New Credit Card Legislation Could Challenge Direct Marketers

An recent DM News article points out the credit card legislation signed President Barack Obama Friday is expected to seriously impact the credit card industry and consumers' relationships with credit, and as a result, marketing from the industry is likely to change in message as well as volume.

For direct marketers looking to reach consumers, who will now have a more limited credit, there could be challenges. “Direct marketers depend upon credit cards for sales, but particularly remote sales, since consumers can't just walk into a store with cash,” said Linda Woolley, EVP for public affairs at the Direct Marketing Association via e-mail. “Anything that harms credit for consumers has a ripple effect on our members. However, bad debt also negatively affects our members through chargebacks, etc. We need a strong credit card system. Our hope is that this will do so, but we are not certain.”

The new regulations and the changing marketplace will affect the direct marketing programs of credit card issuers — some of the largest direct mail advertisers. Direct mail volume from card companies will almost certainly continue to fall, as it has since hitting a peak of 8.2 billion offers mailed in 2006. Partly, the reductions will be in the interest of cutting costs, but they also will be an effect of card issuers targeting a smaller universe of prospects.

“They are cutting back not only because they need to reduce their risk,” explains Stephen Clifford, VP financial services, Mintel Comperemedia. “They are not sending offers to the riskier people that they have in the past because they need to reduce their losses.”

Experian, an information services group that has been tapped by some US banks to assist in marketing campaigns, is gearing up for this more focused approach to targeting.

“We anticipate an increase in prospecting over the next three to 18 months, but with more importance placed on targeted and methodical selection of prospects that are low risk, credit qualified and will likely want to open a new card account in the near future,” wrote Michele Bodda, VP, prospecting and acquisitions, Experian, in an e-mail to DMNews.

Clifford notes that, if mail volume continues at the rate seen in Q1 2009 (a 72% drop from Q1 2008), consumers may see fewer than 2 billion credit card offers being mailed this year. Although the Internet will remain an important channel for credit card marketers, Clifford said he does not foresee a huge uptick in online advertising to make up for the drop in mail.
The reduced number of credit card offers being sent this year will likely fall into two categories: stripped-down, utilitarian cards with few perks, and cards that do offer rewards, but with an annual fee attached. These offers are likely to be simpler, without the elaborate combinations of promotional rates and rewards that were mailed out in past years.

“As far as the offers go, APRs are on the way up, annual fees will likely make a comeback, and rewards and other perks are going to be less valuable — we'll see some go away because the industry just can't afford to extend those any more the way they have,” Clifford said.
Credit card companies have already been challenged this year. According to Synovate Mail Monitor, the market research arm of Aegis Group that tracks direct mail, credit card companies are already cutting back on marketing efforts and are marketing cards with fees.

In a recent study, Synovate found that US households are receiving far fewer offers for credit cards these days and the offers they do receive are for cards carrying an annual fee.

The study found that in the first quarter 2009, US households received 372.4 million offers, which is a 67% drop from the 1131.6 million offers received during Q1 2008. In addition, the study found that 27% of offers carried an annual fee during Q1 2009, up from 18% one year ago.

Vintage Color: Pantone + Seavees

In September 1963, Lawrence Herbert, Pantone’s founder, created a unique system for identifying, matching and communicating colors to solve the problems associated with producing accurate color matches in the graphic arts community. His insight that the spectrum is seen and interpreted differently by each individual led to the innovation of the PANTONE MATCHING SYSTEM. Today, the PANTONE Name is known throughout the world and across a range of industries as the standard language for accurate color communication, from designer to manufacturer to retailer to customer.

For the first time in the company’s 45 year history and through an exclusive agreement, Pantone has allowed an external design team into its hallowed archives. SeaVees cofounders Steven Tiller and Derek Galkin selected seven vintage colors from the original PANTONE Color guide for the latest shoe palette. Chosen from the only authentic guide known to exist, the colors epitomize the cool, casual style of California in 1963.

