International Paper 2014 Annual Report Download - page 88

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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 9 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.
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