01—Abstract
Summary
Summary of the 10-K filed February 27, 2012. Cited figures are marked; the original filing is the authoritative source.
International Paper Company, a global paper and packaging company, reported 2011 net sales of $26.0 billiona, up from $25.2 billion in 2010, and net earnings attributable to International Paper Company of $1.341 billion ($3.07 per diluted share), compared with $644 million ($1.48 per share) in 2010.
Earnings from continuing operations attributable to the company were $1.292 billionb after $63 million of net special items charges. Management cited higher sales price realizations, favorable operating performance and product mix, and lower net interest expense, partly offset by higher input costs of $0.61 per share. Free cash flow was approximately $1.7 billion in 2011, stable with 2010, after capital spending of $1.159 billion.
Total debt was $9.9 billionc at year-end, and the company closed the Temple-Inland acquisition on February 13, 2012, valued at approximately $4.5 billion, with a Department of Justice condition requiring divestiture of three containerboard mills with about 970,000 tons of capacity. The filing also flags significant uncertainties. The EPA's Boiler MACT rules and a pending Pulp and Paper NESHAP proposal could require significant capital and operating changes, though the company says it cannot yet estimate costs precisely; preliminary environmental control expenditures are about $105 million for 2013 and $260 million for 2014.
The U.S. defined benefit pension plans were underfunded by about $2.4 billiond on a GAAP basis, and the company made a $300 million voluntary contribution in 2011. Capital spending for 2012 is targeted at about $1.5 billion, including Temple-Inland facilities. The company reported a credit rating of BBB (stable) from S&P and Baa3 (stable) from Moody's at year-end, and a 2012 effective tax rate estimate of 33-35%.
02—Key points
Key Highlights
- Net earnings attributable to International Paper Company were $1.341 billion ($3.07 per diluted share) in 2011, versus $644 million ($1.48 per share) in 2010.
- Net sales rose to $26.0 billion in 2011 from $25.2 billion in 2010; industry segment operating profit was $2.2 billion, up from $1.7 billion.
- Free cash flow was approximately $1.7 billion in 2011, with cash provided by operations of $2.7 billion and capital spending of $1.2 billion.
- Temple-Inland acquisition closed February 13, 2012 at a total transaction value of approximately $4.5 billion, financed with $1.5 billion of 2011 borrowings plus new term loans of $1.2 billion and $200 million.
- Total debt was approximately $9.9 billion at December 31, 2011, and net worth was $13.3 billion with a total debt-to-capital ratio of 43% under covenant definitions.
- Environmental regulation is a key uncertainty: Boiler MACT rules are in effect following a court vacating the EPA's stay, and the company's preliminary estimate of environmental control expenditures is $105 million for 2013 and $260 million for 2014.
- Year-end 2011 pension benefit obligation liability recorded under ASC 715 was $2.4 billion, and the company made a $300 million voluntary pension contribution in 2011.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, International Paper kept $0.05.
- Revenue$26.03B100.0%
- Cost of revenue−$18.96B72.8%
- Gross profit$7.07B27.2%
- Operating costs−$4.86B18.7%
- Operating income$2.22B8.5%
- Interest, other & tax−$894.0M3.4%
- Net income$1.32B5.1%
Where FY2011 revenue went
$26.03B- Cost of revenue: $18.96B, 73% of revenue
- Net income: $1.32B, 5.1% of revenue
- SG&A: $1.89B, 7.2% of revenue
- Other operating costs: $2.97B, 11% of revenue
- Interest, other & tax: $894.0M, 3.4% of revenue
Kept 5.1% as net incomeNet income $1.32B · 5.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 27, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $26.03B$25.18B | +3.4% |
| Gross Profit | $7.07B$6.70B | +5.6% |
| SG&A Expenses | $1.89B$1.93B | −2.2% |
| Operating Income | $2.22B$1.69B | +31.4% |
| Interest Expense | $596.00M$643.00M | −7.3% |
| Net Income | $1.32B$691.00M | +91.3% |
| EPS (Basic) | $3.06$1.61 | +90.1% |
| EPS (Diluted) | $3.03$1.59 | +90.6% |
| Shares Outstanding (Basic) | 432.20M429.80M | +0.6% |
| Shares Outstanding (Diluted) | 437.00M434.20M | +0.6% |
05—Questions
Frequently Asked Questions
How did International Paper perform financially in 2011?
Net sales were $26.0 billion, up from $25.2 billion in 2010. Net earnings attributable to International Paper Company were $1.341 billion, or $3.07 per diluted share, compared with $644 million, or $1.48 per share, in 2010. Diluted earnings per share from continuing operations before special items were $3.10, compared with $2.05 in 2010.
What drove the earnings improvement in 2011?
Management attributed the improvement to margin expansion from higher price realizations and improved mix, and to operating and cost management, which more than offset higher input costs of $0.61 per share. The Ilim joint venture in Russia also contributed a $0.21 per share increase in earnings.
What is the status of the Temple-Inland acquisition?
The acquisition closed on February 13, 2012, for $32.00 per share in cash, with approximately $700 million of Temple-Inland debt assumed, for a total value of about $4.5 billion. The Department of Justice requires the company to divest three containerboard mills with about 970,000 tons of capacity within four months of closing.
What regulatory risks could affect the company's costs?
The EPA's Boiler MACT rules are in effect, and the EPA plans to finalize proposed revisions by spring 2012. A proposed Pulp and Paper NESHAP rule could have a significant adverse impact on the industry, though the company says it does not yet have firm cost estimates. Preliminary environmental control expenditure estimates are approximately $105 million for 2013 and $260 million for 2014.
How is the company's balance sheet and pension position?
At December 31, 2011, total debt was approximately $9.9 billion and the company held BBB (stable) and Baa3 (stable) ratings from S&P and Moody's. U.S. defined benefit plans were approximately $2.4 billion underfunded on a GAAP basis, though the company does not expect to need cash pension contributions in 2012, and capital spending for 2012 is targeted at about $1.5 billion.
06—Continue