01—Abstract
Summary
Summary of the 10-K filed February 25, 2011. Cited figures are marked; the original filing is the authoritative source.
International Paper Company, a global paper and packaging company with primary markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa, reported net sales of $25.18 billiona in 2010, up from $23.37 billion in 2009, and net earnings attributable to International Paper Company of $644 million ($1.48 per diluted share), compared with $663 million ($1.55 per share) in 2009.
Management describes 2010 as a transition year in which the company emerged from a recession. Earnings per share before special items were $2.05b, more than twice the 2009 level of $0.88. Results were held back by a $344 million net loss from special items and by higher energy and raw material costs of $548 million, which were more than offset by higher average prices of $798 million and higher sales volumes of $269 million.
Industry segment operating profits were $1.69 billionc, down from $2.36 billion in 2009, which included alternative fuel mixture credits. Cash flow and balance sheet items were central to the filing. Cash provided by operations was $1.63 billion, and free cash flow before dividends was approximately $1.75 billion.
The company made voluntary contributions of $1.15 billiond to its U.S. pension plan and reduced debt, with net debt reduction of $383 million. Long-term debt was $8.36 billion at year-end, and total shareholders' equity was $6.83 billion. Capital spending for continuing operations was $775 million in 2010, with 2011 capital spending targeted at $1.2 to $1.3 billion.
The company reported committed credit facilities of $2.5 billion and long-term credit ratings of BBB (S&P) and Baa3 (Moody's), both with stable outlooks. Looking ahead, management expects 2011 to be a year of accelerating improvement, with price realizations and volumes expected to improve as the global economy recovers, though input costs are rising.
The company also flagged environmental regulation as a risk, noting that EPA Boiler MACT rules are expected by February 21, 2011, and that preliminary environmental control expenditure estimates are approximately $300 million for 2012 and $350 million for 2013. Alternative fuel mixture and cellulosic bio-fuel credits for 2009 remain under evaluation, and the company stated it could repay some of the $0.50 credit cash received.
02—Key points
Key Highlights
- Net sales rose to $25.18 billion in 2010 from $23.37 billion in 2009, while net earnings attributable to International Paper Company fell to $644 million ($1.48 per diluted share) from $663 million ($1.55 per share).
- Earnings per share before special items were $2.05 in 2010, compared with $0.88 in 2009, and the company reported its highest fourth-quarter earnings per share in over ten years.
- Industry segment operating profits declined to $1.69 billion from $2.36 billion, as 2009 included $898 million of net special-item gains tied to alternative fuel mixture credits.
- Cash provided by operations was $1.63 billion, and free cash flow was approximately $1.75 billion after a $1.15 billion voluntary U.S. pension contribution.
- Total debt fell, with net reductions of $383 million in 2010, and long-term debt stood at $8.36 billion at December 31, 2010.
- Capital spending was $775 million in 2010, with 2011 capital spending targeted at $1.2 to $1.3 billion; the quarterly dividend was raised to $0.1875 per share effective March 15, 2011.
- Environmental regulation poses a forward risk: EPA Boiler MACT rules are due by February 21, 2011, with preliminary environmental control expenditure estimates of approximately $300 million for 2012 and $350 million for 2013.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, International Paper kept $0.03.
- Revenue$25.18B100.0%
- Cost of revenue−$18.48B73.4%
- Gross profit$6.70B26.6%
- Operating costs−$5.01B19.9%
- Operating income$1.69B6.7%
- Interest, other & tax−$995.0M4.0%
- Net income$691.0M2.7%
Where FY2010 revenue went
$25.18B- Cost of revenue: $18.48B, 73% of revenue
- Other operating costs: $3.08B, 12% of revenue
- Net income: $691.0M, 2.7% of revenue
- SG&A: $1.93B, 7.7% of revenue
- Interest, other & tax: $995.0M, 4.0% of revenue
Kept 2.7% as net incomeNet income $691.0M · 2.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 25, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $25.18B$23.37B | +7.8% |
| Cost of Revenue | $18.48B$15.22B | +21.4% |
| Gross Profit | $6.70B$8.15B | −17.8% |
| SG&A Expenses | $1.93B$2.03B | −5.0% |
| Operating Income | $1.69B$2.36B | −28.6% |
| Interest Expense | $643.00M$702.00M | −8.4% |
| Net Income | $691.00M$663.00M | +4.2% |
| EPS (Basic) | $1.61$1.56 | +3.2% |
| EPS (Diluted) | $1.59$1.55 | +2.6% |
| Shares Outstanding (Basic) | 429.80M425.30M | +1.1% |
| Shares Outstanding (Diluted) | 434.20M428.00M | +1.4% |
05—Questions
Frequently Asked Questions
How did International Paper perform in 2010 compared with 2009?
Net sales increased to $25.18 billion from $23.37 billion. Net earnings attributable to the company were $644 million ($1.48 per diluted share), down from $663 million ($1.55 per share) in 2009, mainly because 2009 benefited from alternative fuel mixture credits. Excluding special items, earnings per share were $2.05, more than double the $0.88 reported in 2009.
What drove the company's operating results in 2010?
Higher average sales prices added $798 million and higher sales volumes added $269 million, along with improved operating performance and product mix of $154 million. These gains were partly offset by higher energy and raw material costs of $548 million, higher distribution costs of $95 million, and a net special-item loss of $344 million.
How strong is the company's balance sheet and liquidity?
Cash and temporary investments were $2.07 billion at year-end 2010, and the company had approximately $2.5 billion of committed credit facilities. Total shareholders' equity was $6.83 billion, and the company reported a total-debt-to-capital ratio of 41.2% and net worth of $12.4 billion under its financial covenant definitions. Long-term credit ratings were BBB (S&P) and Baa3 (Moody's), both with stable outlooks.
What are the main risks and uncertainties for 2011?
The filing cites rising input costs for fiber, chemicals and energy, cyclicality in demand and pricing, and environmental regulation, including EPA Boiler MACT rules that the company says could require significant capital investment. It also notes uncertainty about the cellulosic bio-fuel credit claim and the possibility of repaying part of the cash received for 2009 alternative fuel mixture credits, which could be significant.
What does management expect for 2011?
Management expects 2011 to be a year of accelerating improvement as the economy recovers, with price realizations and volumes expected to improve through the year. The first quarter is expected to be slightly lower than the fourth quarter of 2010, with rising input costs offsetting stable volumes and prices. The company expects an effective income tax rate of approximately 32% to 34% for 2011.
06—Continue