December 31, 1993 are as follows: 106,136/$7,190,714 for Mr. Georges; 46,373/$3,141,771 for Mr. Dillon; 42,153/$2,855,866 for Mr. Melican; 34,067/$2,308,039 for Mr. Suwyn; and 39,594/$2,682,494 for Mr. Smith. 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. (4) Includes replacement options if applicable; only new ten-year stock options were awarded to the named officers in 1993. These figures do not include the tandem option awards made as part of the continuity awards referred to in footnote (3) above insofar as the awards are characterized as restricted stock awards. Such tandem options were for 60,000 and 40,000 shares for Mr. Suwyn in 1992 and 1993, respectively, and for 40,000 shares for Mr. Smith in 1993 and are restricted as to exercise prior to age 62. (5) 1993 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) and accruals for ESIP lump sum dividend payments as follows: $68,920, $57,820 and $9,831 for Mr. Georges; $30,560, $43,200 and $3,474 for Mr. Dillon; $29,360, $37,000 and $3,387 for Mr. Melican; $23,920, $29,608 and $0 for Mr. Suwyn; and $22,720, $29,800 and $2,870 for Mr. Smith. 20 The table below sets out information on the option grants made in 1993 to the named executive officers: OPTION GRANTS IN 1993
POTENTIAL REALIZABLE VALUE AT ASSUMED COMPOUND ANNUAL GROWTH RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM (2) ---------------------------------------------------- ------------------------------------------------ (A) (B) (C) (D) (E) (F) (G) (H) % OF TOTAL OPTIONS OPTIONS GRANTED TO EXERCISE OR GRANTED EMPLOYEES IN BASE PRICE EXPIRATION NAME AND POSITION (#) (1) 1993 ($/SH) DATE 0% 5% 10% - ---------------------- --------- ------------- ----------- ------------- ----------- ---------------- ----------------- John A. Georges....... 19,000 2.02% $ 63.000 01/11/2003 $ 0 $659,940 $1,625,463 as Chief Executive Officer John T. Dillon........ 8,000 0.85% $ 63.000 01/11/2003 $ 0 $277,869 $684,406 as Executive Vice President James P. Melican...... 7,700 0.82% $ 63.000 01/11/2003 $ 0 $267,449 $658,740 as Executive Vice President Mark A. Suwyn......... 6,800 0.72% $ 63.000 01/11/2003 $ 0 $236,189 $581,745 as Executive Vice President C. Wesley Smith....... 6,800 0.72% $ 63.000 01/11/2003 $ 0 $236,189 $581,745 as Executive Vice President Executive Officer Group............... 64,000 6.79% (3) (3) $0 $2,208,615 $5,433,534 All shareholders...... N/A N/A N/A N/A $ 0 (4) $4,955,037,864(4) $12,557,038,808
- --------------- (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 1993; the restricted stock is reported as part of the total holdings of the respective individuals under footnote 3 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. The Company did not use an alternative formula for a grant date valuation, as it is not aware of any formula which will determine with reasonable accuracy a present value based on future unknown or volatile factors. (3) Other than replacement grants, all stock option grants in 1993 were at an exercise price of $63.00 per share, expiring January 11, 2003. No replacement grants were awarded to the named executives. (4) No gain to the optionee is possible without an increase in stock price, which will benefit all shareholders commensurately. A zero percent gain in stock price will result in zero dollars for the optionee. 21 The table below sets out information on options exercised and options outstanding. AGGREGATED OPTION EXERCISES IN 1993 AND DECEMBER 31, 1993 OPTION VALUES
(A) (B) (C) (D) (E) (F) (G) VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT 12/31/93 OPTIONS AT 12/31/93 (#)(3) ($)(3) VALUE ------------------------- ------------------------- SHARES ACQUIRED REALIZED UNRESTRICTED RESTRICTED UNRESTRICTED RESTRICTED NAME AND POSITION ON EXERCISE (#) ($) (1) (1) (2) (2) - --------------------------- ----------------- ----------- ------------ ----------- ------------ ----------- John A. Georges............ No Exercises N/A 70,700 76,000 $ 204,279 $ 175,750 as Chief Executive Officer John T. Dillon............. No Exercises N/A 29,300 30,000 $ 69,588 $ 71,250 as Executive Vice President James P. Melican........... No Exercises N/A 26,334 28,350 $ 381,686 $ 204,606 as Executive Vice President Mark A. Suwyn.............. No Exercises N/A 0 12,950 $ 0 $ 32,300 as Executive Vice President C. Wesley Smith............ No Exercises N/A 6,000 19,700 $ 16,500 $ 143,025 as Executive Vice President
- --------------- (1) 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. (2) Total value of options (market value minus exercise price) based on fair market value of Company stock of $67.75, as of December 31, 1993. (3) 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. 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
CREDITABLE YEARS OF SERVICE ---------------------------------------------------------------------------- PENSIONABLE REMUNERATION 5 10 15 20 25 30 - ----------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- $400,000........................... $ 100,000 $ 125,601 $ 188,401 $ 193,232 $ 193,232 $ 193,632 $600,000........................... $ 150,000 $ 190,601 $ 285,901 $ 293,232 $ 293,232 $ 293,832 $800,000........................... $ 200,000 $ 255,601 $ 383,401 $ 393,232 $ 393,232 $ 394,032 $1,000,000......................... $ 250,000 $ 320,601 $ 480,901 $ 493,232 $ 493,232 $ 494,232 $1,500,000......................... $ 375,000 $ 483,101 $ 724,651 $ 743,232 $ 743,232 $ 744,732
