International Paper 2014 Annual Report Download

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2014 ANNUAL REPORT

Table of contents

  • Page 1
    2014 ANNUAL REPORT

  • Page 2
    OUR VISION TO BE ONE OF THE MOST RESPECTED AND SUCCESSFUL COMPANIES IN THE WORLD. Visit the online version of this annual report at ipannualreport.com

  • Page 3
    ... packaging, uncoated papers and market and fluff pulp. Headquartered in Memphis, Tenn., we employ approximately 58,000 people and are strategically located in more than 24 countries serving customers worldwide. NORTH AMERICA EMEA/RUSSIA $17.2B sales $3.1B sales ILIM JOINT VENTURE RUSSIA ASIA...

  • Page 4
    ...our customers need to meet their most challenging shipping, 62% PERCENTAGE OF TOTAL REVENUE 9% EMEA 85% NORTH AMERICA storage and sales requirements. End uses for our products include corrugated boxes, bulk packaging, retail displays, specialty packaging and paper bags. Our target market segments...

  • Page 5
    ... customers, and the way we lead, develop and grow our people. Leadership is an essential element of our long-term value creation strategy to be one of the best, most respected companies in the world. LEADERSHIP is the IP way. SAFETY PEOPLE CUSTOMERS OPERATIONAL EXCELLENCE SUSTAINABILITY FINANCIAL...

  • Page 6
    ...THE OUTSTANDING WORK OUR TEAM MEMBERS AROUND THE WORLD ARE DOING EVERY DAY TO ENABLE US TO REWARD OUR SHAREHOLDERS AND PROVIDE VALUE TO THE STAKEHOLDERS WE SERVE. TO THE SHAREOWNERS AND EMPLOYEES OF INTERNATIONAL PAPER Let me begin by saying how honored I am to be International Paper's new chairman...

  • Page 7
    ..., as vice president and general manager for all corrugated packaging operations across seven countries in Europe, the Middle East and Africa. In 2005, he was named vice president of corporate strategic planning and relocated to Memphis, Tenn. He became senior vice president, global supply chain, in...

  • Page 8
    ...$4,035 2,000 1,000 0 $3,605 2012 2013 2014 1 xpedx is reflected as a Discontinued Operation in all periods presented. 2 Includes F/X impact primarily related to Ilim JV USD-denominated net debt of ($0.63) in 2014 and ($0.07) in 2013. 3 Refer to financial highlights for reconciliation of non...

  • Page 9
    EARNINGS PER SHARE 1, 2, 3 3.50 2.80 2.10 $3.06 1.40 0.70 0 $2.51 2012 2013 2014 ANNUALIZED DIVIDEND 2.00 1.60 1.20 $1.20 $1.40 0.80 0.40 0 4Q12 4Q13 4Q14 CASH ALLOCATION STRATEGY STRATEGICALLY REINVEST IN THE BUSINESS RETURN CASH TO SHAREOWNERS MAINTAIN A STRONG BALANCE ...

  • Page 10
    ... industrial packaging business. We completed the successful spin-off of our xpedx business, from which we received more than $400 million in cash payments. Our foodservice business and Ilim joint venture each generated record revenue and our global papers business also posted much-improved year-over...

  • Page 11
    ... In 2014, our Ilim joint venture's upgraded facilities in Russia continued operating at near full capacity to help meet growing, long-term demand for high-quality low-cost softwood pulp in north and central China. Ilim shareowners benefitted from solid results in 2014, as the Ilim board of directors...

  • Page 12
    ...TEAM ABOVE FROM LEF T TO RIGHT: THOMAS G. K ADIEN, W. MICHAEL AMICK, JR., C. CATO E ALY, JE AN-MICHEL RIBIER AS. SE ATED LEF T TO RIGHT: MARK S. SUT TON, SHARON R. RYAN BELOW FROM LEF T TO RIGHT: PAUL J. K ARRE (RETIRED) , WILLIAM P. HOEL, GLENN R. L ANDAU, TOMMY S. JOSEPH, JOHN V. FAR ACI (RETIRED...

  • Page 13
    ... PACKAGING, PAPER AND PULP MARKETS. A LEGACY OF LEADERSHIP JOHN FARACI, FORMER CHAIRMAN AND CEO Following 40 years of dedicated service at International Paper, John V. Faraci retired earlier this year. John's career spanned a wide range of business positions, as well as management and executive...

  • Page 14
    ... lead. Of our 58,000 employees, International Paper has more than 5,000 leaders-first line leaders, plant managers, managers in sales, process improvement, safety, human resources, manufacturing, customer service, IT, and senior leadership. Leadership at International Paper is expected every day, at...

  • Page 15
    I N T E R N AT I O N A L PA P E R 2 014 A NN U A L R E P O R T 09 DIVERSITY AND INCLUSION MATTERS INTERNATIONAL PAPER IS COMMITTED TO DIVERSITY AND INCLUSION. WE KNOW TEAMS OF PEOPLE WITH DIFFERENT VIEWPOINTS AND BACKGROUNDS, MAKE BETTER DECISIONS AND REACH HIGHER LEVELS OF SUCCESS.

