# International Paper Co: Form 10-Q for the period ended Sep 30, 2018

- Company: [International Paper Co](/companies/ip.md) (CIK 51434)
- Form: 10-Q
- Filed: 2018-11-02
- Accepted by EDGAR: Nov 2, 2018, 12:16 ET
- Period: 2018-09-30
- Accession: 0000051434-18-000041
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/51434/000005143418000041/ip-9302018xform10xq.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/51434/000005143418000041/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-07-01 to 2018-09-30 | $5.90bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2018-01-01 to 2018-09-30 | $17.36bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2018-07-01 to 2018-09-30 | $405.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2018-01-01 to 2018-09-30 | $1.28bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2018-07-01 to 2018-09-30 | $738.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2018-01-01 to 2018-09-30 | $1.95bn | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2018-07-01 to 2018-09-30 | $184.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2018-01-01 to 2018-09-30 | $547.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2018-07-01 to 2018-09-30 | $83.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2018-01-01 to 2018-09-30 | $302.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-07-01 to 2018-09-30 | $562.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2018-01-01 to 2018-09-30 | $1.70bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-07-01 to 2018-09-30 | $1.37 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2018-01-01 to 2018-09-30 | $4.08 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-07-01 to 2018-09-30 | $1.38 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2018-01-01 to 2018-09-30 | $4.12 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-07-01 to 2018-09-30 | 411,400,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2018-01-01 to 2018-09-30 | 416,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2018-01-01 to 2018-09-30 | $2.40bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2018-01-01 to 2018-09-30 | $1.29bn | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2018-01-01 to 2018-09-30 | $588.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2018-01-01 to 2018-09-30 | $532.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2018-09-30 | $1.03bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-09-30 | $7.32bn | us-gaap:AssetsCurrent |
| Total assets | at 2018-09-30 | $33.80bn | us-gaap:Assets |
| Current liabilities | at 2018-09-30 | $4.60bn | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2018-09-30 | $10.70bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2018-09-30 | $555.0m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2018-09-30 | $7.04bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 61,265 characters.

### EXECUTIVE SUMMARY

Net earnings (loss) attributable to International Paper common shareholders were $562 million ($1.37 per diluted share) in the third quarter of 2018, compared with $405 million ($0.97 per diluted share) in the second quarter of 2018 and $395 million ($0.95 per diluted share) in the third quarter of 2017. Adjusted Operating Earnings is a non-GAAP measure and is defined as net earnings from continuing operations (a GAAP measure) excluding special items and non-operating pension expense. International Paper generated Adjusted Operating Earnings Attributable to International Paper Common Shareholders of $641 million ($1.56 per diluted share) in the third quarter of 2018, compared with $498 million ($1.19 per diluted share) in the 2018 second quarter and $420 million ($1.01 per diluted share) in the 2017 third quarter.

International Paper delivered a strong performance in the third quarter and year-over-year earnings growth of more than 50%. The strong performance was driven by solid commercial execution and continued price realization across our three businesses. Our operations also performed well in a lighter planned maintenance outage quarter. Our North American Industrial Packaging business performed very well, with volume ahead of industry growth in the third quarter. Our Global Cellulose Fibers business delivered record fluff pulp shipments, despite the impacts of Hurricane Florence, and our Printing Papers business had outstanding commercial and operational performance to deliver very strong results globally. Our equity earnings were $92 million, which includes $74 million from our Ilim joint venture and $19 million from our ownership interest in Graphic Packaging.

Earnings momentum continued in the third quarter with continued price realization across all three businesses, including our North American Industrial Packaging business which realized 90% of our recent box increase as we exited the third quarter. Hurricane Florence negatively impacted volume by $8 million and operations by $28 million, mostly in our Global Cellulose Fibers business. Box shipments in our North American Industrial Packaging business were up year-over-year in the third quarter, and volumes in our European Packaging business were seasonally lower and negatively impacted by weak fruit and vegetable demand due to adverse weather conditions. Input costs were a headwind across all of our businesses during the quarter, primarily driven by higher wood, energy, chemical and recovered fiber costs. Performance in our European Packaging business was negatively impacted by the start-up and commissioning costs, as well as, the overhead burden of the Madrid mill. Distribution costs were unfavorable across all of our businesses as the distribution environment remains very tight. Our Ilim joint venture again delivered strong results in a heavy planned maintenance outage quarter. Our equity earnings also included the impact of a non-cash foreign currency charge on Ilim's U.S. dollar denominated net debt.

Looking ahead, the Company is well positioned for strong fourth quarter results. In our North American Industrial Packaging business, we expect to see flow-through benefits from the last part of the recent price increase. Volumes are expected to be seasonally higher and in Europe, we expect to start capturing integrated margins on recycled containerboard as the Madrid mill ramps up. Outage expenses are expected to be significantly lower and input costs are expected to be stable. In our Global Cellulose Fibers business, additional realization of prior price increases will be largely offset by geographic and product mix in the fourth quarter. Volumes are expected to be seasonally higher and operations are expected to improve. Outage expense will be slightly higher. In our Printing Papers business, we expect continued realization of recent price increases and improved mix. Volumes are expected to improve due to stronger seasonal demand in Latin America and Europe. Outage costs will be slightly higher and input costs are expected to be a headwind, largely due to higher wood costs in Brazil and Russia. Finally, for our Ilim joint venture, we expect higher volumes due to lower planned maintenance outages and a continued strong commercial and operating performance.

Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures and are defined as net earnings from continuing operations (a GAAP measure) excluding special items and non-operating pension expense. Net earnings (loss) and Diluted earnings (loss) per share attributable to common shareholders are the most direct comparable GAAP measures. The Company calculates Adjusted Operating Earnings by excluding the after-tax effect of non-operating pension expense, items considered by management to be unusual and discontinued operations from the earnings reported under GAAP. Adjusted Operating Earnings Per Share is calculated by dividing Adjusted Operating Earnings by diluted average shares of common stock outstanding. Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. The Company believes that using this information, along with the most direct comparable GAAP measure, provides for a more complete analysis of the results of operations.

The following are reconciliations of Earnings (loss) attributable to common shareholders to Adjusted Operating Earnings (Loss) attributable to common shareholders.

