Press Release Details

International Paper Reports Third Quarter 2019 Results

10/31/2019

MEMPHIS, Tenn., Oct. 31, 2019 /PRNewswire/ -- International Paper (NYSE: IP) today reported third quarter 2019 financial results.

International Paper logo. (PRNewsfoto/International Paper)

HIGHLIGHTS

  • Third quarter net earnings attributable to International Paper of $344 million ($0.87 per diluted share) compared with $292 million ($0.73 per diluted share) in the second quarter of 2019 and $562 million ($1.37 per diluted share) in the third quarter of 2018
  • Third quarter adjusted operating earnings* (non-GAAP) of $431 million ($1.09 per diluted share) compared with $460 million ($1.15 per diluted share) in the second quarter of 2019 and $641 million ($1.56 per diluted share) in the third quarter of 2018
  • Third quarter cash provided by operations of $882 million and year-to-date of $2.7 billion compared with $2.4 billion year-to-date in the same period of 2018
  • Strong operating performance and cost management
  • Third quarter debt repayment of $383 million
  • Third quarter share repurchases of $74 million, bringing the trailing 12 month total to $685 million

"International Paper delivered another quarter of solid earnings and strong cash generation," said Mark Sutton, Chairman and Chief Executive Officer. "We continue to demonstrate the strength and resilience of our cash engine and our ability to perform well in a challenging global environment. Looking ahead to the fourth quarter, we will continue to maximize performance by optimizing our full value chain from fiber to the customer."

 

Diluted Net EPS Attributable to International Paper Shareholders and Adjusted Operating EPS




Third
Quarter
2019


Second
Quarter
2019


Third
Quarter
2018

Net Earnings


$

0.87


$

0.73


$

1.37

 Less – Discontinued Operations (Gain) Loss




Net Earnings (Loss) from Continuing Operations


0.87


0.73


1.37

Add Back – Non-Operating Pension Expense


0.02


0.01


0.05

Add Back – Net Special Items Expense (Income)


0.20


0.41


0.14

Adjusted Operating Earnings*


$

1.09


$

1.15


$

1.56



*

Adjusted operating earnings (non-GAAP) is defined as net earnings from continuing operations attributable to International Paper Company (GAAP) excluding special items and non-operating pension expense. 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 consolidated operating results. For discussion of special items, net and non-operating pension expense, see the footnotes to the Consolidated Statement of Operations.

         

Key Financial Measures


(In millions)


Third
Quarter
2019


Second
Quarter
2019


Third
Quarter
2018

Net Sales


$

5,568


$

5,667


$

5,901

Net Earnings Attributable to International Paper


344


292


562

Business Segment Operating Profit


655


472


738

Adjusted Operating Earnings


431


460


641

Cash Provided By (Used For) Operations


882


1,067


941

Free Cash Flow


597


732


584

 

SEGMENT INFORMATION
Business segment operating profits are used by International Paper's management to measure the earnings performance of its businesses. Third quarter 2019 business segment net sales and operating profits compared with the second quarter of 2019 and the third quarter of 2018 are as follows:

Business Segment Results


(In millions)


Third
Quarter
2019


Second
Quarter
2019


Third
Quarter
2018

Net Sales by Business Segment







Industrial Packaging


$

3,820


$

3,864


$

4,034

Global Cellulose Fibers


624


661


714

Printing Papers


1,071


1,088


1,102

Corporate and Inter-segment Sales


53


54


51

Net Sales


$

5,568


$

5,667


$

5,901

Operating Profit by Business Segment







Industrial Packaging


$

510


$

507


$

472

Global Cellulose Fibers


(3)


(2)


83

Printing Papers


148


(33)


183

Total Business Segment Operating Profit


$

655


$

472


$

738

 

Industrial Packaging operating profits in the third quarter of 2019 were $510 million ($535 million excluding special items) compared with $507 million ($515 million excluding special items) in the second quarter of 2019. In North America, earnings increased due to improved demand for boxes and export containerboard, lower planned maintenance outage expenses and lower input costs, primarily for recycled containerboard and wood. Earnings were negatively impacted by lower export containerboard prices and seasonally higher manufacturing operations. In Europe, earnings improved driven by higher average margins and favorable manufacturing operations which benefited from continued improved performance at the Madrid, Spain mill, partially offset by seasonally lower volumes, primarily in Morocco.

