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News Release

 
International Paper Reports Third Quarter 2018 Earnings


MEMPHIS, Tenn. – October 25, 2018 International Paper (NYSE: IP) today reported third quarter 2018 net earnings attributable to International Paper of $562 million ($1.37 per diluted share) compared with $405 million ($0.97 per diluted share) in the second quarter of 2018 and net earnings of $395 million ($0.95 per diluted share) in the third quarter of 2017. Net earnings in all periods include the impact of special items, if any, non-operating pension expense and discontinued operations.

Diluted Net EPS Attributable to International Paper Shareholders and Adjusted Operating EPS
 
 
 
Third Quarter 2018
 
Second Quarter 2018
 
Third Quarter 2017
 
Net Earnings
 
$
1.37

 
$
0.97

 
$
0.95

 
Less – Discontinued Operations (Gain) Loss
 

 
0.05

 
(0.07
)
 
Net Earnings (Loss) from Continuing Operations
 
1.37

 
1.02

 
0.88

 
Add Back – Non-Operating Pension Expense
 
0.05

 
0.07

 
0.05

 
Add Back – Net Special Items Expense (Income)
 
0.14

 
0.10

 
0.08

 
Adjusted Operating Earnings*
 
$
1.56

 
$
1.19

 
$
1.01

 
 
*
Adjusted operating earnings (non-GAAP) is defined as net earnings attributable to International Paper Company (GAAP) excluding discontinued operations, special items and non-operating pension expense. 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.
Adjusted operating earnings in the third quarter of 2018 were $641 million ($1.56 per diluted share) compared with $498 million ($1.19 per diluted share) in the second quarter of 2018, and $420 million ($1.01 per diluted share) in the third quarter of 2017.
Net sales were $5.9 billion in the third quarter of 2018 compared with $5.8 billion in the second quarter of 2018 and $5.5 billion in the third quarter of 2017.
Business segment operating profits were $738 million in the third quarter of 2018 compared with $697 million in the second quarter of 2018 and $674 million in the third quarter of 2017.
Cash provided by (used for) operations was $941 million in the third quarter of 2018 and $(709) million in the third quarter of 2017. Free cash flow (non-GAAP) was $584 million in the third quarter of 2018 and $624 million in the third quarter of 2017.

“International Paper delivered very strong performance and significant year-over-year earnings growth in the third quarter,” said Mark Sutton, Chairman and Chief Executive Officer. “We had solid commercial performance and continued momentum across the businesses, and we continue to work aggressively to offset higher distribution and input costs. I’m proud of the outstanding work to safely prepare, secure and restart the facilities affected by Hurricane Florence. Looking ahead to the fourth quarter, we see continued healthy demand for our products and remain confident in our commitment to deliver strong full-year earnings growth in 2018.”



1


SEGMENT INFORMATION

The performance of the Company’s business segments is measured quarter to quarter without variations caused by special items, as management focuses on business segment operating profits excluding those items (non-GAAP). Third quarter 2018 business segment operating profits and business trends compared with the prior quarter are as follows:
Industrial Packaging operating profits in the third quarter of 2018 were $472 million ($598 million excluding special items) compared with $537 million ($569 million excluding special items) in the second quarter of 2018. In North America, earnings improved due to higher sales prices for boxes and containerboard and lower planned maintenance outage expense, partially offset by lower seasonal volumes and higher input and distribution costs. In Europe, seasonally lower volume and higher Madrid mill start-up costs negatively impacted the quarter.
Global Cellulose Fibers operating profits in the third quarter of 2018 were $83 million ($85 million excluding special items) compared with $66 million ($69 million excluding special items) in the second quarter of 2018. Earnings improved on continued price realization, higher absorbent pulp sales volume and lower planned maintenance outage expense. Results were negatively impacted by $28 million associated with Hurricane Florence.
Printing Papers operating profits in the third quarter of 2018 were $183 million ($188 million excluding special items) versus $94 million in the second quarter of 2018. In North America, improved earnings were driven by further price realization and lower planned maintenance outage costs. Results were negatively impacted by $7 million associated with Hurricane Florence. In Brazil, improved earnings were driven by seasonally stronger sales volumes and higher sales prices, which were partially offset by higher input costs. In Europe and Russia, improved earnings were driven by price realization, higher sales volume, improved operations and lower planned maintenance outage expense, which were partially offset by higher input costs.