*In millions*

|  | Three Months Ended September 30, 2018 | 2017 | Three Months Ended June 30, 2018 |
| --- | ---: | ---: | ---: |
| Earnings (Loss) Attributable to Shareholders | **$562** | $395 | $405 |
| Less - Discontinued operations (gain) loss | **—** | (29) | 23 |
| Earnings (Loss) from Continuing Operations | **562** | 366 | 428 |
| Add Back - Non-operating pension (income) expense | **25** | 33 | 36 |
| Add Back - Net special items expense (income) | **142** | 23 | 47 |
| Income tax effect - Non-operating pension and special items expense | **(88)** | (2) | (13) |
| Adjusted Operating Earnings (Loss) Attributable to Shareholders | **$641** | $420 | $498 |

|  | Three Months Ended September 30, 2018 | 2017 | Three Months Ended June 30, 2018 |
| --- | ---: | ---: | ---: |
| Diluted Earnings (Loss) Per Share Attributable to Shareholders | **$1.37** | $0.95 | $0.97 |
| Less - Discontinued operations (gain) loss per share | **—** | (0.07) | 0.05 |
| Diluted Earnings (Loss) Per Share from Continuing Operations | **1.37** | 0.88 | 1.02 |
| Add Back - Non-operating pension (income) expense per share | **0.06** | 0.08 | 0.09 |
| Add Back - Net special items expense (income) per share | **0.34** | 0.05 | 0.11 |
| Income tax effect per share - Non-operating pension and special items expense | **(0.21)** | — | (0.03) |
| Adjusted Operating Earnings (Loss) Per Share Attributable to Shareholders | **$1.56** | $1.01 | $1.19 |

The Company generated free cash flow of approximately $1.1 billion and $1.2 billion in the first nine months of 2018 and 2017, respectively. Free cash flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operations. Management believes that free cash flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, service debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. By adjusting for certain items that are not indicative of the Company's ongoing performance, free cash flow also enables investors to perform meaningful comparisons between past and present periods.

The following is a reconciliation of cash provided by operations to free cash flow:

*In millions*

|  | Nine Months Ended September 30, 2018 | 2017 |
| --- | ---: | ---: |
| Cash provided by operations | **$2,405** | $569 |
| Adjustments: |  |  |
| Cash invested in capital projects | **(1,286)** | (935) |
| Cash contribution to pension plan | **—** | 1,250 |
| Cash payment for Kleen settlement | **—** | 354 |
| Free Cash Flow | **$1,119** | $1,238 |

### RESULTS OF OPERATIONS

For the third quarter of 2018, International Paper Company reported net sales of $5.9 billion, compared with $5.8 billion in the second quarter of 2018 and $5.5 billion in the third quarter of 2017.

Net earnings attributable to International Paper totaled $562 million, or $1.37 per diluted share, in the 2018 third quarter. This compared with $405 million, or $0.97 per diluted share, in the second quarter of 2018 and $395 million, or $0.95 per diluted share, in the third quarter of 2017.

Earnings from continuing operations attributable to International Paper Company were $562 million in the third quarter of 2018, $428 million in the second quarter of 2018 and $366 million in the third quarter of 2017.

Compared with the second quarter of 2018, earnings benefited from higher average sales prices and a favorable mix ($84 million), lower mill maintenance outage costs ($81 million), lower corporate and other items ($7 million), lower tax expense ($10 million) reflecting a lower estimated tax rate and lower non-operating pension expense ($8 million). These benefits were offset by lower sales volumes ($5 million), higher operating costs ($18 million) and higher raw material and freight costs ($38 million). Equity earnings, net of taxes, relating to International Paper’s investments in Ilim Holding S.A., Graphic Packaging International Partners, LLC, and other investments were $22 million higher than in the 2018 second quarter. Net special items in the 2018 third quarter were a loss of $60 million compared with a loss of $43 million in the 2018 second quarter.

Compared with the third quarter of 2017, the 2018 third quarter reflects higher average sales prices and a favorable mix ($270 million), higher sales volumes ($17 million), lower corporate and other costs ($10 million), lower net interest expense ($14 million), lower tax expense ($23 million) reflecting a lower estimated tax rate and lower non-operating pension expense ($1 million). These benefits were offset by higher operating costs ($95 million), higher raw material and freight costs ($29 million) and higher mill maintenance outage costs ($36 million). Equity earnings, net of taxes, relating to International Paper’s investments in Ilim Holding S.A., Graphic Packaging International Partners, LLC, and other investments were $47 million higher in the 2018 third quarter than in the 2017 third quarter. Net special items in the 2018 third quarter were a loss of $60 million compared with a loss of $34 million in the 2017 third quarter.

Business Segment Operating Profits are used by International Paper's management to measure the earnings performance of its businesses. Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. International Paper believes that using this information, along with net earnings, provides a more complete analysis of the results of operations by quarter. Business Segment Operating Profits are defined as earnings (loss) from continuing operations before income taxes and equity earnings, but including the impact of equity earnings and noncontrolling interests, excluding corporate items, corporate special items and non-operating pension expense.

International Paper operates in three segments: Industrial Packaging, Global Cellulose Fibers and Printing Papers.

The following table presents a reconciliation of net earnings (loss) from continuing operations attributable to International Paper Company to its Total Business Segment Operating Profit:

*In millions*

|  | Three Months Ended September 30, 2018 | 2017 | June 30, 2018 |
| --- | ---: | ---: | ---: |
| Net Earnings (Loss) From Continuing Operations Attributable to International Paper Company | **$562** | $366 | $428 |
| Add back (deduct): |  |  |  |
| Income tax provision (benefit) | **83** | 136 | 130 |
| Equity (earnings) loss, net of taxes | **(92)** | (45) | (70) |
| Noncontrolling interests, net of taxes | **—** | — | 2 |
| Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings | **553** | 457 | 490 |
| Interest expense, net | **133** | 152 | 133 |
| Noncontrolling interests / equity earnings included in operations | **(2)** | — | (4) |
| Corporate items | **20** | 32 | 30 |
| Corporate special items (income) expense | **9** | — | 12 |
| Non-operating pension expense | **25** | 33 | 36 |
| Adjusted Operating Profit | **$738** | $674 | $697 |
| Business Segment Operating Profit: |  |  |  |
| Industrial Packaging | **$472** | $490 | $537 |
| Global Cellulose Fibers | **83** | 49 | 66 |
| Printing Papers | **183** | 135 | 94 |
| Total Business Segment Operating Profit | **$738** | $674 | $697 |

### Business Segment Operating Profit

Total business segment operating profits were $738 million in the 2018 third quarter, $697 million in the 2018 second quarter, and $674 million in the 2017 third quarter.

Compared with the second quarter of 2018, operating profits benefited from higher average sales prices and a favorable mix ($113 million) and lower mill outage costs ($108 million). These benefits were offset by lower sales volumes ($7 million), higher operating costs ($24 million) and higher raw material and freight costs ($51 million). Special items were a loss of $133 million in the 2018 third quarter compared with a loss of $35 million in the 2018 second quarter.