Global Cellulose Fibers operating profits in the third quarter of 2019 were $(3) million ($4 million excluding special items) compared with $(2) million ($0 million excluding special items) in the second quarter of 2019. Lower planned maintenance outage expenses and input costs, primarily for energy, chemicals and wood were mostly offset by lower average sales prices for fluff and market pulp and increased economic downtime.

Printing Papers operating profits in the third quarter of 2019 were $148 million ($162 million excluding special items) versus $(33) million ($114 million excluding special items) in the second quarter of 2019. Earnings in both periods were negatively affected by the net impairment of our India Papers business, included as a special item below. In North America, earnings increased due to improved manufacturing operations and lower planned maintenance outage expenses.  Average sales margins were slightly lower, primarily due to an unfavorable geographic mix. In Brazil, earnings increased due to seasonally stronger demand and a favorable geographic mix, partially offset by unfavorable export average sales prices. In Europe and Russia, earnings increased primarily due to lower planned maintenance outages in both regions.

EQUITY METHOD INVESTMENTS
Ilim joint venture equity earnings were $18 million in the third quarter of 2019 compared with $67 million in the second quarter of 2019. Operationally, earnings decreased driven by lower export sales prices for hardwood pulp, softwood pulp and containerboard to China and other export markets. Sales volumes also decreased due to planned outages at the Bratsk, Koryazhma and Ust-Ilimsk mills. The Company recognized a non-cash after-tax foreign exchange loss of $4 million in the third quarter of 2019 ($0.01 per diluted share), compared with a gain of $7 million in the second quarter of 2019 ($0.02 per diluted share), primarily due to Ilim's U.S. dollar denominated net debt.

Graphic Packaging equity earnings on our 21.6% ownership position were $10 million in the third quarter of 2019, compared with $14 million in the second quarter of 2019.

CORPORATE EXPENSES
Corporate expenses were $21 million for the third quarter of 2019, compared with $3 million in the second quarter of 2019.

EFFECTIVE TAX RATE
The reported effective tax rate for the third quarter of 2019 was 30%, which reflects the impact of certain non-deductible special items noted below, and adjustments to the U.S. Federal tax provision after the finalization of the 2018 tax return, compared to a 2019 second quarter reported effective tax rate of 38%. The higher reported effective tax rate in the second quarter reflects the impact of certain non-deductible special items and other tax expense noted below as special items.

Excluding special items and non-operating pension expense, the operational effective tax rate for the third quarter of 2019 was 27%, compared with 25% for the second quarter of 2019. The higher effective tax rate in the third quarter is primarily due to the U.S. taxation of foreign earnings and related adjustments to the U.S. Federal tax provision after the finalization of the 2018 tax return.

EFFECTS OF SPECIAL ITEMS
Special items in the third quarter of 2019 amount to a net after-tax charge of $80 million ($0.20 per diluted share) compared with $162 million ($0.41 per diluted share) in the second quarter of 2019 and $60 million ($0.14 per diluted share) in the third quarter of 2018.  Special items in all periods include the following charges (gains):



Third Quarter 2019


Second Quarter 2019


Third Quarter 2018

(In millions)


Before Tax


After Tax


Before Tax


After Tax


Before Tax


After Tax

 Restructuring and other charges, net:













Overhead cost reduction initiative


$

21


$

16


$


$


$


$

Total restructuring and other charges, net


21


16





Italian antitrust fine


32


32





Litigation reserves


22


17





Gain on sale of previously closed Oregon mill site


(9)


(7)





Multi-employer pension plan exit liability adjustment


(7)


(6)





India impairment


6


6


145


143



Environmental remediation reserve adjustment


15


11




9


7

Brazil Packaging impairment






122


81

Abandoned property removal


13


10


11


8


6


4

Other


1


1


2


2


5


4

Tax benefit of Tax Cuts and Jobs Act







(36)

Other tax expense, net





9



Total special items, net


$

94


$

80


$

158


$

162


$

142


$

60

 

EARNINGS WEBCAST
The company will host a webcast today to discuss earnings and current market conditions, beginning at 10 a.m. ET (9 a.m. CT). All interested parties are invited to listen to the webcast via the company's website at internationalpaper.com by clicking on the Performance tab and going to the Presentations and Events/Webcasts page. A replay of the webcast will also be on the website beginning approximately two hours after the call. Parties who wish to participate in the webcast via teleconference may dial +1 (706) 679-8242 or, within the U.S. only, (877) 316-2541, and ask to be connected to the International Paper third quarter earnings call. The conference ID number is 4985646. Participants should call in no later than 9:45 a.m. ET (8:45 a.m. CT).  An audio-only replay will be available for ninety days following the call.  To access the replay, dial +1 (404) 537-3406 or, within the U.S. only, (855) 859-2056 or (800) 585-8367, and when prompted for the conference ID, enter 4985646.

