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International Paper Reports Preliminary First Quarter 2007 Results Up 250 Percent From First Quarter 2006Preliminary Earnings from Continuing Operations Before Special Items Reach Highest First-Quarter Levels Since 2000
MEMPHIS, Tenn., May 3 /PRNewswire-FirstCall/ -- International Paper (NYSE: IP) today reported preliminary first-quarter 2007 net earnings of $434 million ($0.97 per share) compared with fourth-quarter net earnings of $1.98 billion ($4.38 per share) and a loss of $1.2 billion ($2.54 per share) in the first quarter of 2006. Amounts in all periods include special items, including the receipt of proceeds from the sale of the majority of the company's U.S. forestlands in the fourth quarter of 2006. Earnings from continuing operations and before special items in the first quarter of 2007 were $203 million ($0.45 per share), compared with $216 million ($0.47 per share) in the fourth quarter of 2006 and up from $58 million ($0.12 per share) in the first quarter a year ago. Quarterly net sales were $5.2 billion, compared with $5.3 billion in the fourth quarter of 2006, and $5.5 billion in the first quarter of 2006, primarily reflecting lower forestland sales. Industry segment operating profits continued to rise to $530 million for the 2007 first quarter versus $425 million in the 2006 fourth quarter and $411 million in the first quarter of 2006. The increase reflects continued strong average price realizations and strong manufacturing operations. "We've hit the ground running in 2007 with our best first quarter since 2000 and operational margins up nearly 300 basis points versus the first quarter last year," said Chairman and Chief Executive Officer John Faraci. "Our pricing momentum remains strong, with volumes flat overall as we took some downtime and shifted product among global markets to match our supply with our customers' demand. Our manufacturing operations performed well and improvements in cost and mix more than offset some overall increases in input costs. We've also now bought more than $800 million in shares on the open market, which has brought our outstanding share count down." Commenting on the second quarter of 2007, Faraci said, "We expect somewhat higher earnings from continuing operations in the second quarter, with seasonally stronger volumes and improvements in average price realizations. We continue to improve the performance of our global manufacturing operations, and we'll realize earnings from our first full quarter of operations from the Luiz Antonio mill in Brazil. We expect that input costs will remain high and also expect to have slightly higher maintenance outage expense in the second quarter." SEGMENT INFORMATION First-quarter 2007 segment operating profits and business trends compared with the fourth quarter of 2007 are as follows: Operating profits for Printing Papers were $231 million, up from fourth quarter 2006 operating profits of $191 million, excluding special items. The increase is attributable to improved results across our global paper businesses, including record first-quarter performance from European Papers and the addition of the Luiz Antonio mill in Brazil. Pulp earnings also grew in the first quarter, resulting from higher shipments, improved operations at the Riegelwood, N.C., mill, and higher prices. Industrial Packaging operating profits were $103 million, compared with $130 million in the prior quarter. The decrease was principally due to a change in accounting treatment for planned mill maintenance outages in the first quarter. Box volumes were slow early in the quarter, with substantial pick-up in March. Strong manufacturing performance offset most of the impact from higher fiber costs through the quarter. The European container business had record first-quarter earnings thanks to better volumes, higher prices and strong manufacturing operations. Consumer Packaging operating profits were $61 million in the first quarter, up from $27 million in the 2006 fourth quarter, due to higher earnings in U.S. and European coated paperboard and foodservice businesses, as well as contributions from the IP-Sun Paper joint venture in China. The foodservice business had its best quarter in eight years with strength in volumes, price and cost control. Higher earnings in the U.S. business reflect, in part, the change in accounting treatment for planned mill maintenance outages. Shorewood Packaging is seasonally slow in the first quarter, but posted better results due to the absence of a one-time non-cash charge that impacted fourth-quarter results. The company's distribution business, xpedx, reported record first-quarter operating profits of $29 million compared with operating profits in the prior quarter of $31 million. Sales revenues were slightly down versus the fourth quarter of 2006 because of seasonal slowdowns in volumes. Forest Products operating profits declined to $100 million from fourth- quarter operating profits of $162 million. Second-quarter