Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
IP > SEC Filings for IP > Form 10-Q on 7-May-2014All Recent SEC Filings

Show all filings for INTERNATIONAL PAPER CO /NEW/

Form 10-Q for INTERNATIONAL PAPER CO /NEW/


7-May-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE SUMMARY
International Paper generated Operating Earnings per share attributable to International Paper common shareholders of $0.61 in the first quarter of 2014, compared with 2013 fourth-quarter earnings of $0.83 and 2013 first-quarter earnings of $0.65. Diluted earnings (loss) per share attributable to International Paper common shareholders were $(0.21) in the first quarter of 2014, compared with $0.98 in the fourth quarter of 2013 and $0.71 in the first quarter of 2013.
We delivered solid results in the 2014 first quarter despite the severe weather that significantly impacted our U.S. operations. Considering the impact associated with the severe weather events, our North American Industrial Packaging business generated strong operating results driven by increased price and favorable mix. The first quarter benefited from higher pricing momentum in most of our global businesses. We successfully executed on our planned maintenance outages in what was a sequentially heavier maintenance outage quarter. The first quarter also reflects improved operational performance from the Ilim joint venture associated with the continued progress of the two major capital projects.

The 2014 first quarter included incremental cost associated with significant adverse weather events that impacted much of the U.S., resulting in reduced volumes, disrupted operations and increased energy costs. Prices averaged higher than the previous quarter particularly in our North American Industrial Packaging and North American Printing Papers businesses, driven by further realization of price increases implemented in the prior year. In addition to the impact from weather related events, lower volumes in our North American Printing Papers business reflected the shutdown of the Courtland mill which was completed during the quarter. Volume was seasonally lower in Brazil. Closure and transition costs associated with the Courtland mill drove higher operating cost during the 2014 first quarter. Input costs, particularly for wood and energy, were less favorable as compared to the 2013 fourth quarter. Finally, the Ilim joint venture had a solid quarter operationally driven by higher volumes, increased pulp pricing and improved productivity. Ilim's foreign currency movement was unfavorable in the 2014 second quarter driven by the U.S. dollar denominated debt.

Looking ahead to the 2014 second quarter, we expect a benefit from the absence of the 2014 first quarter adverse weather events which will be positive to volume, operations and input costs. In addition to the positive impacts associated with weather, volume in our North American Industrial Packaging business should increase but with some modest offset as customer mix normalizes. Pricing will improve in our North American Printing Papers and Pulp businesses as we continue to implement previously announced price increases. The Brazil Printing Papers business should also see improved pricing but to a lesser extent. The economic slowdown in Russia will pressure volume and price/mix in our European Printing Papers business. Operations will benefit from lower closure and transition costs associated with the Courtland mill closure. Input costs should be relatively stable in North America with a modest increase in wood costs impacting our European Printing Papers business. Planned maintenance outage costs will be higher with the second quarter being the heaviest maintenance outage quarter in terms of cost. For our Ilim joint venture, we expect the solid operating performance to continue however pulp prices are expected to decline and there is a maintenance outage scheduled in the quarter. Additionally, our 2014 second quarter outlook for the Ilim joint venture assumes a positive impact associated with the non-repeating 2014 first quarter unfavorable currency adjustment.
Operating Earnings is a non-GAAP measure. Diluted earnings (loss) per share attributable to International Paper Company common shareholders is the most direct comparable GAAP measure. The Company calculates Operating Earnings by excluding the after-tax effect of items considered by management to be unusual from the earnings reported under GAAP, non-operating pension expense, and discontinued operations. 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. The Company believes that using this information, along with the most direct comparable GAAP measure, provides for a more complete analysis of the results of operations. The following are reconciliations of Operating Earnings per share attributable to International Paper Company common shareholders to diluted earnings (loss) per share attributable to


Table of Contents

International Paper Company common shareholders.

