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EXHIBIT 99.3

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF MANAGEMENT ON:

  Financial Statements

The management of International Paper Company is responsible for the preparation of the consolidated financial statements in this annual report and for establishing and maintaining adequate internal controls over financial reporting. The consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America considered appropriate in the circumstances to present fairly the Company’s consolidated financial position, results of operations and cash flows on a consistent basis. Management has also prepared the other information in this annual report and is responsible for its accuracy and consistency with the consolidated financial statements.

As can be expected in a complex and dynamic business environment, some financial statement amounts are based on estimates and judgments. Even though estimates and judgments are used, measures have been taken to provide reasonable assurance of the integrity and reliability of the financial information contained in this annual report. We have formed a Disclosure Committee to oversee this process.

The accompanying consolidated financial statements have been audited by the independent registered public accounting firm, Deloitte & Touche LLP. During its audits, Deloitte & Touche LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders and the board of directors and all committees of the board. Management believes that all representations made to the independent auditors during their audits were valid and appropriate.

Internal Control Over Financial Reporting

The management of International Paper Company is also responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel to provide

reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. All internal control systems have inherent limitations, including the possibility of circumvention and overriding of controls, and therefore can provide only reasonable assurance of achieving the designed control objectives. The Company’s internal control system is supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by management to correct deficiencies as they are identified.

The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, 2011. In making this assessment, it used the criteria described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management believes that, as of December 31, 2011, the Company’s internal control over financial reporting was effective.

The Company completed the acquisition of Andhra Pradesh Paper Mills Limited (APPM) in October 2011. Due to the timing of the acquisition we have excluded APPM from our evaluation of the effectiveness of internal control over financial reporting. For the period ended December 31, 2011, APPM net sales and assets represented approximately 0.13% of net sales and 2% of total assets.

The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued its report on the effectiveness of the Company’s internal control over financial reporting. The report appears on page 55.

Internal Control Environment And Board Of Directors Oversight

Our internal control environment includes an enterprise-wide attitude of integrity and control consciousness that establishes a positive “tone at the top.” This is exemplified by our ethics program that includes long-standing principles and policies on ethical business conduct that require employees to maintain the highest ethical and legal standards in the conduct of International Paper business, which have been distributed to all employees; a toll-free telephone helpline whereby any employee may anonymously report suspected violations of law or

 

 


International Paper’s policy; and an office of ethics and business practice. The internal control system further includes careful selection and training of supervisory and management personnel, appropriate delegation of authority and division of responsibility, dissemination of accounting and business policies throughout International Paper, and an extensive program of internal audits with management follow-up.

The Board of Directors, assisted by the Audit and Finance Committee (Committee), monitors the integrity of the Company’s financial statements and financial reporting procedures, the performance of the Company’s internal audit function and independent auditors, and other matters set forth in its charter. The Committee, which currently consists of five independent directors, meets regularly with representatives of management, and with the independent auditors and the Internal Auditor, with and without management representatives in attendance, to review their activities. The Committee’s Charter takes into account the New York Stock Exchange rules relating to Audit Committees and the SEC rules and regulations promulgated as a result of the Sarbanes-Oxley Act of 2002. The Committee has reviewed and discussed the consolidated financial statements for the year ended December 31, 2011, including critical accounting policies and significant management judgments, with management and the independent auditors. The Committee’s report recommending the inclusion of such financial statements in this Annual Report on Form 10-K will be set forth in our Proxy Statement.

 

LOGO

JOHN V. FARACI

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

 

LOGO

CAROL L. ROBERTS

SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

 

 

 

2


REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors and Shareholders of International Paper Company:

We have audited the accompanying consolidated balance sheets of International Paper Company and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of International Paper Company

and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the accompanying 2011, 2010 and 2009 financial statements have been retrospectively adjusted for the elimination of the one-quarter lag for the Company’s investment in Ilim Holding S.A.

As discussed in Note 2 to the consolidated financial statements, the accompanying 2011, 2010 and 2009 financial statements have been retrospectively adjusted for the adoption of Accounting Standards Update 2011-05, Presentation of Comprehensive Income .

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2012, expressed an unqualified opinion on the Company’s internal control over financial reporting.

 

LOGO

Memphis, Tennessee

February 27, 2012

(May 7, 2012 as to Notes 1 and 2)

 

 

3


REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Shareholders of International Paper Company:

We have audited the internal control over financial reporting of International Paper Company and subsidiaries (the “Company”) as of December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in the Report of Management on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at The Andhra Pradesh Paper Mills Limited (“APPM”) which was acquired on October 14, 2011. APPM constitutes .13% of total net sales and 2% of total assets of the consolidated financial statements as of and for the year ended December 31, 2011. Accordingly our audit did not include internal control over financial reporting at APPM. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2011 of the Company and our report dated February 27, 2012 and May 7, 2012 (as to Notes 1 and 2) expressed an unqualified opinion on those financial statements and financial statement schedules and includes explanatory paragraphs related to the retrospective adjustment for the elimination of the one-quarter lag for the Company’s investment in Ilim Holding S.A and the adoption of Accounting Standards Update 2011-05, Presentation of Comprehensive Income .

