Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This guidance gives entities the option to reclassify stranded tax effects caused by the newly-enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The Company is currently evaluating the provisions of this guidance.

Derivatives and Hedging

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The objective of this new guidance is the improvement of the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition to that main objective, the amendments in this guidance make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. This guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. The Company early adopted the provisions of this guidance on January 1, 2018, with no material impact on the financial statements.

Retirement Benefits

The Company adopted the provision of ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," on January 1, 2018. Under this new guidance, employers present the service costs component of the net periodic benefit cost in the same income statement line

items as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component is eligible for capitalization in assets. Employers present the other components separately from the line items that includes the service cost and outside of any subtotal of operating income. In addition, disclosure of the lines used to present the other components of net periodic benefit cost are required if the components are not presented separately in the income statement. The following table details the impact of the retrospective adoption of this standard on 2017 second quarter and six months ended June 30, 2017 amounts reported in the accompanying condensed consolidated statement of operations and on full-year amounts for 2017, 2016 and 2015 reported in the Company's 2017 Form 10-K. The retrospective adoption had no impact on Net earnings (loss).



Condensed Consolidated Statement of Operations
	Three Months Ended June 30, 2017
In millions	Previously Reported		Impact of Adoption Increase/(Decrease)			As Revised
Cost of products sold	$	3,789	$	(40	)	$	3,749
Selling and administrative expenses	399		(6		)	393
Non-operating pension expense	—		46			46

	Six Months Ended June 30, 2017
In millions	Previously Reported		Impact of Adoption Increase/(Decrease)			As Revised
Cost of products sold	$	7,458	$	(71	)	$	7,387
Selling and administrative expenses	799		(13		)	786
Non-operating pension expense	—		84			84

	Year Ended December 31, 2017
In millions	Previously Reported		Impact of Adoption Increase/(Decrease)			As Revised
Cost of products sold	$	15,300	$	(499	)	$	14,801
Selling and administrative expenses	1,653		(32		)	1,621
Non-operating pension expense	—		531			531

	Year Ended December 31, 2016
In millions	Previously Reported		Impact of Adoption Increase/(Decrease)			As Revised
Cost of products sold	$	14,057	$	(638	)	$	13,419
Selling and administrative expenses	1,484		(26		)	1,458
Non-operating pension expense	—		664			664

	Year Ended December 31, 2015
In millions	Previously Reported		Impact of Adoption Increase/(Decrease)			As Revised
Cost of products sold	$	14,313	$	(268	)	$	14,045
Selling and administrative expenses	1,539		(43		)	1,496
Non-operating pension expense	—		311			311

Business Combinations

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." Under the new guidance, an entity must first determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If this threshold is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. This guidance was effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. The Company adopted the provisions of this guidance on January 1, 2018, with no material impact on the financial statements.

Income Taxes

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." This ASU requires companies to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs rather than defer the income tax effects which is current practice. This new guidance was effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. The guidance requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. The Company adopted the provisions of this guidance on January 1, 2018, with no material impact on the financial statements.

Stock Compensation

In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting." This guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under this guidance, entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This guidance was effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. The Company adopted the provisions of this guidance on January 1, 2018, with no material impact on the financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, "Leases Topic (842): Leases." This ASU will require most leases to be recognized on the balance sheet which will increase reported assets and liabilities. Lessor accounting will remain substantially similar to current U.S. GAAP. This ASU is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years, and mandates a modified retrospective transition method for all entities. In July 2018, the FASB issued ASU 2018-11, "Leases Topic (842): Targeted Improvements." This ASU provides companies an option to apply the transition provisions of the new lease standard at its adoption date instead of at the earliest comparative period presented in its financial statements. The Company expects to adopt the new lease guidance using the newly approved transition method. We expect to recognize a liability and corresponding asset associated with in-scope operating and finance leases but are still in the process of determining those amounts and the processes required to account for leasing activity on an ongoing basis.

The Company has formed a global implementation team, including representatives from accounting, tax, legal, global sourcing, information technology, policies and controls and operations. Surveys were developed and utilized to gather initial information regarding existing leases and the various processes that currently exist to procure, track and account for leases globally. The implementation team has selected and begun working with a third-party vendor to implement a lease accounting solution to deliver the accounting and disclosures required under the new lease accounting guidance.