- --------------- "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 22 limitations; and a supplementary plan covering designated senior managers which provides supplemental benefits to the qualified plan. At December 31, 1993, the number of creditable years of service and the currently applicable average pensionable remuneration under the retirement plans for Mr. Georges were 14.58 years and $1,405,833; for Mr. Dillon, 26.92 years and $626,667; for Mr. Melican, 9.92 years and $601,667; for Mr. Smith, 13.33 years and $473,333; and for Mr. Suwyn, 1.83 years and $533,333. 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 $1,100 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. Employees of the Company who are also directors receive no compensation for services as a director or for attendance at board or committee meetings. The Company has established a Retirement Plan for Non-Employee Directors which provides that directors who retire from service when they attain the mandatory retirement age of 72 and have ten years of service, will receive an annual retirement benefit equal to 100% of the annual retainer fee. The Plan also provides for early retirement after attaining age 65 with at least five years of service. If early retirement is taken, the retirement benefit is reduced by increments of 10% for each year less than ten years of service, and is further reduced by increments of 4% for each year prior to age 72 that the early retirement payments begin. In addition, under the Non-Employee Directors Restricted Stock Plan, awards of 900 shares of common stock are made upon the election or re-election of a director to a full three-year term, or the appointment of a non-employee director to fill an unexpired term (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 1993 were 900 shares each for Class II directors and a pro-rata award of 125 shares for a newly elected director. Directors receive dividend payments represented by the shares awarded under the Restricted Stock Plan, currently at $0.42 per share per quarter. 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 $1,100 for each IPFR board meeting attended. These fees are paid by IPFR. There were five meetings of the board in 1993. 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, 1993, the Company amended the aforementioned policies with Federal Insurance Company at a current annual premium cost aggregating $584,250, such policies expiring on June 15, 1994. No monies have been paid under such policies by the carrier or by the Company under the contractual arrangements. 23 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 provisions Mr. Georges' agreement can be triggered by a voluntary termination at any time within 18 months of the change in control. The agreement provides him with the above benefits as well as (a) payment of vested benefits under the pension plan which entitlement shall include payments made under the agreement which constitute "compensation" under the pension plan; (b) a lump-sum payment equal to the difference between (i) the actuarial value on termination date of accrued vested pension benefits and (ii) the actuarial value on termination date of what accrued pension benefits would have been if the period and payments set out in (c)(i) and (c)(ii) below were recognized under the pension plan; (c) a lump-sum payment equal to (i) his annual salary at termination, (ii) the average of his short-term incentive compensation award for three years preceding termination and (iii) the value of his average earned award under the PSP for three years preceding termination, multiplied by the number of years between the termination date and the date he reaches age 65; (d) a lump-sum payment equal to the value of any deferred incentive compensation or PSP awards and unvested Company matching contributions under the SSP; (e) stock options equal to the average number of options awarded during the three years preceding termination, multiplied by the number of years between the termination date and the date he reaches age 65, plus the extension of each option held until the end of the normal term of such option if he had not left the Company. In addition to the foregoing, the Long-Term Incentive Compensation Plan contains provisions that release restrictions from stock awards and stock options for all members of the group if there is a change of control of the company. Also, the Supplemental Retirement Plan for senior managers provides that if a change of control of the Company occurs, pension benefits will vest immediately and the minimum benefit will be increased from 25% to 50% of pensionable remuneration. The Company has authorized a grantor trust under Sections 671 through 677 of the Code in connection with the Company's benefit plans and termination agreements. Under the grantor trust, the trustee will pay the beneficiaries of the trust the amounts to which they are entitled under such plans and agreements subject to claims of the Company's creditors. 