Forest Products operating profits could be slightly down from first quarter due to timing of some land sale transactions. The company's objective in managing the sale of its remaining lands is to earn maximum value for shareowners. Net corporate expense totaled $164 million for the quarter, essentially even with $166 million in the 2006 fourth quarter and well below $180 million for the 2006 first quarter. Compared with the fourth quarter, the benefit of lower pension expense was largely offset by higher benefits-related costs and the effect of a fourth-quarter favorable inventory-related adjustment. Lower pension expense net of inventory-related adjustments were the major factors in the decline versus the 2006 first quarter. EFFECTIVE TAX RATE The effective tax rate from continuing operations and before special items for the first quarter of 2007 was 32 percent, compared with a tax rate of 28 percent in the fourth quarter of 2006 and 26 percent in the first quarter of 2006. The increase reflects the higher percentage of total company earnings generated from U.S. operations. DISCONTINUED OPERATIONS Discontinued operations for the 2007 first quarter included a $21 million pre-tax gain ($9 million after taxes) relating to the sale of wood products operations, a pre-tax loss of $9 million ($35 million after taxes) for adjustments to the losses on sales of the beverage packaging and kraft papers businesses, a pre-tax credit of $10 million ($6 million after taxes) for additional duty refunds received related to our former Weldwood of Canada Limited business, and the operating results of the beverage packaging and wood products businesses during the quarter. Amounts recorded in the 2006 fourth quarter included pre-tax charges of $102 million and $18 million ($69 million and $11 million after taxes) to adjust the carrying values of the wood products and beverage packaging businesses, a $38 million pre-tax credit ($23 million after taxes) for Canadian duty refunds received, a $3 million pre-tax charge ($2 million after taxes) to adjust prior discontinued operations estimates, and the quarterly operating results of the kraft papers, wood products and beverage packaging businesses. Discontinued operations in the 2006 first quarter included a $100 million pre-tax charge ($61 million after taxes) to reduce the carrying value of the kraft papers business, and the operating results for the quarter of the kraft papers, Brazilian coated papers, wood products and beverage packaging businesses. EFFECTS OF SPECIAL ITEMS Special items in the first quarter of 2007 included an $18 million pre-tax charge ($11 million after taxes) for severance and other charges associated with the company's Transformation Plan, a pre-tax gain of $205 million ($164 million after taxes) relating to the assets exchanged for the Luiz Antonio mill in Brazil, a pre-tax gain of $103 million ($96 million after taxes) from the sale of the Arizona Chemical business, and a $6 million pre- tax credit ($4 million after taxes) for adjustments relating to the coated papers business. Special items in the 2006 fourth quarter included a pre-tax gain of $4.4 billion ($2.7 billion after taxes) from sales of U.S. forestlands included in the company's transformation plan, a charge of $759 million (before and after taxes) for the impairment of goodwill in the company's coated paperboard and Shorewood Packaging businesses, a $128 million pre-tax impairment charge ($84 million after taxes) to reduce the carrying value of the company's Saillat, France, mill, a $111 million pre-tax charge ($69 million after taxes) for restructuring and other corporate charges, a $6 million pre-tax credit ($4 million after taxes) for interest received on Canadian duty refunds, a $21 million pre-tax charge (zero after taxes) relating to smaller asset sales, and a $5 million pre-tax credit ($3 million after taxes) for reductions of reserves no longer required. Special items in the 2006 first quarter included a $1.3 billion pre-tax charge ($1.2 billion after taxes) to reduce the carrying value of the company's coated papers business, an $18 million pre-tax charge ($11 million after taxes) for organizational restructuring charges related to the company's transformation plan, an $8 million pre-tax charge ($5 million after taxes) for losses on early debt extinguishment, and an $18 million pre-tax charge ($11 million after taxes) for legal reserves. EARNINGS WEBCAST The company will hold a webcast to review earnings at 10 a.m. Eastern Standard Time / 9 a.m. Central Standard Time today. All interested parties are invited to listen to the webcast live via the company's Internet site at http://www.internationalpaper.com/ by clicking on the Investors tab and going to the Presentations page. A replay of the webcast will also be available on the Web site beginning at noon today. Parties who wish to participate in the webcast via teleconference may dial (706) 679-8242 or, within the U.S. only, (877) 316-2541 and ask to be connected to the International