As filed with the seeurities and Exchange Commission on June 15, 2001
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
D REGISTRATION STATEMENT PURSUANT TO SECTION 1 2(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
~ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2000 OR
D TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193 4
Commission File Number: 1-15112
STORA ENSO OYJ
(Exact name of Registrantas specifled in ils charter)
Stora Enso Corporation
(Translation of Registrant's name into English)
The Republic of Finland
( Jurisdiction ofincorporation or organization)
Kanavaranta l FIN-00160 Helsinki
Finland
(Address of principal executive ojfices)
seeurities registeredor to be registered pursuant to Section 12(b) of the Act:
Title of each class:
Shares, nominal valne €1. 70 each, represented by American Depositary Shares
Name of each exchange on which registered:
New York Stock Exchange, Inc.
seeurities registered or to be registered pursuant to Section 12(g) of the Act: None seeurities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Number of shares, nominal value €1.70 each, outstanding on December 3 1, 2000: 732,726,810 Indicate by check mark whether the registrant: (l) has filed all reports required to be filed by Section 13 or
15(d) of the seeurities Exchange Act of 1934 during the preeecting 12 months (or for such shorted period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [g] NoD
Indicate by check mark which financial statement item the registrant has elected to follo w.
D
IThi.~ pag~ has been JetL blank inwntic.mally.j
INTRODUCTION PARTI
TABLE OF CONTENTS
Item l. Identity of Directors, Senior Management and Actvisors • • •..••••••.•••.•...
lll
Item 2. Offer Statistics and Expected Timetable . . . . . . . . . , • • . . • . • • • . . • • . . . . . . . . • . • . • J Item 3. Key Information . . . . . . . . . . . . . • . . . . • . . . • • • . . • . . • • • . • • . . . . . . . . • . . . . l
Selected Financial Data . . . • . . • • • , • . • . • • • , • . . . . . • ,
• • • l . . . .. . ~ • ,. " l . . . .Exchange Rates . . . . . . , . . . . . .. . . . . . . . . . . . . . . . • . . . . . . . . . . . • • . . . . . , . . . . . Risk Factors . . . . .. .
Item 4. Information on the Company •. ... • , . . . . • .•• , ... .. ... . .• .••... ... •. . .. ..• . . . General . . . . . . . • . . . . .. . ... . . . Strategy . . . . . . . . .. . . . • . . •... . . . Company History . . , . • , , • • • . • • . . . . . . . • . . • • , , ••• , . . . . Principal Shareholders ... . . . . • Corporate Structure ... .... ... : '· . . . . . . . . Business Summary ... ... , .. , . , ... , , .. ••••• ... •••••. , .. , . . . • . . • . . . Discontinued Operations • • . . • • • • . • . • . . . . • . . • . . . . . • • . . . •.•. .. •.•••.• .•..•.• ••
Significant Subsidiaries . . . .•••.•...••.• ... . ..• .. . ...•...•...•••
Raw Materials ... . ... ••••.•.••••••.•• . , . , . •• . .. •..•••. .. •... ... ••..
Marketing . . . . . . . . . . . . . . . . . . . • • . . • • • • • . . . . . . . . . . . . • • . . . . . . . . ...
>4 • • t . . . , ,Research and Development . • , . • ••.• .. •.•..• ... .••...•••• , • • • • • • . . ... . , ••
Intellectual Property . . . . . . • . • • . • . . . • . . . • . • . . . . . . • . . • • • . • • • • • . . • . . . . . . . . . Transportatian and Logistics . . •..• . .• . .. . •... . . ... •.• .. •..•••..•. . . . . . . ..
Environrnental Matters . . . . . . ..•.••••.•..•. .... ••.•..•..••••.•...• . ....
Property, Plants and Equipment . . . . . •. .... .• , •....•.•..••.•• ... . . ..•.
Item 5. Operating and Financial Review and Prospects . . . . . . . . . • • . . . • . . . . • • • . • • . . , . • . • • . . General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • . . . . . . . . . . . . . . . . . . . . . . . Industry Overview . •. .... .. ... ••. ... .•••.•...• .. . .. . .. •. • ... .. . .. . . . ..
Recent Divestitures ... . . . . . . • . . . . . . . . . . . . •... .. • . .. • . , . . . .•..
Recent Acquisitions .... .. . . . • . .. ...•. . Other Recent Developments . ...•• , • • . . . . . . . . • • . . . . . . . . . . . . . . . . . Currency Fluctuations . . . . . . . . . . . • . . . . . . . . . . . . . . . . . . . . . • . . . • . . • . . .•. , . . . . • , Results of Operations ... . . . . . . . . . ... ... . Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capita! Expenditure ... , .... ...•• .. ••••. .•.•.••• ••.. . . . . • . . . . , .. , ....
Inflation . . . . . . . . . . . . . . , . . • . . . . . • . . . . . . . . . . . . . . . . • • . . . • . . . • . . . . . • . . . . .•• • Introduction of the Euro . . . . . . . . . . . . . . . . . • . . . . . . . . • • • . . . . . . . . . . . . . . . . . • , • New Accounting Standards . . . . .. .
Item 6. Directors, Senior Management and Employees .