  • Page 16
    ... levels of productivity, reduced turnover, and improved safety performance. Highly engaged employees build customer loyalty, improve profitability, and sustain growth. We develop our leaders to inform and engage our employees so they are aligned in the mission of our company. We build great leaders...

  • Page 17
    ... that build technical and leadership competencies. We have similar programs for our finance, human resources and supply chain professionals. We believe the development of talent requires collaboration between the employee, their supervisors, leadership, human resources and corporate departments, and...

  • Page 18
    ... to set new standards in customer engagement and collaboration. Whether we are helping our customers ship fruit securely and cost-effectively, or working with our office product distributors and retailers to better manage their inventory, marketing and supply chain, International Paper dedicates...

  • Page 19
    I N T E R N AT I O N A L PA P E R 2 014 A NN U A L R E P O R T 13 EMBRACING SERVICE WE ARE A COMPANY WITH A LOCAL PRESENCE AND GLOBAL REACH. WE BRING EXTENSIVE TALENT AND PRACTICAL INNOVATION TO PROBLEM SOLVING, DELIVERING TOTAL, EFFICIENT SOLUTIONS.

  • Page 20
    ... demand for fluff pulp located outside North America, IP uses its global resource footprint to provide customers with local expertise and solutions. Challenge: With sales of cut-size paper essentially flat in a key overseas market, a European office products supplier is looking for new ways to grow...

  • Page 21
    ...The result: The EMEA region's paper business increased its cut-size paper sales to the customer by 30 percent and achieved an eight percent growth in value added/high end products in 2014. Challenge: How is IP leveraging technology to connect with consumers and customers? Solution: Print Hammermill...

  • Page 22
    ... to continuous and deliberate improvement, all of our team members are working to make International Paper the best manufacturing company in the world. International Paper operates 41 paper mills worldwide. We have the best people in the industry and we have always sought to operate our facilities...

  • Page 23
    ... T 17 THE BEST. THE SAFEST. INTERNATIONAL PAPER HAS MADE GREAT STRIDES IN SAFETY IMPROVEMENT. WHILE WE'VE DONE QUITE WELL REDUCING TOTAL INJURIES, WE CONTINUE TO WORK TO REDUCE SIGNIFICANT INJURIES. WE WILL NOT BE SATISFIED UNTIL EVERY ONE OF OUR EMPLOYEES AROUND THE WORLD GOES HOME SAFELY, EVERY...

  • Page 24
    ... DAY, FOR EVERY PERSON AND FOR EVERY JOB LIFE, at International Paper, means something more than the obvious. LIFE stands for "life-changing injury and fatality elimination," and it's our comprehensive, company-wide program about taking safety performance to the next level to eliminate the serious...

  • Page 25
    ...E P O R T 19 International Paper defines safety leadership as valuing people, leading by example and empowering employees. It is a fundamental competency of overall leadership in IP. These are the critical components of safety leadership, and are necessary in the development of a culture of safety...

  • Page 26
    ...supply chain. Through our 58,000 dedicated team members worldwide, International Paper will continue to focus on generating deliberate, continuous and sustainable improvement, and applying what we learn across every area of the company. Globally, International Paper's sustainability efforts continue...

  • Page 27
    I N T E R N AT I O N A L PA P E R 2 014 A NN U A L R E P O R T 21 HEIGHTENED PRIORITIES OUR 2020 SUSTAINABILITY GOALS ADDRESS AREAS WE HAVE PRIMARY CONTROL OVER AND ARE MATERIAL TO OUR GLOBAL OPERATIONS.

  • Page 28
    ... use. Having mapped our global paper mill water use, we are working to develop site specific plans at priority facilities that address additional efficiencies around water reuse and potential reduction. • Energy efficiency and greenhouse gases. International Paper continues to make steady progress...

  • Page 29
    ... to understanding their needs and achieving success across our value-chain. For the past 117 years, we have been a company rooted in values and growing with purpose. That commitment hasn't changed. At International Paper we believe that "Sustainability is In Our Nature." To learn more about what...

  • Page 30
    ...for the 12th time in the last 13 years. Ethisphere Institute's "World's Most Ethical Companies ® 2015." IP made the list for the ninth year in a row. Institutional Investor "Most Honored Company 2015" in the Paper & Packaging Sector. John Faraci and Carol Roberts topped the list for Best CEO, CFO...

  • Page 31
    ...and a net tax loss of $1 million for other items. Also includes the operating results of the xpedx business for the full year and the Temple-Inland Building Products business through the date of sale in July 2013, pre-tax charges of $32 million ($19 million after taxes) for costs associated with the...

  • Page 32

  • Page 33
    ...to the closing price as reported on the New York Stock Exchange, as of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2014) was approximately $21,745,527,580. The number of shares outstanding of the Company's common stock as of February 20, 2015 was...

