International Paper Reports Fourth-Quarter and 2010 Earnings

Feb. 3, 2011 - International Paper reported preliminary full-year 2010 net earnings attributable to common shareholders totaling $644 million ($1.48 per share) compared with $663 million ($1.55 per share) in full-year 2009. In the fourth quarter of 2010, the company reported net earnings of $316 million ($0.73 per share) compared with a net loss of $101 million ($0.24 per share) in the fourth quarter of 2009. Amounts in all periods include special items.

Full-year 2010 earnings from continuing operations and before special items were $890 million ($2.05 per share) compared with $378 million ($0.88 per share) in 2009. Earnings from continuing operations and before special items in the 2010 fourth quarter totaled $296 million ($0.68 per share), compared with $101 million ($0.24 per share) in the fourth quarter of 2009.

Quarterly net sales were $6.5 billion compared with $6.0 billion in the fourth quarter of 2009. Annual sales totaled $25.2 billion compared with $23.4 billion in 2009.

Operating profits in the fourth quarter were $561 million compared with a loss of $147 million in 2009, both of which included special items. Full-year 2010 operating profits were $1.7 billion compared with $2.4 billion in 2009.

The company repaid $350 million of debt during 2010 and contributed $1.2 billion toward its pension plan. At year end, the company had $2.1 billion in cash.

"Our year-over-year fourth quarter operating business earnings were strong with solid revenue growth and margin expansion across IP business segments. We also continued to generate strong cash flow," said Chairman and Chief Executive Officer John Faraci. "International Paper performed well during 2010, a year of transition from recession to global economic growth. We expect to further build on our strong earnings and free cash flow momentum in 2011."

SEGMENT INFORMATION

To measure the performance of the company's business segments from quarter to quarter without variations caused by special items, management focuses on business segment operating profits excluding those items. Fourth-quarter 2010 segment operating profits and business trends, excluding special items, compared with the prior quarter are as follows (special items were immaterial in the 2010 third quarter).

Industrial Packaging had an operating profit of $274 million ($261 million including special items) compared to an operating profit of $332 million in the third quarter of 2010. Quarterly earnings drivers included modestly higher box prices, offset by seasonally lower box demand, higher mill and fiber costs.

Printing Papers had an operating profit of $236 million ($234 million including special items) compared to an operating profit of $278 million in the third quarter of 2010. Included in the 2010 third quarter was $16 million from the recovery of bad debt. The segment was impacted by seasonally higher energy usage and seasonally lower uncoated freesheet and market pulp demand in North America, partly offset by seasonally higher demand in Brazil.

Consumer Packaging had an operating profit of $64 million ($60 million including special items) compared to an operating profit of $71 million in the third quarter of 2010. Fourth quarter performance was lower than in the third quarter due to seasonally lower sales volumes and higher planned maintenance outages in Coated Paperboard partially offset by increased selling prices. Foodservice reported strong earnings.

xpedx, the company's distribution business, reported operating profits of $9 million for the fourth quarter of 2010, compared to $22 million posted in the third quarter of 2010. Fourth quarter performance includes one-time costs of exiting certain retail store and printing equipment segments and year-end inventory valuation adjustments.

Forest Products earnings were not meaningful since we sold our remaining land portfolio in North America during the third quarter of 2010. Beginning in 2011, Forest Products will no longer be reported as a separate industry segment.

Net corporate expenses for the 2010 fourth quarter totaled $63 million, compared with $58 million in the 2010 third quarter and $40 million in the fourth quarter of 2009. The increase from the 2009 fourth quarter reflects higher supply chain initiative and pension expenses in 2010.

EFFECTIVE TAX RATE

The effective tax rate from continuing operations and before special items for the fourth quarter of 2010 was 28 percent, compared with 31 percent in the third quarter of 2010. The lower fourth quarter rate is a result of the passage on December 17, 2010, of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This extended the research and development tax credit and the non-taxability of certain dividend payments between related controlled foreign corporations. The 2010 full year tax rate was 30 percent compared with 30 percent for the 2009 full year.

EFFECTS OF SPECIAL ITEMS

Special items in the fourth quarter of 2010 included pre-tax charges of $35 million ($22 million after taxes) for restructuring and other charges, a pre-tax gain of $25 million ($15 million after taxes) related to the partial redemption of the Company's interests in Arizona Chemical, an $18 million pre-tax charge ($11 million after taxes) for an environmental reserve related to the Company's property in Cass Lake, Minnesota , a charge of $2 million (before and after taxes) for asset impairment costs associated with the Inverurie, Scotland mill which was closed in 2009 and a net $40 million tax benefit related to cellulosic bio-fuel tax credits. Restructuring and other charges included pre-tax charges of $12 million ($7 million after taxes) for closure costs for the Bellevue, Washington and Spartanburg, South Carolina box plant closures, a pre-tax charge of $13 million ($8 million after taxes) for early debt extinguishment costs, a pre-tax charge of $5 million ($3 million after taxes) for severance and benefit costs associated with the Company's 2008 overhead cost reduction initiative, a pre-tax charge of $4 million ($3 million after taxes) for costs associated with the reorganization of the Company's Shorewood operations, a pre-tax charge of $3 million ($2 million after taxes) for closure costs for three box plants in Asia and a pre-tax gain of $2 million ($1 million after taxes) for other items.

Special items in the third quarter of 2010 were immaterial.

Special items in the fourth quarter of 2009 included a $516 million pre-tax credit ($469 million after taxes) for alternative fuel mixture credits earned under 2007 legislation enacted to provide a tax credit for companies that use alternative fuel mixtures to produce renewable energy to operate their businesses, a $15 million pre-tax charge ($10 million after taxes) for costs associated with the Industrial Packaging business integration, a pre-tax charge of $1.0 billion ($638 million after taxes) for restructuring and other charges, and an $11 million pre-tax charge ($8 million after taxes) for net losses on sales and impairments of businesses. Restructuring and other charges included a pre-tax charge of $861 million ($525 million after taxes) for shutdown costs for the closures of the Albany, Oregon, Franklin, Virginia and Pineville, Louisiana mills announced in the fourth quarter of 2009; a pre-tax charge of $82 million ($50 million after taxes) for the shutdown of a paper machine at the Valliant, Oklahoma mill; a pre-tax charge of $58 million ($35 million after taxes) for early debt extinguishment costs; a pre-tax charge of $23 million ($15 million after taxes) for severance and benefit costs associated with the company's 2008 overhead reduction program; a $9 million charge, before and after taxes, for severance and other costs associated with the planned closure of the Etienne mill in France; and pre-tax charges of $7 million ($4 million after taxes) for costs associated with the reorganizations of the company's Shorewood and xpedx operations. Additionally, a $15 million income tax expense was recorded to write off a deferred tax asset for a recycling credit in the state of Louisiana. The net after-tax effect of these special items is a loss of $202 million, or $0.48 per share.

SOURCE: International Paper