The third quarter of 2018 results were impacted by approximately $36 million related to Hurricane Florence, primarily from higher operating costs and lower volumes. Costs and operations in the third quarter of 2018 also reflect higher expenses related to the Madrid mill startup. The higher startup costs were offset by lower spending in our businesses, mainly related to lower health and medical benefit costs.

Compared with the third quarter of 2017, operating profits in the current quarter benefited from higher average sales prices and a favorable mix ($369 million) and higher sales volumes ($23 million). These benefits were offset by higher operating costs ($130 million), higher raw material and freight costs ($39 million) and higher mill outage costs ($49 million). Special items were a loss of $133 million in the 2018 third quarter compared with a loss of $23 million in the 2017 third quarter.

Economic downtime is taken to balance internal supply with our customer demand, while maintenance downtime is taken periodically during the year. The following table details maintenance and economic-related downtime (in tons):

|  | Three Months Ended September 30, 2018 | Three Months Ended June 30, 2018 | Three Months Ended September 30, 2017 |
| --- | ---: | ---: | ---: |
| Economic-related downtime | **—** | — | — |
| Maintenance downtime | **197,000** | 265,000 | 93,000 |

34

### Sales Volumes by Product (a)

Sales volumes of major products for the three months and nine months ended September 30, 2018 and 2017 were as follows:

| In thousands of short tons (except as noted) Industrial Packaging | Three Months Ended September 30, 2018 | 2017 | Nine Months Ended September 30, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: |
| Corrugated Packaging (c) | **2,666** | 2,599 | **7,969** | 7,784 |
| Containerboard | **853** | 828 | **2,436** | 2,438 |
| Recycling | **566** | 544 | **1,700** | 1,684 |
| Saturated Kraft | **51** | 45 | **149** | 132 |
| Gypsum/Release Kraft | **56** | 54 | **176** | 165 |
| Bleached Kraft | **8** | 7 | **24** | 20 |
| EMEA Packaging (c) (d) | **329** | 350 | **1,113** | 1,124 |
| Brazilian Packaging (c) | **92** | 93 | **263** | 266 |
| European Coated Paperboard | **98** | 103 | **284** | 296 |
| Industrial Packaging | **4,719** | 4,623 | **14,114** | 13,909 |
| Global Cellulose Fibers (in thousands of metric tons) (b) | **886** | 933 | **2,665** | 2,706 |
| Printing Papers |  |  |  |  |
| U.S. Uncoated Papers | **461** | 497 | **1,415** | 1,451 |
| European and Russian Uncoated Papers | **363** | 365 | **1,066** | 1,104 |
| Brazilian Uncoated Papers | **293** | 280 | **818** | 832 |
| Indian Uncoated Papers | **62** | 58 | **195** | 186 |
| Printing Papers | **1,179** | 1,200 | **3,494** | 3,573 |

(a) Sales volumes include third party and inter-segment sales and exclude sales of equity investees.

(b) Includes North American, European and Brazilian volumes and internal sales to mills.

(c) Volumes for corrugated box sales reflect consumed tons sold (CTS). Board sales for these businesses reflect invoiced tons.

(d) Excludes newsprint sales volumes at the Madrid, Spain mill through the third quarter of 2017.

### Discontinued Operations

See discussion in Note 9 - Divestitures in the Condensed Notes to the Consolidated Financial Statements.

### Income Taxes

An income tax provision of $83 million was recorded for the 2018 third quarter and the reported effective income tax rate was 15%. Excluding a benefit of $82 million related to the tax effects of special items and a benefit of $6 million related to the tax effects of non-operating pension expense, the effective income tax rate was 24% for the quarter.

An income tax provision of $130 million was recorded for the 2018 second quarter and the reported effective income tax rate was 27%. Excluding a benefit of $4 million related to the tax effects of special items and a benefit of $9 million related to the tax effects of non-operating pension expense, the effective income tax rate was 25% for the quarter.

An income tax provision of $136 million was recorded for the 2017 third quarter and the reported effective income tax rate was 30%. Excluding an expense of $11 million related to the tax effects of special items and a benefit of $13 million related to the tax effects of non-operating pension expense, the effective income tax rate was 27% for the quarter.

### Interest Expense

Net interest expense was $133 million for both the 2018 third quarter and 2018 second quarter and $152 million in the 2017 third quarter.

### Effects of Special Items and Non-Operating Pension Expense

Details of special items and non-operating pension expense for the three months ended are as follows:

*In millions*

| Business Segments | Three Months Ended September 30, 2018 Before Tax | After Tax | 2017 Before Tax | After Tax | June 30, 2018 Before Tax | After Tax |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| EMEA Packaging optimization | **$—** | **$—** | $— | $— | $26 | $18 |
| Abandoned property removal | **6** | **4** | 7 | 4 | 9 | 7 |
| Riverdale mill conversion | **5** | **4** | — | — | — | — |
| Brazil Packaging impairment | **122** | **81** | — | — | — | — |
| Brazil Packaging wood supply accelerated amortization | **—** | **—** | 10 | 7 | — | — |
| Weyerhaeuser pulp business integration costs | **—** | **—** | 6 | 4 | — | — |
| Business Segments Total | **133** | **89** | 23 | 15 | 35 | 25 |
| **Corporate** |  |  |  |  |  |  |
| Smurfit-Kappa acquisition proposal costs | **—** | **—** | — | — | 12 | 9 |
| Environmental remediation reserve adjustment | **9** | **7** | — | — | — | — |
| Corporate Total | **9** | **7** | — | — | 12 | 9 |
| **Total special items** | **142** | **96** | 23 | 15 | 47 | 34 |
| Non-operating pension expense | **25** | **19** | 33 | 20 | 36 | 27 |
| **Total special items and non-operating pension expense** | **$167** | **$115** | $56 | $35 | $83 | $61 |

Special items include the following tax expenses (benefits):

*In millions*

|  | Three Months Ended September 30, 2018 | 2017 | June 30, 2018 |
| --- | ---: | ---: | ---: |
| State income tax legislative changes | **$—** | $— | $9 |
| International legal entity restructuring | **—** | 19 | — |
| Tax benefits from Tax Cuts and Jobs Act | **(36)** | — | — |
| **Total** | **$(36)** | $19 | $9 |

36

Details of special items and non-operating pension expense for the nine months ended are as follows:

