International Paper Reports Third Quarter Earnings

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

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.

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

Nine Months Ended

September 30,

June 30,

September 30,

2012

2011

2012

2012

2011

Earnings Before Special Items

$                330

$              352

$                           203

$                780

$            1,024

Restructuring and other charges

(59)

(32)

(37)

(166)

(70)

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

(48)

148

(48)

(90)

36

Income tax adjustments

-

-

-

-

(5)

Bargain purchase price adjustment recorded in equity earnings

-

-

-

-

7

Earnings from Continuing Operations

223

468

118

524

992

Discontinued operations

14

-

16

35

49

Net Earnings as Reported

$                 237

$               468

$                            134

$                 559

$              1,041

Three Months Ended

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

Diluted Earnings per Common Share

2012

2011

2012

2012

2011

Earnings Per Share Before Special Items

$                0.75

$              0.81

$                           0.46

$                1.77

$                2.34

Restructuring and other charges

(0.13)

(0.07)

(0.08)

(0.38)

(0.16)

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

(0.11)

0.34

(0.11)

(0.20)

0.08

Income tax adjustments

-

-

-

-

(0.01)

Bargain purchase price adjustment recorded in equity earnings

-

-

-

-

0.02

Earnings Per Common Share from 

  Continuing Operations

0.51

1.08

0.27

1.19

2.27

Discontinued operations

0.03

-

0.04

0.08

0.11

Diluted Earnings per Common Share as Reported

$                0.54

$              1.08

$                           0.31

$                1.27

$                2.38

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, nine-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 

Nine Months 

Ended

Ended

Ended

September 30,

June 30,

September 30,

2012

2011

2012

2012

2011

Industrial Packaging

$

3,335

$

2,660

$

3,450

$

9,900

$

7,920

Printing Papers

1,580

1,550

1,510

4,650

4,665

Consumer Packaging 

765

955

780

2,355

2,805

Distribution

1,535

1,710

1,500

4,510

5,005

Corporate and Inter-segment Sales

(189)

(243)

(163)

(657)

(728)

Net Sales

$

7,026

$

6,632

$

7,077

$

20,758

$

19,667

Operating Profit by Industry Segment

Three Months 

Three Months 

Nine Months 

Ended

Ended

Ended

September 30,

June 30,

September 30,

2012

2011

2012

2012

2011

Industrial Packaging

$

255

(1)

$

293

(5)

$

260

(1)

$

730

(1)

$

841

(5)

Printing Papers

202

(2)

239

(6)

104

(2)

452

(2)

683

(6)

Consumer Packaging 

67

30

(7)

57

(3)

227

(3)

97

(7)

Distribution

15

(4)

9

(8)

5

(4)

18

(4)

18

(8)

Operating Profit

539

571

426

1,427

1,639

Interest expense, net

(163)

(130)

(172)

(503)

(403)

Noncontrolling interest/equity earnings adjustment (9)

-

(1)

4

8

6

Corporate items, net

(41)

(34)

(45)

(155)

(114)

Restructuring and other charges

(15)

(25)

(9)

(40)

(86)

Earnings (Loss) From Continuing Operations  

    Before Income Taxes and Equity Earnings

$

320

$

381

$

204

$

737

$

1,042

Equity Earnings (Loss) in Ilim Holdings S.A., 

    Net of Taxes 

$

33

$

1

$

(25)

$

48

$

109

(1)

Includes charges of $58 million for the three months ended September 30, 2012, $35 million for the three months ended June 30, 2012 and $136 million for the nine months ended September 30, 2012 for integration costs associated with the Temple-Inland acquisition, charges of $19 million for the three months ended September 30, 2012, $9 million for the three months ended June 30, 2012 and $28 million for the nine months ended September 30, 2012 for costs associated with the divestiture of three containerboard mills, charges of $16 million for the three months and nine months ended September 30, 2012 for costs associated with the restructuring of our Packaging business in Europe, a charge of $62 million for the three months ended June 30, 2012 and the nine months ended September 30, 2012 to adjust the value of the long-lived assets of the Hueneme mill in Oxnard, California to their fair value, a charge of $20 million for the nine months ended September 30, 2012 related to the write-up of the Temple-Inland inventory to fair value and a gain of $6 million for the three months ended September 30, 2012, a charge of $1 million for the three months ended June 30, 2012, and a gain of $5 million for the nine months ended September 30,2012 for other items.

(2)

Includes a gain of $1 million for the three months ended September 30, 2012, a loss of $2 million for the three months ended June 30, 2012, and a net $0 million charge for the nine months ended September 30, 2012 related to the acquisition of Andhra Pradesh Paper Mills Limited.

(3)

Includes a loss of $6 million for the three months ended June 30, 2012 and a gain of $1 million for the nine months ended September 30, 2012 for adjustments related to the sale of the Shorewood business.

