Business News

International Paper Reports Fourth-Quarter and 2008 Earnings

Thursday 29. January 2009 - International Paper (NYSE: IP) preliminary full-year 2008 net earnings totaled $57 million ($0.13 per share) compared with $1.2 billion ($2.70 per share) in 2007. In the fourth quarter of 2008, the company reported a net loss of $452 million ($1.07 per share) compared with earnings of $327 million ($0.78 per share) in the fourth quarter of 2007. Amounts in all periods include special items, including a $438 million ($1.04 per share) goodwill impairment charge in the 2008 periods.

Diluted Earnings Per Share Summary

Fourth Fourth Full Year Full Year
Quarter Quarter 2008 2007
2008 2007

Net Earnings (Loss) ($1.07) $0.78 $0.13 $2.70
Less – Discontinued
Operations (Gain) Loss (0.01) 0.02 0.03 0.11
Earnings (Loss) from
Continuing Operations (1.08) 0.80 0.16 2.81
Add Back – Net Special
Items Expense (Income) 1.29 (0.11) 1.85 (0.59)
Earnings from Continuing
Operations and Before
Special Items $0.21 $0.69 $2.01 $2.22


Full-year 2008 earnings from continuing operations and before special items were $855 million ($2.01 per share) compared with $963 million ($2.22 per share) in 2007. Earnings from continuing operations and before special items in the 2008 fourth quarter totaled $89 million ($0.21 per share), compared with $294 million ($0.69 per share) in the fourth quarter of 2007.

Quarterly net sales rose to $6.5 billion from $5.8 billion in the fourth quarter of 2007. Annual sales increased to $24.8 billion compared with $21.9 billion in 2007.

Operating profits in the fourth quarter were $132 million, down from $566 million in the fourth quarter of 2007. Full-year 2008 operating profits were $1.4 billion compared with $1.9 billion in 2007.

At year end, International Paper had $1.1 billion in cash and $2.5 billion in committed liquidity facilities, and increased its free cash flow in 2008 to about $1.7 billion, or about 160 percent over 2007 levels, by reducing capital spending, focusing on working capital management and reducing overhead spending. In 2009, the company is taking additional measures to improve its cash position including continuing to reduce capital spending, suspending 2009 merit raises for U.S. salaried employees and matching company contributions to the Salaried Savings Plan with shares of company stock rather than with cash.

“International Paper had a solid year overall despite a weak fourth quarter,” said International Paper Chairman and Chief Executive Officer John Faraci. “Free cash flow for the year was an all-time record and continued to be strong in the fourth quarter despite a severe contraction of global demand, particularly in North America. We started to take action early in 2008 and continued to focus on maintaining solid free cash flow in the current difficult environment.”

SEGMENT INFORMATION

Fourth-quarter 2008 segment operating profits and business trends compared with the prior-year are as follows:

Printing Papers had an operating loss of $40 million (including charges totaling $153 million for shutdown costs for the Louisiana Mill and Franklin #3 paper machine) compared to operating profit of $243 million in the fourth quarter of 2007 driven by significant demand declines in the global paper and pulp markets. Pricing was improved in the papers business but declined for pulp. Strong operations at European paper mills were not enough to offset weak volume, particularly in the Russian market.

Industrial Packaging operating profits increased to $111 million (including $34 million of charges for Weyerhaeuser packaging business integration and the closure of the Ace Packaging business), up from $109 million in the prior-year quarter. Despite the recent significant demand declines in the containerboard and box businesses, price realizations were improved over last year’s fourth quarter and volume was up due to the Weyerhaeuser packaging acquisition. Input costs were higher in this year’s quarter. The European box business was able to grow market share even while encountering lower volumes.

Consumer Packaging had an operating loss of $3 million (including $4 million of costs related to the reorganization of Shorewood’s Canadian operations) compared with operating profits of $15 million in the fourth quarter of 2007, as price realizations in Foodservice and Coated Paperboard did not offset input costs and weak demand.