EQUITY METHOD INVESTMENTS
Ilim joint venture equity earnings were $74 million in the third quarter of 2018 compared with $57 million in the second quarter of 2018. Operating results were favorable due to continued price realization offset by lower sales volumes due to annual outages. The Company recognized a non-cash after-tax foreign exchange loss of $23 million in the third quarter of 2018 ($0.06 per diluted share) compared with a loss of $39 million in the second quarter of 2018 ($0.09 per diluted share), primarily due to Ilim's U.S. dollar denominated net debt.

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

CORPORATE EXPENSES
Corporate expenses were $20 million for the third quarter of 2018, compared with $30 million in the second quarter of 2018.

EFFECTIVE TAX RATE
The reported effective tax rate for the third quarter of 2018 was 15%, which reflects the impact of adjustments associated with the U.S. Tax Cuts and Jobs Act ("Tax Reform"), compared to a 2018 second quarter reported effective tax rate of 27%. In the fourth quarter of 2017, the Company recorded a provisional net benefit related to the enactment of the Tax Reform, including a non-cash benefit for the remeasurement of the Company's U.S. deferred taxes and additional tax expense related to the deemed repatriation of earnings of its foreign subsidiaries. The Company continues to analyze the impacts of Tax Reform and in the current quarter recorded a $36 million tax benefit primarily related to the deemed repatriation of earnings of foreign subsidiaries. The updated provisional amounts will be finalized in the fourth quarter.

Excluding special items, non-operating pension expense and discontinued operations, the effective tax rate for the third quarter of 2018 was 24%, compared with an effective tax rate of 25% in the second quarter of 2018. The lower effective tax rate for the third quarter is primarily due to state tax credits and provision to return adjustments related to the U.S. Federal tax return completed during the third quarter.

EFFECTS OF SPECIAL ITEMS
Special items in the third quarter of 2018 included a pre-tax charge of $122 million ($81 million after taxes) related to the impairment of fixed assets and an intangible asset in our Brazil Packaging business, a pre-tax charge of $9 million ($7 million after taxes) for an adjustment to an environmental remediation reserve, pre-tax charges of $6 million ($4 million after taxes) related to the removal of abandoned property at our mills and a pre-tax charge of $5 million ($4 million after taxes) for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production. Also included in special items is a tax benefit of $36 million related to updates to our provisional estimates of the impacts of Tax Reform.

2


Special items in the second quarter of 2018 included a pre-tax charge of $26 million ($18 million after taxes) in Restructuring and other charges related to the optimization of our EMEA Packaging business. Special items also included a pre-tax charge of $12 million ($9 million after taxes) for costs associated with our proposal to acquire Smurfit Kappa, pre-tax charges of $9 million ($7 million after taxes) related to the removal of abandoned property at our mills and a tax expense of $9 million due to state income tax legislative changes.

Special items in the third quarter of 2017 included pre-tax charges of $6 million ($4 million after taxes) for integration costs associated with the 2016 acquisition of the Weyerhaeuser pulp business, a pre-tax charge of $10 million ($7 million after taxes) for accelerated amortization of an intangible asset in Brazil Packaging and pre-tax charges of $7 million ($4 million after taxes) related to the removal of abandoned property at our mills. Also included in special items is a net tax expense of $19 million due to international legal entity restructuring.

DISCONTINUED OPERATIONS
As a result of the transfer of the North American Consumer Packaging business on January 1, 2018, all current and prior year amounts have been adjusted to reflect this business as a discontinued operation. There were no discontinued operations in the third quarter of 2018 compared with a loss of $23 million ($0.05 per diluted share) in the second quarter of 2018 and income of $29 million ($0.07 per diluted share) in the third quarter of 2017. Discontinued operations in the second quarter of 2018 included a pre-tax loss of $28 million ($21 million after taxes) to adjust the gain on the transfer of the business as a result of final post-closing adjustments and charges of $2 million (before and after taxes) for costs associated with the transfer. Discontinued operations in the third quarter of 2017 included the operating earnings of the North American Consumer Packaging business.

EARNINGS WEBCAST
The company will host a webcast to discuss earnings and current market conditions, beginning at 10 a.m. ET (9 a.m. CT). All interested parties are invited to listen to the webcast via the company’s Internet site at http://www.internationalpaper.com by clicking on the Performance/Investors tab and going to the Presentations and Events/Webcasts page. A replay of the webcast will also be on the web site beginning approximately two hours after the call. Parties who wish to participate in the webcast via teleconference may dial +1 (706) 679-8242 or, within the U.S. only, (877) 316-2541, and ask to be connected to the International Paper third quarter earnings call. The conference ID number is 8966794. Participants should call in no later than 9:45 a.m. ET (8:45 a.m. CT). An audio-only replay will be available for ninety days following the call. To access the replay, dial +1 (404) 537-3406 or, within the U.S. only, (855) 859-2056 or (800) 585-8367, and when prompted for the conference ID, enter 8966794.