. . .. . . .. . . ' • • • • • • • • • • • • •• • • l l • • 'Management of Stora Enso ... . . . . ....•...• .. •.• ....•• • ..• •. . . .. •• . ...
Corporate Govemance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . • • • . . . • . . • . . . . . . . . Compensation of Directors and Executive Management Group . . ••.••••.•••... .... ...
Equity-Based Programs. . . . . . • • •.•..•..•.. .. .. .••
Share Ownership by Directors and Executive Management Group , . • •.• , ••• , .... .••
Employment Agrcements . . . . . . • . . . . . . . , . . • • • . • • • • • • . . . . . •••
Share Repurchases . . . . . . . . .• , . . . . • • • • • . . . . . . . . . . . .• , . . . . . • • • . . . . . • . . . . . . • . Employees . . . . . . . . . . . . . . • • . . . . . • . • • • . . . . . • . . . . • • • . . . . • • . . . . . . • . . . . • .
l
4
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12
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14
29
30
3 1
32
33
33
34
34
36
40
40
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42
42
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44
53
54
55
55
55
58
58
62
64
64
65
66
66
66
Item 7.
Item 8.
Item 9.
Ite m 10.
Major Shareholders and Related Party Transactions 69
Owners hip of Stora Enso's seeurities by Management and Significan t Shareholders 69 Changes in Percentage of Ownership of Significant Shareholders . . . . . 69 Ownership of Our Securities in the United States . . . . . . • • • • • • . 69 Related Party Transactions . • • • • . • . • . . • . . . . . . . • • . . • • . • 70
Financial Information . . . . .. 72
Unaudited Pro Forma Combined Financial Information . . . . . . • . . . . . . • . . . . . . . . 72 Consolidated Financial Statements . . . . . . . . . . . . . . . . . • • • . . • . . . . . . . . . . • 76 Export Sales . . . . . . . _ . . ... , . , • . . . . . . . • • • . . . . . . . . . • • . . . • . . . • • • 76 Legal Proceectings . . . ... . ...•••... , . . • . • • . . . • • • • • • •
1 • • • • • • • • • • • • • • • • •76 Dividend Policy . . . • .. •••••••. , . . . , •••..•. , ..• , . • . . . . . • • • • • • , 77 Significant Changes .••...•... . .... , • • . • • • • . • • • • • • . . . . . . • . . . • • • • . . . 77 The Offer and Listing . . . . ••••.•. . . .• , . . . . . . . . • , • . . . . . . . . • . . . 78 Nature of Trading Markets . . . . . . . . . . . . . • . . . • • • . . • • . . . • . • • • . . • 78 Trading and Settlement on the Helsinki Exchanges •...•.•..•.. .. . •..•••• , • • 79 Regulation of the Finnish seeurities Market. . . . , • . • • • . . . • . . . . . • • . . . . . • . . 80 The Finnish Book-Entry Securities System . . • . . . . . . . . • . . • . . . . . . . . . . . . . . . . • • 81 Additional Informa tion ...
Memorandum and Articles of A ssociation . . . . . . . . . . . . • • . . • . . . . •. . .. . ••••••• , Control of Foreign Ownership . . . . . . . . . ... .. , • • • • • • , , ••••••.. . ...••.•.•
Exchange Controls . . . . . . . . . . • . • • . . • . . . • • • . • • • . • . . .
1 • • • • •• • •Material Contracts . . . • • . • . . • . • • • . • • . . . . • • , •••• . .. ••• . .. • . . .. ••...
Taxatian . . . .. . . . . . .. . . . ... , , • , .. . . ... _ . . . .. . ... . Finnish Taxation . . . . . . . . . . . . . . . . . . . . . . •• , • • . . . • • . . . • . . . . • . • , • . • , U.S. Federal Income Taxation . . .. .. .. . .• , •.••• , •••••••..•...• . . , •..•.
Documents on Display . . . . .
82 82 84 85 85 85 85
87
89
Item 11. Quantitative and Qualitative Disclosures about Market Risk , • • • • • • • • • • • . . . . . • • • • 90 Adoption of International Accounting Standard 39 (IAS 39) . . . . . . . . . . . . . . . . . . . . . 90 Financial Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • . . 90 Foreign Exchange Risk . . . . .••• ... •.. .. •.. ... , • . • 90 Funding and Interest Rate Risk . . . . . . . . . . . . . . . . . . . • •.•••• , • • • . . • . . . • . . 91 Outstanding Foreign Exchange and Interest Rate Derivatives .• , • , ••• , , • , . , . . . • . . . 92 Commodity Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • • . . . • . • • • . • . • . . . . . . 92 Equity Price Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • • • • . . . . . . . . . . 92 Item 12. Description of seeurities Other than Equity s eeurities .. .••. , • • . . . . . . . . . . . . . . . • 92 PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies . . . . . • . . . . . . 93 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds • . . . . 93
Item 15.
Item 16.
PARTill Item 17.
Item 18.
Item 19
U se of Proceeds . . . . . . • . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 [Reserved]
[Reserv ed]
Financial Statements . Financial Statem e nts . Exhibits
. . ... ... ... ... ... ,,, ... . ..
~···... . .. .
