International Paper 2012 Annual Report Download - page 35

FLUCTUATIONS IN THE PRICES OF, AND THE
DEMAND FOR, OUR PRODUCTS COULD
MATERIALLY AFFECT OUR FINANCIAL CON-
DITION, RESULTS OF OPERATIONS AND
CASH FLOWS. Substantially all of our businesses
have experienced, and are likely to continue to
experience, cycles relating to industry capacity and
general economic conditions. The length and magni-
tude of these cycles have varied over time and by
product. In addition, changes in consumer prefer-
ences may increase or decrease the demand for our
fiber-based products and non-fiber substitutes.
These consumer preferences affect the prices of our
products. Consequently, our operating cash flow is
sensitive to changes in the pricing and demand for
our products.
COMPETITION IN THE UNITED STATES AND
INTERNATIONALLY COULD NEGATIVELY
IMPACT OUR FINANCIAL RESULTS. We operate
in a competitive environment, both in the United
States and internationally, in all of our operating
segments. Product innovations, manufacturing and
operating efficiencies, and marketing, distribution and
pricing strategies pursued or achieved by competitors
could negatively impact our financial results.
RISKS RELATING TO MARKET AND
ECONOMIC FACTORS
ADVERSE DEVELOPMENTS IN GENERAL
BUSINESS AND ECONOMIC CONDITIONS
COULD HAVE AN ADVERSE EFFECT ON THE
DEMAND FOR OUR PRODUCTS AND OUR
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. General economic conditions may
adversely affect industrial non-durable goods pro-
duction, consumer spending, commercial printing
and advertising activity, white-collar employment
levels and consumer confidence, all of which impact
demand for our products. In addition, a return to
volatility in the capital and credit markets, which
impacts interest rates, currency exchange rates and
the availability of credit, could have a material
adverse effect on our business, financial condition
and our results of operations.
THE LEVEL OF OUR INDEBTEDNESS COULD
ADVERSELY AFFECT OUR FINANCIAL CON-
DITION AND IMPAIR OUR ABILITY TO OPER-
ATE OUR BUSINESS. As of December 31, 2012,
International Paper had approximately $10.1 billion
of outstanding indebtedness, including $0 of
indebtedness outstanding under our credit facilities
and $9.6 billion of indebtedness outstanding under
our floating and fixed rate notes. The level of our
indebtedness could have important consequences to
our financial condition, operating results and busi-
ness, including the following:
• it may limit our ability to obtain additional debt
or equity financing for working capital, capital
expenditures, product development, debt serv-
ice requirements, acquisitions and general
corporate or other purposes;
• a portion of our cash flows from operations will
be dedicated to payments on indebtedness and
will not be available for other purposes, includ-
ing operations, capital expenditures and future
business opportunities;
• the debt service requirements of our indebted-
ness could make it more difficult for us to satisfy
other obligations;
• our indebtedness that is subject to variable rates
of interest exposes us to increased debt service
obligations in the event of increased interest
rates;
• it may limit our ability to adjust to changing
market conditions and place us at a competitive
disadvantage compared to our competitors that
have less debt; and
• it may increase our vulnerability to a downturn
in general economic conditions or in our busi-
ness, and may make us unable to carry out capi-
tal spending that is important to our growth.
In addition, we are subject to agreements that
require meeting and maintaining certain financial
ratios and covenants. A significant or prolonged
downturn in general business and economic con-
ditions may affect our ability to comply with these
covenants or meet those financial ratios and tests
and could require us to take action to reduce our
debt or to act in a manner contrary to our current
business objectives.
CHANGES IN CREDIT RATINGS ISSUED BY
NATIONALLY RECOGNIZED STATISTICAL
RATING ORGANIZATIONS COULD ADVERSELY
AFFECT OUR COST OF FINANCING AND HAVE
AN ADVERSE EFFECT ON THE MARKET PRICE
OF OUR SECURITIES. Maintaining an investment-
grade credit rating is an important element of our
financial strategy, and a downgrade of the Company’s
ratings below investment grade may limit our access
to the capital markets, have an adverse 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, including sale of assets,
suspension or further reduction of our dividend and
reductions in capital expenditures and working capital.
Under the terms of the agreements governing
approximately $4.6 billion of our debt as of
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