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30
consolidated statement of operations for the years
ended December 31, 2015, 2014 and 2013 were $226
million, $51 million and $41 million, respectively.
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.
The Company recorded equity earnings, net of taxes,
related to Ilim of $131 million in 2015 compared with a
loss of $194 million in 2014 and a loss of $46 million in
2013. Operating results recorded in 2015 included an
after-tax non-cash foreign exchange loss of $75 million
compared with an after-tax foreign exchange loss of
$269 million in 2014 and an after-tax foreign exchange
loss of $32 million in 2013 primarily on the
remeasurement of Ilim's U.S. dollar-denominated net
debt.
Sales volumes for the joint venture increased year over
year for shipments to China of hardwood pulp and
softwood pulp, but decreased for linerboard. Sales
volumes in the domestic Russian market increased for
hardwood pulp and paper, but decreased for softwood
pulp and linerboard. Average sales price realizations
were higher in 2015 for sales of hardwood pulp to export
markets and linerboard to the domestic market, but
were offset by lower average sales price realizations
for sales of softwood pulp to export markets. Input costs
increased year-over-year for wood, chemicals, fuel and
energy. Freight costs also increased. The Company
received cash dividends from the joint venture of $35
million in 2015 and $56 million in 2014. No dividends
were paid in 2013.
Entering the first quarter of 2016, sales volumes are
expected to be seasonally lower than in the fourth
quarter of 2015 due to the January holidays in Russia.
Average sales price realizations are expected to
decrease for exported hardwood pulp, softwood pulp
and containerboard, slightly offset by higher average
sales price realizations for paper in the domestic
market. Input costs for energy, chemicals and wood
should be higher and distribution costs are also
expected to increase.
LIQUIDITY AND CAPITAL RESOURCES
Overview
A major factor in International Paper’s liquidity and
capital resource planning is its generation of operating
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 pricing and cost controls has improved our cash flow
generation over an operating cycle.
Cash uses during 2015 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 $2.6 billion in 2015
compared with $3.1 billion for 2014 and $3.0 billion for
2013.
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
$433 million in 2015 versus 2014 driven mainly by
increased cash pension contributions in 2015. Cash
used for working capital components, accounts
receivable and inventory less accounts payable and
accrued liabilities, interest payable and other totaled
$222 million in 2015, compared with a cash use of $158
million in 2014 and a cash use of $486 million in 2013.
The Company generated free cash flow of
approximately $1.8 billion, $2.1 billion and $1.8 billion
in 2015, 2014 and 2013, 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 2015 2014 2013
Cash provided by operations $2,580 $3,077 $3,028
(Less)/Add:
Cash invested in capital projects (1,487) (1,366) (1,198)
Cash contribution to pension plan 750 353 31
Insurance reimbursement for
Guaranty Bank settlement ——(30)
Free Cash Flow $ 1,843 $2,064 $1,831
In millions
Three
Months
Ended
December
31, 2015
Three
Months
Ended
September
30, 2015
Three
Months
Ended
December
31, 2014
Cash provided by
operations $ 990 $ 837 $ 1,144
(Less)/Add:
Cash invested in capital
projects (489) (325)(405)
Free Cash Flow $ 501 $ 512 $ 739