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • r • r • • •
93 93
94
94
94
INTRODUCTION
In this annual report, the "company," "we," "us," and "our" refer to Stora Enso Oyj or Stora Enso Oyj and its subsidiaries, as the context may require. As used herein, the term "Finnish State" refers to the Republic of Finland.
PRESENTATION OF FINANCIAL INFORMATION
We publish our consolidated financial statements in euros. As used in this annual report:
• "euro" or "€" means the common currency of those member states of the European Union participating in the Eecnornie and Monetary Union;
• "U.S. dollar" or "$" means the lawful currency of the United States of America;
• "Finnish markka" or "FIM," when used with respect to any time or period before January l, 1999, means the lawful currency of the Republic of Finland and, when used with respect to an y time or period on or after January l, 1999, means the sub-urrit of the euro designatedas such under the applicable regulations of the European Community; and
• "Swedish krona," "Swedish kronor" or "SEK" means the lawful currancy of the Kingdom of Sweden.
Our consolidated financial statements are prepared in accordance with and comply with International Accounting Standards ("IAS") and include the financialstatements of Stora Enso Oyj and our subsidiaries.
A reconciliation of amounts reported under IAS to the amounts deterrnined under U.S. generally accepted accounting principles ("U.S. GAAP") and a discussion of the principal differences between IAS and U.S.
GAAP are set out in Note 28 to our consolidated financial statements beginning on page F-l of this annual rep ort.
We were created through the 1998 merger of the Swedish company Stora K opparbergs Bergslags
Aktiebolag (publ) ("STORA") and the Finnish company Enso Oyj. In the merger, Enso's name was changed to Stora Enso and the shares of STORA were exchanged for shares of Stora Enso. We accounted for the merger as a uniting of interests under IAS. Accordingly, we have restatedthe historical information of STORA and Enso as if the campanies had been combined for the periods presented. Under IAS, Enso is the predecessor company of Stora Enso. Under U.S. GAAP, STORA is the predecessor company of Stora Enso.
On August 31, 2000, we acquired the U.S. paper company Consolidated Papers, Inc. In this annual report, we have included unaudited pro forma statement ofincome for the year ended December 31, 2000 that gives effect to the acquisition of Consolidated Papers and the sale of certain energy assets as if the transactions had occurred on January l, 2000.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements about our business that are not historical facts but, rather, are statements about future expectations. When used in this document, the words "anticipates,"
"believes," "expects," "intends," "should" and similar expressions as theyrelate to our company or our management are intended to identify forward-looking statements. We believe that our expectations are based on reasonable assumptions. However, forward-looking statements in this document are based on our management's current views and assumptions and may be infiuenced by factors that could cause actual results, performance or events to be materially different from those projected. These forward-looking statements are subject to
numerous risks and uncertainties. Important factors could cause actual results, performance or events to differ materially from those in the forward-looking statements, some of which are beyond our control. These factors include those described above under "Risk F actors" and:
the impact of general economic conditions in Europe, North America, Asia and in other regions in
which we currently do business;
industry conditions, including competition and ftuctuation in prices of our products and the raw materials used to make them;
changes in laws and regulations, including monetary convergence and the further implementation of the European Union's Economic and Monetary Union;
fluctuation in interest and cxchange rates; and access to capital markets.
The actual results or performance of our business could differ materially from those expressed in, or
implied by, these forward-Jooking statements. Accordingly, we can give no assurances that any of the events
anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they
will have on our business, financial condition and results of operations.
PARTI
Item l. Identity of Directors, Senior Management and Advisers.
Not applicable.
Item 2. Offer Statistics and Expected Timetable.
Not applicable.
Item 3. Key Information.
Selected Financial Data
You should read the annual information set forth below tagether with "Item 5. Operating and Financial Review and Prospects" and our annual audited Consolidated financial statements, including the related notes.
The following table sets forth selected consolidated financial data for our company for each of the last five fiscal years ended December 31 and the three month periods ended March 31, 2000 and 2001. We have derived the annual financial data set forth below from our annual audited consolidated financial statements, of which annual audited consolidated financialstatements for the years ended December 31, 1999 and 2000 are included in this annual report beginning on page F-l. All balances prior to January l , 1999 have been restatedfrom Finnish markka into euros using the conversion rate as of January l, 1999. See Note l to our annual audited consolidated financial statements.
Thefinancial data for the three month periods ended March 31, 2000 and 2001 is unaudited. We have derived this data from our unaudited quarterly consolidated financialstatements that are included in this annual report beginning on page F-113. In the opinion of Stora Enso's management, the unaudited quarterly
consolidated financial statements contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations of Stora Enso for the three month periods ended March 31, 2000 and 2001. You should read the quarterly information set forth be1ow tagether with our unaudited quarterly consolidated financial statements, including the related notes.
We were created through the 1998 merger of STORA and Enso. For IAS purposes, we have restated the historical information of STORA and Enso as if the campanies had been combined for the periods presented.
For U.S. GAAP purposes, the results of operations for the periods prior to the merger of STORA and Enso are those of STORA, the acquiror for U.S. GAAP purposes.
We have also restated our income statements, balance sheets and cash flow statements for the years 1996 through 1999 to reflect the adoption of a new forest accounting policy. You should read Note l (Property, plant and equipment) to our consolidated financial statements for a discussion of our new forest accounting policy.