 

LOGO

Memphis, Tennessee

February 27, 2012

 

 

4


CONSOLIDATED STATEMENT OF OPERATIONS

 

 

In millions, except per share amounts, for the years ended December 31

  

2011

 

  

2010

 

 

2009

 

NET SALES

  

$

26,034

  

  

$

25,179

  

 

$

23,366

  

COSTS AND EXPENSES

  

  

 

Cost of products sold (Notes 1 and 4)

  

 

18,960

  

  

 

18,482

  

 

 

15,220

  

Selling and administrative expenses

  

 

1,887

  

  

 

1,930

  

 

 

2,031

  

Depreciation, amortization and cost of timber harvested

  

 

1,332

  

  

 

1,456

  

 

 

1,472

  

Distribution expenses

  

 

1,390

  

  

 

1,318

  

 

 

1,175

  

Taxes other than payroll and income taxes

  

 

146

  

  

 

192

  

 

 

188

  

Restructuring and other charges

  

 

102

  

  

 

394

  

 

 

1,353

  

Net (gains) losses on sales and impairments of businesses

  

 

218

  

  

 

(23

 

 

59

  

Interest expense, net

  

 

541

  

  

 

608

  

 

 

669

  

EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS

  

 

1,458

  

  

 

822

  

 

 

1,199

  

Income tax provision (benefit)

  

 

311

  

  

 

221

  

 

 

469

  

Equity earnings (losses), net of taxes

  

 

140

  

  

 

111

  

 

 

(26

EARNINGS (LOSS) FROM CONTINUING OPERATIONS

  

 

1,287

  

  

 

712

  

 

 

704

  

Discontinued operations, net of taxes

  

 

49

  

  

 

0

  

 

 

0

  

NET EARNINGS (LOSS)

  

 

1,336

  

  

 

712

  

 

 

704

  

Less: Net earnings (loss) attributable to noncontrolling interests

  

 

14

  

  

 

21

  

 

 

18

  

NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER
COMPANY

  

$

1,322

  

  

$

691

  

 

$

686

  

BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS

  

  

 

Earnings (loss) from continuing operations

  

$

2.95

  

  

$

1.61

  

 

$

1.61

  

Discontinued operations, net of taxes

  

 

0.11

  

  

 

0

  

 

 

0

  

Net earnings (loss)

  

$

3.06

  

  

$

1.61

  

 

$

1.61

  

DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS

  

  

 

Earnings (loss) from continuing operations

  

$

2.92

  

  

$

1.59

  

 

$

1.61

  

Discontinued operations, net of taxes

  

 

0.11

  

  

 

0

  

 

 

0

  

Net earnings (loss)

  

$

3.03

  

  

$

1.59

  

 

$

1.61

  

AMOUNTS ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS

  

  

 

Earnings (loss) from continuing operations

  

$

1,273

  

  

$

691

  

 

$

686

  

Discontinued operations, net of taxes

  

 

49

  

  

 

0

  

 

 

0

  

Net earnings (loss)

  

$

1,322

  

  

$

691

  

 

$

686

  

 

The accompanying notes are an integral part of these financial statements.

 

5


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

In millions for the years ended December 31

  

2011

 

 

2010

 

 

2009

 

Net Earnings (Loss)

  

$

1,336

  

 

$

712

  

 

$

704

  

Other Comprehensive Income, Net of Tax:

  

 

 

Amortization of pension and post-retirement prior service costs and net loss:

  

 

 

U.S. plans (less tax of $88, $73 and $75)

  

 

139

  

 

 

114

  

 

 

109

  

Pension and postretirement liability adjustments:

  

 

 

U.S. plans (less tax of $498, $54 and $259)

  

 

(783

 

 

85

  

 

 

351

  

Non-U.S. plans (less tax of $3, $3 and $3)

  

 

(5

 

 

(4

 

 

19

  

Change in cumulative foreign currency translation adjustment

  

 

(492

 

 

69

  

 

 

753

  

Net gains/losses on cash flow hedging derivatives:

  

 

 

Net gains (losses) arising during the period (less tax of $17, $9 and $17)

  

 

(43

 

 

23

  

 

 

40

  

Reclassification adjustment for (gains) losses included in net earnings (less tax of $8, $4 and $41)

  

 

8

  

 

 

(31

 

 

54

  

Total Other Comprehensive Income, Net of Tax

  

 

(1,176

 

 

256

  

 

 

1,326

  

Comprehensive Income (Loss)

  

 

160

  

 

 

968

  

 

 

2,030

  

Net (earnings) loss attributable to noncontrolling interests

  

 

(14

 

 

(21

 

 

(18

Other comprehensive (income) loss attributable to noncontrolling interests

  

 

(4

 

 

(2

 

 

0

  

Comprehensive Income (Loss) Attributable to International Paper Company

  

$

142

  

 

$

945

  

 

$

2,012

  

 

The accompanying notes are an integral part of these financial statements.

