01—Abstract
Summary
Summary of the 10-K filed February 28, 2007. Cited figures are marked; the original filing is the authoritative source.
International Paper Company's 2006 results improved on stronger pricing, higher sales volumes and lower operating costs.
Net sales were $21.995 billiona in 2006 compared with $21.7 billion in 2005, and net earnings were $1.050 billion ($2.18 per diluted share), down from $1.100 billion ($2.21 per diluted share) in 2005. Earnings from continuing operations rose to $1.282 billion from $684 million, but this included $4.8 billion of gains on Transformation Plan forestland sales, partly offset by $1.4 billion of net losses on sales and impairments of businesses and $759 million of goodwill impairments. Industry segment operating profit was $2.074 billion, up from $1.622 billion in 2005.
The company is executing its Transformation Plan to focus on two platform businesses, Uncoated Papers (including Distribution) and Packaging. Through December 31, 2006, it had received about $9.7 billionb of estimated divestiture proceeds from an expected $11.3 billion, and it reduced debt by $6.2 billion since the plan was announced. It also repurchased 39.7 million shares for about $1.4 billion and made a $1.0 billion voluntary pension contribution.
Management expects first-quarter 2007 earnings from continuing operations to be somewhat lower than in the fourth quarter of 2006, mainly because of lower real estate sales. Liquidity remained supported by about $3.0 billionc of committed credit facilities and long-term credit ratings of BBB (S&P) and Baa3 (Moody's), both with stable outlooks.
Capital spending was $1.0 billiond in 2006 and is targeted at about $1.2 billion in 2007. Key risks identified include raw material and energy costs, pricing, demand, international exposure in Brazil, Russia, Poland and China, and ongoing legal reserves for siding and roofing settlements.
02—Key points
Key Highlights
- Net sales of $21.995 billion in 2006, up from $21.7 billion in 2005 and $20.721 billion in 2004.
- Net earnings of $1.050 billion ($2.18 per diluted share) in 2006, versus $1.100 billion ($2.21 per diluted share) in 2005; 2006 included a net loss from discontinued operations of $232 million.
- Earnings from continuing operations of $1.282 billion in 2006 included $4.788 billion of gains on forestland sales and $759 million of goodwill impairments.
- Industry segment operating profit rose to $2.074 billion from $1.622 billion, driven by $476 million of higher average sales prices.
- Transformation Plan: about $9.7 billion of estimated proceeds received through year-end 2006 from roughly $11.3 billion of announced divestitures; debt reduced by $6.2 billion since July 2005.
- Shareholder returns: 39.7 million shares repurchased for about $1.4 billion, and dividends of $1.00 per share maintained.
- Capital spending of $1.0 billion in 2006, with about $1.2 billion targeted for 2007; long-term credit ratings BBB (S&P) and Baa3 (Moody's), both stable outlook.
03—Questions
Frequently Asked Questions
What drove the improvement in 2006 operating results?
Management attributed the improvement to significantly higher sales price realizations ($476 million), higher sales volumes ($143 million), and cost reduction initiatives, improved operating performance and a more favorable product mix ($187 million). These gains more than offset higher energy and raw material costs ($101 million) and higher distribution costs ($113 million).
Why did earnings from continuing operations rise so sharply in 2006?
The increase reflects the $4.8 billion gain on sale of forestlands under the Transformation Plan, partly offset by $1.4 billion of net losses on sales and impairments of businesses, principally the U.S. Coated and Supercalendered Papers business, and $759 million of goodwill impairment charges.
What is the Transformation Plan and how far has it progressed?
Announced in July 2005, the plan focuses the portfolio on Uncoated Papers (including Distribution) and Packaging. Through December 31, 2006, the company received about $9.7 billion of estimated proceeds from announced divestitures of about $11.3 billion, with the balance expected in the first half of 2007, and reduced debt by $6.2 billion.
What outlook did management provide for early 2007?
Management expects first-quarter 2007 earnings from continuing operations to be somewhat lower than in the fourth quarter of 2006, primarily due to lower real estate sales. Price realizations are expected to improve as previously announced increases in Europe and Brazil are implemented, and input costs are expected to be mixed but slightly higher.
How strong is the company's liquidity and credit position?
The company reported approximately $3.0 billion of committed liquidity and was in compliance with all debt covenants at December 31, 2006. Its long-term credit ratings were BBB (stable outlook) from Standard & Poor's and Baa3 (stable outlook) from Moody's Investor Services.
04—Continue