24 APPENDIX A INTERNATIONAL PAPER COMPANY LONG-TERM INCENTIVE COMPENSATION PLAN The International Paper Company Long-Term Incentive Compensation Plan is hereby amended to delete the words and phrases indicated by brackets, e.g. (omit) and to add the words and phrases indicated by italics, e.g. add. 1. PURPOSE AND EFFECTIVE DATE This plan shall be known as the International Paper Company Long-Term Incentive Compensation Plan (the "Plan"). The purpose of this Plan is to provide incentive for senior management officers and employees of the Company and its subsidiaries (the "Company") to improve the performance of the Company on a long-term basis, and to attract and retain in the employ of the Company persons of outstanding competence. The terms "subsidiary" and "subsidiaries" as used herein shall mean corporations which are owned or controlled by International Paper Company, directly or indirectly. The effective date of this Plan is (shall be) January 1, 1989. S(s)ubject to approval of this Plan by a majority of shareholders of the Company entitled to vote on the matter at the 1994 (89) annual meeting of shareholders certain amendments to the Plan will also be effective. (Upon share owner approval of this) The Plan (it will) supersedes and replaces the International Paper Company Performance Share Plan and the International Paper Company Stock Option Plan which were approved by shareholders in 1983 (the "1983 Plans"). No further contingent awards or grants of options will be made under the 1983 Plans, and outstanding contingent awards and deferred awards under the 1983 Plans and earlier plans will be converted to comparable awards under the provisions of this Plan with the consent of the award holders. 2. ADMINISTRATION OF THE PLAN (a) The Plan shall be administered by a committee (the "Committee") which shall be composed of members of the Board of Directors of the Company and which shall be constituted so as to permit the Plan to comply with the provisions of Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("1934 Act") (or any successor rule) and Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Committee is authorized to administer and interpret the Plan, to authorize, change, and waive the restrictions and conditions imposed on awards and stock options under the Plan, and to adopt such rules and regulations for carrying out the Plan as it may deem appropriate. Decisions of the Committee on all matters relating to the Plan shall be in the Committee's sole discretion and shall be conclusive and binding on all parties, including the Company, the shareholders and the participants. (b) No member of the Committee or any employee acting on its behalf shall incur any liability for any action or failure to act in connection with this Plan. The Company shall indemnify each member of the Committee and any employee acting on its behalf against any and all claims, losses, damages, expenses and liabilities arising from any action or failure to act. 3. PARTICIPANTS (a) Participation in this Plan shall be limited to senior managers and other key employees of the Company as determined by the Committee. Awards of stock and stock appreciation rights and grants of stock options may be made to such (members of senior management) employees and for such respective numbers of Shares, as the Committee in its absolute discretion shall determine (all such individuals to whom awards and options shall be granted being herein called "participants"). A-1 (b) Members of the Board of Directors who are also employees of the Company shall be eligible to participate in the Plan. However, members of the Board of Directors who are not also employees of the Company shall be ineligible for awards under this Plan. Notwithstanding the foregoing, any members of the Board of Directors who are also retired employees of the Company shall be entitled to the portions of their awards which are (is) earned or vested pursuant to the provisions of the Plan. (c) A person who is compensated on the basis of a fee or retainer, as distinguished from salary, shall not be eligible for participation in the Plan. (d) Participation in this Plan, or receipt of an award or option under this Plan, shall not give a participant any right to a subsequent award or option, nor any right to continued employment by the Company for any period, nor shall the granting of an award or option give the Company any right to continued services of the participant for any period. Likewise, participation in the Plan will not in any way affect the Company's right to terminate the employment of the participant at any time with or without cause. 4. DEFINITIONS (a) "Stock" or "Share" shall mean a share of the common stock of $1.00 par value of International Paper Company. (b) "Performance Shares" shall mean Shares contingently awarded with respect to an Award Period and issued with the restriction that the holder may not sell, transfer, pledge, or assign such Shares, and with such other restrictions as the Committee in its sole discretion may determine (including, without limitation, restrictions with respect to forfeiture of the Shares and with respect to reinvestment of dividends in additional restricted Shares), which restrictions may lapse separately or in combination at such time or times (in installments or otherwise) as the Committee may determine. (c) "Stock Appreciation Right" or "SAR" shall mean a right included in an award under this Plan to receive upon exercise of the SAR a payment equal to the amount of the appreciation in the fair market value of a Share over the exercise price which is set forth in the SAR provided that the exercise price is not less than the fair market value of a Share on the date the SAR is granted. Payment upon exercise of an SAR may be in the form of cash, or restricted stock, or unrestricted stock, or a combination, as determined by the Committee in its sole discretion. SARs may be awarded separately or in combination with other awards and stock options under this Plan pursuant to terms and conditions contained in an award agreement as determined by the Committee. (d) "Change of Control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the (Securities Exchange) 1934 Act (of 1934, as amended ("Exchange Act")); provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" as such term is used in Sections 13(d) and 14(d)(2) of the (Exchange) 1934 Act (other than employee benefit plans sponsored by the Company) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company, cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election, by the Company's shareholders of each new director was approved by a vote of at least two-thirds of the directors still in office who were directors at the beginning of the period. 