International Paper Reports Higher Fourth-Quarter Earnings from Contin

STAMFORD, Conn., Feb. 3 /PRNewswire-FirstCall/ -- International Paper today reported fourth-quarter 2004 earnings from continuing operations of $157 million ($0.32 per share basic and diluted) compared with $35 million ($0.08 per share basic, $0.07 per share diluted) in the fourth quarter of 2003 and $208 million ($0.43 per share basic, $0.42 per share diluted) in the third quarter of 2004. For the full-year 2004, International Paper reported earnings from continuing operations of $478 million ($0.98 per share basic and diluted) compared with $294 million ($0.62 per share basic, $0.61 per share diluted) in 2003. Diluted per share amounts reflect a recent accounting pronouncement requiring the inclusion of contingently convertible securities in computing diluted earnings per share. The above amounts include the effects of special items in all periods.

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After discontinued operations relating to the sale of Weldwood of Canada Limited, net earnings for the 2004 fourth quarter totaled $169 million ($0.35 per share basic and diluted) compared with a loss of $470 million ($0.97 per share basic, $0.91 per share diluted) in the 2004 third quarter and earnings of $48 million ($0.10 per share basic and diluted) in the fourth quarter of 2003. Full-year 2004 results totaled a net loss of $35 million ($0.07 per share basic and diluted) compared with net earnings of $302 million ($0.63 per share basic and diluted) in 2003.

Earnings from continuing operations and before special items in the 2004 fourth quarter were $209 million ($0.43 per share basic, $0.42 per share diluted), compared with $94 million ($0.20 per share basic, $0.19 per share diluted) in the fourth quarter of 2003 and $209 million ($0.43 per share basic, $0.42 per share diluted) in the third quarter of 2004. Earnings from continuing operations and before special items for the full year 2004 were $637 million ($1.31 per share basic, $1.30 diluted), compared with $363 million ($0.76 per share basic, $0.75 per share diluted) for the year 2003.

Fourth-quarter 2004 earnings reflect an effective tax rate, excluding special items, discontinued operations and accounting changes, of 16 percent, which reduced the full-year effective tax rate to 26 percent from 30 percent estimated in the third quarter. The lower tax rate reflects an increase in non-US tax credits, a reduction of tax valuation allowances and a higher proportion of earnings in lower tax rate jurisdictions.

Fourth-quarter 2004 net sales rose to $6.6 billion from $6.1 billion in the fourth quarter of 2003, and compared with $6.6 billion in the third quarter of 2004. For the full-year 2004, net sales were $25.5 billion compared with 2003 net sales of $24.0 billion.

"Throughout 2004, we experienced healthy business conditions with solid volume and improving average price realizations," said John Faraci, International Paper chairman and chief executive officer. "However, margins and earnings were impacted by dramatically rising raw material costs and lower wood products pricing, particularly in the last quarter."

Commenting on the first quarter of 2005, Faraci said, "Going into February, we are seeing demand starting to improve. After a slow month in January, our order activity is picking up, and our average price realizations are moving up on coated paper, some grades of printing papers, bleached board and pulp. However, our profit margins and earnings will be under pressure as the raw material cost environment continues to be severe. We expect higher benefit-related costs, and the investment we are making to improve our supply chain will be somewhat higher this quarter."

The company also said it will continue to strengthen its balance sheet through the repayment of debt. For example, by the end of January 2005, the company had used the proceeds from the divestitures of Weldwood of Canada and the Maine and New Hampshire forestlands to repay approximately $1.3 billion in debt.

Segment Information

Operating profits of $583 million for the 2004 fourth quarter were essentially flat compared with the third-quarter 2004 operating profits of $585 million, as the benefit of higher average price realizations in Printing Papers and Packaging were offset by higher input costs and lower wood products price realizations.

Fourth-quarter segment operating profits and business trends compared with the third quarter of 2004 are as follows:

Fourth-quarter operating profits for Printing Papers were $196 million compared with third-quarter operating profits of $160 million as a result of the company experiencing higher average pricing for uncoated free sheet and coated paper in the United States. This was somewhat offset by weaker average pulp pricing and higher input costs.

Industrial and Consumer Packaging operating profits were $170 million in the fourth quarter, compared with $183 million in the third quarter, as higher average pricing across International Paper's containerboard, corrugated box and bleached board businesses was offset by higher input costs and seasonally lower volumes in Industrial Packaging, maintenance downtime in containerboard and weaker operational performance.

The company's distribution business, xpedx, reported operating profits of $22 million for the fourth quarter compared with operating profits in the third quarter of $27 million, due to seasonally weaker business conditions.

