International Paper Reports Third Quarter Earnings Strong Results in Challenging Global Environment

Excellent Cash Flow

MEMPHIS, Tenn., Oct. 25, 2012 /PRNewswire/ -- International Paper today reported third quarter 2012 net earnings from continuing operations attributable to common shareholders totaling $223 million ($0.51 per share), compared with net earnings of $118 million ($0.27 per share) in the second quarter of 2012 and $468 million ($1.08 per share) in the third quarter of 2011. Amounts in all periods include the impact of special items.  

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Diluted Earnings Per Share Attributable to International Paper Common Shareholders








 Third

Quarter 2012


 Second

Quarter

2012


 Third

Quarter 2011

Net Earnings

$0.54


$0.31


$1.08

Less- Discontinued Operations (Gain)

(0.03)


(0.04)


0.00

Earnings from Continuing Operations

$0.51


$0.27


$1.08

Add Back – Net Special Items Expense (Income)

$0.24


$0.19


$(0.27)

Earnings from Continuing Operations and Before Special Items

$0.75


$0.46


$0.81

Quarterly net sales were $7.0 billion compared with $7.1 billion in the second quarter of 2012 and $6.6 billion in the third quarter of 2011.

Operating profits were $539 million in the third quarter of 2012, compared with $426 million in the second quarter of 2012 and $571 million in the third quarter of 2011, all of which included special items.

"The company generated excellent cash flow in the third quarter, despite the backdrop of slow global economic growth," said John Faraci, Chairman and Chief Executive Officer. "Looking ahead to next year, many of our key strategic projects will be ramping up around the globe. This, along with our earnings trajectory in North America Industrial Packaging, will allow us to deliver significant progress on our earnings and cash flow runway as we head into 2013."

SEGMENT INFORMATION
The performance of the company's business segments are measured quarter to quarter without variations caused by special items, as management focuses on business segment operating profits excluding those items. Third quarter 2012 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging posted earnings of $342 million ($255 million including special items) in the third quarter of 2012, versus $367 million ($260 million including special items) in the second quarter of 2012.  Lower planned maintenance downtime costs, solid manufacturing performance and decreased input costs, were offset by lower sales volumes, the operational impact of divesting three containerboard mills during the quarter and an unfavorable inventory valuation adjustment.

Printing Papers operating profits were $201 million ($202 million including special items) versus $106 million ($104 million including special items) in the second quarter of 2012.  The earnings increase was primarily due to lower planned maintenance expenses in both North America and Europe. Uncoated freesheet paper sales volumes were seasonally higher, but were partially offset by higher input costs in North America and Brazil. The start-up of the Franklin mill improved earnings by $12 million.

Consumer Packaging operating profits were $67 million before and after special items, compared with $63 million ($57 million including special items) in the second quarter of 2012. Slow demand and pricing pressure impacted the quarter, but were offset by lower planned maintenance expenses. Earnings in the third quarter for the Foodservice business were strong again and in line with the prior quarter.

xpedx, the company's North American distribution business, reported operating profits of $24 million ($15 million including special items), compared with $17 million ($5 million including special items) in the second quarter of 2012. Seasonal volume improvement was partially offset by lower commercial print margins.

International Paper recorded Ilim Joint Venture equity earnings of $33 million, compared with an equity loss of $25 million in the second quarter of 2012. Weak pulp prices and lower sales volumes of pulp to the Chinese market negatively impacted operational results.  Results were also impacted by an after-tax foreign exchange gain of $21 million in the current quarter, after realizing an after-tax loss of $41 million in the second quarter, both due to non-cash adjustments associated with the Ilim Group joint venture's U.S. dollar denominated debt.

Net corporate expenses for the 2012 third quarter were $41 million compared with $45 million in the second quarter of 2012 and $34 million in the third quarter of 2011.  The increase compared with the third quarter of 2011 primarily reflects higher pension costs. 

Effective Tax Rate
The effective tax rate before special items for the third quarter of 2012 was 31 percent, compared with an effective tax rate before special items of 32 percent in the second quarter of 2012.  The lower rate in the 2012 third quarter reflects adjustments to prior year income tax estimates as the result of filing the Company's 2011 income tax returns and the release of tax reserves due to the expiration of statutes of limitation. 

Effects of Special Items
Special items in the third quarter of 2012 included pre-tax charges of $33 million ($24 million after taxes) for restructuring and other charges, pre-tax charges of $58 million ($34 million after taxes) for integration costs related to the Temple-Inland acquisition, and pre-tax charges of $19 million ($49 million after taxes) for costs associated with the divestiture of three containerboard mills.   Restructuring and other charges included pre-tax charges of $13 million ($8 million after taxes) for debt extinguishment costs, pre-tax charges of $8 million ($4 million after taxes) for costs associated with the restructuring of our xpedx operations, pre-tax charges of $16 million ($11 million after taxes) for costs associated with the restructuring of our Packaging business in Europe, and a net pre-tax gain of $4 million (a charge of $1 million after taxes) for other items.

