International Paper First Quarter Profit Up Sharply on Improved Pricing

May 2, 2013 - International Paper today reported first quarter 2013 net earnings attributable to common shareholders totaling $318 million ($0.71 per share), compared with net earnings of $235 million ($0.53 per share) in the fourth quarter of 2012 and $188 million ($0.43 per share) in the first quarter of 2012. Amounts in all periods include the impact of special items, non-operating pension expense and discontinued operations.

Operating Earnings were $292 million ($0.65 per share) in the first quarter of 2013, compared with $305 million ($0.69 per share) in the fourth quarter of 2012 and $272 million ($0.63 per share) in the first quarter of 2012.

Quarterly net sales were $7.1 billion compared with $7.1 billion in the fourth quarter of 2012 and $6.7 billion in the first quarter of 2012.

Business segment operating profits before special items in the first quarter of 2013 were $571 million, compared with $565 million in the fourth quarter of 2012 and $538 million in the first quarter of 2012.

"Industrial Packaging posted solid results driven by improved pricing and synergies, however, the company's overall performance in the quarter was muted by seasonally slow demand across our global operations, weak earnings from xpedx and an unfavorable foreign exchange swing at Ilim," said John Faraci, Chairman and Chief Executive Officer.

"Looking ahead, peak annual maintenance outage spending and expansion project ramp-up costs at Ilim will impact the second quarter. Earnings runway from our strategic projects and announced pricing initiatives will position the company to deliver step-change financial performance in the second half of 2013, regardless of what looks to be a continued slow and uneven global economy."

SEGMENT INFORMATION

The performance of the company's business segments are measured quarter to quarter without variations caused by special items, as management focuses on business segment operating profits excluding those items. First quarter 2013 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging posted operating profits of $369 million ($355 million including special items) in the first quarter of 2013, compared to $368 million ($336 million including special items) in the fourth quarter of 2012. In North America, higher selling prices for boxes and containerboard were partially offset by seasonally slow demand, higher input costs and $16 million in incremental scheduled outage expenses. First quarter segment results include consolidated earnings for Orsa International Paper Embalagens S.A. for the period January 15 through February 28, 2013.

Printing Papers' operating profits were $149 million (before and after special items) compared to $147 million (before and after special items) in the fourth quarter of 2012. Lower scheduled maintenance outage expenses in North America and improved operating costs primarily related to the new biomass boiler in Brazil were partially offset by seasonally slow demand, increased export mix and modestly lower North American selling prices.

Consumer Packaging operating profit was $51 million ($7 million including special items), compared with $39 million ($41 million including special items) in the fourth quarter of 2012. Lower scheduled maintenance expenses in North America were partially offset by higher operating costs primarily related to an unplanned reliability issue in January on the digester at the Augusta, GA coated paperboard mill.

xpedx, the company's North American distribution business, reported operating profits of $2 million (a loss of $5 million including special items), compared with $11 million ($4 million including special items) in the fourth quarter of 2012. Seasonally slow demand, weaker margins and declining commercial printing and publishing volumes impacted earnings in the quarter.

International Paper recorded Ilim Joint Venture equity losses of $11 million, compared with equity earnings of $8 million in the fourth quarter of 2012. Based on a stronger dollar versus the ruble, the after-tax impact of a foreign exchange loss in the first quarter of 2013 was $11 million unfavorable compared with a foreign exchange gain of $6 million in the fourth quarter of 2012. The impact in both quarters was due to non-cash adjustments associated with the Ilim Group joint venture's U.S. dollar-denominated debt.

Net corporate expenses for the 2013 first quarter were $22 million compared with $15 million in the fourth quarter of 2012 and $32 million in the first quarter of 2012.

Effective Tax Rate
The effective tax rate before special items and non-operating pension expense for the first quarter of 2013 was 21 percent, compared with an effective tax rate before special items of 22 percent in the fourth quarter of 2012. The first quarter rate of 21 percent includes a benefit of approximately $35 million related to the enactment into law of The American Taxpayer Relief Act of 2012 on January 2, 2013 (the "Act"). The Act retroactively restored several expired business tax provisions including the research and experimentation credit and the Subpart F controlled foreign corporation look-through exception. The 2012 fourth quarter rate of 22 percent included a $29 million valuation allowance release previously imposed on state income tax attributes.

Effects of Special Items
Special items in the first quarter of 2013 included pre-tax charges of $59 million ($36 million after taxes) for restructuring and other charges and pre-tax charges of $12 million ($8 million after taxes) for integration costs related to the Temple-Inland acquisition. Also included are pre-tax interest income of $6 million ($4 million after taxes) and a tax benefit of $93 million both associated with the closing of a U.S. federal income tax audit and a net tax expense of $2 million related to internal restructurings. Restructuring and other charges included pre-tax charges of $44 million ($27 million after taxes) for costs related to the permanent shutdown of a paper machine at our Augusta, Georgia mill, pre-tax charges of $6 million ($4 million after taxes) for debt extinguishment costs, pre-tax charges of $7 million ($4 million after taxes) for costs associated with the restructuring of our xpedx operations and pre-tax charges of $2 million ($1 million after taxes) for other items.

Special items in the fourth quarter of 2012 included pre-tax charges of $21 million ($14 million after taxes) for restructuring and other charges, pre-tax charges of $28 million ($19 million after taxes) for integration costs related to the Temple-Inland acquisition, and a gain of $3 million (before and after taxes) for other items. Also included are a net tax expense of $14 million related to internal restructurings and a tax expense of $5 million to adjust deferred tax assets related to post-retirement prescription drug coverage (Medicare Part D reimbursements). Restructuring and other charges included pre-tax charges of $9 million ($6 million after taxes) for debt extinguishment costs, pre-tax charges of $7 million ($4 million after taxes) for costs associated with the restructuring of our xpedx operations, and pre-tax charges of $5 million ($4 million after taxes) for other items.

Special items in the first quarter of 2012 included pre-tax charges of $34 million ($23 million after taxes) for restructuring and other charges, a pre-tax charge of $20 million ($12 million after taxes) related to the write-up of the Temple-Inland inventories to fair value, pre-tax charges of $43 million ($33 million after taxes) for integration costs related to the Temple-Inland acquisition and a net pre-tax gain of $5 million ($4 million after taxes) for other items. Restructuring and other charges included pre-tax charges of $16 million ($10 million after taxes) for debt extinguishment costs, pre-tax charges of $19 million ($14 million after taxes) for costs associated with the restructuring of our xpedx operations and a gain of $1 million (before and after taxes) for other items.

Discontinued Operations
Discontinued operations in the first quarter of 2013 and in the fourth and first quarters of 2012 included the Operating Earnings of Temple-Inland's Building Products business. Also included are pre-tax charges of $4 million ($3 million after taxes) in the first quarter of 2013 and $13 million ($8 million after taxes) in the fourth quarter of 2012 for expenses associated with pursuing the divestiture of this business.

International Paper (IP) is a global leader in packaging and paper with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include industrial and consumer packaging and uncoated papers, complemented by xpedx, the company's North American distribution company. Headquartered in Memphis, Tenn., the company employs approximately 70,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2012 were $28 billion. For more information about International Paper, its products and stewardship efforts, visit internationalpaper.com.

SOURCE: International Paper