About International Paper
International Paper (NYSE: IP) is a leading global producer of renewable fiber-based packaging, pulp and paper products with manufacturing operations in North America, Latin America, Europe, North Africa, Russia and India. We produce corrugated packaging products that protect and promote goods, and enable worldwide commerce; pulp for diapers, tissue and other personal hygiene products that promote health and wellness and papers that facilitate education and communication. We are headquartered in Memphis, Tenn., and employ approximately 52,000 colleagues located in more than 24 countries. Net sales for 2017 were $22 billion. For more information about International Paper, our products and global citizenship efforts, please visit internationalpaper.com.

Certain statements in this press release may be considered forward-looking statements. Words such as “expects”, “anticipates”, “continues to believe”, “estimates” and similar expressions identify forward-looking statements. The forward-looking statements include, but are not limited to, earnings growth. These statements reflect management’s current views and 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 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 that can be found in International Paper’s press releases and U.S. Securities and Exchange Commission (the “SEC”) filings. These and other factors that could cause or contribute to actual results differing materially from such forward-looking statements are discussed in greater detail in the Company’s SEC filings. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. 


3



###
Contacts:
Media: Thomas J. Ryan, 901-419-4333; Investors: Guillermo Gutierrez; 901-419-1731; Michele Vargas, 901-419-7287.

4


INTERNATIONAL PAPER COMPANY
Consolidated Statement of Operations
Preliminary and Unaudited
(In millions, except per share amounts)
 
 
 
Three Months Ended
September 30,
 
Three Months Ended
June 30,
 
Nine Months Ended September 30,
 
 
 
2018
 
2017
 
2018
 
2018
 
2017
 
Net Sales
 
$
5,901

 
$
5,517

 
$
5,833

 
$
17,355

 
$
16,032

 
Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of products sold
 
3,887

(a)
3,713

(e)
3,922

(a)
11,757

(a)
11,100

(e)
Selling and administrative expenses
 
405


401

(f)
451

(i)
1,277

(i)
1,187

(f)
Depreciation, amortization and cost of timber harvested
 
335

(b)
350

(g)
330


990

(b)
1,004

(g)
Distribution expenses
 
397

 
354

 
403

 
1,166

 
1,061

 
Taxes other than payroll and income taxes
 
44

 
41

 
42

 
130

 
124

 
Restructuring and other charges
 




26

(j)
48

(j)
(16
)
(l)
Net (gains) losses on sales and impairments of business
 
122

(c)




122

(c)
9

(m)
Litigation settlement
 

 



 

 
354

(n)
Net bargain purchase gain on acquisition of business
 

 

 

 

 
(6
)
(o)
Interest expense, net
 
133


152


133


401

 
431

(p)
Non-operating pension expense
 
25

 
49

 
36

 
65

 
133

 
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings
 
553


457


490


1,399


651


Income tax provision (benefit)
 
83

(d)
136

(h)
130

(d)
302

(d)
122

 (h)
Equity earnings (loss), net of taxes
 
92

 
45

 
70

 
257

 
113

 
Earnings (Loss) From Continuing Operations
 
562


366


430


1,354


642


Discontinued operations, net of taxes
 


29


(23
)
(k)
345

(k)
42


Net Earnings (Loss)
 
562


395


407


1,699


684


Less: Net earnings (loss) attributable to noncontrolling interests
 

 

 
2

 
3

 

 
Net Earnings (Loss) Attributable to International Paper Company
 
$
562


$
395


$
405


$
1,696


$
684


Basic Earnings Per Common Share Attributable to International Paper Common Shareholders
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) from continuing operations
 
$
1.38


$
0.89


$
1.03


$
3.28

 
$
1.55

 
Discontinued operations
 


0.07


(0.05
)
 
0.84

 
0.10

 
Net earnings (loss)
 
$
1.38

 
$
0.96

 
$
0.98

 
$
4.12

 
$
1.65

 
Diluted Earnings Per Common Share Attributable to International Paper Common Shareholders
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) from continuing operations
 
$
1.37


$
0.88


$
1.02


$
3.25

 
$
1.54

 
Discontinued operations
 


0.07


(0.05
)
 