*In millions*

| Business Segments | Nine Months Ended September 30, 2018 Before Tax | After Tax | 2017 Before Tax | After Tax |
| --- | ---: | ---: | ---: | ---: |
| EMEA Packaging optimization | **$48** | **$35** | $— | $— |
| Abandoned property removal | **24** | **18** | 14 | 9 |
| Riverdale mill conversion | **5** | **4** | — | — |
| Brazil Packaging impairment | **122** | **81** | — | — |
| Kleen Products anti-trust class action lawsuit settlement | **—** | **—** | 354 | 219 |
| Weyerhaeuser pulp business acquisition inventory fair value step-up amortization | **—** | **—** | 14 | 8 |
| Weyerhaeuser pulp business acquisition and integration costs | **—** | **—** | 15 | 9 |
| Holmen mill bargain purchase gain | **—** | **—** | (6) | (6) |
| Brazil Packaging wood supply accelerated amortization | **—** | **—** | 10 | 7 |
| Business Segments Total | **199** | **138** | 401 | 246 |
| **Corporate** |  |  |  |  |
| Smurfit-Kappa acquisition proposal costs | **12** | **9** | — | — |
| India Packaging business evaluation write-off | **—** | **—** | (2) | (2) |
| Legal settlement | **9** | **7** | — | — |
| Environmental remediation reserve adjustment | **9** | **7** | — | — |
| Gain of sale of investment in ArborGen | **—** | **—** | (14) | (9) |
| Foodservice Asia impairment | **—** | **—** | 9 | 4 |
| Interest income related to income tax refund claim | **—** | **—** | (4) | (2) |
| Corporate Total | **30** | **23** | (11) | (9) |
| **Total special items** | **229** | **161** | 390 | 237 |
| Non-operating pension expense | **65** | **49** | 98 | 60 |
| **Total special items and non-operating pension expense** | **$294** | **$210** | $488 | $297 |

Special items include the following tax expenses (benefits):

*In millions*

|  | Nine Months Ended September 30, 2018 | 2017 |
| --- | ---: | ---: |
| Income tax refund claims | **$—** | $(85) |
| State income tax legislative changes | **9** | — |
| Tax benefits from Tax Cuts and Jobs Act | **(36)** | — |
| Pension contribution return to accrual | **—** | 38 |
| International investment restructuring | **—** | 34 |
| **Total** | **$(27)** | $(13) |

### BUSINESS SEGMENT OPERATING RESULTS

The following tables present net sales and operating profit (loss) which is the Company's measure of segment profitability. The tables include a detail of special items in each year, where applicable, in order to show operating profit before special items. The Company calculates Operating Profit Before Special Items (non-GAAP) by excluding the pre-tax effect of items considered by management to be unusual from the earnings reported under U.S. generally accepted accounting principles (“GAAP”). Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results. International Paper believes that using this information, along with net earnings, provides for a more complete analysis of the results of operations by quarter. Net earnings attributable to International Paper is the most directly comparable GAAP measure. See Note 20 - Business Segment Information in the Condensed Notes to the Consolidated Financial Statements for the GAAP reconciliation of segment operating profit.

### Industrial Packaging

*In millions*

| Total Industrial Packaging | 2018 3rd Quarter | 2nd Quarter | Nine Months | 2017 3rd Quarter | 2nd Quarter | Nine Months |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Sales** | **$4,034** | **$4,022** | **$11,883** | $3,822 | $3,785 | $11,184 |
| **Operating Profit** | **$472** | **$537** | **$1,446** | $490 | $64 | $938 |
| Holmen mill bargain purchase gain | **—** | **—** | **—** | — | — | (6) |
| Kleen Products anti-trust settlement | **—** | **—** | **—** | — | 354 | 354 |
| Abandoned property removal | **4** | **6** | **15** | 5 | 3 | 9 |
| EMEA Packaging optimization | **—** | **26** | **48** | — | — | — |
| Brazil Packaging impairment | **122** | **—** | **122** | **—** | $— | **$—** |
| Brazil Packaging wood supply accelerated amortization | **—** | **—** | **—** | 10 | — | 10 |
| **Operating Profit Before Special Items** | **$598** | **$569** | **$1,631** | $505 | $421 | $1,305 |

Industrial Packaging net sales for the third quarter of 2018 were about even with the second quarter of 2018 and were 6% higher than in the third quarter of 2017. Operating profit before special items was 5% higher in the third quarter of 2018 than in the second quarter of 2018 and 18% higher than in the third quarter of 2017.

*In millions*

| North American Industrial Packaging | 2018 3rd Quarter | 2nd Quarter | Nine Months | 2017 3rd Quarter | 2nd Quarter | Nine Months |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Sales (a)** | **$3,653** | **$3,582** | **$10,604** | $3,383 | $3,336 | $9,874 |
| **Operating Profit** | **$618** | **$574** | **$1,651** | $487 | $51 | $899 |
| Kleen Products anti-trust settlement | **—** | **—** | **—** | — | 354 | 354 |
| Abandoned property removal | **4** | **6** | **15** | 5 | 3 | 9 |
| **Operating Profit Before Special Items** | **$622** | **$580** | **$1,666** | $492 | $408 | $1,262 |

(a) Includes intra-segment sales of $74 million and $50 million for the three months ended September 30, 2018 and 2017, respectively; $46 million and $31 million for the three months ended June 30, 2018 and 2017, respectively; and $178 million and $113 million for the nine months ended September 30, 2018 and 2017, respectively.

***North American Industrial Packaging*** sales volumes for boxes in the third quarter of 2018 were slightly seasonally lower on a daily basis than in the second quarter of 2018 and include one less shipping day. Containerboard shipments to export markets increased as the mills recovered from production constraints experienced in the second quarter. Total planned maintenance downtime was 161,000 tons in the 2018 third quarter, an increase of 7,000 tons from 154,000 tons in the 2018 second quarter. Average sales margins for boxes were higher reflecting the continuing realization of Spring 2018 sales price increases. Average sales prices for containerboard also continued to increase in both the domestic and export markets. Input costs were higher, primarily for recycled fiber, wood and freight. Planned maintenance downtime costs were $46 million lower in the 2018 third quarter compared with the 2018 second quarter. Manufacturing operating costs were seasonally higher.

Compared with the third quarter of 2017, sales volumes for boxes were higher in the third quarter of 2018 due to market demand growth and one more shipping day. Sales volumes for containerboard were relatively flat in the domestic market, but grew in the export markets. Total planned maintenance downtime was 76,000 tons higher in the 2018 third quarter than in the 2017 third quarter. Average sales margins for boxes increased significantly, primarily due to higher average sales prices. Average sales prices were also higher for containerboard exports, reflecting sales price increases implemented during 2017 and 2018. Input costs for recycled fiber were lower, but were partially offset by higher costs for freight, wood and chemicals. Planned maintenance downtime costs were $27 million higher in the third quarter of 2018 compared with the third quarter of 2017. Manufacturing operating costs were higher, largely due to inflation.

Entering the fourth quarter of 2018, sales volumes for boxes are expected to be about flat overall with higher daily volumes, but two fewer shipping days. Containerboard export shipments are expected to increase slightly. Input costs are projected to be generally flat. Planned maintenance downtime costs should be $57 million lower in the 2018 fourth quarter than in the 2018 third quarter.