 

6


CONSOLIDATED BALANCE SHEET

 

 

In millions, except per share amounts, at December 31

  

2011

 

 

2010

 

ASSETS

  

 

Current Assets

  

 

Cash and temporary investments

  

$

3,994

  

 

$

2,073

  

Accounts and notes receivable, less allowances of $126 in 2011 and $129 in 2010

  

 

3,486

  

 

 

3,039

  

Inventories

  

 

2,320

  

 

 

2,347

  

Deferred income tax assets

  

 

296

  

 

 

339

  

Assets of businesses held for sale

  

 

196

  

 

 

0

  

Other current assets

  

 

164

  

 

 

230

  

Total Current Assets

  

 

10,456

  

 

 

8,028

  

Plants, Properties and Equipment, net

  

 

11,817

  

 

 

12,002

  

Forestlands

  

 

660

  

 

 

747

  

Investments

  

 

657

  

 

 

1,133

  

Goodwill

  

 

2,346

  

 

 

2,308

  

Deferred Charges and Other Assets

  

 

1,082

  

 

 

1,191

  

Total Assets

  

$

27,018

  

 

$

25,409

  

LIABILITIES AND EQUITY

  

 

Current Liabilities

  

 

Notes payable and current maturities of long-term debt

  

$

719

  

 

$

313

  

Accounts payable

  

 

2,500

  

 

 

2,556

  

Accrued payroll and benefits

  

 

467

  

 

 

471

  

Liabilities of businesses held for sale

  

 

43

  

 

 

0

  

Other accrued liabilities

  

 

1,009

  

 

 

1,163

  

Total Current Liabilities

  

 

4,738

  

 

 

4,503

  

Long-Term Debt

  

 

9,189

  

 

 

8,358

  

Deferred Income Taxes

  

 

2,497

  

 

 

2,793

  

Pension Benefit Obligation

  

 

2,375

  

 

 

1,482

  

Postretirement and Postemployment Benefit Obligation

  

 

476

  

 

 

499

  

Other Liabilities

  

 

758

  

 

 

649

  

Commitments and Contingent Liabilities (Note 10)

  

 

Equity

  

 

Common stock $1 par value, 2011 – 438.9 shares and 2010 – 438.9 shares

  

 

439

  

 

 

439

  

Paid-in capital

  

 

5,908

  

 

 

5,829

  

Retained earnings

  

 

3,355

  

 

 

2,460

  

Accumulated other comprehensive loss

  

 

(3,005

 

 

(1,825

  

 

6,697

  

 

 

6,903

  

Less: Common stock held in treasury, at cost, 2011 – 1.9 shares and 2010 – 1.2 shares

  

 

52

  

 

 

28

  

Total Shareholders’ Equity

  

 

6,645

  

 

 

6,875

  

Noncontrolling interests

  

 

340

  

 

 

250

  

Total Equity

  

 

6,985

  

 

 

7,125

  

Total Liabilities and Equity

  

$

27,018

  

 

$

25,409

  

 

The accompanying notes are an integral part of these financial statements.

 

7


CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

In millions for the years ended December 31

  

2011

 

 

2010

 

 

2009

 

OPERATING ACTIVITIES

  

 

 

Net earnings attributable to International Paper Company

  

$

1,322

  

 

$

691

  

 

$

686

  

Noncontrolling interests

  

 

14

  

 

 

21

  

 

 

18

  

Discontinued operations, net of taxes and noncontrolling interests

  

 

(49

 

 

0

  

 

 

0

  

Earnings (loss) from continuing operations

  

 

1,287

  

 

 

712

  

 

 

704

  

Depreciation, amortization, and cost of timber harvested

  

 

1,332

  

 

 

1,456

  

 

 

1,472

  

Deferred income tax provision (benefit), net

  

 

317

  

 

 

422

  

 

 

160

  

Restructuring and other charges

  

 

102

  

 

 

394

  

 

 

1,353

  

Pension plan contribution

  

 

(300

 

 

(1,150

 

 

0

  

Cost of forestlands sold

  

 

0

  

 

 

143

  

 

 

0

  

Periodic pension expense, net

  

 

195

  

 

 

231

  

 

 

213

  

Net (gains) losses on sales and impairments of businesses

  

 

218

  

 

 

(23

 

 

59

  

Equity (earnings) losses, net

  

 

(140

 

 

(111

 

 

26

  

Other, net

  

 

169

  

 

 

15

  

 

 

189

  

Changes in current assets and liabilities

  

 

 

Accounts and notes receivable

  

 

(128

 

 

(327

 

 

604

  

Inventories

  

 

(56

 

 

(186

 

 

316

  

Accounts payable and accrued liabilities

  

 

(389

 

 

(52

 

 

(321

Interest payable

  

 

6

  

 

 

3

  

 

 

(8

Other

  

 

62

  

 

 

104

  

 

 

(112

Cash Provided by (Used for) Operations

  

 

2,675

  

 

 

1,631

  

 

 

4,655

  