0.83

 
0.10

 
Net earnings (loss)
 
$
1.37

 
$
0.95

 
$
0.97

 
$
4.08

 
$
1.64

 
Average Shares of Common Stock Outstanding - Diluted
 
411.4

 
417.4

 
417.7

 
416.3

 
417.4

 
Cash Dividends Per Common Share
 
$
0.4750

 
$
0.4625

 
$
0.4750

 
$
1.4250

 
$
1.3875

 
Amounts Attributable to International Paper Common Shareholders
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) from continuing operations, net of tax
 
$
562

 
$
366

 
$
428

 
$
1,351

 
$
642

 
Discontinued operations, net of tax
 

 
29

 
(23
)
 
345

 
42

 
Net earnings (loss)
 
$
562


$
395


$
405


$
1,696

 
$
684

 

The accompanying notes are an integral part of this consolidated statement of operations.
(a)
Includes pre-tax charges of $6 million ($4 million after taxes), $9 million ($7 million after taxes) and $24 million ($18 million after taxes) for the three months ended September 30, 2018 and June 30, 2018 and the nine months ended September 30, 2018, respectively, for the removal of abandoned property at our mills, a pre-tax charge of $9 million ($7 million after taxes) for the three months and nine months ended September 30, 2018 for an environmental remediation reserve adjustment and a pre-tax charge of $9 million ($7 million after taxes) for the nine months ended September 30, 2018 for a legal settlement.

5


(b)
Includes a pre-tax charge of $5 million ($4 million after taxes) for the three months and nine months ended September 30, 2018 for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production.
(c)
Includes a pre-tax charge of $122 million ($81 million after taxes) for the three months and nine months ended September 30, 2018 related to the impairment of fixed assets and an intangible asset in our Brazil Packaging business.
(d)
Includes a tax benefit of $36 million for the three months and nine months ended September 30, 2018 related to the Tax Cuts and Jobs Act and tax expense of $9 million for the three months ended June 30, 2018 and nine months ended September 30, 2018 related to state income tax legislative changes.
(e)
Includes pre-tax charges of $7 million ($4 million after taxes) and $14 million ($9 million after taxes) for the three months and nine months ended September 30, 2017, respectively, related to the removal of abandoned property at our mills and a pre-tax charge of $14 million ($8 million after taxes) for the nine months ended September 30, 2017 for the amortization of inventory fair value step-up for the pulp business acquired in December 2016.
(f)
Includes pre-tax charges of $6 million ($4 million after taxes) and $15 million ($9 million after taxes) for the three months and nine months ended September 30, 2017, respectively, for costs associated with the acquisition and integration of the pulp business acquired in December 2016.
(g)
Includes a pre-tax charge of $10 million ($7 million after taxes) for the three months and nine months ended September 30, 2017 for the accelerated amortization of a Brazil Packaging intangible asset.
(h)
Includes tax expense of $19 million and $34 million for the three months and nine months ended September 30, 2017, respectively, for international investment restructuring and a net tax benefit of $47 million for the nine months ended September 30, 2017 primarily due to income tax refund claims.
(i)
Includes a pre-tax charge of $12 million ($9 million after taxes) for the three months ended June 30, 2018 and nine months ended September 30, 2018 associated with our proposal to acquire Smurfit Kappa.

(j)
Includes pre-tax charges of $26 million ($18 million after taxes) and $48 million ($35 million after taxes) for the three months ended June 30, 2018 and nine months ended September 30, 2018, respectively, related to the optimization of our EMEA Packaging business.
(k)
Includes a pre-tax charge of $28 million ($21 million after taxes) and pre-tax income of $488 million ($364 million after taxes) for the three months ended June 30, 2018 and the nine months ended September 30, 2018, respectively, for the gain on the transfer of the North American Consumer Packaging business. Also includes pre-tax charges of $2 million (before and after taxes) and $25 million ($19 million after taxes) for the three months ended June 30, 2018 and the nine months ended September 30, 2018, respectively, for transaction costs to transfer the North American Consumer Packaging business.