*In millions*

| EMEA Industrial Packaging | 2018 3rd Quarter | 2nd Quarter | Nine Months | 2017 3rd Quarter | 2nd Quarter | Nine Months |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Sales** | **$311** | **$344** | **$1,017** | $333 | $341 | $991 |
| **Operating Profit** | **$(37)** | **$(43)** | **$(114)** | $(5) | $5 | $14 |
| EMEA Packaging optimization | **—** | **26** | **48** | — | **—** | **—** |
| Holmen mill net bargain purchase gain | **—** | **—** | **—** | — | — | (6) |
| **Operating Profit Before Special Items** | **$(37)** | **$(17)** | **$(66)** | $(5) | $5 | $8 |

***EMEA Industrial Packaging*** sales volumes for boxes in the third quarter of 2018 were seasonally lower than in the second quarter of 2018 primarily in the fruit and vegetable segment in Morocco and Spain. Average sales prices improved, but margins remained squeezed due to higher containerboard costs. Operating profit continues to be negatively impacted by costs associated with the Madrid mill conversion to recycled containerboard production.

Compared with the third quarter of 2017, sales volumes in the third quarter of 2018 were lower due to a weak fruit and vegetable season in the Euro-zone, although sales volumes were higher in Morocco. Average sales prices for boxes increased, but were offset by higher containerboard costs. Operating costs were unfavorably impacted by inflation, particularly in Morocco and Turkey. Also, compared with the third quarter of 2017, operating profit declined due to the absence of newsprint sales and operating profit from the Madrid mill in addition to the conversion costs incurred in the third quarter of 2018.

Looking ahead to the fourth quarter of 2018, sales volumes are expected to reflect seasonally stronger demand in the fruit and vegetable box segment, primarily in Morocco. Operating costs for the box business should be lower as the benefits of optimization initiatives begin to be realized, and start-up costs at the Madrid mill are lower than in the third quarter.

*In millions*

| Brazilian Industrial Packaging | 2018 3rd Quarter | 2nd Quarter | Nine Months | 2017 3rd Quarter | 2nd Quarter | Nine Months |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Sales** | **$57** | **$56** | **$175** | $68 | $60 | $187 |
| **Operating Profit** | **$(127)** | **$(11)** | **$(146)** | $(13) | $(6) | $(29) |
| Brazil Packaging impairment | **122** | **—** | **122** | **—** | — | **—** |
| Brazil Packaging wood supply accelerated amortization | **—** | **—** | **—** | 10 | — | 10 |
| **Operating Profit Before Special Items** | **$(5)** | **$(11)** | **$(24)** | $(3) | $(6) | $(19) |

***Brazilian Industrial Packaging*** sales volumes in the third quarter of 2018 compared with the second quarter of 2018 were higher for boxes, but lower for containerboard. Average sales margins were flat as the benefit from higher box sales prices was offset by an unfavorable product mix. Planned maintenance downtime costs were $1 million lower in the third quarter of 2018 than in the second quarter of 2018. Operating costs were lower, while input costs were slightly higher, primarily for utilities. Earnings in the third quarter of 2018 were higher than the second quarter of 2018 due to the the absence of the nationwide truckers' strike that occurred in the second quarter.

Compared with the third quarter of 2017, sales volumes in the third quarter of 2018 were higher for boxes, but lower for containerboard. Average sales prices increased for boxes, but the benefit was partially offset by an unfavorable product mix. Input costs were higher, primarily for recycled fiber and utilities. Operating costs increased mainly due to inflation.

Looking ahead to the fourth quarter of 2018, sales volumes for boxes are expected to be lower, while containerboard volumes should be higher. Average sales margins are expected to be slightly higher due to a more favorable product mix. Input costs are projected to be higher for recycled fiber.

*In millions*

| European Coated Paperboard | 2018 3rd Quarter | 2nd Quarter | Nine Months | 2017 3rd Quarter | 2nd Quarter | Nine Months |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Sales** | **$87** | **$86** | **$265** | $88 | $79 | $245 |
| **Operating Profit** | **$18** | **$17** | **$55** | $21 | $14 | $54 |

***European Coated Paperboard*** sales volumes in the third quarter of 2018 compared with the second quarter of 2018 were higher in both Europe and Russia. Average sales prices decreased in both regions due to unfavorable mix. Input costs were higher, mainly in Europe for energy, chemicals and purchased fiber. Distribution costs also increased. Planned maintenance downtime costs were $4 million lower in the third quarter of 2018, which included no outages, compared with the second quarter of 2018. Mill operating costs were higher.

Compared with the third quarter of 2017, sales volumes decreased in Europe, but increased in Russia. However, average sales margins increased in both regions due to higher average sales prices and a favorable mix. Input costs for wood, energy and chemicals increased in both Europe and Russia, and in Europe purchased fiber prices also increased. Mill operating costs were higher.

Entering the fourth quarter of 2018, sales volumes are expected to be about flat in Russia and are subject to competitive pressure in Europe. Average sales prices are expected to be stable in both Europe and Russia. Input costs are expected to increase primarily for wood and energy in Russia and for purchased fiber in Europe. In addition, earnings should benefit by $2 million from the anticipated receipt of an insurance payment related to the Kwidzyn fire.

### Global Cellulose Fibers

*In millions*

| Total Global Cellulose Fibers | 2018 3rd Quarter | 2nd Quarter | Nine Months | 2017 3rd Quarter | 2nd Quarter | Nine Months |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Sales** | **$714** | **$692** | **$2,083** | $654 | $612 | $1,830 |
| **Operating Profit** | **$83** | **$66** | **$160** | $49 | $7 | $(14) |
| Acquisition and integration costs | **—** | **—** | **—** | 6 | 5 | 15 |
| Inventory fair value step-up amortization | **—** | **—** | **—** | — | — | 14 |
| Abandoned property removal | **2** | **3** | **9** | 2 | — | 3 |
| **Operating Profit Before Special Items** | **$85** | **$69** | **$169** | $57 | $12 | $18 |

***Global Cellulose Fibers*** net sales were 3% higher in the third quarter of 2018 than in the second quarter of 2018 and 9% higher than in the third quarter of 2017. Operating profit before special items was 23% higher in the third quarter of 2018 than in the second quarter of 2018 and 49% higher than in the third quarter of 2017.