We have restated our segment information for the years 1998 through 2000 to reftect a change in the intemal reporting structure. You should read Note 2 to our consolidaled financialstatements for a discussion of our new segment structure.
We reportour financialinformation in accordance with IAS. The main differences between IAS and U.S.
GAAP that are relevant to our consolidated financialstatements are disenssed in Note 28 to our Consolidated financial statements.
Solely for the convenience of the reader, the euro amounts have been translated into U.S. dollars at the noon buying rate in New York City for cable transfers in foreign currencies as certified for enstoms purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") on March 30, 2001, which was
$1.00;;;; €1.1371.
As of and for the three As of and for the year ended December 31, months ended March 31, 1996(1) 1997(1) 1998(1) 1999(1) 2000 2000 2000 2001 2001
- - - - - -
€ € € { € $ € € $
(unaudited) (In millions, except ratlos and per share a mounts)
INCOME STATEMENT DATA IAS
Sales ... . . . . . . ... . 9,510 9,998 10,490 10,636 13,017 11,448 2,992 3,637 3,198 Operating costs ... ... . . . . ..• 7,889 8,166 7,796 7,694 9,367 8,238 2,064 2,647 2,328 Depr eciation, amortization and
impairment costs ... . ... . 793 854 1,176 911 1,129 993 231 303 266
Other operating expenses/(income) 85 817 631 150 132 187 164 144
Operating profit(2) . .. .. . . . 828 893 701 1,400 2,371 2,085 510 523 460
Net fi nancia1 items . . . (280) (280) (380) (267) (293) (258) (69) (122) (107) Sbare of results of associated
campanies .. . . .... .... 9 17 10 10 21 18 6 28 25
Profit before tax and minority
interest(2) .. ... . .. 557 630 331 1,143 2,099 1,846 447 430 378
Income tax expenses . (181) (204) (146) (392) (650) (572) (149) (146) (128)
Profit after tax(2) ... 376 426 186 751 1,449 1,274 298 284 250
Minority interests .. . . .. . (11) (21) (O) (5) (14) (12) (7) (O) (O)
N et profit for the period(2) 365 405 185 746 1,435 1,262 291 283 249
U.S. GAAP
N et income for the period . .. .. .. 14 550 2,155 1,895
Basic eamings per share . ... . • 0.02 0.72 2.65 2.33
Diluted eamings per share . . .. . . •• O.D2 0.72 2.65 2.33
BALANCE SHEET DATA IAS
Cash and cash equivalents .. 481 358 595 642 744 654 635 429 377
Operating capital(3) .... . . .• 12,120 13,078 12,541 12,617 16,557 14,561 12,502 16,154 1 4 ,206 Total assets . . . 14,594 15,575 15,422 1 6,038 21,323 18,752 16,332 21,474 18,885
Total iodebtedness ... 6,166 6,565 6,558 5,769 6,856 6,029 5,482 6,982 6,140
Net iodebtedness(4) . . 5,245 5,772 5,486 4,782 5,183 4,558 4,514 5,040 4,432
Minority interest s .. 196 272 279 202 149 131 207 140 123
Share capital ... ... 1,278 1,278 1,278 1,278 1,576 1,386 1,278 1,578 1,388
Shareholders' equity 5,303 5,528 5,272 5,957 8,571 7,538 6,069 8,431 7,414
Long-term debt .... 3,783 4,209 4,294 3,846 5,515 4,850 3,830 5,359 4,713
U.S. GAAP
Total assets ... . 1 6,481 16,785 23,306 20,496
Shareholders' equity 5,810 6,190 10,026 8,817
CASH F LOW DATA IAS
N et cash provided by (used in) operating
activities ... .... ... ... . . . 1.385 1,601 1,459 2,161 1,900 414 (166) (146) Net cash used in inves ting activities (1,331 ) (1,288) (579) (2,911) (2,560) (88) (118) (104) Net cash used in financing activities ... (188) (71) (845) (853) (750) (337) (33) (29) Dividends per share (€) .. .... 0.30 0.33 0.35 0.40 0.45 0.40
Dividends per share ($) .. .... 0.39 0.36 0.41 0.40 0.42 OTHER FINANCIAL DATA
IAS
EBITDA(S) .. ... .... .. .... . . 1,621 1,747 1,877 2,311 3,500 2,612 741 826 726 Capita! expenditures . ... ... . .. .. . 1,364 1,1 34 896 740 769 676 135 176 1 55
Ratio of EBITDA to interest expense. 4.5 4.9 5.0 7.0 9.7 9.5 8.2
Ratio of net indebtedness to EBITDA 3.2 3.3 2.9 2.1 1.5 Average nomber of shares o utstanding
(1 ,000) . ... . ... ·-· .. 736,828 759,574 759,574 759,580 812,040 759,782 906,233
SELECTED OPERATING DATA (deliveries in thousands of metric tons) Magazine paper .
Newsprint Finepaper ...
Packaging board .•. . .
. ... ..
