International Paper 2012 Annual Report Download - page 60

Download and view the complete annual report

Please find page 60 of the 2012 International Paper annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 136

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136

Cash Provided by Operating Activities
Cash provided by continuing operations totaled $3.0
billion in 2012 compared with $2.7 billion for 2011
and $1.6 billion for 2010.
The major components of cash provided by continu-
ing operations are earnings from continuing oper-
ations adjusted for non-cash income and expense
items and changes in working capital. Earnings from
continuing operations, adjusted for non-cash income
and expense items, decreased by $304 million in
2012 versus 2011 driven mainly by a decrease in
earnings from continuing operations. Cash used for
working capital components, accounts receivable
and inventory less accounts payable and accrued
liabilities, interest payable and other totaled $84 mil-
lion in 2012, compared with $505 million in 2011 and
$458 million in 2010.
The Company generated free cash flow of approx-
imately $1.6 billion, $1.7 billion and $1.7 billion in
2012, 2011 and 2010, respectively. Free cash flow is a
non-GAAP measure and the most comparable GAAP
measure is cash provided by operations. Manage-
ment 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 2012 2011 2010
Cash provided by operations $ 2,960 $ 2,675 $1,631
(Less)/Add:
Cash invested in capital projects (1,383) (1,159) (775)
Cash contribution to pension plan, net
of tax refunds 44 300 1,042
Cash (received from) used for
European accounts receivable
securitization program —209 —
Tax receivable collected related to
pension contributions —(123) —
Cash received from unwinding a
timber monetization (251) (175) —
Change in control payments related to
Temple-Inland acquisition 120 ——
Cash received from alternative fuel
mixture credits —— (132)
Reductionincashtaxespaidrelatedto
cellulosic bio-fuel tax credits —— (17)
Cash paid for Guaranty Bank
settlement 80 ——
Free Cash Flow $ 1,570 $ 1,727 $1,749
In millions
Three
Months
Ended
December 31,
2012
Three
Months
Ended
September 30,
2012
Three
Months
Ended
December 31,
2011
Cash provided by operations $ 686 $ 863 $ 637
(Less)/Add:
Cash invested in capital
projects (382) (296) (434)
Cash contribution to
pension plan, net of tax
refunds —— 300
Cash received from
unwinding a timber
monetization —— (175)
Cash paid for Guaranty
Bank settlement 80 ——
Free Cash Flow $ 384 $ 567 $ 328
Cellulosic Bio-fuel Tax Credit
In a memorandum dated June 28, 2010, the IRS
concluded that black liquor would qualify for the
cellulosic bio-fuel tax credit of $1.01 per gallon pro-
duced in 2009. On October 15, 2010, the IRS ruled
that companies may qualify in the same year for the
$0.50 per gallon alternative fuel mixture credit and
the $1.01 cellulosic bio-fuel tax credit for 2009, but
not for the same gallons of fuel produced and con-
sumed. To the extent a taxpayer changes its position
and uses the $1.01 credit, it must re-pay the refunds
they received as alternative fuel mixture credits
attributable to the gallons converted to the cellulosic
bio-fuel credit. The repayment of this refund must
include interest.
One important difference between the two credits is
that the $1.01 credit must be credited against a
company’s Federal tax liability, and the credit may be
carried forward through 2015. In contrast, the $0.50
credit is refundable in cash. Also, the cellulosic bio-
fuel credit is required to be included in Federal tax-
able income.
The Company filed an application with the IRS on
November 18, 2010, to receive the required registra-
tion code to become a registered cellulosic bio-fuel
producer. The Company received its registration
code on February 28, 2011.
The Company has evaluated the optimal use of the
two credits with respect to gallons produced in 2009.
Considerations include uncertainty around future
Federal taxable income, the taxability of the alter-
native fuel mixture credit, future liquidity and uses of
cash such as, but not limited to, acquisitions, debt
repayments and voluntary pension contributions
versus repayment of alternative fuel mixture credits
with interest. At the present time, the Company does
not intend to convert any gallons under the alter-
native fuel mixture credit to gallons under the
cellulosic bio-fuel credit. On July 19, 2011 the Com-
pany filed an amended 2009 tax return claiming
alternative fuel mixture tax credits as non-
33