About International Paper
International Paper (NYSE: IP) is a leading global producer of renewable fiber-based packaging, pulp and paper products with manufacturing operations in North America, Latin America, Europe, North Africa and Russia. We produce corrugated packaging products that protect and promote goods, and enable world-wide commerce; pulp for diapers, tissue and other personal hygiene products that promote health and wellness; and papers that facilitate education and communication. We are headquartered in Memphis, Tenn., employ more than 50,000 colleagues and serve more than 25,000 customers in 150 countries. Net sales for 2018 were $23 billion. For more information about International Paper, our products and global citizenship efforts, please visit internationalpaper.com.

Certain statements in this press release may be considered forward-looking statements. Words such as "expects", "anticipates", "believes", "estimates" and similar expressions identify forward-looking statements. These statements reflect management's current views and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to: (i) the level of our indebtedness and changes in interest rates; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and political changes, including but not limited to the impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation, changes in tax laws and pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with existing and new environmental and other governmental regulations and to actual or potential litigation; (v) whether we experience a material disruption at one of our manufacturing facilities; (vi) risks inherent in conducting business through joint ventures; (vii) our ability to achieve the benefits we expect from strategic acquisitions, divestitures, restructurings and capital investments; and (viii) other factors that can be found in International Paper's press releases and U.S. Securities and Exchange Commission (the "SEC") filings. 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 SEC filings. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

INTERNATIONAL PAPER COMPANY
Consolidated Statement of Operations
Preliminary and Unaudited
(In millions, except per share amounts)

















Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,





2019


2018


2019


2019


2018



Net Sales


$      5,568


$   5,901


$                           5,667


$ 16,878


$   17,355



Costs and Expenses













Cost of products sold


3,772

(a)

3,887

(g)

3,901

(a)

11,602

(a)

11,757

(g)


Selling and administrative expenses


387


405


402


1,202


1,277

(m)


Depreciation, amortization and cost of timber harvested    


327

(b)

335

(h)

321

(b)

963

(b)

990

(h)


Distribution expenses


395


397


384


1,168


1,166



Taxes other than payroll and income taxes


42


44


43


128


130



Restructuring and other charges, net


21

(c)



21

(c)

48

(n)


Net (gains) losses on sales and impairments of businesses


8

(d)

122

(i)

152

(d)

153

(d)

122

(i)


Antitrust fines


32

(e)



32

(e)



Interest expense, net


123


133


122

(k)

378

(k)

401



Non-operating pension expense


9


25


8


27


65



Earnings (Loss) From Continuing Operations Before Income Taxes
and Equity Earnings


452


553


334


1,204


1,399



Income tax provision (benefit)


137


83

(j)

128

(l)

371

(l)

302

(j)


Equity earnings (loss), net of taxes


27


92


80


221


257



Earnings (Loss) From Continuing Operations


342


562


286


1,054


1,354



Discontinued operations, net of taxes






345

(o)


Net Earnings (Loss)


342


562


286


1,054


1,699



Less: Net earnings (loss) attributable to noncontrolling interests


(2)

(f)


(6)

(f)

(6)

(f)

3



Net Earnings (Loss) Attributable to International Paper Company


$         344


$      562


$                              292


$   1,060


$     1,696



Basic Earnings Per Common Share Attributable to International
Paper Common Shareholders













Earnings (loss) from continuing operations


$        0.88


$     1.38


$                             0.74


$      2.67


$       3.28



Discontinued operations






0.84



Net earnings (loss)


$        0.88


$     1.38


$                             0.74


$      2.67


$       4.12



Diluted Earnings Per Common Share Attributable to International
Paper Common Shareholders













Earnings (loss) from continuing operations


$        0.87


$     1.37


$                             0.73


$      2.65


$       3.25



Discontinued operations






0.83



Net earnings (loss)


$        0.87


$     1.37


$                             0.73


$      2.65


$       4.08



Average Shares of Common Stock Outstanding - Diluted


395.4


411.4


398.2


399.6


416.3















The accompanying notes are an integral part of this consolidated statement of operations.