5. STOCK AVAILABLE FOR THE PLAN An aggregate of (seven) five million Shares shall be available under the Plan as amended by the shareholders at the 1994 Annual Meeting for delivery pursuant to the future awards, and options granted pursuant to the (this) Plan, together with any Shares previously authorized by shareholders A-2 under the 1983 Plans or the Plan which are not yet issued to, or are reacquired from, participants in the 1983 Plans or the Plan. Such Shares shall be either previously unissued Shares or reacquired Shares. Shares covered by awards which are not earned, or which are settled in cash, or which are forfeited or terminated for any reason, and options which expire unexercised or which are exchanged for other awards, shall again be available for other awards and stock options under the Plan. Shares received by the Company in connection with the exercise of stock options by delivery of other Shares, and received in connection with payment of withholding taxes, shall again be available for delivery under the Plan. Shares reacquired by the Company on the open market using the cash proceeds received by the Company from the exercise of stock options granted under the Plan and the 1983 Plans shall be available for awards and options up to the number of Shares issued upon option exercises which generated such proceeds, provided any such exercise occurred on or after January 1, 1989. Notwithstanding the foregoing, the maximum number of Shares available for delivery pursuant to future awards, options and SARs to executive officers of the Company who, at the time of grant, are subject to the provisions of Section 16 of the 1934 Act shall not exceed 7,300,000 Shares, subject to the adjustments permitted by Section 6 of the Plan. Notwithstanding any other provision of this Plan, subject, however, to the adjustments permitted by Section 6 of the Plan, the aggregate number of Shares that can be covered by future stock options or SARs granted to any individual in any period of three consecutive fiscal years shall be 900,000. 6. CHANGES IN STOCK AND EXERCISE PRICE OF STOCK OPTIONS AND SARS In the event of any stock dividend, split-up, reclassification or other analogous change in capitalization or any distribution (other than regular cash dividends) to holders of the Company's common stock, the Committee shall make such adjustments, if any, as it deems to be equitable in the exercise price of outstanding options and SARs, and in the number of Performance Shares awarded and earned, and in the number of Shares covered by any outstanding stock options and SARs, granted under this Plan, and in the aggregate number of Shares covered by this Plan. 7. TIME OF GRANTING AWARDS AND STOCK OPTIONS Nothing contained in this Plan, or in any resolution adopted or to be adopted by the Board of Directors or the shareholders of the Company, shall constitute the granting of an award or stock option under this Plan. The granting of an award or stock option pursuant to the Plan shall take place only when authorized by the Committee. (No award and no rights thereunder shall be transferable or assignable except at death pursuant to Section 8.) 8. DEATH OR DISABILITY OF A PARTICIPANT In the event of the death of a participant, a stock option or an SAR may be exercised within one year of the participant's death by the participant's designated beneficiary or beneficiaries (or if no beneficiary has been designated or survives the participant, by the person or persons who have acquired the rights of the participant by will or under the laws of descent and distribution). If a participant becomes disabled, the participant may exercise a stock option or an SAR within one year after the date of the disability. (Disability shall cause Incentive Stock Options to be treated for federal income tax purposes as Non-qualified Stock Options on a date which is one year after the date of the disability.) For purposes of this Plan, the term "disabled" shall refer to the condition of (permanent) total disability defined in the Company's long-term disability plan. A participant may file with the Committee a designation of a beneficiary or beneficiaries on a form approved by the Committee, which designation may be changed or revoked by the participant's sole action, provided that the change or revocation is filed with the Committee on a form approved by it. In case of the death of the participant, before termination of employment or after retirement or disability, A-3 any portions of the participant's award to which the participant's designated beneficiary or estate is entitled under the Plan and the award agreement, shall be paid to the beneficiary or beneficiaries so designated or, if no beneficiary has been designated or survives such participant, shall be delivered as directed by the executor or administrator of the participant's estate. 