Special items in the second quarter of 2012 included pre-tax charges of $21 million ($13 million after taxes) for restructuring and other charges, a pre-tax charge of $62 million ($38 million after taxes) to adjust the value of the long-lived assets of the Hueneme mill in Oxnard, California to their fair value in anticipation of its divestiture, pre-tax charges of $35 million ($22 million after taxes) for integration costs related to the Temple-Inland acquisition, pre-tax charges of $9 million ($5 million after taxes) for costs associated with the announced third-quarter 2012 divestiture of the Hueneme mill and two other containerboard mills, and pre-tax charges of $9 million ($7 million after taxes) for other items. Restructuring and other charges included pre-tax charges of $10 million ($6 million after taxes) for debt extinguishment costs, pre-tax charges of $10 million ($6 million after taxes) for costs associated with the restructuring of our xpedx operations and charges of $1 million (before and after taxes) for other items.

Special items in the third quarter of 2011 included a pre-tax charge of $49 million ($32 million after taxes) for restructuring and other charges and a pre-tax charge of $82 million (a gain of $148 million after a $222 million tax benefit and a gain of $8 million related to a non-controlling interest) to reduce the carrying value of our Shorewood business to estimated fair market value. Restructuring and other charges included a pre-tax charge of $16 million ($10 million after taxes) for costs associated with the acquisition of a majority share of Andhra Pradesh Paper Mills Limited in India, a pre-tax charge of $18 million ($13 million after taxes) for costs associated with the restructuring of our xpedx operations, a pre-tax charge of $8 million ($5 million after taxes) for costs associated with the signing of an agreement to acquire Temple-Inland, a pre-tax charge of $6 million ($4 million after taxes) for costs associated with the sale of our Shorewood business, and a pre-tax charge of $1 million ($0 million after taxes) for other items.

Discontinued Operations
Discontinued operations in both the third and second quarters of 2012 included the operating earnings of Temple-Inland's Building Products business.  Also included in the third quarter of 2012 are pre-tax charges of $2 million ($1 million after taxes) for expenses associated with pursuing the divestiture of this business.

EARNINGS WEBCAST
The company will hold a webcast to review earnings at 9:00 a.m. EDT / 8:00 a.m. CDT today. All interested parties are invited to listen to the webcast live and view the slides to be presented at the webcast via the company's Internet site at http://www.internationalpaper.com by clicking on the Investors tab and going to the Presentations page. A replay of the webcast will also be available beginning approximately two hours after the call. Parties in the U.S. who wish to participate in the webcast via teleconference may dial (877) 316-2541. Those outside the U.S. should dial +1 (706) 679-8242 and ask to be connected to the International Paper Third-Quarter Earnings Call. The conference ID number is 35786152. Participants should call in no later than 8:45 a.m. EDT/7:45 a.m. CDT. An audio-only replay will be available for four weeks following the call. To access the replay, dial +1 (404) 537-3406 or, within the U.S. only, (855) 859-2056, and when prompted for the conference ID, enter 35786152.

International Paper (NYSE: IP) is a global paper and packaging company with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include uncoated papers and industrial and consumer packaging, complemented by xpedx, the company's North American distribution company. Headquartered in Memphis, Tenn., the company employs approximately 70,000 people and is strategically located in more than 24 countries serving customers worldwide.  International Paper net sales for 2011 were $26 billion. Temple-Inland Inc., which was acquired in February 2012, had 2011 net sales of $4 billion. For more information about International Paper, its products and stewardship efforts, visit internationalpaper.com.

Certain statements in this press release may be considered forward-looking statements. These statements reflect management's current views and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to: (i) the level of our indebtedness and increases in interest rates; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and political changes, including but not limited to the impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation, changes in tax laws and pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with existing and new environmental and other governmental regulations and to actual or potential litigation; (v) whether we experience a material disruption at one of our manufacturing facilities and risks inherent in conducting business through a joint venture; (vi) the failure to realize synergies and cost savings from the Temple-Inland transaction or delay in realization thereof; and (vii) our ability to achieve the benefits we expect from all other strategic acquisitions, divestitures and restructurings. These and other factors that could cause or contribute to actual results differing materially from such forward-looking statements are discussed in greater detail in the company's Securities and Exchange Commission filings. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

INTERNATIONAL PAPER COMPANY

 Consolidated Statement of Operations

Preliminary and Unaudited

(In millions, except per share amounts)































