Item 1. Business
General
International Paper Company (the Company or International Paper, which may be referred to as we or us), is a global forest products, paper and packaging company that is complemented by an extensive distribution system, with primary markets and manufacturing operations in the United States, Canada, Europe, the Pacific Rim, and South America. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to available industry capacity and general economic conditions. We are a New York corporation and were incorporated in 1941 as the successor to the New York corporation of the same name organized in 1898. Our home page on the Internet is www.internationalpaper.com. You can learn more about us by visiting that site.
In the United States at December 31, 2001, the Company operated 33 pulp, paper and packaging mills, 90 converting and packaging plants, 35 wood products facilities, seven specialty panels and laminated products plants and eight specialty chemicals plants. Production facilities at December 31, 2001 in Europe, Asia, South America and Canada included 12 pulp, paper and packaging mills, 45 converting and packaging plants, 10 wood products facilities, three specialty panels and laminated products plants and seven specialty chemicals plants. We distribute printing, packaging, graphic arts, maintenance and industrial products through over 289 distribution branches located primarily in the United States. At December 31, 2001, the Company and its subsidiaries controlled about 10.4 million acres of forestlands in the United States, 1.5 million acres in Brazil and had, through licenses and forest management agreements, harvesting rights on government-owned timberlands in Canada and Russia.
Through Carter Holt Harvey, a New Zealand company which is approximately 50.4% owned by International Paper, the Company operates five mills producing pulp, paper, packaging and tissue products, 24 converting and packaging plants and 63 wood products manufacturing and distribution facilities, primarily in New Zealand and Australia. Carter Holt Harvey distributes paper and packaging products through six distribution branches located in New Zealand and Australia. In New Zealand, Carter Holt Harvey owns approximately 810,000 acres of forestlands.
For financial reporting purposes, our businesses are separated into six segments: Printing Papers; Industrial and Consumer Packaging; Distribution; Forest Products; Carter Holt Harvey; and Other Businesses. A description of these business segments can be found on pages 19 through 21 of our 2001 Annual Report to Shareholders (Annual Report), which information is incorporated herein by reference.
From 1996 through 2001, International Paper's capital expenditures approximated $8.1 billion, excluding expenditures for mergers and acquisitions. These capital expenditures reflect our continuing efforts to improve product quality and environmental performance, lower costs, and improve forestlands. Capital spending in 2001 was $1.0 billion and is budgeted to be approximately $1.0 billion in 2002. This amount is below our annual depreciation and amortization expense of $1.9 billion. You can find more information about capital expenditures on page 25 of our Annual Report, which information is incorporated herein by reference.
Discussions of mergers and acquisitions can be found on pages 26 and 48 of the Annual Report, which information is incorporated herein by reference.
You can find discussions of restructuring charges, divestitures and other special items on pages 26, 27, 29 through 32 and 48 through 59 of the Annual Report, which information is incorporated herein by reference.
Throughout this 10-K report, we 'incorporate by reference' certain information in parts of other documents filed with the Securities and Exchange Commission (SEC). The SEC permits us to disclose important information by referring to it in that manner. Please refer to such information.
Financial Information Concerning Industry Segments
The financial information concerning segments is set forth on pages 38 and 39 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 39 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. You can find more information about the impact of prices and costs on operating profits on pages 18 through 25 of the Annual Report, which information is incorporated herein by reference.
Marketing and Distribution
The Company sells paper and packaging products through our own sales organization directly to users or converters for manufacture. Sales offices are located throughout the United States as well as internationally. We also sell significant volumes of products through paper merchants and distributors, including facilities in our distribution network.
We market our U.S. production of lumber and plywood through independent and Company-owned distribution centers. Specialty products are marketed through various channels of distribution.
Description of Principal Products
The Company's principal products are described on pages 19 through 21 of the Annual Report, which information is incorporated herein by reference.
Sales volumes of major products for 2001, 2000 and 1999 were as follows:
Sales By Volume (1) (2) (3) (Unaudited)
- -------- (1) Includes third party and inter-segment sales. (2) Includes sales volumes for Champion from July 1, 2000. (3) Sales volumes for divested businesses are included through the date of sale. (4) Includes internal sales to mills.
