International Paper Reports Second Quarter Earnings

Second

Quarter

2012

First

Quarter

2012

Second

Quarter

2011

Net Earnings

$0.31

$0.43

$0.51

Less - Discontinued Operations (Gain)

(0.04)

(0.01)

-

Earnings  from Continuing Operations

$0.27

$0.42

$0.51

Add Back - Net Special Items Expense

0.19

0.15

0.28

Earnings from Continuing Operations

and Before Special Items

$0.46

$0.57

$0.79

INTERNATIONAL PAPER COMPANY

 Consolidated Statement of Operations

Preliminary and Unaudited

(In millions, except per share amounts)

Three Months Ended

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

2012

2011

2012

2012

2011

Net Sales

$    7,077

$   6,648

$        6,655

$ 13,732

$  13,035

Costs and Expenses

  Cost of products sold

5,270

 (a) 

4,880

 (e) 

4,984

 (h) 

10,254

 (l) 

9,505

(e)

  Selling and administrative expenses

474

 (b) 

484

513

 (i) 

987

 (m) 

969

  Depreciation, amortization and cost of timber harvested

366

336

362

728

676

  Distribution expenses

448

361

347

795

701

  Taxes other than payroll and income taxes

44

38

41

85

78

  Restructuring and other charges

21

 (c) 

(10)

 (f) 

34

 (j) 

55

 (n) 

35

(p)

  Net (gains) losses on sales and impairments of businesses

78

 (d) 

129

 (g) 

(7)

 (k) 

71

 (o) 

137

(q)

  Interest expense, net

172

137

168

340

273

Earnings From Continuing Operations Before Income Taxes and Equity Earnings

293

213

(h-k)

  Income tax (benefit) provision

57

118

70

127

241

  Equity earnings (loss), net of taxes

(26)

52

44

18

117

(r)

Earnings From Continuing Operations 

121

 (a-d) 

227

 (e-g) 

187

 (h-k) 

308

 (l-o) 

537

(e,p-r)

  Discontinued operations, net of taxes 

16

-

5

21

49

Net Earnings  

$       137

 (a-d) 

$      227

 (e-g) 

$           192

 (h-k) 

$      329

 (l-o) 

$       586

(e,p-r)

  Less: Net earnings (loss) attributable to noncontrolling interests

3

8

4

7

13

Net Earnings Attributable to International Paper Company

$       134

 (a-d) 

$      219

 (e-g) 

$           188

 (h-k) 

$      322

 (l-o) 

$       573

(e,p-r)

Basic Earnings Per Common Share Attributable to

  International Paper Common Shareholders

  Earnings from continuing operations

$      0.27

 (a-d) 

$     0.51

 (e-g) 

$          0.42

 (h-k) 

$     0.69

 (l-o) 

$      1.22

(e,p-r)

  Discontinued operations 

0.04

-

0.01

0.05

0.11

  Net earnings

$      0.31

 (a-d) 

$     0.51

 (e-g) 

$          0.43

 (h-k) 

$     0.74

 (l-o) 

$      1.33

(e,p-r)

Diluted Earnings Per Common Share Attributable to

  International Paper Common Shareholders

  Earnings from continuing operations

$      0.27

 (a-d) 

$     0.51

 (e-g) 

$          0.42

 (h-k) 

$     0.68

 (l-o) 

$      1.21

(e,p-r)

  Discontinued operations

0.04

-

0.01

0.05

0.11

  Net earnings  

$      0.31

 (a-d) 

$     0.51

 (e-g) 

$          0.43

 (h-k) 

$     0.73

 (l-o) 

$      1.32

(e,p-r)

Average Shares of Common Stock Outstanding - Diluted

438.2

430.5

438.6

439.3

433.4

Cash Dividends Per Common Share

$ 0.2625

$ 0.2625

$      0.2625

$ 0.5250

$  0.4500

Amounts Attributable to International Paper Common Shareholders

  Earnings from continuing operations, net of tax

$       118

 (a-d) 

$      219

 (e-g) 

$           183

 (h-k) 

$      301

 (l-o) 

$       524

(e,p-r)

  Discontinued operations, net of tax

16

-

5

21

49

  Net Earnings 

$       134

 (a-d) 

$      219

 (e-g) 

$           188

 (h-k) 

$      322

 (l-o) 

$       573

(e,p-r)

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

(a)

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

(b)

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

(c)

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.

(d)

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 announced third-quarter 2012 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.

(e)

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.