The company’s distribution business, xpedx, reported operating profits of $26 million, lower than the $28 million posted in the fourth quarter of 2007 due to weakened paper and packaging volumes.

Forest Products operating profits totaled $38 million, down from $171 million in the prior-year quarter, as the company’s land sales slowed due to the economic downturn. The company has approximately 200,000 acres of land remaining for sale, primarily composed of smaller retail and larger transitional tracts.

Net corporate expense totaled $21 million for the 2008 fourth quarter, down from $40 million in the 2008 third quarter and $56 million in the 2007 fourth quarter, reflecting lower pension expenses.

EFFECTIVE TAX RATE

The effective tax rate from continuing operations and before special items for the fourth quarter of 2008 was 23 percent, compared with 31 percent in the fourth quarter of 2007. The 2008 full-year tax rate was 31.5 percent compared with 30 percent for the 2007 full year.

EFFECTS OF SPECIAL ITEMS

Special items in the fourth quarter of 2008 included a pre-tax charge of $244 million ($148 million after taxes) for restructuring and other charges, a $438 million charge, before and after taxes, for impairment of goodwill for the company’s U.S. and European coated paperboard businesses, and a $40 million after-tax benefit for a reduction in deferred taxes related to the restructuring of the company’s international operations. Restructuring and other charges included a $123 million pre-tax charge ($75 million after taxes) associated with the closure of the Louisiana mill, a $30 million pre-tax charge ($18 million after taxes) for the shutdown of a paper machine at the Franklin mill, a $53 million pre-tax charge ($32 million after taxes) for costs associated with the company’s 2008 overhead cost reduction initiative, an $8 million pre-tax charge ($5 million after taxes) related to the closure of the company’s Ace Packaging business, a $4 million pre-tax charge ($2 million after taxes) associated with the reorganization of Shorewood operations in Canada, and a pre-tax charge of $26 million ($16 million after taxes) for costs related to the integration of the Weyerhaeuser packaging business. Final detailed goodwill impairment testing will be completed in the 2009 first quarter and could result in an additional impairment charge of up to $1.3 billion.

Special items in the third quarter of 2008 included a pre-tax charge of $107 million ($84 million after taxes) to write down the assets of the Inverurie, Scotland, mill to its estimated fair value, a $155 million pre-tax charge ($96 million after taxes) for restructuring and other charges, a $3 million pre-tax credit ($2 million after taxes) for adjustments to estimated transaction costs accrued in connection with 2006 transformation plan forestland sales, and a $29 million income tax charge relating to estimated U.S. taxes on a gain in the company’s Ilim joint venture. Restructuring and other charges included a $35 million pre-tax charge ($22 million after taxes) for costs associated with the company’s hardboard siding and roofing legal settlements, a $53 million pre-tax charge ($33 million after taxes) to write off supply chain initiative development costs following a decision not to implement the initiative in the U.S. container business, an $8 million pre-tax charge ($5 million after taxes) associated with the reorganization of Shorewood operations in Canada, pretax charges of $39 million ($24 million after taxes) and $19 million ($12 million after taxes) relating to the write-up of inventories in connection with the Weyerhaeuser packaging acquisition and integration costs, and a $1 million pre-tax charge ($0 million after taxes) for severance costs associated with the company’s transformation plan. The net after-tax effect of these special items is a loss of $207 million, or $0.49 per share.

Special items in the fourth quarter of 2007 include a pre-tax charge of $9 million ($6 million after taxes) for charges relating to the company’s transformation plan and an Ohio tax adjustment, as well as a $13 million pre-tax gain ($9 million after taxes) for adjustments to estimated gains/losses of production facilities previously sold. Additionally, a $41 million net income tax benefit was recorded relating to the effective settlement of certain tax audit issues. The net after-tax effect of these special items is a gain of $44 million, or $0.11 per share.