[Logo of International Paper]
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INTERNATIONAL PAPER PLAZA
400 ATLANTIC STREET
STAMFORD, CT 06921
News Release
Media Contacts: Jennifer Boardman, 203-541-8407
Stacy Wygant, 901-359-6335
Investor Contacts: Darial Sneed, 203-541-8541
Brian Turcotte, 203-541-8632
International Paper Reports Second-Quarter 2003 Earnings
o EPS of $0.19 per share improves from $0.09 in first quarter, despite
tough business conditions
Stamford, Conn. - July 24, 2003 - International Paper (NYSE: IP) today reported
second-quarter 2003 net earnings of $88 million ($0.19 per share), compared with
net earnings of $215 million ($0.45 per share) in the second quarter of 2002 and
net earnings of $44 million ($0.09 per share) in the first quarter of 2003.
Amounts in all periods include the effects of special items.
Before special items, earnings for the second quarter of 2003 were $89 million
($0.19 per share), compared with $169 million ($0.35 per share) in the 2002
second quarter and $68 million ($0.14 per share) in the first quarter of 2003.
In addition to the special items outlined below, second-quarter 2003 earnings
benefited from a $9 million reduction in the provision for income taxes ($0.02
per share) due to a reduction in the projected 2003 full year effective tax rate
before special items from 31 to 28 percent. The full year effective tax rate
projection is lower due to a higher proportion of taxable income in lower tax
rate jurisdictions.
Net sales for the second quarter totaled $6.2 billion, compared with $6.3
billion in the second quarter of 2002 and $6.1 billion in the first quarter of
2003.
"Externally, we are disappointed by business conditions, but we are pleased with
what we've accomplished through our internal focus. We improved our earnings
since the first quarter in a lackluster economy through our strong manufacturing
operations, better product mix and administrative cost control measures," said
John Dillon, International Paper chairman and chief executive officer. "Energy
and weather-related wood costs remained high, volumes were slightly lower than
the first quarter and prices declined in uncoated paper, linerboard and boxes.
We continue to overcome these external pressures to improve our profitability
through manufacturing excellence, creating customer value, and streamlining our
cost structure."
Effects of Special Items
Special items in the second quarter included charges of $81 million before taxes
($50 million after taxes), consisting of $43 million for facility shut-down
costs, and $38 million for severance costs associated with organizational
restructuring programs, early debt extinguishment costs, and legal reserves.
Special items also included a $10 million pre-tax adjustment ($6 million after
taxes) for previous divestitures and a $9 million pre-tax reserve reversal ($5
million after taxes and minority interest). In addition, a $50 million tax
provision reduction was recorded in the quarter reflecting settlements of prior
period tax issues. The net after-tax effect of these special items is $0.00 per
share.
Special items in the second quarter of 2002 consisted of a pre-tax charge of $79
million ($50 million after taxes) for facility closures, administrative
realignment and related severance costs, and a net $28 million gain before taxes
and minority interest ($96 million after taxes and minority interest) related to
sales and expenses of businesses held for sale.
Special items in the first quarter of 2003 included a net charge of $23 million
before taxes and minority interest ($14 million after taxes and minority
interest or $0.03 per share) for certain costs related to the shutdown of the
Natchez, Miss., dissolving pulp mill, and other charges for organizational
realignments and related severance. Also in the quarter, the company adopted
Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for
Asset Retirement Obligations", resulting in a $10 million after-tax charge
($0.02 per share) for the cumulative effect of a change in accounting.
A reconciliation of earnings before special items to net earnings (loss),
including information regarding the cumulative effect of accounting changes and
special items and a statement relating to the use of these non-GAAP measures, is
presented in a table in this press release.
Commenting on the third-quarter outlook, Dillon said, "We anticipate a very
tough external environment. We expect flat demand, but raw material and energy
costs should improve versus the second quarter. Internally, operating
performance will continue to improve, and we will maintain our intense customer
focus."
Segment Information
While operating profits of $448 million for the second quarter of 2003 were
above first quarter totals of $410 million, operating profits were down compared
with the second quarter of 2002 amid higher energy and fiber costs.
Second-quarter 2003 segment operating profits and business trends compared with
the first quarter were as follows:
Second-quarter operating profits for Printing Papers were $143 million compared
with first-quarter operating profits of $122 million as intensive cost reduction
efforts offset weaker volumes and flat pricing across most grades.
