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. As a result, the 12.6% owned by other parties are considered non-controlling interests. 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, from accumulated other comprehensive income.
The final 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 $21 million, resulting in a bargain purchase price gain being recorded on this transaction. The aforementioned remeasurement of equity interest gain, the cumulative translation adjustment to expense, and the bargain purchase gain are included in the Net bargain purchase gain on acquisition of business in the accompanying consolidated statement of operations.
The following table summarizes the final allocation of the purchase price to the fair value of assets and liabilities acquired as of January 1, 2013, which was completed in the fourth quarter of 2013.
|
| | | | |
In millions | | |
Cash and temporary investments | | $ | 5 |
|
Accounts and notes receivable | | 72 |
|
Inventory | | 31 |
|
Other current assets | | 2 |
|
Plants, properties and equipment | | 106 |
|
Investments | | 11 |
|
Total assets acquired | | 227 |
|
Notes payable and current maturities of long-term debt | | 17 |
|
Accounts payable and accrued liabilities | | 27 |
|
Deferred income tax liability | | 4 |
|
Postretirement and postemployment benefit obligation | | 6 |
|
Total liabilities assumed | | 54 |
|
Noncontrolling interest | | 18 |
|
Net assets acquired | | $ | 155 |
|
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 of Temple-Inland’s debt. As a condition to allowing the transaction to proceed, the Company entered into an agreement on a 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 sold 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 7 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 table 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.
|
| | | | |
In millions | | |
Accounts and notes receivable | | $ | 466 |
|
Inventory | | 484 |
|
Deferred income tax assets – current | | 140 |
|
Other current assets | | 57 |
|
Plants, properties and equipment | | 2,911 |
|
Financial assets of special purpose entities | | 2,091 |
|
Goodwill | | 2,139 |
|
Other intangible assets | | 693 |
|
Deferred charges and other assets | | 54 |
|
Total assets acquired | | 9,035 |
|
Notes payable and current maturities of long-term debt | | 130 |
|
Accounts payable and accrued liabilities | | 704 |
|
Long-term debt | | 527 |
|
Nonrecourse financial liabilities of special purpose entities | | 2,030 |
|
Deferred income tax liability | | 1,252 |
|
Pension benefit obligation | | 338 |
|
Postretirement and postemployment benefit obligation | | 99 |
|
Other liabilities | | 221 |
|
Total liabilities assumed | | 5,301 |
|
Net assets acquired | | $ | 3,734 |
|
The identifiable intangible assets acquired in connection with the Temple-Inland acquisition included the following:
|
| | | | | |
In millions | | Estimated Fair Value |
| Average Remaining Useful Life |
Asset Class: | | | (at acquisition date) |
Customer relationships | | $ | 536 |
| 12-17 years |
Developed technology | | 8 |
| 5-10 years |
Tradenames | | 109 |
| Indefinite |
Favorable contracts | | 14 |
| 4-7 years |
Non-compete agreement | | 26 |
| 2 years |
Total | | $ | 693 |
| |
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 for the years ended December 31, 2013 and 2012 included $62 million before taxes ($38 million after taxes) and $164 million before taxes ($105 million after taxes), respectively, in charges for integration costs associated with the acquisition.
The following unaudited pro forma information for the year ended December 31, 2012 represents the results of operations of International Paper as if the Temple-Inland acquisition had occurred on January 1, 2012. This information is based on historical results of operations, adjusted for certain acquisition accounting adjustments and does not purport to represent International Paper’s actual results of operations as if the transaction described above would have occurred as of January 1, 2012, nor is it necessarily indicative of future results.
|
| | | |
In millions, except per share amounts | 2012 |
|
Net sales | $ | 28,125 |
|
Earnings (loss) from continuing operations (a) | 805 |
|
Net earnings (loss) (a) | 845 |
|
Diluted earnings (loss) from continuing operations per share (a) | 1.82 |
|
Diluted net earnings (loss) per share (a) | 1.92 |
|
(a) Attributable to International Paper Company common shareholders.
2011: On October 14, 2011, International Paper completed the acquisition of a 75% stake in Andhra Pradesh Paper Mills Limited (APPM). The Company purchased 53.5% of APPM for a purchase price of $226 million in cash plus assumed debt from private investors. These sellers also entered into a covenant not to compete for which they received a cash payment of $58 million. Additionally, the Company purchased a 21.5% stake of APPM in a public tender offer completed on October 8, 2011 for $105 million in cash. International Paper recognized an unfavorable currency transaction loss of $9 million due to strengthening of the dollar against the Indian Rupee prior to the closing date, resulting from cash balances deposited in Indian Rupee denominated escrow accounts.
In November 2011, International Paper appealed a directive from the Securities and Exchange Board of India (SEBI) that would require us to pay to the tendering shareholders the equivalent per share value of the non-compete payment that was paid to the previous controlling shareholders. The Company has deposited approximately $25 million into an escrow account to fund the additional non-compete payments in the event SEBI’s direction is upheld. By an order dated September 12, 2012, the Indian Securities Appellate Tribunal (SAT) upheld the SEBI directive. As a result of this initial unfavorable ruling, International Paper included the $25 million escrowed cash amount in the final purchase price consideration of APPM. On October 8, 2012, International Paper appealed the SAT's decision to the Indian Supreme Court.
