International Paper 2012 Annual Report Download - page 98

determined that it was the primary beneficiary of the
2001 financing entities and thus consolidated the
entities effective March 16, 2011. Effective April 30,
2011, International Paper liquidated its interest in the
2001 financing entities.
Activity between the Company and the 2002 financ-
ing entities was as follows:
In millions 2012 2011 2010
Revenue (loss) (a) $— $2 $5
Expense (b) —38
Cash receipts (c) 252 192 3
Cash payments (d) 159 244 8
(a) The revenue is included in Equity earnings (loss), net of tax in
the accompanying consolidated statement of operations.
(b) The expense is included in Interest expense, net in the accom-
panying consolidated statement of operations.
(c) The cash receipts are equity distributions from the 2002 financ-
ing entities to International Paper and cash receipts from the
maturity of the 2002 Monetized Notes.
(d) The cash payments include both interest and principal on the
associated debt obligations.
On May 31, 2011, the third-party equity holder of the
2002 financing entities retired its Class A interest in
the entities for $51 million. As a result of the retire-
ment, effective May 31, 2011, International Paper
owned 100% of the 2002 financing entities. Based on
an analysis performed by the Company after the
retirement, under guidance that considers the poten-
tial magnitude of the variability in the structure and
which party has controlling financial interest,
International Paper determined that it was the pri-
mary beneficiary of the 2002 financing entities and
thus consolidated the entities effective May 31, 2011.
During the year ended December 31, 2011 approx-
imately $191 million of the 2002 Monetized Notes
matured. Outstanding debt related to these entities
of $158 million is included in floating rate notes due
2011 – 2017 in the summary of long-term debt in
Note 12 at December 31, 2011. As of May 31, 2012,
this debt had been repaid.
During the year ended December 31, 2012, $252 mil-
lion of the 2002 Monetized Notes matured. As of
result of these maturities, Accounts and notes
receivable decreased $252 million and Notes payable
and current maturities of long-term debt decreased
$158 million. Deferred tax liabilities associated with
the 2002 forestland installment sales decreased $67
million. Effective June 1, 2012, International Paper
liquidated its interest in the 2002 financing entities.
The use of the above entities facilitated the mone-
tization of the credit enhanced Timber and Mone-
tized Notes in a cost effective manner by increasing
the borrowing capacity and lowering the interest rate
while continuing to preserve the tax deferral that
resulted from the forestlands installment sales and
the offset accounting treatment described above.
In connection with the acquisition of Temple-Inland
in February 2012, two special purpose entities
became wholly-owned subsidiaries of International
Paper.
In October 2007, Temple-Inland sold 1.55 million
acres of timberlands for $2.38 billion. The total con-
sideration consisted almost entirely of notes due in
2027 issued by the buyer of the timberlands, which
Temple-Inland contributed to two wholly-owned,
bankruptcy-remote special purpose entities. The
notes are shown in Financial assets of special pur-
pose entities in the accompanying consolidated
balance sheet and are supported by $2.38 billion of
irrevocable letters of credit issued by three banks,
whicharerequiredtomaintainminimumcreditrat-
ings on their long-term debt. In the third quarter of
2012, International Paper completed is preliminary
analysis of the acquisition date fair value of the notes
and determined it to be $2.09 billion. As a result of
this analysis, Financial assets of special purposed
entities decreased by $292 million and Goodwill
increased by the same amount. As of December 31,
2012 , the fair value of the notes was $2.21 billion.
In December 2007, Temple-Inland’s two wholly-
owned special purpose entities borrowed $2.14 bil-
lion shown in Nonrecourse financial liabilities of
special purpose entities in the accompanying con-
solidated balance sheet. The loans are repayable in
2027 and are secured only by the $2.38 billion of
notes and the irrevocable letters of credit securing
the notes and are nonrecourse to the Company. The
loan agreements provide that if a credit rating of any
of the banks issuing the letters of credit is down-
graded below the specified threshold, the letters of
credit issued by that bank must be replaced within 30
days with letters of credit from another qualifying
financial institution. In the third quarter of 2012,
International Paper completed its preliminary analy-
sis of the acquisition date fair value of the borrow-
ings and determined it to be $2.03 billion. As a result
of this analysis, Nonrecourse financial liabilities of
special purpose entities decreased by $110 million
and Goodwill decreased by the same amount. As of
December 31, 2012 , the fair value of this debt was
$2.12 billion.
The buyer of the Temple-Inland timberland issued
the $2.38 billion in notes from its wholly-owned,
bankruptcy-remote special purpose entities. The
buyer’s special purpose entities held the timberlands
from the transaction date until November 2008, at
which time the timberlands were transferred
out of the buyer’s special purpose entities. Due to
the transfer of the timberlands, Temple-Inland
evaluated the buyer’s special purpose entities
and determined that they were variable interest
entities and that Temple-Inland was the primary
beneficiary. As a result, in 2008, Temple-Inland
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