Industrial and Consumer Packaging operating profits were $121 million in the
second quarter, up from $89 million in the first quarter as price declines in
linerboard and boxes were offset by cost
reduction efforts as well as by somewhat better price realization and volume in
bleached board and higher containerboard and box volumes.
The company's distribution business, xpedx, reported operating profits of $22
million for the second quarter compared with operating profits in the first
quarter of $15 million. The increase was largely due to operational cost
improvements.
Second-quarter Forest Products operating profits of $143 million were down from
$161 million in the first quarter. The effect of higher lumber and plywood
volumes did not offset the impact of weather-related lower harvest volumes in
the South and adverse Canadian foreign exchange rates that impacted earnings
from Weldwood.
Operating profits at Carter Holt Harvey, International Paper's 50.5 percent
owned subsidiary in New Zealand, were $9 million in the second quarter, compared
with $16 million in the first quarter, reflecting the impact of a labor strike
at its Kinleith mill.
The company will hold a webcast to discuss earnings and current market
conditions at 10 a.m. (EDT) 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 Investor Information
button. Persons who wish to listen to the live earnings webcast must
pre-register at the site prior to the webcast. A replay of the webcast will also
be available on the Web site beginning at 1 p.m. (EDT) this afternoon.
International Paper (http://www.internationalpaper.com) is the world's largest
paper and forest products company. Businesses include paper, packaging, and
forest products. As one of the largest private forest landowners in the world,
the company manages its forests under the principles of the Sustainable Forestry
Initiative 'r' (SFI'r') program, a system that ensures the continual planting,
growing and harvesting of trees while protecting wildlife, plants, soil, air and
water quality. Headquartered in the United States, International Paper has
operations in over 40 countries and sells its products in more than 120 nations.
# # #
Statements in this press release that are not historical are forward-looking.
These statements are subject to risks and uncertainties that could cause actual
results to differ materially, including but not limited to, the strength of
demand for the company's products and changes in overall demand, the effects of
competition from foreign and domestic producers, the level of housing starts,
changes in the cost or availability of raw materials, unanticipated expenditures
related to the cost of compliance with environmental and other governmental
regulations, the ability of the company to continue to realize anticipated cost
savings, performance of the company's manufacturing operations, results of legal
proceedings, changes related to international economic conditions, changes in
currency exchange rates, particularly the relative value of the U.S. dollar to
the Euro, economic conditions in developing countries, specifically Brazil and
Russia, the current military action in Iraq and the war on terrorism. 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
Summary of Consolidated Earnings
Preliminary and Unaudited
(In millions except for net sales and per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ------------------------
2002 2003 2002 2003
----- ----- ----- ------
Net Sales (In billions) $6.2 $6.3 $12.3 $12.3
----- ----- ----- ------
Earnings Before Interest, Income Taxes,
Minority Interest, and Cumulative Effect
of Accounting Changes 283 (a) 435 (e) 600 (c) 779 (f)
Interest expense, net 194 199 378 404
----- ----- ----- ------
Earnings Before Income Taxes, Minority
Interest, and Cumulative Effect of
Accounting Changes 89 (a) 236 (e) 222 (c) 375 (f)
Income tax provision (benefit) (38)(a,b) (10)(e) 1 (b,c) 33 (f)
Minority interest expense, net of
taxes 39 (a) 31 (e) 79 (c) 62 (f)
----- ----- ----- ------
Earnings Before Cumulative Effect of
Accounting Changes 88 (a,b) 215 (e) 142 (b,c) 280 (f)
Cumulative Effect of Accounting Changes:
Asset Retirement Obligations, net
of taxes -- -- (10)(d) --
Transitional goodwill impairment
charge, net of minority interest -- -- -- (1,175)(g)
----- ----- ----- ------
Net Earnings (Loss) $88 (a,b) $215 (e) $132 (b,c,d) $(895)(f,g)
===== ===== ===== ======
Earnings Per Common Share Before
Cumulative Effect of Accounting Changes $0.19 (a,b) $0.45 (e) $0.30 (b,c) $0.58 (f)
Earnings (Loss) Per Common Share -
Cumulative Effect of Accounting Changes:
Asset Retirement Obligations - SFAS 143 -- -- (0.02)(d) --
Goodwill Impairment - SFAS 142 -- -- -- $(2.44)(g)
----- ----- ----- ------
Earnings (Loss) Per Common Share $0.19 (a,b) $0.45 (e) $0.28 (b,c,d) $(1.86)(f,g)
===== ===== ===== ======
Earnings (Loss) Per Common Share -
Assuming Dilution $0.19 (a,b) $0.45(e) $0.28 (b,c,d) $(1.86)(f,g)
===== ===== ===== ======
Average Shares of Common Stock Outstanding 479.0 482.7 479.0 482.5
===== ===== ===== ======
(a) Includes an $81 million charge before taxes ($50 million after
taxes) for facility shutdown costs, severance costs associated
with organizational restructuring, early debt extinguishment
costs, and legal reserves, a pre-tax charge of $10 million ($6
million after taxes) to adjust accrued costs of businesses sold,
and a credit of $9 million before taxes and minority interest ($5
million after taxes and minority interest) for the reversal of
restructuring and realignment reserves no longer required.
