International Paper Releases Q3 2014 Results, with a Strong Performance Across Key Businesses

MEMPHIS, TN—November 4, 2014—International Paper has reported third quarter 2014 net earnings attributable to common shareholders totaling $355 million ($0.83 per share) compared with net earnings of $161 million ($0.37 per share) in the second quarter of 2014 and net earnings of $382 million ($0.85 per share) in the third quarter of 2013. Amounts in all periods include the impact of special items, non-operating pension expense and discontinued operations.

Operating Earnings were $409 million ($0.95 per share) in the third quarter of 2014, compared with $400 million ($0.93 per share) in the second quarter of 2014 and $455 million ($1.01 per share) in the third quarter of 2013.

Quarterly net sales were $6.1 billion compared with $5.9 billion in the second quarter of 2014 and $6.0 billion in the third quarter of 2013.

Business segment operating profits before special items in the third quarter of 2014 were $840 million, compared with $686 million in the second quarter of 2014.

"International Paper delivered strong results in the quarter with record performance from our North America Industrial Packaging group and solid performance in other key businesses that resulted in records for both EBITDA and free cash flow," said Mark Sutton , CEO. "IP continues to focus on growing free cash flow, increasing our return on capital and returning cash to our shareholders."

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. Third quarter 2014 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging operating profits in the third quarter of 2014 were $569 million ($527 million including special items) compared with $534 million ($537 million including special items) in the second quarter of 2014. North America's record operating earnings were driven by strong operating performance and lower planned maintenance outage costs, partially offset by lower export volume. In Europe, seasonally lower sales volumes led to a decrease in earnings.

Printing Papers operating profits were $192 million ($177 million including special items) in the third quarter of 2014 versus $118 million ($69 million including special items) in the second quarter of 2014. The earnings increase in North America was primarily driven by fewer planned maintenance outages, lower closure costs for the Courtland mill, strong mill operations and higher sales volumes (domestic and export). Pulp earnings benefited from higher fluff pulp sales prices. Operating profits in Brazil increased due to higher demand in the domestic and Latin American markets. In Europe, market conditions remained challenging with sales volumes for paper down from the prior quarter, but earnings improved due to lower maintenance outage costs.

Consumer Packaging operating profits were $79 million ($77 million including special items) in the third quarter of 2014 compared with $34 million ($33 million including special items) in the second quarter of 2014. North American Coated paperboard improved significantly from the prior quarter, due to price realization, improved sales volumes, solid operations and lower maintenance outage costs. Food service product demand remains strong as foam to paper conversions continue to take place for some of our larger customers. In Europe, higher sales volumes, improved operations and lower maintenance outage costs were only partially offset by lower sales margins.

International Paper recorded an Ilim joint venture equity loss of $70 million compared with equity earnings of $43 million in the second quarter of 2014. With respect to Ilim's U.S. dollar denominated debt, the company recognized a non-cash after-tax foreign exchange loss of $82 million in the third quarter of 2014, compared with an after-tax gain of $29 million in the second quarter of 2014, largely due to foreign exchange movement in the U.S. dollar versus the Russian ruble. Operating earnings were relatively flat quarter over quarter, as higher planned outage costs were offset by seasonally lower wood expenses and improving operations.

Corporate Expenses
Net corporate expenses, excluding non-operating pension expense, for the 2014 third quarter were $3 million compared with $2 million in the second quarter of 2014.

Effective Tax Rate
The effective tax rate before special items and non-operating pension expense for the third quarter of 2014 was 30.5%, compared with an effective tax rate of 32% in the second quarter of 2014. The lower rate in the third quarter reflects adjustments to prior year income tax estimates as a result of filing the Company's 2013 income tax returns.

Effects of Special Items
Special items in the third quarter of 2014 included a net pre-tax loss of $24 million ($15 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $13 million ($8 million after taxes for debt extinguishment costs, pre-tax charges of $3 million ($2 million after taxes) for costs associated with the closure of our Courtland, Alabama mill, pre-tax charges of $5 million ($3 million after taxes) for costs associated with the restructuring of our European Packaging business and pre-tax charges of $3 million ($2 million after taxes) for other items. Also included in special items were a pre-tax charge of $35 million ($21 million after taxes) for a multi-employer pension plan withdrawal liability, a pre-tax charge of $32 million ($17 million after taxes) related to a foreign tax amnesty program, a gain of $20 million (before and after taxes) related to the resolution of a legal contingency in India, charges of $1 million (before and after taxes) for integration costs related to the Temple-Inland acquisition and a pre-tax charge of $5 million ($3 million after taxes) for a refund of previously taken state tax credits.

Special items in the second quarter of 2014 included a net pre-tax loss of $307 million ($188 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $262 million ($160 million after taxes) for debt extinguishment costs, pre-tax charges of $49 million ($30 million after taxes) for costs associated with the closure of our Courtland, Alabama mill, a pre-tax gain of $7 million ($5 million after taxes) related to our Brazil Packaging business and net charges of $3 million (before and after taxes) for other items. Special items also included $2 million ($1 million after taxes) for integration costs related to the Temple-Inland acquisition.

Special items in the third quarter of 2013 included a net pre-tax loss of $59 million ($36 million after taxes) for restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $51 million ($31 million after taxes) for costs associated with the announced closure of our Courtland, Alabama mill, pre-tax charges of $15 million ($9 million after taxes) for debt extinguishment costs, a pre-tax gain of $9 million ($6 million after taxes) related to the sale of the Bellevue, Washington box plan facility that was closed in 2010, and charges of $2 million (before and after taxes) for other items. Special items also included pre-tax charges of $24 million ($15 million after taxes) for integration costs related to the Temple-Inland acquisition, a tax benefit of $31 million related to the release of an income tax reserve and a pre-tax charge of $1 million ($0 million after taxes) for other items.

Discontinued Operations
As a result of the July 1, 2014 spin-off of the xpedx business, all current and prior year amounts have been adjusted to reflect xpedx as a discontinued operation. Previously reported information regarding the Distribution reportable segment has been excluded as this reportable segment was comprised of the xpedx business.

Discontinued operations in the third quarter of 2014 included a gain of $11 million ($14 million after taxes) for the recovery of costs related to the July 1, 2014 spin-off of our xpedx business and a tax benefit of $2 million related to the divestiture of the Temple-Inland Building Products business. Discontinued operations in the second quarter of 2014 included the operating earnings of the xpedx business and pre-tax charges of $18 million ($20 million after taxes) for costs associated with the spin-off. Discontinued operations in the third quarter of 2013 included the operating earnings of the xpedx and the Building Products businesses, pre-tax charges of $24 million ($15 million after taxes) for the write-off of capital investments and expenses associated with the divestiture of the Building Products business, pre-tax charges of $11 million ($7 million after taxes) for costs associated with the spin-off of the xpedx business and pre-tax charges of $6 million ($4 million after taxes) for costs associated with the restructuring of the xpedx business.

About International Paper
International Paper (NYSE: 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. Headquartered in Memphis, TN, the company employs approximately 65,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2013 were $29 billion (which included its now divested xpedx business).

Source: International Paper.