Memphis, Tenn. – International Paper reported preliminary full-year 2009 net earnings attributable to common shareholders totaling $663 million ($1.55 per share) compared with a loss of $1.3 billion ($3.05 per share) in 2008. In the fourth quarter of 2009, the company reported a net loss of $101 million ($0.24 per share) compared with a net loss of $1.8 billion ($4.25 per share) in the fourth quarter of 2008. Amounts in all periods include special items. Full-year 2008 results of operations include the acquisition of Weyerhaeuser Company's packaging business since August 2008.

Full-year 2009 earnings from continuing operations and before special items were $378 million ($0.88 per share) compared with $855 million ($2.01 per share) in 2008. Earnings from continuing operations and before special items in the 2009 fourth quarter totaled $101 million ($0.24 per share), compared with $89 million ($0.21 per share) in the fourth quarter of 2008.

Quarterly net sales were $6.0 billion compared with $6.5 billion in the fourth quarter of 2008. Annual sales totaled $23.4 billion compared with $24.8 billion in 2008.

Operating profits in the fourth quarter were a loss of $147 million, including special items, down from profits of $132 million in the fourth quarter of 2008. Full-year 2009 operating profits were $2.4 billion compared with $1.4 billion in 2008.

During 2009, International Paper generated $4.1 billion of free cash flow (cash provided by operations less capital expenditures), compared with $1.7 billion in 2008, reflecting reduced capital spending and continued focus on working capital management and overhead spending control, as well as $1.7 billion received from alternative fuel mixture credits. The company also repaid $3.1 billion of debt during 2009. At year end, the company had $1.9 billion in cash and $2.5 billion in committed liquidity facilities.

"Despite all the uncertainties we faced at the beginning of 2009 and throughout the year, plus the challenge of rising input costs in the fourth quarter, International Paper overall has delivered solid results," said John Faraci, chairman and chief executive officer. "Our focus on reducing overhead costs, matching our supply with our customer demand and realizing Industrial Packaging synergies gave us the ability to generate record free cash flow and pay down a significant amount of debt while positioning ourselves for 2010."

Segment information

To measure the performance of the company's business segments from quarter to quarter without variations caused by special items, management focuses on business segment operating profits excluding those items. Fourth-quarter 2009 segment operating profits and business trends, excluding special items, compared with the prior quarter are as follows:

Industrial Packaging had an operating profit of $84 million compared to an operating profit of $214 million in the third quarter of 2009 due to higher-cost manufacturing operations, higher freight, unfavorable input costs and higher annual maintenance outages. Results were also negatively impacted by lower prices and lower margins from increased export sales.

Printing Papers had an operating profit of $139 million compared to an operating profit of $138 million in the third quarter. While operations were solid, lower annual maintenance outage costs were largely offset by higher input costs and lower margins from increased export sales. Pulp prices increased but paper prices were lower before starting to see improvement late in the quarter.

Consumer Packaging had an operating profit of $49 million compared to an operating profit of $68 million in the third quarter. In Coated Paperboard, results were negatively impacted by higher annual outages and operations costs. Improved operations in Shorewood Packaging and Foodservice were offset by lower volume and unfavorable mix.

The company's distribution business, xpedx, reported operating profits of $31 million, higher than the $21 million posted in the third quarter of 2009 reflecting a $17 million favorable inventory valuation adjustment. Volumes improved and while overhead reduction efforts continued, higher costs were incurred for commissions, advertising and freight.

Forest Products operating profits totaled $18 million, up from $2 million in the prior quarter due to two land sales. Our previously announced agreement to sell approximately 143,000 acres has expired in accordance with its terms and will not be completed. The company has nearly 200,000 acres of land remaining for sale, primarily composed of smaller retail and larger transitional tracts.

Net corporate expenses totaled $40 million for the 2009 fourth quarter compared with $46 million in the 2009 third quarter and $21 million in the fourth quarter of 2008. The increase from the 2008 fourth quarter reflects higher pension expense in 2009.

Effective tax rate

The effective tax rate from continuing operations and before special items for the fourth quarter of 2009 was 22 percent, compared with 30 percent in the third quarter of 2009. The lower fourth-quarter rate is a result of non-U.S. tax incentives and adjustments of tax estimates upon the filing of the company's 2008 non-U.S. income tax returns. The 2009 full-year tax rate was 30 percent compared with 31.5 percent for the 2008 full year.

Effects of special items

Special items in the fourth quarter of 2009 included a $516 million pre-tax credit ($469 million after taxes) for alternative fuel mixture credits earned under 2007 legislation enacted to provide a tax credit for companies that use alternative fuel mixtures to produce renewable energy to operate their businesses, a $15 million pre-tax charge ($10 million after taxes) for costs associated with the Industrial Packaging business integration, a pre-tax charge of $1.0 billion ($638 million after taxes) for restructuring and other charges, and an $11 million pre-tax charge ($8 million after taxes) for net losses on sales and impairments of businesses. Restructuring and other charges included a pre-tax charge of $861 million ($525 million after taxes) for shutdown costs for the closures of the Albany, Franklin and Pineville mills announced in the fourth quarter of 2009; a pre-tax charge of $82 million ($50 million after taxes) for the shutdown of a paper machine at the Valliant mill; a pre-tax charge of $58 million ($35 million after taxes) for early debt extinguishment costs; a pre-tax charge of $23 million ($15 million after taxes) for severance and benefit costs associated with the company's 2008 overhead reduction program; a $9 million charge, before and after taxes, for severance and other costs associated with the planned closure of the Etienne mill in France; and pre-tax charges of $7 million ($4 million after taxes) for costs associated with the reorganizations of the company's Shorewood and xpedx operations. Additionally, a $15 million income tax expense was recorded to write off a deferred tax asset for a recycling credit in the state of Louisiana. The net after-tax effect of these special items is a loss of $202 million, or $0.48 per share.

Special items in the third quarter of 2009 included a $525 million pre-tax credit ($320 million after taxes) for alternative fuel mixture credits, an $18 million pre-tax charge ($11 million after taxes) for costs associated with the Industrial Packaging business integration, and a pre-tax charge of $151 million ($95 million after taxes) for restructuring and other charges. Restructuring and other charges included a pre-tax charge of $102 million ($62 million after taxes) for early debt extinguishment costs, a $39 million pre-tax charge ($24 million after taxes) for severance and benefits costs associated with the company's 2008 overhead reduction program, and a $10 million pre-tax charge ($9 million after taxes) for facility closure costs.

Special items in the fourth quarter of 2008 included a pre-tax charge of $218 million ($132 million after taxes) for restructuring and other charges, a $1.8 billion charge, before and after taxes, for impairments of goodwill for the company's U.S. Printing Papers and U.S. and European Coated Paperboard businesses, a pre-tax charge of $26 million ($16 million after taxes) for costs associated with the Industrial Packaging business integration, and a $40 million after-tax benefit for a reduction in deferred taxes related to the restructuring of the company's international operations. Restructuring and other charges included a $123 million pre-tax charge ($75 million after taxes) associated with the closure of the Louisiana mill, a $30 million pre-tax charge ($18 million after taxes) for the shutdown of a paper machine at the Franklin mill, a $53 million pre-tax charge ($32 million after taxes) for costs associated with the company's 2008 overhead reduction program, an $8 million pre-tax charge ($5 million after taxes) related to the closure of the company's Ace Packaging business, and a $4 million pre-tax charge ($2 million after taxes) associated with the reorganization of Shorewood operations.