International Paper's Q1 2014 Results Impacted by Courtland Mill Closure

MEMPHIS, TN—May 1, 2014—International Paper today reported a first quarter 2014 net loss attributable to common shareholders of $95 million ($0.21 per share), including a pre-tax charge of $495 million associated with the Courtland mill shutdown, compared with net earnings of $436 million ($0.98 per share) in the fourth quarter of 2013 and $318 million ($0.71 per share) in the first quarter of 2013. Amounts in all periods include the impact of special items, non-operating pension expense and discontinued operations.

Operating Earnings were $265 million ($0.61 per share) in the first quarter of 2014, compared with $367 million ($0.83 per share) in the fourth quarter of 2013 and $292 million ($0.65 per share) in the first quarter of 2013.

Quarterly net sales were $7.0 billion compared with $7.2 billion in the fourth quarter of 2013 and $7.1 billion in the first quarter of 2013.

Business segment operating profits before special items in the first quarter of 2014 were $577 million, compared with $666 million in the fourth quarter of 2013 and $571 million in the first quarter of 2013.

"Despite the severe weather that impacted our North American businesses, International Paper delivered solid results," said John Faraci, chairman and CEO. "North America and Western Europe demand is slowly improving, while emerging market growth has slowed. In this uneven environment, we remain intensely focused on IP initiatives that will allow us to expand margins and continue to generate strong free cash flow in 2014."

Segment Information
The performance of the company's business segments is measured quarter to quarter without variations caused by special items, as management focuses on business segment operating profits excluding those items. First quarter 2014 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging posted operating profits of $467 million ($453 million including special items) in the first quarter of 2014, compared to $486 million ($473 million including special items) in the fourth quarter of 2013. In North America, the benefit of higher average selling prices for boxes was offset by the impact of severe weather events and higher energy costs. Scheduled maintenance outage expenses were higher, as planned, than in the prior quarter.

Printing Papers' operating profits were $85 million (a loss of $410 million including special items) compared to $143 million (a loss of $47 million including special items) in the fourth quarter of 2013. The earnings decline in North America was primarily due to costs and lower volume associated with the Courtland mill closure, as well as the impact of severe weather. This was partially offset by improved pricing and a more favorable mix. In addition, earnings in Brazil decreased due to seasonally lower sales volumes.

Consumer Packaging operating profit was $18 million ($17 million including special items), compared with $32 million ($30 million including special items) in the fourth quarter of 2013. The earnings shortfall in North America was driven primarily by severe weather and related operational issues, along with higher than anticipated input costs, mainly wood and energy. However, industry backlogs in North America continue to remain strong and pricing is improving across most product lines.

xpedx the company's North American distribution business, reported operating profits of $7 million ($5 million including special items) compared with $5 million (a loss of $397 million including special items) in the fourth quarter of 2013. Slightly improved margins, lower spending and lower overhead costs more than offset weaker sales.

International Paper recorded Ilim Joint Venture equity loss of $31 million compared with an equity loss of $12 million in the fourth quarter of 2013. With respect to Ilim's US dollar denominated debt, the company recognized a non-cash after-tax foreign exchange loss of $45 million in the first quarter of 2014, compared with an after-tax loss of $6 million in the fourth quarter of 2013, largely due to foreign exchange movement in the U.S. dollar versus the Russian ruble. On a 100 percent basis, the JV's operational EBITDA improved to $115 million in the first quarter of 2014, from $61 million in the fourth quarter of 2013, driven by increased volume, increased pulp pricing and improved production associated with the continued ramp-up of capital projects at Bratsk and Koryazhma.

Net corporate expenses for the 2014 first quarter were $9 million compared with income of $6 million in the fourth quarter of 2013.

Effective Tax Rate
The effective tax rate in both the first quarter of 2014 and fourth quarter of 2013 before special items and non-operating pension expense was 31 percent.

Effects of Special Items
Special items in the first quarter of 2014 included a net pre-tax loss of $517 million ($315 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $495 million ($302 million after taxes) for costs associated with the closure of our Courtland, Alabama mill, pre-tax charges of $16 million ($10 million after taxes) for costs associated with the announced spin-off of our xpedx operations and net pre-tax charges of $6 million ($3 million after taxes) for other items. Other special items in the first quarter of 2014 were pre-tax charges of $12 million ($7 million after taxes) for integration costs related to the Temple-Inland acquisition, a tax expense of $10 million related to a state legislative change and a tax benefit of $1 million for other items.

Special items in the fourth quarter of 2013 included a net pre-tax loss of $79 million ($50 million after taxes) for Restructuring and other charges. Included in Restructuring and other charges were a pre-tax charge of $67 million ($41 million after taxes) for costs associated with the closure of our Courtland, Alabama mill, pre-tax charges of $8 million ($5 million after taxes) for costs associated with the announced spin-off of our xpedx operations, and a net charge of $4 million (before and after taxes) for other items. In addition to Restructuring and other charges, special items in the fourth quarter of 2014 included pre-tax charges of $12 million ($7 million after taxes) for integration costs related to the Temple-Inland acquisition and a pre-tax charge of $2 million ($1 million after taxes) for other items. Also included in special items were a pre-tax charge of $127 million ($119 million after a $5 million tax benefit and a gain of $3 million related to non-controlling interest) for the impairment of goodwill and a trade name intangible asset of the Company's India Papers business and a pre-tax charge of $400 million ($366 million after taxes) for the impairment of goodwill of the Company's xpedx business. In addition, a tax benefit of $651 million related to the closing of a U.S. federal income tax audit and a net tax benefit of $3 million for other tax items were recorded.

Special items in the first quarter of 2013 included pre-tax charges of $59 million ($36 million after taxes) for Restructuring and other charges. Included in Restructuring and other charges were pre-tax charges of $44 million ($27 million after taxes) for costs related to the permanent shutdown of a paper machine at our Augusta, Georgia mill, pre-tax charges of $6 million ($4 million after taxes) for debt extinguishment costs, pre-tax charges of $7 million ($4 million after taxes) for costs associated with the restructuring of our xpedx operations and pre-tax charges of $2 million ($1 million after taxes) for other items. Other special items for the first quarter of 2013 were pre-tax charges of $12 million ($8 million after taxes) for integration costs related to the Temple-Inland acquisition, pre-tax interest income of $6 million ($4 million after taxes) and a tax benefit of $93 million both associated with the closing of a U.S. federal income tax audit and a net tax expense of $2 million related to internal restructurings.

Discontinued Operations
Discontinued operations in the first quarter of 2014 and the fourth quarter of 2013 included costs associated with the divestiture of the Temple-Inland Building Products business. Discontinued operations in the first quarter of 2013 also included the operating earnings from the Building Products 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, complemented by xpedx, the company's North American distribution company. Headquartered in Memphis, Tenn., the company employs approximately 70,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2013 were $29 billion.

Source: International Paper.