Sales volumes in the third quarter of 2018, excluding the impact of Hurricane Florence, increased compared with the second quarter of 2018 as demand remains strong. Sales margins benefited from higher average sales prices across all product lines and regions and a more favorable product mix. Input costs, primarily for energy, were slightly higher. Planned maintenance downtime costs in the third quarter of 2018 were $5 million lower than in the second quarter of 2018. Earnings were negatively impacted by about $28 million for costs and lost sales related to Hurricane Florence. In Russia, sales volumes were higher, but in Europe, sales volumes were slightly lower due to operational issues at the Saillat mill. Average sales prices were higher in both regions. With no planned maintenance outages in the third quarter of 2018 in both Europe and Russia, associated costs were $8 million lower than in the previous quarter. Manufacturing costs were favorable in Europe, but other operating costs were unfavorable in both Europe and Russia.

Compared with the third quarter of 2017, sales volumes in the third quarter of 2018 were about flat. Average sales prices improved significantly across all product lines reflecting the realization of price increases. Input costs were higher primarily for chemicals and wood, while distribution costs also increased. Planned maintenance downtime costs in the third quarter of 2018 were $17 million higher than in the third quarter of 2017. Earnings in 2018 include the impact of Hurricane Florence. In Europe, sales volumes decreased, but in Russia sales volumes increased. Average sales margins improved significantly, reflecting higher average sales prices and a favorable geographical mix. Input costs were higher, primarily for energy and chemicals in Europe and for wood in Russia.

Entering the fourth quarter of 2018, sales volumes are expected to increase and recover from the Hurricane Florence impact in the third quarter. Market demand remains strong although shipments to China may be adversely impacted by trade tensions. Average sales prices are expected to include the continued realization of price increases for absorbents and paper grade pulp. Input costs are expected to be flat. Planned maintenance downtime costs in the fourth quarter of 2018 should be $3 million higher than in the third quarter of 2018. The impact from Hurricane Florence in the fourth quarter is estimated to be about $14 million primarily for infrastructure repair and higher distribution costs. In Europe, sales volumes are expected to increase as production issues are resolved, although market demand is expected to begin to soften. Sales volumes are forecasted to decrease slightly in Russia. Average sales margins in Europe and Russia should be stable.

### Printing Papers

*In millions*

| Total Printing Papers | 2018 3rd Quarter | 2nd Quarter | Nine Months | 2017 3rd Quarter | 2nd Quarter | Nine Months |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Sales** | **$1,102** | **$1,060** | **$3,215** | $1,039 | $1,017 | $3,051 |
| **Operating Profit** | **$183** | **$94** | **$341** | $135 | $86 | $321 |
| Abandoned property removal | **—** | **—** | **—** | — | 2 | 2 |
| Riverdale mill conversion | **5** | **—** | **5** | **—** | — | **—** |
| **Operating Profit Before Special Items** | **$188** | **$94** | **$346** | $135 | $88 | $323 |

40

Printing Papers net sales for the third quarter of 2018 were 4% higher than in the second quarter of 2018 and 6% higher than in the third quarter of 2017. Operating profit before special items in the third quarter of 2018 was 100% higher than in the second quarter of 2018 and 39% higher than in the third quarter of 2017.

*In millions*

| North American Papers | 2018 3rd Quarter | 2nd Quarter | Nine Months | 2017 3rd Quarter | 2nd Quarter | Nine Months |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Sales** | **$492** | **$493** | **$1,443** | $470 | $446 | $1,384 |
| **Operating Profit** | **$59** | **$25** | **$85** | $54 | $19 | $106 |
| Abandoned property removal | **—** | **—** | **—** | — | 2 | 2 |
| Riverdale mill conversion | **5** | **—** | **5** | **—** | — | **—** |
| **Operating Profit Before Special Items** | **$64** | **$25** | **$90** | $54 | $21 | $108 |

***North American Papers*** sales volumes in the third quarter of 2018 were lower than in the second quarter of 2018 reflecting the impact of Hurricane Florence and production constraints at our mills. Average sales prices were higher due to the continuing realization of sales price increases. Input costs were higher for wood and chemicals. Planned maintenance downtime costs were $23 million lower in the third quarter of 2018, compared with the second quarter of 2018. Operating costs included $6 million related to Hurricane Florence, but were otherwise favorable.

Compared with the third quarter of 2017, sales volumes in the third quarter of 2018 were lower due to a planned inventory build coupled with production constraints. Average sales prices were higher reflecting the impact of price increases in late 2017 and in 2018. Average sales margins were favorably affected by an improved geographic mix, partially offset by an unfavorable mill sourcing mix. Input costs increased, primarily for chemicals, energy and wood. Planned maintenance downtime costs were $5 million higher than in the third quarter of 2017. Operating costs were higher due primarily to inflation, distribution costs and the impact of Hurricane Florence.

Entering the fourth quarter of 2018, sales volumes are expected to be slightly higher due to the resolution of the third-quarter production issues. Average sales price realizations for uncoated freesheet paper should reflect continuing realization of sales price increases announced in the third quarter. Input costs are expected to be flat, while operating costs should be lower with the absence of the impact of Hurricane Florence. Planned maintenance downtime costs should be $4 million higher in the fourth quarter.

*In millions*

| European Papers | 2018 3rd Quarter | 2nd Quarter | Nine Months | 2017 3rd Quarter | 2nd Quarter | Nine Months |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Sales** | **$311** | **$302** | **$932** | $292 | $299 | $865 |
| **Operating Profit** | **$46** | **$15** | **$82** | $38 | $26 | $93 |

***European Papers*** sales volumes for uncoated freesheet paper in the third quarter of 2018 compared with the second quarter of 2018 were higher in Europe reflecting the absence of production constraints experienced in the second quarter, but slightly lower in Russia despite stable market demand. Average sales margins for uncoated freesheet paper increased in both regions due to the realization of sales price increases for cut-size paper. Input costs were higher, primarily for energy, purchased pulp and chemicals in Europe. Planned maintenance downtime costs were $18 million lower in the third quarter of 2018 which included no outages. Operating costs were lower as the Kwidzyn mill recovered from the fire that occurred in the first quarter.

Sales volumes for uncoated freesheet paper in the third quarter of 2018 compared with the third quarter of 2017 were higher in Europe, but lower in Russia mainly due to timing. Average sales prices for uncoated freesheet paper increased in both regions reflecting increases implemented in late 2017 and in 2018. Input costs, primarily for wood in Russia and for purchased pulp, wood, chemicals and energy in Europe, were higher. Mill operating costs were also higher due to mill inefficiencies.

Looking forward to the fourth quarter of 2018, sales volumes for uncoated freesheet paper are expected to increase in both Europe and Russia. Average sales prices should be higher in Europe and in Russia due to the realization of third-quarter price increases. Input costs are expected to increase in Russia, primarily for wood and energy, but decrease in Europe as lower wood costs are partially offset by higher energy and purchased pulp costs. Manufacturing operating costs are expected to be favorable. In addition, earnings should benefit by $2 million from the anticipated receipt of an insurance payment related to the Kwidzyn fire.

