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International Paper Company

International Paper Company

400 Atlantic Street
Stamford, Connecticut 06921
U.S.A.
Telephone: (203) 541-8000
Fax: (203) 358-6444
Web site: http://www.internationalpaper.com

Public Company
Incorporated:
1898
Employees: 113,000
Sales: $26.36 billion (2001)
Stock Exchanges: New York Montreal Swiss Amsterdam
Ticker Symbol: IP
NAIC: 113110 Timber Tract Operations; 113210 Forest Nurseries and Gathering of Forest Products; 321113 Sawmills; 321210 Veneer, Plywood, and Engineered Wood Product Manufacturing; 322110 Pulp Mills; 322121 Paper (Except Newsprint) Mills; 322130 Paperboard Mills; 322212 Folding Paperboard Box Manufacturing; 322215 Nonfolding Sanitary Food Container Manufacturing; 322233 Stationery, Tablet, and Related Product Manufacturing; 422110 Printing and Writing Paper Wholesalers; 422130 Industrial and Personal Service Paper Wholesalers

International Paper Company (IP) is the worlds largest producer of paper, packaging, and forest products. Within specific industry segments, the firm is the worlds leading producer of printing and writing papers and of bleached packaging board, as well as the second largest maker of containerboard in the United States. IP owns or manages about 12 million acres of forestlands in the United States, primarily in the South, and owns, manages, or has an interest in nearly 11 million acres in other countries. The company holds majority ownership of Auckland, New Zealand-based Carter Holt Harvey, one of the largest forest-products companies in the Southern Hemisphere. IP also operates a distribution businessoperating in North America as xpedx and in Europe as Paperteries de France, Scaldia (Netherlands), and Impap (Poland)which distributes printing paper, packaging, and graphic arts products to industrial wholesalers and end users. Nearly 80 percent of the products distributed are made by other companies. International Paper began as a major player in its core industry and expanded through mergers, acquisitions, and product development. By the early 21st century, IP had operations in nearly 50 countries and was exporting its products to more than 130 nations.

Early History

Established on January 31, 1898, the firm resulted from a merger of 17 pulp and paper mills located throughout five northeastern states. The new company had one million acres of timberlands, with the properties ranging as far north as Canada, and streams running through the properties were used to run the mills with hydroelectric power. By 1900, the mills provided 60 percent of U.S. newsprint. In 1903, in order to enhance its research and development efforts, the company opened the Central Test Bureau in Glens Falls, New York.

The companys power interests played a dominant role in its early years. As household electricity demand grew in the 1920s, the firm established large hydroelectric plants and power companies. At one time, it produced enough electricity to light all of New England and most of Quebec and Ontario. In 1928 International Paper & Power Company was organized in Massachusetts to acquire International Paper. IP continued to operate as a subsidiary of International Paper & Power. In 1935 the United States passed the Public Utility Holdings Act, making it illegal for an organization to run both an industrial firm and a power company. The law signified the end of International Papers involvement in the energy and power business. Instead, the company began to focus on key areas such as paper and packaging.

The company expanded into the southern United States in the 1920s and 1930s, primarily because trees could be grown more quickly and in greater volume than they could in the North. It also maximized its use of the trees through the kraft process, which involved use of a very strong pulp to manufacture packaging materials.

In June 1941 a new company was incorporated to acquire the assets of International Paper & Power Company. The new parent company was named International Paper Company to reflect the change from a paper and power company to a manufacturer devoted solely to paper. During World War II, International Paper did what it could to support the war effort. Its contributions included the development of nitrate pulp for use in explosives and the development of a waterproof board called V-boardvictory boardwhich was used to make boxes to send food and other supplies to the troops. The new technology, along with the wartime inventions of other manufacturers, led to increased competition after the war. As a result, IP began to invest more capital in research and development. Shortly after the war, it established the Erling Riis Research Laboratory in Mobile, Alabama.

An emphasis on packaging products also characterized the firms progress in the 1940s. In December 1940 it acquired the Agor Manufacturing Company, which included three subsidiaries and four container plants in Illinois, Kansas, Massachusetts, and New Jersey. In June 1941 IP merged the Southern Kraft Corporation with its main business. Previously a subsidiary, Southern Kraft owned eight kraft board and paper mills in the southern United States. IP also bought the assets of a shipping-container maker, the Scharff-Koken Manufacturing Company.

In 1947 IP merged with Single Service Containers Inc., a manufacturer of milk containers, and in 1952 it founded the International Paper Company Foundation, a nonprofit organization developed to support charitable, educational, and scientific efforts. IP acquired the capital stock of a specialty coated paper manufacturer, A.M. Collins Manufacturing Company, of Philadelphia, in 1955. In 1957 the latter merged with IP. In 1958 IP bought Lord Baltimore Press, Inc., a Maryland manufacturer of cartons and labels.

IPs Canadian subsidiary, Canadian International Paper Company, also made its share of acquisitions in the 1950s. These included Brown Corporation in 1954; Hygrade Containers Ltd. in 1955; and Anglo American Paper Company, Mid-West Paper Ltd., Vancouver Pacific Paper Company, and Victoria Paper Company in 1959.

1960s and 1970s: Diversifying Beyond the Core, with Mixed Results

During the following decade, new technology improved both product design and manufacturing processes. In 1962, for example, IP began using computers to control paper machines at its mill in Georgetown, South Carolina. A year later, it introduced polyethylene-coated milk cartons. In addition to new products, the 1960s presented IP with challenges, including development of new production and management techniques. Since 1943 IP had been headed by the Hinman family; John Hinman was chief executive from 1943 to 1962, and his son, Edward B. Hinman, held the post from 1966 to 1969. Various associates appointed by the elder Hinman ran the company from 1962 to 1966.

During the 1960s IP continued to grow internally and took giant leaps toward diversificationmany of them in hasteand learned that bigger is not always better. IP had emphasized production efficiency as a means of increasing output for most of the century. IPs production muscle came at the expense of marketing expertise, which lagged. The production emphasis led to overexpansion of paper plants, which in turn resulted in low profit margins. To increase profitability, IP diversified, with little success, into areas as far ranging as residential construction, prefabricated housing, nonwoven fabrics, consumer facial tissue, and disposable diapers. It also moved into lumber and plywood but found equally little success in those areas. White paper, paperboard, and pulp still accounted for more than half of the companys sales during the early 1970s; converted paper products comprised one-third; lumber, plywood, and other building products totaled 9 percent; and the remaining sales came from real estate, packaging systems, and nonwoven fabrics.

By 1971 IPs long-term debt, which had been almost nonexistent in 1965, reached $564 million. When Edward Hinman took over in 1966, the companys greatest asset was its large share of real estate, including eight million acres that it owned and 15.5 million that it leased. In 1968 Hinman sought the help of Frederick Kappel, formerly chairman of AT&T. The two ran the company together, but after earnings declined by 30 percent in 1970, Kappel and a team of outside directors replaced Hinman the following year with Paul A. Gorman, another AT&T executive. Gorman faced the challenge of returning the company to profitability.

Gorman started the long-term task by setting up a $78 million reserve to cover write-offs of inefficient facilities; closing a specialty mill in York Haven, Pennsylvania; and closing various plants in Ecuador, Italy, Puerto Rico, and West Germany. In 1972 he also sold most of Donald L. Bren Co., a southern California house builder acquired in 1970, and Spacemakers Inc., a prefabricated-housing subsidiary. The company also sold its interest in C.R. Bard, Inc., a medical equipment manufacturer.