                                                  Three Months Ended          Three Months Ended
                                                       March 31,                 December 31,
                                                  2014            2013               2013
Operating Earnings (Loss) Per Share
Attributable to Shareholders                 $      0.61      $     0.65     $           0.83
Non-operating pension                              (0.06 )         (0.11 )              (0.11 )
Special items                                      (0.76 )          0.11                 0.25
Diluted Earnings (Loss) Per Share from
Continuing Operations                              (0.21 )          0.65                 0.97
Discontinued operations                                -            0.06                 0.01
Diluted Earnings (Loss) Per Share
Attributable to Shareholders                 $     (0.21 )    $     0.71     $           0.98

RESULTS OF OPERATIONS
For the first quarter of 2014, International Paper Company reported net sales of $7.0 billion, compared with $7.2 billion in the fourth quarter of 2013 and $7.1 billion in the first quarter of 2013.
Net earnings attributable to International Paper totaled a loss of $95 million, or $0.21 per share, in the 2014 first quarter. This compared with gains of $318 million, or $0.71 per share, in the first quarter of 2013 and $436 million, or $0.98 per share, in the fourth quarter of 2013.
[[Image Removed]]
Earnings from continuing operations attributable to International Paper Company were a loss of $93 million in the first quarter of 2014 compared with earnings of $292 million in the first quarter of 2013 and $431 million in the fourth quarter of 2013. The financial impact associated with the adverse weather that affected the U.S. during the first quarter of 2014 has been included within the respective columns in the above table and within the corresponding explanations that follow. Compared with the first quarter of 2013, the 2014 first quarter reflects higher average sales price realizations ($154 million), lower corporate and other items ($13 million), lower net interest expense ($22 million), and lower non-operating pension expense ($24 million). These benefits were offset by lower sales volumes ($31 million), higher operating costs ($52 million) including closure and transition costs associated with the Courtland mill closure, higher mill maintenance outage costs ($21 million), higher raw material and freight costs ($50 million), and higher tax expense ($42 million) reflecting a higher estimated tax rate. Equity earnings, net of taxes, relating to International Paper's investment in Ilim Holding S.A. were $20 million lower in the 2014 first quarter than in the 2013 first quarter. Net special items were a loss of $331 million in the 2014 first quarter, including $302 million associated with the Courtland mill shutdown, compared with a gain of $51 million in the 2013 first quarter.


Table of Contents

Compared with the fourth quarter of 2013, earnings benefited from higher average sales price realizations ($40 million) and lower non-operating pension expense ($20 million). These benefits were offset by lower sales volumes ($28 million), higher operating costs ($17 million) including closure and transition costs associated with the Courtland mill closure, higher mill maintenance outage costs ($22 million), higher raw material and freight costs ($27 million), higher corporate and other items ($22 million), higher net interest expense ($6 million) and a higher tax expense ($1 million). Equity earnings, net of taxes, for Ilim Holding, S.A. decreased by $19 million versus the 2013 fourth quarter. Net special items were a loss of $331 million in the 2014 first quarter, compared with a gain of $111 million in the 2013 fourth quarter. To measure the performance of the Company's business segments from period to period without variations caused by special or unusual items, International Paper's management focuses on industry segment operating profit. This is defined as earnings from continuing operations before taxes, equity earnings and noncontrolling interests, net of taxes, excluding interest expense, corporate charges and corporate special items which may include restructuring charges and
(gains) losses on sales and impairments of businesses. The following table presents a reconciliation of net earnings attributable to International Paper Company to its operating profit:

                                                             Three Months Ended
                                                          March 31              December 31,
In millions                                         2014            2013            2013
Earnings (Loss) From Continuing Operations
Attributable to International Paper Company     $       (93 )   $      292     $        431
Add back (deduct):
Income tax provision (benefit)                          (83 )          (69 )           (589 )
Equity (earnings) loss, net of taxes                     33             10                9
Noncontrolling interests, net of taxes                   (4 )           (3 )             (6 )
Earnings (Loss) From Continuing Operations
Before Income Taxes and Equity Earnings                (147 )          230             (155 )
Interest expense, net                                   142            164              133
Noncontrolling interests / equity earnings
included in operations                                    -              -                -
Corporate items                                           9             22               (6 )
Special items                                            17              6                9
Non-operating pension expense                            44             84               78
                                                $        65     $      506     $         59
Industry Segment Operating Profit:
Industrial Packaging                            $       453     $      355     $        473
Printing Papers                                        (410 )          149              (47 )
Consumer Packaging                                       17              7               30
Distribution                                              5             (5 )           (397 )
Total Industry Segment Operating Profit         $        65     $      506     $         59


