International Paper 2012 Annual Report Download - page 55

($125 million) and higher maintenance outage costs
($18 million). Additionally, operating profits in 2012
include costs of $184 million associated with the
acquisition and integration of Temple-Inland, mill
divestiture costs of $91 million, costs associated with
the restructuring of our European Packaging busi-
ness of $17 million and a $3 million gain for other
items, while operating costs in 2011 included costs
associated with signing an agreement to acquire
Temple-Inland of $20 million and a gain of $7 million
for other items.
Industrial Packaging
In millions 2012 2011 2010
Sales $13,280 $10,430 $9,840
Operating Profit 1,066 1,147 826
North American Industrial Packaging net
sales were $11.6 billion in 2012 compared with $8.6
billion in 2011 and $8.4 billion in 2010. Operating
profits in 2012 were $1.0 billion ($1.3 billion exclud-
ing costs associated with the acquisition and
integration of Temple-Inland and mill divestiture
costs) compared with $1.1 billion (both including and
excluding costs associated with signing an agree-
ment to acquire Temple-Inland) in 2011 and $763
million ($776 million excluding facility closure costs)
in 2010.
Sales volumes for the legacy business were about
flat in 2012 compared with 2011. Average sales price
was lower mainly due to export containerboard sales
prices which bottomed out in the first quarter but
climbed steadily the rest of the year. Input costs were
lower for recycled fiber, wood and natural gas, but
higher for starch. Freight costs also increased. Plan-
ned maintenance downtime costs were higher than
in 2011. Operating costs were higher largely due to
routine inventory valuation adjustments Operating
profits in 2012 benefited from $235 million of
Temple-Inland synergies. Market-related downtime
in 2012 was about 570,000 tons compared with
about 380,000 tons in 2011. Operating profits in 2012
included $184 million of costs associated with the
acquisition and integration of Temple-Inland and $91
million of costs associated with the divestiture of
three containerboard mills. Operating profits in 2011
included charges of $20 million for costs associated
with the signing of the agreement to acquire Temple-
Inland.
Looking ahead to 2013, sales volumes in the first
quarter compared with the fourth quarter of 2012 are
expected to increase slightly for boxes due to a
higher number of shipping days. Average sales price
realizations are expected to reflect the pass-through
to box customers of a containerboard price increase
implemented in 2012. Input costs are expected to be
higher for recycled fiber, wood and starch. Planned
maintenance downtime costs are expected to be
about $26 million higher with outages scheduled at
eight mills compared with six mills in the 2012 fourth
quarter.
Manufacturing operating costs are expected to be
lower.
European Industrial Packaging net sales
were $1.0 billion in 2012 compared with $1.1 billion
in 2011 and $990 million in 2010. Operating profits in
2012 were $53 million ($72 million excluding
restructuring costs) compared with $66 million ($61
million excluding a gain for a bargain purchase price
adjustment on an acquisition by our joint venture in
Turkey and costs associated with the closure of our
Etienne mill in France in 2009) in 2011 and $70 mil-
lion ($73 million before closure costs for our Etienne
mill) in 2010.
Sales volumes in 2012 were lower than in 2011
reflecting decreased demand for packaging in the
industrial market due to a weaker overall economic
environment in southern Europe. Demand for pack-
aging in the agricultural markets was about flat year-
over-year. Average sales margins increased due to
sales price increases implemented during 2011 and
2012 and lower board costs. Other input costs were
higher, primarily for energy and distribution. Operat-
ing profits in 2012 included a net gain of $10 million
for an insurance settlement, partially offset by addi-
tional operating costs, related to the earthquakes in
Northern Italy in May which affected our San Felice
box plant.
Entering the first quarter of 2013, sales volumes are
expected to be stable reflecting a seasonal decrease
in market demand in agricultural markets offset by
an increase in industrial markets. Average sales
margins are expected to improve due to lower input
costs for containerboard. Other input costs should be
about flat. Operating costs are expected to be higher
reflecting the absence of the earthquake insurance
settlement that was received in the 2012 fourth quar-
ter.
Asian Industrial Packaging net sales and
operating profits include the results of SCA Pack-
aging since the acquisition on June 30, 2010, includ-
ing the impact of incremental integration costs. Net
sales for the packaging operations were $400 million
in 2012 compared with $410 million in 2011 and $255
million in 2010. Operating profits for the packaging
operations were $2 million in 2012 compared with $2
million in 2011 and a loss of $7 million (a loss of $4
million excluding facility closure costs) in 2010.
Operating profits were favorably impacted by higher
average sales margins in 2012 compared with 2011,
but this benefit was offset by lower sales volumes
and higher raw material costs and operating costs.
Looking ahead to the first quarter of 2013, sales
volumes and average sales margins are expected to
decrease due to seasonality.
Net sales for the distribution operations were $260
million in 2012 compared with $285 million in 2011
and $240 million in 2010. Operating profits were $3
million in 2012 compared with $3 million in 2011 and
about breakeven in 2010.
28