(f)

Includes a pre-tax gain of $21 million ($13 million after taxes) related to the reversal of environmental reserves due to a change in estimate caused by the announced repurposing of a portion of the Franklin mill to produce fluff pulp, a pre-tax charge of $10 million ($6 million after taxes) for costs associated with the restructuring of the Company's xpedx operations, and a pre-tax charge of $1 million ($0 million after taxes) for other items.

(g)

Includes a pre-tax charge of $129 million ($104 million after taxes) for a fixed-asset impairment of the North American Shorewood business.

(h)

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

(i)

Includes a pre-tax charge of $43 million ($33 million after taxes) for integration costs associated with the acquisition of Temple-Inland. 

(j)

Includes a pre-tax charge of $19 million ($14 million after taxes) for costs associated with the restructuring of the Company's xpedx operations, a pre-tax charge of $16 million ($10 million after taxes) for early debt extinguishment costs, and a gain of $1 million (before and after taxes) for other items.

(k)

Includes a pre-tax gain of $7 million ($6 million after taxes) for adjustments related to the sale of the Shorewood business.

(l)

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 $4 million (before and after taxes) for an inventory write-off related to the xpedx reorganization.

(m)

Includes a pre-tax charge of $78 million ($55 million after taxes) for integration costs associated with the acquisition of Temple Inland.

(n)

Includes a  pre-tax charge of $26 million ($16 million after taxes) for debt extinguishment costs, and a pre-tax charge of $29 million ($20 million after taxes) for costs associated with the restructuring of our xpedx operations.

(o)

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 announced third-quarter 2012 divestiture of the Hueneme mill and two other containerboard mills, a pre-tax gain of $1 million ($2 million after taxes) for adjustments related to the sale of the Shorewood business and charges of $1 million (before and after taxes) for other items.

(p)

Includes a pre-tax gain of $21 million ($13 million after taxes) related to the reversal of environmental reserves due to a change in estimate caused by 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, a pre-tax charge of $17 million ($10 million after taxes) for costs associated with the restructuring of the Company's xpedx operations, and pre-tax charges of $7 million ($5 million after taxes) for other items.

(q)

Includes 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.

(r)

Includes a gain of $7 million (before and after taxes) related to a bargain price adjustment on an acquisition by our joint venture in Turkey.

International Paper Company

Reconciliation of Earnings Before Special Items to Net Earnings

Attributable to International Paper Company

Preliminary and Unaudited

(In millions except for per share amounts)

Three Months Ended

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

2012

2011

2012

2012

2011

Earnings Before Special Items

$           203

$         338

$                   247

$           450

$           672

Restructuring and other charges

(37)

(10)

(70)

(107)

(38)

Net gains/(losses)on sales/impairments of business

(48)

(104)

6

(42)

(112)

Income tax adjustments

-

(5)

-

-

(5)

Bargain purchase price adjustment recorded in equity earnings

-

-

-

-

7

Earnings from Continuing Operations

118

219

183

301

524

Discontinued operations

16

-

5

21

49

Net Earnings as Reported

$           134

$         219

$                   188

$           322

$           573

Three Months Ended

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

Diluted Earnings per Common Share

2012

2011

2012

2012

2011

Earnings Per Share Before Special Items

$          0.46

$        0.79

$                  0.57

$          1.02

$          1.55

Restructuring and other charges

(0.08)

(0.03)

(0.16)

(0.24)

(0.09)

Net gains/(losses)on sales/impairments of business

(0.11)

(0.24)

0.01

(0.10)

(0.26)

Income tax adjustments

-

(0.01)

-

-

(0.01)

Bargain purchase price adjustment recorded in equity earnings

-

-

-

-

0.02

Earnings Per Common Share from 

  Continuing Operations

0.27

0.51

0.42

0.68

1.21

Discontinued operations

0.04

-

0.01

0.05

0.11

Diluted Earnings per Common Share as Reported

$          0.31

$        0.51

$                  0.43

$          0.73

$          1.32

Notes:

(1) The Company calculates Earnings Before Special Items by excluding the after-tax effect of items considered by management to be unusual from the earnings reported under U.S. generally accepted accounting principles ("GAAP"). Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. International Paper believes that using this information, along with net earnings, provides for a more complete analysis of the results of operations by quarter. Net earnings is the most directly comparable GAAP measure.

(2) Since diluted earnings per share are computed independently for each period, six-month per share amounts may not equal the sum of the respective quarters.

