International Paper 2014 Annual Report Download - page 68

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32
pricing and demand for our major products. While
changes in key cash operating costs, such as energy,
raw material and transportation costs, do have an effect
on operating cash generation, we believe that our focus
on pricing and cost controls has improved our cash flow
generation over an operating cycle.
Cash uses during 2014 were primarily focused on
working capital requirements, capital spending, debt
reductions and returning cash to shareholders.
Cash Provided by Operating Activities
Cash provided by operations totaled $3.1 billion in 2014
compared with $3.0 billion for 2013 and $3.0 billion for
2012.
The major components of cash provided by operations
are earnings from operations adjusted for non-cash
income and expense items, cash pension contributions
and changes in working capital. Earnings from
operations, adjusted for non-cash income and expense
items and cash pension contributions decreased by
$279 million in 2014 versus 2013 driven mainly by
increased cash pension contributions in 2014. Cash
used for working capital components, accounts
receivable and inventory less accounts payable and
accrued liabilities, interest payable and other totaled
$158 million in 2014, compared with a cash use of $486
million in 2013 and cash provided of $84 million in 2012.
The Company generated free cash flow of
approximately $2.1 billion, $1.8 billion and $1.6 billion
in 2014, 2013 and 2012, respectively. Free cash flow is
a non-GAAP measure and the most comparable GAAP
measure is cash provided by operations. Management
uses free cash flow as a liquidity metric because it
measures the amount of cash generated that is
available to maintain our assets, make investments or
acquisitions, pay dividends and reduce debt. The
following are reconciliations of free cash flow to cash
provided by operations:
In millions 2014 2013 2012
Cash provided by operations $3,077 $3,028 $2,967
(Less)/Add:
Cash invested in capital projects (1,366) (1,198) (1,383)
Cash contribution to pension plan 353 31 44
Cash received from unwinding a
timber monetization ——(251)
Change in control payments related
to Temple-Inland acquisition ——120
Insurance reimbursement for
Guaranty Bank settlement —(30) 80
Free Cash Flow $ 2,064 $1,831 $1,577
In millions
Three
Months
Ended
December
31, 2014
Three
Months
Ended
September
30, 2014
Three
Months
Ended
December
31, 2013
Cash provided by
operations $ 1,144 $ 933 $ 1,037
(Less)/Add:
Cash invested in capital
projects (405) (327)(439)
Cash contribution to
pension plan —90 —
Free Cash Flow $ 739 $ 696 $ 598
Alternative Fuel Mixture Credit
On July 19, 2011, the Company filed an amended 2009
tax return claiming alternative fuel mixture tax credits
as non-taxable income. The amended position has
been accepted by the Internal Revenue Service (IRS)
in the closing of the IRS tax audit for the years 2006 -
2009. As a result, during 2013, the Company
recognized an income tax benefit of $753 million related
to the non-taxability of the alternative fuel mixture tax
credits.
Investment Activities
Investment activities in 2014 were up from 2013
reflecting an increase in capital spending. The
Company maintains an average capital spending target
of $1.4 billion per year over the course of an economic
cycle. Capital spending was $1.4 billion in 2014, or 97%
of depreciation and amortization, compared with $1.2
billion in 2013, or 77% of depreciation and amortization,
and $1.4 billion, or 93% of depreciation and
amortization in 2012. Across our businesses, capital
spending as a percentage of depreciation and
amortization ranged from 87% to 104% in 2014.
The following table shows capital spending for
operations by business segment for the years ended
December 31, 2014, 2013 and 2012.
In millions 2014 2013 2012
Industrial Packaging $ 754 $ 629 $ 565
Printing Papers 318 294 449
Consumer Packaging 233 208 296
Distribution —910
Subtotal 1,305 1,140 1,320
Corporate and other 61 58 63
Total $1,366 $1,198 $1,383
Capital expenditures in 2015 are currently expected to
be about $1.5 billion, or 105% of depreciation and
amortization.