INVESTMENT ACTIVITIES

  

 

 

Invested in capital projects

  

 

(1,159

 

 

(775

 

 

(534

Acquisitions, net of cash acquired

  

 

(379

 

 

(152

 

 

(17

Proceeds from divestitures

  

 

50

  

 

 

0

  

 

 

0

  

Escrow arrangement

  

 

(25

 

 

0

  

 

 

0

  

Other

  

 

26

  

 

 

93

  

 

 

(42

Cash Provided by (Used for) Investment Activities

  

 

(1,487

 

 

(834

 

 

(593

FINANCING ACTIVITIES

  

 

 

Repurchase of common stock and payments of restricted stock tax withholding

  

 

(30

 

 

(26

 

 

(10

Issuance of debt

  

 

1,766

  

 

 

193

  

 

 

3,229

  

Reduction of debt

  

 

(517

 

 

(576

 

 

(6,318

Change in book overdrafts

  

 

(29

 

 

38

  

 

 

20

  

Dividends paid

  

 

(427

 

 

(175

 

 

(140

Other

  

 

(21

 

 

(42

 

 

(157

Cash Provided by (Used for) Financing Activities

  

 

742

  

 

 

(588

 

 

(3,376

Effect of Exchange Rate Changes on Cash

  

 

(9

 

 

(28

 

 

62

  

Change in Cash and Temporary Investments

  

 

1,921

  

 

 

181

  

 

 

748

  

Cash and Temporary Investments

  

 

 

Beginning of the period

  

 

2,073

  

 

 

1,892

  

 

 

1,144

  

End of the period

  

$

3,994

  

 

$

2,073

  

 

$

1,892

  

 

The accompanying notes are an integral part of these financial statements.

 

8


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

In millions

 

Common

Stock

Issued

 

 

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Total

International

Paper

Shareholders’

Equity

 

 

Noncontrolling

Interests

 

 

Total

Equity

 

BALANCE, JANUARY 1, 2009

 

$

434

  

 

$

5,845

  

 

$

1,404

  

 

$

(3,405

 

$

218

  

 

$

4,060

  

 

$

232

  

 

$

4,292

  

Issuance of stock for various plans, net

 

 

3

  

 

 

(42

 

 

0

  

 

 

0

  

 

 

(139

 

 

100

  

 

 

0

  

 

 

100

  

Repurchase of stock

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

10

  

 

 

(10

 

 

0

  

 

 

(10

Cash dividends – Common Stock

 

 

0

  

 

 

0

  

 

 

(144

 

 

0

  

 

 

0

  

 

 

(144

 

 

0

  

 

 

(144

Dividends paid to noncontrolling interests by subsidiary

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

(17

 

 

(17

Noncontrolling interests of acquired entities

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

(1

 

 

(1

Comprehensive income (loss)

 

 

0

  

 

 

0

  

 

 

686

  

 

 

1,326

  

 

 

0

  

 

 

2,012

  

 

 

18

  

 

 

2,030

  

BALANCE, DECEMBER 31, 2009

 

 

437

  

 

 

5,803

  

 

 

1,946

  

 

 

(2,079

 

 

89

  

 

 

6,018

  

 

 

232

  

 

 

6,250

  

Issuance of stock for various plans, net

 

 

2

  

 

 

38

  

 

 

0

  

 

 

0

  

 

 

(87

 

 

127

  

 

 

0

  

 

 

127

  

Repurchase of stock

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

26

  

 

 

(26

 

 

0

  

 

 

(26

Cash dividends – Common Stock

 

 

0

  

 

 

0

  

 

 

(177

 

 

0

  

 

 

0

  

 

 

(177

 

 

0

  

 

 

(177

Dividends paid to noncontrolling interests by subsidiary

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

(6

 

 

(6

Noncontrolling interests of acquired entities

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

9

  

 

 

9

  

Acquisition of noncontrolling interests

 

 

0

  

 

 

(12

 

 

0

  

 

 

0

  

 

 

0

  

 

 

(12

 

 

(8

 

 

(20

Comprehensive income (loss)

 

 

0

  

 

 

0

  

 

 

691

  

 

 

254

  

 

 

0

  

 

 

945

  

 

 

23

  

 

 

968

  

BALANCE, DECEMBER 31, 2010

 

 

439

  

 

 

5,829

  

 

 

2,460

  

 

 

(1,825

 

 

28

  

 

 

6,875

  

 

 

250

  

 

 

7,125

  

Issuance of stock for various plans, net

 

 

0

  

 

 

79

  

 

 

0

  

 

 

0

  

 

 

(6

 

 

85

  

 

 

0

  

 

 

85

  

Repurchase of stock

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

30

  

 

 

(30

 

 

0

  

 

 

(30

Cash dividends – Common Stock

 

 

0

  

 

 

0

  

 

 

(427

 

 

0

  

 

 

0

  

 

 

(427

 

 

0

  

 

 

(427

Dividends paid to noncontrolling interests by subsidiary

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

(5

 

 

(5

Noncontrolling interests of acquired entities

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

37

  

 

 

37

  

Acquisition of noncontrolling interests

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

0

  

 

 

40

  

 

 

40

  

Comprehensive income (loss)

 

 

0

  

 

 

0

  

 

 

1,322

  

 

 

(1,180

 

 

0

  

 

 

142

  

 

 

18

  

 

 

160

  

BALANCE, DECEMBER 31, 2011

 

$

439

  

 

$

5,908

  

 

$

3,355

  

 

$

(3,005

 

$

52

  

 

$

6,645

  

 

$

340

  

 

$

6,985

  

The accompanying notes are an integral part of these financial statements.

