International Paper 2015 Annual Report Download - page 55

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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. There are no required
contributions to the U.S. qualified plan in 2016. The
nonqualified defined benefit plans are funded to the
extent of benefit payments, which totaled $62 million
for the year ended December 31, 2015.
Accounting for Stock-Based Compensation
The Company has a Performance Share Plan, which
grants performance-based restricted stock units that
are paid out in stock when the awards are earned. Such
incentive compensation plans are accounted for under
ASC 718, “Compensation - Stock Compensation.” This
standard requires that the value of shares to be issued
under this plan be recognized as compensation over
the period in which the awards are earned based on
the fair value of the awards, and requires the use of a
number of judgments and assumptions in determining
the timing and amount of such charges. Additionally,
since a component of these awards is based on the
Company’s performance over a specified period
compared to other companies, the amount of expense
recorded for a given period could require adjustments
after the end of the period.
Income Taxes
International Paper records its global 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 technical merits of the position based on
specific tax regulations and facts of each matter.
Changes to recorded liabilities are only made 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, change in tax laws, or a recent court
case that addresses the matter.
Valuation allowances are recorded to reduce deferred
tax assets when it is more likely than not that a tax
benefit will not be realized. Significant judgment is
required in evaluating the need for and magnitude of
appropriate valuation allowances against deferred tax
assets. The realization of these assets is dependent on
generating future taxable income, as well as successful
implementation of various tax planning strategies.
While International Paper believes that these
judgments and estimates are appropriate and
reasonable under the circumstances, actual resolution
of these matters may differ from recorded estimated
amounts.
The Company’s effective income tax rates, before
equity earnings and discontinued operations, were
37%, 14% and (41)% for 2015, 2014 and 2013,
respectively. These effective tax rates include the tax
effects of certain special items that can significantly
affect the effective income tax rate in a given year, but
may not recur in subsequent years. Management
believes that the effective tax rate computed after
excluding these special items may provide a better
estimate of the rate that might be expected in future
years if no additional special items were to occur in
those years. Excluding these special items, the
effective income tax rate for 2015 was 33% of pre-tax
earnings compared with 31% in 2014 and 26% in 2013.
We estimate that the 2016 effective income tax rate will
be approximately 34% based on expected earnings and
business conditions.
RECENT ACCOUNTING DEVELOPMENTS
There were no new accounting pronouncements issued
or effective during the fiscal year which have had or are
expected to have a material impact on the Company’s
consolidated financial statements. See Note 2 Recent
Accounting Developments on pages 51 and 52 of
Item 8. Financial Statements and Supplementary Data
for a discussion of new accounting pronouncements.
LEGAL PROCEEDINGS
Information concerning the Company’s environmental
and legal proceedings is set forth in Note 11
Commitments and Contingencies on pages 61 through
64 of Item 8. Financial Statements and Supplementary
Data.
EFFECT OF INFLATION
While inflationary increases in certain input costs, such
as energy, wood fiber and chemical costs, have an
impact on the Company’s operating results, changes in
general inflation have had minimal impact on our
operating results in each of the last three years. Sales
prices and volumes are more strongly influenced by
economic supply and demand factors in specific
markets and by exchange rate fluctuations than by
inflationary factors.
FOREIGN CURRENCY EFFECTS
International Paper has operations in a number of
countries. Its operations in those countries also export
to, and compete with, imports from other regions. As
such, currency movements can have a number of direct
and indirect impacts on the Company’s financial
statements. Direct impacts include the translation of
international operations’ local currency financial
statements into U.S. dollars and the remeasurement