Fourth-quarter Forest Products operating profits were $176 million, compared with earnings of $191 million in the third quarter primarily as lower average IP wood products price realizations combined with seasonally slower volumes more than offset $20 million of higher income from land and real estate sales.

Operating profits at Carter Holt Harvey, International Paper's 50.5 percent owned subsidiary in New Zealand, were $12 million in the fourth quarter, compared with third-quarter operating profits of $17 million as a result of facility reorganization costs.

Net corporate expenses of $156 million in the 2004 fourth quarter were higher than the $101 million in the 2004 third quarter and the $144 million in the 2003 fourth quarter. The increase in the 2004 fourth quarter compared with the previous quarter reflects higher inventory-related costs, higher costs from the company's supply chain initiative, and slightly higher administrative overhead costs. Higher inventory-related and supply chain initiative costs were also the major factors in the increase compared to the 2003 fourth quarter, offsetting the effect of lower administrative overhead costs.

Discontinued Operations

During the 2004 fourth quarter, International Paper completed the sale of Weldwood of Canada Limited for cash proceeds of approximately U.S. $1.1 billion. While still subject to post-closing adjustments, the loss on sale was approximately $84 million less than estimated in the third quarter. The loss on discontinued operations was reduced by $79 million and $5 million in the 2004 third quarter and fourth quarter, respectively. All periods presented have been restated to present the operating results of Weldwood, and the tissue business of Carter Holt Harvey sold in the 2004 second quarter, as discontinued operations.

Effects of Special Items

Special items in the 2004 fourth quarter included a charge of $79 million ($64 million after taxes) for estimated losses on sales and impairments of businesses held for sale, a charge of $19 million before taxes and minority interest ($11 million after taxes and minority interest) for restructuring and other costs, a pre-tax credit of $20 million ($12 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation, and a $17 million credit ($11 million after taxes) for the net reversal of restructuring and realignment reserves no longer required. The $19 million charge for restructuring and other costs included $10 million ($6 million after taxes and minority interest) for legal reserves, a $6 million goodwill impairment charge ($3 million after minority interest), and a $3 million charge ($2 million after taxes) for losses on early extinguishment of debt. The net after-tax effect of all of these special items was expense of $0.11 per share.

Special items in the 2004 third quarter included a charge of $55 million before taxes and minority interest ($31 million after taxes and minority interest) for restructuring and other costs, a pre-tax credit of $103 million ($64 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation, a charge of $38 million for estimated losses on sales and impairments of businesses held for sale and a $6 million credit ($4 million after taxes) for the net reversal of restructuring and realignment reserves no longer required. The $55 million charge for restructuring and other costs included $18 million ($11 million after taxes and minority interest) for organizational restructuring programs, a $29 million goodwill impairment charge ($15 million after minority interest), and $8 million charge ($5 million after taxes) for losses on early extinguishment of debt. The net after-tax effect of all of these special items was $0.00 per share.

Special items in the 2003 fourth quarter included a pretax charge of $101 million ($61 million after taxes and minority interest) for restructuring and other costs, $21 million ($26 million after taxes) of net losses on sales and impairments of businesses held for sale, and a $23 million credit ($15 million after taxes) for the net reversal of restructuring and realignment reserves no longer required. In addition, a $13 million decrease in the income tax provision, after minority interest, was recorded in the fourth quarter reflecting a favorable settlement with Australian tax authorities of net operating loss carryforward credits. The $101 million charge for restructuring and other costs included $91 million ($55 million after taxes and minority interest) for facility closures and organizational restructuring programs, $29 million ($18 million after taxes) for additional legal reserves, and a credit of $19 million ($12 million after taxes) for gains on early extinguishment of debt. The net after-tax effect of these special items was an expense of $0.12 per share. Additionally, an after-tax charge of $3 million ($0.01 per share) was recorded for the cumulative effect of an accounting change, for a total expense of $0.13 per share in the quarter from special items and accounting changes.

The company will hold a webcast to discuss earnings and current market conditions at 10 a.m. (EST) 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. A replay of the webcast will also be available on the Web site beginning at noon today.