 

9


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

International Paper (the Company) is a global paper and packaging company that is complemented by an extensive North American merchant distribution system, with primary markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Substantially all of our businesses have experienced, and are likely to continue to experience, cycles relating to available industry capacity and general economic conditions.

FINANCIAL STATEMENTS

These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States that require the use of management’s estimates. Actual results could differ from management’s estimates.

CONSOLIDATION

The consolidated financial statements include the accounts of International Paper and its wholly-owned, controlled majority-owned and financially controlled subsidiaries. All significant intercompany balances and transactions are eliminated.

International Paper accounts for its investment in Ilim Holding S.A. (Ilim), a separate reportable industry segment, using the equity method of accounting. Prior to 2012, due to the complex organizational structure of Ilim’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 reported its share of Ilim’s operating results on a one-quarter lag basis. The Company determined that the elimination of the one-quarter lag was preferable because the same period-end reporting date improves overall financial reporting as the impact of current events, economic conditions and global trends are consistently reflected in the financial statements. Beginning January 1, 2012, the Company has applied this change in accounting principle retrospectively to all prior financial periods presented.

The elimination of the one-quarter reporting lag for Ilim had the following impact:

 

Consolidated Statement of Operations

 

In millions

  

2011

 

  

2010

 

    

2009

 

Equity earnings (loss)

  

$

(19

  

$

47

  

    

$

23

  

Earnings (loss) from continuing operations

  

 

(19

  

 

47

  

    

 

23

  

Net earnings (loss) attributable to International Paper Company

  

 

(19

  

 

47

  

    

 

23

  

Basic earnings (loss) per share from continuing operations

  

 

(0.04

  

 

0.11

  

    

 

0.05

  

Basic net earnings (loss) per share

  

 

(0.04

  

 

0.11

  

    

 

0.05

  

Diluted earnings (loss) per share from continuing operations

  

 

(0.04

  

 

0.11

  

    

 

0.06

  

Diluted net earnings (loss) per share

  

 

(0.04

  

 

0.11

  

    

 

0.06

  

 

Consolidated Balance Sheet

  

 

 

  

 

 

In millions

  

2011

 

  

2010

 

Investments

  

$

25

  

  

$

(41

Retained earnings

  

 

25

  

  

 

44

  

Accumulated other comprehensive income

  

 

0

  

  

 

3

  

In addition, Retained earnings at January 1, 2009 decreased by $26 million as a result of the elimination of the one-quarter reporting lag for Ilim.

Investments in affiliated companies where the Company has significant influence over their operations are accounted for by the equity method. International Paper’s share of affiliates’ results of operations totaled earnings of $140 million, earnings of $111 million and a loss of $26 million in 2011, 2010 and 2009, respectively.

REVENUE RECOGNITION

Revenue is recognized when the customer takes title and assumes the risks and rewards of ownership. Revenue is recorded at the time of shipment for terms designated f.o.b. (free on board) shipping point. For sales transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s delivery site, when title and risk of loss are transferred. Timber and forestland sales revenue is generally recognized when title and risk of loss pass to the buyer.

ALTERNATIVE FUEL MIXTURE CREDITS – COST OF PRODUCTS SOLD

The U.S. Internal Revenue Code provided a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. As these

 

 

10


credits represent a reduction of energy costs at the Company’s U.S. manufacturing facilities, the credits are included as a reduction of Cost of products sold in 2009 in the accompanying consolidated statement of operations. See the Alternative Fuel Mixture Credits discussion in Note 4 for a further discussion of these credits.

SHIPPING AND HANDLING COSTS

Shipping and handling costs, such as freight to our customers’ destinations, are included in distribution expenses in the consolidated statement of operations. When shipping and handling costs are included in the sales price charged for our products, they are recognized in net sales.

ANNUAL MAINTENANCE COSTS

Costs for repair and maintenance activities are expensed in the month that the related activity is performed under the direct expense method of accounting.

TEMPORARY INVESTMENTS

Temporary investments with an original maturity of three months or less are treated as cash equivalents and are stated at cost, which approximates market.

INVENTORIES

Inventories are valued at the lower of cost or market and include all costs directly associated with manufacturing products: materials, labor and manufacturing overhead. In the United States, costs of raw materials and finished pulp and paper products are generally determined using the last-in, first-out method. Other inventories are valued using the first-in, first-out or average cost methods.