International Paper

Sales and Earnings by Industry Segment 

Preliminary and Unaudited

(In Millions)

Sales by Industry Segment

Three Months 

Three Months 

Six Months 

Ended

Ended

Ended

June 30,

March 31,

June 30,

2012

2011

2012

2012

2011

Industrial Packaging

$

3,450

$

2,705

$

3,115

$

6,565

$

5,260

Printing Papers

1,510

1,585

1,560

3,070

3,115

Consumer Packaging 

780

945

810

1,590

1,850

Distribution

1,500

1,655

1,475

2,975

3,295

Corporate and Inter-segment Sales

(163)

(242)

(305)

(468)

(485)

Net Sales

$

7,077

$

6,648

$

6,655

$

13,732

$

13,035

Operating Profit by Industry Segment

Three Months 

Three Months 

Six Months 

Ended

Ended

Ended

June 30,

March 31,

June 30,

2012

2011

2012

2012

2011

Industrial Packaging

$

260

(1)

$

269

$

215

(1)

$

475

(1)

$

548

(5)

Printing Papers

104

(2)

243

(6)

146

(2)

250

(2)

444

(6)

Consumer Packaging 

57

(3)

(33)

(7)

103

(3)

160

(3)

67

(7)

Distribution

5

(4)

4

(8)

(2)

(4)

3

(4)

9

(8)

Operating Profit

426

483

462

888

1,068

Interest expense, net

(172)

(137)

(168)

(340)

(273)

Noncontrolling interest/equity earnings adjustment (9)

4

9

4

8

7

Corporate items, net

(45)

(36)

(69)

(114)

(80)

Restructuring and other charges

(9)

(26)

(16)

(25)

(61)

Earnings (Loss) From Continuing Operations  

    Before Income Taxes and Equity Earnings

$

204

$

293

$

213

$

417

$

661

Equity Earnings in Ilim Holdings S.A., 

    Net of Taxes 

$

(25)

$

52

$

40

$

15

$

108

(1)

Includes a charge of $62 million for the three months and six months ended June 30, 2012 to adjust

the value of the long-lived assets of the Hueneme mill inOxnard, California to their fair value in

anticipation of its divestiture, charges of $35 million and $43 million for the three months ended

June 30, 2012 and March 31, 2012, respectively, and $78 million for the six months ended June 30, 2012

for integration costs associated with the Temple-Inland acquisition, charges of $9 million for the three

months and six months ended June 30, 2012 for costs associated with the announced third-quarter 2012

divestiture of the Hueneme mill and two other containerboard mills, a charge of $1 million for the three

months and six months ended June 30, 2012 related to the closure of the Etienne mill in France,

and a charge of $20 million for the three months ended March 31, 2012 and six months ended

 June 30, 2012 related to the write-up of the Temple-Inland inventory to fair value.

(2)

Includes a loss of $2 million for the three months ended June 30, 2012, a gain of $1 million for

the three months ended March 31, 2012 and a loss of $1 million for the six months ended June 30, 2012

related to the acquisition of the majority interest in Andhra Pradesh Paper Mills Limited.

(3)

Includes a loss of $6 million for the three months ended June 30, 2012, a gain of $ 7 million for

the three months ended March 31, 2012 and a gain of $1 million  for the six months ended

June 30, 2012 for adjustments related to the sale of the Shorewood business.

(4)

Includes charges of $12 million for the three months ended June 30, 2012, $21 milion for the

three months ended March 21, 2012 and $33 million for the six  months ended June 30, 2012 for

costs associated with the restructuring of the Company's xpedx operation.

(5)

Includes charges of $2 million for the six months ended June 30, 2011 for additional closure

costs for the Etienne mill in France, and a gain of $7 million for the six months ended June 30, 2011

for a bargain purchase price adjustment on an acquisition by our joint venture in Turkey.

(6)

Includes a gain of $21 million for the three months and six months ended June 30, 2011 related

to the repurposing of the Franklin mill and a charge of $8 million for the six months ended June 30,

2011 for asset impairment costs associated with the Inverurie mill.

(7)

Includes a charge of $129 million for a fixed asset impairment of the North American Shorewood

 business for the three months and six months ended June 30, 2011 and charges of $2 million

and $3 million for the three months and six months ended June 30, 2011, respectively, related

 to the reorganization of the Shorewood operations.

(8)

Includes charges of $10 million and $17 million for the three months and six months ended

June 30, 2011, respectively, associated with the restructuring of the Company's xpedx operations.

(9)

Operating profits for industry segments include each segment's percentage share of the profits of

subsidiaries included in that segment that are less than wholly owned.The pre-tax noncontrolling

interest and equity earnings for these subsidiaries are adjusted here to present consolidated earnings

 before income taxesand equity earnings.

