International Paper 2015 Annual Report Download - page 51

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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 capital 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, 2015, the Company held
long-term credit ratings of BBB (stable outlook) and
Baa2 (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, 2015, were as follows:
In millions 2015 2016 2017 2018 2019 Thereafter
Maturities of long-term
debt (a) $ 426 $ 43 $ 811 $ 427 $ 183 $ 7,436
Lease obligations 118 95 72 55 41 128
Purchase obligations
(b) 3,001 541 447 371 358 1,579
Total (c) $ 3,545 $ 679 $ 1,330 $ 853 $ 582 $ 9,143
(a) Total debt includes scheduled principal payments only.
(b) Includes $2.1 billion relating to fiber supply agreements
entered into at the time of the 2006 Transformation Plan
forestland sales and in conjunction with the 2008 acquisition
of Weyerhaeuser Company’s Containerboard, Packaging and
Recycling business.
(c) Not included in the above table due to the uncertainty as to
the amount and timing of the payment are unrecognized tax
benefits of approximately $101 million.
We consider the undistributed earnings of our foreign
subsidiaries as of December 31, 2015, to be indefinitely
reinvested and, accordingly, no U.S. income taxes have
been provided thereon. As of December 31, 2015, the
amount of cash associated with indefinitely reinvested
foreign earnings was approximately $600 million. We
do not anticipate the need to repatriate funds to the
United States to satisfy domestic liquidity needs arising
in the ordinary course of business, including liquidity
needs associated with our domestic debt service
requirements.
Pension Obligations and Funding
At December 31, 2015, the projected benefit obligation
for the Company’s U.S. defined benefit plans
determined under U.S. GAAP was approximately $3.5
billion higher than the fair value of plan assets.
Approximately $3.2 billion of this amount relates to
plans that are subject to minimum funding
requirements. Under current IRS funding rules, the
calculation 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 demographic data and the targeted
funding level. The Company continually reassesses the
amount and timing of any discretionary contributions
and elected to make contributions totaling $750 million
and $353 million for the years ended December 31,
2015 and 2014, respectively. At this time, we do not
expect to have any required contributions to our plans
in 2016, 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. International Paper has
announced a voluntary, limited-time opportunity for
former employees who are participants in the
Retirement Plan of International Paper Company (the
Pension Plan) to request early payment of their entire
Pension Plan benefit in the form of a single lump sum
payment. Eligible participants who wish to receive the
lump sum payment must make an election between
February 29 and April 29, 2016, and payment is
scheduled to be made on or before June 30, 2016. All
payments will be made from the Pension Plan trust
assets. The target population has a total liability of $3.0
billion. The amount of the total payments will depend
on the participation rate of eligible participants, but is
expected to be approximately $1.5 billion. Based on the
expected level of payments, settlement accounting
rules will apply in the period in which the payments are
made. This will result in a plan remeasurement and the
recognition in earnings of a pro-rata portion of
unamortized net actuarial loss.
Ilim Holding S.A. Shareholder’s Agreement
In October 2007, in connection with the formation of the
Ilim Holding S.A. joint venture, International Paper
entered into a shareholder’s agreement that includes
provisions relating to the reconciliation of disputes
among the partners. This agreement was amended on
May 7, 2014. Pursuant to the amended agreement,
beginning on January 1, 2017, either the Company or
its partners may commence certain procedures
specified under the deadlock provisions. If these or any
other deadlock provisions are commenced, the
Company may in certain situations, choose to purchase
its partners’ 50% interest in Ilim. Any such transaction
would be subject to review and approval by Russian
and other relevant antitrust authorities. Any such
purchase by International Paper would result in the
consolidation of Ilim’s financial position and results of
operations in all subsequent periods.