PLANTS, PROPERTIES AND EQUIPMENT

Plants, properties and equipment are stated at cost, less accumulated depreciation. Expenditures for betterments are capitalized, whereas normal repairs and maintenance are expensed as incurred. The units-of-production method of depreciation is used for major pulp and paper mills, and the straight-line method is used for other plants and equipment. Annual straight-line depreciation rates are, for buildings — 2 1/2% to 8 1/2%, and for machinery and equipment — 5% to 33%.

FORESTLANDS

At December 31, 2011, International Paper and its subsidiaries owned or managed approximately

325,000 acres of forestlands in Brazil, and through licenses and forest management agreements, had harvesting rights on government-owned forestlands in Russia. Costs attributable to timber are charged against income as trees are cut. The rate charged is determined annually based on the relationship of incurred costs to estimated current merchantable volume.

GOODWILL

Goodwill relating to a single business reporting unit is included as an asset of the applicable segment, while goodwill arising from major acquisitions that involve multiple business segments is classified as a corporate asset for segment reporting purposes. For goodwill impairment testing, this goodwill is allocated to reporting units. Annual testing for possible goodwill impairment is performed as of the beginning of the fourth quarter of each year, with additional interim testing performed when management believes that it is more likely than not events or circumstances have occurred that would result in the impairment of a reporting unit’s goodwill.

In performing this testing, the Company estimates the fair value of its reporting units using the projected future cash flows to be generated by each unit over the estimated remaining useful operating lives of the unit’s assets, discounted using the estimated cost of capital for each reporting unit. These estimated fair values are then analyzed for reasonableness by comparing them to historic market transactions for businesses in the industry, and by comparing the sum of the reporting unit fair values and other corporate assets and liabilities divided by diluted common shares outstanding to the Company’s traded stock price on the testing date. For reporting units whose recorded value of net assets plus goodwill is in excess of their estimated fair values, the fair values of the individual assets and liabilities of the respective reporting units are then determined to calculate the amount of any goodwill impairment charge required. See Note 8 for further discussion.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of the assets may not be recoverable, measured by comparing their net book value to the undiscounted projected future cash flows generated by their use. Impaired assets are recorded at their estimated fair value. See Note 6 for further discussion.

 

 

11


INCOME TAXES

International Paper uses the asset and liability method of accounting for income taxes whereby deferred income taxes are recorded for the future tax consequences attributable to differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are remeasured to reflect new tax rates in the periods rate changes are enacted.

International Paper records its worldwide tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. Where the Company believes that a tax position is supportable for income tax purposes, the item is included in its income tax returns. Where treatment of a position is uncertain, liabilities are recorded based upon the Company’s evaluation of the “more likely than not” outcome considering the technical merits of the position based on specific tax regulations and the facts of each matter. Changes to recorded liabilities are made only when an identifiable event occurs that changes the likely outcome, such as settlement with the relevant tax authority, the expiration of statutes of limitation for the subject tax year, a change in tax laws, or a recent court case that addresses the matter.

While the judgments and estimates made by the Company are based on management’s evaluation of the technical merits of a matter, assisted as necessary by consultation with outside consultants, historical experience and other assumptions that management believes are appropriate and reasonable under current circumstances, actual resolution of these matters may differ from recorded estimated amounts, resulting in charges or credits that could materially affect future financial statements.

STOCK-BASED COMPENSATION

Compensation costs resulting from all stock-based compensation transactions are measured and recorded in the consolidated financial statements based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards are remeasured each reporting period. Compensation cost is recognized over the period that an employee provides service in exchange for the award.

ENVIRONMENTAL REMEDIATION COSTS

Costs associated with environmental remediation obligations are accrued when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are discounted to their present value when the amount and timing of expected cash payments are reliably determinable.

ASSET RETIREMENT OBLIGATIONS

A liability and an asset are recorded equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists and the liability can be reasonably estimated. The liability is accreted over time and the asset is depreciated over the life of the related equipment or facility. International Paper’s asset retirement obligations principally relate to closure costs for landfills. Revisions to the liability could occur due to changes in the estimated costs or timing of closures, or possible new federal or state regulations affecting these closures.

In connection with potential future closures or redesigns of certain production facilities, it is possible that the Company may be required to take steps to remove certain materials from these facilities. Applicable regulations and standards provide that the removal of certain materials would only be required if the facility were to be demolished or underwent major renovations. At this time, any such obligations have an indeterminate settlement date, and the Company believes that adequate information does not exist to apply an expected-present-value technique to estimate any such potential obligations. Accordingly, the Company does not record a liability for such remediation until a decision is made that allows reasonable estimation of the timing of such remediation.

TRANSLATION OF FINANCIAL STATEMENTS

Balance sheets of international operations are translated into U.S. dollars at year-end exchange rates, while statements of operations are translated at average rates. Adjustments resulting from financial statement translations are included as cumulative translation adjustments in Accumulated other comprehensive loss.

 

 

12


NOTE 2 RECENT ACCOUNTING DEVELOPMENTS

Other than as described below, no new accounting pronouncement issued or effective during the fiscal year has had or is expected to have a material impact on the consolidated financial statements.