Company Perspectives:

The IP Way: As in the past, International Paper is committed to continuous improvement in everything it does, and the key is the people who make up the company. In 1898, a typical paper mill was run by skilled workers who knew more about pulp production, paper machines and product quality than anyone else in the organization. One hundred years later, International Paper is committed to becoming a High Performance Organization, a company with a greater degree of teamwork and greater decision-making power delegated throughout the organization in order to better satisfy customers and beat the competition.

Employees sharing their ideas and experiences to improve the business is part of what has come to be called the IP way. More formally, the IP Way includes a commitment to be a global leader and earn an excellent return. It includes being the company of choice not only for customers, but employees, shareholders and suppliers.

From 1966 to 1972, IP had spent $1 billion to increase its paper-making and -converting capacity by 25 percent. During the early 1970s the paper industry headed toward cyclical recession.

IP laid off 7 percent of its employees. Gorman felt that the firm needed more financial control and saw to it that decisions made by the companys manufacturing groups were reviewed from a financial, marketing, and manufacturing perspective. In addition, all projects had to show a minimum after-tax profit of 10 percent. Ailing plants were improved, sold, or shut down. Gorman also reorganized international operations on a product line basis. His efforts were successful. Earnings of $69 million in 1971 were the lowest in ten years, despite record earnings just two years earlier, but they jumped 30 percent the first six months of 1972.

In 1973 J. Stanford Smith joined IP as vice-chairman. Previously a senior vice-president with General Electric, Smith eventually would replace Gorman as chairman. Smith felt that one way to increase profitability was to develop natural resources on the companys land. He devised a plan to purchase General Crude Oil Company, which IP did in 1974 for $489 million. The business was unsuccessful, however, in locating major oil or gas deposits on IPs land. Five years later, in order to raise capital for acquisitions and internal growth, the company sold General Crude Oils oil and natural gas operations to Gulf Oil Corporation for $650 million. In addition, IP sold a Panama City, Florida, pulp and linerboard mill to Southwest Forest Industries for $220 million.

Early 1980s: Major Plant Modernization Program

Between 1975 and 1980, IPs operating profits were mediocre. Again it turned to new management for help, and in 1979 Edwin Gee stepped in as chairman. A chemical engineer, Gee recognized that many of the companys 16 pulp and paper millsall built in the 1920s and 1930swere wasting labor and energy. Immediately, he instituted a $6 billion program to modernize the plants. Gees goal was to turn the worlds largest paper company into one of the lowest-cost producers of white paper and packaging materials, thus making it one of the most profitable papermakers as well.

To raise money for Gees plan IP sold its remaining interest in General Crude Oil Company for $763 million and used the profits to buy Bodcaw Company of Dallas in 1979. Bodcaw added a highly efficient linerboard mill in Pineville, Louisiana, and 420,000 acres of prime timberland. In 1981 IP sold Canadian International Paper for US$900 million. In addition, Gee increased the research-and-development budget and reduced IPs labor force by 20 percent. By 1982 he had raised US$2 billion, aided by sales of land, timber, and other subsidiaries.

After determining that only two of the six major packaging mills were operating efficiently, Gee sold one mill, shut down three others, and invested $600 million in the Mansfield, Louisiana, mill. In April 1981 IP unveiled a new southern pine plywood and lumber manufacturing plant in Springhill, Louisiana. The $60 million facility, the brainchild of Gee, featured the latest computerized process controls and supplied the container-board mill in Mansfield plus paper and pulp mills at Camden, Arkansas, and in Bastrop, Louisiana.

In the same year, John Georges became chief operating officer. His solution to IPs production problems was not to build new plants but to remodel existing facilities. The company also spent $500 million on remodeling a Georgetown, South Carolina, mill, changing its product focus in the process. Instead of brown linerboard, a cyclical product, part of the plant was set up to make white papers. The white paper business was to offer a faster-growing and more stable market.

In addition, Georges began a $350 million project to convert another mill in Mobile, Alabama. The 60-year-old facility, which housed the companys last remaining newsprint machine, was also remodeled to produce white papers in 1985, thus marking the end of the companys longstanding newsprint business. In 1987, newsprint prices began a steady decline.

A recession in the early 1980s meant further delays but the investments began to bear fruit in the mid-1980s. As a result of new automation, IPs production costs decreased 11 percent between 1981 and 1987 and its mills were able to use 25 percent less energy. Georges was named chairman in 1985, succeeding Gee.

Key Dates:

1898:
International Paper Company (IP) is formed from the merger of 17 pulp and paper mills in the northeastern United States.
1928:
With IPs power business growing, International Paper & Power Company is formed as a holding company for IP and its power operations.
1935:
Passage of the Public Utility Holdings Act makes it illegal for an organization to operate both industrial and power businesses, leading to the divestment of IPs power interests.
1941
: A new International Paper Company is incorporated to acquire the assets of International Paper & Power and to signal the new focus on paper.
1981:
Canadian International Paper subsidiary is sold to help fund a major plant modernization program in the United States.
1986:
Hammermill Paper Company is acquired.
1988:
Masonite Corporation is acquired.
1989:
IP acquires Aussedat-Rey of France and Germanys Zanders Feinpapiere AG.
1993:
North American distribution operations are consolidated as ResourceNet International.
1995:
IP gains majority control of New Zealand-based Carter Holt Harvey.
1996:
Montvale, New Jersey-based Federal Paper Board Company is acquired for $3.5 billion.
1998:
ResourceNet International changes its name to xpedx.
1999:
Union Camp Corporation is acquired for $7.9 billion.
2000:
IP acquires Shore wood Packaging Corporation for $920 million and Champion International Corporation for $10.2 billion; IP announces plans to divest $5 billion in assets by year-end 2001.
2001:
Divestments include Masonite and Zanders Fein-papiere.

Late 1980s to Mid-1990s: Diversifying Geographically and in Product Mix

The appointment had been preceded in 1984 by a decline in linerboard and pulp prices and a 14-year low in earnings. The white-paper market seemed to be one of the few that was profitable, so Georges hired a team of scientists and technicians to promote business in that area. Their work led to a major acquisition in 1986: Hammermill Paper Company. The $1.1 billion purchase increased IPs white-paper capacity by 750,000 tons and provided the technology to produce premium paper lines. Georges also reduced the number of salaried employees from 12,000 in 1981 to 9,200 in 1988, and streamlined management. Under his leadership, the firm also acquired Anitec Image Technology Corporation, maker of photographic film, papers, and darkroom chemicals; Avery Corporation, a Chicago-based envelope manufacturer; and Kendall Companys nonwoven fabrics division. IP also purchased Masonite Corporation, maker of composite wood products, in 1988. As a result, profits improved in 1988 and set a record in 1989.

In addition to the companys recovery, however, it also weathered several crises. These included a 1984 fire that destroyed its Nacogdoches, Texas, plywood-manufacturing plant, causing $32.5 million in damages. The facility reopened in 1986 after being equipped to produce oriented-strand board. In 1987, to protest inadequate wages and benefits, 2,200 workers went on strike at paper mills in Alabama, Maine, Mississippi, and Wisconsin.

Under Georgess leadership, the watchword at IP in the late 1980s and early 1990s was diversity, both in geography and product mix. His aim was to lessen the firms vulnerability to the cyclical nature of its core paper, packaging, and forestry operations. Many of the international acquisitions that Georges pursued were aimed at expanding IP further into the area of specialty products, which generally produce higher margins. These products included photographic paper and films, specialty industrial papers, molded-wood products, laminated products, and nonwoven fabrics such as disposable diapers. Although similar in some ways to the firms diversification of the 1960s, this round of expansion proved more successful.