“For the discerning taste of designers in various industries, Pantone is, quite simply, the color bible,” said Steven Tiller. “Each SeaVees style is named to honor an influential date in 1960’s California-cool history. The founding of the PANTONE MATCHING SYSTEM is certainly a significant milestone in the design industry, and we think professionals and consumers alike will be drawn to the classic styling and original PANTONE Colors of the 09/63 Collection.”

“We are excited to extend the PANTONE UNIVERSE Brand of colorful, design-driven consumer products into footwear,” commented Lisa Herbert, executive vice president of the Pantone fashion, home and consumer division. “We continually look to offer our customers fun, new ways to bring color into their lives. We hope the 09/63 Collection will resonate with those who have relied on Pantone for inspiration and accurate color matching for decades, and provide another way to showcase their creativity through SeaVees in favorite PANTONE Colors

National Stationary Show

The 2009 National Stationary Show was held last week in NYC. The Show is the premiere market for stationery resources in the United States, drawing around 14,000 domestic and international retailers representing department, chain and specialty stores, museum shops, gallery and craft retailers, boutiques, stationery, greeting card and gift shops, bookstores, bridal shops, party stores, hospital gift shops, home furnishings stores,specialty office furnishings retailers, garden centers, TV shopping club etc. If you're looking for a little creative inspiration check out the photos below courtesy of Design Sponge.

Paper Math App

Anyone like to do paper math in their head? Me neither. That’s why I love the paper math app that Neenah Paper has for my Blackberry.

It can convert pounds into sheets, or grams-per-square-meter to basis weight, as well as a variety of pricing conversions for all of the standard paper industry pricing structures. This information can then be e-mailed to anyone in order to simplify and expedite the paper ordering process.

“Being able to convert pricing or quantity is essential to accurate paper specification and ordering,” says Ellen Bliske, senior associate, E-Commerce for Neenah Paper. “But now, with so many sales reps working from mobile offices, it’s important that they have instant access to this same information, from anywhere.”

To download the Paper Math BlackBerry application, visit www.neenahpaper.com/mobile.

Direct Mail Spend Expected to drop 39%

Direct mail spending will decline 39 percent during the next five years from $49.7 billion in 2008 to $29.8 billion in 2013, according to a study released earlier this week by Borrell Associates, a media research and consulting firm. Research reports usually contain fairly measured language, but this one has several dramatic statements. For example, the report describes direct mail as “the largest and least-read of all print media” and goes on to say, “Direct mail has begun spiraling into what we believe is a precipitous decline from which it will never fully recover.”

Borrell Associates contends that marketers (especially smaller, local businesses) are increasingly using e-mail instead of direct mail for many purposes. The study states that advertisers spent $12.1 billion on e-mail marketing in 2008, and it predicts that e-mail spending will grow to $15.7 billion over the next five years. Borrell also contends that most of the growth in e-mail marketing will be local. The study states, “We’re expecting local e-mail advertising to grow from $848 million in 2008, to $2 billion in 2013, as more small businesses abandon direct mail couponing and promotional offers and turn to a more measurable and less costly medium, e-mail.”

Other recent research points in the same general direction. Earlier this year, Winterberry Group released a study estimating that direct mail spending declined by 3 percent in 2008. The Winterberry report predicted that direct mail spending would fall by another 8 to 9 percent in 2009. More significantly, Winterberry Group believes that the changes now affecting direct mail are systemic, and not cyclical, in nature. In other words, things won’t go back to “normal” when the current recession ends. Winterberry Group contends that direct mail is changing from a “mass” to a highly “targeted” communications medium that will create the greatest value for marketers when it is used as one component of sophisticated, data-driven, multichannel marketing programs.

The conclusions and predictions contained in these research reports may or may not turn out to the completely accurate. But it is undeniable that the marketing landscape is changing, and those changes will have major repercussions for the printing industry.

Reduced Advertising During Recession Negatively Impacts Consumer Perception

More than 48% of U.S. adults believe that a lack of advertising during a recession indicates the business must be struggling. Likewise, a vast majority perceives businesses that continue to advertise as being competitive or committed to doing business.

The Ad-ology Research study, “Advertising’s Impact in a Soft Economy,” analyzes consumer perception about businesses that continue to advertise, and those that do not, in the current economy.