Three Months Ended



Three Months Ended


Nine Months Ended




September 30,



June 30,


September 30,




2012


2011



2012


2012


2011


Net Sales

$  7,026


$  6,632



$      7,077



$20,758


$19,667


Costs and Expenses













  Cost of products sold

5,140

 (a) 

4,793



5,270

 (i) 


15,394

 (m) 

14,298

(q)

  Selling and administrative expenses

527

 (b) 

477



474

 (j) 


1,514

 (n) 

1,446


  Depreciation, amortization and cost of timber harvested

383


335



366



1,111


1,011


  Distribution expenses

403


352



448



1,198


1,053


  Taxes other than payroll and income taxes

39


33



44



124


111


  Restructuring and other charges

33

 (c) 

49

 (e) 


21

 (k) 


88

 (o) 

84

(r)

  Net (gains) losses on sales and impairments of businesses

18

 (d) 

82

 (f) 


78

 (l) 


89

 (p) 

219

(s)

  Interest expense, net

163


130



172



503


403


Earnings From Continuing Operations Before Income Taxes  and













  Equity Earnings

320

 (a-d) 

381

 (e-f) 


204

 (i-l) 


737

 (m-p) 

1,042

(q-s)

  Income tax (benefit) provision

130


(84)

 (g) 


57



257


157

(g)

  Equity earnings (loss), net of taxes

34


-



(26)



52


117


Earnings From Continuing Operations 

224

 (a-d) 

465

 (e-g) 


121

 (i-l) 


532

 (m-p) 

1,002

(g, q-s)

  Discontinued operations, net of taxes 

14


-



16



35


49


Net Earnings  

$      238

 (a-d) 

$     465

 (e-g) 


$          137

 (i-l) 


$     567

 (m-p) 

$    1,051

(g, q-s)

  Less: Net earnings (loss) attributable to noncontrolling interests

1


(3)

 (h) 


3



8


10


Net Earnings Attributable to International Paper Company

$      237

 (a-d) 

$     468

 (e-h) 


$          134

 (i-l) 


$     559

 (m-p) 

$    1,041

(g, q-s)















Basic Earnings Per Common Share Attributable to













  International Paper Common Shareholders













  Earnings from continuing operations

$     0.51

 (a-d) 

$    1.08

 (e-h) 


$         0.27

 (i-l) 


$    1.20

 (m-p) 

$      2.30

(g, q-s)

  Discontinued operations 

0.03





0.04



0.08


0.11


  Net earnings

$     0.54

 (a-d) 

$    1.08

 (e-h) 


$         0.31

 (i-l) 


$    1.28

 (m-p) 

$      2.41

(g, q-s)















Diluted Earnings Per Common Share Attributable to













  International Paper Common Shareholders













  Earnings from continuing operations

$     0.51

 (a-d) 

$    1.08

 (e-h) 


$         0.27

 (i-l) 


$    1.19

 (m-p) 

$      2.27

(g, q-s)

  Discontinued operations

0.03


-



0.04



0.08


0.11


  Net earnings  

$     0.54

 (a-d) 

$     1.08

 (e-h) 


$         0.31

 (i-l) 


$    1.27

 (m-p) 

$      2.38

(g, q-s)















Average Shares of Common Stock Outstanding - Diluted

439.8


435.2



438.2



439.7


436.7


Cash Dividends Per Common Share

$ 0.2625


$ 0.2625



$     0.2625



$0.7875


$  0.7125
















Amounts Attributable to International Paper Common Shareholders












  Earnings from continuing operations, net of tax

$      223

 (a-d) 

$      468

 (e-h) 


$          118

 (i-l) 


$     524

 (m-p) 

$       992

(g, q-s)

  Discontinued operations, net of tax

14


-



16



35


49


  Net Earnings 

$      237

 (a-d) 

$      468

 (e-h) 


$          134

 (i-l) 


$     559

 (m-p) 

$    1,041

(g, q-s)





























The accompanying notes are an integral part of this consolidated statement of operations.















(a)

Includes a charge of $1 million (before and after taxes) for an inventory write-off related to the xpedx reorganization.















(b)

Includes a pre-tax charge of $58 million ($34 million after taxes) for integration costs associated with the acquisition of Temple-Inland. 















(c)

Includes a  pre-tax charge of $13 million ($8 million after taxes) for debt extinguishment costs, a pre-tax charge of $8 million ($4 million after taxes) for costs associated with the restructuring of our xpedx operations, a pre-tax charge of $16 million ($11 million after taxes) for costs associated with the restructuring of the Company's Packaging business in Europe, and a pre-tax gain of $4 million (a loss of $1 million after taxes) for other items.















