VARIABLE INTEREST ENTITIES

12 Months Ended

Dec. 31, 2015

VARIABLE INTEREST ENTITIES [Abstract]

VARIABLE INTEREST ENTITIES

VARIABLE INTEREST ENTITIES

This note provides details about special-purpose entities (SPEs).

SPECIAL-PURPOSE ENTITIES

From 2002 through 2004, we sold certain nonstrategic timberlands in five separate transactions. We are the primary beneficiary and consolidate the assets and liabilities of certain monetization and buyer-sponsored SPEs involved in these transactions. We have an equity interest in the monetization SPEs, but no ownership interest in the buyer-sponsored SPEs. The following disclosures refer to assets of buyer-sponsored SPEs and liabilities of monetization SPEs. However, because these SPEs are distinct legal entities:

• Assets of the SPEs are not available to satisfy our liabilities or obligations.

• Liabilities of the SPEs are not our liabilities or obligations.

In 2013, we repaid a $162 million note and received $184 million related to one of our timber monetization SPEs undertaken in 2003. Net proceeds were $22 million.

Our Consolidated Statement of Operations includes:

• Interest expense on SPE notes of:

– $29 million in 2015,

– $29 million in 2014 and

–$29 million in 2013.

• Interest income on SPE investments of:

– $34 million in 2015,

–$34 million in 2014 and

–$34 million in 2013.

Sales proceeds paid to buyer-sponsored SPEs were invested in restricted financial investments with a balance of $615 million as of both December 31, 2015, and December 31, 2014. The weighted average interest rate was 5.5 percent during 2015 and 2014. Maturities of the financial investments at the end of 2015 were:

• $253 million in 2019 and

• $362 million in 2020.

The long-term notes of our monetization SPEs were $511 million as of both December 31, 2015, and December 31, 2014. The weighted average interest rate was 5.6 percent during 2015 and 2014. Maturities of the notes at the end of 2015 were:

• $209 million in 2019 and

• $302 million in 2020.

Financial investments consist of bank guarantees backed by bank notes for three of the SPE transactions. Interest earned from each financial investment is used to pay interest accrued on the corresponding SPE’s note. Any shortfall between interest earned and interest accrued reduces our equity in the monetization SPEs.

Upon dissolution of the SPEs and payment of all obligations of the entities, we would receive any net equity remaining in the monetization SPEs and would be required to report deferred tax gains on our income tax return. In the event that proceeds from the financial investments are insufficient to settle all of the liabilities of the SPEs, we are not obligated to contribute any funds to any of the SPEs. As of December 31, 2015, our net equity in the three SPEs was approximately $105 million and the deferred tax liability was estimated to be approximately $180 million.