The study finds advertising appears to play a key role in consumers’ view of how a business is doing, and by not advertising, businesses may be sending a warning signal to current and potential customers.

Other key findings:

TV, newspaper, direct mail, and Internet are the top four media from which consumers saw/heard an ad within the last 30 days that led them to take action

40% of consumers use coupons more now than a year ago
Most consumers are as willing or more willing to pay more for ‘healthy’ or ‘organic’ products than they were a year ago

A ‘deeply discounted price’ was the number-one factor that would make consumers more likely to purchase a big-ticket item (+$1,000)

Store Web sites ranked second only to search engines as the way consumers research products and shop online.

Ad-ology Research surveyed an online consumer panel of 1,225 adults in a manner that is 98% representative of the adult population of the United States from April 24-29, 2009.

What to Consider When Specifying Coated Paper

Selecting the right paper for the job may seem like a no-brainer but in actuality there are hundreds of choices to select from. Keeping it all straight can be a full time job (that's why there are spec reps). Half the battle is in understanding what to consider, so here is a brief explanation of the characteristics that go into coated paper.

Brightness
Brightness is reflected light. Since the inks placed on paper are transparent, it is the paper that actually acts as a light source and supplies the light to the ink. Brightness, like the wattage of a light bulb, enhances impact and creates contrast. Thus, a sheet with high brightness will make artwork and photography pop. With lower brightness, overall contrast is reduced, and highlights are dulled.

Shade
Shade is the uniformity of reflected light across the full spectrum—in essence, the color of white. Shade determines how accurately a color image is reproduced. The “whiter” the paper, the more vibrant the highlights, reflections and contrast in the printed imagery.

Surface
Papers come in a variety of surfaces, also known as finishes. The most common coated surfaces are gloss, silk, dull and matte. Each of these surfaces provide different print qualities and overall appearance. Each has its strengths and appropriateness for a particular job. To determine the appropriate finish of the paper, we have to consider the printed piece’s desired end-result and function. For example, a gloss finish offers the ultimate in reproduction detail, while dull and matte finishes offer easier reading for large quantities of text.

Opacity
Also known as “show-through,” opacity describes the amount of printed matter that is visible from the opposite side of a printed sheet. The opacity of a paper is attributable to the manufacture of the base sheet, the thickness of the sheet and chemical additives to decrease the translucence of the paper. There are two types of opacity. “Apparent opacity” refers to the actual opacity of the unprinted paper itself. “Printed opacity” is the opacity of the printed paper. It is affected by ink holdout, and is lower than the apparent opacity of the paper. This reduced opacity is actually caused by absorption of ink. As ink is absorbed into a sheet of paper, the printed opacity of the page decreases, causing the image to show through on the back which interferes with content, detail and continuity of the image being viewed.

Basis Weight and Caliper
Most brands come in a variety of basis weights in both cover and text. Basis weight is calculated using a centuries old formula based on “parent” size or trimmed sheets of paper. Five hundred sheets (a ream) of paper cut to a specific “parent” size was used to determine if the paper was destined to be bond/writing, text/book or cover weights. For example, a cover weight paper is thicker and heavier than text paper, so the weight of 500 sheets will be heavier. Nobody weighs 500 sheets anymore but the basis weight is still calculated per ream. Paper is also manufactured to a thickness, or “caliper” or point (1/1,000 of an inch) size—this is of particular importance when the final piece must meet postal requirements, which dictate either seven point or nine point thickness be used to run through postal services machines.

There are several things to consider when trying to specify a paper. That is why it’s critical to look at samples when evaluating any paper characteristics. Rely on your Millcraft Paper Rep to help you with your project. They can provide you with plain and printed samples, swatch books, and dummies - all of which can help you select the perfect paper for the job.

RR Donnelly seeks to Acquire Quebecor

R.R. Donnelley has approached fellow magazine printer Quebecor World—which expects to emerge from bankruptcy protection this summer—about acquiring the assets of the company for approximately $1.3 billion.