Heading into its overseas spending spree, International Paper already owned box-manufacturing facilities in Italy, the Netherlands, Spain, Sweden, and the United Kingdom. In 1989 it acquired three major European manufacturers: Aussedat-Rey, the second largest paper company in France; the Ilford photographic-products division of Ciba-Geigy; and Germanys Zanders Feinpapiere AG, a high-quality coated-paper company. In 1990 IP bought the French operations of Georgia-Pacific Corporation.

The following year, in addition to bolstering its domestic base with the purchase of two U.S. paper companiesDillon Paper and Leslie Paperand its European holdings with the acquisition of Scaldia Paper BV of the Netherlands and the packaging equipment business of Dominion Industries Ltd., IP gained a presence in the Pacific Rim through a $258 million purchase of a 16 percent interest in the leading New Zealand forest products company, Carter Holt Harvey Ltd. (CHH). IP increased its stake in CHH in 1992 to 24 percent by investing an additional $298 million. Not only dominant in its home market, CHH was a major exporter of forest products to Australia and Asia. Also in 1992, IP paid $209 million for an 11 percent stake in Israels Scitex Corporation Ltd., a world leader in color electronic-imaging equipment. The stake was increased to 12 percent the following year. The company also purchased Kwidzyn from the government of Poland for $150 million and the promise to invest $75 million more in the firm, the countrys largest white-paper manufacturer and operator of one of the most modern paper mills in Eastern Europe.

IPs diversification program appeared to pay off in the early 1990s when the paper industry encountered one of its worst cyclical downturns in 50 years. While competitors Boise Cascade Corp. and Champion International Corp. posted huge losses, IP continued to report profits, albeit smaller than those of 198890. Sales in 1992 hit a record $13.6 billion, although earnings were reduced substantially by a $263 million restructuring charge for the closure and consolidation of 20 underper-forming mills and sales offices worldwide. In 1993 IP folded its North American distribution business into ResourceNet International, with more than 250 locations.

IP continued to expand aggressively in the mid-1990s. In 1994 ResourceNet International picked up two paper-distributing companies in Mexico, while in the area of liquid packaging, a new plant was built in Brazil and a joint venture was formed in China to build and operate a plant near Shanghai. IP made its biggest purchases yet in 1995, however. The firm spent $1.15 billion to attain majority control of Carter Holt Harvey and $64 million to acquire DSM, a producer of ink and adhesive resin based in the Netherlands. IP attempted to acquire Holvis AG, a Swiss fiber and paper company, for $422 million but was rebuffed by the Holvis board. Late in 1995 IP announced a $3.5 billion purchase of Federal Paper Board Company, based in Montvale, New Jersey, and the 15th largest paper company in the United States. Federal Paper specialized in bleached paper-board used for cigarette cartons, laundry detergent, and other consumer products, and, added to IPs packaging operations, gave IP about one-third of the bleached board market. Through the transaction, IP gained mills in Augusta, Georgia; Riegelwood, North Carolina; and Versailles, Connecticut.

Fittingly, the Federal Paper acquisition was consummated nearly simultaneously with the announcement of Georgess retirement as chairman and CEO, both of which occurred in early 1996. Georgess diversification program had increased non-U.S. sales to 30 percent of total revenues by 1994. While IPs core paper, pulp, and paperboard businesses accounted for 78 percent of sales in 1988, they accounted for only 52 percent of sales by 1994. During the same period, IPs specialty products share of sales increased from just 3.7 percent to 17.3 percent. Overall, during Georgess leadership tenure, annual revenues at the company quadrupled to nearly $20 billion.

Late 1990s into 21st Century: Restructurings and Major Acquisitions

John T. Dillon, previously president and COO, succeeded Georges as chairman and CEO of International Paper. In addition to working to consolidate the Federal Paper acquisition, Dillons initial months of leadership focused on divesting some operations, in part to offset the approximately $800 million in long-term debt incurred with the purchase of Federal Paper. In the most significant divestment of 1996, International Paper sold off about 300,000 acres of timberlands in Oregon and Washington, booking a $592 million pretax gain in the process. Also in 1996, IP took a $515 million restructuring and asset impairment charge as part of an ongoing cost-cutting program. A large proportion of the charge went toward the writing off of assets in the companys struggling imaging products business, maker of printing plates, films, chemicals, and paper for the photography and commercial printing market. With market conditions suddenly deteriorating after a record-setting year for the paper industry in 1995, IP saw its net earnings drop to $303 million in 1996 from the $1.15 billion of the previous year.

Conditions failed to improve in 1997, and Dillon responded mid-year with a major restructuring plan that aimed to divest more than $1 billion in underperforming assets or businesses. By mid-1998 IP had sold its imaging products business; Veratec, its nonwovens business; two of its four box plants in California; and small paper mills in France and Colombia. The companys workforce was reduced by about 10 percent. Restructuring and other charges led to a net loss of $151 million for 1997. Among the other charges that year was $150 million set aside as a legal reserve as part of the settlement of a class-action lawsuit brought against Masonite Corporation. The suit alleged that pressed-wood exterior siding made by Masonite was failing prematurely, allowing moisture to be retained and causing damage to the underlying structure. In September 1996 a jury found that the siding was defective, leading to the settlement in January 1998. Two other similar suitsone also involving siding, the other a roofing materialagainst Masonite were settled in similar fashion in January 1999.

Concurrent with the restructuring efforts were targeted acquisitions. IPs North American distribution business, which changed its name from ResourceNet International to xpedx in January 1998, expanded in July of that year with the purchase of the Mead Corporations Zellerbach distribution unit for about $261 million in cash. This acquisition increased xpedxs 1998 revenues to $5.2 billion, a 22 percent increase over the previous year. The combination was expected to result in annual savings of $100 million in operating costs, and IP shut down 25 facilities and eliminated about 1,000 jobs following the deals closure. Also added in 1998 was Weston Paper and Manufacturing Company, acquired through a stock deal valued at $232 million. Based in Terre Haute, Indiana, Weston operated 11 corrugated-container plants in the South and Midwest. In December 1998 International Paper expanded in eastern Europe with the purchase of Svetogorsk AO, a Russia-based pulp and paper firm.

Dillon moved beyond these smaller deals in April 1999 with a blockbuster stock-swap acquisition of Union Camp Corporation for about $7.9 billion, including the assumption of about $1.6 billion in Union Camp debt. Although much larger than the previous several acquisitions, this deal was also targeted in the sense that Union Camps operations meshed so well with those of International Paper. Two of Union Camps strengths uncoated paper and containerboardwere strengths of IP as well. Union Camps Ailing and Cory distribution business was merged into xpedx. The merger also added 1.6 million acres of timberlands to IPs holdings, with most of the new lands adjacent to the previously held ones. Union Camp also held a 68 percent stake in Bush Boake Allen, Inc., a leading producer of flavors and fragrances, and this concern was seen as complementary to IPs Arizona Chemical unit, a product of an early diversification effort dating back to the early 1930s. In the wake of the Union Camp acquisition, IP eliminated more than 3,600 jobs from its workforce and closed a number of unprofitable plants in an effort to eliminate excess capacity.

