International Paper Company Annual Report 2013

FY2013 Annual Report · International Paper Company

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2 0 1 3 A N N U A L R E P O R T

IN 2013, INTERNATIONAL PAPER CONTINUED
TO DELIVER RESULTS, WITH RECORD OPERATING
EARNINGS AND STRONG CASH FLOW GENERATION
DRIVEN BY A GREAT TEAM OF HIGHLY ENGAGED
PEOPLE AND FIRST-RATE EXECUTION.

In 2014, we will mark our 116th year in operation, a testament to the

enduring value of fiber-based packaging and paper and to our company’s

ability to innovate and adapt in an ever-changing marketplace. Today’s

International Paper is a strategically repositioned packaging and paper

business with low-cost assets that are well-positioned to compete in

attractive growth markets around the world.

Visit the online version of this annual report at ipannualreport.com

GLOBAL
OPERATIONS

NORTH AMERICA
From our global headquarters in Memphis, Tenn.,
International Paper spans more than 24 countries
with 70,000 employees around the world. In
North America, International Paper has nearly
1,000 facilities from coast to coast. We are the
premier manufacturer of containerboard and cor-
rugated packaging products, uncoated freesheet
papers, coated paperboard and fluff pulp. We also
deliver innovative single-use packaging to the
foodservice industry and are a leading business-
to-business distributor of packaging, print and
facility supplies and equipment. In mid 2014, we
expect xpedx, our distribution business, to merge
with Unisource Worldwide Inc., to become an
independent, publicly traded company.

LATIN AMERICA
From our regional headquarters in Sao Paulo,
International Paper’s Latin American reach
extends around the globe. IP Brazil produces
roughly one-third of the uncoated freesheet paper
consumed in Latin America, and our market-
leading uncoated freesheet brand, Chamex®, is
widely used in Brazilian homes and offices. IP Brazil
also exports products to Europe and Asia. In 2013,
International Paper entered into a joint venture
with a 75 percent share in a major Brazilian corru-
gated packaging company, Orsa, bringing our cor-
rugated manufacturing expertise to this strategic
market. In March 2014 we reached an agreement
to acquire the remaining 25 percent share.

EMEA/RUSSIA
With regional headquarters in Brussels, International Paper
manufactures and markets office and uncoated freesheet
papers, pulp, corrugated packaging, containerboard and both
coated and uncoated paperboard for customers across Europe,
the Middle East and Africa. We are a leading supplier of
high-quality cut-size papers and offer value-added packaging
solutions, including folding boxboard for high-end packaging
and food packaging, and corrugated packaging for segments
such as fresh fruit and vegetables, food packaging and spe-
cialized industrial applications. Since 2007, our presence in
Russia has been strengthened through a joint venture with
Ilim Holding. Known as Ilim Group, this is the largest foreign-
domestic alliance in the Russian forest products sector.

Ilim
Joint Venture
Russia

ASIA/CHINA
Headquartered in Shanghai, International Paper’s
Asia operations include 25 manufacturing facili-
ties in five Asian countries and we conduct busi-
ness in most countries across the region. Our IP
Asia businesses include industrial packaging,
foodservice, uncoated freesheet papers, coated
paperboard and distribution. The coated paper-
board business is a joint venture with Sun Paper,
one of China’s largest paper manufacturers.

Sun Paper
Joint Venture
China

INDIA
International Paper became the first non-Indian
corporation to invest in the Indian paper indus-
try when we acquired a 75 percent equity
ownership in The Andhra Pradesh Paper Mills
Limited (APPM) in 2011. International Paper
India, headquartered in Hyderabad, operates two
paper mills located in Andhra Pradesh—one in
Rajahmundry and one in Kadiam—producing
writing, printing and copier paper for both
domestic markets and export.

IN T ERN AT ION A L PA PER 2013 ANNUAL REPORT

INTERNATIONAL
PAPER IS…

FIRST IN NORTH AMERICA
in corrugated packaging, coated paperboard and distribution

SECOND IN NORTH AMERICA
in uncoated papers

FIRST IN LATIN AMERICA
in uncoated papers

FIRST IN RUSSIA
in paper and pulp

THIRD IN CHINA
in coated paperboard

FIFTH IN INDIA
in uncoated papers

0 2

DEL I V ERING RE SULT S

TO THE SHAREOWNERS AND
EMPLOYEES OF INTERNATIONAL PAPER,

JOHN V. FA R ACI

CHAIRMAN AND CHIEF E XECUTIVE OFFICER
INTERNATIONAL PAPER

Looking back on 2013, International Paper achieved
another milestone as we generated record operating
earnings and continued our strong cash flow genera-
tion, driven by first-rate execution and a great team of
highly engaged people. We delivered on our ongoing
commitments to return cash to shareowners, strate-
gically reinvest in our business and maintain a strong
balance sheet. Shareowners benefitted from strong
free cash flow as International Paper increased the
annual dividend 17 percent to $1.40 per share and
began implementing a board-approved $1.5 billion
share buyback program. The buyback program is pro-
ceeding ahead of schedule with approximately 13.5
million shares purchased for about $600 million (as of
February 28, 2014). We also retired approximately
$617 million in debt.

International Paper’s 2013 results were driven by
strong performance from our North American indus-
trial packaging business, as well as our papers busi-
ness in Brazil, Europe and Russia. With leadership
supply positions around the globe, the best margins
in North America and profitable growth opportunities
in emerging markets, International Paper increased
year-over-year EBITDA 11 percent, improved operat-
ing earnings per share 19 percent and grew cash from
operations to $3.0 billion.
While global and regional supply and demand will
always have an impact on our business, today’s
International Paper is a less cyclical company in terms
of cash generation and free cash flow. International
Paper is also somewhat unique in our industry in that
we have many internal levers to pull to further improve
our EBITDA and generate more cash in 2014. This is
what truly differentiates us from our competitors.

In North America, we’ve identified several opportuni-
ties for continued earnings growth and margin improve-
ment. Our industrial packaging operations, supply chain
and sales organizations have identified more than $200
million in optimization opportunities and are aggres-
sively pursuing them. With a manufacturing organiza-
tion that’s aligned to more efficiently and cost-effectively
meet customer needs, our repositioned printing papers
business is now smaller, but stronger and more com-
petitive. Our consumer packaging businesses—coated
paperboard and foodservice—are building on momen-
tum gained in 2013, capitalizing on growing consumer
demand for convenience foods and beverages and
more sustainable products and packaging. That trans-
lates into more opportunities to continue to grow our
hot and cold fiber-based cup business with customers.
The expansion of our foodservice facility in Kenton,

NET SALES
(IN MILLIONS)

$27,833

$29,080

$26,034

2011

2012

2013

FREE CASH FLOW*
(IN MILLIONS)

$1,727

$1,570

$1,801

2011

2012

2013

EARNINGS PER SHARE*

$3.12

$3.16

$2.65

2011

2012

2013

EBITDA*
(IN MILLIONS)

$3,724

$3,725

$4,126

2011

2012

2013

ANNUALIZED DIVIDEND

$1.05

$1.20

$1.40

4Q11

4Q12

4Q13

CASH ALLOCATION STRATEGY

Strategically Reinvest in the Business

Return Cash to Shareowners

Maintain a Strong Balance Sheet

* Refer to Financial Highlights for reconciliation of non-GAAP
financial measures.

IN T ERN AT ION A L PA PER 2013 ANNUAL REPORT

0 3

Ohio, to be completed by May 2015, positions us for
this future growth.

Optimization opportunities exist around the globe
as well. In 2013, the Ilim joint venture completed the
largest build out in the Russian pulp and paper indus-
try in the last 30 years, and the largest project in
International Paper’s history. As the joint venture
continues to ramp-up production at the new soft-
wood pulp mill in Siberia, qualify new products like
coated paper and optimize new processes, there are
many opportunities to reduce costs and increase
production in markets where demand is growing. The
$1 billion-plus upgrade of facilities in northwest
Russia and Siberia funded by the joint venture will
enable growth in step with paper demand in western
Russia and help meet long-term demand for softwood
pulp in China. China represents about 90 percent of
the world’s growth in softwood pulp consumption,
and the two Ilim facilities in Siberia produce the
world’s lowest-cost softwood pulp delivered to north
and central China.

International Paper’s facilities in Brazil are also well-
positioned to take advantage of 3 percent to 4 percent
annual market growth across Latin America—growth
that will allow us to sell more of our Brazilian-made
paper products in Latin America at higher margins
instead of exporting them outside the region. In early
2013, we acquired a 75 percent share of Brazilian
packaging company Jari Celulose, Embalagens e
Papel, S.A., a Grupo Orsa company, and have high
expectations as we employ International Paper’s con-
tainerboard and corrugated box manufacturing and
commercial expertise in this strategic market. On the
other side of the world, IP India is poised for double-
digit volume and earnings growth over the next few
years. Our joint venture with Sun Paper in China is a
good, well-positioned business with a lot of upside
potential as we work through current excess capacity
in the industry. Our corrugated packaging business
in Asia is also showing growth with year-over-year
volume up 4 percent.

All in, looking ahead, we like our current portfolio of

businesses and their prospects.

In January 2014, International Paper signed a defin-
itive agreement to merge our distribution company,
xpedx, with Unisource Worldwide Inc. to form an
independent, publicly traded company. As part of this
transaction, International Paper will receive a dividend
of approximately $400 million from the new com-
pany. The transaction provides excellent value for
International Paper shareowners who will own 51

percent of the stock in the new company and is a
unique opportunity for xpedx and Unisource to create a
new company that is stronger, more competitive and
able to provide even greater value to customers. We
anticipate that the merger will close in mid 2014 and
that the new company will generate synergies of about
$200 million. Mary Laschinger, International Paper
senior vice president and president of xpedx, will lead

WE DELIVERED ON OUR ONGOING

COMMITMENTS TO RETURN CASH TO
SHAREOWNERS, STRATEGICALLY REINVEST
IN OUR BUSINESS AND MAINTAIN A STRONG
BALANCE SHEET.

the new company. We congratulate Mary on her
appointment as CEO and chairman of the new enter-
prise and thank her for her many contributions and
more than 20 years of service to International Paper.

While International Paper is always open to exploring
new strategic opportunities that are consistent with
our business strategy, we believe our current global
footprint positions us for significant and sustained
growth in our free cash flow. We’ll continue to use
this cash for dividends and share repurchases and to
keep International Paper competitive and create value
for our investors. No other company in our industry is
as well-positioned to meet the needs of global markets
and create value for shareowners on a global scale.

Sustainability is integral to everything we do at
International Paper, and we’re committed to measuring
our progress to help us identify areas for improve-
ment. In 2013, we surpassed three of our 12 voluntary
2020 sustainability goals (air emissions, water quality
and purchases of third-party-certified wood fiber)
and continue to challenge ourselves to raise the bar
even higher.

With our business literally rooted in the forest, our
long-standing global commitment to sustainable for-
estry and fiber sourcing is both an environmental
commitment and a business imperative. As part of
this commitment, our company joined the World
Wildlife Fund’s Global Forest & Trade Network in
2013. We also committed $7.5 million over five years
to establish the Forestland Stewards Program, a part-
nership with the National Fish and Wildlife Federation
to restore native forest ecosystems across the south-
ern United States.

0 4

DEL I V ERING RE SULT S

SENIOR L E A DERSHIP T E A M

LEF T TO RIGHT: WILLIAM T. HOEL, TIM S. NICHOLLS, C. CATO E ALY, SHARON R. RYAN, TOMMY S. JOSEPH, JOHN V. FARACI,

THOMAS G. K ADIEN, CAROL L. ROBERTS, JE AN-MICHELE RIBIERAS, PAUL J. K ARRE, MARK S. SUT TON, MARY L. L ASCHINGER

International Paper’s commitment to the highest
ethical and sustainable business standards is guided
by a simple principle: do the right things for the right
reasons. Reflecting this commitment, our company
was once again named No. 1 in the forest and paper
products industry on FORTUNE ® magazine’s list of the
“World’s Most Admired Companies® 2014,” an honor
we’ve held for 11 of the last 12 years. We also received
our eighth straight award from The Ethisphere Institute
as one of the “World’s Most Ethical Companies®.”

In 2014, International Paper will mark its 116th year
in operation, a testament to the enduring value of
fiber-based packaging and paper and to our compa-
ny’s ability to innovate and adapt in an ever-changing
marketplace. With our goal to be the best, not neces-
sarily the biggest, today’s International Paper is a stra-
tegically repositioned and well-positioned packaging
and paper business with low-cost assets in attractive
growth markets around the world.
Most important, we’re a company of about 70,000
talented people committed to delivering results. Our
continuing performance improvement is driven by the
engagement and strong execution of our employees,

leadership team and board of directors. On that note,
the International Paper board of directors welcomed
Admiral Jay L. Johnson, retired chairman and chief
executive officer of General Dynamics and former
chief of U.S. naval operations, who was elected to
the board in September. We also want to thank three
of our senior officers who retired in 2013, John
Balboni, Paul Herbert and Maximo Pacheco, for their
commitment and contributions to International Paper.
We wish them all the best in their future endeavors.

In the pages that follow, you’ll read more about the
earnings drivers within each of our businesses that
will contribute to another meaningful step change in
2014. Thank you for your continued support and own-
ership of International Paper.

John Faraci
Chairman and Chief Executive Officer
International Paper

IN T ERN AT ION A L PA PER 2013 ANNUAL REPORT

0 5

WHAT WE’VE
DONE

(cid:115) Exited non-strategic businesses
(cid:115) Completed strategic acquisitions
(cid:115) Reduced structural capacity and fixed costs
(cid:115) Achieved industry-leading margins
(cid:115) Significantly improved balance sheet and FCF

WHAT WE’RE
DOING

(cid:115) Managing our supply to meet customer demand
(cid:115) Maintaining strong balance sheet and increasing FCF
(cid:115) Capitalizing on global demand growth
(cid:115)
(cid:115) Returning cash to shareowners

Investing in high return projects and strategic acquisitions

WHAT WE’LL
DO

(cid:115) Continue to grow strong, sustainable FCF
(cid:115) Expand margins and earnings in all businesses
(cid:115) Maintain cycle-average returns above cost-of-capital
(cid:115) Maintain strong balance sheet
(cid:115) Continue balanced cash allocation
(cid:115)
Increase dividend over time

0 6

DEL I V ERING RE SULT S

INDUSTRIAL
PACKAGING
THE SUCCESS OF OUR INDUSTRIAL PACKAGING
BUSINESS IS BUILT ON A SIMPLE PREMISE:
DELIVERING INCOMPARABLE CUSTOMER
VALUE DRIVES FINANCIAL RESULTS.

International Paper is the world’s leading
manufacturer of containerboard and corru-

gated packaging. The success of our indus-

trial packaging business is built on a simple

premise: delivering incomparable customer

value drives financial results. With contain-

erboard mills, converting facilities and recy-

cling centers across North America, Latin

America, Europe and Asia, this value stems from our

customers a full range of innovative solutions to meet

highly engaged employees, global footprint, state-of-the-

their most challenging shipping, storage and sales require-

art capabilities and passion for helping customers find the

ments. Our fully aligned containerboard mills and box

right solutions for their emerging business needs.

plants provide customers the consistent quality, reliability

Over the last six years, we’ve transformed our North

and total cost solutions they need to be successful which,

American industrial packaging business from an already

in turn, drives industry leading margins for International

solid $4 billion performer into a leading best-in-class per-

Paper and returns on invested capital above our cost of

former with revenues of more than $12 billion in 2013.

capital. And, unlike most of the industry, our North

Through synergy-driven, strategic acquisitions, most

American industrial packaging business isn’t dependent

recently Temple Inland in 2012, International Paper has

solely on external economic factors for continued earn-

created an enhanced and unique-to-the-industry platform

ings and margin growth. Regardless of what happens in

that gives our containerboard and corrugated packaging

the macro-economy, we’ve identified an additional $200

million in potential earnings improvement opportunities

as we turn from integrating to optimizing our North

American operations, supply chain and commercial efforts.

As part of International Paper’s global strategy to invest

in our core businesses in attractive growth markets that

will deliver above-cost-of-capital results, we entered the

With extensive talent, local presence and global
reach, our industrial packaging team delivers practi-
cal innovation that provides our customers with total
cost solutions.

PERCENTAGE OF
TOTAL REVENUE

48%

INDUSTRIAL
PACK AGING
REVENUE MIX

84%
5%

NORTH AMERICA

ASIA

EUROPE, MIDDLE-EAST
& AFRICA

BRAZIL

INTERNATIONAL PAPER COLLECTS, CONSUMES OR MARKETS
MORE THAN 6 MILLION TONS OF PAPER AND CORRUGATED
BOXES IN THE UNITED STATES EACH YEAR.

INDUSTRIAL
PACKAGING

(CONTINUED)

Brazilian corrugated packaging market in 2013 with

a 75 percent stake in Orsa International Paper

Embalagens S.A., and in March 2014 reached an

agreement to acquire the remaining 25 percent

share. This venture with Jari Celulose, Embalagens

e Papel S.A., a Grupo Orsa company, includes

three containerboard mills with 400,000 tons of

capacity and four box plants. Establishing a local

presence in the Brazilian corrugated market gives

International Paper the opportunity to leverage our

IN T ERN AT ION A L PA PER 2013 ANNUAL REPORT

0 9

International Paper’s SecureStack ®
packaging offers customers environ-
mental benefits as well as cost savings.

global corrugated packaging expertise and more than

Brown Box, Green Globe®

50 years of experience in Brazil to meet growing demand

How sustainable are the materials that go into making a

in the region. The joint venture makes us one of the top

brown corrugated box, and how can I separate fact from

three players in the largest corrugated packaging market

fiction when trying to make responsible packaging

in Latin America.

choices? International Paper’s industrial packaging busi-

International Paper’s global industrial packaging foot-

ness created the Brown Box, Green Globe® initiative to

print also includes 27 converting plants and three recy-

answer these and other sustainability-related questions

cled containerboard mills in Europe and North Africa, 22

and help correct common environmental misconceptions

converting plants in Asia, and in Russia, one container-

about boxes. For decades, brown boxes have been the

board mill and one converting plant that are part of our

premier choice for protecting everything from delicate

joint venture with Ilim Group. With a focus on creating

produce to electronics and appliances. In fact, 90 percent

value for end users, these facilities are well-positioned to

of all goods transported in the United States move in cor-

serve customers in established regions and take advan-

rugated packaging. With Brown Box, Green Globe® we

tage of growing demand in

emerging markets.

Recycling Business

With 20 recycling plants,

90 PERCENT OF ALL GOODS TRANSPORTED IN THE
UNITED STATES MOVE IN CORRUGATED PACKAGING.

International Paper is one of North America’s largest

show our customers and consumers alike that boxes are

recyclers of recovered office paper and corrugated boxes.

a natural choice for protecting the environment, too.

A long-time leader in the drive to increase the amount of

Our SecureStack® packaging is an excellent example.

paper and paper-based packaging recovered and used

SecureStack® boxes are designed to stack, ship and store

for recycling, International Paper collects, consumes or

fruits and vegetables without crushing, tipping or collaps-

markets more than 6 million tons of paper and corrugated

ing, offering International Paper’s agricultural customers

boxes in the United States each year. Using recovered

environmental benefits as well as cost savings. This

paper and packaging in recycled products extends the

efficient package design requires less wood fiber to man-

useful life of a valuable natural resource, wood fiber from

ufacture than traditional produce packaging and because

trees, and extends the useful life of landfills, too. Of

pallet stacking is optimized, freight efficiency is improved

course, using only recovered fiber in all paper products is

and transportation-related greenhouse gas emissions are

impractical; in a short time the fiber would run out and

reduced. And, like most corrugated packaging, it’s fully

the global paper supply would be unsustainable. It makes

recyclable.

good economic and environmental sense to use 100

percent recycled fiber in four of International Paper’s

industrial packaging mills, and some recycled content in

most of our other mills.

DEL I V ERING RE SULT S

CONSUMER
PACKAGING
INTERNATIONAL PAPER’S CONSUMER
PACKAGING BUSINESS OFFERS THE BEST AND
MOST INNOVATIVE PRODUCTS ON THE MARKET.

and distribution. Our hot cups, cold cups, food containers

and lids are manufactured in the United States, United

Kingdom, China, and through a joint venture agreement

in Colombia. With another year of record growth, we con-

tinued to capitalize on increasing demand for convenience

food items, outpacing the market in sales of single-use

packaging to the foodservice industry in 2013. In February

2014, we announced a multi-year, nearly $70 million

investment to increase manufacturing capacity at our

Kenton, Ohio, plant to meet this growing demand. The

demand for our foodservice products has the added pull-

through benefit of volume growth for the coated paper-

board business.

When consumers around the globe visit their local
pharmacy, grocery store or quick-service restaurant,

chances are they’ll encounter products made by

International Paper—not pharmaceuticals, cosmetics,

candy, tobacco products or food items, but the packaging

they come in. From the materials in folding cartons and

aseptic packaging to paper cups and food containers, we

deliver unique packaging solutions that help make our

customers more successful. In addition, our Carolina®

Bristols product line, used in a wide variety of applica-

tions from greeting cards and direct mail to book covers

and marketing brochures, is widely recognized and the

preferred brand among commercial printers.

In North America, we are a leading producer of solid

bleached sulfate (SBS), also known as coated paperboard,

used in a wide range of packaging and commercial printing

applications. Our coated paperboard business in Europe,

the Middle East and Africa, which includes our mills in

Kwidzyn, Poland, and Svetogorsk, Russia, produces and

markets folding boxboard across the region, as well as

liquid packaging board in Russia. And in Asia, our joint

venture with Sun Paper manufactures high-quality paper-

board to meet demand in the world’s largest and fastest

growing market. With the capacity to produce 1.4 million

tons of coated paperboard annually, our modern paper

machines and high quality standards position the joint

venture for success in this highly competitive environment.

Under the consumer packaging umbrella, the

International Paper foodservice business serves customers

across the foodservice industry in segments like quick-

service restaurants, specialty coffee, grocery/hospitality

International Paper’s Hold&Go® insulated
cups offer a ready alternative for customers
seeking more sustainable, fiber-based
packaging solutions.

IN T ERN AT ION A L PA PER 2013 ANNUAL REPORT

A Paper Cup Leader

packaging. In addition to convenience- and sustainability-

International Paper is a leading producer of paper cups in

related demand, consumer preferences related to well-

North America. One of our fastest growing products, our

ness also are having an effect. Individually wrapped cups

Hold&Go® insulated cups, continued to experience double-

for the hospitality industry are one of International Paper’s

digit growth in 2013 resulting from new business as well

fastest growing product lines, the result of increasing

as significant expansion with current customers. Overall,

health concerns about the reusable porcelain cups tradi-

our growth in the cup segment is driven by several

tionally found in hotel rooms.

competitive advantages, including the reliability of our

integrated, uninterrupted supply of paperboard for cup

Total Cost Solutions

making, International Paper’s premier technology organi-

In 2013, we initiated an investment of more than $60 mil-

zation and the intrinsic sustainability of our products.

lion in state-of-the-art technology at our Kwidzyn Mill in

Made from renewable fiber grown in responsibly managed

Poland. This upgrade expands our portfolio with a new

forests, our cups offer a ready alternative for customers

line of coated paperboard products that are lighter in

seeking more sustainable, fiber-based packaging solutions

weight but offer the same quality and strength as heavier

to meet their own sustainability goals.

grades—setting the standard for the EMEA market. For

customers, this means not only more product options,

Changing Consumer Preferences

but options that can help reduce their shipping costs and

Changing consumer preferences also are contributing to

environmental footprint. And because each ton of light-

growth in our consumer packaging business. The food-

weight paperboard includes more square meters per ton,

service industry overall is experiencing solid growth

the number of end-use packages that can be produced

fueled by consumer demand for convenience foods and

from each ton goes up, too, reducing costs even further.

beverages as part of their daily routines. Consumers also

Completed in March 2014, this project is a good example

are voicing a stronger preference for products and pack-

of International Paper’s global strategy to invest in proj-

aging made from renewable, sustainable and recyclable

ects that support strategic growth and profitability for

materials, which drives demand for more fiber-based

both our customers and our company.

PERCENTAGE OF
TOTAL REVENUE

12%

CONSUMER
PACK AGING
REVENUE MIX

57%

NORTH AMERICA

32%

ASIA

11%

EUROPE, MIDDLE-EAST
& AFRICA

DEL I V ERING RE SULT S

PRINTING
PAPERS
OUR PRINTING PAPERS BUSINESS
SPANS THE GLOBE FROM NORTH
AMERICA AND L ATIN AMERICA
TO EUROPE, RUSSIA AND INDIA.

With operations in North America, Latin America,
Europe, Russia and India, International Paper’s printing

papers business produces some of the best-known,

highest-quality paper brands in the world, including

Hammermill ®, Chamex ®, Rey ® and Svetocopy ®, and

numerous private labels. We manufacture just about

While uncoated freesheet demand is in secular decline

every form of uncoated paper used in homes and offices,

in North America, that decline is being outpaced by grow-

as well as envelopes, file folders and tags. As part of this

ing demand in emerging markets. In 2013, International

business, International Paper also produces fluff and mar-

Paper’s cumulative printing papers volume across all seg-

ket pulp for a variety of uses.

ments and regions grew faster than the global uncoated

International Paper is a leading producer of printing

freesheet market. Today, we have the right people, the

papers in North America, with capacity to manufacture

right strategies and the right assets in the right places to

approximately 1.8 million tons of uncoated freesheet and

win with customers around the globe, earn better than

specialty grades at our four paper mills in New York, South

cost-of-capital returns and generate strong free cash flow.

Carolina and Alabama. We recently repositioned our

We relocated a paper machine from a closed

North American papers business to more effectively align

International Paper mill in Scotland, moving it to the

with our product segments, customer base and market

Koryazhma Mill in Russia which is part of our 50:50 joint

demand, an effort that included the shutdown of our

venture with Ilim. This joint venture-funded investment

Courtland, Ala., paper mill in early 2014. Smaller but stron-

targets the domestic market with high-value office paper

ger, our North American papers business is now strategi-

and coated paper products and will enable International

cally positioned to successfully compete for the long term.

Paper to grow in step with paper demand in Russia, the

Commonwealth of Independent States and western

Europe. As part of our go-to-market strategy, International

Paper and the Ilim joint venture signed a joint marketing

agreement in 2013.

In Latin America, where International Paper is the lead-

ing supplier of uncoated freesheet, our papers business

continued to grow in 2013 with year-over-year shipments

in Brazil up 5 percent and EBITDA margins above 30 per-

cent. With continuing demand growth expected across

Latin America, International Paper Brazil is poised for con-

tinued growth in its domestic and regional shipments,

further improving mix and margin.

International Paper’s printing
papers business produces
some of the best-known,
highest-quality paper brands
in the world.

PERCENTAGE OF
TOTAL REVENUE

21%

PRINTING
PAPERS
REVENUE MIX

NORTH AMERICA

41%

BRAZIL

18%

INDIA

24%

EUROPE, MIDDLE-EAST
& AFRICA

1%
13%

ASIA

MARKET PULP

DEL I V ERING RE SULT S

INTERNATIONAL PAPER IS STRATEGICALLY POSITIONED
TO HELP MEET GROWING FLUFF PULP DEMAND IN
EMERGING MARKETS.

MARKET PULP
REVENUE MIX

65%

FLUFF

35%

PAPER & TISSUE

PRINTING
PAPERS (CONTINUED)

Strategic Growth Opportunities

One of International Paper’s key strategies for improving

profitability across all our businesses is to align our full

array of resources with the right customers, that is, to

support and help solve business challenges for cus-

tomers who themselves are growing in profitability and

market share. There’s no better example of this than our

relationship with Hewlett Packard Corporation in the

Europe/Middle East/Africa (EMEA) market. International

Paper is the exclusive global producer and distributor of

HP Everyday Papers. In 2013, HP paper sales in EMEA

were up 13 percent over 2012, while the overall market

in Western Europe declined 1 percent. Setting an all-time

record, sales grew in every region. What’s more, HP

papers moved up from the number four slot to number

IN T ERN AT ION A L PA PER 2013 ANNUAL REPORT

folio-size 120-pound cover stock with physi-

cal properties similar to the laminated 130-

pound product, alleviating the potential

problems. The new 120-pound product not

only led to new cover stock business for

International Paper, but

also turned out to be

well suited for uncoated

packaging applications,

which opened a new

market segment to our

Accent® brand.

three in paper brand equity rankings,

according to a respected annual bench-

marking survey of professional end-users

across seven European countries con-

ducted by Opticom International Research

AB. The HP paper brand also ranked high

AT INTERNATIONAL PAPER, INNOVATION
IS ABOUT CREATING VALUE.

on “spontaneous awareness” in larger EMEA markets

Anticipating Global Demographic Shifts

like Germany and the United Kingdom. Finding new and

Along with growing populations in emerging markets

better ways to help our customers be more successful

comes significant growth in demand for fluff pulp, the

drives results for International Paper, too. In 2013, our

soft, absorbent material used in baby diapers, feminine

EMEA papers business had strong returns that were well

hygiene products and adult incontinence products. Global

above the cost of capital.

Customer-Focused Innovation

demand for these products is expected to increase 4 per-

cent to 5 percent in 2014, and is expected to continue.

International Paper is strategically positioned to help

When it comes to paper—a product that’s been around

meet this growing demand, exporting nearly 100 percent

for more than 2,000 years—innovation might seem like a

of production from our four fluff-manufacturing mills in

thing of the past, but not at International Paper. For us,

the southeastern United States. Among these is our

innovation is about creating value: listening to our cus-

recently repurposed Franklin, Va., mill, which became

tomers, digging deep to understand their most challeng-

fully operational in 2013 with a capacity of 300,000 tons

ing paper-related needs and developing cost-effective

per year. With state-of-the-art assets, a plentiful supply

solutions that make them—and us—more successful.

of Southern Yellow Pine—the world’s best fiber for

That’s how our Accent® Opaque 120-pound cover stock

absorbent products, and easy access to low-cost U.S.

was born. Our competitors were producing 130-pound

ports, our fluff pulp business has developed top-tier

folio-size cover stock, typically used for commercial print-

supplier positions with the world’s fastest growing global

ing applications like annual reports, brochures and pocket

producers of absorbent hygiene products. The results for

folders, by gluing or laminating two 65-pound sheets

International Paper: enhanced margins and above-cost-

together. During a customer needs assessment, we

of-capital returns.

learned that these two-ply papers had the potential to

delaminate on the printing press or crack when folded or

scored, so we searched for and found a solution. Our mill

in Ticonderoga, N.Y., was able to produce a single-ply,

DEL I V ERING RE SULT S

xpedx
DISTRIBUTION
XPEDX IS ONE OF NORTH AMERICA’S LEADING
BUSINESS-TO-BUSINESS DISTRIBUTORS OF
PACKAGING, FACILITY AND PRINTING SUPPLIES,
AND EQUIPMENT.

In January 2014, International Paper signed a definitive

agreement to merge xpedx with Unisource Worldwide,

Inc., another leading North American distribution solu-

tions business. Unisource is owned by UWW Holdings

LLC, a holding company owned by an affiliate of Bain

Capital and by Georgia Pacific, as well as other affiliates.

The merger will create a new publicly traded company

with projected annual revenues of $9 billion to $10 billion,

about 9,500 team members and more than 170 distribu-

International Paper’s distribution business, xpedx,
is one of North America’s leading business-to-business

distributors of packaging, facility and printing supplies,

tion centers across North America. Bringing together

and equipment. Customers include commercial printers

these two well-established distribution businesses will

and publishers, manufacturers, retailers, facility leaders,

create a new, financially stable and strategically focused

other distributors and government agencies.

company that will be even better positioned to provide

In 2013, xpedx completed several key initiatives that

the products, services and ideas to support customers’

reduced costs and improved efficiency, including the opti-

businesses. Expected to close in mid 2014, the merger

mization of its warehouse network and the deployment

will provide excellent value for International Paper share-

of state-of-the-art warehouse management technology.

owners and is a unique opportunity to create a company

The business continued to focus on new and better ways

that is stronger and more competitive, with anticipated

to serve customers, with investments in its packaging

synergies of about $200 million.

design centers and an expanded

sales force. xpedx also launched

new branding and core product

initiatives that are driving growth

to the bottom line.

PERCENTAGE OF
TOTAL REVENUE

19%

DISTRIBUTION
REVENUE MIX

57%

28%

PACKAGING

15%

FACILITY SUPPLIES

DEL I V ERING RE SULT S

SUSTAINABILITY

AT INTERNATIONAL PAPER, WE VALUE CHARACTER
AS MUCH AS CAPABILITY, AND ARE COMMITTED
TO DOING THE RIGHT THINGS, IN THE RIGHT WAY,
FOR THE RIGHT REASONS.

International Paper’s sustainability progress is
grounded in our vision to be one of the most respected

Connections That Matter

For generations, International Paper has led the forest

and successful companies in the world and is advanced

products industry in promoting the planting and respon-

by our drive for continuous performance improvement in

sible harvesting of trees, in monitoring forest productivity

everything we do. With deliberate focus, we seek oppor-

and in conserving and protecting forest biodiversity in the

tunities to strengthen our business, conserve and protect

United States and around the globe. We partner with a

the environment, and support the communities where

number of leading non-governmental organizations to fur-

we operate.

ther these important environmental objectives.

When it comes to our packaging and paper products,

In 2013, we made a $7.5 million contribution to the

sustainability begins in the responsibly managed working

National Fish and Wildlife Foundation to create a pioneer-

forests where we source our primary raw material. These

ing partnership, the Forestland Stewards Initiative, that

forests are a renewable resource that provide the ongoing

will conserve and restore southern forestlands that repre-

supply of wood fiber needed to manufacture our products

sent some of America’s most iconic landscapes, critical

and sustain our business. In turn, the demand for our

habitats for endangered wildlife and jobs for 1 million

sustainably sourced products is an economic driver that

workers. The five-year partnership aims to restore, pro-

encourages land owners to continue managing their land

tect and enhance 200,000 acres of forests and their

responsibly instead of selling it for development or other

associated freshwater systems across eight southern

non-forest uses.

states and to promote the environmental, social and eco-

nomic value of the more than 500 million acres of U.S.

STRATEGIC COLLABORATION
INTERNATIONAL PAPER COLLABORATES WITH A NUMBER OF
ORGANIZATIONS THAT SHARE OUR VISION FOR A SUSTAINABLE FUTURE

WORLD WILDLIFE FUND

World Environment Center

FOR GENERATIONS, INTERNATIONAL PAPER
HAS LED THE FOREST PRODUCTS INDUSTRY
IN PROMOTING THE PLANTING AND
RESPONSIBLE HARVESTING OF TREES.

2 0

DEL I V ERING RE SULT S

SUSTAINABILITY

(CONTINUED)

working forests. International Paper has nine mills and

For more information on our continuing progress, please

several other facilities located in these states, affording

see our 2013 Sustainability Report, available in May 2014

our employees the opportunity for hands-on conserva-

at www.ipsustainabilityreport.com.

tion contributions in their local areas. In East Texas, we

partnered with The Conservation Fund and the Temple

The Right Things For The Right Reasons

Inland Foundation to conserve more than 19,000 acres of

At International Paper, we value character as much as

land known as Boggy Slough, one of the oldest and most

capability, and are committed to doing the right things, in

ecologically significant hardwood forests in the state.

the right way, for the right reasons. This is the foundation

Part of International Paper’s forest legacy, the property

of our operating philosophy, what we call The IP Way.

spans 18 miles of river frontage along the Neches River,

Our sustainability policies, strategies and practices are

including 4,500 acres of riverside forestland that have

inextricably woven into the fabric of who International

remained virtually untouched for decades. International

Paper is and what we stand for. We believe those who

Paper also joined the Global Forest & Trade Network—

work for and with International Paper do so not only

North America (GFTN-NA), a World Wildlife Fund initia-

because of the value we provide, but because of the

tive focused on eliminating illegal logging and promoting

vision, mission and values by which we operate. These

environmentally and socially responsible forest manage-

values include our commitments to uphold the highest

ment. Our participation in the GFTN-NA builds on our

ethical standards, to drive for continuous improvement in

work to eliminate illegal logging through our support and

our results and to sustain our world.

promotion of the U.S. Lacey Act and the EU Timber

Regulation. The initial scope of International Paper’s par-

WITH DELIBERATE FOCUS, WE SEEK
OPPORTUNITIES TO STRENGTHEN OUR
BUSINESS, CONSERVE AND PROTECT
THE ENVIRONMENT, AND SUPPORT THE
COMMUNITIES WHERE WE OPERATE.

ticipation in the GFTN includes fiber sourced

for our North American and Brazilian mills,

representing more than two-thirds of our

global fiber volume.

A Life Cycle Approach

Beyond the forest, International Paper’s sus-

tainability commitment extends throughout

the life cycle of our products. We believe that

transparency and accountability are a critical

part of this commitment, so we set 12 volun-

tary goals to measure and track our progress.

They serve as our yardstick for improving our

efficient use of resources, increasing third-

party certified fiber use, reducing environmen-

tal emissions and discharges, evaluating our

solid waste generation and mitigation, and

encouraging more wood fiber recovery for recy-

cling, especially in the communities where we oper-

ate recycling facilities. Our goals also include measuring

the wide-ranging support we provide to the com-

munities where we operate and, most important of

all, to be an injury-free workplace. With an initial

target achievement date of 2020, we’ve already

surpassed three of these goals—for third-party

fiber certification, water quality and air emissions.

IN T ERN AT ION A L PA PER 2013 ANNUAL REPORT

OUR PEOPLE

INTERNATIONAL PAPER’S PEOPLE ARE OUR MOST VALUABLE
ASSET AND THE PRIMARY DRIVER OF OUR SUCCESS.

International Paper’s people are our most valuable asset and the primary driver of our success. Day
in and day out, they deliver the enthusiasm, leadership and strong execution that creates value for our

shareowners, customers and the communities where we operate. We’re committed to providing them

with a diverse and inclusive work environment. We also motivate and reward results and leadership with

challenging and diverse career assignments where people are inspired to do their best work and develop

to their full potential. Safety is a core value at International Paper. Through our LIFE (Life-changing Injury

and Fatality Elimination) initiative we’ve engaged our employees to be more aware of and accountable

for their own safety and the safety of their fellow employees. In 2013, the result was a 20 percent year-

over-year decrease in employee LIFE incidents. We’re proud of our industry-leading safety performance,

but will not be satisfied until we reach our ultimate goal of zero people injured at work.

2 2

DEL I V ERING RE SULT S

AWARDS

AT INTERNATIONAL PAPER, WE ARE PROUD OF THE PRESTIGIOUS
HONORS AND RECOGNITION WE HAVE RECEIVED. THE FOLLOWING
ACCOLADES SUPPORT OUR VISION TO BECOME ONE OF THE MOST
RESPECTED AND SUCCESSFUL COMPANIES IN THE WORLD.

INTERNATIONAL PAPER GLOBAL

FORTUNE® MAGAZINE
WORLD’S MOST ADMIRED
COMPANIES® 2014
Ranked #1 in the Forest and
Paper Products industry for the
11th time in the last 12 years

™

ETHISPHERE INSTITUTE
WORLD’S MOST ETHICAL
COMPANIES® 2014
Named among the Ethisphere
Institute’s World’s Most Ethical
Companies® for the 8th year in
a row

INTERNATIONAL PAPER EUROPE, MIDDLE EAST and AFRICA

BUSINESS CENTRE CLUB
DIAMOND TO THE GOLDEN
STATUETTE OF THE POLISH
BUSINESS LEADER 2013
Recognized as one of Poland’s
most dynamically developing
companies

POLISH CHAMBER OF COMMERCE, INSTITUTE
FOR PRIVATE ENTERPRISE AND DEMOCRACY,
BUSINESS FAIR PLAY AWARD WITH SPECIAL
ENVIRONMENTAL RECOGNITION 2013
Recognized as a champion for ethical business practices
for the 14th consecutive year

INTERNATIONAL PAPER BRAZIL

ORSA INTERNATIONAL PAPER EMBALAGENS S.A.

GUIA EXAME VOCÊ S.A.
BEST COMPANIES TO
WORK FOR 2013
Named one of the 150 best
companies to work for in Brazil
for the 8th time

EMBANEWS MAGAZINE
ROBERTO HIRAISHI TROPHY 2013
Named the best company in the Brazilian
packaging industry

INTERNATIONAL PAPER INDIA

WORLD CORPORATE SOCIAL
RESPONSIBILITY CONGRESS
AWARD FOR CORPORATE
SOCIAL RESPONSIBILITY—
RURAL DEVELOPMENT 2013
Received global recognition for
social development and enrichment
efforts in India

FINANCIAL HIGHLIGHTS

In millions, except per share amounts, at December 31

FINANCIAL SUMMARY
Net Sales
Operating Profit
Earnings from Continuing Operations Before Income Taxes and

Equity Earnings

Net Earnings
Net Earnings Attributable to Noncontrolling Interests
Net Earnings Attributable to International Paper Company
Total Assets
Total Shareholders’ Equity Attributable to International Paper Company
PER SHARE OF COMMON STOCK
Basic Earnings Per Share Attributable to International Paper Company

Common Shareholders

Diluted Earnings Per Share Attributable to International Paper Company

Common Shareholders

Cash Dividends
Common Shareholders’ Equity
SHAREHOLDER PROFILE
Shareholders of Record at December 31
Shares Outstanding at December 31
Average Common Shares Outstanding
Average Common Shares Outstanding—Assuming Dilution

2013

2012

$29,080

1,844(a)

$27,833

1,955(a)

849(b)
1,378(b,c)
(17)
1,395(b,c)

31,528
8,105

1,024(d)
799(d,e)
5
794(d,e)

32,153
6,304

$ 3.15(b,c)

$ 1.82(d,e)

$ 3.11(b,c)
1.2500
18.57

$ 1.80(d,e)
1.0875
14.33

14,169
436.3
443.3
448.1

15,111
439.8
435.2
440.2

(a) See the reconciliation of net earnings (loss) attributable to International Paper Company to its total industry segment operating profit on

page 22 and the operating profit table on page 90 for details of operating profit by industry segment.

(b) Includes restructuring and other charges of $210 million before taxes ($131 million after taxes) including pre-tax charges of $25 million ($16
million after taxes) for early debt extinguishment costs, pre-tax charges of $32 million ($19 million after taxes) for costs associated with the
restructuring of the Company’s xpedx operations, pre-tax charges of $118 million ($72 million after taxes) for costs associated with the
announced shutdown of our Courtland, Alabama mill, a pre-tax gain of $30 million ($19 million after taxes) for insurance reimbursements
related to the 2012 Guaranty Bank legal settlement, a pre-tax charge of $45 million ($28 million after taxes) for costs associated with the
permanent shutdown of a paper machine at our Augusta, Georgia mill, pre-tax charges of $22 million ($14 million after taxes) for costs
associated with the spin-off of our xpedx operations and a net pre-tax gain of $2 million (a loss of $1 million after taxes) for other items. Also
included are a pre-tax goodwill impairment charge of $400 million ($366 million after taxes) related to our xpedx business, a pre-tax good-
will and trade name intangible asset impairment of $127 million ($122 million after taxes) related to our India Papers business, pre-tax
charges of $9 million ($5 million after taxes) to adjust the value of two Company airplanes to fair value, pre-tax charges of $62 million ($38
million after taxes) for integration costs associated with the acquisition of Temple-Inland, pre-tax charges of $6 million ($4 million after
taxes) for an environmental reserve related to the Company’s property in Cass Lake, Minnesota, and a gain of $13 million (before and after
taxes) related to a bargain purchase adjustment on the acquisition of a majority share of our operations in Turkey.

(c) Includes a tax benefit of $744 million associated with the closings of U.S. federal tax audits, a tax benefit of $31 million for an income tax

reserve release and a net tax loss of $1 million for other items.

(d) Includes restructuring and other charges of $109 million before taxes ($70 million after taxes) including pre-tax charges of $48 million ($30
million after taxes) for early debt extinguishment costs, pre-tax charges of $44 million ($28 million after taxes) for costs associated with the
restructuring of the Company’s xpedx operations, and pre-tax charges of $17 million ($12 million after taxes) for costs associated with the
restructuring of the Company’s Packaging business in EMEA. Also included are a pre-tax charge of $20 million ($12 million after taxes)
related to the write-up of the Temple-Inland inventories to fair value, pre-tax charges of $164 million ($108 million after taxes) for integration
costs associated with the acquisition of Temple-Inland, a pre-tax charge of $62 million ($38 million after taxes) to adjust the long-lived
assets of the Hueneme mill in Oxnard, California to their fair value in anticipation of its divestiture, and pre-tax charges of $29 million ($55
million after taxes) for costs associated with the divestiture of three containerboard mills.

(e) Includes a net tax expense of $14 million related to internal restructurings and a $5 million expense to adjust deferred tax assets related to

post-retirement prescription drug coverage (Medicare Part D reimbursement).

RECONCILIATION OF NON-GA AP FINANCIAL MEASURES
For reconciliations of free cash flow to cash provided by operations, see page 35.

For reconciliations of Operating Earnings per share attributable to International Paper Company common
shareholders to diluted earnings (loss) per share attributable to International Paper Company common
shareholders, see page 21.

In millions, at December 31

2013

2012

2011

CALCULATION OF EBITDA BEFORE SPECIAL ITEMS
Earnings from Continuing Operations Before Interest, Income Taxes,
Equity Earnings and Cumulative Effect of Accounting Changes

Depreciation, amortization and cost of timber harvested
Special Items:
Restructuring and other charges
Net (gains) losses on sales and impairments of business held for sale

Impairment of Goodwill and other intangibles

Non-operating pension expense
EBITDA BEFORE SPECIAL ITEMS

$1,461
1,547

$1,696
1,486

$1,999
1,332

278
(10)
527
323

298
86
—
159

132
218
—
43

4,126

3,725

3,724

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________________
FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 for the fiscal year ended December 31, 2013

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from to

Commission File No. 1-3157
INTERNATIONAL PAPER COMPANY

(Exact name of registrant as specified in its charter)

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

New York

13-0872805

6400 Poplar Avenue
Memphis, Tennessee
(Address of principal executive offices)

38197
(Zip Code)

Registrant’s telephone number, including area code: (901) 419-7000
_____________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Common Stock, $1 per share par value

Name of each exchange on which registered

New York Stock Exchange

_____________________________________________________

Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

(Do not check if a smaller
reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes

The aggregate market value of the Company’s outstanding common stock held by non-affiliates of the registrant, computed by reference to the
closing price as reported on the New York Stock Exchange, as of the last business day of the registrant’s most recently completed second fiscal
quarter (June 30, 2013) was approximately $19,567,052,215.

The number of shares outstanding of the Company’s common stock as of February 19, 2014 was 438,800,916.

Documents incorporated by reference:

Portions of the registrant’s proxy statement filed within 120 days of the close of the registrant’s fiscal year in connection with registrant’s 2014
annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.

INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2013

PART I.

ITEM 1.

ITEM 1A.
ITEM 1B.
ITEM 2.

ITEM 3.
ITEM 4.

PART II.

ITEM 5.

ITEM 6.
ITEM 7.

BUSINESS.
General
Financial Information Concerning Industry Segments
Financial Information About International and U.S. Operations
Competition and Costs
Marketing and Distribution
Description of Principal Products
Sales Volumes by Product
Research and Development
Environmental Protection
Climate Change
Employees
Executive Officers of the Registrant
Raw Materials
Forward-looking Statements

RISK FACTORS.
UNRESOLVED STAFF COMMENTS.
PROPERTIES.
Forestlands
Mills and Plants
Capital Investments and Dispositions

LEGAL PROCEEDINGS.
MINE SAFETY DISCLOSURES.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
SELECTED FINANCIAL DATA.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

Executive Summary
Corporate Overview
Results of Operations
Description of Industry Segments
Industry Segment Results
Liquidity and Capital Resources
Critical Accounting Policies and Significant Accounting Estimates
Recent Accounting Developments
Legal Proceedings
Effect of Inflation
Foreign Currency Effects
Market Risk

1
1
1
2
2
2
2
3
4
4
4
5
6
7
7
7
12
12
12
12
12
13
13

14
16

20
20
23
24
27
29
34
39
42
43
43
43
43

INTERNATIONAL PAPER COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2013

ITEM 7A.

ITEM 8.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Management on Financial Statements, Internal Control over
Financial Reporting and Internal Control Environment and Board of
Directors Oversight
Reports of Deloitte & Touche LLP, Independent Registered Public
Accounting Firm
Consolidated Statement of Operations
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to Consolidated Financial Statements
Interim Financial Results (Unaudited)

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
CONTROLS AND PROCEDURES.
OTHER INFORMATION.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
EXECUTIVE COMPENSATION.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.

ITEM 9.

ITEM 9A.
ITEM 9B.

PART III.

ITEM 10.
ITEM 11.
ITEM 12.

ITEM 13.

ITEM 14.

PART IV.

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

Additional Financial Data
Schedule II – Valuation and Qualifying Accounts

APPENDIX I

APPENDIX II

SIGNATURES
2013 LISTING OF FACILITIES
2013 CAPACITY INFORMATION

44
45

47
49
50
51
52
53
54
92

95
95
96

96
97

97
97

97
97
101
102
A-1
A-4

PART I.

ITEM 1. BUSINESS

GENERAL

International Paper Company (the “Company” or
“International Paper,” which may also be referred to as
“we” or “us”) is a global paper and packaging company
that is complemented by an extensive North American
merchant distribution system, with primary markets and
manufacturing operations in North America, Europe,
Latin America, Russia, Asia, Africa and the Middle East.
We are a New York corporation, incorporated in 1941
as the successor to the New York corporation of the
same name organized in 1898. Our home page on the
Internet is www.internationalpaper.com. You can learn
more about us by visiting that site.

In the United States, at December 31, 2013, the
Company operated 25 pulp, paper and packaging mills,
181 converting and packaging plants, 18 recycling
plants and three bag facilities. Production facilities at
December 31, 2013 in Europe, Asia, Africa, India, Latin
America and South America included 16 pulp, paper
and packaging mills, 72 converting and packaging
plants, and two recycling plants. We distribute printing,
packaging, graphic arts, maintenance and industrial
products principally
through over 81 distribution
branches in the United States and 17 distribution
branches located in Mexico and Asia. At December 31,
2013, we owned or managed approximately 332,000
acres of forestland in Brazil and had, through licenses
and forest management agreements, harvesting rights
on government-owned
in Russia.
Substantially all of our businesses have experienced,
and are likely to continue to experience, cycles relating
to industry capacity and general economic conditions.

forestlands

For management and financial reporting purposes, our
businesses are separated into four segments: Industrial
Packaging; Printing Papers; Consumer Packaging; and
Distribution. A description of these business segments
can be found on pages 27 through 29 of Item 7.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations. The Company’s
50% equity interest in Ilim Holding S.A. is also a
separate reportable industry segment.

On January 28, 2014, we announced that International
Paper, xpedx Holding Company (“SpinCo”), a company
we recently formed to hold xpedx, the business of which
comprises our Distribution segment, UWW Holdings,
Inc. (“Unisource”) and related entities had entered into
a merger agreement, a contribution and distribution
agreement and related agreements, providing for the
pro rata, tax-free, spin-off distribution of shares of
common stock of SpinCo to International Paper’s
shareholders and the merger of Unisource with and into
SpinCo with SpinCo as the surviving company in the

merger. As a result of the spin-off distribution and the
merger, International Paper’s shareholders will own
approximately 51%, and the sole shareholder of
Unisource will own approximately 49%, of the shares
of common stock of SpinCo on a fully diluted basis. We
anticipate that the spin-off distribution and the merger
will be completed in mid-2014. You can find discussions
of the transaction in Item 1A. Risk Factors - Risks
Relating to Our Operations and Item 7. Management’s
Discussion and Analysis of Financial Condition and
Results of Operations - Description of
Industry
Segments.