Paper 1Q 2007 Earnings Call. The conference ID number is 4023404. Participants should call in no later than 9:45 a.m. EST/8:45 CST. An audio-only replay will be available for four weeks following the call. To access the replay, dial (706) 645-9291 or, within the U.S. only, (800) 642-1687, and when prompted for the conference ID, enter "4023404." International Paper (NYSE: IP) , founded in 1898, is a global uncoated paper and packaging company with primary markets and manufacturing operations in North America, Europe, Russia, Latin America, Asia and North Africa. Its uncoated papers and packaging businesses are complemented by xpedx, North America's largest distributor of printing papers and graphics supplies and equipment. Headquartered in the United States, International Paper employs approximately 54,000 people in more than 20 countries, and serves customers worldwide. Annual sales are about $22 billion. International Paper partners with customers and environmental, academic, civic and governmental organizations, as well as landowners and harvesting professionals, to encourage responsible forest stewardship, improve the health and productivity of forestlands and increase recovery of our recyclable products. The company has a long-standing policy of using no wood from endangered forests. To learn more about International Paper, its products and commitment to economic, social and environmental sustainability, visit http://www.internationalpaper.com/. This release contains forward-looking statements. These statements reflect management's current views and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ relate to: (i) industry conditions, including changes in the cost or availability of raw materials and energy, changes in transportation costs, competition, changes in the Company's product mix and demand and pricing for the Company's products; (ii) market and economic factors, including changes in international conditions, specifically in Brazil, Russia, Poland and China, changes in currency exchange rates, changes in credit ratings issued by nationally recognized statistical rating organizations, pension and healthcare costs and natural disasters, such as hurricanes; (iii) the Company's ability to realize anticipated profit improvement from its transformation plan, and the ability to invest proceeds with attractive financial returns; and (iv) results of legal proceedings and compliance costs, including unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations and the uncertainty of the costs and other effects of pending litigation. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. These and other factors that could cause or contribute to actual results differing materially from such forward looking statements are discussed in greater detail in the company's Securities and Exchange Commission filings. INTERNATIONAL PAPER COMPANY
Consolidated Statement of Earnings
Preliminary and Unaudited
(In millions, except per share amounts)
Three Months Ended Three Months Ended
March 31, December 31,
2007 2006 2006
Net Sales $5,217 $5,526 $5,324
Costs and Expenses
Cost of products sold 3,851 4,168 3,903
Selling and administrative
expenses 435 472 454
Depreciation, amortization
and cost of timber harvested 262 314 275
Distribution expenses 256 285 247
Taxes other than payroll
and income taxes 42 53 55
Restructuring and other charges 18(a) 44(d) 111(g)
Insurance recoveries - (19) -
Sale of forestlands - - (4,422)(h)
Impairment of goodwill - - 759 (i)
Net losses (gains) on sales and
impairments of businesses (314)(b) 1,283(e) 149(j)
Reversal of reserves no longer
required, net - - (5)
Interest expense, net 61 149 80(k)
Earnings (Loss) From Continuing
Operations Before Income Taxes and -
Minority Interest 606(a,b) (1,223)(d,e) 3,718(g-k)
Income tax provision (benefit) 143 (16) 1,668
Minority interest expense,
net of taxes 6 5 3
Earnings (Loss) From Continuing
Operations 457(a,b) (1,212)(d,e) 2,047(g-k)
Discontinued Operations, net of
taxes and minority interest (23)(c) (24)(f) (68)(l)
Net Earnings (Loss) $434(a-c) $(1,236)(d-f) $1,979(g-l)
Basic Earnings Per Common Share
Earnings (loss) from continuing
operations $1.03(a,b) $(2.49)(d,e) $4.56(g-k)
Discontinued operations (0.05)(c) (0.05)(f) (0.15)(l)
Net earnings (loss) $0.98(a-c) $(2.54)(d-f) $4.41 (g-l)
Diluted Earnings Per Common Share
Earnings (loss) from continuing
operations $1.02(a,b) (2.49)(d,e) $4.53 (g-k)
Discontinued operations (0.05)(c) (0.05)(f) (0.15)(l)
Net earnings (loss) $0.97(a-c) $(2.54)(d-f) $4.38 (g-l)
Average Shares of Common Stock
Outstanding - Diluted 448.4 486.3 451.2
Cash Dividends Per Common Share $0.25 $0.25 $0.25
The accompanying notes are an integral part of these financial statements. Certain 2006 amounts have been revised to reflect the retrospective application of a change in accounting for planned major maintenance activities. (a) Includes an $18 million pre-tax charge ($11 million after taxes)
for severance and other charges associated with the Company's
Transformation Plan.