  • Page 34
    ... Financial Information About International and U.S. Operations Competition and Costs Marketing and Distribution Description of Principal Products Sales Volumes by Product Research and Development Environmental Protection Climate Change Employees Executive Officers of the Registrant Raw Materials...

  • Page 35
    ... THE YEAR ENDED DECEMBER 31, 2014 ITEM 7A. ITEM 8. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report of Management on Financial Statements, Internal Control over Financial Reporting and Internal Control Environment and Board of Directors...

  • Page 36
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  • Page 37
    ... site. In the United States, at December 31, 2014, the Company operated 25 pulp, paper and packaging mills, 177 converting and packaging plants, 18 recycling plants and three bag facilities. Production facilities at December 31, 2014 in Europe, Asia, Africa, India, Latin America and South America...

  • Page 38
    Analysis of Financial Condition and Results of Operations. You can find information about the Company's manufacturing capacities on page A-4 of Appendix II. MARKETING AND DISTRIBUTION The Company sells packaging products, paper products and other products directly to end users and converters, as ...

  • Page 39
    ... Temple-Inland volumes from date of acquisition in February 2012. Includes Turkish box plants beginning in Q1 2013 when a majority ownership was acquired. Includes Brazil Packaging from date of acquisition in mid- January 2013. Includes North American, European and Brazilian volumes and internal...

  • Page 40
    ...; studies on innovation and improvement of pulping, bleaching, chemical recovery, papermaking, converting and coating processes; packaging design and materials development; mechanical packaging systems, environmentally sensitive printing inks and reduction of environmental discharges; re-use of raw...

  • Page 41
    ...BACT (Best Available Control Technology) would be required for any GHG emissions increase above 75,000 tons per year if a new source or Title V review was required for other regulated pollutants. On November 19, 2014 EPA issued a revised draft carbon accounting framework addressing the circumstances...

  • Page 42
    ... to 2009, vice president supply chain from 2007 until 2008, and vice president - strategic planning from 2005 until 2007. Mr. Sutton joined International Paper in 1984. John V. Faraci, 65, special advisor to the board since January 1, 2015. Mr. Faraci will retire as an officer and employee effective...

  • Page 43
    ... and executive project leader of IP Europe during 2007, and vice president and chief financial officer - IP Europe from 2005 until 2007. Mr. Nicholls joined International Paper in 1991. Jean-Michel Ribieras, 52, senior vice president president, IP Europe, Middle East, Africa & Russia since June 2013...

  • Page 44
    ... certain raw materials (principally virgin wood fiber, recycled fiber, caustic soda and starch), energy sources (principally natural gas, coal and fuel oil) and third-party companies that transport our goods. The market price of virgin wood fiber varies based upon availability and source. Increased...

  • Page 45
    ... effect on the market price of our securities, increase our cost of borrowing and require us to post collateral for derivatives in a net liability position. The Company's desire to maintain its investment grade rating may cause the Company to take certain actions designed to improve its cash flow...

  • Page 46
    ... 2010 could also increase costs with respect to medical coverage of the Company's full-time employees. Significant changes in any of these factors may adversely impact our cash flows, financial condition and results of operations. OUR PENSION PLANS ARE CURRENTLY UNDERFUNDED, AND OVER TIME WE MAY BE...

  • Page 47
    ... business and financial results. WE ARE SUBJECT TO CYBER-SECURITY RISKS RELATED TO BREACHES OF SECURITY PERTAINING TO SENSITIVE COMPANY, CUSTOMER, EMPLOYEE AND VENDOR INFORMATION AS WELL AS BREACHES IN THE TECHNOLOGY THAT MANAGES OPERATIONS AND OTHER BUSINESS PROCESSES. Our business operations rely...

  • Page 48
    ... recently completed acquisitions and joint ventures are synergies, cost savings, growth opportunities or access to new markets (or a combination thereof), and in the case of divestitures, the realization of proceeds from the sale of businesses and assets to purchasers placing higher strategic value...

  • Page 49
    ... low sales prices for the Company's common stock for each of the four quarters in 2014 and 2013 are set forth on page 87 of Item 8. Financial Statements and Supplementary Data. As of the filing of this Annual Report on Form 10-K, the Company's common shares are traded on the New York Stock Exchange...

  • Page 50
    ... graph compares a $100 investment in Company stock on December 31, 2009 with a $100 investment in our Return on Invested Capital (ROIC) Peer Group and the S&P 500 also made at market close on December 31, 2009. The graph portrays total return, 2009-2014, assuming reinvestment of dividends. Note...

  • Page 51
    ... PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS Earnings (loss) from continuing operations Discontinued operations Net earnings (loss) Cash dividends Total shareholders' equity COMMON STOCK PRICES High Low Year-end FINANCIAL RATIOS Current ratio Total debt to capital ratio...

  • Page 52
    ... share of our operations in Turkey. (f) Includes the operating results of the xpedx business for the full year and the Temple-Inland Building Products business through the date of sale in July 2013. Also includes pre-tax charges of $32 million ($19 million after taxes) for costs associated with...

