International Paper Posts First Quarter Profit

April 28, 2011 - International Paper today reported first-quarter 2011 net earnings attributable to common shareholders totaling $342 million ($0.78 per share) compared with net earnings of $316 million ($0.73 per share) in the fourth quarter of 2010 and a loss of $162 million ($0.38 per share) in the first quarter of 2010. Amounts in all periods include the impact of special items.

Earnings from continuing operations and before special items in the 2011 first quarter totaled $322 million ($0.74 per share), compared with $296 million ($0.68 per share) in the fourth quarter of 2010 and $16 million ($0.04 per share) in the first quarter of 2010.

Quarterly net sales were $6.4 billion compared with $6.5 billion in the fourth quarter of 2010 and $5.8 billion in the first quarter of 2010. Operating profits were $585 million in the first quarter of 2011, up from $561 million in the fourth quarter of 2010 both of which included special items.

"First-quarter results reflect continued strong performances across all of our global mill businesses," said John Faraci, chairman and chief executive officer. "Industrial Packaging and Printing Papers continued to post solid results, and Consumer Packaging delivered significantly higher earnings. Europe continued its strong performances in paper and packaging and the contribution from our Ilim joint venture also increased. As a result of these strong across-the-board results, first-quarter free cash flow was in-line with our expectations and we remain confident in our earnings and cash flow outlook for 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. First-quarter 2011 segment operating profits and business trends, excluding special items, compared with the prior quarter are as follows:

Industrial Packaging operating profit was $274 million ($279 million including special items) compared with an operating profit of $274 million ($261 million including special items) in the fourth quarter of 2010. First-quarter earnings were impacted by lower volume due to seasonality and unusually harsh weather in January and February. In addition, higher input costs and annual planned mill maintenance outage expenses occurred in the first quarter. These higher expenses were largely offset by favorable operations and lower costs.

Printing Papers operating profit was $209 million ($201 million including special items) compared with an operating profit of $236 million ($234 million including special items) in the fourth quarter of 2010. Quarterly earnings decreased due to globally higher input costs and increased U.S. mill operating costs, partially offset by lower operating costs in our European mills. In North America, the pulp business recorded significantly higher planned maintenance outage expenses, but these were more than offset by lower outage expenses in North American and European papers.

Consumer Packaging operating profit was $101 million ($100 million including special items) compared with an operating profit of $64 million ($60 million including special items) in the fourth quarter of 2010. North American Coated Paperboard operating earnings reflect improved market demand, higher sales price realizations, improved operations and lower planned maintenance outages, partially offset by higher input costs. Earnings also improved in Asia and Europe.

xpedx, the company's North American distribution business, reported operating earnings of $12 million ($5 million including special items) compared with $9 million in the fourth quarter of 2010. Improved sales margins and the absence of one-time costs that were recorded in the 2010 fourth quarter offset seasonally lower sales volumes.

Net corporate expenses for the 2011 first quarter totaled $44 million, compared with $63 million in the fourth quarter of 2010 and $51 million in the first quarter of 2010. The decrease from both the 2010 fourth quarter and the 2010 first quarter reflects lower pension costs.

EFFECTIVE TAX RATE

The effective tax rate from continuing operations and before special items for the first quarter of 2011 was 33%, compared with 28% in the fourth quarter of 2010. The higher first quarter rate reflects an increased portion of forecasted annual earnings in higher tax jurisdictions and the favorable impact on the fourth quarter rate of the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 which extended the research and development tax credit and the non-taxability of certain dividend payments between related controlled foreign corporations.

EFFECTS OF SPECIAL ITEMS

Special items in the first quarter of 2011 included pre-tax charges of $45 million ($28 million after taxes) for restructuring and other charges, a loss of $8 million (before and after taxes) for asset impairment charges at our Inverurie, Scotland mill which was closed in 2009 and a $7 million gain (before and after taxes) for a bargain purchase price adjustment on an acquisition by our joint venture in Turkey. Restructuring and other charges included pre-tax charges of $32 million ($19 million after taxes) for early debt extinguishment costs, $3 million ($2 million after taxes) for severance and benefit costs associated with the company's 2008 overhead cost reduction initiative, $7 million ($4 million after taxes) for costs associated with the restructuring of our xpedx operations and $3 million (before and after taxes) for other 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 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 facilities, 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 first quarter of 2010 included a pre-tax charge of $215 million ($132 million after taxes) for restructuring and other charges and a $46 million after-tax expense to reduce deferred tax assets related to incentive compensation ($14 million) and post-retirement prescription drug coverage (Medicare Part D reimbursements) ($32 million). Restructuring and other charges included a $204 million pre-tax charge ($124 million after taxes) associated with the closure of the Franklin, Virginia mill (including $190 million of accelerated depreciation), a $4 million pre-tax charge ($2 million after taxes) for early debt extinguishment costs, a $3 million pre-tax charge ($2 million after taxes) associated with the reorganization of the company's Shorewood operations, and charges of $4 million (before and after taxes) for other items.

DISCONTINUED OPERATIONS

Discontinued Operations in the first quarter of 2011 includes a pre-tax gain of $50 million ($30 million after taxes) for an earnout provision related to the sale of the Company's Kraft Papers business completed in January 2007. Also, the Company sold its Brazilian Coated Paper business in the third quarter of 2006. Local country tax contingency reserves were included in the business' operating results in 2005 and 2006 for which the related statute of limitations has expired. The reserves were reversed and a tax benefit of $15 million plus associated interest income of $6 million ($4 million after taxes) was recorded in the first quarter of 2011.

International Paper 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, Tennessee the company employs about 59,500 people in more than 24 countries and serves customers worldwide. 2010 net sales were more than $25 billion.

SOURCE: International Paper