(b) Includes a decrease of $50 million in the income tax provision
reflecting settlements of prior period tax issues.
(c) Includes a $104 million charge before taxes and minority interest
($64 million after taxes and minority interest) for facility
shutdown costs, severance costs associated with organizational
restructuring, early debt extinguishment costs, and legal
reserves, a pre-tax charge of $10 million ($6 million after
taxes) to adjust accrued costs of businesses sold, and a credit
of $9 million before taxes and minority interest
($5 million after taxes and minority interest) for the reversal
of restructuring and realignment reserves no longer required.
(d) Includes a $15 million charge before taxes ($10 million after
taxes) for the adoption of SFAS No. 143, "Asset Retirement
Obligations".
(e) Includes a pre-tax charge of $79 million ($50 million after
taxes) for facility closures, administrative realignment
severance costs, and cost reduction actions, and a credit of $28
million before taxes and minority interest ($96 million after
taxes and minority interest) to adjust accrued costs of
businesses sold or held for sale.
(f) Includes a pre-tax charge of $79 million ($50 million after
taxes) for facility closures, administrative realignment
severance costs, and cost reduction actions, a credit of $28
million before taxes and minority interest ($96 million after
taxes and minority interest) to adjust accrued costs of
businesses sold or held for sale, and a $10 million pre-tax
credit ($7 million after taxes) for the reversal of reserves no
longer required.
(g) Includes a $1,236 million charge before minority interest ($1,175
million after minority interest) for the transitional goodwill
impairment charge from the adoption of SFAS No. 142, "Goodwill
and Other Intangible Assets."
International Paper
Reconciliation of Earnings Before
Special Items to Net Earnings (Loss)
Preliminary and Unaudited
(In millions except for per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ---------------
2003 2002 2003 2002
---- ---- ---- ----
Earnings Before Special Items (1) $89 $169 $157 $ 227
Restructuring and other charges (50) (50) (64) (50)
Reversal of reserves no longer required 5 -- 5 7
Net gains (losses) on sales and impairments
of businesses held for sale (6) 96 (6) 96
Income tax adjustment 50 -- 50 --
Cumulative effect of change in accounting
for asset retirement obligations -- -- (10) --
Cumulative effect of change in accounting
for transitional goodwill impairment charge -- -- -- (1,175)
--- ---- ---- -------
Net Earnings (Loss) as Reported $88 $215 $132 $ (895)
=== ==== ==== =======
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ----------------------------
2003 2002 2003 2002
---- ---- ---- ----
Earnings Per Common Share
Before Special Items (1) $0.19 $0.35 $0.33 $0.47
Restructuring and other charges (0.10) (0.10) (0.13) (0.10)
Reversal of reserves no longer required 0.01 -- 0.01 0.01
Net gains (losses) on sales and impairments
of businesses held for sale (0.01) 0.20 (0.01) 0.20
Income tax adjustment 0.10 -- 0.10 --
Cumulative effect of change in accounting
for asset retirement obligations -- -- (0.02) --
Cumulative effect of change in accounting
for transitional goodwill impairment charge -- -- -- (2.44)
----- ----- ----- ------
Earnings (Loss) Per Common Share as Reported $0.19 $0.45 $0.28 $(1.86)
===== ===== ===== ======
(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 earnings (loss)
reported under generally accepted accounting 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.
