International Paper 2012 Annual Report Download - page 59

million in 2011. Operating profits in 2010 included
costs of approximately $10 million related to exiting
certain retail store and printing equipment segments,
and for professional fees related to a strategic study
of the xpedx business as a whole.
Looking ahead to the 2013 first quarter, operating
results will be seasonally lower, but will continue to
reflect the benefits of the ongoing transformation.
Equity Earnings, Net of Taxes – Ilim Holding
S.A.
International Paper accounts for its investment in
Ilim Holding S.A. (Ilim), a separate reportable
industry segment, using the equity method of
accounting. Prior to 2012, due to the complex organ-
izational structure of Ilim’s operations, and the
extended time required to prepare consolidated
financial information in accordance with accounting
principles generally accepted in the United States,
the Company reported its share of Ilim’s operating
results on a one-quarter lag basis. In 2012, the
Company determined that the elimination of the one-
quarter lag was preferable because the same period-
end reporting date improves overall financial
reporting as the impact of current events, economic
conditions and global trends are consistently
reflected in the financial statements. Beginning
January 1, 2012, the Company has applied this
change in accounting principle retrospectively to all
prior financial reporting periods presented.
The elimination of the one-quarter reporting lag for
Ilim had the following impact:
Consolidated Statement of Operations
In millions 2011 2010
Equity earnings (loss), net of taxes $ (19) $47
Earnings (loss) from continuing operations (19) 47
Net earnings (loss) attributable to International Paper
Company (19) 47
Basic earnings (loss) per share from continuing
operations (0.04) 0.11
Basic net earnings (loss) per share (0.04) 0.11
Diluted earnings (loss) per share from continuing
operations (0.04) 0.11
Diluted net earnings (loss) per share (0.04) 0.11
Consolidated Balance Sheet
In millions at December 31 2011
Investments $25
Retained earnings 25
The Company recorded equity earnings, net of taxes,
related to Ilim of $56 million in 2012 compared with
$134 million in 2011 and $102 million in 2010.
Operating results recorded in 2012 included an after-
tax foreign exchange gain of $16 million on the
remeasurement of U.S. dollar-denominated debt.
Operating results recorded in 2011 included an after-
tax foreign exchange loss of $24 million on the
remeasurement of U.S. dollar-denominated debt.
Sales volumes for the joint venture increased year-
over-year for shipments to China and other export
markets. Linerboard sales in the domestic Russian
market decreased slightly reflecting competitive
price pressures in late 2012. Average sales price real-
izations were significantly lower in 2012 primarily for
softwood pulp, but hardwood pulp and linerboard
also decreased in both the Russian domestic market
and in export markets. Input costs increased year-
over-year, primarily for wood. Freight costs also
increased. The Company received cash dividends
from the joint venture of $86 million in 2011 and $33
million in 2010. No dividends were paid in 2012.
Entering the first quarter of 2013, sales volumes are
expected to decrease due to weak demand in the
export markets and a seasonal slowdown in the
domestic market. Average sales price realizations are
expected to increase reflecting higher pulp and
linerboard prices in the Russian domestic market and
slightly higher export pulp prices. Lower input costs
for wood will be partially offset by higher energy
costs, while distribution costs are expected to
increase. Commissioning of a new pulp line at the
Bratsk mill and a coated and uncoated woodfree
paper machine at the Koryazhma mill will be com-
pleted in the first quarter with commercial pro-
duction beginning in the second quarter. As these
projects are placed in service, higher depreciation
and interest expense will negatively impact earnings.
LIQUIDITY AND CAPITAL RESOURCES
Overview
A major factor in International Paper’s liquidity and
capital resource planning is its generation of operat-
ing cash flow, which is highly sensitive to changes in
the 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 cost controls has improved
our cash flow generation over an operating cycle.
As part of our continuing focus on improving our
return on investment, we have focused our capital
spending on improving our key paper and packaging
businesses both globally and in North America.
Cash uses during 2012 were primarily focused on
higher capital spending and the Temple-Inland
acquisition.
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