1996(1)
1,647 2,633 2,142 2,901
Year ended December 31, 1997(1) 1998(1) 1999(1)
2,230 2,560 2,756 3,022 3,086 3,122 2,524 2,743 2,912 3,281 3,130 3,196
Three months ended March 31, 2000 2000 2001
3,269 676 994 3,134 759 780 3,151 771 857 3,417 876 706
(l) For IAS purposes, the historical information of Enso and STORA has been restaled to reflect the uniting of interest of Enso and STORA as if the campanies had been combined for all periods presented. Prior year amounts have also been restaled to reflect the adoption of a new forest accounting policy. For U.S. GAAP purposes, the result of operations for the period prior to the
consummation of the business combination are those of STORA, the acquiror for U.S. GAAP purposes. See further di scussion in our Consolidated financial statements beginning on page F-1.
(2) Includes non-recurring items totating €(4) million in 1996, €(52) million in 1997, €(471) million in 1998, €1 03 million in 1999, €446 million in 2000 and €24 million in the first quarter of 2000. See further discussion in our consolidated financial statements beginning on page F-l.
(3) Operating capita! represents the sum of fixed assets and other long-term investments (excluding investrnents in associated campanies and in marketable equity securities, non-current loan receivables, and deferred tax assets), inventories, short-term receivables, pension and other provisions, other long-term liabilities and other current liabilities.
(4) Net indebtedness consists of net interest-hearing liabilities.
(5) EBITDA consists of operating profit before depreciation, amortization and impairment charges. EBITDA is included because
management believes it is a useful indicator of a company's ability to incur and service debt. EBITDA is not a U.S. GAAP or IAS
measure and should not be considered as an alternative to U.S. GAAP or IAS measures of net profit or as an indicator of Stora Enso's
operating performance or to cash flow from operations under U.S. GAAP or IAS as a measure of liquidity. Potential investors should
note that EBITDA is not a uniform or standardized measure, and the calculation of EBITDA may vary significantly from company to
company and by itself provides no grounds for comparison of Stora Enso with other companies.
Exchange Rates
On January l, 1999, the 11 member states of the European Union initially partkipating in the Eecnornie and Monetary Union (known as the EMU) introduced a single European currency known as the euro.
Following the adoption by Greece of the euro as its national currency as of January l , 2001, the following 12 member states of the European Union participale in the EMU and have adopted the euro as their national currency: Austria, Belgium, Finland, France, Germany, Greece, Ireland, ltaly, Luxembourg, The Netherlands, Portugal and Spain. The irrevocable conversion rate betwecn the Finnish markka and the euro was fixed on January l , 1999 at €1.(}();:FIM 5.94573.
Currently, the euro is only an accounting currency and the national currencies of the EMU member states continue to be legal tender and are considered to be sub-units of the euro. During a transitional period that will last from January l, 2002 until June 30, 2002, euro banknates and coins will enter circulation and the national currencies of the EMU member states will be phased out.
We present our financial statements in euros. A portion of our revenues and expenses are denominated in euros and a portion are denominated in currencies other than the euro. The first table below sets forth, for the periods and dates indicated, the average, high, low and period-end noon buying rates for the euro expressed in euros per U.S. dollar. The seeond table below sets forth, for the periods and dates indicated, the average, high, low and period-end noon buying rates for the U.S. dollar expressed in U.S. dollars per euro. The third table below sets forth, for the dates indicated, the average, high, low and period-end noon buying rates for the Swedish krona expressed in Swedish kronor per U.S. dollar.
Before January l, 1999, there was no exchange rate between the euro and the U.S. dollar. For any time or period before January l, 1999, the Noon Buying Rates for the euro have been derived from the Noon Buying Rates for the Finnisb marleka converted into euros at the irrevocable conversion rate between the Finnish marleka and the euro. Other than for the monthly information, the average Noon Buying Rates have been calculated based on the Noon Buying Rate for the last business day of each month or portion of a month during the relevant period. We are providing this information solely for your convenience. These are not necessarily the rates we use d in the preparation of our financial statements and we make no representation that Finnish marlekas, euros or Swedish kronor could have been converted into U.S. dollars at the rates shown or at any other rate for such periods or at such dates.
Solely for the convenience of the reader, certain euro amounts in this annual report have been translated into U.S. dollars at the Noon Buying Rate on March 30, 2001, which was $1.00 = €1.1371.
Y ear 1996 1997 1998 1999 2000 2000 November December.
2001 January
February ... .. .._ . ... , . . . . ... ... ... _ ...•.
March . . . •..•... .. .••..•..•.••..•.... .. .••..•••...•
April ... ... , .... ...•...
May . . . . . . . ... ••.••... . .•.•••.•. ... ...••.•.•
June (through June 12) . . • • . • • • • • • . • • • • • • • ... . •.••••.••.•.•
Average 0.7738 0.8774 0.8989 0.9455 1.0860
1.1693 1.1132
1.0666 1.0863 1.1010 1.1204 1.1425 1.1800
Euros per U.S. DoUar Period
Higb w w End
0.8162 0.7296 0.7742 0.9419 0.7759 0.9171 0.9466 0.8240 0.8518 0.9984 0.8466 0.9930 1.2090 0.9675 1.0650
1.1930 1.1502 1.1502 1.1422 1.0652 1.0652
1.0892 1.0488 1.0743
1.1041 1.0644 1.0855
1.1371 1.0707 1.1371
1.1345 1.1071 1.1268
1.1827 1.1189 1.1 827
1.1869 1.1756 1.1794
Y ear
1996. . . • • . . . . . . . . . . . • . • • • • • • . • . . • • . • • . . • . ••.••.