  • Page 53
    ... a majority share of Andhra Pradesh Paper Mills Limited in India, pre-tax charges of $20 million ($12 million after taxes) for costs associated with signing an agreement to acquire Temple-Inland, and a pretax gain of $24 million ($15 million after taxes) related to the reversal of environmental and...

  • Page 54
    ... the operating results of the Company's xpedx business. (p) Includes tax expense of $14 million and $32 million for tax adjustments related to incentive compensation and Medicare Part D deferred tax write-offs, respectively, and a $40 million tax benefit related to cellulosic bio-fuel tax credits...

  • Page 55
    ... where pricing pressure continues due to the challenging economic conditions. We expect improved operating performance as we move past the isolated issues that impacted the 2014 fourth quarter in our North American Industrial Packaging and Brazil Printing Papers businesses. Input costs should...

  • Page 56
    ...share attributable to International Paper Company common shareholders is the most directly comparable GAAP measure. The Company calculates Operating Earnings by excluding the after-tax effect of items considered by management to be unusual from the earnings reported under GAAP, non-operating pension...

  • Page 57
    ...of Temple-Inland and a $13 million gain for a bargain purchase adjustment on the acquisition of a majority share of our operations in Turkey. Printing Papers' operating loss of $16 million represented a $287 million reduction in operating profits from 2013. The benefits of higher average sales price...

  • Page 58
    ... $726 million in cash. 2012: Upon the acquisition of Temple-Inland, management committed to a plan to sell the TempleInland Building Products business, and on December 12, 2012, International Paper reached an agreement to sell the business (including Del-Tin Fiber L.L.C.) to GeorgiaPacific for $750...

  • Page 59
    ... costs. The following is a discussion of International Paper's results of operations for the year ended December 31, 2014, and the major factors affecting these results compared to 2013 and 2012. RESULTS OF OPERATIONS For the year ended December 31, 2014, International Paper reported net sales...

  • Page 60
    ... IP & Sun Food Packaging Co., Ltd. joint venture in China due to competitive pressures on sales prices and higher pulp costs. In addition, 2013 includes a $15 million pretax charge for the impairment of a tradename intangible asset related to our India Papers business which has a net $3 million...

  • Page 61
    ... the fair value of the India Papers reporting unit and resulting impairment charge was due to a change in the strategic outlook for the India Papers operations. Also in the fourth quarter of 2013, the Company calculated the estimated fair value of its xpedx business using the discounted future cash...

  • Page 62
    ... related to the divestiture of three containerboard mills in 2012 and the sale of the Shorewood business. 2013: 2012: As referenced in Note 6 Acquisitions and Joint Ventures on pages 56 through 59 in Item. 8 Financial Statements and Supplementary Data, on July 2, 2012, International Paper...

  • Page 63
    ... has annual capacity of 1.4 million tons. Our Foodservice business produces cups, lids, food containers and plates through three domestic plants and four international facilities. Ilim Holding S.A. In October 2007, International Paper and Ilim Holding S.A. (Ilim) completed a 50:50 joint venture to...

  • Page 64
    ... associated with the acquisition and integration of Temple-Inland and mill divestiture costs) in 2012. Sales volumes decreased in 2014 compared with 2013 reflecting slightly softer market demand for boxes. Average sales price realizations were higher mainly due to the realization of price increases...

  • Page 65
    ... a trade name intangible asset in our India Papers business. Printing Papers In millions Sales Operating Profit (Loss) 2014 2013 2012 $ 5,720 $ 6,205 $ 6,230 (16) 271 599 paper and the closure our Courtland mill. Average sales price realizations were higher, reflecting sales price increases in both...

  • Page 66
    ... to competitive pressures. Asian Printing Papers net net sales in 2014 decreased 1% from 2013, but increased 7% from 2012. Operating profits increased 11% from 2013, but decreased 34% from 2012. Excluding sheet plant closure costs, costs associated with the permanent shutdown of a paper machine at...

  • Page 67
    ... market, average sales price realizations were lower for pulp and linerboard. Input costs increased year-over-year for wood, chemicals and energy. The Company received cash dividends from the joint venture of $56 million in 2014. No dividends were paid in 2013 and 2012. Entering the first quarter...

  • Page 68
    ... alternative fuel mixture tax credits as non-taxable income. The amended position has been accepted by the Internal Revenue Service (IRS) in the closing of the IRS tax audit for the years 2006 2009. As a result, during 2013, the Company recognized an income tax benefit of $753 million related to the...

  • Page 69
    ... purchase gain are included in the Net bargain purchase gain on acquisition of business in the accompanying consolidated statement of operations. 33 2014: On April 8, 2014, the Company acquired the remaining 25% of shares of Orsa International Paper Embalangens S.A. (Orsa IP) from its joint venture...

  • Page 70
    ...these divestitures. Temple-Inland's results of operations are included in the consolidated financial statements from the date of acquisition on February 13, 2012. Financing Activities Amounts related to early debt extinguishment during the years ended December 31, 2014, 2013 and 2012 were as follows...

