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49
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 with primary markets and
manufacturing operations in North America, Europe,
Latin America, Russia, Asia, Africa and the Middle East.
Substantially all of our businesses have experienced,
and are likely to continue 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.
On July 1, 2014, International Paper completed the
spinoff of its distribution business, xpedx, and xpedx's
merger with Unisource Worldwide, Inc., with the
combined companies now operating as Veritiv
Corporation (Veritiv). As a result of the spinoff, all prior
year amounts have been adjusted to reflect xpedx as
a discontinued operation. See Note 7 for further
discussion.
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.
Investments in affiliated companies where the
Company has significant influence over their operations
are accounted for by the equity method. International
Paper’s share of affiliates’ results of operations totaled
earnings (loss) of $117 million, $(200) million and $(39)
million in 2015, 2014 and 2013, 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 forestland 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 operations.
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.
TEMPORARY INVESTMENTS
Temporary investments with an original maturity of
three months or less are treated as cash equivalents
and are stated at cost, which approximates market
value.
INVENTORIES
Inventories are valued at the lower of cost or market
value and include all costs directly associated with
manufacturing products: materials, labor and
manufacturing overhead. In the United States, costs of
raw materials and finished pulp and paper products, are
generally determined using the last-in, first-out method.
Other inventories are valued using the first-in, first-out
or average cost methods.
PLANTS, PROPERTIES AND EQUIPMENT
Plants, properties and equipment are stated at cost,
less accumulated depreciation. Expenditures for
betterments are capitalized, whereas normal repairs
and maintenance are expensed as incurred. The units-
of-production method of depreciation is used for pulp
and paper mills, and the straight-line method is used
for other plants and equipment. Annual straight-line
depreciation rates generally are, for buildings — 2.50%
to 5.00%, and for machinery and equipment — 5% to
33%.
FORESTLANDS
At December 31, 2015, International Paper and its
subsidiaries owned or managed approximately
335,000 acres of forestlands in Brazil, and through
licenses and forest management agreements, had
harvesting rights on government-owned forestlands in
Russia. Costs attributable to timber are expensed as
trees are cut. The rate charged is determined annually
based on the relationship of incurred costs to estimated
current merchantable volume.