*In millions*

| Brazilian Papers | 2018 3rd Quarter | 2nd Quarter | Nine Months | 2017 3rd Quarter | 2nd Quarter | Nine Months |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Sales (a)** | **$255** | **$222** | **$706** | $239 | $232 | $685 |
| **Operating Profit** | **$75** | **$49** | **$164** | $46 | $43 | $128 |

41

(a) Includes intra-segment sales of $3 million and $6 million for the three months ended September 30, 2018 and 2017, respectively; $8 million and $7 million for the three months ended June 30, 2018 and 2017, respectively; and $16 million and $22 million for the nine months ended September 30, 2018 and 2017, respectively.

***Brazilian Papers*** sales volumes in the third quarter of 2018 compared with the second quarter of 2018 were higher due to seasonally stronger demand for uncoated freesheet paper and the absence of the nationwide truckers' strike that occurred in the second quarter. Average sales margins increased due to higher average sales prices for domestic and export uncoated freesheet papers and a favorable geographic mix. Input costs increased for wood, purchased pulp and chemicals. There were no planned maintenance outage costs in the third quarter of 2018 compared with $4 million in the second quarter of 2018. Operating costs were also lower.

Compared with the third quarter of 2017, sales volumes for uncoated freesheet paper in the third quarter of 2018 were higher for exports, reflecting increased demand, but lower in the domestic market. Average sales margins improved significantly due to higher average sales prices, both domestically and abroad. Input costs were higher, primarily for purchased pulp, chemicals and energy, while operating costs were lower.

Entering the fourth quarter of 2018, sales volumes for uncoated freesheet paper are expected to be seasonally stronger in the domestic market and about flat in export markets. Input costs are expected to increase for wood, purchased pulp and energy.

*In millions*

| Indian Papers | 2018 3rd Quarter | 2nd Quarter | Nine Months | 2017 3rd Quarter | 2nd Quarter | Nine Months |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Sales** | **$47** | **$51** | **$150** | $44 | $47 | $139 |
| **Operating Profit** | **$3** | **$5** | **$10** | $(3) | $(2) | $(6) |

***Indian Papers*** sales volumes in the third quarter of 2018 compared with the second quarter of 2018 were lower due to production constraints associated with the planned maintenance outage at the Rajahmundry mill. Average sales prices were higher due to growing demand for uncoated freesheet paper and stable economic conditions. Planned maintenance downtime costs in the third quarter of 2018 were $1 million higher than in the second quarter of 2018. Raw material costs also increased.

Compared with the third quarter of 2017, which included the impact of a contract workers' strike, sales volumes in the third quarter of 2018 were higher. Average sales prices increased. Operating costs were lower, reflecting improved mill productivity, while input costs were higher for chemicals and fuel, partially offset by lower wood costs.

Looking ahead to the fourth quarter of 2018, sales volumes are expected to improve with seasonally stronger demand and the absence of planned maintenance outages. Average sales prices should be slightly higher due to the further realization of previous price increases. Input costs are expected to be higher. There are no planned maintenance outages in the fourth quarter of 2018.

### Equity Earnings, Net of Taxes – Ilim

Since October 2007, International Paper has had a 50% equity interest in Ilim Holding S.A. (Ilim), which operates in Russia though its subsidiaries. The Ilim joint venture is a separate reportable industry segment. The Company recorded equity earnings, net of taxes, of $74 million in the third quarter of 2018, compared with $57 million in the second quarter of 2018 and $48 million in the third quarter of 2017. In the third quarter of 2018, the after-tax foreign exchange impact, primarily on the remeasurement of U.S. dollar-denominated net debt, was a loss of $23 million compared with a loss of $39 million in the second quarter of 2018.

Compared with the second quarter of 2018, sales volumes in the third quarter of 2018 were 5% lower, primarily for sales of softwood pulp in China and other export markets, partially offset by higher sales of hardwood pulp in China and Russia, and higher sales of containerboard in Russia. Average sales prices were higher, primarily for containerboard in all markets, partially offset by lower prices in China for softwood and hardwood pulp. In the third quarter of 2018, input costs primarily for wood and fuel were higher. Planned annual maintenance costs were also higher in the third quarter.

Compared with the third quarter of 2017, sales volumes in the third quarter of 2018 increased overall by 2%, primarily for sales of softwood pulp and containerboard in China, partially offset by lower sales of hardwood pulp in China. In Russia, sales volumes were higher for softwood pulp and hardwood pulp, while containerboard sales were lower. Average sales price realizations were higher for softwood pulp, hardwood pulp and containerboard in all markets. Input costs, primarily for wood and fuel were higher. Distribution costs were also higher. An after-tax foreign exchange gain of $7 million primarily on the remeasurement of U.S. dollar denominated net debt was recorded in the third quarter of 2017.

Looking forward to the fourth quarter of 2018, sales volumes are expected to be higher. Average sales price realizations are projected to decrease compared with the third quarter of 2018, primarily for softwood and hardwood pulp. Input costs are expected to be seasonally higher. Planned maintenance mill outage costs will be significantly lower.

### Equity Earnings – GPI

International Paper recorded equity earnings of $19 million on its 20.5% ownership position in GPI in the third quarter of 2018 compared with $15 million in the second quarter of 2018.

### LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations totaled $2.4 billion for the first nine months of 2018, compared with $569 million for the comparable 2017 nine-month period. Cash used for working capital components totaled $249 million for the first nine months of 2018 compared to $567 million for the comparable 2017 nine-month period.

Investments in capital projects totaled $1.3 billion in the first nine months of 2018 compared to $935 million in the first nine months of 2017. Full-year 2018 capital spending is currently expected to be approximately $1.6 billion, or about 119% of depreciation and amortization expense for our current businesses.

Financing activities for the first nine months of 2018 included a $107 million net increase in debt versus a $997 million net increase in debt during the comparable 2017 nine-month period.

Amounts related to early debt extinguishment during the three months and nine months ended September 30, 2018 and 2017 were as follows:

*In millions*

|  | Three Months Ended September 30, 2018 | 2017 | Nine Months Ended September 30, 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: |
| Early debt reductions (a) | **$75** | $95 | **$79** | $122 |
| Pre-tax early debt extinguishment costs | **1** | 2 | **1** | 2 |

(a) Reductions related to notes with interest rates ranging from 3.00% to 7.00% with original maturities from 2022 to 2032 and from 4.63% to 6.63% with original maturities from 2018 to 2031 for the three months ended September 30, 2018 and 2017, respectfully, and from 3.00% to 7.00% with original maturities from 2022 to 2032 and from 1.57% to 6.63% with original maturities from 2018 to 2031for the nine months ended September 30, 2018 and 2017, respectively.

