International Paper 2012 Annual Report Download - page 79

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 con-
tinue 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 organ-
izational 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. In 2012, 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 reporting periods presented.
The elimination of the one-quarter reporting lag for
Ilim had the following impact:
Consolidated Statement of Operations
In millions 2011 2010
Equity earnings (loss), net of taxes $(19) $47
Earnings (loss) from continuing operations (19 ) 47
Net earnings (loss) attributable to International Paper
Company (19 ) 47
Basic earnings (loss) per share from continuing
operations (0.04 ) 0.11
Basic net earnings (loss) per share (0.04 ) 0.11
Diluted earnings (loss) per share from continuing
operations (0.04 ) 0.11
Diluted net earnings (loss) per share (0.04 ) 0.11
Consolidated Balance Sheet
In millions at December 31 2011
Investments $25
Retained earnings 25
Investments in affiliated companies where the
Company has significant influence over their oper-
ations are accounted for by the equity method.
International Paper’s share of affiliates’ results of
operations totaled earnings of $61 million , $140 mil-
lion and $111 million in 2012 , 2011 and 2010 ,
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 forest-
land sales revenue is generally recognized when title
and risk of loss pass to the buyer.
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 oper-
ations. 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.
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