International Paper 2012 Annual Report Download - page 50

CORPORATE OVERVIEW
While the operating results for International Paper’s
various business segments are driven by a number
of business-specific factors, changes in International
Paper’s operating results are closely tied to changes
in general economic conditions in North America,
Europe, Russia, Latin America, Asia and North Africa.
Factors that impact the demand for our products
include industrial non-durable goods production,
consumer spending, commercial printing and adver-
tising activity, white-collar employment levels, and
movements in currency exchange rates.
Product prices are affected by general economic
trends, inventory levels, currency movements and
worldwide capacity utilization. In addition to these
revenue-related factors, net earnings are impacted
by various cost drivers, the more significant of which
include changes in raw material costs, principally
wood, recycled fiber and chemical costs; energy
costs; freight costs; salary and benefits costs, includ-
ing pensions; and manufacturing conversion costs.
The following is a discussion of International Paper’s
results of operations for the year ended
December 31, 2012, and the major factors affecting
these results compared to 2011 and 2010.
RESULTS OF OPERATIONS
For the year ended December 31, 2012, International
Paper reported net sales of $27.8 billion, compared
with $26.0 billion in 2011 and $25.2 billion in 2010.
International net sales (including U.S. exports)
totaled $8.5 billion or 31% of total sales in 2012. This
compares with international net sales of $8.7 billion
in 2011 and $7.5 billion in 2010.
Full year 2012 net earnings attributable to Interna-
tional Paper Company totaled $794 million ($1.80 per
share), compared with net earnings of $1.3 billion
($3.03 per share) in 2011 and $691 million ($1.59 per
share) in 2010. 2012 and 2011 amounts include the
results of discontinued operations.
Earnings from continuing operations attributable to
International Paper Company after taxes in 2012
were $749 million, including $305 million of net spe-
cial items charges and $113 million of non-operating
pension expense compared with income of $1.3 bil-
lion, including $63 million of net special items
charges and $29 million of non-operating pension
expense in 2011, and $691 million, including $246
million of net special items charges and $59 million
of non-operating pension expense in 2010. Com-
pared with 2011, benefits from Temple-Inland
synergies, lower input costs and lower income tax
expense were more than offset by higher costs
associated with Temple-Inland step-up depreciation
and the impact of the divestiture of three container-
board mills, lower average sales price realizations
and unfavorable mix, higher operating costs, higher
maintenance outage costs and higher interest
expense. In addition, 2012 results included lower
equity earnings, net of taxes, relating to the Compa-
ny’s investment in Ilim Holdings, SA.
Earnings From Continuing Operations Attributable to
International Paper Company
(after tax, in millions)
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,800
$1,600
TIN Volume & Synergies
2011
TIN Step-up Dep’n&Divested Mills
Price & Mix
Operations & Costs
Maintenance Outages
Input Costs
Tax
llim JV
Non-Operating Pension
Special Items
2012
Interest
$1,273
$258 ($96) ($213)
($85) ($21) $77 ($85) $45 ($78) ($84) ($242)
$749
See Industry Segment Results on pages 27 through
32 for a discussion of the impact of these factors by
segment.
Discontinued Operations
2012:
In 2012, $45 million of net income adjustments were
recorded relating to discontinued businesses, includ-
ing $9 million of costs associated with the
announced agreement to sell the Temple-Inland
Building Products business. Also included are the
operating profits for the Temple-Inland Building
Products business.
2011:
In 2011, $49 million of net income adjustments were
recorded relating to prior sales of discontinued busi-
nesses, including a $30 million earnout payment
received by the Company in 2011 associated with the
sale of the Kraft Papers businesses in 2007 and a $15
million tax benefit for the reversal of local country
tax contingency reserves, for which the related stat-
ute of limitations has now expired, plus associated
interest income of $4 million recorded in 2011 related
to the 2006 sale of the Brazilian Coated Papers busi-
ness.
Income Taxes
A net income tax provision of $331 million was
recorded for 2012, including a net tax expense of $14
million related to internal restructurings and a $5
million expense to adjust deferred tax assets related
to post-retirement prescription drug coverage
(Medicare Part D reimbursements). Excluding these
items and the tax effect of other special items, the
tax provision was $410 million, or 29% of pre-tax
earnings before equity earnings.
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