International Paper 2012 Annual Report Download - page 64

through current cash balances and cash from oper-
ations. Additionally, the Company has existing credit
facilities totaling $2.5 billion.
The Company was in compliance with all its debt
covenants at December 31, 2012. The Company’s
financial covenants require the maintenance of a
minimum net worth of $9 billion and a total debt-to-
capital ratio of less than 60%. Net worth is defined as
the sum of common stock, paid-in capital and
retained earnings, less treasury stock plus any
cumulative goodwill impairment charges. The calcu-
lation also excludes accumulated other compre-
hensive income/loss and Nonrecourse Financial
Liabilities of Special Purpose Entities. The total debt-
to-capital ratio is defined as total debt divided by the
sum of total debt plus net worth. At December 31,
2012 , International Paper’s net worth was $13.9 bil-
lion, and the total-debt-to-capital ratio was 42%.
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 decisions will be guided by our capi-
tal structure planning objectives. The primary goals
of the Company’s capital structure planning are to
maximize financial flexibility and preserve liquidity
while reducing interest expense. The majority of
International Paper’s debt is accessed through global
public capital markets where we have a wide base of
investors.
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.
Contractual obligations for future payments under
existing debt and lease commitments and purchase
obligations at December 31, 2012 , were as follows:
In millions 2013 2014 2015 2016 2017 Thereafter
Maturities of long-term
debt (a) $ 444 $ 708 $ 479 $ 571 $ 216 $ 7,722
Debt obligations with
right of offset (b) — — — 5,173 — —
Lease obligations 198 136 106 70 50 141
Purchase obligations (c) 3,213 828 722 620 808 2,654
Total (d) $3,855 $1,672 $1,307 $6,434 $1,074 $10,517
(a) Total debt includes scheduled principal payments only.
(b) Represents debt obligations borrowed from non-consolidated
variable interest entities for which International Paper has, and
intends to effect, a legal right to offset these obligations with
investments held in the entities. Accordingly, in its con-
solidated balance sheet at December 31, 2012, International
Paper has offset approximately $5.2 billion of interests in the
entities against this $5.2 billion of debt obligations held by the
entities (see Note 11 Variable Interest Entities and Preferred
Securities of Subsidiaries on pages 69 through 72 in Item 8.
Financial Statements and Supplementary Data).
(c) Includes $3.6 billion relating to fiber supply agreements
entered into at the time of the 2006 Transformation Plan forest-
land sales and in conjunction with the 2008 acquisition of
Weyerhaeuser Company’s Containerboard, Packaging and
Recycling business.
(d) Not included in the above table due to the uncertainty as to the
amount and timing of the payment are unrecognized tax bene-
fits of approximately $620 million.
We consider the undistributed earnings of our for-
eign subsidiaries as of December 31, 2012, to be
indefinitely reinvested and, accordingly, no U.S.
income taxes have been provided thereon. As of
December 31, 2012 , the amount of cash associated
with indefinitely reinvested foreign earnings was
approximately $840 million. We do not anticipate the
need to repatriate funds to the United States to sat-
isfy domestic liquidity needs arising in the ordinary
course of business, including liquidity needs asso-
ciated with our domestic debt service requirements.
Pension Obligations and Funding
At December 31, 2012, the projected benefit obliga-
tion for the Company’s U.S. defined benefit plans
determined under U.S. GAAP was approximately
$4.1 billion higher than the fair value of plan assets.
Approximately $3.7 billion of this amount relates to
plans that are subject to minimum funding require-
ments. Under current IRS funding rules, the calcu-
lation of minimum funding requirements differs from
the calculation of the present value of plan
benefits(the projected benefit obligation) for
accounting purposes. In December 2008, the Worker,
Retiree and Employer Recovery Act of 2008 (WERA)
was passed by the U.S. Congress which provided for
pension funding relief and technical corrections.
Funding contributions depend on the funding
method selected by the Company, and the timing of
its implementation, as well as on actual demo-
graphic data and the targeted funding level. The
Company continually reassesses the amount and
timing of any discretionary contributions and elected
to make voluntary contributions totaling $44 million
and $300 million for the years ended December 31,
2012 and 2011, respectively. At this time, we expect
that required contributions to its plans in 2013 will be
approximately $31 million, although the Company
may elect to make future voluntary contributions.
The timing and amount of future contributions,
which could be material, will depend on a number of
factors, including the actual earnings 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 for-
mation of the Ilim Holding S.A. joint venture,
International Paper entered into a share-
holder’s agreement that includes provisions
relating to the reconciliation of disputes among
the partners. This agreement provides that at
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