1997. . . . . . • • • • • • . . . • . . . . . . . . . . . . • . . . . . . . . . 1 998 .
l • • • • • • • • • ' ' .. • • • • • • • • • • l • • • • • • • • • • • • • •1999 . . . . . . . . . . . . . . • • . . . • . • • • . • • . . . . . .. . ..•••••••••••
2000 . . . . . .. . ... ... . .... .. .. .. . . . . 200 1 (through June 12) . . . . . . . . . . . . . • • . • . . . . . . . . • • . . • ..•.
Y ear 1996 1997 1998 1999 2000
... , .. ... ... .. .. ... . , ... .. .
.. .- . . ... .. ... .
2001 (through June 12 ) . • ... ..• ... ••. ... .• .. ..••• .. •• ... •.
U.S. Dollars per Euro Period
Average High Lo w End
1.2923 1.3706 1.2252 1.2917 1.1397 1.2888 1.061 7 1.0904 1.1125 1.2136 1.0564 1.1 740 1.0576 1.18 12 1.00 16 1.0070 0.9207 1.0335 0.8270 0.9388 0.8854 0.9520 0.8449 0.8479
Swedish Kronor per U.S. Dollar Period Average High Lo w End
6.7129 7.0300 6.5455 6.8250 7.6843 8.0825 6.8749 7.9400 7.9658 8.3350 7.5800 8.1030 8.3007 8.6500 7.7060 8.5050 9.2250 10.3600 8.3530 9.4440 10.295 11.0270 9.3250 11.0020 We also refer to several other currencies in this document. References to ''British pound sterling" or
" GBP" are to the lawful currency of the United Kingdom of Great Britain and N orthem Jreland; references to
"CAD" are to the lawful currency of the Republic of Canada; references to "DKK" are to the lawful currency of the Kingdom of Denmark; references to "GRD" are to the lawful currency of the Republic of Greece; and references to "LVL" are to the lawful currency of the Republic of Lithuania. In addition, references to
"DEM," "NLG," "BEF," when used with respect to any time or period before January l, 1999, are to the lawful currencies of the Federal Republic of Germany, The Netherlands and the Kingdom of Belgium,
respectively, and, when used with respect to any time or period after January l, 1999, are to the sub-unit of the
e uro.
Risk Factors
Continued competition in the paper and forest products industry may negative ly impact our pro.fitability and r equire us to make significant capital expenditures.
The paper and forest products industries in which we operate are rnature and highly competitive. We have from time to time experienced pricing pressure from competitors in many of our product lines and geographic markets. We compete principally with a number of large international paper and forest product companies, as wcll as numerous regional and more spccialized competitors. This competitivc environmcnt has been a principal factor behind the large fiuctuations in profitability we have experienced in recent years. In addition, competitive pressures have required us to make signitkant investments in our manufacturing facilities and in product development. There can be no assurance that we will have sufficient resources to maintain similar levels of capita! investment in the future. For a discussion of the various factors that cause fluctuations in profitability, see " Item 5. Operating and Financial Review and Prospects- Industry Overview."
Significant capita[ investments, including future acquisitions, may be necessary to achieve our growth plans.
Our growth plans may require significant capital investments, in particular, in relation to any major acquisitions that we may undertake in the future. Our ability to meet these capital requirements depends on numerous factors such as the availability of funds from operations and access to additional debt and equity financing. No assurance can be given that the necessary funds will be available. Moreover, incurrence of additional debt financing would increase the size of the debt payments we must make and could involve restrictive covenants that could negatively impact our ability to operatein the desired manner. The failure to obtain funds necessary for the realization of our growth plans could prevent us from realizing our growth strategy and, in particular, could force us to forego acquisition apportunities that may arise in the future. This could, in tum, have a negative impact on our competitive position.
Our growth strategy depends in part on making successful acquisitions or mergers and the failure to make successful acquisitions or mergers could have a negative impact on our com p etitiveness. Additional
acquisitions may also expose us to new liabilities.
The forest products industry has been experiencing a wave of consolidatian driven in part by a desire to achieve eecnornies of scale and synergies. As part of our strategy, we will seek further growth through acquisitions of, or mergers with, other paper andfor forest products campanies to stay competitive with our increasingly larger competitors or to enhance our position in our core areas of operation. This strategy entails risks that could negatively impact our business, finaodal condition or results of operations. These risks include unidentified liabilities of the companies we may acquire or merge with, the possible inability to successfully integrate and manage acquired operations and personnel, the potential failure to achieve the economies of scale or synergies sought and the diversion of management's attention away from other ongoing business concerns.
In addition, we may not be able to identify attractive acquisition or merger apportunities and might not be able to make acquisitions or mergers on attractive terms. Regulation of merger and acquisition activity by the European Union or the United States might also limit our ability to make future acquisitions or mergers. We rnight also be required to record signitkant amortization expenses related to goodwill or other intangible assets in connection with possible future acquisitions.