“Quebecor and R.R. Donnelley have long represented a strong strategic fit with one another and, through this proposal, we have the opportunity to join them together in a way that greatly benefits stakeholders of both companies, including Quebecor World’s debtors and their creditors,” R.R. Donnelley president and CEO Thomas J. Quinlan III said in a statement.

It was not immediately clear if a merger of this size would conflict with antitrust regulations. A Quebecor World spokesperson did not immediately return a request for comment. UPDATE: Quebecor acknowledged receipt of the letter on Wednesday, and said its board of directors is in the process of reviewing the proposal with major stakeholders.

According to the proposal, Chicago-based R.R. Donnelley has offered to purchase Quebecor’s assets in three parts: approximately $700 million cash to Quebecor’s debtors; $257 million in cash on Quebecor’s balance sheet; and $394.2 million in stock—representing approximately 15 percent of Donnelley’s outstanding shares. Donnelley said its proposal was based on Quebecor’s estimated value following its court-ordered reorganization.

Last month, Quebecor World reached an agreement with its creditors that it said will allow the company to emerge from bankruptcy protection, possibly as early as mid-July. The agreement is based on the terms of a consolidated restructuring plan that is intended to recapitalize and “substantially deleverage” the company from its pre-filing levels.

In connection with the restructuring, Quebecor said it anticipates having to arrange exit financing at levels below its current debtor-in-possession financing facility, the company said.

Quebecor filed for bankruptcy protection in January 2008. In March, Quebecor reported a net loss from continuing operations of $943.9 million for 2008 compared to a net loss from continuing operations of $1.8 billion in 2007. The results included $165.9 million in taxes.

Free Paper from NewPage

NewPage Corporation, a leading producer of publication papers in North America, has launched the “Free Paper to Reach More” campaign that aims to help retail catalog companies reach more consumers. The campaign will award five catalog companies with a grand-prize of 100 tons of paper to reach approximately 500,000 new prospects for a typical cataloger.

NewPage developed the “Free Paper to Reach More” campaign in an effort to help catalogers expand their marketing efforts at a time when economic pressures are forcing many companies to reduce their outreach. “In today’s economic climate, catalogers face considerable challenges such as rising production costs, higher postage rates and reduced retail sales,” said Jim Sheibley, general manager for NewPage. “Subsequently, many are trimming prospecting efforts and downsizing current print runs and publications.”

NewPage is committed to fostering sustainability within the catalog industry. One of those commitments is the “Free Paper to Reach More” program that will help catalogers reach additional consumers, ultimately growing their business to be more financially viable long-term. Another commitment is to providing environmentally sound products that cater to the catalog segment. NewPage, with the broadest line of chain-of-custody certified and recycled papers that fit catalog specifications, is enabling catalogers to demonstrate their environmental responsibility to consumers.

RR Donnelly down 92%; CGX posts $15.9 Million Loss

RR Donnelley reported net income dropped 92% from a year ago, hurt by hefty restructuring charges, higher tax rate, and slumping demand for printing services. The Chicago-based printer said Q1 net earnings were $13.9 million, down from $182.5 million, a year ago when a federal tax settlement boosted its profit. Sales for the quarter fell 18% to $2.5 billion. U.S. sales were down 14.9% to $1.9 billion, while internationally revenues dropped 27.5% to $548.2 million.

“In contrast with our strong performance in the first quarter of 2008, during the first quarter of 2009 we saw the full impact of the contraction in the global economy. This significantly reduced demand in most of the end-markets that we serve," says Thomas Quinlan III, RR Donnelley's president and CEO. On the bright side, he says, Cash flow increased by $415 million to $540 million and the company as access to $2.6 billion in funds. The company also announced it signed contracts with Medbuy Corporation, a $30-million renewal, and Air Canada.

Revenue and profit fell at Consolidated Graphics as same-store sales dropped 24.1% and election related printing demand was weak. The Houston-based company reported a Q4 net loss of $15.9 million compared to a $13.1 million gain in the prior year. Revenue was down 14% to $247.2 million.

