01—Abstract
Summary
Summary of the 10-K filed February 22, 2018. Cited figures are marked; the original filing is the authoritative source.
International Paper Company is a global producer of renewable fiber-based packaging, pulp and paper products, operating in three segments: Industrial Packaging, Global Cellulose Fibers and Printing Papers, plus a 50%a equity interest in Ilim Holding S.A.
In 2017 net sales were $21.7 billionb, up from $19.5 billion in 2016, and net earnings attributable to International Paper were $2.1 billion ($5.13 per diluted share), compared with $904 million ($2.18 per diluted share) in 2016. The results include a provisional net tax benefit of $1.2 billion from the Tax Cuts and Jobs Act and a $354 million charge related to the Kleen Products antitrust settlement. Adjusted operating earnings per diluted share were $3.49 in 2017 versus $3.09 in 2016, and free cash flow was approximately $2.0 billion.
Cash provided by operations fell to $1.8 billionc from $2.5 billion, reflecting a $1.25 billion voluntary pension contribution. Total debt was approximately $11.2 billion at year-end, and the company held BBB (S&P) and Baa2 (Moody's) long-term ratings, both with stable outlooks. The company expects 2018 capital expenditures of about $1.5 billion and an effective tax rate of approximately 25-27%.
On January 1, 2018, International Paper transferred its North American Consumer Packaging business to a subsidiary of Graphic Packaging Holding Company in exchange for a 20.5% ownership interest and the assumption of a $660 milliond loan, which is reported as a discontinued operation. Management points to strong pricing and mix in 2017, offset by higher input costs, and to continued strong cash generation expected in 2018.
02—Key points
Key Highlights
- Net sales rose to $21.7 billion in 2017 from $19.5 billion in 2016; net earnings attributable to International Paper were $2.1 billion ($5.13 per diluted share) versus $904 million ($2.18 per diluted share).
- Results include a provisional net tax benefit of $1.2 billion from the Tax Cuts and Jobs Act, and a $354 million charge for the Kleen Products antitrust settlement.
- Adjusted operating earnings per diluted share were $3.49 in 2017 compared with $3.09 in 2016.
- Free cash flow was approximately $2.0 billion in 2017, versus $1.9 billion in 2016; cash provided by operations was $1.8 billion, including a $1.25 billion pension contribution.
- Industrial Packaging operating profit was $1.5 billion in 2017, while Global Cellulose Fibers rose to $65 million from a $179 million loss in 2016 and Printing Papers was $457 million.
- Total debt was approximately $11.2 billion at December 31, 2017; long-term credit ratings were BBB (S&P) and Baa2 (Moody's), both with stable outlooks.
- The North American Consumer Packaging business was transferred to Graphic Packaging on January 1, 2018 in exchange for a 20.5% ownership interest in the combined business.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, International Paper kept $0.10.
- Revenue$21.74B100.0%
- Cost of revenue−$14.80B68.1%
- Gross profit$6.94B31.9%
- Operating costs−$4.83B22.2%
- Operating income$2.11B9.7%
- Interest, other & tax$34.0M0.2%
- Net income$2.14B9.9%
Where FY2017 revenue went
$21.74B- Cost of revenue: $14.80B, 68% of revenue
- Other operating costs: $3.21B, 15% of revenue
- Operating income: $2.11B, 9.7% of revenue
- SG&A: $1.62B, 7.5% of revenue
Kept 9.7% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 22, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $21.74B$19.50B | +11.5% |
| Cost of Revenue | $14.80B$14.06B | +5.3% |
| Gross Profit | $6.94B$5.44B | +27.6% |
| SG&A Expenses | $1.62B$1.46B | +11.2% |
| Operating Income | $2.11B$802.00M | +163.1% |
| Interest Expense | $758.00M$695.00M | +9.1% |
| Net Income | $2.14B$904.00M | +137.2% |
| EPS (Basic) | $5.19$2.20 | +135.9% |
| EPS (Diluted) | $5.13$2.18 | +135.3% |
| Shares Outstanding (Basic) | 412.70M411.10M | +0.4% |
| Shares Outstanding (Diluted) | 417.70M415.60M | +0.5% |
05—Questions
Frequently Asked Questions
What drove the increase in net earnings in 2017?
Net earnings attributable to International Paper rose to $2.1 billion from $904 million, mainly because of a provisional net tax benefit of $1.2 billion from the Tax Cuts and Jobs Act. Operationally, the filing cites higher average sales price realizations and mix, higher sales volumes and the incremental earnings from the acquired Weyerhaeuser pulp business, partly offset by higher operating and input costs.
How significant is the Kleen Products settlement?
The company recorded a $354 million charge in 2017 related to the agreement to settle the Kleen Products antitrust class action lawsuit. The filing reports it as a special item and includes it in Industrial Packaging operating profit.
What is the company's outlook for 2018?
Management expects strong industry conditions, continued benefit from announced price increases, and another year of strong cash generation. Capital expenditures are planned at about $1.5 billion, the effective tax rate is estimated at 25-27%, and the company expects no required pension contributions in 2018, though voluntary contributions remain possible.
What is the impact of the North American Consumer Packaging transfer?
On January 1, 2018, the business was transferred to a subsidiary of Graphic Packaging Holding Company in exchange for a 20.5% equity interest and the assumption of a $660 million loan. The business is reported as discontinued operations, and the company expects to record a gain on the transfer in the first quarter of 2018.
How strong is the balance sheet and liquidity position?
The company reported total debt of approximately $11.2 billion and total shareholders' equity of $6.5 billion at year-end 2017. It had about $2.1 billion of credit facilities available, held no interest rate swaps, and stated it was in compliance with all debt covenants.
06—Continue