IPs acquisition spree continued in 2000, with the company picking up Shorewood Packaging Corporation in March for about $640 million in cash plus assumed debt of $280 million and Champion International Corporation in June for about $5 billion in cash and $2.4 billion in IP stock and the assumption of $2.8 billion in debt. Both acquisitions involved third parties. In the case of Shorewood, that company had been fending off a hostile takeover by Chesapeake Corporation before agreeing to be acquired by IP. The addition of Shorewood greatly expanded IPs position in the high end of the consumer packaging sector, making it a leading provider of high-quality printing and paper-board packaging for home entertainment, cosmetics, health and beauty, pharmaceutical, sporting goods, tobacco, and other consumer products. Champion had agreed to be acquired by UPM-Kymmene Corporation of Finland in February 2000 in a stock-swap deal originally valued at $6.6 billion. UPMs stock had fallen significantly in price, reducing the value of the deal, by April 2000, which is when IP stepped in with its first offer, a combined cash and stock transaction valued at $6.2 billion. UPM responded with an all-cash offer of $70 per share, or $6.8 billion. But in May International Paper emerged the winner of a tense takeover battle with a revised offer of $75 in cash and stock, or $7.4 billion.

Champion was a company with 1999 revenues of $5.27 billion and papermaking capacity of 4.79 million tons a year. It ranked as the second largest producer of magazine paper and the sixth largest maker of office paper in North America. Champion (and Shorewood) had distribution operations that were absorbed by xpedx postmerger. The five million acres of U.S. timberlands controlled by Champion greatly increased IPs land holdings. Champion also had key assets outside the United States. Its Weldwood of Canada Limited subsidiary was a manufacturer of pulp, lumber, plywood, and engineered wood products with operations centered in British Columbia and Alberta. Brazil-based Champion Papel e Celulose Ltda. was one of South Americas leading makers of office paper and a major producer of magazine paper with a total of 600,000 tons of annual capacity. IP also gained the significant timber holdings in Canada and Brazil controlled by these two companies, and even more importantly it now had a major presence on three continents: North America, Europe, and South America. International Paper also gained a new headquarters through the Champion deal as the company moved its head offices to the former headquarters of Champion in Stamford, Connecticut, later in 2000.

During 2000 IP also launched a major divestiture program. It was originally aimed at eliminating $3 billion in assets but this figure was increased to $5 billion following the acquisition of Champion. The divestitures were slated to be completed by the end of 2001. The program had a number of goals: cutting down the debt incurred from the string of acquisitions; paring the companys operations to three core areas: paper, packaging, and forest products; and reducing capacity in an attempt to break free of the ups and downs of the paper industry cycle. In November 2000 IP sold its interest in Bush Boake Allen for $640 million. During 2001, IP completed a series of divestitures, selling its petroleum and minerals business, 265,000 acres of forest lands in Washington and 800,000 acres in east Texas, Masonite Corporation, Zanders Feinpapiere, a hydroelectric facility in the state of New York, a water company in Texas, and its flexible packaging business. The company also closed down a number of mills and announced plans to lay off about 3,000 workers in the United States, or about 10 percent of the workforce there. By early 2002 International Paper was still attempting to sell a number of businesses, including Arizona Chemical, its industrial packaging business, its chemical cellulose unit, its decorative products unit, and its oriented strand board facilities.

For 2001 IP reported revenues of $26.36 billion, a decline from the previous years total of $28.18 billion. Thanks to restructuring and other charges of $1.12 billion and losses on the sales of businesses totaling $629 million, the company posted a net loss of $1.27 billion for the year. Despite this volley of red ink, under the continued leadership of Dillon, International Paper had made great strides in its ambitious restructuring program, and it remained the worlds largest forest products company while appearing to have transformed itself into a much nimbler, more competitive, and potentially more profitable giant.

Principal Subsidiaries

Sustainable Forests, LLC; Carter Holt Harvey (New Zealand; 50.4%); International Paper S.A. (France; 99.92%); Weldwood of Canada Limited.

Principal Operating Units

Coated and Supercalendered Papers; Consumer Packaging; Distribution (xpedx); European Papers; Forest Products; Forest Resources; Industrial Papers; Industrial Packaging; Lumber Products; Panels & Engineered Wood Products; Printing & Communications Papers.

Principal Competitors

Georgia-Pacific Corporation; Weyerhaeuser Company; Stora Enso Oyj; MeadWestvaco Corporation; Boise Cascade Corporation; Smurfit-Stone Container Corporation; UPM-Kymmene Corporation; Jefferson Smurfit Corporation; Svenska Cellulosa Aktiebolaget SCA.

Further Reading

Byrnes, Nanette, and Michael Arndt, John Dillons High-Risk Paper Chase, Business Week, January 22, 2001, pp. 58, 60.

Deutsch, Claudia H., International Paper Offers $6.2 Billion for Champion, New York Times, April 26, 2000, p. C2.

Heinrich, Thomas, Product Diversification in the U.S. Pulp and Paper Industry: The Case of International Paper, 18981941, Business History Review, Autumn 2001, pp. 467505.

IP Buys Zellerbach Merchant from Mead, Pulp and Paper, August 1998, pp. 15, 17.

IP Planning to Take a $500-Million Charge, Pulp and Paper, April 1996, p. 23.

Killian, Linda, A Walk in the Woods, Forbes, September 30, 1991, pp. 7879.

Kimelman, John, Slash and Build: While Restructuring at Home, International Paper Is Investing Overseas, Financial World, April 13, 1993, p. 28.

Loeffelholz, Suzanne, Putting It on Paper, Financial World, July 25, 1989, p. 26.

Osborne, Richard, An Unpretentious Giant: John Georges Has Quietly Built International Paper into a Diversified $15 Billion Corporation, Industry Week, June 19, 1995, pp. 7376.

Palmer, Jay, No Lumbering Giant: International Paper Races to New Peaks in Earnings, Barrons, January 2, 1989, p. 13.

Pulp Friction, Economist, November 11, 1995, p. 66.

Starkman, Dean, International Paper Has Its Work Cut Out for It, Wall Street Journal, May 15, 2000, p. A4.

, Shorewood Agrees to International Paper Acquisition, Wall Street Journal, February 17, 2000, p. C15.

Sullivan, Allanna, International Paper Shutting Plants to Cut Supply, Wall Street Journal, October 19, 2000, p. A4.

Welsh, Jonathan, International Paper Settles Suit on Masonite Siding, Wall Street Journal, July 15, 1997, p. B3.

, International Paper Unveils Revamping and Posts Better-than Expected Results, Wall Street Journal, July 9, 1997, p. A4.

, IP Agrees to Acquire Union Camp Corp., Wall Street Journal, November 25, 1998, p. A3.

Willoughby, Jack, Paper Tiger: A Dow Dowager No More, International Paper Works Itself into Fighting Trim, Barrons, July 9, 2001, pp. 2122.

Young, Jim, International Paper Co.: Worldwide Expansions Gear for Economic Recovery, Pulp and Paper, May 1994, pp. 32, 35.

Kim M. Magon
update: David E. Salamie

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International Paper Company

International Paper Company

Two Manhattanville Road
Purchase, New York 10577
U.S.A.
(914) 397-1500
Fax: (914) 397-1596

Public Company
Incorporated:
1898
Employees: 88,000
Sales: $22 billion (1995 est.)
Stock Exchanges: New York Montreal Basel Geneva Lausanne Zurich Amsterdam
SICs: 0811 Timer Tracts; 0831 Forest Nurseries & Forest Products; 2421 Sawmills & Planing Mills, General; 2611 Pulp Mills; 2621 Paper Mills; 2631 Paperboard Mills; 2657 Folding Paperboard Boxes, Including Sanitary; 2761 Manifold Business Forms

International Paper Company (IP) is the worlds largest producer of paper, packaging, and forest products. The firm also operates a distribution unit which transports its own products and those of other companies and various related specialty product businesses ranging from imaging products to nonwoven fabrics. The company began as a major player in its core industry and expanded through mergers, acquisitions, and product development. IPs manufacturing operations span 28 countries, and the company exports to more than 130 nations.

