ACQUISITIONS AND JOINT VENTURES (Note) | 9 Months Ended |
Sep. 30, 2013 |
Acquisitions And Joint Ventures [Abstract] | ' |
Acquisitions and Joint Ventures [Note Text Block] | ' |
ACQUISITIONS AND JOINT VENTURES |
Acquisitions |
2013: On January 3, 2013, International Paper completed the acquisition (effective date of acquisition on January 1, 2013) of the shares of its joint venture partner, Sabanci Holding, in the Turkish corrugated packaging company, Olmuksa International Paper Sabanci Ambalaj Sanayi ve Ticaret A.S. (now called Olmuksan International Paper or Olmuksan), for a purchase price of $56 million. The acquired shares represent 43.7% of Olmuksan's shares. Prior to this acquisition, International Paper held a 43.7% equity interest in Olmuksan. |
Because the transaction resulted in International Paper becoming the majority shareholder, owning 87.4% of Olmuksan's outstanding and issued shares, its completion triggered a mandatory call for tender of the remaining public shares which began in March 2013 and ended in April 2013, with no shares tendered. Also as a result of International Paper taking majority control of the entity, Olmuksan's financial results have been consolidated with the Company's Industrial Packaging segment beginning January 1, 2013, the effective date which International Paper obtained majority control of the entity. |
Following the transaction, the Company's previously held 43.7% equity interest in Olmuksan was remeasured to a fair value of $75 million, resulting in a gain of $9 million. The fair value was estimated by applying the discounted cash flow approach, using a 13% discount rate, long-term sustainable growth rates ranging from 6% to 9% and a corporate tax rate of 20%. In addition, the cumulative translation adjustment balance of $17 million relating to the previously held equity interest was reclassified, as expense, to Net bargain purchase gain on acquisition of business in the accompanying consolidated statement of operations, from accumulated other comprehensive income. |
The preliminary purchase price allocation indicates that the sum of the cash consideration paid, the fair value of the noncontrolling interest and the fair value of the previously held interest is less than the fair value of the underlying assets by $22 million, resulting in a bargain purchase price gain being recorded on this transaction. |
The $17 million reclassification of the cumulative translation balance and $18 million of the estimated bargain purchase gain were recorded in the 2013 first-quarter earnings. The $9 million gain resulting from the measurement of the previously held equity interest and an additional $4 million bargain purchase gain were recorded in 2013 second-quarter earnings and are included in the Net bargain purchase gain on acquisition of business line item in the accompanying consolidated statement of operations. |
Due to the timing of the completion of the acquisition, certain assumptions and estimates were used in determining the preliminary purchase price allocation. Those assumptions and estimates primarily relate to the amounts allocated to deferred taxes and contingent liabilities (which are included in Accounts payable and other accrued liabilities in the accompanying consolidated balance sheet), as work is still ongoing as of September 30, 2013 to determine the fair value of those assets and liabilities at the acquisition date. Therefore, the amounts disclosed may change as the purchase price allocation is finalized. The purchase price allocation is expected to be finalized in the fourth quarter of 2013. |
The following table summarizes the preliminary allocation of the purchase price to the fair value of assets and liabilities acquired as of January 1, 2013. |
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In millions | | | |
Cash and temporary investments | $ | 5 | | | |
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Accounts and notes receivable | 72 | | | |
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Inventory | 31 | | | |
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Other current assets | 2 | | | |
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Plants, properties and equipment | 105 | | | |
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Investments | 11 | | | |
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Total assets acquired | 226 | | | |
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Notes payable and current maturities of long-term debt | 17 | | | |
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Accounts payable and accrued liabilities | 27 | | | |
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Deferred income tax liability | 4 | | | |
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Postretirement and postemployment benefit obligation | 6 | | | |
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Total liabilities assumed | 54 | | | |
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Noncontrolling interest | 18 | | | |
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Net assets acquired | $ | 154 | | | |
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Pro forma information related to the acquisition of Olmuksan has not been included as it does not have a material effect on the Company's consolidated results of operations. |
2012: On February 13, 2012, International Paper completed the acquisition of Temple-Inland Inc. (Temple-Inland). International Paper acquired all of the outstanding common stock of Temple-Inland for $32.00 per share in cash, totaling approximately $3.7 billion, and assumed approximately $700 million in Temple-Inland’s debt. As a condition to allowing the transaction to proceed, the Company entered into an agreement on a proposed Final Judgment with the Antitrust Division of the U.S. Department of Justice (DOJ) that required the Company to divest three containerboard mills, with approximately 970,000 tons of aggregate containerboard capacity. On July 2, 2012, International Paper finalized the sales of its Ontario and Oxnard (Hueneme), California containerboard mills to New-Indy Containerboard LLC, and its New Johnsonville, Tennessee containerboard mill to Hood Container Corporation. By completing these transactions, the Company satisfied its divestiture obligations under the Final Judgment. See Note 8 for further details of these divestitures. |
Temple-Inland's results of operations are included in the consolidated financial statements from the date of acquisition on February 13, 2012. |
The following summarizes the allocation of the purchase price to the fair value of assets and liabilities acquired as of February 13, 2012, which was finalized in the fourth quarter of 2012. |
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In millions | | | |
Accounts and notes receivable | $ | 466 | | | |
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Inventory | 484 | | | |
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Deferred income tax assets – current | 140 | | | |
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Other current assets | 57 | | | |
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Plants, properties and equipment | 2,911 | | | |
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Financial assets of special purpose entities | 2,091 | | | |
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Goodwill | 2,139 | | | |
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Other intangible assets | 693 | | | |
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Deferred charges and other assets | 54 | | | |
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Total assets acquired | 9,035 | | | |
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Notes payable and current maturities of long-term debt | 130 | | | |
