ACQUISITIONS AND JOINT VENTURES

6 Months Ended

Jun. 30, 2012

ACQUISITIONS AND JOINT VENTURES

NOTE 6 – ACQUISITIONS AND JOINT VENTURES

Acquisitions

2012: On February 13, 2012, upon regulatory approval, 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 two 30-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 satisfies 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		215
Other current assets		57
Plants, properties and equipment		2,875
Financial assets of special purpose entities		2,475
Goodwill		2,057
Other intangible assets		670
Deferred charges and other assets		261
Total assets acquired		9,562
Notes payable and current maturities of long-term debt		130
Accounts payable and accrued liabilities		676
Long-term debt		527
Nonrecourse financial liabilities of special purpose entities		2,140
Deferred income tax liability		1,436
Pension benefit obligation		338
Postretirement and postemployment benefit obligation		99
Other liabilities		390
Total liabilities assumed		5,736
Noncontrolling interest		92
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	$	537		12-17 years
Developed technology		8		5-10 years
Tradenames		112		Indefinite
Favorable contracts		13		4-7 years
Total	$	670

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 six months ended June 30, 2012 included $35 million ($22 million after taxes) and $78 million ($55 million after taxes), respectively, in charges for integration costs associated with the acquisition.

The following unaudited pro forma information for the six months ended June 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.

	Six Months Ended June 30,
In millions, except per share amounts	2012		2011
Net sales	$	14,024	$	15,022
Earnings (loss) from continuing operations (1)		295		445
Net earnings (loss) (1)		309		481
Diluted earnings (loss) from continuing operations per common share (1)		0.67		1.03
Diluted net earnings (loss) per common share (1)		0.70		1.11

(1) Attributable to International Paper Company common shareholders.

2011: On October 14, 2011, International Paper completed the acquisition of a 75% interest 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. The Company also 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, we appealed a directive from the Securities and Exchange Board of India (SEBI) that International Paper pay to the tendering shareholders the same non-compete payment that was paid to the previous controlling shareholders. The appeal is still pending, and 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 upheld. A hearing on the appeal was held on July 31 and 31, 2012. A final judgment has not yet been reached by Indian Securities Appellate Tribunal and we expect a final determination in the third quarter.

The following table summarizes the preliminary 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		117
Deferred tax asset		4
Other intangible assets		91
Other long-term assets		1
Total assets acquired		631
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	$	379

The purchase price allocation has not been finalized due to the matter regarding the tendering shareholder non-compete appeal; however, the purchase accounting will be 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

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.