Research and Development
The Company operates research and development centers at Sterling Forest, New York; Cincinnati, Ohio; Kaukauna, Wisconsin; Odenton, Maryland; Jacksonville, Florida; Savannah, Georgia; Annecy, France; a regional center for applied forest research in Bainbridge, Georgia; a forest biotechnology center in Rotorua, New Zealand; and several product laboratories. We direct research and development activities to short-term, long-term and technical assistance needs of customers and operating divisions; process, equipment and product innovations; and improve profits through tree generation and propagation research. Activities include studies on improved forest species and management; innovation and improvement of pulping, bleaching, chemical recovery, papermaking and coating processes; packaging design and materials development; 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. Our 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 in 2001 was $92 million; $92 million in 2000, including Champion for the period of July-December; and $88 million in 1999.
Environmental Protection
Information concerning the effects of the Company's compliance with Federal, State and local provisions enacted or adopted relating to environmental protection matters is set forth on pages 33 through 35 of the Annual Report, which information is incorporated herein by reference.
Employees
As of December 31, 2001, the Company had approximately 100,000 employees, 63,000 of whom were located in the United States. Of the domestic employees, approximately 35,000 are hourly employees, 21,000 of whom are represented by the Paper, Allied-Industrial, Chemical and Energy International Union.
During 2001, labor agreements were ratified at four mills. During 2002 labor agreements are scheduled to be negotiated at six mills: Texarkana; Ticonderoga; Savannah; Courtland; Augusta and Pineville.
During 2001, 19 labor agreements were settled in non-papermill operations. Settlements included 12 in paper converting, three in building materials, two in distribution, one in chemicals and one office workers unit. During 2002, 25 non-papermill operations will negotiate new labor agreements.
In 2001, effects of sale, closure or downsizing agreements were bargained with unions at 18 locations including six papermills, four building materials plants, five paper converting operations, two distribution sites and one forest resources operation.
Approximately 5,600 of our U.S. based hourly employees are subject to labor agreements that are scheduled to be negotiated during 2002.
Raw Materials
For information on the sources and availability of raw materials essential to our business, see Item 2.
Item 2. Properties
Forestlands
The principal raw material used by International Paper is wood in various forms. As of December 31, 2001, the Company or its subsidiaries controlled approximately 10.4 million acres of forestlands in the United States, 1.5 million acres in Brazil and had, through licenses and forest management agreements, harvesting rights on government-owned timberlands in Canada. An additional 810,000 acres of forestlands in New Zealand were held through Carter Holt Harvey, a consolidated subsidiary of the Company.
During 2001, the U.S. forestlands supplied 18 million tons of roundwood to the Company's U.S. facilities. This amounted to the following percentages of the roundwood requirements of its U.S. mills and forest products facilities: 19% in its Northern mills and 41% in its Southern mills. The balance was acquired from other private industrial and nonindustrial forestland owners, with only an insignificant amount coming from public lands of the United States government. In addition, in 2001, 10 million tons of wood were sold to other users. In November 1994, we adopted the Sustainable Forestry Principles developed by the American Forest and Paper Association in August 1994.
Mills and Plants
A listing of our production facilities, the vast majority of which we own, can be found in Appendix I hereto, which is incorporated herein by reference.
The Company's facilities are in good operating condition and are suited for the purposes for which they are presently being used. We continue to study the economics of modernization or adopting other alternatives for higher cost facilities.
Capital Investments and Dispositions
Given the size, scope and complexity of our business interests, we continuously examine and evaluate a wide variety of business opportunities and planning alternatives, including possible acquisitions and sales or other dispositions of properties. You can find planned capital investments for 2002, dispositions, and restructuring activities as of December 31, 2001 on pages 19, 25 through 32 and 48 through 59 of the Annual Report, which information is incorporated herein by reference.
Item 3.
Item 3. Legal Proceedings
Information concerning the Company's legal proceedings is set forth on pages 33 through 35 and 61 through 65 of the Annual Report, which information is incorporated herein by reference.
Item 4.
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, 2001.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Dividends per share data on the Company's common stock and the high and low sale prices for the Company's common stock are set forth on page 74 of the Annual Report and are incorporated herein by reference.
As of March 12, 2002, there were 39,653 holders of record of the Company's common stock.
Item 6.
Item 6. Selected Financial Data
The Company columnar table showing selected financial data for the Company is set forth on pages 74 through 76 of the Annual Report and is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
Management discussion and analysis on the consolidated financial statements are set forth on pages 18 through 37 of the Annual Report and is incorporated herein by reference.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Quantitative and qualitative disclosures about market risk are set forth on pages 36 and 37 of the Annual Report and are incorporated herein by reference.
Item 8.