9. RETIREMENT OF HOLDER OF STOCK OPTION OR SAR If a participant retires under a Company pension plan, the participant may exercise a stock option or an SAR within its remaining term unless otherwise provided in the award agreement. Retirement under any of the Company's pension plans shall cause incentive stock options to be treated for federal income tax purposes as non-qualified stock options on a date which is three months after the date of retirement. For purposes of this section, retirement shall be given the meaning used under the Company's pension plan for salaried employees. 10. NON-TRANSFERABILITY OF AWARDS No award, (or) stock option or SAR under this Plan, and no rights or interests therein, shall be assignable or transferable by a participant (or legal representative), except at death by will or by the laws of descent and distribution unless otherwise permitted by the Committee and by law and, in the case of incentive stock options, to the extent consistent with Section 422 of the Code. (During the lifetime of a participant, stock options, SARs and rights under the Plan may be exercised only by the participant (or legal representative), and payments and distributions under the Plan will be made only to the participant (or legal representative).) 11. MODIFICATION OF THE PLAN The Board of Directors, without further approval of the shareholders, may at any time amend the Plan to take into account and comply with any changes in applicable securities or federal income tax laws and regulations, or other applicable laws and regulations, including without limitation, any modifications to Rule 16b-3 under the (Exchange) 1934 Act or Section 162(m) of the Code (or any successor rule, provision or regulation), terminate or modify or suspend (and if suspended, may reinstate) any or all of the provisions of this Plan, except that no modification of this Plan shall without the approval of the Company's shareholders increase the total number of Shares for which awards, (and) stock options and SARs may be granted under the Plan (except pursuant to Section 6). RESTRICTED PERFORMANCE SHARE AWARDS 12. TERMS AND CONDITIONS OF AWARDS OF PERFORMANCE SHARES (a) Each award of Performance Shares under this Plan shall be contingently awarded with respect to a period of consecutive calendar years as determined by the Committee (herein called an "Award Period") and shall be made from reacquired Shares. Outstanding contingent awards and deferred awards under the 1983 Performance Share Plan shall be converted to comparable awards under this Plan with the consent of the award holders. The first complete Award Period under this Plan shall begin with the year 1989. A new Award Period shall commence at the beginning of each calendar year. (b) The Performance Shares awarded under this Plan will be earned by a participant on the basis of the Company's financial performance over the Award Period for which it was awarded, (as) on the basis of pre-established performance goals determined by the Committee in its sole discretion. (The restrictions on the Shares constituting the portion of the award which has been earned as determined by the Committee shall be removed as described in Section 13, and all unearned Performance Shares relating to that Award Period shall be forfeited to the Company and shall again be available for other awards under the Plan. Additional Shares and Performance Shares may be issued at the end of the Award Period if the Committee determines that the Company's performance exceeded the goal established by the Committee for such Award Period.) The Performance measurement criteria used for A-4 Performance Shares shall be limited to one or more of: earnings per share, return on stockholders equity, return on assets, growth in earnings, growth in sales revenue, and shareholder returns. Such criteria may be measured based on the Company's results or on the Company's performance as measured against a group of peer companies selected by the Committee. In applying such criteria, earnings may be calculated based on the exclusion of discontinued operations and extraordinary items. Subject to the adjustments permitted by Section 6 of the Plan, the maximum number of Performance Shares that can be earned for any one individual for any future Award Period commencing after the effective date of the amendment to the Plan is 50,000. Subject to such maximum number of Shares, the amount, if any, that may be earned by a participant receiving Performance Shares may vary in accordance with the level of achievement of the performance goal or goals established by the Committee. (c) A participant's rights with respect to all unearned Performance Shares shall terminate at the end of each Award Period. (d) The number of Shares determined by the Committee to have been earned with respect to any Award Period shall be final, conclusive and binding upon all parties, including the Company, the shareholders and the participants. (e) All dividend(s) (paid) equivalents credited on Performance Shares during an Award Period shall be reinvested in additional Performance Shares (which shall be allocated to the same Award Period, and shall be subject to being earned by the participant on the same basis as the original award). (f) All dividends paid on earned restricted Shares under this part of the Plan shall be paid in cash. (g) As a condition of any award of Performance Shares under this Plan, each participant shall enter into an award agreement authorized