International Paper 2014 Annual Report Download - page 103

67
purported class action complaints alleging civil
violations of Section 1 of the Sherman Act against
Temple-Inland and a number of other gypsum
manufacturers. The complaints were similar and
alleged that the gypsum manufacturers conspired or
otherwise reached agreements to: (1) raise prices of
gypsum board either from 2008 or 2011 to the present;
(2) avoid price erosion by ceasing the practice of issuing
job quotes; and (3) restrict supply through downtime
and limiting order fulfillment. The alleged classes are
all persons who purchased gypsum board and/or
gypsum finishing products directly or indirectly from any
defendant. The complainants seek to recover
unspecified treble actual damages and attorneys' fees
on behalf of the purported classes. On April 8, 2013,
the Judicial Panel on Multidistrict Litigation ordered
transfer of all pending cases to the U.S. District Court
for the Eastern District of Pennsylvania for coordinated
and consolidated pretrial proceedings, and the direct
purchaser plaintiffs and indirect purchaser plaintiffs filed
their respective amended consolidated complaints in
June 2013. The amended consolidated complaints
allege a conspiracy or agreement beginning in or before
September 2011. In September 2014, we reached an
agreement in principle to settle these cases for an
immaterial amount. In February 2015, we executed a
definitive settlement agreement, which is subject to
court approval.
In addition, in September 2013, similar purported class
actions were filed in courts in Quebec, Canada and
Ontario, Canada, with each suit alleging violations of
the Canadian Competition Act and seeking damages
and injunctive relief. The Company intends to dispute
the allegations made and to vigorously defend the
litigation. Because these Canadian cases are in a
preliminary stage, we are unable to predict an outcome
or estimate our maximum reasonably possible loss.
However, we do not believe that any material loss is
probable.
Tax
The Company was previously being challenged by the
Brazil taxing authorities concerning the statute of
limitations related to the use of certain tax credits. The
Company was previously appealing an unfavorable
March 2012 administrative court ruling. During August
2014, the Company settled this claim for $22 million
($11 million after taxes) as part of a tax amnesty
program sponsored by the Brazil taxing authorities.
General
The Company is involved in various other inquiries,
administrative proceedings and litigation relating to
environmental and safety matters, contracts, sales of
property, intellectual property, personal injury, labor and
employment (especially in California) and other
matters, some of which allege substantial monetary
damages. While any proceeding or litigation has the
element of uncertainty, the Company believes that the
outcome of any of the lawsuits or claims that are
pending or threatened or all of them combined (other
than those that cannot be assessed due to their
preliminary nature) will not have a material effect on its
consolidated financial statements.
NOTE 12 VARIABLE INTEREST ENTITIES AND
PREFERRED SECURITIES OF SUBSIDIARIES
VARIABLE INTEREST ENTITIES
In connection with the 2006 sale of approximately 5.6
million acres of forestlands, International Paper
received installment notes (the Timber Notes) totaling
approximately $4.8 billion. The Timber Notes, which do
not require principal payments prior to their August 2016
maturity, are supported by irrevocable letters of credit
obtained by the buyers of the forestlands.
During 2006, International Paper contributed the
Timber Notes to newly formed entities (the Borrower
Entities) in exchange for Class A and Class B interests
in these entities. Subsequently, International Paper
contributed its $200 million Class A interests in the
Borrower Entities, along with approximately $400
million of International Paper promissory notes, to other
newly formed entities (the Investor Entities, and
together with the Borrower Entities, the Entities) in
exchange for Class A and Class B interests in these
entities, and simultaneously sold its Class A interest in
the Investor Entities to a third party investor. As a result,
at December 31, 2006, International Paper held Class
B interests in the Borrower Entities 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
the Entities discussed above, the Timber Notes were
used as collateral for borrowings from third party
lenders, which effectively monetized the Timber Notes.
Provisions of certain loan agreements require any bank
issuing letters of credit supporting the Timber Notes to
maintain a credit rating above a specified threshold. In
the event the credit rating of a letter of credit bank is
downgraded below the specified threshold, the letters
of credit must be replaced within 60 days by letters of
credit from a qualifying institution, or for one letter of
credit bank, collateral must be posted. The Company,
retained to provide management services for the third-
party entities that hold the Timber Notes, has, as
required by the loan agreements, successfully replaced
banks that fell below the specified threshold or obtained
a waiver as further discussed below.