International Paper 2012 Annual Report Download - page 49

realizations and a less favorable product mix,
lower sales volumes and higher market-related
downtime, and higher operating expenses.
Operating profits in 2011 included costs of $201
million associated with the fixed asset impair-
ment and sale of the Shorewood business.
• Distribution’s profits of $22 million were $12
million lower than 2011. Higher sales price real-
izations and lower operating costs were more
than offset by lower sales volumes. Reorganiza-
tion expenses were $49 million in 2012 and $52
million in 2011.
Corporate items, net, of $51 million of expense in
2012 were lower than the $102 million of expense in
2011 due to lower supply chain initiative expenses.
The decrease in 2011 from 2010 primarily reflects
lower supply chain initiative expenses.
Corporate special items, including restructuring and
other items and net losses on sales and impairments
of businesses were a loss of $49 million in 2012
compared with a loss of $76 million in 2011 and a
loss of $45 million in 2010.
Interest expense, net, was $672 million in 2012
compared with $541 million in 2011 and $608 million
in 2010. The increase in 2012 reflects higher interest
expense associated with the Temple-Inland acquis-
ition, while the decrease in 2011 reflects lower debt
levels throughout much of the year.
A net income tax provision of $331 million was
recorded for 2012, including a net expense of $14
million related to internal restructurings and an
expense of $5 million to adjust deferred tax assets
related to post-retirement prescription drug coverage
(Medicare Part D reimbursements). The 2011 income
tax provision of $311 million includes a tax benefit of
$222 million related to the reduction of the carrying
value of the Shorewood business and the write-off of
a deferred tax liability associated with Shorewood, a
$24 million expense related to internal restructur-
ings, a $9 million expense for costs associated with
our acquisition of a majority interest in Andhra Pra-
desh Paper Mills Limited, a $13 million benefit
related to the release of a deferred tax asset valu-
ation allowance and a $2 million expense for other
items. The 2010 income tax provision of $221 million
includes a $14 million tax expense for an incentive
compensation deferred tax write-off, a $32 million
tax expense for a Medicare Part D deferred tax write-
off and a $40 million net tax benefit related to
cellulosic bio-fuel credits.
Discontinued Operations
In 2012, $54 million of operating profits for the
Temple-Inland Building Products business were
recorded in discontinued operations. In addition, $9
million of after-tax expenses associated with pursu-
ing the divestiture of this business were included.
In 2011, $49 million of net income adjustments
were recorded relating to prior sales of
discontinued businesses.
Liquidity and Capital Resources
For the year ended December 31, 2012, Interna-
tional Paper generated $3.0 billion of cash flow
from continuing operations compared with $2.7
billion in 2011. Capital spending for 2012 totaled
$1.4 billion, or 93% of depreciation and amor-
tization expense. Cash expenditures for acquis-
itions totaled $3.7 billion, while net decreases in
debt totaled $356 million. Our liquidity position
remains strong, supported by approximately $2.5
billion of committed credit facilities that we believe
are adequate to meet future liquidity requirements.
Maintaining an investment-grade credit rating for
our long-term debt continues to be an important
element in our overall financial strategy.
We expect to generate strong free cash flow again in
2013 and will continue our balanced use of cash
through investments in capital projects, the reduc-
tion of total debt, including the Company’s unfunded
pension obligation, returning value to shareholders
and strengthening our businesses through acquis-
itions, as appropriate.
Capital spending for 2013 is targeted at $1.4 billion,
or about 93% of depreciation and amortization.
Critical Accounting Policies and Significant
Accounting Estimates
Accounting policies that may have a significant effect
on our reported results of operations and financial
position, and that can require judgments by
management in their application, include accounting
for contingent liabilities, impairments of long-lived
assets and goodwill, pension and postretirement
benefit obligations, stock options and income taxes.
See pages 38 through 41 for a discussion of the
Company’s critical accounting policies and sig-
nificant accounting estimates.
Legal
See Note 10 Commitments and Contingent Liabilities
on pages 65 through 69 of Item 8. Financial State-
ments and Supplementary Data for a discussion of
legal matters.
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