(a)

Includes pre-tax charges of $13 million ($10 million after taxes), $11 million ($8 million after taxes) and $35 million ($26 million after taxes) for three months ended September 30, 2019 and June 30, 2019 and the nine months ended September 30, 2019, respectively, for the removal of abandoned property at our mills, pre-tax income of $7 million ($6 million after taxes) and a pre-tax charge of $9 million ($6 million after taxes) for the three months and nine months ended September 30, 2019, respectively, for costs associated with a multi-employer pension plan exit liability, a pre-tax gain of $9 million ($7 million after taxes) for the three months and nine months ended September 30, 2019 for the sale of a previously closed Oregon mill site, a pre-tax charge of $22 million ($17 million after taxes) for the three months and nine months ended September 30, 2019 for litigation reserves and a pre-tax charge of $15 million ($11 million after taxes) for the three months and nine months ended September 30, 2019 for an environmental remediation reserve adjustment.   



(b)

Includes charges of $1 million (before and after taxes) for each of the three months ended September 30, 2019 and June 30, 2019 and $3 million (before and after taxes) for the nine months ended September 30, 2019 for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production.



(c)

Includes a pre-tax charge of $21 million ($16 million after taxes) for the three months and nine months ended September 30, 2019 related to an overhead cost reduction initiative.



(d)

Includes a loss of $2 million (before and after taxes), $95 million (before and after taxes), and $97 million (before and after taxes) for the three months ended September 30, 2019 and June 30, 2019 and the nine months ended September 30, 2019, respectively, related to the foreign currency cumulative translation adjustment resulting from the classification of the net assets of our India Papers business as held for sale, a loss of $6 million (before and after taxes), a pre-tax loss of $57 million ($55 million after taxes) and a pre-tax loss of $63 million ($55 million after taxes) for the three months ended September 30, 2019 and June 30, 2019 and the nine months ended September 30, 2019, respectively, for the impairment of the net assets of our India Papers business and a pre-tax gain of $7 million ($6 million after taxes) for the nine months ended September 30, 2019 related to the sale of a box plant in our EMEA Packaging business.



(e)

Includes a charge of $32 million (before and after taxes) for the three months and nine months ended September 30, 2019 related to an Italian antitrust fine.



(f)

Includes the allocation of loss to noncontrolling interest of $2 million (before and after taxes), $7 million (before and after taxes) and $9 million (before and after taxes) for the three months ended September 30, 2019 and June 30, 2019 and the nine months ended September 30, 2019, respectively, associated with the impairment of the net assets of our India Papers business.



(g)

Includes pre-tax charges of $6 million ($4 million after taxes) and $24 million ($18 million after taxes) for the three months and nine months ended September 30, 2018, respectively, for the removal of abandoned property at our mills, a pre-tax charge of $9 million ($7 million after taxes) for the three months and nine months ended September 30, 2018 for an environmental remediation reserve adjustment and a pre-tax charge of $9 million ($7 million after taxes) for the nine months ended September 30, 2018 for a legal settlement.



(h)

Includes a pre-tax charge of $5 million ($4 million after taxes) for the three months and nine months ended September 30, 2018 for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production.



(i)

Includes a pre-tax charge of $122 million ($81 million after taxes) for the three months and nine months ended September 30, 2018 related to the impairment of fixed assets and an intangible asset in our Brazil Packaging business.



(j)

Includes a tax benefit of $36 million for the three months and nine months ended September 30, 2018 related to the Tax Cuts and Jobs Act and tax expense of $9 million for the nine months ended September 30, 2018 related to state income tax legislative changes.



(k)

Includes a charge of $1 million (before and after taxes) for the three months ended June 30, 2019 and the nine months ended September 30, 2019 for interest expense associated with foreign tax audits.



