01—Abstract
Summary
Summary of the 10-K filed February 26, 2015. Cited figures are marked; the original filing is the authoritative source.
International Paper Company reported net sales of $23.6 billiona for 2014, compared with $23.5 billion in 2013 and $21.9 billion in 2012.
Net earnings attributable to International Paper Company were $555 millionb ($1.29 per diluted share), compared with $1.4 billion ($3.11 per share) in 2013 and $794 million ($1.80 per share) in 2012. Operating Earnings per diluted share, a non-GAAP measure, were $3.00 in 2014 versus $3.06 in 2013. Results were burdened by special items, most notably a $554 million charge for the shutdown of the Courtland, Alabama mill, a $276 million charge for early debt extinguishment, and a $100 million goodwill impairment at the Asia Industrial Packaging business.
Industrial Packaging operating profit rose to $1.9 billionc, while Printing Papers posted an operating loss of $16 million. Cash flow from operations was $3.1 billion in 2014, and free cash flow, a non-GAAP measure, was $2.1 billion, up from $1.8 billion in 2013. The company returned cash to shareholders through approximately $1 billion of share buy-backs and a 14% increase in the quarterly dividend, from $0.35 to $0.40 per share, effective with the fourth-quarter 2014 payment.
Total debt was approximately $9.4 billiond at year-end, and the company held BBB (S&P) and Baa2 (Moody's) long-term ratings, both with stable outlooks. The filing also highlights a pending risk: about $4.1 billion of third-party loans secured by installment notes from the 2006 forestlands sale mature in September 2015, which could accelerate roughly $1.2 billion of deferred taxes into 2015. For 2015, management expects capital spending of about $1.5 billion, a 2015 effective tax rate of about 33%, and strong free cash flow, while noting an overall challenging macroeconomic environment and continued pricing pressure in European Printing Papers and European Industrial Packaging.
02—Key points
Key Highlights
- Net sales of $23.6 billion in 2014, up from $23.5 billion in 2013 and $21.9 billion in 2012.
- Diluted EPS of $1.29 in 2014 versus $3.11 in 2013, reflecting $732 million of net special items losses; Operating Earnings per share were $3.00 versus $3.06 in 2013.
- Courtland, Alabama mill shutdown produced a $554 million pre-tax charge, and debt extinguishment costs added $276 million to restructuring and other charges.
- Free cash flow of $2.1 billion in 2014, compared with $1.8 billion in 2013 and $1.6 billion in 2012, on cash from operations of $3.1 billion.
- Shareholder returns included approximately $1 billion of share buy-backs and a dividend increase from $0.35 to $0.40 per quarter.
- Total debt of about $9.4 billion at December 31, 2014; the company was in compliance with its debt covenants and held BBB/Baa2 ratings with stable outlooks.
- Approximately $4.1 billion of third-party loans backed by installment notes mature in September 2015, which could accelerate roughly $1.2 billion of deferred taxes into 2015 if not extended, refinanced or replaced.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, International Paper kept $0.02.
- Revenue$23.62B100.0%
- Cost of revenue−$16.25B68.8%
- Gross profit$7.36B31.2%
- Operating costs−$5.30B22.5%
- Operating income$2.06B8.7%
- Interest, other & tax−$1.50B6.4%
- Net income$555.0M2.4%
Where FY2014 revenue went
$23.62B- Cost of revenue: $16.25B, 69% of revenue
- Other operating costs: $3.51B, 15% of revenue
- Net income: $555.0M, 2.4% of revenue
- SG&A: $1.79B, 7.6% of revenue
- Interest, other & tax: $1.50B, 6.4% of revenue
Kept 2.4% as net incomeNet income $555.0M · 2.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 26, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $23.62B$23.48B | +0.6% |
| Cost of Revenue | $16.25B— | — |
| Gross Profit | $7.36B$7.20B | +2.2% |
| SG&A Expenses | $1.79B$1.80B | −0.2% |
| Operating Income | $2.06B$2.23B | −7.8% |
| Interest Expense | $677.00M$669.00M | +1.2% |
| Net Income | $555.00M$1.40B | −60.2% |
| EPS (Basic) | $1.30$3.15 | −58.7% |
| EPS (Diluted) | $1.29$3.11 | −58.5% |
| Shares Outstanding (Basic) | 427.70M443.30M | −3.5% |
| Shares Outstanding (Diluted) | 432.00M448.10M | −3.6% |
05—Questions
Frequently Asked Questions
How did International Paper perform in 2014 compared with prior years?
Net sales rose to $23.6 billion from $23.5 billion in 2013 and $21.9 billion in 2012. Net earnings attributable to the company fell to $555 million ($1.29 per diluted share) from $1.4 billion ($3.11 per share) in 2013, mainly due to restructuring, impairment and other special items. Operating Earnings per diluted share, a non-GAAP measure, were $3.00 versus $3.06 in 2013.
What were the largest one-time charges in 2014?
The largest was a $554 million pre-tax charge for shutting down the Courtland, Alabama mill, recorded mainly in Printing Papers. The company also recorded $276 million of pre-tax early debt extinguishment costs, a $100 million goodwill impairment for the Asia Industrial Packaging business, and a $47 million pre-tax charge related to the ASG investment.
How is the company returning cash and managing its debt?
In 2014 the company repurchased shares for about $1 billion and raised its quarterly dividend to $0.40 per share from $0.35. It issued $800 million of 3.65% notes due 2024 and $800 million of 4.80% notes due 2044 to repay about $960 million of higher-cost notes. Total debt was about $9.4 billion at year-end, and the company had $2.0 billion of credit facilities with nothing drawn.
What is the main financing risk disclosed in the filing?
About $4.1 billion of third-party loans, secured by installment notes from the 2006 forestlands sale, mature in September 2015. If these loans are not extended, renewed or refinanced, the installment notes could be sold, accelerating roughly $1.2 billion of deferred income tax payments into 2015 rather than 2016. The company describes failure to refinance as unlikely.
What does management expect for 2015?
Management expects an overall challenging macroeconomic environment, with capital spending of about $1.5 billion, an effective tax rate of about 33%, and strong free cash flow. It expects improved operating performance in North American Industrial Packaging and benefits from the repositioned North American Printing Papers business after the Courtland closure, while pricing pressure continues in European Printing Papers and European Industrial Packaging.
06—Continue