International Paper 2014 Annual Report Download - page 75

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changes in the assumed discount rate, differences
between the actual and expected return on plan assets,
and other assumption changes. These net gains and
losses are recognized in pension expense
prospectively over a period that approximates the
average remaining service period of active employees
expected to receive benefits under the plans to the
extent that they are not offset by gains and losses in
subsequent years. The estimated net loss and prior
service cost that will be amortized from accumulated
other comprehensive income into net periodic pension
cost for the U.S. pension plans over the next fiscal year
are $475 million and $43 million, respectively.
Net periodic pension and postretirement plan
expenses, calculated for all of International Paper’s
plans, were as follows:
In millions 2014 2013 2012 2011 2010
Pension expense
U.S. plans (non-
cash) $ 387 $ 545 $ 342 $ 195 $ 231
Non-U.S. plans —531
—
Postretirement
expense
U.S. plans 7(1) (4) 7 6
Non-U.S. plans 77121
Net expense $ 401 $ 556 $ 342 $ 205 $ 238
The decrease in 2014 U.S. pension expense principally
reflects an increase in the discount rate and lower
amortization of unrecognized actuarial losses. The
increase in 2014 U.S. postretirement expense is
principally due to lower amortization of prior service
credits.
Assuming that discount rates, expected long-term
returns on plan assets and rates of future compensation
increases remain the same as in 2014, projected future
net periodic pension and postretirement plan expenses
would be as follows:
In millions 2016 (1) 2015 (1)
Pension expense
U.S. plans (non-cash) $ 390 $ 488
Non-U.S. plans 6 7
Postretirement expense
U.S. plans 13 9
Non-U.S. plans 7 6
Net expense $ 416 $ 510
(1) Based on assumptions at December 31, 2014.
The Company estimates that it will record net pension
expense of approximately $488 million for its U.S.
defined benefit plans in 2015, with the increase from
expense of $387 million in 2014 reflecting a decrease
in the assumed discount rate to 4.10% in 2015 from
4.65% in 2014, updated mortality assumptions and
higher unrecognized losses.
The market value of plan assets for International
Paper’s U.S. qualified pension plan at December 31,
2014 totaled approximately $10.9 billion, consisting of
approximately 47% equity securities, 33% debt
securities, 10% real estate and 10% other assets. Plan
assets include an immaterial amount of International
Paper common stock.
The Company’s funding policy for its qualified pension
plans is to contribute amounts sufficient to meet legal
funding requirements, plus any additional amounts that
the Company may determine to be appropriate
considering the funded status of the plan, tax
deductibility, the cash flows generated by the Company,
and other factors. The Company continually
reassesses the amount and timing of any discretionary
contributions and could elect to make voluntary
contributions in the future. The required contribution for
the U.S. qualified pension plans in 2015 is
approximately $63 million. The nonqualified defined
benefit plans are funded to the extent of benefit
payments, which totaled $38 million for the year ended
December 31, 2014.
Accounting for Stock Options
International Paper follows ASC 718, “Compensation –
Stock Compensation,” in accounting for stock options.
Under this guidance, expense for stock options is
recorded over the related service period based on the
grant-date fair market value.
During each reporting period, diluted earnings per
share is calculated by assuming that “in-the-money”
options are exercised and the exercise proceeds are
used to repurchase shares in the marketplace. When
options are actually exercised, option proceeds are
credited to equity and issued shares are included in the
computation of earnings per common share, with no
effect on reported earnings. Equity is also increased by
the tax benefit that International Paper will receive in its
tax return for income reported by the optionees in their
individual tax returns.
At December 31, 2014 and 2013, 0.07 million options,
and 1.8 million options, respectively, were outstanding
with exercise prices of $39.03 per share for 2014 and
a range of $38.41 to $48.19 per share for 2013.