(l)

Includes tax expense of $9 million for the three months ended June 30, 2019 and the nine months ended September 30, 2019 related to a tax rate change in Luxembourg, tax expense of $3 million for the three months ended June 30, 2019 and the nine months ended September 30, 2019 related to foreign tax audits and a tax benefit of $3 million for the three months ended June 30, 2019 and the nine months ended September 30, 2019 related to state income tax legislative changes.



(m)

Includes a pre-tax charge of $12 million ($9 million after taxes) for the nine months ended September 30, 2018 associated with our proposal to acquire Smurfit Kappa.



(n)

Includes pre-tax charges of $48 million ($35 million after taxes) for the nine months ended September 30, 2018 related to the optimization of our EMEA Packaging business. 



(o)

Includes pre-tax income of $488 million ($364 million after taxes) for the nine months ended September 30, 2018 for the gain on the transfer of the North American Consumer Packaging business.  Also includes pre-tax charges of $25 million ($19 million after taxes) for the nine months ended September 30, 2018 for transaction costs to transfer the North American Consumer Packaging business.

 

 


INTERNATIONAL PAPER COMPANY
Reconciliation of Net Earnings (Loss) Attributable to International Paper Company to Adjusted Operating Earnings
Preliminary and Unaudited
(In millions, except per share amounts)


















Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,





2019


2018


2019


2019


2018



Net Earnings (Loss) Attributable to International Paper Company


$     344


$       562


$                               292


$      1,060


$      1,696



Less: Discontinued operations (gain) loss






(345)



Earnings (Loss) from Continuing Operations, including non-controlling
interest


344


562


292


1,060


1,351



Add back: Non-operating pension expense


7


19


6


21


49



Add back: Special items expense (income)


80


60


162


257


134



Adjusted Operating Earnings


$     431


$       641


$                               460

$      1,338


$      1,534








Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,





2019


2018


2019


2019


2018



Diluted Earnings per Common Share as Reported


$    0.87


$      1.37


$                              0.73


$         2.65


$        4.08



Less: Discontinued operations (gain) loss






(0.83)



Continuing Operations


0.87


1.37


0.73


2.65


3.25



Add back: Non-operating pension expense


0.02


0.05


0.01


0.05


0.11



Add back: Special items expense (income)


0.20


0.14


0.41


0.65


0.32



Adjusted Operating Earnings per Share


$    1.09


$      1.56


$                              1.15


$         3.35


$        3.68













Notes:



















The Company calculates Adjusted Operating Earnings (non-GAAP) by excluding the after-tax effect of non-operating pension expense, items considered by management to be unusual as reflected in the notes to the Consolidated Statement of Operations and discontinued operations from the earnings reported under U.S. 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 consolidated operating results. International Paper believes that using this information, along with net earnings, provides for a more complete analysis of the results of operations by quarter. Net earnings attributable to International Paper is the most directly comparable GAAP measure.






Since diluted earnings per share are computed independently for each period, nine-month per share amounts may not equal the sum of respective quarters. 


 

 

INTERNATIONAL PAPER COMPANY
Sales and Earnings by Business Segment
Preliminary and Unaudited
(In millions)



Net Sales by Business Segment















Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,





2019


2018


2019


2019


2018



Industrial Packaging


$    3,820


$   4,034


$                               3,864


$   11,516


$     11,883



Global Cellulose Fibers


624


714


661


1,974


2,083



Printing Papers


1,071


1,102


1,088


3,224


3,215



Corporate and Inter-segment Sales


53


51


54


164


174



Net Sales


$    5,568


$   5,901


$                               5,667


$   16,878


$     17,355
















Operating Profit by Business Segment















Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,





2019


2018


2019


2019


2018



Industrial Packaging


$       510

(a)

$      472

(f)

$                                  507

(a)

$      1,421

(a)

$       1,446

(f)


Global Cellulose Fibers


(3)

(b)

83

(g)

(2)

(b)

27

(b)

160

(g)


Printing Papers


148

(c)

183

(h)

(33)

(c)

258

(c)

341

(h)


Total Business Segment Operating Profit


$       655


$      738


$                                  472


$      1,706


$       1,947
















Earnings (Loss) From Continuing Operations Before Income
Taxes and Equity Earnings


$       452


$      553


$                                  334


$      1,204


$       1,399



Interest expense, net


123


133


122

(j)

378

(j)

401



Noncontrolling interest/equity earnings adjustment (k)


2

(d)

(2)


5

(d)

4

(d)

(7)



