International Paper Reports Q3, xpedx makes $24 Million
Press release from the issuing company
STAMFORD, Conn., Oct. 27 -- International Paper today reported third-quarter 2003 net earnings of $122 million ($0.25 per share), compared with net earnings of $145 million ($0.30 per share) in the third quarter of 2002 and net earnings of $88 million ($0.19 per share) in the second quarter of 2003. Amounts in all periods include the effects of special items.
Before special items, earnings for the third quarter of 2003 were $117 million ($0.24 per share), compared with $153 million ($0.32 per share) in the 2002 third quarter and $89 million ($0.19 per share) in the second quarter of 2003.
Net sales for the third quarter totaled $6.4 billion, the same as the third quarter of 2002 and up from $6.2 billion in the second quarter of 2003.
Third-quarter 2003 earnings included a $15 million reduction in the provision for income taxes ($0.03 per share) reflecting a reduction in the full year estimated effective tax rate, excluding special items, to 25 percent from the 28 percent estimate in the 2003 second quarter. The reduction in the tax rate projection is due to a higher proportion of taxable income in lower tax rate jurisdictions.
"Despite continuing difficult market conditions and declining prices, our ongoing internal efforts resulted in improved earnings versus the second quarter," said John Dillon, International Paper chairman and chief executive officer. "While volumes were seasonally higher, underlying demand is still weak and energy and wood costs remain high. We continue to largely offset these external factors by focusing on our internal improvement programs, which are gaining significant momentum. Our operational performance has improved throughout the year, and we are lowering our overhead costs, which will position us well when the economy improves."
Commenting on the company outlook, Dillon said, "Looking at the fourth quarter, the external environment continues to look tough with seasonally lower demand and continued higher energy and wood prices, which is why we remain intensely focused on the internal factors we can control. More importantly, as we look into 2004, there are signs of a general improvement in the economy, which will benefit our business over the long term."
Effects of Special Items
Special items in the 2003 third quarter included a pre-tax charge of $93 million ($59 million after taxes), including $33 million for facility closure costs, $38 million for severance costs associated with organizational restructuring programs, $8 million for early debt retirement costs, and $14 million for additional legal reserves; a pre-tax charge of $1 million ($1 million after taxes) to adjust costs of businesses previously sold; and a pre-tax credit of $8 million ($5 million after taxes) for the reversal of restructuring and realignment reserves no longer required. In addition, a decrease in the income tax provision of $60 million was recorded reflecting a favorable revision of estimated tax reserves upon filing of the 2002 Federal income tax return and increased research and development credits. The net after-tax effect of these special items was an increase of $0.01 per share.
Special items in the 2002 third quarter consisted of a pre-tax charge of $10 million ($4 million after taxes and minority interest) for business realignment severance costs, a pre-tax charge of $9 million ($5 million after taxes and minority interest) for asset impairment charges, and a net $3 million gain before taxes ($1 million after taxes) related to adjustments of gains (losses) of businesses previously sold. The net after-tax effect of these special items was a decrease of $0.02 per share.
Special items in the second quarter of 2003 included charges of $81 million before taxes ($50 million after taxes), consisting of $43 million for facility shut-down costs, and $38 million for severance costs associated with organizational restructuring programs, early debt extinguishment costs, and legal reserves. Special items also included a $10 million pre-tax adjustment ($6 million after taxes) for previous divestitures and a $9 million pre-tax reserve reversal ($5 million after taxes and minority interest). In addition, a $50 million tax provision reduction was recorded in the quarter reflecting settlements of prior period tax issues. The net after-tax effect of these special items was $0.00 per share.
A reconciliation of earnings before special items to net earnings (loss), including information regarding the cumulative effect of accounting changes and special items and a statement relating to the use of these non-GAAP measures, is presented in a table in this press release.
While operating profits of $489 million for the third quarter of 2003 were above second quarter totals of $448 million, operating profits were down compared with $523 million the third quarter of 2002 largely due to higher energy and wood costs and lower volumes and average pricing in paper and packaging, partially offset by improved operational performance, overhead cost savings and better lumber and plywood pricing.
Third-quarter 2003 segment operating profits and business trends compared with the second quarter were as follows:
Third-quarter operating profits for Printing Papers were $120 million compared with second-quarter operating profits of $143 million as a result of lower average prices, which were partially offset by seasonally higher volumes and favorable mill operations. In addition, the mills took more downtime in the quarter in order to balance production with customer demand.
Industrial and Consumer Packaging operating profits were $107 million in the third quarter, compared with $121 million in the second quarter due to lower average pricing in Industrial Packaging, despite higher box volumes and improved results in the Consumer Packaging businesses. Improved mill operations and lower overhead costs were offset by increased downtime taken to balance production with customer demand, particularly in Containerboard.
The company's distribution business, xpedx, reported operating profits of $24 million for the third quarter compared with operating profits in the second quarter of $22 million. The increase was largely due to seasonally higher sales in packaging and lower overhead costs.
Third-quarter Forest Products operating profits of $201 million were up from $143 million in the second quarter primarily due to much higher lumber and plywood prices and slightly higher harvest volumes. Earnings from timberland sales were relatively flat with the second quarter.
Operating profits at Carter Holt Harvey, International Paper's 50.5 percent owned subsidiary in New Zealand, were $19 million in the third quarter, up from $9 million in the second quarter, reflecting the resolution of the Kinleith Mill labor strike.
Corporate expenses, net, increased to $138 million in the third quarter primarily due to higher pension expense due to an annual review of demographic assumptions and benefit-related expenses. The increase in corporate expenses from $71 million in the third quarter of 2002 also reflected the higher pension and benefit-related expenses plus supply chain initiative costs and lower foreign exchange gains.
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