At September 30, 2018, contractual obligations for future payments of debt maturities by calendar year were as follows: $415 million in 2018; $135 million in 2019; $86 million in 2020; $445 million in 2021; $907 million in 2022; $349 million in 2023; and $8.9 billion thereafter.

Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At September 30, 2018, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively. In addition, the Company held short-term credit ratings of A2 and P2 by S&P and Moody's, respectively, for borrowings during the current quarter under the Company's commercial paper program.

At September 30, 2018, International Paper’s credit agreements totaled $2.1 billion, which management believes are adequate to cover expected operating cash flow variability during the current economic cycle. The credit agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. The liquidity facilities include a $1.5 billion contractually committed bank credit agreement that expires in December 2021 and has a facility fee of 0.15% per annum payable quarterly. The liquidity facilities also include up to $600 million of uncommitted financings based on eligible receivable balances under a receivables securitization program that expires in December 2018. At September 30, 2018, there were no borrowings outstanding under either the bank facility or receivables securitization program.

In June 2016, International Paper entered into a commercial paper program with a borrowing capacity of $750 million. In June 2018, the borrowing capacity of the commercial paper program was increased to $1.0 billion. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed notes or floating rate notes. As of September 30, 2018, the Company had $400 million of borrowings outstanding under this program at a weighted average interest rate of 2.34%.

During the first nine months of 2018, International Paper used 1.7 million shares of treasury stock for various incentive plans. International Paper also acquired 9.6 million shares of treasury stock, including restricted stock tax withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled $532 million. In September 2013, the Company announced a share repurchase program to acquire up to $1.5 billion of the Company's common stock in open market repurchase transactions. In July 2014, the Company announced that it would acquire up to $1.5 billion of additional shares. In addition, on October 9, 2018, the Company's board of directors approved an authorization to repurchase another $2 billion of the Company's common stock to supplement the share repurchase programs authorized in September 2013 and July 2014. The Company will continue to repurchase such shares in open market repurchase transactions. Under the original combined $3.0 billion share repurchase programs, the Company has repurchased 53.6 million shares at an average price of $47.87, for a total of approximately $2.6 billion, as of September 30, 2018.

During the first nine months of 2017, International Paper used approximately 2.6 million shares of treasury stock for various incentive plans. International Paper also acquired 0.9 million shares of treasury stock, including shares for the payment of restricted stock tax withholding. Repurchases of common stock and payments of restricted stock withholding taxes totaled $46 million. Cash dividend payments related to common stock totaled $588 million and $573 million for the first nine months of 2018 and 2017, respectively. Dividends were $1.4250 per share and $1.3875 per share for the first nine months in 2018 and 2017, respectively.

International Paper expects to be able to meet projected capital expenditures, service existing debt and meet working capital and dividend requirements during the remainder of 2018 with current cash balances and cash from operations, supplemented as required by its existing credit facilities. The Company will continue to rely on debt and capital markets for the majority of any necessary long-term funding not provided by operating cash flows. Funding decisions will be guided by our capital structure planning objectives. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and preserve liquidity while reducing interest expense. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors.

### Acquisitions

See discussion in Note 8 - Acquisitions in the Condensed Notes to the Consolidated Financial Statements.

### Ilim Holding S.A. Shareholders’ Agreement

In October 2007, in connection with the formation of the Ilim Holding S.A. joint venture (Ilim), International Paper entered into a shareholder’s agreement that includes provisions relating to the reconciliation of disputes among the partners. This agreement provides that at any time, either the Company or its partners may commence procedures specified under the deadlock agreement. If these or any other deadlock procedures under the shareholder's agreement are commenced, although it is not obligated to do so, the Company may in certain situations choose to purchase its partners' 50% interest in Ilim. Any such transaction would be subject to review and approval by Russian and other relevant anti-trust authorities. Based on the provisions of the agreement, the Company estimates that the current purchase price for its partners' 50% interests would be approximately $2.3 billion, which could be satisfied by payment of cash or International Paper common stock, or some combination of the two, at the Company's option. The purchase by the Company of its partners’ 50% interest in Ilim would result in the consolidation of Ilim's financial position and results of operations in all subsequent periods. The parties have informed each other that they have no current intention to commence procedures specified under the deadlock provisions of the shareholder’s agreement.

### CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires International Paper to establish accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.

Accounting policies whose application may have a significant effect on the reported results of operations and financial position of International Paper, and that can require judgments by management that affect their application, include accounting for contingencies, impairment or disposal of long-lived assets, goodwill and other intangible assets, pensions, postretirement benefits other than pensions,income taxes and business combinations.

The Company has included in its 2017 Form 10-K a discussion of these critical accounting policies, which are important to the portrayal of the Company’s financial condition and results of operations and require management’s judgments. The Company has not made any changes in these critical accounting policies during the first nine months of 2018, other than a change in the accounting for revenue recognition prescribed under ASC 606, which is referenced in Note 2 - Recent Accounting Developments in the Condensed Notes to the Consolidated Financial Statements.

### FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q that are not historical in nature may be considered “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “appear,” “project,” “estimate,” “intend,” and words of a similar nature. These statements are not guarantees of future performance and reflect management’s current views with respect to future events, which are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to: (i) the level of our indebtedness and changes in interest rates; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and political changes, including but not limited to trade protection measures, the impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation, changes in tax laws and pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with existing and new environmental and other governmental regulations and to actual or potential litigation; (v) whether we experience a material disruption at one of our manufacturing facilities; (vi) risks inherent in conducting business through joint ventures; (vii) our ability to achieve the benefits we expect from strategic acquisitions, divestitures, restructurings and capital investments, and (viii) other factors you can find in our press releases and filings with the Securities and Exchange Commission, including the risk factors identified in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as updated in Item 1A of Part II of this Quarterly Report on Form 10-Q ("Risk Factors"). We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

## Market risk

As filed, 308 characters.

Information relating to quantitative and qualitative disclosures about market risk is shown on pages 35 and 36 of International Paper’s 2017 Form 10-K, which information is incorporated herein by reference. There have been no material changes in the Company’s exposure to market risk since December 31, 2017.

## Controls and procedures

As filed, 1,485 characters.

### Evaluation of Disclosure Controls and Procedures:

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported (and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure) within the time periods specified in the Securities and Exchange Commission’s rules and forms. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2018 (the end of the period covered by this report).

### Changes in Internal Control over Financial Reporting:

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 164 characters.

There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (Part I, Item 1A).

Filed Nov 2, 2018.
Source: SEC EDGAR, the filing index for accession 0000051434-18-000041. Last ingested by Listed: Nov 10, 2026, 17:11 ET. No prices; not investment advice.