From 2009 through 2013, International Paper’s capital
expenditures approximated $5.0 billion, excluding
mergers and acquisitions. These expenditures reflect
our continuing efforts to improve product quality and
environmental performance, as well as lower costs,
maintain
improve
reliability of operations and
forestlands. Capital spending for continuing operations
in 2013 was approximately $1.2 billion and is expected
to be approximately $1.4 billion in 2014. You can find
more information about capital expenditures on page
35 of Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.

Discussions of acquisitions can be found on pages 35
through 37 of Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations.

You can find discussions of restructuring charges and
other special items on pages 25 through 27 of Item 7.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations.

Throughout this Annual Report on Form 10-K, we
“incorporate by reference” certain information in parts
of other documents filed with the Securities and
Exchange Commission (SEC). The SEC permits us to
disclose important information by referring to it in that
manner. Please refer to such information. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K, along with all other
reports and any amendments thereto filed with or
furnished to the SEC, are publicly available free of
charge on the Investor Relations section of our Internet
Web site at www.internationalpaper.com as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. The information
contained on or connected to our Web site is not
incorporated by reference into this Form 10-K and
should not be considered part of this or any other report
that we filed with or furnished to the SEC.

FINANCIAL INFORMATION CONCERNING
INDUSTRY SEGMENTS

The financial information concerning segments is set
forth in Note 19 Financial Information by Industry

MARKETING AND DISTRIBUTION

The Company sells paper, packaging products and
other products directly to end users and converters, as
well as through agents, resellers and paper distributors.
We own a large merchant distribution business that
sells products made both by International Paper and by
other
companies making paper, paperboard,
packaging, graphic arts supplies and maintenance and
industrial products. Sales offices are located throughout
the United States as well as internationally.

DESCRIPTION OF PRINCIPAL PRODUCTS

The Company’s principal products are described on
pages 27
Item 7. Management’s
Discussion and Analysis of Financial Condition and
Results of Operations.

through 29 of

Segment and Geographic Area on pages 89 through
91 of Item 8. Financial Statements and Supplementary
Data.

FINANCIAL INFORMATION ABOUT
INTERNATIONAL AND U.S. OPERATIONS

The financial information concerning international and
U.S. operations and export sales is set forth in Note 19
Financial
Industry Segment and
Geographic Area on page 91 of Item 8. Financial
Statements and Supplementary Data.

Information by

COMPETITION AND COSTS

The markets in the pulp, paper and packaging product
lines are large and fragmented. The major markets,
both U.S. and non-U.S., in which the Company sells its
principal products are very competitive. Our products
compete with similar products produced by other forest
products companies. We also compete, in some
instances, with companies in other industries and
against substitutes for wood and wood-fiber products.

Many factors influence the Company’s competitive
position, including price, cost, product quality and
services. You can find more information about the
impact of these factors on operating profits on pages
20 through 34 of Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations. You can find information about the
Company’s manufacturing capacities on page A-4 of
Appendix II.

SALES VOLUMES BY PRODUCT

Sales volumes of major products for 2013, 2012 and 2011 were as follows:

Sales Volumes by Product (1)

In thousands of short tons
Industrial Packaging

North American Corrugated Packaging (2)
North American Containerboard (2)
North American Recycling
North American Saturated Kraft
North American Gypsum/Release Kraft (2)
North American Bleached Kraft
EMEA Industrial Packaging (3)
Asian Box
Brazilian Packaging (4)
Industrial Packaging

Printing Papers

U.S. Uncoated Papers
European and Russian Uncoated Papers
Brazilian Uncoated Papers
Indian Uncoated Papers
Uncoated Papers

Market Pulp (5)
Consumer Packaging

North American Consumer Packaging
European and Russian Coated Paperboard
Asian Coated Paperboard
Consumer Packaging

2013

2012

2011

10,393
3,273
2,379
176
157
132
1,342
416
297
18,565

2,508
1,413
1,150
232
5,303
1,711

1,556
355
1,430
3,341

10,523
3,228
2,349
166
135
114
1,032
410
—
17,957

2,617
1,286
1,165
246
5,314
1,593

1,507
372
1,059
2,938

7,424
2,371
2,435
161
—
95
1,047
444
—
13,977

2,616
1,218
1,141
49
5,024
1,410

1,560
332
998
2,890

(1)
(2)
(3)
(4)
(5)

Includes third-party and inter-segment sales and excludes sales of equity investees.
Includes Temple-Inland volumes from date of acquisition in February 2012.
Includes Turkish box plants beginning in Q1 2013 when a majority ownership was acquired.
Includes Brazil Packaging from date of acquisition in mid- January 2013.
Includes internal sales to mills.

RESEARCH AND DEVELOPMENT

The Company operates its primary research and
development center in Loveland, Ohio, as well as
several product laboratories. Additionally, the Company
has an interest in ArborGen, Inc., a joint venture with
certain other forest products companies.

packaging

We direct research and development activities to short-
term, long-term and technical assistance needs of
customers and operating divisions, and to process,
equipment and product innovations. Activities include
product development within the operating divisions;
studies on innovation and improvement of pulping,
bleaching, chemical recovery, papermaking, converting
and coating processes; packaging design and materials
systems,
development; mechanical
environmentally sensitive printing inks and reduction of
environmental discharges; re-use of raw materials in
manufacturing processes; recycling of consumer and
packaging paper products; energy conservation;
applications of computer controls to manufacturing
operations; innovations and improvement of products;
and development of various new products. Our
development efforts specifically address product safety
as well as the minimization of solid waste. The cost to
the Company of
its research and development
operations was $18 million in 2013, $13 million in 2012
and $13 million in 2011.

We own numerous patents, copyrights, trademarks,
trade secrets and other intellectual property rights
relating to our products and to the processes for their
production. We also license intellectual property rights
to and from others where necessary. Many of the
manufacturing processes are among our trade secrets.
Some of our products are covered by U.S. and non-
U.S. patents and are sold under well known trademarks.
We derive a competitive advantage by protecting our
trade secrets, patents,
trademarks and other
intellectual property rights, and by using them as
required to support our businesses.

ENVIRONMENTAL PROTECTION

impacts on

International Paper is subject to extensive federal and
state environmental regulation as well as similar
regulations internationally. Our continuing objectives
include: (1) controlling emissions and discharges from
our facilities into the air, water and groundwater to avoid
the environment, and
adverse
(2) maintaining compliance with applicable laws and
regulations. The Company spent $61 million in 2013 for
capital projects to control environmental releases into
the air and water, and to assure environmentally sound
management and disposal of waste. We expect to
spend approximately $140 million in 2014 for similar
capital projects, including expenditures associated with
the U.S. Environmental Protection Agency's (EPA)
Boiler MACT (maximum achievable control technology)

for

expenditures

regulations. Capital
2015
environmental capital projects are anticipated to be
approximately $160 million, including Boiler MACT
costs. Capital expenditures for 2016 environmental
capital projects are estimated to be $110 million,
including Boiler MACT costs. On January 31, 2013, the
EPA issued the final Boiler MACT suite of regulations.
These regulations require owners of specified boilers
to meet revised air emissions standards for certain
substances. Several lawsuits have been filed to
challenge all or portions of the Boiler MACT regulations.
As such, the projected capital expenditures for
environmental capital projects represent our current
best estimate of
the
recognition that the Boiler MACT regulations are
subject to change.

future expenditures with

In the U.S., air quality regulations finalized by the EPA
during 2013 are not expected to have a material impact
on the Company. To date, revisions to National Ambient
Air Quality Standards (NAAQS) for sulfur dioxide (SO2),
nitrogen dioxide (NO2), and fine particulate (PM2.5)
finalized between 2010 and 2012 have not had a
material
the Company. Regulations
addressing specific implementation issues related to
the SO2 NAAQS are being developed by the EPA and
are expected to be finalized during the next two years.
Potentially material capital
investment might be
required in response to these emerging requirements.

impact on

CLIMATE CHANGE

Climate change refers to any significant change in the
measure of the earth’s climatic conditions such as
temperature, precipitation, or winds that persist for
decades or longer. Climate change can be caused by
natural factors, such as changes in the sun’s intensity
and ocean circulation, and human activities can also
affect the composition of the earth’s atmosphere, such
as from the burning of fossil fuels. In an effort to mitigate
the potential of climate change impacts from human
activities, various international, national and sub-
national (regional, state and local) governmental
actions have been undertaken. Presently, these efforts
have not materially impacted International Paper, but
such efforts might have a material impact on the
Company in the future.

International Efforts

In 1997, the Kyoto Protocol established emission
reduction obligations for certain countries where the
Company had and continues to have operations.
Though the Kyoto Protocol expired in 2012, several
countries, and most notably the European Union (EU),
extended their emissions commitments until 2020. A
successor program to the Kyoto Protocol is the subject
of on-going international negotiations. It is not yet clear
if these negotiations will result in a new International

Climate Change Agreement and, if so, what form it will
take. Due to this uncertainty, it is not possible at this
time to estimate the potential impacts of future
international agreements on the Company.

To assist member countries in meeting obligations
under the Kyoto Protocol, the EU established and
continues to operate an Emissions Trading System (EU
ETS). Currently, we have two sites directly subject to
regulation under Phase III of the EU ETS, one in Poland
and one in France. Other sites that we operate in the
EU experience indirect impacts of the EU ETS through
purchased power pricing. Neither the direct nor indirect
impacts of the EU ETS have been material to the
company, but they could be material to the company in
the future depending on how allocation of and market
prices for greenhouse gas (GHG) credits evolve over
the coming years.

National Efforts

(through

transportation

In the U.S., the Kyoto Protocol was not ratified and
Congress has not passed GHG legislation. The U.S.
EPA has acted regulatorily to control GHGs from mobile
fuel efficiency
sources
standards) and requires reporting of GHGs from
sources of GHGs greater than 25,000 tons per year. In
2013, the Company reported to EPA the GHG
emissions from 23 of our U.S. manufacturing sites and
7 landfills. In 2010, EPA issued GHG regulations for
new and modified sources under the New Source
Review and Title V Operating Permit programs.
However, EPA deferred the applicability of these GHGs
regulations to biomass emissions until the summer of
2014 to allow a Science Advisory Board (SAB) to
provide input to EPA on how to incorporate the concept
of carbon neutrality for biomass into their regulatory
processes. Before EPA could act on the SAB report,
the U.S. Court of Appeals for the District of Columbia
ruled that the EPA could not administratively defer
regulation of biomass GHG emissions. The mandate
for the biomass deferral vacature has yet to be acted
upon and thus it is unclear how EPA will incorporate the
decision into climate change regulations.

EPA has also issued final regulations establishing New
Source Performance Standards (NSPS) for new
Electrical Generating Units (EGUs). This regulation is
the first of several expected NSPSs that EPA will
implement over the coming years. Currently, the EPA
has not identified the pulp and paper industry in the first
phase of sectors to be covered by the new standards.
However, we anticipate that at some future time pulp
and paper sources will be subject to new GHG NSPS
rules. It is unclear what impacts, if any, future GHG
NSPS rules will have on the Company’s operations.

State, Regional and Local Measures

A few U.S. states have enacted or are considering legal
measures to require the reduction of emissions of
greenhouse gases by companies and public utilities,
primarily through the development of greenhouse gas
emission inventories or regional GHG cap-and-trade
programs. One such state is California. The Company
does not have any sites currently subject to California's
GHG regulatory plan. There may be indirect impacts
from changing input costs (such as electricity) at some
of our California converting operations but these have
yet to manifest themselves in material impacts.
Although we are monitoring proposed programs in other
states, it is unclear what impacts, if any, state level GHG
rules will have on the Company’s operations.

Summary

Regulation of greenhouse gases continues to evolve in
various countries in which we do business. While it is
likely that there will be increased governmental action
regarding greenhouse gases and climate change, at
this time it is not reasonably possible to estimate either
a timetable for the implementation of any new
regulations or our costs of compliance. In addition to
possible direct impacts, future legislation and regulation
could have indirect impacts on International Paper,
such as higher prices for transportation, energy and
other inputs, as well as more protracted air permitting
processes, causing delays and higher costs
to
implement capital projects. International Paper has
controls and procedures in place to stay adequately
informed about developments concerning possible
climate change legislation and regulation in the U.S.
and in other countries where we operate. We regularly
assess whether such legislation or regulation may have
a material effect on the Company, its operations or
financial condition, and whether we have any related
disclosure obligations.

Additional information regarding climate change and
International Paper, including our emissions for 2013,
are available in our Sustainability Report found at http://
www .internationalpaper
this
Sustainability/SustainabilityReport.html,
information is not incorporated by reference into this
Form 10-K and should not be considered part of this or
any other report that we file with or furnish to the SEC.

.com/US/EN/Company/

though

EMPLOYEES

As of December 31, 2013, we had approximately
69,000 employees, 39,000 of whom were located in the
United States. Of the U.S. employees, approximately
26,000 are hourly, with unions
representing
approximately 15,500 employees. Approximately
12,000 of the union employees are represented by the
United Steel Workers (USW).

benefit

International Paper and the USW have negotiated two
master agreements covering our USW represented
mills and converting facilities, respectively. These
master agreements cover several specific items,
including wages,
programs,
select
successorship, employment security, and health and
safety. Individual facilities continue to have local
agreements for other subjects not covered by the
master agreements. If local facility agreements are not
successfully negotiated at the time of expiration, under
the terms of the master agreements the local contracts
will automatically renew with the same terms in effect.
The mill master agreement covers 18 of our U. S. pulp,
paper, and packaging mills; the converting agreement
includes 63 of our converting facilities. In addition,
International Paper is party to a master agreement with
District Council 2,
International Brotherhood of
Teamsters, covering 16 additional converting facilities.

local

During 2013, 36
labor agreements were
negotiated at 13 mills, 21 converting facilities and two
distribution facilities. In 2014, 50 labor agreements are
scheduled to be negotiated, including seven mills, 30
converting facilities and 13 distribution facilities. Thirty-
one of these agreements will automatically renew under
the terms of the applicable master agreement if new
agreements are not reached.

EXECUTIVE OFFICERS OF THE REGISTRANT

John V. Faraci, 64, chairman and chief executive officer
since 2003. Mr. Faraci joined International Paper in
1974.

C. Cato Ealy, 57, senior vice president - corporate
development since 2003. Mr. Ealy is a director of Ilim
Holding S.A., a Swiss holding company in which
International Paper holds a 50% interest, and of its
subsidiary, Ilim Group. Mr. Ealy joined International
Paper in 1992.

William P. Hoel, 57, senior vice president, Container
The Americas, since February 2012. Mr. Hoel
previously served as vice president, Container The
Americas, from 2005 until 2012, senior vice president,
corporate sales and marketing, from 2004 until 2005,
and vice president, Wood Products, from 2000 until
2004. Mr. Hoel joined International Paper in 1983.

Tommy S. Joseph, 54, senior vice president -
technology, EHS&S and global
manufacturing,
sourcing since January 2010. Mr. Joseph previously
served as senior vice president - manufacturing,
technology, EHS&S
from February 2009 until
December 2009, and vice president - technology from
2005 until February 2009. Mr. Joseph is a director of
Ilim Holding S.A., a Swiss Holding Company in which
International Paper holds a 50% interest, and of its
subsidiary, Ilim Group. Mr. Joseph joined International
Paper in 1983.

Thomas G. Kadien, 57, senior vice president -
consumer packaging and IP Asia since January 2010.
Mr. Kadien previously served as senior vice president
and president - xpedx from 2005 until 2009. Mr. Kadien
joined International Paper in 1978. Mr. Kadien serves
on the board of directors of The Sherwin-Williams
Company.

Paul J. Karre, 61, senior vice president - human
resources and communications since May 2009. Mr.
Karre previously served as vice president - human
resources from 2000 until 2009. Mr. Karre joined
International Paper in 1974.

Mary A. Laschinger, 53, senior vice president since
2007 and president - xpedx since January 2010. Ms.
Laschinger previously served as president - IP
Europe, Middle East, Africa and Russia from 2005
until 2010. Ms. Laschinger joined International Paper
in 1992. Ms. Laschinger serves on the board of
directors of the Kellogg Company.

Tim S. Nicholls, 52, senior vice president - printing
and communications papers of the Americas since
November 2011. Mr. Nicholls previously served as
senior vice president and chief financial officer from
2007 until 2011 and vice president and executive
project leader of IP Europe during 2007. Mr. Nicholls
served as vice president and chief financial officer -
IP Europe from 2005 until 2007. Mr. Nicholls joined
International Paper in 1991.

Jean-Michel Ribieras, 51, senior vice president and
president - IP Europe, Middle East, Africa and Russia
since June 2013. Mr. Ribieras previously served as
president - IP Latin America from 2009 until 2013. Mr.
Ribieras is a director of Ilim Holding S.A., a Swiss
holding company in which International Paper holds
a 50% interest, and of its subsidiary, Ilim Group. Mr.
Ribieras joined International Paper in 1993.

Carol L. Roberts, 54, senior vice president and chief
financial officer since November 2011. Ms. Roberts
previously served as senior vice president - industrial
packaging from 2008 until 2011 and senior vice
president - IP packaging solutions from 2005 until
2008. Ms. Roberts serves on the board of directors of
Alcoa Inc. and Ilim Holding S.A., a Swiss holding
company in which International Paper holds a 50%
interest, and of its subsidiary, Ilim Group. Ms. Roberts
joined International Paper in 1981.

Sharon R. Ryan, 54, senior vice president, general
counsel and corporate secretary since November
2011. Ms. Ryan previously served as senior vice
president, acting general counsel and corporate
secretary from May 2011 until November 2011, and
as vice president from March 2011 until May 2011.
Ms. Ryan served as associate general counsel, chief
ethics and compliance officer from 2009 until 2011,

and as associate general counsel from 2006 until
2011. Ms. Ryan joined International Paper in 1988.

Mark S. Sutton, 52, senior vice president - industrial
packaging since November 2011. Mr. Sutton
previously served as senior vice president - printing
and communications papers of the Americas from
2010 until 2011, senior vice president - supply chain
from 2008 to 2009, and vice president - supply chain
from 2007 until 2008. Mr. Sutton served as vice
president - strategic planning from 2005 until 2007.
Mr. Sutton joined International Paper in 1984.

RAW MATERIALS

Raw materials essential to our businesses include
wood fiber, purchased in the form of pulpwood, wood
chips and old corrugated containers (OCC), and certain
including caustic soda and starch.
chemicals,
Information concerning
fiber supply purchase
agreements that were entered into in connection with
the Company’s 2006 Transformation Plan and the
CBPR acquisition in 2008 is presented in Note 11
Commitments and Contingent Liabilities on page 68
Item 8. Financial Statements and
and 69 of
Supplementary Data.

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-
K 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
increases 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 a joint venture; (vii) the receipt of
governmental and other approvals and favorable
rulings associated with the agreed-upon transaction
combining xpedx with Unisource, the successful
fulfillment or waiver of all other closing conditions for
transaction without unexpected delays or
the
conditions, and the successful closing of the transaction
within the estimated timeframe; and (viii) our ability to
achieve the benefits we expect from all strategic
acquisitions, divestitures and restructurings. These and
other factors that could cause or contribute to actual
results differing materially from such forward looking
statements are discussed in greater detail below in
“Item 1A. Risk Factors.” We undertake no obligation to
publicly update any
forward-looking statements,
whether as a result of new information, future events or
otherwise.

than historical

All financial information and statistical measures
regarding our 50/50 Ilim joint venture in Russia (“Ilim”),
other
International Paper Equity
Earnings and dividends received by International
Paper, have been prepared by the management of Ilim.
Ilim management has indicated that the financial
information was prepared
in accordance with
International Financial Reporting Standards and
financial statements, but
extracted
International Paper has not verified or audited any of
this information. Any projected financial information and
statistical measures reflect the current views of Ilim
management and are subject to risks and uncertainties
that could cause actual results to differ materially from
those expressed or implied by such projections.

Ilim’s

from

ITEM 1A. RISK FACTORS

In addition to the risks and uncertainties discussed
elsewhere in this Annual Report on Form 10-K
(particularly in Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations), or in the Company’s other filings with the
Securities and Exchange Commission, the following
are some important factors that could cause the
Company’s actual results to differ materially from those
projected in any forward-looking statement.

RISKS RELATING TO INDUSTRY CONDITIONS

CHANGES IN THE COST OR AVAILABILITY OF RAW
MATERIALS, ENERGY AND TRANSPORTATION
COULD AFFECT OUR PROFITABILITY. We rely
heavily on the use of certain raw materials (principally
virgin wood fiber, recycled fiber, caustic soda and
starch), energy sources (principally natural gas, coal
and fuel oil) and third-party companies that transport
our goods. The market price of virgin wood fiber varies
based upon availability and source. Increased demand

the

increase

for biomass to meet a growing number of government
mandates and incentives to promote the use of biomass
for renewable electrical energy generation may also
impact pricing and availability of virgin wood fiber. In
addition,
in demand of products
manufactured, in whole or in part, from recycled fiber,
on a global basis, may cause an occasional tightening
in the supply of recycled fiber. Energy prices, in
particular prices for oil and natural gas, have fluctuated
dramatically in the past and may continue to fluctuate
in the future.

Our profitability has been, and will continue to be,
affected by changes in the costs and availability of such
raw materials, energy sources and transportation
sources.

OUR

AFFECT

INDUSTRIES

THE
IN WHICH WE OPERATE
EXPERIENCE BOTH ECONOMIC CYCLICALITY
AND CHANGES IN CONSUMER PREFERENCES.
FLUCTUATIONS IN THE PRICES OF, AND THE
DEMAND FOR, OUR PRODUCTS COULD
MATERIALLY
FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND
CASH FLOWS. Substantially all of our businesses
have experienced, and are likely to continue to
experience, cycles relating to industry capacity and
general economic conditions. The
length and
magnitude of these cycles have varied over time and
by product.
in consumer
In addition, changes
preferences may increase or decrease the demand for
our fiber-based products and non-fiber substitutes.
These consumer preferences affect the prices of our
products. Consequently, our operating cash flow is
sensitive to changes in the pricing and demand for our
products.

IN THE UNITED STATES AND
COMPETITION
INTERNATIONALLY COULD NEGATIVELY IMPACT
OUR FINANCIAL RESULTS. We operate
in a
competitive environment, both in the United States and
internationally, in all of our operating segments. Product
innovations, manufacturing and operating efficiencies,
and marketing, distribution and pricing strategies
pursued or achieved by competitors could negatively
impact our financial results.

RISKS RELATING TO MARKET AND ECONOMIC
FACTORS

IN GENERAL
ADVERSE DEVELOPMENTS
BUSINESS AND ECONOMIC CONDITIONS COULD
HAVE AN ADVERSE EFFECT ON THE DEMAND
FOR OUR PRODUCTS AND OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General economic conditions may adversely affect
industrial non-durable goods production, consumer
spending, commercial printing and advertising activity,
levels and consumer
white-collar employment
confidence, all of which impact demand for our

products. In addition, volatility in the capital and credit
markets, which
interest rates, currency
exchange rates and the availability of credit, could have
a material adverse effect on our business, financial
condition and our results of operations.

impacts

THE LEVEL OF OUR INDEBTEDNESS COULD
ADVERSELY AFFECT OUR FINANCIAL CON-
DITION AND IMPAIR OUR ABILITY TO OPERATE
OUR BUSINESS. As of December 31, 2013,
International Paper had approximately $9.5 billion of
of
outstanding
indebtedness outstanding under our credit facilities and
$8.8 billion of indebtedness outstanding under our
floating and fixed rate notes. The level of our
indebtedness could have important consequences to
our financial condition, operating results and business,
including the following:

indebtedness,

including

•

financing

it may limit our ability to obtain additional debt or
for working capital, capital
equity
expenditures, product development, dividends,
share repurchases, debt service requirements,
acquisitions and general corporate or other
purposes;

a portion of our cash flows from operations will be
dedicated to payments on indebtedness and will
not be available for other purposes, including
future
operations, capital expenditures and
business opportunities;

the debt service requirements of our indebtedness
could make it more difficult for us to satisfy other
obligations;

our indebtedness that is subject to variable rates
of interest exposes us to increased debt service
obligations in the event of increased interest rates;

it may limit our ability to adjust to changing market
conditions and place us at a competitive
disadvantage compared to our competitors that
have less debt; and

it may increase our vulnerability to a downturn in
general economic conditions or in our business,
and may make us unable to carry out capital
spending that is important to our growth.

In addition, we are subject to agreements that require
meeting and maintaining certain financial ratios and
covenants. A significant or prolonged downturn in
general business and economic conditions may affect
our ability to comply with these covenants or meet those
financial ratios and tests and could require us to take
action to reduce our debt or to act in a manner contrary
to our current business objectives.

ISSUED BY
CHANGES
NATIONALLY RECOGNIZED STATISTICAL RATING

IN CREDIT RATINGS

ORGANIZATIONS COULD ADVERSELY AFFECT
OUR COST OF FINANCING AND HAVE AN
ADVERSE EFFECT ON THE MARKET PRICE OF
OUR SECURITIES. Maintaining an investment-grade
credit rating is an important element of our financial
strategy, and a downgrade of the Company’s ratings
below investment grade may limit our access to the
capital markets, have an adverse effect on the market
price of our securities, increase our cost of borrowing
and require us to post collateral for derivatives in a net
liability position. The Company’s desire to maintain its
investment grade rating may cause the Company to
take certain actions designed to improve its cash flow,
including sale of assets, suspension or reduction of our
dividend and reductions in capital expenditures and
working capital.

the

terms of

Under
the agreements governing
approximately $4.3 billion of our debt as of
December 31, 2013, the applicable interest rate on
such debt may increase upon each downgrade in our
credit rating. As a result, a downgrade in our credit rating
may lead to an increase in our interest expense. There
can be no assurance that such credit ratings will remain
in effect for any given period of time or that such ratings
will not be lowered, suspended or withdrawn entirely by
the rating agencies, if, in each rating agency’s
judgment, circumstances so warrant. Any such
downgrade of our credit ratings could adversely affect
our cost of borrowing, limit our access to the capital
markets or result in more restrictive covenants in
agreements governing
future
the
indebtedness that we may incur.

terms of any

DOWNGRADES IN THE CREDIT RATINGS OF
BANKS ISSUING CERTAIN LETTERS OF CREDIT
WILL INCREASE OUR COST OF MAINTAINING
CERTAIN INDEBTEDNESS AND MAY RESULT IN
THE ACCELERATION OF DEFERRED TAXES. We
are subject to the risk that a bank with currently issued
irrevocable letters of credit supporting installment notes
delivered to the Company in connection with our 2006
and Temple-Inland's 2007 sales of forestlands may be
downgraded below a required rating. Since 2006,
certain banks have fallen below the required ratings
threshold and were successfully replaced, or waivers
were obtained regarding their replacement. As a result
of continuing uncertainty in the banking environment, a
number of the letter-of-credit banks currently in place
remain subject to risk of downgrade and the number of
qualified replacement banks remains limited. The
downgrade of one or more of these banks may subject
the Company to additional costs of securing a
replacement letter-of-credit bank or could result in an
acceleration of deferred taxes if a replacement bank
cannot be obtained. See Note 12 Variable Interest
Entities and Preferred Securities of Subsidiaries on
pages 72 through 75 of Item 8. Financial Statements
and Supplementary Data for further information.

OUR PENSION AND HEALTH CARE COSTS ARE
SUBJECT TO NUMEROUS FACTORS WHICH
COULD CAUSE THESE COSTS TO CHANGE. We
have defined benefit pension plans covering
substantially all U.S. salaried employees hired prior to
July 1, 2004 and substantially all hourly and union
employees regardless of hire date. We provide retiree
health care benefits to certain of our U.S. salaried and
certain hourly employees. Our pension costs are
dependent upon numerous factors resulting from actual
plan experience and assumptions of future experience.
Pension plan assets are primarily made up of equity
and fixed income investments. Fluctuations in actual
equity market returns, changes in general interest rates
and changes in the number of retirees may result in
increased pension costs in future periods. Likewise,
changes in assumptions regarding current discount
rates and expected rates of return on plan assets and
health care reform could also increase pension and
health care costs. Significant changes in any of these
factors may adversely impact our cash flows, financial
condition and results of operations.

OUR PENSION PLANS ARE CURRENTLY
UNDERFUNDED, AND OVER TIME WE MAY BE
REQUIRED TO MAKE CASH PAYMENTS TO THE
PLANS, REDUCING THE CASH AVAILABLE FOR
OUR BUSINESS. We record a liability associated with
our pension plans equal to the excess of the benefit
obligation over the fair value of plan assets. The benefit
liability recorded under the provisions of Accounting
Standards Codification (ASC) 715, “Compensation –
Retirement Benefits,” at December 31, 2013 was
$2.2 billion. This includes liability for the International
Paper Company pension plans as well as the Temple-
Inland Retirement Plan,
for which we have
responsibility in connection with the Temple-Inland
acquisition. The amount and
future
contributions will depend upon a number of factors,
principally the actual earnings and changes in values
of plan assets and changes in interest rates.

timing of

CHANGES
INTERNATIONAL CONDITIONS
COULD ADVERSELY AFFECT OUR BUSINESS AND
RESULTS OF OPERATIONS. Our operating results
and business prospects could be substantially affected
by risks related to the countries outside the United
States in which we have manufacturing facilities or sell
our products. Specifically, Brazil, Russia, Poland,
China, India, and Turkey where we have substantial
manufacturing facilities, are countries that are exposed
to economic and political instability in their respective
regions of the world. Downturns in economic activity,
adverse tax consequences, fluctuations in the value of
local currency versus the U.S. dollar, nationalization or
any change in social, political or labor conditions in any
of these countries or regions could negatively affect our
financial results. Trade protection measures in favor of
local producers of competing products, including

these countries.

tax benefits and other
governmental subsidies,
local producers a competitive
measures giving
advantage over
International Paper, may also
adversely impact our operating results and business
prospects
In addition, our
international operations are subject to regulation under
U.S. law and other laws related to operations in foreign
the Foreign Corrupt
jurisdictions. For example,
Practices Act prohibits U.S. companies and their
representatives from offering, promising, authorizing or
making payments to foreign officials for the purpose of
obtaining or retaining business abroad. Failure to
comply with domestic or foreign laws could result in
various adverse consequences,
the
imposition of civil or criminal sanctions and the
prosecution of executives overseeing our international
operations.

including

RISKS RELATING TO LEGAL PROCEEDINGS AND
COMPLIANCE COSTS

Our operations are subject

WE ARE SUBJECT TO A WIDE VARIETY OF LAWS,
REGULATIONS AND OTHER GOVERNMENT
REQUIREMENTS THAT MAY CHANGE
IN
SIGNIFICANT WAYS, AND THE COST OF
COMPLIANCE WITH SUCH REQUIREMENTS
COULD IMPACT OUR BUSINESS AND RESULTS OF
OPERATIONS.
to
regulation under a wide variety of U.S. federal and state
and non-U.S. laws, regulations and other government
requirements -- including, among others, those relating
to the environment, health and safety and to labor and
employment. There can be no assurance that laws,
regulations and government requirements will not be
changed, applied or interpreted in ways that will require
us to modify our operations and objectives or affect our
returns on investments by restricting existing activities
and products, subjecting them to escalating costs. For
example, we have incurred, and expect that we will
continue to incur, significant capital, operating and other
expenditures complying with applicable environmental
laws and regulations. There can be no assurance that
future remediation requirements and compliance with
existing and new laws and requirements, including with
global climate change laws and regulations, Boiler
MACT and NAAQSs, will not require significant
expenditures, or that existing reserves for specific
matters will be adequate to cover future costs. We could
also incur substantial fines or sanctions, enforcement
actions (including orders limiting our operations or
requiring corrective measures), natural resource
damages claims, cleanup and closure costs, and third-
party claims for property damage and personal injury
as a result of violations of, or liabilities under,
environmental laws, regulations, codes and common
law. The amount and
timing of environmental
expenditures is difficult to predict, and, in some cases,
liability may be imposed without regard to contribution
or to whether we knew of, or caused, the release of

hazardous substances. As another example, we are
subject to a number of labor and employment laws and
regulations
increase our
that could significantly
operating costs and reduce our operational flexibility.

RESULTS OF LEGAL PROCEEDINGS COULD HAVE
A MATERIAL EFFECT ON OUR CONSOLIDATED
FINANCIAL STATEMENTS. The costs and other
effects of pending litigation against us cannot be
determined with certainty. Although we believe that the
outcome of any pending or threatened lawsuits or
claims, or all of them combined, will not have a material
effect on our business or consolidated financial
statements, there can be no assurance that the
outcome of any lawsuit or claim will be as expected.

RISKS RELATING TO OUR OPERATIONS

FACILITIES

MATERIAL DISRUPTIONS AT ONE OF OUR
MANUFACTURING
COULD
NEGATIVELY IMPACT OUR FINANCIAL RESULTS.
We operate our facilities in compliance with applicable
rules and regulations and take measures to minimize
the risks of disruption at our facilities. A material
disruption at our corporate headquarters or one of our
manufacturing facilities could prevent us from meeting
customer demand, reduce our sales and/or negatively
impact our financial condition. Any of our manufacturing
facilities, or any of our machines within an otherwise
operational
operations
could
unexpectedly due to a number of events, including:

facility,

cease

fires, floods, earthquakes, hurricanes or other
catastrophes;

the effect of a drought or reduced rainfall on its
water supply;

the effect of other severe weather conditions on
equipment and facilities;

terrorism or threats of terrorism;

domestic and international laws and regulations
applicable to our Company and our business
partners, including joint venture partners, around
the world;

unscheduled maintenance outages;

prolonged power failures;

an equipment failure;

a chemical spill or release;

explosion of a boiler;

damage or disruptions caused by third parties
operating on or adjacent
to one of our
manufacturing facilities;

•

disruptions in the transportation infrastructure,
including roads, bridges, railroad tracks and
tunnels;

labor difficulties; and

other operational problems.

Any such downtime or facility damage could prevent us
from meeting customer demand for our products and/
or require us to make unplanned expenditures. If one
of these machines or facilities were to incur significant
downtime, our ability to meet our production targets and
satisfy customer requirements could be impaired,
resulting in lower sales and having a negative effect on
our business and financial results.

AND

SENSITIVE

TO
EMPLOYEE

WE ARE SUBJECT TO CYBER-SECURITY RISKS
RELATED TO BREACHES OF SECURITY
COMPANY,
PERTAINING
VENDOR
CUSTOMER,
INFORMATION AS WELL AS BREACHES IN THE
TECHNOLOGY THAT MANAGES OPERATIONS
AND OTHER BUSINESS PROCESSES. International
Paper business operations
rely upon secure
information technology systems for data capture,
processing, storage and reporting. Despite careful
security and controls design, implementation, updating
and independent third party verification, our information
technology systems, and those of our third party
providers, could become subject to cyber attacks.
Network, system, application and data breaches could
information
result
to
limited
misappropriation
interruption to systems availability, denial of access to
and misuse of applications required by our customers
to conduct business with International Paper. Access
to internal applications required to plan our operations,
source materials, manufacture and ship finished goods
and account for orders could be denied or misused.
Theft of intellectual property or trade secrets, and
inappropriate disclosure of confidential company,
employee, customer or vendor information, could stem
from such
these operational
disruptions and/or misappropriation of information
could result in lost sales, business delays, negative
publicity and could have a material effect on our
business.

in operational disruptions or
including, but not

incidents. Any of

SEVERAL OPERATIONS ARE CONDUCTED BY
JOINT VENTURES THAT WE CANNOT OPERATE
SOLELY FOR OUR BENEFIT. Several operations,
particularly in emerging markets, are carried on by joint
ventures such as the Ilim joint venture in Russia. In joint
ventures, we share ownership and management of a
company with one or more parties who may or may not
have the same goals, strategies, priorities or resources
as we do. In general, joint ventures are intended to be
operated for the benefit of all co-owners, rather than for
our exclusive benefit. Operating a business as a joint

venture often
requires additional organizational
formalities as well as time-consuming procedures for
sharing information and making decisions. In joint
ventures, we are required to pay more attention to our
relationship with our co-owners as well as with the joint
venture, and if a co-owner changes, our relationship
may be adversely affected. In addition, the benefits from
a successful joint venture are shared among the co-
owners, so that we do not receive all the benefits from
our successful joint ventures.

THE

JOINT

WITHIN

VENTURES

THE AGREED-UPON TRANSACTION COMBINING
XPEDX WITH UNISOURCE MAY NOT BE
COMPLETED
EXPECTED
TIMEFRAME, OR AT ALL, AND WE MAY NOT
ACHIEVE THE EXPECTED BENEFITS FROM THIS
DIVESTITURE OR FROM OTHER STRATEGIC
ACQUISITIONS,
AND
DIVESTITURES. On January 28, 2014, we announced
that xpedx Holding Company (SpinCo) and Unisource
will merge under the terms of a definitive agreement
that will result in the creation of a new publicly traded
company. The transaction will be accomplished
through a Reverse Morris Trust structure in which
International Paper will indirectly contribute the assets
of xpedx to a newly formed wholly owned subsidiary,
SpinCo, in exchange for shares of common stock of
SpinCo, a special payment of $400 million, subject to
adjustments, expected to be financed with new debt in
SpinCo's capital structure, as well as the potential for
an additional cash payment pursuant to an "earn-out"
provision. International Paper will distribute shares of
SpinCo to International Paper shareholders on a pro
rata basis in a manner intended to be tax-free to
International Paper and
its shareholders. The
transaction is expected to be completed in mid-2014.
Completion of the transaction is subject to the
satisfaction (or waiver) of a number of important
conditions that are beyond our control and may prevent,
delay or otherwise negatively affect its completion.

The success of the transaction will depend, in part, on
the ability of the combined company to realize
anticipated growth opportunities, cost savings and
other synergies. SpinCo's success in realizing these
growth opportunities, cost savings and other synergies,
and the timing of this realization, depends on the
successful
integration of xpedx’s business and
operations with Unisource’s business and operations.
Even if the combined company is able to integrate the
xpedx and Unisource businesses and operations
successfully, this integration may not result in the
realization of
the growth
opportunities, cost savings and other synergies
currently expected from this integration within the
anticipated time frame or at all. Moreover, substantial
expenses will be incurred in connection with the
transaction and with the integration of xpedx’s business

full benefits of

the

with Unisource’s business. Such expenses are difficult
to estimate accurately and may exceed current
estimates.
the
transaction may be offset by costs or delays incurred
in integrating the businesses.

Accordingly,

the benefits

from

More broadly, our strategy for long-term growth,
productivity and profitability depends, in part, on our
ability to accomplish prudent strategic acquisitions, joint
ventures and divestitures and to realize the benefits we
expect from such transactions, and we are subject to
the risk that we may not achieve the expected benefits.
Among the benefits we expect from potential as well as
recently completed acquisitions and joint ventures are
synergies, cost savings, growth opportunities or access
to new markets (or a combination thereof), and in the
case of divestitures, the realization of proceeds from
the sale of businesses and assets to purchasers placing
higher strategic value on such businesses and assets
than does International Paper.

IF THE SPIN-OFF DOES NOT QUALIFY AS A TAX-
FREE SPIN-OFF UNDER SECTION 355 OF THE
INTERNAL REVENUE CODE OF 1986, AS
INCLUDING AS A RESULT OF
AMENDED,
SUBSEQUENT ACQUISITIONS OF STOCK OF
INTERNATIONAL PAPER OR SPINCO, THEN
INTERNATIONAL
THE
PAPER
INTERNATIONAL PAPER SHAREHOLDERS MAY
BE REQUIRED TO PAY SUBSTANTIAL U.S.
FEDERAL INCOME TAXES.

AND/OR

The spin-off and the merger are conditioned upon
International Paper’s receipt of a private letter ruling
from the U.S. Internal Revenue Service (“IRS”) to the
effect that the spin-off and certain related transactions
will qualify as tax-free to International Paper and the
International Paper shareholders for U.S. federal
income tax purposes. Although a private letter ruling
from the IRS generally is binding on the IRS, the IRS
ruling does not rule that the spin-off satisfies every
requirement for a tax-free spin-off under Section 355 of
the Code, and the parties will rely solely on the opinion
of counsel for comfort that such additional requirements
are satisfied.

If the spin-off does not qualify as a tax-free spin-off
under Section 355 of the Code, then the receipt of
SpinCo common stock would be taxable to the
International Paper shareholders, International Paper
might recognize a substantial gain on the spin-off, and
SpinCo may be required to indemnify International
Paper for the tax on such gain pursuant to a tax matters
agreement. There can be no assurance that SpinCo
would have the resources or liquidity required to
indemnify International Paper for any such taxable gain.

In addition, the spin-off will be taxable to International
Paper pursuant to Section 355(e) of the Code if there
is a 50% or more change in ownership of either
International Paper or SpinCo, directly or indirectly, as
part of a plan or series of related transactions that
include the spin-off. Because the International Paper
shareholders will collectively own more than 50% of our
common stock following the merger, the merger alone
will not cause the spin-off to be taxable to International
Paper under Section 355(e) of the Code. However,
Section 355(e) of the Code might apply if other
acquisitions of stock of International Paper before or
after the merger, or of SpinCo after the merger, are
considered to be part of a plan or series of related
transactions that include the spin-off.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

FORESTLANDS

As of December 31, 2013, the Company owned or
managed approximately 332,000 acres of forestlands
in Brazil, and had, through licenses and forest
management agreements, harvesting
rights on
government-owned forestlands in Russia. All owned
lands in Brazil are independently third-party certified for
sustainable forestry under CERFLOR and FSC.

MILLS AND PLANTS

A listing of our production facilities by segment, the vast
majority of which we own, can be found in Appendix I
hereto, which is incorporated herein by reference.

The Company’s facilities are in good operating
condition and are suited for the purposes for which they
are presently being used. We continue to study the
economics of modernization or adopting other
alternatives for higher cost facilities.

CAPITAL INVESTMENTS AND DISPOSITIONS

Given the size, scope and complexity of our business
interests, we continually examine and evaluate a wide
variety of business opportunities and planning
alternatives, including possible acquisitions and sales
or other dispositions of properties. You can find a
level of planned capital
discussion about
investments for 2014 on page 38, and dispositions and
restructuring activities as of December 31, 2013, on
pages 25
Item 7. Management’s
Discussion and Analysis of Financial Condition and
Results of Operations, and on pages 59 and 60 and
pages 63 and 64 of Item 8. Financial Statements and
Supplementary Data.

through 27 of

the

ITEM 3. LEGAL PROCEEDINGS

concerning

Information
legal
proceedings is set forth in Note 11 Commitments and
Contingencies on pages 68 through 72 of Item 8.
Financial Statements and Supplementary Data.

the Company’s

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

Dividend per share data on the Company’s common
stock and the high and low sales prices for the
Company’s common stock for each of the four quarters
in 2013 and 2012 are set forth on page 92 of Item 8.
Financial Statements and Supplementary Data. As of

the filing of this Annual Report on Form 10-K, the
Company’s common shares are traded on the New York
Stock Exchange. International Paper options are traded
on the Chicago Board of Options Exchange. As of
February 19, 2014, there were approximately 14,041
record holders of common stock of the Company.

The table below presents information regarding the
Company’s purchase of its equity securities for the time
periods presented.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

Period

October 1, 2013 - October 31, 2013

November 1, 2013 - November 30, 2013

December 1, 2013 - December 31, 2013

Total

Total Number of Shares
Purchased (a)

Average Price Paid per
Share

Total Number of Shares (or
Units) Purchased as Part of
Publicly Announced
Programs

Maximum Number
(or Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs (in billions)

2,718,467

4,855,900

2,230,207

9,804,574

$44.54

44.67

46.93

2,717,984

4,855,900

2,228,534

$1.36

1.14

1.04

(a) 2,156 shares were acquired from employees from share withholdings to pay income taxes under the Company’s restricted stock programs.

The remainder were purchased under the Company's $1.5 Billion Share Repurchase Program announced on September 10, 2013.

PERFORMANCE GRAPH

The performance graph shall not be deemed to be
“soliciting material” or to be “filed” with the Commission
or subject to Regulation 14A or 14C, or to the liabilities
of Section 18 of the Exchange Act of 1934, as amended.

The following graph compares a $100 investment in
Company stock on December 30, 2008 with a $100
investment in our Return on Invested Capital (ROIC)
Peer Group and the S&P 500 also made at market close
on December 30, 2008. The graph portrays total return,
2008–2013, assuming reinvestment of dividends.

Note: The companies included in the ROIC Peer Group are Domtar Inc., Fibria Celulose S.A., Klabin S.A., MeadWestvaco Corp., Metsa Board
Corporate, Mondi Group, Packaging Corporation of America, Rock-Tenn Company, Smurfit Kappa Group, Stora Enso Group, and UPM-
Kymmene Corp.

ITEM 6. SELECTED FINANCIAL DATA

FIVE-YEAR FINANCIAL SUMMARY (a)

Dollar amounts in millions, except per
share amounts and stock prices

RESULTS OF OPERATIONS

2013

2012

2011

2010

2009

Net sales

$ 29,080

Costs and expenses, excluding interest

27,619

$ 27,833

26,137

$ 26,034

24,035

$ 25,179

23,749

$ 23,366

21,498

Earnings (loss) from continuing
operations before income taxes and
equity earnings

Equity earnings (loss), net of taxes

Discontinued operations, net of taxes

849

(b)

1,024

(e)

1,458

(h)

(39)

(c)

(f)

140

(i)

822

111

—

(k)

1,199

(m)

(26)

—

Net earnings (loss)

1,378

(b-d)

799

(e-g)

1,336

(h-j)

712

(k-l)

704

(m-n)

Noncontrolling interests, net of taxes

(17)

Net earnings (loss) attributable to
International Paper Company

FINANCIAL POSITION

Working capital

Plants, properties and equipment, net

Forestlands

Total assets

Notes payable and current maturities of
long-term debt

Long-term debt

Total shareholders’ equity

BASIC EARNINGS PER SHARE
ATTRIBUTABLE TO INTERNATIONAL
PAPER COMPANY COMMON
SHAREHOLDERS

Earnings (loss) from continuing
operations

Discontinued operations

Net earnings (loss)

DILUTED EARNINGS PER SHARE
ATTRIBUTABLE TO INTERNATIONAL
PAPER COMPANY COMMON
SHAREHOLDERS

Earnings (loss) from continuing
operations

Discontinued operations

Net earnings (loss)

Cash dividends

Total shareholders’ equity

COMMON STOCK PRICES

High

Low

Year-end

FINANCIAL RATIOS

Current ratio

Total debt to capital ratio

1,395

(b-d)

794

(e-g)

1,322

(h-j)

691

(k-l)

686

(m-n)

$ 3,898

3,907

5,718

3,525

3,539

13,672

557

31,528

661

8,827

8,105

3.05

0.10

3.15

3.01

0.10

3.11

1.2500

18.57

13,949

622

32,153

444

9,696

6,304

1.72

0.10

1.82

1.70

0.10

1.80

1.0875

14.33

11,817

660

27,018

719

9,189

6,645

2.95

0.11

3.06

2.92

0.11

3.03

0.975

15.21

12,002

747

25,409

313

8,358

6,875

12,688

757

25,543

304

8,729

6,018

1.61

—

1.61

—

1.61

1.59

1.61

—

1.59

0.400

15.71

—

1.61

0.33

13.90

$ 50.33

39.88

33.01

29.25

27.79

39.47

49.03

1.8

0.54

27.29

39.84

1.8

0.62

21.55

29.60

2.2

0.60

19.33

27.24

1.8

0.56

3.93

26.78

1.9

0.60

Return on shareholders’ equity

20.2% (b-d)

11.6% (e-g)

17.9% (h-j)

11.4% (k-l)

14.1% (m-n)

Return on capital employed from
continuing operations attributable to
International Paper Company

7.2% (b-d)

4.8% (e-g)

7.5% (h-j)

5.3% (k-l)

5.1% (m-n)

CAPITAL EXPENDITURES

NUMBER OF EMPLOYEES

$ 1,198

69,000

1,383

70,000

1,159

61,500

$775

59,500

$534

56,100

FINANCIAL GLOSSARY

Current ratio—

current assets divided by current liabilities.

Total debt to capital ratio—

long-term debt plus notes payable and current
maturities of long-term debt divided by long-term
debt, notes payable and current maturities of long-
term debt and total shareholders’ equity.

Return on shareholders’ equity—

net earnings attributable to International Paper
Company divided by average shareholders’ equity
(computed monthly).

Return on capital employed—

the after-tax amount of earnings from continuing
operations before interest divided by the average
of total assets minus accounts payable and accrued
liabilities (computed monthly).

million ($4 million after taxes) for an environmental
reserve related to the Company's property in Cass
Lake, Minnesota, and a gain of $13 million (before
and after taxes) related to a bargain purchase
adjustment on the acquisition of a majority share of
our operations in Turkey.

(c) Includes the operating results of the Temple-Inland
Building Products business through the date of sale
in July 2013 and pre-tax charges of $24 million ($19
million after taxes) for expenses associated with
the divestiture of the Temple-Inland Building
Products business.

(d) Includes a tax benefit of $744 million associated
with the closings of U.S. federal tax audits, a tax
benefit of $31 million for an income tax reserve
release and a net tax loss of $1 million for other
items.

FOOTNOTES TO FIVE-YEAR FINANCIAL SUMMARY

2012:

(a) All periods presented have been restated to reflect
the Temple-Inland Building Products business as
discontinued operations, if applicable.

2013:

taxes)

for costs associated with

(b) Includes restructuring and other charges of $210
million before taxes ($131 million after taxes)
including pre-tax charges of $25 million ($16
million after taxes) for early debt extinguishment
costs, pre-tax charges of $32 million ($19 million
after
the
restructuring of the Company's xpedx operations,
pre-tax charges of $118 million ($72 million after
taxes) for costs associated with the announced
shutdown of our Courtland, Alabama mill, a pre-tax
gain of $30 million ($19 million after taxes) for
insurance reimbursements related to the 2012
Guaranty Bank legal settlement, a pre-tax charge
of $45 million ($28 million after taxes) for costs
associated with the permanent shutdown of a paper
machine at our Augusta, Georgia mill, pre-tax
charges of $22 million ($14 million after taxes) for
costs associated with the spin-off of our xpedx
operations and a net pre-tax gain of $2 million (a
loss of $1 million after taxes) for other items. Also
included are a pre-tax goodwill impairment charge
of $400 million ($366 million after taxes) related to
our xpedx business, a pre-tax goodwill and trade
name intangible asset impairment of $127 million
($122 million after taxes) related to our India Papers
business, pre-tax charges of $9 million ($5 million )
to adjust the value of two Company airplanes to fair
value, pre-tax charges of $62 million ($38 million
after taxes) for integration costs associated with the
acquisition of Temple-Inland, pre-tax charges of $6

taxes)

for costs associated with

(e) Includes restructuring and other charges of $109
million before taxes ($70 million after taxes)
including pre-tax charges of $48 million ($30
million after taxes) for early debt extinguishment
costs, pre-tax charges of $44 million ($28 million
after
the
restructuring of the Company's xpedx operations,
and pre-tax charges of $17 million ($12 million after
taxes) for costs associated with the restructuring of
the Company's Packaging business in EMEA. Also
included are a pre-tax charge of $20 million ($12
million after taxes) related to the write-up of the
Temple-Inland inventories to fair value, pre-tax
charges of $164 million ($108 million after taxes)
for integration costs associated with the acquisition
of Temple-Inland, a pre-tax charge of $62 million
($38 million after taxes) to adjust the long-lived
assets of the Hueneme mill in Oxnard, California to
their fair value in anticipation of its divestiture, and
pre-tax charges of $29 million ($55 million after
taxes) for costs associated with the divestiture of
three containerboard mills.

