International Paper Company (the “Company” or “International Paper,” which may also be referred to as “we” or “us”) is a global paper and packaging company that is complemented by an extensive North American merchant distribution system, with primary markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. We are a New York corporation, 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, 2009, the Company operated 21 pulp, paper and packaging mills, 146 converting and packaging plants, 19 recycling plants and three bag facilities. Production facilities at December 31, 2009 in Europe, Asia, Latin America and South America included nine pulp, paper and packaging mills, 52 converting and packaging plants, and two recycling plants. We distribute printing, packaging, graphic arts, maintenance and industrial products principally through over 226 distribution branches in the United States and 38 distribution branches located in Canada, Mexico and Asia. At December 31, 2009, we owned or managed approximately 200,000 acres of forestlands in the United States, approximately 250,000 acres in Brazil and had, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Russia. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to industry capacity and general economic conditions.
For management and financial reporting purposes, our businesses are separated into six segments: Industrial Packaging; Printing Papers; Consumer Packaging; Distribution; Forest Products; and Specialty Businesses and Other. A description of these industry segments can be found on pages 24 through 25 of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company’s 50% equity interest in Ilim Holding S.A. is also a separate reportable industry segment.
RESEARCH AND DEVELOPMENT
The Company operates its primary research and development center in Loveland, Ohio, as well as several product laboratories. Additionally, the Company has a 1/3 interest in ArborGen, LLC, a joint venture with certain other forest products and biotechnology companies. We direct research and development activities to short-term, long-term and technical assistance needs of customers and operating divisions, and to process, equipment and product innovations. Activities include studies on 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 was $13 million in 2009, $22 million in 2008 and $24 million in 2007. The decrease in cost in 2009 reflects cost cutting measures.
We own numerous patents, copyrights, trademarks and trade secrets relating to our products and to the processes for their production. We also license intellectual property rights to and from others where necessary. Many of the manufacturing processes are among our trade secrets. Some of our products are covered by U.S. and non-U.S. patents and are sold under well known trademarks. We derive a competitive advantage by protecting our trade secrets, patents, trademarks and other intellectual property rights, and by using them as required to support our businesses.
As of December 31, 2009, we had approximately 56,100 employees, 37,500 of whom were located in the United States. Of the U.S. employees, approximately 24,100 are hourly, with unions representing approximately 14,300 employees. Approximately 10,200 of the union employees are represented by the United Steel Workers (USW).
International Paper and the USW entered into the 2007 Mill Agreement in July 2007, which established the framework for bargaining future local labor contracts at 14 of our U.S. pulp, paper and packaging mills. In April 2008, we entered into the 2008 Converting Agreement, which similarly establishes the framework for bargaining future local labor contracts at 32 of our converting facilities. These two agreements cover several specific items, including but not limited to wages, active medical benefits, successorship, employment security and health and safety. If local facility agreements are not successfully negotiated at the time of expiration, then, under the 2007 Mill Agreement and 2008 Converting Agreement, the local facility agreements will automatically renew with the same terms in effect at the time of expiration. Individual facilities continue to have local agreements for other items not covered by these agreements.
During 2009, labor agreements for four mills covered by the 2007 Mill Agreement expired. Of those four, local agreements at Pensacola, Florida and Augusta, Georgia were negotiated, and local agreements at Savannah, Georgia and Ticonderoga, New York were renewed with the same terms.
In November 2009, International Paper and the USW reached an agreement to integrate into the 2007 Mill Agreement the four mills we acquired from Weyerhaeuser Company in August 2008. The four mills are located in Pine Hill, Alabama, Red River, Louisiana, Valliant, Oklahoma and Port Hueneme, California. The local labor agreement for the mill at Pine Hill, Alabama renewed under the terms of the 2007 Mill Agreement.
Additionally during 2009, International Paper announced the shutdown, and bargained the effects of the closing of the Franklin, Virginia, Pineville, Louisiana and Albany, Oregon mills.
During 2010, labor agreements that are scheduled to expire at the mills in Riegelwood, North Carolina, Courtland, Alabama, Port Hueneme, California and Red River, Louisiana will automatically renew under the terms of the 2007 Mill Agreement if new agreements are not reached.
With regard to converting facilities, during 2009, labor agreements were renewed at Chicago, Illinois and Kalamazoo, Michigan pursuant to the 2008 Converting Agreement. Also in 2009, labor agreements were negotiated at seven converting facilities covered by the 2008 Converting Agreement. Labor agreements were also reached at 12 converting, distribution and consumer packaging locations (two of which were acquired from Weyerhaeuser Company in August 2008) that were not covered by the 2008 Converting Agreement.
Additionally during 2009, International Paper announced the shutdown, and bargained the effects of the closing, of the following nine facilities: Vernon, California, Cedarburg, Wisconsin, Kansas City, Kansas, St. Paul, Minnesota, Chesapeake, Virginia, Hartford City, Indiana, Howell, Michigan, Auburndale, Florida and Portland, Oregon.
During 2010, 32 labor agreements are scheduled to be negotiated in 36 converting, distribution and consumer packaging facilities. Two of these agreements will automatically renew under the terms of the 2008 Converting Agreement if new agreements are not reached. Thirty of these agreements are not covered by the 2008 Converting Agreement.