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International Paper Reports Q1 Loss, xpedx shows nice profit

Friday, May 05, 2006

Press release from the issuing company

STAMFORD, Conn., May 4 -- International Paper today reported a preliminary first-quarter 2006 net loss of $1.2 billion ($2.52 per share) compared with a net loss of $77 million ($0.16 per share) in the fourth quarter of 2005 and net earnings of $77 million ($0.16 per share) in the 2005 first quarter. Amounts in all periods include special items as well as charges relating to the classification of the company's Coated and Supercalendered Papers and Kraft Papers businesses as discontinued operations. Earnings from continuing operations and before special items in the first quarter of 2006 were $91 million ($0.19 per share), compared with $43 million ($0.09 per share) in the fourth quarter of 2005 and $165 million ($0.34 per share) in the first quarter of 2005. First-quarter 2006 net sales of $5.7 billion were level with fourth quarter 2005. Sales in the first quarter of 2005 were $5.6 billion. Operating profits of $456 million for the 2006 first quarter were higher than fourth-quarter 2005 operating profits of $371 million, because of higher price realizations, stronger volumes, lower manufacturing costs, sales mix improvements, and a drop in some raw material costs, primarily energy and wood. "Higher price realizations, particularly in containerboard, boxes and uncoated papers, and strong mill performance and cost control are the biggest drivers of our earnings improvement from last quarter," said IP Chairman and Chief Executive Officer John Faraci. "We also experienced far less market downtime in the quarter than in last quarter. Energy and raw material costs declined some, but are still about $0.13 per share higher than at this time last year." "I'm also pleased with the progress of IP's transformation strategy. We recently announced sale agreements for 5.7 million acres of U.S. forestland for approximately $6.6 billion, the second significant step in the plan. We now estimate that total after-tax proceeds from the transformation could exceed $11 billion. We are maintaining our focus on improving our key platform operations, and our strategic alternatives reviews are also on track," he said. Commenting on the second quarter of 2006, Faraci said, "We expect the second quarter to be somewhat seasonally stronger than the first quarter, with average prices improving. We also anticipate continued progress in operations, as we move forward with our transformation strategy. Input costs remain high, especially for oil and transportation." DISCONTINUED OPERATIONS During the 2006 first quarter, in connection with the evaluation of strategic options for certain businesses under the company's previously announced transformation plan, management determined that the future sales of the Coated and Supercalendered Papers and Kraft Papers businesses were in the best interests of the company's shareowners. Accordingly, a pre-tax charge of $1.4 billion ($1.3 billion after taxes, or $2.68 per share) was recorded to reduce the carrying value of the net assets of these businesses, including goodwill, to their estimated fair values based on estimated sales values less costs to sell. As a result, this 2006 first quarter charge and the operating results of these businesses for all periods are presented as discontinued operations. SEGMENT INFORMATION First-quarter 2006 segment operating profits and business trends compared with the fourth quarter of 2005 are as follows: First-quarter operating profits for Printing Papers were $120 million compared with fourth-quarter operating profits of $60 million, bolstered by higher average price realizations for uncoated papers and pulp, as well as volume increases in U.S. and European uncoated papers. Industrial Packaging operating profits for the first quarter were $38 million compared with fourth-quarter operating profits of $5 million. Decreases in containerboard volumes were more than offset by much higher average price realizations in both containerboard and U.S. container businesses. Consumer Packaging operating profits were $35 million in the first quarter, up from $29 million in the fourth quarter, influenced by increased volume and higher price realizations in coated paperboard. The company's distribution business, xpedx, reported operating profits of $27 million for the first quarter compared with operating profits in the fourth quarter of $25 million, due to higher margins. First-quarter Forest Products operating profits declined to $226 million from fourth-quarter earnings of $257 million principally as a result of lower forestland sales. Earnings from forestland and real estate sales were $151 million in first quarter 2006 versus $182 million in the prior quarter. Net corporate expenses totaled $174 million for the quarter, up from $165 million in the 2005 fourth quarter because of higher pension expense in 2006, partially offset by lower inventory-related costs. EFFECTIVE TAX RATE The effective tax rate from continuing operations and before special items for the first quarter of 2006 was 30 percent, compared with a tax rate of 14 percent in the 2005 fourth quarter and 19 percent in the first quarter of 2005. The 2006 first-quarter rate included $5 million of credits related to state tax audit settlements and non-U.S. tax credits. EFFECTS OF SPECIAL ITEMS Special items in the first quarter of 2006 consisted of a pre-tax charge of $46 million ($28 million after taxes) for restructuring and other charges, including a pre-tax charge of $18 million ($11 million after taxes) charge for adjustments to legal reserves; a pre-tax credit of $19 million ($12 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation; a $3 million pre-tax charge ($2 million after taxes) to adjust losses of businesses held for sale; and a charge of $6 million related to tax adjustments. The net after-tax effect of these special items was an expense of $0.05 per share. Special items in the fourth quarter included a pretax charge of $230 million ($141 million after taxes) for restructuring charges and other charges, a pretax charge of $46 million ($30 million after taxes) for adjustments of estimated losses on businesses sold or held for sale, a $35 million pretax credit ($21 million after taxes) for insurance recoveries related to the hardboard siding and roofing litigation, and a $1 million credit for changes to previously provided reserves. In addition, an $11 million net income tax benefit was recorded in the quarter, reflecting a $74 million favorable adjustment from the finalization of the company's 1997 through 2000 U.S. federal income tax audit, a $43 million provision for deferred taxes related to earnings being repatriated under the American Jobs Creation Act of 2004, and $20 million of other tax charges. The net after-tax effect of all of these special items was a charge of $0.28 per share. Special items in the first quarter of 2005 included a charge of $79 million ($52 million after taxes) for estimated losses on businesses held for sale, reflecting charges to reduce the net assets of the Industrial Papers and Fine Papers businesses to their estimated realizable value, and a $24 million charge ($15 million after taxes) for losses on early extinguishment of high- cost debt. The net after-tax effect of these special items was an expense of $0.14 per share.

 

 

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