(f)

Includes pre-tax charges of $15 million ($9 million
after taxes) for expenses associated with pursuing
the divestiture of the Temple-Inland Building
Products business and the operating results of the
Temple-Inland Building Products business.

(g) Includes a net tax expense of $14 million related to
internal restructurings and a $5 million expense to
to post-
adjust deferred
retirement prescription drug coverage (Medicare
Part D reimbursement).

tax assets related

2011:

2010:

taxes)

for costs associated with

(h) Includes restructuring and other charges of $102
million before taxes ($90 million after taxes)
including pre-tax charges of $49 million ($34 million
after
the
restructuring of the Company’s xpedx operations,
pre-tax charges of $32 million ($19 million after
taxes) for early debt extinguishment costs, pre-tax
charges of $18 million ($12 million after taxes) for
costs associated with the acquisition of a majority
share of Andhra Pradesh Paper Mills Limited in
India, pre-tax charges of $20 million ($12 million
after taxes) for costs associated with signing an
agreement to acquire Temple-Inland, and a pre-tax
gain of $24 million ($15 million after taxes) related
to the reversal of environmental and other reserves
due to the announced repurposing of a portion of
the Franklin mill. Also included are a pre-tax charge
of $27 million ($17 million after taxes) for an
environmental reserve related to the Company’s
property in Cass Lake, Minnesota, a pre-tax charge
of $129 million ($104 million after taxes) for a fixed-
asset
the North American
Shorewood business, pre-tax charges of $78
million (a gain of $143 million after taxes) to reduce
the carrying value of the Shorewood business
based on the terms of the definitive agreement to
sell this business, and a charge of $11 million
(before and after taxes) for asset impairment costs
associated with the Inverurie, Scotland mill which
was closed in 2009.

impairment of

(i)

(j)

Includes a pre-tax gain of $50 million ($30 million
after taxes) for an earnout provision related to the
sale of the Company’s Kraft Papers business
completed in January 2007. Also, the Company
sold its Brazilian Coated Paper business in the third
quarter 2006. Local country tax contingency
reserves were included in the business’ operating
results in 2005 and 2006 for which the related
statute of limitations has expired. The reserves
were reversed and a tax benefit of $15 million plus
associated interest income of $6 million ($4 million
after taxes) was recorded.

Includes a tax benefit of $222 million related to the
reduction of the carrying value of the Shorewood
business and the write-off of a deferred tax liability
associated with Shorewood, a $24 million tax
expense related to internal restructurings, a $9
million tax expense for costs associated with our
acquisition of a majority share of Andhra Pradesh
Paper Mills Limited in India, a $13 million tax benefit
related to the release of a deferred tax asset
valuation allowance, and a $2 million tax expense
for other items.

(k) Includes restructuring and other charges of $394
million before taxes ($242 million after taxes)
including pre-tax charges of $315 million ($192
million after taxes) for shutdown costs related to the
Franklin, Virginia mill, a pre-tax charge of $35
million ($21 million after taxes) for early debt
extinguishment costs, pre-tax charges of $7 million
($4 million after taxes) for closure costs related to
the Bellevue, Washington container plant, a pre-tax
charge of $11 million ($7 million after taxes) for an
Ohio Commercial Activity tax adjustment, a pre-tax
charge of $6 million ($4 million after taxes) for
severance and benefit costs associated with the
Company’s S&A reduction initiative, and a pre-tax
charge of $8 million ($5 million after taxes) for costs
associated with
the
Company’s Shorewood operations. Also included
are a pre-tax charge of $18 million ($11 million after
taxes) for an environmental reserve related to the
Company’s property in Cass Lake, Minnesota, and
a pre-tax gain of $25 million ($15 million after taxes)
related to the partial redemption of the Company’s
interests in Arizona Chemical.

reorganization of

the

(l)

tax adjustments

Includes tax expense of $14 million and $32 million
for
incentive
compensation and Medicare Part D deferred tax
write-offs, respectively, and a $40 million tax benefit
related to cellulosic bio-fuel tax credits.

2009:

(m) Includes restructuring and other charges of $1.4
billion before taxes ($853 million after taxes),
including pre-tax charges of $469 million ($286
million after taxes), $290 million ($177 million after
taxes), and $102 million ($62 million after taxes) for
shutdown costs for the Albany, Oregon, Franklin,
Virginia and Pineville, Louisiana mills, respectively,
a pre-tax charge of $82 million ($50 million after
taxes) for costs related to the shutdown of a paper
machine at the Valliant, Oklahoma mill, a pre-tax
charge of $148 million ($92 million after taxes) for
severance and benefit costs associated with the
Company’s 2008 overhead cost reduction initiative,
a pre-tax charge of $185 million ($113 million after
taxes) for early debt extinguishment costs, a pre-
tax charge of $23 million ($28 million after taxes)
for closure costs associated with the Inverurie,
Scotland mill, and a charge of $31 million, before
and after taxes, for severance and other costs
associated with the planned closure of the Etienne
mill in France, and a pre-tax charge of $23 million
($14 million after taxes) for other items. Also
included are a pre-tax gain of $2.1 billion ($1.4
billion after taxes) related to alternative fuel mixture
credits, a pre-tax charge of $87 million ($54 million

after taxes) for integration costs associated with the
CBPR acquisition, and a charge of $56 million to
write down the assets at the Etienne mill in France
to estimated fair value.

(n) Includes a $156 million tax expense for the write-
off of deferred tax assets in France, a $15 million
tax expense for the write-off of a deferred tax asset
for a recycling credit in the state of Louisiana and
a $26 million tax benefit related to the settlement
of the 2004 and 2005 U.S. federal income tax audit
and related state income tax effects.

ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

EXECUTIVE SUMMARY

Operating Earnings (a non-GAAP measure) is defined as
net earnings from continuing operations (a GAAP
measure) excluding special items and non-operating
pension expense.
International Paper generated
Operating Earnings per diluted share attributable to
common shareholders of $3.16 in 2013, compared with
$2.65 in 2012, and $3.12 in 2011. Diluted earnings (loss)
per share attributable to common shareholders were
$3.11 in 2013, compared with $1.80 in 2012 and $3.03 in
2011.

International Paper delivered strong results during 2013,
driven by margin expansion across many of our
businesses. Year-over-year revenues grew despite a
challenging economic environment. We generated record
cash flow from operations of $3 billion. Strong free cash
flow enabled the Company to return cash to our
shareholders in the form of a share buy-back program
instituted during the 2013 third quarter and a 17%
increase in the quarterly dividend beginning with the 2013
fourth quarter dividend payment.

Our 2013 results reflect the significant progress we made
on the pricing front particularly in our North American
Industrial Packaging business along with solid
manufacturing operations. Year-over-year sales volumes
were down but we managed to offset some of this decline
as the year progressed, mainly through our North
American Industrial Packaging business. Input costs
were a headwind in 2013, as expected, largely driven by
increased fiber costs in the second half of the year. We
made decisions during 2013 to rationalize capacity in our
Consumer Packaging and North American Printing
Papers businesses through the shutdown of a paper
machine at our Augusta facility and initiating the closure
of our Courtland mill, respectively. Also during the year,
we finalized acquisitions in Turkey and Brazil and
completed the sale of the Temple-Inland Building
Products business. There was steady progress in the
ramp-ups of the two capital projects at our Ilim joint
venture in Russia but the operational benefits were offset
by higher costs of the start-ups and unfavorable foreign
currency movements driven by
Ilim’s U.S. dollar
denominated debt. Finally, we made significant progress
during 2013 towards the spin-off of the xpedx distribution
business to our shareholders culminating in the signing
of a definitive merger agreement in January 2014.

Overall, 2013 reflects our successful efforts to drive
margin growth through greater price realizations coupled
with solid operational performance. We generated returns
in excess of our cost of capital while further strengthening
our balance sheet through debt pay downs and favorable

movements in our net pension liability. We exited 2013
with significant momentum with the expectation that we
will continue to generate a stronger performance in the
business in 2014.

further negatively

impact volumes. The

Looking ahead to the 2014 first quarter, seasonally lower
sales volumes in the Brazilian and European Printing
Papers businesses combined with the impact from the full
shutdown at Courtland and the coated paperboard project
at our Kwidzyn will more than offset the volume benefits
from two additional shipping days in our North American
Industrial Packaging business. Additionally, the severe
weather events impacting much of the U.S. in early 2014
will
full
implementation of the cutsize price increase in the 2013
fourth quarter will improve pricing for our North American
Printing Papers business. Sales margins in the North
American and Brazilian Industrial Packaging businesses
are expected to reflect more favorable mix and pricing.
The negative impact from input costs in the 2014 first
quarter will be significant due in large part to the extreme
temperatures affecting much of the U.S. both in terms of
unit cost pressure and higher consumption. Planned
maintenance downtime costs should increase in North
America as we pull more outages into the 2014 first
quarter while costs in our European Printing Papers
business should be lower. Equity earnings from our Ilim
joint venture are expected to be relatively flat with 2013
fourth quarter results absent any negative impact from
foreign currency movements driven by Ilim’s U.S. dollar
denominated debt.

the 2014

full year, we do not anticipate
For
macroeconomic conditions significantly better than those
experienced during 2013. Even in light of this, we expect
a meaningful increase in year-over-year earnings. There
are significant optimization opportunities in our North
American Industrial Packaging business which we expect
to further realize during 2014. Additionally, the Ilim project
and cost synergy projects at Orsa will provide
opportunities to increase earnings during 2014. We
expect input cost inflation similar to that experienced
during 2013. The 2014 tax rate should return to a more
normal level due to the non-repeat of benefits recognized
in 2013. Finally, free cash flow generation should continue
to grow which will enable us to continue a balanced
approach to cash allocation and to return a significant
amount of cash to our shareholders.

Free cash flow (a non-GAAP measure) of $1.8 billion
generated in 2013 was higher than the $1.6 billion
generated in 2012 and the $1.7 billion generated in 2011
(see reconciliation on page 35).

Operating Earnings per share attributable to common
shareholders of $0.83 in the fourth quarter of 2013 were
lower than the $1.05 in the 2013 third quarter and higher
than the $0.69 in the 2012 fourth quarter. Diluted earnings
(loss) per share attributable to common shareholders

were $0.98 in the fourth quarter of 2013, compared with
$0.85 in the third quarter of 2013 and $0.53 in the fourth
quarter of 2012.

Free cash flow of $595 million generated in the 2013 fourth
quarter was higher than the $454 million generated in the
2013 third quarter and the $384 million generated in the
2012 fourth quarter (see reconciliation on page 35).

Operating Earnings is a non-GAAP measure. Diluted
earnings (loss) per share attributable to International
Paper Company common shareholders is the most direct
comparable GAAP measure. The Company calculates
Operating Earnings by excluding the after-tax effect of
items considered by management to be unusual from the
earnings reported under GAAP, non-operating pension
expense and discontinue operations. 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 Operating Earnings per
share attributable to International Paper Company
common shareholders to diluted earnings (loss) per share
attributable to International Paper Company common
shareholders.

Operating Earnings (Loss) Per Share
Attributable to Shareholders

Non-operating pension expense

Special items

Diluted Earnings (Loss) Per Share from
Continuing Operations

Discontinued operations

Diluted Earnings (Loss)Per Share
Attributable to Shareholders

2013

2012

2011

$ 3.16 $ 2.65 $ 3.12

(0.44)

(0.26)

(0.06)

0.29

(0.69)

(0.14)

3.01

0.10

1.70

0.10

2.92

0.11

$ 3.11 $ 1.80 $ 3.03

Three Months
Ended
December 31,
2013

Three Months
Ended
September 30,
2013

Three Months
Ended
December 31,
2012

0.83

1.05

0.69

(0.11)

0.25

(0.11)

(0.07)

(0.11)

0.97

0.01

0.87

(0.02)

0.51

0.02

0.98

0.85

0.53

Operating
Earnings
(Loss) Per
Share
Attributable
to
Shareholders

Non-operating
pension
expense

Special items

Diluted
Earnings
(Loss) Per
Share from
Continuing
Operations

Discontinued
operations

Diluted
Earnings
(Loss) Per
Share
Attributable
to
Shareholders

Results of Operations

Industry segment operating profits are used by
International Paper’s management to measure the
earnings performance of its businesses. Management
believes that this measure allows a better understanding
of trends in costs, operating efficiencies, prices and
volumes. Industry segment operating profits are defined
as earnings before taxes, equity earnings, noncontrolling
interests,
items and
corporate special items. Industry segment operating
profits are defined by the Securities and Exchange
Commission as a non-GAAP financial measure, and are
not GAAP alternatives to net income or any other
operating measure prescribed by accounting principles
generally accepted in the United States.

interest expense, corporate

International Paper operates in four segments: Industrial
Packaging, Printing Papers, Consumer Packaging and
Distribution.

The following table presents a reconciliation of net
earnings (loss) attributable
International Paper
Company to its total industry segment operating profit:

In millions

2013

2012

2011

Net Earnings (Loss) Attributable to
International Paper Company

Deduct – Discontinued operations:

(Earnings) from operations

(Gain) loss on sales or impairment

Earnings (Loss) From Continuing
Operations Attributable to
International Paper Company

Add back (deduct):

Income tax provision

Equity (earnings) loss, net of taxes

Net earnings attributable to
noncontrolling interests

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

Interest expense, net

Noncontrolling interests / equity
earnings included in operations

Corporate items

Special items:

Restructuring and other charges

Net losses (gains) on sales and
impairments of businesses

Non-Operating Pension Expense

Industry Segment Operating Profit

Industrial Packaging

Printing Papers

Consumer Packaging

Distribution

$ 1,395 $ 794 $ 1,322

(64)

(54)

—

(49)

1,350

749

1,273

(523)

331

311

(61)

(140)

(17)

The principal changes in operating profit by segment
were as follows:

849

612

1,024

1,458

672

541

•

(1)

—

323

—

(2)

159

(10)

102

—

$ 1,844 $ 1,955 $ 2,216

$ 1,801 $ 1,066 $ 1,147

271

161

(389)

599

268

872

163

Industrial Packaging’s profits of $1.8 billion were
$735 million higher than in 2012 as the net benefit
of higher average sales price realizations and
unfavorable mix were partially offset by lower sales
volumes, higher operating costs and higher
maintenance outage costs.
In addition, 2013
operating profits included $62 million of costs
associated with the integration of Temple-Inland and
a $13 million gain for a bargain purchase adjustment
on the acquisition of a majority share of our
operations in Turkey. Operating profits in 2012
included $184 million of costs associated with the
integration of Temple-Inland, a $62 million charge to
adjust the long-lived assets of the Hueneme mill to
their fair value, and $29 million of costs associated
with the divestiture of three containerboard mills.

Total Industry Segment Operating
Profit

$ 1,844 $ 1,955 $ 2,216

in 2012 and $253 million

Industry segment operating profits in 2013 included a net
loss from special items of $772 million compared with
$335 million
in 2011.
Operationally, compared with 2012, the net benefit of
higher average sales price
realizations and an
unfavorable mix ($653 million) were offset by lower sales
volumes ($76 million), higher operating costs ($16
million), higher input costs ($207 million), and higher other
costs ($28 million).

• Printing Papers’ profits of $271 million were $328
million lower than in 2012. The benefits of lower
operating costs and maintenance outage costs were
more than offset by lower average sales price
realizations, lower sales volumes, higher input costs
and higher other costs. Operating profits in 2013
included $118 million of costs associated with the
announced shutdown of our Courtland, Alabama mill
and net charges of $123 million for the impairment
of the goodwill and a trade name intangible asset of
the Company's India Papers business.

• Consumer Packaging’s profits of $161 million were
$107 million lower than in 2012. The benefits from
higher sales volumes were more than offset by lower
average sales price realizations, an unfavorable
mix, higher operating costs and higher input costs.
Operating profits in 2013 included costs of $45
million associated with the permanent shutdown of
a paper machine at our Augusta, Georgia mill.

• Distribution’s loss of $389 million was lower than the
operating profit of $22 million in 2012. The benefits
from lower operating costs were more than offset by
lower sales volumes and lower average sales price
realizations. Operating profits in 2013 included a
$400 million charge for the impairment of goodwill
in the Company's xpedx business. In addition,
reorganization expenses were $32 million in 2013
and $49 million in 2012.

Corporate items, net, of $29 million of expense in 2013
were lower than the $51 million of expense in 2012 due
to lower supply chain initiative expenses. The decrease
in 2012 from the expense of $102 million in 2011
primarily reflects lower supply chain initiative expenses.

Corporate special items, including restructuring and other
items and net losses on sales and impairments of
businesses were a loss of $32 million in 2013 compared
with a loss of $49 million in 2012 and a loss of $76 million
in 2011.

Interest expense, net, was $612 million in 2013 compared
with $672 million in 2012 and $541 million in 2011. The
decrease in 2013 compared with 2012 reflects lower
average debt levels and the reversal of interest reserves
related to U.S. federal income tax audits. The increase in
2012 compared with 2011 is due to interest expense
associated with the Temple-Inland acquisitions.

A net income tax benefit of $523 million was recorded for
2013, including a tax benefit of $770 million associated
with the settlement of tax audits and a net tax benefit of
$4 million for other items. The 2012 income tax provision
of $331 million includes a net expense of $14 million
related to internal restructurings and an expense of $5
million to adjust deferred tax assets related to post-
retirement prescription drug coverage (Medicare Part D
reimbursements). The 2011 income tax provision of $311
million includes a tax benefit of $222 million related to the
reduction of the carrying value of the Shorewood business
and the write-off of a deferred tax liability associated with
Shorewood, a $24 million expense related to internal
restructurings, a $9 million expense for costs associated
with our acquisition of a majority interest in Andhra
Pradesh Paper Mills Limited, a $13 million benefit related
to the release of a deferred tax asset valuation allowance
and a $2 million expense for other items.

Discontinued Operations

tax expenses associated with pursuing the divestiture of
this business were included.

In 2011, $49 million of net income adjustments were
recorded
to prior sales of discontinued
businesses.

relating

Liquidity and Capital Resources

and

For the year ended December 31, 2013, International
Paper generated $3.0 billion of cash flow from continuing
operations compared with $3.0 billion in 2012. Capital
spending for 2013 totaled $1.2 billion, or 77% of
depreciation
expense. Cash
amortization
expenditures for acquisitions totaled $505 million, while
net decreases in debt totaled $604 million. Our liquidity
position remains strong, supported by approximately $2.0
billion of credit facilities that we believe are adequate to
meet
liquidity requirements. Maintaining an
investment-grade credit rating for our long-term debt
continues to be an important element in our overall
financial strategy.

future

We expect to generate strong free cash flow again in 2014
and will continue our balanced use of cash through
investments in capital projects, the reduction of total debt,
including the Company’s unfunded pension obligation,
returning value to shareholders and strengthening our
businesses through acquisitions, as appropriate.

Capital spending for 2014 is targeted at $1.4 billion, or
about 95% of depreciation and amortization.

Critical Accounting Policies and Significant
Accounting Estimates

Accounting policies that may have a significant effect on
our reported results of operations and financial position,
and that can require judgments by management in their
application, include accounting for contingent liabilities,
impairments of long-lived assets and goodwill, pension
and postretirement benefit obligations, stock options and
income taxes. See pages 39 through 42 for a discussion
of the Company’s critical accounting policies and
significant accounting estimates.

Legal

See Note 11 Commitments and Contingent Liabilities on
pages 68 through 72 of Item 8. Financial Statements and
Supplementary Data for a discussion of legal matters.

In 2013, $64 million of operating profits for the Temple-
Inland Building Products business were recorded in
discontinued operations. In addition, $19 million of after-
tax expenses associated with the divestiture of this
business were included.

In 2012, $54 million of operating profits for the Temple-
Inland Building Products business were recorded in
discontinued operations. In addition, $9 million of after-

CORPORATE OVERVIEW

While the operating results for International Paper’s
various business segments are driven by a number of
business-specific factors, changes in International
Paper’s operating results are closely tied to changes in
general economic conditions in North America, Europe,
Russia, Latin America, Asia, Africa and the Middle East.
Factors that impact the demand for our products include

industrial non-durable goods production, consumer
spending, commercial printing and advertising activity,
white-collar employment levels, and movements in
currency exchange rates.

Product prices are affected by general economic
trends, inventory levels, currency movements and
worldwide capacity utilization. In addition to these
revenue-related factors, net earnings are impacted by
various cost drivers, the more significant of which
include changes in raw material costs, principally wood,
recycled fiber and chemical costs; energy costs; freight
costs; salary and benefits costs, including pensions;
and manufacturing conversion costs.

The following is a discussion of International Paper’s
results of operations for the year ended December 31,
2013, and the major factors affecting these results
compared to 2012 and 2011.

RESULTS OF OPERATIONS

For the year ended December 31, 2013, International
Paper reported net sales of $29.1 billion, compared with
$27.8 billion in 2012 and $26.0 billion in 2011.
International net sales (including U.S. exports) totaled
$9.6 billion or 33% of total sales in 2013. This compares
with international net sales of $8.5 billion in 2012 and
$8.7 billion in 2011.

Full year 2013 net earnings attributable to International
Paper Company totaled $1.4 billion ($3.11 per share),
compared with net earnings of $794 million ($1.80 per
share) in 2012 and $1.3 billion ($3.03 per share) in 2011.
Amounts
the results of
discontinued operations.

in all periods

include

Earnings from continuing operations attributable to
International Paper Company after taxes in 2013 were
$1.4 billion, including $129 million of net special items
gains and $197 million of non-operating pension
expense compared with income of $749 million,
including $305 million of net special items charges and
$113 million of non-operating pension expense in 2012,
and $1.3 billion, including $63 million of net special
items charges and $29 million of non-operating pension
expense in 2011. Compared with 2012, the net benefit
from higher average sales price realizations and
unfavorable mix, lower corporate and other costs, lower
interest expense, and lower tax expense were offset by
lower sales volumes, higher operating costs and higher
input costs In addition, 2013 results included lower
equity earnings, net of taxes, relating to the Company’s
investment in Ilim Holdings, SA.

See Industry Segment Results on pages 29 through 34
for a discussion of the impact of these factors by
segment.

Discontinued Operations

2013:

In 2013, $45 million of net income adjustments were
recorded relating to discontinued businesses, including
$19 million of costs associated with the sale of the
Temple-Inland Building Products business. Also
included are the operating profits for the Temple-Inland
Building Products business through the date of sale of
July 19, 2013.

2012:

In 2012, $45 million of net income adjustments were
recorded relating to discontinued businesses, including
$9 million of costs associated with the announced
agreement to sell the Temple-Inland Building Products
business. Also included are the operating profits for the
Temple-Inland Building Products business.

2011:

In 2011, $49 million of net income adjustments were
recorded relating to prior sales of discontinued
businesses, including a $30 million earnout payment
received by the Company in 2011 associated with the
sale of the Kraft Papers businesses in 2007 and a $15
million tax benefit for the reversal of local country tax
contingency reserves, for which the related statute of
limitations has now expired, plus associated interest
income of $4 million recorded in 2011 related to the
2006 sale of the Brazilian Coated Papers business.

Income Taxes

A net income tax benefit of $523 million was recorded
for 2013, including a tax benefit of $770 million related
to the settlement of tax audits and a net benefit of $4
million for other items. Excluding these items, a $150
million net tax benefit for other special items and a $126
million tax benefit related to non-operating pension
expense, the tax provision was $527 million, or 27% of
pre-tax earnings before equity earnings.

A net income tax provision of $331 million was recorded
for 2012, including a net tax expense of $14 million
related to internal restructurings and a $5 million
expense to adjust deferred tax assets related to post-
retirement prescription drug coverage (Medicare Part
D reimbursements). Excluding these items, a $98
million net tax benefit for other special items and a $46
million tax benefit related to non-operating pension
expense, the tax provision was $456 million, or 29% of
pre-tax earnings before equity earnings.

A net income tax provision of $311 million was recorded
for 2011, including a tax benefit of $222 million related
to the reduction of the carrying value of the Shorewood
business and the write-off of a deferred tax liability
associated with Shorewood, a $24 million expense
related to internal restructurings, a $9 million expense
for costs associated with our acquisition of a majority
share of Andhra Pradesh Paper Mills Limited in India,
a $13 million benefit related to the release of a deferred
tax asset valuation allowance and a $2 million expense
for other items. Excluding these items, a $66 million
net tax benefit for other special items and $14 million
tax benefit related to non-operating pension expense,
the tax provision was $591 million, or 32% of pre-tax
earnings before equity earnings.

Equity Earnings, Net of Taxes

Equity earnings, net of taxes in 2013, 2012 and 2011
consisted principally of the Company’s share of
earnings from its 50% investment in Ilim Holding S.A.
in Russia (see pages 34).

Corporate Items and Interest Expense

Corporate items totaled $29 million of expense for the
year ended December 31, 2013 compared with $51
million in 2012 and $102 million in 2011. The decrease
in 2013 from 2012 reflects lower supply chain initiative
expenses, partially offset by higher pension expense.
The decrease in 2012 from 2011 reflects lower supply
chain initiative expenses.

Net interest expense totaled $612 million in 2013, $672
million in 2012 and $541 million in 2011. The decrease
in 2013 compared with 2012 reflects lower average debt
levels and the reversal of interest reserves related to
U.S. federal income tax audits. The increase in 2012
compared with 2011 is due to interest expense
associated with the Temple-Inland acquisition.

Net earnings attributable to noncontrolling interests
totaled a loss of $17 million in 2013 compared with
earnings of $5 million in 2012 and $14 million in 2011.
The decrease in 2013 primarily reflects lower earnings
for the Shandong IP & Sun Food Packaging Co., Ltd.
joint venture in China due to competitive pressures on
sales prices and higher pulp costs. In addition, 2013
includes a $15 million pre-tax charge for the impairment

of a tradename intangible asset related to our India
Papers business which has a net $3 million impact on
noncontrolling interest. The decrease in 2012 primarily
reflects lower earnings for the Shandong IP & Sun Food
Packaging Co., Ltd. joint venture in China due to start-
up costs associated with a new paper machine.

Special Items

Restructuring and Other Charges

International Paper continually evaluates its operations
for improvement opportunities targeted to (a) focus our
portfolio on our core businesses, (b) rationalize and
realign capacity to operate fewer facilities with the same
revenue capability and close high cost facilities, and
(c) reduce costs. Annually, strategic operating plans are
developed by each of our businesses. If it subsequently
becomes apparent that a facility’s plan will not be
achieved, a decision is then made to (a) invest
additional capital to upgrade the facility, (b) shut down
the facility and record the corresponding charge, or
(c) evaluate the expected recovery of the carrying value
of the facility to determine if an impairment of the asset
value of the facility has occurred. In recent years, this
policy has led to the shutdown of a number of facilities
and the recording of significant asset impairment
charges and severance costs. It is possible that
additional charges and costs will be incurred in future
periods in our core businesses should such triggering
events occur.

2013: During 2013, corporate restructuring and other
charges totaling $17 million before taxes ($11 million
after taxes) were recorded. These charges included:

•

a $25 million charge before taxes ($16 million after
taxes) for costs related to the early extinguishment
of debt (see Note 13 Debt and Lines of Credit on
pages 75 and 76 of Item 8. Financial Statements
and Supplementary Data),

a $22 million charge before taxes ($14 million after
taxes) for costs associated with the evaluation of
the spin-off of our xpedx operations, and

a $30 million gain before taxes ($19 million after
taxes) for insurance reimbursements related to
the Guaranty Bank legal settlement.

In addition, restructuring and other charges totaling
$193 million before taxes ($120 million after taxes) were
recorded in the Industrial Packaging, Printing Papers,
Consumer Packaging and Distribution
industry
segments including:

•

a $118 million charge before taxes ($72 million
after taxes) for costs related to the shutdown of
the Courtland, Alabama mill,

•

a $32 million charge before taxes ($19 million after
taxes) for restructuring costs related to the
Company's xpedx business,

a $45 million charge before taxes ($28 million after
taxes) for costs related to the shutdown of a paper
machine at the Augusta, Georgia mill, and

a $2 million gain before taxes (loss of $1 million
after taxes) for other items.

2012: During 2012, corporate restructuring and other
charges totaling $51 million before taxes ($35 million
after taxes) were recorded. These charges included:

•

a $48 million charge before taxes ($30 million after
taxes) for costs related to the early extinguishment
of debt (see Note 13 Debt and Lines of Credit on
pages 75 and 76 of Item 8. Financial Statements
and Supplementary Data), and

•

a $3 million charge before taxes ($5 million after
taxes) for other items.

In addition, restructuring and other charges totaling $58
million before taxes ($39 million after taxes) were
recorded in the Industrial Packaging. Consumer
Packaging and Distribution
industry segments
including:

•

a $17 million charge before taxes ($12 million after
taxes) related to the restructuring of our Packaging
business in EMEA,

a $44 million charge before taxes ($28 million after
taxes) for restructuring costs related to the
Company's xpedx business, and

a $3 million gain before taxes ($1 million after
taxes) for other items.

2011: During 2011, corporate restructuring and other
charges totaling $55 million before taxes ($33 million
after taxes) were recorded. These charges included:

•

a $32 million charge before taxes ($19 million after
taxes) for costs related to the early extinguishment
of debt (see Note 13 Debt and Lines of Credit on
pages 75 and 76 of Item 8. Financial Statements
and Supplementary Data),

an $18 million charge before taxes ($12 million
after taxes) related to International Paper's
acquisition of a majority share of APPM in India,
and

a $5 million charge before taxes ($2 million after
taxes) for other items.

In addition, restructuring and other charges totaling $47
million before taxes ($33 million after taxes) were
recorded in the Industrial Packaging, Printing Papers,
industry
Consumer Packaging and Distribution
segments including:

•

a $20 million charge before taxes ($12 million after
taxes) for costs associated with the signing of an
agreement to acquire Temple-Inland,

a $24 million gain before taxes ($15 million after
taxes) related to a change in the estimate of
closure costs related to the Franklin, Virginia mill
due to the Company’s decision to repurpose a
portion of the mill to produce fluff pulp,

a $49 million charge before taxes ($34 million after
taxes) for restructuring costs related to the
Company’s xpedx business, and

a $2 million charge before taxes ($2 million after
taxes) for other items.

Impairments of Goodwill

In the fourth quarter of 2013, in conjunction with the
annual testing of its reporting units for possible goodwill
impairments, the Company calculated the estimated
fair value of its India Papers business using expected
discounted future cash flows and determined that due
to a change in the strategic outlook, all of the goodwill
of this business, totaling $112 million, should be written
off.

Also in the fourth quarter of 2013, the Company
calculated the estimated fair value of its xpedx business
using the discounted future cash flows and wrote off all
of the goodwill of its xpedx business, totaling $400
million. The decline in fair value of the xpedx reporting
unit and resulting impairment charge was due to a
significant decline in earnings and a change in the
strategic outlook for the xpedx operations.

As a result, during the fourth quarter of 2013, the
Company recorded a total goodwill impairment charge
of $512 million, representing all of the recorded goodwill
of the xpedx business and the India Papers business.

Also during 2013, the Company recorded a pre-tax
charge of $15 million ($7 million after taxes and
noncontrolling interest) for the impairment of a trade
name intangible asset related to our India Papers
business.

No goodwill impairment charges were recorded in 2012
or 2011.

Net Losses (Gains) on Sales and Impairments of
Businesses

Net losses (gains) on sales and impairments of
businesses included in special items totaled a pre-tax
loss of $3 million ($1 million after taxes) in 2013, a pre-
tax loss of $86 million ($87 million after taxes) in 2012
and a pre-tax loss of $218 million (a gain of $36 million
after taxes and noncontrolling interest) in 2011. The
principal components of these gains/losses were:

2013: During 2013, the Company recorded net pre-tax
charges of $3 million ($1 million after taxes) for
adjustments related
three
containerboard mills in 2012 and the sale of the
Shorewood business.

the divestiture of

2012: As referenced in Note 6 Acquisitions and Joint
Ventures on pages 60 through 63 in Item. 8 Financial
Statements and Supplementary Data, on July 2, 2012,
International Paper finalized the sales of its Ontario and
Oxnard (Hueneme), California containerboard mills to
New-Indy Containerboard LLC, and
its New
Johnsonville, Tennessee containerboard mill to Hood
Container Corporation. During 2012, the Company
recorded pre-tax charges of $29 million ($55 million
after taxes) for costs associated with the divestitures of
these mills. Also during 2012, in anticipation of the
divestiture of the Hueneme mill, a pre-tax charge of $62
million ($38 million after taxes) was recorded to adjust
the long-lived assets of the mill to their fair value.

2011: On August 22, 2011,
International Paper
announced that it had signed an agreement to sell its
Shorewood business to Atlas Holdings. As a result,
during 2011, net pre-tax charges of $207 million (after
a $246 million tax benefit and a gain of $8 million related
to a noncontrolling interest, a net gain of $47 million)
were recorded to reduce the carrying value of the
Shorewood business to fair market value. As part of the
transaction, International Paper retained a minority
interest of approximately 40% in the newly combined
AGI-Shorewood business outside the U.S. Since the
interest retained represents significant continuing
involvement in the operations of the business, the
operating results of the Shorewood business were
included in continuing operations in the accompanying
consolidated statement of operations
instead of
Discontinued operations. The sale of the U.S. portion
of the Shorewood business to Atlas Holdings closed on
December 31, 2011. The sale of the remainder of the
Shorewood business occurred during January 2012.

Also during 2011, the Company recorded charges
totaling $11 million (before and after taxes) to further
write down the long-lived assets of its Inverurie,
Scotland mill to their estimated fair value.

Industry Segment Operating Profits

Industry segment operating profits of $1.8 billion in 2013
decreased from $2.0 billion in 2012. The net benefit
from higher average sales price realizations and an
unfavorable mix ($653 million) were offset by lower
sales volumes ($76 million), higher operating costs ($16
million), higher input costs ($207 million) and higher
other costs ($28 million). Special items were a $772
million net loss in 2013 compared with a net loss of $335
million in 2012.

Market-related downtime
approximately 484,000
692,000 tons in 2012.

in 2013 decreased

to
from approximately

tons

Looking ahead to the first quarter of 2014, sales
volumes are expected to improve for North American
packaging due to two additional shipping days for
boxes. North American paper sales volumes should
decline as a result of the repositioning related to the
shutdown of our Courtland mill. Demand is expected to
be seasonally lower in EMEA and Brazil, but stable in
Asia. Average sales price realizations in North America
are expected to increase in the domestic paper market,
and sales margins in the packaging markets are
expected to reflect a more favorable mix. Average sales
prices in Europe are likely to be steady for both paper
and packaging. In Brazil, paper prices are expected to
increase in both the Brazilian domestic and the Latin
American export markets, while packaging prices
should be stable. Input costs in North America are
expected to increase for energy and to reflect the impact
of the unusually cold weather. Planned maintenance
downtime costs should increase in North America, while
costs in Europe and Brazil should be lower. Earnings
from our xpedx distribution business are expected to
be flat despite seasonally lower sales volumes. Equity
earnings from our Ilim joint venture are expected to be
stable.

DESCRIPTION OF INDUSTRY SEGMENTS

International Paper’s industry segments discussed
below are consistent with the internal structure used to
these businesses. All segments are
manage
differentiated on a common product, common customer
basis consistent with the business segmentation
generally used in the forest products industry.

Industrial Packaging

International Paper is the largest manufacturer of
containerboard in the United States. Our production
capacity is about 13 million tons annually. Our products
include
recycled
linerboard, medium, whitetop,
linerboard, recycled medium and saturating kraft. About
80% of our production is converted domestically into
corrugated boxes and other packaging by our 172 U.S.
container plants. Additionally, we recycle approximately

one million tons of OCC and mixed and white paper
through our 20 recycling plants. In EMEA, our
operations include three recycled fiber containerboard
mills in Morocco and Turkey and 28 container plants in
France, Italy, Spain, Morocco and Turkey. In Brazil our
operations include three containerboard mills and four
box plants. In Asia, our operations include 17 container
plants in China and additional container plants in
Indonesia, Malaysia, Singapore, and Thailand. Our
container plants are supported by regional design
centers, which offer total packaging solutions and
supply chain initiatives.

Printing Papers

International Paper is one of the world’s leading
producers of printing and writing papers. Products in
this segment include uncoated and coated papers,
uncoated bristols and pulp.

Uncoated Papers: This business produces papers for use
in copiers, desktop and laser printers and digital
imaging. End use applications include advertising and
promotional materials such as brochures, pamphlets,
greeting cards, books, annual reports and direct mail.
Uncoated papers also produces a variety of grades that
are converted by our customers into envelopes, tablets,
business forms and file folders. Uncoated papers are
sold under private label and International Paper brand
include Hammermill, Springhill,
names
Williamsburg, Postmark, Accent, Great White,
Chamex, Ballet, Rey, Pol, and Svetocopy. The mills
producing uncoated papers are located in the United
States, France, Poland, Russia, Brazil and India. The
mills have uncoated paper production capacity of
approximately 5 million
tons annually. Brazilian
operations function through International Paper do
Brasil, Ltda, which owns or manages approximately
332,000 acres of forestlands in Brazil.

that

Pulp: Pulp is used in the manufacture of printing, writing
and specialty papers, towel and tissue products and
filtration products. Pulp is also converted into products
such as diapers and sanitary napkins. Pulp products
include fluff, and southern softwood pulp, as well as
southern and birch hardwood paper pulps. These
products are produced in the United States, France,
Poland, Russia, and Brazil and are sold around the
world. International Paper facilities have annual dried
pulp capacity of about 1.7 million tons.

applications for everyday products such as food,
cosmetics, pharmaceuticals, computer software and
tobacco products. Our Carolina® brand is used in
commercial printing end uses such as greeting cards,
paperback book covers, lottery tickets, direct mail and
point-of-purchase advertising. Our U.S. capacity is
supplemented by about 371,000 tons of capacity at our
mills producing coated board in Poland and Russia and
by our International Paper & Sun Cartonboard Co., Ltd.
joint venture in China which has annual capacity of 1.4
million tons.

Our Foodservice business produces cups, lids, food
containers and plates through three domestic plants
and four international facilities.

Distribution

xpedx, our North American merchant distribution
business, distributes products and services to a number
of customer markets including: commercial printers with
printing papers and graphic pre-press, printing presses
and post-press equipment; building services and away-
from-home markets
supplies;
manufacturers with packaging supplies and equipment;
and to a growing number of customers, we exclusively
provide distribution capabilities including warehousing
and delivery services. xpedx is a leading wholesale
distribution marketer in these customer and product
segments in North America, operating 86 distribution
centers in the U.S. and Mexico.

facility

with

On January 28, 2014, International Paper, SpinCo, a
company we recently formed to hold xpedx, Unisource
and related entities entered into a merger agreement,
a contribution and distribution agreement and related
agreements, providing for the pro rata, tax-free, spin-
off distribution of shares of common stock of SpinCo to
International Paper’s shareholders and the merger of
Unisource with and into SpinCo with SpinCo as the
surviving company in the merger. As a result of the spin-
off distribution and the merger, International Paper’s
shareholders will own approximately 51%, and the sole
shareholder of Unisource will own approximately 49%,
of the shares of common stock of SpinCo on a fully
diluted basis. We anticipate that the spin-off distribution
and the merger will be completed in mid-2014. You can
find discussions of the transaction in Item 1A, Risk
Factors - Risks Relating to Our Operations.

Consumer Packaging

Ilim Holding S.A.

International Paper is the world’s largest producer of
solid bleached sulfate board with annual U.S.
production capacity of about 1.6 million tons. Our
coated paperboard business produces high quality
coated paperboard for a variety of packaging and
commercial printing end uses. Our Everest®, Fortress®,
and Starcote® brands are used
in packaging

In October 2007, International Paper and Ilim Holding
S.A. (Ilim) completed a 50:50 joint venture to operate a
pulp and paper business located in Russia. Ilim’s
facilities include three paper mills located in Bratsk, Ust-
Ilimsk, and Koryazhma, Russia, with combined total
pulp and paper capacity of over 2.6 million tons. Ilim
has exclusive harvesting rights on timberland and forest

areas exceeding 14.1 million acres (5.7 million
hectares).

Products and brand designations appearing in italics
are trademarks of International Paper or a related
company.

INDUSTRY SEGMENT RESULTS

Industrial Packaging

Demand for Industrial Packaging products is closely
industrial goods
correlated with non-durable
production, as well as with demand for processed foods,
poultry, meat and agricultural products. In addition to
prices and volumes, major factors affecting the
profitability of Industrial Packaging are raw material and
energy costs, freight costs, manufacturing efficiency
and product mix.

Industrial Packaging net sales and operating profits
include the results of the Temple-Inland packaging
operations from the date of acquisition in February 2012
and the results of the Brazil Packaging business from
the date of acquisition in January 2013. In addition, due
to the acquisition of a majority share of Olmuksa
International Paper Sabanci Ambalaj Sanayi Ve Ticaret
A.S., (now called Olmuksan International Paper or
Olmuksan) net sales for our corrugated packaging
business in Turkey are included in the business
segment totals beginning in the first quarter of 2013 and
the operating profits reflect a higher ownership
percentage than in previous years. Net sales for 2013
increased 12% to $14.8 billion compared with $13.3
billion in 2012, and 42% compared with $10.4 billion in
2011. Operating profits were 69% higher in 2013 than
in 2012 and 57% higher than in 2011. Excluding costs
associated with the acquisition and integration of
Temple-Inland, the divestiture of three containerboard
mills and other special items, operating profits in 2013
were 36% higher than in 2012 and 59% higher than in
2011. Benefits from the net impact of higher average
sales price realizations and an unfavorable mix ($749
million) were offset by lower sales volumes ($73
million), higher operating costs ($64 million), higher
maintenance outage costs ($16 million) and higher
input costs ($102 million). Additionally, operating profits
in 2013 include costs of $62 million associated with the
integration of Temple-Inland, a gain of $13 million
related to a bargain purchase adjustment on the
acquisition of a majority share of our operations in
Turkey, and a net gain of $1 million for other items, while
operating profits in 2012 included costs of $184 million
associated with the acquisition and integration of
Temple-Inland, mill divestiture costs of $91 million,
costs associated with the restructuring of our European
Packaging business of $17 million and a $3 million gain
for other items.

Industrial Packaging

In millions

Sales

Operating Profit

2013

2012

2011
$ 14,810 $ 13,280 $ 10,430
1,147

1,066

1,801

North American Industrial Packaging net sales were $12.5
billion in 2013 compared with $11.6 billion in 2012 and
$8.6 billion in 2011. Operating profits in 2013 were $1.8
billion (both including and excluding costs associated
with the integration of Temple-Inland and other special
items) compared with $1.0 billion ($1.3 billion excluding
costs associated with the acquisition and integration of
Temple-Inland and mill divestiture costs) in 2012 and
$1.1 billion (both including and excluding costs
associated with signing an agreement to acquire
Temple-Inland) in 2011.

Sales volumes decreased in 2013 compared with 2012
reflecting flat demand for boxes and the impact of
commercial decisions. Average sales price realizations
were significantly higher mainly due to the realization
of price increases for domestic containerboard and
boxes. Input costs were higher for wood, energy and
recycled fiber. Freight costs also increased. Planned
maintenance downtime costs were higher than in 2012.
Manufacturing operating costs decreased, but were
offset by inflation and higher overhead and distribution
costs. The business took about 850,000 tons of total
downtime in 2013 of which about 450,000 were market-
related and 400,000 were maintenance downtime. In
2012, the business took about 945,000 tons of total
downtime of which about 580,000 were market-related
and about 365,000 were maintenance downtime.
Operating profits in 2013 included $62 million of costs
associated with the integration of Temple-Inland.
Operating profits in 2012 included $184 million of costs
associated with the acquisition and integration of
Temple-Inland and $91 million of costs associated with
the divestiture of three containerboard mills.

Looking ahead to 2014, compared with the fourth
quarter of 2013, sales volumes in the first quarter are
expected to increase for boxes due to a higher number
of shipping days offset by the impact from the severe
winter weather events impacting much of the U.S. Input
costs are expected to be higher for energy, recycled
fiber, wood and starch. Planned maintenance downtime
spending is expected to be about $51 million higher with
outages scheduled at six mills compared with four mills
in the 2013 fourth quarter. Manufacturing operating
costs are expected to be lower. However, operating
profits will be negatively impacted by the adverse winter
weather in the first quarter of 2014.

EMEA Industrial Packaging net sales in 2013 include the
sales of our packaging operations in Turkey which are
now fully consolidated. Net sales were $1.3 billion in
2013 compared with $1.0 billion in 2012 and $1.1 billion
in 2011. Operating profits in 2013 were $43 million ($32

million excluding a gain on a bargain purchase price
adjustment on the acquisition of a majority share of our
operations in Turkey and restructuring costs) compared
with $53 million ($72 million excluding restructuring
costs) in 2012 and $66 million ($61 million excluding a
gain for a bargain purchase price adjustment on an
acquisition by our then joint venture in Turkey and costs
associated with the closure of our Etienne mill in France
in 2009) in 2011.

for packaging

Sales volumes in 2013 were higher than in 2012
the
reflecting strong demand
agricultural markets in Morocco and Turkey. In Europe,
sales volumes decreased slightly due to continuing
weak demand for packaging in the industrial markets,
and lower demand for packaging in the agricultural
markets resulting from poor weather conditions.
Average sales margins were significantly lower due to
input costs for containerboard rising ahead of box sales
price increases. Other input costs were also higher,
primarily for energy. Operating profits in 2013 and 2012
included net gains of $13 million and $10 million,
respectively, for insurance settlements and Italian
government grants, partially offset by additional
operating costs, related to the earthquakes in Northern
Italy in May 2012 which affected our San Felice box
plant.

Entering the first quarter of 2014, sales volumes are
expected to increase slightly reflecting higher demand
for packaging in the industrial markets. Average sales
margins are expected to gradually improve as a result
of slight reductions in material costs and planned box
price increases. Other input costs should be about flat.

Brazilian Industrial Packaging includes the results of Orsa
International Paper Embalagens S.A., a corrugated
packaging producer in which International Paper
acquired a 75% share in January 2013. Net sales were
$335 million in 2013. Operating profits in 2013 were a
loss of $2 million (a gain of $2 million excluding
acquisition and integration costs).

Looking ahead to the first quarter of 2014, sales
volumes are expected to be seasonally lower than in
the fourth quarter of 2013. Average sales margins
should improve reflecting the partial implementation of
an announced sales price increase and a more
favorable product mix. Operating costs and input costs
are expected to be lower.

Asian Industrial Packaging net sales were $400 million in
2013 compared with $400 million in 2012 and $410
million in 2011. Operating profits for the packaging
operations were a loss of $5 million in 2013 (a loss of
$1 million excluding restructuring costs) compared with
gains of $2 million in 2012 and $2 million in 2011.
Operating profits were favorably impacted in 2013 by
higher average sales margins and slightly higher sales
volumes compared with 2012, but these benefits were

offset by higher operating costs. Looking ahead to the
first quarter of 2014, sales volumes and average sales
margins are expected to be seasonally soft.

Net sales for the distribution operations were $285
million in 2013 compared with $260 million in 2012 and
$285 million in 2011. Operating profits were $3 million
in 2013, 2012 and 2011.

Printing Papers

Demand for Printing Papers products is closely
correlated with changes in commercial printing and
advertising activity, direct mail volumes and, for
uncoated cut-size products, with changes in white-
collar employment levels that affect the usage of copy
and laser printer paper. Pulp is further affected by
changes in currency rates that can enhance or
disadvantage producers
in different geographic
regions. Principal cost drivers include manufacturing
efficiency, raw material and energy costs and freight
costs.

Printing Papers net sales for 2013 were about flat with
both 2012 and 2011. Operating profits in 2013 were
55% lower than in 2012 and 69% lower than in 2011.
Excluding facility closure costs and impairment costs,
operating profits in 2013 were 15% lower than in 2012
and 40% lower than in 2011. Benefits from lower
operating costs ($81 million) and lower maintenance
outage costs ($17 million) were more than offset by
lower average sales price realizations ($38 million),
lower sales volumes ($14 million), higher input costs
($99 million) and higher other costs ($34 million). In
addition, operating profits in 2013 included costs of
$118 million associated with the announced closure of
the
our Courtland, Alabama mill. During 2013,
for certain
Company accelerated depreciation
Courtland assets, and diligently evaluated certain other
assets for possible alternative uses by one of our other
businesses. The net book value of these assets at
December 31, 2013 was approximately $470 million.
During 2014, we have continued our evaluation and
expect to conclude as to any uses for these assets
during the first quarter of 2014. Operating profits also
included a $123 million impairment charge associated
with goodwill and a trade name intangible asset in our
India Papers business. Operating profits in 2011
included a $24 million gain related to the announced
repurposing of our Franklin, Virginia mill to produce fluff
pulp and an $11 million impairment charge related to
our Inverurie, Scotland mill that was closed in 2009.

Printing Papers

In millions

Sales

Operating Profit

2012

2013

2011
$ 6,205 $ 6,230 $ 6,215
872

599

271

North American Printing Papers net sales were $2.6 billion
in 2013, $2.7 billion in 2012 and $2.8 billion in 2011.

Operating profits in 2013 were $36 million ($154 million
excluding costs associated with
the announced
shutdown of our Courtland, Alabama mill) compared
with $331 million in 2012 and $423 million ($399 million
excluding a gain associated with the repurposing of our
Franklin, Virginia mill) in 2011.

Sales volumes in 2013 decreased compared with 2012.
Average sales margins were lower, reflecting lower
sales prices in both domestic and export markets. Input
costs increased, primarily for wood and chemicals.
Planned maintenance downtime costs were lower in
2013. Operating profits in 2013 were also negatively
impacted by costs associated with the partial shutdown
of our Courtland, Alabama mill.

Entering the first quarter of 2014, sales volumes are
expected to decrease compared with the fourth quarter
of 2013 due to the repositioning of the business related
to the Courtland shutdown. Average sales price
realizations are expected to be higher as sales price
increases announced in the fall of 2013 are fully
realized. Input costs should increase for energy and
chemicals, but will be partially offset by lower wood
costs. Planned maintenance downtime costs are
expected to be about $11 million higher with outages
scheduled at our Georgetown, Eastover and Riverdale
mills. In addition, the severe winter weather in the first
quarter of 2014 will adversely impact operating profits.

Brazilian Papers net sales for 2013 were $1.1 billion
compared with $1.1 billion in 2012 and $1.2 billion in
2011. Operating profits for 2013 were $210 million
compared with $163 million in 2012 and $169 million in
2011. Sales volumes in 2013 increased in Brazil and
across Latin America resulting in reduced exposure to
foreign export markets. Average sales price realizations
improved for domestic uncoated freesheet paper, but
the benefit was partially offset by declining prices for
exported paper. Margins were favorably affected by an
increased proportion of sales to the higher-margin
domestic market. Raw material costs increased for
wood, purchased pulp and chemicals, but costs for
energy decreased due to the start-up and operation of
the biomass boiler in Mogi Guacu. Operating costs and
planned maintenance downtime costs were lower than
in 2012.

Looking ahead to 2014, sales volumes in the first
quarter are expected to decrease due to seasonally
weaker customer demand for uncoated freesheet
paper. Average sales price realizations are expected to
increase in the Brazilian domestic market due to the
realization of announced sales price increases for
uncoated freesheet paper. Input costs are expected to
be about flat with higher wood costs offset by lower
purchased pulp costs. Planned maintenance outage
costs should be $4 million lower with no outages
scheduled in the first quarter.