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) 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 Twelve Months Ended December 31, December 31, 2004 2003 2004 2003 Net Sales (In billions) $6.6 $6.1 $25.5 $24.0 Earnings From Continuing Operations Before Interest, Income Taxes, and Minority Interest 383(a) 194(f) 1,489(d) 1,064(i) Interest expense, net 175 187(g) 743 772(g) Earnings From Continuing Operations Before Income Taxes and Minority Interest 208(a) 7(f,g) 746(d) 292(i) Income tax provision (benefit) 38(a) (49)(f,g,h) 206(c,d) (113)(g,h,i,j) Minority interest expense, net of taxes 13(a) 21(f,g) 62(d) 111(f,g,i) Earnings From Continuing Operations 157(a) 35(f,h) 478(c,d) 294(h,i,j) Discontinued Operation, net of taxes and minority interest 12(b) 16 (513)(b,e) 21 Cumulative Effect of Accounting Changes: Asset Retirement Obligations, net of taxes - - - (10) Variable Interest Entities, net of taxes - (3) - (3) Net Earnings (Loss) $169(a,b) $48(f,h) $(35)(b,c,d,e) $302(h,i,j) Basic Earnings Per Share: Earnings From Continuing Operations $0.32(a) $0.08(f,h) $0.98(c,d) $0.62(h,i,j) Discontinued Operation, net of taxes and minority interest 0.03(b) 0.03 (1.05)(b,e) 0.04 Cumulative Effect of Accounting Changes: - - - (0.02) Asset Retirement Obligations, net of taxes Variable Interest Entities, net of taxes - (0.01) - (0.01) Basic Earnings (Loss) Per Common Share $0.35(a,b) $0.10 (f,h) $(0.07)(b,c,d,e)$0.63(h,i,j) Earnings From Continuing Operations $0.32(a) $0.07(f,h) $0.98(c,d) $0.61(h,i,j) Discontinued Operation, net of taxes and minority interest 0.03(b) 0.03 (1.05)(b,e) 0.04 Cumulative Effect of Accounting Changes: Asset Retirement Obligations, net of taxes - - - (0.02) Variable Interest Entities, net of taxes - (0.01) - (0.01) Diluted Earnings (Loss) Per Common Share $0.35(a,b) $0.10(f,h) $(0.07)(b,c,d,e)$0.63(h,i,j) Average Shares of Common Stock Outstanding 486.9 480.7 485.8 479.6 (a) Includes a pretax charge of $79 million ($64 million after taxes) for estimated losses on sales of businesses; a $19 million charge before taxes and minority interest ($11 million after taxes and minority interest) for litigation settlements, goodwill impairment charges and losses on early debt extinguishment; a credit of $20 million ($12 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation; and a credit of $17 million before taxes and minority interest ($11 million after taxes and minority interest) for the reversal of restructuring and realignment reserves no longer required. (b) Includes the net income of Weldwood of Canada, Ltd. prior to its sale in the 2004 fourth quarter, and a credit of $5 million after taxes and a charge of $711 million after taxes for the three and twelve months ended December 31, 2004, respectively, relating to the loss on the sale. (c) Includes a $5 million net increase, net of minority interest, in the income tax provision reflecting an adjustment of deferred tax balances and a reduction of valuation reserves for capital loss carryovers. (d) Includes a charge of $144 million before taxes and minority interest ($128 million after taxes and minority interest) for estimated gains/losses of businesses sold or held for sale; a $211 million charge before taxes and minority interest ($124 million after taxes and minority interest) for litigation settlements, goodwill impairment charges, and losses on early debt extinguishment; a pretax credit of $123 million ($76 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation; and a credit of $35 million before taxes and minority interest ($22 million after taxes and minority interest) for the net reversal of restructuring and realignment reserves no longer required. (e) Includes the net income of the Carter Holt Harvey tissue business prior to the sale and the gain on the sale of $267 million ($90 million after taxes and minority interest) in the second quarter of 2004. (f) Includes a $101 million charge before taxes and minority interest ($61 million after taxes and minority interest) for facility closures and organizational restructuring programs, net losses on early debt extinguishment, and additional legal reserves; a pre-tax charge of $21 million ($26 million after taxes) for net losses on sales and impairments of businesses held for sale; and a credit of $23 million before taxes and minority interest ($15 million after taxes and minority interest) for the net reversal of restructuring and realignment reserves no longer required. (g) Includes an increase in interest expense and a decrease in minority interest expense of approximately $22 million and $44 million for the three and twelve months ended December 31, 2003, respectively, related to the adoption of FIN 46R (h) Includes the decrease of $26 million before minority interest ($13 million after minority interest) in the income tax provision related to a settlement of Australian net operating loss carryforward credits. (i) Includes a $298 million charge before taxes and minority interest ($184 million after taxes and minority interest) for facility closures and organizational restructuring programs, early debt extinguishment losses, and additional legal reserves; a pre-tax charge of $32 million ($33 million after taxes) net losses on sales and impairments of businesses held for sale; and a credit of $40 million before taxes and minority interest ($25 million after taxes and minority interest) for the net reversal of restructuring and realignment reserves no longer required. (j) Includes decreases of $110 million in the income tax provision reflecting a revision of estimated tax reserves upon filing of the 2002 Federal income tax return and settlements of prior period tax issues. 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 Twelve Months Ended December 31, December 31, 2004 2003 2004 2003 Earnings Before Special Items $209 $94 $637 $363 Restructuring and other charges (11) (61) (124) (184) Insurance Recoveries 12 - 76 - Reversal of reserves no longer required 11 15 22 25 Net gains (losses) on sales and impairments of businesses held for sale (64) (26) (128) (33) Income tax adjustment - 13 (5) 123 Earnings From Continuing Operations 157 35 478 294 Discontinued Operation 12 16 (513) 21 Cumulative effect of accounting changes - (3) - (13) Net Earnings (Loss) as Reported $169 $48 $(35) $302 Three Months Ended Twelve Months Ended December 31, December 31, Basic Earnings Per Common Share (3): 2004 2003 2004 2003 Earnings Per Share Before Special Items $0.43 $0.20 $1.31 $0.76 Restructuring and other charges (0.02) (0.13) (0.25) (0.39) Insurance Recoveries 0.02 - 0.15 - Reversal of reserves no longer required 0.02 0.03 0.04 0.05 Net gains (losses) on sales and impairments of businesses held for sale (0.13) (0.05) (0.26) (0.06) Income tax adjustment - 0.03 (0.01) 0.26 Earnings Per Common Share From Continuing Operations 0.32 0.08 0.98 0.62 Discontinued Operation 0.03 0.03 (1.05) 0.04 Cumulative effect of accounting changes - (0.01) - (0.03) Basic Earnings (Loss) per Common Share $0.35 $0.10 $(0.07) $0.63 Diluted Earnings Per Common Share (3): Earnings Per Common Share Before Special Items $0.42 $0.19 $1.30 $0.75 Special Items (0.10) (0.12) (0.33) (0.14) Earnings From Continuing Operations 0.32 0.07 0.98 0.61 Discontinued Operation 0.03 0.03 (1.05) 0.04 Cumulative effect of accounting changes - (0.01) - (0.03) Diluted Earnings (Loss) per Common Share $0.35 $0.10 $(0.07) $0.63 Notes: (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. (2) Diluted earnings per common share reflects a recent accounting pronouncement requiring the inclusion of contingently convertible securities in the computation. As required by the pronouncement, all prior periods presented have been restated. (3) Since the basic and diluted earnings per share are computed independently for each period and category, total per share amounts may not equal the sum of the respective categories. International Paper Sales and Earnings by Industry Segment Preliminary and Unaudited (In Millions) Sales by Industry Segment Three Months Twelve Months Ended Ended December 31, December 31, 2004 2003(1) 2004 2003(1) Printing Papers $1,975 $1,800 $7,635 $7,245 Industrial and Consumer Packaging 1,990 1,715 7,470 6,670 Distribution 1,550 1,470 6,065 5,860 Forest Products 570 640 2,395 2,390 Carter Holt Harvey 585 515 2,190 1,820 Other Businesses (2) 260 275 1,120 1,235 Less: Intersegment Sales (343) (281) (1,343) (1,265) $6,587 $6,134 $25,532 $23,955 Earnings by Industry Segment Three Months Twelve Months Ended Ended December 31, December 31, 2004 2003(1) 2004 2003(1) Printing Papers $196 $65 $579 $460 Industrial and Consumer Packaging 170 111 543(3) 451 Distribution 22 18 87 80 Forest Products 176 218 793 720 Carter Holt Harvey 12 8 47(3) 38 Other Businesses (2) 7 9 38 23 Operating Profit 583 429 2,087 1,772 Interest expense, net (175) (187) (743) (772) Minority interest (4) 17 8 59(3) 48 Corporate items, net (156) (144) (469) (466) Restructuring and other charges (19) (101) (211) (298) Insurance recoveries 20 - 123 - Net gains (losses) on sales and impairments of businesses held for sale (79) (21) (135) (32) Reversal of reserves no