(b) Includes a pre-tax gain of $103 million ($96 million after taxes)
on the sale of the Arizona Chemical business, a pre-tax gain of $205
million ($164 million after taxes) related to the asset exchange
for the Luiz Antonio mill in Brazil, and a $6 million pre-tax credit
($4 million after taxes) for adjustments to the loss on the sale of
the coated and supercalendered papers business.
(c) Includes a pre-tax gain of $21 million ($9 million after taxes)
relating to the sale of the wood products business, a pre-tax loss
of $15 million ($39 million after taxes) for adjustments to the loss
on the sale of the beverage packaging business, a pre-tax gain of $6
million ($4 million after taxes) for adjustments to the loss on the
sale of the kraft papers business, a $10 million pre-tax credit ($6
million after taxes) for additional refunds received from the
Canadian government of duties paid by the Company's Weldwood of Canada
Limited business, and the operating results of the beverage packaging
and wood products businesses.
(d) Includes an $18 million pre-tax charge ($11 million after taxes)
for organizational restructuring charges associated with the Company's
Transformation Plan, an $8 million pre-tax charge ($5 million after
taxes) for losses on early debt extinguishment, and an $18 million
pre-tax charge ($11 million after taxes) for legal reserves.
(e) Includes a pre-tax charge of $1.3 billion ($1.2 billion after
taxes) to reduce the carrying value of the net assets of the coated
and supercalendered papers business to their estimated fair value.
(f) Includes a pre-tax charge of $100 million ($61 million after taxes)
to reduce the carrying value of the net assets of the kraft papers
business to their estimated fair value, and the operating results
of the kraft papers, Brazilian coated papers, wood products and
beverage packaging businesses.
(g) Includes a $34 million pre-tax charge ($21 million after taxes) for
severance and other charges associated with the Company's
Transformation Plan, a pre-tax gain of $115 million ($70 million
after taxes) for payments received relating to the Company's
participation in the U.S. Coalition for Fair Lumber Imports, a pre-tax
charge of $157 million ($97 million after taxes) for losses on early
debt extinguishment, a $40 million pre-tax charge ($25 million after
taxes) for increases to legal reserves, and a $5 million pre-tax
credit ($4 million after taxes) for other items.
(h) Includes a pre-tax gain of $4.4 billion ($2.7 billion after taxes)
from sales of U.S. forestlands included in the Company's
Transformation Plan.
(i) Includes a $759 million charge (before and after taxes) for the
impairment of goodwill in the Company's coated paperboard and
Shorewood businesses.
(j) Includes a $128 million pre-tax charge ($84 million after taxes) to
reduce the carrying value of the fixed assets of the Company's
Saillat mill in France to their estimated fair value, and a $21
million net pre-tax charge (zero after taxes) relating to smaller
asset sales.
(k) Includes a $6 million pre-tax credit ($4 million after taxes) for
interest received from the Canadian government on refunds of prior-
year softwood lumber duties.