European Papers net sales in 2013 were $1.5 billion
compared with $1.4 billion in 2012 and $1.4 billion in
2011. Operating profits in 2013 were $167 million
compared with $179 million in 2012 and $196 million
($207 million excluding asset impairment charges
related to our Inverurie, Scotland mill which was closed
in 2009) in 2011.

lower

Compared with 2012, sales volumes for uncoated
freesheet paper in 2013 were higher in Russia, but
slightly
in Europe. Average sales price
realizations for uncoated freesheet paper decreased in
both Europe and Russia, reflecting weak economic
conditions and soft market demand. Input costs for
wood and energy were lower in Europe, but higher in
Russia. Planned maintenance downtime costs were
lower in 2013 because 2012 included an extra once-
every-ten-years maintenance outage at the Saillat mill.
Manufacturing operating costs were favorable.

Entering 2014, sales volumes in the first quarter are
expected to be seasonally weaker in Russia, and
slightly lower, primarily for pulp, in Europe. Average
sales price realizations for uncoated freesheet paper
are expected to decrease in Russia, but be about flat
in Europe. Input costs should be higher for energy and
chemicals. Mill maintenance outage costs should be
$14 million lower in the first quarter of 2014.

Indian Papers includes the results of Andhra Pradesh
Paper Mills (APPM) of which a 75% interest was
acquired on October 14, 2011. Net sales were $185
million in 2013, $185 million in 2012 and $35 million in
2011. Operating profits were a loss of $145 million (a
loss of $22 million excluding the goodwill and trade
name impairment charges) in 2013, a loss of $16 million
in 2012 and a loss of $3 million in 2011.

Average sales price realizations improved significantly
in 2013 compared with 2012, although sales volumes
decreased. Input costs were higher, primarily for wood.
Operating costs and planned maintenance downtime
costs were higher in 2013. Looking ahead to the first
quarter of 2014, sales volumes are expected to be
seasonally higher. Average sales price realizations
should continue to increase due to the further realization
of price increases announced in the fourth quarter of
2013.

Asian Printing Papers net sales were $90 million in 2013,
$85 million in 2012 and $75 million in 2011. Operating
profits were $1 million in both 2013 and 2012 and
breakeven in 2011.

U.S. Pulp net sales were $815 million in 2013 compared
with $725 million in 2012 and $725 million in 2011.
Operating profits were $2 million in 2013 compared with
a loss of $59 million in 2012 and a gain of $87 million
in 2011.

Sales volumes in 2013 increased from 2012, primarily
for fluff pulp, reflecting improved market demand and
a change in our product mix with a full year of fluff pulp
production at our Franklin, Virginia mill. Average sales
price realizations were lower for fluff pulp while prices
for market pulp increased. Input costs for wood, fuels
and chemicals were higher. Mill operating costs were
significantly lower largely due to the absence of costs
associated with the start-up of the Franklin mill in 2012.
Planned maintenance downtime costs were higher.

In the first quarter of 2014, sales volumes are expected
to be slightly lower compared with the fourth quarter of
2013. Average sales price realizations are expected to
improve, reflecting the further realization of previously
announced sales price increases for softwood pulp and
flat. Planned
fluff pulp.
maintenance downtime costs should be about $11
million higher than in the fourth quarter of 2013.
Operating profits will also be negatively impacted by the
severe winter weather in the first quarter of 2014.

Input costs should be

Consumer Packaging

Demand and pricing for Consumer Packaging products
correlate closely with consumer spending and general
economic activity. In addition to prices and volumes,
major factors affecting the profitability of Consumer
Packaging are raw material and energy costs, freight
costs, manufacturing efficiency and product mix.

Consumer Packaging net sales in 2013 increased 8% from
2012, but decreased 7% from 2011. Operating profits
decreased 40% from 2012 and 1% from 2011. Net sales
and operating profits include the Shorewood business
in 2011. Excluding costs associated with the permanent
shutdown of a paper machine at our Augusta, Georgia
mill and costs associated with the sale of the
Shorewood business, 2013 operating profits were 22%
lower than in 2012, and 43% lower than in 2011.

Benefits from higher sales volumes ($45 million) were
offset by lower average sales price realizations and an
unfavorable mix ($50 million), higher operating costs
including incremental costs resulting from the shutdown
of a paper machine at our Augusta, Georgia mill ($46
million) and higher input costs ($6 million). In addition,
operating profits in 2013 included restructuring costs of
$45 million related to the permanent shutdown of a
paper machine at our Augusta, Georgia mill and $2
million of costs associated with the sale of the
Shorewood business. Operating profits
in 2012
included a gain of $3 million related to the sale of the
Shorewood business, while operating profits in 2011
included a $129 million fixed asset impairment charge
for the North American Shorewood business and $72
million for other charges associated with the sale of the
Shorewood business.

Consumer Packaging

In millions

Sales

Operating Profit

2012

2013

2011
$ 3,435 $ 3,170 $ 3,710
163

161

268

North American Consumer Packaging net sales were $2.0
billion in 2013 compared with $2.0 billion in 2012 and
$2.5 billion in 2011. Operating profits were $63 million
($110 million excluding paper machine shutdown costs
and costs related to the sale of the Shorewood
business) in 2013 compared with $165 million ($162
million excluding charges associated with the sale of
the Shorewood business) in 2012 and $35 million ($236
million excluding asset impairment charges and other
costs associated with the sale of the Shorewood
business) in 2011.

Coated Paperboard sales volumes in 2013 were higher
than in 2012 reflecting stronger market demand.
Average sales price realizations were lower year-over-
year despite the realization of price increases in the
second half of 2013. Input costs for wood and energy
increased, but were partially offset by lower costs for
chemicals. Planned maintenance downtime costs were
slightly lower. Market-related downtime was about
24,000 tons in 2013 compared with about 113,000 tons
in 2012. The permanent shutdown of a paper machine
at our Augusta, Georgia mill in the first quarter of 2013
reduced capacity by 140,000 tons in 2013 compared
with 2012.

Foodservice sales volumes increased slightly in 2013
compared with 2012 despite softer market demand.
Average sales margins were higher reflecting lower
input costs for board and resins and a more favorable
product mix. Operating costs and distribution costs
were both higher.

The U.S.Shorewood business was sold December 31,
2011 and the non-U.S. business was sold in January
2012.

Looking ahead to the first quarter of 2014, Coated
Paperboard sales volumes are expected
to be
seasonally weaker than in the fourth quarter of 2013.
Average sales price realizations are expected to be
slightly higher, and margins should also benefit from a
more favorable product mix. Input costs are expected
to be higher for energy, chemicals and wood. Planned
maintenance downtime costs should be $8 million lower
with a planned maintenance outage scheduled at the
Augusta mill in the first quarter. The severe winter
weather in the first quarter of 2014 will negatively impact
operating profits. Foodservice sales volumes are
expected to be seasonally lower. Average sales
margins are expected to improve due to the realization
of sales price increases effective with our January
contract openers and a more favorable product mix.

Input costs for board and resin are expected to be flat
and operating costs are expected to decrease.

European Consumer Packaging net sales in 2013 were
$380 million compared with $380 million in 2012 and
$375 million in 2011. Operating profits in 2013 were
$100 million compared with $99 million in 2012 and $93
million in 2011. Sales volumes in 2013 decreased from
2012 in both the European and Russian markets.
Average sales price realizations were significantly
higher in the Russian market, but were lower in Europe.
flat year-over-year. Planned
Input costs were
maintenance downtime costs were higher in 2013 than
in 2012.

Looking forward to the first quarter of 2014, sales
volumes compared with the fourth quarter of 2013 are
expected to be about flat. Average sales price
realizations are expected to be higher in both Russia
and Europe. Input costs are expected to increase for
wood and energy, but decrease for purchased pulp.
There are no maintenance outages scheduled for the
first quarter, however the Kwidzyn mill will have
additional costs associated with the rebuild of a coated
board machine.

Asian Consumer Packaging net sales were $1.1 billion in
2013 compared with $830 million in 2012 and $855
million in 2011. Operating profits in 2013 were a loss of
$2 million compared with gains of $4 million in 2012 and
$35 million in 2011. Sales volumes increased in 2013
compared with 2012, reflecting the ramp-up of a new
coated paperboard machine
in 2012.
However, average sales price realizations were
significantly lower, reflecting competitive pressure on
sales prices which squeezed margins and created an
unfavorable product mix. Lower input costs were offset
by higher freight costs. In 2012, start-up costs for the
new coated paperboard machine adversely impacted
operating profits.

installed

In the first quarter of 2014, sales volumes are expected
to increase slightly. Average sales price realizations are
expected to be flat reflecting continuing competitive
pressures. Input costs are expected be higher for pulp,
energy and chemicals. The business will drive margin
improvement through operational excellence and better
mix.

Distribution

xpedx, our distribution business, is one of North
America’s leading business-to-business distributors to
manufacturers,
facility managers and printers,
providing customized solutions that are designed to
improve efficiency, reduce costs and deliver results.
Customer demand is generally sensitive to changes in
economic conditions and consumer behavior, along
with segment specific activity including corporate
advertising and promotional spending, government
spending and domestic manufacturing activity.
Distribution’s margins are relatively stable across an
economic cycle. Providing customers with the best
choice for value in both products and supply chain
services is a key competitive factor. Additionally,
efficient customer service, cost-effective logistics and
focused working capital management are key factors
in this segment’s profitability.

Distribution

In millions

Sales

Operating Profit

2013

2012

2011
$ 5,650 $ 6,040 $ 6,630
34

(389)

Distribution’s 2013 annual sales decreased 6% from
2012, and decreased 15% from 2011. Operating profits
in 2013 were a loss of $389 million (a gain of $43 million
and
excluding
reorganization costs) compared with $22 million ($71
million excluding reorganization costs) in 2012 and $34
million ($86 million excluding reorganization costs) in
2011.

impairment

goodwill

charges

and

demand

declining

reflecting

Annual sales of printing papers and graphic arts
supplies and equipment totaled $3.2 billion in 2013
compared with $3.5 billion in 2012 and $4.0 billion in
the
2011
discontinuation of a distribution agreement with a large
manufacturer of graphic supplies. Trade margins as a
percent of sales for printing papers were down from
both 2012 and 2011. Revenue from packaging products
was flat at $1.6 billion in 2013, 2012 and 2011 despite
the significant decline of a large high-tech customer's
business. Packaging margins remained flat to the 2012
level, and up from 2011. Facility supplies annual
revenue was $845 million in 2013, down from $944
million in 2012 and $981 million in 2011.

in 2013

Operating profits
included a goodwill
impairment charge of $400 million and reorganization
costs for severance, professional services and asset
write-downs of $32 million. Operating profits in 2012
and 2011 included reorganization costs of $49 million
and $52 million, respectively.

Looking ahead to the 2014 first quarter, operating profits
will be seasonally lower, but will continue to reflect the
benefits of strategic and other cost reduction initiatives.

The severe winter weather in the first quarter of 2014
will have a negative impact on operating profits.

Equity Earnings, Net of Taxes – Ilim Holding S.A.

financial

information

consolidated

International Paper accounts for its investment in Ilim
Holding S.A. (Ilim), a separate reportable industry
segment, using the equity method of accounting. Prior
to 2012, due to the complex organizational structure of
Ilim’s operations, and the extended time required to
prepare
in
accordance with accounting principles generally
accepted in the United States, the Company reported
its share of Ilim’s operating results on a one-quarter lag
basis. In 2012, the Company determined that the
elimination of the one-quarter lag was preferable
because the same period-end reporting date improves
overall financial reporting as the impact of current
events, economic conditions and global trends are
consistently reflected in the financial statements.
Beginning January 1, 2012, the Company has applied
this change in accounting principle retrospectively to all
prior financial reporting periods presented.

The elimination of the one-quarter reporting lag for Ilim
had the following impact:

Consolidated Statement of Operations

In millions

Equity earnings (loss), net of taxes

Earnings (loss) from continuing operations

Net earnings (loss) attributable to International Paper
Company

Basic earnings (loss) per share from continuing
operations

Basic net earnings (loss) per share

Diluted earnings (loss) per share from continuing
operations

Diluted net earnings (loss) per share

2011

(19)

(0.04)

The Company recorded equity earnings, net of taxes,
related to Ilim of a loss of $46 million in 2013 compared
with gains of $56 million in 2012 and $134 million in
2011. Operating results recorded in 2013 included an
after-tax foreign exchange loss of $32 million compared
with an after-tax foreign exchange gain of $16 million
in 2012 on the remeasurement of U.S. dollar-
denominated debt.

Sales volumes for the joint venture decreased year-
over-year for shipments to China as a slight increase
for softwood pulp was more than offset by decreases
for hardwood pulp and linerboard. Sales volumes in the
domestic Russian market also decreased for softwood
and hardwood pulp and linerboard. Average sales price
realizations were slightly higher in 2013 for pulp and
linerboard in the domestic market and considerably
higher for pulp and linerboard sales to China. Input
costs increased for wood and energy year-over-year.

Freight costs also increased. Operating profits were
negatively impacted by costs associated with the ramp-
up of a new pulp line at the Bratsk mill and a coated
the
and uncoated woodfree paper machine at
Koryazhma mill which were placed in service and began
commercial production during 2013. The Company
received cash dividends from the joint venture of $86
million in 2011. No dividends were paid in 2013 and
2012.

Entering the first quarter of 2014, sales volumes are
expected to be higher than in the fourth quarter of 2013
due to increased production from the continuing ramp-
up of the new equipment. Average sales price
realizations are expected to be higher, primarily for
softwood pulp. Input costs should be flat.

LIQUIDITY AND CAPITAL RESOURCES

Overview

A major factor in International Paper’s liquidity and
capital resource planning is its generation of operating
cash flow, which is highly sensitive to changes in the
pricing and demand for our major products. While
changes in key cash operating costs, such as energy,
raw material and transportation costs, do have an effect
on operating cash generation, we believe that our focus
on pricing and cost controls has improved our cash flow
generation over an operating cycle.

Cash uses during 2013 were primarily focused on
working capital
requirements, capital spending,
strategic acquisitions, debt reductions and returning
cash to shareholders.

Cash Provided by Operating Activities

Cash provided by continuing operations totaled $3.0
billion in 2013 compared with $3.0 billion for 2012 and
$2.7 billion for 2011.

The major components of cash provided by continuing
operations are earnings from continuing operations
adjusted for non-cash income and expense items and
changes in working capital. Earnings from continuing
operations, adjusted for non-cash income and expense
items, increased by $608 million in 2013 versus 2012
driven mainly by the release of tax reserves, partially
offset by the impairment of goodwill and other intangible
assets. Cash used for working capital components,
accounts receivable and inventory less accounts
payable and accrued liabilities, interest payable and
other totaled $486 million in 2013, compared with cash
provided of $84 million in 2012 and a cash use of $505
million in 2011.

The Company generated
flow of
approximately $1.8 billion, $1.6 billion and $1.7 billion
in 2013, 2012 and 2011, respectively. Free cash flow is
a non-GAAP measure and the most comparable GAAP

free cash

measure is cash provided by operations. Management
uses free cash flow as a liquidity metric because it
measures the amount of cash generated that is
available to maintain our assets, make investments or
acquisitions, pay dividends and reduce debt. The
following are reconciliations of free cash flow to cash
provided by operations:

In millions

Cash provided by operations
(Less)/Add:

2013

2012

2011

$ 2,998 $ 2,960 $ 2,675

Cash invested in capital projects

(1,198)

(1,383)

(1,159)

Cash contribution to pension plan,
net of tax refunds
Cash (received from) used for
European accounts receivable
securitization program

Tax receivable collected related to
pension contributions

Cash received from unwinding a
timber monetization

Change in control payments related
to Temple-Inland acquisition

Insurance reimbursement for
Guaranty Bank settlement

300

—

209

(123)

(251)

(175)

—

120

(30)

—

Free Cash Flow

$ 1,801 $ 1,570 $ 1,727

Three
Months
Ended
December
31, 2013

Three
Months
Ended
September
30, 2013

Three
Months
Ended
December
31, 2012

In millions

Cash provided by
operations

(Less)/Add:

Cash invested in
capital projects

(439)

(271)

(382)

Cash paid for Guaranty
Bank settlement

—

Free Cash Flow

595 $

454 $

384

Alternative Fuel Mixture Credit

On July 19, 2011 the Company filed an amended 2009
tax return claiming alternative fuel mixture tax credits
as non-taxable income. The amended position has
been accepted by the Internal Revenue Service (IRS)
in the closing of the IRS tax audit for the years 2006 -
2009. As a result, during 2013,
the Company
recognized an income tax benefit of $753 million related
to the non-taxability of the alternative fuel mixture tax
credits.

During 2009, the Company produced 64 million gallons
of black liquor that were not eligible for the alternative
fuel mixture credit. The Company claimed these gallons
for the cellulosic bio-fuel credit by amending the
Company’s 2009 tax return. The impact of this
amendment was included in the Company’s 2010 fourth
quarter Income tax provision (benefit), resulting in a $40
million net credit to tax expense. Temple-Inland, Inc.
also recognized an income tax benefit of $83 million in
2010 related to cellulosic bio-fuel credits.

Investment Activities

Investment activities in 2013 were down from 2012
reflecting a decrease in capital spending, increased
divestiture proceeds following the completion of the
Building Products sale in July 2013, and the 2012
acquisition of Temple-Inland. The Company maintains
an average capital spending target of $1.0 billion per
year over the course of an economic cycle. Capital
spending for continuing operations was $1.2 billion in
2013, or 77% of depreciation and amortization,
compared with $1.4 billion in 2012, or 93% of
depreciation and amortization, and $1.2 billion, or 87%
of depreciation and amortization in 2011. Across our
businesses, capital spending as a percentage of
depreciation and amortization ranged from 56% to 82%
in 2013.

following

The
for
continuing operations by business segment for the
years ended December 31, 2013, 2012 and 2011.

table shows capital spending

In millions

Industrial Packaging

Printing Papers

Consumer Packaging

Distribution

Subtotal
Corporate and other

2013

2012

2011

629 $

565 $ 426

294

208

9
1,140

449

296

10
1,320

364

310

8
1,108

51
$ 1,198 $ 1,383 $ 1,159

Capital expenditures in 2014 are currently expected to
be about $1.4 billion, or 95% of depreciation and
amortization.

Acquisitions

2013: On January 3, 2013, International Paper
completed the acquisition (effective date of acquisition
on January 1, 2013) of the shares of its joint venture
partner, Sabanci Holding, in the Turkish corrugated
packaging company, Olmuksa International Paper
Sabanci Ambalaj Sanayi ve Ticaret A.S. (now called
Olmuksan International Paper or Olmuksan), for a
purchase price of $56 million. The acquired shares
represent 43.7% of Olmuksan's shares. Prior to this
acquisition, International Paper held a 43.7% equity
interest in Olmuksan.

issued shares

Because the transaction resulted in International Paper
becoming the majority shareholder, owning 87.4% of
Olmuksan's outstanding and
its
completion triggered a mandatory call for tender of the
remaining public shares which began in March 2013
and ended in April 2013, with no shares tendered. As
a result, the 12.6% owned by other parties are
considered non-controlling
interests. Olmuksan's
financial results have been consolidated with the
Company's Industrial Packaging segment beginning

1,034 $

725 $

686

Total from Continuing Operations

January 1, 2013, the effective date which International
Paper obtained majority control of the entity.

Following the transaction, the Company's previously
held 43.7% equity
in Olmuksan was
interest
remeasured to a fair value of $75 million, resulting in a
gain of $9 million. The fair value was estimated by
applying the discounted cash flow approach, using a
13% discount rate, long-term sustainable growth rates
ranging from 6% to 9% and a corporate tax rate of 20%.
In addition, the cumulative translation adjustment
balance of $17 million relating to the previously held
equity interest was reclassified, as expense, from
accumulated other comprehensive income.

The final purchase price allocation indicates that the
sum of the cash consideration paid, the fair value of the
noncontrolling interest and the fair value of the
previously held interest is less than the fair value of the
underlying assets by $21 million, resulting in a bargain
purchase price gain being recorded on this transaction.
The aforementioned remeasurement of equity interest
gain, the cumulative translation adjustment to expense,
and the bargain purchase gain are included in the Net
bargain purchase gain on acquisition of business in the
accompanying consolidated statement of operations.

2012: On February 13, 2012, International Paper
completed the acquisition of Temple-Inland, Inc.
(Temple-Inland). International Paper acquired all of the
outstanding common stock of Temple-Inland for $32.00
per share in cash, totaling approximately $3.7 billion,
and assumed approximately $700 million of Temple-
Inland’s debt. As a condition to allowing the transaction
to proceed, the Company entered into an agreement
on a Final Judgment with the Antitrust Division of the
U.S. Department of Justice (DOJ) that required the
Company to divest three containerboard mills, with
approximately
aggregate
containerboard capacity. On July 2, 2012, International
Paper sold its Ontario and Oxnard (Hueneme),
to New-Indy
California
Containerboard LLC, and
its New Johnsonville,
Tennessee containerboard mill to Hood Container
Corporation. By completing these transactions, the
Company satisfied its divestiture obligations under the
Final Judgment. See Note 7 for further details of these
divestitures.

containerboard mills

970,000

tons

Temple-Inland's results of operations are included in
the consolidated financial statements from the date of
acquisition on February 13, 2012.

2011: On October 14, 2011, International Paper
completed the acquisition of a 75% stake in Andhra
Pradesh Paper Mills Limited (APPM). The Company
purchased 53.5% of APPM for a purchase price of $226
million in cash plus assumed debt from private
investors. These sellers also entered into a covenant

not to compete for which they received a cash payment
of $58 million. Additionally, the Company purchased a
21.5% stake of APPM in a public tender offer completed
in cash.
for $105 million
on October 8, 2011
recognized an unfavorable
International Paper
currency
to
loss of $9 million due
transaction
strengthening of the dollar against the Indian Rupee
prior to the closing date, resulting from cash balances
deposited in Indian Rupee denominated escrow
accounts.

In November 2011, International Paper appealed a
directive from the Securities and Exchange Board of
India (SEBI) that would require us to pay to the tendering
shareholders the equivalent per share value of the non-
compete payment that was paid to the previous
controlling shareholders. The Company has deposited
approximately $25 million into an escrow account to
fund the additional non-compete payments in the event
is upheld. By an order dated
SEBI’s direction
September 12, 2012, the Indian Securities Appellate
Tribunal (SAT) upheld the SEBI directive. As a result of
this initial unfavorable ruling, International Paper
included the $25 million escrowed cash amount in the
final purchase price consideration of APPM. On
October 8, 2012, International Paper appealed the
SAT's decision to the Indian Supreme Court.

APPM's results of operations are included in the
consolidated financial statements from the date of
acquisition on October 14, 2011.

Joint Ventures

2013: On January 14, 2013, International Paper and
Brazilian corrugated packaging producer, Jari Celulose
Papel e Embalagens S.A (Jari), a Grupo Orsa company,
formed Orsa International Paper Embalagens S.A.
(Orsa IP). The new entity, in which International Paper
holds a 75% stake, includes three containerboard mills
and four box plants, which make up Jari's former
industrial packaging assets. This acquisition supports
the Company's strategy of growing its global packaging
presence and better serving its global customer base.

The value of International Paper's investment in Orsa
IP is approximately $471 million. Because International
paper acquired a majority control of the joint venture,
Orsa IP's financial results have been consolidated with
our Industrial Packaging segment from the date of
formation on January 14, 2013.

2011: On April 15, 2011, International Paper and Sun
Paper Industry Co. Ltd. entered into a Cooperative Joint
Venture agreement to establish Shandong IP & Sun
Food Packaging Co., Ltd. in China. During December
2011,
license was obtained and
International Paper contributed $55 million in cash for
a 55% interest in the joint venture and Sun Paper

the business

line

Industry Co. Ltd. contributed land-use rights valued at
approximately $28 million, representing a 45% interest.
The purpose of the joint venture is to build and operate
to manufacture coated
a new production
paperboard for food packaging with a designed annual
production capacity of 500,000 tons. The financial
position and results of operations of this joint venture
International Paper’s
in
have been
consolidated financial statements from the date of
formation in December 2011.

included

Additionally, during 2011 the Company recorded a gain
of $7 million (before and after taxes) related to a bargain
purchase price adjustment on an acquisition by our joint
venture in Turkey. This gain is included in Equity
earnings (losses), net of taxes in the accompanying
consolidated statement of operations.

Financing Activities

Amounts related to early debt extinguishment during
the years ended December 31, 2013, 2012 and 2011
were as follows:

In millions

Debt reductions (a)

2013

2012

2011

574 $1,272 $ 129

Pre-tax early debt extinguishment
costs (b)

(a) Reductions related to notes with interest rates ranging from
1.625% to 9.375% with original maturities from 2012 to 2041
for the years ended December 31, 2013, 2012 and 2011.
(b) Amounts are included in Restructuring and other charges in
the accompanying consolidated statements of operations.

2013: Financing activities during 2013 included debt
issuances of $241 million and retirements of $845
million, for a net decrease of $604 million.

International Paper utilizes interest rate swaps to
change the mix of fixed and variable rate debt and
manage interest expense. At December 31, 2013,
International Paper had interest rate swaps with a total
notional amount of $175 million and maturities in 2018
(see Note 14 Derivatives and Hedging Activities on
pages 76 through 80 of Item 8. Financial Statements
and Supplementary Data). During 2013, existing swaps
and the amortization of deferred gains on previously
terminated swaps decreased the weighted average
cost of debt from 6.7% to an effective rate of 6.5%. The
inclusion of the offsetting interest income from short-
term investments reduced this effective rate to 6.2%.

Other financing activities during 2013 included the net
repurchase of approximately 10.9 million shares of
treasury stock, including restricted stock withholding,
and 7.3 million shares of common stock for various
plans, including stock options exercises that generated
approximately $298 million of cash. Repurchases of
common stock and payments of restricted stock
withholding taxes totaled $512 million, including $461

million related to shares repurchased under the
Company's share repurchase program.

In September 2013, International Paper announced
that the quarterly dividend would be increased from
$0.30 per share to $0.35 per share, effective for the
2013 fourth quarter.

2012: Financing activities during 2012 included debt
issuances of $2.1 billion and retirements of $2.5 billion,
for a net decrease of $356 million.

In February 2012, International Paper issued a $1.2
billion term loan with an initial interest rate of LIBOR
plus a margin of 138 basis points that varies depending
on the credit rating of the Company and a $200 million
term loan with an interest rate of LIBOR plus a margin
of 175 basis points, both with maturity dates in 2017.
The proceeds from these borrowings were used, along
with available cash, to fund the acquisition of Temple-
Inland. During 2012, International Paper fully repaid the
$1.2 billion term loan.

International Paper utilizes interest rate swaps to
change the mix of fixed and variable rate debt and
manage interest expense. At December 31, 2012,
International Paper had interest rate swaps with a total
notional amount of $150 million and maturities in 2013
(see Note 14 Derivatives and Hedging Activities on
pages 76 through 80 of Item 8. Financial Statements
and Supplementary Data). During 2012, existing swaps
and the amortization of deferred gains on previously
terminated swaps decreased the weighted average
cost of debt from 6.8% to an effective rate of 6.6%. The
inclusion of the offsetting interest income from short-
term investments reduced this effective rate to 6.2%.

Other financing activities during 2012 included the
issuance of approximately 1.9 million shares of treasury
stock, net of restricted stock withholding, and 1.0 million
shared of common stock for various incentive plans,
including stock options exercises that generated
approximately $108 million of cash. Payment of
restricted stock withholding taxes totaled $35 million.

2011: Financing activities during 2011 included debt
issuances of $1.8 billion and retirements of $517 million,
for a net increase of $1.3 billion.

In November 2011, International Paper issued $900
million of 4.75% senior unsecured notes with a maturity
date in February 2022 and $600 million of 6% senior
unsecured notes with a maturity date in November
2041.

At December 31, 2011, International Paper had interest
rate swaps with a total notional amount of $150 million
and maturities in 2013 (see Note 14 Derivatives and
Hedging Activities on pages 76 through 80 of Item 8.
Financial Statements and Supplementary Data).
During 2011, existing swaps decreased the weighted

average cost of debt from 7.1% to an effective rate of
6.9%. The inclusion of the offsetting interest income
from short-term investments reduced this effective rate
to 6.26%.

Other financing activities during 2011 included the
issuance of approximately 0.3 million shares of treasury
stock for various incentive plans and the acquisition of
1.0 million shares of treasury stock primarily related to
restricted stock withholding
taxes. Payments of
restricted stock withholding taxes totaled $30 million.

Off-Balance Sheet Variable Interest Entities

Information concerning off-balance sheet variable
interest entities is set forth in Note 12 Variable Interest
Entities and Preferred Securities of Subsidiaries on
pages 72 through 75 of Item 8. Financial Statements
and Supplementary Data for discussion.

Liquidity and Capital Resources Outlook for 2014

Capital Expenditures and Long-Term Debt

International Paper expects to be able to meet projected
capital expenditures, service existing debt and meet
working capital and dividend requirements during 2014
through current cash balances and cash
from
operations. Additionally, the Company has existing
credit facilities totaling $2.0 billion.

The Company was in compliance with all its debt
covenants at December 31, 2013. The Company’s
financial covenants require the maintenance of a
minimum net worth of $9 billion and a total debt-to-
capital ratio of less than 60%. Net worth is defined as
the sum of common stock, paid-in capital and retained
earnings, less treasury stock plus any cumulative
goodwill impairment charges. The calculation also
excludes accumulated other comprehensive income/
loss and Nonrecourse Financial Liabilities of Special
Purpose Entities. The total debt-to-capital ratio is
defined as total debt divided by the sum of total debt
plus net worth. At December 31, 2013, International
Paper’s net worth was $15.1 billion, and the total-debt-
to-capital ratio was 39%.

The Company will continue to rely upon 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
the
planning objectives. The primary goals of
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.

Maintaining an investment grade credit rating is an
important element of International Paper’s financing
strategy. At December 31, 2013, the Company held

long-term credit ratings of BBB (stable outlook) and
Baa3
(stable outlook) by S&P and Moody’s,
respectively.

Contractual obligations for future payments under
existing debt and lease commitments and purchase
obligations at December 31, 2013, were as follows:

In millions

2014

2015

2016

2017

2018 Thereafter

Maturities of long-term
debt (a)

Debt obligations with
right of offset (b)

Lease obligations

Purchase obligations
(c)

661 $

498 $

571 $

285 $ 1,837 $

5,636

—

171

— 5,185

133

—

162

3,170

770

642

529

453

2,404

Total (d)

$ 4,002 $ 1,401 $ 6,495 $

888 $ 2,349 $

8,202

(a) Total debt includes scheduled principal payments only.
(b) Represents debt obligations borrowed from non-consolidated
variable interest entities for which International Paper has, and
intends to effect, a legal right to offset these obligations with
investments held in the entities. Accordingly, in its consolidated
balance sheet at December 31, 2013, International Paper has
offset approximately $5.2 billion of interests in the entities
against this $5.2 billion of debt obligations held by the entities
(see Note 12 Variable Interest Entities and Preferred
Securities of Subsidiaries on pages 72 through 75 in Item 8.
Financial Statements and Supplementary Data).
Includes $3.3 billion relating to fiber supply agreements
entered into at the time of the 2006 Transformation Plan
forestland sales and in conjunction with the 2008 acquisition
of Weyerhaeuser Company’s Containerboard, Packaging and
Recycling business.

(c)

(d) Not included in the above table due to the uncertainty as to
the amount and timing of the payment are unrecognized tax
benefits of approximately $146 million.

We consider the undistributed earnings of our foreign
subsidiaries as of December 31, 2013, to be indefinitely
reinvested and, accordingly, no U.S. income taxes have
been provided thereon. As of December 31, 2013, the
amount of cash associated with indefinitely reinvested
foreign earnings was approximately $900 million. We
do not anticipate the need to repatriate funds to the
United States to satisfy domestic liquidity needs arising
in the ordinary course of business, including liquidity
needs associated with our domestic debt service
requirements.

Pension Obligations and Funding

that are subject

At December 31, 2013, the projected benefit obligation
for
the Company’s U.S. defined benefit plans
determined under U.S. GAAP was approximately $2.2
billion higher than the fair value of plan assets.
Approximately $1.8 billion of this amount relates to
plans
funding
requirements. Under current IRS funding rules, the
calculation of minimum funding requirements differs
from the calculation of the present value of plan benefits
(the projected benefit obligation)
for accounting
purposes. In December 2008, the Worker, Retiree and
Employer Recovery Act of 2008 (WERA) was passed
by the U.S. Congress which provided for pension
funding relief and technical corrections. Funding

to minimum

contributions depend on the funding method selected
by the Company, and the timing of its implementation,
as well as on actual demographic data and the targeted
funding level. The Company continually reassesses the
amount and timing of any discretionary contributions
and elected to make contributions totaling $31 million
and $44 million for the years ended December 31, 2013
and 2012, respectively. At this time, we expect that
required contributions to its plans in 2014 will be
approximately $443 million, although the Company may
elect to make future voluntary contributions. The timing
and amount of future contributions, which could be
material, will depend on a number of factors, including
the actual earnings and changes in values of plan
assets and changes in interest rates.

Ilim Holding S.A. Shareholder’s Agreement

In October 2007, in connection with the formation of the
Ilim Holding S.A. joint venture, International Paper
entered into a shareholder’s agreement that includes
provisions relating to the reconciliation of disputes
among the partners. This agreement provides that
either the Company or its partners may commence
procedures specified under the deadlock provisions. In
prior years, had certain procedures been commenced
under the deadlock provisions, the Company would
have been required to purchase its partners’ 50%
interest in Ilim, but those provisions have expired. If
deadlock procedures are commenced today, 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,
International Paper estimates that the current purchase
price for its partners’ 50% interests would not be
material and could be satisfied by payment of cash or
International Paper common stock, or some
combination of the two, at the Company’s option. Any
such purchase by International Paper 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 provision of the shareholders’ agreement,
although they have the right to do so.

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 the accounting for contingencies,
impairment or disposal of long-lived assets and
goodwill, pensions and postretirement benefit
obligations, stock options and income taxes. The
Company has discussed the selection of critical
accounting policies and the effect of significant
estimates with the Audit Committee of the Company’s
Board of Directors.

Contingent Liabilities

Accruals for contingent liabilities, including legal and
environmental matters, are recorded when it is probable
that a liability has been incurred or an asset impaired
and the amount of the loss can be reasonably
estimated. Liabilities accrued for legal matters require
judgments regarding projected outcomes and range of
loss
and
historical
recommendations of legal counsel. Liabilities for
environmental matters require evaluations of relevant
environmental regulations and estimates of future
remediation alternatives and costs. International Paper
determines these estimates after a detailed evaluation
of each site.

experience

based

Impairment of Long-Lived Assets and Goodwill

An impairment of a long-lived asset exists when the
asset’s carrying amount exceeds its fair value, and is
recorded when the carrying amount is not recoverable
through cash flows from future operations. A goodwill
impairment exists when the carrying amount of goodwill
exceeds its fair value. Assessments of possible
impairments of long-lived assets and goodwill are made
when events or changes in circumstances indicate that
the carrying value of the asset may not be recoverable
through future operations. Additionally, testing for
possible impairment of goodwill and intangible asset
balances is required annually. The amount and timing
of any
these
assessments require the estimation of future cash flows
and the fair market value of the related assets based
on management’s best estimates of certain key factors,
including future selling prices and volumes, operating,
raw material, energy and freight costs, and various
other projected operating economic factors. As these
key factors change in future periods, the Company will
update its impairment analyses to reflect its latest
estimates and projections.

impairment charges based on

the provisions of Accounting Standards
Under
Codification (ASC) 350, “Intangibles – Goodwill and
Other,” the testing of goodwill for possible impairment
is a two-step process. In the first step, the fair value of
the Company’s reporting units is compared with their
carrying value, including goodwill. If fair value exceeds

the carrying value, goodwill is not considered to be
impaired. If the fair value of a reporting unit is below the
carrying value, then step two is performed to measure
the amount of the goodwill impairment loss for the
reporting unit. This analysis requires the determination
of the fair value of all of the individual assets and
liabilities of the reporting unit, including any currently
unrecognized intangible assets, as if the reporting unit
had been purchased on the analysis date. Once these
fair values have been determined, the implied fair value
of the unit’s goodwill is calculated as the excess, if any,
of the fair value of the reporting unit determined in step
one over the fair value of the net assets determined in
step two. The carrying value of goodwill is then reduced
to this implied value, or to zero if the fair value of the
assets exceeds the fair value of the reporting unit,
through a goodwill impairment charge.

In calculating

impairment analysis requires a number of
The
judgments by management.
the
estimated fair value of its reporting units in step one,
the Company uses the projected future cash flows to
be generated by each unit over the estimated remaining
useful operating lives of the unit’s assets, discounted
using the estimated cost-of-capital discount rate for
each reporting unit. These calculations require many
estimates, including discount rates, future growth rates,
and cost and pricing trends for each reporting unit.
Subsequent changes in economic and operating
conditions can affect these assumptions and could
result
testing and goodwill
interim
impairment charges in future periods. Upon completion,
the resulting estimated fair values are then analyzed for
reasonableness by comparing them to earnings
multiples for historic industry business transactions,
and by comparing the sum of the reporting unit fair
values and other corporate assets and liabilities divided
by diluted common shares outstanding
the
Company’s market price per share on the analysis date.

in additional

In the fourth quarter of 2013, in conjunction with the
annual testing of its reporting units for possible goodwill
impairments, the Company calculated the estimated
fair value of its India Papers business using the
discounted future cash flows and determined that all of
the goodwill of this business, totaling $112 million,
should be written off. The decline in the fair value of the
India Papers reporting unit and resulting impairment
charge was due to a change in the strategic outlook for
the India Papers operations.

As a result, during the fourth quarter of 2013, the
Company recorded a total goodwill impairment charge
of $512 million ($485 million after taxes and a gain of
interest),
$3 million
representing all of the recorded goodwill of the xpedx
business and the India Papers business.

to noncontrolling

No goodwill impairment charges were recorded in 2012
or 2011.

Pension and Postretirement Benefit Obligations

recorded

The charges
for pension and other
postretirement benefit obligations are determined
annually in conjunction with International Paper’s
consulting actuary, and are dependent upon various
assumptions including the expected long-term rate of
return on plan assets, discount rates, projected future
compensation increases, health care cost trend rates
and mortality rates.

The calculations of pension and postretirement benefit
obligations and expenses require decisions about a
number of key assumptions that can significantly affect
liability and expense amounts, including the expected
long-term rate of return on plan assets, the discount
rate used to calculate plan liabilities, the projected rate
of future compensation increases and health care cost
trend rates.

Benefit obligations and fair values of plan assets as of
December 31, 2013, for International Paper’s pension
and postretirement plans were as follows:

In millions

U.S. qualified pension

U.S. nonqualified pension

U.S. postretirement

Non-U.S. pension

Non-U.S. postretirement

Benefit
Obligation

12,496 $

Fair Value of
Plan Assets
10,706

407

322

228

—

181

—

table below shows assumptions used by
to calculate U.S. pension

The
International Paper
obligations for the years shown:

Discount rate

Rate of compensation
increase

2013

2012

2011

4.90%

4.10%

5.10%

3.75%

Additionally, health care cost trend rates used in the
calculation of U.S. postretirement obligations for the
years shown were:

Health care cost trend rate assumed for
next year

Rate that the cost trend rate gradually
declines to

Year that the rate reaches the rate it is
assumed to remain

2013

2012

7.00%

7.50%

5.00%

2017

these actuarial
International Paper determines
assumptions, after consultation with our actuaries, on
December 31 of each year
liability
to calculate
information as of
that date and pension and
postretirement expense for the following year. The
expected long-term rate of return on plan assets is
based on projected rates of return for current and
planned asset classes in the plan’s investment portfolio.
The discount rate assumption was determined based
on a hypothetical settlement portfolio selected from a
universe of high quality corporate bonds.

Increasing (decreasing) the expected long-term rate of
return on U.S. plan assets by an additional 0.25% would
decrease (increase) 2014 pension expense by
approximately $25 million, while a (decrease) increase
of 0.25% in the discount rate would (increase) decrease
pension expense by approximately $35 million. The
effect on net postretirement benefit cost from a 1%
increase or decrease in the annual health care cost
trend rate would be approximately $1 million.

Actual rates of return earned on U.S. pension plan
assets for each of the last 10 years were:

Year

2013

2012

2011

2010

2009

Return

14.1%

14.1%
2.5%
15.1%

23.8%

Year

2008

2007

2006

2005

2004

Return

(23.6)%
9.6 %
14.9 %

11.7 %

14.1 %

The 2012 and 2013 returns above represent weighted
averages of International Paper and Temple-Inland
asset returns. The annualized time-weighted rate of
return earned on U.S. pension plan assets was 13.7%
and 8.8% for the past five and ten years, respectively.
The following graph shows the growth of a $1,000
investment in International Paper’s U.S. Pension Plan
Master Trust. The graph portrays the time-weighted rate
of return from 2003 – 2013.

recognized

ASC 715, “Compensation – Retirement Benefits,”
provides for delayed recognition of actuarial gains and
losses, including amounts arising from changes in the
estimated projected plan benefit obligation due to
changes in the assumed discount rate, differences
between the actual and expected return on plan assets,
and other assumption changes. These net gains and
in pension expense
losses are
prospectively over a period that approximates the
average remaining service period of active employees
expected to receive benefits under the plans to the
extent that they are not offset by gains and losses in
subsequent years. The estimated net loss and prior
service cost that will be amortized from accumulated
other comprehensive income into net periodic pension
cost for the U.S. pension plans over the next fiscal year
are $316 million and $30 million, respectively.

Net periodic pension and postretirement plan
expenses, calculated for all of International Paper’s
plans, were as follows:

In millions

2013

2012

2011

2010

2009

Pension expense

U.S. plans (non-
cash)

Non-U.S. plans

Postretirement
expense

U.S. plans

Non-U.S. plans

$ 545 $ 342 $ 195 $ 231 $ 213

(1)

(4)

—

Net expense

$ 556 $ 342 $ 205 $ 238 $ 246

The increase in 2013 U.S. pension expense principally
reflects a decrease in the discount rate and higher
amortization of unrecognized actuarial losses. The
increase in 2013 U.S. postretirement expense is
principally due to a curtailment gain in 2012 related to
the remeasurement of the Temple-Inland Plan.

Assuming that discount rates, expected long-term
returns on plan assets and rates of future compensation
increases remain the same as in 2013, projected future
net periodic pension and postretirement plan expenses
would be as follows:

In millions

Pension expense

U.S. plans (non-cash)

Non-U.S. plans

Postretirement expense

U.S. plans

Non-U.S. plans

Net expense

2015 (1)

2014 (1)

304 $

366

12
327 $

7
11

387

(1) Based on assumptions at December 31, 2013.

The Company estimates that it will record net pension
expense of approximately $366 million for its U.S.

defined benefit plans in 2014, with the decrease from
expense of $545 million in 2013 reflecting an increase
in the assumed discount rate to 4.90% in 2014 from
4.10% in 2013, lower unrecognized losses, a higher
expected return on assets assumption of 7.00% for
Temple-Inland plan assets offset by a lower return on
assets assumption of 7.75% for International Paper
plan assets.

The market value of plan assets for International
Paper’s U.S. qualified pension plan at December 31,
2013 totaled approximately $10.7 billion, consisting of
approximately 49% equity securities, 32% debt
securities, 10% real estate and 9% other assets. Plan
assets include an immaterial amount of International
Paper common stock.

the

the plan,

The Company’s funding policy for its qualified pension
plans is to contribute amounts sufficient to meet legal
funding requirements, plus any additional amounts that
the Company may determine to be appropriate
considering
tax
funded status of
deductibility, the cash flows generated by the Company,
and other
factors. The Company continually
reassesses the amount and timing of any discretionary
contributions and could elect to make voluntary
contributions in the future. The required contribution for
the U.S. qualified pension plans
is
approximately $443 million. The nonqualified defined
benefit plans are funded to the extent of benefit
payments, which totaled $28 million for the year ended
December 31, 2013.

in 2014

Income Taxes

International Paper records its global tax provision
based on the respective tax rules and regulations for
the jurisdictions in which it operates. Where the
Company believes that a tax position is supportable for
income tax purposes, the item is included in its income
tax returns. Where treatment of a position is uncertain,
liabilities are recorded based upon the Company’s
evaluation of the “more likely than not” outcome
considering technical merits of the position based on
specific tax regulations and facts of each matter.
Changes to recorded liabilities are only made when an
identifiable event occurs that changes the likely
outcome, such as settlement with the relevant tax
authority, the expiration of statutes of limitation for the
subject tax year, change in tax laws, or a recent court
case that addresses the matter.

Valuation allowances are recorded to reduce deferred
tax assets when it is more likely than not that a tax
benefit will not be realized. Significant judgment is
required in evaluating the need for and magnitude of
appropriate valuation allowances against deferred tax
assets. The realization of these assets is dependent on
generating future taxable income, as well as successful
implementation of various tax planning strategies.

International Paper believes

While
these
judgments and estimates are appropriate and
reasonable under the circumstances, actual resolution
of these matters may differ from recorded estimated
amounts.

that

Accounting for Stock Options

International Paper follows ASC 718, “Compensation –
Stock Compensation,” in accounting for stock options.
Under this guidance, expense for stock options is
recorded over the related service period based on the
grant-date fair market value.

During each reporting period, diluted earnings per
share is calculated by assuming that “in-the-money”
options are exercised and the exercise proceeds are
used to repurchase shares in the marketplace. When
options are actually exercised, option proceeds are
credited to equity and issued shares are included in the
computation of earnings per common share, with no
effect on reported earnings. Equity is also increased by
the tax benefit that International Paper will receive in its
tax return for income reported by the optionees in their
individual tax returns.

At December 31, 2013 and 2012, 1.8 million options,
and 9.1 million options, respectively, were outstanding
with exercise prices ranging from $38.41 to $48.19 per
share for 2013 and $33.74 to $41.26 per share for 2012.

The Company’s effective income tax rates, before
equity earnings and discontinued operations, were
(62)%, 32% and 21% for 2013, 2012 and 2011,
respectively. These effective tax rates include the tax
effects of certain special items that can significantly
affect the effective income tax rate in a given year, but
may not recur in subsequent years. Management
believes that the effective tax rate computed after
excluding these special items may provide a better
estimate of the rate that might be expected in future
years if no additional special items were to occur in
those years. Excluding these special items, the
effective income tax rate for 2013 was 27% of pre-tax
earnings compared with 29% in 2012 and 32% in 2011.
We estimate that the 2014 effective income tax rate will
be approximately 33% based on expected earnings and
business conditions.

RECENT ACCOUNTING DEVELOPMENTS

There were no new accounting pronouncements issued
or effective during the fiscal year which have had or are
expected to have a material impact on the Company’s
consolidated financial statements. See Note 2 Recent
Accounting Developments on pages 56 and 57 of

Item 8. Financial Statements and Supplementary Data
for a discussion of new accounting pronouncements.

LEGAL PROCEEDINGS

Information concerning the Company’s environmental
and legal proceedings is set forth in Note 11
Commitments and Contingencies on pages 68 through
72 of Item 8. Financial Statements and Supplementary
Data.

The fair value of our debt and financial instruments
varies due to changes in market interest and foreign
currency rates and commodity prices since the
inception of the related instruments. We assess this
market risk utilizing a sensitivity analysis. The sensitivity
analysis measures the potential loss in earnings, fair
values and cash flows based on a hypothetical 10%
change (increase and decrease) in interest and
currency rates and commodity prices.

EFFECT OF INFLATION

Interest Rate Risk

While inflationary increases in certain input costs, such
as energy, wood fiber and chemical costs, have an
impact on the Company’s operating results, changes in
general inflation have had minimal impact on our
operating results in each of the last three years. Sales
prices and volumes are more strongly influenced by
economic supply and demand factors in specific
markets and by exchange rate fluctuations than by
inflationary factors.

FOREIGN CURRENCY EFFECTS

International Paper has operations in a number of
countries. Its operations in those countries also export
to, and compete with, imports from other regions. As
such, currency movements can have a number of direct
and indirect impacts on the Company’s financial
statements. Direct impacts include the translation of
international operations’
financial
statements into U.S. dollars. Indirect impacts include
the change in competitiveness of imports into, and
exports out of, the United States (and the impact on
local currency pricing of products that are traded
internationally). In general, a weaker U.S. dollar and
stronger local currency is beneficial to International
Paper. The currencies that have the most impact are
the Euro, the Brazilian real, the Polish zloty and the
Russian ruble.

local currency

MARKET RISK

We use financial instruments, including fixed and
variable rate debt, to finance operations, for capital
for general corporate
spending programs and
purposes. Additionally, financial instruments, including
various derivative contracts, are used to hedge
exposures to interest rate, commodity and foreign
currency risks. We do not use financial instruments for
trading purposes. Information related to International
Paper’s debt obligations is included in Note 13 Debt
and Lines of Credit on pages 75 and 76 of Item 8.
Financial Statements and Supplementary Data. A
discussion of derivatives and hedging activities is
included in Note 14 Derivatives and Hedging Activities
on pages 76 through 80 of Item 8. Financial Statements
and Supplementary Data.

Our exposure to market risk for changes in interest rates
relates primarily to short- and long-term debt obligations
and investments in marketable securities. We invest in
investment-grade securities of financial institutions and
money market mutual funds with a minimum rating of
AAA and limit exposure to any one issuer or fund. Our
investments in marketable securities at December 31,
2013 and 2012 are stated at cost, which approximates
market due to their short-term nature. Our interest rate
risk exposure related to these investments was not
material.

We issue fixed and floating rate debt in a proportion
consistent with International Paper’s targeted capital
structure, while at the same time taking advantage of
market opportunities to reduce interest expense as
appropriate. Derivative instruments, such as interest
rate swaps, may be used to implement this capital
structure. At December 31, 2013 and 2012, the net fair
value liability of financial instruments with exposure to
interest rate risk was approximately $10.1 billion and
$11.8 billion, respectively. The potential loss in fair value
resulting from a 10% adverse shift in quoted interest
rates would have been approximately $480 million and
$642 million at December 31, 2013 and 2012,
respectively.

Commodity Price Risk

The objective of our commodity exposure management
is to minimize volatility in earnings due to large
fluctuations in the price of commodities. Commodity
swap and option contracts have been used to manage
risks associated with market fluctuations in energy
prices. The net fair value of such outstanding energy
hedge contracts at December 31, 2013 and 2012 was
approximately a $2 million asset and a $1 million liability,
respectively. The potential loss in fair value resulting
from a 10% adverse change in the underlying
commodity prices would have been approximately $2
million and $1 million at December 31, 2013 and 2012,
respectively.

Foreign Currency Risk

International Paper
in many
currencies and is also subject to currency exchange
rate risk through investments and businesses owned

transacts business

and operated in foreign countries. Our objective in
managing the associated foreign currency risks is to
minimize
the effect of adverse exchange rate
fluctuations on our after-tax cash flows. We address
these risks on a limited basis by financing a portion of
our investments in overseas operations with borrowings
denominated in the same currency as the operation’s
functional currency, or by entering into cross-currency
and interest rate swaps, or foreign exchange contracts.
At December 31, 2013 and 2012, the net fair value of
financial instruments with exposure to foreign currency
risk was approximately a $4 million asset and a $13
million liability, respectively. The potential loss in fair
value for such financial instruments from a 10% adverse
change in quoted foreign currency exchange rates
would have been approximately $88 million and $49
million at December 31, 2013 and 2012, respectively.

ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

See the preceding discussion and Note 14 Derivatives
and Hedging Activities on pages 76 through 80 of
Item 8. Financial Statements and Supplementary Data.

ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

REPORT OF MANAGEMENT ON:

Financial Statements

The management of International Paper Company is
responsible for the preparation of the consolidated
financial statements in this annual report and for
establishing and maintaining adequate internal controls
over financial reporting. The consolidated financial
statements have been prepared using accounting
principles generally accepted in the United States of
America considered appropriate in the circumstances
to present fairly the Company’s consolidated financial
position, results of operations and cash flows on a
consistent basis. Management has also prepared the
other information in this annual report and is responsible
for its accuracy and consistency with the consolidated
financial statements.

As can be expected in a complex and dynamic business
environment, some financial statement amounts are
based on estimates and judgments. Even though
estimates and judgments are used, measures have
been taken to provide reasonable assurance of the
integrity and reliability of the financial information
contained in this annual report. We have formed a
Disclosure Committee to oversee this process.

The accompanying consolidated financial statements
have been audited by the independent registered public
accounting firm, Deloitte & Touche LLP. During its
audits, Deloitte & Touche LLP was given unrestricted
access to all financial records and related data,
including minutes of all meetings of stockholders and
the board of directors and all committees of the board.
Management believes that all representations made to
the independent auditors during their audits were valid
and appropriate.

Internal Control Over Financial Reporting

The management of International Paper Company is
also responsible for establishing and maintaining
adequate internal control over financial reporting.
Internal control over financial reporting is the process
designed by, or under the supervision of, our principal
executive officer and principal financial officer, and
effected by our Board of Directors, management and
other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the
for external
preparation of
purposes. All internal control systems have inherent
limitations, including the possibility of circumvention
and overriding of controls, and therefore can provide
only reasonable assurance of achieving the designed
control objectives. The Company’s internal control

financial statements

system is supported by written policies and procedures,
contains self-monitoring mechanisms, and is audited
by the internal audit function. Appropriate actions are
taken by management to correct deficiencies as they
are identified.

financial

The Company has assessed the effectiveness of its
reporting as of
internal control over
December 31, 2013. In making this assessment, it used
the criteria described in “Internal Control – Integrated
Framework (1992)” issued by the Committee of
the Treadway
Sponsoring Organizations
Commission (COSO). Based on this assessment,
management believes that, as of December 31, 2013,
the Company’s internal control over financial reporting
was effective.

The Company completed the acquisitions of Olmuksan
and Orsa IP, both in January 2013. Due to the timing of
these acquisitions we have excluded Olmuksan and
Orsa IP from our evaluation of the effectiveness of
internal control over financial reporting. For the period
ended December 31, 2013, net sales and assets of both
Olmuksan and Orsa IP represented approximately 2%
of total net sales and 2% of total assets. The Company’s
independent
firm,
Deloitte & Touche LLP, has issued its report on the
effectiveness of the Company’s internal control over
financial reporting. The report appears on pages 47 and
48.

registered public accounting

Internal Control Environment And Board Of
Directors Oversight

internal control environment

includes an
Our
enterprise-wide attitude of
integrity and control
consciousness that establishes a positive “tone at the
top.” This is exemplified by our ethics program that
includes long-standing principles and policies on ethical
business conduct that require employees to maintain
the highest ethical and legal standards in the conduct
of International Paper business, which have been
distributed to all employees; a toll-free telephone
helpline whereby any employee may anonymously
report suspected violations of law or International
Paper’s policy; and an office of ethics and business
practice. The internal control system further includes
careful selection and training of supervisory and
management personnel, appropriate delegation of
authority and division of responsibility, dissemination of
accounting and business policies
throughout
International Paper, and an extensive program of
internal audits with management follow-up.

The Board of Directors, assisted by the Audit and
Finance Committee (Committee), monitors the integrity
of the Company’s financial statements and financial
the
reporting procedures,
Company’s internal audit function and independent

the performance of

auditors, and other matters set forth in its charter. The
Committee, which currently consists of
five
independent
regularly with
directors, meets
the
representatives of management, and with
independent auditors and the Internal Auditor, with and
without management representatives in attendance, to
review their activities. The Committee’s Charter takes
into account the New York Stock Exchange rules
relating to Audit Committees and the SEC rules and
regulations promulgated as a result of the Sarbanes-
Oxley Act of 2002. The Committee has reviewed and
discussed the consolidated financial statements for the
year ended December 31, 2013, including critical
accounting policies and significant management
judgments, with management and the independent
auditors. The Committee’s report recommending the
inclusion of such financial statements in this Annual
Report on Form 10-K will be set forth in our Proxy
Statement.

JOHN V. FARACI
CHAIRMAN AND CHIEF EXECUTIVE OFFICER

CAROL L. ROBERTS
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER

REPORT OF DELOITTE & TOUCHE LLP,
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM, ON CONSOLIDATED
FINANCIAL STATEMENTS

To the Board of Directors and Shareholders of
International Paper Company:

We have audited the accompanying consolidated
balance sheets of International Paper Company and
subsidiaries (the “Company”) as of December 31, 2013
and 2012, and the related consolidated statements of
operations, comprehensive income, changes in equity,
and cash flows for each of the three years in the period
ended December 31, 2013. Our audits also included
the financial statement schedule listed in the Index at
Item 15(2). These financial statements and the financial
statement schedule are the responsibility of the
Company's management. Our responsibility is to
express an opinion on the financial statements and the
financial statement schedule based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements.
An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of
International Paper Company and
subsidiaries as of December 31, 2013 and 2012, and
the results of their operations and their cash flows for
each of the three years in the period ended December
31, 2013, in conformity with accounting principles
generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.

We have also audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States), the Company's internal control over
financial reporting as of December 31, 2013, based on
the criteria established in Internal Control - Integrated
Framework (1992) issued by the Committee of
the Treadway
Sponsoring Organizations
Commission, and our report dated February 27, 2014
expressed an unqualified opinion on the Company's
internal control over financial reporting.

Memphis, Tennessee
February 27, 2014

REPORT OF DELOITTE & TOUCHE LLP,
INDEPENDENT
PUBLIC
ACCOUNTING FIRM, ON INTERNAL CONTROL
OVER FINANCIAL REPORTING

REGISTERED

To the Board of Directors and Shareholders of
International Paper Company:

We have audited the internal control over financial
reporting of
International Paper Company and
subsidiaries (the "Company") as of December 31, 2013,
based on criteria established in Internal Control -
Integrated Framework (1992) issued by the Committee
the Treadway
of Sponsoring Organizations of
Commission. As described
the Report of
Management on Internal Control Over Financial
Reporting, management excluded from its assessment
the internal control over financial reporting at Olmuksa
International Paper Sabanci Ambalaj Sanayi ve Ticaret
A.S. and subsidiaries
(“Olmuksan”) and Orsa
International Paper Embalagens S.A. and subsidiaries
(“Orsa IP”) which were acquired on January 3, 2013
and January 14, 2013, respectively. Both entities
constitute approximately 2% of total net sales and 2%
of total assets of the consolidated financial statements
as of and for the year ended December 31, 2013.
Accordingly our audit did not include internal control
over financial reporting at Olmuksan or Orsa IP. The
Company's management is responsible for maintaining
effective internal control over financial reporting and for
its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Report of Management on Internal Control over
Financial Reporting. Our responsibility is to express an
opinion on the Company's internal control over financial
reporting based on our audit.

We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight

Sponsoring Organizations
Commission.

the Treadway

We have also audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements
and financial statement schedule as of and for the year
ended December 31, 2013 of the Company and our
report dated February 27, 2014 expressed an
unqualified opinion on those financial statements and
financial statement schedule.

Memphis, Tennessee
February 27, 2014

audit

included
internal control over

Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material
an
respects. Our
understanding of
financial
reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed
risk, and performing such other procedures as we
considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our
opinion.

obtaining

A company's internal control over financial reporting is
a process designed by, or under the supervision of, the
company's principal executive and principal financial
officers, or persons performing similar functions, and
the company's board of directors,
effected by
management, and other personnel
to provide
reasonable assurance regarding the reliability of
financial reporting and the preparation of financial
statements for external purposes in accordance with
generally accepted accounting principles. A company's
internal control over financial reporting includes those
policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded
as necessary
financial
statements in accordance with generally accepted
receipts and
accounting principles, and
expenditures of the company are being made only in
accordance with authorizations of management and
directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on
the financial statements.

to permit preparation of

that

Because of the inherent limitations of internal control
over financial reporting, including the possibility of
collusion or improper management override of controls,
material misstatements due to error or fraud may not
be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods
are subject to the risk that the controls may become
inadequate because of changes in conditions, or that
the degree of compliance with
the policies or
procedures may deteriorate.

In our opinion, the Company maintained, in all material
respects, effective internal control over financial
reporting as of December 31, 2013, based on the
criteria established in Internal Control - Integrated
Framework (1992) issued by the Committee of

CONSOLIDATED STATEMENT OF OPERATIONS

In millions, except per share amounts, for the years ended December 31

NET SALES

COSTS AND EXPENSES

Cost of products sold

Selling and administrative expenses

Depreciation, amortization and cost of timber harvested

Distribution expenses

Taxes other than payroll and income taxes

Restructuring and other charges

Impairment of goodwill and other intangibles

Net (gains) losses on sales and impairments of businesses

Net bargain purchase gain on acquisition of business

Interest expense, net

EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY
EARNINGS

Income tax provision (benefit)

Equity earnings (loss), net of taxes

EARNINGS (LOSS) FROM CONTINUING OPERATIONS

Discontinued operations, net of taxes

NET EARNINGS (LOSS)

Less: Net earnings (loss) attributable to noncontrolling interests

NET EARNINGS (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER
COMPANY

BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY
COMMON SHAREHOLDERS

Earnings (loss) from continuing operations

Discontinued operations, net of taxes

Net earnings (loss)

DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY
COMMON SHAREHOLDERS

Earnings (loss) from continuing operations

Discontinued operations, net of taxes

Net earnings (loss)

AMOUNTS ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY COMMON SHAREHOLDERS

Earnings (loss) from continuing operations

Discontinued operations, net of taxes

Net earnings (loss)

The accompanying notes are an integral part of these financial statements.

2013

2012

2011

$ 29,080 $ 27,833 $ 26,034

21,223

20,587

18,960

2,205

1,547

1,732

185

210

527

(13)

612

849

(523)

(39)

1,333

1,378

(17)

2,092

1,486

1,611

166

109

—

672

1,887

1,332

1,390

146

102

—

218

—

541

1,024

1,458

331

754

799

311

140

1,287

1,336

1,395 $

794 $ 1,322

3.05 $

1.72 $

0.10

3.15 $

1.82 $

3.01 $

1.70 $

0.10

3.11 $

1.80 $

2.95

0.11

3.06

2.92

0.11

3.03

1,350 $

749 $ 1,273

1,395 $

794 $ 1,322

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

In millions for the years ended December 31

NET EARNINGS (LOSS)

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

Amortization of pension and post-retirement prior service costs and net loss:

U.S. plans (less tax of $195, $124 and $88)

Pension and postretirement liability adjustments:

U.S. plans (less tax of $756, $583 and $498)

Non-U.S. plans (less tax of $3, $9 and $3)

Change in cumulative foreign currency translation adjustment

Net gains/losses on cash flow hedging derivatives:

Net gains (losses) arising during the period (less tax of $2, $1 and $17)

Reclassification adjustment for (gains) losses included in net earnings (less tax of $3, $13 and $8)

TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

Comprehensive Income (Loss)

Net (Earnings) Loss Attributable to Noncontrolling Interests

Other Comprehensive (Income) Loss Attributable to Noncontrolling Interests

2013

2012

2011

1,378 $

799 $

1,336

307

195

139

1,188

(4)

(426)

—

(7)

1,058

2,436

(914)

(25)

(131)

(838)

(39)

(5)

(783)

(5)

(492)

(43)

(1,176)

160

(14)

(4)

142

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO INTERNATIONAL PAPER COMPANY

2,476 $

(41) $

The accompanying notes are an integral part of these financial statements.

CONSOLIDATED BALANCE SHEET

In millions, except per share amounts, at December 31

2013

2012

ASSETS

Current Assets

Cash and temporary investments

Accounts and notes receivable, less allowances of $109 in 2013 and $119 in 2012

Inventories

Deferred income tax assets

Assets of businesses held for sale

Other current assets

Total Current Assets

Plants, Properties and Equipment, net

Forestlands

Investments

Financial Assets of Special Purpose Entities (Note 12)

Goodwill

Deferred Charges and Other Assets

TOTAL ASSETS

LIABILITIES AND EQUITY

Current Liabilities

Notes payable and current maturities of long-term debt

Accounts payable

Accrued payroll and benefits

Liabilities of businesses held for sale

Other accrued liabilities

Total Current Liabilities

Long-Term Debt

Nonrecourse Financial Liabilities of Special Purpose Entities (Note 12)

Deferred Income Taxes

Pension Benefit Obligation

Postretirement and Postemployment Benefit Obligation

Other Liabilities

Redeemable Noncontrolling Interest

Commitments and Contingent Liabilities (Note 11)

Equity

Common stock $1 par value, 2013 – 447.2 shares and 2012 – 439.9 shares

Paid-in capital

Retained earnings

Accumulated other comprehensive loss

Less: Common stock held in treasury, at cost, 2013 – 10.868 shares and 2012 – 0.013 shares

Total Shareholders’ Equity

Noncontrolling interests

Total Equity

TOTAL LIABILITIES AND EQUITY

The accompanying notes are an integral part of these financial statements.

$ 1,802 $ 1,302

3,756

2,825

302

—

340

3,562

2,730

323

759

229

9,025

8,905

13,672

13,949

557

733

2,127

3,987

1,427

622

887

2,108

4,315

1,367

$ 31,528 $ 32,153

661 $

444

2,900

2,775

511

—

1,055

5,127

8,827

2,043

3,765

2,205

412

702

163

508

1,227

4,998

9,696

2,036

3,026

4,112

473

1,176

—

447

6,463

4,446

440

6,042

3,662

(2,759)

(3,840)

8,597

6,304

492

—

8,105

6,304

179

332

8,284

6,636

$ 31,528 $ 32,153

CONSOLIDATED STATEMENT OF CASH FLOWS

In millions for the years ended December 31

OPERATING ACTIVITIES

Net earnings (loss)

Discontinued operations, net of taxes

Earnings (loss) from continuing operations

Depreciation, amortization, and cost of timber harvested

Deferred income tax provision (benefit), net

Restructuring and other charges

Pension plan contribution

Net bargain purchase gain on acquisition of business

Periodic pension expense, net

Net (gains) losses on sales and impairments of businesses

Equity (earnings) losses, net of taxes

Release of tax reserves

Impairment of goodwill and other intangible assets

Other, net

Changes in current assets and liabilities

Accounts and notes receivable

Inventories

Accounts payable and accrued liabilities

Interest payable

Other

Cash provided by (used for) operating activities - continuing operations

Cash provided by (used for) operating activities - discontinued operations

CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES

INVESTMENT ACTIVITIES

Invested in capital projects

Acquisitions, net of cash acquired

Proceeds from divestitures

Equity investment in Ilim

Proceeds from sale of fixed assets

Escrow arrangement

Other

Cash provided by (used for) investment activities - continuing operations

Cash provided by (used for) investment activities - discontinued operations

CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES

FINANCING ACTIVITIES

Repurchase of common stock and payments of restricted stock tax withholding

Issuance of common stock

Issuance of debt

Reduction of debt

Change in book overdrafts

Dividends paid

Redemption of securities

Other

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES

Effect of Exchange Rate Changes on Cash

Change in Cash and Temporary Investments

Cash and Temporary Investments

Beginning of the period

End of the period

The accompanying notes are an integral part of these financial statements.

2013

2012

2011

1,378 $

799 $

1,336

(45)

1,333

1,547

(45)

754

1,486

146

210

(31)

(13)

545

(775)

527

(47)

(134)

(114)

(110)

(57)

(71)

204

109

(44)

—

342

(61)

—

377

(28)

(273)

(22)

(49)

1,287

1,332

317

102

(300)

—

195

218

(140)

—

169

(128)

(56)

(389)

2,998

2,960

2,675

—

3,028

2,967

2,675

(1,198)

(505)

726

—

(1,383)

(3,734)

(1,159)

(379)

474

(45)

—

(80)

—

(25)

(828)

(4,768)

(1,487)

(90)

—

(827)

(4,858)

(1,487)

(512)

298

241

(845)

(123)

(554)

(150)

(43)

(1,688)

(13)

500

(35)

108

(30)

—

2,132

1,766

(2,488)

(476)

—

(47)

(795)

(6)

(517)

(29)

(427)

—

(21)

742

(9)

(2,692)

1,921

1,302

3,994

2,073

1,802 $

1,302 $

3,994

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Common
Stock
Issued

Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

Total
International
Paper
Shareholders’
Equity

Noncontrolling
Interests

Total
Equity

439 $

5,829 $

2,460 $

(1,825) $

28 $

6,875 $

250 $

7,125

—

(1,180)

(3,005)

—

(835)

(3,840)

—

(6)

—

(87)

—

(20)

512

—

(30)

(427)

—

142

6,645

222

(35)

(487)

—

(41)

—

(5)

(30)

(427)

(5)

160

340

6,985

—

(6)

(4)

222

(35)

(487)

(6)

(4)

(39)

6,304

332

6,636

448

(512)

(567)

—

(44)

—

448

(512)

(567)

(1)

(112)

(156)

2,476

(40)

2,436

1,395

1,081

447 $

6,463 $

4,446 $

(2,759) $

492 $

8,105 $

179 $

8,284

In millions

BALANCE, JANUARY 1,
2011

Issuance of stock for various
plans, net

Repurchase of stock

Dividends

Dividends paid to
noncontrolling interests by
subsidiary

Noncontrolling interests of
acquired entities

Acquisition of noncontrolling
interests

Comprehensive income
(loss)

BALANCE, DECEMBER 31,
2011

Issuance of stock for various
plans, net

Repurchase of stock

Dividends

Dividends paid to
noncontrolling interests by
subsidiary

Noncontrolling interests of
acquired entities

Comprehensive income
(loss)

BALANCE, DECEMBER 31,
2012

Issuance of stock for
various plans, net

Repurchase of stock

Dividends

Dividends paid to
noncontrolling interests
by subsidiary

Noncontrolling interests of
acquired entities

Comprehensive income
(loss)

BALANCE, DECEMBER 31,
2013

—

439

5,908

—

134

—

(427)

—

1,322

3,355

—

(487)

—

794

440

6,042

3,662

—

421

—

(567)

—

(44)

The accompanying notes are an integral part of these financial statements.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

The elimination of the one-quarter reporting lag for Ilim
had the following impact:

NOTE 1 SUMMARY OF BUSINESS AND
SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

International Paper (the Company) is a global paper
and packaging company that is complemented by an
extensive North American merchant distribution
system, with primary markets and manufacturing
operations in North America, Europe, Latin America,
Russia, Asia, Africa and the Middle East. Substantially
all of our businesses have experienced, and are likely
to continue to experience, cycles relating to available
industry capacity and general economic conditions.

FINANCIAL STATEMENTS

These consolidated financial statements have been
prepared in conformity with accounting principles
generally accepted in the United States that require the
use of management’s estimates. Actual results could
differ from management’s estimates.

Consolidated Statement of Operations

In millions

Equity earnings (loss), net of taxes

2011

(19)

Earnings (loss) from continuing operations

Net earnings (loss) attributable to International Paper
Company

Basic earnings (loss) per share from continuing
operations

Basic net earnings (loss) per share

Diluted earnings (loss) per share from continuing
operations

Diluted net earnings (loss) per share

(19)

(0.04)

in affiliated companies where

Investments
the
Company has significant influence over their operations
are accounted for by the equity method. International
Paper’s share of affiliates’ results of operations totaled
earnings (loss) of $(39) million, $61 million and $140
million in 2013, 2012 and 2011, respectively.

CONSOLIDATION

REVENUE RECOGNITION

The consolidated financial statements include the
accounts of International Paper and its wholly-owned,
controlled majority-owned and financially controlled
subsidiaries. All significant intercompany balances and
transactions are eliminated.

financial

information

consolidated

transactions designated

Revenue is recognized when the customer takes title
and assumes the risks and rewards of ownership.
Revenue is recorded at the time of shipment for terms
designated f.o.b. (free on board) shipping point. For
sales
f.o.b. destination,
revenue is recorded when the product is delivered to
the customer’s delivery site, when title and risk of loss
are transferred. Timber and forestland sales revenue is
generally recognized when title and risk of loss pass to
the buyer.

SHIPPING AND HANDLING COSTS

Shipping and handling costs, such as freight to our
customers’ destinations, are included in distribution
expenses in the consolidated statement of operations.
When shipping and handling costs are included in the
sales price charged for our products, they are
recognized in net sales.

ANNUAL MAINTENANCE COSTS

Costs for repair and maintenance activities are
expensed in the month that the related activity is
performed under the direct expense method of
accounting.

TEMPORARY INVESTMENTS

Temporary investments with an original maturity of
three months or less are treated as cash equivalents
and are stated at cost, which approximates market.

INVENTORIES

Inventories are valued at the lower of cost or market
include all costs directly associated with
and
manufacturing products: materials,
labor and
manufacturing overhead. In the United States, costs of
raw materials and finished pulp and paper products, are
generally determined using the last-in, first-out method.
Other inventories are valued using the first-in, first-out
or average cost methods.

PLANTS, PROPERTIES AND EQUIPMENT

Plants, properties and equipment are stated at cost,
less accumulated depreciation. Expenditures
for
betterments are capitalized, whereas normal repairs
and maintenance are expensed as incurred. The units-
of-production method of depreciation is used for major
pulp and paper mills, and the straight-line method is
used for other plants and equipment. Annual straight-
line depreciation rates are, for buildings — 2.50% to
8.50%, and for machinery and equipment — 5% to 33%.

FORESTLANDS

At December 31, 2013, International Paper and its
subsidiaries owned or managed approximately
332,000 acres of forestlands in Brazil, and through
licenses and forest management agreements, had
harvesting rights on government-owned forestlands in
Russia. Costs attributable to timber are charged against
income as trees are cut. The rate charged is determined
annually based on the relationship of incurred costs to
estimated current merchantable volume.

GOODWILL

Goodwill relating to a single business reporting unit is
included as an asset of the applicable segment, while
goodwill arising from major acquisitions that involve
multiple business segments is classified as a corporate
asset for segment reporting purposes. For goodwill
impairment testing, this goodwill is allocated to
reporting units. Annual testing for possible goodwill
impairment is performed as of the beginning of the
fourth quarter of each year, with additional interim
testing performed when management believes that it is
more likely than not events or circumstances have
occurred that would result in the impairment of a
reporting unit’s goodwill.

In performing this testing, the Company estimates the
fair value of its reporting units using the projected future
cash flows to be generated by each unit over the
estimated remaining useful operating lives of the unit’s
assets, discounted using the estimated cost of capital
for each reporting unit. These estimated fair values are
then analyzed for reasonableness by comparing them
to historic market transactions for businesses in the
industry, and by comparing the sum of the reporting unit

fair values and other corporate assets and liabilities
divided by diluted common shares outstanding to the
Company’s traded stock price on the testing date. For
reporting units whose recorded value of net assets plus
goodwill is in excess of their estimated fair values, the
fair values of the individual assets and liabilities of the
respective reporting units are then determined to
calculate the amount of any goodwill impairment charge
required. See Note 9 for further discussion.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets are reviewed for impairment upon the
occurrence of events or changes in circumstances that
indicate that the carrying value of the assets may not
be recoverable, measured by comparing their net book
value to the undiscounted projected future cash flows
generated by their use. Impaired assets are recorded
at their estimated fair value. See Note 7 for further
discussion.

INCOME TAXES

for

the

future

taxes are recorded

International Paper uses the asset and liability method
of accounting for income taxes whereby deferred
income
tax
consequences attributable to differences between the
financial statement and tax bases of assets and
liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Deferred tax assets and liabilities are remeasured to
reflect new tax rates in the periods rate changes are
enacted.

International Paper records its worldwide tax provision
based on the respective tax rules and regulations for
the jurisdictions in which it operates. Where the
Company believes that a tax position is supportable for
income tax purposes, the item is included in its income
tax returns. Where treatment of a position is uncertain,
liabilities are recorded based upon the Company’s
evaluation of the “more likely than not” outcome
considering the technical merits of the position based
on specific tax regulations and the facts of each matter.
Changes to recorded liabilities are made only when an
identifiable event occurs that changes the likely
outcome, such as settlement with the relevant tax
authority, the expiration of statutes of limitation for the
subject tax year, a change in tax laws, or a recent court
case that addresses the matter.

While the judgments and estimates made by the
Company are based on management’s evaluation of
the technical merits of a matter, assisted as necessary
by consultation with outside consultants, historical
experience and other assumptions that management
believes are appropriate and reasonable under current

circumstances, actual resolution of these matters may
differ from recorded estimated amounts, resulting in
charges or credits that could materially affect future
financial statements.

STOCK-BASED COMPENSATION

Compensation costs resulting from all stock-based
compensation
transactions are measured and
recorded in the consolidated financial statements
based on the grant-date fair value of the equity or liability
instruments issued. In addition, liability awards are
remeasured each reporting period. Compensation cost
is recognized over the period that an employee provides
service in exchange for the award.

ENVIRONMENTAL REMEDIATION COSTS

Costs associated with environmental remediation
obligations are accrued when such costs are probable
and reasonably estimable. Such accruals are adjusted
as further information develops or circumstances
change. Costs of future expenditures for environmental
remediation obligations are discounted to their present
value when the amount and timing of expected cash
payments are reliably determinable.

ASSET RETIREMENT OBLIGATIONS

A liability and an asset are recorded equal to the present
value of the estimated costs associated with the
retirement of long-lived assets where a legal or
contractual obligation exists and the liability can be
reasonably estimated. The liability is accreted over time
and the asset is depreciated over the life of the related
equipment or facility. International Paper’s asset
retirement obligations principally relate to closure costs
for landfills. Revisions to the liability could occur due to
changes in the estimated costs or timing of closures, or
possible new federal or state regulations affecting these
closures.

In connection with potential future closures or redesigns
of certain production facilities, it is possible that the
Company may be required to take steps to remove
certain materials from these facilities. Applicable
regulations and standards provide that the removal of
certain materials would only be required if the facility
were to be demolished or underwent major renovations.
At this time, any such obligations have an indeterminate
settlement date, and the Company believes that
adequate information does not exist to apply an
expected-present-value technique to estimate any
such potential obligations. Accordingly, the Company
does not record a liability for such remediation until a
decision is made that allows reasonable estimation of
the timing of such remediation.

TRANSLATION OF FINANCIAL STATEMENTS

Balance sheets of
international operations are
translated into U.S. dollars at year-end exchange rates,
while statements of operations are translated at
average rates. Adjustments resulting from financial
statement translations are included as cumulative
in Accumulated other
translation adjustments
comprehensive loss.

NOTE 2 RECENT ACCOUNTING DEVELOPMENTS

Other than as described below, no new accounting
pronouncement issued or effective during the fiscal
year has had or is expected to have a material impact
on the consolidated financial statements.

DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES

In December 2011, the Financial Accounting Standards
Board (FASB) issued ASU No. 2011-11, “Disclosures
about Offsetting Assets and Liabilities”, which amends
ASC 210, “Balance Sheet”. This ASU requires entities
to disclose gross and net information about both
instruments and transactions eligible for offset in the
statement of financial position and those subject to an
agreement similar to a master netting arrangement.
This would include derivatives and other financial
securities arrangements. This guidance was effective
for fiscal years, and interim periods within those years,
beginning on or after January 1, 2013. The application
of the requirements of this guidance did not have a
material effect on the Company's consolidated financial
statements.

INTANGIBLES – GOODWILL AND OTHER

In July 2012, the FASB issued ASU 2012-02, "Testing
Indefinite-Lived Intangible Assets for Impairment,"
which amends ASC 350, "Intangibles - Goodwill and
Other." This ASU gives an entity the option to first
assess qualitative factors if it is more likely than not
that the fair value of indefinite-lived intangible assets
are less than their carrying amount. If that assessment
indicates no impairment, the quantitative impairment
test is not required. This amendment was effective for
annual and interim impairment tests performed for fiscal
years beginning after September 15, 2012. The
adoption of the provisions of this guidance did not have
a material effect on the Company's consolidated
financial statements.

COMPREHENSIVE INCOME

In February 2013, the FASB issued ASU 2013-02,
"Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income," which
adds new disclosure requirements for items reclassified
out of accumulated other comprehensive income. This
guidance was effective for fiscal years, and interim

periods within those years, beginning after December
15, 2012. The Company adopted the provisions of this
guidance in the first quarter of 2013.

NOTE 3 EARNINGS PER SHARE ATTRIBUTABLE
TO INTERNATIONAL PAPER COMPANY COMMON
SHAREHOLDERS

HEDGE ACCOUNTING

In July 2013, the FASB issued ASU 2013-10, "Inclusion
of the Fed Funds Effective Swap Rate (or Overnight
Index Swap Rate) as a Benchmark Interest Rate for
Hedge Accounting Purposes," which amends ASC 815,
"Derivatives and Hedging," to allow entities to use the
Fed Funds Effective Swap Rate, in addition to U.S.
Treasury rates and LIBOR, as a benchmark interest rate
in accounting for fair value and cash flow hedges in the
United States. The ASU also eliminates the provision
that prohibits the use of different benchmark rates for
justifiable
similar hedges except
circumstances. The ASU was effective prospectively for
qualifying new hedging relationships entered into on or
after July 17, 2013 and for hedging relationships
redesignated on or after that date. The adoption of the
provisions of this guidance did not have a material effect
on the Company's consolidated financial statements.

rare and

INCOME TAXES

In July 2013, the FASB also issued ASU 2013-11,
"Presentation of an Unrecognized Tax Benefit When a
Net Operating Loss Carryforward, a Similar Tax Loss,
or a Tax Credit Carryforward Exists," which provides
guidance on financial statement presentation of an
unrecognized tax benefit when a net operating loss
carryforward, a similar tax loss, or a tax credit
carryforward exists. This guidance should be applied to
all unrecognized tax benefits that exist as of the
effective date which is fiscal years beginning after
December 15, 2013, and interim periods within those
years. The Company is currently evaluating the
provisions of this guidance.

Basic earnings per share is computed by dividing
earnings by the weighted average number of common
shares outstanding. Diluted earnings per share is
that all potentially dilutive
computed assuming
securities, including “in-the-money” stock options, were
converted into common shares.

A reconciliation of the amounts included in the
computation of basic earnings (loss) per share from
continuing operations, and diluted earnings (loss) per
share from continuing operations is as follows:

In millions, except per share
amounts

Earnings (loss) from continuing
operations

2013

2012

2011

$ 1,350

$ 749

$ 1,273

Effect of dilutive securities (a)

—

Earnings (loss) from continuing
operations –assuming dilution

$ 1,350

$ 749

$ 1,273

Average common shares
outstanding

Effect of dilutive securities (a):

Restricted performance share
plan

Stock options (b)

443.3

435.2

432.2

4.5

0.3

5.0

—

4.8

—

Average common shares
outstanding – assuming dilution

Basic earnings (loss) per share
from continuing operations

Diluted earnings (loss) per share
from continuing operations

448.1

440.2

437.0

$ 3.05

$ 1.72

$ 2.95

$ 3.01

$ 1.70

$ 2.92

(a) Securities are not included in the table in periods when

antidilutive.

(b) Options to purchase 0.0 million, 9.1 million and 15.6 million
shares for the years ended December 31,2013, 2012 and
2011, respectively, were not included in the computation of
diluted common shares outstanding because their exercise
price exceeded the average market price of the Company’s
common stock for each respective reporting date.

NOTE 4 OTHER COMPREHENSIVE INCOME

The following table presents changes in AOCI for the year ended December 31, 2013:

In millions

Balance as of January 1, 2013

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income

Net Current Period Other Comprehensive Income

Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest

Balance as of December 31, 2013

Defined Benefit Pension and
Postretirement Items (a)

Change in Cumulative
Foreign Currency Translation
Adjustments (a)

Net Gains and Losses
on Cash Flow Hedging
Derivatives (a)

Total (a)

(3,596) $

1,184

307

1,491

—

(246) $

(443)

(426)

2 $

(3,840)

—

(7)

—

741

317

1,058

(2,105) $

(649) $

(5) $

(2,759)

(a) All amounts are net of tax. Amounts in parentheses indicate debits to AOCI.

The following table presents changes in AOCI for the year ended December 31, 2012:

In millions

Balance as of January 1, 2012

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income

Net Current Period Other Comprehensive Income

Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest

Balance as of December 31, 2012

Defined Benefit Pension and
Postretirement Items (a)

Change in Cumulative
Foreign Currency Translation
Adjustments (a)

Net Gains and Losses
on Cash Flow Hedging
Derivatives (a)

(2,852) $

(118) $

(35) $

(939)

195

(744)

—

(3,596) $

(96)

(35)

(131)

(246) $

Total (a)

(3,005)

(1,020)

182

(838)

—

2 $

(3,840)

(a) All amounts are net of tax. Amounts in parentheses indicate debits to AOCI.

The following table presents changes in AOCI for the year ended December 31, 2011:

In millions

Balance as of January 1, 2011

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income

Net Current Period Other Comprehensive Income

Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest

Balance as of December 31, 2011

Defined Benefit Pension and
Postretirement Items (a)

Change in Cumulative
Foreign Currency Translation
Adjustments (a)

Net Gains and Losses
on Cash Flow Hedging
Derivatives (a)

(2,203) $

378 $

— $

(788)

139

(649)

—

(492)

—

(492)

(4)

(43)

(35)

—

Total (a)

(1,825)

(1,323)

147

(1,176)

(4)

(2,852) $

(118) $

(35) $

(3,005)

(a) All amounts are net of tax. Amounts in parentheses indicate debits to AOCI.

The following table presents details of the reclassifications out of AOCI for the three years ended:

Details About Accumulated Other Comprehensive Income
Components

2013

2012

2011

Location of Amount
Reclassified from AOCI

Amount Reclassified from Accumulated Other Comprehensive Income (a)

In millions

Defined benefit pension and postretirement items:

Prior-service costs

Actuarial gains/(losses)

Total pre-tax amount

Tax (expense)/benefit

Net of tax

Change in cumulative foreign currency translation adjustments:

Business acquisition/divestiture

Tax (expense)/benefit

Net of tax

Net gains and losses on cash flow hedging derivatives:

Foreign exchange contracts

Fuel oil contracts

Natural gas contracts

Total pre-tax amount

Tax (expense)/benefit

Net of tax

(9) $

(2) $

(6) (b)

Cost of products sold

(493)

(502)

195

(307)

(17)

—

(17)

—

(3)

(317)

(319)

124

(195)

(13)

(24)

—

(11)

(35)

(22)

(221) (b)

Cost of products sold

(227)

(139)

—

Net (gains) losses on
sales and impairments of
businesses

10 (c)

Cost of products sold

6 (c)

Cost of products sold

(32) (c)

Cost of products sold

(16)

(8)

(147)

Total reclassifications for the period

(317) $

(182) $

(a) Amounts in parentheses indicate debits to earnings/loss.
(b) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 16 for

additional details).

(c) This accumulated other comprehensive income component is included in our derivatives and hedging activities (see Note 14 for additional

details).

NOTE 5 RESTRUCTURING CHARGES AND
OTHER ITEMS

As of December 31, 2013, 624 employees had left the
Company under these programs.

2013: During 2013, total restructuring and other
charges of $210 million before taxes ($131 million after
taxes) were recorded. These charges included:

2012: During 2012, total restructuring and other
charges of $109 million before taxes ($74 million after
taxes) were recorded. These charges included:

In millions

Before-Tax
Charges

After-Tax
Charges

In millions

Before-Tax
Charges

After-Tax
Charges

Early debt extinguishment costs (see
Note 13)

xpedx restructuring (a)

xpedx transaction costs

Courtland mill shutdown (b)

Box plant closures

Augusta paper machine shutdown (c)

Insurance reimbursements

Other (d)

Total

118

(13)

(30)

(8)

(19)

131

210

(a) Includes $17 million of severance charges.
(b) Includes $73 million of accelerated depreciation and other non-
cash charges, $42 million of severance charges and $3 million
of other charges which are recorded in the Printing Papers
segment. During 2013, the Company accelerated depreciation
for certain Courtland assets, and diligently evaluated certain
other assets for possible alternative uses by one of our other
businesses. The net book value of these assets at December
31, 2013 was approximately $470 million. During 2014, we
have continued our evaluation and expect to conclude as to
any uses for these assets during the first quarter of 2014.
(c) Includes $39 million of accelerated depreciation charges, $2
million of severance charges and $4 million of other charges
which are recorded in the Consumer Packaging segment.

(d) Includes $2 million of severance charges.

Included
the $210 million of organization
restructuring and other charges is $63 million of
severance charges.

The following table presents a rollforward of the
severance and other costs for approximately 1,686
employees included in the 2013 restructuring charges.

In millions

Additions and adjustments

Cash charges in 2013

Balance, December 31, 2013

Severance
and Other

(21)

Early debt extinguishment costs
(see Note 13)

xpedx restructuring (a)

EMEA packaging restructuring (b)

Other

Total

—

109

(a) Includes $14 million of severance charges.
(b) Includes $17 million of severance charges.

Included
the $109 million of organizational
restructuring and other charges is $31 million of
severance charges.

The following table presents a rollforward of the
severance and other costs for approximately 811
employees included in the 2012 restructuring charges:

In millions

Additions and adjustments

Cash charges in 2012

Cash charges in 2013

Balance, December 31, 2013

Severance
and Other

(15)

(6)

As of December 31, 2013, 680 employees had left the
Company under these programs.

2011: During 2011, total restructuring and other
charges of $102 million before taxes ($66 million after
taxes) were recorded. These charges included:

In millions

Before-Tax
Charges

After-Tax
Charges

xpedx restructuring (a)

Early debt extinguishment costs
(see Note 13)

Temple-Inland merger agreement

APPM acquisition

Franklin, Virginia mill – closure
costs (b)

Other

Total

(24)

102

(15)

(a)
(b)

Includes $19 million of severance charges.
Includes a $21 million credit related to the reversal of an
environmental reserve.

Included
the $102 million of organizational
restructuring and other charges is $25 million of
severance charges.

The following table presents a rollforward of the
severance and other costs for approximately 629
employees included in the 2011 restructuring charges.
As of December 31, 2013, all of these employees had
left the Company under these programs.

In millions

Additions and adjustments

Cash charges in 2011

Cash charges in 2012

Cash charges in 2013

Balance, December 31, 2013

Severance
and Other

(16)

(8)

(1)

—

ALTERNATIVE FUEL MIXTURE TAX CREDIT

NOTE 6 ACQUISITIONS AND JOINT VENTURES

Because the transaction resulted in International Paper
becoming the majority shareholder, owning 87.4% of
its
Olmuksan's outstanding and
completion triggered a mandatory call for tender of the
remaining public shares which began in March 2013
and ended in April 2013, with no shares tendered. As
a result, the 12.6% owned by other parties are
considered non-controlling interests. Olmuksan's

issued shares

financial results have been consolidated with the
Company's Industrial Packaging segment beginning
January 1, 2013, the effective date which International
Paper obtained majority control of the entity.

The following table summarizes the final allocation of
the purchase price to the fair value of assets and
liabilities acquired as of January 1, 2013, which was
completed in the fourth quarter of 2013.

In millions

Cash and temporary investments

Accounts and notes receivable

Inventory

Other current assets

Plants, properties and equipment

Investments

Total assets acquired

Notes payable and current maturities of long-term
debt

Accounts payable and accrued liabilities

Deferred income tax liability

Postretirement and postemployment benefit
obligation

Total liabilities assumed

Noncontrolling interest

Net assets acquired

106

227

155

Pro forma information related to the acquisition of
Olmuksan has not been included as it does not have a
material effect on the Company's consolidated results
of operations.

2012: On February 13, 2012, International Paper
completed the acquisition of Temple-Inland, Inc.
(Temple-Inland). International Paper acquired all of the
outstanding common stock of Temple-Inland for $32.00
per share in cash, totaling approximately $3.7 billion,
and assumed approximately $700 million of Temple-
Inland’s debt. As a condition to allowing the transaction
to proceed, the Company entered into an agreement
on a Final Judgment with the Antitrust Division of the
U.S. Department of Justice (DOJ) that required the
Company to divest three containerboard mills, with
aggregate
approximately
containerboard capacity. On July 2, 2012, International
Paper sold its Ontario and Oxnard (Hueneme),
California
to New-Indy
its New Johnsonville,
Containerboard LLC, and
Tennessee containerboard mill to Hood Container
Corporation. By completing these transactions, the
Company satisfied its divestiture obligations under the
Final Judgment. See Note 7 for further details of these
divestitures.

containerboard mills

970,000

tons

Temple-Inland's results of operations are included in
the consolidated financial statements from the date of
acquisition on February 13, 2012.

The following table summarizes the allocation of the
purchase price to the fair value of assets and liabilities
acquired as of February 13, 2012, which was finalized
in the fourth quarter of 2012.

In millions

Accounts and notes receivable

Inventory

Deferred income tax assets – current

Other current assets

Plants, properties and equipment

Financial assets of special purpose entities

Goodwill

Other intangible assets

Deferred charges and other assets

Total assets acquired

Notes payable and current maturities of long-term
debt

Accounts payable and accrued liabilities

Long-term debt

Nonrecourse financial liabilities of special purpose
entities

Deferred income tax liability

Pension benefit obligation

Postretirement and postemployment benefit obligation

Other liabilities

Total liabilities assumed

Net assets acquired

466

484

140

2,911

2,091

2,139

693

9,035

130

704

527

2,030

1,252

338

221

5,301

$ 3,734

identifiable

The
in
connection with the Temple-Inland acquisition included
the following:

intangible assets acquired

In millions

Asset Class:

Customer relationships

Developed technology

Tradenames

Favorable contracts

Non-compete agreement

Estimated
Fair Value

Average
Remaining
Useful Life

(at acquisition
date)

536

12-17 years

109

5-10 years

Indefinite

4-7 years

2 years

Total

693

In connection with the purchase price allocation,
inventories were written up by approximately $20
million before taxes ($12 million after taxes) to their
estimated fair value. As the related inventories were
sold in the 2012 first quarter, this amount was expensed
in Cost of products sold for the quarter.

Additionally, Selling and administrative expenses for
the years ended December 31, 2013 and 2012 included
$62 million before taxes ($38 million after taxes) and
$164 million before taxes ($105 million after taxes),
respectively, in charges for integration costs associated
with the acquisition.

The following unaudited pro forma information for the
year ended December 31, 2012 represents the results
of operations of International Paper as if the Temple-
Inland acquisition had occurred on January 1, 2012.
This information is based on historical results of
operations, adjusted for certain acquisition accounting
adjustments and does not purport to represent
International Paper’s actual results of operations as if
the transaction described above would have occurred
as of January 1, 2012, nor is it necessarily indicative of
future results.

In millions, except per share amounts

Net sales

Earnings (loss) from continuing operations (a)

Net earnings (loss) (a)

Diluted earnings (loss) from continuing operations per
share (a)

Diluted net earnings (loss) per share (a)

2012

$ 28,125

805

845

1.82

1.92

(a) Attributable

International Paper Company common

shareholders.

APPM's results of operations are included in the
consolidated financial statements from the date of
acquisition on October 14, 2011.

The following table summarizes the final allocation of
the purchase price to the fair value of assets and
liabilities acquired as of October 14, 2011.

In millions

Cash and temporary investments

Accounts and notes receivable

Inventory

Other current assets

Plants, properties and equipment

Goodwill

Deferred income tax asset

Other intangible assets

Other long-term assets

Total assets acquired

Accounts payable and accrued liabilities

Long-term debt

Other liabilities

Deferred income tax liability

Total liabilities assumed

Noncontrolling interest

Net assets acquired

352

138

652

215

400

identifiable

The
in
connection with the APPM acquisition included the
following:

intangible assets acquired

In millions

Asset Class:

Estimated
Fair Value

Non-compete agreement

Tradenames

Fuel supply agreements

Power purchase arrangements

Wholesale distribution network

Total

Average
Remaining
Useful Life

(at acquisition
date)

6 years

Indefinite

2 years

5 years

18 years

Pro forma information related to the acquisition of
APPM has not been included as it does not have a
material effect on the Company’s consolidated results
of operations.

JOINT VENTURES

The value of International Paper's investment in Orsa
IP is approximately $471 million. Because International
Paper acquired a majority control of the joint venture,
Orsa IP's financial results have been consolidated with
our Industrial Packaging segment from the date of
formation on January 14, 2013. The 25% owned by
Jari is considered noncontrolling interest.

International Paper follows the guidance issued by the
FASB regarding the classification and measurement of
redeemable securities.
The Share Purchase
Agreement related to Orsa IP joint venture contained
both a put and a call option that would allow Jari, at the
third anniversary of the joint venture formation, to put
its remaining shares to IP or allow IP, at the sixth
anniversary of the joint venture formation, to call the
remaining noncontrolling shares from Jari. Accordingly,
the noncontrolling common stock held by Jari would be
considered a redeemable noncontrolling interest and
meet the requirements to be classified outside of
permanent equity and is therefore classified as
redeemable
the
accompanying consolidated balance sheets. The value
of redeemable noncontrolling interest is reported at the
greater of the redemption value or historical cost at the
end of each reporting period. As of December 31, 2013,

noncontrolling

interest

the Company reported the redeemable noncontrolling
interest at the redemption value of $163 million.

The following table summarizes the final allocation of
the purchase price to the fair value of assets and
liabilities acquired as of January 14, 2013, which was
completed in the fourth quarter of 2013.

In millions

Cash and temporary investments

Accounts and notes receivable

Inventory

Plants, properties and equipment

Goodwill

Other intangible assets

Other long-term assets

Total assets acquired

Accounts payable and accrued liabilities

Deferred income tax liability

Total liabilities assumed

Noncontrolling interest

Net assets acquired

290

260

110

710

105

134

471

identifiable

in
The
connection with the Orsa IP acquisition included the
following:

intangible assets acquired

In millions

Asset Class:

Customer relationships

Trademark

Wood supply agreement

Total

Average
Remaining
Useful Life

(at acquisition
date)

12 years

6 years

25 years

Estimated
Fair Value

110

Pro forma information related to the acquisition of Orsa
IP has not been included as it does not have a material
effect on the Company's consolidated results of
operations.

Due to the complex organizational structure of Orsa IP's
operations, and the extended time required to prepare
consolidated financial information in accordance with
accounting principles generally accepted in the United
States, the Company reports its share of Orsa IP's
operating results on a one-month lag basis.

the business

line

The purpose of the joint venture is to build and operate
a new production
to manufacture coated
paperboard for food packaging with a designed annual
production capacity of 500,000 tons. The financial
position and results of operations of this joint venture
have been
International Paper’s
in
consolidated financial statements from the date of
formation in December 2011.

included

NOTE 7 BUSINESSES HELD FOR SALE,
DIVESTITURES AND IMPAIRMENTS

DISCONTINUED OPERATIONS

2013: On April 1, 2013, the Company finalized the
sale of Temple-Inland's 50% interest in Del-Tin Fiber
L.L.C. (Del-Tin) to joint venture partner Deltic Timber
Corporation (Deltic) for $20 million in assumed liabilities
and cash.

On July 19, 2013 the Company finalized the sale of its
Temple-Inland Building Products division, which
ultimately included 15 manufacturing facilities, to
Georgia-Pacific Building Products,
for
approximately $733 million in cash and amounts to be
closing
received
adjustments.

preliminary

customary

LLC

for

2012: Upon
the acquisition of Temple-Inland,
management committed to a plan to sell the Temple-
Inland Building Products business, and on December
12, 2012, International Paper reached an agreement to
sell the business (including Del-Tin Fiber L.L.C. (Del-
Tin)) to Georgia-Pacific for $750 million in cash, subject
to satisfaction of customary closing conditions,
including satisfactory review by the DOJ, and to certain
pre-and post-closing purchase price adjustments. The
assets to be sold were to include 16 manufacturing
facilities.

The operating results of the Temple-Inland Building
Products business have been included in Discontinued
operations from the date of acquisition. The assets of
this business, totaling $759 million at December 31,
2012, are included in Assets of businesses held for sale
in current assets in the accompanying consolidated
balance sheet at December 31, 2012. Included in this
amount are $26 million and $153 million related to
goodwill and intangibles, respectively. The liabilities of
this business, totaling $44 million at December 31,
2012, are included in Liabilities of businesses held for

sale in the accompanying consolidated balance sheet
at December 31, 2012.

losses on sales and impairments of businesses in the
accompanying consolidated statement of operations.

International Paper
2011: On August 22, 2011,
announced that it had signed an agreement to sell its
Shorewood business to Atlas Holdings. As a result,
during 2011, net pre-tax charges of $207 million (after
a $246 million tax benefit and a gain of $8 million related
to a noncontrolling interest, a net gain of $47 million)
were recorded to reduce the carrying value of the
Shorewood business to fair market value. As part of the
transaction, International Paper retained a minority
interest of approximately 40% in the newly combined
AGI-Shorewood business outside the U.S. Since the
interest retained represents significant continuing
involvement in the operations of the business, the
operating results of the Shorewood business were
included in continuing operations in the accompanying
consolidated statement of operations
instead of
Discontinued operations. The sale of the U.S. portion
of the Shorewood business to Atlas Holdings closed on
December 31, 2011. The sale of the remainder of the
Shorewood business occurred during January 2012.

Also during 2011, the Company recorded charges
totaling $11 million (before and after taxes) to further
write down the long-lived assets of its Inverurie,
Scotland mill to their estimated fair value.

The net 2011 loss totaling $218 million related to other
divestitures and impairments is included in Net (gains)
losses on sales and impairments of businesses in the
accompanying consolidated statement of operations.

NOTE 8 SUPPLEMENTARY FINANCIAL
STATEMENT INFORMATION

TEMPORARY INVESTMENTS

In millions at December 31

Temporary Investments

2013
$ 1,398 $

2012

934

ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable, net of allowances, by
classification were:

In millions at December 31

Accounts and notes receivable:

Trade

Other

Total

2013

2012

$ 3,497 $ 3,316
246
$ 3,756 $ 3,562

259

2011: The sale of the Company’s Kraft Papers business
that closed in January 2007 contained an earnout
provision that could have required KapStone to make
an additional payment to International Paper in 2012.
Based on the results through the first four years of the
earnout period, KapStone concluded that the threshold
would be attained and the full earnout payment would
be due to International Paper in 2012. On January 3,
2011, International Paper signed an agreement with
KapStone to allow KapStone to pay the Company on
January 4, 2011, the discounted amount of $50 million
before taxes ($30 million after taxes) that otherwise
would have been owed in full under the agreement in
2012. This amount has been included in Discontinued
operations, net of
the accompanying
consolidated statement of operations.

taxes

In the third quarter of 2006, the Company completed
the sale of its Brazilian Coated Papers business and
restated its financial statements to reflect this business
as a discontinued operation. Included in the results for
this business in 2005 and 2006 were local country tax
contingency reserves for which the related statute of
limitations has now expired. A $15 million tax benefit for
the reversal of these reserves plus associated interest
income of $6 million before taxes ($4 million after taxes)
was recorded in March 2011, and is included in
Discontinued operations, net of
the
accompanying consolidated statement of operations.

taxes

OTHER DIVESTITURES AND IMPAIRMENTS

2013: During 2013, the Company recorded net pre-tax
charges of $3 million ($1 million after taxes) for
three
adjustments related
containerboard mills in 2012 and the sale of the
Shorewood business. This loss is included in Net
(gains) losses on sales and impairments of businesses
the accompanying consolidated statement of
in
operations.

the divestiture of

2012: As referenced in Note 6, on July 2, 2012,
International Paper finalized the sales of its Ontario and
Oxnard (Hueneme), California containerboard mills to
New-Indy Containerboard LLC, and
its New
Johnsonville, Tennessee containerboard mill to Hood
Container Corporation. During 2012, the Company
recorded pre-tax charges of $29 million ($55 million
after taxes) for costs associated with the divestitures of
these mills. Also during 2012, in anticipation of the
divestiture of the Hueneme mill, a pre-tax charge of $62
million ($38 million after taxes) was recorded to adjust
the long-lived assets of the mill to their fair value.