by the Committee. (and may be required to file an election pursuant to Section 83(b) of the Internal Revenue Code (or comparable provisions of the Code as amended from time to time) electing to treat the award as taxable income in the year of the award, and the number of Performance Shares delivered shall be appropriately reduced for payment of the applicable withholding taxes due with respect to the award. The Committee may, in its discretion, include additional conditions and restrictions in the award agreements.) The Committee may in its sole discretion, include additional conditions and restrictions in the award agreement entered into under this Plan. Settlements in Shares may be subject to forfeiture and other contingencies as the Committee may determine. (h) At the discretion of the Committee, SARs may be awarded separately or in combination with other awards or grants under this portion of the Plan. (13. METHOD OF EARNING AWARD AND REMOVAL OF RESTRICTIONS) ((a) As soon as practicable after each Award Period, fifty percent (50%) of the number of Performance Shares determined by the Committee to have been earned by each participant during such Award Period shall become unrestricted Shares. The remaining fifty (50%) of the number of Performance Shares earned by each participant during such Award Period shall continue to be restricted Shares until the earlier of death, becoming disabled, retirement after attaining age 62, or the third anniversary of the date of determination of the number of Shares earned by such participant. In the event of any other termination of employment, earned Performance Shares shall be subject to forfeiture and cancellation at the discretion of the Committee.) ((b) All Performance Shares shall be subject to being forfeited and cancelled by the Committee, in the Committee's discretion, if the participant terminates employment, other than by reason of death or becoming disabled or retirement after attaining age 62.) ((c) In the event of a participant's death during an Award Period, the participant's beneficiary shall receive Shares which are free of restrictions in an amount equal to the pro rata portion of each A-5 award that would have been earned were Company performance to reach the goals established by the Committee for the Award Periods currently underway. In the event of a participant's retirement after attaining age 62 or upon becoming disabled, the participant shall receive Shares which are free of restrictions in an amount equal to the pro rata portion of each award that would have been earned were Company performance to reach the goals established by the Committee for the Award Periods currently underway.) (i)((d)) In the event a Change of Control of the Company occurs, then (i) all restrictions shall be immediately removed with respect to all earned Performance Shares and (ii) a pro rata portion of each outstanding Award that would have been earned were Company performance to reach the goals established by the Committee for each uncompleted Award Period shall be deemed earned (based on the number of months of the total Award Period which have been completed prior to the Change of Control), and all restrictions shall be immediately removed with respect to that number of shares; the remaining portion of each Award shall remain outstanding as Performance Shares subject to the provisions of this Plan and the participant's award agreements. STOCK OPTION AWARDS 13.(14.) TERMS AND CONDITIONS OF STOCK OPTIONS) ((a) The Committee shall have the sole authority to grant stock options under this Plan. Such grants may consist of n(N)on-qualified s(S)tock o(O)ptions, or Incentive Stock Options, or any combination thereof, as the Committee shall decide from time to time. The aggregate fair market value (determined at the time the option is granted) of the Stock with respect to which Incentive Stock Options are exercisable for the first time by an individual during a calendar year shall not exceed $100,000 as determined under Section 422A of the Internal Revenue Code or comparable legislation. The maximum number of Shares for which stock options can be awarded to any one individual over any consecutive three-year period commencing on the effective date of the amendment to the Plan is 900,000 Shares. (b) The term of each option granted under the Plan shall be set by the Committee, but in no event shall an Incentive Stock Option be exercised after ten years following the date of its grant under this Plan. (c) The exercise price of each option granted under the Plan shall be no less than the fair market value of the underlying Stock at the time the option is granted as determined by the Committee. (d) Prior to the exercise of the option and delivery of the Stock represented thereby, the participant shall have no rights to any dividends nor be entitled to any voting rights on any Stock represented by outstanding options. (e) As a condition of any grant of a stock option under this Plan, each participant shall enter into an award agreement authorized by the Committee. The Committee may, in its sole discretion, include additional conditions and restrictions in the award agreement entered into under this Plan. (f) At the discretion of the Committee, SARs may be awarded separately or in combination with other awards or grants under this part of the Plan. 14.