Corporate expenses, net


21


20


3


45


59



Corporate special items, net


48

(e)

9

(i)


48

(e)

30

(i)


Non-operating pension expense


9


25


8


27


65



Adjusted Operating Profit


$       655


$      738


$                                  472


$      1,706


$       1,947



Equity Earnings (Loss) in Ilim S.A., Net of Taxes


$          18


$        74


$                                    67


$         186


$          223



Equity Earnings (Loss) in Graphic Packaging International
Partners, LLC


$          10


$        19


$                                    14


$           37


$            36















(a)

Includes charges of $9 million, $8 million and $25 million for the three months ended September 30, 2019 and June 30, 2019 and the nine months ended September 30, 2019, respectively, for the removal of abandoned property at our mills, income of $7 million for the three months ended September 30, 2019 and a charge of $9 million for the nine months ended September 30, 2019 for costs associated with a multi-employer pension plan exit liability, a gain of $9 million for the three months and nine months ended September 30, 2019 on the sale of a previously closed Oregon mill site, a charge of $32 million for the three months and nine months ended September 30, 2019 related to an Italian antitrust fine and a gain of $7 million for the nine months ended September 30, 2019 related to the sale of a box plant in our EMEA Packaging business.



(b)

Includes charges of $3 million, $2 million and $8 million for the three months ended September 30, 2019 and June 30, 2019 and the nine months ended September 30, 2019, respectively, for the removal of abandoned property at our mills and a charge of $4 million for the three months and nine months ended September 30, 2019 related to an overhead cost reduction initiative.



(c)

Includes a loss of $2 million, $95 million and $97 million for the three months ended September 30, 2019 and June 30, 2019 and the nine months ended September 30, 2019, respectively, related to the foreign currency cumulative translation adjustment resulting from the classification of the net assets of our India Papers business as held for sale, a loss of $6 million, $57 million and $63 million, partially offset by the allocation of loss to noncontrolling interest of $2 million, $7 million and $9 million for the three months ended September 30, 2019 and June 30, 2019 and the nine months ended September 30, 2019, respectively, for the impairment of the net assets of our India Papers business, a charge of $1 million for each of the three months ended September 30, 2019 and June 30, 2019 and $3 million for the nine months ended September 30, 2019 for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production, a charge of $1 million for each of the three months ended September 30, 2019 and June 30, 2019 and $2 million for the nine months ended September 30, 2019 for the removal of abandoned property at our mills, and a charge of $6 million for the three months and nine months ended September 30, 2019 related to an overhead cost reduction initiative.  



(d)

Includes the allocation of loss to noncontrolling interest of $2 million, $7 million and $9 million for the three months ended September 30, 2019 and June 30, 2019 and the nine months ended September 30, 2019, respectively, associated with the impairment of the net assets of our India Papers business.



(e)

Includes a charge of $22 million for the three months and nine months ended September 30, 2019 for litigation reserves, a charge of $15 million for the three months and nine months ended September 30, 2019 for an environmental remediation reserve adjustment, and a charge of $11 million for the three months and nine months ended September 30, 2019 related to an overhead cost reduction initiative. 



(f)

Includes a charge of $122 million for the three months and nine months ended September 30, 2018 for the impairment of fixed assets and an intangible asset in our Brazil Packaging business, charges of $48 million for the nine months ended September 30, 2018 related to the optimization of our EMEA Packaging business and charges of $4 million and $15 million for the three months and nine months ended September 30, 2018, respectively, for the removal of abandoned property at our mills.



(g)

Includes charges of $2 million and $9 million for the three months and nine months ended September 30, 2018, respectively, for the removal of abandoned property at our mills.



(h)

Includes a charge of $5 million for the three months and nine months ended September 30, 2018 for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production.



(i)

Includes a charge of $9 million for the three months and nine months ended September 30, 2018 for an environmental remediation reserve adjustment, a charge of $12 million for the nine months ended September 30, 2018 associated with our proposal to acquire Smurfit Kappa, and a charge of $9 million for the nine months ended September 30, 2018 for a legal settlement.



(j)

Includes a charge of $1 million for the three months ended June 30, 2019 and the nine months ended September 30, 2019 for interest expense associated with foreign tax audits.



(k)

Operating profits for business 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 noncontrolling interest and equity earnings for these subsidiaries are adjusted here to present consolidated earnings before income taxes and equity earnings.