The net 2012 loss totaling $86 million related to other
divestitures and impairments is included in Net (gains)

INVENTORIES

In millions at December 31

Raw materials

Finished pulp, paper and packaging
products

2013

372 $

2012

360

1,834

1,728

Operating supplies

Other

Inventories

572

588
54
$ 2,825 $ 2,730

International Paper’s U.S.

The last-in, first-out inventory method is used to value
inventories.
most of
Approximately 75% of total raw materials and finished
products inventories were valued using this method. If
the first-in, first-out method had been used, it would
inventory balances by
have
approximately $417 million and $381 million at
December 31, 2013 and 2012, respectively.

increased

total

PLANTS, PROPERTIES AND EQUIPMENT

In millions at December 31

2013

2012

Pulp, paper and packaging facilities

In millions

Balance as of
January 1, 2013

Goodwill

Accumulated
impairment
losses (a)

Reclassifications
and other (b)

Additions/reductions

Industrial
Packaging

Printing
Papers

Consumer
Packaging

Distribution

Total

3,165

2,396

1,783

400

$ 7,744

—

(1,765)

(1,664)

3,165

631

119

(28)

(63)

293 (c)

(22) (d)

—

400

—

(3,429)

4,315

(88)

272

(400)

(e)

(512)

Impairment loss

—

(112) (e)

Balance as of
December 31, 2013

Goodwill

Accumulated
impairment
losses (a)

3,430

2,311

1,787

400

7,928

—

(1,877)

(1,664)

(400)

(3,941)

Total

3,430

434

123

—

$ 3,987

(a) Represents accumulated goodwill impairment charges since the
adoption of ASC 350, “Intangibles – Goodwill and Other” in 2002.
(b) Represents the effects of foreign currency translations and

reclassifications.

(c) Reflects $260 million for Orsa IP, the newly formed joint venture
in Brazil and the adjustment of $54 million ($33 million after-tax)
previously included as a trade name intangible asset in Deferred
Charges and Other Assets on the balance sheet.

(d) Reflects a reduction from tax benefits generated by the deduction

of goodwill amortization for tax purposes in Brazil.

(e) Represents the impairment of goodwill for the India Papers

Mills

Packaging plants

Other plants, properties and equipment

Gross cost

Less: Accumulated depreciation

Plants, properties and equipment, net

$ 22,105 $ 23,625
7,184

10,163
1,478

2,074

business and xpedx.

33,746

32,883

20,074

18,934
$ 13,672 $ 13,949

In millions

Balance as of
January 1, 2012

Industrial
Packaging

Printing
Papers

Consumer
Packaging

Distribution

Total

In millions

Depreciation expense

INTEREST

2013

2011
$ 1,423 $ 1,399 $ 1,263

2012

Cash payments related to interest were as follows:

In millions

2013

2012

Interest payments

751 $

740 $

2011

629

Amounts related to interest were as follows:

In millions

Interest expense (a)

Interest income (a)

Capitalized interest costs

2013

2012

2011

669 $

743 $

596
55

(a)

Interest expense and interest income exclude approximately
$45 million, $49 million and $49 million in 2013, 2012 and 2011,
respectively, related to investments in and borrowings from
variable interest entities for which the Company has a legal
right of offset (see Note 12).

NOTE 9 GOODWILL AND OTHER INTANGIBLES

GOODWILL

The following tables present changes in the goodwill
balances as allocated to each business segment for the
years ended December 31, 2013 and 2012:

Goodwill

1,157

2,439

1,779

400 $ 5,775

Accumulated
impairment losses (a)

—

(1,765)

1,157

674

(1,664)

115

Reclassifications and
other (b)

(40)

Additions/reductions

2,007 (c)

(3) (d)

(e)

— (3,429)

400

2,346

—

(38)

2,007

Balance as of
December 31, 2012

Goodwill

3,165

2,396

1,783

400

7,744

Accumulated
impairment losses (a)

—

(1,765)

(1,664)

— (3,429)

Total

3,165

631

119

400 $ 4,315

(a) Represents accumulated goodwill impairment charges since the
adoption of ASC 350, “Intangibles – Goodwill and Other” in 2002.
(b) Represents the effects of foreign currency translations and

reclassifications.

(c) Reflects the acquisition of Temple-Inland, net of amounts written
off related to the divestiture of two Temple-Inland mills (Ontario,
California and New Johnsonville, Tennessee) and one
International Paper mill (Oxnard, (Hueneme), California). Also
excludes the goodwill for Building Products which was reclassified
to Businesses Held for Sale.

(d) Reflects an increase related to a purchase price adjustment of
Andhra Pradesh Paper Mills in India partially offset by a reduction
from tax benefits generated by the deduction of goodwill
amortization for tax purposes in Brazil.

(e) Represents the impact of the change in estimate of the contributed
land in the Shandong IP & Sun Food Packaging Co., Ltd. joint
venture in China entered into in 2011.

In the fourth quarter of 2013, in conjunction with the annual
testing of
for possible goodwill
impairments, the Company calculated the estimated fair
value of its India Papers business using the discounted

its reporting units

future cash flows and determined that all of the goodwill of
this business, totaling $112 million, should be written off.
The decline in the fair value of the India Papers reporting
unit and resulting impairment charge was due to a change
in the strategic outlook for the India Papers operations.

Also in the fourth quarter of 2013, the Company calculated
the estimated fair value of its xpedx business using the
discounted future cash flows and wrote off all of the
goodwill of its xpedx business, totaling $400 million. The
decline in fair value of the xpedx reporting unit and resulting
impairment charge was due to a significant decline in
earnings and a change in the strategic outlook for the xpedx
operations.

As a result, during the fourth quarter of 2013, the Company
recorded a total goodwill impairment charge of $512
million, representing all of the recorded goodwill of the
xpedx business and the India Papers business.

No goodwill impairment charges were recorded in 2012 or
2011.

OTHER INTANGIBLES

Identifiable intangible assets comprised the following:

2013

2012

NOTE 10 INCOME TAXES

The components of International Paper’s earnings from
continuing operations before income taxes and equity
earnings by taxing jurisdiction were as follows:

In millions

Earnings (loss)

U.S.

Non-U.S.

2013

2012

2011

394 $

478 $

455

546

874

584

Earnings (loss) from continuing
operations before income taxes
and equity earnings

849 $ 1,024 $ 1,458

The provision (benefit) for income taxes (excluding
noncontrolling interests) by taxing jurisdiction was as
follows:

In millions

2013

2012

2011

Current tax provision (benefit)

U.S. federal

U.S. state and local

Non-U.S.

Deferred tax provision (benefit)

U.S. federal

U.S. state and local

Non-U.S.

$ (697) $

14 $

(95)

123

102

$ (669) $

127 $

(78)

(19)

(6)

$ 186 $

226 $ 207

(21)

(19)

(28)

$ 146 $

204 $ 317

$ (523) $

331 $ 311

In millions at
December 31

Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

Income tax provision

The Company’s deferred income tax provision (benefit)
includes a $7 million provision, a $25 million provision
and a $8 million benefit for 2013, 2012 and 2011,
respectively, for the effect of changes in non-U.S. and
U.S. state tax rates.

International Paper made income tax payments, net of
refunds, of $291 million, $95 million and $44 million in
2013, 2012 and 2011, respectively.

Customer relationships and
lists

Non-compete agreements

Tradenames, patents and
trademarks

Land and water rights

Fuel and power agreements

Software

Other

Total

602

67 (a)

139 $

644 $

144

112

920

272 $

1,080 $

214

(a)

Includes $15 million recorded to write-off a tradename intangible
asset of the Company's India Papers business. This amount is
included in Impairment of goodwill and other intangibles in the
accompanying consolidated statement of operations.

The Company recognized the following amounts as
amortization expense related to intangible assets:

In millions

2013

2012

2011

Amortization expense related to
intangible assets

87 $

58 $

Based on current intangibles subject to amortization,
estimated amortization expense for each of the succeeding
years is as follows: 2014 – $60 million, 2015 – $59 million,
2016 – $58 million, 2017 – $56 million, 2018 – $50 million,
and cumulatively thereafter – $365 million.

A reconciliation of income tax expense using the
statutory U.S. income tax rate compared with the actual
income tax provision follows:

In millions

2013

2012

2011

Earnings (loss) from
continuing
operations before income
taxes
and equity earnings

849

$ 1,024

$ 1,458

Statutory U.S. income tax rate

35 %

35%

Tax expense (benefit) using
statutory U.S. income tax rate

State and local income taxes

Tax rate and permanent
differences on non-U.S.
earnings

Net U.S. tax on non-U.S.
dividends

Tax benefit on manufacturing
activities

Non-deductible business
expenses

Non-deductible goodwill

Tax Audits

Sales of non-strategic
businesses

Retirement plan dividends

Tax basis adjustments

Tax credits

Medicare subsidy

Other, net

297

(4)

358

510

(90)

(116)

(34)

(15)

(27)

147

(770)

—

(5)

(33)

(23)

—

(4)

(15)

—

(5)

—

(8)

—

(195)

(5)

—

(7)

—

Deferred income tax assets and liabilities are recorded
in the accompanying consolidated balance sheet under
the captions Deferred income tax assets, Deferred
charges and other assets, Other accrued liabilities, and
Deferred income taxes. The acquisition of Temple-
Inland in 2012 resulted in additional deferred tax assets
of $600 million and deferred income tax liabilities of $1.8
billion. In addition, there is a decrease in deferred
income tax assets principally relating to the tax impact
of changes in qualified pension liabilities. Deferred tax
liabilities decreased primarily due to the recognition of
an installment sale and book depreciation in excess of
tax depreciation. Certain tax attributes reflected on our
tax returns as filed differ significantly from those
reflected in the deferred income tax accounts due to
uncertain tax benefits.

The valuation allowance for deferred income tax assets
as of December 31, 2013 was $413 million. The net
change in the total valuation allowance for the year
ended December 31, 2013 was an increase of $13
million. The increase is primarily attributable to non-
U.S. net operating losses that the Company currently
does not
the statutory
carryforward period.

foresee utilizing within

A reconciliation of the beginning and ending amount of
unrecognized
the years ended
December 31, 2013, 2012 and 2011 is as follows:

tax benefits

for

Income tax provision

(523)

331

311

Effective income tax rate

(62)%

32%

21%

In millions

2013

2012

2011

Balance at January 1

(972) $

(857) $

(199)

The tax effects of significant temporary differences,
representing deferred income tax assets and liabilities
at December 31, 2013 and 2012, were as follows:

In millions

Deferred income tax assets:

2013

2012

Postretirement benefit accruals

193 $

229

Pension obligations

725

1,620

Alternative minimum and other tax
credits

Net operating loss carryforwards

Compensation reserves

Other

Gross deferred income tax assets

Less: valuation allowance

Net deferred income tax asset

Deferred income tax liabilities:

Intangibles

Plants, properties and equipment

Forestlands and related installment
sales

515

610

281

284

752

579

242

406

2,608

(413)

3,828

(400)

2,195 $

3,428

(304) $

(378)

(2,919)

(3,126)

(2,307)

(2,511)

Gross deferred income tax liabilities

$ (5,530) $ (6,015)

Net deferred income tax liability

$ (3,335) $ (2,587)

(Additions) reductions based on
tax positions related to current
year

Additions for tax positions of prior
years

Reductions for tax positions of
prior years

Settlements

Expiration of statutes of
limitations

Currency translation adjustment

(22)

(2)

(29)

(140)

(719)

824

(2)

Balance at December 31

(161) $

(972) $

(857)

Included in the balance at December 31, 2013, 2012
and 2011 are $1 million, $14 million and $9 million,
respectively, for tax positions for which the ultimate
benefits are highly certain, but for which there is
uncertainty about the timing of such benefits. However,
except for the possible effect of any penalties, any
disallowance that would change the timing of these
benefits would not affect the annual effective tax rate,
but would accelerate the payment of cash to the taxing
authority to an earlier period.

The Company accrues interest on unrecognized tax
benefits as a component of interest expense. Penalties,
if incurred, are recognized as a component of income
tax expense. The Company had approximately $54

million and $104 million accrued for the payment of
estimated interest and penalties associated with
unrecognized tax benefits at December 31, 2013 and
2012, respectively.

The major jurisdictions where the Company files
income tax returns are the United States, Brazil, France,
Poland and Russia. Generally, tax years 2002 through
2012 remain open and subject to examination by the
relevant tax authorities. The Company is typically
engaged in various tax examinations at any given time,
both in the United States and overseas. In 2013, the
Company concluded its examination with the U.S.
Internal Revenue Service for the tax years 2006 through
2009 for both International Paper Company and
Temple-Inland. As a result of the completion of the
examinations, the Company reduced its unrecognized
tax benefits by approximately $844 million. Other
pending audit settlements and the expiration of statute
of limitations could further reduce the uncertain tax
positions by $4 million during the next twelve months.
While the Company believes that it is adequately
accrued for possible audit adjustments, the final
resolution of these examinations cannot be determined
at this time and could result in final settlements that
differ from current estimates.

Included in the Company’s 2013, 2012 and 2011
income tax provision (benefit) are $(924) million, $(85)
million and $(266) million, respectively, related to
special items. The components of the net provisions
related to special items were as follows:

In millions

Special items

Tax-related adjustments:

Internal restructurings

India deal costs

IP UK valuation allowance
release

Settlement of tax audits and
legislative changes

Medicare D deferred income tax
write-off

Other tax adjustments

Income tax provision (benefit)
related to special items

2013

2012

2011

(151) $

(104) $

(293)

(4)

—

(770)

—

(13)

—

(924) $

(85) $

(266)

Excluding the impact of special items and nonoperating
pension expense, the 2013, 2012 and 2011 income tax
provisions were $527 million, $456 million and $591
million,
respectively, or 27%, 29% and 32%,
respectively, of pre-tax earnings before equity earnings.

The following details the scheduled expiration dates of
the Company’s net operating loss and income tax credit
carryforwards:

In millions

U.S. federal and
non-U.S. NOLs

State taxing
jurisdiction NOLs

U.S. federal, non-
U.S. and state tax
credit carryforwards

State capital loss
carryforwards

2014
Through
2023

2024
Through

2033 Indefinite

Total

21 $

3 $

400 $

424

152

120

—

272

117

—

454

—

602

Total

313 $

154 $

854 $

1,321

Deferred income taxes are not provided for temporary
differences of approximately $5.1 billion, $4.7 billion
and $4.5 billion as of December 31, 2013, 2012 and
2011, respectively, representing earnings of non-U.S.
subsidiaries intended to be permanently reinvested.
Computation of the potential deferred tax liability
associated with these undistributed earnings and other
basis differences is not practicable.

The American Taxpayer Relief Act of 2012 (the “Act”)
was signed into law on January 2, 2013. The Act
retroactively restored several expired business tax
provisions, including the research and experimentation
credit and the Subpart F controlled foreign corporation
look-through exception. Because a change in tax law
is accounted for in the period of enactment, the
retroactive effect of the Act on the Company's U.S.
federal taxes for 2012 of a benefit of approximately $32
million was recognized in the first quarter of 2013.

NOTE 11 COMMITMENTS AND CONTINGENT
LIABILITIES

PURCHASE COMMITMENTS AND OPERATING LEASES

Certain property, machinery and equipment are leased
under cancelable and non-cancelable agreements.

Unconditional purchase obligations have been entered
into in the ordinary course of business, principally for
capital projects and the purchase of certain pulpwood,
logs, wood chips, raw materials, energy and services,
including
to purchase
pulpwood that were entered into concurrently with the
Company’s 2006 Transformation Plan forestland sales
and in conjunction with the 2008 acquisition of
Weyerhaeuser Company’s Containerboard, Packaging
and Recycling business.

fiber supply agreements

At December 31, 2013,
future minimum
commitments under existing non-cancelable operating
leases and purchase obligations were as follows:

total

2014

2015

2016

2017

2018 Thereafter

171 $ 133 $

97 $

74 $

59 $

162

In millions

Lease
obligations

Purchase
obligations
(a)

3,170

770

642

529

453

Total

$ 3,341 $ 903 $ 739 $ 603 $ 512 $

2,404

2,566

(a)

Includes $3.3 billion relating to fiber supply agreements
entered into at the time of the Company’s 2006 Transformation
Plan forestland sales and in conjunction with the 2008
acquisition of Weyerhaeuser Company’s Containerboard,
Packaging and Recycling business.

Rent expense was $215 million, $231 million and $205
million for 2013, 2012 and 2011, respectively.

GUARANTEES

In connection with sales of businesses, property,
equipment, forestlands and other assets, International
Paper commonly makes
representations and
warranties relating to such businesses or assets, and
may agree to indemnify buyers with respect to tax and
environmental liabilities, breaches of representations
and warranties, and other matters. Where liabilities for
such matters are determined to be probable and subject
to reasonable estimation, accrued
liabilities are
recorded at the time of sale as a cost of the transaction.

ENVIRONMENTAL PROCEEDINGS

Environmental

International Paper has been named as a potentially
responsible party in environmental remediation actions
under various federal and state laws, including the
Response,
Comprehensive
Compensation and Liability Act (CERCLA). Many of
these proceedings involve the cleanup of hazardous
substances at large commercial landfills that received
waste from many different sources. While joint and
several liability is authorized under CERCLA and
equivalent state laws, as a practical matter, liability for
CERCLA cleanups is typically allocated among the
many potential responsible parties. Remedial costs are
recorded in the consolidated financial statements when
they become probable and reasonably estimable.
International Paper has estimated the probable liability
associated with these matters to be approximately $94
million in the aggregate at December 31, 2013.

Cass Lake: One of the matters referenced above is a
closed wood treating facility located in Cass Lake,
Minnesota. During 2009, in connection with an
environmental site remediation action under CERCLA,
International Paper submitted to the EPA a site
remediation feasibility study. In June 2011, the EPA
selected and published a proposed soil remedy at the
site with an estimated cost of $46 million. The overall

remediation reserve for the site is currently $51 million
to address this selection of an alternative for the soil
remediation component of the overall site remedy. In
October 2011, the EPA released a public statement
indicating that the final soil remedy decision would be
delayed. In the unlikely event that the EPA changes its
proposed soil remedy and approves instead a more
expensive clean-up alternative, the remediation costs
could be material, and significantly higher than amounts
currently recorded. In October 2012, the Natural
Resource Trustees for this site provided notice to
International Paper and other potentially responsible
parties of their intent to perform a Natural Resource
Damage Assessment. It is premature to predict the
outcome of the assessment or to estimate a loss or
range of loss, if any, which may be incurred.

Other: In addition to the above matters, other
remediation costs typically associated with the cleanup
of hazardous substances at the Company’s current,
closed or formerly-owned facilities, and recorded as
liabilities in the balance sheet, totaled approximately
$42 million at December 31, 2013. Other than as
described above, completion of required remedial
actions is not expected to have a material effect on our
consolidated financial statements.

Kalamazoo River: The Company is a potentially
responsible party with respect to the Allied Paper, Inc./
Portage Creek/Kalamazoo River Superfund Site
(Kalamazoo River Superfund Site) in Michigan. The
EPA asserts that the site is contaminated primarily by
PCBs as a result of discharges from various paper mills
located along the Kalamazoo river, including a paper
mill formerly owned by St. Regis Paper Company (St.
Regis). The Company is a successor in interest to St.
Regis. The Company has not received any orders from
the EPA with respect to the site and continues to collect
information from the EPA and other parties relative to
the site to evaluate the extent of its liability, if any, with
respect to the site. Accordingly, it is premature to
estimate a loss or range of loss with respect to this site.

Also in connection with the Kalamazoo River Superfund
Site, the Company was named as a defendant by
Georgia-Pacific Consumer Products LP, Fort James
Corporation and Georgia Pacific LLC in a contribution
and cost recovery action for alleged pollution at the site.
The suit seeks contribution under CERCLA for $79
million in costs purportedly expended by plaintiffs as of
the filing of the complaint and for future remediation
costs. The suit alleges that a mill, during the time it was
allegedly owned and operated by St. Regis, discharged
PCB contaminated solids and paper residuals resulting
from paper de-inking and recycling. Also named as
defendants in the suit are NCR Corporation and
Weyerhaeuser Company. In mid-2011, the suit was
transferred from the District Court for the Eastern
District of Wisconsin to the District Court for the Western

District of Michigan. The trial of the initial liability phase
took place in February 2013. Weyerhaeuser conceded
prior to trial that it was a liable party with respect to the
site. In September 2013, an opinion and order was
issued in the suit. The order concluded that the
Company (as the successor to St. Regis) was not an
“operator,” but was an “owner,” of the mill at issue during
a portion of the relevant period and is therefore liable
under CERCLA. The order also determined that NCR
is a liable party as an "arranger for disposal" of PCBs
in waste paper that was de-inked and recycled by mills
along the Kalamazoo River. The order did not address
the Company's responsibility, if any, for costs for which
plaintiffs in the suit are seeking recovery. This will be
the subject of a separate trial, which has been set for
July 2015. The Company thus believes it is premature
to predict the outcome or to estimate a loss or range of
loss, if any, which may be incurred.

remediation activities at

Harris County: International Paper and McGinnis
Industrial Maintenance Corporation, a subsidiary of
Waste Management, Inc., are potentially responsible
parties at the San Jacinto River Waste Pits Superfund
Site (San Jacinto Superfund Site) in Harris County,
in
Texas, and have been actively participating
investigation and
this
Superfund Site. In December 2011, Harris County,
Texas filed a suit against the Company in Harris County
District Court seeking civil penalties with regard to the
alleged discharge of dioxin into the San Jacinto River
since 1965 from waste impoundments that are part of
the San Jacinto River Superfund Site. Also named as
defendants in this action are McGinnis Industrial
Maintenance Corporation, Waste Management, Inc.
and Waste Management of Texas, Inc. Harris County
is seeking civil penalties pursuant to the Texas Water
Code, which provides for the imposition of civil penalties
between $50 and $25,000 per day. The case is in the
discovery phase and it is therefore premature to predict
the outcome or to estimate our maximum reasonably
possible loss. However, we do not believe that any
material loss is probable.

In October 2012, a civil lawsuit was filed against the
same defendants, including the Company, in the District
Court of Harris County by what are now in excess of
500 plaintiffs seeking medical monitoring and damages
with regard to the alleged discharge of dioxin into the
San Jacinto River since 1965
from waste
impoundments that are a part of the San Jacinto
Superfund Site. This case is in the discovery phase and
it is therefore premature to predict the outcome or to
estimate a loss or range of loss, if any, which may be
incurred. In December 2012, residents of an up-river
neighborhood filed a civil action against the same
defendants, including the Company, in the District Court
of Harris County alleging property damage and
personal injury from the alleged discharge of dioxin into
the San Jacinto River from the San Jacinto Superfund

Site. This case is in the discovery phase and it is
therefore premature to predict the outcome or to
estimate a loss or range of loss, if any, which may be
incurred.

Bogalusa: In August 2011, Temple-Inland's Bogalusa,
Louisiana paper mill experienced an upset condition
that resulted in fish kill on the Pearl River (the Bogalusa
Incident). Louisiana and Mississippi state regulatory
agencies and the U.S. Department of Justice (the DOJ)
initiated enforcement actions against Temple-Inland as
a result of the Bogalusa Incident. We have resolved the
Louisiana and Mississippi enforcement matters and
paid approximately $3 million in penalties.

The DOJ investigation into the Bogalusa Incident was
resolved in the second quarter of 2013 upon federal
court approval of a criminal plea agreement between
Temple-Inland subsidiary, TIN Inc., and the DOJ. Under
the plea agreement, TIN Inc. pleaded guilty to two
misdemeanor environmental offenses, paid a $3.3
million financial penalty, and agreed to a two-year
corporate probation period.

late 2013,

the Louisiana Department of
In
Environmental Quality (LDEQ) and TIN Inc. reached a
settlement, subject to State Attorney General approval,
to resolve a LDEQ enforcement arising from (1) alleged
in an LDEQ
environmental violations
environmental audit conducted immediately after the
Bogalusa Incident, and (2) air permit deviations self-
disclosed by the mill in 2012. Pursuant to the settlement,
TIN Inc. will pay $125,000 to fund a beneficial
improvement project.

identified

In December 2013, the district attorney for Washington
Parish, in which Bogalusa is located, filed a lawsuit
alleging that there are additional damages that were not
resolved by a November 2011 settlement between TIN
Inc. and the Louisiana Fish and Wildlife Department
(LDWF). That settlement resolved a LDWF claim for
wildlife injury damages arising from the Bogalusa
Incidents and the validity of the settlement was upheld
by the Louisiana Supreme Court. We believe that the
new suit is without merit and we are vigorously
defending our position.

Temple-Inland (or its affiliates) was a defendant in 28
civil lawsuits in Louisiana and Mississippi related to the
Bogalusa Incident. Fifteen of these civil cases were filed
in Louisiana state court shortly after the incident and
were removed and consolidated in an action pending
in the U.S. District Court for the Eastern District of
Louisiana along with a civil case originally filed in that
court. During August 2012, an additional 13 causes of
action were filed in federal or state court in Mississippi
and Louisiana. In October 2012, International Paper
and the Plaintiffs' Steering Committee, the group of
attorneys appointed by the Louisiana federal court to

organize and coordinate the efforts of all the plaintiffs
in this litigation, reached a tentative understanding on
key structural terms and an amount for resolution of the
litigation. The court granted preliminary approval for the
proposed class action settlement on December 26,
2012. There were no opt-outs and four objections which
were all later withdrawn. The Fairness Hearing was held
July 10, 2013, and the court issued its Final Order and
Judgment Approving Class Action Settlement the same
day. Under the terms of the settlement agreement, the
class action settlement was deemed final on August 9,
2013. We funded the settlement in September 2013.
This settlement did not have a material effect on the
Company's consolidated financial statements.

LEGAL PROCEEEDINGS

Antitrust: In September 2010, eight containerboard
producers, including International Paper and Temple-
Inland, were named as defendants in a purported class
action complaint that alleged a civil violation of
Section 1 of the Sherman Act. The suit is captioned
Kleen Products LLC v. Packaging Corp. of America
(N.D. Ill.). The complaint alleges that the defendants,
beginning in August 2005 through November 2010,
conspired to limit the supply and thereby increase prices
of containerboard products. The alleged class is all
persons who purchased containerboard products
directly from any defendant for use or delivery in the
United States during the period August 2005 to the
present. The complaint seeks to recover an unspecified
amount of treble actual damages and attorney’s fees
on behalf of the purported class. Four similar complaints
were filed and have been consolidated in the Northern
District of
in January 2011,
International Paper was named as a defendant in a
lawsuit filed in state court in Cocke County, Tennessee
alleging that International Paper violated Tennessee
law by conspiring to limit the supply and fix the prices
of
the
present. Plaintiffs in the state court action seek
certification of a class of Tennessee indirect purchasers
of containerboard products, damages and costs,
including attorneys’ fees. The Company disputes the
allegations made and intends to vigorously defend each
action. However, because both actions are in the
preliminary stages, we are unable to predict an outcome
or estimate a range of reasonably possible loss.

Illinois. Moreover,

from mid-2005

containerboard

Beginning in late December 2012, certain purchasers
of gypsum board filed a number of purported class
action complaints alleging civil violations of Section 1
of the Sherman Act against Temple-Inland and a
number of other gypsum manufacturers. The
complaints were similar and alleged that the gypsum
manufacturers conspired or otherwise
reached
agreements to: (1) raise prices of gypsum board either
from 2008 or 2011 through the present; (2) avoid price
erosion by ceasing the practice of issuing job quotes;

and (3) restrict supply through downtime and limit order
fulfillment. The alleged classes are all persons who
purchased gypsum board and/or gypsum finishing
products directly or indirectly from any defendant. The
complainants seek to recover unspecified treble actual
damages and attorneys' fees on behalf of the purported
classes. On April 8, 2013, the Judicial Panel on
Multidistrict Litigation ordered transfer of all pending
cases to the U.S. District Court for the Eastern District
of Pennsylvania for coordinated and consolidated
pretrial proceedings, and the direct purchaser plaintiffs
and indirect purchaser plaintiffs filed their respective
amended consolidated complaints in June 2013. The
amended consolidated complaints allege a conspiracy
or agreement beginning in or before September 2011.
The Company disputes the allegations made and
intends to vigorously defend the consolidated actions.
In addition, in September 2013, purported class actions
were filed in courts in Quebec, Canada and Ontario,
Canada, with each suit alleging violations of the
Canadian Competition Act and seeking damages and
injunctive relief. The Company intends to dispute the
allegations made and to vigorously defend the litigation.
Because the U.S. cases are in the discovery phase and
the Canadian cases are in a preliminary stage, we are
unable to predict an outcome or estimate our maximum
reasonably possible loss. However, we do not believe
that any material loss is probable.

that

contending

Guaranty Bank: As we have previously disclosed,
Temple-Inland was named as a defendant in a lawsuit
captioned North Port Firefighters’ Pension v. Temple-
Inland Inc., filed in November 2011 in the United States
District Court for the Northern District of Texas and
subsequently amended. The lawsuit alleges a class
action against Temple-Inland and certain individual
Temple-Inland
defendants
misrepresented the financial condition of Guaranty
Financial Group during the period December 12, 2007
through August 24, 2009. On June 20, 2012, all
defendants in the lawsuit filed motions to dismiss the
amended complaint. On March 28, 2013, the district
court granted Temple-Inland's and the individual
defendants' motions to dismiss without prejudice. On
April 26, 2013, the plaintiff filed a Second Amended
Complaint that asserted claims against the individual
defendants, but did not assert any claims against
Temple-Inland. On July 30, 2013, the district court
dismissed the Second Amended Complaint filed
against the individual defendants with prejudice, also
noting that since the plaintiff did not seek the court's
leave to amend its complaint with respect to the claims
against Temple-Inland, all claims against Temple-
Inland were dismissed with prejudice. On August 27,
2013, the plaintiff filed a notice of appeal of the district
court's ruling.

Certain of the individual defendants in the North Port
litigation have requested advancement of their costs of

defense from Temple-Inland and have asserted a right
to indemnification by Temple-Inland. We believe that all
or part of these defense costs would be covered losses
under Temple-Inland's directors and officers insurance.
The carriers under the applicable policies have been
notified of the claims and each has responded with a
reservations of rights letter.

Tax: The Company is currently being challenged by
Brazilian tax authorities concerning the statute of
limitations related to the use of certain tax credits. The
Company is appealing an unfavorable March 2012
administrative court ruling. The potential loss to the
Company in the event of a final unfavorable outcome
is approximately $29 million.

General: The Company is involved in various other
inquiries, administrative proceedings and litigation
relating to environmental and safety matters, contracts,
sales of property, intellectual property, personal injury,
labor and employment and other matters, some of
which allege substantial monetary damages. While any
proceeding or litigation has the element of uncertainty,
the Company believes that the outcome of any of the
lawsuits or claims that are pending or threatened or all
of them combined (other than those that cannot be
assessed due to their preliminary nature) will not have
a material effect on
financial
statements.

its consolidated

NOTE 12 VARIABLE INTEREST ENTITIES AND
PREFERRED SECURITIES OF SUBSIDIARIES

VARIABLE INTEREST ENTITIES

forestlands,

In connection with the 2006 sale of approximately 5.6
million acres of
International Paper
received installment notes (the Timber Notes) totaling
approximately $4.8 billion. The Timber Notes, which do
not require principal payments prior to their August 2016
maturity, are supported by irrevocable letters of credit
obtained by the buyers of the forestlands.

During 2006, International Paper contributed the
Timber Notes to newly formed entities (the Borrower
Entities) in exchange for Class A and Class B interests
in these entities. Subsequently, International Paper
contributed its $200 million Class A interests in the
Borrower Entities, along with approximately $400
million of International Paper promissory notes, to other
newly formed entities (the Investor Entities, and
together with the Borrower Entities, the Entities) in
exchange for Class A and Class B interests in these
entities, and simultaneously sold its Class A interest in
the Investor Entities to a third party investor. As a result,
at December 31, 2006, International Paper held Class
B interests in the Borrower Entities and Class B
interests in the Investor Entities valued at approximately
$5.0 billion. International Paper did not provide any

financial support that was not previously contractually
required for the years ended December 31, 2013, 2012
or 2011.

Following the 2006 sale of forestlands and creation of
the Entities discussed above, the Timber Notes were
used as collateral for borrowings from third party
lenders, which effectively monetized the Timber Notes.
Provisions of certain loan agreements require any bank
issuing letters of credit supporting the Timber Notes to
maintain a credit rating above a specified threshold. In
the event the credit rating of a letter of credit bank is
downgraded below the specified threshold, the letters
of credit must be replaced within 60 days by letters of
credit from a qualifying institution, or for one letter of
credit bank, collateral must be posted. The Company,
retained to provide management services for the third-
party entities that hold the Timber Notes, has, as
required by the loan agreements, successfully replaced
banks that fell below the specified threshold or obtained
a waiver as further discussed below.

for

financial

Also during 2006, the Entities acquired approximately
$4.8 billion of International Paper debt obligations for
cash, resulting in a total of approximately $5.2 billion of
International Paper debt obligations held by the Entities
at December 31, 2006. The various agreements
entered into in connection with these transactions
provide that International Paper has, and intends to
effect, a legal right to offset its obligation under these
debt instruments with its investments in the Entities.
Accordingly,
reporting purposes,
International Paper has offset approximately $5.2 billion
of Class B interests in the Entities against $5.3 billion
of International Paper debt obligations held by these
Entities at December 31, 2013 and 2012. Despite the
offset treatment, these remain debt obligations of
International Paper. Remaining borrowings of $67
million and $79 million at December 31, 2013 and 2012,
respectively, are included in floating rate notes due
2013 – 2017 in the summary of long-term debt in Note
13. Additional debt related to the above transaction of
$79 million is included in short-term notes in the
summary of long-term debt in Note 13 at December 31,
2013 and 2012.

On October 7, 2011, Moody’s
Investor Services
reduced its credit rating of senior unsecured long-term
debt of the Royal Bank of Scotland Group Plc, which
issued letters of credit that support $1.6 billion of the
Timber Notes, below the specified threshold. Letters of
credit worth $842 million were successfully replaced by
other qualifying institutions. Fees of $5 million were
incurred in connection with these replacements. The
Company and third-party managing member instituted
a replacement waiver for the remaining $797 million.
On July 25, 2012, these letters of credit were
successfully replaced by another qualifying institution.
In the event the credit rating of the letter of credit bank

credit quality of the Timber Notes is supported by
irrevocable letters of credit obtained by third-party
buyers which are 100% cash collateralized.
International Paper analyzed which party has control
over the economic performance of each entity, and
concluded International Paper does not have control
over significant decisions surrounding the Timber Notes
and letters of credit and therefore is not the primary
beneficiary. The Company’s maximum exposure to loss
equals the value of the Timber Notes; however, an
analysis performed by the Company concluded the
likelihood of this exposure is remote.

International Paper also held variable interests in two
financing entities that were used to monetize long-term
notes received from the sale of forestlands in 2001 and
2002. International Paper transferred notes (the
Monetized Notes, with an original maturity of 10 years
from inception) and cash of approximately $1.0 billion
to these entities in exchange for preferred interests, and
accounted for the transfers as a sale of the notes with
no associated gain or loss. In the same period, the
entities acquired approximately $1.0 billion of
International Paper debt obligations
for cash.
International Paper has no obligation to make any
further capital contributions to these entities and did not
provide any financial support that was not previously
contractually
the years ended
December 31, 2013, 2012 or 2011.

required during

The 2001 Monetized Notes of $499 million matured on
March 16, 2011. Following their maturity, International
Paper purchased the Class A preferred interest in the
2001 financing entities from an external third-party for
$21 million. As a result of the purchase, effective
March 16, 2011, International Paper owned 100% of
the 2001 financing entities. Based on an analysis
performed by the Company after the purchase, under
guidance that considers the potential magnitude of the
variability in the structure and which party has a
International Paper
interest,
controlling
determined that it was the primary beneficiary of the
2001 financing entities and thus consolidated the
entities effective March 16, 2011. Effective April 30,
2011, International Paper liquidated its interest in the
2001 financing entities. Activity between the Company
and the 2001 financing entities during 2011 was
immaterial.

financial

is downgraded below a specified threshold, the new
bank is required to provide credit support for its
obligation. Fees of $5 million were incurred in
connection with this replacement.

On November 29, 2011, Standard and Poor's reduced
its credit rating of senior unsecured long-term debt of
Lloyds TSB Bank Plc, which issued letters of credit that
support $1.2 billion of the Timber Notes, below the
specified
letters of credit were
successfully replaced by another qualifying institution.
Fees of $4 million were incurred in connection with this
replacement.

threshold. The

On January 23, 2012, Standard and Poor's reduced its
credit rating of senior unsecured long-term debt of
Société Générale SA, which issued letters of credit that
support $666 million of the Timber Notes, below the
specified
letters of credit were
successfully replaced by another qualifying institution.
Fees of $5 million were incurred in connection with this
replacement.

threshold. The

On June 21, 2012, Moody's Investor Services reduced
its credit rating of senior unsecured long-term debt of
BNP Paribas, which issued letters of credit that support
$707 million of Timber Notes, below the specified
threshold. On December 19, 2012, the Company and
to a
third-party managing member agreed
the
continuing replacement waiver for these letters of
credit, terminable upon 30 days notice.

Activity between the Company and the Entities was as
follows:

In millions

Revenue (loss) (a)

Expense (a)

Cash receipts (b)
Cash payments (c)

2013
2011
2012
$ 45 $ 49 $ 49
79
28

33
84

36
87

(a) The net expense related to the Company’s interest in the
Entities
the
accompanying consolidated statement of operations, as
International Paper has and intends to effect its legal right to
offset as discussed above.

Interest expense, net

included

(b) The cash receipts are equity distributions from the Entities to

International Paper.

associated debt obligations discussed above.

Based on an analysis of the Entities discussed above
under guidance that considers the potential magnitude
of the variability in the structures and which party has
a controlling financial interest, International Paper
determined that it is not the primary beneficiary of the
Entities, and therefore, should not consolidate its
investments in these entities. It was also determined
that the source of variability in the structure is the value
of the Timber Notes, the assets most significantly
impacting the structure’s economic performance. The

Activity between the Company and the 2002 financing
entities was as follows:

In millions

Revenue (loss) (a)

Expense (b)

Cash receipts (c)

Cash payments (d)

2013

2012

2011

$ — $ — $

—

— 252

— 159

192

244

(a) The revenue is included in Equity earnings (loss), net of tax in
the accompanying consolidated statement of operations.
(b) The expense is included in Interest expense, net in the

accompanying consolidated statement of operations.

(c) The cash receipts are equity distributions from the 2002
financing entities to International Paper and cash receipts from
the maturity of the 2002 Monetized Notes.

(d) The cash payments include both interest and principal on the

associated debt obligations.

On May 31, 2011, the third-party equity holder of the
2002 financing entities retired its Class A interest in the
entities for $51 million. As a result of the retirement,
effective May 31, 2011, International Paper owned
100% of the 2002 financing entities. Based on an
analysis performed by
the
retirement, under guidance that considers the potential
magnitude of the variability in the structure and which
party has controlling financial interest, International
Paper determined that it was the primary beneficiary of
the 2002 financing entities and thus consolidated the
entities effective May 31, 2011.

the Company after

During 2011, $191 million of the 2002 Monetized Notes
matured. During 2012, $252 million of the 2002
Monetized Notes matured. Cash receipts upon maturity
were used to pay the associated debt obligations.
Effective June 1, 2012, International Paper liquidated
its interest in the 2002 financing entities.

facilitated

The use of
the
the above entities
monetization of the credit enhanced Timber and
Monetized Notes in a cost effective manner by
increasing the borrowing capacity and lowering the
interest rate while continuing to preserve the tax deferral
that resulted from the forestlands installment sales and
the offset accounting treatment described above.

In connection with the acquisition of Temple-Inland in
February 2012, two special purpose entities became
wholly-owned subsidiaries of International Paper.

In October 2007, Temple-Inland sold 1.55 million acres
of timberlands for $2.38 billion. The total consideration
consisted almost entirely of notes due in 2027 issued
by the buyer of the timberlands, which Temple-Inland
contributed to two wholly-owned, bankruptcy-remote
special purpose entities. The notes are shown in
Financial assets of special purpose entities in the
accompanying consolidated balance sheet and are
supported by $2.38 billion of irrevocable letters of credit
issued by three banks, which are required to maintain

minimum credit ratings on their long-term debt. In the
third quarter of 2012, International Paper completed its
preliminary analysis of the acquisition date fair value of
the notes and determined it to be $2.09 billion. As of
December 31, 2013 and 2012, the fair value of the notes
was $2.62 billion and $2.21 billion, respectively.

In December 2007, Temple-Inland's two wholly-owned
special purpose entities borrowed $2.14 billion shown
in Nonrecourse financial liabilities of special purpose
entities in the accompanying consolidated balance
sheet. The loans are repayable in 2027 and are secured
only by the $2.38 billion of notes and the irrevocable
letters of credit securing the notes and are nonrecourse
to the Company. The loan agreements provide that if a
credit rating of any of the banks issuing the letters of
credit is downgraded below the specified threshold, the
letters of credit issued by that bank must be replaced
within 30 days with letters of credit from another
qualifying financial institution. In the third quarter of
2012, International Paper completed its preliminary
analysis of the acquisition date fair value of the
borrowings and determined it to be $2.03 billion. As of
December 31, 2013 and 2012, the fair value of this debt
was $2.49 billion and $2.12 billion, respectively.

On January 23, 2012, Standard and Poor's reduced its
credit rating of senior unsecured long-term debt of
Société Générale SA, which issued letters of credit that
support $506 million of the 2007 Monetized Notes,
below the specific threshold. These letters of credit were
successfully replaced by another qualifying institution.
Fees of $2 million were incurred in connection with this
replacement.

On June 21, 2012, Moody's Investor Services reduced
its credit rating of senior unsecured long-term debt of
Barclays Bank PLC, which issued letters of credit that
support approximately $500 million of the 2007
Monetized Notes, below the specified threshold. These
letters of credit were successfully replaced by another
qualifying institution. Fees of $6 million were incurred
in connection with this replacement.

Activity between the Company and the 2007 financing
entities was as follows:

In millions

Revenue (loss) (a)

Expense (b)

Cash receipts (c)

Cash payments (d)

2013
2011
2012
$ 27 $ 28 $ —
—

—

(a) The revenue is included in Interest expense, net in the
accompanying consolidated statement of operations and
includes approximately $19 million and $17 million for the
years ended December 31, 2013 and 2012, respectively, of
accretion income for the amortization of the purchase
accounting adjustment of the Financial assets of special
purpose entities.

(b) The expense is included in Interest expense, net in the
accompanying consolidated statement of operations and
includes $7 million and $6 million for the years ended
December 31, 2013 and 2012, respectively, of accretion
expense for the amortization of the purchase accounting
adjustment on the Nonrecourse financial liabilities of special
purpose entities.

of special purpose entities.

(d) The cash payments are interest paid on Nonrecourse financial

liabilities of special purpose entities.

PREFERRED SECURITIES OF SUBSIDIARIES

In March 2003, Southeast Timber, Inc. (Southeast
Timber), a consolidated subsidiary of International
Paper, issued $150 million of preferred securities to a
private investor with future dividend payments based
through a
on LIBOR. Southeast Timber, which
subsidiary initially held approximately 1.50 million acres
of forestlands in the southern United States, was
International Paper’s primary vehicle for sales of
southern forestlands. As of December 31, 2013,
substantially all of these forestlands have been sold.
On March 27, 2013, Southeast Timber redeemed its
Class A common shares owned by the private investor
for $150 million. As a result, Noncontrolling interests
decreased by $150 million in the accompanying
consolidated balance sheet. Distributions paid to the
third-party investor were $1 million, $6 million and $5
million in 2013, 2012 and 2011, respectively. The
expense related to these preferred securities is shown
in Net earnings (loss) attributable to noncontrolling
interests in the accompanying consolidated statement
of operations.

NOTE 13 DEBT AND LINES OF CREDIT

Amounts related to early debt extinguishment during
the years ended December 31, 2013, 2012 and 2011
were as follows:

In millions

Debt reductions (a)

2013

2012

2011

574 $ 1,272 $ 129

Pre-tax early debt extinguishment
costs (b)

A summary of long-term debt follows:

In millions at December 31

8.7% note – due 2038

9 3/8% note – due 2019

7.95% debentures – due 2018

7.5% note – due 2021

7.4% debentures – due 2014

7.3% notes – due 2039

6 7/8% notes – due 2023 – 2029

6.65% note – due 2037

6.4% to 7.75% debentures due 2025 –
2027

6 3/8% to 6 5/8% notes – due 2016 – 2018

6.0% notes – due 2041

5.25% to 5.5% notes – due 2014 – 2016

4.75% notes – due 2022

Floating rate notes – due 2013 – 2017 (a)

Environmental and industrial development
bonds – due 2013 – 2035 (b)

Short-term notes (c)

Other (d)

Total (e)

Less: current maturities

Long-term debt

2013

2012

264 $

848

263

846

1,429

1,462

999

—

721

130

142

364

585

657

899

269

999

303

721

130

142

373

585

701

899

314

1,487

1,812

386

304

255

331

9,488

10,140

661

444

$ 8,827 $ 9,696

(a) The weighted average interest rate on these notes was 2.6%

in 2013 and 2.6% in 2012.

(b) The weighted average interest rate on these bonds was 5.5%

in 2013 and 5.6% in 2012.

(c) The weighted average interest rate was 2.8% in 2013 and
2.2% in 2012. Includes $93 million at December 31, 2013 and
$29 million at December 31, 2012 related to non-U.S.
denominated borrowings with a weighted average interest rate
of 5.8% in 2013 and 5.6% in 2012.
Includes $41 million at December 31, 2013 and $61 million at
December 31, 2012, related to the unamortized gain on
interest rate swap unwinds (see Note 14).

(d)

(e) The fair market value was approximately $10.7 billion at
December 31, 2013 and $12.3 billion at December 31, 2012.

In addition to the long-term debt obligations shown
above, International Paper has $5.3 billion of debt
obligations payable
to non-consolidated variable
interest entities having principal payments of $5.3 billion
due in 2016, for which International Paper has, and
intends to effect, a legal right to offset these obligations
with Class B interests held in the entities. Accordingly,
in the accompanying consolidated balance sheet,
International Paper has offset the $5.3 billion of debt
obligations with $5.2 billion of Class B interests in these
entities as of December 31, 2013 (see Note 12). Total
maturities of long-term debt over the next five years are
2014 – $661 million; 2015 – $498 million; 2016 – $571
million; 2017 – $285 million; and 2018 – $2 billion.

International Paper’s
At December 31, 2013,
contractually
(the
facilities
credit
Agreements) totaled $2.5 billion. The Agreements

committed

generally provide for interest rates at a floating rate
index plus a pre-determined margin dependent upon
International Paper’s credit rating. The Agreements
include a $1.5 billion contractually committed bank
facility that expires in August 2016 and has a facility fee
of 0.175% payable quarterly. The Agreements also
include up to $1.0 billion of commercial paper-based
financings based on eligible receivables balances
($958 million available as of December 31, 2013) under
a receivables securitization program. On January 8,
2014,
receivables
securitization program to extend the maturity date from
January 2014 to December 2014. The amended
Agreement includes up to $500 million of uncommitted
commercial paper-based financings. At December 31,
2013, there were no borrowings under either the bank
facility or receivables securitization program.

the Company amended

the

Maintaining an investment grade credit rating is an
important element of International Paper’s financing
strategy. At December 31, 2013, the Company held
long-term credit ratings of BBB (stable outlook) and
Baa3
(stable outlook) by S&P and Moody’s,
respectively.

NOTE 14 DERIVATIVES AND HEDGING
ACTIVITIES

International Paper periodically uses derivatives and
other financial instruments to hedge exposures to
interest
risks.
rate, commodity and currency
International Paper does not hold or issue financial
instruments for trading purposes. For hedges that meet
the hedge accounting criteria, International Paper, at
inception, formally designates and documents the
instrument as a fair value hedge, a cash flow hedge or
a net investment hedge of a specific underlying
exposure.

INTEREST RATE RISK MANAGEMENT

Our policy is to manage interest cost using a mixture of
fixed-rate and variable-rate debt. To manage this risk
in a cost-efficient manner, we enter into interest rate
swaps whereby we agree to exchange with the
counterparty, at specified intervals, the difference
between fixed and variable interest amounts calculated
by reference to a notional amount.

Interest rate swaps that meet specific accounting
criteria are accounted for as fair value or cash flow
hedges. For fair value hedges, the changes in the fair
value of both the hedging instruments and the
underlying debt obligations are immediately recognized
in interest expense. For cash flow hedges, the effective
portion of the changes in the fair value of the hedging
instrument
in Accumulated other
comprehensive income (“AOCI”) and reclassified into
interest expense over the life of the underlying debt.

reported

The ineffective portion for both cash flow and fair value
hedges, which is not material for any year presented,
is immediately recognized in earnings.

FOREIGN CURRENCY RISK MANAGEMENT

We manufacture and sell our products and finance
operations in a number of countries throughout the
world and, as a result, are exposed to movements in
foreign currency exchange rates. The purpose of our
foreign currency hedging program is to manage the
volatility associated with the changes in exchange
rates.

To manage this exchange rate risk, we have historically
utilized a combination of forward contracts, options and
currency swaps. Contracts that qualify are designated
as cash flow hedges of certain forecasted transactions
denominated in foreign currencies. The effective
portion of the changes in fair value of these instruments
is reported in AOCI and reclassified into earnings in the
same financial statement line item and in the same
period or periods during which the related hedged
transactions affect earnings. The ineffective portion,
which is not material for any year presented, is
immediately recognized in earnings.

In the second quarter of 2012, the Company added
zero-cost collar option contracts to its portfolio to
manage its exposure to U.S. dollar / Brazilian real
exchange rates. These zero-cost collar instruments
qualify as cash flow hedges of certain forecasted
transactions denominated in U.S. dollars. The effective
portion of the changes in fair value of these instruments
is reported in AOCI and reclassified into earnings in the
same financial statement line item and in the same
period or periods during which the related hedged
transactions affect earnings. The ineffective portion is
immediately recognized in earnings.

The change
in value of certain non-qualifying
foreign exchange
to manage
instruments used
exposure of intercompany financing transactions and
certain balance sheet items subject to revaluation is
immediately recognized in earnings, substantially
offsetting the foreign currency mark-to-market impact
of the related exposure.

