ACQUISITIONS AND JOINT VENTURES

9 Months Ended

Sep. 30, 2012

ACQUISITIONS AND JOINT VENTURES

ACQUISITIONS AND JOINT VENTURES

Acquisitions

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, within four months of closing (with the possibility of two30-day extensions). On May 4, 2012, the Final Judgment, as proposed, was entered by the Court. On June 7, 2012, the DOJ granted the Company an extension of time until July 10, 2012 to complete the divestitures. 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 7 for further details.

The following summarizes the preliminary allocation of the purchase price to the fair value of assets and liabilities acquired as of February 13, 2012.

In millions
Accounts and notes receivable	$	468
Inventory	484
Deferred income tax assets – current	217
Other current assets	57
Plants, properties and equipment	2,866
Financial assets of special purpose entities	2,091
Goodwill	2,207
Other intangible assets	602
Deferred charges and other assets	261
Total assets acquired	9,253
Notes payable and current maturities of long-term debt	130
Accounts payable and accrued liabilities	681
Long-term debt	527
Nonrecourse financial liabilities of special purpose entities	2,030
Deferred income tax liability	1,291
Pension benefit obligation	338
Postretirement and postemployment benefit obligation	99
Other liabilities	423
Total liabilities assumed	5,519
Net assets acquired	$	3,734

Certain assumptions and estimates were used in determining the preliminary purchase price allocation disclosed above. Those assumptions and estimates primarily relate to the amounts allocated to Inventory, Plants, properties and equipment, Intangible assets, current and deferred taxes (which are reported in different captions based on the nature of the account) and contingent liabilities (which are reported in Accounts payable and accrued liabilities or Other liabilities) as work is still ongoing to determine the fair value of those assets and liabilities at the acquisition date. Therefore, the amounts disclosed above may change materially as the purchase price allocation is refined. The amounts allocated to Pension, Postretirement and Postemployment benefit obligations disclosed above are based on an actuarial remeasurement of those plans as of the acquisition date and are not expected to change materially. The purchase price allocation is expected to be finalized in the fourth quarter of 2012.

The identifiable intangible assets acquired in connection with the Temple-Inland acquisition included the following:

In millions	Estimated Fair  Value		Average Remaining Useful Life
			(at acquisition date)
Asset Class:
Customer relationships	$	456	12-17 years
Developed technology	7		5-10 years
Tradenames	103		Indefinite
Favorable contracts	10		4-7 years
Non-compete agreement	26		2 years
Total	$	602

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 three months and nine months ended September 30, 2012 included $58 million ($34 million after taxes) and $136 million ($89 million after taxes), respectively, in charges for integration costs associated with the acquisition.

The following unaudited pro forma information for the nine months ended September 30, 2012 and 2011 represents the results of operations of International Paper as if the Temple-Inland acquisition had occurred as of January 1, 2011. 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, 2011, nor is it necessarily indicative of future results.

	Nine Months Ended September 30,
In millions, except per share amounts	2012		2011
Net sales	$	21,050	$	22,616
Earnings (loss) from continuing operations (1)	519		856
Net earnings (loss) (1)	546		895
Diluted earnings (loss) from continuing operations per common share (1)	1.18		1.96
Diluted net earnings (loss) per common share (1)	1.24		2.04

(1) Attributable to International Paper Company common shareholders.

2011: On October 14, 2011, International Paper completed the acquisition of a 75% interest in The Andhra Pradesh Paper Mills Limited (APPM). The Company purchased 53.5% of APPM from controlling shareholders for a purchase price of $226 million in cash plus assumed debt from private investors. These controlling shareholders 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 approximately $105 million in cash.

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 payment in the event SEBI’s direction is ultimately 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 has included the $25 million escrowed cash amount in the final purchase price consideration of APPM. This adjustment to APPM's purchase price increased Goodwill in the third quarter, after effects of foreign exchange fluctuations, by $21 million. On October 8, 2012, International Paper appealed the SAT's decision to the Indian Supreme Court.

The following table summarizes the 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, net	7
Inventory	43
Other current assets	13
Plants, properties and equipment	352
Goodwill	138
Deferred 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 tax liability	90
Total liabilities assumed	215
Noncontrolling interest	37
Net assets acquired	$	400

The purchase price allocation was finalized in the third quarter of 2012.

The identifiable intangible assets acquired in connection with the APPM acquisition included the following:

In millions	Estimated Fair  Value		Average Remaining Useful Life
			(at acquisition date)
Asset Class:
Non-compete agreement	$	58	6 years
Tradename	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

In September 2012, International Paper announced that it had entered into an agreement with H.Ö. Sabanci Holdings A.Ş. to purchase Sabanci's stake in Olmuksa International Paper Sabanci Ambalaj Sanayi ve Ticaret A.Ş. (Olmuksa) for approximately $56 million (based on the foreign exchange rate at the date the agreement was announced). The transaction is subject to customary closing conditions and is expected to close in the first quarter of 2013. Olmuksa is a current joint venture of Sabanci and International Paper in Turkey, with International Paper already holding a percentage of Olmuksa's outstanding shares. Because the transaction will result in International Paper taking majority control of Olmuksa, its completion will trigger a mandatory call for tender of the remaining public shares. International Paper currently accounts for its investment in Olmuksa using the equity method of accounting. This transaction, once finalized, will result in International Paper taking majority control of the joint venture. Once we obtain majority control of Olmuksa, its financial results will be consolidated within our Industrial Packaging segment.

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 the three months ended March 31, 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.