Table of Contents

Industry Segment Operating Profit
[[Image Removed]]
Total industry segment operating profits of $65 million in the 2014 first quarter were lower than the $506 million in the 2013 first quarter, but slightly higher than the $59 million in the 2013 fourth quarter. The financial impact associated with the adverse weather that affected the U.S. during the first quarter of 2014 has been included within the respective columns in the above table and within the corresponding explanations that follow. Compared with the first quarter of 2013, operating profits in the current quarter benefited from higher average sales price realizations ($195 million) and lower other items ($6 million). These benefits were offset by lower sales volumes ($40 million), higher operating costs ($66 million) including closure and transition costs associated with the Courtland mill closure, higher mill maintenance outage costs ($26 million), and higher raw material and freight costs ($63 million). Special items were a loss of $512 million in the 2014 first quarter, including $495 million associated with the Courtland mill shutdown, compared with a loss of $65 million in the 2013 first quarter.
Compared with the fourth quarter of 2013, operating profits benefited from higher average sales price realizations ($58 million). This benefit was offset by lower sales volumes ($41 million), higher operating costs ($23 million) including costs associated with the Courtland mill closure, higher mill maintenance outage costs ($32 million), higher raw material and freight costs ($39 million) and higher other items ($12 million). Special items were a loss of $512 million in the 2014 first quarter, compared with a loss of $607 million in the 2013 fourth quarter.
During the 2014 first quarter, International Paper took approximately 233,000 tons of downtime of which approximately 60,000 tons were market-related compared with approximately 252,000 tons of downtime, which included about 53,000 tons that were market-related, in the 2013 first quarter. During the 2013 fourth quarter, International Paper took approximately 429,000 tons of downtime of which approximately 276,000 tons were market-related. Market-related downtime is taken to balance internal supply with our customer demand, while maintenance downtime is taken periodically during the year.


Table of Contents

Sales Volumes by Product (a)
Sales volumes of major products for the three months ended March 31, 2014 and
2013 were as follows:
                                         Three Months Ended
                                             March 31,
In thousands of short tons                 2014           2013
Industrial Packaging
North American Corrugated Packaging      2,516           2,549
North American Containerboard              746             858
North American Recycling                   604             581
North American Saturated Kraft              47              40
North American Gypsum/Release Kraft         37              30
North American Bleached Kraft                7              31
EMEA Industrial Packaging                  351             339
Asian Box                                   93             100
Brazilian Packaging (b)                     79              41
Industrial Packaging                     4,480           4,569
Printing Papers
U.S. Uncoated Papers                       499             630
European and Russian Uncoated Papers       375             329
Brazilian Uncoated Papers                  271             264
Indian Uncoated Papers                      58              60
Uncoated Papers                          1,203           1,283
Market Pulp (c)                            413             432
Consumer Packaging
North American Consumer Packaging          351             369
European Coated Paperboard                  84              91
Asian Coated Paperboard                    350             360
Consumer Packaging                         785             820

(a) Sales volumes include third party and inter-segment sales and exclude sales of equity investees.
(b) Includes volumes for Brazil Packaging from date of acquisition in mid-January 2013.
(c) Includes North American, European and Brazilian volumes and internal sales to mills.

Discontinued Operations
On April 1, 2013, the Company finalized the sale of Temple-Inland's 50% interest in Del-Tin Fiber L.L.C. (Del-Tin) to joint venture partner Deltic Timber Corporation (Deltic) for $20 million in assumed liabilities and cash. On July 19, 2013, the Company finalized the sale of its Temple-Inland Building Products division to Georgia-Pacific Building Products, LLC for approximately $726 million in cash.
Income Taxes
An income tax benefit of $83 million was recorded for the 2014 first quarter. Excluding a benefit of $198 million related to the tax effects of special items and a benefit of $17 million related to the tax effects of non-operating pension expense, the effective income tax rate for continuing operations was 31% for the quarter.
An income tax benefit of $589 million was recorded for the 2013 fourth quarter. Excluding a tax benefit of $728 million related to the tax effects of special items and a benefit of $31 million related to the tax effects of non-operating pension expense, the effective income tax rate for continuing operations was 31% for the quarter.
An income tax benefit of $69 million was recorded for the 2013 first quarter. Excluding a benefit of $116 million related to the tax effects of special items and a benefit of $33 million related to the tax effects of non-operating pension expense, the effective income tax rate for continuing operations was 21% for the quarter.
The first quarter 2013 rate included 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.