Established on January 31, 1898, the firm resulted from a merger of 18 paper and power companies, with 20 mills throughout five northeastern states and timberlands ranging as far north as Canada. The new company had one million acres of woodlands, and streams running through the properties were used to run the mills with hydroelectric power. At the turn of the century, the mills provided 60 percent of U.S. newsprint. In 1903, in order to enhance its research and development efforts, the company opened the Central Test Bureau in Glens Falls, New York.

The companys power interests played a dominant role in its early years. As household electricity demand grew in the 1920s, the firm established large hydroelectric plants and power companies. At one time, it produced enough electricity to light all of New England, and most of Quebec and Ontario. In 1928 International Paper & Power Company was organized in Massachusetts to acquire International Paper. IP continued to operate as a subsidiary of International Paper&Power. In 1935 the United States passed the Public Utility Holding Act, making it illegal for an organization to run both an industrial firm and a power company. The law signified the end of International Papers involvement in the energy and power business. Instead, the company began to focus on key areas such as paper and packaging.

The company expanded into the southern United States in the 1920s and 1930s, primarily because trees could be grown more quickly and in greater volume than they could in the North. It also maximized its use of the trees through the kraft process, which involved use of a very strong pulp to manufacture packaging materials.

In June 1941 a new company was incorporated to acquire the assets of International Paper & Power Company. The new parent company was named International Paper Company to reflect the change from a paper and power company to a manufacturer devoted solely to paper. During World War II, International Paper did what it could to support the war effort. Its contributions included the development of nitrate pulp for use in explosives and the development of a waterproof board called V-boardvictory boardwhich was used to make boxes to send food and other supplies to the troops. The new technology, along with the wartime inventions of other manufacturers, led to increased competition after the war. As a result, IP began to invest more capital in research and development. Shortly after the war, it established the Erling Riis Research Laboratory in Mobile, Alabama.

An emphasis on packaging products also characterized the firms progress in the 1940s. In December 1940 it acquired the Agor Manufacturing Company, which included three subsidiaries and four container plants in Illinois, Kansas, Massachusetts, and New Jersey. In June 1941 IP merged the Southern Kraft Corporation with its main business. Previously a subsidiary, Southern Kraft owned eight kraft board and paper mills in the southern United States. IP also bought the assets of a shipping-container maker, the Scharff-Koken Manufacturing Company.

In 1947 IP merged with Single Service Containers Inc., a manufacturer of milk containers, and in 1952 it founded the International Paper Company Foundation, a nonprofit organization developed to support charitable, educational, and scientific efforts. IP acquired the capital stock of a specialty coated paper manufacturer, A.M. Collins Manufacturing Company, of Philadelphia, in 1955. In 1957 the latter merged with IP. In 1958 IP bought Lord Baltimore Press, Inc., a Maryland manufacturer of cartons and labels.

IPs Canadian subsidiary, Canadian International Paper Company, also made its share of acquisitions in the 1950s. These included Brown Corporation in 1954; Hygrade Containers Ltd. in 1955; and Anglo American Paper Company, Mid-West Paper Ltd., Vancouver Pacific Paper Company, and Victoria Paper Company in 1959.

During the following decade, new technology improved both product design and manufacturing processes. In 1962, for example, IP began using computers to control paper machines at its mill in Georgetown, South Carolina. A year later, it introduced polyethylene-coated milk cartons. In addition to new products, the 1960s presented IP with challenges, including development of new production and management techniques. Since 1943 IP had been headed by the Hinman family; John Hinman was chief executive from 1943 to 1962, and his son, Edward B. Hinman, held the post from 1966 to 1969. Various associates appointed by the elder Hinman ran the company from 1962 to 1966.

During the 1960s IP continued to grow internally and took giant leaps toward diversificationmany of them in hasteand learned that bigger is not always better. IP had emphasized production efficiency as a means of increasing output for most of the century. IPs production muscle came at the expense of marketing expertise, which lagged. The production emphasis led to overexpansion of paper plants, which in turn resulted in low profit margins. To increase profitability, IP diversified, with little success, into areas as far-ranging as residential construction, prefabricated housing, nonwoven fabrics, consumer facial tissue, and disposable diapers. It also moved into lumber and plywood, but found equally little success in those areas. White paper, paperboard, and pulp still accounted for more than half of the companys sales during the early 1970s; converted paper products comprised one-third; lumber, plywood, and other building products totaled nine percent; and the remaining sales came from real estate, packaging systems, and nonwoven fabrics.

By 1971 IPs long-term debt, which had been almost nonexistent in 1965, reached $564 million. When Edward Hinman took over, the companys greatest asset was its large share of real estate, including 8 million acres that it owned and 15.5 million that it leased. In 1968 Hinman sought the help of Frederick Kappel, formerly chairman of AT&T. The two ran the company together, but after earnings declined by 30 percent in 1970, Kappel and a team of outside directors replaced Hinman the following year with Paul A. Gorman, another AT&T executive. Gorman faced the challenge of returning the company to profitability.

Gorman started the long-term task by setting up a $78 million reserve to cover write-offs of inefficient facilities; closing a specialty mill in York Haven, Pennsylvania; and closing various plants in Ecuador, Italy, Puerto Rico, and West Germany. In 1972 he also sold most of Donald L. Bren Co., a southern California house builder acquired in 1970, and Space-makers Inc., a prefabricated-housing subsidiary. The company also sold its interest in C.R. Bard, Inc. a medical-equipment manufacturer.

From 1966 to 1972, IP had spent $1 billion to increase its paper-making and -converting capacity by 25 percent. During the early 1970s the paper industry headed toward cyclical recession. IP laid off seven percent of its employees. Gorman felt that the firm needed more financial control, and saw to it that decisions made by the companys manufacturing groups were reviewed from a financial, marketing, and manufacturing perspective. In addition, all projects had to show a minimum aftertax profit of 10 percent. Ailing plants were improved, sold, or shut down. Gorman also reorganized international operations on a product line basis. His efforts were successful. Earnings of $69 million in 1971 were the lowest in ten years, despite record earnings just two years earlier, but they jumped 30 percent the first six months of 1972.

In 1973, J. Stanford Smith joined IP as vice-chairman. Previously a senior vice-president with General Electric, Smith eventually would replace Gorman as chairman. Smith felt that one way to increase profitability was to develop natural resources on the companys land. He devised a plan to purchase General Crude Oil Company, which IP did in 1974 for $489 million. The business was unsuccessful, however, in locating major oil or gas deposits on IPs land. Five years later, in order to raise capital for acquisitions and internal growth, the company sold General Crude Oils oil and natural gas operations to Gulf Oil Corporation for $650 million. In addition, IP sold a Panama City, Florida, pulp and linerboard mill to Southwest Forest Industries for $220 million.

Between 1975 and 1980, IPs operating profits were mediocre. Again it turned to new management for help, and in 1978 Edwin Gee stepped in as chairman. A chemical engineer, Gee recognized that many of the companys 16 pulp and paper millsall built in the 1920s and 1930swere wasting labor and energy. Immediately, he instituted a $6 billion program to modernize the plants. Gees goal was to turn the worlds largest paper company into one of the lowest-cost producers of white paper and packaging materials, thus making it one of the most profitable papermakers as well.

To raise money for Gees plan IP sold its remaining interest in General Crude Oil Company for $763 million and used the profits to buy Bodcaw Company of Dallas in 1979. Bodcaw added a highly efficient linerboard mill in Pineville, Louisiana, and 420,000 acres of prime timberland. In 1981 IP sold Canadian International Paper for US$900 million. In addition, Gee increased the research-and-development budget and reduced IPs labor force by 20 percent. By 1982 he had raised US$2 billion, aided by sales of land, timber, and other subsidiaries.