International Paper
Sales and Earnings by Industry Segment
Preliminary and Unaudited
(In millions)
Sales by Industry Segment
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Printing Papers $1,870 $1,815 $ 3,755 $ 3,635
Industrial and Consumer Packaging 1,565 1,530 3,065 2,990
Distribution 1,570 1,575 3,100 3,110
Forest Products 740 815 1,415 1,580
Carter Holt Harvey 525 480 1,025 890
Specialty Businesses and Other (1) 340 445 690 865
Less: Intersegment Sales (346) (355) (711) (727)
------ ------ ------- -------
$6,264 $6,305 $12,339 $12,343
====== ====== ======= =======
Earnings by Industry Segment
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Printing Papers $ 143 $ 106 $ 265 $ 182
Industrial and Consumer Packaging 121 145 210 273
Distribution 22 23 37 41
Forest Products 143 204 304 380
Carter Holt Harvey 9 14 25 24
Specialty Businesses and Other (1) 10 16 17 26
----- ----- ---- -----
Operating Profit 448 508 858 926
Interest expense, net (194) (199) (378) (404)
Minority interest (2) 13 15 31 25
Corporate items, net (96) (37) (184) (131)
Restructuring and other charges (81) (79) (104) (79)
Net (gains) losses on sales and impairments of
businesses held for sale (10) 28 (10) 28
Reversal of reserves no longer required 9 -- 9 10
----- ----- ----- -----
Earnings before income taxes, minority interest and
cumulative effect of accounting changes $ 89 $ 236 $ 222 $ 375
===== ===== ===== =====
(1) Includes Arizona Chemical, Industrial Papers, Chemical Cellulose Pulp and
businesses identified in our divestiture program.
(2) 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, minority
interest, and cumulative effect of accounting changes.
International Paper
Supplemental Financial Data
Preliminary and Unaudited
Financial Data (In millions)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
2003 2002 2003 2002
---- ---- ---- ----
Depreciation, amortization and cost of
timber harvested $412 $405 $810 $787
===== ===== ===== =====
Investment in capital projects (1) $254 $244 $427 $386
===== ===== ===== =====
(1) Includes $2 million and $4 million of spending for businesses held for sale
for the three months and six months ended June 30, 2002, respectively.
Sales Volumes by Product (1) (2)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- ---------
Printing Papers (In thousands of short tons)
Uncoated Papers and Bristols 1,565 1,614 3,169 3,235
Coated Papers 500 533 1,006 1,042
Market Pulp 549 588 1,180 1,199
Packaging (In thousands of short tons)
Containerboard 550 580 1,136 1,084
Bleached Packaging Board 361 337 701 651
Kraft 157 140 307 313
Industrial and Consumer Packaging 1,132 1,168 2,249 2,281
Forest Products (In millions)
Panels (sq. ft. 3/8" - basis) 593 541 1,099 1,320
Lumber (board feet) 1,055 1,118 2,019 2,123
MDF and Particleboard (sq. ft. 3/4" - basis) 139 191 286 370
(1) Includes third party and inter-segment sales, and 100 percent of volumes
sold by Carter Holt Harvey.
(2) Sales volumes for divested businesses are included through the date of
sale.
INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
Preliminary and Unaudited
(In Millions)
June 30, December 31,
2003 2002
-------- ------------
Assets
Current Assets
Cash and temporary investments $ 1,430 $ 1,074
Accounts and notes receivable, net 2,995 2,780
Inventories 3,012 2,879
Assets of businesses held for sale 160 128
Other current assets 972 877
------- -------
Total Current Assets 8,569 7,738
------- -------
Plants, Properties and Equipment, net 14,248 14,167
Forestlands 3,967 3,846
Investments 241 227
Goodwill 5,336 5,307
Deferred Charges and Other Assets 2,715 2,507
------- -------
Total Assets $35,076 $33,792
======= =======
Liabilities and Common Shareholders' Equity
Current Liabilities
Notes payable and current maturities of long-term debt $ 498 $ --
Liabilities of businesses held for sale 45 44
Accounts payable and accrued liabilities 4,565 4,535
------- -------
Total Current Liabilities 5,108 4,579
------- -------
Long-Term Debt 13,496 13,042
Deferred Income Taxes 1,781 1,765
Other Liabilities 3,842 3,778
Minority Interest 1,737 1,449
Preferred Securities 1,255 1,805
Common Shareholders' Equity
Invested capital 4,704 4,114
Retained earnings 3,153 3,260
------- -------
Total Common Shareholders' Equity 7,857 7,374
Total Liabilities and Common Shareholders' Equity $35,076 $33,792
======= =======