P r oduct prices and raw material costs in our industry are cyclical. A period of low product prices or high raw material costs could negative/y affect our profitability.
Prices for our products are affected by changes in capacity and production and by demand for our products which is influenced by general economic conditions and inventory levels maintained by our customers.
Changes in these factors have resulted in significant fluctuations in the prices for our products.
The timing and the magnitude of changes in our product prices have varled significantly over time and have been unpredictable. Changes iri prices differ between products and geographic regions. While we are a significant participant in most of the markets in which we compete, our actions have only limited influence on changes in our product prices.
Our Iargest raw material costs are for recycled fiber and pulpwood. A significant increase in prices for these raw materials would significantly increase our productian costs and could have an adverse effect on our financial performance if we were unable to increase our product prices sufficient! y to maintain margins.
As a result of unpredictable and substantial changes in our product prices and raw material costs, our financial results have varied significantly over time. In a period of sustained low product prices or high raw material costs, it may be possible that we are unable to operate our productian facilities in an economic manner, pursue our strategic initiatives and meet all of our financial obligations .
Cltanges in consumer preference s may have an advers e effect on demand for our products and our profitability.
Changes in consumer preferences have affected the demand for paper and board in general, and demand for specific grades of paper and board. Some of the most significant changes in consumer preferences include the increase in direct-mail advertising, increasing interest in environmentally-friendly products, i ncreased use of e-mail and electronic media, and increased use of personal computer printers.
Producers of paper and board have responded to changes in consumer demand by shifting their productian focus and developing new products such as lighter-weight coated and superc alendered magazine paper grades, paper grades with greater recycled fiber content, and elementa! chlorine free chemical pulps.
Our ability to meet shifts in consumer demand will depend upon our ability to correctly anticipate changes in consumer preferences and our ability to develop and produce new products on a competitive and economic basis. There can be no assurances that we will be able to meet changes in consumer preferences in the fu ture which could have an adverse effect on our financial performance and our ability to m eet our obligations .
If we are unable to continue importing wood from Russia and the Baltic countries, we may be fo r ced to pay higher prices for this key raw material or alter our manufacturing operations.
We depend on suppliers in Russia and the Baltic countries (Estonia, Latvia and Lithuania) for approximately 21% of our annual wood requirements in Finland and Sweden. As a result of economic, political, legal or other difficulties or restrictions, our supply of raw material from Russia and the Baltic countries may be interrupted or limited. In the event of a significant interruption or limitation in the supply of raw materials from these areas, we would seek to obtain raw materials from other sources, but there can be no assurance that we would be able to do so without an adverse impact on our manufacturing operations, such as an interruption or downscating of productian or change in the product mix, or increased costs. This could, in turn, have a material adverse effect on our business, financial condition and results of operations.
Exchange rate fiuctuations may have a significant advers e impact on our fin ancial results.
As a result of the global nature of our business, changes in foreign curre nc y exchange rates could have an adverse effect upon our business, financial condition and operating results. Currency flu ctuations affect us because the majority of our operating costs are denominated in euros and U.S. dollars , while a proportionately larger share of our sales are denorninated in certain other currencies, including British pound sterling. In addition, the proportion of our operating costs denominated in Swedish krona is substantiaUy higher than the proportion of our salesthat is denominated in Swedish krona.
Our reported earnings may be affected by fluctuations between the euro, which is our reporting currency,
and the non-euro currencies in which our various subsidiaries report their results of operations. In addition,
appreciation of the euro campared with the U.S. dollar would reduce the competitiveness of the products we produce in Europe against imports from the United States, leading to lower sales and earnings. Furthermore, the euro value of our sales and earnings in U.S. dollars would be re duced if the euro appreciated against the dollar.
As a result, currency exchange rate ftuctuations between the euro and other currencies, such as the British poundsterling or U.S. dollar, mayhave a material adverse effect upon our business. fi nancial condition or results of operations in the future.
We mayface high costs for compliance with and clean-up under environmental laws and regulations, which would reduce profit margins and earnings.
We are subject to various environmentallaws and regulations in the jurisdietians in which we operate, governing, among other things, wood procurement, use of recycled material and different forms of productian discharges and emissions. We have been the subject of a variety of complaints relating to, among other things, odors emitted from our milis, soil contarnination, high levels of arganie matter and mercury near our mills, and the failure of some of our mills to execute their environmental plans. The risk of substantial environmental costs and liabilities is inherent in industrial operations, including the forest products industry, and there can be no assurance that we wiU not incur signitkant costs and liabilities in the future or that the adoption of increasingly strict environmentallaws, regulations and enforcement polides will not result in substantially increased costs and liabilities in the future . Higher regulatory, environmental and similar costs would reduce our profit margins and earnings.
The value of our investments in countries outside of Western Europe and North America may be adversely affected by political, economic and legal developments in these countries.
We have manufacturing operations in countries outside of Western Europe and North America, including Brazil, the Czech Republic, Poland, Russia, the Baltic countries, Thailand and the People's Republic of China.