(4)

Includes charges of $9 million for the three months ended September 30, 2012, $12 million for the three months ended June 30, 2012  and $42 million for the nine months ended September 30, 2012 for costs associated with the restructuring of the Company's xpedx operation.

(5)

Includes charges of $8 million for the three months and nine months ended September 30, 2011 for costs associated with signing an agreement to acquire Temple-Inland, a gain of $7 million for the nine months ended September 30, 2011 for a bargain purchase price adjustment on an acquisition by our joint venture in Turkey, and costs of $2 million for the nine months ended September 30, 2011 for additional closure costs for the Etienne mill in France.

(6)

Includes gains of $1 million for the three months ended September 30, 2011 and $22 million for the nine months ended September 30, 2011 related to the repurposing of the Franklin mill, and a charge of $8 million for the nine months ended September 30, 2011 for asset impairment costs associated with the Inverurie mill.

(7)

Includes a charge of $82 million for the three months and nine months ended September 30, 2011 to reduce the carrying value of the Shorewood business to fair market value, a charge of $129 million for the nine months ended September 30, 2011 for a fixed asset impairment for the North American Shorewood business, an $8 million gain for the three and nine months ended September 30, 2011 for noncontrolling interest related to the fixed asset impairment at Shorewood Mexico, and a gain of $1 million the three months ended September 30, 2011 and charges of $2 million for the nine months ended September 30, 2011 for costs associated with the reorganization of the Company's Shorewood operations. 

(8)

Includes charges of $18 million and $35 million for the three months and nine months ended September 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 taxes and equity earnings.

International Paper Company

Reconciliation of Operating Profit to Operating Profit Before Special Items

(In millions)

Three Months Ended September 30, 2012

Industrial

Printing

Consumer

Packaging

Papers

Packaging

Distribution

Total

Operating Profit Before Special Items

$           342

$           201

$            67

$             24

$           634

Restructuring and other charges

(69)

1

-

(9)

(77)

Net gains (losses) on sales and impairments of businesses

(18)

-

-

-

(18)

Operating Profit as Reported

$            255

$            202

$             67

$             15

$            539

Three Months Ended September 30, 2011

Industrial

Printing

Consumer

Packaging

Papers

Packaging

Distribution

Total

Operating Profit Before Special Items

$            301

$            238

$            103

$             27

$            669

Restructuring and other charges

(8)

1

1

(18)

(24)

Net gains (losses) on sales and impairments of businesses

-

-

(74)

-

(74)

Operating Profit as Reported

$            293

$            239

$             30

$               9

$            571

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

Nine Months Ended September 30, 2012

Industrial

Printing

Consumer

Packaging

Papers

Packaging

Distribution

Total

Operating Profit Before Special Items

$            987

$            452

$            226

$             60

$         1,725

Restructuring and other charges

(167)

-

-

(42)

(209)

Net gains (losses) on sales and impairments of businesses

(90)

-

1

-

(89)

Operating Profit as Reported

$            730

$            452

$            227

$             18

$         1,427

Nine Months Ended September 30, 2011

Industrial

Printing

Consumer

Packaging

Papers

Packaging

Distribution

Total

Operating Profit Before Special Items

$            844

$            669

$            302

$             53

$         1,868

Restructuring and other charges

(10)

22

(2)

(35)

(25)

Net gains (losses) on sales and impairments of businesses

-

(8)

(203)

-

(211)

Bargain purchase price adjustment recorded in equity earnings

7

-

-

-

7

Operating Profit as Reported

$            841

$            683

$             97

$             18

$         1,639

(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.

International Paper

Sales Volume by Product (1)

Preliminary and Unaudited

International Paper Consolidated 

Three Months

 Three Months

Nine Months

Ended

Ended

Ended

September 30,

June 30,

September 30,

2012

2011

2012

2012

2011

Industrial Packaging (In thousands of short tons)

Corrugated Packaging (2)

2,665

1,895

2,795

7,922

5,618

Containerboard (2)

823

614

828

2,400

1,789

Recycling 

620

608

597

1,754

1,860

Saturated Kraft

47

38

45

130

122

Bleached Kraft

30

27

32

85

75

European Industrial Packaging

244

244

260

770

783

Asian Box 

108

118

100

306

337

Industrial Packaging

4,537

3,544

4,657

13,367

10,584

Printing Papers (In thousands of short tons)

U.S. Uncoated Papers 

668

657

637

1,990

1,975

European & Russian Uncoated Papers

326

289

311

948

907

Brazilian Uncoated Papers

290

283

295

859

826

Indian Uncoated Papers (3)

59

0

47

185

0

Uncoated Papers 

1,343

1,229

1,290

3,982

3,708

Market Pulp (4)

414

347

356

1,155

1,052

Consumer Packaging (In thousands of short tons)