International Paper 2012 Annual Report Download - page 100

A summary of long-term debt follows:
In millions at December 31 2012 2011
8.7% note – due 2038 $ 263 $ 273
9 3/8% note – due 2019 846 844
7.95% debentures – due 2018 1,462 1,505
7.5% note – due 2021 999 999
7.4% debentures – due 2014 303 303
7.3% notes – due 2039 721 725
6 7/8% notes – due 2023 – 2029 130 130
6.65% note – due 2037 44
6.4% to 7.75% debentures due 2025 – 2027 142 141
6 3/8% to 6 5/8% notes – due 2016 – 2018 373 —
6.0% notes – due 2041 585 600
5.85% notes – due 2012 —38
5.25% to 5.5% notes – due 2014 – 2016 701 701
4.75% notes – due 2022 899 900
Floating rate notes – due 2012 – 2017 (a) 314 356
Environmental and industrial development bonds –
due 2012 – 2035 (b) 1,812 1,958
Short-term notes (c) 255 279
Other (d) 331 152
Total (e) 10,140 9,908
Less: current maturities 444 719
Long-term debt $ 9,696 $9,189
(a) The weighted average interest rate on these notes was 2.6% in
2012 and 1.9% in 2011.
(b) The weighted average interest rate on these bonds was 5.6% in
2012 and 5.5% in 2011.
(c) The weighted average interest rate was 2.2% in 2012 and 5.0%
in 2011. Includes $29 million at December 31, 2012 and $173
million at December 31, 2011 related to non-U.S. denominated
borrowings with a weighted average interest rate of 5.6% in
2012 and 5.9% in 2011.
(d) Includes $61 million at December 31, 2012 and $79 million at
December 31, 2011, related to the unamortized gain on interest
rate swap unwinds (see Note 13).
(e) The fair market value was approximately $12.3 billion at
December 31, 2012 and $11.2 billion at December 31, 2011.
In addition to the long-term debt obligations shown
above, International Paper has $5.3 billion of debt
obligations payable to non-consolidated variable
interest entities having principal payments of $5.3
billion due in 2016, for which International Paper has,
and intends to effect, a legal right to offset these
obligations with Class B interests held in the entities.
Accordingly, in the accompanying consolidated
balance sheet, International Paper has offset the $5.3
billion of debt obligations with $5.2 billion of Class B
interests in these entities as of December 31, 2012
(see Note 11). Total maturities of long-term debt over
the next five years are 2013 – $444 million; 2014 –
$708 million; 2015 – $479 million; 2016 – $571 mil-
lion; and 2017 – $216 million.
At December 31, 2012, International Paper’s con-
tractually committed credit facilities (the Agree-
ments) totaled $2.5 billion. The Agreements
generally provide for interest rates at a floating rate
index plus a pre-determined margin dependent upon
International Paper’s credit rating. The Agreements
include a $1.5 billion contractually committed bank
facility that expires in August 2016 and has a facility
fee of 0.175% payable quarterly. The Agreements
also include up to $1.0 billion of commercial paper-
based financings based on eligible receivables
balances ($1.0 billion available as of December 31,
2012) under a receivables securitization program. On
January 9, 2013, the Company amended the receiv-
ables securitization program to extend the maturity
date from January 2013 to January 2014 . The
amended agreement has a facility fee of 0.35%
payable monthly. At December 31, 2012, there were
no borrowings under either the bank facility or
receivables securitization program. In November
2012, International Paper terminated the $250 million
receivable securitization facility previously acquired
from Temple-Inland.
Maintaining an investment grade credit rating is an
important element of International Paper’s financing
strategy. At December 31, 2012, the Company held
long-term credit ratings of BBB (stable outlook) and
Baa3 (stable outlook) by S&P and Moody’s,
respectively.
NOTE 13 DERIVATIVES AND HEDGING
ACTIVITIES
International Paper periodically uses derivatives and
other financial instruments to hedge exposures to
interest rate, commodity and currency risks. Interna-
tional Paper does not hold or issue financial instru-
ments for trading purposes. For hedges that meet
the hedge accounting criteria, International Paper, at
inception, formally designates and documents the
instrument as a fair value hedge, a cash flow hedge
or a net investment hedge of a specific underlying
exposure.
INTEREST RATE RISK MANAGEMENT
Our policy is to manage interest cost using a mixture
of fixed-rate and variable-rate debt. To manage this
risk in a cost-efficient manner, we enter into interest
rate swaps whereby we agree to exchange with the
counterparty, at specified intervals, the difference
between fixed and variable interest amounts calcu-
lated by reference to a notional amount.
Interest rate swaps that meet specific accounting cri-
teria are accounted for as fair value or cash flow
hedges. For fair value hedges, the changes in the fair
value of both the hedging instruments and the under-
lying debt obligations are immediately recognized in
interest expense. For cash flow hedges, the effective
portion of the changes in the fair value of the hedging
instrument is reported in Accumulated other
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