International Paper 2012 Annual Report Download - page 99

began consolidating the buyer’s special purpose
entities.
On January 23, 2012, Standard and Poor’s reduced
its credit rating of senior unsecured long-term debt
of Société Générale SA, which issued letters of credit
that support $506 million of the 2007 Monetized
Notes, below the specific threshold. These letters of
credit were successfully replaced by another qualify-
ing institution. Fees of $2 million were incurred in
connection with this replacement.
On June 21, 2012, Moody’s Investor Services
reduced its credit rating of senior unsecured long-
term debt of Barclays Bank PLC, which issued letters
of credit that support approximately $500 million of
the 2007 Monetized Notes, below the specified
threshold. These letters of credit were successfully
replaced by another qualifying institution. Fees of $6
million were incurred in connection with this
replacement.
Activity between the Company and the 2007 financ-
ing entities was as follows:
In millions 2012 2011 2010
Revenue (loss) (a) $28 $— $—
Expense (b) 28 ——
Cash receipts (c) 12 ——
Cash payments (d) 22 ——
(a) The revenue is included in Interest expense, net in the accom-
panying consolidated statement of operations and includes $17
million of accretion income for the amortization of the pur-
chase accounting adjustment of the Financial assets of special
purpose entities.
(b) The expense is included in Interest expense, net in the accom-
panying consolidated statement of operations and includes $6
million of accretion expense for the amortization of the pur-
chase accounting adjustment on the Nonrecourse financial
liabilities of special purpose entities.
(c) The cash receipts are interest received on the Financial assets
of special purpose entities.
(d) The cash payments are interest paid on Nonrecourse financial
liabilities of special purpose entities.
Based on the analysis performed by the Company
after the purchase of Temple-Inland and completed
in the third quarter of 2012, under guidance that
considers the potential magnitude of the variability
in the structure and which party has a controlling
financial interest, International Paper determined that
it was not the primary beneficiary of the buyer’s
special purpose entities that purchased the timber-
lands from Temple-Inland and therefore, should not
consolidate the buyer’s special purpose entities
financial results as was historically shown by
Temple-Inland.
PREFERRED SECURITIES OF SUBSIDIARIES
In March 2003, Southeast Timber, Inc. (Southeast
Timber), a consolidated subsidiary of International
Paper, issued $150 million of preferred securities to a
private investor with future dividend payments
based on LIBOR. Southeast Timber, which through a
subsidiary initially held approximately 1.50 million
acres of forestlands in the southern United States,
was International Paper’s primary vehicle for sales of
southern forestlands. As of December 31, 2012 ,
substantially all of these forestlands have been sold.
These preferred securities may be put back to
International Paper by the private investor upon the
occurrence of certain events, and have a liquidation
preference that approximates their face amount. The
$150 million preferred third-party interest is included
in Noncontrolling interests in the accompanying
consolidated balance sheet. Distributions paid to the
third-party investor were $6 million , $5 million and
$5 million in 2012, 2011 and 2010, respectively. The
expense related to these preferred securities is
shown in Net earnings (loss) attributable to non-
controlling interests in the accompanying con-
solidated statement of operations.
NOTE 12 DEBT AND LINES OF CREDIT
In February 2012, International Paper issued a $1.2
billion term loan with an initial interest rate of LIBOR
plus a margin of 138 basis points that varies depend-
ing on the credit rating of the Company and a $200
million term loan with an interest rate of LIBOR plus
a margin of 175 basis points, both with maturity
dates in 2017. The proceeds from these borrowings
were used, along with available cash, to fund the
acquisition of Temple-Inland. During 2012, Interna-
tional Paper fully repaid the $1.2 billion term loan.
Amounts related to early debt extinguishment during
the years ended December 31, 2012, 2011 and 2010
were as follows:
In millions 2012 2011 2010
Debt reductions (a) $1,272 $129 $393
Pre-tax early debt extinguishment costs (b) 48 32 39
(a) Reductions related to notes with interest rates ranging from
1.625% to 9.375% with original maturities from 2010 to 2041 for
the years ended December 31, 2012 , 2011 and 2010 .
(b) Amounts are included in Restructuring and other charges in
the accompanying consolidated statements of operations.
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