01—Abstract
Summary
Summary of the 10-K filed February 26, 2013. Cited figures are marked; the original filing is the authoritative source.
International Paper Company, a global paper and packaging company, reported 2012 net sales of $27.8 billiona, up from $26.0 billion in 2011, and net earnings attributable to International Paper Company of $794 million ($1.80 per diluted share), compared with $1.3 billion ($3.03 per share) in 2011.
Operating Earnings per diluted share were $2.65b in 2012 versus $3.12 in 2011. The Temple-Inland acquisition, completed February 13, 2012 for approximately $3.7 billion in cash plus about $700 million of assumed debt, was the primary driver of results, and the company generated cash provided by continuing operations of $3.0 billion and free cash flow of $1.6 billion. Management reported that it reduced balance sheet debt by $1.9 billion since the Temple-Inland acquisition closed and increased its annual dividend by 14% to $1.20 per share.
The company cited headwinds including lower average sales price realizations and unfavorable mix ($313 millionc), higher operating costs ($186 million), and higher interest expense of $672 million, versus $541 million in 2011. Net special items and restructuring charges were significant, including $109 million of restructuring and other charges and an $86 million net loss on sales and impairments of businesses. The company outlined 2013 capital spending of about $1.4 billion and an estimated effective tax rate of 31-33%, and noted an agreement to divest the Temple-Inland Building Products business to Georgia-Pacific for $750 million in cash, subject to closing conditions, including Department of Justice review.
Balance-sheet items to watch include total debt of about $10.1 billiond, a benefit liability for pensions of $4.1 billion, and credit ratings of BBB (stable) from S&P and Baa3 (stable) from Moody's. The filing also flags environmental capital spending expectations of about $90 million in 2013, rising to $285 million in 2014 and $300 million in 2015, largely tied to the EPA's Boiler MACT rule, along with ongoing litigation including the Kleen Products containerboard antitrust suit and Bogalusa-related civil actions.
02—Key points
Key Highlights
- Net sales rose to $27.8 billion in 2012 from $26.0 billion in 2011, with Industrial Packaging sales up to $13.3 billion, driven by the Temple-Inland acquisition.
- Diluted earnings per share attributable to common shareholders were $1.80 in 2012, versus $3.03 in 2011; Operating Earnings per diluted share were $2.65, versus $3.12 in 2011.
- Cash provided by continuing operations was $3.0 billion and free cash flow was $1.6 billion, compared with $1.7 billion in each of 2011 and 2010.
- Total debt was about $10.1 billion at December 31, 2012; interest expense, net, rose to $672 million from $541 million, reflecting Temple-Inland financing.
- The annual dividend was increased 14% to $1.20 per share, with the quarterly dividend raised to $0.30 in the fourth quarter of 2012.
- Agreement to sell the Temple-Inland Building Products business to Georgia-Pacific for $750 million in cash, subject to closing conditions including Department of Justice review; Filing states the price would be adjusted to $710 million after the Del-Tin carve-out.
- 2013 capital spending is targeted at about $1.4 billion, and the company expects environmental capital projects of about $90 million in 2013, $285 million in 2014 and $300 million in 2015, largely tied to Boiler MACT.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, International Paper kept $0.04.
- Revenue$21.85B100.0%
- Cost of revenue−$14.61B66.8%
- Gross profit$7.25B33.2%
- Operating costs−$5.31B24.3%
- Operating income$1.93B8.8%
- Interest, other & tax−$1.14B5.2%
- Net income$794.0M3.6%
Where FY2012 revenue went
$21.85B- Cost of revenue: $14.61B, 67% of revenue
- Other operating costs: $3.64B, 17% of revenue
- Net income: $794.0M, 3.6% of revenue
- SG&A: $1.67B, 7.7% of revenue
- Interest, other & tax: $1.14B, 5.2% of revenue
Kept 3.6% as net incomeNet income $794.0M · 3.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 26, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $21.85B$26.03B | −16.1% |
| Gross Profit | $7.25B$7.07B | +2.4% |
| SG&A Expenses | $1.67B$1.89B | −11.3% |
| Operating Income | $1.93B$2.22B | −12.8% |
| Interest Expense | $742.00M$596.00M | +24.5% |
| Net Income | $794.00M$1.32B | −39.9% |
| EPS (Basic) | $1.82$3.06 | −40.5% |
| EPS (Diluted) | $1.80$3.03 | −40.6% |
| Shares Outstanding (Basic) | 435.20M432.20M | +0.7% |
| Shares Outstanding (Diluted) | 440.20M437.00M | +0.7% |
05—Questions
Frequently Asked Questions
What drove the change in International Paper's 2012 results?
The Temple-Inland acquisition, completed February 13, 2012, was the primary driver. Industrial Packaging net sales rose to $13.3 billion from $10.4 billion, and Temple-Inland synergies of $379 million were offset by higher step-up depreciation, lower average sales price realizations and unfavorable mix ($313 million), higher operating costs ($186 million), and the divestiture of three containerboard mills ($141 million).
How did earnings per share compare with 2011?
Diluted earnings per share attributable to common shareholders were $1.80 in 2012, compared with $3.03 in 2011. Operating Earnings per diluted share, a non-GAAP measure, were $2.65 in 2012 versus $3.12 in 2011. The filing attributes the decline to lower sales prices and mix, higher costs, and higher interest expense.
How strong is the company's liquidity and balance sheet?
The company reported cash provided by continuing operations of $3.0 billion and about $2.5 billion of committed credit facilities, with no borrowings under the bank facility or receivables program at year-end. Total debt was about $10.1 billion, and the total debt-to-capital ratio under the financial covenants was 42%. The company held BBB (stable) and Baa3 (stable) long-term ratings from S&P and Moody's.
What are the main risks to investors cited in the filing?
Key risks include cyclical demand and pricing, volatility in raw material, energy and transportation costs, indebtedness of about $10.1 billion, credit rating downgrades that could raise borrowing costs (about $4.6 billion of debt has rate step-ups tied to downgrades), pension underfunding with a benefit liability of $4.1 billion, international operations risk, and environmental compliance costs including Boiler MACT.
What is the outlook for 2013 cited in the filing?
Management expects significant incremental earnings in 2013 from strategic and cost-saving projects, with year-over-year improvement in North American Industrial Packaging. It expects higher input costs for fiber and energy and an unfavorable impact from the divested mills. Capital spending is targeted at about $1.4 billion, and the 2013 effective tax rate is estimated at 31-33%.
06—Continue