INTANGIBLES – GOODWILL AND OTHER

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-08, “Intangibles – Goodwill and Other.” This guidance provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted the provisions of this guidance in January 2012.

COMPREHENSIVE INCOME

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” which revises the manner in which entities should present comprehensive income in their financial statements. The new guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company has retrospectively applied the provisions of this standard in the preparation of the accompanying consolidated financial statements.

In December 2011, the FASB issued ASU 2011-12, “Presentation of Comprehensive Income,” which defers certain provisions of ASU 2011-05 that require entities to present reclassification adjustments out of accumulated other comprehensive income by

component in both the statement in which net income is presented and the statement in which other comprehensive income is presented (for both interim and annual financial statements). This requirement is indefinitely deferred by ASU 2011-12 and will be further deliberated by the FASB at a future date. The Company does not anticipate that the adoption of the remaining requirements of this guidance will have a material effect on its consolidated financial statements.

FAIR VALUE MEASUREMENTS

In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements,” which further amends ASC 820 to add new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. This new guidance also clarifies the level of disaggregation, inputs and valuation techniques used to measure fair value and amends guidance under ASC 715 related to employers’ disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. This guidance was effective for the first reporting period beginning after December 15, 2009, except for the requirement to provide the separate disclosure about Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which was effective for the first reporting period beginning after December 15, 2010. The application of the requirements of this guidance did not have a material effect on the consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” This ASU is the result of joint efforts by the FASB and International Accounting Standards Board (IASB) to develop converged guidance on how to measure fair value and what disclosures to provide about fair value measurements. The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP; however, it expands existing disclosure requirements for fair value measurements and makes other amendments, many of which eliminate unnecessary wording differences between U.S. GAAP and IFRS. This ASU is effective for interim and annual periods beginning after December 15, 2011. The Company is currently evaluating the effects that this guidance will have on its consolidated financial statements.

 

 

13


NOTE 3 EARNINGS PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS

Basic earnings per common share from continuing operations is computed by dividing earnings from continuing operations by the weighted average number of common shares outstanding. Diluted earnings per common share from continuing operations is computed assuming that all potentially dilutive securities, including “in-the-money” stock options, were converted into common shares at the beginning of each year. In addition, the computation of diluted earnings per share reflects the inclusion of contingently convertible securities in periods when dilutive.

A reconciliation of the amounts included in the computation of basic earnings per common share from continuing operations, and diluted earnings per common share from continuing operations is as follows:

 

In millions, except per share amounts

 

2011

 

 

2010

 

 

2009

 

Earnings (loss) from continuing operations

 

$

1,273

  

 

$

691

  

 

$

686

  

Effect of dilutive securities (a)

 

 

0

  

 

 

0

  

 

 

0

  

Earnings (loss) from continuing operations –  assuming dilution

 

$

1,273

  

 

$

691

  

 

$

686

  

Average common shares outstanding

 

 

432.2

  

 

 

429.8

  

 

 

425.3

  

Effect of dilutive securities (a):

 

 

 

Restricted performance share plan

 

 

4.8

  

 

 

4.4

  

 

 

2.7

  

Stock options (b)

 

 

0

  

 

 

0

  

 

 

0

  

Average common shares outstanding  – assuming dilution

 

 

437.0

  

 

 

434.2

  

 

 

428.0

  

Basic earnings (loss) per common share from continuing operations

 

$

2.95

  

 

$

1.61

  

 

$

1.61

  

Diluted earnings (loss) per common share from continuing operations

 

$

2.92

  

 

$

1.59

  

 

$

1.61

  

 

(a)

Securities are not included in the table in periods when antidilutive.

 

(b)

Options to purchase 15.6 million, 18.2 million and 22.2 million shares for the years ended December 31, 2011, 2010 and 2009, respectively, were not included in the computation of diluted common shares outstanding because their exercise price exceeded the average market price of the Company’s common stock for each respective reporting date.

NOTE 4 RESTRUCTURING CHARGES AND OTHER ITEMS

RESTRUCTURING AND OTHER CHARGES

2011: During 2011, total restructuring and other charges of $102 million before taxes ($66 million after taxes) were recorded. These charges included:

 

In millions

  

Before-Tax

Charges

 

 

After-Tax

Charges

 

xpedx restructuring (a)

  

$

49

  

 

$

34

  

Early debt extinguishment costs (see Notes 12 and 13)

  

 

32

  

 

 

19

  

Temple-Inland merger agreement

  

 

20

  

 

 

12

  

APPM acquisition

  

 

18

  

 

 

12

  

Franklin, Virginia mill – closure costs (b)

  

 

(24

 

 

(15

Other

  

 

7

  

 

 

4

  

Total

  

$

102

  

 

$

66

  

 

(a)

Includes pre-tax charges of $19 million for severance.

 

(b)

Includes a pre-tax credit of $21 million related to the reversal of an environmental reserve.

Included in the $102 million of organizational restructuring and other charges is $25 million of severance charges.