Revenue Recognition

On January 1, 2018, the Company adopted the new revenue recognition standard ASC 606, "Revenue from Contracts With Customers," (new revenue standard) and all related amendments, using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of Retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The Company recorded a net increase to opening Retained earnings of $73 million as of January 1, 2018, due to the cumulative impact of adopting the new revenue standard, with the impact primarily related to our customized products. The impacts of the adoption of the new revenue standard on the Company's condensed consolidated financial statements were as follows:



Condensed Consolidated Statement of Operations
	Three Months Ended June 30, 2018
In millions, except per share amounts	As Reported			Balances Without Adoption of ASC 606			Impact of Adoption Increase/(Decrease)
Net sales	$	5,833		$	5,837		$	(4	)
Cost of products sold	3,922			3,930			(8		)
Distribution expenses	403			401			2
Income tax provision (benefit), net	130			130			—
Earnings (loss) from continuing operations	430			428			2
Net earnings (loss)	407			405			2
Earnings per share attributable to International Paper Company Shareholders
Basic	$	0.98		$	0.98		$	—
Diluted	0.97			0.97			—
Condensed Consolidated Statement of Operations
	Six Months Ended June 30, 2018
In millions, except per share amounts	As Reported			Balances Without Adoption of ASC 606			Impact of Adoption Increase/(Decrease)
Net sales	$	11,454		$	11,437		$	17
Cost of products sold	7,870			7,863			7
Distribution expenses	769			767			2
Income tax provision (benefit), net	219			217			2
Earnings (loss) from continuing operations	792			786			6
Net earnings (loss)	1,137			1,131			6
Earnings per share attributable to International Paper Company Shareholders
Basic	$	2.74		$	2.73		$	0.01
Diluted	2.71			2.70			0.01

Condensed Consolidated Balance Sheet
	June 30, 2018
In millions, except per share amounts	As Reported			Balances Without Adoption of ASC 606			Impact of Adoption Increase/(Decrease)
Contract assets	$	381		$	—		$	381
Inventories	2,050			2,308			(258		)
Other current assets	242			250			(8		)
Other accrued liabilities	1,032			1,014			18
Deferred income taxes	2,502			2,484			18
Retained earnings	6,988			6,909			79

Condensed Consolidated Statement of Cash Flows
	Six Months Ended June 30, 2018
In millions, except per share amounts	As Reported			Balances Without Adoption of ASC 606			Impact of Adoption Increase/(Decrease)
Net earnings (loss)	$	1,137		$	1,131		$	6
Deferred income tax provision (benefit), net	196			202			(6		)
Contract assets	(17		)	—			(17		)
Inventories	(26		)	(33		)	7
Accounts payable and accrued liabilities	142			140			2
Other	19			11			8

Historically, the Company has recognized all of its revenue on a point-in-time basis across its businesses. The trigger for International Paper's point-in-time recognition is when the customer takes title to the goods and assumes the risks and rewards for the goods. As such, the adoption of ASC 606 did not have a material impact on the Company's revenue recognition for point-in-time goods. However, across the majority of our businesses, there are certain goods designed to customers' unique specifications, including customer logos and labels (customized goods). Due to the manually intensive process and significant costs that would be required to rework these products, and in many cases contractual restrictions, the Company has determined that these products do not have an alternative future use under ASC 606.

The majority of the customized goods discussed above are covered by non-cancelable purchase orders or customer agreements and the Company has determined that in most cases, it does have an enforceable right to payment for these goods. As such, the Company's adoption of ASC 606 resulted in the acceleration of revenue for customized products without an alternative future use and where the Company has a legally enforceable right to payment for production of products completed to date. The Company now records a contract asset for revenue recognized on our customized products prior to having an unconditional right to payment from the customer, which generally does not occur until title and risk of loss for the products passes to the customer.

Due to the recurring nature of our sales of these customized goods, the impact of adopting ASC 606 is not expected to have a material impact on our operations or our cash flows in any period.