“In the June quarter we have implemented significant wage, salary and headcount reductions throughout the business that will help alleviate the adverse impact of lower revenues on our operating margins," says CEO Joe Davis. Debut for the quarter was reduced total by $41.3 million, he says.

AAF Reinvents Itself

At a time when some associations are struggling, the American Advertising Federation has added new corporate members and is attempting to renew its image with a new reality TV show, Facebook, and Twitter, according to a recent Adage article.

It's all happening under James Edmund Datri, 42, who recently spoke to a breakfast meeting and "State of the Industry" luncheon hosted by the Cincinnati Ad Club.

Mr. Datri wants to improve the industry's image. To that end, he said he's in talks about turning the AAF's National Student Advertising Competition into a reality TV show, to give both students and the general public a better idea of what the industry actually does.

"One of the issues we have when it comes to public policy is that people don't have a very good perception of us," he said. "I want the public to see that advertising is so much more than [Madison Avenue], and I think by showcasing NSAC on a reality TV show, we're going to generate a positive perception of our industry that could really be a game changer."
Despite the recession and revenue reductions for the group because of cuts in corporate sponsorships, Mr. Datri said the AAF has had a net gain in corporate members on his watch, keeping to his goal of adding one new corporate member a month, including JCPenney and the Wm. Wrigley Jr. Co. so far.

Neenah Print Promotion: Northface Catalog

A couple of years ago Neenah Paper did a commercial buy-in and national release of the North Face catalog. This was the catalog that North Face sends to buyers of department stores and outdoor retail chains to show off their various camping and outdoor equipment. Neenah has done it again. This year’s buy-in features a CLASSIC® Linen Avalanche White cover with CLASSIC CREST® Avalanche White text pages. The print job is beautiful – no shock there as it was done on the Classics. The photography is stellar. Check out the image on pages 16 & 17 of a camp site at night. Great use of four color process that shows how well Neenah papers print. And if any of you are planning on scaling Mt. Everest, North Face has sleeping bags that are rated for -40 degrees Fahrenheit. These promos are available in limited quantities, to request a copy contact your friendly Millcraft Paper rep.

Commercial Printing Shipments Down 9% in March

As if those of us in the industry weren't already feeling it, a new report issued by What They Think, reports commercial printing shipments were down 9% in March '09, compared to 2008.“March commercial printing shipments were $7.67 billion, down -9% compared to March of last year,” said Dr. Webb, director of WhatTheyThink's Economics and Research Center. “March is historically one of the strongest printing months, but this time was quite a disappointment.”

Dr. Webb continued, “2009 is emerging as a severe challenge to the commercial printing industry overall. There are companies that are providing innovative cost-effective solutions for their clients, and taking business away from weak competitors through that innovation.” Dr. Webb noted that the downturn in consumer and business magazine ad pages, the decline in newspaper inserts from retailer cutbacks and decreases in newspaper circulation, and reductions in mailings by catalogers have affected big printers the most. “Printers of all sizes have been affected in this downturn and the shift to digital media. But we feel that future growth of the printing industry will rely on how well they serve small and mid-size businesses.”

GM, Chrysler Bankruptcies Could Leave Agencies Holding $300 Million

As Chrysler and General Motors Corp. fight to stay alive, the ripple effect is well underway. AdAge reports the automakers' three major agency holding companies could be left in the lurch collectively for more than $300 million.

In Chrysler's Chapter 11 filing last week, Omnicom Group's BBDO Detroit is listed as its second-largest unsecured creditor, owed $58.1 million. It's believed, however, that the bulk of that money is owed not to the agency but to the media for purchases made on Chrysler's behalf. The majority of that is believed to be owed to local TV stations, as Chrysler moved from national buys to spot earlier this year, according to three executives close to the matter.

The government has created a special pot it will fund to support so-called critical vendors. The court will decide whether BBDO qualifies as one. If that status is granted, the agency would collect about a third of the $58.1 million it is owed and use its sequential-liability claim for the rest during the time Chrysler is in bankruptcy, one of the executives said. Neither BBDO nor Omnicom would comment.