COMMODITY RISK MANAGEMENT

Certain raw materials used in our production processes
are subject to price volatility caused by weather, supply
conditions, political and economic variables and other
unpredictable factors. To manage the volatility in
earnings due to price fluctuations, we may utilize swap
contracts. These contracts are designated as cash flow
hedges of forecasted commodity purchases. The
effective portion of the changes in fair value for these
instruments is reported in AOCI and reclassified into
earnings in the same financial statement line item and

(a) These contracts had maturities of three years or less as of

(b)

December 31, 2013.
Includes $150 million floating-to-fixed interest rate swap
notional to offset the embedded derivative.

The following table shows gains or losses recognized
in AOCI, net of tax, related to derivative instruments:

In millions

Foreign exchange
contracts

Fuel oil contracts

Natural gas contracts

Total

Gain (Loss)
Recognized in AOCI on Derivatives
(Effective Portion)

2013

2012

2011

— $

16 $

—

(1)

— $

15 $

(39)

(6)

(43)

During the next 12 months, the amount of the
December 31, 2013 AOCI balance, after tax, that is
expected to be reclassified to earnings is a gain of $2
million.

in the same period or periods during which the hedged
transactions affect earnings. The ineffective and non-
qualifying portions, which are not material for any year
presented, are immediately recognized in earnings.

The notional amounts of qualifying and non-qualifying
instruments used in hedging transactions were as
follows:

In millions

Derivatives in Cash Flow
Hedging Relationships:

Foreign exchange contracts
(Sell / Buy; denominated in
sell notional): (a)

Brazilian real / U.S. dollar -
Forward

British pounds / Brazilian
real - Forward

European euro / Brazilian
real - Forward

European euro / Polish zloty
- Forward

U.S. dollar / Brazilian real -
Forward

U.S. dollar / Brazilian real -
Zero-cost collar

Derivatives in Fair Value
Hedging Relationships:

Interest rate contracts (in
USD)

Derivatives Not Designated as
Hedging Instruments:

December
31, 2013

December

31, 2012

502

252

290

175

—

149

238

—

Embedded derivative (in USD)

—

150

Foreign exchange contracts
(Sell / Buy; denominated in
sell notional):

Indian rupee / U.S. dollar

Thai baht / U.S. dollar

U.S. dollar / Turkish lira

Interest rate contracts (in
USD)

157

—

140

261

150 (b)

The amounts of gains and losses recognized in the consolidated statement of operations on qualifying and non-
qualifying financial instruments used in hedging transactions were as follows:

In millions

Derivatives in Cash Flow Hedging Relationships:

Foreign exchange contracts

Fuel oil contracts

Natural gas contracts

Total

Gain (Loss)
Reclassified from
AOCI
into Income
(Effective Portion)

2013

2012

2011

Location of Gain
(Loss)
Reclassified
from AOCI
into Income
(Effective Portion)

7 $

(15) $

Cost of products sold

—

(7)

7 $

(22) $

(20)

(8)

Cost of products sold

Gain (Loss)
Recognized

in Income

Location of Gain
(Loss)
in Consolidated
Statement of
Operations

In millions

Derivatives in Fair Value Hedging Relationships:

2013

2012

2011

Interest rate contracts

Debt

Total

Derivatives Not Designated as Hedging Instruments:

Electricity Contracts

Embedded derivatives

Foreign exchange contracts

Interest rate contracts

Total

(1)

$ —

$ (10)

Interest expense, net

—

Interest expense, net

$ —

(1)

(5)

(4)

$ —

Cost of products sold

(4)

(3)

Interest expense, net

—

(14) (a) Cost of products sold

Interest expense, net

$ (14)

(a) Premium costs of $5 million in connection with the acquisition of APPM are included in Restructuring and other charges in the accompanying

consolidated statement of operations.

The following activity is related to fully effective interest rate swaps designated as fair value hedges:

In millions

Fourth Quarter

Total

Issued

Terminated

Undesignated

Issued

Terminated

Undesignated

175 $

175

—

— $

—

2013

2012

Fair Value Measurements

International Paper’s financial assets and liabilities that
are recorded at fair value consist of derivative contracts,
including interest rate swaps, foreign currency forward
contracts, and other financial instruments that are used
to hedge exposures to interest rate, commodity and
currency risks. In addition, a consolidated subsidiary of
International Paper has an embedded derivative. For
these
the embedded
instruments and
derivative, fair value is determined at each balance
sheet date using an income approach.

financial

The guidance for fair value measurements and
disclosures sets out a fair value hierarchy that groups
fair value measurement inputs into the following three
classifications:

Transfers between levels are recognized at the end of
the reporting period. All of International Paper’s
derivative fair value measurements use Level 2 inputs.

Below is a description of the valuation calculation and
the inputs used for each class of contract:

Interest Rate Contracts

Interest rate contracts are valued using swap curves
obtained from an independent market data provider.
The market value of each contract is the sum of the fair
value of all future interest payments between the
contract counterparties, discounted to present value.
The fair value of the future interest payments is
determined by comparing the contract rate to the
derived forward interest rate and present valued using
the appropriate derived interest rate curve.

Level 1: Quoted market prices in active markets for
identical assets or liabilities.

Fuel Oil Contracts

Level 2: Observable market-based inputs other than
quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly.

Level 3: Unobservable inputs for the asset or liability
reflecting the reporting entity’s own assumptions or
external inputs from inactive markets.

Fuel oil contracts are valued using the average of two
forward fuel oil curves as quoted by third parties. The
fair value of each contract is determined by comparing
the strike price to the forward price of the corresponding
fuel oil contract and present valued using
the
appropriate interest rate curve.

Natural Gas Contracts

Natural gas contracts are traded over-the-counter and
settled using the NYMEX last day settle price; therefore,

forward contracts are valued using the closing prices
of the NYMEX natural gas future contracts. The fair
value of each contract is determined by comparing the
strike price to the closing price of the corresponding
natural gas future contract and present valued using
the appropriate interest rate curve.

Foreign Exchange Contracts

Foreign currency forward contracts are valued using
foreign currency forward and interest rate curves
obtained from an independent market data provider.
The fair value of each contract is determined by
comparing the contract rate to the forward rate. The fair
value is present valued using the applicable interest
rate from an independent market data provider.

Embedded Derivative

Embedded derivatives are valued using a hypothetical
interest rate derivative with identical terms. The
hypothetical interest rate derivative contracts are fair
valued as described above under Interest Rate
Contracts.

Since the volume and level of activity of the markets
that each of the above contracts are traded in has been
normal, the fair value calculations have not been
adjusted for inactive markets or disorderly transactions.

The following table provides a summary of the impact of our derivative instruments in the consolidated balance sheet:

Fair Value Measurements
Level 2 – Significant Other Observable Inputs

In millions

Derivatives designated as hedging instruments

Foreign exchange contracts – cash flow

Interest rate contracts - fair value

Total derivatives designated as hedging
instruments

Derivatives not designated as hedging instruments

Electricity contract

Embedded derivatives

Foreign exchange contracts

Interest rate contracts

Total derivatives not designated as hedging
instruments

Total derivatives

December 31,

2013

2012

2013

2012

Assets

Liabilities

37 (a) $

7 (c) $

33 (d) $

—

2 (b) $

—

1 (b)

—

1 (e)

—

21 (f)

—

1 (g)

—

1 (g)

(a)

(b)
(c)

(d)

(e)
(f)

(g)

Includes $23 million recorded in Other current assets and $14 million recorded in Deferred charges and other assets in the accompanying
consolidated balance sheet.
Included in Other current assets in the accompanying consolidated balance sheet.
Includes $3 million recorded in Other current assets and $4 million recorded in Deferred charges and other assets in the accompanying
consolidated balance sheet.
Includes $24 million recorded in Other accrued liabilities and $9 million recorded in Other liabilities in the accompanying consolidated balance
sheet.
Included in Other liabilities in the accompanying consolidated balance sheet.
Includes $20 million recorded in Other accrued liabilities and $1 million recorded in Other liabilities in the accompanying consolidated balance
sheet.
Included in Other accrued liabilities in the accompanying consolidated balance sheet.

The above contracts are subject to enforceable master
netting arrangements that provide rights of offset with
each counterparty when amounts are payable on the
same date in the same currency or in the case of certain
specified defaults.
Management has made an
accounting policy election to not offset the fair value of
recognized derivative assets and derivative liabilities in
the consolidated balance sheet. The amounts owed to
the counterparties and owed to the Company are

considered
counterparty and
counterparties.

immaterial with
in

to each
the aggregate with all

respect

Credit-Risk-Related Contingent Features

International Paper evaluates credit risk by monitoring
its exposure with each counterparty to ensure that
exposure stays within acceptable policy limits. Credit

risk is also mitigated by contractual provisions with the
majority of our banks. Certain of the contracts include
a credit support annex that requires the posting of
collateral by the counterparty or International Paper
based on each party’s rating and level of exposure.
Based on the Company’s current credit rating, the
collateral threshold is generally $10 million.

If the lower of the Company’s credit rating by Moody’s
or S&P were to drop below investment grade, the
Company would be required to post collateral for all of
its derivatives in a net liability position, although no
derivatives would
fair values of
derivative instruments containing credit-risk-related
contingent features in a net liability position were $3
million as of December 31, 2013 and $18 million as of
December 31, 2012. The Company was not required to
post any collateral as of December 31, 2013 or 2012.

terminate. The

NOTE 15 CAPITAL STOCK

The authorized capital stock at both December 31,
2013 and 2012, consisted of 990,850,000 shares of
common stock, $1 par value; 400,000 shares of
cumulative $4 preferred stock, without par value (stated
value $100 per share); and 8,750,000 shares of serial
preferred stock, $1 par value. The serial preferred stock
is issuable in one or more series by the Board of
Directors without further shareholder action.

The following is a rollforward of shares of common stock
for the three years ended December 31, 2013, 2012
and 2011:

Common Stock

In thousands

Balance at January 1, 2011

Issuance of stock for various plans, net

Repurchase of stock

Balance at December 31, 2011

Issuance of stock for various plans, net

Repurchase of stock

Balance at December 31, 2012

Issuance of stock for various plans, net

Repurchase of stock

Balance at December 31, 2013

NOTE 16 RETIREMENT PLANS

438,871
1

Issued Treasury
1,234
(326)
1,013

—
438,872
1,022

—

439,894
7,328

447,222

1,921

(2,994)
1,086

13
(533)
— 11,388
10,868

the
International Paper sponsors and maintains
Retirement Plan of International Paper Company (the
“Pension Plan”), a tax-qualified defined benefit pension
plan that provides retirement benefits to substantially
all U.S. salaried employees and hourly employees
(receiving salaried benefits) hired prior to July 1, 2004,
and substantially all other U.S. hourly and union
employees who work at a participating business unit
regardless of hire date. These employees generally are
eligible to participate in the Pension Plan upon attaining

21 years of age and completing one year of eligibility
service. U.S. salaried employees and hourly employees
(receiving salaried benefits) hired after June 30, 2004
are not eligible to participate in the Pension Plan, but
receive a company contribution to their individual
savings plan accounts (see Other U.S. Plans). The
Pension Plan provides defined pension benefits based
on years of credited service and either final average
earnings (salaried employees and hourly employees
receiving salaried benefits), hourly job rates or specified
benefit rates (hourly and union employees).

In connection with the Temple-Inland acquisition in
February 2012,
International Paper assumed
administrative responsibility for the Temple-Inland
Retirement Plan, a defined benefit plan which covers
substantially all employees of Temple-Inland.

The Company also has three unfunded nonqualified
defined benefit pension plans: a Pension Restoration
Plan available to employees hired prior to July 1, 2004
that provides retirement benefits based on eligible
compensation in excess of limits set by the Internal
Revenue Service, and two supplemental retirement
plans for senior managers (SERP), which is an
alternative retirement plan for salaried employees who
are senior vice presidents and above or who are
designated by
the chief executive officer as
participants. These nonqualified plans are only funded
to the extent of benefits paid, which totaled $28 million,
$95 million and $19 million in 2013, 2012 and 2011,
respectively, and which are expected to be $46 million
in 2014.

The Company will freeze participation, including
credited service and compensation,
for salaried
employees under the Pension Plan, the Pension
Restoration Plan and the SERP for all service on or after
January 1, 2019. In addition, compensation under the
Temple-Inland Retirement Plan and the Temple-Inland
Supplemental Executive Retirement Plan (collectively,
the “Temple Retirement Plans”) will also be frozen
beginning January 1, 2019. Credited service was
previously frozen for the Temple Retirement Plans.
This change will not affect benefits accrued through
December 31, 2018. For service after this date,
employees affected by
freeze will receive
Retirement Savings Account contributions as described
later in this Note 16.

the

Many non-U.S. employees are covered by various
retirement benefit arrangements, some of which are
considered to be defined benefit pension plans for
accounting purposes.

OBLIGATIONS AND FUNDED STATUS

The following table shows the changes in the benefit
obligation and plan assets for 2013 and 2012, and the

The components of the $2.4 billion and $5 million
decrease related to U.S. plans and non-U.S. plans,
respectively, in the amounts recognized in OCI during
2013 consisted of:

In millions

Current year actuarial (gain) loss

Amortization of actuarial loss

Current year prior service cost

Amortization of prior service cost

Curtailments

U.S.
Plans

(1,854) $
(485)
—

(34)

(19)

(2,392) $

Non-
U.S.
Plans
(4)
(1)
—

—

—
(5)

The accumulated benefit obligation at December 31,
2013 and 2012 was $12.6 billion and $13.8 billion,
respectively, for our U.S. defined benefit plans and
$208 million and $206 million, respectively, at
December 31, 2013 and 2012 for our non-U.S. defined
benefit plans.

The following table summarizes information for pension
plans with an accumulated benefit obligation in excess
of plan assets at December 31, 2013 and 2012:

2013

Non-
U.S.
Plans

U.S.
Plans

2012

Non-
U.S.
Plans

U.S.
Plans

$ 12,903 $ 181 $ 14,201 $

200

12,560

10,706

168

125

13,772

10,111

188

143

In millions

Projected benefit
obligation

Accumulated benefit
obligation

Fair value of plan assets

ASC 715, “Compensation – Retirement Benefits”
provides for delayed recognition of actuarial gains and
losses, including amounts arising from changes in the
estimated projected plan benefit obligation due to
changes in the assumed discount rate, differences
between the actual and expected return on plan assets
and other assumption changes. These net gains and
losses are recognized prospectively over a period that
approximates the average remaining service period of
active employees expected to receive benefits under
the plans to the extent that they are not offset by gains
in subsequent years. The estimated net loss and prior
service cost that will be amortized from AOCI into net
periodic pension cost for the U.S. plans during the next
fiscal year are expected to be $316 million and $30
million, respectively.

plans’ funded status. The U.S. combined benefit
obligation as of December 31, 2013 decreased by $1.3
billion, as a result of an increase in the discount rate
assumption used in computing the estimated benefit
obligation. U.S. plan assets increased by $595 million,
reflecting favorable investment results and a $31 million
required contribution
in 2013 offset by benefit
payments.

2013

Non-
U.S.
Plans

U.S.
Plans

2012

Non-
U.S.
Plans

U.S.
Plans

$14,201 $ 223 $10,555 $ 183

188

576

(14)

(5)

—

(4)

152

604

—

(742)

—

(8)

1,749

—

(802)

—

(3)

—

(8)

—

(1)

—

$12,903 $ 228 $14,201 $ 223

In millions

Change in projected benefit
obligation:

Benefit obligation,
January 1

Service cost

Interest cost

Curtailments

Settlements

Acquisitions

Plan amendments

Special termination
benefits

Benefits paid

Effect of foreign currency
exchange rate
movements

Benefit obligation,
December 31

Change in plan assets:

Actuarial loss (gain)

(1,309)

— 1,923

Fair value of plan assets

$10,111 $ 171 $ 8,185 $ 155

Actual return on plan
assets

Company contributions

Benefits paid

Settlements

Acquisitions

Effect of foreign currency
exchange rate
movements

Fair value of plan
assets, December 31

Funded status,
December 31

Amounts recognized in the
consolidated balance
sheet:

1,283

(742)

(5)

—

(8)

(4)

1,183

139

(802)

—

— 1,406

(8)

(3)

—

(1)

—

$10,706 $ 181 $10,111 $ 171

$ (2,197) $

(47) $ (4,090) $

(52)

Non-current asset

— $

9 $

— $

Current liability

(46)

(2)

(32)

Non-current liability

(2,151)

(54)

(4,058)

$ (2,197) $

(47) $ (4,090) $

(2)

(54)

(52)

Amounts recognized in
accumulated other
comprehensive income
under ASC 715 (pre-tax):

Prior service cost

Net actuarial loss

$ 107 $ — $ 144 $ —

3,285

5,640

$ 3,392 $

29 $ 5,784 $

The increase in 2013 pension expense reflects a
decrease in the discount rate from 5.10% in 2012 to
4.10% in 2013 and higher amortization of unrecognized
actuarial losses.

ASSUMPTIONS

accounting

International Paper evaluates its actuarial assumptions
annually as of December 31 (the measurement date)
and considers changes in these long-term factors
based upon market conditions and the requirements for
employers’
pensions. These
assumptions are used to calculate benefit obligations
as of December 31 of the current year and pension
expense to be recorded in the following year (i.e., the
discount rate used to determine the benefit obligation
as of December 31, 2013 was also the discount rate
used to determine net pension expense for the 2014
year).

for

NET PERIODIC PENSION EXPENSE

Service cost is the actuarial present value of benefits
attributed by the plans’ benefit formula to services
rendered by employees during the year. Interest cost
represents the increase in the projected benefit
obligation, which is a discounted amount, due to the
passage of time. The expected return on plan assets
reflects the computed amount of current-year earnings
from the investment of plan assets using an estimated
long-term rate of return.

Net periodic pension expense for qualified and
nonqualified U.S. and non-U.S. defined benefit plans
comprised the following:

2013

Non-
U.S.
Plans

U.S.
Plans

2012

Non-
U.S.
Plans

U.S.
Plans

2011

Non-
U.S.
Plans

$ 188 $

4 $ 152 $

3 $ 121 $

576

604

544

(738)

(11)

(753)

(12)

(713)

(12)

485

307

— 212

—

(1)

$ 545 $

5 $ 342 $

3 $ 195 $

In millions

Service cost

Interest cost

Expected return
on plan assets

Actuarial loss /
(gain)

Amortization of
prior service
cost

Settlement gain

Net periodic
pension
expense

Major actuarial assumptions used in determining the benefit obligations and net periodic pension cost for our defined
benefit plans are presented in the following table:

Actuarial assumptions used to determine benefit obligations as of December 31:

Discount rate

Rate of compensation increase

Actuarial assumptions used to determine net periodic pension cost for years
ended December 31:

2013

Non-
U.S.
Plans

U.S.
Plans

2012

Non-
U.S.
Plans

U.S.
Plans

5.07% 4.10% 4.96% 5.10%

4.13% 3.75% 3.17% 3.75%

U.S.
Plans

4.90%

3.75%

Discount rate

Expected long-term rate of return on plan assets (a)

Rate of compensation increase

4.10%

8.00%

3.75%

4.96% 5.10% 5.98% 5.60%

7.04% 8.00% 7.62% 8.25%

3.17% 3.75% 3.12% 3.75%

2011

Non-
U.S.
Plans

5.98%

3.12%

6.01%

7.79%

3.07%

(a) Represents the expected rate of return for International Paper's qualified pension plan. The weighted average rate for the Temple-Inland

Retirement Plan was 6.16% and 5.70% for 2013 and 2012, respectively.

The expected long-term rate of return on plan assets is
based on projected rates of return for current and
planned asset classes in the plan’s investment portfolio.
Projected rates of return are developed through an
asset/liability study in which projected returns for each
of the plan’s asset classes are determined after
analyzing historical experience and future expectations
of returns and volatility of the various asset classes.

Based on the target asset allocation for each asset
class, the overall expected rate of return for the portfolio
is developed considering the effects of active portfolio
management and expenses paid from plan assets. The
discount rate assumption was determined from a
universe of high quality corporate bonds. A settlement
portfolio is selected and matched to the present value
of the plan’s projected benefit payments. To calculate
pension expense for 2014, the Company will use an

expected long-term rate of return on plan assets of
7.75% for the Retirement Plan of International Paper,
an expected long-term rate of return on plan assets of
7.00% for the Temple-Inland Retirement Plan, a
discount rate of 4.90% and an assumed rate of
compensation increase of 3.75%. The Company
estimates that it will record net pension expense of
approximately $366 million for its U.S. defined benefit
plans in 2014, with the decrease from expense of $545
million
lower amortization of
unrecognized losses, an increase in the discount rate
to 4.90% in 2014 from 4.10% in 2013, partially offset by
a lower return on asset assumption for International
Paper plan assets, and a higher return on asset
assumption for Temple-Inland plan assets.

in 2013 reflecting

For non-U.S. pension plans, assumptions reflect
economic assumptions applicable to each country.

The following illustrates the effect on pension expense
for 2014 of a 25 basis point decrease in the above
assumptions:

In millions

Expense/(Income):

Discount rate
Expected long-term rate of return on plan assets

Rate of compensation increase

2014

25
(5)

PLAN ASSETS

International Paper’s Board of Directors has appointed
a Fiduciary Review Committee that is responsible for
fiduciary oversight of the U.S. Pension Plan, approving
investment policy and reviewing the management and
control of plan assets. Pension Plan assets are invested
to maximize returns within prudent levels of risk. The

The Pension Plan maintains a strategic asset allocation
policy that designates target allocations by asset class.
Investments are diversified across classes and within
each class to minimize the risk of large losses.
Derivatives, including swaps, forward and futures
contracts, may be used as asset class substitutes or
for hedging or other risk management purposes.
Periodic reviews are made of investment policy
objectives and investment manager performance. For
non-U.S. plans, assets consist principally of common
stock and fixed income securities.

International Paper’s U.S. pension allocations by type
of fund at December 31, and target allocations were as
follows:

Asset Class

Equity accounts

Fixed income accounts

Real estate accounts

Other

Total

2013

2012

49%

32%

10%

100%

41%

38%

10%

11%
100%

Target
Allocations

42% - 53%

30% - 40%

6% - 12%

3% - 15%

The 2013 and 2012 actual and target allocations shown
represent a weighted average of International Paper
and Temple-Inland plan assets.

The fair values of International Paper’s pension plan
assets at December 31, 2013 and 2012 by asset class
are shown below. Plan assets included an immaterial
amount of International Paper common stock at
December 31, 2013 and 2012. Hedge funds disclosed
in the following table are allocated equally between
equity and fixed income accounts for target allocation
purposes. Cash and cash equivalent portfolios are
allocated to the types of account from which they
originated.

Fair Value Measurement at December 31, 2013

Quoted
Prices
in
Active
Markets
For
Identical
Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Asset Class

In millions

Total

Equities – domestic

$ 2,466 $

1,175 $

1,290 $

2,313

1,248

1,097

143

193

831

484

1,038

313

506

1,470

—

(1)

—

843

1,248

1,097

143

193

—

(10)

516

—

831

484

1,038

313

—

$ 10,706 $

2,634 $

5,395 $

2,677

Equities – international

Corporate bonds

Government securities

Mortgage backed securities

Other fixed income

Commodities

Hedge funds

Private equity

Real estate

Derivatives

Cash and cash equivalents

Total Investments

Commodities consist of commodity-linked notes and
commodity-linked derivatives. Commodities are valued
at closing prices determined by calculation agents for
outstanding transactions.

(commingled, multi-manager

Hedge funds are investment structures for managing
private, loosely-regulated investment pools that can
pursue a diverse array of investment strategies with a
wide range of different securities and derivative
instruments. These investments are made through
funds-of-funds
fund
structures) and through direct investments in individual
hedge funds. Hedge funds are primarily valued by each
fund’s
the
valuation of the underlying securities and instruments
and primarily by applying a market or income valuation
methodology as appropriate depending on the specific
type of security or instrument held. Funds-of-funds are
valued based upon the net asset values of the
underlying investments in hedge funds.

third-party administrator based upon

Private equity consists of interests in partnerships that
invest in U.S. and non-U.S. debt and equity securities.
Partnership interests are valued using the most recent
general partner statement of fair value, updated for any
subsequent partnership interest cash flows.

Real estate includes commercial properties, land and
timberland, and generally includes, but is not limited to,
retail, office, industrial, multifamily and hotel properties.
Real estate fund values are primarily reported by the
fund manager and are based on valuation of the
underlying investments which include inputs such as
cost, discounted cash flows, independent appraisals
and market based comparable data.

futures,

investments such as

forward
Derivative
contracts, options, and swaps are used to help manage
risks. Derivatives are generally employed as asset
class substitutes (such as when employed within a
portable alpha strategy), for managing asset/liability
mismatches, or bona fide hedging or other appropriate
risk management purposes. Derivative instruments are
generally valued by the investment managers or in
certain instances by third-party pricing sources.

Fair Value Measurement at December 31, 2012

Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1)

Total

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Asset Class

In millions

Equities – domestic

$ 2,171 $

1,241 $

927 $

Equities – international

1,513

1,145

368

Common collective funds – fixed
income

Corporate bonds

Government securities

Mortgage backed securities

Other fixed income

Commodities

Hedge funds

Private equity

Real estate

Derivatives

Cash and cash equivalents

180

1,539

1,593

127

216

492

503

1,037

354

311

—

180

1,539

1,593

127

216

—

(15)

326

—

492

503

1,037

354

—

Total Investments

$10,111 $

2,371 $

5,343 $

2,397

Equity securities consist primarily of publicly traded
U.S. companies and international companies. Publicly
traded equities are valued at the closing prices reported
in the active market in which the individual securities
are traded.

Fixed income consists of government securities,
mortgage-backed securities, corporate bonds and
common collective funds. Government securities are
valued by third-party pricing sources. Mortgage-backed
security holdings consist primarily of agency-rated
holdings. The fair value estimates for mortgage
securities are calculated by third-party pricing sources
chosen by the custodian’s price matrix. Corporate
bonds are valued using either the yields currently
available on comparable securities of issuers with
similar credit ratings or using a discounted cash flows
approach that utilizes observable inputs, such as
current yields of similar instruments, but includes
adjustments
that may not be
observable, such as credit and liquidity risks. Common
collective funds are valued at the net asset value per
share multiplied by the number of shares held as of the
measurement date.

for certain risks

The fair value measurements using significant unobservable inputs (Level 3) at December 31, 2013 were as
follows:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

In millions

Equities-
Domestic

Other
Fixed
Income

Hedge
Funds

Private
Equity

Real

Estate Derivatives

Total

Beginning balance at December 31, 2012

3 $

8 $ 492 $

503 $ 1,037 $

354 $ 2,397

Actual return on plan assets:

Relating to assets still held at the reporting date

Relating to assets sold during the period

Purchases, sales and settlements

Transfers in and/or out of Level 3

(1)

(3)

—

281

—

(61)

—

(93)

—

(20)

137

(158)

—

219

(34)

Ending balance at December 31, 2013

1 $

10 $ 831 $

484 $ 1,038 $

313 $ 2,677

FUNDING AND CASH FLOWS

The Company’s funding policy for the Pension Plan is
to contribute amounts sufficient to meet legal funding
requirements, plus any additional amounts that the
Company may determine to be appropriate considering
the funded status of the plans, tax deductibility, cash
flow generated by the Company, and other factors. The
Company continually reassesses the amount and
timing of any discretionary contributions. Contributions
to the qualified plan totaling $31 million , $44 million and
$300 million were made by the Company in 2013, 2012
and 2011, respectively. Generally, International Paper’s
non-U.S. pension plans are funded using the projected
benefit as a target, except in certain countries where
funding of benefit plans is not required.

At December 31, 2013, projected future pension benefit
payments, excluding any termination benefits, were as
follows:

2004,
the Company makes Retirement Savings
Account contributions equal to a percentage of an
eligible employee’s pay.

In connection with the Temple-Inland acquisition,
International Paper acquired two savings plans which
were merged into the International Paper savings plans
on December 31, 2012.

The Company also sponsors the International Paper
Company Deferred Compensation Savings Plan, which
is an unfunded nonqualified defined contribution plan.
This plan permits eligible employees to continue to
make deferrals and receive company matching
contributions when
the
International Paper Salaried Savings Plan are stopped
due to limitations under U.S. tax law. Participant
deferrals and company matching contributions are not
invested in a separate trust, but are paid directly from
International Paper’s general assets at the time benefits
become due and payable.

their contributions

In millions

2014

2015

2016

2017

2018

2019 – 2023

767

759

767

779

791

4,165

Company matching contributions to the plans totaled
approximately $120 million, $122 million and $83 million
for the plan years ending in 2013, 2012 and 2011,
respectively.

NOTE 17 POSTRETIREMENT BENEFITS

OTHER U.S. PLANS

U.S. POSTRETIREMENT BENEFITS

International Paper sponsors the International Paper
Company Salaried Savings Plan and the International
Paper Company Hourly Savings Plan, both of which are
tax-qualified defined contribution 401(k) savings plans.
Substantially all U.S. salaried and certain hourly
employees are eligible to participate and may make
elective deferrals to such plans to save for retirement.
International Paper makes matching contributions to
participant accounts on a specified percentage of
employee deferrals as determined by the provisions of
each plan. For eligible employees hired after June 30,

International Paper provides certain retiree health care
and life insurance benefits covering certain U.S.
salaried and hourly employees. These employees are
generally eligible for benefits upon retirement and
completion of a specified number of years of creditable
service. Excluded from company-provided medical
benefits are salaried employees whose age plus years
of employment with the Company totaled less than 60
as of January 1, 2004. International Paper does not
fund these benefits prior to payment and has the right

to modify or terminate certain of these plans in the
future.

In addition to the U.S. plan, certain Brazilian and
Moroccan employees are eligible for retiree health care
and life insurance benefits.

The components of U.S. postretirement benefit
expense in 2013, 2012 and 2011 were as follows:

Discount
rate

The discount rates used to determine net U.S. and non-
U.S. postretirement benefit cost for the years ended
December 31, 2013, 2012 and 2011 were as follows:

2013

Non-
U.S.
Plans

U.S.
Plans

2012

Non-
U.S.
Plans

U.S.
Plans

2011

Non-
U.S.
Plans

3.70% 8.43% 4.40% (a)

7.73% 5.30% 7.72%

In millions

Service cost

Interest cost

Actuarial loss

Amortization of
prior service
credits

Curtailment gain

Net
postretirement
(benefit)
expense (a)

2013

Non-
U.S.
Plans

2012

Non-
U.S.
Plans

U.S.
Plans

2011

Non-
U.S.
Plans

U.S.
Plans

2 $

3 $ — $

2 $ —

(24)

—

(30)

(7)

—

(25)

—

(1) $

7 $

(4) $

1 $

7 $

(a) Excludes $7 million of curtailment gains in 2013 related to the
sale of Building Products that were recorded in Net (gains)
losses on sales and impairments of businesses in the
consolidated statement of operations.

International Paper evaluates its actuarial assumptions
annually as of December 31 (the measurement date)
and considers changes in these long-term factors
based upon market conditions and the requirements of
employers’ accounting for postretirement benefits other
than pensions. Temple-Inland's postretirement plan
was remeasured on July 19, 2013 due to the sale of
Building Products which reduced the obligation by $6
million International Paper's postretirement plan was
remeasured on January 31, 2012 due to a negative plan
amendment which reduced our obligation by $29 million
and reduced the 2012 expected benefit cost by $11
million. Temple-Inland's postretirement plan was
remeasured on July 31, 2012 due to a negative plan
amendment which reduced the obligation by $6 million
and reduced 2012 expense by $1 million.

(a) Represents the weighted average rate for the IP plan for 2012
due to the remeasurement. The weighted average rate used
for Temple-Inland in 2012 was 4.19%.

The weighted average assumptions used to determine
the benefit obligation at December 31, 2013 and 2012
were as follows:

2013

Non-
U.S.
Plans

U.S.
Plans

2012

Non-
U.S.
Plans

U.S.
Plans

Discount rate

4.50% 11.94% 3.70% 8.43%

Health care cost trend rate
assumed for next year

Rate that the cost trend rate
gradually declines to

Year that the rate reaches the
rate it is assumed to remain

7.00% 11.43% 7.50% 7.18%

5.00% 6.12% 5.00% 7.18%

2017

2024

2017

2013

A 1% increase in the assumed annual health care cost
trend rate would have increased the U.S. and non-U.S.
accumulated postretirement benefit obligations at
December 31, 2013 by approximately $13 million and
$12 million, respectively. A 1% decrease in the annual
trend rate would have decreased the U.S. and non-U.S.
accumulated postretirement benefit obligation at
December 31, 2013 by approximately $11 million and
respectively. The effect on net
$10 million,
postretirement benefit cost from a 1% increase or
decrease would be approximately $1 million for both
U.S. and non-U.S. plans.

The plan is only funded in an amount equal to benefits
paid. The following table presents the changes in
benefit obligation and plan assets for 2013 and 2012:

In millions

2013

Non-
U.S.
Plans

U.S.
Plans

2012

Non-
U.S.
Plans

Change in projected benefit
obligation:

Benefit obligation, January 1

$ 449 $

22 $ 425 $

Service cost

Interest cost

Participants’ contributions

Actuarial (gain) loss

Acquisitions

Plan amendments

Benefits paid

Less: Federal subsidy

Restructuring

Curtailment

Currency Impact

Benefit obligation,
December 31

Change in plan assets:

Fair value of plan assets,
January 1

Company contributions

Participants’ contributions

Benefits paid

Fair value of plan assets,
December 31

(80)

—

108

(63)

(82)

(1)

(107)

—

(2)

—

(6)

(17)

(5)

—

(2)

—

(11)

—

$ 322 $

72 $ 449 $

$ — $ — $ — $ —

—

(82)

(1)

(107)

(2)

$ — $ — $ — $ —

Funded status, December 31

$ (322) $ (72) $ (449) $ (22)

Amounts recognized in the
consolidated balance sheet
under ASC 715:

Current liability

$ (39) $

(2) $ (59) $

(2)

Non-current liability

(283)

(70)

(390)

(20)

$ (322) $ (72) $ (449) $ (22)

Amounts recognized in
accumulated other
comprehensive income under
ASC 715 (pre-tax):

Net actuarial loss (gain)

Prior service credit

31 $

11 $ 115 $

(35)

—

(65)

(4) $

11 $

50 $

(1)

—

(1)

The non-current portion of the liability is included with
the postemployment liability in the accompanying
consolidated balance sheet under Postretirement and
postemployment benefit obligation.

The components of the $54 million decrease and $12
million increase in the amounts recognized in OCI
during 2013 for U.S. and non-U.S. plans, respectively,
consisted of:

In millions

Curtailment

Current year actuarial gain

Amortization of actuarial (loss) gain

Amortization of prior service credit

U.S.
Plans

Non-
U.S.
Plans

5 $ —

(76)

(7)

$ (54) $

—

The portion of the change in the funded status that was
recognized in either net periodic benefit cost or OCI for
the U.S. plans was $63 million, $0 million and $47 million
in 2013, 2012 and 2011, respectively. The portion of
the change in funded status for the non-U.S. plans was
$19 million, $2 million, and $3 million in 2013, 2012 and
2011, respectively.

The estimated amounts of net loss and prior service
credit that will be amortized from OCI into net U.S.
postretirement benefit cost in 2014 are expected to be
$4 million and $(13) million, respectively. The estimated
amounts for non-U.S. plans in 2014 are expected to be
$1 million and $0 million, respectively.

At December 31, 2013, estimated
future
postretirement benefit payments, net of participant
contributions and estimated future Medicare Part D
subsidy receipts, were as follows:

total

In millions

Benefit
Payments

Subsidy
Receipts

Benefit
Payments

2014

2015

2016

2017

2018

2019 – 2023

U.S.
Plans

42 $

3 $

120

Non-
U.S.
Plans

NOTE 18 INCENTIVE PLANS

International Paper currently has an
Incentive
Compensation Plan (ICP) which, upon the approval by
the Company’s shareholders in May 2009, replaced the
Company’s Long-Term Incentive Compensation Plan
(LTICP). The ICP authorizes grants of restricted stock,
restricted or deferred stock units, performance awards
payable in cash or stock upon the attainment of
specified performance goals, dividend equivalents,
stock options, stock appreciation rights, other stock-
based awards, and cash-based awards at the discretion
of the Management Development and Compensation

Committee of the Board of Directors (the Committee)
that administers the ICP. Additionally, restricted stock,
which may be deferred into RSU’s, may be awarded
under a Restricted Stock and Deferred Compensation
Plan for Non-Employee Directors.

STOCK OPTION PROGRAM

–

Stock

International Paper accounts for stock options in
accordance with guidance under ASC 718,
“Compensation
Compensation.”
Compensation expense is recorded over the related
service period based on the grant-date fair market
value. Since all outstanding options were vested as of
July 14, 2005, only replacement option grants are
expensed. No replacement options were granted in
2011.

Under the program, upon exercise of an option, a
replacement option may be granted under certain
circumstances with an exercise price equal to the
market price at the time of exercise and with a term
extending to the expiration date of the original option.

The Company has discontinued the issuance of stock
options for all eligible U.S. and non-U.S. employees. In
the United States, the stock option program was
replaced with a performance-based restricted share
program to more closely tie long-term incentive
compensation to Company performance on two key
performance drivers: return on investment (ROI) and
total shareholder return (TSR).

The following summarizes the status of the Stock
Option Program and the changes during the three years
ending December 31, 2013:

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Life
(years)

Aggregate
Intrinsic
Value
(thousands)

Options
(a,b)

Outstanding at December 31,
2010

18,245,253

$37.73

2.30

$—

Exercised

Forfeited

Expired

Outstanding at December 31,
2011

Granted

Exercised

Expired

Outstanding at December 31,
2012

Granted

Exercised

Expired

(1,850)

(21,070)

32.54

35.21

(2,665,547)

35.45

15,556,786

2,513

(3,200,642)

38.13

35.94

33.62

(3,222,597)

40.71

9,136,060

4,744

(7,317,825)

38.79

48.11

38.57

(70,190)

37.15

1.55

—

1.15

1,077

Outstanding at December 31,
2013

1,752,789

$39.80

0.67

$16,175

(a) The table does not include Continuity Award tandem stock
options described below. No fair market value is assigned to
these options under ASC 718. The tandem restricted shares
accompanying these options are expensed over their vesting
period.

(b) The table includes options outstanding under an acquired
company plan under which options may no longer be granted.

PERFORMANCE SHARE PLAN

Under the Performance Share Plan (PSP), contingent
awards of International Paper common stock are
granted by the Committee. The PSP awards are earned
over a three-year period. For the 2011 grant, one-fourth
of the award is earned during each twelve-month
period, with the final one-fourth segment earned over
the full three-year period. Beginning with the 2012
grant, the award is earned evenly over a thirty-six-
month period. PSP awards are earned based on the
achievement of defined performance rankings of ROI
and TSR compared to ROI and TSR peer groups of
companies. Awards are weighted 75% for ROI and 25%
for TSR for all participants except for officers for whom
the awards are weighted 50% for ROI and 50% for TSR.
The ROI component of the PSP awards is valued at the
closing stock price on the day prior to the grant date.
As the ROI component contains a performance
condition, compensation expense, net of estimated
forfeitures, is recorded over the requisite service period
based on the most probable number of awards
expected to vest. The TSR component of the PSP
awards is valued using a Monte Carlo simulation as the
TSR component contains a market condition. The
Monte Carlo simulation estimates the fair value of the
TSR component based on the expected term of the
award, a risk-free rate, expected dividends, and the
expected volatility for the Company and its competitors.
The expected term is estimated based on the vesting
period of the awards, the risk-free rate is based on the

yield on U.S. Treasury securities matching the vesting
period, and the volatility is based on the Company’s
historical volatility over the expected term.

The following summarizes the activity of the Executive
Continuity Award program and RSA program for the
three years ending December 31, 2013:

PSP grants are made in performance-based restricted
stock units (PSU’s). PSP awards issued to certain
members of senior management are accounted for as
liability awards, which are remeasured at fair value at
each balance sheet date. The valuation of these PSP
liability awards is computed based on the same
methodology as the PSP equity awards.

The following table sets forth the assumptions used to
determine compensation cost for the market condition
component of the PSP plan:

Expected volatility

Risk-free interest rate

Twelve Months Ended
December 31, 2013

25.30%-62.58%

0.13% - 0.99%

The following summarizes PSP activity for the three
years ending December 31, 2013:

Outstanding at December 31, 2010

Granted

Shares issued

Forfeited

Outstanding at December 31, 2011

Granted

Shares issued

Forfeited

Outstanding at December 31, 2012

Granted

Shares issued (a)

Forfeited

Weighted
Average
Grant Date
Fair Value

$23.31

28.04

32.43

25.07

22.83

31.57

16.83

28.89

28.37

40.76

32.48

34.58

Share/Units

6,812,594

4,314,376

(2,565,971)

(500,940)

8,060,059

3,641,911

(2,871,367)

(169,748)

8,660,855

3,148,445

(3,262,760)

(429,051)

Outstanding at December 31, 2013

8,117,489

$31.20

(a)

Includes 356,542 units related to retirements or terminations
that are held for payout until the end of the performance period.

EXECUTIVE CONTINUITY AND RESTRICTED STOCK AWARD
PROGRAMS

The Executive Continuity Award program provides for
the granting of tandem awards of restricted stock and/
or nonqualified stock options to key executives. Grants
are restricted and awards conditioned on attainment of
a specified age. The awarding of a tandem stock option
results in the cancellation of the related restricted
shares.

The service-based Restricted Stock Award program
(RSA), designed for recruitment, retention and special
recognition purposes, also provides for awards of
restricted stock to key employees.

Outstanding at December 31, 2010

Granted

Shares issued

Forfeited

Outstanding at December 31, 2011

Granted

Shares issued

Forfeited

Outstanding at December 31, 2012

Granted

Shares issued

Forfeited

Outstanding at December 31, 2013

Weighted
Average
Grant Date
Fair Value
$26.95

27.01

24.84

26.78

27.86

31.91

27.13

28.91

30.49

44.41

32.30

37.75

$36.24

167,500

21,500

(55,083)

(5,000)

128,917

88,715

(61,083)

(5,000)

151,549

67,100

(88,775)

(17,500)

112,374

At December 31, 2013, 2012 and 2011 a total of 17.8
million, 19.3 million and 18.6 million shares,
respectively, were available for grant under the ICP.

Stock-based compensation expense and related
income tax benefits were as follows:

In millions

2013

2012

2011

Total stock-based compensation
expense (included in selling and
administrative expense)

Income tax benefits related to stock-
based compensation

137 $

116 $

At December 31, 2013, $116 million of compensation
cost, net of estimated forfeitures, related to unvested
restricted performance shares, executive continuity
awards and restricted stock attributable to future
performance had not yet been recognized. This amount
will be recognized in expense over a weighted-average
period of 1.7 years.

NOTE 19 FINANCIAL INFORMATION BY
INDUSTRY SEGMENT AND GEOGRAPHIC AREA

International Paper’s industry segments, Industrial
Packaging, Printing Papers, Consumer Packaging and
Distribution Businesses, are consistent with the internal
structure used to manage these businesses. All
segments are differentiated on a common product,
common customer basis consistent with the business
segmentation generally used in the Forest Products
industry.

For management purposes, International Paper reports
the operating performance of each business based on
earnings before interest and income taxes (EBIT).
Intersegment sales and transfers are recorded at
current market prices.

External sales by major product is determined by
aggregating sales from each segment based on similar
products or services. External sales are defined as
those that are made to parties outside International
Paper’s consolidated group, whereas sales by segment
in the Net Sales table are determined using a
management approach and include intersegment
sales.

The Company also holds a 50% interest in Ilim that is
a separate reportable industry segment. The Company
recorded equity earnings (losses), net of taxes, of $(46)
million, $56 million and $134 million in 2013, 2012, and
2011, respectively, for Ilim.

INFORMATION BY INDUSTRY SEGMENT

Net Sales

In millions

2013

2012

Industrial Packaging

$ 14,810

Printing Papers

Consumer Packaging

Distribution

Corporate and Intersegment
Sales

$ 13,280
6,230

3,170

6,040

6,205

3,435

5,650

2011
$ 10,430
6,215

3,710

6,630

(1,020)

(887)

(951)

Net Sales

$ 29,080

$ 27,833

$ 26,034

Operating Profit

In millions

2013

2012

2011

Industrial Packaging

1,801

1,066

1,147

Printing Papers

Consumer Packaging

Distribution

Operating Profit

Interest expense, net

Noncontrolling interests /
equity earnings adjustment
(a)

Corporate items, net

Restructuring and other
charges

Net gains (losses) on sales
and impairments of
businesses

Non-operating pension
expense

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

271

161

(389)

1,844

(612)

(29)

(32)

599

268

1,955

(672)

—

(51)

—

(323)

(159)

872

163

2,216

(541)

(102)

(82)

—

(43)

849

1,024

1,458

Restructuring and Other Charges

In millions

2013

2012

2011

Industrial Packaging

(2) $

118

—

(24)

210

109

102

2013

$ 15,083
6,574

3,222

1,186
5,463

$ 31,528

2012
$ 13,353
7,198

3,123

1,639
6,840
$ 32,153

Printing Papers

Consumer Packaging

Distribution

Corporate

Restructuring and Other
Charges

Assets

In millions

Industrial Packaging

Printing Papers

Consumer Packaging

Distribution

Corporate and other (b)

Assets

Capital Spending

In millions

2013

2012

2011

Industrial Packaging

Printing Papers

Consumer Packaging

Distribution

Subtotal

Corporate and other

Total from Continuing
Operations

629

294

208

1,140

565

449

296

1,320

426

364

310

1,108

1,198

1,383

1,159

Depreciation, Amortization and Cost of Timber
Harvested (c)

In millions

2013

2012

2011

Industrial Packaging

Printing Papers

Consumer Packaging

Distribution

Corporate

Depreciation and
Amortization

805

446

206

755

450

196

513

486

217

102

1,547

1,486

1,332

External Sales By Major Product

In millions

2013

2012

Industrial Packaging

$ 14,729

Printing Papers

Consumer Packaging
Distribution

5,443

3,311
5,597

$ 13,223
5,483

3,146

5,981

Net Sales

$ 29,080

$ 27,833

2011
$ 10,376
5,510

3,577

6,571
$ 26,034

INFORMATION BY GEOGRAPHIC AREA
Net Sales (d)

NOTE 20 SUBSEQUENT EVENT

On January 28, 2014, International Paper announced
that its distribution solutions businesses xpedx and
Unisource Worldwide, Inc. will merge under the terms
of a definitive agreement that will result in the creation
of a new publicly-traded company.

The transaction will be accomplished through a
Reverse Morris Trust structure in which International
Paper will indirectly contribute the assets of xpedx to a
newly formed wholly-owned subsidiary, SpinCo, in
exchange for shares of common stock of SpinCo, a
special payment of $400 million, subject to adjustments,
expected to be financed with new debt in SpinCo's
capital structure, as well as the potential for an
additional cash payment pursuant to an "earn-out"
provision. International Paper will distribute shares of
SpinCo to International Paper shareholders on a pro
rata basis in a manner intended to be tax-free to
International Paper and its shareholders.

In millions

United States (e)
EMEA

Pacific Rim and Asia

Americas, other than U.S.

2013

2012

$ 21,854
3,284

$ 21,523
2,935

2,112

1,830

1,816

1,559

Net Sales

$ 29,080

$ 27,833

2011
$ 19,434
3,183

1,807

1,610
$ 26,034

Long-Lived Assets (f)

In millions

United States

EMEA

Pacific Rim and Asia

Americas, other than U.S.

Corporate

Long-Lived Assets

2013

$ 10,056
1,126

2012
$ 10,484
1,022

946
1,772

329

$ 14,229

982
1,773

310
$ 14,571

(a) Operating profits

for

industry 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 interests and equity earnings for these
subsidiaries is added here to present consolidated earnings
from continuing operations before income taxes and equity
earnings.
Includes corporate assets and assets of businesses held for
sale.

(b)

(c) Excludes accelerated depreciation related to closure of mills.
(d) Net sales are attributed to countries based on the location of

the seller.

(e) Export sales to unaffiliated customers were $2.4 billion in 2013,

$2.2 billion in 2012 and $2.1 billion in 2011.

(f) Long-Lived Assets

includes Forestlands and Plants,

Properties and Equipment, net.

INTERIM FINANCIAL RESULTS (UNAUDITED)

In millions, except per share amounts and
stock prices

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

Year

2013

Net sales

Gross margin (a)

Earnings (loss) from continuing
operations before income taxes and
equity earnings

Gain (loss) from discontinued
operations

Net earnings (loss) attributable to
International Paper Company

Basic earnings (loss) per share
attributable to International Paper
Company common shareholders:

Earnings (loss) from continuing
operations

Gain (loss) from discontinued
operations

7,090

7,335

7,406

$ 7,249

$ 29,080

1,870

1,921

2,093

1,973

7,857

230 (b)

363 (d)

411 (e)

(155) (g)

849 (b,d,e,g)

(10)

318 (b,c)

259 (d)

382 (e,f)

436 (g,h,i)

1,395 (b-i)

0.66 (b)

0.53 (d) $

0.88 (e)

0.98 (g)

3.05 (b,d,e,g)

0.06

0.05

(0.02)

0.01

0.10

Net earnings (loss)

0.72 (b,c)

0.58 (d)

0.86 (e,f)

0.99 (g,h,i)

3.15 (b-i)

Diluted earnings (loss) per share
attributable to International Paper
Company common shareholders:

Earnings (loss) from continuing
operations

Gain (loss) from discontinued
operations

0.65 (b)

0.52 (d)

0.87 (e)

0.97 (g)

3.01 (b,d,e,g)

0.06

0.05

(0.02)

0.01

0.10

Net earnings (loss)

0.71 (b,c)

0.57 (d)

0.85 (e,f)

0.98 (g,h, i)

3.11 (b-i)

Dividends per share of common stock

0.3000

0.3500

1.2500

Common stock prices

High

Low

2012

Net sales

47.25

49.10

50.33

$ 49.52

50.33

39.47

42.36

43.95

42.92

39.47

6,655

7,077

7,026

$ 7,075

$ 27,833

Gross margin (a)

1,671

1,807

1,886

1,882

7,246

Earnings (loss) from continuing operations
before income taxes and equity earnings

Gain from discontinued operations

Net earnings (loss) attributable to
International Paper Company

Basic earnings (loss) per share attributable
to International Paper Company common
shareholders:

213 (j)

204 (k)

320 (l)

287 (m)

1,024 (j-m)

188 (j)

134 (k)

237 (l)

235 (m,n)

794 (j-n)

Earnings (loss) from continuing operations

0.42 (j)

0.27 (k) $

0.51 (l)

0.52 (m)

1.72 (j-m)

Gain from discontinued operations

0.01

0.04

0.03

0.02

0.10

Net earnings (loss)

0.43 (j)

0.31 (k)

0.54 (l)

0.54 (m,n)

1.82 (j-n)

Diluted earnings (loss) per share
attributable to International Paper Company
common shareholders:

Earnings (loss) from continuing operations

0.42 (j)

0.27 (k)

0.51 (l)

0.51 (m)

1.70 (j-m)

Gain from discontinued operations

0.01

0.04

0.03

0.02

0.10

Net earnings (loss)

0.43 (j)

0.31 (k)

0.54 (l)

0.53 (m,n)

1.80 (j-n)

Dividends per share of common stock

0.2625

0.3000

1.0875

Common stock prices

High

Low

36.50

35.59

37.25

$ 39.88

39.88

29.45

27.29

28.29

32.95

27.29

Note: Since basic and diluted earnings per share are computed
independently for each period and category, full year per share
amounts may not equal the sum of the four quarters.