(15.) EXERCISE OF STOCK OPTIONS (a) Each stock option granted under this Plan shall be exercisable as provided in accordance with the document evidencing the option by full payment of the option price in cash or at the discretion of the Committee in Stock owned by the participant (including Performance Shares and other restricted Shares awarded under this Plan). Unless otherwise provided herein, a participant may exercise a stock A-6 option only if he or she is an employee of the Company and has continuously been an employee of the Company since the date the option was granted. ((b) If a participant terminates employment with the Company other than by reason of retirement after attaining age 62, death, or disability, any and all outstanding stock options granted under this Plan shall be terminated unless the Committee in its absolute discretion determines that, because of unusual circumstances, all or any portion of the outstanding option shall remain exercisable by such participant for such period as the Committee determines. If the Committee determines to extend all or any portion of the outstanding stock option, the option so extended shall then be treated, for federal income tax purposes, as a Non-qualified Stock Option.) (b)(c) If a stock option under the 1983 Plan or this Plan is exercised by a participant, then, at the discretion of the Committee, the participant may receive a replacement option under this part of the Plan to purchase a number of Shares equal to the number of Shares which the participant purchased on the exercise of the option, with an exercise price equal to the current fair market value, and with a term extending to the expiration date of the original stock option. If a stock option is exercised by delivery of restricted Shares, then the participant shall receive an equal number of identically restricted Shares; the remaining option exercise Shares shall contain any applicable restrictions which are set forth in the participant's award agreement and shall otherwise be unrestricted. ((d) Any tax withholding obligation in connection with an exercise of a stock option under the 1983 Plan or this Plan will be satisfied by authorizing the Company to withhold an appropriate number of Shares deliverable (subject to compliance with applicable securities laws and regulation).) (c)(e) In the event a Change of Control of the Company occurs, all stock options granted under this part of the Plan shall be immediately exercisable, and all restrictions on Shares issued under this plan pursuant to the exercise of stock option shall be immediately removed. EXECUTIVE CONTINUITY AWARDS 15.(16). TERMS AND CONDITIONS OF EXECUTIVE CONTINUITY AWARDS (a) Executive continuity awards may be made from time to time under this Plan at the discretion of the Committee, in such amounts and upon such terms and conditions as are established by the Committee under this portion of the Plan. (b) An executive continuity award shall consist of a stock option or grant of restricted Shares, or a tandem grant of restricted Shares together with a related n(N)on-qualified s(S)tock o(O)ption (options to be granted in accordance with the provisions of sections 13-14 (14-15) of this Plan) to purchase a specified number of Shares, in such amounts as may be determined by the Committee. All dividends paid on the restricted Shares shall be reinvested in additional shares of restricted Shares (subject to the same restrictions, terms and conditions). Upon attainment of age 65, (or death or the executive's becoming disabled as such condition is determined in the sole discretion of the Committee, if earlier) or upon a Change of Control of the Company (as limited under subsection (h) below), the restrictions on the award will be removed, and the award will vest in the following manner: (i) If the current realizable gain on a tandem stock option is greater than the current market value of the related restricted Shares (including re-invested dividends), then all such shares of restricted Shares shall be cancelled and the term of the stock option shall continue for the term set forth in the award agreement. (ii) If the current market value of the restricted Shares (including re-invested dividends) is greater than the current realizable gain on any related tandem stock option, then the option shall be cancelled and the restrictions shall be removed from all of the related restricted Shares. (c) If a stock option granted under this portion of the Plan is exercised prior to the executive's attainment of age 65, the related shares of restricted Shares shall be cancelled, and the additional A-7 Shares issued upon the exercise of the stock option shall be restricted and subject to either forfeiture or repurchase by the Company at the option exercise price for a period ranging up to 12 years from the date of the grant of the option, or longer, as determined by the Committee and set forth in the award agreement. (d) A stock option granted under this portion of the Plan shall be exercisable as provided in accordance with the document evidencing the option by full payment of the option price in cash or, at the discretion of the Committee, in Stock owned by the participant (including Performance Shares awarded under this Plan). At the discretion of the Committee, the participant may receive a replacement stock option to purchase a number of shares equal to the number of shares purchased by the participant in exercising the option, with an exercise price equal to the current market value, and with a term extending to the expiration date of the original stock option. If an option is exercised by delivery of restricted Shares, then the