In the meantime, BBDO was hard at work last week on an educational ad campaign for Chrysler designed to explain to consumers that despite the bankruptcy, the automaker is still in business. The ads were to break May 3 in newspapers in the top 50 U.S. cities and today in The Wall Street Journal and The New York Times and USA Today on Monday.

GM has another month to go before its deadline to satisfy creditors or declare its own bankruptcy, but should it be forced to do so, Publicis Groupe and Interpublic Group of Cos. could be on the hook for a combined $250 million, according to Ad Age estimates.

'Conservative assumptions'Interpublic VP-Chief Financial Officer Frank Mergenthaler said on the company's first-quarter call with analysts last week that receivables, work in progress and committed media for GM stood at roughly $150 million at the end of February and that figure "is still a relatively good number" for the scope of the holding company's exposure to the automaker. Michael Roth, chairman-CEO, said on the same call that the $150 million figure "assumes some very conservative assumptions, and hopefully that won't be the case, but we're using that for guidance." Mr. Roth said the figure doesn't include a worst-case scenario, notably a wholesale shutdown of Interpublic's Detroit operations, which is highly unlikely at this juncture.

McCann Erickson, Birmingham, Mich., handles the GM corporate account and Saab, which the automaker will cut from its garage of eight U.S. vehicle brands. Campbell-Ewald is Chevy's longtime agency. Deutsch, Los Angeles, has Saturn, which GM hopes to sell or shutter.

The amount GM owes Publicis could be as high as $100 million or more, according to two executives familiar with the relationship. CEO Maurice Levy was unavailable to comment.

Standard & Poor's said in late March Publicis "is significantly exposed to [GM], particularly through its media-buying arm. If GM files for Chapter 11, Publicis could . . . face significant losses on its outstanding receivables from GM."

Publicis' Starcom MediaVest Group handles media planning and buying in the U.S. for all GM brands; digital work via Digitas; and creative for Buick-Pontiac-GMC. GM announced last week that Pontiac will be eliminated.
Several auto-industry experts predict that GM, trying to trim costs and work with a leaner organization, will consolidate its U.S. creative accounts with a single holding company. But others, such as Jim Moore, former president of Leo Burnett, Detroit, said a shrunken GM no longer needs big agencies that are part of holding companies.

Domtar Posts First Quarter Loss

Domtar Corporation today reported a net loss of $45 million ($0.09 per share) for the first quarter of 2009 compared to a net loss of $676 million ($1.31 per share) for the fourth quarter of 2008 and net earnings of $36 million ($0.07 per share) for the first quarter of 2008. Sales for the first quarter of 2009 amounted to $1.3 billion. Excluding items(1) listed below, the Company lost $38 million ($0.07 per share(1)) for the first quarter of 2009 compared to a loss of $20 million ($0.04 per share(1)) for the fourth quarter of 2008 and earnings of $25 million ($0.05 per share(1)) for the first quarter of 2008.

First quarter 2009:- Refundable excise tax credit for the production and use of alternative bio fuel mixtures of $46 million ($28 million after tax);- Charge of $35 million ($21 million after tax) related to the write-down of property, plant and equipment at the Plymouth, North Carolina, mill; and- Closure and restructuring costs of $24 million ($14 million after tax).

Fourth quarter 2008:- Charge of $387 million ($270 million after tax) related to the impairment and write-down of property, plant and equipment and intangible assets;- Charge of $321 million ($321 million after tax) related to the impairment of goodwill;- Charge of $52 million related to a valuation allowance on Canadian deferred income tax assets;- Closure and restructuring costs of $28 million ($18 million after tax);- Gain on debt repurchase of $12 million ($8 million after tax); and- Costs of $5 million ($3 million after tax) related to synergies and integration.

First quarter 2008:- Reversal of a $23 million provision ($17 million after tax) due to the early termination of an unfavorable contract by the counterparty;- Costs of $8 million ($5 million after tax) related to synergies and integration; and- Closure and restructuring costs of $1 million ($1 million after tax).

