Why did International Paper report a net loss in 2002?

The 2002 net loss of $880 million was driven largely by a $1.2 billion transitional goodwill impairment charge recorded as a cumulative effect of adopting SFAS No. 142, along with a $199 million restructuring charge, the $450 million exterior siding legal reserve addition and a $46 million early debt retirement charge, partly offset by gains and reversals.

What drove the improvement in operating earnings in 2002?

Management attributes the improvement mainly to cost reduction initiatives and operational efficiencies, which more than offset lower average prices across segments. Earnings also benefited by about $185 million from the exclusion of goodwill amortization, and lower energy costs contributed.

How is the company's debt position described?

Long-term debt was $13.04 billion at December 31, 2002, and the total debt to capital ratio was 55.1%, up from 50.1% in 2001. The company had no commercial paper borrowings outstanding at year-end, held unused committed revolving credit facilities in excess of $2.0 billion, and had approximately $485 million of debt scheduled for repayment in 2003.

What is the outlook for 2003?

Management expects a slow but steady improvement in the business environment in 2003 after a weak first quarter. Energy costs are expected to be higher than in 2002, capital expenditures are expected to be about $1.3 billion, and the effective income tax rate is estimated at approximately 31%.

What are the main ongoing legal matters?

Exterior siding litigation relating to former Masonite products had net reserves of $507 million at December 31, 2002. A linerboard price-fixing class action is in discovery after the Court of Appeals affirmed class certification, and the defendants have petitioned the U.S. Supreme Court for review. Management believes the outcome of other pending matters will not have a material adverse effect on its financial position or results of operations.

IP/INPAP 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 28, 2003. Cited figures are marked; the original filing is the authoritative source.

International Paper Company, a global forest products, paper and packaging company, reported a 2002 net loss of $880 million^a ($1.83 per share), compared with a net loss of $1.2 billion ($2.50 per share) in 2001 and net earnings of $142 million ($.32 per share) in 2000.

The results include a $1.2 billion^b ($2.44 per share) transitional goodwill impairment charge under SFAS No. 142, a $450 million pre-tax charge for additional exterior siding legal reserves, and a $1.5 billion after-tax direct charge to equity related to qualified pension plans, the latter two described as having no adverse effect on existing debt covenants. Before special items and the cumulative effect of the accounting change, earnings were $540 million ($1.12 per share), up from $214 million ($.44 per share) in 2001, which management attributes mainly to cost reduction initiatives and operational efficiencies despite lower average prices. Net sales declined to $24.98 billion from $26.36 billion in 2001 and $28.18 billion in 2000, primarily reflecting divested businesses and lower average prices.

Cash provided by operations was $2.1 billion^c in 2002, and capital spending was $1.0 billion, against an expected $1.3 billion in 2003. Total debt to capital rose to 55.1% at year-end 2002 from 50.1% in 2001, and long-term debt stood at $13.04 billion. Management expects a slow but steady improvement in 2003 following a weak first quarter, with higher energy costs and an expected effective tax rate of approximately 31%.

The company reports ongoing asbestos-free exposure to exterior siding litigation tied to former Masonite products, with net reserves of $507 million^d at December 31, 2002, and an antitrust class action over linerboard pricing that is in discovery. Management also reports that International Paper has moved to third place in a peer group of eight companies on operating return on investment in 2002, from the bottom quartile in 1999.

02—Key points

Key Highlights

Net loss of $880 million ($1.83 per share) in 2002, including a $1.2 billion goodwill impairment charge recorded as a cumulative effect of an accounting change.
Earnings before special items and the accounting change were $540 million ($1.12 per share), versus $214 million ($.44 per share) in 2001.
Net sales fell to $24.98 billion in 2002 from $26.36 billion in 2001, mainly due to divested businesses and lower average prices.
A $450 million pre-tax charge for additional exterior siding legal reserves; net reserves for these matters totaled $507 million at December 31, 2002.
A $1.5 billion after-tax direct charge to shareholders' equity from the pension plans, with no impact on earnings or cash flow.
Cash provided by operations of $2.1 billion; capital spending of $1.0 billion in 2002, with about $1.3 billion expected in 2003.
Total debt to capital ratio rose to 55.1% at year-end 2002 from 50.1% in 2001; long-term debt was $13.04 billion.

03—Questions

Frequently Asked Questions

Why did International Paper report a net loss in 2002?
The 2002 net loss of $880 million was driven largely by a $1.2 billion transitional goodwill impairment charge recorded as a cumulative effect of adopting SFAS No. 142, along with a $199 million restructuring charge, the $450 million exterior siding legal reserve addition and a $46 million early debt retirement charge, partly offset by gains and reversals.
What drove the improvement in operating earnings in 2002?
Management attributes the improvement mainly to cost reduction initiatives and operational efficiencies, which more than offset lower average prices across segments. Earnings also benefited by about $185 million from the exclusion of goodwill amortization, and lower energy costs contributed.
How is the company's debt position described?
Long-term debt was $13.04 billion at December 31, 2002, and the total debt to capital ratio was 55.1%, up from 50.1% in 2001. The company had no commercial paper borrowings outstanding at year-end, held unused committed revolving credit facilities in excess of $2.0 billion, and had approximately $485 million of debt scheduled for repayment in 2003.
What is the outlook for 2003?
Management expects a slow but steady improvement in the business environment in 2003 after a weak first quarter. Energy costs are expected to be higher than in 2002, capital expenditures are expected to be about $1.3 billion, and the effective income tax rate is estimated at approximately 31%.
What are the main ongoing legal matters?
Exterior siding litigation relating to former Masonite products had net reserves of $507 million at December 31, 2002. A linerboard price-fixing class action is in discovery after the Court of Appeals affirmed class certification, and the defendants have petitioned the U.S. Supreme Court for review. Management believes the outcome of other pending matters will not have a material adverse effect on its financial position or results of operations.

04—Continue

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