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International Paper Earnings Climb in 2nd Quarter

July 31, 2008 International Paper today reported preliminary second-quarter 2008 net earnings of $227 million ($0.54 per share) compared with net earnings of $133 million ($0.31 per share) in the 2008 first quarter and $190 million ($0.44 per share) in the second quarter of 2007. Amounts in all periods include special items.

  
Diluted Earnings Per Share Summary

                                    Second      First    Second
                                    Quarter    Quarter   Quarter
                                     2008       2008      2007

Net Earnings                         $0.54      $0.31     $0.44
Discontinued Operations:
  Loss on sale or impairment             -       0.04      0.02
Earnings from Continuing Operations   0.54       0.35      0.46
Net Special Items Expense (Income)    0.02       0.06      0.06
Earnings from Continuing Operations
 and Before Special Items            $0.56      $0.41     $0.52

Earnings from continuing operations and before special items in the second quarter of 2008 were $235 million ($0.56 per share), compared with $175 million ($0.41 per share) in the 2008 first quarter and $223 million ($0.52 per share) in the second quarter of 2007.

Quarterly net sales were $5.8 billion, up from $5.7 billion in the first quarter and up from $5.3 billion in the second quarter of 2007.

Industry segment operating profits were $393 million for the 2008 second quarter up from $332 million in the 2008 first quarter and down from $450 million in the second quarter of 2007. The quarter-to-quarter increase reflects improved pricing and operating performance helping offset higher input costs. Additionally, the company reported equity earnings, net of taxes, of $32 million up from $17 million in the first quarter from its 50 percent investment in Ilim Holding S.A., a separate reportable industry segment in Russia.

"We had a solid quarter because of strong operating performance, cost management and good results in our businesses outside of the U.S.," said Chairman and CEO John Faraci, "Overall, however, higher than expected input costs continue to negatively impact our real earnings potential."

Commenting on the third quarter of 2008, Faraci said, "Despite the current weakness in the U.S. economy, I am optimistic about our ability to manage through this period and come out in a stronger, better position. We're ready to complete the acquisition of Weyerhaeuser's Containerboard, Packaging and Recycling business next week, which will give us additional opportunities to reduce costs in our North American packaging business."

SEGMENT INFORMATION

During 2008, in order to facilitate performance comparisons with other companies, the company changed its method of allocating corporate overhead expenses to attribute additional expense to its business segments. Accordingly, business segment operating profits for all periods have been restated to reflect this change. Second-quarter 2008 segment operating profits and business trends compared with the previous quarter are as follows:

Operating profits for Printing Papers were $226 million, up from first-quarter operating profits of $185 million due to both improved pricing, primarily in North America, and better operating performance that more than offset higher input costs and a greater level of planned outages than the first quarter. U.S. uncoated free sheet sales volume declined but pulp sales were stronger. Eastern Europe and Brazil showed improved volumes and pricing.

Industrial Packaging operating profits were $87 million, down from $97 million in the prior quarter largely because of higher input costs, more maintenance outages and lower profitability due to the Vicksburg boiler accident. Containerboard inventory levels remain low. Both the U.S. and European box volumes were under pressure due to weaker economic conditions. Overall performance was strong and pricing remained solid.

Consumer Packaging operating profits were $13 million (including a $13 million charge relating to the reorganization of Shorewood's Canadian operations) compared with $9 million in the 2008 first quarter (including a $5 million charge related to the Shorewood reorganization). Price and favorable operating performance offset higher input costs and planned outages. Volumes in the converting business improved seasonally.

The company's distribution business, xpedx, reported operating profits of $26 million, up from $16 million in the prior quarter. High fuel and freight costs were offset by improved pricing and margins. Printing paper and packaging volumes remained weak while facility supplies experienced some growth.

Forest Products operating profits were $41 million, compared with first quarter operating profits of $25 million due to higher earnings from land sales. While land sales are difficult to forecast within a quarter, the company's objective continues to be to maximize net present value for shareholders.

Equity earnings, net of taxes, in Ilim Holding S.A. of $32 million for the quarter, up from $17 million reported in the 2008 first quarter, included a $14 million after-tax foreign exchange gain and a $3 million option write-off charge. Improved price realizations, higher sales volumes and favorable manufacturing operations during the quarter more than offset the effects of increased wood, chemical and energy costs. (Ilim's results are reported on a one-quarter lag.)

Net corporate expenses were $21 million for the quarter, the same as $21 million in the 2008 first quarter and less than half of the $57 million reported in the 2007 second quarter. Compared with the first quarter, higher supply chain initiative costs were offset by an $11 million gain on the sale of the former Natchez mill site. This gain, plus lower pension expenses, led to the year-over-year quarterly decline in net corporate expenses.

EFFECTIVE TAX RATE

The effective tax rate from continuing operations and before special items for the second quarter of 2008 was 32.5 percent, compared with 31.5 percent in the first quarter of 2008 and 29 percent in the second quarter of 2007.

EFFECTS OF SPECIAL ITEMS

Special items in the second quarter of 2008 consisted of a $13 million pre-tax charge ($9 million after taxes) for costs associated with the reorganization of Shorewood operations in Canada and a $3 million pre-tax gain ($2 million after taxes) for an adjustment to the gain on the 2006 transformation plan forestland sales. The net after-tax effect of these special items is a loss of $7 million, or $0.02 per share.

Special items in the first quarter of 2008 included a $40 million pre-tax charge ($25 million after taxes) for adjustments of legal reserves, a pre-tax charge of $5 million ($3 million after taxes) for costs associated with the reorganization of Shorewood operations in Canada, a $3 million pre-tax gain ($2 million after taxes), for adjustments to previously recorded reserves associated with the company's transformation plan, and a $1 million credit before and after taxes for adjustments to estimated gains/losses of businesses previously sold. The net after-tax effect of these special items is a loss of $25 million, or $0.06 per share.

Special items in the 2007 second quarter consisted of a $26 million pre- tax charge ($16 million after taxes) for organizational restructuring programs associated with the company's transformation plan, including $17 million ($11 million after taxes) of accelerated depreciation expense for long-lived assets being removed from service, and a pre-tax gain of $1 million (a loss of $7 million after taxes) for adjustments to estimated losses on sales of businesses previously sold. The net after-tax effect of these special items is a loss of $23 million, or $0.06 per share

DISCONTINUED OPERATIONS

Discontinued operations for the 2008 first quarter included a pre-tax charge of $25 million ($16 million after taxes) related to the final settlement of a Beverage Packaging post-closing sale adjustment and a $1 million after-tax charge for the operating results of certain Wood Products facilities for the quarter.

Discontinued operations for the 2007 second quarter included pre-tax charges of $11 million ($7 million after taxes) for adjustments related to the previously sold wood products and beverage packaging businesses, and the second quarter operating losses of these businesses.

SOURCE: International Paper




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