"We continue to face a very hostile environment in pulp with prices reaching cyclical lows. To bring our system back in balance we have announced the indefinite closure of our Woodland pulp mill and idled our Dryden pulp mill for ten weeks," said John D. Williams, President and Chief Executive Officer. "Our people have responded remarkably well to the mandate of right-sizing the organization, improving its operating performance and reducing procurement costs and discretionary spending. We have generated free cash flow and our paper inventories have been significantly reduced despite a very weak demand environment. This could prove to be a catalyst as demand for fine paper levels off," added Mr. Williams.

IP - Earnings Up on Fuel Credits

International Paper today reported preliminary 2009 first-quarter net earnings of $257 million ($0.61 per share) compared with a loss of $1.79 billion ($4.25 per share) in the fourth quarter of 2008 and earnings of $133 million ($0.31 per share) in the first quarter of 2008. Amounts in all periods include special items, including $330 million ($0.78 per share) in the first quarter of 2009 for alternative fuel mixture credits, and a $1.8 billion goodwill impairment charge ($4.22 per share) in the 2008 fourth quarter.

Earnings from continuing operations and before special items in the 2009 first quarter totaled $34 million ($0.08 per share), compared with $89 million ($0.21 per share) in the fourth quarter of 2008 and $175 million ($0.41 per share) in the first quarter of 2008.

Quarterly net sales were $5.7 billion in the first quarter compared with $6.5 billion in the fourth quarter of 2008 and $5.7 billion reported in the first quarter of 2008.

Operating profits in the 2009 first quarter were $779 million, up from $132 million in the fourth quarter of 2008 and $332 million in the first quarter of 2008.

At the end of the 2009 first quarter, International Paper had $3.5 billion in cash and committed facilities. During the quarter, the company recorded $666 million of free cash flow (cash provided by operations less capital expenditures), including $145 million from the receipt of alternative fuel mixture credits, and repaid $550 million of debt.

"Six months into the weakest economic environment we've seen in decades, we continue to execute well," said John Faraci, chairman and chief executive officer. "During the quarter, we also benefited from lower input costs, the realization of integration synergies and reduced overhead spending."

SEGMENT INFORMATION
To measure the performance of the company's business segments from quarter to quarter without variations caused by special or unusual items, management focuses on business segment operating profits excluding those items. First-quarter 2009 segment operating profits and business trends, excluding special items, compared with the prior quarter are as follows:

Industrial Packaging operating profits increased to $188 million, up from $145 million in the fourth quarter of 2008. Considering fourth-quarter results included a $33 million gain related to insurance recovery for our Vicksburg, Miss., mill, the improvement quarter over quarter was substantial as favorable input costs, strong operations, and synergy benefits related to the industrial packaging acquisition offset weak volume and lower export pricing.

Printing Papers had an operating profit of $101 million compared with $113 million in the fourth quarter of 2008. Benefits from strong mill operations and input cost relief were offset by continued weak demand in the global paper and pulp markets. Except for pulp, pricing remained fairly steady in North America.

Consumer Packaging had an operating profit of $22 million, compared to $1 million in the previous quarter. Favorable price and operations along with benefits from lower input costs more than offset declining volumes.
The company's distribution business, xpedx, reported an operating loss of $7 million, down from the $26 million gain posted in the fourth quarter of 2008. Weakened paper and packaging volumes and lower margins were partly offset by favorable cost reductions.

Forest Products operating profits totaled $2 million, down from $38 million in the fourth quarter of 2008, as the company's land sales slowed due to the economic downturn. The company's previously announced transaction involving 143,000 acres is now expected to close by the end of the third quarter, subject to the buyer's receipt of financing.

Net corporate expense totaled $51 million for the 2009 first quarter, up from $21 million in the fourth quarter of 2008 and $21 million in the 2008 first quarter, reflecting higher pension expense in 2009.

EFFECTIVE TAX RATE
The effective tax rate from continuing operations and before special items for the first quarter of 2009 was 33 percent, compared with 23 percent in the fourth quarter of 2008, reflecting a higher proportion of taxable income in higher tax rate jurisdictions and certain one-time credits in the fourth quarter.