participant shall receive an equal number of identically restricted Shares; the remaining option exercise Shares shall be subject to the Company's right to impose restrictions on such Shares as described in subsection (c) above. ((e) Tax withholding obligations in connection with the vesting of restricted Shares will be satisfied by withholding Shares (subject to compliance with applicable securities laws and regulations) equal in value to the required withholding amount.) (e)((f)) As a condition of any executive continuity award under this Plan, each participant shall enter into an award agreement authorized by the Committee. The Committee may, in its sole discretion, include additional conditions and restrictions in the award agreement. (f)((g)) At the discretion of the Committee, SARs may be awarded separately or in combination with other awards or grants under this portion of the Plan. (g)((h)) In the event a Change of Control of the Company occurs, all restrictions shall be immediately removed with respect to the exercise of stock options under this part of the Plan and with respect to Shares issued upon the exercise of any stock option. A Change of Control, for these purposes, shall not include a transaction initiated by management such as a management led buyout or recapitalization except where such transaction (i) is in response to the acquisition of 10% or more of the Company's stock or the announcement of a tender offer for 20% or more of the Company's stock (other than by employee benefit plans sponsored by the Company); or (ii) is approved by the Board in accordance with the standards set forth in Section 717 of the New York Business Corporation Law or any successor provision. MISCELLANEOUS 16. PRIOR AWARDS Awards of stock options and Performance Shares made under the Plan prior to the amendments approved by shareholders at the 1994 annual meeting shall continue to be subject to the terms of the Plan and the instruments evidencing such awards prior to such amendments becoming effective. 17. TAX WITHHOLDING The Company shall have the right to deduct from any settlement of an award made under the Plan, including the delivery or vesting of Shares, a sufficient amount to cover withholding of any federal, state, local or foreign jurisdiction taxes required by law, or to take such other action as may be necessary to satisfy any such withholding obligations. The Committee may permit or require Shares to be used to satisfy required tax withholding and such Shares shall be valued at the fair market value as of the settlement date of the applicable award. A-8 INTERNATIONAL PAPER 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 6 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 included (or incorporated by reference) in this Form 10-K, into the Company's previously filed Form S-3 Registration Statement No. 33-32527, Form S-3 Registration Statement No. 33-44855, Form S-3 Registration Statement No. 33-48167, Form S-8 Registration Statement No. 2-86945, Form S-8 Registration Statement No. 2-57646 and post-effective amendments thereto, Form S-8 Registration Statement No. 33-11117, Form S-8 Registration Statement No. 33-38133, Form S-8 Registration Statement No. 33-50438 and Form S-3 Registration Statement No. 33-51447 and post-effective amendments thereto. ARTHUR ANDERSEN & CO. New York, New York, March 28, 1994 EX-24 7 POWER OF ATTORNEY EXHIBIT (24) POWER OF ATTORNEY Know all Men By These Presents, that the undersigned hereby constitutes and appoints JAMES W. GUEDRY, JAMES P. MELICAN and JAMES A. WILDEROTTER, and each of them (with full power to each of them to act alone) their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for them on their behalf and in their name, place and stead, in any and all capacities, to sign, execute and affix their seal thereto and file the Annual Report of 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 every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same, for all intents and purposes, and that the undersigned hereby ratify and confirm all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. Executed on the date set forth opposite their names. NAME TITLE DATE ---- ----- ---- /s/ JOHN T. DILLON ..................... Executive Vice March 8, 1994 (John T. Dillon) President and Director /s/ WILLARD C. BUTCHER ....................... Director March 8, 1994 (Willard C. Butcher) /s/ FREDERICK B. DENT ..................... Director March 8, 1994 (Frederick B. Dent) /s/ WILLIAM M. ELLINGHAUS ......................... Director March 8, 1994 (William M. Ellinghaus) /s/ STANLEY C. GAULT ..................... Director March 8, 1994 (Stanley C. Gault) /s/ THOMAS C. GRAHAM ..................... Director March 8, 1994 (Thomas C. Graham) /s/ ARTHUR G. HANSEN ..................... Director March 8, 1994 (Arthur G. Hansen) NAME TITLE DATE ---- ----- ---- /s/ WILLIAM G. KUHNS ..................... Director March 8, 1994 (William G. Kuhns) /s/ DONALD F. MCHENRY ..................... Director March 8, 1994 (Donald F. McHenry) /s/ PATRICK F. NOONAN ..................... Director March 8, 1994 (Patrick F. Noonan) /s/ JANE C. PFEIFFER ..................... Director March 8, 1994 (Jane C. Pfeiffer) /s/ SAMUEL R. PIERCE, JR. ......................... Director March 8, 1994 (Samuel R. Pierce, Jr.) /s/ EDMUND T. PRATT, JR. ........................ Director March 8, 1994 (Edmund T. Pratt, Jr.) /s/ ROGER B. SMITH ..................... Director March 8, 1994 (Roger B. Smith) -----END PRIVACY-ENHANCED MESSAGE-----