(d)

Includes a  pre-tax charge of $19 million ($49 million after taxes) for costs associated with the containerboard mill divestitures and a pre-tax gain of $1 million (before and after taxes) for other items.















(e)

Includes a pre-tax charge of $16 million ($10 million after taxes) for costs associated with the acquisition of a majority share of Andhra Pradesh Paper Mills Limited in India, a pre-tax charge of $18 million ($13 million after taxes) for costs associated with the restructuring of the Company's xpedx operations, a pre-tax charge of $8 million ($5 million after taxes) for costs associated with signing an agreement to acquire Temple-Inland, a pre-tax charge of $6 million ($4 million after taxes) for costs associated with the sale of the Company's Shorewood operations, and a pre-tax charge of $1 million ($0 million after taxes) for other items.















(f)

Includes a pre-tax charge of $82 million (a gain of $140 million after taxes) to reduce the carrying value of the Shorewood business based on the terms of the definitive agreement to sell this business.















(g)

Includes a tax benefit of $222 million related to the reduction of the carrying value of the Shorewood business and the write-off of a deferred tax liability associated with Shorewood.















(h)

Includes noncontrolling interest income of $8 million (before and after taxes) associated with the fixed asset impairment of Shorewood Mexico.















(i)

Includes a charge of $2 million (before and after taxes) for an inventory write-off related to the xpedx reorganization.
















(j)

Includes a pre-tax charge of $35 million ($22 million after taxes) for integration costs associated with the acquisition of Temple-Inland. 















(k)

Includes a  pre-tax charge of $10 million ($6 million after taxes) for debt extinguishment costs, a pre-tax charge of $10 million ($6 million after taxes) for costs associated with the restructuring of our xpedx operations and charges of $1 million (before and after taxes) for other items.



(l)

Includes a pre-tax charge of $62 million ($38 million after taxes) to adjust the long-lived assets of the Hueneme mill in Oxnard, California to their fair value in anticipation of its divestiture, a pre-tax charge of $9 million ($5 million after taxes) for costs associated with the divestiture of the Hueneme mill and two other containerboard mills, a pre-tax charge of $6 million ($4 million after taxes) for an adjustment related to the sale of Shorewood, and pre-tax charges of $1 million (before and after taxes) for other items.



(m)

Includes a pre-tax charge of $20 million ($12 million after taxes) related to the write-up of the Temple-Inland inventories to fair value and a charge of $5 million (before and after taxes) for an inventory write-off related to the xpedx reorganization.















(n)

Includes a pre-tax charge of $136 million ($89 million after taxes) for integration costs associated with the acquisition of Temple-Inland.















(o)

Includes a  pre-tax charge of $39 million ($24 million after taxes) for debt extinguishment costs, a pre-tax charge of $37 million ($24 million after taxes) for costs associated with the restructuring of our xpedx operations, a pre-tax charge of $16 million ($11 million after taxes) for costs associated with the restructuring of the Company's Packaging business in Europe and a pre-tax gain of $4 million (a loss of $1 million after taxes) for other items.















(p)

Includes a pre-tax charge of $62 million ($38 million after taxes) to adjust the long-lived assets of the Hueneme mill in Oxnard, California to their fair value in anticipation of its divestiture, a pre-tax charge of $28 million ($54 million after taxes) for costs associated with the containerboard mill divestitures, and a pre-tax gain of $1 million ($2 million after taxes) for other items.















(q)

Includes a pre-tax charge of $27 million ($17 million after taxes) for an environmental reserve related to the Company's property in Cass Lake, Minnesota.















(r)

Includes a pre-tax charge of $16 million ($10 million after taxes) for costs associated with the acquisition of a majority share of Andhra Pradesh Paper Mills Limited in India, a pre-tax charge of $35 million ($23 million after taxes) for costs associated with the restructuring of the Company's xpedx operations, a pre-tax charge of $8 million ($5 million after taxes) for costs associated with signing an agreement to acquire Temple-Inland, a pre-tax charge of $6 million ($4 million after taxes) for costs associated with the sale of the Company's Shorewood operations, a pre-tax gain of $21 million ($13 million after taxes) related to a change in estimate resulting in the reversal of environmental reserves due to the announced repurposing of a portion of the Franklin mill, a pre-tax charge of $32 million ($19 million after taxes) for early debt extinguishment costs, and pre-tax charges of $8 million ($5 million after taxes) for other items.















(s)

Includes a pre-tax charge of $82 million (a gain of $140 million after taxes) to reduce the carrying value of the Shorewood business based on the terms of the definitive agreement to sell this business, a pre-tax charge of $129 million ($104 million after taxes) for a fixed-asset impairment of the North American Shorewood business, and a charge of $8 million (before and after taxes) for asset impairment costs associated with the Inverurie, Scotland mill which was closed in 2009.