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Accounts payable and accrued liabilities | 704 | | | |
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Long-term debt | 527 | | | |
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Nonrecourse financial liabilities of special purpose entities | 2,030 | | | |
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Deferred income tax liability | 1,252 | | | |
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Pension benefit obligation | 338 | | | |
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Postretirement and postemployment benefit obligation | 99 | | | |
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Other liabilities | 221 | | | |
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Total liabilities assumed | 5,301 | | | |
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Net assets acquired | $ | 3,734 | | | |
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The identifiable intangible assets acquired in connection with the Temple-Inland acquisition included the following: |
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In millions | Estimated | | Average |
Fair Value | Remaining |
| Useful Life |
| | | (at acquisition date) |
Asset Class: | | | |
Customer relationships | $ | 536 | | | 12-17 years |
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Developed technology | 8 | | | 5-10 years |
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Tradenames | 109 | | | Indefinite |
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Favorable contracts | 14 | | | 4-7 years |
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Non-compete agreement | 26 | | | 2 years |
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Total | $ | 693 | | | |
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In connection with the purchase price allocation, inventories were written up by approximately $20 million before taxes ($12 million after taxes) to their estimated fair value. As the related inventories were sold in the 2012 first quarter, this amount was expensed in Cost of products sold for the quarter. |
Additionally, Selling and administrative expenses included $24 million ($15 million after taxes) and $50 million ($31 million after taxes), for the three months and nine months ended September 30, 2013, respectively, and $58 million ($34 million after taxes) and $136 million ($89 million after taxes), for the three months and nine months ended September 30, 2012, respectively, in charges for integration costs associated with the acquisition. |
The following unaudited pro forma information for the nine months ended September 30, 2012 represents the results of operations of International Paper as if the Temple-Inland acquisition had occurred as of January 1, 2012. This information does not purport to represent International Paper’s actual results of operations if the transaction described above would have occurred on January 1, 2012, nor is it necessarily indicative of future results. |
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In millions, except per share amounts | | Nine Months Ended | |
30-Sep-12 | |
Net sales | | $ | 21,050 | | |
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Earnings (loss) from continuing operations (a) | | 567 | | |
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Net earnings (loss) (a) | | 602 | | |
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Diluted earnings (loss) from continuing operations per common share (a) | | 1.29 | | |
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Diluted net earnings (loss) per common share (a) | | 1.37 | | |
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(a) Attributable to International Paper Company common shareholders. |
Joint Ventures |
2013: On January 14, 2013, International Paper and Brazilian corrugated packaging producer, Jari Celulose, Papel e Embalagens S.A. (Jari), a Grupo Orsa company, formed Orsa International Paper Embalagens S.A. (Orsa IP). The new entity, in which International Paper holds a 75% stake, includes three containerboard mills and four box plants, which make up Jari's former industrial packaging assets. This acquisition supports the Company's strategy of growing its global packaging presence and better serving its global customer base. |
The value of International Paper's investment in Orsa IP is approximately $471 million. Because International Paper acquired majority control of the joint venture, Orsa IP's financial results have been consolidated with our Industrial Packaging segment from the date of formation on January 14, 2013. |
Due to the timing of the completion of the acquisition, certain assumptions and estimates were used in determining the preliminary purchase price allocation. Those assumptions and estimates primarily relate to the amounts allocated to deferred taxes and postretirement and postemployment benefit obligations, as work is still ongoing as of September 30, 2013 to determine the fair value of those assets and liabilities at the acquisition date. Therefore, the amount disclosed may change materially as the purchase price allocation is refined. The purchase price allocation is expected to be finalized during the fourth quarter of 2013. |
The following table summarizes the preliminary allocation of the purchase price to the fair value of assets and liabilities acquired as of January 14, 2013. |
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In millions | | | |
Cash and temporary investments | $ | 16 | | | |
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Accounts and notes receivable, net | 5 | | | |
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Inventory | 27 | | | |
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Plants, properties and equipment | 290 | | | |
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Goodwill | 220 | | | |
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Other intangible assets | 110 | | | |
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Other long-term assets | 3 | | | |
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Total assets acquired | 671 | | | |
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Accounts payable and accrued liabilities | 10 | | | |
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Deferred income tax liability | 56 | | | |
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Total liabilities assumed | 66 | | | |
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Noncontrolling interest | 134 | | | |
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Net assets acquired | $ | 471 | | | |
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The identifiable intangible assets acquired in connection with the Orsa IP acquisition included the following: |
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In millions | Estimated | | Average |
Fair Value | Remaining |
| Useful Life |
| | | (at acquisition date) |
Asset Class: | | | |
Customer relationships | $ | 88 | | | 12 years |
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Trademark | 3 | | | 6 years |
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Wood supply agreement | 19 | | | 25 years |
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Total | $ | 110 | | | |
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Pro forma information related to the acquisition of Orsa IP has not been included as it does not have a material effect on the Company's consolidated results of operations. |
Due to the complex organizational structure of Orsa IP's operations, and the extended time required to prepare consolidated financial information in accordance with accounting principles generally accepted in the United States, the Company reports its share of Orsa IP's operating results on a one-month lag basis. |