01—Abstract
Summary
Summary of the 10-K filed February 29, 2008. Cited figures are marked; the original filing is the authoritative source.
International Paper Company's 2007 results were driven by significantly higher paper and packaging price realizations, with net sales of $21.89 billiona (compared with $21.995 billion in 2006) and net earnings of $1.168 billion, or $2.70 per diluted share.
Industry segment operating profits rose to $2.423 billionb from $2.074 billion, with the company citing $461 million of higher average price realizations. Earnings from continuing operations before income taxes and minority interest were $1.654 billion, down from $3.188 billion in 2006, which included large 2006 Transformation Plan forestland gains. Management expects demand for North American printing papers and packaging to remain steady in early 2008, but warns that wood, energy and transportation costs are rising and that first-quarter 2008 earnings are expected to be lower than fourth-quarter 2007 earnings, excluding land sales.
The balance sheet and cash flow picture strengthened over the year. Cash provided by continuing operations was $1.948 billionc, against $1.010 billion in 2006, which was net of a $1.0 billion voluntary pension contribution. The company repurchased 33.6 million shares for about $1.2 billion, paid $436 million in dividends, and reduced debt by $875 million in retirements.
Long-term debt fell to $6.353 billiond, and total common shareholders' equity rose to $8.672 billion. Capital spending from continuing operations was $1.288 billion, with 2008 capital spending targeted at about $1.1 billion. Ratings were BBB (S&P) and Baa3 (Moody's), both with stable outlooks.
Strategically, the company completed most of its Transformation Plan divestitures in 2007, including Arizona Chemical, Kraft Papers, Beverage Packaging and most of Wood Products. It also acquired Central Lewmar for $189 million, obtained the Luiz Antonio mill in Brazil through a non-cash exchange, and bought a 50% equity interest in Ilim Holding S.A. in Russia for approximately $620 million. Forest Products profits fell to $471 million from $678 million, reflecting the 5.6 million acres of forestland sold in 2006.
02—Key points
Key Highlights
- Net sales of $21.89 billion in 2007, versus $21.995 billion in 2006 and $21.7 billion in 2005.
- Net earnings of $1.168 billion ($2.70 per diluted share), up from $1.050 billion ($2.18 per diluted share) in 2006.
- Industry segment operating profits of $2.423 billion, up from $2.074 billion, driven by $461 million of higher average price realizations.
- Cash provided by continuing operations of $1.948 billion, compared with $1.010 billion in 2006 (which was net of a $1.0 billion voluntary pension contribution).
- Repurchased 33.6 million shares for about $1.2 billion and paid $436 million in dividends; common shareholders' equity rose to $8.672 billion.
- Long-term debt declined to $6.353 billion; the company held BBB (stable) and Baa3 (stable) ratings from S&P and Moody's.
- 2008 capital spending is targeted at $1.1 billion, with first-quarter 2008 earnings expected to be lower than fourth-quarter 2007 excluding land sales.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, International Paper kept $0.05.
- Revenue$21.89B100.0%
- Cost of revenue−$16.06B73.4%
- Gross profit$5.83B26.6%
- Operating costs−$4.62B21.1%
- Operating income$1.22B5.6%
- Interest, other & tax−$47.0M0.2%
- Net income$1.17B5.3%
Where FY2007 revenue went
$21.89B- Cost of revenue: $16.06B, 73% of revenue
- Other operating costs: $2.78B, 13% of revenue
- Net income: $1.17B, 5.3% of revenue
- SG&A: $1.83B, 8.4% of revenue
Kept 5.3% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 29, 200805—Questions
Frequently Asked Questions
How did International Paper's 2007 earnings compare with 2006?
Net earnings were $1.168 billion ($2.70 per diluted share), compared with $1.050 billion ($2.18 per diluted share) in 2006. Earnings from continuing operations before income taxes and minority interest were $1.654 billion, down from $3.188 billion in 2006, which included large gains on the Transformation Plan forestland sales. Industry segment operating profits rose to $2.423 billion from $2.074 billion.
What is the company's outlook for early 2008?
Management expects steady demand for North American printing papers and packaging, with some slight price increases. However, first-quarter 2008 earnings are expected to be lower than fourth-quarter 2007 earnings, excluding land sales, due to higher planned mill maintenance costs and rising wood, energy and transportation costs. Management also noted that a deeper economic downturn in 2008 could hurt sales volumes and earnings.
How much cash did the company generate and how was it used?
Cash provided by continuing operations was $1.948 billion in 2007. Investment activities included $1.675 billion of divestiture proceeds, $239 million for acquisitions and $578 million for the Ilim Holding investment. Financing uses included $1.224 billion for share repurchases, $436 million in dividends and $875 million of debt reductions.
What were the major portfolio and strategic changes in 2007?
The company substantially completed its Transformation Plan divestitures in 2007, selling Beverage Packaging, Kraft Papers, Arizona Chemical and most of Wood Products. It acquired Central Lewmar LLC for $189 million, received the Luiz Antonio mill in Brazil in a non-cash asset exchange, and purchased 50% of Ilim Holding S.A. in Russia, which it is accounting for under the equity method.
What are the main risks flagged in the filing?
The filing cites the cost and availability of raw materials and energy (principally wood fiber, caustic soda, polyethylene, natural gas, coal and fuel oil), transportation costs, competition, pricing, and demand tied to economic conditions. It also notes credit rating changes, tight credit markets, pension and health care cost volatility, instability in Brazil, Russia, Poland and China, currency movements, environmental and climate regulation costs, and the risk of material manufacturing disruptions.
06—Continue