  • Page 71
    ... debt plus net worth. At December 31, 2014, International Paper's net worth was $14.0 billion, and the total-debtto-capital ratio was 40%. The Company will continue to rely upon debt and capital markets for the majority of any necessary long-term funding not provided by operating cash flows. Funding...

  • Page 72
    ... and changes in values of plan assets and changes in interest rates. Ilim Holding S.A. Shareholder's Agreement In October 2007, in connection with the formation of the Ilim Holding S.A. joint venture, International Paper entered into a shareholder's agreement that includes provisions relating to...

  • Page 73
    ... the fair value of the India Papers reporting unit and resulting impairment charge was due to a change in the strategic outlook for the India Papers operations. Also in the fourth quarter of 2013, the Company calculated the estimated fair value of its xpedx business using the discounted future cash...

  • Page 74
    ... to calculate U.S. pension obligations for the years shown: 2014 Discount rate Rate of compensation increase 4.10% 3.75% 2013 4.90% 3.75% 2012 4.10% 3.75% The 2012, 2013 and 2014 returns above represent weighted averages of International Paper and TempleInland asset returns. International Paper and...

  • Page 75
    ... calculated for all of International Paper's plans, were as follows: In millions Pension expense U.S. plans (noncash) Non-U.S. plans Postretirement expense U.S. plans Non-U.S. plans Net expense 7 7 (1) 7 (4) 1 7 2 6 1 $ 387 $ 545 $ 342 $ 195 $ 231 - 5 3 1 - 2014 2013 2012 2011 2010 The market value...

  • Page 76
    ... fiber and chemical costs, have an impact on the Company's operating results, changes in general inflation have had minimal impact on our operating results in each of the last three years. Sales prices and volumes are more strongly influenced by economic supply and demand factors in specific markets...

  • Page 77
    ...31, 2014 and 2013 are stated at cost, which approximates market due to their short-term nature. Our interest rate risk exposure related to these investments was not material. We issue fixed and floating rate debt in a proportion consistent with International Paper's targeted capital structure, while...

  • Page 78
    ... in the United States of America considered appropriate in the circumstances to present fairly the Company's consolidated financial position, results of operations and cash flows on a consistent basis. Management has also prepared the other information in this annual report and is responsible...

  • Page 79
    ... auditors. The Committee's report recommending the inclusion of such financial statements in this Annual Report on Form 10-K will be set forth in our Proxy Statement. MARK S. SUTTON CHAIRMAN AND CHIEF EXECUTIVE OFFICER CAROL L. ROBERTS SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 43

  • Page 80
    ... of International Paper Company and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America...

  • Page 81
    ... with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2014 of the Company and our report dated February 26, 2015 expressed an unqualified opinion on...

  • Page 82
    CONSOLIDATED STATEMENT OF OPERATIONS In millions, except per share amounts, for the years ended December 31 NET SALES COSTS AND EXPENSES Cost of products sold Selling and administrative expenses Depreciation, amortization and cost of timber harvested Distribution expenses Taxes other than payroll ...

  • Page 83
    ... for the years ended December 31 NET EARNINGS (LOSS) OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Amortization of pension and post-retirement prior service costs and net loss: U.S. plans (less tax of $154, $195 and $124) Pension and postretirement liability adjustments: U.S. plans (less tax of $798...

  • Page 84
    ... Income Taxes Pension Benefit Obligation Postretirement and Postemployment Benefit Obligation Other Liabilities Redeemable Noncontrolling Interest Commitments and Contingent Liabilities (Note 11) Equity Common stock $1 par value, 2014 - 448.9 shares and 2013 - 447.2 shares Paid-in capital Retained...

  • Page 85
    ... for the years ended December 31 OPERATING ACTIVITIES Net earnings (loss) Depreciation, amortization, and cost of timber harvested Deferred income tax provision (benefit), net Restructuring and other charges Pension plan contribution Net bargain purchase gain on acquisition of business Periodic...

  • Page 86
    ...2013 Issuance of stock for various plans, net Repurchase of stock xpedx spinoff Dividends Acquisition of redeemable noncontrolling interest Remeasurement of redeemable noncontrolling interest Comprehensive income (loss) BALANCE, DECEMBER 31, 2014 $ $ Common Stock Issued 439 $ 1 - - Paid-in Capital...

  • Page 87
    ... OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS SHIPPING AND HANDLING COSTS International Paper (the Company) is a global paper and packaging company with primary markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia, Africa and the Middle...

  • Page 88
    ...adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are discounted to their present value when the amount and timing of expected cash payments are reliably determinable. ASSET RETIREMENT OBLIGATIONS A liability and...

  • Page 89
    ... at year-end exchange rates, while statements of operations are translated at average rates. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in Accumulated other comprehensive loss. NOTE 2 RECENT ACCOUNTING DEVELOPMENTS In April 2014...

  • Page 90
    ... and 9.1 million shares for the years ended December 31, 2014, 2013 and 2012, respectively, were not included in the computation of diluted common shares outstanding because their exercise price exceeded the average market price of the Company's common stock for each respective reporting date. NOTE...