The political, economic and legal systems in these countries are less predietable than in countries with more developed institutional structures. Political or economic upheaval, changes in laws and other factors may have a material effect upon our operations in these countries and, in tum, the amount of income from, and the value of, the investments we have m ade in relation to our operations in such countries. The more signitkant risks of operating in emerging market countries arise from the establishment or enforcement of foreign exchange restrictions, which could effectively prevent us from receiving profits from, or from selling our investments in, these countries. While none of the countries in which our operations are located currently have foreign exchange controls that have a significant effect on us, most of these countries have imposed foreign exchange controls in the recent past, and no assurance can be given that these countries will not reinstitute these controls in the future.
We re ly on outside suppliers for the majority of our energy needs and we are therefore susceptible to increases in energy prices and energy shortages.
Energy is one of the most significant components of our productian costs. Historically, energy has represented approximately 9% of our productian costs. In the past, we met almost all of our energy needs in Finland and Sweden from our own intemal production. Due to recent divestitures, however, we now rely on outside suppliers for approximately 60% of our energy needs in Finland and Sweden. We rely on outside suppliers for approximately 73% of our e nergy needs in North America. As a result of this dependence on outside suppliers, increases in the price of energy may have a material adverse effect on our business, financial condition and results of operations if we are not able to increase the prices of our products accordingly. In addition, an energy shortage could force us to curtail production.
A few signijicant shareholders may injluence or control the direction of our business.
The Finnish State controls approximately 24.1% and Investor AB, a Swedish industrial investment
company, controls approximately 24.0% of our voting tights as of the date of this annual report. Accordingly,
the Finnish State and Investor AB have significant power to inftuence matters submitted to vote of
shareholders, such as the approval of the annual financial statements, declarations of annual reserves and
dividends, capital increases, amendments to our artides of association and the election of the members of our
board of directors. To the extent matters presented to our shareholders require approval of a particular
percentage of shares represented at a meeting of shareholders or of a super maj ority of outstanding shares,
these investors ma y be ab le to significantly inftuence the outcome of the vote. For a description of significant
holdings, see "Item 7. Major Shareholders and Related Party Transactions-Ownership of Stora Enso's
seeurities by Management and Significant Shareholders."
Item 4. Information on the Company General
Stora Enso Oyj is the largest paper and board manufacturer in Europe and the seeond largest paper and board manufacturer in the world based on production capacity, with 15 million metric tons of annual of paper and board productian capacity and leading market positions in many of our core businesses. Domiciled and incorporated under the laws of The Republic of Finland, we have productian facilities in 20 countries on three continents. Our core product areas are magazine paper, newsprint, fine paper and packaging boards. Our supporting product areas are timber products, paper merchants and forest operations. The principal markets for our products are Western Europe and North America. We distribute our products through our own global marketing network, which has an established presence on six contirrents with more than 30 sales campanies and an additional 15 local branch offices, as well as a number of independent agents. Stora Enso Oyj's registered office is located at Kanavaranta 1, FIN-00160, Helsinki, Finland; telephone +358 20 46 131. Our agent for U.S.
federal seeurities law purposes is Stora Enso North America Corp., located at P.O. Box 8050, 231 1st Avenue North Wisconsin Rapids, Wisconsin 54495-8050, United States of America.
At December 31, 2000, we had total assets of €21,323 million and 45,000 employees. In 2000, we had sales of over €13 billion ($12 billion), approximately 86% of which were outside Finland and Sweden. As of March 31, 2001 , our total equity market capitalization based on trading prices on the Helsinki Stock Exchange was €9.9 billion.
We were created through the 1998 merger of STORA and Enso, which established usas a leader in the global forest products industry. Since then, our management team has concentrated on integrating the two companies and has significantly reduced operating costs and improved the combined company's financial performance. This has been accomplished by focusing on our core businesses, divesting non-core businesses, improving operating efficiencies and reducing administrative costs.
On Augu st 31, 2000, we greatly expanded our company and entered the U.S. market through the acquisition of Consolidated Papers, a leading U.S. producer of magazine and fine paper. The acquisition significantly increased our presence in the important North American market, thereby enhancing our global diversification. The total consideration for the acquisition (including assumed debt) was approximately
$4.5 billion. Consolidated Papers had sales of $1.8 billion in 1999.
We are an integrated forest products company, meaning that we satisfy a significant portion of our raw material needs internally. The principal raw material required in the manufacture of paper and board products is pulp, which is produced from wood cut for that purpose and from sawmill residues as well as from recycled fiber. Our purchases and sales of pulp on the market are largely in balance and we are ab le to satisfy a substantial portion of our pulp needs intemally. Furthermore, a portion of the pulp we produce is made with wood from our own forest lands. In addition to pulp, the manufacture of paper and board products requires significant amounts of energy. We hav e our own power plants at certain of our rnills. These power plants supply approximately 40% of our electricity needs in Finland and Sweden.
Strategy
Our principal objective is to be the world's leading forest products company. We intend to pursue the following principal operating and marketing strategies to enable us to achieve this objective.
Focus on Care Product Areas
We will contirrue to focus our resources and investments on our core product areas: magazine paper,
newsprint, fine paper and packaging boards. We believe that our productian facilities in these core product
areas are among the best in the industry globally in terms of both asset and product quality, providing us with a
competitive advantage. We intend to contirrue to maintain high technical standards for our core assets and to
evaluate our portfolio of assets for the purpose of divesting non-core assets as appropriate. We have recently
o