The following table presents a rollforward of the severance and other costs for approximately 629 employees included in the 2011 restructuring charges:

 

In millions

  

Severance

and Other

 

Opening balance (recorded first quarter 2011)

  

$

7

  

Additions and adjustments

  

 

18

  

Cash charges in 2011

  

 

(16

Balance, December 31, 2011

  

$

9

  

As of December 31, 2011, 454 employees had left the Company under these programs.

 

 

14


2010: During 2010, total restructuring and other charges of $394 million before taxes ($242 million after taxes) were recorded. These charges included:

 

In millions

 

Before-Tax

Charges

 

 

After-Tax

Charges

 

Franklin, Virginia mill – closure costs (a)

 

$

315

  

 

$

192

  

Early debt extinguishment costs (see Notes 12 and 13)

 

 

35

  

 

 

21

  

Write-off of Ohio Commercial Activity tax receivable

 

 

11

  

 

 

7

  

Shorewood Packaging reorganization

 

 

8

  

 

 

5

  

Bellevue, Washington container facility – closure costs

 

 

7

  

 

 

4

  

S&A reduction initiative

 

 

6

  

 

 

4

  

Other

 

 

12

  

 

 

9

  

Total

 

$

394

  

 

$

242

  

 

(a)

Includes pre-tax charges of $236 million for accelerated depreciation, $36 million for environmental closure costs and $30 million for severance.

Included in the $394 million of organizational restructuring and other charges is $46 million of severance charges.

The following table presents a rollforward of the severance and other costs for approximately 1,650 employees included in the 2010 restructuring charges:

 

In millions

  

Severance

and Other

 

Opening balance (recorded first quarter 2010)

  

$

20

  

Additions and adjustments

  

 

26

  

Cash charges in 2010

  

 

(32

Cash charges in 2011

  

 

(8

Balance, December 31, 2011

  

$

6

  

As of December 31, 2011, 1,618 employees had left the Company under these programs.

2009: During 2009, total restructuring and other charges of $1.4 billion before taxes ($853 million after taxes) were recorded. These charges included:

 

In millions

 

Before-Tax

Charges

 

 

After-Tax

Charges

 

Albany, Oregon containerboard mill – closure
costs (a)

 

$

469

  

 

$

286

  

Franklin, Virginia paper mill and associated operations – closure costs (b)

 

 

290

  

 

 

177

  

Early debt extinguishment costs (see Notes 12
and 13)

 

 

185

  

 

 

113

  

2008 overhead reduction program – severance
and benefits

 

 

148

  

 

 

92

  

Pineville, Louisiana containerboard mill – closure costs (c)

 

 

102

  

 

 

62

  

Valliant, Oklahoma containerboard mill – paper machine shutdown costs (d)

 

 

82

  

 

 

50

  

Etienne mill – severance and other costs (e)

 

 

31

  

 

 

31

  

Inverurie mill – closure costs (f)

 

 

23

  

 

 

28

  

Other

 

 

23

  

 

 

14

  

Total

 

$

1,353

  

 

$

853

  

 

(a)

Includes pre-tax charges of $438 million for accelerated depreciation and other non cash charges, $21 million for severance and benefit costs and $9 million for environmental reserves.

 

(b)

Includes pre-tax charges of $258 million for accelerated depreciation and other noncash charges and $30 million for severance.

 

(c)

Includes pre-tax charges of $82 million for accelerated depreciation and other noncash charges, $9 million for severance and $10 million for environmental reserves.

 

(d)

Includes pre-tax charges of $81 million for accelerated depreciation and other noncash charges.

 

(e)

Includes pre-tax charges of $19 million for severance.

 

(f)

Includes pre-tax charges of $17 million for severance.

Included in the $1.4 billion of organizational restructuring and other charges is $166 million of severance charges and $85 million of related benefits for approximately 3,175 employees. As of December 31, 2010, all of these employees had been terminated.

 

 

15


The following table presents a rollforward of the severance and other costs included in the 2009 restructuring charges:

 

In millions

  

Severance

and Other

 

Opening balance (recorded first quarter 2009)

  

$

74

  

Additions and adjustments

  

 

177

  

Cash charges in 2009

  

 

(82

Pension and postretirement termination benefits

  

 

(85

Cash charges in 2010

  

 

(84

Balance, December 31, 2010

  

$

0

  

ALTERNATIVE FUEL MIXTURE CREDITS

The U.S. Internal Revenue Code provided a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, is refundable to the taxpayer. In January 2009, the Company received notification that its application to be registered as an alternative fuel mixer had been approved. For the year ended December 31, 2009, the Company filed claims for alternative fuel mixture credits covering eligible periods subsequent to November 2008 through October 25, 2009 totaling approximately $1.7 billion, all of which had been received in cash at December 31, 2009. Additionally, the Company had recorded $379 million of alternative fuel mixture credits as a reduction of income taxes payable at December 31, 2009. Accordingly, the accompanying consolidated statement of operations includes credits of approximately $2.1 billion for the year ended Decem


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