(l)
Includes a pre-tax gain of $14 million ($9 million after taxes) related to the sale of our investment in ArborGen and a gain of $2 million (before and after taxes) for other items for the nine months ended September 30, 2017.
(m)
Includes a pre-tax charge of $9 million ($4 million after taxes) for the nine months ended September 30, 2017 for the impairment of the assets of our Foodservice business in Asia.
(n)
Includes a pre-tax charge of $354 million ($219 million after taxes) for the nine months ended September 30, 2017 related to the settlement of the Kleen Products anti-trust class action lawsuit.
(o)
Includes a net bargain purchase gain of $6 million (before and after taxes) for the nine months ended September 30, 2017 associated with the June 2016 acquisition of Holmen Paper's newsprint mill in Madrid, Spain.
(p)
Includes a pre-tax gain of $4 million ($2 million after taxes) for the nine months ended September 30, 2017 for interest income associated with an income tax refund claim.


6


INTERNATIONAL PAPER COMPANY
Reconciliation of Net Earnings (Loss) Attributable to International Paper Company to Adjusted Operating Earnings
Preliminary and Unaudited
(In millions except for per share amounts)
 
 
 
Three Months Ended
September 30,
 
Three Months Ended
June 30,
 
Nine Months Ended September 30,
 
 
 
2018
 
2017
 
2018
 
2018
 
2017
 
Net Earnings (Loss) Attributable to International Paper Company
 
$
562


$
395


$
405


$
1,696

 
$
684

 
Less: Discontinued operations (gain) loss
 


(29
)

23


(345
)

(42
)
 
Earnings (Loss) from Continuing Operations, including non-controlling interest
 
562

 
366

 
428

 
1,351

 
642

 
Add back: Non-operating pension expense
 
19


20


27


49

 
60

 
Add back: Special items expense (gain)
 
60


34


43


134


224


Adjusted Operating Earnings
 
$
641

 
$
420

 
$
498

 
$
1,534

 
$
926

 
 
 
 
 
 
 
 
 
 
Three Months Ended
September 30,
 
Three Months Ended
June 30,
 
Nine Months Ended September 30,
 

 
2018
 
2017
 
2018
 
2018
 
2017
 
Diluted Earnings per Common Share as Reported
 
$
1.37

 
$
0.95

 
$
0.97

 
$
4.08

 
$
1.64

 
Less: Discontinued operations (gain) loss
 

 
(0.07
)
 
0.05

 
(0.83
)
 
(0.10
)
 
Continuing Operations
 
1.37

 
0.88

 
1.02

 
3.25

 
1.54

 
Add back: Non-operating pension expense
 
0.05

 
0.05

 
0.07

 
0.11

 
0.14

 
Add back: Special items expense (gain)
 
0.14

 
0.08

 
0.10

 
0.32

 
0.54

 
Adjusted Operating Earnings per Share
 
$
1.56

 
$
1.01

 
$
1.19

 
$
3.68

 
$
2.22

 
Notes:
(1)
The Company calculates Adjusted Operating Earnings (non-GAAP) by excluding the after-tax effect of non-operating pension expense, items considered by management to be unusual as reflected in the notes to the Consolidated Statement of Operations and discontinued operations 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.
(2)
Since diluted earnings per share are computed independently for each period, nine-month per share amounts may not equal the sum of the respective quarters.





7


INTERNATIONAL PAPER COMPANY
Sales and Earnings by Business Segment
Preliminary and Unaudited
(In millions)
Sales by Business Segment 
 
 
Three Months Ended
September 30,
 
Three Months Ended
June 30,
 
Nine Months Ended September 30,
 
 
 
2018
 
2017
 
2018
 
2018
 
2017
 
Industrial Packaging
 
$
4,034

 
$
3,822

 
$
4,022

 
$
11,883

 
$
11,184

 
Global Cellulose Fibers
 
714

 
654

 
692

 
2,083

 
1,830

 
Printing Papers
 
1,102

 
1,039

 
1,060

 
3,215

 
3,051

 
Corporate and Inter-segment Sales (h)
 
51

 
2

 
59

 
174

 
(33
)
 
Net Sales
 
$
5,901

 
$
5,517

 
$
5,833

 
$
17,355

 
$
16,032

 
Operating Profit by Business Segment
 
 
 
 
 
 
Three Months Ended
September 30,
 
Three Months Ended
June 30,
 
Nine Months Ended September 30,
 
 
 
2018
 
2017
 
2018
 
2018
 
2017
 
Industrial Packaging
 
$
472

(a)
$
490

(d)
$
537

(a)
$
1,446

(a)
$
938

(d)
Global Cellulose Fibers
 
83

(b)
49

(e)
66

(b)
160

(b)
(14
)
(e)
Printing Papers
 
183

(c)
135


94


341

(c)
321

(f)
Total Business Segment Operating Profit
 
$
738

 
$
674

 
$
697

 
$
1,947

 
$
1,245

 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings (Loss) From Continuing Operations
Before Income Taxes and Equity Earnings
 