 

 

INTERNATIONAL PAPER COMPANY
Reconciliation of Operating Profit to Operating Profit Before Special Items
Preliminary and Unaudited
(In millions)








Three Months Ended September 30, 2019




Industrial
Packaging


Global
Cellulose
Fibers


Printing
Papers


Total


Operating Profit (Loss) as Reported


$             510


$                (3)


$             148


$             655


Special Items Expense (Income) (a)


25


7


14


46


Operating Profit (Loss) Before Special Items


$             535


$                  4


$             162


$             701







Three Months Ended September 30, 2018




Industrial
Packaging


Global
Cellulose
Fibers


Printing
Papers


Total


Operating Profit (Loss) as Reported


$              472


$                83


$              183


$              738


Special Items Expense (Income) (b)


126


2


5


133


Operating Profit (Loss) Before Special Items


$              598


$                85


$              188


$              871







Three Months Ended June 30, 2019




Industrial
Packaging


Global
Cellulose
Fibers


Printing
Papers


Total


Operating Profit (Loss) as Reported


$              507


$                 (2)


$               (33)


$              472


Special Items Expense (Income) (a)


8


2


147


157


Operating Profit (Loss) Before Special Items


$              515


$               —


$              114


$              629


















Nine Months Ended September 30, 2019




Industrial
Packaging


Global
Cellulose
Fibers


Printing
Papers


Total


Operating Profit (Loss) as Reported


$          1,421


$               27


$             258


$          1,706


Special Items Expense (Income) (a)


50


12


162


224


Operating Profit (Loss) Before Special Items


$          1,471


$               39


$             420


$          1,930







Nine Months Ended September 30, 2018




Industrial
Packaging


Global
Cellulose
Fibers


Printing
Papers


Total


Operating Profit (Loss) as Reported


$           1,446


$              160


$              341


$           1,947


Special Items Expense (Income) (b)


185


9


5


199


Operating Profit (Loss) Before Special Items


$           1,631


$              169


$              346


$           2,146











(a)

See footnotes (a) - (c) on Sales and Earnings by Business Segment

(b)

See footnotes (f) - (h) on Sales and Earnings by Business Segment




















The Company calculates Operating Profit Before Special Items (non-GAAP) by excluding the pre-tax effect of items considered by management to be unusual from the earnings reported under U.S. 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, provides for a more complete analysis of the results of operations by quarter. Net earnings attributable to International Paper is the most directly comparable GAAP measure.

 

 

INTERNATIONAL PAPER COMPANY
Sales Volume by Product (a)
Preliminary and Unaudited


International Paper Consolidated












Three Months Ended
September 30,


Three Months Ended
June 30,


Nine Months Ended
September 30,



2019


2018


2019


2019


2018


Industrial Packaging (In thousands of short tons)











Corrugated Packaging (b)

2,651


2,666


2,624


7,810


7,969


Containerboard

736


853


707


2,140


2,436


Recycling

556


566


625


1,790


1,700


Saturated Kraft

47


51


52


140


149


Gypsum /Release Kraft

49


56


49


149


176


Bleached Kraft

5


8


5


17


24


EMEA Packaging (b)

375


329


379


1,124


1,113


Brazilian Packaging  (b)

96


92


91


272


263


European Coated Paperboard

106


98


102


312


284


Industrial Packaging

4,621


4,719


4,634


13,754


14,114


Global Cellulose Fibers (In thousands of metric tons) (c)

878


886


869


2,606


2,665


Printing Papers (In thousands of short tons)











U.S. Uncoated Papers

451


461


441


1,340


1,415


European & Russian Uncoated Papers

352


363


367


1,073


1,066


Brazilian Uncoated Papers

301


293


283


828


818


Indian Uncoated Papers

49


62


66


183


195


Printing Papers

1,153


1,179


1,157


3,424


3,494












(a)

Sales volumes include third party and inter-segment sales and exclude sales of equity investees.

(b)

Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales by these businesses reflect invoiced tons.

(c)

Includes North American, European and Brazilian volumes and internal sales to mills.