(l) Includes pre-tax charges of $102 million ($69 million after taxes)
for the wood products business and $18 million ($11 million after
taxes) for the beverage packaging business to adjust the carrying
value of these businesses based on the terms of the definitive
agreements to sell these businesses, a $38 million pre-tax credit
($23 million after taxes) for refunds received from the Canadian
government of duties paid by the Company's Weldwood of Canada Limited
business, a pre-tax charge of $3 million ($2 million after taxes) for
adjustments of prior discontinued operations estimates, and the
quarterly operating results of the Company's kraft papers, wood
products and beverage packaging businesses.
International Paper Company
Reconciliation of Earnings Before
Special Items to Net Earnings
(In millions except for per share amounts)
Three Months Ended Three Months Ended
March 31, December 31,
2007 2006 2006
Earnings Before Special Items $203 $58 $216
Restructuring and other charges (11) (27) (69)
Insurance recoveries - 12 -
Reversals of reserves no longer
required - - 3
Net losses on sales and
impairments of businesses 264 (1,252) (84)
Forestland sales 2,740
Impairment of goodwill (759)
Interest Income 1 - 4
Income tax adjustments - (3) (4)
Earnings (Loss) Per Common Share
from Continuing Operations 457 (1,212) 2,047
Discontinued operations (23) (24) (68)
Net Earnings (Loss) as Reported $434 $(1,236) $1,979
Three Months Ended Three Months Ended
Diluted Earnings per Common Share March 31, December 31,
2007 2006 2006
Earnings Per Share Before Special
Items $0.45 $0.12 $0.47
Restructuring and other charges (0.02) (0.06) (0.15)
Insurance recoveries - 0.02 -
Reversals of reserves no longer
required - - -
Net losses on sales and
impairments of businesses 0.59 (2.57) (0.18)
Forestland sales 6.07
Impairment of goodwill (1.68)
Interest Income - - -
Income tax adjustments - - -
Earnings (Loss) Per Common Share
from Continuing Operations 1.02 (2.49) 4.53
Discontinued operations (0.05) (0.05) (0.15)
Diluted Earnings (Loss) per
Common Share $0.97 $(2.54) $4.38
Notes:
(1) The company calculates Earnings Before Special Items by excluding
the after-tax effect of the adoption of new accounting standards and
items considered by management to be unusual from the net earning
(loss) reported under U.S. generally accepted principles ("GAAP").
Management uses this measure to focus on on-going operations, and
believes that it is useful to investors because it enables them to
perform meaningful comparisons of past and present operating results.
International Paper believes that using this information along with
net earnings (loss) provides for a more complete analysis of the
results of operations by quarter. Net earnings (loss) is the most
directly comparable GAAP measure.
(2) Diluted earnings per common share reflect the inclusion of
contingently convertible securities in the computation.
(3) Certain 2006 amounts have been revised to reflect the retrospective
application of a change in accounting for planned major maintenance
activities.
International Paper
Sales and Earnings by Industry Segment
Preliminary and Unaudited
(In Millions)
Sales by Industry Segment
Three Months Three Months
Ended Ended
March 31, December 31,
2007 2006(1) 2006(1)
Printing Papers (2) $1,540 $1,805 $1,475
Industrial Packaging 1,235 1,175 1,265
Consumer Packaging (2) 750 615 735
Distribution 1,675 1,650 1,715
Forest Products 85 235 190
Other Businesses (4) 135 225 225
Corporate and Inter-segment Sales (203) (179) (281)
Net Sales $5,217 $5,526 $5,324
Operating Profit by Industry Segment
Three Months Three Months
Ended Ended
March 31, December 31,
2007 2006(1) 2006(1)
Printing Papers (2) $231 $105 $63(3)
Industrial Packaging 103 29 130
Consumer Packaging (2) 61 47 27
Distribution 29 27 31
Forest Products 100 190 162
Other Businesses (4) 6 13 12
Operating Profit 530 411 425
Interest expense, net (61) (149) (80)
Minority interest (5) 5 3 3
Corporate items, net (164) (180) (166)
Restructuring and other charges (18) (44) (111)
Insurance recoveries - 19 -
Gains on forestland sales - - 4,422
Impairments of goodwill - - (759)
Net gains (losses) on sales and
impairments of businesses 314 (1,283) (21)
Reserve adjustments - - 5
Earnings (Loss) From Continuing
Operations Before Income Taxes
and Minority Interest $606 $(1,223) $3,718
(1) Prior-period information has been revised to reflect the
retrospective application of a change in accounting for planned
major maintenance activities.