  • Page 91
    ... (242) (9) $ (493) (502) 195 (307) (2) (b) (317) (b) (319) 124 (195) Cost of products sold Cost of products sold 2014 2013 2012 Location of Amount Reclassified from AOCI Business acquisition/divestiture Tax (expense)/benefit Net of tax Net gains and losses on cash flow hedging derivatives: Foreign...

  • Page 92
    ... by the Internal Revenue Service (IRS) in the closing of the IRS tax audit for the years 2006 2009. As a result, during 2013, the Company recognized an income tax benefit of $753 million related to the non-taxability of the alternative fuel mixture tax credits. NOTE 6 ACQUISITIONS AND JOINT VENTURES...

  • Page 93
    ... included as it does not have a material effect on the Company's consolidated results of operations. ORSA 2014: On April 8, 2014, the Company acquired the remaining 25% of shares of Orsa International Paper Embalangens S.A. (Orsa IP) from its joint venture partner, Jari Celulose, Papel e Embalagens...

  • Page 94
    ...information in accordance with accounting principles generally accepted in the United States, the Company reports Orsa IP's operating results on a one-month lag basis. TEMPLE-INLAND, INC. 2012: On February 13, 2012, International Paper completed the acquisition of Temple-Inland, Inc. (Temple-Inland...

  • Page 95
    ...the Temple-Inland acquisition included the following: Estimated Fair Value Average Remaining Useful Life (at acquisition date) $ 536 8 109 14 26 $ 693 12-17 years 5-10 years Indefinite 4-7 years 2 years subsequently merged with Unisource Worldwide, Inc., with the combined companies now operating as...

  • Page 96
    ... in cash. 2012: Upon the acquisition of Temple-Inland, management committed to a plan to sell the TempleInland Building Products business, and on December 12, 2012, International Paper reached an agreement to sell the business (including Del-Tin Fiber L.L.C.) to Georgia-Pacific for $750 million...

  • Page 97
    ...was due to a change in the strategic outlook for the business. In the fourth quarter of 2013, in conjunction with the annual testing of its reporting units for possible goodwill impairments, the Company calculated the estimated fair value of its India Papers business using the discounted future cash...

  • Page 98
    ...$ 2012 54 The Company's deferred income tax provision (benefit) includes a $13 million benefit, a $7 million provision and a $25 million provision for 2014, 2013 and 2012, respectively, for the effect of changes in non-U.S. and U.S. state tax rates. International Paper made income tax payments, net...

  • Page 99
    ... December 31, 2014 was $415 million. The net change in the total valuation allowance for the year ended December 31, 2014 was an increase of $2 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 is as follows...

  • Page 100
    ... examinations at any given time, both in the United States and overseas. In 2013, the Company concluded its examination with the U.S. Internal Revenue Service for the tax years 2006 through 2009 for both International Paper Company and Temple-Inland. As a result of the completion of the examinations...

  • Page 101
    ...Company's 2006 Transformation Plan forestland sales and in conjunction with the 2008 acquisition of Weyerhaeuser Company's Containerboard, Packaging and Recycling business. Rent expense was $154 million, $168 million and $185 million for 2014, 2013 and 2012, respectively. GUARANTEES estimated cost...

  • Page 102
    ... that International Paper violated Tennessee law by conspiring to limit the supply and fix the prices of containerboard from mid-2005 to the present. Plaintiffs in the state court action seek certification of a class of Tennessee indirect purchasers of containerboard products, damages and costs...

  • Page 103
    ... and Class B interests in the Investor Entities valued at approximately $5.0 billion. International Paper did not provide any financial support that was not previously contractually required for the years ended December 31, 2014, 2013 or 2012. Following the 2006 sale of forestlands and creation of...

  • Page 104
    ... (b) Cash payments (c) 2014 2013 2012 $ 38 $ 45 $ 49 90 72 79 36 22 33 73 84 87 (a) (b) (c) The net expense related to the Company's interest in the Entities is included in Interest expense, net in the accompanying consolidated statement of operations, as International Paper has and intends to...

  • Page 105
    ... to maintain minimum credit ratings on their long-term debt. In the third quarter of 2012, International Paper completed its preliminary analysis of the acquisition date fair value of the notes and determined it to be $2.09 billion. As of December 31, 2014 and 2013, the fair value of the notes...

  • Page 106
    ..., to fund the acquisition of Temple-Inland. During 2012, International Paper fully repaid the $1.2 billion term loan. During 2014, International Paper fully repaid the $200 million term loan. Amounts related to early debt extinguishment during the years ended December 31, 2014, 2013 and 2012 were as...

  • Page 107
    ... Portion) In millions Foreign exchange contracts Natural gas contracts Total $ $ 2014 10 $ - 10 $ 2013 - $ - - $ 2012 16 (1) 15 Certain raw materials used in our production processes are subject to price volatility caused by weather, supply conditions, political and economic variables and other 71

  • Page 108
    ... rate contracts Total $ $ (2) - (1) 12 (a) 9 $ $ 4 (1) (5) 21 19 $ $ (4) (4) - 22 14 $ $ 1 (1) - $ $ (1) 1 2014 2013 2012 Location of Gain (Loss) in Consolidated Statement of Operations Interest expense, net Interest expense, net Cost of products sold Interest expense, net Cost of products...