 

 

INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
Preliminary and Unaudited
(In millions)




September 30, 2019


December 31, 2018

Assets





Current Assets





Cash and Temporary Investments


$                              697


$                              589

Accounts and Notes Receivable, Net


3,305


3,521

Contract Assets


388


395

Inventories


2,194


2,241

Assets Held for Sale


278


Other


189


250

Total Current Assets


7,051


6,996

Plants, Properties and Equipment, Net


12,845


13,067

Forestlands


378


402

Investments


1,651


1,648

Financial Assets of Variable Interest Entities


7,084


7,070

Goodwill


3,412


3,374

Right of Use Assets


425


Deferred Charges and Other Assets


1,002


1,019

Total Assets


$                         33,848


$                         33,576

Liabilities and Equity





Current Liabilities





Notes Payable and Current Maturities of Long-Term Debt


$                              402


$                              639

Accounts Payable and Other Current Liabilities


4,079


4,055

Liabilities Held for Sale


248


Total Current Liabilities


4,729


4,694

Long-Term Debt


9,957


10,015

Nonrecourse Financial Liabilities of Variable Interest Entities


6,303


6,298

Deferred Income Taxes


2,643


2,600

Pension Benefit Obligation


1,653


1,762

Postretirement and Postemployment Benefit Obligation


248


264

Long-Term Lease Obligations


292


Other Liabilities


567


560

Equity





Invested Capital, Net of Treasury Stock


(1,006)


(103)

Retained Earnings


8,447


7,465

Total International Paper Shareholders' Equity


7,441


7,362

Noncontrolling interests


15


21

Total Equity


7,456


7,383

Total Liabilities and Equity


$                         33,848


$                         33,576

 

 

INTERNATIONAL PAPER COMPANY
Consolidated Statement of Cash Flows
Preliminary and Unaudited
(In millions)




Nine Months Ended September 30,



2019


2018

Operating Activities





Net earnings (loss)


$                           1,054


$                           1,699

Depreciation, amortization and cost of timber harvested


963


990

Deferred income tax expense (benefit), net


68


163

Restructuring and other charges, net


21


48

Net gain on transfer of North American Consumer Packaging business



(488)

Net (gains) losses on sales and impairments of businesses


153


122

Antitrust fines


32


Equity method dividends received


260


130

Equity (earnings) losses, net


(221)


(257)

Periodic pension expense, net


70


172

Other, net


106


75

Changes in current assets and liabilities





Accounts and notes receivable


168


(441)

Contract assets


6


(20)

Inventories


(9)


(120)

Accounts payable and accrued liabilities


(11)


301

Interest payable


(31)


(33)

Other


53


64

Cash Provided By (Used For) Operating Activities


2,682


2,405

Investment Activities





Invested in capital projects 


(913)


(1,286)

Acquisitions, net of cash acquired


(99)


Net settlement on transfer of North American Consumer Packaging business



(40)

Proceeds from divestitures, net of cash divested


17


Proceeds from sale of fixed assets


15


12

Other


(14)


4

Cash Provided By (Used For) Investment Activities


(994)


(1,310)

Financing Activities





Repurchases of common stock and payments of restricted stock tax withholding


(535)


(532)

Issuance of debt


381


349

Reduction of debt


(772)


(242)

Change in book overdrafts


(29)


(33)

Dividends paid


(595)


(588)

Other


3


Cash Provided By (Used for) Financing Activities


(1,547)


(1,046)

Cash Included in Assets Held for Sale


(19)


Effect of Exchange Rate Changes on Cash


(14)


(41)

Change in Cash and Temporary Investments


108


8

Cash and Temporary Investments





Beginning of the period


589


1,018

End of the period


$                              697


$                           1,026

 

 

INTERNATIONAL PAPER COMPANY
Reconciliation of Cash Provided by Operations to Free Cash Flow
Preliminary and Unaudited
(In millions)



Three Months Ended
September 30,


Nine Months Ended
September 30,


2019


2018


2019


2018

Cash Provided By (Used For) Operating Activities

$            882


$            941


$         2,682


$         2,405

Adjustments:








 Cash invested in capital projects

(285)


(357)


(913)


(1,286)

Free Cash Flow

$            597


$            584


$         1,769


$         1,119









Free cash flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operations. Management believes that free cash flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, service debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. By adjusting for certain items that are not indicative of the Company's ongoing performance, free cash flow also enables investors to perform meaningful comparisons between past and present periods.

 

 

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SOURCE International Paper