After determining that only two of the six major packaging mills were operating efficiently, Gee sold one mill, shut down three others, and invested $600 million in the Mansfield, Louisiana, mill. In April 1981 IP unveiled a new southern pine plywood and lumber manufacturing plant in Springhill, Louisiana. The $60 million facility, the brainchild of Gee, featured the latest computerized process controls and supplied the container board mill in Mansfield plus paper and pulp mills at Camden, Arkansas, and in Bastrop, Louisiana.

In the same year, John Georges became chief operating officer. His solution to IPs production problems was not to build new plants but to remodel existing facilities. The company also spent $500 million on remodeling a Georgetown, South Carolina, mill, changing its product focus in the process. Instead of brown linerboard, a cyclical product, part of the plant was set up to make white papers. The white paper business was to offer a faster-growing and more stable market.

In addition, Georges began a $350 million project to convert another mill in Mobile, Alabama. The 60-year-old facility, which housed the companys last remaining newsprint machine, was also remodeled to produce white papers in 1985, thus marking the end of the companys long-standing newsprint business. In 1987, newsprint prices began a steady decline.

A recession in the early 1980s meant further delays but the investments began to bear fruit in the mid-1980s. As a result of new automation, IPs production costs decreased 11 percent between 1981 and 1987 and its mills were able to use 25 percent less energy. Georges was named chairman in 1985, succeeding Gee.

The appointment had been preceded in 1984 by a decline in linerboard and pulp prices and a 14-year low in earnings. The white-paper market seemed to be one of the few that was profitable, so Georges hired a team of scientists and technicians to promote business in that area. Their work led to a major acquisition in 1986: Hammermill Paper Company. The $1.1 billion purchase increased IPs white-paper capacity by 750,000 tons and provided the technology to produce premium paper lines. Georges also reduced the number of salaried employees from 12,000 in 1981 to 9,200 in 1988, and streamlined management. Under his leadership, the firm also acquired Anitec Image Technology Corporation, maker of photographic film, papers, and darkroom chemicals; Avery Corporation, a Chicago-based envelope manufacturer; and Kendall Companys nonwoven fabrics division. As a result, profits improved in 1988 and set a record in 1989.

In addition to the companys recovery, however, it also weathered several crises. These included a 1984 fire that destroyed its Nacogdoches, Texas, plywood-manufacturing plant, causing $32.5 million in damages. The facility reopened in 1986 after being equipped to produce oriented-strand board. In 1987, to protest inadequate wages and benefits, 2,200 workers went on strike at paper mills in Alabama, Maine, Mississippi, and Wisconsin.

Under Georgess leadership, the watchword at IP in the late 1980s and early 1990s was diversity, both in geography and product mix. His aim was to lessen the firms vulnerability to the cyclical nature of its core paper, packaging, and forestry operations. Many of the international acquisitions that Georges pursued were aimed at expanding IP further into the area of specialty products, which generally produce higher margins. These products included photographic paper and films, specialty industrial papers, molded-wood products, laminated products, and nonwoven fabrics such as disposable diapers. Although similar in some ways to the firms diversification of the 1960s, this round of expansion proved more successful.

Heading into its overseas spending spree, International Paper already owned box-manufacturing facilities in Italy, the Netherlands, Spain, Sweden, and the United Kingdom. In 1989 it acquired two major European manufacturers, Aussedat-Rey, the second-largest paper company in France, and the Ilford photographic-products division of Ciba-Geigy. In 1990 IP bought Germanys Zanders Feinpapiere AG, a high-quality coated-paper company, and the French operations of Georgia-Pacific Corporation.

The following year, in addition to bolstering its domestic base with the purchase of two U.S. paper companiesDillon Paper and Leslie Paperand its European holdings with the acquisition of Scaldia Paper BV of the Netherlands and the packaging equipment business of Dominion Industries Ltd., IP gained a presence in the Pacific Rim through a $258 million purchase of a 16 percent interest in the leading New Zealand forest-products company, Carter Holt Harvey Ltd. (CHH). IP increased its stake in CHH in 1992 to 24 percent by investing an additional $298 million. In addition to its dominance of its home market, CHH was a major exporter of forest products to Australia and Asia. Also in 1992, IP paid $209 million for an 11 percent stake in Israels Scitex Corporation Ltd., a world leader in color electronic-imaging equipment. The stake was increased to 12 percent the following year. The company also purchased Kwidzyn from the government of Poland for $150 million and the promise to invest $75 million more in the firm, the countrys largest white-paper manufacturer and operator of one of the most modern paper mills in Eastern Europe.

IPs diversification program appeared to pay off in the early 1990s when the paper industry encountered one of its worst cyclical downturns in 50 years. While competitors Boise Cascade Corp. and Champion International Corp. posted huge losses, IP continued to report profits, albeit smaller than those of 1988-90. Sales in 1992 hit a record $13.6 billion, although earnings were reduced substantially by a $263 million restructuring charge for the closure and consolidation of 20 underper-forming mills and sales offices worldwide.

IP continued to expand aggressively in the mid-1990s. In 1994 its distribution unit picked up two paper-distributing companies in Mexico, while in the area of liquid packaging, a new plant was built in Brazil and a joint venture was formed in China to build and operate a plant near Shanghai. IP made its biggest purchases yet in 1995, however. The firm spent $1.15 billion to attain majority control of New Zealand-based Carter Holt Harvey Ltd. and $64 million to acquire DSM, a producer of ink and adhesive resin based in the Netherlands. IP attempted to acquire Holvis AG, a Swiss fiber and paper company, for $422 million but was rebuffed by the Holvis board. Late in 1995 IP announced a $3.6 billion purchase of Federal Paper Board Co., based in Montvale, New Jersey, and the 15th-largest paper company in the United States. Federal Paper specialized in bleached paperboard used for cigarette cartons, laundry detergent, and other consumer products, and added to IPs packaging operations would give IP about one-third of the bleached board market.

Fittingly, the Federal Paper acquisition was consummated nearly simultaneously with the announcement of Georgess retirement as chairman and CEO, both of which occurred in early 1996. Georgess diversification program had increased non-U.S. sales to 30 percent of total sales by 1994. And while IPs core paper, pulp, and paperboard businesses accounted for 78 percent of sales in 1988, they accounted for only 52 percent of sales by 1994. During the same period, IPs specialty products share of sales increased from just 3.7 percent to 17.3 percent.

John T. Dillon, previously president and COO, succeeded Georges as chairman and CEO of International Paper. Although Dillon inherited a company in an enviably strong position, some observers felt that he might make some moves to refocus IP on its core businesses. IP had already exited the envelope business late in 1995 and divestments of additional specialty businesses were seen as possible, in particular given the $816 million in long-term debt IP took on as part of the Federal Paper deal.