Table of Contents

Interest Expense and Corporate Items
Net interest expense for the 2014 first quarter was $142 million compared with $133 million in the 2013 fourth quarter and $164 million in the 2013 first quarter.
Corporate items, net, were an expense of $9 million in the 2014 first quarter compared with net income of $6 million in the 2013 fourth quarter, and net expense of $22 million in the 2013 first quarter. Restructuring and Other Charges
2014: During the three months ended March 31, 2014, restructuring and other charges totaling $517 million before taxes ($315 million after taxes) were recorded. Details of these charges were as follows:

                                    Three Months Ended
                                      March 31, 2014
                                Before-Tax         After-Tax
In millions                       Charges           Charges
Courtland mill shutdown (a)       495                     302
xpedx restructuring                 2                       -
xpedx transaction costs            16                      10
Other                               4                       3
Total                       $     517             $       315

(a) During 2013, the Company deferred accelerating depreciation for certain assets as we evaluated possible alternative uses by one of our other businesses. The net book value of these assets at December 31, 2013 was approximately $470 million. During the first quarter of 2014, we completed our evaluation and concluded that there were no alternative uses for these assets. We recognized approximately $430 million of accelerated depreciation related to these assets during the first quarter of 2014. The remaining net book value will be accelerated through depreciation expense during 2014. Other components of the first quarter of 2014 Courtland mill shutdown cost include site closure costs of $30 million, severance charges of $15 million and $20 million of other non-cash charges. Other
On January 28, 2014, International Paper announced that its distribution solutions business, xpedx, will merge with Unisource Worldwide, Inc. under the terms of a definitive agreement that will result in the creation of a new publicly-traded company.
The transaction will be accomplished through a Reverse Morris Trust structure in which International Paper will indirectly contribute the assets of xpedx to a newly formed wholly-owned subsidiary, SpinCo, in exchange for shares of common stock of SpinCo, a special payment of $400 million, subject to adjustments, expected to be financed with new debt in SpinCo's capital structure, as well as the potential for an additional cash payment pursuant to an "earn-out" provision. International Paper will distribute shares of SpinCo to International Paper shareholders on a pro rata basis in a manner intended to be tax-free to International Paper and its shareholders.

BUSINESS SEGMENT OPERATING RESULTS
The following presents business segment discussions for the first quarter of
2014.
Industrial Packaging
                      2014                     2013
In millions       1st Quarter      1st Quarter      4th Quarter
Sales            $       3,693    $       3,560    $       3,715
Operating Profit           453              355              473

Industrial Packaging net sales for the first quarter of 2014 were 1% lower than in the fourth quarter of 2013 and 4% higher than in the first quarter of 2013. Operating profits in the first quarter of 2014 included charges of $12 million for integration costs associated with the Temple-Inland acquisition, and net charges of $2 million for other items. Operating profits in the fourth quarter of 2013 included charges of $12 million for integration costs associated with the Temple-Inland acquisition, and net charges of $1 million for other items. Operating profits in the first quarter of 2013 included charges of $12 million for integration costs associated with the Temple-Inland acquisition and net charges of $2 million for other items. Excluding these items, operating profits in the first quarter of 2014 were 4% lower than in the fourth quarter of 2013 and 27% higher than in the first quarter of 2013.
North American Industrial Packaging net sales were $3.1 billion in the first quarter of 2014 compared with $3.1 billion in the fourth quarter of 2013 and $3.0 billion in the first quarter of 2013. Operating profits were $449 million ($460 million excluding Temple-Inland integration costs and a gain on the sale of a closed box plant facility) in the first quarter of 2014 compared with $472 million ($479 million excluding Temple-Inland integration costs and a gain on the sale of a closed box plant facility) in