International Paper Company

Reconciliation of Operating Profit to Operating Profit Before Special Items

(In millions)

Three Months Ended June 30, 2012

Industrial

Printing

Consumer

Packaging

Papers

Packaging

Distribution

Total

Operating Profit Before Special Items

$         367

$         106

$           63

$           17

$         553

Restructuring and other charges

(35)

(2)

-

(12)

(49)

Net gains (losses) on sales and impairments of businesses

(72)

-

(6)

-

(78)

Operating Profit as Reported

$         260

$         104

$           57

$              5

$         426

Three Months Ended June 30, 2011

Industrial

Printing

Consumer

Packaging

Papers

Packaging

Distribution

Total

Operating Profit Before Special Items

$         269

$         222

$           98

$           14

$         603

Restructuring and other charges

-

21

(2)

(10)

9

Net gains (losses) on sales and impairments of businesses

-

-

(129)

-

(129)

Operating Profit as Reported

$         269

$         243

$          (33)

$              4

$         483

Three Months Ended March 31, 2012

Industrial

Printing

Consumer

Packaging

Papers

Packaging

Distribution

Total

Operating Profit Before Special Items

$         278

$         145

$           96

$           19

$         538

Restructuring and other charges

(63)

1

-

(21)

(83)

Net gains (losses) on sales and impairments of businesses

-

-

7

-

7

Operating Profit as Reported

$         215

$         146

$         103

$            (2)

$         462

Six Months Ended June 30, 2012

Industrial

Printing

Consumer

Packaging

Papers

Packaging

Distribution

Total

Operating Profit Before Special Items

$         645

$         251

$         159

$           36

$      1,091

Restructuring and other charges

$          (98)

$            (1)

$             -

$          (33)

$        (132)

Net gains (losses) on sales and impairments of businesses

$          (72)

$             -

$              1

$             -

$          (71)

Operating Profit as Reported

$         475

$         250

$         160

$              3

$         888

Six Months Ended June 30, 2011

Industrial

Printing

Consumer

Packaging

Papers

Packaging

Distribution

Total

Operating Profit Before Special Items

$         543

$         431

$         199

$           26

$      1,199

Restructuring and other charges

(2)

21

(3)

(17)

(1)

Net gains (losses) on sales and impairments of businesses

-

(8)

(129)

-

(137)

Bargain purchase price adjustment recorded in equity earnings

7

-

-

-

7

Operating Profit as Reported

$         548

$         444

$           67

$              9

$      1,068

(1) The Company calculates Operating Profit Before Special Items by excluding the pre-tax effect of items considered by management to be unusual from the earnings reported under U.S. generally accepted accounting principles ("GAAP"). Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. International Paper believes that using this information, along with net earnings, provides for a more complete analysis of the results of operations by quarter. Net earnings is the most directly comparable GAAP measure.

(2) The Company has substantially completed its land sales and earnings for future land sales are expected to be insignificant.  Beginning in 2011, Forest Products is no longer reported as a separate industry segment.

International Paper

Sales Volume by Product (1)

Preliminary and Unaudited

International Paper Consolidated 

Three Months

 Three Months

Six Months

Ended

Ended

Ended

June 30,

March 31,

June 30,

2012

2011

2012

2012

2011

Industrial Packaging (In thousands of short tons)

Corrugated Packaging (2)

2,795

1,913

2,462

5,257

3,723

Containerboard (2)

828

620

749

1,577

1,175

Recycling 

597

609

537

1,134

1,252

Saturated Kraft

45

45

38

83

84

Bleached Kraft

32

25

23

55

48

European Industrial Packaging

260

266

266

526

539

Asian Box 

100

116

98

198

219

Industrial Packaging

4,657

3,594

4,173

8,830

7,040

Printing Papers (In thousands of short tons)

U.S. Uncoated Papers 

637

656

685

1,322

1,318

European & Russian Uncoated Papers

311

306

311

622

618

Brazilian Uncoated Papers

295

270

274

569

543

Indian Uncoated Papers (3)

47

0

79

126

0

Uncoated Papers 

1,290

1,232

1,349

2,639

2,479

Market Pulp (4)

356

364

385

741

705

Consumer Packaging (In thousands of short tons)

North American Consumer Packaging

388

411

373

761

820

European Coated Paperboard

88

80

97

185

164

Asian Coated Paperboard

240

258

237

477

480

Consumer Packaging

716

749

707

1,423

1,464

(1)

Sales volumes include third party and inter-segment sales and exclude sales of equity investees.

(2)

Includes Temple-Inland volumes from date of acquisition in February 2012.

(3)

Includes APPM volumes from date of acquisition in October 2011.

(4)

Includes internal sales to mills.

INTERNATIONAL PAPER COMPANY

Consolidated Balance Sheet

Preliminary and Unaudited

(In Millions)

June 30,

December 31,

2012

2011

Assets

Current Assets

  Cash and Temporary Investments