APPM's results of operations are included in the consolidated financial statements from the date of acquisition on October 14, 2011.
The following table summarizes the final allocation of the purchase price to the fair value of assets and liabilities acquired as of October 14, 2011.
|
| | | | |
In millions | | |
Cash and temporary investments | | $ | 3 |
|
Accounts and notes receivable | | 7 |
|
Inventory | | 43 |
|
Other current assets | | 13 |
|
Plants, properties and equipment | | 352 |
|
Goodwill | | 138 |
|
Deferred income tax asset | | 4 |
|
Other intangible assets | | 91 |
|
Other long-term assets | | 1 |
|
Total assets acquired | | 652 |
|
Accounts payable and accrued liabilities | | 67 |
|
Long-term debt | | 47 |
|
Other liabilities | | 11 |
|
Deferred income tax liability | | 90 |
|
Total liabilities assumed | | 215 |
|
Noncontrolling interest | | 37 |
|
Net assets acquired | | $ | 400 |
|
The identifiable intangible assets acquired in connection with the APPM acquisition included the following:
|
| | | | | |
In millions | | Estimated Fair Value |
| Average Remaining Useful Life |
Asset Class: | | | (at acquisition date) |
Non-compete agreement | | $ | 58 |
| 6 years |
Tradenames | | 20 |
| Indefinite |
Fuel supply agreements | | 5 |
| 2 years |
Power purchase arrangements | | 5 |
| 5 years |
Wholesale distribution network | | 3 |
| 18 years |
Total | | $ | 91 |
| |
Pro forma information related to the acquisition of APPM has not been included as it does not have a material effect on the Company’s consolidated results of operations.
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 a 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. The 25% owned by Jari is considered noncontrolling interest.
International Paper follows the guidance issued by the FASB regarding the classification and measurement of redeemable securities. The Share Purchase Agreement related to Orsa IP joint venture contained both a put and a call option that would allow Jari, at the third anniversary of the joint venture formation, to put its remaining shares to IP or allow IP, at the sixth anniversary of the joint venture formation, to call the remaining noncontrolling shares from Jari. Accordingly, the noncontrolling common stock held by Jari would be considered a redeemable noncontrolling interest and meet the requirements to be classified outside of permanent equity and is therefore classified as redeemable noncontrolling interest in the accompanying consolidated balance sheets. The value of redeemable noncontrolling interest is reported at the greater of the redemption value or historical cost at the end of each reporting period. As of December 31, 2013, the Company reported the redeemable noncontrolling interest at the redemption value of $163 million.
The following table summarizes the final allocation of the purchase price to the fair value of assets and liabilities acquired as of January 14, 2013, which was completed in the fourth quarter of 2013.
|
| | | | |
In millions | | |
Cash and temporary investments | | $ | 16 |
|
Accounts and notes receivable | | 5 |
|
Inventory | | 27 |
|
Plants, properties and equipment | | 290 |
|
Goodwill | | 260 |
|
Other intangible assets | | 110 |
|
Other long-term assets | | 2 |
|
Total assets acquired | | 710 |
|
Accounts payable and accrued liabilities | | 68 |
|
Deferred income tax liability | | 37 |
|
Total liabilities assumed | | 105 |
|
Noncontrolling interest | | 134 |
|
Net assets acquired | | $ | 471 |
|
The identifiable intangible assets acquired in connection with the Orsa IP acquisition included the following:
|
| | | | | |
In millions | | Estimated Fair Value |
| Average Remaining Useful Life |
Asset Class: | | | (at acquisition date) |
Customer relationships | | $ | 88 |
| 12 years |
Trademark | | 3 |
| 6 years |
Wood supply agreement | | 19 |
| 25 years |
Total | | $ | 110 |
| |
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.
2011: On April 15, 2011, International Paper and Sun Paper Industry Co. Ltd. entered into a Cooperative Joint Venture agreement to establish Shandong IP & Sun Food Packaging Co., Ltd. in China. During December 2011, the business license was obtained and International Paper contributed $55 million in cash for a 55% interest in the joint venture and Sun Paper Industry Co. Ltd. contributed land-use rights valued at approximately $28 million, representing a 45% interest. The purpose of the joint venture is to build and operate a new production line to manufacture coated paperboard for food packaging with a designed annual production capacity of 500,000 tons. The financial position and results of operations of this joint venture have been included in International Paper’s consolidated financial statements from the date of formation in December 2011.
Additionally, during 2011 the Company recorded a gain of $7 million (before and after taxes) related to a bargain purchase price adjustment on an acquisition by our joint venture in Turkey. This gain is included in Equity earnings (losses), net of taxes in the accompanying consolidated statement of operations.
