International Paper 2012 Annual Report Download - page 56

Printing Papers
Demand for Printing Papers products is closely corre-
lated with changes in commercial printing and
advertising activity, direct mail volumes and, for
uncoated cut-size products, with changes in white-
collar employment levels that affect the usage of
copy and laser printer paper. Pulp is further affected
by changes in currency rates that can enhance or
disadvantage producers in different geographic
regions. Principal cost drivers include manufacturing
efficiency, raw material and energy costs and freight
costs.
Printing Papers net sales for 2012 were about
flat with 2011 and increased 5% from 2010. Operat-
ing profits in 2012 were 31% lower than in 2011, but
25% higher than in 2010. Excluding facility closure
costs and impairment costs, operating profits in 2012
were 30% lower than in 2011 and 25% lower than in
2010. Benefits from higher sales volumes ($58 mil-
lion) were more than offset by lower sales price real-
izations and an unfavorable product mix ($233
million), higher operating costs ($30 million), higher
maintenance outage costs ($17 million), higher input
costs ($32 million) and other items ($6 million). In
addition, operating profits in 2011 included a $24
million gain related to the announced repurposing of
our Franklin, Virginia mill to produce fluff pulp and
an $11 million impairment charge related to our
Inverurie, Scotland mill that was closed in 2009.
Printing Papers
In millions 2012 2011 2010
Sales $ 6,230 $ 6,215 $ 5,940
Operating Profit 599 872 481
North American Printing Papers net sales
were $2.7 billion in 2012, $2.8 billion in 2011 and $2.8
billion in 2010. Operating profits in 2012 were $331
million compared with $423 million ( $399 million
excluding a $24 million gain associated with the
repurposing of our Franklin, Virginia mill) in 2011
and $18 million ($333 million excluding facility clo-
sure costs) in 2010.
Sales volumes in 2012 were flat with 2011. Average
sales margins were lower primarily due to lower
export sales prices and higher export sales volume.
Input costs were higher for wood and chemicals, but
were partially offset by lower purchased pulp costs.
Freight costs increased due to higher oil prices.
Manufacturing operating costs were favorable
reflecting strong mill performance. Planned main-
tenance downtime costs were slightly higher in 2012.
No market-related downtime was taken in either
2012 or 2011.
Entering the first quarter of 2013, sales volumes are
expected to increase compared with the fourth quar-
ter of 2012 reflecting seasonally stronger demand.
Average sales price realizations are expected to be
relatively flat as sales price realizations for domestic
and export uncoated freesheet roll and cutsize paper
should be stable. Input costs should increase for
energy, chemicals and wood. Planned maintenance
downtime costs are expected to be about $19 million
lower with an outage scheduled at our Georgetown
mill versus outages at our Courtland and Eastover
mills in the fourth quarter of 2012.
Brazilian Papers net sales for 2012 were $1.1 bil-
lion compared with $1.2 billion in 2011 and $1.1 bil-
lion in 2010. Operating profits for 2012 were $163
million compared with $169 million in 2011 and $159
million in 2010. Sales volumes in 2012 were higher
than in 2011 as International Paper improved its
segment position in the Brazilian market despite
weaker year-over-year conditions in most markets.
Average sales price realizations improved for
domestic uncoated freesheet paper, but the benefit
was more than offset by declining prices for
exported paper. Margins were favorably affected by
an increased proportion of sales to the higher-
margin domestic market. Raw material costs
increased for wood and chemicals, but costs for
purchased pulp decreased. Operating costs and
planned maintenance downtime costs were lower
than in 2011.
Looking ahead to 2013, sales volumes in the first
quarter are expected to be lower than in the fourth
quarter of 2012 due to seasonally weaker customer
demand for uncoated freesheet paper. Average sales
price realizations are expected to increase in the
Brazilian domestic market due to the realization of an
announced sales price increase for uncoated free-
sheet paper, but the benefit should be partially offset
by pricing pressures in export markets. Average
sales margins are expected to be negatively
impacted by a less favorable geographic mix. Input
costs are expected to be about flat due to lower
energy costs being offset by higher costs for wood,
purchased pulp, chemicals and utilities. Planned
maintenance outage costs should be $4 million
lower with no outages scheduled in the first quarter.
Operating costs should be favorably impacted by the
savings generated by the start-up of a new biomass
boiler at the Mogi Guacu mill.
European Papers net sales in 2012 were $1.4 bil-
lion compared with $1.4 billion in 2011 and $1.3 bil-
lion in 2010. Operating profits in 2012 were $179
million compared with $196 million ($207 million
excluding asset impairment charges related to our
Inverurie, Scotland mill which was closed in 2009) in
2011 and $197 million ($199 million excluding an
asset impairment charge) in 2010.
Sales volumes in 2012 compared with 2011 were
higher for uncoated freesheet paper in both Europe and
Russia, while sales volumes for pulp were lower in both
regions. Average sales price realizations for uncoated
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