EFFECTS OF SPECIAL ITEMS
Special items in the first quarter of 2009 included a credit of $540 million before taxes ($330 million after taxes) for alternative fuel mixture credits earned under 2007 legislation enacted to provide a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses, a pre-tax charge of $36 million ($22 million after taxes) for costs related to the industrial packaging business integration, a pre-tax charge of $83 million ($65 million after taxes) for restructuring and other charges, and a $20 million after-tax charge for certain income tax adjustments. Restructuring and other charges included a $52 million pre-tax charge ($32 million after taxes) for severance and benefits associated with the company's 2008 overhead reduction program, a pre-tax charge of $23 million ($28 million after taxes) for closure costs for the Inverurie mill in Scotland, a $6 million pre-tax charge ($4 million after taxes) for facility closure costs in Franklin, Va., and a $2 million pre-tax charge ($1 million after taxes) for costs associated with the reorganization of the company's Shorewood operations.

Special items in the fourth quarter of 2008 included a pre-tax charge of $218 million ($132 million after taxes) for restructuring and other charges, a $1.8 billion charge, before and after taxes, for impairments of goodwill for the company's U.S. printing papers and U.S. and European coated paperboard businesses, a pre-tax charge of $26 million ($16 million after taxes) for costs related to the integration of the industrial packaging business, and a $40 million after-tax benefit for a reduction in deferred taxes related to the restructuring of the company's international operations. Restructuring and other charges included a $123 million pre-tax charge ($75 million after taxes) associated with the closure of the Louisiana mill, a $30 million pre-tax charge ($18 million after taxes) for the shutdown of a paper machine at the Franklin mill, a $53 million pre-tax charge ($32 million after taxes) for costs associated with the company's 2008 overhead cost reduction initiative, an $8 million pre-tax charge ($5 million after taxes) related to the closure of the company's Ace Packaging business, and a $4 million pre-tax charge ($2 million after taxes) associated with the reorganization of Shorewood operations.

Special items in the first quarter of 2008 included a $40 million pre-tax charge ($25 million after taxes) for adjustments of legal reserves, a pre-tax charge of $5 million ($3 million after taxes) for costs associated with the reorganization of Shorewood operations in Canada, a $3 million pre-tax gain ($2 million after taxes), for adjustments to previously recorded reserves associated with the company's transformation plan, and a $1 million credit before and after taxes for adjustments to estimated gains/losses of businesses previously sold. The net after-tax effect of these special items is a loss of $25 million, or $0.06 per share.

ALTERNATIVE FUEL MIXTURE CREDITS
The U.S. Internal Revenue Code allows an excise tax credit for alternative fuel mixtures produced by a taxpayer for sale, or for use as a fuel in a taxpayer's trade or business. The credit is scheduled to expire on Dec. 31, 2009. In January 2009, the company was notified that its registration as an alternative fuel mixer was approved by the Internal Revenue Service. The company has submitted refund claims totaling $558 million ($330 million after associated expenses and taxes) for the period of Nov. 14, 2008, through March 31, 2009, based on actual production at its 20 integrated U.S. mills, and has received in the quarter refund checks of $145 million.
International Paper qualifies for the alternative fuel mixtures tax credit because it uses a bio-fuel known as black liquor, which is a byproduct of its wood pulping process, to power its mills. "This highly efficient process is one of the most environmentally beneficial and responsible energy-use practices by any energy-intensive industry," said John Faraci. "Today, we generate more than 70 percent of the energy used in our integrated U.S. mills from renewable resources, and we continue to reduce our fossil fuel usage every year. The availability of this tax credit is both timely and beneficial for our shareholders, employees, customers and the communities in which we operate. The funds provide important flexibility as the company strengthens its balance sheet while protecting as many jobs as we can in a challenging economy."

Starbucks New Print Ad Campaign

Starbucks is embarking on a long-term, story telling campaign focused on the quality, value and value system. The campaign will build over time, and take advantage of multiple channels, both traditional and non-traditional, supporting all of the distribution points of their business. According to their blog, it will be a validation to it's customers – and partners – of what Starbucks is all about and what they stand for.

You can see the first ad for this campaign in this Sunday’s New York Times: check out the back page of the business section.