Principal Subsidiaries

Anchor/Lith-Kem-Ko, Inc.; Federal Paper Board Co.; Ingram Paper Company; International Paper Realty Corp.; International Pulp Sales Company; IP Forest Resources Company; IP Tim-berlands, Ltd.; Ilford Inc.; Masonite Corporation; International Paper Company Pty. Limited (Australia); Anitec Image International B.V. (Belgium); International Paper (Europe) S.A. (Belgium); Veratec S.A. (Belgium); International Paper Canada, Inc.; Productora de Papeles S.A. (Colombia; 36.16%); Societe Mediterraneenne dEmballages (France); Societe Normande de Carton Ondule (France); Hammermill Paper GmbH (Germany); Societe Guadeloupeene de Carton Ondule (Guadeloupe); International Paper (Asia) Limited (Hong Kong); International Paper USA Ltd. (Israel); Scitex Corporation Ltd. (Israel; 12%); International Paper Italia S.p.A. (Italy); International Paper Company (Japan) Ltd.; IPI Corporation (Japan; 51%); Veratec Japan, Ltd.; International Paper Korea Ltd. (80%); Societe Martiniquaise de Carton Ondule (Martinique); Akrosil Europe B.V. (Netherlands); Carter Holt Harvey Ltd. (New Zealand; 50.1%); Zaklady Celulozowa-Papierniecze S.A. w Kwidzynie (Poland); Cartonajes International, S.A. (Spain); Industrias De Tableros Y Derivados De La Madera, S.A. (Spain); International Paper (España), S.L. (Spain); International Paper Company (Europe) Limited (Switzerland); International Paper Taiwan Ltd; Envases Internacional S.A. (Venezuela; 51%).

Principal Divisions

Akrosil; Arizona Chemical; Bagpak; Building Materials Distribution; Bulkley Dunton JB Papers; Coated Papers Division; Containerboard Division; Dillard Paper Company; Dixon Paper Co.; Folding Carton Division; GCO Minerals Co.; Hammermill Papers; Imaging Products; International Paper-Bleached Board; International Paper-Distribution Group; Label Division; Masonite; Nevamar; Nicolet; Kraft Paper; Leslie Paper; Liquid Packaging; Springhill Papers; U.S. Container; Uniwood; Wood Products.

Principal Operating Units

Distribution; Forest Products; Printing Papers; Packaging; Specialty Products.

Further Reading

International Paper: Your Decision, Purchase: N.Y.: International Paper Company.

Killian, Linda, A Walk in the Woods, Forbes, September 30, 1991, pp. 78-79.

Kimelman, John, Slash and Build: While Restructuring at Home, International Paper Is Investing Overseas, Financial World, April 13, 1993, p. 28.

Loeffelholz, Suzanne, Putting It on Paper, Financial World, July 25, 1989, p. 26.

Osborne, Richard, An Unpretentious Giant: John Georges Has Quietly Built International Paper into a Diversified $15 Billion Corporation, Industry Week, June 19, 1995, pp. 73-76.

Palmer, Jay, No Lumbering Giant: International Paper Races to New Peaks in Earnings, Barrons, January 2, 1989, p. 13.

Pulp Friction, Economist, November 11, 1995, p. 66.

Young, Jim, International Paper Co.: Worldwide Expansions Gear for Economic Recovery, Pulp & Paper, May 1994, pp. 32, 35.

Kim M. Magon

updated by David E. Salamie

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International Paper Company

International Paper Company

Two Manhattanville Road
Purchase, New York 10577
U.S.A.
(914) 397-1500
Fax: (914) 397-1596

Public Company
Incorporated:
1898
Employees: 69,000
Sales: $12.96 billion
Stock Exchanges: New York Montreal Basel Geneva Lausanne Zurich Amsterdam

International Paper Company (IP) is a leading global producer of paper and paperboard products, with additional interests in related businesses. The company began as a major player in its industry and expanded through mergers, acquisitions, and product development. Its manufacturing operations span 24 countries, and the company exports to more than 120 nations.

Established on January 31, 1898, the firm resulted from a merger of 18 paper and power companies, with 20 mills throughout 5 northeastern states and timberlands ranging as far north as Canada. The new company had one million acres of woodlands, and streams running through the properties were utilized to run the mills with hydroelectric power. At the turn of the century, the mills provided 60% of U.S. newsprint. In 1903, in order to enhance its research-and-development efforts, the company opened the Central Test Bureau in Glens Falls, New York.

The companys power interests played a dominant role in its early years. As household electricity demand grew in the 1920s, the firm established large hydroelectric plants and power companies. At one time, it produced enough electricity to light all of New England, and most of Quebec and Ontario. In 1928 International Paper & Power Company was organized in Massachusetts to acquire International Paper. IP continued to operate as a subsidiary of International Paper & Power. In 1935 the United States passed the Public Utility Holding Act, making it illegal for an organization to run both an industrial firm and a power company. The law signified the end of International Papers involvement in the energy and power business. Instead, the company began to focus on key areas such as paper and packaging.

The company expanded into the southern United States in the 1920s and 1930s, primarily because trees could be grown more quickly and in greater volume than they could in the North. It also maximized its use of the trees through the kraft process, which involved use of a very strong pulp to manufacture packaging materials.

In June 1941 a new company was incorporated to acquire the assets of International Paper & Power Company. The new parent company was named International Paper Company to reflect the change from a paper and power company to a manufacturer devoted solely to paper. During World War II, International Paper did what it could to support the war effort. Its contributions included the development of nitrate pulp for use in explosives and the development of a waterproof board called V-boardvictory boardwhich was used to make boxes to send food and other supplies to the troops. The new technology, along with the wartime inventions of other manufacturers, led to increased competition after the war. As a result, IP began to invest more capital in research and development. Shortly after the war, it established the Erling Riis Research Laboratory in Mobile, Alabama.

An emphasis on packaging products also characterized the firms progress in the 1940s. In December 1940 it acquired the Agor Manufacturing Company, which included three subsidiaries and four container plants in Illinois, Kansas, Massachusetts, and New Jersey. In June 1941 IP merged the Southern Kraft Corporation with its main business. Previously a subsidiary, Southern Kraft owned eight kraft board and paper mills in the southern United States. IP also bought the assets of a shipping-container maker, the Scharff-Koken Manufacturing Company.

In 1947 IP merged with Single Service Containers Inc., a manufacturer of milk containers, and in 1952 it founded the International Paper Company Foundation, a nonprofit organization developed to support charitable, educational, and scientific efforts. IP acquired the capital stock of a specialty coated paper manufacturer, A.M. Collins Manufacturing Company, of Philadelphia, in 1955. In 1957 the latter merged with IP. In 1958 IP bought Lord Baltimore Press, Inc., a Maryland manufacturer of cartons and labels.

IPs Canadian subsidiary, Canadian International Paper Company, also made its share of acquisitions in the 1950s. These included Brown Corporation in 1954; Hygrade Containers Ltd. in 1955; Anglo American Paper Company, Mid-West Paper Ltd., Vancouver Pacific Paper Company, and Victoria Paper Company in 1959.

During the following decade, new technology improved both product design and manufacturing processes. In 1962, for example, IP began using computers to control paper machines at its mill in Georgetown, South Carolina. A year later, it introduced polyethylene-coated milk cartons. In addition to new products, the 1960s presented IP with challenges, including development of new production and management techniques. Since 1943 IP had been headed by the Hinman family; John Hinman was chief executive from 1943 to 1962, and his son, Edward B. Hinman, held the post from 1966 to 1969. Various associates appointed by the elder Hinman ran the company from 1962 to 1966.

During the 1960s IP continued to grow internally and took giant leaps toward diversificationmany of them in hasteand learned that bigger is not always better. IP had emphasized production efficiency as a means of increasing output for most of the century. IPs production muscle came at the expense of marketing expertise, which lagged. The production emphasis led to overexpansion of paper plants, which in turn resulted in low profit margins. To increase profitability, IP diversified, with little success, into areas as far-ranging as residential construction, prefabricated housing, nonwoven fabrics, consumer facial tissue, and disposable diapers. It also moved into lumber and plywood, but found equally little success in those areas. While paper, paperboard, and pulp still accounted for more than half of the companys sales during the early 1970s; converted paper products comprised one-third; lumber, plywood, and other building products totaled 9%; and the remaining sales came from real estate, packaging systems, and nonwoven fabrics.