longer required 17 23 35 40 Earnings from continuing operations before income taxes and minority interest $208 $7 $746 $292 (1) Prior-year industry segment information has been restated to conform with 2004 management structure and to reflect the Carter Holt Harvey tissue business and the Weldwood business as discontinued operations. (2) Includes Arizona Chemical, Chemical Cellulose Pulp (closed in 2003) and businesses identified in our divestiture program. (3) Includes a 2004 second quarter estimated loss on the sale of Food Pack S.A. of $9 million before taxes, of which $4 million is in the Packaging segment, $3 million is in the Carter Holt Harvey segment and $2 million is in Minority interest. (4) 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, extraordinary items, and cumulative effect of accounting changes. International Paper Sales Volumes by Product (1) (2) Preliminary and Unaudited International Paper Consolidated (excluding Carter Holt Harvey) Three Months Ended Twelve Months Ended December 31, December 31, 2004 2003 2004 2003 Printing Papers (In thousands of short tons) Brazil Uncoated Papers 116 114 461 447 Europe & Russia Uncoated Papers 373 342 1,409 1,352 U.S. Uncoated Papers and Bristols 1,115 1,107 4,570 4,439 Uncoated Papers and Bristols 1,604 1,563 6,440 6,238 Coated Papers 532 532 2,173 2,113 Market Pulp 374 381 1,422 1,379 Packaging (In thousands of short tons) U.S. Container (Boxes) 721 548 2,668 2,204 European Container (Boxes) 282 274 1,049 1,031 Other Industrial and Consumer Packaging 308 290 1,222 1,148 Industrial and Consumer Packaging 1,311 1,112 4,939 4,383 Containerboard 461 504 2,090 1,946 Bleached Packaging Board 367 351 1,495 1,348 Kraft 137 151 605 606 Forest Products (In millions) Panels (sq. ft. 3/8" - basis) 362 375 1,563 1,580 Lumber (board feet) 606 589 2,456 2,345 Particleboard (sq. ft. 3/4" - basis) - - - - Carter Holt Harvey (3) Three Months Ended Twelve Months Ended December 31, December 31, 2004 2003 2004 2003 Printing Papers (In thousands of short tons) Market Pulp 157 155 568 499 Packaging (In thousands of short tons) Containerboard 123 107 459 361 Bleached Packaging Board 24 19 83 84 Industrial and Consumer Packaging 34 38 147 153 Forest Products (In millions) Panels (sq. ft. 3/8" - basis) 43 44 183 179 Lumber (board feet) 119 128 497 503 MDF and Particleboard (sq. ft. 3/4" - basis) 142 141 580 582 (1) Includes third party and inter-segment sales. (2) Sales volumes for divested businesses are included through the date of sale except for discontinued operations. (3) Includes 100 percent of volumes sold. International Paper Supplemental Financial Data Preliminary and Unaudited Financial Data (In millions) Three Months Ended Twelve Months Ended December 31, December 31, 2004 2003 2004 2003 Depreciation, amortization and cost of timber harvested $411 $390 $1,565 $1,538 Investment in capital projects (1) $516 $463 $1,328 $1,166 (1) Includes $19 million and $66 million of spending for businesses held for sale for the three months and twelve months ended December 31, 2004, respectively. Includes $31 million and $72 million of spending for businesses held for sale for the three months and twelve months ended December 31, 2003, respectively. INTERNATIONAL PAPER COMPANY Consolidated Balance Sheet Preliminary and Unaudited (In Millions) December 31, December 31, 2004 2003 Assets Current Assets Cash and temporary investments $ 2,596 $ 2,363 Accounts and notes receivable, net 2,982 2,765 Inventories 2,653 2,767 Assets of businesses held for sale 383 2,104 Other current assets 869 1,097 Total Current Assets 9,483 11,096 Plants, Properties and Equipment, net 13,333 13,260 Forestlands 3,936 3,979 Investments 679 678 Goodwill 4,988 4,793 Deferred Charges and Other Assets 1,859 1,719 Total Assets $34,278 $35,525 Liabilities and Common Shareholders' Equity Current Liabilities Notes payable and current maturities of long-term debt $506 $ 2,087 Liabilities of businesses held for sale 110 645 Accounts payable and accrued liabilities 4,317 4,538 Total Current Liabilities 4,933 7,270 Long-Term Debt 14,131 13,450 Deferred Income Taxes 1,700 1,387 Other Liabilities 3,712 3,559 Minority Interest 1,548 1,622 Common Shareholders' Equity Invested capital 5,692 5,155 Retained earnings 2,562 3,082 Total Common Shareholders' Equity 8,254 8,237 Total Liabilities and Common Shareholders' Equity $34,278 $35,525 Note: December 31, 2003 balances have been restated to include the assets and liabilities of the Carter Holt Harvey tissue business and Weldwood of Canada as businesses held for sale.