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 40 through 73 of the Annual Report and are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors of the Company is included on pages 11 through 13 of the Company's Proxy Statement, dated March 25, 2002 (Proxy Statement), to be filed on or about March 25, 2002, which information is incorporated herein by reference. Information with respect to the executive officers of the Company is set forth below:
John T. Dillon, 63, chairman and chief executive officer since 1996. Prior to that he was executive vice president-packaging from 1987 to 1995, when he became president and chief operating officer.
Robert M. Amen, 52, executive vice president since 2000. He served as President of International Paper- Europe from 1996 to 2000 and prior to that was vice president-consumer packaging.
John V. Faraci, 52, executive vice president and chief financial officer since 2000. Prior to that he was senior vice president-finance and chief financial officer from 1999. From 1995 until 1999 he was chief executive officer and managing director of Carter Holt Harvey Limited of New Zealand.
James P. Melican Jr., 61, executive vice president since 1991. Prior to that he was senior vice president and general counsel from 1987 until 1991.
David W. Oskin, 59, executive vice president since 1995. He was chief executive and managing director of Carter Holt Harvey Limited of New Zealand from 1992 to 1995. Prior to that he was senior vice president-distribution, timber and wood.
Marianne M. Parrs, 58, executive vice president since 1999. She was senior vice president and chief financial officer from 1995 to 1999.
Andrew R. Lessin, 59, vice president-finance and chief accounting officer since 2000. From 1995 to 2000 he was vice president and controller. Prior to that he was controller from 1991 to 1995.
William B. Lytton, 53, senior vice president and general counsel since January 1999. From 1996 to 1999 he was vice president and general counsel.
Executive officers of International Paper are elected to hold office until the next annual meeting of the Board of Directors following the annual meeting of shareholders and until election of successors, subject to removal by the Board.
Information with respect to compliance with Section 16(a) of the Securities and Exchange Act is set forth on page 16 of the Proxy Statement and is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
Information with respect to the compensation of executives and directors of the Company is included in the Proxy Statement on the pages set forth below, which information is incorporated herein by reference:
A description of the compensation of the Company's directors is set forth on page 10.
A discussion regarding the Company's compensation committee interlocks and insider participation is set forth on page 16.
A description of the compensation of the Company's executive officers is set forth on pages 14 through 16 and pages 18 through 23.
A discussion regarding termination agreements with various executive officers of the Company is set forth on pages 24 and 25.
The Report of the Management Development and Compensation Committee of the Board of Directors is set forth on pages 14 through 16.
The Performance Graph comparing an investment in Company Stock with an investment in the S&P 500 and peer group companies is set forth on page 17.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
A description of the security ownership of certain beneficial owners and management is set forth on pages 8 and 9 of the Proxy Statement and is incorporated herein by reference.
The table showing ownership of the Company's common stock held by individual directors and by directors and executive officers as a group is set forth on pages 8 and 9 of the Proxy Statement, and is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
A description of certain relationships and related transactions is set forth on page 7 of the Proxy Statement and is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Consolidated financial statements
The consolidated financial statements of the Company and consolidated subsidiaries listed below are incorporated herein by reference to the following pages of the Annual Report:
2. Financial statement schedule
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.
ADDITIONAL FINANCIAL DATA 2001, 2000 AND 1999
Report of Independent Public Accountants on Financial Statement Schedule... 13 Consolidated Schedule: II Valuation and Qualifying Accounts................................... 14
3. Exhibits
(b) Reports on Form 8-K
International Paper filed a report on Form 8-K on October 17, 2001, reporting earnings for the quarter ended September 30, 2001.
International Paper filed a report on Form 8-K on November 27, 2001 under Item 9, reporting that Mr. Amen was speaking at an industry conference and including copies of his presentation.
International Paper filed a report on Form 8-K on January 22, 2002 under Item 5, reporting earnings for quarter ended December 31, 2001 and earnings for the year ended December 31, 2001.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To International Paper Company:
We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in the Company's 2001 Annual Report to Shareholders incorporated by reference in this Form 10-K and have issued our report thereon dated February 12, 2002. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, based on our audits, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, N.Y. February 12, 2002
SCHEDULE II
INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
- -------- (a) Includes write-offs, less recoveries, of accounts determined to be uncollectible and other adjustments. (b) Includes payments and deductions for reversals of previously established reserves that were no longer required.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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
/S/ BARBARA L. SMITHERS By: ----------------------------- Barbara L. Smithers Vice President and Secretary
March 18, 2002
SIGNATURES 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:
/S/ BARBARA L. SMITHERS *By: ------------------------- Barbara L. Smithers Attorney-in-fact
Appendix I 2001 Listing of Facilities (All facilities are owned except noted otherwise)
A-1
A-2
A-3