Why was this 10-K/A filed?

The company filed this amendment to correct a clerical error in which the Deloitte & Touche LLP audit opinions included the word "tentative" next to the signature line, along with other non-substantive clerical errors. The filing states that the amendment is otherwise identical to the Form 10-K filed March 6, 2006.

What drove the change from a 2004 net loss to 2005 net earnings?

Net earnings were $1.1 billion in 2005 compared with a net loss of $35 million in 2004. Earnings from continuing operations were $859 million, and the results included a $258 million pre-tax insurance recovery credit, a $446 million net tax benefit, and a $243 million gain-related contribution from discontinued operations, including a $361 million after-tax gain on the Carter Holt Harvey sale. Management noted that excluding the incremental benefit of special items, earnings from continuing operations were $94 million lower than in 2004.

What is the Transformation Plan?

Announced July 19, 2005, the three-part plan aims to narrow the portfolio to two key global platform businesses, Uncoated Papers (including xpedx) and Packaging, improve returns, strengthen the balance sheet, and return cash to shareholders. Businesses under review include Coated and Supercalendered Papers, Beverage Packaging, Kraft Papers, Arizona Chemical, Wood Products, and segments or potentially all of the 6.5 million acres of U.S. forestlands.

What does management expect for 2006?

Management expects first-quarter 2006 operating profits to be about flat with the fourth quarter of 2005, with momentum expected later in the year from announced price increases, industry capacity reductions, and some reductions in natural gas and southern wood costs. The company expects capital spending of about $1.2 billion and an effective income tax rate of approximately 30%. U.S. pension expense is estimated at approximately $370 million for 2006.

IP/INPAP 10-K FY2005 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K/A filed March 7, 2006. Cited figures are marked; the original filing is the authoritative source.

This Form 10-K/A (Amendment No. 1) for fiscal 2005 was filed March 7, 2006, to correct a clerical error in which Deloitte & Touche LLP's audit opinions contained the word "tentative" beside the signature line.

The filing states that the amendment is otherwise identical to the Form 10-K filed March 6, 2006. For 2005, International Paper Company reported net sales of $24.1 billion^a (versus $23.4 billion in 2004) and net earnings of $1.1 billion, or $2.21 per diluted share, compared with a net loss of $35 million in 2004. Earnings from continuing operations were $859 million.

Management said higher energy, wood, caustic soda and other raw material costs reduced industry segment operating profits by $586 million^b, and lower sales volumes, including lack-of-order downtime, were also a negative factor. Results were supported by higher average prices, cost reduction initiatives, and special items, including a $258 million pre-tax credit for net insurance recoveries related to hardboard siding and roofing litigation and a $446 million net tax benefit. The company announced a Transformation Plan on July 19, 2005, to focus on two platform businesses, Uncoated Papers (including the xpedx distribution business) and Packaging, while evaluating the sale or spin-off of other businesses and portions of its U.S. forestlands.

The Carter Holt Harvey Limited sale was completed in the third quarter of 2005. Cash provided by continuing operations was $1.5 billion^c, capital spending was $1.2 billion, and net debt was reduced by approximately $1.7 billion. The company reported approximately $3.2 billion of committed liquidity.

Moody's downgraded its long-term debt from Baa2 to Baa3 during 2005, and at year-end the company held BBB (negative outlook) from Standard & Poor's and Baa3 (stable outlook) from Moody's. For 2006, management expects first-quarter operating profits to be about flat with the fourth quarter of 2005, with improvement expected later in the year from announced price increases, industry capacity reductions, and some declines in natural gas and wood costs. Management also anticipates U.S. pension expense of approximately $370 million^d in 2006, up from $243 million in 2005, and an effective tax rate of approximately 30%.

02—Key points

Key Highlights

Net earnings of $1.1 billion ($2.21 per diluted share) in 2005, versus a net loss of $35 million in 2004; earnings from continuing operations were $859 million.
Net sales of $24.1 billion in 2005, up from $23.4 billion in 2004.
Higher energy and raw material costs reduced industry segment operating profits by $586 million, and lower sales volumes reduced them by $251 million, partly offset by $478 million of higher average prices.
Transformation Plan announced July 19, 2005 to focus on Uncoated Papers (including xpedx distribution) and Packaging, with possible sale or spin-off of other businesses and U.S. forestlands; decisions on some businesses are anticipated in 2006.
Net debt reduced by approximately $1.7 billion in 2005; cash provided by continuing operations was $1.5 billion; capital spending was $1.2 billion.
Hardboard siding and roofing insurance recoveries produced a $258 million pre-tax credit, and a $446 million net tax benefit was recorded, including a $627 million benefit from an IRS audit settlement.
Credit ratings: Moody's downgraded long-term debt from Baa2 to Baa3 in 2005; Standard & Poor's rates long-term debt BBB (negative outlook) and Moody's rates it Baa3 (stable outlook) at year-end.

03—Questions

Frequently Asked Questions

Why was this 10-K/A filed?
The company filed this amendment to correct a clerical error in which the Deloitte & Touche LLP audit opinions included the word "tentative" next to the signature line, along with other non-substantive clerical errors. The filing states that the amendment is otherwise identical to the Form 10-K filed March 6, 2006.
What drove the change from a 2004 net loss to 2005 net earnings?
Net earnings were $1.1 billion in 2005 compared with a net loss of $35 million in 2004. Earnings from continuing operations were $859 million, and the results included a $258 million pre-tax insurance recovery credit, a $446 million net tax benefit, and a $243 million gain-related contribution from discontinued operations, including a $361 million after-tax gain on the Carter Holt Harvey sale. Management noted that excluding the incremental benefit of special items, earnings from continuing operations were $94 million lower than in 2004.
What is the Transformation Plan?
Announced July 19, 2005, the three-part plan aims to narrow the portfolio to two key global platform businesses, Uncoated Papers (including xpedx) and Packaging, improve returns, strengthen the balance sheet, and return cash to shareholders. Businesses under review include Coated and Supercalendered Papers, Beverage Packaging, Kraft Papers, Arizona Chemical, Wood Products, and segments or potentially all of the 6.5 million acres of U.S. forestlands.
What does management expect for 2006?
Management expects first-quarter 2006 operating profits to be about flat with the fourth quarter of 2005, with momentum expected later in the year from announced price increases, industry capacity reductions, and some reductions in natural gas and southern wood costs. The company expects capital spending of about $1.2 billion and an effective income tax rate of approximately 30%. U.S. pension expense is estimated at approximately $370 million for 2006.

04—Continue

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