  • Page 109
    ... markets. Transfers between levels are recognized at the end of the reporting period. All of International Paper's derivative fair value measurements use Level 2 inputs. Below is a description of the valuation calculation and the inputs used for each class of contract: Interest Rate Contracts...

  • Page 110
    ... years of credited service and either final average earnings (salaried employees and hourly employees receiving salaried benefits), hourly job rates or specified benefit rates (hourly and union employees). In connection with the Temple-Inland acquisition in February 2012, International Paper assumed...

  • Page 111
    ...retirement plan for salaried employees who are senior vice presidents and above or who are designated by the chief executive officer as participants. These nonqualified plans are only funded to the extent of benefits paid, which totaled $38 million, $28 million and $95 million in 2014, 2013 and 2012...

  • Page 112
    ... rate movements Service cost is the actuarial present value of benefits attributed by the plans' benefit formula to services rendered by employees during the year. Interest cost represents the increase in the projected benefit obligation, which is a discounted amount, due to the passage of time...

  • Page 113
    ...quarter of 2014. Represents the expected rate of return for International Paper's qualified pension plan for 2014 and 2013. The weighted average rate for the Temple-Inland Retirement Plan was 7.00%, 6.16% and 5.70% for 2014, 2013 and 2012, respectively. The expected long-term rate of return on plan...

  • Page 114
    ... a weighted average of International Paper and Temple-Inland plan assets. The fair values of International Paper's pension plan assets at December 31, 2014 and 2013 by asset class are shown below. Plan assets included an immaterial amount of International Paper common stock at December 31, 2014 and...

  • Page 115
    ... pension benefit payments, excluding any termination benefits, were as follows: In millions 2015 2016 2017 2018 2019 2020 - 2024 OTHER U.S. PLANS $ 802 769 781 795 811 4,279 International Paper sponsors the International Paper Company Salaried Savings Plan and the International Paper Company Hourly...

  • Page 116
    ... Company makes Retirement Savings Account contributions equal to a percentage of an eligible employee's pay. In connection with the Temple-Inland acquisition, International Paper acquired two savings plans which were merged into the International Paper savings plans on December 31, 2012. The Company...

  • Page 117
    The weighted average assumptions used to determine the benefit obligation at December 31, 2014 and 2013 were as follows: 2014 U.S. Plans Discount rate Health care cost trend rate assumed for next year Rate that the cost trend rate gradually declines to Year that the rate reaches the rate it is ...

  • Page 118
    ... proceeds are credited to equity and issued shares are included in the computation of earnings per common share, with no effect on reported earnings. Equity is also increased by the tax benefit that International Paper will receive in its tax return for income reported by the employees in their...

  • Page 119
    ... compensation cost for the market condition component of the PSP plan: Twelve Months Ended December 31, 2014 Expected volatility Risk-free interest rate 19.01%-55.33% 0.13% - 0.78% (a) (b) The table does not include Continuity Award tandem stock options described below. No fair market value...

  • Page 120
    ... in selling and administrative expense) Income tax benefits related to stockbased compensation 2014 2013 2012 $ 118 $ 92 137 $ 74 116 48 At December 31, 2014, $117 million of compensation cost, net of estimated forfeitures, related to unvested restricted performance shares, executive continuity...

  • Page 121
    ... Company's proportionate share of the joint venture's underlying net assets. The differences primarily relate to purchase price fair value adjustments and currency translation adjustments. INFORMATION BY INDUSTRY SEGMENT Net Sales In millions Industrial Packaging Printing Papers Consumer Packaging...

  • Page 122
    ... States EMEA Pacific Rim and Asia Americas, other than U.S. Corporate Long-Lived Assets (a) $ 2014 9,476 926 897 1,553 383 $ 13,235 2013 $ 10,056 1,126 946 1,772 329 $ 14,229 External Sales By Major Product In millions Industrial Packaging Printing Papers Consumer Packaging Other Net Sales 2014...

  • Page 123
    ... FINANCIAL RESULTS (UNAUDITED) In millions, except per share amounts and stock prices 2014 Net sales Gross margin (a) Earnings (loss) from continuing operations before income taxes and equity earnings Gain (loss) from discontinued operations Net earnings (loss) attributable to International Paper...

  • Page 124
    ...Courtland mill, a charge of $1 million (before and after taxes) for integration costs associated with the acquisition of Temple-Inland, a pre-tax charge of $5 million ($3 million after taxes) for costs associated with the restructuring of the Company's Packaging business in Europe, and a net pre-tax...

  • Page 125
    ... Courtland mill, a pre-tax charge of $4 million ($3 million after taxes) for costs associated with the restructuring of the Asia Box operations, a pre-tax charge of $127 million ($122 million after taxes) for the impairment of goodwill and a trade name intangible asset of the Company's India Papers...