$
553

 
$
457

 
$
490


$
1,399

 
$
651

 
Interest expense, net
 
133


152


133


401

 
431

(g)
Noncontrolling interest/equity earnings adjustment (i)
 
(2
)
 

 
(4
)

(7
)
 
(1
)
 
Corporate items (h)
 
20

 
32

 
30


59

 
73

 
Corporate special items, net
 
9

 

 
12


30

 
(7
)
 
Non-operating pension expense
 
25


33


36


65

 
98

 
Adjusted Operating Profit
 
$
738

 
$
674

 
$
697


$
1,947

 
$
1,245

 
Equity Earnings (Loss) in Ilim Holdings S.A., Net of Taxes
 
$
74

 
$
48

 
$
57

 
$
223

 
$
119

 
Equity Earnings (Loss) in Graphic Packaging LLC
 
$
19

 
$

 
$
15

 
$
36

 
$

 

(a)
Includes a charge of $122 million for the three months and nine months ended September 30, 2018 for the impairment of fixed assets and an intangible asset in our Brazil Packaging business, charges of $26 million and $48 million for the three months ended June 30, 2018 and the nine months ended September 30, 2018, respectively, related to the optimization of our EMEA Packaging business and charges of $4 million, $6 million and $15 million for the three months ended September 30, 2018 and June 30, 2018, and the nine months ended September 30, 2018, respectively, for the removal of abandoned property at our mills.
(b)
Includes charges of $2 million, $3 million and $9 million for the three months ended September 30, 2018 and June 30, 2018, and the nine months ended September 30, 2018, respectively, for the removal of abandoned property at our mills.
(c)
Includes a charge of $5 million for the three months and nine months ended September 30, 2018 for accelerated depreciation associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production.
(d)
Includes a charge of $10 million for the three months and nine months ended September 30, 2017 for the accelerated amortization of an intangible asset in Brazil, a charge of $354 million for the nine months ended September 30, 2017 related to the settlement of the Kleen Products anti-trust class action lawsuit, a gain of $6 million for the nine months ended September 30, 2017 for a net bargain purchase gain associated with the June 2016 acquisition of Holmen Paper's newsprint mill in Madrid, Spain and charges of $5 million and $9 million for the three months and nine months ended September 30, 2017, respectively, for the removal of abandoned property at our mills and other costs.

8


(e)
Includes a charge of $14 million for the nine months ended September 30, 2017 for the amortization of the inventory fair value step-up for the pulp business acquired in December 2016, charges of $6 million and $15 million for the three months and nine months ended September 30, 2017, respectively, for costs associated with the acquisition and integration of that business and charges of $2 million and $3 million for the three months and nine months ended September 30, 2017, respectively, for the removal of abandoned property at our mills and other costs.
(f)
Includes a charge of $2 million for the nine months ended September 30, 2017 for the removal of abandoned property at our mills and other costs.
(g)
Includes a gain of $4 million for the nine months ended September 30, 2017 for interest income associated with an income tax refund claim.
(h)
Includes sales and operating profits of previously divested businesses.
(i)
Operating profits for business segments include each segment's percentage share of the profits of subsidiaries included in that segment that are less than wholly owned. The pre-tax noncontrolling interest and equity earnings for these subsidiaries are adjusted here to present consolidated earnings before income taxes and equity earnings.


9


INTERNATIONAL PAPER COMPANY
Reconciliation of Operating Profit to Operating Profit Before Special Items
Preliminary and Unaudited
(In millions)
 
 
 
Three Months Ended September 30, 2018
 
 
Industrial Packaging
 
Global Cellulose Fibers
 
Printing Papers
 
Total
Operating Profit (Loss) as Reported
 
$
472

 
$
83

 
$
183

 
$
738

Special Items Expense (Income) (a)
 
126

 
2

 
5

 
133

Operating Profit (Loss) Before Special Items
 
$
598

 
$
85

 
$
188

 
$
871

 
 
 
 
Three Months Ended September 30, 2017
 
 
Industrial Packaging
 
Global Cellulose Fibers
 
Printing Papers
 
Total
Operating Profit (Loss) as Reported
 
$
490

 
$
49

 
$
135

 
$
674

Special Items Expense (Income) (b)
 
15

 
8

 

 
23

Operating Profit (Loss) Before Special Items
 
$
505

 
$
57

 
$
135

 
$
697

 
 
