International Paper Second Quarter Earnings Up on Strong Volumes, Margins

July 25, 2013 - International Paper (IP) today reported second quarter 2013 net earnings attributable to common shareholders totaling $259 million ($0.57 per share) compared with net earnings of $318 million ($0.71 per share), in the first quarter of 2013 and $134 million ($0.31 per share) in the second quarter of 2012. Amounts in all periods include the impact of special items.

Operating Earnings were $288 million ($0.64 per share) in the second quarter of 2013, compared with $292 million ($0.65 per share) in the first quarter of 2013 and $232 million ($0.53 per share) in the second quarter of 2012.

Quarterly net sales were $7.3 billion compared with $7.1 billion in the first quarter of 2013 and $7.1 billion in the second quarter of 2012.

Business segment operating profits before special items in the second quarter of 2013 were $622 million, compared with $571 million in the first quarter of 2013.

"International Paper delivered strong results this quarter. We expanded margins and benefited from seasonally stronger volumes and solid operating performance despite higher planned maintenance outage costs" said John Faraci, Chairman and Chief Executive Officer. "As we move into the second half of the year, the company is well positioned to significantly improve earnings and free cash flow for the balance of 2013."

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. Second quarter 2013 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging operating profits in the second quarter of 2013 were $477 million ($474 million including special items) compared with $369 million ($355 million including special items) in the first quarter of 2013. In North America, higher selling prices for boxes and containerboard, increased box shipments and lower operating costs drove improved results. In Europe, performance was weaker in challenged Western European markets.

Printing Papers operating profits were $76 million (before and after special items) in the second quarter of 2013 versus $149 million (before and after special items) in the first quarter of 2013. The earnings decrease of ($73 million) was due to significantly higher planned annual outage costs in the second quarter in North America and Europe and the establishment of a reserve ($28 million) to cover potential credit exposure related to the National Envelope bankruptcy. Brazil's results improved compared to the first quarter due to seasonally stronger domestic volume and price.

Consumer Packaging operating profits were $52 million ($51 million including special items) in the second quarter of 2013 compared with $51 million ($7 million including special items) in the first quarter of 2013. Earnings were impacted by higher sales volumes and lower manufacturing costs in North America, offset by higher annual outage costs in both North America and Europe.

xpedx, the company's North American distribution business, reported operating profits of $17 million (break-even including special items) in the second quarter of 2013 compared with $2 million (a loss of $5 million including special items) in the first quarter of 2013. The second quarter results reflect lower costs, partly from the business's strategic restructuring efforts.

International Paper recorded Ilim joint venture equity losses of $34 million in the second quarter of 2013, compared with equity losses of $11 million in the first quarter of 2013. Based on a stronger dollar versus the ruble, the after-tax impact of a foreign exchange loss in the second quarter of 2013 was $23 million compared with an $11 million loss in the first quarter. The impact in both quarters was due to non-cash adjustments associated with the Ilim Group joint venture's U.S. dollar denominated debt. Earnings were also negatively impacted by start-up costs related to two major capital projects. Net corporate expenses, excluding non-operating pension expense, for the 2013 second quarter were $0 million compared with $22 million in the first quarter of 2013 and $3 million in the second quarter of 2012.

Effective Tax Rate The effective tax rate before special items for the second quarter of 2013 was 30%, compared with an effective tax rate before special items of 21% in the first quarter of 2013. The primary reason for the lower first quarter rate was due to the inclusion of 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.

Effects of Special Items
Special items in the second quarter of 2013 included a net pre-tax gain of $4 million ($2 million after taxes) for restructuring and other charges and pre-tax charges of $14 million ($8 million after taxes) for integration costs related to the Temple-Inland acquisition. Also included are a pre-tax charge of $6 million ($4 million after taxes) for an environmental reserve related to the Company's property in Cass Lake, Minnesota and a pre-tax charge of $9 million ($5 million after taxes) to adjust the value of two Company airplanes to fair value. In addition, a gain of $13 million (before and after taxes) was recorded for a net bargain purchase gain on the first quarter 2013 acquisition of a majority share of our Packaging operations in Turkey. Restructuring and other charges included a pre-tax gain of $30 million ($19 million after taxes) for insurance reimbursements related to the 2012 Guaranty Bank legal settlement, pre-tax charges of $17 million ($10 million after taxes) for costs associated with the restructuring of our xpedx operations, pre-tax charges of $3 million ($2 million after taxes) for debt extinguishment costs, pre-tax charges of $3 million ($2 million after taxes) for costs associated with the announced potential spin-off of the xpedx operations and charges of $3 million (before and after taxes) for other 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 second quarter of 2012 included pre-tax charges of $21 million ($13 million after taxes) for restructuring and other charges, a pre-tax charge of $62 million ($38 million after taxes) to adjust the value of the long-lived assets of the Hueneme mill in Oxnard, California to their fair value in anticipation of its divestiture, pre-tax charges of $35 million ($22 million after taxes) for integration costs related to the Temple-Inland acquisition, pre-tax charges of $9 million ($5 million after taxes) for costs associated with the announced third-quarter 2012 divestiture of the Hueneme mill and two other containerboard mills, and pre-tax charges of $9 million ($7 million after taxes) for other items. Restructuring and other charges included pre-tax charges of $10 million ($6 million after taxes) for debt extinguishment costs, pre-tax charges 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.

Discontinued Operations
Discontinued operations in the second and first quarters of 2013 and in the second quarter of 2012 included the Operating Earnings of Temple-Inland's Building Products business. Also included are pre-tax charges of $13 million ($8 million after taxes) in the second quarter of 2013 and $4 million ($3 million after taxes) in the first quarter of 2013 for the write-off of capital investments and 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 www.internationalpaper.com.

SOURCE: International Paper