Table of Contents

the fourth quarter of 2013 and $337 million ($350 million excluding Temple-Inland acquisition costs and mill divestiture costs) in the first quarter of 2013.
Sales volumes in the first quarter of 2014 were lower than in the fourth quarter of 2013 despite having two more shipping days for boxes. Adverse weather conditions during the quarter negatively impacted shipments. Containerboard export sales volumes were higher, but domestic sales volumes were lower. Total maintenance and market-related downtime decreased about 144,000 tons. Maintenance downtime increased 72,000 tons to 118,000 tons in the first quarter of 2014 while market-related downtime decreased 216,000 tons to 60,000 tons in the first quarter of 2014. Average sales prices increased for boxes reflecting a more favorable product mix. Export containerboard sales prices were slightly lower. Input cost increases for energy and wood were only partially offset by lower costs for recycled fiber. Planned maintenance downtime costs were $36 million higher in the 2014 first quarter with outages at six mills compared with the 2013 fourth quarter which had outages at eight mills. Manufacturing operating costs were higher largely due to the extreme cold weather. Compared with the first quarter of 2013, sales volumes in the first quarter of 2014 decreased slightly. Total maintenance and market-related downtime was 19,000 tons lower in the first quarter of 2014 although market-related downtime was 30,000 tons higher. Average sales price realizations were significantly higher due to sales price increases for boxes and domestic containerboard that were implemented later in 2013. Input costs for wood and energy increased, partially offset by lower costs for starch. Planned maintenance downtime costs were about the same in both the first quarter of 2014 and first quarter of 2013. Entering the second quarter of 2014, sales volumes are expected to be seasonally higher for boxes with the same number of shipping days. Average sales prices are expected to be slightly lower reflecting a less favorable product mix. Input costs are expected to be lower for wood, energy and wax, but the benefit will be partially offset by higher costs for starch. Planned maintenance downtime costs should be $19 million higher. Operating profits will also benefit from the absence of the impact of the adverse weather that occurred in the first quarter. European Industrial Packaging net sales were $342 million in the first quarter of 2014 compared with $335 million in the fourth quarter of 2013 and $320 million in the first quarter of 2013. Operating profits were $9 million in the first quarter of 2014 compared with $8 million ($8 million excluding restructuring costs and acquisition costs) in the fourth quarter of 2013 and $17 million ($18 million excluding acquisition costs) in the first quarter of 2013. Sales volumes in the first quarter of 2014 were higher than in the fourth quarter of 2013 despite continued soft market demand. Average sales margins improved reflecting box sales price increases and the realization of previously announced decreases for input costs for kraft board. Other input costs were flat. Operating profits in the first quarter of 2014 include a settlement of $1 million related to the earthquakes in Northern Italy in May 2012 which affected our San Felice box plant compared with $5 million in the fourth quarter of 2013. Compared with the first quarter of 2013, sales volumes in the first quarter of 2014 increased reflecting recovering economic conditions and improved demand for industrial packaging. Average sales margins decreased significantly due to input costs for containerboard rising ahead of box sales price increases. Other input costs were lower, primarily for energy. Operating profits in the first quarter of 2013 included a $5 million insurance settlement related to the earthquakes in May 2012.
Looking ahead to the second quarter of 2014, sales volumes are expected to be seasonally lower reflecting decreased demand in the fruit and vegetable packaging market. Average sales margins are expected to improve as costs for containerboard continue to decrease.
Brazilian Industrial Packaging net sales were $85 million in the first quarter of 2014 compared with $95 million in the fourth quarter of 2013 and $45 million in the first quarter of 2013. Operating profits were a loss of $4 million ($2 million excluding acquisition costs) in the first quarter of 2014 compared with a loss of $3 million ($1 million excluding acquisition costs) in the fourth quarter of 2013 and a gain of $1 million in the first quarter of 2013. Compared with the fourth quarter of 2013, sales volumes were lower in the first quarter of 2014 due to seasonality and weaker activity at some of our major customers. Average sales price realizations were higher reflecting the partial realization of box and sheet price increases announced in the 2014 first quarter. Input costs increased for recycled fiber and energy. Operating profits in the second quarter of 2014 are expected to increase reflecting seasonally higher sales volumes and the full realization of the box sales price increase. Asian Industrial Packaging net sales for the packaging operations were $86 million in the first quarter of 2014 compared with $100 million in the fourth quarter of 2013 and $95 million in the first quarter of 2013. Operating profits . . .

  Add IP to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for IP - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.