Footnotes to Interim Financial Results

(a) Gross margin represents net sales less cost of
depreciation,

products
amortization and cost of timber harvested.

excluding

sold,

for

taxes)

(b) Includes a pre-tax charge of $12 million ($8
million after
integration costs
associated with the acquisition of Temple-
Inland, a pre-tax charge of $44 million ($27
million after taxes) for costs associated with the
permanent shutdown of a paper machine at our
Augusta mill, a pre-tax charge of $6 million ($4
million after taxes) for debt extinguishment
costs, a pre-tax charge of $7 million ($4 million
after taxes) for costs associated with the
restructuring of our xpedx operations, interest
income of $6 million ($4 million after taxes)
related to the closing of a U.S. federal income
tax audit, and pre-tax charges of $2 million ($1
million after taxes) for other items.

(c) Includes a tax benefit of $93 million associated
with the closing of a U.S. federal income tax
audit and a net tax expense of $2 million related
to internal restructurings. In addition, the first
includes a benefit of
quarter
approximately $35 million related
the
enactment into law of The American Taxpayer
Relief Act of 2012 in January 2013.

rate

tax

for

taxes)

(d) Includes a pre-tax charge of $6 million ($4
million after taxes) for an environmental reserve
related to the Company's property in Cass Lake,
Minnesota, a pre-tax charge of $14 million ($8
million after
integration costs
associated with the acquisition of Temple-
Inland, a pre-tax charge of $9 million ($5 million
after taxes) to adjust the value of two Company
airplanes to market value, a pre-tax gain of $30
million ($19 million after taxes) for insurance
reimbursements related to the 2012 Guaranty
Bank legal settlement, a pre-tax charge of $3
million ($2 million after
for debt
extinguishment costs, a pre-tax charge of $17
million ($10 million after taxes) for costs
associated with the restructuring of our xpedx
operations, a pre-tax charge of $3 million ($2
million after taxes) for costs associated with the
spin-off of the xpedx operations, a gain of $13
million (before and after taxes) related to a
bargain purchase adjustment on the first-
quarter 2013 acquisition of a majority share of
our operations in Turkey, and charges of $3
million (before and after taxes) for other items.

taxes)

for

taxes)

(e) Includes a pre-tax charge of $24 million ($15
million after
integration costs
associated with the acquisition of Temple-
Inland, a pre-tax charge of $51 million ($31
million after taxes) for costs associated with the
announced shutdown of our Courtland mill, a
pre-tax charge of $15 million ($9 million after
taxes) for debt extinguishment costs, a pre-tax
charge of $6 million ($4 million after taxes for
costs associated with the restructuring of our
xpedx operations, a pre-tax charge of $11
for costs
million ($7 million after
associated with the spin-off of the xpedx
operations, a pre-tax gain of $9 million ($6
million after taxes) associated with the sale of
the Bellevue box plant facility which was closed
in 2010, a pre-tax charge of $1 million ($0 million
after taxes) for costs associated with the
divestiture of three containerboard mills in 2012
and charges of $2 million (before and after
taxes) for other items.

taxes)

(f)

Includes a tax benefit of $31 million for an
income tax reserve release. In addition, the third
quarter tax rate includes a $30 million benefit
related to the adjustment of the tax basis in
certain of the Company's fixed assets.

for

taxes)

(g) Includes a pre-tax charge of $12 million ($7
million after
integration costs
associated with the acquisition of Temple-
Inland, a pre-tax charge of $67 million ($41
million after taxes) for costs associated with the
announced shutdown of our Courtland mill, a
pre-tax charge of $8 million ($5 million after
taxes) for costs associated with the spin-off of
the xpedx operations, a pre-tax charge of $4
for costs
million ($3 million after
associated with the restructuring of the Asia Box
operations, a pre-tax charge of $400 million
($366 million after taxes) for the impairment of
goodwill in the Company's xpedx business, a
pre-tax charge of $127 million ($122 million
after taxes) for the impairment of goodwill and
a trade name intangible asset of the Company's
India Papers business, a pre- tax charge of $2
million ($1 million after taxes) for an adjustment
associated with the Company's divestiture of
the Shorewood operations, and a net pre-tax
loss of $0 million ($1 million after taxes) for other
items.

(h) Includes a tax benefit of $651 million associated
with the closing of a U.S. federal tax audit and
a net tax benefit of $3 million for other items.

(i)

Includes pre-tax noncontrolling interest income
of $4 million ($3 million after taxes) associated
with the write-off of a trade name intangible
asset in our India Papers business.

(j) Includes a pre-tax charge of $20 million ($12
million after taxes) related to the write-up of the
Temple-Inland inventories to fair value, a pre-
tax charge of $21 million ($16 million after
taxes) for an inventory write-off, severance and
other charges related to the restructuring of the
Company's xpedx operations, a pre-tax charge
of $43 million ($33 million after taxes) for
integration
the
acquisition of Temple-Inland, a pre-tax charge
of $16 million ($10 million after taxes) for early
debt extinguishment costs, a pre-tax gain of $7
million ($6 million after taxes) for adjustments
related to the sale of the Shorewood business,
and a gain of $1 million (before and after taxes)
for other items.

costs associated with

for

taxes)

(k) Includes a pre-tax charge of $12 million ($8
million after taxes) for an inventory write-off,
severance and other charges related to the
the Company's xpedx
restructuring of
operations, a pre-tax charge of $35 million ($22
million after
integration costs
associated with the acquisition of Temple-
Inland, a pre-tax charge of $10 million ($6
million after taxes) for debt extinguishment
costs, a pre-tax charge of $62 million ($38
million after taxes) to adjust the long-lived
in Oxnard,
the Hueneme mill
assets of
California to their fair value in anticipation of its
divestiture, a pre-tax charge of $9 million ($5
million after taxes) for costs associated with the
third-quarter 2012 divestiture of the Hueneme
mill and two other containerboard mills, a pre-
tax charge of $6 million ($4 million after taxes)
for an adjustment related to the sale of
Shorewood, and charges of $2 million (before
and after taxes) for other items.

(l)

for

taxes)

Includes a pre-tax charge of $9 million ($5
million after taxes) for an inventory write-off,
severance and other charges related to the
restructuring of
the Company's xpedx
operations, a pre-tax charge of $58 million ($34
million after
integration costs
associated with the acquisition of Temple-
Inland, a pre-tax charge of $13 million ($8
million after taxes) for debt extinguishment
costs, a pre-tax charge of $16 million ($11
million after taxes) for costs associated with the
restructuring of the Company's Packaging
business in EMEA, a pre-tax charge of $19
million ($49 million after taxes) for costs
the containerboard mill
associated with
divestitures and a pre-tax gain of $5 million ($0
million after taxes) for other items.

(m) Includes a pre-tax charge of $28 million ($19
integration costs

million after

taxes)

for

for costs associated with

associated with the acquisition of Temple-
Inland, a pre-tax charge of $9 million ($6 million
after taxes) for debt extinguishment costs, a
pre-tax charge of $7 million ($4 million after
taxes)
the
restructuring of our xpedx operations, a gain
of $2 million (before and after taxes) for
proceeds associated with the 2010 sale of the
Arizona Chemical business, a gain of $2 million
(before and after taxes) for adjustments related
to the sale of the Company's Shorewood
operations, a charge of $1 million (before and
after taxes) for costs associated with the
containerboard mill divestitures, and pre-tax
charges of $5 million ($4 million after taxes) for
other items.

(n) Includes a net expense of $14 million related
to internal restructurings and a $5 million
expense to adjust deferred tax assets related
to post-retirement prescription drug coverage
(Medicare Part D reimbursements).

•

provide reasonable assurance that transactions
are recorded as necessary to allow for the
preparation of financial statements in accordance
with GAAP, and that our receipts and expenditures
are being made only
in accordance with
authorizations of our management and directors;

assurance

reasonable

regarding
provide
prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that
could have a material effect on our consolidated
financial statements; and

•

provide reasonable assurance as to the detection
of fraud.

All internal control systems have inherent limitations,
including the possibility of circumvention and overriding
of controls, and therefore can provide only reasonable
assurance of achieving the designed control objectives.
The Company’s internal control system is supported by
written policies and procedures, contains self-
monitoring mechanisms, and is audited by the internal
audit function. Appropriate actions are taken by
management to correct deficiencies as they are
identified.

As of December 31, 2013, management has assessed
the effectiveness of the Company’s internal control over
financial reporting. In a report included on pages 45 and
46, management concluded that the Company’s
internal control over financial reporting was effective as
of December 31, 2013.

In making this assessment, we used the criteria
described in “Internal Control – Integrated Framework
(1992)” issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

Our independent registered public accounting firm,
Deloitte & Touche LLP, with direct access to our Board
of Directors through our Audit and Finance Committee,
has audited the consolidated financial statements
prepared by us. Their report on the consolidated
financial statements is included in Part II, Item 8 of this
Annual Report under
“Financial
Statements and Supplementary Data”. Deloitte &
Touche LLP has issued an attestation report on our
internal control over financial reporting.

the heading

ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF CONTROLS AND PROCEDURES

“Exchange Act”),

We maintain disclosure controls and procedures that
are designed to ensure that information required to be
disclosed by us in the reports we file or submit under
the Securities and Exchange Act of 1934, as amended
(the
recorded, processed,
is
summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to
management, including our principal executive officer
and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. As of
December 31, 2013, an evaluation was carried out
under the supervision and with the participation of the
Company’s management,
including our principal
executive officer and principal financial officer, of the
effectiveness of our disclosure controls and
procedures, as defined by Rule 13a-15 under the
Exchange Act. Based upon this evaluation, our principal
executive officer and principal financial officer have
concluded that the Company’s disclosure controls and
procedures were effective as of December 31, 2013.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING

Our management is responsible for establishing and
maintaining adequate internal control over our financial
reporting. Internal control over financial reporting is the
process designed by, or under the supervision of, our
principal executive officer and principal financial officer,
and effected by our Board of Directors, management
and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of
for external
purposes in accordance with accounting principles
generally accepted in the United States (GAAP). Our
internal control over financial reporting includes those
policies and procedures that:

financial statements

•

pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets;

MANAGEMENT’S PROCESS TO ASSESS THE
EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL
REPORTING

To comply with the requirements of Section 404 of the
followed a
Sarbanes-Oxley Act of 2002, we
comprehensive compliance process across
the
enterprise to evaluate our internal control over financial
reporting, engaging employees at all levels of the
organization. Our internal control environment includes
an enterprise-wide attitude of integrity and control
consciousness that establishes a positive “tone at the
top.” This is exemplified by our ethics program that
includes long-standing principles and policies on ethical
business conduct that require employees to maintain
the highest ethical and legal standards in the conduct
of our business, which have been distributed to all
employees; a toll-free telephone helpline whereby any
employee may report suspected violations of law or our
policy; and an office of ethics and business practice.
The internal control system further includes careful
selection and training of supervisory and management
personnel, appropriate delegation of authority and
division of responsibility, dissemination of accounting
and business policies throughout the Company, and an
extensive program of internal audits with management
follow-up. Our Board of Directors, assisted by the Audit
and Finance Committee, monitors the integrity of our
financial
reporting
and
procedures, the performance of our internal audit
function and independent auditors, and other matters
set forth in its charter. The Committee, which currently
consists of four independent directors, meets regularly
with representatives of management, and with the
independent auditors and the Internal Auditor, with and
without management representatives in attendance, to
review their activities.

statements

financial

CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING

reporting during

There have been no changes in our internal control over
the quarter ended
financial
December 31, 2013 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.

ITEM 9B. OTHER INFORMATION

On February 27, 2014, the Management Development
and Compensation Committee (the “Committee”) of the

Board of Directors of International Paper Company
approved certain changes to the Company’s retirement
plans in which the Company’s named executive officers
participate: the Retirement Plan of International Paper
Company, as amended and restated January 1, 2010,
the International Paper Company Pension Restoration
Plan for Salaried Employees, as amended and restated
effective January 1, 2009, and the International Paper
Company Unfunded Supplemental Retirement Plan for
Senior Managers, as amended and restated effective
January 1, 2008 (collectively, the “Retirement Plans”).
In particular, credited service and compensation will be
capped under the Retirement Plans for salaried
employees, including the named executive officers,
beginning January 1, 2019.

PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE

is hereby
Information concerning our directors
incorporated by reference to our definitive proxy
statement that will be filed with the Securities and
Exchange Commission (SEC) within 120 days of the
close of our fiscal year. The Audit and Finance
Committee of the Board of Directors has at least one
member who is a financial expert, as that term is defined
in Item 401(d)(5) of Regulation S-K. Further information
concerning the composition of the Audit and Finance
Committee and our audit committee financial experts
is hereby incorporated by reference to our definitive
proxy statement that will be filed with the SEC within
120 days of the close of our fiscal year. Information with
respect to our executive officers is set forth on pages 6
and 7 in Part I of this Form 10-K under the caption,
“Executive Officers of the Registrant.”

Executive officers of International Paper are elected to
hold office until the next annual meeting of the Board
of Directors
the annual meeting of
shareholders and, until the election of successors,
subject to removal by the Board.

following

The Company’s Code of Business Ethics (Code) is
applicable to all employees of the Company, including
the chief executive officer and senior financial officers,
as well as the Board of Directors. We disclose any
amendments to our Code and any waivers from a
provision of our Code granted to our directors, chief
executive officer and senior financial officers on our
Internet Web site within four business days following
such amendment or waiver. To date, no waivers of the
Code have been granted.

We make available free of charge on our Internet Web
site at www.internationalpaper.com, and in print to any
shareholder who requests
them, our Corporate
Governance Principles, our Code of Business Ethics
and the Charters of our Audit and Finance Committee,
Management Development and Compensation

Committee, Governance Committee and Public Policy
and Environment Committee. Requests for copies may
be directed to the corporate secretary at our corporate
headquarters.

Information with respect to compliance with Section 16
(a) of the Securities and Exchange Act and our
corporate governance is hereby incorporated by
reference to our definitive proxy statement that will be
filed with the SEC within 120 days of the close of our
fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to the compensation of
executives and directors of the Company is hereby
incorporated by reference to our definitive proxy
statement that will be filed with the SEC within 120 days
of the close of our fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

A description of the security ownership of certain
beneficial owners and management and equity
compensation plan information is hereby incorporated
by reference to our definitive proxy statement that will
be filed with the SEC within 120 days of the close of our
fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

A description of certain relationships and related
transactions is hereby incorporated by reference to our
definitive proxy statement that will be filed with the SEC
within 120 days of the close of our fiscal year.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

Information with respect to fees paid to, and services
rendered by, our principal accountant, and our policies
and procedures for pre-approving those services, is
hereby incorporated by reference to our definitive proxy
statement that will be filed with the SEC within 120 days
of the close of our fiscal year.

PART IV.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES

(1) Financial Statements – See Item 8. Financial

Statements and Supplementary Data.

(2) Financial Statement Schedules – The following
additional financial data should be read in
financial
conjunction with

the consolidated

statements in Item 8. Schedules not included with
this additional financial data have been omitted
because they are not applicable, or the required
information is shown in the consolidated financial
statements or the notes thereto.

Additional Financial Data

2013, 2012 and 2011

Consolidated Schedule:
II-Valuation and
Qualifying Accounts.

101

(2.1) Agreement and Plan of Merger, dated as of
January 28, 2014, among International
Paper Company, xpedx Holding Company,
xpedx Intermediate, LLC, xpedx, LLC, UWW
Holdings, LLC, UWW Holdings, Inc. and
Unisource Worldwide, Inc. (incorporated by
reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated February
3, 2014).

(2.2) Contribution and Distribution Agreement,
dated as of January 28, 2014, among
International Paper Company, xpedx
Holding Company, UWW Holdings, Inc. and
solely for purposes of Article VI and Article
X, UWW Holdings, LLC (incorporated by
reference to Exhibit 2.2 to the Company's
Current Report on Form 8-K dated February
3, 2014).

(3.1) Restated Certificate of
Paper

Incorporation
of International
Company
(incorporated by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-
K dated May 13, 2013).

(3.2) By-laws of International Paper Company, as

amended through May 17, 2013
(incorporated by reference to Exhibit 3.2 to
the Company’s Current Report on Form 8-
K dated May 13, 2013).

(4.1) Indenture, dated as of April 12, 1999,
between International Paper and The Bank
of New York, as Trustee (incorporated by
reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K dated June 29,
2000).

(4.2) Supplemental Indenture (including the form
of Notes), dated as of June 4, 2008, between
International Paper Company and The Bank
of New York, as Trustee (incorporated by
reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K dated June 4,
2008).

(4.3) Supplemental Indenture (including the form
of Notes), dated as of May 11, 2009,
between International Paper Company and
The Bank of New York Mellon, as trustee
(incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-
K dated May 11, 2009).

(4.4) Supplemental Indenture (including the form
of Notes), dated as of August 10, 2009,
between International Paper Company and
The Bank of New York Mellon, as trustee
(incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-
K dated August 10, 2009).

(4.5) Supplemental Indenture (including the form
of Notes), dated as of December 7, 2009,
between International Paper Company and
The Bank of New York Mellon Trust
Company, N.A., as trustee (incorporated by
reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated
December 7, 2009).

(4.6) Supplemental Indenture (including the form
of Notes), dated as of November 16, 2011,
between the Company and The Bank of New
York Mellon Trust Company, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-
K dated November 16, 2011).

(4.7) In

with

accordance

Item 601
(b) (4) (iii) (A) of Regulation S-K, certain
instruments respecting long-term debt of the
Company have been omitted but will be
furnished to the Commission upon request.

(10.1) Amended and Restated 2009 Incentive
Compensation
"LTICP")
Plan
(incorporated by reference to Exhibit 99.1 to
the Company's Current Report on Form 8-
K dated February 10, 2014). +

(the

(10.2) 2013 Management

Incentive

Plan
(incorporated by reference to Exhibit 10.3 to
the Company’s Annual Report on Form 10-
K for the fiscal year ended December 31,
2012). +

(10.3) 2014 Management Incentive Plan. * +

(10.4) 2009 Executive Management Incentive Plan
(incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-
K dated May 12, 2009). +

(10.5) 2013 Exhibits

the 2009 Executive
Management Incentive Plan (incorporated
by
the
Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2012). +

to Exhibit 10.6

reference

(10.6) 2014 Exhibits

the 2009 Executive

Management Incentive Plan.*+

(10.7) Restricted

and

Deferred
Stock
Compensation Plan
for Non-Employee
Directors, Amended and Restated as of May
10, 2010 (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended
June 30, 2010). +

(10.08) Form of Restricted Stock Award Agreement.

* +

(10.09) Form of Restricted Stock Unit Award

Agreement (cash settled). * +

(10.10) Form of Restricted Stock Unit Award

Agreement (stock settled). * +

(10.11) Form of Performance Share Plan award

certificate. * +

(10.12) Pension Restoration Plan

for Salaried
Employees (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended
March 31, 2009). +

(10.13) Unfunded Supplemental Retirement Plan
for Senior Managers, as amended and
restated effective January 1, 2008
(incorporated by reference to Exhibit 10.21
the Company’s Annual Report on
to
Form 10-K
fiscal year ended
December 31, 2007). +

the

for

Unfunded

(10.14) Amendment No. 1 to the International Paper
Company
Supplemental
Retirement Plan for Senior Managers,
effective October 13, 2008 (incorporated by
reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K dated October
17, 2008). +

Unfunded

(10.15) Amendment No. 2 to the International Paper
Supplemental
Company
Retirement Plan for Senior Managers,
effective October 14, 2008 (incorporated by
reference to Exhibit 10.5 to the Company’s
Current Report on Form 8-K dated October
17, 2008). +

Unfunded

(10.16) Amendment No. 3 to the International Paper
Company
Supplemental
Retirement Plan for Senior Managers,
effective December 8, 2008 (incorporated
by reference
the
Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008).
+

to Exhibit 10.20

Unfunded

(10.17) Amendment No. 4 to the International Paper
Company
Supplemental
Retirement Plan for Senior Managers,
effective January 1, 2009 (incorporated by
reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009). +

(10.26) Board Policy on Change of Control
Agreements (incorporated by reference to
Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed on October 18,
2005). +

(10.27) Amended and Restated Time Sharing
Agreement, dated May 31, 2012, by and
between John V. Faraci and International
Paper Company (incorporated by reference
to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended
June 30, 2012). +

(10.28) Five-Year Credit Agreement dated as of
August 26, 2011, among International Paper
Company, JPMorgan Chase Bank, N.A.,
individually and as administrative agent, and
certain lenders (incorporated by reference
to Exhibit 99.1 to the Company’s Current
Report on Form 8-K dated August 26, 2011).

(10.29) IP Debt Security, dated December 7, 2006,
issued by International Paper Company to
Basswood Forests LLC (incorporated by
reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K dated
December 13, 2006).

(10.30) IP Hickory Note, dated December 7, 2006,
issued by International Paper Company to
Hickory Forests LLC (incorporated by
reference to Exhibit 4.2 to the Company’s
Current Report on Form 8-K dated
December 13, 2006).

(10.31) Credit Agreement, dated as of February 13,
2012, by and among the Company, UBS AG,
Stamford Branch, as administrative agent;
BNP Paribas Securities Corp., as
syndication
agent; Deutsche Bank
Securities Inc., HSBC Securities (USA) Inc.
and The Royal Bank of Scotland PLC, as co-
documentation agents; UBS Securities LLC,
BNP Paribas Securities Corp., CoBank,
ACB, Deutsche Bank Securities Inc., HSBC
Securities (USA) Inc. and RBS Securities
Inc., as joint lead arrangers; and the lenders
party thereto (incorporated by reference to
Exhibit 10.1 to the Company’s Current
Report on Form 8-K dated February 13,
2012).

(10.32) Loan Agreement dated December 3, 2007,
by and among TIN Land Financing, LLC,
Citibank, N.A., Citicorp North America, Inc.,
as Agent, and the other Lenders named
therein (incorporated by reference to Exhibit
10.1 to Temple-Inland's Current Report on
Form 8-K filed with the Commission on
December 4, 2007).

Unfunded

(10.18) Amendment No. 5 to the International Paper
Company
Supplemental
Retirement Plan for Senior Managers,
effective October 31, 2009 (incorporated by
reference to Exhibit 10.17 to the Company’s
Annual Report on Form 10-K for the fiscal
year ended December 31, 2009). +

Unfunded

(10.19) Amendment No. 6 to the International Paper
Company
Supplemental
Retirement Plan for Senior Managers,
effective January 1, 2012 (incorporated by
reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the fiscal
year ended December 31, 2011). +

(10.20) Form of Non-Competition Agreement,
entered into by certain Company employees
(including named executive officers) who
have received restricted stock (incorporated
by reference
the
Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008).
+

to Exhibit 10.22

(10.21) Form of Non-Solicitation Agreement,
entered into by certain Company employees
(including named executive officers) who
have received restricted stock (incorporated
by
the
Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2006). +

to Exhibit 10.5

reference

(10.22) Form of Change-in-Control Agreement - Tier
I, for the Chief Executive Officer and all
"grandfathered" senior vice presidents
elected prior to 2012 (all named executive
officers)
- approved September 2013
(incorporated by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form
10-Q for the quarter ended September 30,
2013). +

(10.23) Form of Change-in-Control Agreement - Tier
II, for all future senior vice presidents and all
"grandfathered" vice presidents elected
prior
- approved
September 2013 (incorporated by reference
to Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2013). +

to February 2008

(10.24) Form of Indemnification Agreement for
Directors (incorporated by reference to
Exhibit 10.13 to the Company’s Annual
Report on Form 10-K for the fiscal year
ended December 31, 2003). +

(10.25) Board Policy on Severance Agreements
with Senior Executives (incorporated by
reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on October
18, 2005). +

(10.33) Amendment No. 1 dated August 11, 2011 to
Loan Agreement dated December 3, 2007,
by and among TIN Land Financing, LLC,
Citibank, N.A., Citicorp North America, Inc.,
as Agent, and the other Lenders named
therein (incorporated by reference to Exhibit
10.1 to Temple-Inland's Quarterly Report on
Form 10-Q for the quarter ended October 1,
2011, and filed with the Commission on
November 7, 2011).

(10.34) Loan Agreement dated December 3, 2007,
by and among TIN Timber Financing, LLC,
Citibank, N.A., Citicorp North America, Inc.,
as Agent, and the other Lenders named
therein (incorporated by reference to Exhibit
10.2 to Temple-Inland's Current Report on
Form 8-K filed with the Commission on
December 4, 2007).

(10.35) Amendment No. 1 dated August 11, 2011 to
Loan Agreement dated December 3, 2007,
by and among TIN Timber Financing, LLC,
Citibank, N.A., Citicorp North America, Inc.,
as Agent, and the other Lenders named
therein (incorporated by reference to Exhibit
10.2 to Temple-Inland's Quarterly Report on
Form 10-Q for the quarter ended October 1,
2011, and filed with the Commission on
November 7, 2011).

(10.36) Form

of Timber Note Receivable
(incorporated by reference to Exhibit 10.1 to
Temple-Inland's Quarterly Report on Form
10-Q for the quarter ended July 3, 2010, and
filed with the Commission on August 9,
2010).The Company agrees to furnish
supplementally a copy of any omitted
schedule or exhibit to the staff of the
Securities and Exchange Commission upon
request.

(10.37) Form of Letter of Credit (incorporated by
reference to Exhibit 10.2 to Temple-Inland's
Quarterly Report on Form 10-Q for the
quarter ended July 3, 2010, and filed with
the Commission on August 9, 2010).

(23) Consent of Independent Registered

Public Accounting Firm. *

(24) Power of Attorney (contained on the
signature page
the Company’s
to
Annual Report on Form 10-K for the
year ended December 31, 2013).

(31.1) Certification by John V. Faraci,
Chairman and Chief Executive Officer,
pursuant
the
Sarbanes-Oxley Act of 2002. *

to Section 302 of

(31.2) Certification by Carol L. Roberts, Chief
Financial Officer,
to
Section 302 of the Sarbanes-Oxley Act
of 2002. *

pursuant

(32) Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002.*

(101.INS) XBRL Instance Document *

(101.SCH) XBRL Taxonomy Extension Schema *

(101.CAL) XBRL Taxonomy Extension Calculation

Linkbase *

(101.DEF) XBRL Taxonomy Extension Definition

Linkbase *

(101.LAB) XBRL Taxonomy Extension Label

Linkbase *

(101.PRE) XBRL

Extension

Presentation

Linkbase *

+ Management contract or compensatory plan or arrangement.

* Filed herewith

Pierce,

(10.38) Commitment Letter, dated January 28,
2014, by and among xpedx Holding
Company, Bank of America, N.A., Merrill
Lynch,
Smith
Incorporated, Wells Fargo Bank, N.A.,
SunTrust Bank and SunTrust Robinson
Humphrey, Inc. (incorporated by reference
to Exhibit 2.3 to the Company's Current
Report on Form 8-K dated February 3,
2014).

Fenner

(11) Statement of Computation of Per Share

Earnings.*

(12) Computation of Ratio of Earnings to Fixed

Charges and Preferred Stock Dividends. *

(21) List of Subsidiaries of Registrant. *

100

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

INTERNATIONAL PAPER COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(In millions)

Balance at
Beginning
of Period

Additions
Charged to
Earnings

For the Year Ended December 31, 2013
Additions
Charged to
Other
Accounts

Deductions
from
Reserves

Balance at
End of
Period

Description
Reserves Applied Against Specific
Assets Shown on Balance Sheet:
Doubtful accounts – current
Restructuring reserves

119 $

45 $
63

—
—

(55)(a) $
(30)(b)

109
52

Balance at
Beginning
of Period

Additions
Charged to
Earnings

For the Year Ended December 31, 2012
Additions
Charged to
Other
Accounts

Deductions
from
Reserves

Balance at
End of
Period

126 $

17 $
31

—
—

(24)(a) $
(27)(b)

119
19

For the Year Ended December 31, 2011

Balance at
Beginning
of Period

Additions
Charged to
Earnings

Additions
Charged to
Other
Accounts

Deductions
from
Reserves

Balance at
End of
Period

Description

Reserves Applied Against Specific
Assets Shown on Balance Sheet:

Doubtful accounts – current

129 $

Restructuring reserves

18 $

—

(21)(a) $

(24)(b)

126

(a)
(b)

Includes write-offs, less recoveries, of accounts determined to be uncollectible and other adjustments.
Includes payments and deductions for reversals of previously established reserves that were no longer required.

101

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

INTERNATIONAL PAPER COMPANY

By:

/S/ SHARON R. RYAN
Sharon R. Ryan

Senior Vice President, General Counsel
and Corporate Secretary

POWER OF ATTORNEY

February 27, 2014

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Sharon R. Ryan and Deon Vaughan as his or her true and lawful attorney-in-fact and agent, acting alone, with full
power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities,
to sign any or all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-
in-fact full power and authority to do and perform each and every act and thing requisite or necessary to be done,
hereby ratifying and confirming all that said attorney-in-fact and agent, or her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:

102

Signature

Title

Date

/S/ JOHN V. FARACI

John V. Faraci

Chairman of the Board, Chief Executive
Officer and Director

February 27, 2014

/S/ DAVID J. BRONCZEK Director

David J. Bronczek

/S/ AHMET C. DORDUNCU Director

Ahmet C. Dorduncu

Director

/S/ ILENE S. GORDON

Ilene S. Gordon

/S/ JAY L. JOHNSON

Jay L. Johnson

/S/ STACEY J. MOBLEY

Stacey J. Mobley

/S/ JOAN E. SPERO

Joan E. Spero

/S/ JOHN L. TOWNSEND III

John L. Townsend III

/S/ JOHN F. TURNER

John F. Turner

/S/ WILLIAM G. WALTER

William G. Walter

/S/ J. STEVEN WHISLER

J. Steven Whisler

/S/ CAROL L. ROBERTS

Carol L. Roberts

/S/ TERRI L. HERRINGTON

Terri L. Herrington

February 27, 2014

Senior Vice President and Chief
Financial Officer

February 27, 2014

Vice President – Finance and Controller

February 27, 2014

103

2013 LISTING OF FACILITIES
(all facilities are owned except noted otherwise)

APPENDIX I

PRINTING PAPERS

Nova Campina, São Paulo, Brazil

Tampa, Florida leased

Uncoated Papers and Pulp

U.S.:

Courtland, Alabama

Selma, Alabama (Riverdale Mill)

Cantonment, Florida (Pensacola Mill)

Ticonderoga, New York

Riegelwood, North Carolina

Eastover, South Carolina

Georgetown, South Carolina

Sumter, South Carolina

Franklin, Virginia

International:

Luiz Antônio, São Paulo, Brazil

Mogi Guacu, São Paulo, Brazil

Paulinia, São Paulo, Brazil

Yanzhou City, China

Veracruz, Mexico

Kenitra, Morocco

Edirne, Turkey

Corum, Turkey

Columbus, Georgia

Forest Park, Georgia

Griffin, Georgia

Kennesaw, Georgia leased

Lithonia, Georgia

Savannah, Georgia

Tucker, Georgia

Corrugated Container

Aurora, Illinois (2 locations)

U.S.:

Bay Minette, Alabama

Decatur, Alabama

Bedford Park, Illinois (2 locations) 1
leased

Belleville, Illinois

Carroll Stream, Illinois

Dothan, Alabama leased

Chicago, Illinois (2 locations)

Huntsville, Alabama

Bentonville, Arkansas

Conway, Arkansas

Des Plaines, Illinois

Elgin, Illinois

Lincoln, Illinois

Fort Smith, Arkansas (2 locations)

Montgomery, Illinois

Três Lagoas, Mato Grosso do Sul, Brazil

Russellville, Arkansas (2 locations)

Cantonment, Florida (Pensacola Mill)

Gilroy, California (2 locations) 2 leased

Saillat, France

Kadiam, India

Rajahmundry, India

Kwidzyn, Poland

Svetogorsk, Russia

INDUSTRIAL PACKAGING

Containerboard

U.S.:

Pine Hill, Alabama

Prattville, Alabama

Rome, Georgia

Savannah, Georgia

Cayuga, Indiana

Cedar Rapids, Iowa

Henderson, Kentucky

Maysville, Kentucky

Bogalusa, Louisiana

Campti, Louisiana

Mansfield, Louisiana

Vicksburg, Mississippi

Valliant, Oklahoma

Springfield, Oregon

Orange, Texas

Tolleson, Arizona

Yuma, Arizona

Anaheim, California

Bell, California

Buena Park, California leased

Camarillo, California

Carson, California

Compton, California
El Centro, California (4)

Elk Grove, California

Exeter, California

Northlake, Illinois

Rockford, Illinois

Butler, Indiana

Crawfordsville, Indiana
Evansville, Indiana (1)

Fort Wayne, Indiana

Hammond, Indiana

Indianapolis, Indiana (2 locations)

Tipton, Indiana

Cedar Rapids, Iowa

Waterloo, Iowa

Garden City, Kansas
Kansas City, Kansas (3)

Cerritos, California leased

Saint Anthony, Indiana

Los Angeles, California (leased)

Bowling Green, Kentucky

Modesto, California

Ontario, California

Salinas, California

Sanger, California

Lexington, Kentucky

Louisville, Kentucky

Walton, Kentucky

Lafayette, Louisiana

San Leandro, California leased

Bogalusa, Louisiana

Santa Fe Springs, California (2
locations) 1 leased

Stockton, California

Tracy, California

Golden, Colorado

Wheat Ridge, Colorado

Putnam, Connecticut
Jacksonville, Florida leased (3)
Lake Wales, Florida (2)

Shreveport, Louisiana

Springhill, Louisiana

Auburn, Maine

Three Rivers, Michigan

Arden Hills, Minnesota

Austin, Minnesota

Fridley, Minnesota

Minneapolis, Minnesota leased

Shakopee, Minnesota

White Bear Lake, Minnesota

International:

Franco da Rocha, São Paulo, Brazil

Orlando, Florida

Plant City, Florida

A-1

Houston, Mississippi

Jackson, Mississippi

Magnolia, Mississippi leased

Olive Branch, Mississippi

Fenton, Missouri

Kansas City, Missouri

Lancaster, Pennsylvania

Littlestown, Pennsylvania

Mount Carmel, Pennsylvania

Georgetown, South Carolina

Laurens, South Carolina

Lexington, South Carolina

Shenyang, China

Suzhou, China

Tianjin, China (2 locations)

Wuhan, China

Arles, France

Chalon-sur-Saone, France

Maryland Heights, Missouri

Ashland City, Tennessee leased

Creil, France

North Kansas City, Missouri leased

Cleveland, Tennessee

LePuy, France (Espaly Box Plant)

St. Joseph, Missouri

St. Louis, Missouri

Omaha, Nebraska

Barrington, New Jersey

Bellmawr, New Jersey

Milltown, New Jersey

Spotswood, New Jersey

Thorofare, New Jersey

Binghamton, New York

Buffalo, New York

Rochester, New York

Scotia, New York

Utica, New York

Charlotte, North Carolina (2 locations)

1 leased

Lumberton, North Carolina

Manson, North Carolina

Newton, North Carolina

Statesville, North Carolina

Byesville, Ohio

Delaware, Ohio

Eaton, Ohio

Kenton, Ohio

Madison, Ohio

Marion, Ohio

Middletown, Ohio

Mt. Vernon, Ohio

Newark, Ohio

Streetsboro, Ohio

Wooster, Ohio

Oklahoma City, Oklahoma

Elizabethton, Tennessee leased

Mortagne, France

Morristown, Tennessee

Murfreesboro, Tennessee

Amarillo, Texas

Carrollton, Texas (2 locations)

Edinburg, Texas (2 locations)

El Paso, Texas

Ft. Worth, Texas leased

Grand Prairie, Texas

Hidalgo, Texas

McAllen, Texas

San Antonio, Texas (2 locations)

Sealy, Texas

Lynchburg, Virginia

Petersburg, Virginia

Richmond, Virginia

Guadeloupe, French West Indies

Batam, Indonesia

Bellusco, Italy

Catania, Italy

Pomezia, Italy

San Felice, Italy

Kuala Lumpur, Malaysia

Juhor, Malaysia

Ixtaczoquitlan, Mexico

Juarez, Mexico leased

Los Mochis, Mexico

Puebla, Mexico leased

Reynosa, Mexico

San Jose Iturbide, Mexico

Santa Catarina, Mexico

Moses Lake, Washington

Silao, Mexico

Olympia, Washington

Yakima, Washington

Fond du Lac, Wisconsin

Manitowoc, Wisconsin

International:

Manaus, Amazonas, Brazil

Paulinia, São Paulo, Brazil

Rio Verde, Goias, Brazil

Suzano, São Paulo, Brazil

Las Palmas, Canary Islands

Tenerife, Canary Islands

Rancagua, Chile

Baoding, China

Tijuana, Mexico (2 locations)

Villa Nicolas Romero, Mexico

Zapopan, Mexico

Agadir, Morocco

Casablanca, Morocco

Kenitra, Morocco

Monterrey, Nuevo Leon leased

Singapore, Singapore
Alcala, Spain leased (3)

Almeria, Spain

Barcelona, Spain

Bilbao, Spain

Gandia, Spain

Madrid, Spain

Valladolid, Spain

Bangkok, Thailand

Adana, Turkey

Bursa, Turkey

Corlu, Turkey

Corum, Turkey

Gebze, Turkey

Izmir, Turkey

Beaverton, Oregon (2 locations)

Beijing, China (2 locations)

Hillsboro, Oregon

Portland, Oregon

Salem, Oregon leased

Biglerville, Pennsylvania

Eighty-four, Pennsylvania

Hazleton, Pennsylvania

Chengdu, China

Dalian, China

Dongguan, China

Guangzhou, China (2 locations)

Huhot, China

Nanjing China

Kennett Square, Pennsylvania

Shanghai, China (2 locations)

A-2

Recycling

U.S.:

Riegelwood, North Carolina

BUILDING PRODUCTS (5)

Hazelton, Pennsylvania

U.S.:

Phoenix, Arizona leased

(C & D Center)

Monroeville, Alabama

Fremont, California leased

Norwalk, California

West Sacramento, California

Denver, Colorado

Itasca, Illinois

Des Moines, Iowa

Wichita, Kansas

Roseville, Minnesota

Omaha, Nebraska leased

Charlotte, North Carolina

Beaverton, Oregon

Eugene, Oregon leased

Memphis, Tennessee leased

Carrollton, Texas

Salt Lake City, Utah

Richmond, Virginia

Kent, Washington

International:

Prosperity, South Carolina

Texarkana, Texas

Foodservice

U.S.:

Visalia, California

Shelbyville, Illinois

Kenton, Ohio

International:

Shanghai, China

Beijing, China

Bogota, Colombia

Cheshire, England leased

DISTRIBUTION

xpedx

U.S.:

Monterrey, Mexico leased

Xalapa, Veracruz, Mexico leased

Wholesale

Loveland, Ohio

El Dorado, Arkansas (owned by Del-
Tin Fiber L.L.C)

Hope, Arkansas

West Memphis, Arkansas

Rome, Georgia

Thomson, Georgia

DeQuincy, Louisiana

Fletcher, Oklahoma

Mt. Jewett, Pennsylvania

Buna, Texas

Diboll, Texas (3 locations)

McQueeney, Texas

Pineland, Texas

Cumberland City, Tennessee

Bags

U.S.:

Buena Park, California

Beaverton, Oregon

Grand Prairie, Texas

CONSUMER PACKAGING

Coated Paperboard

Ontario, California leased

(C & D Center)

Augusta, Georgia

Springhill, Louisiana

(C & D Center)

Sturgis, Michigan

(C & D Center)

Greensboro, North Carolina

(C & D Center)

(1) Closed March 2013

(2) Closed May 2013

(3) Closed June 2013

81 locations nationwide

69 leased

International:

Mexico (5 locations) all leased

IP Asia

International:

China (8 locations)

Malaysia

Taiwan

Thailand

Vietnam

FOREST PRODUCTS

Forest Resources

International:

Approximately 332,000 acres in Brazil

(4) Closed December 2013

(5) Sold July 2013

A-3

2013 CAPACITY INFORMATION
CONTINUING OPERATIONS

APPENDIX II

(in thousands of short
tons)

Industrial Packaging

Containerboard

Printing Papers

Uncoated Freesheet

Bristols

Uncoated Papers and
Bristols

Dried Pulp

Newsprint

Total Printing Papers

Consumer Packaging

Coated Paperboard

U.S.

EMEA

Americas,
other
than U.S.

Asia

India

Total

13,035

2,500

200

2,700

1,190

—

3,890

1,559

1,150

—

1,150

329

125

1,604

371

373

1,135

—

1,135

140

—

1,275

—

1,421

—

266

—

266

—

266

—

13,451

5,051

200

5,251

1,659

125

7,035

3,351

Forest Resources

We own, manage or have an interest in
approximately 1.2 million acres of forestlands
worldwide. These forestlands and associated acres
are located in the following regions:

Brazil

We have harvesting rights in:

Russia

Total

(M Acres)

332

896

1,228

A-4

INTERNATIONAL PAPER LEADERSHIP
As of March 1, 2014

John V. Faraci
Chairman and
Chief Executive Officer

C. Cato Ealy
Senior Vice President
Corporate Development

William P. Hoel
Senior Vice President
Container the Americas

Tommy S. Joseph
Senior Vice President
Manufacturing,
Technology, EHS&S
and Global Sourcing

Thomas G. Kadien
Senior Vice President
Consumer Packaging
and International Paper
Asia/India

Paul J. Karre
Senior Vice President
Human Resources and
Communications

Mary A. Laschinger
Senior Vice President
President, xpedx

Tim S. Nicholls
Senior Vice President
Printing & Communications
Paper the Americas

Jean-Michel Ribieras
Senior Vice President
President,
International Paper Europe,
Middle East, Africa and
Russia

Carol L. Roberts
Senior Vice President and
Chief Financial Officer

Sharon R. Ryan
Senior Vice President
General Counsel and
Corporate Secretary

Mark S. Sutton
Senior Vice President
Industrial Packaging

W. Michael Amick Jr.
Vice President,
President
International Paper India

David W. Apollonio
Vice President
East Region
Containers the Americas

September G. Blain
Vice President
Converting Papers

Paul J. Blanchard
Vice President
Supply Chain
Industrial Packaging

Eric Chartrain
Vice President
European Papers

Thomas A. Cleves
Vice President
Containerboard and
Recycling

Kirt J. Cuevas
Vice President
Manufacturing, Printing &
Communications Papers

Clay R. Ellis
Vice President
Commercial Printing Papers

Jonathan E. Ernst
Vice President
European Container

Roman B. Gallo
Vice President
Manufacturing—West
Containerboard

Gary M. Gavin
Vice President
Industrial Packaging
International Paper Asia

Greg C. Gibson
Vice President
Coated Paperboard

John F. Grover
Vice President
Manufacturing—East
Containerboard

Tom Hamic
Vice President
Finance and Strategic
Planning
Industrial Packaging

Errol A. Harris
Vice President and
Treasurer
Global Treasury

Russell V. Harris
Vice President
Manufacturing
Coated Paperboard

Peter G. Heist
Vice President
West Region
Container the Americas

Terri L. Herrington
Vice President, Controller
and Chief Accounting
Officer, Finance

Cecilia Ho
Vice President,
President
International Paper Asia

Robert M. Hunkeler
Vice President
Trust Investments

David M. Kiser
Vice President
Environment, Health,
Safety & Sustainability

Glenn R. Landau
Vice President,
President
International Paper
Latin America

David A. Liebetreu
Vice President
Global Sourcing and
Fiber Supply

Rildo Martini
Vice President
Pulp

Brian N. G. McDonald
Vice President
Strategic Planning

Kevin G. McWilliams
Vice President
Tax

Tracy L. Pearson
Vice President
Foodservice

Thomas J. Plath
Vice President
Manufacturing,
Technology, EHS&S and
Global Supply Chain
Human Resources

Jay Royalty
Vice President
Investor Relations

Bathsheba T. Sams
Vice President
HR Operations
Human Resources

Teri L. Shanahan
Vice President
Sustainability

John V. Sims
Vice President
Imaging Papers

Ksenia Sosnina
Vice President,
President
International Paper Russia

Rampraveen Swaminathan
Vice President
Managing Director and
Chief Executive Officer
APPM

Fred A. Towler
Vice President
Supply Chain Operations

Keith R. Townsend
Vice President
South Region
Container the Americas

Shiela P. Vinczeller
Vice President
Talent Management
Human Resources

Greg T. Wanta
Vice President
Central Region
Container the Americas

Robert W. Wenker
Vice President and
Chief Technology Officer
Information Technology

Patrick Wilczynski
Vice President
Manufacturing, EMEA

Ron P. Wise
Vice President
Commercial and
National Accounts
Container the Americas

Ann B. Wrobleski
Vice President
Global Government
Relations

ILIM GROUP
SENIOR LEADERSHIP

Franz Josef Marx
Chief Executive Officer

Brett A. Mosley
Vice President
Manufacturing

BOARD OF DIRECTORS

SHAREHOLDER INFORMATION

John V. Faraci
Chairman and Chief Executive Officer
International Paper Company

David J. Bronczek
President and Chief Executive Officer
FedEx Express

Ahmet C. Dorduncu
Chief Executive Officer
Akkök Group

Ilene S. Gordon
Chairman, President and
Chief Executive Officer
Ingredion Incorporated

Jay L. Johnson
Retired Chairman and
Chief Executive Officer
General Dynamics Corporation

Stacey J. Mobley
Senior Counsel
Dickstein Shapiro LLP and
Retired Senior Vice President, Chief Administrative
Officer and General Counsel
DuPont

Joan E. Spero
Adjunct Senior Research Scholar
Columbia University School of International &
Public Affairs

John L. Townsend, III
Senior Advisor
Tiger Management, LLC

John F. Turner
Former Assistant Secretary of State for
Oceans and International and Scientific Affairs

William G. Walter
Retired Chairman and Chief Executive Officer
FMC Corporation

J. Steven Whisler
Retired Chairman and Chief Executive Officer
Phelps Dodge Corporation

Papers used in this report:
Accent® Opaque 120lb. Cover, 50lb. and 100lb.Text
White Smooth

Printed in the U.S. by RR Donnelley

Board of Director Photograph
Wayne Crook, Memphis, Tenn.
Senior Lead Team Photograph
Toby Richards, Photographer

CORPORATE HEADQUARTERS
International Paper Company
6400 Poplar Avenue
Memphis, Tennessee 38197
(901) 419-9000

ANNUAL MEETING
The next annual meeting of shareholders will be held at
The Ritz-Carlton, Westchester, in White Plains, New
York, at 11:00 a.m. EDT on Monday, May 12, 2014.

TRANSFER AGENT AND REGISTRAR
Computershare, our transfer agent, maintains the records
of our registered shareholders and can help you with a vari-
ety of shareholder related services at no charge including:

Change of name or address
Consolidation of accounts
Duplicate mailings
Dividend reinvestment enrollment
Lost stock certificates
Transfer of stock to another person
Additional administrative services

MAILING ADDRESSES
Shareholder correspondence should be mailed to:
Computershare
P.O. Box 30170
College Station, TX 77842-3170

Overnight correspondence should be sent to:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845

SHAREHOLDER WEBSITE
www.computershare.com/investor

Shareholder online inquiries
https://www-us.computershare.com/investor/Contact

STOCK EXCHANGE LISTINGS
Common shares (symbol: IP) are listed on the New York
Stock Exchange.

DIRECT PURCHASE PLAN
Under our plan, you may invest all or a portion of your
dividends, and you may purchase up to $20,000 of addi-
tional shares each year. International Paper pays most
of the brokerage commissions and fees. You may also
deposit your certificates with the transfer agent for safe-
keeping. For a copy of the plan prospectus, call or write
to Computershare.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
100 Peabody Place
Memphis, Tennessee

REPORTS AND PUBLICATIONS
Copies of this annual report (including the financial
statements and the financial statement schedules),
SEC filings and other publications may be obtained
free of charge by visiting our Web site, http://www.
internationalpaper.com, by calling (800) 332-8146 or
by writing to our investor relations department at
the corporate headquarters address listed above.
Copies of our most recent environment, health and
safety report are available by calling (901) 419-4848
or e-mailing sustainability@ipaper.com.

INVESTOR RELATIONS
Investors desiring further information about International
Paper should contact the investor relations department
at corporate headquarters, (901) 419-9000.

BOARD OF DIRECTORS

BOA RD OF DIREC TORS

FRONT ROW LEF T TO RIGHT: AHME T C. DORDUNCU, JOHN V. FAR ACI, JOAN E. SPERO ; MIDDLE ROW LEF T TO RIGHT: ILENE S. GORDON,
J. STE VEN WHISLER, DAVID J. BRONCZEK, JOHN F. TURNER ; BACK ROW LEF T TO RIGHT: JAY L. JOHNSON, WILLIAM G. WALTER, JOHN L.
TOWNSEND, III, STACE Y J. MOBLE Y

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John V. Faraci
Chairman and Chief Executive Officer
International Paper Company

David J. Bronczek
President and Chief Executive Officer
FedEx Express

Ahmet C. Dorduncu
Chief Executive Officer
Akkök Group

Ilene S. Gordon
Chairman, President and
Chief Executive Officer
Ingredion Incorporated

Jay L. Johnson
Retired Chairman and
Chief Executive Officer
General Dynamics Corporation

Stacey J. Mobley
Senior Counsel
Dickstein Shapiro LLP
and Retired Senior Vice President,
Chief Administrative Officer and
General Counsel
DuPont

Joan E. Spero
Adjunct Senior Research Scholar
Columbia University School of
International & Public Affairs

GLOBAL HEADQUARTERS

REGIONAL HEADQUARTERS

International Paper Company
6400 Poplar Avenue
Memphis, TN 38197, U.S.A.
901-419-9000

International Paper Europe
Middle East and Africa (EMEA)
Chaussée de la Hulpe 166
1170 Brussels, Belgium
+32-2-774-1211

International Paper do Brasil
Avenida Paulista, 37 14° andar
01311-902 São Paulo SP, Brazil
+55-11-3797-5797

International Paper Asia
17-18F, West Building Greenland Center
600 Middle Longhua Road
Shanghai, China 200032
+86-21-61133200

John L. Townsend, III
Senior Advisor
Tiger Management, LLC

John F. Turner
Former Assistant Secretary of State
for Oceans and International
and Scientific Affairs

William G. Walter
Retired Chairman and
Chief Executive Officer
FMC Corporation

J. Steven Whisler
Retired Chairman and
Chief Executive Officer
Phelps Dodge Corporation

International Paper India
Krishe Sapphire Building, 8th Floor
Hitech City Main Road, Madhapur
Hyderabad 500 081, India
+91-040-33121-000

International Paper Russia
Bolloev Business Center, 5th Floor
Grivtsova Lane 4, Litera A
St. Petersburg 190000, Russia
+7-812-334-57-30

internationalpaper.com

©2014 International Paper Company. All rights reserved. Printed in USA. Accent “Brown box, green globe,” Carolina, Chamex, Hammermill,
Hold&Go, Rey, SecureStack and Svetcopy are registered trademarks of International Paper Company. Forest Stewardship Council, FSC and the
FSC logo are trademarks of Forest Stewardship Council, A.C. PEFC and the PEFC logo are registered trademarks of the PEFC Council. Sustainable
Forestry Initiative, SFI and the SFI logo are registered marks owned by Sustainable Forestry Initiative Inc. 0314122.

From FORTUNE Magazine, March 17, 2014 ©2014 Time Inc. Used under license. “FORTUNE and The World’s Most Admired Companies are regis-
tered trademarks of Time Inc. and are used under license.“

Printed on Accent® Opaque 120lb. Cover, 50lb. and 100lb. Text White Smooth