(2) Reflects the reclassification of the European coated paperboard
business from Printing Papers to Consumer Packaging.
(3) Includes a fourth-quarter charge of $128 million before taxes to
write down the assets of the Saillat mill in France to its
estimated fair value.
(4) Includes Arizona Chemical, European Distribution and certain
smaller businesses.
(5) Operating profits for industry segments include each segment's
percentage share of the profits of subsidiaries included
in that segment that are less than wholly owned. The pre-tax
minority interest for these subsidiaries is added here to
present consolidated earnings before income taxes and minority
interest.
International Paper
Sales Volume by Product (1)(2)
Preliminary and Unaudited
International Paper Consolidated
Three Months Three Months
Ended Ended
March 31, December 31,
2007 2006 2006
Printing Papers (In thousands of
short tons)
U.S. Uncoated Papers 982 1,026 954
Europe & Russia Uncoated Papers 376 379 383
Brazil Uncoated Papers 144 118 124
Asia Uncoated Papers 5 3 6
Uncoated Papers 1,507 1,526 1,467
Coated Papers - 502 -
Market Pulp (3) 335 285 268
Packaging (In thousands of short tons)
Container of the Americas 882 901 895
European Container (Boxes) 307 321 328
Other Industrial and Consumer
Packaging 131 146 124
Industrial and Consumer Packaging 1,320 1,368 1,347
Containerboard 392 496 431
Bleached Packaging Board 491 338 438(4)
Coated Bristols 100 108 99
Saturated and Bleached Kraft Papers 53 60 36
(1) Sales volumes include third party and inter-segment sales.
(2) Sales volumes for divested businesses are included through the date
of sale, except for discontinued operations.
(3) Includes internal sales to mills.
(4) Includes two months of sales for International Paper & Sun Cartonboard
Co., Ltd. in which a 50% ownership interest was acquired in the fourth
quarter of 2006.
INTERNATIONAL PAPER
CONSOLIDATED BALANCE SHEET
Preliminary and Unaudited
(In Millions)
March 31, December 31,
2007 2006
Assets
Current Assets
Cash and Temporary Investments $2,390 $1,624
Accounts and Notes Receivable, Net 2,924 2,704
Inventories 2,009 1,909
Assets of Businesses Held for Sale 156 1,778
Deferred Income Tax Assets 512 490
Other 163 132
Total Current Assets 8,154 8,637
Plants, Properties and Equipment, Net 9,992 8,993
Forestlands 637 259
Investments 631 641
Goodwill 3,251 2,929
Assets Held for Exchange - 1,324
Deferred Charges and Other Assets 1,171 1,251
Total Assets $23,836 $24,034
Liabilities and Common Shareholders' Equity
Current Liabilities
Notes Payable and Current Maturities of
Long-Term Debt $542 $692
Liabilities of Businesses Held for Sale 31 333
Accounts Payable and Accrued Liabilities 3,334 3,616
Total Current Liabilities 3,907 4,641
Long-Term Debt 6,358 6,531
Deferred Income Taxes 3,284 2,233
Other Liabilities 2,152 2,453
Minority Interest 236 213
Common Shareholders' Equity
Invested Capital 3,936 4,226
Retained Earnings 3,963 3,737
Total Common Shareholders' Equity 7,899 7,963
Total Liabilities and Common Shareholders'
Equity $23,836 $24,034
Website: http://www.internationalpaper.com/ |
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