 
 
Three Months Ended June 30, 2018
 
 
Industrial Packaging
 
Global Cellulose Fibers
 
Printing Papers
 
Total
Operating Profit (Loss) as Reported
 
$
537

 
$
66

 
$
94

 
$
697

Special Items Expense (Income) (a)
 
32

 
3

 

 
35

Operating Profit (Loss) Before Special Items
 
$
569

 
$
69

 
$
94

 
$
732

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
Industrial Packaging
 
Global Cellulose Fibers
 
Printing Papers
 
Total
Operating Profit (Loss) as Reported
 
$
1,446

 
$
160

 
$
341

 
$
1,947

Special Items Expense (Income) (a)
 
185

 
9

 
5

 
199

Operating Profit (Loss) Before Special Items
 
$
1,631

 
$
169

 
$
346

 
$
2,146

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 
Industrial Packaging
 
Global Cellulose Fibers
 
Printing Papers
 
Total
Operating Profit (Loss) as Reported
 
$
938

 
$
(14
)
 
$
321

 
$
1,245

Special Items Expense (Income) (b)
 
367

 
32

 
2

 
401

Operating Profit (Loss) Before Special Items
 
$
1,305

 
$
18

 
$
323

 
$
1,646

 
 
 
 
 
 
 
 
 

(a)
See footnotes (a) - (c) on Sales and Earnings by Business Segment
(b)
See footnotes (d) - (f) on Sales and Earnings by Business Segment
(1)
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.







10


INTERNATIONAL PAPER COMPANY
Sales Volume by Product (a)
Preliminary and Unaudited
International Paper Consolidated
 
 
Three Months Ended
September 30,
 
Three Months Ended
June 30,
 
Nine Months Ended September 30,
 
 
 
2018
 
2017
 
2018
 
2018
 
2017
 
Industrial Packaging (In thousands of short tons)
 
 
 
 
 
 
 
 
 
 
 
Corrugated Packaging (c)
 
2,666

 
2,599

 
2,724

 
7,969

 
7,784

 
Containerboard
 
853

 
828

 
800

 
2,436

 
2,438

 
Recycling
 
566

 
544

 
597

 
1,700

 
1,684

 
Saturated Kraft
 
51

 
45

 
52

 
149

 
132

 
Gypsum /Release Kraft
 
56

 
54

 
67

 
176

 
165

 
Bleached Kraft
 
8

 
7

 
9

 
24

 
20

 
EMEA Packaging (c) (d)
 
329

 
350

 
387

 
1,113

 
1,124

 
Brazilian Packaging (c)
 
92

 
93

 
85

 
263

 
266

 
European Coated Paperboard
 
98

 
103

 
90

 
284

 
296

 
Industrial Packaging
 
4,719

 
4,623

 
4,811

 
14,114

 
13,909

 
Global Cellulose Fibers (In thousands of metric tons) (b)
 
886

 
933

 
884

 
2,665

 
2,706

 
Printing Papers (In thousands of short tons)
 
 
 
 
 
 
 
 
 
 
 
U.S. Uncoated Papers
 
461

 
497

 
484

 
1,415

 
1,451

 
European & Russian Uncoated Papers
 
363

 
365

 
342

 
1,066

 
1,104

 
Brazilian Uncoated Papers
 
293

 
280

 
265

 
818

 
832

 
Indian Uncoated Papers
 
62

 
58

 
66

 
195

 
186

 
Printing Papers
 
1,179

 
1,200

 
1,157

 
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 by these businesses reflect invoiced tons.
(d)
 Excludes newsprint sales volumes at the Madrid, Spain mill through Q3 2017.





 


11


INTERNATIONAL PAPER COMPANY
Consolidated Balance Sheet
Preliminary and Unaudited
(In millions) 
 
 
September 30, 2018
 
December 31, 2017
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and Temporary Investments
 
$
1,026

 
$
1,018

Accounts and Notes Receivable, Net
 
3,580

 
3,287

Contract Assets
 
383

 

Inventories
 
2,130

 
2,313

Assets Held for Sale
 

 
1,377

Other
 
199

 
282

Total Current Assets
 
7,318

 
8,277

Plants, Properties and Equipment, Net
 
13,088

 
13,265

Forestlands
 
388

 
448

Investments
 
1,615

 
390

Financial Assets of Special Purpose Entities
 
7,065

 
7,051

Goodwill
 
3,371

 
3,411

Deferred Charges and Other Assets
 
958

 
1,061

Total Assets
 
$
33,803

 
$
33,903

Liabilities and Equity
 
 
 