  • Page 126
    ...in the Company's xpedx business, a net pre-tax loss of $2 million ($1 million after taxes) for costs associated with the restructuring of the xpedx operations, and a pre-tax gain of $18 million ($6 million after taxes) related to the Building Products divestiture. (v) Includes a tax benefit of $651...

  • Page 127
    ...Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States (GAAP). Our internal...

  • Page 128
    ... of executives and directors of the Company is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year. There have been no changes in our internal control over financial reporting during the quarter ended...

  • Page 129
    ... owners and management and equity compensation plan information is hereby incorporated by reference to our definitive proxy statement that will be filed with the SEC within 120 days of the close of our fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE...

  • Page 130
    ...Incentive Plan, including 2015 Exhibits thereto. * + (10.5) 2014 Exhibits to the Amended and Restated 2009 Executive Management Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10K for the fiscal year ended December 31, 2013). + (10.6) Restricted Stock...

  • Page 131
    ...1, 2012 (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011). + (10.19) Form of Non-Competition Agreement, entered into by certain Company employees (including named executive officers) who have received restricted stock...

  • Page 132
    ... 10.2 to Temple-Inland's Quarterly Report on Form 10-Q for the quarter ended July 3, 2010, and filed with the Commission on August 9, 2010). (11) Statement of Computation of Per Share Earnings.* (12) Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. * (21) List of...

  • Page 133
    ... AND QUALIFYING ACCOUNTS INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In millions) Balance at Beginning of Period Description Reserves Applied Against Specific Assets Shown on Balance Sheet: Doubtful accounts - current Restructuring...

  • Page 134
    ...caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL PAPER COMPANY February 26, 2015 By: /S/ SHARON R. RYAN Sharon R. Ryan Senior Vice President, General Counsel and Corporate Secretary POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each...

  • Page 135
    ... J. Steven Whisler Director February 26, 2015 /S/ RAY G. YOUNG Ray G. Young Director February 26, 2015 /S/ CAROL L. ROBERTS Carol L. Roberts Senior Vice President and Chief Financial Officer February 26, 2015 /S/ TERRI L. HERRINGTON Terri L. Herrington Vice President - Finance and...

  • Page 136
    APPENDIX I 2014 LISTING OF FACILITIES (all facilities are owned except noted otherwise) PRINTING PAPERS Uncoated Papers and Pulp U.S.: Courtland, Alabama (1) Selma, Alabama (Riverdale Mill) Cantonment, Florida (Pensacola Mill) Ticonderoga, New York Riegelwood, North Carolina Eastover, South Carolina...

  • Page 137
    ..., New Jersey Spotswood, New Jersey Thorofare, New Jersey Binghamton, New York Buffalo, New York Rochester, New York Scotia, New York Utica, New York Charlotte, North Carolina (2 locations) 1 leased Lumberton, North Carolina Manson, North Carolina Newton, North Carolina Statesville, North Carolina...

  • Page 138
    ... leased DISTRIBUTION IP Asia Bags U.S.: Buena Park, California Beaverton, Oregon Grand Prairie, Texas CONSUMER PACKAGING International: China (8 locations) Malaysia Taiwan Thailand Vietnam FOREST PRODUCTS Coated Paperboard Ontario, California leased (3) (C & D Center) Augusta, Georgia Springhill...

  • Page 139
    ... II 2014 CAPACITY INFORMATION CONTINUING OPERATIONS Americas, other than U.S. 366 1,135 - 1,135 140 - 1,275 - (in thousands of short tons) Industrial Packaging Containerboard Printing Papers Uncoated Freesheet Bristols Uncoated Papers and Bristols Dried Pulp Newsprint Total Printing Papers Consumer...

  • Page 140
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  • Page 141
    ... Technology Officer Information Technology Patrick Wilczynski Vice President Manufacturing, EMEA Ron P. Wise Vice President Commercial National Accounts Container The Americas Ann B. Wrobleski Vice President Global Government Relations ILIM GROUP SENIOR LEADERSHIP Franz Josef Marx Chief Executive...

  • Page 142
    ...Executive Vice President and Chief Financial Officer Archer Daniels Midland Company Papers used in this report: Accent ® Opaque 120lb. Cover, 50lb. and 100lb. Text White Smooth Printed in the U.S. by RR Donnelley Senior Lead Team and Board of Directors Photographs Toby Richards ©2015 International...

  • Page 143
    ... (RETIRED). NOT PICTURED: WILLIAM J. BURNS Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com GLOBAL HEADQUARTERS International Paper Company 6400 Poplar Avenue Memphis, TN 38197, U.S.A. 901-419-9000 REGIONAL HEADQUARTERS International Paper Europe Middle East and Africa...

  • Page 144
    ... ©2015 International Paper Company. All rights reserved. Printed in USA. Accent, Alaska, Ballet, Chamex, ecotainer, Hammermill, Hold&Go, Rey, SecureStack and Svetocopy are registered trademarks of International Paper Company or its affiliates. POL is a trademark of International Paper Company or...