By 1971 IPs long-term debt, which had been almost nonexistent in 1965, reached $564 million. When Edward Hinman took over, the companys greatest asset was its large share of real estate, including 8 million acres that it owned and 15.5 million that it leased. In 1968 Hinman sought the help of Frederick Kappel, formerly chairman of AT&T. The two ran the company together, but when earnings declined by 30% in 1970, Kappel, in 1971, and a team of outside directors replaced Hinman with Paul A. Gorman, another AT&T executive. Gorman faced the challenge of returning the company to profitability.

Gorman started the long-term task by setting up a $78 million reserve to cover write-offs of inefficient facilities; closing a specialty mill in York Haven, Pennsylvania; and closing various plants in Ecuador, Italy, Puerto Rico, and West Germany. In 1972 he also sold most of Donald L. Bren Co., a southern California house builder acquired in 1970, and Spacemakers Inc., a prefabricated-housing subsidiary. The company also sold its interest in C.R. Bard, Inc. a medical-equipment manufacturer.

From 1966 to 1972, IP had spent $1 billion to increase its paper-making and -converting capacity by 25%. During the early 1970s the paper industry headed toward cyclical recession. IP laid off 7% of its employees. Gorman felt that the firm needed more financial control, and saw to it that decisions made by the companys manufacturing groups were reviewed from a financial, marketing, and manufacturing perspective. In addition, all projects had to show a minimum after-tax profit of 10%. Ailing plants were improved, sold, or shut down. Gorman also reorganized international operations on a product line basis. His efforts were successful. Earnings of $69 million in 1971 were the lowest in ten years, despite record earnings just two years earlier, but they jumped 30% the first six months of 1972.

In 1973, J. Stanford Smith joined IP as vice chairman. Previously a senior vice president with General Electric Company, Smith eventually would replace Gorman as chairman. Smith felt that one way to increase profitability was to develop natural resources on the companys land. He devised a plan to purchase General Crude Oil Company, which IP did in 1974 for $489 million. The business was unsuccessful, however, in locating major oil or gas deposits on IPs land. Five years later, in order to raise capital for acquisitions and internal growth, the company sold General Crude Oils oil and natural gas operations to Gulf Oil Corporation for $650 million. In addition, IP sold a Panama City, Florida, pulp and linerboard mill to Southwest Forest Industries for $220 million.

Between 1975 and 1980, IPs operating profits were mediocre. Again it turned to new management for help, and in 1978 Edwin Gee stepped in as chairman. A chemical engineer, Gee recognized that many of the companys 16 pulp and paper millsall built in the 1920s and 1930swere wasting labor and energy. Immediately, he instituted a $6 billion program to modernize the plants. Gees goal was to turn the worlds largest paper company into one of the lowest-cost producers of white paper and packaging materials, thus making it one of the most profitable papermakers as well.

To raise money for Gees plan IP sold its remaining interest in General Crude Oil Company for $763 million and used the profits to buy Bodcaw Company of Dallas in 1979. Bodcaw added a highly efficient linerboard mill in Pineville, Louisiana, and 420,000 acres of prime timberland. In 1981 IP sold Canadian International Paper for US$900 million. In addition, Gee increased the research-and-development budget and reduced IPs labor force by 20%. By 1982 he had raised US$2 billion, aided by sales of land, timber, and other subsidiaries.

After determining that only two of the six major packaging mills were operating efficiently, Gee sold one mill, shut down three others, and invested $600 million in the Mansfield, Louisiana, mill. In April 1981 IP unveiled a new southern pine plywood and lumber manufacturing plant in Springhill, Louisiana. The $60 million facility, the brainchild of Gee, featured the latest computerized process controls and supplied the container board mill in Mansfield plus paper and pulp mills at Camden, Arkansas, and in Bastrop, Louisiana.

In the same year, John Georges became chief operating officer. His solution to IPs production problems was not to build new plants but to remodel existing facilities. The company also spent $500 million on remodeling a Georgetown, South Carolina, mill, changing its product focus in the process. Instead of brown linerboard, a cyclical product, part of the plant was set up to make white papers. The white paper business was to offer a faster-growing and more stable market.

In addition, Georges began a $350 million project to convert another mill in Mobile, Alabama. The 60-year-old facility, which housed the companys last remaining newsprint machine, was also remodeled to produce white papers in 1985, thus marking the end of the companys long-standing newsprint business. In 1987, newsprint prices began a steady decline.

A recession in the early 1980s meant further delays but the investments began to bear fruit in the mid-1980s. As a result of new automation, IPs production costs decreased 11 % between 1981 and 1987 and its mills were able to use 25% less energy. Georges was named chairman in 1985, succeeding Gee.

The appointment had been preceded in 1984 by a decline in linerboard and pulp prices and a 14-year low in earnings. The white paper market seemed to be one of the few that was profitable, so Georges hired a team of scientists and technicians to promote business in that area. Their work led to a major acquisition in 1986: Hammermill Paper Company. The $1.1 billion purchase increased IPs white paper capacity by 750,000 tons and provided the technology to produce premium paper lines. Georges also reduced the number of salaried employees from 12,000 in 1981 to 9,200 in 1988, and streamlined management. Under his leadership, the firm also acquired Anitec Image Technology Corporation, maker of photographic film, papers, and darkroom chemicals; Arvey Corporation, a Chicago-based envelope manufacturer; and Kendall Companys nonwoven fabrics division. As a result, profits improved in 1988 and set a record in 1989.

In addition to the companys recovery, however, it also weathered several crises. These included a 1984 fire that destroyed its Nacogdoches, Texas, plywood manufacturing plant, causing $32.5 million in damages. The facility reopened in 1986 after being equipped to produce oriented-strand board. In 1987, to protest inadequate wages and benefits, 2,200 workers went on strike at paper mills in Alabama, Maine, Mississippi, and Wisconsin.

In the late 1980s and early 1990s, the firm began to concentrate on international expansion through several overseas acquisitions. Although it already owned box manufacturing facilities in Italy, the Netherlands, Spain, Sweden, and the United Kingdom, in 1989 it acquired two major European manufacturers, Aussedat-Rey, the second-largest paper company in France, and the Ilford photographic-products division of Ciba-Geigy; in 1990 IP bought Germanys Zanders Feinpa-piere AG, a high-quality coated paper company, and the French operations of Georgia-Pacific Corporation.

IPs product line in 1990 included pulp and paper; paper-board and packaging; specialty products; and wood products and timber. The company controlled 6.3 million acres of timberland through IP Timberlands Ltd., a publicly traded limited partnership established in 1985. In addition, the company was the world leader in bleached board, which is used for milk and juice cartons. Its goals, according to Georges, are to continue investing in its core businesses, to add to its current lines, to improve quality, to increase production of value-added products, to control costs and to improve customer service. Also, the company continues making selective acquisitions; in 1991 it acquired two paper companies, Dillon Paper and Leslie Paper, and the packaging equipment business of United Dominion Industries.

Subsidiaries

IP Timberlands Ltd.; International Pulp Sales Company; International Paper Investment Corporation; Arizona Chemical Company; Anitec Image Technology Corporation; Masonite Corporation.

Further Reading

International Paper responds to treatment, Business Week, August 12, 1972; Loeffelholz, Suzanne, Putting it on Paper, Financial World, July 25, 1989; International Paper: Your Decision, Purchase, New York, International Paper Company, [n.d.].

Kim M. Magon

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