 
Current Liabilities
 
 
 
 
Notes Payable and Current Maturities of Long-Term Debt
 
$
555

 
$
311

Accounts Payable and Accrued Liabilities
 
4,048

 
3,986

         Liabilities Held for Sale
 

 
805

                     Total Current Liabilities
 
4,603

 
5,102

Long-Term Debt
 
10,700

 
10,846

Nonrecourse Financial Liabilities of Special Purpose Entities
 
6,296

 
6,291

Deferred Income Taxes
 
2,512

 
2,291

Pension Benefit Obligation
 
1,785

 
1,939

Postretirement and Postemployment Benefit Obligation
 
305

 
326

Other Liabilities
 
544

 
567

Equity
 
 
 
 
Invested Capital, Net of Treasury Stock
 
(313
)
 
342

Retained Earnings
 
7,353

 
6,180

                      Total International Paper Shareholders’ Equity
 
7,040

 
6,522

Noncontrolling Interests
 
18

 
19

                      Total Equity
 
7,058

 
6,541

Total Liabilities and Equity
 
$
33,803

 
$
33,903



12


INTERNATIONAL PAPER COMPANY
Consolidated Statement of Cash Flows
Preliminary and Unaudited
(In millions)
 
 
 
Nine Months Ended September 30,
 
 
2018
 
2017
Operating Activities
 
 
 
 
Net earnings (loss)
 
$
1,699

 
$
684

Depreciation, amortization and cost of timber harvested
 
990

 
1,075

Deferred income tax expense (benefit), net
 
163

 
295

Restructuring and other charges
 
48

 
(16
)
Pension plan contributions
 

 
(1,250
)
Net gain on transfer of North American Consumer Packaging business
 
(488
)
 

Net bargain purchase gain on acquisition of business
 

 
(6
)
Net (gains) losses on sales and impairments of businesses
 
122

 
9

Equity method dividends received
 
130

 
129

Equity (earnings) loss, net
 
(257
)
 
(113
)
Periodic pension expense, net
 
172

 
237

Other, net
 
75

 
92

Changes in current assets and liabilities
 
 
 
 
Accounts and notes receivable
 
(441
)
 
(293
)
Contract assets
 
(20
)
 

Inventories
 
(120
)
 
(70
)
Accounts payable and accrued liabilities
 
301

 
5

Interest payable
 
(33
)
 
(11
)
Other
 
64

 
(198
)
Cash Provided By (Used For) Operating Activities
 
2,405

 
569

Investment Activities
 
 
 
 
Invested in capital projects
 
(1,286
)
 
(935
)
Acquisitions, net of cash acquired
 

 
(45
)
Net settlement on transfer of North American Consumer Packaging business
 
(40
)
 

Proceeds from divestitures, net of cash divested
 

 
4

Proceeds from sale of fixed assets
 
12

 
22

Other
 
4

 
(54
)
Cash Provided By (Used For) Investment Activities
 
(1,310
)
 
(1,008
)
Financing Activities
 
 
 
 
Repurchases of common stock and payments of restricted stock tax withholding
 
(532
)
 
(46
)
Issuance of debt
 
349

 
1,366

Reduction of debt
 
(242
)
 
(369
)
Change in book overdrafts
 
(33
)
 
5

Dividends paid
 
(588
)
 
(573
)
Debt tender premiums paid
 

 
(1
)
Other
 

 
(2
)
Cash Provided By (Used for) Financing Activities
 
(1,046
)
 
380

Effect of Exchange Rate Changes on Cash
 
(41
)
 
24

Change in Cash and Temporary Investments
 
8

 
(35
)
Cash and Temporary Investments
 
 
 
 
Beginning of the period
 
1,018

 
1,033

End of the period
 
$
1,026

 
$
998


13


INTERNATIONAL PAPER COMPANY
Reconciliation of Cash Provided by Operations to Free Cash Flow
Preliminary and Unaudited
(In millions)



 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Cash provided by (used for) Operating Activities
$
941

 
$
(709
)
 
$
2,405

 
$
569

Adjustments:
 
 
 
 
 
 
 
Cash invested in capital projects
(357
)
 
(271
)
 
(1,286
)
 
(935
)
Cash contribution to pension plan

 
1,250

 

 
1,250

Cash payment for Kleen Settlement

 
354

 

 
354

Free Cash Flow
$
584

 
$
624

 
$
1,119

 
$
1,238


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.

14

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